MEDUSIND SOLUTONS (I) P. LTD, MUMBAI V. ACIT RG 6(3), MUMBAI

ITA 6703/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9454 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJEET KUMAR JAIN
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Retrospective amendment; Question of law; Notional interest
• Section: 92C; 80C; 143(3); 92B; 14A; 10B; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI P.M. JAGTAP (A.M.) ITA NO. 6703/MUM /2010 ASSESSMENT YEAR : 2006-07 MEDUSIND SOLUTIONS INDIA PVT. LTD., THE ARCADE, 6 TH FLOOR, THE GREAT OASIS, D-13, STREET 21, MIDC, MAROL, ANDHERI (EAST), MUMBAI 400 093. PAN AADCM 1806E VS. THE ASSTT. COMMISSIONER OF INCOME TAX- CIRCLE 6(1), AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 20. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI NITESH JOSHI DEPARTMENT BY : SHRI AJEET KUMAR JAIN & SHRI DINESH KUMAR DATE OF HEARING 20-11-2012 DATE OF PRONOUNCEMENT 05-12-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DTD. 18-8-2010 FOR THE A.Y. 2006-07 PASSED BY THE A .O. U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (THE ACT) AFTER CO NSIDERING THE DIRECTIONS DTD. 25-6-2010 OF THE DISPUTE RESOLUTION PANEL (DRP). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE COM PANY IS ENGAGED IN THE BUSINESS OF I.T. ENABLED SERVICES. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS. 60,130/- AFTER CLAIMING EXEMPTION U/S 10A OF THE ACT. ITA NO. 6703/MUM/2010 2 HOWEVER, THE ASSESSMENT AFTER MAKING CERTAIN DISALL OWANCES AND ADDITION WAS COMPLETED AT AN INCOME OF RS. 2,20,958 /-, VIDE ORDER DTD. 18-8-2010 PASSED U/S 143(3) R.W.S. 144C OF THE ACT. 3. BEING AGGRIEVED BY THE ORDER PASSED BY THE A.O., THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 AND 5 ARE GENERAL IN NATURE AND IN THE ABSENCE OF ANY SPECIFIC PLEA, THE SAME ARE, THEREFORE, REJECTE D. 5. GROUND NOS. 2 TO 2.4 ARE AGAINST THE SUSTENANCE OF DISALLOWANCE U/S 14A OF THE ACT. 6. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUNDS WH ICH WAS NOT OBJECTED TO BY THE LD. D.R. 7. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTI NG MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, REJECTED BEING NOT PRESSED . 8. GROUND NO. 3 AND 3.1 READ AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN ADD ING BACK A SUM OF RS. 35,561/- BEING THE NOTIONAL INTEREST COMPUTED FOR T HE PURPOSES OF ARRIVING AT THE ARMS LENGTH PRICING ON ACCOUNT OF A DELAY IN REALIZATION OF THE DUES FROM MEDUSING SOLUTIONS, INC (AN ASSOCIATE D ENTERPRISE), PURSUANT TO THE ORDER PASSED BY THE T RANSFER PRICING OFFICER, JT. ITA NO. 6703/MUM/2010 3 COMMISSIONER OF INCOME-TAX, TRANSFER PRICING 1(5) UNDER THE PROVISIONS OF SECTION 92CA(3) OF THE ACT. 9. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. MADE REFERENCE U/S 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP) IN RESPECT OF INTERNATIONAL TRANSACTIONS FOR THE PURPOSE OF ARRIVING AT THE ARMS LENGTH PRICE ON ACC OUNT OF DELAY IN REALIZING THE DUES FROM MEDUSIND SOLUTIONS INC. (AN ASSOCIATE ENTERPRISE). THE ASSESSEE WAS ASKED BY THE TPO AS TO WHY INTEREST SHOULD NOT BE CONSIDERED FOR DETERMINING THE ALP AS ADOPTED IN THE A.Y. 2005-06. IN RESPONSE, THE ASSESSEE SUBMITTED THAT A S PER THE UNDERSTANDING BETWEEN THE ASSESSEE AND THE AE, THE A.E HAS TO REMIT THE AMOUNT TO THE ASSESSEE ONLY AFTER IT RECOVERS F ROM ITS (AES) DEBTORS. THE ASSESSEE FURTHER SUBMITTED THE DETAILS OF AVERA GE DEBTOR DAYS OF THE ASSESSEE AND ITS AE. ACCORDING TO THE ASSESSEE, TH E AE RECOVERS THE DUES FROM ITS CUSTOMERS WITHIN 61 DAYS WHEREAS THE ASSES SEE IS REALIZING THE DUES FROM THE AE WITHIN 127 DAYS AND THE DIFFERENCE IS ONLY 66 DAYS. IT WAS FURTHER SUBMITTED THAT AS A PART OF NORMAL BUSI NESS PRACTICE, INTEREST IS NEITHER CHARGED NOR PAID AS THE PARTIES INTEND TO CONTINUE TO MAINTAIN A LASTING BUSINESS RELATIONSHIP WITH EACH OTHER. FURTHER, THE AGREEMENT BETWEEN THE ASSESSEE AND THE AE ALSO DOES NOT SPECIFICALLY PROVIDE FOR INTEREST TO BE CHARGED ON OVERDUE PAYME NTS. IT WAS FURTHER SUBMITTED THAT IT IS A ZERO DEBT COMPANY I.E. IT DO ES NOT HAVE ANY BORROWINGS FROM EXTERNAL SOURCES AND IT HAS ALSO NO T PAID ANY INTEREST ON DELAYED PAYMENTS MADE BY IT TO THIRD PARTIES, HENCE , IT WAS CLAIMED THAT ITA NO. 6703/MUM/2010 4 THERE WAS NO NEED FOR IT TO CHARGE ANY INTEREST TO ITS AES. THE ASSESSEE ALSO SUBMITTED DETAILS OF CONVERTIBLE LOAN PROVIDED BY THE AE TO HEALTHWAVE INC. (CUSTOMER) AS FOLLOWS: CONVERTIBLE LOAN TO HEALTHWAVE US $ 2,50,000 AND INTEREST EARNED FROM HEALTHWAVE AND THIRD PART Y CUSTOMER, DURING FY 2005-06 TO US $ 37,203. THE TPO AFTER EXAMINING THE ASSESSEES SUBMISSION, HOWEVER, WAS OF THE VIEW THAT THERE WAS ABNORMAL DELAY IN RECOVERING TH E DUES FROM THE AE AND, HENCE, HE CONSIDERED THE INTEREST AT THE AVERA GE RATE OF MIBOR OF 5.68% AND LOADED ON THE DEBIT BALANCES FROM THE AE AS UNDER:- ANNUALISED INVESTMENT IN DEBTORS AMOUNT FROM THE A E : RS.574,28,683/- (AS FURNISHED BY ASSESSEE) AVERAGE DEBTORS DAYS AT THE AE LEVEL, AS FURNISHED BY THE ASSESSEE : 61 AVERAGE DEBTORS DAYS AT THE ASSESSEE LEVEL, AS FURN ISHED BY THE ASSESSEE : 127 AVERAGE DELAY IN REMITTANCE FROM THE DAY OF RECOVER Y OF DEBTS BY AE AND REMITTANCE TO ASSESSEE, AS FURNISHE D BY THE ASSESSEE (127-61) : 66 AVERAGE MIBOR DURING THE F.Y 2005-06 : 5.68% TOTAL INTEREST TO BE LOADED ON THE AMOUNTS DUE FROM THE AE @ MIBOR OF 5.68% 5,74,28,683 X 66 X 5.68% = RS. 16,95,186 THE TPO AFTER DEDUCTING THE INTEREST EARNED BY THE ASSESSEE US $ 37,203 EQUIVALENT TO RS. 1,659,625/- FROM THE INTEREST LOA DED ON THE AMOUNTS DUE FROM AE RS. 1,695,186/- WORKED OUT THE NET ADJU STMENT FROM AE RS. 35,561/- AND HELD THE SAME AS INTEREST TO BE CHARGE D FROM THE AE ON ACCOUNT OF DELAY IN REALISING THE DUES FROM THE AE. THE A.O. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND THE ORDE R OF THE TPO PASSED ITA NO. 6703/MUM/2010 5 U/S 92 CA(3) DTD. 30-10-2009 ADDED BACK THE ABOVE A MOUNT OF RS. 35,561/- BEING ADJUSTMENT MADE TO THE ARMS LENGTH P RICE IN RESPECT OF INTERNATIONAL TRANSACTION WITH THE OBSERVATION THAT THE SAID ADJUSTMENT HAS ALSO BEEN UPHELD BY THE DRP. 10. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE TPO, A.O. AND DRP SUBMITS THAT THE ASSESSEE HAS NOT PAID ANY INTE REST TO THIRD PARTIES FOR SERVICES, IF ANY, AVAILED AND THE PAYMENT HAS B EEN MADE LATE I.E. BEYOND THE NORMAL CREDIT PERIOD OFFERED, THEREFORE, NO SUCH ADDITION IS CALLED FOR. HE FURTHER SUBMITS THAT SUCH ADJUSTMEN T IN RESPECT OF INTEREST NOT CHARGED BY THE ASSESSEE ON DEBIT BALAN CE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION U/S 92B OF THE ACT IN RESPECT OF WHICH ALP ADJUSTMENT HAS BEEN MADE AND FOR THIS PROPOSITION T HE RELIANCE WAS ALSO PLACED ON THE DECISION IN NIMBUS COMMUNICATIONS LTD . VS. ACIT (2012) 16 ITR (TRIB) 477 (MUMBAI) FOLLOWED IN PATNI COMPUT ER SYSTEMS LTD. VS. DCIT (2012) 16 ITR (TRIB) 533 (PUNE) AND DCIT VS. I NDO AMERICAN JEWELLERY LTD. (2012) 50 SOT 528 (MUMBAI). HE, THE REFORE, SUBMITS THAT THE ADDITION MADE BY THE A.O. BE DELETED. 11. ON THE OTHER HAND, THE LD. D.R., AT THE OUTSET, SUBMITS THAT CHARGING OF INTEREST ON DELAYED PAYMENT FROM THE AS SOCIATED ENTERPRISES IS AN INTERNATIONAL TRANSACTION. THE FINANCE ACT 2 012 HAS AMENDED ITA NO. 6703/MUM/2010 6 SECTION 92B OF THE ACT BY INSERTING EXPLANATION (I) (C) WITH RETROSPECTIVE EFFECT 1-4-2002 WHEREIN IT HAS BEEN PROVIDED AS UND ER:- (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMEN T OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINES S; HE FURTHER SUBMITS THAT IN VIEW OF THE ABOVE EXPLAN ATION, IT IS BEYOND DOUBT THAT THE RECEIVABLE FROM THE AE IS AN INTER NATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT. THE R ELIANCE WAS ALSO PLACED ON THE DECISION IN LOGIX MICRO SYSTEMS LTD. VS. ACIT IN ITA NO. 423/BANG/2009 ORDER DTD. 7-10-2010 : (2010-TII-50-I TAT-BANG-TP) TO SHOW THAT THE OUTSTANDING RECEIVABLE IS VERY MUCH A RELEVANT ASPECT OF ALP. HE, THEREFORE, SUBMITS THAT THE ADDITION MADE BY THE A.O./TPO ON ACCOUNT OF INTEREST ON DELAYED PAYMENT BE CONFIRMED . 12. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSES SEE WHILE REITERATING THAT SALE VALUE AND INTEREST CANNOT BE REGARDED AS A SEPARATE TRANSACTION, RELIED ON THE SECOND PART OF THE DECIS ION IN NIMBUS COMMUNICATIONS LTD. (SUPRA) TO SHOW THAT LIBOR RATE WAS RELEVANT ONLY IN THE CASE OF LENDING OR BORROWING OF FUNDS AND NO T IN THE CASE OF COMMERCIAL OVER DUES. HE FURTHER SUBMITS THAT THE N ET VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WH ICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTA KEN DOES NOT EXCEED ITA NO. 6703/MUM/2010 7 5%, THEREFORE, IN VIEW OF THE SECOND PROVISO TO SEC TION 92C OF THE ACT, NO SUCH ADDITION IS CALLED FOR. 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE IMPUGNED ADDITION WAS MADE PRIOR TO THE AMENDMENT MADE U/S 9 2B OF THE ACT BY INSERTING EXPLANATION BY THE FINANCE ACT, 2012 W.R. E.F. 1-4-2002 AND ALL THE DECISIONS OF THE TRIBUNAL RELIED ON BY BOTH THE PARTIES ARE PRIOR TO THE SAID AMENDMENT. THIS BEING SO AND KEEPING IN VIEW THAT THE ASSESSEE HAS TAKEN CERTAIN NEW PLEA AT THE STAGE OF REJOINDE R, WE ARE OF THE VIEW THAT, IN THE INTEREST OF JUSTICE, THE MATTER SHOUL D GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE ORDER PAS SED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND RESTORE BACK THE MA TTER TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREINABOVE AND ACCORDING TO LAW AFTER PROVIDING RE ASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN B Y THE ASSESSEE ARE, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 14. GROUND NO. 4.1 READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN SETTING OFF THE PAST-UNABSORBED LOSSES PRIOR TO CALCULATING EXEMPTION UNDER SECTION 10A. 15. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT ON PERU SAL OF THE COMPUTATION OF INCOME, THE A.O. OBSERVED THAT THE A SSESSEE COMPANY ITA NO. 6703/MUM/2010 8 HAS SET OFF UNABSORBED LOSSES FROM EARLIER YEARS AF TER CLAIMING THE DEDUCTION U/S 10A OF THE ACT AMOUNTING TO RS. 36,74 ,806/-. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY DEDUCTIO N U/S 10A OF THE ACT SHOULD NOT BE GRANTED AFTER SET OFF OF BROUGHT FORWARD LOSSES. THE ASSESSEE FURNISHED ITS REPLY VIDE LETTER DTD. 27-11 -2009. THE A.O. AFTER CONSIDERING THE SAME OBSERVED THAT THE DEDUCTION U/ S 10A OF THE ACT HAS TO BE ALLOWED FROM THE PROFITS AND GAINS AS ARE DER IVED BY THE UNDERTAKING FROM THE EXPORT OF ARTICLE OF THINGS OR COMPUTER SOFTWARE FROM THE TOTAL INCOME OF THE ASSESSEE. AS SECTION 2(45) OF THE ACT TOTAL INCOME MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. SECT ION 5 DEFINES THE SCOPE OF THE TOTAL INCOME. FURTHER THE TOTAL INCOM E HAS TO BE COMPUTED IN THE MANNER LAID DOWN IN THE INCOME TAX ACT. HENC E, ALL THE PROVISIONS OF THE INCOME-TAX ACT APPLY TO COMPUTE THE TOTAL IN COME OF THE ELIGIBLE UNDERTAKING. HE FURTHER OBSERVED THAT SECTION 10A D OES NOT CONTAIN A NON OBSTANTE CLAUSE, HENCE, THE PROVISIONS OF ALL T HE SECTIONS OF THE ACT APPLY IN COMPUTING THE TOTAL INCOME OF THE RELEVANT UNDERTAKING, HENCE, THE DEDUCTION U/S 10A OF THE ACT WILL BE ALLOWED TO THE ASSESSEE ONLY IN RESPECT OF THE BALANCE INCOME AVAILABLE OF THE UNDE RTAKING AFTER SET OFF OF BROUGHT FORWARD LOSSES. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS ENOUGH BROUGHT FORWARD LOSSES TO SET OF F THE TOTAL INCOME OF THE INDUSTRIAL UNDERTAKING, NO DEDUCTION U/S 10A OF THE ACT WILL BE ALLOWABLE TO THE ASSESSEE AND, HENCE, HE DISALLOWED THE DEDUCTION U/S ITA NO. 6703/MUM/2010 9 10A CLAIMED BY THE ASSESSEE AMOUNTING TO RS. 36,74, 806/- WITH THE OBSERVATION THAT THE SAID ADJUSTMENT HAS ALSO BEEN UPHELD BY THE DRP. 16. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSUE IS DIRECTLY COVERED IN FAVOUR OF TH E ASSESSEE BY THE FOLLOWING DECISIONS:- 1. CIT VS. BLACK AND VEATCH CONSULTING PVT. LTD. (2 012) 348 ITR 72(BOM). 2. HINDUSTAN UNILEVER LTD. V. DCIT (2010) 325 ITR 1 02 (BOM) 3. SANDOZ PVT. LTD. VS. ACIT AND VICE VERSA IN ITA NO. 5964/MUM/2004 FOR A.Y. 2001-02, ITA NO. 8489/MUM/2004 FOR A.Y. 2001-02, ITA NO. 5047/MUM/2005 FOR A.Y. 20 02-03 & C.O. NO. 89/MUM/2008 FOR A.Y 2002-03, ITA NO. 5974/MUM/2004 FOR A.Y. 2001-02 AND ITA NO. 5077/MUM /2004 FOR A.Y. 2002-03 ORDER DTD. 9-11-2012. HE, THEREFORE, SUBMITS THAT THE DEDUCTION CLAIMED B Y THE ASSESSEE BEFORE SET OFF OF UNABSORBED LOSSES OF EARLIER YEARS BE AL LOWED. 17. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING O N THE ORDER OF THE A.O., ALSO RELIED ON THE DECISION OF THE TRIBUNAL I N GLOBAL VANTEDGE (P.) LTD. VS. DCIT (2010) 37 SOT 1 (DELHI) FOR THE PROPO SITION THAT THE DEDUCTION U/S 10A OF THE ACT IS ALLOWABLE AFTER SET OFF OF ALL THE BROUGHT FORWARD UNABSORBED BUSINESS LOSS AND UNABSORBED DEP RECIATION. HE ALSO DISTINGUISHED THE DECISIONS RELIED ON BY THE LD. CO UNSEL FOR THE ASSESSEE. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE HAS ITA NO. 6703/MUM/2010 10 CLAIMED DEDUCTION U/S 10A OF THE ACT BEFORE SET OFF OF BROUGHT FORWARD UNABSORBED LOSSES FROM EARLIER YEARS AGAINST THE CU RRENT YEAR PROFITS OF THE UNIT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE I SSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT DECISION OF TH E HONBLE BOMBAY HIGH COURT IN BLACK AND VEATCH CONSULTING PVT. LTD. (SUP RA) WHEREIN IT HAS BEEN HELD AS UNDER:- SECTION 10A IS A PROVISION WHICH IS IN THE NATURE OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A DIVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISIONS OF SECTI ON 10B IN HINDUSTAN UNILEVER LTD V . DY. CIT [2010] 325 ITR 102 / 191 TAXMAN 119 (BOM.). THE SUBMISSION OF THE REVENUE PLACED ITS RELIANCE O N THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROF ITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. T HE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS I S ANTERIOR TO THE APPLICATION OF THE PROVISIONS OF SECTION 72 WHICH D EALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTI ON HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUTING THE TOT AL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOT AL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF TH E CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTIO N 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A 'GROSS TOTAL INCOME' T O MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS O F THE ACT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE RE VENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF C HAPTER VI-A IN THE CONTEXT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER S ECTION 10A, WHICH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTOR Y PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE THEREOF, SUC H AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT T HAT THE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE P ROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CON STRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. ITA NO. 6703/MUM/2010 11 RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WHICH IS BINDING ON US AND KEEPING IN VIEW TH E RULE OF CONSISTENCY, THE A.O. IS DIRECTED TO ALLOW THE DEDUCTION U/S 10A OF THE ACT BEFORE SET OFF OF BROUGHT FORWARD UNABSORBED LOSSES OF EARLIER YEARS. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 19. GROUND NO. 4.2 READS AS UNDER:- THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN NOT BIFURCATING THE TOTAL INTEREST INCOME OF RS. 220,959 BETWEEN THE INTEREST DIRECTLY ATTRIBUTABLE TO BUSINESS ACTIVITIES (RS. 160,833) AND OTHER INTERES T (RS. 60,126) AND CONSEQUENTLY ERRED IN HOLDING THAT THE INTEREST INC OME OF RS. 160,833 (WHICH DIRECTLY SPRANG FROM THE BUSINESS OPERATIONS OF THE APPELLANT) DID NOT QUALIFY FOR EXEMPTION UNDER SECTION 10A. 20. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE A.O. OB SERVED THAT THE ASSESSEE HAS RECEIVED INTEREST INCOME OF RS. 2,20,9 58/- OUT OF WHICH ONLY RS. 60,126/- HAS BEEN OFFERED AS INCOME FROM OTHER SOURCES. HOWEVER, THE A.O. RELYING ON THE DECISION OF THE HONBLE SUP REME COURT IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. CIT (1978) 113 ITR 84 (SC) TREATED THE INTEREST INCOME OF RS. 1,60,832/- UNDER THE HEA D INCOME FROM OTHER SOURCES, NOT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. 21. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE DETAILS OF INTEREST INCOME OF RS. 2,20,959/- IS AS UNDER:- S.NO. PARTICULARS INTEREST AMOUNT MUMBAI UNDERTAKING(RS) INTEREST AMOUNT CHENNAI UNDERTAKING(RS) TOTAL INTEREST(RS) 01 INTEREST ON FIXED DEPOSITS ON SURPLUS FUNDS 60,126 60,126 ITA NO. 6703/MUM/2010 12 02 INTEREST ON NSC 248 248 03 INTEREST ON FIXED DEPOSITS PLEDGED WITH BANKS (ON ACCOUNT OF MARGIN MONIES) 25,002 25,002 04 INTEREST ON LOANS TO EMPLOYEES 109,931 25,652 135,583 TOTAL 195,307 25,652 220,959 HE FURTHER SUBMITS THAT THE ASSESSEE HAS TREATED TH E INTEREST AGGREGATING TO RS. 1,60,833/- EARNED ON MARGIN MONIES LYING WIT H BANK IN THE FORM OF FIXED DEPOSITS, NSC DEPOSITS (WHICH WERE REQUIRE D TO BE PLEDGED WITH THE SALES TAX AUTHORITIES) AND THE INTEREST ON LOAN S ADVANCED TO ITS EMPLOYEES AS BUSINESS INCOME. HE FURTHER SUBMITS T HAT THE REMAINING INTEREST AGGREGATING TO RS. 60,126/- REPRESENTED IN TEREST INCOME EARNED ON SURPLUS FUNDS AND HAD BEEN OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND THE SAID INTEREST INCOME HA S NOT BEEN CONSIDERED BY THE ASSESSEE FOR THE PURPOSES OF COMP UTING ITS CLAIM U/S 10A OF THE ACT. HE FURTHER SUBMITS THAT THE TERM INCOME DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING OF AN AS SESSEE WAS MUCH WIDER THAN THE TERM INCOME DERIVED FROM THE INDUST RIAL UNDERTAKING AND THE FORMER BRINGS WITHIN ITS FOLD INCOME FROM A LL BUSINESS TRANSACTIONS AND ACTIVITIES CLOSELY CONNECTED TO TH E INDUSTRIAL UNDERTAKING AND FOR THIS PROPOSITION, THE RELIANCE WAS ALSO PLACED IN THE FOLLOWING DECISIONS:- 1. ITO VS. M/S JEWELEX INTERNATIONAL P. LTD. IN ITA NO . 3302/MUM/2009 FOR A.Y. 2006-07 DTD. 15-9-2010, ITA NO. 6703/MUM/2010 13 2. ITO VS. GREYTRIX (INDIA) PVT. LTD. IN ITA NO. 5787/ MUM/2009 FOR A.Y. 2006-07 DTD. 7-10-2011 AND, 3. TROPICATE TEXTILES PVT. LTD. VS. DCIT AND VICE VERS A IN ITA NO. 1827 AND 2544/MUM/2006 FOR A.Y. 2002-03 ORDER DTD. 30-9- 2011. 22. ON THE OTHER HAND, THE LD. D.R. WHILE AGREEING THAT THE INTEREST ON FIXED DEPOSITS PLEDGED WITH THE BANK ON ACCOUNT OF MARGIN MONEY IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT SUBMITS T HAT IN VIEW OF THE FINDING RECORDED BY THE A.O. THE ASSESSEE IS NOT EN TITLED TO DEDUCTION U/S 10A OF THE ACT IN RESPECT OF INTEREST ON NSC AND IN TEREST ON LOAN GIVEN TO ITS EMPLOYEES. HE, THEREFORE, SUBMITS THAT TO THIS EXTENT THE ORDER PASSED BY THE A.O. BE UPHELD. 23. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS. 25,002/- ON FIXED DEPOSITS PLEDGED WITH THE BANK ON ACCOUNT OF MARGIN MONEY. 24. IN JEWELEX INTERNATIONAL P. LTD. (SUPRA) IT HAS BEEN HELD VIDE PARA 5 & 6 AS UNDER:- 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE INTEREST WAS RECEIVED FROM MARGIN MONIES KEPT AS DEPOSITS WITH THE BANKS FOR THE PURPOSE OF BORROWING MONIES FOR THE BUSINESS. THE ASSESSEES BUSINESS IS IN THE EXP ORT OF JEWELLERY AND IN THE FIRST PAGE OF THE ASSESSMENT ORDER IT HAS BEEN STATED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS A 100% EXPORT ORIENTED UNDERTAKING WITHIN THE MEANING OF SECTION 10B. IF THAT IS THE FACTUAL POSITION, THE INTEREST HAS TO BE CONSIDERED AS HAVING BEEN DERIVED FROM TH E EXPORT OF THE ARTICLES. EVEN IF IT IS ARGUED THAT THE IMMEDIATE S OURCE OF THE INTEREST IS THE DEPOSITS WITH THE BANKS AND NOT THE EXPORT OF A RTICLES, IN VIEW OF SUB- SECTION (4) OF SECTION 10B THE ASSESSEE IS ENTITLED TO SUCCEED. THE ITA NO. 6703/MUM/2010 14 ASSESSING OFFICER HAS NOT ASSESSED THE INTEREST UND ER THE HEAD INCOME FROM OTHER SOURCES. HE HAS TREATED THE INTEREST AS PART OF THE PROFITS OF THE ASSESSEES BUSINESS. SUB-SECTION (4) OF SECTION 10B STATUTORILY PRESCRIBES A FORMULA AS TO WHAT SHOULD BE CONSIDERE D AS PROFITS DERIVED FROM EXPORT OF ARTICLES. THE PROFITS OF THE BUSINES S OF THE UNDERTAKING ARE TO BE ASCERTAINED FIRST AND THE NEXT STEP IS TO BIF URCATE THE SAME IN THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT O F THE ARTICLES BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY TH E UNDERTAKING. IF THE INTEREST INCOME FORMS PART OF THE PROFITS OF THE BU SINESS OF THE UNDERTAKING, THEN IN THE LIGHT OF THE STATUTORY FOR MULA THE RESULTANT FIGURE AFTER APPLYING THE FORMULA HAS TO BE STATUTO RILY CONSIDERED AS PROFITS DERIVED FROM EXPORT OF ARTICLES. IN THE PRE SENT CASE THE INTEREST HAVING BEEN ASSESSED AS PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE FORMULA HAS TO BE APPLIED AND SUB- SECTION (4) LEAVES NO CHOICE. IN THIS VIEW OF THE MATTER WE ARE IN AGREEM ENT WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT IN THE CASE OF SECTION 80HHC, WHICH WAS CONSIDERED BY THE SUPREME COURT IN K RAVINDRANATHAN NAIR (SUPRA), THERE IS A SPECIF IC EXPLANATION (BAA) WHICH EXCLUDES 90% OF THE INTEREST, EVEN IF IT IS A SSESSED AS BUSINESS INCOME, FROM THE PROFITS OF THE BUSINESS. HOWEVER, SUB-SECTION (4) OF SECTION 10B CONTAINS NO SUCH EXCLUSION NOR IS THERE ANY OTHER PROVISION IN THE SECTION SIMILAR TO EXPLANATION (BAA) OF SECT ION 80HHC. IN LIBERTY INDIA (SUPRA), THE SUPREME COURT WAS CONCERNED WITH SECTIONS 80-I, 80- IA AND 80-IB. IN THESE SECTIONS ALSO THERE IS NO ST ATUTORY FORMULA TO PRESCRIBE AS TO WHAT ARE THE PROFITS ELIGIBLE FOR T HE DEDUCTION. THERE IS NO STATUTORY PRESCRIPTION OF SUCH PROFITS AS IN SUB-SE CTION (4) OF SECTION 10B. SUB-SECTION (5) OF SECTION 80-IA, WHICH ALSO HAS TO BE READ AS PART OF SECTION 80-IB PROVIDES THAT THE PROFITS OF AN ELIGI BLE BUSINESS SHALL BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY S OURCE OF INCOME OF THE ASSESSEE. THIS IS NOT SIMILAR TO THE STATUTORY FORM ULA PRESCRIBED IN SUB- SECTION (4) OF SECTION 10B. IT CANNOT ALSO BE STATE D THAT THE ASSESSEE WAS ADOPTING A DEVICE TO INFLATE THE PROFITS OF THE EXP ORT ORIENTED UNDERTAKING BY INCLUDING THE INTEREST INCOME THEREIN BECAUSE EV EN THE ASSESSING OFFICER DID NOT DISPUTE THAT THE INTEREST INCOME FO RMS PART OF THE BUSINESS PROFITS. ONCE SUCH A CONCLUSION IS REACHED , SUBSECTION (4) OF SECTION 10B TAKES OVER. FOR THESE REASONS WE UPHOLD THE DECISION OF THE CIT(A) AND DISMISS THE FIRST GROUND TAKEN BY THE RE VENUE. THE ABOVE ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL I N GREYTRIX (INDIA) PVT. LTD. (SUPRA) AND IN TROPICATE TEXTILES PVT. LTD. (S UPRA). 25. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BR OUGHT ON RECORD BY THE LD. D.R., WE RESPECTFULLY FOLLOWING THE CONSIST ENT VIEW OF THE TRIBUNAL, ITA NO. 6703/MUM/2010 15 HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10A OF THE ACT OF THE INTEREST INCOME OF RS. 25,002/- ON THE FD PLEDGED W ITH THE BANK ON ACCOUNT OF MARGIN MONEY. AS REGARDS THE INTEREST O N NSC RS. 248/- AND INTEREST ON LOAN TO EMPLOYEES RS. 135,583/-, WE ARE OF THE VIEW THAT THERE IS NO NEXUS BETWEEN THE INTEREST INCOME AND T HE INCOME DERIVED BY THE UNDERTAKING OF THE ASSESSEE IN TERMS OF THE PRO VISIONS OF SECTION 10A OF THE ACT, THEREFORE, THE A.O. WAS JUSTIFIED IN TR EATING THE SAME AS INCOME FROM OTHER SOURCES NOT ELIGIBLE FOR DEDUCTIO N U/S 10A OF THE ACT. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PAR TLY ALLOWED. 26. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 05-12-2012. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER SD/- (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 05-12-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED , MUMBAI 4. COMMISSIONER OF INCOME TAX CONCERNED, MUMBAI. 5. DEPARTMENTAL REPRESENTATIVE, BENCH K, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI