ITO 8(2)2, MUMBAI V. KIARA JEWELLERY P.LTD, MUMBAI

ITA 5040/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1584 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-04-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K DHONDIAL
• Keywords: Depreciation; Carry forward of business losses; Question of law; Unabsorbed depreciation
• Section: 143(3); 10AA; 80HHC; 10B

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.5040 /MUM/2014 ( / ASSESSMENT YEAR : 2009-10) I.T.O. 8(2)-2, R. NO. 212/216A, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S KIARA JEWELLERY PVT. LTD., UNIT NO. 180, 1ST FLOOR, SDF VI, SEEPZ, SEZ, ANDHERI (E), MUMBAI 400 096. ./ PAN :AACCK4789M ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SH RI A.K. DHONDIAL ASSESSEE BY : SHRI HIRO RAI / DATE OF HEARING : 20-10-2016 / DATE OF PRONOUNCEMENT : 19-12-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 5 040/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 16 TH MAY, 2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 17, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2009-10, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 31 ST JANUARY, 2013 PASSED BY THE LEARNED ASSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143(3) OF THE INCOME-TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 5040/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10AA BEFORE COMPUTING THE BROUGHT FORWARD BUSINESS LOSSES AND UNA BSORBED DEPRECIATION WITHOUT APPRECIATING THAT AFTER THE AMEND MENT, S. 10A/10B HAS BECOME 'DEDUCTION' AND NOT 'EXEMPTION' AND THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED AS PER THE COMPUTAT ION OF INCOME AS DEFINED IN S 2(45) OF THE ACT.' 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10AA BEFORE COMPUTING THE BROUGHT FORWARD BUSINESS LOSSES AND UNA BSORBED DEPRECIATION IGNORING THAT THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. HIMATASINGIKE SEIDE LTD. REPORTED IN 286 ITR 255 (2006) HAS CLARIFIED THAT LOSS OF 10-A UNIT HAS TO BE FIRST SET OFF AGAINST 10-A PROFIT AND ONLY ON BALA NCE AMOUNT DEDUCTION IS AVAILABLE AND IGNORING THE FACT THAT DEC ISION OF KARNATAKA HIGH COURT WAS UPHELD BY HON'BLE SUPREME COURT IN CA 1501 OF 2008 HOLDING THAT APPEAL IS DEVOID OF ANY MEN .. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10AA BEFORE COMPUTING THE BROUGHT FORWARD BUSINESS LOSSES AND UN ABSORBED DEPRECIATION IGNORING THAT THE CBDT VIDE ITS CIRCULAR N O. 7 OF 2013 DATED 16.07.2013 HAS CATEGORICALLY CLARIFIED AS UND ER: .... 'FIRST THE INCOME/LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS, UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDAN CE WITH THE PROVISIONS OF SECTION 70 OF THE ACT. THEREAFTER, THE INCOME FROM ONE AHEAD IS AGGREGATED WITH THE INCOME OR LOSS OF THE O THER HEAD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF THE A CT. IF AFTER GIVING EFFECT TO THE PROVISIONS OF SECTIONS 70 AND 71 OF TH E ACT THERE IS ANY INCOME (WHERE THERE IS NO BROUGHT FORWARD LOSS TO BE S ET OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE A CT) AND THE SAME IS ELIGIBLE FOR DEDUCTION IN ACCORDANCE WITH THE PROVISI ONS OF CHAPTER VI-A OR SECTIONS 10A, 10B ETC. OF THE ACT, THE SAME SHALL BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE ... '? 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 10AA BEFORE COMPUTING THE BROUGHT FORWARD BUSINESS LOSSES AND UNA BSORBED DEPRECIATION BY PLACING RELIANCE UPON THE DECISION O F BOMBAY HIGH ITA 5040/MUM/2014 3 COURT IN THE CASE OF CIT VS BLACK & VEATCH CONSULTING P LTD 20 TAXMANN .COM 727 (BOM) IGNORING THE FACT THAT THE DEP ARTMENT HAS NOT ACCEPTED THE RATIO LAID DOWN IN THE SAID CASE. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EXPE NSES REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER IN TERMS OF EXPLA NATION 2 (IV) OF SECTION 10A ARE ALSO REQUIRED TO BE EXCLUDED FROM THE TOTAL TURNOVER IN TERMS OF THE DECISION OF THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD., 330 ITR 175, WITHOUT APPRECIATING THAT THE DEPARTMENT HAS FILED AN SLP IN RE SPECT OF THE SAID DECISION. 6. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF DIAMOND STU DDED GOLD AND PLATINUM JEWELLERY. THE MANUFACTURING UNIT IS LOCATED AT UN IT NO. 180, SDF-VI, SEEPZ- SEZ, ANDHERI (E), MUMBAI WHICH IS AN APPROVED SPECI AL ECONOMIC ZONE UNDER THE SEZ ACT, 2005 AND ASSESSEE HAS CLAIMED DE DUCTION U/S 10AA OF THE ACT IN RESPECT OF PROFIT EARNED FROM EXPORT ACT IVITY. IT IS AN ADMITTED AND UNDISPUTED POSITION BETWEEN THE RIVAL PARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10AA OF THE ACT. THE ASSESSEE HAS CL AIMED DEDUCTION U/S 10AA OF THE ACT BEFORE SETTING OFF OF THE BROUGHT F ORWARD LOSSES AND UNABSORBED DEPRECIATION FROM THE ELIGIBLE UNIT AGAI NST THE CURRENT YEAR PROFITS OF THE SAME ELIGIBLE UNIT. WHILE, THE A.O. HAS CONT ENDED THAT THE DEDUCTION U/S 10AA OF THE ACT IS TO BE COMPUTED AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT AGAINST CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT. THE A.O . HAS CONCLUDED THAT THE PROVISION OF SECTION 10AA OF THE ACT WAS INTRODUCED IN STATUTE IN 2005 AND THE PROVISIONS RUNS PARALLEL WITH THE PROVISIONS OF SECTION 10A & 10B OF THE ACT , WHICH AFTER AMENDMENTS BY FINANCE ACT, 2000 A RE IN THE FORM OF DEDUCTION FROM THE GROSS TOTAL INCOME OF THE ASSESS EE AND NOT EXEMPTION.THE SAID VIEW IS SUPPORTED BY DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF HINDUSTAN LEVER LIMITED V. DCIT (2010) 325 ITR 1 02(BOM.HC). THUS, THE ITA 5040/MUM/2014 4 A.O. HELD THAT THE CONCESSION U/S 10AA OF THE ACT I S IN THE FORM OF DEDUCTION AND NOT EXEMPTION. THUS, THE REVENUE IS CONTEMPLAT ING SET OFF OF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS OF THE ELIGIBLE UNIT FROM THE CURRENT YEARS PROFIT OF ELI GIBLE UNIT BEFORE ALLOWING DEDUCTION U/S 10AA OF THE ACT, WHILE THE ASSESSEE IS CONTEMPLATING THE CLAIM OF DEDUCTION U/S 10AA OF THE ACT OF CURRENT YEARS P ROFIT WITHOUT SET OFF OF ADJUSTMENT OF BROUGHT FORWARD BUSINESS LOSSES AND U NABSORBED DEPRECIATION OF THE ELIGIBLE UNIT. ON FIRST APPEAL BY THE ASSESS EE BEFORE THE LEARNED CIT(A), THE LD. CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSE SSEE THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF EARL IER YEARS OF THE ELIGIBLE UNIT IS NOT TO BE SET OFF AGAINST THE CURRENT YEAR PROFIT OF ELIGIBLE UNIT, BEFORE ALLOWING THE DEDUCTION U/S 10AA OF THE ACT. THE LD . CIT(A) RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V. YOKOGAWA INDIA LTD. [2012] 341 ITR 385(KAR.), THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BLACK & VEATCH CONSULTI NG P. LTD. [2012] 348 ITR 72 (BOM) AND IN THE CASE OF HINDUSTAN UNILEVER V. D Y CIT [2010] 325 ITR 102 (BOM) AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND CO NTENTION OF THE LD. AR OF THE APPELLANT AND ALSO CAREFULLY GONE THROUGH THE FACTS AND EXPLANATION GIVEN BY THE LD. AR OF THE AP PELLANT AS WELL AS THE LD. SIMILAR ISSUE WAS INVOLVED IN THE APPELL ANT'S CASE WHICH HAS BEEN ADJUDICATED BY MY LD. PREDECESSOR WH EREIN CIT(A) IN HIS ORDER FOR AY 2008-09 IN FAVOUR OF THE APPELLANT WHILE PLACING RELIANCE ON THE FOLLOWING DECISIONS AND CON CLUDED THAT SECTION 10AA DEDUCTION HAS TO BE COMPUTED BEFORE C OMPUTING THE GROSS TOTAL INCOME AND BROUGHT FORWARD LOSSES A ND UNABSORBED LOSSES CANNOT BE SET OFF AGAINST THE TOT AL INCOME WHILE COMPUTING THE DEDUCTION U/S 10AA. I) CIT VS. BLACK & VEATCH CONSULTING PVT. LTD [2012 ] (348 ITR 72)(BOM.) II) HINDUSTAN UNILEVER VS. DY. CIT[2010] [325ITR 10 2 (BOMJ] ITA 5040/MUM/2014 5 III) SCIENTIFIC ATLANTA VS. ASST. CIT [2010] 38, SO T 252 (CHENNAI)(SB) IV) CIT VS. YOKOGAWA INDIA LTD [2012] (341ITR 385)( KAR.) RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESS OR, I DIRECT THE ID. A.O TO ALLOW DEDUCTION U/S 10AA OF THE ACT BEFO RE SETTING OFF BROUGHT FORWARD DEPRECIATION AND LOSSES. THIS GROUN D OF APPEAL IS THUS ALLOWED. THUS THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE APPELLATE ORDERS DATED 16.05.2014. 4. AGGRIEVED BY THE APPELLATE ORDER DATED 16.05.201 4 OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. D.R. RELIED UPON THE ORDER OF THE A.O. A ND ON THE DECISION OF HONBE SUPREME COURT IN THE CASE OF HIMATSINGKA SEI DE LTD. V. CIT [2014] 48 TAXMANN.COM 357 (SC) WHEREBY THE HONBLE SUPREME CO URT HAS DISMISSED THE CIVIL APPEAL FILED BY THE ASSESSEE AGAINST THE HONBLE KARNATAKA HIGH COURT DECISION IN THE CASE OF [2006] 156 TAXMAN 15 1 (KAR).THE LD. D.R. SUBMITTED THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT IS TO BE SET OFF FROM THE PROFITS OF THE CURRENT YEAR OF ELIGIBLE UNIT BEFORE ALLOWING DEDUCTION U/S 10AA OF THE ACT. 6. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSE E THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYME RS PRIVATE LIMITED IN ITA NO.2134 OF 2013 (2015) 97 CCH 0048 (BOM. HC) HAS D ULY CONSIDERED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT V. HIMATASINGIKE SEIDE LTD. (2006) 156 TAXMAN 1512 (KAR.) WHICH WAS UPHELD BY HONBLE APEX COURT VIDE ORDERS DATED 19-09-2013, THE HONBLE AP EX COURT HAS LEFT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT UNDIST URBED IN CIVIL APPEAL NO 1501 OF 2008, BY HOLDING AS UNDER: ITA 5040/MUM/2014 6 WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES TO T HE LIS. 2. HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. ORDERED ACCORDINGLY THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYME RS PRIVATE LIMITED IN ITA NO.2134 OF 2013 (2015) 97 CCH 0048 (BOM. HC) WHERE IN HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: 5. WE FIND THAT THE DECISION OF THE KARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT WAS IN RESPECT OF ASSESSMENT YEAR 1994-95. TH US IT DEALT WITH THE PROVISIONS OF SECTION 10B OF THE ACT AS EXISTING PR IOR TO 1 APRIL 2001 WHICH WAS ADMITTEDLY DIFFERENT FROM SECTION 10B AS IN FORCE DURING ASSESSMENT YEAR 200910 INVOLVED IN THIS APPEAL. SEC TION 10B OF THE ACT AS EXISTING PRIOR TO 1 APRIL 2001 PROVIDED FOR AN E XEMPTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM EXPORT BY 100% EXPOR T ORIENTED UNDERTAKINGS AND NOW IT PROVIDES FOR DEDUCTION OF P ROFITS AND GAINS DERIVED FROM A 100% EXPORTED ORIENTED UNITS.. 6. IN ANY VIEW OF THE MATTER, THE DECISION OF THE K ARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT DEALT WITH THE PROVISION OF LAW DIFFERENT FRO M THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. A DECISION HAS TO BE CO NSIDERED IN THE CONTEXT OF THE LAW AS ARISING FOR CONSIDERATION AND A CHANGE IN LAW WOULD RENDER THE DECISION UNDER THE OLD LAW INAPPLICABLE WHILE CONSIDERING THE AMENDED LAW. 7. THE ISSUE AS RAISED STANDS CONCLUDED BY THE DECI SION OF THIS COURT IN BLACK & VEATCH CONSULTING(P) LTD. (SUPRA) AND GANESH POLYCHEM LTD. VS. ITO AGAINST THE REVENUE. THEREFORE, THE QUESTION OF L AW AS PROPOSED FOR OUR CONSIDERATION DOES NOT GIVE RISE T O ANY SUBSTANTIAL QUESTION OF LAW. 8. ACCORDINGLY, THE APPEAL IS DISMISSED. NO ORDER A S TO COSTS. ITA 5040/MUM/2014 7 IT WAS SUBMITTED THAT IN THE CASE OF CIT V. TECHNO TARP POLYMERS PRIVATE LIMITED(SUPRA) WHEREIN THE HONBLE BOMBAY HIGH COUR T RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BLACK & VEATCH CONSULTING P. LTD. [2012] 348 ITR 72 (BOM) AND HELD THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT ARE NOT TO BE SET OFF AGAINST THE CURRENT YEAR PROFITS OF THE ELI GIBLE UNIT WHILE COMPUTING DEDUCTION U/S 10AA OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS CITED B Y BOTH THE PARTIES. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND EXPORT OF DIAMOND STUDDED GOLD AND PLATINUM JEWELLERY HAVING ITS MANU FACTURING UNIT LOCATED AT UNIT NO. 180, SDF-VI, SEEPZ-SEZ, ANDHERI (E), MUMBA I WHICH IS AN APPROVED SPECIAL ECONOMIC ZONE UNDER THE SEZ ACT, 2 005. THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10AA OF THE ACT IN RESPE CT OF THE PROFIT EARNED FROM THE EXPORT ACTIVITY. WE HAVE OBSERVED THAT THE ASS ESSEE HAS CLAIMED THAT THERE WILL BE NO SET OFF OF BROUGHT FORWARD BUSINES S LOSSES AND UNABSORBED DEPRECIATION OF ELIGIBLE UNIT AGAINST CURRENT YEAR PROFITS OF ELIGIBLE UNIT BEFORE CLAIMING DEDUCTION U/S 10AA OF THE ACT , WHILE THE A.O. IS CONTEMPLATING ADJUSTMENT OF SET OFF OF BROUGHT FORWARD BUSINESS L OSSES AND UNABSORBED DEPRECIATION OF ELIGIBLE UNIT AGAINST CURRENT YEARS PROFIT OF ELIGIBLE UNIT BEFORE ALLOWING DEDUCTION U/S 10AA OF THE ACT. THE LEARNED CIT(A) HELD IN FAVOUR OF THE ASSESSEE AND HENCE REVENUE IS IN APPEAL BEFORE US. WE HAVE OBSERVED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V . TECHNO TARP AND POLYMERS PVT. LTD. IN I.T. APPEAL NO. 2134 OF 2013 DATED 5 TH DECEMBER, 2015 ( (2015) 97 CCH 0048 (BOM. HC)) HAS HELD THAT BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT ARE NOT TO BE SET OFF AND ADJUSTED AGAINST THE CURRENT YEAR PROFITS OF T HE ELIGIBLE UNIT WHILE ITA 5040/MUM/2014 8 ALLOWING DEDUCTION U/S 10B OF THE ACT KEEPING IN VI EW OF THE PROVISIONS OF SECTION 72 OF THE ACT. SECTION 10AA IS RUNNING PARA LLEL TO THE CONCESSION AVAILABLE UNDER SECTION 10B OF THE ACT .THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYMERS PRIVATE LIM ITED IN ITA NO.2134 OF 2013 ( (2015) 97 CCH 0048 (BOM. HC) ) HAS DULY CON SIDERED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD. (2006) 156 TAXMAN 1512 (KAR.) WHICH WAS UPHELD BY H ONBLE APEX COURT WHEREIN VIDE ORDERS DATED 19-09-2013 THE HONBLE A PEX COURT HAS LEFT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT UNDIST URBED IN CIVIL APPEAL NO 1501 OF 2008, BY HOLDING AS UNDER: WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES TO T HE LIS. 2. HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. ORDERED ACCORDINGLY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TEC HNO TARP POLYMERS PRIVATE LIMITED IN ITA NO.2134 OF 2013 (2015) 97 CC H 0048 (BOM. HC) HAS ALLOWED THE RELIEF TO THE ASSESSEE WHEREIN QUESTION OF LAW WAS ANSWERED IN FAVOUR OF THE ASSESSEE. THE QUESTION OF LAW FORMULA TED IN THE SAID APPEAL IN CIT V. TECHNO TARP POLYMERS PRIVATE LIMITED(SUPRA) WAS AS UNDER: (1) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE BROU GHT FORWARD UNABSORBED LOSS/DEPRECIATION OF THE ASSESSEES 10B UNIT WAS NOT LIABLE FOR SET OFF AGAINST THE CURRENT YEARS PROFIT OF TH E SAME 10B UNIT? ITA 5040/MUM/2014 9 THE HONBLE BOMBAY HIGH COURT ANSWERED ABOVE QUEST ION OF LAW VIDE JUDGMENT DATED 05-12-2015 IN ITA NO. 2134 OF 2013, BY HOLDING AS UNDER: 5. WE FIND THAT THE DECISION OF THE KARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT WAS IN RESEPCT OF ASSESSMENT YEAR 1994-95. TH US IT DEALT WITH THE PROVISIONS OF SECTION 10B OF THE ACT AS EXISTING PR IOR TO 1 APRIL 2001 WHICH WAS ADMITTEDLY DIFFERENT FROM SECTION 10B AS IN FORCE DURING ASSESSMENT YEAR 200910 INVOLVED IN THIS APPEAL. SEC TION 10B OF THE ACT AS EXISTING PRIOR TO 1 APRIL 2001 PROVIDED FOR AN E XEMPTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM EXPORT BY 100% EXPOR T ORIENTED UNDERTAKINGS AND NOW IT PROVIDES FOR DEDUCTION OF P ROFITS AND GAINS DERIVED FROM A 100% EXPORTED ORIENTED UNITS.. 6. IN ANY VIEW OF THE MATTER, THE DECISION OF THE K ARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT DEALT WITH THE PROVISION OF LAW DIFFERENT FRO M THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. A DECISION HAS TO BE CO NSIDERED IN THE CONTEXT OF THE LAW AS ARISING FOR CONSIDERATION AND A CHANGE IN LAW WOULD RENDER THE DECISION UNDER THE OLD LAW INAPPLICABLE WHILE CONSIDERING THE AMENDED LAW. 7. THE ISSUE AS RAISED STANDS CONCLUDED BY THE DECI SION OF THIS COURT IN BLACK & VEATCH CONSULTING(P) LTD. (SUPRA) AND GANESH POLYCHEM LTD. VS. ITO AGAINST THE REVENUE. THEREFORE, THE QUESTION OF L AW AS PROPOSED FOR OUR CONSIDERATION DOES NOT GIVE RISE T O ANY SUBSTANTIAL QUESTION OF LAW. 8. ACCORDINGLY, THE APPEAL IS DISMISSED. NO ORDER A S TO COSTS. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF BLACK & VEATCH CONSULTING (P) LTD. (SUPRA) , IN THE CASE OF GANESH POLYCHEM LTD. V. ITO DECIDED IN ITA NO. 8515/MUM/20 10 ON 10-08-2010 ((2013) 35 TAXMANN.COM 446(BOM.) AND THE LATEST DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP AND PO LYMERS PVT. LTD. IN INCOME TAX APPEAL NO. 2134 OF 2013 DATED 5 TH DECEMBER, 2015 ( (2015) 97 CCH 0048 (BOM. HC) , THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE IN L AW AND HENCE ITA 5040/MUM/2014 10 WE DISMISS APPEAL FILED BY THE REVENUE , BY UPHOLDI NG/SUSTAINING THE APPELLATE ORDER OF THE LD. CIT(A)S WHEREIN RELIEF WAS GRANTED TO THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTI ON U/S 10AA OF THE ACT FROM CURRENT YEARS PROFITS WITHOUT SETTING OFF OF CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT AN D HENCE THE APPEAL FILED BY THE REVENUE IS DISMISSED. WE ORDER ACCORDINGLY. 7. THE SECOND ISSUE RAISED BY REVENUE IN THE INSTAN T APPEAL IS WITH RESPECT TO THE LD. CIT(A) GRANTING RELIEF TO THE AS SESSEE BY HOLDING THAT THE FREIGHT EXPENSES ARE REQUIRED TO BE EXCLUDED FROM T HE EXPORT TURNOVER IN TERMS OF EXPLANATION 1(I) OF SECTION 10AA ARE ALSO REQUIRED TO BE EXCLUDED FROM THE TOTAL TURNOVER, AS PER THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. ) 330 ITR 175(BOM. HC). THE BRIEF FACTS ARE THAT THE ASSESSEE ACHIEVED TURNOVER OF RS 33,76,03,372/- DURING THE IMPUGNED ASSESSMENT YEAR WHICH INCLUDED FREIGHT OF RS.8,50,250/- INCURRED FOR EXPORTING GOODS OUTSIDE INDIA. THE ASSESSEE CONTENDED THAT AS PER EXPLANATION 1(I) TO SECTION 1 0AA OF THE ACT, THE FREIGHT ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THINGS OUTS IDE INDIA IS TO BE EXCLUDED FROM THE EXPORT TURNOVER(NUMERATOR) AND TO MAINTAIN CONSISTENCY AND HARMONY, THE SAME IS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER(DENOMINATOR) AS THE FORMULA FOR DEDUCTION U/S 10AA IS AS AS FOLLOWS : PROFIT OF THE BUSINESS X EXPORT TURNOVER ----------------------- TOTAL TURNOVER THE ASSESSEE RELIED UPON DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT V. SUDERASHAN CHEMICALS INDUSTRIES LIMITED ( 2000) 245 ITR 769(BOM.). THE LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE BY HO LDING AS UNDER:- ITA 5040/MUM/2014 11 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND C ONTENTION OF THE LD. AR OF THE APPELLANT AND ALSO CAREFULLY GONE THROUGH THE FACTS AND EXPLANATION GIVEN BY THE LD. AR OF THE AP PELLANT AS WELL AS THE LD. AO. I FIND THAT THE SIMILAR ISSUE AROSE FOR THE CONSIDERATION OF SPECIAL BENCH OF ITAT AT CHENNAI I N THE CASE OF ITO VS. SAK SOFT LTD. (2009) 121 TTJ (CHENNAI (SB) 865,WHEREIN IT WAS HELD THAT THERE IS NO DEFINITION OF 'TOTAL TURN OVER'. IF THE PARITY PRINCIPLE IS TO BE APPLIED, IT FOLLOWS THAT WHATEVE R HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER BY THE DEFINITION SHALL STAND EXCLUDED FROM THE TOTAL TURNOVER ALSO. IN CL. (III) OF EXPLN. 2 TO S. 10B, THE FREIGHT, TELECOM CHARGES AND INSURANCE ATT RIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSE S INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OU TSIDE INDIA HAVE BEEN EXCLUDED FROM EXPORT TURNOVER. THEREFORE, THE SAME HAVE TO BE EXCLUDED ALSO FROM THE TOTAL TURNOVER TH OUGH THAT EXPRESSION HAS NOT BEEN DEFINED IN THE SECTION. THE ARGUMENT OF THE DEPARTMENT THAT IN THE ABSENCE OF ANY DEFINITIO N OF 'TOTAL TURNOVER FOR THE PURPOSE OF S. 10B, THERE IS NO AU THORITY TO EXCLUDE ANYTHING FROM THE EXPRESSION AS UNDERSTOOD IN GENERAL PARLANCE CANNOT BE ACCEPTED FOR TWO REASONS. FIRSTL Y THERE HAS TO BE AN ELEMENT OF TURNOVER IN THE RECEIPT IF IT HAS TO BE INCLUDED IN THE TOTAL TURNOVER. THAT ELEMENT IS MISSING IN THE CASE OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DE LIVERY OF THE GOODS OUTSIDE INDIA AND EXPENSES INCURRED IN FOREIG N EXCHANGE ON CONNECTION WITH THE PROVIDING OF TECHNICAL SERVI CES OUTSIDE INDIA. THESE RECEIPTS CAN ONLY BE RECEIVED BY THE A SSESSEE AS REIMBURSEMENT OF SUCH EXPENSES INCURRED BY HIM. MER E REIMBURSEMENT OF EXPENSES CANNOT HAVE AN ELEMENT OF TURNOVER. IT IS ONLY IN RECOGNITION OF THIS POSITION THAT IN THE DEFINITION OF EXPORT TURNOVER IN S. 10B THE AFORESAID TWO ITEMS H AVE BEEN DIRECTED TO BE EXCLUDED. SECONDLY, THE DEFINITION OF EXPORT TURNOVER CONTEMPLATES THAT THE AMOUNT RECEIVED BY T HE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE SHOULD REPRESENT 'C ONSIDERATION' IN RESPECT OF THE EXPORT. THIS CAN ONLY REFER TO TH E PRICE OF THE COMPUTER SOFTWARE EXPORTED OUT OF INDIA. ANY REIMBU RSEMENT OF THE TWO ITEMS OF EXPENSES MENTIONED IN THE DEFINITI ON CAN UNDER NO CIRCUMSTANCES BE CONSIDERED TO REPRESENT 'CONSID ERATION' FOR THE EXPORT OF THE COMPUTER SOFTWARE OR ARTICLES OR THINGS. THUS THERE IS EVIDENCE INHERENT IN THE DEFINITION OF EX PORT TURNOVER' ITSELF THAT IT SHOULD REPRESENT 'CONSIDERATION' FOR EXPORT OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE. IT FOLLOWS THAT THE EXPRESSION 'TOTAL TURNOVER' WHICH IS NOT DEFINED IN S. 10B SHOULD ALSO BE INTERPRETED IN THE SAME MANNER. THUS THE TW O ITEMS OF ITA 5040/MUM/2014 12 EXPENSES REFERRED TO IN THE DEFINITION OF 'EXPORT T URNOVER' CANNOT FORM PART OF THE TOTAL TURNOVER SINCE THE RECEIPTS BY WAY OF RECOVERY OF SUCH EXPENSES CANNOT BE SAID TO REPRESE NT CONSIDERATION FOR THE GOODS EXPORTED. IN THIS BEHAL F IT MUST BE BORNE IN MIND THAT TOTAL TURNOVER IS NOTHING BUT TH E AGGREGATE OF THE DOMESTIC TURNOVER AND THE EXPORT TURNOVER. THE FIGURE OF EXPORT TURNOVER HAS TO BE THE SAME BOTH IN THE NUME RATOR AND IN THE DENOMINATOR OF THE FORMULA. IT FOLLOWS THAT THE TOTAL TURNOVER CANNOT INCLUDE THE TWO ITEMS OF EXPENSES RECOVERED BY THE ASSESSEE AND REFERRED TO IN THE DEFINITION OF EXPO RT TURNOVER'. FURTHER, THE HON'BLE BENCH HELD THAT THE OBJECTION OF THE DEPARTMENT THAT THE SCHEME OF SS. 10A AND 10B ON TH E ONE HAND AND THAT OF SS, 80HHC; 80HHE AND 80HHF ON THE OTHER WAS COMPLETELY DIFFERENT AND, THEREFORE, IT WOULD BE WR ONG TO READ INTO S. 10B THE DEFINITION OF 'TOTAL TURNOVER' APPEARING IN THE OTHER SECTIONS REFERRED TO ABOVE IS NOT WELL-FOUNDED. THE COMMON THREAD RUNNING THROUGH ALL THESE SECTIONS IS THAT T HEY ARE ALL PROVISIONS GRANTING RELIEF TO THE ASSESSEES IN RESP ECT OF PROFITS DERIVED FROM EXPORT. IT CANNOT BE DISPUTED THAT THE OBJECT OF THESE SECTIONS IS TO ENCOURAGE THE EARNING OF FOREIGN EXC HANGE AND PROVIDE INCENTIVE TO PROMOTE EXPORTS. IF SOME OF TH E SECTIONS SUCH AS SS. 80HHE AND 80HHF PROVIDE FOR A FORMULA FOR CA LCULATING THE DEDUCTION WHICH IS IDENTICAL WITH THE FORMULA P RESCRIBED BY S. 10B, IT FOLLOWS THAT IT WOULD BE INCONGRUOUS TO INT ERPRET S. 10B IN A MANNER DIFFERENT FROM THOSE TWO SECTIONS MERELY B ECAUSE THERE IS NO DEFINITION OF 'TOTAL TURNOVER' IN THAT SECTIO N. 'EXPORT TURNOVER' IS DEFINED IN EXPLN. (C) BELOW SS. 80HHE AND' 80HHF . THE DEFINITION EXCLUDES FREIGHT, TELECOM CHARGES OR INS URANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWA RE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCHANGE I N PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. THUS STATUTORILY PARITY IS MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOV ER IN THESE SECTIONS. THERE IS NO REASON WHY SUCH PARITY CANNO T BE MAINTAINED BETWEEN EXPORT TURNOVER AND TOTAL TURNOV ER IN S. 10B JUST BECAUSE TOTAL TURNOVER HAS NOT BEEN DEFINED IN THAT SECTION. THE WORDS 'TOTAL TURNOVER' APPEARING IN THE VARIOUS PROVISIONS OF THE IT ACT SHOULD BE CONSTRUED IN THE SAME MANNER U NLESS IT LEADS TO CONTEXTUAL INCONSISTENCIES OR REPUGNANCY: SO FAR AS THE PRESENT CONTROVERSY IS CONCERNED, THE CONTEXT REQUI RES THAT THE ABOVE WORDS BE CONSTRUED IN SUCH A MANNER AS TO BE IN HARMONY WITH THE EXPRESSION' EXPORT TURNOVER' IN THE SENSE THAT WHATEVER IS EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EX CLUDED-FROM THE TOTAL TURNOVER, MORE PARTICULARLY WHEN ALL THE PROVISIONS REFERRED TO ABOVE UNIFORMLY PRESCRIBE A FORMULA IN WHICH THE ITA 5040/MUM/2014 13 EXPORT TURNOVER IS THE NUMERATOR AND THE TOTAL TURN OVER IS THE DENOMINATOR. THEREFORE, THE TOTAL TURNOVER FOR THE PURPOSE OF APPLYING THE FORMULA PRESCRIBED BY SUB-S. (4) OF S. 10B, THOUGH NOT DEFINED SHOULD BE CONSTRUED IN THE SAME MANNER IN WHICH THE EXPORT TURNOVER HAS BEEN DEFINED IN THAT SECTIO N, THAT IS TO SAY, BY EXCLUDING THE FREIGHT, TELECOM CHARGES AND INSURANCE ATTRIBUTABLE, TO THE DELIVERY OF GOODS OUTSIDE INDI A OR EXPENSES INCURRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. 3.3.2 I FURTHER FIND THAT IN-THE CASE OF CAPGEMINI INDIA(P) LTD. VS. ADDL.CIT (2011) 46 SOT 195,MUMBAI TRIBUNAL FOLLOWIN G THE DECISIONS OF ITO VS. SAK SOFT LTD. (2009) 121 TTJ ( CHENNAI)(SB) 865 AND CIT VS. GEM PLUS JEWELLERY, INDIA LTD. (201 0) 233 CTR (BOM) 248 HAS HELD THAT UNDER THE PROVISIONS OF EXP LN. 2(IV) TO S. 10A, EXPENSES ON FREIGHT, TELECOMMUNICATION CHARGES AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF ARTICLE O R THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRE D IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA ARE REQUIRED TO BE EXCLUDED FROM THE EXPORT TURNOVER. I N THIS CASE THE DATA LINE COST BEING THE TELECOMMUNICATION EXPENSES HAVE BEEN EXCLUDED BY THE AO FROM THE EXPORT TURNOVER. THE CA SE OF THE ASSESSEE IS THAT THE TELECOMMUNICATION EXPENSES HAD BEEN INCURRED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AT THE SOFTWARE UNDERTAKINGS OF THE ASSESSEE IN INDIA. THIS, CLAIM HAS NOT BEEN CONTROVERTED BY THE AO BY PLACING ANY MATERIAL ON R ECORD. THE EXPENSES INCURRED ON DEVELOPMENT OF SOFTWARE IN IND IA CANNOT BE CONSIDERED AS EXPENSES ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THEREFORE SUCH EXPENSES CAN NOT BE EXCLUDED FROM THE EXPORT TURNOVER AND IN CASE THESE ARE EXCLUDED, THESE HAVE TO BE EXCLUDED FROM TOTAL TURN OVER ALSO. IN ANY CASE SINCE THESE EXPENSES HAVE BEEN INCURRED IN THE BUSINESS OF SOFTWARE DEVELOPMENT IN INDIA, THESE CO ULD NOT BE CONSIDERED AS EXPENDITURE ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA. THEREFORE, EXPENSES ARE NOT TO BE EXCLUDED FROM THE EXPORT TURNOVER. IN VIEW OF THE FOREGOING THE LD. A.O. IS DIRECTED TO VERIFY THE EXACT FIGURE OF THE TOTAL TU RNOVER FROM HIS RECORD AND ADOPT THE SAME FOR COMPUTATION, THE DELE TION OF AN ITEM FROM TOTAL TURNOVER IS ALSO TO BE REDUCED FROM THE EXPORT TURNOVER FOR THE PURPOSES OF ARRIVING AT CONSISTENC Y IN THE COMPUTATION SO AS TO MAKE THE FORMULA WORKABLE. THI S GROUND OF APPEAL IS THUS ALLOWED FOR STATISTICAL PURPOSES. ITA 5040/MUM/2014 14 8. AGGRIEVED BY THE DECISION OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. D.R. SUBMITTED THAT REVENUE HAS FILED SL P WITH THE HONBLE SUPREME COURT AND HAS NOT ACCEPTED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND RELIED ON THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA). 10. THE BRIEF FACTS ARE THAT THE ASSESSEE ACHIEVED TURNOVER OF RS 33,76,03,372/- DURING THE IMPUGNED ASSESSMENT YEAR WHICH INCLUDED FREIGHT OF RS.8,50,250/- INCURRED FOR EXPORTING GOODS OUTSI DE INDIA. THE ASSESSEE HAD CONTENDED THAT AS PER EXPLANATION 1(I) TO SECTION 1 0AA OF THE ACT, THE FREIGHT ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THINGS OUTS IDE INDIA IS TO BE EXCLUDED FROM THE EXPORT TURNOVER(NUMERATOR) AND TO MAINTAIN CONSISTENCY AND HARMONY, THE SAME IS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER(DENOMINATOR) AS THE FORMULA FOR DEDUCTION U/S 10AA IS AS AS FOLLOWS : PROFIT OF THE BUSINESS X EXPORT TURNOVER ----------------------- TOTAL TURNOVER THE LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE BY HO LDING THAT THE FREIGHT EXPENSES ARE REQUIRED TO BE EXCLUDED FROM THE EXPOR T TURNOVER IN TERMS OF EXPLANATION 1(I) OF SECTION 10AA ARE ALSO REQUIRED TO BE EXCLUDED FROM THE TOTAL TURNOVER, AS PER THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (2011) 330 ITR 175(BOM. HC), WHEREIN HONBLE BOMBAY HIGH COURT HELD AS UNDER: ITA 5040/MUM/2014 15 3. ACCORDING TO THE REVENUE THE EXEMPTION UNDER SECTI ON 10A IS LIABLE TO BE COMPUTED AFTER EXCLUDING FREIGHT AND INSURANCE F ROM THE TOTAL TURNOVER. THE COMMISSIONER (APPEALS) AFFIRMED THE V IEW OF THE ASSESSING OFFICER AND HELD THAT SECTION 10A DOES NOT DEFINE T URNOVER AND THAT IN THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS CORRECT IN NOT REDUCING INSURANCE AND FREIGHT FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A. IN APPEAL THE TRIBUNAL HELD THAT (I) THE EXPRESSION 'TOTAL TURNOVER' HAS NOT BEEN DEFINED IN SECTION 10A; (II) PROFITS DERIVED FROM EXPORT HAVE TO BE COMPUTED BY TAKING I NTO CONSIDERATION BOTH THE EXPORT TURNOVER AND TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING; (III) BOTH THE EXPORT TURNOVER AND TOTAL TURNOVER WHICH CONSTITUTE THE NUMERATOR AND DENOMINATOR IN THE APP LICATION OF THE FORMULA UNDER SUB- SECTION (4) OF SECTION 10A SHOUL D BE COMPARABLE; AND (IV) FREIGHT AND INSURANCE HAVE NO ELEMENT OF PROFI T AND HENCE, CANNOT BE INCLUDED IN THE TOTAL TURNOVER OF THE BUSINESS CARR IED ON BY THE INDUSTRIAL UNDERTAKING. THE TRIBUNAL, ACCORDINGLY, DIRECTED TH AT THE DEDUCTION UNDER SECTION 10A SHOULD BE COMPUTED AFTER EXCLUDING FREI GHT AND INSURANCE FROM THE TOTAL TURNOVER. IT IS THIS FINDING OF THE TRIBUNAL WHICH IS QUESTIONED BY THE REVENUE IN APPEAL. 4. UNDER SUB-SECTION (1) OF SECTION 10A A DEDUCTION I S ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE OF SUCH PROFITS AND GA INS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THING S OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS CO MMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS MANUFACTURE OR PRODUCTION. SUB-SECTION (4) O F SECTION 10A PROVIDES THE MANNER IN WHICH THE PROFITS DERIVED FROM THE EX PORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE COMPUTED. SUB- SECTION (4) PROVIDES AS FOLLOWS : 'FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTW ARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS O F THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL T URNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING.' 5. UNDER SUB-SECTION (4) THE PROPORTION BETWEEN THE E XPORT TURNOVER IN RESPECT OF THE ARTICLES OR THINGS, OR AS THE CASE M AY BE, COMPUTER SOFTWARE EXPORTED, TO THE TOTAL TURNOVER OF THE BUS INESS CARRIED OVER BY THE UNDERTAKING IS APPLIED TO THE PROFITS OF THE BU SINESS OF THE UNDERTAKING IN COMPUTING THE PROFITS DERIVED FROM E XPORT. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERTAKING ARE MULTIPLIED BY THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES, THINGS OR, AS THE CASE MAY BE, COMPUTER SOFTWARE AND DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS ITA 5040/MUM/2014 16 CARRIED ON BY THE UNDERTAKING. THE FORMULA WHICH IS PRESCRIBED BY SUB- SECTION (4) OF SECTION 10A IS AS FOLLOWS : PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE = PROFITS OF THE BUSINESS EXPORT TURNOVER IN RESPECT OF THE UNDERTAKING OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UN DERTAKING THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING WOULD CONSIST OF THE TURNOVER FROM EXPORT AND THE TURNOVE R FROM LOCAL SALES. THE EXPORT TURNOVER CONSTITUTES THE NUMERATOR IN THE FO RMULA PRESCRIBED BY SUB-SECTION (4). EXPORT TURNOVER ALSO FORMS A CONST ITUENT ELEMENT OF THE DENOMINATOR INASMUCH AS THE EXPORT TURNOVER IS A PA RT OF THE TOTAL TURNOVER. 6. THE EXPORT TURNOVER, IN THE NUMERATOR MUST HAVE TH E SAME MEANING AS THE EXPORT TURNOVER WHICH IS A CONSTITUENT ELEMENT OF THE TOTAL TURNOVER IN THE DENOMINATOR. THE LEGISLATURE HAS PROVIDED A DEF INITION OF THE EXPRESSION 'EXPORT TURNOVER' IN EXPLANATION (2) TO SECTION 10A BY WHICH THE EXPRESSION IS DEFINED TO MEAN THE CONSIDERATION IN RESPECT OF EXPORT BY THE UNDERTAKING OF ARTICLES, THINGS OR COMPUTER SOFTWARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE F OREIGN EXCHANGE BUT SO AS NOT TO INCLUDE INTER ALIA FREIGHT, TELECOMMUNICA TION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES, THINGS OR SOFTWARE OUTSIDE INDIA. THEREFORE IN COMPUTING THE EXPORT TU RNOVER THE LEGISLATURE HAS MADE A SPECIFIC EXCLUSION OF FREIGHT AND INSURA NCE CHARGES. 7. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF T HE REVENUE IS THAT WHILE FREIGHT AND INSURANCE CHARGES ARE LIABLE TO B E EXCLUDED IN COMPUTING EXPORT TURNOVER, A SIMILAR EXCLUSION HAS NOT BEEN PROVIDED IN REGARD TO TOTAL TURNOVER. THE SUBMISSION OF THE REV ENUE, HOWEVER, MISSES THE POINT THAT THE EXPRESSION 'TOTAL TURNOVER' HAS NOT BEEN DEFINED AT ALL BY PARLIAMENT FOR THE PURPOSES OF SECTION 10A. HOWE VER, THE EXPRESSION 'EXPORT TURNOVER' HAS BEEN DEFINED. THE DEFINITION OF 'EXPORT TURNOVER' EXCLUDES FREIGHT AND INSURANCE. SINCE EXPORT TURNOV ER HAS BEEN DEFINED BY PARLIA- MENT AND THERE IS A SPECIFIC EXCLUSION O F FREIGHT AND INSURANCE, THE EXPRESSION 'EXPORT TURNOVER' CANNOT HAVE A DIFF ERENT MEANING WHEN IT FORMS A CONSTITUENT PART OF THE TOTAL TURNOVER FOR THE PURPOSES OF THE APPLICATION OF THE FORMULA. UNDOUBTEDLY, IT WAS OPE N TO PARLIAMENT TO MAKE A PROVISION TO THE CONTRARY. HOWEVER, NO SUCH PROVISION HAVING BEEN MADE, THE PRINCIPLE WHICH HAS BEEN ENUNCIATED EARLIER MUST PREVAIL AS A MATTER OF CORRECT STATUTORY INTERPRETATION. AN Y OTHER INTERPRETATION ITA 5040/MUM/2014 17 WOULD LEAD TO AN ABSURDITY. IF THE CONTENTION OF TH E REVENUE WERE TO BE ACCEPTED, THE SAME EXPRESSION, VIZ., 'EXPORT TURNOV ER' WOULD HAVE A DIFFERENT CONNOTATION IN THE APPLICATION OF THE SAM E FORMULA. THE SUBMISSION OF THE REVENUE WOULD LEAD TO A SITUATION WHERE FREIGHT AND INSURANCE, THOUGH IT HAS BEEN SPECIFICALLY EXCLUDED FROM 'EXPORT TURNOVER' FOR THE PURPOSES OF THE NUMERATOR WOULD BE BROUGHT IN AS PART OF THE 'EXPORT TURNOVER' WHEN IT FORMS AN ELEMENT OF THE T OTAL TURNOVER AS A DENOMINATOR IN THE FORMULA. A CONSTRUCTION OF A STA TUTORY PROVISION WHICH WOULD LEAD TO AN ABSURDITY MUST BE AVOIDED. 8. THE VIEW WHICH WE HAVE TAKEN IS CONSISTENT WITH TH E VIEW WHICH WAS TAKEN, THOUGH IN THE CONTEXT OF SECTION 80HHC, BY A DIVISION BENCH OF THIS COURT IN CIT V. SUDARSHAN CHEMICALS INDUSTRIES LTD. [2000] 245 ITR 769 . IN SUDARSHAN CHEMICALS INDUSTRIES LTD.'S CASE (SU PRA) THE QUESTION OF LAW THAT FELL FOR DECISION WAS WHETHER SALES TAX AND EXCISE DUTY OUGHT TO BE INCLUDED IN THE TOTAL TURNOVER WHILE WORKING OUT THE DEDUCTION UNDER SECTION 80HHC. FOR THE PURPOSES OF SECTION 80HHC, C LAUSE (B) OF SUB- SECTION (3) PROVIDES THAT THE PROFITS DERIVED FROM EXPORT SHALL BE COMPUTED IN TERMS OF THE PROPORTION BETWEEN THE EXPORT TURNO VER TO THE TOTAL TURNOVER AS APPLIED TO THE PROFITS OF BUSINESS. HON 'BLE MR. JUSTICE S.H. KAPADIA (AS THE LEARNED CHIEF JUSTICE THEN WAS) SPE AKING FOR A DIVISION BENCH OF THIS COURT DID NOT ACCEPT THE CONTENTION O F THE REVENUE THAT SINCE THE LEGISLATURE HAD EXCLUDED ONLY INSURANCE AND FRE IGHT FROM THE TOTAL TURNOVER, IT WAS NOT OPEN TO THE ASSESSEE TO CONTEN D THAT EXCISE DUTY AND SALES TAX SHOULD ALSO BE EXCLUDED. IN THAT CONTEXT, THE DIVISION BENCH OBSERVED THAT THE MEANING OF EXPORT TURNOVER IN CLA USE (B) OF THE EXPLANATION TO SECTION 80HHC SHOWED THAT EXPORT TUR NOVER DID NOT INCLUDE EXCISE DUTY AND SALES TAX. THE DIVISION BEN CH OBSERVED THAT THE EXPORT TURNOVER IS THE NUMERATOR IN THE FORMULA WHE REAS THE TOTAL TURNOVER IS THE DENOMINATOR. THE FORMULA HAVING BEE N PRESCRIBED TO ARRIVE AT PROFITS FROM EXPORTS, SALES TAX AND EXCISE DUTY COULD NOT FORM PART OF THE TOTAL TURNOVER. IF THE DENOMINATOR WERE TO INCL UDE THOSE TWO ITEMS AND THE NUMERATOR EXCLUDED THEM, THE FORMULA (NOTED THE DIVISION BENCH), WOULD BECOME UNWORKABLE. IN THE CIRCUMSTANCES, THE DIVISION BENCH HELD THAT WHILE ASCERTAINING THE EXPORT PROFITS, EXCISE DUTY AND SALES TAX COULD NOT BE INTRODUCED TO INFLATE THE TOTAL TURNOVER ART IFICIALLY IN ORDER TO REDUCE THE BENEFIT TO WHICH THE ASSESSEE IS ENTITLED. THE DECISION OF THE DIVISION BENCH OF THIS COURT IN SUDARSHAN CHEMICAL INDUSTRIE S LTD.'S CASE (SUPRA) HAS BEEN CITED WITH APPROVAL BY THE SUPREME COURT I N CIT V. LAKSHMI MACHINE WORKS [2007] 290 ITR 667 . THE SAME VIEW HAS BEEN TAKEN BY THE SUPREME COURT IN CIT V. CATAPHARMA (INDIA) (P.) LTD. [2007] 292 ITR 641 IN WHICH THE DECISION OF THE DIVISION BENCH IN SUD ARSHAN CHEMICAL INDUSTRIES LTD.'S CASE (SUPRA) HAS ALSO BEEN ADVERT ED TO. ITA 5040/MUM/2014 18 9. MOREOVER, A RECEIPT SUCH AS FREIGHT AND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOT AL TURNOVER. IN LAKSHMI MACHINE WORKS' CASE (SUPRA) THE SUPREME COURT HELD THAT EXCISE DUTY AND SALES TAX DID NOT POSSESS ANY ELEMENT OF TURNOV ER SINCE THEY ARE MERELY RECOVERABLE BY THE ASSESSEE ON BEHALF OF THE GOVERNMENT. 10. FREIGHT AND INSURANCE DO NOT HAVE AN ELEMENT OF TU RNOVER. FOR THIS REASON IN ADDITION, THESE TWO ITEMS WOULD HAVE TO B E EXCLUDED FROM THE TOTAL TURNOVER PARTICULARLY IN THE ABSENCE OF A LEG ISLATIVE PRESCRIPTION TO THE CONTRARY. THE FIRST QUESTION OF LAW WOULD THERE FORE, HAVE TO BE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE A SSESSEE WE ARE OF THE CONSIDERED VIEW THAT MERELY BECAUSE T HE SPECIAL LEAVE PETITION HAS BEEN FILED BY THE REVENUE WITH HONBLE APEX COU RT UNDER ARTICLE 136 OF THE CONSTITUTION OF INDIA AGAINST THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA ), THE ASSESSEE CANNOT BE DENIED THE RELIEF AS GRANTED BY THE LD. CIT(A) WHO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS J EWELLERY INDIA LTD. (SUPRA) WHICH WAS DECIDED BY HONBLE BOMBAY HIGH CO URT IN FAVOUR OF THE ASSESSEE BY HOLDING THAT RECEIPTS SUCH AS FREIGHT A ND INSURANCE WHICH DOES NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED I N TOTAL TURNOVER AS THEY DONOT HAVE AN ELEMENT OF TURNOVER, WHEREIN THE ISSU E UNDER THE INSTANT APPEAL IS DIRECTLY COVERED BY THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD. (SUPRA). THE PROVISIONS GOVERNING COMPUTATION OF EXPORT TURNOVER AS CONTAINED IN EXPL ANATION 2(IV) TO SECTION 10A OF THE ACT IS PARA MATERIA TO EXPLANATION 1(I) TO SECTION 10AA OF THE ACT WITH RESPECT TO THE EXCLUDABILITY OF FREIGHT, TELEC OMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OUTSIDE INDIA OR EXPENSES, IF ANY , INCURRED IN FOREIGN EXCHANGE IN RENDERING OF SERVICES OUTSIDE INDIA. THE HONBLE BOMBAY HIGH COURT DECISI ON IS BINDING ON US TILL IT IS REVERSED BY THE HONBLE APEX COURT. THE REVENUE HAS NOT BEEN ABLE TO BRING ON RECORD ANY OTHER DECISION OF THE HONBLE A PEX COURT WHICH REFLECTS CONTRARY POSITION AS WAS TAKEN BY HONBLE BOMBAY HI GH COURT IN THE CASE OF ITA 5040/MUM/2014 19 GEM PLUS JEWELLERY INDIA LTD. (SUPRA) AND HENCE KEE PING IN VIEW THE FACTUAL MATRIX OF THE CASE, WE AGREE THAT THE ASSESSEE IS E NTITLED FOR THE RELIEF AND THE FREIGHT OF RS.8,50,250/- INCURRED FOR EXPORTING GOO DS OUTSIDE INDIA ATTRIBUTABLE TO DELIVERY OF ARTICLES OR THINGS OUTS IDE INDIA IS TO BE EXCLUDED FROM THE EXPORT TURNOVER(NUMERATOR) AND TO MAINTAIN CONSISTENCY AND HARMONY, THE SAME IS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER(DENOMINATOR) AS THE FORMULA FOR DEDUCTION U/S 10AA IS AS AS FOLLOWS : PROFIT OF THE BUSINESS X EXPORT TURNOVER ----------------------- TOTAL TURNOVER HENCE THE APPEAL FILED BY THE REVENUE LACKS MERIT A ND IS HEREBY ORDERED TO BE DISMISSED AS WE ARE NOT INCLINED TO INTERFERE WITH THE APPELLATE ORDERS OF LEARNED CIT(A) WHICH WE SUSTAIN/AFFIRM KEEPING IN V IEW RATIO OF LAW LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GEM PLU S JEWELLERY INDIA LTD. (SUPRA).WE ORDER ACCORDINGLY. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IN I TA NO. 5040/MUM/2014 FOR ASSESSMENT YEAR 2009-10 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2016. # $% &' 19-12-2016. ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 19-12-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 5040/MUM/2014 20 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI