Deputy Commissioner of Income -Tax, V. M/s. Aesseal India Pvt.Ltd, Pune

ITA 2477/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9119 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 24-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL R SHAH
• Keywords: Depreciation; Wholly owned subsidiary; Revised return

Judgement Text

H SMC IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO.2477/PUN/2016 / ASSESSMENT YEAR : 2008-09 DCIT, CIRCLE-1(1), PUNE . /APPELLANT VS. M/S. AESSEAL INDIA PVT. LTD., GATE NO.85, A/P. VARVE, TALUKA BHOR, PUNE 411 028 PAN : AAECA1690F . / RESPONDENT / APPELLANT BY : SHRI AJAY MODI, JCIT / RESPONDENT BY : SHRI MEHUL R. SHAH / DATE OF HEARING : 13.03.2018 / DATE OF PRONOUNCEMENT: 16.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)- 1, PUNE, DATED 29-08-2016 FOR THE ASSESSMENT YEAR 2008-09. 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. THE LD.CIT(A) HAS ERRED ON THE FACTS AND CIRCUM STANCES OF THE CASE, IN ALLOWING THE DEDUCTION U/S.10A OF THE ACT WITHOUT SETTING OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPREC IATION OF EARLIER YEARS IN TOTAL DISREGARD TO THE CBDT CIRCULAR NO,7/ DV/2013, DATED 16-07-2013. 2. THE LD.CIT(A) HAS ERRED ON THE FACTS AND CIRCUMS TANCES OF THE CASE, BY NOT FOLLOWING THE DECISION OF HONBLE KARN ATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. VS. CIT (286 ITR 255) WHEREIN IT HAS BEEN HELD THAT THE BROUGHT FORWARD LOSSES AND U NABSORBED DEPRECIATION HAVE TO BE ADJUSTED BEFORE ALLOWING TH E DEDUCTION UNDER SECTION 10A AND THE SAME HAS BEEN UPHELD BY HONBLE SUPREME COURT IN THE CASE VIDE CIVIL APPEAL NO.1501 OF 2008 (2013-TI OL-53-SC-IT-LB) AND DISMISSED THE APPEAL OF THE ASSESSEE. 2 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A DOMESTIC COMPANY AND IS ENGAGED IN THE BUSINESS OF DESIGN AND DRA WINGS. ASSESSEE IS A 100% SUBSIDIARY OF UK BASED COMPANY VIZ. AE S ENGINEERING LTD. ORIGINALLY, ASSESSEE FILED THE RETURN OF INC OME ON 28-09-2008 DECLARING TOTAL INCOME AT NIL AFTER CLAIMING DEDUC TION OF RS.1,79,43,785/- U/S.10A OF THE ACT. ASSESSEE HAS BOTH SO FTWARE TECHNOLOGY PARKS OF INDIA UNIT (IN SHORT STPI) AS WELL AS NON-STPI UNIT. THE STPI UNIT REGISTERED NET PROFIT OF RS.1,79,43,785/- WHER EAS NON- STPI UNIT RECORDED LOSS OF RS.71,64,097/- IN THE YEAR UNDE R CONSIDERATION. ASSESSEE FILED THE RETURN OF INCOME ORIGINALLY CLAIMING DEDUCTION U/S.10A OF THE ACT AMOUNTING TO ONLY RS.1,07,79,6 88/-. IN OTHER WORDS, THE AFORE-MENTIONED LOSS RECORDED BY THE N ON-STPI IS SET OFF AGAINST THE INCOME FROM ELIGIBLE STPI UNIT AND ON THE BALA NCE OF INCOME, THE CLAIM OF DEDUCTION U/S.10A WAS MADE. SUBSEQUEN TLY, ASSESSEE FILED THE REVISED RETURN OF INCOME ON 27-11-2008 WITH CERTAIN CHANGES RESULTING IN CLAIM OF INCREASED DEDUCTION U/S.10A A MOUNTING TO RS.1,79,43,785/-. FURTHER, THE LOSSES FROM THE NON-STPI UNIT ARE CLAIMED AS CARRY FORWARD LOSSES TO THE NEXT YEAR. FURNIS HING OF THE SAID REVISED RETURNS EVENTUALLY LED TO THE ISSUE OF NOTICE U/S .148 OF THE ACT. IN THE REASSESSMENT, THE AO DENIED CLAIM MADE IN THE AFO REMENTIONED REVISED RETURN AND ALLOWED THE CLAIM OF DEDUCTION OF RS.1,07,7 9,688/- U/S.10A OF THE ACT. IN THE PROCESS, THE AO RELIED ON TH E JUDGMENT OF KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. VS. CIT 286 ITR 255, WHICH WAS UPHELD BY THE SUPREME COURT IN C IVIL APPEAL NO.1501 OF 2008, AND ALSO THE CBDT CIRCULAR NO.7, DATED 17- 07-2013. THE JUDGMENT WAS DELIVERED IN THE CONTEXT OF THE PREAME NDED PROVISIONS OF SECTION 10A OF THE ACT WHEN THE SECTION 10A OF THE ACT WAS AN EXEMPTION PROVISION THAT SUPPORTS THE CLAIM OF SET OFF OF THE LOSSES OF 3 RS.71,64,097/- AGAINST THE PROFITS OF STPI UNIT POSTERIOR T O THE ALLOWING OF DEDUCTION U/S.10A OF THE ACT. 4. DURING THE FIRST APPELLATE PROCEEDINGS, CIT(A) GRANTED RELIEF TO THE ASSESSEE RELYING ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF BLACK & VEATCH CONSULTING PVT. LTD. 20 TAXMANN.COM 727 (BO M.) AND CIT VS. SCHMETZ INDIA PVT. LTD. 26 TAXMANN.COM 336 (BOM.). THESE JUDGMENTS ARE RELEVANT FOR THE PROPOSITION THAT, AFTER T HE AMENDMENT IN FINANCE ACT, 2010 W.E.F 01-04-2001, THE PROVISIONS OF SECTION 10A OF THE ACT, THESE PROVISIONS CONSTITUTE THE DEDUCTION PROVISIONS AND NOT EXEMPTION ONES. ACCORDINGLY, THE DEDUCTION HAS TO BE GIV EN EFFECT TO AT THE STAGE OF COMPUTATION OF PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 OF THE ACT RELATING TO CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. 5. AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL WITH THE GROUNDS MENTIONED ABOVE. 6. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE BROUGHT MY AT TENTION TO THE NOTE FURNISHED BY THE ASSESSEE AND MENTIONED THAT THE JUDGMENT IN THE CASE OF HIMATASINGIKE SEIDE LTD. VS. CIT 286 ITR 255 P ERTAINS TO THE PERIOD PRIOR TO THE AMENDMENT BY THE FINANCE ACT, 2000 W.E.F. 01-04-2001. THE SAID WRITTEN NOTE IS EXTRACTED BELOW : S.10A/10B : THOUGH S.10A/10B WERE AMENDED BY FA 20 00 W.E.F. 01- 04-2001 TO CHANGE EXEMPTION TO DEDUCTION THE D EDUCTION CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKIN G OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OT HER ELIGIBLE OR NON- ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. TH E BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THE DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND BEFORE GIVING EFFECT TO THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN S.70, 72 AND 74. THE DEDUCTION U/S.10A/10B ARE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INC OME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. 4 RELIANCE PLACED ON FOLLOWING JUDICIAL PRECEDENTS : CIT VS. YOKOGAWA INDIA PRIVATE LTD. (2017) 244 TAX MAN 273 (SC) AESSEAL INDIA PVT. LTD. VS. ACIT, PUNE ITA NO.135 6/PN/2014 A.Y. 2007-08. 7. THE ELIGIBLE DEDUCTION OF AN UNDERTAKING OF THE ASSESSEE HAS TO BE COMPUTED AND ALLOWED AS IF THE UNDERTAKING IS INDEPENDENT ENTITY. IF THE SAME IS FOLLOWED, THE CLAIM OF DEDUCTION U/S.10A OF THE A CT OF ELIGIBLE UNDERTAKING HAS TO BE CONSIDERED BEFORE THE LOSSES , IF ANY, OF CURRENT YEAR OR LOSSES BROUGHT FORWARD FROM EARLIER YEAR ARE CON SIDERED. 