Sankhya Technologies Pvt Ltd., CHENNAI V. ITO, CHENNAI

ITA 589/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8433 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 16-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 24-03-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Reason to believe
• Section: 143(3); 10B; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . , ! . # , $ % & [ BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ] ./ I.T.A.NO.589/MDS/2015 / ASSESSMENT YEAR : 2003-04 M/S SANKHYA TECHNOLOGIES PVT. LTD NO.13/2 III FLOOR JAYALAKSHMIPURAM 1 ST STREET NUNGAMBAKKAM CHENNAI 641 034 VS. THE INCOME TAX OFFICER COMPANY CIRCLE VI(1) CHENNAI [PAN AADCS 4838 E] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : SHRI A.V. S REEKANTH, JCIT / DATE OF HEARING : 16 - 08 - 2016 ! / DATE OF PRONOUNCEMENT : 23 - 0 9 - 2016 + / O R D E R PER G. PAVAK KUMAR, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEEE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-15, CH ENNAI, DATED 12.1.2015 IN I.T.A.NO.1049/13-14/A-15 FOR ASSESSMEN T YEAR 2003-04 PASSED U/S 143(3) AND 250 OF THE INCOME-TAX ACT, 1 961(I SHORT THE ACT). ITA NO. 589/15 :- 2 -: 2. THE ASSESSEE HAS RAISED SOLE SUBSTANTIVE GROUND T HAT THE CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER DENYING SET OFF OF INTER HEAD ADJUSTMENT OF INCOME FROM OTH ER SOURCES OF ` 23,60,578/- AGAINST BUSINESS LOSS OF 10A UNIT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN SOFTWARE DEVELOPMENT AND FILED ITS RETUR N OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 28.11.2003 ADMITTING LO SS OF ` 68,82,402/- AND CLAIMED EXEMPTION U/S 10A OF THE A CT. THE RETURN OF INCOME WAS PROCESSED U/S 143(1). SINCE THE ASSES SEE BEING A SOFTWARE EXPORTER, THE ENTIRE AMOUNT OF LOSS HAS BE EN CLAIMED AS EXEMPT U/S 10A. THE ASSESSING OFFICER SUBSEQUENTL Y FOUND THAT THE ADMITTED LOSS INCLUDES SET OFF CLAIMED BY THE ASSE SSEE OF INTEREST ON BANK DEPOSIT OF ` 22,39,927/-, DIVIDENDS OF ` 55,575/- AND MISCELLANEOUS INCOME OF ` 64,800/- WHICH WERE CLAIMED AS EXEMPT AND SET OFF. THEREFORE, NOTICE U/S 148 WAS ISSUED AS T HERE WAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. IN COM PLIANCE TO THE NOTICE, THE LD. AR FOR THE ASSESSEE APPEARED AND F ILED A LETTER TO TREAT THE RETURN OF INCOME ORIGINALLY FILED IN RESPONSE T O NOTICE U/S 148. IN THE ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED THAT T HE ASSESSEE BEING ENGAGED IN SOFTWARE DEVELOPMENT HAVING ELIGIBLE UNI T FOR EXEMPTION U/S 10A , INCOME FROM BANK DEPOSITS WHICH WAS SET O FF AGAINST THE LOSSES AND THE BALANCE WAS CLAIMED AS EXEMPT. THE ASSESSING OFFICER ITA NO. 589/15 :- 3 -: HAS NOT APPRECIATED THIS SUBMISSION AND COMPUTED TH E BUSINESS LOSS AT ` 92,16,363/-. IN RESPECT OF INTEREST ON FIXED DEPO SITS WITH BANK AND MISCELLANEOUS INCOME, THE ABOVE AMOUNT WAS SUBJ ECTED TO TAXATION ALONGWITH CAPITAL GAINS AND THE TOTAL INCO ME WAS DETERMINED AT ` 23,72,500/- VIDE ORDER U/S 143(3) R.W.S 147 OF TH E ACT PASSED ON 30.10.2006. 4. AGGRIEVED THE ASSESSEE HAS FILED APPEAL BEFORE THE CIT(A). IN THE APPELLATE PROCEEDINGS, LD. AR ARGUED THE GRO UNDS AND REITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT PROCEEDINGS IN RESPECT OF SET OFF DENIED BY THE ASSESSING OFFICER. HE SUBMITTE D THAT THE ASSESSING OFFICER HAS SEGREGATED INCOME FROM BANK DEPOSITS A S INCOME FROM OTHER SOURCES WHERE THIS INCOME IS TREATED AS PART OF INCOME FROM BUSINESS OR PROFESSION. WITH THIS CALCULATION, THE ASSESSING OFFICER HAS ARRIVED AT BUSINESS LOSS OF ` 92,16,363/- AND INCOME FROM OTHER SOURCES AT ` 23,60,302/-. THE ASSESSING OFFICER FAILED TO APPR ECIATE THAT THE CURRENT YEAR BUSINESS LOSS HAS BEEN SET O FF FROM ONCE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME H EAD OF INCOME AS PER THE PROVISIONS OF SEC. 70. THE ASSESSING OF FICER HAS MADE A FINDING THAT THE LOSS U/S 10A CANNOT BE CONSIDERED FOR SET OFF. THE CIT(A) CONSIDERED THE SUBMISSIONS AND ALSO THE ARGU MENTS ON EXEMPTION AND TREATMENT OF BUSINESS LOSS AND HE WAS OF THE OPINION THAT AS PER THE SUBMISSIONS OF THE LD. AR THERE IS A CHANGE IN THE ITA NO. 589/15 :- 4 -: TERMINOLOGY OF THE EXEMPTION U/S 10A TO BE TRE ATED AS DEDUCTION FROM TOTAL INCOME. THE CIT(A) HAS DISCUSSED ELABOR ATELY ON SECTION AND THE CHAPTER AND ALSO THE PROVISIONS AMENDED PRI OR TO ASSESSMENT YEAR 2001-02 AND SUBSEQUENTLY. HE RELIED ON THE JU DGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD, 341 ITR 385, AND CAME TO THE CONCLUSION THAT DEDUCTION U/S 10A ARE REQUIRED TO BE DEALT WITH SEPARATELY AND HAS TO BE EXCLUDED BEFORE ARRIVING AT GROSS TOTAL INCOME AND THE INCOME WHICH ARE ASSESSA BLE FROM OTHER SOURCES OR NOT DERIVED FROM ANY INDUSTRIAL UNDERTAK ING WHICH IS FALLING UNDER THE SPECIAL PROVISION IN RESPECT OF NEWLY EST ABLISHED UNDERTAKING IN FREE TRADE ZONE AND THERE IS NO NEXUS BETWEEN TH E INCOME EARED WITH THE BUSINESS LOSS DECLARED U/S 10A OF THE ELI GIBLE UNIT. THEREFORE, THE INTEREST INCOME SHALL NOT BE GIVEN S ET OFF AGAINST THE EXEMPT LOSS AND UPHELD THE ACTION OF THE ASSESSING OFFICER. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL.BEFORE US, LD. AR REITERATED THE SUBMISSIO NS MADE IN THE ASSESSMENT PROCEEDINGS, APPELLATE PROCEEDINGS AND E XPLAINED THE FACTS AND ALSO THE PROVISIONS, AMENDMENTS PRIOR TO ASSESSMENT YEAR 2001-02. THE LD. AR FURTHER ARGUED THAT THE CIT(A) ERRED IN DENYING SET OFF OF ADJUSTMENT OF INCOME AGAINST THE BUSINE SS LOSS OF 10A UNIT. THERE IS A CHANGE IN THE NATURE OF THE EXEMPTION AP PLICABLE FOR ASSESSMENT YEAR 2001-02. WHERE DEDUCTION U/S 10A IN RESPECT OF ITA NO. 589/15 :- 5 -: PROFITS AND GAINS ARE ELIGIBLE TO BE DEDUCTED FROM TOTAL INCOME AND PROVISIONS OF SEC. 70(1) ARE APPLICABLE. THE JUDGM ENT RELIED BY THE CIT(A) IS IN RESPECT OF SET OFF OF LOSS FROM 10A UN IT WITH THE PROFIT OF 10A UNIT IS DISTINGUISHABLE WHEREAS THE ASSESSEE H AS SET OFF LOSS OF 10A UNIT UNDER THE SAME HEAD OF INCOME BEING IN THE NATURE OF INTEREST AND THEREFORE, THE ASSESSEE IS ENTITLED T O CLAIM DEDUCTION WHILE COMPUTING TOTAL INCOME. THE LD. AR RELIED ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD VS DY. CIT, 325 ITR 102, WHEREIN HELD THAT ASSESSEE HAVING ADJ USTED 40 PER CENT OF THE LOSS OF ITS PLANTATION DIVISION AS ATTRIBUTA BLE TO THE BUSINESS ACTIVITY OF MANUFACTURE AND SALE OF TEA AND SAME IS PERMISSIBLE. SIMILAR VIEW WAS TAKEN BY THE ITAT DELHI BENCH IN THE CASE OF QUALCOMM INDIA P LTD VS ACIT, 147 ITD 17 AND PRAYED FOR ALLO WING THE APPEAL. 6. PER CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED TO THE GROUNDS RAISED BY TH E ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS. THE CRUX OF THE ISSUE BEING DENIAL OF SET OFF OF INCOME FROM OTHER SOURCES AGAINST BUSINE SS LOSS U/S 10A UNIT. THE ASSESSING OFFICER IN THE RE-ASSESSMENT P ROCEEDINGS HAS SEGREGATED THE BUSINESS LOSS SEPARATELY AND ALLOWED EXEMPTION U/S 10A AND MADE ADDITION OF INTEREST ` 23,60,578/- UNDER INCOME FROM OTHER SOURCES. THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ITA NO. 589/15 :- 6 -: RELYING ON THE JUDGMENT OF KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD.(SUPRA) AND CAME TO A CONCLUSION THAT THERE SHO ULD BE NEXUS BETWEEN THE INCOME EARNED IN RESPECT OF THE INDUSTR IAL UNDERTAKING. 8. THE LD. DR EXPLAINED THAT IT IS IN THE NATURE OF EX EMPTED BUSINESS LOSS. AS AGAINST THE ABOVE, THE LD. AR SU BMITTED THAT UNDER THE PROVISIONS OF SEC. 70(1), SET OFF OF LOSS FOR O NE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF I NCOME IS ALLOWED. BY APPLYING THIS PROVISION THE ASSESSEE-C OMPANY HAS ADJUSTED AND SET OFF THE OTHER INCOME INCLUDING THE INTEREST INCOME WITH THE BUSINESS LOSS U/S 10A OF THE ACT AND FILE D THE RETURN OF INCOME. FURTHER THERE WAS AN AMENDMENT TO THIS PRO VISION WHERE DEDUCTION U/S 10A HAS TO BE TREATED AS A DEDUCTION FROM TOTAL INCOME, THEREFORE, THE ASSESSEE BY APPLYING THE PROVISION HAS CLAIMED THE SET OFF AGAINST THE BUSINESS LOSS. THE DECISIONS RELIE D BY THE LD. AR ARE IN SUPPORT OF HIS ARGUMENTS WHEREIN HELD THAT THE LOSS OF 10B UNIT IS AVAILABLE FOR SET OFF U/S 70. SO, SAME PRINCIPLE A PPLIES TO THE PROVISIONS OF 10A. WE FIND THAT A SIMILAR ISSUE WA S CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S LASON INDIA PVT. LTD IN TAX CASE (APPEAL) NO.1529 OF 2007 DATED 29.10.20 13 WHEREIN IT WAS HELD AS UNDER: ITA NO. 589/15 :- 7 -: 6. IN THE LIGHT OF THE CIRCULAR ISSUED BY THE GOV ERNMENT OF INDIA, CENTRAL BOARD OF DIRECT TAXES, WE DO NOT FIND THE CONTENTION OF THE REVENUE REMAINS ANY LONGER RES INTEGRA FOR THIS COU RT TO CONSIDER THE SAME. IN THIS DECISION RENDERED IN T.C(A) NOS. 72 & 73 OF 2009, DATED 22.10.2013, COMMISSIONER OF INCOME TAX VS M/S PENTASOFT TECHNOLOGIES LTD THIS COURT HAS ALSO CONSIDERED THE EFFECT OF THE CIRCULAR AS WELL AS THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS GALAXY SURFACTANTS LTD, REPORTED IN 343 ITR 108 AND HINDUSTAN UNILEVER LTD VS DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN [2010] 325 ITR 102[BOM] A S REGARDS THE SET OFF OF LOSS SUFFERED BY THE ASSESSEE IN INELIG IBLE UNIT AS AGAINST THE PROFIT OF ELIGIBLE UNIT IN FAVOUR OF THE ASSES SEE. IN THE LIGHT OF THE CIRCULAR ABOVE, REFERRED TO AND THE DECISION OF THIS COURT, WE HOLD THAT THE ASSESSEE IS ENTITLED TO SET OFF OF T HE LOSSES AS AGAINST THE INCOME OF THE ELIGIBLE UNIT, SO LONG AS THE LOS S WAS NOT LIABLE TO BE EXCLUDED IN THE CATEGORY EVEN UNDER 10B OF THE I NCOME TAX ACT. 9. THEREFORE, CONSIDERING THE APPARENT FACTS, MATERIAL ON RECORD AND JUDICIAL DECISIONS AND PROVISIONS OF SEC. 70 OF THE ACT, WE ARE OF THE OPINION THAT THE ASSESSEE-COMPANY IS ELIGIBLE F OR SET OFF OF BUSINESS LOSS AGAINST OTHER INCOME INCLUDING INTERE ST UNDER THE SAME HEAD. AND THE ASSESSING OFFICER IS DIRECTED TO ALLO W SET OFF OF THE OTHER INCOME WITH BUSINESS LOSS DETERMINED U/S 10A OF TH E ACT. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, 23 RD SEPTEMBER, 2016, AT CHENNAI. SD/- SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER ( . # ) (G. PAVAN KUMAR) $ / JUDICIAL MEMBER '# / CHENNAI $% / DATED: 23 RD SEPTEMBER, 2016 RD ITA NO. 589/15 :- 8 -: %& '()( / COPY TO: 1 . / APPELLANT 4. * / CIT 2. / RESPONDENT 5. (+, - / DR 3. *./ / CIT(A) 6. ,01 / GF