Safran Enginerring Services India Private Limited, Bangalore V. DCIT, Bangalore

ITA 1310/BANG/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8611 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 20-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Question of law; Unabsorbed depreciation
• Section: 143(3); 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.1310(B)/2011 (ASSESSMENT YEAR : 2005-06) M/S SAFRAN ENGINEERING SERVICES IND. PVT. LTD., CSRIE, NO.32, GRAPE GARDEN, 17 TH H MAIN ROAD, VI-BLOCK, KORAMANGALA, BANGALORE-560 095. PAN NO.AAFCS9003D APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BANGALORE RESPONDENT ASSESSEE BY : SHRI K.R.VASUDEVAN, CA REVENUE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 02-03-2016 DATE OF PRONOUNCEMENT : 09-03-2016 O R D E R PER SHRI VIJAY PAL RAO, JM: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 21-10- 2011 OF THE CIT(A)-III, BANGALORE FOR ASSESSMENT YE AR: 2005-06. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; A. SET OFF OF BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION AGAINST 10A PROFITS . ITA NO.1310(BANG)2011 2 A. THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE AO ON SETTING OFF THE B/F LOSSES AND UNABSORBED DEPRECIATION OF THE UNIT AMOUNTING TO RS.2,91,37,63 6/- BEFORE COMPUTING THE PROFITS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. B. THE LD.CIT(A) HAS ERRED IN PLACING RELIANCE ON CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. VS CIT(SC) 11 3 ITR 84, WHICH PERTAINS TO CLAIMING OF DEDUCTION UNDER S ECTION 80E PLACED UNDER CHAPTER VI-A OF THE IT ACT.. C. THE LD.CIT(A) ERRED IN NOT CONSIDERING THE RECE NT DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF YOKOGAWA INDIA LTD. ITA NO.78/2011 DATED 09-08-2011 . B. SET OFF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES UNDER NORMAL PROVISIONS O F THE ACT. A. THE LD.CIT(A) ERRED IN HOLDING THAT, NO SEPARATE ADJUDICATION IS REQUIRED FOR SET-OFF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES AMO UNTING TO RS.22,91,810/-. B. THE LD.CIT(A) OUGHT TO HAVE DIRECTED THELD.AO TO SET- OFF THE UNABSORBED DEPRECIATION AGAINST THE INCOME FROM OTHER SOURCES AMOUNTING TO RS.2,291,810/- C. SET OFF OF UNABSORBED DEPRECIATION AGAINST BOOK PROFIT UNDER MAT PROVISIONS OF THE ACT. A. THE LD.CIT(A) HAS ERRED IN HOLDING THAT NO SEPAR ATE ADJUDICATION IS REQUIRED FOR SET-OFF OF BOOK LOSS O R UNABSORBED DEPRECIATION WHILE COMPUTING THE BOOK PR OFITS UNDER MINIMUM ALTERNATE TAX(MAT) PROVISIONS. ITA NO.1310(BANG)2011 3 B. THE LD.CIT(A) OUGHT TO HAVE DIRECTED THE LD.AO T O SET- OFF THE LOWER OF BOOK LOSS OR UNABSORBED DEPRECIATI ON WHILE COMPUTING THE BOOK PROFITS UNDER MAT PROVISIONS AMO UNTING TO RS.2,291,810/- E THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY THE ABOVE GROUNDS DURING THE COURSE OF APPEAL 3. GROUND -A REGARDING DISALLOWANCE OF CLAIM OF DE DUCTION U/S 10A OF THE IT ACT, WITHOUT SETTING OFF OF BROUGHT FORWARD LOSSES UNABSORBED DEPRECIATION. 3.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF SOFTWARE DEVELOPMENT. THE ASSESSEE HAD CLAIMED DEDUCTION U/ S10A OF RS.2.91 CORES, WITHOUT SETTING OF BROUGHT FORWARD LOSSES. THE AO WHILE PASSING THE ASSESSMENT U/S 143(3) OF THE IT ACT, SET OFF OF THE BROUGHT FORWARD LOSSES AGAINST THE INCOME ELIGIBLE FOR DEDUCTION U/S10A OF THE IT ACT, TO THE FULL EXTENT AND DIRECTED THE BALANCE LOSS TO BE CARRIED FORWARD. 3.2 THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A). THE LD.CIT(A) HAS CONFIRMED THE ACTION OF THE AO BY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS M/S HIMATASINGIKE SEIDE LTD. 286 ITR 255(KAR.) 4. BEFORE US, THE LEARNED AR OF THE ASSESSEE SUBMI TTED THAT THE ISSUE IS COVERED BY THE LATEST JUDGMENT OF THE HONBLE JU RISDICTIONAL HIGH COURT IN ITA NO.1310(BANG)2011 4 THE CASE OF CIT VS M/S YOKOGAWA INDIA LTD (341 ITR 385). HE HAS FURTHER SUBMITTED THAT FOLLOWING THE SAID DECISION OF THE H ONBLE HIGH COURT, THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF M/S S AFRAN AEROSPACE INDIA PVT.LTD VS DCIT IN ITA NO.1261(B)/2010 VIDE ORDER D ATED 31-12-2014 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THA T JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S HIMATASINGIKE SEIDE LTD. 286 ITR 255(KAR.)(SUPRA) H AS BEEN CONFIRMED BY THE HONBLE SUPREME COURT, AS THE SLP FILED BY THE ASSESSSEE HAS ALREADY BEEN DISMISSED BY THE HONBLE SUPREME COURT. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE JUDGMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S HIMATASINGIKE SEIDE LTD.(SUPRA) WAS DELIVERED BY CONSIDERING THE UN-AMENDED PROVISIONS OF SEC.10A/10B OF THE IT ACT, 1961 PRIOR TO 2001. THE HONBLE JURISDICTI ONAL HIGH COURT IN A SUBSEQUENT DECISION IN THE CASE OF CIT VS M/S YOKOG AWA INDIA LTD (341 ITR 385)(SUPRA), AFTER CONSIDERING THE AMENDED PROV ISIONS OF SEC.10A/10B OF THE IT ACT, HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. BY FOLLOWING THE DECISION IN THE CASE OF M/S YOKOGAWA INDIA LTD (341 ITR 385)(SUPRA) THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S SAFRAN AEROSPACE INDIA PVT.LTD VS DCIT IN ITA NO.1261(B)/2010, HAD C ONSIDERED AND ADJUDICATED AN IDENTICAL ISSUE IN PARA-4.4 AND 4.5 AS UNDER; ITA NO.1310(BANG)2011 5 4.4 HAVING REGARD TO THE RIVAL CONTENTIONS AND T HE MATERIAL ON RECORD, WE FIND THAT IT IS NOT CLEAR FR OM THE RECORD AS TO WHETHER BROUGHT FORWARD LOSSES AND DEP RECIATION LOSS PERTAIN ENTIRELY TO NON-STPI UNIT ONLY OR PART OF IT ALSO PERTAINS TO STPI UNIT. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIMATSINGIKA SIEDE (SUPRA) WAS CONSIDER ING THE CASE OF AN ASSESSEE WHICH WAS 100% EXPORT ORIENTED UNIT IN TERMS OF SEC.10B OF THE ACT AND WAS CLAIMING EXEMPT ION U/S 10B. IN THE CASE OF THE SAID ASSESSEE, UNABSORBED DEPRECIATION AVAILABLE TO THE ASSESSEE IN THE ASSES SMENT YEAR 1988-89 WAS CARRIED FORWARD TO THE ASSESSMENT YEAR 1994-95 (RELEVANT ASSESSMENT YEAR) AND WAS CLAIMED BY THE ASSESSEE TO BE ADJUSTED AGAINST INCOME FROM OTHER S OURCES, THEREBY REDUCING THE ASSESSEES INCOME FOR ASSESSME NT PURPOSES AT NIL. THE AO ACCEPTED THE SAID CLAIM OF THE ASSESSEE AND ASSESSED THE TOTAL INCOME AT NIL. H OWEVER, THE COMMISSIONER OF INCOME-TAX (CIT) REVISED THE OR DER U/S 263 STATING THAT THE ORDER PASSED BY THE AO WAS ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS EXEMPTION U/S 10B WAS ALLOWED ON AN INFLATED AMOUNT WITHOUT DEDUCTING UNABSORBED DEPRECIATION. THE CIT DIRECTE D THAT UNABSORBED DEPRECIATION SHOULD BE ADJUSTED AGAINST THE INCOME OF THE EXPORT ORIENTED BUSINESS UNDERTAKING AND THE TOTAL INCOME OF THE ASSESSEE SHOULD ACCORDINGLY BE RECOMPUTED AFRESH. THE ASSESSEE THEREIN HAD APPEAL ED TO THE TRIBUNAL WHICH ALLOWED THE SAME AGAINST WHICH T HE REVENUE PREFERRED AN APPEAL BEFORE THE HONBLE HIGH COURT. THE HONBLE HIGH COURT HELD THAT SEC.10B CANNOT BE READ IN ISOLATION OF OTHER PROVISIONS AS IT IS ONLY AN EXEM PTION PROVISION AND EXEMPTION PROVISION CANNOT BE FANCIFU L AND IT HAS SOME RATIONALE WITH OTHER PROVISIONS OF THE ACT AND THEREFORE AFTER A COMBINED READING OF THE DEFINITIO N OF ITA NO.1310(BANG)2011 6 EXEMPTION, TOTAL INCOME-TAX LIABILITY, DEDUCTIBILIT Y ETC., ONE HAS TO COME TO A CONCLUSION THAT CALCULATION AS FAR AS POSSIBLE IS TO BE IN TERMS OF THE ACT. TO ARRIVE A T A PROFIT AND GAIN, ONE HAS TO NECESSARILY TAKE INTO CONSIDERATIO N TOTAL INCOME IN TERMS OF THE ACT AND TO ARRIVE AT THE INC OME, ONE HAS TO TAKE INTO CONSIDERATION VARIOUS ADDITIONS AN D DELETIONS IN TERMS OF THE ACT, SUCH AS ALLOWABILITY OF DEPREC IATION FOR THE PURPOSE OF CALCULATION OF TOTAL INCOME. THE HO NBLE SUPREME COURT HAS DISMISSED THE SLP FILED BY THE AS SESSEE AGAINST THE ORDER OF THE HONBLE HIGH COURT. 4.5 THE HONBLE HIGH COURT OF KARNATAKA, I N THE CASE OF YOKOGAWA INDIA LTD (SUPRA) WAS CONSIDERING THE C ASE OF AN ASSESSEE WHICH WAS IN THE BUSINESS OF MANUFACTUR E AND TRADING OF PROCESS CONTROLLED INSTRUMENTS AND IT HA D FILED RETURN OF INCOME DECLARING LOSS. DURING THE ASSESSM ENT PROCEEDINGS U/S 143(3), THE AO HAD OBSERVED THAT TH E ASSESSEE HAD CLAIMED EXEMPTION U/S 10A FOR ITS STPI UNIT BEFORE SET OFF OF BROUGHT FORWARD LOSSES AND DEPREC IATION. THE AO, THEREIN, HAD ALSO OBSERVED THAT 10A BENEFIT CAN BE GIVEN ONLY AFTER ADJUSTING BROUGHT FORWARD LOSS AND DEPRECIATION FROM THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE AND ON FU RTHER APPEAL BY THE REVENUE TO THE TRIBUNAL, IT WAS HELD THAT BUSINESS LOSS OF OTHER UNITS CANNOT BE SET OFF AGAI NST THE PROFITS OF THE UNDERTAKING ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE FOR PURPOSES OF DETERMINATION OF THE ALLOWABLE DEDUCTION U/S 10B OF THE ACT. THE REVENU E, THEREFORE, FILED APPEAL BEFORE THE HONBLE HIGH COU RT AND THE HIGH COURT FRAMED THE FOLLOWING QUESTION FOR DETERM INATION: ITA NO.1310(BANG)2011 7 WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT T HE DEDUCTION U/S 10A OR 10B OF THE ACT DURING THE CURR ENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING O FF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECIAT ION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-STP UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? THE HONBLE HIGH COURT HAS CONSIDERED THE ISSUE AT LENGTH AND AT PARA 31 OF ITS ORDER HAS HELD THAT AS DEDUCTION U/S 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFITS AND GAINS OF UNDERTAKING W OULD NOT ARISE AND IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AO WAS QUITE CONTRARY TO THE AFORESAID PROVISION AND T HE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDE R AND GRANTING THE BENEFIT OF SEC.10A TO THE ASSESSEE. T HUS, THE QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSES SEE. THUS, THERE ARE TWO JUDGMENTS OF THE HONBLE KARNAT AKA HIGH COURT CONTRARY TO EACH OTHER. WHEN THERE ARE TWO JUDGMENTS OF THE VERY SAME HIGH COURT BY BENCHES OF EQUAL STRENGTH, THEN THE LATER JUDGMENT OF THE HIGH COURT HAS TO BE FOLLOWED AS HELD BY THE HONBLE APEX COURT IN THE C ASE OF BHIKA RAM AND OTHERS VS. UOI REPORTED IN 238 ITR 11 3. THE DECISION OF THE HIGH COURT IN THE CASE OF HIMATSING IKE SIEDE (SUPRA) IS DATED 4 TH AUGUST 2006 WHEREAS THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF YOKOGAWA INDIA LT D.(SUPRA) IS DATED 9 TH AUGUST, 2011. AS REGARDS THE DISMISSAL OF THE SLP BY THE HONBLE SUPREME COURT AGAINST THE DECISI ON OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIM ATSINGIKE SIEDE (SUPRA) IS CONCERNED, WE FIND THAT THE HONBL E ITA NO.1310(BANG)2011 8 SUPREME COURT HAS DISMISSED THE APPEAL IN LIMINE WI THOUT LAYING DOWN ANY RATIO DECIDENDI THEREIN AND, THERE FORE, AS HELD BY THE HONBLE APEX COURT IN THE CASE OF INDIA N OIL CORPORATION LTD. VS. STATE OF BIHAR & OTHERS, REPOR TED IN 167 ITR 897, THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD.(SUPRA) HOLDS THE FI ELD. FURTHER, THE HONBLE APEX COURT IN THE CASE OF VEGE TABLE PRODUCTS LTD., REPORTED IN 88 ITR 192 (SC) HAS HELD THAT WHERE TWO REASONABLE CONSTRUCTIONS ARE POSSIBLE, TH EN THE CONSTRUCTION IN FAVOUR OF THE ASSESSEE MUST BE ADOP TED. RESPECTFULLY FOLLOWING THE SAID DECISION, WE ALLOW THE GROUND OF APPEAL NO.2.. 7. FOLLOWING THE LATEST JUDGMENT OF THE HONBLE HI GH COURT IN CASE OF M/S YOKOGAWA INDIA LTD (341 ITR 385)(SUPRA) AS WEL L AS CO-ORDINATE BENCH DECISION IN CASE OF M/S SAFRAN AEROSPACE INDIA PVT. LTD.,(SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION U/S 10A OF THE IT ACT,, WITHOUT SETTING O FF OF BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION 8. GROUND NO. B & C ARE REGARDING SET OFF OF UNABS ORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES, AS PER THE NORMA L PROVISIONS OF THE IT ACT AND UNDER THE MAT PROVISIONS OF THE ACT. 9. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEA RNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. SINCE BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION WERE SET OFF AGAINST 10A PROFIT BY THE ITA NO.1310(BANG)2011 9 AUTHORITIES BELOW, THEREFORE, THE ISSUE RAISED IN G ROUND NO.B & C WERE NOT ADJUDICATED BY THE LD. CIT(A). IN VIEW OF OUR FIND INGS ON THE ISSUE OF ALLOWING DEDUCTION U/S 10A WITHOUT SET-OFF OF BROUG HT FORWARD LOSSES/UNABSORBED DEPRECIATION, GROUND NO.B & C ARE SET ASIDE TO THE RECORD OF THE LD.CIT(A) FOR ADJUDICATION AS PER LAW , AFTER AFFORDING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF MARCH, 2016. SD/- SD/- (INTURI RAMA RAO) (VIJAY PA L RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : 09-03-2016 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3. CIT(A), BANGALORE 4. CIT, BANGALORE 5. DR, ITAT, BANGALORE 6. GUARD FILE ASST. REGISTRAR ITAT, BANGALORE