COMMISSIONER OF INCOME TAX Vs. EXPERT OUTSOURCE (P) LTD

JUDGEMENT

(1.) The revenue has preferred this appeal challenging the order passed by the Income Tax Appellate Tribunal, which has upheld that order of the Appellate Authority granting the benefit of tax under Section 10A of the Income Tax Act, 1961 (for short hereinafter referred to as the Act).

(2.) The assessee is carrying on the business as a software consultant and developing software. It is a private limited company. It was incorporated on 17-12-2003. It entered into an agreement with its parent company on 20-10-2003 for providing software development services. The first invoice was raised by the assessee on 29.12.2003. The assessee secured the STPI registration on 4-8-2004. For the assessment year 2005-06, the assessee claimed deduction under section 10A of the Act. He had enclosed Form-56F along with the return of income of support of the claim of deduction under section 10A. Thereafter, scrutiny assessment under section 143(3) was completed on 28-9-2007. The assessing authority disallowed the deduction claimed under section 10A on the ground that the company was incorporated and started business activity prior to obtaining approval of STPI. Hence, the conditions laid down under section 10A(2)(i)(b) and (c) of the Act are not satisfied. The assessee did not choose the available option of conversion of the DTA unit into STP unit. Therefore, when the assessee has used the machinery previously used, which is more than 20% of the total plant and machinery, the condition laid down under section 10A(2)(iii) of the Act are not satisfied. Aggrieved by the said order, the assessee preferred an appeal. The Commissioner of Income Tax (Appeals) by a well considered order by placing reliance on the circular issued under section 10B of the Act and also the several judgments dealing with the above aspects, held that the assessee is entitled to the deduction under section 10A to the existing unit and consequently, the conditions laid down under section 10A(2)(i)(b) and 10A(2)(ii) and (iii) are fulfilled and directed the Assessing Authority to allow eligible deductions under section 10A. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal which has upheld the said order. Aggrieved by the same, the revenue is in appeal before us.

(3.) From the aforesaid facts, it is clear that section 10A provides for a deduction from the total income of profits derived by an undertaking from the export of articles of things or computer software for a period of ten consecutive assessment years. The tax holiday period commences 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. section 10(2) prescribes certain conditions on the fulfillment of which the benefit of 10A could be availed.