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TMI Blog2010 (7) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, in turn, would be assessed to tax under section 28(iiib) in the year in which the Application to the appropriate authority stands made by the assessee after effecting the export. - ITA NOS. 894 TO 896 (COCH.) OF 2008, 541 OF 2009 - - - Dated:- 16-7-2010 - DR. O.K. NARAYANAN, VICE-PRESIDENT (THIRD MEMBER) J, N. VIJAYAKUMARAN, JUDICIAL MEMBER J, AND SANJAY ARORA, ACCOUNTANT MEMBER J, V. Satyanarayanan for the Appellant . T.K. Thattai for the Respondent. Order Per Sanjay Arora, Accountant Member. These are a set of three appeals by the assessee and one by the Revenue, pertaining to different assessment years (assessment years), being the years 2001-02, 2002-03, 2004-05 (assessee) and assessment year 2006-07 (Revenue). The same raising common issues, were heard together, and are being disposed of vide a common, consolidated order for the sake of convenience. 2. We first take up the assessee s appeals for assessment years 2001-02, 2002-03 and 2004-05, i.e., against the appellate Order(s) confirming the assessments, as framed originally for these three years, i.e., under section 143(3) read with section 147 of the Income-tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears falling within a block of eight consecutive years commencing the initial assessment year. The first appellate authority, however, dismissed the assessee s claim as in his view the issue stood already covered by the direction by the ld. CIT under revision jurisdiction, so that the matter being agitated before him had become infructuous, holding as : 4.6 (3.5) To sum up, in view of the specific direction issued by the CIT, Cochin in her order under section 263, the grounds regarding set off of carried forward unabsorbed depreciation have become infructuous and hence dismissed. Aggrieved, the assessee is in appeal. 5. Before us, like contentions stood raised by either side. The ld. AR argued that the issue under consideration in appeal did not arise out of the section 263 revision order; the impugned unabsorbed depreciation having been disallowed for set off against income from other sources by the Assessing Officer itself in the initial assessment. The issue raised by the ld. CIT pertains to the computation of deduction under section 10B of the Act, which the Assessing Officer was directed to compute by reckoning the eligible profit after allowing the unabsorbed deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the assessment year 1994-95, the assessee had income other than the profits and gains of the export-oriented unit. In its computation of total income it has arrived at a figure of Rs. 11,17,87,315 and claimed the entire amount as exempt under section 10B of the Act. Its income from other sources worked out to Rs. 41,09,479 against which it had adjusted unabsorbed depreciation of the assessment year 1988-89. Thereby the income of the assessee for this year was reduced for assessment purposes to nil . The Assessing Officer accepted the claim and assessed the assessee s total income at nil . The Commissioner under section 263 considered the action of the Assessing Officer of permitting adjustment of the brought forward unabsorbed depreciation against the income from other sources of the assessee to be erroneous and prejudicial to the revenue and directed the unabsorbed depreciation and unabsorbed and investment allowance to be adjusted against the income of the export-oriented undertaking and the total income of the assessee accordingly computed afresh. The Tribunal allowed the appeal filed by the assessee. On a reference : Held , that section 10B cannot be read in isol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent thereafter. This follows its understanding that the income falling under section 10A, though not an exempt income inasmuch as the section speaks of a deduction and not of exemption and, besides, limits the same to ninety per cent of the qualifying income, yet qualifies to be a separate class of income by itself. As such, there would be two parallel computations of income, i.e., qua section 10A incomes and non-section 10A incomes ( i.e., incomes falling under Chapter IV), with no interface or transfer from one to another, so that neither the profits nor the losses of one category (say, from section 10A units, which we have referred to as section 10A income ) would enter the computation of income of the other category or class. Accordingly, the loss from the non-eligible unit(s) was considered as not liable to be adjusted against the income from the eligible undertaking(s) for computing the deduction under section 10B of the Act. 7. In view of the foregoing; the matter being squarely covered by the afore-referred decisions, the depreciation of the eligible undertaking(s), to the extent not adjusted, would not be liable to be set off against that of the assessee s tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reference would not include that on a license acquired from any other person, but only on one granted against export; the former being assessable under section 28( i ). We, therefore, restore this matter back to the file of the Assessing Officer (Assessing Officer) for computing the amounts assessable under section 28( iiib ) and 28( iiid ), i.e., the two provisions under which the credit under the DEPB scheme against export stands held as assessable and, correspondingly, the deduction exigible under section 80HHC as per law keeping in view the decision by the Tribunal in the case of Topman Exports ( supra ). We decide accordingly. 10. The third and final ground for assessment year 2004-05 agitates the non-confirmation of its Book profit computed under section 115JB by deducting profit eligible for deduction under section 80HHC in terms of clause ( iv ) to Explanation 1 to section 115JB(2). As the income computed under regular provisions of the Act was found to be higher, the assessee s tax liability for the year was worked out on its basis. However, the Assessing Officer observed that the same (book profit under section 115JB) is to be computed by allowing reduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide accordingly. 13. This leaves us with one appeal, i.e., by the revenue for assessment year 2006-07, in ITA No. 541/Coch/2009. The same raises a single issue, i.e., qua the maintainability of the deduction or set off of unabsorbed depreciation for assessment years 1994-95 to 1996-97 in respect of Unit No. A (and likewise, for assessment year 1997-98 in respect of Unit B ), in the computation of income for the relevant year, in view of the provision of sections 32(2) and 10B(6) of the Act. The tenth or the last year of the tax holiday period in respect of Unit A and Unit B being the previous year relevant to assessment year 2003-04 and assessment year 2005-06 respectively, the first assessment year after the same, or the assessment year immediately following the last relevant year, in relation to and with effect from which the provision of section 10B(6)( i ) would apply, would be assessment year 2004-05 and 2006-07 respectively. The revenue s case is that any unabsorbed depreciation of the earlier years would only merge with the depreciation for the last year afore-referred. Section 10B(6) clearly proscribes carry forward of any unabsorbed depreciation claim under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, including section 32, is undisputed. Section 32(2) of the Act reads as under : where, in the assessment of the assessee, full effect cannot be given to any allowance under the sub-section (1) in any previous year, owning to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. As would be apparent from a bare reading thereof, it deems, by fiction, that the unabsorbed depreciation, i.e., to which effect cannot be given while computing the income for the year to which it relates, shall, to that extent, form apart of the depreciation for the immediately succeeding year, and so on. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been deemed as part of the following year s depreciation, if and to the extent not actually given effect to. Further, this is only incidental, as, as per the provisions of the Act, the assessee is allowed to carry forward the claim of depreciation without any restriction whatsoever. Firstly, there is no bar on the number of years to which the claim could be carry forward to. Further, the same is permitted to be set off against the assessee s income from any other source, including other than from business or profession, and irrespective of whether the business or profession to which it pertains continues to be in existence in the year for which the set off is being sought. Further still, it is also not necessary that the asset(s) to which the claim relates continues to be either in existence or in the assessee s ownership. Consequently, the condition of it being put to use by the assessee during the relevant year, i.e., the year of set off, is also absent. In other words, the same becomes a vested right, and the assessee, subject to the availability of income, is entitled to its claim in its respect without any limitation. The matter stands examined and explained by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring of the said provisions of law in the facts of the present case, confining our references to the years, only for the sake of convenience, to the specifics of Unit A . The unabsorbed depreciation for assessment year 1994-95, being not a relevant assessment year under section 10B(6), would merge with and form part of the depreciation for the Immediately succeeding year (assessment year 1995-96) by virtue of section 32(2), operation of which is, for that reason, not precluded by section10B(6). This is, as explained by the Tribunal in the assessee s case for assessment year 2005-06, only the years for which deduction under section 10B stands claimed and allowed would qualify to be the relevant assessment years as defined vide Explanation 2 to section 10B, and to which, therefore, the provision of section 10B(6) would apply, assessment year 1994-95 being not a relevant assessment year, the deeming prescription of section 10B(6) would not apply thereto, so that the provision of section 32(2) would have effect. Continuing further, and in the like manner, the entire unabsorbed depreciation originally relating to the assessment years 1994-95 to 1996-97, being not the relevant asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put, all the provisions of the Act referred to in section 10B(6)( i ) would continue to have effect and be operative till the year immediately preceding the first of the relevant assessment years. However, where any of the allowances (or part thereof) as listed in section 10B(6)( i ) do not stand absorbed in that year, no part thereof qua any of the relevant assessment years (falling before assessment year 2001-02) would be entitled to be carried forward to the succeeding year by deeming its allowance in toto for that assessment year, i.e., to which it relates or is allowable for. It may be appreciated that if not so understood, even as the provision is clear in itself, it would only imply that the provision of section 32(2), and those pertaining to the carry forward of the unabsorbed allowances falling under the other listed sections, would not apply even for years other than the relevant assessment years, as the assessment years 1994-95 to 1996-97 in the instant case, which are admittedly not the relevant assessment years. A clear contradiction to what stands held by the Tribunal in the assessee s case for assessment year 2005-06. The foregoing, thus, apart from flowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and gains of business or profession for a period of eight assessment years beginning with the year next following the one to which the claim pertains, provided the business or profession for which the allowance was originally computed continues to be in existence during the relevant previous year, i.e., the year of set off. The provision was restored to its original form vide Finance Act, 2001 with effect from 1-4-2002, i.e., from assessment year 2002-03. This would, firstly, at once go to endorse all what has been said and explained about the nature of the depreciation allowance vis-a-vis section 32(2) per the foregoing part of this order; the amendment marking a radical shift in its character. The unabsorbed depreciation for assessment year 1997-98, being not the relevant assessment year ( qua Unit B ), it would not be deemed to have been allowed for that year (assessment year 1997-98). At the same time, being governed by the amended law, it would not go to constitute the depreciation for assessment year 1998-99, but, all the same, carried forward to that year for set off against the profits and gains for that year (assessment year 1998-99). However, as the deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought forward depreciation with the following year s depreciation, so that the two are undistinguishable after the merger. In this context, it must be realized that the former prescription flows from the understanding of section 10B, as rendered by the Tribunal, while the latter from that of section 32(2) as explained by the higher courts of law, and the two are not contrary. The effect of the former is limited only to the computation of deduction under section 10B for any of the relevant assessment years, and would not effect the actual operation of section 32(2), which shall continue to apply, save for the relevant assessment years falling up to the assessment year 2000-01. This is as the prescription of section 10B(6), being a non obstante clause, would hold in supersession to any other provision, and thus have no bearing on its operation. Further, it would be relevant to state that the Tribunal has vide its recent decisions, including by the Special Bench in the case of Scientific Atlanta India Technology (P.) Ltd. ( supra ), which is also the latest decision by the Tribunal in the matter, held otherwise, i.e., that the deduction under sections 10A or 10B of the Act i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur. In this regard, we find it as not so, even as the orders may lead to a difference in results. For that year, the issue considered and adjudicated by the Tribunal was whether the years to which the claim for unabsorbed depreciation allowance relates, i.e., arose for the first time, qualify to be the relevant assessment years , as defined under section 10B, and which it found as not, after examining the language of the provision. As per the said order, the said term signifies any of the seven (extended from five) consecutive assessment years falling within the block of ten (extended from eight) successive years beginning with the initial assessment year, for which the claim under section 10B stood made and allowed. This, as, if the assessee s claim under the sections specified in section 10B(6)( i ) does not relate to the years to which deduction under section 10B relates, the same would not fall within the ambit; of section 10B(6)( i ) so as to be denied consideration where not adjusted in that year itself. We are in respectful agreement with the said order, i.e., in principle, which extends, in our view, only to the scope of the relevant assessment years as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment year 2005-06. 