9911796707
TMI Blog2006 (11) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is a company manufacturing floppy discs. The assessee-company claimed exemption to the income of Floppy Unit II in assessment year 1994-95 as the initial year for claim of this exemption. In the present assessment year the assessee again claimed exemption under section 10B but at the same time it had claimed depreciation of this unit from the total income. When the assessee was asked to explain the reason to claim depreciation, the assessee submitted on 8-1-1999 that it was a clerical mistake that the depreciation as per Income-tax Act on Unit II had been reduced in the computation of income but this addition and reduction was not to be made as the profit/losses of Floppy Unit II were exempt under section 10B. The assessee filed another letter on 8-2-1999 wherein it was stated that the assessee was withdrawing its claim of deduction under section 10B with respect to the Floppy Unit II for assessment year 1996-97. It was added that since the Floppy Unit II had incurred losses it could not be covered by the provisions of section 10B which were meant to cover only profit and gains to the unit. The assessee also furnished a declaration stating that the exemption shall not be clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter. I have also gone through the provisions of section 10B, various judicial pronouncements and Board's circular relied upon by the appellant. The first question which is to be answered in this case is whether this section applies to an undertaking making profits only and not losses. Section (2) of section 10B specifies undertakings to which the provisions of section 10B applied. Profit making is not one of them. It is true that sub-section (1) talks of exclusion of profits and gains derived from such undertaking but it does not lead to the conclusion that provisions of section 10B would not apply to an undertaking making losses in a particular year even if it fulfilled the conditions laid down in sub-section (2). Then I move onto sub-section (3) which provides that profits and gains of any five consecutive years specified by the assessee falling within a period of eight years beginning with the assessment year in which manufacturing etc. starts shall not be included in the income. It means that this section applies to a block of five consecutive assessment years selected by an assessee out of the initial eight years of the undertaking. This sub-section also reinforces my interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsecutive assessment years starting from assessment year 1994-95 in favour of availing the exemption under sub-section (10). He, therefore, cannot opt out of this provision mid-way and the provisions of the section shall apply to him from assessment years 1994-95 to 1998-99. Thus, whether the claim in the return for assessment year 1996-97 was made under mistake or not, or whether the letter dated 8th February, 1999 can be said to have been filed within the time allowed for assessment year 1996-97 are questions which are irrelevant. In this view of the matter, the decisions cited by the appellant are also of no avail. 6. In the result the appeal is dismissed." 5. Before us the Ld. Counsel for the assessee has submitted that section 10B of the Act, prior to its substitution by the Finance Act, 2000 with effect from 1-4-2001 was inserted by Finance Act, 1988 with effect from 1-4-1989 as a special provision in respect of new established 100 per cent EOUs. He has referred to the relevant provisions of the said section prior to its amendment by the Income-tax (Second Amendment) Act, 1998 with effect from 1-4-1999. He has submitted that sub-section (1) of section 10B of the Act provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . counsel has further submitted that there are two possibilities (a) once the assessee opts for section 10B, the assessee would be bound by the option exercised and would accordingly be disentitled to opt out of the provision of that section during the entire period of entitlement, (b) during the period of entitlement, the assessee may opt out of the provisions of section 10B of the Act by filing a declaration under sub-section (7) thereof. If the intention of the Legislature were to disentitle the assessee to opt out of the provisions of section 10B of the Act, once the assessee opts for the benefit available under the said section, there was no requirement for the Legislature to have qualified the expression 'five consecutive assessment years' in sub-section (3) and the expression 'of the relevant assessment years' in sub-section (7) of section 10B of the Act by the word 'any'. According to the Ld. Counsel, the Legislature has deliberately qualified the expression 'five consecutive assessment years' in sub-section (3) and the expression 'of the relevant assessment years' in sub-section (7) of section 10B by the word 'any' so as to confer on the assessee the flexibility to opt out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sections 11, 32AB and 80HHC of the Act regarding the requirement of filing audit report/certificates/declaration along with the return of income. Such requirement has been held to be directory and not mandatory by various courts. Thus, he has urged that since the assessee has opted out of the provision of section 10B during the course of assessment proceedings for the year under consideration, the Revenue cannot thrust upon the exemption under section 10B on the assessee in respect of Floppy Unit II. He has, therefore, submitted that the income of Floppy Unit II is required to be computed under the normal provisions of the Act. A reliance is placed upon the decision in the case of Navin Bharat Industries Ltd. v. Dy. CIT [2004] 90 ITD 1 (Mum.) (TM). 