2010 (7) TMI 483 - AT - Income Tax

Set off and carry forward Unabsorbed depreciation Exemption u/s 10B - Deduction u/s 80HHC - Held that In accordance with the majority view, therefore, it is held that the unabsorbed depreciation in respect of Unit A for assessment year 1994-95 to 1996-97 and could be set off against its assessable income for the assessment years 2000-01, 2001-02, 2002-03, 2004-05 and 2006-07. Likewise, the unabsorbed depreciation of Unit B for assessment year 1997-98 could be set off against the taxable income for assessment year 2006-07, deciding the said issue in favour of the assessee and against the revenue. - Decided by third member by majority view. DEPB Income - taxability u/s 28 - Held that section 28(iiid) would apply only to the profit realised on the transfer of DEPB license(s) by the assessee during the relevant year. Deduction u/s 80HHC - third proviso to section 80HHC(3) is applicable only to the profit arising on the transfer of the credit(s) available under the DEPB scheme, which is to be reckoned by taking its face value as its cost which, in turn, would be assessed to tax under section 28(iiib) in the year in which the Application to the appropriate authority stands made by the assessee after effecting the export.

Summary

Issues Involved:
1. Set off of unabsorbed depreciation for assessment years 1994-95 to 1996-97 against other income for assessment years 2001-02, 2002-03, and 2004-05.
2. Computation of deduction under section 10B for eligible undertakings.
3. Applicability of section 10B(6) and section 32(2) concerning unabsorbed depreciation.
4. Computation of book profit under section 115JB.
5. Applicability of section 28(iiid) concerning DEPB license profits.

Issue-wise Analysis:

1. Set off of Unabsorbed Depreciation:
The primary issue raised by the assessee was whether unabsorbed depreciation from assessment years 1994-95 and 1996-97 could be set off against other income for assessment years 2001-02, 2002-03, and 2004-05. The Tribunal found that the ld. CIT(A) did not pass a speaking order on this issue, only reproducing the direction by the ld. CIT under section 263. The Tribunal held that the unabsorbed depreciation for the relevant years could not be set off against the assessee's other income, referencing the decision in CIT v. Himatasingike Seide Ltd., which stated that section 10B is an exemption provision and unabsorbed depreciation should be adjusted against the income of the export-oriented undertaking.

2. Computation of Deduction under Section 10B:
The Tribunal emphasized that the deduction under section 10B is in the nature of a relief for the assessee's undertaking(s) and not the assessee itself. The income from eligible undertakings should be computed separately under the head 'Profits and gains of business or profession' without impacting the assessee's income from other sources. This view was supported by the Special Bench decision in Scientific Atlanta India Technology (P.) Ltd. v. Asstt. CIT.

3. Applicability of Section 10B(6) and Section 32(2):
The Tribunal elaborated that section 32(2) deems unabsorbed depreciation to merge with the depreciation for the following year. However, section 10B(6) restricts the carry forward of unabsorbed depreciation beyond the last of the relevant assessment years. The Tribunal concluded that the unabsorbed depreciation for the eligible undertakings could not be set off against other income, aligning with the decision in Himatasingike Seide Ltd.

4. Computation of Book Profit under Section 115JB:
The assessee argued that its book profit under section 115JB should be computed by deducting the profit eligible for deduction under section 80HHC. The Tribunal restored the matter to the Assessing Officer for computing the amounts assessable under sections 28(iiib) and 28(iiid) and the corresponding deduction under section 80HHC, in line with the decision in Topman Exports v. ITO.

5. Applicability of Section 28(iiid) Concerning DEPB License Profits:
The Tribunal noted that the profit under section 28(iiid) applies only to the profit realized on the transfer of DEPB licenses during the relevant year. The matter was restored to the Assessing Officer for computing the amounts assessable under sections 28(iiib) and 28(iiid) and the corresponding deduction under section 80HHC, following the decision in Topman Exports.

Separate Dissent Order:
The Judicial Member dissented, arguing that the restriction under section 10B(6) does not make sense where the relief is no longer one of total exemption but only a proportionate deduction. He held that the set off of losses against the balance of income should be allowed and that the profits remaining after the deduction under section 10B should be treated as business profits. The dissenting view emphasized a liberal interpretation of incentive provisions to subserve the purpose for which they are enacted.

Third Member Order:
The Third Member agreed with the Judicial Member, holding that the issue of set off of unabsorbed depreciation against other taxable income is covered by the Tribunal's decision in the assessee's own case for assessment year 2005-06. The Third Member emphasized that a co-ordinate Bench should not differ from an earlier decision simply because a contrary view is possible.

Final Order:
In accordance with the majority view, the Tribunal held that the unabsorbed depreciation for Unit A (assessment years 1994-95 to 1996-97) and Unit B (assessment year 1997-98) could be set off against the taxable income for the relevant years. The assessee's appeals for assessment years 2001-02 and 2002-03 were allowed, and the appeal for assessment year 2004-05 was partly allowed. The revenue's appeal for assessment year 2006-07 was dismissed.