While hearing the case of Macquarie Global Services Pvt. Ltd vs. DCIT, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that once the claim of section 10AA deduction under the Income Tax Act 1961 has been accepted in the first year of the operations and also in the second year, the same cannot be withdrawn in the third year by examining the factors which were required to be seen in the first year of the claim.
Assessee Company in the instant case is a wholly owned subsidiary of ‘Macquarie Global Services Limited and a captive contract service provider engaged in the business of provision of back office support services to its associated enterprises. For rendering such services, the assessee is remunerated on a cost-plus markup basis.
During the financial year 0101-2011 the assessee company was operating from two separate units such as EOU unit and SEZ unit and had claim deduction under section 10AA of the act in the assessment year 2010-2011 and 2012-2013 and also claimed the same deduction in the current assessment year also.
During the assessment proceedings, the Assessing Officer (AO) denied assessee’s claim of deduction for the current assessment year by holding that there is some kind of splitting up or reconstruction of the old business in terms of clause (ii) of sub-section (4) section 10AA in the assessee company.
The counsels for the Assessee, Advocate Salil Kapoor and Advocate Ms. Ananya submitted all the details regarding its business and certain proof documents to prove its eligibility for deduction claimed by them. But the AO refused to accept assessee’s submissions and he denied the claim of deduction.
After analyzing the above-narrated facts tribunal bench comprising of Judicial Member Amit Shukla and Accountant Member O.P.Kant objected the findings of the AO. The bench observed that the conditions laid down in section 10AA (4) has to be seen on the date of formation, whether the undertaking has violated any conditions prescribed therein or not. If the conditions stipulated in the section has been accepted, that is, once the eligibility of deduction under section 10A or 10B or 10AA has been accepted in the initial assessment year, then it cannot be withdrawn in the subsequent years for a breach of certain conditions which are required to be seen or examined in the first year of claim.
While allowing the appeal filed by the assessee the division bench further observed that once the claim of deduction under section 10AA of the act has been accepted in the first year of the operations and also in the second year, then in the third year same cannot be withdrawn by examining the factors which were required to be seen in the first year of the claim, in the light of the decision of the High Court in a previous case on similar issue.
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