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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Netmagic IT Services P. Ltd Income Tax Officer 9(2)(3), 2nd Floor, (North Side) Block B Mumbai, 2 PHAE-1 Nirlon Knowledge Vs. Park western Express highway Goregaon (E), Mumbai-400 063 Appellant .. Respondent PAN No. AACCN2366D Assessee by .. Shri Bhavin M. Dedhia, AR Revenue by .. Shri Suman Kumar, DR Date of hearing .. 07-03-2017 Date of pronouncement .. 07-03-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-21, Mumbai, in appeal No. CIT(A)-20/ITO-9(2)(3)/IT-429/2013-14 dated 16-12- 2014. The Assessment was framed by ITO-9(2)(3), Mumbai for the A.Y. 2011- 12 vide order dated 29-01-2014 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only common issue in this appeal is against the order of CIT(A) disallowing the exemption under section 10A of the Act. For this assessee has raised following grounds: - “1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT (A)'] erred in disallowing deduction u/s 10A by relying on the observations of the then Ld CIT(A) order for the AY 2007-2008 dated 15th October 2010. Since, the order in earlier year was passed by then CIT(A) without giving an opportunity to the Appellant to present its case on the aforementioned issue and hence decisions of various
Netmagic IT Services P. Ltd ; (A.Y:11-12) judicial authorities deciding the said issue in favour of the Assessee were not considered.
The CIT(A) grossly erred in stating that the Appellant has not begun to manufacture or produce computer software in any Software Technology Park of India and hence provisions of S.10A (2) are not complied with.
The CIT(A) grossly erred in not appreciating that the deduction u/s. 10A attaches to the undertaking as claimed by the Appellant. The CIT(A) also erred in holding that as per S. 10A(7A), transfer of eligible undertaking only in cases of amalgamation and demerger are entitled to the deduction u/s.10A.”
Briefly stated facts are that the AO disallowed the claim of exemption of 3. the assessee at Rs. 1,29,32,235/- claim under section 10A of the Act on the basis that the same claim was disallowed in AY 2007-08 vide order dated 21-12-2009.
At the outset, the learned Counsel for the assessee stated that the CIT(A) has followed its own decision for AY 2007-08 while dismissing the appeal vide Para 4.4 as under: - “4.4 I have considered the finding of the Assessing Officer, rival submission of the appellant and also decision of Ld. CIT(A) in the appellants own case in order No. CIT(A)20/IX/9(2)(3)/IT-476/2009-10 dated 15.10.2010. I find that while deciding this issue, the then Ld. CIT(A), in is wisdom, has reached to the conclusion that appellant is not entitled fcy1 deduction u/s. 1OA of the I.T. Act. His finding and decision is as under: - I have considered the issue. / find no merit in the contentions of the appellant. It is necessary to extract below the relevant provisions u/s 10A:
Netmagic IT Services P. Ltd ; (A.Y:11-12)
“10A Special provision in respect of newly established undertakings in free trade zone, etc.
(1) Subject to the provisions on. section, 8 deductions of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be al/owed from the total income of the assessee.
(2) This second applies to any undertaking which fulfils all the following conditions, namely: - (i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year -
(a) commencing on or after the 1st day of April, 1981., in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;
(c) commencing on or after the 1st day of April, 2001, in any special economic zone; (ii) it is not formed by the splitting up, or the reconstruction, of a business already inexistence .....
Netmagic IT Services P. Ltd ; (A.Y:11-12)
(iii) it is not farmed by the transfer to a new business of machinery or plant previously used for any purpose (7A) Where any undertaking of an Indian Company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger - (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.
It is clear from the above that the undertaking should fulfill all the three conditions as prescribed under sub section (2) of section 1OA before it can seek deduction of its profits for ten consecutive assessments years’ u/s. I0A (1). I agree with the appellant that there is no splitting up or reconstruction of a business already in existence. It is a case when the existing business/undertaking has been transferred to the appellant as a going concern The case of the appellant is that these conditions can apply only at the time of setting up of the undertaking in the year 2003- 04 and not in the current year when it had acquired that as a going concern and claimed the deduction as part of the unexpired period of ten years. Assuming that the parent company set up the undertaking fulfilling the Page 4 of 9
Netmagic IT Services P. Ltd ; (A.Y:11-12) conditions prescribed in clause (ii) and (iii) of section 1OA(2). the appellant has neither claimed nor shown that parent company also fulfilled the main condition in clause (I) of sub-section (2) that the undertaking had begun to manufacture or produce computer software during the relevant year in any software technology park. It is only the appellant who has registered the undertaking after its transfer as the software technology park (STPI) wef 09-06-2006. It is thus clear that the parent company had not transferred an eligible 1OA undertaking to the appellant as a going concern. The question of applicability of the Board's instruction (supra) railed upon by the appellant would arise only when the' transferred undertaking was entitled to claim deduction u/s 1OA and then transferred as going concern to appellant Apart from this sub-section (7) of section 1OA prohibit deduction on transfer of an otherwise eligible undertaking except in the case of amalgamation or demerger. Such embargo was not there in the erstwhile section 84 of the Act referred to in the Board's instruction (supra). In the case in hand there is no such transfer as contemplated in section 10A(7) and hence the appellant is precluded from claiming deduction for the unexpired portion even if the undertakingacquired by it' was entitled to claim deduction u/s 10A. I, therefore, find no infirmity in the action of the AO in declining deduction u/s WA even though he did so for different reason. The issue is decided against the appellant"
4.5 Respectfully following the above decision this grounds of appeal is dismissed as there is no new facts or law contrary to the filing of the CIT(A).
