Mindteck (India) Ltd., V. I.T.O. Ward - 12(1),

ITA 1054/BANG/2013

• Counselvise Citation: 105421114 RSA 2013
• Duration Of Justice: 1 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 02-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJU M K JT
• Assessee Lawyers: RAGHUNATHAN S
• Keywords: Business income; Transfer pricing; Principle of natural justice; Validity of assessment
• Section: 143(3); 10AA; 234B; 10B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI PRAMOD M. JAGTAP, ACCOUNTANT MEMBER AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.1054/BANG/2013 ASSESSMENT YEAR : 2003-04 MINDTECK (INDIA) LIMITED, PRESTIGE ATLANTA, NO.10, INDUSTRIAL LAYOUT, 7 TH MAIN 80 FT. ROAD, 3 RD BLOCK, KORAMANGALA, BANGALORE 560 034. PAN : AAACH 1072Q VS. THE INCOME TAX OFFICER, WARD 12(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI RAGHUNATHAN S., ADVOCATE RESPONDENT BY : SHRI BIJU, M.K., JT.CIT(DR) DATE OF HEARING : 30.06.2014 DATE OF PRONOUNCEMENT : 04.07.2014 O R D E R PER PRAMOD M. JAGTAP, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE LD. CIT(APPEALS)-III, BANGALORE DATED 27.03.2013 AN D THE GRIEVANCE OF THE ASSESSEE IS PROJECTED IN THE FOLLOWING GROUNDS RAIS ED THEREIN:- ITA NO.1054/BANG/2013 PAGE 2 OF 17 1. ASSESSMENT AND REFERENCE TO TRANSFER PRICING OFFICE R ARE BAD IN LAW 1.1 THE ORDER PASSED BY THE INCOME-TAX OFFICER WAR D 12(1) [ITO OR AO], IS BAD ON FACTS AND IN LAW, AND IS IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. WITHOUT PREJUDICE TO OUR GROUND CHALLENGING THE ORD ER OF AO, WE APPEAL THAT 2. ADDITION OF INTEREST INCOME OF RS 6,884,758 2.1 THE LEARNED ASSESSING OFFICER HAS ERRED IN TRE ATING THE INTEREST INCOME EARNED BY THE APPELLANT COMPANY AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 2.2 THE LEARNED ASSESSING OFFICER OUGHT TO HAVE OB SERVED THAT THE INTEREST INCOME EARNED ARE IN THE NORMAL COURSE OF BUSINESS AND THUS SHOULD BE TREATED AS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION AND NOT UNDER T HE HEAD INCOME FROM OTHER SOURCES. 2.3 FURTHER, THE LEARNED ASSESSING OFFICER HAS ERR ED IN NOT SETTING OFF OF THE RESULTANT CURRENT YEAR BUSINESS LOSS AGAINST THE INCOME FROM OTHER SOURCES BY VIRTUE OF OPERATION OF PROVISIONS OF SECTION 71 OF THE ACT. 3. LEVY OF INTEREST UNDER SECTION 234B OF THE ACT OF RS 2,353,037 3.1 INTEREST UNDER SECTION 234B OF THE ACT IS CONS EQUENTIAL IN NATURE. 4. DIRECTIONS ISSUED BY THE HONORABLE COMMISSIONER OF INCOME TAX (APPEALS) III 4.1 THE HONORABLE CIT/AO HAS ERRED IN LAW AND ON F ACTS IN NOT TAKING COGNIZANCE OF THE GROUNDS FILED BY THE A PPELLANT IN RELATION TO THE ASSESSMENT ORDER PASSED BY THE AO I N THE PROCEEDINGS BEFORE THEM. 4.2 THE HONORABLE CIT/AO ERRED IN FACTS AND LAW IN DISALLOWING THE SET-OFF OF THE 10A UNIT LOSS DURING THE CURRENT ITA NO.1054/BANG/2013 PAGE 3 OF 17 YEAR AGAINST NON 10A UNIT PROFIT AND OTHER INCOME I N ACCORDANCE WITH SEC 70 AND SEC 71 OF THE ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD OR ALTER, BY DELETION, SUBSTITUTION, MODIFICATION OR OTHERWISE, THE ABOVE GROUNDS OF APPEAL, EITHER BEFORE OR DURING THE HEARING OF THE APPEAL. THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE IN DEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 2. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL FOR THE ASSESSEE HAS NOT PRESSED GROUNDS NO. 1.1, 2.1, 2.2, 4.1 & 5 RAISED IN THE APPEAL OF THE ASSESSEE. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 3. AS FAR AS GROUND NO.3.1 IS CONCERNED, THE ISSUE RAISED THEREIN RELATING TO LEVY OF INTEREST U/S. 234B IS CONSEQUEN TIAL IN NATURE, AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW CONSEQUENTIAL RELIEF TO THE ASSESSEE ON THIS ISSUE. 4. THIS LEAVES US WITH ONLY GROUND NOS. 2.3 AND 4.2 RAISED IN THE APPEAL OF THE ASSESSEE, WHICH INVOLVE A COMMON ISSU E RELATING TO THE ASSESSEES CLAIM FOR SETTING OFF OF LOSS OF 10A UNI T AGAINST THE INCOME FROM OTHER SOURCES. 5. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE DEVELOPMENT S ERVICES. IT IS A STP UNIT, WHICH COMES UNDER THE PURVIEW OF SECTION 10A SCHEME. IN THE RETURN OF INCOME ORIGINALLY FILED FOR THE YEAR UNDER CONSI DERATION, THE LOSS WAS ITA NO.1054/BANG/2013 PAGE 4 OF 17 SHOWN BY THE ASSESSEE IN ITS STP UNIT AND AFTER SET TING OFF SUCH LOSS AGAINST THE INTEREST INCOME OF RS.68,84,745 EARNED DURING THE YEAR UNDER CONSIDERATION, THE TOTAL INCOME WAS DECLARED AT NIL . ALTHOUGH THIS CLAIM OF THE ASSESSEE WAS INITIALLY ALLOWED BY THE ASSESSING OFFICER, HE REOPENED THE ASSESSMENT SUBSEQUENTLY U/S. 147 AND ISSUED A N OTICE U/S. 148 OF THE ACT TO THE ASSESSEE ON 30.3.2010, AFTER RECORDING T HE REASONS AND AFTER OBTAINING THE NECESSARY SANCTION OF THE ADDL. CIT, RANGE 12, BANGALORE. THEREAFTER, ASSESSMENT U/S. 143(3) R.W.S. 147 WAS C OMPLETED BY THE AO VIDE AN ORDER DATED 29.12.2010, BRINGING TO TAX THE INTEREST INCOME OF RS.68,84,758 IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES AND DISALLOWING CLAIM OF THE ASSESSE E FOR SETTING OFF OF 10A UNIT LOSS AGAINST THE SAID INTEREST INCOME. 6. AGAINST THE ORDER PASSED BY THE AO U/S. 143(3) R .W.S. 147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS), CHALLENGING THE VALIDITY OF ASSESSMENT MADE BY THE AO AS WELL AS DISPUTING THE DISALLOWANCE MADE THEREIN ON ACCOUNT OF ITS CLA IM FOR SETTING OFF OF 10A UNIT LOSS AGAINST THE INTEREST INCOME. 7. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AS SESSEE AS WELL AS MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) DID NO T FIND MERIT IN THE PRELIMINARY ISSUE RAISED BY THE ASSESSEE CHALLENGIN G THE VALIDITY OF ASSESSMENT MADE BY THE AO AND REJECTING THE SAME, H E UPHELD THE VALIDITY OF ASSESSMENT MADE BY THE AO U/S. 143(3) R.W.S. 147 . ITA NO.1054/BANG/2013 PAGE 5 OF 17 8. THE LD. CIT(A) ALSO UPHELD THE ACTION OF THE AO IN BRINGING TO TAX THE INTEREST INCOME IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. AS REGARDS THE CLAIM OF THE ASSESS EE FOR SETTING OFF OF 10A UNIT LOSS AGAINST INTEREST INCOME, THE LD. CIT(A) U PHELD THE ORDER OF THE AO DISALLOWING THE SAID CLAIM RELYING ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAWA INDIA LTD,. 341 ITR 385 (KAR) , WHEREIN IT WAS HELD THAT SECTION 10A BEING AN EXE MPTION PROVISION, INCOME OF THE 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME AND SINCE THIS INCOME IS NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THERE IS NO OCCASION TO SETOFF THE LOSSES OF THE ASSESSEE IN RESPECT OF ITS OTHER BUSINESS AGAIN ST THE PROFITS OF THE EXEMPTED UNIT. THE LD. CIT(APPEALS) HELD THAT THE RATIO OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) IS APPLICABLE IN REVERSE DIRECTION ALSO AND ACCORD INGLY NEITHER THE INCOME NOR THE LOSS OF AN EXEMPTED UNIT CAN BE ADJU STED AGAINST THE PROFIT OF OTHER UNIT OR ANY OTHER INCOME. THE LD. CIT(A) ALSO RELIED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KARLE INTERNATIONAL PVT. LTD. (ITA NO.381/BANG/2012 DATED 12.10.2012) , WHEREIN IT WAS HELD THAT THE LOSS OF AN EXEMPTED UNIT CANNOT B E SET OFF AGAINST OTHER INCOME AND SUCH LOSS SHALL HAVE TO BE QUARANTINED A ND CARRIED FORWARD TO THE ASSESSMENT YEAR FOLLOWING THE LAST OF THE ASSES SMENT YEARS COVERED BY THE PERIOD ELIGIBLE FOR DEDUCTION U/S. 10B OF THE A CT. ACCORDINGLY, RELYING ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF ITA NO.1054/BANG/2013 PAGE 6 OF 17 YOKOGAWA INDIA LTD, (SUPRA) AS WELL AS THE DECISION OF BANGALORE BENCH OF THE ITAT IN THE CASE OF KARLE INTERNATIONAL PVT. LTD. (SUPRA) , THE LD. CIT(A) UPHELD THE ACTION OF THE AO IN DISAL LOWING THE ASSESSEES CLAIM FOR SETTING OFF OF 10A UNIT LOSS AGAINST THE INCOME FROM OTHER SOURCES. HE, HOWEVER, HELD THAT THE ASSESSEE SHALL BE ENTITL ED TO CARRY FORWARD THE SAID LOSS TILL THE ASSESSMENT YEAR FOLLOWING THE LA ST OF THE ASSESSMENT YEARS WITHIN THE TAX HOLIDAY PERIOD. 9. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS RAISED THIS ISSUE IN THE PRESENT APPEAL BEFORE THE TRIBUNAL. 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALTHOUGH THE CLAIM OF THE ASSESSEE FOR SETTING OFF OF 10A UNIT LOSS AG AINST THE INCOME FROM OTHER SOURCES IS DISALLOWED BY THE AUTHORITIES BEL OW RELYING MAINLY ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) AND THE DECISION OF THE ITAT IN THE CASE OF KARLE INTERNATIONAL PVT. LTD. (SUPRA) , THE SAID CLAIM OF THE ASSESSEE IS DULY SUPPORTED BY THE RECENT CIRCULAR NO.07/DV/2013 ISSU ED BY THE CBDT ON 16.7.2013. 11. HE INVITED OUR ATTENTION TO THE RELEVANT PORTIO N OF THE SAID CIRCULAR AT PARA 5 AND POINTED OUT THAT AS CLARIFIED BY THE CBD T, FIRST THE INCOME/LOSS FROM THE VARIOUS SOURCES I.E., ELIGIBLE AND INELIGI BLE UNITS UNDER THE SAME HEAD ARE REQUIRED TO BE AGGREGATED IN ACCORDANCE WI TH THE PROVISIONS OF ITA NO.1054/BANG/2013 PAGE 7 OF 17 SECTION 70 OF THE ACT AND THEREAFTER THE INCOME FRO M ONE HEAD IS TO BE AGGREGATED WITH INCOME OR LOSS OF THE OTHER HEAD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF THE ACT. HE CONTENDED THAT AS STATED IN PARA 1 OF THE BOARD CIRCULAR, IT WAS BROUGHT TO THE NOTICE OF THE BOARD THAT THE PROVISIONS OF SECTIONS 10A/10AA/10B/10BA OF THE ACT WITH REGARD TO APPLICABILITY OF CHAPTER IV OF THE ACT AND CARRY FO RWARD OF LOSSES, WERE BEING INTERPRETED DIFFERENTLY BY OFFICERS OF THE DE PARTMENT AS WELL AS BY DIFFERENT HIGH COURTS AND IN ORDER TO BRING CLARIFY AND UNIFORMITY, A CIRCULAR HAS BEEN ISSUED BY THE CBDT GIVING THE DEPARTMENTAL VIEW ON THIS ISSUE. HE INVITED OUR ATTENTION TO THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. TEI TECHNOLOGIES PVT. LTD., 259 CTR (DEL) 186 , WHEREIN IT WAS OBSERVED WHILE DEALING WITH A SIMILA R ISSUE, THAT SUB- SECTION (1) OF SECTION 10A, AFTER THE AMENDMENT MAD E BY THE FINANCE ACT, 2002 W.E.F. 1.4.2001, CREATES AMBIGUITY OR DOUBT BE CAUSE OF THE LANGUAGE USED, AS TO WHETHER IT PROVIDES FOR AN EXEMPTION OR A DEDUCTION. IT WAS FURTHER OBSERVED BY THE HONBLE DELHI HIGH COURT TH AT THERE IS UNCERTAINTY AND LACK OF CLARITY OR PRECISION IN THE LANGUAGE EM PLOYED IN SUB-SECTION (1) OF SECTION 10A. 12. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT THE RELEVANT PROVISIONS OF SECTION 10A THUS ARE NOT CLEAR AND UN AMBIGUOUS RESULTING IN DIFFERENT INTERPRETATIONS GIVEN BY DIFFERENT FORUMS AND IN ORDER TO BRING CLARITY AND UNIFORMITY, A CIRCULAR HAS BEEN ISSUED BY THE BOARD GIVING THE ITA NO.1054/BANG/2013 PAGE 8 OF 17 DEPARTMENTAL VIEW ON THE ISSUE. HE CONTENDED THAT THE SAID CIRCULAR IS BENEFICIAL INSOFAR AS THE PRESENT CASE OF THE ASSES SEE IS CONCERNED AND THE SAME THEREFORE IS BINDING ON THE REVENUE AUTHORITIE S. HE CONTENDED THAT THE ASSESSEE THUS IS ENTITLED TO CLAIM THE SET OFF OF 10A UNIT LOSS AGAINST INCOME FROM OTHER SOURCES, AS PER THE CIRCULAR DATE D 16.7.2013 ISSUED RECENTLY BY THE CBDT WHICH IS BINDING ON THE REVENU E AUTHORITIES, BEING BENEVOLENT TO THE ASSESSEE. IN SUPPORT OF THIS CON TENTION, HE RELIED ON THE FOLLOWING DECISIONS OF THE HONBLE SUPREME COURT:- 1. NAVNIT LAL C. JAVERI V. K.K. SEN, AAC, 56 ITR 19 8. 2. ELLERMAN LINES LTD. V. CIT, 82 ITR 9213. 3. VARGHESE (K.P.) V. ITO, 131 ITR 597 4. C.B. GAUTAM V. UOI & ORS,. 199 ITR 530 5. UCO BANK V. CIT, 237 ITR 889 6. CATHOLIC SYRIAN BANK LTD. V. CIT, 341 ITR 270. 13. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE LD. CIT(APPEALS) IN SUPPORT OF THE REVENUES CASE ON TH IS ISSUE. HE CONTENDED THAT WHILE UPHOLDING THE ACTION OF THE AO DISALLOWI NG THE ASSESSEES CLAIM FOR SET OFF OF 10A UNIT LOSS AGAINST INCOME FROM OT HER SOURCES, THE LD. CIT(A) HAS RELIED ON THE INTERPRETATION GIVEN TO THE RELEV ANT PROVISIONS OF SECTION 10A BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) AS WELL AS BY THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF THE CASE OF KARLE INTERNATIONAL PVT. LTD. (SUPRA) . HE CONTENDED THAT THE CBDT CIRCULAR GIVING INTERPRETATION OF THE SAID PROVISIONS, ON THE ITA NO.1054/BANG/2013 PAGE 9 OF 17 OTHER HAND, HAS BEEN ISSUED SUBSEQUENTLY AND THE IN TERPRETATION SO GIVEN IN THE BOARD CIRCULAR REPRESENTING THE DEPARTMENTAL VIEW ON THE ISSUE CANNOT BE PREFERRED TO THE INTERPRETATION GIVEN BY THE HONBLE JURISDICTIONAL HIGH COURT TO THE RELEVANT PROVISIONS. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT T HE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR SETTING O FF OF THE LOSS OF 10A UNIT AGAINST INTEREST INCOME ASSESSED UNDER THE HEAD IN COME FROM OTHER SOURCES WAS CONFIRMED BY THE LD. CIT(A) MAINLY REL YING ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD., (SUPRA) , WHEREIN IT WAS HELD THAT S. 10A BEING AN EXEMPTIO N PROVISION, THE INCOME OF 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITS ELF, FROM THE COMPUTATION OF TOTAL INCOME AND THE LOSS OF NON-10A UNIT THEREFORE COULD NOT BE SET OFF AGAINST THE INCOME OF 10A UNIT. ACC ORDING TO THE LD. CIT(A), THE RATIO OF THIS DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT WAS APPLICABLE IN REVERSE DIRECTION ALSO AND THEREFORE NEITHER THE INCOME NOR THE LOSS OF AN EXEMPTED UNIT COULD BE ADJUSTED AGAI NST THE RESULTS OF ANOTHER UNIT (WHETHER EXEMPTED OR NOT) RUN BY THE A SSESSEE, AS PER THE RATIONALE OF THE JUDGMENT OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) . THE LD. CIT(A) ALSO RELIED ON THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KARLE INTERNATIONAL PVT. LTD. (SUPRA) , WHEREIN THE IT WAS HELD, RELYING ON THE DECISION OF ITA NO.1054/BANG/2013 PAGE 10 OF 17 HONBLE HIGH COURT OF KARNATAKA THAT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) THAT SECTION 10A BEING AN EXEMPTION PROVISION, THE PROFIT OR LOSS OF 10A UNIT DOES NOT ENTER THE COMPUTATION OF TOTAL IN COME AT ALL AND THEREFORE, THE LOSS OF SUCH A 10A UNIT CANNOT BE SET OFF AGAIN ST THE OTHER INCOME. 15. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL FOR THE ASSESSEE HAS STRONGLY RELIED ON THE CBDT CIRCULAR NO.07/DV/2 013 ISSUED ON 16.7.2013, IN SUPPORT OF THE ASSESSEES CASE AND CO NTENDED THAT THE SAID CIRCULAR, ISSUED BY THE CBDT AFTER THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) AS WELL AS THE DECISION OF THE TRIBUNAL IN THE CASE OF KARLE INTERNATIONAL PVT. LTD. (SUPRA), IS BENEFICIAL TO THE ASSESSEE IN THE PRESENT CASE, AND THE SAME THEREFORE IS BINDING ON THE REVENUE AUTHORITIES. 16. BEFORE WE DEAL WITH THE AFORESAID CBDT CIRCULAR , LET US ASCERTAIN THE EXACT LEGAL POSITION ON THIS ISSUE, AS IT PREVA ILED PRIOR TO THE ISSUE OF THE SAID CIRCULAR. IT IS PERTINENT TO NOTE IN THIS REG ARD THAT ALTHOUGH SECTION 10A WAS HELD TO BE AN EXEMPTION PROVISION BY THE HONBL E HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) , A DIFFERENT VIEW WAS EXPRESSED BY THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF HINDUSTAN UNILEVER LTD., 325 ITR 102 , HOLDING THAT SECTION 10B, THE PROVISIONS OF WHICH ARE ANALOGOUS TO THE PROVISIONS OF SECTION 10A, IS NO MORE AN EXEMPTION PROVISION, BUT PROVIDES FOR A DED UCTION AFTER ITS SUBSTITUTION BY THE FINANCE ACT, 2000 W.E.F. 1.4.20 01. IN THE CASE OF ITA NO.1054/BANG/2013 PAGE 11 OF 17 HINDUSTAN UNILEVER LTD. (SUPRA) , ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE FOR DEDUCTION U/S. 10B AND OUT OF THE SAID FOUR UNITS, THREE UNITS HAD RETURNED THE PROFITS WHILE THE REMAINING 4 TH UNIT HAD RETURNED A LOSS. IN THESE FACTS AND CIRCUMSTANCES, THE HONBLE BOMBAY H IGH COURT HELD THAT THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS, WHILE THE LOSS SUSTAINED BY T HE 4 TH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. 17. A SIMILAR VIEW WAS ALSO EXPRESSED BY THE HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT V. GALAXY SURFACTANTS LTD., 343 ITR 108 (BOM) AND CIT V. BLACK & VEATCH CONSULTING PVT. LTD., ITA NO.1237 OF 2011 DATED 9.4.2012 . 18. THERE WAS, THUS, A CLEAR CONFLICT IN THE VIEW T AKEN BY THE HONBLE BOMBAY HIGH COURT AND THE HONBLE HIGH COURT OF KAR NATAKA ON THIS ISSUE AND IN THE CASE OF CIT V. TEI TECHNOLOGIES PVT. LTD., 259 CTR (DEL) 186 , THE HONBLE DELHI HIGH COURT TOOK NOTICE OF THIS CONFLICT. IN THIS CONTEXT, IT WAS OBSERVED BY THE HONBLE DELHI HIGH COURT IN PARA 28 OF ITS JUDGMENT THAT IN INTERPRETING SUB-SECTION (1) O F SECTION 10A AFTER THE AMENDMENT MADE BY THE FINANCE ACT, 2000 W.E.F. 1.4. 2001, ONE CANNOT DENY THAT THERE IS AMBIGUITY OR DOUBT, BECAUSE OF T HE LANGUAGE USED, AS TO WHETHER THE SUB-SECTION PROVIDES FOR AN EXEMPTION O R A DEDUCTION. IT WAS ITA NO.1054/BANG/2013 PAGE 12 OF 17 ALSO OBSERVED BY THE HONBLE DELHI HIGH COURT THAT THERE IS UNCERTAINTY OR LACK OF PRECISION IN SUB-SECTION (1) OF SECTION 10A . 19. IN THE CBDT CIRCULAR DATED 16.7.2013, WHICH HAS BEEN STRONGLY RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IN SUPPORT OF THE ASSESSEES CLAIM FOR SET OFF OF THE LOSS OF 10A UNIT AGAINST I NCOME FROM OTHER SOURCES, THIS CONFLICT WAS TAKEN NOTE OF IN PARA 1 OF THE CI RCULAR STATING THAT IT HAD BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT THE PR OVISIONS OF SECTION 10A/ 10AA/10B/10BA OF THE INCOME-TAX ACT, WITH REGARD TO APPLICABILITY OF CHAPTER IV OF THE ACT AND SET OFF AND CARRY FORWARD OF LOSSES, ARE BEING INTERPRETED DIFFERENTLY BY THE OFFICERS OF THE DEPA RTMENT AS WELL AS BY DIFFERENT HIGH COURTS. THE BOARD THEN NARRATED IN PARAS 2 TO 4 OF THE CIRCULAR THE AMENDMENTS MADE IN THE RELEVANT PROVIS IONS OF SECTION 10A AND 10B TO OVERCOME THIS SITUATION BEFORE FINALLY G IVING ITS VIEWS ON THE PURPOSE THAT IS SOUGHT TO BE ACHIEVED BY THE SAID A MENDMENTS IN PARA 5 AND 6 OF THE CIRCULAR AS UNDER:- 5. FROM THE ABOVE IT IS EVIDENT THAT IRRESPECTIVE OF T HEIR CONTINUED PLACEMENT IN CHAPTER III, SECTION 10A AND 10B AS SUBSTITUTED BY FINANCE ACT, 2000 PROVIDE FOR DEDUCT ION OF THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGIN S TO MANUFACTURE OR PRODUCE SUCH ARTICLE OR THING OR COM PUTER SOFTWARE. THE DEDUCTION IS TO BE ALLOWED FROM THE T OTAL INCOME OF THE ASSESSEE. THE TERM TOTAL INCOME HAS B EEN DEFINED IN SECTION 2(45) OF THE IT ACT AND IT MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE ITA NO.1054/BANG/2013 PAGE 13 OF 17 MANNER LAID DOWN IN THE INCOME-TAX ACT. (EMPHASIS ADDED ) 5.1 ALL INCOME FOR THE PURPOSES OF COMPUTATION OF TOTAL INCOME IS TO BE CLASSIFIED UNDER THE FOLLOWING HEAD S OF INCOME AND COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF C HAPTER IV OF THE ACT SALARIES INCOME FROM HOUSE PROPERTY PROFITS AND GAINS OF BUSINESS AND PROFESSION CAPITAL GAINS INCOME FROM OTHER SOURCES 5.2 THE INCOME COMPUTED UNDER VARIOUS HEADS OF INC OME IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER IV OF THE IT ACT SHALL BE AGGREGATED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI OF THE IT ACT, 1961. THIS MEANS THAT FIRST THE INCOME/ LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS, UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 70 OF THE ACT. THEREAFTER, THE INCOME FROM ONE AHEA D IS AGGREGATED WITH THE INCOME OR LOSS OF THE OTHER HEA D IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF THE ACT. IF AFTER GIVING EFFECT TO THE PROVISIONS OF SECTION 70 AND 7 1 OF THE ACT THERE IS ANY INCOME (WHERE THERE IS NO BROUGHT FORW ARD LOSS TO BE SET OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTIO N 72 OF THE ACT) AND THE SAME IS ELIGIBLE FOR DEDUCTION IN ACCORDANC E WITH THE PROVISIONS OF CHAPTER VI-A OR SECTION 10A, 10B ETC. OF THE ACT, THE SAME SHALL BE ALLOWED IN COMPUTING THE TOTAL IN COME OF THE ASSESSEE. 5.3 IF AFTER AGGREGATION OF INCOME IN ACCORDANCE W ITH THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT, THE RES ULTANT AMOUNT IS A LOSS (PERTAINING TO AY 2001-02 AND ANY SUBSEQUENT YEAR) FROM ELIGIBLE UNIT IT SHALL BE ELIGIBLE FOR CARRY FORWAR D AND SET OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT. SIMILARLY, IF THERE IS A LOSS FROM AN INELIGIBLE UN IT, IT SHALL BE CARRIED FORWARD AND MAY BE SET OFF AGAINST THE PROF ITS OF ELIGIBLE UNIT OR INELIGIBLE UNIT AS THE CASE MAY BE, IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT. 6. THE PROVISIONS OF CHAPTER IV AND CHAPTER VI SHA LL ALSO APPLY IN COMPUTING THE INCOME FOR THE PURPOSE OF DE DUCTION ITA NO.1054/BANG/2013 PAGE 14 OF 17 UNDER SECTION 10AA AND 10BA OF THE ACT SUBJECT TO T HE CONDITIONS SPECIFIED IN THE SAID SECTIONS. 20. IT IS INTERESTING TO NOTE THAT IN THE CASE OF BIOCON LIMITED (ITA NO.248/BANG/2010 & ORS.), THE BOARD CIRCULAR DATED 16.7.2013 ( SUPRA) WAS RELIED UPON ON BEHALF OF THE ASSESSEE IN A DIFFEREN T CONTEXT AND ON A DIFFERENT ISSUE RELATING TO WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT. THE TRIBUNAL, HOWEVER, HELD THAT THE SAID CIRCULAR REFE RRED TO BY THE LD. COUNSEL FOR THE ASSESSEE CANNOT BE SAID TO BE A BENEVOLENT CIRCULAR INASMUCH AS TREATING THE PROVISIONS OF SECTION 10A/10AA/10B AS A DEDUCTION PROVISION RESULTS IN HARDSHIP TO THE ASSESSEE, ESPECIALLY IN THE CONTEXT OF SET OFF OF LOSSES OF NON-10A/10B UNIT BEFORE ALLOWING DEDUCTIO N U/S. 10A/10B OF THE ACT. THE TRIBUNAL, THEREFORE, HELD THAT IT WOULD B E MOST APPROPRIATE IN SUCH A SITUATION TO FOLLOW THE BINDING DECISION OF THE H ONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA) . THE TRIBUNAL, HOWEVER, VISUALISED A SITUATION WHEREIN THERE IS A LOSS IN THE 10A/10B UNIT, WHICH IS SOUGHT TO BE SET OFF BY THE ASSESSEE AGAIN ST INCOME OF NON- 10A/10B UNIT AND OBSERVED VERY CATEGORICALLY THAT T HE VERY SAME CIRCULAR DATED 16.7.2013 COULD TURN OUT TO BE A BENEVOLENT C IRCULAR IN SUCH A SITUATION. 21. IN THE PRESENT CASE, WE ARE CONFRONTED WITH A S IMILAR SITUATION AS VISUALISED BY THE TRIBUNAL IN THE CASE OF BIOCON LIMITED (SUPRA) AND AS ITA NO.1054/BANG/2013 PAGE 15 OF 17 HELD BY THE TRIBUNAL IN THAT CASE, THE CIRCULAR DAT ED 16.7.2013 IS BENEVOLENT OR BENEFICIAL TO THE ASSESSEE IN THIS SI TUATION. 22. IN THE CASE OF NAVNIT LAL C. JAVERI V. K.K. SEN, AAC, 56 ITR 198 , THE LEGAL EFFECT OF CIRCULAR ISSUED BY THE CBDT WAS CONSIDERED BY A BENCH OF FIVE JUDGES OF THE HONBLE SUPREME COURT. IN THE SAID CASE, THE RELEVANT CBDT CIRCULAR WAS ISSUED LIMITING THE OPER ATION OF SECTION 12(1B) OR EXCLUDING CERTAIN TRANSACTIONS FROM THE AMBIT OF SECTION 12(1B) AFTER REALIZING THE EXTREME HARDSHIP CAUSED TO THE ASSESS EE, AS A RESULT OF THE STRICT OPERATION OF SECTION 12(1B). THE SAID CIRCU LAR ISSUED BY THE CBDT WAS HELD BY THE HONBLE SUPREME COURT AS BINDING ON THE REVENUE, AS THE SAME WAS CONSIDERED AS ISSUED FOR THE PURPOSE OF PR OPER ADMINISTRATION OF THE PROVISIONS OF SECTION 12(1B). THE HONBLE SUPR EME COURT DID NOT LOOK UPON THIS CIRCULAR AS BEING IN CONFLICT WITH THE PR OVISIONS OF SECTION 12(1B). 23. A SIMILAR VIEW WAS REITERATED BY THE HONBLE SU PREME COURT IN THE CASE OF VARGHESE (K.P.) V. ITO, 131 ITR 597, HOLDING THAT CIRCULARS OF CBDT ARE LEGALLY BINDING ON THE REVENUE AND THIS BINDING CHARACTER ATTACHES TO THE CIRCULAR, EVEN IF THEY ARE FOUND NO T IN ACCORDANCE WITH THE CORRECT INTERPRETATION OF THE SECTION AND THEY DEPA RT OR DEVIATE FROM SUCH CONSTRUCTION. 24. TO THE SIMILAR EFFECT IS THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF KESHAVJI RAVJI AND CO. V. CIT, 183 ITR 1 , WHEREIN IT WAS ITA NO.1054/BANG/2013 PAGE 16 OF 17 HELD THAT THE CIRCULARS BENEFICIAL TO THE ASSESSEE WHICH TONE DOWN RIGOR OF THE LAW AND ARE ISSUED IN EXERCISE OF THE STATUTORY POWERS U/S. 119 ARE BINDING ON THE AUTHORITIES IN THE ADMINISTRATION OF THE ACT. IT WAS HELD THAT BENEFIT OF SUCH CIRCULARS IS ADMISSIBLE TO THE ASSE SSEE, EVEN THOUGH THE CIRCULARS MODIFY OR DEPART FROM THE STRICT TENOR OF THE STATUTORY PROVISION AND MITIGATE THE RIGOR OF THE LAW. 25. KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE JUDGMENTS OF THE HONBLE APEX COURT DISCUSSED ABOVE THAT THE BEN EVOLENT CIRCULARS ISSUED BY THE CBDT ARE BINDING ON THE REVENUE AUTH ORITIES AND HAVING REGARD TO THE UNDISPUTED POSITION THAT THE CIRCULAR DATED 16.7.2013 ( SUPRA ) ISSUED BY THE CBDT IS BENEFICIAL TO THE ASSESSEE ON THE ISSUE INVOLVED IN THE PRESENT CASE, RELATING TO SET OFF OF THE LOSS O F 10A UNIT CLAIMED BY THE ASSESSEE AGAINST INCOME FROM OTHER SOURCES, WE ARE OF THE VIEW THAT THE EFFECT OF THE SAID CIRCULAR IS REQUIRED TO BE GIVEN , AS THE SAME IS BINDING ON THE REVENUE AUTHORITIES. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY TH E AO ON ACCOUNT OF THE ASSESSEES CLAIM FOR SETTING OFF OF 10A UNIT LO SS AGAINST INCOME FROM OTHER SOURCES AND RESTORE THE MATTER TO THE FILE O F THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH, IN THE LIGHT OF CBDT CIRC ULAR DATED 16.7.2013 ISSUED RECENTLY AFTER THE JUDGMENT OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKOGAWA INDIA LTD, (SUPRA). THE RELEVANT GROUNDS OF THE ASSESSEES APPEAL ON THIS ISSUE ARE ACCORDINGLY TRE ATED AS ALLOWED. ITA NO.1054/BANG/2013 PAGE 17 OF 17 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF JULY , 2014 . SD/- SD/- ( N.V. VASUDEVAN ) ( PRAMOD M. JAGTAP) JUDICIAL MEMBER ACCOUNT ANT MEMBER BANGALORE, DATED, THE 4 TH JULY , 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR/ SENIOR PRIVATE SECRETARY ITAT, BANGALORE.