2014 (2) TMI 936 - AT - Income Tax

Deduction u/s 10A or 10B - Held that - From the order passed by the AO and learned CIT(A), it is observed that the arguments stated in the chart were not taken by the assessee before them - The issue has been restored for fresh adjudication. Pre-commencement expenses - Held that - No material was brought to the attention of CIT(A) to show that whether Dehradun Unit is proposed to manufacture same item (as being manufactured in existing other units) or different product, business as integrated one has different sources of income - Assessee has not shown in any manner that the Dehradun Unit is being set up to expand production of an item already manufactured elsewhere - The CIT(A) has confirmed the action of the AO to treat the impugned expenses/ loss pertaining to pre-commencement period of new business facility - Decided against assessee. Set off of brought forward business loss - Held that - Deduction u/s 10A has to be given effect to at the stage of computing the profits and gains of business and the computation should be anterior to the application of provisions of section 72 of the Act - Profits on one unit cannot be set off from the loss of another firm in the process of computation of deduction under section 10A of the Act - The issue has been restored for fresh adjudication in the light of aforementioned judgement. Deduction u/s 10B - Held that - a deduction of such profits and gains as are derived by 100% Export Oriented undertaking from the export of articles or things or computer software for a period of 10 consecutive assessment years relevant to the previous year in which the undertaking begins manufacture or products articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee - The approval relates to the assessment year relevant to previous year in which undertaking begins manufacture or products articles or things - Decided against Revenue. Product registration charges - Held that - The expenditure incurred by the assessee on registration of its products was in the Revenue nature - The products once registered are not sold only in that particular year but the sale can be made over a span of time until the renewal of registration is required - The benefit form the said registration of the product is not restricted to the relevant assessment year at the same time the expense is of revenue nature - Decided in favour of assessee.

Issues Involved:
1. Exclusion of income from eligible units under Sections 10A and 10B.
2. Disallowance of expenses incurred at Dehradun Unit.
3. Disallowance under Section 14A.
4. Set off of brought forward unabsorbed depreciation/business loss.
5. Proportionate disallowance of deduction under Section 10B.
6. Disallowance of various incomes and expenses under Sections 10A/10B for A.Y. 2008-09.
7. Deletion of disallowance under Section 14A by CIT(A).

Issue-wise Analysis:

1. Exclusion of Income from Eligible Units under Sections 10A and 10B:
The assessee challenged the exclusion of Rs. 83,24,090 from the eligible amount for deduction under Sections 10A and 10B. The AO excluded this amount, considering it as income from other sources. The CIT(A) partially upheld this exclusion based on the Supreme Court's decision in Liberty India 317 ITR 218, but allowed the exclusion of Rs. 6,73,532 as it represented exempt dividend income. The Tribunal restored the matter to the AO for re-adjudication with proper opportunity for the assessee to present facts and material.

2. Disallowance of Expenses Incurred at Dehradun Unit:
The AO disallowed Rs. 11,06,715 incurred at the Dehradun Unit, considering them as pre-commencement expenses. The CIT(A) upheld this disallowance, noting that the Dehradun Unit was a new business facility and not an expansion of existing business. The Tribunal agreed with the CIT(A) and dismissed the assessee's ground, as no material evidence was provided to support the contention that the expenses were for business expansion.

3. Disallowance under Section 14A:
The AO made a disallowance of Rs. 3,49,525 under Section 14A read with Rule 8D. The CIT(A) upheld the disallowance but noted that Rule 8D could not be applied as per the jurisdictional High Court's decision in Godrej & Boyce Mfg. Co. Ltd. The Tribunal restored the issue to the AO for re-adjudication in light of the High Court's decision, disallowing the application of Rule 8D for the relevant assessment year.

4. Set off of Brought Forward Unabsorbed Depreciation/Business Loss:
The assessee sought the set-off of brought forward unabsorbed depreciation/business loss. The Tribunal, referring to its decision in the assessee's own case for A.Y. 2005-06, directed the AO to adopt a similar computation method, allowing the set-off before computing the deduction under Section 10A.

5. Proportionate Disallowance of Deduction under Section 10B:
The AO disallowed Rs. 35,04,640, representing the proportionate disallowance of deduction claimed under Section 10B, as the certificate for the Export Oriented Unit (EOU) was granted from 22.06.2006. The CIT(A) deleted this disallowance, noting that Section 10B provides for deduction for the entire assessment year in which the approval is granted. The Tribunal upheld the CIT(A)'s decision, confirming that the deduction applies to the entire profits derived during the year.

6. Disallowance of Various Incomes and Expenses under Sections 10A/10B for A.Y. 2008-09:
The AO excluded Rs. 80,83,556 from the eligible amount for deduction under Sections 10A/10B. The CIT(A) provided partial relief, disallowing certain items while allowing others based on detailed submissions by the assessee. The Tribunal restored certain issues to the AO for re-adjudication and allowed others based on precedents, such as the DEPB incentives being covered by the decision in CIT vs. Arts and Crafts Export Ltd.

7. Deletion of Disallowance under Section 14A by CIT(A):
The Revenue appealed against the CIT(A)'s deletion of Rs. 4,00,104 disallowed under Section 14A. The Tribunal dismissed the appeal due to low tax effect, noting that the tax effect was below the threshold prescribed by the CBDT's instructions. The Tribunal suggested that the Revenue could file a rectification application before the CIT(A) if there was a patent mistake in the order.

Conclusion:
The Tribunal partly allowed the assessee's appeals for statistical purposes and dismissed the Revenue's appeals. The issues were either restored to the AO for re-adjudication or decided based on existing precedents and detailed factual analysis.

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