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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI. ABRAHAM P. GEORGE
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IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A No.448/Bang/2015 (Assessment Year : 2010-11) M/s. Rangsons Electronics P. Ltd, No.347/D1 & 2, Electronics City, Hebbal Industrial Area, Mysore 570 016 .. Appellant PAN : AAACR8750R v. Commissioner of Income-tax (Central), Bangalore .. Respondent Assessee by : Shri. Dinesh P, Advocate Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 15.10.2015 Pronounced on : 20.10.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the assessee, it is aggrieved that CIT (A) invoked powers vested on him u/s.263 of the Income-tax Act, 1961 (‘ the Act’ in short), for a reason that exemption u/s.10A of the Act was allowed to the assessee without absorbing the carry forward loss and unabsorbed depreciation.
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Ld. Counsel for the assessee submitted that a similar issue had come up before this Tribunal in assessee’s own case for the preceding assessment year 2009-10. As per the Ld. AR there also the CIT (A) had invoked powers u/s.263 of the Act for the very same reason. Relying on the decision of Tribunal in ITA.566/Bang/2014, dt.10.04.2015, Ld. AR submitted that AO had taken one lawful view which was possible and the CIT was just trying to substitute his view for the same. 03. Per contra, Ld. DR supported the order of CIT. 04. We have perused the orders and heard the rival contentions. Order u/s.263 of the Act passed by the CIT does show that he had invoked the jurisdiction for the reason that AO had allowed exemption claimed by the assessee u/s.10A of the Act without effecting a set off of carry forward of business loss and unabsorbed depreciation. We find that a similar issue had come up in assessee’s own case for A. Y. 2009-10 (supra), where also CIT had resorted to section 263 of the Act, before this Tribunal in ITA566/Bang/2014 (supra). This Tribunal had held as under at paras 6 and 7 of its order :
“6. We have perused the orders and heard the contentions carefully. Para 3 to 4 of the original assessment order dated 29/12/2011 clearly bring out that Assessing Officer was aware about the two units viz. DTA and EHTP. He had restricted the claim of Rs.1,96,56,386/- made by the assessee under section 10A of the Act for its EHTP unit to Rs.1,15,90,014/- after effecting a re-
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allocation of the expenses claimed between the DTA and EHTP units. Assessing Officer had also restricted the loss that could be carried forward towards the succeeding year from Rs.1,94,23,422/- claimed by the assessee to Rs.1,13,57,050/-. He had also made a detailed computation of the income of the assessee starting from the profit before tax Rs.12,92,140/- and arriving at a loss of Rs.6,28,631/- after making various allowances and disallowances. Thereafter he had given the distribution of the loss figure of Rs.6,28,631/- in between the two units allocating loss of DTA unit at Rs,1,97,62,639/- and profit of EHTP unit at Rs.1,41,34,108/-. Then he had allowed exemption of Rs.1,15,90,014/- under section 10A for the EHTP, which was separately worked out. From the resultant loss of Rs.1,22,18,645/- he had set off interest income of Rs.8,61,595/- to arrive at the carried forward loss of Rs.1,13,57,050/-. What the Assessing Officer had done effectively was to give exemption u/s 10A of the Act to the profits from EHTP unit considering it separately, or in other words, without first setting off the loss from DTA unit. The question is whether there was an error in the computation done by the Assessing Officer. The assessment order was passed on 29/12/2011. Judgment of Hon’ble jurisdictional High Court in Himatsingike Seide Ltd. (supra) case was pronounced on 04/08/2006 and that of Yokogawa India Ltd.(supra) was pronounced on 09/08/2011. Thus when the assessment order was passed both the judgments were available. Ld. CIT himself has admitted that latter decision was in favour of the assessee wherein it was held that deduction under section 10A/10B is to be given on stand-alone basis. No doubt Hon’ble Apex Court in the civil appeal filed by M/s. Himatsingike Seide Ltd., had upheld the jurisdictional High Court order. The effect of this was elaborately discussed by the coordinate bench in the case of M/s.Clear Water Technology Services Pvt.Ltd. (supra) where it was held as under at paras.7 to 8 of the order: “7. We have given a careful consideration to the rival submissions. A similar issue and similar arguments on that issue had been considered by this Tribunal in the case of DCIT Vs. Biocon (supra). This Tribunal on an identical issue held as follows: “23. We have given a very careful consideration to the rival submissions. The issue raised by the assessee in ground no.21 is identical to the ground raised by the assessee in Biocon (supra).
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The facts of the case before the Tribunal in the case of Biocon (supra) were that the assessee during the previous year had four units which were entitled to claim deduction u/s. 10B of the Act viz., CMZ Unit, SAP Unit, RHI Unit and IFP Unit. The assessee had claimed deduction u/s. 10B of the Act in respect of the aforesaid units totaling Rs.157,22,33,066 which is the sum total of deduction u/s. 10B for the four units as follows:- (1) CMZ Unit : 6,87,70,229 (2) SAP Unit : 76,60,29,880 (3) RHI Unit : 52,42,56,278 (4) IFP Unit : 21,31,76,679 Total 157,22,33,066 The assessee had non-10B units as well. In those non-10B units, there was a loss of Rs.105,92,19,172. In the return of income filed by the assessee, the assessee sought to carry forward the loss of non-10B units for set off against the profits of non-10B units in the subsequent assessment years. The AO firstly noticed that there was income from other sources to the extent of Rs.4,71,15,896 and such had to be set off against the loss of the non-10B units. Accordingly, the AO held that the loss of the non- 10B units that had to be considered for carry forward would be Rs.101,21,03,280. Thereafter, the AO was of the view that income of the 10B units had to be set off against the loss of the non-10B units and if it is so set off, there will be no loss that needs to be carried forward. In coming to the aforesaid conclusion, the AO expressed the opinion that provisions of section 10B are deduction provisions and therefore effect will have to be given to the provisions of section 72 of the Act, even in respect of profits of the 10B unit. Accordingly, the claim of the assessee for carry forward of loss of non-10B unit was not allowed by the AO. On appeal by the assessee, it was contended that the provisions of section 10A and section 10B are exemption provisions and therefore the profit of 10A and 10B units will not enter the computation of total income at all and therefore the profits of these units need not be set off against the loss of non- 10B unit by invoking the provisions of section 72 of the Act. The CIT(Appeals) did not agree with the contention of the assessee and in doing so, he placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT v.
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Himatsingike Seide Ltd., 286 ITR 255 (Kar). In the aforesaid decision, the Hon’ble High Court has taken the view that deduction u/s. 10B has to be allowed after set off of unabsorbed depreciation and unabsorbed investment allowance. The Hon’ble Court took the view that the aforesaid provision was only an exemption provision. The CIT(Appeals) noticed that the aforesaid decision was followed by the ITAT Bangalore Bench in the case of Intelnet Technologies India Pvt. Ltd. v. ITO, ITA No.1021/Bang/2009 dated 12.3.2010. Similar view expressed by the Delhi Bench of the Tribunal in the case of Global Vantage Pvt. Ltd. v. DCIT, 2010 TIOL 24 ITAT (DEL) was also referred to by the CIT(A). A contrary view was expressed by the Bangalore Bench of the Tribunal in the case of KPIT Cummins Info Systems (Bangalore) Pvt. Ltd. v. ACIT, 120 TTJ 956. The CIT(A) found that in the case of Global Vantage Pvt. Ltd. (supra) decided by the Delhi Tribunal this decision has been held to be not in tune with the decision of the Hon’ble High Court of Karnataka in the case of Himatsingike Seide Ltd. (supra). The CIT(A) also referred to the decision of the Chennai Bench of the Tribunal in the case of Sword Global India Pvt. Ltd. v. ITO, 306 ITR 286 (AT), wherein the provisions of section 10A and 10B have been held to be deduction provisions and not exemption provisions. For all the above reasons, the CIT(Appeals) confirmed the order of the Assessing Officer. Against the order of the CIT(A), the Assessee was in appeal before the Tribunal. 25. This Tribunal dealt with the issue in the following words : 63. We have given a careful consideration to the rival submissions. The issue as to whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance. The reason is that if the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non-eligible unit. This issue has already been settled by the Hon’ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). The Hon’ble Karnataka High Court in the case of Yokogawa (supra) had to deal with two substantial question of law. The first substantial
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question of law was on the right of set off of loss of non- eligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon’ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon’ble Court noticed that Sec.10-A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows: “10B. Special provisions in respect of newly established undertaking in free trade zone etc.,- (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the Previous-year in which the under-taking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :” (emphasis supplied) 64. The expression “Deduction” and “shall be allowed from the total income of the Assessee” used in the aforesaid provisions was considered by the Hon’ble High Court and it held in para 13 to 15 of its judgment that the expression “ shall be allowed from the total income of the Assessee” does not mean total income as defined u/s.2(45) of the Act but that expression means “profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit. Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. The Hon’ble Court thereafter held that though the expression used in Sec.10A was “Deduction” but in effect it was only an exemption section. These conclusions clearly emanate from para 17 of the Hon’ble Court’s judgment.
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The situation with which we are concerned in the present case is a situation where there is positive income of the eligible unit then the same should be allowed deduction u/s.10B of the Act without setting of the loss of non-eligible unit. The Hon’ble Karnataka High Court in the case of Yokogawa (supra) was concerned with similar situation as set out above. In view of the aforesaid decision of the Hon’ble Karnataka High Court, we are of the view that the claim as made by the Assessee for carry forward of loss of the non-eligible unit had to be allowed without set off of profits of the 10A/10B unit. We hold accordingly and allow the relevant grounds of appeal of the Assessee. 66. We may also observe that the Hon’ble Karnataka High Court’s decision in the case of Himatasingike Seide (supra) has held that unabsorbed depreciation (and business loss) of same (s. 10A/10B) unit brought forward from earlier years have to be set off against the profits before computing exempt profits. The assessee in that case set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994- 95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred “exemption” for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set-off against income from other sources. It was also claimed that the profits had to be computed on a “commercial” basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the order of the CIT. On appeal by the department, the High Court in CIT Vs. Himatasingike Seide Ltd. 286 ITR 255 (Kar) reversed the order of the Tribunal and held that the brought forward depreciation
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had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. In Civil Appeal No.1501 of 2008 dated 19.9.2013 against the aforesaid decision of the Hon’ble Karnataka High Court, the Hon’ble Supreme Court observed as follows while dismissing the appeal:- “Having perused the records and in view of the facts and circumstances of the case, we are of opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly.” 67. Thus the ratio has to be confined to the facts and circumstances of the case. The aforesaid observations have to be confined to the facts of that case and as applicable to a case where brought forward losses and depreciation of the very same STP undertaking are not adjusted while arriving at the profits of the 10B unit for allowing deduction u/s.10A/10B of the Act and not in respect of brought forward losses and depreciation of other undertakings/non-10A/10B units. S. 10A/10B(6) as amended by the FA 2003 w.r.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 & onwards is eligible for set- off & carry forward for set-off against income post tax holiday which means that they need not be so set off as mandated in the decision of the Hon’ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As we have already seen, in Yokogawa India Ltd. 341 ITR 385 (Kar), it was held that even after s. 10A/10B were converted into a “deduction” provision w.e.f 1.4.2001, the benefit of relief u/s 10A/10B is in the nature of “exemption” with reference to “commercial profits” and that as the income of the s. 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year’s or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise. Therefore the decision of the Hon’ble Karnataka High
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Court in the case of Himatasingike Seide (supra) will not apply to the facts of the present case.” 26. In view of the aforesaid decision, we are of the view that the claim made by the assessee deserves to be accepted. We may also observe that CBDT circular No.7 dated 16.07.2013, on the facts and circumstances of the present case is not a benevolent circular vis-à-vis, the assessee, and therefore the decision to the contrary of the Hon'ble Karnataka High Court in the case of Yokogawa India (supra) will continue to apply. For the reasons given above, we direct the Assessing Officer to accept the claim of the assessee, as raised in ground no.21.” 8. The reasoning given by the Tribunal for allowing the claim of the Assessee as set out above will equally apply to the facts and circumstances of the present case. We therefore following the aforesaid decision, find no grounds to interfere with the order of the CIT(A). Grounds No.2 & 3 raised by the Revenue are accordingly dismissed.” We also find that Hon’ble Apex Court in the case of CIT vs. Max India Ltd.(2007) (295 ITR 282) had held that even a retrospective amendment to the Act will not render the order of the Assessing Officer prejudicial to the interest of the revenue, when at the time of passing the order two views were possible and Assessing Officer had taken one view. In such circumstances we are of the opinion that order of the Assessing Officer was not erroneous, so as to call for application of section 263 of the Act. Order of the ld. CIT is set aside.”
Fact-situation being the very same we are of the opinion that assessment order could not be considered as erroneous and CIT was not justified in invoking the powers vested on him u/s.263 of the Act. Order of CIT is set aside.
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In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 20th day of October, 2015.
Sd/- Sd/-
(SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER
MCN*
Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By Order
Assistant Registrar