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2016 (3) TMI 77 - AT - Income TaxDeduction u/s 10A disallowed before set off of brought forward business losses - Held that - By following the latest judgment of the Hon ble jurisdictional High Court based on the substituted/amended provisions of sec.10A/10B which are applicable in the case of the assessee as well as the decision of the Tribunal in case of Biocon (2014 (12) TMI 838 - ITAT BANGALORE), we decide this issue in favour of the assessee and direct the AO to allow deduction u/s 10A without setting off the domestic losses. Inclusion of sale proceeds of swarf as part of export turnover for the purpose of computation of deduction u/s 10B - Held that - Hon ble Supreme Court in the case of Mahavir Cycle Industries vs. CIT (2016 (2) TMI 805 - SUPREME COURT) following its earlier decision in the case of CIT vs. Punjab Stainless Steel Industries (2014 (5) TMI 238 - SUPREME COURT) wherein the Hon ble Supreme Court held that scrap generated during the course of manufacturing of main product should be included in the total turnover for the purpose of deduction u/s 10B of the Act.
Issues Involved:
1. Deduction under Section 10A of the Income-tax Act, 1961 before setting off brought forward business losses. 2. Inclusion of sale proceeds of scrap (swarf) as part of export turnover for the purpose of deduction under Section 10B. Issue-wise Detailed Analysis: 1. Deduction under Section 10A Before Setting Off Brought Forward Business Losses: The primary issue in the appeals was whether the deduction under Section 10A of the Income-tax Act, 1961 should be allowed before setting off brought forward business losses. The revenue argued that the CIT(A) erred in directing the AO to follow the Karnataka High Court's decision in the case of Yokogawa India Ltd. and allow the deduction under Section 10A without setting off the losses of earlier years. The revenue contended that the decision of the Karnataka High Court had not reached finality as an SLP was preferred against it. The tribunal noted the reliance of the assessee on the decision of the Karnataka High Court in the case of CIT vs. Yokogawa India Ltd. and the Tribunal's decision in the case of CIT vs. Biocon Ltd. The tribunal also considered the Departmental Representative's reliance on the decision in the case of CIT vs. Himatsinghika Seide Ltd., which was confirmed by the Supreme Court. The tribunal observed that the decision in Himatsinghika Seide Ltd. pertained to the assessment year 1994-95, prior to the amendment of Sections 10A and 10B by the Finance Act, 2000. The tribunal highlighted that post-amendment, the incentive under Sections 10A and 10B was in the nature of a deduction, not an exemption. The tribunal cited the Karnataka High Court's judgment in Yokogawa India Ltd., which clarified that the income eligible for exemption under Section 10A should be excluded before arriving at the gross total income of the assessee, and not after computing the gross total income. The tribunal further noted that this view was reiterated in subsequent judgments, including the case of M/s. Aurigene Discovery Technologies Ltd. The tribunal concluded that the income of the 10A unit has to be excluded at the source itself and not after computing the gross total income, thus supporting the assessee's claim. Consequently, the tribunal directed the AO to allow the deduction under Section 10A without setting off the domestic losses. 2. Inclusion of Sale Proceeds of Scrap (Swarf) as Part of Export Turnover: For the assessment year 2009-10, the revenue challenged the CIT(A)'s direction to include the sale proceeds of swarf as part of the export turnover for the purpose of computing the deduction under Section 10B. The CIT(A) held that the sale proceeds of scrap generated during the manufacturing process should be included in the total turnover, referencing decisions from the ITAT Chennai and Mumbai benches. The tribunal agreed with the CIT(A)'s view and noted that it was consistent with the Supreme Court's decision in Mahavir Cycle Industries vs. CIT, which held that scrap generated during the manufacturing of the main product should be included in the total turnover for the purpose of deduction under Section 10B. Therefore, the tribunal dismissed the revenue's grounds of appeal on this issue. Conclusion: The tribunal dismissed both appeals of the revenue, upholding the CIT(A)'s orders for both assessment years. The tribunal directed the AO to allow the deduction under Section 10A without setting off brought forward business losses and to include the sale proceeds of swarf in the total turnover for the purpose of deduction under Section 10B.
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