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Before: Shri Amit Shukla & Shri L.P. Sahu
In the Income-Tax Appellate Tribunal, Delhi Bench ‘E’, New Delhi
Before : Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member
ITA No. 3076/Del/2012 Assessment Year: 2006-07
ACIT, Circle 13(1), vs. M/s. NIIT Technologies Ltd., C- New Delhi. 125, Okhla Indl. Area, Phase-1, New Delhi. PAN: AAACN 0332P (Appellant) (Respondent)
C.O. No. 318/Del/2012 (in ITA No. 3076/Del/2012) Assessment Year: 2006-07
M/s. NIIT Technologies vs. ACIT, Circle 13(1), Ltd., C-125, Okhla Indl. New Delhi. Area, Phase-1, New Delhi. (Appellant) (Respondent)
Revenue by Ms. Rinku Singh, Sr. DR Assessee by Sh. Rohit Jain, Advocate & Ms. Tejasvi Jain, Advocate
Date of Hearing 25.01.2019 Date of Pronouncement 27.02.2019
ORDER Per L.P. Sahu, A.M.: The appeal by the Revenue and the cross objection by the assessee are directed against the order of ld. CIT(A)-XXXII, New Delhi dated 04.04.2012 for the assessment year 2006-07 on the following grounds : Grounds of appeal:
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Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as difference branches of the same tree.
Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not noting the fact that the assessee in maintaining single books of accounts for all its units, i.e. those which are covered by deduction, as well as those which are not covered for deduction. It is not only for the purpose of computing deduction u/s 10B that the assessee has tried to allocate the expenses between these units and compute their profits.
Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact raised through Remand Report that inspite of number of opportunities provided to the assessee, the additional evidences were filed only during the appellate proceedings.
Whether on the facts and circumstances of the case, the Ld. CIT(A)’s stand that independent books of account are not required to be maintained under the provisions of section 10B of the IT Act, is not correct since the language of Form 56G starts with “I/We have examined the accounts and records ” which makes it clear that the assessee has to maintain separate books of accounts. The Annexure ‘A’ to Form 56G also requires the details of total profit of the business etc. In view of the aforesaid facts, it is clear that the assessee was required to maintain separate books of accounts.
Whether on the facts & in the circumstances of the cas, the Ld. CIT(A) has erred not appreciating the fact that the assessee by claiming depreciation contrary to section 32 has virtually taken exemption from payment of tax even for other business as well as non business incomes, which should not be allowed.
Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred ignoring the fact that under the amended provisions effective from 01.04.2001, the claim u/s 10B has been declared as deduction and not exemption. Since profits are required to be computed as per the provisions of the IT Act, viz., section 29 to section 43A, this includes section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking.
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Grounds of Cross-objection: 1. That the CIT(A) erred on facts and in law in confirming the addition of demerger expenses of Rs. 28,42,073 made by the assessing officer while computing profits under the head “profits and gains of the business”.
1.1 That the Commissioner of Income Tax (Appeals) (“CIT (A)”) erred on facts and in law in holding that the assessee itself has considered a sum of Rs.65,08,44,191/- as income from business (before allowing set off of unabsorbed depreciation and deduction under section 10B of the Act), instead of Rs.64,80,02,118/- declared by the assessee.
The brief facts of the case are that the assessee filed return of income on 29.11.2006, declaring nil income after adjustment of brought forward unabsorbed depreciation to the tune of Rs.2,01,54,617/-. The case was selected for scrutiny and statutory notices were issued to the assessee. During the year the assessee derived income under the head business and profession, capital gain and income from other sources. Income declared by the assessee under various heads shown in the return are as under : Profit as per P & L A/c 516,029,485 Add Adjustment 8,456,058 Total 561,513,421 Add Dep as per P & 1 205,127,860 Less Dep. as per I. T. Act 121,857,096 Total 650,844,191 Less Deduction u/s 10B 663,007,954 Income from Business (12,163,763) Income from Capital Gain Short Term Capital Gain 1,04,31,946. Long Term Capital Loss to be carried Forward 5,54,28,693 Income from Other Sources 2,18,80,434 Gross Total Income 2,01,54,617
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Less : unabsorbed depreciation of earlier years 13,90,60,056 Balance unabsorbed depreciation to carried forward 11,89,05,439
Regarding the Brought forward unabsorbed depreciation, the following details was given in the return form :
Assessment Year Unabsorbed Depreciation 2004-05 13,90,60,056 Less Adjusted 2,0154,617 Net Unabsorbed Depreciation to be carried forward 118,9,05,439
The assessee had claimed unabsorbed depreciation to be carried forward which was examined from the previous year’s records. There was a demerger as per Scheme of demerger approved by Hon’ble High Court vide order dated 18.05.2004. The note as contained in the computation of assessment year 2004- 05 read as under : Income from Business Profit before depreciation and claim u/s 40,20,95,922 10B Less Depreciation claimed 26,03,46,485 Net Business profit 14,17,49,437 Less : Deduction u/s 10B 15,15,65,991 (98,16,554) Income from Capital Gain Short Term Capital Gain 14,452 Income from Other Sources 1,31,66,581 Total Income 33,64,479 Less : Unabsorbed Depreciation of A.Y. 2002-03 2,11,69,435 Unabsorbed Depreciation to be carried forward (1,78,04,956)
In this computation following details of unabsorbed depreciation were given :
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A.Y. Set off in this year Unabsorbed Unabsorbed depreciation (A.Y. 2004-05) carried forward depreciation 2002-03 2,11,69,435 33,64,479 1,78,04,956 2003-04 10,68,72,831 10,68,72,831
In A.Y. 2005-06, the following incomes were returned :
Income from Business Profit before depreciation and claim u/s 10B 58,85,78,364 Add : Addition made in the asstt. 18,79,767 Less Depreciation claimed 20,39,80,960 Net Business Profit 38,64,77,171 Less : Deduction u/s 10B 40,47,30,653 (1,82,53,482) Income from Capital Gain Short Term Capital Gain 64,46,187 Income from Other Sources 1,68,98,037 50,90,742 Less : Brought forward unabsorbed depreciation 14,22,71,036 Gross Total Loss (13,71,80,294)
From the above table, the Assessing Officer observed that the assessee has claimed deduction u/s. 10B without considering the brought forward unabsorbed depreciation and that the assessee has not completely followed section 32(2) for computing its income whereas the income from profit and gains of the business or profession should be computed as per section 29 of the Act and in accordance with the provisions of section 30 to 43C. The Assessing Officer also referred to section 10B(4) and decision of Karnataka High Court in the case of CIT vs. Himata Singike Seide Ltd. (2006) 156 taxman 151 (Kar). The Assessing Officer issued show cause notice stating that why brought forward unabsorbed depreciation may not be first allowed before calculating the deduction u/s. 10B of the Act. The assessee’s reply is incorporated in the assessment order. The Assessing Officer was not satisfied with the reply of the
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assessee. The Assessing Officer also noticed that the assessee is maintaining single books of account for all its units, i.e., those which are covered for deduction as well as those which are not covered and the assessee has tried to allocate the expenses between these units only for the purpose of computing deduction u/s. 10B for STPI unit and non-STPI units. He also noticed that assessee had no evidence to show that said un-absorbed depreciation belongs to which particular unit. He further observed that as per case law cited by him for computing deduction u/s. 10B, the effect of brought forward unabsorbed depreciation has to be allowed first for the purpose of computing the profit and gains of business and subsequently on such adjusted business profit, the deduction u/s. 10B has to be computed. Accordingly, the deduction claimed was computed by the Assessing Officer. The Assessing Officer also observed that earlier year’s assessment was completed u/s. 153A of the Act, wherein, the Assessing Officer has not given any adverse inference on the issue of carry forward unabsorbed depreciation. Accordingly, he concluded that the assessee has claimed deduction u/s. 10B in excess of business profit and claimed the said deduction under the nomenclature of un-absorbed depreciation. He also referred to the computation of income filed by the assessee for the assessment year 2004-05 and 2005-06. Finally, he concluded that for the year under consideration, there is no brought forward un-absorbed depreciation and as such, no unabsorbed depreciation for preceding year was available for adjusting from the current year’s income. Accordingly, the Assessing Officer recomputed the taxable income of the assessee. The profits of eligible units were shown by the assessee to the tune of Rs.66,30,07,954/- which has been computed as under :
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NTL Salt Lake NTL Pretoria Kolkata NTL - MUMBAI St. Kokata NTL Banglore NTL Athena Total Total turnover of the business 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 Total turnover of the 158,753,455 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 undertaking Total profit of the 609,427,681 609,427,681 609,427,681 609,427,681 609,427,681 609,427,681 business Total profit of the undertaking 51,925,667 6,617,939 13,159,929 36,718,070 554,586,349 663,007,954 Total export turnover of the 158,753,455 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 undertaking Export turnover of the undertaking in r/o Computer 158,753,455 • 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 Software Amount of deduction u/s I0B 51,925,667 6,617,939 13,159,929 36,718,070 554,586,349 663,007,954
From the submissions of the assessee, the Assessing Officer observed that net profit rate has been computed by the assessee between the STPI unit and non STPI unit @ 22.69% and 33.88% respectively. The basis of allocation of expenses was also doubted by the Assessing Officer. In this regard, the Assessing Officer noticed that the assessee has relied on certificate issued by the Chartered Accountant for the basis of proportionate expenses. The assessee was also asked to explain how the profit of different units has been computed by it. In this regard, notice u/s. 142(1) dated 18.12.2009 was issued to the assessee and the assessee submitted reply dated 29.12.2009 and 20.12.2009. The Assessing Officer was not satisfied from the submissions of the assessee and recomputed
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the eligibility as per section 10B(4) of the Act by applying the following formula and computed the deduction u/s. 10B.
Total profits of business x Export Turnover 65,08,44,191 x 1956650902 _______________________________________________ __________________________________ Total Turnover 2200927477 = 57,86,08,285
Accordingly, the deduction u/s. 10B worked out to Rs.57,86,08,285/- as against Rs.66,30,07,954/- computed by the assessee. Aggrieved from the order of the Assessing Officer, the assessee appealed before the ld. CIT(A) where he also submitted additional evidence which was sent to the concerned officer calling for remand report. The Assessing Officer objected to admission of additional evidence and in this regard, the assessee also submitted rejoinder. The ld. CIT(A) after considering all the submissions of the assessee and relying on various judicial pronouncements, partly allowed the appeal of the assessee. In the appellate proceedings, the ld. CIT(A) also disallowed demerger expenses of Rs.28,42,073/-. Aggrieved by the impugned order, the Revenue is in present appeal and the assessee in cross objection before the Tribunal.
The ld. DR relied on the observations of the Assessing Officer and strongly supported the assessment order dated 31.12.2009. It was further submitted that it is an accepted position of law that first business profit has to be determined as per section 30 to 43D as provided u/s. 29 of the Act & that it was with reference to the profit so determined, the deduction u/s. 10B(4) has to be worked out. In regard to admission of additional evidence by the ld. CIT(A), the ld. DR submitted that the assessee did not furnish the evidence before the AO in assessment proceedings. Therefore, the CIT(A) was not justified in admitting the additional evidence. Ample opportunity was given to the assessee. The assessee
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has also not maintained separate books for each units and as per section 10B for claiming deduction, separate books of account are required to be maintained. In addition to above, the ld. DR filed a written synopsis which reads as under :
“MAY IT PLEASE YOUR HONOURS: This case was listed as a PART-HEARD appeal for today, i.e. 25.01.2019 at 2:30 pm. However, this DR was intimated that the case was heard without any intimation to the undersigned in the first half itself.
2 The issue involved in these appeals filed by the Revenue relates to the allowance of deduction u/s 1 OB irrespective of the fact that separate books of accounts have not been maintained. The deduction u/s 10B is allowed in respect of profits derived from the export of article of things or computer software provided the undertaking fulfills all the conditions specified under section 10B(2) i.e. it is not formed by the splitting up or reconstruction of already existing business also the letter has been filed in time as per Section 139 (1) the machinery/plant transferred to undertaking have not already been used for any purposes. In the present case the assessee was formed as a result of the demerger of NIIT Ltd. w.e.f. 01.04.2003 as per Delhi High Court order. Thus the first operating year was assessment year 2004-05. In the assessment of facts available in the form No. 35 filed before the CIT(A) for A.Y.2006-07, it is mentioned that the unabsorbed depreciation of Rs. 13,90,60,056/- pertained to the non-eligible units of NIIT ltd. Ltd. For A.Y. 2002-03 & 2003-04 vested in the appellant pursuant to scheme of demerger. The question that for consideration is whether demerger of NIIT Ltd. & hiving away some of the business to the appellant & other group Co. can be said to constitute new independent & identifiable undertaking separate & dispatch from existing business (Delhi HC in Mahaan Foods 216 CTR 148).
In response to the specific questionnaire issued under section 142(1) dated 18.12.2009 wherein the AO sought information regarding the different units of the assessee which were operating and to state if separate books were being maintained for each unit. If so maintained, the assessee was to furnish unit wise copy of final accounts for the impugned year and if not maintained, to furnish the basis on which expenses stand allocated. It may be stated herein that in accordance with the CBDT Circular 1/2013 dated 17.01.2013, it has been clarified that though there is no legal requirement to maintain separate books of accounts, since the deduction u/s 10B is available only to eligible units, the AO is entitled to called for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required. The replies of the assessee dated 29.12.2009& 20.11.2009 have been scanned and are available at pages 26 & 27 of the assessment order. The reply of the assessee neither makes it clear what were the ineligible units and what was the “appropriate basis” as certified by the auditors as per which the allocation of expenses between the MO Us and Non EOUs was made. This aspect has not been added
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by leaved CIT(A) in his order. Moreover, notable some of the units (EOUs) inrafed part. Member &preto …………
On the merits of the issue, i.e. deduction u/s 10B of the Act of the eligible unit, the views of the Assessing Officer is that such deduction has to be allowed from the total income of the appellant which would be arrived at after giving effect to the provisions of sec. 32(2) r.w.s 72 (2) Of the I.T. Act. However, the appellant vehemently opposes this view by arguing that even though sec. 10B is a deduction provision, it continues to be in Chapter III and therefore, the same is still in the nature of an exemption. According to the appellant, the term ‘total income’ employed in Sec. 10B denotes globel income of the undertaking and not the total income as defined in sec 2.(45) and therefore, the profits of the undertaking which is eligible for deduction u/s 10A do not enter into the computation and therefore, there is no question of unabsorbed business loss being set off against such profit and gains of the eligible undertaking. In support, the appellant has heavily relied on the decision of the Karnatka High Court in the case of CIT vs. Yokogawa India Ltd. & Others 921Taxmann.com 154)
4.1. Thus, in the present case, the basic issue in dispute is that whether the Assessing Officer was justified in his view that the profits and gains of the eligible undertaking has to be computed in accordance with Sec 30 to 43D of the I.T. Act as provided in Sec. 29 of the I.T. Act, before allowing deduction u/s 10B of the I.T. Act. Sec. 10B was originally inserted by the Finance Act. 1988 w.e.f. 01.04.1989 as an exemption provision under Chapter III of the I.T. Act. After several amendments, it was substituted by the Finance Act, 2000 w.e.f. 01.04.2001. Prior to its substitution w.e.f. 01.04.2001, Sec. 1OB read as under:-
10B (1) Subject to the provisions of this section, any profits and gains derived by an assessee from a hundred per cent export-oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applied shall not. be included in this total income of the assessee.
(2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i.). It manufactures or produces any article or thing;
(ia) In relation to an undertaking which begins to manufacture or produce any article or thing on or after the Ist day of April, 1994, its exports of such articled and things are not less than seventy-five percent of the total sales thereof during the precious year: (ii). It is not formed by the splitting up, or the reconstruction, of a business already inexistence:
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;
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(iii). It is not formed by the transfer to a new business of machinery of plant previously used for any purpose.
Explanation.— The provisions of Explanation I and Explanation 2 sub-section 1 and Explanation 2 sub-section (2) of section 80-1 shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause 9ii) of that sub-section.
(3). The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any [ten] consecutive assessment years, beginning with the assessment year relevant to the precious year in which the undertaking begins to manufacture or produce articles or things ….”
The revised provisions made effective from 01.04.2001, which is applicable of 4.2. the year under consideration, read as under:-
10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software of a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:
Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section sit stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment year:
[Provided Further that for the assessment year beginning on the 1st day of April, 2003, the deduction by an undertaking from the export of such articles or thing or computer software:]
Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the ls< day of April, 2010 and subsequent year:
[Provided also that no deduction under this section shall be allowed to an a assessee who does not furnish a return of his income on or before that due date specified under sub-section (1) of section 139.]
(2). This section applies to any undertaking which fulfils all the following conditions. Namely:-
(i). It manufactures or produces any articles or things or computer software;
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(ii). It is formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 3313. in the circumstances and within the period specified in that section;
(iii). It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.- The provisions of Explanation 1 and Explanation 2 of to subsection (2) of section 80-1 shall apply for the purposes of clause (iii) of this subsection as they apply for the purposes of clause (ii) of that sub-section.
(3). This section applies to the undertaking if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as competent authority may allow in this behalf.
Explanation 1. - For the purpose of this sub-section, the expression” competent authority” means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange.
Explanation 2. - The sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve I3ank of India.
(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking.]
4.3.1 From a comparative reading of the section at it stood prior to 01.04.200 1 and thereafter, it can be seen that prior to its substitution, Sec,10B provided that any profits and gains derived by the eligible undertaking shall not be included in the total income of the assessee. Thus, the profits and gains derived by the eligible undertaking were never to enter into the process of computation of total income of the income of the assessee. But the new section as substituted by the Finance Act 2000 provides that deduction is available for profits and gains as are derived by a hundred percent export- oriented undertaking from the total income of the assessee. Thus the main distinguishing feature in the old and revised provisions is that prior to its substitution, the benefit of exemption was absolute but as per the revised provisions, such benefit is to be given by way of a deduction from that total income of the assessee. This clearly implies that the income of the eligible undertaking has to be computed in terms of the
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Act first and the incidence of deduction comes only thereafter. If the benefit was to be given at source as is given to any exemption provision i.e. at source as id being argued by the appellant, then there was no need of the legislature to substitute the provisions w.e.f 01.04.2001 whereby the benefit was envisaged to be provided in the form of a deduction in contrast to the ‘exclusion’ as provided in the pre-amended section. While there is no quarrel that what is allowable as deduction by the undertaking is the profit derived from the export of articles or things or computer software, once the terms ‘deduction of such profits and gains ....’ And ‘from the total income of the assessee’ are deployed. It has to be presumed that for arriving such total income, the profits and gains of the undertaking has to be computed in accordance with sec.30 to 43D of the I.T.Act and only thereafter the assessee can avail the benefit of deduction u/s 10B of the I.T. Act. Therefore effect of provisions of sec. 32(2) r.w.s. 72(2) has to be given while computing the profits and gains of the undertaking. This view gets endorsement from the decision of the Hon’ble Karnataka High Court in the case of Chi' vs. HimatasingikeSeide Ltd. Reported in 286 1TR 255 wherein it was held as under:-
“ Sec. 32(2) provides for adjustment for subsequent years. If we see Section 10-B, it provides for exemption of payment of tax with reference to profits and gains derived by 100% export oriented undertaking. To arrive at a profit and gain, one has to unnecessarily take into consideration the total income in terms of the Act. To arrive at the income one has to take into consideration, the various additions and deletions in terms of the Act. In fact, the petitioner knowing fully (sic) has chosen to take into consideration the allow ability of depreciation for the purpose of calculation of total income. But curiously an argument has been advanced that exemption in terms of Section 10-B could also be on commercial basis not necessarily in terms of the calculation. We do not accept this submission. Section!0-B cannot be read in isolation of other provisions. It is only an exemption provision. Exemption cannot be fanciful and it has some rational with other provisions of the Act. Therefore, a combined reading of the definition of exemption, total income tax liability deductibility etc. , one has to come to a conclusion that calculation as far as possible is to be in terms of the Income Tax Act. That is exactly what has been done by the assessee. Having calculated in a particular manner, now it does not lie in the mouth of the assessee to contend contra in these proceedings. It cannot be argued that calculation so provided is on a mistaken basis or that could be on commercial basis. We are not prepared to accept this argument advanced by the assessee. Exemption also has to be scrutinized by the Department as otherwise there is every chance of exemption being mis-used by an assessee. It may be true that even after taking into consideration, the unabsorbed depreciation, the assessee may get exemption but none the less he cannot take only a portion of depreciation just to suit his income for the purpose of nil liability and adjust the balance of unabsorbed depreciation for other business income once again to show nil liability. When the unabsorbed depreciation could have been taken for arriving an exempted income, the assessee cannot play with the figures for the purpose of showing nil liability as has been done in the case on hand. The intention of the Legislature is only to provide 100% exemption for export income and not for other income. The petitioner by dividing depreciation contrary to Section 32has virtually taken exemption from payment of tax even for other business income in the case on hand. That cannot be allowed as rightly ruled by the Commissioner. The allowance of the depreciation by the Tribunal, in our view, is prejudicial to the interest
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of revenue as argued by the Department. The Tribunal has taken a narrow view of the matter without taking into consideration, the laudable object of exemption and at the same time providing for tax liability towards other liability. The interpretation has to be meaningful and acceptable and it cannot be against the intention of the legislation. Legislation never wanted the entire income to be exempted by taking advantage of Section 10-13 of the Act. The approach of the Tribunal to our mind is incorrect and hence, we find substance in the argument of the revenue. Thus, the Karnatka High Court has held that of the purpose of granting the benefit u/s 10B, the profit and gains of the export-oriented undertaking has to be in consideration with the total income computed in terms of the Act.
Further, reference may also be made to the decision of the Hon’ble Kerala High 4.4. Court in the case of CIT vs. Patspin India on the issue wherein, diverging from the view taken by the ITAT Cochin and concurring with the view taken by the Karnataka high Court in the case of Himatasingike seids Ltd. (supra) the Hon’ble Court held that business profit has to be first determined based on ss.30 to 43D as provided under s.29 and it is with reference to the profit so determined that the deduction eligible under s. 1013(4) has to be determined. The court ruled that: amendment to Sec. 10B (6) supports the view that even during the period of tax holiday, the undertakings could set off unabsorbed depreciation in computing the business profit, the Hon’ble Court held that:-
we are unable to uphold the order of the Tribunal following two others Benches decisions of the Tribunal because business profit has to be first determined based on ss.30 to 43D as provided under s.29 of the Act and it is with reference to profit so determinate deduction eligible under s. 10B(4) has to be determined with reference to export turnover and the total turnover. The whole purpose of the exercise of computation by applying ss. 30 to 43D is to determine the total business profits with reference to which the export profit of the unit has to be determined for granting deduction under sub-s. (4) of s. 10B. In fact, since respondent’s two industrial units are eligible for deduction under s. 10B(4), eligibility has to be done after computing the business profit from the industrial units which necessarily has to be done after setting off unabsorbed depreciation carried forward from precious years. We are also constrained to notice that the principle of computation of deduction under s. 10B(4) is similar to determination of eligible export profit for deduction under S.80HITC (3) of the Act.
Even though the Tribunal has not relied on sub s. (6) of s. 10B uphold the claim of respondent-assessee, they have referee to the said provision and said that sub-s 10B also supports the case of the respondent assessee. We are unable to accept this observation of the Tribunal also because s. 10B(6) does not deal with computation of business profit during the period the assessee enjoys exemption under s.lOB(4) of the Act. On the other hand this subsection is only an embargo against the assessee claiming any carried forwarded benefit under the sections referred to therein in the assessment of the assessment year following the end of the tax holding enjoyed by the assessee under s. 1013(4) of the Act. So much, in our view, contrary to the finding of the Tribunal
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sub-s.(6) only supports Revenue’s case that carried forward depreciation should be set off in the computation of business profit even during the period assessee enjoys exemption under s. 10B(4) of the Act. We agree with the view taken by the Karnataka high Court in the decision above referred ”
4.5. The Mumbai Bench of the ITAT I in the case of ACIT vs. Jewellery Solutions International Pvt. Ltd. Reported in 28 SOT 405 while deciding similar issue has held as under:-
“ from the plain reading of the section, it can be seen that an undertaking which fulfils the conditions stipulated therein shall be allowed a deduction of profits and gains of business derived from the EOU from the total income of the assessee. Thus, initially the profits and gains of the business of the eligible undertaking has to be computed. Section 28 of the Income-tax Act provides the various incomes which shall be chargeable to income-tax under the head Profits and gains of business or profession' and section 29 provides that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 32D of the Act. Therefore, for computing the profits and gains of business or profession of a 100 per cent export-oriented undertaking, the income has to be computed in accordance with sections 30 to 43D of the Act and thus effect has to be given to section 32 of the Income-tax Act for computation of the profits and gains of the business or profession. Sub-section (2) of section 32 provides for the carry forward of the unabsorbed depreciation of earlier years and further that subject to the provisions of sub-section (2) of section 72 and sub- section (3) of section 73, the allowance of part of the allowance to which ejfect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, to be deemed to be allowance for that previous year and so on in the succeeding previous year. Section 72 of the Income- tax Act provides for the carry forward of the set-off of business loss. Sub-section (I) of section 72 provides for the set-off of the brought forward loss of earlier years and sub- section (2) provides for the set- off of unabsorbed depreciation under sub-section (2) of section 32 or subsection (4) of section 35.
Sub section (3) of section 72 provides that no loss, other than the loss referred to in the proviso to sub-section (1) of this section shall be carried forwarded under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Thus, it can be seen that the brought forward loss or brought forward depreciation/allowance is allowable only for a period of eight successive assessment years. Consequently, it can be seen that after the computation of income from profits and gains of business or profession, the loss of the earlier years has to be first set-off and subsequently the unabsorbed depreciation brought forward from the earlier years has to be set-off. Thereafter the current year's depreciation has to be set off. Current year's depreciation includes depreciation of the relevant assessment year as well as the deemed depreciation as provided under sub-section (2) of section 32 of the Act, it is only thereafter that the income from profits and gains of business or profession are computed to be included in the total income of the assessee and
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thereafter deduction under section 1 OB of the Act is to be allowed under the computation of income from profits and gains of business or profession after adjusting the unabsorbed depreciation, therefore, the action of the Assessing Officer in computing the deduction under section 1 OB is correct. The reference of the CIT(A) to sub-section (6) of section 10B is misplaced as the said sub-section provides for the procedure to be adopted in the year immediately following the year in which the tax holiday comes to an end ”
4.6.Similar view has been taken by the ITAT on the issue in the following cases:- • Seimens Information Systems Ltd. vs. DCI135 ITD 196 (Mum) • Global Vantedge P. Ltd. Vs. ACIT - ITR (Trib.) 326 (Del) • Wipro Ltd. Vs. DCIT - 34 DTR 493 (Bang) • Sward Global (I) Pvt. Ltd. Vs. ITO 306 ITR (AT) 286 (Chennai) • Intellinet Technologies India pvt.ltd. 5 ITR 9Trib.) 96 (Bang) • 4.7. Thus, all the above decision support the view that before availing the benefit or deduction u/s I OB, profits and gains of the eligible undertaking has to be computed in accordance with Sec. 30 to 43D of the I.T. Act.
4.8. As regards the decision relied upon by the appellant in the case of CIT vs. Yokogawa India Ltd., it would appear that the contrary decision of the same High Court in the case of Himatasingike Seids Ltd. (supra) was not brought to the notice of the Hon’ble Bench while deciding the said case. At this point, it also needs mention that the appeal filed by the assessee in the case of Himatasingike Seids Ltd. (supra) against the decision of the High Court before the Hon’ble Supreme Court of India was held to be devoid of any merit and dismissed by the Apex Court in its order passed on 19.09.2013 in Civil Appeal No. 1501. On the other hand, in the case of Yokogawa India ltd., the Hon’ble Supreme Court has granted leave in the SLP filed by the Department in SLP No. 21 101/2006 against the decision of the Hon’ble Karnataka High Court. Therefore, under the circumstances, the decision of the Karnatka High Court in the case of Himatasingike Seids ltd. (supra) having got assent of the Apex Court by virtue of the dismissal of the civil appeal filed by the assessee in the case, would gain precedential value on the issue.
The issue to be address today was weather the claim of assessee of additional expenditure of Rs. 36 Lacs was allowable in view of fact that such claim was not made at any time before the assessing officer. Perusal of the profit and loss account for the year ended 31st March 2006 reveals that total Income for the year was Rs. 227.04 crores while total expenditure was Rs. 166.10 crores. Accordingly, the Bench may kindly take this submission into consideration and decide accordingly. Copy of the audited accounts of the assessee are enclosed for ready reference.”
On the other hand, the ld. AR relied on the order of the ld. CIT(A), but in respect of its cross-objection, he submitted that de-merger expenses of
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Rs.28,42,073/- has already been considered in the computation sheet for calculating the taxable income. Therefore, disallowance thereof would amount to double addition. He also submitted that each unit has maintained its own account in ERP based software. The books of account have been audited by the Chartered Accountant and no adverse report is given. Form No. 56G was also placed in the assessment proceedings. He also submitted a synopsis containing 38 pages which is placed on record as well as made oral arguments which have been considered.
We have heard both the sides and perused the entire materials on record and we find that the ld. CIT(A) has dealt with the issue in the impugned order in right perspective and we do not find any justification to discard the findings reached by him. For ready reference, the findings of the ld. CIT(A) are reproduced hereunder :
2.4 I have carefully considered the facts of the case, the arguments of the appellant, the observations made by the AO in his remand report and the rejoinder of the appellant. First of all, I would like to decide the issue of the admission of the additional evidence as sought to be adduced by the appellant. In their application for admission of additional evidence, the appellant have taken the following grounds: (i) That the aforesaid additional evidence only seek to further corroborate/substantiate the contention of the appellant that all the eligible EOU's are separate and independent units, which is also supported by the documents already on record. (ii) That the appellant was prevented by a sufficient cause from producing evidence before the A.O. as the appellant was never issued any notice or afforded any opportunity to demonstrate that the various units operating during the year under consideration have independent and separate existence and could not be treated as one common business. (iii) That the assessment was completed in haste without raising specific query based on which final order has been passed thereby denying sufficient and adequate opportunity to the appellant to adduce the entire evidences.
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(iv) That the evidence being- produced are critical and material for adjudication of the grounds raised in appeal. 2.4.1 The AO, on the other hand, has vehemently opposed admission of the additional evidence on the ground that the appellant was given due opportunities during the assessment proceedings. However, no specific observations giving dates and details of such opportunities has been made by the AO in his remand report. Further, the AO has not controverted the appellant's contention that no specific show cause notice was issued to the appellant to demonstrate as to how the various export oriented units operating during the year were having independent and separate existence and why they should not be treated as a single business unit. Therefore, I am of the view that specific opportunity was not granted to the appellant for clarifying the issue as to why all the units of the appellant company may not be considered as one unit for the purpose of deduction u/s 108 of the Act. The documents that the appellant seeks to admit at this level are mainly documents relating to Customs Licenses issued to each of the eligible units and the registers maintained by those units under the Customs rules, details of fixed assets purchased at the time of formation of the EOUs and separate monthly performance reports of the EOUs. The Assessing officer has raised the issue of some of these documents bearing the name of "M/s NIIT Ltd." instead of "M/s NIIT Technologies Ltd.", which has been explained by the appellant stating that all the eligible units were initially part of NIIT Ltd and were demerged into the appellant company through the court approved scheme of demerger, approved by the Hon'ble High Court of Delhi with effect from 1.04.2003. That is why the documents relating to the demerged eligible units, executed prior to the effective date, i.e., 4.06.2004, are in the name of the demerged company, i.e., NIIT Ltd. To my mind, these documents are material to decide the question as to whether the EOUs are to be treated as separate undertakings or they are in fact expansion of the business of the appellant company as held by the Assessing Officer. The Hon. Jurisdictional High Court in the case CIT vs. Text Hundred India Pvt. Ltd.: 239- CTR 263, held that Rule 29 enables the Tribunal to admit any additional evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. In the case of CIT v. Virgin Securities & Credits (P) Ltd.: 332 ITR 396 (Del), the Hon. jurisdictional High Court held that the CIT(A) may admit additional evidence, after obtaining a remand report from the assessing officer, if the evidence sought to be adduced by the applicant is crucial to the disposal of the appeal. Hon'ble ITAT Delhi have also held in the case of Electra (Jaipur) (P) Ltd. vs. lAC (26 ITO 236) that if the evidence is genuine, reliable, proves the assessee's case, then the assessee should not be denied the opportunity. Similarly it was held in Dwarka Prasad VIs ITO 63 ITD 1 (TM) that additional evidence if in the interest of justice, and renders assistance to the authority in passing order, may be admitted. Other similar rulings are 68 TTJ 722, 231 ITR 1, 21 SOT 218,293 ITR 53, 941TD 79 etc. In view of the guidance available in the afore-cited judicial pronouncements, 1 hold that the additional
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evidence as mentioned in para 2.3 above are admissible u/r 46A and are taken on record. 2.4.2 Having decided the question of admission of additional evidence, now the substantive issues are to be decided. The same are discussed in the following paragraphs. 2.4.3 The first substantive issue is whether the appellant was correct in claiming deduction under section 108 of the Act with reference to separate and independent profits of each of the eligible units as against the action of the assessing officer in computing such deduction with reference to business profits of the appellant company as a whole. The AO had observed that all the units were in fact expansion of the same business as they were engaged in, the same line of business as the company and no separate books of accounts have been maintained for these units. He had also raised doubts about the allocation of expenses to these units to 'arrive at the conclusion that deduction could not be calculated in respect of the units separately and therefore he calculated the deduction u/s 108 by aggregating all the profits of eligible and non eligible units and applying the-formula as given in section 108(4) to the. entire profits of the business of the appellant company thereby reducing the deduction substantially. The appellant has made detailed submissions on this ground as summarised/extracted hereinabove. Various evidences to establish separate "identity and independent existence of the eligible EOUs have been furnished from which it appears that these units are independent of each other as well as of the non-eligible units in respect of their licences, location and resources etc. They have got separate approvals from the- STPI Authority for claiming exemption ills 108 of the Act as newly set up 100% EOU and they have also been issued separate export licences by the Customs authorities. These units have separate locations as is indicated from their respective addresses. The appellant has also produced evidences to establish that they have separate fixed assets, plants & machinery and furniture and fixtures etc. Each of the EOUs have independent, separate and distinct operations as indicated in the evidences produced in the form of copies of softex forms, copies of the invoices, copies of foreign inward remittance certificates, copies of custom bonded register maintained by each unit and copies of Monthly performance reports on sample basis. Though separate books of accounts in respect of units have not been maintained in the traditional sense, the appellant has explained that in the ERP Software accounting system implemented by them each and every transaction of each unit is separately coded and therefore all the transactions are identifiable as in the case of separate books. Moreover, the deduction has been claimed' in respect of the EOUs on the basis of the prescribed Audit Report in Form No.56G which also requires the certifying Chartered Accountant to certify the amount claimed as deduction u/s 10B on the basis of examination of the accounts and records of the assessee relating to the business of the eligible undertaking. This report also does not refer to any separate books to be maintained or required to be maintained by the eligible EOU. This issue is also directly covered in the case of DCIT V. Arabian Exports Limited: 109 TTJ 440 (Mum.) as cited by the appellant hereinabove, wherein the Tribunal, upheld the following decision of the CIT(A) :
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"2.4 In view 'of the above provisions of s10B, any profits and gains which are derived by an assessee from a 100 per cent export-oriented undertaking shall not be included in the total income of the assessee, if the conditions in sub-s.· (2) of this section are fulfilled. Looking to these conditions as mentioned in sub-s.(2) of this section, it is not seen that separate books of accounts are the requirement of claiming deduction from the total income of any assessee relating to the profits and gains derived by that assessee from a 100 per cent export-oriented undertaking ................ ... This Koregaon unit is fulfilling all the conditions as per sub-s. (2) of s..10B of the Act and therefore, it. is entitled for that exemption .. This ground 'Of appeals is allowed. " Reference, in this regard has also been made to the following decisions of the Court / Tribunal where it has been held that there is no requirement to maintain separate books of accounts as a necessary precondition for claiming the benefit of relief under sections 1OA/10B of the Act:- • CIT V. Fusion Software Engg. (P.) Ltd.: ITA No. 952 and 953 of 2006 (Kar HC) • JCIT v Gebbs Infotech Ltd.: ITA No. 3370/Mum/2007 (Mum.) 2.4.4 In view of the evidence placed and the explanations furnished, it is held that the eligible units of the appellant company identified as the following:
NTL-Salt Lake - Kolkata EM4/1, 2nd Floor, North Wing Sector-V, Salt Lake Electronics Complex, Kolkata NTL-Safed Pool, Mumbai Aditya Textile Compound, Carouroy Building Safed Pool, Andheri Kurla Road, Andheri (E), Mumbai NTL-Pretoria Street, Kolkata 6B, Pretoria Street, Kolkata NTL-Bannerghatta Road, No.39/2,Bannerghatta Road, Bangalore Bangalore 560029 NTL-Athena, New Delhi A-44, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi.
are-separate 100% EOUs of the appellant company for the purposes of claiming deduction u/s 10 B of the Act and they cannot be treated as one with the appellant company just because they carry out the same nature of business. As has been held in the cases of CIT v Mahan Foods Ltd. 216 CTR 148 and CIT v Gedore Tools (India) P.Ltd. 126 ITR 613 by the Hon. Jurisdictional High Court, just because the new undertaking carries en the same nature of business as the old unit, it cannot be treated as one with the old unit unless it has been formed by splitting up or reconstruction of the old unit. It is not the case of the AO that in the instant case, the eligible units have been formed
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by splitting up or reconstructing the old .or non-eligible units. Since there is enough evidence in the appellant's case that the Expert Oriented Units were formed independently of the existing units for the purpose of export of software and they were approved as such by the relevant authorities, and that they have functioned independently of each other for the purposes of the business of expert of software, these units have to be treated as the eligible undertakings for the purposes of deduction u/s 10B of the Act and profits arising therefrom have to be allowed as deduction under that section separately as certified by the Audit Report in Form 56G, The first substantive issue is therefore decided in favour of the appellant and the AO is directed to re-compute the deduction u/s 10B accordingly. 2.4.5 The second substantive issue in this appeal is as to the stage of allowance of deduction under section 10B of the Act. The Assessing Officer has taken the view that the deduction u/s 10B was allowable after deducting unabsorbed brought forward depreciation from the profits of business of the appellant company. He has placed reliance mainly on the judgment of the Hon. Karnataka High Court in the case of CIT vs. Himmatsingike Seide Ltd. 286 ITR 255 for the above proposition. The case of the appellant is that deduction is allowable from profits of the eligible business as computed under the head "business income". As a necessary corollary, such profits are the individual profits of the eligible units computed before setting off of brought forward unabsorbed losses depreciation, if any, of non-eligible undertakings, required to be set off, subsequently at the stage of computing gross total income, under Chapter VI of the Act. According to the appellant, on one hand, the facts of the case of CIT vs. Himmatsingike Seide Ltd. 286 ITR 255 are clearly distinguishable from the facts of the instant case and on the other, the. aforesaid issue is squarely covered by the decision of the-Special Bench of the' Tribunal in the case of Scientific Atlanta India (P) limited: 38 SOT 252/129 TTJ 273 wherein the Tribunal has held that deduction under section 10A of the Act has to be independently computed in relation to the profits of the eligible unit without adjusting the same against- unabsorbed depreciation relating to the non-eligible unit(s). Reliance has also been placed by the appellant on the decision of Bangalore Bench of Tribunal in the case of ACIT v. Yokogawa India Ltd. 111 TTJ 548, wherein it was held that deduction under section 10A shall be allowed from the profits of eligible undertaking without setting off the losses /carried forward losses of other non-eligible divisions. Other cases relied upon by the appellant are as under: • Changepond Technologies (P.) Ltd. V. ACIT: 119 TTJ 18 (Chenn.) • KPIT Cummins Infosystems (Bangalore) (P) Ltd. V. ACIT: (2008) 26 SOT 529 (Bang,) • Reliq Software (P) Limited V. ITO: 125 ITO 101 (Bang.) Besides the above decisions cited in their written submissions, the appellant's AR also brought to my attention the judgement of Hon. Karnataka High Court in the case of Yokogawa India Ltd. : 246 CTR 226 (Kar), wherein this issue has been examined by the Hon. High Court and decided in the favour of the assessee. The AR has argued since the provisions of section 10A are analogous to the provisions of section 10B the ratio laid
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down by the above said judicial pronouncements are applicable to the appellant's case also. 2.4.5.1 I have perused the judicial pronouncements as relied upon by the Assessing Officer and the appellant. In the case of CIT vs. Himmatsingike Seide Ltd. 286 ITR 255, the assessee had 100% Export Oriented Undertaking eligible for deduction under section 10B of the Act. The undertaking was set up in the assessment year 1988-89. The assessee, however, claimed deduction for five consecutive years from assessment year 1992-93. The year under consideration before the Hon Court was assessment year 1994-95. The assessee had unabsorbed depreciation relating, to the 100% Export Oriented Undertaking carried forward from assessment year 1988-89 to the year under consideration. The said unabsorbed_ depreciation was adjusted by the assessee against certain income from "other sources" and not against the eligible profits of the 100% Export Oriented Undertaking and the entire profits from the Export Oriented Undertaking was claimed as exempt from tax. The assessee, by doing so was able to set off the unabsorbed depreciation of the Export Oriented Undertaking against the taxable profits from "other sources", which had the effect of reducing the taxable income to nil. The Hon High Court, after analyzing the entire scheme held that the unabsorbed depreciation of the Export Oriented Undertaking had to be adjusted against the eligible profits before allowing exemption/deduction under section 108 of the Act. The Hon. Court observed that by claiming set off of unabsorbed depreciation of the eligible undertaking against "income from other sources", the assessee had virtually taken exemption from payment of tax even in respect of other business income, which was clearly not permissible. Applied to the present case, it is immediately discernible that the facts of the present case are totally opposite of the facts of the cited case. There is no brought forward unabsorbed depreciation in respect of the 100% EOUs in the present case. In the present case, it is noticed that the question of set off of unabsorbed deprecation brought forward from earlier year(s) prior to claiming deduction under section 108 of the Act would not arise since the unabsorbed depreciation of Rs.13,90,60,056 carried forward from assessment year 2005-06 related to undertakings not eligible for deduction under section 10B of the Act during the year under consideration. This fact clearly establish that unabsorbed depreciation brought forward actually pertained to the non-eligible unit and not to the eligible unit(s) and therefore, the question of set off of such unabsorbed depreciation prior to claiming deduction under section 10B of the Act in my view does not arise at all. I agree with the contention of the appellant that facts of the instant case are distinguishable from the facts of the cited case and hold that the decision of Hon. Karnataka High Court in the case of Himmatsingkie Siede Ud.(supra) is not applicable in the present case and that the reliance placed by the Assessing Officer on that case is somewhat misplaced. 2.4.5.2 In the case of Scientific Atlanta India Technology (P) Limited: 38 SOT 252 I 129 TTJ 273 as relied upon by the appellant, it has been held by the Special Bench of the Tribunal as under: “Under the scheme of the Act the profits of the unit eligible for deduction under section 10A of the Act," would form part of the income computed under the head "Profits and gains
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of business and profession". However, in order the same will not suffer tax deduction will have to be made -in respect of such profits while computing the income under the head "Profits and gains of business and profession". In other words, a deduction in respect of profits eligible under section 10A is required to be made at the stage of computing the income under the head' "Profits and gains of business or profession". Thus, we find that what is contemplated by the Legislature is that profits and gains of the undertakings from the export of articles or things or computer software are to. be deducted computing the profits and gains of business or profession (at hundred per cent upto assessment year 2002- 03 and ninety per cent thereafter). Even though it is a deduction to be Given, it is to be deducted while arriving at the profits of business and profession and not from the gross total income as envisaged under Chapter VI-A. Thus,-we hold that deduction under section 10A under Chapter III of the IT. Act is to be granted while computing the profits and Gains of business and profession itself and not from the gross total income………………… . 25. Having held that the claim under section 10A is only deduction and the same is not subjected to section 80AB of Chapter VI-A, now, let us consider whether the deduction so to be given under section 10A is undertaking specific or otherwise. 26. It can be noticed from the language of section 10A(1) that a deduction of such profits and gains that as are derived by "an" undertaking 'qualifies under section 10A is to be given from the total income. Interestingly, the Legislature has mentioned the profits and gains as are derived by an undertaking. It means that. the assessee may have more than one undertaking and in such a case, one has to consider the profits and gains of that "particular undertaking" which qualifies for deduction under section 10A. According to section 10A(4), the deduction is to be computed in the same proportion which bears to the profits of the undertaking, the same proportion as the export turnover bears to the total turnover. It may be noticed that again the words used are "Profits and gains of business of the undertaking". In any case, this is not the total profits of the business of the assessee. Thus in computing deduction under section 10A we have to ascertain the total income as per the provisions of the Act in respect of "that undertaking" and the amount so determined is to be reduced from the total income . 27. Having held that the deduction under section -10A is not an exemption but only a deduction under Cbepter III of the Income-tax Act and the provisions of section 8OAB of Chapter VIA would not be applicable to such deduction under section 10A, and also that the deduction under section 10A is undertaking specific, we have to answer the question posed before us by holding that the business losses are non-eligible unit, whose income is not eligible for deduction under section 10A of the Act, cannot be set off against the profits of the undertaking eligi61e for deduction under section 10A for the purpose of determining the allowable deduction under section 10A of the Act. Of course, if there are more than one undertaking which is eligible for deduction under section 10A and if some of the units have profit and other units have loss, it would be an entirely different case which is before us. Hence, the decision rendered in this appeal would not-be applicable to such cases where there are more than one eligible undertaking claiming deduction under section 1OA. In this case, there is only one eligible unit claiming deduction under section 10A and hence, the loss from non-eligible unit cannot be set off against the profits of the eligible unit while determining deduction under section 1OA.II (emphasis supplied)
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2.4.5.3 In the case of ACIT v. Yokogawa India Ltd.: 111 TTJ 548 the Bangalore Bench of Tribunal held that deduction under section 10A shall be allowed from the profits of eligible undertaking without setting off the losses or carry forward losses of other non- eligible divisions. This decision was subjected to appeal u/s 260A by the Revenue and the Hon. High Court of Karnataka has given its verdict in ITA No. 78/2011 dated 9th August 2011, reported in 246 CTR 226(Kar) in a combined order in respect several other cases, a copy of which has been furnished by the AR of the appellant. From a perusal of this judgement, it is seen that the Hon. High Court has answered the question as to whether the profit of eligible undertaking for the purpose of allowing deduction u/s 10A of the Act (which is analogous to section 108) at the source itself or after deduction of unabsorbed brought forward depreciation, in favour of the assessee. The Hon. Court while upholding the contention of the assessee that deduction u/s 1OAwas to be allowed at the source itself observed as under:
"12. A literal reading of the above provision requires deduction from the total income. There can be deduction in computing the 'tote! income. However, there cannot be deduction from the total income which is the final result of the computation process. The language adopted in section 1O-A is different from the one adopted in section 80 -A. Section 10 -A provides for deduction from the total income. In the scheme of the Act, while- various deductions are allowed –in computing the total income once the total income is computed, no further adjustments to the total income is envisaged. The scheme of the Act provides for deductions in computing the total income but no mechanism for any deduction from the total income already computed is provided under the Act. Once the total income is computed, the next step is determination of the tax by applying applicable rates on the total income ........ . . 14. The phrase "total income" has been used in the Income tax Act in several places with different connotation and shades. The phrase total income used in section I0-A is one such variant. The phrase need not necessarily mean the total income as commuted in accordance with the provision of the Act. The relief under this section is with reference to the STP undertaking and not to the assessee. In other words, the relief travels with the undertaking irrespective of who owns the same. The computation of relief as provided in section 10-A (4) is also with reference to the undertaking. A business might have several undertaking and section 28 does not envisage computation .of income of each such undertaking. In other words, the profit of the business of the undertaking cannot be computed in isolation. The profits are computed under the head "profits and gains from business or profession" as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 1O-A (1) is, therefore to be understood as the total income of the STP unit. This is clear from the first proviso to section 10-A (1) which make reference to the total income of the undertaking and not the total income of the assessee, The definition of any term given in section 2 will only apply when the context does not otherwise require. - The placement language an-d setting of section 10-A means profits and gains of the STP undertaking as understood in its commercial sense.
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As relief under section 10-A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore the twin provisions of section 14 are not existing .in the case of income of STP undertaking and accordingly such income is not liable to be computed under chapter IV. Therefore the correct view would be that the relief under section 10-A will have to be given before chapter IV The deduction shall be given first and process of commutation of "profits and gains from business or profession begins thereafter. .This proposition is in the line with the form of return ---Allowing· deduction at the earliest stage of business income, computation almost blurs the difference between the commercial profits and tax profits. 16. The substituted section 10-A continues to remain in Chapter lII. It is titled as "which do not form part of the total income". It mC1y be noted that when section 10-Awas recast by the Finance Act, 2001 the Parliament was aware of the character of relief given in chapter III. Chapter 111 deals with incomes which do not form part of total income. If the Parliament intended that the relief under section 10-A should be by way of deduction in the normal course of computation of total income, it could have placed the same in Chapter- Vl(A) which houses the section like 80-HHC 80-IA.etc. The Parliament was aware of the various restriction and limiting provisions like section 8OA and section 80AB which Was in Chapter VI-A which do not appear in Chapter-III. The fact that even after its recast the relief has be-en retained in Chapter 11/ indicates that the intention of Parliament is to regard it as an exemption and not a deduction. The Act of the Parliament in consciously retaining the section in Chapter 11/ indicates its intention that the nature of relief continues to be an exemption. The Parliament despite being conversant with the implications of this Chapter has consciously chosen to retain section 10A in Chapter III. 17. If section 10A is to be given effect to as a deduction from the total income as defined in section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in section 80B(5) to mean the total income computed in accordance with the provisions of the Act, before making any deduction under this Chapter. As per the definition the gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section IDA. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VIA deductions are exhausted. 18. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at, after giving effect to all deductions under the Act. There cannot be any further deductions from the total income as the total income is itself arrived at after all deductions. 19. From the aforesaid discussion, it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A unit
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has to be deducted at source itself and not after computing the gross total income. The total income, used in"'the provisions of section IDA in this context means the global income off the assessee and not the total income as defined in section 2(45). …………………………………. 27. Form No.1 read with Rule 12 of the Income Tax Rules, 1962 provides for return of income and return of fringe benefits. 28. In Schedule NO.9 at column NO.7 it is clearly mentioned the amount claimed deductible under section 1OA/1OAA/10B or 1DBA. Dealing with the scheme of the form it is stated that scheme of this form follow the scheme of tile law as outlined above in its basic form and with reference to schedule 1, 9, 3 and 13 it is stated that fill out Schedule 9 if you are claiming deduction under section 10A, 10AA, 10B or 10BA in respect of some specific business". Item 7 of schedule 1 is to eliminate such income from computation of profits and loss and no separate declaration under section 10A(8) or 10B(8) if any is required to be made. 29. After making all such computations the assessee would be entitled to the benefit of set off or carry forward of loss as provided under section 72 of the Act. This is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings under section 10B of the Act. The expression "deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee", has to be understood in the context with which the said provision is inserted in Chapter –III of the Act. Sub-section (4) of section 10A clarified this position. It provides that the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such article or thing or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from the export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. (emphasis supplied) 2.4.5.4 In view of the above discussion and considering the guidance available in the aforesaid judicial pronouncements especially in-the above-cited decision of the Hon. Karnataka High Court in the case of Yokogawa India Ltd.: 246 CTR 226(Kar) and others, as given with reference to the provisions of section 10A which are analogous provisions of section 1DB, it is held that the deduction u/s 1DB is allowable at the source itself and not after computation of Gross Total Income as per the provisions of the Act. The second substantive issue is, therefore, also decided in favour of the appellant and the Assessing Officer is hereby .directed to recompute the deduction u/s 10B accordingly. This disposes off Ground Nos. 1, 2 & 3. (Allowed)
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Finding no infirmity in the detailed order of the ld. CIT(A) we find no merit in the appeal of the Revenue. Accordingly, the Revenue’s appeal deserves to be dismissed sans merit. 7. In respect of the cross-objection filed by the assessee regarding sustenance of demerger expenses of Rs.28,42,073/-, the ld. AR drew our attention on the computation of income filed before the Assessing Officer. He stated that assessee has already disallowed demerger expenses while computing its income, but the ld. CIT(A) did not consider it in right perspective while confirming the addition made by Assessing Officer on this account. In our opinion, this fact, however, needs verification at the stage of Assessing Officer. We, therefore, remit the cross objection of the assessee back to the file of Assessing Officer for deciding it afresh after making proper verification. The Assessing Officer is directed to verify the contention of the assessee that the demerger expenses were already considered in the computation of income and shall give credit thereof, if it is found so. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, the cross objection of the assessee deserves to be allowed for statistical purposes.
In the result, the appeal of the Revenue is dismissed and cross objection of the assessee is allowed for statistical purposes. Order pronounced in the open court on 27.02.2019. Sd/- Sd/- (Amit Shukla) (L.P. Sahu) Judicial member Accountant Member
Dated: 27.02.2019 *aks*