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Before: SHRI R. S. SYAL & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
These two appeals are filed by the Assessee and the Revenue against the order dated 11/11/2013 passed by CIT(A)’s VI- New Delhi.
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The Revenue and Assessee are contesting mainly two issues, firstly, the addition made by the Assessing Officer by reducing unabsorbed depreciation of Section10B exempted units from the profits of Section 10B exempted unit and secondly, set off losses of Section 10B units with non exempted income of such units.
The assessee company is engaged in the business of software development and registered under STPI, Noida. The assessee was having three units and the income of all the three units were exempt u/s 10B. In two of these units, located at Noida & Mayapuri, there were profit of Rs.2,12,62,269/- and Rs.51,85,974/- respectively while in the third unit located in Delhi there was a loss of Rs. 1,24,63,505/- on account of depreciation. The AO has set off the business loss of Rs. 1,24,63,505/- of Delhi unit with the income of the other two units and has reduced the exempted profits of the other two units from Rs.2,73,48,243/- to Rs.1,48,84,738/- and allowed the exemption u/s 10B to that extent only.
During the course of assessment proceedings, the assessee company made a submission to the AO explaining that the assessee company, while filing the return, added a sum of Rs.21,44,641/- being disallowance u/s 14A to the profits of the company for arriving at the book profit, for the purpose of calculation of MAT Liability. The addition was made to be on the safer side as the same was added by the AO in the scrutiny assessment for the assessment year 2009-10. On appeal by the assessee, the issue has now been resolved in favour of the assessee company for the assessment year 2009-10. The assessee company requested to the AO to finalize the assessment on the book profits without adding the disallowance u/s 14A. The request of the assessee has been rejected.
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The AO rejected the claim of the assessee regarding setting off of the unabsorbed depreciation of the loss making exempted unit with the income from other sources amounting to Rs.36,49,808/- of the same assessment year.
Being aggrieved by the Assessment order, the assessee filed appeal before the CIT(A). The CIT(A) after following the decision of the Hon’ble Karnataka High Court in case of CIT Vs. Yokogawa India Ltd 341 ITR 385, held that the addition made by the Assessing Officer is liable to be deleted.
The Ld. DR submits that the Assessing Officer has rightly made an addition as the loss of eligible Section 10B exempted units has to be set off with the profit of eligible Section 10B exempted units. The Ld. DR submits that the Karnataka High Court decision does not apply in this case as the same is related to Section 10A.
The Ld. AR submits that the issue related to Section 10B exempted unit has been settled by the Hon'ble Supreme Court of India in the case of CIT Vs. M/s Yokogawa India Ltd. vide order dated 16th December, 2016 in which Section 10A which is more similarly to Section 10B has been taken into consideration and it is held that from the reading of the relevant provisions of Section 10A, the deductions contemplated therein is qua the eligible undertaking of the assessee standing on its own and without reference to the other eligible units or undertaking of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. The specific provisions of the Act i.e. first proviso to Sections 10A(1), 10A(1A) and 10A(4), provide that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous CBDT Circular understood the situation. Accordingly, the stage of deduction of the profits and gains of the business of an eligible
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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 of the Act would be premature for application.
The Ld. AR submits that the expression ‘total income of the assessee’ in Section 10A can be understood as ‘total income of the undertaking’. The losses/ unabsorbed depreciation of the 10B unit are not to be set off against the profits of the other 10B unit before deduction u/s 10B are affected. The provisions of Sub-section 6 of Section 10B, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 200102 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday.
The Ld. AR submits that in assessee’s appeal issue related to disallowance u/s 14A is not pressed.
The Ld. DR after reading the judgment of the Hon'ble Supreme Court submits that he is relying only on the order of Assessing Officer.
We have heard both the parties and perused the material available on record. The Hon'ble Supreme Court in case of Yokogawa India Ltd. held as under:-
“15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an
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eligible unit pertaining to domestic sales would have to enter into the computation under the head “profits and gains from business” in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging mat 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 80HHE of the Act 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 of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, 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 Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to.
From a reading of the relevant provisions of Section 10A it is more than clear to us 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
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undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that,
“The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.”
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (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 09.08.2000) 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 of the Act 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 of the Act 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’.
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For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the state of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the state of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.”
Thus, the issues contested in the present appeal are squarely covered by the Hon’ble Apex Court decision in case of Yokogawa India Ltd. as Section 10A as well as Section 10B of the Income Tax Act, 1961 are provisions relating to deduction. The CIT(A) has rightly held that the unabsorbed depreciation of one eligible unit cannot be adjusted with the profit of the other eligible unit, while calculating the deduction available to the other eligible unit under Section 10B of the Act. The CIT(A) has also rightly rejected the contention of the assessee that such unabsorbed depreciation should be set off against the income of the assessee under the head “Income from other sources”. Such unabsorbed depreciation of Section 10B eligible unit can only be carried forward and set off only after the tax holiday period is over. There is no need to interfere with the order of the CIT(A) as per the decision of the Apex Court.
In result, both the appeals are dismissed. Order pronounced in the Open Court on 28th April, 2017.
Sd/- Sd/- (R. S. SYAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER
Dated: 28/04/2017 R. Naheed *
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