Suttatti Enterprises Ltd., Pune V. ACIT,Range-6, Pune

ITA 1111/PUN/2011

• Counselvise Citation: 111124514 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 05-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANTOSH KUMAR SHRI S P WALIMBE
• Keywords: Business income; Depreciation
• Section: 10B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 1039 / P N/ 20 1 1 ASSESSMENT YEAR : 200 7 - 08 THE ASST. COMMISSIONER OF INCOME T AX, CIRCLE - 6, PUNE VS. SUTTATTI ENTERPRISES LIMITED, 43, HADAPSAR INDUSTRIAL ESTATE, HADAPSAR, PUNE (APPELLANT) (RESPONDENT) PAN NO. AACCS4191H ITA NO. 1111 /PN/20 11 ASSESSMENT YEAR : 2007 - 08 SUTTATTI ENTERPRISES LIMITED, 43, HADAPSAR INDUST RIAL ESTATE, HADAPSAR, PUNE VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE - 6, PUNE (APPELLANT) (RESPONDENT) PAN NO. AACCS4191H A SSESSEE BY: SHRI NIKHIL PATHAK R EVENUE BY: SHRI SANTOSH KUMAR/ SHRI S.P. WALIMBE DATE OF HEARING : 1 1 - 0 4 - 2014 DATE OF PRONOUNCEMENT : 30 - 05 - 2014 ORDER PER R.S . PADVEKAR , JM : - THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - III, PUNE DATED 26 - 10 - 2010 FOR THE A.Y. 200 7 - 08. WE FIRS T TAKE THE ASSESSEES APPEAL BEING ITA NO. 1111/PN/2011. THE FIRST ISSUE IS IN RESPECT OF THE INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF SEC. 80IA(2) R.W.S. 80IA(5) FOR THE PURPOSE OF CLAIMING THE DEDUCTION U/S. 80IA(4) OF THE ACT AND THIS ISSUE ARISES F ROM GROUND NOS. 1 TO 4. 2 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE COMPANY HAS PURCHASED TWO W INDMILLS IN THE F.Y. 2001 - 02 AND TWO W INDMILLS IN THE F.Y. 2002 - 03. THE ASSESSEE CLAIMED THE DEDUCTION U/S. 80IA FOR THE FIRST TIME IN RESPECT OF THE PROFITS DERIVED FROM GENERATION OF POWER IN THE A.Y. 2007 - 08 TO THE EXTENT OF RS.65,66,129/ - . THE ASSESSING OFFICER HAS RESERVATION IN ALLOWING THE DEDUCTION TO THE ASSESSEE U/S. 80IA (4)(IV) AS IN HIS OPINION THE LOSS ES INCURRED BY THE ASSESSEE S UNIT S ARE TO BE CARRIED FORWARD NOTIONALLY EVEN IF THE SAME HAVE BEEN SET OFF AGAINST THE INCOME OF THE OTHER HEADS OR SOURCES IN THE EARLIER YEARS. THE ASSESSING OFFICER HAS GIVEN THE WORKING OF THE CARRIED FORWARD LOSSES INCLUDING UNABSORB DE PRECIATION IN THE ASSESSMENT ORDER WHICH IS AS UNDER: FINANCIAL YEAR INCOME EXPENSES PROFIT/LOSS DEPRECIATION LOSS C/D F.Y. 01 - 02 927192 784366 142826 ( - ) 36000000 ( - ) 35857174 F.Y. 02 - 03 2945720 2751376 194344 ( - ) 25280000 ( - ) 61137174 F.Y. 03 - 04 1087752 7 4530479 6347048 0 ( - ) 54790126 F.Y. 04 - 05 12295055 5526648 6768407 0 ( - ) 48021719 F.Y. 05 - 06 11831549 6109614 5721935 0 ( - ) 42299784 F.Y. 06 - 07 11305144 4736850 6568294 0 ( - ) 3573 1490 3. THE ASSESSING OFFICER HAS OBSERVED THAT THERE IS NO TOTAL INCOME F OR THE ELIGIBLE BUSINESS WITHIN THE MEANING OF THE PROVISION OF SEC. 80IA(5). THE ASSESSING OFFICER ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE DEPRECIATION AND THE LOSSES OF THE EARLIER YEARS HAVE ALREADY BEEN ADJUSTED AND SET OFF AGAINST THE P ROFITS OF THE OTHER BUSINESS. THE ASSESSING OFFICER DECLINED TO GRANT DEDUCTION U/S. 80IA(4) OF THE ACT. THE ASSESSEE CHALLENGED THE SAME BEFORE THE LD. CIT(A) AND LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE H ON'BLE SPECIAL BENCH OF THE TRIBUNAL IN THE 3 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE CASE OF ACIT VS. GOLDMINES SHARES & INVESTMENTS PVT. LTD. 113 ITD 209 (AHMADABAD) (SB). 4. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS THAT THE ITAT, PUNE HAS CONSIDERED THE DECISION OF THE HON'BLE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF GOLDMINES SHARES & INVESTMENTS PVT. LTD. (SUPRA) AND BY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT 38 DTR 57 (MAD) AND DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE. WE FIND THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. (SUPRA) AS WELL AS THE DECISION OF THE ITAT, PU NE IN THE CASE OF SERUM INTERNATIONAL LTD. VS. ADDL. CIT, RANGE - 6 ITA NOS. 290 TO 292/PN/2010 DATED 20 - 09 - 2011. WE HAVE ALSO HEARD THE LD. DR. 5. THE ISSUE OF THE INITIAL ASSESSMENT YEAR HAS COME FOR CONSIDERATION BEFORE THE ITAT, PUNE IN THE CASE OF SER UM INTERNATIONAL LTD. (SUPRA) THE TRIBUNAL HAS HELD AS UNDER: '13. HAVING BEEN CONSIDERED THE ABOVE SUBMISSIONS, WE FIND THAT THE ISSUE RAISED IN GROUND NO. 1 AS TO WHAT WOULD BE THE INITIAL A.Y FOR THE PURPOSES OF SECTION 80IA(5) OF THE ACT HAS BEEN DECID ED IN FAVOUR OF THE ASSESSEE BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF POONAWALLA STUD AND AGRO FARM PVT. LTD. VS. ACIT (SUPRA). IN THAT CASE AFTER DISCUSSING THE ISSUE IN DETAIL, THE TRIBUNAL HAS COME TO THE CONCLUSION THAT THE INITIAL 'A. Y' FOR T HE PURPOSE OF CLAIMING DEDUCTION U/S. 80IA WAS THE FIRST YEAR IN WHICH THE ASSESSEE CLAIMED THE DEDUCTION U/S. 80IA (1) AFTER EXERCISING HIS OPTION AS PER THE PROVISIONS OF 80IA (2) OF THE ACT. IT WAS HELD THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INITIAL A. Y FOR THE PURPOSES OF SECTION 80IA(2) R.W.S. 80IA (5) WAS THE YEAR IN WHICH THE ASSESSEE STARTED GENERATING ELECTRICITY FROM THE WIND MILL ACTIVITY. WE ALSO FIND THAT THE ISSUE RAISED IN GROUND NO. 2 REGARDING THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S. 80IA UNDIMINISHED BY UNABSORBED LOSSES AND 4 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE DEPRECIATION ALSO SET OFF IN EARLIER YEARS AGAINST THE OTHER INCOME, IS FULLY COVERED BY THE DECISION OF HON 'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACI T (SUPRA) HOLDING THAT AS PER SUB - SECTION (5) OF SECTION 801 A, PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. WHEN THE ASSESSEE EXERCISES THE OPTION, ONLY THE LOSSES OF THE YEARS BEGINNING FROM THE IN ITIAL A. Y. ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF THE EARLIER YEARS WHICH HAVE BEEN ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. THE HON'BLE MADRAS HIGH COURT HAS BEEN FURTHER PLEASED TO HOLD THAT REVENUE CANNOT NOTIONALLY BRING FORWARD AN Y LOSS OF EARLIER YEARS WHICH HAD ALREADY BEEN SET OFF AGAINST THE OTHER INCOME OF ASSESSEE AND SET OFF AGAINST THE CORRECT INCOME OF THE ELIGIBLE BUSINESS. FICTION CREATED BY SUB - SECTION (5) OF SECTION 80IA DOES NOT CONTEMPLATE SUCH NOTIONAL SET OFF, HELD THE HON'BLE HIGH COURT. THE HON'BLE MADRAS HIGH COURT IN THAT DECISION HAS ALSO REFERRED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) AND THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GOLDMAN SHARES & F INANCE (P) LTD. (SUPRA). THERE IS NO DISPUTE THAT EVEN A DECISION OF NON - JURISDICTIONAL HIGH COURT IS A BINDING PRECEDENT FOR THE TRIBUNAL UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT. IN THIS REGARD, WE FIND STRENGTH FROM THE RECEN T DECISION OF HON'BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. VALSON DYEING, BLEACHING AND PRINTING WORKS (SUPRA) WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS BEEN PLEASED TO HOLD IN A CASE OF EXCISE MATTER THAT TRIB UNAL IS BOUND BY THE DECISION OF HIGH COURT, EVEN OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT. THE HON'BLE BOMBAY HIGH COURT HAS BEEN PLEASED TO HOLD FURTHER THAT THE TRIBUNAL HAD NO OPTION BUT TO FOLLOW THE JUDGM ENT OF THE MADRAS HIGH COURT. AN AUTHORITY LIKE AN INCOME TAX TRIBUNAL ACTING ANYWHERE IN THE COUNTRY HAS TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT ON THAT QUESTION. WE THUS RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. VAKSON DYEING, BLEACHING AND PRINTING WORKS (SUPRA) HOLD 5 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE THAT THE TRIBUNAL IS BOUND BY THE DECISION OF T HE HON'BLE MADRAS HIGH COURT ON AN IDENTICAL ISSUE IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT (SUPRA). WE THUS RESPECTFULLY FOLLOWING THE DECISION TAKEN BY THE HON'BLE MADRAS HIGH COURT IN THAT CASE ON AN IDENTICAL ISSUE UNDER ALMOST SIM ILAR FACTS, HOLD THAT WHEN THE ASSESSEE EXERCISING THE OPTION, ONLY THE LOSSES OF THE YEAR BEGINNING FROM THE INITIAL A. Y. ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEAR WHICH HAVE BEEN ALREADY SET OFF AGAINST THE OTHER INCOME OF THE ASSESSE E. THE REVENUE CANNOT NOTIONALLY BRING FORWARD ANY LOSS OF EARLIER YEARS WHICH HAS ALREADY BEEN SET OFF AGAINST ANY OTHER INCOME OF THE ASSESSEE AND SET OFF THE SAME AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. WE THUS SET ASIDE THE ORDERS OF THE A UTHORITIES BELOW AND DIRECT THE A. O TO ALLOW THE CLAIMED DEDUCTION U/S. 80IA WITHOUT BRINGING THE NOTIONALLY BROUGHT FORWARD ANY LOSS OR DEPRECIATION OF EARLIER YEARS WHICH HAS ALREADY BEEN SET OFF AGAINST OTHER INCOME OF THE ASSESSEE. THE DECISION OF PUN E BENCH OF THE TRIBUNAL IN THE CASE OF PRIMA PAPER ENGINEERING P. LTD. VS. I TO (SUPRA) CITED BY THE LD. DR IS ALSO NOT HELPFUL TO THE REVENUE SINCE FIRSTLY THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT (SUPRA) ON THE ISSUE WAS NOT CITED BEFORE THE BENCH AND SECONDLY THE ID. AR FAIRLY AGREED THAT THE ISSUE RAISED WAS COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCE (P) LTD. (SUPRA) F OLLOWED BY THE AUTHORITIES BELOW. THE ID. AR THEREIN THUS CONTENDED THAT THOUGH THE ISSUE MAY BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCIAL (P) LTD., BUT IT SHOULD NOT BE CO NSTRUED AS ACQUIESCENCE FROM THE SIDE OF THE ASSESSEE AS THE LEGAL POSITION ON THE SUBJECT IS YET NOT SETTLED. THE GROUND NO. 2 IS THUS DECIDED IN FAVOUR OF THE ASSESSE'. THE ABOVE DECISION HAS BEEN FURTHER FOLLOWED BY OUR CO - ORDINATE BENCH IN A SUBSEQUENT DECISION IN THE CASE OF LAP FINANCE & CONSULTANCY P. LTD. (SUPRA). THEREFORE, FOLLOWING THE PRECEDENTS, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) ON THIS GROUND. THE REVENUE FAILS ON THIS GROUND OF APPEAL. 6 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE 6. WE MAY PUT ON RECORD T HAT THE ITAT, PUNE HAS CONSIDERED THE DECISION OF THE HON'BLE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GOLDMINES SHARES & INVESTMENTS PVT. LTD. (SUPRA) AND FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF MADRAS IN THE CASE OF VELAYUDHASWAMY SPINNIN G MILLS (P) LTD. (SUPRA) HAS HELD THAT IF THE ABSORB LOSSES AND DEPRECIATION HAVE SET OFF AGAINST THE INCOME FROM OTHER SOURCES OR AGAINST OTHER HEADS THEN THE SAME CANNOT BE BROUGHT FORWARD NOTIONALLY FOR COMPUTING THE ELIGIBLE PROFITS U/S. 80IA(4)(IV) OF THE ACT. WE, THEREFORE, FOLLOWING THE DECISION OF THE ITAT, PUNE IN THE CASE OF SERUM INTERNATIONAL LTD. (SUPRA) ALLOW THE GROUNDS NO. 1 TO 4 TAKEN BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIMED U/S. 80IA(4)(IV) IN RESPEC T OF THE PROFITS OF THE ELIGIBLE BUSINESS I.E. WINDMILL. ACCORDINGLY, GROUND NOS. 1 TO 4 ARE ALLOWED. 7. THE NEXT ISSUE IS THE SUBSIDIARY RECEIVED FROM MEDA OF RS. 20 LACS WHICH HAS BEEN TREATED AS REVENUE RECEIPT AND BROUGHT TO TAX BY THE ASSESSING OFFI CER AND WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). THE LD. COUNSEL FAIRLY SUBMITTED THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE DECISION OF THE ITAT, PUNE IN THE CASE OF M/S. DHARIWAL INDUSTRIES LTD . WE, THEREFORE, FOLLOWING THE DECISION OF T HIS TRIBUNAL IN THE CASE OF M/S. DHARIWAL INDUSTRIES LTD. (SUPRA) DISMISS GROUND NOS. 5 AND 6. 8. THE LD. COUNSEL SUBMITS THAT AS PER THE INSTRUCTION OF THE ASSESSEE HE IS NOT PRESSING GROUND NOS. 7, 8, 8.1, 9, 9.1, 9.2, 10 AND 10.1. AS THE ASSESSEE HAS NOT PRESSED GROUND NOS. 7 TO 10.1 THE SAME ARE DISMISSED AS NOT PRESSED. THE NEXT ISSUE IS IN RESPECT OF THE ADHOC DISALLOWANCE OF RS.6,00,000/ - OUT OF ADMINISTRATIVE EXPENSES PERTAINING TO THE EOU UNIT AND THIS ISSUE ARISES FROM GROUND NO. 11. THE ASSES SING OFFICER HAS OBSERVED THAT THE EXPENSES OF THE NON - EOU AND EOU UNITS ARE VERIFIED AND COMPARED. IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE HAS ALLOCATED EXPENSES ON HIGHER SIDE IN NON - EOU 7 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE UNIT AND AT A LOWER SIDE IN EOU UNIT. THE ASSESSING OFFICER HAS GIVEN THE TABLE IN THE ASSESSMENT ORDER ON PAGE NO. 10 IN RESPECT OF THE DIFFERENT HEADS OF EXPENDITURE. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE FILED A COMPARATIVE CHART SHOWING THE PERCENTAGE OF EXPENSES TO SALES INCURRED IN EOU AND NON - EOU UNITS WITH REASONING FOR THE HIGHER ALLOCATION OF EXPENSES IN EOU UNIT. THE ASSESSING OFFICER NOTED THAT THE REASONS GIVEN FOR THE DIFFERENCE ARE NOT SATISFACTORY AND MADE THE ADDITION TO TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRME D THE ADDITION. 9. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL REFERRED TO THE PAPER BOOK MORE PARTICULARLY PAGE NO S . 55 TO 67 WHERE THE HEAD WISE ACTUAL EXPENDITURE IN RESPECT OF UNIT I & II AND UNIT III ARE SHOWN. IT IS EXPLAINED THAT SECURITY STAFF IS SEPARATELY APPOINTED FOR 100% EOU UNIT. IN RESPECT OF THE FACTORY MAINTENANCE IT IS EXPLAINED THAT EOU UNIT IS BRAND NEW WHILE NON - EOU UNIT IS MORE THAN 7 - 8 YEARS OLD. THE LD. COUNSEL TOOK US TO THE COMPILATION MORE PARTICULARLY PAGE NOS. 55 TO 67 . H E SUBMITS THAT IN RESPECT OF EACH AND EVERY HEAD , THE ASSESSEE GAVE THE EXPLANATION FOR THE DIFFEREN CE IN THE EXPENDITURE BUT ALL THE EXPLANATIONS WERE DISCARDED AND SUMMARILY REJECTED. WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL. ON PERUSAL OF THE REASONS GIVEN BY THE ASSESSING OFFICER , IT IS SEEN THAT EXCEPT PREPARING THE COMPARATIVE TABLE OF THE EXPENSES OF DIFFERENT HEADS , THE ASSESSING OFFICER HAS NOT AT ALL PUT ON RECORD THE REASONS GIVEN BY THE ASSESSEE FOR DIFFERENCE IN EXPENDITURE OF NON - EOU AND EOU UNITS AND WHY THE SAID EXPLANATION ARE NOT ACCEPTABLE TO HIM. 10. SO FAR AS THE LD. CIT(A) IS CONCERNED THOUGH HE HAS MADE SOME DISCUSSION BUT HE CONFIRMED THE ADHOC DISALLOWANCE STATING TO SAME TO BE THE REASONABLE EST IMATE MADE BY THE ASSESSI NG OFFICER . W E ARE NOT AP PROVING THE APPROACH OF THE LD. CIT(A). WE FIND THAT THE ASSESSEE HAS GIVEN THE EXPLANATION IN RESPECT OF EACH HEAD OF THE EXPENDITURE AND LD. 8 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE CIT(A) WAS DU TY BOUND TO PUT ON RECORD WHY HE IS NOT ACC EPTING THE EXPLANATION S OF THE ASSESSEE. MOREOVER, EVEN IF THE S O ME DISCUSSION IS THERE IN THE ORDER OF THE LD. CIT(A) BUT LD. CIT(A) HAS CONFIRMED THE ADHOC DISALLOWANCE. IN OUR OPINION EVEN IF THERE IS NO BAR FOR MAKING THE DISALLOWANCE BUT IT SHOULD BE SUPPORTED BY THE PROPER REAS ONING MORE PARTICULARLY WHEN THE CHARGE OF UNREASONABLE EXPENDITURE IS MADE . E VEN NO FIGURES IN RESPECT OF THE PRODUCTION, MAN POWER ETC. ARE ALSO BROUGHT ON RECORD. IN OUR OPINION THERE IS NO JUSTIFICATION BY MAKING THE ADHOC DISALLOWANCE. WE, THEREFOR E, DELETE THE ADDITION AND ALLOW THE GROUND NO. 11. THE LD. COUNSEL SUBMITS THAT THE HE IS NOT PRESSING THE GROUND NOS. 12 & 13. AS THE GROUND NOS. 12 & 13 ARE NOT PRESSED, THE SAME ARE DISMISSED AS NOT PRESSED. 1 1 . NOW, W E TAKE UP THE REVENUES APPEA L BEING ITA NO. 1039 /PN/2011. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD. COMMISSIONER OF INCOME - TAX (APPEA LS) HAS ERRED ON FACTS AND IN LAW IN ALLOWING DEDUCTION U/S.10B OF THE INCOME - TAX ACT, 1961 IN RESPECT OF DEVELOPMENT CHARGES RECEIPT OF RS.17,93,936/ - . 3. THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSESSING O FFICER TO RE - COMPUTE DEDUCTION U/S.10B OF THE INCOME - TAX ACT, 1961 AND ALLOW DEDUCTION U/S.10B IN RESPECT OF DEVELOPMENT CHARGES RECEIPT OF RS.1793,936/ - , IGNORING THE FACT THAT THE ASSESSEE HAD EXPRESSED NO OBJECTION VIDE ORDER - SHEET ENTRY DATED 22.12.200 9 TO THE DISALLOWANCE OF CLAIM U/S. 10B IN RESPECT OF THIS INCOME. 1 2 . THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDER. THE ASSESSEE HAD RECEIVED RS.17,93,936/ - TOWARDS THE DEVELOPMENT CHARGES. THE ASSESSEE EXPLAINED THAT IT HAS INCURRED SOME EX PENSES IN DEVELOPING PRODUCT AND GETTING THE SAME APPROVED. THERE WAS 9 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE UNCERTAINTY AS TO WHETHER THE ASSESSEE WOULD GET REIMBURSE MENT OR NOT AND HENCE , NO PROVISIONAL INCOME WAS CONSIDERED AS INCOME DURING THE F.Y. 2005 - 06. IT IS THE INTEGRAL PART OF THE BUSINESS TO DEVELOP THE NEW PRODUCT. THE ASSESSEE CLAIMED THAT THE SAID DEVELOPMENT CHARGES QUALIFIED FOR CLAIMING DEDUCTION U/S. 10B. THE ASSESSING OFFICER HAS OBSERVED THAT AS PER EXPLANATION 2 (III) TO SEC. 10B OF THE ACT, THE EXPORT TURNOVER MEANS C ONSIDERATION IN RESPECT OF EXPORT, BUT DOES NOT INCLUDE FREIGHT, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHN ICAL SERVICES OUTSIDE INDIA. IN THE OPINION OF THE ASSESSING OFFICER THE SAID RECEIPTS ARE NOT EITHER DIRECTLY OR INDIRECTLY RELATED TO EXPORT TURNOVER AND IN SEC. 10B ONLY THE EXPORT TURNOVER RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE IS REQUIRED TO BE CO NSIDERED. THE ASSESSING OFFICER, THEREFORE, DECLINED TO BE CONSIDERED THE SAME AMOUNT FOR COMPUTING THE DEDUCTION U/S. 10B. THE ASSESSING OFFICER HAS ALSO NOTED THAT THE ASSESSEE HAS NO OBJECTION FOR THE SAID ADDITION. THE ASSESSEE CONTESTED THE SAID DI SALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. BEFORE THE LD. CIT(A) THE ASSESSEE CONTENTED THAT IT HAD DEVELOPED SOME PRODUCTS AND THE EXPENDITURE THEREON WAS DEBITED IN THE EARLIER YEARS. THIS YEAR THE ASSESSEE HAD SOLD SAID PRODUCTS TO CUMMINS TURBO TECHNOLOGIES (USA) AND RECEIVED RS.17,93,936/ - . IT WAS STATED THAT THE SAID INCOME BEING PART OF THE BUSINESS CARRIED OUT BY THE ASSESSEE IT WAS OFFER ED TO TAX UNDER THE HEAD PROFITS OF THE BUSINESS . 1 3 . THE ASSESSEE ALSO CONTENTED THAT AS PER THE F ORMULA PROVIDED IN SEC. 10B(4) FOR COMPUTATION OF DEDUCTION U/S. 10B, THE PROFITS OF THE BUSINESS ARE TO BE CONSIDERED. IT WAS ARGUED THAT SINCE THE PRODUCT DEVELOPMENT CHARGES RECEIVED BY THE ASSESSEE FORM PART OF THE PROFITS OF THE BUSINESS, THE SAME H A VE TO BE INCLUDED IN BUSINESS INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10B. THE LD. CIT(A) ACCEPTED THE 10 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE ALTERNATE CONTENTION OF THE ASSESSEE THAT THE SAID CHARGES FORM PART OF THE PROFITS OF THE BUSINESS EVEN IF THE SAID CHARGES DO NOT FORM PAR T OF THE EXPORT TURNOVER. THE LD. CIT(A) HELD THAT THE PRODUCT DEVELOPMENT CHARGES ARE TO BE INCLUDE D AS PROFITS OF THE BUSINESS IN THE NUMERATOR AND ALSO IN THE TOTAL TURNOVER IN THE DEN OMINATOR . THE REASONING AND FINDINGS OF THE LD. CIT(A) ARE AS UNDER : 6.3.1 THE ALTERNATE ARGUMENT OF THE APPELLANT IS THAT AS PER FORMULA PROVIDED IN 10B (4), THE DEVELOPMENT CHARGES RECEIVED BY THE APPELLANT FORM PART OF THE PROFITS OF THE BUSINESS EVEN IF THE SAID CHARGES DO NOT FORM PART OF THE EXPORT TURNOVER. THERE IS MERIT IN THE ALTERNATE CONTENTION OF THE APPELLANT THAT SUCH CHARGES AROSE IN THE COURSE OF THE CARRYING ON THE BUSINESS BY THE EOU AND EVEN IF THE SAID INCOME IS NOT 'DERIVED FROM' EXPORT ACTIVITY OF THE APPELLANT, THE SAID CHARGES CONSTITUTE ANCILLARY BUSINESS PROFITS OF THE APPELLANT I.E. BEYOND THE FIRST DEGREE NEXUS WITH BUSINESS OF THE UNDERTAKING UNLIKE INCOME FROM OTHER SOURCES. 6.3.3 ACCORDINGLY, THE PRODUCT DEVELOPMENT CHARGES ARE TREATED AS BUSINESS PROFITS, THOUGH AS ANCILLARY BUSINESS PROFIT S AS DISCUSSED ABOVE, FOR THE PURPOSE OF COMPUTING THE DEDUCTION ALLOWABLE UNDER SECTION 10B AS PER FORMULA PROVIDED IN SUB - SECTION (4) AS UNDER: PROFITS OF THE BUSINESS X EXPORT TURNOVER TOTAL TURNOVER IN THE ABOVE FORMULA, THE PRODUCT DEVELOPMENT CHARGES ARE TO BE INCLUDED AS PROFITS OF THE BUSINESS IN THE NUMERATOR AND IN THE TOTAL TURNOVER IN THE DENOMINATOR. AS ALREADY MENTIONED, THE CHARGES WOULD NOT CONSTITUTE EXPORT TURNOVER AND THE SAME CANNOT BE INCLUDED IN THE EXPORT TURNOVER IN THE NUMERATOR OF THE FORMULA. 1 4 . WE HAVE HEARD THE PARTIES. WE FIND THAT AT THE FIRST INSTANCE LD. CIT(A) HAS CONSIDERED THAT THE ASSESSEE HAS GIVEN THE CONSENT IN THE ASSESSMENT PROCEEDING FOR DISALLOWING THE DEVELOPMENT CHARGES WHILE COMPUTING THE ELIGIBLE PROFITS FO R THE PURPOSE OF DEDUCTION U/S. 10B OF THE ACT. IN OUR OPINION IF THE ISSUE IS THE LEGAL ISSUE THEN THERE CANNOT BE ESTOPPEL AGAINST THE ASSESSEE FOR CLAIMING THE LEGAL RIGHTS IN THE 11 ITA NO S . 1039 & 1111/PN/2011, SUTTATTI ENTERPRISES LIMITED, PUNE APPELLATE PROCEEDINGS . S O THE ARGUMENT OF THE LD. DR THAT THE ASSESSEE HAS GIVEN THE CONSENT BEFORE THE ASSESSING OFFICER IS HAVING NO MERIT. ON MERIT WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE DEDUCTION TREATING THE DEVELOPMENT CHARGES RECEIVED BY THE ASSESSEE AS PART OF PROFIT S OF THE BUSINESS AS ADMITTEDLY WHICH ARE IN R ESPECT OF THE PRODUCTS EXPORTED BY HIM SO IT IS THE INCIDENTAL TO MAIN BUSINESS OF THE ASSESSEE . HE, ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO INCLUDE THE DEVELOPMENT CHARGES IN THE BUSINESS PROFITS AS WELL AS IN THE TOTAL TURNOVER. IN OUR OPINION T HE SAME IS IN ACCORDANCE WITH SEC. 10B(4) OF THE ACT. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUNDS TAKEN BY THE REVENUE. 1 5 . IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 - 05 - 2014 PRONOUNCED IN THE OPEN COURT ON - 05 - 2014 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 30 TH MAY, 20 1 4 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I II, PUNE 4 THE CIT - I II, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE