DCIT, BANGALORE vs. M/S NOUS INFO SYSTEMS PVT. LTD.,, BANGALORE

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IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A No.63/Bang/2016 (Assessment Year : 2007-08) Deputy Commissioner of Income Tax, Circle -5(1)(1), Bengaluru .. Appellant v. M/s. Nous info Systems P. Ltd, No.1, 1st Main, 1st Block, Koramangala, Bengaluru 560 004 .. Respondent PAN : AAACN4584B Assessee by : Shri. Ujwal Tiwari, CA Revenue by : Shri. Vijaykumar N, Addl. CIT Heard on : 14.09.2016 Pronounced on : 11 .11.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER :

This is an appeal filed by the Revenue against the order of the CIT (A)-5, Bengaluru, dt.9.10.2015, for the assessment year 2007-08.

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Limited, the assessee , is a company engaged in the business of

computer software and information systems. It has four foreign

branches in USA, UK, Australia and Germany and two STPI units,

one in Bangalore and the other at Coimbatore. During a y 2007-08,

the STPI unit in Bangalore had exhausted its tax holiday benefit

while the STPI unit at Coimbatore was on tax holiday regime. It filed

its original return for a y 2007-08 on 30 October 2007 declaring

a total income of Rs.65,064,654/- after considering brought forward

losses of Rs.13,070,289/- and after claiming deduction under section

10A at Rs.3,590,789/- .

2.1 Thereafter, it filed a revised return on 23 rd March 2009

declaring total income of Rs.65,354,148/- after considering brought

forward losses of Rs.12,378,310/- and after claiming deduction under

section 10A at Rs.3,993,274/- , which was processed under section

143(1) vide intimation dated 26 March 2010 granting a refund of

Rs.1,466,480/-. The assessee filed a rectification application

under section 155(11A) against this intimation vide letter dated

14 February 2012 (acknowledgement of application dated 21

February 2012) as the export proceeds amounting to Rs.1,75,839/-

were realised and brought into India as per section 10A of the Act.

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2.2 Subsequently, a notice under section 148 dated 26 th March

2014 was issued. In response , revised return of income was filed on

24 April 2014 declaring total income of Rs.65,354,148/- after

considering brought forward losses of Rs.12,378,310/- and after

claiming deduction under section 10A at Rs.3,993,274/- . In the

reassessment proceedings, the Assessing Officer ('AO') made,

inter alia, the following adjustments:

• Deduction under section 10A at Rs.3,590,789/- has been considered based on original return of income, instead of the claim made at Rs.3,993,274/- as per revised return of income.

• Carry forward of business losses at Rs.12,378,310/- has not been considered.

2.3. Aggrieved, the assessee filed an appeal before the CIT(A)-5,

Bengaluru . The CIT(A) , inter alia, relying the decision of the

Hon’ble Jurisdictional High Court in the assessee’s case in ITA Nos

1099 &109 of 2008 & 2009 for ay s 2003-04 & 2005-06, respectively,

and in the case of CIT v Yokogawa India Ltd (2002) 341 ITR 385 has

allowed the appeal. Thereafter, the Revenue filed this appeal with

the following grounds:

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relevant portion of the judgment from the Jurisdictional High Court in

the case of CIT v Yokogawa India Ltd (2002) 341 ITR 385 is

extracted as under :

“29. Form No 1 read with Rule 12 of the Income Tax Rules 1962 provides for return of income and return of fringe benefits

3 0 I n S c h e d u l e N o 9 a t c o 1 m n N o 9 i t i s c l e a r l y mentioned the amount claimed /deductible under Section 10- A/10-AA/10-B or 10- BA. Dealing with the scheme of the form it is stated that the scheme of this form follows the scheme of the 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 10 A, 10 AA, 10B or 10 BA 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 10-A(8) or 10- B(8) if any is required to be made.

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entitled to the benefit of set off or carry forward of loss as provided under Section 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective (if the nature of business which he is carrying on. The said benefit is available even to undertakings under Section 10-B 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 10-A clarifies this position. It provides that the profits derived from export of articles or things from 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 soft-ware 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 10-A it is the profit, derived from 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.

32 The provisions of this sub-section 11 apply even in the case where an assessee has opted out of Section 10-A by exercising his option under sub-Section (8). As discussed it is permissible for an assessee to opt in and opt out of Section 10- A. In the year when the assessee has opted out the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VIA. If in such a year, the assessee has suffered losses such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward for being set off against

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profits of the subsequent a s s e s s m e n t y e a r s i n t h e n o r m a l c o u r s e . U n a b s o r b e d deprecation also merits a similar treatment. 33. As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit under Section 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore as the profits and gains under Section 10 A is not be included in the income of the assessee at all the question of setting off the loss of the assessee of any profits and gains of business against such profit aid gains of the undertaking would not arise. Similarly, as per Section 72(2) unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation under Section 32(2) is to be set off. As deduction under Section 10-A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter. the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of Section 10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue.

decision , has allowed the assessee’s appeal with which we are in

agreement.

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Order pronounced in the open court on 11th November, 2016.

Sd/- Sd/-

(VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

MCN*

Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income Tax 4. The Commissioner of Income Tax (A) 5. DR 6. GF, ITAT, Bangalore By Order

Assistant Registrar