SOLITON TECHNOLOGIES PRIVATE LIMITED,BANGALORE vs. DCIT, COIMBATORE

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The assessee has raised three substantive grounds. The 2. first ground being the Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in denying the claim of deduction u/s.10A of the Act.

The Brief facts of the case are that the assessee is in 3. business of Development of software and manufacture of industrial cameras, vision system and accessories and filed Return of income on 29.09.2010 with total income of �3,83,654/- under normal provision of computation of income and under provisions u/s.115JB of the Act computed income of �97,44,826/-. Subsequently case was selected for scrutiny under CASS and notice u/s.143(2) of the Act was issued.

The ld. Authorised Representative of the assessee appeared from time to time and filed copies of income tax return, original TDS certificate, statement of total income, Tax Audit Report in form No.3CA and 3CD with annexures and Form 56J and 29B in original to support the deprecation claims, invoice copies and TDS Returns. The ld. Assessing Officer on perusal of the financial statements and notes on account found the company not set off losses of non EOU unit with profit unit of S.T.P.I. The assessee company submitted that it technology division is based in Bangalore with operations at Coimbatore and Milwaukee (USA). The company has two separate divisions namely Test and Measurement (100% EOU Division) and Machine Vision (Domestic Division). The Assessing Officer found that assessee claimed �1,11,73,724/- as deduction u/s.10A of the Act in respect of unit located at Bangalore and also registered with STPI authorities. The claim is supported by the Chartered Accountant’s certificate in Form 56F under Income Tax Rules. The Assessing Officer found as per annexure A 7 the form No.56F dated 29.10.2005 that the commencement of manufacture or production in units mentioned as 18.12.1997 and the number of consecutive years for which deduction claimed as fifth year. The ld. Assessing Officer on comparison with the form 56F of assessment year 04-05 has drawn conclusions observed at page no.3:-

S.No Particulars FORM No.56F

A.Y. 2004-05 A.Y. 2010-11 1 Name of the Assessee Soliton Technologies Soliton Technologies Pvt. Ltd. Pvt. Ltd 2 Assessment Year 2004-2005 2010-11 683, 15th Cross Road, 683, 15th Cross Road, 3 Location and address of the undertaking JP Nagar II Phase, JP Nagar II Phase, Bangalore 560 078. Bangalore 560 078.

4 Nature of business of the Development and Development and undertaking sale of software and sale of software and services. services.

5 Date of initial registration 23.05.1998 12.03.2004 in FTZ/EPZ/STPI. 6 Date of commencement 18.12.1997 01.04.2004 of manufacture or production 5th Year 6th Year 7 Number of consecutive year for which the deduction of claimed The ld. Authorised Representative explained and clarified the discrepancies with point wise note supported by approvals/certificates of appropriate authorities consisting (i) The certificate of incorporation of Soliton Automation Private Limited issued by Registrar of Companies, Tamil Nadu, Coimbatore on 18.12.1997 (ii) Copy of approval letter of Software Technology park of India (STPI) Chennai dated 23.05.1998 for setting up of 100% EOU under STP scheme of Government of India at Coimbatore (iii) The approval for extension of facilities and privileges under the STP scheme for new undertakings in state of Tamil Nadu for development/manufacture of Computer software, (iv) Copy of fresh certificate of incorporation for name change to Soliton Automation Private Limited dt 29.01.2004 (v) certified copy of order of company law board for transfer of Registered office from state of Tamil Nadu to state of Karnataka dt.

26.07.2005 (vi) Copy of STPI dated 12.02.2004 in providing approval and extension of all the facilities under STP Scheme at Bangalore. The Assessing Officer alleged that the registered office of the company is shifted from Coimbatore to Bangalore on 13.05.204 but the Coimbatore office is retained as branch office. The software services units of Coimbatore and Bangalore are exporting to USA and Germany and filing annual return and softex forms with STPI, Chennai and Bangalore. The calculation of claim of deduction u/s. 10A was consolidated and no bifurcation provided in respect of two units and date of operation mentioned as 18.12.1997 though registered with STPI unit for operations from April, 2004 as the date pertains to date of incorporation of the company. As per the provisions of sec. 10A(5)of the act, the deduction is not admissible to any assessment year beginning on or after 1st day of April 2001, unless the assessee furnished form alongwith return of income and report of the C.A. The ld. Assessing Officer found various faults 56F without supportive evidence observed at page 6 at para 5.5 as under:-

‘’This is not acceptable as only on being pointed out of the differences in the Form No.56F submitted by Assessee during the AY 2004-05 and 2010-11, the assessee gave and explanation which is not supported by the evidences. Moreover the said form is being certified by a qualified Charted Accountant and it cannot differ from year to year basis.

Even for AY 2004-05 the address of the undertaking was mentioned as 683, 15th Cross Road, JP Nagar II Phase, Bangalore 560 078. But the Copy of letter of STPI, Bangalore dated 12.03.2004 issued to M/s Soliton Technologies Pvt. Ltd., mentioned its address as No.420,III Floor, Blue moon Icon, 20th Main, 6th B Cross, 6th Block, Koramangala, Bangalore-560095. The addresses differ and another fact to be noted is that the assessee claimed a sum of Rs.1,04,64,474/-as lOA deduction during the AY 2004-05 when the STPI approval itself was granted only on 12.03.2004. Going by the Form No.56F of the AY 2004-05, the period of 10 consecutive years for claiming the deduction u/s 10A of the Act has been lapsed’’.

The ld. Authorised Representative filed detailed explanations that Coimbatore and Bangalore are EOU units and approved by STPI, Chennai and Bangalore. The finanical accounts are maintained in the consolidated form and because of dual maintenance of accounts, there was mix up of the dates of one unit with another unit. In earlier years only single form 56F was submitted for units located at Coimbatore and Bangalore. The assessee was claiming deduction u/s.10A of the Act from assessment year 2001-02 and due to name change in the year 2004, change of registered office from Coimbatore to Bangalore in July 2005, separate approval was obtained from STPI, for Bangalore office. The Assessing Officer further alleged that by starting another business of software export unit in Bangalore, the assessee company has shifted Coimbatore unit and diverted to Bangalore. Whereas Bangalore unit was started claiming deduction u/sec. 10A from assessment year 2005-06 and reduced the business in Coimbatore unit and increased the business and profitability in the Bangalore unit to enjoy the perpetual benefits of deduction under Sec.10A of the Act. The ld. Assessing Officer with above contetnon and observations considered the assessee company in Bangalore STPI unit is only extension of Coimbatore STPI unit and denied the claim of deduction u/sec. 10A of the act. Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Authorised 4.

Representative of assessee reiterated the submissions made in assessment proceedings to allow deduction u/s.10A of the Act. . The ld. Authorised Representative substantiated his arguments and submissions referred at page 5 to 7 of Commissioner of Income Tax (Appeals) order explaining the circumstances with various documentary evidence. The Commissioner of Income Tax (Appeals) on perusal of the written submissions, grounds of appeal and findings of the Assessing Officer has deeply examined the issue and called for the Annual Report of the company for Coimbatore and Bangalore units. and confirmed the findings of the Assessing Officer observed at para 12 of order at page 10 as under:-

’For the year 2006-07 in the STP Annual Report submitted to Chennai STP, the address of the STP Unit as per the approval is 1547, Classic Towers, 1st Floor, Trichy Road, Coimbatore and the additional location occupied was shown as 683, 15th Cross Road, JP Nagar 11 Phase, Bangalore-560 078. Similarly, for the STP Annual Report submitted to STP Bangalore the address of the STP Unit as per the approval was shown as 683, 15th Cross Road, JP Nagar 11 Phase, Bangalore-560 078 and the additional location was shown as SOLITON TECHNOLOGIES PVT LTD, 1547 Classic Towers, 1st Floor, Trichy Road, Coimbatore. An examination of the Annual Report filed for the subsequent years, i.e. 2007-08, 2008-09 and 2009-10 also show both the Units at Bangalore and Coimbatore. In the Annual Report filed with STP. Chennai the approved unit was at Coimbatore and the additional Unit was located at 683, 15TH Cross Road, JP Nagar II Phase, Bangalore-560 078. This clearly proves that the assessee has taken approval from STP Bangalore Unit, and is claiming deduction u/s 10A violating the provisions of Section 10A(2)(ii) of the Income Tax Act, 1961. The Bangalore STP Unit was formed by reconstruction of the business already in existence with the assessee. Hence the appellant is not eligible for deduction u/s 10A of the Income Tax Act, 1961. The disallowance made by the Assessing Officer is confirmed‘’.

Aggrieved by the order of Commissioner of Income Tax (Appeals), the assessee assailed an appeal before the Tribunal.

Before us, the ld. Authorised Representative reiterated the 5. submissions made in the assessment proceedings and appellate proceedings alongwith judicial decisions supporting evidence to confirm the bonafides. The ld Authorised Representative argued that the Assessing Officer has misdirected in stating that STPI unit in Bangalore was formed by splitting the existing STPI unit in Coimbatore and therefore the Bangalore unit is not eligible for deduction u/s.10A (1A) of the Act. The ld. AR clarified that STPI unit in Bangalore was approved on 12.03.2004 with Koramangala address but due to working conditions the operations were shifted to larger unit at J.P.

Nagar. The Chartered Accountant of the assessee company issued report in form 56F with the address premises of J.P. Nagar, Bangalore wereas the approval for starting a new unit in Bangalore was granted subject to the conditions that investment in terms of new capital goods to the extent of �1.41 crores and explained the sources with documents in the paper book. The assessee’s Coimbatore STPI unit was also in operation during the assessment period and to support the operations of activity the ld. Authorised Representative produced copy of renewal of STPI unit Coimbatore dated 7.10.2008 and also STP Annual report of Coimbatore unit for the relevant assessment year. The ld. Authorised Representative submitted the findings of Assessing Officer are not tenable as the assessee has sufficient evidence and proof that the Bangalore unit and Coimbatore unit are distinct and separate are not formed by transferring of business. The Coimbatore unit is eligible for deduction u/s.10A of the Act from the financial year 2004-05 and the assessee would not gain any benefit by transferring the business to the Bangalore unit, as the Bangalore unit was set up genuinely to develop a new series of software and satisfied the stipulated conditions laid down u/s.10A of the Act. The ld. Authorised Representative submitted profit and loss account showing profits of each units separately in the appellate proceedings to explain the identity and co-relation of various transactions with each unit. The assessee company Auditor M/s. Delloite Haskins and Sells, Chartered Accountants who conducted Audit relevant to the assessment year issued Audit Report in form 56F with technical defects. The deduction u/s. 10A of the Act was claimed based on form 56F in which consolidated figures of Bangalore and Coimbatore units have been aggregated as such practice prevailed in earlier years when both units are eligible for deduction u/s.10A and inadvertently similar report was issued for the assessment year 2010-2011. When the matter was brought to the knowledge of the Auditors they rectified the mistake and issued correct report in form no. 56F. The assessee in assessment proceedings submitted the corrected form 56F and explained the genuine reasons. But the l.d Assessing Officer has denied the benefits without considering the facts and ignored the correct report issued by the Auditor. The assessee filed affidavit narrating the factual aspects and reasons for submitting correct report referred at page 165 of paper book. The ld. Authorised Representative supported arguments with the Mumbai High Court decision of Western Outdoor Interactive (P) Ltd 349 ITR 309 and Bangalore Tribunal decision Cranes Software International Ltd vs. ITO IT(TP)A No.1594/B/2012 held when exemption u/s.10A of the Act was granted for an earlier year, similar exemption could not be denied to an assessee in subsequent year unless there was change in facts.

Applying the ratio to the facts of the assessee company the current business operations of Bangalore unit was not formed by splitting of business already in existence and profits are eligible for deduction u/s.10A and also Department has accepted the facts and assessments and not raised any doubt about the genuiness of the unit. The assessment for assessment year 2009-2010 was completed u/s.147 and attained finality, the Revenue is now contesting on the genuiness of existence of unit only on the basis of Chartered Auditor report which was rectified and correct form 56F was filed for the assessment year and further no inquiry was conducted by ld. Assessing Officer except relying on the assessment particularly on suspicion of genuinity and the ld. Authorised Representative prayed for setting aside the action of the Assessing Officer and allow the deduction u/sec. 10A of the Act.

Contra, ld. Departmental Representative referred to finding 6. of Assessing Officer on page 3 of assessment order further vehemently argued that observations of the Assessing Officer are affirmed by the Commissioner of Income Tax (Appeals) with some reasons, were assessee failed to produce evidence of existence of purchase of assets in assessment proceedings and opposed to the grounds of the assessee.

We heard the rival submissions, perused the material on 7. record and judicial decisions cited. The ld. Authorised Representative only plea before the Tribunal that the assessee company Bangalore unit was not formed by splitting of existing unit at Coimbatore. The Coimbatore unit was enjoying deduction u/s. 10A of the Act which is not disputed by the Assessing Officer. The Assessing Officer made elaborate findings about the defects in the form no.56F issued by the Chartered Accountant in tabular column of his order and the ld. Authorised Representative furnished explanations on rectification of defects. The Auditors of the Company M/s. Delloite Haskins and Sells, as in earlier years have issued form 56F by consolidating the figures of both Bangalore and Coimbatore units. The Auditor by mistake issued similar report for assessment year 2011-12, subsequently rectified the defects and the correct report issued and the same was filed with the Assessing Officer, and there was no reasonable cause for the Assessing Officer to ignore the corrected Auditor report form no.56f and genuine submissions and explanation the circumstances by the assessee company. The ld. Authorised Representative drew our attention to the paper book consisting various sanctions, invoices, registration certificates, renewal certificates and Revised corrected form 56F dated 28.03.2012 alongwith old form 56F. The Assessing Officer disbelieved and not considered the evidence in a good faith but has only one agenda that the unit is not eligible for deduction u/s.10A.

