ASB INTERNATIONAL P.LTD, MUMBAI V. DCIT CIR -1 KALYAN, KALYAN

ITA 7042/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62665 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS USHA NAIR
• Keywords: Business income; Depreciation; Carry forward of business losses; Retrospective amendment; Question of law; Unabsorbed depreciation
• Section: 80C; 143(3); 72(1); 80HHC; 234B; 115JB; 10B; 32; 263; 28; 10; 154

Judgement Text

ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 1 OF 25 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NOS. 7040 TO 7042/MUM/2011 & ITA NO.245/MUM/2011 (ASSESSMENT YEARS: 2005-06 TO 2007-08) ASB INTERNATIONAL (P) LTD, E-9 ADDL. AMBERNATH IND. AREA, MIDC, ANANDNAGAR, AMBERNATH (E) MUMBAI 421 506 PAN NO: AAACA 8424 F (APPELLANT) VS. DCIT/ACIT, CIRCLE-1, 2 ND FLOOR, RANI MANSION, MURBAD ROAD, KALYAN (W), MUMBAI (RESPONDENT) ASSESSEE BY: SHRI GIRISH DAVE, DEPARTMENT BY: MRS. USHA NAIR, DR DATE OF HEARING 04/06/2012 DATE OF PRONOUNCEMENT 29/06/2012 O R D E R PER BENCH: THESE ARE ASSESSEES APPEAL FOR ASSESSMENT YEARS 2 005-06, 2006-07 AND 2007-08. ITA NO.245/MUM/2011 IS AGAINS T THE ORDER OF THE CIT UNDER SECTION 263 DATED 29.3.2010 FOR AY 2005-06. SINCE AO HAS PASSED CONSEQUENTIAL ORDER AND ASSESSEES AP PEAL IN ITA NOS.7040 TO 7042 HAVE BEEN CONTESTED ON MERITS, ASS ESSEE DURING THE COURSE OF THE ARGUMENTS WITHDREW THE APPEAL AS INFRUCTUOUS. ACCORDINGLY ITA NO.245/MUM/2011 WAS DISMISSED AS WI THDRAWN. 2. IN THE THREE APPEALS, THERE ARE COMMON ISSUES WITH REFERENCE TO EXEMPTION UNDER SECTION 10B AND COMPUTATION OF B OOK PROFITS UNDER SECTION 115JB. FOR ASSESSMENT YEARS 2005-06, AO ORIGINALLY COMPUTED THE ASSESSMENT UNDER SECTION 143(3) WHICH WAS SUBSEQUENTLY REVISED UNDER SECTION 263 AND IN THE C ONSEQUENTIAL ORDERS AO ADJUSTED THE BROUGHT FORWARD BUSINESS LOS SES AND ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 2 OF 25 UNABSORBED DEPRECIATION BEFORE ALLOWING THE DEDUCTI ON UNDER SECTION 10B, THEREBY AFFECTING THE CLAIM OF SECTION 10B AND CARRY FORWARD LOSSES. WHILE CALCULATING THE COMPUTATION O F BOOK PROFIT UNDER SECTION 115JB, AO SIMILARLY MADE ADJUSTMENT U NDER SECTION 10B AS WELL. IN ASSESSMENT YEAR 2007-08 THE ASSESSM ENT WAS COMPLETED UNDER SECTION 143(3) ON SIMILAR LINES, WH EREAS ON ASSESSMENT YEAR 2006-07 THE ORDER WAS MODIFIED UNDE R SECTION 154 BY AO. ASSESSEE IS CONTESTING THE ISSUES BOTH ON ME RITS AS WELL AS ON LEGAL PRINCIPLES. FOR THE SAKE OF RECORD, THE GR OUNDS IN ASSESSMENT YEAR 2005-06 ARE EXTRACTED BELOW: EXEMPTION UNDER SECTION 10B: 1.THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTIO N OF AO IN HOLDING THAT THE DEDUCTION UNDER SECTION 10B IS TO BE ALLOWED AFTER SET OFF OF BROUGHT FORWARD BUSINESS L OSSES AND UNABSORBED DEPRECIATION. ON THAT BASIS, THE LEA RNED CIT (A) ERRED IN UPHOLDING THE ACTION OF AO IN DISA LLOWING THE DEDUCTION UNDER SECTION 10B OF ` .11,15,23,091/-. 2. THE CIT (A) ERRED IN HOLDING THAT THIS IS NOW SE TTLED POSITION OF LAW THAT ALL BROUGHT FORWARD LOSSES AND DEPRECIATION ARE FIRST TO BE SET OFF AGAINST THE BU SINESS PROFITS OF THE CURRENT YEAR BEFORE DEDUCTION ARE COMPUTED. 3. THE CIT (A) ERRED IN OBSERVING THAT FROM THE ASSESSMENT YEAR 2001-02, THE PROVISIONS OF SECTION 10A AND 10B HAVE BEEN BROUGHT AT PAR WITH OTHER SECTION S DEALING WITH DEDUCTIONS UNDER CHAPTER VI-A. COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB: 4.THE LEARNED CIT (A) ERRED IN UPHOLDING THE ACTION OF AO OF COMPUTING BOOK PROFITS UNDER SECTION 115JB AT ` .313,07,040 WITHOUT ADDING/DEDUCTING THE AMOUNT CREDITED/DEBITED AS INCOME/EXPENSES RELATABLE TO UN IT ELIGIBLE FOR TAX HOLIDAY UNDER SECTION 10B AS PER T HE BOOKS OF ACCOUNT OF THE APPELLANT. 5. THE LEARNED CIT (A) ERRED IN CONFIRMING THE VIEW OF AO THAT THE INCOME/EXPENSES OF UNITS WHOSE PROFIT IS EXEMPT UNDER SECTION 10B CAN BE CONSIDERED FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB ONLY WHEN THERE IS SOME INCOME AVAILABLE TO BE CLAIMED EXEMPTION OF. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 3 OF 25 6. THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTI ON OF AO OF COMPUTING BOOK PROFIT UNDER SECTION 115JB BY REDUCING THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSORBED DEPRECIATION AS PER BOOKS OF ACCOUNT AT ` .11,85,60,095/- INSTEAD OF ` .15,06,70,261/-. OTHERS: 7. THE LEARNED CIT (A) ERRED IN CONFIRMING THE INTE REST CHARGED UNDER SECTION 234B OF ` .16,47,651/-. 8. THE LEARNED CIT (A) ERRED IN CONFIRMING THE INTE REST CHARGED UNDER SECTION 234D OF ` .20,126/-. 9. THE LEARNED CIT (A) ERRED IN DISMISSING THE GROU ND IN RELATING TO INITIATION OF PENALTY BY AO UNDER SECTI ON 271(1)(C). 10.EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHO UT PREJUDICE TO THE OTHER. 3. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED C IT (DR) IN DETAIL. 4. GROUND NO.1 IS WITH REFERENCE TO THE CLAIM OF EXEMP TION UNDER SECTION 10B. IT WAS THE CONTENTION THAT IT WA S AN EXEMPTION PROVISION AND BROUGHT FORWARD BUSINESS LOSSES AND U NABSORBED DEPRECIATION WERE TO BE GIVEN SET OFF AFTER ALLOWIN G CLAIM U/S 10B. 5. THIS ISSUE IS TO BE DECIDED IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE, IN VIEW OF THE JUDGMENT OF THE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT V. BLACK & VEACH CONSULTIN G PVT. LTD (ITA NO.1237 OF 2011) AS WELL AS THE JUDGMENT OF THE HON 'BLE KARNATAKA HIGH COURT IN THE GROUP OF CASES ACIT VS. M/S YOKO GAWA INDIA LTD AND OTHERS VIDE 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 C ASE 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 DEDU CTION UNDER SECTION 10A OF THE ACT CANNOT BE SET OFF AGAI NST THE CURRENT PROFIT OF THE ELIGIBLE UNIT FOR COMPUTI NG THE DEDUCTION UNDER SECTION 10A OF THE I.T. ACT. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 4 OF 25 7. THE HON'BLE HIGH COURT HELD AS UNDER: 2. THE ASSESSING OFFICER, DURING THE COURSE OF THE ORDER 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 PART OF THE INCOME COMPUTED UNDER THE HE AD `PROFITS AND GAINS OF BUSINESS AND PROFESSION. HOWEVER, IN ORDER THE SAME DOES NOT SUFFER TAX, DEDUCTION WILL HAVE TO BE MADE IN RESPECT THEREOF W HILE COMPUTING THE INCOME UNDER THE HEAD `PROFITS AND GA INS OF BUSINESS AND PROFESSION. IN OTHER WORDS, THE DEDUCTION IN RESPECT 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 GA INS OF BUSINESS OR PROFESSION. NONETHELESS, WHILE COMPUTING THE TOTAL INCOME OF TH E ASSESSEE THE ASSESSING OFFICER TOOK THE NET PROFIT AS PER THE PROFIT AND LOSS ACCOUNT AND AFTER, INTER ALIA, MAKING CERTAIN DISALLOWANCES AND ALLOWANCES, ARRIVED AT T HE TOTAL BUSINESS INCOME AT RS.86.07 LAKHS. A SET OFF WAS EFFECTED OF THE BROUGHT FORWARD BUSINESS LOSS OF AY 2003-04 AND AY 2004-05 UPON WHICH THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THERE WAS NIL I NCOME WHICH WOULD QUALIFY FOR DEDUCTION UNDER SECTION 10A . THE CIT (A) HELD THAT THE ASSESSING OFFICER WAS JUS TIFIED IN ADJUSTING THE BROUGHT FORWARD LOSSES OF EARLIER YEARS BEFORE ARRIVING AT THE GROSS TOTAL INCOME, FOR ALLO WING A DEDUCTION UNDER SECTION 10B. IN APPEAL, THE TRIBUNA L HAS RELIED UPON A DECISION OF ITS SPECIAL BENCH IN THE CASE OF SCIENTIFIC ATLANTA VS. ACIT 129 TTJ 273. IN WHICH IT HAS BEEN EMPHASIZED THAT THE PROVISION CONTAINED IN SECTION 10A IS NOT AN EXEMPTION BUT A DEDUCTION UNDER CHAPTER III. FOLLOWING THAT DECISIO N, 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 BROUGHT FORWARDED LOS SES OF A NON 10A UNIT. 3. SECTION 10A IS A PROVISION WHICH IS IN THE NATUR E OF A DEDUCTION AND NOT AN EXEMPTION. THIS WAS EMPHASIZED IN A JUDGMENT OF A DIVISION BENCH OF THIS COURT WHI LE CONSTRUING THE PROVISIONS OF SECTION 10B IN HINDUST AN UNILEVER LTD VS. DEPUTY COMMISSIONER OF INCOME TAX 2. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 5 OF 25 (2010) 325 ITR 102 AT PARA 24. THE SUBMISSION OF TH E REVENUE PLACED ITS RELIANCE ON THE LITERAL READING OF SECTION 10A UNDER WHICH A DEDUCTION OF SUCH PROFITS AND GAINS AS 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 PROFI TS AND GAINS OF BUSINESS. THIS IS ANTERIOR TO THE APPLICAT ION OF THE PROVISIONS OF SECTION 72 WHICH DEALS WITH THE C ARRY FORWARD AND SET OFF OF BUSINESS LOSSES. A DISTINCTI ON HAS BEEN MADE BY THE LEGISLATURE WHILE INCORPORATING TH E PROVISIONS OF CHAPTER VI-A. SECTION 80A(1) STIPULAT ES 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 PROVISIONS OF TH E CHAPTER, THE DEDUCTIONS SPECIFIED IN SECTIONS 80C T O 80U. SECTION 80B(5) DEFINES FOR THE PURPOSES OF CHA PTER VI-A GROSS TOTAL INCOME TO MEAN THE TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT, BEFORE MAKING ANY DEDUCTION UNDER THE CHAPTER. WHAT THE REVENUE IN ESSENCE SEEKS TO ATTAIN IS TO TELESC OPE THE PROVISIONS OF CHAPTER VI-A IN THE CONTEXT OF TH E DEDUCTION WHICH IS ALLOWABLE UNDER SECTION 10A, WHI CH WOULD NOT BE PERMISSIBLE UNLESS A SPECIFIC STATUTOR Y PROVISION TO THAT EFFECT WERE TO BE MADE. IN THE AB SENCE THEREOF, SUCH AN APPROACH CANNOT BE ACCEPTED. IN TH E CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL WOULD H AVE TO BE AFFIRMED SINCE IT IS PLAIN AND EVIDENT THAT T HE DEDUCTION UNDER SECTION 10A HAS TO BE GIVEN AT THE STAGE WHEN THE PROFITS AND GAINS OF BUSINESS ARE COMPUTED IN THE FIRST INSTANCE. SO CONSTRUED, THE A PPEAL BY THE REVENUE WOULD NOT GIVE RISE TO ANY SUBSTANTI AL QUESTION OF LAW AND SHALL ACCORDINGLY STAND DISMISS ED. THERE 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 A ND OTHERS VIDE ORDER DATED 9 TH AUGUST, 2011 EXAMINED THIS ISSUE ELABORATELY AND DECIDED 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 DECAD ES. THE ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 6 OF 25 HEADING OF CHAPTER III UNDER WHICH THE RELEVANT PRO VISIONS WERE PLACED IS TITLED AS 'INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME'. THE SECOND HEADING READ AS 'SPEC IAL CONDITIONS IN RESPECT OF NEWLY ESTABLISHED INDUSTRI AL UNDERTAKINGS IN FREE TRADE ZONES'. SECTION 10 BEGIN S AS 'IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF AN Y PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAU SES SHALL NOT HE INCLUDED', WHEREAS SECTION 10A AS ORIGINALLY ENACTED PROVIDED THAT THE PROFITS AND GAINS OF THE ELIGIBLE UNDERTAKING SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE AS SESSEE. THE FINANCE ACT, 2000, RECAST SECTION 10A. IT CAME INTO EFFECT FROM APRIL 1, 2001. THE SECOND HEADING CONTINUES WI TH A MARGINAL CHANGE BY WAY OF ADDITION OF THE WORD 'ETC .' TO READ AS 'SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLIS HED UNDERTAKINGS IN A FREE TRADE ZONE, ETC'. THE NEW SE CTION PROVIDES FOR DEDUCTION OF PROFITS AND GAINS OF ELIG IBLE 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 WITH THE SPECIAL PROVISIONS IN RESPECT OF NEWLY EST ABLISHED 100 PER CENT EXPORT ORIENTED UNDERTAKINGS. 11. SECTION 10A READS AS UNDER: '10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC.-( 1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PRO FITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXP ORT 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 WH ICH THE UNDER-TAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE 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 AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISI ONS OF THIS SECTION, AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTIT UTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENTITLE D TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR 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 SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PROCES SING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SH ALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE P REVIOUS YEAR IN WHICH THE UNDERTAKING BEGAN TO MANUFACTURE OR PRO- ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 7 OF 25 DUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE I N SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SU B-SECTION SHALL 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 THE 1ST DAY OF APRIL, 2012, AND SUBSEQ UENT YEARS. . . . (4) FOR THE PURPOSES OF SUB-SECTIONS (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUT ER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDER-TAKING, THE SAME PROPORTION A S THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS 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 INCOM E OF THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVAN T 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 A S IF EVERY ALLOWANCE OR DEDUCTION REFERRED TO THEREIN AND RELA TING TO OR ALLOWABLE FOR ANY OF THE RELEVANT ASSESSMENT YEAR ( ENDING BEFORE THE 1ST DAY OF APRIL, 2001), IN RELATION TO ANY BUILDING, MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING IN THE PREVIOUS YEAR RE LEVANT TO SUCH ASSESSMENT YEAR OR ANY EXPENDITURE INCURRED FO R THE PURPOSES OF SUCH BUSINESS IN SUCH PREVIOUS YEAR HAD BEEN GIVEN FULL EFFECT TO FOR THAT ASSESSMENT YEAR ITSEL F AND ACCORDINGLY SUB-SECTION (2) OF SECTION 32, CLAUSE ( II) OF SUB- SECTION (3) OF SECTION 32A, CLAUSE (II) OF SUB-SECT ION (2) OF SECTION 33, SUB-SECTION (4) OF SECTION 35 OR THE SE COND PROVISO TO CLAUSE (IX) OF SUB A-SECTION (1) OF SECTION 36, AS THE CASE MAY BE, SHALL NOT APPLY IN RELATION TO ANY SUCH ALL OWANCE OR DEDUCTION ; (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 RELATES TO THE BUSINESS OF THE UNDERTAKING, SH ALL BE CARRIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY OF THE RELEVANT ASSESSMENT YEARS ENDING 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 S ECTION 80- ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 8 OF 25 IB IN RELATION TO THE PROFITS AND GAINS OF THE UNDE RTAKING ; AND (IV) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR TH E PURPOSES OF THE BUSINESS OF THE UNDERTAKING SHALL B E COMPUTED AS IF THE ASSESSEE HAD CLAIMED AND BEEN AC TUALLY ALLOWED THE DEDUCTION IN RESPECT OF DEPRECIATION FO R EACH OF THE RELEVANT ASSESSMENT YEAR . . . EXPLANATION 2.