Bharat Resins Ltd., Daman V. The ACIT,Vapi circle, Vapi

ITA 2879/AHD/2011

• Counselvise Citation: 287920514 RSA 2011
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 21-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Business income; Depreciation; Tax effect
• Section: 10B; 10

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.L.GEHLOT, ACCOUNTANT MEMBER 1. ./ I.T.A.NO.2879/AHD/2011 - / // / A.Y. 2007-08 2. ./ I.T.A.NO.2788/AHD/2011 - / // / A.Y. 2008-09 1. M/S.BHARAT RESINS LTD. PLOT # 43-44-45 SURVEY # 168 DABHEL INDUSTRIAL CO-OP. SOCIETY VILLAGE DABHEL DAMAN 396 210 2. ACIT VAPI CIRCLE, VAPI / VS. 1. THE ACIT VAPI RANGE VAPI 2. M/S.BHARAT RESINS LTD. DAMAN 396 210 ! ./'# ./ PAN/GIR NO. : AAACB 9709 J ( $ / // / APPELLANTS ) .. ( %&$ / RESPONDENTS ) ASSESSEE BY : SHRI S.N.SOPARKAR, A.R. REVENUE BY : SHRI SAMIR TEKRIWAL, SR.D.R. '( ) *+! / / / / DATE OF HEARING : 11/01/2012 ,- ) *+! / DATE OF PRONOUNCEMENT : 10/02/2012 . / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : FOR A.Y. 2007-08 THE ASSESSEE IS IN APPEAL ARISING FROM THE ORDER OF THE LD.CIT(A)-VALSAD DATED 23/08/2011 AND FOR A.Y.2008-09 THE REVENUE IS IN APPEAL ARISING FROM THE ORDER OF THE LD.CIT(A)-VALSAD DATED 23/08/2011. ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 2 - [A] ASSESSEES APPEAL FOR A.Y. 2007-08, I.E. ITA N O.2879/AHD/2011 2. GROUND NO.1 READS AS UNDER: 1. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING ACTION OF AO IN DISALLOWING SET OFF OF LOSSES OF RS.25,91,332/- SUFFERED IN EOU UNIT STARTED DURING THE YEAR UNDER CONSIDERATION AG AINST PROFITS OF TAXABLE UNITS. LD. CIT(A) FAILED TO INTERPRET PROV ISIONS OF SECTION 10B IN ITS PROPER PERSPECTIVE. THE ORDER OF LD. CI T(A) BEING ERRONEOUS AND WITHOUT ANY MERITS OR JUSTIFICATION D ESERVES TO BE QUASHED. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S.143(3) OF THE ACT DATED 27/11/2009 WERE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF SYNTHETICS RESI NS AND VARNISHES FOR THE INDUSTRIAL USE. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAS THREE INDUSTRIAL UNDERTAKINGS. AS PER AO, INDUSTRIAL UND ERTAKING-I IS SITUATED AT VILLAGE DABHEL. INDUSTRIAL UNDERTAKING-II IS A LSO AT VILLAGE DABHEL, BUT AT A DIFFERENT LOCATION. INDUSTRIAL UNDERTAKIN G-III WAS STARTED DURING THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2007-08 AS A 100% EXPORT ORIENTED UNIT (EOU) SITUATED AT UMBERGAON, DIST.VAL SAD. THE OBSERVATION OF THE AO WAS THAT THERE WAS A LOSS IN THE SAID EOU. BOOK LOSS WAS STATED TO BE AT RS.7,56,775/- AND THE LOS S AS PER THE INCOME TAX ACT WAS AT RS.25,91,332/-. SINCE THERE WAS A LOS S IN THE MANUFACTURING ACTIVITY, THEREFORE THERE WAS NO DEDUCTION U/S.10B OF IT ACT CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS, HOWEVER, CLAIMED THE SET OFF OF THE SAID LOSS OF THE SAID EOU AGAINST THE PROFITS OF ITS TAX ABLE UNIT. THE INDUSTRIAL UNDERTAKING-I HAS EXHAUSTED THE PERIOD OF EXEMPTION AND THEREFORE NO DEDUCTION U/S.80IB WAS AVAILABLE TO THE SAID UNIT. THE AO HAS RAISED THE ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 3 - OBJECTION OF SUCH SET OFF PRIMARILY ON THE GROUND T HAT THE EOU WAS EXEMPT U/S.10B AND SINCE THE INCOME OF THE EOU DID NOT FORM PART OF THE TOTAL INCOME, THEREFORE NOT TAXABLE. AS PER AO, NO DEDUCTION EITHER COULD BE CLAIMED BECAUSE OF LOSS OF THE SAID EOU AN D NO PART OF THE LOSS COULD BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE PROFITS OF THE INDUSTRIAL UNDERTAKING-I. FINALLY, THE CLAIM OF THE SET OFF OF LOSS WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LD.CIT(A) HAS EXAMINED THE FACTS OF THE CASE AND DECIDED AS FOLLOWS; RELEVANT PORTION REPRODUCED. DECISION : I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE. I HAVE ALSO NOTED THE FINDINGS OF THE AO AND THE SUBMISSIO NS MADE BY THE LD.AR. THE SINGLE MAIN ISSUE IN THIS APPEAL IS WHE THER LOSS FROM EOU CAN BE SET OFF AGAINST FROM THE PROFITS OF NON-EOU UNITS OF THE APPELLANT. THE LOSS INCURRED BY THE APPELLANT FROM THE EOU UNIT WAS ` 25,91,332/- (DEPRECIATION ` 25,11,092/- & OTHER E XPENDITURE ` 80,240/- ). THE LD.AR PLEADED THAT DEPRECIATION IS NOT AN E XPENDITURE AND FOR COMPUTING TOTAL INCOME THE APPELLANT IS ENTITLE TO COVER SS.28 TO 43D OF THE ACT. IT IS A FACT THAT DEPRECIATION IS ALLOWED MANDATORILY W.E.F. 2002 WHICH WAS UPHELD BY THE VARIOUS COURTS NOTABLY, SCO OP INDUSTRIES PVT.LTD. VS. ITO 289 ITR 195 (BOM) & INDIAN RAYON C ORPORATION LTD. VS. CIT 261 ITR 98 (BOM). SECTION 70 AS SUBSTITUTE D BY THE FINANCE ACT, 2002 W.E.F. 1 ST APRIL, 2003 PROVIDED THAT WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLIN G UNDER ANY HEAD OF INCOME OTHER THAN CAPITAL GAINS IS A LOSS, THE AS SESSEE SHALL BE ENTITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AG AINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD, AND WHERE THE NET RESULT IN RESPECT OF ANY SHORT-TERM CAPITAL ASSET IS A LOSS S HALL BE ALLOWED TO BE SET OFF AGAINST INCOME, IF ANY, FOR THAT ASSESSMENT YEAR UNDER THE HEAD CAPITAL GAINS IN RESPECT OF ANY OTHER CAPITAL ASS ET, AND WHERE THE NET RESULT IN RESPECT OF ANY CAPITAL ASSET OTHER THAN A SHORT-TERM CAPITAL ASSET IS A LOSS, SUCH LOSS SHALL BE ALLOWED TO BE S ET OFF AGAINST THE ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 4 - INCOME, IF ANY, FOR THAT ASSESSMENT YEAR IN RESPECT OF ANY OTHER CAPITAL ASSET NOT BEING A SHORT-TERM CAPITAL ASSETS. FURTHER, THE OVERRIDING SEC.108(4)(I) PROVIDES THAT IT SHALL BE PRESUMED THAT FULL ALLOWANCE U/S.32, 32A, 33 & 36(1)(IX) HAD BEEN GIVEN FULL EFFECT TO FOR THE VULNERABLE ASSESSMENT YEAR EVEN THOUGH N OT ACTUALLY SHOWN IN THE COMPUTATION. FURTHER, PROVISIONS OF SS.32(2), 32A(3)(II), 33(2)(II) AND 36(1)(IX), SECOND PROVISO, SHALL NOT BE GIVEN E FFECT TO THE VULNERABLE ASSESSMENT YEARS. SEC.10B(4)(II) FURTHER PROVIDES THAT THE UNABSORBED BUSINESS LOSS (S.71(1) AND UNABSORBED LOSS UNDER TH E HEAD CAPITAL GAINS RELATING TO THE BUSINESS OF THE ELIGIBLE UNDE RTAKING FOR ANY OF THE ASSESSMENT YEAR UNDER TAX HOLIDAY PERIOD SHALL NOT BE CARRY FORWARD OR SET OFF IN THE ASSESSMENT YEARS SUBSEQUENT TO THE E ND OF TAX HOLIDAY PERIODS. THIS CLEARLY INDICATES THAT THE TAX BENEF ITS ACCORDED AS PER SEC.10B MUST BE CONFINED TO THE ELIGIBLE UNIT AS A SELF CONTAINED MANNER. THAT IS TO SAY THAT IF THE ELIGIBLE UNITS DERIVES P ROFITS AND GAINS AS PER THE PROVISIONS OF THE ACT, SUCH PROFITS AND GAINS S HALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. SIMILAR COROLLAR Y EXISTS IN THE LOSS INCURRED BY THE ELIGIBLE UNIT. THERE ARE SEVERAL J UDGEMENTS THE RATIO OF WHICH JUSTIFY THAT THE UNDERTAKING TAKING SPECIAL B ENEFITS SHALL BE TREATED AS AN INDEPENDENT UNIT AND THE SAME IS TO B E TREATED AS THE ONLY SOURCE OF INCOME FOR ASSESSEE FOR THE PURPOSE OF BE NEFIT DEDUCTION. WHAT IS THE PURPOSE OF SEC.10B IN THE ACT. THIS IS A SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 100% EXPORT ORIENTED U NDERTAKINGS. THE UNDERTAKING ENJOYS THE TAX BENEFITS DURING THE TAX HOLIDAY PERIODS. TO ARRIVE AT THE INCOME ONE HAS TO TAKE INTO CONSIDERA TION THE TOTAL INCOME IN TERMS OF THE ACT.SEC.10B CANNOT BE READ IN ISOLA TION OF OTHER PROVISIONS. IT IS ONLY AN EXEMPTION PROVISIONS AND THE EXEMPTION HAS TO HAVE SOME RATIONALE WITH OTHER PROVISIONS OF THE AC T. THEREFORE, A COMBINE READING OF THE DEFINITION OF EXEMPTION, TOT AL INCOME, INCOME DEDUCTIBLE ETC., ONE HAS TO COME TO A CONCLUSION TH AT COMPUTATION/CALCULATION AS FAR AS POSSIBLE IS TO BE AS PER THE ACT. SEC. 10B IS PARI-PASSU TO THE PROVISIONS U/S.8-IA BECAUS E SOME OF THE PROVISIONS FROM SEC.80-IA ARE APPLIED WHILE INTERPR ETING THE SEC.10B OF THE ACT. THE LEGISLATIVE HISTORY OF THE PROVISIONS CLEARLY INDICATE OF THIS FACTS. THEREFORE, THE INTERPRETATION HAS TO BE MEA NINGFUL AND ACCEPTABLE AND IT CANNOT BE AGAINST THE INTENTION O F THE LEGISLATION. IN THIS CIRCUMSTANCES, IT CAN SAFELY BE SAID THAT THE INTENTION OF THE LEGISLATION IS ONLY TO PROVIDE 100% EXEMPTION FOR E XPORT INCOME AND NOT FOR OTHER INCOME. HENCE, THE UNABSORBED DEPRECIATI ON SHOULD BE TAKEN FOR ARRIVING AT AN EXEMPTED INCOME. THAT MEANS, TH E UNABSORBED ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 5 - DEPRECIATION OR LOSS CANNOT BE ADJUSTED WITH OTHER INCOME WHICH DOES NOT QUALIFY FOR THE EXEMPTION. LET US TAKE AN EXAM PLE, IF THE ASSESSEE DERIVES PROFITS AND GAINS FROM THE EOU UNIT WHICH I S EXEMPTED U/S.10B. THE ASSESSEE HAS ALSO OTHER UNITS WHICH MADE LOSS D URING THE SAME PERIOD. CAN THE PROFITS/GAINS OF EOU UNIT BE ADJUS TED AGAINST THE LOSS OF OTHER NON-EXEMPT UNIT. MY HUMBLE VIEW IS NO. T HE EFFECT OF SETTING OF LOSSES FROM TAXABLE SOURCES AGAINST INCOMES WHIC H ARE NOT LIABLE TO TAX WOULD BE DEPRIVE THE ASSESSEE OF THE BENEFIT OF THE EXEMPTION AND OF HIS RIGHT TO CARRY FORWARD SUCH LOSS TO NEXT YEAR F OR FURTHER SET OFF WITH CONSEQUENTIAL TAX EFFECT ON SUBSEQUENT YEARS INCOM E. CAN THE REVERSE BE ALLOWED ? THAT IF THE ASSESSEE MAKES LOSS FROM THE EOU UNITS AND PROFITS IN THE OTHER UNITS, THE LOSS CANNOT BE ADJU STED. IN THAT CASE THE ASSESSEE WILL SUFFERED LESS BENEFITS. IN THIS CIRC UMSTANCES, I AM OF THE VIEW THAT THE APPARENT CANNOT SET OFF BROUGHT FORWA RD LOSS AGAINST THE OTHER INCOME. THE APPELLANT IS ENTITLED TO SET OFF THE BROUGHT FORWARD LOSS/DEPRECIATION FROM THE EOU UNIT AGAINST THE EXE MPTED INCOME IF HE DESIRES SO. THOUGHT HE INCOME INCLUDES LOSS FOR CE RTAIN PURPOSES, BUT FOR THE PURPOSE OF EXEMPTION THE POSITIVE INCOME IS MATERIAL. THEREFORE, THE APPELLANT CAN CLAIM EXEMPTION OF POSITIVE INCOM E AND NOT THE LOSS. THIS VIEW HAS BEEN SUPPORTED BY THE DECISION OF THE HON'BLE HC IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD. 206 CTR (K AR) 106. FURTHER, I WOULD LIKE TO DERIVE STRENGTH FROM THE FOLLOWING JU DGEMENTS TO AUGMENT MY VIEW POINTS. I. IN THE CASE OF CIT V/S. MAHALAXMI SUGAR MILLS CO.LT D. (1986) 58 CTR (SC) 138 : (1986) 160 ITR 920 (SC). THE HON'BL E SC HAD OBSERVED THAT THE LOSS SUSTAINED BY AN ASSESSEE CA N BE SET OFF ONLY AGAINST HIS INCOME WHICH IS ASSESSABLE TO TAX AND THE LOSS CANNOT BE SET OFF AGAINST THE INCOME WHICH IS NOT A SSESSABLE TO TAX. UNDER SECTION 71 AN ASSESSEE WHO HAS SUSTAINE D A LOSS OF PROFITS OR GAINS IN ANY YEAR UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 IS ENTITLED TO HAVE THE AMOUNT OF THE LO SS SET OFF AGAINST HIS INCOME, PROFITS, WHICH MUST BE SUCH INC OME, PROFITS OR GAINS AS ARE ASSESSABLE UNDER THE IT ACT. THE S TATUTE DOES NOT CONTEMPLATE SETTING OFF OF LOSS AGAINST INCOME WHIC H IS NOT ASSESSABLE AT ALL UNDER THE ACT. II. IN THE CASE OF CIT V/S. S.S. THIAGARAJAN (1981) 129 ITR 115 (MAD): TC 45 R. 103, THE HON'BLE MADRAS HC OBSERV ED THAT THE PROVISIONS OF SECTION 70 AND 71 RELATING TO SE T OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER CONTEMPLA TE, LOSS ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 6 - FROM A SOURCE, THE INCOME FROM WHICH IS LIABLE TO T AX. IF INCOME FROM ALTOGETHER EXEMPT FROM TAX, LOSS FROM THAT SOU RCE CANNOT BE SET OFF AGAINST INCOME FROM A DIFFERENT SOURCE OF I NCOME UNDER A DIFFERENT HEAD . CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE RELEVANT JUDICIAL VIEWS, I AM NOT INCLINED TO INTERFERE IN T HE ACTION OF THE AO. HENCE, THIS GROUND OF APPEAL IS DISMISSED . 4. LD.CIT(A) HAS AFFIRMED THE ACTION OF THE AO, HEN CE THE ASSESSEE IS IN APPEAL. 5. FROM THE SIDE OF THE ASSESSEE, LD.AR MR.S.N.SOPA RKAR APPEARED AND MADE THE SUBMISSIONS THAT AS PER THE PROVISIONS OF SECTION 70 OF I.T. ACT WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FOLLOWING ANY HEAD OF INCOME IS LOSS, THEN THE ASSE SSEE SHALL BE ENTITLED TO HAVE THE AMOUNT TO SUCH LOSS SET OFF AGAINST INC OME FROM ANY OTHER SOURCE. HE HAS PLACED RELIANCE ON HINDUSTAN UNIL EVER LTD. VS. DY.CIT AND ANOTHER REPORTED AT (2010) 325 ITR 102 (BOM) F OR THE PURPOSE THAT SET OFF IS ADMISSIBLE. HE ALSO RELIED ON CIT VS. H IMATASINGIKE SEIDE LTD. REPORTED AT 286 ITR 255 (KARN.) AND SWORD GLOBAL (I ) (P.) LTD. VS. ITO REPORTED AT [2010] 122 ITD 103(CHENNAI). 6. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMIR TEKRIWAL STATED THAT THE INCOME EARNED BY EOU WAS OTHERWISE NOT TO BE INCLUDED IN THE TOTAL INCOME HAD IT BEEN A POSITIVE FIGURE AS PER S ECTION 10B OF IT ACT, THEREFORE, THE LOSS SUFFERED IN THE SAID UNIT SHOUL D ALSO NOT BE A PART AND ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 7 - PARCEL OF THE TOTAL INCOME OF THE ASSESSEE. ACCO RDING TO LD.DR, IT WAS WRONG ON THE PART OF THE ASSESSEE TO HAVE BENEFIT I N EITHER CASE, I.E. IN ONE HAND TO CLAIM TOTAL EXEMPTION U/S.10B IF THE EOU IS RUNNING IN PROFIT AND ON THE OTHER HAND, IF THE EOU IS RUNNING IN LOSS, T HEN THE CLAIM OF ADJUSTMENT OF LOSS AGAINST THE PROFITS OF ANY OTHER UNIT. HE HAS FURTHER ARGUED THAT THE PROVISIONS OF SECTION 10B ARE THE S PECIAL PROVISIONS AND, HENCE, TO BE DEALT WITH INDEPENDENTLY. HE HAS FURT HER SUBMITTED THAT THERE SHOULD NOT BE ANY MIXING UP OF THE PROVISIONS OF SECTION 10B WITH THE OTHER PROVISIONS OF THE ACT. 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT AFTER THE AMENDMENT IN THE PROVISIONS OF SECTI ON 10B WITH EFFECT FROM 1/4/2001, THE SAID SPECIAL PROVISIONS ARE TO B E DEALT WITH ACCORDINGLY. EARLIER, THE SAID SPECIAL PROVISION U /S.10B PRESCRIBES THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100% EOU SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. T HEREAFTER, BY FINANCE ACT, 2000 W.E.F. 1.4.2001, THE LANGUAGE IS THAT A D EDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE. AFTER CONSIDERING THE SAID AMENDMENT, HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVE R LTD. (SUPRA) HAS OPINED AS UNDER:- (IV) THE LOSS INCURRED BY THE ELIGIBLE UNIT UNDER S. 10B 23. THE FOURTH AND FINAL GROUND WHICH HAS WEIGHED W ITH THE AO IN REOPENING THE ASSESSMENT IS THAT THE ASSESSEE CLAIM ED A DEDUCTION OF RS. 14.53 CRORES UNDER S. 10B. THE DEDUCTION WAS RE STRICTED TO RS. 11.11 CRORES IN THE ORDER. WHILE REOPENING THE ASSESSMENT , THE AO HAS PROCEEDED ON THE BASIS THAT S. 10B PROVIDES AN EXEM PTION AND THAT IN ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 8 - RESPECT OF THE CRAB STICK UNIT THE ASSESSEE HAD SUF FERED A LOSS OF RS. 1.33 CRORES. THE AO HAS OBSERVED THAT SINCE THE INC OME OF THE UNIT WAS EXEMPT FROM TAXATION, THE LOSS OF THE UNIT COULD NO T HAVE BEEN SET OFF AGAINST THE NORMAL BUSINESS INCOME. HOWEVER, THIS W AS ALLOWED BY THE ASSESSMENT ORDER AND IT IS OPINED THAT THE ASSESSEE 'S INCOME TO THE EXTENT OF RS. 1.33 CRORES HAS ESCAPED ASSESSMENT. 24. THERE IS MERIT IN THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE ASSESSEE THAT THE AO HAS WHILE REOPENING THE AS SESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT S. 10B IS A PROVISION IN THE NATURE OF AN EXEMPTION. PLAINLY, S. 10B AS IT STAND S IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUC TION. SEC. 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 W.E.F. 1ST A PRIL, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROV ISION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 PER CENT EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION, THEREFORE, AS IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTI ON. AFTER THE SUBSTITUTION OF S. 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 PER CENT EXPORT ORIENTED UNDERTAKI NG FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE AO WAS PLAINLY IN ERROR IN PROCEEDIN G ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT AL LOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER S. 10B. T HREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSME NT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE W AS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE EL IGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF S. 10B. 7.1. RESPECTFULLY FOLLOWING THIS DECISION, WE HERE BY DIRECT TO ALLOW THE CLAIM FOR THE BASIC REASON THAT AFTER THE AMENDMEN T A DEDUCTION IS ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 9 - ALLOWED AND NOT THE EXEMPTION IS PRESCRIBED IN THE STATUTE; THEREFORE LOSS FROM SUCH UNIT IS PERMISSIBLE FOR ADJUSTMENT AGAINS T THE TAXABLE PROFIT OF OTHER UNIT [CAPGEMINI INDIA (P) LTD. 141 TTJ 33 (MU M.)]. SO THE PROVISIONS OF SECTION 10B ARE SUBSTITUTED TO PROVID E FOR A DEDUCTION FROM INCOME AND NOT AN EXEMPTION. HENCE, UNDER THIS SCH EME THE PROFITS OF THE UNIT ELIGIBLE FOR DEDUCTION WOULD FORM PART OF THE INCOME COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. THE DEDUCTION IS, THEREFORE REQUIRED TO BE MADE AT THE STAGE OF COMPUTING THE INCOME AND, HENCE, FIRST IT IS REQUIRED TO ARRIVE A T THE FIGURE OF GROSS TOTAL INCOME AS DEFINED U/S.80B(5) OF THE I.T.ACT. THE SAID GROSS TOTAL INCOME IS TO BE COMPUTED IN ACCORDANCE WITH ALL THE PROVISIONS OF THE ACT, THEREFORE INCLUDING SECTION 10B AS WELL, EXCEP T CHAPTER VIA OF THE I.T.ACT. CONSEQUENTLY, THERE WOULD NOT BE ANY DEDU CTION TO BE WORKED OUT IN THE CASE OF A LOSS IN AN ELIGIBLE UNDERTAKIN G AND SUCH LOSS IS TO BE SET OFF WITH THE PROFITS OF OTHER UNIT (HONEY WELL INTERNATIONAL INDIA PVT.LTD. 108 TTJ 94). IT APPEARS THAT THE REVENUE AUTHORITIES ARE INFLUENCED BY THE FACT THAT SECTION 10B FALLS WITHI N CHAPTER III OF THE I.T.ACT, WHEREIN SECTION 10 ALSO EXISTS. BUT SECTI ON 10 SPECIFICALLY PROVIDES THAT INCOME FALLING WITHIN ANY OF THE CLAU SES MENTIONED THEREIN WOULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE AS SESSEE. HOWEVER, THIS IS NOT THE LEGAL REQUIREMENT OF SECTION 10B OF THE I.T.ACT. THE PERUSAL OF SECTION 10B CLEARLY REVEALS THAT A DEDUCTION IS TO BE ALLOWED TO THE ASSESSEE IN RESPECT OF THE PROFITS DERIVED FROM AN ELIGIBLE UNDERTAKING FROM THE TOTAL INCOME OF THE ASSESSEE WHICH MEANS T HAT THE TOTAL INCOME OF THE ASSESSEE WOULD INCLUDE THE PROFITS AS ALSO L OSS DERIVED FROM SUCH AN ELIGIBLE UNIT AND IF THERE IS ANY PROFIT, THEN T HE ELIGIBLE AMOUNT IS ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 10 - REQUIRED TO BE DEDUCTED IN COMPUTING THE TOTAL INCO ME. NOW THE QUESTION ARISES WHETHER THE LOSS INCURRED IN THE ELIGIBLE UN IT CAN BE SET OFF AGAINST THE OTHER INCOME. AS WE HAVE NOTED THE INC OME FROM ELIGIBLE UNDERTAKING IS TO BE TAKEN INTO ACCOUNT FOR COMPUTI NG THE TOTAL INCOME OF THE ASSESSEE AND THERE IS NO RESTRICTION TO SET OFF THE LOSS OF THE SAID ELIGIBLE INDUSTRIAL UNIT AGAINST THE OTHER INCOME E ARNED BY THE ASSESSEE IN ANY OTHER UNIT. THERE IS ONE MORE REASON FOR THIS DISCUSSION THAT ON PERUSAL OF SECTION 10B(6), THIS IS A NON OBSTANTE C LAUSE PROVIDES THAT THE LOSS REFERRED IN SUB-SECTION (1) OF SECTION 72 OR I N SECTION 74(3) AND SECTION 74(1) INSOFAR AS SUCH LOSS RELATES TO BUSIN ESS OF AN UNDERTAKING ELIGIBLE U/S.10B, SHALL NOT BE CARRIED FORWARD OR S ET OFF WHERE SUCH RELATES TO ANY OF THE ASST.YEAR COMMENTING BEFORE 01/04/200 1, HOWEVER, IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SECTION 70 OR SECTION 71 HAVE NOT BEEN INCLUDED IN THE SAID NON-OBSTANTE PROVISION. THEREFORE, IT CAN BE SAID THAT THE PROVISIONS OF SECTION 70 OR SECTION 7 1 CANNOT BE APPLIED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. HAD TH E LEGISLATURE INTENDED THAT THE PROVISIONS OF SECTIONS 70 & 71 SHOULD NOT BE APPLIED IN RESPECT OF LOSS INCURRED IN ELIGIBLE BUSINESS, IT COULD HAVE S PECIFICALLY PROVIDED SO. ACCORDING TO US, THE ASSESSEE IS THEREFORE ENTITLED TO SET OFF THE LOSS INCURRED IN AN ELIGIBLE INDUSTRIAL UNIT AGAINST THE OTHER INCOMES EARNED BY HIM (SOVIKA INFO TECH LTD.). IN SHORT, SECTION 10B (6)(II) RESTRICTS CARRY FORWARD AND SET OFF OF LOSS U/S.72 AND U/S.74, BUT DOES NOT PROVIDE OR RESTRICT ANYTHING REGARDING INTRA-HEAD SET OFF U/S. 70 OR INTER-HEAD SET OFF U/S.71. ADMITTEDLY, THERE WAS A LOSS IN THE UNIT E LIGIBLE FOR DEDUCTION U/S.10B AND THERE WAS A BUSINESS INCOME IN AN ANOTH ER UNIT. THEREFORE, WHILE COMPUTING THE TOTAL INCOME; THE BUSINESS INCO ME CAN BE COMPUTED ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 11 - ONLY AFTER SET OFF OF BUSINESS LOSS AS PER SECTION 70 AND IF AFTER SUCH SET OFF, STILL THERE IS A BUSINESS LOSS, SUCH LOSS CAN BE SET OFF AGAINST OTHER SOURCES AS PER SECTION 71 OF THE I.T.ACT, THOUGH TH IS IS NOT THE PRESENT CASE (MIND TREE CONSULTING PVT.LTD. 102 TTJ 691). GROUND RAISED BY THE ASSESSEE IS, THEREFORE, ALLOWED. 8. REST OF THE GROUNDS (NOS.2, 3 & 4) ARE, THEREFOR E, CONSEQUENTIAL AND TANTAMOUNT TO ACADEMIC IN NATURE BECAUSE THE MA IN GROUND HAS ALREADY BEEN ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. [B] REVENUES APPEAL FOR A.Y. 2008-09, I.E. ITA NO. 2788/AHD/2011 10. GROUND NO.1 READS AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS NOT APPRECIATED ADDITION ON ACC OUNT OF SET OFF OF LOSS OF EOU UNIT BROUGHT FORWARD OF RS.25,91,332 /- AGAINST PROFIT OF THE ELIGIBLE BUSINESS UNIT. 10.1. WHILE COMPUTING THE INCOME OF EOU FOR THE YE AR UNDER CONSIDERATION A.Y. 2008-09, THE AO HAS ADJUSTED THE LOSS OF THE A.Y. 2007-08 OF RS.25,91,332/- AGAINST THE ELIGIBLE BUSI NESS PROFIT OF A.Y. 2008-09. DUE TO THE SAID REASON, THE DEDUCTION U/S .10B OF THE ACT WAS GRANTED ON THE REMAINING PROFIT. BEING AGGRIEVED T HE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY AND LD.CIT(A) HAS HELD THAT SINCE IN THE PAST ASSESSMENT YEAR, THE APPEAL OF THE ASSESSE E WAS DISMISSED, THEREFORE THE SAID DISALLOWANCE WAS A DOUBLE DISAL LOWANCE AS FAR AS THE ASSESSMENT YEAR 2008-09 IS CONCERNED. THE AO WAS D IRECTED TO DELETE THE ADDITION. ITA NO.2879/AHD/2011 (BY ASSESSEE) ITA NO 2788/AHD/2011 (BY REVENUE) M/S.BHARAT RESINS LTD. VS. ACIT ASST.YEARS- 2007-08 & 2008-09 - 12 - 11. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, NOW IT IS CLEAR THAT FOR THE A.Y.2008-09 IT OUGHT NOT TO BE A DOUBLE DIS ALLOWANCE BECAUSE FOR A.Y. 2007-08, WE HAVE ALREADY DIRECTED TO ALLOW THE SET OFF OF LOSS. ONCE THE LOSS SHALL BE ADJUSTED IN A.Y.2007-08, CONSEQUE NCE OUR ABOVE DECIDED APPEAL THERE SHOULD BE A DIRECT EFFECT ON T HE COMPUTATION OF INCOME FOR A.Y. 2008-09. WE THEREFORE REVERT THIS MATTER BACK TO THE STAGE OF THE AO FOR RE-COMPUTATION OF THE ELIGIBLE PROFIT OF THE SAID UNIT. FOR STATISTICAL PURPOSES, THIS GROUND OF THE REVENU E IS HEREBY ALLOWED. 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED, WH EREAS REVENUES APPEAL IS ALLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- ( A.L. GEHLOT ) ( MU KUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 10/ 02 /2012 /+.., .../ T.C. NAIR, SR. PS . ) %*0 1 0* . ) %*0 1 0* . ) %*0 1 0* . ) %*0 1 0*/ COPY OF THE ORDER FORWARDED TO : 1. $ / THE APPELLANT 2. %&$ / THE RESPONDENT. 3. * '2 / CONCERNED CIT 4. '2() / THE CIT(A)-VALSAD 5. 056 %* , , / DR, ITAT, AHMEDABAD 6. 67 8( / GUARD FILE. .' .' .' .' / BY ORDER, &0* %* //TRUE COPY// 9 99 9/ // / ' ' ' ' ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD