TMI Blog2017 (1) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit against the profits of the current year of the eligible unit is academic in nature in view of binding decision of Hon'ble Supreme Court in the case of CIT vs Yokogawa India Ltd. ( 2016 (12) TMI 881 - SUPREME COURT ) and hence the said proceedings u/s 263 of the Act have become in-fructuous. For adjustment of losses we are in agreement with the contentions of the ld. counsel for the assessee that So far as, loss on the investment of ₹ 22,36,163/- being writing off to the profit & loss account of the assessee and claimed as deduction from the profits of the eligible unit, which was stated to be incurred by the assessee in order to attract the Indian diaspora to its website, the assessee/STPI Unit has to spend aggressively on brand building and advertising outside India and for this purpose the assessee/STPI Unit has three hundred percent subsidy in three markets UK, U.S.A. & U.A,E and during impugned Assessment Year under appeal, the assessee has closed 100% subsidiary in UAE and incurred loss on investment of ₹ 22,36,163/- is charged to P & L Account of STPI. Thus, it was submitted before us that the profit of STPI Unit of ₹ 16,88,45,731/- is after such l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, ld. counsel for the assessee, broadly contended that the assessment order was framed after due application of mind, considering the submissions of the assessee and the CBDT Circular No.7/DV/2013 dated 16/07/2013 is not binding upon the Assessing Officer. It was contended that the assessment order is neither erroneous nor prejudicial to the interest of Revenue. It was also pleaded that one of the possible view was taken by the Assessing Officer. He placed reliance upon the decision in CIT vs Gabriel India Ltd. (1993) 203 ITR 108 (Bom.), CIT vs Malabar Industrial Company Ltd. 243 ITR 83 (SC), CIT vs Max India Ltd. (295 ITR 282)(SC), General Electrical International Inc. vs ACIT 287 ITR (80) 43(Bom.). The ld. counsel also claimed that relief u/s 10A of the Act is of the nature of exemption, although termed as deduction, therefore, such income is neither subject to charge of income tax nor includible in the total income, thus, the relief u/s 10A of the Act has to be given prior to chapter IV dealing with computation of income. Plea was also raised that income eligible for exemption u/s 10A of the Act would not enter into computation as the same has to be deducted at the source lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to examined the case of the assessee after providing due opportunity to the assessee. Reliance was also placed upon the decision in M/s. G. Jewelcraft Ltd. vs Income Tax Officer (ITA No.5087/Mum/2012) order dated 14/11/2014. 2.2. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant provisions of section 263 of the Income Tax Act, 1961 (hereinafter the Act) for ready reference and analysis:- 263. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation 1.]-For the removal of doubts, it is hereby declared that, fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court. Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 2.3. As per the provision of section 263 before the revisional jurisdiction u/s 263 is invoked by the ld. Commissioner, it has to be seen that either the order is erroneous, in so far as, prejudicial to the interest of Revenue. We are expected to examine whether the conditions enshrined in this section has been complied with or not. We are also expected to analyze the provision by keeping the same in juxtaposition with section 10A of the Act. Section 10A is reproduced hereunder for ready reference and analysis:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for a period of five 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, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; (ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Allowance Reserve Account ) to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B): Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139. (1B) The deduction under clause (ii) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:- (a) the amount cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation.-The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1.-For the purposes of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion; (ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April, 2001; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year. (7) The provisions of sub-section (8) and sub-section (10) of section 80- IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry; (iv) export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (v) free trade zone means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; (vi) relevant assessment year means any assessment year falling within a period of ten consecutive assessment years referred to in this section; (vii) software technology park means any park set up in accordance with the Software Technology Park Scheme notif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, examined the same and then framed the assessment u/s. 143(3) of the Act. Therefore, in such a situation the decision from Hon'ble High Court of Delhi in CIT vs. Anil Kumar Sharma (2011) 335 ITR 83 (Del.)(supra), clearly comes to the rescue of the assessee . The Hon'ble High Court held as under :- Held, dismissing the appeal, that the present case would not be one of lack of enquiry even if the enquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and fact, although such application of mind was not discernable from the assessment order. The Tribunal held that the Commissioner in proceedings u/s. 263 also had all these details and materials available before him but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the Assessing Officer . The Tribunal was right and the order of revision was not valid. 2.8. The aforesaid order clearly fits into the facts before us . While coming to the aforesaid conclusion the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect assumption of fact or an incorrect application of law would satisfy the requirement of order being erroneous u/s. 263. The phrase prejudicial to the interest of the Revenue u/s. 263, has to be read in conjunction with the expression erroneous order by the Assessing Officer. Every loss of Revenue as a consequence of assessment order cannot be termed as prejudicial to the interest of Revenue. Meaning thereby prejudice must be caused to the Revenue administration. At the same time, if another view is possible revision is not permissible. Our view is fortified by the decision from Himachal Pradesh Financial Corpn. (186 Taxmann 105)(HP), Bismillah Trading Co. (248 ITR 292)(Ker.) and CIT vs. Green World Corpn. (314 ITR 81)(SC). For invoking revisional jurisdiction u/s. 263 the assessment order must contain grievous error which is subversive of the administration of Revenue. Further, exact error must be disclosed by the Commissioner as was held in CIT vs. G.K. Kabra (211 ITR 336)(AP). Totality of facts, clearly indicates that assessment u/s. 143(3) of the Act was framed by the Assessing Officer after obtaining necessary details from the assessee and further the same were examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2001) was as follows: 10A. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) ... (ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its exports of such articles or things are not less than seventy-five per cent of the total sales thereof during the previous year; (ii) Provided (iii) (3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things. (4) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject 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: Provided that where in computing the total income of the undertaking for any assessment 8 year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years: Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce or deduction; (ii) no loss referred to in sub-section (1) of section 72 or sub- section (1) or sub-section (3) of section 74 in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. 7. Section 10A was further amended by the Finance Act of 2003 with retrospective effect from 1.04.2001. For the purposes of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of Sections 10A and 10B of the Act. Even the Income Tax Return Forms i.e. Form No. 1 dated 17.08.2001 and Form No. 6 for the assessment year 2012-13 are equally contradictory. The appellant Revenue would, however contend that, ex facie, from the language appearing in Section 10A it is crystal clear that the aforesaid provision of the Act, as amended by Finance Act, 2000 provides for deductions from the gross total income, notwithstanding the use of the words total income in Section 10A. Exemptions provided for under the old Section 10A have been discontinued by the Legislature. According to the Revenue, where the purport and effect of the statute is clear from the language used there is no scope to turn to Chapter notes or the marginal notes so as to understand Section 10A to be an exemption section on the basis that the said provision is still included in Chapter III of the Act. Reliance in this regard has been placed on the decision of this Court in Tata Power Co. Ltd. vs. Reliance Energy Ltd. 3 wherein at page 687, it is held that: 89. Chapter headings and the marginal notes are parts of the statute. They have also been enacted by Parliament. There cannot, thus, be an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said period the deduction under the aforesaid sections of the Act are deemed to have been made. Similarly, under Section 10A(6)(ii) losses referred to in Section 72(1) or 74(1) and 74(3) are also eligible to be carried forward to the assessment year following the end of the holiday period commencing from the assessment year 2001-02. All these, according to the learned counsels for the assessees, suggest that, though heterogeneous elements exist in Section 10A, the provision is really an exemption provision. Alternatively, according to the learned counsels, even if Section 10A is understood to be providing for deductions, the stage of such deductions would be immediately after computation of profits and gains of business and before the aggregate of incomes under different heads of other loss making eligible units or non-eligible units of the assessee are taken into account. In other words, it is immediately after the computation of profits and gains of business of the undertaking that the deduction under Section 10A is required to be made. There is no question of such deductions being computed at the stage of application of provisions of Chapter VI of the Act. 12. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to. 16. From a reading of the relevant provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly. 2.11. So far as, loss on the investment of ₹ 22,36,163/- being writing off to the profit loss account of the assessee and claimed as deduction form the profits of the eligible unit. The stand of the assessee is that in order to attract the Indian diaspora to its website, the assessee/STPI Unit has to spend aggressively on brand building and advertising outside India and for this purpose the assessee/STPI Unit has 300% subsidy in three markets U.K., U.S.A. U.A.E and during impugned Assessment Year under appeal, the assessee has closed 100% subsidiary in UAE and incurred loss on investment of ₹ 22,36,163/- is charged to P L Account of STPI. Thus, it was explained that the profit of STPI Unit of ₹ 16,88,45,731/- is after such loss reduced from the profit of the company which was duly examined by the Assessing Officer from the submissions of the assessee, during the course of hearing, by letter dated 27/02/2014, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdraw/not pressed such appeals. It is also submitted that the issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. [2010] 194 Taxman 192 (Bombay)/[2011] 330 ITR 175 (Bombay)/[2010] 233 CTR 248 (Bombay). The sanctity and mandate of the aforesaid circular is to avoid unnecessary litigation in case where there is increase in profits of eligible units due to disallowance made by the Revenue, which in any case is entitled for exemption/deduction as contemplated for eligible unit. Hence, the whole exercise as contemplated by proceedings u/s 263 are academic in nature and cannot be allowed to proceed further on this ground as the same is covered by the mandate and the sanctity of the said circular. The said circular is reproduced hereunder:- F.No.279/Misc./140/2015/ITJ Government of India Ministry of Finance, Department of Revenue Central Board of Direct Taxes ****** New Delhi, Dated 2nd November 2016 Subject: Chapter VI-A deduction on enhanced profits- Reg. Chapter VI-A of the Income-tax Act, 1961 ( the Act ), provides for deductions in respect of certain incomes. In computi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts! Tribunals may be withdrawn not pressed upon. The above may be brought to the notice of all concerned. Thus, the issue under the instant appeal is no more res-integra as in nutshell Hon'ble Supreme Court has held that it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E and incurred loss on investment of ₹ 22,36,163/- is charged to P L Account of STPI. Thus, it was submitted before us that the profit of STPI Unit of ₹ 16,88,45,731/- is after such loss reduced from the profit of the company. We have observed that the Assessing Officer has duly considered the said facts which were submitted before the Assessing Officer during the course of hearing by letter dated 27/02/2014, which is placed on paper book at page no.39 and conscious decision was taken by the Assessing Officer before allowing the said loss. Even if the said loss is disallowed, the same will enhance profits of eligible undertaking by ₹ 22,36,163/-, which in any case is exempt u/s 10A of the Act keeping in view decision of Hon'ble Bombay High Court in the case of Black Veatch Consulting Pvt. Ltd. 348 ITR 72 (Bom.), CIT vs Schmetz India Pvt. Ltd. (2012) 211 taxman 59 (Bom.) and decision of the Bombay High Court in the case of The Commissioner of Income Tax Act, 1961 (hereinafter the Act) Vs. Techno Tarp and Polymers Pvt. Ltd (INCOME TAX APPEAL NO. 2134 OF 2013 vide order dated0 5/12/2015 ). The Hon'ble Bombay High Court in the case of Techno Tarp Polymer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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