LOTUS FOOTWEAR ENTERPRISES LIMITED-INDIA BRANCH,TIRUVANNAMALAI vs. DCIT, INTERNATIONAL TAX 1(2), CHENNAI

ITA 798/CHNY/2022Status: DisposedITAT Chennai25 September 2025AY 2017-201845 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee satisfied the condition under Section 10AA(4)(iii) of the Act regarding the transfer of used machinery. It found that the ratio of transferred machinery to LU2 was 18.64% as of the production commencement date (April 2, 2014), which is less than the 20% threshold. This was supported by the inclusion of Capital Work-in-Progress (CWIP) of Rs. 6.52 crores, of which Rs. 5.19 crores represented 'plant and machinery', as of March 31, 2014. The Tribunal directed the AO to recompute the income allowing 100% deduction under Section 10AA. The Tribunal also noted that the identical issues in AYs 2017-18, 2018-19, and 2019-20 would be adjudicated mutatis mutandis. The issue regarding the computation of deduction before set-off of losses and unabsorbed depreciation and the allowance of MAT credit were not explicitly discussed in the provided extract but were implicitly allowed by the overall allowance of appeals. The Tribunal did not comment on the proposition claimed by the assessee regarding CWIP capitalized on April 1, 2014, as production had already commenced.

What were the facts?

The assessee, M/s. Lotus Footwear Enterprises Limited - India Branch, filed appeals against orders of the Deputy Commissioner of Income Tax, International Taxation 1(2), Chennai, for Assessment Years (AY) 2016-17 to 2019-20. The assessee operates two units, LU1 and LU2, within a Special Economic Zone (SEZ). LU1 commenced operations in 2008, and LU2 in 2014. The Assessing Officer (AO) treated LU2 as a split-up or reconstruction of LU1, restricting the deduction under Section 10AA of the Income Tax Act, 1961, to 50% for LU2 and requiring deduction after setting off brought forward losses and unabsorbed depreciation. The assessee contended that LU2 was a separate unit and eligible for 100% deduction. The Tribunal had previously ruled against the assessee, finding a violation of the condition regarding the transfer of plant and machinery. The assessee filed Miscellaneous Applications, leading to the current proceedings.

What were the issues?

1. Whether the lower authorities erred in restricting the claim of deduction under Section 10AA of the Act to LU2 by concluding it was formed by splitting up or reconstruction of LU1, contrary to the substantial investment and separate approval as an SEZ unit. 2. Whether the lower authorities erred in computing the deduction under Section 10AA by setting off brought forward losses and unabsorbed depreciation before allowing the deduction, without adequate opportunity to the assessee and contrary to judicial precedents. 3. Whether the lower authorities erred in not allowing credit for taxes paid under Section 115JB. Assessee's Contentions: - LU2 is a separate unit approved under the SEZ Act, set up due to LU1 reaching near full capacity, with substantial investment and a new unit approval. - The AO adopted a narrow product-based approach, ignoring the overall increase in turnover and evidence of independence. - The transfer of machinery condition under Section 10AA was not violated, and the ratio of used machinery was less than 20% when considering Capital Work-in-Progress (CWIP) and machinery capitalized on April 1, 2014. - Deduction under Section 10AA should be allowed prior to setting off brought forward business loss and unabsorbed depreciation, as held in the assessee's own case by the Tribunal. - Credit for MAT under Section 115JB should be allowed. Revenue's Contentions: - Not explicitly recorded in the provided text, but implied by the AO's actions of restricting deduction and setting off losses/depreciation.

Which sections of the Income-tax Act were involved?

Section 10AA,Section 115JB,Section 133A,Section 143(3),Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA

For Respondent: Ms. Pavuna Sundari, C.1.T
Hearing: 11.09.2025Pronounced: 25.09.2025

PER S. R. RAGHUNATHA, A.M:

The assessee had filed four appeals against the orders of learned Deputy Commissioner of Income Tax, International Taxation 1(2), Chennai

dated 26.02.2021 and 28.07.2022, for the Assessment Years (A.Y.) 2016-17,

2017-18, 2018-19 & 2019-20. Since the

The order continues below.

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