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TMI Blog2012 (3) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... e I.T. Act, though this is not the present case. Double benefit of adjustment - held that:- for the A.Y. 2008-09 it ought not to be a double disallowance because for A.Y. 2007-08, we have already directed to allow the set off of loss. Once the loss shall be adjusted in A.Y.2007-08, consequence our above decided appeal there should be a direct effect on the computation of income for A.Y. 2008-09. We therefore revert this matter back to the stage of the AO for re-computation of the eligible profit of the said Unit. - IT APPEAL NOS. 2788 & 2879 (AHD.) of 2011 - - - Dated:- 10-2-2012 - MUKUL KR. SHRAWAT, A.L. GEHLOT, JJ. S.N. Soparkar for the Appellant. Samir Tekriwal for the Respondent. ORDER Mukul Kr. Shrawat, Judicial Member For A.Y. 2007-08 the Assessee is in appeal arising from the order of the ld. CIT(A)-Valsad dated 23/08/2011 and for A.Y.2008-09 the Revenue is in appeal arising from the order of the ld. CIT(A)-Valsad dated 23/08/2011. [A] Assessee's appeal for A.Y. 2007-08, i.e. ITA No.2879/Ahd/2011 2. Ground No.1 reads as under: 1. Ld. CIT(A) erred in law and on facts in confirming action of AO in disallowing set off of losses of Rs. 25,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of Non-EOU Units of the appellant. The loss incurred by the appellant from the EOU Unit was Rs. 25,91,332/- (depreciation Rs. 25,11,092/- other expenditure Rs. 80,240/-). The ld. AR pleaded that depreciation is not an expenditure and for computing total income the appellant is entitle to cover ss.28 to 43D of the Act. It is a fact that depreciation is allowed mandatorily w.e.f. 2002 which was upheld by the various courts notably, Scoop Industries Pvt. Ltd. v. ITO 289 ITR 195 (Bom.) Indian Rayon Corporation Ltd. v. CIT 261 ITR 98 (Bom). Section 70 as substituted by the Finance Act, 2002 w.e.f. 1st April, 2003 provided that where the net result for any assessment year in respect of any source falling under any head of income other than "Capital gains" is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head, and where the net result in respect of any short-term capital asset is a loss shall be allowed to be set off against income, if any, for that assessment year under the head "capital gains" in respect of any other capital asset, and where the net result in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpreting the Sec.10B of the Act. The legislative history of the provisions clearly indicate of this facts. Therefore, the interpretation has to be meaningful and acceptable and it cannot be against the intention of the legislation. In this circumstances, it can safely be said that the intention of the legislation is only to provide 100% exemption for export income and not for other income. Hence, the unabsorbed depreciation should be taken for arriving at an exempted income. That means, the unabsorbed depreciation or loss cannot be adjusted with other income which does not qualify for the exemption. Let us take an example, if the assessee derives profits and gains from the EOU Unit which is exempted u/s. 10B. The assessee has also other Units which made loss during the same period. Can the profits/gains of EOU Unit be adjusted against the loss of other non-exempt Unit. My humble view is No. The effect of setting of losses from taxable sources against incomes which are not liable to tax would be deprive the assessee of the benefit of the exemption and of his right to carry forward such loss to next year for further set off with consequential tax effect on subsequent year's income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the side of the Assessee, ld. AR Mr. S.N. Soparkar appeared and made the submissions that as per the provisions of section 70 of I.T. Act where the net result for any assessment year in respect of any source following any head of income is loss, then the assessee shall be entitled to have the amount to such loss set off against income from any other source. He has placed reliance on Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119 (Bom.) for the purpose that set off is admissible. He also relied on CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255/156 Taxman 151 (Kar.) and Sword Global (I) (P.) Ltd. v. ITO [2010] 122 ITD 103 (Chennai). 6. From the side of the Revenue, ld. Sr. DR Mr. Samir Tekriwal stated that the income earned by EOU was otherwise not to be included in the total income had it been a positive figure as per section 10B of IT Act, therefore, the loss suffered in the said unit should also not be a part and parcel of the total income of the assessee. According to ld. DR, it was wrong on the part of the assessee to have benefit in either case, i.e. in one hand to claim total exemption u/s. 10B if the EOU is running in profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier provision stipulated that any profits and gains derived by an assessee from a 100 per cent export oriented undertaking, to which the section applies "shall not be included in the total income of the assessee". The provision, therefore, as it earlier stood was in the nature of an exemption. After the substitution of s. 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent export oriented undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment is sought to be reopened is belied by a plain reading of the provision. The AO was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under s. 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick Unit had returned a loss. The assessee was entitled to a dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income. Now the question arises whether the loss incurred in the eligible unit can be set off against the other income. As we have noted the income from eligible Undertaking is to be taken into account for computing the total income of the assessee and there is no restriction to set off the loss of the said eligible Industrial Unit against the other income earned by the assessee in any other Unit. There is one more reason for this discussion that on perusal of section 10B(6), this is a non obstante clause provides that the loss referred in sub-section (1) of section 72 or in section 74(3) and section 74(1) insofar as such loss relates to business of an Undertaking eligible u/s. 10B, shall not be carried forward or set off where such relates to any of the asst. year commenting before 01/04/2001, however, it is pertinent to note that the provisions of section 70 or section 71 have not been included in the said non-obstante provision. Therefore, it can be said that the provisions of section 70 or section 71 cannot be applied in computing the total income of the assessee. Had the Legislature intended that the provisions of sections 70 71 should not be applied in respect of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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