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Canam International Pvt. Ltd. 23, Prakash Apartment,5, Ansari Road, Darya Ganj New Delhi. Vs. ACIT, Circle 3(1), New Delhi.
November, 25th 2014
                        IN THE INCOME TAX APPELLATE TRIBUNAL
                              DELHI BENCH : `B : NEW DELHI

                    BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER
                                        AND
                      SHRI GEORGE GEORGE K., JUDICIAL MEMBER

                                   ITA No.1885/Del /2010
                                Assessment Year : 2005-2006

Canam International Pvt. Ltd.        Vs.         ACIT, Circle 3(1),
23, Prakash Apartment,                           New Delhi.
5, Ansari Road, Darya Ganj
New Delhi.

(PAN AABCC 5336 K)

                                   ITA No.2034/Del /2012
                                Assessment Year : 2007-2008

Canam International Pvt. Ltd.       Vs.             ACIT (OSD)
23, Prakash Apartment,                              CIT-1
5, Ansari Road, Daryaganj                           New Delhi
New Delhi.
(PAN AABCC 5336 K)

    (Appellant)                              (Respondent)

                  Appellant by :      Shri Sandeep Sapra, Advocate
                  Respondent by:      Smt. Parminder Kaur, Sr. D.R.

                                            ORDER

    PER SHRI GEORGE GEORGE K, JM:
    1.            These are appeals by the assessee against the orders of the CIT (A)

    dated 19.02.2010 and 30.03.2012 respectively. The relevant assessment years are

    2005-06 and 2007-08.

    2.            Since common issues are involved in these appeals and they pertain to

    the same assessee, these were heard and disposed off in this consolidated order.

    3.            In ITA No.1885/10 for the AY 2005-06, the solitary issue that arises for our

    consideration is: Whether the CIT (A) was justified in confirming the AO's order whereby
                                              2
                                                                       ITA No.1885/Del/2010
                                                                       ITA No.2034/Del/2012
                                                                       A.Y.2005-06 & 2007-08




deduction u/s 10A of the Act was reduced on account of adjustment of unabsorbed

business loss and depreciation?

4.           The brief fact in relation to this issue is as follows:

             The assessee for the AY under dispute claimed deduction u/s 10A of the

Act amounting to Rs.93,38,312/-. In the assessment completed u/s 143(3) of the Act,

the claim of deduction was reduced to Rs.81,55,777/-. The claim of deduction u/s 10A

of the Act was reduced on account of adjustment of unabsorbed business loss and

depreciation of Rs.16,49,809/- [A.Y. 2004-05].

5.           On further appeal, the CIT (A) decided the issue against the assessee

following the findings ofthe Delhi Tribunal in the case of Global VantedgePvt. Ltd v.

DCIT (2010) 1 Taxmann.Com 12 [(2010) 001 ITR (Trib) 326 (Delhi)].

6.           The assessee, being aggrieved, is in appeal before us. The learned AR

submitted that the issue in question is covered by the judicial pronouncements as listed

out below:

(i) CIT v. TEI Technologies Pvt. Ltd. 361 ITR 36 (Del);
(ii) CIT v. Black and Veatch Consulting Pvt. Ltd 348 ITR 72 (Bom);
(iii)CIT v. Yokogawa India Ltd 341 ITR 385 (Kar);
(iv) CIT v. Tata Elxsi Ltd 349 ITR 98 (Kar);
(v) CIT v. ACE Software Exports Ltd. in Tax Appeal No.831 of 2012 dt.1.3.2013;
(vi) Valueprocess Technologies (I) (P) Ltd v. ITO 141 ITD 447 (Mum);
(vii) Enercon Wind Farms (Krishna) Ltd v. ACIT 21 SOT 29 (Mum); &
(viii)KPIT Cummins Insosystems (Bangalore) (P) Ltd v. ACIT 120 TTJ (Bang) 956

7.           The learned DR was unable to controvert the submissions of the

assessee's counsel..

8.           We have considered the rival submissions and carefully perused the

relevant materials on record.     We have, with due regards, perused various judicial

pronouncements on the issue which are as under:
                                            3
                                                                       ITA No.1885/Del/2010
                                                                       ITA No.2034/Del/2012
                                                                       A.Y.2005-06 & 2007-08

                (i)      The Hon'ble jurisdictional High Court in the case of TEI

Technologies Pvt. Ltd. (supra) had held as under:

  "We have already seen that section 10A, as it presently stands, though
  worded as deduction provision, is essentially and in substance an
  exemption provision. We have also held that the implication of an
  exemption provision is that the particular income which is exempt from tax
  does not enter the field of taxation and is not subject to any computation.
  The computation provisions of the Act do not get attracted at all to the
  exempted income. These judgments, therefore, are not apposite to the
  controversy before us."

              (ii)    The Hon'ble Bombay High Court, in the case of CIT V. Black and

Veatch Consulting Pvt. Ltd. (supra) on an identical issue, had ruled as under:

  "What the Revenue in essence seeks to attain is to telescope the provisions
  of Chapter VI-A in the context of the deduction which is allowable under
  section 10A, which would not be permissible unless a specific statutory
  provision to that effect were to be made. In the absence thereof, such an
  approach cannot be accepted. In the circumstances, the decision of the
  Tribunal would have to be affirmed since it is plain and evident that
  deduction under section 10A has to be given at the stage when the profits
  and gains of business are computed in the first instance. So construed, the
  appeal by the Revenue would not give rise to any substantial question of law
  and shall accordingly stand dismissed."


             (iii) Further, in an identical issue, the Hon'ble High Court of Karnataka

in the case of CIT v. Yokogawa India Ltd (supra) has ruled as under:

  "As the income of section 10A unit has to be excluded at source itself before
  arriving at the gross total income, the loss of the non-section 10A unit
  cannot be set off against the income of the section 10A unit under section
  72. The loss incurred by the assessee under the head `Profits and Gains of
  business or profession' has to be set off against the profits and gains, if any,
  of any business or profession carried on by such assessee. Therefore, as
  the profits and gains under section 10A is not be included in the income of
  the assessee at all, the question of setting off the loss of the assessee of
  any profits and gains of business against such profits and gains of the
  under-taking would not arise. Similarly, as per section 72(2), unabsorbed
  business loss is to be first set off and therefore unabsorbed depreciation
  treated as current year's depreciation under section 32(2) is to be set off. As
  deduction under section 10A has to be excluded from the total income of the
  assessee the question of unabsorbed business loss being set off against
  such profit and gains of the under-taking would not arise. In that view of the
                                            4
                                                                      ITA No.1885/Del/2010
                                                                      ITA No.2034/Del/2012
                                                                      A.Y.2005-06 & 2007-08

     matter, the approach of the assessing authority was quite contrary to the
     aforesaid statutory provisions and the Appellate Commissioner as well as
     the Tribunal were duly justified in setting aside the said assessment order
     and granting the benefit of section 10A to the assessee........"

                (iv) On a similar issue, the Hon'ble Karnataka High Court, in the case of

CIT v. Tata Elxsi Ltd (supra), in consonance with its earlier ruling [341 ITR 385] decided

the issue in favour of the assessee.

9.            Further, we would like to clarify that the CIT (A) dismissed the appeal

following the order of the Tribunal in the case of Dy CIT v. Global VantedgePvt. Ltd.

(supra). The order of the Tribunal in case of Dy. CIT v. Global VantedgePvt. Ltd. relied

on the following judgments:

(i) ACIT v. Yokogawa India Ltd. [111 TTJ 548 (ITAT, Bangalore;
(ii) Changepond Technologies Pvt. Ltd. v. ACIT [22 SOT 220 (ITAT, Chennai],
(iii) CIT v. HimatasingikeSeide Ltd (286 ITR 255

10.           The above judgments are distinguishable as under:
              (I) As regards ITAT, Bangalore judgment [111 TTJ 548] in the case of
Yokogawa India Ltd, the Karnataka High Court has decided the issue in favour of the
assessee as mentioned in 341 ITR 385;
              (II) As regards ITAT, Chennai Bench judgment (22 SOT 220) in the case of
Changepond Technologies Pvt. Ltd., the said company was an Intervener in the ITAT,
Chennai special Bench judgment in the case of Scientific Atlanta India Technology (P)
Ltd v. ACIT reported in 129 TTJ 273 which has been decided in assessee's favour.
               (iii) As regards Karnataka High Court's judgment in 286 ITR 255 in CIT v.
HimatasigikeSeide Ltd the same has been distinghished in KPIT Cummins (Bangalore)
P. Ltd v. ACIT 120 TTJ (Bang) .


