GANESH POLYCHEM LTD,MUMBAI vs. ITO RG 10(3)(1), MUMBAI

During hearing, at the outset, the ld. counsel for the assessee, Shri Deepesh T. Cheda, claimed that the impugned issue is covered by the decision of the Tribunal in Ganesh Polychem Ltd. vs ITO (ITA No.3270/Mum/2014) order dated 06/01/2016 in the case of assessee itself for Assessment year 2009-10. This factual matrix was not controverted by the ld. DR, Mrs. Neelima V. Nadkarni.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 06/01/2016 for ready reference and analysis:-

Briefly stated the facts are, assessee a company is engaged in the business of manufacturing of chemicals. For the assessment year under consideration, assessee filed its return of income on 26th September 2009, declaring nil income after claiming exemption under section 10B of the Act. During the assessment proceedings, the Assessing Officer, while verifying assessee’s claim of exemption under section 10B, noticed that assessee has two manufacturing units i.e., one at Vapi which is an eligible unit under section 10B and another unit at Dombivali, which is a non–eligible unit. He further noticed that in respect of the eligible unit at Vapi, assessee had declared net business income of Rs. 8,93,29,055, and in respect of non–eligible unit at Dombivali has shown net loss of Rs. 52,689. From the computation of income filed by the assessee, it was noticed by the Assessing Officer that assessee has claimed deduction of Rs.7,58,07,650 under section 10B and thereafter has set–off brought forward unabsorbed depreciation and business loss, the Assessing Officer was of the view that claim of deduction under section 10B from total income before setting–off brought forward loss is incorrect. He also noticed that similar claim made in the assessment year 2008–09 was also disallowed in assessment completed under section 143(3) of the Act against which assessee is in appeal. Though, assessee contended that similar claim made for the assessment year 2007–08, by the assessee was upheld by the Tribunal while dismissing Department’s appeal but the Assessing Officer opining that the Department has preferred appeal before the Hon'ble Jurisdictional High Court against the order of the Tribunal ultimately held that before allowing assessee’s claim of exemption under section 10B, adjustment of unabsorbed depreciation and brought forward loss have to be made from the gross total income. Being aggrieved, assessee preferred appeal before the first appellate authority.

Before the learned Commissioner (Appeals), it was pleaded by the assessee that brought forward unabsorbed depreciation and business loss of non–eligible unit cannot be set–off of against the current profit of the eligible unit before computing deduction under section 10B of the Act. The learned Commissioner (Appeals), finding that the Assessing Officer before allowing assessee’s claim of deduction under section 10B has not made any such set–off unabsorbed depreciation and business loss of non–eligible unit against profits of eligible unit rejected assessee’s claim.

The learned Counsel for the assessee submitted before us, unabsorbed depreciation and brought forward business loss cannot be set–off / adjusted against the current profit of the eligible unit before computing deduction under section 10B of the Act. For such proposition, he relied upon the decision of the co–ordinate bench in assessee’s own case for the assessment year 2005–06 to 2008–09 and the decision of the Hon'ble Jurisdictional High Court while dismissing department’s appeal for the assessment year 2006–07 and 2007–08.

The learned Departmental Representative, on the other hand, supported the order of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. On a careful reading of the impugned assessment order, we notice that though the Assessing Officer, in the assessment order has, observed that brought forward business loss has to be set–off before claim of deduction under section 10B but while computing the deduction under section 10B, the Assessing Officer in fact has not made any such adjustment / set–off of unabsorbed depreciation and brought forward business loss. However, on a perusal of the orders of the Tribunal for the assessment year 2005–06 to 2008–09 in assessee’s own case which were placed before us by the learned counsel in the course of hearing, we notice that the Tribunal is consistent in its view that unabsorbed depreciation and brought forward business loss of non–eligible unit cannot be set–off against the current profit of eligible unit while computing deduction under section 10B. Moreover, the High Court has upheld the aforesaid view of the Tribunal while dismissing Department’s appeal for the assessment year 2006–07 and 2007–08 in of 2012 and 2301 of 2011 respectively. Since the learned Commissioner (Appeals), while deciding ground no.3 raised by the assessee has directed the Assessing Officer to verify and allow assessee’s claim of set–off of unabsorbed depreciation and brought forward business loss, we direct the Assessing Officer to consider assessee’s claim of set–off / adjustment of unabsorbed depreciation and business loss keeping in view the decision of the Tribunal and Hon'ble Jurisdictional High Court in assessee’s own case holding that unabsorbed depreciation and brought forward loss of non–eligible unit cannot be set–off against the current profit of eligible unit while computing deduction under section 10B. The grounds raised by the assessee are considered to be allowed.”