Hical Technologies Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1389/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57507 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARAHAT HUSSAIN QURESHI CITII
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 234B; 10B

Judgement Text

PAGE 1 OF 15 ITA NO.13 89/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NO.1389/BANG/2011 (ASST. YEAR 2004-05) HICAL TECHNOLOGIES PVT. LTD., SURVEY NO.46 & 47, ELECTRONIC CITY, HOSUR ROAD, BANGALORE-561 229. PA NO.AAACH 3639K VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING 14.02.2012 DATE OF PRONOUNCEMENT 24.02.2012 APPELLANT BY : SHRI PADAM CHAND KHIN CHA, C.A. RESPONDENT BY : SHRI FARAHAT HUSSAIN QU RESHI, CIT-II O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE DATED 17.10.2011. THE RELEVANT ASSESSMENT YEAR IS 2004-05. 2. THE GROUNDS RAISED READS AS UNDER:- 1) THE LEARNED DCIT AND HONBLE CIT(A) HAVE ERRED IN PASSING THE ORDERS IN THE MANNER PASSED. THE ORDER S BEING BAD IN LAW ARE LIABLE TO BE QUASHED. 2.1) THE LEARNED DCIT AND HONBLE CIT(A) HAVE ERRED IN HOLDING THAT:- PAGE 2 OF 15 ITA NO.13 89/BANG/2011 2 (A) CST REIMBURSEMENT IN RESPECT OF EXPORT SALES IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND THAT (B) CST REIMBURSED IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. 2.2 ON FACTS OF THE CASE AND AS PER APPLICABLE LAW CST REIMBURSED IS PART OF BUSINESS PROFITS AND IS ALSO ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. 3.1) THE LEARNED DCIT AND HONBLE CIT(A) HAVE ERRED IN CONCLUDING THAT FD INTEREST INCOME IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 10A. 3.2) THE HONBLE CIT(A) HAS NOT APPRECIATED THEF ACTS OF THE CASE AND HAS ERRED IN OBSERVING THAT THE APPELLANT HAS FAILED TO EVIDENCE THAT FDS HAVE BEEN KEPT AS MARGI N MONEY TO GET LC FOR EXPORT BUSINESS. 3.3) THE FDS INTEREST IS TO BE TAXED UNDER THE HEAD INCO ME FROM BUSINESS AND ALLOWABLE DEDUCTION UNDER SECTION 10A IS ALSO TO BE ALLOWED THEREON. 4.1) THE HONBLE CIT(A) HAS ERRED IN CONCLUDING THAT 3 U NITS OF THE APPELLANT VIZ.EC-1, EC-2 AND EC-3 ARE UNITS OF SAME UNDERTAKING. 4.2) THE HONBLE CIT(A) HAS ERRED IN AGGREGATING THE PRO FITS AND LOSSES OF ALL 3 UNITS FOR COMPUTING PROFITS ELI GIBLE FOR 10A DEDUCTIONS. 4.3) ON THE FACTS OF THE CASE, THE 3 UNITS OF THE APPELL ANT ARE 3 INDEPENDENT AND DIFFERENT UNITS/UNDERTAKINGS. TH E FINDINGS OF THE LOWER AUTHORITIES BEING CONTRARY TO THE FACTS ARE TO BE IGNORED. 5.1) THE LEARNED DCIT AND HONBLE CIT(A) HAVE ERRED IN (A) CALCULATING DEDUCTION UNDER SECTION 10A IN THE WAY DONE; PAGE 3 OF 15 ITA NO.13 89/BANG/2011 3 (B) CONSIDERING AND AGGREGATING THE TOTAL OF ALL 3 UNIT S IN THE DENOMINATOR AS AGAINST THE EXPORT TURNOVER OF ONE UNIT ONLY IN THE NUMERATOR. 5.2) THE DEDUCTION UNDER SECTION 10A AS CLAIMED BY A PPELLANT BEING CORRECT IS TO BE ACCEPTED. 6.1) THE LEARNED DCIT HAS ERRED IN NOT APPRECIATING THAT ITEMS OF EXPENSES WHICH ARE TO BE EXCLUDED FROM EXP ORT TURNOVER ARE ALSO TO BE EXCLUDED FROM THE TOTAL TUR NOVER AS THE EXPORT TURNOVER AND TOTAL TURNOVER SHOULD COMPRISE OF THE SAME COMPONENTS/ITEMS. 6.2) THE AND HONBLE CIT(A) HAS ERRED IN NOT CONSIDERING THE ABOVE GROUND IN HIS APPELLATE ORDER. 7.1) THE LEARNED DCIT HAS ERRED IN LEVYING A SUM OF RS.7,12,011/- AND RS.2,39,230/- AS INTEREST UNDER S ECTION 234B AND 234D RESPECTIVELY. ON THE FACTS AND CIRCUMSTANCES OF THE CASE INTEREST UNDER SECTION 23 4B AND 234D ARE NOT LEVIABLE. THE APPELLANT DENIES IT S LIABILITY TO PAY INTEREST UNDER SECTION 234B AND 234D . THE INTEREST LEVIED IS TO BE DELETED. 7.2) IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADD UCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT : I) THE ASSESSMENT ORDER UNDER SECTION 143(3) AND APPELLATE ORDER OF HONBLE CIT(A) BEING BAD IN LAW BE QUASHED; OR IN THE ALTERNATIVE; A) BUSINESS LOSS OF SOME SECTION 10A UNITS BE NOT REDUCED FROM PROFITS OF THE OTHER 10A UNIT WHILE CALCULATING DEDUCTION UNDER SECTION 10A; B) TOTAL TURNOVER OF ONLY THE ELIGIBLE UNITS AND NOT OF ALL THE 3 UNITS BE TAKEN IN THE DENOMINATOR IN THE PROCESS OF CALCULATION OF DEDUCTION UNDER SECTION 10A; AND FURTHER THE UNIT EXPORT TURNOVER AND GROSS TURNOVER BE TAKEN ON SAME LINES; PAGE 4 OF 15 ITA NO.13 89/BANG/2011 4 C) THE CST REFUNDED BE TAKEN AS BUSINESS INCOME FROM 10A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A, INSTEAD OF AS INCOME FROM OTHER SOURCES; D) FD INTEREST BE TAKEN AS INCOME FROM BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A; E) THE INCOME FROM BUSINESS BE PROPERLY COMPUTED; F) THE DEDUCTION UNDER SECTION 10A OF THE IT ACT 1961 BE CORRECTLY COMPUTED; G) INTEREST LEVIED BE DELETED. 3. GROUND NOS.1 AND 7.2 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR. HENCE, THEY ARE DISMIS SED. 4. GROUND NO.7.1 IS REGARDING LEVY OF INTEREST UNDE R SECTION 234B AND 234D OF THE ACT. 4.1 LEVY OF INTEREST UNDER SECTION 234B AND 234D IS MANDATORY AND CONSEQUENTIAL IN NATURE. HENCE, THIS GROUND IS DIS MISSED. 5. GROUND NO.2.1, 2.2, 6.1 AND 6.2 WERE NOT PRESSE D DURING THE COURSE OF HEARING. HENCE, THEY ARE DISMISSED AS NOT PRESSED. 6. THE REMAINING GROUNDS ARE CHRONOLOGICALLY DEALT WITH AS UNDER:- GROUND NO.3.1 TO 3.3 6.1 THE ASSESSEE IN THE RETURN OF INCOME HAD CLAIM ED THAT INTEREST ON MARGIN MONEY DEPOSITS AMOUNTING TO RS.5,76,799/- IS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND THE SAME QUALIFIES FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESS ING OFFICER, WHILE COMPLETING THE SCRUTINY ASSESSMENT, HELD THAT THE IN TEREST ON MARGIN MONEY PAGE 5 OF 15 ITA NO.13 89/BANG/2011 5 DEPOSITS IS NOT RELATED TO THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY AND THEREFORE, REQUIRES TO BE TAXED UNDER THE HEAD INC OME FROM OTHER SOURCE. THEREBY DENYING THE BENEFIT OF DEDUCTION UNDER SECTIO N 10A OF THE ACT ON THE INTEREST INCOME TO THE EXTENT OF RS.5,76,799/-. 6.2 THE VIEW OF THE ASSESSING OFFICER WAS AFFIRMED BY THE FIRST APPELLATE AUTHORITY BY PLACING RELIANCE ON THE JUDGEM ENT OF THE HONBLE APEX COURT IN THE CASE OF CIT V STERLING FOODS 237 ITR 5 5579, HINDUSTAN LEVER LTD. V CIT 239 ITR 297 AND PANDIAN CHEMICALS LTD. V CIT 262 ITR 278. THE CIT(A) ALSO HELD THAT THE ASSESSEE HAD FAILED T O SHOW EVIDENCE THAT FIXED DEPOSITS HAVE BEEN KEPT AS MARGIN MONEY TO GET LCS FOR EXPORT BUSINESS. 6.3 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . 6.4 THE LEARNED COUNSEL FOR THE ASSESSEE PRODUCED THE DETAILS OF THE INTEREST RECEIPT. THE TOTAL INTEREST THAT WAS RECEIVED FOR YEAR WAS TO THE TUNE OF RS.21,43,889/-, OUT OF WHICH RS.5,76,79 9/- WAS CLAIMED TO BE THE INTEREST RECEIPT ON MARGIN MONEY DEPOSITS AND TH E BALANCE OF RS.15,67,090/- WAS THE INTEREST RECEIVED ON FIXED D EPOSITS OUT OF SURPLUS FUNDS. THE LEARNED AR SUBMITTED BY REFERRING TO SEC TION 10A(4) THAT THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ENCOMPAS SES THE ENTIRE BUSINESS OF THE INDUSTRIAL UNDERTAKING WHICH INCLUDES THE IN TEREST THAT IS EARNED ON DEPOSITS FOR SECURING BANK GUARANTEE/LC CREDITS. F OR THE ABOVE PROPOSITION, THE LEARNED AR RELIED ON THE JUDGEMENT OF THE HONB LE SUPREME COURT IN THE CASE OF CONTINENTAL CONSTRUCTION LTD. V CIT 195 ITR 81. THE LEARNED COUNSEL PAGE 6 OF 15 ITA NO.13 89/BANG/2011 6 RELIED ON THE FINDING OF THE HONBLE SUPREME COURT, WHICH IS REPRODUCED BELOW:- THE EXPRESSION BUSINESS OF EXECUTION OF A FOREIGN PROJECT OR WORK FORMING PART OF IT OR THE PROFITS DERIVED FROM THE BUSINESS, TAKE IN ALL ASPECTS OF A BUSINESS INVOLVING THE ACTIVITIES REFERRED TO IN SU B- SECTION (2)(B) OF SECTION 80HHB TOGETHER WITH ALL ACTIVITIES, COMMITMENTS AND OBLIGATIONS ANCILLARY AN D INCIDENTAL THERETO AND THE PROFITS FLOWING THEREFRO M. IT WAS SUBMITTED THAT THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF M/S GREEN AGRO PACK (P) LTD. IN ITA NO.3112/2005 DA TED 13 TH APRIL, 2010 HAD CONSIDERED AN IDENTICAL ISSUE AND DECIDED THE M ATTER IN FAVOUR OF THE ASSESSEE. 6.5 THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE INCOME TAX AUTHORITIES. 6.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF M/S GREEN AGRO PACK (P) LTD. (SUPRA) HELD THAT INTEREST EARNE D ON DEPOSITS KEPT AS MARGIN MONEY FOR THE PURPOSE OF CARRYING OF EXPORT BU SINESS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. THE RELEVA NT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT AT PARA 6 AND 7 READS AS FOLLOWS:- 6. AND DURING THE COURSE OF ITS BUSINESS IT WOULD HAVE TO MAKE CERTAIN DEPOSITS FOR THE PURPOSE OF OBTAINING LETTER OF CREDIT OR FOR BANK GUARANTEE WHEN THE PRODUCTS W HICH ARE PROCESSED BY IT HAVE TO BE EXPORTED. IN TERMS O F THE SAID LETTER OF CREDIT OR BANK GUARANTEE, CERTAIN DE POSITS ARE MADE AND SUCH DEPOSITS ARE TO BE TREATED AS MAR GIN PAGE 7 OF 15 ITA NO.13 89/BANG/2011 7 AMOUNTS AND ANY INTEREST WHICH IS EARNED OUT OF THE SAID DEPOSITS HAS TO BE TREATED AS BUSINESS INCOME AND N OT AS INCOME EARNED FROM OTHER SOURCES. IN THIS CONTEXT, IT WOULD BE APPOSITE TO REFER TO TWO DECISIONS OF THIS COURT RENDERED IN ITA NO.426/2002 IN THE CASE OF M/S HAJE E JAFFAR SHARIFF V THE INCOME TAX OFFICER, DISPOSED O F ON 12.11.2007, WHEREIN IT HAS BEEN HELD THAT WHEN MONE Y IS INVESTED IN FIXED DEPOSIT TO GET THE BENEFIT OF LET TER OF CREDIT AND NOT TO INVEST THE SAME TO EARN ANY INTERE ST, THEN THE SAID INTEREST AMOUNT EARNED ON THE DEPOSIT HAS TO BE TREATED AS THE BUSINESS INCOME AND NOT AS INC OME EARNED FROM OTHER SOURCES. 7. SIMILARLY, IN THE CASE OF SATISHCHANDRA AND CO. V CIT REPORTED IN VOL.234 ITR 1998 PAGE 70, IT HAS BEEN H ELD THAT MERELY BECAUSE THE ASSESSEE HAS SHOWN ANY INCOME BY WAY OF INTEREST, IT WOULD NOT BECOME INCOME FROM OTHER SOURCES AS IT HAS TO BE SEEN AS TO WHETHER TH E SAID INTEREST WAS EARNED OUT OF BUSINESS COMPULSION AND AS A BUSINESS INCOME. WHEN IN THE SAID CASE, THE ASSESS EE HAS MADE DEPOSIT IN A BANK AS A CONDITION FOR OBTAINING BANK GUARANTEE TO BE GIVEN BEFORE THE EXCISE AUTHORITIES AS REQUIRED UNDER THE EXCISE RULES, THE INTEREST INCOM E WHICH AROSE OUT OF SUCH TRANSACTION WAS HELD TO BE CLOSELY CONNECTED WITH THE BUSINESS OF THE ASSESSEE AND HENCE BUSINESS INCOME. IT WAS FURTHER HELD BY THE HONBLE HIGH COURT - THE SAID DECISION IS ALSO RELEVANT KEEPING IN MIND THE FACTS OF THE PRESENT CASE WHERE THE ASSESSEE BEING AN EXPORT ORIENTED UNIT HAD DEPOSITED THE SAID FUNDS A S MARGIN MONEY FOR THE PURPOSE OF CARRYING ON ITS EXPOR T BUSINESS.. 6.7 THOUGH THE HONBLE JURISDICTIONAL HIGH COURT I S IN THE CONTEXT OF SECTION 10B OF THE ACT, THE RATIO LAID DOWN BY TH E ABOVE JUDGEMENT PAGE 8 OF 15 ITA NO.13 89/BANG/2011 8 APPLIES TO SECTION 10A OF THE ACT, SINCE THE PROVIS IONS OF SECTION 10A AND 10B ARE IDENTICAL ON ALL MATERIAL ASPECTS. IN THE INSTANT CASE, THE INCOME TAX AUTHORITIES HAVE NOT PROPERTY EXAMINED THE NATURE OF FIXED DEPOSITS, AS TO WHETHER THE FIXED DEPOSITS ARE KEPT AS MARGIN MONEY FOR THE PURPOSE OF EXPORT BUSINESS. THE ASSESSEE HAD PROVIDED THE DET AILS OF INTEREST THAT IS RECEIVED DURING THE CONCERNED ASSESSMENT YEAR. THE INTEREST INCOME TO THE EXTENT OF RS.15,67,090/- EARNED ON FIXED DEPOSITS WHICH IS OUT OF SURPLUS FUNDS ARE NOT CLAIMED AS PART OF THE BUSINESS PROFI TS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE A CT. IT IS THE CLAIM OF THE ASSESSEE THAT THE FIXED DEPOSITS INTEREST TO TH E EXTENT OF RS.5,76,799/- IS EARNED ON DEPOSIT MADE FOR SECURIN G BANK GUARANTEE/LC CREDITS AND DEPOSITS WERE MADE AS A RESULT OF BUSIN ESS EXIGENCIES AND COMPULSIONS TO MEET THE REQUIREMENT OF BANKERS/SUPP LIERS ETC. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GREEN AGRO (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE. THE JUDGEMENT OF THE HONBLE HIGH COURT HAS NOT BEEN BROUGHT TO THE NOTICE OF THE INCOME TAX AUTHORITIES . MOREOVER, THERE HAS BEEN NO PROPER EXAMINATION OF THE ISSUE AS TO WHETH ER THE BANK INTEREST TO THE EXTENT OF RS.5,76,799/- IS EARNED ON DEPOSITS K EPT AS MARGIN MONEY. THEREFORE, WE ARE OF THE VIEW THAT THE MATTER NEEDS RECONSIDERATION BY THE ASSESSING OFFICER. ACCORDINGLY, THE ISSUE IS RESTOR ED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL TAK E APPROPRIATE DECISION, IN CONSONANCE WITH THE RATIO LAID DOWN BY THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF M/S GREEN AGRO PACK (P) LTD. NEEDLE SS TO SAY, THE ASSESSEE SHALL BE AFFORDED DUE AND REASONABLE OPPORTUNITY OF HEARING, BEFORE A DECISION IS TAKEN ON THIS MATTER. IT IS ORDERED AC CORDINGLY. HENCE, GROUND NOS.3.1 TO 3.3 IS ALLOWED FOR STATISTICAL PURPOSES. PAGE 9 OF 15 ITA NO.13 89/BANG/2011 9 GROUND NOS.4.1 TO 4.3 7. THE ABOVE GROUNDS RELATE TO THE ISSUE, WHETHER THE THREE UNITS OF THE ASSESSEE COMPANY, NAMELY EC-1, EC-2 AND EC-3 A RE THE UNITS OF THE SAME UNDERTAKING AND WHETHER THE INCOME TAX AUTHORI TIES ARE JUSTIFIED IN AGGREGATING THE PROFIT AND LOSS OF ALL THE UNITS FO R THE PURPOSE OF DEDUCTION UNDER SECTION 10A OF THE ACT. 7.1 BRIEF FACTS IN RELATION TO THE ABOVE ISSUE ARE AS FOLLOWS:- THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS O F MANUFACTURE AND EXPORT OF ELECTRONIC COMPONENTS. F OR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILED ON 31.10 .2004 DECLARING A LOSS OF RS.1,80,83,650/-. ACCORDING TO THE ASSESSEE, IT HAS THREE UNITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. OUT OF THESE THREE UNITS, TWO UNITS HAD INCURRED LOSSES AND THE THIRD UNIT HAD EA RNED PROFITS. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THE THIRD UNIT AND CARRIED FORWARD THE LOSS OF FIRS T AND SECOND UNIT. THE ASSESSING OFFICER HAD COMPLETED THE SCRUTINY ASSESSM ENT AND RECALCULATED DEDUCTION UNDER SECTION 10A OF THE ACT WHEREIN THE PROFITS OF THE EC-3 UNIT WAS REDUCED BY THE LOSS OF THE FIRST AND THE SECOND UNIT, NAMELY, EC-1 AND EC-2 UNIT. THE ASSESSING OFFICER RELIED ON THE JUD GEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V HIMA TASINGIKE SIEDE LTD. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R BY HOLDING THAT THE THREE UNITS ARE NOTHING BUT THE UNITS OF THE SAME U NDERTAKING. 7.2 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US . PAGE 10 OF 15 ITA NO.1 389/BANG/2011 10 7.3 THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS OPERATING FROM THREE INDEPENDENT AND DIFFERENT UNITS/UNDERTAKINGS [EC-1, EC-2 AND EC-3]. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ALSO RE COGNIZED THE FACT THAT THE ASSESSEE IS OPERATING FROM THREE UNITS. HE STA TED THAT THE RESULTS OF THE UNDERTAKINGS WERE ALSO SEPARATELY FURNISHED FROM WHICH IT CAN BE SEEN THAT EACH UNIT IS SEPARATE AND DIFFERENT. HE FURTH ER SUBMITTED THAT THE MANUFACTURE AND EXPORT OF ELECTRONIC COMPONENTS WAS INDEPENDENTLY UNDERTAKEN FROM THESE THREE UNITS AND THUS, THE LOS SES FROM OTHER TWO UNITS CANNOT BE SET OFF AGAINST THE PROFITS OF BUSINESS O F THE UNDERTAKING, IN THE PROCESS OF COMPUTATION OF DEDUCTION UNDER SECTION 1 0A. HE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSES SEE BY THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V M/S AXA BUSINESS SERVICES PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-I I). 7.4 THE LEARNED DR SUPPORTED THE ORDERS OF THE INC OME TAX AUTHORITIES. 7.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. ELABORATE WRITTEN SUBMISSION WAS FILED BEFORE THE CIT(A), WHICH IS REPRODUCED FROM PAGES 23 TO 31 OF THE IMPUGNED O RDER OF THE CIT(A). THE ASSESSEE IN THE WRITTEN SUBMISSION HAD PROCEEDE D ON THE BASES THAT EC- 1, EC-2 AND EC-3 ARE SEPARATE UNDERTAKINGS. THE FO CUS ON THE ASSESSEES WRITTEN SUBMISSION WAS THAT THE PROFIT OF EC-3 IS T O BE CONSIDERED SEPARATELY WITHOUT SET OFF OF LOSSES OF THE OTHER UN ITS, NAMELY EC-1 AND EC-2. THE ASSESSEE, BEFORE THE CIT(A), HAD GIVEN A GENERAL DESCRIPTION AND HOW THE PROFITS OF UNIT EC-3 IS TO BE CONSIDERED ON STAND ALONE BASIS. PAGE 11 OF 15 ITA NO.1 389/BANG/2011 11 7.5.1 BEFORE US, IT WAS SUBMITTED THAT THE EC-1, E C-2 AND EC-3 ARE SEPARATE/INDEPENDENT UNITS SET UP AFTER OBTAINING P ERMISSION FROM VARIOUS STATUTORY AUTHORITIES. IT WAS SUBMITTED THAT THE EC -1 WAS NO LONGER ENJOYING THE BENEFIT OF SECTION 10A FROM THE ASSESSM ENT YEAR 2004-05 (COURTESY PAGE 86 OF THE PAPER BOOK FILED BY THE ASSE SSEE). IT WAS STATED THAT THESE THREE UNITS ARE SITUATED IN THREE DIFFER ENT LOCATIONS AND THE PRODUCTS MANUFACTURED IN THESE UNITS ARE SOLD TO DI FFERENT CUSTOMERS DRAWING INDEPENDENT INVOICES (PAGES 64 TO 69 OF THE PAPER BOOK FILED BY THE ASSESSEE). 7.5.2 AS STATED EARLIER, THE ASSESSEE BEFORE THE I NCOME TAX AUTHORITIES HAD GIVEN ONLY A GENERAL DESCRIPTION ABO UT THE COMPUTATION OF DEDUCTION UNDER SECTION 10A OF THE ACT, PROBABLY FOR THE REASON THAT THE ASSESSEE WAS UNDER THE IMPRESSION THAT THE ASSESSIN G OFFICER ALSO RECOGNIZED THAT THE ASSESSEE IS OPERATING THREE DIF FERENT/DISTINCT UNITS. THE ASSESSEE OUGHT TO HAVE FOCUSED ON THE EVIDENCE TO SHOW THAT IT IS HAVING THREE SEPARATE UNITS. THE EVIDENCE THAT THE ASSESS EE IS OPERATING THREE SEPARATE UNITS ARE ALREADY ON RECORD, HOWEVER, THESE EVIDENCES WERE NEITHER HIGHLIGHTED BEFORE THE CIT(A) NOR PROPER EXAMINATIO N HAS BEEN DONE BY THE AUTHORITIES BELOW. THEREFORE, THE MATTER IS RESTOR ED TO THE ASSESSING OFFICER, WHO SHALL EXAMINE WHETHER THE ASSESSEE IS HAVING THREE SEPARATE UNITS OR ONE SINGLE/INTEGRATED UNIT. ON FRESH EXAM INATION, IF THE ASSESSING OFFICER FINDS THAT THE ASSESSEE IS OPERATING THREE SEPARATE/DISTINCT UNITS, THE LOSSES OF EC-1 AND EC-2 UNITS SHALL NOT BE SET OFF OF AGAINST THE PROFITS OF EC-3 UNIT. IN TAKING THE ABOVE VIEW, WE FOLLOW THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V M/S AXA BUSINESS PAGE 12 OF 15 ITA NO.1 389/BANG/2011 12 SERVICES PVT. LTD. & OTHERS (2011-TIOL-711-HC-KAR-I I). THE HONBLE JURISDICTIONAL HIGH COURT HELD THAT DEDUCTION UNDER SECTION 10A IS ALLOWABLE ON STAND ALONE BASIS WITHOUT SETTING OFF OF THE LOS SES FROM OTHER UNITS. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT AT PAGE 19, 29 TO 31 READS AS FOLLOWS:- 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 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 PAGE 13 OF 15 ITA NO.1 389/BANG/2011 13 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, 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 PAGE 14 OF 15 ITA NO.1 389/BANG/2011 14 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. 7.5.3 IN THE LIGHT OF THE AFORESAID REASONING, GRO UND NOS.4.1 TO 4.3 IS ALLOWED FOR STATISTICAL PURPOSES. GROUND NOS.5.1 AND 5.2 8. THE ASSESSING OFFICER WHILE COMPUTING DEDUCTION UNDER SECTION 10A HAD CONSIDERED THE TOTAL TURNOVER OF THREE UNIT S IN THE DENOMINATOR AS AGAINST THE EXPORT TURNOVER OF THE EC-3 ONLY IN THE NUMERATOR. BEFORE US, IT WAS SUBMITTED THAT THE APPROACH OF THE ASSESSING OF FICER IS INCORRECT AND AGAINST THE LAW. THE LEARNED AR RELIED ON THE BOAR D CIRCULAR NO.794 DATED 9/8/2000 (245 ITR (ST.) 21. THE RELEVANT PORTION O F THE CIRCULAR RELIED ON BY THE LEARNED AR READS AS FOLLOWS:- THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100 PER C ENT EXPORT ORIENTED UNDERTAKING AS THE CASE MAY BE AND T HIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OT HER PAGE 15 OF 15 ITA NO.1 389/BANG/2011 15 BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNI TS FOR THE PURPOSES OF THIS PROVISION. 8.1 THE LEARNED DR PRESENT WAS DULY HEARD. 8.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE ISSUE, NAMELY, WHETHER THE ASSESSING OFFICER IS JUSTIFIED IN COMPUTING DEDUCTION UNDER SECTION 10A BY CONSIDERIN G THE TOTAL TURNOVER OF THE THREE UNITS IN THE DENOMINATOR AS AGAINST THE E XPORT TURNOVER OF THE EC- 3 IN THE NUMERATOR, IS CONNECTED TO THE ISSUE THAT IS RAISED IN GROUND NOS.4.1 TO 4.3. SINCE THE ISSUE RELATING TO GROUND NOS.4.1 TO 4.3 IS REMITTED TO THE FILE OF THE ASSESSING OFFICER, THIS MATTER IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. THEREFO RE, GROUND NOS.5.1 AND 5.2 ARE ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF FEBRUARY, 2012. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.