2015 (5) TMI 856 - AT - Income Tax

Eligibility of deduction u/s 10B - whether the three units of the assessee company namely NIITITES, NIIT-KTWO and NIIT-Mumbai are separate 100% EOUs of the assessee company ? - Held that - Each of the three undertakings had been separately and independently granted registration by Software Technology Park of India, Pune (STPI) for claiming exemption u/s 10B of the act as newly set up 100% EOU, which is evident from the copies of STPI approval and extension letters thereto. Those three units were also granted separate licence by the Customs Authorities. Those EOU s were situated at separate location having independent buildings on separate addresses, their Plant & Machinery and fixed assets were also separate, each of the EOU furnished separate Audit Report in Form No. 56G. Therefore, it cannot be said that the three EOU s of the assessee company were formed after splitting off of the existing unit or reconstructing the old or non-eligible unit. In the present case, although it is an admitted fact that these units were not having separate books of accounts but ERP software accounting system was implemented by each of them and transactions of each unit were separately coded all the transaction were identifiable as in the case of separate books. Therefore, the ld. CIT(A) was fully justified in directing the AO to compute the deduction u/s 10B of the Act in respect of each unit separately. - Decided in favour of assesse. Allowability of deduction u/s 10B - at the source itself and not after the computation of Gross Total Income - CIT(Appeals) allowing that deduction u/s 10B after deducting unabsorbed depreciation from the profit of business - Held that - In the present case, it appears that the assessee was not having any unabsorbed depreciation relating to the eligible Export Oriented Units (EOU s). Therefore, adjustment in the eligible profits of the EOU was not to be made on account of brought forward unabsorbed depreciation. The said unabsorbed depreciation was adjusted by the assessee against certain income from other sources and not against the eligible profits of the 100% EOU. - Decided against revenue. Admission of the additional evidence - Held that - AO vide notice u/s 142(1) of the Act called the details relating to claim u/s 10B of the Act which the assessee furnished. The ld. CIT(A) found from the record that the assessee replied to the showcause regarding the allowability of deduction u/s 10B of the Act vide submissions dated 30.12.2009. The ld. CIT(A) categorically stated that there was no specific show-cause given to the assessee as to why all the units of the assessee company be not treated as a single unit for the purpose of allowance of deduction u/s 10B of the Act, therefore, specific opportunity was not granted to the assessee for clarifying the issue as to why all the units of the assessee may not be considered as one unit for the purpose of section 10B of the Act and that the documents furnished by the assessee before him goes to the route of the aforesaid issue relating to deduction u/s 10B of the Act. In the present case, the ld. CIT(A) admitted those evidences after providing due and reasonable opportunity to the AO who furnished his remand report. Therefore, we do not see any merit in this ground of the departmental appeal - Decided against revenue.

Issues Involved:
1. Deduction u/s 10B for three units of the assessee.
2. Computation of deduction u/s 10B at the source or after Gross Total Income.
3. Deduction u/s 10B after deducting unabsorbed depreciation.
4. Admission of additional evidence by the CIT(A).
5. Correct amount of deduction u/s 10B.

Detailed Analysis:

Issue 1: Deduction u/s 10B for Three Units
The department contested the CIT(A)'s decision that the three units (NIIT-ITES, NIIT-KTWO, and NIIT-Mumbai) are separate 100% Export Oriented Units (EOUs) and thus eligible for separate deductions under section 10B of the Income Tax Act, 1961. The AO had aggregated the profits of all units, treating them as expansions of the same business due to the lack of separate books of accounts. However, the CIT(A) found sufficient evidence that the units were independently formed, had separate registrations, and were functioning independently. The Tribunal upheld the CIT(A)'s decision, noting that the units had separate STPI approvals, customs licenses, and independent operations, despite not maintaining separate traditional books of accounts.

Issue 2: Computation of Deduction u/s 10B at the Source or After Gross Total Income
The AO argued that the deduction should be computed after adjusting unabsorbed depreciation from earlier years. The CIT(A) disagreed, stating that the deduction should be allowed at the source itself, based on the profits of the eligible units before adjusting brought forward losses. The Tribunal supported the CIT(A)'s view, referencing the Special Bench decision in Scientific Atlanta India Technology (P) Ltd. and other case laws, concluding that the deduction u/s 10B should be computed independently of unabsorbed depreciation from non-eligible units.

Issue 3: Deduction u/s 10B After Deducting Unabsorbed Depreciation
The AO had recomputed unabsorbed depreciation, reducing it from the profits of the business before allowing the deduction u/s 10B. The CIT(A) found this approach incorrect, as the unabsorbed depreciation did not pertain to the eligible units. The Tribunal affirmed this, citing the Karnataka High Court decision in CIT Vs Yokogawa India Ltd., which clarified that unabsorbed business loss should not be set off against the profits of eligible units for deduction u/s 10A or 10B.

Issue 4: Admission of Additional Evidence by the CIT(A)
The department objected to the CIT(A) admitting additional evidence during the appellate proceedings. However, the Tribunal noted that the CIT(A) had forwarded the additional evidence to the AO, who had the opportunity to respond. The Tribunal found that the CIT(A) provided due and reasonable opportunity for the AO to review the additional evidence, thus justifying its admission.

Issue 5: Correct Amount of Deduction u/s 10B
The AO allowed a deduction of Rs. 2,96,15,440, whereas the CIT(A) allowed Rs. 7,83,34,105. The Tribunal upheld the CIT(A)'s decision, finding no merit in the department's appeal on this ground.

Conclusion:
The Tribunal dismissed the department's appeal, upholding the CIT(A)'s decisions on all grounds, affirming the separate treatment of the three units for deduction u/s 10B, the method of computation of the deduction, and the admission of additional evidence.

← Previous Next →