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Income Tax Appellate Tribunal, DELHI BENCH “E” BENCH NEW DELHI
Before: SHRI N.K. SAINI & SHRI AMIT SHUKLA
ORDER
PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeal has been filed by the revenue against impugned order dated 20.12.2013, passed by the ld. CIT (Appeals)- 32, New Delhi for the quantum of assessment passed u/s 143(3) for the A.Y. 2009-10. In the grounds of appeal the revenue has raised following grounds:-
“1. That the Commissioner of Income Tax (Appeals) has erred in law and on facts of the case in deleting the disallowance of Page 1 of 7
Rs.7,33,82,804/- made by AO on account of exemption u/s 10B of the I.T. Act, 1961. 2.(a) The order of the CIT(A) is erroneous and not tenable in law and on facts.
(b) The appellant craves leave to add, alter or amend any fall of the ground of appeal before or during the course of the hearing of the appeal.”
The brief facts qua issue involved are that, the assessee company is engaged in the business of Information Technology Education and Knowledge Solutions. The ld. Assessing Officer noted that the assessee has incurred loss of Rs. 7,33,82,084/- in respect of following two units which were eligible for deduction u/s 10B. SI. Location Loss of the eligible No. Name of Unit unit (Rs.) 1. Minerva, 8, Balaji, Estate, NIIT-KTWO 3,88,10,882/- Sudarshan Munjal Marg, Kalkaji, New Delhi 110019 2. 8, Balaji, Estate, Sudarshan NIIT-ITES 3,45,71,202/- Munjal Marg, Kalkaji, Total 7,33,82,084/-
The aforesaid loss was adjusted by the profits of other non eligible units while computing the consolidated profit of the business, as per the provisions of section 70. The Assessing Officer after considering the reply/objections filed by the assessee, held that the assessee has wrongly adjusted the loss of eligible units u/s 10B against the profits of non eligible units. He held that the provisions of section 10B are in the nature of “exemptions”, instead of “deduction”. Since the profit of exempt unit is included in the taxable income, therefore, the loans of exempt unit cannot be set off from the income of non exempt unit. He also referred to the decision of Hon’ble Karnataka High Court in the case of CIT vs. Yokogawa India Ltd, reported in 341 ITR 385 as relied upon by the assessee and tried to interpret the said decision in his own manner for coming to a conclusion that the provisions of section 10B are in the nature of exemption. He also observed that the said provision is in line with the form of income tax return that reflects the legislative intent and that is why, it has been kept in Chapter III of I.T. Act which deals with the exempt income. This inter alia means that the income of eligible unit is deducted at source before arriving at gross total income and therefore, the income eligible for exemption under section kept in Chapter III would not form part of computation at all. Thus, the loss arising from eligible units is not available for set off against the income of non eligible units. He also tried to draw support from the CBDT’s circular no. 7 of 2003 and decision of Hon’ble Bombay High Court in the case of Hindustan Uniliver Ltd. vs. DCIT reported in 325 ITR 102. He accordingly, disallowed the adjustment of loss of eligible units from the profit of non eligible units.
Before the Learned CIT(Appeals) a detailed submission were made by the assessee explaining the entire provision of section 10B and as to why it is not an exemption provision but dealing with the deductions eligible for an assessee. The assessee’s detailed submissions have been incorporated by the Ld. CIT (Appeals) from pages 6 to 26 of the impugned order. The Ld. CIT (Appeals) following Page 3 of 7 the decision of assessee’s own case for the A.Y. 2008-09, wherein the Ld. CIT (Appeals) has allowed the adjustment following the decision of Karnataka High Court in the case of CIT vs. Yokogawa India Ltd (supra) and decided the issue in favour of the assessee.
Before us it has been admitted by both the parties that now this is question has been answered/decided in favour of the assessee by the Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd reported in (2017) 391 ITR 274, wherein the decision of Hon’ble Karnataka High Court has been affirmed on this point.
After considering the relevant finding given in the impugned order as well as the judgment of Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd (supra), we find that the issue, whether the benefit given u/s 10A/10B is an exemption provision or not or it is dealing with the deduction. Here the case of the AO is that, since the provision of section 10B is in the nature of exemption and not deduction, therefore, the profit of the exempt unit cannot not to be included in the taxable income and accordingly, the loss of exempt unit cannot be set off from income of the non exempt unit. It is an undisputed fact that the assessee had incurred losses from its two units which were eligible for deduction u/s 10B and the said losses have been adjusted against the profit of non-eligible units. We find that this precise issue has been dealt with by the Hon'ble Supreme Court after detailed discussion and analyzing the provisions of section 10A (similar to section 10B) as it stood prior to the amendment by Finance Act 2000 and also after the amendment w.e.f. 1.4.2001. The relevant observation and the ratio laid down by the Hon'ble Supreme Court reads as under:- Page 4 of 7
“The retention of section 10A in Chapter III of the Act after the amendment made by the Finance Act, 2000 would be merely suggestive and not determinative of what is provided by the section as amended, in contrast to what was provided -by the un-amended section. The true and correct purport and effect of the amended section will have to be construed from the language, used and ‘hot merely from the fact that it has been retained in- Chapter III: The introduction 'of the word 'deduction' in section 10A by the- amendment, in the absence of any contrary material, and in view of the, scope of the deductions contemplated by section 10A as already discussed, it has to be understood that the section embodies a clear enunciation-of the legislative decision-to alter its-nature from one providing for exemption to one providing for deductions. The difference between the two expressions "exemption" and "deduction” though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious-than from-the case of "Civil Appeal Nos.-'8563-of 2013 and 8564 of 2013 and civil appeal arising out of SLP(C) No. 18157 of 2015, which have been filed by loss making eligible units and/or by non-eligible' 'assessees seeking the benefit of adjustment of losses against profits made by eligible units. Chapter VI of the Act. The retention of the said provisions of the Act, i.e., sections 80HHC-.and '80HHE, despite the Page 5 of 7 amendment of section IOA, in our- view, indicates that some additional benefits to eligible section 10A units, not contemplated by sections 80HHC arid 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 deduction's sections 10A and 80HHC and 80HHE are substantially different, the next aspect of the case which we would now like to turn to.”
In view of the aforesaid law settled by the Hon'ble Supreme Court, the reasons given by the ld. Assessing Officer to disallow the adjustment of loss of eligible units from a profit of other eligible units cannot hold ground and consequently is set aside; and the claim of the assessee to allow the adjustment of losses of eligible units with the profits of non-eligible units is directed to be allowed. Accordingly, the grounds raised by the revenue are dismissed.
Order pronounced in the open court on 25.04.2017.