ACIT 8(1), MUMBAI V. DUFLON POLYMERS P. LTD, MUMBAI

ITA 94/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4245 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 06-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 115JB; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER & SHRI SANJAY GARG, JUDICIAL MEMBER ITA NOS. 95/MUM/2011, 94/MUM/2011 & 8186/MUM/2011 ASSESSMENT YEARS: 2006-07, 2007-08 & 2008 -09 DCIT-8(1), ROOM NO. 210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 VS. M/S DUFLON POLYMERS PVT. LTD. 3, NEEL DHARA, GR. FLOOR SHRADDHANAND EXTN. ROAD, VILE PARLE (EAST) MUMBAI-400 057 PAN: AAACD1668G (APPELLANT) (RESPONDENT) REVENUE BY : MR. PAVAN VED ASSESSEE BY : DEEPAK TRALSHAWALA DATE OF HEARING : 25.06.2013 DATE OF PRONOUNCEMENT : 10.07.2013 O R D E R PER SANJAY GARG, JM: THE PRESENT THREE APPEALS ARE RELATED TO ASSESSMENT OF INCOME OF THE SAME ASSESSEE PERTAINING TO THREE DIFFERENT ASSESSMENT Y EARS I.E. A.Y. 2006-07, 2007-08 AND 2008-09. 2. THE FACTS AS WELL AS THE QUESTION OF LAW INVOLVE D IN ALL THESE APPEALS ARE COMMON, HENCE THESE ARE TAKEN UP FOR CONSIDERATION TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. 3. THE COMMON QUESTION OF LAW INVOLVED IN ALL ABOVE NOTED THREE APPEALS IS THAT WHETHER THE LEARNED CIT(A) WAS JUSTIFIED WHILE HOLD ING THAT PROFITS DERIVED FROM ELIGIBLE (10B) UNIT CANNOT BE ADJUSTED AGAINST THE LOSS FROM NON-ELIGIBLE UNIT. FOR THE SAKE OF CONVENIENCE, THE FACTS ARE TAKEN FROM ITA N O. 95/M/2011. ITA NOS. 95, 94 AND 8186 /MUM/2011 THE DY. C.I.T. 8(1) V. M/S DUFLON POLYMERS PVT. LTD ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09 2 4. THE ASSESSEE IS A PVT. LTD. COMPANY HAVING TWO S EPARATE DIVISIONS I.E. A MANUFACTURING DIVISION AND AN E-LEARNING DIVISION. THE MANUFACTURING DIVISION IS AN EXPORT ORIENTED UNIT ELIGIBLE FOR DEDUCTION UNDER S ECTION 10B OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS 10B EXEMPT UNIT). THE ASSESSEE FILED RETURN OF INCOME FOR A.Y. 2006-07 DECLARING TOTAL INCOME OF R S. 27,52,239/- UNDER NORMAL PROVISIONS OF THE ACT AND DECLARED BOOK PROFIT OF R S. NIL UNDER SECTION 115JB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTIO N 143(3) OF THE ACT, AO NOTICED THAT THE ASSESSEE IN THE BALANCE SHEET HAD SHOWN A CAPITAL WORK IN PROGRESS OF RS. 11,97,10,124/-. IT WAS ALSO NOTICED THAT THE ASSES SEE HAD SHOWN A REVENUE RECEIPT OF RS. 2,82,42,541/- FROM THE E-LEARNING DIVISION. ON ENQUIRY, IT WAS REVEALED BY THE ASSESSEE THAT THE E-LEARNING DIVISION WAS IN NASCEN T STAGE, HENCE ALL THE EXPENSES RELATED TO THAT DIVISION NET OF REVENUE HAD BEEN CA PITALIZED AND WERE SHOWN UNDER THE HEAD CAPITAL WIP. HOWEVER, THE AO DID NOT ACC EPT THE CONTENTION OF THE ASSESSEE AND HELD THAT THE BUSINESS ACTIVITY OF THE E-LEARNING DIVISION WAS IN FULL SWING DURING THE ASSESSMENT YEAR IN QUESTION, HENCE THE EXPENDITURE CANNOT BE CAPITALIZED RATHER THE SAME WERE OF REVENUE IN NATU RE. HE FURTHER OBSERVED THAT AFTER DRAWING THE PROFIT AND LOSS ACCOUNT AS ON 31. 03.2007 OF THE E-LEARNING DIVISION, THE LOSS SO DETERMINED WAS REQUIRED TO BE SET-OFF A GAINST THE BUSINESS INCOME. THE AO FURTHER ADJUSTED THE LOSS FROM E-LEARNING DIVISI ON AGAINST THE PROFITS FROM THE 10B EXEMPT UNIT OF THE ASSESSEE COMPANY. 5. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE LEARNED CIT(A). THE LEARNED CIT(A) SUSTAINED THE ACTION OF THE AO IN CO NSIDERING THE NATURE OF EXPENDITURE AS REVENUE IN NATURE AND THAT THE SAME CANNOT BE CAPITALIZED AS WORK IN PROGRESS. HOWEVER, WITH REGARD TO THE ADJUSTMEN T OF LOSSES FROM E-LEARNING DIVISION AGAINST THE PROFITS OF 10B EXEMPT UNIT T HE LEARNED CIT(A) HELD THAT THE LOSSES OF A NON-ELIGIBLE UNIT CANNOT BE SET-OFF AGA INST THE PROFIT OF A 10B ELIGIBLE UNIT, HENCE THIS ISSUE WAS DECIDED BY HIM IN FAVOUR OF T HE ASSESSEE. THE REVENUE IS, THUS, IN APPEALS BEFORE US. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES. THE LEARNED AR HAS BROUGHT OUR ATTENTION TO THE LAW LAID DOWN BY T HE HONBLE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX V. YOKOGAWA INDIA LTD. 341 ITR 385. THE QUESTION ITA NOS. 95, 94 AND 8186 /MUM/2011 THE DY. C.I.T. 8(1) V. M/S DUFLON POLYMERS PVT. LTD ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09 3 BEFORE THE HONBLE KARNATAKA HIGH COURT IN THE ABOV E SAID CASE WAS THAT WHETHER INCOME OF SECTION 10A EXEMPT UNIT HAS TO BE EXCLUDE D AT SOURCE ITSELF AND WHETHER THE LOSS OF NON-ELIGIBLE UNIT CAN BE SET-OFF AGAINS T INCOME OF SECTION 10A ELIGIBLE UNIT. 7. THE HONBLE HIGH COURT OBSERVED THAT SECTION 10 A IS PLACED IN CHAPTER III OF THE INCOME TAX ACT WHICH DEALS WITH THE INCOMES WHI CH DO NOT FORM PART OF THE TOTAL INCOME. THE PHRASE TOTAL INCOME AS DEFINED UNDER SECTION 2(45) CANNOT BE UNDERSTOOD IN THE SAME SENSE WHILE READING SECTION 10A. AS PER THE SCHEME OF THE INCOME TAX ACT, THE TOTAL INCOME IS COMPUTED FOR TH E PURPOSE OF LEVY OF TAX. THE COMPUTATION OF TOTAL INCOME BEGINS ONLY WITH CHAPTE R IV, BUT, AS SECTION 10A IS COVERED UNDER CHAPTER III, HENCE, THE PHRASE TOTAL INCOME USED IN SECTION 10A CANNOT BE UNDERSTOOD IN THE SAME SENSE AS DEFINED I N SECTION 2(45). THE HONBLE HIGH COURT FURTHER OBSERVED THAT THE BENEFITS UNDER SECTION 10A HAVE BEEN GIVEN IN RELATION TO A PARTICULAR EXPORT ORIENTED UNIT, HENC E THE DEDUCTION IS NOT TO BE MADE FROM THE TOTAL INCOME OF THE ASSESSEE, RATHER THE P ROFITS ARE EXEMPT IN RELATION TO A PARTICULAR ELIGIBLE UNIT. THE RELIEF UNDER SECTION 10A HAS TO BE GIVEN BEFORE COMPUTATION OF INCOME UNDER CHAPTER IV. THE HONBLE HIGH COURT FURTHER IN PARA 17 OF THE JUDGMENT HAS OBSERVED AS UNDER:- 17. THE SUBSTITUTED SECTION 10A CONTINUES TO REMAI N 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 FINAN CE ACT, 2001, PARLIAMENT WAS AWARE OF THE CHARACTER OF RELIEF GIV EN IN CHAPTER III. CHAPTER III DEALS WITH INCOMES WHICH DO NOT FORM PA RT OF TOTAL INCOME. IF PARLIAMENT INTENDED THAT THE RELIEF UNDER SECTION 1 0A SHOULD BE BY WAY OF DEDUCTION IN THE NORMAL COURSE OF COMPUTATION OF TO TAL INCOME, IT COULD HAVE PLACED THE SAME IN CHAPTER VI-A WHICH HOUSES T HE SECTIONS LIKE 80HHC, 80-1A, ETC. PARLIAMENT WAS AWARE OF THE VARI OUS RESTRICTING AND LIMITING PROVISIONS LIKE SECTION 80A AND SECTION 80 AB WHICH WAS IN CHAPTER VI-A WHICH DO NOT APPEAR IN CHAPTER III. THE FACT T HAT EVEN AFTER ITS RECAST, THE RELIEF HAS BEEN RETAINED IN CHAPTER III INDICATES THAT THE INTENTION OF PARLIAMENT IT IS TO BE REGARDED AS AN EXEMPTION AND NOT A DEDUCTION. THE ACT OF PARLIAMENT IN CONSCIOUSLY RET AINING THIS SECTION IN CHAPTER III INDICATES ITS INTENTION THAT THE NATURE OF RELIEF CONTINUES TO BE AN EXEMPTION. CHAPTER VII DEALS WITH THE INCOMES FO RMING PART OF THE TOTAL INCOME ON WHICH NO INCOME-TAX IS PAYABLE. THE SE ARE THE INCOMES WHICH ARE EXEMPTED FROM CHARGE, BUT ARE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. PARLIAMENT, DESPITE BEING CONVERSANT WITH THE IMPLICATIONS ITA NOS. 95, 94 AND 8186 /MUM/2011 THE DY. C.I.T. 8(1) V. M/S DUFLON POLYMERS PVT. LTD ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09 4 OF THIS CHAPTER, HAS CONSCIOUSLY CHOSEN TO RETAIN S ECTION 10A IN CHAPTER III. 8. AND HONBLE HIGH COURT HAS FURTHER HELD IN PARA 20 OF THE JUDGMENT AS UNDER:- 20. 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 SECTION 1 0A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NOT AFTER COMPUTING T HE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTEXT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME 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 SOURCE LEVEL. 9. THE HONBLE HIGH COURT HAS FURTHER OBSERVED THAT THE INCOME OF SECTION 10A UNIT HAS TO BE EXCLUDED AT SOURCE ITSELF AND THE LO SS OF NON-ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE INCOME OF SECTION 10A UNIT UNDER SE CTION 72 OBSERVING AS UNDER:- 33. AS THE INCOME OF THE SECTION 10A UNIT HAS TO B E EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME, T HE LOSS OF THE NON-SECTION 10A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF TH E SECTION 10A UNIT UNDER SECTION 72. THE LOSS INCURRED BY THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION HAS T O BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFE SSION CARRIED ON BY SUCH ASSESSEE. THEREFORE, AS THE PROFITS AND GAINS 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 O F BUSINESS AGAINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARIS E. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE F IRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRE NT YEARS DEPRECIATION UNDER SECTION 32(2) IS TO BE SET OFF. AS DEDUCTION UNDER SECTION 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSE E THE QUESTION OF UNABSORBED 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 CONTRARY TO TH E AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL A S THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMEN T ORDER AND GRANTING THE BENEFIT OF SECTION 10A TO THE ASSESSEE HENCE, THE M AIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. 10. THE ALMOST SIMILAR PROPOSITION OF LAW HAS BEEN LAID DOWN BY THE HONBLE DELHI HIGH COURT IN COMMISSIONER OF INCOME-TAX V. TEI TECHNOLOGIES (P.) LTD. ITA NOS. 95, 94 AND 8186 /MUM/2011 THE DY. C.I.T. 8(1) V. M/S DUFLON POLYMERS PVT. LTD ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09 5 11. IT MAY BE OBSERVED THAT THE PROVISIONS OF SECTI ON 10A ARE AKIN TO THE PROVISIONS OF SECTION 10B OF THE INCOME TAX ACT. WH EREAS, THE PROVISIONS OF FORMER SECTION ARE APPLICABLE IN CASE OF UNDERTAKINGS ESTA BLISHED IN FREE TRADE ZONE ETC., THE PROVISIONS OF LATTER SECTION ARE APPLICABLE TO NEWLY ESTABLISHED EXPORT ORIENTED UNDERTAKINGS. HENCE THE ISSUE IN THE CASE IN HAND I S PURELY COVERED BY THE LAW LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN YOKOGAWA INDIA LTD . (SUPRA) AND BY THE HONBLE DELHI HIGH COURT IN TEI TECHNOLOGIES (P.) LTD. (SUPRA). 12. AT THIS STAGE, THE LEARNED DR HAS STRONGLY RELI ED UPON THE PROVISIONS OF SECTION 10A(6) OF THE INCOME TAX ACT TO STRESS THE POINT THAT THE PROFITS FROM ELIGIBLE 10A UNIT ARE NOT EXEMPT AFTER AMENDMENT TO THE SAID SECTION MADE BY FINANCE ACT, 2000, AND THAT THE SAME ARE TO BE ALLOWED AS DEDUCT ION FROM THE TOTAL INCOME OF THE ASSESSEE. IT MAY BE OBSERVED THAT THE HONBLE KARNA TAKA HIGH COURT IN YOKOGAWA INDIA LTD . (SUPRA) HAS ELABORATELY DISCUSSED ALL THE PROVISI ONS OF SECTION 10A INCLUDING SECTION 10A(6), HENCE THERE IS NO FURTHER SCOPE OF ANY INTERPRETATION OF THE SAID PROVISIONS BY THIS TRIBUNAL. SO, IN VIEW OF TH E LAW LAID DOWN BY THE HONBLE HIGH COURTS OF KARNATAKA AND DELHI, WE DO NOT FIND ANY M ERIT IN THE APPEALS FILED BY THE REVENUE AND THE SAME ARE HEREBY DISMISSED. 13. IN THE RESULT, ALL THE ABOVE TITLED THREE APPEA LS FILED BY THE REVENUE ARE HEREBY DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10TH DAY OF JULY, 2013. SD/- SD/- (R.S. SYAL) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:10.07.2013. *KKM COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR D BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.