ACIT, CHENNAI vs. M/S. TVS MOTOR COMPANY LIMITED, CHENNAI

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, ‘ D ‘ CHENNAI BENCH, CHENNAI BEFORE S/SHRI SHRI CHANDRA MOHAN GARG, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.1782/Chny/2012 Assessment Year : 2008-09 The The Asst. Asst. Commissioner Commissioner of of Vs. M/s. TVS Motor Company Ltd., M/s. TVS Motor Company Ltd., Income Tax, Company Circle Income Tax, Company Circle- Jayalakshmi Estates, 29 (old Jayalakshmi Estates, 29 (old III(2), New Block, 4th floor, 121, III(2), New Block, 4 No.8), Haddows Road, Chennai No.8), Haddows Road, Chennai Mahatma Mahatma Gandhi Gandhi Road, Road, Nungambakkam, Chennai Nungambakkam, Chennai PAN/GIR No.AAACS 7032 B AAACS 7032 B (Appellant) (Appellant .. ( Respondent Respondent) Assessee by : Shri Vikram Vijayaraghavan, Vikram Vijayaraghavan, AR Revenue by : Dr. S.Palanikumar, CIT ( CIT (DR) Date of Hearing : 24 /2/ 2022 2 Date of Pronouncement : 13/4/20 /2022 O R D E R Per C.M.Garg, JM , JM

This is an appeal filed by the revenue an appeal filed by the revenue against the or against the order of the CIT(A)-III, Chennai dated 29.6.2012 III, Chennai dated 29.6.2012 for the assessment year for the assessment year2008-09 .

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Hon’ble Madras High Court in Tax Appeal No.448 of 2019, which was decided by judgment dated 29.9.2020 and the order passed by the Tribunal dated 27.4.2016 was set aside on the only issue of set off of loss of 80IC entitlement units against the income of other units, which was not entitled for deduction u/s. 80IC of the Act. Thus, as per the order of Hon’ble High Court dated 29.9.2020 (supra), Ground No.6 to 6.4 of Revenue in ITA No.1782/Mds/2012 for A.Y. 2008-09 was restored to the file of the Tribunal for re-adjudication. For the sake of completeness Ground No.6 to 6.4 of revenue are being reproduced below:

“6. The CIT(A) erred in holding that loss of 80IC unit could be set off against the income of other units. 6.1 The CIT(A) ought to have appreciated that the decisions relied upon by him are distinguishable from the facts of the case. 6.2 The CIT(A) failed to appreciate that In the case of Shrike Construction, the Supreme Court dealt with set off of unabsorbed business losses of the earlier year against profits from exports and hence not applicable to the facts of the case. 6.3 The CIT(A) ought to have appreciated that In the case of Synco Industries Ltd.,it is held that Gross Total income is required to be computed in manner provided under the Act, which presupposes that Gross Total Income shall be arrived at after adjusting losses of other division against profits derived from an individual undertaking eligible for deduction u/s 80HHC and 80IC. In the instant case, the assessee had incurred losses in the units entitled for deduction u/s 80IC and hence the above decision is not applicable. 6.4. The CIT(A) erred in relying on the Supreme Court's decision in the case of A.M.Moosa, wherein it was held that dedn. u/s 80HHC can be permitted only if there is a positive

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profit in the export of both self-manufactured goods as well as trading goods. If there is a loss in either of the two, then the loss has to be taken into a/c for the purpose of computing the profits. It is submitted that the above decision is rendered in the context of deduction u/s 80HHC and does not apply to the facts of the case.”

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allowable as per Section 70(1) of the Act and hence, the loss of the Himachal Pradesh Unit is carried forward and be allowed to set off against the income of the said unit in the subsequent years. 4. The assessee preferred appeal before the Commissioner of Income Tax (Appeals)-III, Chennai (for brevity "the CIT(A)"). The assessee contended that the income of the Himachal Pradesh Unit is an exempt unit, it is only entitled for deduction under Section 80-IC of the Act subject to the conditions contained in the respective Sections under Chapter VI-A. The assessee further contended that the same is includible in the totall income and they are subject to the provisions of the Act for considering all incomes under different heads and different sources for aggregation including whenever necessary to adjust losses under different sources and under different heads as laid down in Sections 70 to 80 of the Act. Therefore, the assessee contended that from the gross total income thus arrived, deduction under Chapter VI-A is to be allowed. Reliance was placed on the decision in the case of CIT vs. Patiala Flour Mills Co. P. Ltd. [(1978) 115 ITR 640 (SC)]. Reliance was also placed on the note on clauses of Finance Act (No.2), 1980. The CIT(A) by order dated 29.06.2012, allowed the appeal in respect of the said issue. The finding rendered by the CIT(A) in paragraphs 10.2 and 10.2.1 is as follows:- "10.2. I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the decisions and Circular relied on by the AO and Id. AR. The appellant has set off the loss of its 80-IC unit located at Himachal Pradesh against the profits

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of taxable units at Mysore and Hosur. The AO has referred to-Section 80-IC(7) read with Section 80-IA(5) and has stated that the eligible income or loss of the Himachal unit cannot be set off against the profit of any other unit u/s 70(1) of the Act. He stated that the loss of the unit ought to be carried forward for set off against future income of the same unit. The Id. AR, on the other hand, argued that both income or loss of the eligible business as are includible in the gross total income from which deduction under Chapter VI-A are to be allowed. It is incumbent to include the loss of the eligible business with the income of other sources and other heads of income. I have considered the rival contentions. Benefit of deduction under Chapter VI-A can be given to the assessee if the claim is in accordance with law and not otherwise. The decisions of Hon'ble Supreme Court in Synco Industries Ltd. vs. AO & Another (299 ITR 444), A.MMoosa vs. CIT (294 ITR I) and CIT Vs. Shirke Construction Equipment Ltd. (291 ITR) are directly on the subject issue. The Hon'ble Supreme Court in the case of Synco Industries Ltd (supra) has clearly held that gross total income should include both profit and loss of different units and if the result is nil, assessee is not entitled to special deduction. It held that eligibility for relief under Chapter VI-A can be considered only if the assessee has positive gross total income. Where the relief exceeds the gross total income, which is computed after set ff of pass losses and unabsorbed depreciation, it will be limited to an available gross total income. This is the law which is accepted in a number of cases, because of the requirements made clear under Sections 80A, 80AB and 80B(5). The Ho'ble Supreme Court found that the law as pronounced by the various High Courts had taken the view that incentive profits have to be reckoned only from the gross total income and that no deduction is possible under Chapter VI-A if the gross total income is nil or negative. The Hon'ble Supreme Court in the case of Shrike Construction Equipment Ltd (supra) has also taken a similar view and held that in determining business profit for deduction u/s 80-HHC, the unabsorhed business loss of earlier years u/s 72 should be set off The Hon'ble Supreme Court in A.M.Moosa (supra) has held that profit in sec 80-HHC(l) and (3) of the Act means positive profit and 'profit from such exports' has to be profits from export of self manufactures goods plus profits from export of trading goods. Deduction can be permitted only if there' is positive profit in export of both self manufactured goods as well as trading goods. If there is loss in either of the two then that loss has to be taken into account for the purpose of computing the profits. Section 80-AB has been given an overriding effect over ail other Sections in Chapter VI-4 and sec 80-HHC would be governed by sec 80-AB. The ratio is fully applicable to cases covered under various sections in

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Chapter VI-A under the heading "C — deductions in respect of certain incomes". The income of various sources under the same head as well as under other heads are to be aggregated and the clubbing provisions contained in sections 60 to 64 and provisions for set off and carry forward of losses contained in sections 70 to 80 are to be applied to determine the gross total income. Deduction under Chapter VI-A can be allowed only from such gross toted income. According to the AO, the loss has to be deferred to the subsequent year though there is income for set off in the current year. Such a view is not in accordance with the provisions of Chapter VI-A which is clear from the decisions referred above. The assessee is required to set off the loss against the income available in view of the provisions of sec. 70 of the Act. Losses in respect of any source of income under any head of income, other than under the head capital gains, would be entitled to be set off against income from any other sources under the same head. The claim to set off the loss cannot be deferred to subsequent years as held by the Hon'ble Gujarat High Court in the case of CIT v. Milling Trading Co. P. Ltd., 211ITR 690 (Gut.). Hence, the appellant has rightly set off the loss of the 80-IC unit against the income of other units. No deduction u/s. 80-IC was also claimed as the "gross total income " was negative. 10.2.1. The issue can be viewed from another angle. The provisions of Section 80-IC provide for deduction in respect of certain undertakings or enterprises in certain special category states such as Himachal Pradesh, Uttaranchal, Sikkim and North Eastern states. The benefit available under the section is not in the nature of any exemption. In the instant case, the profits and gains derived by the Himachal unit is not exempt under Chapter III but are eligible for deduction under Chapter VI-A. Therefore, the profit or loss of the above undertaking, as the case may be, is to be taken into account for the purpose of computing gross total income of the assessee ifi view of sub-Section (I) of sec. 80-IC The appellant is eligible for set off of loss of the Himachal unit against profits of other units as per sec 70(1) of the Act. Otherwise, the gross total income of the appellant cannot be computed. However, the appellant was not eligible for any deduction because there was loss in the Himachal unit. The appellant has also not claimed any such deduction. The above fact, however, does not postulate that the loss of Himachal unit cannot be taken into u/s 80-IC in the subsequent years is to be computed after adjusting the losses of this unit as envisaged in sec. 80-IC(7) read with sec.80-IA (5) of the Act, which treats the eligible business as the only-source of the assessee. Reference may be made to the Circular No.281, dated 22.09.1980 (131 ITR St 23) which

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explained the object of introduction of section 80-1 by the Finance (No. 2) Act, 1980 where similar provisions are enshrined. The relevant part is reproduced for ready reference and clarity: "Deduction in respect of profits and gains from industrial undertakings, etc., established after a certain date - New Section 80- 1......... 9.4........... (3) In computing the quantum of "tax holiday;^ profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such unit were an independent unit owned by an assessee who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approval hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-1 even though they may actually have been set off against the profits of the assessee from other sources....." In view of the above factual and legal positions, I am of the considered opinion that the claim of the appellant for set off of the loss of Himachal Unit against the profit of other units is in accordance with law and hence the ground is allowed. However, the AO is directed to carry forward and set off the losses of the unit from the profit of the unit in subsequent year(s).” 5. The department filed appeal before the Tribunal in ITA No.1782/Mds/2012 raising Ground No.6 to 6.4(supra) and the Tribunal by order dated 27.4.2016 in paras 29 to 34 allowed the Ground of the revenue with the following observations and findings: “29. The next issue raised in the appeal of the Revenue pertains to set off of the loss of 80IC units against the income of other units. The Assessing Officer has observed that the assessee has arrived at a loss of Rs..32,78,84,171/- from Himachal unit which was set off against the income of other non 80-IC units located at Mysore and Hosur. Profits of Mysore and Hosur units are taxable, whereas, profit of HP. unit is not taxable. He stated that provisions of section 80- IA(5) of the Act will apply to the units eligible for deduction under section 80-IC of the Act in view of the provisions contained in sub- section (7) of sec 80-IC of the Act. He held that the eligible income

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or loss derived by the Himachal unit is not eligible for set off with any other unit. The income or loss of the unit is to be treated as if it is the only source of income to the assessee which means that the income or loss of this unit cannot be clubbed with the income or loss from any other source from the same head. Therefore, set off of loss is not allowable as per section 70(1) of the Act. He, accordingly, disallowed the set off of loss of the Himachal unit and allowed the above loss of Rs..32,78,84,171/- to be carried forward for set off against the income of the same unit in the subsequent years. 30. Before the Id. CIT(A), the AR of the assessee vehemently contended against the denial of set off of loss of the Himachal unit against the profits of other units, by relying on the decision of the jurisdictional Tribunal in the case of Mohan Breweries and Distilleries Ltd (311 ITR 346) and also various other decisions, the Id. Counsel for the assessee has pleaded that the set off of loss of the 80IC units should be allowed against the income of other units. After considering the submissions of the assessee and also by considering various decisions, the Id. CIT(A) directed the Assessing Officer to allow carry forward and set off the losses of the unit from the profit of the unit in subsequent year(s). 31. Aggrieved, the Revenue is in appeal before the Tribunal. The Id. DR, by relying on the decision CIT v. KEI Industries Ltd. 373 ITR 574 (Delhi), has submitted that the findings of the Id. CIT(A) should be reversed. 32. On the other hand, the Id. Counsel for the assessee strongly supported the order passed by the Id. CIT(A). 33. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon'ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(supra) has held as under: "Loss suffered by the assessee in a unit entitled to exemption under section 10B of the Income-tax Act, 1961 cannot be set off against income from any other unit not eligible for such exemption. " 34. Respectfully following the ratio laid down in the above decision of the Hon’ble Delhi High Court we set aside the order passed by the ld

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CIT(A) on this issue and restore that of the AO. Accordingly, the ground raised by the revenue is allowed.” 6. Aggrieved, the revenue carried the matter before the Hon’ble High Court of Madras which remanded the sole issue to the Tribunal with the following observations: “15.In our understanding, the submission of Mr.M.Swaminathan, learned Senior Standing Counsel is to substitute Section I OB with Section 80-IC in the decision of KEI Industries Ltd. (supra) to arrive at a conclusion. The question would be, can it be done especially, when the Tribunal has not assigned any reasons as to how it came to the conclusion that the decision in KEI Industries Ltd (supra) would squarely apply to the assessee's case and above all, why the finding returned by the CIT(A) was erroneous. One more factor which is relevant to point out is the decision rendered by the Hon'ble Supreme Court in the case of Yokogawa India Ltd. (supra), which was rendered by the Hon'ble Supreme Court much after the impugned decision by the Tribunal. Further, it has been argued before us by the assessee that Section 1 OB occurs in Chapter 3 of the Act, which deals with income not to be included in the total income and when income is not to be included in the total income, loss should also be excluded from the total income and cannot be set off against the income from other unit. Further, it is argued that*even in the case of Section 10A, the provision was converted into a provision granting deduction and not exemption of income and in several cases, it has been held that profit from Section 10A unit can be set off against the loss of other units. 16.The learned counsel for the assessee has also relied upon the decision in the case of Mohan Breweries and Distilleries Ltd. (supra) and [the decision of the Hon'ble Supreme Court in the case of Rajapalayam I Mills Ltd. vs. CIT [(1978) 115 ITR 777 (SC)J, wherein the issue was that loss of unit entitled to deduction under Chapter VI-A, which has been set I jff against such income in the respective year, cannot be notionally carried I forward. Thus, in the light of the elaborate submissions made before us an also noting that the Tribunal did not assign any reason as to why it was satisfied that the order of the CIT(A) is erroneous, we deem it appropriate to set aside the order passed by the Tribunal and remand the matter for fresh consideration in accordance with law.

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17.In the result, this tax case appeal is allowed, the order passed by the Tribunal dated 27.04.2016, is set aside and the matter is remanded to the Tribunal for fresh consideration. Liberty is granted to the assessee and the Revenue to place all contentions both factually and legally for the consideration of the Tribunal, which shall decide the issue by passing a reasoned order. In the above judgment, we have referred to some of the decisions relied on by the learned counsel on either side to indicate to the Tribunal that the legal position needs to be examined qua the facts of the assessee's case. For the above reasons, the substantial questions of law are left open. No costs.” 7. Respectfully following the direction of Hon’ble High Court, the arguments of ld representative of parties were heard on Ground No.6 to 6.4 of the revenue. 8. Ld CIT DR supporting the assessment order submitted that as per provisions of section 80IA(5), it is very much clear that eligible income or loss derived by this unit cannot be eligible or set off with any other unit. He further submitted that income or loss of this unit is to be treated as if it is only source of income to the assessee which means that the income or loss of this unit cannot be clubbed with the income or loss from any other source under the same head. Ld CIT DR further pointed out that in view of above provision, the AO was right in holding that the set off or clubbing of the loss derived is not allowable as per section 70(1) of the Income tax Act, 1961. Therefore, the loss of 80IC deduction eligible unit was rightly directed to carry forward to the subsequent year and the AO was right in observing that such carry forward loss will be allowed to set off against the

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income of the other unit in the subsequent financial period. Ld CIT DR has placed vehement reliance on the following decisions: i) Samrat Plywood Ltd vs ACIT(2021) 125 taxmann.com 433 (Chandigarh) ii) Milestone Gears Pvt Ltd vs ACIT(2019) 101 taxmann.com 314 (Chandigarh) iii) Punit Constructions Co vs JCIT(2018) 92 taxmann.com 28 (Mum) iv) CIT vs Wipro Ltd (2021) 134 taxmann.com 302 (SC) v) CIT vs KEI Industries Ltd., 373 ITR 574 (Del) 9. Ld CIT DR lastly submitted that on the present issue of section 80 IC(7) and 80IA (5) are applicable simultaneously and the deduction u/s. 80 IC of the Act has to be allowed by applying provision of section 80IA(5) OF THE Act. Therefore, the AO was right in holding that the set off of loss incurred by eligible unit for deduction u/s. 80IC (7) of the Act cannot be set off against the income accrued to non-eligible unit. He strenuously contended that the ld CIT(A) has granted relief to the assessee without any justified reason and basis. Therefore, impugned order of the ld CIT(A) may kindly be set aside by restoring the order of the AO. 10. Replying to above, ld counsel for the assessee, first of all, drew our attention towards CBDT Circular No.07/DV/2013(File No.279/Misc/M- 116/2012-ITJ) dated 16.7.2013 paras 5.1 & 5.2 and submitted that CBDT has clearly issued direction that “if after giving effect to the provisions of section 70 & 71 of the Act, there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in accordance with the

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provisions of Chapter-VI-A or sections 10A, 10B, etc of the Act, the same shall be allowed in computing the total income of the assessee”. Ld counsel for the assessee further drew our attention towards para 29 at page 23 of the Tribunal order and submitted that in view of CBDT Circular dated 16.7.2013, the Tribunal was not correct and justified in holding that the set off of loss is not allowable as per section 70(1) of the Act. Ld counsel for the assessee has plalced on the following decisions: “1. Synco Industries Ltd vs AO, 299 ITR 444 (SC) 2. CIT vs Mohan Brewaries and Distilleries Ltd., 92CCH17(Che) 3. CIT vs KEI Indusrtries Ltd., 373 ITR 574 (Del) 4. CIT vs Galaxy Surfactants Ltd., 343 ITR 108 (Del) 5. TCA No.448 of 2019 remanding the matter in ITA No.1782/Mds/2012 11. Ld counsel by referring to para 7 of the decision of Hon’ble Supreme Court in the case of Synco Industries Ltd(supra) submitted that sub-section (1) of section 80A of the Act lays down that while computing the total income of an assessee, deductions specified in section 80C to 80U shall be allowed from his gross total income. He further explained that sub- section*\(1) of section 80A has introduced a new concept of ‘gross total income’ as distinguished from the ‘total income’ i.e.the net or taxable income. Ld counsel for the assessee further explained that clause (5) of Section 80B defines the expression ‘gross total income’ i.e. to mean the total income computed in accordance with the provisions of the Act before

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making any deductions under chapter VI-A of the Act. Therefore, deductions under Chapter VI-A can be given only if the gross total income is possible and not negative. 12. Further placing reliance on the decision of Hon’ble Madras High Court in the case of Mohan Brewaries and Distilleries Ltd (supra), ld counsel submitted that where the assessee has claimed benefit u/s.80IA for the assessment year in question and for the subsequent year as well, having exercised their option and their losses having being set off already against other income of business enterprise, assessee fell within parameters of section 80IA of the Act. 13. Further placing reliance on the decision of Hon’ble Bombay High Court in the case of Galaxy Surfactants ltd (supra), ld counsel for the assessee pointed out that there is no provision in section 10B of the Act by which a prohibition has been introduced by the legislature in setting off a loss which is sustained from one source falling under the head of “profits and gains of business” against income from any other source under the same head.. Ld counsel for the assessee further submitted that on the other hand, there is intrinsic material in section 10B to indicate that such a prohibition was not within the contemplation of the legislature. There is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of section 70 of the Act. Therefore, the assessee in

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the present case is eligible to set off the loss incurred to him from eligible unit out of profit of non-eligible unit. 14. Ld counsel has placed reliance on the decision of Hon’ble Supreme Court in the case of C.I.T & Anr vs M/S Yokogawa India Ltd., 391 ITR 274 (SC) and submitted that in the first round of proceedings, the Tribunal passed order on dated 27.4.2016 whereas the Hon’ble Supreme Court passed the judgment in the case of Yokogawa India Ltd. (supra) much after the order of the Tribunal i.e. on 16.12.2016, which is applicable to the assessee and, thus, the order of the ld CIT(A) may kindly be upheld by dismissing ground of the revenue. Last but not least, the ld counsel has also placed reliance on the decision of Hon’ble Supreme Court in the case of Mohan Brewaries and Distilleries Ltd (supra),and the decision of Hon’ble Supreme Court in the case of Rajapalayam Mills Ltd vs CIT (1978) 115 UTR 777 (SC), wherein, the issue was that loss of unit entitled to deduction under Chapter VI-A, which has been set off against such income in the respective year, cannot be notionally carried forward and thus, set off has to be allowed in the same year against the income of non-entitled unit. Therefore, the first appellate order also hold fields on this count that loss of eligible unit cannot be carried forward to be set off against the profits of same unit in the subsequent years. Finally, ld counsel submitted that as per direction of P a g e 14 | 23

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Hon’ble Madras High Court in the judgment dated 20.9.2020 and case laws relied on by the assessee cited above, the findings arrived at by the ld CIT(A) may kindly be upheld by dismissing the ground No.6 to 6.4 of the revenue. 15. On careful consideration of the rival submissions, first of all, we note that the issue for our adjudication as per the direction of Hon’ble Jurisdictional High Court is that as to whether the loss incurred to the assessee from an eligible unit which is eligible for deduction u/s. 80 IC (7) of the Act can be allowed to set off against the profits accrued to the assessee from other non-eligible unit. We may point out that the CBDT in its circular dated 16.7.2013 in paras 5.1 and 5.2 has issued following directions: “5.1 All income for the purposes of computation of total income is to be classified under the following heads of income and computed in accordance with the provisions of Chapter IV of the Act- • Salaries • Income from house property • Profits and gains of business and profession • Capital gains • Income from other sources 5.2 The income computed under various heads of income in accordance with the provisions of Chapter IV of the IT Act shall be aggregated in accordance with the provisions of Chapter VI of the IT Act, 1961. This means that first the income/loss from various sources i.e. eligible and ineligible units, under the same head are aggregated in accordance with the provisions of section 70 of the Act. Thereafter, the income from one ahead is aggregated with the income or loss of the other head in accordance with the provisions of section 71 of the Act. If after giving effect to the provisions of sections 70 and 71 of the Act there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in

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accordance with the provisions of Chapter VI-A or sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee.” 16. Further, Hon’ble Madras High Court in the case of Mohan Breweries and Distilleries Ltd (supra) held in para thus: “In the decision reported in (2012) 340 ITR 477 (Velayudhaswamy Spinning Mills Asst. CIT), this Court, while dealing with the benefit under Chapter VIA of the Income Tax Act, placed reliance on the decision reported in (2009) 317 ITR 218 (SC) ( Liberty India V. CIT), wherein the Supreme Court considered the scope of Section 801, 80IA 80IB of the Income Tax Act and held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". This Court also placed reliance on the decision reported in (2004) 271 ITR 311 (Raj) (CIT V. Mewar Oil and General Mills Ltd.), and came to the conclusion that once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income under Section 801 or 80IA of the Income Tax Act and the assessee should not be denied the admissible deduction under Section 80IA of the Income Tax Act.” 17. Now, we take respectful cognizance of the decision of Hobn’ble Supreme Court in the case of M/S Yokogawa India Ltd.,(supra), which was rendered on 16.12.2016 much after the order of the Tribunal dated 27.4.2016, which has been set aside by the Hon’ble Madras High Court remitting the issue to this Bench. In the said judgment, Hon’ble Supreme Court in paras 15 to 18 held as follows:

“15. Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head “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 P a g e 16 | 23

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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 understand 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. Section 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 intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to. 16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, “The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.” 17. If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions 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. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the

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overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding 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.”

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Mohan Brewaries and Distilleries Ltd (supra), categorically rendered the preposition that once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income under Section 801 or 80IA of the Income Tax Act and the assessee should not be denied the admissible deduction under Section 80IA of the Income Tax Act.” Further, Hon’ble Bombay High Court in the case of Galaxy Surfactants ltd (supra), held that there is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of section 70 of the Act. In this judgment, in the second part of para 6, Their Lordships clearly held that entitlement of the assessee to set off a loss which is sustained by an eligible unit against the income arising from other units under the same head of profits and gains of business or profession. The legislature not having introduced a statutory prohibition, there is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of section 70. 19. From respectful, vigilant and careful reading of judgment of Hon’ble Madras High Court dated 29.9.2020 (supra) which remanded the issue to this Bench of the Tribunal, we clearly observe that agreeing with the contention of the assessee/appellant, Their Lordships has remanded for fresh consideration by granting opportunity to both the parties to place all contentions both factually and legally for consideration of the Tribunal.

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Their Lordships in last operating para 17 also expressed that after referring to some of the decisions relied on by the learned counsel on either side to indicate to the Tribunal that the legal position needs to be examined qua the facts of the assessee’s case. 20. In the present case, the Assessing Officer denied set off of loss incurred by the assessee from eligible units, which was eligible for deduction u/s. 80IC(7) of the Act and the ld CIT(A) directed the AO to allow set off such loss out of the profits of non-eligible units by referring to the circular No.281 dated 22.9.1980, which explained the object and reintroduction of section 80-I by the Finance (No.2) Act, 1980 where similar provisions are enshrined. The conclusions arrived at by the ld CIT(A) has been reproduced in para 4 above of this order (supra), which makes it ample clear that the ld CIT(A) after considering the relevant provisions of the Act as well as the relevant case laws observed that the provisions of section 80-I provides for deduction in respect of certain undertakings or enterprises in certain special category states such as Himachal Pradesh, Uttaranchal, Sikkim and North Eastern States. The benefit available under the section is not in the nature of any exemption. He noted that in the instant case the profits and gains derived by the Himachal unit is not exempt under Chapter III but are eligible for deduction under Chapter VI-A of the Act. Therefore, the profit or loss of the above undertaking, as the case may be, is to be taken into account for the purpose of computing gross

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total income of the assessee in view of sub-section(1) of Section 80-IC of the Act and thus, the assessee is eligible for set off of loss of the Himachal unit against profits of other units as per section 70(1) of the Act. He further noted that for allowance of set off of loss for eligible unit out of profits of non-eligible unit, the gross total income of the appellant cannot be computed and since the appellant was not eligible for any deduction because there was loss in the Himachal unit, the appellant has not claimed any such deduction in the computation of income. These facts have not been controverted by ld CIT DR in any manner. 21. Vehement reliance was placed by ld CIT DR on the judgment of Hon’ble Delhi High Court in the case of KEI Industries Ltd.,(supra), wherein, in para 14, Their Lordships categorically held thus: “. In this case, this court is of the opinion that TEI Technologies (P.) Ltd. (supra) applies. The tax-exempt income of the assessee, eligible under Section 10-B could not have been set off against the losses from tax-liable income.” 22. On respectful, careful and vigilant reading of conclusions drawn by Hon’ble High Court, we note that Their Lordships has adjudicated a reverse situation by holding that the tax exemption of the assessee eligible u/s.10B could not have been set off against the loss from tax liable income. The factual matrix of the present case is different as the assessee incurred loss from unit eligible for deduction u/s. 80IC of the Act and claim of set off of the same against profits accrued to it from non-eligible or tax liable units which was denied by the AO and allowed by the ld CIT(A). Therefore, we

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respectfully observe that the benefit of the judgment of Hon’ble Delhi High Court in the case of KEI Industries Ltd.,(supra), is not available for the revenue in the present case as the issue decided therein was quite distinct and different from the issue to be adjudicated in the present case. 23. Respectfully following the judgment of Hon’ble Supreme Court in the case of Synco Industries Ltd (supra), judgment of Hon’ble Madras High court in the case of Mohan Brewaries and Distilleries Ltd (supra) and Hon’ble Bombay High Court in the case of Galaxy Surfactants Ltd (supra) and the direction of Hon’ble Jurisdictional High Court in TCA No.448 of 2019 order dated 29.9.2020 and keeping in view the factual matrix of the present case, pertaining to the claim of the assessee to provide the set off of loss of eligible unit from non-eligible unit /tax liable unit has to be decided in favour of the assessee because as per the scheme of the provision of the Act, the income/loss from various sources i.e. eligible units and non-eligible units, under the same head are to be aggregated in accordance with the provision of section 70 of the Act. If after giving effect to the provisions of section 70 & 71 of the Act, there is any income (where there is no brought forward loss to be set off in accordance with the provisions of section 72 of the Act) and the same is eligible for deduction in accordance with the provisions of Chapter-VI-A or section 10A, 10B, etc of the Act, the same shall be allowed in computing the total income of the assessee after

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computation of gross total income by applying the relevant provisions of the Act and the I.T.Rules 1962 made thereunder. 24. In view of foregoing, we reach to a logical conclusion that Ground No.6 to 6.4 of the revenue has no legs to stand on the legal footing as per relevant provisions of the Act and case laws cited above and thus, same are liable to be dismissed being devoid of merits. Consequently, conclusions drawn by the CIT (A) on this issue is upheld by disallowing the ground Nos.6 to 6.4 of the Revenue. 25. In the result, appeal of the revenue is dismissed.

Order pronounced U/R 34(4) of I.T.Rules, 1963 on 13/4/2022.

Sd/- Sd/- (Arun Khodpia) (Chandra Mohan Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai; Dated 13/04/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : The Asst. Commissioner of Income Tax, Company Circle-III(2), New Block, 4th floor, 121, Mahatma Gandhi Road, Nungambakkam, Chennai 2. The Respondent. M/s. TVS Motor Company Ltd., Jayalakshmi Estates, 29 (old No.8), Haddows Road, Chennai 3. The CIT(A)-III, Chennai 4. Pr.CIT-, Chennai 5. DR, ITAT, Chennai 6. Guard file.

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