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
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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:
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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
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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
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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'.
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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
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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
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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.
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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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