M/s. 24/7 Customer Private Ltd., Bangalore V. CIT, Bangalore

ITA 295/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9412 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-07-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHA PRAKASH
• Assessee Lawyers: SEKAR
• Keywords: Business income; Depreciation; Earning of tax free income; Unabsorbed depreciation; Set aside
• Section: 80HHC; 10B; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.295/B/09 ASSESSMENT YEAR : 2004-05 24/7 CUSTOMER PRIVATE LTD., EMBASSY GOLF LINKS BUSINESS PARK, CHALLAGHATA VILLAGE, OFF. IMMEDIATE RING ROAD, VARTHUR HOBLI, BANGALORE SOUTH TALUK, BANGALORE 560 071. : APPELLANT VS. THE COMMISSIONER OF INCOME-TAX, BANGALORE. : RESPONDENT APPELLANT BY : SHRI SEKAR RESPONDENT BY : SHRI HARSHA PRAKASH O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AGGRIEVED BY THE ORDER OF THE CIT, BANGALORE-I, U/S 263 OF THE ACT, THE ASSESSEE COMPANY 24/7 CUSTOMER PRIVATE LIMITE D HAS PREFERRED THIS APPEAL FOR THE ASSESSMENT YEAR [AY] 2004-05. 2. THE ASSESSEE COMPANY HAS RAISED THREE GROUNDS OF APPEAL IN AN ELABORATE AND EXHAUSTIVE MANNER. ON A PERUSAL, TH E ESSENCE AND THE GRIEVANCE OF THE ASSESSEE COMPANY IS CONFINED TO TH AT, THE ERRONEOUS SET ITA NO.295/B/09 PAGE 2 OF 14 OFF OF LOSSES OF NON 10A UNITS AGAINST PROFITS OF T HE 10A UNIT BEFORE ARRIVING AT THE DEDUCTION U/S 10A OF THE ACT. 3. THE ASSESSMENT WAS ORIGINALLY CONCLUDED U/S 143( 3) OF THE ACT ON 28/12/2006. ON A SCRUTINY OF THE ASSESSMENT ORDER IN QUESTION, THE LD. CIT, BANGALORE-I WAS OF THE OPINION THAT AS PER THE PROVISIONS OF S. 10A OF THE ACT, DEDUCTION WAS ALLOWABLE FROM THE TOTAL INC OME OF THE ASSESSEE. HOWEVER, THE AO, WHILE PASSING THE ASSESSMENT ORDER , HAD WRONGLY ALLOWED DEDUCTION U/S 10A WITHOUT SETTING OFF OF TH E UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINESS LOSSES OF EARLIER YEARS, AS REQUIRED UNDER THE LAW. THE CIT WAS OF THE FURTHE R OPINION THAT THE AO HAD ALLOWED THE DEDUCTION U/S 10A WITHOUT PROPER AP PLICATION OF MIND WHICH IN HIS VIEW, THE IMPUGNED ORDER OF THE AO WAS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF S .263 OF THE ACT. ACCORDINGLY, THE CIT HAD CALLED FOR THE OBJECTIONS OF THE ASSESSEE COMPANY, IF ANY, FOR HIS PROPOSAL U/S 263 OF THE AC T. 4. THE OBJECTIONS OF THE ASSESSEE COMPANY ARE SUMMA RIZED AS UNDER: (A) DURING THE PREVIOUS YEAR, THE ASSESSEE HAD TWO STPI UNITS ONE AT BANGALORE AND THE OTHER AT HYDERABAD AND AS THE HYDERABAD UNIT HAD INCURRED LOSSES DURING THE YEAR, THE ASSESSEE HAD OPTED OUT OF 10A FOR HYDERABAD UNDERTA KING BY FILING A DECLARATION U/S 10A(8) THAT THE PROVISIONS OF S.10A WOULD NOT APPLY TO THE STPI UNIT AT HYDERABAD. DEC LARATION U/S 10A (8) WAS MADE UNDER THE CONDITION THAT THE UNDERTAKING WILL BE ENTITLED TO THE CLAIM U/S 10A I N THOSE YEARS WHEN TAXABLE INCOME ARISES. AS REGARDS THE S ET OFF OF THE BROUGHT FORWARD BUSINESS LOSSES AGAINST THE PRO FITS FOR THE AY 04-05, FOR THE AYS 01-02 AND 02-03, THE BANG ALORE UNIT HAD OPTED OUT 10A AND WAS ASSESSED UNDER THE N ORMAL PROVISIONS OF THE ACT AND IN THE SAID YEARS, THE AS SESSEE HAD BUSINESS LOSSES/UNABSORBED DEPRECIATION WHICH WERE CARRIED ITA NO.295/B/09 PAGE 3 OF 14 FORWARD, THAT THE BANGALORE UNIT CLAIMED EXEMPTION U/S 10A FOR THE FIRST TIME FOR THE AY 03-04, THAT THE BROUG HT FORWARD LOSSES FOR