MSOURCE(INDIA)PVT LTD,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE

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ITA 1178/BANG/2014Status: DisposedITAT Bangalore18 October 2016AY 2004-055 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that for book profit computation under Section 115JB, the amount to be reduced is the income to which provisions of Section 10, 11, or 12 apply, not the deduction allowed under these sections. The matter was restored to the AO for fresh decision on the correct amount of income eligible for Section 10A deduction.

What were the facts?

The assessee claimed leasehold improvements as revenue expenditure and sought set off of unabsorbed depreciation. The Assessing Officer (AO) and CIT(A) made adjustments to book profit under Section 115JB, reducing it by a proportionate amount related to Section 10A deduction. The assessee argued for deduction of actual export profits.

What were the issues?

Whether the deduction from book profit under Section 115JB should be based on actual income eligible for Section 10A deduction or the amount allowed as deduction. Whether unabsorbed depreciation can be set off and if leasehold improvements are revenue expenditure.

Which sections of the Income-tax Act were involved?

Section 115JB,Section 10A,Section 72(2),Section 32(2),Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE

Before: SHRI S.K.YADAV & SHRI A. K. GARODIA

For Appellant: Shri P. C. Khincha, C. A

This is an assessee’s appeal directed against the Order of CIT (A) – Mysore dated 17.10.2013 for A. Y. 2004 – 05.

2.

The Grounds raised by the assessee are as under:-

“The following grounds of appeal are independent of, and without prejudice, to one another.

1. The order passed by the Commissioner of Income-tax (Appeals) - Mysore ('CIT(A)'), Bangalore is bad in facts and in law.

2. The learned CIT(A) erred in upholding the order of the Deputy Commissioner of Income- tax,8 (2) Mumbai ('DCIT') and thereby confirming in denial of the expenditure incurred on account of leasehold improvement of Rs. 6,509,157/- as revenue. The appellant prays that the expenditure on normal repairs and maintenance classified as leasedhold improvement be allowed as revenue expenditure.

3.

The learned CIT(A) erred in confirming the order of DCIT, ignoring the provision of section 72(2) r.w.s. 32(2) of the Act and denying the set off of un absorbed depreciation of A.Y. 2001- 02 amounting to Rs. 1,985,585/-. The appellant prays that the Department be directed to allow set off unabsorbed depreciation of A. Y. 2001-02 before setting off unabsorbed depreciation of A.Y. 2002-03 as per section 72(2) r.w. section 32(2) of the Act.

4.

The learned CIT(A) erred in confirming the order of DCIT, in denying the application for revision of claim of deduction under section 10A. The appellant prays that the Department be directed to consider the revision of the claim.

5. The learned CIT(A) erred in confirming the order of DCIT, in re-computing the income u/s. 115JB of the Act. The appellant prays that the Department be directed not to re- compute the income u/s. 115JB of the Act.

6. The learned CIT(A) erred in confirming the levying of interest u/s. 234C ignoring the fact that the taxes payable on retrun income have been paid on time. The appellant prays that the levy of interest u/s. 234C be deleted.

The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.”

3. Learned AR of the assessee submitted that Ground No. 1 is general and Ground Nos. 2 to 4 are of academic interest because deduction was allowed u/s 10A in respect of enhanced income. Hence, we are required to decide only Ground No. 5.

4. Regarding Ground No. 5, he submitted that it is noted by CIT (A) on page 21 of his order that the A.O. has reduced from Book Profit an amount of Rs. 20,07,33,204/- being proportionate income relatable to section 10A by taking proportion of Export Turnover/ Total Turnover. Thereafter, he drawn our attention to page 38 of the paper book and it was pointed out that the export is Rs. 152,17,02,392/- and the expenses incurred for these exports is Rs. 126,90,11,567/- and there the profit on export is Rs. 25,26,90,825/- and this amount should be deducted from Book Profit being actual Profit from Exports and not the proportionate amount as has been done by the A.O. Learned DR of the revenue supported the orders of the authorities below.

5.

We have considered the rival submissions. We find that the A.O. has also reduced an amount of Rs. 2007.33 Lacs from Book Profit as deduction u/s 10A.This is the same amount which is allowed by him as deduction u/s 10A in normal computation. He has also noted these two amounts of Rs. 15217.02 Lacs and Rs. 12690.11 Lacs because he has added back the first amount and reduced the second amount to nullify the adjustments made by the assessee in computation of book profit. As per the provisions of section 115 JB of I. T. Act, what is required to be reduced from net profit as per P/L account to compute Book Profit is the amount of income to which any of the provisions of section 10, 11 or 12 etc. apply and not the amount allowed as deduction u/s any of these sections. In this view of the matter, we find force in the submissions of the learned AR of the assessee that instead of reducing the amount of deduction allowed u/s 10A, the reduction from Book Profit should be of the amount of income to which any of the provisions of section 10, 11 or 12 etc. apply. But on factual aspect, he has to examine the claim of the assessee as to what is correct amount of income, which is required to be reduced from Book Profit. Hence, we set aside the order of CIT (A) on this issue and restore the matter back to the A.O. for a fresh decision with the direction that the assessee should produce full detail and evidences in support of its claim about income eligible for deduction u/s 10A and the A.O. should reduce such income eligible for deduction u/s 10A and is lying credited in P & L Account from Net Profit as per P & L Account instead of reducing the amount of actual deduction allowed u/s 10A. Needless to say, he should allow reasonable opportunity of being heard to the assessee.

Ground No. 5 is allowed for statistical purposes.

6.

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on the date mentioned on the caption page.

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