TMI Blog2019 (3) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- We remit the cross objection of the assessee back to the file of Assessing Officer for deciding it afresh after making proper verification. The Assessing Officer is directed to verify the contention of the assessee that the demerger expenses were already considered in the computation of income and shall give credit thereof, if it is found so.- Decided in favour of assessee for statistical purposes. - ITA No. 3076/Del/2012, C.O. No. 318/Del/2012 - - - Dated:- 27-2-2019 - Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member For the Assessee : Sh. Rohit Jain, Advocate Ms. Tejasvi Jain, Advocate For the Revenue : Ms. Rinku Singh, Sr. DR ORDER PER L.P. SAHU, A.M.: The appeal by the Revenue and the cross objection by the assessee are directed against the order of ld. CIT(A)-XXXII, New Delhi dated 04.04.2012 for the assessment year 2006-07 on the following grounds : Grounds of appeal: 1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as difference branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the business . 1.1 That the Commissioner of Income Tax (Appeals) ( CIT (A) ) erred on facts and in law in holding that the assessee itself has considered a sum of ₹ 65,08,44,191/- as income from business (before allowing set off of unabsorbed depreciation and deduction under section 10B of the Act), instead of ₹ 64,80,02,118/- declared by the assessee. 2. The brief facts of the case are that the assessee filed return of income on 29.11.2006, declaring nil income after adjustment of brought forward unabsorbed depreciation to the tune of ₹ 2,01,54,617/-. The case was selected for scrutiny and statutory notices were issued to the assessee. During the year the assessee derived income under the head business and profession, capital gain and income from other sources. Income declared by the assessee under various heads shown in the return are as under : Profit as per P L A/c 516,029,485 Add Adjustment 8,456,058 Total 561,513,421 Add Dep as per P 1 205,127,860 Less Dep. as per I. T. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33,64,479 Less : Unabsorbed Depreciation of A.Y. 2002-03 2,11,69,435 Unabsorbed Depreciation to be carried forward (1,78,04,956) In this computation following details of unabsorbed depreciation were given : A.Y. Unabsorbed depreciation Set off in this year (A.Y. 2004-05) Unabsorbed depreciation carried forward 2002-03 2,11,69,435 33,64,479 1,78,04,956 2003-04 10,68,72,831 10,68,72,831 In A.Y. 2005-06, the following incomes were returned : Income from Business Profit before depreciation and claim u/s 10B 58,85,78,364 Add : Addition made in the asstt. 18,79,767 Less Depreciation claimed 20,39,80,960 Net Business Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted. Accordingly, the deduction claimed was computed by the Assessing Officer. The Assessing Officer also observed that earlier year s assessment was completed u/s. 153A of the Act, wherein, the Assessing Officer has not given any adverse inference on the issue of carry forward unabsorbed depreciation. Accordingly, he concluded that the assessee has claimed deduction u/s. 10B in excess of business profit and claimed the said deduction under the nomenclature of un-absorbed depreciation. He also referred to the computation of income filed by the assessee for the assessment year 2004-05 and 2005-06. Finally, he concluded that for the year under consideration, there is no brought forward un-absorbed depreciation and as such, no unabsorbed depreciation for preceding year was available for adjusting from the current year s income. Accordingly, the Assessing Officer recomputed the taxable income of the assessee. The profits of eligible units were shown by the assessee to the tune of ₹ 66,30,07,954/- which has been computed as under : NTL Salt Lake Kolkata NTL - MUMBAI NTL Pretoria St. Kokata NTL Bangl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and recomputed the eligibility as per section 10B(4) of the Act by applying the following formula and computed the deduction u/s. 10B. Total profits of business x Export Turnover 65,08,44,191 x 1956650902 Total Turnover 2200927477 = 57,86,08,285 Accordingly, the deduction u/s. 10B worked out to ₹ 57,86,08,285/- as against ₹ 66,30,07,954/- computed by the assessee. Aggrieved from the order of the Assessing Officer, the assessee appealed before the ld. CIT(A) where he also submitted additional evidence which was sent to the concerned officer calling for remand report. The Assessing Officer objected to admission of additional evidence and in this regard, the assessee also submitted rejoinder. The ld. CIT(A) after considering all the submissions of the assessee and relying on various judicial pronouncements, partly allowed the appeal of the assessee. In the appellate proceedings, the ld. CIT(A) also disallowed demerger expenses of ₹ 28,42,073/-. Aggrieved by the impugned order, the Revenue is in present appeal and the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is whether demerger of NIIT Ltd. hiving away some of the business to the appellant other group Co. can be said to constitute new independent identifiable undertaking separate dispatch from existing business (Delhi HC in Mahaan Foods 216 CTR 148). 3. In response to the specific questionnaire issued under section 142(1) dated 18.12.2009 wherein the AO sought information regarding the different units of the assessee which were operating and to state if separate books were being maintained for each unit. If so maintained, the assessee was to furnish unit wise copy of final accounts for the impugned year and if not maintained, to furnish the basis on which expenses stand allocated. It may be stated herein that in accordance with the CBDT Circular 1/2013 dated 17.01.2013, it has been clarified that though there is no legal requirement to maintain separate books of accounts, since the deduction u/s 10B is available only to eligible units, the AO is entitled to called for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required. The replies of the assessee dated 29.12.2009 20.11.2009 have been scanned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion applied shall not. be included in this total income of the assessee. (2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i.). It manufactures or produces any article or thing; (ia) In relation to an undertaking which begins to manufacture or produce any article or thing on or after the Ist day of April, 1994, its exports of such articled and things are not less than seventy-five percent of the total sales thereof during the precious year: (ii). It is not formed by the splitting up, or the reconstruction, of a business already inexistence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking 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 of plant previously used for any purpose. Explanation .- The provisions of Explanation I and Explanation 2 sub-section 1 and Explanation 2 sub-section (2) of section 80-1 shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this condition shall apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 3313. 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 of to subsection (2) of section 80-1 shall apply for the purposes of clause (iii) of this subsection 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 competent authority may allow in this behalf. Explanation 1. - For the purpose of this sub-section, the expression competent authority means the Reserve Bank of India or such other authority as is authorized under any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are, once the terms deduction of such profits and gains .... And from the total income of the assessee are deployed. It has to be presumed that for arriving such total income, the profits and gains of the undertaking has to be computed in accordance with sec.30 to 43D of the I.T.Act and only thereafter the assessee can avail the benefit of deduction u/s 10B of the I.T. Act. Therefore effect of provisions of sec. 32(2) r.w.s. 72(2) has to be given while computing the profits and gains of the undertaking. This view gets endorsement from the decision of the Hon ble Karnataka High Court in the case of Chi' vs. HimatasingikeSeide Ltd. Reported in 286 1TR 255 wherein it was held as under:- Sec. 32(2) provides for adjustment for subsequent years. If we see Section 10-B, it provides for exemption of payment of tax with reference to profits and gains derived by 100% export oriented undertaking. To arrive at a profit and gain, one has to unnecessarily take into consideration the total income in terms of the Act. To arrive at the income one has to take into consideration, the various additions and deletions in terms of the Act. In fact, the petitioner knowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and at the same time providing for tax liability towards other liability. The interpretation has to be meaningful and acceptable and it cannot be against the intention of the legislation. Legislation never wanted the entire income to be exempted by taking advantage of Section 10-13 of the Act. The approach of the Tribunal to our mind is incorrect and hence, we find substance in the argument of the revenue. Thus, the Karnatka High Court has held that of the purpose of granting the benefit u/s 10B, the profit and gains of the export-oriented undertaking has to be in consideration with the total income computed in terms of the Act. 4.4. Further, reference may also be made to the decision of the Hon ble Kerala High Court in the case of CIT vs. Patspin India on the issue wherein, diverging from the view taken by the ITAT Cochin and concurring with the view taken by the Karnataka high Court in the case of Himatasingike seids Ltd. (supra) the Hon ble Court held that business profit has to be first determined based on ss.30 to 43D as provided under s.29 and it is with reference to the profit so determined that the deduction eligible under s. 1013(4) has to be determined. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve referred 4.5. The Mumbai Bench of the ITAT I in the case of ACIT vs. Jewellery Solutions International Pvt. Ltd. Reported in 28 SOT 405 while deciding similar issue has held as under:- from the plain reading of the section, it can be seen that an undertaking which fulfils the conditions stipulated therein shall be allowed a deduction of profits and gains of business derived from the EOU from the total income of the assessee. Thus, initially the profits and gains of the business of the eligible undertaking has to be computed. Section 28 of the Income-tax Act provides the various incomes which shall be chargeable to income-tax under the head Profits and gains of business or profession' and section 29 provides that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 32D of the Act. Therefore, for computing the profits and gains of business or profession of a 100 per cent export-oriented undertaking, the income has to be computed in accordance with sections 30 to 43D of the Act and thus effect has to be given to section 32 of the Income-tax Act for computation of the profits and gains of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence of the CIT(A) to sub-section (6) of section 10B is misplaced as the said sub-section provides for the procedure to be adopted in the year immediately following the year in which the tax holiday comes to an end 4.6.Similar view has been taken by the ITAT on the issue in the following cases:- Seimens Information Systems Ltd. vs. DCI135 ITD 196 (Mum) Global Vantedge P. Ltd. Vs. ACIT - ITR (Trib.) 326 (Del) Wipro Ltd. Vs. DCIT - 34 DTR 493 (Bang) Sward Global (I) Pvt. Ltd. Vs. ITO 306 ITR (AT) 286 (Chennai) Intellinet Technologies India pvt.ltd. 5 ITR 9Trib.) 96 (Bang) 4.7. Thus, all the above decision support the view that before availing the benefit or deduction u/s I OB, profits and gains of the eligible undertaking has to be computed in accordance with Sec. 30 to 43D of the I.T. Act. 4.8. As regards the decision relied upon by the appellant in the case of CIT vs. Yokogawa India Ltd., it would appear that the contrary decision of the same High Court in the case of Himatasingike Seids Ltd. (supra) was not brought to the notice of the Hon ble Bench while deciding the said case. At this point, it also needs mention that the appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er : 2.4 I have carefully considered the facts of the case, the arguments of the appellant, the observations made by the AO in his remand report and the rejoinder of the appellant. First of all, I would like to decide the issue of the admission of the additional evidence as sought to be adduced by the appellant. In their application for admission of additional evidence, the appellant have taken the following grounds: (i) That the aforesaid additional evidence only seek to further corroborate/substantiate the contention of the appellant that all the eligible EOU's are separate and independent units, which is also supported by the documents already on record. (ii) That the appellant was prevented by a sufficient cause from producing evidence before the A.O. as the appellant was never issued any notice or afforded any opportunity to demonstrate that the various units operating during the year under consideration have independent and separate existence and could not be treated as one common business. (iii) That the assessment was completed in haste without raising specific query based on which final order has been passed thereby denying sufficient and adequate opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. In the case of CIT v. Virgin Securities Credits (P) Ltd.: 332 ITR 396 (Del), the Hon. jurisdictional High Court held that the CIT(A) may admit additional evidence, after obtaining a remand report from the assessing officer, if the evidence sought to be adduced by the applicant is crucial to the disposal of the appeal. Hon'ble ITAT Delhi have also held in the case of Electra (Jaipur) (P) Ltd. vs. lAC (26 ITO 236) that if the evidence is genuine, reliable, proves the assessee's case, then the assessee should not be denied the opportunity. Similarly it was held in Dwarka Prasad VIs ITO 63 ITD 1 (TM) that additional evidence if in the interest of justice, and renders assistance to the authority in passing order, may be admitted. Other similar rulings are 68 TTJ 722, 231 ITR 1, 21 SOT 218,293 ITR 53, 941TD 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pies of foreign inward remittance certificates, copies of custom bonded register maintained by each unit and copies of Monthly performance reports on sample basis. Though separate books of accounts in respect of units have not been maintained in the traditional sense, the appellant has explained that in the ERP Software accounting system implemented by them each and every transaction of each unit is separately coded and therefore all the transactions are identifiable as in the case of separate books. Moreover, the deduction has been claimed' in respect of the EOUs on the basis of the prescribed Audit Report in Form No.56G which also requires the certifying Chartered Accountant to certify the amount claimed as deduction u/s 10B on the basis of examination of the accounts and records of the assessee relating to the business of the eligible undertaking. This report also does not refer to any separate books to be maintained or required to be maintained by the eligible EOU. This issue is also directly covered in the case of DCIT V. Arabian Exports Limited: 109 TTJ 440 (Mum.) as cited by the appellant hereinabove, wherein the Tribunal, upheld the following decision of the CIT(A) : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (India) P.Ltd. 126 ITR 613 by the Hon. Jurisdictional High Court, just because the new undertaking carries en the same nature of business as the old unit, it cannot be treated as one with the old unit unless it has been formed by splitting up or reconstruction of the old unit. It is not the case of the AO that in the instant case, the eligible units have been formed by splitting up or reconstructing the old .or non-eligible units. Since there is enough evidence in the appellant's case that the Expert Oriented Units were formed independently of the existing units for the purpose of export of software and they were approved as such by the relevant authorities, and that they have functioned independently of each other for the purposes of the business of expert of software, these units have to be treated as the eligible undertakings for the purposes of deduction u/s 10B of the Act and profits arising therefrom have to be allowed as deduction under that section separately as certified by the Audit Report in Form 56G, The first substantive issue is therefore decided in favour of the appellant and the AO is directed to re-compute the deduction u/s 10B accordingly. 2.4.5 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issue has been examined by the Hon. High Court and decided in the favour of the assessee. The AR has argued since the provisions of section 10A are analogous to the provisions of section 10B the ratio laid down by the above said judicial pronouncements are applicable to the appellant's case also. 2.4.5.1 I have perused the judicial pronouncements as relied upon by the Assessing Officer and the appellant. In the case of CIT vs. Himmatsingike Seide Ltd. 286 ITR 255, the assessee had 100% Export Oriented Undertaking eligible for deduction under section 10B of the Act. The undertaking was set up in the assessment year 1988-89. The assessee, however, claimed deduction for five consecutive years from assessment year 1992-93. The year under consideration before the Hon Court was assessment year 1994-95. The assessee had unabsorbed depreciation relating, to the 100% Export Oriented Undertaking carried forward from assessment year 1988-89 to the year under consideration. The said unabsorbed_ depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% Export Oriented Undertaking and the entire profits from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igible for deduction under section 10A of the Act, would form part of the income computed under the head Profits and gains of business and profession . However, in order the same will not suffer tax deduction will have to be made -in respect of such profits while computing the income under the head Profits and gains of business and profession . In other words, a deduction in respect of profits eligible under section 10A is required to be made at the stage of computing the income under the head' Profits and gains of business or profession . Thus, we find that what is contemplated by the Legislature is that profits and gains of the undertakings from the export of articles or things or computer software are to. be deducted computing the profits and gains of business or profession (at hundred per cent upto assessment year 2002- 03 and ninety per cent thereafter). Even though it is a deduction to be Given, it is to be deducted while arriving at the profits of business and profession and not from the gross total income as envisaged under Chapter VI-A. Thus,-we hold that deduction under section 10A under Chapter III of the IT. Act is to be granted while computing the profits and G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in this appeal would not-be applicable to such cases where there are more than one eligible undertaking claiming deduction under section 1OA. In this case, there is only one eligible unit claiming deduction under section 10A and hence, the loss from non-eligible unit cannot be set off against the profits of the eligible unit while determining deduction under section 1OA.II (emphasis supplied) 2.4.5.3 In the case of ACIT v. Yokogawa India Ltd.: 111 TTJ 548 the Bangalore Bench of Tribunal held that deduction under section 10A shall be allowed from the profits of eligible undertaking without setting off the losses or carry forward losses of other noneligible divisions. This decision was subjected to appeal u/s 260A by the Revenue and the Hon. High Court of Karnataka has given its verdict in ITA No. 78/2011 dated 9th August 2011, reported in 246 CTR 226(Kar) in a combined order in respect several other cases, a copy of which has been furnished by the AR of the appellant. From a perusal of this judgement, it is seen that the Hon. High Court has answered the question as to whether the profit of eligible undertaking for the purpose of allowing deduction u/s 10A of the Act (which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the undertaking and not the total income of the assessee, The definition of any term given in section 2 will only apply when the context does not otherwise require. - The placement language an-d setting of section 10-A means profits and gains of the STP undertaking as understood in its commercial sense. 15. As relief under section 10-A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore the twin provisions of section 14 are not existing .in the case of income of STP undertaking and accordingly such income is not liable to be computed under chapter IV. Therefore the correct view would be that the relief under section 10-A will have to be given before chapter IV The deduction shall be given first and process of commutation of profits and gains from business or profession begins thereafter. .This proposition is in the line with the form of return ---Allowing deduction at the earliest stage of business income, computation almost blurs the difference between the commercial profits and tax profits. 16. The su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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 further deductions 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 total income, used in 'the provisions of section IDA in this context means the global income off the assessee and not the total income as defined in section 2(45). . 27. Form No.1 read with Rule 12 of the Income Tax Rules, 1962 provides for return of income and return of fringe benefits. 28. In Schedule NO.9 at column NO.7 it is clearly mentioned the amount claimed deductible under section 1OA/1OAA/10B or 1DBA. Dealing with the scheme of the form it is stated that scheme of this form follow the scheme of tile law as outlined above in its basic form and with reference to schedule 1, 9, 3 and 13 it is stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the appellant and the Assessing Officer is hereby .directed to recompute the deduction u/s 10B accordingly. This disposes off Ground Nos. 1, 2 3. (Allowed) 6. Finding no infirmity in the detailed order of the ld. CIT(A) we find no merit in the appeal of the Revenue. Accordingly, the Revenue s appeal deserves to be dismissed sans merit. 7. In respect of the cross-objection filed by the assessee regarding sustenance of demerger expenses of ₹ 28,42,073/-, the ld. AR drew our attention on the computation of income filed before the Assessing Officer. He stated that assessee has already disallowed demerger expenses while computing its income, but the ld. CIT(A) did not consider it in right perspective while confirming the addition made by Assessing Officer on this account. In our opinion, this fact, however, needs verification at the stage of Assessing Officer. We, therefore, remit the cross objection of the assessee back to the file of Assessing Officer for deciding it afresh after making proper verification. The Assessing Officer is directed to verify the contention of the assessee that the demerger expenses were already considered in the computation of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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