DCIT, CHENNAI V. M/s. Volex Inter Connect (India) Pvt. Ltd., CHENNAI

ITA 834/CHNY/2010

• Counselvise Citation: 83421714 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 01-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO.834 TO 836/MDS/2010 ASST. YEAR : 2003-04, 2004-05 & 2005-06 THE DY . COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), CHENNAI (APPELLANT) V. M/S. VOLEX INTER CONNECT (INDIA) PVT. LTD., NO.22/1-A, FIRST STREET, KAZURA GARDENS, NEELANKARAI, CHENNAI-600041. PAN : AACCS5913P (RESPONDENT) APPELLANT BY : SHRI MN MURTHY NAIK, JCIT RESPONDENT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE DATE OF HEARING : 21 AUGUST 2012 DATE OF PRONOUNCEMENT : 5 TH SEPTEMBER 2012 O R D E R PER S.S. GODARA, JUDICIAL MEMBER : THESE REVENUES APPEALS ARE DIRECTED AGAINST COMM ON ORDER OF CIT(APPEALSIII, CHENNAI, DATED 05.3.2010 IN ITA NOS .129,130 & 131/08-09/A-III FOR ASST. YEARS 2003-04, 2004-05 & 2005-06 RESPECTI VELY IN PROCEEDINGS UNDER SEC.143(3) READ WITH SEC.147 OF THE INCOME TAX ACT 1961, IN SHORT 'THE ACT'. ITA NOS.834-836/MDS/10 2 2. DURING THE COURSE OF HEARING, HE DEPARTMENTAL R EPRESENTATIVE HAS FAIRLY STATED THAT ONLY ONE SUBSTANTIVE GROUND IS I NVOLVED IN ALL APPEALS IE. THE CIT(APPEALS) HAS ERRED IN DIRECTING THE ASSESSING O FFICER TO ALLOW DEDUCTION UNDER SEC.10A OF THE ACT BEFORE SETTING OFF OF CARRY FORW ARD OF LOSS BY PLACING RELIANCE ON THE SPECIAL BENCH DECISION OF THE CHENNAI ITAT I N THE CASE OF SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD. V. ACIT IN ITA NO.229/MD S/2007 DATED 05.2.2010. ON THE OTHER HAND, THE ASSESSEES REPRESENTATIVE HAS S UPPORTED THE CIT(APPEALS)S ORDER. IN VIEW OF THE FACT THAT BOTH PARTIES ARE A T VARIANCE IN THEIR RESPECTIVE STANDS, WE FRAME THE FOLLOWING ISSUE FOR OUR ADJUDI CATION IN THE CORRECT PERSPECTIVE :- WHETHER THE ORDER OF CIT(APPEALS) IN DIRECTING ASS ESSING OFFICER TO ALLOW DEDUCTION UNDER SEC.10A OF THE ACT BEFORE SET TING OFF OF CARRY FORWARD OF LOSS IN FAVOUR OF THE ASSESSEE IS LIABLE TO BE UPHELD OR MODIFIED PER RESPECTIVE SUBMISSIONS OF PARTIES? FOR THE SAKE OF CONVENIENCE AND BREVITY, WE TAKE U P ITA NO.834/MDS/2010 AS THE MAIN CASE. ITA NOS.834-836/MDS/10 3 3. A FEW FACTS OF THE CASE MAY BE NOTICED. 4. THE ASSESSEE IS A COMPANY IN THE BUSINESS OF MA NUFACTURING AND SALE OF ELECTRIC LAMP, ELECTRONIC INTERCONNECTION D EVICES INCLUDING POWER CHORDS. IT FILED ITS RETURN ON 28.11.2003 BY ADMITTING INCO ME OF L NIL. IT HAD ALSO CLAIMED EXEMPTION TO THE TUNE OF L 30,33,759/- UND ER SEC.10B OF THE ACT BEING A REGISTERED 100% EXPORT ORIENTED UNIT. HOWEVER, ITS BROUGHT FORWARD LOSS OF UNABSORBED DEPRECIATION FROM ASST. YEAR 2002-03 WAS OF L 2,34,36,478/-. THE ASSESSING OFFICER CAME TO EX-FACIE CONCLUSION THAT THE ASSESSEE HAD WRONGLY CARRIED FORWARD BUSINESS LOSS OF L 42,65,1261/- FOR ASST. YEAR 1999-2000 AND ALSO THE ASSESSEE HAD ERRED IN AVAILING EXEMPTION UNDER SEC.10B OF THE ACT BEFORE SETTING OFF OF CARRY FORWARD LOSS INSTEAD OF OPTING FOR EXEMPTION BEFORE SETTING OFF OF THE SAME. THEREFORE, ASSESSING OFFICER ISSUED N OTICE UNDER SEC.148 OF THE ACT ON 28.3.2008 AND INITIATED PROCEEDINGS UNDER SEC.14 7 OF THE ACT FOLLOWED BY AN ORDER UNDER SEC.143(3) DATED 30./10.2008; HOLDING THAT IN VIEW OF THE AMENDED PROVISION WITH EFFECT FROM ASST. YEAR 2001-02, EXEM PTION UNDER SEC.10B OF THE ACT WAS REQUIRED TO BE ALLOWED FROM THE ASSESSEES TOTAL INCOME WHICH STOOD DEFINED UNDER SEC.2(45) OF THE ACT. THEREFORE, THE ASSESSING OFFICER RETURNED A FINDING THAT WHILST COMPUTING TOTAL INCOME , THE CARRIED FORWARD UNABSORBED DEPRECIATION AND BUSINESS LOSS ARE REQUIRED TO BE FIRST SET OF F BEFORE ALLOWING ANY EXEMPTION ITA NOS.834-836/MDS/10 4 UNDER SEC.10B OF THE ACT. ACCORDINGLY, THE ASSESSI NG OFFICER COMPUTED THE ASSESSEES TOTAL INCOME AS UNDER :- THE TOTAL INCOME IS COMPUTED AS UNDER :- PROFITS AND GAINS FROM BUSINESS AND PROFESSION 1,17,44,918 (INCLUSIVE OF DOMESTIC UNIT AND UNIT PERTAINING TO 10B) CARRY FORWARD OF UNABSORBED DEPRECIATION/BUSINESS LOSS (AS CLAIMED BY THE ASSESSEE) 2,34,36, 476 (NOTE I) LESS : BUSINESS LOSS RELATING TO ASST. YEAR 1999-20 00 INCORRECTLY SET OFF 42,65,261** BALANCE 1,91,71,215 LESS : PROFIT AND GAINS OF BUSINESS AS ENUMERATED ABOVE NOW SET OFF 1,17,44,918 BALANCE TO BE CARRIED FORWARD 74,26,297 NOTE I ASST. YEAR BUSINESS LOSS DESCRIPTION TOTAL 1997 - 98 NOT ELIGIBLE 1,759,758 1,759,758 1998 - 99 NOT ELIGIBLE 1,520,281 1,520,281 1999 - 2000 4,2 65,261 4,265,261 2000 - 01 5,011,628 5,011,628 2001 - 02 1,411,410 1,411,410 2002 - 03 9,468,140 9,468,140 TOTAL 23,436,478 **1999-2000 CARRY FORWARD OF L 4265261- NOW DI SALLOWED ITA NOS.834-836/MDS/10 5 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL WHEREI N ITS CONTENTION HAS BEEN ACCEPTED BY THE CIT(APPEALS) BY HOLDING THAT T HE ASSESSEES LOSS IN QUESTION DID NOT RELATE TO SEC.10B UNITS BUT THEY PERTAINED TO NON-10B UNITS WHICH COULD BE SET OFF AGAINST INCOME OF 10B UNITS ONLY AFTER F IRST AVAILING EXEMPTION UNDER 10B OF THE ACT. THE RELEVANT OBSERVATIONS OF THE C IT(APPEALS) ARE REPRODUCED BELOW :- 5 . THE NEXT ISSU E I S CA R RY FORWARD AND SET OFF OF BU S IN E S S LO SS AGA INST : I N COME AND EXEMPTION UNDER SECTION ~ 10 B. THE ASSES S IN G OFFIC E R IN T HE A SSESSMENT ORD E R HAS FIRST SET OFF THE CARRIED FORW A RD BU S IN ESS L OSS A ND UNABSORBED DEPRECIATION BEFORE ALLOWING ANY EXEMPTI ON UND E R SE CTION 10 B THE ASSESSING OFFICER IN THE REMAND REPORT HAS RELI ED ON TH E D E CI S ION OF THE ITAT, DELHI IN THE CASE OF GLOBAL VANT A GE PVT . LTD . V . OCIT IN ITA N O. 276 3 & 2764 / 0EL/2009 DT . 1712 2009 WH E R E IT H AS HELD TH A T D E DU C TI O N U /S 10 A SHOULD BE ALLOWED AFT E R S E TTING OFF OF BROUGHT FORWARD LOSSES A ND UN A B S ORB ED D E PR E CIATION . THE ITAT CONSID E R E D V A RIOUS D E CI S I O N S IN C LU D IN G TH AT OF CHENN A I ITAT IN THE CA SE OF C H A N GE POND T E CHNOLO G I ES PVT . LT D. [2 00 8 ] 22 : SOT 220(CHENNAI). TH E A SSE SSING OFFIC E R DID NOT ACCEP T TH E R AT I O OF CHAN A EPOND TECHNOLOGIES (SUPRA) SINCE THE DECISION H AS NOT B EEN ACCEP T E D BY THE DEPARTMENT AND APPEALS TO HIGH COURT HAS BEEN FILED AGAINST THE DECI S ION. I N IT S R E JOIND ER TO TH E R E M A ND REP ORT, TH E AP P E LL AN T H AS E X PL A IN E D TH A T LO SSE S H A V E N O T OCC URR E D IN TH E LO B U N IT BUT I N T H E NON L OB UNIT . H E NC E TH E S A M E CA N B E S E T OFF AGA IN S T IN C O ME O F LO B UN I T ONL Y AFTER F IRST A V AI L ING EXE M P TION U/ S 10 B . HE HAS R E LI E D ON TH E R ECENT D E CISION OF T HE ITA NOS.834-836/MDS/10 6 SPE CI A L BE N C H O F ITAT, C H E NN A I IN THE C ASE OF S CIE N T IF IC AT L ANTA I ND I A T ECH N O LOGY PVT . LTD. V. AC I T IN ITA NO . 2 2 9 / MDS / 2007 A ND ITA NO . 352 / M D S / 2008 DT . 5 TH F E B , 2010 . TH E HON'BL E ITAT I N T HE A BO V E CASE H AS H E LD AS UND E R: H A VIN G H E LD TH A T T HE DED U C T I O N UN DE R SEC TI O N LO A I S N O T AN E X EMPT I O N BUT ON L Y A DED U C TI O N UN DE R CH A PT E R III O F TH E IN CO ME - T AX A C T A N D TH E P R OVI S I O N S OF SEC TI O N 80 AB O F CH A PT E R VIA W OUL D N O T BE A PPL ICA BL E T O S U C H DED U C TI O N UN DE R SEC TIO N L OA , A ND A L SO TH A T THE DEDU C TI O N UND E R SEC TI O N LOA I S UND E RT A KIN G SPE C IFI C , W E H AVE T O A N S W E R TH E QU ES TION PO SE D B E FOR E U S BY H O L DIN G TH A T TH E BU S IN ES S L O S SE S O F A N O N - E L I G IB L E U N IT, WH OS E IN C OM E I S N O T E L I G IBLE F O R D E DU C TI O N UN DE R SEC TI O N L OA O F TH E A C T, CA NN O T B E SE T O FF AGA IN S T TH E PROFIT S OF TH E UN DE RT A KIN G ELIGIBLE LF OR DED U C TI O N UND E R SEC TI O N LOA FOR TH E P URP OSE OF D E T E RMININ G TH E A LLO W A B L E DED U C TI O N UND E R SEC T IO N LOA O F TH E A C T . OF CO UR SE , IF TH E R E A R E M O R E TH A N O N E UND E RT A KI N G W HI C H I S E LI G I B L E F O R D E DU C TI O N UN DE R SEC TI O N LOA A ND IF S OM E O F TH E UNIT S HA V E P R OFIT A N D O THER UNIT S HAVE LO SS , IT WO ULD B E AN E NTIREL Y DIFF E R E NT CASE WHICH I S B E FO R E U S. H E N CE, TH E DEC I S ION R E ND E R ED IN THIS APPE A L W OULD N O T BE APP L ICABLE T O S U C H C A S E S W H E R E TH E R E A R E MOR E T HA N O N E E LI G IBL E UND E R TA KIN G DED U C T IO N UN D E R SEC TI O N LOA . IN TH IS CASE , TH E R E I S ONLY O N E E LI G I B L E UNIT C L AIM IN G D E D U C T ION U ND E R S EC TIO N LOA A N D H E N C E , TH E L OSS FR O M N ON-E LI GIB L E UNIT CANNO T BE S ET OFF A G AIN S T THE PROF I T S OF T H E E L IGIB L E UN I T W H I L E DET E RMINING DED U C T IO N UN DER S E C T I O N LOA ' . 5 . 1 I H A V E C A R E FULLY C ONSIDERED THE RIV A L SUBM ISS IONS A N D TH E D E CISIO N S RELIED ON BY TH E M. I FIND THA T F AC T S OF THE A PPELL A NT A R E S I M IL A R TO T HE F A CT OF TH E SCI E NTIF I C A T L ANTA (SUPRA). THE APPELLANT H AS EX PL A IN E D T H A T TH E LO SSES P E RTAIN TO THE NON L O B UNIT . TH E R E FORE, RE S PECTFU LL Y FOLLOWIN G TH E D EC I S ION O F T H E HON'B L E SPEC I A L BENCH I N T HE CASE OF SC I E N TIFIC A T L A NTA (SUPR A ), TH E A CTION OF TH E A SSESSING OF FI C E R IS SET AS I DE AND THE G R OUND OF A PP EA L I S AIL OW E D . ITA NOS.834-836/MDS/10 7 THEREFORE, THE REVENUE IS AGGRIEVED. 6. THE DEPARTMENTAL REPRESENTATIVE APPEARING FOR R EVENUE HAS REITERATED VARIOUS PLEAS RAISED IN THE GROUNDS OF A PPEAL AND PRAYED FOR ACCEPTANCE OF THE APPEAL. OPPOSING REVENUES ARGUM ENTS, THE AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ISSUE IN HAND IS NO MORE RES INTEGRA IN VIEW OF HONBLE KARNATAKA HIGH COURT JUDGMENT IN CA SE OF CIT V. YOKOGAWA INDIA LTD. (341 ITR 385) AS WELL AS THE DECISION OF CO-OR DINATE BENCH OF CHENNAI ITAT IN CASE OF R.R. DONNELLEY INDIA OUTSOURCE PVT. LTD. V. DCIT IN ITA NOS.1489 & 1490/MDS/2010 DATED 26 TH JULY 2012. ACCORDINGLY, HE PRAYED FOR REJECTION O F THE APPEAL. 7. WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND AL SO PERUSED THE RELEVANT FINDINGS AS WELL AS THE CASE LAW REFERRED HEREIN ABOVE. UNDISPUTED FACTS ARE THAT THE ASSESSEE IS HAVING BOTH KINDS OF UNITS IE. EXEMPTED U/S.10A&B AS WELL AS NON-EXEMPTED. QUA THE ASST. YEAR IN HAND, IT WAS HAVING CARRIED FORWARD LOSSES OF N ON-EXEMPT UNITS. ITS STAND BEFORE A. O. WAS IS THAT THE LOSSES CAN BE SET OFF ONLY AFTER AVAILING EXEMPTION UNDER SEC.10B OF THE ACT WHICH W AS NEGATIVE. BUT THE CIT(APPEALS) HAS ACCEPTED THE ASSESSEES CO NTENTION AFTER PLACING RELIANCE ON SCIENTIFIC ATLANTA CASE (SUPRA). THERE IS NO MATERIAL PRODUCED BY THE REVENUE SO AS TO CONTROVERT THE CIT(APPEALS)S FINDINGS. WE ALSO NOTICE THAT THE ITA NOS.834-836/MDS/10 8 CIT(APPEALS) HAD ALSO CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER AND DULY ASSOCIATED THE REVENUE QUA ASSESSEES SUBMISSI ONS. IN VIEW OF THIS ADMITTED FACTUAL POSITION, WE FIND THAT LD. CO-ORDI NATE BENCH OF CHENNAI ITAT (SUPRA) HAS HELD THAT CLAIM UNDER SEC.10 HAS TO BE ALLOWED WITHOUT SETTING OFF OF BROUGHT FORWARD LOSS OF EARLIER YEARS OF THE NON-EX PORT ORIENTED UNITS. THE RELEVANT PORTION OF THE SAME READS AS UNDER :- 4. IN THE APPEALS FILED BY THE REVENUE, THE FIRST GROUND IS THAT THE COMMISSIONER OF INCOME-TAX(APPEA LS) HAS ERRED IN ALLOWING DEDUCTION UNDER SEC.10A BEFOR E SETTING OFF OF BROUGHT FORWARD DEPRECIATION AND L OSSES. THIS ISSUE WAS CONSIDERED AND DECIDED BY THE INCOME - TAX APPELLATE TRIBUNAL, CHENNAI BENCH IN FAVOUR OF THE ASSESSEE, IN THE CASE OF M/S. SCIENTIFIC ATLANTA I NDIA TECHNOLOGY PVT. LTD. (129 TTJ 273). 5. THE REVENUE HAS REFERRED TO A DECISION OF THE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT V. HIMATASINGIKE SEIDE LTD. (286 ITR 255). 6. BUT IN A RECENT DECISION, THE HONBLE KARNATAKA HIGH COURT HAS CONSIDERED THIS ISSUE AND DECIDED IN FAVO UR OF THE ASSESSEE IN THE CASE OF CIT & ANR. VS. YOKOGA WA INDIA LTD. AND OTHERS, (2012) 246 CTR (KAR) 226. TH E SPECIFIC QUESTION CONSIDERED BY THE HIGH COURT IS, ITA NOS.834-836/MDS/10 9 WHETHER OR NOT ON THE FACTS AND IN THE CIRCUMSTANCE S, CLAIM UNDER SEC.10A IS TO BE ALLOWED ON THE PROFITS OF THE EOU WITHOUT SETTING OFF OF BROUGHT FORWARD LOSSES O F EARLIER YEARS OF THE NON EOU? THE HONBLE KARNATAK A HIGH COURT AGAIN HAS CONSIDERED SIMILAR ISSUE AND ARRIVED AT THE SAME CONCLUSION IN THE CASE OF CIT & ANR. VS. TATA ELXSI LTD. & OTHERS (247 CTR 334). 8. TAKING CUE FROM THE SAME, WE ALSO CONCUR WITH T HE ORDER OF THE CIT(APPEALS) AND DO NOT INTERFERE WITH THE CONCLUSI ONS ARRIVED AT HEREIN ABOVE. 9. CONSEQUENTLY, REVENUES APPEAL IS DISMISSED. S AME ORDER TO FOLLOW IN ITA NOS.835 & 836/MDS/2010. 10. ORDER PRONOUNCED IN THE OPEN COURT AFTER HEARI NG ON WEDNESDAY, THE 5 TH DAY OF SEPTEMBER 2012. SD/- SD/- ( N.S. SAINI ) (S.S. GODARA ) ACCOUNTAT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 05 TH SEPTEMBER 2012 JLS. COPY TO:- (1) APPLICANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R. (6) GUARD FILE