Dy. CIT, Bangalore V. M/s. First India Corporation, Bangalore

ITA 1441/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51394 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 15-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SREELEKHA
• Assessee Lawyers: VIKRAM BAPAT
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 115JB; 10B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI BARATHVAJA SANKAR, VICE-PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.1441(BANG)/2010 (ASSESSMENT YEAR: 2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11(3), BANGALORE. VS. M/S.FIRST INDIA CORPORATION, APPELLANT 5 TH FLOOR, BLOCK A, LAKEVIEW, BAGAMANE TECH PARK, C.V. RAMAN NAGAR, BANGALORE-560093. RESPONDENT PAN: AAACD720L APPELLANT BY: SMT. SREELEKHA. RESPONDENT BY : SHRI VIKRAM BAPAT. DATE OF HEARING: 12-12-2011. DATE OF PRONOUNCEMENT: 12-12-2011 O R D E R PER N . BARATHVAJA SANKAR, VP : THIS IS AN APPEAL FILED BY THE REVENUE FOR THE ASSE SSMENT YEAR 2004-05 IN THE CASE OF THE ASSESSEE-M/S.FIRST INDIA CORPORATION PVT. LTD., BANGALORE, AGAINST THE APPEL LATE ORDER DATED 29-09-2010 OF THE CIT(A)-LTU, BANGALORE. THE ASSESSEE HAS BROUGHT BEFORE US FOR ADJUDICATION TWO ISSUES V IZ., (I) WHETHER THE CIT(A) WAS JUSTIFIED IN DIRECTING THE A O TO ALLOW SET OFF OF THE LOSS OF THE UNDERTAKING ELIGIBLE FOR DED UCTION U/S 10A ITA 1441(BANG)/2010 PAGE 2 OF 9 AGAINST THE PROFIT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80HHE OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFE RRED TO AS 'THE ACT']; AND (II) WHETHER THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` .28,73,947/- BEING THE PROVISION FOR GRATUITY WHILE DETERMINING THE BOOK PROFITS U/S 115JB OF THE ACT. 2. LET US TAKE UP THE FIRST ISSUE RELATING TO SET O FF OF LOSS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10A A GAINST PROFIT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80HHE . THE RELEVANT GROUNDS READ AS UNDER: 2. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET OFF OF THE LOSS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10A AGAINST THE PROFIT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80HHE AND AGAINST INCOME FROM OTHER SOURCES WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES STATED IN THE ASSESSMENT ORDER AND THE RELEVANT PROVISIONS OF THE ACT. 3. THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN HOLDING THAT THE LOSS IS TO BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80HHE OF THE IT ACT, 1961, RELYING ON CERTAIN JUDICIAL DECISIONS WITHOUT ADJUDICATING ON THE PRIORITY IN THE MATTER OF SET OFF THE LOSS OF THE HYDERABAD UNIT ELIGIBLE FOR DEDUCTION U/S 10A AGAINST THE PROFITS OF THE 2 (TWO) UNITS, VIZ., THE HYDERABAD UNIT ELIGIBLE FOR DEDUCTION U/S 80HHE AND THE BANGALORE UNIT ELIGIBLE FOR DEDUCTION U/S 10A OF THE IT ACT,1961. 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD, DURING THE ASSESSMENT YEAR, THREE BUSINESS UNDERTAK INGS VIZ., (I) HYDERABAD UNIT-I (ELIGIBLE FOR DEDUCTION U/S 80 HHE); (II) BANGALORE UNIT-I (ELIGIBLE FOR DEDUCTION U/S 10A); AND (III) HYDERABAD UNIT-II (ELIGIBLE FOR DEDUCTION U/S 10A). THE HYDERABAD UNIT-II AND BANGALORE UNIT-I WERE REGISTE RED WITH ITA 1441(BANG)/2010 PAGE 3 OF 9 STPI AND WERE ELIGIBLE FOR DEDUCTION U/S 10A. HYD ERABAD UNIT I WAS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE AN D WAS ELIGIBLE FOR DEDUCTION U/S 80HHE. CONSIDERING THE VARIOUS ALLOWANCES AND DISALLOWANCES, THE ASSESSEE HAD COMP UTED THE TOTAL INCOME OF EACH OF THESE THREE UNITS AS UNDER: I. HYDERABAD UNIT I ` .51,55,818/- II. BANGALORE UNIT I ` .1,60,96,009/- III. HYDERABAD UNIT II LOSS `.67,25,055/- IN ORDER TO ARRIVE AT THE TOTAL INCOME UNDER THE HE AD PROFITS AND GAINS FROM BUSINESS AND PROFESSION, NET INCOME OF THESE THREE UNITS WAS CLUBBED. IT WAS SUBMITTED THAT AS PER SECT.70, WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RES PECT OF ANY SOURCE FALLING UNDER ANY HEAD OF INCOME OTHER THAN CAPITAL GAINS WAS A LOSS, THE ASSESSEE SHALL BE ENTITLED T O HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST ITS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. WITH EFFECT FROM 1-4-2 001, SECTION 10A WAS A DEDUCTION SECTION. HENCE, AS PER THE PROVISIONS OF SEC.70, IN ORDER TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE, NET INCOME OF THESE THREE UNITS WAS T O BE CLUBBED. IT WAS CLAIMED BY THE ASSESSEE THAT AS THE PROFIT FROM HYDERABAD UNIT I AND FROM BANGALORE UNIT-I WERE ON THE SAME FOOTING, FOR THE PURPOSE OF THE PROVISIONS OF SEC.7 0, IT USED ITS PREROGATIVE TO ADJUST LOSS FROM HYDERABAD UNIT II AGAINST THE PROFIT OF HYDERABAD UNIT-I. THE ASSESSEE ALSO RELI ED ON THE ORDER OF THE ITAT, BANGALORE BENCH, IN THE CASE OF M/S.MINDTREE CONSULTING PVT. LTD. VS. ACIT (102 TTJ (BANG) 691) WHEREIN THE ITA 1441(BANG)/2010 PAGE 4 OF 9 ITAT, WHILE DISCUSSING THE APPLICABILITY OF SEC.10B , HELD THAT DEDUCTION U/S 10B WAS MERELY DEDUCTION FROM INCOME AND NOT AN EXEMPTION. ACCORDINGLY, THE ASSESSEE WAS ELIGIB LE FOR SET OFF OF LOSS OF SUCH UNIT U/SS. 70 & 71 OF THE ACT. THE ITAT ALSO HELD THAT IN ORDER TO COMPUTE THE TOTAL INCOME, THE PROV ISIONS OF SECTIONS 70 AND 71 SHOULD BE APPLIED. IT WAS ALSO POINTED OUT BY THE ASSESSEE THAT SEC.10A(6) RESTRICTED THE APPL ICABILITY OF CARRY FORWARD OF AND SET OFF OF LOSSES U/SS. 70 AND 74 OF THE ACT BUT DID NOT PROVIDE ANYTHING REGARDING INTRA-HEAD S ET OFF U/S 70 AND INTER-HEAD SET OFF U/S 71 OF THE ACT. IT WAS ALSO POINTED OUT THAT SIMILAR VIEW HAD BEEN TAKEN BY VARIOUS JUD ICIAL AUTHORITIES IN THE FOLLOWING CASES ALSO: I. CIT VS. HIMATASINGIKE SEIDE LTD. ( 2006) 286 ITR 255 (KAR) AND II. M/S.SUN MICROSYSTEMS INDIA PVT. LTD. VS. ACIT, CIRC LE 12(2), BANGALORE (ITA NO.3526/BANG/2004) IT WAS FURTHER ASSERTED THAT WHILE TWO UNITS WERE E LIGIBLE FOR DEDUCTION U/S 10A, THE ASSESSEE COULD NOT CLAIM DED UCTION U/S 10A IN RESPECT OF ITS HYDERABAD UNIT SINCE THERE WA S A TAXABLE LOSS IN HYDERABAD UNIT-II. HOWEVER IT WAS SUBMITTE D THAT BANGALORE UNIT-I HAD A PROFIT OF ` .1,60,96,009/- WHICH WAS ELIGIBLE FOR DEDUCTION U/S 10A. CERTIFICATE IN FOR M 56F WAS ATTACHED WITH THE RETURN OF INCOME FOR ASSESSMENT Y EAR 2004- 05. HOWEVER, THE AO WAS OF THE VIEW THAT IN THE AB SENCE OF DECLARATION IN WRITING THAT THE PROVISIONS OF SEC.1 0A MIGHT NOT BE MADE APPLICABLE TO IT, IN VIOLATION OF THE PROVI SIONS OF SEC.10A(8), THE PROVISIONS OF SEC.10A SHALL APPLY. IN OTHER ITA 1441(BANG)/2010 PAGE 5 OF 9 WORDS, DUE TO THE ASSESSEES FAILURE TO FURNISH A D ECLARATION IN RESPECT OF BOTH THE 10A UNITS, THE AO OPINED THAT T HE ASSESSEE HAD CLAIMED DEDUCTION U/S 10A ON THE SAID UNITS, WH ETHER IT HAD DERIVED PROFITS OF LOSSES. CONSEQUENTLY, SET OFF O F LOSS OF 10A UNDERTAKING AGAINST INCOME FROM OTHER SOURCES OR PROFITS OF 80HHE UNITS WAS DISALLOWED. 2.2 AGGRIEVED, THE ASSESSEE MOVED THE MATTER IN APP EAL BEFORE THE FIRST APPELLATE AUTHORITY AND MADE ELABO RATE SUBMISSIONS WHICH ARE INCORPORATED IN THE APPELLATE ORDER. THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE DE CISION OF THE KARNATAKA HIGH COURT AND THE BANGALORE TRIBUNAL, CA ME TO THE CONCLUSION THAT THE ASSESSEE WAS ELIGIBLE FOR SET O FF OF LOSS OF 10A UNDERTAKING AGAINST PROFITS OF 80HHE UNDERTAKIN G IN VIEW OF THE PROVISIONS OF SEC.10A(6) AS WELL AS SEC.70 OF T HE ACT. 2.3 NOW, THE REVENUE IS AGGRIEVED AND IS ON SECOND APPEAL BEFORE US WITH THE GROUNDS OF APPEAL EXTRACT ED ELSEWHERE OF THIS ORDER. AT THE TIME OF HEARING, L EARNED DEPARTMENTAL REPRESENTATIVE REITERATED THE CONTENTS OF THE ASSESSMENT ORDER AS HER SUBMISSIONS. PER CONTRA, T HE LEARNED AR OF THE ASSESSEE, RELIED ON THE DECISION OF THE J URISDICTIONAL HIGH COURT IN THE CASE OF CIT LTU VS. M/S.YOKOGAWA INDIA LTD. & OTHERS IN ITA NO.78 OF 2011, ITA 356/2010, 772/2009 ETC., DATED 9-8-2011. 2.4 WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. IN OUR CONSIDERED O PINION, THIS ISSUE IS SET AT NAUGHT BY THE DECISION OF THE HONB LE ITA 1441(BANG)/2010 PAGE 6 OF 9 JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.YOKOGAWA INDIA LTD. & OTHERS (SUPRA). PARA.30 OF THE DECISION READS AS UNDER: 30. THE PROVISIONS OF THIS SUB-SECTION WILL APPL Y EVEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10-A BY EXERCISING HIS OPTION UNDER SUB- SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR A N ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10-A. IN THE YEAR WHEN THE ASSESSEE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOULD 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 HAS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE I F ANY THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS IN THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO MERITS A SIMILAR TREATMENT. HENCE, RESPECTFULLY FOLLOWING THE DECISION CITED SU PRA, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT(A) BY DECID ING THIS ISSUE IN FAVOUR OF THE ASSESSEE. 3. NOW LET US TURN TO THE SECOND ISSUE RELATING TO DELETION OF ADDITION OF ` .28,73,947/- BEING THE PROVISION FOR GRATUITY WHILE COMPUTING INCOME UNDER THE BOOK PROFIT U/S 11 5JB. THE RELEVANT GROUNDS OF APPEAL READ AS UNDER: 4. THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDITION OF ` .28,73,947/- BEING THE PROVISION FOR GRATUITY WHILE DETERMINING THE BOOK PROFIT U/S 115JB, WITHOUT APPRECIATING THE FACT THA T THE PROVISION WAS NOT FOR MEETING AN ASCERTAINED LIABILITY AND THE DECISIONS RELIED UPON ARE NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE STATED IN THE RELEVANT ASSESSMENT ORDER. 3.1 BRIEF FACTS OF THE CASE ARE THAT THE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` .28,73,947/- ON ITA 1441(BANG)/2010 PAGE 7 OF 9 ACCOUNT OF PROVISION FOR GRATUITY. WHILE COMPUTING INCOME U/S 115JB, THE ASSESSEE, ACCORDING TO THE AO, HAD FAILE D TO ADD BACK THE SAME. THE ASSESSEE-COMPANY WAS ASKED TO E XPLAIN WHY THE SAME SHOULD NOT BE ADDED TO THE PROFITS WHI LE COMPUTING INCOME U/S 115JB OF THE ACT. IN REPLY, A MONGST OTHER THINGS, THE ASSESSEE HAD SUBMITTED THAT THE P ROVISION FOR GRATUITY IS IN THE NATURE OF ASCERTAINED LIABILITY AND THAT THE PROVISION FOR GRATUITY WAS MADE ON THE BASIS OF ACT UARIAL CALCULATIONS. THE ASSESSEE ALSO RELIED ON THE DECIS ION OF THE BOMBAY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PVT. LTD . (251 ITR 15)(BOM). HOWEVER, ACCORDING TO THE AO, A CTUARIAL VALUATION COULD NOT BE TREATED AS ASCERTAINED LIABI LITY AS THE SAME WAS MADE TAKING INTO ACCOUNT THE PROBABILITIES OF DEATH, LEAVING SERVICE OR RETIREMENT OF EMPLOYEES. THEREFO RE, IN HIS VIEW, IT CANNOT BE ASCERTAINED LIABILITY. THUS, HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND ADDED BACK THE S AME FOR COMPUTING THE BOOK PROFITS U/S 115JB. 3.2 AGGRIEVED, THE ASSESSEE MOVED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY. THE DECISION OF THE BOM BAY HIGH COURT IN THE CASE OF ECHJAY FORGINGS PVT. LTD . (SUPRA) WAS RELIED UPON. THE CIT(A) RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CONTEXT OF PROVISION FOR LEAVE ENCASHM ENT IN BHARAT EARTH MOVERS VS. CIT (2000) 245 ITR 428 AND ALLOWED THE ASSESSEES CLAIM BY HOLDING THAT THE PROVISION FOR GRATUITY COULD NOT BE ADDED BACK UNDER THE EXPLANATION (1C) TO SEC.115JB WHILE DETERMINING THE BOOK PROFITS. ITA 1441(BANG)/2010 PAGE 8 OF 9 3.3 NOW, THE REVENUE IS ON SECOND APPEAL BEFORE US WITH THE GROUND EXTRACTED ELSEWHERE OF THE ORDER. AT THE TIME OF HEARING, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE CONTENTS OF THE ASSESSMENT ORDER AND SHE ALSO SUBMI TTED THAT THE DECISION OF THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. (SUPRA) DEALT WITH LEAVE ENCASHMENT AND NOT PROVISION FOR GRATUITY. PER CONTRA, LEARNED AR OF THE ASSESSEE RELIED ON THE HONBLE SUPREME COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS LTD. (SUPRA) AND CONTENDED THAT THERE WAS NO ERROR IN THE ORDER. 3.4 WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. THE HONBLE APEX C OURT, IN THE CASE OF BHARAT EARTH MOVERS LTD. (SUPRA), OBSERVED AS UNDER: THE LAW IS SETTLED: IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPAB LE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY I S IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATION OF THE APEX COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY AND AS SUCH, WE UPHOLD THE SAME BY REJECTING THE GROUNDS OF APPEAL OF THE REVENUE. ITA 1441(BANG)/2010 PAGE 9 OF 9 4. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT AT THE END OF TH E HEARING ON 12 TH DECEMBER, 2011 SD/- SD/- (SMT. P.MADHAVI DEVI) JUDICIAL MEMBER (N.BHARATHVAJA SANKAR) VICE-PRESIDENT PLACE : BANGALORE DATED: 12 TH DECEMBER,2011. EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE