ACIT, Erode V. SKM Egg Products Export (India) Limited, Erode

ITA 385/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1751 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Depreciation
• Section: 10B; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , . , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.383 TO 387/CHNY/2018 $ $ /ASSESSMENT YEARS: 2002-03 TO 2006-07 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1, ERODE. VS. M/S.SKM EGG PRODUCTS- EXPORT INDIA LTD., NO.185, CHENNIMALAI ROAD, ERODE-638 001. [PAN: AACCS 7106 G] ( ' /APPELLANT) ( ()' /RESPONDENT) DEPARTMENT BY : MR.GURU BASHYAM, JCIT ASSESSEE BY : MR.G.BASKAR, ADV. + /DATE OF HEARING : 0 7 .11.2018 + /DATE OF PRONOUNCEMENT : 12 .11.2018 / O R D E R 1 PER A. MOHAN ALANKAMONY , ACCOUNTANT MEMBER : THESE APPEALS ARE FILED BY THE REVENUE AGGRIEVED B Y THE ORDER OF THE LD.CIT(A)-3 DATED 27.11.2017 IN ITA NO.114, 118 , 115, 117 & 116/17-18 FOR THE AYS 2002-03, 2003-04, 2004-05, 2 005-06 & 2006-07 RESPECTIVELY. SINCE THE ISSUE AND GROUNDS IN ALL T HESE APPEALS ARE IDENTICAL, FOR THE SAKE OF CONVENIENCE, THEY ARE HE ARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. ITA NOS.383 TO 387/CHNY/2018 :- 2 -: 2. THE REVENUE HAS RAISED FOUR GROUNDS IN ALL THESE APPEALS, HOWEVER, THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERR ED BY DIRECTING THE LD.AO TO ALLOW DEDUCTION U/S.10B OF THE ACT EVEN BEFORE S ET OFF OF BROUGHT FORWARD DEPRECIATION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING EG G POWDER, FILED ITS RETURN OF INCOME FOR ALL THESE AYS CLAIMING DEDUCTI ON U/S.10B OF THE ACT. THE LD.AO WHILE COMPUTING THE ELIGIBLE PROFIT FOR A LLOWING DEDUCTION U/S.10B OF THE ACT EXCLUDED THE BROUGHT FORWARD LOS SES AND DEPRECIATION. THEREAFTER, THE MATTER REACHED THE TRIBUNAL AND THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C IT VS. YOKOGOWA INDIA LTD., REPORTED IN [2017] 291 CTR 0001 (SC) & 391 IT R 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 YE ARS. HOWEVER, THE LD.AO WHILE PASSING THE GIVING EFFECT ORDER U/S.150 OF TH E 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.1 0B OF THE ACT BY OBSERVING AS UNDER: HONBLE ITAT HAS DIRECTED TO GRANT ASSESSEE THE BEN EFIT 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 THERE AFTER DEDUCTION UNDER SECTION 10B HAS TO BE ALLOWED. BROUGHT FORWARD DEPRECIATION IS ALLOWABLE AS DEDUC TION AS PER PROVISIONS OF SECTION 32(2), WHICH READS AS FOLLOWS; WHERE IN THE ASSESSM ENT 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 PREVI OUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE THEN THE A LLOWANCE 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 ITA NOS.383 TO 387/CHNY/2018 :- 3 -: ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THA T PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THE PREVIOUS YEAR. THUS, IN VIEW OF THIS SECTION, I.E. 32(2), THE BROU GHT 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 BROUGH T 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 DIR ECTIONS OF THE HONBLE ITAT. AGGRIEVED BY THE ORDER OF THE LD.AO THE ASSESSEE CA RRIED 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 C OMPUTE 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 T HE 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 SETTI NG OFF OF CARRIED FORWARD OF BUSINESS LOSSES AND DEPRECIATION. THE RE LEVANT PARA OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF Y OKOGOWA INDIA LTD., REPORTED IN 391 ITR 274 IS EXTRACTED BELOW FOR REFE RENCE: 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 CONTE MPORANEOUS 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 A FTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF T HE 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 UND ERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FR OM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF T HE 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 UNDERSTA NDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF TH E 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 W OULD BE WHILE COMPUTING THE GROSS TOTAL ITA NOS.383 TO 387/CHNY/2018 :- 4 -: INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT 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. 5. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN NOVEMBER 12, 2018, IN CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) ( A. MOHAN ALANKAMONY ) /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: NOVEMBER 12, 2018. TLN + (12 32 /COPY TO: 1. ' /APPELLANT 4. 4 /CIT 2. ()' /RESPONDENT 5. 2 ( /DR 3. 4 ( ) /CIT(A) 6. $ /GF