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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
The appeals are by the revenue against the common order of the CIT(Appeals)-2, Bengaluru dated 28.04.2015 for the assessment years 2007-08, 2008-09 and 2010-11. The assessee has filed Cross Objection against the very same order of the CIT(Appeals) for the assessment year 2007-08. These appeals and the CO were heard together and they are disposed of by this consolidated order.
The assessee is a private limited company engaged in providing IT enable services and filed its return of income for the assessment years 2007-08, 2008-09 & 2010-11 on 30.10.07, 27.09.2008 and 24.9.2010 respectively declaring Nil income for all the three assessment years. Initially the returns were processed u/s. 143(1) and then selected for scrutiny. In the assessments concluded u/s. 143(3) of the Act vide orders dated 31.10.09, 20.12.10 and 30.12.12, the total income has been determined at Nil for the AY 2007-08, for the AY 2008-09 MAT income has been determined at Rs.1,76,79,341 and for the AY 2010-11 at Rs.9,59,428 under the normal provisions of the Act.
Aggrieved by the order of the Assessing Officer, the assessee preferred appeals for all the three assessment years before the CIT(Appeals). Since the issues involved were common, the CIT(A) has passed a common order.
With respect to deduction u/s. 10B, the facts are that the AO for the respective assessment years noted that the assessee had claimed deduction u/s. 10B of the Act before computing the brought forward losses/unabsorbed depreciation for all the three assessment years.
Therefore, the AO deducted the brought forward losses of Rs.63,90,092, 86,81,801 and Rs.15,83,375 for the AYs 2007-08, 2008-09 & 2010-11 respectively to restrict the deduction u/s. 10B of the Act.
As for the AY 2010-11, in addition to deduction of brought forward losses from the profits, the AO reduced the incidental expenses such as freight and insurance amounting to Rs.94,56,501 and Rs.61,896 aggregating to Rs.95,18,397 only from the export turnover and restricted the deduction available u/s. 10B in addition to the deduction of Rs.15,83,375 from the profits for calculating the deduction u/s. 10B of the Act.
The CIT(Appeals) after considering the submissions made by the ld. AR for the assessee, held as regards setting off of brought forward losses that the issue is covered by the decision of the Hon’ble High Court of Karnataka in the case of CIT v. Yokogawa India Ltd., 341 ITR 389 (Kar).
The CIT(A) further held that the ruling is applicable with equal force in respect of set off of unabsorbed depreciation. Therefore, the CIT(A) , 871 & 872/B/16 & CO 4/B/16 Page 4 of 7 directed the AO to work out the deduction u/s. 10B of the Act before set off of brought forward losses and unabsorbed depreciation.
As regards the deduction of incidental expenses from total turnover, the CIT(Appeals) relied on the decision of Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. v. ACIT, 349 ITR 98 wherein it has been held that where certain expenses are excluded from the export turnover for the purpose of calculating deduction admissible under the Act, such expenses should also be excluded from the total turnover, as the export turnover forms part of the total turnover. The CIT(A) also relied on the subsequent decision of the Hon'ble High Court of Karnataka in the case of CIT & DCIT v. Motor Industries Co. Ltd. [ITA No.776/2007 c/w ITA No.1171/2006, 744/2007 and 1155/2006 dated 13.6.2014].
Aggrieved, the Revenue is in appeal before us on the following grounds:-
“1. The order of the Ld. CIT(A) is contrary to the facts and circumstances of the case and hence not sustainable.
2. The CIT(A) has erred in relying on the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. M/s.Yokogawa Ltd., to give relief to the assessee for deduction u/s. 10B.
3. The CIT(A) has erred in directing the AO to exclude the expenditure incurred in foreign currency from both export turnover as well as from total turnover by placing its reliance on the case of Tata Elxsi Limited v. ACIT ((349 ITR 98) ) without appreciating that there is no provision in section 10B that such expenses should be reduced from the total turnover, as clause (iv)
, 871 & 872/B/16 & CO 4/B/16 Page 5 of 7 of the Explanation to section 10A provides that such expenses are to be reduced only from the export turnover.
4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.” , 5. The appellant craves leave to add, alter, amend and/or delete ant of the grounds mentioned above.”
The assessee has filed the cross objections in CO No.4/Bang/2016 which is merely supportive of the order of the CIT(Appeals).
We have heard the rival submissions and perused the material on record and also considered the decision of Hon'ble High Court of Karnataka in CIT v. Yokogawa India Ltd. (supra) wherein it has been held that relief u/s. 10A of the Act is to be computed prior to giving effect to carry forward and set off provisions of the Act. The Hon’ble High Court in paras 10 to 20 of its judgment dealt with this issue and noticed that section 10A(1) of the Act is in pari materia with section 10B of the Act. Hence, we are convinced that the CIT(Appeals) was right in his decision and his order does not call for any interference. Accordingly, we dimiss the Revenue’s appeal on this issue.
The next issue is with regard to exclusion of expenses from export turnover vis-à-vis total turnover for the purpose of calculating deduction u/s. 10B of the Act.
The CIT(Appeals) has relied upon the decision of the Hon'ble jurisdictional High Court in the case of Tata Elxsi Ltd. v. ACIT, 349 ITR 98 and the subsequent decision in CIT & DCIT v. Motor Industries Co. Ltd. (supra) and directed the AO to allow the assessee’s claim for reducing the expenditure incurred in foreign currency not only from the export turnover, but also from the total turnover.
It transpires that the Revenue is in appeal before us only to keep the issue alive since it has not accepted the decision of Hon'ble High Court of Karnataka. However, nothing was brought on record before us to the effect that the decision of the Hon'ble High Court of Karnataka has been reversed /modified by the Hon’ble Supreme Court, even though it is claimed that SLP has been recommended to be filed by before the Hon’ble Supreme Court. In such facts and circumstances, the Tribunal and other authorities under the jurisdiction of the Hon'ble High Court of Karnataka are bound by its decision. Hence, we do not find any infirmity in the order of the CIT(Appeals), wherein he has followed the Hon'ble jurisdictional High Court decision in the case of Tata Elxsi Ltd. (supra). Hence we dimiss the departmental appeal on this issue.
The assessee’s CO being only supportive of the order of the CIT(Appeals) is academic and hence dismissed as such. , 871 & 872/B/16 & CO 4/B/16 Page 7 of 7 15. In the result, the appeals by the department as well as the CO by the assessee are dismissed.
Pronounced in the open court on this 24th day of June, 2016.