TMI Blog2017 (10) TMI 1542X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2004-05, assessee s claim of deduction u/s. 10A was allowed by Assessing Officer in scrutiny assessment proceedings. Thus, ground No. 1 raised in appeal by the assessee is allowed. Disallowance of provision for bad debts - authorities below have disallowed assessee s claim primarily for the reason that the assessee has failed to establish that the provision was created in respect of either of the units - HELD THAT:- Assessee referring to separate Profit and Loss accounts for STPI and non-STPI units has pointed that provision for bad debts has been separately created for STPI and non-STPI units - while computing total income in the computation of income, the assessee has added back provisions for bad debts in respect of both STPI and non-STPI units. A separate calculation has been given for STPI unit wherein provision for bad debts in respect of STPI unit ₹ 22,56,208/- has been added back. We do not find any reason to disallow the claim of assessee. The assessee has added back the provision in the computation of income which was created earlier. Thus, the assessee has not claimed the same while computing total taxable income - Decided in favour of assessee. Alloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observed that the STPI unit was formed by assessee by splitting up/reconstruction of existing business. Apart from holding assessee ineligible for claiming deduction u/s. 10A of the Act, the Assessing Officer further rejected assessee s computation of deduction u/s. 10A by inter alia disallowing provisions for bad and doubtful debts, allocation of expenditure between STPI and non-STPI unit and claim of deduction u/s. 10A before setting off of loss of non-STPI unit. Aggrieved by the assessment order dated 20-12-2007, the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) upheld the findings of Assessing Officer in holding assessee ineligible for claiming deduction u/s. 10A. The Commissioner of Income Tax (Appeals) further upheld disallowance of provision for bad debts, allocation of expenditure amongst STPI and non-STPI units on turnover basis and the manner of computation of deduction u/s. 10A, i.e. after setting off of loss of non-STPI unit. Against the findings of Commissioner of Income Tax (Appeals), the assessee is in second appeal before the Tribunal. 3. The assessee has raised following grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Paul Brothers reported as 216 ITR 548 to contend that the Assessing Officer cannot question validity of deduction u/s. 10A if the same has not been questioned in the initial/first year of claim. The ld. AR submitted that both the authorities below have erred in coming to the conclusion that the first year of claim of deduction was assessment year 1991-92. The documents on record clearly establish that the STPI approval was granted to the assessee in the year 2000. Prior to the grant of approval there is no question of assessee claiming deduction u/s. 10A of the Act. 4.1 The ld. AR in respect of disallowance of provision for bad debts submitted that admittedly the assessee has created provisions for bad and doubtful debts on the premise that some of the receivables will not be realized due to various problems in the implementation of project. To arrive at true and fair financial position, the provision was created. However, while computing taxable profit no deduction was claimed by the assessee. The provision was added back to the profits. In the computation of income at pages 2 and 3 of the paper book the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has failed to show that the provisions for bad and doubtful debts were in respect of STPI unit. The ld. DR contended that nature of business carried out by assessee in STPI and non-STPI units is same. However, the assessee has suffered loss under non-STPI unit and has earned profits under STPI unit. This clearly indicates that the assessee has transferred expenditure of STPI unit to non-STPI unit. The ld. DR prayed for sustaining the additions confirmed by Commissioner of Income Tax (Appeals). As far as eligibility of assessee s claim of deduction u/s. 10A, the ld. DR fairly admitted that the Assessing Officer in immediately preceding assessment year i.e. assessment year 2004-05 has accepted the claim of assessee. 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The first ground raised in appeal by assessee is with respect to assessee s eligibility for claiming deduction u/s. 10A of the Act. It is an undisputed fact that the assessee company was incorporated in the year 1991. The documents on record show that the assessee was granted STPI approval on 30-03-2000. Before grant of approval the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the computation of income, the assessee has added back provisions for bad debts in respect of both STPI and non-STPI units. A separate calculation has been given for STPI unit wherein provision for bad debts in respect of STPI unit ₹ 22,56,208/- has been added back. We do not find any reason to disallow the claim of assessee. The assessee has added back the provision in the computation of income which was created earlier. Thus, the assessee has not claimed the same while computing total taxable income. Accordingly, ground No. 2 raised in appeal by the assessee is allowed. 8. The ground No. 3 raised in the appeal by the assessee is with regard to allocation of expenditure amongst STPI and non-STPI units. The Revenue has raised suspicion over the manner of allocation of expenditure between eligible and non-eligible units. The assessee has drawn our attention to the Profit and Loss account and Balance Sheet as on 31-032005 at pages 26 and 27 of the paper book to show that separate accounts are maintained for STPI and non-STPI units. The Revenue has changed the allocation of expenditure merely on the basis of suspicion without pinpointing any error in the audited financial st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the assessee from the gross total income. The somewhat discordant use of the expression total income of the assessee in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression total income of the assessee in Section 10A as total income of the undertaking. Thus, in view of law laid down by the Hon ble Apex Court it is unambiguously clear that deduction u/s. 10A has to be computed before allowing set off of losses of non-STPI unit. Accordingly, ground No. 4 raised in the appeal by the assessee is allowed. 10. In ground No. 5 the assessee has impugned charging of interest u/s. 234B of the Act. Now, it is a well settled law that charging of interest 234B is consequential and mandatory, hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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