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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
(अपीलाथ� अपीलाथ� अपीलाथ�/Appellant) अपीलाथ� (��यथ� ��यथ� ��यथ�/Respondent) ��यथ� अपीलाथ� क� ओर से/Appellant by : Shri Shiva Srinivas, JCIT ��यथ� क� ओर से/Respondent by : Shri R. Vijayaraghavan सुनवाई क� तारीख/Date of Hearing : 23.08.2016 घोषणा क� तारीख/Date of Pronouncement : 09.11.2016 आदेश आदेश आदेश /O R D E R आदेश PER G. PAVAN KUMAR, JUDICIAL MEMBER: The revenue has filed an appeal against the order of CIT(A), Chennai, dated 03.06.2014 passed under 143(3) r.w.s. 263 of the Act. The revenue has raised the grounds that the Ld. CIT erred in ignoring the loss of 5th project while determining computation of deduction u/s. 80HHB and the Ld. CIT further erred in allowing the claim irrespective of the fact that the assessee has opened foreign project reserve account on 04.11.1999 and the assessee company is :-2-: I.T.A. No. 2859/Mds/2014 eligible to claim deduction to the extent of the sum equal to amount credited in Foreign Project Reserve Account.
The Brief facts of the case that the assessee company is in the business of Engineering Consultancy Services in India and abroad and filed the Return on income on 30.12.1999 with total income of Rs. 3,48,79,070/- after claiming deduction u/s. 80HHB Rs. 47,20,488/- and Rs. 62,22,892/- U/s. 80-HHC of the Act and the assessment was completed u/s. 147 r.w.s. 143(3) of the Act on 27.12.2006.
Subsequently, the Ld. CIT, Chennai-1 found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue and set aside the Assessment vide order u/s. 263 of the Act dated 30.01.2009. Subsequently, the Assessing Officer in compliance to the directions of revision order issued notice u/s. 143(2) of the Act. The Ld. AR of the assessee appeared from time to time and also submitted the details and case was discussed. The Ld. AR explained that the assessee has claimed deduction u/s. 80HHB Rs. 47,20,487/- being 50% of profit of Rs.94,40,975/- on execution of 5 foreign projects. This profit of Rs. 94,40,975/- in respect of 4 projects and the assessee has ignored the loss of 5th project Rs. 14,46,455/- and claimed deduction u/s. 80-HHB. The Ld. Commissioner, in the Revision proceedings observed that if the loss of 5th project is ignored the turnover should also be excluded. Further the loss of 5th project should be reduced from profit of the other projects for the purpose of calculating deduction u/s. 80HHB. The Assessing Officer dealt on this issue and discussed on page 2 and 3 of his Assessment Order where he has set off the loss of 5th project Rs. 14,46,455/-.
:-3-: I.T.A. No. 2859/Mds/2014 Further the Ld. AO perused the profit and loss account and found that the administrative expenses claimed in respect of loss of the foreign project and estimated administration expenses of Rs.18,93,363 /- relating to sec 80-HHB project and reduced from the profits and worked out the deduction u/s. 80HHB of the Act Rs. 30,39,485/-. Subsequently, the Ld. Assessing Officer on perusal of the provisions section 80-HHB of the Act found that the assessee company should maintain Foreign Project Reserve and utilise for the purpose of business within a period of 5 years. The Assessing Officer upon perusal of bank account is of the opinion that the adequate cash balance is not maintained in the Foreign Project Reserve Account and the bank balance is comparatively lower than the claim of the assessee and passed assessment order u/s. 143(3) r.w.s 263 dated 31.12.1999 determining the total income of Rs. 4,03,19,020/-.
Aggrieved by the order the assessee has filed an appeal with the CIT(A).
In the Appellant proceedings Ld. AR of the assessee argued the grounds and reiterated the submissions made in the assessment proceedings and filed written submissions.
The Ld. CIT(A) considered the findings of the Assessing Officer and submissions and the grounds argued by the Ld. AR and dealt on the provisions of section 80-HHB of the Act exhaustively and relied on judicial decision in the case of CIT Vs Bharath Heavy Electrical Ltd, 352 ITR 88, (Delhi) and observed that the income of foreign projects have to be considered separately for determining the deduction u/s. 80HHB and the action of the Assessing Officer in setting of the loss of :-4-: I.T.A. No. 2859/Mds/2014 5th project is not justified and directed Assessing Officer not to set off the loss of the 5th project in determining the profits for computation of deduction u/s. 80HHB and allowed on the grounds of the assessee. In respect of other grounds raised
by the assessee that the action of the Assessing Officer on allocation of various administrative expenditure apportioned Rs. 18,57,670/-. The Assessing Officer considered net profit ratios of foreign project and apportioned the administration expenditure. The Ld. CIT observed that the net profit ratio cannot be criteria in allocation of expenses to foreign project and directed the Assessing Officer to apportion the administrative expenses based on the turnover. The Ld. CIT(A) found that the statutes prescribes to maintain to open separate bank account of Foreign Project Reserve account and profit has to be credited to Foreign Project Reserve Account and also dealt in detailed on the provisions of section 80-HHB(3)(ii) of the Act and relied on decision of the Delhi Bench of Tribunal in case of Telecommunications Consultants India Ltd Vs. Additional CIT [2012]
53. SOT
1. (Delhi). The Ld. CIT found the observations of the Assessing Officer that assessee is not maintaining sufficient credit balance in the Foreign Exchange Reserve Account is not practicable and also not realistic considering the submissions and judicial decision. The Ld. CIT(A) directed the Assessing Officer to allow the deduction under 80-HHB of the Act
Aggrieved by the order the Revenue has filed an appeal before the tribunal. The Ld. DR submitted that the Ld. CIT(A) has erred in directing Assessing Officer not to set off the loss of 5th foreign project in determining the deduction under 80-HHB of the Act. The CIT(A) should have appreciated that the loss from :-5-: I.T.A. No. 2859/Mds/2014 engineering unit has to be set off for arriving of profits. Further, the assessee has not maintained separate Foreign Project Reserve Account in respect of profits from business and the assessee company has opened the Foreign Project Reserve Account only on 04.11.1999 and has not complied other provisions and prayed for setting aside of the order of CIT(A).
Contra, the Ld. AR of the assessee relied on the orders of the CIT(A) filed and submitted that the Ld. CIT(A) has considered the judicial decisions and the tribunal decision in respect of claim of set off, and also supported his arguments with the decision of Bangalore Tribunal in the case of ITO Vs British Engineering India Pvt. Ltd. ITA 1277/1288/Bang/2014, where the tribunal has considered the issue in respect of section 10A and 10B and held that deduction u/s. 10A of the Act has to be allowed without setting off the loss and the Ld. AR also relied on the judicial decision of CIT Vs Yokogawa India Ltd. and others 341 ITR 385, (Karnataka). The Hon'ble High Court observed that the exemption u/s. 10A 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 very same undertaking.
The Ld. AR further supported the order of the CIT(A) and relied on the decision of CIT Vs Bharath Heavy Electrical Ltd., 352 ITR 88, (Delhi) and also the assessee company has maintained separate Foreign Exchange Project Account and satisfied the provisions of act and there is not dispute on opening the separate
:-6-: I.T.A. No. 2859/Mds/2014 account and relied on the decision of M/s. Telecommunication India Ltd Vs CIT (Supra) and prayed for dismissal of the appeal of the revenue.
We heard the rival submissions and perused the material on record and judicial decisions the Ld. DR contention that the Ld.CIT erred in directing the Assessing Officer to allow the deduction u/s. 80-HHB of the Act without setting off loss of the 5th project and the assessee has opened the Foreign Project Reserve Account in the middle of the financial year and not maintained proper bank balance were as the Ld. AR relied on the findings of the judicial decision of Bharath Heavy Electrical Ltd. (supra) were it was held that the deduction to be allowed without setting off loss of other projects and similarly the assessee maintained separate book of accounts and opened the Foreign Project Reserve Account, in compliance the provisions of section 80-HHB (3)(iii) and there is no dispute on the accounts to the comply the conditions of claim. We support our view relying on High Court decision of CITVs Hindustan Constructions Co. Ltd., 368 ITR 0733 (Bombay) were it is held "in Such circumstances, and considering the provision in question and the order of the Tribunal, Court does not think that the Appellant Tribunal was in error in holding that the assessee was entitled to the deduction under section 80HHB in respect of each project instead of netting up of profits from all the overseas projects. In such circumstances, the Tribunal was in no error in directing the Assessing Officer to allow the deduction as claimed by the assessee without setting off all the losses suffered in other foreign projects. In such circumstances, the Reference is answered in favour of the assessee and against the revenue." Considering the apparent facts and judicial decisions we are not inclined to interfere with the order of the CIT(A)
:-7-: who has examined the evidence available on record vis-a-vis the explanations of the assessee and partly allowed the appeal and we uphold the same.
In the result, the revenue appeal is dismissed.
Order pronounced on Wednesday, the 9th day of November, 2016 at Chennai.