Aggrieved, now assessee is in appeal before Tribunal.
Netmagic IT Services P. Ltd ; (A.Y:11-12)
At the outset, the learned Counsel for the assessee stated that the Tribunal for AY 2007-08 in in ITA No.8810/Mum/2010 vide order dated 06-04-2016 has allowed the claim of the assessee by observing as under: - “A perusal of various illustrations given in the Circular would show that the Board has clarified that the undertaking need not register itself as 100% EOU in the year in which it is set up. If it is so registered in any of the subsequent years also, then the deduction u/s 10B shall be available to the remaining unexpired period prescribed in that section. In our view, the Circular, even though given for sec. 10B of the Act, yet it can be equally applied to the deduction claimed u/s 10A of the Act, since the objective of sec. 10A and sec. 10B are identical. Hence, we are unable to agree with the reasoning given by the ld CIT(A) that the parent company should have transferred an ‘eligible undertaking’ to the assessee. After acquiring the undertaking in a slump sale as a going concern, the assessee herein has registered the same under Software Technology Park scheme. Hence, as stated in the Board Circular, referred above, the assessee should be eligible to claim deduction u/s 10A in respect of the remaining years of the prescribed period calculated from the date of original set up of the undertaking.
The next reasoning given by Ld CIT(A) is that the assessee would have been eligible to get deduction if the transfer had taken place as contemplated in sec. 10A(7) (sic. 10A(7A)) of the Act. The said section reads as under:-
“Where any undertaking of an Indian Company which is entitled to the deduction under this section is transferred, before expiry of the period specified in this section, to another Indian Page 6 of 9
Netmagic IT Services P. Ltd ; (A.Y:11-12) company in a scheme of amalgamation or demerger: - (a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) The provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.”
In our considered view, the above said section only clarifies as to who should claim deduction u/s 10A of the Act if a eligible undertaking is transferred by way of amalgamation or demerger. In the instant case, the transfer has taken place in a slump sale as a going concern and not under a scheme of amalgamation or demerger. Further, it is also pertinent to note that sec. 10A contained provisions of sub sec. 9 which provided that the deduction u/s 10A shall not be allowed if the ownership or beneficial interest is transferred by any means. The Finance Act, 2003 has omitted sub. Sec. (9) w.e.f. 1.4.2004, meaning thereby, the transfer of ownership or beneficial interest is not prohibited after 1.4.2004. Hence, we are of the opinion that the view taken by the Ld CIT(A) that the transfer of an eligible undertaking should take place only by way of amalgamation or demerger and then only the deduction u/s 10A shall be continued to be given to the succeeding company, is not in accordance with the provisions of the Act.
Netmagic IT Services P. Ltd ; (A.Y:11-12)
Before us, the Ld A.R placed reliance on host of case laws. Since we have placed reliance on a Circular issued by CBDT as well as the provisions of the Act, we do not find it necessary to discuss about them.
In view of the foregoing discussions, we are of the view that the assessee shall be eligible to claim deduction u/s 10A of the Act for the unexpired period of the eligible period. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to allow the deduction subject to the assessee satisfying other conditions prescribed u/s 10A of the Act.”
The learned Counsel for the assessee stated that the same direction may be given to the AO. On the other hand, the learned Sr. DR stated that the AO be also directed to verify whether it is within the period of ten years or it falls outside ten years apart from other conditions prescribed under section 10A of the Act. We find that the plea of the learned Sr. DR is quite reasonable and the AO will decide the issue in term of the decision of this Tribunal in AY 2007-08 and also whether the period for claim of deduction under section 10A is within 10 years or outside the same. Appeal of assessee is allowed for statistical purpose, the matter is remanded for verification of AO.
In the result, the appeal of assessee is allowed for statistical purposes. Order pronounced in the open court on 07-03-2017.