ITO CORPORATE WARD 4(1), CHENNAI vs. MEDUSA SERVICES PRIVATE LIMITED, CHENNAI

Brief facts of the case are that the assessee filed the return of income for the assessment year 2010-11 on 21.09.2010 with NIL income and also filed a revised return of income on 05.03.2011. The case was selected for scrutiny and the assessment under section 143(3) of the Act was completed on 19.11.2012. Thereafter, the assessment was reopened under section 147 of the Act on the ground that the brought forward loss requires to be set off against the business income before computing deduction under section 10B of the Act. Before the Assessing Officer, the assessee has submitted that the issue has been disposed of by the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. (supra). However, by referring to the decision of the Hon’ble Supreme Court in the case of CIT v. Himatsingka Seide Ltd. 100 DTR 37, wherein, it was held that the unabsorbed depreciation loss should be adjusted against the income of EOU before claiming exemptions under section 10B of the Act, the Assessing Officer has adjusted the brought forward depreciation loss prior to working out the eligible profit of section 10B undertaking. On appeal, after considering the submissions of the assessee and by following the decision in the case of CIT v. Yokogawa India Ltd. (supra), the ld. CIT(A) has held that the assessee is eligible for deduction under section 10B of the Act prior to giving effect to the brought forward depreciation of earlier years.

Aggrieved, the Revenue is in appeal before the Tribunal.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. While affirming the decision of the Hon’ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. 341 ITR 385, the Hon’ble Supreme Court reported in 391 ITR 274 has observed and held as under: “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) 22 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 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’.

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.” By following the above decision, the ld. CIT(A) has observed that the profit of the undertaking should be computed independently before adjusting any carried forward business. The profit thus arrived should be given benefit under eligible sections 10A/10B of the Act even though the assessee has had unabsorbed business loss of previous years besides not commenting on the unabsorbed depreciation. The ld. CIT(A) further observed that nonetheless, considering the fact that brought forward business loses have precedence over brought forward depreciation, the question of giving effect to brought forward depreciation does not arise at all. Thus, the ld. CIT(A) has held that the assessee is eligible for deduction under section 10B of the Act prior to giving effect to the brought forward depreciation of earlier years and thus, the assessee is eligible to claim deduction under section 10B on profits of business of ₹.53,45,505/-. We find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue stands dismissed.

In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 19th February, 2020 at Chennai.