DCIT Corporate Circle 1(2), CHENNAI V. Congruent Solutions Pvt. Ltd., CHENNAI

ITA 2577/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5317 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2577/CHNY/2017 ( / ASSESSMENT YEAR: 2012-13) THE DCIT, CORPORATE CIRCLE 1(2), CHENNAI. VS M/S. CONGRUENT SOLUTIONS PVT. LTD., 1 ST FL, NORTH WING, CENTRAL SQUARE-1, C28-C35, CIPET ROAD, THIRU VI KA INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. PAN: AAACC1386L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI AR. V. SREENIVASAN, JCIT / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 07.02.2018 /DATE OF PRONOUNCEMENT : 16.04.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS)-1, CHENNAI, DATED 21.08.2017 IN ITA NO.05/CIT(A)-9/201 5-16 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S.250(6) R.W.S. 14 3(3) OF THE ACT. 2 THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL HOWEVER THE CRUXES OF THE ISSUE ARE THAT 2 ITA NO. 2577/CHNY/2017 (I) THE LD.CIT(A) HAS ERRED IN ALLOWING THE ENTIRE CLAIM OF DEDUCTION U/S.10AA OF THE ACT AMOUNTING TO RS.1.05 CRORES WITHOUT TAKING INTO CONSIDERATION OF THE UNABSORBED DEPRECIATION LOSS SUFFERED BY THE OTHER UNITS OF TH E ASSESSEE. (II) THE LD.CIT(A) HAS ERRED IN DELETING THE DISALL OWANCE MADE BY THE LD.AO AMOUNTING TO RS.35,857/- U/S.14A R.W.R 8D OF THE RULES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT & EXPORT OF SOFTWARE & PROVIDING IT ENABLED SERVICES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 25.09.201 2 ADMITTING LOSS OF RS.1,28,26,920/-. THE CASE WAS SELECTED FOR SCRU TINY UNDER CASS AND NOTICE WAS ISSUED U/S.143(2) OF THE ACT ON 19.0 8.2013. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT O N 27.02.2015 WHEREIN THE LD.AO DISALLOWED THE CLAIM OF DEDUCTION U/S.10AA OF THE ACT, U/S.14A OF THE ACT, U/S.40A(IA) OF THE ACT & F URTHER DISALLOWED EXPENDITURE INCURRED TOWARDS SOFTWARE LICENSE FEE. HOWEVER THE ISSUE IN APPEAL BEFORE US IS TOWARDS DISALLOWANCE OF DEDU CTION U/S.10AA OF THE ACT AND ADDITION INVOKING THE PROVISIONS OF SEC TION14A OF THE ACT R.W.R 8D OF THE RULES. 3 ITA NO. 2577/CHNY/2017 4. GROUND NO.2(I): DISALLOWANCE OF DEDUCTION U/S.10AA OF THE ACT:- THE ASSESSEE HAD CLAIMED DEDUCTION U/S.10AA OF TH E ACT FROM THE INCOME COMPUTED IN ACCORDANCE WITH PROVISI ONS OF CHAPTER IV OF THE ACT. HOWEVER THE LD.AO PLACING RELIANCE IN THE CIRCULAR OF THE BOARD NO.7 DATED 16.07.2013 WAS OF THE VIEW THAT TH E INCOME OF THE ASSESSEE HAS TO BE COMPUTED WITH IN ACCORDANCE OF P ROVISIONS OF CHAPTER IV & VI OF THE ACT AND THEREAFTER DEDUCTION U/S.10AA OF THE ACT HAS TO BE ALLOWED, WHICH MEANS THAT FIRST THE INCOME/LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS, UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 70 OF THE ACT. THEREAFTER, THE INCOME FROM ONE AHEAD IS AGGREGATED WITH THE INCOME OR LOSS OF THE OTHER HEAD IN ACCORDANCE WITH PROVISIONS OF SECTION 71 OF THE ACT. IF AFTER GIVING EFFECT TO THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT THERE IS ANY INCOME (WHERE OF THE ACT) AND THE SAME IS ELIGIBLE FOR DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI-A OR S ECTION 10A, 10B ETC. OF THE ACT, THE SAME SHALL BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY THE LD.AO DISALLOWED THE CLAIM OF DEDUC TION U/S.10AA OF THE ACT FOR RS.1,05,44,367/-. ON APPEAL, THE LD.CIT (A) RELYING IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE CIT VS. M/S. YOKOGAWA 4 ITA NO. 2577/CHNY/2017 INDIA LTD., CIVIL APPEAL NO.8498 OF 2013 DATED 16.1 2.2016, ALLOWED THE CLAIM OF DEDUCTION U/S.10AA OF THE ACT BY HOLDING A S UNDER:- THE HONBLE SUPREME COURT IN THE CASE OF YOKOGAWA (SUPRA) HAS HELD THAT DEDUCTIONS CONTEMPLATED U/S.10A ARE TO BE DETERMINE D FOR THE ELIGIBLE UNDERTAKING OF THE APPELLANT STANDING ON ITS OWN AN D WITHOUT REFERENCE TO OTHER ELIGIBLE UNDERTAKING OF THE APPELLANT STANDING ON I TS OWN AND WITHOUT REFERENCE TO OTHER ELIGIBLE OR NON-ELIGIBLE UNITS OR UNDERTAK ING OF APPELLANT (PARAGRAPHS 16 AND 17 OF THE SAID JUDGEMENT). IN VIEW OF THE AB OVE, THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 4.1 BEFORE US THE LD.DR RELIED ON THE ORDER OF THE LD.AO WHILE AS THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A) AND THE DECISION OF THE HONBLE APEX COURT CITED SUPRA. 4.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. AFTER PERUSING THE ORDER OF T HE HONBLE APEX COURT IN THE CASE M/S. YOKOGAWA INDIA LTD CITED SUP RA, WE FIND THAT THE SUBMISSION OF THE LD.AR IS OF MERIT. THE HONBLE A PEX COURT IN THE DECISION OF THE CASE M/S. YOKOGAWA INDIA LTD CITED SUPRA HAS HELD AS FOLLOWS: 16. FROM A READING OF THE RELEVANT PROVISIONS OF S ECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREI N IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNITS OR UNDERTAKING S 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 PAR AGRAPH 15.6 THAT, THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURP OSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZO NES OR 100% EXPORT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL NO T HAVE ANY MATERIAL 5 ITA NO. 2577/CHNY/2017 RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSE E 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 AN D THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NA TURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATEL Y AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STA GE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SE T OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOUL D BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THERE FORE 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 FR OM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL IN COME 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 AFORE SAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL I NCOME 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 DEDUCTI ON, 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 STAN D DISPOSED OF ACCORDINGLY. SINCE THE LD.CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE RATIO LAID DOWN BY THE DECISION OF TH E HONBLE APEX COURT CITED SUPRA, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD.CIT(A). HENCE WE HEREBY UPHOLD THE ORDER OF THE LD.CIT(A). 6 ITA NO. 2577/CHNY/2017 5. GROUND NO.2(II) : DISALLOWANCE U/S.14A R.W.R. 8D OF THE RULES:- DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMPANY HAS INVESTED AN AMOUNT OF RS.71,71,317/- FOR EARNING EXEMPT INCOME. THEREFORE THE LD.AO INVOKED RULE 8D OF THE RULES AND MADE DISALLOWANCE OF RS.35,857/-. ON APPEAL THE LD.CIT(A) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. 5.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. AT THE OUTSET WE FIND THAT TH E LD.AO HAS NOT MADE ANY FINDING THAT THE ASSESSEE HAD INCURRED EXP ENDITURE FOR EARNING EXEMPT INCOME. WHEN THERE IS NO SUCH FINDIN G BY THE LD.AO, INVOKING OF THE SECTION 14A R.W.R 8D OF THE RULES I S NOT APPROPRIATE. THEREFORE WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION MADE BY INVOKING SECTION 14A R.W.R. 8D OF THE RULES. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THE 16 TH APRIL, 2018 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER 7 ITA NO. 2577/CHNY/2017 #$ /CHENNAI, %& /DATED 16 TH APRIL, 2018 RSR & () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF