TaxTMI 
TaxTMI 
2004 (3) TMI 318
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....business interest so as to meet the customers etc. In this respect, reliance was placed on the decision of the ITAT, Bombay Bench in 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....
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.... no further relief can be given. 12. We have considered the rival submissions and perused 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,....
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....inst the income of the other Units while working out the total income. The Assessing Officer rejected this claim 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 t....
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....of the I.T. Act and also the decisions relied upon by the learned CIT(Appeals). The special scheme of taxation formulated by 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. ....
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....efore, if the Assessing Officer cannot do a particular action like reopening 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. 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 ....
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....ncome from other sources instead of as business income and not considering the same for calculation of deduction under section 80HHC and section 32AB etc., without considering the fact that 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 men....
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....he book profit is worked out as per the said provisions of the Companies Act, the Assessing Officer has no power to make variation or exclude certain income from such book profit. Our attention was drawn to several decisions of the 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 un....
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.... of Rs. 1,47,649. The Assessing Officer is, therefore, directed to rework the deduction under section 32AB, taking into account the interest of Rs. 1,47,649 as part of the book profit. 40. As regards considering the said interest income as part of the profits derived from 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 ta....
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....t. 46. Ground No. 10 is general in nature and calls for no comments. 47. In the result, appeal filed by the assessee is allowed in part. Per I.P. Bansal, J.M. 1. I have carefully gone through the order passed by learned Accountant Member. I agree with the decision in respect of ground Nos. 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 r....
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....red by the SEEPZ Unit entitled for deduction under section 10(A) against other business income of the assessee." THIRD MEMBER ORDER M.K. Chaturvedi, VP. 1. This appeal came before me as a Third Member to express my opinion on the following question :- "Whether on the facts and in the circumstances of the case, the 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....
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....y would be income from other sources and hence the losses may be set off against the income arising from other sources in each of the years. On a reference, the Hon'ble High Court held that though the receipts arising from betting and racing would be income falling under the head "Other sources", they would be of a casual and non-recurring nature exempt from 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 - ....
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....e intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting a purposive approach. The contextual meaning has to be ascertained and given effect to. 10. The learned counsel for the assessee further stated that the decisions relied on by the CIT(A) are not applicable to the facts of the present case, as they were rendered on a different set of situation. It was contended that the income of the units in the export processing zone are assessable as per section 10A of the Act, which is a code 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 spe....
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....the expenditure to earn the exempt income by applying the provisions of newly inserted section 14A of the Act. (vi) Further, in order to avoid the controversy as to whether the Circular would be binding or not; the Finance Act, 2002, amended the provision with retrospective effect from 11-5-2001, by the insertion of the following proviso:- " 14A. For the purposes of .... 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 refund already made or otherwise increasing 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 som....
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....o? whether loss could be construed to be expenditure? are some of the questions, which need to be examined. 18. "Spending" in the sense of 'paying out or away' of money is the primary meaning of 'expenditure'. 'Expenditure' is what is paid out or away and is something which is gone irretrievably. Expenditure relates to disbursements; that means something that a trader paid out indicating a sort of volition on his part. He chooses to pay out some disbursement; it is an expense; it is something which comes out of his pocket. A 'loss' is something different. That is not a thing, which he expends or disburses. That is a thing, which comes upon him ab extra. Business expenditure is allowable if it is laid out or expended wholly 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 ....