THE EARLIER YEARS WHERE THE UNDERTAKING HAD NOT CLAIMED EXEMPTION U/S 10A DO NOT ACQUIRE THE CHARAC TER OF BUSINESS LOSS OF THE UNDERTAKING; (B) THAT A 10A DIVISION IS A SEPARATE UNDERTAKING WHICH IS A 100% EXPORT ORIENTED UNDERTAKING ENGAGED IN AN ELIG IBLE BUSINESS, IS REGISTERED UNDER THE SOFTWARE TECHNOLO GY PARKS SCHEME OF THE GOI AND ELIGIBLE U/S 10A FOR DEDUCTIO N/NON- INCLUSION IN THE TOTAL INCOME, THAT U/S 10A, A DEDU CTION IS AVAILABLE TO AN UNDERTAKING IN RESPECT OF THE PROFI TS AND GAINS DERIVED BY THE UNDERTAKING FOR EXPORT OF ARTI CLES OF THINGS OR COMPUTER SOFTWARE AND THE LOGICAL STEPS I NVOLVED WERE AS UNDER: (I) THE COMPUTATION OF THE PROFITS AND GAINS DERIVED BY THE UNDERTAKING; (II) DETERMINATION OF THE EXEMPTION U/S 10A OF THE ACT; (III) GIVING EFFECT TO THE EXEMPTION; & (IV) COMPUTATION OF THE BALANCE BUSINESS INCOME AND TAXA BLE INCOME. (C ) S.10A WAS PLACED UNDER CH. III OF THE ACT WHICH DEALS WITH INCOME WHICH DO NOT FORM PART OF TOTAL INCOME, WHI LE DEDUCTION FROM GROSS TOTAL INCOME IS PLACED UNDER C H.VIA. IN THIS CONNECTION, A REFERENCE IS MADE TO THE P ROVISIONS OF S.80A(1) WHICH STATES THAT IN COMPUTING THE TOTA L INCOME THERE SHALL BE ALLOWED A DEDUCTION FROM THE GROSS T OTAL INCOME AND THE PRINCIPLE BEHIND THE EXCLUSION OR DE DUCTION WAS EXPLAINED BY THE APEX COURTS FIN DING REPORTED IN AIR 1957; THAT THE WORD DEDUCTION EITHER IN SUB-S ECTION (1) OF SUB-SECTION (5) S.10A WOULD NOT CHANGE THE OBJEC T OF S.10A IN CH.III AND, THEREFORE, IT SHOULD BE CONSTRUED AS AN EXEMPTION PROVISION AND NOT A DEDUCTION PROVISION. IN THE CASE OF S.10A(1), AS AMENDED BY THE FINANCE ACT, 20 00, THE WORDINGS USED ARE DEDUCTIONALLOWED FROM THE TOTA L INCOME, THAT BY COMPARING THE WORDINGS USED IN S.10(1) TO S.10(36) AND S.10A(1) PRIOR AND POST AMENDMENT, THE CONCLUSION CAN BE DRAWN THAT UNDER T HE PRESENT PROVISIONS OF S.10A, THE PROFITS/LOSSES ENT ER INTO TOTAL INCOME AND GETS DEDUCTED AT SOURCE. RELIANCE WAS PLACED ON THE FOLLOWING FINDINGS ITA NO.295/B/09 PAGE 4 OF 14 (I) ACIT V. YOKOGAWA INDIA LTD. ITAT, BANGALORE BENCH ; (II) ITO V. SCT SOFTWARE SOLUTIONS (INDIA) PVT. LTD. ITAT, BANGALORE BENCH; (III) NOTIFICATION NO.SO 3231 DT: 29/9/1987 CBDT WHICH WAS RELIED ON BY THE BANGALORE BENCH OF ITAT IN ITO V. SCT SOFTWARE SOLUTIONS (INDIA) PVT. LTD. (IV) NOUS INFO SYSTEMS PVT. LTD. V. ITO ITAT, BANGALORE BENCH (IV) ITO V. TCS BUSINESS TRANSFORMATION SOLUTIONS LTD. [PRESENTLY TCS] 4.1 AFTER ELABORATELY QUOTING THE SECTIONS 14A., 70 , 71, IT WAS CONTENDED THAT S.10A IS AN EXEMPT PROVISION, EVEN I IT WAS AS SUMED THAT S.10A WAS A DEDUCTION PROVISION AND NOT AN EXEMPTION PROVISION, THE DEDUCTION WAS REQUIRED TO BE DONE AT SOURCE FROM THE TOTAL INCOME AND NOT AFTER COMPUTING THE GROSS TOTAL INCOME, THAT THE METHOD O F COMPUTATION ADOPTED BY THE ASSESSEE COMPANY WAS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THAT THE ASSESSEE HAD CORRECTLY CONSIDERED THE APPROPRIATE PROPORTION OF THE PROFIT/GAIN OF S.10A UNDERTAKING IN THE TOTA L INCOME, THAT IN RESPECT OF THE PROFITS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTI ON U/S 10A, THE DEDUCTION WAS TO BE ARRIVED AT WITHOUT SETTING OFF O THE LOSS OF THE NON STPI UNIT WITH THE PROFIT OF THE STPI UNIT AND IT WAS POINTED OUT THAT ONCE AN UNDERTAKING OPTS OUT OF THE S.10A AND CHOOSES TO BE ASSESSED UN DER