M/s. Ramsoft Technologies Pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 1330/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51367 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P H NARGUNDKAR
• Assessee Lawyers: RAMASUBRAMANIAN
• Keywords: Depreciation; Bonafide belief; Question of law; Unabsorbed depreciation
• Section: 10B; 263; 154

Judgement Text

PAGE 1 OF 8 ITA NO.1330/BANG/201 0 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1330/BANG/2010 (ASST. YEAR 2005-06) M/S RAMSOFT TECHNOLOGIES PVT. LTD., 4/1, DEVAIAH COURT, 22 ND CROSS, 8 TH MAIN, 3 RD BLOCK, JAYANAGAR, BANGALORE-11. - APPELLANT PA NO.AAACR6948R VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-12(4), BANGALORE. - RESPONDENT DATE OF HEARING : 28/11/2011 DATE OF PRONOUNCEMENT : 30/11/2011 APPELLANT BY : SHRI RAMASUBRAMANIAN, C.A. RESPONDENT BY : SHRI P H NARGUNDKAR, JCIT O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT, BANGALORE-III, BANGALORE DATED 26 /2/2010 PASSED U/S 263 OF THE ACT. THE RELEVANT ASST. YEAR IS 2005-06 . 2. THERE IS A DELAY OF 180 DAYS IN FILING THIS APPEA L. THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONING THE DELAY. T HE REASONS STATED FOR THE DELAY IN FILING THE APPEAL ARE AS FOLLOWS:- PAGE 2 OF 8 ITA NO.1330/BANG/201 0 2 THE ORDER U/S 263 WAS SERVED ON THE APPELLANT ON 31 ST MARCH, 2010. THE CONSEQUENTIAL ORDER WAS SERVED ON THE APPELLANT ON 11 TH SEPTEMBER, 2010. SINCE THERE WAS A MISTAKE APPARENT FROM RECORD IN THE CONSEQUENTIAL O RDER, THE APPELLANT FILED AN APPLICATION U/S 154 OF THE A CT ON 7 TH OCTOBER, 2010. THIS APPLICATION IS PENDING. THE APPELLANT WAS UNDER A BONAFIDE BELIEF THAT THE APPE AL IS TO BE FILED AFTER THE RECEIPT OF ORDER U/S 154 OF T HE ACT. THE APPELLANT HAS BEEN ADVISED THAT AN APPEAL OUGHT TO HAVE BEEN FILED AGAINST THE ORDER U/S 263 OF THE AC T. IMMEDIATELY THE APPELLANT HAS TAKEN STEPS TO FILE TH E APPEAL WITHOUT FURTHER DELAY. THE LAST DATE FOR FIL ING SUCH AN APPEAL EXPIRED ON 30 TH MAY, 2010. THIS APPEAL IS BEING FILED ON 26.11.2010 AND THERE IS A DELAY OF 18 0 DAYS. 2. THE COURTS HAVE UNIFORMLY TAKEN A VIEW THAT IN C ONDONING THE DELAY, LIBERAL APPROACH IS TO BE ADOPTED AND SHOULD NOT BE TECHNICAL. THE HONBLE SUPREME COURT IN THE CASE OF COLLECTOR, LAN D ACQUISITION V MST. KATIJI 167 ITR 471 HAS LAID DOWN AS UNDER:- THE LEGISLATURE HAS CONFERRED THE POWER TO CONDONE DELAY BY ENACTING SECTION 5 OF THE LIMITATION ACT OF 1963 IN ORDER TO ENABLE THE COURTS TO DO SUBSTANTIAL JUS TICE TO PARTIES BY DISPOSING OF MATTERS ON MERITS. THE EXPRESSION SUFFICIENT CAUSE EMPLOYED BY THE LEGISLATURE IS ADEQUATELY ELASTIC TO ENABLE THE COUR TS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUBSERVES THE ENDS OF JUSTICE THAT BEING THE LIFE PURPOSE OF TH E EXISTENCE OF THE INSTITUTION OF COURT. IT IS COMMO N KNOWLEDGE THAT THIS COURT HAS BEEN MAKING A JUSTIFI ABLY LIBERAL APPROACH IN MATTERS INSTITUTED IN THIS COUR T. BUT THE MESSAGE DOES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHER COURTS IN THE HIERARCHY. PAGE 3 OF 8 ITA NO.1330/BANG/201 0 3 ON PERUSAL OF APPLICATION FOR CONDONING DELAY, WE AR E SATISFIED WITH THE ABOVE REASONS MENTIONED FOR THE DELAY IN FILING THE APPEAL. MOREOVER, WE FIND THE ISSUE ON MERITS IS SQUARELY COVERED BY THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SE RVICES PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-II) IN FAVOUR OF THE A SSESSEE. HENCE, WE CONDONE THE DELAY OF 180 DAYS IN THE FILING THE APPEA L AND PROCEED TO DISPOSE OFF THE MATTER ON MERITS. 3. THE GROUNDS RAISED READS AS FOLLOWS:- 2) THAT THE LEARNED CIT ERRED IN LAW AND ON FACTS IN A SSUMING JURISDICTION U/S 263 OF THE ACT. 3) THAT THE LEARNED CIT ERRED IN LAW AND ON FACTS IN H OLDING THAT THE BROUGHT FORWARD LOSS U/S 72 AND UNABSORBED DEPRECIATION U/S 32(2) OF THE ACT IS TO BE SET OFF AGAINST THE PROFITS OF ELIGIBLE UNDERTAKING BEFORE WORKING OUT THE QUANTUM OF EXEMPTION U/S 10A OF THE ACT. 4) THAT THE LEARNED CIT ERRED IN LAW AND ON FACTS IN H OLDING THAT THE CARRIED FORWARD LOSS CANNOT BE SET OFF AGA INST LONG TERM CAPITAL GAINS. 4. IN THE COURSE OF HEARING, IT WAS SUBMITTED THAT THE ASSESSEE IS NOT PRESSING GROUND NO.4 MENTIONED ABOVE. HENCE, T HE SAME IS DISMISSED AS NOT PRESSED. 5. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE ASSESSEE IS ENTITLED TO EXEMPTION U/S 10A OF THE ACT. FOR THE AY 2005-06, AN ASSESSMENT WAS COMPLETED BY THE A O VIDE ORDER DATED 28 TH SEPTEMBER, 2007, WHEREIN THE AO ALLOWED THE DEDUCT ION U/S 10A OF THE PAGE 4 OF 8 ITA NO.1330/BANG/201 0 4 ACT WITH REFERENCE TO THE PROFIT FOR THE PREVIOUS YE AR ENDING 31 ST MARCH, 2005. THE DETAILS OF LOSS AND UNABSORBED DEPRECIAT ION OF THE UNDERTAKING BROUGHT FROM EARLIER ASST. YEARS ARE GIVEN BELOW:- SL.NO. ASST. YEAR LOSS UNABSORBED DEPRECIATION TOTAL 1. 2003-04 66,45,132 ------ 66,45,132 2. 2004-05 ------ 10,76,589 10,76,589 66,45,132 `0,76,589 77,21,721 THE AO SET OFF THE LOSS BROUGHT FORWARD FROM EARLIE R YEARS AFTER GRANTING EXEMPTION U/S 10A OF THE ACT. THE CIT, BANGALORE-I II ISSUED A NOTICE U/S 263 OF THE ACT PROPOSING TO SET OFF THE CARRIED FOR WARD LOSSES AGAINST THE CURRENT YEARS INCOME AND ALSO TO DISALLOW THE SETTI NG OFF CARRIED FORWARD LOSS AGAINST INCOME FROM OTHER SOURCES AND LONG TER M CAPITAL GAINS. 5.1 THE ASSESSEE FILED A DETAILED REPLY QUESTIONING AMONG OTHER THINGS, THE JURISDICTION OF THE COMMISSIONER TO INI TIATE ACTION U/S 263 OF THE ACT. 5.2 AFTER CONSIDERING THE REPLY, THE CIT HELD THAT - 1) THE CARRIED FORWARD LOSS SHOULD BE SET OFF AGAINST THE CURRENT YEARS PROFIT. AFTER SETTING THE CARRIED FO RWARD OF LOSSES THERE IS NO INCOME OF 10A UNIT FOR THE CURRE NT YEAR AND HENCE NO DEDUCTION U/S 10A OF THE ACT. 2) THAT THE LOSSES CARRIED FORWARD FROM THE EARLIER AS ST. YEARS CANNOT BE SET OFF AGAINST INCOME FROM OTHER SOURCES AND LONG TERM CAPITAL GAINS. 5.3 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . PAGE 5 OF 8 ITA NO.1330/BANG/201 0 5 5.4 AT THE OUTSET, IT WAS POINTED OUT BY THE ASSESS EE THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE JUDGEMENT OF T HE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICE S PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-II). 5.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE HONBLE JURISDICATIONAL HIGH COURT IN THE CASE OF CIT V M/S AXA BUSINESS SERVICES PVT. LTD. (SUPRA) CATEGORICAL LY HELD THAT DEDUCTION U/S 10A IS ALLOWABLE WITHOUT SETTING OFF OF THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION OF OTHER UNITS. THE RELEV ANT FINDINGS OF THE HONBLE HIGH COURT AT PARAS 19, 29 TO 31 READS AS F OLLOWS:- 19. 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 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. 29. 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 PAGE 6 OF 8 ITA NO.1330/BANG/201 0 6 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. 30. 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. 31. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, PAGE 7 OF 8 ITA NO.1330/BANG/201 0 7 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 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. 5.6 THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOW ING THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, WE DI RECT THE AO TO CALCULATE DEDUCTION U/S 10A OF THE ACT WITHOUT SETTING OFF OF THE CARRIED FORWARD BUSINESS LOSS AND DEPRECIATION. IT IS ORDERED ACCO RDINGLY. IN THE RESULT, GROUNDS NO. 3 IS ALLOWED. 6. SINCE GROUND NO.4 IS DISMISSED AS NOT PRESSED, WE HOLD THAT THE CIT IS JUSTIFIED IN HOLDING THAT CARRY FORWARD BUSIN ESS LOSS CANNOT BE SET OFF PAGE 8 OF 8 ITA NO.1330/BANG/201 0 8 AGAINST INCOME FROM OTHER SOURCES AND LONG TERM CAP ITAL GAINS. THEREFORE, THE REVISIONARY ORDER PASSED BY THE COMMISSIONER U/S 263 IS PARTLY UPHELD. SINCE REVISIONARY ORDER U/S 263 OF THE ACT IS PARTLY UPHELD, GROUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DAY OF NOVEMBER, 2011 SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO:- 1.THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCE RNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.