IBM India (P) Ltd. v. Dy. CIT

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The Tax Publishers2012 TaxPub(DT) 0282 (Bang-Trib) : (2012) 043 (II) ITCL 0257 INCOME TAX ACT, 1961 --Deduction under section 10A--Allowability Maintenance of separate books of accounts for STP unit--Assessee was in the business of development of computer software for export, maintenance of computer equipment, consultancy information technology systems integration etc., for the assessment year under challenge, had furnished its return of income, admitting an income of Rs. 2.21 crores after claiming deduction under section 10A. However, assessing officer, for the reasons recorded in his impugned order, determined assessee's income at Rs. 64.46 crores thereby making additions of Rs. 12.72 crores on account of bad debts and Rs. 101.51 crores as disallowance of claim under section 10A. Assessing officer had not disputed the traceability of direct expenses to STP and non-STP Units and the only issue on which the assessing officer objected to was the allocation of indirect costs between units on the basis of turnover. On his part, the Commissioner (Appeals) took a stand that consequent to substantial change in the provisions of section 10A(1) of the Act w.e.f. 1-4-2001, the assessee was required to maintain separate books of account which it had failed to do so and, thus, the assessee was not entitled to claim deduction under section 10A of the Act. The assessee argued the, maintenance of separate books of account is not a pre-condition finding a place in the provisions of section 10A of the Act. Held: Maintenance of separate books of account for STP Units is not a condition laid down in the provisions of section 10A, therefore, the Commissioner (Appeals) was not justified in denying the legitimate claim of assessee under section 10A on the ground that the assessee is required maintain separate books of accounts for each STP unit. It is an undisputed fact that the assessing officer had not disputed the traceability of direct expenses to STP and non-STP Units and the only issue on which the assessing officer objected to, as highlighted by the assessee in its submission, was the allocation of indirect costs between units on the basis of turnover. On his part, the Commissioner (Appeals) took a stand that consequent to substantial change in the provisions of section 10A(1) w.e.f. 1-4-2001, the assessee was required to maintain separate books of account which it had failed to do so and, thus, the assessee was not entitled to claim deduction under section 10A. As rightly pointed out by the assessee, maintenance of separate books of account was not a pre-condition finding a place in the provisions of section 10A. The Commissioner (Appeals)'s statement that there was substantive change in law w.e.f.1-4-2001 is correct. However, his further observation that law has moved to 'undertaking' specific deduction, which indicates that the books of accounts should be maintained unit-wise, is without any legal basis. Section 10A tax holiday provisions were always 'undertaking' specific (even pre-amended provisions up to 2001). Sub-section (1) of section 10A (prior to the amendment by Finance Act, 2000 was an exemption provision which also clearly refers to the profits of the undertaking. Hence, the Commissioner (Appeals) has misunderstood that the provisions were not 'undertaking' specific. The pre-amended provisions cited by the revenue was never codified as the law, (as it was overwritten by the subsequent amendment) (See A.N. Iyer's 'IT Laws, 2001). Therefore, the revenue is incorrect to cite that pre-amended provisions did not require separate books of account as there was no reference to 'undertaking', but the post-amended section does. In this connection, it is most appropriate to recall the finding of the earlier Bench in an identical issue in the assessee's own case for the immediately preceding assessment year [in ITA No.3464/Bang/2004 dated 31-10-2007], wherein the Bench, after analyzing various rulings of the highest judiciary of the land, primarily, in the cases of (i) CWT v. Kripashankar Dayashanker Worah (1971) 81 ITR 763 (SC) : 1971 TaxPub(DT) 0348 (SC), (ii) in Philip John Plasket Thomas v. CIT (1963) 49 ITR 97 (SC) : 1963 TaxPub(DT) 0439 (SC) and (iii) Smt.Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC) : 1977 TaxPub(DT) 0899 (SC). [Para 6.1] In view of the fact that the maintenance of separate books of account for STP Units is not a condition laid down in the provisions of section 10A and also in conformity with the rulings of the Supreme Court referred supra and the finding of the Bench in the assessee's own case for the immediately preceding assessment year cited above, the Commissioner (Appeals) was not justified in denying the legitimate claim of the assessee under section 10A. It is ordered accordingly. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0282 (Bang-Trib) : (2012) 043 (II) ITCL 0257

INCOME TAX ACT, 1961

--Deduction under section 10A--Allowability Maintenance of separate books of accounts for STP unit--Assessee was in the business of development of computer software for export, maintenance of computer equipment, consultancy information technology systems integration etc., for the assessment year under challenge, had furnished its return of income, admitting an income of Rs. 2.21 crores after claiming deduction under section 10A. However, assessing officer, for the reasons recorded in his impugned order, determined assessee's income at Rs. 64.46 crores thereby making additions of Rs. 12.72 crores on account of bad debts and Rs. 101.51 crores as disallowance of claim under section 10A. Assessing officer had not disputed the traceability of direct expenses to STP and non-STP Units and the only issue on which the assessing officer objected to was the allocation of indirect costs between units on the basis of turnover. On his part, the Commissioner (Appeals) took a stand that consequent to substantial change in the provisions of section 10A(1) of the Act w.e.f. 1-4-2001, the assessee was required to maintain separate books of account which it had failed to do so and, thus, the assessee was not entitled to claim deduction under section 10A of the Act. The assessee argued the, maintenance of separate books of account is not a pre-condition finding a place in the provisions of section 10A of the Act. Held: Maintenance of separate books of account for STP Units is not a condition laid down in the provisions of section 10A, therefore, the Commissioner (Appeals) was not justified in denying the legitimate claim of assessee under section 10A on the ground that the assessee is required maintain separate books of accounts for each STP unit.

It is an undisputed fact that the assessing officer had not disputed the traceability of direct expenses to STP and non-STP Units and the only issue on which the assessing officer objected to, as highlighted by the assessee in its submission, was the allocation of indirect costs between units on the basis of turnover. On his part, the Commissioner (Appeals) took a stand that consequent to substantial change in the provisions of section 10A(1) w.e.f. 1-4-2001, the assessee was required to maintain separate books of account which it had failed to do so and, thus, the assessee was not entitled to claim deduction under section 10A. As rightly pointed out by the assessee, maintenance of separate books of account was not a pre-condition finding a place in the provisions of section 10A. The Commissioner (Appeals)'s statement that there was substantive change in law w.e.f.1-4-2001 is correct. However, his further observation that law has moved to 'undertaking' specific deduction, which indicates that the books of accounts should be maintained unit-wise, is without any legal basis. Section 10A tax holiday provisions were always 'undertaking' specific (even pre-amended provisions up to 2001). Sub-section (1) of section 10A (prior to the amendment by Finance Act, 2000 was an exemption provision which also clearly refers to the profits of the undertaking. Hence, the Commissioner (Appeals) has misunderstood that the provisions were not 'undertaking' specific. The pre-amended provisions cited by the revenue was never codified as the law, (as it was overwritten by the subsequent amendment) (See A.N. Iyer's 'IT Laws, 2001). Therefore, the revenue is incorrect to cite that pre-amended provisions did not require separate books of account as there was no reference to 'undertaking', but the post-amended section does. In this connection, it is most appropriate to recall the finding of the earlier Bench in an identical issue in the assessee's own case for the immediately preceding assessment year [in ITA No.3464/Bang/2004 dated 31-10-2007], wherein the Bench, after analyzing various rulings of the highest judiciary of the land, primarily, in the cases of (i) CWT v. Kripashankar Dayashanker Worah (1971) 81 ITR 763 (SC) : 1971 TaxPub(DT) 0348 (SC), (ii) in Philip John Plasket Thomas v. CIT (1963) 49 ITR 97 (SC) : 1963 TaxPub(DT) 0439 (SC) and (iii) Smt.Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC) : 1977 TaxPub(DT) 0899 (SC). [Para 6.1] In view of the fact that the maintenance of separate books of account for STP Units is not a condition laid down in the provisions of section 10A and also in conformity with the rulings of the Supreme Court referred supra and the finding of the Bench in the assessee's own case for the immediately preceding assessment year cited above, the Commissioner (Appeals) was not justified in denying the legitimate claim of the assessee under section 10A. It is ordered accordingly.