DCIT, Bangalore V. M/s Zenith Software Ltd., Bangalore

ITA 838/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5532 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C JINITA
• Assessee Lawyers: G KAMALADHAR STANDING COUNSE L
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, B E NGAL U R U BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 838/ BANG/20 1 6 (ASSESSMENT YEAR: 20 10 - 11 ) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 7(1)(2), BENGALURU. APPELLANT VS. M/S.ZENITH SOFTWARE LTD. NO.4, INDUSTRIAL LAYOUT, KORAMANGALA BENGALURU - 560095. PAN: AAACZ 0453 D RESPONDENT APPELLANT BY : MS.C.JINITA, ADVOCATE RESPONDENT BY : SHRI G.KAMALADHAR, STANDING COUNSE L DATE OF HEARING : 10/04/2017 DATE OF PRONOUNCEMENT : 13 /04/2017 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER THE COMMISSIONER OF INCOME TAX (APPEALS) - 7, BANGALORE, DATED 19/02/2016 FOR T HE ASSESSMENT YEAR 2010 - 11. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: ITA NO 838 /BANG/201 6 PAGE 2 OF 5 3. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE REVENUE IS REGARDING SETTING OFF OF LOSSES OF NON - STPI UNIT AGAINST PROFITS OF THE STPI UNIT BE FORE ALLOWING THE DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). 4. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ITA NO 838 /BANG/201 6 PAGE 3 OF 5 YOKOGAWA INDIA LTD. ( 341 ITR 385 ) WHICH HAS BEEN UPHELD BY THE HON'BLE SUPREME COURT VIDE DECISION REPORTED IN 391 ITR 274 WHEREIN THE HON'BLE SUPREME COURT HAS HELD IN PARAS 15 TO 17 AS UNDER : 15. SUB - SECTION 4 OF SECTION 10A WHICH PROVIDES FOR PRO RATA EXEMPTION, NECESSARILY INVOLVING DEDUCTION OF THE PROFITS ARISING OUT OF DOMESTIC SALES, IS ONE INSTANCE OF DEDUCTION PROVIDED BY THE AMENDMENT. PROFITS OF AN ELIGIBLE UNIT PERTAINING TO DOMESTIC SALES WOULD HAVE TO ENTER INTO THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS FROM BUSINESS' IN CHAPTER IV AND DENIED THE BENEFIT OF DEDUCTION. THE PROVISIONS OF SUB - SECTION 6 OF SECTION 10A, AS AMENDED BY THE FI NANCE ACT OF 2003, GRANTING THE BENEFIT OF ADJUSTMENT OF LOSSES AND UNABSORBED DEPRECIATION ETC. COMMENCING FROM THE YEAR 2001 - 02 ON COMPLETION OF THE PERIOD OF TAX HOLIDAY ALSO VIRTUALLY WORKS AS A DEDUCTION WHICH HAS TO BE WORKED OUT AT A FUTURE POINT OF TIME, NAMELY, AFTER THE EXPIRY OF PERIOD OF TAX HOLIDAY. THE ABSENCE OF ANY REFERENCE TO DEDUCTION UNDER SECTION 10A IN CHAPTER VI OF THE ACT CAN BE UNDERSTAND BY ACKNOWLEDGING THAT ANY SUCH REFERENCE OR MENTION WOULD HAVE BEEN A REPETITION OF WHAT HAS AL READY BEEN PROVIDED IN SECTION 10A. THE PROVISIONS OF SECTIONS 80HHC AND 80HHE OF THE ACT PROVIDING FOR SOMEWHAT SIMILAR DEDUCTIONS WOULD BE WHOLLY IRRELEVANT AND REDUNDANT IF DEDUCTIONS UNDER SECTION 10A WERE TO BE MADE AT THE STAGE OF OPERATION OF CHAPTE R VI OF THE ACT. THE RETENTION OF THE SAID PROVISIONS OF THE ACT I.E. SECTION 80HHC AND 80HHE, DESPITE THE AMENDMENT OF SECTION 10A, IN OUR VIEW, INDICATES THAT SOME ADDITIONAL BENEFITS TO ELIGIBLE SECTION 10A UNITS, NOT CONTEMPLATED BY SECTIONS 80HHC AND 80HHE, WAS INTENDED BY THE LEGISLATURE. SUCH A BENEFIT CAN ONLY BE UNDERSTOOD BY A LEGISLATIVE MANDATE TO UNDERSTAND THAT THE STAGES FOR WORKING OUT THE DEDUCTIONS UNDER SECTION 10A AND 80HHC AND 80HHE ARE SUBSTANTIALLY DIFFERENT. THIS IS THE NEXT ASPECT O F THE CASE WHICH WE WOULD NOW LIKE TO TURN TO. 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 WITHOU T 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, ITA NO 838 /BANG/201 6 PAGE 4 OF 5 '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 C ASE 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 SECTIONS 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 LOGIC AL 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 O F 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 EXERCIS E 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 ASSESSEE' IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO 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'. IN VIEW OF THE DECISION OF HON' BLE SUPREME COURT (SUPRA), WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT (APPEALS) QUA THIS ISSUE. 5. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH APRIL , 201 7 S D/ - SD/ - (VIJAY PA L RAO) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E D : 13 / 0 4 /2017 SRINIVASULU, SPS ITA NO 838 /BANG/201 6 PAGE 5 OF 5 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE