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2015 (5) TMI 856 - ITAT DELHI

2015 (5) TMI 856 - ITAT DELHI - TMI - Eligibility of deduction u/s 10B - whether the three units of the assessee company namely NIITITES, NIIT-KTWO and NIIT-Mumbai are separate 100% EOUs of the assessee company ? - Held that:- Each of the three undertakings had been separately and independently granted registration by Software Technology Park of India, Pune (STPI) for claiming exemption u/s 10B of the act as newly set up 100% EOU, which is evident from the copies of STPI approval and extension l .....

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the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books. Therefore, the ld. CIT(A) was fully justified in directing the AO to compute the deduction u/s 10B of the Act in respect of each unit separately. - Decided in favour of assesse.

Allowabili .....

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iation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. - Decided against revenue.

Admission of the additional evidence - Held that:- AO vide notice u/s 142(1) of the Act called the details relating to claim u/s 10B of the Act which the assessee furnished. The ld. CIT(A) found from the record that the assessee replied to the showcause regarding the allowability of deduction u/ .....

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hat the documents furnished by the assessee before him goes to the route of the aforesaid issue relating to deduction u/s 10B of the Act. In the present case, the ld. CIT(A) admitted those evidences after providing due and reasonable opportunity to the AO who furnished his remand report. Therefore, we do not see any merit in this ground of the departmental appeal - Decided against revenue. - ITA No. 1112/Del/2012 - Dated:- 8-5-2015 - Sh. N. K. Saini, AM And Sh. I. C. Sudhir, JM,JJ. For the Petit .....

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ate 100% EOUs of the assessee company for the purpose of claiming deduction u/s 10B of the Income Tax Act, 1961 and profits arising there from have to be allowed as deduction under that section separately. 2. That the Commissioner of Income Tax(Appeals) erred in law and on facts of the case in holding that the deduction u/s 10B of the Act is allowable at the source itself and not after the computation of Gross Total Income. 3. That the Commissioner of Income Tax(Appeals) erred in law and on fact .....

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e assessee during the appellate proceedings. 5. That the Commissioner of Income Tax(Appeals) erred in law and on facts of the case in allowing the deduction u/s 10B of the Act to the assessee at ₹ 7,83,34,105/- as claimed by it instead of deduction of ₹ 2,96,15,440/- as allowed by the Assessing Officer. 6. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or durin .....

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essment proceedings the AO noticed that the assessee had 3 independent and separate 100% Export Oriented Undertaking (EOU) which were engaged in the same line of business and no separate books of accounts had been maintained for these units so these were in fact expansion of the same business. The AO also raised the doubt about the allocation of expenses to these units to arrive at the conclusion that deduction could not be calculated in respect of the units separately. He, therefore, calculated .....

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u/s 10B of the Act as newly set up 100% EOU and they had also been issued separate export licences by Customs Authorities. The assessee also furnished the evidences to establish that those units had separate fixed assets, plants & machinery and furniture & fixtures etc. It was submitted that each of the three EOU had independent, separate and distinct operations as indicated in the evidences furnished in the form of copies of softex forms, invoices, foreign inward remittance certificate .....

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of three EOUs on the basis of prescribed Audit Report in Form No. 56G which also requires the certificate from a Chartered Accountant who certify the amount claimable as deduction u/s 10B of the Act on the basis of examination of accounts and records of the assessee relating to the business of the eligible undertaking. It was pointed out that the said report also did not refer to any separate books to be maintained or required to be maintained by the eligible EOU. The reliance was placed on the .....

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er considering the submissions of the assessee observed that it was not the case of the AO that the three eligible units had been formed by splitting up or reconstructing the old or non-eligible units and since there were enough evidence in the assessee s case that the three Export Oriented Units were formed independently of the existing units for the purpose of export of software and those were approved as such by the relevant authorities and they had been functioning independently of each othe .....

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ppeal. The ld. DR strongly supported the order of the AO and further submitted that the assessee was not maintaining separate books of accounts because all the three units were in fact expansion of the same business as those were engaged in the same line of business. Therefore, the ld. CIT(A) was not justified in directing the AO to consider each unit as separate for claiming deduction u/s 10B of the Act. 7. In his rival submissions the ld. Counsel for the assessee reiterated the submissions mad .....

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ate 100% EOUs for the purposes of claiming deduction u/s 10B of the Act and they cannot be treated as single unit. 8. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the AO treated the three Export Oriented Undertaking of the assessee as a single unit, only on this basis that separate books of accounts were not maintained, on the contrary, each of the three undertakings had been separa .....

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t separate location having independent buildings on separate addresses, their Plant & Machinery and fixed assets were also separate, each of the EOU furnished separate Audit Report in Form No. 56G. Therefore, it cannot be said that the three EOU s of the assessee company were formed after splitting off of the existing unit or reconstructing the old or non-eligible unit. In the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP so .....

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to this issue in brief are that the AO, during the course of assessment proceedings observed that all the three different units of the assessee were not operating in isolation as claimed and it was only for the purpose of computing deduction u/s 10B of the Act that the assessee tried to allocate the expenses between various units for computing deduction under the said section and that the profits of the units eligible for deduction u/s 10B of the Act were disproportionately high as compared to .....

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ciation brought forward from the earlier assessment year. According to the AO, the assessee had been wrongly computed unabsorbed depreciation in the earlier years by first claiming deduction u/s 10B of the Act, while computing income under the head profits and gains of business or profession and not out of the gross total income, after adjusting unabsorbed depreciation, if any, carry forward from earlier years. The AO also observed that in case there was any unabsorbed depreciation relating to t .....

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ed the matter to the ld. CIT(A) and submitted that the deduction u/s 10B of the Act was allowable from profits of the eligible business as computed under the head business income and such profits were the individual profits of the eligible units computed before setting off of brought forward unabsorbed losses/depreciation, if any, of non-eligible undertakings required to be set off, subsequently at the stage of computing gross total income under Chapter VI of the Act. It was further stated that .....

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s. The reliance was also placed on the following case laws: ACIT Vs Yokogawa India Ltd. 111 TTJ 548 (Trib) Changepond Technologies (P.) Ltd. Vs ACIT 119 TTJ 18 (Chenn.) KPIT Cummins Infosystems (Bangalore) (P) Ltd. Vs ACIT (2008) 26 SOT 529 (Bang.) Reliq Software (P) Limited Vs ITO 125 ITD 101 (Bang.) CIT Vs Mahan Foods Ltd. 216 CTR 148 (Del.) CIT Vs Gedore Tools (India) Pvt. Ltd. 126 ITR 673 (Del.) DCIT Vs Arabian Exports Ltd. 109 TTJ 440 (Mum.) 11. The ld. CIT(A) after considering the submissi .....

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rom the EOU was claimed as exempt from tax. The Hon ble High Court after analyzing the entire scheme held that the unabsorbed depreciation of the EOU had to be adjusted against the eligible profit before allowing exemption/deduction u/s 10B of the Act and that by claiming set off of unabsorbed depreciation of the eligible undertaking against income from other sources, the assessee had virtually taken exemption from payment of tax even in respect of other business income which was clearly not per .....

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the Act from the profit of the eligible undertaking without setting off the losses or unabsorbed brought forward depreciation. The reliance was placed on the judgment of the Hon ble Karnataka High Court in the case of CIT Vs Yokogawa India Ltd. reported at 246 CTR 226. 12. Now the department is in appeal. The ld. DR reiterated the observations of the AO and strongly supported the assessment order dated 31.12.2009. It was further submitted that it is an accepted position of law that first busine .....

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d the submissions made before the authorities below and further submitted that the deduction u/s 10B of the Act is allowable in respect of profit derived by the eligible undertaking, quantified in terms of sub-section (4) of section 10B of the Act i.e. qua the profits of each undertaking as if such undertaking was the only source of income of the assessee. It was further submitted that the deduction u/s 10B of the Act was to be provided from income under the head profits and gains of business or .....

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liance was placed on the following case laws: CIT Vs Yokogawa India Ltd. 246 CTR 226 (Kar.) Black & Veatch Consulting Pvt. Ltd. 348 ITR 72 (Bom.) CIT Vs Tyco Electronics Tools India (P) Ltd. 205 Taxman 403 (Kar.) CIT Vs Galaxy Surfactants Ltd. (2012) 249 CTR 38 (Bom.) Scientific Atlanta India Technology (P) Limited CIT Vs TEI Technologies Pvt. Ltd. (2012) 210 Taxman 237 (Del.) 14. It was further submitted that the assessee had rightly claimed deduction u/s 10B of the Act on the basis of inde .....

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relating to the eligible Export Oriented Units (EOU s). Therefore, adjustment in the eligible profits of the EOU was not to be made on account of brought forward unabsorbed depreciation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. 16. On a similar issue the Hon ble Karnataka High Court in the case of CIT Vs Yokogawa India Ltd. 341 ITR 385 held as under: That as the profits and gains .....

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ssessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. 17. Similary, the Hon ble jurisdictional High Court in the case of CIT Vs TEI Technologies Pvt. Ltd. 361 ITR 36 (Del.) held as under: That for computing deduction under section 10A in respect of an export processing zone unit, the losses suffered in the non-export processing zone unit need not be set off against the profits/income of the export processing zone unit. T .....

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gards to this issue the ld. DR submitted that the assessee did not furnish the evidences before the AO in the course of assessment proceedings, therefore, the ld. CIT(A) was not justified in admitting the additional evidences. The ld. Counsel for the assessee in his rival submissions submitted that the ld. CIT(A) forwarded the additional evidences to the AO under the provisions of Rules 46A of the Income Tax Rules and the AO submitted his report dated 08.08.2011. Therefore, it cannot be said tha .....

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