Technigraphics (India) Pvt. Ltd., Pune V. Addl. CIT, Pune

ITA 1370/PUN/2009

• Counselvise Citation: 137024514 RSA 2009
• Duration Of Justice: 1 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1370/PN/09 (ASSTT. YEARS: 2006-07) TECHNIGRAPHICS (I) P LTD, .. APPELLANT ICC TRADE TOWER, B-805/806 S B ROAD, PUNE PAN AAACT 6811H VS. ASSTT. COMMISSIONER OF INCOME-TAX, .. R ESPONDENT R-7, PUNE APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: NONE ORDER PER G.S. PANNU, AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, PUNE DATED 5.8.2009 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 17.1 2.2008 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE I NCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESS MENT YEAR 2006-07. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL READ AS FOLLOWS: 1. THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD AO OF SETTING OF THE LOSSES OF THE ENGINEERING UNIT WHICH WAS NOT ENTITLED TO C LAIM DEDUCTION U/S 10A AGAINST THE PROFITS OF THE SOFTWARE UNIT WHOSE PROFITS WERE ENTITLED TO DEDUCTION U/S 10A AND ONLY ON THE RESULTANT INCOME THE DEDUCTION U/S 10A WAS ALLOWABLE. 2. THE LD CIT (A) FAILED TO APPRECIATE THAT THE DED UCTION U/S 10A WAS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME OF THE SOFTWARE UN IT ENTITLED TO DEDUCTION U/S 10A AND THEREFORE, THE LOSS OF ENGINEERING UNIT WAS NOT REQUIRED TO BE SET OFF BEFORE ALLOWING DEDUCTION U/S 10A. 3. THE LD CIT (A) OUGHT TO HAVE ALLOWED THE DEDUCTI ON U/S 10A IN RESPECT OF THE PROFITS OF THE SOFTWARE UNIT AND SHOULD HAVE PERMIT TED THE ASSESSEE TO CARRY FORWARD THE LOSS OF THE ENGINEERING UNIT TO THE SUB SEQUENT YEAR. 3. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPA NY IS ENGAGED IN SOFTWARE DEVELOPMENT. FOR THE ASSESSMENT YEAR UNDER APPEAL, ASSESSEE FILED THE RETURN DECLARING A LOSS OF RS 28,23,603/- UNDER SECTION 11 5JB OF THE ACT. THE ASSESSEE COMPANY HAD TWO UNITS. UNIT NO. 1 WAS ENGAGED IN SO FTWARE DEVELOPMENT AND ITS PRODUCTS WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 1 0A OF THE ACT. THIS UNIT HAD A 2 PROFIT OF RS 1,00,55,858/-. THERE WAS ANOTHER UNIT NO. 2 ENGINEERING UNIT WHICH HAD INCURRED A LOSS OF RS 50,60,634/-. THE AS SESSEE CLAIMED DEDUCTION UNDER SECTION 10A AND CLAIMED CARRY FORWARD OF LOSS PERTAINING TO THE ENGINEERING UNIT. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER SET OFF THE LOSS OF THE ENGINEERING UNIT AGAINST THE PROFIT S OF THE SOFTWARE UNIT AND THEREBY REDUCED THE DEDUCTION UNDER SECTION 10A AS WELL AS DENIED CARRY FORWARD OF LOSS PERTAINING TO THE ENGINEERING UNIT. IN APPE AL, THE COMMISSIONER OF INCOME-TAX (APPEALS) AFFIRMED THE DECISION OF THE A SSESSING OFFICER. NOT SATISFIED WITH THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US. 2. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE VERY OUTSET, SUBMITTED THAT SIMILAR ISSUE WAS THE SUBJECT-MATTER OF CONSIDERATION BEFORE THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SCIENT IFIC ATLANTA INDIA TECHNOLOGY (P) LTD. V ACIT 129 TTJ (CHENNAI) (SB) 273, WHEREIN IT HAS BEEN HELD THAT THE LOSS FROM NON-ELIGIBLE UNIT CANNOT BE SET OFF AGAIN ST THE PROFITS OF THE ELIGIBLE UNIT WHILE DETERMINING DEDUCTION UNDER SECTION 10A OF TH E ACT. 3. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE L EARNED COUNSEL FOR THE ASSESSEE AND HAVE ALSO PERUSED THE ORDERS OF TH E AUTHORITIES BELOW. WE FIND THAT THE ISSUE INVOLVED IN THIS APPEAL SQUARELY STA NDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE AFORESAID D ECISION OF THE SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHN OLOGY (P) LTD. (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER: 26. IT CAN BE NOTICED FROM THE LANGUAGE OF SECTION 10A(1) THAT A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKIN G QUALIFIES U/S 10A IS TO BE GIVEN FROM THE TOTAL INCOME. INTERESTINGLY, THE LEGISLATURE HA S MENTIONED THE PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING. IT MEANS THAT THE ASSESS EE MAY HAVE MORE THAN ONE UNDERTAKING AND IN SUCH A CASE, ONE HAS TO CONSIDER THE PROFITS AND GAINS OF THAT PARTICULAR UNDERTAKING WHICH QUALIFY FOR DEDUCTIO N U/S 10A. ACCORDING TO S.10A(4), THE DEDUCTION IS TO BE COMPUTED IN THE SAME PROPORTION WHICH BEARS TO THE PROFITS OF THE UNDERTAKING, THE SAME PROPORTION ASK THE EXPORT TUR NOVER BEARS TO THE TOTAL TURNOVER. IT MAY BE NOTICED THAT AGAIN THE WORDS USED ARE PROFI TS AND GAINS OF BUSINESS OF THE UNDERTAKING. IN ANY CASE, THIS IS NOT THE TOTAL PR OFITS OF THE BUSINESS OF THE ASSESSEE. THUS, IN COMPUTING DEDUCTION U/S 10A, WE HAVE TO AS CERTAIN THE TOTAL INCOME AS PER THE PROVISIONS OF THE ACT IN RESPECT OF THAT UNDERTAKI NG AND THE AMOUNT SO DETERMINED IS TO BE REDUCED FROM THE TOTAL INCOME. WE FIND THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF MADRAS MACHINE TOOLS MANUFACTURERS LTD. V C IT (SUPRA) HAD AN OCCASION TO CONSIDER THE DISTINCTION BETWEEN THE COMPANY AND IT S UNDERTAKING WHILE DECIDING THE CASE IN THE CONTEXT OF S. 84 DEDUCTION. IN THAT CASE, TH E HONBLE MADRAS HIGH COURT HAS OBSERVED AS UNDER: .. 3 WE ALSO NOTE THAT IN THE CIRCULAR F. NO. 15/563-IT( AT), DT 13 DEC. 1963, ISSUED BY THE CBR IN THE CONTEXT OF S. 80J, THE BOARD AGREES THAT THE BENEFIT OF S. 84/80J OF THE IT ACT,. 1961, ATTACHES TO THE UNDERTAKING AND NOT THE OWNER THEREOF. WE ALSO FIND THAT IN THE CBDT CIRCULAR NO 308 DT 29 TH JUNE 1981, ALSO IT IS MENTIONED THAT COMPLETE TAX EXEMPTION IN RESPECT OF THE PROFITS AND GAINS DERIV ED FROM UNDERTAKINGS SET UP IN FREE TRADE ZONES ARE AVAILABLE TO EXPORT ORIENTED INDUST RIES. IN CIRCULAR NO. 8 OF 2002 DT 27 TH AUG. 2002, PARA NO. 19 READS AS UNDER: UNDER THE EXISTING PROVISIONS OFS.10A, A DEDUCTION IS GIVEN OF 100 PER CENT OF PROFITS AND GAINS FROM EXPORT EARNINGS OF NEW UNDER TAKINGS (EMPHASIS, ITALICIZED IN PRINT, SUPPLIED) ESTABLISHED IN FREE TRADE ZONES , SOFTWARE TECHNOLOGY PARKS, ELECTRONIC HARDWARE TECHNOLOGY PARKS PARA 19.4 OF THE SAID CIRCULAR READS AS UNDER: IN VIEW OF THE NEED FOR RESOURCE MOBILIZATION IN T HE SHORT RUN, THE FINANCE ACT, 2002, SEEKS TO RESTRICT THE 100 PER CENT DEDUCTION UNDER SS.10A AND 10B, FOR ONE ASSESSMENT YEAR, I.E. 2003-04 TO 90 PERCENT OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE. FURTHER, IT CAN BE SEEN THAT NOWHERE IT IS MENTIONE D IN THE SECTION THAT SUCH DEDUCTION IS TO BE RESTRICTED TO THE TOTAL INCOME OF THE ASSESSE E COMPUTED UNDER THE PROVISIONS OF THE ACT, BEFORE ALLOWING SUCH DEDUCTION. ON THE OTHER H AND, HOWEVER THE LEGISLATURE WANTS TO RESTRICT THE DEDUCTION, IT HAS PROVIDED SUCH RESTRI CTION. FOR EXAMPLE, WE CAN MENTION S. 24 DEALING WITH RESPECT TO INTEREST AS PER THE PROVISO TO S. 24(B). 27. HAVING HELD THAT THE DEDUCTION UNDER S.10A IS N OT AN EXEMPTION BUT ONLY A DEDUCTION UNDER CHAPTER III OF THE IT ACT AND THE P ROVISIONS OF S. 80AB OF CHAPTER VIA WOULD NOT BE APPLICABLE TO SUCH DEDUCTION UNDER S. 10A, AND ALSO THAT THE DEDUCTION UNDER S.10A IS UNDERTAKING SPECIFIC, WE HAVE TO ANS WER THE QUESTION POSED BEFORE US BY HOLDING THAT THE BUSINESS LOSSES OF A NON-ELIGIBLE UNIT, WHOSE INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER S.10A OF THE ACT, CANNOT BESET OFF AGAINST THE PROFITS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER S.10A FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION UNDER S.10A OF THE ACT. OF COURSE, IF THERE ARE MOR E THAN ONE UNDERTAKING WHICH ARE ELIGIBLE FOR DEDUCTION UNDER S.10A AND IF SOME OF T HE UNITS HAVE PROFIT AND OTHER UNITS HAVE LOSS, IT WOULD BE AN ENTIRELY DIFFERENT CASE W HICH IS BEFORE US. HENCE, THE DECISION RENDERED IN THIS APPEAL WOULD NOT BE APPLICABLE TO SUCH CASES WHERE THERE ARE MORE THAN ONE ELIGIBLE UNDERTAKING CLAIMING DEDUCTION UNDER S .10A. IN THIS CASE, THERE IS ONLY ONE ELIGIBLE UNIT CLAIMING DEDUCTION UNDER S.10A AND HE NCE, THE LOSS FROM NON-ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF THE ELIGIB LE UNIT WHILE DETERMINING DEDUCTION UNDER S.10A. FOLLOWING THE AFORESAID DECISION OF THE SPECIAL BEN CH, WE ALLOW THE APPEAL FILED BY THE ASSESSEE. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (I C SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 27 TH MAY, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. THE ACIT, R-7, PUNE 3. THE CIT(A)-III, PUNE 4. THE CIT-IV, PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, PUNE 4