2015 (4) TMI 410 - HC - Income Tax

Set off of unabsorbed business loss brought forward against the profits of the erstwhile 10A unit - claim for set off disallowed by AO as such claim of set off or brought forward business loss against the profits of the erstwhile 10A unit in the year under consideration, being the first assessment year, after the expiry of the tax holiday period, cannot be allowed - Tribunal allowed the claim - Held that - Subject to the provisions of section 10A, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking 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. We are not as much concerned with the proviso and other subsections, save and except subsection (6). The Tribunal has understood that this subsection contains non obstante clause and therefore, notwithstanding anything contained in any other provision of the Act, in computing the total income of the Assesee of the previous 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, as per clause (ii) thereof, no loss referred to in section (1) of section 72 or subsection (1) or subsection (3) of section 74 insofar as such loss 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. In clause (ii) w.e.f. 1st April, 2004, the words ending before the 1st day of April, 2001 were inserted. It is this insertion which has enabled the Tribunal to hold that if the losses pertain to any subsequent assessment year, then, the understanding of the Revenue as reflected in the Circulars would bind it. That understanding apart, independently, the Tribunal has analysed this provision and found that by virtue of the nonobstante clause and by virtue of wording of sub clause (ii) that the Revenue could not have disallowed this claim of set off. We therefore do not find that in allowing the Appeal of the Assessee, the Tribunal has committed any error of law apparent on the face of the record or acted perversely. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Tribunal was justified in upholding the Assessee's claim for set off of unabsorbed business loss brought forward from assessment year 2002-03 against the profits of the erstwhile 10A unit.
2. Interpretation and application of Section 10A and its subsections, particularly subsection (6) of the Income Tax Act, 1961.
3. Whether the Tribunal's decision aligns with the legal precedents set by the High Court in similar cases.

Detailed Analysis:

1. Justification of Set Off Claim:
The primary issue revolves around the Tribunal's decision to uphold the Assessee's claim for setting off unabsorbed business loss from the assessment year 2002-03 against the profits of the 10A unit for the assessment year 2005-06. The Assessing Officer had disallowed this claim on the grounds that the unabsorbed loss had already been set off against the profits of the 10A unit in the assessment years 2003-04 and 2004-05, leaving no loss to be set off in 2005-06. The Tribunal, however, allowed the Assessee's appeal, leading the Revenue to challenge this decision under section 260A of the IT Act. The Tribunal's understanding was that the Assessee was entitled to carry forward the loss from 2002-03 and set it off against the profits of the 10A unit as per the provisions of the IT Act.

2. Interpretation and Application of Section 10A:
Section 10A of the IT Act provides for a deduction of profits derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years. The Tribunal referred to subsection (6) of Section 10A, which contains a non obstante clause, indicating that notwithstanding other provisions of the Act, certain allowances or deductions relating to the relevant assessment years ending before April 1, 2001, would not be carried forward or set off. The Tribunal noted that the insertion of the words "ending before the 1st day of April, 2001" in clause (ii) of subsection (6) allowed for the set off of losses pertaining to subsequent assessment years. This interpretation was supported by Circular No. 7 of 2005 issued by the Central Board of Direct Tax, which clarified that losses arising in the assessment year 2001-02 and subsequent years were to be allowed while computing income under section 10A.

3. Alignment with Legal Precedents:
The Tribunal's decision was also examined in light of legal precedents set by the High Court in similar cases, specifically the judgments in Hindustan Unilever Limited (325 ITR 102) and Black & Veatch Consulting Pvt. Ltd. (ITA No. 1237 of 2011). The Tribunal applied the principles laid down in these cases to the present case, concluding that the Assessee's claim for set off was justified. The Revenue's counsel argued that the Tribunal failed to appreciate that the unabsorbed business losses had already been set off in previous years, but the Tribunal found that the non obstante clause in subsection (6) of Section 10A and the relevant Circulars supported the Assessee's claim.

Conclusion:
The High Court concluded that the Tribunal did not commit any error of law or act perversely in allowing the Assessee's appeal. The Tribunal's interpretation of Section 10A and its subsections, particularly the non obstante clause in subsection (6), was found to be correct. The appeals did not raise any substantial question of law and were accordingly dismissed. The High Court also noted that the facts and issues in Income Tax Appeal No. 1376 of 2013, pertaining to the assessment year 2004-05, were identical to those in Appeal No. 1336 of 2013, and thus, the conclusions reached in the latter applied to the former as well. Both appeals were dismissed without any order as to costs.