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2015 (12) TMI 1501 - ITAT PUNE

2015 (12) TMI 1501 - ITAT PUNE - TMI - Computation of deduction under section 10B - enhanced profits by way of disallowance of an expenditure, in view of non-deduction of tax at source under section 40(a)(ia) - CIT(A) allowed the claim of the assessee - Held that:- As referred by the CIT(A), there is a provision by way of proviso under section 92C(4) of the Act that in case any addition is made on account of transfer pricing adjustment, no deduction under section 10A/10AA/10B of the Act or under .....

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e order of CIT(A), we dismiss the grounds of appeal raised by the Revenue.

Reduction of carried forward losses while computing the profits of the eligible undertaking under section 10B - Held that:- The facts arising in the present case are similar to the facts before the Tribunal in Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (2015 (11) TMI 118 - ITAT PUNE ) and following the same parity of reasoning, we hold that the deduction under section 10B of the Act would be allowed .....

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in the hands of the assessee. - Decided in favour of assessee

Addition made on account of outward freight while computing the book profits under section 115JB - Held that:- We find merit in the claim of assessee with special reference to the calculation of book profits by applying provisions of section 115JB of the Act. The assessee has also filed a revised computation of eligible book profits under section 115JB of the Act, which is also placed on record. In case, the amount of unas .....

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the requisite calculation before the Assessing Officer, who in turn shall verify the same and compute the book profits under section 115JB of the Act in this regard, after affording reasonable opportunity of hearing to the assessee - Decided in favour of assessee for statistical purposes - ITA No.70/PN/2012, ITA No.72/PN/2012 - Dated:- 10-11-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For The Assessee : Shri Nikhil Pathak For The Department : Shri B.C. Malakar ORDER PER SUSHMA C .....

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The learned CIT(A) erred on facts and in law in upholding A.O.'s action of reducing carried forward losses of ₹ 1,79,31,080/- while computing 'profits of the eligible undertaking' u/s10B of the Act. He ought to have appreciated that the deduction u/s 10B has to be computed before setting off any carried forward losses. 2. The learned CIT(A) erred on facts and in law in upholding A.O.'s action of adding provision for outward freight of ₹ 2,65,57,598/- to the 'book .....

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or substitute all or any of the above grounds of appeal. 4. The Revenue in ITA No.7 2/PN/2012 has raised the following grounds of appeal :- 1) On the facts and circumstances of the case and in law, the Ld .CIT(A)- Ill, Pune has erred in deleting the addition of ₹ 1,34,49,817/- made by the AO on account of disallowance u/s.40(a)(ia) of the Income Ta x Act, 1961 and considered as business income which is eligible for deduction u/s.10B of the Income Ta x Act, 1961. 2) On the facts and circum .....

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CIT(A)- Ill, Pune may be set aside and that of the AO may be restored to the above extent. 5. The only issue raised in the appeal filed by the Revenue is against the computation of deduction under section 10B of the Act on the enhanced profits by way of disallowance of an expenditure, in view of non-deduction of tax at source under section 40(a)(ia) of the Act. 6. Briefly, in the facts of the present case, the assessee was 100% Export Oriented Unit, engaged in the business of manufacturing of ca .....

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. The Assessing Officer was of the view that the said disallowance does not form part of the net profit and the same should have been considered for computing eligible profit entitled to the deduction under section 10B of the Act. 7. The CIT(A) allowed the claim of assessee vis-à-vis deduction under section 10B of the Act on the enhanced income, in the absence of any provision under section 10B of the Act, wherein it has not been provided that the income enhanced after statutory disallowa .....

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Further, reference was made to the decision of Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. reported in 330 ITR 175 (Bom). 8. The learned Departmental Representative for the Revenue fairly placed reliance on the order of Assessing Officer. 9. However, the learned Authorized Representative for the assessee placed reliance on the CIT(A). 10. We find that the issue raised in the present appeal is in relation to the claim of deduction under section 10B of the Act on enhanced pr .....

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eligible profits. The case of the Assessing Officer was that such a disallowance, for which the profits of the business have increased, could not be considered while computing the deduction under section 10B of the Act. However, the CIT(A) allowed the claim of the assessee in turn, relying on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). The Hon ble Bombay High Court held as under: All profits of the unit of the assessee have been derived .....

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ck that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contention of the revenue that in computing the deduction under section10A the addition made on account of the disallowance of the provident fund / ESIC payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow. 11. Further as referred by the CIT(A), there is a .....

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er the statutory disallowance under section 40(a)(ia) of the Act is to be considered as the eligible profits of the undertaking while computing deduction under section 10B of the Act. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue. 12. Now, coming to the appeal of the assessee. The learned Authorized Representative for the assessee pointed out that it has filed additional grounds of appeal which read as under:- 1] The learned CIT(A) erred in holding that th .....

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of the Id A.O. in adding back the provision made on account of outward freight amounting to ₹ 2,65,57,598/- while computing the book profit amounts to double addition since the assessee itself had disallowed the said provision while computing the book profits u/s section 115JB in the revised Form 29B submitted to the Id A.O. and hence, the addition made by the Id A.O. amounts to double addition which should be deleted. 13. The perusal of the additional grounds of appeal reflect that the i .....

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Vs. Addl.CIT & Anr. in ITA Nos.551/PN/2014 and 736/PN/2014, relating to assessment year 2005-06, vide order dated 08.10.2015. 14. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A). 15. We have heard the rival contentions and perused the record. The assessee was a 100% Export Oriented Unit and had claimed deduction under section 10B of the Act for the year under consideration on account of export sales made by it. The computation .....

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the Paper Book itself as part of the computation of income itself. The Assessing Officer in this regard, was of the view that before allowing the deduction under section 10B of the Act, the brought forward unabsorbed depreciation is to be adjusted and only on the balance income, if any, the deduction under section 10B of the Act is to be allowed. The CIT(A) confirmed the action of the Assessing Officer and in view thereof, reduced carried forward losses of ₹ 1,79,31,080/- while computing t .....

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the rival contentions and perused the record. The issue arising vide ground of appeal No.3 is in relation to the computation of deduction under section 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while compu .....

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n, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, .....

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anterior to the application of the provisions of s.72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter .....

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g that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act. 28. The said proposition of law has further been applied by the Hon ble Bombay High Court in CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No.2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 7 .....

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of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. The Hon ble Supreme Court held that the gross total income under section 80B(5) of the Act, which is also referred to in section 80I(1) of the Act, was required to be computed in manner provided under the Act, which presupposes that gross total income shall be arrived at after adjusting lo .....

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same was whether the brought forward losses had to be adjusted before computing deduction under section 10A of the Act. It may be pointed out that the provisions of section 10A and 10B of the Act are at parametria. Following the ratio laid down by the Hon ble Bombay High Court, we hold that the deduction under section 10B of the Act is to be computed in the hands of the assessee before adjusting brought forward unabsorbed losses / depreciation. The ground of appeal No.3 raised by the assessee is .....

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mp; Anr. (supra) and following the same parity of reasoning, we hold that the deduction under section 10B of the Act would be allowed to the assessee in the first instance before allowing the adjustment on account of brought forward depreciation losses, the deduction under section 10B of the Act is to be first allowed against the eligible profits and in case there are any leftover profits, then the same are to be adjusted against brought forward unabsorbed depreciation / loss as claimed by the a .....

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he Act. 19. Briefly, the facts relating to the issue are that the assessee had debited sum of ₹ 3,55,91,022/- towards outward freight, out of which sum of ₹ 2,65,57,598/- represented the provision on account of transportation charges, that was likely to be payable to M/s. General Motors, USA. The assessee was supplying goods to M/s. General Motors through G-Clancy where the expenditure on account of airborne transportation was borne by the assessee. However, after 1st April, 2006, th .....

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01.04.2006 to 28.02.2007 to that effect. Further, the liability being unascertained, could not be allowed. The Assessing Officer thus, held that the provision made amounting to ₹ 2.66 crores was to be added to the business profits shown in the Profit & Loss Account under the normal provisions and also to the book profits for the purpose of MAT under section 115JB of the Act. 20. In appeal, the CIT(A) held that the provision was made on a monthly basis towards transportation cost for su .....

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ebruary, 2007, sales were booked at the rate as per agreement with G-Clancy under which the cost of transportation was on account of the appellant company. Admittedly, for the camshafts supplied till 28th February, 2007, the General Motors had already incurred the transportation cost and not by the appellant. The impugned provision was made on the ground that transportation cost so paid by GE Motors for the period from 01.04.2006 to 28.02.2007 might be claimed as reimbursement by GE Motors and i .....

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lant was aware that there was no obligation on its part to bear the transportation cost for supply of camshafts as the General Motors agreed to bear such costs. Therefore, in the first place there was absolutely no necessity to make such a provision towards outward transportation cost for the said period in the accounts, which was already paid by General Motors. Even if such provision is made on commercial prudence as claimed by the appellant, the provision ought to have been reversed by the app .....

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the case clearly show that provision was made for meeting contingent liabilities and the same has to be added back to the book profits under clause (b) of Explanation 1 to Sec.115JB which clearly states that any amount set aside to provisions made for meeting liabilities, other than ascertained liabilities is to be added to the book profit. In fact, no such liability existed as on 31.03.2007, much less an ascertained liability as it was known in March 2007 itself that transportation cost on sale .....

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ntative for the assessee referred to the computation of book profits under section 115JB of the Act, copy of which is placed at page 30 of the Paper Book. The learned Authorized Representative for the assessee referring to the provisions of section 10B of the Act and the Explanation thereunder, pointed out that while computing profits under section 115JB of the Act, the assessee had disallowed the provision on account of outward freight at ₹ 2.65 crores and computed the book profits accord .....

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count and thereafter, expenditure related to any income to which section 10B of the Act relates is worked out and the book profits are re-computed in line with the Explanation to section 115JB of the Act, then as against the book profits declared in the return of income at ₹ 70,89,620/-, the book profits would be ₹ 73,44,255/-, on which the assessee is liable to pay the tax @ 10% on book profits, including surcharge. 22. The learned Departmental Representative for the Revenue on the .....

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tax paid or payable, and the provision therefor; or (b) the amounts carried to any reserves, by whatever name called [other than a reserve specified under section 33AC]; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by way of provision for losses of subsidiary companies; or (e) the amount or amounts of dividends paid or proposed ; or (f) the amount or amounts of expenditure relatable to any income to which .....

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d loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,-]] [(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves creat .....

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contained in clause (38) thereof)] or [***] section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or [(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or (iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause .....

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previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industri .....

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ts as enlisted under Explanation (1), the net profits are to be increased by. For deciding the present appeal, reference is only being made to the relevant provision i.e. clause (c), which lays down that the amount(s) set aside to provisions made for meeting liabilities, other than ascertained liabilities, is to be added back. The Explanation further provided that certain amounts are to be reduced from the net profits as increased by the amounts referred in clauses (a) to (j). The relevant claus .....

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zed Representative for the assessee stated that the net profit shown in the Profit & Loss Account was ₹ 6,51,78,891/-. It was further pointed out by him that the total turnover of the assessee company was ₹ 49,45,27,699/- and the export turnover was ₹ 48,97,86,162/- i.e. the majority of the turnover was from exports, on which the assessee was entitled to the claim of deduction under section 10B of the Act. He then referred to the Profit & Loss Account for the year under .....

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