15.8 We, therefore, find no inconsistency or disharmony between the Tribunal s Order for the immediately preceding year and the adjudication per the present order. We have, it may be appreciated, only proceeded to apply the law, being unambiguous, while expressing our agreement with the ratio of the said Order by the Tribunal. Further, without doubt, even if it were to be contended that the two orders are inconsistent to each other, the same, as explained, is only on account of the fact that we have proceeded to first address the issue whether the assessee s claim for unabsorbed depreciation, stated to be for the assessment years 1994-95 to 1996-97 (Unit A ) and assessment year 1997-98 (Unit B ), could, in view of section 32(2), be in deed said to relate to those years, and found it as not, a question not addressed by the Tribunal s order for assessment year 2005-06, being not directly before it, taking the years as stated as a given, so that we find no reason for not applying the settled law in the matter; the bounded duty of any court being to decide the matter before it in accordance with the law. The very fact that it leads to a difference in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onger one of total exemption but only by way of proportionate deduction like any other relief for exports and income of new Industrial Undertaking under Chapter VI-A of the Act. It was on the realization of this, that this restriction was removed retrospectively from assessment year 2001-02. 2. Even in respect of a dispute for an assessment year earlier to this change, the Tribunal in Navin Bharat Industries Ltd. v. Dy. CIT [2004] 90 ITD 1 (Mum.) (TM) found its way for adoption of normal computation procedure of allowing loss in the new unit for set off against the income of other units. The reasoning of the Tribunal is that the benefit under section 10A cannot be forced on the assessee so as to deny the benefit of sections 70 and 71. 3. As per section 10B, deduction can be claimed to the extent of 90 per cent of the profits from the undertaking which was admittedly eligible for deduction under section 10B. Against the balance profits the assessee had claimed set off of losses from earlier years. Therefore, the ld. Assessing Officer was not justified by invoking section 10B(6)( ii ) and say that such loss could not be allowed to be set off. 4. In view of the above s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is option for withdrawing the same as well, as long as it is done before the due date for filing the return. Section 10B would have application only if the assessee has positive income. 8. The Mumbai Bench (Third Member) (incision in the case of Navin Bharat Industries Ltd. ( supra ) has held that provisions of sections 70 and 71 are applicable even in respect of loss incurred in the business eligible for exemption under section 10B or 10A. Therefore, the assessee is entitled to set off of the loss incurred in the Industrial Unit which is eligible for exemption under section 10B against the income earned by it. 9. Further, deduction under section 10B is not controlled by section 80AB as deduction under section 10B is not a deduction under Chapter VI-A, when the Export Turnover and total turnover pertain to a particular year, the profits and gains from the business of an undertaking should obviously be for that particular year and which are not adjusted against the previous losses or allowances. Any other interpretation would not yield logical conclusion while applying the formula. The amount of deduction under section 10B arrived at in this particular manner would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is available qua the unit and not the assessee. 13. That incentive provisions, which confer concession, should be interpreted in a liberal manner, so as to subserve the purpose for which they are enacted. [ Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC)]. 14. A provision in taxing statute granting incentives for promoting growth and development should be construed liberally. 15. The settled law that provisions relating to deductions, allowances and exemptions are expected to be interpreted rigidly and once the assessee qualified for that deduction, allowances, and exemptions then a liberal interpretation is to be made so as to subserve the purpose for which they are intended. 16. In pari materia section 80-I, the question of allowing 80-I deduction whether allowable without setting off loss of other units came before the Hon ble Delhi High Court in the case of CIT v. Sona Koya Steering Systems Ltd. [2010] 189 Taxman 110. 16.1 In that case, the assessee had two units, namely, a steering unit and an axle unit, both of which were eligible under section 80-I. While one unit was making profits, the other was incurring losses. 16.2 The Tribunal fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isional power under section 263 in respect of the issue regarding carry forward of depreciation and set off of unabsorbed deprecation? Reference under section 255(4) of the Income-tax Act, 1961 In my considered view, the following questions arise on the points of difference between the two Members per their separate orders, for reference to the Hon ble President, Income-tax Appellate Tribunal : ( i ) Whether the CIT (Appeals) was correct in holding that the issue agitated vide Ground No. 1 of its appeals for assessment years 2001-02, 2002-03 and 2004-05 by the assessee, stands covered by the Order of revision under section 263 by the Commissioner of Income-tax for those years? ( ii ) Whether the assessee is, on merits, eligible for its claim of depreciation allowance qua its eligible undertaking, Unit A, for assessment years 1994-95 to 1996-97, to the extent unabsorbed in the computation of income for those years, against the taxable income for the assessment years 2001-02, 2002-03 and 2004-05, in view of section 10B(6) read with section 32(2) of the Income-tax Act, 1961? ( iii ) Whether the assessee is eligible for its claim of depreciation allowance qua its e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... framed by the ld. Judicial Member whether the Commissioner of Income-tax is justified in exercising the revisional power under section 263 is a question imaginary and not a question arising out of the facts of the case. 5. The assessee is having two units entitled for exemption under section 10B viz., Unit A and Unit B. The claim of exemption provided in section 10B could be made for five assessment years within an enabling period of eight assessment years. In the present case, the assessee has not claimed section 10B exemption for earlier assessment years 1994-95, 1995-96 and 1996-97, in the case of Unit A. In respect of Unit B, the assessee has not claimed such a deduction for the assessment year 1997-98. This is done because of the option available to the assessee to choose the assessment years for the purpose of claiming deduction under section 10B. 6. In the case of Unit A, assessee claimed the deduction under section 10B for the assessment years 1997-98 to 2003-04. In the case of Unit B, deduction was claimed for the assessment years 1998-99 to 2006-07. 7. The claim of deduction under section 10B made by the assessee in respect of these two units for the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing deduction under section 10B of the Act after setting off of unabsorbed depreciation of past years, for unit B and also without setting off of unabsorbed depreciation against the taxable income other than the income of the eligible units. 10. On assessee s appeal, the CIT (Appeals) allowed the appeal following the order of the Tribunal passed for the assessment year 2005-06, wherein the Tribunal has held that unabsorbed depreciation of the earlier assessment years in which deduction under section 10B was not claimed by the assessee could be set off of against the other taxable income. It is necessary to mention that the Tribunal has disposed of an appeal pertaining to the assessment year 2005-06 through their order dated24-7-2009 passed in ITA No. 897/Coch/2008. Tribunal held therein that the unabsorbed depreciation carried forward from the earlier assessment years 1994-95 to 1997-98, related to these assessment years, in which no deduction was claimed by the assessee under section 10B and such depreciation should be set off against the remaining taxable income. The appeal filed by the revenue against the above order of the Tribunal is now pending before the Hon ble High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Karnataka High Court rendered in the case of Himatasingike Seide Ltd. ( supra ) Accordingly, the ld. Accountant Member dismissed the appeals filed by the assessee for the assessment years 2001-02, 2002-03 and 2004-05 and allowed the appeal filed by the revenue for the assessment year 2006-07. 15. The ld. Judicial Member, on the other hand, held that deduction available under section 10A or 10B cannot be equated with the exemption available under section 10A or 10B as was in the earlier years. Therefore, he held that the decision of the Hon ble Karnataka High Court delivered in the case of Himatasingike Seide Ltd. ( supra ) contested in the context of earlier assessment years is not applicable for the deduction agitated in the present appeals. The ld. Judicial Member further held that it does not make much sense where the relief is no longer one of the total exemption but proportionate deduction like any other deductions in respect of exports and income of new industrial undertakings available under Chapter VI-A of the Income-tax Act. He accordingly allowed the appeals filed by the assessee and dismissed the appeal filed by the revenue. 16. I heard both sides in det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that of the Hon ble Calcutta High Court in the case of CIT v. Orient Paper Mills Ltd. [1983] 139 ITR 763. Two High Courts have taken different views on the principle governing the subject. Therefore, the possibility of having a different view is not a reason to hold a dissenting view against the order of a Member, who has followed the binding order of the co-ordinate Bench. 19. Therefore, needless to say that I agree with the order passed by the ld. Judicial Member and hold that the appeals filed by the assessee for the assessment years 2001-02, 2002-03 and 2004-05 are to be allowed and the appeal filed by the revenue for the assessment year 2006-07 is liable to be dismissed. 20. The appeals are directed to be placed before the regular Bench to pass consequential orders, in accordance with law. Order Per Bench. - These appeals, on being heard by the regular Bench, led to a difference of opinion between the two Members constituting the same on the issue of allowance of claim of depreciation for earlier years against the income of the assessee for the relevant years. While the AM, who proposed the order for and on behalf of the Bench was of the view that th ..... 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