Trizetto Services India Private Limited, Pune V. Deputy Commissioner of Income-tax,

ITA 2537/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9010 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Assessee Lawyers: K VENKATACHALAM; NACHIKAT BARVE
• Keywords: Business income; Depreciation; Carry forward of business losses; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.2537/PUN/2016 / ASSESSMENT YEAR : 2010-11 TRIZETTO SERVICES INDIA PVT. LTD., OFFICE NO.601 & 602, 6 TH FLOOR, D-BUILDING, WEIKFIELD, IT-CITI INFO PARK, NAGAR ROAD, PUNE 411 014 PAN : AABCT8862F . /APPELLANT VS. DCIT, CIRCLE-7, PUNE . / RESPONDENT / APPELLANT BY : SHRI K. VENKATACHALAM & SHRI NACHIKAT BARVE / RESPONDENT BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 12.03.2018 / DATE OF PRONOUNCEMENT: 28.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-5, PUNE DATED 29-07-2016 FOR THE ASSESSMENT YEAR 2010-11. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. GROUND 1: SET OFF OF BROUGHT FORWARD LOSS BEFOR E CONSIDERING DEDUCTION UNDER SECTION 10A OF THE ACT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE ASS ESSING OFFICER ('AO') IN SETTING OFF THE BROUGHT FORWARD LOSS OF INR 36,77,5 29 AGAINST INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS AND PROFE SSION' OF THE APPELLANT BEFORE GRANT OF DEDUCTION UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961 ('THE ACT'). 2 PRAYER : THE APPELLANT PRAYS TO DIRECT THE AO TO FIRST GRANT DEDUCTION UNDER SECTION 10A AGAINST THE INCOME UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS AND PROFESSION' AND SET-OFF THE BROUGHT FORWARD LOSS OF INR 36,77,529 AGAINST THE REMAINING BUSINESS INCOME. 2. GROUND 2: SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN STATING THAT THE APPELLANT CANNOT SET OFF BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES OF INR 36,08,764 AS PER THE PROVISIONS OF SECTION 32(2) R.W.S. 71 OF THE ACT. PRAYER: THE APPELLANT PRAYS TO DIRECT THE AO TO ALLOW THE S ET OFF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES OF INR 36,08,764. 3. GROUND 3: CARRY FORWARD OF BUSINESS LOSS AND UNA BSORBED DEPRECIATION ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED CIT (A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO IN STATING THAT BUSINESS LOSS OF INR 18,77,382 AND UNABSORBED DEPRECIATION OF INR 31,91,446 IS NOT AVAILABLE FOR CARRY FORWARD AND SET OFF IN F UTURE YEARS. PRAYER: THE APPELLANT PRAYS TO DIRECT THE AO TO ALLOW CARRY FORWARD OF BUSINESS LOSS OF INR 18,77,382 AND UNABSORBED DEPRECIATION O F INR 31,91,446 FOR SET OFF AGAINST TAXABLE INCOME IN FUTURE YEARS 4. GROUND NO. 4: MAT CREDIT UNDER SECTION 115JAA ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED CIT (A) HAS ERRED IN STATING THAT THE APPELLANT CANNOT SET OFF BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES, AND AS A RESULT THE APPELLANT IS NOT ELIGIBLE TO CL AIM THE MAT CREDIT UNDER SECTION 115JAA OF INR 1,54,13,812 FOR AY 2010 -11. PRAYER: THE APPELLANT PRAYS TO DIRECT THE AO TO ALLOW CARRY FORWARD OF MAT CREDIT OF INR 1,54,13,812 FOR AY 2010-11 FOR UTILIZ ATION AGAINST TAX PAYABLE IN FUTURE YEARS. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO VARY, TO OMIT, TO SUBSTITUTE, TO AMEND OR TO WITHDRAW ANY OR ALL OF T HE ABOVE GROUNDS OF APPEAL, AT ANY TIME BEFORE OR AT, THE TIME OF HEARI NG OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE THIS APPEA L ACCORDING TO LAW. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE SOFTWARE DEVELOPMENT AND FILED RETURN OF INC OME DECLARING TOTAL INCOME OF RS.73,03,916/-. ASSESSEE MADE A CLAIM OF DE DUCTION 3 U/S.10A OF THE ACT BEFORE SETTING OFF OF THE BROUGHT FORWAR D LOSSES OF RS.36,77,529/-. REJECTING THE SAME, AO CHANGED THE MANNE R OF COMPUTATION OF INCOME AND ALLOWED THE CLAIM OF DEDUCTION U/S .10A OF THE ACT AFTER THE SAID LOSSES ARE SET OFF. IN THE PROCESS, AO ALLOWED THE LESSER DEDUCTION U/S.10A OF THE ACT. EVENTUALLY, AO DETERMINED T HE TOTAL INCOME AT RS.9,06,96,157/- U/S.115JB OF THE ACT. UNDER NORMAL PR OVISIONS, THE TOTAL INCOME IS DETERMINED AT RS.36,08,764/-. IN THE ASSES SMENT, IN SUPPORT OF HIS DECISION, AO RELIED ON THE JUDGMENT OF KARN ATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. VS. CIT 286 ITR 255 (KAR.) WHICH IS RELEVANT FOR THE PROPOSITION THAT BROUGHT FORWARD DEPREC IATION HAS TO BE ADJUSTED AGAINST THE ELIGIBLE PROFITS BEFORE COMPUTING THE A LLOWABLE DEDUCTION. FURTHER, AO IS OF THE OPINION THAT ANY BROUGHT FORWARD UNABSORBED DEPRECIATION CANNOT BE SET OFF AGAINST THE INC OME FROM OTHER SOURCES AS PER SECTION 32(2) R.W.C.71 OF THE ACT. CONTENT S OF PARA 4 OF THE AO ARE RELEVANT IN THIS REGARD. FURTHER, AO DENIED THE BENEFIT OF CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION AND BUSINES S LOSSES AGAINST THE INCOME OF THE SUBSEQUENT YEARS. ASSESSEE IS ALSO AG GRIEVED WITH THE DECISION OF THE AO RELATING TO GRANTING MAT CREDIT TOO. 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) PARTL Y ALLOWED THE APPEAL OF THE ASSESSEE. CIT(A) APPROVED THE DECISIONS OF THE AO RELATING TO THE CORE ISSUES NARRATED ABOVE AND RAISED IN THE ABOV E GROUNDS. CIT(A) APPROVED THE MANNER OF COMPUTATION OF ALLOWABLE DEDUCTION U/S.10A OF THE ACT AS DONE BY THE AO. FURTHER, REGARDING THE SET OFF O F THE BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST THE INCOME FROM O THER SOURCE, THE CIT(A) UPHELD THE AOS VIEW WHO STATED THAT ASSESSEE CA NNOT SET OFF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST THE INCO ME FROM OTHER SOURCES OF RS.36,08,764/-. IN THIS REGARD, IT IS THE PRAYE R OF THE ASSESSEE BEFORE US THAT THE AO NEED TO BE DIRECTED TO ALLOW THE SET OFF OF THE BROUGHT 4 FORWARD UNABSORBED BUSINESS LOSSES AGAINST INCOME FROM OT HER SOURCES AMOUNTING TO RS.36,08,764/-. FURTHER, ASSESSEE IS AGGRIEV ED AGAINST THE DIRECTION OF THE CIT(A) IN UPHOLDING THE AOS ACTION WHO STA TED THAT THE BUSINESS LOSSES OF RS.18,77,382/- AND UNABSORBED DEPRECIAT ION OF RS.31,91,446/- IS NOT AVAILABLE TO CARRY FORWARD THE SET OFF IN FUTURE YEARS. IN THIS REGARD, THE ASSESSEE SEEKS DIRECTION TO THE AO TO ALLOW CARRY FORWARD OF THE SAID BUSINESS LOSSES AND UNABSORBED DEPRECIATION FOR SET OFF IN FU TURE YEARS. ASSESSEE ALSO DESIRES GRANT OF THE CLAIM OF MAT CREDIT U/S.115JA A OF THE ACT TO THE EXTENT OF RS.1,54,13,812/- FOR A.Y. 2010-11. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR AT TENTION TO THE GROUNDS AND SUBMITTED THAT GROUND NOS. 1, 2 AND 3 ARE LINKED AND THE SAME NEED TO BE DECIDED IN THE LIGHT OF THE RATIO LAID DOW N BY THE APEX COURTS JUDGMENT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. 391 ITR 274 (SC). READING OUT THE RELEVANT PORTIONS FROM THE SAID JUDG MENT, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID JUDGME NT HAS BROUGHT OUT FINALITY ON THE CONTENTIONS OF ISSUES RELATING TO THE CLAIM O F DEDUCTION U/S.10A OF THE ACT AND THE STAGE OF COMPUTATION OF THE DEDUCTION IF THE SAME IS DONE AFTER THE SET OFF OF THE BROUGHT FORWARD LOSS ES OR BEFORE SUCH SET OFF. REFERRING TO THE AMENDMENT BROUGHT IN BY THE F INANCE ACT, 2000 W.E.F.,01-04-2001, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE APEX COURT HELD THAT THE PROVISIONS OF SECTION 10A OF THE ACT CONSTITUTE DEDUCTION PROVISIONS AND STAGE OF COMPUTATION OF ALLOWABLE D EDUCTION U/S.10A OF THE ACT WOULD BE WHILE COMPUTING THE GROSS TOT AL INCOME OF ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF TOTAL INCOME UNDER THE CHAPTER VI OF THE ACT. IN OTHER WORDS, THE DEDUCTION U/S.10A OF THE ACT SHOULD BE GRANTE D FIRST AND THE SET OFF OF THE LOSSES WILL BE ALLOWED AGAINST THE BALANCE OF TOTAL INCOME, IF ANY, LEFT AFTER THE CLAIM OF SAID DEDUCTION. AS PER THE LD. COUN SEL FOR THE 5 ASSESSEE, THE GROUND NO.1 RAISED BY THE ASSESSEE STAND S COVERED IN HIS FAVOUR BY THE SAID JUDGMENT OF APEX COURT (SUPRA). 6. PER CONTRA, ON THE SAID ISSUE, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A) AND ATTEMPTED T O DISTINGUISH THE APEX COURT JUDGMENT STATING THAT THE SAID JUDGMENT IS DELIVERED ON DIFFERENT FACTS, UNLIKE IN THE CASE OF THE ASSESSEE WHICH CON STITUTES SOLITARY UNDERTAKING. 7. DURING THE REBUTTAL TIME, LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT IF GROUND NO.1 IS ALLOWED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE SAID APEX COURT JUDGMENT, THE ADJUDICATION OF GROUND NOS. 2 AND 3 RELATING TO SET OFF AND CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DE PRECIATION AGAINST THE INCOME FROM OTHER SOURCES, BECOMES CONSEQUENTIAL. T HE FACT THAT THE CIT(A) DID NOT ADJUDICATE THE SAME ON THE GROUND OF INFRUC TUOUSNESS AS MENTIONED IN PARA 7 OF THE ORDER OF CIT(A) WAS ALSO BROUGHT TO OUR N OTICE. 8. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS O F THE REVENUE AS WELL AS THE APEX COURT JUDGMENT IN THE CASE OF CIT VS. YO KOGAWA INDIA PRIVATE LTD. (SUPRA). IT IS A SETTLED LEGAL PROPOSITION ON THE ISSUE RAISED IN GROUND NO.1, I.E. SET OFF OF BROUGHT FORWARD LOSSES BEFORE CON SIDERING DEDUCTION U/S.10A OF THE ACT. THE LEGAL PROPOSITION LAID DOW N BY THE HONBLE APEX COURT (SUPRA) READS AS UNDER : CONCLUSION : AFTER AMENDMENT OF SECTION 10A BY FI NANCE ACT 2000 WITH EFFECT FROM 1-4-2001, SAID SECTION HAS BECOME A PRO VISION FOR DEDUCTION BUT STAGE OF DEDUCTION WOULD BE WHILE COMPUTING GROSS T OTAL INCOME OF ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF ACT AND NOT AT STAG E OF COMPUTATION OF TOTAL INCOME UNDER CHAPTER VI OF ACT. THE SAID APEX COURT JUDGMENT IS CATEGORICAL IN STATING TH AT THE DEDUCTION U/S.10A SHOULD BE FIRST COMPUTED AND ALLOWED BEFO RE SETTING OFF BROUGHT FORWARD LOSSES. THE STAGE OF GRANTING THE SAID D EDUCTION IS 6 CATEGORICALLY SPECIFIED AND THE SAME IS TO BE ALLOWED AT TH E STAGE WHILE COMPUTING THE GROSS TOTAL INCOME OF ELIGIBLE UNDERTAKING UND ER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF TOTAL INCOME UNDER CHAPTER VI OF THE ACT. CONSIDERING THE BINDING NATURE OF THE APEX COURT JUDGMENT, WE ARE OF THE VIEW THAT GROUND NO.1 IN THE APP EAL IS REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO.1 IS ALLOWE D. 9. THE ISSUE RAISED IN GROUND NOS.2 AND 3 RELATES TO SET OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST THE INCO ME FROM OTHER SOURCES AND CARRY FORWARD OF THE SAME AND THE BUSINESS LOSSES TO THE SUBSEQUENT YEARS. IN PRINCIPLE, ALLOWING THE CLAIM OF UNABSO RBED DEPRECIATION AND BUSINESS LOSSES AGAINST THE CURRENT YEA RS INCOME OF THE ASSESSEE AND ALLOWING THE CARRY FORWARD OF THE UNABSOR BED BUSINESS LOSSES AND UNABSORBED DEPRECIATION ARE PERMISSIBLE IN LAW. THE AO IS DIRECTED TO GRANT THE SAME AS PER THE LAW. ACCORDINGLY, GROUND NOS. 2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED AS INDICATED ABOVE. 10. GROUND NO.4 RELATES TO THE MAT CREDIT U/S.115JAA OF T HE ACT. GROUND MENTIONS THAT THE CIT(A) ERRED IN STATING THAT TH E ASSESSEE CANNOT SET OFF ANY BROUGHT FORWARD UNABSORBED DEPRECIATION AGAIN ST INCOME FROM OTHER SOURCES AND AS A RESULT, ASSESSEE IS NOT ELIGIBLE TO CLAIM MAT CREDIT U/S.115JAA OF THE ACT. 11. IN THIS REGARD, WE PERUSED THE ORDER OF THE AO AND FIND THAT THERE IS NO CATEGORICAL FINDING ON THIS ISSUE IN THE ASSESSMENT ORDE R. FURTHER, ON PERUSAL OF THE FIRST APPELLATE AUTHORITY ORDER, WE FIND THE CONTENTS OF PARA NO.9 IS RELEVANT AND RELEVANT LINES READ AS UNDER : 9. . . . . . . . . . . . REGARDING THE PLEA OF MAT CREDIT OF RS.1,42,98,704/- THE AO IS DIRECTED TO VERIFY THE CLAIM OF THE APPELLANT AN D ALLOW THE SAME, IF IT IS AS PER THE PROVISIONS OF THE ACT. FOR STATISTICAL PUR POSE THIS GROUND IS TREATED AS ALLOWED. 7 CONSIDERING THE ABOVE STATED POSITION, WE ARE OF THE OPINIO N THAT THE GROUND NO.4 RAISED BY THE ASSESSEE IS PREMATURE. AS SU CH, NOTHING IS BROUGHT TO OUR NOTICE THAT THE CLAIM OF THE ASSESSEE WAS REJECTED ON THIS ISSUE IN THE VERIFICATION PROCEEDINGS GRANTED BY THE CIT(A). 12. AFTER HEARING BOTH THE SIDES, WE FIND THE DIRECTION GIVE N BY THE CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERE NCE. AO IS DIRECTED TO GRANT MAT CREDIT AS PER LAW. THEREFORE, THE GROUND NO.4 RAISED BY THE ASSESSEE IS DISMISSED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 28 TH MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-5, PUNE 4. / THE CIT-5, PUNE 5. , , / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE