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2016 (3) TMI 77 - ITAT BANGALORE

2016 (3) TMI 77 - ITAT BANGALORE - TMI - Deduction u/s 10A disallowed before set off of brought forward business losses - Held that:- By following the latest judgment of the Hon'ble jurisdictional High Court based on the substituted/amended provisions of sec.10A/10B which are applicable in the case of the assessee as well as the decision of the Tribunal in case of Biocon (2014 (12) TMI 838 - ITAT BANGALORE), we decide this issue in favour of the assessee and direct the AO to allow deduction u/s .....

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cturing of main product should be included in the total turnover for the purpose of deduction u/s 10B of the Act. - ITA Nos.1277, 1278/Bang/2014 - Dated:- 22-1-2016 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri Sunil Kumar Agarwala, JCIT(DR). For The Respondent : Shri Sanjay Dave, CA ORDER Per INTURI RAMA RAO, AM : These appeals by the revenue are directed against the orders dated 24/6/2014 of the Commissioner of Income-tax (Appeals)-I, .....

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years without appreciating the fact that the decision of the Karnataka High Court has not reached finality as a SLP has been p:eferred against the said decision. 3. The CIT(A) erred in directing the AO to allow the claim of the assessee of the deduction u/s section 10B without setting off the brought forward losses by relying on the decision of the jurisdictional High Court in the case of Yokogawa India Limited without appreciating the fact that the relief allowed is a deduction and not an exclu .....

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ed at the time of hearing, it is humbly prayed that the order of the CIT(A) be reversed and that of the Assessing Officer be restored. 6. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be urged at the time of hearing of-the appeal. 3. The only issue in these appeals is regarding not allowing deduction u/s 10A of the Income-tax Act, 1961 [ the Act for short] before set off of brought forward business losses. 4. The learned AR of the assessee has relied .....

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68 to 371 & 1206/2010. 5. On the other hand, learned Departmental Representative has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Himatsinghika Seide Ltd. (156 Taxman 151) and submitted that the decision of the jurisdictional High Court has been confirmed by the Hon ble Supreme Court and the SLP filed by the assessee has been dismissed. 6. We have considered the rival submissions as well as the relevant material on record. There is no dispute t .....

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ns of sec.10A and 10B, the incentive u/s 10A and 10B was no longer in the nature of exemption but it is in the nature of deduction. By considering the amendment/substitution of sec. 10A and 10B vide Finance Act, 2000 w.e.f. 1/4/2001, Hon'ble jurisdictional High Court vide judgment in the case of Yokogawa India Ltd.(supra) has held in paras.16 to 23 as under: 16. The substituted s. 10A continues to remain in Chapter III. It is titled as "Incomes which do not form part of the total income .....

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various restricting and limiting provisions like s. 80A and s. 80AB which were in Chapter VI-A which do not appear in Chapter III. The fact that even after its recast, the relief has been retained in Chapter III indicates the intention of Parliament that it is to be regarded as an exemption and not a deduction. The Act of the Parliament in consciously retaining this section in Chapter III indicates its intention that the nature of relief continues to be an exemption. Chapter VII deals with the .....

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been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in s. 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include s. 10A. .....

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e is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions. 19. From the aforesaid discussion it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A unit has to be deducted at source itself and not after computing the gross total income. The to .....

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the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year, sub-s. (2) of s. 32, cl. (ii) of sub-s. (iii), s. 32A cl. (ii) of sub-s. (3) of s. 32A, cl. (ii) of sub-s. (2) of s. 33 and sub-s. (4) of s. 35 of the Act or the second proviso to cl. (ix) of subs. (1) of s. 36 shall not be applicable in relation to any such allowance or deduction. Similarly no loss as referred t .....

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01 and granting the benefit, of those provisions even in respect of units to which ss. 10A and 10B are applicable. The Finance Act, 2003, amended this sub-section with retrospective effect from 1st April, 2001 by lifting the embargo in the aforesaid clauses in respect of depreciation and business loss relating to the asst. yr. 2001-02 onwards. The amendment indicates the legislative intention of providing the benefit of carry forward of depreciation and business loss relating to any year of the .....

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nd 100 per cent export oriented units. 20.1 Under the existing provisions of ss. 10A and 10B, the undertakings operating in a Special Economic Zone (under s. 10A) and 100 per cent export oriented units (under s. 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. 20.2 With a view to rationalize the existing tax incentives in respect of such units sub-s. (6) in ss. 10A and 10B has been amended to do away with the restrictions on the carry forward of business .....

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n wherever it deems fit and in the present case, such relaxation has been made in s. 10A but not in s. 10C. 23. It is to be noted that the aforesaid amendment read with the Board circular does not militate against the proposition that the benefit of relief under this section is in the nature of exemption with reference to the commercial profits. However, in order to give effect to the legislative intention of allowing the carry forward of depreciation and loss suffered in respect of any year dur .....

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against the income post tax holiday period. 10.4 We further note that this view has been reiterated by the Hon'ble jurisdictional High Court in the case of M/s.Aurigene Discovery Technologies Ltd., in ITA No.549/13. A similar view was considered by the co-ordinate bench of this Tribunal in the case M/s.Biocon Ltd. (supra) and held in para.23 to 26 as under: 23. We have given a very careful consideration to the rival submissions. The issue raised by the assessee in ground no.21 is identical t .....

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MZ Unit : 6,87,70,229 (2) SAP Unit : 76,60,29,880 (3) RHI Unit : 52,42,56,278 (4) IFP Unit : 21,31,76,679 Total 157,22,33,066 The assessee had non-10B units as well. In those non- 10B units, there was a loss of ₹ 105,92,19,172. In the return of income filed by the assessee, the assessee sought to carry forward the loss of non-10B units for set off against the profits of non-10B units in the subsequent assessment years. The AO firstly noticed that there was income from other sources to the .....

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that provisions of section 10B are deduction provisions and therefore effect will have to be given to the provisions of section 72 of the Act, even in respect of profits of the 10B unit. Accordingly, the claim of the assessee for carry forward of loss of non-10B unit was not allowed by the AO. On appeal by the assessee, it was contended that the provisions of section 10A and section 10B are exemption provisions and therefore the profit of 10A and 10B units will not enter the computation of tota .....

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set off of unabsorbed depreciation and unabsorbed investment allowance. The Hon ble Court took the view that the aforesaid provision was only an exemption provision. The CIT(Appeals) noticed that the aforesaid decision was followed by the ITAT Bangalore Bench in the case of Intelnet Technologies India Pvt. Ltd. v. ITO, ITA No.1021/Bang/2009 dated 12.3.2010. Similar view expressed by the Delhi Bench of the Tribunal in the case of Global Vantage Pvt. Ltd. v. DCIT, 2010 TIOL 24 ITAT (DEL) was also .....

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e Tribunal in the case of Sword Global India Pvt. Ltd. v. ITO, 306 ITR 286 (AT), wherein the provisions of section 10A and 10B have been held to be deduction provisions and not exemption provisions. For all the above reasons, the CIT(Appeals) confirmed the order of the Assessing Officer. Against the order of the CIT(A), the Assessee was in appeal before the Tribunal. 25. This Tribunal dealt with the issue in the following words : 63. We have given a careful consideration to the rival submissions .....

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he Hon ble Karnataka High Court in the case of Yokogawa (supra) had to deal with two substantial question of law. The first substantial question of law was on the right of set off of loss of noneligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon ble Court noticed that Sec.10-A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows: 10B. Speci .....

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llowed from the total income of the assessee : (emphasis supplied) 64. The expression Deduction and shall be allowed from the total income of the Assessee used in the aforesaid provisions was considered by the Hon ble High Court and it held in para 13 to 15 of its judgment that the expression shall be allowed from the total income of the Assessee does not mean total income as defined u/s.2(45) of the Act but that expression means profits and gains of the STP undertaking as understood in its comm .....

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rned in the present case is a situation where there is positive income of the eligible unit then the same should be allowed deduction u/s.10B of the Act without setting of the loss of noneligible unit. The Hon ble Karnataka High Court in the case of Yokogawa (supra) was concerned with similar situation as set out above. In view of the aforesaid decision of the Hon ble Karnataka High Court, we are of the view that the claim as made by the Assessee for carry forward of loss of the non-eligible uni .....

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AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988-89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994- 95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred exemption for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set .....

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to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. In Civil Appeal No.1501 of 2008 dated 19.9.2013 against the aforesaid decision of the Hon ble Karnataka High Court, the Hon ble Supreme Court observed as follows while dismissing the appeal:- Having perused the records and in view of the facts and circumstances of the case, we are of opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly. 67. Thus .....

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2003 w.r.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 & onwards is eligible for set-off & carry forward for set-off against income post tax holiday which means that they need not be so set off as mandated in the decision of the Hon ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As we have already seen, in Yokogawa India Ltd. 341 ITR 385 (Kar), it was held that even after s. 10A/10B were converted in .....

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se of Himatasingike Seide (supra) will not apply to the facts of the present case. 26. In view of the aforesaid decision, we are of the view that the claim made by the assessee deserves to be accepted. We may also observe that CBDT circular No.7 dated 16.07.2013, on the facts and circumstances of the present case is not a benevolent circular vis-àvis, the assessee, and therefore the decision to the contrary of the Hon'ble Karnataka High Court in the case of Yokogawa India (supra) will .....

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10A without setting off the domestic losses. 8. The above is common for both the assessment years viz 2008-09 and 2009-10 and the grounds of appeal filed by the revenue are dismissed. 9. For the assessment year 2009-10, the revenue raised grounds No.5, 6 and 7 challenging the direction of the learned CIT(A) to include sale proceeds of swarf as part of export turnover. The ld. CIT(A) held that the sale proceeds should be included in the total turnover for the purpose of computation of deduction .....

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ale of scrap (Swarf) material also reflected in the turnover of the EOU Unit. Therefore includible in the gross total income, hence eligible for deduction u/s 10B of the Act. 4.6 Further in this context relevant to quote the decision of Hon'ble ITAT, Chennai in the case of M/s Rieter -LMW Machinery Ltd. Vs ACIT in ITA No.1776 & 1896/Mds/2007 dated 31/07/2012 wherein it was held that - "13 We find that it is not the case of the Revenue that the scrap was not generated during the manu .....

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