TMI Blog2013 (5) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... in directing the AO to recompute the deduction allowable u/s. 10A of I.T.Act, 1961 after reducing the expenditure incurred in foreign currency in respect of link charges, payment to employees, travelling, legal professional charges and power charges, both from the export turnover and from the total turnover, without appreciating the facts and circumstances of the case. 3. The learned CIT (Appeals) has erred in not appreciating that there is no provision in section 10A, which requires the above mentioned expenses to be reduced from the total turnover. 4. The learned CIT(A) erred in allowing the relief, relying on the decision of the Hon ble High Court in ITA No. 349 of 2010 (clubbed in consolidated order in ITA No. 70/2009 others), which has not reached its finality and SLP has been recommended to be filed before the Hon ble Supreme Court u/s 261 of the I T Act, 1961 against such order. Assessee s grounds 1.1 2.1 1.1 The 1earned Commissioner of Income tax (Appeals) I, Bangalore has erred in concluding that ₹ 46,57,114/- being 50% of link charges should be reduced from export turnover in computing deduction under section 10A. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export turnover to mean consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with subsection (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. 6. The assessee submitted that expenditure of ₹ 105,21,19,075 being 50% of expenditure incurred in foreign currency towards payment to employees, legal professional charges, travelling and power charges are not expenses in providing technical services outside India. The assessee pointed out that it was not engaged in the business of providing technical services outside India, but was in the business of development and export of software. The assessee relied on the decision of the ITAT Bangalore Bench in the case of M/s. Infosys Technology Ltd. v. JCIT (ITA Nos. 50, 793 to 795, 742 732 to 734, order dated 31.03.2005, wherein the Tribunal had taken the view that no reduction is to be made of any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in providing technical services outside India and therefore cannot be excluded from the export turnover excluding the link charges and employee charges and other charges from the export turnover, the assessee has raised grounds 1.1 and 2.1 before the Tribunal. 10. As far as ground No.2.1 is concerned, it has been held in assessee s own case in A.Ys. 2001-02 to 2003-04 that the expenses referred to in the aforesaid ground cannot be said to be expenses incurred outside India for rendering technical services. Following the decision in assessee s own case, we hold that the aforesaid sum should not be excluded from the export turnover. 11. As far as grounds 1 to 4 raised by the revenue is concerned, we are of the view that the issue stands squarely covered by the decision of the Hon ble High Court of Karnataka in the case of Tata Elxsi Ltd. (supra) wherein it has been held that whatever is excluded from the export turnover is also to be excluded from the total turnover. The fact that the revenue has preferred an appeal against the decision of the Hon ble High Court of Karnataka before the Hon ble Supreme Court cannot be the basis to interfere with the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed from income assessed under the head profits and gains of business which was computed after setting off the loss of 2 STP units from profits of other 3 units / undertakings. On the above claim made by the assessee in the revised return of income, the AO held as follows:- The assessee s method of computation in the revised return of income is not acceptable. The deduction envisaged in Sec. l0A is to be given out of the profits from business available in the total income. The total income has to be computed as per the provisions of law and then the provisions of Sec. 10A have to be applied. This has been discussed and approved by the Hon ble High Court of Karnataka in the case of M/s. Himatsingka Seide Ltd. Therefore, the profits or losses of all the business units STP or Non-SIP have to be considered to arrive at the profits and gains of business or profession. Then the income or loss under the other heads have to be taken into consideration to arrive at gross total income. Any Chapter VIA deduction has to be given and then the total income has to be arrived. Out of this total income, the deduction u/s.10A is to be allowed to the extent the profits from STP units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment year 2009-10, the provisions of sections 10A and 10B have been substituted by new provisions. There is no mention in the aforesaid Circular that the basic character of section 10A is being changed from an exemption to a deduction section. 17. It was pointed out that Circular No.308 dated 29.06.1981 [131 ITR (St.) 119] which explains the provisions of the Finance Act, 1981, had clarified that the income of STPI unit shall be exempt from tax . The above intent of the Legislature has not been withdrawn or amended in section 10A as substituted by the Finance Act, 2000. 18. It was argued that since section 10A continues to remain an exemption section, the same would have to be given effect to at the eligible undertaking level without considering losses of other units or brought forward losses or unabsorbed depreciation allowance. 19. It was submitted that in the case of ACIT v. Yokogawa India Ltd., ITA No.1802/Bang/2005 dated 04.08.2006 A.Y. 2002-03, [2007] 111 TTJ (Bang.) 548, the Bangalore Tribunal held that exemption under section 10A is to be allowed without set off of loss of non- 10A units. This decision was followed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Chennai units and allowed deduction on the resultant profit. Before the learned CIT(A), it was contended that loss of unit at Pune should be disregarded and deduction under s. 10A should be allowed in respect of profits of other two units. Before the teamed CIT(A), it was argued that the computation of deduction under section is undertaking specific and has to be computed in isolation of other similar units. The learned CIT(A) referred to s. 10A(6), according to which, the loss of s. 10A unit is to be carried forward and set off against profits of subsequent years. The learned CIT(A) referred to the decision of the jurisdictional High Court in the case of CIT vs. Himatasingike Seide Ltd. (2006) 286 ITR 255 (Kar). In that case before the learned High Court, the assessee adjusted the unabsorbed depreciation against other business income. The learned High Court held that unabsorbed depreciation is to be set of against the profit eligible for deduction against s. 10B. The calculation of exemption cannot be at whims and fancies of the assessee for exemption of tax. The learned CIT(A) also referred to the decision of this Bench in the case of Sun Micro Systems and mentioned that the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years. 18. Section 10A(4) has also been amended with effect from 1-4-2001. Before amendment, the profit derived from export of articles or things was the amount which bears to the profit of the business, the same, proportion as the export turnover in respect of such article or thing or computer software, bears to the total turnover of the business. With effect from 1-4-2001, instead of profits of the business, the words 'profit of the business of the undertaking have been substituted. The word 'undertaking' has not been defined under section 10A. The words industrial undertaking have been defined in the book Law Lexicon by Venkataramiya, at p. 1133 it has been defined as under: The expression 'industrial undertaking' must have a technical and economic content. An industrial undertaking would normally be in its ordinary acceptation some industrial concern or enterprise for adventure which is undertaking to be done by the person concerned. The definition of 'industrial undertaking in s. 3(d) of the Industrial D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the loss will (not) be adjusted against other income. (emphasis supplied) 22. After noticing the Tribunal s direction in A.Y. 2003-04 referred to above, the CIT(A) noticed that in A.Y. 2003-04 the AO held that the Pune unit was a separate undertaking and passed orders giving effect to the order of the Tribunal. The CIT(A), however, did not accept the view of the AO and he held as follows:- 4.5 The above shows that the A.O. has failed to the act of verification in the letter and spirit of the judicial direction given by the Learned ITAT and had given the effect mechanically without going deep into the contents of the order. Hence, the effect given to such order suffers and can be declared as void. In fact the assessee has all along considered all these three units as part and parcel of one undertaking and therefore had shown profit originally by setting off the loss of two units with the profits of one unit even shown as such in the original return dated 30-10-2004. However, it became wise in the light of discussions made in ITAT during hearing stage and changed its stand and acted promptly to file the revised return claiming loss. However, the AO s stand of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter may be remanded to the AO for fresh investigation. 26. We have considered the rival submissions and the conclusions of the CIT(Appeals) regarding order giving effect passed by the AO pursuant to the directions of the ITAT in A.Y. 2003-04. As rightly pointed out by the ld. counsel for the assessee, the AO has after obtaining all the details accepted the claim of the assessee. Apart from the above, the CIT(A) in an appeal for the A.Y. 2004-05 cannot doubt or challenge the correctness of the order of the AO giving effect to the order of ITAT for another assessment year viz., A.Y. 2003-04. That order can be challenged by the revenue only in a manner provided for under the Act and not by the CIT(A) in an appeal filed by the Assessee against an order of AO in AT 04-05. We therefore hold that the conclusions of the CIT(A) on the issue are erroneous and therefore the three units at Pune, Chennai and Bangalore were independent undertakings. 27. The next aspect to be considered is with regard to the conclusion of the CIT(A) regarding the revised return of income declaring loss return being invalid. In this regard, the point to be kept in mind is that the original r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn furnished by the assessee. 7.3. In a nut-shell The revised return furnished on 24.3.2006 by the assessee was within the time limit prescribed u/s 139(5) of the Act for the reasons recorded in the fore-going paragraphs and, thus, the AO was not justified in concluding the assessment on the basis of original return, lodging the revised return as invalid. We, therefore, remit back the entire issue on the file of the AO with specific directions: (i) to entertain the revised return furnished on 24.3.2006 as a valid return; (ii)to extend the benefit of carry forward of business loss and unabsorbed depreciation provided the assessee was entitled to such benefit as per the provisions of the Act at that relevant time; (iii) the AO shall, however, carry out the above directions of this Bench after affording a reasonable opportunity to the assessee of being heard. It is ordered accordingly. 28. Similar ruling has also been given by the ITAT, Mumbai D Bench in the case of Mr. Ramesh R. Shah v. ACIT in ITA No.4312/Mum/2009 dated 29.07.2011 wherein the Tribunal held as follows:- 8. The A.O. has reservation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as serious reservation for allowing the assessee to carry forward long-term-capital-loss by interpreting the provisions of sec.80 read with sec.139(3). In this background, can it be said that the assessee has not fulfilled conditions laid down in sec. 80 and hence, it is not permissible to allow to carry forward of the capital loss. In the present case, the assessee filed original return u/sec.139(1) in which the positive income was declared. Even as per the assessment order positive income is determined as the assessee could not set off the loss on the sale of the shares of Pholx Pharma Ltd. in the year itself. He claimed the same to be carry forward. In our humble opinion correct interpretation of sec.80, as per the language used by the Legislature, condition for filing revised return of loss under sec. 139(3) is confined to the cases where there is only a loss in the original return filed by the assesse and no positive income and assesse desires to take benefit of carry forward of said loss. Once, assesse declares positive income in original return filed under sec. 139(1) but subsequently finds some mistake or wrong statement and files revised return declaring loss then can he b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that there is no justification to deny the assessee to carry forward the loss. We, accordingly, direct the A.O. to allow the assessee to carry forward the loss. 29. In view of the law as laid down in the decisions referred to above, we are of the view that the revised return of income is valid and the assessee is entitled to the benefit of carry forward of loss declared in the revised return of income. We order and hold accordingly. Ground Nos.3.1 to 3.3 are allowed. 30. What now remains for consideration is grounds 5 to 8 of the revenue s appeal, which reads as follows:- 5. The learned CIT (Appeals) was not justified in directing the AO to recompute the deduction allowable u/s. 10A of I.T.Act, 1961 after including the Transfer Price adjustment in the business income, without appreciating the facts and circumstances of the case. 6. The learned CIT(Appeals) allowed relief without appreciating the position of law as enshrined in sub-section (4) of Section 92C wherein it is specifically laid down that the Assessing Officer shall have to compute total income having regard to the arms length price determined by the Transfer pricing officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10A (or section 10AA) or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this subsection. 33. It was also submitted before the CIT(A) that u/s. 92C(3), power is available to an assessing officer to compute the arms length price in relation to the international transaction. When the assessing officer invokes such power and determines the arms length price, the consequences under the proviso to section 92C(4) would arise. Under the proviso, the assessing officer could deny certain benefits to the assessee in respect of the additions made by him in the course of re-determining the price charged for the transaction. In the instant case, the transfer pricing officer has found no occasion to make any adjustment to the income returned. In other words, the transfer pricing officer on a reference made to him accepted the figure of arms length price (inclusive of the adjustments voluntarily made). There has thus been no occasion for the assessing officer to re-determine the arms length price. Section 92C(4) was therefore not invoked. The consequence unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. In the instant case, the assessee company entered into transaction with associated enterprise. The assessee company determined arm s length price and accordingly made adjustment to the income because arm s length price determined was more than the consideration, at which the transactions were shown in the books of account. The deduction under section 10A has not been allowed as per proviso to section 92C(4). As per this proviso, no deduction under section 10A or 10B or under Chapter VI-A is to be allowed in respect of amount of income, by which the total income of the assessee is enhanced after computation of income under the sub-section. The learned Authorised Representative during the course of proceedings has referred to the word enhanced . In case the income is enhanced, then deduction is not permissible. However, in the instant case, income has not been enhanced because the same was already returned by the assessee. In the Memo Explaining the Provisions of Finance Bill, 2006, it has been mentioned as under : [2006] 201 CTR (St) 147: [2006] 281 ITR (St) 196 Under sub-section (4), it has been provided that on the basis of arm s length price ..... X X X X Extracts X X X X X X X X Extracts X X X X
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