SANDOZ PVT. LTD., MUMBAI V. A.C.I.T. CIRCLE 7(1), MUMBAI

ITA 4559/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75534 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 05-07-2012
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAYAK
• Assessee Lawyers: NITESH JOSHI
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Unabsorbed depreciation; Capital expenditure
• Section: 12; 10; 143(3); 14A; 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 4559 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 7 08 ) SANDOZ PRIVATE LIMITED SANDOZ HOUSE DR. ANNIE BESANT ROAD WORLI, MUMBAI 400 025 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 7 (1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACS9267J / ASSESSEE BY : MR. NITESH JOSHI / REVENUE BY : MR. K.C.P. PATNAYAK / DATE OF HEARING 04 . 0 2 .201 4 / DATE OF ORDER 12.02.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSE E CHALLENGING THE IMPUGNED ORDER DATED 20 TH MACH 2012 , PASSED BY THE COMMISSIONER (APPEALS) X I I I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT SANDOZ PRIVATE LIMITED 2 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 07 08 , ON THE FO LLOWING GROUNDS: 1(A) THE COMMISSIONER OF INCOME - TAX (APPEALS) - 13 [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN UPHOLDING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME - TAX, RANGE 7(1), MUMBAI (AO) IN DISALLOWING EXPENDITURE OF RS. 5,61,8001 - BY TREATING THE SAME AS CAPITAL EXPENDITURE. (B) WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN UPHOLDING THE AO'S ACTION OF ALLOWING DEPRECIATION AT 25% AS AGAINST 60% APPLICABLE. 2(A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF AO IN ADDING AN AMOUN T OF RS.16,48,000 UNDER SECTION 145A TO THE VALUE OF CLOSING STOCK ON ACCOUNT OF MODVAT. (B) WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO INCREASE THE VALUE OF OPENING STOCK OF THE SUBSEQUENT ASSESSMENT YEAR BY RS. 16,48,000/ - ON ACCOUNT OF ADDITION MADE TO THE CLOSING STOCK FOR THE ASSESSMENT YEAR 2007 - 08. 3(A) THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING AN AMOUNT OF RS.23,16,32,117/ - BEING LOSS INCURRED IN RESPECT OF THE KALWE UNIT. (B) THE CIT(A) OUGH T TO HAVE APPRECIATED THAT THE PROVISIONS OF THE AMENDED SECTION LOB OF THE INCOME - TAX ACT, 1961 (THE ACT) OPERATIVE FROM THE ASSESSMENT YEAR 2001 - 02 ARE PROVISIONS FOR DEDUCTION FROM TOTAL INCOME AND AS THERE WAS A LOSS, NO DEDUCTION UNDER THAT SECTION HA D BEEN CLAIMED BY THE APPELLANTS. (C) THE CIT(A) OUGHT TO HAVE HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE INAPPLICABLE IN DISALLOWING THE EXPENDITURE INCURRED WITH RESPECT TO SECTION 10 B UNIT . 2 . FACTS IN BRIEF : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF PHARMACEUTICAL, BULK DRUGS AND FORMULATIONS, MAINLY FOR EXPORTS AND CONTRACT R&D. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED VARIOUS SOFTWARE EXPENSES IN THE PROFIT & LOSS ACCOUNT AS REVENUE EXPENDIT URE WHICH AGGREGATED TO ` 58,64,029. THE LIST OF SUCH SOFTWARE EXPENSES HAVE BEEN GIVEN AT PAGE 2/PARA 3.1 OF THE ASSESSMENT ORDER. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE GAVE DETAIL EXPLANATION WITH REGARD TO EACH AND EVERY ITEM OF SOFTWARE WH ICH WERE USED FOR ADMINISTRATIVE SANDOZ PRIVATE LIMITED 3 PURPOSE S AND OTHERS WHICH WERE USED FOR CONSULTANCY CHARGES AND ALSO THE SOFTWARE LICENSE S . THE ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND AFTER RELYING UPON CERTAIN DECISIONS HELD THAT THE SOFTWARE EXPENDITUR ES ARE CAPITAL IN NATURE AS IN SOME OF THE DECISIONS, THEY HAVE BEEN TREATED AS DEPRECIABLE ASSETS UNDER PLANT AND MACHINERY. ACCORDINGLY, HE DISALLOWED THE SAID EXPENSES AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION @ 25% THEREOF. 3 . T HE LEARNED COMMISSIONE R (APPEALS) HELD THAT OUT OF 11 ITEMS OF SOFTWARE EXPENSES, THREE ITEMS NAMELY , (I) NEWTECH COMPUTER SERVICES PVT. LTD. ` 18,300; (II) SYSTINE COMPUTER SYSTEMS LTD. ` 3,12,500; AND (III) DELPHI SOFTWARE AND INFORMATION TECHNOLOGY PVT. LTD. ` 2,31,000 (ALL AGGREGATING TO ` 5,61,800 , ARE CAPITAL IN NATURE. HE HELD THAT THESE WERE IN FACT KIND OF INTANGIBLE ASSETS AND IS ONLY A LICENSE / RIGHT GIVEN TO THE ASSESSEE TO USE THE SAID SOFTWARE, HENCE, THE ASSESSEE IS ONLY ENTITLED FOR DEPRECIATION @ 25% ON S UCH CAPITAL ASSETS. 4 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL RIGHT FROM THE ASSESSMENT YEAR 2001 02 TO 2004 05 WHEREIN THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. HE FURTHER SUBMITTED THAT LIFE OF THE SOFTWARE IN THESE CASES WERE LESS THAN TWO YEARS, THEREFORE, IT CANNOT BE HELD THAT THESE SOFTWARE HAVE ANY ENDURING BENEFIT. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIE D UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS). HE FURTHER SUBMITTED THAT IN ANY CASE THIS MATTER HAS BEEN SET ASIDE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEAR TO THE FILE OF THE ASSESSING OFFICER. SANDOZ PRIVATE LIMITED 4 6 . WE HAVE CAREFULLY CON SIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE SOFTWARE EXPENSES ON THE GROUND THAT THESE SOFTWARES ARE IN THE NATURE OF PURCHASES OF KNOWHOW AND LICENSE AND THEREFORE, THEY A RE INTANGIBLE ASSETS ON WHICH ONLY DEPRECIATION CAN BE ALLOWED @ 25% AND CANNOT BE ALLOWED AS REVENUE EXPENSES. THE LEARNED COMMISSIONER (APPEALS) HELD THAT OUT OF 11 SOFTWARE EXPENSES, ONLY 3 ITEMS WERE IN THE CATEGORY OF CAPITAL IN NATURE AS THEY WERE FO R PURCHASING LICENSE AND RIGHTS FOR USE OF SOFTWARE. IN THE EARLIER YEARS, THE TRIBUNAL IN ASSESSEES OWN CASE HAS SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE AFRESH IN THE LIGHT OF THE DECISION GIVEN BY THE SPECIAL BENCH OF THE TRI BUNAL IN AMWAY INDIA ENTERPRISE V/S DCIT, [2008] 114 TTJ (DEL.) 476 (SB). IN THIS YEAR ALSO, WE FIND THAT THE NEITHER THE ASSESSING OFFICER NOR THE LEARNED COMMISSIONER (APPEALS) HAS EXAMINED THE NATURE OF SOFTWARE , INSTEAD HAVE GONE BY THE ASSUMPTION THAT THE SOFTWARE S ARE IN THE FORM OF INTANGIBLE ASSETS BEING IN THE FORM OF LICENSE AND RIGHTS OF KNOWHOW. WHAT IS REQUIRED TO BE SEEN IS THE REAL INTENT AND THE PURPOSE OF EXPENDITURE , WHETHER SUCH EXPENDITURE RESULTS IN A CREATION OF FIXED CAPITAL FOR THE A SSESSEE OR NOT . IF THE EXPENDITURE HAS BEEN INCURRED WHICH ENABLES THE PROFIT MAKING APPARATUS, TO WORK MORE EFFICIENTLY , LEAVING THE SOURCE OF PROFIT MAKING STRUCTURE UNTOUCHED , THEN IT WOULD BE AN EXPENDITURE IN THE NATURE OF REVENUE. THE SOFTWARE WHICH ARE USED FOR RUNNING OF BUSINESS MORE EFFICIENTLY AND FOR DAY TO DAY OPERATIONS TO ENABLE THE MANAGEMENT TO RUN ITS BUSINESS EFFICIENTLY AND PROFITABLY , THEN IT CANNOT BE HELD TO BE CAPITAL IN NATURE. IF THE SOFTWARE S ARE UPGRADED PERIODICALLY OR AFTER A G AP OF CERTAIN TIME FOR EFFICIENT USE IN THE BUSINESS, THEN IT CANNOT BE HELD THAT THEY ARE IN THE NATURE OF ENDURING ADVANTAGE WHICH IS LASTING FOR L ONGER PERIOD. THE SANDOZ PRIVATE LIMITED 5 ASSESSEE HAS BEEN CONTENDING THAT THE MAXIMUM LIFE OF SOFTWARE USED BY IT WERE LESS THAN TWO YEARS . ALL THESE IMPORTANT ASPECTS TO ARRIVE AT ANY CONCLUSION IN THIS REGARD HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER OR BY THE LEARNED COMMISSIONER (APPEALS). THEREFORE, WE ARE OF THE OPINION THAT THIS ISSUE NEEDS TO BE RESTORED BACK TO THE FIL E OF THE ASSESSING OFFICER , AS DONE BY THE TRIBUNAL IN EARLIER YEARS . ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFFICER TO EXAMINE THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW AFTE R GIVING DUE AND EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, GROUND NO.1, RAISED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 7 . GROUND NO.2, RELATES TO ADDITION OF ` 16,48,000, MADE UNDER SECTION 145A FOR VALUING OF CLOSIN G STOCK ON ACCOUNT OF MODVAT. 8 . BOTH THE PARTIES ADMITTED THAT THIS ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN EARLIER YEARS WHEREIN THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO MAKE NECESSARY ADJUSTMENT OF UNUTILIZED MODVAT CREDIT IN THE OPENING STOCK. 9 . AFTER CAREFULLY CONSIDERING THE SUBMISSIONS AND ALSO ON A PERUSAL OF THE IMPUGNED ORDER, IT IS SEEN THAT THE LEARNED COMMISSIONER (APPEALS) HAS HELD THAT THE ADJUSTMENT IN THE OPENING STOCK AND CLOSING STOCK OF UNUTILIZED MODVAT CREDIT HAS TO BE GIVEN IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN MAHALAXMI GLASS WORKS PVT. LTD., [2009] 318 ITR 116 (BOM.) . THE EXACT EFFECT OF EXCISE DUTY EFFECTING THE PROFIT & LOSS ACCOUNT HAS BEEN NOTED BY THE LEARNED COMMISSIONER (APPEALS) IN PARA 4.2 AND, ACCORDINGLY, RESTRICTED THE ADDITION TO ` 16,48,000 UNDER SECTION 145A. THE TRIBUNAL IN THE EARLIER YEARS HAS ALSO DIRECTED THE ASSESSING OFFICER TO MAKE ADJUSTMENT IN THE OPENING STOCK BY THE RELEVANT AMOUNT OF UNUTILSED MODVAT CREDIT SANDOZ PRIVATE LIMITED 6 OF THE LAST YEAR . ACCORDINGLY, WE ALSO DIRECT THE ASSESSING OFFICER TO MAKE NECESSARY ADJUSTMENT IN THE OPENING STOCK BY THE RELEVANT AMOUNT OF UNUTILIZED MODVAT CREDIT OF THE LAST YEAR. 10 . GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 23,16,32,117 BEING LOSS INCURRED IN RESPECT OF KALVE UNIT. 11 . FACTS IN BRIEF : THE ASSESSEE HAS TWO UNITS ELIGIBLE FOR EXEMPTION UNDER SECTION 10B. ONE IS LOCATED AT KALVE AND OTHER AT TURBHE. DURING THE YEAR, IN THE COMPUTATION OF INCOME, THE ASSESSEE HA S CLAIMED EXEMPTION UNDER SECTION 10B OF ` 8,01,15,618 BEING ELIGIBLE PROFIT OF TURBHE UNIT. DURING THE YEAR, KALVE UNIT WAS IN LOSS OF ` 23,16,32,117. THIS LOSS HAS BEEN SET OF AGAINST THE REGULAR PROFIT OF NON 10B UNITS IN THE GLOBAL PROFIT & LOSS ACCOUN T. THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM LOSS INCURRED IN RELATION TO EXEMPT INCOME REFERRED TO IN SECTION 10B, BECAUSE THE INCOME IS TOTALLY EXEMPT FROM TAX. THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THIS EXPO RT ORIENTED UNIT (EOU) WILL ALSO NOT BE ELIGIBLE FOR DEDUCTION AS IT WOULD BE HIT BY THE PROVISIONS OF SECTION 14A. EVEN THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER THOUGH WITHOUT INVOKING THE PROVISIONS OF SECTION 14A. 12 . IT HAS BEEN ADMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN EARLIER YEARS IN FAVOUR OF THE ASSESSEE AFTER FOLLOWING THE DECISION OF THE HON'BLE JURISDICTION AL HIGH COURT IN HINDUSTAN UNILE VER LTD. V/S DCIT, [ 2010 ] 325 ITR 102 (BOM.) . 13 . AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE RELEVANT FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AND THE DECISIONS OF THE EARLIER YEARS OF THE TRIBUNAL, WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN VARIOUS YEARS RIGHT FROM ASSESSMENT YEAR 2 001 02 TO SANDOZ PRIVATE LIMITED 7 2004 05 IN ASSESSEES OWN CASE. THE RELEVANT OBSERVATIONS AND THE FINDINGS OF THE TRIBUNAL IN ITA NO.5964/MUM./2004, ORDER DATED 9 TH NOVEMBER 2012, WHICH READS AS UNDER: 29. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATER IAL ON RECORD, WE NOTE THAT THIS ISSUE IS SETTLED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD IN PAA 23 & 24 AS UNDER: 23 THE FOURTH AND FINAL GROUND WHI CH HAS WEIGHED WITH THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT IS THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS. 14.53 CRORES UNDER SECTION 10B. THE DEDUCTION WAS RESTRICTED TO RS. 11.11 CRORES IN THE ORDER. WHILE REOPENING THE ASSESSMENT, THE ASSESSI NG OFFICER HAS PROCEEDED ON THE BASIS THAT SECTION 10B PROVIDES AN EXEMPTION AND THAT IN RESPECT OF THE CRAB STICK UNIT THE ASSESSEE HAD SUFFERED A LOSS OF RS. 1.33 CRORES. THE ASSESSING OFFICER HAS OBSERVED THAT SINCE THE INCOME OF THE UNIT WAS EXEMPT FRO M TAXATION, THE LOSS OF THE UNIT COULD NOT HAVE BEEN SET OFF AGAINST THE NORMAL BUSINESS INCOME. HOWEVER, THIS WAS 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 THE RE IS MERIT IN THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS WHILE REOPENING THE ASSESSMENT EX FACIE PROCEEDED ON THE ERRONEOUS PREMISE THAT SECTION 10B IS A PROVISION IN THE NATURE OF AN EXEMPTION. PLAINLY, S ECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVISION 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 TH E NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 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 UNDERTAKING FROM THE EXPORT OF AR TICLES 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 MANUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE A SSESSMENT M/S SANDOZ PVT LTD. HAS SOUGHT TO BE SANDOZ PRIVATE LIMITED 8 REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELI GIBLE 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 SECTION 10B. 29.1 WE FURT HER NOTE THAT IN THE CASE OF GALAXY SURFACTANTS LTD (SUPRA), THE HONBLE HIGH COURT HAS AGAIN DECIDED THE IDENTICAL ISSUE IN PARA 5 & 6 AS UNDER: 5. AT THE OUTSET, WHILE DEALING WITH THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE, IT MUST BE NOTED THAT SECTION 10B WHEN IT WAS ORIGINALLY INTRODUCED BY THE FINANCE ACT, 1988, WITH EFFECT FROM 1 APRIL 1989, PROVIDED FOR AN EXEMPTION OF THE PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING. THE EARLIER PROVISION SPECIFICALLY STIPULATED THAT PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING TO WHICH THE SECTION APPLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. SECTION 10A AS AT PRESENT STANDS, CAM E TO BE SUBSTITUTED BY THE FINANCE ACT, 2000 WITH EFFECT FROM 1 APRIL 2001. THE SECTION AS IT NOW STANDS, IS NOT A PROVISION FOR EXEMPTION, BUT A PROVISION WHICH ENABLES AN ASSESSEE TO CLAIM A DEDUCTION. A IT NOW STANDS, THE SECTION CONTEMPLATES A DEDUCTIO N OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES AND THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PRE VIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE. THE DEDUCTION HAS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. IN HINDUSTAN LEVER LTD. V. DY. CIT [2010] 325 ITR 102 / 191 TAXMAN 119 (BORN.) A DIVISION BENCH OF THIS COURT CONSIDERED THE PROVISIONS OF SECTION 10B, WHILE CONSIDERING A PETITION CHALLENGING THE ACTION OF THE ASSESSING OFFICER IN PURPORT TO REOPEN THE ASSESSMENT UNDER SECTION 148. THE DIVISION BENCH NOT ED THAT UPON THE SUBSTITUTION OF THE PROVISION BY THE FINANCE ACT, 2000, SECTION 10B WAS NO LONGER A PROVISION FOR EXEMPTION, BUT A PROVISION FOR DEDUCTION. THE DIVISION BENCH OBSERVED AS FOLLOWS: SANDOZ PRIVATE LIMITED 9 PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVISION 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 EXEMPTION. AFTER THE SUBSTITUTIO N OF SECTION 1 OB BY THE FINANCE ACT OF 2000, THE PROVISION AS M/S SANDOZ PVT LTD IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 PER CENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTE R SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 1 0B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FO URTH 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 SECTION L0B. THIS DECISION OF THE DIVISION BENCH HAS BEEN FOLLOWED BY ANOTHER DIVISION BENCH OF THIS COURT ITT THE CASE OF CIT V. PATNI COMPUTERS SYSTEMS LTD. [IT APPEAL 2177 OF 2010, DATED ON 1 - 7 - 2011]. 6. QUITE APART FROM THE FACT THAT THE ISSUE STANDS COVERED AGAINST THE REVENUE BY THE VIEW TAKEN BY THE DIVISION BENCHES I N THE AFORESAID TWO CASES, EVEN AS A MATTER OF FIRST PRINCIPLE, WE FIND NO JUSTIFICATION IN THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE REVENUE. SECTION 70 PROVIDES FOR A SETTING OFF OF A LOSS FROM ONE SOURCE FALLING UNDER ANY HEAD OF INCOME (OTH ER THAN CAPITAL GAINS) AGAINST INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. SECTION 71 PROVIDES FOR THE SETTING OFF OF A LOSS SUSTAINED WITH REFERENCE TO ONE HEAD OF INCOME AGAINST INCOME FROM ANOTHER HEAD, (SAVE AND EXCEPT FOR CAPITAL GAINS). UNDER S ECTION 72, A PROVISION HAS BEEN MADE FOR CARRY FORWARD AND SETTING OFF OF A LOSS SUSTAINED AGAINST THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. UNDER SECTION 72, WHERE A LOSS WHICH HAS BEEN SUSTAINED UNDER THE HEAD OF PROFITS AND SANDOZ PRIVATE LIMITED 10 GAINS OF BUSIN ESS OR PROFESSION CANNOT BE SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME UNDER SECTION 71 SO MUCH OF THE LOSS AS HAS NOT BEEN SET OFF OR THE ENTIRE LOSS WHERE THERE IS NO INCOME UNDER ANY OTHER HEAD CAN BE CARRIED FORWARD IN THE MANNER WHICH IS INDICAT ED IN THE PROVISION. SECTION 72 WHICH PROVIDES FOR A CARRY FORWARD OF A BUSINESS LOSS COMES INTO OPERATION ONLY WHEN THE PROVISIONS OF SECTIONS 70 AND 71, AS THE CASE MAY BE, ARE EXHAUSTED. THERE IS NO PROVISION IN SECTION 10 - B BY WHICH A PROHIBITION HAS B EEN INTRODUCED BY THE LEGISLATURE IN SETTING OFF OF A LOSS WHICH IS SUSTAINED FROM ONE SOURCE FALLING UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS AGAINST INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. ON THE OTHER HAND, THERE IS INTRINSIC MATERIAL I N SECTION 10B TO INDICATE THAT SUCH A PROHIBITION WAS SUB - SECTION (7) OF SECTION 10B PROVIDES THAT THE PROVISIONS OF SUB - SECTION (8) AND SUBSECTION(10) SECTION 80 - IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THE SECTION A S THEY APPLY FOR THE PURPOSES OF AN UNDERTAKING REFERRED TO IN SECTION 80 - IA. SECTION 80 - IA CONTAINS A SPECIFIC PROVISION IN SUB - SECTION (5) TO THE FOLLOWING EFFECT: (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB - SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB - SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBS EQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. A SIMILAR PROVISION CORRESPONDING TO SUB - SECTION (5) OF SECTION 80 - IA IS TO BE FOUND IN SUB - SECTION (6) OF SECTION 80 - I. UNDER SUB - SECTION (5) OF SECTION 80 - IA WHICH BEGINS WITH OVERRIDING NON - OBTANTE PROVISIO NS, PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH SUB - SECTION (1) APPLIES ARE FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR. A PROVISION AKIN TO SUB - SECTION (5) OF SECTION 80 - IA OR FOR THAT MATTER AKIN TO SUB - SECTION (6) OF SECTION 80 - I HAS NOT BEEN INTRODUCED BY THE LEGISLATURE WHEN IT ENACTED SECT ION 10B. THE FACT THAT UNABSORBED DEPRECIATION CAN BE CARRIED FORWARD TO A SUBSEQUENT YEAR DOES NOT MILITATE AGAINST THE ENTITLEMENT OF THE ASSESSEE TO SET OFF A LOSS WHICH IS SUSTAINED BY AN ELIGIBLE UNIT AGAINST THE INCOME ARISING FROM OTHER UNITS SANDOZ PRIVATE LIMITED 11 UNDER THE SAME HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LEGISLATURE NOT HAVING INTRODUCED A STATUTORY PROHIBITION, THERE IS NO REASON TO DEPRIVE THE ASSESSEE OF THE NORMAL ENTITLEMENT WHICH WOULD FLOW OUT OF THE PROVISIONS OF SECTION 70. 29.2 SINCE THE DECISION OF THE HONBEL KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD IS ON THE ISSUE OF SETTING OFF OF LOSS FROM NON STGP UNIT BEFORE ALLOWING THE DEDUCTION U/S 10A AND EVEN THE HONBLE KARNATAKA HIGH COURT HAS RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD (SUPRA); THEREFORE, THE SAID DECISION WOULD NOT HELP THE CASE OF THE REVENUE. 29.2 EVEN OTHERWISE, WHEN A SERIES OF DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT ARE IN FA VOUR OF THE ASSESSEE ON THE ISSUE; THEREFORE, THE SAME ARE BINDING ON US AND ACCORDINGLY, BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD (SUPRA). WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. 14 . THIS ORDER HAS BEEN FOLLOWED BY THE TRIBUNAL IN SUBSEQUENT YEARS ALSO. CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE AND FOLLOWING THE SAME, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED C IT(A) AND ALLO W THE GROUND RAISED BY THE ASSESSEE. 15 . 15. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12 TH FEBRUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2014 SD / - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH FEBRUARY 2014 SANDOZ PRIVATE LIMITED 12 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRA R) , / ITAT, MUMBAI