-. . . (II) 'CONVERTIBLE FOREIGN EXCHANGE' MEANS FOREIGN EXCHANGE WHICH IS FOR THE TIME BEING TREATED BY THE RESERVE BANK OF INDIA AS CONVERTIBLE FOREIGN EXCHANGE FOR THE PURPO SES OF THE FOREIGN EXCHANGE REGULATION ACT, 1973 (46 OF 1973), AND ANY RULES MADE THEREUNDER OR ANY OTHER CORRESPONDIN G LAW FOR THE TIME BEING IN FORCE ; (III) 'ELECTRONIC HARDWARE TECHNOLOGY PARK' MEANS A NY PARK SET UP IN ACCORDANCE WITH THE ELECTRONIC HARDWARE TECHN OLOGY PARK (EHTP) SCHEME NOTIFIED BY THE GOVERNMENT OF IN DIA IN THE MINISTRY OF COMMERCE AND INDUSTRY ;' 12. A LITERAL READING OF THE ABOVE PROVISION REQUI RES DEDUCTION FROM THE TOTAL INCOME. THERE CAN BE A DED UCTION 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 LANGUAGE ADOPTED IN SE CTION 10A IS DIFFERENT FROM THE ONE ADOPTED IN SECTION 80 A. SECTION 10A PROVIDES FOR DEDUCTION FROM THE TOTAL INCOME. I N THE SCHEME OF THE ACT, WHILE VARIOUS DEDUCTIONS ARE ALL OWED IN COMPUTING THE TOTAL INCOME, ONCE THE TOTAL INCOME I S COMPUTED, NO FURTHER ADJUSTMENT TO THE TOTAL INCOME IS ENVISAGED. THE SCHEME OF THE ACT PROVIDES FOR DEDUC TION IN COMPUTING THE TOTAL INCOME BUT NO MECHANISM FOR ANY DEDUCTION FROM THE TOTAL INCOME ALREADY COMPUTED IS PROVIDED UNDER THE ACT. ONCE THE TOTAL INCOME IS CO MPUTED, THE NEXT STEP IS DETERMINATION OF TAX BY APPLYING T HE 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 COMPU TED 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. SECTION 14 PROVID ES 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 TH E FOLLOWING HEADS OF INCOME'. THEREFORE, THE TOTAL INCOME IN IT S STRICT SENSE REQUIRES COMPUTATION FOR THE PURPOSE 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 PHRAS E 'TOTAL INCOME' USED IN SECTION 10A CANNOT BE UNDERSTOOD IN THE SAME SENSE AS IN SECTION 2(45). ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 9 OF 25 14. THE PHRASE 'TOTAL INCOME' HAS BEEN USED IN THE INCOME- TAX ACT IN SEVERAL PLACES WITH DIFFERENT CONNOTATIO NS AND SHADES. THE PHRASE 'TOTAL INCOME' USED IN SECTION 1 0A IS ONE SUCH VARIANT. THE PHRASE NEED NOT NECESSARILY MEAN THE TOTAL INCOME AS COMPUTED IN ACCORDANCE WITH THE PROVISION S OF THE ACT. THE RELIEF UNDER THIS SECTION IS WITH REFERENC E TO THE STP UNDERTAKINGS AND NOT TO THE ASSESSEE. IN OTHER WORD S, THE RELIEF TRAVELS WITH THE UNDERTAKING IRRESPECTIVE OF WHO OWNS THE SAME. THE COMPUTATION OF RELIEF AS PROVIDED IN SECTION 10A(4) IS ALSO WITH REFERENCE TO THE UNDER-TAKING. A BUSINESS MIGHT HAVE SEVERAL UNDERTAKINGS AND SECTION 28 DOES NOT ENVISAGE COMPUTATION OF INCOME OF EACH SUCH UNDERTA KING. IN OTHER WORDS, THE PROFITS OF THE BUSINESS OF THE UND ERTAKING CANNOT BE COMPUTED IN ISOLATION. THE PROFITS ARE CO MPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION', AS UNDER THE ABOVE HEAD, THE INCOME FROM BUSINESS A S 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 FIRS T PROVISO TO SECTION 10A(1) WHICH MAKES A REFERENCE TO THE TOTAL INCOME OF THE UNDERTAKING AND NOT TO THE TOTAL INCOME OF THE ASSESSEE. THE DEFINITION OF ANY TERM GIVEN IN 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 O F THE ACT. INSTEAD, SUCH A PHRASE IN THE CONTEXT OF SECTI ON 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 CLASSIFICATION OF INCOME UNDER VARIOUS HEADS OF INC OME FOR THE PURPOSES OF CHARGE OF INCOME-TAX AND COMPUTATIO N OF TOTAL INCOME. THE PURPOSE OF CLASSIFICATION 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 EXEMPT ION ALTHOUGH TERMED AS DEDUCTION AND THE SAID RELIEF IS IN RESPECT OF COMMERCIAL PROFITS, SUCH INCOME IS NEITHER SUBJE CT TO CHARGE OF INCOME-TAX NOR INCLUDIBLE IN THE TOTAL IN COME. THEREFORE, THE TWIN PROVISIONS OF SECTION 14 ARE NO T EXISTING IN THE CASE OF INCOME OF STP UNDER-TAKING AND ACCORDIN GLY SUCH INCOME IS NOT LIABLE TO BE COMPUTED UNDER CHAPTER I V. THEREFORE, THE CORRECT VIEW WOULD BE THAT THE RELIE F UNDER SECTION 10A WILL HAVE TO BE GIVEN BEFORE CHAPTER IV . THE DEDUCTION SHALL BE GIVEN FIRST AND PROCESS OF COMPU TATION OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' BEGIN S THEREAFTER. THIS PROPOSITION IS IN LINE WITH THE FO RM OF RETURN. ALLOWING DEDUCTION AT THE EARLIEST STAGE OF BUSINES S INCOME COMPUTATION ALMOST BLURS THE DIFFERENCE BETWEEN THE COMMERCIAL PROFITS AND TAX PROFITS. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 10 OF 25 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 10 A WAS RECAST BY THE FINANCE ACT, 2001, PARLIAMENT WAS AWA RE OF THE CHARACTER OF RELIEF GIVEN IN CHAPTER III. CHAPT ER III DEALS WITH INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME . IF PARLIAMENT INTENDED THAT THE RELIEF UNDER SECTION 1 0A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMP UTATION OF TOTAL INCOME, IT COULD HAVE PLACED THE SAME IN C HAPTER VI-A WHICH HOUSES THE SECTIONS LIKE 80HHC, 80-IA, ETC. P ARLIAMENT WAS AWARE OF THE VARIOUS RESTRICTING AND LIMITING P ROVISIONS LIKE SECTION 80A AND SECTION 80AB WHICH WAS IN CHAP TER VI- A 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 INTENTION OF PARLIAMENT IT IS TO BE REGARD ED AS AN EXEMPTION AND NOT A DEDUCTION. THE ACT OF PARLIAMEN T 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 FORMI NG PART OF THE TOTAL INCOME ON WHICH NO INCOME-TAX IS PAYAB LE. THESE ARE THE INCOMES WHICH ARE EXEMPTED FROM 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 1 0A 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 WO ULD MEAN THAT SECTION 10A IS TO BE CONSIDERED AFTER CHAPTER VI-A DEDUCTIONS HAVE BEEN EXHAUSTED. THE DEDUCTIONS UNDE R 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 ACCORDA NCE WITH THE PROVISIONS OF THIS ACT, BEFORE MAKING ANY DEDUC TION UNDER THIS CHAPTER. AS PER THE DEFINITION OF GROSS TOTAL INCOME, THE OTHER PROVISIONS OF THE ACT WILL HAVE TO BE FIRST G IVEN 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 DEDUCTION ALSO. THERE-FORE, IT WOULD BE INAPPRO PRIATE TO CONCLUDE THAT SECTION 10A DEDUCTION IS TO BE GIVEN EFFECT TO AFTER CHAPTER VI-A DEDUCTIONS ARE 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 A LL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT THE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED AT. TOTAL INC OME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EFFECT TO ALL DEDU CTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS THE TOTAL INCOME IS ITSELF ARRIVED AT AFT ER ALL DEDUCTIONS. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 11 OF 25 19. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF THE SECTION10A UNIT HAS TO BE EXCLUDED BEFORE AR RIVING 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 INCOME. THE TOTAL I NCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTEXT ME ANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INC OME AS DEFINED IN SECTION 2(45). HENCE, THE INCOME ELIGIBL E FOR EXEMPTION UNDER SECTION 10A WOULD NOT ENTER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURC E 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 E FFECT FROM APRIL 1, 2001, IN COMPUTING THE TOTAL INCOME O F THE ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR IMMEDIATELY SUCCEEDING THE LAST OF THE RELEVAN T ASSESSMENT YEARS, OR OF ANY PREVIOUS YEAR, RELEVANT TO ANY SUBSEQUENT ASSESSMENT YEAR. SUB-SECTION (2) OF SECT ION 32, CLAUSE (II) OF SUB-SECTION (3) OF SECTION 32A. CLAU SE (II) OF SUB- SECTION (2) OF SECTION 33 AND SUB-SECTION (4) OF SE CTION 35 OF THE ACT OR THE SECOND PROVISO TO CLAUSE (IX) OF SUB -SECTION (1) OF SECTION 36 SHALL NOT BE APPLICABLE IN RELATION T O 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 SUB- SECTION (3) OF SECTION 74 IN SO FAR AS SUCH LOSS RE LATES TO THE BUSINESS OF THE UNDERTAKING WAS PERMITTED TO BE CAR RIED FORWARD OR SET OFF WHERE SUCH LOSS RELATES TO ANY O F 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 FIRST DAY OF APRIL, 2001, FOR THAT IN CLAUSES (I) A ND (II) OF SUB A- SECTION (6) RESTRICTING THE DISALLOWANCE ONLY UP TO THE FIRST DAY OF APRIL, 2001, AND GRANTING THE BENEFIT, OF TH OSE PROVISIONS EVEN IN RESPECT OF UNITS TO WHICH SECTIO NS 10A AND 10B IS APPLICABLE. THE FINANCE ACT, 2003, AMENDED T HIS SUB- SECTION WITH RETROSPECTIVE EFFECT FROM APRIL 1, 200 1, BY LIFTING THE EMBARGO IN THE AFORESAID CLAUSES IN RESPECT OF DEPRECIATION AND BUSINESS LOSS RELATING TO THE ASSE SSMENT 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 Y EAR OF THE TAX HOLIDAY PERIOD TO BE SET OFF AGAINST INCOME OF ANY YEAR POST-TAX HOLIDAY. THIS IS 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 TH E TAX HOLIDAY PERIOD. THE CIRCULAR DATED SEPTEMBER 5, 200 3, READS AS UNDER ([2003] 263 ITR (ST.) 62, 77) : '20. PROVIDING FOR CARRY FORWARD OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION TO UNITS IN ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 12 OF 25 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 BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.2 WITH A VIEW TO RATIONALIZE THE EXISTING TAX INCENTIVES 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 CARRY FORWARD, OF BUSINESS LOSSES AND UNABSORBED DEPRECIATION. 20.3 THE AMENDMENTS HAVE BEEN BROUGHT INTO EFFECT RETROSPECTIVELY FROM APRIL 1, 2001, AND HAVE BEEN MADE APPLICABLE TO BUSINESS LOSSES OR UNABSORBED DEPRECIATION ARISING IN THE ASSESSMENT 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 EASTER N REGION. THIS MAKES CLEAR THE LEGISLATIVE INTENTION OF PROVI DING RELAXATION WHEREVER IT DEEMS FIT AND IN THE PRESENT CASE, SUCH RELAXATION HAS BEEN MADE IN SECTION 10A BUT NO T IN SECTION 10C. 23. IT IS TO BE NOTED THAT THE AFORESAID AMENDMENT READ WITH THE BOARD CIRCULAR DOES NOT MILITATE AGAINST THE PR OPOSITION THAT THE BENEFIT OF RELIEF UNDER THIS SECTION IS IN THE NATURE OF EXEMPTION WITH REFERENCE TO THE COMMERCIAL PROFITS. HOWEVER, IN ORDER TO GIVE EFFECT TO THE LEGISLATIVE INTENTIO N OF ALLOWING THE CARRY FORWARD OF DEPRECIATION AND LOSS SUFFERED IN RESPECT OF ANY YEAR DURING THE TAX HOLIDAY FOR BEING SET OF F AGAINST INCOME POST-TAX HOLIDAY, IT IS NECESSARY THAT THE N OTIONAL COMPUTATION OF BUSINESS INCOME AND THE DEPRECIATION AS PER THE PROVISIONS OF THE ACT SHOULD BE MADE FOR EACH Y EAR OF THE TAX HOLIDAY PERIOD. WHILE SO COMPUTING, ATTENTION W ILL HAVE TO BE GIVEN TO THE PROVISIONS OF SECTIONS 70, 71, 72 A ND SECTION 32(2). THE AMOUNT OF DEPRECIATION AND BUSINESS LOSS REMAINING UNABSORBED AT THE END OF THE TAX HOLIDAY PERIOD SHOULD BE DETERMINED SO THAT THE SAME MAY BE SET OF F AGAINST THE INCOME POST-TAX HOLIDAY PERIOD. 24.CHAPTER VI DEALS WITH THE AGGREGATION OF INCOME AND SET OFF OR CARRY FOR-WARD OF LOSS. SECTION 72(1) DEALS WITH THE CARRY FORWARD AND SET OFF OF BUSINESS LOSS WHICH RE ADS AS UNDER : ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 13 OF 25 '72.(1) WHERE FOR ANY ASSESSMENT YEAR, THE NET RESULT OF THE COMPUTATION UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS 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 ACCORDANCE WITH THE PROVISIONS OF SECTION 71, SO MUCH OF THE LOSS AS HAS 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 CHAPTER, BE CARRIED FORWARD, TO THE FOLLOWING ASSESSMENT YEAR, AND- (I) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, 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 AMOUNT OF LOSS NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND SO ON : PROVIDED THAT WHERE THE WHOLE OR ANY PART OF SUCH LOSS IS SUSTAINED IN ANY SUCH BUSINESS AS IS REFERRED TO IN SECTION 33B WHICH IS DISCONTINUED IN THE CIRCUMSTANCES SPECIFIED IN THAT SECTION, AND, THEREAFTER, AT ANY TIME BEFORE THE EXPIRY OF THE PERIOD OF THREE YEARS REFERRED TO IN THAT SECTION, SUCH BUSINESS IS RE-ESTABLISHED, RECONSTRUCTED OR REVIVED BY THE ASSESSEE, SO MUCH OF THE LOSS AS IS ATTRIBUTABLE TO SUCH BUSINESS SHALL BE CARRIED FORWARD TO THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE BUSINESS IS SO RE-ESTABLISHED, RECONSTRUCTED OR REVIVED, AND- (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF THAT BUSINESS OR ANY OTHER BUSINESS CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR ; AND (B) IF THE LOSS CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF LOSS NOT SO SET OFF SHALL, IN CASE THE BUSINESS SO RE-ESTABLISHED, RECONSTRUCTED OR REVIVED CONTINUES TO BE CARRIED ON BY THE ASSESSEE, 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 : ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 14 OF 25 ' . . . SECTION 10B AS IT STANDS IS NOT A PROVISION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION. SECTION 10B WAS SUBSTITUTED BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001. PRIOR TO THE SUBSTITUTION OF THE PROVISION, THE EARLIER PROVISION STIPULATED THAT ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM A 100 PER CENT. EXPORT ORIENTED UNDERTAKING, TO WHICH THE SECTION APPLIES 'SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE'. THE PROVISION, THEREFORE, AS IT EARLIER STOOD WAS IN THE NATURE OF AN EXEMPTION. AFTER THE SUBSTITUTION OF SECTION 10B BY THE FINANCE ACT OF 2000, THE PROVISION AS IT NOW STANDS PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A 100 PER CENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. CONSEQUENTLY, IT IS EVIDENT THAT THE BASIS ON WHICH THE ASSESSMENT HAS SOUGHT TO BE REOPENED IS BELIED BY A PLAIN READING OF THE PROVISION. THE ASSESSING OFFICER WAS PLAINLY IN ERROR IN PROCEEDING ON THE BASIS THAT BECAUSE THE INCOME IS EXEMPTED, THE LOSS WAS NOT ALLOWABLE. ALL THE FOUR UNITS OF THE ASSESSEE WERE ELIGIBLE UNDER SECTION 10B. THREE UNITS HAD RETURNED A PROFIT DURING THE COURSE OF THE ASSESSMENT YEAR, WHILE THE CRAB STICK UNIT HAD RETURNED A LOSS. THE ASSESSEE WAS ENTITLED TO A DEDUCTION IN RESPECT OF THE PROFITS OF THE THREE ELIGIBLE UNITS WHILE THE LOSS SUSTAINED BY THE FOURTH UNIT COULD BE SET OFF AGAINST THE NORMAL BUSINESS INCOME. IN THESE CIRCUMSTANCES, THE BASIS ON WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED IS CONTRARY TO THE PLAIN LANGUAGE OF SECTION 10B.' 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 MACHI NE TOOLS MANUFACTURERS LTD. V. CIT REPORTED IN [1975] 98 ITR 119 (MAD) HAS EXPLAINED THE DIFFERENCE BETWEEN A CO MPANY AND AN UNDERTAKING WHICH IS OWNED OR RUN BY SUCH COMPANY. IT WAS HELD AS UNDER (PAGE 127) : 'A COMPANY MAY OWN OR RUN MANY UNDERTAKINGS, SOME OF WHICH MAY BE ENTITLED TO THE BENEFIT OF SECTION 84 AND OTHERS MAY NOT BE SO ENTITLED. IT IS NOT, THEREFORE, POSSIBLE TO EQUA TE THE UNDERTAKING WITH THE COMPANY. WHEN A ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 15 OF 25 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 IN GENERAL. WHEN WE APPLY SECTION 84 TO A PARTICULAR UNDERTAKING IT HAS TO BE SEEN WHEN THAT UNDERTAKING COMMENCED THE MANUFACTURE OR PRODUCTION OF ARTICLES. IT IS TRUE THAT THE WORD 'UNDERTAKING' HAS NOT BEEN DEFINED UNDER THE INCOME-TAX ACT. BUT IN COMMON PARLANCE IT IS TAKEN AS A CONCERN STARTED OR FORMED FOR A SPECIFIC 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 VARIETY OF OBJECTS, THE OBJECT OF THE UNDERTAKING IS ONLY TO MANUFACTURE LATHES AND BENCH GRINDERS AS IS CLEAR FROM THE LICENCE ISSUED TO THE COMPANY UNDER THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951.' 27. FORM NO. 1 READ WITH RULE 12 OF THE INCOME-TAX RULES, 1962, PROVIDES FOR RETURN OF INCOME AND RETURN OF F RINGE BENEFITS. 28.IN SCHEDULE 9 AT COLUMN NO. 7 IT IS CLEARLY MENT IONED THE AMOUNT CLAIMED/DEDUCTIBLE UNDER SECTION 10A/10AA/10 B OR 10BA. DEALING WITH THE SCHEME OF THE FORM IT IS STA TED THAT THE SCHEME OF THIS FORM FOLLOWS THE SCHEME OF THE L AW AS OUTLINED ABOVE IN ITS BASIC FORM 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, 10 AA, 10B OR 10BA IN RESPECT OF SOME SPECIFIC BUSINESS'. ITEM 7 OF SCHEDULE 1 IS TO ELIMINATE SUCH INCOME FROM COMPUTA TION OF PROFITS AND LOSS AND NO SEPARATE DECLARATION UNDER SECTION 10A(8) OR 10B(8) IF ANY IS REQUIRED TO BE MADE. 29.AFTER MAKING ALL SUCH COMPUTATIONS THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARRY FORW ARD OF LOSS AS PROVIDED UNDER SECTION 72 OF THE ACT. THAT IS THE B ENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER THE ACT IRRESP ECTIVE 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 PROFI TS AND GAINS AS DERIVED BY AN UNDER-TAKING SHALL BE ALLOWE D FROM THE TOTAL INCOME OF THE ASSESSEE', HAS TO BE UNDERS TOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED I N CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLAR IFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE U NDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPE CT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO TH E TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAK ING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 16 OF 25 MORE THAN ONE UNDERTAKING FOR THE PURPOSE OF SECTIO N 10A IT IS THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR TH INGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE AS SESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAID PROFITS AND GA INS, THE INCOME OF THE ASSESSEE 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 DIS CUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT O F SECTION 10A. IN THE YEAR WHEN THE ASSESSEE HAS OPTED OUT, T HE 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 CHAPTER 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 , IF ANY, THEREAFTER CAN BE CARRIED FORWARD FOR BEING SET OFF AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS IN THE N ORMAL COURSE. UNABSORBED DEPRECIATION ALSO MERITS A SIMIL AR 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 SECTION 10A UNIT UNDER SECTION 72. TH E LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION' HAS TO BE SET OFF AGAINS T THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CA RRIED ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAI NS UNDER SECTION 10A 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 AGAINST SUCH PROF ITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY , AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FI RST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS C URRENT YEAR'S DEPRECIATION UNDER SECTION 32(2) IS TO BE SE T OFF. AS DEDUCTION UNDER SECTION 10A HAS TO BE 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 TH E MATTER, THE APPROACH OF THE ASSESSING AUTHORITY WAS QUITE C ONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPEL LATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUS TIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTIN G THE BENEFIT OF SECTION 10A TO THE ASSESSEE HENCE, THE M AIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEES AND AGAINST THE REVENUE. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 17 OF 25 9. SINCE THE PROVISIONS OF SECTION 10A AND 10B ARE SIM ILAR IN NATURE AND AS THE JURISDICTIONAL HIGH COURT DECIDED THE ISSUE WHILE CONSIDERING THE PROVISIONS OF SECTION 10B ALSO RESP ECTFULLY FOLLOWING THE ABOVE, WE UPHOLD THE CONTENTION OF ASSESSEE THA T CARRY FORWARD BUSINESS LOSSES AND DEPRECIATION CANNOT BE SET OFF TO THE PROFITS OF THE UNDERTAKING WHILE WORKING THE CLAIM U/S 10B. TH EREFORE, AO IS DIRECTED TO DO THE NEEDFUL IN LIGHT OF THE ABOVE PR INCIPLES LAID DOWN. GROUND NO.1 IS ACCORDINGLY ALLOWED. 10. GROUND NO.2 IS WITH REFERENCE TO EXCLUSION OF THE A MOUNT UNDER SECTION 115JB WHICH CREDITED OR DEBITED AS IN COME OR EXPENSES RELATABLE TO UNITS ELIGIBLE FOR EXEMPTION UNDER SECTION 10B. AO PROCEEDED TO RE-COMPUTE THE INCOME BY GIVING AFF ECT TO THE WORKING OF INCOME UNDER THE NORMAL PROVISIONS TO TH E COMPUTATION UNDER SECTION 115JB. IT WAS ASSESSEES CONTENTION T HAT THE WORKING UNDER SECTION 115JB HAS TO BE CONSIDERED ON THE BAS IS OF THE BOOK RESULTS WITHOUT TAKING RECOURSE TO THE NORMAL COMPU TATION OF INCOME. 11. IT WAS FAIRLY ADMITTED THAT THIS ISSUE IS ALSO DECI DED BY THE COORDINATE BENCH IN THE CASE OF MOSER BAER INDIA LT D V. DCIT (17 SOT 510) DELHI TRIBUNAL AND DCIT V. ROXY INVESTMENT S (P) LTD (24 SOT 227) DELHI TRIBUNAL AND THIS MATTER WAS ULTIMAT ELY DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT CHENNA I VS. BHARI INFORMATION TECH. SYSTEMS PVT. LTD IN SPECIAL LEAVE TO APPEAL NO 33750/2009 DT.20-10 2011. 12. IN THE CASE OF MOSER BAER INDIA LTD V. DCIT (SURPA) , THE ISSUE WAS DECIDED AS UNDER: MODE OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECT ION 115JB, PROFIT IS TO BE FIRST ARRIVED AT AS COMPUTED UNDER PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. IN S O COMPUTING, THE ACCOUNTING POLICIES AND THE ACCOUNTI NG ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 18 OF 25 STANDARDS ADOPTED FOR PREPARING SUCH ACCOUNTS AND T HE METHOD AND RATES ADOPTED FOR CALCULATING THE DEPREC IATION SHALL BE THE SAME AS HAVE BEEN ADOPTED FOR THE PURP OSE OF PREPARING SUCH ACCOUNTS AND RATE BY THE COMPANY AT ITS ANNUAL GENERAL MEETING. THUS, UNDER THE SCHEME OF P ROVISIONS OF SECTION 115JB MINIMUM ALTERNATE TAX IS LEVIED WI TH REFERENCE TO THE BOOK PROFIT DISCLOSED IN THE PROFI T AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, AS OPP OSED TO PROFITS OR GAINS OF BUSINESS OR PROFESSION AS COM PUTED AS PER THE PROVISIONS OF THE ACT. THE BOOK PROFIT GETS SUB STITUTED FOR THE TOTAL INCOME AS COMPUTED UNDER THE ACT. THE BOO K PROFIT HAS, THEREFORE, TO BE WHOLLY QUARANTINED FROM THE S AID TOTAL INCOME. FOR THE DETERMINATION OF BOOK PROFITS THUS ANY MODE AND MANNER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT HAS NOT TO BE APPLIED UNLESS SPECIFICALLY PROVIDED, AS HELD BY THE APEX COURT IN APOLLO TYRES LTD. V. CIT [2002] 255 I TR 273/ 122 TAXMAN 562 AND AS CLARIFIED IN THE MEMORANDUM EXPLAINING PROVISIONS OF THE FINANCE BILL, 2000 [24 2 ITR (ST.) 117, 138]. IN OTHER WORDS, FOR THE PURPOSE OF LEVY OF MAT, REFERENCE IS TO BE MADE ONLY TO THE ANNUAL ACCOUNTS AS PREPARED FOR THE PURPOSE OF THE COMPANIES ACT. FURT HER, THE EXPLANATION TO SECTION 115JB(2) PROVIDES THE MANNER OF COMPUTATION OF BOOK PROFIT. THE STARTING POINT IS T HE BOOK PROFIT AS DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARE D IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. SUCH PROFIT IS SUBJECT TO ADJU STMENTS SPECIFIED IN THE EXPLANATION TO SAID SECTION. IN TE RMS OF CLAUSE (II) OF EXPLANATION TO SECTION 115JB(2), THE AMOUNT OF INCOME TO WHICH PROVISIONS, INTER ALIA, SECTION 10A/10B APPLY IF SUCH AMOUNT IS CREDITED TO PROFIT AND LOSS ACCOUNT, IS T O BE REDUCED FROM THE PROFIT AS PER PROFIT AND LOSS ACCOUNT. SIMILARLY, CLAUSE (F ) OF EXPLANATION TO SECTION 11 5JB(2) PROVIDES THAT PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT BE INCREASED BY THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH, INTER ALIA, SECTION 10A OR 10B APP LY. THE AMOUNT OF INCOME TO WHICH, INTER ALIA, SECTION 10A/ 10B APPLIES, IF SUCH AMOUNT IS CREDITED TO THE PROFIT A ND LOSS ACCOUNT IT WOULD ONLY REFER TO SUCH AMOUNT AS APPEA RING IN THE BOOKS OF ACCOUNT. SIMILARLY, THE AMOUNT OF EXPE NDITURE, INCLUDING DEPRECIATION RELATABLE TO ANY INCOME TO W HICH SECTION 10A/10B APPLIES, WOULD CERTAINLY REFER TO T HE EXPENSES AND DEPRECIATION DEBITED TO THE PROFIT AND LOSS ACCOUNT AND NOT COMPUTED IN THE MANNER PROVIDED UND ER SECTIONS 28 TO 44 OF THE ACT. THE ASSESSEE, ACCORDI NGLY, WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, ON WHICH TAX WAS PAID, DEEMING THE SAME TO BE THE TOTAL INCOME CHARG EABLE TO TAX IN ITS HANDS, ADJUSTED THE PROFIT AS SHOWN IN T HE PROFIT AND LOSS ACCOUNT TO THE FOLLOWING EXTENT : (I) EXPENDIT URE AND BOOK DEPRECIATION IN RELATION TO TWO UNITS WERE ADDED BA CK TO THE ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 19 OF 25 PROFIT; (II) INCOME OF THE AFORESAID TWO UNITS MINU S OTHER INCOME, INTEREST DIVIDEND, ETC., WERE REDUCED FROM THE PROFIT. THE ASSESSING OFFICER, ON THE OTHER HAND, REDUCED T HE BOOK PROFIT BY DEDUCTION ADMISSIBLE UNDER SECTION 10A/10 B IN RESPECT OF THE AFORESAID UNITS, CALCULATED IN ACCOR DANCE WITH THE PROVISIONS OF THE ACT. THE MAJOR DIFFERENCE IN THE BASIS ADOPTED BY THE ASSESSEE AND THE ASSESSING OFFICER W AS ON ACCOUNT OF ADJUSTMENT OF DEPRECIATION. IN THE BOOKS OF ACCOUNT, DEPRECIATION HAD BEEN CALCULATED ON STRAIG HT LINE METHOD AND THE BOOK PROFIT HAD BEEN COMPUTED TAKING INTO ACCOUNT THE AFORESAID BASIS OF BOOK DEPRECIATION IN TERMS OF CLEAR AND UNAMBIGUOUS MANDATE CONTAINED IN CLAUSE ( III) OF THE PROVISO TO SUB-SECTION (2) OF SECTION 115JB PRO VIDING THAT METHODS AND RATES ADOPTED FOR CALCULATING DEPRECIAT ION WOULD BE SAME AS HAVE BEEN ADOPTED FOR PREPARING THE ACCO UNTS THAT ARE LAID BEFORE ANNUAL GENERAL MEETING CONVENE D AS PER THE PROVISIONS OF SECTION 210 OF THE COMPANIES ACT. THE ASSESSING OFFICER, ON THE OTHER HAND, HAD SOUGHT TO EXCLUDE DEPRECIATION CALCULATED ON THE BASIS OF WRITTEN DOW N VALUE AS PROVIDED IN SECTION 32 WHILE ADDING BACK BOOK DEPRE CIATION. AS A CONSEQUENCE OF THE AFORESAID, EXCLUSION OF INC OME NET OF EXPENSES RELATABLE TO UNITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A/10B HAD BEEN TAKEN BY THE ASSESSING OFFICER AT RS. 9,825.14 LAKHS AS AGAINST RS. 13,343.61 LAKHS EXCLU DED BY THE ASSESSEE. THE ACTION OF THE ASSESSING OFFICER W AS CONTRARY TO THE SCHEME OF SECTION 115JB, THE UNAMBI GUOUS PROVISIONS OF CLAUSE (F ) AND CLAUSE (II) OF EXPLAN ATION TO SECTION 115JB(2) AND THE SETTLED JUDICIAL PRECEDENT IN THIS REGARD. WHILE COMPUTING BOOK PROFIT UNDER SECTION 1 15JB AMOUNT TO BE REDUCED IS INCOME WHICH IS ELIGIBLE FO R EXEMPTION UNDER SECTION 10A/10B AS COMPUTED ON BASI S OF BOOK PROFITS AS PER PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT AND NOT ON BASIS OF PROVISIONS OF ACT . FURTHER, THE CBDT VIDE CIRCULAR NO. 559, DATED 4-5-1990 AND ALSO CIRCULAR NO. 680, DATED 21-2-1994 CLARIFIED THAT FO R THE PURPOSE OF SECTION 115J (WHICH IS PARI MATERIA TO S ECTION 115JB) DEDUCTION UNDER SECTION 80HHC THAT NEEDS TO BE EXCLUDED (FROM BOOK PROFITS) IN TERMS OF CLAUSE (II I ) OF EXPLANATION IS TO BE CALCULATED WITH REFERENCE TO B OOK PROFITS. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DY . CIT V. SYNCOME FORMULATIONS (I) LTD. [2007] 106 ITD 193 (MUM.) CONSIDERING PROVISIONS OF SECTIONS 115JA AND 115JB HELD THAT THE ASSESSING OFFICER IS NOT PERMITTED TO DEVIATE F ROM THE BOOK PROFIT WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT THAT IS TO BE EXCLUDED IN TERMS THEREOF. TH EREFORE, WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB THE ADJUSTMENT, IN TERMS OF CLAUSE (II ) OF EXPLANATION TO SECTION 115JB(2) HAS TO BE FOR THE AMOUNTS CREDITED/DEBITED TO THE PROFIT AND LOSS ACCOUNT, AS THE CASE MAY BE. THEREF ORE, WHILE COMPUTING BOOK PROFIT THE AMOUNT OF RS. 13,343.61 L AKHS AS CLAIMED BY THE ASSESSEE WAS REQUIRED TO BE REDUCED FROM THE ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 20 OF 25 BOOK PROFIT AND NOT THE SUM OF RS. 9,825.14 LAKHS A S COMPUTED BY THE ASSESSING OFFICER IN ACCORDANCE WIT H THE PROVISIONS OF ACT. HENCE, THE APPEAL WAS TO BE ALLO WED. [PARA 5]. 13. SIMILARLY IN THE CASE OF DCIT VS. ROXY INVESTMENTS (P) LTD (24 SOT 227) DELHI TRIBUNAL, THE ISSUE WAS DECIDED AS U NDER: UNDER THE SCHEME OF PROVISIONS OF SECTION 115JB MIN IMUM ALTERNATE TAX (MAT) IS LEVIED WITH REFERENCE TO THE BOOK PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED I N ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI OF THE COMPANIES ACT, 1956, AS OPPOSED TO PROFI TS OR GAINS OF BUSINESS OR PROFESSION AS COMPUTED AS PER THE P ROVISIONS OF THE ACT. THE BOOK PROFIT GETS SUBSTITUTED FOR TH E TOTAL INCOME AS COMPUTED UNDER THE ACT. THE BOOK PROFIT HAS, THE REFORE, TO BE WHOLLY QUARANTINED FROM THE SAID TOTAL INCOME. F OR THE DETERMINATION OF BOOK PROFIT, THUS, ANY MODE AND MA NNER OF COMPUTATION OF TOTAL INCOME UNDER THE ACT HAS NOT T O BE APPLIED UNLESS SPECIFICALLY PROVIDED FOR. THE EXPLA NATION TO SECTION 115JB PROVIDES THE MANNER OF COMPUTATION OF BOOK PROFIT. THE STARTING POINT IS THE BOOK PROFIT AS DI SCLOSED IN THE PROFIT AND LOSS ACCOUNT PREPARED IN ACCORDANCE WITH PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. SUCH PROFIT IS SUBJECT TO ADJUSTMENTS SPECIFIED IN THE EXPLANAT ION TO SAID SECTION. IN TERMS OF CLAUSE (II) OF THE EXPLANATION TO SECTION 115JB (2) THE AMOUNT OF INCOME TO WHICH PROVISIONS, INTER ALIA, OF SECTION 10A/10B APPLY, IF SUCH AMOUNT IS C REDITED IN PROFIT & LOSS ACCOUNT, IT IS TO BE REDUCED FROM THE PROFIT AS PER PROFIT & LOSS ACCOUNT. THE AMOUNT OF INCOME TO WHIC H, INTER ALIA, SECTION 10A/10B APPLIES, IF SUCH AMOUNT IS CR EDITED IN THE PROFIT & LOSS ACCOUNT IT WOULD ONLY REFER TO SU CH AMOUNT AS IS APPEARING IN THE BOOKS OF ACCOUNT. [PARA 12]. A CAREFUL PERUSAL OF CLAUSE (II ) OF THE EXPLANATIO N TO SECTION 115JB(2) REVEALS THAT, THOUGH THE SAID CLAUSE SPEAK S ABOUT THE AMOUNT OF INCOME, YET IT ALSO SPEAKS OF IF, ANY SUCH AMOUNT IS CREDITED IN PROFIT & LOSS ACCOUNT. THUS, WHILE READING THE SAID CLAUSE AS A WHOLE, IT BECOMES CLEA R THAT THE AMOUNT OF INCOME WHICH CAN BE REDUCED BY THE ASSESS ING OFFICER FOR COMPUTING THE BOOK PROFIT UNDER CLAUSE (II) OF THE EXPLANATION TO SECTION 115JB(2), IT WOULD BE THE AM OUNT WHICH IS CREDITED TO THE PROFIT & LOSS ACCOUNT AND NOT THE AMOUNT OF INCOME WHICH IS CLAIMED BY THE ASSESSEE O R DETERMINED BY THE ASSESSING OFFICER WHILE ASSESSING THE INCOME UNDER THE REGULAR PROVISIONS OF THE INCOME-T AX ACT. [PARA 13] THEREFORE, THE IMPUGNED ORDER OF THE COMMISSIONER ( APPEALS) WAS CORRECT AND DESERVED TO BE UPHELD. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 21 OF 25 14. THE HON'BLE SUPREME COURT IN THE CASE OF BHARI INFO RMATION TECH. SYS. (P) LTD CONSIDERED THE ISSUE UNDER THE P ROVISIONS OF SECTION 115JA AND HELD AS UNDER: THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESS MENT YEAR 2000-01. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTI ON 80HHE TO THE EXTENT OF RS.1,56,33,719 AGAINST NET P ROFIT AS PER THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS. 3, 07,84,105 TO ARRIVE AT THE BOOK PROFIT OF RS. 1,51,50,386 UND ER SECTION 115JA OF THE INCOME-TAX ACT, 1961 [SEE : VOL.R/1 OF I.A. PAPER BOOK A- PAGE 6]. THIS CLAIM FOR DEDUCTION MADE BY T HE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER SAYI NG THAT SINCE IN NORMAL COMPUTATION THERE IS NO PROFIT AFTE R CARRY FORWARD LOSS, DEDUCTION UNDER SECTION 80HHE TO THE EXTENT OF RS. 1,56,33,719 FOR COMPUTING BOOK PROFIT UNDER SEC TION 115JA WAS NOT ADMISSIBLE. ACCORDING TO THE ASSESSING OFFICER, SINCE IN THE PR ESENT CASE IN NORMAL COMPUTATION NO NET PROFIT WAS LEFT AFTER THE BROUGHT FORWARD LOSSES OF THE EARLIER YEARS GOT ADJUSTED AG AINST THE CURRENT YEAR'S PROFIT, THE ASSESSEE WAS NOT ENTITLE D TO DEDUCTION UNDER SECTION 80HHE TO THE EXTENT OF RS. 1,56,33,719. IN APPEAL, THE COMMISSIONER OF INCOME- TAX (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER . THE ASSESSEE WENT IN APPEAL, AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME-TAX (APPEALS), BEFORE THE TR IBUNAL WHICH, FOLLOWING THE JUDGMENT OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DEPUTY CIT V. SYNCOME FORMU LATIONS (I) LTD. [2007] 106 ITD 193*, TOOK THE VIEW THAT THE MA T SCHEME WHICH INCLUDES SECTION 115JA DID NOT TAKE AWAY THE BENEFITS GIVEN UNDER SECTION 80HHE. THE SAID JUDGMENT OF THE SPECIAL BENCH WAS WITH REGARD TO COMPUTATION OF DEDUCTION U NDER SECTION 80HHC WHICH, LIKE SECTION 80HHE, FALLS UNDE R CHAPTER VI-A OF THE INCOME-TAX ACT, 1961. IN THE SAID JUDGMENT OF SPECIAL BENCH, WHICH SQUARE LY APPLIES TO THE FACTS OF THE PRESENT CASE, THE TRIBUNAL HELD THAT THE DEDUCTION UNDER SECTION 80HHC (SECTION 80HHE ALSO F ALLS IN CHAPTER VI-A) IS TO BE WORKED OUT NOT ON THE BASIS OF REGULAR INCOME-TAX PROFITS BUT IT HAS TO BE WORKED OUT ON T HE BASIS OF THE ADJUSTED BOOK PROFITS IN A CASE WHERE SECTION 1 15JA IS APPLICABLE. IN THE SAID JUDGMENT, THE DICHOTOMY BET WEEN REGULAR INCOME-TAX PROFITS AND ADJUSTED BOOK PROFIT S UNDER SECTION 115JA IS CLEARLY BROUGHT OUT. THE TRIBUNAL IN THE SAID JUDGMENT RIGHTLY HELD THAT IN SECTION 115JA RELIEF HAS TO BE COMPUTED UNDER SECTION 80HHC(3)/(3A). ACCORDING TO THE TRIBUNAL, ONCE THE LAW ITSELF DECLARES THAT THE ADJUSTED BOOK PROFIT IS AMENABLE FOR FURTHER DEDUCTIONS ON SPECIFIED GROUNDS, IN A CASE WHERE SE CTION 80HHC (80HHE IN THE PRESENT CASE) IS OPERATIONAL, I T BECOMES ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 22 OF 25 CLEAR THAT COMPUTATION FOR THE DEDUCTION UNDER THOS E SECTIONS NEEDS TO BE WORKED OUT ON THE BASIS OF THE ADJUSTED BOOK PROFIT [SEE: PARA 61 OF THE JUDGMENT OF THE TRIBUNA L IN SYNCOME FORMULATIONS*.] IN THE PRESENT CASE, WE ARE CONCERNED WITH SECTION 80HHE WHICH IS REFERRED TO IN THE EXPLANATION TO SECTION 115JA, CLAUSE (IX). IN OUR VIEW, THE JUDGMENT OF THE SPECI AL BENCH OF THE TRIBUNAL IN SYNCOME FORMULATIONS* SQUARELY APPL IES TO THE PRESENT CASE. FOLLOWING THE VIEW TAKEN BY THE SPECI AL BENCH IN SYNCOME FORMULATIONS*, THE TRIBUNAL IN THE PRESE NT CASE CAME TO THE CONCLUSION THAT DEDUCTION CLAIMED BY TH E ASSESSEE UNDER SECTION 80HHE HAS TO BE WORKED OUT O N THE BASIS OF ADJUSTED BOOK PROFIT UNDER SECTION 115JA A ND NOT ON THE BASIS OF THE PROFITS COMPUTED UNDER REGULAR PRO VISIONS OF LAW APPLICABLE TO COMPUTATION OF PROFITS AND GAINS OF BUSINESS. THE JUDGMENT OF THE TRIBUNAL HAS BEEN UPHELD BY THE HIGH COURT. WE SEE NO REASON TO INTERFERE WITH THE IMPUG NED JUDGMENT. WE AGREE WITH THE VIEW TAKEN BY THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF SYNCOME FORMULATIONS 1 VIDE PARA 61 OF THE JUDGMENT. ACCORDINGLY, THE SPECIAL L EAVE PETITION FILED BY THE DEPARTMENT STANDS DISMISSED W ITH NO ORDER AS TO COSTS . 