ACIT, Faridabad V. M/s Oswal Electricals, Faridabad

ITA 1970/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52884 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-09-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 20-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN KOHLI
• Keywords: Capital asset; Business income; Cost of acquisition; Revised return; Revenue expenditure; Capital expenditure
• Section: 10B; 263; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NOS. 1969 & 1970 (DEL)2011 ASSESSMENT YEARS: 2007-08 & 2008-09 ASSTT. COMMISSIONER OF INCOME TAX, M/S. OSWAL EL ECTRICALS, CENTRAL CIRCLE 1, FARIDABAD. V. PLOT 4 9, INDL.AREA, NIT, FARIDABAD. ITA NOS. 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 ASSESSMENT YEARS: 2000-01, 2002-03 TO 2008-09. DY. COMMISSIONER OF INCOME TAX, M/S. SUNBEAM AUTO (P) LTD., CIRCLE 9(1), NEW DELHI. V. 2A/3 , KUNDAN MANSION, ASAF ALI ROAD, NEW DELHI. (APPELLANT) (RESPO NDENT) DEPARTMENT BY: SHRI NIRANJAN KOHLI, CIT/DR ASSESSEE BY: S/SHRI S.D. KAPILA, R.R. MAURYA, P RAVESH SHARMA, ADV. ORDER PER A.D. JAIN, J.M. ALL THESE ARE DEPARTMENTS APPEALS IN THE CASES OF TWO ASSESSEES, I.E., M/S. OSWAL ELECTRICALS AND M/S. SUNBEAM AUTO LTD. IN THE CASE OF M/S. SUNBEAM AUTO LTD., FOR ASSESSMENT YEARS 2000-01 TO 2004-05, THE ONLY ISSUE INVOLVED IS REPLACEMENT OF TOOLS AND DYES - WHETHE R PURCHASE THEREOF IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE. THE ASSESSEE CONTENDS THAT THIS ISSUE IS COVERED BY THE TRIBUNAL DECISION DATE D 16.7.2008 [COPY AT ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 2 ASSESSEES PAPER BOOK (APB FOR SHORT)II - 24 T O 29], FOR ASSESSMENT YEARS 2002-03 TO 2004-05 AND 2000-01. 2. THE DEPARTMENT, ON THE OTHER HAND, CONTENDS THAT IT IS NOT SO, IN VIEW OF CIT V. SARVANA SPINNING PVT. LTD., 293 ITR 201 (SC), FOLLOWED IN CIT V. SHRI MANGAYARAKARASI MILLS PVT. LTD., 315 ITR 1 14(SC). 3. IN THIS MATTER, IT IS SEEN THAT FIVE APPEALS OF THE REVENUE WERE DISMISSED BY THE TRIBUNAL VIDE A CONSOLIDATED ORDER DATED 16.7.2008, FOR ASSESSMENT YEARS 2000-01 AND 2002-03 TO 2004-05 AND ORDER DATED 17.6.2009 FOR ASSESSMENT YEAR 2005-06 (COPY AT APB- II 24-36). WHILE DISMISSING THESE APPEALS, THE TRIBUNALS ORDER IN T HE ASSESSEES CASE FOR ASSESSMENT YEAR 2001-02, IN ITA NO. 1122(DEL)05 (AP B-II 6-23) WAS FOLLOWED. THE DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2001-02 WAS DISMISSED BY THE HONBLE HIGH COURT (APB II - 60-72 ). SLP AGAINST THE SAID ORDER WAS ALSO DISMISSED (APB III, PAGE 5). 4. THE HONBLE HIGH COURT, VIDE ORDER DATED 24.9.20 09, (APB II 56- 59) OBSERVED AS FOLLOWS:- ADDITIONS WERE MADE BY THE AO IN RESPECT OF THE EXPENDITURE INCURRED ON TOOLS AND DIES TREATING THE SAME AS CAPITAL EXPENDITURE AND REJECTING THE CLAIM OF ASSESSEE THAT IT WAS REVENUE EXPENDITURE. THE CIT( A) ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE SAID ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 3 ADDITIONS. THE INCOME TAX APPELLATE TRIBUNAL HAS AFFIRMED THE DECISION OF THE CIT(A). WHILE DOING S O, THE ITAT HAS RELIED UPON ITS EARLIER ORDER DATED 9.12.2 005 IN RESPECT OF THE ASSESSEES APPEAL ITSELF, I.E. IT A NO. 1122 (DELHI)/2005 REGARDING THE AY 2001-02. HOWEVER, WE FIND THAT IN THE SAID APPEAL, THE QUEST ION WHICH WAS CONSIDERED BY THE ITAT WAS AS TO WHETHER THE ORDER OF THE COMMISSIONER PASSED U/S 263 OF THE ACT, WAS PROPER OR NOT. NO DOUBT, IN THIS CONTEXT, THE ISSUE AROSE REGARDING THE SAME TYPE OF EXPENDITURE NAMELY EXPENDITURE INCURRED ON TOOLS AND DIES. BUT THE PARAMETERS AND THE CONSIDERATIONS ON WHICH THE SAID APPEAL WAS DECIDED WERE TOTALLY DIFFERENT, NAMELY T HE POWERS OF THE CIT(A) IN THE FACTS AND CIRCUMSTANCES OF THIS CASE TO PASS AN ORDER OF REVISION U/S 263 OF T HE ACT. WE, THEREFORE, OF THE OPINION THAT ITS JUDGMENT DAT ED 9.12.2005 PASSED IN ITA NO. 1122(DELHI)/2005 COULD NOT BE THE BASIS OF DETERMINING THE ISSUE AT HAND N AMELY AS TO WHETHER THE EXPENDITURE INCURRED WAS REVENUE IN NATURE OR IT WAS A CAPITAL EXPENDITURE. ON THIS GR OUND WE SET ASIDE THE ORDER OF THE TRIBUNAL AND REMIT TH E CASE BACK TO THE TRIBUNAL FOR DECISION ON MERITS. 5. THE TRIBUNAL ORDERS FOR ASSESSMENT YEARS 2000-01 AND 2002-03 TO 2005-06 WERE, THUS, SET ASIDE AND THE TRIBUNAL WAS DIRECTED TO DECIDE THE APPEALS AFRESH ON THE FACTS OF THE CASE, SINCE THE ORDER FOR ASSESSMENT YEAR 2001-02 WAS WITH REFERENCE TO THE ASPECT OF EXERCIS E OF JURISDICTION U/S 263 OF THE INCOME TAX ACT BY THE COMMISSIONER OF INCOME TAX. ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 4 6. WHILE DECIDING THE ISSUE OF THE NATURE OF EXPEND ITURE ON PURCHASE OF DYES, THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05, VID E ITS ORDER DATED 17.4.2009 (COPY AT APB 37 TO 42) HAS HELD, INTER AL IA, AS FOLLOWS:- 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT I S NOTICED THAT IN THE PRESENT CASE THE ASSESSEE IS IN THE BUS INESS OF MANUFACTURING THE ALUMINIUM DIE CASTING COMPONENTS. IT IS FURTHER NOTICED THAT ASSESSEE HAS DURING THE RELEVA NT ASSESSMENT YEAR REPLACED FOUR DIES, WHICH ARE BASIC ALLY THE COMPONENTS IN THE MAIN MACHINERY BEING THE DIE-CAST ING MACHINE. THE DIE CASTING PROCESS INVOLVES HEATING OF ALUMINIUM INTO LIQUID FROM AT 700 DEGREE CENTIGRADE AND PUMPING IT UNDER PRESSURE INTO THE DIE, COOLING THE SAME AND SUBSEQUENTLY DISMANTLING THE DIE TO GET THE FINISHE D PRODUCT, WHICH HAS TO UNDERGO VARIOUS OTHER PROCESSES. WHEN MOLTEN ALUMINIUM AT 700 DEGREE CENTRIGRADE IS PUMPED UNDER PRESSURE INTO THE DIE, OBVIOUSLY THERE WOULD BE SUB STANTIAL WEAR AND TEAR IN SUCH DIES. THESE DIES BY ITSELF C AN HAVE NO USE BY ITSELF AND IT IS ONLY WHEN THESE DIES ARE US ED IN CONJUNCTION WITH THE DIE CASTING MACHINERY THAT IT WOULD BE OF ANY PURPOSE. THUS, A DIE IS A COMPONENT IN THE MAI N MACHINERY BEING THE DIE CASTING MACHINERY. THE DIE CASTING MACHINERY BY ITSELF CAN BE USED FOR MAKING MANY OTH ER PRODUCTS DEPENDING UPON THE DIE THAT IS USED. THUS , WHAT IS NOTICED IS THAT THE DIE CASTING MACHINE IS A STAND- ALONE MACHINERY WHEREAS THE DIE BY ITSELF CANNOT STAND-AL ONE. IN THESE CIRCUMSTANCES THE REPLACEMENT OF DIES DUE TO WEAR AND TEAR IS IN FACT THE REPLACEMENT OF A PART OF MAIN M ACHINERY BEING THE DIE CASTING MACHINERY. IN THESE CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE DECISION OF HONBLE KARNAT AKA HIGH COURT IN THE CASE OF MYSORE SPUN CONCRETE PIPES P. LTD. REFERRED TO SUPRA AND WHICH PRINCIPLE HAS BEEN APPR OVED BY THE HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN T HE CASE OF JAGATJIT INDUSTRIES P. LTD. REFERRED TO SUPRA, WOUL D SQUARELY APPLY TO THE FACTS OF THIS CASE AND THE LD. CIT(A) WAS RIGHT IN ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 5 HOLDING THAT THE EXPENDITURE ON THE PURCHASE OF FOU R DIES WAS REVENUE EXPENDITURE. IN THESE CIRCUMSTANCES, THE A PPEAL OF THE REVENUE STANDS DISMISSED. 7. THE ASSESSEE, SUNBEAM AUTO, WAS IN THE BUSINESS OF MANUFACTURE OF AUTOMOBILE COMPONENTS. FOR ITS MANUFACTURE, DIFFE RENT DYES WERE PURCHASED, WHEREAS SOME DYES WERE MANUFACTURED INHO USE. EVER SINCE ASSESSMENT YEAR 2000-01, THE ASSESSEE WAS TREATING THE COST OF REPLACEMENT OF DYES AND MOULDS AS REVENUE EXPENDITURE. THIS T REATMENT WAS ACCEPTED BY THE DEPARTMENT. FOR ASSESSMENT YEAR 2001-02, T HE ASSESSMENT WAS CANCELLED U/S 263 OF THE I.T. ACT. THE ASSESSMEN TS FOR ASSESSMENT YEARS 2002-03 AND 2003-04 WERE REOPENED, ON THE GROUND TH AT EXPENDITURE ON REPLACEMENT OF DYES AND MOULDS BEING DISALLOWED, BE ING CAPITAL EXPENDITURE. 8. THE AO DISALLOWED THE EXPENDITURE FOLLOWING JO NES WOODHEAD & SONS 224 ITR 342 (SC) AND SINCE NEW MACHINERY IN T HE FORM OF DYES AND TOOLS HAVE COME INTO EXISTENCE IT COULD NOT BE TREA TED AS REPAIRS AND TOOLS AND DYES ARE PART OF CAPITAL STRUCTURE OF THE ASSES SEE AND THEREFORE TREATED AS EXPENDITURE IN NATURE. 9. DISAGREEING WITH THE FINDINGS OF THE AO, THE LD. CIT(A) HELD THAT REPLACEMENT OF WORN OUT DYES DID NOT BRING ANY NEW CAPITAL ASSET INTO EXISTENCE AND SO, THE EXPENSES HAD TO BE HELD AS CA PITAL IN NATURE; THAT THE ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 6 DYES DID NOT ENHANCE THE LIFE OF THE EXISTING MACHI NE OF WHICH IT WAS A PART THEREOF ONLY, NOT BRINGING ABOUT ANY INCREASE IN TH E PRODUCTION CAPACITY OF THE EXISTING MACHINERY; AND THAT THE REPLACEMENT OF MOULDS WAS IN THE NATURE OF REPLACING THE PART OF THE MACHINERY. IT WAS HEL D THAT THE FACTS WERE THE SAME AS THOSE FOR ASSESSMENT YEAR 2001-02. 10. THE DEPARTMENT HAS NOT BEEN ABLE TO DISLODGE TH E REASONS OF THE WELL REASONED ORDER OF THE CIT(A). IT HAS NOT BEEN SHOW N THAT THE MOULDS AND DYES INVOLVED DID NOT CONSTITUTE MACHINERY BY THEMS ELVES. UNDENIABLY, THESE CAN BE USED ONLY BY FITTING THEM INTO THE DYE -CASTING MACHINE AS ITS PART. IT HAS ALSO NOT BEEN DISPUTED THAT MOULDS A ND DYES DO NOT HAVE MUCH LONGTIVITY AND THAT THEY HAVE TO BE REPLACED FREQU ENTLY. IN THE CASE OF M/S. OSWAL ELECTRICALS, THE PRODUCTION CAPACITY OF THE D YE CASTING MACHINE IS NOT ENHANCED WHEN DYES OR MOULDS ARE REPLACED. RATHER , THESE REPLACEMENTS ONLY ENSURE PRODUCTION OF THE SAME QUALITY AS EARLI ER CONSISTENTLY. FURTHER, THE DYES OR MOULDS ARE ONLY OWNED BY THE AUTO MANU FACTURERS. THESE OLD MOULDS OR DYES ARE NOT AVAILABLE IN THE MARKET, HA VING BEEN DESTROYED BY THE MANUFACTURERS OF VEHICLES TO PREVENT FAKES. THAT IS WHY, THESE ARE MADE ON THE BASIS OF SPECIFIC ORDERS BY THE CAR MAN UFACTURERS/MOTOR CYCLE MANUFACTURERS. MOREOVER, IT HAS BEEN SHOWN THAT T HE FREQUENT REPLACEMENT ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 7 OF MOULDS AND DYES DO NOT GIVE AN ENDURING ADVANTAG E. NOT ONLY THIS, REPLACEMENT OF MOULDS AND DYES DOES NOT FALL UNDER REPAIRS, MUCH LESS UNDER CURRENT REPAIRS OF THE MACHINERY. 11. IN CIT V. MYSORE SPUN CONCRETE PIPE PVT. LTD. , 194 ITR 159(KAR), UNDER SIMILAR CIRCUMSTANCES, IT WAS HELD THAT THE R EPLACEMENT OF DYES AND MOULDS WAS NOT IN THE NATURE OF REPLACEMENT OF A CA PITAL MACHINERY, BUT WAS IN THE NATURE OF REPLACEMENT OF A PART OF THE MACHI NERY, IN THE NATURE OF MAINTENANCE OF MACHINERY USED IN THE PRODUCTION PRO CESS OF THE ASSESSEE. THE EXPENDITURE INCURRED IN THE PRODUCTION PROCESS AND ON REPLACEMENT OF DAMAGED MOULDS ETC., WAS HELD TO BE REVENUE EXPEND ITURE. 12. MYSORE SPUN CONCRETE PIPE PVT. LTD.(SUPRA), WAS F OLLOWED IN CIT V. JAGAJIT INDUSTRIES LTD., 241 ITR 556(DEL), TO HOLD THAT THE MOULDS IN QUESTION DID NOT ENHANCE THE CAPACITY OF THE EXI STING MACHINES AND WERE MORE REPLACEMENTS FOR THE MOULDS DAMAGED DURING THE PROCESS OF MANUFACTURE OF GLASS. 13. SIMILARLY, EXPENDITURE ON REPLACEMENT OF MOULDS WAS HELD TO BE REVENUE EXPENDITURE IN CIT V. MALERKOTLA STEELS & ALLOYS (P)LTD., 49 DTR 1(P&H). ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 8 14. THE TRIBUNAL IN ITA NO. 2147(DEL)2008, VIDE ORD ER DATED 17.4.2009 IN THE ASSESSEES CASE IN ACIT V. M/S. OSWAL ELECT RICALS FOR ASSESSMENT YEAR 2004-05 (COPY AT PAGES 37 TO 42 OF APB-II), HE LD THE EXPENDITURE ON PURCHASE OF DYES TO BE REVENUE EXPENDITURE. IN HOL DING SO, MYSORE SPUN CONCRETE PIPE PVT. LTD.(SUPRA) AND JAGAJIT INDUST RIES LTD.(SUPRA) WERE FOLLOWED. 15. THE FACTS IN JONES WOODHEAD & SONS(SUPRA) AR E DISTINGUISHABLE. THEREIN, THE ASSESSEE HAD SET UP A NEW BUSINESS AN D THE FOREIGN COMPANY HAD, BESIDES FURNISHING INFORMATION AND TECHNICAL K NOWHOW, ALSO RENDERED VALUABLE SERVICES IN THE SETTING UP OF THE FACTORY. EVEN AFTER THE EXPIRY OF THE AGREEMENT INTER SE, THERE WAS NO EMBARGO ON THE ASSESSEE TO CONTINUE TO MANUFACTURE THE PRODUCT IN QUESTION. IT WAS IN THE SE FACTS THAT THE ENTIRE PAYMENT MADE WAS HELD NOT TO BE A REVENUE EXPENDITU RE. THESE ARE NOT THE FACTS BEFORE US. 16. APROPOS SARVANA SPINNING PVT. LTD. (SUPRA), R ELIED ON BY THE DEPARTMENT, THEREIN, THE CLAIM WAS U/S 31 OF THE AC T. IN THE PRESENT CASE, HOWEVER, THE CLAIM HAS BEEN MADE U/S 37 OF THE ACT. BESIDES, THE DYES AND MOULDS INVOLVED HEREIN ARE NOT INDEPENDENT MACHINES . REPLACEMENT THEREOF DOES NOT FETCH ANY ENDURING ADVANTAGE TO TH E ASSESSEE. MOREOVER, ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 9 THE DYES ARE ONLY MADE TO ORDER AS PER THE SPECIFIC ATIONS OF THE VEHICLE MANUFACTURERS, OLD DYES NOT BEING AVAILABLE IN THE MARKET. 17. THAT APART, SARVANA SPINNING PVT. LTD. (SUPRA ) WAS A CASE INVOLVING THE MACHINERY OF A TEXTILE MILL. PERTINENTLY, SA RVANA HAS BEEN DEALT WITH BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ASS ESSEES OWN CASE, I.E., IN THE CASE OF SUNBEAM AUTO FOR THE ASSESSMENT YEAR 20 01-02. 18. SIMILARLY MANGYAKARASI MILLS (SUPRA) IS NOT A PPLICABLE. SARVANA SPINNING PVT. LTD. (SUPRA) WAS FOLLOWED THEREIN. THE ISSUE IN SARVANA SPINNING PVT. LTD. (SUPRA) AS WELL AS IN MANGYAK ARASI MILLS (SUPRA) WAS WHETHER THE EXPENDITURE ON REPLACEMENT OF OLD INDEP ENDENT MACHINE IN A TEXTILE MILL BY A NEW MACHINE DOES OR DOES NOT CONS TITUTE CURRENT REPAIR OF THE MILL IN TERMS OF SECTION 31 OF THE ACT, WHICH I S NOT AT ALL THE DISPUTE HEREIN. FURTHER, SINCE OLD DYES ARE NOT AVAILABL E IN THE MARKET, THIS CASE FALLS WITHIN THE EXCEPTION MENTIONED BY THE SUPREME COURT IN THAT CASE. 19. MOREOVER, THE FACTS INVOLVED HAD NOT BEEN SHOWN TO HAVE UNDERGONE ANY CHANGE FOR THE EARLIER YEARS. IN THIS REGARD, CIT V. ESCORTS LTD., 51 DTR 321(SC) HOLDS AND REITERATES THE PRINCIPLE OF C ONSISTENCY. 20. THUS, WHERE THE ASSESSEES ARE UNDISPUTEDLY MAN UFACTURING DYE CAST AUTO COMPONENTS, THE MACHINE IS TO BE PREFITTED WIT H MOULDS/DYES ON ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 10 REQUISITE DESIGN IN DYES AND MOULDS. THE LONGTI VITY OF THE MOULDS AND DYES IS NOT MUCH, THE ASSESSEE HAS TREATED THE COST OF ACQUISITION OF A DYE CASTING MACHINE AS CAPITAL EXPENDITURE AND THE COST OF MOULDS AND DYES AS REVENUE EXPENDITURE, THE COST OF REPLACEMENT OF DYE S AND MOULDS IS CURRENT REPAIRS OF THE DYE CAST MACHINE ETC., THE MOULD/DYE IS NOT AN INTEGRAL PART OF THE MACHINE AND SUCH CLAIM HAS BEEN ALLOWED IN THE EARLIER YEARS BY THE DEPARTMENT ITSELF, THE GRIEVANCE OF THE DEPARTMENT IS NOT FOUND TO BE JUSTIFIED AND IS REJECTED. 21. THE OTHER ISSUE, WHICH IS INVOLVED, BESIDES THE ABOVE ISSUE, OF EXPENDITURE CONCERNING REPLACEMENT INCURRED ON REP LACEMENT OF DYES AND MOULDS, IS CLAIM OF SET OFF OF LOSS OF 100% EOU ELI GIBLE FOR EXEMPTION U/S 10B OF THE ACT AGAINST CLAIM OF LOSS OF THE OLD UN IT. THIS ISSUE CONCERNS ASSESSMENT YEARS 2006-07 AND 2007-08. 22. THE FACTS ARE THAT THE ASSESSEE SUNBEAM AUTO HA D STARTED A 100% EXPORT ORIENTED UNIT ON NECESSARY APPROVAL IN THIS REGARD. IT INCURRED A NET LOSS OF ` 1,36,87,003/-. UNDISPUTEDLY, THIS UNIT WAS COVERED BY THE PROVISIONS OF SECTION 10B OF THE ACT. THE ASSESSE E CLAIMED THE LOSS TO BE SET OFF AGAINST THE OTHER BUSINESS INCOME OF THE AS SESSEE. THIS CLAIM WAS MADE IN THE REVISED RETURN FILED. ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 11 23. THE AO DISALLOWED THE CLAIM FOLLOWING CIT V. S .S. THIAGARAJAN 129 ITR 115(MAD), HOLDING THAT SECTION 10B OF THE A CT FALLS WITHIN CHAPTER III WHICH HAS THE TITLE INCOME WHICH DO NOT FORM P ART OF TOTAL INCOME AND SINCE PROFITS AND GAINS DERIVED FROM THE BUSINESS ELIGIBLE UNDER SECTION 10B DO NOT FORM PART OF TOTAL INCOME AND SINCE PROFITS AND GAINS INCLUDE LOSSES ALSO, NEITHER THE PROFITS, NOR THE LOSS FROM SUCH B USINESS CAN BE CONSIDERED FOR THE PURPOSE OF COMPUTING TOTAL INCOME; THAT CON SEQUENTLY, THE LOSSES ARISING FROM SUCH UNIT CANNOT BE SET OFF UNDER THE PROVISIONS OF SECTIONS 70 AND 71 OF THE ACT; THAT THE ASSESSEE HAD NOT EXERCI SED ITS OPTION FOR NON- APPLICABILITY OF THE PROVISIONS OF SECTION 10B, SIN CE IT HAD NOT FILED THE DECLARATION BEFORE THE DUE DATE OF FILING THE RETUR N, AS PROVIDED IN SECTION 10B(8) AND, THEREFORE, THE PROVISIONS OF SECTION 10 B WERE APPLICABLE; THAT IN RESPECT OF A UNIT ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT, THE PROFITS ARE DETERMINED IN TERMS OF SECTION 10B(1) AND NOT IN TE RMS OF SECTION 28 AND SO, THE SAID PROFIT BEING A LOSS, WAS REQUIRED TO BE I GNORED FOR THE PURPOSE OF ITS CARRY FORWARD AND SET OFF. 24. THE LD. CIT(A) WHILE DISAGREEING WITH THE AOS OBSERVATION, TOOK INTO CONSIDERATION, THE AMENDMENT IN SECTION 10B(1) OF THE ACT. ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 12 25. THE LD. DR, CHALLENGING THE IMPUGNED ORDER, HAS RELIED ON THE ASSESSMENT ORDER. IT HAS BEEN CONTENDED THAT THE ASSESSEE DID NOT EXERCISE OPTION OF NON-APPLICABILITY OF THE PROVISIONS OF S ECTION 10B OF THE ACT; THAT NO DECLARATION WAS FILED BEFORE THE DUE DATE OF FIL ING THE RETURN, AS PROVIDED U/S 10B(8) OF THE ACT , MAKING THE PROVISIONS OF SE CTION 10B APPLICABLE. 26. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS PLACED RELIANCE ON THE IMPUGNED ORDER. BESIDES, RELIANCE HAS ALSO BEEN PLACED ON THE FOLLOWING:- 1. MINDTREE CONSULTING (P)LTD. V. ACIT, 102 TTJ 691( BANG); AND 2. ACIT V. JEWELLERY SOLUTIONS INTERNATIONAL (P)LTD. , 28 SOT 405(MUM). 27. THE LD. CIT(A), WHILE ALLOWING THE ASSESSEES C LAIM, REFERRED TO THE AMENDED SECTION 10B(1). AS PER THIS SECTION, THE P ROVISION WHICH IS APPLICABLE, THE ALLOWANCE HAS BEEN MADE AVAILABLE F ROM THE TOTAL INCOME OF THE ASSESSEE AND THE AMOUNT IS TO BE TREATED AS DED UCTION. IN MINDTREE CONSULTING (P)LTD. (SUPRA), IT WAS HELD THAT LOSS FROM A UNIT ELIGIBLE FOR EXEMPTION UNDER SECTION 10B AS AMENDED W.E.F. 1 ST APRIL, 2000, IS AVAILABLE FOR SET OFF UNDER SECTIONS 70 AND 71. IN JEWELLE RY SOLUTIONS INTERNATIONAL (P)LTD.(SUPRA), IT HAS BEEN HELD THAT PROFIT OF AN EOU WOULD NOT BE TREATED AS INCOME NOT TO BE INCLUDED IN THE TOTAL INCOME; THAT THEREFORE, LOSS ITA NOS. 1969 & 1970(DEL)11 2783, 3220, 2784, 2785, 3072, 946, 4569 & 3272(DEL)2010 13 INCURRED BY AN EOU COULD BE SET OFF AGAINST INCOME EARNED IN THE SAME YEAR UNDER OTHER HEADS OF INCOME, INCLUDING THE HEAD OF PROFITS AND GAINS OF BUSINESS. THIS ISSUE IS ALSO COVERED BY PARA 20 OF CBDT CIRCULAR NO.7 DATED 5.9.2003 [263 ITR AT 77 (ST.)] 28. IN VIEW OF THE ABOVE, FINDING NO MERIT THEREIN, THE GRIEVANCE OF THE DEPARTMENT IN THIS REGARD IS ALSO REJECTED. 29. IN THE RESULT, ALL THE APPEALS FILED BY THE DEP ARTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 30.09.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: 30.09.2011 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR