Turbo Energy Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2493/CHNY/2016

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7287 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 26-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S BHARATH IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Services rendered outside India; Retrospective amendment; Permanent establishment; Unabsorbed depreciation
• Section: 80HHC; 10B; 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , , BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./I.T.A. NO.2493/CHNY/2016 / ASSESSMENT YEAR : 2010-2011 TURBO ENERGY PRIVATE LIMITED, 67, CHAMIERS ROAD, CHENNAI 600 028. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT -1, CHENNAI 600 034. ./I.T.A. NO.2494/CHNY/2016 /ASSESSMENT YEAR : 2010-2011 THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT -1, CHENNAI 600 034. VS. TURBO ENERGY PRIVATE LIMITED, 67, CHAMIERS ROAD, CHENNAI 600 028. [PAN AAACT 2916R] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI. R. VIJAYARAGHAVAN, ADV DEPARTMENT BY : SHRI. S. BHARATH, IRS, CIT. ! ' # $% /DATE OF HEARING : 25-09-2018 &' # $% /DATE OF PRONOUNCEMENT : 01-10-2018 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: THESE ARE APPEALS FILED BY THE ASSESSEE AND REVEN UE RESPECTIVELY DIRECTED AGAINST AN ORDER DATED 30.03 .2016 OF LD. ITA NOS.2493 & 2494/2016. :- 2 -: COMMISSIONER OF INCOME TAX (APPEALS)-17, CHENNAI. A PPEAL OF THE ASSESSEE IS TAKEN UP FIRST FOR DISPOSAL. 2. VIDE ITS GROUND NO.1, ASSESSEE IS AGGRIEVED ON DISA LLOWANCE OF A CLAIM FOR WEIGHTED DEDUCTION U/S.35(2AB) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON A REVENUE R & D EXP ENDITURE OF F28,33,318/-. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESS EE, A MANUFACTURE OF TURBOCHARGERS HAD CLAIMED WEIGHTED D EDUCTION ON R & D EXPENDITURE OF F10,67,69,153/-. HOWEVER, AS PER THE LD. AUTHORISED REPRESENTATIVE, THE CLAIM WAS CURTAILED TO F10,11,0 2,517/- BY THE LD. ASSESSING OFFICER CITING A REASON THAT DSIR APPRO VAL WAS ONLY FOR THE LATTER SUM. AS PER THE LD. AUTHORISED REPRESENTATIV E, LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED SUCH DISALLO WANCE, UPHOLDING THE VIEW TAKEN BY THE LD. ASSESSING OFFICER THAT A MOUNTS SPENT ON IN- HOUSE R & D WAS ALLOWABLE ONLY AS PER DSIR APPROVA L. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSE E HAD ON 03 RD MAY, 2012 ADDRESSED A LETTER TO DSIR SEEKING ENHANCEMENT OF R& D EXPENDITURE AND THIS WAS STILL TO GET A RESPONSE. I N ANY CASE, AS PER THE LD. AUTHORISED REPRESENTATIVE THIS TRIBUNAL I N ASSESSEES OWN CASE ITA NOS.2493 & 2494/2016. :- 3 -: FOR ASSESSMENT YEAR 2009-2010 IN ITA NO.317/MDS/201 4 HAD ALLOWED A SIMILAR CLAIM. 4. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CLAIM U/S.35(2AB) OF THE ACT WAS ADMITTEDLY CURTAILED SINCE DSIR HAD APPROVED ONLY A SUM OF F10,11,02,517/- AGAINST WHICH ACTUAL REVENUE R & D EXPENDITURE INCURRED BY THE ASSESSEE CAME TO F10,67,69,153/-. WE FIND THAT THERE WAS A SIMILAR CLAIM EXCEEDING THE AMOUNT APPROVED B Y DSIR FOR ASSESSMENT YEAR 2009-2010 ALSO. WHEN THE MATTER RE ACHED THIS TRIBUNAL, IT WAS HELD AS UNDER AT PARAS 14 & 14.1 OF ITS ORDER DATED 03.5.2017 IN ITA NO.317/MDS/2014: 14.0 GROUND NO.3 IN ASSESSEES APPEAL FOR THE A.Y 2009-10 IS DISALLOWANCE OF WEIGHTED DEDUCTION FOR SCIENTIFIC RESEARCH U/S.35(2AB) OF IT ACT. THE AO DISALLOWED A SUM OF RS.1,13,05,335/- OVER AND ABOVE THE EXPENDITURE PRESCRIBED BY THE AUTHORITY WHILE ISSUING THE APPROVAL FOR THE SCIENTIFIC RESEARCH. THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO. THE ASSESSEE ARGUED THAT THE CLAIM WHICH IS OTHERWISE ALLOWABLE CANNOT BE RESTRICTED, MERELY BECAUSE THE AMOUNT IS NOT ORIGINALLY INCLUDED IN THE ANNUAL REPORT. THE DUE PROCESS OF APPROVAL BY DSIR REQUIRE THE RECONCILIATION OF AMOUNT OF CLAIM AS CERTIFIED BY AUDITOR AND THE AMOUNT ITA NOS.2493 & 2494/2016. :- 4 -: DISCLOSED IN THE ANNUAL REPORT. THE RESTRICTION BY DSIR OVERLOOKING THE RECONCILIATION IS UNJUST AND HENCE THE CLAIM AS MADE BY THE APPELLANT SHOULD HAVE BEEN ALLOWED. THE LD.A.R RELIED ON THE FOLLOWING DECISIONS: I. CIT VS CLARIS LIFE SCIENCES LTD. 326 ITR 251(GUJ) II. CIT VS.WHEELS INDIA LTD 336 ITR 513 (MAD) III. ELECTRONICS CORPORATION OF INDIA LTD.VS ACIT(ITA NO.1106/HYD/2011 14.1 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS PLACED ON RECORD. THE ACT DOES NOT PLACE ANY RESTRICTIONS TO INCUR THE EXPENDITURE. THE EXPENDITURE INCURRED FOR THE PURPOSE OF SCIENTIFIC RESEARCH REQUIRED TO BE ALLOWED AS DEDUCTION U/S.35(AB) SUBJECT TO COMPLYING THE CONDITIONS LAID DOWN IN RULE 6. THE EXPENDITURE WAS INCURRED BY THE ASSESSEE WHICH IS CERTIFIED BY THE TAX AUDIT REPORT. THERE IS NO DISPUTE REGARDING THE ACTUAL AMOUNT INCURRED BY THE ASSESSEE. THE ASSESSEE RELIED ON THE JURISDICTIONAL HIGH COURT DECISION SUPRA. THE DECISIONS RELIED UPON BY THE LD.AR ARE NOT DIRECTLY RELATED TO THE ISSUE OF R&D EXPENDITURE INCURRED OVER AND ABOVE THE SPECIFIED LIMIT OF DSIR. HOWEVER, THE ESSENCE OF THE JUDGMENTS RELIED UPON BY THE LD.AR SUGGESTS TO ALLOW THE ACTUAL EXPENDITURE. THERE IS NO DISPUTE REGARDING THE GENUINENESS OF EXPENDITURE. THEREFORE, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR THE WEIGHTED AVERAGE DEDUCTION ON THE AMOUNT ACTUALLY SPENT. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED . RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH ORDER, WE ALLOW THE CLAIM OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR A LSO. GROUND NO.1 OF THE ASSESSEE STANDS ALLOWED. ITA NOS.2493 & 2494/2016. :- 5 -: 6. VIDE ITS GROUND NO.2, ASSESSEE IS AGGRIEVED ON A DISALLOWANCE MADE U/S.14A OF THE ACT. 7. LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT HE WAS NOT PRESSING THE SAID GROUND. ACCORDINGLY, GROUND NO. 2 IS DISMISSED AS NOT PRESSED. 8. VIDE ITS GROUND NO.3, GRIEVANCE RAISED BY THE ASSES SEE IS ON NON ADJUDICATION OF AN ISSUE RELATING TO COMPUTATI ON OF DEDUCTION MADE U/S.10B OF THE ACT WITH REGARD TO INTERPRETATI ON OF THE TERM TOTAL TURNOVER. 9. LD. COUNSEL FOR THE ASSESSEE DID NOT ADDRESS ANY AR GUMENT ON THE GROUND BEFORE US. THE SAID GROUND DOES NOT F IND A PLACE IN THE CHART OF ISSUES SUBMITTED BY THE LD. AUTHORISED RE PRESENTATIVE, ALSO. ACCORDINGLY, GROUND NO.3 IS DISMISSED AS NOT ARGUED . 10. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE ASSE SSEE IS ON DISALLOWANCE OF CARRY FORWARD ADDITIONAL DEPRECIATI ON OF F1,02,18,216/- IN RESPECT OF ASSETS ACQUIRED IN THE PRECEDING ASSESSMENT YEAR. 11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CL AIM WAS ON ADDITIONAL DEPRECIATION FOR PLANT AND MACHINERY ACQUIRED DURING THE ITA NOS.2493 & 2494/2016. :- 6 -: PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2009-2010 . ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE, 50% OF THE ADDIT IONAL DEPRECIATION ALONE WAS ALLOWED IN THE SAID YEAR AND ASSESSEE WAS THEREFORE ELIGIBLE FOR CLAIMING THE BALANCE 50% OF THE ADDITIONAL DEPR ECIATION IN THE IMPUGNED ASSESSMENT YEAR. RELIANCE WAS PLACED ON TH E JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRAKES INDIA LTD VS. DCIT (T.C.A.NO.551 OF 2013, DATED 14 TH MARCH, 2017 ). 12. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUT ED THAT THE CLAIM OF THE ASSESSEE WAS ON THE BALANCE OF THE ADDITIONAL D EPRECIATION REMAINING AFTER WHAT WAS AVAILED ON ASSETS ACQUIRE D DURING THE PRECEDING ASSESSMENT YEAR. WHAT WAS HELD BY THEIR L ORDSHIPS IN THE CASE OF BRAKES INDIA LTD (SUPRA) AT PARAS 5 TO 9 ARE REPRODUCED HEREUNDER:- 5.IN ORDER TO APPRECIATE THE AFORESAID SUBMISSION S, THE FOLLOWING FACTS ARE REQUIRED TO BE NOTICED: 5.1.THE ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATIO N UNDER SECTION 32(1)(IIA) AMOUNTING TO RS.1,89,67,15 9/- DURING THE RELEVANT ASSESSMENT YEAR, I.E., AY 2006-07. ITA NOS.2493 & 2494/2016. :- 7 -: 5.2.THE ADDITIONAL DEPRECIATION WAS CLAIMED AT THE RATE OF 7.5% BEING 50% OF THE PRESCRIBED RATE, WHICH WAS 15 %. 5.3.THE DEPRECIATION WAS CLAIMED AT THE SAID RATE A S THE SUBJECT ASSET WAS USED FOR LESS THAN 180 DAYS. 5.4.THE SAID DEPRECIATION WAS CLAIMED IN THE PRECED ING ASSESSMENT YEAR, I.E., AY 2005-06, WHICH IS, WHEN T HE ASSET WAS INSTALLED AND PUT TO USE. 5.5.IN THE RELEVANT ASSESSMENT YEAR I.E., AY 2006-0 7, THE ASSESSEE SOUGHT TO CLAIM THE BALANCE DEPRECIATION E QUIVALENT TO 7.5%. THE ASSESSING OFFICER, HOWEVER, REJECTED T HE CLAIM MADE BY THE ASSESSEE QUA THE BALANCE ADDITIONAL DEPRECIATION. 5.6.BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL TO THE COMMISSIONER OF INCOME TAX (APPEALS) [IN SHO RT, CIT(A)]. THE CIT(A) SUSTAINED THE ORDER OF THE ASSE SSING OFFICER. THE TRIBUNAL, DID LIKEWISE AND THEREFORE, THE ASSESSEE, IS IN APPEAL, BEFORE US. 6.AS INDICATED RIGHT AT THE OUTSET, THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE, BY VIRTUE OF OUR JUDGMENT I N THE MATTER OF COMMISSIONER OF INCOME TAX, MADURAI VS. M /S.SHRI T.P.TEXTILES PRIVATE LIMITED. AS NOTICED ABOVE, THE KARNATAKA HIGH COURT IN CIT V. RITTAL INDIA (P.) LTD., [2016] 66 TAXMANN.COM 4 (KARNATAKA), HAS ALSO TAKEN THE SAME VIEW. 6.1.WE ARE INFORMED THAT THE REVENUE HAS NOT ASSAIL ED THE JUDGMENT OF THE KARNATAKA HIGH COURT. 6.2.IN OUR JUDGMENT IN THE MATTER OF COMMISSIONER O F INCOME TAX, MADURAI VS. M/S.SHRI T.P.TEXTILES PRIVATE LIMI TED, WE HAVE NOTICED THE AFOREMENTIONED JUDGMENT OF THE KAR NATAKA HIGH COURT. 7.IN SO FAR AS THE FIRST SUBMISSION ADVANCED BY MR. RAVI IS CONCERNED, ACCORDING TO US, THE SAME IS COMPLETELY UNTENABLE. 7.1.THE JUDGMENT OF THE DIVISION BENCH OF THIS COUR T IN M.M.FORGINGS LIMITED VS. ADDITIONAL COMMISSIONER OF INCOME TAX, DID NOT DEAL THE ISSUE, WHICH IS AT HAND. 7.2.THE ISSUE, IN HAND, IS AS TO WHETHER BALANCE AD DITIONAL DEPRECIATION COULD BE CARRIED FORWARD TO THE YEAR, FOLLOWING ITA NOS.2493 & 2494/2016. :- 8 -: THE PREVIOUS YEAR, IN WHICH, ADDITIONAL DEPRECIATIO N WAS CLAIMED. 7.3.THE DIVISION BENCH IN M.M.FORGINGS CASE THE SAI D CASE WAS NOT CONCERNED WITH THE ISSUE, WITH WHICH, WE AR E FACED, THAT IS, THE RIGHT TO CARRY FORWARD THE BALANCE ADD ITIONAL DEPRECIATION. THEREFORE, THE JUDGMENT IS COMPLETELY DISTINGUISHABLE. 8.THE SECOND SUBMISSION OF MR.RAVI, THAT CIRCULAR N O.8 OF 2002 DATED 27.08.2002 AND CIRCULAR NO.281 DATED 29. 11.1979, HAVE NOT BEEN TAKEN NOTE OF, IN OUR JUDGMENT RENDER ED IN COMMISSIONER OF INCOME TAX, MADURAI VS. M/S.SHRI T.P.TEXTILES PRIVATE LIMITED, ACCORDING TO US, WILL NOT IMPACT, EITHER THE REASONING OR THE CONCLUSION REACHED BY U S, IN THE SAID MATTER. 8.1.IT IS PERTINENT TO NOTE THAT THE CIRCULAR NO.28 1 DATED 29.11.1979, PRE-DATES THE INSERTION OF THE RELEVANT PROVISION, I.E., SECOND CLAUSE TO SECTION 32 (1) (IIA). THE SA ID CLAUSE (IIA), ADMITTEDLY, WAS INSERTED BY VIRTUE OF THE FINANCE ( NO.2) ACT, 2002, WITH EFFECT FROM 01.04.2003. 8.2.IN SO FAR AS THE SECOND CIRCULAR IS CONCERNED, I.E, CIRCULAR NO.8 OF 2002 DATED 27.08.2002, IN OUR VIEW, IN NO W AY, HELPS THE CASE OF THE REVENUE. THE CIRCULAR DOES NOT DWEL L ON THE POINT WHICH WE ARE CONFRONTED WITH. 8.3.IN ANY CASE, ACCORDING TO US, THE CIRCULARS ARE NOT BINDING ON THE COURT, THOUGH, THEY MAY BE BINDING ON THE RE VENUE. [SEE CIT V. HERO CYCLES PVT. LTD., (1997) 228 ITR 4 63 (SC)]. 9.THE LAST SUBMISSION THAT MR.RAVI ADVANCED, WAS, I N FACT, PREDICATED ON THE REASONING GIVEN BY THE ASSESSING OFFICER, WHICH, ACCORDING TO US, IS MISCONCEIVED, AS THE MAN NER OF CALCULATION OF DEPRECIATION, CANNOT, TO OUR MINDS, IMPEDE THE CLAIM OF THE ASSESSEE FOR BALANCE ADDITIONAL DEPREC IATION, IN THE YEAR FOLLOWING THE PREVIOUS YEAR, IN WHICH, THE SAID ASSET IS INSTALLED AND PUT TO USE. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HO NBLE JURISDICTIONAL HIGH COURT, WE DIRECT THE LD. ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ITA NOS.2493 & 2494/2016. :- 9 -: BALANCE ADDITIONAL DEPRECIATION OF F1,02,18,216/- . GROUND NO.4 OF THE ASSESSEE STANDS ALLOWED. 14. VIDE ITS GROUND NO.5, ASSESSEE IS AGGRIEVED THAT AD DITIONAL DEPRECIATION WAS NOT ALLOWED ON ELECTRICAL INSTALL ATION IN THE NATURE OF AIR CIRCULATOR INSTALLED IN ITS FACTORY. 15. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CL AIM OF ADDITIONAL DEPRECIATION OF F21,395/- ON AN AIR CIR CULATOR WAS DISALLOWED BY THE LOWER AUTHORITIES CONSIDERING IT TO BE ELECTRICAL INSTALLATION. ACCORDING TO HIM, AIR CIRCULATOR WAS PART OF THE PLANT AND MACHINERY, AND ELIGIBLE FOR ADDITIONAL DEPRECIATIO N. 16. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 17. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NOTHING ON RECORD TO SHOW THAT ELECTRICAL INSTALLATION ON WHICH ADDITIONAL DE PRECIATION WAS CLAIMED BY THE ASSESSEE WAS AN AIR CIRCULATOR WHIC H COULD BE CONSTRUED AS PLANT AND MACHINERY. ACCORDINGLY, WE ARE OF THE OPINION THAT LOWER AUTHORITIES WERE JUSTIFIED IN DENYING T HE CLAIM OF ADDITIONAL DEPRECIATION ON THE SAID ITEM. WE DO NOT FIND AN Y REASON TO INTERFERE ITA NOS.2493 & 2494/2016. :- 10 -: WITH THE ORDERS OF THE LOWER AUTHORITIES. GROUND NO.5 OF THE ASSESSEE STANDS DISMISSED. 18. NOW, WE TAKE UP APPEAL OF THE REVENUE. 19. REVENUE HAS TAKEN ALTOGETHER FIVE GROUNDS OF WH ICH GROUNDS 1 & 5 ARE GENERAL, NEEDING NO SPECIFIC ADJUDICATION. 20. VIDE ITS GROUND NO.2, REVENUE IS AGGRIEVED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED PROPOR TIONATE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON THE DEDUCTION CLAIMED BY THE ASSESSEE U/S.10B OF THE ACT. 21. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD RELIED ON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOGAKAWA INDIA LTD, 341 ITR 385 WHILE ALLOWING THE CLAIM. HOWEVER , AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, R & D EXPENDITURE, CO NSIDERED BY THE LD. ASSESSING OFFICER FOR SET-OFF, WAS NOT RELATABL E TO ANY SEPARATE INDEPENDENT UNIT. THEREFORE, AS PER THE LD. DEPAR TMENTAL REPRESENTATIVE, LD. ASSESSING OFFICER WAS JUSTIFIE D IN CHARGING PART OF SUCH R & D EXPENSES TO THE INCOME OF UNIT ON WHICH DEDUCTION U/S.10B OF THE ACT WAS CLAIMED. ITA NOS.2493 & 2494/2016. :- 11 -: 22. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. LD. ASSESSING OFF ICER HAD DURING THE RELEVANT PREVIOUS YEAR CHARGED A PART OF THE R & D EXPENDITURE TO THE UNITS ON WHICH ASSESSEE WAS CLAIMING DEDUCTION U/S. 10B OF THE ACT. HOWEVER, THE CLAIM OF THE ASSESSEE WAS THAT R & D U NIT WAS A SEPARATE ONE AND ITS EXPENSES COULD NOT BE CHARGED TO THE UNITS ON WHICH DEDUCTION WAS CLAIMED U/S.10B OF THE ACT. TH E QUESTION WHETHER THERE CAN BE SET OFF BETWEEN LOSS/EXPENSES OF A UNIT NOT CLAIMING DEDUCTION U/S.10B OF THE ACT, WITH PROFITS OF A UNIT ON WHICH DEDUCTION U/S.10B OF THE ACT IS CLAIMED, WAS CONSI DERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOGAKAWA INDIA LTD (SUPRA ). THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT W AS CARRIED IN FURTHER APPEAL BEFORE THE HONBLE APEX COURT. HONB LE APEX COURT IN (2017) 145 DTR 1, AFFIRMED THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT OBSERVING AS UNDER:- 12. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED A ND THE PROVISIONS OF SECTION 10A AS IT STOOD PRIOR TO THE AMENDMENT MADE BY FINANCE ACT, 2000 WITH EFFECT FROM 1.4.2001; THE AMENDED SECTION 10ATHEREAFTER AND ALSO THE AMENDMEN T MADE BY FINANCE ACT, 2003 WITH RETROSPECTIVE EFFECT FROM 1.4.2001. ITA NOS.2493 & 2494/2016. :- 12 -: 13. THE RETENTION OF SECTION 10A IN CHAPTER III OF THE ACT AFTER THE AMENDMENT MADE BY THE FINANCE ACT, 2000 WOULD BE ME RELY SUGGESTIVE AND NOT DETERMINATIVE OF WHAT IS PROVIDE D BY THE SECTION AS AMENDED, IN CONTRAST TO WHAT WAS PROVIDE D BY THE UN- AMENDED SECTION. THE TRUE AND CORRECT PURPORT AND E FFECT OF THE AMENDED SECTION WILL HAVE TO BE CONSTRUED FROM THE LANGUAGE USED AND NOT MERELY FROM THE FACT THAT IT HAS BEEN RETAINED IN CHAPTER III. THE INTRODUCTION OF THE WORD DEDUCTIO N INSECTION 10A BY THE AMENDMENT, IN THE ABSENCE OF ANY CONTRAR Y MATERIAL, AND IN VIEW OF THE SCOPE OF THE DEDUCTIONS CONTEMPL ATED BY SECTION 10A AS ALREADY DISCUSSED, IT HAS TO BE U NDERSTOOD THAT THE SECTION EMBODIES A CLEAR ENUNCIATION OF THE LEG ISLATIVE DECISION TO ALTER ITS NATURE FROM ONE PROVIDING FOR EXEMPTION TO ONE PROVIDING FOR DEDUCTIONS. 14. THE DIFFERENCE BETWEEN THE TWO EXPRESSIONS EXE MPTION AND DEDUCTION, THOUGH BROADLY MAY APPEAR TO BE THE SA ME I.E. IMMUNITY FROM TAXATION, THE PRACTICAL EFFECT OF IT IN THE LIGHT OF THE SPECIFIC PROVISIONS CONTAINED IN DIFFERENT PARTS OF THE ACT WOULD BE WHOLLY DIFFERENT. THE ABOVE IMPLICATIONS CANNOT BE MORE OBVIOUS THAN FROM THE CASE OF CIVIL APPEAL NOS. 8563/2013, 8564/2013 AND CIVIL APPEAL ARISING OUT OF SLP(C) NO. 18157/20 15, WHICH HAVE BEEN FILED BY LOSS MAKING ELIGIBLE UNITS AND/O R BY NON- ELIGIBLE ASSESSEES SEEKING THE BENEFIT OF ADJUSTMEN T OF LOSSES AGAINST PROFITS MADE BY ELIGIBLE UNITS. 15. SUB-SECTION 4 OF SECTION 10A WHICH PROVIDES FOR PRO RATA EXEMPTION, NECESSARILY INVOLVING DEDUCTION OF THE P ROFITS ARISING OUT OF DOMESTIC SALES, IS ONE INSTANCE OF DEDUCTION PROVIDED BY THE AMENDMENT. PROFITS OF AN ELIGIBLE UNIT PERTAINING T O DOMESTIC SALES WOULD HAVE TO ENTER INTO THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS IN CHAPTER IV AND DENIED T HE BENEFIT OF DEDUCTION. THE PROVISIONS OF SUB-SECTION 6 OF SECTI ON 10A, AS AMENDED BY THE FINANCE ACT OF 2003, GRANTING THE BE NEFIT OF ADJUSTMENT OF LOSSES AND UNABSORBED DEPRECIATION ET C. COMMENCING FROM THE YEAR 2001-02 ON COMPLETION OF T HE PERIOD OF TAX HOLIDAY ALSO VIRTUALLY WORKS AS A DEDUCTION WHI CH HAS TO BE WORKED OUT AT A FUTURE POINT OF TIME, NAMELY, AFTER THE EXPIRY OF PERIOD OF TAX HOLIDAY. THE ABSENCE OF ANY REFERENCE TO DEDUCTION UNDER SECTION 10A IN CHAPTER VI OF THE ACT CAN BE U NDERSTAND BY ACKNOWLEDGING THAT ANY SUCH REFERENCE OR MENTION WO ULD HAVE BEEN A REPETITION OF WHAT HAS ALREADY BEEN PROVIDED IN SECTION 10A. THE PROVISIONS OF SECTIONS 80HHC AND 80HHE OF THE ACT PROVIDING FOR SOMEWHAT SIMILAR DEDUCTIONS WOULD BE WHOLLY IRRELEVANT AND REDUNDANT IF DEDUCTIONS UNDER SECTIO N 10A WERE TO BE MADE AT THE STAGE OF OPERATION OF CHAPTER VI OF THE ACT. THE ITA NOS.2493 & 2494/2016. :- 13 -: RETENTION OF THE SAID PROVISIONS OF THE ACT I.E. SE CTION 80HHC AND 80HHE, DESPITE THE AMENDMENT OF SECTION 1 0A, IN OUR VIEW, INDICATES THAT SOME ADDITIONAL BENEFITS T O ELIGIBLE SECTION 10A UNITS, NOT CONTEMPLATED BY SEC TIONS 80HHC AND 80HHE, WAS INTENDED BY THE LEGISLATURE. S UCH A BENEFIT CAN ONLY BE UNDERSTOOD BY A LEGISLATIVE MAN DATE TO UNDERSTAND THAT THE STAGES FOR WORKING OUT THE DEDU CTIONS UNDER SECTION 10A AND 80HHC AND 80HHE ARE SUBSTANTI ALLY DIFFERENT. THIS IS THE NEXT ASPECT OF THE CASE WHIC H WE WOULD NOW LIKE TO TURN TO. 16. FROM A READING OF THE RELEVANT PROVISIONS OF SE CTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLA TED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDIN G ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON- ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCT ION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANT LY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CON TEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PAR AGRAPH 15.6 THAT, THE EXPORT TURNOVER AND THE TOTAL TURNOVER F OR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKING S, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL R ELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THE SE 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 T HE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOU S CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIG IBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDI ATELY 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, 72AND 74 OF THE ACT WOULD BE PREMATURE FOR APPL ICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRI OR 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 SECTIO N 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORE SAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME ITA NOS.2493 & 2494/2016. :- 14 -: 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 OUT SET OF THIS ORDER, BY HOLDING THAT THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHIL E COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION O F THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEALS SHALL STAN D DISPOSED OF ACCORDINGLY. CONSIDERING THE JUDGMENT OF HONBLE APEX COURT, WE FIND NO INFIRMITY IN THE DIRECTIONS OF LD. COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.2 OF THE REVENUE IS DISMISSED. 24. VIDE ITS GROUND NO.3, GRIEVANCE RAISED BY THE REVE NUE IS ON DELETION OF A DISALLOWANCE MADE BY THE LD. ASSESSIN G OFFICER U/S.40(A)(I) OF THE ACT ON LOGISTIC SERVICE CHARGES PAID BY THE ASSESSEE TO ONE M/S. SONIMA LOGISTICS, GERMANY. 25. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LOG ISTIC SERVICE CHARGES WERE PAID TO A NON RESIDENT AND THE REFORE ASSESSEE OUGHT HAVE DEDUCTED TAX THEREON. ACCORDING TO HIM, ASSESSEE HAVING FAILED TO DO SO, LD. ASSESSING OFFICER WAS JUSTIFIE D IN MAKING THE DISALLOWANCE. ITA NOS.2493 & 2494/2016. :- 15 -: 26. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) SUBMITTED THAT LOGISTIC SERVICE CHARGES WERE PAID TO M/S. SON IMA LOGISTICS, GERMANY FOR PROVIDING WAREHOUSING FACILITIES TO TH E ASSESSEE, FOR GOODS EXPORTED BY IT. ACCORDING TO HIM, WHETHER T AX WAS REQUIRED TO BE DEDUCTED ON SUCH SERVICES WAS AN ISSUE WHICH CAM E UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEA RS 2007-08 TO 2009-10 IN ITA NOS.629/MDS/13, 204 & 205/2014, DATE D 03.05.2017. AS PER THE LD. AUTHORISED REPRESENTATIVE, THE QUEST ION WAS DECIDED IN FAVOUR OF THE ASSESSEE. 27. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. WHAT WAS HELD BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 TO 2009-2010, IN ITS ORDER DATED 03.05.2017 IS REPRODUCED HEREUNDER:- 8.2 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS PRODUCED THE COPY OF THE AGREEMENT BEFORE THE LD.CIT(A). THE LD.CIT(A) EXAMINED THE EXPLANATION OF THE ASSESSEE AND THE DOCUMENT PLACED BEFORE THE CIT AND CONCLUDED THAT THE SERVICES RENDERED BY THE NON-RESIDENT DO NOT FALL UNDER THE CATEGORY OF TECHNICAL OR MANAGERIAL SERVICES. LD.CIT(A) FURTHER STATED THAT THE SERVIC ES ARE RENDERED OUTSIDE INDIA AND THERE IS NO PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION TO THE NON-RESIDENT IN INDIA. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE. THE PROFITS OF THE ITA NOS.2493 & 2494/2016. :- 16 -: SERVICES RENDERED OUTSIDE INDIA CANNOT BE TAXED IN INDIA UNLESS THE NON-RESIDENT HAS PERMANENT ESTABLISHMENT/OR BUSINESS CONNECTION IN INDIA AS ENVISAGED IN SEC.9(1) OF IT ACT. THE LD.CIT(A) DELETED THE ADDITION RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF GE TECHNOLOGICAL CENTRE PVT. LTD. V. CIT 327 ITR 456. THE FINDINGS AND CONCLUSIONS ARRIVED IN EARLIER GROUND IN RESPEC T OF PAYMENT MADE TO M/S.BIGGLESWADE LTD., ARE SQUARELY APPLICABLE TO THIS GROUND ALSO. THEREFORE , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE REVENUES APPEAL ON THIS ISSUE FOR THE A.YS 2007-08, 2008-09 AND A.Y 2009-10 ARE DISMISSED. THERE IS NO DISPUTE THAT THE PAYMENTS MADE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WAS ALSO BASED ON THE SA ME AGREEMENT CONSIDERED BY THE TRIBUNAL IN THE APPEALS FOR THE A SSESSMENT YEARS 2007-08 TO 2009-2010. FOLLOWING THE ABOVE DECISION S, WE HOLD THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S.40(A)(I) OF THE ACT. GROUND N O.3 OF THE REVENUE STANDS DISMISSED. 28. VIDE ITS GROUND NO.4, GRIEVANCE OF THE REVENUE IS ON THE DIRECTION OF LD. COMMISSIONER OF INCOME TAX (APPEALS) TO ALLOW DEPRECIATION AT THE RATE OF 60% ON UPS. 29. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IS SUE WAS COVERED IN FAVOUR OF THE ASSESSEE, THROUGH AN ORDE R DATED 03.05.2017 ITA NOS.2493 & 2494/2016. :- 17 -: IN IN ITA NOS.351/MDS/13, 204 & 205/MDS/2014 FOR AS SESSMENT YEARS 2007-08 TO 2009-10 OF THIS TRIBUNAL IN ASSESSEES CA SE. 30. THE QUESTION WHETHER UPS COULD BE GIVEN DEPRECIAT ION @60% ALLOWABLE TO COMPUTER SYSTEM HAD COME UP BEFOR E THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 TO 2009-2010. WHAT WAS HELD BY THIS TRIBUNAL IN PARA 11 TO 11.2 A RE REPRODUCED HEREUNDER:- 11.0 THE NEXT ISSUE IN GROUND NO.2 IS DISALLOWANCE OF DEPRECIATION ON UPS. BOTH THE ASSESSEE AND REVENUE HAVE FILED APPEAL ON THIS ISSUE. THE ASSESSEE FILED APPEAL FOR THE AY 2007- 08 AND THE REVENUE HAS FILED APPEAL FOR THE AY 2008-09 AND 2009-10. THIS ISSUE IS INVOLVED FOR THE AYS2007-08, 2008-09 & 2009-10. THE AO DISALLOWED A SUM OF RS.1,26,086/- FOR THE A.Y 2007-08, RS.3,75,082/- FOR THE AY 2008-09 AND RS.6,29,235/- FOR THE A.Y 2009-10.THE ASSESSEE CLAIMED THE DEPRECIATION @80% ON UPS STATING THE UPS BEING AN AUTOMATIC VOLTAGE CONTROLLER AS WELL AS POWER SAVING EQUIPMENT IS A ENERGY SAVING DEVICE AND CLAIMED THE DEPRECIATION @80% IN ACCORDANCE WITH APPENDIX-I TO INCOME-TAX RULES. RELIANCE IS ALSO PLACED ON THE DECISION OF 1TATS ORDER IN DCIT V SURFACE FINISHING EQUIPMENT (2003) 81 TTJ 448. THE AO EXAMINED THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE UPS IS NEITHER A PART OF THE COMPUTER NOR A ENERGY SAVING DEVICE BUT IT IS ONLY AS AN UNINTERRUPTED POWER SUPPLY EQUIPMENT FOR ALL THE ELECTRICAL APPLIANCES. THE AO RELIED ON THE DECISION OF HONBLE ITAT DELHI IN THE CASE OF NESTLE INDIA LIMITED VS. DCIT [111 TTJ 498], WHEREIN IT WAS HELD THAT UPS IS NOT AN INTEGRAL PART OF COMPUTER AND ALLOWED DEPRECIATION AS A PART OF GENERAL PLANT AND MACHINERY. ACCORDINGLY, THE EXCESS ITA NOS.2493 & 2494/2016. :- 18 -: DEPRECIATION CLAIMED BY THE ASSESSEE IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 11.1 DURING THE APPEAL HEARING THE LD.AR OF THE ASSESSEE ARGUED THAT ENERGY SAVING DEVICES BEING AUTOMATIC VOLTAGE CONTROLLERS ARE THE EQUIPMENT ELIGIBLE FOR CLAIMING DEPRECIATION @80%. IT WAS THE CONTENTION OF THE LD.AR THAT THE UPS HAS INBUILT AUTOMATIC VOLTAGE REGULATOR WHICH IS CAPABLE OF REGULATING THE INCOMING VOLTAGE TO FEED STABILIZER OUTPUT VOLTAGE TO THE CONNECTED INSTRUMENT IN ADDITION TO THE UNINTERRUPTED POWER SUPPLY DURING THE POWER FAILURE WITH THE HELP OF BATTERIES. THE LD.AR ALSO RELIED ON THE FOLLOWING DECISIONS: SUNDARAM ASSET MANAGEMENT (2013) 145 ITD 17 (CHENNAI) GODREY PHILLIPS INDIA LTD. DCIT VS. SURFACE FINISHING EQUIPMENT 11.2 THOUGH THERE ARE DECISIONS IN FAVOUR OF ASSESSEE THE CLAIM OF THE ASSESSEE THAT THE UPS AS AN ENERGY SAVING DEVICE IS NOT ACCEPTABLE. IT I S ONLY AN EQUIPMENT FOR UNINTERRUPTED POWER SUPPLY TO ALL THE ELECTRICAL APPLIANCES AS HELD BY THE LD.AO. HOWEVER ITATC BENCH, CHENNAI IN ITA NO1774/MDS/2012 IN THE CASE OF SUNDARAM ASSET MANAGEMENT CO.LTD VS DCIT HELD THAT UPS IS AN PART INTEGRAL OF COMPUTER AND ELIGIBLE FOR DEPRECIATION @60%. THEREFORE, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD.AR THAT UPS IS ELIGIBLE FOR 80% DEPRECIATION. FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE CITED (SUPRA) WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION @60%. IN THE RESULT, THE ASSESSEES APPEALS AS WELL AS REVENUES APPEALS ARE DISMISSED. ITA NOS.2493 & 2494/2016. :- 19 -: ACCORDINGLY, WE HOLD THAT LD. COMMISSIONER OF INCOM E TAX (APPEALS) WAS JUSTIFIED IN ALLOWING THE CLAIM OF DEPRECIATION AT THE RATE OF 60% ON UPS. GROUND NO.4 OF THE REVENUE STANDS DISMISSE D. 31. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY A LLOWED WHEREAS THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 1ST DAY OF OCTOBER, 2018, AT CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) / JUDICIAL MEMBER ( . '#'$ ) (ABRAHAM P. GEORGE) % &' / ACCOUNTANT MEMBER ) ' / CHENNAI * / DATED:1 ST OCTOBER, 2018. KV + # ,$- . / . $ / COPY TO: 1 . 0 / APPELLANT 3. ! 1$ ( ) / CIT(A) 5. .45 ,$6 / DR 2. ,70 / RESPONDENT 4. ! 1$ / CIT 6. 58 9' / GF