M/s Tata Elxsi Ltd., Bangalore V. ACIT, Bangalore

ITA 1074/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2295 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITI
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 234B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1074/BANG/2012 ASSESSMENT YEAR : 2007-08 M/S. TATA ELXSI LTD., ITPB ROAD, HOODY, WHITEFIELD ROAD, BANGALORE 560 048. PAN : AAACT 4872Q VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. APPELLANT RESPONDENT ITA NO.1295/BANG/2012 ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. VS. M/S. TATA ELXSI LTD., ITPB ROAD, HOODY, WHITEFIELD ROAD, BANGALORE 560 048. PAN : AAACT 4872Q APPELLANT RESPONDENT ASSESSEE BY : SHRI PADAM CHAND KHINCHA, C.A. REVENUE BY : SHRI S.K. AMBASTHA, CIT-I (DR) DATE OF HEARING : 12.06.2013 DATE OF PRONOUNCEMENT : 12.06.2013 ITA NOS. 1074 & 1295/BANG/2012 PAGE 2 OF 9 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1074/BANG/12 IS AN APPEAL BY THE ASSESSEE AND ITA NO.1295/BANG/12 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 18.07.2012 OF THE CIT(APPEALS)-III, BANGALORE RELATING TO ASSESSMENT YEAR 2007-08. 2. GROUND NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. GROUNDS NO. 2 & 3 RAISED BY THE R EVENUE READS AS FOLLOWS:- 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE TELECOMMUN ICATION EXPENSES, OVERSEAS OFFICE EXPENSES, TRAVEL AND OTHE R EXPENSES AGGREGATING TO RS.55,22,17,834 INCURRED IN FOREIGN CURRENCY, HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER AS WELL , FOR COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT WHER EAS SUCH EXCLUSION IS PERMITTED TO ARRIVE AT THE EXPORT TURN OVER ONLY AS PER THE DEFINITIONS GIVEN IN SECTION 10A OF THE IT ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN SECTION 10A OF THE ACT. 3. THE CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE THE DEDUCTION U/S 10A IN THE ABOVE MANNER WITHOUT APPRE CIATING THAT THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S TATA ELXSI LTD., HAS NOT BECOME FINAL IN VIEW O F THE PENDING DEPARTMENTS SLPS BEFORE THE HONBLE SUPREME COURT ON THIS ISSUE. 3. THE AFORESAID GROUNDS CAN BE CONVENIENTLY DECIDE D TOGETHER WITH THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL, W HICH ARE AS FOLLOWS:- ITA NOS. 1074 & 1295/BANG/2012 PAGE 3 OF 9 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) III, BANGALORE HAS ERRED IN CONCLUDING THAT TELECOMMUNIC ATION CHARGES OF RS. 1,65,41,834/- SHOULD BE REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAWS APPLI CABLE, TELECOMMUNICATION CHARGES, NOT HAVING BEEN SEPARATE LY RECOVERED OR REFLECTED IN THE TURNOVER, SHOULD NOT BE REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A. 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) III, BANGALORE HAS ERRED IN CONCLUDING THAT INSURANCE CH ARGES PAID TO EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD (E CGC) FOR PROTECTING THE APPELLANT AGAINST THE RISK OF LOSS O N ACCOUNT OF NON PAYMENT OF THE DUES BY OVERSEAS CUSTOMERS DUE TO BA NKRUPTCY ETC. AMOUNTING TO RS. 29,61,000/- SHOULD BE REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A. 3.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) III, BANGALORE HAS ERRED IN CONCLUDING THAT EXPENSES INC URRED IN FOREIGN CURRENCY TOTALLY AMOUNTING TO RS. 53,27,15, 000/- SHOULD BE REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCT ION UNDER SECTION 10A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, EXPENSES INCURRED IN FOREIGN CU RRENCY SHOULD NOT BE REDUCED FROM EXPORT TURNOVER IN COMPUTING DE DUCTION UNDER SECTION 10A. 4.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) III, BANGALORE HAS ERRED IN CONFIRMING THE LEVY OF INTER EST UNDER SECTION 234B OF THE ACT. ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE AND LAW APPLICABLE, INTEREST UNDER SECTION 234B IS NOT LEVIABLE. THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST UNDER SECTION 234B. 5.1 IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE A DDUCED AT THE TIME OF HEARING, THE APPELLANT COMPANY PRAYS TH AT THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) III, IN SO FAR IT IS PREJUDICIAL TO THE APPELLANT, BE QU ASHED OR IN THE ALTERNATIVE (I) TELECOMMUNICATION CHARGES OF RS. 1,65,41,834/- BE NOT REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A; ITA NOS. 1074 & 1295/BANG/2012 PAGE 4 OF 9 (II) INSURANCE CHARGES OF RS. 29,61,000/- BE NOT R EDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTIO N 10A. (III) EXPENSES INCURRED IN FOREIGN CURRENCY AMOUNT ING TO RS. 53,27,15,000/- BE NOT REDUCED FROM EXPORT TURNOVER IN COMPUTING DEDUCTION UNDER SECTION 10A. (IV) INTEREST LEVIED UNDER SECTION 234B BE DELETED . 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DESIGN AND DEVELOPMENT OF COMPUTER SOFTWARE, ENGINEERING SERVI CES, VISUAL COMPUTING LABS AND SYSTEMS INTEGRATION. THE ASSESSEE ESTABLI SHED UNITS UNDER THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI) SCHEME. THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S. 10A OF THE ACT. W HILE COMPUTING THE EXPORT TURNOVER FOR THE PURPOSE OF ALLOWING DEDUCTION U/S. 10A OF THE ACT, THE AO EXCLUDED THE FOLLOWING AMOUNTS FROM THE EXPORT TURN OVER, BUT DID NOT EXCLUDE THE SAME FROM THE TOTAL TURNOVER. NATURE OF EXPENSES RS. TELECOMMUNICATION EXPENSES 1,65,41,834 ECGC INSURANCE 29,61,000 FOREIGN CURRENCY EXPENSES (TOTAL) 53,27,15,000 5. THE ASSESSEE SUBMITTED THAT EXPLANATION 2 TO SEC TION 10A DEFINES EXPORT TURNOVER TO MEAN CONSIDERATION IN RESPECT OF EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE RECEIVED IN, OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDA NCE WITH SUB-SECTION (3), BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATIO N CHARGES OR INSURANCE ITA NOS. 1074 & 1295/BANG/2012 PAGE 5 OF 9 ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCH ANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THE ASSESSEE SUB MITTED THAT NONE OF THE ITEMS OF AFORESAID ITEMS FELL WITHIN THE DEFINITION OF EXPORT TURNOVER. ALTERNATIVELY, IT WAS SUBMITTED THAT IF THE AFORESA ID AMOUNTS ARE EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE E XCLUDED FROM THE TOTAL TURNOVER. THE AO DID NOT ACCEPT THE CLAIM OF THE A SSESSEE AND EXCLUDED THE AFORESAID ITEMS FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. 6. THE CIT(A) ON THE AFORESAID ISSUES, FOLLOWING TH E DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TATA ELXSI LTD. 349 ITR 98 (KARN.) DIRECTED THE AO TO EXCLUDE THE AFORESAID AMOUNTS FROM THE TOTAL TURNOVER ALSO. THE CIT(A) DID NOT ADJUDICATE THE A LTERNATIVE CLAIM OF THE ASSESSEE THAT THE AFORESAID AMOUNTS CANNOT BE EXCLU DED FROM THE EXPORT TURNOVER. 7. AGGRIEVED BY THE ORDER OF THE CIT(A) IN EXCLUDIN G THE AFORESAID ITEMS BOTH FROM THE EXPORT TURNOVER AND TOTAL TURNOVER, T HE REVENUE HAS RAISED GROUNDS NO.2 N& 3 BEFORE THE TRIBUNAL. AGGRIEVED B Y THE ORDER OF THE CIT(APPEALS) IN NOT DECIDING THE QUESTION AS TO WHE THER THE AFORESAID AMOUNTS CAN BE EXCLUDED FROM THE EXPORT TURNOVER, T HE ASSESSEE HAS RAISED GROUNDS 1.1 AND 5.1 BEFORE THE TRIBUNAL. ITA NOS. 1074 & 1295/BANG/2012 PAGE 6 OF 9 8. THE ISSUE RAISED BY THE REVENUE HAS NOW BEEN DEC IDED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE ASSESSEES O WN CASE IN 349 ITR 98 (KAR) WHEREIN IT HAS BEEN HELD THAT WHATEVER IS EXCLUDED FROM EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM THE TOTAL TUR NOVER. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE HIGH COURT OF KAR NATAKA, WE ARE OF THE VIEW THAT THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL DO NOT REQUIRE ANY ADJUDICATION. CONSEQUENTLY GROUNDS 2 & 3 RAISE D BY THE REVENUE IN ITS APPEAL AS WELL AS THE APPEAL OF THE ASSESSEE ARE DI SMISSED. IN VIEW OF THE DISMISSAL OF THE REVENUES GROUNDS OF APPEAL, THE L EARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR ADJUDICATION OF THE GROU NDS RAISED IN ASSESSEES APPEAL. CONSEQUENTLY, APPEAL BY THE ASS ESSEE IS DISMISSED. 9. GROUNDS 4 & 5 RAISED BY THE REVENUE IN ITS APPEA L READS AS FOLLOWS:- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) ERRED IN HOLDING THAT THE DEDUCTION U/S 10A SHOULD BE ALLOWED IN RESPECT OF PROFITS OF 10A UNIT S WITHOUT SETTING OFF LOSSES OF OTHER STPI UNITS WHILE THE DE DUCTION CAN ONLY BE COMPUTED FROM THE GROSS TOTAL INCOME OF THE ASSE SSEE WHICH IS THE NET INCOME COMPUTED AFTER SETTING OFF THE LOSSE S IN ACCORDANCE WITH THE PROVISIONS OF SECTION 70 OF THE I.T. ACT. 5. THE CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE THE DEDUCTION U/S 10A WITHOUT SETTING OFF THE LOSSES OF 10A UNIT BY RELYING ON THE JUDGMENT OF THE HONBLE HIGH COURT O F KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD. WHICH HAS NOT BE COME FINAL IN VIEW OF THE PENDING DEPARTMENTS SLPS BEFORE THE HO NBLE SUPREME COURT ON THIS ISSUE. ITA NOS. 1074 & 1295/BANG/2012 PAGE 7 OF 9 10. THE ASSESSEE HAD MANY STP UNDERTAKINGS. THE ST P UNIT AT MUMBAI RESULTED IN A LOSS. DEDUCTION U/S. 10A WAS CLAIMED BY THE ASSESSEE IN RESPECT OF THE PROFITS OF THE BUSINESS OF THE OTHER STP UNITS WHICH MADE PROFITS. THE AO WAS OF THE VIEW THAT TH E LOSS OF MUMBAI STP UNIT HAS TO BE SET OFF AGAINST THE PROFITS OF THE O THER ELIGIBLE STP UNITS AND DEDUCTION HAS TO BE ALLOWED ONLY ON THE PROFITS OF THE STP UNITS AFTER SUCH SET OFF. 11. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) HEL D THAT THE LOSS OF THE STP UNIT AT MUMBAI HAS TO BE IGNORED AND DEDUCT ION ALLOWED IN RESPECT OF THE OTHER STP UNITS. IN COMING TO THE AFORESAID CONCLUSION, THE CIT(APPEALS) RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. YOKOGAWA INDIA LTD., ITA NO.78/2011 & 918/2011 . 12. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED GROUNDS NO.4 & 5 BEFORE THE TRIBUNAL. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN THE C ASE OF COMMISSIONER OF INCOME TAX VS M/S YOKOGAWA INDIA LT D. ( SUPRA ) , THE HONBLE KARNATAKA HIGH COURT, AFTER AN EXHAUS TIVE DISCUSSION ON THE LEGAL PROVISIONS INVOLVED, FOUND THAT THE IN COME OF A 10A UNIT HAS TO BE EXCLUDED AT THE SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME AND THAT SINCE THIS INCOME IS NOT TO BE INCLUDED IN THE INCOME OF THE ITA NOS. 1074 & 1295/BANG/2012 PAGE 8 OF 9 ASSESSEE AT ALL, THERE WAS NO OCCASION TO SET OFF T HE LOSSES OF THE ASSESSEE IN RESPECT OF HIS OTHER BUSINESS AGAINST THE PROFIT S OF THE EXEMPTED UNITS. THE SALIENT FINDINGS OF THE HONBLE COURT ARE AS BE LOW: AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED AT S OURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, T HE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10- A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE A SSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10 -A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT AL L, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS P ER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FI RST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION UNDER SECTION 32(2) IS T O BE SET OFF AS DEDUCTION UNDER SECTION 10-A HAS TO BE EXCLU DED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAME OF THE UNDERTAKING WOULD NOT ARISE. IN THA T VIEW OF THE MATTER, THE APPROACH OF THE ASSESSING AUTHOR ITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISION S AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDE R AND GRANTING THE BENEFIT OF SECTION 10-A TO THE ASSESSE E. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSW ERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. 14. IN VIEW OF THE CLEAR AND UNAMBIGUOUS FINDING OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA, IT BECOMES CLEAR THAT THE UNIT EXEMPTED UNDER SECTION 10A IS AN INSULATED ENTITY WHICH HAS TO CAR RY ITS BUSINESS PERFORMANCE IN ISOLATION FROM THE REST OF THE APPEL LANTS BUSINESS. IN VIEW ITA NOS. 1074 & 1295/BANG/2012 PAGE 9 OF 9 OF THE DECISION OF THE HONBLE HIGH COURT OF KARNAT AKA IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. (SUPRA) , WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(APPEALS) DOES NOT CALL FOR ANY INTERFERENCE. C ONSEQUENTLY GROUNDS 4 & 5 RAISED BY THE REVENUE ARE ALSO DISMISSED. 15. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JUNE, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASUDEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH JUNE, 2013. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.