K 7 Computing Pirvate Ltd., CHENNAI V. ITO, CHENNAI

ITA 434/CHNY/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7731 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 13-03-2013
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Retrospective amendment; Unabsorbed depreciation
• Section: 143(3); 80HHC; 10B; 37; 10

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI M. BALAGANESH , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, J UDICIAL MEMBER ./ I.T.A.NO. 434/MDS/2013 / ASSESSMENT YEAR :2006 - 07 M/S. K 7 COMPUTING PVT. LTD., 144/7, RAYALA TECHNO PARK, SIXTH FLOOR, PERUNGUDI, OMR, KOTTIVAKKAM, CHENNAI 600 041. [PAN: AABCK 1942M ] VS. THE INCOME TAX OFFICER , COMPANY CIRCLE II (4), CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S. SRIDHAR , ADVOCATE / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT / DATE OF HEARING : 0 9 . 02 .201 7 / DATE OF P RONOUNCEMENT : 16 . 02 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) II , CO IMBATORE [CAMP OFFICE AT CHENNAI ] , DATED 07 . 0 9 .201 2 RELEVANT TO THE ASSESSMENT YEAR 20 0 6 - 0 7. THE ONLY EFFECTIVE GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE RESTRICTION OF CLAIM OF DEDUCTION UNDER SECTION 1 0B OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] FROM .1,28,72,425/ - TO .94,89,193/ - . I.T.A . NO . 434 /M/ 1 3 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 24.11.2006 DECLARING NIL INCOME. THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT TO THE EXTENT OF .1,28,72,425/ - . WHILE DOIN G SO, THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS WAS NOT SET OFF . THUS, THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT, REWORKED OUT THE CLAIM MADE UNDER SECTION 10B OF THE ACT AFTER SETTING OFF THE BROUGHT F ORWARD DEPRECIATION AND BUSINESS LOSS AND ARRIVED AT THE ASSESSABLE INCOME OF .59,97,443/ - BY RESTRICTING THE DEDUCTION UNDER SECTION 10B OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY RELYING VARIOUS DECISIONS, THE LD. CIT(A) SUSTAINED THE ORDER OF THE ASSESSING OFFICER. 4. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY FILING COPY OF THE JUDGEMENT OF THE HON BLE SUPREME COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. IN CIVIL APPEAL NO. 8498 OF 2013 & ORS. DATED 1 6.12.2016 , THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ORDERS OF THE AUTHORITIES BELOW SHOULD BE SET ASIDE AND DIRECTED NOT TO SET OFF THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS FROM THE TOTAL INCOME OF THE ASSESSEE. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. I.T.A . NO . 434 /M/ 1 3 3 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT TO THE EXTENT OF .1,28,72,425/ - . THE ASSESSING OFFICER HAS QUESTIONED THE ASSESSEE AS TO WHY THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS OF EARLIER YEARS WAS NOT SET OFF AGAINST CURRENT YEAR S PROFITS OF BUSINESS BEFORE CLAIMING DEDUCTION UNDER SECTI ON 10B OF THE ACT. THE AR OF THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE BROUGHT FORWARD BUSINESS LOSS AND DEPRECIATION CANNOT BE SET OFF AGAINST THE DEDUCTION UNDER SECTION 10B OF THE ACT SINCE THE PROVISIONS OF SECTION 10B OF THE ACT IS ONLY AN EXEMPTION. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND WAS OF THE OPINION THAT WHAT IS PROVIDED UNDER SECTION 10B OF THE ACT IS ONLY DEDUCTION AND NOT EXEMPTION. THUS, THE ASSESSING OFFICER RESTRICTED THE CLAIM OF THE ASSESSEE UNDER SECTION 10B OF THE ACT TO THE EXTENT OF .94,89,193/ - BY SETTING OFF THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS. 5.1 BY RELYING ON THE DECISION OF THE HON BLE KERALA HIGH COURT IN THE CASE OF CIT V. PATSPIN INDIA LTD. 245 CTR 97, THE LD. CIT(A), THE LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY SET OFF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AGAINST CURRENT YEAR S PROFIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10B OF THE ACT. I.T.A . NO . 434 /M/ 1 3 4 6. THE POINT AT ISSUE IS WHETHER THE ASSESSEE IS REQUIRED TO SET OFF THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS OF EARLIER YEARS AGAINST CURRENT YEAR S PROFIT OR NOT. ON SIMILAR FACTS IN AN IDENTICAL ISSUE IN THE CASE OF DCIT V. DATA SOFTWARE RESEARCH COM PANY PRIVATE LIMITED FOR THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO. 1837/MDS/2014 VIDE ORDER DATED 17.07.2015, THE COORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL SUBM ISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SPECIAL BENCH OF THIS TRIBUNAL IN SCIENTIFIC ATLANDA TEC. P. LTD. (SUPRA) FOUND THAT THE BROUGHT FORWARD LOSSES AND DEPRECIATION NEED NOT BE SET OFF FOR COMPUTING DEDUCTION U/S 1 0B OF THE ACT. WE HAVE ALSO GONE THROUGH THE ORDER OF THIS TRIBUNAL IN SWORD GLOBAL (I) P. LTD. (SUPRA). THIS DECISION WAS DELIVERED BY A DIVISION BENCH OF THIS TRIBUNAL. THEREFORE, THIS TRIBUNAL HAS TO PREFER A LARGER BENCH DECISION IN THE CASE OF SCIENTI FIC ATLANDA TEC. P. LTD. (SUPRA). SINCE THE CIT(A) HAS FOLLOWED THE DECISION OF LARGER BENCH, THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 6.1 FURTHER, AS RELIED ON BY THE LD. COUNSEL FOR THE ASS ESSEE, I N A RECENT JUDGEMENT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD. IN CIVIL APPEAL NO. 8498 OF 2013 & ORS DATED 16.12.2016 OF THE HON BLE SUPREME COURT WHICH HAS BEEN RENDERED IN THE CONTEXT OF PROVISIONS CONTAINED IN SECTION 10 A , WHICH IS ANALOGOUS TO THE PRO VISIONS CONTAINED IN SECTION 10B OF THE ACT, IT IS CLEAR THAT 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 REL EVANT FINDINGS OF THE APEX COURT ARE REPRODUCED AS UNDER: I.T.A . NO . 434 /M/ 1 3 5 12. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED AND THE PROVISIONS OF SECTION 10A AS IT STOOD PRIOR TO THE AMENDMENT MADE BY FINANCE ACT, 2000 WITH EFFECT FROM 1.4.2001; THE AMENDED SECTION 10A TH EREAFTER AND ALSO THE AMENDMENT MADE BY FINANCE ACT, 2003 WITH RETROSPECTIVE EFFECT FROM 1.4.2001. 13. THE RETENTION OF SECTION 10A IN CHAPTER III OF THE ACT AFTER THE AMENDMENT MADE BY THE FINANCE ACT, 2000 WOULD BE 18 MERELY SUGGESTIVE AND NOT DETERMI NATIVE OF WHAT IS PROVIDED BY THE SECTION AS AMENDED, IN CONTRAST TO WHAT WAS PROVIDED BY THE UN - AMENDED SECTION. THE TRUE AND CORRECT PURPORT AND EFFECT OF THE AMENDED SECTION WILL HAVE TO BE CONSTRUED FROM THE LANGUAGE USED AND NOT MERELY FROM THE FACT T HAT IT HAS BEEN RETAINED IN CHAPTER III. THE INTRODUCTION OF THE WORD DEDUCTION IN SECTION 10A BY THE AMENDMENT, IN THE ABSENCE OF ANY CONTRARY MATERIAL, AND IN VIEW OF THE SCOPE OF THE DEDUCTIONS CONTEMPLATED BY SECTION 10A AS ALREADY DISCUSSED, IT HAS TO BE UNDERSTOOD THAT THE SECTION EMBODIES A CLEAR ENUNCIATION OF THE LEGISLATIVE DECISION TO ALTER ITS NATURE FROM ONE PROVIDING FOR EXEMPTION TO ONE PROVIDING FOR DEDUCTIONS. 14. THE DIFFERENCE BETWEEN THE TWO EXPRESSIONS EXEMPTION AND DEDUCTION , THOUGH BROADLY MAY APPEAR TO BE THE SAME I.E. IMMUNITY FROM TAXATION, THE PRACTICAL EFFECT OF IT IN THE LIGHT OF THE SPECIFIC PROVISIONS CONTAINED IN DIFFERENT PARTS OF THE ACT WOULD BE WHOLLY DIFFERENT. THE ABOVE IMPLICATIONS CANNOT BE MORE OBVIOUS THAN F ROM THE CASE OF CIVIL APPEAL 19 NOS. 8563/2013, 8564/2013 AND CIVIL APPEAL ARISING OUT OF SLP(C) NO. 18157/2015, WHICH HAVE BEEN FILED BY LOSS MAKING ELIGIBLE UNITS AND/OR BY NON - ELIGIBLE ASSESSEES SEEKING THE BENEFIT OF ADJUSTMENT OF LOSSES AGAINST PROFIT S MADE BY ELIGIBLE UNITS. 15. SUB - SECTION 4 OF SECTION 10A WHICH PROVIDES FOR PRO RATA EXEMPTION, NECESSARILY INVOLVING DEDUCTION OF THE PROFITS ARISING OUT OF DOMESTIC SALES, IS ONE INSTANCE OF DEDUCTION PROVIDED BY THE AMENDMENT. PROFITS OF AN ELIGIBL E UNIT PERTAINING TO DOMESTIC SALES WOULD HAVE TO ENTER INTO THE COMPUTATION UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS IN CHAPTER IV AND DENIED THE BENEFIT OF DEDUCTION. THE PROVISIONS OF SUB - SECTION 6 OF SECTION 10A, AS AMENDED BY THE FINANCE ACT O F 2003, GRANTING THE BENEFIT OF ADJUSTMENT OF LOSSES AND UNABSORBED DEPRECIATION ETC. COMMENCING FROM THE YEAR 2001 - 02 ON COMPLETION OF THE PERIOD OF TAX HOLIDAY ALSO VIRTUALLY WORKS AS A DEDUCTION WHICH HAS TO BE WORKED OUT AT A FUTURE POINT OF TIME, NAME LY, AFTER THE EXPIRY OF PERIOD OF TAX HOLIDAY. THE ABSENCE OF ANY REFERENCE TO DEDUCTION UNDER SECTION 10A IN CHAPTER VI OF THE ACT CAN BE UNDERSTAND BY ACKNOWLEDGING THAT ANY SUCH REFERENCE OR MENTION WOULD HAVE BEEN A REPETITION OF WHAT HAS ALREADY BEEN PROVIDED IN SECTION 10A. THE PROVISIONS OF SECTIONS 80HHC AND 80HHE OF THE ACT PROVIDING FOR SOMEWHAT SIMILAR DEDUCTIONS WOULD BE WHOLLY IRRELEVANT AND REDUNDANT IF DEDUCTIONS UNDER SECTION 10A WERE TO BE MADE AT THE STAGE OF OPERATION OF CHAPTER VI OF THE I.T.A . NO . 434 /M/ 1 3 6 ACT. THE RETENTION OF THE SAID PROVISIONS OF THE ACT I.E. SECTION 80HHC AND 80HHE, DESPITE THE AMENDMENT OF SECTION 10A, IN OUR VIEW, INDICATES THAT SOME ADDITIONAL BENEFITS TO ELIGIBLE SECTION 10A UNITS, NOT CONTEMPLATED BY SECTIONS 80HHC AND 80HHE, WAS INTENDED BY THE LEGISLATURE. SUCH A BENEFIT CAN ONLY BE UNDERSTOOD BY A LEGISLATIVE MANDATE TO UNDERSTAND THAT THE STAGES FOR WORKING OUT THE DEDUCTIONS UNDER SECTION 10A AND 80HHC AND 80HHE ARE SUBSTANTIALLY DIFFERENT. THIS IS THE NEXT ASPECT OF THE CASE WHICH WE WOULD NOW LIKE TO TURN TO. 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENC E TO THE OTHER ELIGIBLE OR NON - ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION. 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) 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) 22 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 DEDUC TIONS 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 T OTAL 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 I.T.A . NO . 434 /M/ 1 3 7 THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCT ION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEALS SHALL STAND DISPOSED OF ACCORDINGL Y. 6.2 IN VIEW OF THE OVERWHELMING JUDICIAL PRONOUNCEMENT OF VARIOUS BENCHES OF THE TRIBUNAL AS WELL AS THE JUDGEMENT OF THE HON BLE SUPREME COURT, WE ARE OF THE CONSIDERED OPINION THAT THE BROUGHT FORWARD LOSSES AND DEPRECIATION NEED NOT BE SET OFF FOR COMPUTING DEDUCTION U/S 10B OF THE ACT. THUS, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 10B OF THE ACT AS CLAIMED BY THE ASSESSEE. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THE 16 TH F EBRUARY , 201 7 AT CHENNAI. SD/ - SD/ - ( M. BALAGANESH ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 16 . 02 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.