ITO, Bangalore V. M/s Gangagen Biotechnologies Pvt. Ltd., Bangalore

ITA 1087/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95428 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 17-07-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Depreciation
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1087/BANG/2015 ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER, WARD 3(1)(2), BANGALORE. VS. M/S. GANGAGEN BIOTECHNOLOGIES PVT.LTD. 12, 5 TH CROSS, RAGHAVENDRA LAYOUT, OPP. MEI LTD., TUMKUR ROAD, YESHWANTHPUR, BANGALORE 560 022. PAN: AABCG 6628E APPELLANT RESPONDENT APPELLANT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) RESPONDENT BY : SHRI JINITHA CHATTERJEE, ADVOCATE DATE OF HEARING : 19.11.2015 DATE OF PRONOUNCEMENT : 28.12.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS), BENGALURU-3, FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS A COMPANY ENGAGED IN RESEARCH & DEVELOPMENT ACTIVITIES IN BIO-TECHNOLOGY. FOR THE YEAR UNDER C ONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 02.11.2007 D ECLARING AN INCOME OF RS.2,550 AFTER CLAIMING DEDUCTION OF RS.29,37,860 U /S. 10B OF THE ACT. THE ITA NO.1087/BANG/2015 PAGE 2 OF 5 ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS SET O FF THE BROUGHT FORWARD BUSINESS LOSS OF A.Y. 2002-03 AND ARRIVED AT NIL IN COME. 3. AGGRIEVED BY THE ORDER OF AO IN SETTING OFF THE BROUGHT FORWARD BUSINESS LOSS AND DENYING DEDUCTION 10B, THE ASSESS EE FILED APPEAL BEFORE CIT(APPEALS). IT WAS POINTED OUT BY THE ASSESSEE T HAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIB UNAL FOR AYS 2005-06 & 2006-07 IN ASSESSEES OWN CASE. 4. THE CIT(APPEALS) ALLOWED THE ASSESSEES APPEAL B Y HOLDING AS FOLLOWS:- I HAVE PERUSED THE ORDERS IN ITA NO.429/BANG/2009 DT. 17.07.2009 AND ITA NO.1048/BANG/2013. THE HONBLE TRIBUNAL HA S IN THE AFORESAID ORDERS HELD THAT DEDUCTION U/S.10B SHOULD BE ALLOWED BEFORE CONSIDERING BROUGHT FORWARD LOSSES. IN THE R ATIO OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS Y OKOGAWA INDIA LTD 341 ITR 385 A SIMILAR PRINCIPLE HAS BEEN ENUNCI ATED. . THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED BEFO RE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOME OF 10-A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER C OMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PR OVISIONS OF SECTION 10-A IN THIS CONTEXT MEANS THE GLOBAL INCOM E OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SEC TION 2(45). HENCE, THE INCOME ELIGIBLE FOR EXEMPTION UNDER SECT ION 10-A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 3.1 FOLLOWING THE ABOVE DECISION, THE AO IS DIRECTE D TO ALLOW THE DEDUCTION U/S.10B AS CLAIMED. 5. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE DEPA RTMENT IS IN APPEAL AND HAS RAISED THE FOLLOWING EFFECTIVE GROUND OF AP PEAL:- ITA NO.1087/BANG/2015 PAGE 3 OF 5 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO COMPUTE DEDUCTION U/S 10A WITHOUT SETTING OFF BROUGHT FORWARD LOSSES (DEPRECIATION/ BUSINESS) PERTAINING TO UNITS NON ELIGIBLE FOR DEDU CTION AGAINST THE PROFIT OF ELIGIBLE UNITS BY PLACING RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF M/S YOKOGAWA INDIA LTD., BUT WITHOUT APPRECIATING THE FACT THAT DEDUCTION U/S 10A HAS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, AND AS PER SECTION 2(45) OF THE IT ACT, THE TOTAL INCOM E SHOULD BE COMPUTED FROM VARIOUS SOURCES AFTER SET OFF OF LOSS ES FROM ONE SOURCE AGAINST INCOME FROM OTHER SOURCES UNDER THE SAME HEAD OF INCOME IN TERMS OF SECTION 70(1). 6. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT SI MILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE CHENNAI BENCH OF THE T RIBUNAL IN THE CASE OF S.R.A. SYSTEMS LTD. IN ITA NO.1547/MDS/ 2012 AND THE TRIBUNAL BY ITS ORDER DATED 21.02.2014 HELD AS FOLLOWS:- 7. THE THIRD ISSUE IN APPEAL RELATES TO THE METHO D OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. THE AS SESSEE HAS CLAIMED DEDUCTION U/S.10A BEFORE SETTING OFF OF UNA BSORBED DEPRECIATION AND BROUGHT FORWARD LOSSES. THE LD.AR OF THE ASSESSEE IN ORDER TO FORTIFY THE STAND OF ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN ASSESSE ES APPEAL FOR THE AY.2005-06 AND AY.2007-08 (SUPRA). THE LD.AR HA S ALSO DRAWN SUPPORT FROM THE JUDGMENT OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SU PRA). ON THE OTHER HAND, THE LD.DR HAS RELIED ON THE LATEST DECI SION OF THE HONBLE APEX COURT IN THE CASE OF M/S.HIMATSINGKA S EIDE LTD., VS. CIT (SUPRA). THE HONBLE SUPREME COURT OF INDIA DISMISSED THE APPEAL OF THE ASSESSEE AND HAS UPHELD THE JUDGM ENT OF THE HONBLE KARNATAKA HIGH COURT. THE HONBLE HIGH COUR T HAS HELD THAT THE BROUGHT FORWARD DEPRECIATION HAS TO BE ADJ USTED AGAINST THE PROFITS OF THE EOU BEFORE COMPUTING THE EXEMPTI ON ALLOWABLE U/S.10B. THE PROVISIONS OF SECTION 10A ARE PARI MAT ERIA WITH THE PROVISIONS OF SECTION 10B OF THE ACT. ITA NO.1087/BANG/2015 PAGE 4 OF 5 WE FIND THAT AS FAR AS UN-ABSORBED DEPRECIATION I S CONCERNED, THE HONBLE SUPREME COURT OF INDIA IN TH E CASE OF M/S.HIMATSINGKA SEIDE LTD., VS. CIT (SUPRA), HAS UP -HELD THE FINDINGS OF THE HONBLE KARNATAKA HIGH COURT AND AS SUCH, UN- ABSORBED DEPRECIATION HAS TO BE SET-OFF BEFORE COMP UTING THE EXEMPTION ALLOWABLE U/S.10A. IN RESPECT OF SETTING- OFF OF THE BROUGHT FORWARD LOSSES, THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LT D.(SUPRA) STILL HOLDS GOOD. ACCORDINGLY, THE ASSESSEE CAN CLA IM DEDUCTION U/S.10A BEFORE SETTING OFF OF BROUGHT FORWARD LOSSE S. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 7. WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE ISSUE HAS TO BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. ACCORD INGLY, WE REMIT THE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION AND D ECISION IN ACCORDANCE WITH THE DECISION OF THE CHENNAI BENCH OF THE TRIBU NAL IN THE CASE OF S.R.A. SYSTEMS LTD. ( SUPRA). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF DECEMBER, 2015. SD/- SD/- ( INTURI RAMA RAO ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 28 TH DECEMBER, 2015. /D S/ ITA NO.1087/BANG/2015 PAGE 5 OF 5 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.