2007 (12) TMI 306 - AT - Income Tax

Tribunal Allows Delay, Permits Business Loss Carry Forward from 1999-2000 Against 2001-02 Income; Section 72 Applies.

The Tribunal allowed the appeal, condoning a one-day delay in filing due to reasonable cause. It ruled in favor of the assessee, permitting the carry ... Denied the claim of set off u/s 10B - Export oriented undertaking - setting off the business loss brought forward from assessment year 1999-2000 while computing income for the year under consideration - Whether the Assessing Officer invoked the provisions of section 10B(6)? - HELD THAT:- In sub-section (iv) of section 10B(6) it is clearly provided that the assessee has no option but to claim depreciation even during the tax holiday period, so that after the relevant assessment years, the assessee’s written down value for assets would be taken as if depreciation has actually been allowed as a deduction in each of the relevant assessment years during the tax holiday period of 10 years. Thus, the entire scheme of the section provides for a situation where the assessee is not allowed to postpone some of his claims of deduction under various sections during the tax holiday period, so that the profits in the tax holiday period are inflated and the profits of business after the tax holiday period are reduced by claiming these deductions at that particular point of time. Thus, in our humble opinion, the Assessing Officer was wrong in invoking the provisions of section 10B(6) during the current assessment year. We also find that the first appellate authority was wrong in his conclusions that total income does not refer to income computed under sections 28 to 44DB of the Act but has to be separately computed under section 10B(1). In our considered opinion, total income has to be computed under the provisions of the Act and thereafter a deduction has to be quantified under section 10B as provided in section 10B(4). The terms ‘profits’ and ‘turnover’ in sub-section (4) refers only to the current year’s profits and current year’s turnover. No other view can be taken. Thus, the Assessing Officer should have, in our considered view, taken the profits of the business of the undertaking of the current year and then multiplied it with export turnover and then divided the resultant figure with the total turnover to arrive at the deduction under section 10B. This figure should be deducted from the total income as computed under the rest of the provisions of the Act. This is exactly what the assessee has done. It is very important to note that the 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 pertained 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 conclusions while applying the formula. The amount of deduction under section 10B arrived in this particular manner would become an income which would form part of the total income of the assessee, under the Act. Thus, for all these reasons we fully agree with the arguments of the learned counsel for the assessee and allow its claim - In the result, the appeal filed by the assessee is allowed. Issues Involved:1. Condonation of delay in filing the appeal.2. Set off of business loss brought forward from the assessment year 1999-2000 against the income for the assessment year 2001-02.3. Applicability of section 10B(6) and section 10B(1) read with section 72 of the Act.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal was barred by a one-day delay. The assessee filed an application for condonation of delay, and the Tribunal, after reviewing the reasons for the delay, condoned it, holding that the assessee was prevented by reasonable cause from filing the appeal on time.2. Set Off of Business Loss Brought Forward from Assessment Year 1999-2000:The primary contention was whether the business loss from the assessment year 1999-2000 could be set off against the income for the assessment year 2001-02. The assessee, a domestic company engaged in exporting components of Wind Turbine Generators, declared a taxable income of Rs. 5,66,101 after claiming exemption under section 10B. The Assessing Officer denied the set-off of the loss on the ground that it was not permissible under section 10B(6)(ii).3. Applicability of Section 10B(6) and Section 10B(1) Read with Section 72:The assessee argued that section 10B(6) would apply only after the tax holiday period, which extended up to the assessment year 2008-09. Thus, the brought forward loss from 1999-2000 could be set off against the profit of the assessment year 2001-02. The CIT(A) agreed in principle but held that the case was affected by section 10B(1) read with section 72, concluding that the profits were not determined under section 28 and thus the loss could not be carried forward or set off.The Tribunal analyzed the relevant provisions, including sections 10B(1), 10B(6), 10B(9A), Explanation 2(v) to section 10B, section 72, section 28, and section 2(45). It found that section 10B(1) provides for a deduction from the total income of the assessee and that the term 'total income' refers to income computed under the Act. The Tribunal held that section 10B(6) applies to the post-tax holiday period and does not bar the set-off of losses within the tax holiday period.The Tribunal concluded that the profits of the assessee are computed under section 28 and are taxable under the head 'Profits and gains of business or profession.' Therefore, the carry forward and set-off of losses under section 72 are applicable. The Tribunal also noted that the deduction under section 10B is not controlled by section 80AB as it is not a deduction under Chapter VI-A.Conclusion:The Tribunal allowed the appeal, agreeing with the assessee's arguments and holding that the carry forward and set-off of the business loss from the assessment year 1999-2000 against the income for the assessment year 2001-02 were permissible. The appeal filed by the assessee was allowed.