M/s. SIEMENS INFORMATION SYSTEMS LTD., MUMBAI V. DCIT 7(2), MUMBAI

ITA 4180/MUM/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59719 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-01-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 03-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: PERCY J PARDIWALLA; VASANTI B PATEL
• Keywords: Business income; Depreciation; Opportunity of being heard
• Section: 72(1); 80HHC; 80IB; 10B; 32; 28; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.4180/MUM/2005 : ASST. YEAR 2006-2007 M/S. SIEMENS INFORMATION SYSTEMS LTD., 130, PANDURANG BUDHKAR MARG, WORLI, MUMBAI-400 018. PAN : AAACS 9788 E VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 7(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PERCY J. PARDIWALLA & MS.VASANT I B.PATEL RESPONDENT BY : SHRI B.JAYAKUMAR DATE OF HEARING : 03.01.2012 DATE OF PRONOUNCEM ENT : 18.01.2012 O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 18-03-2005 IN RELATION TO ASSESSMENT YEAR 2001-02. 2. IT IS A RECALLED MATTER INASMUCH AS THE TRIBUNAL PASSED A DETAILED ORDER IN THIS APPEAL ON 07-01-2009, INTER ALIA , NOT ALLOWING DEDUCTION UNDER SECTIONS 10A/10B ON RS.14,31,96,372/- REPRESENTING THE AMOUN T OF DEPRECIATION, WHICH WAS NOT CLAIMED BUT ALLOWED BY THE AO WHILE COMPUTI NG DEDUCTION UNDER THESE PROVISIONS. IN REACHING THIS CONCLUSION, THE BENCH CONSIDERED THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN RAYON CORPORATION LTD. VS. CIT (2003) 261 ITR 98 (BOM). THEREAFTER, THE ASSESSEE MOVED A MISC. APPLICATION CONTENDING THAT IT WAS NOT GIVEN AN OP PORTUNITY OF HEARING IN RELATION TO THE SAID JUDGMENT AND HENCE THE ORDER BE RECALLED FOR GIVING SPECIFIC OPPORTUNITY TO THE ASSESSEE ON THIS POINT. THE BEN CH VIDE ITS ORDER DATED 06-08- 2009 IN M.A.NO.201/MUM/2009 RECALLED THE ORDER FOR THE LIMITED PURPOSE OF GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE O N THE APPLICABILITY OF JUDGMENT IN THE CASE OF INDIAN RAYON CORPORATION (SUPRA) . ON ALL OTHER ASPECTS, ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 2 THE ORDER HITHERTO PASSED BY THE TRIBUNAL ON 07.01. 2009 IS FINAL. THAT IS HOW THIS ISSUE HAS COME UP BEFORE US IN THE INSTANT PROCEEDI NGS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE CLAIMED DEDUCTION UNDER SECTIONS 10A/10B. WHILE COMPUTING E LIGIBLE INCOME FOR DEDUCTION UNDER THESE SECTIONS, THE ASSESSEE OPTED NOT TO CLAIM DEPRECIATION. ON BEING SHOW CAUSED AS TO WHY DEPRECIATION BE NOT ALL OWED AND THE AMOUNT OF ELIGIBLE PROFITS COMPUTED ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THEIR LORDSHIPS OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHENDRA MILLS (2000) 243 ITR 56 (SC) HAS HELD THAT THE ASSESSEE CANNOT BE FORCED TO CLA IM DEPRECIATION. THE AO OBSERVED THAT IN THE PAST THE ASSESSEE HAD BEEN CONSISTENTLY CLAIMING DEPRECIATION AND HENCE THE DE PARTURE MADE IN THIS YEAR WAS NOT BONA FIDE. RESULTANTLY HE GRANTED DEPRECIAT ION TO THE TUNE OF RS.14,31,96,372/-. EVEN THE FIRST APPEAL DID NOT CHANGE THE FORTUNE OF THE ASSESSEE ON THIS POINT. 