The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) granted an exemption under Section 10A of the Income Tax Act, 1961, ruling that the unit in question was not merely a converted export unit but a newly established STPI unit, fulfilling all necessary conditions for the exemption.
Infrasoft Technologies Ltd., the assessee, engaged in the development, sale, and maintenance of software, filed its return of income on 27.11.2006, reporting a total income of Rs. 78,49,428 after claiming an exemption of Rs. 5,88,64,751 under Section 10A of the Income Tax Act.
The assessment was completed under Section 143(3) on 27.11.2009, where the Assessing Officer (AO) disallowed the 10A exemption, reassessing total income at Rs. 12,88,13,800. The revenue argued that the STPI unit was not a new unit but rather a conversion of an existing export unit, thus not eligible for the exemption. The AO argued that the assessee had merely shifted operations without establishing a new, independent unit.
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On appeal, the CIT(A) ruled in favor of the assessee., allowing the Section 10A exemption. The Revenue then appealed before ITAT, challenging the decision. Before the tribunal, the assessee relied on the ITAT Delhi Bench’s decision in its own case for AY 2007-08, where similar facts and circumstances led to the exemption being upheld.
The assessee provided supporting evidence, including the STPI approval dated 28.03.2000, specifically issued for the new unit, investment in fixed assets of Rs. 5.73 crore showing significant capital infusion, financial records confirming new purchases of equipment, computers, and infrastructure, employment of 28 new employees between January and March 2000, and the shifting of domestic operations to a separate floor while establishing a new STPI unit.
The two-member bench comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) observed that the AO’s conclusion lacked substantial reasoning, as the assessee had shown that the new unit operated independently, met the statutory requirements, and was not merely a converted unit.
The tribunal ruled that the mere existence of a domestic unit at the same premises earlier does not negate the fact that a new STPI unit was set up. Seeing the clear documentary evidence proving the establishment of a new unit, the tribunal upheld CIT(A)’s order and ruled that the assessee was entitled to exemption under Section 10A. The tribunal dismissed the Revenue’s appeal.
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