Further as per the information, the Department has not done any investigation or independent enquiry from outside sources except relying on evidence filed by the assessee. Even in the appellate proceedings, the ld. Authorised Representative filed clarificatory submissions and affidavit of Managing Director of the company at page 165 of paper book explaining valid reasons about the defects in the Audit report as not willful. The ld. Commissioner of Income Tax (Appeals) relied on assessment observation aspects and findings of the Assessing Officer and not called for the Remand report from Assessing Officer in respect of fresh evidence filed in the appellate proceedings under Rule 46(1A) of Income Tax Rules. Considering the Apparent facts, activities and operations of the assessee units, STPI reports, and Revised form 56F of the Auditor and Affidavit of the Managing Director of the Company, we are of the opinion that the matter has to be re-examined as the Assessing Officer has not considered the Revised form 56F of the Auditor and evidence filed by the assessee before Commissioner of Income Tax (Appeals) in appellate proceedings. Therefore, we set aside the order of Commissioner of Income Tax (Appeals) on this ground and remit the entire issue to the file of Assessing Officer for examination and verification of genuiness of operation of units and shall pass the order after providing adequate opportunity of hearing to the assessee.

The second ground raised by the assessee that the 8.

Commissioner of Income Tax (Appeals) erred in confirming the order of Assessing Officer were the profit of the STPI unit be set off with the loss of non STPI unit instead of carry forward loss of non STPI unit to subsequent years for claiming of deduction u/sec. 10A of the Act.

"In order that any item of loss under any head is to be set off against other items under the same head or other heads, it is imperative that both items should be includible in the Gross Total income in the first place. It may be seen that Section 10A is a part of Chapter Ill, which clearly provides that items considered in that chapter donot form of the Gross Total income at all. Thus, the profits from STP unit are not part of the GTI at all, which would make it impossible for the losses from the other units to be set of against the head……….’’ The Assessing Officer has not accepted the contentions of the assessee and relied on the decision of Bombay High Court in of 2010 in CIT vs. M/s. Galaxy Surfactants Ltd were the lordship have held set off of loss with profit in respect of claim u/s.10B of the Act which also hold good for deduction u/Sec. 10A of the Act. Based on judicial decision the Assessing Officer has calculated deduction u/sec. 10A after set off of loss of non STPI unit with profit STPI unit. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals).

In the appellate proceedings, the ld. Commissioner of 10.

Income Tax (Appeals) considered the submissions and grounds of the assessee referred at page 11 of his order and dismissed the ground of the assessee by observing at para 15 of his order as under:-

‘’I have gone through the submissions made by the appellant and also the order of the Assessing Officer. The provisions of Section 10A is a part of Chapter III whose heading clearly mentions that the items included in that chapter do not form part of the Gross Total Income. Thus, the profit from a STP Unit covered u/s lOA are not part of the Gross Total Income. Hence the Assessing Officer cannot set-off the loss from the non-STPI Unit with the profits of the STPI Units. However, in this case, the deduction u/s 10A of the Income Tax Act, 1961 have been denied to the appellant, hence, the Assessing Officer has set-off the profits from the STPI Units with that of the losses of non-STPI Units. The action of the Assessing Officer in setting-off the Profit & Loss is upheld considering the denial of deduction u/s 10A of the Income Tax Act, 1961. This ground of appeal is Dismissed’’.

Before us, the ld. Authorised Representative of the assessee 11. substantiated his arguments that the ld. Assessing Officer erred in setting off of loss of non STPI unit and High Court decision relied by the Assessing Officer is on different facts were the STPI units have incurred loss and non STPI units have generated profits. In the present case the non STPI unit have incurred loss and the provisions of set off and carried forward loss and inter head or inter head set off is not allowable and shall not be part of gross total income. Whereas Sec. 10A is part of chapter III which clearly mentions the items included in the chapter does not form part of total income. Therefore, the profit from STPI units covered u/s.10A are not part of Gross total income for set off of any loss and relied on the decision of Karnataka High Court in Yokogawa India Ltd 341 ITR 385 followed by Chennai Tribunal decision in Volex Interconnect India Pvt. Ltd in ITA 834 & 836/Mds/2010 and prayed for not to setoff loss of non STPI units and same be carried forwarded.

Contra, the ld. Departmental Representative relied on the 12. orders of the lower authorities and opposed the ground.

The last ground raised by the assessee in challenging the 14. assessment proceedings without prejudice to the other grounds on merit. The assessment order passed by the Assessing Officer is bad in law, invalid and barred from limitation and was served on assessee beyond time limit prescribed u/sec. 153 of the Act.

The ld. Authorised Representative before Commissioner of 15.

Income Tax (Appeals) has filed elaborate submissions against the order passed by the Assessing Officer and the provisions of Sec. 153 of the Act as time limit imposed for passing the order and relied on the Kolkata Tribunal decision in support of the case. The Commissioner of Income Tax (Appeals) found the assessee company do not have any proof to support that the assessment order was not passed on the date on which referred and observed at para 5 of his order as under:-

‘’I have gone through the submissions made by the appellant and also the order of the Assessing Officer. Section 153 of the Income Tax Act, 1961 provides that no order of assessment shall be made under Section 143 or Section 144 at any time after the expiry of two years from the end of the Assessment Year in which the income was first assessable; or one year from the end of the Financial Year in which a return or a revised return relating to the Assessment Year commencing on the 1st day of April, 1998, or any earlier Assessment Year, is filed under Sub Section (4) or Sub Section (5) of Section 139, whichever is earlier. The provision of this Section only states that "order of assessment shall not be made after the time stipulated as per the provision of this Section". It does not specify the date of serving the assessment order in the case of the appellant. The interpretation made by the Authorized Representative that the order of assessment should not only be passed before the date of limitation but should also have left the control of the Department before that date, is not valid. The Authorized Representative quoted the decision of the Kolkata Bench of the ITAT in ITA No. 985/Kol/2010. In that case the Hon'ble Kolkata Bench of the lTAT observed that "Where an assessment order has been purported to have been passed within the prescribed period of limitation but the same is served on the assessee after a long delay, without there being an explanation coming forward for such delay, in the absence of any explanation, whatsoever, it can be presumed that the order was not made on the date on which it is purported to have been made ... ", The facts of the appellant's case are different. There is no long delay in serving the assessment order. The assessment order was delivered to the assessee on 05.04.2013. The Authorized Representative did not furnish any evidence to show that the assessment order was not passed on or before 31.03.2013, hence this ground of appeal is dismissed’’ Aggrieved by the Commissioner of Income Tax (Appeals) order, the assessee assailed an appeal before the Tribunal.

The ld. Authorised Representative reiterated his submissions 16. made in the appellate proceedings and contested the view of the Commissioner of Income Tax (Appeals) challenging the voilation of time limit specified u/s.153 of the Act. At the time of hearing, the ld. Authorised Representative produced copy of speed post confirmation of issue of assessment order. The contention of the ld. Authorised Representative that the Assessing Officer should have passed assessment order before 31st March, 2013 and the order of assessee should not only passed before the date of time barred limitation but should also left the control of the Department on 28.03.2013 and prayed that the order passed by Assessing Officer is bad in law.

Contra, the ld. Departmental Representative relied on the 17. orders of the lower authorities and supported the arguments with judicial decisions.

We heard the rival submissions, perused the material on 18. record and judicial decisions cited. The Authorised Representative’s only contention being that the assessment order was passed on 28.03.2013 and on enquiry, the Department has dispatched the order on 4th April, 2013 and was delivered to the assessee on 5th April, 2013 is not in proper order. The ld. Authorised Representative alleged though the order was passed on 28.03.2013, the order has not left the control of the Department before the limitation date of 31st March, 2013. Further, the ld. Authorised Representative could not substantiate with any evidence/proof that the assessment order was passed after 31.03.2013 to consider it bad and void assessment. The ld. Commissioner of Income Tax (Appeals) has examined the issue viz- a-viz explanations of the assessee on the limitation and observed elaborately in order with judicial decisions. Therefore, we are not inclined to interfere with the order of Commissioner of Income Tax (Appeals) and uphold the same. This ground of the assessee is dismissed.

In the result, the appeal of the assessee is partly allowed for 19. statistical purpose.

Order pronounced on Wednesday, the 30th day of March, 2016, at Chennai.