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TMI Blog2012 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... l units where no benefit under section 10B of the Act was available to the assessee. CIT (A) confirmed the disallowance. 3. The grounds of appeal read as under :- "1. That on facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals)-VIII, New Delhi [briefly "the CIT(A)"] has erred in upholding the disallowance of Rs.1,57,474/- made under section 14A of the Income tax Act, 1961 (briefly "the Act") read with Rule 8D of the Income tax Rules, 1962. 2. That on the facts and circumstances of the case and in law, the CIT(A) has erred in not appreciating that unless there is material to show that interest bearing funds were utilized in making investments that yielded exempt income, no part of interest on borrowed funds was liable to be disallowed under section 14A(1) of the Act. 3. That on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that disallowance of Rs.1,57,474/- made under section 14A of the Act cannot be restricted to exempt income, which was only Rs.26,766/-. 4. That on facts and circumstances of the case and in law, the CIT(A) has erred in holding that loss of unit eligible for deduction u/s 10B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income which does not form part of the total income under the Act. Ld. AR pleaded that in view of the decision of Hon'ble jurisdictional High Court, it is the Assessing Officer who is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. Therefore, even in the post Rule 8D period, the Assessing Officer has to satisfy first of all the correctness of the claim of the assessee in respect of the expenditure incurred which does not form part of the total income under the Act, once he is satisfied on an objective and for cogent reasons that the amount of such expenditure as claimed by assessee is not correct then only he is required to determine the amount of expenditure on the basis of a reasonableness and acceptable method or apportionment. 6. On the other hand, the learned DR relied on the orders of the authorities below. 7. We have heard both the sides on this issue. The year under consideration is assessment year 2008-09 where the Rule 8D is applicable and as per the findings recorded by the authorities below, the assessee has debited interest and finance expenses to the tune of Rs.36,90,86,333/- and claimed that the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in respect of 100% Export Oriented Undertaking from the Export of Articles or things or computer software for a period of ten consecutive AYs beginning with the A Y relevant to the previous year in which the undertaking begins to manufacture or produce such items. There is also no dispute that w.e.f. 01.04.2001 the word "exemption" has been substituted by "deduction". However, the fact still remains that the deduction, as it is called now, is in respect of income of a particular unit, namely, 100% export oriented unit situated at Chopanki in the present case. Therefore, the question is whether this restriction of application of provisions of section 10B can be relaxed so as to allow the benefit of set off of losses of 100% Export Oriented Units against the income of the units which are engaged in normal business activities and do not enjoy any tax concessions under the IT law. For this purpose, a reference to sub-sections 4 to 8 of section 10B of the IT Act is considered necessary. These sub-sections are therefore, being extracted as below for the sake of ready reference:- (4) For the purposes of sub-section (1), the profits derived from export of articles for things or compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written down value of any asset used for the purpose of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant AY. (7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-1A. (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger - a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place, and b) The previous of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or the demerger had not taken place. (8) Notwithstanding anything contained in the foregoing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Bench, as noted in the head note, are that "the computation made by the assessee had also to be scrutinized by the department as otherwise there was every chance of exemption being misused by anyone. Even after taking into consideration, the unabsorbed loss the assessee may get exemption but he could not take a portion of the exemption just to suit his income for the purpose of Nil liability and adjust the balance. The quantum of deduction u/s 10B (1) was required to be computed with reference to the profits derived from the export articles or things according to section 10B (4) of the Act. The profits were required to be first computed in accordance with the provisions of the Act and only then the net profits were required to be considered for working out the proportion of the eligible amount. According to the settled law, all the brought forward loses and depreciation were first required to be set off against the business profits of the current year before computing any deduction. 5.8 When the facts of the present case are analyzed in light of the provisions of sub-sections (3) to (8) of sub-section 10B, more particularly, clause (ii) of sub-section (6) and the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 11. We have heard both the sides in detail. We find that the decision of Hon'ble Bombay High Court in the case of CIT vs. Galaxy Surfactants Ltd., cited supra, is applicable to the facts of the assessee's case. In that case, the facts were as follows :- "The assessee had a hundred per cent Export Oriented Unit (EOU) which was entitled to a deduction under section 10B. The previous year relevant to assessment year 2005-06 was the first year of production in the unit. During the year under consideration, the assessee disclosed a total profit of Rs. 16.82 crores from business. From this profit, a loss of Rs.5.56 crores sustained by the hundred per cent EOU was reduced. The loss in the EOU was principally on account of current depreciation which was set-off against the profits of A the EOU. After reducing the loss sustained by the EOU against the profits of other units, the assessee disclosed a net taxable income of Rs.10.76 crores. The Assessing Officer held that a deduction under section 10B had to be given in respect of the profits of the undertaking independently. The Assessing Officer held that a loss sustained by the eligible unit could not be set-off against the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) applies are for the purposes of determining the quantum of deduction to be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year. A provision akin to sub-section (5) of section 80-IA or for that mailer akin to sub-section (6) of section 80-I has not been introduced by the Legislature when it enacted section 10B. The fact that unabsorbed depreciation can be carried forward to a subsequent year does not militate against the entitlement of the assessee to set-off a loss which is sustained by an eligible unit against the income arising from other units under the same head of profits and gains of business or profession. The Legislature not having introduced a statutory prohibition, there is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of section 70." In the assessee's case also, the export oriented unit has incurred the loss and the assessee has adjusted this loss against that profit from other business. Since the facts of the assessee's are similar, therefore, respectfully following the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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