15. SINCE THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPRE ME COURT IN THE CASE OF BHARI INFORMATION TECH. SYS. (P) LTD ( SUPRA) WHILE WORKING OUT DEDUCTION UNDER SECTION 80HHC ARE EQUAL LY APPLICABLE TO THE PROVISIONS OF SECTION 10B WHILE WORKING OUT DEDUCTION UNDER SECTION 115JB, RESPECTFULLY FOLLOWING THE SAME AND DECISIONS OF COORDINATE BENCHES ABOVE, WE UPHOLD ASSESSEES CONT ENTIONS. ACCORDINGLY, AO IS DIRECTED TO REWORK OUT THE COMPU TATION UNDER SECTION 115JB KEEPING IN VIEW THE ABOVE PRINCIPLES. ASSESSEES GROUND IS ALLOWED. 16. THE OTHER GROUND RELATING TO LEVY OF INTEREST ARE C ONSEQUENTIAL IN NATURE. THE GROUND ON INITIATION OF PENALTY PROC EEDINGS IS ALSO PREMATURE AS THE PROCEEDINGS HAVE ONLY BEEN INITIAT ED AND NOT CONCLUDED. THESE GROUNDS ARE THEREFORE ACADEMIC IN NATURE. 17. SINCE THE ISSUES IN ASSESSMENT YEAR 2005-06 AND 200 7-08 ON THE ABOVE ISSUE ARE DECIDED IN FAVOUR OF ASSESSEE, THE APPEALS TO THAT EXTENT ARE ALLOWED. IN AY 2006-07, THE ISSUE O N MERITS IS SAME ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 23 OF 25 AND ACCORDINGLY ASSESSEES GROUNDS ON MERITS ARE AL SO ALLOWED. IN ADDITION TO THE ISSUE ON MERITS, ASSESSEE IS ALSO C ONTENDING THAT AO CANNOT RECTIFY THE ISSUE UNDER SECTION 154 AS THE M ISTAKE SHOULD BE OBVIOUS AND PATENT AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY LONG DRAWN PROCESS OF REASONING ON POINTS ON WHICH THERE MAY CONCEIVABLY OF TWO OPINIONS. ASSESSEES OBJECTIONS ARE VALID AS THE ISSUES CANNOT BE RECTIFIED UNDER SECTION 154. HOWEV ER, SINCE ASSESSEES GROUNDS ON MERITS WERE CONSIDERED IN ITS FAVOUR, THE DECISION ON THIS IS ONLY ACADEMIC IN NATURE. THEREF ORE, THE APPEAL IN ASSESSMENT YEAR 2006-07 IS ALSO DECIDED IN FAVOUR O F ASSESSEE WITHOUT ADJUDICATING THE GROUND NO.1 ON THE JURISDI CTION UNDER SECTION 154. AO IS DIRECTED TO MODIFY THE ORDER ACC ORDINGLY IN THE LIGHT OF THE DECISION GIVEN ABOVE ON SECTIONS 10B A ND 115JB CLAIMS AND TO RESTORE THE ORIGINAL 143(3) ORDER. 18. ONE MORE GROUND RAISED IN ASSESSMENT YEAR 2007-08 I S WITH REFERENCE TO THE ACTION OF AO OF NOT ALLOWING THE D EDUCTION ON PROVISIONS OF FRINGE BENEFIT TAX OF ` .21,01,800/- AND PROVISION OF WEALTH TAX OF ` .90,000/- WHILE COMPUTING BOOK PROFITS UNDER SECTIO N 115JB. THE ISSUE ARISES IN THE ORDER IN A WAY THAT AO WORKED OUT THE NET PROFIT FROM BUSINESS AT NIL AFTER SETTING O FF THE BROUGHT FORWARD LOSSES AND DEPRECIATION AGAINST THE CURRENT YEAR INCOME. WHILE DOING SO AO ADDED BACK THE PROVISIONS OF FRIN GE BENEFIT TAX, PROVISION OF WEALTH TAX IN THE COMPUTATION. IT WAS THE CONTENTION THAT THESE TWO AMOUNTS ARE TO BE ALLOWED. WHILE ARG UING IT WAS INFORMED THAT AS FAR AS WEALTH TAX IS CONCERNED, TH E SAME IS NOT COVERED BY PROVISIONS OF SECTION 115JB AND SUBMITTE D THAT AO HAS ADDED AN AMOUNT OF ` .90 LAKHS AS AGAINST ` .90,000/- OFFERED BY ASSESSEE. THE LEARNED COUNSEL SUBMITTED THAT THE AB OVE MISTAKE CAN BE RECTIFIED. WITH REFERENCE TO PROVISIONS OF F BT, IT WAS SUBMITTED THAT THE DECISION OF ITAT IN THE CASE OF ACIT VS. BALARAMPUR CHINI MILLS LTD, 109 ITD 146 (CAL.) AND INCOME TAX ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 24 OF 25 OFFICER VS. VINTAGE DISTILLERS LTD,(130 TTJ 79) ( D ELHI) ARE APPLICABLE AND CBDT CIRCULAR NO.8 DATED 29 TH AUGUST, 2005 IS ALSO APPLICABLE. HOWEVER, THE CIT (A) DID NOT AGREE TO THE ABOVE ARG UMENTS. 19. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE WEALTH TAX IS CONCERNED, THE SAME CANNOT BE CONSIDERED AS PART OF INCOME TAX AND ASSESSEE ITSELF OFFERED THE INCOME AT ` .90,000/- FOR DISALLOWANCE IN THE WORKING OF INCOME UNDER SECTION 115JB. AS SE EN FROM THE ORDER OF THE ASSESSMENT, AO MENTIONED AN AMOUNT OF ` .90.00 LAKHS AGAINST THE PROVISION OF WEALTH TAX WHICH SEEMS TO BE A TYPOGRAPHIC ERROR AS THE AMOUNTS ADDED WAS AT ` .90,000/- ONLY. THE TOTAL AMOUNT ADDED BACK WAS AT ` .1,18,31,598/- WHICH INCLUDE PROVISIONS OF WARRANTEES ` .40,29,798/-, DIVIDEND DISTRIBUTION TAX ` .56,10,100/-, PROVISIONS OF FBT ` .21,01,800/- AND PROVISIONS OF WEALTH TAX AT ` .90,000/- WHICH MAKES TOTAL TO ` .1,80,31,598/-. THEREFORE, EVEN THOUGH THE COUNSEL SUBMITTED FOR RE CTIFICATION OF THE AMOUNT, SINCE IT IS ONLY A TYPOGRAPHICAL ERROR, THERE IS NO NEED TO MODIFY THE ORDER OF AO. HOWEVER, AO IS DIRECTED TO KEEP IN MIND ` .90,000/- ONLY WHICH CAN BE DISALLOWED AS PER THE P ROVISIONS OF WEALTH TAX WHILE GIVING EFFECT TO THIS ORDER. 20. WITH REFERENCE TO THE FBT, THE BOARD CIRCULAR IS V ERY CLEAR WHICH IS AS UNDER: WHETHER FBT WOULD BE ALLOWABLE DEDUCTION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB?. 103. FBT IS A LIABILITY QUA EMPLOYER. IT IS AN EXPE NDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE EMPLO YER. HOWEVER, SUB-CLAUSE (IC) OF CLAUSE (A) OF SECTION 4 0 OF THE INCOME-TAX ACT EXPRESSLY PROHIBITS THE DEDUCTION OF THE AMOUNT OF FBT PAID, FOR THE PURPOSES OF COMPUTING T HE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. THIS PROHIBITION DOES NOT APPLY TO THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSES OF SE CTION 115JB. ACCORDINGLY, THE FBT IS AN ALLOWABLE DEDUCTI ON IN THE COMPUTATION OF BOOK PROFIT UNDER SECTION 1 15JB OF THE INCOME TAX ACT. ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/ ITA NOS.7040 TO 7042 & 245/MUM/2011 2011 2011 2011 ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI ASB INTERNATIONAL (P) LTD MUMBAI PAGE 25 OF 25 21. THE BOARD CIRCULAR TREATS IT AS PART OF INCOME TAX. AO IS BOUND BY THE BOARD CIRCULAR. THEREFORE, HE IS DIREC TED TO EXCLUDE THE AMOUNT OF FBT IN THE COMPUTATION OF BOOK PROFITS UN DER SECTION 115JB. ACCORDINGLY, THE GROUND FOR ASSESSMENT YEAR 2007-08 IS PARTLY ALLOWED. 22. IN THE RESULT APPEAL IN ITA NOS.7040 & 7041/MUM/201 1 ARE ALLOWED, ITA NO.7042/MUM/2011 IS PARTLY ALLOWED AND ITA NO.245/MUM/2011 IS DISMISSED AS WITHDRAWN. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2012. SD/- SD/- (I.P. BANSAL) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 29 TH JUNE, 2012 VINODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. THE DR, A BENCH, IAT MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI