TMI Blog2008 (11) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... venue or when two views are possible and the AO takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. Thus, when AO has taken one of the possible views then the order of AO cannot be termed as erroneous and the CIT was having no power to cancel that order u/s 263. Since we have cancelled the order of the CIT u/s 263, therefore, we are not giving any finding on the alternative submission. In the result, the appeal of the assessee is allowed. - R.V. Easwar and N.L. Kalra, JJ. For the Appellant : Nilesh Patel For the Respondent : Etwa Munda ORDER:- PER : N.L. Kalra The assessee has filed an appeal against the order of learned CIT, Bangalore dated 19th February, 2008 passed u/s 263 of the IT Act. 2. The appellant is aggrieved against the invoking of power u/s 263 of the IT Act by the learned CIT. According to the appellant, the order is not erroneous, as the Assessing Officer has accepted one of the possible views. The alternative ground of appeal of the appellant is that the learned CIT has erred in directing the Assessing Officer to recompute the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from the provisions of the Act. The main object of section 10A is not to tax export profits from STP Unit. The income of 10A unit has to be excluded before arriving at the gross total income otherwise the provisions of section 10A would have been shifted to Chapter VIA which deals with deductions from gross total income. It was further argued that section 10A is placed under Chapter III which deals with items which do not form part of total income. The appellant relied on the following decisions of the Bangalore Bench in support of its contention that the deduction u/s 10A is to be computed undertaking-wise and loss of one undertaking cannot be adjusted against the profit of the other undertaking for computing deduction u/s 10A in respect of other undertaking:- ACIT v Yokogawa India Ltd 2007 13 SOT 470 (Bang.) ITO v SCT Software Solutions India Pvt. Ltd. - ITA No.1014/Bang/2004. 7. It was further argued before the learned CIT that the order of the AO is not erroneous. There has been no error in applying the facts or law nor there is any deviation from the law. The order of the Assessing Officer is not erroneous so far as it relates to the computation of profits deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 10A(1). As per this section, deduction is allowable in respect of such profit and gains as are derived by an undertaking from the export of articles or things or computer software. It was submitted that the deduction is allowable on the basis of the profit and gains of the undertaking. If an assessee is having more than one undertaking, then the deduction u/s 10A is to be computed for different undertakings. Thereafter, the learned AR drew our attention to section 10A(4). The deduction to be computed for the purposes of section 10A(1) is to bear the same proportion to the profits of the business of the undertaking as the export turnover bears to the total turnover of the business carried on by the undertaking. It was submitted that section 10A(4) has been amended by the Finance Act, 2001 w.e.f. 1/4/2001. Prior to amendment, the deduction was to be computed in the same proportion as the export turnover bears to the total profit of the business. It was therefore argued that the intention of the Legislature is clear that deduction u/s 10A is to be computed on the basis of the profit of the undertaking and not on the basis of the profit of the business of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, then the loss cannot be set off against the profit of the other STP unit for the purpose of working out the tax benefit under section 10A. The tax benefit of the STP units are required to be independently calculated. 10. On the other hand, the learned DR supported the order of the learned CIT. It was submitted that the deduction is to be allowed from the gross total income and such deduction is to be on the basis of the profit included in the gross total income. It is not the case of the assessee that it is not claiming deduction u/s 10A in respect of STP Unit-2. If there are more than one units for which deduction u/s 10A is to be computed, then one has to see the total income included in the computation from the undertaking entitled for deduction u/s 10A. 11. We have heard both the parties. Before proceeding further, it will be useful to reproduce section 10A(1) and 10A(4):- 10A (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vity, viz. in organizing the cooperation between employer and employee, may be dissimilar. It does not matter, if on the employment terms there is analogy". It is needless for us to point out that the above ruling is binding on us. In the matter of Sree Yallamma Coton, Woollen and Silk Mills Co. Ltd. (1970) 40 Comp Cas 466, 485; AIR 1969 Mysore 280, late Justice A Narayana Pai (as he then was), sitting as company judge, had occasion to judicially examine the expression 'undertaking' in the context of 'floating charge'. The learned judge ruled as follows (headnote of AIR 1969 Mys.): "Undertaking" is not in the real meaning anything which may be described as a tangible piece of property like land, machinery or the equipment; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit. Property, movable or immovable, used in the course of or for the purpose of such business can more accurately be described as the tools of business or undertaking i.e. things or articles which are necessarily to be used to keep the undertaking going or to assist the carrying on of the activities leading to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Cambay Electric Supply Industrial Co. Ltd. vs CIT held that the Tribunal was right in holding that deduction u/s 80HH should be allowed in respect of the solvent plant on its income without setting off the loss incurred in respect of the hydrogenation plant. 18. From the above discussion, it is clear that the deduction u/s 10A is to be computed on the basis of profit and gains derived by an undertaking. In the instant case, STP Unit-2 was having a loss and Therefore, its loss cannot be set off while ascertaining the deduction u/s 10A for STP Unit-1. 19. The Bangalore Bench in the case of I Gate Global Solutions Ltd. vs ACIT 112 TTJ 1002 vide order dated 27th November, 2007 held as under:- "Before us, it has not been clarified that Pune unit is an independent unit and is in no way related with the activities carried out at Bangalore or Chennai unit. In absence of the facts, it is not possible to say that Pune unit was an independent undertaking engaged in the business of software development, which was in no way related to the software development done at Bangalore or Chennai unit. In case, the Pune unit is found to be independent, then loss from such unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interest of revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Income Tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of revenue. The phrase 'prejudicial to the interest of revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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