DCIT 10(3)(2), MUMBAI V. PHOENIX MECANO (I) PLTD, MUMBAI

ITA 4620/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3734 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 07-08-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY PRATAP SINGHDR
• Assessee Lawyers: SHARAD A SHAH
• Keywords: Business income; Depreciation; Carry forward of business losses; Earning of tax free income; Retrospective amendment; Question of law; Unabsorbed depreciation
• Section: 80C; 10AA; 80HHC; 10B; 32; 263; 11

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , ! ' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.4620/MUM/2015 ASSESSMENT YEAR:2011-12 DCIT-10(3)(2), ROOM NO.217, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S PHOENIX MECANO (I) PVT. LTD. 306, MAROL BHAVAN, MAKWANA ROAD, ANDHRI (EAST), MUMBAI / REVENUE / ASSESSEE P.A. NO . AAACP2452L $ % & / ASSESSEE BY SHRI SHARAD A. SHAH $ % & / REVENUE BY SHRI AJAY PRATAP SINGH-DR / DATE OF HEARING 03/08/2016 & / DATE OF ORDER: 12/08/2016 & / O R D E R THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 20/05/2015 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE ONLY GROUND RAISED IN THIS APPEAL, BY T HE ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 2 REVENUE, IS WITH RESPECT TO THE LEARNED CIT(A) HOLD ING THAT DEDUCTION CLAIMED U/S 10B OF THE INCOME TAX ACT, 19 61 (HEREINAFTER THE ACT) IS AN EXEMPTION, THUS DO NOT FORM PART OF THE TOTAL INCOME AND FURTHER THE LEARNED CI T(A) NOT FOLLOWING THE DIRECTION CONTAINED IN THE ORDER OF C IT VS BLACK & VEATCH CONSULTING PVT. LTD. 348 ITR 72 (BOM .), HINDUSTAN LEVER LTD. VS DCIT 325 ITR 102 AND CIT VS GALAXY SURFACATANTS LTD. 343 ITR 108 AND CIRCULAR NUMBER 07/DV/2013 DATED 16-07-2013 . 2. DURING HEARING, THE LD. DR, SHRI ABHISHEK SHARMA ADVANCED IDENTICAL ARGUMENTS AS CONTAINED IN THE GROUNDS, RAISED BY THE REVENUE. THE CRUX OF THE ARG UMENT IS IN SUPPORT TO DENIAL OF DEDUCTION AND CONSEQUENT STAND TAKEN IN THE ASSESSMENT ORDER. 2.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE, SHRI SHARAD A SHAH, DEFENDED THE CONCLUSI ON, ARRIVED AT IN THE IMPUGNED ORDER PASSED BY LEARNED CIT(A)BY PLACING RELIANCE UPON THE DECISION IN THE CASE OF KEI INDUSTRIES LTD. 373 ITR 574 (DEL.). 2.2. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF ELECTRICAL COMPONENTS, POLYESTER POLYCARBONATE AND ALUMINIUM ENCLOSURES, SPECIALIZED MOTORS AND ALUMIN IUM PROFILES ETC AND DECLARED LOSS OF RS.33,55,143/- IN ITS RETURN OF INCOME FILED ON 30/09/2010. THE ASSESSEE HAD ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 3 PROFIT OF RS.2,38,49,196/- FROM THE ELIGIBLE UNIT A ND LOSS OF RS.33,55,143/- FROM NON-ELIGIBLE UNIT AND ASSESSEE SOUGHT TO CARRY FORWARD THE LOSS FROM INELIGIBLE UN IT WITHOUT SET OFF AGAINST PROFIT OF ELIGIBLE UNIT , A ND CONSEQUENTLY CLAIMING DEDUCTION OF ENTIRE PROFIT FR OM ELIGIBLE UNIT U/S. 10B OF THE ACT. THE SAID CLAIM O F THE ASSESSEE WAS DENIED BY THE LD. ASSESSING OFFICER. O N APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), THE CLAIM OF THE ASSESSEE WAS ALLOWED. TH E REVENUE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS T RIBUNAL. 2.3. THE ONLY QUESTION IS TO BE ADJUDICATED BY THI S TRIBUNAL IS WHETHER LOSS FROM NON-ELIGIBLE UNIT CAN BE SET OFF AGAINST THE PROFIT OF ELIGIBLE UNIT OR WHETHER ONLY PROFIT OF ELIGIBLE UNIT IS TO BE CONSIDERED FOR COMPUTATIO N OF DEDUCTION U/S 10B OF THE ACT. IT IS NOTED THAT THE ASSESSEE HAS CONSIDERED PROFIT FROM ELIGIBLE UNIT FOR COMPUT ING THE DEDUCTION U/S 10B. CONSIDERING THE TOTALITY OF FAC TS, I FIND THAT THE ASSESSEE MADE EXPORT SALES AS WELL AS DOMESTIC SALES. WHILE CALCULATING THE DEDUCTION U/ S 10B OF THE ACT, THE ASSESSEE REDUCED DOMESTIC SALES FRO M TOTAL SALES AND THUS CLAIMED PROPORTIONATE PROFIT ON EXPO RT SALE AS FULL DEDUCTION U/S 10B OF THE ACT WHICH WAS CLAI MED WITHOUT ADJUSTING LOSS FROM INELIGIBLE UNIT. I AM OF THE VIEW THAT DEDUCTION U/S 10A/10B, HAS TO BE GIVEN EF FECT AT THE STAGE OF COMPUTING THE PROFIT & GAINS OF THE BU SINESS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WHICH SHALL BE ARRIVED AT AFTER ADJUSTING LOSS OF I NELIGIBLE ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 4 UNIT WITH THE PROFIT OF THE ELIGIBLE UNIT I.E. GIVI NG EFFECT TO THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT. SEC TION 80A(1) STIPULATES THAT WHILE COMPUTING THE TOTAL IN COME OF THE ASSESSEE, THERE SHALL BE ALLOWED FROM THE GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVI SIONS OF THE CHAPTER, THE DEDUCTION SPECIFIED IN SECTION 80C TO 80U. SECTION 80B(5) DEFINES THE PURPOSES OF SECTION VIA GROSS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT BEFORE MA KING ANY DEDUCTION UNDER THE CHAPTER. THE DEDUCTION U/S 10B, IN MY VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFIT & GAINS OF THE BUSINESS. ADMI TTEDLY, THERE WERE DIVERGENT VIEWS AMONG THE COURTS. THE MA TTER WAS CLARIFIED BY CIRCULAR NO.07/DV/2013 DATED 16/07/2013 WHICH IS REPRODUCED BELOW : CIRCULAR NO. 7/DV/2013 [FILE NO.279/MISC. /M-116/2012 SECTION 10A, READ WITH SECTIONS 10AA & 10B OF THE INCOME-TAX ACT, 1961 - FREE TRADE ZONE - CLARIFICATION ON ISSUES RELATING TO APPLICABILITY OF CHAPTER IV OF THE ACT AND SET OFF AND CARRY FORWARD OF BUSINESS LOSSES CIRCULAR NO. 7/DV/2013 [FILE NO.279/MISC./M-116/201 2-ITJ], DATED 16-7-2013 IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT THE PROVISIONS OF 10A/10AA/10B/10BA OF THE INCOME-TAX ACT, WITH REGAR D TO APPLICABILITY OF CHAPTER IV OF THE ACT AND SET OFF AND CARRY FORWARD OF LOSSES, ARE BEING INTERPRETED DIFFERENTLY BY THE OF FICERS OF THE DEPARTMENT AS WELL AS BY DIFFERENT HIGH COURTS. 2. THE TWO SECTIONS 10A AND 10B OF THE ACT WERE INITI ALLY PLACED ON STATUTE IN 1981 AND 1988 RESPECTIVELY, AND CONTINUE D WITH SOME MODIFICATIONS AND AMENDMENTS TILL 31.03.2001. SECTI ON 10A AS INSERTED BY FINANCE ACT, 1981 READ AS UNDER: ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 5 '10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED I NDUSTRIAL UNDERTAKINGS IN THE FREE TRADE ZONES .(1) SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN A SSESSEE FROM AN INDUSTRIAL UNDERTAKING TO WHICH THIS SECTION APPLIE S SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE.' 2.1 SIMILARLY SECTION 10B AS INSERTED BY FINANCE ACT, 1988 READ AS UNDER: '10B. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED H UNDRED PER CENT EXPORT ORIENTED UNDERTAKINGS .SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESS EE FROM A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING (HEREAFTER IN THIS SECTION REFERRED TO AS THE UNDERTAKING) TO WHICH THIS SECTION APPLIES SHAL L NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE.' 3. VIDE FINANCE ACT, 2000 SECTIONS 10A AND 10B OF THE ACT WERE SUBSTITUTED. SECTION 10A AS SUBSTITUTED BY FINANCE ACT, 2000 READS AS UNDER: '10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION , A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIO D OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWAR E, AS THE CASE MAY BE, SHALL BE ALLOWED FORM THE TOTAL INCOME OF THE A SSESSEE....' 3.1 SIMILARLY, SECTION 10B AS SUBSTITUTED BY FINANCE A CT, 2000 READS AS UNDER: '10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION , A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER C ENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BE GINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE...' 3.2 THE EFFECT OF THE SUBSTITUTION OF SECTIONS 10A AND 10B OF THE ACT HAS BEEN ELABORATED IN CIRCULAR NO. 794 DATED 9.8.2 000 WHICH CLEARLY PROVIDES THAT THE NEW PROVISIONS PROVIDE FOR DEDUCT ION IN RESPECT OF PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM EX PORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. 4. SUB-SECTION (6) OF SECTIONS 10A AND 10B WERE AMEND ED BY FINANCE ACT, 2003 WITH RETROSPECTIVE EFFECT FROM 1-4-2001. CIRCULAR NO. 7/2003, DATED 5-9-2003 EXPLAINS THE AMENDMENTS BROUGHT BY F INANCE ACT, 2003. THE RELEVANT PARAGRAPH IS REPRODUCED BELOW: ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 6 '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMIC ZONES AND 100% EXPORT ORIENTED UNITS. 20.1 UNDER THE EXISTING PROVISIONS OF SECTIONS 10A AND 10B, THE UNDERTAKINGS OPERATING IN A SPECIAL ECONOMIC ZONE ( UNDER SECTION 10A) AND 100% EXPORT ORIENTED UNITS (EOU'S) (UNDER SECTION 10B) ARE NOT PERMITTED TO CARRY FORWARD THEIR BUSINESS LOSSE S AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX IN CENTIVES IN RESPECT OF SUCH UNITS, SUB-SECTION (6) IN SECTIONS 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS ON THE CARRY FORWA RD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.3 THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT R ETROSPECTIVELY FROM 1-4-2001 AND HAVE BEEN MADE APPLICABLE TO BUSI NESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE ASSESSMENT Y EAR 2001-02 AND SUBSEQUENT YEARS.' 5. FROM THE ABOVE IT IS EVIDENT THAT IRRESPECTIVE OF THEIR CONTINUED PLACEMENT IN CHAPTER III, SECTIONS 10A AND 10B AS S UBSTITUTED BY FINANCE ACT, 2000 PROVIDE FOR DEDUCTION OF THE PROF ITS AND GAINS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR CO MPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLE OR TH ING OR COMPUTER SOFTWARE. THE DEDUCTION IS TO BE ALLOWED FROM THE T OTAL INCOME OF THE ASSESSEE. THE TERM 'TOTAL INCOME' HAS BEEN DEFINED IN SECTION 2 (45) OF THE IT ACT AND IT MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THE INCOME-TAX ACT. 5.1 ALL INCOME FOR THE PURPOSES OF COMPUTATION OF TOTA L INCOME IS TO BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME AND COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER IV OF THE ACT- SALARIES INCOME FROM HOUSE PROPERTY PROFITS AND GAINS OF BUSINESS AND PROFESSION CAPITAL GAINS INCOME FROM OTHER SOURCES 5.2 THE INCOME COMPUTED UNDER VARIOUS HEADS OF INCO ME IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER IV OF THE IT ACT SHALL BE AGGREGATED IN ACCORDANCE WITH THE PROVISIONS OF CHA PTER VI OF THE IT ACT, 1961. THIS MEANS THAT FIRST THE INCOME/LOSS FROM VARIOUS SOURCES I.E. ELIGIBLE AND INELIGIBLE UNITS, UNDER THE SAME HEAD ARE AGGREGATED IN ACCORDANCE WITH THE PROVISIONS OF SEC TION 70 OF THE ACT. THEREAFTER, THE INCOME FROM ONE AHEAD IS AGGRE GATED WITH THE INCOME OR LOSS OF THE OTHER HEAD IN ACCORDANCE WITH THE PROVISIONS OF SECTION 71 OF THE ACT. IF AFTER GIVING EFFECT TO THE PROVISIONS OF ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 7 SECTIONS 70 AND 71 OF THE ACT THERE IS ANY INCOME ( WHERE THERE IS NO BROUGHT FORWARD LOSS TO BE SET OFF IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 72 OF THE ACT) AND THE SAME IS ELIGIBLE FOR DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER VI-A OR S ECTIONS 10A, 10B ETC. OF THE ACT, THE SAME SHALL BE ALLOWED IN C OMPUTING THE TOTAL INCOME OF THE ASSESSEE. 5.3 IF AFTER AGGREGATION OF INCOME IN ACCORDANCE WI TH THE PROVISIONS OF SECTIONS 70 AND 71 OF THE ACT, THE RESULTANT AMO UNT IS A LOSS (PERTAINING TO ASSESSMENT YEAR 2001-02 AND ANY SUBS EQUENT YEAR) FROM ELIGIBLE UNIT IT SHALL BE ELIGIBLE FOR CARRY F ORWARD AND SET OFF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT. SIMILARLY, IF THERE IS A LOSS FROM AN INELIGIBLE UNIT, IT SHALL B E CARRIED FORWARD AND MAY BE SET OFF AGAINST THE PROFITS OF ELIGIBLE UNIT OR INELIGIBLE UNIT AS THE CASE MAY BE, IN ACCORDANCE WITH THE PRO VISIONS OF SECTION 72 OF THE ACT. 6. THE PROVISIONS OF CHAPTER IV AND CHAPTER VI SHALL ALSO APPLY IN COMPUTING THE INCOME FOR THE PURPOSE OF DEDUCTION U NDER SECTIONS 10AA AND 10BA OF THE ACT SUBJECT TO THE CONDITIONS SPECIFIED IN THE SAID SECTIONS. 2.4. SECTION 10A AND 10B OF THE ACT WERE INITIALLY PLACED ON STATUTE IN 1981 AND 1988 RESPECTIVELY AND CONTINUED WITH SOME MODIFICATIONS AND AMENDMENTS TI LL 31/03/2001. SECTION 10A AS INSERTED BY FINANCE ACT 1981, READS AS UNDER:- 'SECTION 10 A . SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS IN THE FREE TR ADE ZONES.- (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM AN INDUSTRIAL UNDERTAKING TO WHICH THIS SECTION APPLIE S SHALL NOT BE INCLUDED IN THE TOTAL I NCOME OF THE ASSESSEE.' 2.5 . SIMILARLY SECTION 10B AS INSERTED BY FINANCE ACT, 1988 READ AS UNDER: '10B: SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLI SHED HUNDRED PERCENT EXPORT ORIENTED UNDERTAKINGS. - SUB JECT TO THE PROV I SIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PER CENT EXPO RT ORIENTED UNDERTAKING (HEREAFTER IN THIS SECTION REF ERRED TO AS THE UNDERTAKING) TO WHICH THIS SECTION APPLIE S SHALL ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 8 NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE . ' 2.6. VIDE FINANCE ACT, 2000 SECTION 10A AND 10B OF THE ACT WERE SUBSTITUTED. SECTION 10A AS SUBSTITUTE D BY FINANCE ACT, 2000 READS AS UNDER:- 'SECTION 10A . (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR T HINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE ' 2.7. SIMILARLY, SECTION 10B AS SUBSTITUTED BY FINAN CE ACT, 2000 READS AS UNDER:- '10B . (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWA RE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE .... ' 2.8. THE EFFECT OF THE SUBSTITUTION OF SECTION 10A AND 10B OF THE ACT HAS BEEN ELABORATED IN CIRCULAR NO. 794 DATED 09/08/2000 WHICH CLEARLY PROVIDES THAT THE NEW PROVISIONS PROVIDE FOR DEDUCTION IN RESPECT OF PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. 2.9. SUB-SECTIONS (6) OF SECTIONS 10A AND 10B ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 9 WERE AMENDED BY FINANCE ACT, 2003 WITH RETROSPECTIVE EFFECT FROM 1 . 4.2001 CIRCULAR NO.7/2003 DATED 05 /0 9/2003 EXPLAINS THE AMENDMENTS BROUGHT BY FINANCE ACT, 2003. THE RELEVANT PARAGRAPH IS REPRODUCED BELOW: '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMI C ZONES AND 100% EXPORT ORIENTED UNITS 20.1 UNDER THE EXISTING PROVISIONS OF SECTIONS 10A AND 10B, THE UNDERTAKINGS OPERATING IN A SPECIAL ECONOMIC ZONE (UNDER SECTION 10A) AND 100% EXPORT ORIENTED UNITS (EOU'S) (UNDER SECTION 10B) ARE NOT PERMITTED TO CARRY FORWARD THEIR BUSINESS LOSSES AND UNABSORBED DEPRECIATION . . 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX INCENTIVES IN RESPECT OF SUCH UNITS, SUB- SECTION (6) IN SECTIONS 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS O N THE CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.3 THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT RETROSPECTIVELY FROM 1-4-2001 AND HAVE BEEN MADE APPLICABLE TO BUSINESS LOSSES OR UNABSORBED DEPRECI ATION ARISING IN THE ASSESSMENT YEAR 2001-02 AND SUBSEQUE NT YEARS. ' 2.10. FROM THE ABOVE IT IS EVIDENT THAT IRRESPECTIVE OF THEIR CONTINUED PLACEMENT IN CHAPTE R III, SECTION 10A AND 10B AS SUBSTITUTED BY FINANCE ACT, 2000 PROVIDE FOR DEDUCTION OF THE PROFITS AND GAINS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLE OR THING OR COMPUTER SOFTWARE. THE DEDUCTIO N IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSES SEE. ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 10 THE TERM 'TOTAL INCOME' HAS BEEN DEFINED IN SECTION 2 (45) OF THE IT ACT AND IT MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THE INCOME-TAX ACT,1961. 2.11. IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE BOTH PROFITS AS WELL AS LOSSES WILL HAVE TO BE TAKE N INTO CONSIDERATION . SECTION 80-AB IS RELEVANT . IT READS AS FOLLOWS : ' 80-AB. WHERE ANY DEDUCTION IS REQUIRED TO BE MADE O R ALLOWED UNDER ANY SECTION I NCLUDED IN THIS CHAPTER UNDER THE HEADING 'C'. DEDUCTIONS IN RESPECT OF CERTAIN I NCOMES IN RESPECT OF ANY INCOME OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS INCLUDED IN THE GROSS TOTAL INCOME OF THE ASSESSEE , THEN, NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION , FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER THAT SECTION , THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROVISION OF THI S ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SH ALL ALONE BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WHICH IS DE R IVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME .' (EMPHASIS SUPPLIED) 2.12. SECTION 80-B(5) IS ALSO RELEVANT , WHICH PROVIDES THAT 'GROSS TOTAL INCOME' MEANS TOTAL I NCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT,1961 . 2.13. SECTION 80-AB IS ALSO IN CHAPTER VI-A , WHICH STARTS WITH THE WORDS 'WHERE ANY DEDUCTION IS REQUI RED TO BE MADE OR ALLOWED UNDER ANY SECTION INCLUDED IN TH IS ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 11 CHAPTER' . SECTION 80-AB FURTHER PROVIDES THAT 'NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION ' . THUS SECTION 80-AB HAS BEEN GIVEN AN OVERRIDING EFFECT OVER ALL OTHER SECTIONS IN CHAPTER VI-A . DECISIONS OF THE BOMBAY HIGH COURT IN CIT V . SHIRKE CONSTRUCTION EQUIPMENT LTD . (2000 (246) ITR 429) AND THE KERALA HIGH COURT IN CIT V. T . C. USHA (2003 (132) TAXMAN 297) TO THE CONTRARY CANNOT BE SAID TO BE THE CORRECT LAW . (THE HONBLE APEX COURT HELD IN JEYAR CONSULTANT VS CIT IN CIVIL APPEAL NO.8912 OF 2003, ORDER DATED 01/04/ 2015) . THUS, SECTION 80-AB MAKES IT CLEAR THAT THE COMPU TATION OF INCOME HAS TO BE IN ACCORDANCE WITH THE PROVISIO NS OF THE ACT . IF I NCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT , THEN NOT ONLY PROFITS BUT ALSO LOSSES HAVE TO BE TAKEN INTO CONSIDERATION. 2.14. THE HON'BLE JURISDICTIONAL HIGH COURT IN HINDUSTAN UNILEVER LTD. VS DCIT (2010) 325 ITR 102 (BOM.); (2011) 237 CTR 287 (BOM.) HELD THAT SECTION 10B, AS IT NOW STANDS, IS NOT A PROVISION IN THE NATURE OF EXEMPTION BUT PROVIDES FOR A DEDUCTION AND THE LOS S SUSTAINED BY THE UNIT ELIGIBLE FOR DEDUCTION U/S 10 B COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME AND THEREFORE, THE ASSESSMENT COULD NOT BE REOPENED ON THE GROUND THAT LOSS OF THAT UNIT WAS WRONGLY SET OFF A GAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE . THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V GALAXY SURFACTANTS LIMITED REPORTED IN 343 ITR 108 HAS ALS O ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 12 TAKEN SIMILAR VIEW THAT LOSS OF THE EOU UNIT IS TO BE ALLOWED TO BE SET OFF AGAINST THE PROFITS OF THE OT HER UNITS AS UNDER:- 5. AT THE OUTSET, WHILE DEALING WITH THE SUBMISSION W HICH HAS BEEN URGED ON BEHALF OF THE REVENUE, IT MUST BE NOTED TH AT SECTION 10B WHEN IT WAS ORIGINALLY INTRODUCED BY THE FINANCE AC T, 1988, WITH EFFECT FROM 1 APRIL 1989, PROVIDED FOR AN EXEMPTION OF THE PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM A HUNDRED PE RCENT EXPORT ORIENTED UNDERTAKING. THE EARLIER PROVISION SPECIFI CALLY STIPULATED THAT PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING TO WHICH THE SECTION AP PLIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. SECTI ON 10A AS AT PRESENT STANDS, CAME TO BE SUBSTITUTED BY THE FINAN CE ACT, 2000 WITH EFFECT FROM 1 APRIL 2001. THE SECTION AS IT NOW STA NDS, IS NOT A PROVISION FOR EXEMPTION, BUT A PROVISION WHICH ENAB LES AN ASSESSEE TO CLAIM A DEDUCTION. AS IT NOW STANDS, THE SECTION CONTEMPLATES A DEDUCTION 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 CON SECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWAR E, AS THE CASE MAY BE. THE DEDUCTION HAS TO BE ALLOWED FROM THE TO TAL INCOME OF THE ASSESSEE. IN HINDUSTAN LEVER LTD. V. DY. CIT [2010] 325 ITR 102 / 191 TAXMAN 119 (BOM.) 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 BENC H NOTED THAT UPON THE SUBSTITUTION OF THE PROVISION BY THE FINAN CE ACT, 2000, SECTION 10B WAS NO LONGER A PROVISION FOR EXEMPTION , BUT A PROVISION FOR DEDUCTION. THE DIVISION BENCH OBSERVE D AS FOLLOWS: 'PLAINLY, SECTION 10B AS IT STANDS IS NOT A PROVISI ON 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, T HE 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 I N THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDES FO R 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 COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YE ARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS Y EAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSE QUENTLY, IT IS ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 13 EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVIS ION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE B ASIS 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 ASSE SSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESS EE WAS 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 SECTION 10B.' THIS DECISION OF THE DIVISION BENCH HAS BEEN FOLLOW ED BY ANOTHER DIVISION BENCH OF THIS COURT IN 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 CO VERED 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 FRO M ONE SOURCE FALLING UNDER ANY HEAD OF INCOME (OTHER 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 E XCEPT FOR CAPITAL GAINS). UNDER SECTION 72, A PROVISION HAS B EEN 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 GAINS OF BUSINESS OR PROFESSION CANNOT BE SET OFF AGAINST IN COME 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 INDICATED IN THE PROVISION. SECTION 72 WHICH PROVIDES FOR A CARRY FO RWARD OF A BUSINESS LOSS COMES INTO OPERATION ONLY WHEN THE PR OVISIONS OF SECTIONS 70 AND 71, AS THE CASE MAY BE, ARE EXHAUST ED. THERE IS NO PROVISION IN SECTION 10B BY WHICH A PROHIBITION HAS BEEN INTRODUCED BY THE LEGISLATURE IN SETTING OFF OF A LOSS WHICH I S SUSTAINED FROM ONE SOURCE FALLING UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS AGAINST INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. O N THE OTHER HAND, THERE IS INTRINSIC MATERIAL IN SECTION 10B TO INDICATE THAT SUCH A PROHIBITION WAS NOT WITHIN THE CONTEMPLATION OF THE LEGISLATURE. SUB- SECTION (7) OF SECTION 10B PROVIDES THAT THE PROVIS IONS OF SUB-SECTION (8) AND SUBSECTION (10) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO THE UNDERTAKING REFERRED TO IN THE SECTION AS THEY APPLY FOR THE PURPOSES OF AN UNDERTAKING REFERRED T O IN SECTION 80- IA. SECTION 80-IA CONTAINS A SPECIFIC PROVISION IN SUB-SECTION (5) TO THE FOLLOWING EFFECT : ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 14 '(5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSI NESS TO WHICH THE PROVISIONS OF SUB-SECTION (1)APPLY SHALL, FOR THE P URPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS I F SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR 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 OVER RIDING NON- OBTANTE PROVISIONS, PROFITS AND GAINS OF AN ELIGIBL E BUSINESS TO WHICH SUB-SECTION (1) APPLIES ARE FOR THE PURPOSES OF DET ERMINING THE QUANTUM OF DEDUCTION TO BE COMPUTED AS IF SUCH ELIG IBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURI NG 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 SE CTION 80-I HAS NOT BEEN INTRODUCED BY THE LEGISLATURE WHEN IT ENACTED SECTION 10B. THE FACT THAT UNABSORBED DEPRECIATION CAN BE CARRIED FO RWARD TO A SUBSEQUENT YEAR DOES NOT MILITATE AGAINST THE ENTIT LEMENT OF THE ASSESSEE TO SET OFF A LOSS WHICH IS SUSTAINED BY AN ELIGIBLE UNIT AGAINST THE INCOME ARISING FROM OTHER UNITS UNDER T HE SAME HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LE GISLATURE NOT HAVING INTRODUCED A STATUTORY PROHIBITION, THERE IS NO REASON TO DEPRIVE THE ASSESSEE OF THE NORMAL ENTITLEMENT WHIC H WOULD FLOW OUT OF THE PROVISIONS OF SECTION 70. 7. IN THIS VIEW OF THE MATTER, FOR THE REASONS WHICH WE HAVE ALREADY INDICATED EARLIER, WE FOLLOW THE EARLIER DECISION O F A DIVISION BENCH OF THIS COURT ON THIS ASPECT. CONSEQUENTLY, NO SUBS TANTIAL QUESTION OF LAW WOULD ARISE IN THE APPEAL. THE APPEAL IS ACCORD INGLY DISMISSED. 2.15. HOWEVER, HON'BLE DELHI HIGH COURT IN CIT VS KEI INDUSTRIES LTD. (2015) 373 ITR 574 (DEL.) CONCL UDED THAT THE ASSESSEE, WHO ENJOYS THE TAX HOLIDAY U/S 1 0A SHOULD NOT ENJOY ANY OTHER TAX CONCESSION. THUS, TH E TAX EXEMPT INCOME OF THE ASSESSEE, ELIGIBLE U/S 10B COU LD NOT HAVE BEEN SET OFF AGAINST THE LOSS FROM THE TAX LIA BLE INCOME. ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 15 2.16. HOWEVER, WE ARE BOUND BY THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES CITE D BY ME AS ABOVE. MY ABOVE VIEW AND DECISION IN THIS APPEAL IS FORTIFIED BY THE HON'BLE APEX COURT DECISION IN JE YAR CONSULTANT & INVESTMENT PVT. LTD. VS CIT (CIVIL APP EAL NO.8912 OF 2003) VIDE ORDER DATED 01/04/2015 REPOR TED IN [2015] 57 TAXMANN.COM 85 (SC) ALTHOUGH GIVEN IN CONTEXT OF SECTION 80HHC OF THE ACT , AND ALSO BY T HE DECISION OF HON'BLE SUPREME COURT IN CIVIL APPEAL NO.1501 OF 2008 VIDE ORDER DATED 19/09/2013 REPORTE D IN (2014)48TAXMANN.COM 357(SC) , WHEREIN, HON'BLE SUPREME COURT HAS IN HIMATSINGIKE SEIDE LTD. VS CIT APPROVED THE DECISION OF HON'BLE KARNATAKA HIGH COU RT IN THE CASE OF CIT VS HIMATASINGIKE SEIDE LTD. REPORTE D IN (2006) 156 TAXMAN 151 (KARN.) WHICH WAS ALTHOUGH RENDERED UNDER THE UN-AMENDED PROVISION OF SECTION 10B WHEREIN HON'BLE KARNATAKA HIGH COURT HAS HELD AS UN DER: 6. SECTION 10B IS A SPECIAL PROVISION IN RESPECT OF T HE NEWLY ESTABLISHED 100 PER CENT EXPORT ORIENTED UNDERTAKIN G. IT PROVIDES FOR A TAX DEDUCTION ON THE TURNOVER ON ACCOUNT OF 1 00 PER CENT EXPORT ORIENTED UNDERTAKING. IN THE CASE ON HAND, T HE APPELLANT HAS SUBMITTED A COMPUTATION OF TOTAL INCOME AND FOR THE SAID COMPUTATION, HE HAS TAKEN THE NET PROFIT, DISALLOWA NCE, ENTERTAINMENT OF EXPENSES, DONATION INTEREST ACCRUE D BUT NOT DUE DEPRECIATION ETC. HE HAS ARRIVED AT A FIGURE OF RS. 11,17,87,315. HE HAS CLAIMED THE ENTIRE AMOUNT AS AN EXEMPTION UN DER SECTION 10B OF THE ACT. THE SAME HAS BEEN ACCEPTED BY THE D EPARTMENT. HOWEVER, HE HAS DERIVED BUSINESS INCOME FROM OTHER SOURCES. THE SAID AMOUNT WORKS OUT TO RS. 41,09,479. EVEN FOR TH IS INCOME FROM OTHER BUSINESS SOURCES, HE HAS CHOSEN TO TAKE UNABSORBED DEPRECIATION OF ASSESSMENT YEAR 1988-89. TOTALLY TH E VERY AMOUNT THEREBY HE HAS SHOWN AS TAXABLE INCOME NIL FOR THE RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER HAS CHOSEN T O ACCEPT THE SAME. THE COMMISSIONER OF INCOME-TAX NOTICING THE NIL INCOME ISSUED A NOTICE UNDER SECTION 263 OF THE INCOME-TAX ACT, OBTAINED ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 16 REPLY AND THEREAFTER, HE COMES TO A CONCLUSION THAT THE ASSESSING OFFICER FAILED TO APPLY THE PROVISIONS OF SECTIONS 29 TO 43 ESPECIALLY SECTION 32(2) AND SUB-SECTION (3) OF SEC TION 32A IN THE CASE ON HAND. HE WAS OF THE VIEW THAT THE ORDERS AR E ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, INS OFAR AS THE EXEMPTION UNDER SECTION 10B WAS ALLOWED ON AN INFLA TED AMOUNT WITHOUT DEDUCTING THE UNABSORBED DEPRECIATION AND U NABSORBED INVESTMENT ALLOWANCE IN THE CASE ON HAND. WHEN THE MATTER WAS TAKEN TO THE TRIBUNAL, THE TRIBUNAL IN ITS ORDER ST ATES THAT THERE IS NO FORCE IN THE ARGUMENT THAT WHILE OTHER INCOME IS AVAILABLE FOR SUBSCRIPTION OF EARLIER YEARS DEPRECIATION BROUGHT FORWARD TO THIS YEAR, THE SAID DEPRECIATION WILL HAVE TO BE ADJUSTE D AGAINST THE PROFITS AND GAINS OF THE EXPORT ORIENTED UNDERTAKIN G FOR ALLOWING EXEMPTION IN RESPECT OF SUCH PROFITS AND GAINS. 7. AT THIS STAGE, WE SHOULD NOTICE THE DEFINITION OF TOTAL INCOME IN TERMS OF SECTION 2( 45 ) OF THE INCOME-TAX ACT. TOTAL INCOME HAS BEEN DEFINED AS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. SECTION 4 PROVIDES FOR CHARGE OF INCOME-TAX ACT. SECTION 5 PROVIDES FOR SCOPE OF TOTAL INCOME. SUB-SECTION (1) OF SECTION 5 SAYS THAT SUBJECT TO T HE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH '( A )IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA I N SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR ( B )ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR OR; ( C )ACCRUES OR ARISES TO HIM OUTSIDE INDIA DURING SUC H YEAR : PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARI LY RESIDENT IN INDIA WITHIN THE MEANING OF SUB-SECTION (6) OF SECT ION 6, THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CO NTROLLED IN OR A PROFESSION SET UP IN INDIA.' CHAPTER III PROVIDES FOR INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME. CHAPTER IV PROVIDES FOR COMPUTATION OF TOTAL INCOME . SECTION 32 OF THE INCOME-TAX ACT PROVIDES FOR DEDUC TION ON DEPRECIATION. SECTION 32(2) PROVIDES FOR ADJUSTMENT FOR SUBSEQUEN T YEARS. IF WE SEE SECTION 10B, IT PROVIDES FOR EXEMPTION OF PAYME NT OF TAX WITH REFERENCE TO PROFITS AND GAINS DERIVED BY 100 PER C ENT EXPORT ORIENTED UNDERTAKING. TO ARRIVE AT A PROFIT AND GAI N, ONE HAS TO NECESSARILY TAKE INTO CONSIDERATION THE TOTAL INCOM E IN TERMS OF THE ACT. TO ARRIVE AT THE INCOME ONE HAS TO TAKE INTO C ONSIDERATION, THE VARIOUS ADDITIONS AND DELETIONS IN TERMS OF THE ACT. IN FACT, THE ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 17 PETITIONER KNOWING FULLY HAS CHOSEN TO TAKE INTO CO NSIDERATION THE ALLOWABILITY OF DEPRECIATION FOR THE PURPOSE OF CAL CULATION OF TOTAL INCOME. BUT CURIOUSLY AN ARGUMENT HAS NOW BEEN ADVA NCED THAT EXEMPTION IN TERMS OF SECTION 10B COULD ALSO BE ON COMMERCIAL BASIS NOT NECESSARILY IN TERMS OF THE CALCULATION. WE DO NOT ACCEPT THIS SUBMISSION. SECTION 10B CANNOT BE READ IN ISOL ATION OF OTHER PROVISIONS. IT IS ONLY AN EXEMPTION PROVISION. EXEM PTION CANNOT BE FANCIFUL AND IT HAS SOME RATIONAL WITH OTHER PRO VISIONS OF THE ACT. THERE- FORE, A COMBINED READING OF THE DEFINIT ION OF EXEMPTION, TOTAL INCOME-TAX LIABILITY DEDUCTIBILITY ETC., ONE HAS TO COME TO A CONCLUSION THAT CALCULATION AS FAR AS POS SIBLE IS TO BE IN TERMS OF THE INCOME-TAX ACT. THAT IS EXACTLY WHAT H AS BEEN DONE BY THE ASSESSEE. HAVING CALCULATED IN A PARTICULAR MANNER, NOW IT DOES NOT LIE IN THE MOUTH OF THE ASSESSEE TO CONTEN D CONTRA IN THESE PROCEEDINGS. IT CANNOT BE ARGUED THAT CALCULATION S O PROVIDED IS ON A MISTAKEN BASIS OR THAT COULD BE ON COMMERCIAL BAS IS. WE ARE NOT PREPARED TO ACCEPT THIS ARGUMENT ADVANCED BY THE AS SESSEE. EXEMPTION ALSO HAS TO BE SCRUTINIZED BY THE DEPARTM ENT AS OTHERWISE THERE IS EVERY CHANCE OF EXEMPTION BEING MISUSED BY AN ASSESSEE. IT MAY BE TRUE THAT EVEN AFTER TAKING INT O CONSIDERATION, THE UNABSORBED DEPRECIATION, THE ASSESSEE MAY GET E XEMPTION BUT NONETHELESS HE CANNOT TAKE ONLY A PORTION OF DEPREC IATION JUST TO SUIT HIS INCOME FOR THE PURPOSE OF NIL LIABILITY AND ADJUST THE BALANCE OF UNABSORBED DEPRECIATION FOR OTHER BUSINE SS INCOME ONCE AGAIN TO SHOW NIL LIABILITY. WHEN THE UNABSORBED DEPRECIATION COULD HAVE BEEN TAKEN FOR ARRIVING AN EXEMPTED INCOME, THE ASSESSEE CANNOT PLAY WITH THE FIGURES F OR THE PURPOSE OF SHOWING NIL LIABILITY AS HAS BEEN DONE IN THE CASE ON HAND. THE INTENTION OF THE LEGISLATURE IS ONLY TO PROVIDE 100 PER CENT EXEMPTION FOR EXPORT INCOME AND NOT FOR OTHER INCOM E. THE PETITIONER BY DIVIDING DEPRECIATION CONTRARY TO SEC TION 32 HAS VIRTUALLY TAKEN EXEMPTION FROM PAYMENT OF TAX EVEN FOR OTHER BUSINESS INCOME IN THE CASE ON HAND. THAT CANNOT BE ALLOWED AS RIGHTLY RULED BY THE COMMISSIONER. THE ALLOWANCE OF THE DEPRECIATION BY THE TRIBUNAL, IN OUR VIEW, IS PREJU DICIAL TO THE INTEREST OF REVENUE AS ARGUED BY THE DEPARTMENT. TH E TRIBUNAL HAS TAKEN A NARROW VIEW OF THE MATTER WITHOUT TAKING IN TO CONSIDERATION, THE LAUDABLE OBJECT OF EXEMPTION AND AT THE SAME TIME PROVIDING FOR TAX LIABILITY TOWARDS OTHER LIAB ILITY. THE INTERPRETATION HAS TO BE MEANINGFUL AND ACCEPTABLE AND IT CANNOT BE AGAINST THE INTENTION OF THE LEGISLATION. LEGISL ATION NEVER WANTED THE ENTIRE INCOME TO BE EXEMPTED BY TAKING A DVANTAGE OF SECTION 10B OF THE ACT. THE APPROACH OF THE TRIBUNA L TO OUR MIND IS INCORRECT AND, HENCE, WE FIND SUBSTANCE IN THE A RGUMENT OF THE REVENUE. 8. SEVERAL CASE LAWS HAVE BEEN PLACED BEFORE US BY TH E PARTIES CONCERNED. 9. DISTRIBUTORS (BARODA) (P.) LTD. V. UNION OF INDIA [1985] 155 ITR 120 (SC) DEALS WITH SECTION 80AA OF THE INCOME- TAX ACT. IN ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 18 THE SAID JUDGMENT, THE SUPREME COURT HAS RULED THAT INSOFAR AS SUB-SECTION (1) OF SECTION 80M OF THE INCOME-TAX AC T IS CONCERNED, THE DEDUCTION REQUIRED TO BE ALLOWED UND ER THAT PROVISION IS LIABLE TO BE CALCULATED WITH REFERENCE TO THE AMOUNT OF DIVIDEND COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND FORMING PART OF THE GROSS TOTAL INCOME AND NOT WITH REFERENCE TO THE FULL AMOUNT OF DIVIDEND RECEIVED BY THE ASSE SSEE. 10. IN CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 (SC), THE COURT CONSIDERED AS UNDER : 'THE QUESTION WHICH AROSE IN CAMBAY ELECTRIC SUPPLY CO.S CASE ( 113 ITR 84) WAS WHETHER UNABSORBED DEPRECIATION A ND UNABSORBED DEVELOPMENT REBATE WERE LIABLE TO BE DED UCTED IN ARRIVING AT THE FIGURE OF PROFITS AND GAINS EXIGIBL E TO DEDUCTION OF 8 PER CENT CONTEMPLATED IN SUB-SECTION (1) OF SECTI ON 80E. THE ARGUMENT OF THE ASSESSEE WAS PRECISELY THE SAME AS THE ONE ADVANCED IN THE PRESENT CASE, NAMELY, THAT THE WORD S SUCH PROFITS AND GAINS IN THE LATTER PART OF SUB-SECTION (1) OF SECTION 80E WERE INTENDED TO REFER ONLY TO THE CATEGORY OF PROFITS A ND GAINS REFERRED TO IN THE EARLIER PART OF THAT PROVISION, NAMELY, PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF GENERATION OR DISTR IBUTION OF ELECTRICITY OR ANY OTHER FORM OF POWER OR OF CONSTR UCTION, MANUFACTURE OR PRODUCTION OF ANY ONE OR MORE OF THE ARTICLES OR THINGS SPECIFIED IN THE LIST IN THE FIFTH SCHEDULE AND NOT TO THE QUANTUM OF THE PROFITS AND GAINS INCLUDED IN THE TO TAL INCOME, SO THAT THE PROFITS AND GAINS EXIGIBLE TO THE DEDUCTIO N OF 8 PER CENT WERE THE PROFITS AND GAINS ATTRIBUTABLE TO THE SPEC IFIED BUSINESS IN THEIR ENTIRETY AND NOT THE PROFITS AND GAINS AS COM PUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE ASSE SSEE CONTENDED THAT, IN THE CIRCUMSTANCES, UNABSORBED DE PRECIATION AND UNABSORBED DEVELOPMENT REBATE WERE NOT LIABLE TO BE DEDUCTED FROM THE PROFITS AND GAINS ATTRIBUTABLE TO THE SPEC IFIED BUSINESS FOR ARRIVING AT THE FIGURE EXIGIBLE TO THE DEDUCTION OF 8 PER CENT. THIS ARGUMENT OF THE ASSESSEE WAS REJECTED BY THE COURT AND THE COURT HELD THAT THE PROFITS AND GAINS EXIGIBLE TO THE DED UCTION OF 8 PER CENT WERE PROFITS AND GAINS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND FORMING PART OF THE TOTAL INCOME AND HENCE UNABSORBED DEPRECIATION AND UNABSORBED DEVELO PMENT REBATE WERE LIABLE TO BE EXCLUDED FROM THE PROFITS AND GAINS ATTRIBUTABLE TO THE SPECIFIED BUSINESS IN ARRIVING AT THE FIGURE EXIGIBLE TO 8 PER CENT DEDUCTION.' 11. IN THE CASE OF CIT V. VIRMANI INDUSTRIES (P.) LTD. [1995] 216 ITR 607 (SC), THE COURT CONSIDERED THE ISSUE OF UNA BSORBED DEPRECIATION IN TERMS OF SECTION 32(2) OF THE INCOM E-TAX ACT. 12. THE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. SUN STONE ENGG. INDUSTRIES (P.) LTD. [1996] 220 ITR 182 , HAS RULED THAT '...FOR THE PURPOSE OF DETERMINATION OF THE RELIEF UNDER SECTION 80HH OF THE ACT, THE GROSS TOTAL INCOME OF THE ASSE SSEE HAS TO BE ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 19 WORKED OUT AFTER DEDUCTING UNABSORBED LOSS AND UNAB SORBED DEPRECIATION AND THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH WILL BE THE NET INCOME AS COMPUTED IN ACCORDAN CE WITH THE PROVISIONS OF THE ACT....' (P. 182) THE RAJASTHAN HIGH COURT AGAIN IN THE CASE OF CIT V. SURENDRA TEXTILES [2002] 258 ITR 387 RULED THAT : 'THE GROSS TOTAL INCOME OF THE ASSESSEE HAS TO BE W ORKED OUT AFTER DEDUCTING UNABSORBED LOSS AND UNABSORBED DEPRECIATI ON AND THE INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80HH OF THE INCOME- TAX ACT, 1961, WILL BE THE NET INCOME AS COMPUTED I N ACCORDANCE WITH THE PROVISIONS OF THE ACT AND NOT THE GROSS IN COME.' (P. 387) 13. THE BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON CORPN. LTD. V. CIT [2003] 261 ITR 98 HAS CONSIDERED THE DEPRECIATION IN THE MATTER OF SPECIAL DEDUCTION. IN THE SAID CASE, THE FOLLOWING REFERENCE WAS MADE : '...WHETHER ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT DEPRECIATION ALLOWANCE OUGHT TO BE DEDUCTED WHILE C OMPUTING THE TOTAL INCOME FOR THE PURPOSES OF DEDUCTION UNDER SE CTION 80HH.' THE BOMBAY HIGH COURT NOTICED THE CASE OF CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. V. CIT [1978] 113 ITR 84 (SC). AFTER NOTICING THE BOMBAY HIGH COURT RULED AS UNDER: 'THE SCHEME OF SECTIONS 4 AND 5 OF THE INCOME-TAX A CT DOES INDICATE THAT INCOME-TAX IS A TAX IN RESPECT OF INC OME COMPUTED AS PER THE PROVISIONS OF THE ACT. THERE IS A DISTINCT DICHOTOMY BETWEEN CASES OF COMPUTATION OF NORMAL INCOME UNDER THE ACT DE HORS CHAPTER VI-A AND COMPUTATION OF TAXABLE INCOME WHE RE THE ASSESSEE CLAIMS THE BENEFIT OF DEDUCTION UNDER CHAP TER VI-A BECAUSE THE LEGISLATURE HAS INTENDED THAT THESE SPE CIAL DEDUCTIONS SHOULD BE RESTRICTED TO THE PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING.' THE COURT RULED ULTIMATELY READING AS UNDER: 'THAT CHAPTER VI-A, FOR THE PURPOSES OF COMPUTING S UCH DEDUCTIONS, CONSTITUTED A SEPARATE CODE BY ITSELF. IN ORDER TO COMPUTE THE TOTAL TAXABLE INCOME OF THE ASSESSEE, D EDUCTIONS COMPUTED UNDER SECTION 80HH HAVE TO BE REDUCED FROM THE GROSS TOTAL INCOME OF THE ASSESSEE. THE QUESTION BASICALL Y IN THIS MATTER IS CONCERNING COMPUTATION OF DEDUCTION UNDER CHAPTE R VI-A IN WHICH SECTION 80HH FALLS. PROFITS AND GAINS OF A NE WLY ESTABLISHED UNDERTAKING, THEREFORE, HAVE GOT TO BE COMPUTED AS PER THE PROVISIONS OF SECTION 29 TO SECTION 43A AND IF THE ASSESSEE CLAIMS RELIEF UNDER CHAPTER VI-A OF THE ACT, THEN IT IS NO T OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATION ALLOWANCE. THIS I S BECAUSE CHAPTER VI-A IS AN INDEPENDENT CODE BY ITSELF FOR C OMPUTING THESE SPECIAL TYPES OF DEDUCTIONS. IN OTHER WORDS, ONE MUST FIRST CALCULATE THE GROSS TOTAL INCOME FROM WHICH ONE MUS T DEDUCT A PERCENTAGE OF INCOMES CONTEMPLATED BY CHAPTER VI-A. THAT SUCH ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 20 SPECIAL INCOMES WERE REQUIRED TO BE COMPUTED AS PER THE PROVISIONS OF THE ACT, VIZ., SECTION 29 TO SECTION 43A, WHICH INCLUDED SECTION 32(2). THEREFORE, ONE CANNOT EXCLU DE DEPRECIATION ALLOWANCE WHILE COMPUTING PROFITS DERI VED FROM A NEWLY ESTABLISHED UNDERTAKING FOR COMPUTING DEDUCTI ONS UNDER CHAPTER VI-A. THEREFORE, THE APPELLANTS CLAIM FOR ALLOWANCE OF DEDUCTION UNDER SECTION 80HH, WITHOUT TAKING INTO C ONSIDERATION THE CURRENT DEPRECIATION WILL HAVE TO BE REJECTED.' (P. 107) 14. ALL THESE JUDGMENTS WOULD SUPPORT THE ARGUMENT THA T CALCULATION CANNOT BE AT THE WHIMS AND FANCIES OF A N ASSESSEE FOR EXEMPTION OF TAX. IT HAS TO BE IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT. 15. CIT V. H.MT. LTD. [1993] 199 ITR 235 (KAR.) IS PRESSED INTO SERVICE BY SRI PARTHASARATHI, LEARNED COUNSEL. WE H AVE CAREFULLY GONE THROUGH THE SAID JUDGMENT. IN THE SAID JUDGMEN T, THE DIVISION BENCH OF THE HIGH COURT HAS NO DOUBT RULED THAT COMPUTATION OF PROFITS AND GAINS OF NEW UNIT MAY BE MADE WITHOUT DEDUCTING DEPRECIATION AND INVESTMENT ALLOW ANCE. BUT THE FACTS OF THE PRESENT CASE STAND ON A DIFFERENT FOOT ING COMPARED TO THE FACTS IN THE CASE ON HAND. THE PETITIONER HAS C HOSEN TO CALCULATE DEPRECIATION IN SUCH A WAY THAT HE HAS CHOSEN NIL LIABILITY. 16. HE ALSO RELIES ON SECOND ITO V. STUMPP, SCHUELE & SOMAPPA (P.) LTD. [1977] 106 ITR 399 (KAR.). IN THE SAID CASE, IT IS STATED THAT SECTION 2(9) OF THE ACT PROVIDES THAT THE WORD S AND EXPRESSIONS USED IN THE ACT, BUT NOT DEFINED IN IT AND DEFINED IN THE INCOME-TAX ACT, SHALL HAVE THE MEANINGS RESPECT IVELY ASSIGNED TO THEM IN THE INCOME-TAX ACT. THE COURT RULED THAT THE BASIC MATERIAL FOR THE COMPUTATION OF SURTAX IS THE TOTAL INCOME AS COMPUTED UNDER THE INCOME-TAX ACT. ADJUSTMENTS IN T HAT TOTAL INCOME HAVE TO BE MADE AS SPECIFIED IN SCHEDULE I. THERE IS NO PROVISION IN SCHEDULE I FOR MAKING ANY ADJUSTMENT I N RESPECT OF RELIEF UNDER SECTIONS 80-I AND 80J. THE EXPRESSION 'PART OF INCOME, PROFITS AND GAINS NOT INCLUDIBLE IN THE TOT AL INCOME' IN RULE 4 OF THE SECOND SCHEDULE CANNOT BE CONSTRUED O R UNDERSTOOD AS REFERRING TO DEDUCTIONS, ALLOWANCES ETC., MADE U NDER THE INCOME-TAX ACT FOR PURPOSES OF COMPUTATION OF TOTAL INCOME. THE CONTENTION OF THE COMMISSIONER COULD, THEREFORE, NO T BE ACCEPTED. A READING OF THE SAID JUDGMENT WOULD SHOW THAT IT W AS RENDERED IN TOTALLY DIFFERENT CIRCUMSTANCES. 17. TAKING INTO CONSIDERATION, VARIOUS ASPECTS OF THE MATTER INCLUDING THE OBJECT OF PROVIDING EXEMPTION IN OUR VIEW, THE COMMISSIONER IS FULLY JUSTIFIED IN HOLDING THAT THE ASSESSEE IS NOT JUSTIFIED IN SHOWING NIL RETURN. WE THEREFORE, DEEM IT PROPER TO ANSWER THE QUESTIONS OF LAW IN FAVOUR OF THE REVENU E. CONSEQUENTLY, THE ORDER OF THE TRIBUNAL HAS TO BE S ET ASIDE AND THE ORDER OF THE COMMISSIONER HAS TO BE ACCEPTED. NO CO STS. ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 21 2.17. KEEPING IN MY FOREGOING DISCUSSIONS AND REASONING AS SET OUT ABOVE IN PRECEDING PARAS OF T HIS ORDER, I HEREBY REITERATE AND CONCLUDE THAT DEDUC TION U/S 10A/10B, HAS TO BE GIVEN EFFECT AT THE STAGE OF COM PUTING THE PROFIT & GAINS OF THE BUSINESS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WHICH SHALL BE ARRIVED AT AFTER ADJUSTING LOSS OF INELIGIBLE UNIT WITH THE PR OFIT OF THE ELIGIBLE UNIT I.E. GIVING EFFECT TO THE PROVISIONS OF SECTION 70 AND 71 OF THE ACT. THIS VIEW IS CONSISTENT WITH THE CIRCULAR NO. 7/DV/2013 [FILE NO.279/MISC./M-116/2012] DATED 16-0 7- 2013 AS WELL INTERPRETATION ACCORDED TO SECTION 10B OF THE ACT BY THE HON'BLE JURISDICTIONAL HIGH COURT DECISI ONS IN THE CASE OF HINDUSTAN UNILEVERS LIMITED V. DCIT (20 10) 325 ITR 102(BOM) AND CIT V. GALAXY SURFACTANTS LIMITED(SUPRA) , WHICH PROPOSITION OF LAW IS LAID D OWN BY HON'BLE APEX COURT IN JEYAR CONSULTANT & INVESTMENT PVT. LTD. VS CIT (CIVIL APPEAL NO.8912 OF 2003) VIDE ORD ER DATED 01/04/2015 REPORTED IN [2015] 57 TAXMANN.COM 85 (SC) ALTHOUGH GIVEN IN CONTEXT OF SECTION 80HHC OF THE ACT , AND ALSO BY THE DECISION OF HON'BLE SUPREME COURT IN CIVIL APPEAL NO.1501 OF 2008 VIDE ORDER DATED 19/09/2013 REPORTED IN (2014)48TAXMANN.COM 357(SC) , WHEREIN, HON'BLE SUPREME COURT HAS IN HIMATSINGIKE SEIDE LTD. VS CIT APPROVED THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS HIMATASI NGIKE SEIDE LTD. REPORTED IN (2006) 156 TAXMAN 151 (KARN. ) WHICH WAS ALTHOUGH RENDERED UNDER THE UN-AMENDED PROVISION OF SECTION 10B OF THE ACT . THUS, I AM O F THE ITA NO.4620/MUM/2015 M/S PHOENIX MECANO (I) PVT. LTD. 22 CONSIDERED VIEW THAT CONSEQUENT TO AMENDED PROVISIO NS SECTION 10B MAKES IT CLEAR THAT IT IS A DEDUCTION A ND NOT EXEMPTION , AND THE COMPUTATION OF INCOME HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, THEREFOR E, NOT ONLY PROFITS BUT ALSO LOSSES FROM THE BUSINESS HAVE TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT. THUS, IT IS HELD THAT LOSSES INCURR ED IN THE NON-ELIGIBLE BUSINESS BY THE ASSESSEE ARE TO BE SET OFF AGAINST THE PROFIT OF ELIGIBLE UNITS OF THE ASSESSE E TO ARRIVE AT THE DEDUCTION U/S 10B OF THE ACT. I ORDER ACCORD INGLY. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12/08/2016 SD/- (JOGINDER SINGH) !' / JUDICIAL MEMBER MUMBAI; DATED : 12/08/2016 F{X~{T? P.S / ! &($)!*+,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * / THE CIT, MUMBAI. 4. ) ) * / CIT- , MUMBAI 5. +,-' , ) '#$' / , / DR, ITAT, MUMBAI 6. -01$ / GUARD FILE. &( / BY ORDER, (+#' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI