TMI Blog2016 (5) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... essee filed its return of income for the assessment year 2005-06 on 30-10-2005 declaring total taxable income as Nil. The case of the assessee was selected for scrutiny and accordingly notice u/s. 143(2) was issued to the assessee on 22-06-2006. During the course of scrutiny assessment proceedings the Assessing Officer observed that the assessee has claimed deduction u/s. 10A amounting to ₹ 33,39,66,494/-. The assessee is having three units eligible for deduction u/s. 10A. The unit wise details of deduction claimed by the assessee u/s. 10A are as under: i. Unit 1 (Bhageerath) ₹ 30,86,55,129/- ii. Unit 2 ₹ 2,53,11,365/- iii. Nagpur Unit Nil (Loss ₹ 59,56,882/-) 2.1 The assessee had set up a STP unit during the period relevant to the assessment year 2001-02 in a building name Bhageerath . The assessee had old unit located at Panini . Both these units were functioning simultaneously and independently for the period relevant to the assessment years 2001-02 and 2002-03. The profits of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prior to the commencement of the new unit. 2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the contracts entered into were only master services agreements containing the broad terms of engagement, and the actual work from which the revenue of ₹ 1,73,67,109/- was earned was executed from the new unit. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the learned assessing officer by not allowing deduction u/s. 10 A for Pune Unit without setting off the loss of ₹ 59,56,882/- of Nagpur unit. 4. Shri Niraj Sheth appearing on behalf of the assessee submitted that the issue relating to allowability of deduction u/s. 10A on the revenue from the contracts prior to the formation of Unit 1 in the assessment year 2003-04 has been adjudicated by the Tribunal. The Tribunal in ITA Nos. 33 and 290/PN/2009 for the assessment year 2003-04 decided on 12-03-2012 allowed the claim of assessee. The ld. AR placed on record a copy of the order of Tribunal in ITA Nos. 33 and 290/PN/2009 along with the order of Tribunal in MA Nos. 37 and 38/PN/2013 in ITA No. 33 290/PN/2009 decided on 10-02-2014. The ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nawe representing the Department vehemently defended the findings of Commissioner of Income Tax (Appeals) in rejecting the claim of assessee u/s. 10A in respect of Unit 1, as well as disallowance of deduction u/s. 10A in respect of Nagpur Unit. The ld. DR submitted that the Delhi Bench of the Tribunal in the case of Tecnovate eSolution (P.) Ltd. Vs. Income Tax Officer reported as 59 taxmann.com 77 (Dehi-Trib.) has held that brought forward losses of eligible unit for preceding year should be reduced from the profits of business for current year before allowing deduction u/s. 10A of the Act. 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the representatives of rival sides have placed reliance in support of their respective contentions. The ground nos. 1 and 2 raised in the appeal of assessee relates to the denial of deduction u/s. 10A in respect of revenue from the contracts with the customers of old unit prior to the formation of Unit 1. It has been contended that the old unit was closed down during the period relevant to the assessment year 2003-04 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the profits and gains derived by an undertaking from the export of articles or things or computer software for a period of 10 consecutive Assessment Years. For a ready reference, the relevant extract of Section 10A(1) of the Act is being reproduced hereunder : 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 which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee: In the course of business, contract is always received by an assessee and not by its unit-1 or unit-2, as customer is not aware about the unit-1 or unit-2 of the assessee and thier only concern is that assessee performs its part of the contract. The wordings derived by an undertaking from the export .. used in the provisions laid down u/s. 10A makes it clear that for allowing deduction u/s. 10A the immediate source of profit by suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record and the decisions of the Co-ordinate Bench of the Tribunal which has been upheld by the Hon'ble High Court, we do not find any reason to take a different view. Accordingly, ground nos. 1 and 2 raised in the appeal of the assessee are allowed. 8. In ground no. 3, the assessee has assailed the findings of Commissioner of Income Tax (Appeals) in allowing deduction u/s. 10A for Pune Unit after setting off of loss of Nagpur Unit. The Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. Vs. Deputy Commissioner of Income Tax Anr. (supra) has held that the assessee is entitled to a deduction in respect of the profits of eligible units while the losses sustained by another unit could be set off against the normal business income. These observations were made by the Hon'ble High Court in respect of the losses incurred by the eligible unit u/s. 10B of the Act. The provisions of section 10B are in pari materia with the provisions of section 10A of the Act. 9. The Hon'ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Yokogawa India Ltd. reported as 341 ITR 385 (Kar) after placing reliance on the decision rendered in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As deduction under section 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 not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the Appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of section 10A to the assessee Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue. 10. Similar view has been taken by the Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Black Veatch Consulting Pvt. Ltd. (supra). The relevant extract of the order of Hon'ble High Court reads as under: 3. Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Hon'ble Karnataka High Court. 12. Thus, in view of the facts of the case and the judgments discussed above, we hold that the assessee is eligible to claim deduction u/s. 10A, before adjusting losses of Nagpur Unit. In other words, the income of section 10A unit has to be excluded at source itself before arriving at the gross total income. Accordingly, ground no. 3 raised in the appeal by the assessee is allowed. 13. In the result, the appeal of the assessee is allowed and the impugned order is set aside. ITA No. 1344/PN/2011 (By the Revenue) 14. The Revenue has filed appeal against the order of Commissioner of Income Tax (Appeals) primarily on the ground that the Commissioner of Income Tax (Appeals) has erred in holding that the assessees new unit is eligible for deduction u/s. 10A, without appreciating that the new unit has been formed by the reconstruction of a business already in existence in violation of provisions of section 10A(2)(ii) of the Act. 15. The Revenue has filed appeal with the delay of 696 days. The application for condonation of delay has been filed. The same reads as under: Sub: Filing of Appeal before the ITAT in the case of Persi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that they have a separate period of limitation when the Department was possessed with competent persons familiar with court proceedings. In the absence of plausible and acceptable explanation, we are posing a question why the delay is to be condoned mechanically merely because the Government or a wing of the Government is a party before us. Though we are conscious of the fact that in a matter of condonation of delay when there was no gross negligence or deliberate inaction or lack of bonafide, a liberal concession has to be adopted to advance substantial justice, we are of the view that in the facts and circumstances, the Department cannot take advantage of various earlier decisions. The claim on account of impersonal machinery and inherited bureaucratic methodology of making several notes cannot be accepted in view of the modern technologies being used and available. The law of limitation undoubtedly binds everybody including the Government. 13. In our view, it is the right time to inform all the government bodies, their agencies and instrumentalities that unless they have reasonable and acceptable explanation for the delay and there was bonafide effort, there is no need t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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