ACIT, New Delhi V. M/s. NIIT Technologies Ltd., New Delhi

ITA 3076/DEL/2012

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3013 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 20-04-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROHIT JAIN; TEJASVI JAIN
• Keywords: Business income; Depreciation; Opportunity of being heard; Additional evidence; Competent authority; Benefit of exemption; Unabsorbed depreciation
• Section: 142(1); 153A; 260A; 10B; 43D; 32; 139

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 3076/DEL/2012 ASSESSMENT YEAR: 2006-07 ACIT, CIRCLE 13(1), NEW DELHI. (APPELLANT) VS. M/S. NIIT TECHNOLOGIES LTD., C - 125, OKHLA INDL. AREA, PHASE-1, NEW DELHI. PAN: AAACN 0332P (RESPONDENT) C.O. NO. 318/DEL/2012 (IN ITA NO. 3076/DEL/2012) ASSESSMENT YEAR: 2006-07 M/S. NIIT TECHNOLOGIES LTD., C-125, OKHLA INDL. AREA, PHASE-1, NEW DELHI. (APPELLANT) VS. ACIT, CIRCLE 13(1), NEW DELHI. (RESPONDENT) REVENUE BY MS. RINKU SINGH, SR. DR ASSESSEE BY SH. ROHIT JAIN, ADVOCATE & MS. TEJASVI JAIN, ADVOCATE ORDER PER L.P. SAHU, A.M.: THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-XXXII, NEW DELHI DATED 04.04.2012 FOR THE ASSESSMENT YEAR 2006-07 ON THE FOLLOWING GROUND S : GROUNDS OF APPEAL: DATE OF HEARING 25.01.2019 DATE OF PRONOUNCEMENT 27.02.2019 ITA NO. 3076 & C.O. NO. 318/DEL/2012 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT ALL THE DIFFERENT UNITS OF THE ASSESSEE COMPANY ARE NOT OPERATING IN ISOLATION AS ALLEGED BY THE ASSESSEE, BUT AS DIFFERENCE BRANCHES OF THE SAME TREE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN NOT NOTING THE FACT THAT THE ASSESSEE IN MAINTAINING SINGLE BOOKS OF ACCOUNTS FOR ALL ITS UNITS, I.E. THOSE WHICH ARE COVERED BY DEDUCTION, AS WELL AS THOSE WHICH ARE NOT COVERED FOR DEDUCTION. IT IS NOT ONLY FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B THAT THE ASSESSEE HAS T RIED TO ALLOCATE THE EXPENSES BETWEEN THESE UNITS AND COMPUTE THEIR PROF ITS. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT RAISED THROU GH REMAND REPORT THAT INSPITE OF NUMBER OF OPPORTUNITIES PROVIDED TO THE ASSESSEE, THE ADDITIONAL EVIDENCES WERE FILED ONLY DURING THE APPELLATE PROC EEDINGS. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A)S STAND THAT INDEPENDENT BOOKS OF ACCOUNT ARE NOT REQ UIRED TO BE MAINTAINED UNDER THE PROVISIONS OF SECTION 10B OF THE IT ACT, I S NOT CORRECT SINCE THE LANGUAGE OF FORM 56G STARTS WITH I/WE HAVE EXAMINE D THE ACCOUNTS AND RECORDS WHICH MAKES IT CLEAR THAT THE ASSESSEE HA S TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS. THE ANNEXURE A TO FORM 56G ALS O REQUIRES THE DETAILS OF TOTAL PROFIT OF THE BUSINESS ETC. IN VIEW OF THE AF ORESAID FACTS, IT IS CLEAR THAT THE ASSESSEE WAS REQUIRED TO MAINTAIN SEPARATE BOOK S OF ACCOUNTS. 5. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CAS, THE LD. CIT(A) HAS ERRED NOT APPRECIATING THE FACT THAT THE ASSESS EE BY CLAIMING DEPRECIATION CONTRARY TO SECTION 32 HAS VIRTUALLY T AKEN EXEMPTION FROM PAYMENT OF TAX EVEN FOR OTHER BUSINESS AS WELL AS N ON BUSINESS INCOMES, WHICH SHOULD NOT BE ALLOWED. 6. WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IGNORING THE FACT THAT UNDER THE AM ENDED PROVISIONS EFFECTIVE FROM 01.04.2001, THE CLAIM U/S 10B HAS BE EN DECLARED AS DEDUCTION AND NOT EXEMPTION. SINCE PROFITS ARE REQUIRED TO BE COMPUTED AS PER THE PROVISIONS OF THE IT ACT, VIZ., SECTION 29 TO SECTIO N 43A, THIS INCLUDES SECTION 32(2). THEREFORE, ONE CANNOT EXCLUDE DEPRECIATION AL LOWANCE WHILE COMPUTING PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING. ITA NO. 3076 & C.O. NO. 318/DEL/2012 3 GROUNDS OF CROSS-OBJECTION: 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFI RMING THE ADDITION OF DEMERGER EXPENSES OF RS. 28,42,073 MADE BY THE ASSE SSING OFFICER WHILE COMPUTING PROFITS UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS. 1.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) (C IT (A)) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSEE ITSEL F HAS CONSIDERED A SUM OF RS.65,08,44,191/- AS INCOME FROM BUSINESS (BEFORE A LLOWING SET OFF OF UNABSORBED DEPRECIATION AND DEDUCTION UNDER SECTION 10B OF THE ACT), INSTEAD OF RS.64,80,02,118/- DECLARED BY THE ASSESS EE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 29.11.2006, DECLARING NIL INCOME AFTER ADJUSTMENT O F BROUGHT FORWARD UNABSORBED DEPRECIATION TO THE TUNE OF RS.2,01,54,6 17/-. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO T HE ASSESSEE. DURING THE YEAR THE ASSESSEE DERIVED INCOME UNDER THE HEAD BUSINESS AND PROFESSION, CAPITAL GAIN AND INCOME FROM OTHER SOURCES. INCOME DECLARED BY THE ASSESSEE UNDER VARIOUS HEADS SHOWN IN THE RETURN ARE AS UNDER : PROFIT AS PER P & L A/C 516,029,485 ADD ADJUSTMENT 8,456,058 TOTAL 561,513,421 ADD DEP AS PER P & 1 205,127,860 LESS DEP. AS PER I. T. ACT 121,857,096 TOTAL 650,844,191 LESS DEDUCTION U/S 10B 663,007,954 INCOME FROM BUSINESS (12,163,763) INCOME FROM CAPITAL GAIN SHORT TERM CAPITAL GAIN 1,04,31,946. LONG TERM CAPITAL LOSS TO BE CARRIED FORWARD 5,54,28,693 INCOME FROM OTHER SOURCES 2,18,80,434 GROSS TOTAL INCOME 2,01,54,617 ITA NO. 3076 & C.O. NO. 318/DEL/2012 4 LESS : UNABSORBED DEPRECIATION OF EARLIER YEARS 13,90,60,056 BALANCE UNABSORBED DEPRECIATION TO CARRIED FORWARD 11,89,05,439 REGARDING THE BROUGHT FORWARD UNABSORBED DEPRECIATI ON, THE FOLLOWING DETAILS WAS GIVEN IN THE RETURN FORM : THE ASSESSEE HAD CLAIMED UNABSORBED DEPRECIATION TO BE CARRIED FORWARD WHICH WAS EXAMINED FROM THE PREVIOUS YEARS RECORDS. THE RE WAS A DEMERGER AS PER SCHEME OF DEMERGER APPROVED BY HONBLE HIGH COURT V IDE ORDER DATED 18.05.2004. THE NOTE AS CONTAINED IN THE COMPUTATIO N OF ASSESSMENT YEAR 2004- 05 READ AS UNDER : INCOME FROM BUSINESS PROFIT BEFORE DEPRECIATION AND CLAIM U/S 10B 40,20,95,922 LESS DEPRECIATION CLAIMED 26,03,46,485 NET BUSINESS PROFIT 14,17,49,437 LESS : DEDUCTION U/S 10B 15,15,65,991 (98,16,554) INCOME FROM CAPITAL GAIN SHORT TERM CAPITAL GAIN 14,452 INCOME FROM OTHER SOURCES 1,31,66,581 TOTAL INCOME 33,64,479 LESS : UNABSORBED DEPRECIATION OF A.Y. 2002-03 2,11,69,435 UNABSORBED DEPRECIATION TO BE CARRIED FORWARD (1,78,04,956) IN THIS COMPUTATION FOLLOWING DETAILS OF UNABSORBED DEPRECIATION WERE GIVEN : ASSESSMENT YEAR UNABSORBED DEPRECIATION 2004 - 05 13,90,60,056 LESS ADJUSTED 2,0154,617 NET UNABSORBED DEPRECIATION TO BE CARRIED FORWARD 118,9,05,439 ITA NO. 3076 & C.O. NO. 318/DEL/2012 5 IN A.Y. 2005-06, THE FOLLOWING INCOMES WERE RETURNE D : INCOME FROM BUSINESS PROFIT BEFORE DEPRECIATION AND CLAIM U/S 10B 58,85,78,364 ADD : ADDITION MADE IN THE ASSTT. 18,79,767 LESS DEPRECIATION CLAIMED 20,39,80,960 NET BUSINESS PROFIT 38,64,77,171 LESS : DEDUCTION U/S 10B 40,47,30,653 (1,82,53,482) INCOME FROM CAPITAL GAIN SHORT TERM CAPITAL GAIN 64,46,187 INCOME FROM OTHER SOURCES 1,68,98,037 50,90,742 LESS : BROUGHT FORWARD UNABSORBED DEPRECIATION 14,22,71,036 GROSS TOTAL LOSS (13,71,80,294) FROM THE ABOVE TABLE, THE ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10B WITHOUT CONSIDERING THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND THAT THE ASSESSEE HAS N OT COMPLETELY FOLLOWED SECTION 32(2) FOR COMPUTING ITS INCOME WHEREAS THE INCOME FROM PROFIT AND GAINS OF THE BUSINESS OR PROFESSION SHOULD BE COMPU TED AS PER SECTION 29 OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 30 TO 43C. THE ASSESSING OFFICER ALSO REFERRED TO SECTION 10B(4) AND DECISIO N OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS. HIMATA SINGIKE SEIDE LTD. (2006 ) 156 TAXMAN 151 (KAR). THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE STATING THAT WHY BROUGHT FORWARD UNABSORBED DEPRECIATION MAY NOT BE FIRST ALLOWED BE FORE CALCULATING THE DEDUCTION U/S. 10B OF THE ACT. THE ASSESSEES REPLY IS INCORPORATED IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS NOT SAT ISFIED WITH THE REPLY OF THE A.Y. UNABSORBED DEPRECIATION SET OFF IN THIS YEAR (A.Y. 2004-05) UNABSORBED DEPRECIATION CARRIED FORWARD 2002 - 03 2,11,69,435 33,64,479 1,78,04,956 2003 - 04 10,68,72,831 10,68,72,831 ITA NO. 3076 & C.O. NO. 318/DEL/2012 6 ASSESSEE. THE ASSESSING OFFICER ALSO NOTICED THAT T HE ASSESSEE IS MAINTAINING SINGLE BOOKS OF ACCOUNT FOR ALL ITS UNITS, I.E., TH OSE WHICH ARE COVERED FOR DEDUCTION AS WELL AS THOSE WHICH ARE NOT COVERED AN D THE ASSESSEE HAS TRIED TO ALLOCATE THE EXPENSES BETWEEN THESE UNITS ONLY FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10B FOR STPI UNIT AND NON-STPI UNITS . HE ALSO NOTICED THAT ASSESSEE HAD NO EVIDENCE TO SHOW THAT SAID UN-ABSOR BED DEPRECIATION BELONGS TO WHICH PARTICULAR UNIT. HE FURTHER OBSERVED THAT AS PER CASE LAW CITED BY HIM FOR COMPUTING DEDUCTION U/S. 10B, THE EFFECT OF BROUGHT FORWARD UNABSORBED DEPRECIATION HAS TO BE ALLOWED FIRST FOR THE PURPOS E OF COMPUTING THE PROFIT AND GAINS OF BUSINESS AND SUBSEQUENTLY ON SUCH ADJUSTED BUSINESS PROFIT, THE DEDUCTION U/S. 10B HAS TO BE COMPUTED. ACCORDINGLY, THE DEDUCTION CLAIMED WAS COMPUTED BY THE ASSESSING OFFICER. THE ASSESSING OF FICER ALSO OBSERVED THAT EARLIER YEARS ASSESSMENT WAS COMPLETED U/S. 153A O F THE ACT, WHEREIN, THE ASSESSING OFFICER HAS NOT GIVEN ANY ADVERSE INFEREN CE ON THE ISSUE OF CARRY FORWARD UNABSORBED DEPRECIATION. ACCORDINGLY, HE CO NCLUDED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10B IN EXCESS OF BUSINES S PROFIT AND CLAIMED THE SAID DEDUCTION UNDER THE NOMENCLATURE OF UN-ABSORBED DEP RECIATION. HE ALSO REFERRED TO THE COMPUTATION OF INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06. FINALLY, HE CONCLUDED THA T FOR THE YEAR UNDER CONSIDERATION, THERE IS NO BROUGHT FORWARD UN-ABSOR BED DEPRECIATION AND AS SUCH, NO UNABSORBED DEPRECIATION FOR PRECEDING YEAR WAS AVAILABLE FOR ADJUSTING FROM THE CURRENT YEARS INCOME. ACCORDINGLY, THE AS SESSING OFFICER RECOMPUTED THE TAXABLE INCOME OF THE ASSESSEE. THE PROFITS OF ELIGIBLE UNITS WERE SHOWN BY THE ASSESSEE TO THE TUNE OF RS.66,30,07,954/- WHICH HAS BEEN COMPUTED AS UNDER : ITA NO. 3076 & C.O. NO. 318/DEL/2012 7 NTL SALT LAKE KOLKATA NTL - MUMBAI NTL PRETORIA ST. KOKATA NTL BANGLORE NTL ATHENA TOTAL TOTAL TURNOVER OF THE BUSINESS 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 2,200,927,477 TOTAL TURNOVER OF THE UNDERTAKING 158,753,455 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 TOTAL PROFIT OF THE BUSINESS 609,427,681 609,427,681 609,427,681 609,427,681 609,427,681 609,427,681 TOTAL PROFIT OF THE UNDERTAKING 51,925,667 6,617,939 13,159,929 36,718,070 554,586,349 663,007,954 TOTAL EXPORT TURNOVER OF THE UNDERTAKING 158,753,455 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 EXPORT TURNOVER OF THE UNDERTAKING IN R/O COMPUTER SOFTWARE 158,753,455 42,561,901 86,601,728 198,273,405 1,470,460,413 1,956,650,902 AMOUNT OF DEDUCTION U/S I0B 51,925,667 6,617,939 13,159,929 36,718,070 554,586,349 663,007,954 FROM THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT NET PROFIT RATE HAS BEEN COMPUTED BY THE ASSESSEE BETWE EN THE STPI UNIT AND NON STPI UNIT @ 22.69% AND 33.88% RESPECTIVELY. THE BAS IS OF ALLOCATION OF EXPENSES WAS ALSO DOUBTED BY THE ASSESSING OFFICER. IN THIS REGARD, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RELIED ON CER TIFICATE ISSUED BY THE CHARTERED ACCOUNTANT FOR THE BASIS OF PROPORTIONATE EXPENSES. THE ASSESSEE WAS ALSO ASKED TO EXPLAIN HOW THE PROFIT OF DIFFERENT UNITS HAS BE EN COMPUTED BY IT. IN THIS REGARD, NOTICE U/S. 142(1) DATED 18.12.2009 WAS ISS UED TO THE ASSESSEE AND THE ASSESSEE SUBMITTED REPLY DATED 29.12.2009 AND 20.12 .2009. THE ASSESSING OFFICER WAS NOT SATISFIED FROM THE SUBMISSIONS OF T HE ASSESSEE AND RECOMPUTED ITA NO. 3076 & C.O. NO. 318/DEL/2012 8 THE ELIGIBILITY AS PER SECTION 10B(4) OF THE ACT BY APPLYING THE FOLLOWING FORMULA AND COMPUTED THE DEDUCTION U/S. 10B. TOTAL PROFITS OF BUSINESS X EXPORT TURNOVER 65,08,4 4,191 X 1956650902 _______________________________________________ __ ________________________________ TOTAL TURNOVER 2200927477 = 57,86,08,285 ACCORDINGLY, THE DEDUCTION U/S. 10B WORKED OUT TO R S.57,86,08,285/- AS AGAINST RS.66,30,07,954/- COMPUTED BY THE ASSESSEE. AGGRIEV ED FROM THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A) WHERE HE ALSO SUBMITTED ADDITIONAL EVIDENCE WHICH WAS SENT TO THE CONCERNED OFFICER CALLING FOR REMAND REPORT. THE ASSESSING OFFICER OBJECTED T O ADMISSION OF ADDITIONAL EVIDENCE AND IN THIS REGARD, THE ASSESSEE ALSO SUBM ITTED REJOINDER. THE LD. CIT(A) AFTER CONSIDERING ALL THE SUBMISSIONS OF THE ASSESS EE AND RELYING ON VARIOUS JUDICIAL PRONOUNCEMENTS, PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALSO DISALLOW ED DEMERGER EXPENSES OF RS.28,42,073/-. AGGRIEVED BY THE IMPUGNED ORDER, TH E REVENUE IS IN PRESENT APPEAL AND THE ASSESSEE IN CROSS OBJECTION BEFORE T HE TRIBUNAL. 3. THE LD. DR RELIED ON THE OBSERVATIONS OF THE ASS ESSING OFFICER AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 31.12.2009. IT WAS FURTHER SUBMITTED THAT IT IS AN ACCEPTED POSITION OF LAW THAT FIRST BUSINE SS PROFIT HAS TO BE DETERMINED AS PER SECTION 30 TO 43D AS PROVIDED U/S. 29 OF THE AC T & THAT IT WAS WITH REFERENCE TO THE PROFIT SO DETERMINED, THE DEDUCTION U/S. 10B (4) HAS TO BE WORKED OUT. IN REGARD TO ADMISSION OF ADDITIONAL EVIDENCE BY THE L D. CIT(A), THE LD. DR SUBMITTED THAT THE ASSESSEE DID NOT FURNISH THE EVI DENCE BEFORE THE AO IN ASSESSMENT PROCEEDINGS. THEREFORE, THE CIT(A) WAS N OT JUSTIFIED IN ADMITTING THE ADDITIONAL EVIDENCE. AMPLE OPPORTUNITY WAS GIVEN TO THE ASSESSEE. THE ASSESSEE ITA NO. 3076 & C.O. NO. 318/DEL/2012 9 HAS ALSO NOT MAINTAINED SEPARATE BOOKS FOR EACH UNI TS AND AS PER SECTION 10B FOR CLAIMING DEDUCTION, SEPARATE BOOKS OF ACCOUNT ARE R EQUIRED TO BE MAINTAINED. IN ADDITION TO ABOVE, THE LD. DR FILED A WRITTEN SYNOP SIS WHICH READS AS UNDER : MAY IT PLEASE YOUR HONOURS: THIS CASE WAS LISTED AS A PART-HEARD APPEAL FOR TOD AY, I.E. 25.01.2019 AT 2:30 PM. HOWEVER, THIS DR WAS INTIMATED THAT THE CASE WAS HE ARD WITHOUT ANY INTIMATION TO THE UNDERSIGNED IN THE FIRST HALF ITSELF. 2 THE ISSUE INVOLVED IN THESE APPEALS FILED BY THE REVENUE RELATES TO THE ALLOWANCE OF DEDUCTION U/S 1 OB IRRESPECTIVE OF THE FACT THAT SE PARATE BOOKS OF ACCOUNTS HAVE NOT BEEN MAINTAINED. THE DEDUCTION U/S 10B IS ALLOWED I N RESPECT OF PROFITS DERIVED FROM THE EXPORT OF ARTICLE OF THINGS OR COMPUTER SOFTWAR E PROVIDED THE UNDERTAKING FULFILLS ALL THE CONDITIONS SPECIFIED UNDER SECTION 10B(2) I .E. IT IS NOT FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF ALREADY EXISTING BUSINESS ALSO THE LETTER HAS BEEN FILED IN TIME AS PER SECTION 139 (1) THE MACHINERY/PLANT TRANSFERRED TO UNDERTAKING HAVE NOT ALREADY BEEN USED FOR ANY PURPOSES. IN THE PRESENT CASE THE ASSESSEE WAS FORMED AS A RESULT OF THE DEMERGER OF NIIT LTD. W.E.F. 01.04.2003 AS PER DELHI HIGH COURT ORDER. THUS THE FIRST OPERATING YEAR WAS ASSESSMENT YEAR 2004-05. I N THE ASSESSMENT OF FACTS AVAILABLE IN THE FORM NO. 35 FILED BEFORE THE CIT(A) FOR A.Y. 2006-07, IT IS MENTIONED THAT THE UNABSORBED DEPRECIATION OF RS. 13,90,60,056/- PERTA INED TO THE NON-ELIGIBLE UNITS OF NIIT LTD. LTD. FOR A.Y. 2002-03 & 2003-04 VESTED IN THE APPELLANT PURSUANT TO SCHEME OF DEMERGER. THE QUESTION THAT FOR CONSIDERATION IS WHETHER DEMERGER OF NIIT LTD. & HIVING AWAY SOME OF THE BUSINESS TO THE APPELLANT & OTHER GROUP CO. CAN BE SAID TO CONSTITUTE NEW INDEPENDENT & IDENTIFIABLE UNDERTAKI NG SEPARATE & DISPATCH FROM EXISTING BUSINESS (DELHI HC IN MAHAAN FOODS 216 CTR 148). 3. IN RESPONSE TO THE SPECIFIC QUESTIONNAIRE ISSUED UNDER SECTION 142(1) DATED 18.12.2009 WHEREIN THE AO SOUGHT INFORMATION REGARD ING THE DIFFERENT UNITS OF THE ASSESSEE WHICH WERE OPERATING AND TO STATE IF SEPAR ATE BOOKS WERE BEING MAINTAINED FOR EACH UNIT. IF SO MAINTAINED, THE ASSESSEE WAS T O FURNISH UNIT WISE COPY OF FINAL ACCOUNTS FOR THE IMPUGNED YEAR AND IF NOT MAINTAINED, TO FURNISH THE BASIS ON WHICH EXPENSES STAND ALLOCATED. IT MAY BE STATED HEREIN T HAT IN ACCORDANCE WITH THE CBDT CIRCULAR 1/2013 DATED 17.01.2013, IT HAS BEEN CLARI FIED THAT THOUGH THERE IS NO LEGAL REQUIREMENT TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS, SINCE THE DEDUCTION U/S 10B IS AVAILABLE ONLY TO ELIGIBLE UNITS, THE AO IS ENTITLE D TO CALLED FOR SUCH DETAILS OR INFORMATION PERTAINING TO DIFFERENT UNITS TO VERIFY THE CLAIM AND QUANTUM OF EXEMPTION, IF SO REQUIRED. THE REPLIES OF THE ASSES SEE DATED 29.12.2009& 20.11.2009 HAVE BEEN SCANNED AND ARE AVAILABLE AT PAGES 26 & 2 7 OF THE ASSESSMENT ORDER. THE REPLY OF THE ASSESSEE NEITHER MAKES IT CLEAR WHAT W ERE THE INELIGIBLE UNITS AND WHAT WAS THE APPROPRIATE BASIS AS CERTIFIED BY THE AUD ITORS AS PER WHICH THE ALLOCATION OF EXPENSES BETWEEN THE MO US AND NON EOUS WAS MADE. T HIS ASPECT HAS NOT BEEN ADDED ITA NO. 3076 & C.O. NO. 318/DEL/2012 10 BY LEAVED CIT(A) IN HIS ORDER. MOREOVER, NOTABLE SO ME OF THE UNITS (EOUS) INRAFED PART. MEMBER &PRETO 3. ON THE MERITS OF THE ISSUE, I.E. DEDUCTION U/S 1 0B OF THE ACT OF THE ELIGIBLE UNIT, THE VIE W S OF THE ASSESSING OFFICER IS THAT SUCH DEDUCTION H AS TO BE ALLOWED FROM THE TOTAL INCOME OF THE APPELLANT WHICH WOULD BE ARRIVED AT A FTER GIVING EFFECT TO THE PROVISIONS OF SEC. 32(2) R.W.S 72 (2) OF THE I.T. ACT. HOWEVER , THE APPELLANT VEHEMENTLY OPPOSES THIS VIEW BY ARGUING THAT EVEN THOUGH SEC. 10B IS A DEDUCTION PROVISION, IT CONTINUES TO BE IN CHAPTER III AND THEREFORE, THE SAME IS STILL IN THE NATURE OF AN EXEMPTION. ACCORDING TO THE APPELLANT, THE TERM TOTAL INCOME EMPLOYED IN SEC. 10B DENOTES GLOBEL INCOME OF THE UNDERTAKING AND NOT THE TOTAL INCOME AS DEFINED IN SEC 2.(45) AND THEREFORE, THE PROFITS OF THE UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S 10A DO NOT ENTER INTO THE COMPUTATION AND THEREFORE, THERE IS NO QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE ELIGIBLE UNDERTAKING. IN SUPPORT, THE APPELLANT HAS HEAVILY RELIED ON THE DECISION OF THE KARNATKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD. & OTHERS 921TAXMANN. COM 154) 4.1. THUS, IN THE PRESENT CASE, THE BASIC ISSUE IN DISPU TE IS THAT WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN HIS VIEW THAT THE PROFITS AND GAINS OF THE ELIGIBLE UNDERTAKING HAS TO BE COMPUTED IN ACCORDANCE WITH SEC 30 TO 43D OF THE I.T. ACT AS PROVIDED IN SEC. 29 OF THE I.T. ACT, BEFORE ALLOWING DEDUCTION U/S 1 0B OF THE I.T. ACT. SEC. 10B WAS ORIGINALLY INSERTED BY THE FINANCE ACT. 1988 W.E.F. 01.04.1989 AS AN EXEMPTION PROVISION UNDER CHAPTER III OF THE I.T. ACT. AFTER SEVERAL AMENDMENTS, IT WAS SUBSTITUTED BY THE FINANCE ACT, 2000 W.E.F. 01.04.2 001. PRIOR TO ITS SUBSTITUTION W.E.F. 01.04.2001, SEC. 1 OB READ AS UNDER:- 10B (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EXPORT-ORIENTED UN DERTAKING (HEREAFTER IN THIS SECTION REFERRED TO AS THE UNDERTAKING) TO WHICH TH IS SECTION APPLIED SHALL NOT. BE INCLUDED IN THIS TOTAL INCOME OF THE ASSESSEE. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS ALL THE FOLLOWING CONDITIONS, NAMELY:- (I.). IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THING; (IA) IN RELATION TO AN UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING ON OR AFTER THE I ST DAY OF APRIL, 1994, ITS EXPORTS OF SUCH ARTICLED A ND THINGS ARE NOT LESS THAN SEVENTY-FIVE PERCENT OF THE TOTAL SAL ES THEREOF DURING THE PRECIOUS YEAR: (II). IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY INEXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONST RUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION; ITA NO. 3076 & C.O. NO. 318/DEL/2012 11 (III). IT IS NOT FORMED BY THE TRANSFER TO A NEW B USINESS OF MACHINERY OF PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION . THE PROVISIONS OF EXPLANATION I AND EXPLANATION 2 S UB-SECTION 1 AND EXPLANATION 2 SUB-SECTION (2) OF SECTION 80-1 SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE 9II) OF THAT SUB-SECTION. (3). THE PROFITS AND GAINS REFERRED TO IN SUB-SECT ION (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY [TEN ] CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PRECIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS . 4.2. THE REVISED PROVISIONS MADE EFFECTIVE FROM 01.04.20 01, WHICH IS APPLICABLE OF THE YEAR UNDER CONSIDERATION, READ AS UNDER:- 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DE DUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTE D UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE OF A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE: PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UND ERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION SIT STOOD IMMEDIATELY BE FORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLE D TO THE DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF A FORESAID TEN CONSECUTIVE ASSESSMENT YEAR: [PROVIDED FURTHER THAT FOR THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2003, THE DEDUCTION BY AN UNDERTAKING FROM THE EXPO RT OF SUCH ARTICLES OR THING OR COMPUTER SOFTWARE:] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOW ED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E L S < DAY OF APRIL, 2010 AND SUBSEQUENT YEAR: [PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOW ED TO AN A ASSESSEE WHO DOES NOT FURNISH A RETURN OF HIS INCOM E ON OR BEFORE THAT DUE DATE SPECIFIED UNDER SUB-SECTION (1) OF SECTION 139.] (2). THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS. NAMELY:- (I). IT MANUFACTURES OR PRODUCES ANY ARTICLES OR TH INGS OR COMPUTER SOFTWARE; ITA NO. 3076 & C.O. NO. 318/DEL/2012 12 (II). IT IS FORMED BY THE SPLITTING UP, OR THE REC ONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL APPLY IN RESPECT OF ANY U NDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONST RUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFER RED TO IN SECTION 3313. IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN TH AT SECTION; (III). IT IS NOT FORMED BY THE TRANSFER TO A NEW B USINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION.- THE PROVISIONS OF EXPLANATION 1 AND E XPLANATION 2 OF TO SUBSECTION (2) OF SECTION 80-1 SHALL APPLY FOR THE PURPOSES OF CLA USE (III) OF THIS SUBSECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (II) OF THAT SUB-S ECTION. (3). THIS SECTION APPLIES TO THE UNDERTAKING IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECE IVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHI N A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PE RIOD AS COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. EXPLANATION 1. - FOR THE PURPOSE OF THIS SUB-SECTION, THE EXPRESSI ON COMPETENT AUTHORITY MEANS THE RESERVE BANK OF INDIA OR SUCH OTHER AUTHORITY AS IS AUTHORIZED UNDER ANY LAW FOR THE TIME BEING IN FORCE FOR REGUL ATING PAYMENTS AND DEALINGS IN FOREIGN EXCHANGE. EXPLANATION 2. - THE SALE PROCEEDS REFERRED TO IN THIS SUB-SECTION SHALL BE DEEMED TO HAVE BEEN RECEIVED IN INDIA WHERE SUCH SALE PROCEED S ARE CREDITED TO A SEPARATE ACCOUNT MAINTAINED FOR THE PURPOSE BY THE ASSESSEE WITH ANY BANK OUTSIDE INDIA WITH THE APPROVAL OF THE RESERVE I3ANK OF INDIA. (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.] 4.3.1 FROM A COMPARATIVE READING OF THE SECTION AT IT STO OD PRIOR TO 01.04.200 1 AND THEREAFTER, IT CAN BE SEEN THAT PRIOR TO ITS SUBSTITUTION, SEC,10B PRO VIDED THAT ANY PROFITS AND GAINS DERIVED BY THE ELIGIBLE UNDERTAKING SHALL NOT BE INCLUDED IN T HE TOTAL INCOME OF THE ASSESSEE. THUS, THE PROFITS AND GAINS DERIVED BY THE ELIGIBLE UNDERTAKI NG WERE NEVER TO ENTER INTO THE PROCESS OF COMPUTATION OF TOTAL INCOME OF THE INCOME OF THE AS SESSEE. BUT THE NEW SECTION AS SUBSTITUTED BY THE FINANCE ACT 2000 PROVIDES THAT DEDUCTION IS AVAILABLE FOR PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PERCENT EXPORT- ORIENTED UNDER TAKING FROM THE TOTAL INCOME OF THE ASSESSEE. THUS THE MAIN DISTINGUISHING FEATURE IN T HE OLD AND REVISED PROVISIONS IS THAT PRIOR TO ITS SUBSTITUTION, THE BENEFIT OF EXEMPTION WAS A BSOLUTE BUT AS PER THE REVISED PROVISIONS, SUCH BENEFIT IS TO BE GIVEN BY WAY OF A DEDUCTION F ROM THAT TOTAL INCOME OF THE ASSESSEE. THIS CLEARLY IMPLIES THAT THE INCOME OF THE ELIGIBLE UND ERTAKING HAS TO BE COMPUTED IN TERMS OF THE ITA NO. 3076 & C.O. NO. 318/DEL/2012 13 ACT FIRST AND THE INCIDENCE OF DEDUCTION COMES ONLY THEREAFTER. IF THE BENEFIT WAS TO BE GIVEN AT SOURCE AS IS GIVEN TO ANY EXEMPTION PROVISION I.E. AT SOURCE AS ID BEING ARGUED BY THE APPELLANT, THEN THERE WAS NO NEED OF THE LEGISLATURE TO SUBSTI TUTE THE PROVISIONS W.E.F 01.04.2001 WHEREBY THE BENEFIT WAS ENVISAGED TO BE PROVIDED IN THE FORM OF A DEDUCTION IN CONTRAST TO THE EXCLUSION AS PROVIDED IN THE PRE-AMENDED SECTION. WHILE THERE IS NO QUARREL THAT WHAT IS ALLOWABLE AS DEDUCTION BY THE UNDERTAKING IS THE PR OFIT DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE, ONCE THE TERMS DEDUCT ION OF SUCH PROFITS AND GAINS .... AND FROM THE TOTAL INCOME OF THE ASSESSEE ARE DEPLOYED. IT HAS TO BE PRESUMED THAT FOR ARRIVING SUCH TOTAL INCOME, THE PROFITS AND GAINS OF THE UNDERTAK ING HAS TO BE COMPUTED IN ACCORDANCE WITH SEC.30 TO 43D OF THE I.T.ACT AND ONLY THEREAFTER TH E ASSESSEE CAN AVAIL THE BENEFIT OF DEDUCTION U/S 10B OF THE I.T. ACT. THEREFORE EFFECT OF PROVIS IONS OF SEC. 32(2) R.W.S. 72(2) HAS TO BE GIVEN WHILE COMPUTING THE PROFITS AND GAINS OF THE UNDERT AKING. THIS VIEW GETS ENDORSEMENT FROM THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CHI' VS . HIMATASINGIKESEIDE LTD. REPORTED IN 286 1TR 255 WHE REIN IT WAS HELD AS UNDER:- SEC. 32(2) PROVIDES FOR ADJUSTMENT FOR SUBSEQUENT YEARS. IF WE SEE SECTION 10-B, IT PROVIDES FOR EXEMPTION OF PAYMENT OF TAX WITH REFERENCE TO P ROFITS AND GAINS DERIVED BY 100% EXPORT ORIENTED UNDERTAKING. TO ARR IVE AT A PROFIT AND GAIN, ONE HAS TO UNNECESSARILY TAKE INTO CONSIDERATION THE TOTAL INCOME IN TERMS OF THE ACT. TO ARRIVE AT THE INCOME ONE HAS TO TAKE INTO CONSIDERATION, T HE VARIOUS ADDITIONS AND DELETIONS IN TERMS OF THE ACT. IN FACT, THE PETITIONER KNOWIN G FULLY (SIC) HAS CHOSEN TO TAKE INTO CONSIDERATION THE ALLOW ABILITY OF DEPRECIATION FOR THE PURPOSE OF CALCULATION OF TOTAL INCOME. BUT CURIOUSLY AN ARGUMENT HAS BEEN ADVANCED THAT EXEMPTION IN TERMS OF SECTION 10-B COULD ALSO BE ON COMMERCIAL BASIS NOT NECESSAR ILY IN TERMS OF THE CALCULATION. WE DO NOT ACCEPT THIS SUBMISSION. SECTION! 0-B CANNOT BE READ IN ISOLATION OF OTHER PROVISIONS. IT IS ONLY AN EXEMPTION PROVIS ION. EXEMPTION CANNOT BE FANCIFUL AND IT HAS SOME RATIONAL WITH OTHER PROVISIONS OF T HE ACT. THEREFORE, A COMBINED READING OF THE DEFINITION OF EXEMPTION, TOTAL INCOM E TAX LIABILITY DEDUCTIBILITY ETC. , ONE HAS TO COME TO A CONCLUSION THAT CALCULATION AS FAR AS POSSIBLE IS TO BE IN TERMS OF THE INCOME TAX ACT. THAT IS EXACTLY WHAT HAS BEEN DONE BY THE ASSESSEE. HAVING CALCULATED IN A PARTICULAR MANNER, NOW IT DOES NOT LIE IN THE MOUTH OF THE ASSESSEE TO CONTEND CONTRA IN THESE PROCEEDINGS. IT CANNOT BE ARGUED TH AT CALCULATION SO PROVIDED IS ON A MISTAKEN BASIS OR THAT COULD BE ON COMMERCIAL BASIS . WE ARE NOT PREPARED TO ACCEPT THIS ARGUMENT ADVANCED BY THE ASSESSEE. EXEMPTION A LSO HAS TO BE SCRUTINIZED BY THE DEPARTMENT AS OTHERWISE THERE IS EVERY CHANCE OF EX EMPTION BEING MIS-USED BY AN ASSESSEE. IT MAY BE TRUE THAT EVEN AFTER TAKING INT O CONSIDERATION, THE UNABSORBED DEPRECIATION, THE ASSESSEE MAY GET EXEMPTION BUT NO NE THE LESS HE CANNOT TAKE ONLY A PORTION OF DEPRECIATION JUST TO SUIT HIS INCOME FOR THE PURPOSE OF NIL LIABILITY AND ADJUST THE BALANCE OF UNABSORBED DEPRECIATION FOR OTHER BU SINESS INCOME ONCE AGAIN TO SHOW NIL LIABILITY. WHEN THE UNABSORBED DEPRECIA TION COULD HAVE BEEN TAKEN FOR ARRIVING AN EXEMPTED INCOME, THE ASSESSEE CANNOT PL AY WITH THE FIGURES FOR THE PURPOSE OF SHOWING NIL LIABILITY AS HAS BEEN DONE I N THE CASE ON HAND. THE INTENTION OF THE LEGISLATURE IS ONLY TO PROVIDE 100% EXEMPTION FOR EXPORT INCOME AND NOT FOR OTHER INCOME. THE PETITIONER BY DIVIDING DEPRECIATI ON CONTRARY TO SECTION 32HAS VIRTUALLY TAKEN EXEMPTION FROM PAYMENT OF TAX EVEN FOR OTHER BUSINESS INCOME IN THE CASE ON HAND. THAT CANNOT BE ALLOWED AS RIGHTLY RUL ED BY THE COMMISSIONER. THE ALLOWANCE OF THE DEPRECIATION BY THE TRIBUNAL, IN O UR VIEW, IS PREJUDICIAL TO THE INTEREST ITA NO. 3076 & C.O. NO. 318/DEL/2012 14 OF REVENUE AS ARGUED BY THE DEPARTMENT. THE TRIBUNA L HAS TAKEN A NARROW VIEW OF THE MATTER WITHOUT TAKING INTO CONSIDERATION, THE LAUDA BLE OBJECT OF EXEMPTION AND AT THE SAME TIME PROVIDING FOR TAX LIABILITY TOWARDS OTHER LIABILITY. THE INTE RPRETATION HAS TO BE MEANINGFUL AND ACCEPTABLE AND IT CANNOT BE AGAIN ST THE INTENTION OF THE LEGISLATION. LEGISLATION NEVER WANTED THE ENTIRE INCOME TO BE EX EMPTED BY TAKING ADVANTAGE OF SECTION 10-13 OF THE ACT. THE APPROACH OF THE TRIBUNAL TO O UR MIND IS INCORRECT AND HENCE, WE FIND SUBSTANCE IN THE ARGUMENT OF THE REV ENUE. THUS, THE KARNATKA HIGH COURT HAS HELD THAT OF THE PURPOSE OF GRANTING THE BENEFIT U/S 10B, THE PROFIT AND GAINS OF THE EXPORT-ORIENTED UN DERTAKING HAS TO BE IN CONSIDERATION WITH THE TOTAL INCOME COMPUTED IN TERMS OF THE ACT. 4.4. FURTHER, REFERENCE MAY ALSO BE MADE TO THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. PATSPIN INDIA ON THE I SSUE WHEREIN, DIVERGING FROM THE VIEW TAKEN BY THE ITAT COCHIN AND CONCURRING WITH THE VI EW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDS LTD. (SUPR A) THE HONBLE COURT HELD THAT BUSINESS PROFIT HAS TO BE FIRST DETERMINED BASED ON SS.30 TO 43D AS PROVIDED UNDER S.29 AND IT IS WITH REFERENCE TO THE PROFIT SO DETERMINE D THAT THE DEDUCTION ELIGIBLE UNDER S. 1013(4) HAS TO BE DETERMINED. THE COURT RULED THAT: AMENDMENT TO SEC. 10B (6) SUPPORTS THE VIEW THAT EVEN DURING THE PERIOD OF TA X HOLIDAY, THE UNDERTAKINGS COULD SET OFF UNABSORBED DEPRECIATION IN COMPUTING THE BUSINE SS PROFIT, THE HONBLE COURT HELD THAT:- WE ARE UNABLE TO UPHOLD THE ORDER OF THE TRIBUNAL F OLLOWING TWO OTHERS BENCHES DECISIONS OF THE TRIBUNAL BECAUSE BUSINESS PROFIT H AS TO BE FIRST DETERMINED BASED ON SS.30 TO 43D AS PROVIDED UNDER S.29 OF THE ACT AND IT IS WITH REFERENCE TO PROFIT SO DETERMINATE DEDUCTION ELIGIBLE UNDER S. 10B(4) HAS TO BE DETERMINED WITH REFERENCE TO EXPORT TURNOVER AND THE TOTAL TURNOVER. THE WHOLE P URPOSE OF THE EXERCISE OF COMPUTATION BY APPLYING SS. 30 TO 43D IS TO DETERMI NE THE TOTAL BUSINESS PROFITS WITH REFERENCE TO WHICH THE EXPORT PROFIT OF THE UNIT HA S TO BE DETERMINED FOR GRANTING DEDUCTION UNDER SUB-S. (4) OF S. 10B. IN FACT, SINC E RESPONDENTS TWO INDUSTRIAL UNITS ARE ELIGIBLE FOR DEDUCTION UNDER S. 10B(4), ELIGIBILITY HAS TO BE DONE AFTER COMPUTING THE BUSINESS PROFIT FROM THE INDUSTRIAL UNITS WHICH NEC ESSARILY HAS TO BE DONE AFTER SETTING OFF UNABSORBED DEPRECIATION CARRIED FORWARD FROM PR ECIOUS YEARS. WE ARE ALSO CONSTRAINED TO NOTICE THAT THE PRINCIPLE OF COMPUTA TION OF DEDUCTION UNDER S. 10B(4) IS SIMILAR TO DETERMINATION OF ELIGIBLE EXPORT PROFIT FOR DEDUCTION UNDER S.80HITC (3) OF THE ACT. 5. EVEN THOUGH THE TRIBUNAL HAS NOT RELIED ON SUB S . (6) OF S. 10B UPHOLD THE CLAIM OF RESPONDENT-ASSESSEE, THEY HAVE REFEREE TO THE SAID PROVISION AND SAID THAT SUB-S 10B ALSO SUPPORTS THE CASE OF THE RESPONDENT ASSESSEE. WE ARE UNABLE TO ACCEPT THIS OBSERVATION OF THE TRIBUNAL ALSO BECAUSE S. 10B(6) DOES NOT DEAL WITH COMPUTATION OF BUSINESS PROFIT DURING THE PERIOD THE ASSESSEE ENJO YS EXEMPTION UNDER S.LOB(4) OF THE ACT. ON THE OTHER HAND THIS SUBSECTION IS ONLY AN E MBARGO AGAINST THE ASSESSEE CLAIMING ANY CARRIED FORWARDED BENEFIT UNDER THE SECTIONS RE FERRED TO THEREIN IN THE ASSESSMENT OF THE ASSESSMENT YEAR FOLLOWING THE END OF THE TAX HOLDING ENJOYED BY THE ASSESSEE UNDER S. 1013(4) OF THE ACT. SO MUCH, IN OUR VIEW, CONTRARY TO THE FINDING OF THE TRIBUNAL ITA NO. 3076 & C.O. NO. 318/DEL/2012 15 SUB-S.(6) ONLY SUPPORTS REVENUES CASE THAT CARRIED FORWARD DEPRECIATION SHOULD BE SET OFF IN THE COMPUTATION OF BUSINESS PROFIT EVEN DURI NG THE PERIOD ASSESSEE ENJOYS EXEMPTION UNDER S. 10B(4) OF THE ACT. WE AGREE WITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN THE DECISION ABOVE REFERRED 4.5. THE MUMBAI BENCH OF THE ITAT I IN THE CASE OF ACIT VS. JEWELLERY SOLUTIONS INTERNATIONAL PVT. LTD. REPORTED IN 28 SOT 405 WHIL E DECIDING SIMILAR ISSUE HAS HELD AS UNDER:- FROM THE PLAIN READING OF THE SECTION, IT CAN BE SE EN THAT AN UNDERTAKING WHICH FULFILS THE CONDITIONS STIPULATED THEREIN SHALL BE ALLOWED A DEDUCTION OF PROFITS AND GAINS OF BUSINESS DERIVED FROM THE EOU FROM THE TOTAL INCOME OF THE ASSESSEE. THUS, INITIALLY THE PROFITS AND GAINS OF THE BUSINESS OF THE ELIGIBLE U NDERTAKING HAS TO BE COMPUTED. SECTION 28 OF THE INCOME-TAX ACT PROVIDES THE VARIOUS INCOM ES WHICH SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION' AND SECTION 29 PROVIDES THAT THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 32D OF T HE ACT. THEREFORE, FOR COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION OF A 10 0 PER CENT EXPORT-ORIENTED UNDERTAKING, THE INCOME HAS TO BE COMPUTED IN ACCOR DANCE WITH SECTIONS 30 TO 43D OF THE ACT AND THUS EFFECT HAS TO BE GIVEN TO SECTION 32 OF THE INCOME-TAX ACT FOR COMPUTATION OF THE PROFITS AND GAINS OF THE BUSINES S OR PROFESSION. SUB-SECTION (2) OF SECTION 32 PROVIDES FOR THE CARRY FORWARD OF THE UN ABSORBED DEPRECIATION OF EARLIER YEARS AND FURTHER THAT SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB- SECTION (3) OF SECTION 73, THE ALLOWANCE OF PART OF THE ALLOWANCE TO WHICH EJFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO T HE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DE EMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEA R, TO BE DEEMED TO BE ALLOWANCE FOR THAT PREVIOUS YEAR AND SO ON IN THE SUCCEEDING PREV IOUS YEAR. SECTION 72 OF THE INCOME- TAX ACT PROVIDES FOR THE CARRY FORWARD OF THE SET-O FF OF BUSINESS LOSS. SUB-SECTION (I) OF SECTION 72 PROVIDES FOR THE SET-OFF OF THE BROUGHT FORWARD LOSS OF EARLIER YEARS AND SUB- SECTION (2) PROVIDES FOR THE SET- OFF OF UNABSORBED DEPRECIATION UNDER SUB-SECTION (2) OF SECTION 32 OR SUBSECTION (4) OF SECTION 35. SUB SECTION (3) OF SECTION 72 PROVIDES THAT NO LOSS , OTHER THAN THE LOSS REFERRED TO IN THE PROVISO TO SUB-SECTION (1) OF THIS SECTION SHALL BE CARRIED FORWARDED UNDER THIS SECTION FOR MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SU CCEEDING THE ASSESSMENT YEAR FOR WHICH THE LOSS WAS FIRST COMPUTED. THUS, IT CAN BE SEEN THAT THE BROUGHT FORWARD LOSS OR BROUGHT FORWARD DEPRECIATION/ALLOWANCE IS ALLOWABLE ONLY FOR A PERIOD OF EIGHT SUCCESSIVE ASSESSMENT YEARS. CONSEQUENTLY, IT CAN B E SEEN THAT AFTER THE COMPUTATION OF INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFES SION, THE LOSS OF THE EARLIER YEARS HAS TO BE FIRST SET-OFF AND SUBSEQUENTLY THE UNABSORBED DEPRECIATION BROUGHT FORWARD FROM THE EARLIER YEARS HAS TO BE SET-OFF. THEREAFTER THE CURRENT YEAR'S DEPRECIATION HAS TO BE SET OFF. CURRENT YEAR'S DEPRECIATION INCLUDES DEPRE CIATION OF THE RELEVANT ASSESSMENT YEAR AS WELL AS THE DEEMED DEPRECIATION AS PROVIDED UNDER SUB-SECTION (2) OF SECTION 32 OF THE ACT, IT IS ONLY THEREAFTER THAT THE INCOME F ROM PROFITS AND GAINS OF BUSINESS OR PROFESSION ARE COMPUTED TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE AND ITA NO. 3076 & C.O. NO. 318/DEL/2012 16 THEREAFTER DEDUCTION UNDER SECTION 1 OB OF THE ACT IS TO BE ALLOWED UNDER THE COMPUTATION OF INCOME FROM PROFITS AND GAINS OF BUS INESS OR PROFESSION AFTER ADJUSTING THE UNABSORBED DEPRECIATION, THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN COMPUTING THE DEDUCTION UNDER SECTION 1 OB IS CORRECT. THE RE FERENCE OF THE CIT(A) TO SUB-SECTION (6) OF SECTION 10B IS MISPLACED AS THE SAID SUB-SEC TION PROVIDES FOR THE PROCEDURE TO BE ADOPTED IN THE YEAR IMMEDIATELY FOLLOWING THE YEAR IN WHICH THE TAX HOLIDAY COMES TO AN END 4.6. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT ON THE ISSU E IN THE FOLLOWING CASES:- SEIMENS INFORMATION SYSTEMS LTD. VS. DCI135 ITD 19 6 (MUM) GLOBAL VANTEDGE P. LTD. VS. ACIT - ITR (TRIB.) 326 (DEL) WIPRO LTD. VS. DCIT - 34 DTR 493 (BANG) SWARD GLOBAL (I) PVT. LTD. VS. ITO 306 ITR (AT) 28 6 (CHENNAI) INTELLINET TECHNOLOGIES INDIA PVT.LTD. 5 ITR 9TRIB .) 96 (BANG) 4.7. THUS, ALL THE ABOVE DECISION SUPPORT THE VIEW THAT BEFORE AVAILING THE BENEFIT OR DEDUCTION U/S I OB, PROFITS AND GAINS OF THE ELIGIB LE UNDERTAKING HAS TO BE COMPUTED IN ACCORDANCE WITH SEC. 30 TO 43D OF THE I.T. ACT. 4.8. AS REGARDS THE DECISION RELIED UPON BY THE APPELLA NT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD., IT WOULD APPEAR THAT THE CONTRARY DECIS ION OF THE SAME HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDS LTD. (SUPRA) WAS NOT BROUGHT TO THE NOTICE OF THE HONBLE BENCH WHILE DECIDING THE SAID CASE. AT THIS POINT, IT ALSO NEED S MENTION THAT THE APPEAL FILED BY THE ASSESSEE IN THE CASE OF HIMATASINGIKE SEIDS LTD. (S UPRA) AGAINST THE DECISION OF THE HIGH COURT BEFORE THE HONBLE SUPREME COURT OF INDIA WAS HELD TO BE DEVOID OF ANY MERIT AND DISMISSED BY THE APEX COURT IN ITS ORDER PASSED ON 19.09.2013 IN CIVIL APPEAL NO. 1501. ON THE OTHER HAND, IN THE CASE OF YOKOGAWA INDIA LT D., THE HONBLE SUPREME COURT HAS GRANTED LEAVE IN THE SLP FILED BY THE DEPARTMENT IN SLP NO. 21 101/2006 AGAINST THE DECISION OF THE HONBLE KARNATAKA HIGH COURT. THERE FORE, UNDER THE CIRCUMSTANCES, THE DECISION OF THE KARNATKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDS LTD. (SUPRA) HAVING GOT ASSENT OF THE APEX COURT BY VIRTUE OF THE DISMI SSAL OF THE CIVIL APPEAL FILED BY THE ASSESSEE IN THE CASE, WOULD GAIN PRECEDENTIAL VALUE ON THE ISSUE. 5. THE ISSUE TO BE ADDRESS TODAY WAS WEATHER THE CL AIM OF ASSESSEE OF ADDITIONAL EXPENDITURE OF RS. 36 LACS WAS ALLOWABLE IN VIEW OF FACT THAT SUCH CLAIM WAS NOT MADE AT ANY TIME BEFORE THE ASSESSING OFFICER. PERUSAL OF T HE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2006 REVEALS THAT TOTAL INCOME FOR THE YEAR WAS RS. 227.04 CRORES WHILE TOTAL EXPENDITURE WAS RS. 166. 10 CRORES. ACCORDINGLY, THE BENCH MAY KINDLY TAKE THIS SUBMISSION INTO CONSIDERATION AND DECIDE ACCORDINGL Y. COPY OF THE AUDITED ACCOUNTS OF THE ASSESSEE ARE ENCLOSED FOR READY REFERENCE. 4. ON THE OTHER HAND, THE LD. AR RELIED ON THE ORDE R OF THE LD. CIT(A), BUT IN RESPECT OF ITS CROSS-OBJECTION, HE SUBMITTED THAT D E-MERGER EXPENSES OF ITA NO. 3076 & C.O. NO. 318/DEL/2012 17 RS.28,42,073/- HAS ALREADY BEEN CONSIDERED IN THE C OMPUTATION SHEET FOR CALCULATING THE TAXABLE INCOME. THEREFORE, DISALLOW ANCE THEREOF WOULD AMOUNT TO DOUBLE ADDITION. HE ALSO SUBMITTED THAT EACH UNI T HAS MAINTAINED ITS OWN ACCOUNT IN ERP BASED SOFTWARE. THE BOOKS OF ACCOUNT HAVE BEEN AUDITED BY THE CHARTERED ACCOUNTANT AND NO ADVERSE REPORT IS GIVEN . FORM NO. 56G WAS ALSO PLACED IN THE ASSESSMENT PROCEEDINGS. HE ALSO SUBMI TTED A SYNOPSIS CONTAINING 38 PAGES WHICH IS PLACED ON RECORD AS WELL AS MADE ORAL ARGUMENTS WHICH HAVE BEEN CONSIDERED. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE ENT IRE MATERIALS ON RECORD AND WE FIND THAT THE LD. CIT(A) HAS DEALT WITH THE ISSUE IN THE IMPUGNED ORDER IN RIGHT PERSPECTIVE AND WE DO NOT FIND ANY JUSTIFICAT ION TO DISCARD THE FINDINGS REACHED BY HIM. FOR READY REFERENCE, THE FINDINGS O F THE LD. CIT(A) ARE REPRODUCED HEREUNDER : 2.4 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ARGUMENTS OF THE APPELLANT, THE OBSERVATIONS MADE BY THE AO IN HIS REMAND REPOR T AND THE REJOINDER OF THE APPELLANT. FIRST OF ALL, I WOULD LIKE TO DECIDE THE ISSUE OF THE ADMISSION OF THE ADDITIONAL EVIDENCE AS SOUGHT TO BE ADDUCED BY THE APPELLANT. IN THEIR APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE, THE APPELLANT HAVE TAKEN THE F OLLOWING GROUNDS: (I) THAT THE AFORESAID ADDITIONAL EVIDENCE ONLY SEE K TO FURTHER CORROBORATE/SUBSTANTIATE THE CONTENTION OF THE APPE LLANT THAT ALL THE ELIGIBLE EOU'S ARE SEPARATE AND INDEPENDENT UNITS, WHICH IS ALSO SUPPO RTED BY THE DOCUMENTS ALREADY ON RECORD. (II) THAT THE APPELLANT WAS PREVENTED BY A SUFFICIE NT CAUSE FROM PRODUCING EVIDENCE BEFORE THE A.O. AS THE APPELLANT WAS NEVER ISSUED A NY NOTICE OR AFFORDED ANY OPPORTUNITY TO DEMONSTRATE THAT THE VARIOUS UNITS O PERATING DURING THE YEAR UNDER CONSIDERATION HAVE INDEPENDENT AND SEPARATE EXISTEN CE AND COULD NOT BE TREATED AS ONE COMMON BUSINESS. (III) THAT THE ASSESSMENT WAS COMPLETED IN HASTE WI THOUT RAISING SPECIFIC QUERY BASED ON WHICH FINAL ORDER HAS BEEN PASSED THEREBY DENYIN G SUFFICIENT AND ADEQUATE OPPORTUNITY TO THE APPELLANT TO ADDUCE THE ENTIRE E VIDENCES. ITA NO. 3076 & C.O. NO. 318/DEL/2012 18 (IV) THAT THE EVIDENCE BEING- PRODUCED ARE CRITICAL AND MATERIAL FOR ADJUDICATION OF THE GROUNDS RAISED IN APPEAL. 2.4.1 THE AO, ON THE OTHER HAND, HAS VEHEMENTLY OPP OSED ADMISSION OF THE ADDITIONAL EVIDENCE ON THE GROUND THAT THE APPELLANT WAS GIVEN DUE OPPORTUNITIES DURING THE ASSESSMENT PROCEEDINGS. HOWEVER, NO SPECIFIC OBSERV ATIONS GIVING DATES AND DETAILS OF SUCH OPPORTUNITIES HAS BEEN MADE BY THE AO IN HIS R EMAND REPORT. FURTHER, THE AO HAS NOT CONTROVERTED THE APPELLANT'S CONTENTION THAT NO SPECIFIC SHOW CAUSE NOTICE WAS ISSUED TO THE APPELLANT TO DEMONSTRATE AS TO HOW TH E VARIOUS EXPORT ORIENTED UNITS OPERATING DURING THE YEAR WERE HAVING INDEPENDENT A ND SEPARATE EXISTENCE AND WHY THEY SHOULD NOT BE TREATED AS A SINGLE BUSINESS UNI T. THEREFORE, I AM OF THE VIEW THAT SPECIFIC OPPORTUNITY WAS NOT GRANTED TO THE APPELLA NT FOR CLARIFYING THE ISSUE AS TO WHY ALL THE UNITS OF THE APPELLANT COMPANY MAY NOT BE C ONSIDERED AS ONE UNIT FOR THE PURPOSE OF DEDUCTION U/S 108 OF THE ACT. THE DOCUME NTS THAT THE APPELLANT SEEKS TO ADMIT AT THIS LEVEL ARE MAINLY DOCUMENTS RELATING T O CUSTOMS LICENSES ISSUED TO EACH OF THE ELIGIBLE UNITS AND THE REGISTERS MAINTAINED BY THOSE UNITS UNDER THE CUSTOMS RULES, DETAILS OF FIXED ASSETS PURCHASED AT THE TIME OF FO RMATION OF THE EOUS AND SEPARATE MONTHLY PERFORMANCE REPORTS OF THE EOUS. THE ASSESS ING OFFICER HAS RAISED THE ISSUE OF SOME OF THESE DOCUMENTS BEARING THE NAME OF 'M/S NI IT LTD.' INSTEAD OF 'M/S NIIT TECHNOLOGIES LTD.', WHICH HAS BEEN EXPLAINED BY THE APPELLANT STATING THAT ALL THE ELIGIBLE UNITS WERE INITIALLY PART OF NIIT LTD AND WERE DEMERGED INTO THE APPELLANT COMPANY THROUGH THE COURT APPROVED SCHEME OF DEMERG ER, APPROVED BY THE HON'BLE HIGH COURT OF DELHI WITH EFFECT FROM 1.04.2003. THA T IS WHY THE DOCUMENTS RELATING TO THE DEMERGED ELIGIBLE UNITS, EXECUTED PRIOR TO THE EFFECTIVE DATE, I.E., 4.06.2004, ARE IN THE NAME OF THE DEMERGED COMPANY, I.E., NIIT LTD. T O MY MIND, THESE DOCUMENTS ARE MATERIAL TO DECIDE THE QUESTION AS TO WHETHER THE E OUS ARE TO BE TREATED AS SEPARATE UNDERTAKINGS OR THEY ARE IN FACT EXPANSION OF THE B USINESS OF THE APPELLANT COMPANY AS HELD BY THE ASSESSING OFFICER. THE HON. JURISDICTIONAL HIGH COURT IN THE CASE CIT VS. TEXT HUNDRED INDIA PVT. LTD.: 239- CTR 263, HELD THAT RULE 29 ENABLES THE TRIBUNA L TO ADMIT ANY ADDITIONAL EVIDENCE WHICH WOULD BE NECESSARY TO DO SUBSTANTIAL JUSTICE IN THE MATTER. THEIR LORDSHIPS FURTHER OBSERVED THAT THE VARIOUS PROCEDURES, INCLU DING THAT RELATING TO FILING OF ADDITIONAL EVIDENCE, IS HANDMADE FOR JUSTICE AND JU STICE SHOULD NOT BE ALLOWED TO BE CHOKED ONLY BECAUSE OF SOME INADVERTENT ERROR OR OM ISSION ON THE PART OF ONE OF THE PARTIES TO LEAD EVIDENCE. IN THE CASE OF CIT V. VIR GIN SECURITIES & CREDITS (P) LTD.: 332 ITR 396 (DEL), THE HON. JURISDICTIONAL HIGH COURT H ELD THAT THE CIT(A) MAY ADMIT ADDITIONAL EVIDENCE, AFTER OBTAINING A REMAND REPOR T FROM THE ASSESSING OFFICER, IF THE EVIDENCE SOUGHT TO BE ADDUCED BY THE APPLICANT IS C RUCIAL TO THE DISPOSAL OF THE APPEAL. HON'BLE ITAT DELHI HAVE ALSO HELD IN THE CASE OF EL ECTRA (JAIPUR) (P) LTD. VS. LAC (26 ITO 236) THAT IF THE EVIDENCE IS GENUINE, RELIABLE, PRO VES THE ASSESSEE'S CASE, THEN THE ASSESSEE SHOULD NOT BE DENIED THE OPPORTUNITY. SIMI LARLY IT WAS HELD IN DWARKA PRASAD VIS ITO 63 ITD 1 (TM) THAT ADDITIONAL EVIDENCE IF I N THE INTEREST OF JUSTICE, AND RENDERS ASSISTANCE TO THE AUTHORITY IN PASSING ORDER, MAY B E ADMITTED. OTHER SIMILAR RULINGS ARE 68 TTJ 722, 231 ITR 1, 21 SOT 218,293 ITR 53, 941TD 79 ETC. IN VIEW OF THE GUIDANCE AVAILABLE IN THE AFORE-CITED JUDICIAL PRONOUNCEMENT S, 1 HOLD THAT THE ADDITIONAL ITA NO. 3076 & C.O. NO. 318/DEL/2012 19 EVIDENCE AS MENTIONED IN PARA 2.3 ABOVE ARE ADMISSI BLE U/R 46A AND ARE TAKEN ON RECORD. 2.4.2 HAVING DECIDED THE QUESTION OF ADMISSION OF A DDITIONAL EVIDENCE, NOW THE SUBSTANTIVE ISSUES ARE TO BE DECIDED. THE SAME ARE DISCUSSED IN THE FOLLOWING PARAGRAPHS. 2.4.3 THE FIRST SUBSTANTIVE ISSUE IS WHETHER THE AP PELLANT WAS CORRECT IN CLAIMING DEDUCTION UNDER SECTION 108 OF THE ACT WITH REFEREN CE TO SEPARATE AND INDEPENDENT PROFITS OF EACH OF THE ELIGIBLE UNITS AS AGAINST TH E ACTION OF THE ASSESSING OFFICER IN COMPUTING SUCH DEDUCTION WITH REFERENCE TO BUSINESS PROFITS OF THE APPELLANT COMPANY AS A WHOLE. THE AO HAD OBSERVED THAT ALL THE UNITS WERE IN FACT EXPANSION OF THE SAME BUSINESS AS THEY WERE ENGAGED IN, THE SAME LINE OF BUSINESS AS THE COMPANY AND NO SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED FOR THESE UNITS. HE HAD ALSO RAISED DOUBTS ABOUT THE ALLOCATION OF EXPENSES TO THESE UN ITS TO 'ARRIVE AT THE CONCLUSION THAT DEDUCTION COULD NOT BE CALCULATED IN RESPECT OF THE UNITS SEPARATELY AND THEREFORE HE CALCULATED THE DEDUCTION U/S 108 BY AGGREGATING ALL THE PROFITS OF ELIGIBLE AND NON ELIGIBLE UNITS AND APPLYING THE-FORMULA AS GIVEN IN SECTION 108(4) TO THE. ENTIRE PROFITS OF THE BUSINESS OF THE APPELLANT COMPANY THEREBY RE DUCING THE DEDUCTION SUBSTANTIALLY. THE APPELLANT HAS MADE DETAILED SUBMISSIONS ON THIS GROUND AS SUMMARISED/EXTRACTED HEREINABOVE. VARIOUS EVIDENCES TO ESTABLISH SEPARAT E 'IDENTITY AND INDEPENDENT EXISTENCE OF THE ELIGIBLE EOUS HAVE BEEN FURNISHED FROM WHICH IT APPEARS THAT THESE UNITS ARE INDEPENDENT OF EACH OTHER AS WELL AS OF T HE NON-ELIGIBLE UNITS IN RESPECT OF THEIR LICENCES, LOCATION AND RESOURCES ETC. THEY HA VE GOT SEPARATE APPROVALS FROM THE- STPI AUTHORITY FOR CLAIMING EXEMPTION ILLS 108 OF T HE ACT AS NEWLY SET UP 100% EOU AND THEY HAVE ALSO BEEN ISSUED SEPARATE EXPORT LICE NCES BY THE CUSTOMS AUTHORITIES. THESE UNITS HAVE SEPARATE LOCATIONS AS IS INDICATED FROM THEIR RESPECTIVE ADDRESSES. THE APPELLANT HAS ALSO PRODUCED EVIDENCES TO ESTABL ISH THAT THEY HAVE SEPARATE FIXED ASSETS, PLANTS & MACHINERY AND FURNITURE AND FIXTUR ES ETC. EACH OF THE EOUS HAVE INDEPENDENT, SEPARATE AND DISTINCT OPERATIONS AS IN DICATED IN THE EVIDENCES PRODUCED IN THE FORM OF COPIES OF SOFTEX FORMS, COPIES OF TH E INVOICES, COPIES OF FOREIGN INWARD REMITTANCE CERTIFICATES, COPIES OF CUSTOM BONDED RE GISTER MAINTAINED BY EACH UNIT AND COPIES OF MONTHLY PERFORMANCE REPORTS ON SAMPLE BA SIS. THOUGH SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF UNITS HAVE NOT BEEN MAINTAIN ED IN THE TRADITIONAL SENSE, THE APPELLANT HAS EXPLAINED THAT IN THE ERP SOFTWARE AC COUNTING SYSTEM IMPLEMENTED BY THEM EACH AND EVERY TRANSACTION OF EACH UNIT IS SEP ARATELY CODED AND THEREFORE ALL THE TRANSACTIONS ARE IDENTIFIABLE AS IN THE CASE OF SEP ARATE BOOKS. MOREOVER, THE DEDUCTION HAS BEEN CLAIMED' IN RESPECT OF THE EOUS ON THE BAS IS OF THE PRESCRIBED AUDIT REPORT IN FORM NO.56G WHICH ALSO REQUIRES THE CERTIFYING CHAR TERED ACCOUNTANT TO CERTIFY THE AMOUNT CLAIMED AS DEDUCTION U/S 10B ON THE BASIS OF EXAMINATION OF THE ACCOUNTS AND RECORDS OF THE ASSESSEE RELATING TO THE BUSINESS OF THE ELIGIBLE UNDERTAKING. THIS REPORT ALSO DOES NOT REFER TO ANY SEPARATE BOOKS TO BE MAI NTAINED OR REQUIRED TO BE MAINTAINED BY THE ELIGIBLE EOU. THIS ISSUE IS ALSO DIRECTLY COVERED IN THE CASE OF DCIT V. ARABIAN EXPORTS LIMITED: 109 TTJ 440 (MUM.) AS CITE D BY THE APPELLANT HEREINABOVE, WHEREIN THE TRIBUNAL, UPHELD THE FOLLOWING DECISION OF THE CIT(A) : ITA NO. 3076 & C.O. NO. 318/DEL/2012 20 '2.4 IN VIEW 'OF THE ABOVE PROVISIONS OF S10B, ANY P ROFITS AND GAINS WHICH ARE DERIVED BY AN ASSESSEE FROM A 100 PER CENT EXPORT-ORIENTED UND ERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE, IF THE CONDITIONS IN SUB-S. (2) OF THIS SECTION ARE FULFILLED. LOOKING TO THESE CONDITIONS AS MENTIONED IN SUB-S.(2 ) OF THIS SECTION, IT IS NOT SEEN THAT SEPARATE BOOKS OF ACCOUNTS ARE THE REQUIREMENT OF C LAIMING DEDUCTION FROM THE TOTAL INCOME OF ANY ASSESSEE RELATING TO THE PROFITS AND GAINS DERIVED BY THAT ASSESSEE FROM A 100 PER CENT EXPORT-ORIENTED UNDERTAKING .......... ...... ... THIS KOREGAON UNIT IS FULFILLING ALL THE CONDITIONS AS PER SUB-S. (2) OF S..10B OF THE A CT AND THEREFORE, IT. IS ENTITLED FOR THAT EXEMPTION .. THIS GROUND 'OF APPEALS IS ALLOWED. ' REFERENCE, IN THIS REGARD HAS ALSO BEEN MADE TO THE FOLLOWING DECISIONS OF THE COURT / TRIBUNAL WHERE IT HAS BEEN HELD THAT THERE IS NO RE QUIREMENT TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS AS A NECESSARY PRECONDITION FOR C LAIMING THE BENEFIT OF RELIEF UNDER SECTIONS 1OA/10B OF THE ACT:- CIT V. FUSION SOFTWARE ENGG. (P.) LTD.: ITA NO. 9 52 AND 953 OF 2006 (KAR HC) JCIT V GEBBS INFOTECH LTD.: ITA NO. 3370/MUM/2007 (MUM.) 2.4.4 IN VIEW OF THE EVIDENCE PLACED AND THE EXPLAN ATIONS FURNISHED, IT IS HELD THAT THE ELIGIBLE UNITS OF THE APPELLANT COMPANY IDENTIFIED AS THE FOLLOWING: NTL - SALT LAKE - KOLKATA EM4/1, 2 ND FLOOR, NORTH WING SECTOR-V, SALT LAKE ELECTRONICS COMPLEX, KOLKATA NTL - SAFED POOL, MUMBAI ADITYA TEXTILE COM POUND, CAROUROY BUILDING SAFED POOL, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI NTL - PRETORIA STREET, KOLKATA 6B, PRETORIA STREET, KOLKATA NTL - BANNERGHATTA ROAD, BANGALORE NO.39/2,BANNERGHATTA ROAD, BANGALORE 560029 NTL - ATHENA, NEW DELHI A - 44, MOHAN CO - OPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. ARE-SEPARATE 100% EOUS OF THE APPELLANT COMPANY FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 10 B OF THE ACT AND THEY CANNOT BE TR EATED AS ONE WITH THE APPELLANT COMPANY JUST BECAUSE THEY CARRY OUT THE SAME NATURE OF BUSINESS. AS HAS BEEN HELD IN THE CASES OF CIT V MAHAN FOODS LTD. 216 CTR 148 AND CIT V GEDORE TOOLS (INDIA) P.LTD. 126 ITR 613 BY THE HON. JURISDICTIONAL HIGH COURT, JUST BECAUSE THE NEW UNDERTAKING CARRIES EN THE SAME NATURE OF BUSINESS AS THE OLD U NIT, IT CANNOT BE TREATED AS ONE WITH THE OLD UNIT UNLESS IT HAS BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF THE OLD UNIT. IT IS NOT THE CASE OF THE AO THAT IN THE INSTANT CA SE, THE ELIGIBLE UNITS HAVE BEEN FORMED ITA NO. 3076 & C.O. NO. 318/DEL/2012 21 BY SPLITTING UP OR RECONSTRUCTING THE OLD .OR NON-E LIGIBLE UNITS. SINCE THERE IS ENOUGH EVIDENCE IN THE APPELLANT'S CASE THAT THE EXPERT OR IENTED UNITS WERE FORMED INDEPENDENTLY OF THE EXISTING UNITS FOR THE PURPOSE OF EXPORT OF SOFTWARE AND THEY WERE APPROVED AS SUCH BY THE RELEVANT AUTHORITIES, AND T HAT THEY HAVE FUNCTIONED INDEPENDENTLY OF EACH OTHER FOR THE PURPOSES OF THE BUSINESS OF EXPERT OF SOFTWARE, THESE UNITS HAVE TO BE TREATED AS THE ELIGIBLE UNDE RTAKINGS FOR THE PURPOSES OF DEDUCTION U/S 10B OF THE ACT AND PROFITS ARISING TH EREFROM HAVE TO BE ALLOWED AS DEDUCTION UNDER THAT SECTION SEPARATELY AS CERTIFIE D BY THE AUDIT REPORT IN FORM 56G, THE FIRST SUBSTANTIVE ISSUE IS THEREFORE DECIDED IN FAVOUR OF THE APPELLANT AND THE AO IS DIRECTED TO RE-COMPUTE THE DEDUCTION U/S 10B ACCORD INGLY. 2.4.5 THE SECOND SUBSTANTIVE ISSUE IN THIS APPEAL I S AS TO THE STAGE OF ALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT. THE ASSESSI NG OFFICER HAS TAKEN THE VIEW THAT THE DEDUCTION U/S 10B WAS ALLOWABLE AFTER DEDUCTING UNABSORBED BROUGHT FORWARD DEPRECIATION FROM THE PROFITS OF BUSINESS OF THE AP PELLANT COMPANY. HE HAS PLACED RELIANCE MAINLY ON THE JUDGMENT OF THE HON. KARNATA KA HIGH COURT IN THE CASE OF CIT VS. HIMMATSINGIKE SEIDE LTD. 286 ITR 255 FOR THE ABOVE PROPOSITION. THE CASE OF THE APPELLANT IS THAT DEDUCTION IS ALLOWABLE FROM PROFI TS OF THE ELIGIBLE BUSINESS AS COMPUTED UNDER THE HEAD 'BUSINESS INCOME'. AS A NEC ESSARY COROLLARY, SUCH PROFITS ARE THE INDIVIDUAL PROFITS OF THE ELIGIBLE UNITS COMPUT ED BEFORE SETTING OFF OF BROUGHT FORWARD UNABSORBED LOSSES DEPRECIATION, IF ANY, OF NON-ELIGIBLE UNDERTAKINGS, REQUIRED TO BE SET OFF, SUBSEQUENTLY AT THE STAGE OF COMPUTI NG GROSS TOTAL INCOME, UNDER CHAPTER VI OF THE ACT. ACCORDING TO THE APPELLANT, ON ONE H AND, THE FACTS OF THE CASE OF CIT VS. HIMMATSINGIKE SEIDE LTD. 286 ITR 255 ARE CLEARLY DI STINGUISHABLE FROM THE FACTS OF THE INSTANT CASE AND ON THE OTHER, THE. AFORESAID ISSUE IS SQUARELY COVERED BY THE DECISION OF THE-SPECIAL BENCH OF THE' TRIBUNAL IN THE CASE OF SCIENTIFIC ATLANTA INDIA (P) LIMITED: 38 SOT 252/129 TTJ 273 WHEREIN THE TRIBUNAL HAS HEL D THAT DEDUCTION UNDER SECTION 10A OF THE ACT HAS TO BE INDEPENDENTLY COMPUTED IN RELATION TO THE PROFITS OF THE ELIGIBLE UNIT WITHOUT ADJUSTING THE SAME AGAINST- U NABSORBED DEPRECIATION RELATING TO THE NON-ELIGIBLE UNIT(S). RELIANCE HAS ALSO BEEN PL ACED BY THE APPELLANT ON THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN THE CASE OF ACIT V. YOKOGAWA INDIA LTD. 111 TTJ 548, WHEREIN IT WAS HELD THAT DEDUCTION UNDER SECTION 10 A SHALL BE ALLOWED FROM THE PROFITS OF ELIGIBLE UNDERTAKING WITHOUT SETTING OFF THE LOS SES /CARRIED FORWARD LOSSES OF OTHER NON-ELIGIBLE DIVISIONS. OTHER CASES RELIED UPON BY THE APPELLANT ARE AS UNDER: CHANGEPOND TECHNOLOGIES (P.) LTD. V. ACIT: 119 T TJ 18 (CHENN.) KPIT CUMMINS INFOSYSTEMS (BANGALORE) (P) LTD. V. ACIT: (2008) 26 SOT 529 (BANG,) RELIQ SOFTWARE (P) LIMITED V. ITO: 125 ITO 101 (B ANG.) BESIDES THE ABOVE DECISIONS CITED IN THEIR WRITTEN SUBMISSIONS, THE APPELLANT'S AR ALSO BROUGHT TO MY ATTENTION THE JUDGEMENT OF HON. KARNA TAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. : 246 CTR 226 (KAR), WHEREIN TH IS ISSUE HAS BEEN EXAMINED BY THE HON. HIGH COURT AND DECIDED IN THE FAVOUR OF THE AS SESSEE. THE AR HAS ARGUED SINCE THE PROVISIONS OF SECTION 10A ARE ANALOGOUS TO THE PROV ISIONS OF SECTION 10B THE RATIO LAID ITA NO. 3076 & C.O. NO. 318/DEL/2012 22 DOWN BY THE ABOVE SAID JUDICIAL PRONOUNCEMENTS ARE APPLICABLE TO THE APPELLANT'S CASE ALSO. 2.4.5.1 I HAVE PERUSED THE JUDICIAL PRONOUNCEMENTS AS RELIED UPON BY THE ASSESSING OFFICER AND THE APPELLANT. IN THE CASE OF CIT VS. H IMMATSINGIKE SEIDE LTD. 286 ITR 255, THE ASSESSEE HAD 100% EXPORT ORIENTED UNDERTAKING E LIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. THE UNDERTAKING WAS SET UP IN THE ASSESSMENT YEAR 1988-89. THE ASSESSEE, HOWEVER, CLAIMED DEDUCTION FOR FIVE C ONSECUTIVE YEARS FROM ASSESSMENT YEAR 1992-93. THE YEAR UNDER CONSIDERATION BEFORE T HE HON COURT WAS ASSESSMENT YEAR 1994-95. THE ASSESSEE HAD UNABSORBED DEPRECIAT ION RELATING, TO THE 100% EXPORT ORIENTED UNDERTAKING CARRIED FORWARD FROM ASSESSMEN T YEAR 1988-89 TO THE YEAR UNDER CONSIDERATION. THE SAID UNABSORBED_ DEPRECIAT ION WAS ADJUSTED BY THE ASSESSEE AGAINST CERTAIN INCOME FROM 'OTHER SOURCES' AND NOT AGAINST THE ELIGIBLE PROFITS OF THE 100% EXPORT ORIENTED UNDERTAKING AND THE ENTIRE PRO FITS FROM THE EXPORT ORIENTED UNDERTAKING WAS CLAIMED AS EXEMPT FROM TAX. THE ASS ESSEE, BY DOING SO WAS ABLE TO SET OFF THE UNABSORBED DEPRECIATION OF THE EXPORT ORIEN TED UNDERTAKING AGAINST THE TAXABLE PROFITS FROM 'OTHER SOURCES', WHICH HAD THE EFFECT OF REDUCING THE TAXABLE INCOME TO NIL. THE HON HIGH COURT, AFTER ANALYZING THE ENTIRE SCHEME HELD THAT THE UNABSORBED DEPRECIATION OF THE EXPORT ORIENTED UNDE RTAKING HAD TO BE ADJUSTED AGAINST THE ELIGIBLE PROFITS BEFORE ALLOWING EXEMPT ION/DEDUCTION UNDER SECTION 108 OF THE ACT. THE HON. COURT OBSERVED THAT BY CLAIMING S ET OFF OF UNABSORBED DEPRECIATION OF THE ELIGIBLE UNDERTAKING AGAINST 'INCOME FROM OTHER SOURCES', THE ASSESSEE HAD VIRTUALLY TAKEN EXEMPTION FROM PAYMENT OF TAX EVEN IN RESPECT OF OTHER BUSINESS INCOME, WHICH WAS CLEARLY NOT PERMISSIBLE. APPLIED TO THE PRESENT CASE, IT IS IMMEDIATELY DISCERNIBLE THAT THE FACTS OF THE PRESE NT CASE ARE TOTALLY OPPOSITE OF THE FACTS OF THE CITED CASE. THERE IS NO BROUGHT FORWAR D UNABSORBED DEPRECIATION IN RESPECT OF THE 100% EOUS IN THE PRESENT CASE. IN THE PRESEN T CASE, IT IS NOTICED THAT THE QUESTION OF SET OFF OF UNABSORBED DEPRECATION BROUG HT FORWARD FROM EARLIER YEAR(S) PRIOR TO CLAIMING DEDUCTION UNDER SECTION 108 OF TH E ACT WOULD NOT ARISE SINCE THE UNABSORBED DEPRECIATION OF RS.13,90,60,056 CARRIED FORWARD FROM ASSESSMENT YEAR 2005-06 RELATED TO UNDERTAKINGS NOT ELIGIBLE FOR DE DUCTION UNDER SECTION 10B OF THE ACT DURING THE YEAR UNDER CONSIDERATION. THIS FACT CLEARLY ESTABLISH THAT UNABSORBED DEPRECIATION BROUGHT FORWARD ACTUALLY PERTAINED TO THE NON-ELIGIBLE UNIT AND NOT TO THE ELIGIBLE UNIT(S) AND THEREFORE, THE QUESTION OF SET OFF OF SUCH UNABSORBED DEPRECIATION PRIOR TO CLAIMING DEDUCTION UNDER SECTION 10B OF TH E ACT IN MY VIEW DOES NOT ARISE AT ALL. I AGREE WITH THE CONTENTION OF THE APPELLANT T HAT FACTS OF THE INSTANT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE CITED CASE AN D HOLD THAT THE DECISION OF HON. KARNATAKA HIGH COURT IN THE CASE OF HIMMATSINGKIE S IEDE UD.(SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE AND THAT THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THAT CASE IS SOMEWHAT MISPLACED. 2.4.5.2 IN THE CASE OF SCIENTIFIC ATLANTA INDIA TEC HNOLOGY (P) LIMITED: 38 SOT 252 I 129 TTJ 273 AS RELIED UPON BY THE APPELLANT, IT HAS BEE N HELD BY THE SPECIAL BENCH OF THE TRIBUNAL AS UNDER: UNDER THE SCHEME OF THE ACT THE PROFITS OF THE UN IT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT,' WOULD FORM PART OF THE INCOME COMP UTED UNDER THE HEAD 'PROFITS AND GAINS ITA NO. 3076 & C.O. NO. 318/DEL/2012 23 OF BUSINESS AND PROFESSION'. HOWEVER, IN ORDER THE S AME WILL NOT SUFFER TAX DEDUCTION WILL HAVE TO BE MADE -IN RESPECT OF SUCH PROFITS WHILE CO MPUTING THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS AND PROFESSION'. IN OTHER WORDS, A DEDUCTION IN RESPECT OF PROFITS ELIGIBLE UNDER SECTION 10A IS REQUIRED TO BE MADE AT THE STAGE OF COMPUTING THE INCOME UNDER THE HEAD' 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. THUS, WE FIND THAT WHAT IS CONTEMPLATED BY THE LEGISLATURE IS THAT PRO FITS AND GAINS OF THE UNDERTAKINGS FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWA RE ARE TO. BE DEDUCTED COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION (AT HUND RED PER CENT UPTO ASSESSMENT YEAR 2002- 03 AND NINETY PER CENT THEREAFTER). EVEN THOUGH IT IS A DEDUCTION TO BE GIVEN, IT IS TO BE DEDUCTED WHILE ARRIVING AT THE PROFITS OF BUSINESS A ND PROFESSION AND NOT FROM THE GROSS TOTAL INCOME AS ENVISAGED UNDER CHAPTER VI-A. THUS, -WE HOLD THAT DEDUCTION UNDER SECTION 10A UNDER CHAPTER III OF THE IT. ACT IS TO BE GRANTE D WHILE COMPUTING THE PROFITS AND GAINS OF BUSINESS AND PROFESSION ITSELF AND NOT FROM THE G ROSS TOTAL INCOME . 25. HAVING HELD THAT THE CLAIM UNDER SECTION 10A IS ONLY DEDUCTION AND THE SAME IS NOT SUBJECTED TO SECTION 80AB OF CHAPTER VI-A, NOW, LET US CONSIDER WHETHER THE DEDUCTION SO TO BE GIVEN UNDER SECTION 10A IS UNDERTAKING SPECIFIC O R OTHERWISE. 26. IT CAN BE NOTICED FROM THE LANGUAGE OF SECTION 1 0A(1) THAT A DEDUCTION OF SUCH PROFITS AND GAINS THAT AS ARE DERIVED BY 'AN' UNDERTAKING ' QUALIFIES UNDER SECTION 10A IS TO BE GIVEN FROM THE TOTAL INCOME. INTERESTINGLY, THE LEG ISLATURE HAS MENTIONED THE PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING. IT MEANS TH AT. THE ASSESSEE MAY HAVE MORE THAN ONE UNDERTAKING AND IN SUCH A CASE, ONE HAS TO CONS IDER THE PROFITS AND GAINS OF THAT 'PARTICULAR UNDERTAKING' WHICH QUALIFIES FOR DEDUCT ION UNDER SECTION 10A. ACCORDING TO SECTION 10A(4), THE DEDUCTION IS TO BE COMPUTED IN T HE SAME PROPORTION WHICH BEARS TO THE PROFITS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTAL TURNOVER. IT MAY BE NOTICED THAT AGAIN THE WORDS USE D ARE 'PROFITS AND GAINS OF BUSINESS OF THE UNDERTAKING'. IN ANY CASE, THIS IS NOT THE TOTA L PROFITS OF THE BUSINESS OF THE ASSESSEE. THUS IN COMPUTING DEDUCTION UNDER SECTION 10A WE HA VE TO ASCERTAIN THE TOTAL INCOME AS PER THE PROVISIONS OF THE ACT IN RESPECT OF 'THAT U NDERTAKING' AND THE AMOUNT SO DETERMINED IS TO BE REDUCED FROM THE TOTAL INCOME . 27. HAVING HELD THAT THE DEDUCTION UNDER SECTION -1 0A IS NOT AN EXEMPTION BUT ONLY A DEDUCTION UNDER CBEPTER III OF THE INCOME-TAX ACT AND THE PROVISIONS OF SECTION 8OAB OF CHAPTER VIA WOULD NOT BE APPLICABLE TO SUCH DEDUCTIO N UNDER SECTION 10A, AND ALSO THAT THE DEDUCTION UNDER SECTION 10A IS UNDERTAKING SPECIFIC , WE HAVE TO ANSWER THE QUESTION POSED BEFORE US BY HOLDING THAT THE BUSINESS LOSSES ARE NON -ELIGIBLE UNIT, WHOSE INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, CANNOT BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING ELIGI61E FOR DEDUCTION UNDER SECTIO N 10A FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION UNDER SECTION 10A OF THE ACT . OF COURSE, IF THERE ARE MORE THAN ONE UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION UNDER SE CTION 10A AND IF SOME OF THE UNITS HAVE PROFIT AND OTHER UNITS HAVE LOSS, IT WOULD BE AN ENT IRELY DIFFERENT CASE WHICH IS BEFORE US. HENCE, THE DECISION RENDERED IN THIS APPEAL WOULD N OT-BE APPLICABLE TO SUCH CASES WHERE THERE ARE MORE THAN ONE ELIGIBLE UNDERTAKING CLAIMIN G DEDUCTION UNDER SECTION 1OA. IN THIS CASE, THERE IS ONLY ONE ELIGIBLE UNIT CLAIMING DEDUC TION UNDER SECTION 10A AND HENCE, THE LOSS FROM NON-ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF THE ELIGIBLE UNIT WHILE DETERMINING DEDUCTION UNDER SECTION 1OA.II (EMPHASI S SUPPLIED) ITA NO. 3076 & C.O. NO. 318/DEL/2012 24 2.4.5.3 IN THE CASE OF ACIT V. YOKOGAWA INDIA LTD.: 111 TTJ 548 THE BANGALORE BENCH OF TRIBUNAL HELD THAT DEDUCTION UNDER SECTION 10A SHAL L BE ALLOWED FROM THE PROFITS OF ELIGIBLE UNDERTAKING WITHOUT SETTING OFF THE LOSSES OR CARRY FORWARD LOSSES OF OTHER NON- ELIGIBLE DIVISIONS. THIS DECISION WAS SUBJECTED TO APPEAL U/S 260A BY THE REVENUE AND THE HON. HIGH COURT OF KARNATAKA HAS GIVEN ITS VERD ICT IN ITA NO. 78/2011 DATED 9TH AUGUST 2011, REPORTED IN 246 CTR 226(KAR) IN A COMB INED ORDER IN RESPECT SEVERAL OTHER CASES, A COPY OF WHICH HAS BEEN FURNISHED BY THE AR OF THE APPELLANT. FROM A PERUSAL OF THIS JUDGEMENT, IT IS SEEN THAT THE HON. HIGH COURT HAS ANSWERED THE QUESTION AS TO WHETHER THE PROFIT OF ELIGIBLE UNDERTAKING FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 10A OF THE ACT (WHICH IS ANALOGOUS TO SECTION 108) AT T HE SOURCE ITSELF OR AFTER DEDUCTION OF UNABSORBED BROUGHT FORWARD DEPRECIATION, IN FAVOUR OF THE ASSESSEE. THE HON. COURT WHILE UPHOLDING THE CONTENTION OF THE ASSESSEE THAT DEDUCTION U/S 1OAWAS TO BE ALLOWED AT THE SOURCE ITSELF OBSERVED AS UNDER: '12. A LITERAL READING OF THE ABOVE PROVISION REQUIR ES DEDUCTION FROM THE TOTAL INCOME. THERE CAN BE DEDUCTION IN COMPUTING THE 'TOTE! INCOM E. HOWEVER, THERE CANNOT BE DEDUCTION FROM THE TOTAL INCOME WHICH IS THE FINAL RESULT OF THE COMPUTATION PROCESS. THE LANGUAGE ADOPTED IN SECTION 1O-A IS DIFFERENT FROM THE ONE ADOPTED IN SECTION 80 -A. SECTION 10 -A PROVIDES FOR DEDUCTION FROM THE TOTAL INCOME. IN THE SCHEME OF THE ACT, WHILE- VARIOUS DEDUCTIONS ARE ALLOWED IN COMPUTING THE TOTAL INCOME ONCE THE TOTAL INCOME IS COMPUTED, NO FURTHER ADJUSTMENTS TO THE T OTAL INCOME IS ENVISAGED. THE SCHEME OF THE ACT PROVIDES FOR DEDUCTIONS IN COMPUTING THE TOTAL INCOME BUT NO MECHANISM FOR ANY DEDUCTION FROM THE TOTAL INCOME ALREADY COMPUTE D IS PROVIDED UNDER THE ACT. ONCE THE TOTAL INCOME IS COMPUTED, THE NEXT STEP IS DETE RMINATION OF THE TAX BY APPLYING APPLICABLE RATES ON THE TOTAL INCOME ........ . . 14. THE PHRASE 'TOTAL INCOME' HAS BEEN USED IN THE I NCOME TAX ACT IN SEVERAL PLACES WITH DIFFERENT CONNOTATION AND SHADES. THE PHRASE TOTAL INCOME USED IN SECTION I0-A IS ONE SUCH VARIANT. THE PHRASE NEED NOT NECESSARILY MEAN THE T OTAL INCOME AS COMMUTED IN ACCORDANCE WITH THE PROVISION OF THE ACT. THE RELIE F UNDER THIS SECTION IS WITH REFERENCE TO THE STP UNDERTAKING AND NOT TO THE ASSESSEE. IN OTH ER WORDS, THE RELIEF TRAVELS WITH THE UNDERTAKING IRRESPECTIVE OF WHO OWNS THE SAME. THE COMPUTATION OF RELIEF AS PROVIDED IN SECTION 10-A (4) IS ALSO WITH REFERENCE TO THE UNDE RTAKING. A BUSINESS MIGHT HAVE SEVERAL UNDERTAKING AND SECTION 28 DOES NOT ENVISAGE COMPUT ATION .OF INCOME OF EACH SUCH UNDERTAKING. IN OTHER WORDS, THE PROFIT OF THE BUSIN ESS OF THE UNDERTAKING CANNOT BE COMPUTED IN ISOLATION. THE PROFITS ARE COMPUTED UND ER THE HEAD 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION' AS UNDER THE ABOVE HEAD, THE INCOME FROM BUSINESS AS A WHOLE HAS TO BE COMPUTED. THE PHRASE 'TOTAL INCOME' USED IN SE CTION 1O-A (1) IS, THEREFORE TO BE UNDERSTOOD AS THE TOTAL INCOME OF THE STP UNIT. THI S IS CLEAR FROM THE FIRST PROVISO TO SECTION 10-A (1) WHICH MAKE REFERENCE TO THE TOTAL INCOME OF THE UNDERTAKING AND NOT THE TOTAL INCOME OF THE ASSESSEE, THE DEFINITION OF ANY TERM GIVEN IN SECTION 2 WILL ONLY APPLY WHEN THE CONTEXT DOES NOT OTHERWISE REQUIRE. - THE PLACEMENT LANGUAGE AN-D SETTING OF SECTION 10-A MEANS PROFITS AND GAINS OF THE STP UND ERTAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE. ITA NO. 3076 & C.O. NO. 318/DEL/2012 25 15. AS RELIEF UNDER SECTION 10-A IS IN THE NATURE O F EXEMPTION ALTHOUGH TERMED AS DEDUCTION AND THE SAID RELIEF IS IN RESPECT OF COMM ERCIAL PROFITS, SUCH INCOME IS NEITHER SUBJECT TO CHARGE OF INCOME TAX NOR INCLUDIBLE IN TH E TOTAL INCOME. THEREFORE THE TWIN PROVISIONS OF SECTION 14 ARE NOT EXISTING .IN THE C ASE OF INCOME OF STP UNDERTAKING AND ACCORDINGLY SUCH INCOME IS NOT LIABLE TO BE COMPUTED UNDER CHAPTER IV. THEREFORE THE CORRECT VIEW WOULD BE THAT THE RELIEF UNDER SECTION 10-A WILL HAVE TO BE GIVEN BEFORE CHAPTER IV THE DEDUCTION SHALL BE GIVEN FIRST AND PR OCESS OF COMMUTATION OF 'PROFITS AND GAINS FROM BUSINESS OR PROFESSION BEGINS THEREAFTER. .THIS PROPOSITION IS IN THE LINE WITH THE FORM OF RETURN ---ALLOWING DEDUCTION AT THE EARLIEST STAGE OF BUSINESS INCOME, COMPUTATION ALMOST BLURS THE DIFFERENCE BETWEEN THE COMMERCIAL PROFITS AND TAX PROFITS. 16. THE SUBSTITUTED SECTION 10-A CONTINUES TO REMAI N IN CHAPTER LII. IT IS TITLED AS 'WHICH DO NOT FORM PART OF THE TOTAL INCOME'. IT MC1Y BE NO TED THAT WHEN SECTION 10-AWAS RECAST BY THE FINANCE ACT, 2001 THE PARLIAMENT WAS AWARE O F THE CHARACTER OF RELIEF GIVEN IN CHAPTER III. CHAPTER 111 DEALS WITH INCOMES WHICH D O NOT FORM PART OF TOTAL INCOME. IF THE PARLIAMENT INTENDED THAT THE RELIEF UNDER SECTION 1 0-A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTATION OF TOTAL INCOME, I T COULD HAVE PLACED THE SAME IN CHAPTER- VL(A) WHICH HOUSES THE SECTION LIKE 80-HHC 80-IA.ETC. THE PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTION AND LIMITING PROVI SIONS LIKE SECTION 8OA AND SECTION 80AB WHICH WAS IN CHAPTER VI-A WHICH DO NOT APPEAR IN CH APTER-III. THE FACT THAT EVEN AFTER ITS RECAST THE RELIEF HAS BE-EN RETAINED IN CHAPTER 11/ INDICATES THAT THE INTENTION OF PARLIAMENT IS TO REGARD IT AS AN EXEMPTION AND NOT A DEDUCTION. THE ACT OF THE PARLIAMENT IN CONSCIOUSLY RETAINING THE SECTION IN CHAPTER 11/ INDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. THE PARLIAME NT DESPITE BEING CONVERSANT WITH THE IMPLICATIONS OF THIS CHAPTER HAS CONSCIOUSLY CHOSEN TO RETAIN SECTION 10A IN CHAPTER III. 17. IF SECTION 10A IS TO BE GIVEN EFFECT TO AS A DE DUCTION FROM THE TOTAL INCOME AS DEFINED IN SECTION 2(45), IT WOULD MEAN THAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDER CHAPTER VI-A ARE TO BE GIVEN FROM OUT OF THE GROSS TOTAL INCOME. THE TERM 'GROSS TOTA L INCOME' IS DEFINED IN SECTION 80B(5) TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WIT H THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION THE GROSS TOTAL INCOME, THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRS T GIVEN EFFECT TO. THERE IS NO REASON WHY REFERENCE TO THE PROVISIONS OF THE ACT SHOULD NOT I NCLUDE SECTION IDA. IN OTHER WORDS, THE GROSS TOTAL INCOME WOULD BE ARRIVED AT AFTER CONSIDE RING SECTION 10A DEDUCTION ALSO. THEREFORE, IT WOULD BE INAPPROPRIATE TO CONCLUDE THA T SECTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VIA DEDUCTIONS ARE EXHAUSTE D. 18. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A TH AT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHAPTER VI-A DEDUCTIONS ARE THE LAST ST AGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED AT. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT, AFTER GIVING EFFECT TO ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION S FROM THE TOTAL INCOME AS THE TOTAL INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 19. FROM THE AFORESAID DISCUSSION, IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME O F THE ASSESSEE. THE INCOME OF 10A UNIT ITA NO. 3076 & C.O. NO. 318/DEL/2012 26 HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER CO MPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME, USED IN''THE PROVISIONS OF SECTION ID A IN THIS CONTEXT MEANS THE GLOBAL INCOME OFF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). . 27. FORM NO.1 READ WITH RULE 12 OF THE INCOME TAX R ULES, 1962 PROVIDES FOR RETURN OF INCOME AND RETURN OF FRINGE BENEFITS. 28. IN SCHEDULE NO.9 AT COLUMN NO.7 IT IS CLEARLY M ENTIONED THE AMOUNT CLAIMED DEDUCTIBLE UNDER SECTION 1OA/1OAA/10B OR 1DBA. DEALI NG WITH THE SCHEME OF THE FORM IT IS STATED THAT SCHEME OF THIS FORM FOLLOW THE SCHEM E OF TILE LAW AS OUTLINED ABOVE IN ITS BASIC FORM AND WITH REFERENCE TO SCHEDULE 1, 9, 3 AN D 13 IT IS STATED THAT FILL OUT SCHEDULE 9 IF YOU ARE CLAIMING DEDUCTION UNDER SECTION 10A, 10 AA, 10B OR 10BA IN RESPECT OF SOME SPECIFIC BUSINESS'. ITEM 7 OF SCHEDULE 1 IS TO ELIMI NATE SUCH INCOME FROM COMPUTATION OF PROFITS AND LOSS AND NO SEPARATE DECLARATION UNDER SECTION 10A(8) OR 10B(8) IF ANY IS REQUIRED TO BE MADE. 29. AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARRY FORWARD OF LOSS AS PROVIDED UNDER SECT ION 72 OF THE ACT. THIS IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER THE ACT IRRESP ECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS UNDER SECTION 10B OF THE ACT. THE EXPRESSION 'DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY AN UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESS EE', HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED I N CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIED THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLE OR THING OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLE AR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE THAN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT IS THE PROFIT DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER S OFTWARE FROM THE BUSINESS OF THE UNDERTAKING ALONE THAT HAS TO BE TAKEN INTO CONSIDER ATION AND SUCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAID PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. (EMPHASIS SUPPLIED) 2.4.5.4 IN VIEW OF THE ABOVE DISCUSSION AND CONSID ERING THE GUIDANCE AVAILABLE IN THE AFORESAID JUDICIAL PRONOUNCEMENTS ESPECIALLY IN-THE ABOVE-CITED DECISION OF THE HON. KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD.: 246 CTR 226(KAR) AND OTHERS, AS GIVEN WITH REFERENCE TO THE PROVISIONS O F SECTION 10A WHICH ARE ANALOGOUS PROVISIONS OF SECTION 1DB, IT IS HELD THAT THE DEDU CTION U/S 1DB IS ALLOWABLE AT THE SOURCE ITSELF AND NOT AFTER COMPUTATION OF GROSS T OTAL INCOME AS PER THE PROVISIONS OF THE ACT. THE SECOND SUBSTANTIVE ISSUE IS, THEREFORE , ALSO DECIDED IN FAVOUR OF THE APPELLANT AND THE ASSESSING OFFICER IS HEREBY .DIRE CTED TO RECOMPUTE THE DEDUCTION U/S 10B ACCORDINGLY. THIS DISPOSES OFF GROUND NOS. 1, 2 & 3. (ALLOWED) ITA NO. 3076 & C.O. NO. 318/DEL/2012 27 6. FINDING NO INFIRMITY IN THE DETAILED ORDER OF TH E LD. CIT(A) WE FIND NO MERIT IN THE APPEAL OF THE REVENUE. ACCORDINGLY, THE REVE NUES APPEAL DESERVES TO BE DISMISSED SANS MERIT. 7. IN RESPECT OF THE CROSS-OBJECTION FILED BY THE A SSESSEE REGARDING SUSTENANCE OF DEMERGER EXPENSES OF RS.28,42,073/-, THE LD. AR DREW OUR ATTENTION ON THE COMPUTATION OF INCOME FILED BEFORE THE ASSESSING OFFICER. HE STATED THAT ASSESSEE HAS ALREADY DISALLOWED DEMERGE R EXPENSES WHILE COMPUTING ITS INCOME, BUT THE LD. CIT(A) DID NOT CONSIDER IT IN RIGHT PERSPECTIVE WHILE CONFIRMING THE ADDITION MADE BY ASSESSING OFFICER O N THIS ACCOUNT. IN OUR OPINION, THIS FACT, HOWEVER, NEEDS VERIFICATION AT THE STAGE OF ASSESSING OFFICER. WE, THEREFORE, REMIT THE CROSS OBJECTION OF THE ASS ESSEE BACK TO THE FILE OF ASSESSING OFFICER FOR DECIDING IT AFRESH AFTER MAKI NG PROPER VERIFICATION. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CONTENT ION OF THE ASSESSEE THAT THE DEMERGER EXPENSES WERE ALREADY CONSIDERED IN THE CO MPUTATION OF INCOME AND SHALL GIVE CREDIT THEREOF, IF IT IS FOUND SO. NEEDL ESS TO SAY, THE ASSESSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. ACCORD INGLY, THE CROSS OBJECTION OF THE ASSESSEE DESERVES TO BE ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.02.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27.02.2019 *AKS*