TMI Blog2004 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Glaxo Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226. The learned Counsel for the assessee also brought to our notice that in the earlier assessment year i.e., assessment year 1989-90, the I.T.A.T., Bombay Bench has decided the matter against the assessee, in the assessee's own case in ITA No.3114/Bom./1993 dated 10-1-2002. He, however, requested that the matter may be reconsidered. 4. On the other hand, Shri Joe Sebastian, the learned Departmental Representative relied upon-the order of the learned CIT(Appeals) for the assessment year 1989-90 and the current year. 5. We have considered the rival submissions and perused the facts on record. Respectfully following the Order of the I.T.A.T., in assessee's own case for the earlier assessment year cited supra, we decline to interfere and accordingly confirm the addition of Rs.12,245. This ground of appeal, accordingly fails. 6. Ground No. 2 reads as under :- "The learned CIT(Appeals) erred in holding that the expenses of Rs.92,717 incurred by the appellant providing on lodging and boarding of foreign designers and buyers is an entertainment expense disallowable under section 37(2A) of the IT Act." 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the facts on record. Out of the total expenses of Rs. 2,41,050, Rs. 87,862 has already been offered for disallowance by the assessee. If we consider the additional disallowance of Rs. 60,000 made by the Assessing Officer the total disallowance comes to Rs. 1,47,862. This appears to be on the higher side. After taking into consideration the facts and circumstances of the case, we restrict the disallowance to Rs. 30,000 out of the total disallowance of Rs. 60,000 made by the Assessing Officer. The assessee will be entitled to a relief of Rs. 30,000. This ground of appeal accordingly succeeds in part. 13. Ground No. 3 reads as under :- "The learned CIT(Appeals) erred in upholding the disallowance of Rs. 40,000 out of the rent paid by the appellant on the plea that the said amount relates to earlier year without appreciating the fact that liability to pay the same has arisen during the year." 14. The learned Assessing Officer disallowed Rs. 40,000 out of the rent paid during the year since it related to the earlier year i.e., for the period from 21-2-1989 to 31-3-1989. On appeal, it was submitted before the learned CIT(Appeals) that the premises were taken on rental basis fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that since the total income of the SEEPZ Unit is excluded under section 10A of the I.T. Act, it is obvious that the loss will also have to be excluded, as profit includes loss as held by the Courts. On appeal, the learned CIT(Appeals) confirmed the action of the Assessing Officer relying on the decision of CIT v. Harprasad Co. (P.) Ltd. [1975] 99 ITR 118 (SC) and the decision of Madras High Court in the case of CIT v. S.S. Thiagarajan [1981] 129 ITR 115. In his opinion, as held by the Courts, as the income was exempt, the loss in relation to such source could not be set off against other income. 20. The learned Counsel for the assessee explained that as per the provisions of section 10A, as then prevailing, the income of the Unit set up in the export processing zone, is exempt for a period of 5 years. In case, in any year if such unit has suffered loss, then such loss cannot be carried forward as per the provisions of section 10A(4)(ii) of the Act. It was submitted that the said sub-section does not refer to sections 70 71 of the Act, which permits the set-off of the loss from one source against the other source during the year. The learned Counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Govt. for taxability of Units set up in the Export Processing Zone, contained in section 10A, is a code by itself. The computation of such Units as well as the carry forward and set off etc., has been specifically laid down in the said section. The other provisions of the I.T. Act and any other disability or restrictions in respect of the set off of carry forward etc., has been specifically provided in section 10A(4) of the Act itself. Therefore, these provisions need to be considered in totality keeping in view the intention of the legislation regarding taxability of such units in the Export Processing Zone. Section 10A(4)(ii) specifically prohibits the carry forward and set off of the loss incurred by such units by specifically referring to sections 72(1) and 72(4)(i) or with effect from 1 -4-1988 under section 74(3). It does not refer to sections 70 or 71 which clearly means that there is no prohibition prescribed in the section regarding set off of the loss of such units against the income from other units or other business income of other sources. 24. Now, we come to the decisions relied upon by the learned CIT(Appeals), while confirming the action of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disallow something by making use of the same. Otherwise, it would virtually amount to the enhancement which is not permissible under the Act. 26. We, therefore, agree with the submissions made by the learned Counsel for the assessee and hold that the loss incurred by SEEPZ Unit of Rs.4,79,342 has to be allowed to be set off against the other business income of the assessee. The Assessing Officer is directed accordingly. This ground accordingly succeeds. 