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2009 (1) TMI 532 - AT - Income TaxExport oriented undertaking - Recompute the exemption u/s 10B - reducing unabsorbed depreciation ignoring the provisions of section 32(2) - Whether deduction u/s 10B is to be allowed prior to the set-off of the depreciation allowance - AO found that the assessee-company had set-off unabsorbed depreciation relating to AY 2002-03, after calculating exemption u/s 10B for the year under consideration - assessee submitted that u/S 10B, the profits and gains of the 100 per cent export oriented undertaking is to be determined which is then required to be deducted from the gross total income to arrive at the figure of the total income which is chargeable to tax u/s 10B is the deduction section which has to be given a liberal interpretation. It was also submitted that as seen from section 32(2), it pertains to the carry forward of the unabsorbed depreciation and the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation in the following previous year and deemed to be part of such allowance or if there is no such allowance for that previous year, to be deemed to be the allowance for that previous year, so on for the succeeding previous year. HELD THAT:- Sub-section (3) of section 72 provides that no loss, other than the loss referred to in the proviso to sub-section (1) of this section shall be carried forwarded under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Consequently, it can be seen that after the computation of income from profits and gains of business or profession, the loss of the earlier years has to be first set-off and subsequently the unabsorbed depreciation brought forward from the earlier years has to be set-off. Thereafter the current year’s depreciation has to be set off. Current year’s depreciation includes depreciation of the relevant assessment year as well as the deemed depreciation as provided under sub-section (2) of section 32, it is only thereafter that the income from profits and gains of business or profession are computed to be included in the total income of the assessee and thereafter deduction under section 10B of the Act is to be allowed under the computation of income from profits and gains of business or profession after adjusting the unabsorbed depreciation, therefore, the action of the Assessing Officer in computing the deduction u/s 10B is correct. The reference of the CIT(A) to sub-section (6) of section 10B is misplaced as the said sub-section provides for the procedure to be adopted in the year immediately following the year in which the tax holiday comes to an end. This sub-section is in no way relevant for adjudication of the issue before us. In view of the same, the order of CIT(A) is set aside and that of AO is restored. Netting off of the interest - income from FD - HELD THAT:- We find that the CIT(A) has squarely considered the factual matrix of the case and has held that there a direct nexus between the loan taken from Shri Nirav Modi and the FD which is made out of the funds obtained as a loan from Shri Nirav Modi. The CIT(A) considered the bank statement of the assessee as well as that of Shri Nirav Modi for coming to the conclusion that there is a direct nexus between the loan taken and the FD. The revenue has not placed any evidence to rebut this finding of fact by the CIT(A). Once the nexus is established, as held by the Special Bench of the Tribunal in the case of Lalsons Enterprises v. Dy. CIT [2004 (2) TMI 294 - ITAT DELHI-E] and also the decision of the Delhi High Court in the case of CIT v. Shri Ram Honda Power Equipment [2007 (1) TMI 86 - HIGH COURT, DELHI], the netting off of interest is allowable. In view of the same, we do not see any reason to interfere with the order of CIT(A) and this ground of appeal is therefore rejected. In the result, revenue appeal is partly allowed.
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