Facts of the Case

The respondent-assessee, Macquarie Global Services Pvt. Ltd., had an existing 100% Export Oriented Unit (EOU) eligible for deduction under Section 10A up to AY 2011-12. Subsequently, the assessee established a new unit in a Special Economic Zone (SEZ) and claimed exemption under Section 10AA for a period of ten years starting from AY 2010-11.

The exemption was allowed in AY 2011-12 and AY 2012-13. However, for AY 2013-14, the Assessing Officer disallowed the claim citing violation of Section 10AA(4)(ii), alleging that the SEZ unit was formed by splitting up or reconstruction of an existing business.

The Tribunal allowed the assessee’s claim, and the Revenue filed an appeal before the Delhi High Court. 

Issues Involved

  1. Whether the SEZ unit was formed by splitting up or reconstruction of an existing business under Section 10AA(4)(ii).
  2. Whether deduction under Section 10AA can be denied in subsequent years if it was allowed in earlier years.
  3. Whether eligibility conditions under Section 10AA are unit-specific or assessee-specific.

 

Petitioner’s Arguments (Revenue)

  • The SEZ unit was allegedly formed by restructuring the existing business, violating Section 10AA(4)(ii).
  • Deduction should be denied since the new unit did not satisfy statutory conditions.
  • The Assessing Officer was justified in re-examining eligibility in AY 2013-14.

Respondent’s Arguments (Assessee)

  • The SEZ unit was an independent new undertaking, not formed by splitting or reconstruction.
  • Separate investments, manpower, and infrastructure were deployed.
  • Deduction had already been allowed in earlier assessment years after scrutiny.
  • Growth in revenue and employment demonstrated that the unit was genuinely new.

Court’s Findings / Order

  • Section 10AA eligibility is unit-specific, not assessee-specific.
  • The condition of “not formed by splitting or reconstruction” must be examined at the time of formation of the unit, not in subsequent years.
  • The SEZ unit showed substantial independent growth, increased revenue, and new employment generation.
  • There was no transfer of old machinery or business restructuring.
  • Once deduction is allowed in initial years, it cannot be arbitrarily denied later without change in facts.

Accordingly, no substantial question of law arose, and the appeal was dismissed.

 

Important Clarifications by Court

  • The term “splitting up or reconstruction” must be interpreted strictly and cannot include mere expansion of business.
  • Establishment of a new SEZ unit alongside an existing business is permissible.
  • Deduction provisions under Section 10AA aim to promote new investments, employment, and exports.
  • The objection under Section 10AA(4)(ii) must be raised in the first year of claim, not subsequently.


Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:7651-DB/AJB04122018ITA8242018.pdf

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