DCIT, CHENNAI V. Fives Call KCP Ltd., CHENNAI

ITA 2859/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8112 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 1999-2000
• Appeal Filed On: 20-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation
• Section: 143(3); 10B; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A.NO.2859/MDS/2014 /ASSESSMENT YEAR : 1999-2000 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 2(1), CHENNAI - 600 034. VS. M/S. FIVE CAIL KCP LTD RAMAKRISHNA BUILDINGS, NO.2. DR. P.V. CHERIAN CRESCENT, EGMORE, CHENNAI - 600 008. [PAN: AAACF 1763G] ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT / RESPONDENT BY : SHRI R. VIJAYARAGHAVAN /DATE OF HEARING : 23.08.2016 /DATE OF PRONOUNCEMENT : 09.11.2016 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF CIT(A), CHENNAI, ITA NO. 405/2013-14 DATED 03.06.2014 PASSED UNDER 143( 3) R.W.S. 263 OF THE ACT. THE REVENUE HAS RAISED THE GROUNDS THAT THE LD. CIT ERR ED IN IGNORING THE LOSS OF 5 TH PROJECT WHILE DETERMINING COMPUTATION OF DEDUCTION U/S. 80HHB AND THE LD. CIT FURTHER ERRED IN ALLOWING THE CLAIM IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAS OPENED FOREIGN PROJECT RESERVE ACCOUNT ON 04.11.199 9 AND THE ASSESSEE COMPANY IS :-2-: I.T.A. NO. 2859/MDS/2014 ELIGIBLE TO CLAIM DEDUCTION TO THE EXTENT OF THE SU M EQUAL TO AMOUNT CREDITED IN FOREIGN PROJECT RESERVE ACCOUNT. 2. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE CO MPANY IS IN THE BUSINESS OF ENGINEERING CONSULTANCY SERVICES IN INDIA AND AB ROAD AND FILED THE RETURN ON INCOME ON 30.12.1999 WITH TOTAL INCOME OF RS. 3,48, 79,070/- AFTER CLAIMING DEDUCTION U/S. 80HHB RS. 47,20,488/- AND RS. 62,22, 892/- U/S. 80-HHC OF THE ACT AND THE ASSESSMENT WAS COMPLETED U/S. 147 R.W.S. 14 3(3) OF THE ACT ON 27.12.2006. SUBSEQUENTLY, THE LD. CIT, CHENNAI-1 FOUND THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE AND SET ASIDE THE ASSESSMENT VIDE ORDER U/S. 263 OF THE ACT DATED 30. 01.2009. SUBSEQUENTLY, THE ASSESSING OFFICER IN COMPLIANCE TO THE DIRECTIONS O F REVISION ORDER ISSUED NOTICE U/S. 143(2) OF THE ACT. THE LD. AR OF THE ASSESSEE APPE ARED FROM TIME TO TIME AND ALSO SUBMITTED THE DETAILS AND CASE WAS DISCUSSED. THE LD. AR EXPLAINED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80HHB RS. 47,20 ,487/- BEING 50% OF PROFIT OF RS.94,40,975/- ON EXECUTION OF 5 FOREIGN PROJECTS. THIS PROFIT OF RS. 94,40,975/- IN RESPECT OF 4 PROJECTS AND THE ASSESSEE HAS IGNORED THE LOSS OF 5 TH PROJECT RS. 14,46,455/- AND CLAIMED DEDUCTION U/S. 80-HHB. THE LD. COMMISSIONER, IN THE REVISION PROCEEDINGS OBSERVED THAT IF THE LOSS OF 5 TH PROJECT IS IGNORED THE TURNOVER SHOULD ALSO BE EXCLUDED. FURTHER THE LOSS OF 5TH P ROJECT SHOULD BE REDUCED FROM PROFIT OF THE OTHER PROJECTS FOR THE PURPOSE OF CAL CULATING DEDUCTION U/S. 80HHB. THE ASSESSING OFFICER DEALT ON THIS ISSUE AND DISCUSSED ON PAGE 2 AND 3 OF HIS ASSESSMENT ORDER WHERE HE HAS SET OFF THE LOSS OF 5TH PROJECT RS. 14,46,455/-. :-3-: I.T.A. NO. 2859/MDS/2014 FURTHER THE LD. AO PERUSED THE PROFIT AND LOSS ACCO UNT AND FOUND THAT THE ADMINISTRATIVE EXPENSES CLAIMED IN RESPECT OF LOSS OF THE FOREIGN PROJECT AND ESTIMATED ADMINISTRATION EXPENSES OF RS.18,93,363 / - RELATING TO SEC 80-HHB PROJECT AND REDUCED FROM THE PROFITS AND WORKED OUT THE DED UCTION U/S. 80HHB OF THE ACT RS. 30,39,485/-. SUBSEQUENTLY, THE LD. ASSESSING O FFICER ON PERUSAL OF THE PROVISIONS SECTION 80-HHB OF THE ACT FOUND THAT THE ASSESSEE COMPANY SHOULD MAINTAIN FOREIGN PROJECT RESERVE AND UTILISE FOR TH E PURPOSE OF BUSINESS WITHIN A PERIOD OF 5 YEARS. THE ASSESSING OFFICER UPON PERU SAL OF BANK ACCOUNT IS OF THE OPINION THAT THE ADEQUATE CASH BALANCE IS NOT MAINT AINED IN THE FOREIGN PROJECT RESERVE ACCOUNT AND THE BANK BALANCE IS COMPARATIVE LY LOWER THAN THE CLAIM OF THE ASSESSEE AND PASSED ASSESSMENT ORDER U/S. 143(3) R. W.S 263 DATED 31.12.1999 DETERMINING THE TOTAL INCOME OF RS. 4,03,19,020/-. 3. AGGRIEVED BY THE ORDER THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(A). IN THE APPELLANT PROCEEDINGS LD. AR OF THE ASSESSEE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT P ROCEEDINGS AND FILED WRITTEN SUBMISSIONS. 4. THE LD. CIT(A) CONSIDERED THE FINDINGS OF THE A SSESSING OFFICER AND SUBMISSIONS AND THE GROUNDS ARGUED BY THE LD. AR AN D DEALT ON THE PROVISIONS OF SECTION 80-HHB OF THE ACT EXHAUSTIVELY AND RELIED O N JUDICIAL DECISION IN THE CASE OF CIT VS BHARATH HEAVY ELECTRICAL LTD, 352 ITR 88, (D ELHI) AND OBSERVED THAT THE INCOME OF FOREIGN PROJECTS HAVE TO BE CONSIDERED SE PARATELY FOR DETERMINING THE DEDUCTION U/S. 80HHB AND THE ACTION OF THE ASSESSIN G OFFICER IN SETTING OF THE LOSS OF :-4-: I.T.A. NO. 2859/MDS/2014 5TH PROJECT IS NOT JUSTIFIED AND DIRECTED ASSESSING OFFICER NOT TO SET OFF THE LOSS OF THE 5TH PROJECT IN DETERMINING THE PROFITS FOR COMPUTAT ION OF DEDUCTION U/S. 80HHB AND ALLOWED ON THE GROUNDS OF THE ASSESSEE. IN RESPECT OF OTHER GROUNDS RAISED BY THE ASSESSEE THAT THE ACTION OF THE ASSESSING OFFICER O N ALLOCATION OF VARIOUS ADMINISTRATIVE EXPENDITURE APPORTIONED RS. 18,57,67 0/-. THE ASSESSING OFFICER CONSIDERED NET PROFIT RATIOS OF FOREIGN PROJECT AND APPORTIONED THE ADMINISTRATION EXPENDITURE. THE LD. CIT OBSERVED THAT THE NET PRO FIT RATIO CANNOT BE CRITERIA IN ALLOCATION OF EXPENSES TO FOREIGN PROJECT AND DIREC TED THE ASSESSING OFFICER TO APPORTION THE ADMINISTRATIVE EXPENSES BASED ON THE TURNOVER. THE LD. CIT(A) FOUND THAT THE STATUTES PRESCRIBES TO MAINTAIN TO OPEN SE PARATE BANK ACCOUNT OF FOREIGN PROJECT RESERVE ACCOUNT AND PROFIT HAS TO BE CREDIT ED TO FOREIGN PROJECT RESERVE ACCOUNT AND ALSO DEALT IN DETAILED ON THE PROVISION S OF SECTION 80-HHB(3)(II) OF THE ACT AND RELIED ON DECISION OF THE DELHI BENCH OF TR IBUNAL IN CASE OF TELECOMMUNICATIONS CONSULTANTS INDIA LTD VS. ADDITI ONAL CIT [2012] 53 SOT 1 (DELHI). THE LD. CIT FOUND THE OBSERVATIONS OF THE ASSESSING OFFICER THAT ASSESSEE IS NOT MAINTAINING SUFFICIENT CREDIT BALANCE IN THE FO REIGN EXCHANGE RESERVE ACCOUNT IS NOT PRACTICABLE AND ALSO NOT REALISTIC CONSIDERING THE SUBMISSIONS AND JUDICIAL DECISION. THE LD. CIT(A) DIRECTED THE ASSESSING OF FICER TO ALLOW THE DEDUCTION UNDER 80-HHB OF THE ACT 5. AGGRIEVED BY THE ORDER THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. THE LD. DR SUBMITTED THAT THE LD. CIT(A ) HAS ERRED IN DIRECTING ASSESSING OFFICER NOT TO SET OFF THE LOSS OF 5TH FOREIGN PROJ ECT IN DETERMINING THE DEDUCTION UNDER 80-HHB OF THE ACT. THE CIT(A) SHOULD HAVE AP PRECIATED THAT THE LOSS FROM :-5-: I.T.A. NO. 2859/MDS/2014 ENGINEERING UNIT HAS TO BE SET OFF FOR ARRIVING OF PROFITS. FURTHER, THE ASSESSEE HAS NOT MAINTAINED SEPARATE FOREIGN PROJECT RESERVE ACC OUNT IN RESPECT OF PROFITS FROM BUSINESS AND THE ASSESSEE COMPANY HAS OPENED THE FO REIGN PROJECT RESERVE ACCOUNT ONLY ON 04.11.1999 AND HAS NOT COMPLIED OTH ER PROVISIONS AND PRAYED FOR SETTING ASIDE OF THE ORDER OF CIT(A). 6. CONTRA, THE LD. AR OF THE ASSESSEE RELIED ON THE ORDERS OF THE CIT(A) FILED AND SUBMITTED THAT THE LD. CIT(A) HAS CONSIDERED TH E JUDICIAL DECISIONS AND THE TRIBUNAL DECISION IN RESPECT OF CLAIM OF SET OFF, A ND ALSO SUPPORTED HIS ARGUMENTS WITH THE DECISION OF BANGALORE TRIBUNAL IN THE CASE OF ITO VS BRITISH ENGINEERING INDIA PVT. LTD. ITA 1277/1288/BANG/2014, WHERE THE TRIBUNAL HAS CONSIDERED THE ISSUE IN RESPECT OF SECTION 10A AND 10B AND HELD TH AT DEDUCTION U/S. 10A OF THE ACT HAS TO BE ALLOWED WITHOUT SETTING OFF THE LOSS AND THE LD. AR ALSO RELIED ON THE JUDICIAL DECISION OF CIT VS YOKOGAWA INDIA LTD. AND OTHERS 341 ITR 385, (KARNATAKA). THE HON'BLE HIGH COURT OBSERVED THAT THE EXEMPTION U/S. 10A HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNAB SORBED LOSSES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURREN T ASSESSMENT YEAR EITHER IN THE CASE OF NON STP UNITS OR IN THE CASE OF VERY SAME U NDERTAKING. 7. THE LD. AR FURTHER SUPPORTED THE ORDER OF THE CI T(A) AND RELIED ON THE DECISION OF CIT VS BHARATH HEAVY ELECTRICAL LTD., 3 52 ITR 88, (DELHI) AND ALSO THE ASSESSEE COMPANY HAS MAINTAINED SEPARATE FOREIGN EX CHANGE PROJECT ACCOUNT AND SATISFIED THE PROVISIONS OF ACT AND THERE IS NOT DI SPUTE ON OPENING THE SEPARATE :-6-: I.T.A. NO. 2859/MDS/2014 ACCOUNT AND RELIED ON THE DECISION OF M/S. TELECOMM UNICATION INDIA LTD VS CIT (SUPRA) AND PRAYED FOR DISMISSAL OF THE APPEAL OF T HE REVENUE. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS THE LD. DR CONTENTION THAT THE L D.CIT ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/S. 80-HH B OF THE ACT WITHOUT SETTING OFF LOSS OF THE 5TH PROJECT AND THE ASSESSEE HAS OPENED THE FOREIGN PROJECT RESERVE ACCOUNT IN THE MIDDLE OF THE FINANCIAL YEAR AND NOT MAINTAINED PROPER BANK BALANCE WERE AS THE LD. AR RELIED ON THE FINDINGS OF THE JU DICIAL DECISION OF BHARATH HEAVY ELECTRICAL LTD. (SUPRA) WERE IT WAS HELD THAT THE D EDUCTION TO BE ALLOWED WITHOUT SETTING OFF LOSS OF OTHER PROJECTS AND SIMILARLY TH E ASSESSEE MAINTAINED SEPARATE BOOK OF ACCOUNTS AND OPENED THE FOREIGN PROJECT RESERVE ACCOUNT, IN COMPLIANCE THE PROVISIONS OF SECTION 80-HHB (3)(III) AND THERE IS NO DISPUTE ON THE ACCOUNTS TO THE COMPLY THE CONDITIONS OF CLAIM. WE SUPPORT OUR VIEW RELYING ON HIGH COURT DECISION OF CITVS HINDUSTAN CONSTRUCTIONS CO. LTD., 368 ITR 0733 (BOMBAY) WERE IT IS HELD 'IN SUCH CIRCUMSTANCES, AND CONSIDERING THE PROVISI ON IN QUESTION AND THE ORDER OF THE TRIBUNAL, COURT DOES NOT THINK THAT THE APPELLA NT TRIBUNAL WAS IN ERROR IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION UND ER SECTION 80HHB IN RESPECT OF EACH PROJECT INSTEAD OF NETTING UP OF PROFITS FROM ALL THE OVERSEAS PROJECTS. IN SUCH CIRCUMSTANCES, THE TRIBUNAL WAS IN NO ERROR IN DIRE CTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE WITH OUT SETTING OFF ALL THE LOSSES SUFFERED IN OTHER FOREIGN PROJECTS. IN SUCH CIRCUM STANCES, THE REFERENCE IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' CONSIDERING THE APPARENT FACTS AND JUDICIAL DECISIONS WE ARE NOT INCLINED TO INTER FERE WITH THE ORDER OF THE CIT(A) :-7-: I.T.A. NO. 2859/MDS/2014 WHO HAS EXAMINED THE EVIDENCE AVAILABLE ON RECORD V IS-A-VIS THE EXPLANATIONS OF THE ASSESSEE AND PARTLY ALLOWED THE APPEAL AND WE UPHOL D THE SAME. 9. IN THE RESULT, THE REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 9TH DAY OF NOVEM BER, 2016 AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER SD/ SD/ SD/ SD/ - -- - ( (( ( . . . . ) )) ) (G. PAVAN KUMAR) /JUDICIAL MEMBER /CHENNAI, /DATED: 09TH NOVEMBER, 2016 JPV /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF.