Polyhose India Rubber Pvt. Ltd., CHENNAI v. ACIT, CHENNAI

ITA 3387/CHNY/2016 | 2008-2009
Pronouncement Date: 22-11-2017 | Result: Allowed

Appeal Details

RSA Number 338721714 RSA 2016
Assessee PAN AADCP4173F
Bench Chennai
Appeal Number ITA 3387/CHNY/2016
Duration Of Justice 11 month(s) 3 day(s)
Appellant Polyhose India Rubber Pvt. Ltd., CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 22-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted D
Tribunal Order Date 22-11-2017
Date Of Final Hearing 20-07-2017
Next Hearing Date 20-07-2017
First Hearing Date 20-07-2017
Assessment Year 2008-2009
Appeal Filed On 19-12-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI . . . . BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ./ I.T.A.NOS.3387 3388 & 3389/MDS/2016 ( / ASSESSMENT YEARS: 2008-2009 2009-10 & 2011-12) M/S. POLYHOSE INDIA (RUBBER) PVT. LTD. C/O. B. SIVARAMAN & ASSOCIATES CA 10 E BLOCK KARTHIK APARTMENTS 46 VIJAYARAGAVA ROAD CHENNAI 600 017. VS THE ASST. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE-V(2) CHENNAI 34. PAN: AADCP4173F ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.17/MDS/2017 ( / ASSESSMENT YEAR: 2009-2010) THE DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE-5(2) CHENNAI 34. VS M/S. POLYHOSE INDIA (RUBBER) PVT. LTD. F-37 TO F-42 SIPCOT INDUSTRIAL PARK IRUNGATTUKOTTAI KANCHIPURAM - 602105 PAN: AADCP4173F ( /APPELLANT) ( /RESPONDENT) /ASSESSEE BY : SMT. S. VIJAYAPRABHA JCIT /REVENUE BY : SHRI S. SRIDHAR ADVOCATE !' /DATE OF HEARING : 26.09.2017 #$!' /DATE OF PRONOUNCEMENT : 22.11.2017 / O R D E R PER A. MOHAN ALANKAMONY AM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)- 2 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 3 CHENNAI ALL DATED 30.09.2016 IN ITA NO.1/2011-2/ CIT(A)-3 16/2011-12/CIT(A)-3 & 65/2015-16/CIT(A)-3 FOR THE A SSESSMENT YEARS 2008-09 2009-10 & 2011-12 PASSED U/S.250(6 ) R.W.S.143(3) OF THE ACT. THE REVENUE HAS ALSO FILED AN APPEAL AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(APPEALS)-3 FOR THE ASSESSMENT YEAR 2009-10. 2. ASSESSEES APPEALS : (I) FOR THE ASSESSMENT YEAR 2008-09 & 2011-12 THE ASSESSEE HAS RAISED ONE IDENTICAL GROUND AND THE SA ME IS BRIEFLY STATED HEREIN BELOW FOR ADJUDICATION:- THE LD.CIT(A) HAS ERRED IN DEDUCTING THE BROUGHT F ORWARD LOSSES AND CARRY FORWARD DEPRECIATION FROM THE PROF IT OF THE ASSESSEE COMPANY WHILE ARRIVING AT THE ELIGIBLE PRO FIT FOR DEDUCTION U/S.10B OF THE ACT. (II) FOR THE ASSESSMENT YEAR 2009-10 THE ASSESSEE HAS RAISED ONE GROUND AND THE SAME IS SUMMARIZED HEREIN BELOW FOR ADJUDICATION:- THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO WHO HAD NOT GRANTED DEPRECIATION U/S.32 OF TH E ACT WITH RESPECT TO THE AMOUNT CAPITALIZED INVOKING SEC TION 3 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 43A OF THE ACT WITH RESPECT TO THE EXPENDITURE INC URRED TOWARDS FOREIGN EXCHANGE FLUCTUATION CONNECTED TO T HE PURCHASE OF FIXED ASSETS. 3. REVENUES APPEAL FOR THE ASSESSMENT YEAR 2009-10: FOR THE ASSESSMENT YEAR 2009-10 THE REVENUE HAS ONE GROUND IN ITS APPEAL AND THE SAME IS BRIEFLY STATED HEREIN BE LOW FOR ADJUDICATION. THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MA DE BY THE LD.AO BY DISALLOWING THE PROVISION FOR WARRANTY AMOUNTING TO RS.20 LAKHS. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF HIGH QUALITY RUBBER HOSES. FOR ALL TH E RELEVANT THREE ASSESSMENT YEARS ASSESSMENT WAS MADE U/S.143(3) OF THE ACT. 5. ASSESSEES APPEAL: ASSESSMENT YEAR 2008-09 & 2011-12: GROUND NO.2(I) : EXCLUSION OF BROUGHT FORWARD LOSSE S AND CARRY FORWARD DEPRECIATION FROM THE PROFIT OF THE A SSESSEE 4 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 COMPANY WHILE ARRIVING AT THE ELIGIBLE PROFIT FOR G RANTING DEDUCTION U/S. 10B OF THE ACT:- WHILE COMPUTING THE ELIGIBLE PROFIT FOR GRANTING DEDUCTION U/S.10B OF THE ACT IN THE ASSESSMENT YEAR 2011-12 T HE LD.AO EXCLUDED THE BROUGHT FORWARD LOSSES OF THE ASSESSME NT YEAR 2007-08 AMOUNTING TO RS.23 92 823/-. SIMILARLY IN T HE ASSESSMENT YEAR 2008-09 THE LD.AO EXCLUDED THE BROUGHT FORWARD LOSSES OF ASSESSMENT YEAR 2006-07 RS.1 70 87 776/- & ASSESSME NT YEAR 2007-08 RS.26 10 392/-. THE CLAIM OF THE ASSESSEE W AS THAT THE BROUGHT FORWARD LOSSES AND DEPRECIATION OF THE EARL IER YEAR/S SHOULD NOT BE EXCLUDED FROM THE PROFIT OF THE CURRE NT YEAR WHILE ARRIVING AT THE ELIGIBLE DEDUCTION U/S10B OF THE AC T. ON APPEAL THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO. WHILE DOING SO THE LD.CIT(A) IN HIS ORDER DATED 30.09.2016 FOR THE ASS ESSMENT YEAR 2011-12 OBSERVED AS FOLLOWS:- 5. FROM THE ABOVE IT IS EVIDENT THAT IRRESPECTIVE OF THEIR CONTINUED PLACEMENT IN CHAPTER III SECTIONS 10A AN D 10B AS SUBSTITUTED BY FINANCE ACT 2000 PROVIDE FOR DEDUCT ION OF THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGIN S TO MANUFACTURE OR PRODUCE SUCH ARTICLE OR THING OR COM PUTER SOFTWARE. THE DEDUCTION IS TO BE ALLOWED FROM THE T OTAL INCOME OF THE ASSESSEE. THE TERM TOTAL INCOME HAS BEEN DEFINED IN SECTION 2(45) OF THE IT ACT AND IT MEANS THE TOTAL AMOUNT OF 5 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 INCOME REFERRED TO IN SECTION 5 COMPUTED IN THE MAN NER LAID DOWN IN THE INCOME-TAX ACT. 5.1 ALL INCOME FOR THE PURPOSES OF COMPUTATION OF T OTAL INCOME IS TO BE CLASSIFIED UNDER THE FOLLOWING HEAD S OF INCOME AND COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF C HAPTER IV OF THE ACT- SALARIES INCOME FROM HOUSE PROPERTY PROFITS AND GAINS OF BUSINESS AND PROFESSION CAPITAL GAINS INCOME FROM OTHER SOURCES 5.2 THE INCOME COMPUTED UNDER VARIOUS HEADS OF INCO ME IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER IV OF THE IT ACT SHALL BE AGGREGATED IN ACCORDANCE WITH THE PROVISIO NS OF CHAPTER VI OF THE IT ACT 1961. THIS MEANS THAT FI RST THE INCOME/LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 70 OF THE ACT. THEREAFTE R THE INCOME FROM ONE AHEAD IS AGGREGATED WITH THE INCOME OR LOS S OF THE OTHER HEAD IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 71 OF THE ACT. IF AFTER GIVING EFFECT TO THE PROVISIONS OF SECTIONS 70 AND 71 OF THE ACT THERE IS ANY INCOME (WHERE THERE IS NO BROUGHT FORWARD LOSS TO BE SET OFF IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 72 OF THE ACT) AND THE SAME I S ELIGIBLE FOR DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF CHAP TER VI-A OR SECTIONS 10A 10B ETC. OF THE ACT THE SAME SHA LL BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. 5.3 IF AFTER AGGREGATION OF INCOME IN ACCORDANCE WI TH THE PROVISIONS OF SECTIONS 70 AND 71 OF THE ACT THE RE SULTANT AMOUNT IS A LOSS (PERTAINING TO ASSESSMENT YEAR 200 1-02 AND ANY SUBSEQUENT YEAR) FROM ELIGIBLE UNIT IT SHALL BE ELIGIBLE FOR CARRY FORWARD AND SET OFF IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 72 OF THE ACT. SIMILARLY IF THERE IS A LO SS FROM AN 6 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 INELIGIBLE UNIT IT SHALL BE CARRIED FORWARD AND MA Y BE SET OFF AGAINST THE PROFITS OF ELIGIBLE UNIT OR INELIGIBLE UNIT AS THE CASE MAY BE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT. FOR THE ASSESSMENT YEAR 2008-09 ALSO THE LD.C IT(A) ARRIVED AT THE SAME CONCLUSION. 5.1 AT THE OUTSET THE LD.AR SUBMITTED BEFORE US TH AT THE ISSUE IS SETTLED BY THE DECISION OF THE HONBLE APEX COUR T IN THE CASE CIT & ANR VS. YOKOGAWA INDIA LTD IN THE CIVIL APPE AL NO.8498 OF 2013 VIDE ORDER DATED 16.12.2016 WHEREIN IT WAS HE LD AS FOLLOWS:- 12. WE HAVE CONSIDERED THE SUBMISSIONS ADVANCED AN D THE PROVISIONS OF SECTION 10A AS IT STOOD PRIOR TO THE AMENDMENT MADE BY FINANCE ACT 2000 WITH EFFECT FROM 1.4.2001 ; THE AMENDED SECTION 10A THEREAFTER AND ALSO THE AMENDME NT MADE BY FINANCE ACT 2003 WITH RETROSPECTIVE EFFECT FROM 1.4.2001. 13. THE RETENTION OF SECTION 10A IN CHAPTER IN OF T HE ACT AFTER THE AMENDMENT MADE BY THE FINANCE ACT 2000 WOULD BE ME RELY SUGGESTIVE AND NOT DETERMINATIVE OF WHAT IS PROVIDE D BY THE SECTION AS AMENDED IN CONTRAST TO WHAT WAS PROVIDE D BY THE UN- AMENDED SECTION. THE TRUE AND CORRECT PURPORT AND E FFECT OF THE AMENDED SECTION WILL HAVE TO BE CONSTRUED FROM THE LANGUAGE USED AND NOT MERELY FROM THE FACT THAT IT HAS BEEN RETAINED IN CHAPTER III. THE INTRODUCTION OF THE WORD 'DEDUCTIO N' IN SECTION 10A BY THE AMENDMENT IN THE ABSENCE OF ANY CONTRAR Y MATERIAL AND IN VIEW OF THE SCOPE OF THE DEDUCTIONS CONTEMPL ATED BY SECTION 10A AS ALREADY DISCUSSED IT HAS TO BE UNDE RSTOOD THAT THE SECTION EMBODIES A CLEAR ENUNCIATION OF THE LEGISLA TIVE DECISION 7 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 TO ALTER ITS NATURE FROM ONE PROVIDING FOR EXEMPTIO N TO ONE PROVIDING FOR DEDUCTIONS. 14. THE DIFFERENCE BETWEEN THE TWO EXPRESSIONS 'EXE MPTION' AND 'DEDUCTION' THOUGH BROADLY MAY APPEAR TO BE THE SA ME I.E. IMMUNITY FROM TAXATION THE PRACTICAL EFFECT OF IT IN THE LIGHT OF THE SPECIFIC PROVISIONS CONTAINED IN DIFFERENT PARTS OF THE ACT WOULD BE WHOLLY DIFFERENT. THE ABOVE IMPLICATIONS CANNOT BE MORE OBVIOUS THAN FROM THE CASE OF CIVIL APPEAL NOS. 856 3/2013 8564/2013 AND CIVIL APPEAL ARISING OUT OF SLP(C) NO . 18157/2015 WHICH HAVE BEEN FILED BY LOSS MAKING EL IGIBLE UNITS AND/OR BY NON-ELIGIBLE ASSESSEES SEEKING THE BENEFI T OF ADJUSTMENT OF LOSSES AGAINST PROFITS MADE BY ELIGIB LE UNITS. 15. SUB-SECTION 4 OF SECTION 10A WHICH PROVIDES FOR PRO RATA EXEMPTION NECESSARILY INVOLVING DEDUCTION OF THE P ROFITS ARISING OUT OF DOMESTIC SALES IS ONE INSTANCE OF DEDUCTION PROVIDED BY THE AMENDMENT. PROFITS OF AN ELIGIBLE UNIT PERTAINI NG TO DOMESTIC SALES WOULD HAVE TO ENTER INTO THE COMPUTATION UNDE R THE HEAD 'PROFITS AND GAINS FROM BUSINESS' IN CHAPTER IV AND DENIED THE BENEFIT OF DEDUCTION. THE PROVISIONS OF SUB-SECTION 6 OF SECTION 10A AS AMENDED BY THE FINANCE ACT OF 2003 GRANTING THE BENEFIT OF ADJUSTMENT OF LOSS ES AND UNABSORBED DEPRECIATION ETC. COMMENCING FROM THE YE AR 2001-02 ON COMPLETION OF THE PERIOD OF TAX HOLIDAY ALSO VIR TUALLY WORKS AS A DEDUCTION WHICH HAS TO BE WORKED OUT AT A FUTURE POINT OF TIME NAMELY AFTER THE EXPIRY OF PERIOD OF TAX HOLIDAY. THE ABSENCE OF ANY REFERENCE TO DEDUCTION UNDER SECTION 10A IN CHA PTER VI OF THE ACT CAN BE UNDERSTAND BY ACKNOWLEDGING THAT ANY SUCH REFERENCE OR MENTION WOULD HAVE BEEN A REPETITION O F WHAT HAS ALREADY BEEN PROVIDED IN SECTION 10A. THE PROVISIONS OF SECTIONS 80HHC AND 80HHE OF THE ACT PROVIDING FOR SOMEWHAT SIMILAR DEDUCTIONS WOULD BE WHOLLY IRRELEVANT AND REDUNDANT IF DEDUCTIONS UNDER SECTIO N 10A WERE TO BE MADE AT THE STAGE OF OPERATION OF CHAPTER VI OF THE ACT. THE RETENTION OF THE SAID PROVISIONS OF THE ACT I.E. SE CTION 80HHC AND 80HHE DESPITE THE AMENDMENT OF SECTION 10A IN 8 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 OUR VIEW INDICATES THAT SOME ADDITIONAL BENEFITS T O ELIGIBLE SECTION 10A UNITS NOT CONTEMPLATED BY SECTIONS 80H HC AND 80HHE WAS INTENDED BY THE LEGISLATURE. SUCH A BENE FIT CAN ONLY BE UNDERSTOOD BY A LEGISLATIVE MANDATE TO UNDERSTAN D THAT THE STAGES FOR WORKING OUT THE DEDUCTIONS UNDER SECTION 10A AND 80HHC AND 80HHE ARE SUBSTANTIALLY DIFFERENT. THIS I S THE NEXT ASPECT OF THE CASE WHICH WE WOULD NOW LIKE TO TURN TO. 16. FROM A READING OF THE RELEVANT PROVISIONS OF SE CTION 10A IT IS MORE THAN CLEAR TO US THAT THE DEDUCTIONS CONTEMPLA TED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDIN G ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON- ELIGIBLE UNITS OR UNDERTAKINGS OF THE ASSESSEE. THE BENEFIT OF DED UCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULT ANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEOUS CIRCULAR NO. 794 DATED 9.8.2000 WHI CH STATES IN PARAGRAPH 15.6 THAT 'THE EXPORT TURNOVER AND THE TOTAL TURNOVER FOR THE PURPOSES OF SECTIONS 10A AND 10B SHALL BE OF THE UNDERTAKING LOCATED IN SPECIFIED ZONES OR 100% EXPORT ORIENTED UNDERTAK INGS AS THE CASE MAY BE AND THIS SHALL NOT HAVE ANY MAT ERIAL RELATIONSHIP WITH THE OTHER BUSINESS OF THE ASSESSE E OUTSIDE THESE ZONES OR UNITS FOR THE PURPOSES OF THIS PROVI SION.' 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [ FIRST PROVISO TO SECTIONS 10A(1); 10A (1A) AND 10A (4)] THAT THE UNI T THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS T HE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOU S CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERST OOD THE SITUATION IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIG IBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND THEREFORE IMMEDI ATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS . AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICA TION. THE 9 ITA NOS. 3387 TO 3389/MDS/2016 & ITA NO.17/MDS/2017 DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRI OR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF T HE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTIO N 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORE SAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPRESSION ' TOTAL INCOME OF THE ASSESSEE' IN SECTION 10A AS 'TOTAL INCOME OF THE UNDERTAKING' . 18. FOR THE AFORESAID REASONS WE ANSWER THE APPEALS AND THE QUESTIONS ARISING THEREIN AS FORMULATED AT THE OUT SET OF THIS ORDER BY HOLDING THAT THOUGH SECTION 10A AS AMEND ED IS A PROVISION FOR DEDUCTION THE STAGE OF DEDUCTION WOU LD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UN DERTAKING UNDER CHAPTER IV OF THE ACT AND NOT AT THE STAGE OF COMPUTATION OF THE TOTAL INCOME UNDER CHAPTER VI. ALL THE APPEA LS SHALL STAND DISPOSED OF ACCORDINGLY. 5.2 THE LD.DR COULD NOT CONTROVERT TO THE SUBMISSIO N OF THE LD.AR. 5.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. THE HONBLE APEX COURT IN THE CASE M/S. YOKOGAWA INDIA LTD. SUPRA HAS CATEGORICALLY HELD T HAT THE PROVISIONS OF SECTION 10A MAKES IT CLEAR THAT THE E LIGIBLE UNDERTAKING OF THE ASSESSEE WILL BE ALLOWED DEDUCTI ON WITH RESPECT TO THE PROFIT OF THE UNDERTAKING WITHOUT RE FERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNDERTAKINGS OF THE ASSESSEE. 10 ITA NOS. 3387 T O 3389/MDS/2016 & ITA NO.17/MDS/2017 FURTHER IT IS MADE CLEAR THAT THE DEDUCTION U/S.10A WOULD BE COMPUTED PRIOR TO COMMENCEMENT OF THE EXERCISE TO B E UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGIBLE UNDERTAKING UNDER CHAPTER IV OF THE ACT AN D NOT AT THE STAGE OF COMPUTATION OF TOTAL INCOME UNDER CHAPTER VI OF THE ACT. IT WAS ALSO MADE CLEAR THAT PROVISIONS OF SECTION 1 0A OF THE ACT WOULD EQUALLY BE APPLICABLE TO CASES GOVERNED BY TH E PROVISIONS OF SECTION 10B OF THE ACT BECAUSE IT IS PARI MATERIA WITH SECTION 10A OF THE ACT THOUGH GOVERNING A DIFFERENT SITUAT ION. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT WE HEREBY DIRECT THE LD.AO TO EXCLUDE THE CARRY FORWAR D LOSSES AND DEPRECIATION WHILE COMPUTING THE PROFIT OF THE ELIG IBLE UNIT FOR CLAIMING DEDUCTION U/S.10B OF THE ACT. ACCORDINGLY THIS ISSUE IS HELD IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT Y EARS 2008-09 & 2011-12. 6. ASSESSEES APPEAL : ASSESSMENT YEAR 2009-10 : GROUND NO.2(II) : DEPRECIATION ON THE CAPITALIZED A MOUNT WITH 11 ITA NOS. 3387 T O 3389/MDS/2016 & ITA NO.17/MDS/2017 RESPECT TO THE FOREIGN EXCHANGE FLUCTUATION CONNECT ED TO THE PURCHASE OF FIXED ASSETS:- THE ASSESSEE HAD INCURRED ADDITIONAL EXPENDITURE OF RS.46 37 958/- DUE TO FOREIGN EXCHANGE FLUCTUATIONS CONNECTED TO THE PURCHASE OF FIXED ASSETS. THE LD.AO BY VIRTUE O F SECTION 43A OF THE ACT TREATED THE ADDITIONAL EXPENDITURE INCUR RED AS CAPITAL EXPENDITURE WHICH WAS CLAIMED BY THE ASSESSEE AS RE VENUE EXPENDITURE DEDUCTIBLE FROM THE PROFIT OF THE ASSES SEE COMPANY. HOWEVER WHILE DOING SO THE LD.AO DID NOT GRANT THE BENEFIT OF DEPRECIATION U/S.32 OF THE ACT TO THE ASSESSEE ON T HE AMOUNT CAPITALIZED. THE LD.CIT(A) ALSO CONFIRMED THE ORDE R OF THE LD.AO. NOW THE GRIEVANCE OF THE ASSESSEE BEFORE US IS THAT THE REVENUE HAS NOT ALLOWED THE BENEFIT OF DEPRECIATION U/S.32 OF THE ACT WHEN SUCH AMOUNT IS CAPITALIZED. AT THE OUTSET WE FIND THAT THIS ISSUE IS NOT ADDRESSED BY BOTH THE LD.REVENUE AUTHORITIES. MOREOVER NOTHING IS COMING OUT FROM THE ORDER OF THE LD.REVE NUE AUTHORITIES AS TO WHETHER THE ASSET ACQUIRED BY THE ASSESSEE IS PUT TO USE. NEEDLESS TO MENTION THAT THE ASSESSEE WILL BE ENTITLED FOR THE BENEFIT OF DEPRECIATION ON THE AMOUNT CAPIT ALIZED BEING THE EXPENDITURE INCURRED TOWARDS CURRENCY FLUCTUATION C ONNECTED TO THE ACQUISITION OF THE ASSET PROVIDED ALL THE OTHER CONDITIONS 12 ITA NOS. 3387 T O 3389/MDS/2016 & ITA NO.17/MDS/2017 STIPULATED IN THE ACT ARE COMPLIED WITH. SINCE THE ENTIRE FACTS OF THE CASE IS NOT PRESENTED BEFORE US WE HEREBY REMI T THIS MATTER TO THE FILE OF LD.AO FOR DE-NOVA CONSIDERATION WHO SHA LL DECIDE THE ISSUE TAKING INTO ACCOUNT OF OUR ABOVE OBSERVATIONS . 7. REVENUES APPEAL: ASSESSMENT YEAR 2009-10 : PROVISION FOR WARRANTY:- IT WAS OBSERVED BY THE LD.AO THAT THE ASSESSEE COMP ANY HAD CLAIMED RS.20 LAKHS AS DEDUCTION UNDER THE HEAD PROVISION FOR WARRANTY DURING THE RELEVANT ASSESSMENT YEAR 2 009-10. ON QUERY THE ASSESSEE COMPANY HAD REPLIED THAT IT HAD CLAIMED ONLY NOMINAL AMOUNT BEING LESS THAN 1% OF THE TURN-OVER OF RS.28 CRORES AS PROVISION FOR WARRANTY WHICH MAY HAVE TO BE INCURRED IN FUTURE YEARS TOWARDS WARRANTY PROVIDED IN THE CURRE NT YEAR. THEREFORE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUN TING THE EXPENSE HAS TO BE ALLOWED AS DEDUCTION IN THE RELEV ANT ASSESSMENT YEAR. HOWEVER THE ASSESSEE COMPANY DID N OT FURNISH ANY SCIENTIFIC BASIS FOR ARRIVING AT THE FIGURE OF RS.20 LAKHS. HENCE THE LD.AO DISALLOWED THE CLAIM OF DEDUCTION OF RS.2 0 LAKHS CLAIMED UNDER THE HEAD PROVISION FOR WARRANTY BECAU SE AS PER THE ACT MERE PROVISION CANNOT BE ALLOWED AS DEDUCTION. ON APPEAL THE LD.CIT(A) RELYING ON THE DECISION IN THE CASES ROTORK CONTROLS 13 ITA NOS. 3387 T O 3389/MDS/2016 & ITA NO.17/MDS/2017 INDIA (P) LIMITED [2009] REPORTED IN 314 ITR 62 (SC ) BHARAT EARTH MOVERS V CIT [2000] REPORTED IN 245 ITR 428 (SC) AND CIT V SONY INDIA (P) LIMITED [2007] REPORTED IN 160 TAXMA N 397 (DELHI HC) ALLOWED THE APPEAL OF THE ASSESSEE. AT THE OUTS ET WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LD.CIT(A) ON THI S ISSUE. IN THE CASE ROTORK CONTROLS INDIA P LTD. RELIED BY THE LD .CIT(A) THE HONBLE APEX COURT HAD HELD THAT THE DEDUCTION WILL BE ALLOWED IN THE CURRENT YEAR ONLY WHEN THE LIABILITY TOWARDS WA RRANTY EXPENSE IS PROPERLY ASCERTAINED ON HISTORIC BASIS. THIS AS PECT IS ALSO MADE CLEAR IN THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE FORBES CAMPBELL FINANCE LTD REPORTED IN 352 IT R 602. FURTHER THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE RENOWNED AUTO PRODUCTS MFRS. LTD REPORTED IN 354 IT R 127 HAS ALSO MADE IT CLEAR THAT PROVISION FOR WARRANTY WILL BE ALLOWABLE AS DEDUCTION ONLY IF IT IS COMPUTED ON SCIENTIFIC METH OD. FURTHER IN THE CASE CIT VS. SONY INDIA PVT. LTD REPORTED IN 160 TA XMAN 397 THE HONBLE DELHI HIGH COURT HAS HELD THAT DEDUCTION ON ACCOUNT OF PROVISION FOR GRATUITY WILL BE ALLOWED IF IT IS CLA IMED BASED ON THE PAST EXPERIENCE. HOWEVER IN THE CASE OF THE ASSESSE E THE ASSESSEE HAD SIMPLY ESTIMATED AN ADHOC AMOUNT OF RS .20 LAKHS AS PROVISION FOR WARRANTY WITHOUT ANY JUSTIFICATION . THE ASSESSEE 14 ITA NOS. 3387 T O 3389/MDS/2016 & ITA NO.17/MDS/2017 HAS ALSO NOT RELIED ON ANY STATISTICAL RECORDS MAIN TAINED BY IT WITH RESPECT TO THE EXPENSES INCURRED TOWARDS WARRANTY. IN THIS SITUATION THE CLAIM OF ADHOC AMOUNT OF RS.20 LAKHS TOWARDS PROVISION FOR WARRANTY IS NOT JUSTIFIABLE. THEREFO RE WE HEREBY SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS ISSUE AND REINSTATE THE ORDER OF THE LD.AO. 8. IN THE RESULT APPEALS OF THE ASSESSEE IN ITA NO .3387 OF 2016 FOR THE ASSESSMENT YEAR 2008-09 & ITA NO.3389 OF 2016 FOR THE ASSESSMENT YEAR 2011-12 ARE ALLOWED AND ITA NO. 3388 OF 2016 FOR THE ASSESSMENT YEAR 2009-10 IS PARTLY ALLO WED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE AND THE APPEAL OF THE REVENUE IN ITA NO.17 OF 2016 FOR THE ASSESSMENT YEAR 2009- 10 IS ALLOWED IN ITS FAVOUR. ORDER PRONOUNCED ON 22 ND NOVEMBER 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER %& /CHENNAI '( /DATED 22 ND NOVEMBER 2017 RSR () *+ + /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. / ( )/CIT(A) 4. / /CIT 5. +01 2 /DR 6. 134 /GF