Income Tax Appellate Tribunal - Bangalore
Tech Mahindra Ltd, Bangalore vs Assessee
Page 1 of 19 1 ITA No.201 & 160/Bang/2011
INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES 'B'
BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND
SHRI GEORGE GEORGE K, JUDICIAL MEMBER
ITA No.201/Bang/2011
(Asst. Year 2006-07)
The Deputy Commissioner M/s Tech Mahindra Limited,
of Income Tax, Circle-12(4), No.9/7, Hosur Road,
Bangalore. vs Bangaliore-29.
PA No.AAACM3484F
(Appellant) (Respondent)
ITA No.160/Bang/2011
(Asst. Year 2006-07)
M/s Tech Mahindra Limited, The Deputy Commissioner
No.9/7, Hosur Road, of Income Tax, Circle-12(4),
Bangaliore-29. vs Bangalore.
PA No.AAACM3484F
(Appellant) (Respondent)
Date of Hearing 21.02.2012 Date of Pronouncement 24.02.2012
Revenue by : Shri Farahat Hussain Quershi, CIT-II
Assessee by : Shri Padam Chand Khincha, C.A.
ORDER
PER BENCH :
These appeals instituted by the revenue and the assessee are directed against the order of the Ld. CIT(A)-III, Bangalore dated
02.11.2010. The relevant assessment year is 2006-07. Page 2 of 19 2 ITA No.201 & 160/Bang/2011
2. Since some issues are common in both the appeals and they pertain to the same assessee, these appeals are heard together and dispose off by this consolidated order for the sake of convenience and brevity.
First we shall consider the revenue's appeal.
ITA No.201/Bang/2011 (Revenue's appeal)
3. The effective grounds raised by the revenue reads as follows:-
ii) The CIT(A) erred in law in directing the Assessing Officer to exclude telecommunication expenses and insurance expenses amounting to Rs.86,18,618/- and expenses incurred in foreign exchange of Rs.22,03,62,997/- towards providing marketing services to its subsidiary at USA and other expenses relating to onsite development from total turnover for the purpose of computing deduction under section 10A of the Act.
iii) The CIT(A) erred in holding that the professional fess of Rs.1,55,890/- paid by the assessee for the consultancy services availed by the assessee is allowable under section 37 of the Act without appreciating the fact that the assessee incurred the said expenditure for the valuation of certain properties at Bangalore and Chennai and to ascertain the tax implications on sale thereof and therefore, the said expenditure had nothing to do with the earning of business income.
3.1 The facts in relation to ground no.2 referred above are as follows:-
The assessee is a company. It is engaged in the business of development and export of computer software. The Assessing Officer while computing deduction under section 10A of the Act, excluded from the Page 3 of 19 3 ITA No.201 & 160/Bang/2011 export turnover the telecommunication expenses and insurance expenses amounting to Rs.86,18,618/- and also expenses incurred in foreign currency, in total amounting to Rs.22,03,62,997/-. The Assessing Officer however did not reduce the above mentioned expenses from the total turnover in the process of computing deduction under section 10A of the Act.
3.2 Aggrieved by the re-computation of deduction under section 10A of the Act, the assessee carried the matter in appeal before the first appellate authority.
3.3 It was contended before the first appellate authority that the expenses mentioned above ought not to be reduced from the export turnover. Alternatively it was argued that if the expenses are reduced from the export turnover, the same ought to be reduced also from the total turnover while computing deduction under section 10A of the Act. In support of the alternative contention, the assessee relied on the order of the Tribunal in the case of M/s Webtek Software P. Ltd. (2009-TIOL-96-
ITAT-BANG).
3.4 The CIT(A) allowed the alternative contention of the assessee and directed the Assessing Officer to exclude the expenditure incurred towards telecommunication and insurance expenses amounting to Rs.86,18,618/- and foreign currency expenses amounting to Rs.22,03,62,997/- both from the export turnover as well as from the total turnover while computing deduction under section 10A of the Act. The CIT(A) followed the judgement of the Hon'ble Mumbai High Court in the Page 4 of 19 4 ITA No.201 & 160/Bang/2011 case of CIT v Gem Plus Jewellery India Ltd. (330 ITR 175) and the order of the Special Bench in the case of ITO v Sak Soft Ltd. (313 ITR (AT) 353). 3.5 The revenue being aggrieved is in appeal before us. 3.6. The learned DR supported the order of the Assessing Officer. 3.7 The learned AR submitted that the issue in question is decided in favour of the assessee by the judgement of the Hon'ble jurisdictional High Court in assessee's own case in ITA Nos.203 & 204/2011 dated 18/10/2011.
3.8. We have heard the rival submission and perused the material on record. The Hon'ble Karnataka High Court in assessee's own case in ITA Nos.203 & 204/2011 dated 18th October, 2011 has decided the issue in favour of the assessee and dismissed the appeal of the revenue. The Hon'ble High Court had followed its earlier judgement in the case of CIT v M/s Tata Elxsi Ltd. & Others (2011-TIOL-684-HC-KAR-II). The Hon'ble High Court in the case of Tata Elxsi Ltd. & Others had held that while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. The relevant finding of the Hon'ble jurisdictional High Court reads as follows:-
"...........Section 10A is enacted as an incentive to exporters to enable their products to be competitive in the global market and consequently earn precious foreign exchange for the country. This aspect has to be borne in mind. While computing the consideration received from such export turnover, the expenses incurred towards freight, Page 5 of 19 5 ITA No.201 & 160/Bang/2011 telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India, or expenses if any incurred in foreign exchange, in providing the technical services outside India should not be included. However, the word total turnover is not defined for the purpose of this section. It is because of this omission to define 'total turnover', the word 'total turnover' falls for interpretation by this Court;
........In section 10A, not only the word 'total turnover' is not defined, there is no clue regarding what is to be excluded while arriving at the total turnover. However, while interpreting the provisions of section 80HHC, the courts have laid down various principles, which are independent of the statutory provisions. There should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section which intends to provide incentives to promote exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of section 80HHC, the export profit is to be derived from the total business income of the assxcessee, whereas in section 10-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. To the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same Page 6 of 19 6 ITA No.201 & 160/Bang/2011 should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. When the statute prescribed a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same".
3.9 The Hon'ble Mumbai High Court in the case of Gem Plus Jewellery India Ltd. (supra), in identical circumstances, held that since the export turnover forms part of the total turnover, if an item is excluded from the export turnover, the same should also be reduced from the total turnover to maintain parity between numerator and denominator while calculating deduction u/s 10A of the Act. The relevant finding of the Hon'ble Mumbai High Court reads as follows:-
Page 7 of 19 7 ITA No.201 & 160/Bang/2011
"The total turnover of the business carried on by the undertaking would consist of the turnover from export and the turnover from local sales. The export turnover constitutes the numerator in the formula prescribed by sub-section (4). Export turnover also forms a constituent element of the denominator in as much as the export turnover is a part of the total turnover. The export turnover, in the numerator must have the same meaning as the export turnover which is constituent element of the total turnover in the denominator. The legislature has provided a definition of the expression "export turnover" in Expln.2 to s.10A which the expression is defined to mean the consideration in respect of export by the undertaking of articles, things or computer software received in or brought into India by the assessee in convertible foreign exchange but so as not to include inter alia freight, telecommunication charges or insurance attributable to the delivery of the articles, things or software outside India. Therefore in computing the export turnover the legislature has made a specific exclusion of freight and insurance charges. The submission which has been urged on behalf of the revenue is that while freight and insurance charges are liable to be excluded in computing export turnover, a similar exclusion has not been provided in regard to total turnover. The submission of the revenue, however, misses the point that the expression "total turnover" has not been defined at all by Parliament for the purposes of s.10A. However, the expression "export turnover" has been defined. The definition of "export turnover" excludes freight and insurance. Since export turnover has been defined by Parliament and there is a specific exclusion of freight and insurance, the expression "export turnover" cannot have a different meaning when it forms a constituent part of the total turnover for the purposes of the application of the formula. Undoubtedly, it was open to Parliament to make a provision which has been enunciated earlier must prevail as a matter of correct statutory interpretation. Any other interpretation would lead to an absurdity. If the contention Page 8 of 19 8 ITA No.201 & 160/Bang/2011 of the Revenue were to be accepted, the same expression viz. 'export turnover' would have a different connotation in the application of the same formula. The submission of the Revenue would lead to a situation where freight and insurance, though these have been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided. Moreover, a receipt such as freight and insurance which does not have any element of profit cannot be included in the total turnover. Freight and insurance charges do not have any element of turnover. For this reason in addition, these two items would have to be excluded from the total turnover particularly in the absence of a legislative prescription to the contrary - CIT v Sudarshan Chemicals Industries Ltd. (2000) 163 CTR (Bom) 596: (2000) 245 ITR 769 (Bom) applied; CIT v Lakshmi Machine Works (2007) 210 CTR (SC) 1: (2007) 290 ITR 667 (SC) and CIT v Catapharma (India) (P) Ltd. (2007) 211 CTR (SC) 83: (2007) 292 ITR 641 (SC) relied on"
3.10 In the case of Sak Soft Ltd. (supra), the assessee was engaged in the business of exporting computer software and claimed deduction u/s 10B of the Act. In completing the assessment u/s 143(3) of the Act, the AO reduced the expenditure incurred in foreign exchange in providing the technical services outside India, from the export turnover without corresponding reduction from total turnover, thereby reducing the deduction claimed by the assessment u/s 10B of the Act. 3.11 In light of the above facts, the Special Bench held as under:- Page 9 of 19 9 ITA No.201 & 160/Bang/2011
"For the above reasons, we hold that for the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula. The appeals filed by the department are thus dismissed".
3.12 In the light of the above judgements of the Hon'ble High Courts and the order of the Special Bench, we are of the view that the CIT(A) is justified in directing the Assessing Officer to exclude the above mentioned expenditure both from the export turnover as well as from the total turnover while calculating deduction under section 10A of the Act. Therefore, the order of the CIT(A) is correct and in accordance with law and no interference is called for.
3.13 In the result, ground no.2 raised by the revenue is dismissed.
4. The facts in relation to ground no.3 in revenue's appeal are as follows:-
The assessee had debited an amount of Rs.1,55,890/- towards consultancy fees paid to the following parties :-
M/s C B Richard Ellis South Asia Pvt. Ltd. Rs.1,30,890/- M/s Chanak IQ Consultancy Pvt. Ltd. Rs. 25,000/-
Rs.1,55,890/-
The Assessing Officer observed that the above expenditure was incurred for obtaining legal opinion in respect of sale of property and for assessing Page 10 of 19 10 ITA No.201 & 160/Bang/2011 the value of the property situated in Chennai and Bangalore. The Assessing Officer held that the said expenditure was not a revenue expenditure and added back an amount of Rs.1,55,890/- to the total income of the assessee company.
4.1 The assessee being aggrieved carried the matter in appeal before the first appellate authority.
4.2 The first appellate authority allowed the appeal of the assessee by observing thus:-
"Based on the documents produced before me, in my view, it is evident that professional fees on issues relating to advice received by the company are for the business of the appellant and hence, the same is allowable under section 37 of the Act".
4.3 Aggrieved, the revenue is in appeal before us. 4.4 The learned DR relied on the finding of the Assessing Officer and submitted that the above said expenses are for the purpose of valuation of certain properties and to ascertain the tax implications on sale thereof. Therefore, it was submitted that the said expenses have nothing to do with the earning of business income and the expenditure was on account of capital front.
4.5 The learned AR argued that the above said expenses are incurred in the normal course of business and the same is an allowable expenditure under section 37 of the Act.
Page 11 of 19 11 ITA No.201 & 160/Bang/20114.6 We have heard the rival submissions and perused the materials on record. The details of the expenses and the purpose for incurring the expenses are not discussed in detail. We feel that the facts are not very forthcoming on this issue. Therefore, this matter needs re-consideration and accordingly, we restore the matter to the file of the Assessing Officer for fresh consideration. The assessee shall place all the details with reference to the expenses before the Assessing Officer and he shall dispose off the matter as expeditiously as possible after affording a reasonable opportunity of hearing to the assessee. Hence, ground no.3 in revenue's appeal is allowed for statistical purposes. 4.7 In the result, the appeal filed by the revenue is partly allowed for statistical purposes as indicated above.
ITA No.160/Bang/2011 (Assessee's appeal)
5. The assessee has filed concise grounds of appeal. Ground nos.1.1 and 2.1 relate to the issue whether the Assessing Officer is justified in excluding expenses of Rs.86,18,618/- being telecommunication and insurance expenses and a sum of Rs.22,03,62,997/- incurred in foreign currency from the export turnover while calculating deduction under section 10A of the Act.
5.1 The learned AR, in the course of hearing, submitted that the CIT(A) did not adjudicate this issue. It was stated that the alternative plea of the assessee, namely, when expenses are reduced from the export turnover, the same should also be reduced from the total turnover while Page 12 of 19 12 ITA No.201 & 160/Bang/2011 computing deduction under section 10A of the Act, has been decided in favour of the assessee by the Hon'ble jurisdictional High Court in the case of CIT v M/s Tata Elxsi Ltd. & Others (2011-TIOL-684-HC-KAR-II). Hence, it was submitted that the issues raised in assessee's appeal in ground nos.1.1 and 2.1 need not be adjudicated. Therefore, ground nos.1.1 and 2.1 are rejected.
6. Ground No.4.1 was not pressed during the course of hearing. Hence, the same is dismissed as not pressed. Ground No.6.1 relate to the issue of levy of interest under section 234D of the Act. The levy of interest under section 234D is held to be valid for and from the assessment year 2004-05 by virtue of the order of the Special Bench in the case of ITO v Ekta Promoters Pvt. Ltd. (305 ITR 1 (AT). Hence, ground no.6.1 is rejected.
7. Ground No.7.1 is general in nature and no specific adjudication is called for. Hence, this ground is rejected.
8. The remaining surviving grounds, namely ground nos.3.1, 5.1 and 5.2 reads as follows:-
3.1) The learned DCIT has erred in disallowing software expenses of Rs.7,71,400/- and Rs.70,400/- and the learned CIT(A)-III has erred in confirming the action of the learned DCIT, Bangalore.
5.1 The learned DCIT has erred in setting off losses of non 10A unit against profits of 10A units before computing and allowing deduction under section 10A and the learned CIT(A)-III has erred in confirming the action of the learned DCIT, Bangalore.Page 13 of 19 13 ITA No.201 & 160/Bang/2011
5.2 The lower authorities have erred in not allowing the losses of non 10A units to be set off and carried forward in accordance with the provisions of Chapter VI of the Act.
8.1 The facts in relation to ground no.3.1 are as follows:-
The assessee in respect of its Bangalore Unit and Chennai Unit had debited a sum of Rs.7,71,400/- & Rs.70,400/- respectively towards computer software expenses. The above said expenses was treated as capital in nature and was not allowed as a deduction under section 37 of the Act by the Assessing Officer. On appeal, it was argued that the expenses incurred for computer software relates towards the payment of annual licence fees for utilization of software for back office support functions and are bonafide revenue expenses allowable under section 37 of the Act.
The CIT(A) however rejected the claim of the assessee by applying the ratio of judgement of the Hon'ble Supreme Court in the case of CIT v Ashok Leyland Limited (86 ITR 549) and the order of the Special Bench in the case of Amway India Enterprises v DCIT (301 ITR (AT) 1). The CIT(A) concluded that the software expenses incurred by the assessee company have an enduring benefit and are capital in nature. Thus, the assessee's contention on this issue was rejected.
8.2 The learned AR submitted that the issue of allowance of expenditure with reference to purchase of software has been considered by the Hon'ble jurisdictional High Court in the case of CIT v M/s Toyota Kriloskar Motors Pvt. Ltd. (ITA No.174/2009 dated 23rd March, 2011).Page 14 of 19 14 ITA No.201 & 160/Bang/2011
8.3 The learned DR on the other hand supported the orders of the Income Tax authorities.
8.4 We have heard the rival submissions and perused the materials on record. The Hon'ble jurisdictional High Court in the case of CIT v M/s Toyota Kriloskar Motors Pvt. Ltd. (ITA No.174/2009 dated 23rd March, 2011) has considered whether the expenditure in respect of purchase of software is capital or revenue. The Hon'ble High Court at para 3 of its judgement held as follows :-
"As rightly pointed out by the authorities, when the life of a computer or software is less than two years and as such, the right to use it is for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these software if they are licenced for a particular period, for utilising the same for the subsequent years fresh licence fee is to be paid. Therefore, without renewing the licence or without paying the fee on such renewal, it is not possible to use those software. In those circumstances, the findings recorded by the authorities that the fee paid for obtaining the software and the licence and for renewing the same is to be construed as only revenue expenditure do not call for interference by this Court.
8.5 The Special Bench in the case of Amway India Enterprises v DCIT (301 ITR (AT) 1) had laid down various tests to examine whether the expenditure incurred for purchase of computer software is capital or revenue. In the instant case, there has been no discussion with reference to the nature of expenditure incurred by the assessee concerned and also the tests laid down by the Special Bench in the case of Amway India Page 15 of 19 15 ITA No.201 & 160/Bang/2011 Enterprises. Therefore, in the light of the judgement of the Hon'ble jurisdictional High Court in the case of CIT v M/s Toyota Kriloskar Motors Pvt. Ltd. (supra) and the order of the Special Bench in the case of Amway India Enterprises (supra), this issue is restored to the file of the Assessing Officer to give an elaborate discussion on the same. The assessee shall produce the details with reference to the expenditure incurred and shall cooperate with the Assessing Officer for expeditious disposal of the matter. It is ordered accordingly. Therefore, ground no.3.1 is allowed for statistical purposes.
9. Ground Nos.5.1 and 5.2 is regarding the set off of losses of taxable units of the assessee, against the income of the exempted units.
9.1 The Assessing Officer while completing the assessment had set off of the business losses incurred in the "Bangalore taxable unit" of the assessee against the income of "Chennai exempt unit". It was contended before the first appellate authority that each unit is separate undertaking within the meaning of section 10A and as such, losses/profits from each unit would have to be dealt with independently.
9.2 The CIT(A) however rejected the assessee's contention. The CIT(A) followed the order of the Tribunal in the case of Intellinet Technologies India Pvt. Ltd. v ITO (ITA No.1021/Bang/2009), which in turn relied on the jurisdictional High Court in the case of Himatsingke Seide Ltd.
286 ITR 255.
9.3 The assessee being aggrieved is in appeal before us.Page 16 of 19 16 ITA No.201 & 160/Bang/2011
9.4 At the outset, it was pointed out by the assessee that the issue in question is squarely covered by the judgement of the jurisdictional High Court in the case of CIT v M/s Axa Business Services Pvt. Ltd. & Others (2011-TIOL-711-HC-Kar-II). It was stated that the Hon'ble jurisdictional High Court had reversed the order of the Tribunal in the case of Intellinet Technologies India (P) Ltd. v ITO (Supra). It was contended that the Hon'ble jurisdictional High Court had distinguished the judgement of Hon'ble High Court in the case of Himatasingike Seide Ltd. (286 ITR 255).
9.5 The learned DR was duly heard.
9.6 We have heard the rival submissions and perused the materials on record. The Hon'ble jurisdicational High Court in the case of CIT v M/s Axa Business Services Pvt. Ltd. (supra) had categorically held that deduction u/s 10A is to be calculated on a stand alone basis, as income under section 10A unit has to be excluded at the source itself before arriving at the gross total income. It was further held by the Hon'ble jurisdictional High Court that the loss of non 10A units cannot be set off of against the income of 10A unit under section 72 of the Act. The relevant finding of the Hon'ble jurisdicational High Court in the case of CIT v M/s Axa Business Services Pvt. Ltd. (supra) at paras 19, 29 to 31 reads as follows:-
"19. From the aforesaid discussion it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A 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 10A in this context means the global income of the assessee and not the Page 17 of 19 17 ITA No.201 & 160/Bang/2011 total income as defined in section 2(45). Hence, the income eligible for exemption u/s 10A would not enter into computation as the same has to be deducted at source level.
29. After making all such computation the assessee would be entitled to the benefit of set off or carry forward of loss as provided u/s 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings u/s 10B of the Act. The expression "deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee", has to be understood in the context with which the said provision is inserted in Chapter III of the Act. Sub-section (4) of section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed.
30. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). As discussed, it is permissible for an assessee to opt in and Page 18 of 19 18 ITA No.201 & 160/Bang/2011 opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward, for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment.
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 profits and gains if any, of any business or profession carried on by such assessee. Therefore as the profits and gains under section 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 10A 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 section 10A to be assessee. Hence, the Page 19 of 19 19 ITA No.201 & 160/Bang/2011 main substantial question of law is answered in favour of the assessees and against the revenue".
9.7 The facts being identical, respectfully following the dictum laid down by the Hon'ble jurisdictional High Court, we direct the AO to calculate deduction u/s 10A of the Act without setting off of the loss of non taxable units against the income of the exempted units. It is ordered accordingly. Hence, ground nos.5.1 and 5.2 are allowed.
10. In the result, the appeal filed by the assessee is partly allowed as indicated above.
Order pronounced in the open court on 24th day of February, 2012 Sd/- Sd/-
(N K SAINI) (GEORGE GEORGE K)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Copy to:-
1. The Revenue 2. The Assessee 3. The CIT concerned 4. The CIT(A)
concerned 5. The DR 6. GF
MSP/- By Order
Asst. Registrar, ITAT, Bangalore.