Phonix Lamps Ltd, V. Addl CIT Range,

ITA 2845/DEL/2007

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3740 (ITAT-DELHI)
• Duration Of Justice: 10 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 06-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHASHWAT BAJPAI SHARAT AGRAWAL
• Keywords: Depreciation; Salary income; Earning of tax free income; Retrospective amendment; Revised return; Unabsorbed depreciation
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2845/DEL/2007 ASSESSMENT YEAR : 2003-04 M/S PHEONIX LAMPS LTD., VS ADDL. CIT, 59A, NSEZ, PHASE-II, RANGE NOIDA. NOIDA. (APPELLANT) (RESPONDENT) APPELLANT BY :S/SHRI SHASHWAT BAJPAI, SHARAT AGRAWAL, ADV. RESPONDENT BY : SHRI ATIQ AHMAD, SR. DR DATE OF HEARING: 03.08.2017 DATE OF PRONOUNCEMENT: 31.10.2017 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER DATED 5 TH OF MARCH 2007 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), GHAZIABAD FOR ASSESSMENT YEAR 2003 04. 2. THE BRIEF FACTS OF THE CASE ARE ASSESSEE IS A CO MPANY INCORPORATED ON 26/03/1991 AND 1 OF THE UNITS (UNIT 1) IS IN THE NOIDA EXPORT PROCESSING ZONE, NOIDA. THE ASSESSEE C OMPANY MANUFACTURES CFL LAMPS FOR WHICH IT HAS 2 UNITS. TH E UNIT IN THE NOIDA EXPORT PROCESSING ZONE BEGAN PRODUCTION W.E.F . 01/02/1993 (RELEVANT TO ASSESSMENT YEAR 1993 94). THE SECOND UNIT IS ADMITTEDLY OUTSIDE THE NOIDA EXPORT PROCESS ING ZONE. THE I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 2 PRESENT ASSESSMENT YEAR UNDER CONSIDERATION IS THE 11 TH YEAR OF OPERATION. THE ASSESSEE CLAIMED DEDUCTION UNDER SEC TION 10A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE A CT) TILL ASSESSMENT YEAR 2002 03. FOR THE YEAR UNDER CONSI DERATION, I.E. AY 2003-04, THE RETURN OF INCOME WAS INITIALLY FILE D SHOWING INCOME OF RS. 11,19,69,789/- BUT LATER ON THE ASSE SSEE REALIZED THAT IT HAD NOT CLAIMED SETOFF OF DEPRECIATION LOSS BROUGHT FORWARD FROM ASSESSMENT YEARS 199394, 199495 AND 199596 AGGREGATING TO RS. 10,33,07,980/-. THEREFORE, AFTE R ADJUSTING THE SET OFF OF DEPRECIATION ALLOWANCE ALREADY ALLOWED A MOUNTING TO RS. 5,38,447/-, THE ASSESSEE FILED REVISED RETURN O F INCOME CLAIMING SETOFF OF BROUGHT FORWARD DEPRECIATION AM OUNTING TO RS. 10,27,69,533/-. 2.1 THE ASSESSEE WAS ENTITLED TO SPECIAL DEDUCTION UNDER SECTION 10A (3) OF THE ACT AND AS PER THE EXISTING PROVISIONS APPLICABLE TO THE ASSESSEE IN THE RELEVANT ASSESSME NT YEARS, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF ITS PRO FITS AND GAINS IN RESPECT OF ANY FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN A PERIOD OF EIGHT YEARS BEGINNING WITH THE ASSESSME NT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRI AL UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS. THE I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 3 ASSESSEE, WHILE FILING THE RETURN FOR ASSESSMENT YE AR 199394 OPTED TO CLAIM THE BENEFIT OF TAX HOLIDAY UNDER SEC TION 10A OF THE ACT IN THE LAST FIVE CONSECUTIVE YEARS, THAT IS, FR OM ASSESSMENT YEAR 199697 TO 200001. HOWEVER, THE ASSESSEE DID NOT CLAIM THE CARRIED FORWARD DEPRECIATION RELATING TO ASSESS MENT YEARS 199394, 199495 AND 199596 AND THE DEPARTMENT ALL OWED THE UNABSORBED DEPRECIATION TO BE CARRIED FORWARD FOR S UBSEQUENT YEARS FOR SETOFF AGAINST ANY TAXABLE INCOME IN FUTU RE YEARS. 2.2 SUBSEQUENTLY, THERE WAS AN AMENDMENT TO SECTION 10A OF THE ACT W.E.F. 01/04/2001 WHEREIN IT WAS PROVIDED T HAT THE BENEFIT OF DEDUCTION UNDER SECTION 10A WOULD BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE FOR A PERIOD OF TEN CO NSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGAN TO MANUFACTURE OR PR ODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE. THUS, THE ASSESSEE COULD CLAIM THE BENEFIT OF SECTI ON 10A UP TO ASSESSMENT YEAR 200203. IT WAS THE CLAIM OF THE AS SESSEE THAT THE UNABSORBED CARRIED FORWARD DEPRECIATION COULD B E SET OFF BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERA TION. IT WAS CONTENDED THAT ASSESSMENT YEARS 199394 TO 199596 WERE PRIOR TO THE START OF RELEVANT ASSESSMENT YEAR FOR THE PU RPOSE OF SECTION I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 4 10A OF THE ACT AND, THEREFORE, THE UNABSORBED CARRI ED FORWARD DEPRECIATION COULD BE SET OFF IN THE YEAR UNDER CON SIDERATION. 2.3 HOWEVER, THE ASSESSING OFFICER AFTER CONSIDERIN G THE PROVISIONS OF SECTION 10A (6) OF THE ACT OPINED THA T SECTION 10A (6), AS AMENDED FROM 01/04/2001, ASSUMED THAT FULL ALLOWANCE UNDER DEPRECIATION HAD BEEN GIVEN EFFECT TO. THE AO WAS OF THE OPINION THAT SECTION 10A(6) OVERRODE ALL OTHER PROV ISIONS OF THE ACT AND IT PROVIDED CERTAIN SPECIAL PROVISIONS FOR COMPUTING THE TOTAL INCOME OF THE ASSESSEE. THE AO HELD THAT SINC E THE YEAR UNDER CONSIDERATION IMMEDIATELY SUCCEEDED THE LAST OF THE RELEVANT ASSESSMENT YEAR, THE BROUGHT FORWARD DEPRE CIATION COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE INCOME OF THE RELEVANT UNIT 1 OR ANY OTHER UNIT. CONSEQUENTLY, THE RESPECT IVE UNABSORBED DEPRECIATION AMOUNTS WERE NOT ALLOWED TO BE CARRIED FORWARD OR SET OFF AGAINST THE PROFITS OF ANY SUBSE QUENT YEAR AS THEY WERE PENDING BEFORE THE 1 ST APRIL 2001. 2.4 THE ASSESSEES APPEAL BEFORE THE LD. CIT (APPEA LS) ALSO FAILED AND ON THE ASSESSEE APPROACHING THE ITAT, TH E ITAT ALSO, VIDE ORDER DATED 30/01/2009, DECIDED IN FAVOUR OF T HE DEPARTMENT BY HOLDING THAT THE UNABSORBED DEPRECIAT ION FOR THE ASSESSMENT YEARS 1993 94 TO 1995-96 PERTAINED TO THE PERIOD I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 5 BEFORE 01/04/2001 AND, THEREFORE, THE SAME COULD NO T BE SET OFF AGAINST THE INCOME OF THE ASSESSMENT YEAR UNDER CON SIDERATION. 2.5 AGGRIEVED, THE ASSESSEE APPROACHED THE HONBLE HIGH COURT OF ALLAHABAD WHEREIN VIDE JUDGMENT DATED 13/02/2017 IN ITA NO. 446/2009, THE HONBLE HIGH COURT RESTORED THE ISSUE TO THE FILE OF THE ITAT WITH THE FOLLOWING OBSERVATIONS AFTER HEARING LD. COUNSELS ON BOTH SIDES WE ARE OF THE OPINION THAT THIS MATTER REQUIRES RECONSIDERATION B ECAUSE ONE THING IS CLEAR ON FACT THAT THE ASSESSEE HAD NOT CL AIMED ANY BENEFIT OR ANY DEDUCTION IN RESPECT OF THE YEARS 19 93 94, 1994 95, 1995 96. IT IS ALSO CLEAR THAT NO EXEM PTION WAS GRANTED TO THE ASSESSEE. ALTHOUGH, LD. COUNSEL FOR THE RESPONDENT HAS SOUGHT TO ARGUE THAT A SPECIFIC BAR WAS CREATED BY THE 2001 AMENDME NT BY WHICH THE RIGHT OF THE ASSESSEE TO SEE ANYTHING BEY OND 1 ST APRIL, 2001 WAS NOT THERE AND HIS RIGHTS STOOD EXTI NGUISHED OR EXHAUSTED BY WAY OF DEEMED IN FICTION, WE ARE UN ABLE TO AGREE WITH THAT BECAUSE THE AMENDMENT, WHICH CAME THEREAFTER, ALLOWED TEN YEARS RELIEF. THE INTENT OF THE LEGISLATURE WHILE MAKING THESE AMENDMENTS WAS CERTA INLY NOT TO CURTAIL RELIEF TO AN ASSESSEE, WHO HAD NOT A VAILED DOUBLE BENEFIT. IN THE LIGHT OF THE AFORESAID OBSERVATIONS AND DECI SIONS PLACED BEFORE US THE MATTER REQUIRES RECONSIDERATIO N BY THE TRIBUNAL. IT MAY CLARIFY THE FACTS OF THE CASE FULL Y AND GIVE TO BOTH PARTIES AN OPPORTUNITY OF HEARING AND PASS FRE SH ORDERS IN ACCORDANCE WITH LAW.. 2.6 NOW, THE ASSESSEE HAS AGAIN APPROACHED THE ITAT AND WE PROCEED TO HEAR THE APPEAL IN TERMS OF THE DIRECTIO NS OF THE HONBLE HIGH COURT OF ALLAHABAD. I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 6 3. THE AUTHORISED REPRESENTATIVE REITERATED THE FAC TS OF THE CASE AND SUBMITTED THAT THE AMENDED SECTION 10A(1) PROVIDED FOR DEDUCTION FOR A PERIOD OF TEN CONSECUTIVE ASSESSMEN T YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR P RODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE. IT WAS SUBMITTED THAT THE 1 ST PROVISO TO SECTION 10A(1) PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAK ING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THE SECTION, AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUBSECTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFO RESAID TEN CONSECUTIVE ASSESSMENT YEARS. IT WAS SUBMITTED THAT , ACCORDINGLY, IN TERMS OF 1 ST PROVISO, THE ASSESSEE COULD NOT HAVE CLAIMED EXEMPTION FOR THE EXPIRED PERIOD WHICH WAS COVERED BY ASSESSMENT YEARS 1993-94, 1994 95 AND 1995 1996 AND, THEREFORE, THE ASSESSEE COULD HAVE CLAIMED EXEMPTIO N FOR THE UNEXPIRED PERIOD WHICH IS ASSESSMENT YEAR 2001-02 A ND 2002 03. I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 7 3.1 THE LD. AUTHORISED REPRESENTATIVE FURTHER SUBMI TTED THAT IT WAS THE REVENUES CONTENTION THAT AS PER THE AMENDE D DEFINITION, THE PHRASE RELEVANT ASSESSMENT YEAR MEANT ALL A SSESSMENT YEARS FALLING WITHIN A PERIOD OF TEN CONSECUTIVE YE ARS WHEREAS THE DEFINITION OF THE TERM RELEVANT ASSESSMENT YEAR V ERY CATEGORICALLY USED THE WORD ANY AND NOT ALL. HE REFERRED TO EXPLANATION 2 TO SECTION 10A OF THE ACT WHICH DEFIN ED RELEVANT ASSESSMENT YEAR AS MEANING ANY ASSESSMENT YEAR FAL LING WITHIN A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERR ED TO IN THIS SECTION. THE LD. AR ALSO REFERRED TO THE EARLIER DE FINITION WHEREIN RELEVANT ASSESSMENT YEAR MEANT THE FIVE CONSECUTI VE ASSESSMENT YEARS SPECIFIED BY THE ASSESSEE AT HIS O PTION UNDER SUBSECTION (3). THE LD. AUTHORISED REPRESENTATIVE U NDERLINED THE FACT THAT THE EARLIER DEFINITION DID NOT USE THE WO RD ANY. IT WAS SUBMITTED THAT BY THE USE OF WORD ANY, THE UNEXPI RED PERIOD OF THE TEN CONSECUTIVE ASSESSMENT YEARS WOULD BE COVER ED. 3.2 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT THE OBJECT AND PURPOSE BEHIND SECTION 10A AND SUBSECTION 10A(6) OF THE ACT WAS CLEARLY DISCERNIBLE FROM THE HISTORICAL BACKGROUND OF THE PROVISIONS IN THE CONTEXT OF MEANING AND DEFINITION OF RELEVANT ASSESSMENT YEARS WHICH COULD NEVER BE TO DEPRIVE T HE ASSESSEE I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 8 THE BENEFIT OF OTHER PROVISIONS OF THE ACT IN RESPE CT OF THOSE YEARS FOR WHICH THE ASSESSEE COULD NOT AVAIL EXEMPTION UN DER SECTION 10A. 3.3 IT WAS FURTHER SUBMITTED THAT SECTION 10A WAS A N EXEMPTION SECTION AND THE DEPARTMENT CANNOT INTERPRET AND USE A DEEMING PROVISION AGAINST THE ASSESSEE WHEN, BY LAW, THE AS SESSEE IS PRECLUDED FROM TAKING THE BENEFIT ON ACCOUNT OF AN EXPRESS EXCLUSION GIVEN UNDER THE PROVISION ITSELF. IT WAS FURTHER SUBMITTED THAT SINCE SECTION 10A WAS A BENEFICIAL P ROVISION PROVIDING FOR INCENTIVE FOR GROWTH AND DEVELOPMENT, THE SAME SHOULD BE INTERPRETED LIBERALLY AND SHOULD BE CONST RUED IN SUCH A WAY SO AS TO ADVANCE THE OBJECTIVE AND NOT FRUSTRAT E IT. 3.4 THE LD. AUTHORISED REPRESENTATIVE RELIED ON NUM EROUS CASE LAWS TO SUBMIT THAT PROVISIONS OF TAXING STATUTES F OR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE CONSTRUED REASONABLY. IT WAS SUBMITTED THAT THE BENEFICIAL PROVISIONS FOR EXEMPT ION OR RELIEF SHOULD BE INTERPRETED LIBERALLY AND IN FAVOUR OF TH E ASSESSEE AND IN SO BEING INTERPRETED, IT SHOULD ADVANCE THE OBJE CTIVE AND NOT FRUSTRATE IT. I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 9 3.5 THE LD. AUTHORISED REPRESENTATIVE ALSO PLACED R ELIANCE ON JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VERSUS TEI TECHNOLOGIES PRIVATE LIMITED REPORTED IN 361 IT R 36 (DELHI) FOR THE PROPOSITION THAT SECTION 10A WAS AN EXEMPTION PROVISION AND NOT A DEDUCTION PROVISION AND, THEREF ORE, IT IS NOT THE GROSS INCOME OR RECEIPT WHICH WOULD BE ELIGIBLE BUT ONLY THE NET INCOME THAT IS TO SAY THE GROSS RECEIPTS OF PRO FITS MINUS EXPENDITURE INCURRED THAT WILL BE ELIGIBLE FOR EXEM PTION. IT WAS SUBMITTED THAT IN LIGHT OF THE LEGAL PROVISIONS AS WELL AS JUDICIAL PRECEDENTS, THE APPEAL OF THE ASSESSEE BE ALLOWED. 4. IN RESPONSE, THE LD. SENIOR DEPARTMENTAL REPRESE NTATIVE RELIED ON THE ORDER OF THE LD. CIT (APPEALS) AS WEL L AS SUPPORTED THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER AND SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAD GIVEN HIS ADJUDICATION AFTER DUE CONSIDERATION OF THE FACTS AND THE LEGAL ISSUES INVOLVED AND, THEREFORE, THE S AME SHOULD NOT BE DISTURBED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE MATERIAL ON RECORD. AS FAR AS THE FACTS OF THE CASE ARE CONCERNED, THE SAME ARE UNDISPUTED. THE ONLY QUESTION FOR CONS IDERATION BEFORE US IS WHETHER THE UNABSORBED DEPRECIATION RE LATING TO NON- I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 10 EXEMPTION YEARS THAT IS ASSESSMENT YEAR 199394, 94 95 AND 199596 COULD BE DENIED TO BE CARRIED FORWARD AND S ET OFF IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THAT IS, ASSES SMENT YEAR 200304. 5.1 WE PROCEED TO ANALYSE THE LEGAL POSITION FIRST. THE FINANCE ACT, 2003 MADE SIGNIFICANT CHANGES BOTH WITH PROSPE CTIVE AND RETROSPECTIVE EFFECT FROM ASSESSMENT YEAR 200102. THE SIGNIFICANT RETROSPECTIVE AMENDMENT WAS THE ONE WHI CH WAS MADE IN SUBSECTION (6) OF SECTION 10A OF THE ACT WH ICH CONTAINED PROVISIONS FOR ENSURING THAT AN ASSESSEE WHO ENJOYS THE TAX HOLIDAY UNDER SECTION 10A DOES NOT ENJOY ANY OTHER TAX CONCESSION. THE EFFECT WAS THAT FROM 01/04/2001, ON CE THE TAX HOLIDAY ENDED, THE BAR OR PROHIBITION ON ENJOYING O THER TAX BENEFITS SUCH AS CARRY FORWARD AND SET OFF OF LOSS AND UNABSORBED DEPRECIATION ETC. CAME INTO FORCE. THE MANDATE OF T HIS SUBSECTION WAS THAT ALL SUCH ALLOWANCES AND RELIEFS WOULD BE D EEMED TO HAVE BEEN EXHAUSTED DURING THE TAX HOLIDAY PERIOD ITSELF AND NO PART THEREOF WOULD SURVIVE FOR CONSIDERATION AFTER THE T AX HOLIDAY PERIOD. 5.2 HOWEVER, IT HAS TO BE FIRST SEEN WHETHER A PART ICULAR BENEFIT TO THE ASSESSEE IS IN THE NATURE OF A DEDUCTION OR AN EXEMPTION. I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 11 THE ESSENTIAL DIFFERENCE BETWEEN EXEMPTION AND DEDU CTION IS THAT EXEMPT INCOME DOES NOT ENTER THE COMPUTATION OF TOT AL INCOME AT ALL WHEREAS IN THE CASE OF A DEDUCTION, IN THE VERY NATURE OF THINGS, THE INCOME IS FIRST INCLUDED IN THE TOTAL I NCOME AND THEN GIVEN A DEDUCTION SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. THE FACT THAT THE DEDUCTION MAY BE GIVEN IN RESPECT OF ENTIRE INCOME DOES NOT NECESSARILY MEAN THAT IT IS EXEMPT INCOME. AT THE SAME TIME, THE FACT THAT A PARTICULAR CLASS OF INCOME PA RTIALLY EXEMPT FROM TAXATION DOES NOT NECESSARILY MEAN THAT IT IS ONLY A DEDUCTION. THE IMPLICATION OF AN EXEMPTION PROVISIO N IS THAT THE PARTICULAR INCOME WHICH IS EXEMPT FROM TAX DOES NOT ENTER THE FIELD OF TAXATION AND IS NOT SUBJECT TO ANY COMPUTA TION. THE COMPUTATION PROVISIONS OF THE ACT DO NOT GET ATTRAC TED AT ALL TO THE EXEMPT INCOME. 5.3 THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VERSUS TEI TECHNOLOGIES PRIVATE LIMITED (SUPRA) DISCUSSED THE DIFFERENCE BETWEEN EXEMPTION AND DEDUCTION VIS--VIS SECTION 10A AT LENGTH AND THE RELEVANT PARAGRAPHS ARE BEING REPRODUCED HE REIN UNDER FOR A READY REFERENCE THE QUESTION WHETHER SECTION 10A PROVIDES FOR TOTA L EXEMPTION FROM TAX OR PROVIDES FOR ONLY A DEDUCTION FROM THE INCOME OF THE ASSESSEE WAS DEBATED AT THE BAR AT I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 12 CONSIDERABLE LENGTH. THE SECTION IS PLACED IN CHAPT ER III OF THE ACT WHICH IS TITLED INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. SUBSECTION (1) OF THIS SECTION, AS IT STOO D AMENDED BY THE FINANCE ACT, 2000 W.E.F. 01/04/2001, HOWEVER PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICL ES OR THINGS OR COMPUTER SOFTWAREFROM THE TOTAL INCOME OF THE ASSESSEE. THE LANGUAGE USED HAS GIVEN RISE TO THE ARGUMENT THAT THE SECTION ONLY PROVIDES FOR A DEDUCTION WHIC H MEANS THAT THE PROFITS OF THE ELIGIBLE UNDERTAKING WILL H AVE TO ENTER THE FIELD OF TAXATION AND BE SUBJECTED TO ALL THE P ROVISIONS OF THE ACT AND ONLY THE BALANCE OF PROFITS, IF ANY, WI LL BE DEDUCTED FROM THE TOTAL INCOME. THIS IS IN CONTRAST TO SUBSECTION (1), AS IT STOOD PRIOR TO THE AFORESAID AMENDMENT, WHICH PROVIDED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM AN INDUSTRIAL UNDERTAKING TO WHICH TH IS SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME O F THE ASSESSEE. THIS PHRASEOLOGY WHICH WE HAVE NOTED EAR LIER TO CONFORM TO THE TITLE OF CHAPTER III OF THE ACT HAS GIVEN RISE TO THE FURTHER ARGUMENT FROM THE DEPARTMENT THAT W.E.F . 01/04/2001, THERE IS A SIGNIFICANT CHANGE AND PROFI TS WHICH WERE EARLIER EXEMPT FROM INCOME TAX AND WERE NOT IN CLUDABLE IN THE ASSESSEES TOTAL INCOME ARE NOW SO INCLUDED, SUBJECT TO DEDUCTION, AND ONCE THE PROFITS ARE INCLUDED, ALL T HE PROVISIONS OF THE ACT WILL HAVE TO BE APPLIED WHILE ARRIVING AT THE AMOUNT OF DEDUCTION. IN ORDER TO TEST THIS ARGU MENT IT IS NECESSARY TO LOOK AT SEVERAL ASPECTS. FIRSTLY, SECT ION 10A EVEN AFTER BEING AMENDED SUBSTANTIALLY BY THE FINAN CE ACT, 2000, HAS BEEN RETAINED IN CHAPTER III OF THE ACT, NOTWITHSTANDING THE CHANGE IN THE LANGUAGE OF SUBSE CTION (1). IF THE DEPARTMENT IS RIGHT IN ITS CONTENTION THAT A FTER 01/04/2001, THE SECTION ONLY PROVIDES FOR DEDUCTION AND NOT IN EXEMPTION, IT WAS OPEN TO THE LEGISLATURE TO TRA NSPOSE THE SECTION FROM CHAPTER III TO CHAPTER VI-A OF THE ACT WHICH IS TITLED DEDUCTIONS TO BE MADE IN COMPUTING TOTAL IN COME. THIS ASPECT OF THE MATTER HAS BEEN ADVERTED TO AND DISCU SSED BY THE KARNATAKA HIGH COURT IN CIT V. YOKOGAWA INDIA L TD. (2012) 341 ITR 385 (KARN). IT HAS BEEN OBSERVED BY THE KARNATAKA HIGH COURT AS FOLLOWS (PAGE 396): (PARA 17) THE SUBSTITUTED SECTION 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS INCOMES WHICH DO NOT FORM I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 13 PART OF TOTAL INCOME. IT MAY BE NOTED THAT WHEN SE CTION 10A WAS RECAST BY FINANCE ACT, 2001, PARLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIVEN IN CHAPTER I II. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PA RT OF TOTAL INCOME. IF PARLIAMENT INTENDED THAT THE RELIE F UNDER SECTION 10A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTATION OF TOTAL INCOME, IT CO ULD HAVE PLACED THE SAME IN CHAPTER VI-A, WHICH HOUSES THE SECTIONS LIKE 80HHC, 80-IA, ETC. PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTING AND LIMITING PROVI SIONS LIKE SECTION 80A AND SECTION 80AB WHICH WAS IN CHAPTER VI-A WHICH DO NOT APPEAR IN CHAPTER III. TH E FACT THAT EVEN AFTER ITS RECAST, THE RELIEF HAS BEE N RETAINED IN CHAPTER III INDICATES THAT THE INTENTIO N OF THE PARLIAMENT IT IS O BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. THE ACT OF PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III INDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FORMI NG PART OF THE TOTAL INCOME ON WHICH NO INCOME-TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED FROM CHARGE, BUT ARE INCLUDED IN THE TOTAL INCOME O F THE ASSESSEE. PARLIAMENT, DESPITE BEING CONVERSANT WITH THE IMPLICATIONS OF THIS CHAPTER, HAS CONSCIOUSLY CHOSE N TO RETAIN SECTION 10A IN CHAPTER III. SECONDLY, WE FIND THAT THOUGH SUBSECTION (1) PROVID ES FOR A DEDUCTION OF THE ELIGIBLE PROFITS, THERE IS GOOD RE ASON TO THINK THAT IT IS NOT TO BE CONSIDERED AS A DEDUCTION BECA USE THE SUBSECTION FURTHER SAYS THAT THE DEDUCTION SHALL B E ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. UNDER THE I NCOME TAX ACT, 1961, THE INCOME OF AN ASSESSEE UNDER THE VARI OUS HEADS OF THE INCOME ENUMERATED IN SECTION 14 HAVE T O BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. THE AGGREGATE OF SUCH INCOMES CONSTITUTES THE GROSS TO TAL INCOME OF THE ASSESSEE WITHIN THE MEANING OF SECTI ON 80B(5) WHICH DEFINES GROSS TOTAL INCOME AS THE TOTAL INC OME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VI-A. THE EXPRES SION TOTAL INCOME IS DEFINED IN SECTION 2 (45) OF THE ACT TO MEAN THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 , COMPUTED IN THE MANNER LAID DOWN IN THE ACT. SECTION 4 WHICH IS THE I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 14 CHARGING SECTION PROVIDES FOR THE CHARGE OF INCOME- TAX IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. THE POSITION THAT EMERGES FROM A HARMONIOUS READING OF THESE PROVISIONS IS THAT THE ASSESSEE IS REQUIRE D TO PAY INCOME-TAX ON HIS TOTAL INCOME OF THE PREVIOUS YEAR . THE DETERMINATION OF THE TOTAL INCOME IS THE LAST POINT BEFORE THE TAX IS CHARGED AND ONCE THE TOTAL INCOME IS DETERMI NED OR QUANTIFIED, THERE IS ABSOLUTELY NO SCOPE FOR MAKING ANY FURTHER DEDUCTION, HAVING REGARD TO THE PROVISIONS REFERRED TO ABOVE. IF THIS IS THE TRUE LEGAL POSITION, AS WE TH INK IT TO BE, THEN IT IS NOT POSSIBLE TO UNDERSTAND SUBSECTION (1 ) OF SECTION 10A AS PROVIDING FOR A DEDUCTION OF THE PROFITS O F THE ELIGIBLE UNIT FROM THE TOTAL INCOME OF THE ASSESSEE. THE D EFINITION OF THE EXPRESSION TOTAL INCOME GIVEN IN SECTION 2 (4 5) CANNOT BE IMPORTED INTO THE INTERPRETATION OF SUBSECTION ( 1) HAVING REGARD TO THE CONTEXT IN WHICH IT IS USED IN THE SC HEME OF THE ACT RELATING TO THE CHARGE OF THE ACT. IT HAS TO BE KEPT IN MIND THAT THE DEFINITION SECTION WOULD NOT APPLY IF THE CONTEXT REQUIRES OTHERWISE; IN OTHER WORDS, IF THE SCHEME O F THE ACT RELATING TO THE CHARGE OF INCOME-TAX CLEARLY MAKES IT IMPOSSIBLE FOR ANY DEDUCTION TO BE ALLOWED ONCE THE TOTAL INCOME IS DETERMINED, THEN IT WOULD BE FUTILE TO ST ILL INSIST ON APPLYING THE DEFINITION OF THE EXPRESSION TOTAL IN COME UNDER SECTION 2 (45) TO THE INTERPRETATION OF THE SUBSECT ION. IN OTHER WORDS, THE CONTEXT IN WHICH THE EXPRESSION TOTAL I NCOME IS USED IN THE SUBSECTION REQUIRES US TO ABANDON THE D EFINITION OF THAT EXPRESSION AS PER SECTION 2 (45). (PARA 18) THERE IS FURTHER INDICATION THAT SECTION 10A PROVID ES FOR AN EXEMPTION AND NOT MERELY A DEDUCTION AND THIS IS IN THE FORM OF RETURN OF INCOME PRESCRIBED BY THE INCOME TAX RU LES, 1962. THE RETURN OF INCOME IN FORM NUMBER ITR-6 SHOWS THA T THE FIRST STEP WHICH AN ASSESSEE IS REQUIRED WHILE COMP UTING THE INCOME FROM BUSINESS OR PROFESSION IS TO COMMENCE T HE COMPUTATION FROM THE PROFIT AS PER THE PROFIT AND L OSS ACCOUNT. THE SECOND STEP IS TO ADJUST THE PROFIT FIGURE BY E XCLUDING RECEIPTS WHICH ARE NOT SUBJECT TO TAX OR WHICH ARE SUBJECT TO TAX UNDER OTHER HEADS OF INCOME. THE THIRD STEP IS TO EXCLUDE EXEMPT INCOME CREDITED TO THE PROFIT AND LOSS ACCOU NT. FOURTH STEP IS TO ADD BACK CLAIMS WHICH ARE DISALLOWABLE U NDER THE VARIOUS PROVISIONS OF THE ACT. THE FIFTH STEP IS TO CLAIM ANY I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 15 OTHER ALLOWANCE OR DEDUCTION. THIS EXERCISE GIVES T HE FIGURE OF PROFIT AND LOSS BEFORE DEDUCTION UNDER SECTION 10A. THEREAFTER, THE ASSESSEE HAS TO DEDUCT THE PROFITS ELIGIBLE UNDER SECTION 10A. THE FORM FURTHER PRESCRIBES THE STEPS INVOLVED IN THE COMPUTATION OF TOTAL INCOME. THIS S HOWS THAT AFTER AGGREGATING THE INCOME FROM SALARY, HOUSE PRO PERTY, PROFITS AND GAINS FROM BUSINESS, CAPITAL GAINS AND INCOME FROM OTHER SOURCES, THE TOTAL IS ARRIVED AT AND IT IS FROM THIS TOTAL THAT THE LOSSES OF THE CURRENT YEAR AND THE B ROUGHT FORWARD LOSSES FROM THE PAST YEARS ARE TO BE SET OF F. THE RESULTANT FIGURE GIVES THE GROSS TOTAL INCOME OF TH E ASSESSEE FROM WHICH DEDUCTIONS UNDER CHAPTER VI-A ARE TO BE MADE IN ORDER TO ARRIVE AT THE TOTAL INCOME. THE STEPS GIVE N IN THE INCOME TAX RETURN FORM ALSO ARE AN INDICATION THAT IT IS BEFORE THE ADJUSTMENT OF THE LOSSES OF THE CURRENT YEAR AN D THE BROUGHT FORWARD LOSSES FROM THE PAST YEAR THAT THE PROFITS ELIGIBLE FOR THE RELIEF UNDER SECTION 10A HAVE BE B E GIVEN THE RELIEF. THE FORM OF RETURN IS ALSO AN INDICATION TH AT THE RELIEF UNDER SECTION 10A HAS TO BE GIVEN BEFORE ADJUSTMENT OF THE CURRENT AS WELL AS THE PAST LOSSES. (PARA 19) IT IS INTERESTING TO NOTE THAT THOUGH THERE IS A DI VERGENCE OF OPINION BETWEEN THE KARNATAKA HIGH COURT IN YOKOGAW AS CASE (SUPRA) AND THE BOMBAY HIGH COURT IN HINDUSTAN UNILEVER (SUPRA) AS TO THE NATURE OF SECTION 10A WHETHER IT PROVIDES FOR EXEMPTION OR DEDUCTION OF THE PROFITS OF THE ELIGIBLE UNIT, THE ULTIMATE DECISION IN BLACK AND V EATCH CONSULTING (SUPRA) WHICH PURPORTS TO FOLLOW HINDUST AN UNILEVER (SUPRA) WAS THAT SUCH PROFITS HAVE TO BE E LIMINATED AT THE FIRST STAGE ITSELF, THAT IS, AS SOON AS THEY ARE COMPUTED, SUGGESTING THAT IT IS AN EXEMPTION PROVISION. IT WA S HELD THAT THE ELIGIBLE PROFITS ARE NOT TO BE SUBJECTED TO THE ADJUSTMENT UNDER SECTION 72 OF THE ACT, AND THE BROUGHT FORWAR D LOSSES FROM THE UNIT ELIGIBLE FOR THE RELIEF UNDER SECTION 10B CANNOT BE ADJUSTED AGAINST THE PROFITS FROM THE OTHER THRE E ELIGIBLE UNITS, WHICH IN EFFECT REITERATES THE POSITION THAT THE LOSS DOES NOT ENTERED THE FIELD OF TAXATION JUST AS THE PROFI TS ALSO DO NOT ENTER THE FIELD. THIS, WITH RESPECT, LENDS SUPPORT MORE TO THE VIEW THAT SECTION 10A AND SECTION 10B ARE IN THE NA TURE OF EXEMPTION PROVISIONS, RATHER THAN PROVISIONS FOR DE DUCTION. IN THE ULTIMATE ANALYSIS IT MAY PERHAPS BE WISE TO FAL L BACK ON I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 16 THE OBSERVATIONS OF JUSTICE NARASIMHAM J. (AS THEN HE WAS) SPEAKING FOR A DIVISION BENCH OF THE ORISSA HIGH CO URT IN RAMACHANDRA MARDARAJ DEO VERSUS COLLECTOR OF COMMER CIAL TAXES (1957) 31 ITR 651 (ORISSA) WHERE HE DESCRIBED THE DIFFERENCE BETWEEN EXEMPTION AND DEDUCTION AS A FINE DISTINCTION AND OBSERVED AS UNDER (PAGE 658): (PARA 22) WHETHER A PARTICULAR SUM IS CLAIMED AS AN EXEMPTIO N OR AS A DEDUCTION, THE NET RESULT IS ITS IMMUNITY F ROM TAXATION IF THE CLAIM IS ALLOWED. THUS, INCOMES WHICH ARE ENUMERATED IN CHAPTER III O F THE ACT HAVE TRADITIONALLY BEEN CONSIDERED AS INCOMES WHICH ARE EXEMPT FROM TAX RATHER THAN AS DEDUCTIONS IN THE CO MPUTATION OF TOTAL INCOME. THE ESSENTIAL DIFFERENCE BETWEEN A N EXEMPTION AND DEDUCTION SEEMS TO BE THAT AN EXEMPT INCOME DOES NOT ENTER THE COMPUTATION OF TOTAL INCOME AT A LL, WHEREAS A DEDUCTION, IN THE VERY NATURE OF THINGS, IS FIRST INCLUDED IN THE TOTAL INCOME AND GIVEN A DEDUCTION SUBJECT TO F ULFILMENT OF SEVERAL CONDITIONS. THE FACT THAT THE DEDUCTION MAY BE GIVEN IN RESPECT OF THE ENTIRE INCOME DOES NOT NECESSARIL Y MEAN THAT IT IS AN EXEMPT INCOME. AT THE SAME TIME, THE FACT THAT A PARTICULAR CLASS OF INCOME IS ONLY PARTIALLY EXEMPT FROM TAXATION DOES NOT NECESSARILY MEAN THAT IT IS ONLY A DEDUCTION . (PARA 24) WITH THIS CAUTION OR DISCLAIMER IN MIND WE ARE INCL INED TO HOLD THAT SECTION 10A IS A PROVISION EXEMPTING A PARTICU LAR KIND OF INCOME EVEN IN ITS PRESENT FORM, THAT IS TO SAY, EV EN AFTER BEING AMENDED BY THE FINANCE ACT, 2000, W.E.F. 01/04/2001.WE ARE INCLINED, WITH RESPECT TO AGREE W ITH THE VIEW TAKEN BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. YOKOGAWA (SUPRA). AS NOTICED, THE BOMBAY HIGH COURT REACHED THE SAME CONCLUSION WHICH THE KARNATAKA HIG H COURT REACHED IN THE CASE OF CIT V. YOKOGAWA (SUPRA ), IN ITS JUDGMENT IN HINDUSTAN UNILEVER LTD (SUPRA) AND CIT VS. BLACK AND VEATCH CONSULTING LTD (SUPRA), DESPITE TAKING T HE VIEW THAT SECTION PROVIDES FOR A DEDUCTION AND NOT AN EX EMPTION. (PARA 30) .WE HAVE ALREADY SEEN THAT SECTION 10A, AS IT PRES ENTLY STANDS, THOUGH WORDED AS DEDUCTION PROVISION, IS ES SENTIALLY I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 17 AND IN SUBSTANCE AN EXEMPTION PROVISION WE HAVE ALS O HELD THAT THE IMPLICATION OF AN EXEMPTION PROVISION IS T HAT THE PARTICULAR INCOME WHICH IS EXEMPT FROM TAXES DOES N OT ENTER THE FIELD OF TAXATION AND IS NOT SUBJECT TO ANY COM PUTATION. THE COMPUTATION PROVISIONS OF THE ACT DO NOT GET AT TRACTED AT ALL TO THE EXEMPTED INCOME.. (PARA 35) 5.4 COMING TO THE PRESENT APPEAL BEFORE US, AS WE H AVE ALREADY STATED, THE FACTS ARE NOT IN DISPUTE AND THE ONLY Q UESTION FOR OUR CONSIDERATION IS WHETHER THE UNABSORBED DEPRECIATIO N RELATING TO NON-EXEMPTION YEARS, THAT IS, ASSESSMENT YEARS 1993 94, 9495 AND 199596 COULD BE DENIED TO BE CARRIED FORWARD A ND SET OFF IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE HONBL E ALLHABAD HIGH COURT HAS ALSO INDICATED WHILE RESTORING THE A SSESSEES APPEAL TO THE ITAT THAT THE INTENT OF THE LEGISLATU RE WHILE MAKING THESE AMENDMENTS WAS CERTAINLY NOT TO CURTAIL RELIE F TO AN ASSESSEE, WHO HAD NOT AVAILED DOUBLE BENEFIT. IT IS NOT THE DEPARTMENTS CASE THAT ANY DOUBLE BENEFIT HAS BEEN AVAILED BY THE ASSESSEE. ALSO, THE QUESTION AS TO WHETHER SECT ION 10A IS AN EXEMPTION PROVISION OR A DEDUCTION PROVISION IS ALS O NO LONGER RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. TEI TECHNOLOGIES PVT. LTD (SUPRA ) AS WELL AS CIT V. YOKOGAWA (SUPRA), WHICH THE HONBLE DELHI HIGH C OURT HAS DISCUSSED IN THE CASE OF CIT V. TEI TECHNOLOGIES PV T. LTD (SUPRA). I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 18 THE HONBLE DELHI HIGH COURT HAS HELD THAT IT WAS I N AGREEMENT WITH THE JUDGMENT OF THE KARNATAKA HIGH COURT IN TH E CASE OF CIT V. YOKOGAWA (SUPRA).THEREFORE, RESPECTFULLY FOLLOWI NG THE RATIO OF THE SAID JUDGMENT OF THE HONBLE DELHI HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE WILL BE ELIGIB LE FOR SET OFF OF UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEARS 19 93 94 TO 1995-96 AGAINST THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, WE SET ASIDE T HE ORDER OF THE LD. CTT (APPEALS) ON THIS ISSUE AND DIRECT THE AO T O ALLOW SET OFF OF UNABSORBED DEPRECIATION TO THE ASSESSEE AS DISCU SSED HEREINABOVE. 6. IN THE FINAL RESULT THE APPEAL OF THE ASSESSEE S TANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2017. SD/- SD/- (PRASHANT MAHARISHI) (SUDHA NSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 31/10/ 2017 GS I.T.A. 2845/DEL/2007 ASSESSMENT YEAR 2003-04 19 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR