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TMI Blog2015 (12) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... f carried forward losses while computing the profits of the eligible undertaking under section 10B - Held that:- The facts arising in the present case are similar to the facts before the Tribunal in Vishay Components India Pvt. Ltd. Vs. Addl.CIT & Anr. (2015 (11) TMI 118 - ITAT PUNE ) and following the same parity of reasoning, we hold that the deduction under section 10B of the Act would be allowed to the assessee in the first instance before allowing the adjustment on account of brought forward depreciation losses, the deduction under section 10B of the Act is to be first allowed against the eligible profits and in case there are any leftover profits, then the same are to be adjusted against brought forward unabsorbed depreciation / loss as claimed by the assessee in its return of income. Accordingly, we direct the Assessing Officer to re-compute the deduction under section 10B of the Act in the hands of the assessee. - Decided in favour of assessee Addition made on account of outward freight while computing the book profits under section 115JB - Held that:- We find merit in the claim of assessee with special reference to the calculation of book profits by applying provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said provision for outward freight admittedly related to the 'eligible undertaking' u/s 10B, thereby increasing the deduction u/s 10B and ought therefore have it excluded the same from the computation of 'book profits' in terms of clause (ii) to Explanation 1 to sec.115JB. 4. The appellant craves leave to add, alter, delete or substitute all or any of the above grounds of appeal. 4. The Revenue in ITA No.7 2/PN/2012 has raised the following grounds of appeal :- 1) On the facts and circumstances of the case and in law, the Ld .CIT(A)- Ill, Pune has erred in deleting the addition of ₹ 1,34,49,817/- made by the AO on account of disallowance u/s.40(a)(ia) of the Income Ta x Act, 1961 and considered as business income which is eligible for deduction u/s.10B of the Income Ta x Act, 1961. 2) On the facts and circumstances of the case, the Ld.CIT(A)-IIl, Pune has erred in allowing the exemption u/s.10B, an amount of disallowance of ₹ 1,34,49,817/- in respect of consulting fees for the A.Y.2007 -08 though the assessee has claimed the deduction for the same for the A.Y.2008-09 on payment basis as per section 200 of the I.T.Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y placed reliance on the order of Assessing Officer. 9. However, the learned Authorized Representative for the assessee placed reliance on the CIT(A). 10. We find that the issue raised in the present appeal is in relation to the claim of deduction under section 10B of the Act on enhanced profits, which have been increased due to the disallowance made under section 40(a)(ia) of the Act. The said disallowance was made by the assessee suo motu in the return of income itself for the reason that the tax deductable on the said expenditure was not deposited within prescribed period and hence, the expenditure was not allowable under section 40(a)(ia) of the Act. Thereafter, in the said return of income itself, the assessee had claimed deduction under section 10B of the Act on the enhanced eligible profits. The case of the Assessing Officer was that such a disallowance, for which the profits of the business have increased, could not be considered while computing the deduction under section 10B of the Act. However, the CIT(A) allowed the claim of the assessee in turn, relying on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Gem Plus Jewellery India Ltd. (supra). The H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking and the unabsorbed losses and depreciation were to be set off only against the resultant profits and gains of the business, if any, after allowing deduction u/s 10B. 3] The assessee submits that the action of the Id A.O. in adding back the provision made on account of outward freight amounting to ₹ 2,65,57,598/- while computing the book profit amounts to double addition since the assessee itself had disallowed the said provision while computing the book profits u/s section 115JB in the revised Form 29B submitted to the Id A.O. and hence, the addition made by the Id A.O. amounts to double addition which should be deleted. 13. The perusal of the additional grounds of appeal reflect that the issue raised vide ground of appeal No.1, both in the original and the amended ground of appeal is identical i.e. the claim of deduction under section 10B of the Act to be allowed before set off of brought forward losses and unabsorbed depreciation relating to the earlier years. The learned Authorized Representative for the assessee at the outset pointed out that the issue in the present appeal is squarely covered by the decision of Pune Bench of Tribunal in M/s. Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses / depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses / depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the issue was whether while computing the quantum of deduction under section 80I(6) of the Act, the Assessing Officer has to treat the profits derived from an industrial undertaking as only source of income in order to arrive at deduction under Chapter VI-A. The Hon ble Supreme Court held that the gross total income under section 80B(5) of the Act, which is also referred to in section 80I(1) of the Act, was required to be computed in manner provided under the Act, which presupposes that gross total income shall be arrived at after adjusting losses of other division against profits derived from an industrial undertaking. The issue before the Hon ble Supreme Court is at variance with the issue before us and the said ratio is not applicable to the facts of the present case. The issue in the present appeal is squarely covered by the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Black Veatch Consulting Pvt. Ltd. (supra), wherein deduction under section 10A of the Act was to be computed in the hands of assessee and the same was whether the brought forward losses had to be adjusted before computing deduction under section 10A of the Act. It may be pointed out that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to M/s. General Motors, transportation cost of which up to 28.02.2007 was borne by M/s. General Motors. According to the assessee, in case the transportation cost borne by M/s. General Motors would be claimed as reimbursement of cost later, the provision to that effect as a matter of prudence was made in the books of account. The Assessing Officer rejected the claim of the assessee since there was no agreement for supply in existence during the period 01.04.2006 to 28.02.2007 to that effect. Further, the liability being unascertained, could not be allowed. The Assessing Officer thus, held that the provision made amounting to ₹ 2.66 crores was to be added to the business profits shown in the Profit Loss Account under the normal provisions and also to the book profits for the purpose of MAT under section 115JB of the Act. 20. In appeal, the CIT(A) held that the provision was made on a monthly basis towards transportation cost for supply of camshaft to M/s. General Motors, USA during the period 01.04.2006 to 28.02.2007. Referring to the Note forming part of Notes to accounts, the CIT(A) observed as under:- 4.3.1 As could be seen from the above note, from 01.04.2006, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (b) of Explanation 1 to Sec.115JB which clearly states that any amount set aside to provisions made for meeting liabilities, other than ascertained liabilities is to be added to the book profit. In fact, no such liability existed as on 31.03.2007, much less an ascertained liability as it was known in March 2007 itself that transportation cost on sale of camshafts will be borne by General Motors for the entire period. Therefore, the Assessing Officer has rightly added back such provision made for contingent liability while computing the book profits under sec.115JB and the action of the Assessing Officer in this regard is upheld. 21. The assessee by way of additional ground of appeal No.3 has raised the issue that the addition made by the Assessing Officer and confirmed by the CIT(A) amounts to double addition. The learned Authorized Representative for the assessee referred to the computation of book profits under section 115JB of the Act, copy of which is placed at page 30 of the Paper Book. The learned Authorized Representative for the assessee referring to the provisions of section 10B of the Act and the Explanation thereunder, pointed out that while computing p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the provision therefor, [(i) the amount or amounts set aside as provision for diminution in the value of any asset, [(j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account or if any amount referred to in clause (j) is not credited to the profit and loss account, and as reduced by,-]] [(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account: Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below the second pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount(s) set aside to provisions made for meeting liabilities, other than ascertained liabilities, is to be added back. The Explanation further provided that certain amounts are to be reduced from the net profits as increased by the amounts referred in clauses (a) to (j). The relevant clause for deciding the present issue before us is clause (ii), under which the amount to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the Profit Loss Account. The learned Authorized Representative for the assessee in this regard, drew our attention to the computation of book profits under section 115JB of the Act placed at page 30 of the Paper Book. The learned Authorized Representative for the assessee stated that the net profit shown in the Profit Loss Account was ₹ 6,51,78,891/-. It was further pointed out by him that the total turnover of the assessee company was ₹ 49,45,27,699/- and the export turnover was ₹ 48,97,86,162/- i.e. the majority of the turnover was from exports, on which the assessee was entitled to the claim of deduction under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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