TaxTMI 
TaxTMI 
2010 (7) TMI 483
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....x Act, 1961 ('the Act' hereinafter) vide separate Orders of even date, i.e., 30-12-2006, disposed of by the ld. CIT(A) vide his separate Orders dated 11-8-2008 (for assessment year 2004-05) and 13-8-2008 (for assessment years 2001-02 and 2002-03), the corresponding appeal numbers being ITA No. 894 thro' 896 of 2008. 3. The only issue raised by the assessee per its appeals is whether the unabsorbed depreciation relating to the assessment years 1994-95 and 1996-97 could be set off against the assessee's other income for the relevant years. For the relevant year, the assessee derived business income from three sources, viz., Unit 'A', Unit 'B' and Trading Unit. Unit 'A' and Unit 'B' are eligible undertakings under section 10B of the Act, wherein production stood commenced in the previous years relevant to assessment years 1994-95 and 1997-98 respectively, so that these are the initial assessment years in relation to these Units. The assessee did not claim any exemption (or deduction) under section 10B for Unit 'A' for the first three years of operation, i.e., assessment years 1994-95 to 1996-97 for Unit 'A', and for assessment year 1997-98 in respect of Unit 'B'. For assessment yea....
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....under section 32(2) of the Act, while the issue in the present appeals relates to the treatment of the unabsorbed depreciation of the eligible undertakings, i.e., post deduction under section 10B, qua which the assessee claims set off against its other income for the years under appeal. As such, the two issues are clearly different even as both are in respect of the depreciation for the eligible undertakings, as for assessment years 1994-95 to 1996-97 for Unit 'A' and assessment year 1997-98 for Unit 'B'. The ld. DR, on the other hand, submitted that the assessments were in accordance with the provisions of law. 6. We have heard the parties, and perused the material on record. We firstly find that the ld. CIT(A) did not pass any speaking order in respect of the assessee's said grievance as in his view the said issue was the subject-matter of revision under section 263 of the Act, only reproducing the direction by the ld. CIT vide Order dated7-3-2008 holding as under : 'To adopt profits of the business of the Undertaking A & B after set off of the unabsorbed depreciation of the relevant undertakings for the limited purpose of computing profits under sub-section (4) of section ....
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....It is only an exemption provision. It may be true that even after taking into consideration the unabsorbed depreciation, the assessee may get exemption but nonetheless it could not take only a portion of depreciation just to suit its income for the purpose of nil liability and adjust the balance of unabsorbed depreciation against other business income once again to show nil liability. The intention of the Legislature was to provide 100 per cent exemption only for export income and not for any other income. The petitioner by dividing the depreciation contrary to section 32 had virtually taken exemption from payment of tax even for other business income. That could not be allowed. The Commissioner was justified in holding that the assessee was not justified in showing nil income. Interpretation of a statute has to be meaningful and acceptable and it cannot be against the intention of the legislation." It is well-settled that the exemption or deduction (under section 10A or 10B), as the case may be, with the relevant sections having undergone amendment, is in the nature of a relief qua the assessee's undertaking(s) and not the assessee itself, as stands also held with refer....
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...., assessable under the regular provisions of the Act (Chapter IV). It may be of some relevance to add that the position would be different qua the depreciation under reference that survives the last of the relevant assessment years, being assessment year 2003-04 and assessment year 2006-07 for Unit 'A' and Unit 'B' respectively. We shall at this stage, take leave of this matter, being also the subject-matter of the revenue's appeal, whereat the same stands discussed in greater detail, while disposing the same, and which shall therefore form par of the present adjudication as well. 8. There is no other issue in the assessee's appeals for assessment year 2001-02 (ITA No. 894/Coch/2008 and assessment year 2002-03 (ITA No. 895/Coch/2008), with the ld. AR not pressing the admission and, consequently, the adjudication of the additional ground of appeals filed for these years. This leaves us with the balance two grounds for assessment year 2004-05 (ITA No. 896/Coch/2008). Ground No. 2 of the said appeal, was argued by the ld. AR with reference to the decision by the Special Bench of the Tribunal in the case of Topman Exports v. ITO [2010] 124 ITD 1 in which it stands held that section ....
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....k the matter in appeal before the first appellate authority, who did not entertain the assessee's ground on the basis that the Assessing Officer has stated that for the purpose of computation of book profit under section 115JB the actual deduction under section 80HHC is allowable, and had nowhere held adversely qua the assessee's claim, for it to entertain any grievance, and dismissed the assessee's ground. Aggrieved the assessee is in appeal. 11. Before us, it was explained by the ld. AR, that it apprehended that in view of the reduction in its income consequent to the order giving appeal effect, its tax liability may arise with reference to the book profit. As such, adjudication of its ground, i.e., on merits, is required. The ld. DR, on the other hand, supported the appellate Order and the Orders of the authorities below. 12. We have heard the parties, and perused the material on record. We are not inclined to adjudicate only to address an apprehension. However, where an issue stands raised by the assessee, it is to be decided in accordance with the applicable law. The assessee, we find, has rightly raised a ground before the first appellate authority as in its view was in....
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.... would not be exigible for its claim for the said set off. The assessee, however, was successful in first appeal; the ld. CIT(A) deciding the same by following the decision by the Tribunal in the assessee's own case for assessment year 2005-06 vide its Order dated 24-7-2009, wherein the same issue in respect of the unabsorbed depreciation for the preceding years qua the assessee's Unit 'A' arose for adjustment against the income for that year. Aggrieved, the revenue is in appeal. 14. Before us, the ld. DR relied on the relevant provisions of law, being sections 10B(6) and 32, stating them to be unambiguous. The ld. AR submitted that the assessee's case stands squarely covered by the decision by the Tribunal in its own case for the immediately preceding year, i.e., assessment year 2005-06, as stated by the ld. CIT(A), and which forms the basis for the allowance of its claim by him. When questioned by the Bench that the provision of section 32(2) would nevertheless have effect, and that the same admits of no difference in meaning, requiring him to read the provision, it was pleaded by him that there is no dispute with regard to the fact that the impugned depreciation, claim in ....
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.... it where the same is itself nil. Of course, this is subject to a prior adjustment (set off), against the following (current) year's profit, of the brought forward business loss of non-speculative (section 72) and speculative business (section 73), both of which do not obtain in the present case, so that it is a largely irrelevant consideration for the purpose of our discussion. Suffice to say that where prevalent, the distinction between the two (i.e., depreciation for the two consecutive years) would obtain till the final absorption of brought forward loss. However, once the merger takes place, the two comprise one single claim of depreciation qua the later of the two years. As such, it is not possible to say as to the year, other than the year immediately preceding the current year, to which any unabsorbed depreciation, or the claim in its respect, relates to. To explain, the unabsorbed depreciation for the year 1 (Y1) shall become part of depreciation for Y2, and the aggregate, if not absorbed in that year, would be carried forward to Y3. At this stage it is only the unabsorbed depreciation for Y2 alone, the immediately preceding year, irrespective of whether it contains the wh....
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....ferring to the earlier decisions in the matter in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. [1966] 59 ITR 555 (SC) and Raja Palayam Mills Ltd. v. CIT [1978] 115 ITR 777 (SC). The matter, or this position of law, apart from flowing from the unambiguous language of the provision, should be taken as well settled by theHon'ble Apex Court per its various decisions, which have the force of law of the land and are binding on all courts and Tribunals inIndia. 15.2 At this stage, it would be relevant to look at the provision of section 10B(6) of the Act, which, insofar as is relevant for our purpose, reads as : "10B(6) 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) Section 32, section 32A, section 33, section 35 and clause (ix) of sub section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years (ending b....
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....depreciation, first for assessment year 1996-97, and then for assessment year 1997-98, the first [of the seven years - the period of tax holiday having been extended from five (out of eight) to seven (out of ten)] year for which the deduction under section 10B stands claimed and allowed, or the first relevant assessment year in terms of Explanation 2 to section 10B. Consequently, the entire depreciation for assessment year 1997-98, which includes the unabsorbed depreciation for assessment years 1994-95 to 1996-97 (or more correctly, the entire unabsorbed depreciation for assessment year 1996-97 - that for the earlier years having already merged with it and become undistinguishable) shall, by virtue of the legal fiction of section 10B(6)(i), be deemed to have been allowed for that year itself and no part of it would be allowed to be carry forward; the provision of section 32(2) ceasing to have any effect for that year. At the same time, the deeming shall, by virtue of section 10B(iv), have no bearing or impact on the WDV of the assets or block of assets for that year (assessment year 1997-98). Put differently, the ceasure or the stalling the operation of, among others, section 32....
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....ir elucidation by the higher courts of law, and stands further fortified by the decision by the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As clarified therein, and which would obtain irrespective of whether the relief granted per section (10B) is considered as an exemption (as by the Hon'ble Court) or a deduction, no part of the allowances in respect of an eligible undertaking can be set off against the other income, as that would lead to the assessee securing, in effect, tax shelter against its other income, contrary to the legislative intent as gathered from the reading of the relevant provisions, as well as the scheme of the Act. The only qualification to the said statement of law, in view of the clear mandate of section 10B(6)(i) itself, as further clarified by the Tribunal's order in the assessee's case for assessment year 2005-06, is that the bar would operate for the tax holiday period only, i.e., the relevant assessment years as defined vide Explanation 2 to section 10B, and not extend indefinitely. The said order does not detract from the principle laid down in the case of Himatasingike Seide Ltd. (supra) and there is no inconsistency be....
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....bsorbed depreciation, its set off would be limited to the extent of income available post the said deduction, which would be nil as the deduction under section 10B is at 100 per cent of the profits (up to assessment year 2002-03). Continuing thus, the depreciation for assessment year 1997-98 would, firstly, be set off against the income, if any, that survives the deduction under section 10B (computed without setting off the same) for the subsequent years up to assessment year 2001-02. Next, to the extent not so set off, it would stand to merge with the depreciation for assessment year 2002-03 in view of the amendment to section 32(2) restoring it to its original form [refer: Virmani Industries (P.) Ltd. (supra)], even as the computation of deduction under section 10B for that year, in terms of the Tribunal's order in the assessee's case, would be made without giving effect thereto. However, as stated earlier, from this year onwards, the deduction under section 10B is set at 90 per cent of the income, so that some income would survive the said deduction, against which the brought forward depreciation would stand to be set off. And likewise for the remaining years. This is, of course....
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....hat unabsorbed depreciation of the assessee's eligible undertaking, shall have to be first given effect to, and the deduction under the section worked out thereon. This, it may be noted is also in agreement with the interpretation rendered by the Hon'ble High Court in the case of Himatasingike Seide Ltd. (supra) [also refer, Global Vantedge (P.) Ltd. v. Dy. CIT [2010] 37 SOT 1 (Delhi) and para # 6 of this order]. 15.6 The assessee before us, through the ld. AR, has argued of there being no dispute with regard to the fact that the unabsorbed depreciation pertains to earlier years, so that the limited issue before the Tribunal, notwithstanding the provision to section 32(2), is whether the same, to the extent not already absorbed, could be set off against the taxable income for the current year. The said argument is wholly inconsistent with the facts, on which we observe no dispute, and the law in the matter; the revenue's sole case for the current year being only with reference to section 32(2) read with section 10B(6)(i) of the Act, i.e., the two provisions that have bearing in the matter (also refer paras 18, 19 above), and which we have sought to explain hereinabove. The ident....
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.... or dilates on the said provision, and reference thereto is conspicuous by its absence. The Tribunal proceeded on the premise that the claim relates to the years stated, i.e., in which it first arose for consideration, and which it found to be not the relevant assessment years so as to be impacted by the non obstante clause of section 10B(6)(i). On the other hand, in the present case, we have only found it relevant and incumbent, for adjudicating the issue arising for our consideration, to see if the claim could indeed be said to relate to the stated years, given the provision of section 32(2), a substantive provision, on the mandatory nature of which there is no dispute. As such, the claim for depreciation for any year, irrespective of it being a relevant assessment year or not, to the extent effect thereto could not be given in that year, by virtue of the deeming fiction of section 32(2), is deemed to be depreciation for the year next following, and so on, so as to in effect 'transfer' the unabsorbed depreciation sequentially to the first of the relevant assessment years, being assessment year 1997-98 for Unit 'A' and assessment year 2000-01 for Unit 'B' (refer para 15.4). Sectio....
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....de the issue at hand in its proper perspective. Rather, as pointed out above, we have only applied the ratio as laid down in the said order. There is, as such, no difference of opinion between the views expressed in the said two orders and the dichotomy between the two is incidental. Toward this we draw support from the order by the Tribunal in the case of ITO v. Baker Technical Services (P.) Ltd. [2009] 126 TTJ (Mum.) 455(TM), wherein the principle of adoption of a different view, i.e., from that of the Coordinate Bench of the Tribunal, under certain circumstances, stands recognized. Further, this is only subject to our considered view of the present order being only supportive of the said order, and not in contradiction to what stands considered and laid out therein (refer paras 15.3 and 15.7 of this order). 16. The only consequence of the foregoing, including the decisions cited, would be that the entire depreciation being claimed would be in law the depreciation for or allowable for the first of the relevant assessment years, and being an assessment year(s) prior to assessment year 2001-02, proscribed for carry forward under the provisions of section 10B(6)(i). We decide acc....
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....ue has to be examined and that is, whether profits remaining after the deduction under section 10B should be treated as business profits? The answer to this question would depend upon whether the benefit given under section 10B is an exemption or a deduction. Section 10B though contained in Chapter III, it clearly employed the expression 'deduction'. (Lason India (P.) Ltd. v. ITO [2008] 301 ITR (AT) 306 (Chennai). 5. Firstly only 90 per cent of the profits are allowed as deduction which means the whole of the income is not exempt and therefore the same cannot be treated as exempt. Since the business profits have to be assessed as income from business whatever remains after allowing such 10 per cent deduction has to be treated only as business income. Once such balance income has been treated as business income, the provisions of section 72 etc., would apply accordingly. 6. The restrictions referred in section 10B(6) would apply to post tax holiday period and that restriction does not apply to previous years within the tax holiday period. (Enercon Wind Farms (Krishna) Ltd. v. Asstt. CIT [2008] 21 SOT 29 (Mum.). 7. One more approach also to be worth mentioning. Section 10B(8....
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.... in respect of the profits derived from the undertaking eligible under this section from the total income of the assessee. That means, the total income of the assessee would include the profits or losses derived from such unit and if there is any profit, then the eligible amount shall be deducted in computing the total income. Accordingly, that profits and gains of the business eligible under section 10B would form part of the total income. In other words, once when deduction under section 10B has to be allowed, the total income of the undertaking will enter the computation and then only deduction will be given to the assessee. Accordingly, the Assessing Officer has to consider the set off of unabsorbed business losses and depreciation after availing the deduction under section 10B. At the cost of repetition, section 10B(6) is applicable only for the last year of deduction and for the earlier years of deduction. In other words, section 10B(6) restriction would apply to post tax holiday period and that restrictions do not apply to previous years within the tax holiday period. Thus the entire scheme of section 10B(6) provides for a situation where the assessee is not allowed to postp....
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....s only those industrial undertakings which have a profit or gain which have to be considered for computing the deduction. 16.3 The loss making industrial undertaking would not come into the picture at all. The loss of one such industrial undertaking cannot be set off against the profit of another such industrial undertaking to arrive at a computation of the quantum of deduction that is to be allowed to the assessee under section 80-I(1). 16.4 In the case of Scientific Atlanta India Technology (P.) Ltd. (supra), the Chennai Special Bench held that section 10A deduction allowable without set off of losses of non-eligible units. It found further that section 80AB is confined to deductions granted under Chapter VI-A. As section 10A does not fall in Chapter VI-A, section 80AB has no application. The deduction as per section 10A or 10B cannot be equated with exemption under section 10A or 10B as was in earlier. Hence, the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra) is not applicable for the present deduction. The decision of the Special Bench of the Tribunal (Chennai) in the case of Scientific Atlanta India Technology (P.) Ltd. (supr....
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...., in view of section 10B(6) read with section 32(2) of the Act?" Third Member Order Per Dr. O.K. Narayanan, Vice-President (As a Third Member). - On account of difference of opinion between the ld. Members of Income-tax Appellate Tribunal, Cochin Bench, they have drawn separate questions and referred the matter to the Hon'ble President, Income-tax Appellate Tribunal, Mumbai. The Hon'ble President has nominated me as Third Member to hear these appeals and accordingly I have heard the parties on13-7-2010. 2. The question framed by the ld. Judicial Member is extracted below : "Whether, the ld. Commissioner of Income-tax is justified in exercising the revisional power under section 263 in respect of the issue regarding carry forward of depreciation and set off of unabsorbed depreciation?" 3. The questions framed by the ld. Accountant Member are as follows : "(i) Whether the assessee is eligible for hits claim of depreciation allowance qua its eligible undertaking, Unit A for assessment years 1994-95 to 1996-97, to the extent unabsorbed in the computation of income for those years, against its taxable income for the assessment years 2001-02, 2002-03 and 2004-05, ....
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....nd allowed the claim of the assessee made under section 10B. It was only in the case of assessment year 2006-07, the Assessing Officer has not followed the above pattern. The deduction for the assessment year 2006-07 has been allowed after setting off of unabsorbed depreciation of the earlier assessment years against the eligible profit. As a corollary to the above method of computation adopted by the assessee, it had claimed set off of unabsorbed depreciation against the income from other businesses than the business of the eligible units. This is the case with all the above assessment years. The deduction so claimed by way of set off was initially allowed in the proceedings concluded under section 143(1). But the assessments for the assessment years 2001-02, 2002-03 and 2004-05 were reopened under section 147 and reassessment concluded under section 143(3) read with section 147. The set off of unabsorbed depreciation against the taxable income other than the income pertaining to the income from the eligible units was disallowed in the said reassessment proceedings. At this stage also, the original deduction given under section 10B without set off of unabsorbed depreciation was no....
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.... with the order of the CIT passed under section 263. Accordingly, he dismissed the grounds in limine. It is against the above orders of the CIT (Appeals), the assessee have filed three appeals before the Tribunal for the assessment years 2001-02, 2002-03 and 2004-05, holding that in view of the merger of the income escaping assessment orders with the revision order passed by the Commissioner, the grounds raised by the assessee for set off of unabsorbed depreciation of earlier assessment years against the remainder business income could not be allowed. The appeal filed by the revenue for the assessment year 2006-07 is against the order of the CIT (Appeals) wherein he has held that such a set off is possible in view of the order of the Tribunal passed for the assessment year 2005-06. 12. On a perusal of the history of the cases, it is clear that the question whether such unabsorbed depreciation is to be set off against the profits of eligible units for the purpose of deduction under section 10B, is not raised in any of the four appeals filed before the Tribunal and now placed for my consideration. 13. There are three appeals filed by the assessee for the assessment years 2001-0....
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....ibunal passed in assessee's own case in ITA Nos. 582 to 585/Coch/2008, dated 24-07-2009 in which the order of the Commissioner passed under section 263 directing the Assessing Officer to compute deduction under section 10B after set off of unabsorbed depreciation of earlier assessment years was set aside. It is this order of the Tribunal is not pending before the Hon'ble High Court of Kerala. 17. The only question involved in the present appeals is whether the unabsorbed depreciation of earlier assessment years in which no deduction was claimed under section 10B is available for set off of against other taxable income of the subsequent assessment years. 18. This issue has been decided by the Cochin Bench of the Tribunal in assessee's favour, in assessee's own case for the assessment year 2005-06 in ITA No. 897/Coch/2008. It is useful to extract from para 17 - "17. Therefore, we find that the claim of the assessee to set off of unabsorbed depreciation relating to the assessment years 1994-95 to 1996-97, against the income of assessment year 2005-06 is perfectly justified in law. This is for the simple reason that the assessee has not claimed deduction under section 10B for ....