TaxTMI 
TaxTMI 
2008 (4) TMI 354
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....as erred in upholding the action of AO in adjudicating in the instant assessment year, upon carry forward of losses (including unabsorbed depreciation) pertaining to asst. yr. 1998-99, where the set off of such losses had already been adjudicated and duly allowed by the AO himself in the assessment order for asst. yr. 2000-01, and thereby sitting over the judgment of his predecessor. 3. That the learned CIT(A) has erred in holding that the proportion of losses (including unabsorbed depreciation) of asst. yr. 1998-99 pertaining to Electronic Payment System business cannot be carried forward for set off against taxable income of subsequent years. 4. That the learned CIT(A) has erred on facts in holding without any basis. that substantial portion of losses (including unabsorbed depreciation) pertaining to asst. yr. 1998-99 was on account of software development business of the appellant. 5. That the learned CIT(A) has erred in holding that the proportion of losses (including unabsorbed depreciation) of asst. yr. 1998-99 pertaining to software development business of the appellant cannot be carried forward and set off against profits of subsequent years since the appellant has....
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....s of non-STP units. The AO also observed that the assessee company has not been able to clearly quantify the exact amount of losses pertaining to the said s. 10A unit at Chennai, therefore, he showed his inability to give credit/adjustment of the losses brought forward for asst. yr. 1998-99 and held that the losses primarily pertain to s. 10A units and as the losses of Rs. 6,11,36,064 have already been adjusted in asst. yr. 2000-01, no credit of brought forward losses could be allowed to the assessee. 7. Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) and submitted that the company was incorporated on 14th July, 1997. During the asst. yr. 1998-99 the appellant was primarily engaged in EPS business. Towards February, 1998, the appellant set up a SDC unit in Chennai. Though the initial registration of the SDC in a STP was obtained on 9th Feb., 1998 the SDC commenced manufacture or production of computer software in April, 1998 only relevant to asst. yr. 1999-2000. The CIT(A) for asst. yr. 19988-99 allowed carried forward business loss of Rs. 3,22,20,205 (excluding the pre-incorporation expenses of Rs. 1,13,25,910) and unabsorbed depreciation of R....
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....year is to be determined by the AO undertaking the assessment of the assessment year in which such loses are to be set off since the law applicable for the set off of losses is the law as applicable to the assessment year in which the losses are being set off. Reliance was placed on the case of Reliance Jute & Industries Ltd. vs. CIT (1979) 13 CTR (SC) 186 : (1979) 120 ITR 921 (SC). Accordingly, the appellant was not eligible to set off the losses of asst. yr. 1998-99 against the asst. yr. 2000-01 and the AO was entitled to adjudicate upon the eligibility towards set off of brought forward losses pertaining to asst. yr. 1998-99. The AO has wrongly concluded-the losses of asst. yr. 1998-99 pertain to SDC business and chose to ignore the same. As already mentioned in asst. yr. 1998-99 the appellant was engaged in EPS business and the SDC unit was registered only on 9th Feb., 1998. Therefore, the entire business loss and unabsorbed depreciation for the asst. yr. 1998-99 pertains mainly to EPS business of the appellant. The bifurcation of the losses of EPS business and SDC unit set up in February, 1998 is given. 8. After considering the submission, the learned CIT(A) confirmed the o....
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....available in asst. yr. 2001-02 for adjustment. The action of the AO is confirmed." 9. We have considered the rival submissions of both the parties, perused the records and carefully gone through the orders of the tax authorities below. In this ease the undisputed facts are that in asst. yr. 1998-99 the business loss of STC unit aggregated to Rs. 67,42,507 as per P&L a/c and the business loss of EPS unit aggregated to Rs. 3,76,73,040 and after the order of CIT(A) it had been held to be at Rs. 2,55,32,652 (including depreciation of Rs. 2,63,47,131). The order of CIT(A) had been upheld by the Tribunal in ITA No. 2498/Del/2002, asst. yr. 1998-99 dt. 1st Dec., 2004, which was further confirmed by the Hon'ble Delhi High Court vide order dt. 12th Sept., 2006 in IT Appeal No. 680 of 2005. In the order passed for asst. yr. 1998-99 the AO had not held that a loss of Rs. 3,76,73,040 was not the business loss of EPS unit but was loss of SDC and the CIT(A) too, without any specific material on record, held that this determined business loss in asst. yr. 1998-99 cannot be set off in asst. yr. 2001-02 under consideration and the remaining unabsorbed business loss could not be allowed to be car....
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....er software and so he assessed the same under the head 'Other sources' by placing reliance on various decisions and declined the deduction on the amount claimed by the assessee under s. 10A of the Act. 12. Aggrieved with the order of the AO, the assessee filed an appeal before the CIT(A) and submitted before him that a combined reading of sub-s. (1) and sub-s. (4) of s. 10A of the Act would make it clear that the 'profit derived from export of computer software' as per sub-s. (1) is essentially a derivative of profit of the business of the undertaking as per sub-s. (4). Accordingly, the section assumes that part of profits of the business of the undertaking as profit derived from export of computer software as is proportionate to the 'export turnover' vis-a-vis the total turnover of the undertaking. Reliance in this regard was placed on following: (1) Asstt. CIT vs. Sharda Gums & Chemicals (2000) 66 TTJ (Jd) 256 (2001) 76 ITD 282 (Jd); (2) Shiva Shankar Granites (P) Ltd. vs. ITO (2002) 75 TTJ (Hyd) 535 (2002) 81 ITD 106 (Hyd). 13. The appellant had given housing loan to its employees at a concessional rate of interest with a view to provide a perquisite/incentive to its....
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....issions and in the oral arguments reiterating the submissions made before the CIT(A) contended that the tax authorities below have erred in interpreting the provisions of s. 10A of the Act as the mode of computation of deduction has been provided in sub-s. (4) of s. 10A of the Act and the same should be followed strictly in arriving at the deduction to be allowed under sub-s. (1) of s. 10A of the Act. The phrase 'profits of the undertaking' is wider than the scope of phrase 'profits derived from export of computer software'. In the instant case, housing loan advanced by the assessee to its employees at a concessional rate of interest is a perquisite provided to employees in the course of assessee's business since the same has been undertaken with a view to provide an incentive to the employees and hence, is essentially and inextricably linked to business of the assessee. Accordingly, interest income arising on such housing loans clearly falls within the ambit of the phrase 'profits of the business of the undertaking' and hence, is eligible for deduction under s. 10A of the Act computed under sub-s. (4). Reference is invited to the decision of Jodhpur Tribunal in the case of Asstt. ....
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....period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free trade zone or export processing zone: Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits or gains derived by an undertaking from the export of such articles or things or computer software: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years. Sec. 10A(4) For the purposes of sub-ss. (1) and (1A) the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." 19. For computation of the profits derived from the export of ar....
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....ees. The decision of Tribunal (Jodhpur Bench) in the case of Sharda Gums & Chemicals relied upon by the learned Authorised Representative for the assessee does not apply to the facts and issue under consideration; firstly because the case law relates to the deduction claimed under s. 80HHC of the Act on the interest earned by the assessee on FDRs whereas in the instant case we are concerned with the deduction claimed under s. 10A of the Act in respect of interest earned by the assessee on housing loans advanced to the employees; secondly because in sub-s. (3) of s. 80HHC of the Act while computing the profits in the working formula for arriving at the export profits, the words used are 'profits of the business', whereas, while working out the same for deduction under s. 10A in sub-s. (4) of the Act, the words used are 'profits of the undertaking'. The provisions of s. 10A and s. 80HHC of the Act cannot, therefore, be held to be at par. Hence, the case law relied upon by the learned Authorised Representative for the assessee is of no assistance to the assessee for resolving the issue under consideration. 21. For the reasons stated above, we hold that the interest income earned....
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....detailed in order of the CIT(A)] as well as the relevant provision of s. 80HHE, s. 10A(2) of the Act] held that the assessee was entitled to claim deduction under s. 10A of the Act by making following observations in his order: "On going through sub-s. (2) of s. 10A of the Act, it is observed that only the conditions given in the sub-section were required to be specified. The case of the assessee company is falling under sub-s. 2(i) and not (ii) as held by the AO. The SSC unit of the assessee company has not been formed by splitting up or the reconstruction of a business already in existence but the SSC unit was in existence and is being assessed from asst. yr. 1999-2000 itself. It is only that at that time, the SSC unit could not claim the exemption under s. 10A because it was not eligible to claim the deduction and only after amendment of the definition of the computer software w.e.f. 1st April, 2001 the SSC unit became eligible to claim the deduction under s. 10A of the Act. 2.3.3 The argument of the AO that the exemption has to be claimed from the initial year of start of manufacture or produce articles or things or computer software itself as per s. 10A(1) is again mispl....
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....er benefit being earned by him. This finds support from the decision of the Supreme Court in CCE vs. Indian Petro Chemicals (1997) 11 SCC 318 and also by the Hon'ble High Court of judicature at Delhi in the case of C.S. Mathur vs. CBDT. We, therefore, do not find any justification in the action of the learned CIT(A) to uphold that the assessee being an old unit and once having claimed deduction under s. 80HHE was not entitled to claim exemption under s. 10A from the profits of its unit. However, the AO in the assessment order has not dealt with the submissions made by the appellant that it has carried out all the requisites envisaged in the scheme of s. 10A before denying the exemption. We, therefore, set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with a direction to allow exemption under s. 10A in both the years in case the assessee is found to have satisfied all other requisites envisaged in the scheme of s. 10A of the Act. In case the exemption under s. 10A cannot be allowed for the reasons of not satisfying the requisites, the claim of deduction under s. 80HHE shall be allowed after providing opportunity to meet the....
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.... irrespective of the fact that for the same unit in the earlier assessment years the assessee has been claiming benefit of deduction under s. 80HHE of the Act. 27. We have considered the rival submissions of both the parties, perused the record and carefully gone through the impugned order of the tax authorities below as well as the case law relied upon by learned Authorised Representative for the assessee. 28. In the instant case according to the AO the assessee is not eligible to claim the deduction under s. 10A in the subsequent assessment year i.e. 2001-02 under consideration because the assessee claimed deduction under s. 80HHE in earlier assessment year and the same was allowed to the assessee. Whereas, uncontrovertedly, the assessee had filed a revised return of income for asst. yr. 1999-2000 dt. 2nd Feb., 2000-01 and claimed no deduction under s. 10A of the Act, as per paper book page Nos. 134-137. The assessee had also not made a claim of deduction under s. 80HHE in respect of SSC unit because it incurred loss and the assessee simply claimed carry forward of losses. which meant that the assessee had not claimed any deduction under s. 80HHE either in asst. yr. 2001-02....