TaxTMI 
TaxTMI 
TaxTMI 
2008 (11) TMI 612
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.... u/s 10A was claimed in respect of Unit-2. The deduction u/s 10A for Unit-1 was claimed on the basis of the profit derived from Unit-1. 4. The Assessing Officer while passing the assessment order, has made a transfer pricing adjustment of Rs.7,15,39,506/- to STP Unit-2. The Assessing Officer reduced the communication charges and foreign exchange incurred for onsite development from the export turnover for computing deduction u/s 10A for Unit-1. Accordingly, the AO determined that a sum of Rs.45,32,911/- has been claimed as excess in respect of deduction u/s 10A for STP Unit-1. Since the transfer pricing adjustment in respect of STP Unit-1 was more than the loss claimed in STP Unit-2, therefore, the Assessing Officer set off the loss in STP Unit-2 against transfer pricing adjustment. 5. The learned CIT perused the income tax record of the assessee for the asst. year 2003-04 and issued a show-cause notice to the assessee u/s 263 of the IT Act. The learned CIT was of the opinion that the assessment order passed by the AO for the asst. year 2003-04 on 29th March, 2006 was erroneous and prejudicial to the interest of the revenue. According to the learned CIT, the AO has wrongly allowe....
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.... has considered the decision of the Bangalore Tribunal in the case of Yokogawa India Ltd. In this case, the assessee company was having three divisions i.e. software service division, project service division and system services division. The assessee earned profit in software service division and suffered loss in other two divisions and claimed exemption u/s 10A of the IT Act in respect of the profits earned. The Tribunal held that since there was no unabsorbed depreciation or unabsorbed business loss in respect of software service division, the profit and gains of such division was exempt u/s 10A of the IT Act and the loss of the other two units, whose income was not exempt could not be set off against the income of the unit covered u/s 10A of the Act. In the case of SCT Software Solutions India Pvt. Ltd., the issue involved was exemption u/s 10A of the IT Act without setting off the loss of non-STP unit. The learned CIT therefore felt that the issue involved in the present case is different from the issue involved in the case of Yokogawa India Ltd. and SCT Software Solutions India Pvt. Ltd. The learned CIT further mentioned that the department has not accepted the decision of th....
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....lied on its earlier decisions in ACIT vs Yokogawa India Ltd. and in SCT Software Solutions (I) Pvt. Ltd. and held that as the profits of the Non-STP unit cannot be clubbed to the STP profit, therefore, the loss of the Non-STP unit cannot be set off against the profit of the STP unit for the purpose of arriving at the profits of the business eligible for tax benefits under section 10A of the Act. ii) ACIT vs Yokogawa India Ltd. in 2007 13 SOT 470-The assessee company operated three divisions viz. software service division, product service division and system service division, during the previous year, the assessee earned profit in software service division and suffered losses in other two divisions and claimed exemption u/s 10A of the IT Act 1961 in respect of the profit earned. The Hon'ble Tribunal held that since there was no unabsorbed depreciation or unabsorbed business loss in respect of software service division, the profit and gains of such division were exempt u/s 10A of the Act and the loss of other two units, whose income was not exempt, could not be set off against the income of unit covered u/s 10A of the Act. iii) ITO vs SCT Sof....
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....port 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". 12. In Section 10A(1), the word 'an' has been used before the undertaking. Deduction is to be allowed on such profit and gains as are derived from the undertaking. Hence, to apply the provisions of section 10A, one has to consider the profit and gains as derived by an undertaking. It does not refer to profit and gains as are derived by the assessee. The assessee may have more than one undertaking. The word 'undertaking' is defined as any business or any work or the project which one engages in or attempts as an enterprise analogue to business or trade. Undertaking is therefore used in the sense of an enterprise which can be owned or transferred. In the instant case, the revenue has not given a finding that STP Unit-1 and STP Unit-2 are not different undertakings. 13. The jurisdictional High Court in the case of Shankar Construction Company vs CIT 189 ITR 463 had an occasion to....
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.... well mean "the act of one who undertakes or engages in a project or business". Considering the definition of undertaking, it is clear that STP Unit-1 and STP Unit-2 are different undertakings as it has been treated as such by the revenue. 15. While introducing amendment to section 10A(4) by Finance Bill, 2001, it was mentioned in Notes on Clauses as Under:- "Under the existing provision contained in subsection (4), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business, 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 assessee. Sub-clause (b) seeks to clarify that such proportions shall be calculated with reference to the profits and gains of the business of the undertaking and not from any other business carried on by the assessee". 16. The Hon'ble Apex Court in the case of CIT vs Canara Workshops P. Ltd. 161 ITR 320 had an occasion to consider the allowability of deduction u/s 80E of the IT Act. Deduction u/s 80E was allowable to priority industry. In that case, the as....
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.... the issue of ascertaining as to whether Pune unit was an independent unit or a unit associated with activities of other two units is restored back on the file of the AO. In case it is found that it is part of the other two units and is associated with the activities done in other two units, then it will be considered as part of the same undertaking and loss will be adjusted. However, in case, if it is found, it is an independent unit then it will be treated as independent undertaking and the assessee cannot be forced to have exemption in respect of such independent undertaking. In that case the loss will (not) be adjusted against other income". From the above, it is clear that the Assessing Officer has taken one of the possible views. 20. The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 had an occasion to consider the scope of section 263 of the IT Act. The Hon'ble Apex Court held that in order to exercise power u/s 263, it is necessary that the order, which is to be revised, is erroneous as well as prejudicial to the interest of revenue. Both the conditions are to be satisfied. If one of the conditions is absent, then power u/s 263 cannot be exercise....