IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD Before Shri Mahavir Singh, Judicial Member and Shri A.N.Phauja, Accountant Member ITA No.2473 & 2519/ Ahd/2006 Assessment Year:2003-04 Date of hearing:24.7.09 Drafted:29.7.09 Gatewa y Technolabs V/s. ITO W ard-4(1), IT Office Pvt. Ltd., B-81, Building, Ahmedabad Corporate House, Judges Bunglow Road, S.G. Highway, Bodakdev, Ahmedabad PAN No. AABCG4206C Income Tax Officer, V/s. Gatewa y Technolabs W ard-4(1), Ahmedabad Pvt. Ltd., B-81, Corporate House, Judges Bunglow Road, S.G.Highwa y Budakdev, Ahmedabad (Appellant) .. (Respondent) Assessee by :- Shri J.P. Shah & Shri P.T. Shah, AR Revenue by:- Shri M.K. Pandit Sr. DR ORDER PER Mahavir Singh, Judicial Member:- These cross appeals one by assessee and another by Revenue are arising out of common order of Commissioner of Income-tax (Appeals)-VIII, Ahmedabad in appeal No. CIT(A)-VIII/ITO/4(1)/010/06-07 dated 14-09-2006. assessment was framed by Income-tax Officer, Ward-4(1), Ahmedabad u/s.143(3) of Income-tax Act, 1961 (hereinafter referred to as Act ) vide his order dated 08-03-2006 for assessment year 2003-04. ITA No.2473 & 2519/Ahd/2006 A.Y.2003-04 Gateway Technolabs P. Ltd. v. ITO Wd-4(1) bd Page 2 2. only common issue in these cross appeals one by assessee and other by Revenue is as regard to claim of deduction u/s.10B of Act. assessee has raised following ground:- Second hand library books of Rs.38503/- usable for purpose of computer training classes for students purchased from sister company. Erudite Infotech Pvt. Ltd. is not plant within definition of Plant U/s.43(3) of IT Act 1961. business of appellant company is exclusively in software development/and exports thereof, while business of appellant s sister company Erudite Infotech Pvt. Ltd. is in running of class for computer training for students altogether different business. Computer training class is education centre and does not produce anything. These books are not used or even needed by expert software engineers of appellant company for development of software for export purposes. In these facts second hand library books of Rs.28503/- is not plant and be held accordingly for computing exemption U/s. 10B of IT Act 1961. It is claimed that such elementary books are not tools of business in as much as expert / skilled persons employed by appellant for development of software for export do not need such books for any reference. On other hand, Revenue has raised following ground No.1:- 1. Ld. CIT(A) erred in law and on facts of case in directing to allow eligible deduction u/s.80HHC of I.T. Act in view of denial of claim u/s.10B of Act. 3. At outset, Ld. Counsel for assessee stated that assessee s business was started for first time in previous year relevant to assessment year 2002-03 in new premises of software development and export and also business of four sister concerns as mentioned in page-8 & 9 of assessment order for providing computer education and training and this is not first year in which deduction u/s.10B was claimed. In view of this, Ld. counsel for assessee taken us to finding of CIT(A) para-2.3 and relevant of portion, which reads as under:- At this juncture, it is made clear that business of appellant is totally distinct and separate from business of computer training camied on by sister concerns and software development and export being not in dispute, it is to be held that new unit of appellant set up of different premises is not formed by spinning up or reconstruction of existing business. But for purposes of few items of assets, there is no overlopping of business activities and appellant s eligible business is new and separate one engaged in business of development of software and export. Section 10B eligibility is denied on simple and specific ground of old plant and machinery constituting more than 20% of total value of plant and machinery utilized in business of appellant s Ground No.1 thus fails. ITA No.2473 & 2519/Ahd/2006 A.Y.2003-04 Gateway Technolabs P. Ltd. v. ITO Wd-4(1) bd Page 3 4. In view of this Ld. counsel for assessee relied on Tribunal s order of Chandigarh Bench B in case of Jain Udhay Hosiery (P) Ltd. v. ACIT (2005) 1 SOT 193 (CHD), wherein Tribunal has held in para-6 as under:- 6. ld. Counsel for assessee further contended that conditions specified in section 80-I are required to be satisfied in initial year and once all conditions are satisfied, assessee is entitled to deduction in subsequent assessment years specified under said section. In this connection, he replied upon decision of Supreme Court in case of Bajaj Tempo Ltd s case (supra). Reliance was also placed on following decisions in support of aforesaid contentions:- (i) CIT v. Nippon Electronics (India) P. Ltd. [1990] 181 ITR 518 (Kar.); (ii) Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj). It was pointed out that Gujarat High Court has laid down that once deduction is allowed in first year, revenue has no power to deny deduction in subsequent assessment years as provided under Act. ld. Counsel further pointed out that whereas there are several decisions to effect that if conditions specified under section 80-I are satisfied in any year subsequent to year of commencement of business, assessee would be entitled to deduction in respect of profits and gains of that year in which such conditions are satisfied. However, according to ld. Counsel, reverse is not true. It was further contended that in any case, it is admitted fact that assessee had set up new industrial undertaking and it had not been formed by transfer of old machinery value of which exceeded 20% of total value of machinery. It was accordingly pleaded that decision of CIT(A) for assessment year 1997-98 may be upheld and for assessment year 1996-97 decision of CIT(A) may be reversed and deduction allowed to assessee. And finally allowed claim of assessee on merits also, as under:- 10. In final analysis, we, on facts and in circumstances of this case are of view that company had not been formed by transfer of old machinery, value of which exceeded 20% of total value of machinery and accordingly, assessee was not disqualified from deduction under section 80-I merely because in assessment years 1996-97 and 1997-98 with purchase of more machinery value of old machinery had exceeded 20% limit. We reiterate for sake of clearity that condition under section 80-I(2)(i) applies to formation of industrial undertaking and mere transfer of old machinery not having effected formation of industrial undertaking is satisfied in this case. As held by their Lordships of Supreme Court, mere transfer of old machinery is not enough for disqualification from deduction under section 15C of 1922 Act (corresponding section 80-I). We therefore, uphold order of CIT(A) for assessment year 1997-98. order of CIT(A) as well as that of Assessing Officer for assessment year 1996-97 are set aside and we direct ITA No.2473 & 2519/Ahd/2006 A.Y.2003-04 Gateway Technolabs P. Ltd. v. ITO Wd-4(1) bd Page 4 Assessing Officer to grant deduction to assessee under section 80-I for assessment year 1996-97 as well as for assessment year 1997-98. 5. In view of these arguments, Ld. counsel for assessee stated that once deduction for very first is allowed then in subsequent year deduction cannot be disallowed on same ground. He relied on Hon'ble jurisdictional High Court decision in case of Saurashtra Cement & Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj), wherein It was pointed out that Hon'ble Gujarat High Court has laid down that once deduction is allowed in first year, revenue has no power to deny deduction in subsequent assessment years as provided under Act. ld. Counsel further pointed out that whereas there are several decisions to effect that if conditions specified under section 80-I are satisfied in any year subsequent to year of commencement of business, assessee would be entitled to deduction in respect of profits and gains of that year in which such conditions are satisfied. 6. On other hand, Ld. Department Representative fairly stated that in earlier year deduction was allowed. 7. In view of above facts, we find that issue is squarely covered in favour of assessee and against Revenue, respectfully following Hon'ble jurisdictional High Court in case of Saurashtra Cement & Chemical Industries Ltd.(supra) and Chandigarh Bench of this Tribunal in case of Jain Udhay Hosiery (P) Ltd.(supra), we allow claim of assessee. 8. In result, Revenue s appeal is dismissed and that of assessee is allowed. Order pronounced in Open Court on 04/09/2009 Sd/- Sd/- (A.N.Phauja) (Mahavir Singh) (Accountant Member) (Judicial Member) Ahmedabad, Dated : 04/09/2009 *Dkp Copy of Order forwarded to:- 1. Appellant. 2. Respondent. 3. CIT(Appeals)-VIII, Ahmedabad 4. CIT concerns. 5. DR, ITAT, Ahmedabad 6. Guard File. BY ORDER, /True copy/ Deputy/Asstt.Registrar ITAT, Ahmedabad Income tax Officer- Ward-4(1)- v. Gateway Technolabs Pvt. Ltd.-