2013 (6) TMI 398 - AT - Income Tax

Export receivables on account of agency commission - whether do not form part of export turnover eligible for claiming exemption u/s. 10A? - Held that - As decided in Gem Plus Jewellery India Ltd 2010 (6) TMI 65 - BOMBAY HIGH COURT export turnover in numerator must have same meaning as export turnover which is a constituent element of total turnover in denominator. Also see CIT Vs Genpact India 2011 (11) TMI 119 - DELHI HIGH COURT wherein relying upon the decision of Gem Plus Jewellery India Ltd. (supra) directed the AO to exclude expenses out of total turnover for computing eligible deduction u/s. 10A. Thus accepting the alternative plea of the assessee direct the AO to recompute the allowable deduction u/s. 10A after excluding the expenses from the total turnover. Depreciation relating to fixed assets of Wada unit disallowed - Held that - The assets are part of the business of the assessee. In order to be entitled to claim depreciation, asset is to be owned by assessee and it is also to be used for purpose of business or profession, but expression used for the purpose of business , when applied to block of assets, would mean use of block of assets and not any specific item in the block of assets as individual assets lose their identity once they become part of block of assets. Thus Considering the facts of the case in the light of the above observations in CIT Vs Bharat Aluminium Co. Ltd. 2009 (10) TMI 505 - DELHI HIGH COURT AO directed to allow the claim of depreciation as per law.

Summary

Issues:
1. Correctness of order regarding reduction of claim under section 10A of the IT Act.
2. Disallowance of depreciation relating to fixed assets of a specific unit.

Issue 1: Correctness of order regarding reduction of claim under section 10A of the IT Act:

The appeal challenged the order of the Ld. CIT(A) concerning the reduction of the claim under section 10A of the IT Act. The primary contention was the exclusion of payments made directly abroad from export receivables for claiming exemption under section 10A. The Assessing Officer (AO) recomputed the allowable deduction under section 10A, leading to disallowance of the claimed excess deduction. The assessee argued that if certain expenditure is excluded from export turnover, it should also be excluded from total turnover. The Hon'ble Jurisdictional High Court and the Hon'ble Delhi High Court decisions supported this argument, emphasizing that the same items should be excluded from both export and total turnover for calculating the deduction under section 10A. Considering these precedents, the Appellate Tribunal directed the AO to recompute the allowable deduction after excluding the expenses from the total turnover, allowing the additional ground of appeal.

Issue 2: Disallowance of depreciation relating to fixed assets of a specific unit:

The second issue pertained to the disallowance of depreciation amounting to Rs. 12,80,591 related to fixed assets of a specific unit that did not conduct any business during the year. The AO disallowed the depreciation claim on the grounds of non-utilization of assets for business purposes. The Ld. CIT(A) upheld this disallowance, stating that assets must be used during the year to claim depreciation under section 32 of the Act. However, the assessee contended that the assets were part of the business, and lack of business activity in one unit should not lead to disallowance of depreciation. The Appellate Tribunal referred to the Delhi High Court decision, emphasizing that the block of assets must be used for business purposes to claim depreciation, not individual assets within the block. Therefore, the Appellate Tribunal directed the AO to allow the depreciation claim as per law, thereby allowing ground No. 2 of the appeal.

In conclusion, the Appellate Tribunal partially allowed the appeal filed by the assessee, directing the AO to recompute the deduction under section 10A and allow the depreciation claim for the fixed assets of the specific unit in question.