M/s Sankhya Technologies Pvt. Ltd v. The Income-tax Officer Company Circle VI(1) Chennai
[Citation -2016-LL-0923-178]

Citation 2016-LL-0923-178
Appellant Name M/s Sankhya Technologies Pvt. Ltd
Respondent Name The Income-tax Officer Company Circle VI(1) Chennai
Court ITAT-Chennai
Relevant Act Income-tax
Date of Order 23/09/2016
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags set off of business loss • industrial undertaking • software development • income from business • business activity • reason to believe • free trade zone • interest income • sale of tea
Bot Summary: Since the assessee being a software exporter, the entire amount of loss has been claimed as exempt u/s 10A. The Assessing Officer subsequently found that the admitted loss includes set off claimed by the assessee of interest on bank deposit of 22,39,927/-, dividends of 55,575/- and miscellaneous income of 64,800/- which were claimed as exempt and set off. In respect of interest on fixed deposits with bank and miscellaneous income, the above amount was subjected to taxation alongwith capital gains and the total income was determined at 23,72,500/- vide order u/s 143(3) r.w.s 147 of the Act passed on 30.10.2006. The Assessing Officer failed to appreciate that the current year business loss has been set off from once source against income from another source under the same head of income as per the provisions of sec. The judgment relied by the CIT(A) is in respect of set off of loss from 10A unit with the profit of 10A unit is distinguishable whereas the assessee has set off loss of 10A unit under the same head of income being in the nature of interest and therefore, the assessee is entitled to claim deduction while computing total income. 70(1), set off of loss for one source against income from another source under the same head of income is allowed. In the light of the Circular above, referred to and the decision of this Court, we hold that the assessee is entitled to set off of the losses as against the income of the eligible unit, so long as the loss was not liable to be excluded in the category even under 10B of the Income Tax Act. 70 of the Act, we are of the opinion that the assessee-company is eligible for set off of business loss against other income including interest under the same head. And the Assessing Officer is directed to allow set off of the other income with business loss determined u/s 10A of the Act.


IN INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI, [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER] ./I.T.A.No.589/Mds/2015 /Assessment year : 2003-04 M/s Sankhya Technologies Vs. Income Tax Officer Pvt. Ltd Company Circle VI(1) No.13/2 III Floor Chennai Jayalakshmipuram 1st Street Nungambakkam Chennai 641 034 [PAN AADCS 4838 E] ( /Appellant) ( /Respondent) / Appellant by : Shri R. Vijayaraghavan, Advocate /Respondent by : Shri A.V. Sreekanth, JCIT /Date of Hearing : 16-08-2016 /Date of Pronouncement : 23-09-2016 / O R D E R PER G. PAVAK KUMAR, JUDICIAL MEMBER This appeal of assesseee is directed against order of Commissioner of Income-tax (Appeals)-15, Chennai, dated 12.1.2015 in I.T.A.No.1049/13-14/A-15 for assessment year 2003-04 passed u/s 143(3) and 250 of Income-tax Act, 1961(I short Act ). :- 2 -: ITA No. 589/15 2. assessee has raised sole substantive ground that CIT(A) erred in upholding order of Assessing Officer denying set off of inter head adjustment of income from other sources of ` 23,60,578/- against business loss of 10A unit. 3. Brief facts of case are that assessee-company is engaged in software development and filed its return of income for impugned assessment year on 28.11.2003 admitting loss of ` 68,82,402/- and claimed exemption u/s 10A of Act. return of income was processed u/s 143(1). Since assessee being software exporter, entire amount of loss has been claimed as exempt u/s 10A. Assessing Officer subsequently found that admitted loss includes set off claimed by assessee of interest on bank deposit of ` 22,39,927/-, dividends of ` 55,575/- and miscellaneous income of ` 64,800/- which were claimed as exempt and set off. Therefore, notice u/s 148 was issued as there was reason to believe that income has escaped assessment. In compliance to notice, ld. AR for assessee appeared and filed letter to treat return of income originally filed in response to notice u/s 148. In assessment proceedings, it was explained that assessee being engaged in software development having eligible unit for exemption u/s 10A , income from bank deposits which was set off against losses and balance was claimed as exempt. Assessing Officer :- 3 -: ITA No. 589/15 has not appreciated this submission and computed business loss at ` 92,16,363/-. In respect of interest on fixed deposits with bank and miscellaneous income, above amount was subjected to taxation alongwith capital gains and total income was determined at ` 23,72,500/- vide order u/s 143(3) r.w.s 147 of Act passed on 30.10.2006. 4. Aggrieved assessee has filed appeal before CIT(A). In appellate proceedings, ld. AR argued grounds and reiterated submissions made in assessment proceedings in respect of set off denied by Assessing Officer. He submitted that Assessing Officer has segregated income from bank deposits as income from other sources where this income is treated as part of income from business or profession. With this calculation, Assessing Officer has arrived at business loss of ` 92,16,363/- and income from other sources at ` 23,60,302/-. Assessing Officer failed to appreciate that current year business loss has been set off from once source against income from another source under same head of income as per provisions of sec. 70. Assessing Officer has made finding that loss u/s 10A cannot be considered for set off. CIT(A) considered submissions and also arguments on exemption and treatment of business loss and he was of opinion that as per submissions of ld. AR there is change in :- 4 -: ITA No. 589/15 terminology of exemption u/s 10A to be treated as deduction from total income. CIT(A) has discussed elaborately on section and Chapter and also provisions amended prior to assessment year 2001-02 and subsequently. He relied on judgment of Karnataka High Court in case of Yokogawa India Ltd, 341 ITR 385, and came to conclusion that deduction u/s 10A are required to be dealt with separately and has to be excluded before arriving at gross total income and income which are assessable from other sources or not derived from any industrial undertaking which is falling under special provision in respect of newly established undertaking in free trade zone and there is no nexus between income eared with business loss declared u/s 10A of eligible unit. Therefore, interest income shall not be given set off against exempt loss and upheld action of Assessing Officer. 5. Aggrieved, assessee is in appeal before Tribunal.Before us, ld. AR reiterated submissions made in assessment proceedings, appellate proceedings and explained facts and also provisions, amendments prior to assessment year 2001-02. ld. AR further argued that CIT(A) erred in denying set off of adjustment of income against business loss of 10A unit. There is change in nature of exemption applicable for assessment year 2001-02. Where deduction u/s 10A in respect of :- 5 -: ITA No. 589/15 profits and gains are eligible to be deducted from total income and provisions of sec. 70(1) are applicable. judgment relied by CIT(A) is in respect of set off of loss from 10A unit with profit of 10A unit is distinguishable whereas assessee has set off loss of 10A unit under same head of income being in nature of interest and therefore, assessee is entitled to claim deduction while computing total income. ld. AR relied on judgment of Bombay High Court in case of Hindustan Unilever Ltd vs Dy. CIT, 325 ITR 102, wherein held that assessee having adjusted 40 per cent of loss of its plantation division as attributable to business activity of manufacture and sale of tea and same is permissible. Similar view was taken by ITAT Delhi Bench in case of Qualcomm India P Ltd vs ACIT, 147 ITD 17 and prayed for allowing appeal. 6. Per contra, ld. DR relied on orders of lower authorities and opposed to grounds raised by assessee. 7. We have heard rival submissions, perused material on record and judicial decisions. crux of issue being denial of set off of income from other sources against business loss u/s 10A unit. Assessing Officer in re-assessment proceedings has segregated business loss separately and allowed exemption u/s 10A and made addition of interest ` 23,60,578/- under income from other sources. CIT(A) upheld action of Assessing Officer :- 6 -: ITA No. 589/15 relying on judgment of Karnataka High Court in Yokogawa India Ltd.(supra) and came to conclusion that there should be nexus between income earned in respect of industrial undertaking. 8. ld. DR explained that it is in nature of exempted business loss. As against above, ld. AR submitted that under provisions of sec. 70(1), set off of loss for one source against income from another source under same head of income is allowed. By applying this provision assessee-company has adjusted and set off other income including interest income with business loss u/s 10A of Act and filed return of income. Further there was amendment to this provision where deduction u/s 10A has to be treated as deduction from total income, therefore, assessee by applying provision has claimed set off against business loss. decisions relied by ld. AR are in support of his arguments wherein held that loss of 10B unit is available for set off u/s 70. So, same principle applies to provisions of 10A. We find that similar issue was considered by jurisdictional High Court in case of CIT vs M/s Lason India Pvt. Ltd in Tax case (Appeal) No.1529 of 2007 dated 29.10.2013 wherein it was held as under: :- 7 -: ITA No. 589/15 6. In light of circular issued by Government of India, Central Board of Direct Taxes, we do not find contention of Revenue remains any longer res integra for this court to consider same. In this decision rendered in T.C(A) Nos. 72 & 73 of 2009, dated 22.10.2013, Commissioner of Income tax vs M/s Pentasoft Technologies Ltd this Court has also considered effect of circular as well as decision of Bombay High Court in case of Commissioner of Income-tax vs Galaxy Surfactants Ltd, reported in 343 ITR 108 and Hindustan Unilever Ltd vs Deputy Commissioner of Income-tax reported in [2010] 325 ITR 102[Bom] as regards set off of loss suffered by assessee in ineligible unit as against profit of eligible unit in favour of assessee. In light of Circular above, referred to and decision of this Court, we hold that assessee is entitled to set off of losses as against income of eligible unit, so long as loss was not liable to be excluded in category even under 10B of Income Tax Act. 9. Therefore, considering apparent facts, material on record and judicial decisions and provisions of sec. 70 of Act, we are of opinion that assessee-company is eligible for set off of business loss against other income including interest under same head. And Assessing Officer is directed to allow set off of other income with business loss determined u/s 10A of Act. 10. In result, appeal of assessee is allowed. Order pronounced on Friday, 23rd September, 2016, at Chennai. Sd/- Sd/- (ABRAHAM P. GEORGE) (G. PAVAN KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai Dated: 23rd September, 2016 RD :- 8 -: ITA No. 589/15 Copy to: 1. Appellant 4. CIT 2. Respondent 5. /DR 3. CIT(A) 6. /GF M/s Sankhya Technologies Pvt. Ltd v. Income-tax Officer Company Circle VI(1) Chennai
Report Error