ASST CIT CIR 1, KALYAN V. ASB INTERNATIONAL P. LTD, AMBERNATH

ITA 7034/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1582 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-05-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 03-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: KADAMBERI DAVE
• Keywords: Business income; Depreciation; Carry forward of business losses; Retrospective amendment; Question of law; Unabsorbed depreciation
• Section: 80C; 143(3); 72(1); 10B; 12; 28; 10; 11

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.7034 /MUM/2013 AND 7035/MUM/2013 ( / ASSESSMENT YEARS : 2004-05 AND 2006-07) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 1, KALYAN, 1ST FLOOR,, MOHAN PLAZA, WAYALE NAGAR, KHADAKPADA, KALYAN. / V. M/S ASB INTERNATIONAL PVT. LTD., E-9, ADDL AMBERNATH INDL. AREA, MIDC ANAND NAGAR, AMBERNATH. ./ PAN :AAACA8424F ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI VIJAY KUMAR BORA (D.R.) ASSESSEE BY : SHRI GIRISH DAVE & MS. KADAMBERI DAVE / DATE OF HEARING : 30-09-2016 / DATE OF PRONOUNCEMENT : 19-12-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE TWO APPEALS, FILED BY THE REVENUE, BEING ITA NO. 7034/MUM/2013 AND 7035/MUM/2013, ARE DIRECTED AGAIN ST TWO SEPARATE APPELLATE ORDERS DATED 17 TH SEPTEMBER, 2013 AND 19 TH SEPTEMBER, 2013 RESPECTIVELY PASSED BY LEARNED COMMISSIONER OF INCO ME TAX (APPEALS)- II, THANE (HEREINAFTER CALLED THE CIT(A)), FOR THE AS SESSMENT YEARS 2004-05 AND 2006-07 RESPECTIVELY, THE APPELLATE PROCEEDINGS BEF ORE THE LEARNED CIT(A) ARISING FROM TWO SEPARATE ASSESSMENT ORDERS DATED 3 0 TH SEPTEMBER, 2011 AND ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 2 29 TH DECEMBER, 2009 RESPECTIVELY PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT) FOR THE ASSESSMENT Y EAR 2004-05 , AND U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2006-07 R ESPECTIVELY. 2. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL FOR TH E ASSESSMENT YEAR 2004- 05 BEING ITA NO. 7034/MUM/2013. SINCE BOTH THE APPE ALS INVOLVE COMMON ISSUES, OUR DECISION IN ITA NO. 7034/MUM/2013 FOR ASSESSMENT YEAR 2004- 05 SHALL APPLY MUTATIS MUTANDIS TO THE APPEAL IN IT A NO. 7035/MUM/2013 FOR ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO. 7034/MUM/2013 FOR THE ASSESSMENT YEAR 2004- 05 READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT (A)-II THANE HAS ERRED IN HOLDING THAT THE EXEMPT ION U/S 10B HAS TO BE ALLOWED FROM THE TOTAL INCOME BEFORE SET OFF OF BR OUGHT FORWARD LOSSES AND DEPRECIATION. 2. THE APPELLANT PRAYS THE ORDER OF THE LD. CIT(A)-II , THANE, MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED . 3. THE REVENUE IS AGGRIEVED BY THE APPELLATE ORDER OF THE LD. CIT(A) WHEREIN THE LD. CIT(A) HAS HELD THAT DEDUCTION U/S 10B OF THE ACT HAS TO BE ALLOWED ON THE TOTAL INCOME BEFORE SETTING OFF OF T HE BROUGHT FORWARD BUSINESS LOSSES OF THE ELIGIBLE UNIT, WHEREIN THE LEARNED CI T(A) REVERSED THE ASSESSMENT ORDERS OF THE AO WHEREIN THE AO HAD HELD THAT BROUG HT FORWARD BUSINESS LOSSES OF THE ELIGIBLE UNIT ARE TO BE SET OFF FROM THE CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT BEFORE ALLOWING DEDUCTION U/S 10B OF THE ACT. THE LEARNED CIT(A) UPHELD/SUSTAIN THE ASSESSMENT ORDER OF THE AO THAT UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT HAS TO BE SET OFF AGAINST CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT AS PER THE PROVISIONS OF SECTION 32(2) OF THE ACT AS THE SAME BECOMES CURRENT YEARS DEPRECIATION WHILE COMPUTING THE PROFITS FROM BUSINESS OR PROFESSION OF THE ELIGIBLE UNIT FOR THE PURPOSE OF WORKING OUT ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 3 DEDUCTION U/S 10B OF THE ACT. THE LD. CIT(A) HAS HE LD AS UNDER, VIDE APPELLATE ORDER DATED 17-09-2013 PASSED FOR THE ASSESSMENT YE AR 2004-05:- THUS, FROM THE DECISION OF HON'BLE BOMBAY HIGH COU RT, IT IS ALSO VERY CLEAR THAT THE DEDUCTION U/S. 10B (U/S.10A IN THAT CASE), HAS TO BE GIVEN EFFECT TO AT THE STAGE OF COMPUTING PRO FITS & GAINS OF BUSINESS WHICH IS ANTERIOR TO THE APPLICATION OF PR OVISIONS OF SECTION 72 WHICH DEALS WITH CARRY FORWARD AND SET O FF OF BUSINESS LOSSES. HENCE, HON'BLE BOMBAY HIGH COURT HAS ONLY H ELD THAT THE DEDUCTION U/S. 10B HAS TO BE COMPUTED BEFORE ADJUST ING BROUGHT FORWARD BUSINESS LOSSES AS PER SECTION 72. NO FINDI NG HAS BEEN RECORDED IN RESPECT OF SET OFF OF UNABSORBED DEPREC IATION WHICH IS GOVERNED BY THE PROVISIONS OF SECTION 32(2) OF THE ACT. IT IS ALSO AN ESTABLISHED LEGAL POSITION THAT THE PROVISIONS OF S ECTION 72 DO NOT BAR APPLICATION OF PROVISIONS OF SECTION 32(2) OF T HE ACT. SINCE PROVISIONS OF SECTION 72 ARE NOT REQUIRED TO BE CON SIDERED WHILE COMPUTING THE PROFIT OF ELIGIBLE BUSINESS AS PER TH E PROVISIONS OF SECTIONS 30 TO 43D OF THE ACT, THE PROVISIONS OF SE CTION 32(2) HAVE TO BE READ AS IF THERE IS NO REFERENCE TO SECTION 7 2 THEREIN AND HENCE, BROUGHT FORWARD DEPRECIATION HAS TO BE GIVEN SET OFF AS PER PROVISIONS OF SECTION 32(2) AS THE SAME BECOMES CUR RENT YEAR'S DEPRECIATION WHILE COMPUTING THE PROFITS FROM BUSIN ESS OR PROFESSION FOR THE PURPOSE OF WORKING OUT OF DEDUCT ION U/S. 10B. ACCORDINGLY, THE DECISION OF HON'BLE BOMBAY HIGH CO URT WHICH IS A SUPERIOR COURT AND ALSO A JURISDICTIONAL HIGH COU RT, IS BINDING ON ME AND ACCORDINGLY, I AM INCLINED TO TAKE A VIEW THAT THE DEDUCTION U/S.10B IS TO BE COMPUTED AFTER DETERMINA TION OF THE PROFITS AND GAINS OF BUSINESS OR PROFESSION U/S. 30 TO 43D OF THE ACT INCLUDING PROVISIONS OF SECTION 32(2) OF THE AC T. HOWEVER, BROUGHT FORWARD BUSINESS LOSSES WHICH ARE GOVERNED BY THE PROVISIONS OF SECTION 72 ARE TO BE ALLOWED SET OFF SUBSEQUENT TO THE CLAIM OF DEDUCTION U/S. 10B. THE A.O. IS DIRECT ED ACCORDINGLY AND APPELLANT PARTLY SUCCEEDS IN RESPECT OF GROUND NOS. 3 TO 9. AGGRIEVED BY THE APPELLATE ORDER DATED 17-09-2013 P ASSED BY THE LD. CIT(A) FOR ASSESSMENT YEAR 2004-05, THE REVENUE HAS PREFER RED AN APPEALS BEFORE THE TRIBUNAL. THE LD. CIT(A) HAS HELD THAT DEDUCTI ON U/S 10B OF THE ACT SHALL BE ALLOWED OF THE CURRENT YEAR PROFITS OF THE ELIGI BLE UNIT BEFORE SET OFF OF THE BROUGHT FORWARD BUSINESS LOSSES OF THE ELIGIBLE UNI T IN VIEW OF THE PROVISIONS OF SECTION 72 OF THE ACT. THE ASSESSEE HAS NOT COM E FORWARD BY FILING APPEAL ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 4 WITH THE TRIBUNAL WITH RESPECT TO THE FINDINGS OF T HE LD. CIT(A) WITH RESPECT TO THE ADJUSTMENTS OF THE UNABSORBED DEPRECIATION OF T HE ELIGIBLE UNIT WHILE COMPUTING PROFITS U/S 10B OF THE ACT , AS THE LEARN ED CIT(A) HAS HELD THAT UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT HAS TO BE GIVEN SET OFF AS PER PROVISIONS OF SECTION 32(2) OF THE ACT AS THE SAME BECOMES CURRENT YEARS DEPRECIATION WHILE COMPUTING CURRENT YEAR PROFITS O F THE ELIGIBLE UNIT FOR THE PURPOSES OF WORKING OUT DEDUCTIONS U/S. 10B OF THE ACT. IT IS UN UNDISPUTED AND ADMITTED POSITION BETWEEN THE PARTIES THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 10B OF THE ACT AND THE ASSESSMENT YEA R UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2004-05 IS AFTER THE AMENDMENT S BEING BROUGHT INTO SECTION 10B OF THE ACT BY FINANCE ACT 2000 W.E.F. 0 1-04-2001. THE A.O. HAS HELD THAT WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF ELIGIBLE UNIT ARE FIRST REQUIRED TO BE SET OFF AGAINST THE CURRENT YEAR BUSINESS PROFITS OF TH E ELIGIBLE UNIT, BEFORE COMPUTING DEDUCTION U/S 10B OF THE ACT. THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF INJECTION BLOW MOULDING MACHINES. 4. IT IS THE SAY OF THE LD. D.R. THAT WHILE COMPUTI NG DEDUCTION U/S 10B OF THE ACT AS PER THE AMENDED PROVISIONS, SET OFF OF B ROUGHT FORWARD BUSINESS LOSSES AND UN-ABSORBED DEPRECIATION HAS TO BE FIRST ADJUSTED FROM THE CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT U/S 10B OF THE AC T AND THEREAFTER DEDUCTION SHALL BE ALLOWED U/S 10B OF THE ACT. THE LD. D.R. RELIED ON THE DECISION OF HONBE SUPREME COURT IN THE CASE OF HIMATSINGKA SEI DE LTD. V. CIT [2014] 48 TAXMANN.COM 357 (SC) WHEREBY THE HONBLE SUPREME CO URT HAS DISMISSED THE CIVIL APPEAL FILED BY THE ASSESSEE AGAINST THE HONBLE KARNATAKA HIGH COURT DECISION IN THE CASE OF [2006] 156 TAXMAN 15 1 (KAR). 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, SUBMITTED THAT THE SAME ISSUE AROSE IN ASSESSMENT YEARS 2005-06 TO 200 7-08 IN ASSESSEES OWN CASE BEFORE THE TRIBUNAL , WHEREBY THE TRIBUNAL IN ITA NO. 7040 TO ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 5 7042/MUM/2011 AND ITA NO. 245/MUM/2011 DATED 29 TH JUNE, 2012 HAS ALLOWED THE APPEAL OF THE ASSESSEE , WHEREBY THE TR IBUNAL HAS HELD AS UNDER:- 4. GROUND NO.1 IS WITH REFERENCE TO THE CLAIM OF EXEMP TION UNDER SECTION 10B. IT AS THE CONTENTION THAT IT WAS AN EXEMPTION PRO VISION AND BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION WER E TO BE GIVEN SET OFF AFTER ALLOWING CLAIM U/S 10B. 5. THIS ISSUE IS TO BE DECIDED IN FAVOUR OF ASSESSEE A ND AGAINST THE REVENUE, IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT V. BLACK & VEACH CONSULTING PVT. LTD (ITA NO.1237 OF 2011) AS WELL AS THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COU RT IN THE GROUP OF CASES ACIT VS. M/S YOKOGAWA INDIA LTD AND OTHERS VID E ORDER DATED 9 TH AUGUST, 2011. 6. THE HON'BLE HIGH COURT OF BOMBAY IN ITA NO.1237 OF 2011 DATED 9 TH APRIL, 2012 CONSIDERED THE FOLLOWING QUESTION: (A) WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND LAW, THE ITAT WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT, THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER 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 I.T. ACT. 7. THE HON'BLE HIGH COURT HELD AS UNDER: 2. THE ASSESSING OFFICER, DURING THE COURSE OF THE O RDER OF ASSESSMENT UNDER SECTION 143(3) OBSERVED AS FOLLOWS: UNDER THE SCHEME OF THE ACT, THE PROFITS OF THE UN IT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, WOULD FORM PAR T OF THE INCOME COMPUTED UNDER THE HEAD `PROFITS AND GAINS OF B USINESS AND PROFESSION. HOWEVER, IN ORDER THE SAME DOES NOT S UFFER TAX, DEDUCTION WILL HAVE TO BE MADE IN RESPECT THEREOF WHILE C OMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINES S AND PROFESSION. IN OTHER WORDS, THE DEDUCTION IN RESPE CT OF THE PROFITS ELIGIBLE UNDER SECTION 10A OF THE ACT IS REQUIRED TO BE MADE AT THE STAGE OF COMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. NONETHELESS, WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE THE ASSESSING OFFICER TOOK THE NET PROFIT AS PER THE PROF IT AND LOSS ACCOUNT AND AFTER, INTER ALIA, MAKING CERTAIN DISALLOW ANCES AND ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 6 ALLOWANCES, ARRIVED AT THE TOTAL BUSINESS INCOME AT RS.8 6.07 LAKHS. A SET OFF WAS EFFECTED OF THE BROUGHT FORWARD BUSINE SS LOSS OF AY 2003-04 AND AY 2004-05 UPON WHICH THE ASSESSING OFFICE R CAME TO THE CONCLUSION THAT THERE WAS NIL INCOME WHICH WOULD QUALI FY FOR DEDUCTION UNDER SECTION 10A. THE CIT (A) HELD THAT THE A SSESSING OFFICER WAS JUSTIFIED IN ADJUSTING THE BROUGHT FORWAR D LOSSES OF EARLIER YEARS BEFORE ARRIVING AT THE GROSS TOTAL INCOME, FOR ALLOWING A DEDUCTION UNDER SECTION 10B. IN APPEAL, THE TRIBUNAL H AS RELIED UPON A DECISION OF ITS SPECIAL BENCH IN THE CASE OF SCIEN TIFIC ATLANTA VS. ACIT 129 TTJ 273 IN WHICH IT HAS BEEN EMPHASIZE D THAT THE PROVISION CONTAINED IN SECTION 10A IS NOT AN EXEMPTION BUT A DEDUCTION UNDER 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 BEF ORE SETTING OFF BROUGHT 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 EMPHASIZED IN A JUDGME NT OF A DIVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISI ONS OF SECTION 10B IN HINDUSTAN UNILEVER LTD VS. DEPUTY COMMI SSIONER OF INCOME TAX 2. (2010) 325 ITR 102 AT PARA 24. THE SUB MISSION OF THE REVENUE PLACED ITS RELIANCE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS AR E DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DED UCTION 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 THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINC TION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISION S OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUTIN G THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS G ROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISION S OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A GRO SS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UN DER THE CHAPTER. 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 PERMI SSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT W ERE TO BE MADE. IN THE ABSENCE 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 SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PR OFITS AND GAINS ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 7 OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CON STRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBS TANTIAL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. TH ERE SHALL BE NO ORDER AS TO COSTS. 8. ON SIMILAR QUESTION, THE HON'BLE KARNATAKA HIGH COU RT IN THE BATCH OF CASES OF ACIT VS. M/S YOKOGAWA INDIA LTD AND OTHERS VIDE ORDER DATED 9 TH AUGUST, 2011 EXAMINED THIS ISSUE ELABORATELY AND DECIDE D AS UNDER: 1 ST SUBSTANTIAL QUESTION OF LAW 9. THE BENEFIT OF TAX HOLIDAY WAS ORIGINALLY ENACTE D AS AN ABSOLUTE EXEMPTION UNDER CHAPTER III OF THE INCOME-TAX ACT, 1961. IT REMAINED AS EXEMPTION FOR ALMOST TWO DECADES. THE HEADING OF C HAPTER III UNDER WHICH THE RELEVANT PROVISIONS WERE PLACED IS TITLED AS 'I NCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME'. THE SECOND HEADING READ AS 'SPECIAL CONDITIONS IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAK INGS IN FREE TRADE ZONES'. SECTION 10 BEGINS AS 'IN COMPUTING THE TOTA L INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY O F THE FOLLOWING CLAUSES SHALL NOT HE INCLUDED', WHEREAS SECTION 10A AS ORIG INALLY ENACTED PROVIDED THAT THE PROFITS AND GAINS OF THE ELIGIBLE UNDERTAK ING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE FINANCE AC T, 2000, RECAST SECTION 10A. IT CAME INTO EFFECT FROM APRIL 1, 2001. THE SE COND HEADING CONTINUES WITH A MARGINAL CHANGE BY WAY OF ADDITION OF THE WO RD 'ETC.' TO READ AS 'SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN A FREE TRADE ZONE, ETC'. THE NEW SECTION PROVIDES FOR DEDU CTION OF PROFITS AND GAINS OF ELIGIBLE UNDERTAKING FROM THE TOTAL INCOME OF THE ASSESSEE. 10. SECTION 10B WHICH IS ALSO SUBSTITUTED BY THE FI NANCE ACT,2000, AND WHICH CAME INTO EFFECT FROM APRIL 1, 2001, DEALS WI TH THE SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED 100 PER CENT EXPORT ORIENTED UNDERTAKINGS. 11. SECTION 10A READS AS UNDER: '10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLI SHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.-(1) SUBJECT TO THE PROVISIONS OF T HIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTA KING 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 UNDER-TAKING BEGINS TO M ANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS TH E CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION, AS I T STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDE RTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY F OR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS : ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 8 PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTL Y LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE P ERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SH ALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR TH INGS OR COMPUTER SOFTWARE IN SUCH FREE RADE ZONE OR EXPORT PROCESSIN G ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION S HALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1ST DAY OF APRIL, 2012, AND SUBSEQUENT YEARS. . . . (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDER-TAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. . . (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE L AST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR,- (I) SECTION 32, SECTION 32A, SECTION 33, SECTION 35 AND CLAUSE (IX) OF SUB- SECTION (1) OF SECTION 36 SHALL APPLY AS IF EVERY A LLOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FO R ANY OF THE RELEVANT ASSESSMENT YEAR (ENDING BEFORE THE 1ST DAY OF APRIL , 2001), IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FO R THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RE LEVANT TO SUCH ASSESSMENT YEAR OR ANY EXPENDITURE INCURRED FOR THE PURPOSES OF SUCH BUSINESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THAT ASSESSMENT YEAR ITSELF AND ACCORDINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) OF SUBSECTION (3) OF SECTION 32A, CLAUSE (II) OF SUB-SECTION (2) OF SECTION 33, SUB-SECTION (4) OF SECTION 35 OR THE SECOND PRO VISO TO CLAUSE (IX) OF SUB A-SECTION (1) OF SECTION 36, AS THE CASE MAY BE, SH ALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION ; (II) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SECT ION 72 OR SUBSECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LO SS RELATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS END ING BEFORE THE 1ST DAY OF APRIL, 2001 ; ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 9 (III) NO DEDUCTION SHALL BE ALLOWED UNDER SECTION 8 0HH OR SECTION 80HHA OR SECTION 80-I OR SECTION 80-IA OR SECTION 80-IB IN R ELATION TO THE PROFITS AND GAINS OF THE UNDERTAKING ; AND (IV) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF TH E BUSINESS OF THE UNDERTAKING SHALL BE COMPUTED AS IF THE ASSESSEE HA D CLAIMED AND BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPREC IATION FOR EACH OF THE RELEVANT ASSESSMENT YEAR . . . EXPLANATION 2.-. . . (II) 'CONVERTIBLE FOREIGN EXCHANGE' MEANS FOREIGN E XCHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EXCHANGE R EGULATION ACT, 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LAW FOR THE TIME BEING IN FORCE ; (III) 'ELECTRONIC HARDWARE TECHNOLOGY PARK' MEANS A NY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHNOLOGY PARK (EHTP) SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY ;' 12. A LITERAL READING OF THE ABOVE PROVISION REQUIR ES DEDUCTION FROM THE TOTAL INCOME. THERE CAN BE A DEDUCTION IN COMPUTING THE TOTAL INCOME. HOW-EVER, THERE CANNOT BE DEDUCTION FROM THE TOTAL INCOME WHICH IS THE FINAL RESULT OF THE COMPUTATION PROCESS. THE LANGUA GE ADOPTED IN SECTION 10A IS DIFFERENT FROM THE ONE ADOPTED IN SECTION 80 A. SECTION 10A PROVIDES FOR DEDUCTION FROM THE TOTAL INCOME. IN THE SCHEME OF THE ACT, WHILE VARIOUS DEDUCTIONS ARE ALLOWED IN COMPUTING THE TOTAL INCOM E, ONCE THE TOTAL INCOME IS COMPUTED, NO FURTHER ADJUSTMENT TO THE TO TAL INCOME IS ENVISAGED. THE SCHEME OF THE ACT PROVIDES FOR DEDUC TION IN COMPUTING THE TOTAL INCOME BUT NO MECHANISM FOR ANY DEDUCTION FRO M THE TOTAL INCOME ALREADY COMPUTED IS PROVIDED UNDER THE ACT. ONCE TH E TOTAL INCOME IS COMPUTED, THE NEXT STEP IS DETERMINATION OF TAX BY APPLYING THE APPLICABLE RATES ON THE TOTAL INCOME. 13. SECTION 2(45) DEFINES 'TOTAL INCOME' TO MEAN TH E TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 AND COMPUTED IN THE MANNER LAID DOWN IN THE INCOME-TAX ACT. SECTION 5 DEFINES THE SCOPE OF TOTAL INCOME AND IT IS SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. SE CTION 14 PROVIDES THAT 'SAVE AS OTHERWISE PROVIDED BY THE INCOME-TAX ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME, BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME'. TH EREFORE, THE TOTAL INCOME IN ITS STRICT SENSE REQUIRES COMPUTATION FOR THE PU RPOSE OF LEVY OF TAX. THE COMPUTATION OF TOTAL INCOME BEGINS ONLY WITH CHAPTE R IV AND AS SECTION 10A IS COVERED IN CHAPTER III, THE PHRASE 'TOTAL IN COME' USED IN SECTION 10A CANNOT BE UNDERSTOOD IN THE SAME SENSE AS IN SECTIO N 2(45). 