2012 (9) TMI 292 - AT - Income Tax

Tribunal allows appeal on interest income for A.Y. 2002-03, sets deduction rules for Section 10A

M/s LARSEN & TOUBRO INFOTECH LTD Versus DEPUTY COMMISSIONER OF INCOME TAX

M/s LARSEN & TOUBRO INFOTECH LTD Versus DEPUTY COMMISSIONER OF INCOME TAX - [2012] 19 ITR 361 Issues Involved:1. Legal validity of reopening the assessment under Section 147 of the I.T. Act.2. Computation of deduction under Section 10A for each unit separately or as a single unit.3. Allowability of deduction under Section 10A in respect of other income.Issue-wise Detailed Analysis:1. Legal Validity of Reopening the Assessment under Section 147 of the I.T. Act:The original assessment for A.Y. 2002-03 was completed under Section 143(3) on 18.11.2004. The assessee had not set off losses from three units against profits from four other units while claiming deduction under Section 10A. The A.O. noted that the deduction was incorrectly allowed in respect of interest income and reopened the assessment under Section 147 after serving notice under Section 148 on 27.03.2008. The assessee argued that all material facts were disclosed and reopening after four years was not justified. The A.O. and CIT(A) upheld the reopening, citing that the assessee failed to disclose fully and truly all material facts regarding interest income. The Tribunal concluded that reopening was valid concerning the interest income, as the assessee did not disclose it separately in the P&L account, thus failing to meet the full disclosure requirement under Section 147.2. Computation of Deduction under Section 10A for Each Unit Separately or as a Single Unit:The assessee maintained separate accounts for each of the seven units and claimed deduction under Section 10A only for profit-making units, ignoring the loss-making ones. The A.O. treated all units as part of the same business and set off losses against profits while computing the deduction. The CIT(A) upheld this approach. However, the Tribunal held that deduction under Section 10A should be computed separately for each unit, as the assessee maintained separate accounts and filed separate P&L accounts and auditors' certificates for each unit. The Tribunal relied on the Special Bench decision in the case of M/s. Scientific Atlanta India Technology Pvt. Ltd. and the Bombay High Court decision in CIT vs. Black & Veatch Consulting Pvt. Ltd., which supported the view that losses from non-eligible units cannot be set off against profits of eligible units.3. Allowability of Deduction under Section 10A in Respect of Other Income:The assessee claimed deduction under Section 10A for various other incomes, including dividend income, income from investments, profit on sale of assets, and interest income. The A.O. and CIT(A) disallowed these claims, stating that only profits directly derived from the business of the undertaking are eligible for deduction under Section 10A. The Tribunal agreed, citing the Supreme Court judgments in Pandian Chemicals Ltd. vs. CIT and CIT vs. Sterling Foods, which held that only income directly derived from the business of the undertaking is eligible for deduction. The Tribunal further clarified that incidental or attributable income, such as interest from ICDs, bank deposits, and employee loans, does not qualify for deduction under Section 10A. However, provision written back, being integral to the computation process, was allowed. The Tribunal directed the A.O. to obtain details of other receipts and decide their allowability after necessary examination.Conclusion:The appeals filed by the assessee were partly allowed. The Tribunal upheld the legal validity of reopening the assessment for A.Y. 2002-03 concerning the interest income. It directed that deduction under Section 10A should be computed separately for each unit and disallowed the deduction for other incomes not directly derived from the business of the undertaking, except for provision written back. The A.O. was instructed to re-examine the details of other receipts for allowability under Section 10A.