M/s. Tecnovate eSolution Private Ltd., New Delhi V. ITO, New Delhi

ITA 105/DEL/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8850 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 25-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: ARUN BANSAL
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 143(3); 10B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI I.C. SUDHIR, JM ITA NOS.104 & 105/DEL/2011 ASSESSMENT YEARS : 2003-04 & 2004-05 TECNOVATE ESOLUTION PRIVATE LTD., 219, OKHLA INDUSTRIAL AREA, PHASE III, NEW DELHI. PAN: AABCT4147K VS. ITO, WARD 16(4), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARUN BANSAL, CA DEPARTMENT BY : SHRI J.P. CHANDRAKAR, SR. DR DATE OF HEARING : 25.02.2015 DATE OF PRONOUNCEMENT : .02.2015 ORDER PER R.S. SYAL, AM: THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE AS SESSMENT YEARS 2003-04 AND 2004-05. SINCE COMMON ISSUES HAVE BEEN RAISED IN BOTH ITA NOS.104 & 105/DEL/2011 2 THE APPEALS, WE ARE DISPOSING THEM OFF BY THIS CON SOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THIS IS A RECALLED MATTER INASMUCH AS THE EA RLIER EX PARTE DECISION RENDERED BY THE TRIBUNAL ON 6.8.2012 WAS SUBSEQUEN TLY RECALLED VIDE ITS LATER ORDER DATED 27.9.2013. ASSESSMENT YEAR 2003-04 3. THE ONLY ISSUE RAISED IN THIS APPEAL THROUGH VAR IOUS GROUNDS IS AGAINST REDUCING THE AMOUNT OF BROUGHT FORWARD LOSS OF RS.72,70,234/- FOR THE A.Y. 2002-03 FROM THE PROFITS AND GAINS OF THE UNDERTAKING FOR THE CURRENT YEAR, FOR THE PURPOSES OF COMPUTING TH E AMOUNT OF DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961 (HERE INAFTER CALLED `THE ACT). 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE CLAIMED DEDUCTION U/S 10A OF THE ACT AT THE RATE OF 90% OF THE PROFITS OF THE BUSINESS. THE AO OBSERVED THAT WHILE COMPUTING THE PROFITS OF THE BUSINESS, THE ASSESSEE DID NOT REDUCE THE AMOUNT OF BROUGHT FORWARD BUSINESS LOSS FOR THE ASSESSMENT YEAR 2002-03 AMOUN TING TO ITA NOS.104 & 105/DEL/2011 3 RS.72,70,264/-, WHICH OUGHT TO HAVE BEEN REDUCED. T HE LD. CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS POINT BY RELYIN G ON CERTAIN DECISIONS. THE ASSESSEE IS AGGRIEVED AGAINST THE R EDUCTION IN THE AMOUNT OF ELIGIBLE PROFITS BY THE AMOUNT OF BROUGHT FORWAR D BUSINESS LOSS. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE PROCEEDING FURTHER, IT IS RELEVANT TO MENTION THAT THE ASSESSEE IS HAVING ONLY ELIGIBLE UNIT AND THERE IS NO INCOME FROM ANY NON-ELIGIBLE UNIT EITHER IN THIS YEAR OR IN THE EARLIER YEAR. THE LD. AR CANDIDLY ADMITTED THAT THE BROUGHT FORWARD LOSS AMO UNTING TO RS.72.70 LAC AROSE OUT OF THE ELIGIBLE BUSINESS IN THE IMMED IATELY PRECEDING ASSESSMENT YEAR. THE SHORT CONTROVERSY IS AS TO WH ETHER SUCH BROUGHT FORWARD LOSS OF THE ELIGIBLE BUSINESS FOR THE PRECE DING YEAR SHOULD BE REDUCED FROM THE PROFITS OF THE BUSINESS FOR THE CU RRENT YEAR BEFORE ALLOWING DEDUCTION U/S 10A AS HAS BEEN HELD BY THE AUTHORITIES BELOW OR