NORMAL PROVISIONS, IT PARTAKES THE CHARACTER OF THE NON-10A UNDERTAKIN G; 4.2 THE TERM PROFITS AND GAINS HAD NOT BEEN DEFI NED IN S.10A AND IT WAS S.29 WHICH PROVIDES THAT THE PROFITS AND GAINS OF B USINESS OR PROFESSION REFERRED TO U/S 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF S.30 TO 43D, THAT THERE IS NO REFERENCE TO SUCH DEF INITION IN S.10A AND S.10A DOES NOT HAVE SIMILAR PROVISIONS LIKE S.80HHC WHICH PROVIDES THAT THE TERM PROFITS AND GAINS OF BUSINESS OR PROFESSION MEANS PROFITS OR GAINS OF ITA NO.295/B/09 PAGE 5 OF 14 BUSINESS AS COMPUTED UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION AFTER SETTING OFF UNABSORBED DEPRECIATI ON AND LOSSES, THAT THE TERM PROFITS AND GAINS SHOULD BE UNDERSTOOD AS UN DERSTOOD UNDER NORMAL ACCOUNTING AND COMMERCIAL PARLANCE WHICH SHOULD MEA N THAT THE TERM PROFITS AND GAINS DERIVED BY AN UNDERTAKING SHOUL D BE CONSTRUED AS PROFITS AND GAINS OF AN UNDERTAKING AS AT THE END OF THE YE AR IN WHICH DEDUCTION IS CLAIMED FROM THE ACTIVITY OF THE SAID UNDERTAKING, THAT TAX HOLIDAY BENEFIT U/S 10A OF THE ACT IS AVAILABLE IN RESPECT OF EACH UNDE RTAKING WHICH SATISFIES THE ELIGIBILITY CONDITION AND THAT THE QUANTUM OF T AX HOLIDAY BENEFITS HAS TO BE CALCULATED SEPARATELY FOR EACH OF THE ELIGIBLE U NDERTAKING. 5. AFTER DULY CONSIDERING THE SUBMISSIONS OF THE AS SESSEE COMPANY, THE LD. CIT HAD CONCLUDED THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REASONS SET-OUT AS UNDER: (I) THE SUBMISSIONS OF THE ASSESSEE WERE ESSENTIALLY BA SED ON THE ASSESSEES CLAIM THAT S.10A WAS AN EXEMPTION SECTIO N AND NOT A DEDUCTION SECTION AND THE ASSESSEES CLAIM IN THIS REGARD WAS CLEARLY NOT IN ACCORDANCE WITH THE AMENDED PROVISIONS OF S. 10A INSERTED BY THE FINANCE ACT 2000 W.E.F. 1/4/2001; (II) THE SEQUENCE OF STEPS INVOLVED IN HE COMPUTATION OF THE DEDUCTION U/S 10A AND THE ALLOWING OF THE BENEFIT U/S 10A AS AN E XEMPTION AND NOT AS A DEDUCTION AS CLAIMED BY THE ASSESSEE WAS CLEAR LY NOT IN ACCORDANCE WITH THE AMENDED PROVISIONS OF S.10A; (III) THE BOARDS CIRCULAR AND THE FINDING OF THE ITAT, B ANGALORE BENCH IN THE CASE OF YOKOGAWA INDIA LTD WAS IN THE CONTEXT O F THE EARLIER PROVISIONS OF S.10A AND HAD NO RELEVANCE IN SO FAR AS THE AMENDED PROVISIONS OF S.10A WERE CONCERNED. THE PROVISIONS OF S.10A WHICH AUTHORIZE THE AO TO DISALLOW ANY EXPENSES CLAIMED AGAINST EXEMPT INCOME HAVE NO RELEVANCE IN SO FAR AS THE APPLICATI ON OF THE PROVISIONS OF S.70 & 71 ARE CONCERNED WHILE DETERMI NING THE TOTAL INCOME FROM WHICH THE DEDUCTION U/S 10A WAS REQUIRE D TO BE ALLOWED; ITA NO.295/B/09 PAGE 6 OF 14 (IV) THE ASSESSEE HAD FAILED TO APPRECIATE THE BASIC CHA NGE IN THE PROVISIONS OF S.10A BROUGHT ABOUT BY THE FINANCE AC T 2000 W.E.F. 1/4/2001. THERE IS AN INBUILT RESTRICTION IN S.10A ITSELF THAT THE DEDUCTION U/S 10A IS ALLOWABLE AS A DEDUCTION FROM THE TOTAL INCOME AND THE CH. IN WHICH THE RELEVANT SECTION AP PEARS IN NOT RELEVANT IN THIS REGARD. THOUGH THE BUSINESS PROFI TS ELIGIBLE FOR DEDUCTION U/S 10B IS THAT OF THE UNDERTAKING ONLY A ND HAS TO BE COMPUTED IN ACCORDANCE WITH SUB-SECTION4, THE DEDUC TION SO COMPUTED HAS TO BE FINALLY ALLOWED FROM THE TOTAL I NCOME OF THE ASSESSEE. THIS IMPLIES THAT DEDUCTION U/S 10A TO BE ALLOWED FOR A PARTICULAR AY CANNOT EXCEED THE TOTAL INCOME OF THE ASSESSEE FOR THE RELEVANT AY. AS PER S.2(45), TOTAL INCOME MEANS, T HE TOTAL INCOME REFERRED TO U/S 5 COMPUTED IN THE MANNER LAID-DOWN IN THE ACT. AS THE TOTAL INCOME FOR A PARTICULAR AY IS COMPUTED AFTER AGGREGATION OF THE PROFITS/LOSSES OF THE VARIOUS UNITS AND AFTER SET O FF OF THE BROUGHT FORWARD OF BUSINESS LOSS/UNABSORBED DEPRECIATION RE LATING TO EARLIER AYS AGAINST THE INCOME FOR THE RELEVANT AY, IT NEC ESSARILY FOLLOWS THAT THE DEDUCTION ALLOWABLE U/S 10A CAN BE ALLOWED ONLY TO THE EXTENT OF THE ASSESSEES TOTAL INCOME COMPUTED AFTE R SETTING OFF THE LOSSES OF THE OTHER UNITS AND THE BROUGHT FORWARD B USINESS LOSS/UNABSORBED DEPRECIATION RELATING TO THE EARLIE R AYS. IF THE RELEVANT PROVISIONS OF THE ACT ARE VIEWED IN THE RI GHT PERSPECTIVE AS MENTIONED ABOVE, THE DISTINCTION POINTED OUT BY THE ASSESSEE BETWEEN THE MEANING OF THE TERM PROFITS AND GAINS AS APPEARING IN S.10B AND PROFITS AND GAINS OF BUSINESS IN THE CONT EXT OF SECTION 80HHC HAS NO RELEVANCE; (V) WITH REGARD TO THE FORMAT OF THE RETURN OF INCOME ( FORM-I), IT IS NECESSARY TO MENTION THAT THE DEDUCTION COMPUTED AS PER THE PROVISIONS OF THE ACT WHICH IS FINALLY ALLOWABLE U/ S 10A AS A DEDUCTION FROM THE TOTAL INCOME, HAS TO BE MENTIONE D AGAINST ITEM NO.18 OF SCHEDULE B PROFITS AND GAINS OF BUSINESS OR PROFESSION OF THE RETURN FORM. 6. AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP WITH THE PRESENT APPEAL. THE LD. A RS ARGUMENT WAS REVOLVED AROUND THE FOLLOWING POINTS: THE LD.CIT HAD ERRED (I) IN DIRECTING THE AO TO SET OFF THE CURRENT YEAR LOS SES OF THE 10A UNITS WHICH HAD OPTED OUT OF PROVISIONS OF S. 10A B Y FILING A DECLARATION U/S 10A(8) AGAINST THE PROFIT OF THE 10 A UNIT TO ARRIVE AT THE PROFITS OF THE BUSINESS ELIGIBLE FOR TAX HOL IDAY U/S 10A OF THE ACT; ITA NO.295/B/09 PAGE 7 OF 14 (II) IN NOT APPRECIATING THAT WHERE THE ASSESSEE COMPANY HAD OPTED OUT OF PROVISIONS OF S.10A, THE INCOME PARTAKES THE NATURE OF NON- 10A INCOME AND THE LOSSES FROM THE SAME SHOULD NOT BE ADJUSTED WITH 10A PROFITS; (III) IN CONCURRING A VIEW THAT THE FINDING IN THE CASE O F YOKOGAWA INDIA LIMITED 13 SOT 470 RELIED UPON BY THE ASSES SEE COMPANY WAS IN THE CONTEXT OF THE EARLIER PROVISIONS OF S.1 0A OF THE ACT AND DOES NOT HAVE ANY RELEVANCE IN SO FAR AS THE AMENDE D PROVISIONS OF THE ACT WERE CONCERNED; - THE PROVISIONS OF S.10A(6)(II) HAVE BEEN AMENDED W. E.F. 1/4/2001 I.E., AY 2001-02. THE ORDER ISSUED BY THE HONBLE ITAT, BANGALORE BENCH IN THE CASE OF YOKOGAWA INDIA LTD. PERTAINS TO AY 02-03. THE CIT HAD FAILED TO APPRECI ATE THAT THE FINDING IN THE CASE OF YOKOGAWA INDIA LTD. WAS ALSO BASED ON THE AMENDED PROVISIONS OF S.10A AND WOULD IPSO FACT O APPLY TO THE ASSESSEE COMPANYS CASE; - THE RECENT DECISIONS IN THE CASES OF NOUS INFO SYST EMS [ITA NOS.606 & 607/B/08] AND TCS BTS [ITA NO:590/B/08] W HICH PERTAIN TO AY 2005-06 & 03-04 RESPECTIVELY; (IV) IN STATING THAT THOUGH THE BUSINESS PROFITS ELIGI BLE FOR DEDUCTION U/S 10A WERE THAT OF THE UNDER TAKING ONLY AND HAVE TO BE COMPUTED IN ACCORDANCE WITH SUB-SECTION 4, THE DEDUCTION SO COMPUTED HAS TO BE FINALLY ALLOWED FRO M THE TOTAL INCOME OF THE ASSESSEE; (V) IN NOT APPRECIATING THE FACT THAT THE DEDUCTION U/S 10A OF THE ACT WAS COMPUTED BASED ON THE ELIGIBLE PROFITS OF THE U NDERTAKING AND NOT OF THE ASSESSEE. FURTHER, THE INCOME CONTEMPLA TED IN CH.III OF THE ACT IS NOT ONLY TO BE