|CORAM:||R. K. Panda (AM), Sushma Chowla (JM)|
|CATCH WORDS:||deduction, exemption|
|COUNSEL:||F. V. Irani|
|DATE:||October 8, 2015 (Date of pronouncement)|
|DATE:||October 27, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 10A/ 10B: After AY 2001-02 when s. 10A/ 10B became “deduction” provisions instead of “exemption” provisions, the deduction has to be computed before adjusting brought forward unabsorbed losses /depreciation|
The assessee set off of brought forward losses of Rs.4,11,06,003/- against the income resulting into total taxable income of Nil, whereas the deduction under section 10B of the Act at Rs.7,68,41,580/- was claimed as against the income of EOU units of Rs.8,01,88,716/-. The Assessing Officer was of the view that the brought forward losses and unabsorbed depreciation were required to be set off against the total income of the assessee first and thereafter, deduction under section 10B of the Act should be allowed. Accordingly, the Assessing Officer re -computed the deduction under section 10B of the Act by granting the deduction after allowing set off of brought forward losses. The contention of the assessee before the CIT(A) was that the stage of granting of deduction under section 10B of the Act was before set off of brought forward unabsorbed losses or depreciation, in view of various decisions. The CIT(A) noted that the CBDT has issued Circular dated 16.07.2013 that the brought forward unabsorbed depreciation should be set off before granting deduction under section 10A or 10B of the Act. Further, the Hon’ble Supreme Court in Himasingka Seide Ltd. Vs. CIT, Civil Appeal No.1501 of 2008, dated 19.09.2013 had decided the issue in favour of the Department by dismissing the assessee’s appeal. Accordingly, he upheld the order of Assessing Officer in setting set off of brought forward unabsorbed depreciation before granting deduction under section 10B of the Act. On appeal by the assessee before the Tribunal HELD allowing the appeal:
(i) The issue arising is in relation to the computation of deduction under section 10B of the Act after the amendment to section w.e.f. 01.04.2001. The persons invoking the said provisions are entitled to a deduction under the Act, as compared to the pre-amended provisions of the section, under which the income comprising under the said section was exempt from the total income. The issue arising before us is whether while computing deduction under section 10B of the Act, in cases where the assessee has unabsorbed losses or depreciation, brought forward from earlier years, then whether the said unabsorbed business losses /depreciation are to be adjusted from the gross total income before allowing the deduction under section 10B of the Act or the said losses or the deduction under section 10B of the Act is to be allowed in the hands of the assessee without considering the brought forward unabsorbed losses / depreciation, which can be set off against the other income of assessee. Both the authorities below had denied the claim to the assessee, in view of the ratio laid down by the Hon’ble Supreme Court in Himasingka Seide Ltd. Vs. CIT (supra). The perusal of the judgment of Hon’ble Karnataka High Court in the said case reflects that the years under appeal related to assessment years 1988-89 to 1990-91 i.e. the years where the benefit under section 10B of the Act was for being exempt from total income. However, the year under appeal before us is assessment year 2005-06, wherein the said section has been amended and the deduction now is allowable to the assessee as against the said income being exempt in the earlier years.
(ii) The deduction under s. 10A has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of s.72 which deals with the carry forward and set off of business losses. A distinction has been made by the Legislature while incorporating the provisions of Chapter VIA Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss.80C to 80U. S.80B(5) defines for the purpose of Chapter VI-A “gross total income” to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the content of the deduction which is allowable under s.10A, which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. Thus ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction under s.10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s.10A of the IT Act.”
(CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012) 348 ITR 72 (Bom), CIT Vs. M/s. Ganesh Polychem Ltd. in Income Tax Appeal No. 2083 of 2012, order dated 25.02.2013 and in CIT Vs. Schmetz India Pvt. Ltd. (2012) 79 DTR (Bom) 356 and CIT Vs. Ace Software Exports Ltd. in Tax Appeal No.687 of 2012, order dated 18.02.2013 (Guj) followed). Synco Industries Ltd. Vs. AO, (2008) 299 ITR 444 (SC) distinguished).