Page 152 - DCOM508_CORPORATE_TAX_PLANNING

Unit 6: Tax Planning: FTZ, SEZ and 100 % EOUs

Notes

Case Study Tata Infotech Limited, Mumbai vs. Assistant Commissioner
of Income Tax
T his is an appeal filed by the assessee against the order passed by the Commissioner

of Income Tax under section 263 of the Income Tax Act, 1961, on 31.03.2008.

The appeal relates to the assessment year 2003-04. The assessment of the assessee was
completed by the Assessing Officer on a total income of ` 8, 36,338/-. In the return the

assessee had claimed deduction under section 10A in respect of income arising from the
industrial undertakings located at the Electronic Hardware Technology Park (EHTP) at
Goa and the Software Technology Parks (STP) situated at Pune, Bangalore and Chennai.
Under the section, as it stood at the relevant time, the assessee was entitled to the deduction
of 90% of the profits of the above undertakings. The assessee claimed deduction of 90% of

the profits in the following manner: -

EHTP - Goa ` 10,78,39,621/- STP - Pune ` 16,69,51,092/- STP - Bangalore ` 7,76,04,345/-
STP - Chennai ` (-)1,06,428/ and the total coming as ` 35,22,88,630/-
In support of the above claim for deduction, detailed computations in respect of each
undertaking were submitted along with the return. In the statement of income from profi ts
and gains of the business, the assessee started the computation of the income from the

profi t figure shown in the Profit and Loss Account and reduced there from the fi gure

of ` 35,22,88,630/-. The ultimate income shown in the computation was a loss of
` 2,96, 39,052/-. In the assessment order passed under section 143(3), the Assessing

Officer also started the computation from the figure of net profit as per the Profit and Loss

Account, as was done by the assessee and deducted ` 32,15,58,051/- under section 10A.
However, there was one change. Due to slight changes in the computation of the profi ts
of each of the undertakings, there was a change also in the fi gure of 90% of the profi ts of
the undertakings. As per the computation in the assessment order, the figure of 90% of

the profits of the Goa unit came to ` 9,97,95,226/- as against the fi gure of ` 10,78,39,621/-
as per the assessee’s computation. There were similar changes in respect of the Pune
and Bangalore units also. The result was as against the deduction of ` 35,22,88,630/-
claimed by the assessee under section 10A, the Assessing Officer allowed deduction of

` 32, 15, 58,051/-. The Assessing Officer determined the taxable income of the assessee at

` 8, 36,338/-.
On 18.03.2008 the CIT issued notice to the assessee proposing to revise the assessment

under section 263 of the Act. According to him, the Assessing Officer ought to have
assessed the difference of ` 3,07,30,529/- between the claim of ` 35,22,88,630/- made by
the assessee under section 10A and ` 32,15,58,051/- allowed by the Assessing Offi cer in the
assessment order. Since this was not done, there has been an escapement of income to the
extent of ` 2,98,94,191/-, which is the difference between ` 3,07,30,529/- and ` 8,36,338/-.
According to the CIT the losses of the local units not eligible for deduction under section
10A, amounting to ` 2,96,94,241/- was adjusted against the 10% of the profits of the units

enjoying deduction under section 10A, which were to be brought to tax. The CIT also
observed in the notice that the assessee has been allowed deduction of ` 9,37,546/- under
Chapter VI-A which was not allowable in view of the loss from the non 10A units and this
has also resulted in short levy of tax.
The assessee objected to the notice and submitted that there was nothing in section 10A
which prohibits the setting off of the 10% of the taxable profits of the units eligible for

Contd...

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