TaxTMI 
TaxTMI 
2019 (1) TMI 401
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s 143(3) of the Income Tax Act, 1961 (hereinafter called 'the Act') at an income of Rs. 47,64,694/- after making certain additions and disallowances which, inter alia, included addition of Rs. 25,05,972/- being allocation of head office expenses against the MEPZ unit, another amount of Rs. 2,68,251/- being allocation of bank and loan processing charges against MPEZ unit, addition of Rs. 73,54,190/- against goods transferred to MEPZ unit. Apart from this, the Assessing Officer also made a disallowance of Rs. 18,40,692/- out of research and development expenses and a disallowance of Rs. 1,46,892/- by partially disallowing depreciation on computer peripherals which had been claimed by the assessee @ 60% but the AO allowed the depreciation @ 15%. The Assessing Officer also made a disallowance of Rs. 5,34,683/- being customization charges paid for ERP by treating the same as capital expenditure. The assessee's appeal before the Ld. Commissioner of Income Tax (Appeals) was partly allowed wherein the Ld. CIT (A) deleted the additions pertaining to the MEPZ unit and now the department has approached the ITAT challenging the deletion by the Ld. Commissioner of Income Tax (A) whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... software for tool management to be a capital expenditure. 3. That without prejudice the CIT(A) has erred on facts and in law in not allowing depreciation @ 60% on Rs. 5,34,683/- and not giving a clear finding in this respect. 4. That the explanations filed before the CIT(A) and the material available on record has not been properly considered and legally interpreted. The additions cannot be justified by any material on record. 5. That in view of the facts and circumstances of the case the observations made are illegal, bad in law and unwarranted and cannot be justified by any material on record. 6. That the assessee reserves the right to add/amend /alter any ground of cross objection ." 3.0 At the outset, the Ld. AR submitted that ground nos. 1, 2, 3 and 4 of the department's appeal were identical and were covered by the order of the ITAT in assessee's own case for assessment year 2008-09 in ITA No. 2775/Del/2014 vide order dated 10.9.2009. A copy of the said order was placed on record. With respect to ground no. 5 of the department's appeal, reliance was placed on the findings of the Ld. Commissioner of Income Tax (Appeals). With respect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....income of the assessee? (ii) Whether the phrase "total income" in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act? (iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are effected? (v) Whether brought forward business losses and unabsorbed depreciation of 10A Units or non 10A Units can be set off against the profits of another 10A Units of the assessee." 9. Hon'ble Apex Court decided the issue in favour of the assessee by returning following findings :- "17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No. 794 dated 09.08.2000) understood the situation, it is only logical and natural that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the same is eligible for deduction in accordance with the provisions of Chapter VI-A or sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee." 11. Furthermore, after the decision of Hon'ble Apex Court in CIT vs. Yokogawa India Ltd. (supra), the Explanation has been added to section 10A of the Act which is extracted as under :- "7. In section 10AA of the Income-tax Act, after sub-section (1), the following Explanation shall be inserted with effect from the 1st day of April, 2018, namely:-- "Explanation.--For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this section and the deduction under this section shall not exceed such total income of the assessee.". 12. Keeping in view the fact that section 10AA makes the assessee eligible for deduction in the same manner, the deduction prescribed u/s 10A and 10B and it cannot be treated in the nature of exemption and as such, the loss suffered by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Income Tax (A) that the inventory movement for R&D expenditure was in the nature of 'Destructive Testing' wherein the item/s were consumed and no inventory having commercial value was left. It has also been noted by the Ld. Commissioner of Income Tax (A) that no new asset had come into existence. The Ld. Sr. DR could not point out any infirmity in the findings of the Ld. Commissioner of Income Tax (A). We also note that while reaching his decision, the Ld. Commissioner of Income Tax (A) has placed reliance on the judgment of the Hon'ble Apex Court in the case of Empire Jute Co. 124 ITR 1(SC). Accordingly, on overall view of facts of the case and in view of the findings of the Ld. Commissioner of Income Tax (A) remaining uncontroverted, we find no reason to interfere with the findings of the Ld. Commissioner of Income Tax (A) on this issue and we accordingly dismiss ground no. 5 of the revenue's appeal. 7.3 As far as ground no. 6 is concerned which challenges the action of the Ld. Commissioner of Income Tax (A) in directing depreciation on computer peripherals to be allowed @60% as against 15% which had been allowed by the Assessing Officer, it is settled law that computer pe....