Symphony Services Corporation (I) Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1187/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63733 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 80HHC; 10B

Judgement Text

PAGE 1 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 1187/BANG/2012 (ASST. YEAR 2005-06) M/S SYMPHONY SERVICES CORPORATION (I) PVT. LTD., NO.13/1, KADUBEESANAHALLI VILLAGE, OUTER RING ROAD, VARTHUR HOBLI, BANGALORE- 560103. PA NO.AABCG 5658 E VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 12(3), BANGALORE. (APPELLANT) (RESPONDENT) ITA NO. 1207/BANG/2011 (ASST. YEAR 2005-06) (BY REVENUE) DATE OF HEARING : 20.09.2012 DATE OF PRONOUNCEMENT : .09.2012 ASSESSEE BY : SHRI K R VASUDEVAN, C.A. REVENUE BY : SHRI FARHAT HUSSAIN QURESHI,CI T-III OR DER PER GEORGE GEORGE K : THESE ARE CROSS APPEALS PREFERRED AGAINST THE OR DER OF THE CIT(A)-IV, BANGALORE DATED 30/09/2012. THE RELEVAN T ASSESSMENT YEAR IS 2005-06. PAGE 2 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 2 2. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEA LS AND THEY PERTAIN TO THE SAME ASSESSEE, THESE APPEALS WERE HE ARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. 3. WE SHALL FIRST CONSIDER THE ASSESSEES APPEAL. ITA NO.1187/BANG/2011 (ASSESSEES APPEAL) 3.1 BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF SOFTWARE DEVELOPMENT. FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE COMPANY HAD TWO UNITS, ONE IN BANGALORE AND ANOTHER IN MUMBAI. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A IN RESPECT OF ITS BANGALORE UNIT (STPI UNIT). IT HAD INCURRED A LOSS IN RESPECT OF ITS MUMBAI UNIT (NON STPI UNIT) AMOUNTING TO RS.6,88,037/-. B ESIDES THIS, THE ASSESSEE COMPANY ALSO HAD BROUGHT FORWARD LOSSES OF STPI UNIT (BANGALORE UNIT) TO THE EXTENT OF RS.3,81,67,509/-. THE ASSES SEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT WITHOUT SETTING OFF TH E CARRY FORWARD LOSSES AS WELL AS THE LOSS OF THE CURRENT YEAR PERTAINING T O NON-STPI UNIT (MUMBAI UNIT). THE ASSESSING OFFICER COMPLETED THE ASSESSM ENT UNDER SECTION 143(3) OF THE ACT BY CALCULATING DEDUCTION UNDER SEC TION 10A OF THE ACT AFTER SETTING OFF THE UNABSORBED LOSS OF THE SAME U NIT AND THE CURRENT YEARS LOSS OF THE MUMBAI UNIT (NON-STPI UNIT). THE OBSERVATION OF THE ASSESSING OFFICER READS AS FOLLOWS:- 3.7 I ALSO HASTEN TO ADD HERE THAT BY VIRTUE OF VER Y WORDS SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE MAKES IT AMPLY CLEAR THAT ALL THE LOSSES WH ETHER PAGE 3 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 3 RELATING TO STP UNIT OR OTHERWISE SHOULD BE SET OFF . THOUGH THE S.10A SPEAKS OF DEDUCTION OF PROFITS DER IVED FROM AN UNDERTAKING EXPORTING COMPUTER SOFTWARE, ARTICLES OR THINGS, IT CLEARLY SPECIFIES THAT IT HAS TO BE ALLOWED FROM THE TOTAL INCOME AND THERE CAN BE ONLY ONE TOTAL INCOME AS PER THE I T ACT. HENCE, ASSESSEE S ARGUMENT ON NON 10A PROFITS CANNOT BE SET OFF AGAIN ST 10A INCOME ALSO LIABLE TO BE REJECTED. FURTHER IN THE LIGHT OF THE RATIO OF DECISION OF HONBLE HIGH COUR T OF KARNATAKA ABOVE MENTIONED NO COMMENTS/COUNTER ARGUMENTS FOR THE CASE LAWS MENTIONED BY THE ASSESSE E IS DEEMED NECESSARY. 3.2 THE SUBMISSION OF THE ASSESSEE THAT IT HAD OPT ED OUT OF SECTION 10A BENEFIT AND HAD SUBMITTED DECLARATION UNDER SEC TION 10A(8) OF THE ACT IN RESPECT OF THE EARLIER ASSESSMENT YEARS IN WHICH THE BANGALORE UNIT OF THE ASSESSEE HAD INCURRED LOSS, WAS REJECTED BY THE ASSESSING OFFICER, SINCE ACCORDING TO HIM, THE LETTERS OF THE ASSESSEE COMPA NY DATED 28/10/2004 AND 30/10/2004 CLAIMED TO HAVE BEEN FILED, DID NOT BEAR THE SEAL OF THE ASSESSING OFFICERS OFFICE. HENCE, ACCORDING TO TH E ASSESSING OFFICER, THE ASSESSEES FILING THE ABOVE DECLARATION COULD NOT B E ACCEPTED AND HENCE, THE ASSESSEES CONTENTION WITH REGARD TO DECLARATION FI LED FOR OPTING OUT OF 10A SCHEME BY INVOKING THE PROVISIONS OF SECTION 10A(8), WAS REJECTED. 3.3 AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORI TY. 3.4 THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE. THE CIT(A) DIRECTED THAT THE LOSS OF THE NON-STPI UNIT (MUMBAI UNIT) AMOUNTING TO RS.6,88,037/0- SHOULD NOT BE RECKONED/SET OFF BE FORE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT. THE CIT(A) HOWEVER, HELD THAT PAGE 4 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 4 UNABSORBED DEPRECIATION AND CARRY FORWARD LOSSES OF THE EARLIER YEARS OF THE SAME UNIT SHOULD BE SET OFF AGAINST THE PROFITS BEFORE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT. THE CIT(A) WHILE DOING SO, FOLLOWED THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF HIMATSINGIKE SEIDE LTD. REPORTED IN 286 ITR 255 AND THE ORDER OF THE TRIBUNAL IN THE CASE OF INTELLINET TECHNOLOGIES IND IA (P) LTD. IN ITA NO.1021/BANG/2009 DATED 12 TH MARCH, 2010. THE CIT(A) AFFIRMED THE ASSESSING OFFICERS ACTION IN REJECTING THE ASSESSE ES CONTENTION THAT IT HAD FILED A DECLARATION UNDER SECTION 10A(8) OF THE ACT FOR OPTING OUT OF 10A BENEFIT FOR THE ASSESSMENT YEAR 2003-04 AND 2004-05. 3.5 THE ASSESSEE, BEING AGGRIEVED BY THE ORDER OF T HE CIT(A), IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL:- I) THE LEARNED CIT(A) ERRED IN SETTING OFF THE BROUGHT FORWARD LOSSES WHILE ARRIVING AT THE BUSINESS PROFI TS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10A OF THE A CT. II) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT FOR TH E ASSESSMENT YEAR 2003-04 AND 2004-05, THE COMPANY HAS OPTED OUT OF THE STPI SCHEME AND HAS FILED DECLARAT ION UNDER SECTION 10A(8) OF THE ACT ALONG WITH ITS RETU RN OF INCOME. AS SUCH, THE LOSSES OF THE PREVIOUS YEARS A RE DEEMED TO BE TREATED AS NON-STPI LOSSES AND THUS, CANNOT BE SET OFF AGAINST THE PROFITS OF THE STPI U NIT WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. III) THE LEARNED CIT(A) ALSO ERRED IN STATING AND UPHOLD ING THE ASSESSING OFFICERS CONTENTION THAT THE ASSESSE E COMPANY FAILED TO PRODUCE THE EVIDENCE TO SUPPORT TH AT THE UNDERTAKING UNDER SECTION 10A(8) WAS FILED FOR THE EARLIER YEARS. HE SHOULD HAVE TAKEN COGNIZANCE OF T HE FACT THAT THE SAD UNDERTAKING WAS FILED WITH THE ASSESSING OFFICER ALONG WITH RETURN OF INCOME FOR PAGE 5 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 5 ASSESSMENT YEARS 2003-04 AND 2004-05. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE REQUIREME NT UNDER SECTION 10A(8) IS PROCEDURAL IN NATURE AND TH E FILING OF THE 10A(8) UNDERTAKING ALONG WITH THE RET URN OF INCOME IS SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF THE ACT. IV) NOTWITHSTANDING THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT SECTION 10A FALLS UNDER CHAPT ER III WHICH HAS A TITLE INCOME WHICH DO NOT FORM PAR T OF THE TOTAL INCOME I.E. INCOME OF THE 10A UNIT HAS T O BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME AND HENCE THE BROUGHT FORWARD LOSS CANNOT BE SET OFF UN DER SECTION 72 AGAINST THE INCOME OF THE 10A UNIT BEFOR E THE 10A DEDUCTION IS CLAIMED. DEDUCTION UNDER SECTION 10A FROM TOTAL INCOME CANNOT BE EQUATED WITH DEDUCTION UNDER CHAPTER VIA. HE OUGHT TO HAVE APPRECIATED TH AT THE MAIN OBJECT OF SECTION 10A WAS NOT TO TAX PROFI TS FROM EXPORT ORIENTED UNITS. V) THE LEARNED CIT(A) ALSO ERRED IN HOLDING THAT THE DECISIONS OF THE HONBLE BANGALORE TRIBUNAL IN THE FOLLOWING CASES ARE NOT APPLICABLE TO THE CASE OF A SSESSEE COMPANY: YOKOGAWA INDIA LTD. ADITI TECHNOLOGIES PVT. LTD. NOUS INFOSYSTEMS PVT. LTD. SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD. SCT SOFTWARE SOLUTIONS (I) PVT. LTD. 3.6 THE LEARNED AR SUBMITTED THAT THE ISSUE IN QUE STION IS SQUARELY COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V YOKOGAWA INDIA LTD. (2012) 341 ITR 385 (KAR.). ACC ORDING TO THE LEARNED AR, THE MAIN REASONING FOR THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V YOKOGAWA INDIA LTD. ARE AS FOL LOWS:- PAGE 6 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 6 I) THE DEDUCTION UNDER SECTION 10A IS UNDERTAKING-SPEC IFIC. II) THE PHRASE TOTAL INCOME USED IN 10A(1) REFERS TO THE TOTAL INCOME OF THE STP UNIT. III) THE INCOME OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOTAL INCO ME. HENCE, THE INCOME ELIGIBLE FOR EXEMPTION UNDER SECT ION 10A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HA S TO BE DEDUCTED AT SOURCE LEVEL. IV) THE RELIEF UNDER SECTION 10A WILL HAVE TO BE GIVEN BEFORE CHAPTER IV. V) SIMILARLY, AS DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED LOSS BEING SET OFF AGAINST P ROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. 3.6.1 IT WAS SUBMITTED THAT THE HONBLE HIGH COUR T, IN THE CASE OF YOKAGAWA, HAS NOT MADE ANY DISTINCTION BETWEEN 10A A ND NON-10A UNITS. ALL THROUGH THE ORDER, IT TALKS OF AN UNIT. AFTER GIVI NG A FINDING THAT THE LOSSES/UNABSORBED DEPRECIATION CANNOT BE SET OFF AG AINST THE PROFITS FOR 10A COMPUTATION, IT ANALYSES NON-10A UNITS AND GIVES A FINDING THAT THE DECISION APPLIES TO NON-10A UNIT (PARA 30). HENCE, THE DECISION APPLIES TO SINGLE STP UNIT CASES ALSO. 3.6.2 IT WAS FURTHER SUBMITTED BY THE LEARNED AR T HAT THE HONBLE BANGALORE BENCH OF THE TRIBUNAL HAS GIVEN TWO CONTR ASTING DECISIONS/ORDERS AFTER CONSIDERING THE JUDGMENT OF THE HONBLE KARNA TAKA HIGH COURT IN THE CASE OF HIMATSINGIKE SEIDE LTD. 286 ITR 255. THOS E TWO DECISIONS ARE I) 24/7 CUSTOMER PVT. LTD. ASSESSMENT YEAR 2004-05 (ITA NO. 295/09 DATED 7/8/2009); II) INTELLINET TECHNOLOGIES ASSESSMENT YEAR 2004-05 (ITA NO. 1021/09 DATED 12/3/2010) (REPORTED IN 2010-TIOL - 167-ITAT-BANG) PAGE 7 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 7 IT WAS SUBMITTED BY THE LEARNED AR THAT IN THE CASE OF INTELLINET TECHNOLOGIES, THE HONBLE TRIBUNAL HAD PLACED TOTAL RELIANCE ON HIMATSINGIKE SEIDE LTD., WHILE IN THE CASE OF 24/7 CUSTOMER PVT. LTD., THE HONBLE TRIBUNAL HAS ANALYSED HONBLE HIGH COURT OF KARNATAK A IN THE CASE OF HIMATSINGIKE SEIDE LTD. CASE AND HAD GIVEN A FINDIN G THAT IT CANNOT BE MADE APPLICABLE FOR THE FOLLOWING REASONS:- I) THE CASE INVOLVED IN HIMMATSINGKE PERTAINED TO ASSESSMENT YEAR 1994-95 (BEFORE THE AMENDMENT THAT ALLOWED CARRIED FORWARD OF BUSINESS LOSS); II) THE OLD SECTION EXCLUDED CERTAIN INCOME IN THE PROC ESS OF ARRIVING AT TOTAL INCOME; III) THE DECISION OF HIMMATSINGKE, RENDERED IN THE CONTE XT OF OLD SECTION 10B, CANNOT BE MADE APPLICABLE TO TH E PRESENT CASE; IV) ALSO, THE VARIOUS CASE LAWS RELIED BY THE HONBLE HC IN HIMMATSINGKE PERTAIN TO DEDUCTION UNDER CHAPTER VIA . THE JUDICIAL PRINCIPLES RENDERED IN THE CONTEXT TO CHAPTER VIA CANNOT BE CONSIDERED FOR DEDUCTION UNDE R SECTION 10A; V) THE DECISION DID NOT TAKE INTO CONSIDERATION THE DE CISION OF HONBLE BOMBAY HC AND ALSO OF THE SAME COURT IN H MT. IT WAS SUBMITTED BY THE LEARNED AR THAT THE HONBLE HIGH COURT IN THE CASE OF YOKOGAWA, ENCOMPASSES BATCH OF CASES WHEREIN THE CASE OF INTELLINET (SUPRA) OF THE TRIBUNAL WAS REVERSED AND DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF 24/7 (SUPRA), WHICH WAS IN FAVOUR OF THE ASSESSEE, WAS AFFIRMED B Y THE HONBLE HIGH COURT. WITH REGARD TO THE SUBMISSION ON DECLARATIO N OF 10A(8), IT WAS SUBMITTED AS FOLLOWS:- PAGE 8 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 8 THE IMPLICATION OF DECLARATION UNDER SECTION 10A(8 ) IS THAT A 10A UNIT, IF IT INCURS LOSSES, CAN FILE THE DECLARATION THEREBY OPTING OUT OF THE 10A SCHEME FOR THAT YEAR. SO, IF THE DECLARATION IS FILED, IT WILL BE TREATED AS NON-10A UNIT FOR THE YEAR. SO, A UNIT CAN BE EITHER A STP UNIT OR NON-STP UNIT , BY FILING THE 10A(8) DECLARATION. THE YOKOGAWA DECISI ON IS APPLICABLE FOR THE LOSSES INCURRED BY NON-10A UNIT A ND ALSO THE SAME 10A UNIT. AS SUCH, THIS DISTINCTION MADE OUT BETWEEN THE TREATMENT OF LOSSES OF NON-10A UNIT AND 10A HAS BEEN REMOVED BY THE YOKAGAWA DECISION. HENC E, THE 10A(8) DECLARATION CARRIES NO SIGNIFICANCE FOR THE COMPUTATION OF DEDUCTION UNDER SECTION 10A. HENCE, THE IMPLICATION OF 10A(8) DECLARATION IS: - IF THE DECLARATION IS FILED FOR A LOSS YEAR, THEN THAT YEAR WILL NOT BE COUNTED FOR RECKONING THE 10 YEARS MENTIONED IN 10A(1) - IF THE DECLARATION IS NOT FILED, EVEN THE LOSS YEAR WILL BE COUNTED FOR THE 10 YEARS. THEREFORE THE DECLARATION UNDER SECTION 10A(8) HAS NO RELEVANCE FOR THE ISSUE WHETHER BROUGHT FORWARD LO SSES OF EARLIER YEARS HAS TO BE SET OFF FROM PROFITS, WHI LE COMPUTING 10A DEDUCTION. THE CIT(A) HAS MENTIONED THAT PROPER EVIDENCE WAS N OT PRODUCED TO PROVE THAT THE DECLARATION WAS FILED. IT IS NOT MENTIONED AS TO WHAT WAS THE EVIDENCE HE PERUSE D AND WHY HE CONSIDERS IT NOT PROPER. THE ONLY EVIDENCE AVAILABLE IS THE RETURN OF INCOME FILED. ALONG WITH THE RETURN, SEVERAL ANNEXURES WERE ALSO FILED, INCLUDING INTER ALIA, THE DECLARATION UNDER SECTION 10A(8). FROM THE LIST OF ANNEXURES ALSO FILED, IT CAN BE SE EN THAT THE DECLARATION WAS AT S.NO.4, WHEREAS THERE WERE PAGE 9 OF 23 ITA NOS.1187/BA NG/2011 & 1207/BANG/2011 9 TOTALLY 9 ANNEXURES. SO, THE CLAIM CANNOT BE AN AFTERTHOUGHT. WHEN THE RETURN OF INCOME IS FILED, THE DEPT. GIVES ACKNOWLEDGEMENT BY AFFIXING THE SEAL ON THE FIRST PA GE. THE DEPT. DOES NOT AFFIX THE ACKNOWLEDGEMENT SEAL O N ALL THE ANNEZURES. AS PER THE MANUAL OF OFFICE PROCEDURE VOL.II, FEB . 2003, SECTION 4, THE RECEIPT CLERK IS TO PERFORM TH E PRELIMINARY CHECKING FOR THE ENCLOSURES AND THEN AFF IX THE ACKNOWLEDGEMENT SEAL. ONCE THE ACKNOWLEDGEMENT SEAL IS AFFIXED, THE OBVIOUS PRESUMPTION/CONCLUSION IS THAT THE ANNEXURES ARE FILED. AFTER HAVING GIVEN THE ACKNOWLEDGEMENT, THE DEPT. CANNOT TURN BACK AND SAY THAT THE ENCLOSED DOCUMENTS DO NOT CARRY SEPARATE ACKNOWLEDGEMENT. IF THIS ARGUMEN T IS ALLOWED, IT WILL BE POSSIBLE FOR THE DEPARTMENT TO SAY THAT EVEN THE AUDIT REPORTS, FORM 3CD, 3CEB WERE ALSO NO T FILED AND INITIATE PENALTY PROCEEDINGS. WHEN ALL OT HER ANNEXURES ARE ACCEPTED AS FILED, THERE IS NO REASON TO DOUBT THE FILING OF DECLARATION UNDER SECTION 10A(8 ). 3.7 THE LEARNED DR PRESENT WAS DULY HEARD. 3.8 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAD HELD THAT DEDUCTION U/S 10B IS ALLOWABLE WITHOUT SETTING OFF THE BROUGHT FORWARD LOSS AND LO SS OF THE CURRENT YEAR PERTAINING THE OTHER UNITS. THE HONBLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- (I) WHETHER THE APPELLATE AUTHORITIES FAILED TO TA KE INTO CONSIDERATION THAT THE AMENDMENT TO SECTION 10A BY T HE PAGE 10 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 10 FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001, THE DEDUCTION OF PROFITS AND GAINS AS EARNED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE IS REQUIRED TO BE ALLOWED FROM TH E TOTAL INCOME OF THE ASSESSEE AND CONSEQUENTLY THE LO SS FROM THE NON-STP UNIT IS REQUIRED TO BE SET OFF AGA INST THE INCOME OF THE OTHER STP UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE AMENDED ACT? (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT THE DEDUCTION UNDER SECTION 10A OR SECTION 10B OF THE A CT DURING THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSS ES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-ST P UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? (EMPHASIS SUPPLIED) 3.9 THE RELEVANT FINDINGS OF THE HONBLE HIGH COU RT AT PARAS 19, 20, 31 TO 33 READS AS FOLLOWS:- 19. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A T HAT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHA PTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT T HE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED A T. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EF FECT TO ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS THE TOTA L INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 20. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT PAGE 11 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 11 MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. --------------------------------------------------- ----------- 31. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. PAGE 12 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 12 32. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE H AS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD, FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 33. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE PAGE 13 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 13 AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 3.10 RESPECTFULLY FOLLOWING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA I NDIA LTD. (SUPRA), WE HOLD THAT THE DEDUCTION U/S 10A/10B OF THE ACT IS TO BE CALCULATED WITHOUT SETTING OFF OF THE CARRIED FORWARD BUSINESS LOSS OF THE ASSESSEE IN RESPECT OF THE EARLIER ASSESSMENT YEARS. IT IS ORDERED ACCO RDINGLY. HENCE, GROUND NOS.2, 3 AND 4 ARE ALLOWED. 3.11 SINCE WE HAVE ADJUDICATED THE ALTERNATIVE GRO UND (GROUND NO.4) IN FAVOUR OF THE ASSESSEE, THE OTHER ISSUE, NAMELY, WHETHER THE ASSESSEE HAD FILED THE DECLARATION UNDER SECTION 10A(8) OF THE A CT, TO OPT OUT OF THE BENEFIT OF SECTION 10A IN RESPECT OF ASSESSMENT YEAR S 2003-04 AND 2004- 05, IS NOT CONSIDERED; AND HENCE, THE OTHER GROUNDS ARE DISMISSED AS INFRUCTUOUS. IT IS ORDERED ACCORDINGLY. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED ABOVE. ITA NO.1207/BANG/2011 (REVENUES APPEAL) 5. THE REVENUE HAS RAISED FIVE GROUNDS OF APPEAL. GROUND NOS.1, 4 & 5 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICAT ION IS CALLED FOR. HENCE, THE SAME ARE DISMISSED. PAGE 14 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 14 5.1 THE REMAINING GROUNDS, NAMELY, GROUND NOS.2 AND 3 READS AS FOLLOWS:- 2) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE DED UCTION UNDER SECTION 10A SHOULD BE ALLOWED IN RESPECT OF P ROFITS OF 10A UNIT WITHOUT SETTING OFF OF CURRENT YEAR LOSS OF ANY OTHER NON-10A UNIT WHILE THIS DECISION RUNS CONT RARY TO THE PROVISIONS OF SEC.70, 32(2) AND 72 OF THE I T ACT, 1961. 3) THE LEARNED CIT(A) ERRED IN HOLDING THAT EXPENDI TURE OF RS.2,31,06,882/- TOWARDS TELECOMMUNICATION EXPENSES , RS.3,30,61,328/- TOWARDS TRAVEL EXPENSES INCURRED I N FOREIGN CURRENCY ARE TO BE EXCLUDED FROM TOTAL TURNO VER AS WELL WHEREAS SUCH EXCLUSION IS PERMITTED TO ARRI VE AT THE EXPORT TURNOVER ONLY AS PER THE DEFINITIONS GIVE N IN SEC.10A OF THE ACT AND TOTAL TURNOVER HAS NOT BEEN DEFINED IN THE SECTION. GROUND NO.2 IS LINKED TO ASSESSEES APPEAL (ITA NO.1187/BANG/20 11) 5.2 BRIEF FACTS IN RELATION TO THE ABOVE GROUND RE AD AS FOLLOWS:- THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF ITS BANGALORE UNIT (STPI UNIT). IT HAD INCURRED A LOSS IN RESPECT OF MUMBAI UNIT AMOUNTING TO RS.6,88,037/-. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT WITH OUT SETTING OFF THE LOSS INCURRED IN THE CURRENT YEAR PERTAINING TO THE NON-S TPI UNIT (MUMBAI UNIT). THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDE R SECTION 143(3) OF THE ACT BY CALCULATING DEDUCTION UNDER SECTION 10A O F THE ACT AFTER SETTING OFF THE LOSS OF THE CURRENT YEAR IN RESPECT OF THE M UMBAI UNIT. PAGE 15 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 15 5.3 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 5.4 THE FIRST APPELLATE AUTHORITY PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. THE CIT(A) DIRECTED THE ASSESSING OFFIC ER NOT TO SET OFF THE LOSS OF NON-STPI UNIT AMOUNTING TO RS.6,88,037/- AG AINST THE INCOME OF STPI UNIT WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT. THE CIT(A) FOLLOWED THE ORDERS OF THE TRIBUNAL IN THE F OLLOWING CASES:- DCIT V YOKOGAWA INDIA LTD. (2010 TIOL 745) (ITAT, B ANGALORE); ITO V M/S ADITI TECHNOLOGIES PVT. LTD. (2009 TIOL 6 53) (ITAT, BANGALORE); NOUS INFOSYSTEMS PVT. LTD. V ITO ITA NO.1042/BANG/0 7 (ITAT, BANGALORE) & ITO V SCT SOFTWARE SOLUTIONS INDIA PRIVATE LIMITED ITA NO.1014/BANG/2004 (ITAT,BANGALORE). 5.5 THE RELEVANT FINDING OF THE CIT(A) READS AS FO LLOWS:- ONCE IT IS AN UNDISPUTED FACT THAT THE LOSS OF RS.6,88,037/- IS IN RESPECT OF NON-STPI UNIT, THE S AME CANNOT BE SET OFF AGAINST THE INCOME OF STPI UNIT W HICH IS ENTITLED FOR DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT. THIS VIEW FINDS SUPPORT FROM THE DECISION OF THE HONBLE ITAT BANGALORE RELIED BY THE APPELLANT ACCORDING TO WHICH THE LOSS OF NON STPI UNDERTAKING CANNOT BE SET OFF AGAINST THE STPI UNDERTAKING. RESPECTFULLY FOLLOWING THE DECISIONS O F THE HONOURABLE ITAT BANGALORE ON WHICH THE RELIANCE HAS BEEN PLACED BY THE APPELLANT, THE ASSESSING OFFICER IS DIRECTED NOT TO SET OFF THE CURRENT YEAR LOSS OF RS.6,88,037/- OF NON STPI UNDERTAKING AGAINST THE P ROFIT OF THE STPI UNDERTAKING ELIGIBLE FOR DEDUCTION UNDE R SECTION 10A OF THE INCOME TAX ACT. APPEAL ON THE A BOVE GROUND IS ACCORDINGLY ALLOWED. PAGE 16 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 16 5.6 AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5.7 AT THE VERY OUTSET, THE LEARNED AR SUBMITTED T HAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V YOKOGAWA INDIA LTD. (2012) 341 ITR 38 5 (KAR.). 5.8 THE LEARNED DR PRESENT WAS DULY HEARD. 5.9 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAD HELD THAT DEDUCTION U/S 10A/ 10B IS ALLOWABLE WITHOUT SETTING OFF THE NON-STPI UNIT. THE HONBLE HIGH CO URT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- (I) WHETHER THE APPELLATE AUTHORITIES FAILED TO TA KE INTO CONSIDERATION THAT THE AMENDMENT TO SECTION 10A BY T HE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001, THE DEDUCTION OF PROFITS AND GAINS AS EARNED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE IS REQUIRED TO BE ALLOWED FROM TH E TOTAL INCOME OF THE ASSESSEE AND CONSEQUENTLY THE LO SS FROM THE NON-STP UNIT IS REQUIRED TO BE SET OFF AGA INST THE INCOME OF THE OTHER STP UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE AMENDED ACT? (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT THE DEDUCTION UNDER SECTION 10A OR SECTION 10B OF THE A CT DURING THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSS ES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-ST P UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? (EMPHASIS SUPPLIED) PAGE 17 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 17 5.10 THE FINDING OF THE HONBLE HIGH COURT IS REPR ODUCED AT PARA 3.9 (SUPRA) OF THE ASSESSEES APPEAL. HENCE, THE SAME IS NOT REITERATED HERE. RESPECTFULLY FOLLOWING THE DICTUM LAID DOWN BY THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA), W E HOLD THAT THE DEDUCTION U/S 10A/10B OF THE ACT IS TO BE CALCULATED WITHOUT SETTING OFF OF THE LOSS INCURRED BY THE ASSESSEE IN RESPECT OF THE NON-STPI UNIT. IT IS ORDERED ACCORDINGLY. HENCE, GROUND NO.2 IS REJECTED. 6. GROUND NO.3 : THE ASSESSING OFFICER, WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT, HAS EXCLUDE D TELECOMMUNICATION EXPENSES OF RS.2,31,06,882/- AND TRAVELLING EXPENSE S OF RS.3,30,61,328/- INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVE R. AS A RESULT OF EXCLUSION OF THE ABOVE SAID EXPENSES FROM THE EXPOR T TURNOVER WHILE CALCULATING THE DEDUCTION UNDER SECTION 10A OF THE ACT, THE QUANTUM OF DEDUCTION UNDER SECTION 10A OF THE ACT WAS REDUCED. 6.1 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 6.2 IT WAS SUBMITTED DURING THE APPELLATE PROCEEDI NGS THAT THE ASSESSING OFFICER HAD ERRED IN REDUCING THE TELECOM MUNICATION EXPENSES AMOUNTING TO RS.2,31,06,882/- AND TRAVELLING EXPENS ES IN FOREIGN CURRENCY AMOUNTING TO RS.3,30,61,328/- FROM THE EXPORT TURNO VER WHILE CALCULATING DEDUCTION UNDER SECTION 10A OF THE ACT. ALTERNATIV ELY IT WAS PLEADED THAT IF CERTAIN EXPENSES ARE REDUCED FROM THE EXPORT TURNOV ER, THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER WHILE COMP UTING DEDUCTION UNDER SECTION 10A OF THE ACT. PAGE 18 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 18 6.3 THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY FOLLOWING VARIOUS ORDERS OF THE TRIBUNAL INCLUDING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR (AT) 353. 6.4 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFOR E US. 6.5 AT THE VERY OUTSET THE LEARNED AR SUBMITTED TH AT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OT HERS (2011-TIOL-684- HC-KAR-II), HONBLE MUMBAI HIGH COURT IN THE CASE O F CIT V GEM PLUS JEWELLERY INDIA LTD. 330 ITR 175 AND THE ORDER OF TH E SPECIAL BENCH IN THE CASE OF ITO V M/S SAK SOFT LTD. 313 ITR (AT) 353. 6.6 THE LEARNED DR PRESENT WAS DULY HEARD. 6.7 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSE D THE MATERIAL ON RECORD. THE HONBLE KARNATAKA HIGH COURT IN THE C ASE OF CIT V M/S TATA ELXSI LTD. & OTHERS HAD HELD THAT WHILE COMPUTING T HE EXEMPTION U/S 10A, IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIV ED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HON BLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS:- ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXP ORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE G LOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHAN GE PAGE 19 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 19 FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIN D. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUC H EXPORT TURNOVER, THE EXPENSES INCURRED TOWARDS FREI GHT, TELECOMMUNICATION CHARGES, OR INSURANCE ATTRIBUTABL E TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA, OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE, IN PROVIDING THE TECHNICAL SERVIC ES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER, THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF TH IS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER, THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; ..IN SECTION 10A, NOT ONLY THE WORD TOTAL TURNOVE R IS NOT DEFINED, THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOW EVER, WHILE INTERPRETING THE PROVISIONS OF SECTION 80HHC, THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES, WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOU LD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA, SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A I S A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTI VES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE, HAVING EXPORT BUSINESS AND DOMESTIC BUSIN ESS, THE LEGISLATURE INTENDED TO HAVE A FORMULA TO ASCER TAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNO VERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER W AS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PROFITS. IN THE CASE OF SECTION 80HHC, THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSXCESSEE, WHEREAS IN SECTION 10-A, THE EXPORT PRO FIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERT AKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING, IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS, IN O THER WORDS, EXPORT TURNOVER AND DOMESTIC TURNOVER. TO T HE EXTENT OF EXPORT TURNOVER, THERE WOULD BE A COMMONA LITY PAGE 20 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 20 BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF THE EXPORT TURNOVER IN THE NUMERATOR I S TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES, THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TUR NOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR . THE REASON BEING THE TOTAL TURNOVER INCLUDES EXPORT TUR NOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERA TOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE , THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TU RNOVER IN SECTION 10A, THERE IS NOTHING IN THE SAID SECTIO N TO MANDATE THAT, WHAT IS EXCLUDED FROM THE NUMERATOR T HAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED A FORMULA AND IN THE SAID FORMULA, EXPORT TURNOVER IS DEFINED, AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER, THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING TH E MEANING OF THE TOTAL TURNOVER, WHEN THE TOTAL TURNO VER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUDED WHILE ARR IVING AT THE TOTAL TURNOVER, WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER, SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS, THERE IS NO ERROR COMMITTED B Y THE TRIBUNAL IN FOLLOWING THE JUDGEMENTS RENDERED IN TH E CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10 A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME. 6.8 THE HONBLE MUMBAI HIGH COURT IN THE CASE OF G EM PLUS JEWELLERY INDIA LTD. (SUPRA), IN IDENTICAL CIRCUMSTA NCES, HELD THAT SINCE THE EXPORT TURNOVER FORMS PART OF THE TOTAL TURNOVER, I F AN ITEM IS EXCLUDED FROM THE EXPORT TURNOVER, THE SAME SHOULD ALSO BE R EDUCED FROM THE TOTAL TURNOVER TO MAINTAIN PARITY BETWEEN NUMERATOR AND DE NOMINATOR WHILE PAGE 21 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 21 CALCULATING DEDUCTION U/S 10A OF THE ACT. THE RELE VANT FINDING OF THE HONBLE MUMBAI HIGH COURT READS AS FOLLOWS:- THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPO RT AND THE TURNOVER FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FORMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONS TITUENT ELEMENT OF THE DENOMINATOR IN AS MUCH AS THE EXPORT TURNOVER IS A PART OF THE TOTAL TURNOVER. THE EXPO RT TURNOVER, IN THE NUMERATOR MUST HAVE THE SAME MEANI NG AS THE EXPORT TURNOVER WHICH IS CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEFINITION OF THE EXPRESSION EXPORT TUR NOVER IN EXPLN.2 TO S.10A WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERT AKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED I N OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FO REIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGH T, TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TURNOVER THE LEGI SLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. THE SUBMISSION WHICH HAS BEEN URGED ON BE HALF OF THE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHA RGES ARE LIABLE TO BE EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REVENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION TOTAL TURNOVER HAS NOT BEEN D EFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF S.10A. HOW EVER, THE EXPRESSION EXPORT TURNOVER HAS BEEN DEFINED. THE DEFINITION OF EXPORT TURNOVER EXCLUDES FREIGHT AN D INSURANCE. SINCE EXPORT TURNOVER HAS BEEN DEFINED BY PARLIAMENT AND THERE IS A SPECIFIC EXCLUSION OF FRE IGHT AND INSURANCE, THE EXPRESSION EXPORT TURNOVER CANNOT HAVE A DIFFERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPEN TO PARLIAMENT TO MAKE A PAGE 22 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 22 PROVISION WHICH HAS BEEN ENUNCIATED EARLIER MUST PR EVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. ANY OT HER INTERPRETATION WOULD LEAD TO AN ABSURDITY. IF THE C ONTENTION OF THE REVENUE WERE TO BE ACCEPTED, THE SAME EXPRES SION VIZ. EXPORT TURNOVER WOULD HAVE A DIFFERENT CONNO TATION IN THE APPLICATION OF THE SAME FORMULA. THE SUBMISSIO N OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH THESE HAVE BEEN SPECIFICALLY EXCLU DED FROM EXPORT TURNOVER FOR THE PURPOSES OF THE NUME RATOR WOULD BE BROUGHT IN AS PART OF THE EXPORT TURNOVER WHEN IT FORMS AN ELEMENT OF THE TOTAL TURNOVER AS A DENOMIN ATOR IN THE FORMULA. A CONSTRUCTION OF A STATUTORY PROVISIO N WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. MOREOVE R, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NO T HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTA L TURNOVER. FREIGHT AND INSURANCE CHARGES DO NOT HAV E ANY ELEMENT OF TURNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER PARTICULARLY IN THE ABSENCE OF A LEGISLATIVE PRESCRI PTION TO THE CONTRARY CIT V SUDARSHAN CHEMICALS INDUSTRIES LTD. (2000) 163 CTR (BOM) 596: (2000) 245 ITR 769 (BOM) APPLIED; CIT V LAKSHMI MACHINE WORKS (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) AND CIT V CATAPHARMA (IN DIA) (P) LTD. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) RELIED ON 6.9 IN THE CASE OF SAK SOFT LTD. (SUPRA), THE ASSE SSEE WAS ENGAGED IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S 10B OF THE ACT. IN COMPLETING THE ASSESSMENT U/S 1 43(3) OF THE ACT, THE AO REDUCED THE EXPENDITURE INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA, FROM THE EXPORT T URNOVER WITHOUT CORRESPONDING REDUCTION FROM TOTAL TURNOVER, THEREB Y REDUCING THE DEDUCTION CLAIMED BY THE ASSESSMENT U/S 10B OF THE A CT. PAGE 23 OF 23 ITA NOS.1187/B ANG/2011 & 1207/BANG/2011 23 6.10 IN LIGHT OF THE ABOVE FACTS, THE SPECIAL BENC H HELD AS UNDER:- FOR THE ABOVE REASONS, WE HOLD THAT FOR THE PURPOS E OF APPLYING THE FORMULA UNDER SUB-SECTION (4) OF SECTIO N 10B, THE FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTA BLE TO THE DELIVERY OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INCURRED IN F OREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSID E INDIA ARE TO BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AN D FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. THE APPEAL S FILED BY THE DEPARTMENT ARE THUS DISMISSED. 6.11 IN THE LIGHT OF THE ABOVE JUDGEMENTS OF THE H IGH COURTS AND THE ORDER OF THE SPECIAL BENCH, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO EXC LUDE THE ABOVE MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS F ROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF SEPTEMBER, 2012 SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.