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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This bunch of six appeals filed by the assessee are directed, against
separate, but identical orders of the Commissioner of Income Tax
(Appeals)-1, Madurai, even dated 04.02.2016 & 29.03.2016 and pertains
to assessment years 2003-04 to 2006-07 & 2007-08 to 2008-09
respectively. Since, facts are identical and issues are common, for the sake
of convenience, these appeals were heard together and are being disposed
off, by this consolidated order.
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 2 ::
The assessee has, more or less, raised common grounds of appeal
for all the assessment years. Therefore, for the sake of brevity, grounds
of appeal for the AY 2003-04, are re-produced as under:
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reopening is bad in law.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had fully and truly disclosed all material particulars
For that the Completion of the assessment for assessment year 2007-08 does not empower the Assessing Officer to reopen the assessment of the impugned year.
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the assessment can be reopened only if the income escaping assessment exceeds Rs.1 lakh
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reopening is not valid when the reasons recorded for reopening, which was requested, was not furnished to the assessee before completion of assessment.
For that the Commissioner of Income Tax (Appeals) erred in concluding that the appellant should request for reasons recorded for reopening only after filing the return of income in response to notice u/s.148
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reassessment was completed without issue of notice u/s.143(2)
For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is eligible to claim deduction u/s.10B on the profits before setting off of brought forward business loss and unabsorbed depreciation
For that the Commissioner of Income Tax (Appeals) erred in confirming the inadvertent claim of deduction u/s.10B at 90% of the profits as against the allowable claim of 100% of the profits
For that the Commissioner of Income Tax (Appeals) erred in concluding that the statute of law regarding the percentage of eligibility as at the beginning of the assessment year in which the deduction was claimed will govern the percentage of eligibility for all assessment years.
For that the Commissioner of Income Tax (Appeals) erred in concluding that no extra benefit can be claimed by the appellant in a reassessment.
PRAYER
For these grounds and such other grounds that may be urged before or during the hearing of the appeal it is most humbly prayed that the Hon'ble Tribunal may be pleased to
a) Quash the order of reassessment and / or
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 3 ::
b) Allow the claim of deduction u/s. 10B before setting off of brought forward business loss and unabsorbed depreciation and / or c) Allow the claim of deduction u/s. 10B at 100% and / or d) Pass such other orders as the Hon'ble Tribunal may deem fit.
The brief facts of the case are that the assessee is engaged in the
business of export of processed agricultural produce like gherkins, onions
and other vegetables. The assessee company is a 100% Export Oriented
Unit and has claimed deduction u/s.10B of the Act, from the AY 2000-01.
A survey u/s.133A of the Act, was conducted in the business premises of
the assessee on 17.11.2009. Consequent to the survey, the assessment
has been re-opened u/s.147 of the Act. The assessments have been
completed u/s.143(3) r.w.s.147 of the Act, and determined profits & gains
eligible for deduction u/s.10B of the Act, at Rs.Nil after setting off of brought
forward business loss and unabsorbed depreciation against profit derived
from eligible unit and denied deduction u/s.10B of the Act. The assessee
carried the matter in appeal before the Ld.CIT(A), but could not succeed.
The Ld.CIT(A) for the reasons stated in his appellate order dated
04.02.2016, rejected the arguments of the assessee and sustained the
additions made by the AO towards denial of deduction u/s.10B of the Act.
The first issue that came up for our consideration from Ground No.8
of the assessee’s appeals for all assessment years is deduction claimed
u/s.10B of the Act, before setting off of brought forward business loss and
unabsorbed depreciation. The assessee had claimed deduction u/s.10B of
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 4 ::
the Act, towards eligible profit from 100% Export Oriented Unit before
setting off of brought forward business loss and unabsorbed depreciation.
The AO has re-computed deduction u/s.10B of the Act, after setting off of
brought forward business loss and unabsorbed depreciation and wherever
‘Nil’ profit from the Export Oriented Unit, the AO had denied deduction
claimed u/s.10B of the Act.
4.1 The Ld.AR for the assessee submitted that this issue is squarely
covered in favour of the assessee by the decision of the Hon’ble Supreme
Court in the case of CIT & Anr. v. Yokogawa India Ltd., reported in [2017]
391 ITR 274 (SC), wherein, the Hon’ble Supreme Court had considered
very similar issue and held that the stage of deduction under Chapter-IV of
the Act, would be while computing gross total income of the eligible
undertaking and not at the stage of the computation of total income under
Chapter-VI of the Act. Therefore, he submitted that the assessee is entitled
to claim deduction u/s.10B of the Act, towards eligible profit before setting
off of brought forward business loss and unabsorbed depreciation.
4.2 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A),
submitted that the issue is now settled by the Hon’ble Supreme Court in
the case of CIT & Anr. v. Yokogawa India Ltd. (supra), wherein, it has been
held that the stage of deduction would be while computing gross total
income of the eligible undertaking, but not at the stage of computation of
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 5 ::
total income. Therefore, a suitable decision may be taken in light of
provisions of the Act, as well as the decision of the Hon’ble Supreme Court
in the case of CIT & Anr. v. Yokogawa India Ltd.
4.3 We have heard both the parties, perused the materials available on
record and gone through orders of the authorities below. The question that
needs to be answered in the given facts and circumstances of the present
case is whether brought forward business loss and unabsorbed depreciation
of eligible or non-eligible units can be set off against the profits eligible
units before claiming deduction u/s.10B of the Act. The issue is no longer
res integra. The Hon’ble Supreme Court in the case of CIT & Anr. v.
Yokogawa India Ltd., had considered very similar issue and in light of
provisions of Sec.10A & 10B of the Act, and after considering relevant facts
very categorically held that the stage of deduction would be while
computing gross total income of eligible undertaking under Chapter-IV of
the Act, and not at the stage of the computation of total income under
Chapter-VI of the Act. The Hon’ble Supreme Court while upholding the
decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v.
Yokogawa India Ltd. & Ors. reported in [2012] 341 ITR 385 (Karnataka),
had considered the observations of the Hon’ble Karnataka High Court,
wherein, it has been clearly held that the exemption u/s.10A of the Act, has
to be allowed without setting off of brought forward business loss and
unabsorbed depreciation from the earlier assessment years or current
assessment year either in the case of STP Units or in the case of very same
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 6 ::
undertaking. The relevant findings of the Hon’ble Karnataka High Court,
are as under:
A literal reading of the above provision requires deduction from the total income. There can be a deduction in computing the total income. However, there cannot be deduction from the total income which is the final result of the computation process. The language adopted in s. 10A is different from the one adopted in s. 80A. Sec. 10A provides for deduction from the total income. In the scheme of the Act, while various deductions are allowed in computing the total income, once the total income is computed no further adjustment to the total income is envisaged. The scheme of the Act provides for deduction in computing the total income but no mechanism for any deduction from the total income already computed is provided under the Act. Once the total income is computed, the next step is determination of tax by applying the applicable rates on the total income.
Sec. 2(45) defines "total income" to mean the total amount of income referred to in s. 5 and computed in the manner laid down in the IT Act. Sec. 5 defines the scope of total income and it is subject to the provisions of IT Act. Sec. 14 provides that "save as otherwise provided by the IT Act, all income shall for the purpose of charge of income-tax and the computation of total income, classified under the following heads of income". Therefore, the total income in its strict sense requires computation for the purpose of levy of tax. The computation of total income begins only with Chapter IV and as s. 10A is covered in Chapter III, the phrase "total income" used in s. 10A cannot be understood in the same sense as in s. 2(45).
The phrase "total income" has been used in the IT Act in several places with different connotations and shades. The phrase total income gsed in s. 10A is one such variant. The phrase need not necessarily mean the total income as computed in accordance with the provisions of the Act. The relief under this section is with reference to the STP undertakings and not to the assessee. In other words, the relief travels with the undertaking irrespective of who owns the same. The computation of relief as provided in s. 10A(4) is also with reference to the undertaking. A business might have several undertakings and s. 28 does not envisage computation of income of each such undertaking. In other words, the profits of the business of the undertaking cannot be computed in isolation. The profits are computed under the head "Profits and gains of business or profession", as under the above head, the income from business as a whole has to be computed. The phrase "total income" used in s. 10A(1) is, therefore, to be understood as the total income of the STP unit. This is clear from the first proviso to s. 10A(1) which makes a reference to the total income of the undertaking and not to the total income of the assessee. The definition of any term given in s. 2 will apply only when the context does not otherwise require. The placement, language and setting of s. 10A cannot mean the total income computed in accordance with the provisions of the Act. Instead, such a phrase, in the context of s. 10A, means profits and gains of the STP undertaking as understood in its commercial sense.
Chapter IV deals with the computation of total income under various heads of income. Sec. 14 provides for classification of income under various heads of income for the purposes of charge of income-tax and computation of total income. The purpose of classification of any income under any head of income is to compute the same. The twin conditions of s. 14 are that income is subject to charge of income- tax and is includible in the total income. As the relief under s. 10A is in the nature of exemption although termed as deduction and the said relief is in respect of
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 7 ::
commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore, the twin provisions of-s. 14 are not existing in the case of income of STP undertaking and accordingly such income is not liable to be computed under Chapter IV. Therefore, the correct view would be that the relief under s. 10A will have to be given before Chapter IV. The deduction shall be given first and process of computation of "profits and gains of business or profession" begins thereafter. This proposition is in line with the form of return. Allowing deduction at the earliest stage of business income computation almost blurs the difference between the commercial profits and tax profits.
The substituted s. 10A continues to remain in Chapter III. It is titled as "Incomes which do not form part of the total income". It may be noted that when s. IDA was recast by the Finance Act, 2001 (sic-2000), the Parliament was aware of the character of relief given in Chapter III. Chapter III deals with incomes which do not form part of total income. If the Parliament intended that the relief under s. 10A should be by way of deduction in the normal course of computation of total income, it could have placed the same in Chapter VI-A which houses the sections like 80HHC, 80-IA, etc. The Parliament was aware of the various restricting and limiting provisions like s. 80A and s. 80AB which were in Chapter VI-A which do not appear in Chapter III. The fact that even after its recast, the relief has been retained in Chapter III indicates the intention of Parliament that it is to be regarded as an exemption and not a deduction. The Act of the Parliament in consciously retaining this section in Chapter III indicates its intention that the nature of relief continues to be an exemption. Chapter VII deals with the incomes forming part of the total income on which no income-tax is payable. These are the incomes which are exempted from charge, but are included in the total income of the assessee. The Parliament despite being conversant with the implications of this chapter, has consciously chosen to retain s. 10A in Chapter III.
If s. 10A is to be given effect to as a deduction from the total income as defined in s. 2 (45), it would mean that s. IDA is to be considered after Chapter VI-A deductions have been exhausted. The deductions under Chapter VI-A are to be given from out of the gross total income. The term "gross total income" is defined in s. 80B(5) to mean the total income computed in accordance with the provisions of this Act, before making any deduction under this chapter. As per the definition of gross total income, the other provisions of the Act will have to be first given effect to. There is no reason why reference to the provisions of the Act should not include s. IDA. In other words, the gross total income would be arrived at after considering s. 10A deduction also. Therefore, it would be inappropriate to conclude that s. IDA deduction is to be given effect to after Chapter VI-A deductions are exhausted.
It is after the deduction under Chapter VI-A that the total income of an assessee is arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions.
4.4 In this view of the matter and by respectfully following the decision
of the Hon’ble Supreme Court in the case of CIT & Anr. v. Yokogawa India
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 8 ::
Ltd., we are of the considered view that deduction u/s.10B of the Act,
should be allowed before setting off of brought forward business loss and
unabsorbed depreciation against profits from the eligible unit. Hence, we
direct the AO to allow deduction u/s.10B of the Act, as claimed by the
assessee.
The next issue that came up for our consideration from AYs 2004-05
to 2007-08 of the assessee’s appeals is deduction u/s.10B of the Act
@100% as against 90% claimed by the assessee in the return of income
filed for the relevant AYs. The assessee had claimed 90% deduction
towards eligible profits u/s.10B of the Act, as per the amended provisions.
However, in the re-assessment proceedings, the assessee had made a fresh
claim u/s.10B of the Act, and claimed deduction towards 100% of profits
derived from eligible units on the basis of pre-amended provisions u/s.10B
of the Act, by arguing that when the assessee had claimed deduction for
the first time in the year 2000-01, the law was very clear in as much as the
assessee is entitled for 100% deduction u/s.10B of the Act, for eligible
profits and thus, even if law is amended in subsequent years, restricting
deduction to 90% of the profits, but the assessee is entitled for 100%
deduction towards eligible profits.
5.1 The Ld.AR for the assessee submitted that there is no restriction
under the Act, to claim fresh deduction, in case, the assessee satisfies all
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 9 ::
other conditions prescribed under the Act. He further submitted that the
assessee is entitled for 100% deduction towards profits derived from
eligible units and such claim has been allowed by the Department in the
year of claim and thus, even if the Law is amended in subsequent years,
the assessee is entitled for 100% deduction towards profits derived from
eligible units. He further referring to the decision of the Hon’ble Karnataka
High Court in the case of Karnataka State Co-operative Apex Bank Ltd. v.
DCIT reported in [2021] 130 taxmann.com 114 (Karnataka) submitted that
the Hon’ble Karnataka High Court after considering the decision of the
Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P)
Ltd., reported in [1992] 198 ITR 297 (SC), held that the assessee can make
a fresh claim in the re-assessment proceedings, in case, the original
assessment was made u/s.143(1) of the Act. Since, the assessee is entitled
for 100% deduction towards profits, it has rightly made a fresh claim.
However, the AO as well as the Ld.CIT(A) rejected the claim of the assessee
without assigning proper reasons.
5.2 The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A),
submitted that law is amended by the Finance Act 2002 w.e.f. 01.04.2003,
as per which, for the AY beginning on the first day of April, 2003, deduction
u/s.10B of the Act, shall be 90% of the profits & gains derived by an
undertaking from the export of such articles or things or computer
software. The assessee after considering the amended provisions, itself
restricted the claim of deduction to 90% and thus, there is no merit in fresh
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 10 ::
claim made by the assessee and thus, the AO as well as the Ld.CIT(A) have
rightly rejected the claim of the assessee and their orders should be upheld.
5.3 We have heard both the parties, perused the materials available on
record and gone through orders of the authorities below. In so far as legal
principle is concerned, the Hon’ble Supreme Court in the case of CIT v. Sun
Engineering Works (P) Ltd. (supra) has laid down very clear ratio, as per
which, the issues which are concluded in the original assessment
proceedings, cannot be re-considered in re-assessment proceedings. In
other words, re-opening of assessment u/s.147 of the Act, is for the benefit
of the Department and hence, the assessee cannot make any fresh claim
of deduction/exemption in the re-assessment proceedings. Therefore, to
this extent, we are in agreement with the conclusions drawn by the AO and
the Ld.CIT(A) and thus, the arguments of the assessee has been rejected.
5.4 As regards the entitlement of the assessee towards deduction
u/s.10B of the Act, is concerned, when the assessee claimed deduction first
time in the year 2000-01, it was eligible to claim 100% deduction towards
profits of eligible units. However, the law has been amended by the Finance
Act, 2002 w.e.f. 01.04.2003, as per which, for the AY beginning on the first
day of April, 2003, the deduction under this sub-section shall be 90% of
the profits & gains derived by an undertaking. From the above, it is very
clear that from AY 2003-04 onwards, the assessee can claim deduction
u/s.10B of the Act, up to 90% of the profits & gains derived by an
undertaking. In fact, the assessee itself had restricted the claim of
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 11 ::
deduction to 90% of the profits derived, as per amendment provisions
applicable to the AY 2003.04. Therefore, we are of the considered view
that there is no merit in the grounds as well as the additional grounds taken
for some years in respect of 100% deduction towards profits derived from
an eligible unit and thus, we are inclined to uphold the findings of the
Ld.CIT(A) and reject the ground taken by the assessee for all assessment
years.
The next issue that came up for our consideration from AY 2004-05
of the assessee’s appeal is set off of brought forward unabsorbed
depreciation or business loss against income from other sources. The
assessee had taken an additional grounds and challenged the action of the
AO in not allowing brought forward unabsorbed depreciation or business
loss against income from other sources. The AO had denied set off of
brought forward unabsorbed depreciation or business loss against income
from other sources on the ground that the assessee does not have brought
forward unabsorbed depreciation or business loss after setting off of said
loss against profits derived from eligible unit. The Ld.AR for the assessee
submitted that the AO had denied set off of brought forward unabsorbed
depreciation or business loss mainly for the reason that after setting off of
business loss against profits & gains of eligible units, nothing left over to
set off of business loss or depreciation against income from other sources.
However, as per the decision of the Hon’ble Supreme Court in the case of
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 12 ::
CIT & Anr. v. Yokogawa India Ltd., the assessee is entitled for deduction
without set off of brought forward loss and thus, a direction may be given
to the AO to re-examine the claim of the assessee and pass appropriate
orders.
6.1 The Ld.DR, on the other hand, fairly agreed that a direction may be
given to the AO to verify the claim of the assessee.
6.2 Having heard both the sides, we find that the AO had not been
considered the plea of the assessee mainly on the ground that the assessee
had left with no brought forward unabsorbed depreciation or business loss
after setting off of business loss against profits & gains of eligible units.
But, fact remains that we have already held in previous paragraphs in light
of decision of the Hon’ble Supreme Court in the case of CIT & Anr. v.
Yokogawa India Ltd. & Ors. (supra) that the stage of computation of
deduction u/s.10B of the Act, is while computing the gross total income of
the eligible undertaking and Chapter-IV and not at the stage of computation
of the total income under Chapter-VI. That means, the assessee can claim
deduction towards profits of eligible units without setting off of brought
forward unabsorbed depreciation or business loss. The claim of the
assessee is that if the AO allows deduction u/s.10B of the Act, without set
off of brought forward unabsorbed depreciation or business loss, then, the
assessee is having sufficient amount of brought forward unabsorbed
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 13 ::
depreciation or business loss, which can be set off against income from
other sources. The matter needs to be re-examined by the AO. Therefore,
we set aside the issue to the file of the AO and direct the AO to re-compute
the income of the assessee in light of our discussion given hereinabove on
the basis of the Hon’ble Supreme Court in the case of CIT & Anr. v.
Yokogawa India Ltd. & Ors. (supra) and further, consider the claim of the
assessee towards set off of brought forward unabsorbed depreciation or
business loss against income from other sources in accordance with
provisions of Sec.72 of the Act.
The assessee has raised various grounds challenging re-opening of
assessment u/s.147 of the Act, for the AYs 2003-04 to 2008-09 and argued
that re-opening of assessment is bad in law and liable to quashed. At the
time of hearing, the Ld.AR for the assessee made a statement at bar that
in case, he succeeds on other grounds challenging the issues involved on
merits in respect of deduction u/s.10B of the Act, and set off of brought
forward unabsorbed depreciation or business loss, then, he would not argue
other grounds taken to challenge the re-opening of assessment for all
assessment years. Therefore, considering the facts and circumstances and
also the statement of the Counsel for the assessee, we are of the considered
view that since, the assessee had succeeded on the issue of deduction
u/s.10B of the Act, and set off of brought forward unabsorbed depreciation
or business loss, the other grounds taken by the assessee challenging re-
ITA Nos.1251-1254, 1407 & 1408/Chny/2016 :: 14 ::
opening of assessment becomes academic in nature and thus, we are of
the considered view that other grounds taken by the assessee challenging
re-opening of assessment, does not require specific adjudication at this
stage and hence, all other grounds taken by the assessee, including the
grounds taken to challenge the re-opening of assessment are dismissed as
infructuous.
In the result, the appeals filed by the assessee for the AYs 2003-04
to 2008-09 are treated as partly allowed for statistical purposes.
Order pronounced on the 25th day of May, 2022, in Chennai.
Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 25th May, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF