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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, BANGALORE
Before: SHRI VIJAY PAL RAO & SHRI INTURI RAMA RAO
PER SHRI VIJAY PAL RAO, JM:
This appeal of the assessee is directed against the order dated 21-10-
2011 of the CIT(A)-III, Bangalore for Assessment year: 2005-06.
The assessee has raised the following grounds;
“A. Set off of brought forward losses/unabsorbed depreciation against 10A profits.
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a. The ld. CIT(A) has erred in confirming the order of the AO on setting off the b/f losses and unabsorbed depreciation of the unit amounting to Rs.2,91,37,636/- before computing the profits eligible for deduction u/s 10A of the Act.
b. The ld.CIT(A) has erred in placing reliance on Cambay Electric Supply Industrial Co. Vs CIT(SC) 113 ITR 84, which pertains to claiming of deduction under section 80E placed under chapter VI-A of the IT Act..
c. The ld.CIT(A) erred in not considering the recent decision of the jurisdictional High Court in the case of Yokogawa India Ltd. ITA NO.78/2011 dated 09-08-2011.
B. Set off of unabsorbed depreciation against income from other sources under normal provisions of the Act. a. The ld.CIT(A) erred in holding that, no separate adjudication is required for set-off of unabsorbed depreciation against income from other sources’ amounting to Rs.22,91,810/-.
b. The ld.CIT(A) ought to have directed theld.AO to set- off the unabsorbed depreciation against the income from other sources amounting to Rs.2,291,810/-
C. Set off of unabsorbed depreciation against book profit under MAT provisions of the Act. a. The ld.CIT(A) has erred in holding that no separate adjudication is required for set-off of book loss or unabsorbed depreciation while computing the book profits under minimum Alternate Tax(MAT) provisions.
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b. The ld.CIT(A) ought to have directed the ld.AO to set- off the lower of book loss or unabsorbed depreciation while computing the book profits under MAT provisions amounting to Rs.2,291,810/-
e The appellant craves leave to add, alter, modify the above grounds during the course of appeal
Ground -A regarding disallowance of claim of deduction u/s 10A of
the IT Act, without setting off of brought forward losses unabsorbed
depreciation.
3.1 The assessee company is engaged in the business of software
development. The assessee had claimed deduction u/s10A of Rs.2.91
Cores, without setting of brought forward losses. The AO while passing the
assessment u/s 143(3) of the IT Act, set off of the brought forward losses
against the income eligible for deduction u/s10A of the IT Act, to the full
extent and directed the balance loss to be carried forward.
3.2 The assessee challenged the action of the AO before the ld.
CIT(A). The ld.CIT(A) has confirmed the action of the AO by following the
judgment of the Hon’ble jurisdictional High Court in the case of CIT Vs M/s
Himatasingike Seide Ltd. 286 ITR 255(Kar.)
Before us, the learned AR of the assessee submitted that the issue
is covered by the latest judgment of the Hon’ble jurisdictional High Court in
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the case of CIT Vs M/s Yokogawa India Ltd (341 ITR 385). He has further
submitted that following the said decision of the Hon’ble High Court, the
Co-ordinate Bench of this Tribunal in case of M/s Safran Aerospace India
Pvt.Ltd Vs DCIT in ITA No.1261(B)/2010 vide order dated 31-12-2014 has
decided the issue in favour of the assessee.
On the other hand, learned DR has submitted that judgment of
the Hon’ble jurisdictional High Court in the case of CIT Vs M/s
Himatasingike Seide Ltd. 286 ITR 255(Kar.)(Supra) has been confirmed by
the Hon’ble Supreme Court, as the SLP filed by the assesssee has already
been dismissed by the Hon’ble Supreme Court.
Having considered the rival submissions as well as the relevant
material on record, we find that the judgment of the Hon’ble jurisdictional
High Court in the case of CIT Vs M/s Himatasingike Seide Ltd.(Supra) was
delivered by considering the un-amended provisions of Sec.10A/10B of the
IT Act, 1961 prior to 2001. The Hon’ble jurisdictional High Court in a
subsequent decision in the case of CIT Vs M/s Yokogawa India Ltd (341
ITR 385)(Supra), after considering the amended provisions of Sec.10A/10B
of the IT Act, has decided this issue in favour of the assessee. By following
the decision in the case of M/s Yokogawa India Ltd (341 ITR 385)(Supra)
the Co-ordinate Bench of this Tribunal in the case of M/s Safran Aerospace
India Pvt.Ltd Vs DCIT in ITA No.1261(B)/2010, had considered and
adjudicated an identical issue in para-4.4 and 4.5 as under;
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“4.4 Having regard to the rival contentions and the material on record, we find that it is not clear from the record as to whether brought forward losses and depreciation loss pertain entirely to non-STPI unit only or part of it also pertains to STPI unit. The Hon’ble Karnataka High Court in the case of Himatsingika Siede (supra) was considering the case of an assessee which was 100% export oriented unit in terms of sec.10B of the Act and was claiming exemption u/s 10B. In the case of the said assessee, unabsorbed depreciation available to the assessee in the assessment year 1988-89 was carried forward to the assessment year 1994-95 (relevant assessment year) and was claimed by the assessee to be adjusted against income from other sources, thereby reducing the assessee’s income for assessment purposes at ‘nil’. The AO accepted the said claim of the assessee and assessed the total income at ‘nil’. However, the Commissioner of Income-tax (CIT) revised the order u/s 263 stating that the order passed by the AO was erroneous and prejudicial to the interests of the Revenue as exemption u/s 10B was allowed on an inflated amount without deducting unabsorbed depreciation. The CIT directed that unabsorbed depreciation should be adjusted against the income of the export oriented business undertaking and the total income of the assessee should accordingly be recomputed afresh. The assessee therein had appealed to the Tribunal which allowed the same against which the Revenue preferred an appeal before the Hon’ble High Court. The Hon’ble High Court held that sec.10B cannot be read in isolation of other provisions as it is only an exemption provision and exemption provision cannot be fanciful and it has some rationale with other provisions of the Act and therefore after a combined reading of the definition of
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exemption, total income-tax liability, deductibility etc., one has to come to a conclusion that calculation as far as possible is to be in terms of the Act. To arrive at a profit and gain, one has to necessarily take into consideration total income in terms of the Act and to arrive at the income, one has to take into consideration various additions and deletions in terms of the Act, such as allowability of depreciation for the purpose of calculation of total income. The Hon’ble Supreme Court has dismissed the SLP filed by the assessee against the order of the Hon’ble High Court.
4.5 The Hon’ble High Court of Karnataka, in the case of Yokogawa India Ltd (supra) was considering the case of an assessee which was in the business of manufacture and trading of process controlled instruments and it had filed return of income declaring loss. During the assessment proceedings u/s 143(3), the AO had observed that the assessee had claimed exemption u/s 10A for its STPI unit before set off of brought forward losses and depreciation. The AO, therein, had also observed that 10A benefit can be given only after adjusting brought forward loss and depreciation from the total income of the assessee. Aggrieved, the assessee preferred an appeal before the CIT(A) who granted relief to the assessee and on further appeal by the Revenue to the Tribunal, it was held that business loss of other units cannot be set off against the profits of the undertaking engaged in the business of computer software for purposes of determination of the allowable deduction u/s 10B of the Act. The Revenue, therefore, filed appeal before the Hon’ble High Court and the High Court framed the following question for determination:
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“Whether the Tribunal was correct in holding that the deduction u/s 10A or 10B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessment year or current assessment year either in the case of non-STP units or in the case of the very same undertaking?”
The Hon’ble High court has considered the issue at length and at para 31 of its order has held that as deduction u/s 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits and gains of undertaking would not arise and in that view of the matter, the approach of the AO was quite contrary to the aforesaid provision and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of sec.10A to the assessee. Thus, the question of law was answered in favour of the assessee. Thus, there are two judgments of the Hon’ble Karnataka High Court contrary to each other. When there are two judgments of the very same High Court by benches of equal strength, then the later judgment of the High Court has to be followed as held by the Hon’ble Apex Court in the case of Bhika Ram and others vs. UOI reported in 238 ITR 113. The decision of the High Court in the case of Himatsingike Siede (supra) is dated 4th August 2006 whereas the decision of the Hon’ble High Court in the case of Yokogawa India Ltd.(supra) is dated 9th August, 2011. As regards the dismissal of the SLP by the Hon’ble Supreme Court against the decision of the Hon’ble Karnataka High Court in the case of Himatsingike Siede (supra) is concerned, we find that the Hon’ble
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Supreme Court has dismissed the appeal in limine without laying down any ratio decidendi therein and, therefore, as held by the Hon’ble Apex Court in the case of Indian Oil Corporation Ltd. vs. State of Bihar & others, reported in 167 ITR 897, the decision of the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd.(supra) holds the field. Further, the Hon’ble Apex Court in the case of Vegetable Products Ltd., reported in 88 ITR 192 (SC) has held that where two reasonable constructions are possible, then the construction in favour of the assessee must be adopted. Respectfully following the said decision, we allow the ground of appeal No.2.”.
Following the latest judgment of the Hon’ble High Court in case of
M/s Yokogawa India Ltd (341 ITR 385)(Supra) as well as Co-ordinate Bench
decision in case of M/s Safran Aerospace India Pvt. Ltd.,(Supra) we decide
this issue in favour of assessee and direct the AO to allow the claim of
deduction u/s 10A of the IT Act,, without setting off of brought forward
losses/unabsorbed depreciation
Ground No. B & C are regarding set off of unabsorbed depreciation
against income from other sources, as per the normal provisions of the IT
Act and under the MAT provisions of the Act.
We have heard the learned AR as well as the learned DR and
considered the relevant material on record. Since brought forward
losses/unabsorbed depreciation were set off against 10A profit by the
9 ITA No.1310(Bang)2011
authorities below, therefore, the issue raised in ground no.B & C were not
adjudicated by the ld. CIT(A). In view of our findings on the issue of
allowing deduction u/s 10A without set-off of brought forward
losses/unabsorbed depreciation, ground no.B & C are set aside to the
record of the ld.CIT(A) for adjudication as per law, after affording an
opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on this 9th day of March, 2016.
Sd/- Sd/- (INTURI RAMA RAO) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D a t e d : 09-03-2016 Place: Bangalore am* Copy to : 1 Appellant 2 Respondent 3. CIT(A), Bangalore 4. CIT, Bangalore 5. DR, ITAT, Bangalore 6. Guard File
Asst. Registrar
ITAT, Bangalore