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Before: Shri Inturi Rama Rao & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
Both the appeals filed by the Revenue are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 3, Coimbatore both dated 31.10.2018 relevant to the assessment years 2008-09 and 2009-10. In both the appeals, the Revenue has raised following common grounds: “1. Whether on the facts and circumstances of the case and in law the CIT(A) is right in allowing the appeal of the assessee against the order u/s 154 of A.O. dated 13.02.2018 directing to allow set off of available brought forward unabsorbed 'depreciation losses after giving effect to the order of the CIT(A) in the assessee's own case for the A.Y. 2008-09?
Whether on the facts and circumstances of the case and in law the CIT(A) is right in allowing the appeal of the assessee against the order u/s.143(3) r.w.s.264 dated 13.02.2018 by directing to allow the setoff of brought forward unabsorbed depreciation of the A.Y. 1998-99 to 2001-02 (subject to the extent available) instead of A.Y. 2001-02 alone by holding that the appellant having chosen not to opt for deduction u/s. 10B in the A.Y. 1998-99 to 2001-02, the provisions of Section 10B(8) happen to override the provisions of Section 10B(6)? 3. Whether, the Ld. CIT-2, Coimbatore in the order passed under Section 264 on 08.03.2013 has not held the disallowance of brought forward business loss of Rs. 14,38,03,371/- made by the A.O. in his order u/s 143(3) dated 31.12.2010 for A.Y. 2008-09 with reference to section 10B(6)(i) and 10B(6)(ii) is incorrect? 4. The Hon'ble ITAT is requested to cancel the order of the learned CIT(A) and uphold the order of the Assessing Officer. 5. The Hon'ble ITAT is requested leave to add, amend or modify the grounds of appeal
, if necessary, in future.”
2. Brief facts of the case are that the assessee started a 100% EOU (eligible undertaking under section 10B of the Act) which commenced production in the financial year 1997-98 (relevant to A.Y 1998-99). For the assessment years 1998-99, 1999-2000, 2000-2001 & 2Q01-02, the unit suffered losses (business losses as well as unabsorbed depreciation) and did not claim any deduction u/s 10B of the Act. Thereafter, from the assessment years 2002-03 onwards up to 2007-08, the assessee claimed deduction u/s 10B of the Act. For the purpose of computing the deduction u/s 10B of the Act, the assessee chose not to set-off the business losses and unabsorbed depreciation of the earlier assessment years 1998-99, 1999-2000, 2000-2001 & 2001-02. The justification for this stand was that the deduction of the eligible undertaking u/s 10B has to be computed for each of these assessment years before set-off of brought forward losses and unabsorbed depreciation. The residual income, if any, was then set-off against the business losses of these assessment years. As a result, the assessee happened to carry forward a bulk of the unabsorbed depreciation of the assessment years 1998-99, 1999-2000, 2000-2001 & 2001-02, which then was set-off against the current income in the assessment years 2008- 09 and 2009-10. In the meantime, in the assessment orders made for the assessment years 2002-03 to 2007-08, the Assessing Officer consistently held that the assessee was entitled to deduction u/s 10B only after allowing set-off of the brought forward business loss and unabsorbed/ depreciation of the A.Y 2001-02 alone [relying on the provisions of Section 10B(6)(i)&(ii)]. Thereby, the entire brought forward unabsorbed depreciation of A.Y 2001-02 was fully set off in A.Y 2002-03 & partially in A.Y 2003-04 and there arose demands for the A.Y 2003-04 onwards. As a corollary, the AO also held that there remained no unabsorbed depreciation available for set-off from A.Y 2008-09 onwards.
2.1 Relying on this, in the assessment order passed under section 143(3) on 31.12.2010 for the A.Y 2008-09, the Assessing Officer assessed the income at ₹.14,38,03,371/-. In the assessment order, the Assessing Officer also dealt with the applicability of the provisions of section 10B(6) to the assessee's case with regard to the setting-off of the losses of A.Ys 1998-99, 1999-2000 & 2000-2001 claimed by the assessee in its return and concluded that it could not be allowed. The Assessing Officer was of the belief that losses prior to assessment year 2001-02 are liable to be ignored based on sub-section (6) to section 10B of the Act.
2.2 The assessee filed a petition under section 264 before the CIT-II, Coimbatore seeking a direction to the Assessing Officer to ignore findings relating to the eligibility of the assessee to claim the losses and to direct the Assessing Officer to consider the loss for set-off in the A.Y 2008-09 after making revisions in the earlier years records on the basis of orders and directions to be received from the ITAT. According to the assessee, the Assessing Officer was not required to go into the merits of application of 10B(6) in their case as there was no brought forward losses of any of those years after giving effect to the earlier orders of the CIT(A) passed for the A.Y 2002-03 to 2007-08. It is based on this petition that the learned CIT has passed the order u/s 264 dated 28.03.2013. The contention of the Department is that the ld. CIT(A) has erroneously allowed the appeal of the assessee against the order passed under section 154 r.w.s. 264 of the Act.
We have considered the rival submissions and perused the orders of authorities below. With regard to the first common ground raised in both the appeals is whether the CIT(A) is right in allowing the appeal of the assessee against the order u/s 154 of A.O. dated 13.02.2018 directing to allow set off of available brought forward unabsorbed 'depreciation losses after giving effect to the order of the CIT(A) in the assessee's own case, admittedly, the assessee has not filed any rectification petition under section 154 of the Income Tax Act, 1961 [“Act” in short] to rectify the mistake found in the assessment order. Vide letter dated 29.01.2018, the assessee requested the Assessing Officer to consider the proceedings under section 264 of the Act and pass order by giving effect to the order of the ld. CIT dated 28.03.2013. Accordingly, the Assessing Officer passed order under section 154 r.w.s. 264 of the Act dated 13.02.2018. Once the Assessing Officer passing order by giving effect to the order of the ld. CIT under section 264 of the Act, we find that the Assessing Officer has wrongly termed the order as “order under section 154 r.w.s. 264 of the Act, but, it should be order under section 143(3) r.w.s. 264 of the Act. Admittedly, the Assessing Officer has not, suo moto, rectified any mistake in the assessment order against the rectification petition of the assessee filed under section 154 of the Act. Thus, we are of the considered opinion that the ld. CIT(A) was right in allowing the appeal in directing to allow set off of available brought forward unabsorbed depreciation losses. We find no infirmity in the order passed by the ld. CIT(A). Accordingly, the common ground raised by the Revenue stands dismissed for both the assessment years.
Coming to the rejection of claim of depreciation, in the original assessment order dated 31.12.2010, the Assessing Officer observed that since the assessee began to manufacture in the assessment year 1997-98, for the purpose of section 10B(6), assessment year 1997-98, 1998-99 and 1999-2000 will also be considered as ‘relevant assessment years’ irrespective of the position whether deduction/s under section 10B for these years was claimed or not. Consequently, any unabsorbed depreciation or business loss pertaining to these years CANNOT be set off in the assessment year immediately succeeding the last of the relevant assessment year i.e., assessment year 2008-09. Thus, the Assessing Officer rejected the claim of set off of ₹.9,45,22,514/- being unabsorbed depreciation for the assessment years 1989-99 and 1999-2000, claimed by the assessee against the income for the assessment year 2008-09. Since the ld. CIT has not held that the above action to be incorrect in the order passed under section 264 of the Act against the petition filed by the assessee and in view of the provisions of section 10B(6)(i)/10B(6)(ii) of the Act, the Assessing Officer granted relief of ₹.2,29,22,474/- vide his order dated 13.02.2018 [passed u/s 154 r.w.s. 264], whereas, on the date of the above order i.e., 13.02.2018, the order of the Tribunal dated 20.06.2017 passed for the assessment year 2002-03 to 2007-08 was very much available, in which, the Tribunal has held that the deduction under section 10B has to be computed in line with the decision of the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. reported in (2017) 291 CTR 001 (SC), the question of invoking the provisions of section 10B(6)(i)/10B(6)(ii) does not arise at all in the present case. Under these facts and circumstances, the ld. CIT(A) has rightly directed the Assessing Officer to allow the set off of brought forward unabsorbed depreciation of the assessment years 1998-99 to 2001-2002 (subject to the extent available) instead of assessment year 2001-02 alone allowed by the Assessing Officer, which makes it clear that the depreciation remaining unabsorbed is to be carried forward from the current assessment year for set-off in the subsequent assessment year(s).Thus, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground No. 3 raised in the grounds of appeal stands dismissed for both the assessment years.
5. On merits, having chosen not to opt for deduction under section 10B of the Act in the assessment years 1998-99 to 2001-02, the provisions of section 10B(8) happen to over-ride the provisions of section 10B(6), the provisions of section 10B(6) of the Act does not come into play in the present case in view of the decision in the case of Max Healthscribe Ltd. v. ITO 386 ITR 479, wherein the Hon’ble High Court has held that the assessee would be entitled to the benefit of carry forward of unabsorbed depreciation or loss relating to the assessment years when they had opted out of section 10A. The provisions of section 10B being pari materia with section 10A of the Act, it would hold good for section 10B as well and therefore, is in favour of the assessee. While holding so, the findings of the Hon’ble High Court in the case of CIT v. Yokogawa India Ltd. 341 ITR 385 were taken into account. The relevant findings of the Hon’ble High Court given in para 32 are reproduced as under: “The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8), As discussed, it is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance, if any, thereafter can be carried forward for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment.” 5.1 By relying upon the above decision, in the case of Max Healthscribe Ltd. v. ITO (supra), the Hon’ble Karnataka High Court has held that the assessee is entitled to the benefit of carry forward of unabsorbed depreciation or loss relating to the assessment years when the assessee had opted out of section 10A of the Act, which was followed by the ld. CIT(A) while allowing the appeals of the assessee. While affirming the above decision of the Hon’ble Karnataka High Court in the case of CIT v.
Yokogawa India Ltd. (supra), 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.”
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.” 6. The ld. DR could not controvert the above judgement of the Hon’ble Supreme Court. Thus, in view of the above judicial precedents, we find no reason to interfere with the order passed by the ld. CIT(A). Accordingly, ground No. 2 raised in the grounds of appeal stands dismissed for both the assessment years.
In the result, both the appeals filed by the Revenue are dismissed. Order pronounced on the 08th July, 2019 in Chennai.