11.           The judgment of the Hon'ble Supreme Court in the case of M/s. MotiLal

Pesticides (I) Pvt. Ltd. v. CIT [243 ITR 26 (SC)] as relied on by the AO, we find that

there is no application to the facts of the assessee's case since the ruling of the Hon'ble

Apex Court was with reference to sections 80AA and 80AB of the Act. Further, if there
                                               5
                                                                       ITA No.1885/Del/2010
                                                                       ITA No.2034/Del/2012
                                                                       A.Y.2005-06 & 2007-08




is a difference of opinion or two views are possible on an issue, as laid down by the

Hon'ble Supreme Court in the case of Union of India v. Onkar S Kunwar and Others

reported in 258 ITR 761 (SC), `the view which is in favour of the assessee must be

adopted.'

12.             In the light of the above judicial views and our reasoning, we hold that

deduction u/s 10A of the Act is to be calculated before reducing the unabsorbed loss

and depreciation from the profits of the undertaking. It is ordered accordingly.

13.             In the result, the assessee's appeal [in ITA NO.1885] for the A.Y. 2005-06

is allowed.

                ITA No.2034/10 [AY 2007-08]:

14.             The two grounds raised by the assessee are as under:

      (1) That the authorities below were not justified in excluding exchange variation of
          Rs.7,85,820/- on share application money received from abroad from profits and
          gains of business; &

      (2) That the assessee was entitled to deduction u/s 10A of the Act without adjusting
          unabsorbed business loss/depreciation.

15.             Briefly stated, the facts of the issue are as under:

         The assessee had shown receipt from exchange valuation amounting to

Rs.22,49,963/-, out of which, Rs.7,85,820/- was on share application money. During

the course of assessment proceedings, the assessee was required to explain as to how

the income from exchange gain on share application money has been shown and as to

why deduction u/s 10A of the Act should be given on this money.                    After due

consideration of the assessee's contentions, the AO took a stand that the income from

exchange variations of share application money had no relevance with the nature of

business income eligible for deduction u/s 10A of the Act and, accordingly, included to

the income from `other source'.
                                           6
                                                                     ITA No.1885/Del/2010
                                                                     ITA No.2034/Del/2012
                                                                     A.Y.2005-06 & 2007-08

16.          Aggrieved, the assessee took up the issue, among others, before the CIT

(A).   During the course of hearing, the assessee submitted before the CIT (A) that "it

had shown the foreign exchange gain on share application money as other income

included in the net exchange variation on import and export of goods and had claimed

deduction u/s 10A on such exchange variations. At the time of filing of return the

appellant was not aware of the Delhi High Court judgment in the case of CIT v. Jagatjit

Industries Ltd reported as 191 Taxman 54 where such exchange variation has been

held as capital receipt. However at the time of regular assessment u/s 143(3) the

appellant had brought this judgment to the notice of the AO and had requested that the

income of Rs.785820/- should be excluded from taxable income and consequently the

deduction u/s 10A as claimed by the appellant should be withdrawn on this amount.

But the AO did not discuss this point in his order. It is, therefore, been submitted that

the exchange variation of Rs.785820/- should be excluded from appellant's income

even though by mistake the same was included by the appellant's in the taxable income

while filing the return [Source: Pages 2 & 3 of CIT (A)'s order]. However, after due

consideration of the assessee's contentions, the findings of the AO and also extensively

quoting the findings of the earlier Bench of this Tribunal in the case of Convergys India

Services Pvt Ltd. v. DCIT 2011 TIOL-352-ITAT-DEL,the CIT (A) dismissed this ground

with the reasoning that "...........The gain on exchange fluctuation in respect of share

application money will not be eligible for deduction u/s 10A.........."[Refer: Page 7 of

CIT(A)'s order].

17.                Before us, it was submitted that on the legal issue i.e., income of

Rs.7,85,820/- on account of gain due to foreign exchange variation in respect of share

application money received from abroad, though the ld. CIT (A) had reproduced the
                                            7
                                                                      ITA No.1885/Del/2010
                                                                      ITA No.2034/Del/2012
                                                                      A.Y.2005-06 & 2007-08

ground of appeal and submission of the assessee in his appellate order, the same has

not been adjudicated/ disposed off by the CIT (A) and, therefore, pleaded that the same

deserves to be set aside to the file of the CIT (A) or AO for consideration. In the

alternative, it was submitted that the assessee had shown the foreign exchange gain on

share application money as `other income' included in the net exchange variation on

import and export of goods and had claimed deduction u/s 10A on such exchange

variations. At the time of filing of return, it was submitted, the assessee was not aware

of the Delhi High Judgment in the case of CIT v. Jagatjit Industries Ltd reported in 191

Taxman 54 wherein it has been held that such exchange variation as capital receipt. It

was, further, submitted that at the time of regular assessment, the AO's attention was

drawn to the judgment of the Hon'ble jurisdictional Court and pleaded with him that the

income of Rs.7,85,820/- should be excluded from taxable income and consequently

deduction u/s 10A as claimed by the assessee should be withdrawn on this amount.

According to the assessee, the AO, however, did not discuss this point in his order. It

was, therefore, pleaded that the exchange variation of Rs.7,85,820/- should be

excluded from the assessee's income even though by mistake the same was included

by the assessee in the taxable income while filing its return.   The learned DR present

was heard.

18.          We have carefully considered the rival submissions and also perused the

findings of the CIT (A) on the issue. It is a fact that the assessee had raised this issue

before CIT (A) [ ground No.1] and also pleaded          that the exchange variation of

Rs.785820/- should be excluded from appellant's income even though by mistake the

same was included by the appellant's in the taxable income while filing the

return.However, while considering this ground, it was observed, the CIT (A) had neither
                                              8
                                                                         ITA No.1885/Del/2010
                                                                         ITA No.2034/Del/2012
                                                                         A.Y.2005-06 & 2007-08

adjudicated nor disposed off       the issue as to whether the exchange variation of

Rs.7,85,820/- should be excluded from the assessee's income or not?. The Hon'ble

jurisdictional High Court in the case of CIT v. Jagatjit Industries reported in 191 Taxman

54 has held as under:

  "Whether since entire money raised through issue of equity shares is to be treated as
  capital receipt, gains on account of foreign exchange fluctuations, in even such share
  capital has been collected in foreign exchange, would be capital receipt irrespective of
  end use of share capital? Held `Yes'.
              Against the ruling of the Hon'ble Court, the SLP filed by the Revenue was

dismissed by the Hon'ble Supreme Court vide its order dated 18.02.2011 In CC

86/2011.

19.           Since this issue was considered neither by the AO nor by the CIT (A), we

deem it appropriate to restore this matter to the AO for denovo consideration.         While

deciding the issue, the AO shall give reasonable opportunity to the assessee of being

heard and also keep in mind the dictum laid by the Hon'ble jurisdictional High Court in

the case referred above. Therefore, the alternative contention of the assessee which is

inter-linked to the first ground is also restored on the file of the AO for suitable action at

his end.

20.           The other ground of the assessee is that the assessee was entitled to

deduction u/s 10A of the Act without adjusting unabsorbed business loss/depreciation.

In this connection, we would like to point out that similar issue to that of the present was

considered in the AY 2005-06 in the assessee's own case wherein we have decided the

issue in favour of the assessee [Refer: para 8 to 13 (supra)]. As the issue is identical to

that of the issue raised for the AY 2005-06, our findings recorded for the AY 2005-06

(supra) hold good for this AY also. It is ordered accordingly.
                                            9
                                                                      ITA No.1885/Del/2010
                                                                      ITA No.2034/Del/2012
                                                                      A.Y.2005-06 & 2007-08

21.          In the result, the assessee's appeal for the AY 2005-06 is allowed and the

appeal for the AY 2007-08 is treated as allowed for statistical purpose.

      Sd/-                                                           Sd/-
  (J.S. REDDY)                                               (GEORGE GEORGE K.)
Accountant Member                                             Judicial Member

Dated: 21st November, 2014.

Aks/-
Copy forwarded to
1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
                                                        Asst. Registrar, ITAT, New Delhi

 
 
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