2024 (5) TMI 395 - HC - Income Tax

Set-off of losses against income from other sources u/s 70 - Applicability of provision of section 10B - petitioner had the status of EOU for a period of 5 years - as submitted even though Section 70 would be applicable, when an assessee files a declaration, then Section 10B could not be invoked automatically - HELD THAT - Admittedly, petitioner is 100% EOU had the permission till up to 20.03.2013. Petitioner has also made an application for renewal of its status 02 months before expiry of enquiry for the relevant assessment years, namely, 2008-09, 2009-10 petitioner was having the 100% EOU status and whereby the declaration filed by the petitioner with Income Tax Office, Circle-1, Raichur, claiming that the provisions of Section 10B are not applicable to the petitioner Company was within the scope of the petitioner Company inasmuch as even though Section 70 of the Act was made applicable to the petitioner, it was the choice of the petitioner to seek for non-application of Section 10B by filing a declaration. Said position of law is not in dispute in view of the judgment of the Division Bench of this Court in Karle International (P) Ltd . 2020 (9) TMI 968 - KARNATAKA HIGH COURT as held it is equally well settled legal proposition that where the assessee does not want the benefit of deduction from the taxable income, the same cannot be thirst upon it. There is no provision which makes compulsory on the part of income tax officer to make deduction in all cases. As the assessee has not filed any audit report in Form-56G which is a mandatory requirement for claiming deduction under Section 10B of the Act. Therefore, the deduction u/s 10B of the Act cannot be thirst upon the assessee. Thus the petitioner has chosen to file declaration for the relevant assessment years before the jurisdictional Income Tax Officer seeking that the Section 10B would not be applicable to the assessee. WP allowed.

Summary

Issues Involved:
1. Validity of notices issued u/s 148 of the Income Tax Act.
2. Validity of notices issued u/s 143(2) of the Income Tax Act.
3. Legality of orders passed against objections to notices u/s 148.
4. Legality of set-off of unabsorbed depreciation and net loss of 100% EOU.
5. Legality of invoking provisions of section 147 based on suspicion.

Summary:

1. Validity of Notices Issued u/s 148 of the Income Tax Act:
The petitioner challenged the notices issued u/s 148 dated 28.03.2014 for assessment years 2008-09 and 2009-10 (Annexures A1 and A2). The court noted that the petitioner, a 100% Export Oriented Unit (EOU), had declared that Section 10B was not applicable for the relevant assessment years. The Joint Commissioner did not properly consider the petitioner's status and the declaration filed, thus the notices were not justified.

2. Validity of Notices Issued u/s 143(2) of the Income Tax Act:
The petitioner also challenged the notices issued u/s 143(2) dated 22.09.2014 for assessment years 2008-09 and 2009-10 (Annexures B1 and B2). The court found that since the primary notices u/s 148 were invalid, the subsequent notices u/s 143(2) were also invalid.

3. Legality of Orders Passed Against Objections to Notices u/s 148:
The petitioner contested the orders passed against objections to the notices u/s 148 (Annexures C1 and C2). The court held that the Joint Commissioner's orders were against the provisions of the Act and did not consider the petitioner's status as a 100% EOU, thereby quashing the orders.

4. Legality of Set-Off of Unabsorbed Depreciation and Net Loss of 100% EOU:
The petitioner sought a declaration that the set-off of unabsorbed depreciation and net loss for assessment years 2008-09 and 2009-10 was lawful. The court referenced the Division Bench judgment in 'Karle International (P) Ltd. v. Assistant Commissioner of Income Tax' and upheld that the petitioner's claim for set-off was valid, as Section 10B did not automatically apply when a declaration was filed.

5. Legality of Invoking Provisions of Section 147 Based on Suspicion:
The petitioner argued that the invocation of Section 147 was based on mere suspicion without any substantial reason to believe. The court agreed, stating that the Joint Commissioner's actions were not supported by valid reasons to believe as required u/s 147, thus quashing the notices.

Conclusion:
The writ petition was allowed, and the notices and orders (Annexures A1, A2, C1, and C2) were quashed. The court reaffirmed the petitioner's right to declare non-applicability of Section 10B and to set off unabsorbed depreciation and net loss as per the relevant provisions of the Income Tax Act.