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TMI Blog2012 (3) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order passed u/s. 143(3) of the Act dated 27/11/2009 were that the assessee is in the business of manufacturing of synthetics resins and varnishes for the industrial use. It was noted by the AO that the assessee has three industrial undertakings. As per AO, Industrial Undertaking-I is situated at village Dabhel. Industrial Undertaking-II is also at village Dabhel, but at a different location. Industrial Undertaking-III was started during the year under consideration, i.e. A.Y. 2007-08 as a 100% Export Oriented Unit (EOU) situated at Umbergaon, Dist.Valsad. The observation of the AO was that there was a loss in the said EOU. Book loss was stated to be at Rs. 7,56,775/- and the loss as per the Income Tax Act was at Rs. 25,91,332/-. Since there was a loss in the manufacturing activity, therefore there was no deduction u/s. 10B of IT Act claimed by the assessee. The assessee has, however, claimed the set off of the said loss of the said EOU against the profits of its taxable unit. The Industrial Undertaking-I has exhausted the period of exemption and therefore no deduction u/s. 80IB was available to the said unit. The AO has raised the objection of such set off primarily on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full effect to for the vulnerable assessment year even though not actually shown in the computation. Further, provisions of ss.32(2), 32A(3)(ii), 33(2)(ii) and 36(1)(ix), second proviso, shall not be given effect to the vulnerable assessment years. Sec.10B(4)(ii) further provides that the unabsorbed business loss (s.71(1) and unabsorbed loss under the head Capital Gains relating to the business of the eligible undertaking for any of the assessment year under tax holiday period shall not be carry forward or set off in the assessment years subsequent to the end of tax holiday periods. This clearly indicates that the tax benefits accorded as per sec.10B must be confined to the eligible unit as a self contained manner. That is to say that if the eligible units derives profits and gains as per the provisions of the Act, such profits and gains shall not be included in the total income of the assessee. Similar corollary exists in the loss incurred by the eligible Unit. There are several judgements the ratio of which justify that the undertaking taking special benefits shall be treated as an independent Unit and the same is to be treated as the only source of income for assessee for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss/depreciation from the EOU Unit against the Exempted Income if he desires so. Thought he income includes loss for certain purposes, but for the purpose of exemption the positive income is material. Therefore, the appellant can claim exemption of positive income and not the loss. This view has been supported by the decision of the Hon'ble HC in the case of CIT v. Himatasingike Seide Ltd. 206 CTR (Kar.) 106. Further, I would like to derive strength from the following judgements to augment my view points. i. In the case of CIT v. Mahalaxmi Sugar Mills Co. Ltd. [1986] 58 CTR (SC) 138 : (1986) 160 ITR 920 (SC). The Hon'ble SC had observed that "The loss sustained by an assessee can be set off only against his income which is assessable to tax and the loss cannot be set off against the income which is not assessable to tax. Under section 71 an assessee who has sustained a loss of profits or gains in any year under any of the heads specified in section 14 is entitled to have the amount of the loss set off against his income, profits, which must be such income, profits or gains as are assessable under the IT Act. The statute does not contemplate setting off of loss agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng heard the submissions of both the sides, we are of the view that after the amendment in the provisions of section 10B with effect from 1/4/2001, the said special provisions are to be dealt with accordingly. Earlier, the said special provision u/s. 10B prescribes that any profits and gains derived by an assessee from a 100% EOU shall not be included in the total income of the assessee. Thereafter, by Finance Act, 2000 w.e.f. 1.4.2001, the language is that a deduction of such profits and gains as are derived by a 100% EOU shall be allowed from the total income of the assessee. After considering the said amendment, Hon'ble Bombay High Court in the case of Hindustan Unilever Ltd. (supra) has opined as under:- "(iv) The loss incurred by the eligible unit under s. 10B 23. The fourth and final ground which has weighed with the AO in reopening the assessment is that the assessee claimed a deduction of Rs. 14.53 crores under s. 10B. The deduction was restricted to Rs. 11.11 crores in the order. While reopening the assessment, the AO has proceeded on the basis that s. 10B provides an exemption and that in respect of the Crab Stick Unit the assessee had suffered a loss of Rs. 1.33 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction is allowed and not the exemption is prescribed in the Statute; therefore loss from such unit is permissible for adjustment against the taxable profit of other unit [Capgemini India (P) Ltd. v. Addl. CIT [2011] 46 SOT 195/12 taxmann.com 51. So the provisions of Section 10B are substituted to provide for a deduction from income and not an exemption. Hence, under this scheme the profits of the Unit eligible for deduction would form part of the income computed under the head "Profits and gains of business or profession". The deduction is, therefore required to be made at the stage of computing the income and, hence, first it is required to arrive at the figure of "gross total income" as defined u/s. 80B(5) of the I.T. Act. The said gross total income is to be computed in accordance with all the provisions of the Act, therefore including section 10B as well, except Chapter VIA of the I.T. Act. Consequently, there would not be any deduction to be worked out in the case of a loss in an eligible undertaking and such loss is to be set off with the profits of other Unit Honey Well International (India) Pvt. Ltd. v. CIT [2008] 26 SOT 503 (Delhi). It appears that the Revenue Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-head set off u/s. 71. Admittedly, there was a loss in the Unit eligible for deduction u/s. 10B and there was a business income in an another Unit. Therefore, while computing the total income; the business income can be computed only after set off of business loss as per section 70 and if after such set off, still there is a business loss, such loss can be set off against other sources as per section 71 of the I.T. Act, though this is not the present case (Mindtree Consulting Pvt. Ltd. v. Asstt. CIT [2006] 102 TTJ 691 (Bang.). Ground raised by the assessee is, therefore, allowed. 8. Rest of the Grounds (Nos. 2, 3 & 4) are, therefore, consequential and tantamount to academic in nature because the main ground has already been allowed. 9. In the result, Assessee's appeal is allowed. [B] Revenue's appeal for A.Y. 2008-09, i.e. ITA No. 2788/Ahd/2011 10. Ground No.1 reads as under:- 1. On the facts and circumstances of the case and in law, the learned CIT (A) has not appreciated addition on account of set off of loss of EOU Unit brought forward of Rs. 25,91,332/- against profit of the eligible business unit. 10.1 While computing the income of EOU for the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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