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TMI Blog2014 (1) TMI 1176X X X X Extracts X X X X X X X X Extracts X X X X ..... lant beg to add, amend, alter or delete any grounds of appeal at any time before the date of hearing. In the effective ground of appeal, assessee has challenged the order passed u/s.263 of the Act by the CIT. In this AO has passed order u/s.143 (3) of the Act on determining the total income of the assessee at Rs. Nil. While finalising the assessment AO had allowed the assessee deduction, claimed by it, u/s.10B of the Act and allowed setting off of losses. CIT was of the view that the order passed by the AO was erroneous and prejudicial to the interest of Revenue and as a result she issued a notice to the assessee asking it as why the order passed by the AO should not be set aside/cancelled/ enhanced. Notice issued by the CIT, read as under: (i) As per the provisions of section 10B(6)(ii), no loss pertaining to newly established undertakings in free trade zones or to newly established 100% Export Oriented Undertakings shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before 1st April, 2001. In other words, losses, if pertaining to assessment years commencing on or after 1st April, 2001, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off by the AO against the profit of the Non EOU, that calculation made by the AO of the loss of EOU and non EOU was erroneous, that by setting off the loss of the EOU unit against the Non EOU unit the assessee had had claimed the entire profit of the EOUs as exempt, that it had reduced the taxable income of the Non EOU, that it had claimed double benefit, that the intent and the object of the provisions of section 10B of the Act not that while profits were allowed to be exempt from tax u/s.10B, the losses of such units were allowed to be set off against other taxable income at the options of the assessee, that by doing so income otherwise taxable under other provisions of the Act in a way would become exempt by claiming off of losses of the 10B unit, that loss of Rs.2. 85 Crores of the EOU allowed by the AO to be set off against the profit of non EOU was erroneous and prejudicial to the interest of revenue. Accordingly, CIT directed the AO to modify the assessment order by withdrawing the set off of above referred loss of Rs.2.85 Crores. 3. Before us, Authorised Representative (AR) submitted that the assessee had three EOU undertak - ings, an SEZ undertaking and one non EOU u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat losses or profits of eligible units were not to be taken in to account to compute taxable income. He also relied upon the order of Karle International (P.) Ltd. (29 taxmann.com. 9-Bang). 4. We have heard the rival submissions and perused the material before us.Un-disputed facts of the case are that the AO had finalised the total income of the assessee u/s.143(3), that while determining the total income of the assessee AO had allowed setting off of losses from the EOU against the profit of the Non EOU undertaking, that CIT had issued a show cause notice u/s.263 of the Act on the ground that such setting off was not permissible as per the provisions of the Act, that while passing the order u/s.263 of the Act CIT held that assessee was not entitled to claim set off as the provisions of section 10B were in the nature of exemption and when exemption provisions are applicable such set off cannot be allowed. As per the AR show cause notice and final order of the CIT did not deal with the same issue and therefore it has violated the mandate of the section.DR was of the opinion that issue finally decided by the CIT was part of the show cause notice. 4.1. We find that the issue of diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the issue raised before the AO during the course of fresh assessment proceedings." In that matter CIT had issued a notice to the assessee on the ground that he was of the view that the assessment made in the case of the assessee was both erroneous and prejudicial to the interest of the Revenue. The notice referred to four issues.CIT revised the assessment order and crystallis - ed nine issues which, according to him, required enquiry and investigation. When the matter reached to the Hon'ble High Court it was held that there was nothing on record which would show that the assessee was given an opportunity to respond to the discrepancies which formed part of the order in revision but were not part of notice. Even though the notice issued by the Commissioner before commencing the proceedings under section 263 referred to four issues, the final order passed referred to nine issues, some of which obviously did not find mention in the earlier notice and hence resulted in the proceedings being vitiated as a result of the breach of the principles of natural justice. In short it was held that where a Commissioner had issued a notice under section 263 in respect of four issues, but his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be endorsed, though he is vested with revisionary powers. It is said that power and duty go together or cannot be separated. Therefore,in our opinion, it is the duty of the CIT that; while using his powers as envisage by the provisions of Sec.263 of the Act; he should not to travel beyond the reasons recorded in the show cause notice. 4.2.Now we would like to apply the principles enumerated above to the facts of the case under consideration. We find that while issuing the show cause notice CIT had informed the assessee that deduction u/s.10B of the Act ought to have been allowed in respect of profits of the EOU I and EOU II undertakings after setting off of the losses incurred by the EOU III undertaking. But, while passing the final order CIT has held that section 10B dealt with exemption, that setting off of losses was not allowable if a claim pertained to an exemption-section. If the CIT was of the opinion that provisions of section 10B,being exemption section, did not allow setting off of losses she should have mentioned the same it in the show cause notice issued by her.It would have given the assessee an opportunity to deal with question raised by the CIT. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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