Income Tax Appellate Tribunal - Delhi
Solutions Infosystems (P) Ltd., New ... vs Assessee
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IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "G" NEW DELHI
BEFORE SHRI J.SUDHAKAR REDDY, A.M.
AND SHRI RAJPAL YADAV, JM
ITA no. 2429/Del/2011
Assessment Year : 2008-09
M/s Solutions Infosystems P.Ltd. vs. ITO, Co.Ward 9(1)
405-407, Chiranjiv Tower New Delhi
43, Nehru Place
New Delhi 110 019
PAN: AADCS 6271 R
(Appellant) (Respondent)
Appellant by:- Shri Ashwani Taneja, Adv.
Respondent by:- Smt.Renuka Jain Gupta, Sr.D.R.
ORDER
PER J.SUDHAKAR REDDY, AM
This is an appeal filed by the Assessee directed against the order of the Ld.Commissioner of Income Tax (Appeals)-XII, New Delhi dt. 10.03.2011 pertaining to the Assessment Year 2008-09.
2. Facts in brief:- The assessee is a company and is in the business of computer software. It filed its return of income for the Assessment Year 2008- 09 on 28.9.2008 declaring an income of Rs.'Nil'. The assessee has claimed deduction u/s 10A of the Act of Rs.73,73,964/-. The assessee also claimed carry forward of business losses of Rs.1,20,28,026/- for the Assessment Year 2006-07, after setting of Rs.14,86,527/- against business income for the Assessment Year 2008-09 which related to domestic turnover. The Assessing 2 Officer completed the assessment on 28.12.2010 inter alia making certain additions and disallowances and finally determining the tax liability u/s 115 JB at Rs.7,96,886/-.
3. Aggrieved the assessee carried the matter in appeal. The First Appellate Authority granted part relief.
4. Further aggrieved the assessee is in appeal before us on the following grounds.
"1. That having regard to the facts and circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Ld.A.O. in setting off the brought forward business loss for the Assessment Year 2006-07 amounting to Rs.94,80,657/- from the income of the undertaking for the current year while calculating deduction u/s 10A.
2. That having regard to the facts and circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Ld.A.O. in making disallowance of Rs.8,45,602/- u/s 40(a)(ia) by treating supply of man power for the purpose of maintenance support for application remedy of ARS system as professional services liable to TDS u/s 194J in place of contract u/s 194C of the Act.
3. That having regard to the facts and circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Ld.A.O. in making disallowance of Rs.2,70,798/- paid towards bonding of fixed assets which are now outdated and to be sold and which are now not part of revenue generating assets, but payment was made to the government as per debonding rules/law has to b e treated as revenue expenses and not capital expenditure as there is no acquisition/improvement/addition in fixed assets of the company. Moreover, the expenditure being wholly and exclusively incurred for transfer of the depreciable assets, even otherwise, it is allowable to be deducted from consideration of sale 3 u/s 50(1)(i) of the Act if the same is considered to be not allowable as revenue expenditure.
4. That having regard to the facts and circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the Ld.A.O. in treating the interest income of Rs.5,04,234/- as income from other sources instead of income from business and profession.
5. That in any case and in any view of the matter action of Ld.Commissioner of Income Tax (Appeals) in not reversing the action of Ld.AO in making the impugned additions/disallowances and in framing the impugned assessment order is bad in law and against the facts and circumstances of the case, void ab initio, beyond jurisdiction, by recording in correct facts and findings and the same is not sustainable on various legal and factual grounds.
6. That having regard to the facts and circumstances of the case, the Ld.Commissioner of Income Tax (Appeals) has erred in law and on facts in not reversing the action of the Ld.A.O. in charging interest u/s 234A, 234B, 234C and 234D of the Income Tax Act, 1961.
7. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other."
5. We have heard Dr.Rakesh Gupta, the Ld.Counsel for the assessee and Smt. Renuka Jain Gupta, the Ld.Sr.D.R. on behalf of the Revenue.