10. The ld. DR, on the other hand has submitted that the assessee had claimed the exemption under section 10B of the Act in the initial assessment year i.e., 1994-95 and in its letter dated 8-1-1999 it claimed that income of floppy unit is exempt under section 10B of the Act. Thus, any subsequent claim to opt out of the provision of section 10B must be made by way of filing revised return of income within the period prescribed under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts claim which was made in assessment years 1994-95 and 1995-96. He is of the view that once the option of claim under section 10B is exercised this has to be continued for five consecutive assessment years unless revoked as provided under section 10B(7) of the Act. According to the CIT(A) in case, an assessee does not want to avail of the exemption under this section at all then he has to file a declaration before the Assessing Officer before the due date of filing the return for the first assessment year. In this connection he has made reference to CBDT's Circular No. 308, dated 29-6-1988 issued in connection with section 10A of the Act, which is pari materia of section 10B of the Act. Since the assessee has claimed the exemption under section 10B in assessment year 1994-95, thus the assessee has opted for availing the exemption for block of five consecutive assessment years starting from 1994-95. Hence the assessee cannot opt out of this provision in the year under consideration and as such the provision of section 10B shall apply to assessee from assessment years 1994-95 to 1998-99. Thus he has held that the issue whether the requirement of filing the application for opting out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B of the Act in any of the assessment years falling within the block of five years. Thus, if the assessee seeks to opt out of section 10B of the Act, for a particular year, the assessee may do so by filing a declaration in that regard under sub-section (7) of the Act before the due date for furnishing return of income for that year. Thus the expression 'any' cannot be read as 'all' as in that case the exemption granted in the earlier year have to be withdrawn in case the assessee file the declaration under section 10(7) say in third year of the block period of five years. 15. It may be mentioned that section 10A of the -Act makes available tax exemption to units set up in Software Technology Park (STP unit). The scheme of section 10A and the language of the said section is pari materia with the section 10B of the Act. It may be mentioned that up to assessment year 1986-87, the exemption under section 10A of the Act was available for the first year in which undertaking began manufacturing/production i.e., initial year and four years immediately succeeding the initial year. If the assessee wanted to opt out of section 10A of the Act, the assessee was mandated to file declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s even though declaration to opt out of the same is specifically filed by the assessee. No requirement can be read into the provision of section 10A/10B of the Act to the effect that exemption, once claimed has to be necessarily thrust on the assessee in subsequent years. To read such restriction would be doing violence to the language of the section. A reliance in this regard can be placed on the decision of Supreme Court in the case of CIT v. Mahendra Mills [2000] 243 ITR 56 wherein it has been held that depreciation cannot be thrust upon the assessee in the absence of the claim made by the assessee in this behalf or on the assessee having withdrawn the claim by filing a revised return. 17. In the case of Navin Bharat Industries Ltd v. Dy. CIT [2004] 90 ITD 1 (Mum.) (TM) the Tribunal has found that the benefit of section 10A of the Act was available to the assessee for five years. The assessee claimed benefit for three years. For the rest of the years, the assessee did not claim the benefit of section 10A. The assessee opted to get the profits of new industrial undertaking assessed under the normal provision. The Tribunal has held that they find no provision in the Act by which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the disallowance of depreciation in respect of various assets forming part of Floppy Unit II. For the same reason this issue is also set aside and restored to the file of the Assessing Officer for fresh examination in accordance with the law after affording a reasonable opportunity of being heard to the assessee. 22. There is another issue involved in assessment year 1998-99 being the third ground of appeal which reads as under :- "That the Commissioner of Income-tax (Appeals) erred on facts and in law in not adjudicating the ground raised by appellant, challenging the action of the Assessing Officer in not allowing miscellaneous income and interest amounting to Rs. 4,66,506/- in respect of Floppy Unit III on the ground that the same were not derived from business of Floppy Unit III." 23. Since the necessary details of Miscellaneous income and nature of interest income is not there on record, this ground of appeal is set aside and restored to the file of the Assessing Officer who may examine the matter afresh in accordance with the law after affording a reasonable opportunity of being heard to the assessee. 24. In the result, these appeals of the assessee are partly al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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