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June 14, 2022

Deduction available under section 10B for income of qualified units without setting off b/f unabsorbed depreciation/business loss.

by CA Shivam Jaiswal in Income Tax

Deduction available under section 10B for income of qualified units without setting off b/f unabsorbed depreciation/business loss.

Facts and Issue of the case

The assessee has, more or less, raised common grounds of appeal for all the assessment years. Therefore, for the sake of brevity, grounds of appeal for the AY 2003-04, are re-produced as under:

  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reopening is bad in law.
  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had fully and truly disclosed all material particulars
  • For that the Completion of the assessment for assessment year 2007-08 does not empower the Assessing Officer to reopen the assessment of the impugned year.
  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the assessment can be reopened only if the income escaping assessment exceeds Rs.1 lakh
  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reopening is not valid when the reasons recorded for reopening, which was requested, was not furnished to the assessee before completion of assessment.
  • For that the Commissioner of Income Tax (Appeals) erred in concluding that the appellant should request for reasons recorded for reopening only after filing the return of income in response to notice u/s.148
  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the reassessment was completed without issue of notice u/s.143(2)
  • For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant is eligible to claim deduction u/s.10B on the profits before setting off of brought forward business loss and unabsorbed depreciation
  • For that the Commissioner of Income Tax (Appeals) erred in confirming the inadvertent claim of deduction u/s.10B at 90% of the profits as against the allowable claim of 100% of the profits
  • For that the Commissioner of Income Tax (Appeals) erred in concluding that the statute of law regarding the percentage of eligibility as at the beginning of the assessment year in which the deduction was claimed will govern the percentage of eligibility for all assessment years.
  • For that the Commissioner of Income Tax (Appeals) erred in concluding that no extra benefit can be claimed by the appellant in a reassessment.

The assessee is engaged in the business of export of processed agricultural produce like gherkins, onions and other vegetables. The assessee company is a 100% Export Oriented Unit and has claimed deduction u/s.10B of the Act, from the AY 2000-01. A survey u/s.133A of the Act, was conducted in the business premises of the assessee on 17.11.2009. Consequent to the survey, the assessment has been re-opened u/s.147 of the Act. The assessments have been completed u/s.143(3) r.w.s.147 of the Act, and determined profits & gains eligible for deduction u/s.10B of the Act, at Rs.Nil after setting off of brought forward business loss and unabsorbed depreciation against profit derived from eligible unit and denied deduction u/s.10B of the Act. The assessee carried the matter in appeal before the Ld.CIT(A), but could not succeed. The Ld.CIT(A) for the reasons stated in his appellate order dated 04.02.2016, rejected the arguments of the assessee and sustained the additions made by the AO towards denial of deduction u/s.10B of the Act.

The first issue that came up for our consideration from Ground No.8 of the assessee’s appeals for all assessment years is deduction claimed u/s.10B of the Act, before setting off of brought forward business loss and unabsorbed depreciation. The assessee had claimed deduction u/s.10B of the Act, towards eligible profit from 100% Export Oriented Unit before setting off of brought forward business loss and unabsorbed depreciation. The AO has re-computed deduction u/s.10B of the Act, after setting off of brought forward business loss and unabsorbed depreciation and wherever ‘Nil’ profit from the Export Oriented Unit, the AO had denied deduction claimed u/s.10B of the Act.

Observation of the Court

Court has heard both the parties, perused the materials available on record and gone through orders of the authorities below. The question that needs to be answered in the given facts and circumstances of the present case is whether brought forward business loss and unabsorbed depreciation of eligible or non-eligible units can be set off against the profits eligible units before claiming deduction u/s.10B of the Act. The issue is no longer res integra. The Hon’ble Supreme Court in the case of CIT & Anr. v. Yokogawa India Ltd., had considered very similar issue and in light of provisions of Sec.10A & 10B of the Act, and after considering relevant facts very categorically held that the stage of deduction would be while computing gross total income of eligible undertaking under Chapter-IV of the Act, and not at the stage of the computation of total income under Chapter-VI of the Act. The Hon’ble Supreme Court while upholding the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Yokogawa India Ltd. & Ors. reported in [2012] 341 ITR 385 (Karnataka), had considered the observations of the Hon’ble Karnataka High Court, wherein, it has been clearly held that the exemption u/s.10A of the Act, has to be allowed without setting off of brought forward business loss and unabsorbed depreciation from the earlier assessment years or current assessment year either in the case of STP Units or in the case of very same undertaking.         

In this view of the matter and by respectfully following the decision of the Hon’ble Supreme Court in the case of CIT & Anr. v. Yokogawa India Ltd., court is of the considered view that deduction u/s.10B of the Act, should be allowed before setting off of brought forward business loss and unabsorbed depreciation against profits from the eligible unit. Hence, we direct the AO to allow deduction u/s.10B of the Act, as claimed by the assessee.

The next issue that came up for court’s consideration from AYs 2004-05 to 2007-08 of the assessee’s appeals is deduction u/s.10B of the Act @100% as against 90% claimed by the assessee in the return of income filed for the relevant AYs. The assessee had claimed 90% deduction towards eligible profits u/s.10B of the Act, as per the amended provisions. However, in the re-assessment proceedings, the assessee had made a fresh claim u/s.10B of the Act, and claimed deduction towards 100% of profits derived from eligible units on the basis of pre-amended provisions u/s.10B of the Act, by arguing that when the assessee had claimed deduction for the first time in the year 2000-01, the law was very clear in as much as the assessee is entitled for 100% deduction u/s.10B of the Act, for eligible profits and thus, even if law is amended in subsequent years, restricting deduction to 90% of the profits, but the assessee is entitled for 100% deduction towards eligible profits.

In so far as legal principle is concerned, the Hon’ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (supra) has laid down very clear ratio, as per which, the issues which are concluded in the original assessment proceedings, cannot be re-considered in re-assessment proceedings. In other words, re-opening of assessment u/s.147 of the Act, is for the benefit of the Department and hence, the assessee cannot make any fresh claim of deduction/exemption in the re-assessment proceedings. Therefore, to this extent, we are in agreement with the conclusions drawn by the AO and the Ld.CIT(A) and thus, the arguments of the assessee has been rejected.

As regards the entitlement of the assessee towards deduction u/s.10B of the Act, is concerned, when the assessee claimed deduction first time in the year 2000-01, it was eligible to claim 100% deduction towards profits of eligible units. However, the law has been amended by the Finance Act, 2002 w.e.f. 01.04.2003, as per which, for the AY beginning on the first day of April, 2003, the deduction under this sub-section shall be 90% of the profits & gains derived by an undertaking. From the above, it is very clear that from AY 2003-04 onwards, the assessee can claim deduction u/s.10B of the Act, up to 90% of the profits & gains derived by an undertaking.   In fact, the assessee itself had restricted the claim of deduction to 90% of the profits derived, as per amendment provisions applicable to the AY 2003.04. Therefore, we are of the considered view that there is no merit in the grounds as well as the additional grounds taken for some years in respect of 100% deduction towards profits derived from an eligible unit and thus, we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the assessee for all assessment years.

The next issue that came up for our consideration from AY 2004-05 of the assessee’s appeal is set off of brought forward unabsorbed depreciation or business loss against income from other sources. The assessee had taken an additional grounds and challenged the action of the AO in not allowing brought forward unabsorbed depreciation or business loss against income from other sources. The AO had denied set off of brought forward unabsorbed depreciation or business loss against income from other sources on the ground that the assessee does not have brought forward unabsorbed depreciation or business loss after setting off of said loss against profits derived from eligible unit.

Court finds that the AO had not been considered the plea of the assessee mainly on the ground that the assessee had left with no brought forward unabsorbed depreciation or business loss after setting off of business loss against profits & gains of eligible units. But, fact remains that we have already held in previous paragraphs in light of decision of the Hon’ble Supreme Court in the case of CIT & Anr. v. Yokogawa India Ltd. & Ors. (supra) that the stage of computation of deduction u/s.10B of the Act, is while computing the gross total income of the eligible undertaking and Chapter-IV and not at the stage of computation of the total income under Chapter-VI. That means, the assessee can claim deduction towards profits of eligible units without setting off of brought forward unabsorbed depreciation or business loss. The claim of the assessee is that if the AO allows deduction u/s.10B of the Act, without set off of brought forward unabsorbed depreciation or business loss, then, the assessee is having sufficient amount of brought forward unabsorbed depreciation or business loss, which can be set off against income from other sources. The matter needs to be re-examined by the AO. Therefore, we set aside the issue to the file of the AO and direct the AO to re-compute the income of the assessee in light of our discussion given hereinabove on the basis of the Hon’ble Supreme Court in the case of CIT & Anr. v. Yokogawa India Ltd. & Ors. (supra) and further, consider the claim of the assessee towards set off of brought forward unabsorbed depreciation or business loss against income from other sources in accordance with provisions of Sec.72 of the Act.

The assessee has raised various grounds challenging re-opening of assessment u/s.147 of the Act, for the AYs 2003-04 to 2008-09 and argued that re-opening of assessment is bad in law and liable to quashed. At the time of hearing, the Ld.AR for the assessee made a statement at bar that in case, he succeeds on other grounds challenging the issues involved on merits in respect of deduction u/s.10B of the Act, and set off of brought forward unabsorbed depreciation or business loss, then, he would not argue other grounds taken to challenge the re-opening of assessment for all assessment years. Therefore, considering the facts and circumstances and also the statement of the Counsel for the assessee, we are of the considered view that since, the assessee had succeeded on the issue of deduction u/s.10B of the Act, and set off of brought forward unabsorbed depreciation or business loss, the other grounds taken by the assessee challenging re- opening of assessment becomes academic in nature and thus, we are of the considered view that other grounds taken by the assessee challenging re-opening of assessment, does not require specific adjudication at this stage and hence, all other grounds taken by the assessee, including the grounds taken to challenge the re-opening of assessment are dismissed as infructuous.

Conclusion

The appeals filed by the assessee were partly allowed the court

International-Agricultural-Processing-P-Ltd.-Vs-ACIT-ITAT-Chennai

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