2011 (2) TMI 508 - HC - Income Tax

Exemption u/s 10B - Book profit u/s 115JA - Revised return - 100% export oriented unit - Scrutiny - whether the assessee was entitled to file a revised return and to withdraw the claim for exemption under section 10B of the I.T. Act, which had been claimed in the original return - Since there was a slump in the economy due to market conditions, the appellant probably felt that it would be impossible to maintain export sales to the extent of 75% of total sales in the following years - Since the appellant had filed the original return in time and the claim under section 10B had been made for the first time, he was free to withdraw the claim before any assessment was made Since interest is a revenue receipt, therefore, it is held to be a business income and since the interest income has been included in the profit & loss account, the interest paid on borrowed funds is automatically set off against the interest income - the interest earned on deposits which has been held to be business income and which is reflected in the profit & loss account, gets set off against the interest paid which debited to the profit & loss account.

Summary

Issues:
1. Validity of filing revised return under Section 139(5) of the Income Tax Act, 1961.
2. Entitlement to withdraw exemption claimed under Section 10B of the Act in the original return.

Analysis:

Issue 1: Validity of filing revised return under Section 139(5) of the Income Tax Act, 1961

The appeal was filed by the revenue under Section 260A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal. The assessee had initially filed the original return claiming exemption under Section 10B of the Act but later filed a revised return under Section 139(5) by withdrawing the exemption. The Assessing Officer held the interest income as taxable under the head "other sources." The CIT(A) allowed the claim of the assessee, stating that the assessee was entitled to file a revised return under Section 139(5) and withdraw the exemption claimed under Section 10B. The Tribunal affirmed this view, and the High Court upheld the decision, citing precedents and emphasizing the assessee's right to file a revised return.

Issue 2: Entitlement to withdraw exemption claimed under Section 10B of the Act in the original return

The revenue contended that the assessee was not entitled to withdraw the exemption claimed under Section 10B unless there was a wrong statement or omission in the original return. However, the High Court referred to previous judgments and held that once a revised return is filed under Section 139(5), it substitutes the original return. The CIT(A) also noted that the appellant had valid reasons for withdrawing the exemption under Section 10B due to unfavorable market conditions affecting export obligations. The High Court agreed with the CIT(A) and the Tribunal's decision, emphasizing the assessee's competence to file a revised return and withdraw the exemption claim under Section 10B.

In conclusion, the High Court dismissed the appeal, stating that the revenue failed to show any incorrectness in the approach of the CIT(A) and the Tribunal. The Court upheld the assessee's right to file a revised return under Section 139(5) and withdraw the exemption claimed under Section 10B, based on valid reasons and in accordance with the provisions of the Income Tax Act.