DCIT, CHENNAI V. M/s. Visual Graphics Computing Services India Pvt Ltd., CHENNAI

ITA 698/CHNY/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90459 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNANJCIT
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. 617/MDS/2011 / ASSESSMENT YEAR : 2006-07 VISUAL GRAPHICS COMPUTING SERVICES INDIA PVT. LIMITED., ASCENDAS INTERNATIONAL TECH PARK UNIT 4 & 5, 5 TH FLOOR, CSIR ROAD, CHENNAI 600113. PAN AAACV3342H (/ APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-III(4), CHENNAI - 34. (/ RESPONDENT) ./ ITA NOS. 697 & 698/MDS/2011 / ASSESSMENT YEARS : 2004-05 & 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CHENNAI - 34. (/ APPELLANT) V. VISUAL GRAPHICS COMPUTING SERVICES INDIA PVT. LIMITED., CHENNAI 600113. (/ RESPONDENT) ASSESSEE BY : SHRI VIK RAM VIJAYARAGHAVAN, ADVOCATE DEPARTM ENT BY : SHRI P. RADHAKRISHNAN, JCIT ! ' # $%& / DATE OF HEARING : 13.05.2015 '( # $%& / DATE OF PRONOUNCEMENT: 29.05.2015 - - ITA 617, 697 & 698/11 2 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NOS. 617/MDS/2011 AND 698/MDS/2011 ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2006-07 AND ITA NO.697/MDS/2011 IS FILED BY THE REVENUE FOR THE ASS ESSMENT YEAR 2004-05. SINCE, THE ISSUES INVOLVED IN THESE APPEA LS ARE COMMON, THEY ARE CLUBBED TOGETHER, HEARD TOGETHER A ND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 2. ITA NOS. 697 & 698/MDS/2011 : THE FIRST COM MON ISSUE IN THESE APPEALS IS WITH REGARD TO ALLOWANCE OF DEP RECIATION @ 100% ON THE LEASEHOLD IMPROVEMENTS. THE FACTS OF THE CASE AS NARRATED IN ITA NO.697/MDS/2011 IS CONSIDERED FOR A DJUDICATION. 3. THE ASSESSEE INCURRED EXPENDITURE FOR THE IMPRO VEMENT OF NEW LEASEHOLD PREMISES WHICH HAS BEEN TAKEN ON L EASE FROM TECHNOPARK-STPI OF KERALA TO THE TUNE OF ` 55,74,348/- AND CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFI CER CONSIDERED IT AS CAPITAL EXPENDITURE AND ALLOWED DE PRECIATION ONLY AT 10%, WHICH WORKED OUT TO ` 55,74,348/-. ON APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT T HE EXPENDITURE INCURRED BY THE ASSESSEE IS PURELY TEMP ORARY - - ITA 617, 697 & 698/11 3 ERECTIONS SUCH AS WOODEN STRUCTURES AND ALLOWED 100 % DEPRECIATION TREATING IT AS REVENUE EXPENDITURE. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR SUBMITTED THAT THE IMPROVEMENT OR EX TENSION ON LEASEHOLD BUSINESS PREMISES WERE BASICALLY OF CA PITAL IN NATURE SINCE SUCH IMPROVEMENTS WERE MADE ON PERMANENT STR UCTURES. THESE EXPENDITURE ARE IN THE NATURE OF CAPITAL SUCH AS, FURNITURE, ELECTRICAL FITTINGS ETC. ADDING VALUE TO A BUILDING AND ONLY 10% DEPRECATION TO BE ALLOWED. 5. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH ESE EXPENSES WERE INCURRED FOR THE PURPOSE OF PROVIDING PARTITIONS, VINYL FLOORING, INTERIOR DECORATION ETC. FOR MAKING BUSINESS PREMISES MORE USEFUL. FURTHER, HE SUBMITTED THAT NO ASSET IN ENDURING NATURE WAS ACHIEVED FROM SUCH EXPENDITURE AND ENTIRE EXPENDITURE IS ADMISSIBLE FOR DEDUCTION AS REVENUE EXPENDITURE ONLY. HE RELIED ON THE JUDGMENT OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V. ARMOUR CONSULTANTS P. LTD. (85 DTR 361), WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED B Y THE ASSESSEE FOR DESIGN, LAYOUT AND MATERIAL CONSTRUCTION, FABRI CATION WORKS IN LEASED PREMISES ARE DEDUCTIBLE AS REVENUE EXPENDITU RE. HE ALSO - - ITA 617, 697 & 698/11 4 RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT V. AYESHA HOSPITALS P. LTD. (292 ITR 266), WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED IN THE LEASED PR EMISES TOWARDS REPAIRS AND MAINTENANCE TO BE CONSIDERED AS REVENUE EXPENDITURE. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. THE ASSESSEE, IN THIS CASE, INCURRED EX PENDITURE TOWARDS IMPROVEMENT TO LEASEHOLD PREMISES WHICH INC LUDE FALSE CEILINGS, DISMANTLING EXISTING GRANITE FLOORING, IN TERIOR WORKS AT TECHNOPARK OFFICE, PROVIDING TEAK WOOD FOR DOOR FRA MES, LAYING CERAMIC TILES, PARTITION WORK, SUSPENDED CEILING SY STEM, WALL AND COLUMN PANELLING, SANITARY WORK, PAINTING AND CLEAN ING WORK, DATA AND VOICE CABLING WORK ETC. AND CONSIDERED THE SAME AS TEMPORARY STRUCTURES AND CLAIMED 100% DEPRECIATION. THERE IS NO DISPUTE THAT THE EXPENDITURE INCURRED FOR RENOVATIN G THE EXISTING LEASEHOLD PREMISES. THE ASSESSEE HAS NOT EXTENDED ANY CONSTRUCTION IN THE LEASEHOLD PREMISES. IT INCURRE D THE EXPENDITURE FOR BEAUTIFYING THE EXISTING LEASEHOLD PREMISES. B EING SO, IT CANNOT BE SAID THAT THE EXPENDITURE IS RESULTED IN CREATION OF ANY NEW CAPITAL ASSET. IN OUR OPINION, THE EXPENDITURE INCURRED BY THE - - ITA 617, 697 & 698/11 5 ASSESSEE ON PROVIDING WOODEN PARTITION, PAINTINGS, INTERIOR WORKS AND OTHER REPAIRS TO THE LEASEHOLD PREMISES ETC. AR E TO BE CONSIDERED AS REVENUE EXPENDITURE. THIS VIEW IS FO RTIFIED BY THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V. ESCORTS FINANCE LTD. (205 CTR 574), WHICH WAS FOLLOWED BY T HE CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1254/MDS/2 012 FOR THE ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 22.11.2012 IN THE CASE OF DR. AGARWALS EYE HOSPITAL. FURTHER, THE SAME V IEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CASE OF CIT V. ARMOUR CONSULTANTS P. LTD. (85 DTR 361), WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR DESIGN , LAYOUT AND MATERIAL CONSTRUCTION, FABRICATION WORKS IN LEASED PREMISES ARE DEDUCTIBLE AS REVENUE EXPENDITURE. IT ALSO CLARIFI ED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. THIR U AROORAN SUGARS LTD. IN TAX CASE (APPEAL) NO. 197 OF 2005 DATED 26. 7.2011, THAT EXPLANATION (1) TO SEC.32(1) OF THE INCOME-TAX ACT, 1961, WHICH WAS INSERTED WITH EFFECT FROM 1.4.1988, IS AN EXCEP TIONAL ONE WHICH PERMITS DEPRECIATION IN CASES WHERE THE ASSES SEE DOES NOT OWN A BUILDING IN RESPECT OF WHICH, THE ASSESSEE IN CURS CAPITAL EXPENDITURE ON THE CONSTRUCTION OF ANY STRUCTURE OR DOING OF ANY - - ITA 617, 697 & 698/11 6 WORK, IN OR IN RELATION TO, AND BY WAY OF RENOVATIO N OR EXTENSION OF, OR IMPROVEMENT TO THE BUILDING. FURTHER, IT WAS HE LD THAT THE TEMPORARY STRUCTURE BY MEANS OF FALSE CEILING AND O FFICE RENOVATION HAD NOT RESULTED IN ANY CAPITAL EXPENDITURE. THE B ENEFIT OF THE ABOVE DECISION, APPLIES TO THE FACTS OF THE PRESENT CASE. ACCORDINGLY, WE ARE INCLINED TO DISMISS THIS GROUND TAKEN BY THE REVENUE. 7. THE NEXT COMMON GROUND IN THE ABOVE APPEALS IS WITH REGARD TO RESTRICTING THE DISALLOWANCE U/S.14A TO 2 % INSTEAD OF 5% ADDED BY THE ASSESSING OFFICER. 8. THE FACTS OF THE CASE AS NARRATED IN ITA NO.697/MDS/2011 ARE THAT THE ASSESSEE CREDITED ` 57,65,143/- AS DIVIDEND INCOME FOR THE ASSESSMENT YEAR 2004-05. T HE ASSESSING OFFICER, RELYING ON THE JUDGMENT OF THE S UPREME COURT IN THE CASE OF CIT V. UNITED GENERAL TRUST LTD. (20 0 ITR 488) AND ALSO THE ORDER OF THE TRIBUNAL, MADRAS BENCH IN THE CASE OF IND BANK MERCHANT BANKING SECURITIES LTD. IN ITA NO.420 /MDS/98 DATED 14.4.2004, CONSIDERED 5% OF THE TOTAL DIVIDEN D CLAIMED BY THE ASSESSEE AS EXEMPT FOR DISALLOWANCE. THEREFORE , HE DISALLOWED A SUM OF ` 2,88,257/-. ON APPEAL, THE COMMISSIONER - - ITA 617, 697 & 698/11 7 OF INCOME-TAX(APPEALS) RESTRICTED THE DISALLOWANCE TO 2% OF THE DIVIDEND INCOME. AGAINST THIS, THE REVENUE IS IN A PPEAL. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AFTER CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND PLACING RELIANCE ON T HE CO-ORDINATE BENCH IN THE CASE OF M/S. CELEBRITY FASHIONS LTD. I N ITA NOS. 1318 & 1319/MDS/2011 DATED 30.4.2012, WHEREIN IT WAS HEL D THAT DISALLOWANCE OF 5% OF THE DIVIDEND/EXEMPTED INCOME IS REASONABLE EXPENDITURE. ACCORDINGLY, WE REVERSE TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) AND RESTORE THE ORDER OF THE ASSESSING OFFICER. THIS GROUND IS ALLOWED. 10. THE NEXT GROUND FOR OUR CONSIDERATION IN ITA NO.697/MDS/2011 IS WITH REGARD TO EXCLUSION OF TELE COMMUNICATION CHARGES FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.10A. 11. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT THIS ISSUE WAS CONSIDERED BY THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD.(30 SOT 55)(CHENNA I), WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF APPLYING FORMULA U NDER SUB- SEC.(4) OF SEC.10B, THE FREIGHT, TELECOM CHARGES AN D INSURANCE - - ITA 617, 697 & 698/11 8 ATTRIBUTABLE TO THE DELIVERY OF ARTICLES OR THINGS , OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSES, IF ANY, INC URRED IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES OUTSIDE IN DIA ARE TO BE EXCLUDED, BOTH FROM THE EXPORT TURNOVER AND FROM TH E TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINAT OR, RESPECTIVELY, IN THE FORMULA. RESPECTFULLY FOLLOWI NG THE AFORESAID DECISION OF THE TRIBUNAL, WE ARE INCLINED TO DIRECT THE ASSESSING OFFICER TO EXCLUDE THE TELECOMMUNICATION CHARGES BO TH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SEC.10B OF THE ACT. THIS GROUN D IS PARTLY ALLOWED. 12. THE NEXT COMMON GROUND TAKEN IN THE ABOVE APPEA LS IS WITH REGARD TO DIRECTING THE ASSESSING OFFICER TO V ERIFY WHETHER SUCH GAIN IS ON ACCOUNT OF DELAY IN REALISATION OF EXPORT PROCEEDS OR ON ACCOUNT OF EEFC ACCOUNT AND ALLOW THE ASSESSE ES CLAIM ACCORDINGLY. 13. THE FACTS OF THE ISSUE AS NARRATED IN ITA NO.697/MDS/2011 ARE THAT THE ASSESSEE SUBMITTED THA T GAIN ON EXCHANGE FLUCTUATION IS DERIVED FROM THE UNDERTAKIN G AND CONSIDERED AS PART OF EXPORT TURNOVER AND FULLY EXE MPT FROM TAX - - ITA 617, 697 & 698/11 9 AND THAT EXCHANGE FLUCTUATION ARISES PRIMARILY ON A CCOUNT OF THE EXPORT OF COMPUTER SOFTWARE. THE ASSESSEE FURTHER SUBMITTED THAT AS PER ACCOUNTING STANDARDS, FOREX TRANSACTIONS ARE TO BE ACCOUNTED ON THE EXCHANGE RATES PREVAILING ON THE D ATE OF TRANSACTION AND THE DIFFERENCE, IF ANY, ON REALIZAT ION SHOULD BE TAKEN TO EXCHANGE FLUCTUATION ACCOUNT. THE ASSESSE E ALSO SUBMITTED THAT THE CHENNAI C BENCH OF THE TRIBUNA L IN ASSESSEES OWN CASE, HAS PASSED AN ORDER IN ITS FAVOUR TREATIN G THE EXCHANGE GAIN AS BUSINESS INCOME FOR THE ASSESSMENT YEAR 200 0-01. 14. ON APPEAL, THE COMMISSIONER(APPEALS), AFTER CONSIDERING THE DECISIONS RELIED ON BY THE ASSESSIN G OFFICER AND THE ASSESSEES REPRESENTATIVE OBSERVED THAT THE EXC HANGE GAIN SHOWN BY THE ASSESSEE INCLUDES BOTH GAIN ON ACCOUNT OF EEFC ACCOUNT AS WELL AS ON ACCOUNT OF DELAYED REALIZATIO N OF EXPORT PROCEEDS. THE LD. AR HAS ALSO SUBMITTED THE BREAK- UP OF THE FOREIGN EXCHANGE GAIN BEFORE THE COMMISSIONER(APPEA LS). THE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (20 10-TIOL- 293-HC-MUM-IT) HAS DEALT WITH THIS ISSUE, WHEREIN I T WAS HELD THAT THE EXCHANGE FLUCTUATION IN THE EEFC ACCOUNT A RISES AFTER THE COMPLETION OF THE EXPORT ACTIVITY AND HENCE DOES NO T BEAR A - - ITA 617, 697 & 698/11 10 PROXIMATE AND DIRECT NEXUS WITH THE EXPORT TRANSACT ION SO AS TO FALL WITHIN THE EXPRESSION. HE ALSO CONSIDERED THE EXPL ANATION OF THE AR THAT A PORTION OF SUCH EXCHANGE FLUCTUATION GAIN IS ON ACCOUNT OF DELAYED REALIZATION OF EXPORT PROCEEDS AND ANOTH ER PORTION RELATES TO FLUCTUATION ON ACCOUNT OF EEFC ACCOUNT. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF SHAH ORIGINALS (SUPRA), THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED BY THE COMMISSIONER(APPEALS). AGAINST THIS , THE REVENUE IS IN APPEAL BEFORE US. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE COMMISSIONER(APPEALS) HAS GIVEN A DIRECTION TO THE ASSESSING OFFICER TO PASS A FRESH ORDER IN THE LIGHT OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CAS E OF SHAH ORIGINALS(SUPRA). THEREFORE, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE COMMISSIONER(APPEALS) ON THIS ISSUE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE EXCHA NGE GAIN, AS TO WHETHER THE FLUCTUATION IS ON ACCOUNT OF DELAYED RE ALIZATION OF EXPORT PROCEEDS OR NOT, AND IF IT IS ON ACCOUNT OF DELAYED REALIZATION OF EXPORT PROCEEDS, IT IS TO BE CONSIDE RED AS BUSINESS INCOME ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT. ACCORDINGLY, THIS - - ITA 617, 697 & 698/11 11 GROUND IS DISMISSED. 16. THE NEXT ISSUE IN ITA NO.698/MDS/2011 IS WITH R EGARD TO ALLOWING DEPRECIATION @ 60% ON SOFTWARE EXPENSES IN STEAD OF 25% ALLOWED BY THE ASSESSING OFFICER. 17. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED SOFTWARE EXPENSES OF ` 6,58,959/- HOLDING THAT THESE EXPENDITURE ARE PRIMARILY LICENSES TO USE THE SOFTWARE BASED ON THE TERMS OF PURCHASE. THE AO HELD THAT THE ASSESSEE GETS THE R IGHT TO USE THE SOFTWARE AND HAS THE LICENSE FOR A LONG PERIOD OF T IME AND HENCE GETS AN ENDURING BENEFIT. THUS, THIS EXPENDITURE I S NOT REVENUE BUT CAPITAL IN NATURE. THE AO HELD THAT THE ASSESS EE IS ELIGIBLE FOR DEPRECIATION @ 25% AS APPLICABLE TO INTANGIBLE ASSE T, HE DISALLOWED THE BALANCE CLAIM AND ADDED ` 4,94,219/- TO THE TOTAL INCOME. THE COMMISSIONER(APPEALS) OBSERVED THAT IN VIEW OF THE FACT THAT COMPUTER SOFTWARE HAS BEEN INCLUDED IN THE DEPRECATION TABLE ALONG WITH COMPUTER FROM THE ASSESSMENT YEA R 2003-04, AS PER THE PROVISIONS OF RULE 5, A HIGHER RATE OF DEPR ECIATION @ 60% IS ALLOWED AND THE ASSESSEE IS NOT ELIGIBLE TO CLAI M SOFTWARE EXPENSES AS REVENUE EXPENDITURE. ACCORDINGLY, HE D IRECTED THE - - ITA 617, 697 & 698/11 12 ASSESSING OFFICER TO ALLOW DEPRECIATION @ 60% INSTE AD OF 25% ALLOWED HIM. AGAINST THIS, THE REVENUE IS IN APPEA L BEFORE US. 18. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. APPENDIX I, RULE 5 AS ENTRY NO.(5) FROM THE ASSESSMENT YEAR 2006-07 ONWARDS, SUGGESTS THAT COMP UTERS INCLUDING COMPUTER SOFTWARE IS ENTITLED FOR DEPRECI ATION AT 60% AND BEING SO, WE DO NOT FIND ANY INFIRMITY IN GRANTING DEPRECIATION AT 60% ON SOFTWARE EXPENSES. WE CONFIRM THE FINDING O F THE COMMISSIONER(APPEALS) ON THIS ISSUE. THIS GROUND I S REJECTED. 19. IN THE RESULT, THE APPEALS IN ITA NOS.697 & 698 /MDS/11 ARE PARTLY ALLOWED. 20. IN ITA NO.617/MDS/2011, THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APP EALS) ERRED IN CONFIRMING THE SET OFF OF THE BROUGHT FORWARD UN ABSORBED DEPRECIATION OF EARLIER YEARS AGAINST THE PROFITS O F THE UNDERTAKING BEFORE ALLOWING THE DEDUCTION UNDER SEC.10A OF THE ACT. 21. AFTER HEARING THE PARTIES, WE ARE OF THE OPINIO N THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY T HE JUDGMENT OF THE SUPREME COURT IN THE CASE OF HIMATASINGIKE SEI DE LTD. VS. - - ITA 617, 697 & 698/11 13 CIT (CIVIL APPEAL NO.1501 OF 2008 DATED 19.9.2013, WHEREIN THEY CONFIRMED THE DECISION OF THE KARANATAKA HIGH COURT IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD. (286 ITR 255) AND HELD THAT UNABSORBED DEPRECIATION HAS TO BE SET OFF BEFORE CO MPUTING THE EXEMPTION ALLOWABLE U/S.10A OF THE ACT. THE SAME W AS FOLLOWED BY THIS TRIBUNAL IN THE CASE OF M/S. CHETTINAD QUAR TZ PRODUCTS LTD. IN ITA NO.430/MDS/2014. VIDE ORDER DATED 16 TH OCTOBER, 2014, THE TRIBUNAL HAS HELD AS UNDER : 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. WE FIND TH AT THE ISSUE IN APPEAL HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF S.R.A.SYSTEMS LTD.( SUPRA) FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. HIMATSINGKA SEIDE LTD. (SUPRA) . THE CO- ORDINATE BENCH WHILE DECIDING THE ISSUE HELD THAT UNABSORBED DEPRECIATION HAS TO BE SET OFF BEFORE CO MPUTING EXEMPTION ALLOWABLE UNDER SECTION 10A OF THE ACT OB SERVING AS UNDER:- 7. THE THIRD ISSUE IN APPEAL RELATES TO THE METHOD OF COMPUTATION OF DEDUCTION U/S.10A OF THE ACT. THE ASSESSEE HAS CLAIMED DEDUCTION U/S.10A BEFORE SETTING OFF OF UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSSES. THE LD.AR OF THE ASSESSEE IN ORDER TO FORTIFY THE STAND OF ASSESSEE HAS PLACED RELIANC E ON THE DECISION OF THE TRIBUNAL IN ASSESSEES APPEAL FOR THE AY.2005-06 AND AY.2007-08 (SUPRA). THE LD.AR HAS ALSO DRAWN SUPPORT FROM THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN - - ITA 617, 697 & 698/11 14 THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SUPRA). ON THE OTHER HAND, THE LD. DR HAS RELIED ON THE LATEST DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S.HIMATSINGKA SEIDE LTD.VS.CIT (SUPRA). THE HONBLE SUPREME COURT OF INDIA DISMISSED THE APPEAL OF THE ASSESSEE AND HAS UPHELD THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT. THE HONBLE HIGH COURT HAS HELD THAT THE BROUGHT FORWARD DEPRECIATION HAS TO BE ADJUSTED AGAINST THE PROFITS OF THE EOU BEFORE COMPUTING THE EXEMPTION ALLOWABLE U/S.10B. THE PROVISIONS OF SECTION 10A ARE PARI MATERIA WITH THE PROVISIONS OF SECTION 10B OF THE ACT.WE FIND THAT AS FAR AS UN-ABSORBED DEPRECIATION IS CONCERNED, THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF M/S.HIMATSINGKA SEIDE LTD., VS. CIT (SUPRA), HAS UP-HELD THE FINDINGS OF THE HONBLE KARNATAKA HIGH COURT AND AS SUCH, UN- ABSORBED DEPRECIATION HAS TO BE SET-OFF BEFORE COMPUTING THE EXEMPTION ALLOWABLE U/S.10A. IN RESPECT OF SETTING-OFF OF THE BROUGHT FORWARD LOSSE S, THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SUPRA) STIL L HOLDS GOOD. ACCORDINGLY, THE ASSESSEE CAN CLAIM DEDUCTION U/S.10A BEFORE SETTING OFF OF BROUGHT FORWARD LOSSES. IN VIEW OF THE ABOVE, THIS GROUND O F APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THIS TRIBUNAL, WE ALLOW THE GROUNDS RAISED BY THE REVENUE. IN VIEW OF THIS, WE ARE INCLINED TO HOLD THAT WHILE COMPUTING DEDUCTION U/S.10A, BROUGHT FORWARD UNABSORBED DEPRE CIATION OF EARLIER YEARS TO BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING. - - ITA 617, 697 & 698/11 15 THIS GROUND IS DISMISSED. 22. THE NEXT GROUND FOR OUR CONSIDERATION IS THAT T HE COMMISSIONER (APPEALS) ERRED IN NOT ALLOWING THE SE T OFF THE UNABSORBED DEPRECIATION AMOUNT TO ` 13,22,719/- AGAINST THE SHORT TERM CAPITAL GAINS, WHILE COMPUTING THE INCOM E CHARGEABLE UNDER HEAD CAPITAL GAINS. 23. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS OFFERED SHORT TERM CAPITAL GAIN AMOUNTING TO ` 43,01,296/- AGAINST WHICH ` 13,22,719/- HAS BEEN SET OFF TOWARDS UNABSORBED DEP RECIATION. THE AO HAD NOT CONSIDERED THE SET OFF AND SUBJECTED THE ENTIRE STCG SUBJECT TO TAX. HOWEVER, THE AR OF THE ASSESS EE SUBMITTED THAT SUCH SET OFF OF LOSSES IS NOT PROVIDED DURING THE ASSESSMENT AND THAT SUCH UNABSORBED DEPRECIATION SHOULD BE ALL OWED TO BE SET OFF AGAINST SHORT TERM CAPITAL GAINS. THE COMMISSIONER(APPEALS) AFTER CONSIDERING THE SUBMISS ION OF THE AR AND THE OBSERVATION OF THE AO, DISMISSED THIS GR OUND. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE DO NOT FIND ANY MERIT IN THE ARGUMEN T OF THE LD. AR. - - ITA 617, 697 & 698/11 16 IT IS SEEN THAT THE ENTIRE UNABSORBED DEPRECIATION WAS SET OFF AGAINST THE BUSINESS INCOME OF THE ASSESSEE. THERE FORE, NO UNABSORBED DEPRECIATION WAS AVAILABLE FOR THE PURPO SE OF SET OFF AGAINST THE INCOME FROM ANY OTHER HEAD. HENCE, WE DO NOT FIND ANY MERIT IN THE PLEA OF THE ASSESSEE TO SET OFF TH E UNABSORBED DEPRECIATION AGAINST THE SHORT TERM CAPITAL GAIN. ACCORDINGLY, THIS GROUND IS REJECTED. 25. THE LAST GROUND IN THIS APPEAL IS WITH REGARD T O ESTIMATING 2% OF DIVIDEND INCOME AS EXPENDITURE ATTRIBUTABLE T O EXEMPT INCOME U/S.14A OF THE ACT, WITHOUT CONSIDERING THE FACT THAT NO EXPENDITURE HAS BEEN ACTUALLY INCURRED BY THE COMPA NY FOR EARNING SUCH EXEMPT INCOME. 26. IN VIEW OF OUR FINDING ON THE SAME ISSUE IN ASS ESSEES APPEAL IN ITA NO.698/MDS/2011, THIS ISSUE HAS BECOM E INFRUCTUOUS AND THE SAME IS DISMISSED. 27. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO.617/MDS/2011 IS DISMISSED AND THE REVENUES APPE ALS IN ITA NOS. 697 & 698/MDS/2011 ARE PARTLY ALLOWED. - - ITA 617, 697 & 698/11 17 ORDER PRONOUNCED ON FRIDAY, THE 29 TH OF MAY, 2015 AT CHENNAI. SD/- SD/- ( )* +,-. / ) ( ) . 0 1% ) (CHALLA NAGENDRA PRASAD) (CHANDRA POOJAR I) - /? /JUDICIAL MEMBER ,& /?/ACCOUNTANT MEMBER ),- ' /CHENNAI, E/ /DATED, THE 29 MAY, 2015. MPO* /,F # $GH I,H$ /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ! J$ () /CIT(A) 4. ! J$ /CIT 5. HK+ $ L /DR 6. +M N' /GF.