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2006 (11) TMI 245 - AT - Income TaxExemption u/s 10B - income of Floppy Unit II - Export Oriented Undertaking - loss incurred - whether it is open to the assessee to opt out of the provisions of section 10B of the Act for anyone of the relevant assessment years falling within the block of five years by filing a declaration u/s 10B of the Act ? - HELD THAT - In our view the Legislature purposely did not specify the year of furnishing the declaration so as to confer benefit to the assessee to opt out of section 10B of the Act in any of the assessment years falling within the block of five years. Thus if the assessee seeks to opt out of section 10B of the Act for a particular year the assessee may do so by filing a declaration in that regard under sub-section (7) of the Act before the due date for furnishing return of income for that year. Thus the expression any cannot be read as all as in that case the exemption granted in the earlier year have to be withdrawn in case the assessee file the declaration under section 10(7) say in third year of the block period of five years. We are inclined to hold that the requirement for filing the declaration as per the provisions of section 10B(7) of the Act is merely directory in nature and not mandatory. Thus if such declaration is filed during the assessment proceedings it would be sufficient compliance with the provisions of section 10B(7) of the Act. It may be mentioned that similar view has been taken in case of Expo Packaging Ltd. 1994 (11) TMI 155 - ITAT AHMEDABAD-C It may also be mentioned that the reliance placed by the Ld. DR upon the decision in the case of Goetze (India) Ltd. v. CIT 2006 (3) TMI 75 - SUPREME COURT is misplaced inasmuch as the said decision has been given in the different context inasmuch as the income of the export processing zone are assessable as per provisions of section 10A/10B of the Act which is a code itself. Thus we are of the view that it is open to an assessee not to claim tax holiday benefit u/s 10A/10B of the Act for anyone year or more of the relevant block of five assessment years by filing declaration under sub-section (7) of that section before the due date of filing the return of income for the said assessment years. Since in the instant case the assessee has opted out of the provisions of section 10B of the Act by filing the declaration u/s 10(7) of the Act during the course of assessment proceedings of the relevant assessment year Revenue cannot thrust exemption provided u/s 10B of the Act upon the assessee. Loss incurred - Since the sufficient material is not on record this issue is set aside and restored to the file of the Assessing Officer who may examine the matter afresh in accordance with law after affording a reasonable opportunity of being heard to the assessee. In the result these appeals of the assessee are partly allowed.
Issues Involved:
1. Whether the assessee can opt out of the provisions of Section 10B of the Income-tax Act, 1961 for any of the relevant assessment years within the block of five years by filing a declaration. 2. Whether the declaration under Section 10B(7) can be filed during the assessment proceedings. 3. Whether the loss incurred in respect of Floppy Unit II can be set off against the taxable profit of other units. 4. Whether the depreciation in respect of various assets forming part of Floppy Unit II should be allowed. 5. Whether miscellaneous income and interest in respect of Floppy Unit III should be included in the business income of the unit. Detailed Analysis: 1. Opting Out of Section 10B: The primary issue was whether the assessee could opt out of the provisions of Section 10B for any of the relevant assessment years within the block of five years by filing a declaration. The Tribunal held that Section 10B is a self-contained code providing a scheme for tax exemption for units in export processing zones. The exemption is available for five consecutive assessment years within a block of eight years. The term "any" in the context of Section 10B was interpreted to mean "one or more out of several," allowing the assessee to opt out of the provision for a particular year by filing a declaration. The Tribunal concluded that the assessee could file a declaration to opt out of Section 10B for any year within the block period. 2. Filing Declaration During Assessment Proceedings: The Tribunal examined whether the declaration under Section 10B(7) could be filed during the assessment proceedings. It was held that the requirement to file the declaration along with the return of income is directory, not mandatory. Therefore, filing the declaration during the assessment proceedings suffices for compliance with Section 10B(7). The Tribunal referenced similar provisions in Sections 11, 32AB, and 80HHC, which courts have held to be directory. 3. Set-Off of Losses: The Tribunal addressed the issue of whether the loss incurred in respect of Floppy Unit II could be set off against the taxable profit of other units. Due to insufficient material on record, this issue was set aside and remanded to the Assessing Officer for fresh examination in accordance with the law, after providing a reasonable opportunity for the assessee to be heard. 4. Depreciation on Assets: The issue of whether depreciation in respect of various assets forming part of Floppy Unit II should be allowed was also considered. This issue was similarly set aside and remanded to the Assessing Officer for fresh examination in accordance with the law, after affording the assessee a reasonable opportunity to present their case. 5. Miscellaneous Income and Interest: For the assessment year 1998-99, the Tribunal considered whether miscellaneous income and interest in respect of Floppy Unit III should be included in the business income of the unit. Due to a lack of necessary details on record, this issue was set aside and remanded to the Assessing Officer for fresh examination in accordance with the law, after providing a reasonable opportunity for the assessee to be heard. Conclusion: The appeals were partly allowed. The Tribunal provided clarity on the flexibility of opting out of Section 10B, the directory nature of filing declarations during assessment proceedings, and remanded issues related to the set-off of losses, depreciation, and inclusion of miscellaneous income and interest for further examination by the Assessing Officer.
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