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TMI Blog2010 (1) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuine and were related to the year. However, in case of provisions of traveling made of Rs.99,46,121/- and Rs.9,96,000/- in respect of Delhi and Mumbai Units, no reasonable basis for making the provisions for the expenses under this head was found to be verified. Accordingly, the Assessing Officer made an addition of Rs. 1,09,42,121/-. 2.2 Before the learned CIT(A), it was submitted by the appellant that the expenditure should have been allowed by the Assessing Officer. The Assessing Officer in the remand report dated 11th February, 2008 submitted that the assesses has stated that the provision was not made on adhoc basis but it was based after taking into account the invoices submitted by travel agents and expense reimbursement form submitted by the employees and the assessee has filed before the learned CIT(A) that the details of the actual expenses were on the basis of the bills received. From the Annexure 2 filed with the submissions, the learned Assessing Officer noticed in the remand report that the total expenses are Rs.72,15,722/- and the same is less than the provision claimed by the assessee totaling Rs. 1,09,42,121/-. The Assessing Officer therefore submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 2.5 The Hon'ble Apex Court after considering the principles laid down in the case of Metal Box Company of India Ltd. held that amount set apart to meet liability on account of leave encashment of employees is not a contingent liability. If the expenditure relates to the particular assessment year then the same is allowable under mercantile system of accounting though the quantification of such expenditure may be mode in the subsequent year. Hence, the provisions, which have been made in respect of expenses incurred during the year, are allowable if such provision is made on a fair estimate. The provision so made debited in the profit and loss account is shown on the credit side of the balance sheet. In the subsequent assessment year, the expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed under the head 'provision for traveling' after giving opportunity to the assessee. 3. Second grievance of the appellant is that the learned AO has erred in disallowing the carry forward losses amounting to Rs.66,61,499/- pertaining to asst. year 2001-02. 3.1 The Assessing Officer in his order has mentioned that the assessee has set off brought forward losses against the positive income of the year. The losses relates to undertaking in which the assessee is entitled for deduction u/s 10B of the I.T. Act and accordingly, the provisions of such sections do not permit to carry forward of the losses and to set off of the same against the income. The set off of the losses was not allowed. 3.2 Before the learned CIT(A) it was submitted that the assessee is a regular tax assessee and filing its income tax return regularly. While completing the assessment for the asst. year 2001-02, the Assessing Officer has assessed the losses. Once the loss has been accepted then the same should be set off against the income in the subsequent year. The learned CIT(A), after considering the submission of the appellant, upheld the action of the Assessing Officer after ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AR relied on the following decisions to say that losses of earlier year can be set off against the other income:- i) Ford Business Services Center (P) Ltd. vs ACIT 114 TTJ 881 (Chennai); ii) Enercon Wind Farms (Krishna) Ltd. vs ACIT (2008) 21 SOT 29 (Mumbai); iii) Techtran Polylenses Ltd. vs ITO 113 TTJ 1007 (Hyderabad). 3.4 On the other hand, the learned DR relied on the decisions of the authorities below. The learned DR drew our attention to the decision of the jurisdictional High Court in the case of CIT v Himatasingike Seide Ltd. 286 ITR 255. The Hon'ble jurisdictional High Court held that unabsorbed depreciation and investment allowance cannot be adjusted against other income to show Nil liability. The learned DR also relied on the decision of the Delhi Bench in the case of Global Vantedge Pvt. Ltd. The Delhi Tribunal held that the learned CIT(A) was justified in holding that unabsorbed business loss or unabsorbed depreciation of the eligible unit is to be set off from the profit of the unit for the subsequent year in determining the amount of deduction available. 3.5 We have heard both the parties. The assessee filed the revised retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble jurisdictional High Court also noticed that section 10B provides for exemption of payment of tax with reference to profits and gains derived by 100% export oriented undertakings. 3.7 Sub-section 3 of section 10B as relevant for the asst. year 1994-95 was as under:- "Profits and gains referred to in sub section 1 shall not be included in the total income of the assessee in respect of any 5 consecutive asst. years falling within a period of 8 years beginning with the asst. year relevant to the previous year in which the undertaking begins to manufacture articles or things specified by the assessee at his option". Hence, the provision, which was interpreted by the Hon'ble jurisdictional High Court, was for the asst. year 1994-95 as in that year, profits and gains were not to be included in the total income of the assessee. At that time, the income was treated as exempt u/s 10B of the IT Act. 3.8 An amendment was made from the asst. year 2001-02 onwards and it has been made clear that profits and gains as derived from the undertaking are to be allowed as deduction from the total income of the assessee. Hence, from the asst. year 2001-02, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B was to be given in respect of profit of the undertaking for that year in which conditions are satisfied. For ascertaining the deduction u/s 10B one has to consider the export turnover of the undertaking and the total turnover of the undertaking and the proportion of the profit is to be given on such basis. It is nowhere mentioned that one has to consider the turnover of the earlier year. Once we consider the numerator and denominator in respect of the same year then one will have to consider the profits and gains of the business or profession of that year only. 3.11 Section 4 is levy on the total income of the assessee. Chapter III deals with incomes which do not part of total income. Hence, up to A.Y. 2000-01, section 10B provided that profit of undertaking in EOU was not to be part of total income and hence there was no levy on income tax in respect of such undertaking. Once income is exempted then it is not part of total income and hence, carry forward and set off loss is not permissible. From AY 2001-02, it was provided in section 10B that deduction of such profit and gains as derived from EOU will be allowed from the total income of the assessee. Deduction is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the different heads of the provisions of the Act. 3.14 Since unabsorbed loss or depreciation already adjusted and having no loss in current year then no set off of earlier year for the purpose of deduction u/s 10B is to be considered. This has been held by Bangalore Bench in the case of DCIT v M/s IBM Global Services (India) P Ltd. This shows that if profit and gains of an undertaking is to be computed as per the provisions of Act then unabsorbed loss or depreciation, even if adjusted against earlier year, should have been considered for computing deduction u/s 10B. This means that one has to consider profit and gains of undertaking to be computed as per section 28 to 44d. If 10A(8) is opted then loss of earlier year cannot be set off as per decision of the Bangalore Bench in the case of ITO v M/s Aditi Technologies Pvt. Ltd. We have considered the decisions cited by learned AR and we are also aware that Chennai Bench in the case of Sword Global (I) Pvt. Ltd. v ITO 306 ITR 286 (AT) held that brought forward loss of the unit is to be set off for computing deduction u/s 10B. The Mumbai Bench in the case of ACIT v Jewellery Solutional International Pvt, Ltd. in ITA No.695/M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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