EXCLUDED FROM THE TOTAL I NCOME AT THE SOURCE ITSELF BUT ALSO CANNOT BE CONSIDERED AS PART OF THE TAXABLE INCOME; (VI) IN DIRECTING THE AO TO SET OFF THE BROUGHT FORWARD LOSSES WHILE ARRIVING AT THE BUSINESS PROFIT ELIGIBLE FOR DEDUCT ION U/S 10A OF THE ACT; (VII) IN APPRECIATING THE FACT THAT THE BROUGHT FORWARD LOSSES PROPOSED TO SET OFF AGAINST PROFITS ELIGIBLE FOR DEDUCTION U /S 10A OF THE ACT, PERTAIN TO THE AYS FOR WHICH THE ASSESSEE COMPANY H AD FILED DECLARATIONS U/S 10A(8). AS SUCH, THE SAID LOSSES WERE DEED TO BE TREATED AS NON10A LOSSES WHICH CANNOT BE SET OFF AG AINST THE 10A PROFITS WHILE COMPUTING DEDUCTION U/S 10A OF THE AC T; & ITA NO.295/B/09 PAGE 8 OF 14 (VIII) RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: NAVIN BHARAT INDUSTRIES LTD. V. CIT 90 ITD 1 BOM MINDTREE CONSULTING PVT LTD.V. ACIT ITA NO.606/B/2005 ACIT V. YOKOGAWA INDIA LTD. -1 3 SOT 470 T BANG ITO V. SCT SOFTWARE SOLUTIONS (INDIA) PVT. LTD. IN ITA NO:1014/BANG/2004 DATED: 19/6/2006 TCS BTS INDIA PRIVATE LTD. V. ACIT ITA NO:590/B/08/2003-04 NOUS INFOSYSTEMS (P ) LTD. V. IT O ITA NO:1042/B/07. 6.1 ON THE OTHER HAND, THE LD. D R HAD VEHEMENTLY ARGUE D THAT THE ASSESSING OFFICER HAD ALLOWED THE DEDUCTION U/S 10A WITHOUT PROPER APPLICATION OF MIND TO THE MATTER WITH REFERENCE TO THE RELEVANT PROVISIONS OF THE ACT. THE LD.CIT, AFTER PERUSING THE IMPUGNED O RDER, HAS HELD THAT THE ORDER PASSED BY THE AO TO BE ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE AND THUS SET ASIDE THE ASSESSMENT ORDER THE REBY DIRECTING THE AO TO COMPUTE THE DEDUCTION ALLOWABLE U/S 10A AFTER SE TTING OFF THE LOSSES OF THE OTHER UNITS AND THE BROUGHT FORWARD BUSINESS LO SS/UNABSORBED DEPRECIATION RELATING TO EARLIER ASSESSMENT YEARS. AS THE LD.CIT HAD ACTED IN A JUDICIOUS MANNER, THE LD. D.R PLEADED THAT THE IMPUGNED ORDER REQUIRES TO BE UPHELD. TO SUBSTANTIATE THE ACTION OF THE CIT, THE LD.D R HAS PLACED STRONG RELIANCE ON THE FOLLOWING CASE LA WS: (I) CIT V. HIMATASINGIKE SEIDE LTD. (2006) 286 ITR 0255 (KAR); (II) SWORD GLOBAL (I) P.LTD. V. ITO (2008) 306 ITR (A.T) 0286; & (III) LASON INDIA P.LTD. V. ITO (2008) 301 ITR (A.T) 0306 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND ALSO CRITICALLY PERUSED THE RELEVANT RECORDS. ITA NO.295/B/09 PAGE 9 OF 14 7.1. THE ASSESSEE COMPANY HAS PLACED RELIANCE IN A NUMBER OF CASE LAWS TO STRENGTHEN ITS ARGUMENT, NOTABLY (I) IN THE CASE OF KPIT CUMMINS INFOSYSTEMS(BANGAL ORE) (P) LTD. V. ACIT REPORTED IN (2008) 26 SOT 529 (BANG) WHEREIN THE HO NBLE ITAT, BANGALORE BENCH A HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE. THE BRIEF FACTS OF THE ISSUE BEFORE THE HONBLE TRIBUNA L WAS THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10A WITHOUT RED UCING THE UNABSORBED DEPRECIATION ALLOWANCE FROM THE PROFITS OF THE BUSI NESS. THE AO, HOWEVER, ALLOWED THE DEDUCTION UNDER SECTION 10A AFTER REDUC ING THE UNABSORBED DEPRECIATION ALLOWANCE FROM THE PROFITS OF THE BUSI NESS. BESIDES, TELECOMMUNICATION CHARGES WERE ALSO REDUCED FROM TH E EXPORT TURNOVER, WHILE CALCULATING DEDUCTION UNDER SECTION 10A. ON APPEAL, THE COMMISSIONER (APPEALS) CONFIRMED THE ORDER OF THE A O. ON APPEAL, THE HONBLE TRIBUNAL, AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ALSO DELIBERATING THE ISSUE AT LENGTH, HAS OBSE RVED THAT 11. UNDER SECTION 10A(1), THE DEDUCTION SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. INSTRUCTION NO. 18 IN THE INSTRUCTION IN FILLING FORM NO.1 READS AS FOLLOWS ITEM NO.18; SECTIONS 10A AND 10C PERMIT THE CLAIMING OF DEDUCTI ON FROM INCOMES OF SOME SPECIFIED BUSINESSES. THIS ITEM IS MEANT TO ELIMINATE SUCH INCOME(S) FROM THE COMPUTATION OF PR OFITS/GAINS. THE INSTRUCTIONS ARE CLEAR THAT SECTION 10A WOULD O PERATE TO ELIMINATE THE RELEVANT INCOME FROM THE COMPUTATION OF PROFITS AND GAINS. IN THE CONTEXT OF THE PURPOSE, OBJECT AND T HE PLACEMENT OF THE SECTION IN CHAPTER III, IT WOULD BE APPROPRIATE TO REPHRASE SUB- SECTION (1) AS FOLLOWS: THE DEDUCTION SHALL BE ALL OWED WHILE COMPUTING OR ARRIVING AT THE TOTAL INCOME OF THE AS SESSEE. WHEN SECTION 10A IS CONSIDERED AS EXEMPTION SECTION, THE ELIGIBLE PROFITS WOULD BE THE COMMERCIAL PROFITS WHICH WOULD NOT ENT ER THE STREAM ITA NO.295/B/09 PAGE 10 OF 14 OF COMPUTATION OF TOTAL INCOME AT ALL. THE ELIGIBL E COMMERCIAL PROFITS WOULD BE EXEMPT AT THE SOURCE ITSELF. THUS , THERE WOULD BE NO OCCASION TO REDUCE THE ELIGIBLE PROFITS BY THE U NABSORBED DEPRECIATION ALLOWANCE AND BUSINESS LOSS OF OTHER U NITS. THE LOSSES SO SUFFERED IN OTHER UNITS OR OTHER BUSINESS OF THE ASSESSEE WOULD BE SET OFF AND CARRIED FORWARD ACCORDING TO THE PROVIS IONS CONTAINED IN CHAPTER VI AGGREGATION OF INCOME AND SET OFF AND CARRY FORWARD OF LOSS READ WITH SECTION 10A(6) AND CIRCULAR NO.7 OF 2003. IF SECTION 10A IS REGARDED AS HAVING UNDERGONE A METAM ORPHOSIS FROM AN EXEMPTION TO A DEDUCTION SECTION, THE SAME WOULD HAVE TO BE GIVEN EFFECT TO AT THE EARLIEST AFTER THE COMPUTATI ON OF INCOME, IN ACCORDANCE WITH THE PROVISIONS OF SS.28 TO 44D. 21. HAVING ENTERED THE COMPUTATION PROCESS ALL OV ER AGAIN, SECTION 32(2) CREATES A FICTION THAT THE UNABSORBED DEPRECIATION IS TO BE REGARDED AS A PART OF CURRENT YEARS DEPRECIATIO N. THE PURPOSE, AS ALREADY NOTED ABOVE, IN THE WORDING OF THE SUPRE ME COURT, IS TO ENABLE SUCH LOSS BEING SET OFF NOT ONLY AGAINST BUS INESS INCOMES BUT ALSO INCOME UNDER OTHER HEADS. EVEN UNDER THE ITR FORM 6, RETURN OF INCOME AND FRINGE BENEFITS FOR COMPANIES, THE TO TAL OF DEDUCTIONS UNDER SECTIONS 10A, 10AA, 10B AND 10BA ARE REPORTED IN COL.35(V) OF PART A OF SCHEDULE BP. THE BUSINESS INCOME AFTE R REDUCING THE ABOVE DEDUCTIONS IS REPORTED IN COL.36 OF PART A OF SCHEDULE BP. SCHEDULE CYLA AND BFLA PERTAINS TO DETAILS OF INCOM E AFTER SET OFF OF CURRENT YEAR LOSSES AND BROUGHT FORWARD LOSSES ( INCLUDING B/F DEPRECIATION ALLOWANCE)OF EARLIER YEARS RESPECTIVEL Y. IN RESPECT OF LOSSES TO BE SET OFF AGAINST THE BUSINESS INCOME TH E STARTING POINT IS THE INCOME FROM BUSINESS WHICH REMAINS AFTER ALLOWI NG DEDUCTIONS UNDER SECTIONS 10A, 10AA, 10B AND 10BA. THUS, THE FORMAT PRESCRIBED BY THE CBDT THROUGH ITS CIRCULARS AND NO TIFICATIONS ALSO PROVIDES THAT THE UNABSORBED DEPRECIATION ALLOWANCE AND BROUGHT FORWARD BUSINESS LOSS SHOULD NOT BE INCLUDED IN THE COMPUTATION OF DEDUCTION UNDER SECTION 10A. THE FORMAT OF RETURN OF INCOME PRESCRIBED BY CBDT THROUGH ITS CIRCULARS AND NOTIFI CATIONS BEING BINDING ON THE REVENUE AUTHORITIES, THEY SHOULD NOT BE ALLOWED TO TAKE A CONTRARY STAND. 22. THE LOWER AUTHORITIES IN SUPPORT OF THEIR STAND HAVE RELIED ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF HIM ATASINGIKA SEIDE LTD. (SUPRA). THE KARNATAKA HIGH COURT HELD THAT UNABSORBED DEPRECIATION AND INVESTMENT ALLOWANCE HAVE TO BE SE T OFF AGAINST INCOME OF ELIGIBLE UNITS BEFORE THE COMPUTATION OF EXEMPTION UNDER SECTION 10B. IT WAS ALSO HELD THAT THE INCOME ELIG IBLE FOR EXEMPTION HAS TO BE COMPUTED AS PER THE PROVISIONS OF THE INC OME-TAX ACT AND NOT ON A COMMERCIAL BASIS. THE CASE BEFORE THE KA RNATAKA HIGH ITA NO.295/B/09 PAGE 11 OF 14 COURT PERTAINED TO THE ASSESSMENT YEAR 1994-95. SE CTION 10B AT THE RELEVANT TIME EXCLUDED CERTAIN INCOMES IN THE PROCE SS OF ARRIVING AT THE TOTAL INCOME. SECTION 10B AT THE RELEVANT TIME OPERATED AS AN EXEMPTION SECTION. THE TERMINOLOGY OF SECTION 10B HAS NOT BEEN CHANGED. THE SECTION CURRENTLY PROVIDES FOR A DEDU CTION FROM TOTAL INCOME. THIS CHANGE WAS BROUGHT ABOUT WHEN SECTION 10B WAS SUBSTITUTED. THUS, THE DECISION OF THE KARNATAKA H IGH COURT HAVING RENDERED IN THE CONTEXT OF OLD SECTION 10B, CANNOT BE MADE APPLICABLE TO THE PRESENT CASE. ALSO THE VARIOUS C ITATIONS REFERRED AND RELIED BY THE HONBLE KARNATAKA HIGH COURT PERT AIN TO DEDUCTIONS CONFERRED UNDER CHAPTER VI-A OF THE INCO ME-TAX ACT, 1961. SECTION 10A IS PLACED IN CHAPTER III INCOM ES DO NOT FORM PART OF TOTAL INCOME AND NOT IN CHAPTER VI-A. THE JUDICIAL PRINCIPLES RENDERED IN THE CONTEXT OF SECTIONS CONF ERRING DEDUCTIONS UNDER CHAPTER VI-A CANNOT BE CONSIDERED WHILE ALLOW ING DEDUCTION UNDER SECTION 10A. THUS, THE DECISION IN HIMATASI NGIKA SEIDE LTD.S CASE (SUPRA) BEING RENDERED, RELYING ON CASE LAWS P ERTAINING TO CHAPTER VI-A DEDUCTIONS AND WITHOUT CONSIDERING THE VARIOUS IMPLICATIONS OF SECTION 10A AS HAVE BEEN DETAILED H EREINABOVE CANNOT BE MADE APPLICABLE TO THE PRESENT CASE. THE DECISION DID NOT TAKE INTO CONSIDERATION THE MATTER OF COMPUTATION O F TOTAL INCOME AS PROVIDED BY THE CBDT IN THE CASE OF SIEMENS INFORMA TION SYSTEM LTD. V. ASST.CIT (2007) 293 ITR 548 (BOM) AND SIEME NS INFORMATION SYSTEM LTD.V. ASSTT.CIT (2007) 295 ITR 333 (BOM) HA S IMPLIEDLY DOUBTED THE CORRECTNESS OF THE AFORESAID DECISION. FURTHER, THE AFORESAID DECISION DOES NOT FOLLOW THE EARLIER DECI SION OF THE SAME COURT IN CIT V. H.M.T.LTD., (1993) 199 ITR 235 (KAR ). THE DECISION AS REPORTED DOES NOT CONTAIN REFERENCE TO ANY ELABORATE ARGUMENTS. THE DECISION IS DISTINGUISHABLE. 23. THEREFORE, THE PROCESS ASCERTAINING THE TOTAL INCOME WHERE SECTION 10A DEDUCTION IS INVOLVED, WOULD COMPRISE B Y COMPUTING PROFITS AND GAINS DERIVED BY THE UNIT AND IN THIS P ROCESS THE UNABSORBED DEPRECIATION WHICH IS NOT PART OF THE DE PRECIATION OF THE IMPUGNED ASSESSMENT YEAR IS NOT TO BE FACTORED, TH EN THE DEDUCTION AS COMPUTED WHICH WILL BE AVAILABLE FOR CARRYING OU T SET OFF OF UNABSORBED DEPRECIATION. SECTION 10A DEDUCTION IS TO BE DONE UNDER SECTIONS 28 TO 44B BUT SEPARATELY AND INDEPEN DENT OF COMPUTATION OF PROFITS AND GAINS FROM ELIGIBLE BUSI NESS AND WITHOUT FACTORING UNABSORBED DEPRECIATION. (II ) IN THE CASE OF GE INDIA EXPORTS PRIVATE LIMITED V. DCIT [ (2009) TIOL 121 ITAT BANG], THE HONBLE TRIBUNAL, BANGALORE BEN CH C, FOLLOWING THE DECISIONS OF HONBLE TRIBUNAL IN THE CASE OF ACIT V . WEBSPECTRUM SOFTWARE ITA NO.295/B/09 PAGE 12 OF 14 (P) LTD. [ITA NO:87(BANG)/06 DATED:26/6/200; IN THE CASE OF ACIT V. YOKOGAWA INDIA LIMITED [2006-TIOL-301-ITAT-BANG] A ND IN THE CASE OF NOUS INFOSYSTEMS PRIVATE LTD. V. ACIT [2009-TIOL-14 -ITAT-BANG] HAS HELD THAT, DEDUCTION