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TMI Blog2016 (3) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos.1277, 1278/Bang/2014 - - - Dated:- 22-1-2016 - SHRI VIJAYPAL RAO, JUDICIAL MEMBER and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER For The Appellant : Shri Sunil Kumar Agarwala, JCIT(DR). For The Respondent : Shri Sanjay Dave, CA ORDER Per INTURI RAMA RAO, AM : These appeals by the revenue are directed against the orders dated 24/6/2014 of the Commissioner of Income-tax (Appeals)-I, Bangalore, for the assessment years 2008-09 and 2009-10. 2. The revenue raised the following grounds of appeal in its appeal for assessment year 2008-09: 1. The order of the CIT (A) is opposed to law and the facts and circumstances of the case. 2. The CIT(A) erred in directing the AO to follow the ratio laid down by the Hon'ble Court in the case of Yokogawa India Ltd. 341 ITR 385(Kar) and allow the claim of the assessee of the deduction u/s 10B without setting off the losses of the earlier years without appreciating the fact that the decision of the Karnataka High Court has not reached finality as a SLP has been p:eferred against the said decision. 3. The CIT(A) erred in directing the AO to allow the claim of the assessee of the deduction u/s section 10B with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. However, it is pertinent to note that the said decision of the Hon'ble jurisdictional High Court was in respect of the dispute for the assessment year 1994-95 and there is an amendment in the provisions of sec.10A and 10B of the Act vide Finance Act, 2000 w.e.f. 1/4/2001. By virtue of the amendment and substitution of provisions of sec.10A and 10B, the incentive u/s 10A and 10B was no longer in the nature of exemption but it is in the nature of deduction. By considering the amendment/substitution of sec. 10A and 10B vide Finance Act, 2000 w.e.f. 1/4/2001, Hon'ble jurisdictional High Court vide judgment in the case of Yokogawa India Ltd.(supra) has held in paras.16 to 23 as under: 16. The substituted s. 10A continues to remain in Chapter III. It is titled as Incomes which do not form part of the total income . It may be noted that when s. 10A was recast by the Finance Act, 2001 (sic-2000), the Parliament was aware of the character of relief given in Chapter III. Chapter III deals with incomes which do not form part of total income. If the Parliament intended that the relief under s. 10A should be by way of deduction in the normal course of computation of total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A unit has to be deducted at source itself and not after computing the gross total income. The total income used in the provisions of s. 10A in this context means the global income of the assessee and not the total income as defined in s. 2(45). Hence, the income eligible for exemption under s. 10A would not enter into computation as the same has to be deducted at source level. 2nd substantial question of law 20. Prior to the introduction of sub-s. (6) of s. 10A and s. 10B by the Finance Act, 2000, which came into effect from 1st April, 2001, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year, sub-s. (2) of s. 32, cl. (ii) of sub-s. (iii), s. 32A cl. (ii) of sub-s. (3) of s. 32A, cl. (ii) of sub-s. (2) of s. 33 and sub-s. (4) of s. 35 of the Act or the second proviso to cl. (ix) of subs. (1) of s. 36 shall not be applicable in relation to any such allowance or de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in respect of profits of certain undertakings in north eastern region. This makes clear the legislative intention of providing relaxation wherever it deems fit and in the present case, such relaxation has been made in s. 10A but not in s. 10C. 23. It is to be noted that the aforesaid amendment read with the Board circular does not militate against the proposition that the benefit of relief under this section is in the nature of exemption with reference to the commercial profits. However, in order to give effect to the legislative intention of allowing the carry forward of depreciation and loss suffered in respect of any year during the tax holiday for being set off against income post tax holiday, it is necessary that the notional computation of business income and the depreciation as per the provisions of the Act should be made for each year of the tax holiday period. While so computing, attention will have to be given to provisions of ss. 70, 71, 72 and s. 32(2). The amount of depreciation and business loss remaining unabsorbed at the end of the tax holiday period should be determined so that the same may be set off against the income post tax holiday period. 10.4 We furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be given to the provisions of section 72 of the Act, even in respect of profits of the 10B unit. Accordingly, the claim of the assessee for carry forward of loss of non-10B unit was not allowed by the AO. On appeal by the assessee, it was contended that the provisions of section 10A and section 10B are exemption provisions and therefore the profit of 10A and 10B units will not enter the computation of total income at all and therefore the profits of these units need not be set off against the loss of non-10B unit by invoking the provisions of section 72 of the Act. The CIT(Appeals) did not agree with the contention of the assessee and in doing so, he placed reliance on the decision of the Hon ble Karnataka High Court in the case of CIT v. Himatsingike Seide Ltd., 286 ITR 255 (Kar). In the aforesaid decision, the Hon ble High Court has taken the view that deduction u/s. 10B has to be allowed after set off of unabsorbed depreciation and unabsorbed investment allowance. The Hon ble Court took the view that the aforesaid provision was only an exemption provision. The CIT(Appeals) noticed that the aforesaid decision was followed by the ITAT Bangalore Bench in the case of Intelnet Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived by undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the Previous-year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : (emphasis supplied) 64. The expression Deduction and shall be allowed from the total income of the Assessee used in the aforesaid provisions was considered by the Hon ble High Court and it held in para 13 to 15 of its judgment that the expression shall be allowed from the total income of the Assessee does not mean total income as defined u/s.2(45) of the Act but that expression means profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit. Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. The Hon ble Court thereafter held that though the expression used in Sec.10A was Deduction but in effect it was only an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows while dismissing the appeal:- Having perused the records and in view of the facts and circumstances of the case, we are of opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly. 67. Thus the ratio has to be confined to the facts and circumstances of the case. The aforesaid observations have to be confined to the facts of that case and as applicable to a case where brought forward losses and depreciation of the very same STP undertaking are not adjusted while arriving at the profits of the 10B unit for allowing deduction u/s.10A/10B of the Act and not in respect of brought forward losses and depreciation of other undertakings/non-10A/10B units. S. 10A/10B(6) as amended by the FA 2003 w.r.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 onwards is eligible for set-off carry forward for set-off against income post tax holiday which means that they need not be so set off as mandated in the decision of the Hon ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As we have already seen, in Yokogawa India Ltd. 341 ITR 385 (Kar), it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able Connector Type TMCX, scrap is generated, such scrap has direct link with manufacture process i.e. manufacturing of cable connector is bound to be generated. The sale of scrap (Swarf) material also reflected in the turnover of the EOU Unit. Therefore includible in the gross total income, hence eligible for deduction u/s 10B of the Act. 4.6 Further in this context relevant to quote the decision of Hon'ble ITAT, Chennai in the case of M/s Rieter -LMW Machinery Ltd. Vs ACIT in ITA No.1776 1896/Mds/2007 dated 31/07/2012 wherein it was held that 13 We find that it is not the case of the Revenue that the scrap was not generated during the manufacturing of textile machinery by the assessee. Thus, the sale of scrap is part and parcel of the business receipt of the assessee. That being so, if has to be included in the total turnover of the assessee and cannot be reduced from the business profits of the assessee while computing the deduction u/s 10B of the Act. We, therefore, set aside the orders of the lower authorities and direct the Assessing Officer to recompute the deduction u/s 10B of the Act after including the sale proceeds of scrap in the total turnover of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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