ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1), PANAJI vs. SHIFFER AND MENEZES INDIA PVT. LTD, PANAJI

IN THE INCOME TAX APPELLATE TRIBUNAL : PANAJI BENCH: GOA BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.232/PAN/2018 Assessment Year: 2009-10 Assistant Commissioner of M/s. Schiffer & Menezes Income Tax, Circle-1(1), India (P) Ltd. Vs. Panaji, Goa CMM Building, Rua De Ourem, Panaji, Goa (PAN: AACCM0106E) (Appellant) (Respondent) Present for: Appellant by : Shri P. R. V. Raghavan, CA Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 16.06.2022 Date of Pronouncement : 02.09.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the revenue is directed against the order of Ld. CIT(A)-2, Panaji vide ITA No.584/CIT(A)-2/PNJ/2017-18 dated 21.03.2018 for A.Y. 2009-10 passed against the assessment order u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by ACIT, Circle-1(1), Panaji, Goa dated 16.12.2016.

“1. The order of the Ld. CIT(A) is opposed to law and facts of the case. 2. The Ld. CIT(A) erred in giving relief to the assessee by allowing Rs.2,8O,99,159/- as exemption u/s 10B and allow to carry forward the unabsorbed depreciation of Rs.2,00,58,145/- as claimed in the return by the assessee. 3. The CIT(A) failed to appreciate the facts stated by the AO in the assessment order that under I.T. Act, 1961 any deduction is allowable on

2 ITA No.232/PAN/2018 M/s. Shiffer & Menezes India Pvt. Ltd., A.Y: 2009-10 net income arrived at after adjusting losses. The total income has to be calculated as per the provisions of the Act, i.e. after adjusting set off of losses. Section 10B though forms part of chapter III of the Act but is a deduction section, as made clear from the plain reading of the said section 10B, and is therefore, governed by provisions of section 80A r.w.s. 80AB of the Income Tax Act, 1961. Therefore, the principles that the deduction shall not exceed the gross total income as enumerated in section 80A is applicable to this deduction. 4. For these and other grounds that may be adduced at the time of the hearing, the order of the GIT(A) may be set aside and the order of the Assessing officer restored.” 4. From the grounds of appeal above, we note that the issue before us is relating to setting off of carried forward loss against the income of the units eligible for exemption u/s. 10B of the Act.

3 ITA No.232/PAN/2018 M/s. Shiffer & Menezes India Pvt. Ltd., A.Y: 2009-10 pointed out that deduction u/s. 10B of the Act has to be given effect to at the stage of computing the profits and gains of business which is anterior to the application of provisions of section 72 dealing with carried forward and set off of business loss.

5.1. Reliance was placed on the decision of Hon’ble jurisdictional High Court of Bombay in the case of Hindusthan Unilever Ltd. Vs. DCIT (2010) 325 ITR 102 (Bom.) and also in the case of CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom.). Based on the decisions of the above cases, it was submitted that a distinction has been made by the legislature while incorporating the provisions of Chapter VIA. Section 80A(1) of the Act stipulates that in computing the total income of an assessee, there shall be allowed from its gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in section 80C to 80U. However, section 80B(5) defines “gross total income” for the purpose of Chapter VI-A to mean. “the total income computed in accordance with the provisions of the Act, before making any deduction in the Chapter”. It was thus, submitted that what the Ld. AO in essence seeks to attain is to telescope the provisions of Chapter VI A in the context of the deduction which is allowable u/s. 10B of the Act, which would not be permissible unless a specific statutory provision to that effect were to be made. Ld. Counsel thus contended that in absence of such a provision thereon, the approach adopted by the Ld. AO cannot be accepted. Thus, assessee submitted that in the present circumstances, deduction u/s. 10B of the Act has to be given at the stage when the profits and gains of business are computed in the first instance and, therefore, the re-deduction in the claim of exemption u/s. 10B from Rs.2,80,99,159/- to Rs.80,41,013/- done by the AO is not in accordance with the provisions of the Act. Ld. AO in the assessment computed the deduction u/s. 10B by first setting off the carried forward business

4 ITA No.232/PAN/2018 M/s. Shiffer & Menezes India Pvt. Ltd., A.Y: 2009-10 loss/depreciation and completed the assessment at Nil income. While doing so, he noted that section 10B though forms part of Chapter III of the Act but is a deduction section and is, therefore, governed by the provisions of section 80A r.w.s. 80AB of the Act. He thus, held on the principle of “deduction shall not exceed the gross total income” as enumerated in section 80A is applicable to deduction claimed u/s. 10B by the assessee.

5.2. Aggrieved, assessee went in appeal before the Ld. CIT(A), who considering the submissions made by the assessee before the Ld. AO and also by placing reliance on the decision of the Hon’ble jurisdictional High Court of Bombay in the case of Hindusthan Unilever Ltd.(supra) and Balance Veatch Consulting Pvt. Ltd. (supra) allowed the appeal of the assessee by directing the AO to allow Rs.2,80,99,159/- as exempt u/s. 10B to the assessee and further, to allow the carry forward of unabsorbed depreciation of Rs.2,00,58,145/- as claimed by the assessee in its return. Aggrieved, the department is in appeal before this Tribunal.

5 ITA No.232/PAN/2018 M/s. Shiffer & Menezes India Pvt. Ltd., A.Y: 2009-10 7. Per contra, Ld. Counsel for the assessee reiterated the submissions made before the authorities below. However, he brought to the notice of the bench, the decision of Hon’ble Supreme Court in the case of CIT Vs. Yokogawa India Ltd. (2017) 391 ITR 274 (SC) wherein the issue has been dealt with by the Hon’ble Supreme Court in respect of section 10A which according to the Ld. Counsel is equally applicable to cases governed by the provisions of section 10B in view of the said later provision being pari materia with section 10A of the Act though governing a different situation. The findings given by the Hon’ble Court while disposing the matter is reproduced as under:

“16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, “The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.” 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’.

6 ITA No.232/PAN/2018 M/s. Shiffer & Menezes India Pvt. Ltd., A.Y: 2009-10 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.” 8. Considering the facts and circumstances of the case and the provisions of law so also respectfully following the decision of Hon’ble Supreme Court and the Hon’ble jurisdictional High Court of Bombay in the cases referred above, we find no reason to interfere in the findings given by the Ld. CIT(A) in this respect. Accordingly, the grounds of appeal by the revenue are dismissed.

Order pronounced under Rule 34(4) of the IT(AT) rules, 1963 on 02.09.2022.

Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 02.09.2022 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent:. 3. CIT(A), Panaji-2, Panaji 4. The CIT- Panaji. 5. The DR, ITAT, Panaji Bench, Goa //True Copy// [ By Order Senior Private Secretary