Case Law Details
Brief of the Case
ITAT Bangalore held In the case of DCIT vs. M/s. Makino India Pvt. Ltd. that the relief under Section 10A is in the nature of exemption even though termed as deduction. The profits from such 10A units are neither subject to the charge of income tax nor includible in total income. The question of setoff of losses of non 10A units either belongs to current year loss or earlier year losses does not arise at all. The Karnataka high Court held that the income eligible for deduction under Section 10A would not enter into the computation at all and would have to be granted at source itself and the process of computation of profits and gains from business and profession would only commence thereafter.
Facts of the Case
The assessee engaged in the manufacture of machine tools. He filed its return for AY 2004-05 on 1.11.2004 declaring loss of Rs.1,27,87,600 and ‘book profits’ of Rs.25,20,396 under Section 115JB.The return was processed under Section 143(1) and the case was subsequently taken up for scrutiny. The assessment was completed under Section 143(3) vide order dt.28.12.2006 determining the loss under normal provisions at Rs.1,11,08,860 and book profits at Rs. 1,03,52,049. AO has made addition on account of PF & ESI, Excess depreciation and excess deduction claimed u/s 10A.
Further the Assessing Officer initiated proceedings under Section 147 and reopened the assessment for Assessment Year 2004-05 by issue of notice under Section 148. The reassessment proceedings were completed exparte under Section 144 rws 147 vide order dt.29.12.2009, wherein the loss under normal provisions was computed at Rs.34,65,112.The ‘book profits’ under Section 115JB was determined at Rs.1,66,60,438.
Held by CIT (A)
Revenue’s appeal in ITA No.935/Bang/2014
CIT (A) partly allowed the appeal of the assessee. CIT (A) directed the Assessing Officer that certain expenses incurred that are excluded from ‘export turnover’ while computing the deduction under Section 10A.
Revenue’s appeal in ITA No.936/Bang/2014
CIT (A) followed the decision of the Hon’ble jurisdictional High Court in the case of Yokogawa India Ltd. (2012) 341 ITR 345 (Kar) and directed the Assessing Officer to compute the deduction under Section 10A without setting off the losses carried out forward from earlier years pertaining to non-10A units against the profits of the 10A units for the current year.
Assessee’s appeal in ITA No.1016/Bang/2014
CIT (A) held that the assessee’s claim is not in order and rejected the contentions of the assessee and upheld the Assessing Officer’s finding in the matter.
Held by ITAT
Revenue’s appeal in ITA No.935/Bang/2014
Deduction u/s 10A
The Hon’ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd and Others reported in 349 ITR 98 (Kar), has held that while computing the deduction under section 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, then the same should also be excluded from the total turnover in the denominator.
In the light of the above facts and respectfully following the above decision, we direct the Assessing Officer to exclude the expenses incurred in foreign currency both from export turnover as well as from the total turnover while calculating the eligible deduction under section 10A. In the result, Revenue’s appeal in ITA No.935/Bang/2014 for Assessment Year 2004-05 is dismissed.
Revenue’s appeal in ITA No.936/Bang/2014
The Assessing Officer has reopened the assessment for Assessment Year 2004- 05 by issue of notice under Section 148 for the reason that the assessee had claimed the deduction under Section 10A in the year, even though there was a business loss and unabsorbed depreciation from the earlier year which the assessee had not set off before computing the deduction under Section 10A. The Assessing Officer observed that if these losses were set off against the income of the current year, there was no positive income and in that view of the matter, the Assessing Officer disallowed the entire deduction claimed under Section 10A.
We find that the issue of setting off losses against the income from 10A units has been settled by the decision of the Hon’ble High Court of Karnataka in the case of Yokogawa India Ltd. (2012) 341 ITR 345 (Kar) wherein the Hon’ble Court has held that in respect of Section 10A , the phrase ‘total income’ in Section 10A(1) is to be understood as the income of each such 10A unit and cannot mean ‘total income’ as computed in accordance with the normal provisions of the act. It was also held that as the relief under Section 10A is in the nature of exemption even though termed as deduction, the profits from such 10A units is neither subject to the charge of income tax nor includible in total income. The Hon’ble Court held that the income eligible for deduction under Section 10A would not enter into the computation at all and would have to be granted at source itself and the process of computation of profits and gains from business and profession would only commence thereafter.
Respectfully following the decision of the Hon’ble Karnataka High Court in the above mentioned case, we uphold the decision of the learned CIT (Appeals) in directing the Assessing Officer to compute the deduction under Section 10A without setting off the losses of the non-10A units both current and carried forward from earlier years against 10A units. Consequently Revenue’s appeal is dismissed.
Assessee’s appeal in ITA No.1016/Bang/2014
Computation of ‘Book Profits’ u/s.115JB
We find from the record that in the original order of assessment, the Assessing Officer had determined the carry forward business loss at Rs.64,34,368 and considered the same for determining the ‘book profits’ u/s.115JB . However, in the reassessment order, the Assessing Officer has only considered the business loss of Rs.1,25,979, which is the carry forward business loss of Assessment Year 2002-03 for computing the book profits under Section 115JB . The Assessing Officer, however, has not assigned any reasons or explained as to why the carry forward business loss for Assessment Year 2003-04 was not considered.
Further, as pointed out by the ld counsel of the assessee in the computation, there appears to be a mistake in the computation made by the Assessing Officer. Be that as it may, we also observe that the assessee has not properly explained the contradictions in the claims made by the assessee both in the earlier years and in the year under consideration in respect of the issue of determination of book profits under Section 115JB of the Act.
We also find that the reconciliation statement filed by the assessee before us was not filed before the authorities below. In view of the above factual matrix of the case on this issue, we are of the considered opinion that it would only be appropriate to remand the issue back to the file of the Assessing Officer for fresh consideration and adjudication thereon as per law after affording the assessee adequate opportunity of being heard and to file details/submissions required which shall be duly considered. Assessee’s appeal is allowed for statistical purposes.
Accordingly all appeal disposed of.
