DCIT, Bangalore V. M/s. Ocwen Financial Solutions Pvt. Ltd, Bangalore

ITA 1233/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51318 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIIIDR
• Assessee Lawyers: AMIT KUMAR
• Keywords: Depreciation; Transfer pricing; Question of law; Unabsorbed depreciation
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 1233/BANG/2010 ASSESSMENT YEAR : 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. VS. M/S. OCWEN FINANCIAL SOLUTIONS PVT. LTD., 4 TH , 5 TH & 6 TH FLOOR, SALARPURIA ARENA, 24, HOSUR ROAD, BANGALORE 560 030. PAN: AAACO3764E APPELLANT RESPONDENT APPELLANT BY : SHRI ETWA MUNDA, CIT-III(DR) RESPONDENT BY : SHRI AMIT KUMAR, C.A. DATE OF HEARING : 10.10.2011 DATE OF PRONOUNCEMENT : 10.10.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL BY THE DEPARTMENT IS AGAINST THE ORDER DATED 31.8.2010 OF THE CIT(APPEALS)-IV, BANGALORE. FOLLOWING GROUN DS HAVE BEEN RAISED IN THIS APPEAL. ITA NO.1233/BANG/10 PAGE 2 OF 7 2. IN THE GROUNDS OF APPEAL, GROUNDS 1, 3 & 4 ARE G ENERAL IN NATURE AND SO DO NOT REQUIRE ADJUDICATION. THE REMAINING GROU ND NO. 2 READS AS UNDER: 3. THE LEARNED CIT(A) ERRED IN LAW IN HOLDING THAT THE LOSS OF NON 10A UNIT CANNOT BE SET OFF WHILE COMPUTING THE PROFIT OF THE 10A UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S. 1 0A. THE LEARNED CIT(A) OUGHT TO HAVE FOLLOWED THE RATIO OF RECENT ORDER OF THE HONBLE BANGALORE ITAT IN THE CASE OF M/S. I NTELLINET TECHNOLOGIES INDIA PVT. LTD. VS ITO IN ITA NO.1021/ BANG/2009 AND SHOULD NOT HAVE ALLOWED THE RELIEF TO THE ASSES SEE. 3. FROM THE ABOVE GROUND, IT IS NOTICED THAT THE ON LY GRIEVANCE OF THE DEPARTMENT RELATES TO DEDUCTION U/S. 10A OF THE INC OME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT]. 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED ITS RETURN OF INCOME ON 30.10.2005 DECLARING A NET LOSS OF RS.19, 34,425. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND REFERRED TO TP O FOR DETERMINATION OF ARMS LENGTH PRICE U/S. 92CA OF THE ACT. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAD COMMENCED A NEW BUS INESS ACTIVITY AND SUFFERED LOSS. THE ASSESSEE HAD NOT CONSIDERED THE LOSS FROM THE NON-10A UNIT WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT FOR THE OTHER UNITS. HOWEVER, THE ASSESSING OFFICER IN HIS ASSESSMENT OR DER ADJUSTED THE LOSS FROM NON-10A UNIT IN COMPUTING THE ELIGIBLE DEDUCTI ON U/S. 10A OF THE ACT. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(APPEALS), WHO DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE BY FOLLOWING THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA ITA NO.1233/BANG/10 PAGE 3 OF 7 INDIA TECHNOLOGY PVT. LTD. V. ACIT IN ITA NOS.229 & 362/MDS/2008 DECIDED ON 5.2.2010. NOW THE DEPARTMENT IS IN APPE AL. 6. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE ORDER DATED 29.10.2010 IN ITA NO.853/BANG/09 FOR THE A.Y. 2003-04 IN THE CASE OF DCIT, LTU V. M/S. YOKOGAWA INDIA LTD., BANGALORE . COPY OF THE SAID ORDER WAS FURNISHED. 7. THE LD. CIT(DR) ALTHOUGH SUPPORTED THE ORDER OF THE ASSESSING OFFICER, BUT COULD NOT CONTROVERT THE AFORESAID CON TENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 8. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND MATERIAL ON RECORD, IT IS NOTICED THAT THE ISSUE UNDER CONSIDER ATION IS SQUARELY COVERED VIDE AFORESAID ORDER DATED 29.10.2010 WHEREIN THE R ELEVANT FINDINGS ARE GIVEN IN PARA 9 TO 9.7, WHICH READ AS UNDER: 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. IN THE FOLLOWING DECISIONS IN ASSESSEES OWN CASE, IT HAS BEEN HELD THAT DEDUCTION U/S 10A SHOUL D BE ALLOWED IN RESPECT OF PROFITS OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING WITHOUT REDUCING THE LOSSES OF OTHER UNITS/BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION ALLOWANCE:- ACIT V YOKOGAWA INDIA LTD. (ITA NO.1802/BANG/2005 DT.4.8.2006, AY 2002-03 (2007) 111 TTJ (BANG.) 0548 ; YOKOGAWA INDIA LTD. V ACIT (ITA NO.1157/B/07 DECISION DATED 29.8.2008-AY 2004-05-BANGALORE TRIBUNAL. 9.1 DEDUCTION U/S 10A IS AVAILABLE IN RESPECT OF EACH UNDERTAKING. THE PROVISIONS OF SECTIONS 28 TO 44D ARE TO BE APPLIED TO EACH UNDERTAKING AND NOT EACH BUSINESS. THIS IS BECAUSE, SECTION 10A IS UNDERTAKING SPECIFIC. THAT , THE SECTION IS UNDERTAKING SPECIFIC IS DISCERNIBLE FROM THE FOLLOW ING:- ITA NO.1233/BANG/10 PAGE 4 OF 7 UNDER SUB-SECTION 1 PROFITS DERIVED BY THE UNDERTAK ING FROM THE EXPORT OF ARTICLES AND THINGS QUALIFY FOR DEDUCTION; SUB-SECTION 2 PRESCRIBES CERTAIN CONDITIONS TO BE FULFILLED BY THE UNDERTAKING FOR BEING ELIGIBLE TO THE BENEFITS OF SECTION 10A; UNDER SUB-SECTION 4, IT IS PROFITS OF THE BUSINESS OF THE UNDERTAKING THAT QUALIFY FOR DEDUCTION. SIMILARLY, THE DEFINITION OF EXPORT TURNOVER REFERS TO THE SALE PR OCEEDS OF THE EXPORTS MADE BY THE UNDERTAKING ; UNDER SUB-SECTION 5, AN AUDIT REPORT IS TO BE FURNI SHED IN SUPPORT OF CLAIM OF DEDUCTION. SUCH AN AUDIT RE PORT IS TO BE SUBMITTED FOR EACH ELIGIBLE UNDERTAKING . 9.2 THE DECISION RELIED ON BY THE LEARNED DR MAINL Y IN THE CASE OF HIMATSINGIKE SEIDE LTD. 286 ITR 255 IS DISTINGUISHABLE SINCE IN THAT CASE, THE ASSESSEE OW NED ONLY ONE 100% EXPORT ORIENTED UNIT. THE UNABSORBED DEPRECI ATION ALLOWANCE WAS IN RELATION TO THE SAME UNIT. HOWEVE R, IN THE PRESENT CASE, AS STATED EARLIER, THE RESPONDENT OPE RATES THROUGH THREE UNITS. OUT OF THE THREE UNITS, ONE UNIT WAS R EGISTERED UNDER STPI SCHEME AND WAS ELIGIBLE FOR EXEMPTION U/S 10A. THE OTHER TWO UNITS WERE NON 10A UNITS. IT WAS IN THE NON 10 A UNITS, THAT THE LOSSES WERE INCURRED. THE FACTS OF THE PRESENT CASE AND THE FACTS BEFORE THE KARNATAKA HIGH COURT IN HIMATASING IKE SEIDES CASE ARE DIFFERENT. SIMILAR IS THE FACTUAL SITUATI ON IN SO FAR AS THE ORDER OF THE TRIBUNAL IN INTELLINET TECHNOLOGIES IN DIA (P) LTD. IN ITA.1021/B/09 DATED 12 TH MARCH, 2010. 9.3 THE DECISION RELIED ON BY THE LEARNED DR IN T HE CASE OF SYNCO INDUSTRIES LTD. V AO & ORS. OF THE HO NBLE BOMBAY HIGH COURT, WHICH IS AFFIRMED BY THE HONBLE SUPREME COURT (REPORTED IN 299 ITR 444) IS ALSO NOT APPLICA BLE TO THE FACTS OF THE CASE SINCE IN THE SYNCO INDUSTRIES LTD. CASE , THE HONBLE HIGH COURT WAS CONSIDERING THE CLAIM OF DEDUCTION U /S 80I. THE DEDUCTION U/S 80I IS CIRCUMSCRIBED BY THE CONDITION S MENTIONED U/S 80AB OF THE ACT. SECTIONS 80A AND 80AB ARE NOT APPLICABLE TO THE DEDUCTION U/S 10A/10B OF THE ACT. FOR TAK ING THE ABOVE PROPOSITION, WE ARE FORTIFIED BY THE ORDER OF THE S PECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SCIENTIFIC ATLANTA INDI A TECHNOLOGY LTD. WHEREIN AT PARA 62, IT WAS OBSERVED AS FOLLOWS :- ITA NO.1233/BANG/10 PAGE 5 OF 7 IT IS NEEDLESS TO SAY THAT SECTION 10A IS NOT INC LUDED IN CHAPTER VI-A. HENCE, AS LONG AS SECTION 10A IS NOT FALLING UNDER CHAPTER VI-A, SECTION 80AB CANNOT BE APPLIED. FURTHER IT WAS OBSERVED THUS:- THAT SECTIONS 80A AND 80AB FALL UNDER CHAPTER VI-A WHICH CHAPTER IS TO BE APPLIED AFTER ARRIVING AT THE GROS S TOTAL INCOME, WHEREAS SECTION 10A FALLS UNDER CHAPTER III WHICH I S TO BE GIVEN EFFECT WHILE ARRIVING AT THE TOTAL INCOME OF THE AS SESSEE. HENCE, WE HOLD THAT EVEN THOUGH THE CLAIM U/S 10A IS A DED UCTION AND NOT EXEMPTION, THE SAME CANNOT BE SUBJECTED TO THE PROV ISIONS OF SECTION 80AB WHICH FALLS UNDER DIFFERENT CHAPTER, N AMELY, CHAPTER VI-A, SO LONG AS THE LEGISLATURE HAS NOT SP ECIFICALLY MENTIONED SO, TO APPLY THE PROVISIONS OF SECTION 80 AB OF THE ACT, TO THE CLAIM OF DEDUCTION U/S 10A. 9.4 THIS ISSUE, WE FIND, IS SQUARELY COVERED BY TH E DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF SCIENTIFIC ATLANTA TECHNOLOGY PVT. LTD. CITED SUPRA . IN THAT CASE, THE TRIBUNAL WAS CONSIDERING THE FOLLOWING QUESTION OF LAW:- WHETHER THE BUSINESS LOSS OF A NON-ELIGIBLE UNIT, WHOSE INCOME IS NOT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT, H AS TO BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10A FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DE DUCTION U/S 10A OF THE ACT? THE SPECIAL BENCH OF THE TRIBUNAL WAS OF THE VIEW T HAT UNDER THE SCHEME OF THE ACT, THE PROFITS OF THE UNIT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT WOULD FORM PART OF THE INCOME CO MPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND P ROFESSION BUT HOWEVER, IN ORDER THAT THE SAME WILL NOT SUFFER TAX , DEDUCTION WILL HAVE TO BE MADE IN RESPECT OF SUCH PROFITS WHILE CO MPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S AND PROFESSION AND NOT FROM THE GROSS TOTAL INCOME AS ENVISAGED UNDER CHAPTER VIA. 9.5 THE RELEVANT FINDING OF THE TRIBUNAL AT PARA 60 OF ITS ORDER READ AS FOLLOWS:- EVEN THOUGH IT IS A DEDUCTION TO BE GIVEN, IT IS T O BE DEDUCTED WHILE ARRIVING AT THE PROFITS OF BUSINESS AND PROFE SSION AND NOT FROM THE GROSS TOTAL INCOME AS ENVISAGED UNDER CHAP TER VI-A. THUS, WE HOLD THAT DEDUCTION UNDER SECTION 10A UNDE R CHAPTER III OF THE INCOME-TAX ACT IS TO BE GRANTED WHILE CO MPUTING THE PROFITS AND GAINS OF BUSINESS AND PROFESSION ITSELF AND NOT FROM THE GROSS TOTAL INCOME. ITA NO.1233/BANG/10 PAGE 6 OF 7 9.6 FURTHER, THE SPECIAL BENCH OF TRIBUNAL AT PARA 65 OF ITS ORDER HELD THAT WHEN ASSESSEE IS HAVING MORE TH AN ONE INDUSTRIAL UNDERTAKING, THE PROFITS AND GAINS OF TH AT PARTICULAR UNDERTAKING, WHICH QUALIFY FOR DEDUCTION U/S 10A I S BEING SEPARATELY CALCULATED. THE RELEVANT FINDING OF TRI BUNAL READS AS FOLLOWS:- IT MAY BE NOTICED THAT AGAIN THE WORDS USED ARE P ROFITS AND GAINS OF BUSINESS OF THE UNDERTAKING. IN ANY CASE , THIS IS NOT THE TOTAL PROFITS OF THE BUSINESS OF THE ASSESSEE. THU S, IN COMPUTING DEDUCTION UNDER SECTION 10A, WE HAVE TO ASCERTAIN T HE TOTAL INCOME AS PER THE PROVISIONS OF THE ACT IN RESPECT OF THAT UNDERTAKING AND THE AMOUNT SO DETERMINED IS TO BE REDUCED FROM THE TOTAL INCOME. 9.7 FINALLY IT WAS CONCLUDED BY THE HONBLE SPECIA L BENCH OF THE TRIBUNAL (PARA 68 OF THE ORDER) THAT N OWHERE IT IS MENTIONED IN SECTION 10A THAT SUCH DEDUCTION IS TO BE RESTRICTED TO THE TOTAL INCOME OF THE ASSESSEE COMPUTED UNDER THE PROVISIONS OF THE ACT. IN THE LIGHT OF THE SPECIAL BENCH RULI NG, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING THE DEDUCTION U/S 10A (DETERMINED AT RS.4,78,57,158) FO R THE REASON THAT THE ASSESSEE COMPANY DID NOT HAVE ANY PROFITS LEFT FOR ALLOWING THE DEDUCTION COMPUTED U/S 10A. 9. SINCE FACTS OF THE PRESENT CASE ARE SIMILAR TO T HE FACTS IN THE CASE OF M/S. YOKOGAWA INDIA LTD. (SUPRA) , SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER OF THE TRIBUNAL DATED 29.10.2010, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) AND AS SUCH DO NOT FIND MERIT IN THE APPEAL BY THE DEPARTMENT. 10. IN THE RESULT, THE APPEAL BY THE DEPARTMENT IS DISMISSED. ITA NO.1233/BANG/10 PAGE 7 OF 7 PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF OCTOBER, 2011. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 10 TH OCTOBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.