4. BEFORE US, THE LEARNED SENIOR COUNSEL FOR THE AS SESSEE CONTENDED THAT THE JUDGMENT IN THE CASE OF INDIAN RAYON CORPORATION (S UPRA) WAS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE FOR THE REASON THAT, UNLIKE THE PRESENT CASE, THE ASSESSEE IN THAT CASE DID MAKE A CLAIM FOR DEPRECIA TION BUT AFTER CLAIMING DEDUCTION U/S.80HH OF THE ACT. TO BUTTRESS HIS POI NT OF VIEW, THE LD. AR STATED THAT SUB-SECTION (6) OF SECTION 10A CATEGORICALLY P ROVIDES THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR I MMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS, DEPRECIATION SHALL BE ALLOWED U/S.32 ON THE WRITTEN DOWN VALUE OF THE ASSETS BY CONSIDERING AS IF FULL EFFECT HAD BEEN GIVEN TO SEC. 32 IN THE YEARS DURING WHICH DEDUCTION WAS AVAILABLE UNDER THIS SECTION. A SPECIFIC MENTION IN SUB-SECTION (6) OF THE DEEMIN G PROVISION WHICH MANDATES THAT THE DEPRECIATION FOR THE YEARS DURING WHICH D EDUCTION IS AVAILABLE SHOULD BE DEEMED TO HAVE BEEN CLAIMED AND ALLOWED IN FULL FOR THE PURPOSES OF ALLOWING DEPRECIATION IN THE YEAR SUCCEEDING THE CO MPLETION OF SUCH PERIOD , ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 3 ACCORDING TO THE LD. AR, THREW CLEAR HINT THAT THE ACTUAL CLAIM FOR DEPRECIATION IS NOT MANDATORY DURING THE RELEVANT ASSESSMENT YEARS. IT WAS ARGUED THAT IF THERE HAD BEEN THE STATUTORY OBLIGATION TO CLAIM DEPRECIA TION DURING THE YEARS OF AVAILABILITY OF DEDUCTION, THEN THERE WAS NO NEED TO HAVE SUB-SECTION (6) AS IN THAT CASE THE WRITTEN DOWN VALUE OF THE BLOCK OF AS SETS WOULD HAVE AUTOMATICALLY BEEN REDUCED WITH THE AMOUNT OF DEPRECIATION CLAIME D AND ALLOWED DURING THE PERIOD OF DEDUCTION. HE FURTHER REFERRED TO SUB-SE CTION (1) OF SEC. 10A WHICH ENABLES AN ASSESSEE TO CLAIM DEDUCTION AS DERIVED B Y AN UNDERTAKING FROM THE EXPORT OF ELIGIBLE ARTICLES. WHILE REFERRING TO SUB -SECTION (4) OF SECTION 10A, THE LD. A.R. ARGUED THAT THE PROFIT DERIVED FROM EXPORT OF ARTICLES HAS BEEN GIVEN IN A FORMULA WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING THE SAME PROPORTION AS EXPORT TURNOVER IN RESPECT OF SUCH AR TICLES OR THINGS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UN DERTAKING. ADVANCING HIS CASE FURTHER, IN AN ATTEMPT TO SHOW THAT THE JUDGMENT I N THE CASE OF INDIAN RAYON CORPORATION (SUPRA) WAS NOT APPLICABLE, HE CONTENDE D THAT IN THAT CASE THE RELEVANT DISCUSSION AND FINDING HAS BEEN MADE IN TH E CONTEXT OF SECTION 80HHC WHICH IS A SEPARATE CODE IN ITSELF AND IN WHICH PRO VISION, UNLIKE SECTION 10A WHERE THE EXPRESSION PROFITS OF THE BUSINESS AS U SED IN SUB-SECTION (4) HAS NOT BEEN SPECIFICALLY DEFINED, SPECIFICALLY DEFINES THI S EXPRESSION IN EXPLANATION (BAA) TO SECTION 80HHC. IT WAS, THEREFORE, SUBMITTE D THAT IN THE ABSENCE OF ANY DEFINITION OF THE EXPRESSION PROFITS OF THE BUSINE SS U/S. 10A, THE RATIO DECIDENDI OF THE JUDGMENT IN THE CASE OF INDIAN RAYON CORPORATION (SUPRA) COULD NOT BE APPLIED TO THE FACTS OF THE INSTANT CA SE. IN THE LIGHT OF THESE SUBMISSIONS, IT WAS ARGUED THAT THE CASE OF INDIAN RAYON CORPORATION (SUPRA) IS DISTINGUISHABLE ON FACTS AS IT HAS NO BEARING ON TH E QUESTION OF DEDUCTION/S.10A. 5. IN THE OPPOSITION, THE LD. D.R. CONTENDED THAT T HE SAID JUDGMENT IN THE CASE OF INDIAN RAYON CORPORATION (SUPRA) IS FULLY APPLICABLE IN THE CONTEXT OF ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 4 SECTION 10A AS WELL, AS THERE IS NO MATERIAL DIFFER ENCE BETWEEN DEDUCTIONS UNDER CHAPTER VI-A AND SECTION 10A. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS OTHERWISE ELIGIBLE TO CLAIM DEDUCTION U/SS. 10A/10B AND ALL THE REQUI SITE CONDITIONS STOOD SATISFIED. THE ASSESSEE CLAIMED SUCH DEDUCTION IN RESPECT OF THE ELIGIBLE UNITS BY COMPUTING THE PROFITS OF THE BUSINESS WITHOUT CLAIMING DEPRECIATION AMOUNTING TO RS.14.31 CRORES. NOW, THE NARROW CONT ROVERSY REQUIRING OUR ADJUDICATION IS WHETHER DEDUCTION UNDER SECTIONS 10 A/10B IS AVAILABLE ON THE PROFITS OF THE BUSINESS WITHOUT ALLOWING DEPRECIATI ON, MORE SPECIFICALLY WHEN SUCH CLAIM FOR DEPRECIATION WAS NOT MADE BY THE ASS ESSEE. THE REASON FOR THE ASSESSEE IN NOT CLAIMING DEPRECIATION IS SIMPLE. HIGHER THE AMOUNT OF EXPENSES AND ALLOWANCES, LOWER THE AMOUNT OF PROFIT AND THE RESULTANT LOWER AMOUNT OF DEDUCTION U/SS 10A/10B AND VICE VERSA. FO R EXAMPLE, IF THE PROFITS OF THE BUSINESS, BEFORE DEPRECIATION, FOR THE FIRS T YEAR ARE SAY RS. 100 AND THE AMOUNT OF THE OTHERWISE ELIGIBLE DEPRECIATION IS RS . 20, THE AMOUNT OF PROFIT AFTER DEPRECIATION SHALL COME TO RS. 80. CONSIDE RING THE TAX HOLIDAY IN THE FIRST YEAR, THE ASSESSEE WILL GET DEDUCTION OF RS. 100 I N THE FIRST YEAR U/S 10A IF IT IGNORES THE CLAIM OF DEPRECIATION. ON THE OTHER HAN D, IF THE AMOUNT OF DEPRECIATION IS ALLOWED, THEN THE AMOUNT OF DEDUCTI ON U/S 10A SHALL SHRINK TO RS. 80 AND THE AMOUNT OF DEPRECIATION ALLOWABLE SH ALL BE RS.20. THUS IN BOTH THE CASES, WHETHER DEPRECIATION IS ALLOWED OR NOT, THERE WILL BE NO INCOME CHARGEABLE TO TAX. BY NOT CLAIMING THE DEPRECIATIO N, THE ASSESSEE WILL `EAT THE CAKE AND HAVE IT TOO INASMUCH AS IT WILL NOT ONLY REAP ALL THE BENEFITS ATTACHING TO THE HIGHER WRITTEN DOWN VALUE OF THE FIXED ASSET S UNDER THE INCOME-TAX ACT, 1961, BUT ALSO THERE WILL BE NO LOSS TO THE ASSESS EE IN TERMS OF TAX LIABILITY AND FURTHER ITS ASSETS WILL REMAIN AT THE HIGHER UN-DE PRECIATED VALUE IN THE BOOKS OF ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 5 ACCOUNT DURING RELEVANT ASSESSMENT YEARS (THAT IS TEN CONSECUTIVE ASSESSMENT YEARS REPRESENTING THE TAX-HOLIDAY PERIOD) . 7. IN EARLIER YEARS, THE ASSESSEE WAS CLAIMING DEDUCTION UNDER THESE SECTIONS AFTER CLAIMING DEPRECIATION. HOWEVER IN VIEW OF THE JUDGMENT IN THE CASE OF MAHENDRA MILLS (SUPRA) , THE ASSESSEE DEPARTED FROM THIS PRACTICE. IN THE CASE BEFORE THE HONBLE SUPREME COURT, THAT ASSESSEE DI D NOT CLAIM ANY DEPRECIATION WHICH WAS, HOWEVER, ALLOWED BY THE ITO. WHEN THE MA TTER FINALLY CAME UP BEFORE THE HONBLE SUPREME COURT, IT WAS HELD THAT IF THE ASSESSEE DOES NOT CLAIM DEPRECIATION AND ALSO DOES NOT FURNISH PARTIC ULARS FOR CLAIMING DEPRECIATION AS PRESCRIBED UNDER SECTION 34, THEN D EPRECIATION CANNOT BE THRUST UPON HIM. IN ORDER TO CIRCUMVENT UNINTENDED CONSEQ UENCES FLOWING FROM THIS JUDGMENT, THE PARLIAMENT HAS INSERTED EXPLANATION 5 TO SECTION 32 , THROUGH THE FINANCE ACT 2002, DECLARING THAT DEPRECIATION SHALL BE ALLOWED WHETHER OR NOT THE ASSESSEE HAS CLAIMED IT. 8. IN THE INSTANT CASE, WE ARE CONCERNED WITH COMP UTATION OF DEDUCTION UNDER SECTIONS 10A/10B. THE LD. AR HAS MADE HIS SU BMISSIONS BY TAKING UP THE PROVISIONS OF SECTION 10A CONTENDING THAT THE REQUI SITE CONDITIONS OF SECTION 10B, IN SO FAR AS PRESENT CONTROVERSY IS CONCERNED, ARE SIMILAR. AS SUCH, WE WILL ALSO CONCENTRATE ON THE PROVISIONS OF SECTION 10A. SUB-SECTION (1) OF SECTION 10A PROVIDES AS UNDER : 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION , A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR T HINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE : (EMPHASIS SUPPLIED BY US) ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 6 9. FROM A BARE PERUSAL OF THE ABOVE PROVISI ON IT CAN BE NOTICED THAT DEDUCTION IS AVAILABLE TO AN UNDERTAKING IN RESPECT OF PROFITS DERIVED FROM THE ELIGIBLE ARTICLES. THE EXPRESSION PROFITS DERIVED FROM THE ELIGIBLE ARTICLES HAS BEEN EXPLAINED IN SUB-SECTION (4), WHICH RUNS AS U NDER : (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND ( 1A), 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 ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE ASSESSEE CARRIED ON BY THE UNDERTAKING. (EMPHASIS SUPPLIED BY US) 10. DEFINITIONS OF VARIOUS TERMS AND EXPRES SIONS USED IN SECTION 10A HAVE BEEN GIVEN IN EXPLANATION 2 BELOW SUB-SECTION (9A). IT IS MANIFEST THAT THERE IS NO DEFINITION OF THE EXPRESSION PROFITS OF THE BUS INESS THAT HAS BEEN EMPLOYED IN SUB-SECTION (4). THE ENTIRE CONTROVERSY REVOLVE S AROUND THE AMBIT OF THE EXPRESSION PROFITS OF THE BUSINESS. WHEREAS THE ASSESSEE HAS CANVASSED A VIEW THAT PROFITS OF THE BUSINESS SHOULD MEAN THE PROFITS AS DISCLOSED WITHOUT THE CLAIM THE DEPRECIATION, THE AUTHORITIES BELOW H AVE HELD THAT DEPRECIATION HAS TO BE NECESSARILY ALLOWED FOR COMPUTING THE PROFITS OF THE BUSINESS. 11. IN THE CASE OF RAYON CORPORATION LTD. (SUPRA) , THE ASSESSEE CLAIMED DEDUCTION U/S. 80HH ON THE PROFITS OF THE BUSINESS WITHOUT DEPRECIATION. AFTER CLAIMING SUCH DEDUCTION U/S. 80HH, THE AMOUNT OF DE PRECIATION WAS CLAIMED FROM THE REMAINING PROFITS. THE AO HELD THAT FIRST LY DEPRECIATION WAS TO BE ALLOWED AGAINST THE GROSS BUSINESS INCOME AND THEN DEDUCTION U/S. 80HH WAS TO BE ALLOWED ON THE NET OF THE INCOME AFTER THE GRANT OF DEPRECIATION. WHEN THE MATTER CAME UP BEFORE THE HONBLE BOMBAY HIGH COURT , IT WAS OBSERVED THAT THE PROFITS DERIVED FROM A NEWLY STARTED UNDERTAKIN G SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, I.E., SE CTIONS 29 TO 43A. IT WAS ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 7 OBSERVED THAT : THERE IS A DISTINCT DICHOTOMY BETWEEN CASES OF COMP UTATION OF NORMAL INCOME UNDER THE ACT DE HORS CHAPTER VI-A AN D COMPUTATION OF TAXABLE INCOME WHERE THE ASSESSEE CLAIMS THE BENEFIT OF DED UCTION UNDER CHAPTER VI-A BECAUSE THE LEGISLATURE HAS INTENDED THAT THESE SPE CIAL DEDUCTIONS SHOULD BE RESTRICTED TO THE PROFITS DERIVED FROM A NEWLY ESTA BLISHED UNDERTAKING . THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F MAHENDRA MILLS (SUPRA) WAS ALSO CONSIDERED AND HELD TO BE NOT APPLICABLE. IN THE FINAL ANALYSIS, IT WAS HELD THAT : PROFITS AND GAINS OF A NEWLY ESTABLISHED UNDERTAKIN G, THEREFORE, HAVE GOT TO BE COMPUTED AS PER THE PROVISIONS OF SE CTION 29 TO 43A AND IF THE ASSESSEE CLAIMED RELIEF UNDER CHAPTER VI-A OF THE A CT, THEN IT IS NOT OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATION ALLOWANCE. 12. FROM THE ABOVE JUDGMENT, IT IS DISCERNIBLE THAT IN SO FAR AS COMPUTATION OF INCOME NOT INVOLVING THE CLAIM OF DEDUCTIONS UNDER CHAPTER VI-A IS CONSIDERED, THE SAME MAY BE DONE AS PER THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF MAHENDRA MILLS LTD. (SUPRA) THAT IS, WITHOUT CLAIMING OR ALLOWING DEPRECIATION ALLOWANCE UNDER SECTION 32 FOR THE PER IOD ANTERIOR TO THE INSERTION OF EXPLANATION 5 TO SECTION 32. IF, HOWEVER, THE QUESTION OF DEDUCTIONS COMES UNDER CONSIDERATION, THEN THE PROFITS OF THE BUSINE SS HAVE TO BE COMPUTED AFTER ALLOWING ALL ELIGIBLE DEDUCTIONS AND ALLOWANCES INC LUDING THE DEPRECIATION ALLOWANCE. IN THE ABSENCE OF ANY DEFINITION OF THE EXPRESSION PROFITS OF THE BUSINESS GIVEN IN SECTION 10A, THE SAME HAS TO BE UNDERSTOOD IN A COMMERCIAL SENSE. AS THE PROFITS OF THE BUSINESS ARE DETERMIN ED, IN COMMON PARLANCE, AFTER ALLOWING DEDUCTION TOWARDS ALL EXPENSES, IT IS IMPL ICIT THAT ALL THE ALLOWANCES WHICH HAVE CONTRIBUTED TO THE DETERMINATION OF THE PROFITS OF THE BUSINESS MUST ALSO BE GIVEN DEDUCTION. IT IS NOT POSSIBLE FOR AN UNDERTAKING TO OPERATE WITHOUT THE USE OF FIXED ASSETS INCLUDING PLANT & MACHINERY , BUILDING AND FURNITURE, ETC. ONCE THE OPERATION OF THE UNDERTAKING IS INCONCEIVA BLE OR RATHER IMPOSSIBLE WITHOUT THE USE OF FIXED ASSETS, THE NATURAL CONSEQ UENCE IS THAT THE PROFITS OF THE ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 8 BUSINESS OF THE UNDERTAKING CANNOT BE COMPUTED WITH OUT ALLOWING DEPRECIATION ON SUCH FIXED ASSETS. IF THE PROFITS OF THE BUSINE SS ARE COMPUTED BY IGNORING ANY EXPENDITURE OR ALLOWANCE WHICH HAS LED TO THE E ARNING OF INCOME, IT WOULD BE DOING VIOLENCE WITH THE PLAIN MEANING OF `PROFIT S OF THE BUSINESS. CHAPTER IV-D DEALING WITH THE `PROFITS AND GAINS OF BUSINES S OR PROFESSION COMPRISES SECTIONS 28 TO 44DB. SECTION 29 CATEGORICALLY PROV IDES THAT INCOME FROM BUSINESS UNDER SECTION 28 SHALL BE COMPUTED IN ACC ORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. IT, THEREFORE, F OLLOWS THAT ALL EXPENSES AND ALLOWANCES, DEDUCTIBLE OR NOT DEDUCTIBLE, COVERED UNDER THESE SECTIONS STARTING FROM 30 AND ENDING WITH 43D HAVE TO BE NECESSARILY GIVEN FULL EFFECT TO FOR THE PURPOSES OF COMPUTING INCOME FROM BUSINESS UNDER SE CTION 28. THE INCOME SO DETERMINED, IN THE ABSENCE OF ANY DEFINITION OF PRO FITS OF BUSINESS GIVEN IN SECTION 10A, SHALL CONSTITUTE `PROFITS OF THE BUS INESS. AS SECTION 32 GRANTING DEPRECIATION IS INCLUDED IN SECTIONS 30 TO 43D, THE RE IS NO REASON FOR EXCLUDING IT FOR THE PURPOSES OF COMPUTING THE PROFITS OF THE B USINESS OF THE UNDERTAKING. 13. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED DURING THE COURSE OF HEARING THAT THE JUDGMENT OF INDIAN RAYON CORPORATION LTD. (SUPRA) SHOULD NOT BE APPLIED TO SECTION 10A BECAUSE THAT JUDGMENT DEA LS WITH DEDUCTION U/S 80HHC, IN WHICH SECTION THE EXPRESSION PROFITS OF THE BUSINESS HAS BEEN DEFINED IN EXPLANATION (BAA) TO SECTION 80HHC. SIN CE THE DEFINITION OF THIS EXPRESSION IS ABSENT IN SECTION 10A, THE RATIO DECIDENDI OF THAT CASE CANNOT APPLY. WE FIND THIS CONTENTION DEVOID OF MERIT. AS HAS BEEN DISCUSSED IN EARLIER PARAS THAT THE NON-GIVING OF A SPECIFIC DEFINITI ON TO THE EXPRESSION `PROFITS OF THE BUSINESS IN SECTION 10A FAIRLY INDICATES THAT THE MEANING OF SUCH EXPRESSION AS UNDERSTOOD IN COMMERCIAL SENSE SHOULD BE ASSIGNED WHICH PRE- SUPPOSES THE GRANT OF DEPRECIATION. THE SECOND REAS ON FOR WHICH THIS CONTENTION OF THE LD. AR IS INCAPABLE OF ACCEPTANCE IS THAT TH E JUDGMENT IN INDIAN RAYON CORPORATION (SUPRA) HAS BEEN, IN FACT, RENDERED IN THE CONTEXT OF SEC TION 80HH ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 9 AND NOT 80HHC AS PLEADED. THERE IS NO DOUBT THAT T HE EXPRESSION PROFITS OF THE BUSINESS HAS BEEN SPECIFICALLY DEFINED IN SECTION 80HHC. IN THAT VIEW OF THE MATTER, IT IS NOT OPEN TO DISREGARD THE MEANING SO SPECIFICALLY GIVEN AND IMPORT THE MEANING AS UNDERSTOOD IN COMMON PARLANCE. HOWE VER, THE FACT OF THE MATTER IS THAT THERE IS NO DEFINITION OF PROFITS O F THE BUSINESS IN SECTION 80HH WHICH WAS THE SUBJECT MATTER OF CONSIDERATION BY TH E HONBLE JURISDICTIONAL HIGH COURT. THEIR LORDSHIPS RENDERED THE DECISION HOLDING THAT DEPRECIATION MUST BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF COMP UTING PROFITS OF THE BUSINESS WHILE WORKING OUT THE QUANTUM OF DEDUCTION U/S.80HH . IN THE PRESENT APPEAL, WE ARE CONCERNED WITH DEDUCTION UNDER SECTIONS 10A/ 10B WHERE, AGAIN, NO DEFINITION HAS BEEN GIVEN OF THE EXPRESSION PROFIT S OF THE BUSINESS. IN OUR CONSIDERED OPINION, THE DISTINCTION SOUGHT TO BE MA DE BY THE LD. A.R. FOR CANVASSING THE VIEWPOINT THAT THE SAID JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE, IS FAR-FETCHED. THE POSITION RATH ER SEEMS TO BE CONVERSE AS SUPPORTING THE VIEW POINT OF THE REVENUE THAT DEPRE CIATION HAS TO BE ALLOWED IN THE CONTEXT OF SECTION 10A. FIRSTLY, SECTIONS 80HH AND 10A/10B DEAL WITH THE DEDUCTIONS. EVEN THOUGH SECTIONS 10A/10B HAVE BEEN INCLUDED IN CHAPTER III, IT WOULD NOT MAKE ANY DIFFERENCE FOR THE REASON THA T SECTIONS 10A/10B ARE DEDUCTION SECTIONS AND NOT EXEMPTION SECTIONS AS IS THE CASE WITH THE SECTIONS IN CHAPTER VI-A ALSO DEALING WITH DEDUCTION IN RESPECT OF CERTAIN INCOMES. AS SUCH THERE CAN BE NO GROUND TO DISTINGUISH SECTIONS 10A/10B FROM THE SECTIONS PLACED UNDER CHAPTER VI-A IN SO FAR AS COMPUTATION OF `PROFITS OF BUSINESS IS CONCERNED. IN VIEW OF THE FACT THAT THERE IS NO D EFINITION OF THE EXPRESSION PROFITS OF THE BUSINESS UNDER SECTIONS 10A/10B ON THE ONE HAND AND SECTION 80HH ON THE OTHER, IT BECOMES ABUNDANTLY CLEAR THAT THIS SET OF SECTIONS HAS TO BE PLACED IN DIFFERENT COMPARTMENT FROM SECTION 80H HC WHICH SPECIFICALLY DEFINES THE EXPRESSION PROFITS OF THE BUSINESS. T HE CONTENTION OF THE ASSESSEE WOULD HAVE MERITED ACCEPTANCE IF COGNIZANCE OF THE JUDGMENT IN INDIAN RAYON CORPORATION LTD. (SUPRA) HAD BEEN TAKEN WHILE INTERPRETING SECTION 80HHC. ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 10 SINCE WE ARE CONCERNED WITH SECTIONS 10A/10B HAVING NO DEFINITION OF THE EXPRESSION PROFITS OF THE BUSINESS, THERE IS NO S COPE FOR ARGUING THAT THE JUDGMENT IN THE CASE OF INDIAN RAYON CORPORATION (SUPRA) IS NOT APPLICABLE WHICH, IN FACT, HAS INTERPRETED THE EXPRESSION PR OFITS OF THE BUSINESS IN THE CONTEXT OF SECTION 80HH WITHOUT THERE BEING ANY SPE CIFIC DEFINITION OF IT. 14. NOW WE ESPOUSE THE OTHER CONTENTION MADE BY TH E LD. AR. IT WAS ACCENTUATED ON SUB-SECTION (6) OF SECTION 10A TO BR ING HOME THE POINT THAT DEPRECIATION CANNOT BE THRUST UPON THE ASSESSEE. IN ORDER TO EXAMINE AND EVALUATE THIS CONTENTION, IT WOULD BE APT TO CONSID ER THE OPENING LINES OF SECTION 10A(6), WHICH READ AS UNDER : (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY O THER PROVISION F THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVAN T ASSESSMENT YEARS , OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR, --. (EMPHASIS SUPPLIED BY US) 15. WHEN WE TURN TO SUB-SECTION (1) OF SECTI ON 10A, IT CAN BE NOTICED THAT THE DEDUCTION UNDER THE SECTION IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE ETC. THE OPENING PART OF SUB-SECTION (6) MAKES IT ABUNDANTLY CLEAR THAT IT H AS RELEVANCE AND FACILITATES THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR(S) IMMEDIATELY SUCCEEDING THE LAST OF THE YEARS IN WHICH THE BENEFIT IS AVAILABLE UNDER SECTION 10A. IT HAS FO UR CLAUSES. CLAUSE (I) PROVIDES THAT SEC. 32 ETC. SHALL APPLY IN SUCH YEAR(S) AS I F DEPRECIATION ALLOWANCE HAS BEEN GIVEN FULL EFFECT TO IN THE RELEVANT ASSESSMEN T YEARS, THAT IS, THE YEARS IN WHICH THE BENEFIT OF DEDUCTION UNDER THIS SECTION IS AVAILABLE. CLAUSE (IV) STATES THAT IN COMPUTING THE DEPRECIATION ALLOWANCE U/S.32 , THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING SHALL BE ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 11 COMPUTED AS IF THE ASSESSEE HAD CLAIMED AND ACTUALL Y BEEN ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF TH E RELEVANT ASSESSMENT YEARS. WE ARE PRESENTLY NOT DIRECTLY CONCERNED WITH CLAUS ES (II) AND (III) OF SUB-SECTION (6), WHICH PROVIDE THAT NO LOSS AS REFERRED TO IN S ECTION 72(1) OR SECTION 74(1) OR (3) IN SO FAR AS IT RELATES TO BUSINESS OF THE UNDE RTAKING SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RE LEVANT ASSESSMENT YEARS AND FURTHER THAT NO DEDUCTION SHALL BE ALLOWED U/SS 80H H OR 80HHA OR 80IA OR 80IB IN RELATION TO THE PROFITS OF THE UNDERTAKING. 16. CLAUSE (I) OF SUB-SECTION (6) MAKES IT CLE AR THAT IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE ELEVENTH YEAR (I.E. AFTER THE EXPIRY OF THE BENEFIT U/S 10A FOR THE FIRST TEN ASSESSMENT YEARS), DEPREC IATION U/S.32 SHALL BE COMPUTED ON THE WRITTEN DOWN VALUE OF THE FIXED AS SETS AS REDUCED BY THE FULL AMOUNT OF DEPRECIATION ALLOWABLE FOR THE TEN RELEVA NT ASSESSMENT YEARS FROM THE ACTUAL COST OF THE ASSETS. FURTHER, CLAUSE (IV) MAK ES IT CLEAR THAT THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE BUSINESS OF THE UND ERTAKING IN THE ELEVENTH YEAR SHALL BE COMPUTED AS IF THE ASSESSEE HAD CLAIMED AN D HAD BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH O F THE RELEVANT ASSESSMENT YEARS. WE ARE UNABLE TO EITHER EXPRESSLY FIND OR I NFER FROM THE LANGUAGE OF SUB- SECTION (6) THAT IN THE FIRST TEN RELEVANT ASSESSME NT YEARS, THE ASSESSEE HAS A CHOICE TO CLAIM OR SKIP DEPRECIATION AND IF HE CH OOSES TO DISPENSE WITH THE DEPRECIATION, THEN TO COMPUTE THE PROFITS OF BUSINE SS AND THE RESULTANT DEDUCTION ON THE AMOUNT OF PROFIT BEFORE DEPRECIATION. THIS PART OF THE PROVISION DOES NOT THROW ANY LIGHT ON THE `PROFITS OF THE BUSINESS DU RING THE RELEVANT ASSESSMENT YEARS OR RATHER THIS PROVISION HAS NO DIRECT APPLIC ATION DURING SUCH PERIOD. PROFITS OF THE BUSINESS DURING THE PERIOD OF AVAILA BILITY OF DEDUCTION HAVE TO BE DETERMINED IN COMMERCIAL SENSE, WHICH NECESSARILY I MPLIES THAT THE DEPRECATION HAS TO BE GRANTED. THIS VIEW OF GRANTING DEPRECIAT ION WHILE COMPUTING PROFITS OF BUSINESS NOTWITHSTANDING THE ASSESSEE NOT MAKING CLAIM OF IT HAS BEEN RATHER ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 12 REINFORCED BY SUB-SECTION (6) WHICH STATES THAT THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE BUSINESS OF THE UNDERTAKING IN T HE ELEVENTH YEAR SHALL BE COMPUTED AS IF THE ASSESSEE HAD CLAIMED AND HAD BEE N ACTUALLY ALLOWED DEDUCTION IN RESPECT OF DEPRECIATION FOR EACH OF TH E RELEVANT ASSESSMENTS. UNLESS FULL AMOUNT OF ADMISSIBLE DEPRECIATION IS AC TUALLY TAKEN INTO ACCOUNT IN THE FIRST TEN YEARS, LOGICALLY THERE IS NO REASON T O REDUCE THE WRITTEN DOWN VALUE OF THE ASSETS IN THE ELEVENTH YEAR BY THE DEPRECIAT ION ACTUALLY TAKEN INTO ACCOUNT IN THE FIRST TEN YEARS. 17. THE LD. A.R. ALSO EMPHASIZED THAT IF THE DEPREC IATION IS TO BE COMPULSORILY ALLOWED IN THE RELEVANT TEN ASSESSMEN T YEARS, THEN SUB-SECTION (6) WOULD BE RENDERED OTIOSE. IN HIS OPINION, THE COMPU LSORY GRANTING OF DEPRECIATION IN THE FIRST TEN YEARS WOULD AUTOMATIC ALLY REDUCE THE COST OF ASSETS BY THE DEPRECIATION ALLOWED AND THERE WOULD BE NO R EQUIREMENT TO HAVE SUB- SECTION (6) OF SEC. 10A. THIS CONTENTION IS AGAIN DEVOID OF FORCE FOR THE REASON THAT SUB-SECTION (6) MERELY CLARIFIES THAT IN THE E LEVENTH YEAR DEPRECIATION U/S. 32 SHALL BE ALLOWED ON THE WRITTEN DOWN VALUE OF THE A SSETS AS REDUCED BY THE AMOUNT OF DEPRECIATION FOR THE TEN RELEVANT ASSESSM ENT YEARS. THE PURPOSE BEHIND SUB-SECTION (6) IS THAT THE WRITTEN DOWN VAL UE IN THE ELEVENTH YEAR HAS ESSENTIALLY TO BE DETERMINED AFTER REDUCING THE DEP RECIATION FOR TEN YEARS FROM THE ACTUAL COST OF THE ASSETS IRRESPECTIVE OF THE F ACT WHETHER OR NOT THERE WERE SUFFICIENT PROFITS IN ANY OF THESE YEARS TO ABSORB DEPRECIATION. TO PUT IN SIMPLE WORDS, IF THE PROFIT OF THE BUSINESS AFTER ALLOWIN G OF ELIGIBLE DEDUCTIONS OTHER THAN DEPRECIATION IS RS.15/-, AND AN ASSET COSTING RS.100/- IS PURCHASED ON WHICH DEPRECIATION FOR THE FIRST YEAR COMES TO RS.2 0/-, THE WRITTEN DOWN VALUE IN THE ELEVENTH YEAR SHALL BE CONSIDERED AS SO REDUCED BY RS.20/- PLUS DEPRECIATION IN THE NEXT 9 YEARS NOTWITHSTANDING THE FACT IN THE FIRST YEAR THE PROFIT OF ONLY RS.15/- BEFORE DEPRECIATION WAS UNABLE TO ABSORB TH E DEPRECIATION TO THE EXTENT OF RS.5/-. IT IS WITH SUCH AN INTENTION THAT SUB-SE C. (6) HAS BEEN COUCHED IN SEC. ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 13 10A TO PROVIDE THAT THE WRITTEN DOWN VALUE OF AN AS SET FOR THE ELEVENTH YEAR SHOULD BE COMPUTED BY GIVING FULL EFFECT TO THE PRO VISIONS OF SEC. 32 IN THE FIRST TEN YEARS. IT IS RELEVANT TO NOTE THAT THERE ARE CE RTAIN RESTRICTIONS ATTACHED WITH THE GRANTING OF TAX HOLIDAY FOR THE TEN CONSECUTIVE ASSESSMENT YEARS, WHICH INTER ALIA , DEBAR THE ASSESSEE FROM TAKING OTHER RELATED TAX ADVANTAGES AS RELATING TO THE FIRST TEN YEARS FROM THE ELEVENTH YEAR ONWARDS. THAT IS EVIDENT FROM CLAUSE (III) OF SUB-SECTION (6) PROVIDING THAT NO LOSS AS REFERRED TO IN SECTION 72(1) OR SECTION 74(1) OR (3) IN SO FAR AS IT RELATES TO BUS INESS OF THE UNDERTAKING SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS. WHEN WE EXAMINE CLAUSES (I) AND ( IV) IN CONJUNCTION WITH CLAUSE (III) OF SUB-SECTION (6), THEN THERE REMAIN S NO DOUBT WHATSOEVER THAT PRACTICALLY THERE ARE TWO BLOCKS OF YEARS, VIZ., FI RSTLY THE TEN CONSECUTIVE ASSESSMENT YEARS IN WHICH DEDUCTION IS AVAILABLE U/ S 10A AND SECONDLY THE YEARS AFTER THAT. ANY AMOUNT WHICH QUALIFIES FOR DEDUCTIO N DURING THE FIRST BLOCK IS NOT AVAILABLE FOR BENEFIT IN THE SECOND BLOCK EITHER DI RECTLY OR IN THE SHAPE OF BROUGHT FORWARD LOSSES ETC. IT IMPLIES THAT THE PR OFITS OF THE BUSINESS FOR ALL THE YEARS IN THE FIRST BLOCK NEED TO BE COMPUTED BY CON SIDERING THAT ANY EXPENDITURE OR ALLOWANCE WHICH CONTRIBUTED TO THE EARNING OF IN COME AND IS PERMISSIBLE U/SS 28 TO 43D, MUST BE ALLOWED. IF THAT IS THE POSITI ON, THEN IT IS DIFFICULT TO ACCEPT THAT THE ASSESSEE SHOULD BE ALLOWED TO COMPUTE PROF ITS OF BUSINESS DURING THE CURRENCY OF THE YEARS OF DEDUCTION U/S 10A WITHOUT REDUCING THE AMOUNT OF DEPRECIATION. 18. IN VIEW OF THESE FACTS AND THE POSITION DISCUSS ED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON CORPORATION LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE AND AS SUCH THE LD. CIT(A ) HAS TAKEN AN UNIMPEACHABLE VIEW IN ECHOING THE ACTION OF THE AO IN DEDUCTING D EPRECIATION OF RS.14.31 CRORE AND ODD FROM THE PROFITS OF BUSINESS FOR THE PURPOSES OF COMPUTING ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 14 DEDUCTION UNDER SECTIONS 10A/10B. WE UPHOLD THE IM PUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 19. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 18TH DAY OF JANUARY, 2012. SD/- SD/- ( VIJAY PAL RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18TH JANUARY , 2012. NG: COPY TO : 1. ASSESSEE. 2. DEPARTMENT. 3. CIT(A)-XXVII,,MUMBAI. 4. CIT-VII, MUMBAI. 5. DR,B BENCH,MUMBAI. 6. MASTER FILE. (TRUE COPY) BY ORDER, ASST. REGISTRAR, ITAT, MUMBAI. ITA NO.4180/MUM/2005. M/S.SIEMENS INFORMATION SYSTEMS LIMITED. 15 DATE INITIAL 1. DRAFT DICTATED ON 03.01.2012 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 12.01.2012 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DI SCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *