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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER BENCH:
No.86/Mds/2010 is an appeal filed by the Revenue against the order of to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 5 -: the Ld.CIT(A)-1, Coimbatore, in appeal No.237/08-09 dated 09.11.2009 for the AY 2002-03. CO No.8/Mds/2010 is a Cross Objection filed by the assessee in the Revenue’s appeal No.86/Mds/2010. is an appeal filed by the assessee and ITA No.87/Mds/2010 is an appeal filed by the Revenue against the order of the Ld.CIT(A)-1, Coimbatore, in Appeal No.239/08-09 dated 09.11.2009 for the AY 2003-04 and CO No.9/Mds/2010 is a Cross Objection filed by the assessee in the Revenue’s Appeal No.87/Mds/2010. ITA No.1521/Mds/2010 is an appeal filed by the assessee and ITA No.1577/Mds/2010 is an appeal filed by the Revenue against the order of the Ld.CIT(A)-1, Coimbatore, in appeal No.135/09-10 dated 14.07.2010 for the AY 2004-05. ITA No.1966/Mds/2011 is an appeal filed by the assessee against the order of the Ld.CIT(A)-1, Coimbatore, in appeal No.180/10-11 dated 22.09.2011 for the AY 2005- No.88/Mds/2010 is an appeal filed by the Revenue against the order of the Ld.CIT(A)-1, Coimbatore in appeal No.238/08-09 dated09.11.2009 for the AY 2006-07. CO No.10/Mds/2010 is a Cross Objection filed by the assessee in the Revenue’s appeal in ITA No.88/Mds/2010. ITA No.828/Mds/2010 is an appeal filed by the assessee against the order passed u/s.263 by the Ld.CIT(A)-2, Coimbatore in C.No.220(2)/CIT II/CBE/09-10 dated 31.03.2010 for the AY 2007-08. ITA No.1522/Mds/2010 is an appeal filed by the assessee against the order of to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 6 -: the Ld.CIT(A)-1, Coimbatore in appeal No.172/09-10 dated 30.07.2010 for the AY 2007-08.
Shri M.N.Maurya, CIT, represented on behalf of the Respondent and Shri G. Baskar, Adv., represented on behalf of the Appellants.
ITA No.83/Mds/2010 for the AY 2002-03:
It was a submission that Ground No.1 was against the re-opening of the assessment. The assessee did not raise any specific arguments against the re-opening. Consequently, the same is stands rejected.
In regard to Ground Nos.2 to 4, it was a submission that the issue was against the action of the Ld.CIT(A) in upholding the action of the AO in setting off the loses relating to the earlier years against the current year’s profits for the purpose of computing the deduction u/s.10B of the Act. It was a submission that the assessee is a company which was set up during the AY 1998-99 as an 100% Export Oriented Unit near Erode for manufacturing of Egg & Egg products. It was a submission that for the AYs 1998-99, 1999-00, 2000-01 & 2001-02, the assessee was having losses and consequently had not claimed the deduction u/s.10B of the Act.
It was a submission that the company earned profit for the first time during the AY 2002-03. Consequently, the assessee had claimed the deduction u/s.10B of the Act for the first time for the AY 2002-03. The AO to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 7 -: while computing the deduction u/s.10B of the Act, had set off the brought forward unabsorbed depreciation and business losses of the earlier years and set off the same against the current year’s profits. As the total income after set off the brought forward losses, was ‘NIL’, the assessee was denied the benefit of deduction u/s.10B of the Act. It was submitted by the Ld.AR that for the purpose of computing the deduction u/s.10B of the Act deduction u/s.10B of the Act, the brought forward losses were not liable to be set off. For this proposition, he has placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd., reported in (2017) 291 CTR 0001 (SC) wherein the Hon’ble Supreme Court in Para No.17 of the order as held as follows:
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (IA) 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 undertakings has to be 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 of 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’.
It was a submission that in view of the principles laid down by the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. referred to supra, it was a prayer that the AO may be directed to grant the assessee, the benefit of deduction u/s.10B before the set off of the brought forward losses. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 8 -:
In reply, the Ld.DR vehemently supported the order of the AO & the Ld.CIT(A).
We have considered the rival submissions. A perusal of the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd., which has been extracted above clearly shows that the benefit of deduction u/s.10B is to be granted at the stage of the profits and gains of the business of the eligible undertaking arrived at independently. In these circumstances, respectfully following the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd., referred to supra, the AO is directed to grant the assessee, the benefit of deduction u/s.10B without set off of the brought forward losses of the earlier years.
In the result, Ground Nos.2 to 4 of the assessee appeal are stands allowed.
In regard to Ground No.5 which was against the levy of interest u/s.234B, the same is consequential.
In the result, the appeal of the assessee is partly allowed. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 9 -:
In regard to the appeal filed by the Revenue in and Cross Objection filed by the assessee in CO No.8/Mds/2010 against the computation of the book profits u/s.115JB.
It was submitted by the Ld.AR that when computing the book profits u/s.115JB of the Act, the assessee had set off the depreciation as per the Companies Act but when computing the MAT u/s.115JB, the AO had substituted the depreciation as per the Companies Act applied by the assessee with the depreciation as per the IT Act. It was a submission that in view of the decision of the Hon’ble Supreme Court in the Apollo Tyres Ltd. v. CIT reported in 255 ITR 273, the AO could not tinker with the calculation of the book profits u/s.115JB of the Act.
It was submitted by the Ld.DR that the Ld.CIT(A) had directed the AO to allow the deduction u/s.10B on the book profits computed u/s.115JB of the Act. It was, however, fairly agreed by both the sides that as the deduction u/s.10B of the Act computed without setting off brought forward losses of the earlier years, in view of the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. referred to supra, the issue of the computation of book profits u/s.115JB would undergo substantial modification. It was a submission that the issue of the computation of book profits u/s.115JB could be restored to the file of the AO for re-adjudication after granting the assessee the benefit of to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 10 -:
deduction u/s.10B in line with the decision of the Hon’ble Supreme Court
We have considered the rival submissions and we find merit in that.
Consequently, the computation of book profits u/s.115JB is restored to the file of the AO for re-adjudication.
In the result, the appeal filed by the Revenue stands partly allowed for statistical purposes. The Cross Objection filed by the assessee is stands dismissed in so far as it is in support of the order of the Ld.CIT(A).
ITA No.84/Mds/2010 for the AY 2003-04:
In regard to Ground No.1 against the re-opening, no serious arguments have been placed. Consequently, the same stands dismissed.
17. In regard to Ground Nos.2 to 4 against the action of the Ld.CIT(A) in not granting the benefit of deduction u/s.10B before the set off the brought forward losses, similar to Ground Nos.2 to 4 in for the AY 2002-03, our findings in Ground Nos.2 to 4 in ITA No.83/Mds/2010 for the AY in the assessee’s appeal would apply to these grounds. Consequently, Ground Nos.2 to 4 are stands allowed. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 11 -:
In regard to Ground No.5 against the levy of interest u/s.234B, the same is consequential.
In the result, the appeal filed by the assessee is partly allowed.
In respect of being the appeal of the Revenue and the CO No.9/Mds/2010, in line with our decision in the Revenue’s Appeal No.86/Mds/2010 and CO No.10/Mds/2010 for the AY 2002-03 in the assessee’s case, the issue of the computation of book profit u/s.115JB stands restored to the file of the AO for re-adjudication. Consequently, the Revenue appeal in ITA No.87/Mds/2010 is partly allowed for statistical purposes and CO No.9/Mds/2010 stands dismissed.
In regard to being the assessee’s appeal for the AY 2004-05. In respect of Ground Nos.1 to 3 being in respect of deduction u/s.10B on identical findings as given in respect of Ground Nos.2 to 4 in the assessee’s appeal in ITA No.83/Mds/2010 for the AY 2002-03, the said grounds stands allowed. In respect of Ground No.4 against the levy of interest u/s.234B, the same is consequential. In regard to the additional grounds in respect of the re-opening, no serious arguments having been placed and the same stands dismissed.
Consequently, the appeal of the assessee is partly allowed. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 12 -:
In respect of the Revenue appeal for the AY 2004-05 in the issue being against the computation of book profits u/s.115JB, in line with our decision in the Revenue’s appeal in ITA No.86/Mds/2010 for the AY 2002-03 in the assessee’ own case, this issue is restored to the file of the AO for re-adjudication. Consequently, the Revenue’s appeal is partly allowed for statistical purposes.
In regard to the assessee’s appeal for the AY 2005-06 in being in respect of the deduction u/s.10B, in view of our decision in ITA No.83/Mds/2010 in the assessee’s appeal for the AY 2002-03, in respect of Ground Nos.2 to 4, the said grounds are partly allowed. Consequently, the appeal filed by the assessee is partly allowed.
In respect of the assessee’s appeal for the AY 2006-07 in Ground Nos.1 to 3 in respect of the deduction u/s.10B, in view of our findings in the assessee’s own case for the AY 2002-03 in respect of Ground Nos.2 to 4 of ITA No.83/Mds/2010, the said ground Nos.1 to 3 of the appeal stands allowed. In respect of Ground No.4, which is against the levy of interest u/s.234B, the same is consequential.
In the result, the appeal filed by the assessee is partly allowed. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 13 -:
In respect of the Revenue’s appeal for the AY 2006-07 in and the assessee’s Cross Objection in CO No.10/Mds/2010 which is in respect of computation of book profits u/s.115JB, in view of our findings in the Revenue appeal in the assessee’s own case for the AY 2002-03 in ITA No.86/Mds/2010, the issue is restored to the file of the AO for re-adjudication.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes and the CO filed by the assesses stands dismissed.
In respect of for the AY 2007-08 which was against the action of the Ld.CIT-II, Coimbatore, in passing the order u/s.263, it was submitted by the Ld.AR that in the order u/s.263, the Ld.CIT-II has directed the AO to deny the benefit of deduction u/s.10B in respect of the interest earned by the assessee as also the interest subsidy received by the assesseee. It was a submission that the assessee had received interest income of Rs.30,67,412/- from the assessee’s sister concern and also from Fixed Deposit with SBI and from Electricity Deposit with Tamil Nadu Electricity Board. It was a submission that the wordings of Sec.10B were “business of the undertaking”. The interest income was liable to be treated as part of the income eligible u/s.10B of the Act. to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 14 -:
It was a submission that the Ld.CIT-II erred in passing the Order u/s.263 by holding that the same was not allowable when computing the deduction u/s.10B.
In reply, Ld.DR vehemently supported the order of the Ld.CIT-II.
It was a submission that earning of interest was not the business of the assessee.
We have considered the rival submissions. A perusal of the provisions of Sec.10B(i) shows that the words used are “deduction of such profits and gains as are derived by 100% export orient undertaking from the export of articles or things …………..”
The interest income has not been earned by the assessee from the export of any article or thing. Consequently, it does not form part of the profits and gains as derived by the 100% export orient undertaking from the export of any article or thing. Consequently, in view of the decision of the Hon’ble Supreme Court in the case of Liberty India reported in 371 ITR 218 and also decision of the Hon’ble jurisdictional High Court in the case of Dollar Apparels reported in 294 ITR 484, the findings of the Ld.CIT on this issue stands confirmed. However, it is noticed that the assessee has shown the net interest of only Rs.23,54,802/- during the relevant AY after to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 15 -:
reducing the interest income of Rs.7,19,517/- which has been offered as an income in the earlier years. The assessee having offered interest income of Rs.7,19,817/- in the earlier years, the interest income that is to be considered is Rs.23,54,802/-. The order of the Ld.CIT-II passed u/s.263 on this issue stands modified to this extent.
In respect of the issue of the interest subsidy, it was a submission that the assessee had received an interest subsidy of Rs.1,06,63,099/- representing 4% of the interest charged by the banks on the borrowings which was reduced/waived as per the scheme on account of the company’s operations being severely affected for the AY 2007-08 by Bird flu. It was a submission that the subsidy received by the assessee was in the nature of the profits and gains of the assessee’s business and was consequently entitled to the deduction u/s.10B of the Act.
In reply, Ld.DR vehemently supported the order of the Ld.CIT-II passed u/s.263.
We have considered the rival submissions. The subsidy granted to the assessee on account of the business of the assessee being affected by Bird flu is not the income derived by the assessee from the export of any article/thing. This being so, in view of the decision of the Hon’ble to 88, 828, 1521-1522, 1577 & 1966/Mds/2010 & CO Nos.8 to 10/Mds/2010 :- 16 -: Supreme Court in the case of Liberty India Ltd., referred to supra, the findings of the Ld.CIT-II on this issue stands confirmed.
In the result, the appeal of the assesse is partly allowed.
In respect of the assessee’s appeal in for the AY 2007-08 which was against the computation of book profits u/s.115JB, in view of our findings in the Revenue’s appeal in ITA No.86/Mds/2010 for the AY 2002-03, the issue of computation of book profits u/s.115JB is restored to the file of the AO for re-adjudication.
In the result, the appeal filed by the assessee stands partly allowed for statistical purposes.
Order pronounced in the Open Court on June 20, 2017, at Chennai.