TMI Blog2012 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... e falling under the head of profits and gains of business against income from any other source under the same head - 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 - 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 - export oriented unit has incurred the loss and the assessee has adjusted this loss against that profit from other business - appeal of the assessee is allowed. - ITA No.3901/Del./2011 - - - Dated:- 18-5-2012 - U B S Bedi, B C Meena, JJ. For Appellant: Shri Satyen Sethi, Adv. For Respondent: Shri D K Mishra, CIT DR ORDER Per: B C Meena: This appeal filed by the assessee emanates from the order of CIT (Appeals)-VIII, New Delhi dated 29.07.2011 for the assessment year 2008-09. 2. The assessee is a public limited company and engaged in the business of manufacturing of cables, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. That the appellant craves leave to add, alter, amend or vary any of the ground either at or before the hearing of the appeal. 4. Ground nos.1 to 3 are related to the disallowances sustained by the CIT (A) made u/s 14A as per Rule 8D of Income-tax Rules, 1962 of Rs.1,57,474/-. 5. While pleading on behalf of the assessee, the learned AR submitted that this issue is covered by the decision of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT (2011) 203 Taxman 364 (Del.) . Ld. AR pleaded that although in this case the year under consideration was assessment year 2008-09 where the Rule 8D is applicable. However, the Hon'ble High Court has laid down the law that even to apply Rule 8D, the Assessing Officer is not to satisfy himself with the correctness of the claim with regard to such expenditure. If Assessing Officer is satisfied that assessee has correctly reflected the amount of such expenditure then Assessing Officer has to do nothing further. The Assessing Officer has to first of all to ascertain correctness of the claim of the assessee in respect of the expenditure incurred in relation to the income which does not form part of the total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al purposes. 8. Ground Nos.4 to 6 are related to the claim of set off of losses incurred in the eligible unit under section 10B with the positive income of the other non-eligible units. 9. During the year under consideration, the assessee company was having seven units, known as KEI Delhi, KEI SS Wire, KEI Cable, KEI Chopanki, KEI 922, KEI Silvasa and KEP EPC. In addition to these, the assessee has a separate office called Head Office which was looking after the overall common activities relating to selling and distribution, establishment and administration, management and financial affairs. Out of these seven units, KEI Chopanki was eligible for deduction u/s 10B of the Income-tax Act and KEI Silvasa was eligible for deduction u/s 80IB of the Income-tax Act. The other units were not having any benefit under sections 10B and 80IB. During the financial year under consideration, the unit which was eligible for deduction u/s 10B has incurred a loss of Rs.2,00,29,769/- which the assessee has set off against the income from other units which were not enjoying any tax benefits under section 10B. The Assessing Officer disallowed this claim by holding that the department has not acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Explanation below sub-section (2) of section 288, certifying the deduction has been correctly claimed in accordance with the provisions of this section. (6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the A Y immediately succeeding the last of the relevant AY, or of any previous year, relevant to any subsequent AY, - I. Section 32, section 32A, section 33, section 35 and clause (ix)of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant AYs 99[ending before the 1st day of April, 2001], in relation to any building, machinery, plant or furniture used of the purposes of the business of the undertaking in the previous year relevant to such AY or any expenditure incurred for the purposes of such business in such previous year has been given full effect to for that A Y itself and accordingly sub-section (2) of section 32, clause (ii) of subsection (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second provision to claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port oriented units eligible for deduction under the said section. Therefore, if what the Id. counsel is arguing is to be accepted, then the provisions of sub-clause (ii) of sub-section (6) shall become redundant. It has to be appreciated that when there is a specific provision for carry forward and set off of losses sustained by a unit eligible for deduction u/s 10B, there is no occasion for the AO to take a liberal view and allow deduction of loss sustained by such unit against the income from other business not enjoying any tax benefits. There are decisions holding that the losses sustained by the eligible units are to be set off against the income of such eligible units in the subsequent years and thereafter, only to allow deduction of the balance profit. 5.6 In the case of CIT Vs. Himatasingike Seide Ltd. 286 ITR 0255, the Hon'ble Karnataka High Court has held that "section 10B cannot be read in isolation of other provisions. It is only an exemption provision. It may be true that even after taking into consideration the unabsorbed depreciation, the assessee may get exemption but none the less it could not take only a portion of depreciation just to suit its income for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequences. This will also create a situation where in the year of loss a tax payer will set off the same against to the taxable income and thereby either pay no tax or pay less tax than what he ought to have paid and simultaneously, he will claim deduction of full profits of the eligible unit in the subsequent years as there will be no losses pertaining to earlier years to be set off. This, in my view, is not intended by the legislation. The issue in question can be addressed from a different angle. If we take a situation where there is a profit in the eligible unit and simultaneously there is a loss in other business of an assessee, would revenue be justified/allowed to set off such loss against the income of eligible unit and allow deduction of the balance amount only. In my view, such preposition would be equally against the scheme of the provisions of section 10B or any other section dealing with exemption/deduction of tax because the exemption/deduction is always with reference to a particular eligible unit. 5.9 In view of the aforesaid, I have no hesitation in holding that AO was justified in denying the benefit of set off of loss of Rs.20029769/- pertaining to the 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (other than capital gain) against income from any other source under the same head. Section 71 provides for the setting off of a loss with reference to one head of income against income from another head (save and except for capital gains). Under sect ion 72, a provision has been made for carry forward and setting off of a loss sustained against the head of profits and gains of business or profession. Under section 72, where a loss which has been sustained under the head of profits and gains of business or profession cannot be set-off against income under any head of income under section 71 so much of the loss as has not been set-off or the entire loss where there is no income under any other head can be carried forward in the manner which is indicated in the provision. Section 72 which provides for a carry forward of a business loss comes into operation only when the provisions of sections 70 and 71, as the case may be, are exhausted. There is no provision in section 10B by which a prohibition has been introduced by the Legislature in selling off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other sourc ..... 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