6. Dr.Rakesh Gupta, the Ld.Counsel for the assessee submitted that ground no.1 is on the issue of set off against brought forward business losses against the income which qualifies for exemption u/s 10A of the Act. He submits that the profits which are eligible for exemption u/s 10'A' have to be excluded from the computation of total income under Chapter III, as it is 4 "income which does not form part of the total income". Under those circumstances the Ld.Counsel submits that the set off of brought forward losses against the income which never formed part of the total income cannot be done.
6.1. He submitted that this issue is no more 'res integra' as it is measured by the following decisions.
(i) KPIT Luminus Infosystems (Bangalore) P.Ltd. vs. ACIT, 120 TTJ 956 (Bangalore) : Wherein the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Himmatasinghike Seide Ltd. (2006) 286 ITR 255 (Kar), was found not applicable as the facts and law applicable were different.
(ii) Patspin (I) Ltd. vs CIT (2010) 132 TTJ 227 (Coch).
He submitted that "profits of the undertaking" means 'profit of the undertaking for that year only'. He referred to S.72 and submitted that the Legislature has used the words "profits and gains of the business". He distinguished the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Himmatasinghike Seide Ltd. (supra).
(iii) He also relied on the decision of Hon'ble A.P.High Court in the case of Smt.Abida Khatoon vs. CIT 87 ITR 627, 629 (A.P.) for the proposition that once the income goes out of the purview of the Act, it does not go through the process of assessment as the income is not assessable at all. He submitted that the income eligible for deduction u/s 10A is to be eliminated from computation of profits and gains. He submitted that the decision against the Hon'ble Karnataka High Court in the case was CIT vs. Himmatasinghike Seide Ltd.(supra) has been admitted by the Hon'ble Delhi High Court. The Ld.Counsel further submitted that the decision of Delhi "C" Bench of the Tribunal in the case of Global Vantedge (P) Ltd. vs. DCIT (2010) 37 SOT 1 (Del) relied upon by the First Appellate Authority is different on facts. He submitted that in that case no claim of deduction u/s 10A was made with regard to the profits determined before set of off brought forward losses pertaining to Assessment Year 2002-03 and in the Assessment Year 2003-04 the assessee has himself made a claim to set off of brought forward of losses against the income for the Assessment Year 2003-04. He submitted that for the 5 Assessment Year 2004-05 the assessee advanced the claim for deduction u/s 10A, before set off of brought forward losses and unabsorbed depreciation. The Bench found that the assessee has taken contrary stands and rejected the claim. He submitted that in the present case the assessee has not taken any contrary stand and that it has taken a consistent stand. He also relied on the decision of the Chennai Bench of the Tribunal in the case of Ford Business Services Centre P.Ltd. vs ACIT (2008), 114 TTJ (Chennai) 881 wherein it was held that deduction u/s 10A is to be allowed and if any profit still remains, then unabsorbed business losses are required to be set off. He pointed out that the Chennai Bench had also discussed the order of the Hon'ble Karnataka High Court in the case of Himmatasinghike Seide Ltd. (supra).
Finally the Ld.Counsel submitted that the Hon'ble Karnataka High Court in its judgement dt. 9th day of August,2011 in the case of ACIT vs. Yoko Gawa India Ltd.(2007) 111 TTJ (Bang) 548 and others in ITA 78/2011 had decided the issue in favour of the assessee.
6.2. On ground no.2 he submitted that this is a case of short deduction of tax and hence as per the decision of Hon'ble Calcutta High Court in the case of S.K.Sabharwal, followed by the Tribunal in the case of Hero Motor Corp., no disallowance can be made u/s 40(a)(ia).
6.3. On ground no.3 he submitted that the expenditure in question was paid for debonding for disposal of its fixed assets and hence is in the revenue field. 6.4. He submitted that ground no.4 is not pressed. Ground no.5 is general in nature. Ground no.6 is consequential and ground no.7 is general.
7. The Ld.D.R. Smt.Renuka Jain Gupta submitted that the issue of set off of carry forward of losses against income u/s 10A is covered in our favour by the decision of Delhi Bench of the Tribunal in the case of Global Vantedge (P) 6 Ltd (supra). She further submitted that the Hon'ble A.P.High Court has adjudicated the issue in this case and an SLP on the same is admitted by the Hon'ble Supreme Court. She relied on the order of the Ld.Commissioner of Income Tax (Appeals) and submitted that the profits except u/s 10A should be set off against the brought forward losses and unabsorbed depreciation. On a query from the Bench as to whether she would rely on any decision of the High Court which is contrary to the decision of Hon'ble Karnataka High Court in the case of M/s Yoko Gawa India Ltd. (supra), Ld.D.R. submitted in the negative. 7.1. On ground no.2 she argued that the facts and circumstances of the case is different and that the law should be interpreted purposefully. He asked that the terms and conditions of the contract has to be examined and the rate of deduction of tax be determined. She submitted that it would be wrong to delete the disallowance u/s 40(a)(ia) on an argument that this is simply a tax deduction.
7.2. On ground no.3 she relied on the decision of the Ld.Commissioner of Income Tax (Appeals).
8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below, we hold as follows.
78.1. The first issue that arises for our consideration is whether the income exempt u/s 10'A' of the Act has to be setting off against brought forward losses and unabsorbed depreciation or not. The Hon'ble Karnataka High Court in the case of Yoko Gawa India Ltd., M/s Tata Consultancy Services Ltd. etc. in ITA 78/2011 judgement dt. 9th August,2011 had considered the issue at length. At para 5 of the decision page 24 it is stated as follows.
"5. The Tribunal on a careful consideration of the relevant statutory provisions held that Section 10-A specifically states that the deduction has to be given. The deduction is in respect of profit and gains and the words 'such' mentioned before the profit and gains refers to the profit and gains of the undertaking, which is engaged in the export of articles or things or computer software. Before the word 'undertaking' it is qualified by the word 'an' which means that it refers to a single undertaking. The word 'profit and gains' and its computation is mentioned u/s 29 of the Act which has to be computed in accordance with the provisions contained u/s 30 to 43D. Section 70 of the Income Tax Act governs the setting off of the loss from one source against income from another source under the same head of income. Section 10-A is not a part of the section mentioned in Section 29 of the Act. Hence, the business losses of the undertaking whose income is not exempt u/s 10-A cannot be set off to ascertain ;the profit and gains derived by an undertaking from export of computer software. Hence, business losses of other units will not be set off against the profits of the undertaking engaged in the export of computer ;software for the purposes of determining the allowable deduction u/s 10-A of the Income Tax Act. Unabsorbed business loss is to be set off u/s 72 of the Act and the same is not mentioned u/s 29 of the Act. Hence, unabsorbed business losses will not be set off against the profit of the undertaking engaged in the export of computer software for the purposes of ascertaining the deduction admissible u/s 10-A. As per Section 72(2), unabsorbed business loss is to be first set off and thereafter the unabsorbed depreciation treated as current years depreciation u/s 32(2) is to be set off. For computing deduction u/s10-A, only the profit derived from export of computer software is to be taken into consideration. The unabsorbed business losses of other units cannot be set off and therefore the unabsorbed depreciation which is to be set off after the unabsorbed business loss u/s 72(2), also cannot be set off for ascertaining the deduction u/s 10-A. Therefore, the Tribunal 8 upheld the order of the appellate Commissioner and dismissed the appeal. Aggrieved by the same, the Revenue is in appeal.
8.2. Substantial question of law admitted was as follows.
"(i) Whether the Appellate Authorities failed to take into consideration that the amendment to Section 10A by Finance Act of 2000 with effect from 1.4.2011, the deduction of profits and gains as earned by an undertaking from the export of articles or things or computer software is required to be allowed from the total income of the assessee and consequently the loss from the non STP Unit is required to be set off against the income of the other STP Unit before allowing deduction u/s 10A of the Amended Act.
(ii) Whether the Tribunal was correct in holding that the deduction u/s 10-A or 10-B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessment year or current assessment year either in the case of non-STP units or in the case of the very same undertaking?"
8.3. After considering the arguments of both the sides at para 19, page 43, the Hon'ble High Court held as follows.
"19. From the aforesaid discussion it is clear that the income of 10-A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10-A 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 10-A in this context means the global income of the assessee and not the total income as defined in s.2(45). Hence, the income eligible for exemption u/s 10-A would not enter into computation as the same has to be deducted at source level."
8.4. On the second question at para 31 (page 57) it is held as follows.
"31. As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit u/s 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the 9 profits and gains if any, of the business or profession carried on by such assessee. Therefore, as the profits and gains u/s 10-A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per Section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation u/s 32(2) is to be set off. As deduction u/s 10-A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of s.10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessee and against the Revenue.
8.5. No contrary decision of any High Court is brought before us on this issue. This being the sole judgement of the High Court on this issue as on the date and being the latest decision, we apply the same and uphold the contentions of the assessee. In the result ground no.1 of the assessee is allowed.
9. In ground no.2 the issue is whether deduction u/s 40(a)(ia) can be made when tax has been deducted at source u/s 194C instead of 194J. This Bench of the Tribunal in the case of Hero MotorCorp followed the decision of Hon'ble Calcutta High Court and held as follows.
The Hon'ble Calcutta High Court in the case of CIT Vs. S.K. Tekriwal (ITA no. 183 of 2012 has held as follows:10
"We are of the view that the provisions of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a short fall in deduction. With regard to the short fall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, 'on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub section(1) of section 139. This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature of payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s 201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act.
Accordingly, we confirm the order of CIT(A) allowing the claim of assessee and this issue of revenue's appeal is dismissed."
We find no substantial question of law is involved in this case and therefore, we refuse to admit the appeal. Accordingly, the appeal is dismissed." 43.10. The assessee further relied on the following decisions:
DCIT v. Chandabhoy & Jossobhoy (ITA no. 20/Mum/2010(Mum.) UE Trade Corporation (India) Ltd. V. DCIT 28 Taxmann.com 77 (Del.) and other cases.
43.11. As this is not a case of non-deduction of tax but a case where tax has been deducted at a lower rate that too under the bona fide belief that deduction was properly made, we accept the contention of the assessee. Respectfully following the judgement of the Hon'ble Calcutta High Court in the case of S.K.Tekrisal (supra) this ground is allowed deleting the disallowance made u/s 40(a)(ia).
9.1. Respectfully following we allow ground no.2.
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10. Ground no.3 is whether the expenditure in question is in capital filed or revenue filed. The assessee submits that this is expenditure incurred in connection with transfer. The Ld.D.R. submits that it is in the capital field. If the expenditure is in the capital field, then it has to be added to the cost of the asset and consequently the assessee gets a deduction when the asset is sold. Thus the assessee should not have any grievance. The Ld.AO is directed to add the said amount to the cost of the asset and allow deduction. In the result this ground of the assessee is dismissed.
11. Ground no.4 is dismissed as not pressed. Ground no.5 and 7 are general in nature. Ground no.6 is consequential.
12. In the result the appeal of the assessee is allowed in part.
Order pronounced in the Open Court on 12th December, 2013.
Sd/- Sd/-
(RAJPAL YADAV) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 12th December, 2013
*manga
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Copy of the Order forwarded to:
1. Appellant; 2.Respondent; 3.CIT; 4.CIT(A); 5.DR; 6.Guard File By Order Asst. Registrar