2015 (9) TMI 590 - AT - Income Tax

Setting off of loss of 10A unit against the income from other sources - disallowance made by the AO on account of assessee s claim for setting off of the loss of 10A unit against interest income assessed under the head income from other sources was confirmed by the ld. CIT(A) - Circulars beneficial to the assessee - Held that - Keeping in view the legal position emanating from the judgments of Varghese (K.P.) v. ITO 1981 (9) TMI 1 - SUPREME Court and Keshavji Ravji and Co. v. CIT, 1990 (2) TMI 1 - SUPREME Court that the benevolent Circulars issued by the CBDT are binding on the revenue authorities and having regard to the undisputed position that the Circular dated 16.7.2013 issued by the CBDT is beneficial to the assessee on the issue involved in the present case, relating to set off of the loss of 10A unit claimed by the assessee against income from other sources, we are of the view that the effect of the said Circular is required to be given, as the same is binding on the revenue authorities. We, therefore, set aside the order of the ld. CIT(Appeals) confirming the disallowance made by the AO on account of the assessee s claim for setting off of 10A unit loss against income from other sources and restore the matter to the file of the Assessing Officer for deciding the same afresh, in the light of CBDT Circular dated 16.7.2013 issued recently after the judgment of Hon ble High Court of Karnataka in the case of Yokogawa India Ltd, (2011 (8) TMI 845 - Karnataka High Court ). - Decided in favour of assessee.

Issues Involved:
1. Assessment and reference to Transfer Pricing Officer.
2. Addition of interest income.
3. Levy of Interest under section 234B.
4. Directions issued by the Commissioner of Income Tax (Appeals).
5. Set-off of 10A unit loss against non-10A unit profit and other income.

Detailed Analysis:

1. Assessment and Reference to Transfer Pricing Officer:
The appellant did not press this ground during the hearing. Consequently, the tribunal dismissed this issue as not pressed.

2. Addition of Interest Income:
The appellant contested the treatment of interest income by the Assessing Officer (AO) under the head "income from other sources" instead of "Profits and gains from business and profession." The appellant also argued for the set-off of the resultant current year business loss against the income from other sources under section 71 of the Act. However, these specific grounds were not pressed during the hearing and were dismissed accordingly.

3. Levy of Interest under Section 234B:
The issue regarding the levy of interest under section 234B was acknowledged as consequential by both parties. The tribunal directed the AO to allow consequential relief to the appellant on this issue, thereby resolving it.

4. Directions Issued by the Commissioner of Income Tax (Appeals):
The appellant raised concerns about the CIT(A)'s failure to take cognizance of the grounds related to the assessment order. Specifically, the appellant challenged the disallowance of set-off of the 10A unit loss against non-10A unit profit and other income under sections 70 and 71 of the Act. However, ground 4.1 was not pressed during the hearing and was dismissed.

5. Set-off of 10A Unit Loss Against Non-10A Unit Profit and Other Income:
The primary issue remaining was the appellant's claim for setting off the loss of the 10A unit against income from other sources. Initially, the AO had allowed this set-off, but later reopened the assessment and disallowed the claim, treating the interest income as "income from other sources" and not allowing the set-off of 10A unit loss.

The CIT(A) upheld the AO's decision, relying on the Karnataka High Court's decision in CIT v. Yokogawa India Ltd., which held that section 10A is an exemption provision, and thus the income of the 10A unit must be excluded at source before arriving at the gross total income. Consequently, neither the income nor the loss of an exempted unit could be adjusted against the profit of other units or any other income.

The appellant argued that the CBDT Circular No.07/DV/2013 issued on 16.7.2013 clarified that income/loss from various sources should be aggregated under sections 70 and 71 before applying deductions under section 10A. The appellant contended that this Circular, being beneficial, should be binding on the revenue authorities.

The tribunal noted the conflicting views between different High Courts and the ambiguity in the provisions of section 10A. It observed that the CBDT Circular aimed to bring clarity and uniformity and was beneficial to the appellant. The tribunal held that benevolent Circulars issued by the CBDT are binding on revenue authorities, even if they deviate from the strict interpretation of the law.

Therefore, the tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh consideration in light of the CBDT Circular dated 16.7.2013. The appellant's grounds on this issue were treated as allowed.

Conclusion:
The appeal was partly allowed, with the tribunal directing the AO to reconsider the set-off of the 10A unit loss against income from other sources, following the CBDT Circular. The other grounds were dismissed as not pressed. The tribunal's decision emphasized the binding nature of beneficial CBDT Circulars on revenue authorities.

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