8. FURTHER, MENTIONING THAT THE CLAIM OF THE ASSESSEE IS A LLOWED IN SUBSEQUENT YEARS IN ASSESSEES OWN CASE, LD. COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.1356/PN /2014, DATED 05-05-2016 FOR A.Y. 2007-08 AND SUBMITTED THAT, ON MERITS , THE ISSUE IN THE APPEAL STANDS COVERED IN FAVOUR OF THE ASSESSEE. WHILE ALLOWING THE SAID DEDUCTION, THE TRIBUNAL RELIED ON THE ANOTHER DE CISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. KPIT CUMMINS INFOSYSTEMS LTD. VS. DCIT ITA NOS. 1508 & 1509/PN/2011 FOR THE A.YRS. 2005-06 & 2006-07, ORDER DATED 30-11-2005. PARA NOS.8 AND 9 OF THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE A .Y. 2007-08 CONSTITUTES AN OPERATIONAL PARAS. 9. PER CONTRA, LD. DR FOR THE REVENUE FAIRLY SUBMITTED TH AT THIS IS A CASE OF HAVING LOSSES IN NON-STPI UNIT WHICH IS ADMITTEDLY TO BE SET OFF AGAINST THE PROFITS OF STPI UNIT. HE FAIRLY SUBMITTED THAT THIS CLAIM OF THE ASSESSEE IS ALLOWABLE IN VIEW OF THE SC JUDGMENT IN THE CASE OF CIT VS. YOKOGAWA INDIA PVT. LTD. (SUPRA). 10. I HEARD BOTH THE PARTIES ON THIS LIMITED ISSUE OF CORR ECTNESS OF THE STAGE OF SET OFF OF THE CLAIM OF LOSSES OF NON-STPI UNIT AGA INST THE PROFITS OF STPI UNIT QUA THE DETERMINATION OF ALLOWABLE DEDUCTION U/ S.10A OF 5 THE ACT. IT IS NOW SETTLED LEGAL PROPOSITION THAT DEDUCTIO N U/S.10A IS TO BE COMPUTED AND ALLOWED ANTERIOR TO THE ALLOWING THE SET OFF OF THE CURRENT YEAR LOSSES EARNED BY THE NON-STPI UNIT OF THE ASSESSEE IS SET OFF. AFTER THE AMENDMENT BY THE FINANCE ACT, 2000, THE CLA IM U/S.10A/10B OF THE ACT CONSTITUTES DEDUCTIONS. THE DE DUCTION OUT OF THE PROFITS AND GAINS OF BUSINESS OF AN ELIGIBLE BUSINESS UNDE RTAKING HAS TO BE MADE INDEPENDENTLY BEFORE GIVING EFFECT TO THE STATUTORY PROVISIONS FOR SET OFF AND CARRY FORWARD OF LOSSES CONTAINE D IN SECTIONS 70, 72 AND 74 OF THE ACT. FURTHER, THIS ISSUE STANDS C OVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.156/PN /2014, ORDER DATED 05-05-2016 FOR THE A.Y. 2007-08. FOR THE SAKE OF COMPLETENE SS OF THIS ORDER, I PROCEED TO EXTRACT THE RELEVANT PARA (PA RA NO.9) OF THE TRIBUNAL AS UNDER : THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE IS SUE BEFORE THE TRIBUNAL IN M/S. KPIT CUMMINS INFOSYSTEMS LTD. VS. DCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPE CT OF ITS STPI UNIT AND THE LOSSES FROM NON-STPI UNIT ARE TO BE CARRIED FOR WARD TO THE SUCCEEDING YEARS. REVERSING THE ORDER OF CIT(A), WE ALLOW THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE. CONSIDERING THE SAME, I AM OF THE OPINION THAT THE ORDE R OF THE CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR INTERFE RENCE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF MARCH, 2018. SD/- (D.KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; DATED : 16 TH MARCH, 2018. SATISH 6 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-1, PUNE 4. / THE CIT-1, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE