Income tax Officer, Ward-11(1), Bangalore V. M/s Carremen Silvercast Clothing(I)P Ltd, Bangalore

ITA 1374/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95163 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUNIL KUMAR AGARWAL JT
• Assessee Lawyers: NAINEGLI MALLINATH
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 10B; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT( TP )A NO.1374/BANG/2014 ASSESSMENT YEAR : 2009-10 THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. VS. M/S. CARREMEN SILVERCAST CLOTHING (I) PVT. LTD., SY.NO.80, BARAGUNTE VILLAGE, SARJAPURA HOBLI, ANEKAL TALUK. BENGALURU 562 125. PAN : AACCC 8221A APPELLANT RESPONDENT C.O. NO.39/BANG/2015 [IN IT( TP )A NO.1374/BANG/2014] ASSESSMENT YEAR : 2009-10 M/S. CARREMEN SILVERCAST CLOTHING (I) PVT. LTD., BENGALURU 562 125. PAN : AACCC 8221A VS. THE INCOME TAX OFFICER, WARD 11(1), BANGALORE. CROSS OBJECTOR RESPONDENT REVENUE BY : SHRI SUNIL KUMAR AGARWAL, JT. CIT(DR) ASSESSEE BY : SHRI NAINEGLI MALLINATH, CA DATE OF HEARING : 29.07.2015 DATE OF PRONOUNCEMENT : 07.08.2015 IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 2 OF 8 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THE APPEAL IS BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE AGAINST THE ORDER DATED 1.7.2014 OF THE CIT(APPEALS )-I, BANGALORE RELATING TO ASSESSMENT YEAR 2009-10. 2. THE GRIEVANCE PROJECTED BY THE REVENUE IN ITS AP PEAL IS THAT THE CIT(APPEALS) ERRED IN FOLLOWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD., 341 ITR 385 (KARN) AND ALLOWING THE CLAIM OF ASSESSEE FOR DEDUCTION U/S. 1 0B OF THE INCOME-TAX ACT, 1961 [THE ACT], WITHOUT SETTING OFF THE BROU GHT FORWARD LOSSES, ON THE GROUND THAT THE DEPARTMENT HAS FILED A SLP AGAINST THE SAID DECISION. IT IS THE FURTHER PLEA OF THE REVENUE THAT THE DECISION R ENDERED BY THE CIT(APPEALS) IS NOT IN TUNE WITH THE CIRCULAR NO.74 9 DATED 9.8.2000 AND CIRCULAR NO.7/2003 DATED 5.9.2003. 3. THE CROSS OBJECTION BY THE ASSESSEE IS PURELY SU PPORTIVE OF THE ORDER OF CIT(APPEALS). 4. THE FACTS UNDER WHICH THE APPEAL ARISES FOR CONS IDERATION ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED RS.4,11,23,355 ON THE PROF ITS OF EXPORTS OF THE EOU UNIT ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT , BEFORE SETTING OFF OF THE BROUGHT FORWARD LOSSES WHICH WAS NOT IN ACCORDANCE WITH LAW. ACCORDING TO IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 3 OF 8 THE ASSESSING OFFICER, CONSEQUENT TO AMENDMENT TO S ECTION 10B W.E.F. 1.4.2001, A DEDUCTION EQUAL TO THE PROFITS & GAINS DERIVED FROM THE UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. SECTION 2(45) DEFINES TOTAL INCOME AS THE TOTAL AMO UNT OF INCOME REFERRED TO IN SECTION 5 COMPUTED IN THE MANNER LAID DOWN IN TH E ACT. THUS, TOTAL INCOME OF THE ASSESSEE COMPUTED UNDER THE ACT IS IN COME AFTER SETTING OFF THE BROUGHT FORWARD LOSSES AS PROVIDED U/S. 72, FRO M WHICH DEDUCTION U/S. 10B WOULD BE ALLOWED. HE THEREFORE HELD THAT DEDUC TION U/S.10B IS TO BE ALLOWED ONLY AFTER SETTING OFF THE BROUGHT FORWARD LOSSES OF RS.96,89,359 AS FOLLOWS:- RS.4,24,07,123 LESS: B/F LOSSES FOR EARLIER YEARS SET OFF A.Y. 2007-08 BUSINESS LOSS 38,03,998 A.Y. 2008-09 DEPRECIATION LOSS 13,61,856 A.Y. 2008-09 DEPRECIATION LOSS 45,23,505 RS. 96,89,359 5. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) FOLL OWING THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD., (SUPRA) HELD THAT DEDUCTION U/S. 10A HAS TO BE ALLOWED WIT HOUT SETTING OFF OF BROUGHT FORWARD LOSSES. 6. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REVE NUE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THIS ISSUE HAS ALREADY BEEN SETTLED BY THE HONB LE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) . THE HONBLE KARNATAKA IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 4 OF 8 HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) HAD TO D EAL WITH TWO SUBSTANTIAL QUESTION OF LAW. THE FIRST SUBSTANTIAL QUESTION OF LAW WAS ON THE RIGHT OF SET OFF OF LOSS OF NON-ELIGIBLE UNIT AGAIN ST THE PROFIT OF THE ELIGIBLE UNIT ON WHICH DEDUCTION U/S.10B WAS TO BE ALLOWED. THE H ONBLE COURT IN PARA 10 TO 20 OF ITS JUDGMENT DEALT WITH THE ISSUE. THE HONBLE COURT NOTICED THAT SEC.10-A(1) OF THE ACT (WHICH IS IN PARI MATERIA WI TH SEC.10-B OF THE ACT) READ AS FOLLOWS: 10B. SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE ETC.,-(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS- YEAR IN WHICH THE UNDER-TAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : (EMPHASIS SUPPLIED) 8. THE EXPRESSION DEDUCTION AND SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE USED IN THE AFORESAID PROVI SIONS WAS CONSIDERED BY THE HONBLE HIGH COURT AND IT HELD IN PARA 13 TO 15 OF ITS JUDGMENT THAT THE EXPRESSION SHALL BE ALLOWED FROM THE TOTAL IN COME OF THE ASSESSEE DOES NOT MEAN TOTAL INCOME AS DEFINED U/S.2(45) OF THE ACT BUT THAT EXPRESSION MEANS PROFITS AND GAINS OF THE STP UNDE RTAKING AS UNDERSTOOD IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 5 OF 8 IN ITS COMMERCIAL SENSE OR THE TOTAL INCOME OF THE STP UNIT. THUS THE VIEW EXPRESSED IS THAT INCOME OF THE STP UNDERTAKING GET S QUARANTINED AND WILL NOT BE ALLOWED TO BE SET OFF AGAINST LOSS OF EITHER ANOTHER STP UNDERTAKING OR A NON STP UNDERTAKING. THE HONBLE COURT THEREAF TER HELD THAT THOUGH THE EXPRESSION USED IN SEC.10A WAS DEDUCTION BUT IN EFFECT IT WAS ONLY AN EXEMPTION SECTION. THESE CONCLUSIONS CLEARLY EMANAT E FROM PARA 17 OF THE HONBLE COURTS JUDGMENT. 9. THE SITUATION WITH WHICH WE ARE CONCERNED IN THE PRESENT CASE IS A SITUATION WHERE THERE IS POSITIVE INCOME OF THE ELI GIBLE UNIT THEN THE SAME SHOULD BE ALLOWED DEDUCTION U/S.10B OF THE ACT WITH OUT SETTING OF THE LOSS OF NON-ELIGIBLE UNIT. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA (SUPRA) WAS CONCERNED WITH SIMILAR SITUATION AS SET OUT AB OVE. IN VIEW OF THE AFORESAID DECISION OF THE HONBLE KARNA TAKA HIGH COURT, WE ARE OF THE VIEW THAT THE CLAIM AS MADE BY THE ASSESSEE FOR CARRY FORWARD OF LOSS OF THE NON-ELIGIBLE UNIT HAD TO BE ALLOWED WIT HOUT SET OFF OF PROFITS OF THE 10A/10B UNIT. WE HOLD ACCORDINGLY AND DISMISS THE R ELEVANT GROUNDS OF APPEAL OF THE REVENUE. 10. WE MAY ALSO OBSERVE THAT THE HONBLE KARNATAKA HIGH COURTS DECISION IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) HAS HELD THAT UNABSORBED DEPRECIATION (AND BUSINESS LOSS) OF SAME (S. 10A/10B) UNIT BROUGHT FORWARD FROM EARLIER YEARS HAVE TO BE SET O FF AGAINST THE PROFITS BEFORE COMPUTING EXEMPT PROFITS. THE ASSESSEE IN TH AT CASE SET UP A 100% IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 6 OF 8 EOU IN AY 1988-89. FOR WANT OF PROFITS IT DID NOT C LAIM BENEFITS U/S 10B IN AYS 1988-89 TO 1990-91. FROM AY 1992-93 IT CLAIMED THE SAID BENEFITS FOR A CONNECTIVE PERIOD OF 5 YEARS. IN AY 1994-95, THE ASSESSEE COMPUTED THE PROFITS OF THE EOU WITHOUT ADJUSTING THE BROUGHT FO RWARD UNABSORBED DEPRECIATION OF AY 1988-89. IT CLAIMED THAT AS S. 1 0B CONFERRED EXEMPTION FOR THE PROFITS OF THE EOU, THE SAID BROUGHT FORWAR D DEPRECIATION COULD NOT BE SET-OFF FROM THE PROFITS OF THE EOU BUT WAS AVAI LABLE TO BE SET-OFF AGAINST INCOME FROM OTHER SOURCES. IT WAS ALSO CLAIMED THAT THE PROFITS HAD TO BE COMPUTED ON A COMMERCIAL BASIS. THE AO ACCEPTED T HE CLAIM THOUGH THE CIT REVISED HIS ORDER U/S 263 AND DIRECTED THAT THE EXEMPTION BE COMPUTED AFTER SET-OFF. ON APPEAL BY THE ASSESSEE, THE TRIBU NAL REVERSED THE ORDER OF THE CIT. ON APPEAL BY THE DEPARTMENT, THE HIGH COUR T IN CIT VS. HIMATASINGIKE SEIDE LTD. 286 ITR 255 (KAR) REVERSED THE ORDER OF THE TRIBUNAL AND HELD THAT THE BROUGHT FORWARD DEPRECIA TION HAD TO BE ADJUSTED AGAINST THE PROFITS OF THE EOU BEFORE COMPUTING THE EXEMPTION ALLOWABLE U/S 10B. IN CIVIL APPEAL NO.1501 OF 2008 DATED 19.9 .2013 AGAINST THE AFORESAID DECISION OF THE HONBLE KARNATAKA HIGH CO URT, THE HONBLE SUPREME COURT OBSERVED AS FOLLOWS WHILE DISMISSING THE APPEAL:- HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF OPINION THAT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 7 OF 8 11. THUS THE RATIO HAS TO BE CONFINED TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE AFORESAID OBSERVATIONS HAVE TO BE CON FINED TO THE FACTS OF THAT CASE AND AS APPLICABLE TO A CASE WHERE BROUGHT FORWARD LOSSES AND DEPRECIATION OF THE VERY SAME STP UNDERTAKING ARE N OT ADJUSTED WHILE ARRIVING AT THE PROFITS OF THE 10B UNIT FOR ALLOWIN G DEDUCTION U/S.10A/10B OF THE ACT AND NOT IN RESPECT OF BROUGHT FORWARD LOSSE S AND DEPRECIATION OF OTHER UNDERTAKINGS/NON-10A/10B UNITS. S. 10A/10B(6) AS AMENDED BY THE FA 2003 W.R.E.F. 1.4.2001 PROVIDES THAT DEPRECIATIO N AND BUSINESS LOSS OF THE ELIGIBLE UNIT RELATING TO THE AY 2001-02 & ONWA RDS IS ELIGIBLE FOR SET-OFF & CARRY FORWARD FOR SET-OFF AGAINST INCOME POST TAX H OLIDAY WHICH MEANS THAT THEY NEED NOT BE SO SET OFF AS MANDATED IN THE DECI SION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. (SUPRA) . AS WE HAVE ALREADY SEEN, IN YOKOGAWA INDIA LTD. 341 ITR 385 (KAR) , IT WAS HELD THAT EVEN AFTER S. 10A/10B WERE CONVERTED INTO A DEDUCTION PROVISION W.E.F 1.4.2001, THE BENEFIT OF RELIEF U/S 10A/10B I S IN THE NATURE OF EXEMPTION WITH REFERENCE TO COMMERCIAL PROFITS AND THAT AS THE INCOME OF THE S. 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITS ELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE QUESTION OF SETTING OFF THE LOSS OF THE CURRENT YEARS OR THE BROUGHT FORWARD BUSINESS LOSS (AND UNABSORBE D DEPRECIATION) AGAINST THE S. 10A PROFITS DOES NOT ARISE. THEREFOR E THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE (SUPRA) WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE. IT(TP)A NO.1374/BANG/2014 & CO 39/BANG/2015 PAGE 8 OF 8 12. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) , WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS APPEAL BY THE REVENUE. 13. SINCE THE CROSS OBJECTION BY THE ASSESSEE IS ON LY SUPPORTIVE OF THE ORDER OF THE CIT(APPEALS), THE SAME IS DISMISSED AS NOT MAINTAINABLE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION BY THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 7 TH AUGUST, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.