TMI Blog2018 (10) TMI 1821X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal is rejected in all three years. Whether brought forward loss and unabsorbed depreciation is to be set off before calculating deduction admissible under section 10AA of the Act or not? - HELD THAT:- As decided in INDUSA INFOTECH SERVICES (P.) LTD. [ 2013 (9) TMI 1150 - GUJARAT HIGH COURT] decided this question in favour of the assessee i.e. upholding allowance of deduction under section 10A before set off of any balance unabsorbed loss and depreciation of noneligible business units of the assessee. Somewhat similar issue has been considered by the Hon ble Supreme Court in the case of Yokogawa India Ltd. [ 2016 (12) TMI 881 - SUPREME COURT] as held that for the purpose of calculation of deduction under section 10AA it has to be computed prior to set off of these unabsorbed deprecation, brought forward loss of other units. Disallowance u/s 14A to be added back in the book profit for the purpose of section 115JB - HELD THAT:- We have adjudicated this issue in the case of Gujarat Fluorochemicals Ltd. [ 2018 (8) TMI 857 - ITAT AHMEDABAD] we hold that even if some addition has been confirmed under section 14A, then also it could not be adjusted in the book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved, therefore, these appeals were heard together and deem it appropriate to dispose of them by this common order. 2. Facts on all vital points are common. Therefore, for the facility of reference, we are mainly taking up facts from the Asstt.Year 2011- 3. First ground of appeal is verbatim same except variation in the amounts. The grievance of the Revenue is that the ld.CIT(A) has erred in deleting disallowances of ₹ 7,43,24,689/-, ₹ 4,06,52,387/- and ₹ 4,06,52,387/- made by the AO out of claim of deduction under section 10AA of the Income Tax Act, 1961. 4. Brief facts of the case are that the assessee is engaged in the business of trading/speculation in bullion, commodities, shares and securities, currency derivatives, units mutual funds and derivatives. It has established a new SEZ unit. It has filed its return of income in the Asstt.Year 2011-12 on 30.9.2011 declaring total loss of Rs.(-)93,80,592/-. In the Asstt.Year 2012-13 return was filed in 29.9.2012 declaring total income at ₹ 13,94,01,110/- and in the Asstt.Year 2013-14 assessee has declared NIL income in the return filed on 30.9.2013. The case of the assessee was selected for sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee carried the matter in appeal before the ld.CIT(A). It has filed detailed written submissions and relied upon a large number of decisions rendered at end of the Tribunal as well as at the end of Hon ble High Courts. The ld.CIT(A) has reproduced submissions of the assessee in the impugned order. Thereafter, the ld.CIT(A) recorded a finding that interest income disclosed by the assessee is to be treated as business income, because it has nexus with the export activities of the assessee. Accordingly, the ld.CIT(A) has allowed appeals of the assessee on this issue and deleted disallowance made by the AO. The assessee has been granted deduction in three years. 6. Before us, the ld.DR relied upon the order of the AO. On the other hand, the ld.counsel for the assessee contended that this issue has been settled by the Hon ble Karnataka High Court s judgment rendered in the case of Motorola India Electronis P.Ltd. Vs. CIT. He placed on record copy of the judgment from page nos.72 to 80 of the paper book. He also made reference to the following orders of the ITAT as well as judgment of Hon ble Gujarat High Court: i) Zaveri Co. P.Ltd. Vs. CIT, 1395 1396/Ahd/2013; ii) Asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts which are kept or pledged by the assessee with its bank for obtaining the Letter of Credit against its purchases is not in dispute. 38. On the above undisputed facts, the interest income earned by the assessee was assessed as business income of the assessee by the Assessing Officer in the assessment order. This view of the Assessing Officer was considered as not a possible view by the Commissioner of Income Tax in the impugned order passed u/s 263 of the Act and the Commissioner of Income Tax had held that the interest are mandatorily assessable under the head income from other sources . 39. We find that in the instant case, it is not in dispute that the interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of re-export/for obtaining Letter of Credit for its purchases. We thus find that the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business. The fixed deposit receipts being business assets, we find no reason as to why intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of 'Income from Profits and Gains' incorporated in Subsection (4), the assessee is entitled to the benefit of exemption of the said amount as contemplated under Section 10B of the Act. Therefore, the Tribunal was justified in extending the benefit to the aforesaid amounts also. We do not find any merit in these appeals. 41. The other connected issue is that as per the view of the Commissioner of Income Tax, the interest income in question being derived by the assessee from Indian Bank, the same is to be excluded while computing profits derived from the export of articles or things or services for the purpose of section 10AA of the Act. Sub-section (7) of section 10AA provides the manner in which the profits derived from export of articles or things or services is to be computed for the purposes of section 10AA of the Act. Therefore, in view of the above specific provision in the section itself, profits derived from the export of articles or things or services cannot be computed in any other manner. Sub-section (7) of Section 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces as prescribed under sub-section (7) of section 10AA of the Act. Our above view also finds support from the decision of the Bangalore Bench of the Tribunal in the case of Rajesh Exports Limited v/s. ACIT, (2008) TIOL-457-ITAT-Bangalore wherein it was held that: In the light of the aforesaid discussion, it seems to us that the expression profits of the business of the undertaking appearing in section 10B(4) has to be construed in a wider sense than the expression profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things appearing in section 10B(1) of the Act. We have already noticed that sub-section (1) has been expressly made subject to the provisions of the Section. Therefore, the meaning to be ascribed to the words used in that sub-section should be controlled or tempered by the language used in sub-section (4). So constructed it appears to us that the profits of the business of the undertaking includes not merely the profits derived by or from the undertaking, but also include any profits or income which are incidental to the carrying on of the business of the undertaking. To the same effect is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration while calculating deduction under section 10AA of the Act. It appears that the ld.CIT(A) has mentioned a wrong amount for the Asstt.Year 2013-14. The deduction claimed by the assessee was at ₹ 3,80,14,434/- whereas in the ground, the Revenue has made a mention of the amount agitated in the Asstt.Year 2012-13. Nevertheless, in principle, we are holding that interest income earned by the assessee is to be assessed as business income of the undertaking eligible for claim of deduction under section 10AA of the Act. Thus, this ground of appeal is rejected in all three years. 10. Next common issue in all three years is, whether brought forward loss and unabsorbed depreciation is to be set off before calculating deduction admissible under section 10AA of the Act or not. The ld.counsel for the assessee at the very outset submitted that the issue in dispute is squarely covered by the decision of Hon ble Gujarat High Court rendered in the case of Indusa Infotech Services P.Ltd., 45 taxmann.com 34. He also submitted that it is covered by judgment of Hon ble Supreme Court in the case of Yokogawa India Ltd., Civil Appeal No.8498 of 2013. He placed on record copies of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision. 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Hon ble Bombay High Court in the case of Vodafone India Services P.Ltd. ACIT, 361 ITR 0531 (Bom) and held that DRP is not bound by the ratio laid down by the Special Bench. The discussion made by the DRP on this issue in the assessment year 2013-14 reads as under: 10.3 In the case of Viraj Profiles Ltd. [2015] 64 taxmann.com 52 (Mum Trib), the Hon'ble Bench has elaborately discussed the issue and held that the disallowance is liable to be calculated as per Rule 8D of the Rules. After discussing the decisions which have also been relied on by the appellant, the Hon'ble Bench has concluded that; In view of our foregoing discussion, we find no infirmity with the orders of the AO and we hold that the AO has rightly disallowed the expenditure of ₹ 73,07,018/- by invoking the provisions of Section 14a of the Act read with the Rule 8D of Income Tax Rules. 1962 for computing book profit u/s. 115JB(2) of the Act read with clause (f) to Explanation 1 to clause 115JB(2) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the orders of the AO. We order accordingly. 10.4 In the case of CIT(Central-II) Vs Goetze (India) Limited, the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added while computing book profit under section 115JB of the Act. 20. When the Special Bench has considered this question, it was confronted with two decisions of the Hon ble Delhi High Court diagonally opposite to each other. One referred by the ld.DRP also in the present case, rendered in the case of CIT Vs. Geotze India Ltd. (supra) and other in the case of Pr.CIT Vs. Bhushan Steel. ITAT, Special Bench has reproduced both these orders in Vireet Investment P.Ltd. (supra) and thereafter it considered as to which decision ought to be followed by a subordinate authority. The department advanced an argument that in the case Bhushan Steel, Hon ble Delhi High Court failed to consider subsequent decision of CIT Vs. Geotze India Ltd. (supra). However, the Tribunal after placing reliance upon the decision of Hon ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and other decisions has held that it is incumbent upon it follow the decision of Hon ble Delhi High Court in the case of Bhushan Steel. In this case, Hon ble Delhi High Court has held as under: xxx xxx xxx 21. Apart from the above, we have a binding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing book profit u/s 115 JB of the Act also, we hold accordingly and confirm the addition of ₹ 5 lakh. This ground of Revenue's appeal is partly allowed. 6.4 As rightly held by both, the CIT (Appeals) and the Tribunal, this issue has a direct correlation with the first question. It was argued by the Revenue that while computing the book profit under Section 115JB of the Act, the disallowance of interest expenditure on exempt income was wrongly negatived by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. 6.5 We find no fault in the approach adopted by both the authorities. The addition under Section 115JB of the Act of a sum of ₹ 1,14,43,040/- when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed. 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income-tax-I vs. Gujarat State Fertil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 115JB. The ld.CIT(A) has deleted this adjustment on the ground that the disallowance itself has been deleted. 18. With the assistance of the ld.representatives, we gone through the record carefully. We do not find any error in the order of the ld.CIT(A), because we have already deleted disallowance made under section 10AA. Once there is no amount available for disallowance, no question arises for making adjustment in the book profit. This ground of appeal is rejected in both the years. 19. Next issue relates to disallowability of certain expenditure with the aid of section 14A r.w.s 8D relatable to earning of tax free income. 20. With the assistance of the ld.representative we have gone through the record. It emerges out from the record that the assessee has dividend income amounting to ₹ 1,02,050/-, ₹ 2,53,000/- and ₹ 3,05,265/- in the Asstt.Year 2011-12 to 2013-14 respectively. The ld.AO has made disallowance of ₹ 4,43,563/-, ₹ 8,31,680/- and ₹ 4,44,563/- under section 14A read with rule 8D of the Income Tax Act. On appeal, before the ld.CIT(A) it was contended by the assessee that dividend income has been made by i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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