9911796707
TMI Blog2012 (7) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... completed the assessment under section 147 vide order dated 30.10.2007 determining the total income at Nil after restricting the exemption under section 10B to the extent of total income available. Apparently the assessment was reopened after the end of four years from the assessment year and the satisfaction recorded by AO while reopening the assessment is as under: "In this case return of income was filed on 30.10.2012 declaring loss of Rs..3,78,26,882/- and was process under section 143(1) of the I.T. Act, 1961. The scrutiny assessment was completed under section 143(3) on 17.3.2005 at loss of Rs..2,90,86,830/-. The assessee company is engaged in the business of engineering design and construction. 1st issue: On perusal of the records, it is noticed that assessee has claimed excess claim of deduction under section 10B s per the normal provisions of the Income Tax for computing the total income as well as under section 115JB of the I.T. Act. On going through the return of income, it is seen that the total income has been computed after first reducing the deduction under section 10B of Rs..5,15,91,458/- i.e. the depreciation allowable under the I.T. Act of Rs..4,38,34,564/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vehicles are used for assessee's own business and not for commercial purpose. As assessee's business is not from running the vehicles on hire, assessee is entitled to depreciation @ 20% only. There is excess depreciation amounting to Rs..2306093/- has been wrongly allowed to assessee. Considering the above issues, I have therefore, reason to believe that the income chargeable to tax above Rs..1 lac as mentioned above has escaped assessment by reason of failure on the part of the assessee company to disclose fully and truly all material facts for its assessment within the meaning of provisions of section 147(c) of the I.T. Act". 3. While completing the assessment on the basis of interpretation given by AO on issue (1) i.e. section 10B, the total income was determined after adjusting the carry forward losses and disallowance under section 10B was Rs. 1,87,27,762/- as against Rs..5,15,91,458/- claimed by assessee. With reference to issue No.2, AO made adjustment of Rs. 88,39,256/- which was not upheld by the CIT (A) and relief was given by the CIT (A) on this issue and Revenue is not in appeal. On the 3rd issue as assessee submitted that the depreciation was worked on the revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad in law. 5. Coming to the merits of the issue, it was his submission that AO even though reopened on four issues, he himself has not considered the issue on written down value. With reference to the other issues of claiming section 10B, the CIT (A) has allowed the benefit to assessee and relied on the principles laid down by the Hon'ble Karnataka High Court decision in the case of CIT vs. Yokogawa India Ltd, 341 ITR 385 for the proposition that depreciation of export unit and non export units are to be separately allowed and the action of AO in setting off the depreciation before allowing deduction under section 10B is not correct. With reference to the claim of depreciation on motor vehicles, it was his submission that the claim was originally examined and allowed and the claim is in accordance with the provisions of the law supported by the decision of Hon'ble ITAT in the case of Daleep S. Chandnani v. ACIT, 14 SOT 233 and also LM Glasfiber (India) Pvt. Ltd vs. ACIT. It was his submission that on merits also, all the issues are in favour of assessee and so reopening is bad in law. 6. The learned DR however, referred to the orders of AO and the CIT (A) and supported t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial conditions in respect of newly established industrial undertakings in free trade zones". Section 10 begins as "In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not he included", whereas section 10A as originally enacted provided that the profits and gains of the eligible undertaking shall not be included in the total income of the assessee. The Finance Act, 2000, recast section 10A. It came into effect from April 1, 2001. The second heading continues with a marginal change by way of addition of the word "etc." to read as "Special provisions in respect of newly established undertakings in a free trade zone, etc". The new section provides for deduction of profits and gains of eligible undertaking from the total income of assessee. Total income in its strict sense requires computation for the purpose of levy of tax. The computation of total income begins only with Chapter IV and as section 10A is covered in Chapter III, the phrase "total income" used in section 10A cannot be understood in the same sense as in section 2(45). The phrase "total income" has been used in the Income-tax Act in several places wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve effect to the legislative intention of allowing the carry forward of depreciation and loss suffered in respect of any year during the tax holiday for being set off against income post tax holiday, it is necessary that the notional computation of business income and the depreciation as per the provisions of the Act should be made for each year of the tax holiday period. While so computing, attention will have to be given to the provisions of sections 70, 71, 72 and section 32(2). The amount of depreciation and business loss remaining unabsorbed at the end of the tax holiday period should be determined so that the same may be set off against the income of the post tax holiday period. The expression "deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of assessee" has to be understood in the context in which the said provision is inserted in Chapter III of the Act. Sub-section (4) of the section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross total income. On appeal to the High Court: Held, that as the profits and gains under section 10A were not to be included in the income of assessee at all, the question of setting off the loss of assessee from any business against such profits and gains of the undertaking would not arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As the deduction under section 10A has to be excluded from the total income of assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. 9. This view was reiterated by the Hon'ble Karnataka High Court in the case of CIT vs. Hindustan Electronic Tool India Pvt. Ltd in ITA No.430 & 431 of 2010 dated 12.12.11 wherein it was reiterated that profit for the purpose of deduction under section 10A should be allowed without setting off of unabsorbed loss and depreciation. The Hon'ble Bombay High Court in the case of CIT vs. Black & Beach Consulting (P) Ltd in ITA No.1237 of 2011 dated 9.4.2012 held that section 10A (which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,500 kgs. Thus, a motor car not exceeding the specified weight is covered under the definition of 'light motor vehicle'. It is further provided that commercial vehicle would not include 'maxi-cab' and 'motor cab'. The 'maxi-cab' as per provision of the Motor Vehicles Act means any motor vehicle constructed or adopted to carry more than six passengers but not more than twelve passengers excluding the driver for hire or reward. Similarly, the term 'motor cab' also excludes any motor vehicle for hire or reward. If the provisions of Explanation to third proviso to section 32 and the definition of maxi-cab and motor cab as given in the Motor Vehicles Act are read together then motor vehicles used for hire or reward would not be covered under the third proviso to section 32 and such motor vehicles would be covered under entry (2)(ii) of Item III of Part A of Appendix I (applicable for the assessment years 1988-89 to 2002-03) of the Rules. This conclusion further leads to an inference that the Legislature has given benefit of higher depreciation to the assessees not engaged in the business of motor buses, motor lorries and motor taxies on hire and defining such light motor vehicles as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment". As can be seen from the 1st proviso to section 147, unless any income chargeable to tax has e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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