Clarion Technologies Pvt. Ltd.,, vs Department Of Income Tax

The Dy. Commissioner of Income Tax, Circle 1(1), Pune .... Appellant

Vs.

Clarion Technologies Pvt. Ltd., 4th Floor, Tower S-4, Cyber City, Magarpatta, Hadapsar, Pune - 411028 .... Respondent

PAN: AABCC8321Q

CO No.7/PN/2015 Assessment Year: 2010-11 arising out of ITA No.296/PN/2014

Clarion Technologies Pvt. Ltd., 4th Floor, Tower S-4, Cyber City, Magarpatta, Hadapsar, Pune - 411028 .... Cross Objector

PAN: AABCC8321Q

Vs.

The Dy. Commissioner of Income Tax, Circle 1(1), Pune .... Respondent

Assessee by : Shri V.K. Sridhar Revenue by : Shri Rajesh Damor Date of hearing : 23-03-2015 Date of pronouncement : 31-03-2015

ORDER

PER SUSHMA CHOWLA, JM:

The captioned appeal filed by the Revenue is against the order of

CIT(A)-I, Pune, dated 31.10.2013 relating to assessment year 2010-11 passed

under section 143(3) of the Income Tax Act, 1961. The assessee has also filed

Cross Objection against the appeal of the Revenue.

2 ITA No.296/PN/2014 CO No.7/PN/2015

Clarion Technologies Pvt. Ltd.

2. Both the appeal and Cross Objection relating to the same assessee were

heard together and are being disposed of by this consolidated order for the sake

of convenience.

3. The Revenue in ITA No.296/PN/2014 has raised the following grounds of

appeal:-

1. The learned Commissioner of Income-tax(Appeals) erred in holding that the Bangalore and Ahmadabad units of the assessee company are entitled to deduction u/s 10B even though these units are not approved under the STPI scheme as 100% EOUs and also had not maintained separate book of accounts.

2. The learned Commissioner of Income-tax(Appeals) erred in deleting the disallowance made by the Assessing Officer of the assessee's claim of deduction u/s 10B on the profit and gains of these two ineligible units ( computed on the basis of expenses incurred by the respective units); and in restricting the disallowance at 20% of the expenditure incurred by the Bangalore and Ahmadabad units without assigning any reason therefore.

3. The learned Commissioner of Income-tax(Appeals) erred in failing to appreciate that the provisions of sec.10B neither contemplate nor permit such restricted disallowance as directed in the appellate order.

4. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Tribunal.

4. The assessee in CO No.7/PN/2015 has raised the following grounds of

objections:-

1. That the order of the Ld. CIT (A)-1 Pune is bad in law and on facts.

2. That the Ld. CIT(A)-1 has erred on facts and in law in holding that the profit of Bangalore and Ahmedabad centers is a markup of 20% on the expenditure attributable to Bangalore and Ahmedabad centers and the same will not be eligible for deduction u/s 10A or 10B in respect of the profits.

2.1 That the Ld. CIT(A)-1 though admits that the Bangalore and Ahmadabad centers are inseparable part of software development and export unit at Pune and do not have separate account books, however, wrongly meaning thereby that there exists any other business' within the meaning of section 80-IA(8) r.w.s. 10A(7) or 10B(7) of the Income Tax Act, 1961.

2.2 That the Ld. CIT (A)-1 has erred on facts and in law in holding that the software development carried out at Bangalore and Ahmedabad centers does not form part of the eligible business' carried on at Pune within the meaning of section 80-IA(8) r.w.s. 10A(7) or 10B(7) of the Income Tax Act, 3 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

1961, thereby denying deduction u/s 10A or 10B in respect of these two centers.

2.3 That the stand of the CIT(A)-1 in holding that the profits are required to be attributed to the Bangalore and Ahmedabad centers and only the resultant profit shall be eligible for the deduction u/s 10B or 10A of the Act, as the case may be, stands decided by the Hon'ble ITAT Pune Bench "B", Pune, vide common order for AYs 2009-10 and 2010-11, dt 30.10.2014.

3. That the appellant craves leave to add, amend, alter or delete any one or more of the grounds of appeal as may be required in the nature and circumstances of the case.

4. That the appellant prays leave to adduce such further evidence to substantiate its case as the occasion may demand.

5. The learned Authorized Representative for the assessee at the outset pointed

out that similar issue arose before the Tribunal in assessee's own case relating

to assessment year 2009-10, wherein cross appeals were filed by the assessee

and Revenue and also Cross Objection were filed by the assessee, along with

appeal filed by the assessee relating to assessment year 2010-11 and the issue

has been decided by the Tribunal vide order dated 30.10.2014. The case of the

assessee was that the issues arising before us are identical to the issues before

the Tribunal in the earlier years and also in the appeal filed by the assessee in

assessment year 2010-11.

6. The learned Departmental Representative for the Revenue pointed out that

the CIT(A) had quantified the profits of the three units run by the assessee for the

purpose of claim of deduction under section 10B/10A of the Act and had allowed

the said deduction for Pune unit and not allowed for the other two units. Reliance

was placed on the order of CIT(A) by the learned Departmental Representative

for the Revenue, in this regard.

7. We have heard the rival contentions and perused the record. The assessee

was engaged in the business of development of computer software and ITES

services. The undertaking of the assessee at Pune is registered with the

Software Technology Park of India (STPI) as a 100% export oriented unit and 4 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

was granted approval on 26.05.2004. The assessee had claimed that the profits

derived from the said undertaking were exempt under the provisions of section

10B of the Act. In the year under appeal, the Assessing Officer had denied the

claim of deduction under section 10B of the Act on the ground that the

undertaking was not approved by the Board appointed by the Central

Government under section 14 of the Industries (Development & Regulation) Act,

1951 and was only granted approval by the Director, STPI. Reliance in this

regard was placed by the Assessing Officer on the judgment of Hon'ble Delhi

High Court in CIT Vs. Regency Creations Ltd. reported in 27 taxmann.com 322

(Delhi). However, the Assessing Officer in the immediately preceding

assessment year 2009-10 had allowed the claim of exemption under section 10B

of the Act with certain modifications regarding the quantification of profits on

account of assessee's office at Ahmedabad and Bangalore. The assessee filed

an appeal against the order of CIT(A) before the Tribunal relating to assessment

year 2009-10 along with cross appeals filed by the Revenue raising the issue of

the manner and quantum of exemption allowable to the assessee under section

10B of the Act. Further, the assessee also filed cross objection against the

quantification of eligible exemption under section 10B of the Act. For

assessment year 2010-11 i.e. captioned assessment year before us, the

assessee had filed an appeal vide ITA No.116/PN/2014 against the orders of

authorities below in holding that the assessee was not entitled to the claim of

exemption under section 10B of the Act. The Tribunal vide order dated

30.10.2014 deliberated upon the claim of the assessee vis-à-vis exemption under

section 10B of the Act with respect to the profits derived from development of

computer software and export thereof. The Tribunal vide para 10 held that in the

absence of the approval from the authority referred to in Explanation 2(iv) below

section 10B of the Act and having regard to the ratio laid down by the Hon'ble

Delhi High Court in CIT Vs. Regency Creations Ltd. (supra), it was held that the 5 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

assessee was not entitled to the claim of deduction under section 10B of the Act.

The relevant para 10 of the Tribunal's decision reads as under:-

"10. We have carefully considered the rival submissions. The case set- up by the Revenue is that the undertaking of the assessee has not been approved by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951, which is an express requirement for claiming deduction u/s 10B of the Act because of the presence of Explanation 2(iv) below section 10B of the Act. The assessee has canvassed that it's 100% EOU is approved by the Director, STPI and therefore it should be taken as a substantive compliance with the prescription contained in Explanation 2(iv) below section 10B of the Act. There is no denying the fact that identical controversy has been considered by the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra) and it is on the basis of the said judgement, the lower authorities have denied the claim of the assessee for deduction u/s 10B of the Act. Admittedly, the 100% EOU of the assessee does not enjoy any specific approval from the authority referred to in Explanation 2(iv) below section 10B of the Act.

In-fact, the plea of the assessee that the approval by Director, STPI be taken as equivalent to obtaining of approval from the entity prescribed in Explanation 2(iv) below section 10B of the Act has been specifically negated by the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). The other aspect raised by the learned Representative for the assessee to the effect that a conjoint reading of the Exim Policy/Foreign Trade Policy entitles the assessee to the benefits of section 10B of the Act, once the unit is approved as per the Exim Policy. No doubt, such a plea is not found to have been urged before the Hon'ble Delhi High Court, so however, having regard to the judicial discipline, the Tribunal being inferior to the High Court, cannot disregard the judgement of the High Court in the manner sought to be canvassed before us. The judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra) is a solitary decision of a High Court on this issue and squarely covers the controversy before us. Therefore, we are unable to find any fault in the action of the lower authorities in denying the claim of the assessee for deduction u/s 10B of the Act, based on the judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra)."

8. The Tribunal thereafter, considered the alternate plea of the assessee with

regard to the allowability of deduction under section 10A of the Act in place of

section 10B of the Act, where the undertaking is approved by the Director, STPI.

The CIT(A) had denied the said deduction to the assessee. However, after

considering the rival submissions, the Tribunal vide paras 16 and 17 deliberated

upon the issue and the ratio laid down by the Hon'ble Delhi High Court in CIT Vs.

Valiant Communication Ltd. in ITA Nos.440-441/2012, dated 04.01.2013 in

support of the alternate claim of deduction under section 10A of the Act and 6 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

remitted the matter back to the file of Assessing Officer for verifying the claim of

deduction under section 10A of the Act, as per law. The relevant findings of the

Tribunal in the case of the assessee in the quantum appeal for assessment year

2010-11 are as under:-

"16. We have carefully considered the rival submissions. In the present case, in the past years assessee has been allowed the claim of deduction u/s 10B of the Act. In the return of income filed for the assessment year under consideration i.e. 2010-11 also assessee claimed deduction u/s 10B of the Act in relation to the profits derived from its STPI unit. This claim of deduction came to be denied on the ground that the approval from Director, STPI was insufficient and that the assessee was required to take approval from the Board appointed for this purpose by the Central Government, following the judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). In the aforesaid situation, at the time of filing of return of income for the instant assessment year, assessee could not have envisaged the denial of its claim of deduction u/s 10B of the Act, which was being allowed in the past. The aforesaid circumstance clearly establishes the bonafides of the reasons prevailing with the assessee for not having made a claim for deduction u/s 10A of the Act in the return of income.

Having regard to the peculiar facts and circumstances of the instant case, in our view, the stand of the Revenue that assessee cannot be allowed the benefits of section 10A of the Act merely because the prescribed Audit Report in Form No.56F was not filed in the return of income, is quite erroneous. Pertinently, after denial of deduction u/s 10B of the Act in the assessment order, the earliest opportunity for the assessee to stake claim for deduction u/s 10A of the Act was before the CIT(A); and, the assessee made the claim before the CIT(A) along with the prescribed Audit Report in Form No.56F. The Hon'ble Delhi High Court in the case of Valiant Communications (supra) in similar circumstances held that the claim of the assessee for deduction u/s 10A of the Act is required to be examined in accordance with law. Pertinently, even in that case assessee had claimed deduction u/s 10B of the Act in the return of income, which was not allowed ultimately in the absence of the unit being approved by the Board appointed by the Central Government, whereas the unit was only registered with the STPI.

The Hon'ble Delhi High Court directed the lower authorities to consider the claim of deduction u/s 10A of the Act in accordance with law. In the present case also, we find no reason to deny the assessee an opportunity to put-forth its claim for deduction u/s 10A of the Act with regard the profits of its STPI unit, subject of-course to the fulfillment of the prescribed conditions.

17. Section 10A of the Act provides a deduction of such profits and gains derived by an undertaking from export of articles or things or computer software manufactured or produced by it. The assessee claimed that it has undertaken export of computer software manufactured by it and its unit is registered with Director, STPI. The approval granted by Director, STPI has been held to be a sufficient compliance with requirements of section 10A(2)(i)(b) of the Act even as per the CBDT vide Instruction No.1 of 2006 dated 31.03.2006. Therefore, prima-facie the 100% EOU of the assessee, being registered with STPI, is eligible to stake claim for deduction u/s 10A of the Act, provided the other conditions laid down in section 10A of the Act are satisfied. Therefore, in conformity 7 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

with the judgement of the Hon'ble Delhi High Court in the case of Valiant Communications (supra), we deem it fit and proper to remand the matter back to the file of the Assessing Officer for verifying the claim of the assessee for deduction u/s 10A of the Act as per law. The Assessing Officer shall consider the Form No.56F furnished by the assessee before the CIT(A) and such other material and submissions that the assessee may put-forth in order to justify its claim of deduction u/s 10A of the Act. Needless to say, the Assessing Officer shall allow a reasonable opportunity of being heard to the assessee before adjudicating on the claim of the assessee for deduction u/s 10A of the Act in accordance with law. Thus, on the alternate plea assessee succeeds."

9. Another aspect of the issue considered by the Tribunal was the eligibility of

deduction by different centres of the assessee i.e. Pune, Bangalore and

Ahmedabad Centres. As per the Assessing Officer, only Pune centre was

registered as STPI unit and the centre at Bangalore established on 11.07.2006

and Ahmedabad centre established on 01.05.2008, were not eligible units. The

observations of the Assessing Officer was that though the assessee carried out

various software development related works at Ahmedabad and Bangalore unit,

but delivered the product or services from its Pune unit, which was registered

under the STPI units. It was further noted that the units at Bangalore and

Ahmedabad were not approved under STPI Scheme and there was no export

from the said units and since the assessee was not maintaining separate books

of account in respect of the three units, nor the turnover or the expenditure were

separately allocated in the books of account, the Assessing Officer was of the

view that the deduction under section 10B of the Act was only in respect of

business or profession of 100% EOU engaged in carrying on eligible business

and hence, the said deduction under section 10B of the Act was limited only in

relation to the profits and gains of business of the unit at Pune. However, as

entire deduction under section 10B of the Act was denied to the assessee on the

ground that the unit was not approved by the competent authority, no separate

disallowance was made by the Assessing Officer on this ground.

10. The Tribunal in appeal filed by the assessee considered the said stand of

the assessee and also the additional ground of appeal raised by the assessee in 8 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

respect of the allocation made by the CIT(A) of profits being relatable to

Bangalore and Ahmedabad units and deliberated upon the issue whether the

CIT(A) was justified in invoking the provisions of section 10B(7) / 10A(7) r.w.s.

80IA(8) of the Act in the present case and it was held that the support centres at

Ahmedabad and Bangalore do not carry out any other business and there was

no merit in the orders of authorities below that there existed any other business

within the meaning of section 80IA(8) of the Act qua activities being carried out at

Ahmedabad and Bangalore centres. Accordingly, it was held that there was no

merit in allocating the profits attributable to the Bangalore and Ahmedabad

centres and holding that only the resultant profits shall be eligible for the

deduction under section 10B and 10A of the Act, as the case may be. The

relevant findings of the Tribunal are as under:-

"22. We have considered the rival stands and find that undoubtedly the aforesaid Additional Ground of Appeal arises from the impugned orders of the authorities below and, in any case, the relevant facts in order to adjudicate the aforesaid Additional Ground are available in the orders of the income-tax authorities. Therefore, we deem it fit and proper to admit the aforesaid Additional Ground of Appeal, as was announced in the course of hearing. Accordingly, both the parities have made their arguments on the merits of the said Additional Ground.

23. As noted by us in earlier paragraphs, the Assessing Officer concluded that the entire profits declared by the assessee from development of software and export thereof are not entitled to the deduction u/s 10B of the Act on the ground that some level of profits is attributable to the units of the assessee located at Ahmedabad and Bangalore, which are not registered under STPI and only Pune unit is registered with STPI. The CIT(A) has justified the action of the Assessing Officer in-principle though he has differed with the Assessing Officer on quantification of profit relatable to the STPI unit. The fundamental point made out by the CIT(A) is that the deduction contemplated u/s 10A or 10B of the Act is not a benefit attached to the assessee but it is a deduction allowable with reference to the export profits of the eligible undertaking. The CIT(A) has also justified the action of the Assessing Officer in re- working the profits relatable to the Pune unit on account of sub-section (7) of section 10A/10B of the Act, which are identically worded and read as under :-

"The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA."

24. Sub-section (7) of section 10A and 10B of the Act provides that the provisions of sub-section (8) and sub-section (10) of section 80-IA shall 9 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

apply in relation to the undertaking referred to in section 10A or section 10B as the case may be. At this stage, it would also be appropriate to refer to the provisions of section 80-IA(8) of the Act, which read as under:-

"(8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date :

Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit.

[Explanation.--For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily fetch in the open market.]"

25. In terms of the aforesaid provision, it is provided that where there is transfer of goods and services from an eligible business to any other business carried on by the assessee or where there is a transfer of goods and services from any other business carried out by the assessee to the eligible business then in either case, for the purposes of the deduction allowable, the profits and gains of such eligible business shall be computed as if the transfer in either case has been made at the market value of such goods or services as on that date. On the basis of the aforesaid, as per the CIT(A), the action of the Assessing Officer to re- compute the profits of Pune unit is justified. The relevant discussion in the order of the CIT(A) is as under :-

"3.11.1 Where there is inter unit transfer of goods and services (i.e. transfer from eligible unit to the other unit and vice versa), sub-sec.(8) of section 80-IA provides that the profits and gains of eligible business shall be computed having regard to fair market value of such goods and services. In the case of present appellant, as explained by the appellant itself, the System Analysis for a particular project is done at Bangalore unit and transmitted to Pune unit. The Design team at Ahmedabad unit provides the required images to delivery team at Pune. Thus, there is inter unit transfer of goods and services i.e. transfer from non-eligible units to the eligible unit at Pune and the profits of the eligible undertaking can be computed having regard to fair market value of such goods and services so transferred by the non-eligible units under sub-sec. (8) of sec. 80-IA. As regards the contention of the appellant that Bangalore and Ahmedabad centers are only support centers, it is to 10 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

be noted that the undertakings at Ahmedabad, Bangalore and Pune are distinct and separate undertakings/units started in different years and each center has separate establishment of its own and carried out a particular activity. Therefore, the units at Ahmedabad and Bangalore cannot be said to be mere support centers of Pune unit even if the specific jobs being executed by these centers were inseparable part of software exported by Pune unit. As the units of the appellant at Ahmedabad and Bangalore are not registered under STPI or under clause (iv) of Explanation-2 to section 10B, deduction u/s 10A/10B cannot be allowed in respect of profits attributable to Bangalore and Ahmedabad undertakings."

26. The moot point is as to whether the CIT(A) is justified in invoking section 10B(7)/10A(7) r.w.s. 80-IA(8) of the Act in the present case. In the present case, the business of the assessee is development of software and export thereof. The undertaking of the assessee at Pune is registered with STPI. There is no dispute that the exports are effectuated from the STPI unit at Pune. As per the assessee, the Bangalore and Ahmedabad centers are only support centers and are not distinct or separate units. The CIT(A) disagreed with the assessee and concluded that the Bangalore and Ahmedabad centers are distinct undertakings even though according to him, the specific jobs being executed by these centers were "inseparable part of software exported by Pune unit".

27. In this connection, the activities being carried out at different centers were detailed by the assessee before the lower authorities, and in particular the same has been extracted by the CIT(A) in para 3.4 of his order, which reads as under :-

"Teams Used:

From Pune: Delivery Team - Service Delivery Manager (SDM), Team Leader, Developer, Quality Auditor, from Bangalore: R&D Team, System Analyst, from Ahmedabad: Graphic Designer.

Work Summary:

• After assigning the project SDM and Team Leader understood the project requirements and got the System Analysis done from Bangalore team. Team prepared the requirement document and handed back to delivery team. It was then got verified by client and development was kicked off.

• The entire system was built in classic ASP and client wanted us to evaluate if the new modules can be built in ASP.Net and integrated with current Classic ASP system. This task of research was given to Bangalore team who did the study and confirmed that we cannot use ASP.Net for developing new modules as the existing code is not feasible be integration. Team continued the development in classic ASP.

• When the payment integration module development came, delivery team and client was not able to decide which the best payment gateway suitable for this project is. Bangalore R&D team did the analysis and told that Paypal/Payflow payment gateway is the best suited one. It was then integrated by delivery team.

11 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

• Client wanted to have some graphic images modified in his application Design team from Ahmedabad worked on it and provided the required images to delivery team."

28. The aforesaid would show that the activities being carried out at Ahmedabad and Bangalore centers are not independent of the software development activity undertaken at Pune and in any case it is also the conclusion of the CIT(A) that the jobs being executed by these centers are inseparable part of the software exported by the STPI unit at Pune. Moreover, the Assessing Officer has also emphasized that there is no independent activity of export carried out from Ahmedabad and Bangalore centers. It has also been held by the Assessing Officer that no separate account books or separate expenditure or separate turnover is being maintained/allocated with respect to the different centers. In this background, we may now consider the phraseology of section 80-IA(8) of the Act. A perusal of sub-section (8) of section 80-IA of the Act would reveal that it applies in situations where an assessee is carrying on an "eligible business" and "any other business". Ostensibly, the provisions of sub-section (8) of section 80-IA of the Act would come into play if an assessee can be said to be carrying on an eligible business as well as any other business. In this background, one is required to examine as to whether the Ahmedabad and Bangalore centers can be considered to be "any other business" being carried out by the assessee so as to fall within the meaning of section 80-IA(8) of the Act.

29. The factual matrix noted above does not suggest that the support centers at Ahmedabad and Bangalore carry out any other business. The activities being carried out can, at best be, considered as supporting activities to the activity of software development and exports effectuated from the STPI unit at Pune. The finding of the CIT(A) that the specific jobs being executed by the Ahmedabad and Bangalore centers are inseparable part of software development and export unit at Pune coupled with the findings of the Assessing Officer that the Bangalore and Ahmedabad centers do not have separate account books, expenditure or turnover reflects that the two centers cannot be said to be any other 'businesses' being run by the assessee. Therefore, considering the entirety of facts and circumstances, we are unable to concur with the Revenue that there exists "any other business" within the meaning of section 80-IA(8) of the Act qua the activities being carried out at Ahmedabd and Bangalore centers. Thus, in our view, invoking of section 80-IA(8) r.w.s. 10A(7) or 10B(7) of the Act in the present case is not justified. As a consequence, in our view, the stand of the CIT(A) in holding that the profits are required to be attributed to the Bangalore and Ahmedabad centers and only the resultant profit shall be eligible for the deduction u/s 10B or 10A of the Act, as the case may be, is not justified. Thus, we set-aside the orders of the authorities below on this aspect. Accordingly, assessee succeeds on this aspect."

11. In view of the issue being decided by the Tribunal in assessee's own case,

now, we proceed to decide the issue raised by the Revenue in the appeal filed in

ITA No.296/PN/2014. 12 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

12. The Revenue is aggrieved by the order of CIT(A) in holding that the

Bangalore and Ahmedabad units of the assessee company were entitled to the

deduction under section 10B of the Act even though the said units were not

approved under the STPI Scheme as 100% EOU and had also not maintaining

separate books of accounts. The Revenue is also aggrieved by the order of

CIT(A) in deleting the disallowance made by the Assessing Officer of the

assessee's claim of deduction under section 10B of the Act on the profits and

gains of these two eligible units and in restricting disallowance at 20% of the

expenditure incurred by the Bangalore and Ahmedabad units. We find that the

issues raised by the Revenue vide the above said grounds of appeal in the

present appeals filed by the Revenue are squarely covered by the ratio laid down

by the Tribunal in assessee's own case, wherein the quantum appeal filed by the

assessee relating to assessment year 2010-11, has been adjudicated by the

Tribunal vide order dated 30.10.2014. The CIT(A) vide para 3.11.2 at page 25 of

the appellate order had held that the appellant was not eligible for deduction at all

under section 10B or 10A of the Act and at best, the deduction under section 10B

of the Act was admissible only in respect of profits and gains of business of

100% EOU at Pune. Further, it was held that the profits attributable to the units

of Bangalore and Ahmedabad are not eligible for deduction under section 10B

and 10A of the Act and the second aspect of the issue was the allocation of

profits or operating margins to the eligible units and non-eligible units, where the

assessee had not maintained separate books of account for each unit. The

CIT(A) vide para 3.12 at pages 25 and 26 of the order has deliberated upon the

issue and following his predecessor of appellate order dated 08.10.2012 for

assessment year 2009-10 had held that 20% of the expenditure incurred at

Bangalore and Ahmedabad centres as reasonable mark-up of profits in case of

the said two units and accordingly, directed the Assessing Officer to re-compute

the business profits of each unit as also deduction admissible under section 10B

of the Act on the revised profits of the Pune unit. We find no merit in the ground 13 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

of appeal No.1 raised by the Revenue against the order of CIT(A) in holding that

the Bangalore and Ahmedabad units of the assessee company were entitled to

the deduction under section 10B of the Act. The said ground of appeal raised by

the Revenue is mis-placed as the CIT(A) had not allowed the deduction under

section 10B of the Act vis-à-vis Bangalore and Ahmedabad units of the assessee

company and had only directed that the said deduction under section 10B of the

Act should be allowed in respect of Pune unit. The first aspect of the issue of

claim of deduction under section 10B has been denied by the Tribunal following

the ratio laid down by the Hon'ble Delhi High court in CIT Vs. Regency Creations

Ltd. (supra).

13. Now, the second aspect of the issue is against the restriction in the

disallowance of 20% of expenditure incurred by Bangalore and Ahmedabad

units. The Tribunal had also considered the said issue in assessment year 2010-

11 itself and had held that the activities being carried out at Bangalore and

Ahmedabad at best could be considered as supporting activities to the activities

of software development and exports effectuated from the STPI unit at Pune.

The Tribunal thus, held that the invoking of provisions of section 80IA(8) r.w.s.

10A(7) or 10B(7) of the Act in the present case was not justified. As a

consequence, the stand of the CIT(A) in holding that the profits were to be

attributed to the Bangalore and Ahmedabad centres and only the resultant profits

being eligible for deduction under section 10B and 10A of the Act, was held to be

not justified by the Tribunal. Following the said order of the Tribunal in

assessee's own case relating to assessment year 2010-11, we find no merit in

the grounds of appeal Nos.2 and 3 raised by the Revenue and hence, are

dismissed.

14. Now, coming to the Cross Objection filed by the assessee. The grievance is

against the order of CIT(A) in holding that the profits of Bangalore and

Ahmedabad centers with mark-up of 20% on the expenditure attributable to 14 ITA No.296/PN/2014 CO No.7/PN/2015 Clarion Technologies Pvt. Ltd.

Bangalore and Ahmedabad centres and the same would not be eligible for

deduction under section 10B and 10A of the Act in respect of profits. The issue

raised by the assessee vide Cross Objection is squarely covered by the order of

Tribunal in the case of assessee itself, wherein it has been held the invoking of

section 80IA(8) r.w.s. 10A(7) or 10B(7) of the Act in the present case was not

justified. It was further held that the stand of CIT(A) in holding that the profits are

required to be attributed to the Bangalore and Ahmedabad Centers and only the

resultant profit shall be eligible for deduction under section 10A or 10B of the Act,

as the case may be, is not justified. Thus, the Cross Objection filed by the

assessee is allowed.

15. In the result, the appeal of the Revenue is dismissed and the Cross

Objection of the assessee is allowed.

Order pronounced on this 31st day of March, 2015.

Sd/- Sd/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Pune, Dated: 31 st March, 2015. GCVSR

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-I, Pune; 4) The CIT-I, Pune; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File. By Order //True Copy//

Assistant Registrar I.T.A.T., Pune