M/s Rajesh Exports Ltd., Bangalore V. ACIT, Bangalore

ITA 392/BANG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7710 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI CITII
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 10B; 263

Judgement Text

PAGE 1 OF 6 ITA NO.3 92/BANG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.392/BANG/2011 (ASSESSMENT YEAR 2004-05) M/S RAJESH EXPORTS LTD., NO.4, BATAVIA CHAMBERS, K K ROAD, KUMARA PARK WEST, BANGALORE-1. PA NO. AAACR8642N VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(4), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 03.07.2012 DATE OF PRONOUNCEMENT : 03.07.2012 APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCA TE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT, BANGALORE DATED 31.01.2011 PASSED UNDER SECTION 263 OF THE ACT. THE RELEVANT ASSESSMENT YEAR IS 2004-05. 2. THE EFFECTIVE GROUNDS RAISED READS AS FOLLOWS:- I) THE ASSESSING OFFICER HAD CARRIED OUT THE DIRECTION S OF THE HONBLE TRIBUNAL AND FINALIZED THE CONSEQUENTIA L ORDER. THE COMMISSIONER DID NOT HAVE THE POWERS TO REVISE SUCH A CONSEQUENTIAL ORDER UNDER SECTION 263 OF THE ACT. THEREFORE, THE ORDER PASSED BY THE PAGE 2 OF 6 ITA NO.3 92/BANG/2011 2 COMMISSIONER UNDER SECTION 263 OF THE ACT IS REQUIR ED TO BE SET ASIDE. II) WITHOUT PREJUDICE, THE COMMISSIONER OUGHT TO HAVE APPRECIATED THAT THE APPELLANT WAS ENTITLED TO CARR Y FORWARD THE LOSS OF OTHER UNIT BY VIRTUE OF SECTION 10B(1) OF THE ACT WHILE QUANTIFYING THE RELIEF OF THE EXPOR T UNIT UNDER SECTION 10B WHICH IS NOT AUTHORIZED UNDER THE ACT, ACCORDINGLY, THE EXERCISE OF REVISIONAL JURISDICTION ITSELF WAS ERRONEOUS, MORE SO, WHEN THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT V YOKOGAWA INDIA LTD. (201 2) 341 ITR 385 (KARN) HAS SETTLED THE ISSUE ON SET OFF OF CARRY FORWARD OF LOSS IN RESPECT OF DEDUCTION UNDER SECTI ON 10A/10B OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSING OFFICER, WHILE GIVING EFFECT TO THE ITAT ORDER IN ITA NO.51/2008, ALLOWED CARRY FORWARD OF LOSS TO THE TUNE OF RS.6,18,15,588/- (THE ASSESSING OFFICERS ORDER DAT ED 29/10/2008). THE CIT WAS OF THE VIEW THAT THE ASSESSING OFFICERS OR DER DATED 29/10/2008, GIVING EFFECT TO THE ITATS ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, SINCE THE LOSS OF RS.6,18,25,588/- WAS WORKED OUT AND ALLOWED TO CARRY FORWARD. THE CIT WAS OF THE VIEW T HAT THE LOSS OF NON EOU WERE TO BE SET OFF AGAINST THE PROFITS OF EOU AND T HEREAFTER DEDUCTION UNDER SECTION 10B OF THE ACT IS TO BE ALLOWED. TO REVISE THE ASSESSING OFFICERS ORDER DATED 29/10/2008, A NOTICE DATED 11 /10/2010 WAS ISSUED. IN REPLY, THE ASSESSEE OBJECTED TO THE INVOCATION OF RE VISIONARY JURISDICTION UNDER SECTION 263 OF THE ACT VIDE ITS LETTER DATED 1/12/2010. THE OBJECTIONS RAISED BY THE ASSESSEE WERE, HOWEVER, RE JECTED AND THE ORDER UNDER SECTION 263 WAS PASSED ON 31/1/2011 WHEREIN T HE DEDUCTION UNDER PAGE 3 OF 6 ITA NO.3 92/BANG/2011 3 SECTION 10B OF THE ACT WAS RESTRICTED TO THE EXTENT OF TOTAL INCOME OF THE ASSESSEE AMOUNTING TO RS.24,86,63,112/-. 4. AGGRIEVED, THE ASSESSEE IN APPEAL BEFORE US. 5. AT THE VERY OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN QUESTION IS SQUARELY COV ERED BY THE JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT V YOKOGAWA INDIA LTD. REPORTED IN 341 ITR 385. THE LEARNED AR ALSO SUBMITTED THAT SHE IS NOT PRESSING GROUND NO.(I) MENTIONED ABOVE WITH REGARD TO THE JURISDICTIONAL ASPECT OF INVOCATION OF REVISIONARY JURISDICTION UND ER SECTION 263 OF THE ACT. 6. THE LEARNED DR FAIRLY SUBMITTED THAT THE ISSUE O N THE MERITS IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE JURI SDICTIONAL HIGH COURT IN THE ABOVE MENTIONED CASE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) CATEGORICALLY HELD THAT DEDUCTION U/S 10A IS ALLOWABLE WITHOUT SETTING OFF THE BROUGHT FORWARD LOSS AND UN ABSORBED DEPRECIATION OF OTHER UNITS. THE RELEVANT FINDINGS OF THE HON BLE HIGH COURT AT PARAS 19, 20, 31 TO 33 READS AS FOLLOWS:- 19. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A T HAT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHA PTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT T HE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED A T. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EF FECT TO PAGE 4 OF 6 ITA NO.3 92/BANG/2011 4 ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS THE TOTA L INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 20. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. 31. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR PAGE 5 OF 6 ITA NO.3 92/BANG/2011 5 COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. 32. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE H AS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD, FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 33. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED PAGE 6 OF 6 ITA NO.3 92/BANG/2011 6 DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 7.1 THE FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWI NG THE DICTUM LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT, WE HO LD THAT THE DEDUCTION U/S 10A/10B OF THE ACT IS TO BE CALCULATED WITHOUT SETT ING OFF OF THE CARRIED FORWARD BUSINESS LOSS OF OTHER NON EXPORT ORIENTED UNIT OF THE ASSESSEE. HENCE, THE LOSS CALCULATED BY THE ASSESSING OFFICER IN HIS ORDER DATED 29/10/2008 AT RS.6,18,15,588/- AND ALLOWED TO BE CA RRIED FORWARD IS JUSTIFIED AND IN ACCORDANCE OF LAW; THEREFORE, THE CIT HAS ERRED IN REVISING THE SAME UNDER SECTION 263 OF THE ACT. IT IS ORDER ED ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON THE 03 RD DAY OF JULY, 2012 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BA NGALORE.