ACIT, CHENNAI V. Bloom Energy (India) Pvt. Ltd., Bangalore

ITA 3348/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7426 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 14-12-2016
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: K HEMALATHA ACA
• Keywords: Business expenditure; Revenue expenditure; Capital expenditure
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L REDDY, JUDICIAL MEMBER ./ ITA NOS.:3348/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI 34. V. M/S. BLOOM ENERGY (INDIA) PVT. LTD., NORTH BLOCK 3 RD FLOOR, RAJAJI NAGAR IT PARK, RAJAJI NAGAR INDUSTRIAL ESTATE, BANGALORE 560044. PAN : AABCI2936F ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI N. MADHAVAN, JCIT /RESPONDENT BY : MS. K. HEMALATHA, ACA /DATE OF HEARING : 16.02.2017 /DATE OF PRONOUNCEMENT : 22.03.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-1, CHENNAI, DATED 29.09.2016. 2. THE FIRST ISSUE RAISED BY THE REVENUE IN ITS APPEA L IS THAT THE LD.CIT(A) ERRED IN ALLOWING THE CLAIM U/S.10A OF TH E ACT IN ITS ENTIRETY WITHOUT TAKING INTO CONSIDERATION THE LOSS SUFFERED BY INEL IGIBLE UNIT OVERLOOKING THE 2 I.T.A. NO. 3348/MDS/2016 DECISION OF SUPREME COURT IN THE CASE OF HIMATSINGK A SEIDE LTD., VS. CIT REPORTED IN 266 CTR 141 (SC). 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS HAVING FOUR UNITS. OUT OF THIS, THREE UNITS VIZ. STPI-I UNIT AT BANGALORE, ST PI-II AT MUMBAI AND ETHP UNIT AT BANGALORE ARE ELIGIBLE UNITS FOR CLAIMING D EDUCTION U/S.10A OF THE ACT. HOWEVER, ONE MORE UNIT, DTA UNIT, WHICH IS NOT ELIG IBLE UNIT, INCURRED LOSSES. ACCORDING TO AO, DEDUCTION U/S.10A OF THE ACT TO BE COMPUTED AFTER SETTING OFF OF THE LOSSES OF DTA UNIT ALONG WITH THE PROFIT OF THREE UNITS ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. ACCORDINGLY, LD. ASSE SSING OFFICER RESTRICTED THE CLAIM MADE BY THE AO U/S.10A OF THE ACT. HOWEVER, T HE LD.CIT(A) OBSERVED THAT THE LOSSES OF THE NON STPI UNIT CANNOT BE SET OFF WITH THE PROFIT OF STPI UNITS ENTITLED U/S.10A OF THE ACT. FURTHER, LD.CIT (A) RELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS DECISION. I ) IN THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOG Y (P) LTD. VS.ACIT [2010] 129 TTJ (CHENNAI)(SB) 273. II) IN THE CASE OF FCI TECHNOLOGY SERVICES LTD. VS. ACIT IN ITA NO.616/COCH/2008 III) IN THE CASE OF PRECISION CAMSHAFT LTD., VS. AC IT IN (2016) 67 TAXMAN.COM 126 (PUNE TRIB) 3 I.T.A. NO. 3348/MDS/2016 LD.CIT(A) RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL DECISIONS, DIRECTED THE AO TO EXCLUDE THE LOSS OF THE NON-STPI UNITS WHILE CO MPUTING ELIGIBLE DEDUCTION U/S.10A OF THE ACT. AGGRIEVED, THE REVENUE IS IN A PPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERED BY T HE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SCIENTIFIC ATL ANTA INDIA TECHNOLOGIES PVT. LTD VS ACIT(SUPRA) WHEREIN HELD THAT DEDUCTION U/S 10A OF THE ACT WAS ALLOWABLE TO THE ASSESSEE WITHOUT SETTING OFF OF B ROUGHT FORWARD LOSSES OF EARLIER YEARS OF NON-ELIGIBLE UNITS FROM THE PROFI TS OF THE ELIGIBLE UNIT U/S 10A OF THE ACT. FURTHER, JUDGEMENT OF DELHI HIGH COUR T IN THE CASE OF CIT VS. KEI INDUSTRIES LTD. IN [2015] 373 ITR 574 (DEL) HELD TH AT LOSS SUFFERED BY THE ASSESSEE IN A UNIT ENTITLED TO EXEMPTION UNDER SECT ION 10B OF THE INCOME-TAX ACT, 1961, CANNOT BE SET OFF AGAINST INCOME FROM AN Y OTHER UNIT NOT ELIGIBLE FOR SUCH EXEMPTION. WHILE DECIDING THIS ISSUE, THE HONBLE SUPREME COURT HAS RECENTLY IN THE CASE OF HIMATSINGKA SEIDE VS. CIT I N 266 CTR 141 (SC) DISMISSED THE APPEAL AGAINST THE ORDER OF HONBLE K ARNATAKA HIGH COURT WHEREIN HELD THAT EXEMPTION U/S.10A CANNOT BE ON CO MMERCIAL INCOME AS IT HAS TO COMPUTE AS PRESCRIBED UNDER THE ACT. BEING SO, IN OUR OPINION, THE PROFIT FROM ELIGIBLE UNITS WHICH ARE ENTITLED FOR D EDUCTION U/S.10A OF THE ACT TO BE CONSIDERED INDEPENDENTLY, AND LOSS FROM INELIGIB LE UNIT CANNOT BE SET OFF WITH THE PROFIT OF ELIGIBLE UNIT FOR COMPUTING DEDU CTION U/S.10A OF THE ACT. 4 I.T.A. NO. 3348/MDS/2016 HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE. THIS GROUND RAISED BY THE REVENUE STANDS DIS MISSED. 5. THE SECOND ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS THAT THE LD.CIT(A) ERRED IN HOLDING THAT EXPENSES INCURRED I N FOEIGN CURRENCY RELATING TO TELECOMMUNICATION, TRAVEL & CONVEYANCE, DEDUCTED FROM THE EXPORT TURNOVER, SHOULD BE DEDUCTED FROM THE TOTAL TURNOV ER ALSO WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE CIT(A), FOLLOWING THE DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE OF SAK SOFT LTD., 121 TTJ 865 WHEREIN HELD THAT PARIT Y NEEDS TO BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER, DIREC TED THE AO TO REDUCE THE EXPENSES WHICH HAVE BEEN EXCLUDED FROM EXPORT TURNO VER, THE SAME TO BE EXCLUDED FROM THE TOTAL TURNOVER ALSO FOR PURPOSE O F COMPUTING DEDUCTION U/S.10B OF THE ACT. SINCE THE LD.CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE DECISION OF SAK SOFT LTD., CITED SUPRA AND HELD TH E ISSUE IN FAVOUR OF THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD.CIT(A). THEREFORE WE HEREBY CONFIRM THE ORDER O F THE LD. LD. CIT (A). THIS GROUND RAISED BY THE REVENUE STANDS REJECTED. 5 I.T.A. NO. 3348/MDS/2016 7. THE LAST ISSUE RAISED BY THE REVENUE IN ITS APP EAL IS THAT THE LD.CIT(A) ERRED IN HOLDING THAT THE DISALLOWANCE OF COMPENSAT ION PAID TO VENDORS ON ACCOUNT OF CANCELLATION OF A NEW PROJECT WAS REVENU E IN NATURE. 8. THE FACTS OF THE ISSUE ARE THAT THE AO HAD DISA LLOWED THE AMOUNT COMPENSATION PAID ON ACCOUNT OF CLOSURE OF TUSCON PROJECT STATING THAT THE SAME IS CAPITAL IN NATURE. AGGRIEVED WITH THE ORDE R OF AO, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, LD.CIT(A) OBSERVED THAT THE ASSESSEE HAD RECEIVED AN ORDER FOR SALE OF COMP ANIES PRODUCT TUSCON AND BASED ON SUCH ORDER, IT ENTERED INTO AGREEMENTS WITH VARIOUS SUPPLIERS OF RAW MATERIAL REQUIRED FOR MANUFACTURING THE PRODUCT S. DUE TO UNAVOIDABLY REASONS, THE CUSTOMER CANCELLED THE ORDER AS A RESU LT OF WHICH THE COMPANY HAS TO CANCEL ITS ORDERS WITH SUPPLIERS WHICH WAS E XECUTED FOR RECEIVING THE RAW MATERIAL. ACCORDING TO LD.CIT(A), IF THE ASSESS EE HAS NOT CANCELLED THE PURCHASE ORDER AND MATERIAL WAS RECEIVED IN THE NOR MAL COURSE THAN THE TRANSACTION WOULD HAVE BEEN CATEGORIZED AS PURCHASE S, WHICH IS A REVENUE EXPENDITURE AND LD.CIT(A),RELYING ON THE DECISION O F RAJKUMAR EXPORTS PVT LTD. VS. ACIT (2009-TIOL-8-8-ITAT-MAD) AND CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2010) 194 TAXMAN 192 (BOMBAY), OBSERVED THAT THE COMPENSATION HAS BEEN PAID AS PER TERMS OF THE AGREEMENT WITH TH E SUPPLIERS AS A PART OF BUSINESS COMMITMENT AND IN THE ORDINARY COURSE OF B USINESS. HENCE, 6 I.T.A. NO. 3348/MDS/2016 LD.CIT(A) OBSERVED THAT IT CONSTITUTES A REVENUE EX PENDITURE ALLOWABLE U/S.37 OF THE ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEF ORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.D.R IS THAT THE PAYME NT OF COMPENSATION ON ACCOUNT OF CANCELLATION OF NEW PROJECT TO BE CONSID ERED AS A CAPITAL EXPENDITURE. IN OUR OPINION, THIS PLEA OF THE REVE NUE HAS NO MERIT. IN THIS CASE, THE ASSESSEE RECEIVED AN ORDER FOR SALE OF CO MPANYS PRODUCT TUSCON AND BASED ON SUCH ORDER, IT ENTERED INTO AGREEMENTS WITH VARIOUS SUPPLIERS OF RAW MATERIAL REQUIRED FOR MANUFACTURING THE PRODUCT S. DUE TO UNAVOIDABLY REASONS, THE CUSTOMER CANCELLED THE ORDER AS A RESU LT OF WHICH THE COMPANY HAS TO CANCEL ITS ORDERS WITH SUPPLIERS WHICH WAS E XECUTED FOR RECEIVING THE RAW MATERIAL. HOWEVER, SINCE THE SUPPLIERS HAD ALR EADY PURCHASED SOME OF THE RAW MATERIALS, THE ASSESSEE WAS PAID COMPENSATI ON TO THE SUPPLIER TO THE EXTENT. HOWEVER, NEITHER THE AO NOR THE LD.CIT(A) H AS GONE THROUGH THE AGREEMENT ENTERED BY THE ASSESSEE WITH THE SUPPLIER S OF RAW MATERIALS. UNLESS AND UNTIL THE AUTHORITIES EXAMINED THE CONTE NTS OF THE SAID AGREEMENT, IT IS NOT APPROPRIATE TO DISALLOW THE EXPENDITURE P AID AS COMPENSATION TO THE SUPPLIER. FURTHER, IF IT IS PAID TOWARDS CANCELLATI ON OF AGREEMENT AND THE AO SHOULD FIND OUT WHAT HAPPENED TO THE RAW MATERIALS PURCHASED BY THE PROSPECTIVE SUPPLIER AND WHETHER THE ASSESSEE IS HA VING RIGHT OVER IT. IN SUCH CIRCUMSTANCES, THE VALUE OF RAW MATERIALS, EVEN AS A SCRAP RECEIVABLE BY 7 I.T.A. NO. 3348/MDS/2016 ASSESSEE TO BE REDUCED FROM THE COMPENSATION PAID T O SUPPLIER AND NET AMOUNT TO BE ALLOWED AS BUSINESS EXPENDITURE. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDE RATION AFTER GIVING OPPORTUNITY OF HEARING TO THE ASSESSEE. 10. IN THE RESULT, THE APPEAL REVENUE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND MARCH, 2017 AT CHENNAI. SD/- SD/- ( (( ( ) )) ) ( ) (DUVVURU R.L REDDY) (CHAN DRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 22 ND MARCH, 2017. KSSUNDARAM. / COPY TO: 1 . / APPELLANT 3. () / CIT(A) 5. '#$ %& / DR 2. ' / RESPONDENT 4. / CIT 6. $() * / GF