Case Law Details

Case Name : Tata Consultancy Services Ltd. Vs Assistant Commissioner of Income Tax (ITAT Chennai)
Appeal Number : IT Appeal No. 792 & 793 (MDS.) Of 2010
Date of Judgement/Order : 21/11/2012
Related Assessment Year : 2003- 04 & 2004- 05
Courts : All ITAT (4213) ITAT Chennai (210)

IN THE ITAT CHENNAI BENCH ‘C’

Tata Consultancy Services Ltd.

Versus

Assistant Commissioner of Income-tax

IT APPEAL NOS. 792 & 793 (MDS.) OF 2010

[ASSESSMENT Years 2003-04 & 2004-05]

NOVEMBER 21, 2012

ORDER

S.S. Godara, Judicial Member 

These two appeal of the assessee are directed against different orders of the Commissioner of Income Tax (Appeals) III Chennai in ITA No. 578/07-08/A.III and ITA No. 521/06-07/A.III; dated 16.03.2010 and 15.03.2010 for the assessment years 2003-04 and 2004-05, respectively, in proceedings under section 154 of the Income Tax Act 1961 [in short the “Act”] for the assessment year 2003-04 and under section 143(3) of the “Act” for the assessment year 2004-05. Since grounds raised are identical in both appeals, we take up I.T.A. No. 792/Mds/2010 as lead case.

I.T.A. No. 792/Mds/2010:

2. The following grounds have been raised:

“2. (i) The Commissioner of Income Tax (Appeals) erred in confirming the rectification order under Section 154 of the Income Tax Act, 1961.

(ii) The Commissioner of Income Tax (Appeals) ought to have appreciated that issue considered by the Assessing officer for the purpose of rectification is highly debatable issue and as such the Assessing Officer was not correct in amending the order under Section 154 of the Act.

(iii) The Commissioner of Income Tax (Appeals) ought to have appreciated that debatable issue cannot be considered as mistake apparent from record.

3. Without prejudice to the above claim, the Appellant submitted that the Commissioner of Income Tax (Appeals) ought to have appreciated that the claim of deduction under section 10A allows an assessee to avail the benefits only for a period of 5 years out of 8 consecutive years and the Appellant had chosen the period only from Assessment Year 1999-2000 and not claimed the deduction under Section 10A for the Assessment Year 1997-98. Accordingly, the unabsorbed business loss /unabsorbed depreciation of Assessment Year 1997-98 should be allowed to be carried forward and set off in the subsequent years.”

3. Facts as relevant to the grounds are that the assessee is a company involved in the business of maintenance and development of computer software. For the impugned assessment year, it filed its ‘return’ on 21.11.2003 admitting total income of Rs. 1,36,36,175/-. Thereafter, the Assessing Officer completed scrutiny assessment vide assessment order dated 13.02.2006 computing taxable income of Rs. 1,75,58,720/- as under:

“Profits of the business as computed by the assessee 5,33,38,428
Add:
Difference in revenue as per P&L A/c and TDS certificate (para 2) 1,36,617
Less: 5,34,75,045
10% of withholding tax added by the assessee 9,84,379
Add:  5,24,90,666
Entire Withholding tax Profits 98,43,786
6,23,34,452
Less:
Gain on exchange fluctuation treated as ‘Income from other sources Adjusted Profits 30,85,451
5,92,49,001
Eligible export turnover (As computed by the assessee) 14,77,74,533
Less:
Communication charges relating to Voice & data transmission 13,53,966
Adjusted Export turnover 14,64,20,567
Total turnover as computed by the assessee 16,65,85,708
Less:
Communication charges relating to Voice & data transmission 13,53,966
Adjusted total turnover 16,52,31,742
Exemption u/s 10A – 90% of Profit X ETO/TTO – 90% of 5,25,03,667 = Rs. 4,72,53,300
The taxable income is determined as under Business income 5,92,49,001
Less:
Exemption u/s 10A (as worked above) 4,72,53,300
Business income 1,19,95,701
Add:
Income from other sources (as admitted) 28,81,563
Exchange fluctuation treated as income from other sources 30,85,451 59,67,014
GROSS TOTAL INCOME 1,79,62,715
Less:
Deduction u/s 80-G 4,000
TAXABLE INCOME 1,79,58,715 or 1,79,58,720
Net tax payable Rs. 17,83,430/-

Subsequently, the Assessing Officer issued notice dated 27.04.2007 to the assessee stating therein that there had been a mistake apparent on the face of record since its claim of brought forward business loss and depreciation of assessment year 1997-98 of Rs. 4,90,32,291/- and Rs. 32,17,651/- respectively had been wrongly accepted. Per Assessing Officer, the assessee had claimed relief under section 10A in computing total income and therefore in claiming loss and depreciation pertaining to the assessment year 1997-98, violated section 10A(6)(ii) of the “Act”.

As the paper book reveals, since no representation was filed by the assessee in furtherance to the above said notice, the Assessing Officer passed rectification order dated 17.12.2007 under section 154 of the “Act” rejecting assessee’s claim of brought forward loss and depreciation.

4. Aggrieved, the assessee preferred appeal; wherein, the Assessing Officer’s findings have been upheld by the CIT(A) as herein below:

“4. I have considered the submission of the Id. AR and the material on record. I find that an appeal has been filed against the order u/s 154 dated 17.12.2007. The merit as well as jurisdiction of the AO are the dis allowance is the subject matter of the above appeal. As far as rectification order is concerned, I find that the A.O. is perfectly within his jurisdiction to carry out rectification. Under sub-section (1) of section 154, any mistake apparent from the record can be rectified i.e. a mistake which is obvious and patent and not something which can be established after a long-drawn debate or reasoning on which there may be more than one opinion [T.S. Balaramam v. Volkanrt Brothers, 82 ITR 50 (SC). It may be a mistake of fact or law. In this case it was a mistake to allow the carried forward loss of a year prior to assessment year 2001-02. The loss pertained to A.Y. 1997-98. The disallowance was made as per clear provisions of section 10A (6)(ii) of the Act. The mistake is very patent and obvious and it strikes one at the first glance of the order. Therefore, an income-tax authority under section 116 of i.e., the DCIT, Company Circle I(1), Chennai in the instant case, was statutorily within jurisdiction to rectify such appellant mistake. Hence, the action of the AO is sustained. The appellant fails on this ground.”

In this backdrop the assessee is in appeal.

5. Reiterating the pleas raised in the grounds, the AR has vehemently argued that the CIT(A) has wrongly confirmed the order of the Assessing Officer passed under section 154 of the “Act” dated 17.12.2007. It is the contention of the AR that section 154 has been wrongly invoked in the instant case. Per him, the assessee is very well entitled to relief of brought forward loss and depreciation for the assessment year 1997-98 as accepted in the assessment order and section 10A(6)(ii) of the “Act” is not even applicable. To buttress his submissions, he has also placed reliance on following case law:

1. WNS Global Services (P) Ltd. v. Addl. CIT [2011] 45 SOT 74 (Mum) (URO)

2. Lason India (P.) Ltd. v. ITO [I.T. Appeal No.206/Mds/07 decided on 27-7-2007].

3. Jai Ushin Ltd. v. Dy. CIT [2009] 117 ITD 1

4. Dy. CIT v. Akay Flavours & Aromatics (P.) Ltd. [2011] 130 ITD 41.

5.  Ford Business Services Center (P) Ltd. v. Asst. CIT [2008] 114 TTJ 881 (Chennai).

and prayed for acceptance of the appeal.

6. Opposing the submissions made by the assessee, the DR representing the Revenue has strongly supported the order of the CIT(A) as well as reasons contained therein and prayed for upholding the same.

7. We have considered rival contentions at length and have also perused relevant findings as well as case law cited. Admitted facts of the case are that the assessee is a unit entitled for deduction under section 10A of the Act i.e. special provisions in respect of newly established undertaking in free trade zone. We also deem it appropriate to reproduce relevant portion of section 10A of the “Act” as follows:

10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee:

       **                                          **                                          **

(6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,-

(i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years 76[ending before the 1st day of April, 2001], in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;

(ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years [ending before the 1st day of April, 2001];

(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and

(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year.

8. A perusal of the legislative history of the provision makes it clear that the same was incorporated in the “Act” with effect from 01.04.1981 by the Finance Act, 1981. Initially, it had provided tax holiday of five consecutive year beginning with the assessment year relevant to the previous year in which the concern undertaking begins manufacturing or production of the article, things or computer software. As we notice from the amendment incorporated by the Finance Act 2000 w.e.f. 01.04.2001, the period of tax holiday of five assessment year stands extended to ten consecutive assessment years. At the same time, the legislature has also prescribed certain conditions whilst computing the income after the tax holiday period is over i.e. sub-section 6 comes into play as per which, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of relevant assessment year, no loss under section 72 or 74 relating to business of the undertaking is to be allowed to be carried forward or set off if it pertains to any of the relevant assessment year before 01.04.2001. It is the applicability of sub-section 6(ii), which the subject matter of interpretation before us. Regarding the construction of provision, the argument put forward by the assessee is that since it is still availing the tax holiday relief, the case is not governed by sub-section 6; whereas, the argument of the Revenue is to the contrary. We find that the contention of the assessee, qua the applicability of the provision to be on the right side of the law for the reason that in the definition clauses of the provision i.e. explanation 2 to 6 of the “Act”, relevant assessment year has been defined as ‘assessment year falling with the period of ten consecutive assessment years’ referred to in this section. If we interpret the above definition vis-à-vis opening lines of sub-section 6, it emerges that sub-section (6) would apply in the previous year relevant to the assessment year immediately succeeding last of the relevant assessment year i.e. the previous year relevant to the first assessment year succeeding tax holiday period. To put in other words, since the assessee’s exemption period is continuing as it chose to avail the benefit of tax holiday from assessment year 1999-2000, sub-section 6(ii) does not apply in this case. We also find support from the case law of Coordinate Bench of Mumbai, ITAT in the case of WNS Global Services (P.) Ltd. (supra), wherein it has been held as under:

“40. We have heard the rival submissions. The relevant provisions of Sec.10-A(6)(ii) reads as follows:

“(6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,–

(i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years, in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub- section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction ;

(ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74 in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ;

Expln.-2 (vi) to Sec.10-A of the Act defines “relevant Assessment year” for the purpose of Sec.10-A of the Act as follows:

“(vi) “relevant assessment year” means any assessment year falling within a period of ten consecutive assessment years referred to in this section,;”

41. It is clear from the aforesaid provisions that they apply during the assessment years after the end of the holiday period. Admittedly the present AY relates to the holiday period and therefore the above provisions are not applicable. In the case of Enercon Wind Farms (Krishna) Ltd. v. ACIT [2008] 21 SOT 29 (mum) this Tribunal has taken the view that provisions of Sec.10-B(6)(ii) are applicable only after the tax holiday period is over. The Tribunal held that if after allowing deduction u/s.10-B of the Act, there was certain income still left with the Assessee, the same will be total income of the Assessee to which all other sections of the Act, including Sec.72 would apply and carried forward losses could definitely be set off against such total income. Similar view was expressed by the ITAT Bangalore Bench in the case of Mind tree Consulting (P) Ltd. v. ACIT 102 TTJ (Bang) 691. Respectfully following the decisions referred to above, we direct the AO to allow the claim of the Assessee. Ground No.7 is allowed. Ground No. 8 being general in nature does not call for any specific adjudication.”

9. Accordingly, we are of the opinion that the Assessing Officer as well as CIT(A) have erred in subjecting the assessee’s claim of brought forward loss and depreciation to sub-section 6(ii) of the “Act” by invoking rectification under section 154 of the “Act”. Hence, we hold that in the assessment order (supra), the assessee had been right held entitled for the claim of setting off brought forward loss and depreciation as was accepted by the Assessing Officer.

10. Since on legality, we have held that section 10A (6)(ii) of the “Act” does not apply in the case of the assessee, we refrain ourselves from dealing with the issue on merits and therefore, we are not adverting to other case law as cited by the assessee.

11. In view of the above discussion, the appeal of the assessee stands accepted.

I.T.A. No. 793/Mds/2010:

12. In this appeal, the assessee has raised following effective grounds:

“2. The Commissioner of Income Tax (Appeals) erred in not allowing the brought forward business loss and unabsorbed depreciation pertaining to the Assessment Year 1997-98 and set it off against the income from other sources.

3. The Commissioner of Income Tax (Appeals) ought to have appreciated that Section 10A of the Act provides the assessee to opt for the claim of deduction in any 5 years out of 8 consecutive years and the Appellant had chosen the period from Assessment Year 1999-2000. Accordingly the Appellant had not claimed deduction under Section 10A for the Assessment Year 1997-98 and therefore the unabsorbed business loss/unabsorbed depreciation of that year is eligible to be carried forward and set off against the income of the current year.”

13. Both representatives have very fairly stated that the issue raised in the ground is also consequential to that raised in the appeal I.T.A. No. 792/Mds/2010 decided herein above. We have also gone through the facts of the case as well as grounds raised and find that the submission to be correct. Hence, we also accept this appeal of the assessee in the above terms.

14. To sum up, both the appeal stand allowed.

Download Judgment/Order

More Under Income Tax

Posted Under

Category : Income Tax (24916)
Type : Judiciary (9828)
Tags : ITAT Judgments (4392)

Leave a Reply

Your email address will not be published. Required fields are marked *