East Wind Footwear Company Limited - India Branch , Thiruvannamalai V. DCIT International Taxation 1(1) & 1(2) , CHENNAI

ITA 1655/CHNY/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6077 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 30-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S RAMAKRISHNAN
• Keywords: Depreciation; Opportunity of being heard; Unabsorbed depreciation; CHAPTER IV
• Section: 143(3); 10AA; 115JB; 10B; 143(1); 274; 72; 22

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO.1655/CHNY/2017 / ASSESSMENT YEAR:2014-15 M/S. EAST WIND FOOTWEAR COMPANY LIMITED INDIA BRANCH, PLOT NO. 3, D&E, SIPCOT INDUSTRIAL PARK, MATHUR, MANGAL VILLAGE, CHEYYAR T.K., THIRUVANNAMALAI, TAMIL NADU 631 701. [PAN: AACCE5043N] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION 1(1) & 1(2), CHENNAI. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI ASHIK SHAH, C.A. / RESPONDENT BY : SHRI S. RAMAKRISHNAN, CIT / DATE OF HEARING : 29.01.2020 /DATE OF PRONOUNCEMENT : 31.01.2020 / O R D E R PER DUVVURUL RL REDDY, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] DATED 28.04.2017 RELEVANT TO THE ASSESSMENT YEAR 2014-15. THE EFFECTIVE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE ARE THAT THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN LAW IN NOT ALLOWING THE DEDUCTION UNDER SECTION 10AA OF THE ACT AND COMPUTATION OF TAX PAYABLE AND LEVY OF INTEREST UNDER SECTION 234D OF THE ACT. ITA NO. 1655/CHNY/2017 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 29.11.2014 DECLARING NIL INCOME UNDER NORMAL PROVISIONS AND .25,97,04,632/- UNDER SECTION 115JB OF THE ACT. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND SELECTED FOR SCRUTINY. AGAINST STATUTORY NOTICES, THE ASSESSEE FURNISHED THE DETAILS AS CALLED FOR. AFTER CONSIDERING THE SUBMISSIONS AND ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(1) OF THE ACT BY DISALLOWING THE CLAIM OF EXEMPTION UNDER SECTION 10AA OF THE ACT WHILE ALLOWING TO CARRY FORWARD THE UNABSORBED DEPRECIATION OF .2,49,64,459/- FOR THE ASSESSMENT YEAR 2013-14. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED ITS OBJECTION BEFORE THE DRP. AFTER CONSIDERING THE OBJECTIONS OF THE ASSESSEE, THE DRP HAS CONFIRMED TO SET OFF THE BROUGHT FORWARD LOSS AND DEPRECIATION AGAINST THE PROFIT OF THE ELIGIBLE UNIT AND CONSEQUENTLY DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10AA OF THE ACT. CONSEQUENT TO THE ORDER OF THE DRP, THE ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER BY DISALLOWING THE DEDUCTION CLAIMED UNDER SECTION 10AA OF THE ACT AFTER SETTING OFF THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION. 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE FINAL ASSESSMENT ORDER. BY FILING VARIOUS CASE LAW INCLUDING THE DECISION IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. 391 ITR 274 (SC), THE LD. ITA NO. 1655/CHNY/2017 3 COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE DEDUCTION UNDER SECTION 10AA OF THE ACT HAS TO BE GRANTED AND THEREAFTER SET OFF FROM REMAINING PROFIT IF ANY BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION SHOULD BE MADE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW INCLUDING PAPER BOOK FILED BY THE ASSESSEE. THE POINT AT ISSUE FOR CONSIDERATION IS WHETHER THE DEDUCTION CLAIMED UNDER SECTION 10AA OF THE ACT HAS TO BE ALLOWED FIRST AND THEREAFTER SET OFF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION FROM REMAINING PROFIT, IF ANY, OR NOT. SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN THE CASE OF JCIT V. LOTUS FOOTWEAR ENTERPRISES LTD. (ASSESSEES SISTER CONCERN), WHEREIN, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. (SUPRA). WE HAVE GONE THROUGH THE CASE LAW AND THE RELEVANT FINDINGS OF THE HONBLE SUPREME COURT ARE REPRODUCED AS UNDER: 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, 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% EXPORT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL ITA NO. 1655/CHNY/2017 4 NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION. 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) 22 UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF THE UNDERTAKING. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THIS ORDER, BY HOLDING THAT THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEALS SHALL STAND DISPOSED OF ACCORDINGLY. 5. THE LD. DR COULD NOT CONTROVERT THE ABOVE JUDGEMENT OF THE HONBLE SUPREME COURT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO FIRST GRANT DEDUCTION UNDER SECTION 10AA OF THE ACT AND THEREAFTER SET OFF FROM THE REMAINING PROFIT IF ANY THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO LEVY OF INTEREST UNDER SECTION 234D OF THE ACT. IT WAS THE SUBMISSION OF THE LD. ITA NO. 1655/CHNY/2017 5 COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE AMOUNT OF .1,26,54,786/- ALREADY PAID BY THE ASSESSE ON ACCOUNT OF EXCESS REFUND GRANTED TO THE ASSESSEE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 31 ST JANUARY, 2020 AT CHENNAI. SD/ - SD/ - (S JAYARAMAN) ACCOUNTANT MEMBER (DUVVURUL RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 31.01.2020 VM/- /COPY TO: 1. /APPELLANT, 2. / RESPONDENT, 3. ( )/CIT(A), 4. /CIT, 5. /DR & 6. /GF.