TMI Blog2010 (9) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... s loss(es) and unabsorbed depreciation allowance qua the assessee s same eligible undertaking), which would thus stand to be set off against the profits from other sources or other taxable incomes for the year. In the view of the Assessing Officer (AO), however, the deduction under section 10B could only be on the profit, if any, that remains after setting-off of the same and, accordingly, he set off and thus neutralized the profit for the year (from the eligible undertaking) against the unabsorbed business loss (for assessment years 1996-97 and 1997-98) and the balance against the unabsorbed depreciation (assessment year 1996-97) of the said undertaking, carried forward from those years. In appeal, the assessee found favour with the ld. CIT(A) on the basis that the provision of section 10B(6)(i) of the Act, which proscribes carry forward of unabsorbed depreciation (or unabsorbed business loss) relating to any assessment year prior to 2001-02 against the income for a subsequent year, is applicable only for the year immediately following the last of the relevant assessment years (as defined per Explanation 2 to section 10B), and which in the present case would fall to be assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff the same. That it is so is borne out by the fact that apart from the difference to the corresponding extent in the assessee s assessable income for the year, there is also a difference in the amount of deduction under section 10B, as well as the amounts held to be carried forward as unabsorbed business loss and unabsorbed depreciation allowance. The ld. CIT(A), in our view, has not appreciated the issue, or the revenue s case, in its proper perspective, leading to the assessee filing the Cross Objection praying for adjudication of its ground to this effect. Further, once this core issue is resolved, the other(s) would follow as a matter of course. 4.2 Having delineated the issue in the instant case, we find that the same is no longer res integra or at least as far as the Tribunal is concerned. Vide a decision by a Special Bench thereof in the case of Scientific Atlanta India Technology (P.) Ltd., v. Asstt. CIT [2010] 2 ITR (Trib.) 661 (Chennai) it has confirmed that the deduction under section 10A (which is pari materia with section 10B) is to be allowed after adjusting the brought forward loss and depreciation allowance qua the same unit. The same view has been taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, so that neither the profits nor the losses of one category (say, from section 10A units, which we have referred to as section 10A income ) would enter the computation of income of the other category or class. The decision by the Hon ble Apex Court in the case of IPCA Laboratory Ltd. (supra) stands also considered by the Tribunal and referred to at paras 49, 62 and 63 of its order. 4.2****** 4.3 We have given our anxious consideration to the matter, and for the reasons that follow, are not moved in favour of the Revenue s stand. That the deduction under sections 10A and 10B, as also as those under sections 80HH, 80HHA, 80-I, 80-IA, et al. are unit-specific, in contradistinction to being assessee-specific, is well-settled, and not in dispute, and for which reference may be made to the decision in the case of Scientific Atlanta India Technology Pvt. Ltd. ( supra) itself, wherein this aspect stands emphasized in sufficient detail. That being the basic position in respect of the deduction, the next question in the matter would be with regard to its quantification, i.e., the qualifying amount of profit and gains on which the same is to be allowed or worked at. Again, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d] The concluding para of the decision in the case of Global Vantedge (P.) Ltd. (supra) reads as under : 41. In light of the aforesaid two decisions in the case of CIT v. Yokogawa India Ltd. ( supra) and Changepond Technologies (P.) Ltd. (supra), and in light of the decision in the case of CIT v. Himatsingike Seide Ltd. (supra), it is, thus, clear that the unabsorbed depreciation or unabsorbed business loss in respect of the eligible unit or division or undertaking is to be set off against the profit of the same eligible 10A unit or undertaking for the purpose of determining the amount of deduction available under section 10A of the Act. The ratio decidendi in the case of Sword Global (I) (P.) Ltd. (supra), as captured per the head notes thereto, reads as under : Exemption under section 10B - Computation - Adjustment of brought forward losses - All the brought forward losses and depre- ciation are first required to be set off against the business profits of the current year before computing any deduction/exemption under section 10B - Contention that the second proviso to section 10B has to be applied directly and immediately on the gross business profit before ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Where there is to be no aggregation with any other income, inasmuch as the income under reference is to be considered separately and independent of any other income, the deduction or benefit under the section would have to be worked out only and necessarily on the available profit from the said source, i.e., after adjustment or set-off of losses or depreciation of the same unit. The aggregation of income, it may be noted, is only toward arriving at the total income. As such, when there is no question or scope for aggregation (with any other income), as, under the condition of the deemed sole source of income, the aggregation (clubbing) provisions are rendered inapplicable and irrelevant in relation to income(s) falling under the said section(s). Any deeming, as, of the said income being the only income, it is trite, has to be taken to its logical end, and the deduction thereunder, as such, cannot be artificially pegged at a higher amount by segregating or dis-aggregating the profits on a year-wise basis. The relevance of aggregation provisions is only in the scenario of multiple source of income, with only the final income, or essentially so, being the one on which the tax is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resents the well-settled law in the matter as explained by the Apex Court per its decisions inter alia in the case of CIT v. Virmani Industries (P.) Ltd. [1995] 216 ITR 6071 (SC); Mother India Refrigeration Industries (P.) Ltd. s case (supra ), also referring to its earlier decisions in Jaipuria China Clay Mines (P.) Ltd. s case (supra) and Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 (SC). The provision of section 32(2), without doubt, clarifies the primacy accorded by the Act to the unabsorbed business loss, signifying in clear terms that there is no question or scope of any income being subject to assessment until the said claims, brought forward from earlier period(s), are not first adjusted. 4.6 The profits and gains under Chapter IV-D have to be computed in accordance with the provisions of sections 30 to 43D (section 29), so that the provision of section 32 shall have to be necessarily given effect to, and which, per sub-section (2) thereof, itself requires a prior effect to the carry forward loss [section 72(2)]. As such, giving effect to the provision of section 72(2), before deeming the unabsorbed depreciation relating to the preceding year(s) as part of the curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position, would the operation of the listed sections interfered with by deeming a notional allowance thereunder, i.e., even if not actually given effect to (where it pertains to any relevant assessment year up to assessment year 2000-01). As such, the said clause shall have no effect or shall not come into operation, even as contended by the assessee before us, till the assessment of that year. Besides, as explained in the case of Himatasingike Seide Ltd. (supra), allowing the loss or depreciation of the eligible undertaking against the other income amounts to giving tax shelter not only to the income of the said unit, but also to the income from other sources, and which cannot, by any stretch of imagination, be the objective of the provision. In fact, sub-section (6) to both the sections 10A and 10B, by deeming the unabsorbed loss and unabsorbed depreciation allowance, among others, to the extent not absorbed during the tax holiday period (i.e., up to the last of the relevant assessment years), to have been allowed in the assessment of the year to which it relates or is allowable for, itself confirms that the assessment up to the last year of the tax holiday period is to be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka, is, nevertheless, in the context of section 80J of the Act, a deduction provision which falls under Chapter VI-A of the Act. Being in respect of an income, forming part of the total income, as defined under section 2(45) of the Act, the same would have no application inasmuch as the relevant income(s), forming part thereof, would be subject to the aggregation and, thus, to the set off, provisions of Chapter VI, so as to determine the gross total income , and with reference to which the deduction provisions of Chapter VI-A are to apply. The same, rendered on the premise of the non-compartmentalization of section 80J income, thus, has no application in the present case. The decision by the Apex Court in the case of Smt. P.K. Kochammu Amma Peroke (supra) is qua the disclosure obligation cast on the assessee under section 139(1) of the Act, in view of the non-specification of the relevant column in the return of income, and whether penalty under section 271(1)(c) of the Act would stand attracted. The import of the decision in the present case is not understood, and neither any argument with reference thereto stood advanced by the ld. counsel for the assessee during hearing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Export Oriented Unit engaged in manufacturing and export of oleoresins from spices. It filed return of income claiming exemption under section 10B, which was processed. Subsequently, the Assessing Officer noted that the assessee had set off carried forward unabsorbed depreciation of earlier years relating to its business income exempt under section10B, against income of the present year, i.e., assessment year 2004-05 under the head Income from other sources . According to the Assessing Officer, such unabsorbed depreciation relating to exempted income could not be set off against the income from other sources and accordingly he was of the view that there was escapement of income for which after recording the reasons, reopened the assessment by issue of notice under section148. The Assessing Officer was of the view that as per section 10B(6)(i), unabsorbed depreciation of the 100 per cent EOU on which exemption under section 10B has been claimed relating to assessment year prior to assessment year 2000-01 cannot be set off while computing total income of the assessee in the assessment year immediately succeeding the last of the assessment year during which exemption under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n like any other relief for exports and income of new Industrial Undertaking under Chapter VI-A of the Act. It was on the realization of this, that this restriction was removed retrospectively from assessment year 2001-02. 5. Even in respect of a dispute for an assessment year earlier to this change, the Tribunal in Navin Bharat Industries Ltd. v. Dy. CIT [2004] 270 AT 11 (Mum.)(TM) found its way for adoption of normal computation procedure of allowing loss in the new unit for set off against the income of other units. The reasoning of the Tribunal is that the benefit under section 10A cannot be forced on the assessee so as to deny the benefit of sections 70 and 71. 6. As per section 10B, deduction can be claimed to the extent of 90 per cent of the profits from the undertaking which was admittedly eligible for deduction under section 10B. Against the balance profits the assessee had claimed set-off of losses from earlier years. Therefore, the ld. Assessing Officer was not justified by invoking section 10B(6)(ii) and say that such loss could not be allowed to be set off. 7. In view of the above stated facts and law, the set-off of losses against the balance of income agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te for filing the return. Section 10B would have application only if the assessee has positive income. 11. The Mumbai Bench (Third Member) decision in the case of Navin Bharat Industries Ltd. (supra) has held that provisions of sections 70 and 71 are applicable even in respect of loss incurred in the business eligible for exemption under section 10B or 10A. Therefore, the assessee is entitled to set-off of the loss incurred in the Industrial Unit which is eligible for exemption under section 10B against the income earned by it. 12. Further, deduction under section 10B is not controlled by section 80AB as deduction under section 10B is not a deduction under Chapter VI-A, when the Export Turnover and total turnover pertain to a particular year, the profits and gains from the business of an undertaking should obviously be for that particular year and which are not adjusted against the previous losses or allowances. Any other interpretation would not yield logical conclusion while applying the formula. The amount of deduction under section 10B arrived at in this particular manner would become an income which would form part of the total income of the assessee. Enercon Wind Farms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfer concession, should be interpreted in a liberal manner, so as to subserve the purpose for which they are enacted. Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 1881 (SC). 17. A provision in taxing statute granting incentives for promoting growth and development should be construed liberally. 18. The settled law that provisions relating to deductions, allowances and exemptions are expected to be interpreted rigidly and once the assessee qualified for that deduction, allowances, and exemptions then a liberal interpretation is to be made so as to subserve the purpose for which they are intended. 19. In pari materia section 80-I, the question of allowing section 80-I deduction whether allowable without setting off loss of other units came before the Hon ble Delhi High Court in the case of CIT v. Sona Koya Steering Systems Ltd. [2010] 189 Taxman 110. 19.1 In that case, the assessee had two units, namely, a steering unit and an axle unit, both of which were eligible under section 80-I. While one unit was making profits, the other was incurring losses. 19.2 The Tribunal found that the effect of section 80-I(6) is that the deduction has to be computed as if the industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Delhi Bench of the Tribunal that merely because section 10B fell under Chapter III of the Act, the same cannot be considered to be an exemption provision so as to deny the provisions of exemption under sections 70 and 71 to an assessee. Again in the case of Emercon Wind Farms (India) Ltd. v. DCIT [2008] 21 SOT 29 (Mum.), Bench of this Tribunal has held that total income referred to in section 10B is nothing but the total income computed as per the provisions of the Act. And finally in the case of Sovika Infotek Ltd. v. ITO [2008] 23 SOT 271 of the Mumbai Bench of the Tribunal has held that non obstante clause appearing in sub-section (6) of section 10B specifying the exclusion of applicability of sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74 would not take out the applicability of section 70 or 71 of the Act in respect of loss incurred in business eligible under section 10B of the Act. Therefore, we find that CIT (Appeals) was justified in directing Assessing Officer to give the assessee set-off of its interest income against loss of other business. 23. The decision of the jurisdictional High Court in the case of Girnar Industries v. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppened and it is merely a re-purchase by the seller. He submitted that the assessee has claimed benefit under section 10B of the Act and the relevant assessment year is 2004-05 which is the 9th year of the claim made by the assessee. He submitted that the assessee has declared net loss over the years. The assessee has interest income to the tune of ₹ 40.52 lakhs, which it wants to set off against the deduction claimed by it. The ld. CIT, DR submitted that the ld. AM has cited a number of decisions in support of his decision, in favour of the revenue and submitted that the decision in the case of Scientific Atlanta India Technology (P.) Ltd. (supra ) clearly applies and he placed heavy reliance on the same. 4. The ld. counsel for the assessee opposed the submissions of the ld. CIT, DR. He submitted that the words hundred per cent export-oriented undertaking does not mean that the unit should be exclusively for exports. He submitted that it is sufficient if the unit is primarily for exports and the intention of the promoters should be for effecting exports of goods. He submitted that the provisions of section 10B(4) provides for pro rata deduction in respect of export sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt under section 10B of the Income-tax Act against the interest income of the relevant assessment year 2004-05 under the head Income from other sources . The case of the Assessing Officer was that such unabsorbed depreciation of a 100 per cent EOU on which exemption under section 10B has been claimed relating to the assessment year prior to the assessment year 2000-01 could not be set off while computing the total income of the assessee in the assessment year immediately succeeding the last of the assessment year during which exemption under section 10B is claimed. In this case, the assessee has started getting exemption under section 10B from the assessment year 1996-97. According to the Assessing Officer this provision means that the brought forward unabsorbed depreciation could not be set off against income from other sources relating to the assessment year 2004-05 and accordingly did not allow any unabsorbed depreciation while computing the income from other sources for the assessment year 2004-05. On appeal the ld. CIT (Appeals) reversed the order of the Assessing Officer and held that the assessee is entitled to set-off of unabsorbed depreciation which could be set off with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to him. Accordingly, the initial argument made by the ld. CIT, DR that the sales of the assessee include domestic sales is accordingly rejected. The other argument of the ld. CIT, DR that the provisions of section 10B(6) of the Act could not be ignored, could not be accepted since the issue before the Third Member is not to ignore any provision of law and the real issue is whether certain provision of law is applicable to the facts and circumstances of the case. 8. I find that as per the provisions of section 10B, deduction could be claimed by the assessee to the extent of 90 per cent of the profits from the undertaking which was eligible for deduction under section 10B. The assessee has claimed set-off of losses from earlier years against the balance profits. The benefit given under section 10B is a deduction and not exemption as such, as the word deduction is clearly incorporated in the provision of section 10B of the Act. The provision does not allow exemption to the whole of the income and it is only 90 per cent of the profits which are allowed as a deduction to the assessee. As per the provision of section 10B, a deduction of such profits and gains as are derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the Act. The Assessing Officer held that unabsorbed depreciation relating to the exempted income would not be set off against the income from other sources and accordingly did not allow set-off of unabsorbed depreciation of hundred per cent export oriented undertaking brought forward from assessment year prior to assessment year 2000-01 while computing the income from other sources of the assessee. I find that in the case of the assessee, the first year of claim of the assessee was assessment year 1996-97 and the last year claim of deduction under section 10B was assessment year 2005-06 and therefore, the assessment year immediately succeeding the last of the assessment year would be assessment year 2006-07. It follows that in case the assessee has unabsorbed depreciation and unabsorbed loss relating to hundred per cent export oriented undertaking up to the assessment year 2000-01, the same could not be allowed as a deduction in computing the total income for the assessment year 2006-07 or in any subsequent assessment year. The relevant assessment year of the assessee in appeal before the Tribunal was assessment year 2004-05, for which the assessee has claimed exemption unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. A combined reading of the relevant provisions of law and the applicable decisions of the Hon ble Courts, I have no hesitation to hold that the unabsorbed depreciation would be set off with business income or under any other head of income including income from other sources and accordingly the question referred to him is answered in favour of the assessee and against the revenue. In this view of the matter, I agree with the decision of the ld. JM with regard to the issue that whether the provisions of section 10B(6)(ii) was applicable to the facts and circumstances of the case and hold that the grounds of appeal of the assessee relating to the issue of set-off of the unabsorbed depreciation against the income from other sources are allowed. 10. Now the matter will go back to the regular Bench for disposal in accordance with the majority opinion. PER SANJAY ARORA, ACCOUNTANT MEMBER. When the instant cross-appeals were heard, there arose a difference of opinion between the Members constituting the Bench. In the view of the Accountant Member, who proposed the order on behalf of the Bench, the assessee s claim for set-off of its income from other sources (Rs. 40,52,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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