2013-VIL-654-GUJ-DT

GUJARAT HIGH COURT

Tax Appeal Nos. 767 to 769 of 2013

Date: 16.09.2013

COMMISSIONER OF INCOME-TAX-II

Vs

INDUSA INFOTECH SERVICES (P.) LTD.

For the Appellant : Mauna M. Bhatt

BENCH

M. R. Shah And Sonia Gokani, JJ.

JUDGMENT

M. R. Shah, J.

As common question of law and facts arise in this group of Appeals and as such, they arise out of the common judgment and order dated 8th March, 2013 passed by the Income Tax Appellate Tribunal, Ahmedabad ["Tribunal" for short], but, with respect to different assessment years. All these Appeals are decided and disposed of by this common order.

2. In all these Appeals, revenue has challenged common judgment and order dated 8th March 2013 passed by the Tribunal in ITA Nos. 3404, 2405 & 3406/Ahd/2010 with respect to A.Ys 2005-06; 2006-07 & 2007-08 by which, the Tribunal has allowed the aforesaid appeals preferred by the assessee and has quashed and set-aside the orders passed by the CIT (A), proposing the following substantial question of law:-

"Whether the Appellate Tribunal has substantially erred in holding that deduction u/s. 10A to be allowed first before setting off unabsorbed loss and depreciation of non-eligible business unit of the assessee ?"

3. Facts leading to filing of the present Appeals in nutshell are as under:-

3.1 The assessee-company filed its return of income for the AY 2005-06 declaring total income of Rs. NIL. The said return was processed and accepted by the Assessing Officer. However, after recording the reasons, the case was re-opened and a notice under section 148 of the Income-tax Act, 1961 ("Act" for short) was issued on 9th January 2009. In response to the notice, the assessee filed return on 12th February 2009 declaring the same income. A further notice under section 143(2) of the Act was issued by the Assessing Officer on 14th July 2009, followed by yet another notice under section 142(1) of the Act.

3.2 It appears that during the course of assessment proceedings, it was noticed that the assessee claimed excess expenditure in Mumbai Unit and diversed its expenditure there to claim higher exempt income from the Ahmedabad Unit. Accordingly, a show cause notice dated 16th December 2009 was issued to the assessee. In the said show cause notice, it was pointed out that there is no business activity from Mumbai unit of the company since financial year 2001-02, therefore, claim of expenditure in respect of Mumbai unit is only adjustment entry and diversion of expenditure of the company to enhance the profit of STPI unit at Ahmedabad to claim more deduction under section 10A of the Act, and therefore, the assessee was requested to explain as to why the amount of brought-forward losses may not against the income before granting deduction under section 10A of the Act. The assessee was therefore requested to justify its claim under section 10A of the Act.

3.3 In response to the above, the assessee submitted its explanation on 19th December 2009, and that thereafter, the Assessing Officer passed an order of assessment on 24th December 2009 disallowing the set-off of the business loss of A.Y 2001-02 and added it back to the total income of the assessee-company.

4. Feeling aggrieved and dissatisfied with the order of assessment dated 24th December 2009, the assessee preferred an appeal before the CIT(A) and by order dated 19th November 2010, the CIT(A) had dismissed the said appeal by holding that the brought forward business loss and unabsorbed business loss of the Mumbai unit has to be adjusted against the income for computation of deductions under section 10A of the Act, and thus, the Assessing Officer was justified in setting off the unabsorbed losses and depreciation of Mumbai unit, while computing the deduction under section 10A of the Act.

5. Feeling aggrieved and dissatisfied with the order passed by the CIT(A), the assessee preferred appeal before the Tribunal, relying on the decision of the Bombay High Court in case of CIT v. Black & Veatch Consulting (P.) Ltd. [2012] 348 ITR 72 as well as subsequent decision of the Bombay High Court in case of CIT v. Schmetz India (P.) Ltd. [2012] 211 Taxman 59, the Tribunal by impugned judgment has allowed the appeal preferred by the assessee and quashed the order passed by CIT (A) as well as that of the Assessing Officer.

6. Feeling aggrieved and dissatisfied with the impugned common order dated 8th March 2024 passed by the Tribunal in ITA Nos. 3404; 2405 & 3406/Ahd/2010 with respect to A.Ys 2005-06; 2006-07 & 2007-08, the Revenue has preferred the present Tax Appeals, raising aforementioned question of law.

7. Ms. Mauna Bhatt, learned advocate appearing for the appellant-Revenue has not disputed the position that the issue/question involved in the present Tax Appeals is covered by the decision of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra) and Schmetz India (P.) Ltd. (supra). She also is also not in a position to dispute that the issue/question raised in the present Tax Appeals is also covered by the decision of this Court in case of CIT v. ACE Software Exports Ltd. [Tax Appeal No. 687/2012] wherein the Division Bench of this Court, relying on the aforesaid two decisions of the Bombay High Court, has held the question against the Revenue.

8. However, she has submitted that in view of the decisions of Madras High Court in case of CIT v. Chemplast Sanmar Ltd. [2009] 314 ITR 231 of Karnataka High Court in case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 and definition of "total income" as per Section 2(45) of the Income-tax Act, 1961 and the Circular No. 7/DV/2013 dated 16/07/2013 issued by the CBDT, the issue/question raised in the present Tax Appeals may be admitted. It is submitted that while issuing the Circular, the Board has clarified what can be said to be the "total income" as per Section 2(45) of the Act. It is further submitted that by the aforesaid Circular, the Board has tried to clarify the amendment and/or provision of Sections 10A & 10B of the Income-tax Act.

9. Heard Ms. Mauna Bhatt, learned advocate appearing for the Revenue and perused the impugned common judgment and order passed by the Tribunal. At the outset, it is required to be noted that the only issue/question before the Tribunal was, "Whether deduction claimed by the assessee under Section 10A of the Income-tax Act, 1961 should be allowed without adjustment of losses of other units and without adjustment of brought forward losses and/or its depreciation of earlier years." Considering the decision of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra), which subsequently again came to be considered by the Bombay High Court in case of Schmetz India (P.) Ltd. (supra), the Tribunal has held the aforementioned issue in favour of the assessee and against the Revenue.

10. On perusal of the decision of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra), it appears that in the said decision, the Division Bench of the Bombay High Court has considered its earlier decision rendered in case of Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102 at paragraph 29.

10.1 On perusal of the decision of Division Bench of the Bombay High Court in case of Hindustan Unilever Ltd. (supra), in paragraph 24, it is observed and held as under :-

'There is merit in the submission which has been urged on behalf of the assessee that the Assessing Officer has while reopening the assessment ex facie proceeded on the erroneous premise that section 10B is a provision in the nature of an exception. Plainly, section 10B as it stands is not a provision in the nature of an exception but provides for a deduction. Section 10B was substituted by the Finance Act of 2000 with effect from April 1, 2001. Prior to the substitution of the provision, the earlier provision stipulated that any profits and gains derived by an assessee from a 100 per cent export oriented undertaking, to which the section application "shall not be included in the total income of the assessee". The provision, therefore, as it earlier stood was in the nature of an exemption. After the substitution of section 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent export oriented undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick Unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B.'

10.2 Following the aforesaid decision in the case of Hindustan Unilever Limited (supra), in the case of Black & Veatch Consulting (P.) Ltd. (supra), in paragraph 4, it is observed and held as under :-

"Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasized in a judgment of a Division Bench of this Court, while construing the provisions of section 10B, in case of Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102 at paragraph 24. The submission of the Revenue placed its reliance on the literal reading of section 10A under which 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 is to be allowed from the total income of the assessee. The deduction under section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in sections 80C to 80U. Section 80B(5) defines for the purposes of Chapter VI-A "gross total income" to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable under section 10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. In the circumstances, the decision of the Tribunal would have to be affirmed since it is plain and evident that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. So construed, the appeal by the Revenue would not give rise to any substantial question of law and shall accordingly stand dismissed. There shall be no order as to costs."

10.3 It is reported that the decision of Division Bench of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra) has been subsequently followed by the Bombay High Court in case of Schmetz India (P.) Ltd. (supra). It is also reported that in Tax Appeal No. 687 of 2012, the Division Bench of this Court had an occasion to consider identical issue/question, and relying on the aforesaid two decisions of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra) and Schmetz India (P.) Ltd. (supra) and concurring with the view taken by the Bombay High Court in the aforesaid two decision, the Division Bench has dismissed the Tax Appeal and held the aforesaid issued against the Revenue.

11. In view of the above facts and circumstances and the binding decision of this Court in Tax Appeal No. 786 of 2012 and as the issue/question proposed is directly covered by the decisions of the Bombay High Court in case of Black & Veatch Consulting (P.) Ltd. (supra) and Schmetz India (P.) Ltd. (supra), and even by this Court in case of ACE Software Exports Ltd. (supra), we see no reason to admit the present Tax Appeal as no substantial question of law arises.

12. Now, so far as reliance placed upon the decision of Madras High Court in case of Chemplast Sanmar Ltd. (supra) and the Karnataka High Court in case of Himatasingike Seide Ltd. (supra) are concerned, it is required to be noted that as such there is a binding decision of this Court in case of ACE Software Exports Ltd. (supra).

13. In view of the above, and for the reasons stated above, all these Tax Appeals fail and are accordingly dismissed. No costs.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.