2016 (8) TMI 254 - AT - Income Tax

Tribunal Affirms Tax Appeal Decisions, Excludes Losses for Deduction

The Tribunal upheld the CIT(Appeals) decisions in the case, dismissing the Revenue's appeal and the assessee's Cross Objection. The Tribunal affirmed the ... Computation of deduction under section 10B prior to set-off of brought forward losses and unabsorbed depreciation - Exclusion of incidental foreign-currency expenses from total turnover for computation of deduction under section 10B - Binding effect of jurisdictional High Court decisions on tribunalsComputation of deduction under section 10B prior to set-off of brought forward losses and unabsorbed depreciation - Binding effect of jurisdictional High Court decisions on tribunals - Deduction under section 10B must be computed before giving effect to carry forward and set off of brought forward losses and unabsorbed depreciation. - HELD THAT: - The Tribunal accepted the view of the Hon'ble High Court of Karnataka in CIT v. Yokogawa India Ltd. that relief under section 10A is to be computed prior to giving effect to the carry forward and set off provisions, and observed that section 10A(1) is in pari materia with section 10B. Applying that ratio, the CIT(A)'s direction to the Assessing Officer to compute deduction under section 10B before setting off brought forward losses and unabsorbed depreciation was upheld. The Tribunal held itself bound by the jurisdictional High Court decision and found no reason to interfere with the CIT(A)'s order on this point. [Paras 6, 10]The CIT(A)'s direction to compute deduction under section 10B prior to set-off of brought forward losses and unabsorbed depreciation is upheld and the departmental appeal on this point is dismissed.Exclusion of incidental foreign-currency expenses from total turnover for computation of deduction under section 10B - Binding effect of jurisdictional High Court decisions on tribunals - Expenses incurred in foreign currency which are excluded from export turnover for computing deduction under section 10B must also be excluded from total turnover. - HELD THAT: - The CIT(A) followed the Hon'ble Karnataka High Court decision in Tata Elxsi Ltd. and the subsequent decision in CIT & DCIT v. Motor Industries Co. Ltd., directing that expenses excluded from export turnover for the purpose of section 10B should likewise be excluded from total turnover, since export turnover forms part of total turnover. The Tribunal noted that the Revenue had not shown any reversal or modification of the jurisdictional High Court's rulings (despite an alleged recommendation to file SLP) and therefore was bound to follow those precedents. On this basis the Tribunal found no infirmity in the CIT(A)'s direction and dismissed the departmental appeal on this issue. [Paras 12, 13]The CIT(A)'s direction to exclude incidental foreign-currency expenses from both export turnover and total turnover for computing deduction under section 10B is upheld and the departmental appeal on this point is dismissed.Final Conclusion: Both departmental appeals are dismissed and the assessee's cross objection, being supportive of the CIT(A)'s order, is dismissed as academic; the CIT(A)'s directions on computation of deduction under section 10B and exclusion of incidental foreign currency expenses from total turnover are upheld. Issues:- Appeal against common order of CIT(Appeals) for assessment years 2007-08, 2008-09, and 2010-11.- Deduction u/s. 10B for brought forward losses.- Deduction of incidental expenses from export turnover.- Appeal grounds challenging CIT(A) decisions.- Cross Objection filed by the assessee.Analysis:1. The appeals were made by the revenue against the common order of the CIT(Appeals) for the assessment years 2007-08, 2008-09, and 2010-11. The assessee, a private limited company providing IT services, declared Nil income for all three years initially. The assessments under section 143(3) resulted in determining the total income as Nil for 2007-08, MAT income of &8377;1,76,79,341 for 2008-09, and &8377;9,59,428 for 2010-11.2. The primary issue revolved around the deduction under section 10B concerning the brought forward losses. The Assessing Officer (AO) deducted the brought forward losses to restrict the deduction u/s. 10B for the respective assessment years. Additionally, for 2010-11, incidental expenses were reduced from the export turnover to calculate the deduction under section 10B.3. The CIT(Appeals) considered the submissions and relied on precedents like the decision of the Hon'ble High Court of Karnataka in CIT v. Yokogawa India Ltd. regarding the set off of brought forward losses and unabsorbed depreciation. The CIT(A) directed the AO to calculate the deduction u/s. 10B before setting off these losses.4. Regarding the deduction of incidental expenses, the CIT(Appeals) referred to the decision in Tata Elxsi Ltd. v. ACIT and directed the exclusion of such expenses from both export turnover and total turnover. The Revenue challenged these decisions through various grounds in the appeal.5. The Tribunal upheld the CIT(Appeals) decisions, citing the Hon'ble High Court of Karnataka's rulings and dismissing the Revenue's appeal. The Tribunal found no infirmity in the CIT(A) order and upheld the exclusion of expenses from both turnovers. The Cross Objection by the assessee was dismissed as supportive of the CIT(Appeals) order.In conclusion, the Tribunal dismissed both the department's appeals and the assessee's Cross Objection, affirming the decisions of the CIT(Appeals) based on legal precedents and interpretations of relevant tax provisions.