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TMI Blog2020 (6) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... d off by way of this consolidated order for convenience. 2. First, we take up the appeals for assessment year 2007-08. The grounds raised by the assessee and the Revenue in ITA No. 5524/Del/2013 and ITA No. 5491/Del/2013 for assessment year 2007-08 are reproduced as under: Grounds of appeal of the assessee: 1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding disallowance of Rs. 44,00,739/-, claimed under section 35DD of the Income Tax Act, 1961 ("the Act") in respect of 1/5* of demerger expenses incurred by the appellant. 1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in holding that in terms of section 35DD of the Act, demerger expenses are allowable only in the hands of the demerged company and not in the hands of the resultant company. 1.2 That the Commissioner of Income-Tax (Appeals) failed to appreciate that the claim of appellant was sustainable in law inasmuch as the appellant had fulfilled all the conditions for claiming deduction under section 35DD of the Act. 2. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in sustaining disallowance to the extent of Rs. 82,05,031/- under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the deduction claimed by the assessee u/s 10B of the Act by not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as different branches of the same tree. 1.1 On the facts & in the circumstances of the case and in law, the Id.CIT(A) has erred in not appreciating the fact that the assessee is maintaining single books of accounts for all units i.e. those which are covered for deduction, as well as those which are not covered for deduction. It is only for the purpose of computing deduction u/s 10B that the assessee has tried to allocate the expenses between these units and compute their profits. 1.2 On the facts & in the circumstances of the case and in law, the Id.CIT(A) has erred by holding that independent books of accounts are not required to be maintained under the provisions of section 10B of the I T Act, since the language of form 56G starts with " I/we have examined the accounts and records " which makes it clear that the assessee has to maintain separate books of accounts. The annexure "A" of Form 56G also requires the details of total profit of the business etc. & keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the assessee filed return of income on 30/10/2007 declaring total income of Rs.1,03,47,201/- after claiming deduction of Rs. 106,43,88,624/- under section 10B of Income-tax Act, 1961 (in short 'the Act'). The case was selected for the scrutiny assessment and notice under section 143(2) of the Act was issued and complied with. The scrutiny assessment u/s 143(3) of the Act was completed on 30/12/2010 after making certain additions/disallowances. On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A), both assessee and the Revenue are in appeal before the Tribunal raising respective grounds reproduced above. ITA No.5524/Del/2013 (Assessee's Appeal) 4. The ground Nos. 1 to 1.2 of the appeal of the assessee relate to disallowance of Rs.44,00,739/-, which was claimed by the assessee as deduction under section 35DD of the Act. 4.1 The facts qua the issue in dispute are that the M/s. NIIT Ltd. was demerged pursuant to a scheme of demerger approved by the Hon'ble High Court of Delhi with effect from 01/04/2003. As a result of that demerger, the units of 'NIIT Ltd.' not eligible for deduction under section 10B of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay Dyeing and Manufacturing Company Ltd., reported in 219 ITR 521, which was rendered prior to the insertion of section 35DD of the Act. The Ld. Counsel also submitted that the CBDT Circular No. 779 dated 14/09/1999 has explained the scope and legislative intent behind insertion of the aforesaid provision. According to him, in the said circular also nowhere the resultant company has been debarred from claiming such expenditure under section 35DD of the Act. The learned counsel submitted that the Assessing Officer/CIT(A) has failed to appreciate that the word "assessee" refers to either or both the companies i.e. the demerged company/resultant company, being Indian companies who incur any expenditure in relation to such merger/demerger. According to him, the expression "assessees" has not been used by the legislature due to the fact that in the event of the merger, the amalgamating company gets automatically dissolved and loses its independent identity and both the amalgamated and, amalgamating companies never exist together post the merger, so as to claim 1/5th of the deduction of the demerger/merger expenses. The uses of the word "assesseees" would have resulted in ambiguity in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or demerger takes place. (2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act." 4.6 In the above section the deduction has been allowed to the "assessee" for expenditure incurred wholly and exclusively for demerger of an undertaking. Since demerger of the undertaking(s) in the instant case has taken place from the parent company M/s NIIT Ltd, the word "assessee" here refers to M/s NIIT Ltd. and not the target company M/s NIIT Technologies Ltd. i.e. the Assessee, with whom the undertakings of M/s NIIT Ltd. got merged. In our opinion the language of the section is clear and there is no ambiguity, as who is entitled to