Income Tax Appellate Tribunal - Chennai
Chettinad Quartz Products Pvt.Ltd., ... vs Assessee on 23 July, 2012
IN THE INCOME-TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI.
Before Dr. O.K. Narayanan, Vice-President &
Shri Challa Nagendra Prasad, Judicial Member
I.T.A. No. 1180/Mds/2012
Assessment Year: 2007- 08
Chettinad Quartz Products Pvt. Ltd. The Income Tax Officer,
[Now merged with Chettinad Vs. Company Ward I (1)
Morimura Semiconductor Material Chennai 34.
Pvt. Ltd.] No.37, Old
Mahabalipuram Road,
Khazhipattur Village, Padur,
Kancheepuram Dt. 603103.
[PAN:AAACC2461Q]
(Appellant) (Respondent)
Appellant by : Shri K.B. Muralidharan, C.A.
Respondent by : Dr. S. Moharana, CIT - DR
Date of Hearing : 23.07.2012
Date of pronouncement : 23.07.2012
ORDER
PER Challa Nagendra Prasad, Judicial Member
This is an appeal filed by the assessee against the order of the Commissioner of Income Tax, Chennai - I, Chennai dated 27.03.2012 passed under section 263 of the Income Tax Act for the assessment year 2007-08. Shri K.B. Muralidharan, C.A. represented on behalf of the assessee and Dr. S. Moharana, CIT - DR represented on behalf of the Revenue.
2 I.T.A. No.11
No.1180 1180/M/ 80/M/1 /M/12
2. Facts of the case are that the assessee company is engaged in the business of manufacturing and dealing in Hi-purity Fused Silica Stone, Quartz Gritz and generation of wind energy. For the assessment year 2007- 08, the assessee filed the return of income declaring income at NIL in the normal provisions of Act after claiming deduction under section 10B and `.67,68,121/- under the provisions of section 115JB of the Act.
3. The assessment was completed under section 143(3) of the Act accepting the income declared by the assessee. While completing the assessment, the Assessing Officer allowed exemption under section 10B before set off of unabsorbed depreciation for the assessment year 2002-03 after examining the necessary evidence filed for claiming the deduction under section 10B of the Act. Later, the Commissioner of Income Tax passed order under section 263 setting aside the assessment made under section 143(3) with a direction to examine the claim for deduction under section 10B afresh after hearing the assessee. The Commissioner of Income Tax in his order held that the assessment order passed under section 143(3) is erroneous and prejudicial to the interest of Revenue in so far as allowing deduction under section 10B before set off of unabsorbed depreciation for the assessment year 2003-04. The Commissioner of Income Tax is of the view that the deduction under section 10B should be allowed after set off of unabsorbed depreciation or business loss in view of the decision of the 3 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. v. ACIT [286 ITR 255] and CIT vs. I.G. Petro Chemicals Ltd. dated 04.01.2011 in ITA No. 771 of 2006. Against this order of the Commissioner of Income Tax, the assessee filed an appeal before us.
4. The counsel for the assessee submitted that the Commissioner of Income Tax is not justified in passing order under section 263 directing the Assessing Officer to examine the claim of deduction under section 10B in view of the decision of the Hon'ble Karnataka High Court in the case of CIT & Anr. Vs. Yokogawa India Ltd. & Ors. [246 CTR (Kar) 226], which support the claim of adjustment of unabsorbed deprcaition undertaken in the assessment order by the Assessing Officer while computing the relief allowable under section 10B of the Act. The counsel for the assessee submitted that the issue of allowability of deduction under section 10B before set off of carry forward losses or depreciation has been dealt with by the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) in a detailed manner and holding that such deduction should be allowed before set off of carried forward losses or unabsorbed depreciation. He further submitted that similar issue was dealt with by the Chennai Special Bench of the Tribunal in the case of Scientific Atlanta vs. ACIT [129 TTJ 273]. The counsel for the assessee submitted that when two views are possible, the view taken by the Assessing Officer cannot be termed as erroneous and 4 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 prejudicial to the interest of Revenue and placed reliance on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. [243 ITR 83]. The counsel for the assessee submitted that there is neither erroneous nor prejudicial to the interest of Revenue in passing the assessment order allowing deduction under section 10B before setting off of unabsorbed depreciation for the assessment year 2003-04. Therefore, he prayed for setting aside the order passed by the Commissioner of Income Tax under section 263 of the Act.
5. The counsel for the Revenue supported the order of the Commissioner of Income Tax and submitted that the deduction under section 10B should be allowed after set off of unabsorbed depreciation for the assessment year 2002-03. He relied on the decision of Hon'ble Kerala High Court in the case of CIT v. PATSPIN India Ltd,. [245 CTR (Ker.) 97].
6. We have heard both sides, perused the orders of lower authorities and decisions relied by the counsels. In the present case, the issue is with regard to adjustment of unabsorbed depreciation of the assessment year 2002-03 within the unit itself. The issue of allowability of deduction under section 10A/10B before set off of carried forward losses/unabsorbed depreciation has been elaborately dealt with by the Hon'ble Karnataka High Court in the case of CIT v. Yokagawa India Ltd. & Ors. (supra). The Hon'ble High Court held that the income of 10A unit has to be excluded at source itself before 5 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 arriving at the gross total income and the losses of non 10A unit cannot be set off against the income of 10A unit under section 72. The Hon'ble High Court has held as under:
"31. As the income of 10A unit has to be excluded at source itself before arriving at the gross total Income, the loss of non 10A unit cannot be set off against the income of 10A unit under 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 s. 10A are not to 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 s. 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under s. 32(2) is to be set off. As deduction under s. 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits 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 CIT(A) as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of s. 10A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue."
7. The Hon'ble Bombay High Court after considering the decision of the Chennai Special Bench of ITAT in the case of Scientific Atlanta [129 TTJ 273] decided this issue in the case of CIT vs. Black & Veatch Consulting Pvt. Ltd. in Income Tax Appeal Lodging No. 1237 of 2011 dated 09.04.2012, wherein their Lordships held as under:
"1. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 arises from a decision of the Income Tax Appellate Tribunal dated 20 April 2011. The Assessment Year to which the appeal relates is AY 2006-07. The following question of law has been raised by the Revenue:
"(A) Whether on the facts and circumstances of the case and law, the ITAT was correct in holding that the brought forward unabsorbed 6 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 depreciation and losses of the unit the Income which is not eligible for deduction under Section 10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under Section 10A of the IT Act."
2. The Assessing Officer, during the course of the order of assessment under Section 143(3) observed as follows:
"Under the scheme of the Act, the profits of the unit eligible for deduction under Section 10A of the Act, would form part of the income computed under the head 'Profits and gains of business and profession'. However, in order the same does not suffer tax, deduction will have to be made in respect thereof while computing the income under the head 'Profits and gains of business and profession'. In other words, the deduction in respect of the profits eligible under Section 10A of the Act is required to be made at the stage of computing the income under the head 'Profits and gains of business or profession' ."
Nonetheless, while computing the total income of the assessee the Assessing Officer took the net profit as per the profit and loss account and after, inter alia, making certain disallowances and allowances, arrived at the total business income at `.86.07 lakhs. A set off was effected of the brought forward business loss of AY 2003-04 and AY 2004-05 upon which the Assessing Officer came to the conclusion that there was nil income which would qualify for deduction under Section 10A. The CIT (A) held that the Assessing Officer was justified in adjusting the brought forward losses of earlier years before arriving at the gross total income, for allowing a deduction under Section 10B. In appeal, the Tribunal has relied upon a decision of its Special Bench in the case of Scientific Atlanta Vs. ACIT1 in which it has been emphasised that the provision contained in Section 10A is not an exemption but a deduction under Chapter III. Following that decision, the Tribunal held that the deduction under Section 10A in respect of the allowable unit under Section 10A has to be allowed before setting off brought forwarded losses of a non 10A unit.
3. Section 10A is a provision which is in the nature of a deduction and not an exemption. This was emphasised in a judgment of a Division Bench of this Court while construing the provisions of Section 10B in Hindustan Unilever Ltd V s. Deputy Commissioner of Income Tax2• 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 7 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 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 be 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".
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1. 129 TTJ 273
2. (2010) 325 ITR 102 at para 24
8. Therefore, as could be seen from the above decisions, the issue in appeal is decided in favour of the assessee by the Hon'ble Karnataka High Court in the case of CIT & Anr. Vs. Yokogawa India Ltd. & Ors. (supra) and the Hon'ble Bombay High Court in the case of CIT vs. Black & Veatch Consulting Pvt. Ltd. (supra). However, there is a contrary view expressed by the Hon'ble Kerala High Court in the case of CIT v. PASTSPIN India Ltd. (supra), wherein their Lordships held that allowability of deduction under section 10B has to be determined with reference to export turnover of each unit and that has to be done after computing the business profit from the industrial units, which necessarily has to be done after setting off of 8 I.T.A. No.11 No.1180 1180/M/ 80/M/1 /M/12 unabsorbed depreciation carried forward from previous years. Divergent views were expressed by the Hon'ble Karnataka High Court, Hon'ble Bombay High Court and Hon'ble Kerala High Court. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. [243 ITR 83] held that when two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income Tax does not agree, it cannot be treated as erroneous and prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In this case one of the possible view was taken by the Assessing Officer in allowing the claim of the assessee under section 10B of the Act. Therefore, we set aside the order of the Commissioner of Income Tax passed under section 263.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court at the time of hearing on Monday, the 23rd July, 2012 at Chennai.
Sd/- Sd/- (Dr. O.K. NARAYANAN) (CHALLA NAGENDRA PRASAD) VICE-PRESIDENT JUDICIAL MEMBER Chennai, Dated, the 23.07.2012 Vm/- To: The assessee//A.O./CIT(A)/CIT/D.R.