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TMI Blog2013 (5) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... pute the deduction allowable u/s. 10A of I.T.Act, 1961 after reducing the expenditure incurred in foreign currency in respect of link charges, payment to employees, travelling, legal & professional charges and power charges, both from the export turnover and from the total turnover, without appreciating the facts and circumstances of the case. 3. The learned CIT (Appeals) has erred in not appreciating that there is no provision in section 10A, which requires the above mentioned expenses to be reduced from the total turnover. 4. The learned CIT(A) erred in allowing the relief, relying on the decision of the Hon'ble High Court in ITA No. 349 of 2010 (clubbed in consolidated order in ITA No. 70/2009 & others), which has not reached its finality and SLP has been recommended to be filed before the Hon'ble Supreme Court u/s 261 of the I T Act, 1961 against such order. Assessee's grounds 1.1 & 2.1 1.1 The 1earned Commissioner of Income tax (Appeals) I, Bangalore has erred in concluding that ₹ 46,57,114/- being 50% of link charges should be reduced from export turnover in computing deduction under section 10A. On the facts and in the circumstances of the case and law appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o India by the assessee in convertible foreign exchange in accordance with subsection (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing technical services outside India. 6. The assessee submitted that expenditure of ₹ 105,21,19,075 being 50% of expenditure incurred in foreign currency towards payment to employees, legal & professional charges, travelling and power charges are not expenses in providing technical services outside India. The assessee pointed out that it was not engaged in the business of providing technical services outside India, but was in the business of development and export of software. The assessee relied on the decision of the ITAT Bangalore Bench in the case of M/s. Infosys Technology Ltd. v. JCIT (ITA Nos. 50, 793 to 795, 742 & 732 to 734, order dated 31.03.2005, wherein the Tribunal had taken the view that no reduction is to be made of any sum from export turnover on the ground that it is expenditure in foreign currency incurred in connection with technical services outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r charges from the export turnover, the assessee has raised grounds 1.1 and 2.1 before the Tribunal. 10. As far as ground No.2.1 is concerned, it has been held in assessee's own case in A.Ys. 2001-02 to 2003-04 that the expenses referred to in the aforesaid ground cannot be said to be expenses incurred outside India for rendering technical services. Following the decision in assessee's own case, we hold that the aforesaid sum should not be excluded from the export turnover. 11. As far as grounds 1 to 4 raised by the revenue is concerned, we are of the view that the issue stands squarely covered by the decision of the Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. (supra) wherein it has been held that whatever is excluded from the export turnover is also to be excluded from the total turnover. The fact that the revenue has preferred an appeal against the decision of the Hon'ble High Court of Karnataka before the Hon'ble Supreme Court cannot be the basis to interfere with the order of the CIT(Appeals). Consequently grounds 1 to 4 raised by the revenue are dismissed. In view of dismissal of grounds 1 to 4 raised by the revenue, ground No.1.1 raised by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income, the AO held as follows:- "The assessee's method of computation in the revised return of income is not acceptable. The deduction envisaged in Sec. l0A is to be given out of the profits from business available in the total income. The total income has to be computed as per the provisions of law and then the provisions of Sec. 10A have to be applied. This has been discussed and approved by the Hon'ble High Court of Karnataka in the case of M/s. Himatsingka Seide Ltd. Therefore, the profits or losses of all the business units - STP or Non-SIP have to be considered to arrive at the profits and gains of business or profession. Then the income or loss under the other heads have to be taken into consideration to arrive at gross total income. Any Chapter VIA deduction has to be given and then the total income has to be arrived. Out of this total income, the deduction u/s.10A is to be allowed to the extent the profits from STP units is available in the total Income. Therefore, the assessee's computation in the revised return of Income is not correct and is not followed. After discussion with the representative, the original return flied on 30/10/2004 is based for computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular No.308 dated 29.06.1981 [131 ITR (St.) 119] which explains the provisions of the Finance Act, 1981, had clarified that "the income of STPI unit shall be exempt from tax ……………". The above intent of the Legislature has not been withdrawn or amended in section 10A as substituted by the Finance Act, 2000. 18. It was argued that since section 10A continues to remain an exemption section, the same would have to be given effect to at the eligible undertaking level without considering losses of other units or brought forward losses or unabsorbed depreciation allowance. 19. It was submitted that in the case of ACIT v. Yokogawa India Ltd., ITA No.1802/Bang/2005 dated 04.08.2006 A.Y. 2002-03, [2007] 111 TTJ (Bang.) 548, the Bangalore Tribunal held that exemption under section 10A is to be allowed without set off of loss of non- 10A units. This decision was followed by the Bangalore Tribunal ACIT v. Yokogawa India Ltd. for the A.Y. 2004-05 in ITA No.1157/B/07 dated 29.08.2008. These decisions were later approved by the Hon'ble High Court of Karnataka. Following the above decision reported in 111 TTJ 548, the Bangalore Bench of ITAT in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of deduction under section is undertaking specific and has to be computed in isolation of other similar units. The learned CIT(A) referred to s. 10A(6), according to which, the loss of s. 10A unit is to be carried forward and set off against profits of subsequent years. The learned CIT(A) referred to the decision of the jurisdictional High Court in the case of CIT vs. Himatasingike Seide Ltd. (2006) 286 ITR 255 (Kar). In that case before the learned High Court, the assessee adjusted the unabsorbed depreciation against other business income. The learned High Court held that unabsorbed depreciation is to be set of against the profit eligible for deduction against s. 10B. The calculation of exemption cannot be at whims and fancies of the assessee for exemption of tax. The learned CIT(A) also referred to the decision of this Bench in the case of Sun Micro Systems and mentioned that the Tribunal has clearly held that section 70 and 71 are to be applied in arriving at eligible profit for the purposes of section 10A. The learned CIT(A), therefore, held that provisions of section 70 and 71 are applicable for determining profits of the business for the purposes of section 10A/10B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, the same, proportion as the export turnover in respect of such article or thing or computer software, bears to the total turnover of the business. With effect from 1-4-2001, instead of profits of the business, the words 'profit of the business of the undertaking have been substituted. The word 'undertaking' has not been defined under section 10A. The words 'industrial undertaking' have been defined in the book Law Lexicon by Venkataramiya, at p. 1133 it has been defined as under: "The expression 'industrial undertaking' must have a technical and economic content. An industrial undertaking would normally be in its ordinary acceptation some industrial concern or enterprise for adventure which is undertaking to be done by the person concerned. The definition of 'industrial undertaking in s. 3(d) of the Industrial Development and Regulation Act. 1951, means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. CIT vs. Textile Machinery Corpn. Ltd. (1971) 11 ITJ 105 at pp. 112, 113 (Cal) 75 CWN 186 (Cal): AIR 1971 Cal 1, see also Union of India vs. Sakseria Cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not accept the view of the AO and he held as follows:- "4.5 The above shows that the A.O. has failed to the act of verification in the letter and spirit of the judicial direction given by the Learned ITAT and had given the effect mechanically without going deep into the contents of the order. Hence, the effect given to such order suffers and can be declared as void. In fact the assessee has all along considered all these three units as part and parcel of one undertaking and therefore had shown profit originally by setting off the loss of two units with the profits of one unit even shown as such in the original return dated 30-10-2004. However, it became wise in the light of discussions made in ITAT during hearing stage and changed its stand and acted promptly to file the revised return claiming loss. However, the AO's stand of not accepting revised return of loss is upheld. Even if A.O. has failed to carry out the verification as per the direction of the Hon'ble ITAT which the A.O. can do now because no time limit is prescribed in the Act for giving effect to a judicial direction. The revised loss return is not considered a valid return because such has not been filed voluntari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from the above, the CIT(A) in an appeal for the A.Y. 2004-05 cannot doubt or challenge the correctness of the order of the AO giving effect to the order of ITAT for another assessment year viz., A.Y. 2003-04. That order can be challenged by the revenue only in a manner provided for under the Act and not by the CIT(A) in an appeal filed by the Assessee against an order of AO in AT 04-05. We therefore hold that the conclusions of the CIT(A) on the issue are erroneous and therefore the three units at Pune, Chennai and Bangalore were independent undertakings. 27. The next aspect to be considered is with regard to the conclusion of the CIT(A) regarding the revised return of income declaring loss return being invalid. In this regard, the point to be kept in mind is that the original return of income was filed within the due date u/s. 139(1) of the Act and revised return of income declaring loss was filed on 24.03.2006. On an identical issue, this Tribunal in the A.Y. 2004-05 in assessee's own case in ITA No.46/Bang/2010 had held that once the original return of income is filed within time declaring positive income, then the revised return of income will replace the original return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections: (i) to entertain the revised return furnished on 24.3.2006 as a valid return; (ii)to extend the benefit of carry forward of business loss and unabsorbed depreciation provided the assessee was entitled to such benefit as per the provisions of the Act at that relevant time; (iii) the AO shall, however, carry out the above directions of this Bench after affording a reasonable opportunity to the assessee of being heard. It is ordered accordingly." 28. Similar ruling has also been given by the ITAT, Mumbai 'D' Bench in the case of Mr. Ramesh R. Shah v. ACIT in ITA No.4312/Mum/2009 dated 29.07.2011 wherein the Tribunal held as follows:- "8. The A.O. has reservation for treating the revised return, filed by the assessee as valid return as per sec.139(5) as in the revised return, the assessee claimed the long term capital loss and to give benefit of carry forward of said loss. The A.O. placed his reliance on sub-sec.(3) to sec.139, which is already reproduced hereinabove and also sec.80 of the Act., which reads as under:- "Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed [in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off the loss on the sale of the shares of Pholx Pharma Ltd. in the year itself. He claimed the same to be carry forward. In our humble opinion correct interpretation of sec.80, as per the language used by the Legislature, condition for filing revised return of loss under sec. 139(3) is confined to the cases where there is only a loss in the original return filed by the assesse and no positive income and assesse desires to take benefit of carry forward of said loss. Once, assesse declares positive income in original return filed under sec. 139(1) but subsequently finds some mistake or wrong statement and files revised return declaring loss then can he be deprived of the benefit of carry for ward of such loss? In our humble opinion, if we accept interpretation given by the authorities below, it would frustrate the object of sec. 80. Sec. 80 is a cap on the right of the assesse, when the assessee claims that he has no taxable income but only a loss but does not file the return of income declaring the said loss as provided in sub-sec.(3) of sec.139. It is pertinent to note here that Legislature has dealt with two specific situations (i) u/s.139(1), if the assessee has a taxable income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue's appeal, which reads as follows:- "5. The learned CIT (Appeals) was not justified in directing the AO to recompute the deduction allowable u/s. 10A of I.T.Act, 1961 after including the Transfer Price adjustment in the business income, without appreciating the facts and circumstances of the case. 6. The learned CIT(Appeals) allowed relief without appreciating the position of law as enshrined in sub-section (4) of Section 92C wherein it is specifically laid down that the Assessing Officer shall have to compute total income having regard to the arms length price determined by the Transfer pricing officer, that the emphasis is on computation of total income which is arrived at, inter-alia, after allowing deduction u/s 10A of the Act. 7. The learned CIT (Appeals) has erred in not appreciating the provisions of the first proviso to sub-section (4) of Section 92C of the I T Act, which specifically lays down that no deduction u/s 10A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section. 8. The learned CIT(A) erred in allowing the relief, relying on the decisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain benefits to the assessee in respect of the additions made by him in the course of re-determining the price charged for the transaction. In the instant case, the transfer pricing officer has found no occasion to make any adjustment to the income returned. In other words, the transfer pricing officer on a reference made to him accepted the figure of arms length price (inclusive of the adjustments voluntarily made). There has thus been no occasion for the assessing officer to re-determine the arms length price. Section 92C(4) was therefore not invoked. The consequence under the proviso to section 92C(4) would therefore not be attracted. The denial of section 10A benefits on the adjustments voluntarily made by the appellant is therefore incorrect and deserves to be ignored. 34. The CIT(Appeals) deleted the addition made by the AO following the decision of the Tribunal in assessee's own case for the A.Y. 2003-04 in ITA No.248 & 249/Bang/2008 dated 27.11.2007 wherein the ITAT held that deduction u/s. 10A is allowable even on transfer pricing adjustment, provided it does not enhance the returned income. 35. Aggrieved by the order of the CIT(A), the revenue has raised grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative during the course of proceedings has referred to the word 'enhanced'. In case the income is enhanced, then deduction is not permissible. However, in the instant case, income has not been enhanced because the same was already returned by the assessee. In the Memo Explaining the Provisions of Finance Bill, 2006, it has been mentioned as under : " [2006] 201 CTR (St) 147: [2006] 281 ITR (St) 196 "Under sub-section (4), it has been provided that on the basis of arm's length price so determined, the Assessing Officer may compute the total income of an assessee. The first proviso to sub-section (4) provides that where the total income of the assessee as computed by Assessing Officer is higher than the income declared by the assessee, no deduction under section 1OA or section 10B or under Chapter VI-A will be allowed in respect of the amount of income, by which the total income of the assessee is enhanced after computation of income under sub-section." 23. From the Memo Explaining the Provisions of Finance Bill, 2006 as well as from the literal meaning of the word 'enhanced', it is clear that if income increased, as a result of computation of arm's length price, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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