claim the said deduction. In case of demerger, where the undertaking(s) which get demerged, may result in new entity and in said circumstances, the resultant company cannot incur expenditure before its birth. It is the parent entity, who initiates demerger of the undertaking(s) and incur expenditure for legal and professional expenses in relation to such demerger. The resultant company, come into existence as a result of demerger only, the word "assessee" in section 35DD of the Act canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the wrong path until you fall over the edge of the cliff." Here we find that there are overriding considerations which compel us to reconsider and review the decision in Cloth Traders' case (supra). In the first place, the decision in Cloth Traders' case (supra) was rendered by this Court on 4th May, 1979, and immediately thereafter, within a few months, Parliament introduced s. 80AA with retrospective effect from 1st April, 1968, with a view to overriding the interpretation placed on s. 80M in Cloth Traders' case (supra). The decision in Cloth Traders' case (supra) did not, therefore, hold the field for a period of more than a few months and it could not be said that any assessee was misled into acting to its detriment on the basis of that decision. There was no decision of this Court in regard to the interpretation of sub- s. (1) of s. 80M prior to the decision in Cloth Traders' case (supra) and there was therefore no authoritative pronouncement of this Court on this question of interpretation on which an assessee could claim to rely for making its fiscal arrangements. The only decision in regard to the interpretation of sub-s. (1) of s. 80M given by any Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust be overturned." 4.8 In view of the above decision of the Hon'ble Supreme Court, we reject the contention of the learned Counsel of the assessee to allow the deduction under section 35DD of the Act, following rule of the consistency. 4.9 In view of the above discussion, we uphold the finding of the Ld. CIT(A) on the issue in dispute. Accordingly, the grounds No. 1 to 1.2 of the appeal of the assessee are dismissed. 5. The ground Nos. 2 to 2.4 of the assessee relates to disallowance of Rs. 82,05,031/- under section 14A of the Act, which include disallowance of Rs. 37,33,490/- towards indirect interest expenditure and Rs. 44,71,541/- towards administrative expenses. 5.1 The facts qua the issue in dispute that during the year under consideration, the assessee shown investment in mutual funds at Rs. 144,42,73,807/- and received dividend income amounting to Rs.1,66,74,318/- in respect of the units held in various mutual funds, which was claimed as exempt under section 10(33)/10(34) of the Act. In the return of income filed, the assessee did not make suo motu disallowance under section 14A of Act for expenses incurred towards earning exempt income. The Assessing Officer was not sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment including the investment made in foreign subsidiary companies. The ld. CIT(A) computed the disallowance related to interest expenditure at Rs. 37,33,490/- after excluding the interest incurred on vehicle loans etc. observing as under: "8.6.5 The exempt dividend income are earned from mutual fund investments which had gone up from Rs. 20.30 crores to Rs. 83.59 crores during the year. The secured loans are for vehicle loan and non-convertible debentures only. Unsecured loans borrowed were repaid during the year. The interest expenditures are incurred on vehicle loan (interest Rs. 13,05,415/-), borrowing repaid during the year (interest Rs. 6,82,740/-) and non-convertible debentures (interest Rs. 1,77,19,178/-). Vehicle loan being for specific purpose for vehicles, therefore, its interest is not attributable to the investments from which the exempt dividend income is earned. As such, the AO is not justified in considering the entire interest expenditure which includes the vehicle loan interest also for the purpose of disallowance u/s 14A. 8.6.6 The non-convertible debentures of Rs. 50 crores were issued in the AY 2004-05, the year in which the shares in NIIT GIS ltd. (Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture on account of debenture (65% of Rs. 1 77 crores) + 6,82,740/- = Rs. 1,15,17,465/- + 6,82,740/- = 122,00,205/- B: Average value of investment (excluding investment foreign companies) income from which doe's not or shall not form part of the total income = (133,55,97,392 + C: Average total assets = Rs. 292,23,98,024/- Therefore, the indirect interest expenditure incurred during the previous year in relation to income which does not or shall not form part of the total income is = A x B/C = 122,00,205 x 89,43,08,292 / 292,23,98,024 - Rs. 37,33,490/-" 5.3 With regards to administrative expenses and management expenses, the learned CIT(A) sustained the disallowance of Rs.44,71,541 at the rate of 0.5% of the average value of the investment excluding investment in foreign subsidiary companies observing as under: "8.6.8 With regard to administrative and management expenses during the relevant previous year mutual funds investments have increased from Rs. 20.30 crores as on 31/03/2006 to Rs. 83.54 crores as on 31/03/2007 Investment in fully paid equity shares in NUT Smartserve ltd. have increased from Rs. 25 crores to Rs. 50 crores from which tax free dividend income will ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and management expenses works out to Rs. 82,05,031/- (44,71,541 + 37,33,490). Considering the above the disallowance made by the AO u/s 14A is reduced from Rs. 1,79,17,211 /- to Rs. 82,05,031/-." 5.4 Before us, the Counsel of the assessee referred to various decision of the Hon'ble courts and submitted that for making disallowance under section 14A of the Act till assessment year 2007-08, the Assessing Officer must satisfy following: (a) there must be some actual expenditure incurred (b) such expenditure must be incurred in relation to earning exempt income, which means that there must be some nexus between the actual expenditure and actual exempt income and (c) the Assessing Officer must on the facts, record satisfaction that having regard to the accounts of the assessee sumo disallowance if any under section 14A of the Act is not correct. 5.5 The learned Counsel submitted that no disallowance under section 14A is warranted in the present case as the Assessing Officer has not recorded proper satisfaction as mandated under section 14A of the Act. 5.6 Regarding the disallowance out of interest expenditure, the learned Counsel submitted that no portion of the borrowed funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, income wherefrom is received directly in the banks. Further, the assessing officer has not been, it is submitted, able to point out any specific expenditure incurred in relation to exempt income. Re (b): Development and bought expenses As regards development and bought out expenses, kind attention is invited to Note- 15 of the audited annual accounts for the relevant assessment year 2007-08(refer page no. 600 of PB Vol-II). On the perusal of the same, it may kindly be appreciated that these expenses includes bought out items, professionals charges, equipment hiring, consumables and others, which has no relation to the earning of exempt income and are purely in the nature of day to day expenses. Re (c): Administration and Other expenses As regards other expenses, viz., administrative and operating expenses, kind attention is invited to Note-16 of the audited annual accounts for the relevant assessment year (refer page 601 of the PB - Vol-II). On perusal of the same, may kindly be appreciated that all expenses are in the nature of day-to-day expenses and the same cannot be held to be relatable, directly or indirectly, to the exempt income earned by the appellant. Such exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and solitary ground of the assessee in cross- objection is allowed" Re (d): Marketing With regard to marketing expenses, it is respectfully submitted that no advertising and publicity expenses were incurred in relation to exempt income earned from investment as the business of the appellant is to provide software services and solutions & systems integration and such amount had been incurred as the normal day to day business operations. The same, therefore, cannot be held to be relatable, directly or indirectly, to the exempt income earned by the appellant. Re (e): Depreciation and Amortization Expenses Insofar as depreciation/amortization is concerned, it is respectfully submitted that the same is non-cash expenditure and is basically in the nature of charge on the fixed assets utilized for business purposes, which cannot be subject matter of disallowance under section 14A of the Act. Reference in this regard may be made to the decision of the Special Bench of the Tribunal in the case of Vishnu Anant Mahajan vs ACIT: 137 ITD 189 held that depreciation cannot be disallowed under section 14A of the Act. The pertinent observations of the Tribunal read as under: "8. Coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer has expressed dissatisfaction on the claim of the assessee that no expenses were incurred for earning the exempt income, which is evident from following paragraph of the assessment order: "5.2. No income, whether exempt or not, can be earned without making some expenditure. Often times such expenditure are not segregated in the accounts of the assessee and remain clubbed with overall administrative/financial and other expenses for the business as a whole. It thus becomes the duty of the AO to reasonably allocate expenses relatable to such income and disallow the same. Section 14A of the Act (inserted by the Finance Act. 2001 with retrospective effect from 1.4 1962) specifically addresses this issue by providing that 'no deduction shall be allowed in respect of expenditure incurred in relation to such income which does not form part of total income' under the Act. Further, sub-section (2) of Section 14A empowers the AO to determine the amount of expenditure incurred in relation to exempt income in accordance with the method as may be prescribed. The method has since been prescribed by insertion of Rule 8 D of the I T Rules. 1962 w.e.f. 24.3.2008. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second contention of the assessee is that no disallowance should be made for interest expenditure in view of sufficient own funds available with the assessee. The details of position of the funds of the assessee as on 31/03/2006 and 31/03/2007 filed by the assessee in paper-book is reproduced as under: Particulars 2007 Rs. In million 2006 Rs. In million Liabilities Share Capital 395 400 Reserves 2,575 1,770 Loan 267 438 Current and Other Liabilties 748 569 Total 3,985 3,177 Assets Rs. In million Rs. In million Fixed Assets 602 591 Investments in Subs 1,132 881 Investment in Mutual funds 835 203 5.16 In the case of the assessee share capital and reserve funds available are in far access to investment made by the assessee in mutual funds i.e. investment in assets yielding exempt income. The Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd. in (2009) 313 ITR 340 has held as under : "10. If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Limited (supra) has held it for considering disallowance towards administrative expenses, the investment which has yielded exempt income during the year under consideration should only be considered. 6.1 The assessee before the Ld. CIT(A) has accepted 20% of the certain expenses towards salary etc. of employees engaged in investment activity. Thus, the contention of the assessee that no expenses have been incurred for earning the exempt income is not acceptable and some expenses on salary, rent and other office expenses definitely goes toward earning of the exempt income. In absence of any bifurcations of the expenses, a reasonable estimate has to be made for such disallowance. Respectfully, following the decision of the Hon'ble Delhi High Court in the case of ACB India Ltd (supra) and special bench Tribunal in the case of Vireet Private Limited (supra), we direct the Assessing Officer to restrict the disallowance at 0.5 % of the value of assets which has yielded exempt income during the year under consideration. The ground of the appeal of the assessee is accordingly partly allowed. 6.2 The Ground Nos. 3 to 3.2 the appeal of the assessee relate to bed debt claim of Rs. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the above the claim of bad debts are not allowable. The alternative submission of the appellant is that the bad debts written off should have been allowed as trading loss. The above submission is also not sustainable because no such claim for deduction as trading loss was made in the profit & loss account. The claim made in the P&L account was as bad debts which is not sustainable because as stated earlier, the appellant failed to furnish the particulars to substantiate that bad debts were shown as good debts as on 31/03/2006. In view of the above, the disallowance of bad debts of Rs. 3.59 crores made by the AO is justified and as such confirmed. The appeal fails in this ground." 6.5 Before us the learned Counsel of the assessee submitted that if opportunity is provided to the assessee, all the details as required by the Ld. CIT(A) shall be provided and issue may be decided afresh. 6.6 The Learned DR relied on the order of the Ld. CIT(A) and submitted that in absence of the information whether the debt in respect of the parties was in existence as on 31/03/2006, the Ld. CIT(A) was justified in sustaining the disallowance. 6.7 We have heard the rival submission and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. In absence of any specific method, the only lawful basis of allocating the expenses towards different unit has to be on the basis of the revenue generated by the said units. The Learned Assessing Officer mentioned that as per subsection (4) of section 10B of the Act, first the profit of the business has to be computed under the head 'profit and gains of the business or profession' and in then profit is to be apportioned between the export turnover and the local turnover. Accordingly, the Assessing Officer computed the deduction under section 10B of the Act allowable to the assessee at Rs.89,68,09,126/- as follows: Total profit of the business X Export Turnover/Total Turnover =113,86,62,502/- X 234,04,66,797 297,16,48,815 =Rs. 89,68,09,126/- 7.2 The Ld. CIT(A) followed the finding of his predecessor in assessment year 2006-07 and allowed the deduction under section 10B of the Act claimed by the assessee with following observations: "8.1.3 The AO allowed the deduction u/s 10B with reference to the global profits of the assessee as a whole and not with reference to the profits of the eligible undertaking. The above view of the AO is erroneous becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking to maintain separate books of accounts and the claim for deduction u/s I0A/10B cannot be denied to any assessee on this ground. 8.1.5 Even in the instant AY 2007-08 the three units in respect of which deduction u/s I0B have been claimed viz NTL-Salt Lake - Kolkata, NTL-Bannerghatta Road, Bangalore & NTL- Athena, New Delhi are the same units which were also claiming the deduction u/s 10B in AY 2006-07. Each of the units have got separate approvals from the STP1 Authority for claiming exemption u/s 10B of the Act and they have also been issued separate licenses for custom bonded warehouse under 100% LOU STP scheme by the Customs authorities. These units have separate locations in far-flung areas such as Kolkata, Bangalore & New Delhi as is indicated from their respective addresses. Therefore, there cannot be any dispute that these are independent & separate units and as such each of the units have to be treated as the eligible undertakings for the purposes of deduction u/s 10B of the Act. 8.1.6 The appellant has explained that in the ERP Software accounting system implemented by them, each and every transaction of each unit is separately coded and, therefore, all the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve finding of their predecessors in assessment year 2006-07. We find that the Tribunal in assessment year 2006-07 in ITA no. 3076/Del/2012 has dismissed the grounds of the appeal of the revenue against the deduction under section 10B allowed by the Ld. CIT(A). The finding of the Tribunal is reproduced as under: "5. We have heard both the sides and perused the entire materials on record and we find that the ld. CIT(A) has dealt with the issue in the impugned order in right perspective and we do not find any justification to discard the findings reached by him. For ready reference, the findings of the ld. CIT(A) are reproduced hereunder : 2.4 I have carefully considered the facts of the case, the arguments of the appellant, the observations made by the AO in his remand report and the rejoinder of the appellant. First of all, I would like to decide the issue of the admission of the additional evidence as sought to be adduced by the appellant. In their application for admission of additional evidence, the appellant have taken the following grounds: (i) That the aforesaid additional evidence only seek to further corroborate/substantiate the contention of the appellant that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble High Court of Delhi with effect from 1.04.2003. That is why the documents relating to the demerged eligible units, executed prior to the effective date, i.e., 4.06.2004, are in the name of the demerged company, i.e., NIIT Ltd. To my mind, these documents are material to decide the question as to whether the EOUs are to be treated as separate undertakings or they are in fact expansion of the business of the appellant company as held by the Assessing Officer. The Hon. Jurisdictional High Court in the case CIT vs. Text Hundred India Pvt. Ltd.: 239- CTR 263, held that Rule 29 enables the Tribunal to admit any additional evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is handmade for justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence. In the case of CIT v. Virgin Securities & Credits (P) Ltd.: 332 ITR 396 (Del), the Hon. jurisdictional High Court held that the CIT(A) may admit additional evidence, after obtaining a reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resources etc. They have got separate approvals from the- STPI Authority for claiming exemption ills 108 of the Act as newly set up 100% EOU and they have also been issued separate export licences by the Customs authorities. These units have separate locations as is indicated from their respective addresses. The appellant has also produced evidences to establish that they have separate fixed assets, plants & machinery and furniture and fixtures etc. Each of the EOUs have independent, separate and distinct operations as indicated in the evidences produced in the form of copies of softex forms, copies of the invoices, copies of foreign inward remittance certificates, copies of custom bonded register maintained by each unit and copies of Monthly performance reports on sample basis. Though separate books of accounts in respect of units have not been maintained in the traditional sense, the appellant has explained that in the ERP Software accounting system implemented by them each and every transaction of each unit is separately coded and therefore all the transactions are identifiable as in the case of separate books. Moreover, the deduction has been claimed' in respect of the EOUs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han Co-operative Industrial Estate, Mathura Road, New Delhi. are-separate 100% EOUs of the appellant company for the purposes of claiming deduction u/s 10 B of the Act and they cannot be treated as one with the appellant company just because they carry out the same nature of business. As has been held in the cases of CIT v Mahan Foods Ltd. 216 CTR 148 and CIT v Gedore Tools (India) P.Ltd. 126 ITR 613 by the Hon. Jurisdictional High Court, just because the new undertaking carries en the same nature of business as the old unit, it cannot be treated as one with the old unit unless it has been formed by splitting up or reconstruction of the old unit. It is not the case of the AO that in the instant case, the eligible units have been formed by splitting up or reconstructing the old .or non-eligible units. Since there is enough evidence in the appellant's case that the Expert Oriented Units were formed independently of the existing units for the purpose of export of software and they were approved as such by the relevant authorities, and that they have functioned independently of each other for the purposes of the business of expert of software, these units have to be treated as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Cummins Infosystems (Bangalore) (P) Ltd. V. ACIT: (2008) 26 SOT 529 (Bang,) * Reliq Software (P) Limited V. ITO: 125 ITO 101 (Bang.) Besides the above decisions cited in their written submissions, the appellant's AR also brought to my attention the judgement of Hon. Karnataka High Court in the case of Yokogawa India Ltd. : 246 CTR 226 (Kar), wherein this issue has been examined by the Hon. High Court and decided in the favour of the assessee. The AR has argued since the provisions of section 10A are analogous to the provisions of section 10B the ratio laid down by the above said judicial pronouncements are applicable to the appellant's case also. 2.4.5.1 I have perused the judicial pronouncements as relied upon by the Assessing Officer and the appellant. In the case of CIT vs. Himmatsingike Seide Ltd. 286 ITR 255, the assessee had 100% Export Oriented Undertaking eligible for deduction under section 10B of the Act. The undertaking was set up in the assessment year 1988-89. The assessee, however, claimed deduction for five consecutive years from assessment year 1992-93. The year under consideration before the Hon Court was assessment year 1994-95. The assessee had una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case and that the reliance placed by the Assessing Officer on that case is somewhat misplaced. 2.4.5.2 In the case of Scientific Atlanta India Technology (P) Limited: 38 SOT 252 I 129 TTJ 273 as relied upon by the appellant, it has been held by the Special Bench of the Tribunal as under: "Under the scheme of the Act the profits of the unit eligible for deduction under section 10A of the Act," would form part of the income computed under the head "Profits and gains of business and profession". However, in order the same will not suffer tax deduction will have to be made -in respect of such profits while computing the income under the head "Profits and gains of business and profession". In other words, a deduction in respect of profits eligible under section 10A is required to be made at the stage of computing the income under the head' "Profits and gains of business or profession". Thus, we find that what is contemplated by the Legislature is that profits and gains of the undertakings from the export of articles or things or computer software are to. be deducted computing the profits and gains of business or profession (at hundred per cent upto assessment year 2002-03 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10A for the purpose of determining the allowable deduction under section 10A of the Act. Of course, if there are more than one undertaking which is eligible for deduction under section 10A and if some of the units have profit and other units have loss, it would be an entirely different case which is before us. Hence, the decision rendered in this appeal would not-be applicable to such cases where there are more than one eligible undertaking claiming deduction under section 1OA. In this case, there is only one eligible unit claiming deduction under section 10A and hence, the loss from non-eligible unit cannot be set off against the profits of the eligible unit while determining deduction under section 1OA.II (emphasis supplied) 2.4.5.3 In the case of ACIT v. Yokogawa India Ltd.: 111 TTJ 548 the Bangalore Bench of Tribunal held that deduction under section 10A shall be allowed from the profits of eligible undertaking without setting off the losses or carry forward losses of other non-eligible divisions. This decision was subjected to appeal u/s 260A by the Revenue and the Hon. High Court of Karnataka has given its verdict in ITA No. 78/2011 dated 9th August 2011, reported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains from business or profession" as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 1O-A (1) is, therefore to be understood as the total income of the STP unit. This is clear from the first proviso to section 10-A (1) which make reference to the total income of the undertaking and not the total income of the assessee, The definition of any term given in section 2 will only apply when the context does not otherwise require. - The placement language an-d setting of section 10-A means profits and gains of the STP undertaking as understood in its commercial sense. 15. As relief under section 10-A is in the nature of exemption although termed as deduction and the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore the twin provisions of section 14 are not existing .in the case of income of STP undertaking and accordingly such income is not liable to be computed under chapter IV. Therefore the correct view would be that the relief under section 10-A will have to be given before chapter IV The deduction shall be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude that section 10A deduction is to be given effect to after Chapter VIA deductions are exhausted. 18. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at, after giving effect to all deductions under the Act. There cannot be any further deductions from the total income as the total income is itself arrived at after all deductions. 19. From the aforesaid discussion, 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 section IDA in this context means the global income off the assessee and not the total income as defined in section 2(45). ........................................ 27. Form No.1 read with Rule 12 of the Income Tax Rules, 1962 provides for return of income and return of fringe benefits. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others, as given with reference to the provisions of section 10A which are analogous provisions of section 1DB, it is held that the deduction u/s 1DB is allowable at the source itself and not after computation of Gross Total Income as per the provisions of the Act. The second substantive issue is, therefore, also decided in favour of the appellant and the Assessing Officer is hereby .directed to re-compute the deduction u/s 10B accordingly. This disposes off Ground Nos. 1, 2 & 3. (Allowed) 6. Finding no infirmity in the detailed order of the ld. CIT(A) we find no merit in the appeal of the Revenue. Accordingly, the Revenue's appeal deserves to be dismissed sans merit." 8.5 We find that following grounds were raised in assessment at 2006-07: "1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as difference branches of the same tree. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not noting the fact that the assessee in maintaining single books of accounts for all its un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or taking plot of land on lease for development of IT Park for a period of 90 years. 9.1 The facts qua the issue in dispute that the assessee had taken on lease plot No. 2A at sector Techzone (IT Park) situated in GNIDA, Gautam Buddhnagar (UP). The deed of lease was executed on 12/01/2007 for the purpose of construction of the project with integrated, ready to use office space and land and social infrastructure so as to develop IT industries and IT enabled services (i.e. SEZ) in Greater Noida. The assessee was obliged under the lease deed to complete the construction of the whole project and facilities within seven years from the date of the execution of the lease deed according to the layout in the building plan to be approved by the GNIDA. The lease term is of 90 years commencing from 12/01/2007 with the right of the GNIDA reserved. In accordance with the terms of lease agreement dated 12/01/2007 entered into between the assessee and the GNIDA , the assessee had option to either pay (a) the advanced annual rent on yearly basis or (b) commuted one time lease for the period of the lease, and no lease rent would be payable by the assessee during the lease period as chargeable from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82 ITR 376 (SC) and Madras Auto Services (P) Ltd 233 ITR 468 (SC) allowed the claim of the assessee observing as under: "8.5.2 The appellant submitted that it had claimed deduction of Rs. 77,98,042 on account of payment of commuted lease rentals to Greater Noida Authority for Plot No. 2A taken on lease situated in Greater Noida Industrial Development Area District, Gautam Budh Nagar. The appellant had the option to either pay (a) the advance annual rent on yearly basis ; or (b) commuted one time lease rent for the period of lease and no lease rent would be payable by the appellant during the lease period. The appellant opted for option (b). The deed of lease was executed on 12th January, 2007. The lease term is of 90 years commencing from 12th January, 2007, with the right of the Greater Noida Industrial Development Authority reserved. It is submitted that the appellant under the lease deed with the Greater Noida Industrial Development Authority has agreed to develop SEZ in Greater Noida by constructing the project with integrated, ready to use office space and land and social infrastructure, etc. The appellant is obligated under the lease deed to complete the construction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new building, however, from inception was to belong to the lessor and not to the assessee. The assessee, however, had the benefit of the existing lease in respect of the new building at the agreed rent for a period of 39 years The assessee claimed deduction for the entire amount spent on construction of the building as revenue expenditure. Hon'ble Supreme Court in the said case observed: "In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. Thus, it is clear that the expenditure incurred by the assessee is not capital expenditure. The expenditure was to be incurred on year to year basis for the period of lease of 90 years. The lesser gave the assessee two option. The first option was to pay on year to year basis and claim the same as revenue expenditure. The second option was provided by the lessor was to pay a composite amount for the period of lease as onetime payment. The lessor provided some benefit for making onetime payment. The assessee has chosen the second option and paid the entire lease rent of 90 years as composite onetime payment. Thus, in our opinion, the liability of 90 years has been paid in one year only. In such circumstances, the liability of lease rent relatable to year under consideration would be 1/90th of the amount paid and balance amount would be pre-paid advance rent only. The assessee is entitled to claim 1/90th of the amount every year till the period of lease of 90 years as revenue expenditure. Even according to the matching principles of income and expenditure the entire expenditure is not justified for allowance in one year (i.e. the year under consideration) when the income c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the Appellant on the issue of non-convertible debentures, without appreciating that the said shares alongwith the debentures were acquired by the appellant as part of the demerged Global Software Business Undertaking that vested in the Appellant w.e.f 01.04.2003. 2.3 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in disallowing administrative expenses to the tune of Rs. 62,11,454/, without appreciating that the suo moto disallowance, amounting to Rs. 7,79,069/-, made by the Appellant was reasonable. 2.4 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in observing that the appellant failed to discharge its onus in substantiating that no expenditure in addition to expenditure suo moto offered by disallowance was incurred in relation to earning to exempt income. Grounds of appeal of the Revenue: 1. On the facts & in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the deduction claimed by the assessee u/s 10B of the Act by not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as different branches of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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