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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.
The present appeal has been filed by the Revenue challenging the order dated 30th July 2019, passed by the learned Commissioner of Income Tax (Appeals)–16, Mumbai, for the assessment year 2011–12.
The only issue raised by the Revenue is, whether or not the learned CIT(A) was justified in directing the Assessing Officer to allow deduction under section 10A of the Income Tax Act, 1961 (for short
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"the Act") to the extent of income eligible undertaking by ignoring the CBDT’s Circular no.7/DV/2013, dated 16th July 2013.
Brief facts are, the assessee filed its return of income for the year under consideration on 30th September 2011, declaring total loss at ₹ (2,49,80,244). The return was processed u/s 143(1) of the Act. The case was selected for scrutiny and an assessment order under section 143(3) of the Act was passed on 21st March 2014, determining total income under normal provisions of the Act at ₹ (1,50,64,429) and Book profit under section 115JB of the Act at ₹ 1,69,39,360. Since the tax payable under section 115JB of the Act was more than the tax payable under normal provisions, therefore, the income of the assessee was determined at ₹ 1,69,39,360, as per book profit under section 115JB of the Act. Subsequently, it was noticed that against the assessee's claim of deduction under section 10A of the Act at ₹ 2,75,01,777, the assessee was allowed deduction under section 10A of the Act at ₹ 1,85,61,272. Accordingly, the loss at ₹ (1,50,64,429), was determined and allowed to carry forward this loss of ₹ (1,50,64,429), to subsequent years. However, the net taxable income was ₹ 34,96,843, before allowing deduction under section 10A of the Act, therefore, the deduction allowable under section 10A of the Act should have been restricted to ₹ 34,96,843, only and the net taxable income would be Nil. Thus, there would be no current year loss available to be
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carried forward. Therefore, the order was rectified under section 154 of the Act vide dated 31st March 2018 determining total income at Nil. The assessee is aggrieved against the rectification made under section 154 of the Act by the Assessing Officer and is in appeal before the first appellate authority.
Before the learned CIT(A), the assessee submitted as under:–
“Submission for Ground No. 3 "Ground No. 3 Without prejudice to ground nos. 1 and 2 above, the learned AO has erred in restricting the appellants claim u/s. 14A of the Act to Rs.34,96,843 and that the same be allowed, as has been claimed by The appellant." 12) We would like to submit that deduction u/s. 10A of the Act has to be allowed at the time of computing total income of the appellant from the undertaking. Accordingly, the Ld. AO has erred in computing the deduction u/s. 10A of the Act after computing the total taxable income of the appellant from all the heads of income. 13) To support our above contention, we are hereby reproducing relevant portion of section 10A of the Act for your Honour's ready reference: "Special provision in respect of newly established undertakings in free trade zone, etc. 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period often consecutive assessment years beginning 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, as the case may be, shall be allowed from the total income of the assessee:
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The word total income has been explained by Karnataka High Court in the case of CIT vs. Yokogawa India Ltd. [20121 21 taxmann.com 154/341 ITR 385 (enclosed in paper book from page no. 36-46).The relevant extract of the judgement is reproduced as under: The phrase "total income" used in section 10A(1) (1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to section bOA(1) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any term given in section 2 will apply only when the context does not otherwise require. The placement, language and setting of section 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase in the context of section bA, means profits and gains of the STP undertaking as understood in its commercial sense. From the above judgement, it is evident that the computation of deduction u/s. 1OA of the Act should be done at the time of computing the total income of the undertaking under the head income from business and profession and not after computing the overall total income of the assessee. Accordingly, the order passed u/s. 154 of the Act is infructuous in nature and accordingly, deduction u/s. 10A of the Act should not be restricted to Rs.34,96,843/-. 14) Further, it was held by the Hon'ble High Court that losses of non-eligible 10A unit should not be set-off against the profits of 10A units. The relevant extract of the judgement is reproduced as under: "33. As the income of the section 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit cannot be set off against time income of the section WA unit under section 72. The loss incurred by the assessee under the head "Profits and gains of business or profession" has to be set off against the profits and gains, if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of time undertaking
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would not arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As deduction under section 10A has to he excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the Appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of section 10A to the assessee Hence, the main substantial question of law is answered in favour of the assessee and against the Revenue. 15) Further, the Hon'ble Supreme Court has held in the case of the Yokogawa India Ltd[20171 77 taxmann.com 41 (SC)that the stage of deduction u/s. 10A of the Act would be while computing gross total income of eligible undertaking under Chaper IV of Act and not at stage of computation of total income under Chapter VI of the Act. The set-off of intra head losses falls under section 70 of the Act which is covered by Chapter VI of the Act. Since it is specifically stated by the Supreme Court that Deduction u/s. 10A of the Act has to be computed under Chapter IV of the Act and not at the stage of Chapter VI of the Act, no set-off of losses of other non-eligible business unit is to be made against the income of 1OA unit. The relevant extract of the judgement is reproduced as under: …….. The absence of any reference to deduction under section 10A in Chapter VI can be understood by acknowledging that any such reference or mention would have been a repetition of that has already been provided in section 10A. The provisions of sections 80HHC and 80HHE providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under section 10A were to be made at the stage of operation of Chapter VI. The retention of the said provisions of the Act i.e. sections 80HHC and 80HHE, despite the amendment of section WA, indicates that some additional benefits to eligible section 10A units, not contemplated by sections 80HHC and 80HHE, was intended by the legislature. Such a benefit
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can only be understood by a legislative mandate to understand that the stages for working out the deductions under sections 10A and 80HHC and 80HHE are substantially different. [Para 151] From a reading of the relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non- eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clearfroin the contemporaneous Circular No. 794, dated 9-8-2000. [Para 161 If the specific provisions of the Act provide [first proviso to sections IOAGV; 10A(TIA) and 1OA(4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 9-8- 2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes tinder other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken tinder Chapter Vlfor arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section WA has already been dealt with earlier and in the overall scenario unfolded by the provisions Of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 1 O as 'total income of the undertaking'. [Para 17]
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For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking tinder Chapter IV and not at the stage of computation of the total income under Chapter VI. [Para 181] 16) Further, the jurisdictional Bombay High Court in the case of CIT–10 v/s Black and Veatch Consulting Pvt. Ltd. [2012] 20 taxmann.com 727 (Bom.) enclosed in paper book from page no.47–48)has also held that the deduction under section 10A of the Act in respect of eligible unit has to be allowed before setting off brought forward depreciation and losses of a non-10A unit. The relevant extract is reproduced as under: "The submission of the Revenue placed its reliance on the literal reading of Section 10A under which a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of tell Assessment Years is to be allowed from the total income of the assessee. The deduction under Section bA, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in Sections 80C to 8011. Section 8013(5) defines for the purposes of Chapter VI-A "gross total income" to mean the total income computed in accordance wit/i the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under Section WA, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the
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decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under Section WA has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordingly stand dismissed". 17) Thus, applying the analogy set by the above judicial precedents in the instant case placed before your Honour, the appellant prays before your Honour to allow the deduction u/s 10A of the Act at the time of computing the Income from the head Business or Profession and thereby allowing the balance losses of the ineligible units to be carried forward.”
The learned CIT(A) considering the aforesaid submissions of the assessee and on perusal of the material on record, directed the Assessing Officer to allow the deduction claimed under section 10A of the Act by the assessee to the extent of income of eligible undertaking. The relevant portion of the observations of the learned CIT(A) is reproduced below for better understanding:–
“4.1.3. During the course of appellant proceedings the appellant submitted that the deduction u/s 1OA of the Act has to be allowed at the time of computing of total income of the appellant from the undertaking, however the AO has erred in computing the deduction u/s 10A after computing total taxable income. The appellant has also relied on the judgment of Hon'ble Supreme Court in case of the Yokogawa India Ltd. [2017] 77 taxmann.com 41 (SC), wherein following judgment was given: “..............The absence of any reference to deduction under section 10A 'in Chapter VI can be understood by acknowledging that any such reference or mention would have been a repetition of what has already been provided in section 10A. The provisions of sections 80HHC and 8OHHE providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under section 10A were to be made at the stage of operation of Chapter VI. The retention of the said provisions of the Act i.e. sections 80HHC and 80HHE, despite the amendment of section bA,
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indicates that some additional benefits to eligible section 10A units, not contemplated by sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under sections 10A and 80HHC and 80HHE are substantially different. From a reading of the relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non- eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794, dated 9- 8-2000. If the specific provisions of the Act provide (first proviso to sections 10A(1); 10A(1À) and 10A4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 9-8-2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee' in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section WA, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and not at the stage of computation of the total income under Chapter VI." 4.1.4 Respectfully following the judgment of Hon’ble Supreme Court as discussed above, the A.O. is directed to give deduction u/s 10A to the extent of income of eligible undertaking. In view
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of the above, this ground of appeal is allowed.”
The Revenue being aggrieved by the aforesaid order of the learned CIT(A), filed appeal before this Tribunal.
The learned Departmental Representative fairly agreed that this issue is covered by the decision of the Hon'ble Supreme Court cited supra.
The learned Authorised Representative for the assessee substantiated his arguments on the basis of the pleadings made before the authorities below.
Considered the rival submissions and perused the material on record. On a careful perusal of the order of the learned CIT(A) we do not find any valid reason much less a cogent reason to reverse the findings of the learned CIT(A). The above direction is, in our view, just and proper hence does not call for any interference. We have also gone through the decision of the Hon'ble Supreme Court in Yokogawa India Ltd. (supra) relied upon by the learned CIT(A) and found that the issue for our adjudication is squarely covered by the aforesaid decision of the Hon'ble Supreme Court. The Revenue has also not brought any material contrary to the stand taken by the learned CIT(A) which force us to take a decision other than the decision taken by the learned
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CIT(A). Consequently, we uphold the order of the learned CIT(A) by dismissing the ground raised by the Revenue.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 27.09.21
Sd/- Sd/- MAHAVIR SINGH S. RIFAUR RAHMAN VICE PRESIDENT ACCOUNTANT MEMBER
MUMBAI, DATED: 27.09.21 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai