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Income Tax Appellate Tribunal, DELHI BENCH “SMC-II”: NEW DELHI
Before: SHRI VIJAY PAL RAO
O R D E R VIJAY PAL RAO, JUDICIAL MEMBER This appeal of the revenue is directed against the order dated 23.12.2013 of ld. CIT(A)-VI, New Delhi for the Assessment Year 2009-10. 2. The revenue has raised the following grounds:- “
1. Whether the ld CIT(A) has erred in law and on the facts in directing the AO to allow the set off of brought forward losses/ unabsorbed depreciation amounting to Rs.32,93,879/- by failing to appreciate that the unabsorbed depreciation/ brought forward losses are to be set off with the income claimed as exempt u/s 10AA by the assessee as per CBDT’s circular dated 16.07.2013 in this regard.”
3. In the computation of income an amount of Rs.32,93,879/- was claimed as unabsorbed depreciation/ loss in carry forward and setting off against the income of subsequent years. The AO noted that the assessee has claimed deduction u/s 10AA without setting off brought forward loss/ unabsorbed depreciation. Accordingly, the AO recomputed deduction u/s 10AA and restricted the same by setting off the carry forward loss and unabsorbed depreciation against the profits of the eligible undertaking. The assessee challenged the action of the AO before learned Commissioner of Income-tax (Appeals) and submitted that unabsorbed depreciation relating to the undertaking will be allowed to be carried forward and set off as per the provision of the Act on completion of Tax Holiday Period. Similarly, Page No. 2 brought forward loss of such undertaking with respect to Assessment Year 2001-02 to 2006-07 shall be carry forward and set off as per the provision of the act on completion of Tax Holiday Period. The assessee relied on the judgment of the Hon’ble Karnataka High Court in the case of CIT Vs. Yoko Gawa India Ltd. (2012) 341 ITR 385 (Karn), as well as in case CIT Vs. Tyco Electronics Tools India (P) Ltd. (2012) 205 Taxman 403 (Kan) and submitted that the Hon’ble High Court has held that the profit for the purpose of deduction under section 10A (also 10AA) should be allowed without setting off unabsorbed loss and depreciation. A similar view was taken by the Hon’ble Bombay High Court in the case of CIT Vs. Black & Veatch Consulting Pvt. Ltd. 348 ITR 72. The learned Commissioner of Income-tax (Appeals) has allowed the claim of the assessee by directing the carry forward unabsorbed depreciation amounting to Rs.32,93,879/-. He allowed to carry forward and set off against the subsequent year by following the judgment of Hon’ble Karnataka High Court High Court as well as Hon’ble Bombay High Court (supra).
Argument of the ld DR as well as ld AR are heard at length. The ld AR pointed that these issues is now covered by the judgment of the jurisdictional High Court in the case CIT Vs. KEI Industries Ltd., 373 ITR 574. On the other hand the ld DR relied upon the orders of the AO.
Having considered the rival submission as well as relevant material on record, at the outset it is noted that the Hon’ble Jurisdictional High Court in the case of CIT Vs. KEI Industries Ltd. (supra), by following the judgement of the Hon’ble Karnataka High Court in the case of the CIT Vs. Yoko Gama Ltd. (supra) as well as judgment of Bombay High Court in the case of CIT Vs. Black and Veatch Consulting P. Ltd. (2012) 348 ITR 372 held in para 12 to 14 as under:- 12. At this stage, it would also be necessary to recollect the Supreme Court's judgment in CIT v. Williamson Financial Services [2008] 297 ITR 17/[2007] 165 Taxman 638 which was taken note of in TEI Technologies (P.) Ltd. (supra), In Williamson Financial Services (supra), the Supreme Court held that: 'At this stage we have to analyse Chapter III which deals with incomes which do not form part of total income. Section 10 groups in one place various incomes which are exempt from tax. The incomes enumerated in section 10 are not only excluded from the taxable income of the assessee but also from his total income. The exemption embodied in section 10 can be divided into two categories, namely, exemption to which certain classes of income from their very nature are entitled and the second category concerns exemption which the character of the assessee entitles him to claim. In the first category is agricultural income Page No. 3 whereas in the second category of exempted income is the income of local authorities and diplomatic officers. We are concerned with the first category. In addition to the above two categories there is a third kind of income. These incomes are wholly or partly tax-free incomes on account of special deductions under Chapter VI-A. We are essentially concerned with these tax-free incomes. ** ** ** …. As stated above, there is a vital difference between income not chargeable to tax and not includible in the total income (for example, agricultural income) and income which forms part of total income but which is made tax-free. Deductions under Chapter VI-A fall in the category of tax-free incomes. In fact, history shows that some of the incomes in Chapter VI-A have been transferred from Chapter VII to Chapter VI-A. Chapter VII has been deleted. However, at the relevant time Chapter VII referred to incomes forming part of total income on which no tax was payable. That is why we have stated that there is a difference between "exempted incomes" and "tax-free incomes". This distinction is of some importance. As stated above, section 5 provides what the "total income" shall include. Chapter III refers to "incomes which do not form part of total income". Chapter IV deals with "computation of total income". It classifies the "income" under different heads and the deductions to be made in respect of each of the different heads of income. In the Income-tax Act, the expression "income includible in the total income" has a definite connotation. Similarly, the expression "deduction and allowances" have particular connotation. Therefore, on the one hand we have "agricultural income" which is neither chargeable nor includible in the total income and on the other hand we have - "incomes" under Chapter VI-A which are part of total income but which are tax-free.' 13. This court in TEI Technologies (P.) Ltd. (supra) also ruled out that by virtue of Section 80A (4) the position is any different. It was held that even if Section 10A/ Section 10B are treated as exemption provisions, Section 80A (4) cannot defeat that interpretation. The object of Section 80-A (4) was explained as ensuring that "double benefit does not result to an assessee in respect of the same income, once under Section 10A or Section 10B or under any of the provisions of Chapter VIA and again under any other provision of the Act." It was held that even if Section 10A or Section 10B is construed as exemption provisions, "it is still possible to invoke the sub-section and ensure that the assessee does not obtain a deduction in respect of the exempted income under any other provision of the Act. The only object of the sub-section is to ensure that there is no double benefit arising to the assessee in respect of the same income."
In this case, this court is of the opinion that TEI Technologies (P.) Ltd. (supra) applies. The tax-exempt income of the assessee, eligible under Section 10-B could not have been set off against the losses from tax- liable income.”