TO BE ALLOWED U/S 10A OF THE ACT WITHOUT SETTING OFF OF BROUGHT FORWARD AND CURRENT YEARS LOSSES OF NON-10 A UNIT. (III) YET AN ANOTHER FINDING, THE HONBLE TRIBUNAL IN THE CASE OF TATA CONSULTANCY SERVICES LTD. (FORMERLY TCS BUSINESS TR ANSFORMATION SOLUTIONS LTD) V. ACIT [ITA NO.590/BANG/08 DATED: 1 4/11/2008] AFTER ANALYZING THE ISSUE IN A COMPREHENSIVE AND IN AN EL ABORATIVE MANNER, EXTENSIVELY QUOTING THE FINDINGS OF THE HONBLE TRI BUNAL(S) IN THE CASES OF (I) NOUS INFOSYSTEMS PVT. LTD. V. ITO; (II)ACIT V. YOKOGAWA INDIA LTD.; (III) SCT SOFTWARE SOLUTIONS (I) PVT. LTD. AND ALSO REFERRING TO THE DECISIONS OF JURISDICTIONAL HIGH COURT IN THE CASE OF SHANKAR CONSTRUCTION COMPANY V. CIT REPORTED IN 189 ITR 463, ITAT, BANGALORE BENCHS DECISION, IN THE CASE OF I GATE GLOBAL SOLUTIONS LTD. V. ACIT REPORTED IN 11 2 TTJ 1002 AND THE HONBLE APEX COURTS RULING IN THE CASE OF MALABAR INDUSTRIAL CO., LTD. REPORTED IN 243 ITR 83 WITH REGARD TO THE EXERCISE OF POWER U/S 263 OF TH E ACT, HAD OBSERVED THAT - 21. THUS, WHEN THE ASSESSING OFFICER HAS TAKEN ONE OF THE POSSIBLE VIEWS THEN THE ORDER OF ASSESSING OFFICER CANNOT BE TERMED AS ERRONEOUS AND THE CIT WAS HAVING NO POWER TO CANCEL THAT ORDE R U/S 263 OF THE I.T. ACT.. 7.2. THE REVENUE HAS PLACED RELIANCE IN THE CASES O F (I) CIT V. HIMATASINGIKE SEIDE LTD. REPORTED IN (2006) 286 ITR 255 (KAR). THE HONBLE HIGH COURT HAS HELD THAT UNABSO RBED ITA NO.295/B/09 PAGE 13 OF 14 DEPRECIATION AND INVESTMENT ALLOWANCE HAVE TO BE SE T OFF AGAINST INCOME OF ELIGIBLE UNITS BEFORE THE COMPUTATION OF EXEMPTION U/S 10B. THE CASE BEFORE THE HONBLE COURT PERTAINED TO THE AY 94- 95. AS RIGHTLY POINTED OUT BY THE HONBLE TRIBUNAL IN THE CASE OF KPIT CUMMINS INFOSYSTEMS (P.) LTD. V. ACIT REFERRED SUPRA, S.10B AT THE RELEVANT TIME EXCLUDED CERTAIN INCOMES IN THE PROCESS OF ARRIVING AT THE TOTAL INCOME. S.10B AT THE RELEV ANT TIME OPERATED AS AN EXEMPTION SECTION. THUS, WITH RESPECTS, WE A RE OF THE CONSIDERED VIEW THAT THE DECISION RENDERED IN THE C ONTEXT OF OLD S.10B, CANNOT BE MADE APPLICABLE TO THE PRESENT CAS E; & (II) LIKEWISE , THE CASE OF SWORD GLOBAL (I)P.LTD. V. ITO REPORTE D IN (2008) 306 ITR (A.T) 286 IS RATHER IDENTICAL TO THE ISSUE WHICH WAS BEFORE THE HONBLE HIGH COURT OF KARNATAKA R EFERRED SUPRA (I ). WITH RESPECTS, WE ARE OF THE OPINION THAT THIS CASE IS NOT DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAN D. 7.3 IN OVER ALL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE ISSUE AND RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON BLE TRIBUNAL CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OF FICER HAD ALLOWED THE DEDUCTION U/S 10A AFTER DUE VERIFICATION AND CONSID ERATION OF THE ISSUE AND THAT WHEN THE ASSESSING OFFICER HAD TAKEN ONE OF T HE POSSIBLE VIEWS THEN THE ORDER OF THE AO CANNOT BE TERMED AS ERRONEOUS A ND THE CIT WAS NOT HAVING POWER TO CANCEL THE ASSESSMENT ORDER U/S 263 OF THE ACT. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEE COMPANYS APPEAL IS ALLOWED . ITA NO.295/B/09 PAGE 14 OF 14 PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF AUGUST, 2009. SD/- SD/- (GEORGE GEORGE K.) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 7 TH AUGUST, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. DR, ITAT, BANGALORE. 5. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.