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2015 (11) TMI 924 - ITAT BANGALORE

2015 (11) TMI 924 - ITAT BANGALORE - TMI - Eligible deduction under Section 10A - Held that:- In the light of the above facts and respectfully following the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. & Others (2011 (8) TMI 782 - KARNATAKA HIGH COURT), we direct the Assessing Officer to exclude the expenses incurred in foreign currency both from export turnover as well as from the total turnover while calculating the eligible deduction under section 10A of the Act .....

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2003-04 was not considered. Further, as pointed out by the learned Authorised Representative of the assessee in the computation, there appears to be a mistake in the computation made by the Assessing Officer. Be that as it may, we also observe that the assessee has not properly explained the contradictions in the claims made by the assessee both in the earlier years and in the year under consideration in respect of the issue of determination of book profits under Section 115JB of the Act. We als .....

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dered. - Decided in favour of assessee for statistical purposes. - ITA Nos.935 & 936/Bang/2014, ITA No.1016/Bang/2014 - Dated:- 4-11-2015 - SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The Assessee : Shri K.R. Vasudevan, Advocate. For The Revenue: Shri Kaleemulla Khan, JCIT (D.R) ORDER Per Shri Jason P. Boaz, A.M. : These are three appeals, one by the assessee and the other two by Revenue, directed against the orders of the CIT (Appeals) - III, Bangalore bot .....

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t was completed under Section 143(3) of the Act vide order dt.28.12.2006 determining the loss under normal provisions of the Act at ₹ 1,11,08,860 in view of the following additions / disallowances :- (i) Addition towards PF and ESI : Rs.1,48,634. (ii) Towards excess depreciation : Rs.3,37,292. (iii) Excess deduction under Section 10A : Rs.11,92,860 The book profits under Section 115JB were computed as under :- Profits before tax as per P&L Account : Rs.2,05,86,685. Add 1)Income tax pai .....

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the assessee partial relief. 3.1 Aggrieved by the order of the CIT (Appeals) - III, Bangaloredt.28.12.2006 for Assessment Year 2004-05, Revenue has preferred this appeal in ITA No.935/Bang/2014 raising the following grounds :- 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law in directing the Assessing Officer to exclude the reimbursement of certain expenses both from the .....

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in directing the Assessing Officer to compute deduction under Section 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the .....

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e Assessing Officer to exclude certain expenses from both export turnover as well as total turnover while computing the eligible deduction under Section 10A of the Act and in following the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. reported in 349 ITR 98 (Kar.), while doing so, as the said decision has not been accepted by the Department and the SLP in the matter is pending before the Hon'ble Apex Court. 4.1 In the meanwhile, the Assessing Officer initiat .....

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d 1)Income tax paid Rs.24,19,800. 2)Expenses related to exempt income : Rs.86,29,205 Rs.1,10,49,005. ₹ 3,14,35,690. Less i)Income on which deduction u/s.10A claimed : Rs.1,48,49,273. (ii) Amount of loss or unabsorbed depreciation, whichever is less : Rs.1,25,979 Rs.1,49,75,252. Book Profits u/s. 115JB : Rs.1,66,60,438. 4.2 Aggrieved by the order of assessment under Section 144 rws 147 of the Act dt.29.12.2009 for Assessment Year 2004-05, the assessee preferred an appeal before the CIT (App .....

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tances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to compute deduction under Section 10A without setting off of losses (depreciation / business)pertaining to non-10A unit against the profit of 10A unit by replacing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Yokogawa India Ltd., but without appreciating the fact that as per amended provisions of section 10A, deduction under Section 10A has to be allowed from the total in .....

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aka in the case of M/s. Yokogawa Ltd. which has not become final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court on this issue. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, alter, amend and / or delete any of .....

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nd in following the decision of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd., in 341 ITR 345 (Kar) while doing so, since the said decision of the Hon'ble High Court has not been accepted by the Department and the SLP in the matter is pending before the Hon'ble Apex Court. 4.5 Grounds in Assessee's appeal in ITA No.1016/Bang/2014. 1. Reopening of assessment 1.1 The learned CIT (Appeals) erred in upholding the action of the learned Assessing Officer in reopen .....

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year. 1.3 The learned CIT (Appeals) erred in not appreciating that no new material or new information has been brought on record to warrant reopening of assessment. 2. Reduciton of unabsorbed tax depreciation while computing book profits under Section 115JB - Rs.1,18,20,816. The learned CIT (Appeals) erred in upholding the action of learned Assessing Officer in reducing lower of unabsorbed business loss or unabsorbed depreciation loss as per tax provisions amounting to ₹ 125,979 instead of .....

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way of this common order. Revenue s appeal in ITA No.935/Bang/2014. 5. The Grounds raised at S.Nos.1, 4 & 5 are general in nature and therefore no adjudication is called for thereon. 6.1 Grounds 2 and 3 - Deduction u/s.10A of the Act. 6.1 The only issue raised in this appeal by Revenue is against the decision of the learned CIT (Appeals) in directing the Assessing Officer that certain expenses incurred that are excluded from export turnover while computing the deduction under Section 10A of .....

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der section 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, then the same should also be excluded from the total turnover in the denominator. The relevant operative portion of the finding of the Hon'ble jurisdictional High Court is extracted and reproduced as under : if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover in the denominato .....

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ng is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes 'export turnover', the very same meaning given to the 'export turnover' by the legislature is to be adopted while understanding the meaning of the 'total turnover', when the & .....

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nover' means, then, when the 'total turnover' includes 'export turnover', the meaning assigned by the legislature to the 'export turnover' is to be respected and given effect to, while interpreting the 'total turnover' which is inclusive of the 'export turnover'. Therefore the formula for computation of the deduction under section 10A, would be as under : Profits of the business x Export turnover of the undertaking (Export turnover + domestic turnover) .....

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Revenue s appeal in ITA No.936/Bang/2014 for A.Y. 2004-05. 8. The Grounds at S.Nos.1, 4 & 5 are general in nature and therefore no adjudication is called for thereon. 9. Grounds at S.No.2 and 3 - Deduction u/s.10A of the Act. 9.1 The only issue raised by Revenue in this appeal is in contending that the decision of the learned CIT (Appeals) in the impugned order was erroneous in directing the Assessing Officer to compute the deduction under Section 10A of the Act without setting off the losse .....

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e assessee had claimed the deduction under Section 10A of the Act in the year, even though there was a business loss and unabsorbed depreciation from the earlier year which the assessee had not set off before computing the deduction under Section 10A of the Act. The Assessing Officer observed that if these losses were set off against the income of the current year, there was no positive income and in that view of the matter, the Assessing Officer disallowed the entire deduction claimed under Sec .....

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considered the material on record. We find that the issue of setting off losses against the income from 10A units has been settled by the decision of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd. (supra) wherein the Hon'ble Court has held that in respect of Section 10A of the Act , the phrase total income in Section 10A(1) is to be understood as the income of each such 10A unit and cannot mean total income as computed in accordance with the normal provisions of .....

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on would only commence thereafter. At paras 19, 20, 31 to 33 of the Hon'ble Court has held as under :- 19. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any fu .....

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efined in section 2(45). Hence, the income eligible for exemption u/s 10A would not enter into computation as the same has to be deducted at source level. - 31. After making all such computation the assessee would be entitled to the benefit of set off or carry forward of loss as provided u/s 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings u/s 10B of t .....

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on as the export turnover in respect of such articles or things or computer software bears to the 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 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income .....

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STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in 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 carried forward, for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. 33. As the income of 10-A unit has to be exclud .....

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ss 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 u/s 32(2) is to be set off. As deduction u/s 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 the undertaking would no .....

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in the aforesaid case of Yokogawa India Ltd. (supra), we uphold the decision of the learned CIT (Appeals) in directing the Assessing Officer to compute the deduction under Section 10A of the Act without setting off the losses of the non-10A units both current and carried forward from earlier years against 10A units. Consequently Grounds 2 and 3 of Revenue s appeal are dismissed. 10. In the result, Revenue s appeal in ITA No.936/Bang/2014 is dismissed. Assessee's appeal for Assessment Year 20 .....

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) pertaining to the reopening of assessment. We, therefore, dismiss the Grounds raised at S.Nos.1 (1.1 to 1.3) as not pressed. 12. Ground No.2 - Computation of Book Profits u/s.115JB. 12.1 Ground No.2, therefore remains the only issue for adjudication i.e. in respect of the question of losses considered by the Assessing Officer while computing the book profits under Section 115JB of the Act. 12.2.1 In the computation of income, the assessee had determined book profits under Section 115JB of the .....

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sment, as under :- Asst. Year Unabsorbed business losses Unabsorbed depreciation Set off during A.Y. 2004-05 Balance carried forward 2002-03 1,25,979 - 1,25,979 2003-04 63,08,389 3,92,55,854 - 4,55,64,243 2004-05 - 1,11,08,860 - 1,11,08,860 Total : 64,34,368 5,03,64,714 - 5,67,99,082 While computing the book profits under Section 115JB of the Act, the Assessing Officer considered the amount of ₹ 64,34,368 as being the lesser of business losses or unabsorbed depreciation. 12.2.2 However, in .....

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and for the purposes of this clause; a) the loss shall not include depreciation, and b) the provisions of this clause shall not apply if the amount of loss brought forward is unabsorbed depreciation. 12.2.3 The assessee carried the matter in appeal to the learned CIT (Appeals) who rejected the assessee's contentions that the loss ought to be considered at ₹ 1,18,20,816; making the following observations:- i) the purported book loss and depreciation of the amalgamating unit, viz. Makin .....

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of account of Makino Asia Ltd. i.e. business loss of ₹ 1,18,20,816 and depreciation of ₹ 1,30,97,205 are not reflected; v) During the proceedings for Assessment Year 2003-04, the assessee claimed that the Indian Branch of Makino does not have any accumulated losses (business loss and unabsorbed depreciation). In view of the above reasons, the learned CIT (Appeals) held that the assessee's claim is not in order and rejected the contentions of the assessee and upheld the Assessing .....

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586,685 20,586,685 Add : Amount of income tax paid 2,491.800 2,491.800 Amount of expenses relatable to exempt income 8,629,205 8,629,205 31,635,690 31,635,690 Less Income on which 10A deduction claimed 14,849,237 14,849,237 Amount of brought forward business loss or depreciation (whichever is lower) 125,979 11,820,816 14,975,252 26,670,053 Book Profit 16,660,438 5,037,637 Along with the above details, the learned A.R. also submitted the year-wise break-up of business loss and unabsorbed deprecia .....

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considered the material on record. We find from the record that in the original order of assessment, the Assessing Officer had determined the carry forward business loss at ₹ 64,34,368 and considered the same for determining the book profits u/s.115JB of the Act. However, in the reassessment order, the Assessing Officer has only considered the business loss of ₹ 1,25,979, which is the carry forward business loss of Assessment Year 2002-03 for computing the book profits under Section .....

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