27. Ground No. 5 reads as under:- "The learned CIT(Appeals) erred in confirming the addition of Rs. 83,000 in the hands of the appellant on account of sale of wastage without appreciating the fact that complete stock recorded are being maintained by the assessee and no instance of suppression of any sale of waste has been placed by the department on record." 28. The Assessing Officer while dealing with the wastage mentioned that even though the wastage loss has decreased in the year compared to earlier year, still looking to the fact that similar addition was made in the earlier years, he made addition of Rs. 1 lakh on account of wastage. On appeal, the learned CIT (Appeals) reduced the addition to Rs. 83,000 based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at fixed deposits were kept for obtaining guarantees of financial limits. The Assessing Officer had treated the interest of Rs. 2,27,650 and rent of Rs. 55,560 aggregating to Rs. 2,83,210 as income from other sources and reduced the same while working out the deduction under section 32AB as well as under section 80HHC. 34. On appeal, the CIT(Appeals) treated the interest received on the deposit from IDBI of Rs. 80,000 as business income and the balance interest of Rs. 1,47,649 received on fixed deposits in the bank as income from other sources. He observed that deposit with IDBI was not made with the purpose of earning of interest but was done to comply with certain provisions of the I.T. Act and accordingly, directed the Assessing Officer to grant deduction under section 80HHC and section 32AB on such interest. 35. The learned Counsel for the assessee submitted that Rs. 12,67,000 and Rs. 1,33,600 were fixed deposits kept with the bank for sanction of over draft limit as per the condition mentioned in the sanction letter of Dena Bank and also for the purpose of obtaining the bank guarantees in favour of customers and Govt. In support of the same, he drew our attention to the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e various Tribunals which have taken a similar view and copies of which have been placed in the Paper Book. 37. The learned Departmental Representative submitted that interest has to be treated as income from other sources and cannot be treated as business income and, therefore, the same cannot be taken into account for working out the deduction under section 32AB or section 80HHC. 38. We have considered the rival submissions and perused the facts on record. So far as the working of the book profit is concerned, for the purpose of working of the deduction under section 32AB of the Act, the issue is concluded by the decision of the Hon'ble Supreme Court while dealing with the book profit for the purpose of section 115J as well as section 32AB in the case of Apollo Tyres Ltd. While dealing with the power of the Assessing Officer to disturb the book profit as worked out as per the provisions of the Companies Act, the Court observed at page 280 as under:- "Therefore, we are of the opinion, the Assessing Officer while computing the income under section 115J has only the power of examining whether the books of account are certified by the Authorities under the Cos. Act as having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports, we are of the opinion that even though it can be treated as business income, as per the decision of the Bombay High Court in the case of CTT v. K.K. Doshi Co. [2000] 245 ITR 849, such income cannot be taken into account for the purpose of working out deduction under section 80HHC. We, however, agree to the alternate submission of the learned Counsel for the Assessee to permit the set off of interest paid against the interest received in view of the decisions of the various Benches of the Tribunal, including in the case of Pink Star v. Dy. CIT [2000] 72 ITD 137 (Mum.), Advance Technology Devices (P.) Ltd. IT Appeal No. 5722/Mum./2000]. We, however, restore this issue to the file of the Assessing Officer and direct him to see whether there is direct nexus between earning of interest and payment of interest and if it is so, rework the profits and gains for the purpose of deduction under section 80HHC taking into account the above directions. 41. Ground No. 8 reads as under :- The learned CIT(Appeals) erred in holding that compensation recovered by the appellant for letting out of its business premises for short term to its business associates and receipt of compensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1, 2, 3, 5 and 8. With respect to other grounds my decision is as follows : Ground No. 4 2. This ground has been dealt by learned Accountant Member in his decision in paragraphs 18 to 26. The assessee has claimed set off of losses of Rs. 4,79,342 incurred in respect of its unit situated at SEEPZ, against other business income. 3. There is no dispute to the extent that the income of the assessee for the year under consideration from SEEPZ unit is exempt from tax and income, if any, earned in that regard will not form part of total income. The Legislature has inserted the provisions of section 14A in the Income-tax Act, 1961 with retrospective effect from 1-4-1962. The section reads as follows: "Expenditure incurred in relation to income not includible in total income.-For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is entitled to setting off the loss incurred by the SEEPZ Unit entitled for deduction under section 10A against other business income of the assessee ?" 2.1 have heard the rival submissions in the light of material placed before me and precedents relied upon. The assessee company is engaged in the business of readymade garments, leather products and carpets. It has also manufacturing unit for electronic goods. The assessee has also got newly established undertaking at Santacruz Electronic Export Processing Zone (hereinafter called SEEPZ), which is a free trade zone and the special provision prescribed under section 10A of the Income-tax Act, 1961, (hereinafter called the Act) is applicable in respect of the profits of the SEEPZ Unit. The SEEPZ Unit was started during the assessment year 1987-88. The assessee claimed the benefit of section 10A of the Act, for the assessment years 1987-88,1988-89 and 1989-90. This benefit was available for a period of five years. In the assessment year under consideration, the assessee incurred a loss of Rs. 4,79,342 in respect of this Unit. This loss was adjusted against profits of some other Units. The learned counsel for the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om taxation during the relevant years under section 10(3), as it stood in the relevant assessment years. Since the income was not taxable, the losses arising from such activity could not also be set off against income from a different source or under a different head. 6. The learned Counsel for the assessee submitted before us that as per the prescription of section 10A of the Act, as it stood at the relevant point of time, the income of the unit set up in the export processing zone was exempt for a period of five years. In case, in any year if such unit has suffered loss, then such loss could not be carried forward as per the interdict of section 10A(4)(ii) of the Act. 7. Section 10A(4)(ii) reads as under:- "10A. Special provision in respect of newly established industrial undertakings in free trade zone - (4) 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 assessment year immediately succeeding the last of the relevant assessment years, or of any previous year relevant to any subsequent assessment year,- (i) " (ii) no loss referred to in sub-section (1) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by itself. The revenue was therefore not correct in denying the adjustment of loss. Section 10A of the Act nowhere touches the operation of sections 70 or 71. 11. The point apropos the applicability of section 14A of the Act was raised at the time of hearing before the Tribunal. It was contended that section HA of the Act is applicable only in respect of the 'expenditure incurred' in respect of income, which is not includible in the total income, and it does not deal with the losses from that source etc. and in any case, it cannot be applied retrospectively. 12. The learned Accountant Member has held as under :- (i) The special scheme of taxation formulated by the Government for taxability of Units set up in the export processing zone, contained in section 10A, is a code by itself. The computation of profits of such units as well as the carry forward and set off of loss etc. has been specifically laid down in the said section. The other provisions of the Income-tax Act and any other disability or restrictions in respect of the set off of carry forward etc., has been specifically provided in section 10A(4) of the Act itself. Therefore, these provisions need to be considered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001." (vii) Section 14A was not in existence when the impugned order was passed. So also, by the insertion of the provision, the intention of the legislation is clear that it is not to be applied to the past assessments by restricting the officers to re-open the assessments etc. Therefore, if the Assessing Officer cannot do a particular action like re-opening, of assessment already completed, the Tribunal cannot use that provision to disallow something by making use of the same. Otherwise, it would virtually amount to the enhancement, which is not permissible under the Act. 13. The learned Judicial Member disagreed with the learned Accountant Member only in respect of the applicability of section 14A of the Act. There is absolutely no difference among the learned Members on other aspects. 14. According to the learned Judicial Member, in view of the provisions of section 14A of the Act, the claim of the assessee is not admissible. Proviso to the above section deals with the situation where assessment has got finality. In the present case, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly and exclusively for the assessee's business, while a business loss is allowable if it is of non-capital nature and is not only connected with the trade but is incidental to the trade itself. In assessing the amount of profits and gains of a year, account must necessarily be taken of all losses incurred, besides the expenditure allowable under sections 30 to 44D of the Act. This view is buttressed by the decision of the Apex Court rendered in the case of CIT v. S.C. Kothari [1971] 82 ITR 794, 801, 802. Therefore, loss could not be construed to be expenditure. Section 14A of the Act is applicable qua the expenditure and not qua the loss. 19. Without prejudice, contextually the learned counsel for the assessee argued that section 10A of the Act is a beneficial provision. It is a code by itself, on which both the Members concurred. If the assessee does not wish to avail benefit for some reason, the benefit cannot be forced upon him. To support this proposition, reliance was placed on the decision of the Apex Court rendered in the case of CIT v. Mahendra Mills [2000] 243 ITR 56. In this case the Hon'ble Supreme Court has held that a privilege cannot be to a disadvantage and an o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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