TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 814
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....e of Rs.Nil after claiming deduction of Rs. 29,26,65,024/- under Section 10B of the Act. Profit of Rs. 1,55,62,609/- was set off against the brought forward unabsorbed depreciation loss of Assessment Year 2001-02. (ii) The said Return of the Assessee was processed by the Revenue under Section 143(1) of the Act and was selected as a case for scrutiny by issuance of Notice under Section 143(2). A Notice under Section 142(1) with questionnaire was issued by the Assessing Officer. In response to the same, the Assessee produced all the details. (iii) After consideration, the Assessment was completed and order was issued under Section 143(3) of the Act on 21.12.2006. In the said Assessment Order, the Assessing Officer had adjusted the brought forward unabsorbed depreciation loss relating to the Assessment Year 2001-02 to the extent of Rs. 22,06,10,631/- and to the Assessment Year 2002-03, amounting Rs. 8,76,17,002/- against the business profits before allowing the deduction claimed by the Assessee under Section 10B of the Act. (iv) The said issue along with yet another issue was taken up on Appeal by the Assessee before the Commissioner (Appeals), before whom, the case of the Asses....
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....e Hon'ble Apex Court, it has been categorically held that, these kind of deductions as contemplated under Section 10A or 10B has to be given prior to the set off of brought forward unabsorbed depreciation loss of the earlier years. Therefore the learned counsel would contend that, the issue is squarely covered by the said decision of the Hon'ble Apex Court, accordingly the impugned order is liable to be interfered with and to be set aside. 6. The learned counsel for the Assessee would also submit that, following the dictum of the Hon'ble Apex Court in Commissioner of Income-tax v. Yokogawa India Ltd., (cited supra), a number of decisions have been made by the Hon'ble Apex Court as well as various other High Courts. To be listed some of them, the learned counsel relied upon the following decisions : 1. Principal Commissioner of Income Tax v. Infosys BPO Ltd., (2019) 107 taxmann.com 57 (SC) 2. Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., (2017) 393 ITR 24 (SC) 3. The Commissioner of Income Tax v. J.P.Morgan Services India Pvt., Ltd., MANU/MH/3184/2016 4. The Principal Commissioner of Income Tax v. Rangsons Electronics Pvt., Ltd., (2017)....
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....he parties and also have perused the materials placed before this Court. 11. This Appeal, in fact was admitted by a Co-ordinate Bench of this Court, on the following Substantial Question of Law : "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that relief under Section 10B ought to be granted only after the set off of brought forward loss and unabsorbed depreciation of the earlier years ?" 12. Since this is the only issue, on which the Appeal was admitted and the arguments were advanced only on the same and both sides produced the Judgment of the Hon'ble Apex Court, we take the said issue in the given facts and circumstances of the present case. 13. Before we delve into the said issue, for the easy understanding, the relevant provision namely Section 10B of the Act is extracted hereunder: "Special provisions in respect of newly established hundred per cent export-oriented undertakings. 10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software fo....
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....iness 30,82,27,633 LESS : 1. Carry forward depreciation allowance of assessment year 2001-02 22,06,10,631 2. Carry forward depreciation allowance of assessment year 2002-03 8,76,17,002 BUSINESS INCOME NIL Income from other Sources : Interest Income 4,63,745 Taxable Income 4,63,745 LESS : Set off unabsorbed depreciation from assessment year 2002-03 4,63,745 TOTAL INCOME NIL 18. By thus, the Assessing Officer not allowed the deduction to be made under Section 10B of the Act before the setting off of the brought forward unabsorbed depreciation loss of the earlier years. Therefore the issue is in very narrow point, as to whether the deduction or exemption claimed by the Assessee under Section 10B to the extent of Rs. 29,26,65,024/- has to be given prior to the carry forward depreciation allowance of the previous years or not. 19. In this context, the learned counsel for the Revenue has heavily relied upon a decision of the Karnataka High Court in the case of Commissioner of Income Tax v. Himatasingike Seide Ltd., (cited supra) 20. In order to appreciate the said contention and for a ready reference, the relevant paras of the said decision of the Karna....
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....nd gains exigible to the deduction of 8 per cent were profits and gains computed in accordance with the provisions of the Act and forming part of the total income and hence unabsorbed depreciation and unabsorbed development rebate were liable to be excluded from the profits and gains attributable to the specified business in arriving at the figure exigible to 8 per cent deduction." 11. In the case of CIT v. Virmani Industries (P) Ltd., and Ors. (1995) 129 (CTR (SC) 189 " (1995) 216 ITR 607 (SC), the Court considered the issue of unabsorbed depreciation in terms of s. 32(2) of the IT Act. 12. The Rajasthan High Court in the case of CIT vs. Sun Stone Engineering Industries (P) Ltd., (1996) 132 CTR (Raj) 2003 : (1996) 220 ITR 182 (Raj), has ruled that : "for the purpose of determination of the relief under s.80HH of the Act, the gross total income of the assessee has to be worked out after deducting unabsorbed losses and unabsorbed depreciation and the income eligible for deduction under s.80HH will be the net income as computed in terms of the provisions of the Act. The Rajasthan High Court again in the case of CIT vs. Surendra Textiles (2002) 172 CTR (Raj) 555 : (2002) 258 I....
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....me from which one must deduct a percentage of incomes contemplated by Chapter VI-A. That such special incomes were required to be computed as per the provisions of the Act, viz., s.29 to s.43A, which included s.32(2). Therefore, one cannot exclude depreciation allowance while computing profits derived from a newly established undertaking for computing deductions under Chapter VI-A. Therefore, the appellant's claim for allowance of deduction under s.80HH, without taking into consideration the current depreciation will have to be rejected." 14. All these Judgments would support the argument that calculation cannot be at the whims and fancies of an assessee for exemption of tax. It has to be in accordance with the provisions of the Act. 15. CIT vs. H.M.T. Ltd. (1992) 108 CTR (Kar) 215 : (1993) 199 ITR 235 (Kar) is pressed into service by Sri. Parthasarathi, learned Counsel. We have carefully gone through the said Judgment. In the said Judgment, the Division Bench of the High Court has no doubt ruled that computation of profits and gains of new unit may be made without deducting depreciation and investment allowance. But the facts of the present case stands on a different foo....
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....urt has been framed as follows at para 3 of the Judgment : "3. The broad question indicated above may be conveniently dissected into the following specific questions arising in the cases under consideration. (i) Whether Section 10A of the Act is beyond the purview of the computation mechanism of total income as defined under the Act. Consequently, is the income of a Section 10A unit required to be excluded before arriving at the gross total income of the assessee ? (ii) Whether the phrase "total income" in Section 10A of the Act is akin and pari materia with the said expression as appearing in Section 2(45) of the Act? (iii) Whether even after the amendment made with effect from 1.04.2001, Section 10A of the Act continues to remain an exemption section and not a deduction section? (iv) Whether losses of other 10A Units or non 10A Units can be set off against the profits of 10A Units before deductions under Section 10A are effected ? (v) Whether brought forward business losses and http://www.judis.nic.in unabsorbed depreciation of 10A Units or non 10A Units can be set off against the profits of another 10A Units of the assessee. 25. Having considered the said questions,....
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.... "profits and gains from business" in Chapter IV and denied the benefit of deduction. The provisions of sub-section (6) of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation, etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understood by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Sections 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intende....
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....rstanding the expression "total income of the assessee" in Section 10A as "total income of the undertaking". 18. For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly." 26. In the aforesaid Judgment, the reason for such conclusion arrived at by the Hon'ble Apex Court has been explained at para 17 in unequivocal terms. The Apex Court has specifically held that, at the stage of the aggregate of the incomes under other heads, the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be a premature for application. The deduction under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the Assessee from the gross total income. Ultimately, the i....