14. THE PHRASE 'TOTAL INCOME' HAS BEEN USED IN THE INCOME-TAX ACT IN SEVERAL PLACES WITH DIFFERENT CONNOTATIONS AND SHA DES. THE PHRASE 'TOTAL ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 10 INCOME' USED IN SECTION 10A IS ONE SUCH VARIANT. TH E PHRASE NEED NOT NECESSARILY MEAN THE TOTAL INCOME AS COMPUTED IN AC CORDANCE WITH THE PROVISIONS OF THE ACT. THE RELIEF UNDER THIS SECTIO N IS WITH REFERENCE TO THE STP UNDERTAKINGS AND NOT TO THE ASSESSEE. IN OTHER WORDS, THE RELIEF TRAVELS WITH THE UNDERTAKING IRRESPECTIVE OF WHO OWNS THE S AME. THE COMPUTATION OF RELIEF AS PROVIDED IN SECTION 10A(4) IS ALSO WIT H REFERENCE TO THE UNDER- TAKING. A BUSINESS MIGHT HAVE SEVERAL UNDERTAKINGS AND SECTION 28 DOES NOT ENVISAGE COMPUTATION OF INCOME OF EACH SUCH UND ERTAKING. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERTAKI NG CANNOT BE COMPUTED IN ISOLATION. THE PROFITS ARE COMPUTED UNDER THE HE AD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', AS UNDER THE ABOVE HEAD, T HE INCOME FROM BUSINESS AS A WHOLE HAS TO BE COMPUTED. THE PHRASE 'TOTAL INCOME' USED IN SECTION 10A(1) IS, THEREFORE, TO BE UNDERSTOOD AS T HE TOTAL INCOME OF THE STP UNIT. THIS IS CLEAR FROM THE FIRST PROVISO TO SECTI ON 10A(1) WHICH MAKES A REFERENCE TO THE TOTAL INCOME OF THE UNDERTAKING AN D NOT TO THE TOTAL INCOME OF THE ASSESSEE. THE DEFINITION OF ANY TERM GIVEN I N SECTION 2 WILL APPLY ONLY WHEN THE CONTEXT DOES NOT OTHERWISE REQUIRE. THE PL ACEMENT, LANGUAGE AND SETTING OF SECTION 10A CANNOT MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. INSTEAD, SUCH A PHRASE IN THE CONTEXT OF SECTION 10A, MEANS PROFITS AND GAINS OF THE STP UNDER-TAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE. 15. CHAPTER IV DEALS WITH THE COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEADS OF INCOME. SECTION 14 PROVIDES FOR CLASSIFICA TION OF INCOME UNDER VARIOUS HEADS OF INCOME FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME. THE PURPOSE OF CLASSIF ICATION OF ANY INCOME UNDER ANY HEAD OF INCOME IS TO COMPUTE THE SAME. TH E TWIN CONDITIONS OF SECTION 14 ARE THAT INCOME IS SUBJECT TO CHARGE OF INCOME-TAX AND IS INCLUDIBLE IN THE TOTAL INCOME. AS THE RELIEF UNDER SECTION 10A IS IN THE NATURE OF EXEMPTION ALTHOUGH TERMED AS DEDUCTION AN D THE SAID RELIEF IS IN RESPECT OF COMMERCIAL PROFITS, SUCH INCOME IS NEITH ER SUBJECT TO CHARGE OF INCOME-TAX NOR INCLUDIBLE IN THE TOTAL INCOME. THER EFORE, THE TWIN PROVISIONS OF SECTION 14 ARE NOT EXISTING IN THE CA SE OF INCOME OF STP UNDER-TAKING AND ACCORDINGLY SUCH INCOME IS NOT LIA BLE TO BE COMPUTED UNDER CHAPTER IV. THEREFORE, THE CORRECT VIEW WOULD BE THAT THE RELIEF UNDER SECTION 10A WILL HAVE TO BE GIVEN BEFORE CHAP TER IV. THE DEDUCTION SHALL BE GIVEN FIRST AND PROCESS OF COMPUTATION OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' BEGINS THEREAFTER. THIS PRO POSITION IS IN LINE WITH THE FORM OF RETURN. ALLOWING DEDUCTION AT THE EARLI EST STAGE OF BUSINESS INCOME COMPUTATION ALMOST BLURS THE DIFFERENCE BETW EEN THE COMMERCIAL PROFITS AND TAX PROFITS. 16. THE SUBSTITUTED SECTION 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS 'INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME'. IT MAY BE NOTED THAT WHEN SECTION 10A WAS RECAST BY THE FINANCE ACT , 2001, PARLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIVEN IN CHAPT ER III. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME . IF PARLIAMENT INTENDED THAT THE RELIEF UNDER SECTION 10A SHOULD B E BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTATION OF TOTAL INCOME , IT COULD HAVE PLACED THE SAME IN CHAPTER VI-A WHICH HOUSES THE SECTIONS LIKE 80HHC, 80-IA, ETC. PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTIN G AND LIMITING PROVISIONS ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 11 LIKE SECTION 80A AND SECTION 80AB WHICH WAS IN CHAP TER VIA WHICH DO NOT APPEAR IN CHAPTER III. THE FACT THAT EVEN AFTER ITS RECAST, THE RELIEF HAS BEEN RETAINED IN CHAPTER III INDICATES THAT THE INTENTIO N OF PARLIAMENT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. THE A CT OF PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III I NDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FORMING PART OF THE TOTAL INCOME ON WHI CH NO INCOME-TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED F ROM CHARGE, BUT ARE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. PARLI AMENT, DESPITE BEING CON- VERSANT WITH THE IMPLICATIONS OF THIS CHAPTER, HAS CONSCIOUSLY CHOSEN TO RETAIN SECTION 10A IN CHAPTER III. 17. IF SECTION 10A IS TO BE GIVEN EFFECT TO AS A DE DUCTION FROM THE TOTAL INCOME AS DEFINED IN SECTION 2(45), IT WOULD MEAN T HAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDER CHAPTER VI-A ARE TO BE GIVEN FROM OUT OF THE GROSS TOTAL INCOME. THE TERM 'GROSS TOTAL INCOME' IS DEFINED IN SECTION 80B(5) TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PR OVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCOME, THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST GIVEN EFFECT TO. THERE IS NO REASON WHY REFERENCE TO THE PROVISIONS OF THE ACT SHOULD NOT INCLUDE SECTION 10A. IN OTHER WORDS, THE GROSS TOTAL INCOME WOULD BE ARRIVED AT AFTER CONSIDERING SECTION 10A D EDUCTION ALSO. THERE- FORE, IT WOULD BE INAPPROPRIATE TO CONCLUDE THAT SE CTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VI-A DEDUCTIONS AR E EXHAUSTED. 18. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A TH AT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHAPTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED AT. TOTA L INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EFFECT TO ALL DEDUCTIONS UN DER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS T HE TOTAL INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF THE SECTION 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOME OF THE SECTION10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOTAL INCO ME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, THE INCOME ELIGIBLE FOR EXEMPTION UNDER SECT ION 10A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCT ED AT SOURCE LEVEL. 2 ND SUBSTANTIAL QUESTION OF LAW 20. PRIOR TO THE INTRODUCTION OF SUB-SECTION (6) OF SECTIONS 10A AND 10B OF THE FINANCE ACT, 2000, WHICH CAME INTO EFFECT FROM APRIL 1, 2001, 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 ASSESSMENT YEAR. SUB-SECTION (2) OF SECTION 32, CLA USE (II) OF SUB-SECTION (3) ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 12 OF SECTION 32A. CLAUSE (II) OF SUBSECTION (2) OF S ECTION 33 AND SUB-SECTION (4) OF SECTION 35 OF THE ACT OR THE SECOND PROVISO TO CLAUSE (IX) OF SUB- SECTION (1) OF SECTION 36 SHALL NOT BE APPLICABLE I N RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION. SIMILARLY, NO LOSS AS REFER RED TO IN SUB-SECTION (1) OR IN SECTION 72 OR SUB-SECTION (1) OR SUBSECTION ( 3) OF SECTION 74 IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTA KING WAS PERMITTED TO BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS. 21. IT IS IN THIS BACKGROUND THE FINANCE ACT, 2003, WAS INTRODUCED BY INSERTING THE WORDS 'THE YEAR ENDING UP TO THE FIRS T DAY OF APRIL, 2001, FOR THAT IN CLAUSES (I) AND (II) OF SUB A-SECTION (6) R ESTRICTING THE DISALLOWANCE ONLY UP TO THE FIRST DAY OF APRIL, 2001, AND GRANTI NG THE BENEFIT, OF THOSE PROVISIONS EVEN IN RESPECT OF UNITS TO WHICH SECTIO NS 10A AND 10B IS APPLICABLE. THE FINANCE ACT, 2003, AMENDED THIS SUB SECTION WITH RETROSPECTIVE EFFECT FROM APRIL 1, 2001, BY LIFTING THE EMBARGO IN THE AFORESAID CLAUSES IN RESPECT OF DEPRECIATION AND BU SINESS LOSS RELATING TO THE ASSESSMENT YEAR 2001-02 ONWARDS. THE AMENDMENT INDICATES THE LEGISLATIVE INTENTION OF PROVIDING THE BENEFIT OF C ARRY FORWARD OF DEPRECIATION AND BUSINESS LOSS RELATING TO ANY YEAR OF THE TAX H OLIDAY PERIOD TO BE SET OFF AGAINST INCOME OF ANY YEAR POST-TAX HOLIDAY. THIS I S SUPPORTED BY CIRCULAR NO. 7 OF 2003 WHEREIN THE BOARD HAS STATED THAT THE PURPOSE OF AMENDMENT IS TO ENTITLE AN ASSESSEE TO THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED DURING THE TAX HOLID AY PERIOD. THE CIRCULAR DATED SEPTEMBER 5, 2003, READS AS UNDER ([2003] 263 ITR (ST.) 62, 77) : '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMIC ZONES AND 100 PER CENT 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 PER CENT EXPORT ORIENTED UNITS (EOU'S) (UNDER SECTION 10B) ARE NOT PERMITTED TO CARRY FORWARD THEIR BUSIN ESS LOSSES AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX IN CENTIVES IN RESPECT OF SUCH UNITS SUB A-SECTION (6) IN SECTIONS 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS ON THE CAR RY FORWARD, OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.3 THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT R ETROSPECTIVELY FROM APRIL 1, 2001, AND HAVE BEEN MADE APPLICABLE T O BUSINESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE AS SESSMENT YEAR 2001-02 AND SUBSEQUENT YEARS.' 22. IT IS INTERESTING TO NOTE THAT SUCH RELAXATION HAS NOT BEEN MADE IN SECTION 10C WHICH PROVIDES FOR EXEMPTION IN RESPECT OF PROFITS OF CERTAIN UNDER-TAKINGS IN NORTH EASTERN REGION. THIS MAKES C LEAR THE LEGISLATIVE INTENTION OF PROVIDING RELAXATION WHEREVER IT DEEMS FIT AND IN THE PRESENT ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 13 CASE, SUCH RELAXATION HAS BEEN MADE IN SECTION 10A BUT NOT IN SECTION 10C. 23. IT IS TO BE NOTED THAT THE AFORESAID AMENDMENT READ WITH THE BOARD CIRCULAR DOES NOT MILITATE AGAINST THE PROPOSITION THAT THE BENEFIT OF RELIEF UNDER THIS SECTION IS IN THE NATURE OF EXEMPTION WI TH REFERENCE TO THE COMMERCIAL PROFITS. HOWEVER, IN ORDER TO GIVE EFFEC T TO THE LEGISLATIVE INTENTION OF ALLOWING THE CARRY FORWARD OF DEPRECIA TION AND LOSS SUFFERED IN RESPECT OF ANY YEAR DURING THE TAX HOLIDAY FOR BEIN G SET OFF AGAINST INCOME POST-TAX HOLIDAY, IT IS NECESSARY THAT THE NOTIONAL COMPUTATION OF BUSINESS INCOME AND THE DEPRECIATION AS PER THE PROVISIONS O F THE ACT SHOULD BE MADE FOR EACH YEAR OF THE TAX HOLIDAY PERIOD. WHILE SO COMPUTING, ATTENTION WILL HAVE TO BE GIVEN TO THE PROVISIONS OF SECTIONS 70, 71, 72 AND SECTION 32(2). THE AMOUNT OF DEPRECIATION AND BUSINESS LOSS REMAINING UNABSORBED AT THE END OF THE TAX HOLIDAY PERIOD SHO ULD BE DETERMINED SO THAT THE SAME MAY BE SET OFF AGAINST THE INCOME POS T-TAX HOLIDAY PERIOD. 24.CHAPTER VI DEALS WITH THE AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS. SECTION 72(1) DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSS WHICH READS AS UNDER : '72.(1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESU LT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS AS HA S NOT BEEN SO SET OFF OR, WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD , THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAP TER, BE CARRIED FORWARD, TO THE FOLLOWING ASSESSMENT YEAR, AND- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR ; (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND SO ON : PROVIDED THAT WHERE THE WHOLE OR ANY PART OF SUCH L OSS IS SUSTAINED IN ANY SUCH BUSINESS AS IS REFERRED TO IN SECTION 3 3B WHICH IS DISCONTINUED IN THE CIRCUMSTANCES SPECIFIED IN THAT SECTION, AND, THEREAFTER, AT ANY TIME BEFORE THE EXPIRY OF THE PE RIOD OF THREE YEARS REFERRED TO IN THAT SECTION, SUCH BUSINESS IS RE-ES TABLISHED, RECONSTRUCTED OR REVIVED BY THE ASSESSEE, SO MUCH O F THE LOSS AS IS ATTRIBUTABLE TO SUCH BUSINESS SHALL BE CARRIED FORW ARD TO THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE BUSINESS IS SO RE-ESTABLISHED, RECONSTRUCTED OR REVIVED, AND - ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 14 (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF THAT BUSINESS OR ANY OTHER BUSINESS CARRIED ON BY HIM AN D ASSESSABLE FOR THAT ASSESSMENT YEAR ; AND (B) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AM OUNT OF LOSS NOT SO SET OFF SHALL, IN CASE THE BUSINESS SO RE-ESTABLISH ED, RECONSTRUCTED OR REVIVED CONTINUES TO BE CARRIED ON BY THE ASSESS EE, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON FOR SEVEN ASSESSMENT YEARS IMMEDIATELY SUCCEEDING.' 25. IN FACT, THE BOMBAY HIGH COURT IN THE CASE OF H INDUSTAN UNILEVER LTD. V. DEPUTY CIT [2010] 325 ITR 102 (BOM) INTERPRETING SECTION 10B AS AMENDED HELD AS UNDER : ' . . . 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, 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 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 ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS O F THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT C OULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUM STANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPE NED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B.' THE AFORESAID PRINCIPLE EQUALLY APPLIES TO A CASE F ALLING UNDER SECTION 10A OF THE ACT. 26. THE MADRAS HIGH COURT IN THE CASE MADRAS MACHIN E TOOL MANUFACTURERS LTD. V. CIT REPORTED IN [1975] 98 ITR 119 (MAD) HAS EXPLAINED THE DIFFERENCE BETWEEN A COMPANY AND AN U NDERTAKING WHICH IS OWNED OR RUN BY SUCH COMPANY. IT WAS HELD AS UNDER (PAGE 127) : ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 15 'A COMPANY MAY OWN OR RUN MANY UNDERTAKINGS, SOME O F WHICH MAY BE ENTITLED TO THE BENEFIT OF SECTION 84 AND OT HERS MAY NOT BE SO ENTITLED. IT IS NOT, THEREFORE, POSSIBLE TO EQUA TE THE UNDERTAKING WITH THE COMPANY. WHEN A COMPANY OWNS MORE THAN ONE UNDERTAKING THE APPLICATION OF SECTION 84 HAS TO BE WITH RESPECT TO THE PARTICULAR UNDERTAKING AND NOT TO THE COMPANY I N GENERAL. WHEN WE APPLY SECTION 84 TO A PARTICULAR UNDERTAKIN G IT HAS TO BE SEEN WHEN THAT UNDERTAKING COMMENCED THE MANUFACTUR E OR PRODUCTION OF ARTICLES. IT IS TRUE THAT THE WORD 'U NDERTAKING' HAS NOT BEEN DEFINED UNDER THE INCOME-TAX ACT. BUT IN COMMO N PARLANCE IT IS TAKEN AS A CONCERN STARTED OR FORMED FOR A SPECI FIC PURPOSE OR A PROJECT ENGAGED IN. IN THIS CASE THOUGH THE OBJECTS OF THE COMPANY AS SET OUT IN ITS ARTICLES OF ASSOCIATION COVER A V ARIETY OF OBJECTS, THE OBJECT OF THE UNDERTAKING IS ONLY TO MANUFACTURE LA THES AND BENCH GRINDERS AS IS CLEAR FROM THE LICENCE ISSUED TO THE COMPANY UNDER THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 19 51.' 27. FORM NO. 1 READ WITH RULE 12 OF THE INCOME-TAX RULES, 1962, PROVIDES FOR RETURN OF INCOME AND RETURN OF FRINGE BENEFITS. 28.IN SCHEDULE 9 AT COLUMN NO. 7 IT IS CLEARLY MENT IONED THE AMOUNT CLAIMED/DEDUCTIBLE UNDER SECTION 10A/10AA/10B OR 10 BA. DEALING WITH THE SCHEME OF THE FORM IT IS STATED THAT THE SCHEME OF THIS FORM FOLLOWS THE SCHEME OF THE LAW AS OUTLINED ABOVE IN ITS BASIC FO RM AND WITH REFERENCE TO SCHEDULES 1, 9, 3 AND 13 IT IS STATED THAT 'FILL OU T SCHEDULE 9 IF YOU ARE CLAIMING DEDUCTION UNDER SECTION 10A, 10AA, 10B OR 10BA IN RESPECT OF SOME SPECIFIC BUSINESS'. ITEM 7 OF SCHEDULE 1 IS TO ELIMINATE SUCH INCOME FROM COMPUTATION OF PROFITS AND LOSS AND NO SEPARAT E DECLARATION UNDER SECTION 10A(8) OR 10B(8) IF ANY IS REQUIRED TO BE M ADE. 29.AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARRY FORWARD OF LOSS AS PROVIDED UNDER SECTION 72 OF THE ACT. THAT IS THE BENEFIT WHICH IS GIVEN TO T HE ASSESSEE UNDER THE ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS UNDER SEC TION 10B OF THE ACT. THE EXPRESSION 'DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY AN UNDER- TAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF TH E ASSESSEE', HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVI SION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS T O THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE T HAN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT IS THE PROFIT DER IVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAKING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND SUCH PR OFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAID PROFITS AND GAINS, THE INCOME OF THE AS SESSEE HAS TO BE COMPUTED. ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 16 30.THE PROVISIONS OF THIS SUB-SECTION WILL APPLY EV EN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB- SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESSEE H AS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOULD APPLY. THE PROFI TS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CH APTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE HAS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE, I F ANY, THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS O F THE SUBSEQUENT ASSESSMENT YEARS IN THE NORMAL COURSE. UNABSORBED D EPRECIATION ALSO MERITS A SIMILAR TREATMENT. 31.AS THE INCOME OF THE SECTION10A UNIT HAS TO BE E XCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE LOSS OF THE NON-SECTION 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF THE SE CTION 10A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIE D ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 1 0A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAIN ST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY , AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEAR'S DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10A HAS TO B E EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSO RBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVI SIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUS TIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SECTION 10A TO THE ASSESSEE HENCE, THE MAIN SUBSTANTIAL QUESTION OF LA W IS ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. 9. SINCE THE PROVISIONS OF SECTION 10A AND 10B ARE SIMI LAR IN NATURE AND AS THE JURISDICTIONAL HIGH COURT DECIDED THE ISSUE WHILE CONSIDERING THE PROVISIONS OF SECTION 10B ALSO RESPECTFULLY FOLLOWING THE ABOVE, WE UPHOLD THE CONTENTION OF ASSESSEE THAT CARRY FORWARD BUSINES S LOSSES AND DEPRECIATION CANNOT BE SET OFF TO THE PROFITS OF TH E UNDERTAKING WHILE WORKING THE CLAIM U/S 10B. THEREFORE, AO IS DIRECTED TO DO THE NEEDFUL IN LIGHT OF THE ABOVE PRINCIPLES LAID DOWN. GROUND NO.1 IS A CCORDINGLY ALLOWED. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT V. BLACK & VEACH CONSULTING PVT. LTD. (ITA NO. 1237 OF 2011) (2012) 20 TAXMANN.COM ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 17 727(BOM.) AS WELL AS THE DECISION OF HONBLE KARNAT AKA HIGH COURT IN THE CASE OF ACIT V. M/S YOKOGAWA INDIA LTD.((2012) 21 TAXMAN N.COM 154(KAR.) WHEREIN RELIEF TO THE ASSESSEE WAS ALLOWED. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYMERS PRIVATE LIMITED IN ITA NO.2134 OF 201 3 (2015) 97 CCH 0048 (BOM. HC) HAS DULY CONSIDERED THE DECISION OF HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. HIMATASINGIKE SEIDE LTD. (200 6) 156 TAXMAN 1512 (KAR.) WHICH WAS UPHELD BY HONBLE APEX COURT VIDE ORDERS DATED 19-09-2013, THE HONBLE APEX COURT HAS LEFT THE DECISION OF THE HON BLE KARNATAKA HIGH COURT UNDISTURBED IN CIVIL APPEAL NO 1501 OF 2008, BY HOL DING AS UNDER: WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES TO T HE LIS. 2. HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. ORDERED ACCORDINGLY THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYME RS PRIVATE LIMITED IN ITA NO.2134 OF 2013 (2015) 97 CCH 0048 (BOM. HC) WHERE IN HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: 5. WE FIND THAT THE DECISION OF THE KARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT WAS IN RESPECT OF ASSESSMENT YEAR 1994-95. TH US IT DEALT WITH THE PROVISIONS OF SECTION 10B OF THE ACT AS EXISTING PR IOR TO 1 APRIL 2001 WHICH WAS ADMITTEDLY DIFFERENT FROM SECTION 10B AS IN FORCE DURING ASSESSMENT YEAR 200910 INVOLVED IN THIS APPEAL. SEC TION 10B OF THE ACT AS EXISTING PRIOR TO 1 APRIL 2001 PROVIDED FOR AN E XEMPTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM EXPORT BY 100% EXPOR T ORIENTED UNDERTAKINGS AND NOW IT PROVIDES FOR DEDUCTION OF P ROFITS AND GAINS DERIVED FROM A 100% EXPORTED ORIENTED UNITS.. ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 18 6. IN ANY VIEW OF THE MATTER, THE DECISION OF THE K ARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT DEALT WITH THE PROVISION OF LAW DIFFERENT FRO M THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. A DECISION HAS TO BE CO NSIDERED IN THE CONTEXT OF THE LAW AS ARISING FOR CONSIDERATION AND A CHANGE IN LAW WOULD RENDER THE DECISION UNDER THE OLD LAW INAPPLICABLE WHILE CONSIDERING THE AMENDED LAW. 7. THE ISSUE AS RAISED STANDS CONCLUDED BY THE DECI SION OF THIS COURT IN BLACK & VEATCH CONSULTING(P) LTD. (SUPRA) AND GANESH POLYCHEM LTD. VS. ITO AGAINST THE REVENUE. THEREFORE, THE QUESTION OF L AW AS PROPOSED FOR OUR CONSIDERATION DOES NOT GIVE RISE T O ANY SUBSTANTIAL QUESTION OF LAW. 8. ACCORDINGLY, THE APPEAL IS DISMISSED. NO ORDER A S TO COSTS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL INCLUDING CASE LAWS CITED BY BOTH THE PARTIES. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF INJECTION BLOW MOLDING M ACHINES. IT IS AN UNDISPUTED AND ADMITTED POSITION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10B OF THE ACT. WE HAVE OBSERVED THAT THE ASSE SSEE HAS CLAIMED DEDUCTION U/S 10B OF THE ACT UNDER THE AMENDED PROV ISIONS OF THE ACT WHICH WERE AMENDED BY FINANCE ACT,2000 W.E.F. 01-04-2001 WHEREIN THE ASSESSEE HAS NOT SET OFF BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT FROM CURRENT YEARS PROFIT OF THE ELIGIBLE UNIT BEFORE COMPUTING DEDUCTION U/S 10B OF THE ACT. THE A.O. H AS DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING THAT BROUGHT FORWAR D BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT IS TO BE SET OFF FROM CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT BEFORE COMPUTING DEDUC TION U/S 10B OF THE ACT , WHILE THE LD. CIT(A) HAS HELD AGAINST THE ASSESSEE BY HOLDING THAT UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT HAS TO BE SET OFF AS PER THE PROVISIONS OF SECTION 32(2) OF THE ACT AS THE SAME BECOMES CURREN T YEARS DEPRECIATION WHILE COMPUTING PROFITS FROM BUSINESS OR PROFESSION FOR THE PURPOSE OF WORKING OUT ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 19 DEDUCTION U/S 10B OF THE ACT. WE FIND THAT THE ASS ESSEE HAS NOT COME IN APPEAL WITH RESPECT TO THE LD. CIT(A) HOLDING AGAIN ST THE ASSESSEE WHEREIN THE ASSESSMENT ORDER OF THE AO WAS CONFIRMED WITH RESPE CT TO ADJUSTMENTS OF THE BROUGHT FORWARD DEPRECIATION OF THE ELIGIBLE UNIT A GAINST CURRENT YEAR PROFITS OF THE ELIGIBLE UNIT WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT , AS THE LEARNED CIT(A) HAS HELD THAT BROUGHT FORWARD DEPREC IATION OF THE ELIGIBLE UNIT HAS TO BE SET OFF AS PER PROVISIONS OF SECTION 32(2 ) OF THE ACT AS THE SAME BECOMES CURRENT YEARS DEPRECIATION WHILE COMPUTING THE PROFITS FROM BUSINESS OF PROFESSION FOR THE PURPOSES OF WORKING OUT DEDUCTIONS U/S. 10B OF THE ACT. WE HAVE OBSERVED THAT THE SAME ISSUES AR OSE IN ASSESSMENT YEARS 2005-06 TO 2007-08 WHEREBY THE TRIBUNAL IN ITA NO. 7040 TO 7042/MUM/2011 AND ITA NO. 245/MUM/2011 DATED 29 TH JUNE, 2012 IN ASSESSEES OWN CASE HAS ALLOWED THE APPEAL OF THE A SSESSEE , WHEREBY THE TRIBUNAL HAS HELD AS UNDER:- 4. GROUND NO.1 IS WITH REFERENCE TO THE CLAIM OF EXEMP TION UNDER SECTION 10B. IT AS THE CONTENTION THAT IT WAS AN EXEMPTION PRO VISION AND BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION WER E TO BE GIVEN SET OFF AFTER ALLOWING CLAIM U/S 10B. 5. THIS ISSUE IS TO BE DECIDED IN FAVOUR OF ASSESSEE A ND AGAINST THE REVENUE, IN VIEW OF THE JUDGMENT OF THE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT V. BLACK & VEACH CONSULTING PVT. LTD (ITA NO.1237 OF 2011) AS WELL AS THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COU RT IN THE GROUP OF CASES ACIT VS. M/S YOKOGAWA INDIA LTD AND OTHERS VID E ORDER DATED 9 TH AUGUST, 2011. 6. THE HON'BLE HIGH COURT OF BOMBAY IN ITA NO.1237 OF 2011 DATED 9 TH APRIL, 2012 CONSIDERED THE FOLLOWING QUESTION: (A) WHETHER ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND LAW, THE ITAT WAS CORRECT IN HOLDING THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION AND LOSSES OF THE UNIT, THE INCOME WHICH IS NOT ELIGIBLE FOR DEDUCTION UNDER 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 I.T. ACT. 7. THE HON'BLE HIGH COURT HELD AS UNDER: ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 20 2. THE ASSESSING OFFICER, DURING THE COURSE OF THE O RDER OF ASSESSMENT UNDER SECTION 143(3) OBSERVED AS FOLLOWS: UNDER THE SCHEME OF THE ACT, THE PROFITS OF THE UN IT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT, WOULD FORM PAR T OF THE INCOME COMPUTED UNDER THE HEAD `PROFITS AND GAINS OF B USINESS AND PROFESSION. HOWEVER, IN ORDER THE SAME DOES NOT S UFFER TAX, DEDUCTION WILL HAVE TO BE MADE IN RESPECT THEREOF WHILE C OMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINES S AND PROFESSION. IN OTHER WORDS, THE DEDUCTION IN RESPE CT OF THE PROFITS ELIGIBLE UNDER SECTION 10A OF THE ACT IS REQUIRED TO BE MADE AT THE STAGE OF COMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. NONETHELESS, WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE THE ASSESSING OFFICER TOOK THE NET PROFIT AS PER THE PROF IT AND LOSS ACCOUNT AND AFTER, INTER ALIA, MAKING CERTAIN DISALLOW ANCES AND ALLOWANCES, ARRIVED AT THE TOTAL BUSINESS INCOME AT RS.8 6.07 LAKHS. A SET OFF WAS EFFECTED OF THE BROUGHT FORWARD BUSINE SS LOSS OF AY 2003-04 AND AY 2004-05 UPON WHICH THE ASSESSING OFFICE R CAME TO THE CONCLUSION THAT THERE WAS NIL INCOME WHICH WOULD QUALI FY FOR DEDUCTION UNDER SECTION 10A. THE CIT (A) HELD THAT THE A SSESSING OFFICER WAS JUSTIFIED IN ADJUSTING THE BROUGHT FORWAR D LOSSES OF EARLIER YEARS BEFORE ARRIVING AT THE GROSS TOTAL INCOME, FOR ALLOWING A DEDUCTION UNDER SECTION 10B. IN APPEAL, THE TRIBUNAL HA S RELIED UPON A DECISION OF ITS SPECIAL BENCH IN THE CASE OF SCIEN TIFIC ATLANTA VS. ACIT 129 TTJ 273 IN WHICH IT HAS BEEN EMPHASIZE D THAT THE PROVISION CONTAINED IN SECTION 10A IS NOT AN EXEMPTION BUT A DEDUCTION UNDER 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 BEF ORE SETTING OFF BROUGHT 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 EMPHASIZED IN A JUDGME NT OF A DIVISION BENCH OF THIS COURT WHILE CONSTRUING THE PROVISI ONS OF SECTION 10B IN HINDUSTAN UNILEVER LTD VS. DEPUTY COMMI SSIONER OF INCOME TAX 2. (2010) 325 ITR 102 AT PARA 24. THE SUB MISSION OF THE REVENUE PLACED ITS RELIANCE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS AR E DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS IS TO BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE DED UCTION 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 ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 21 APPLICATION OF THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINC TION HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING THE PROVISION S OF CHAPTER VI-A. SECTION 80A(1) STIPULATES THAT IN COMPUT ING THE TOTAL INCOME OF AN ASSESSEE, THERE SHALL BE ALLOWED FROM HIS G ROSS TOTAL INCOME, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISION S OF THE CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C TO 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHAPTER VI-A GRO SS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT, BEFORE MAKING ANY DEDUCTION UN DER THE CHAPTER. 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 PERMI SSIBLE UNLESS A SPECIFIC STATUTORY PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE ABSENCE 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 SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PR OFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CON STRUED, THE APPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBS TANTIAL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISSED. TH ERE SHALL BE NO ORDER AS TO COSTS. 8. ON SIMILAR QUESTION, THE HON'BLE KARNATAKA HIGH COU RT IN THE BATCH OF CASES OF ACIT VS. M/S YOKOGAWA INDIA LTD AND OTHERS VIDE ORDER DATED 9 TH AUGUST, 2011 EXAMINED THIS ISSUE ELABORATELY AND DECIDE D AS UNDER: 1 ST SUBSTANTIAL QUESTION OF LAW 9. THE BENEFIT OF TAX HOLIDAY WAS ORIGINALLY ENACTE D AS AN ABSOLUTE EXEMPTION UNDER CHAPTER III OF THE INCOME-TAX ACT, 1961. IT REMAINED AS EXEMPTION FOR ALMOST TWO DECADES. THE HEADING OF C HAPTER III UNDER WHICH THE RELEVANT PROVISIONS WERE PLACED IS TITLED AS 'I NCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME'. THE SECOND HEADING READ AS 'SPECIAL CONDITIONS IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAK INGS IN FREE TRADE ZONES'. SECTION 10 BEGINS AS 'IN COMPUTING THE TOTA L INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY O F THE FOLLOWING CLAUSES SHALL NOT HE INCLUDED', WHEREAS SECTION 10A AS ORIG INALLY ENACTED PROVIDED THAT THE PROFITS AND GAINS OF THE ELIGIBLE UNDERTAK ING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE FINANCE AC T, 2000, RECAST SECTION 10A. IT CAME INTO EFFECT FROM APRIL 1, 2001. THE SE COND HEADING CONTINUES WITH A MARGINAL CHANGE BY WAY OF ADDITION OF THE WO RD 'ETC.' TO READ AS 'SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN A FREE TRADE ZONE, ETC'. THE NEW SECTION PROVIDES FOR DEDU CTION OF PROFITS AND GAINS OF ELIGIBLE UNDERTAKING FROM THE TOTAL INCOME OF THE ASSESSEE. 10. SECTION 10B WHICH IS ALSO SUBSTITUTED BY THE FI NANCE ACT,2000, AND WHICH CAME INTO EFFECT FROM APRIL 1, 2001, DEALS WI TH THE SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED 100 PER CENT EXPORT ORIENTED UNDERTAKINGS. ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 22 11. SECTION 10A READS AS UNDER: '10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLI SHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.-(1) SUBJECT TO THE PROVISIONS OF T HIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTA KING 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 UNDER-TAKING BEGINS TO M ANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS TH E CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION, AS I T STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDE RTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY F OR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTL Y LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE P ERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SH ALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR TH INGS OR COMPUTER SOFTWARE IN SUCH FREE RADE ZONE OR EXPORT PROCESSIN G ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SUB-SECTION S HALL BE NINETY PER CENT OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON TH E 1ST DAY OF APRIL, 2012, AND SUBSEQUENT YEARS. . . . (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE S HALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDER-TAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. . . (6) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE OF TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE L AST OF THE RELEVANT ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR,- ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 23 (I) SECTION 32, SECTION 32A, SECTION 33, SECTION 35 AND CLAUSE (IX) OF SUB- SECTION (1) OF SECTION 36 SHALL APPLY AS IF EVERY A LLOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELATING TO OR ALLOWABLE FO R ANY OF THE RELEVANT ASSESSMENT YEAR (ENDING BEFORE THE 1ST DAY OF APRIL , 2001), IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FO R THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RE LEVANT TO SUCH ASSESSMENT YEAR OR ANY EXPENDITURE INCURRED FOR THE PURPOSES OF SUCH BUSINESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THAT ASSESSMENT YEAR ITSELF AND ACCORDINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE (II) OF SUBSECTION (3) OF SECTION 32A, CLAUSE (II) OF SUB-SECTION (2) OF SECTION 33, SUB-SECTION (4) OF SECTION 35 OR THE SECOND PRO VISO TO CLAUSE (IX) OF SUB A-SECTION (1) OF SECTION 36, AS THE CASE MAY BE, SH ALL NOT APPLY IN RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION ; (II) NO LOSS REFERRED TO IN SUB-SECTION (1) OF SECT ION 72 OR SUBSECTION (1) OR SUB-SECTION (3) OF SECTION 74, IN SO FAR AS SUCH LO SS RELATES TO THE BUSINESS OF THE UNDERTAKING, SHALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS END ING BEFORE THE 1ST DAY OF APRIL, 2001 ; (III) NO DEDUCTION SHALL BE ALLOWED UNDER SECTION 8 0HH OR SECTION 80HHA OR SECTION 80-I OR SECTION 80-IA OR SECTION 80-IB IN R ELATION TO THE PROFITS AND GAINS OF THE UNDERTAKING ; AND (IV) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF TH E BUSINESS OF THE UNDERTAKING SHALL BE COMPUTED AS IF THE ASSESSEE HA D CLAIMED AND BEEN ACTUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPREC IATION FOR EACH OF THE RELEVANT ASSESSMENT YEAR . . . EXPLANATION 2.-. . . (II) 'CONVERTIBLE FOREIGN EXCHANGE' MEANS FOREIGN E XCHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPOSES OF THE FOREIGN EXCHANGE R EGULATION ACT, 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDING LAW FOR THE TIME BEING IN FORCE ; (III) 'ELECTRONIC HARDWARE TECHNOLOGY PARK' MEANS A NY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHNOLOGY PARK (EHTP) SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY ;' 12. A LITERAL READING OF THE ABOVE PROVISION REQUIR ES DEDUCTION FROM THE TOTAL INCOME. THERE CAN BE A DEDUCTION IN COMPUTING THE TOTAL INCOME. HOW-EVER, THERE CANNOT BE DEDUCTION FROM THE TOTAL INCOME WHICH IS THE FINAL RESULT OF THE COMPUTATION PROCESS. THE LANGUA GE ADOPTED IN SECTION 10A IS DIFFERENT FROM THE ONE ADOPTED IN SECTION 80 A. SECTION 10A PROVIDES FOR DEDUCTION FROM THE TOTAL INCOME. IN THE SCHEME OF THE ACT, WHILE VARIOUS DEDUCTIONS ARE ALLOWED IN COMPUTING THE TOTAL INCOM E, ONCE THE TOTAL INCOME IS COMPUTED, NO FURTHER ADJUSTMENT TO THE TO TAL INCOME IS ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 24 ENVISAGED. THE SCHEME OF THE ACT PROVIDES FOR DEDUC TION IN COMPUTING THE TOTAL INCOME BUT NO MECHANISM FOR ANY DEDUCTION FRO M THE TOTAL INCOME ALREADY COMPUTED IS PROVIDED UNDER THE ACT. ONCE TH E TOTAL INCOME IS COMPUTED, THE NEXT STEP IS DETERMINATION OF TAX BY APPLYING THE APPLICABLE RATES ON THE TOTAL INCOME. 13. SECTION 2(45) DEFINES 'TOTAL INCOME' TO MEAN TH E TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 AND COMPUTED IN THE MANNER LAID DOWN IN THE INCOME-TAX ACT. SECTION 5 DEFINES THE SCOPE OF TOTAL INCOME AND IT IS SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. SE CTION 14 PROVIDES THAT 'SAVE AS OTHERWISE PROVIDED BY THE INCOME-TAX ACT, ALL INCOME SHALL, FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME, BE CLASSIFIED UNDER THE FOLLOWING HEADS OF INCOME'. TH EREFORE, THE TOTAL INCOME IN ITS STRICT SENSE REQUIRES COMPUTATION FOR THE PU RPOSE OF LEVY OF TAX. THE COMPUTATION OF TOTAL INCOME BEGINS ONLY WITH CHAPTE R IV AND AS SECTION 10A IS COVERED IN CHAPTER III, THE PHRASE 'TOTAL IN COME' USED IN SECTION 10A CANNOT BE UNDERSTOOD IN THE SAME SENSE AS IN SECTIO N 2(45). 14. THE PHRASE 'TOTAL INCOME' HAS BEEN USED IN THE INCOME-TAX ACT IN SEVERAL PLACES WITH DIFFERENT CONNOTATIONS AND SHA DES. THE PHRASE 'TOTAL INCOME' USED IN SECTION 10A IS ONE SUCH VARIANT. TH E PHRASE NEED NOT NECESSARILY MEAN THE TOTAL INCOME AS COMPUTED IN AC CORDANCE WITH THE PROVISIONS OF THE ACT. THE RELIEF UNDER THIS SECTIO N IS WITH REFERENCE TO THE STP UNDERTAKINGS AND NOT TO THE ASSESSEE. IN OTHER WORDS, THE RELIEF TRAVELS WITH THE UNDERTAKING IRRESPECTIVE OF WHO OWNS THE S AME. THE COMPUTATION OF RELIEF AS PROVIDED IN SECTION 10A(4) IS ALSO WIT H REFERENCE TO THE UNDER- TAKING. A BUSINESS MIGHT HAVE SEVERAL UNDERTAKINGS AND SECTION 28 DOES NOT ENVISAGE COMPUTATION OF INCOME OF EACH SUCH UND ERTAKING. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UNDERTAKI NG CANNOT BE COMPUTED IN ISOLATION. THE PROFITS ARE COMPUTED UNDER THE HE AD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', AS UNDER THE ABOVE HEAD, T HE INCOME FROM BUSINESS AS A WHOLE HAS TO BE COMPUTED. THE PHRASE 'TOTAL INCOME' USED IN SECTION 10A(1) IS, THEREFORE, TO BE UNDERSTOOD AS T HE TOTAL INCOME OF THE STP UNIT. THIS IS CLEAR FROM THE FIRST PROVISO TO SECTI ON 10A(1) WHICH MAKES A REFERENCE TO THE TOTAL INCOME OF THE UNDERTAKING AN D NOT TO THE TOTAL INCOME OF THE ASSESSEE. THE DEFINITION OF ANY TERM GIVEN I N SECTION 2 WILL APPLY ONLY WHEN THE CONTEXT DOES NOT OTHERWISE REQUIRE. THE PL ACEMENT, LANGUAGE AND SETTING OF SECTION 10A CANNOT MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. INSTEAD, SUCH A PHRASE IN THE CONTEXT OF SECTION 10A, MEANS PROFITS AND GAINS OF THE STP UNDER-TAKING AS UNDERSTOOD IN ITS COMMERCIAL SENSE. 15. CHAPTER IV DEALS WITH THE COMPUTATION OF TOTAL INCOME UNDER VARIOUS HEADS OF INCOME. SECTION 14 PROVIDES FOR CLASSIFICA TION OF INCOME UNDER VARIOUS HEADS OF INCOME FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME. THE PURPOSE OF CLASSIF ICATION OF ANY INCOME UNDER ANY HEAD OF INCOME IS TO COMPUTE THE SAME. TH E TWIN CONDITIONS OF SECTION 14 ARE THAT INCOME IS SUBJECT TO CHARGE OF INCOME-TAX AND IS INCLUDIBLE IN THE TOTAL INCOME. AS THE RELIEF UNDER SECTION 10A IS IN THE NATURE OF EXEMPTION ALTHOUGH TERMED AS DEDUCTION AN D THE SAID RELIEF IS IN RESPECT OF COMMERCIAL PROFITS, SUCH INCOME IS NEITH ER SUBJECT TO CHARGE OF ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 25 INCOME-TAX NOR INCLUDIBLE IN THE TOTAL INCOME. THER EFORE, THE TWIN PROVISIONS OF SECTION 14 ARE NOT EXISTING IN THE CA SE OF INCOME OF STP UNDER-TAKING AND ACCORDINGLY SUCH INCOME IS NOT LIA BLE TO BE COMPUTED UNDER CHAPTER IV. THEREFORE, THE CORRECT VIEW WOULD BE THAT THE RELIEF UNDER SECTION 10A WILL HAVE TO BE GIVEN BEFORE CHAP TER IV. THE DEDUCTION SHALL BE GIVEN FIRST AND PROCESS OF COMPUTATION OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' BEGINS THEREAFTER. THIS PRO POSITION IS IN LINE WITH THE FORM OF RETURN. ALLOWING DEDUCTION AT THE EARLI EST STAGE OF BUSINESS INCOME COMPUTATION ALMOST BLURS THE DIFFERENCE BETW EEN THE COMMERCIAL PROFITS AND TAX PROFITS. 16. THE SUBSTITUTED SECTION 10A CONTINUES TO REMAIN IN CHAPTER III. IT IS TITLED AS 'INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME'. IT MAY BE NOTED THAT WHEN SECTION 10A WAS RECAST BY THE FINANCE ACT , 2001, PARLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIVEN IN CHAPT ER III. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME . IF PARLIAMENT INTENDED THAT THE RELIEF UNDER SECTION 10A SHOULD B E BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTATION OF TOTAL INCOME , IT COULD HAVE PLACED THE SAME IN CHAPTER VI-A WHICH HOUSES THE SECTIONS LIKE 80HHC, 80-IA, ETC. PARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTIN G AND LIMITING PROVISIONS LIKE SECTION 80A AND SECTION 80AB WHICH WAS IN CHAP TER VIA WHICH DO NOT APPEAR IN CHAPTER III. THE FACT THAT EVEN AFTER ITS RECAST, THE RELIEF HAS BEEN RETAINED IN CHAPTER III INDICATES THAT THE INTENTIO N OF PARLIAMENT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. THE A CT OF PARLIAMENT IN CONSCIOUSLY RETAINING THIS SECTION IN CHAPTER III I NDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FORMING PART OF THE TOTAL INCOME ON WHI CH NO INCOME-TAX IS PAYABLE. THESE ARE THE INCOMES WHICH ARE EXEMPTED F ROM CHARGE, BUT ARE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. PARLI AMENT, DESPITE BEING CON- VERSANT WITH THE IMPLICATIONS OF THIS CHAPTER, HAS CONSCIOUSLY CHOSEN TO RETAIN SECTION 10A IN CHAPTER III. 17. IF SECTION 10A IS TO BE GIVEN EFFECT TO AS A DE DUCTION FROM THE TOTAL INCOME AS DEFINED IN SECTION 2(45), IT WOULD MEAN T HAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDER CHAPTER VI-A ARE TO BE GIVEN FROM OUT OF THE GROSS TOTAL INCOME. THE TERM 'GROSS TOTAL INCOME' IS DEFINED IN SECTION 80B(5) TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PR OVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCOME, THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST GIVEN EFFECT TO. THERE IS NO REASON WHY REFERENCE TO THE PROVISIONS OF THE ACT SHOULD NOT INCLUDE SECTION 10A. IN OTHER WORDS, THE GROSS TOTAL INCOME WOULD BE ARRIVED AT AFTER CONSIDERING SECTION 10A D EDUCTION ALSO. THERE- FORE, IT WOULD BE INAPPROPRIATE TO CONCLUDE THAT SE CTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VI-A DEDUCTIONS AR E EXHAUSTED. 18. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A TH AT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHAPTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED AT. TOTA L INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EFFECT TO ALL DEDUCTIONS UN DER THE ACT. THERE CANNOT ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 26 BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS T HE TOTAL INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF THE SECTION 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOME OF THE SECTION10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING THE GROSS TOTAL INCO ME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, THE INCOME ELIGIBLE FOR EXEMPTION UNDER SECT ION 10A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCT ED AT SOURCE LEVEL. 2 ND SUBSTANTIAL QUESTION OF LAW 20. PRIOR TO THE INTRODUCTION OF SUB-SECTION (6) OF SECTIONS 10A AND 10B OF THE FINANCE ACT, 2000, WHICH CAME INTO EFFECT FROM APRIL 1, 2001, 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 ASSESSMENT YEAR. SUB-SECTION (2) OF SECTION 32, CLA USE (II) OF SUB-SECTION (3) OF SECTION 32A. CLAUSE (II) OF SUBSECTION (2) OF S ECTION 33 AND SUB-SECTION (4) OF SECTION 35 OF THE ACT OR THE SECOND PROVISO TO CLAUSE (IX) OF SUB- SECTION (1) OF SECTION 36 SHALL NOT BE APPLICABLE I N RELATION TO ANY SUCH ALLOWANCE OR DEDUCTION. SIMILARLY, NO LOSS AS REFER RED TO IN SUB-SECTION (1) OR IN SECTION 72 OR SUB-SECTION (1) OR SUBSECTION ( 3) OF SECTION 74 IN SO FAR AS SUCH LOSS RELATES TO THE BUSINESS OF THE UNDERTA KING WAS PERMITTED TO BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS. 21. IT IS IN THIS BACKGROUND THE FINANCE ACT, 2003, WAS INTRODUCED BY INSERTING THE WORDS 'THE YEAR ENDING UP TO THE FIRS T DAY OF APRIL, 2001, FOR THAT IN CLAUSES (I) AND (II) OF SUB A-SECTION (6) R ESTRICTING THE DISALLOWANCE ONLY UP TO THE FIRST DAY OF APRIL, 2001, AND GRANTI NG THE BENEFIT, OF THOSE PROVISIONS EVEN IN RESPECT OF UNITS TO WHICH SECTIO NS 10A AND 10B IS APPLICABLE. THE FINANCE ACT, 2003, AMENDED THIS SUB SECTION WITH RETROSPECTIVE EFFECT FROM APRIL 1, 2001, BY LIFTING THE EMBARGO IN THE AFORESAID CLAUSES IN RESPECT OF DEPRECIATION AND BU SINESS LOSS RELATING TO THE ASSESSMENT YEAR 2001-02 ONWARDS. THE AMENDMENT INDICATES THE LEGISLATIVE INTENTION OF PROVIDING THE BENEFIT OF C ARRY FORWARD OF DEPRECIATION AND BUSINESS LOSS RELATING TO ANY YEAR OF THE TAX H OLIDAY PERIOD TO BE SET OFF AGAINST INCOME OF ANY YEAR POST-TAX HOLIDAY. THIS I S SUPPORTED BY CIRCULAR NO. 7 OF 2003 WHEREIN THE BOARD HAS STATED THAT THE PURPOSE OF AMENDMENT IS TO ENTITLE AN ASSESSEE TO THE BENEFIT OF CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED DURING THE TAX HOLID AY PERIOD. THE CIRCULAR DATED SEPTEMBER 5, 2003, READS AS UNDER ([2003] 263 ITR (ST.) 62, 77) : '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN SPECIAL ECONOMIC ZONES AND 100 PER CENT EXPORT ORIENTED UNITS: ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 27 20.1 UNDER THE EXISTING PROVISIONS OF SECTIONS 10A AND 10B, THE UNDERTAKINGS OPERATING IN A SPECIAL ECONOMIC ZONE ( UNDER SECTION 10A) AND 100 PER CENT EXPORT ORIENTED UNITS (EOU'S) (UNDER SECTION 10B) ARE NOT PERMITTED TO CARRY FORWARD THEIR BUSIN ESS LOSSES AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX IN CENTIVES IN RESPECT OF SUCH UNITS SUB A-SECTION (6) IN SECTIONS 10A AND 10B HAS BEEN AMENDED TO DO AWAY WITH THE RESTRICTIONS ON THE CAR RY FORWARD, OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.3 THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT R ETROSPECTIVELY FROM APRIL 1, 2001, AND HAVE BEEN MADE APPLICABLE T O BUSINESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE AS SESSMENT YEAR 2001-02 AND SUBSEQUENT YEARS.' 22. IT IS INTERESTING TO NOTE THAT SUCH RELAXATION HAS NOT BEEN MADE IN SECTION 10C WHICH PROVIDES FOR EXEMPTION IN RESPECT OF PROFITS OF CERTAIN UNDER-TAKINGS IN NORTH EASTERN REGION. THIS MAKES C LEAR THE LEGISLATIVE INTENTION OF PROVIDING RELAXATION WHEREVER IT DEEMS FIT AND IN THE PRESENT CASE, SUCH RELAXATION HAS BEEN MADE IN SECTION 10A BUT NOT IN SECTION 10C. 23. IT IS TO BE NOTED THAT THE AFORESAID AMENDMENT READ WITH THE BOARD CIRCULAR DOES NOT MILITATE AGAINST THE PROPOSITION THAT THE BENEFIT OF RELIEF UNDER THIS SECTION IS IN THE NATURE OF EXEMPTION WI TH REFERENCE TO THE COMMERCIAL PROFITS. HOWEVER, IN ORDER TO GIVE EFFEC T TO THE LEGISLATIVE INTENTION OF ALLOWING THE CARRY FORWARD OF DEPRECIA TION AND LOSS SUFFERED IN RESPECT OF ANY YEAR DURING THE TAX HOLIDAY FOR BEIN G SET OFF AGAINST INCOME POST-TAX HOLIDAY, IT IS NECESSARY THAT THE NOTIONAL COMPUTATION OF BUSINESS INCOME AND THE DEPRECIATION AS PER THE PROVISIONS O F THE ACT SHOULD BE MADE FOR EACH YEAR OF THE TAX HOLIDAY PERIOD. WHILE SO COMPUTING, ATTENTION WILL HAVE TO BE GIVEN TO THE PROVISIONS OF SECTIONS 70, 71, 72 AND SECTION 32(2). THE AMOUNT OF DEPRECIATION AND BUSINESS LOSS REMAINING UNABSORBED AT THE END OF THE TAX HOLIDAY PERIOD SHO ULD BE DETERMINED SO THAT THE SAME MAY BE SET OFF AGAINST THE INCOME POS T-TAX HOLIDAY PERIOD. 24.CHAPTER VI DEALS WITH THE AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS. SECTION 72(1) DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSS WHICH READS AS UNDER : '72.(1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESU LT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' IS A LOSS TO THE ASSESSEE, NOT BEING A LOSS SUSTAINED IN A SPECULATION BUSINESS, AND SUCH LOSS CANNOT BE OR IS NOT WHOLLY SET OFF AGAINST INCOME UNDER ANY HEAD OF INCOME IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS AS HA S NOT BEEN SO SET OFF OR, WHERE HE HAS NO INCOME UNDER ANY OTHER HEAD , THE WHOLE LOSS SHALL, SUBJECT TO THE OTHER PROVISIONS OF THIS CHAP TER, BE CARRIED FORWARD, TO THE FOLLOWING ASSESSMENT YEAR, AND- ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 28 (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR ; (II) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE A MOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING A SSESSMENT YEAR AND SO ON : PROVIDED THAT WHERE THE WHOLE OR ANY PART OF SUCH L OSS IS SUSTAINED IN ANY SUCH BUSINESS AS IS REFERRED TO IN SECTION 3 3B WHICH IS DISCONTINUED IN THE CIRCUMSTANCES SPECIFIED IN THAT SECTION, AND, THEREAFTER, AT ANY TIME BEFORE THE EXPIRY OF THE PE RIOD OF THREE YEARS REFERRED TO IN THAT SECTION, SUCH BUSINESS IS RE-ES TABLISHED, RECONSTRUCTED OR REVIVED BY THE ASSESSEE, SO MUCH O F THE LOSS AS IS ATTRIBUTABLE TO SUCH BUSINESS SHALL BE CARRIED FORW ARD TO THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE BUSINESS IS SO RE-ESTABLISHED, RECONSTRUCTED OR REVIVED, AND - (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAI NS, IF ANY, OF THAT BUSINESS OR ANY OTHER BUSINESS CARRIED ON BY HIM AN D ASSESSABLE FOR THAT ASSESSMENT YEAR ; AND (B) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AM OUNT OF LOSS NOT SO SET OFF SHALL, IN CASE THE BUSINESS SO RE-ESTABLISH ED, RECONSTRUCTED OR REVIVED CONTINUES TO BE CARRIED ON BY THE ASSESS EE, BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON FOR SEVEN ASSESSMENT YEARS IMMEDIATELY SUCCEEDING.' 25. IN FACT, THE BOMBAY HIGH COURT IN THE CASE OF H INDUSTAN UNILEVER LTD. V. DEPUTY CIT [2010] 325 ITR 102 (BOM) INTERPRETING SECTION 10B AS AMENDED HELD AS UNDER : ' . . . 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, 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 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 ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 29 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 ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS O F THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT C OULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUM STANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPE NED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B.' THE AFORESAID PRINCIPLE EQUALLY APPLIES TO A CASE F ALLING UNDER SECTION 10A OF THE ACT. 26. THE MADRAS HIGH COURT IN THE CASE MADRAS MACHIN E TOOL MANUFACTURERS LTD. V. CIT REPORTED IN [1975] 98 ITR 119 (MAD) HAS EXPLAINED THE DIFFERENCE BETWEEN A COMPANY AND AN U NDERTAKING WHICH IS OWNED OR RUN BY SUCH COMPANY. IT WAS HELD AS UNDER (PAGE 127) : 'A COMPANY MAY OWN OR RUN MANY UNDERTAKINGS, SOME O F WHICH MAY BE ENTITLED TO THE BENEFIT OF SECTION 84 AND OT HERS MAY NOT BE SO ENTITLED. IT IS NOT, THEREFORE, POSSIBLE TO EQUA TE THE UNDERTAKING WITH THE COMPANY. WHEN A COMPANY OWNS MORE THAN ONE UNDERTAKING THE APPLICATION OF SECTION 84 HAS TO BE WITH RESPECT TO THE PARTICULAR UNDERTAKING AND NOT TO THE COMPANY I N GENERAL. WHEN WE APPLY SECTION 84 TO A PARTICULAR UNDERTAKIN G IT HAS TO BE SEEN WHEN THAT UNDERTAKING COMMENCED THE MANUFACTUR E OR PRODUCTION OF ARTICLES. IT IS TRUE THAT THE WORD 'U NDERTAKING' HAS NOT BEEN DEFINED UNDER THE INCOME-TAX ACT. BUT IN COMMO N PARLANCE IT IS TAKEN AS A CONCERN STARTED OR FORMED FOR A SPECI FIC PURPOSE OR A PROJECT ENGAGED IN. IN THIS CASE THOUGH THE OBJECTS OF THE COMPANY AS SET OUT IN ITS ARTICLES OF ASSOCIATION COVER A V ARIETY OF OBJECTS, THE OBJECT OF THE UNDERTAKING IS ONLY TO MANUFACTURE LA THES AND BENCH GRINDERS AS IS CLEAR FROM THE LICENCE ISSUED TO THE COMPANY UNDER THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 19 51.' 27. FORM NO. 1 READ WITH RULE 12 OF THE INCOME-TAX RULES, 1962, PROVIDES FOR RETURN OF INCOME AND RETURN OF FRINGE BENEFITS. 28.IN SCHEDULE 9 AT COLUMN NO. 7 IT IS CLEARLY MENT IONED THE AMOUNT CLAIMED/DEDUCTIBLE UNDER SECTION 10A/10AA/10B OR 10 BA. DEALING WITH THE SCHEME OF THE FORM IT IS STATED THAT THE SCHEME OF THIS FORM FOLLOWS THE SCHEME OF THE LAW AS OUTLINED ABOVE IN ITS BASIC FO RM AND WITH REFERENCE TO SCHEDULES 1, 9, 3 AND 13 IT IS STATED THAT 'FILL OU T SCHEDULE 9 IF YOU ARE CLAIMING DEDUCTION UNDER SECTION 10A, 10AA, 10B OR 10BA IN RESPECT OF SOME SPECIFIC BUSINESS'. ITEM 7 OF SCHEDULE 1 IS TO ELIMINATE SUCH INCOME FROM COMPUTATION OF PROFITS AND LOSS AND NO SEPARAT E DECLARATION UNDER SECTION 10A(8) OR 10B(8) IF ANY IS REQUIRED TO BE M ADE. 29.AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARRY FORWARD OF LOSS AS PROVIDED UNDER SECTION 72 OF THE ACT. THAT IS THE BENEFIT WHICH IS GIVEN TO T HE ASSESSEE UNDER THE ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 30 BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS UNDER SEC TION 10B OF THE ACT. THE EXPRESSION 'DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY AN UNDER- TAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF TH E ASSESSEE', HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVI SION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS T O THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFT WARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE T HAN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT IS THE PROFIT DER IVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAKING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND SUCH PR OFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAID PROFITS AND GAINS, THE INCOME OF THE AS SESSEE HAS TO BE COMPUTED. 30.THE PROVISIONS OF THIS SUB-SECTION WILL APPLY EV EN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB- SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESSEE H AS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOULD APPLY. THE PROFI TS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CH APTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE HAS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO INTER SOURCE AND INTER HEAD SET OFF. THE BALANCE, I F ANY, THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS O F THE SUBSEQUENT ASSESSMENT YEARS IN THE NORMAL COURSE. UNABSORBED D EPRECIATION ALSO MERITS A SIMILAR TREATMENT. 31.AS THE INCOME OF THE SECTION10A UNIT HAS TO BE E XCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, THE LOSS OF THE NON-SECTION 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF THE SE CTION 10A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' HAS TO BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIE D ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS UNDER SECTION 1 0A IS NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LOSS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAIN ST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY , AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEAR'S DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10A HAS TO B E EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSO RBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVI SIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUS TIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SECTION 10A TO THE ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 31 ASSESSEE HENCE, THE MAIN SUBSTANTIAL QUESTION OF LA W IS ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. 9. SINCE THE PROVISIONS OF SECTION 10A AND 10B ARE SIMI LAR IN NATURE AND AS THE JURISDICTIONAL HIGH COURT DECIDED THE ISSUE WHILE CONSIDERING THE PROVISIONS OF SECTION 10B ALSO RESPECTFULLY FOLLOWING THE ABOVE, WE UPHOLD THE CONTENTION OF ASSESSEE THAT CARRY FORWARD BUSINES S LOSSES AND DEPRECIATION CANNOT BE SET OFF TO THE PROFITS OF TH E UNDERTAKING WHILE WORKING THE CLAIM U/S 10B. THEREFORE, AO IS DIRECTED TO DO THE NEEDFUL IN LIGHT OF THE ABOVE PRINCIPLES LAID DOWN. GROUND NO.1 IS A CCORDINGLY ALLOWED. THE TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT V. BLACK & VEACH CONSULTING PVT. LTD. ( ITA NO. 1237 OF 2011) (2012) 20 TAXMANN.COM 727(BOM.) AS WELL AS THE DECI SION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF ACIT V. M/S YOK OGAWA INDIA LTD.((2012) 21 TAXMANN.COM 154(KAR.) AND ALLOWED RELIEF TO THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP POLYMERS PRIVATE LIMITED IN ITA NO.2134 OF 2013 ( (2015) 97 CCH 0048 (BOM. HC) ) HAS DULY CONSIDERED THE DECISION OF HONBLE KARNATAKA HIGH C OURT IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD. (2006) 156 TAXMAN 1512 (KAR.) WHICH WAS UPHELD BY HONBLE APEX COURT WHEREIN VIDE ORDERS D ATED 19-09-2013 THE HONBLE APEX COURT HAS LEFT THE DECISION OF THE HON BLE KARNATAKA HIGH COURT UNDISTURBED IN CIVIL APPEAL NO 1501 OF 2008, BY HOL DING AS UNDER: WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES TO T HE LIS. 2. HAVING PERUSED THE RECORDS AND IN VIEW OF THE FACT S AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT THE CIVIL APPEAL BEING DEVOID OF ANY MERIT DESERVES TO BE DISMISSED AND IS DISMISSED ACCORDINGLY. ORDERED ACCORDINGLY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TEC HNO TARP POLYMERS PRIVATE LIMITED IN ITA NO.2134 OF 2013 (2015) 97 CC H 0048 (BOM. HC) HAS ALLOWED THE RELIEF TO THE ASSESSEE WHEREIN QUESTION OF LAW WAS ANSWERED IN ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 32 FAVOUR OF THE ASSESSEE. THE QUESTION OF LAW FORMULA TED IN THE SAID APPEAL IN CIT V. TECHNO TARP POLYMERS PRIVATE LIMITED(SUPRA) WAS AS UNDER: (1) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE BROU GHT FORWARD UNABSORBED LOSS/DEPRECIATION OF THE ASSESSEES 10B UNIT WAS NOT LIABLE FOR SET OFF AGAINST THE CURRENT YEARS PROFIT OF TH E SAME 10B UNIT? THE HONBLE BOMBAY HIGH COURT ANSWERED ABOVE QUEST ION OF LAW VIDE JUDGMENT DATED 05-12-2015 IN ITA NO. 2134 OF 2013, BY HOLDING AS UNDER: 5. WE FIND THAT THE DECISION OF THE KARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT WAS IN RESEPCT OF ASSESSMENT YEAR 1994-95. TH US IT DEALT WITH THE PROVISIONS OF SECTION 10B OF THE ACT AS EXISTING PR IOR TO 1 APRIL 2001 WHICH WAS ADMITTEDLY DIFFERENT FROM SECTION 10B AS IN FORCE DURING ASSESSMENT YEAR 200910 INVOLVED IN THIS APPEAL. SEC TION 10B OF THE ACT AS EXISTING PRIOR TO 1 APRIL 2001 PROVIDED FOR AN E XEMPTION IN RESPECT OF PROFITS AND GAINS DERIVED FROM EXPORT BY 100% EXPOR T ORIENTED UNDERTAKINGS AND NOW IT PROVIDES FOR DEDUCTION OF P ROFITS AND GAINS DERIVED FROM A 100% EXPORTED ORIENTED UNITS.. 6. IN ANY VIEW OF THE MATTER, THE DECISION OF THE K ARNATAKA HIGH COURT IN HIMATASINGIKE SEIDE LTD. (SUPRA) WHICH WAS UNDISTURBED BY THE APEX COURT DEALT WITH THE PROVISION OF LAW DIFFERENT FRO M THAT WHICH WAS DEALT WITH IN THE IMPUGNED ORDER. A DECISION HAS TO BE CO NSIDERED IN THE CONTEXT OF THE LAW AS ARISING FOR CONSIDERATION AND A CHANGE IN LAW WOULD RENDER THE DECISION UNDER THE OLD LAW INAPPLICABLE WHILE CONSIDERING THE AMENDED LAW. 7. THE ISSUE AS RAISED STANDS CONCLUDED BY THE DECI SION OF THIS COURT IN BLACK & VEATCH CONSULTING(P) LTD. (SUPRA) AND GANESH POLYCHEM LTD. VS. ITO AGAINST THE REVENUE. THEREFORE, THE QUESTION OF L AW AS PROPOSED FOR OUR CONSIDERATION DOES NOT GIVE RISE T O ANY SUBSTANTIAL QUESTION OF LAW. 8. ACCORDINGLY, THE APPEAL IS DISMISSED. NO ORDER A S TO COSTS. ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 33 RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF BLACK & VEATCH CONSULTING (P) LTD. (SUPRA) , IN THE CASE OF GANESH POLYCHEM LTD. V. ITO DECIDED IN ITA NO. 8515/MUM/20 10 ON 10-08-2010 ((2013) 35 TAXMANN.COM 446(BOM.) AND THE LATEST DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHNO TARP AND PO LYMERS PVT. LTD. IN INCOME TAX APPEAL NO. 2134 OF 2013 DATED 5 TH DECEMBER, 2015 ( (2015) 97 CCH 0048( BOM. HC) , THE APPEAL OF THE REVENUE IS NOT SUSTAINABLE IN L AW AND HENCE WE DISMISS APPEAL FILED BY THE REVENUE , BY UPHOLDI NG/SUSTAINING THE APPELLATE ORDER OF THE LD. CIT(A)S WHEREIN PARTIAL RELIEF WAS GRANTED TO THE ASSESSEE BY HOLDING THAT THE ASSESSEE IS ENTITLED T O DEDUCTION U/S 10B OF THE ACT FROM CURRENT YEARS PROFITS WITHOUT SETTING OFF OF CARRY FORWARD OF BUSINESS LOSSES OF THE ELIGIBLE UNIT AND HENCE THE APPEAL FI LED BY THE REVENUE IS DISMISSED. WE WOULD ALSO LIKE TO CLARIFY THAT HONB LE BOMBAY HIGH COURT IN THE AFORE-STATED JUDGMENT DATED 05-12-2015 IN THE C ASE OF CIT V. TECHNO TARP AND POLYMERS PVT. LTD HAS LAID DOWN PROPOSITION OF LAW THAT EVEN UNABSORBED DEPRECIATION OF ELIGIBLE UNIT SHALL NOT BE SET-OFF AGAINST THE CURRENT YEAR PROFITS OF ELIGIBLE UNIT WHILE COMPUTING DEDUCTION U/S 10B OF THE ACT.WE ORDER ACCORDINGLY. ITA NO. 7035/MUM/2013 FOR A.Y. 2006-07 7. OUR ABOVE DECISION IN ITA NO. 7034/MUM/2013 FOR THE ASSESSMENT YEAR 2004-05 SHALL APPLY MUTATIS MUTANDIS TO THE RE VENUES APPEAL IN ITA NO. 7035/MUM/2013 FOR THE ASSESSMENT YEAR 2006-07. THUS, THE APPEAL FILED BY REVENUE IN ITA NO. 7035/MUM/2013 FOR ASSESSMENT YEAR 2006-07 IS DISMISSED . WE ORDER ACCORDINGLY. ITA 7034/MUM/2013 AND ITA 7035/MUM/2013 34 8. IN THE RESULT, APPEALS FILED BY THE REVENUE IN I TA NO. 7034/MUM/2013 FOR THE ASSESSMENT YEAR 2004-05 AND REVENUES APPEA L IN ITA NO. 7035/MUM/2013 FOR THE ASSESSMENT YEAR. 2006-07 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2016. # $% &' 19-12-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 19-12-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI