CORNET TECHNOLOGY (INDIA) PVT LTD.,KANCHEEPURAM vs. ACIT, CHENNAI

All the three appeals of the assessee are directed against the respective orders of the Commissioner of Income Tax (Appeals)-1, Chennai, for the assessment years 2006-07, 2010-11 and 2011-12. Since common issue arises for consideration in all these three appeals, we heard these appeals together and disposing of the same by this common order.

Shri R. Balasubramanian, the Ld. representative for the assessee, submitted that the only issue arises for consideration is with regard to disallowance of deduction claimed under Section 10B of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. representative, the assessee has claimed deduction under Section 10B of the Act on the current year profit of the eligible unit. However, the Assessing Officer set off losses suffered by the assessee in the non-eligible unit. The Ld. representative clarified that the assessee has multiple units and one of the units is eligible for deduction under Section 10B of the Act since it exports the software. The other units are not eligible for deduction under Section 10B of the Act. Therefore, according to the Ld. representative, the profit of the eligible units for deduction under Section 10B of the Act has to be computed on stand-alone basis. Therefore, the loss or depreciation of the non-eligible unit cannot be set off against the profit of the eligible unit while computing deduction under Section 10B of the Act. The Ld. representative placed his reliance on various judgments of High Courts to support his claim.

The Ld. representative for the assessee further submitted that for the assessment year 2006-07, the assessee’s one of the grounds was with regard to reassessment under Section 147 of the Act. According to the Ld. representative, there was no material for reopening the assessment under Section 147 of the Act. In the absence of any reason to believe that the income escaped assessment, according to the Ld. representative, the reassessment proceeding initiated by the Assessing Officer is bad in law. The Ld. representative further submitted that in the absence of live link or nexus between the material available on record and formation of belief that there was escapement of income, the Assessing Officer ought not to have reopened the assessment.

On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that for the assessment year 2006-07, the return of income was processed under Section 143(1) of the Act and it was not examined under Section 143(3) of the Act. Since the return was not scrutinized under Section 143(3) of the Act and no order was passed by the Assessing Officer, according to the Ld. D.R., the Assessing Officer has every right to reopen the assessment when he finds that the income otherwise chargeable to tax escaped assessment. The Ld. D.R. further submitted that during the course of scrutiny proceeding, the Assessing Officer found that the assessee has claimed deduction under Section 10B of the Act after setting off the brought forward losses and unabsorbed depreciation against the current year profit. Therefore, the Assessing Officer found that there was escapement of income, hence, the assessment was reopened under Section 147 of the Act.

Referring to the claim of the assessee for deduction under Section 10B of the Act, the Ld. D.R. submitted that the assessee now claims before this Tribunal that there are multiple units and one of the units is eligible for deduction under Section 10B of the Act, therefore, the loss/unabsorbed depreciation of the non-eligible units cannot be set off against the profit of the eligible unit. Referring to the grounds of appeal raised by the assessee for all the three assessment years, the Ld. D.R. pointed out that the grounds of appeal proceed as if the Assessing Officer set off / adjusted the brought forward losses and unabsorbed depreciation against the current year profit of eligible unit. Neither in the grounds of appeal or in the material available before this Tribunal there was an indication that the assessee has multiple units and the Assessing Officer set off the loss and unabsorbed depreciation of the non- eligible units against the profit of eligible units. Since there was factual dispute, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the addition.

We have considered the rival submissions on either side and perused the relevant material available on record. Since the issue of reopening of assessment goes to the root of the matter for assessment year 2006-07, this Tribunal finds that this has to be adjudicated at the first instance. Admittedly, the return filed by the assessee was processed under Section 143(1) of the Act and intimation was issued. No assessment order was passed under Section 143(3) of the Act. The Assessing Officer found that the assessee claimed deduction, however, no evidence was available on record with regard to approval of the competent authority, namely, the Board of Approval. Therefore, the Assessing Officer found that the assessee did not have the approval for the unit for which deduction under Section 10B of the Act was claimed. Hence, the income otherwise chargeable to tax has escaped assessment.

Now coming to the merit of the appeal, the assessee claims before this Tribunal that deduction under Section 10B of the Act has to be granted before setting off the brought forward loss and unabsorbed depreciation of the non-eligible unit. The assessee claims that there are multiple units and one of the units is eligible for deduction under Section 10B of the Act and other units are not eligible for deduction under Section 10B of the Act. Therefore, the loss and unabsorbed depreciation of the non-eligible units, according to the Ld. D.R., cannot be set off against the profit of eligible unit. After going through the material available on record and grounds of appeal raised by the assessee, it appears that the entire claim right from before the Assessing Officer is that set off / adjustment of business loss / unabsorbed depreciation of the earlier year against the profit of the current year of the same unit. No material available on record to indicate that the assessee has multiple units and one of such units is eligible for deduction under Section 10B of the Act. Since there is a factual dispute with regard to unit / undertaking owned by the assessee, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly the orders of the authorities below are set aside and the entire claim of deduction under Section 10B of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue afresh and bring on record whether the assessee has multiple units and one of such units is eligible for deduction under Section 10B of the Act and thereafter decide the issue afresh in accordance with law after giving reasonable opportunity to the assessee.

In the result, all the three appeals filed by the assessee are allowed for statistical purposes.