SHANTIVIJAY JEWELS LTD, MUMBAI V. ASST. CIT RG 8(3), MUMBAI

ITA 7006/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8249 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 25-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 08-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Assessee Lawyers: APURVA R SHAH; NITESH S JOSH I
• Keywords: Depreciation; Question of law; Revised return
• Section: 80C; 10B; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 7006/MUM/2010 ASSESSMENT YEAR 2004-05 I.TA. NO. 7007/MUM/2010 ASSESSMENT YEAR 2005-06 M/S. SHANTIVIJAY JEWELS LIMITED, G-37, GEMS & JEWELLERY COMPLEX-III, SEEPZ, ANDHERI (WEST), MUMBAI 400 096. PAN: AAFCS 8914 F VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. ( '( / APPELLANT ) ( )*'( / RESPONDENT ) '( , ! / APPELLANT BY : SHRI NITESH S. JOSHI & SHRI APURVA R. SHAH )*'( - , ! /RESPONDENT BY : SHRI V. KRISHNAMOORTHY - .$ / DATE OF HEARING : 25-10-2012 /0 - .$ / DATE OF PRONOUNCEMENT : 16-11-2012 %!1 / O R D E R PER RAJENDRA, A.M. ABOVE REFERRED TWO APPEALS ARE DIRECTED AGAINST THE ORDERS DT.16.08.2010 OF THE CIT(A)-18, MUMBAI. AS THE ISSUES RAISED IN BOTH THE AYS. [DEDUCTION U/S.10A OF THE INCOME-TAX ACT, 1961 (ACT)] ARE MORE OR LESS SA ME, WE WOULD LIKE TO DECIDE THE APPEALS BY A COMMON ORDER. FOLLOWING GROUNDS OF AP PEAL HAVE BEEN RAISED BY THE ASSESSEE-COMPANY FOR THE AY 2004-05: THE COMMISSIONER OF INCOME TAX (APPEALS) 18, MUMBAI ERRED: 1.IN ADJUDICATING THAT THE DEDUCTION U/S 10A HAS T O BE COMPUTED AFTER ADJUSTING LOSSES INCURRED BY THE 10A UNIT IN EARLIER YEARS. 2. IN NOT APPRECIATING THE SUBMISSIONS MADE AND THE PROVISIONS OF SECTION 10A(6). I.TA. NOS. 7006-7007/MUM/2010 M/S. SHANTIVIJAY JEWELS LTD 2 THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUNDS AS MAY BE ADVISED FROM TIME TO TIME. FOR THE NEXT AY I.E. AY 2005-06, FOLLOWING GROUNDS OF APPEAL HAVE BEEN FILED: THE COMMISSIONER OF INCOME TAX (APPEALS) 18, MUM BAI ERRED: 1. IN NOT ALLOWING THE APPELLANT A DEDUCTION FOR LO SSES BROUGHT FORWARD FROM EARLIER YEARS. 2. IN ADJUDICATING THAT THE PROVISIONS OF SECTION 1 0A(6) PROVIDE THAT ALL LOSSES INCURRED DURING THE 10A PERIOD ARE DEEMED TO HAVE B EEN ALLOWED DURING THE 10A PERIOD AND CANNOT BE CARRIED FORWARD BEYOND THE PER IOD DURING WHICH 10A DOES NOT APPLY. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND T HE GROUNDS AS MAY BE ADVISED FROM TIME TO TIME. ITA NO. 7006/M/2010 (AY.2004-05) 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING AND EXPORT OF GEMS AND JEWELLERY, FILED ITS RETURN OF INCOME ON 3 1.10.2004 DECLARING TOTAL INCOME OF RS. 22.03 LAKHS. ASSESSING OFFICER (AO) FINALISED T HE ASSESSMENT U/S.143(3) OF THE ACT, ON 28.12.2006, DETERMINING THE TOTAL INCOME AT RS. 66.82 LAKHS. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD MADE A CLAIM OF RS.1.30 CRORES U/S.10A OF THE ACT. HE ALLOWED THE CLAIM MADE BY T HE ASSESSEE-COMPANY. LATER ON AO REOPENED THE ASSESSMENT ON THE GROUND THAT WHILE COMPUTING DEDUCTION U/S.10A OF THE ACT LOSSES CARRIED FORWARD FROM AY 2002-03 W ERE NOT ADJUSTED AGAINST THE PROFIT OF THE 10A UNIT BEFORE COMPUTING EXEMPTION U /S. 10A AND THIS HAD RESULTED IN EXCESS DEDUCTION OF 10A OF THE ACT. FINALLY, HE HEL D THAT BROUGHT FORWARD LOSSES OF THE 10A UNIT NEED TO BE ADJUSTED AGAINST THE 10A UNITS PROFIT FOR THE YEAR UNDER CONSIDERATION. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA). AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE AND THE ASSESSMENT HE HELD THAT SECTION 10A(6) DEALT WITH T HE TREATMENT TO BE GIVEN TO DEPRECIATION, CARRY FORWARD LOSSES AND DEDUCTIONS A VAILABLE UNDER VARIOUS PROVISIONS OF SECTION 80 AFTER THE TAX HOLIDAY PERIOD WAS OVER , THAT PROVISIONS OF SECTION 10A(6) WERE NOT APPLICABLE FOR THE AY 2004-05, THAT FACTS OF THE CASE OF CHANGEPOND TECHNOLOGIES (P) LTD. (22SOT220) WERE NOT APPLICABL E TO THE CASE UNDER CONSIDERATION, THAT IN THE PRESENT CASE C/F. LOSSES PERTAINING TO 10A UNIT FOR EARLIER YEAR WERE ADJUSTED AGAINST THE PROFIT OF 10A UNIT IN THE AY 2004-05. 2.2. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE WAS A PUBLIC LIMITED COMPANY, THAT IT HAD A UNIT LOCATED IN SPEEZ AREA THAT WAS ENTITLED TO DEDUCTION U/S.10A OF THE ACT, THAT ASSESSEE HAD SUF FERED LOSS IN THE AY 2002-03, THAT IT HAD EARNED PROFIT FROM SPEEZE UNIT IN AY 2004-05 , THAT ASSESSEE WAS ENTITLED TO ADJUST CARRIED FORWARD LOSSES OF EARLIER YEAR, THAT PROVISIONS OF SEC.10(6) OF THE ACT WERE APPLICABLE IN THE CASE UNDER CONSIDERATION. H E RELIED UPON THE CASES OF HINDUSTAN UNILEVER LIMITED (325 ITR 102) AND BLACK & VEATCH CONSULTING PVT. LTD. (ITA NO. 1237OF 2011) DELIVERED BY THE HONBLE JURI SDICTIONAL HIGH COURT. I.TA. NOS. 7006-7007/MUM/2010 M/S. SHANTIVIJAY JEWELS LTD 3 DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT ASS ESSEE WAS NOT ENTITLED FOR CARRIED FORWARD LOSS OF THE EARLIER YEAR. HE SUPPORTED THE ORDERS OF THE AO AND THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATTER AVAILABLE ON RECORD. THE MAIN ISSUE TO BE DECIDED IN THE APPEAL IS ABOUT CARRY FORWARD OF LOSSES OF EARLIER YEAR AGAINST THE PROFIT EARNED BY THE 10A U NIT DURING THE AY UNDER CONSIDERATION. WE FIND THAT SAME ISSUE HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F BLACK & VEATCH CONSULTING PVT. LTD. (SUPRA). IN THAT CASE QUESTION TO BE DECIDED BY THE HONBLE COURT IS NARRATED AS UNDER : WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW ,THE ITAT WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPR ECIATION AND LOSSES OF THE UNIT THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDE R SECTION 10A OF THE ACT CANNOT BE SET OFF AGAINST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE IT ACT. AFTER CONSIDERING THE FACTS OF THE CASE AND THE LEG AL POSITION, HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER : IN APPEAL, THE TRIBUNAL HAS RELIED UPON A DECISION OF ITS SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA VS. ACIT 1 IN WHICH IT HAS BEEN EMPHASISED THAT THE PROVISION CONTAINED IN SECTION 10A IS NOT AN EXEMPTION BUT A DEDUCTION UND ER CHAPTER III. FOLLOWING THAT DECISION, THE TRIBUNAL HELD THAT THE DEDUCTION UNDER SECTION 10A IN RESPECT OF THE ALLOWABLE UNIT UNDER SECTION 10A HAS TO BE ALLOWED BEFORE SETTING OFF BR OUGHT FORWARDED LOSSES OF A NON 10A UNIT. 3.SECTION 10A IS A PROVISION WHICH IS IN THE NATURE OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASISED IN A JUDGMENT OF A DIVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISIONS OF SECTION L0B IN HINDUSTAN UNILEVER LTD VS. DEPUTY COMMISSIONER OF INCOME TAX 2 . THE SUBMISSION OF THE REVENUE PLACED ITS RELIANCE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS A S ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DEDUCTION UNDER SECTION 10A, IN OUR VIEW, HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING THE PROFITS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICATION OF TH E PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISIONS OF C HAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS GROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVI SIONS OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DE FINES FOR THE PURPOSES OF CHAPTER VI-A GROSS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAP TER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESCOPE THE PROVISIONS OF CHAPTER VI-A IN THE CONTEXT OF THE DEDUCTION WHICH IS ALLOWABLE UNDER SECTION 10A, WHICH WOULD NOT BE PER MISSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE AB SENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. IN THE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL WOULD HAVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT THE DEDUCTION UNDER SECTI ON 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS ARE COMPUTED IN T HE FIRST INSTANCE. SO CONSTRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTI AL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. THERE SHALL BE NO ORDER AS TO COST S. (1. 129 TTJ 273; 2. (2010) 325 ITR 102 AT PARA 2 4) RESPECTFULLY FOLLOWING THE ORDER OF THE BOMBAY HIGH COURT WE ALLOW THE APPEAL FILED BY THE ASSESSEE-COMPANY. APPEAL FILED BY THE ASSESSEE FOR THE AY 2004-05 STA NDS ALLOWED. I.TA. NOS. 7006-7007/MUM/2010 M/S. SHANTIVIJAY JEWELS LTD 4 ITA NO. 7007/M/2010 (AY.2005-06) 3. FOR THE AY.2005-06 ASSESSEE-COMPANY FILED ITS RETURN OF INC OME ON 27.10.2005 DECLARING TOTAL INCOME OF RS. 24.44 LAKH S. IN THE RETURN ASSESSEE HAD CLAIMED DEDUCTION U/S.10A OF THE ACT AMOUNTING TO R S.1.06 CRORES. ON 20.02.2006 ASSESSEE FILED A REVISED RETURN DECLARING ITS INCOM E AT RS. 26.79 LAKHS. IN THE REVISED RETURN ASSESSEE DID NOT CLAIM 10A DEDUCTION, BUT CL AIMED THE SET OFF OF LOSSES FOR EARLIER YEAR. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT, ON 30.11.2007, DETERMINING THE TOTAL INCOME AT RS.1 .85 CRORES. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT TAX -FREE-HOLIDAY-PERIOD (10YEARS) OF THE ASSESSEE HAD EXPIRED IN THE AY UN DER CONSIDERATION, THAT THE ASSESSEE HAD CLAIMED THE SET OFF OF CARRY FORWARD OF LOSSES OF RS.3.26 CRORES. AO ASKED ASSESSEE COMPANY TO JUSTIFY THE SETTING OFF OF LOSS ES. AFTER CONSIDERING THE REPLY OF THE ASSESSEE HE HELD THAT CLAIM MADE BY THE ASSESSE E FOR SETTING OFF OF LOSSES WAS NOT AS PER THE PROVISIONS OF LAW AND HENCE WAS NOT ALLO WABLE. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA). AFTER TAKING IN TO CONSIDE RATION THE SUBMISSIONS FILED BY THE ASSESSEE AND THE ASSESSMENT ORDER HE HELD THAT AY 2005-06 WAS THE FIRST YEAR AFTER TAX HOLIDAY U/S.10A OF THE ACT, THAT AS PER THE PRO VISIONS OF SECTION 10A(6) C/F. DEPRECIATION/ BUSINESS LOSSES WERE DEEMED TO HAVE B EEN ALLOWED, THAT NO SET OFF WAS TO BE GIVEN ONCE THE TAX HOLIDAY PERIOD 3.2. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE WAS ENTITLED FOR CARRYING FORWARD OF LOSSES, THAT LOSS PERTAINED TO AY 2002-03,THAT AS PER THE PROVISIONS OF THE ACT LOSSES UP TO THE AY 2001 WERE NOT ALLOWABLE, THAT CIRCULAR 7 OF 2005 ISSUED BY THE CBDT ON 05.09.2003 CLEARLY ME NTIONED THAT LOSSES ARISING IN THE AY 2001-02 AND SUBSEQUENT YEARS WERE TO BE ALLO WED WHILE COMPUTING THE INCOME U/S.10A OF THE ACT, THAT IF ENTRIES OF RETUR N OF INCOME (FORM 1) FOR THE YEAR UNDER CONSIDERATION ARE CONSIDERED IT BECOMES CLEAR THAT C/F. OF LOSSES WAS PERMISSIBLE BEFORE COMPUTING THE INCOME AS PER SECTION 10A. HE ALSO REFERRED TO THE EXPLANATORY NOTES OF THE FINANCE BILL OF 2003. DEPARTMENTAL RE PRESENTATIVE (DR) SUBMITTED THAT FORM OF RETURN COULD NOT BE REPLACED THE PROVISIONS OF THE ACT, THAT ASSESSEE WAS NOT ENTITLED FOR C/F. OF LOSSES. HE RELIED UPON THE OR DERS OF THE AO AND THE FAA. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PUT BEFORE US. IN OUR OPINION, PROVISIONS OF SECTION 10(6) IN AN U NAMBIGUOUS AND CLEAR MANNER ALLOW THE CARRYING FORWARD OF LOSSES OF AY AND SUBSEQUEN T AYS. HERE, WE WOULD LIKE TO REPRODUCE THE SUB SECTION 6 OF THE SECTION 10A AND SAME READS AS UNDER- (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT AS SESSMENT YEAR. (II) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SECT ION 72 OR SUB-SECTION (1) OR SUB- SECTION (3) OF SECTION 74 IN SO FAR AS SUCH LOSS RE LATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WH ERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS ENDING BEFORE THE 1ST DAY OF APRIL, 2001 ; I.TA. NOS. 7006-7007/MUM/2010 M/S. SHANTIVIJAY JEWELS LTD 5 FROM THE ABOVE, IT IS CLEAR THAT LOSS ARISIN G TILL 31.03.2001 CANNOT BE CARRIED FORWARD WHILE COMPUTING THE INCOME AS PER THE PROVI SIONS OF SECTION 10A. CIRCULAR NO.7 OF 2003 ISSUED BY THE CBDT AND EXPLANATORY NOT ES TO THE FINANCE BILL OF 2003 ALSO SUPPORT THE SUBMISSIONS MADE BY THE AR. SECTIO N 10A,10AA, 10B WERE INTRODUCED IN THE ACT WITH A DEFINITE PURPOSE AND L EGISLATURE HAS PROVIDED THE MANNER IN WHICH DEDUCTION UNDER THESE SECTIONS HAS TO BE C OMPUTED. WE ARE OF THE OPINION THAT DISALLOWANCE OF C/F. OF LOSSES, PERTAINING TO AY 2002-03 (AFTER 01.04. 2001), MADE BY THE AO AND UPHELD BY THE FAA DESERVES TO BE DELE TED. WE ALLOW THE APPEAL FILED BY THE ASSESSEE-COM PANY FOR THE AY 2005-06. AS A RESULT APPEALS FILED BY THE APPELLANT FO R BOTH THE AYS STAND ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2012. SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& / ACCOUNTANT MEMBER MUMBAI, 2% DATE: 16 TH NOVEMBER , 2012 TNMM %!1 %!1 %!1 %!1 - -- - ).3 ).3 ).3 ).3 4!30. 4!30. 4!30. 4!30. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6. GUARD FILE *3. ). //TRUE COPY// %!1 %!1 %!1 %!1 / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI