2010 (1) TMI 906 - AT - Income Tax

Tribunal remands traveling expenses issue to Assessing Officer for reassessment, allows loss carry forward.

The Tribunal remanded the issue of the provision for traveling expenses back to the Assessing Officer for reassessment, allowing the assessee to produce ... Traveling expenses - expenditure claimed under the head 'provision for traveling' should have been disallowed by the Assessing Officer. During the course of proceedings AR submitted that the vouchers can be produced before the AO in case the matter is remanded back to the AO, matter remanded back to the AO to again reconsider the quantum of amount to be disallowed under the head 'provision for traveling' after giving opportunity to the assessee 100% EOU - Carry forward loss - Deduction u/s 10B - AO mentioned that the assessee has set off brought forward losses against the positive income of the year. The losses relates to undertaking in which the assessee is entitled for deduction u/s 10B of the I.T. Act and accordingly, the provisions of such sections do not permit to carry forward of the losses and to set off of the same against the income. The set off of the losses was not allowed. - held that:- For the asst. year 2003-04, the second proviso to section 10B(1) provide that deduction is to be considered as 90% of the profits and gains derived by the undertaking from the export of articles or things or computer Software. The set off of loss as mentioned in section 72 says that carry forward of the loss is to be set off against the profits and gains of any business or profession carried on by the assessee and assessable for the subsequent asst, year. Thus, 90% of the deduction as computed u/s 10B is admissible as per second proviso for the asst. year 2003-04 and 10% of such deduction becomes assessable for the asst. year 2003-04. Once such income becomes assessable for the asst. year 2003-04, then loss of earlier year can be set off in view of section 72(1)(i). Hence, the loss of asst. year 2001-02 is required to be set off as claimed by the assessee. - Decided in favor of assessee. Issues Involved:1. Disallowance of Rs. 1,09,42,121/- on account of provision for traveling expenses.2. Disallowance of carry forward losses amounting to Rs. 66,61,499/- pertaining to assessment year 2001-02.Issue 1: Disallowance of Rs. 1,09,42,121/- on account of provision for traveling expensesThe assessee appealed against the disallowance of Rs. 1,09,42,121/- for traveling expenses by the Assessing Officer (AO) due to lack of relevant details. The AO found the expenses genuine except for the traveling provisions for Delhi and Mumbai units, which lacked a reasonable basis. The AO added Rs. 1,09,42,121/- to the income.Before the CIT(A), the appellant argued that the provision was based on invoices and expense reimbursement forms. The AO's remand report noted that actual expenses were Rs. 72,15,722/-, less than the provision claimed, justifying the disallowance. The CIT(A) upheld the AO's decision due to the assessee's failure to produce vouchers.The Tribunal considered the principles from Bharat Earth Movers v CIT and Metal Box Company of India Ltd., stating that liabilities accrued due should be deducted while computing profits. The Tribunal noted that the provision for expenses should be based on a fair estimate and not entirely disallowed if vouchers were not produced. Citing precedents, the Tribunal decided that disallowing the entire provision was unjustified and remanded the matter back to the AO for reconsideration, allowing the assessee to produce vouchers.Issue 2: Disallowance of carry forward losses amounting to Rs. 66,61,499/- pertaining to assessment year 2001-02The AO disallowed the carry forward losses of Rs. 66,61,499/- from the assessment year 2001-02, arguing that the losses related to a unit entitled to deduction under section 10B of the I.T. Act, which does not permit carry forward and set off of such losses.The CIT(A) upheld the AO's decision, stating that units claiming deduction under section 10B cannot carry forward losses to be adjusted against business income. The appellant argued that the loss was assessed for the year 2001-02, and hence, it should be set off against subsequent year's income.The Tribunal examined the case, noting that the assessee withdrew the claim of exemption under section 10B for the year 2001-02 in a revised return. Therefore, the loss for 2001-02 was not for a unit eligible for section 10B exemption. The Tribunal referred to various judgments supporting the set-off of losses against other income and noted that the declaration under section 10B(8) was satisfied for both years 2001-02 and 2002-03.The Tribunal distinguished between the provisions applicable before and after the amendment by the Finance Act, 2000, which changed the treatment of section 10B from exemption to deduction. The Tribunal concluded that for assessment years post-2001-02, the loss of a unit not claiming section 10B deduction should be set off against the total income. Therefore, the Tribunal held that the CIT(A) was not justified in disallowing the carry forward loss of 2001-02 and allowed the appeal.Conclusion:The appeal was allowed, with the Tribunal remanding the issue of provision for traveling expenses back to the AO for reassessment and permitting the carry forward of losses from the assessment year 2001-02.