2018 (9) TMI 774 - AT - Income Tax

Entitled to the benefits of section 10B - Interest income earned by the assessee on Fixed Deposits kept with bank in order to obtain the facility of Bank Guarantees - Held that - The claim of the assessee is on a sound footing in as much as factually speaking it is not disputed that interest has been earned on deposit with bank and used for furthering the business of its 100% EOU which is eligible for benefits of section 10B. So long as such income constitutes profits and gains of business of the eligible undertaking the same would fall within the scope of expression Income from profits and gains incorporated in section 10B(4) of the Act. In view of the aforesaid and also the order dated 16.07.2010 of the Tribunal in assessee s own case for A.Ys 2003-04 and 2004-05 claim of the assessee deserves to be accepted. We hold so. Scaling down the carry forward losses of non-10B units by the amount of exemption u/s. 10B - Held that - CIT(A) has directed the Assessing Officer to verify the claim of the assessee and allow it as per law. Pertinently before the CIT(A) the assessee has relied on various decisions of the Tribunal as well as the judgment of Hon ble Karnataka High Court in the case of Yokogawa India Ltd. (2011 (8) TMI 845 - KARNATAKA HIGH COURT). In our considered opinion the manner in which the CIT(A) has decided the issue does not require any interference from our side

Summary

Issues:
1. Exclusion of interest earned on bank deposits while computing profits eligible for deduction u/s. 10B of the Income Tax Act, 1961.
2. Scaling down carry forward losses of non-10B units by the amount of exemption u/s. 10B.
3. Quantification of carry forward losses consequential to the decision on the second issue.

Analysis:

Issue 1:
The appeal addressed the exclusion of interest earned on bank deposits when computing profits eligible for deduction under section 10B of the Income Tax Act, 1961. The appellant, a company engaged in manufacturing and marketing of agro chemicals, had a unit eligible for exemption u/s. 10B. The dispute arose as the Assessing Officer excluded interest income of ?5,74,496 earned on bank deposits, a decision upheld by the CIT(A). The appellant argued that the interest income was directly linked to the activities of the Export Oriented Unit (EOU) entitled to section 10B benefits. The Tribunal considered previous judgments and held that as the interest income was used for furthering the EOU's business, it constituted profits and gains eligible for deduction u/s. 10B. The claim of the appellant was allowed, distinguishing the judgment relied upon by the CIT(A).

Issue 2:
The second grievance involved the scaling down of carry forward losses of non-10B units by the amount of exemption u/s. 10B. The CIT(A) directed the Assessing Officer to verify and allow the claim as per law. The appellant cited tribunal decisions and a judgment of the Karnataka High Court in support. The Tribunal found no need to interfere with the CIT(A)'s decision, as the matter had been remanded to the Assessing Officer for proper consideration. The order of the CIT(A) was affirmed on this issue.

Issue 3:
The third grievance related to the quantification of carry forward losses, which was dependent on the decision regarding the second issue. Since the second issue had been remanded to the Assessing Officer, no separate adjudication was deemed necessary on the quantification of carry forward losses. Consequently, the appeal of the appellant was partly allowed based on the above considerations.

In conclusion, the Tribunal's judgment addressed the issues raised by the appellant comprehensively, allowing the claim related to interest income for deduction u/s. 10B while affirming the CIT(A)'s decision on the scaling down of carry forward losses. The quantification of carry forward losses was deferred pending the Assessing Officer's decision on the second issue.