Income Tax Appellate Tribunal - Chennai
Charon Tec Private Ltd., Chennai vs Department Of Income Tax on 8 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE PRESIDENT AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.1375/Mds/2008
(Assessment Year : 2005-06)
Assistant Commissioner of Income Vs. M/s.Charon Tec Pvt. Ltd.,
Tax, Jaleel Mansion,
Company Circle-I(3), 69, Eldams Road, Teynampet,
Aayakar Bhavan, New Block, 6th Chennai-600 018.
floor, 121, M.G.Road, PAN:AABCC5129Q
Nungambakkam,
Chennai-600 034.
(Appellant) (Respondent)
Appellant by : Mr. Shaji P.Jacob, Addl. CIT
Respondent by : Mr. Vepa Krishna, C.A.
Date of Hearing : 8th October, 2012
Date of Pronouncement : 14th November, 2012
ORDER
Per Vikas Awasthy, JM:
The appeal has been preferred by the Revenue impugning the order of the CIT(A)-VIII, Chennai dated 20.03.2008.
2. Brief facts of the case are that the assessee is engaged in the business of electronic printing and data processing. The assessee filed its return of income relevant to the assessment year 2005-06 on 28.10.2005 disclosing 'Nil' taxable income. The case of the assessee was selected for 2 ITA No.1375/Mds/2008 scrutiny. Notice under section 143(2) was issued to the assessee on 16.10.206. The Assessing Officer vide assessment order dated 22.10.2007 made certain additions/disallowances in the income returned by the assessee. The Assessing Officer inter-alia made additions on account of : (i) 50% of internet charges amounting to ` 1,88,638/- by including them in the 'Total Turnover' but excluding from 'Export Turnover'; and
ii) set off of brought forward losses of assessment year 2001-02 while calculating deduction under section 10B. The Assessing Officer held that brought forward losses should be set off before grant of deduction under section 10B.
Aggrieved against the assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A) vide order dated 20.03.2008 allowed the appeal of the assessee holding that 50% of internet charges are to be excluded from total turnover as well. In order to support his findings, the CIT(A) relied on the order of the Tribunal in ITA No.3348/Mds/2004 titled ACIT Vs. M/s. SRA Systems Ltd. decided on 15.6.2007. 3 ITA No.1375/Mds/2008 The CIT(A) further held that the deduction under section 10B is to be computed without setting off any carried forward losses of earlier assessment years. In deciding the issue, the CIT(A) relied on the order of the Tribunal in the case of M/s.Intimate Fashions (India) Pvt. Ltd. in ITA No.2097/Mds/2006 decided on 27.11.2007. Now, the Revenue has come in second appeal before the Tribunal impugning the order of the CIT(A).
3. Shri Shaji P.Jacob, appearing on behalf of the Revenue submitted that the CIT(A) has not taken into consideration the fact that if the items which are specifically directed to be excluded from the export turnover are to be deducted from the total turnover also. The very purpose of exclusion of these items would be defeated and the method of allowing deduction as proportion of export turnover to total turnover will loose its meaning. The D.R. strongly supported the order of the Assessing Officer and submitted that internet charges ought not to have been excluded from total turnover.
4. The D.R. assailing the order of the CIT(A) on the second issue relating to deduction under section 10B 4 ITA No.1375/Mds/2008 submitted that for the assessment year 2003-04 loss has been set off and thereafter deduction under section 10B has been allowed to the assessee by the Assessing Officer. The assessee has not preferred any appeal against the said order. The D.R. in order to support his contentions has relied on the judgement of the Hon'ble Supreme Court of India in the case of CIT Vs. Dalmia Cements (Bharat) Ltd., reported as 216 ITR 79(SC), wherein the Hon'ble Apex Court has held that where the assessee having failed to appeal against the intimation of ITO refusing to take cognizance of loss returns filed by the assessee, the assessee cannot claim in the assessment proceedings relating to subsequent years that the loss in the earlier assessment years be determined, carried forward and set off against the profits of the subsequent year or years, as the case may be.
The DR further submitted that profits and gains of business of the eligible unit is to be computed first and thereafter deduction under section 10B is to be given. The deduction is not to be given from gross total income envisaged under Chapter VI-A. He contended that though 5 ITA No.1375/Mds/2008 section 10B falls under Chapter III, it has been mentioned in the section itself that what is to be given is only a deduction and not exemption. He further submitted that the business loss of the assessee as well as unabsorbed depreciation brought forward by the assessee in respect of eligible undertaking got absorbed by the assessment year 2004-05, thereafter, nothing is left to be adjusted/set off for the assessment year 2005-06. But the assessee did not deduct the unabsorbed depreciation while computing the business profit in the assessment year 2003-04 and 2004-05. Now, the assessee is not entitled to claim the benefit of earlier year depreciation. To buttress his submissions, the DR relied on the order of the Special Bench of the Tribunal in the case of M/s. Scientific Atlanta India Pvt.Ltd., Vs. ACIT reported as 129 TTJ 273. The D.R. further relied on the judgement of the Hon'ble Kerala High Court in the case of CIT Vs. Patspin India Ltd., reported as 62 DTR (Ker) 364 wherein it has been held that before granting exemption under section 10B, losses of the earlier assessment years have to be set off. 6 ITA No.1375/Mds/2008
5. Per contra, Shri Vepa Krishna appearing on behalf of the assessee submitted that the CIT(A) has passed a well reasoned and detailed order. The A.R. strongly supported the order of the CIT(A) and submitted that as regards exclusion of 50% internet charges from the total turnover as well as export turnover, the case of the assessee is squarely covered by the order of the Special Bench of the Tribunal in the case of M/s. Sak Soft Ltd., reported as 313 ITR 353.
With respect to second issue of method deduction under section 10B, the A.R. controverting the argument of DR made a statement at the Bar that the appeal was filed against the order relevant to the assessment year 2003-04 and the Tribunal had set aside the impugned order passed by the CIT(A) and has remitted the file back to the Assessing Officer. The Assessing Officer again set off the loss and the appeal is now pending before the CIT(A). On merits the AR submitted that section 10B has been placed in Chapter III of the Act which deals with incomes which do not form part of total income. He contended that the legislature intended to give a special status to section 10B, if the intention of the legislature 7 ITA No.1375/Mds/2008 was to treat the deduction under section 10B at par with deduction under Chapter VI-A, then they would have placed section 10A & 10B in Chapter VI A. The AR submitted that the profit of 100% export oriented undertaking has to be calculated as per the formula given in section 10B(4). The profits have to be deducted from the total income of the undertaking and thereafter the residue profits, if any shall be used for deducting carried forward loss and unabsorbed depreciation.
6. In order to support his contentions, the AR relied on the judgement of the Hon'ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd. & Others reported as 246 ITR (Kar) 226 and the judgement of the Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. Vs. DCIT reported as 237 CTR (Bom) 287 and the order of the Tribunal in ITA No.2097/Mds/2006 in the case of Intimate Fashions India Pvt. Ltd. decided on 27.11.2007.
7. We have heard the submissions made by the rival parties and have also perused the judgements/orders referred 8 ITA No.1375/Mds/2008 to by both the parties. The Assessing Officer while making the assessment has excluded 50% of the internet charges from 'Export Turnover' only. On appeal, the CIT(A) has excluded the said 50% internet charges from 'Total Turnover' as well. We are of the opinion that the expenditure incurred in foreign currency which are excluded from export turnover should also be excluded from total turnover in order to grant benefit of the provisions of the section. Similar issue has been decided by the Special Bench of the Tribunal in the case of Sak Soft Ltd. (supra). The Special Bench while adjudicating the issue has held that expenses on freight, telecommunication charges, or insurance attributable to the delivery of the articles or things or computer software outside India or expenses incurred in foreign exchange in providing technical services outside India, which are required to be excluded from the export turnover as defined in Explanation 2(iii) of Section 10B should also be excluded from the figure of total turnover while applying the formula prescribed by sub- section (4) of section 10B of the Act. The Special Bench relied on the judgement of the Hon'ble Supreme Court of 9 ITA No.1375/Mds/2008 India in the case of Lakshmi Machine Works reported as 290 ITR 667 wherein the principle of parity between the export turnover and total turnover for the purpose of section 80HHC was adjudicated. The Hon'ble Apex Court held that any receipt which does not have an element of turnover cannot find a place either in the export turnover or in the total turnover. We are of the considered opinion that the issue is squarely covered by the order of the Special Bench of the Tribunal in the case of Sak Soft Ltd. (supra) and no interference is called for in the order of the CIT(A) on this issue. Therefore, this ground of appeal raised by the Revenue is dismissed.
8. The second issue raised in the appeal is with regard to deduction under section 10B. The question for consideration is :
"Whether deduction under section 10B should be computed and allowed in respect of the profits of the eligible undertaking for the year under consideration without setting off brought forward losses and unabsorbed depreciation?"10 ITA No.1375/Mds/2008
Divergent views have been taken by the High Courts of different jurisdiction on this issue. The Hon'ble Karnataka High Court in the case of CIT Vs.Yokogawa India Ltd. (supra) while adjudicating this issue has observed in para 15 as under:-
"As relief under section 10A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore, the twin provisions of section 14 are not existing in the case of income of STP undertaking and accordingly such income is not liable to be computed under Chapter IV. Therefore, the correct view would be that the relief under section 10A will have to be given before Chapter IV. The deduction shall be given first and process of computation of "profits and gains of business or profession" begins thereafter. This proposition is in line with the form of return. Allowing deduction at the earliest stage of business income computation almost blurs the difference between the commercial profits and tax profits."11 ITA No.1375/Mds/2008
Similar view has been taken by the Hon'ble Bombay High Court in the case of CIT Vs.Black & Veatch Consulting (P) Ltd., reported as 251 CTR (Bom) 265. The Hon'ble Bombay High Court has held that "section 10A is a provision which is in the nature of a deduction and not an exemption. The deduction under section 10A has to be given effect to at the stage of computing the profits and gains of business." Since the provisions of section 10A are pari material with the provisions of section 10B, the same ratio can be applied in the cases covered by section 10B. Therefore, from the aforesaid judgement of the Hon'ble Karnataka High Court and the Hon'ble Bombay High Court inference can be drawn that deduction under section 10A and 10B has to be computed and allowed in respect of profits of eligible undertaking for the year under consideration without setting off brought forward, unabsorbed losses and depreciation of the eligible undertaking.
9. On the other hand, the Hon'ble Kerala High Court in the case of Patspin India Ltd. (supra) has taken a contrary view. 12 ITA No.1375/Mds/2008 The Hon'ble Kerala High Court has held deduction under section 10B has to be granted with reference to profit of the industrial unit computed under the provisions of the Act which includes set off of unabsorbed depreciation carried forward from earlier years. The Special Bench of the Tribunal in the case of Scientific Atlanta India Technology Pvt. Ltd. Vs. ACIT., reported as 129 TTJ 273 has concluded that profits and gains of business of the eligible unit is to be computed first and then deduction under section 10A is to be given . It is not be given from Gross Total Income envisaged under Chapter VI-A.
10. It is a well settled law that when two different views of different jurisdictional High Courts are available, the decision favourable to the assessee is to be followed. The Hon'ble Supreme Court of India in the case of CIT Vs. Vegetable Products Ltd., reported as 88 ITR 192 has held that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of constructions 13 ITA No.1375/Mds/2008 recognized by this Court in several of its decisions." Therefore, in view of the above, the Tribunal has been following the judgement of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) in various cases holding that exemption under section 10B is to be allowed without setting off brought forward unabsorbed loss and depreciation from earlier assessment year or current assessment year. Similar view has been taken by the Tribunal in following cases as well:-
ITA No. Case Title
2222 & ACIT Vs. Chengepond
2223/Mds/2008 Technologies Pvt.Ltd.
2165/Mds/2010 DCIT Vs. M/s.Orchid Chemicals &
Pharmaceuticals Ltd.
2150/Mds/2010 ACIT Vs. SRA Systems Ltd.
11. Respectfully following the decision of the Hon'ble Karnataka High Court in M/s. Yokogawa India Ltd. (supra) and the view taken by the co-ordinate Bench of the Tribunal, 14 ITA No.1375/Mds/2008 we uphold the findings of the CIT(A) on this issue and dismiss the appeal of the Revenue.
12. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on Wednesday, the 14th day of November, 2012 at Chennai.
Sd/- Sd/-
(Dr. O.K.Narayanan) ( Vikas Awasthy )
Vice President Judicial Member
Chennai,
Dated the 14th November, 2012.
somu
Copy to: (1) Appellant (4) CIT(A)
(2) Respondent (5) D.R.
(3) CIT (6) G.F.