DEPUTY COMMISSIONER OF INCOME-TAX vs. AESSEAL INDIA PVT. LTD., PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A), Pune dt.11.07.2016 for the assessment year 2011-12.

Assessee is a company stated to be engaged in the business of designing and development of mechanical seals, sealing system and manufacturing of mechanical seals. Assessee filed its return of income for A.Y. 2011-12 on 15.10.2010 declaring total loss of Rs.5,21,46,451/-. The case was selected for scrutiny and thereafter assessment was

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framed u/s 143(3) of the Act vide order dt.05.03.2014 and the total loss

was determined at Rs.4,47,48,478/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who vide order

dt.11.07.2016 (in appeal No.CIT(A), Pune-1/10031/2014-15) granted

substantial relief to the assessee. Aggrieved by the order of Ld.CIT(A),

Revenue is now in appeal and has raised the following grounds :

“1. The Ld. Commissioner of Income-tax(Appeal) has erred on the facts and circumstances of the case, in allowing the deduction u/s 10A of the Act without setting of brought forward business loss and unabsorbed depreciation of earlier years in total disregard to the CBDT Circular NO.7/DV/2013 dated 16/07/2013.

assessee had claimed deduction of Rs.73,97,973/- u/s 10A of the Act.

AO noticed that assessee was having loss of Rs.4,48,93,961/- before

claiming deduction u/s 10A of the Act and the deduction was claimed

before setting off of the aforesaid losses. AO was of the view that while

computing total income, loss has to be set off of before claiming

deduction u/s 10A of the Act. The submissions made by the assessee in

support of his contentions were not found acceptable to the AO. AO

held that since assessee was having loss of Rs.4,48,93,961/- before

claiming deduction u/s 10A of the Act, assessee was held to be not

eligible for claiming deduction u/s 10A of the Act. Accordingly, the

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deduction of Rs.73,97,973/- claimed u/s 10A of the Act was denied to

the assessee. Aggrieved by the order of AO, assessee carried the matter

before Ld.CIT(A), who granted partial relief to the assessee by holding as

under :

“6. I have carefully considered the facts of the case as well as reply of the appellant. It is seen that in identical case of Carotino India Pvt. Ltd. for- A.Y.2011- 12, the issue was decided in favour of the appellant. For the sake of clarity relevant portion of the order is reproduced as under:

“7. I have considered the facts of the case as well as reply of the appellant. In this case, the issue to be decided is whether loss of a trading division is required to be adjusted against profit of 10B unit before granting deduction u/s 10B of the I.T. Act, 1961. I find that the issue is covered in favour of the appellant by the following decisions of Hon.Bombay High Court. Though given in the context of sec.10A of the I.T. Act, 1961, the same will apply in respect of Sec.10B also as both the sections are parimateria : i) CIT Vs. Black and Veath Consulting Pvt. Ltd., taxmann.com 727 ii) CIT Vs. Schemetz India Pvt. Ltd., ITA No.4508 of 2010 dated 4.09.2012.

In the case of Black and Veath Consulting P. Ltd, the Hon. Court held that brought forward losses and unabsorbed depreciation of unit, income of which is not eligible for deduction u/s 10A, cannot be set off against current profit of eligible unit for computing deduction u/s 10A. While doing so, the Hon’ble Court held that deduction u/s 10A has to be given at the stage when profit and gains of business are computed in the first instance. In the case of Cit Vs. Schemetz India Pvt. Ltd. (supra), Hon’ble Bombay High Court held that the losses suffered by Mumbai Division (trading division) should not be set off against the profits of Kandla division before claiming deduction u/s 10A of the IT Act, 1961.

Since the facts of the being identical, I do not find any necessity to differ with the view taken as above. Accordingly, following the above order in the case of M/s Carotino India Pvt. Ltd., the AO is directed to allow deduction u/s 10A of the I.T Act, 1961 without setting off losses of other units. Accordingly, he is directed to delete the addition of Rs.73,97,973/-. Thus, the ground No.1 and 2 are allowed.”

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Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal

before us.

Ld.A.R. on the other hand, reiterated the submissions made before AO

and Ld.CIT(A) and placed a chart of summary of previous ITAT orders

and from that chart he pointed that in all the earlier years on identical

issue, the Department appeals have been dismissed by the Hon’ble

ITAT. He further placed on record the copy of latest order of the

Tribunal in assessee’s own case for A.Y. 2008-09 in ITA

No.2477/PUN/2016 order dt.16.03.2018 wherein on similar facts, the

claim of the assessee was allowed. He pointed to the relevant findings of

the order. He therefore submitted that in view of the aforesaid facts, the

ground of Revenue needs to be dismissed.

record. The issue in the present ground is with respect to denial of

claim of deduction u/s 10A of the Act. The claim of deduction u/s 10A

of the Act was denied by the AO mainly for the reason that assessee

was having losses and he was of the view that losses have to be first set

off of before claiming deduction u/s 10A of the Act. We find that

identical issue was decided by the Co-ordinate Bench of the Tribunal in

A.Y. 2008-09 in assessee’s own case in assessee’s favour by observing as

under :

“10. I heard both the parties on this limited issue of correctness of the stage of set off of the claim of losses of Non-STPI unit against the profits of STPI unit qua the determination of allowable deduction u/s.10A of the Act. It is now settled legal proposition that deduction u/s.10A is to be computed and allowed anterior to the allowing the set off of the current

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year losses earned by the Non-STPI unit of the assessee is set off. After the amendment by the Finance Act, 2000, the claim u/s.10A/10B of the Act constitutes “deductions”. The deduction out of the profits and gains of business of an eligible business undertaking has to be made independently before giving effect to the statutory provisions for set off and carry forward of losses contained in sections 70, 72 and 74 of the Act. Further, this issue stands covered by the order of Tribunal in assessee’s own case in ITA No.156/PN/2014, order dated 05-05-2016 for the A.Y. 2007-08. For the sake of completeness of this order, I proceed to extract the relevant para (Para No.9) of the Tribunal as under : “The issue arising before us is identical to the issue before the Tribunal in M/s. KPIT Cummins Infosystems Ltd. Vs. DCIT (supra) and following the same parity of reasoning, we hold that the assessee is entitled to claim the deduction under section 10A of the Act in respect of its STPI unit and the losses from non-STPI unit are to be carried forward to the succeeding years. Reversing the order of CIT(A), we allow the grounds of appeal raised by the assessee.” Considering the same, I am of the opinion that the order of the CIT(A) is fair and reasonable and it does not call for interference. Accordingly, the grounds raised by the Revenue are dismissed.”

stayed or over-ruled by Higher Judicial Authorities. Before us, Revenue

has also not placed any material on record to point out any

distinguishing feature in the facts of the case in the year under

consideration and that of earlier year nor has placed any contrary

binding decision in its support. In view of the aforesaid facts, we find no

reason to interfere with the order of Ld.CIT(A). Thus, the grounds of

Revenue are dismissed.

Order pronounced on the 26th day of November, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 26th November, 2018. Yamini

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आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.