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TMI Blog2020 (9) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 (5) TMI 357 - SUPREME COURT] while holding that losses cannot be set off against profits of eligible unit. In view of the judgment of the Hon ble Apex Court, we direct the AO to calculate the deduction u/s.10A/ 10AA of the Act, without setting off the brought forward losses. It is ordered accordingly. Expenditure on buy-back of shares - revenue or capital expenditure - HELD THAT:- In view of the judgment of the Hon ble High Court of Karnataka in the case of CIT v. Motor Industries Co. Ltd. [ 2014 (10) TMI 1026 - KARNATAKA HIGH COURT] we hold that the expenses incurred by the assessee for buy-back of shares is allowed as a revenue expenditure. - IT(TP)A No.511/Bang/2016, IT(TP)A No.686/Bang/2016 - - - Dated:- 25-9-2020 - Shri A K Garodia, Accountant Member And Shri George George K., Judicial Member For the Revenue : Shri Muzaffar Hussain, CIT(DR), ITAT, Bengaluru. For the Respondent : Shri K.R. Vasudevan, Advocate ORDER PER GEORGE K., JUDICIAL MEMBER These are cross appeals against the final order of assessment passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] pursuant to the DRP s directions dated 21.12.2015. Relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. 20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. 21. On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. 22. In view of above discussion, we are of the considered view that these instant appeals are devoid of merits and deserve to be dismissed. Accordingly, all the connecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. b. The learned AO ought to have observed that no benefit of enduring nature was received by the company from buy back of shares. c. The learned AO ought to have appreciated that the alleged expenditure is allowable as business expenditure under section 37 of the Act as it satisfies all the prescribed conditions under the said section. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. The appellant prays accordingly. 4. We shall adjudicate the above grounds as under:- 4.1 Set off of brought forward losses: For the AY 2011-12, the assessee had operation in 3 units. 2 units in Bangalore (out of which deduction u/s. 10AA was claimed of one unit) and 1 unit in Mumbai for which deduction u/s. 10A was claimed. The taxable profits for the units for the year under consideration was as under:- Particulars Bangalore Unit (Taxable Unit) Bangalore Unit (10AA Unit) Mumbai Unit (10A Unit) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to ₹ 8,70,83,626. The AO in his final assessment order dated 27.1.2016 had recalculated the deduction u/s. 10A/10AA of the Act by reducing brought forward losses amounting to ₹ 1,01,40,720 . Accordingly in the final assessment order, deduction was allowed only to the extent of ₹ 7,69,42,906. The finding of the AO in this regard reads as follows:- c. Further, it is noticed that the assessee has claimed deductions u/s 10A and 10AA in respect of Bangalore Unit and Mumbai Unit before reducing the C/F losses of earlier years amounting to ₹ 1,01,40,720/- . Since as per the provisions of the Act, B/F losses has to be set off first before calculation of deduction u/s.10A/10AA, the loss carried forward is hereby adjusted against the profits of the 10A and 10AA Unit and the deductions are reworked and restricted accordingly. 4.1.5 Further, the conclusion of the AO reads as follows:- Hence, the eligible aggregate deduction u/s.10A Et 10AA is ₹ 7,69,42,906/- as against the claim of ₹ 8,70,83,626/-, The excess claim of ₹ 1,01,40,720/- is hereby disallowed and added to the total income. 4.1.6 In this context, the Hon ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. The accounting treatment under accounting principles and also under Section 77A (and related provisions) of the Companies Act, 1956, clearly supports this. The face value of shares bought back is reduced from the paid up capital and the surplus (premium) is debited to reserves such as securities premium account or other reserves (other than revaluation reserve). These provisions do not permit debiting the amount paid to profit and loss account for the year. So there is no infirmity in the order of the AO and the objection of the assessee is not accepted. 4.2.3 Aggrieved by the directions of the DRP, the assessee is in appeal before the Tribunal. 4.2.4 The ld. AR submitted that the issue in question is decided in favour of assessee by the judgment of the Hon ble jurisdictional High Court in the case of CIT v. Motor Industries Co. Ltd. ITA No.1064/2008 judgment dated 31.10.2014 (Karnataka High Court). 4.2.5 The ld. DR supported the orders of income-tax authorities. 4.2.6 We have heard the rival submissions and perused the material on record. The Hon ble High Court of Karnataka in the case of CIT v. Motor Industries Co. Ltd. (supra) has held as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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