TaxTMI 
TaxTMI 
2020 (6) TMI 526
X X X X Extracts X X X X
X X X X Extracts X X X X
....thus, same were heard together and disposed off by way of this consolidated order for convenience. 2. First, we take up the appeals for assessment year 2007-08. The grounds raised by the assessee and the Revenue in ITA No. 5524/Del/2013 and ITA No. 5491/Del/2013 for assessment year 2007-08 are reproduced as under: Grounds of appeal of the assessee: 1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in upholding disallowance of Rs. 44,00,739/-, claimed under section 35DD of the Income Tax Act, 1961 ("the Act") in respect of 1/5* of demerger expenses incurred by the appellant. 1. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in holding that in terms of section 35DD of the Act, demerger expenses are allowable only in the hands of the demerged company and not in the hands of the resultant company. 1.2 That the Commissioner of Income-Tax (Appeals) failed to appreciate that the claim of appellant was sustainable in law inasmuch as the appellant had fulfilled all the conditions for claiming deduction under section 35DD of the Act. 2. That the Commissioner of Income-Tax (Appeals) erred on facts and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of appeal of the Revenue: 1. On the facts & in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the deduction claimed by the assessee u/s 10B of the Act by not appreciating the fact that all the different units of the assessee company are not operating in isolation as alleged by the assessee, but as different branches of the same tree. 1.1 On the facts & in the circumstances of the case and in law, the Id.CIT(A) has erred in not appreciating the fact that the assessee is maintaining single books of accounts for all units i.e. those which are covered for deduction, as well as those which are not covered for deduction. It is only for the purpose of computing deduction u/s 10B that the assessee has tried to allocate the expenses between these units and compute their profits. 1.2 On the facts & in the circumstances of the case and in law, the Id.CIT(A) has erred by holding that independent books of accounts are not required to be maintained under the provisions of section 10B of the I T Act, since the language of form 56G starts with " I/we have examined the accounts and records " which makes it clear that the assessee has to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd any of the grounds of appeal. 3. Briefly stated facts of the case that that the assessee company was engaged in the business of software development and services. For the year under consideration, the assessee filed return of income on 30/10/2007 declaring total income of Rs.1,03,47,201/- after claiming deduction of Rs. 106,43,88,624/- under section 10B of Income-tax Act, 1961 (in short 'the Act'). The case was selected for the scrutiny assessment and notice under section 143(2) of the Act was issued and complied with. The scrutiny assessment u/s 143(3) of the Act was completed on 30/12/2010 after making certain additions/disallowances. On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the finding of the Ld. CIT(A), both assessee and the Revenue are in appeal before the Tribunal raising respective grounds reproduced above. ITA No.5524/Del/2013 (Assessee's Appeal) 4. The ground Nos. 1 to 1.2 of the appeal of the assessee relate to disallowance of Rs.44,00,739/-, which was claimed by the assessee as deduction under section 35DD of the Act. 4.1 The facts qua the issue in dispute are that the M/s. NIIT Ltd. was demerged pursuant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding to him, there is nothing in the law which debars the resultant company from claiming such expenditure. The learned counsel referred to the decision of the Hon'ble Supreme Court in the case of CIT vs Bombay Dyeing and Manufacturing Company Ltd., reported in 219 ITR 521, which was rendered prior to the insertion of section 35DD of the Act. The Ld. Counsel also submitted that the CBDT Circular No. 779 dated 14/09/1999 has explained the scope and legislative intent behind insertion of the aforesaid provision. According to him, in the said circular also nowhere the resultant company has been debarred from claiming such expenditure under section 35DD of the Act. The learned counsel submitted that the Assessing Officer/CIT(A) has failed to appreciate that the word "assessee" refers to either or both the companies i.e. the demerged company/resultant company, being Indian companies who incur any expenditure in relation to such merger/demerger. According to him, the expression "assessees" has not been used by the legislature due to the fact that in the event of the merger, the amalgamating company gets automatically dissolved and loses its independent identity and both the amalgam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mation or demerger of an undertaking, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the amalgamation or demerger takes place. (2) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act." 4.6 In the above section the deduction has been allowed to the "assessee" for expenditure incurred wholly and exclusively for demerger of an undertaking. Since demerger of the undertaking(s) in the instant case has taken place from the parent company M/s NIIT Ltd, the word "assessee" here refers to M/s NIIT Ltd. and not the target company M/s NIIT Technologies Ltd. i.e. the Assessee, with whom the undertakings of M/s NIIT Ltd. got merged. In our opinion the language of the section is clear and there is no ambiguity, as who is entitled to claim the said deduction. In case of demerger, where the undertaking(s) which get demerged, may result in new entity and in said circumstances, the resultant company cannot incur expenditure before its birth. It is the parent entity, who initiates ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly wrong today because I was unconsciously wrong yesterday". Lord Denning also said to the same effect when he observed in Ostime vs. Australian Mutual Provident Society (1960) AC 459, 480 : "The doctrine of precedent does not compel your Lordships to follow the wrong path until you fall over the edge of the cliff." Here we find that there are overriding considerations which compel us to reconsider and review the decision in Cloth Traders' case (supra). In the first place, the decision in Cloth Traders' case (supra) was rendered by this Court on 4th May, 1979, and immediately thereafter, within a few months, Parliament introduced s. 80AA with retrospective effect from 1st April, 1968, with a view to overriding the interpretation placed on s. 80M in Cloth Traders' case (supra). The decision in Cloth Traders' case (supra) did not, therefore, hold the field for a period of more than a few months and it could not be said that any assessee was misled into acting to its detriment on the basis of that decision. There was no decision of this Court in regard to the interpretation of sub- s. (1) of s. 80M prior to the decision in Cloth Traders' case (sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the decision in Cloth Traders' case. It is for this reason that we have reconsidered and reviewed the decision in Cloth Traders' case and on such reconsideration and review, we have come to the conclusion that the decision in Cloth Traders' case is erroneous must be overturned." 4.8 In view of the above decision of the Hon'ble Supreme Court, we reject the contention of the learned Counsel of the assessee to allow the deduction under section 35DD of the Act, following rule of the consistency. 4.9 In view of the above discussion, we uphold the finding of the Ld. CIT(A) on the issue in dispute. Accordingly, the grounds No. 1 to 1.2 of the appeal of the assessee are dismissed. 5. The ground Nos. 2 to 2.4 of the assessee relates to disallowance of Rs. 82,05,031/- under section 14A of the Act, which include disallowance of Rs. 37,33,490/- towards indirect interest expenditure and Rs. 44,71,541/- towards administrative expenses. 5.1 The facts qua the issue in dispute that during the year under consideration, the assessee shown investment in mutual funds at Rs. 144,42,73,807/- and received dividend income amounting to Rs.1,66,74,318/- in respect of the units held ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in the said letter was adhoc without any basis for adopting 20% of the expenses for disallowance and accordingly, he rejected the working provided by the assessee. The Ld. CIT(A) also rejected the computation of the Assessing Officer on the ground that the Assessing Officer considered the average of the entire investment including the investment made in foreign subsidiary companies. The ld. CIT(A) computed the disallowance related to interest expenditure at Rs. 37,33,490/- after excluding the interest incurred on vehicle loans etc. observing as under: "8.6.5 The exempt dividend income are earned from mutual fund investments which had gone up from Rs. 20.30 crores to Rs. 83.59 crores during the year. The secured loans are for vehicle loan and non-convertible debentures only. Unsecured loans borrowed were repaid during the year. The interest expenditures are incurred on vehicle loan (interest Rs. 13,05,415/-), borrowing repaid during the year (interest Rs. 6,82,740/-) and non-convertible debentures (interest Rs. 1,77,19,178/-). Vehicle loan being for specific purpose for vehicles, therefore, its interest is not attributable to the investments from which the exempt dividend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t expenditure incurred during the relevant previous year in relation to the exempt income. Keeping in view of the above, indirect interest expenditure on account of debenture incurred during the previous year in relation to the exempt income is worked out on proportionate and reasonable basis as under: A: Proportionate interest expenditure on account of debenture (65% of Rs. 1 77 crores) + 6,82,740/- = Rs. 1,15,17,465/- + 6,82,740/- = 122,00,205/- B: Average value of investment (excluding investment foreign companies) income from which doe's not or shall not form part of the total income = (133,55,97,392 + C: Average total assets = Rs. 292,23,98,024/- Therefore, the indirect interest expenditure incurred during the previous year in relation to income which does not or shall not form part of the total income is = A x B/C = 122,00,205 x 89,43,08,292 / 292,23,98,024 - Rs. 37,33,490/-" 5.3 With regards to administrative expenses and management expenses, the learned CIT(A) sustained the disallowance of Rs.44,71,541 at the rate of 0.5% of the average value of the investment excluding investment in foreign subsidiary companies observing as under: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come as provided in Rule 8D appears to be a very reasonable basis. In view of the above 0.5% of Rs. 89.43,08,292/- [133,55,97,392 + 45,30,19,192/2 excluding the investments in foreign subsidiary companies] = 44,71,541/-, calls for disallowance u/s 14A on account of administrative and management expenses. Therefore, the total disallowance u/s 14A on account of financial, administrative and management expenses works out to Rs. 82,05,031/- (44,71,541 + 37,33,490). Considering the above the disallowance made by the AO u/s 14A is reduced from Rs. 1,79,17,211 /- to Rs. 82,05,031/-." 5.4 Before us, the Counsel of the assessee referred to various decision of the Hon'ble courts and submitted that for making disallowance under section 14A of the Act till assessment year 2007-08, the Assessing Officer must satisfy following: (a) there must be some actual expenditure incurred (b) such expenditure must be incurred in relation to earning exempt income, which means that there must be some nexus between the actual expenditure and actual exempt income and (c) the Assessing Officer must on the facts, record satisfaction that having regard to the accounts of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....articulars Amount (Rs.) Personnel 116.83 crores Development and Bought out 10.34 crores Administration, Finance and Others 44.19 crores Marketing 3.06 crores Depreciation and Amortization 21.78 crores Re (a): Personnel Expenses With regard to personnel expenses, it is respectfully submitted that no separate manpower has been employed/ engaged to look after the investment in shares of domestic subsidiaries/ mutual funds, income wherefrom is received directly in the banks. Further, the assessing officer has not been, it is submitted, able to point out any specific expenditure incurred in relation to exempt income. Re (b): Development and bought expenses As regards development and bought out expenses, kind attention is invited to Note- 15 of the audited annual accounts for the relevant assessment year 2007-08(refer page no. 600 of PB Vol-II). On the perusal of the same, it may kindly be appreciated that these expenses includes bought out items, professionals charges, equipment hiring, consumables and others, which has no relation to the earning of exempt income and are purely in the nature of day to day expenses. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest, management or administrative cost can be made by the AO. Therefore, the learned CIT(A) has rightly allowed the appeal of the assessee in relation to deleting the addition of Rs. 7.05 crores being the proportionate disallowance on account of interest expenses. Therefore, the learned CIT(A) is not justified in retaining disallowance even of Rs. 8.10 lacs out of Rs. 2.26 crores disallowed by the AO. The AO is directed to allow the claim of the assessee accordingly. Thus, all the grounds of the Revenue are dismissed and solitary ground of the assessee in cross- objection is allowed" Re (d): Marketing With regard to marketing expenses, it is respectfully submitted that no advertising and publicity expenses were incurred in relation to exempt income earned from investment as the business of the appellant is to provide software services and solutions & systems integration and such amount had been incurred as the normal day to day business operations. The same, therefore, cannot be held to be relatable, directly or indirectly, to the exempt income earned by the appellant. Re (e): Depreciation and Amortization Expenses Insofar as depreciation/amo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R submitted that the Assessing Officer was not satisfied with the claim of assessee of no expenses incurred and accordingly not being satisfied, he computed the disallowance under section 14A of the Act and thus the contention of the learned Counsel of the assessee of no dissatisfaction of claim of assessee was recorded, was not correct. The ld DR supported computation of disallowance of interest expenditure and administrative expenses made by the Ld. CIT(A). 5.12 We have heard the rival submission of the parties and perused the relevant material on record. In the instant case, the Assessing Officer has expressed dissatisfaction on the claim of the assessee that no expenses were incurred for earning the exempt income, which is evident from following paragraph of the assessment order: "5.2. No income, whether exempt or not, can be earned without making some expenditure. Often times such expenditure are not segregated in the accounts of the assessee and remain clubbed with overall administrative/financial and other expenses for the business as a whole. It thus becomes the duty of the AO to reasonably allocate expenses relatable to such income and disallow the same. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luding that he was not satisfied or did not record cogent reasons for his dissatisfaction to reject the AO's conclusion. To insist that the AO should pay such lip service regardless of the substantial compliance with the provisions would, in fact, destroy the mandate of Section 14A." 5.14 In view of above decision of the Hon'ble Delhi High Court, in case of Indiabull Financial Services Ltd. (supra), we reject the contention of the assessee that no dissatisfaction was recorded by the Assessing Officer while invoking section 14A of the Act for computing disallowance towards earning the exempt income. 5.15 The second contention of the assessee is that no disallowance should be made for interest expenditure in view of sufficient own funds available with the assessee. The details of position of the funds of the assessee as on 31/03/2006 and 31/03/2007 filed by the assessee in paper-book is reproduced as under: Particulars 2007 Rs. In million 2006 Rs. In million Liabilities Share Capital 395 400 Reserves 2,575 1,770 Loan 267 438 Current and Other Liabilties 748 569 Total 3,985 3,177 Assets Rs. In million Rs. In milli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tio of the decision of the Hon'ble Bombay High Court in the case of Relance utilities and power ltd (supra) over the facts of the instant case, we find that the instant case also there are sufficient interest-free funds in the form of share capital and reserves available to explain the investment in mutual funds. In view of no interest expenditure relatable to investment in assets yielding exempt income, the disallowance of Rs. 37,33,490/- sustained by the Ld. CIT(A) is deleted. 6. Regarding the administrative expenses for earning the exempt income is concerned, we find that Hon'ble Delhi in the case of ACB India Ltd. (supra) and the Special Bench in the case of ACIT Vs Vireet Investment Private Limited (supra) has held it for considering disallowance towards administrative expenses, the investment which has yielded exempt income during the year under consideration should only be considered. 6.1 The assessee before the Ld. CIT(A) has accepted 20% of the certain expenses towards salary etc. of employees engaged in investment activity. Thus, the contention of the assessee that no expenses have been incurred for earning the exempt income is not acceptable and some expenses on sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee would be allowable in the year in which the debt was written off as irrecoverable in the books of accounts, however, the bad debts must be shown as good debts in the books during the previous year. The appellant in the course of appellate proceedings placed on record the year-wise details as to when the bad debts claimed were offered to tax. However, the appellant failed to furnish the particulars to substantiate that sundry debtors shown in the balance sheet as on 31/03/2006 also includes the amounts shown as bad debts written off in the relevant AY 2007-08. In other words, it cannot be ascertained that the bad debts written off in AY 2007-08 as irrecoverable were shown as good debts as on 31/03/2006. In view of the above the claim of bad debts are not allowable. The alternative submission of the appellant is that the bad debts written off should have been allowed as trading loss. The above submission is also not sustainable because no such claim for deduction as trading loss was made in the profit & loss account. The claim made in the P&L account was as bad debts which is not sustainable because as stated earlier, the appellant failed to furnish the particulars to substantiate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eduction under section 10B of the Act was claimed in assessment year 2006-07 also which was disallowed by the Assessing Officer, however same was allowed by the Ld. CIT(A). The Assessing Officer observed that the different units of the assessee company are not operating in isolation but they are operating as different branch of the same tree. The Assessing Officer observed that the assessee was maintaining single books of accounts for all its units, including the units covered by the deduction under section 10B of Act and the assessee has allocated the expenses between the different units for computing deduction under section 10B of Act. According to the Assessing Officer, the basis of appropriation was not explained by the assessee. In absence of any specific method, the only lawful basis of allocating the expenses towards different unit has to be on the basis of the revenue generated by the said units. The Learned Assessing Officer mentioned that as per subsection (4) of section 10B of the Act, first the profit of the business has to be computed under the head 'profit and gains of the business or profession' and in then profit is to be apportioned between the export turnover a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l income. Therefore, it is a settled issue that the deduction u/s 10A/10B of the Act has to allowed with reference to the profits of the eligible undertaking and not with reference to the appellant's business as a whole. 8.1.4 The AO did not allow the deduction with reference to the profits of the eligible undertaking because he observed that appellant was maintaining consolidated books of accounts. However in view of the decisions in the case of DCIT v. Arabian Exports Ltd. : 109 TTJ 440 (Mum), CIT v. Fusion Software Engg. Pvt. Ltd. : 1TA No. 952 and 953 of 2006 (Kar HC) & JOT v. Gebbs Infotech Ltd. : ITA No. 3370/Mum/2007 (Mum) and in view of CBDT Circular No. 1/201.3 dt. 17.01.2013 it is a settled issue that it is not mandatory for an eligible undertaking to maintain separate books of accounts and the claim for deduction u/s I0A/10B cannot be denied to any assessee on this ground. 8.1.5 Even in the instant AY 2007-08 the three units in respect of which deduction u/s I0B have been claimed viz NTL-Salt Lake - Kolkata, NTL-Bannerghatta Road, Bangalore & NTL- Athena, New Delhi are the same units which were also claiming the deduction u/s 10B in AY 2006-07. Each of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of earlier years also, the Ld. CIT(A), following the finding of his predecessor in assessment year 2006- 07, decided the issue in favour of the assessee. 7.4 Before us, learned DR relied on the Assessing Officer and submitted that in absence of separate books of accounts maintained for eligible unit, the Assessing Officer is justified in computing the profit derived from the export undertaking as profit of the business of the assessee in proportion to export turnover to the total turnover. She also supported the action of the Assessing Officer in not allowing the unobserved losses and depreciation. 7.5 We have heard the rival submissions and perused the relevant material on record. It is undisputed that both the Assessing Officer and the Ld. CIT(A) has followed respective finding of their predecessors in assessment year 2006-07. We find that the Tribunal in assessment year 2006-07 in ITA no. 3076/Del/2012 has dismissed the grounds of the appeal of the revenue against the deduction under section 10B allowed by the Ld. CIT(A). The finding of the Tribunal is reproduced as under: "5. We have heard both the sides and perused the entire materials on record and we find....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as to why all the units of the appellant company may not be considered as one unit for the purpose of deduction u/s 108 of the Act. The documents that the appellant seeks to admit at this level are mainly documents relating to Customs Licenses issued to each of the eligible units and the registers maintained by those units under the Customs rules, details of fixed assets purchased at the time of formation of the EOUs and separate monthly performance reports of the EOUs. The Assessing officer has raised the issue of some of these documents bearing the name of "M/s NIIT Ltd." instead of "M/s NIIT Technologies Ltd.", which has been explained by the appellant stating that all the eligible units were initially part of NIIT Ltd and were demerged into the appellant company through the court approved scheme of demerger, approved by the Hon'ble High Court of Delhi with effect from 1.04.2003. That is why the documents relating to the demerged eligible units, executed prior to the effective date, i.e., 4.06.2004, are in the name of the demerged company, i.e., NIIT Ltd. To my mind, these documents are material to decide the question as to whether the EOUs are to be treated as separate un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accounts have been maintained for these units. He had also raised doubts about the allocation of expenses to these units to 'arrive at the conclusion that deduction could not be calculated in respect of the units separately and therefore he calculated the deduction u/s 108 by aggregating all the profits of eligible and non eligible units and applying the-formula as given in section 108(4) to the. entire profits of the business of the appellant company thereby reducing the deduction substantially. The appellant has made detailed submissions on this ground as summarised/extracted hereinabove. Various evidences to establish separate "identity and independent existence of the eligible EOUs have been furnished from which it appears that these units are independent of each other as well as of the non-eligible units in respect of their licences, location and resources etc. They have got separate approvals from the- STPI Authority for claiming exemption ills 108 of the Act as newly set up 100% EOU and they have also been issued separate export licences by the Customs authorities. These units have separate locations as is indicated from their respective addresses. The appellant has also....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it has been held that there is no requirement to maintain separate books of accounts as a necessary precondition for claiming the benefit of relief under sections 1OA/10B of the Act:- * CIT V. Fusion Software Engg. (P.) Ltd.: ITA No. 952 and 953 of 2006 (Kar HC) * JCIT v Gebbs Infotech Ltd.: ITA No. 3370/Mum/2007 (Mum.) 2.4.4 In view of the evidence placed and the explanations furnished, it is held that the eligible units of the appellant company identified as the following: NTL-Salt Lake - Kolkata EM4/1, 2^nd Floor, North Wing Sector-V, Salt Lake Electronics Complex, Kolkata NTL-Safed Pool, Mumbai Aditya Textile Compound, Carouroy Building Safed Pool, Andheri Kurla Road, Andheri (E), Mumbai NTL-Pretoria Street, Kolkata 6B, Pretoria Street, Kolkata NTL-Bannerghatta Road, Bangalore No.39/2,Bannerghatta Road, Bangalore 560029 NTL-Athena, New Delhi A-44, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi. are-separate 100% EOUs of the appellant company for the purposes of claiming deduction u/s 10 B of the Act and they cannot be treated as one with the appellant company just because they carry out the same n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e instant case and on the other, the. aforesaid issue is squarely covered by the decision of the-Special Bench of the' Tribunal in the case of Scientific Atlanta India (P) limited: 38 SOT 252/129 TTJ 273 wherein the Tribunal has held that deduction under section 10A of the Act has to be independently computed in relation to the profits of the eligible unit without adjusting the same against- unabsorbed depreciation relating to the non-eligible unit(s). Reliance has also been placed by the appellant on the decision of Bangalore Bench of Tribunal in the case of ACIT v. Yokogawa India Ltd. 111 TTJ 548, wherein it was held that deduction under section 10A shall be allowed from the profits of eligible undertaking without setting off the losses /carried forward losses of other non-eligible divisions. Other cases relied upon by the appellant are as under: * Changepond Technologies (P.) Ltd. V. ACIT: 119 TTJ 18 (Chenn.) * KPIT Cummins Infosystems (Bangalore) (P) Ltd. V. ACIT: (2008) 26 SOT 529 (Bang,) * Reliq Software (P) Limited V. ITO: 125 ITO 101 (Bang.) Besides the above decisions cited in their written submissions, the appellant's AR also brought to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it is noticed that the question of set off of unabsorbed deprecation brought forward from earlier year(s) prior to claiming deduction under section 108 of the Act would not arise since the unabsorbed depreciation of Rs. 13,90,60,056 carried forward from assessment year 2005-06 related to undertakings not eligible for deduction under section 10B of the Act during the year under consideration. This fact clearly establish that unabsorbed depreciation brought forward actually pertained to the non-eligible unit and not to the eligible unit(s) and therefore, the question of set off of such unabsorbed depreciation prior to claiming deduction under section 10B of the Act in my view does not arise at all. I agree with the contention of the appellant that facts of the instant case are distinguishable from the facts of the cited case and hold that the decision of Hon. Karnataka High Court in the case of Himmatsingkie Siede Ud.(supra) is not applicable in the present case and that the reliance placed by the Assessing Officer on that case is somewhat misplaced. 2.4.5.2 In the case of Scientific Atlanta India Technology (P) Limited: 38 SOT 252 I 129 TTJ 273 as relied upon by the appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otal turnover. It may be noticed that again the words used are "Profits and gains of business of the undertaking". In any case, this is not the total profits of the business of the assessee. Thus in computing deduction under section 10A we have to ascertain the total income as per the provisions of the Act in respect of "that undertaking" and the amount so determined is to be reduced from the total income . 27. Having held that the deduction under section -10A is not an exemption but only a deduction under Cbepter III of the Income-tax Act and the provisions of section 8OAB of Chapter VIA would not be applicable to such deduction under section 10A, and also that the deduction under section 10A is undertaking specific, we have to answer the question posed before us by holding that the business losses are non-eligible unit, whose income is not eligible for deduction under section 10A of the Act, cannot be set off against the profits of the undertaking eligi61e for deduction under section 10A for the purpose of determining the allowable deduction under section 10A of the Act. Of course, if there are more than one undertaking which is eligible for deduction under section 10A a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder the Act. Once the total income is computed, the next step is determination of the tax by applying applicable rates on the total income ........ . . 14. The phrase "total income" has been used in the Income tax Act in several places with different connotation and shades. The phrase total income used in section I0-A is one such variant. The phrase need not necessarily mean the total income as commuted in accordance with the provision of the Act. The relief under this section is with reference to the STP undertaking and not to the assessee. In other words, the relief travels with the undertaking irrespective of who owns the same. The computation of relief as provided in section 10-A (4) is also with reference to the undertaking. A business might have several undertaking and section 28 does not envisage computation .of income of each such undertaking. In other words, the profit of the business of the undertaking cannot be computed in isolation. The profits are computed under the head "profits and gains from business or profession" as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in section 1O-A (1) is, therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he nature of relief continues to be an exemption. The Parliament despite being conversant with the implications of this Chapter has consciously chosen to retain section 10A in Chapter III. 17. If section 10A is to be given effect to as a deduction from the total income as defined in section 2(45), it would mean that section 10A is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in section 80B(5) to mean the total income computed in accordance with the provisions of the Act, before making any deduction under this Chapter. As per the definition the gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include section IDA. In other words, the gross total income would be arrived at after considering section 10A deduction also. Therefore, it would be inappropriate to conclude that section 10A deduction is to be given effect to after Chapter VIA deductions are exhausted. 18. It is after the deduction under Chapter VI-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vides that 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 article or thing or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from the export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. (emphasis supplied) 2.4.5.4 In view of the above discussion and considering the guidance available in the aforesaid judicial pronouncements especially in-the above-cited decision of the Hon. Karnataka High Court in the case of Yokogawa India Ltd.: 246 CTR 226(Kar) and others, as given with reference to the provisions of section 10A which are analogous provisions of section 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee by claiming depreciation contrary to section 32 has virtually taken exemption from payment of tax even for other business as well as non business incomes, which should not be allowed. 6. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred ignoring the fact that under the amended provisions effective from 01.04.2001, the claim u/s 10B has been declared as deduction and not exemption. Since profits are required to be computed as per the provisions of the IT Act, viz., section 29 to section 43A, this includes section 32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking." 8.6 In view of the identical grounds raised in the year under consideration and identical facts and circumstances, we allow the claim of the deduction of the assessee under section 10B of the Act and dismiss the ground No. 1 to 1.5 and 2 of the appeal of the Revenue. 9. The Ground Nos. 3 and 4 of the appeal of the Revenue relate to one-time lease rental charges paid by the assessee to Greater Noida Industrial Development Authorities (GNIDA) for taking plot of land on lease for development of IT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e annual rent was only one rupee and the premium paid was nothing but "advance rent". The landed Counsel of the assessee also relied on the decision of the Hon'ble madras High Court in the case of CIT Vs Gemini Arts (P) Ltd 254 ITR 201 . 9.6 We have heard the rival submission and perused the relevant material on record. The assessee has filed a copy of the lease deed under reference. In terms of the lease deed, the assessee has made following payments to GNIDA: (a) one-time lease premium of Rs. 2,83,56,515/- (b) commuted one time lease rent of Rs. 77,98,042/- 9.7 As far as payment of one-time lease premium is concerned, the assessee has capitalized the said amount in its books of accounts. The Ground No. 4 of the appeal of the Revenue is factually incorrect because the premium has already been capitalized by the assessee and the issue in dispute is only in respect of the commuted one timely lease rent. 9.8 The Ld. CIT(A) after considering the decisions on the issue of when a particular expenditure has to be considered as capital expenditure, in the case of Empire Jute Co. Vs CIT 124 ITR 1 (SC); Lakshmiji Sugar Mills Co P Ltd Vs CIT 82 ITR 376 (SC) and Mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. 8.5.4 In the case of Lakshmiji Sugar Mills Co. P. Ltd. v. CIT : 82 ITR 376, Hon'ble Supreme Court held that the contribution made by the assessee under a statutory obligation for the development of roads which were originally the property of the Government and remained so even after the improvement had been done, being expenditure incurred for running of the business efficiently and conveniently and not for acquiring a capital asset was of revenue nature and not of a capital nature. 8.5.5 In the case of Madras Auto Service (P) I imited (233 ITR 468) the assessee tenant had spent the amounts in question in order to construct a new building after demolishing the oid building.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e rentals paid by the appellant company has been incurred in respect of premises used wholly and exclusively for the purposes of the business of the company; and the same represents commuted payment in lieu of regular lease rental and hence is in the nature of revenue expenditure. In view of the above, the AO has erred in making the disallowance of the commuted lease rentals. The appeal is allowed in this ground no. 7 of appeal. Since appeal is allowed in ground no. 7 of appeal, therefore, the plea of the appellant in ground no. 8 of appeal is infructuous and not necessary to be adjudicated." 9.9 We find that the Ld. CIT(A) has distinguished the expenditure in the capital field and expenditure incurred only to facilitate the carrying of the business more efficiently and profitably, which is revenue in nature. The one-time premium paid by the assessee has already been considered by the assessee as capital expenditure. The assessee had the option to pay the lease rental on year-to-year basis or as a one-time expenditure. The assessee has substituted the revenue expenditure which was to be paid on year-to-year basis and the nature of the expenditure remained same though it has b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 1/5th of demerger expense incurred by the appellant. 1.1 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in holding that in terms of Section 35DD of the Act, demerger expenses are allowable only in the hands of the demerged company and not in the hands of the resultant company. 1.2 That the Commissioner of Income-Tax (Appeals) failed to appreciate that the claim of appellant was sustainable in law inasmuch as the Appellant had fulfilled all the conditions for claiming deduction under section 35DD of the Act. 2. That the Commissioner of Income-Tax (Appeals) erred on facts and in law in sustaining disallowance to the extent of Rs. 91,18,132/- under section 14A of the Act by invoking the methodology prescribed under Rule 8D of the Income Tax Rules, 1962 ("the Rules"). 2.1 That the Commissioner of Income-Tax (Appeals) erred on facts and in law in disallowing indirect interest expenditure to the tune of Rs. 36,85,740/- without appreciating that investment in mutual funds were made out of interest free/surplus funds available with the Appellant. 2.2 That the Commissioner of Income-Tax (Appeals) erred in holding that s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the facts & in the circumstances of the case and in law, the Id. CIT(A) has erred in not considering the whole provisions laid down by the Board in Para 2(v) of the circular 1/2013 dated 17.01.2013, where in it is specifically mentioned that the AO, if requires can call for the separate books of accounts of all the units for which deduction u/s 10B is claimed. 12. The Ground Nos. 1 to 1.3 of the appeal of the assessee for AY 2008-09 are identical to the Ground Nos. 1 to 1.2 raised in AY 2007-08. Respectfully following our finding in AY 2007-08, the grounds of the assessee are dismissed. 13. The Ground Nos. 2 to 2.4 of the present appeal of the assessee are identical to Grounds No. 2 to 2.4 Of the appeal of the assessee for AY 2007-08, except the change that w.e.f. AY 2008- 09 the Rule 8D of the Rules has been operative. Following our finding in AY 2007-08, the indirect interest expenses under Rule 8d(2)(ii) are deleted and disallowance under Rule 8D(2)(iii) are restricted to 0.5 % of the assets which has yielded exempted income during the year under consideration. Accordingly, the grounds No. 2 to 2.4 are partly allowed. 14. The grounds raised in the appeal of the Revenu....