Lotus Footwear Enterprises Limited - India Branch, Thiruvannamalai V. DCIT International Taxation 1(1) & 1(2), CHENNAI

ITA 3228/CHNY/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4961 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3); 10AA; 10B; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NOS.3228 & 3229/CHNY/2017 / ASSESSMENTS YEAR: 2013-14 & 2014-15) M/S. LOTUS FOOTWEAR ENTERPRISES LIMITED INDIA BRANCH, PLOT NO.3B & C, SIPCOT INDUSTRIAL PARK, MATHUR, MANGAL VILLAGE, CHEYYAR T.K., THIRUVANNAMALAI, TAMIL NADU 631 701 VS THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION -1(1) & 1(2), CHENNAI. PAN: AABCL3407G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI SRIRAM SESHADRI, CA / RESPONDENT BY : SHRI JASDEEP SINGH, CIT /DATE OF HEARING : 18.12.2018 /DATE OF PRONOUNCEMENT : 22.01.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS BY THE ASSESSEE ARE ARISING OUT OF THE DIRECTIONS ISSUED BY THE LD. MEMBERS OF THE DRP-2, BENGALURU BOTH DATED 13.09.2017 FOR THE ASSESSMENT YEARS 2013-14 & 2014- 15 AND THE ASSESSMENT ORDER PASSED BY THE LD. DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI DATED 27.10.2016 & 2 ITA NOS.3228 & 3229/CHNY/2017 27.10.2017 BOTH PASSED U/S. 143(3) R.W.S. 144C(13) OF THE ACT FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY. 2. THE ASSESSEE HAS RAISED TWO IDENTICAL GROUNDS IN ITS APPEALS HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.AO AS WELL AS THE LD.MEMBERS OF THE DRP HAS ERRED BY SETTING OFF THE UNABSORBED DEPRECIATION AND BROUGHT FORWARD BUSINESS LOSS FROM THE PROFIT OF THE ELIGIBLE UNIT U/S.10AA OF THE ACT BEFORE GRANTING THE BENEFIT OF DEDUCTION U/S.10AA OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FOREIGN COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING LEATHER SPORTS SHOES, SYNTHETIC SPORTS SHOES AND TEXTILE SPORTS SHOES, FILED ITS RETURN OF INCOME ELECTRONICALLY FOR THE ASSESSMENT YEAR 2013-14 & 2014-15 ON 29.11.2013 & 29.11.2014 ADMITTING NIL INCOME UNDER NORMAL PROVISIONS AND BOOK LOSS OF RS.12,21,35,812/- & BOOK PROFIT OF RS.8,46,28,826/- U/S.115JB OF THE ACT RESPECTIVELY. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 02.09.2014 & 28.08.2015 FOR THE 3 ITA NOS.3228 & 3229/CHNY/2017 ASSESSMENT YEARS 2013-14 & 2014-15 RESPECTIVELY. THEREAFTER ASSESSMENT WAS COMPLETED U/S.143(3) R.W.S. 143C(13) OF THE ACT WHEREIN THE LD.AO DENIED THE BENEFIT OF DEDUCTION U/S.10AA OF THE ACT, BECAUSE HE WAS OF THE VIEW THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION HAS TO BE SET OFF FROM THE PROFIT OF THE ELIGIBLE 10AA UNIT OF THE ASSESSEE BEFORE GRANTING DEDUCTION TO THE ASSESSEE U/S.10AA OF THE ACT. SINCE IN THE CASE OF THE ASSESSEE, THE BROUGHT FORWARDS LOSSES AND THE UNABSORBED DEPRECIATION WAS MORE THAN THE PROFIT OF THE 10AA UNIT OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS, THE LD.AO DENIED THE BENEFIT OF DEDUCTION U/S.10AA OF THE ACT. THE LD.MEMBERS OF THE DRP UPHELD THE ORDER OF THE LD.AO BY OBSERVING AS UNDER FOR BOTH THE ASSESSMENT YEARS:- 3.4 BEFORE THE DRP, ASSESSEE HAS RELIED ON THE DECISION OF HONBLE APEX COURT DATED 16.12.2017 IN THE CASE OF YOKOGAWA INDIA LTD. AS IT WAS NOT BEFORE THE AO, HENCE HE DID NOT HAVE AN OPPORTUNITY TO CONSIDER THE DECISION. HOWEVER, PANEL AGREES WITH THE ANALYSIS OF CASE LAWS MADE BY AO IN HIS ORDER AT PAGE 6, AS HAS BEEN REPRODUCED ABOVE WHICH ALSO COVERS PRINCIPLES EMERGED OUT OF THIS CASE OF YOKOGAWA INDIA LTD. AFTER CAREFUL CONSIDERATION OF SUBMISSIONS AND OBJECTIONS OF THE ASSESSEE AND THE ORDER OF THE AO, PANEL FINDS MERIT IN THE REASONS AND ORDER OF THE AO AND ACCORDINGLY REJECTS OBJECTIONS OF THE ASSESSEE. 4 ITA NOS.3228 & 3229/CHNY/2017 4. AT THE OUTSET THE LD.AR SUBMITTED THAT THIS BENCH OF THE TRIBUNAL IN THE CASE ACIT VS. M/S. SKM ENGINEERING PRODUCTS- EXPORT INDIA LTD IN ITA NOS.383 TO 387/CHNY/2018 VIDE ORDER DATED 12.11.2018 HAD HELD THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE APEX COURT. IT WAS THEREFORE PLEADED THAT IN THE CASE OF THE ASSESSEE ALSO THE SAME DECISION MAY BE FOLLOWED. THE LD.DR ON THE OTHER HAND COULD NOT CONTROVERT TO THE SUBMISSION OF THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT AS POINTED OUT BY THE LD.AR THAT ON SIMILAR CIRCUMSTANCES THIS BENCH OF THE TRIBUNAL IN THE CASE M/S. SKM ENGG PRODUCTS EXPORT INDIA LTD., CITED SUPRA HAD HELD THE ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE M/S. YOKOGOWA INDIA LTD., REPORTED IN 391 ITR 274. THE GIST OF THE DECISION OF THE TRIBUNAL IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 2. THE REVENUE HAS RAISED FOUR GROUNDS IN ALL THESE APPEALS, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED BY DIRECTING THE LD.AO TO ALLOW DEDUCTION U/S.10B OF THE ACT EVEN BEFORE SET OFF OF BROUGHT FORWARD DEPRECIATION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY 5 ITA NOS.3228 & 3229/CHNY/2017 ENGAGED IN THE BUSINESS OF MANUFACTURING EGG POWDER, FILED ITS RETURN OF INCOME FOR ALL THESE AYS CLAIMING DEDUCTION U/S.10B OF THE ACT. THE LD.AO WHILE COMPUTING THE ELIGIBLE PROFIT FOR ALLOWING DEDUCTION U/S.10B OF THE ACT EXCLUDED THE BROUGHT FORWARD LOSSES AND DEPRECIATION. THEREAFTER, THE MATTER REACHED THE TRIBUNAL AND THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. YOKOGOWA INDIA LTD., REPORTED IN [2017] 291 CTR 0001 (SC) & 391 ITR 274 DIRECTED THE LD.AO TO GRANT THE BENEFIT OF DEDUCTION U/S.10B OF THE ACT WITHOUT SETTING OFF OF THE BROUGHT FORWARD LOSSES OF THE EARLIER YEARS. HOWEVER, THE LD.AO WHILE PASSING THE GIVING EFFECT ORDER U/S.150 OF THE ACT DATED 16.08.2017 EXCLUDED THE BROUGHT FORWARD DEPRECIATION FROM THE PROFITS OF THE ASSESSEE COMPANY FOR THE PURPOSE OF GRANTING DEDUCTION U/S.10B OF THE ACT BY OBSERVING AS UNDER: HONBLE ITAT HAS DIRECTED TO GRANT ASSESSEE THE BENEFIT OF DEDUCTION U/S.10B WITHOUT SET OFF OF THE BROUGHT FORWARD LOSSES OF THE EARLIER YEARS. ALSO AS PER RULING OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. YOKOGAWA LNDIA LTD. INCOME HAS TO BE FIRST COMPUTED AS PER THE PROVISIONS OF SECTION 28 TO 44 AND THEREAFTER DEDUCTION UNDER SECTION 10B HAS TO BE ALLOWED. BROUGHT FORWARD DEPRECIATION IS ALLOWABLE AS DEDUCTION AS PER PROVISIONS OF SECTION 32(2), WHICH READS AS FOLLOWS; WHERE IN THE ASSESSMENT OF THE ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUBSECTION 32(1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE THEN THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THE PREVIOUS YEAR. THUS, IN VIEW OF THIS SECTION, I.E. 32(2), THE BROUGHT FORWARD DEPRECIATION GETS MERGED WITH THE CURRENT YEARS DEPRECIATION AND THEREFORE FORMS PART OF THE COMPUTATION OF INCOME AS PER THE PROVISIONS OF SECTION 28 TO 44. ALSO BROUGHT FORWARD DEPRECIATION IS DEALT WITH BY SECTION 32(2) AND BROUGHT FORWARD LOSS BY SECTION 72 OF THE INCOME-TAX ACT, 1961. APPEAL EFFECT IS ACCORDINGLY GIVEN WHILE FOLLOWING THE DIRECTIONS OF THE HONBLE ITAT. 6 ITA NOS.3228 & 3229/CHNY/2017 AGGRIEVED BY THE ORDER OF THE LD.AO THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A). THE LD.CIT(A) FOLLOWING THE DECISION OF THE HONBLE APEX COURT AND THE TRIBUNAL DIRECTED THE LD.AO TO COMPUTE THE ELIGIBLE DEDUCTION BEFORE SETTING OFF OF THE BROUGHT FORWARD UNOBSERVED DEPRECIATION AND BUSINESS LOSSES. 4. AT THE OUTSET, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). THE HONBLE APEX COURT HAS CATEGORICALLY HELD THE DEDUCTION U/S.10A/B OF THE ACT HAS TO BE GRANTED BEFORE SETTING OFF OF CARRIED FORWARD OF BUSINESS LOSSES AND DEPRECIATION. THE RELEVANT PARA OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF YOKOGOWA INDIA LTD., REPORTED IN 391 ITR 274 IS EXTRACTED BELOW FOR REFERENCE: 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (IA) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF THE UNDERTAKING'. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THIS ORDER, BY HOLDING THAT THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT 7 ITA NOS.3228 & 3229/CHNY/2017 AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER IV. ALL THE APPEALS SHALL STAND DISPOSED OF ACCORDINGLY. SINCE LD.CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE HONBLE APEX COURT CITED SUPRA AND THE DECISION OF THE TRIBUNAL WE DO NOT FIND IT NECESSARY TO INTERFERE IN HIS ORDER. FOLLOWING THE ABOVE DECISION AND THE RATIO LAID BY THE HONBLE APEX COURT, WE HEREBY DIRECT THE LD.AO TO FIRST GRANT DEDUCTION U/S.10AA OF THE ACT AND THEREAFTER SET-OFF FROM THE REMAINING PROFIT IF ANY THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION. IT IS ORDERED ACCORDINGLY. 6. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THE 22 ND JANUARY, 2019 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER /CHENNAI, /DATED 22 ND JANUARY, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF