M/s Trivium India Software Private Limited, Bangalore V. ACIT, Bangalore

ITA 566/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51372 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETI GARG
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Business income; Revision of order; Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO. 566/BANG/2010 ASSESSMENT YEAR : 2005-06 M/S. TRIVIUM INDIA SOFTWARE PRIVATE LIMITED, NO.138/6, 6 TH A CROSS, 10 TH MAIN, RMV EXTENSION, SADASHIVNAGAR, BANGALORE 560 080. PAN : AABCT 0361K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : SMT. PREETI GARG, CIT(DR) DATE OF HEARING : 17.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 29.11.2010 OF THE COMMISSIONER OF INCOME-TAX-III, B ANGALORE. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL: ITA NO.556/BANG/10 PAGE 2 OF 6 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME-TAX IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE APPELLANT IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AND CIRC UMSTANCES OF THE CASE. 2. THAT THE LEARNED COMMISSIONER OF INCOME-TAX ERRE D IN LAW AND ON FACTS IN ASSUMING JURISDICTION U/S 263 OF TH E ACT. 3. THAT THE LEARNED COMMISSIONER OF INCOME-TAX ERRE D IN LAW AND ON FACTS IN HOLDING THAT THE BROUGHT FORWARD LO SS U/S 72 AND UNABSORBED DEPRECIATION U/S 32(2) OF THE ACT IS TO BE SET-OFF AGAINST THE PROFITS OF ELIGIBLE UNDERTAKING BEFORE WORKING OUT THE QUANTUM OF EXEMPTION U/S 10A OF THE ACT. EACH OF THE ABOVE GROUNDS IS WITHOUT PREJUDICE TO O NE ANOTHER AND THE APPLICANT CRAVES LEAVE OF THE HONBLE INCOM E-TAX APPELLATE TRIBUNAL, BANGALORE, TO ADD, DELETE, AMEN D OR OTHERWISE MODIFY ONE OR MORE OF THE ABOVE GROUNDS E ITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE ACTION U/S. 263 OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT ] TAKEN BY THE LD. CIT. 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE IS IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND FILED RETURN OF INCOME ON 31.10.2005 DECLARING NIL INCOME, WHICH WAS PROCESSED U/S. 143( 1) OF THE ACT ON 23.3.2007. LATER ON THE CASE WAS SELECTED FOR SCRU TINY. THE ASSESSEE CLAIMED DEDUCTIONS U/S. 10A OF THE ACT AND THE ASSE SSMENT U/S. 143(3) OF THE ACT WAS FRAMED BY THE AO VIDE ASSESSMENT ORDER DATED 14.12.2007. THEREAFTER, THE LD. CIT-III, BANGALORE EXERCISED HI S POWER U/S. 263 OF THE ACT AND WAS OF THE VIEW THAT THE ASSESSMENT ORDER D ATED 14.12.2007 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE WITHIN THE MEANING OF SECTION 263 OF THE ACT BY OBSERVING AS UNDER:- ITA NO.556/BANG/10 PAGE 3 OF 6 AS PER THE PROVISIONS OF SECTION 10A, THE DEDUCT ION HAS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE AN D HENCE THE TOTAL INCOME HAS TO BE DETERMINED BEFORE ALLOWING A NY DEDUCTION U/S. 10A. HOWEVER, IN THE ASSESSEES CASE, DEDUCTIO N U/S 10A HAS BEEN ALLOWED BEFORE SETTING OFF THE BROUGHT FORWARD LOSSES OF RS.92,81,044/-. THIS HAS RESULTED IN EXCESS CARRY FORWARD OF THE BUSINESS LOSS. THE LD. CIT(A) PROPOSED TO PASS AN APPROPRIATE ORDE R U/S. 263 OF THE ACT AND ISSUED A SHOW CAUSE NOTICE DATED 7.1.2010 TO TH E ASSESSEE. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED AS UNDER:- THE NOTICE REFERS TO THE EARLIER ORDER OF ACIT, C IRCLE 12(4), BANGALORE U/S 143(3) OF INCOME-TAX ACT, 196 1. WE ARE OF THE OPINION THAT THERE WAS NO ERROR IN THE EARLIER ORDER AND THIS WAS DONE IN ACCORDANCE WITH THE LAW. WE WISH TO BRING TO YOUR KIND NOTICE, THE CONTENT S OF THE PROVISIONS OF SECTION 10A AND 72A OF THE INCOME-TAX ACT, 1961 SUPPORTING THE ORDER OF THE ACIT. THEREFORE WE ARE REQUESTING YOUR GOOD OFFICE TO CA NCEL PROCEEDINGS AND ACCEPT THE ORDER OF THE ACIT U/S 14 3(3). 5. THE LD. CIT AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE WAS OF THE VIEW THAT THE ASSESSMENT ORDER DATED 14.12.2 007 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE IN AS M UCH AS EXCESS DEDUCTION U/S. 10A OF THE ACT HAD BEEN ALLOWED. THE RELEVANT OBSERVATIONS MADE BY THE LD. CIT AS MENTIONED IN PARA 4 OF THE IMPUGNED ORDER READ AS UNDER: 4. I HAVE CONSIDERED THE ASSESSEES SUBMISSIONS A ND FACTS OF THE CASE. SECTION 10A PROVIDES DEDUCTION OF SUCH PR OFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING TO WHICH THI S SECTION APPLIES FROM THE TOTAL INCOME OF THE ASSESSEE. THE TERM TOTAL INCOME HAS BEEN DEFINED IN SECTION 2(45) OF THE INC OME-TAX ACT, 1961 AS THE TOTAL AMOUNT OF INCOME REFERRED TO IN S ECTION 5 COMPUTED IN THE MANNER LAID DOWN IN THE IT ACT, 196 1. CHAPTER VI OF THE ACT PROVIDES FOR SET OFF AND CARRY FORWAR D OF LOSS. AS PER THESE PROVISIONS, THE BUSINESS INCOME OF THE AS SESSEE OUGHT TO HAVE BEEN TAKEN AT RS.16,74,527/- (INCOME FROM BUSI NESS AS PER ITA NO.556/BANG/10 PAGE 4 OF 6 ASSESSMENT ORDER RS.1,09,55,571 CARRY FORWARD UNA BSORBED DEPRECIATION/BUSINESS LOSS OF RS.92,81,044/-) AND D EDUCTION U/S. 10A OUGHT TO HAVE BEEN RESTRICTED TO RS.16,74,527/- . 6. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE AO WAS NEITH ER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVENUE BECAUSE THE VIEW TAKEN BY HIM WAS ONE OF THE POSSIBLE VIEWS AND IT WAS SIMILAR TO THE VIEW BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S. INTELLINET TECHNOLOGIES INDIA PVT. LTD. & ORS., ORDER DATED 9. 8.11. A COPY OF THE SAID ORDER WAS ALSO FURNISHED. 7. IN HER RIVAL SUBMISSIONS, THE LD. CIT(DR) STRONG LY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IT IS NOTICED THAT IN THE AFORESAID CASE OF CIT, LTU V. M/S. INTELLINET TECHNOLOGIES INDIA PVT. LTD. & ORS. (SURPA) , THE HONBLE JURISDICTIONAL HIGH COURT CONSIDERED THE FOLLOWING SUBSTANTIAL QUESTION OF LAW : (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING T HAT THE DEDUCTION UNDER SECTION 10-A OR 10-B OF THE ACT DUR ING THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT S ETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECIAT ION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-STP UNITS OR IN THE CASE OF THE VERY SA ME UNDERTAKING? THEIR LORDSHIPS IN PARAS 19 AND 31 OF THE AFORESAID ORDER DATED 9.8.2011 OBSERVED AS UNDER: 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL ITA NO.556/BANG/10 PAGE 5 OF 6 INCOME OF THE ASSESSEE. THE INCOME OF 10-A UNIT HA S TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING T HE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10-A IN THIS CONTEXT MEANS THE GLOBAL INCOME OF THE ASSE SSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENC E, THE INCOME ELIGIBLE FOR EXEMPTION UNDER SECTION 10-A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURC E LEVEL. .. . 31. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH P ROFITS 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 DEPRECIATION TREATED AS CURRENT YEARS DE PRECATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10-A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF TH E ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. .. 9. FROM THE ABOVE OBSERVATIONS OF THEIR LORDSHIPS O F THE HONBLE JURISDICTIONAL HIGH COURT, IT IS CLEAR THAT UNABSOR BED BROUGHT FORWARD BUSINESS LOSS U/S. 72 AND UNABSORBED DEPRECIATION U /S. 32(2) OF THE INCOME-TAX ACT IS NOT TO BE SET OFF AGAINST THE PRO FITS OF ELIGIBLE UNDERTAKING BEFORE WORKING OUT THE QUANTUM OF EXEMPTION U/S. 10 A OF THE ACT. SINCE, IN THE PRESENT CASE, THE VIEW TAKEN BY THE AO WAS IN C ONSONANCE WITH THE VIEW TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORESAID REFERRED TO CASE OF CIT, LTU V. M/S. INTELLINET TECHNOLOGIES INDIA PRIV ATE LIMITED (SUPRA) , THEREFORE IT CANNOT BE SAID THAT THE ASSESSMENT O RDER DATED 14.12.2007 PASSED BY THE AO WAS EITHER ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE. WE THEREFORE, BY CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREINABOVE THINK IT APPROPRIATE TO SE T ASIDE THE IMPUGNED ITA NO.556/BANG/10 PAGE 6 OF 6 ORDER PASSED BY THE LD. CIT AND THE ASSESSMENT ORDE R DATED 14.12.2007 PASSED BY THE ASSESSING OFFICER IS RESTORED. 10. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF NOVEMBER, 2011. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 25 TH NOVEMBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.