2012 (9) TMI 292 - AT - Income Tax

Reopening of the assessment u/s.147 - Held that - From the perusal of the profit / losses the assessee had shown other income of Rs. 1,85,05,435/- but this schedule did not show any interest income. Further the assessee in the P & L A/c. had claimed deduction on account of net interest paid after netting the interest receipt which makes it clear that the interest income had not been shown separately in the P & L A/c. The interest income had been shown only in the Schedule M which gives the details of interest expenditure and here do full details of interest income has not been given. Thus only after making the some efforts, the interest income can be gathered from the accounts and, therefore, showing the interest receipt as part of the interest expenditure and not separately in the P & L A/c on the income side cannot be considered as true and full disclosure of facts relating to claim of deduction in respect of interest income - the assessee had failed to disclose truly and fully all the material facts necessary for the assessment in so far as the claim of deduction u/s.10A in respect of interest income is concerned, thus reopening of assessment is warranted - against assessee. Computation of deduction u/s.10A(4) - whether each units should be treated as independent unit or all the units should be taken as single unit for set-off - Held that - As regards the set off of losses from some units against the profit of other units while computing the deduction u/s.10A is concerned, the assessee has maintained separate accounts in respect of each unit and profit and loss has been computed separately. The assessee has also filed the copies of separate P & L A/c. of each unit in the paper book and has also filed an auditors certificate in Form No.56F giving separate computation in respect of each unit. In our view, profit from each unit is eligible for deduction u/s.10A independently provided the profit could be computed separately, thus as there is no dispute that the assessee has maintained separate accounts in respect of each unit and profit has been computed separately. The losses from non eligible units cannot be set off against the profit of the undertaking eligible for deduction u/s.10A for the purpose of computation of deduction u/s.10A - in favour of assessee. Whether deduction u/s.10A is allowable in respect of other income - Held that - As the profit directly arising from the export of articles or things or computer software will have to be considered as profit of business and not any other income which is incidental or attributable to such income while computing the profit derived u/s.10A(4). In the present case, the deduction has been claimed in respect of other income which includes dividend income, income from investment, profit from sale of assets, interest from ICD, bank deposits, interest on advance for business or to employees and other receipts, therefore, the interest income will not be eligible for deduction u/s.10A - against assessee.

Summary

Issues Involved:
1. Legal validity of reopening the assessment under Section 147 of the I.T. Act.
2. Computation of deduction under Section 10A for each unit separately or as a single unit.
3. Allowability of deduction under Section 10A in respect of other income.

Issue-wise Detailed Analysis:

1. Legal Validity of Reopening the Assessment under Section 147 of the I.T. Act:
The original assessment for A.Y. 2002-03 was completed under Section 143(3) on 18.11.2004. The assessee had not set off losses from three units against profits from four other units while claiming deduction under Section 10A. The A.O. noted that the deduction was incorrectly allowed in respect of interest income and reopened the assessment under Section 147 after serving notice under Section 148 on 27.03.2008. The assessee argued that all material facts were disclosed and reopening after four years was not justified. The A.O. and CIT(A) upheld the reopening, citing that the assessee failed to disclose fully and truly all material facts regarding interest income. The Tribunal concluded that reopening was valid concerning the interest income, as the assessee did not disclose it separately in the P&L account, thus failing to meet the full disclosure requirement under Section 147.

2. Computation of Deduction under Section 10A for Each Unit Separately or as a Single Unit:
The assessee maintained separate accounts for each of the seven units and claimed deduction under Section 10A only for profit-making units, ignoring the loss-making ones. The A.O. treated all units as part of the same business and set off losses against profits while computing the deduction. The CIT(A) upheld this approach. However, the Tribunal held that deduction under Section 10A should be computed separately for each unit, as the assessee maintained separate accounts and filed separate P&L accounts and auditors' certificates for each unit. The Tribunal relied on the Special Bench decision in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd. and the Bombay High Court decision in CIT vs. Black & Veatch Consulting Pvt. Ltd., which supported the view that losses from non-eligible units cannot be set off against profits of eligible units.

3. Allowability of Deduction under Section 10A in Respect of Other Income:
The assessee claimed deduction under Section 10A for various other incomes, including dividend income, income from investments, profit on sale of assets, and interest income. The A.O. and CIT(A) disallowed these claims, stating that only profits directly derived from the business of the undertaking are eligible for deduction under Section 10A. The Tribunal agreed, citing the Supreme Court judgments in Pandian Chemicals Ltd. vs. CIT and CIT vs. Sterling Foods, which held that only income directly derived from the business of the undertaking is eligible for deduction. The Tribunal further clarified that incidental or attributable income, such as interest from ICDs, bank deposits, and employee loans, does not qualify for deduction under Section 10A. However, provision written back, being integral to the computation process, was allowed. The Tribunal directed the A.O. to obtain details of other receipts and decide their allowability after necessary examination.

Conclusion:
The appeals filed by the assessee were partly allowed. The Tribunal upheld the legal validity of reopening the assessment for A.Y. 2002-03 concerning the interest income. It directed that deduction under Section 10A should be computed separately for each unit and disallowed the deduction for other incomes not directly derived from the business of the undertaking, except for provision written back. The A.O. was instructed to re-examine the details of other receipts for allowability under Section 10A.