TMI Blog2015 (9) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... als) confirming the disallowance made by the AO on account of the assessee’s claim for setting off of 10A unit loss against ‘income from other sources’ and restore the matter to the file of the Assessing Officer for deciding the same afresh, in the light of CBDT Circular dated 16.7.2013 issued recently after the judgment of Hon’ble High Court of Karnataka in the case of Yokogawa India Ltd, (2011 (8) TMI 845 - Karnataka High Court ). - Decided in favour of assessee. - ITA No.1054/Bang/2013 - - - Dated:- 4-7-2014 - SHRI PRAMOD M. JAGTAP AND SHRI N.V. VASUDEVAN, JJ. For The Appellant : Shri Raghunathan S., Advocate For The Respondent : Shri Biju, M.K., Jt.CIT(DR) ORDER Per Pramod M. Jagtap, Accountant Member This appeal filed by the assessee is directed against the order of the ld. CIT(Appeals)-III, Bangalore dated 27.03.2013 and the grievance of the assessee is projected in the following grounds raised therein:- 1. Assessment and reference to Transfer Pricing Officer are bad in law 1.1 The order passed by the Income-tax Officer Ward 12(1) [ ITO or AO ], is bad on facts and in law, and is in violation of the principles of natural justice. With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim for setting off of loss of 10A unit against the income from other sources . 5. The assessee in the present case is a company, which is engaged in the business of providing software development services. It is a STP unit, which comes under the purview of section 10A scheme. In the return of income originally filed for the year under consideration, the loss was shown by the assessee in its STP unit and after setting off such loss against the interest income of ₹ 68,84,745 earned during the year under consideration, the total income was declared at NIL. Although this claim of the assessee was initially allowed by the Assessing Officer, he reopened the assessment subsequently u/s. 147 and issued a notice u/s. 148 of the Act to the assessee on 30.3.2010, after recording the reasons and after obtaining the necessary sanction of the Addl. CIT, Range 12, Bangalore. Thereafter, assessment u/s. 143(3) r.w.s. 147 was completed by the AO vide an order dated 29.12.2010, bringing to tax the interest income of ₹ 68,84,758 in the hands of the assessee under the head income from other sources and disallowing claim of the assessee for setting off of 10A unit loss against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, (supra) as well as the decision of Bangalore Bench of the ITAT in the case of Karle International Pvt. Ltd. (supra), the ld. CIT(A) upheld the action of the AO in disallowing the assessee s claim for setting off of 10A unit loss against the income from other sources. He, however, held that the assessee shall be entitled to carry forward the said loss till the assessment year following the last of the assessment years within the tax holiday period. 9. Aggrieved by the order of the ld. CIT(Appeals), the assessee has raised this issue in the present appeal before the Tribunal. 10. The ld. counsel for the assessee submitted that although the claim of the assessee for setting off of 10A unit loss against the income from other sources is disallowed by the authorities below relying mainly on the decision of the Hon ble Karnataka High Court in the case of Yokogawa India Ltd, (supra) and the decision of the ITAT in the case of Karle International Pvt. Ltd. (supra), the said claim of the assessee is duly supported by the recent Circular No.07/DV/2013 issued by the CBDT on 16.7.2013. 11. He invited our attention to the relevant portion of the said Circular at para 5 and pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, 82 ITR 9213. 3. Varghese (K.P.) v. ITO, 131 ITR 597 4. C.B. Gautam v. UOI Ors,. 199 ITR 530 5. UCO Bank v. CIT, 237 ITR 889 6. Catholic Syrian Bank Ltd. v. CIT, 341 ITR 270. 13. The ld. DR, on the other hand, strongly relied on the order of the ld. CIT(Appeals) in support of the revenue s case on this issue. He contended that while upholding the action of the AO disallowing the assessee s claim for set off of 10A unit loss against income from other sources, the ld. CIT(A) has relied on the interpretation given to the relevant provisions of section 10A by the Hon ble jurisdictional High Court in the case of Yokogawa India Ltd, (supra) as well as by the Bangalore Bench of the Tribunal in the case of the case of Karle International Pvt. Ltd. (supra). He contended that the CBDT Circular giving interpretation of the said provisions, on the other hand, has been issued subsequently and the interpretation so given in the Board Circular representing the departmental view on the issue cannot be preferred to the interpretation given by the Hon ble jurisdictional High Court to the relevant provisions. 14. We have considered the rival submissions and also perused the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Yokogawa India Ltd, (supra), a different view was expressed by the Hon ble Bombay High Court in the case of Hindustan Unilever Ltd., 325 ITR 102, holding that section 10B, the provisions of which are analogous to the provisions of section 10A, is no more an exemption provision, but provides for a deduction after its substitution by the Finance Act, 2000 w.e.f. 1.4.2001. In the case of Hindustan Unilever Ltd. (supra), all the four units of the assessee were eligible for deduction u/s. 10B and out of the said four units, three units had returned the profits while the remaining 4th unit had returned a loss. In these facts and circumstances, the Hon ble Bombay High Court held that the assessee was entitled to a deduction in respect of the profits of the three eligible units, while the loss sustained by the 4th unit could be set off against the normal business income. 17. A similar view was also expressed by the Hon ble Bombay High Court in the case of CIT v. Galaxy Surfactants Ltd., 343 ITR 108 (Bom) and CIT v. Black Veatch Consulting Pvt. Ltd., ITA No.1237 of 2011 dated 9.4.2012. 18. There was, thus, a clear conflict in the view taken by the Hon ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of total income is to be classified under the following heads of income and computed in accordance with the provisions of Chapter IV of the Act Salaries Income from house property Profits and gains of business and profession Capital gains Income from other sources 5.2 The income computed under various heads of income in accordance with the provisions of Chapter IV of the IT Act shall be aggregated in accordance with the provisions of Chapter VI of the IT Act, 1961. This means that first the income/loss from various sources i.e. eligible and ineligible units, under the same head are aggregated in accordance with the provisions of section 70 of the Act. Thereafter, the income from one ahead is aggregated with the income or loss of the other head in accordance with the provisions of section 71 of the Act. If after giving effect to the provisions of section 70 and 71 of the Act there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in accordance with the provisions of Chapter VI-A or section 10A, 10B etc. of the Act, the same shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CBDT was considered by a Bench of Five Judges of the Hon ble Supreme Court. In the said case, the relevant CBDT Circular was issued limiting the operation of section 12(1B) or excluding certain transactions from the ambit of section 12(1B) after realizing the extreme hardship caused to the assessee, as a result of the strict operation of section 12(1B). The said Circular issued by the CBDT was held by the Hon ble Supreme Court as binding on the revenue, as the same was considered as issued for the purpose of proper administration of the provisions of section 12(1B). The Hon ble Supreme Court did not look upon this Circular as being in conflict with the provisions of section 12(1B). 23. A similar view was reiterated by the Hon ble Supreme Court in the case of Varghese (K.P.) v. ITO, 131 ITR 597, holding that Circulars of CBDT are legally binding on the revenue and this binding character attaches to the Circular, even if they are found not in accordance with the correct interpretation of the section and they depart or deviate from such construction. 24. To the similar effect is the decision of the Hon ble Supreme Court in the case of Keshavji Ravji and Co. v. CIT, 183 ITR 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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