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TMI Blog2009 (1) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is a company which is engaged in manufacturing and export of jewellery. It filed its return of income declaring total income of Rs. 13,84,398 on 27-11-2003. On perusal of the computation of income, Assessing Officer found that the assessee-company had set-off unabsorbed depreciation of Rs. 12,35,442 relating to assessment year 2002-03, after calculating exemption under section 10B for the year under consideration. The assessee's justification for the same was called for. Vide letter dated 11-11-2005 the assessee submitted that under section 10B of the Act, 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 under the Income-tax Act as section 10B is the deduction section which has to be given a liberal interpretation. It was also submitted that as seen from section 32(2) of the Act, 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 depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng depreciation from profits of the business and it is suggestive of a situation where assessee has been given the option of claiming the exemption under section 10B without reducing profits of the business to the extent of depreciation. He, therefore, directed the Assessing Officer to recompute the exemption under section 10B without reducing unabsorbed depreciation from the profit figure disclosed by the appellant for claiming the exemption. Aggrieved, revenue is in appeal before us. 4. The ld. DR strongly supported the order of the Assessing Officer and submitted that Explanation 5 to section 32 which has been introduced with effect from 1-4-2004 clearly provides that the depreciation is to be allowed irrespective of whether it is claimed or not by the assessee in computing its total income and this assessment year being 2002-03, the depreciation has to be allowed. As regards the question as to whether the deduction under section 10B is to precede or follow the adjustment of unabsorbed depreciation, the ld. DR submitted that depreciation under section 32 of the Act is to be allowed for computing the profits and gains of the business and only thereafter the deduction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 30 to 43D of the Act and thus effect has to be given to section 32 of the Income-tax Act for computation of the profits and gains of the business or profession. Sub-section (2) of section 32 provides for the carry forward of the unabsorbed depreciation of earlier years and further that subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance of 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 for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, to be deemed to be allowance for that previous year and so on in the succeeding previous year. Section 72 of the Income-tax Act provides for the carry forward of the set-off of business loss. Sub-section (1) of section 72 provides for the set-off of the brought forward loss of earlier years and sub-section (2) provides for the set-off of unabsorbed depreciation under sub-section (2) of section 32 or sub-section (4) of section 35. Sub-section (3) of section 72 provides that no loss, other than the loss referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been kept on grounds of commercial expediency, as collateral security, for the purpose of obtaining various credit facilities from the bank such as L/C facilities, bank guarantees, overdraft facilities, cash credit facilities, bill discounting facilities, packing credit facilities etc., hence it is wholly and exclusively for the purpose of carrying on the export business of the assessee and therefore the netting is justifiable. The Assessing Officer, however, held that there is no nexus established by the assessee-company between the interest received and paid and that interest expenditure is incurred for carrying out business activities of making diamond jewellery and exporting the same. He held that there is no relation with earning of interest on FD and therefore he treated interest income as income from other sources and disallowed the netting of interest paid. He also disallowed deduction under section 10B of the Act with regards to the said interest income. Aggrieved, assessee filed an appeal before the CIT(A) who held that the interest income is taxable under the head 'other sources' but since there is a direct nexus between the loan taken from one Shri Nirav Modi and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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