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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI PAWAN SINGH
सुनवाई की तायीख / Date of Hearing : 07.03.2016 घोषणा की तायीख /Date of Pronouncement : 30.03.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM: There are seven appeals under consideration. Out of them, five appeals are filed by the Revenue and two appeals are filed by the assessee. Since, the issues raised in these appeals are identical / inter-connected, therefore, for the sake of convenience, they are clubbed, heard together and disposed of this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order.
The common issue raised in all the Revenue‟s appeals relates to the allowability of deduction / exemption u/s 10A of the Act. For the sake of reference, we reproduce the grounds of the Revenue for the AY 2007-2008, which read as under:- “1. On the facts and in the circumstances of the case and in law, Ld CIT (A) erred in allowing exemption u/s 10A amounting to Rs. 3,04,28,384/- without appreciating the fact that the assessee had not manufactured / produced any article but merely had processed the articles.
2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in allowing exemption u/s 10A without appreciating the fact that assessee is not eligible for exemption u/s 10A as the assessee has not formed new business but formed a unit by splitting up its already existing unit.”
On this issue of AO‟s decision in denying the exemption u/s 10A of the Act, Ld Counsel for the assessee submitted that the AY 2005-2006 is the initial assessment year in which exemption u/s 10A of the Act was claimed for the first time. Relying on the binding jurisdictional High Court judgment in the case of CIT vs. Paul Brothers (216 ITR 548), Ld Counsel for the assessee submitted that in the AY 2005-06, the said claim of the assessee u/s 10A was accepted by the Revenue. Bringing our attention to para 1.3 of the impugned order, Ld Counsel for the assessee submitted that the new unit named „Teledyne‟ was established in the AY 2005-06 and the AO disallowed the claim of exemption u/s 10A of the Act from the AY 2006-07 onwards. It was also demonstrated before us that the claim of the assessee was allowed in AY 2005-06 and the said assessment became final in all respects. The same is evident from the fact as stated by the Ld AR, that there is no appeal pending on any legal forum involving the AY 2005-06. Ld Counsel for the assessee made a statement at Bar on this issue. Considering the same, Ld Counsel submitted that the said judgment in the case of Paul Brothers (supra) is squarely applicable to the facts of the present case.
On the said facts to apply the said judgment of the Hon‟ble High Court in the case of Paul Brothers (supra), we have perused the ratio laid down in the said judgment and find the following are lines are relevant to make this order self- contained and the same reads as under:-
“Held:-...........(iii) unless deductions allowed for the assessment year...............were withdrawn, they could not be denied for subsequent years..........”
From the above, it is settled legal proposition in law that in the matters relating to the claim of deduction / exemptions, it is the requirement of that the initial year should be the year of scrutiny of the claims relating to the set-off of the new unit or splitting up of the existing units and other conditions specified in the said section 10A or similar provisions. AO is prevented from getting into these years in subsequent years such as AY 2006-07 and others. We have also considered the fact that the AY 2005-06 was not reopened for the reassessment or u/s 148 or revision u/s 263 of the Act etc as the case may be. Therefore, respectfully following the said judgment of the High Court (supra), without going to the merits of the case, we find the argument of the Ld Counsel should be considered and the relevant grounds should be allowed in favour of the assessee. Accordingly, we uphold the order of the CIT (A) and the grounds raised
by the Revenue for the AYs 2006-07 and 2007-08 are dismissed.
6. In the result, appeals of the Revenue for the AYs 2006-07 and 2007- 08 are dismissed. (AY 2008-2009) (By Revenue) ITA No.41/M/2012 (AY 2008-2009) (By assessee)
7. These are the cross appeals filed by the assessee and the Revenue. In the appeal filed by the Revenue, the only issue raised relates to the claim of exemption u/s 10A of the Act. Revenue is aggrieved against the decision of the CIT (A), who decided the issue on merits against the Revenue. This issue was adjudicated by us in this order while dealing with the appeals of the Revenue for the AYs 2006-07 and 2007-08 (supra). We confirm the order of the CIT (A) on the legal issue relying on the judgment of the Hon‟ble High Court in the case of Paul Brothers (supra). Following the same for the sake of consistency and also considering the common facts, we dismiss the grounds raised by the Revenue. Accordingly, grounds raised by the Revenue are dismissed.
8. In the assessee‟s appeal, the following grounds are raised and the same read as under:-
“1. (i) the Ld CIT (A) erred in confirming the order of Assessing Officer wherein the profit of the 10A unit was reworked to allocate all common head expenses on basis of turnover as against on actual basis returned by the appellant thereby reducing the exemption u/s 10A from Rs. 2,62,73,762/- to Rs. 2,51,72,542/-. (ii) In doing so, the Ld CIT (A) failed to appreciate that the appellant‟s method was allowed consistently in the earlier year (subsequent year also). 2. (i) The Ld CIT (A) erred in confirming that the appellant is liable to tax under provisions of section 115JB of the Income Tax Act, 1961. (ii) He failed to appreciate that section 115JB (6) of the Act is applicable to a unit situated in SEZ and since the appellant was covered by the second proviso of section 10AA of the Act, MAT provisions were inapplicable to the appellant.
3. The Ld CIT (A) grossly erred in confirming the addition of Rs. 25,61,355/- on account of provision for diminution in value of investments u/s 115JB(1) explanation 1(i) of the Act even when the said provision was not on the statute on 1.4.2008 ie 2st day of the relevant assessment year 2008-2009.”
At the outset, Ld Counsel for the assessee submitted that Ground no.3 is not pressed considering the fact of amendment to the provisions of clause(i) to Explanation-1 to section 115JB of the Act. He fairly mentioned that the Finance (No.2) Act, 2009 brought an amendment with retrospective effect from 1.4.2001 in favour of increasing the book profits “all the amount or amounts set aside as the provision for diminution in the value of any asset”. Considering the same, after hearing both the parties, the said Ground no.3 is dismissed.
Ground no.1 relates to the allocation of common head expenses between the eligible and non-eligible units based on the turnover as against the actual basis adopted by the assessee. Relevant facts include that the assessee has an eligible „Teledyne‟ unit and ineligible „non-teledyne‟ unit. So far as the unit specific expenses are concerned, there is no dispute. However, regarding the common expenses, assessee adopted different methods depending on the nature of accounts debited to the P & L Account involved. As per the working, the exemption claimed u/s 10A by the assessee in the return of income works out to Rs. 2,62,73,762/-. In the assessment, AO adopted the „turnover basis‟ uniformly for allocating such common expenses. As per the AO, the allowable expenditure u/s 10A works out to Rs. 2,51,72,542/-. The difference derived by the AO works out to Rs. 11.1 laks (rounded of). The argument of the Ld Counsel for the assessee on this issue revolves around on the fact that the identical claims were made in earlier AYs and the subsequent AYs and they were accepted without any mutation in the assessments. AO has not given any reason to why the basis adopted by the assessee is erroneous and unsustainable in law. Basing on the principles of consistency, the claim of the assessee should have been accepted by the AO. Bringing our attention to the order of the CIT (A), Ld Counsel for the assessee, as discussed in the court, submitted that the CIT (A) did not pass a speaking order. In this regard, he read out the contents of para 2.3.1 and the same read as under:- “2.3.1.............However, I am in agreement with the observation of the Ld AO that as per the revised working, the profit derived from 10A units is at Rs. 2,51,72,542/- and not Rs. 2,62,73,762/-................
It is evident from the above that the CIT (A) has not passed a speaking order on this issue. In any case, CIT (A) is directed to examine the Ld Counsel‟s submissions relating to the „principles of consistency‟ and other arguments, if any, while passing a speaking order. Accordingly, Ground no.1 is allowed for statistical purposes.
Ground no.2 relates to the effect of sub-section (6) of section 115JB of the Act qua the amendments brought in to clause (f) to Explanation-1 of section 115JB and clause (ii) to the said Explanation. Finance Act, 2007 omitted reference to section 10A and 10B of the Act in the said clause. It is the argument of the Ld Counsel for the assessee that the provisions of sub-section (6), which was amended w.e.f. 10.2.2000, will have a overriding effect on the said amendment brought in by the Finance Act, 2007. Consequently, the MAT provisions do not apply to the assessee. For this proposition, Ld Counsel for the assessee brought our attention to the decision of the Tribunal in the case of Genesys International Corpn. Ltd vs. ACIT (2013) 55 SOT 10, dated 1.12.2012, which is relevant for the following proposition:-
“A unit in a SEZ will be covered by sub-section (6) to section 115JB of the Act irrespective of the fact that those units were claiming deduction u/s 10A of the Act.” He also relied on another decision of the coordinate Bench decision in the case of G. Jewelcraft Ltd vs. ITO [2015] 56 taxmann.com 192 (Mumbai-Trib.), which is relevant for the following proposition:- “Income of units located in Special Economic Zone will not be included while computing book profit as per section 115JB (6).”
Considering the above settled position of the issue, we are of the opinion that the order of the CIT (A) on this issue is required to be reversed. Accordingly, Ground no.2 raised by the assessee is allowed.
In the result, appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed for statistical purposes.
ITA No.4087/M/2012 (AY 2009-2010) (By Revenue) (AY 2009-2010) (By assessee) 15. These two cross appeals are filed by the Revenue and the assessee for the AY 2009-2010. The issues raised in the Revenue‟s appeal are already adjudicated by us while deciding the appeals for the AYs 2006-07; 2007-08 and 2008-2009 in the above paragraphs of this order, considering the analogy of the ratio laid down in the judgment of the Hon‟ble High Court in the case of Paul Brothers (supra). Therefore, considering the commonality of the issues raised in the instant Revenue‟s appeal and the appeals decided by us in the above paras of this order, we are of the opinion, the grounds raised in the present appeal are required to be dismissed.
16. In the result, appeal of the Revenue is dismissed.
17. Regarding the assessee‟s appeal for the AY 2009-10, we notice that the only issue raised in the appeal relates to the applicability of provisions of sub-section (6) of section 115JB of the Act qua the amendment to clause (f) and (ii) of Explanation- 1 to section 115JB of the Act. We have already dealt with this issue while adjudicating Ground no.2 of the assessee‟s appeal for the AY 2008-2009. Considering the commonality, the ground raised by the assessee in the instant AY 2009-2010 is allowed in favour of the assessee.
18. In the result, appeal of the assessee is allowed. ITA No.5995/M/2013 (AY 2010-2011) (By Revenue)
19. This appeal filed by the Revenue on 10.10.2013 is against the order of the CIT (A)-16, Mumbai dated 1.7.2013 for the AY 2010-2011.
20. The first issue raised in Ground nos. 1 to 3 relates to the applicability of the judgment of Hon‟ble High Court in the case of Paul Brothers (supra), if the claim of the assessee is rightly allowed in the year under consideration. This aspect is already adjudicated by us, in the above paras of this order, while dealing with the similar ground raised in all the appeals of the Revenue. Considering the commonality, Ground nos. 1 to 3 raised by the Revenue are dismissed.
21. The other issue raised in Ground nos. 4 and 5 relates to the applicability of provisions of sub-section (6) of section 115JB of the Act qua the amendment to clause (f) and (ii) of Explanation-1 to section 115JB of the Act. We have already dealt with this issue while adjudicating Ground no.2 of the assessee‟s appeal for the