BE IGNORED AS ARGUED BY THE LD. AR. 6. IN ORDER TO ANSWER THIS QUESTION, IT IS APPOSI TE TO NOTE THE PRESCRIPTION OF SUB-SECTION (1) OF SECTION 10A, WH ICH PROVIDES THAT: ITA NOS.104 & 105/DEL/2011 4 SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXP ORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PROD UCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SH ALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE FINANCE ACT , 2002, W.E.F. 1.4.2003 INSERTED THIRD PROVISO TO SUB-SECTION (1) WHICH PROVIDES THAT : `FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY O F APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE. SUB-SECTION (4) OF S ECTION 10A PROVIDES THAT : `FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1 A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS O F THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. ITA NOS.104 & 105/DEL/2011 5 7. WHEN WE CONSIDER SUB-SECTION (1) IN JUXTAPOS ITION TO SUB-SECTION (4) OF SECTION 10A, AS APPLICABLE FROM THE ASSESSME NT YEAR 2001-02, IT BECOMES PATENT THAT THE HITHERTO `EXEMPTION PROVIS ION CONTAINED IN SECTION 10A HAS BEEN CONVERTED INTO A `DEDUCTION P ROVISION. THERE IS HARDLY ANY NEED TO EMPHASIZE THE DIFFERENCE BETWEE N A DEDUCTION PROVISION AND AN EXEMPTION PROVISION. IN RESPECT O F A PROVISION PROVIDING EXEMPTION FROM AN ELIGIBLE BUSINESS, THE INCOME DOES NOT ENTER INTO THE COMPUTATION OF TOTAL INCOME AT ALL. ON THE OTHER HAND, THE ELIGIBLE INCOME UNDER A DEDUCTION PROVISION, FIRST FALLS FOR INCLUSION IN THE GROSS TOTAL INCOME BUT THEREAFTER A DEDUCTION I S ALLOWED TO THE EXTENT PROVIDED IN THE PROVISION. WHAT IS TRUE IN RESPECT OF POSITIVE INCOME IS ALSO TRUE IN RESPECT OF NEGATIVE INCOME, I.E., LOSS . IN OTHER WORDS, LOSS FROM AN ELIGIBLE UNIT QUALIFYING FOR EXEMPTION, DOE S NOT ENTER INTO COMPUTATION OF TOTAL INCOME. SUCH A LOSS IS IGNORE D AT THE VERY OUTSET AND IS NOT TAKEN INTO CONSIDERATION WHILE COMPUTING THE TOTAL INCOME SIMILAR TO WHAT IS DONE WITH THE EXEMPT INCOME. HO WEVER, IN THE CASE OF A DEDUCTION PROVISION, LOSS OF AN ELIGIBLE UNIT IS COMPUTED AND THEN AFTER PERMISSIBLE SET OFF IS CARRIED FORWARD TO THE SUBSE QUENT YEARS AS PER THE ITA NOS.104 & 105/DEL/2011 6 RELEVANT PROVISIONS OF THE ACT. THE CRUX OF THE MA TTER IS THAT IN THE CASE OF AN EXEMPTION PROVISION, NEITHER THERE ARISES ANY INCOME ATTRACTING TAX NOR THERE RESULTS ANY LOSS ELIGIBLE FOR SET OFF OR CARRY FORWARD. ON THE OTHER HAND, IN THE CASE OF DEDUCTION PROVISION, THE RE ARISES INCOME OTHERWISE CHARGEABLE TO TAX BUT SUBJECT TO DEDUCTIO N AND LOSS RESULTS WHICH IS AVAILABLE FOR SET OFF AND CARRY FORWARD. 8. WHEN WE TURN TO SECTION 10A FOR THE ASSESSMENT Y EARS 2001-02 ONWARDS, IT CAN BE SEEN THAT IT HAS BEEN MADE A DEDUCTION PROVISION. UNDER SUCH CIRCUMSTANCES, INCOME FROM THE ELIGIBLE UNIT IS FIRSTLY INCLUDIBLE IN THE TOTAL INCOME, SUBJECT TO DEDUCTIO N; AND LOSS, IF ANY, IS ELIGIBLE FOR SET OFF AND CARRY FORWARD. IN THE PRE SENT CIRCUMSTANCES, WE ARE CONFRONTED WITH A SITUATION IN WHICH THE ASSESS EE SUFFERED LOSS FROM THE ELIGIBLE UNIT FOR THE ASSESSMENT YEAR 2002-03, WHEN SECTION 10A IS A DEDUCTION PROVISION AS IS THE CASE FOR THE A.Y. 200 3-04 UNDER CONSIDERATION. NOT ONLY THE ASSESSEE SUFFERED A LO SS OF RS.72.70 LAC IN SUCH PRECEDING YEAR FROM THE ELIGIBLE UNIT, IT CLA IMED AND THE REVENUE ALLOWED ITS CARRY FORWARD TO THE SUBSEQUENT YEAR(S) AS PER LAW. NOW, ITA NOS.104 & 105/DEL/2011 7 WHEN THERE HAS ARISEN POSITIVE INCOME FOR THE YEAR UNDER CONSIDERATION, SUCH BROUGHT FORWARD LOSS FROM THE ELIGIBLE UNIT SU FFERED DURING THE IMMEDIATELY PRECEDING YEAR IS REQUIRED TO BE REDUCE D FROM THE AMOUNT OF ELIGIBLE PROFITS FOR THE CURRENT YEAR BEFORE GRA NTING DEDUCTION U/S 10A. THE ASSESSEE CANNOT BE ALLOWED TO EAT THE CAKE AND HAVE IT TOO, BY CLAIMING ON ONE HAND THAT THERE IS A BUSINESS LOSS FROM THE ELIGIBLE UNIT FOR THE PRECEDING YEAR WHICH SHOULD BE ALLOWED TO B E CARRIED FORWARD AND, AT THE SAME TIME, CLAIM THAT SUCH BROUGHT FORW ARD BUSINESS LOSS SHOULD NOT BE SET OFF AGAINST THE INCOME OF THE ELI GIBLE UNIT FOR THE SUCCEEDING YEAR WHILE ALLOWING DEDUCTION U/S 10A. IF THE ASSESSEES CONTENTION IS ACCEPTED, IT WOULD MAKE SECTION 10A A DEDUCTION PROVISION FOR THE A.Y. 2002-03 AND AN EXEMPTION PROVISION FOR THE A.Y. 2003-04, WHICH IS MANIFESTLY IMPERMISSIBLE BECAUSE SECTION 10A HAS BEEN STATUTORILY MADE A DEDUCTION PROVISION FROM T HE A.Y. 2001-02. AS THE ASSESSEE RIGHTLY CLAIMED THE CARRY FORWARD OF L OSS FROM THE ELIGIBLE UNIT FOR THE IMMEDIATELY PRECEDING YEAR, SUCH LOSS IS REQUIRED TO BE SET OFF AGAINST THE INCOME FOR THE CURRENT YEAR BEFORE ALLOWING DEDUCTION U/S 10A. ITA NOS.104 & 105/DEL/2011 8 9. OUR VIEW IS FORTIFIED BY A JUDGMENT OF THE H ONBLE SUPREME COURT IN THE CASE OF CIT VS HIMATSINGIKE SEIDE LTD. (2015) 228 TAXMAN 63 (SC). IN THIS CASE, IT HAS BEEN HELD THAT AFTER 1.4.2001 , WHEN SECTION 10B HAS BECOME A DEDUCTION PROVISION, THE UNABSORBED DE PRECIATION OR B/FD BUSINESS LOSS SHALL BE CONSIDERED AS NORMAL BUSINES S LOSS ETC. WITHOUT ANY REFERENCE TO ELIGIBLE UNIT. SUCH LOSS ETC. SHAL L BE ELIGIBLE FOR CARRY FORWARD AND SET OFF AS PER NORMAL PROVISIONS. THE C RUX OF THE MATTER IS THAT UNABSORBED DEPRECIATION AND BUSINESS LOSS OF T HE ELIGIBLE UNIT BROUGHT FORWARD FROM EARLIER YEARS HAVE TO BE SET O FF AGAINST THE PROFITS BEFORE COMPUTING RELIEF U/S 10B. THERE IS NO MATERI AL DIFFERENCE ON THIS ASPECT OF THE MATTER IN SO FAR AS THE LANGUAGE OF T HE PROVISIONS OF SECTION 10A AND 10B ARE CONCERNED. IN THIS VIEW OF THE MAT TER, THE RELIANCE OF THE LD. AR ON CERTAIN DECISIONS FAVOURING HIS POINT OF VIEW, HAS LOST ITS RELEVANCE BECAUSE OF THE LATER JUDGMENT FROM THE HO NBLE SUPREME COURT IN HIMATSINGIKE SEIDE LTD. (SUPRA). 10. WE WANT TO CLARIFY THAT THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. TEI TECHNOLOGIES (P.) LTD. (2012) 25 ITA NOS.104 & 105/DEL/2011 9 TAXMANN.COM 5 (DEL), HEAVILY RELIED BY THE LD. AR, IS NOT GERMANE TO TH E ISSUE UNDER CONSIDERATION. IN THAT CASE, THE HONBL E HIGH COURT HAS HELD THAT BUSINESS LOSS OF NON-ELIGIBLE UNITS COULD NOT BE SET OFF AGAINST THE PROFITS OF UNDERTAKING ELIGIBLE FOR THE BENEFIT U/S 10A. ON THE CONTRARY, WE ARE DEALING WITH A SITUATION IN WHICH FIRSTLY, THERE IS A BROUGHT FORWARD BUSINESS LOSS AND SECONDLY, SUCH LOSS IS F ROM ELIGIBLE UNIT AND NOT NON-ELIGIBLE UNITS. 11. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL IS DISMISSED. ASSESSMENT YEAR 2004-05 13. THE FIRST TWO GROUNDS OF THIS APPEAL BY THE ASS ESSEE ARE AGAINST THE NON-DISPOSAL OF OBJECTIONS TAKEN BY THE ASSESSEE AG AINST THE REASONS RECORDED FOR RE-OPENING OF THE ASSESSMENT. 14. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED U/S 143(3) ON 12.12.2006. THEREAFTER, THE AO ITA NOS.104 & 105/DEL/2011 10 RECORDED REASONS AS HAVE BEEN REPRODUCED ON PAGE 1 OF THE ASSESSMENT ORDER AND PROCEEDED TO PASS THE ORDER U/S 147 OF TH E ACT. THE LD. CIT(A) DISMISSED THE ASSESSEES APPEAL. 15. THE CONTENTION OF THE LD. AR THROUGH THE FIR ST TWO GROUNDS IS THAT THE AO OUGHT TO HAVE DISPOSED OF THE ASSESSEES OBJ ECTIONS RAISED AGAINST THE REASONS FOR INITIATION OF RE-ASSESSMENT BEFORE VENTURING TO FINALIZE THE ASSESSMENT U/S 147. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PE RUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. PAGE 19 OF THE PAPER BOOK IS A COPY OF THE OBJECTIONS TAKEN BY THE ASSESSEE BEFORE THE AO AGAI NST THE INITIATION OF RE-ASSESSMENT PROCEEDINGS. IT IS A MATTER OF RECORD THAT THE AO, WITHOUT SEPARATELY DISPOSING OFF SUCH OBJECTIONS, PROCEEDED TO MAKE AN ASSESSMENT U/S 147 OF THE ACT. THIS COURSE OF ACTI ON FOLLOWED BY THE AO IS IN CONTRAVENTION OF THE LAW LAID DOWN BY THE HON BLE SUPREME COURT IN GKN DRIVESHAFTS (I) LTD. VS. ITO (2003) 259 ITR 19 (SC). IT HAS BEEN HELD IN THIS JUDGMENT THAT THE AO IS OBLIGED TO FIR ST DISPOSE OF THE OBJECTIONS RAISED BY THE ASSESSEE BY WAY OF A SEPAR ATE ORDER BEFORE ITA NOS.104 & 105/DEL/2011 11 PROCEEDING TO FINALIZE THE ASSESSMENT. SINCE THE A O HAS NOT DISPOSED OFF THE ASSESSEES OBJECTIONS, WE SET ASIDE THE ASS ESSMENT ORDER AND THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO FOR FIRST DISPOSING THE ASSESSEES OBJECTIONS AGAINST THE INITIATION OF RE-ASSESSMENT PROCEEDINGS BY A SEPARATE ORDER. IT IS ONLY IF HE COMES TO A CONCLUSION THAT THE REASONS ARE VALID AND THE OBJECTIONS ARE N OT SUSTAINABLE, THAT HE WILL PROCEED TO FRAME THE ASSESSMENT AS PER LAW. 17. IN VIEW OF OUR DECISION ON THE FIRST PRELIMI NARY LEGAL ISSUE, THERE IS NO NEED TO CONSIDER THE GROUNDS TAKEN BY THE ASSESS EE ON THE MERITS OF THE CASE. 18. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 27.02.201 5. SD/- SD/- [I.C. SUDHIR] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 27 TH FEBRUARY, 2015. DK ITA NOS.104 & 105/DEL/2011 12 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.