Gulbrandsen Technologies (India) Pvt. Ltd., Baroda V. The Dy.CIT, Circle-1(1)(1), Baroda

ITA 702/AHD/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8947 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN SHARMA
• Assessee Lawyers: MAHAVEER C JAIN
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 10B; 10

Judgement Text

, I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ IT(TP)A.NO.702/AHD/2015 ( / ASSTT YEAR : 2010-2011) GULBRANDSEN TECHNOLOGIES (INDIA) 405, SYNERGY SQUARE KRISHNA INDUSTRIAL ESTATE GOWRA VADODARA 390 016. VS. DIT, CIR.1(1)(1) VADODARA. (APPELLANT) (RESPONDENT) / APPELLANT BY : SHRI MAHAVEER C. JAIN / RESPONDENT BY : SHRI SUMAN SHARMA / DATE OF HEARING 19-01-2017 / DATE OF PRONOUNCEMENT 23-03-2017 !' / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.AO DATED 22.1.2015 PASSED UNDER SECTION 143(3) R .W.S. 144C(13) OF THE INCOME TAX ACT, 1961 FOR ASSTT.YEAR 2010-11. T HE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: GROUND NO.1 THE LD.AO ERRED ON FACTS AND LAW BY TXING THE NOTIO NAL FOREX FLUCTUATION GAIN ON RESTATEMENT OF EXTERNAL COMMERI CLA BORROWING (ECB) TAKEN AND UTILIZED FOR CAPITAL EXPENDITURE. IN DOING SO, THE LD.AO FAILED TO APPRECIATE THE FACT THAT SUCH GAIN IS IN THE NATURE OF CAPITAL AND NOT IN THE NATURE OF REVENUE AND THE HO NBLE DISPUTE IT(TP) NO.702/AHD/2015 - 2 RESOLUTION PANEL, AHMEDABAD FAILED TO ADJUDICATE ON THE NATURE OF SUCH GAIN. GROUND NO.2 THE LD.AO FAILED TO ADHERE TO THE DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL, AHMEDABAD BY NOT FOLLOWIN G THE SAME TREATMENT FOR FOREX FLUCTUATION ON REINSTATEMENT OF ECB CONSISTENTLY YEAR ON YEAR. GROUND NO.3 THE LD.AO ERRED ON FACTS AND LAW BY COMPUTING THE E XEMPTION UNDER SECTION 10B OF THE ACT AFTER SETTING OFF OF T HE UNABSORBED DEPRECIATION/BUSINESS LOSSES OF EARLIER YEAR. THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE T O EACH OTHER. 3. AT THE TIME OF HEARING, THE LD.COUNSEL FOR THE A SSESSEE DID NOT PRESS GROUND NO.1 AND 2. THEREFORE, THESE GROUNDS ARE RE JECTED. GROUND NO.3 THE LD.AO ERRED ON FACTS AND LAW BY COMPUTING THE E XEMPTION UNDER SECTION 10B OF THE ACT AFTER SETTING OFF OF T HE UNABSORBED DEPRECIATION/BUSINESS LOSSES OF EARLIER YEAR. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ELECTRONICALLY ON 30.9.2010 DECLARING TOTAL INCOME AT NIL AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSS OF RS. 76,31,162/-. WHILE SCRUTINIZING THE RETURN OF THE ASSESSEE, IT CAME TO THE NOTICE OF THE AO THAT THE ASSESSEE HAS COMPUTED BUSINESS INCOME OF R S.2,84,09,420/-. IT HAS CLAIMED EXEMPTION OF RS.2,07,75,258/- UNDER SEC TION 10B OF THE INCOME TAX ACT. AFTER REDUCING THE ABOVE EXEMPT AM OUNT, THE ASSESSEE HAD COMPUTED BUSINESS INCOME OF RS.76,34,162/-. TH IS INCOME WAS SET OFF AGAINST BROUGHT FORWARD LOSS AND ULTIMATELY NIL INCOME WAS OFFERED. IT(TP) NO.702/AHD/2015 - 3 THE LD.AO HAS OBSERVED THAT CBDT HAS ISSUED A CIRCU LAR BEARING NO.07/2013 DATED 16.7.2013 AND CLARIFIED THAT LOSSE S OF ANY UNIT ARE REQUIRED TO BE SET OFF AGAINST PROFITS OF STP/EOU/ SEZ UNIT (ELIGIBLE UNIT) BEFORE DEDUCTION UNDER SECTION 10A/10B OF THE INCOM E TAX ACT IS ALLOWED. THUS, THE AO WAS OF THE OPINION THAT ASSE SSEES ENTIRE INCOME FROM BUSINESS HAS TO BE SET OFF BY THE BROUGHT FORW ARD UNABSORBED BUSINESS LOSS/DEPRECIATION, AND IF SOMETHING REMAIN , THEN THE ASSESSEE WILL BE ENTITLED FOR EXEMPTION UNDER SECTION 10B. THE LD.AO THEREAFTER MADE REFERENCE TO THE DECISION OF THE HONBLE KARNA TAKA HIGH COURT IN THE CASE OF HIMATASINGIKE SEIDE LTD. VS. CIT, 56 TA XMANN 151 WHEREIN HONBLE KARNATAKA HIGH COURT HAS APPROVED THIS INTE RPRETATION OF THE DEPARTMENT. HE ALSO OBSERVED THAT SLP AGAINST THIS JUDGMENT WAS REJECTED BY THE HONBLE SUPREME COURT. ACCORDINGLY , THE LD.AO DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 10B OF THE ACT. 5. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CA SE OF CIT VS. YOKOGAWA INDIA LTD., 341 ITR 385. THIS DECISION H AS BEEN UPHELD BY THE HONBLE SUPREME COURT. COPIES OF BOTH THESE DE CISIONS HAVE BEEN PLACED IN THE PAPER BOOK. THE LD.COUNSEL FOR THE A SSESSEE FURTHER DREW OUR ATTENTION TOWARDS ORDER OF THE ITAT, BANGALORE BENCH IN THE CASE OF M/S.SAFRAN AEROSPACE INDIA P.LTD. COPY OF THIS DEC ISION HAS ALSO BEEN PLACED ON RECORD. HE POINTED OUT THAT IN THIS CA SE, BOTH DECISIONS OF HONBLE HIGH COURT WERE BROUGHT TO THE NOTICE OF TH E ITAT. THE ITAT HAS GIVEN PREFERENCE TO THE DECISION IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SUPRA), BECAUSE THIS DECISION WAS SUBSEQ UENT TO THE DECISION OF IT(TP) NO.702/AHD/2015 - 4 HIMATASINGIKE SEIDE LTD. VS. CIT (SUPRA). THE ITAT HAS CONSIDERED THE QUESTION OF LAW FORMED BY THE HONBLE HIGH COURT, A ND THEREAFTER HELD THAT DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF UNDERTAKIN G WOULD NOT ARISE IN THAT VIEW OF THE MATTER. THE LD.CIT-DR WAS UNABLE TO CON VERT THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE. 6. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. YOKOGAWA INDIA LTD.(SUPRA) HAS CONSIDERED AN ID ENTICAL SITUATION. QUESTION CONSIDERED BY THE HONBLE KARNATAKA HIGH C OURT WAS (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE DEDUCTION UNDER SECTION 10A OR 10B OF THE ACT DURIN G THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING O FF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER I N THE CASE OF NON-STP UNITS OR IN THE CASE OF THE VERY SAME UNDER TAKING ? THIS QUESTION WAS ANSWERED IN FAVOUR OF THE ASSESSE E. 7. THE CONCLUSIONS DRAWN BY THE HONBLE HIGH COURT ARE WORTH TO NOTE, WHICH READS AS UNDER: .. AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSEE WOULD BE ENTITLE D TO THE BENEFIT OF SET OFF OR CARRY FORWARD OF LOSS AS PROVIDED UNDER SECTION 72 OF THE ACT, THAT IS THE BENEFIT WHICH IS GIVEN TO T HE ASSESSEE UNDER THE ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CAR RYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS UNDER SECTION 10 B OF THE ACT. THE EXPRESSION 'DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY AN UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE', HAS TO BE UNDERSTOOD IN. THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER-ILL OF THE ACT. SUB-SECTION (4) OF SE CTION 10-A CLARIFIES THIS POSITION. IT. PROVIDES THAT THE PROFITS DERIVED FROM IT(TP) NO.702/AHD/2015 - 5 EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THI NGS OR COMPUTER SOFTWARE BEARS TO DIE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE THAN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10-A IT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPU TER SOFTWARE FROM THE BUSINESS OF THE UNDERTAKING ALONE THAT HAS TO BE TAK EN INTO CONSIDERATION AND SUCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY ALTER THE DEDUCTION OF THE SAID PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY EVEN IN THE CASE WHER E AN ASSESSEE HAS OPTED OUT OF SECTION 10-A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN ARID OPT OUT OF SECTION 10-A. IN THE YEAR WHEN THE ASSESSEE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOULD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT T O VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF I N SUCH A YEAR, THE ASSESSEE HAS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRI ED FORWARD FOR BEING SET OFF AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS IN THE NORMAL COURSE, UNABSORBED DEPRECIATION ALSO MERITS A SIMILAR TREATMENT. AS THE INCOME OF SECTION 10-A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE LOSS OF NON SECTION 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT. BE INCLUDED IN THE INCOME OF THE ASSESSEE AL ALL, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFITS 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 DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10-A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAI D IT(TP) NO.702/AHD/2015 - 6 ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SECTION 10-A TO THE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. 8. DISPUTE TRAVELLED UPTO THE HONBLE SUPREME COURT , AND THE HONBLE SUPREME COURT HAS FORMULATED THE FOLLOWING QUESTION: 3. THE BROAD QUESTION INDICATED ABOVE MAY BE CONVENIENTLY DISSECTED INTO THE FOLLOWING SPECIFIC QUESTIONS ARISING IN THE CASES UNDER CONSIDERATION. (I) WHETHER SECTION 10A OF THE ACT IS BEYOND THE PURVIEW OF THE COMPUTATION MECHANISM OF TOTAL INCOME AS DEFINED UNDER THE ACT. CONSEQUENTLY, IS THE INCOME OF A SECTION 10A UNIT REQUIRED TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE? (II) WHETHER THE PHRASE TOTAL INCOME IN SECTION 10A OF THE ACT IS AKIN AND PARI MATERIA WITH THE SAID EXPRESSION AS APPEARING IN SECTION 2(45) OF THE ACT? (III) WHETHER EVEN AFTER THE AMENDMENT MADE WITH EFFECT FROM 1.04.2001, SECTION 10A OF THE ACT CONTINUES TO REMAIN AN EXEMPTION SECTION AND NOT A DEDUCTION SECTION? (IV) WHETHER LOSSES OF OTHER 10A UNITS OR NON 10A UNITS CAN BE SET OFF AGAINST THE PROFITS OF 10A UNITS BEFORE DEDUCTIONS UNDER SECTION 10A ARE EFFECTED? (V) WHETHER BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF 10A UNITS OR NON 10A UNITS CAN BE SET OFF AGAINST THE PROFITS OF ANOTHER 10A UNITS OF THE ASSESSEE. 9. THESE QUESTIONS HAVE BEEN ANSWERED IN FAVOUR OF THE ASSESSEE, AND IT WAS HELD THAT DEDUCTION UNDER SECTION 10A WOULD BE PRIOR TO THE COMMENCEMENT OF EXERCISE TO BE TAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM T HE GROSS TOTAL INCOME. IN OTHER WORDS, HONBLE COURT HAS HELD THAT UNABSOR BED BUSINESS LOSS WOULD NOT BE SET OFF AGAINST THE INCOME. THE RELEV ANT DISCUSSION MADE BY THE HONBLE SUPREME ON THIS ASPECT DESERVES TO B E NOTED. IT READS AS UNDER: IT(TP) NO.702/AHD/2015 - 7 16. FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHICH STATES IN PARAGRAPH 15.6 THAT, THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAKINGS, AS THE CASE MAY BE, AND THIS SHALL NOT HAVE ANY MATERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSEE OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVISION. 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SE CTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70, 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION TOTAL INCOME OF THE ASSESS EE IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCE NARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION TOTAL INCOME OF THE ASSESSEE IN SECTION 10A AS TOTAL INCOME OF THE UNDERTAKING. 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN, AS FORMULATED AT THE OUTSET OF THIS ORDER, BY HOLDING THAT THOUGH SECTION 10A, AS AMENDED, IS A PROVISION FOR DEDUCTION, THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEALS SHALL STAND DISPOSED OF ACCORDINGLY. 10. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HON BLE SUPREME COURT, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTI FIED IN SET OFF OF THE IT(TP) NO.702/AHD/2015 - 8 UNABSORBED BUSINESS LOSS AGAINST PROFITS OF THE ELI GIBLE UNITS AND THE ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SECTION 10 B OF THE INCOME TAX ACT. THIS GROUND OF APPEAL IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE COURT 23 RD MARCH, 2017 AT AHMEDABAD. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 23/03/2017