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TMI Blog2012 (9) TMI 390X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment completed u/s 143(3) of the Income-tax Act, 1961. 2. The assessee company, which is engaged mainly in the business of manufacturing, trading and distribution of process control instruments and related services filed its return of income on 31.10.2005 declaring an income of Rs. 3,26,76,628/-. During the assessment proceedings u/s 143(3) of the Income-tax Act, the Assessing Officer observed that the assessee has computed its income only u/s 115JB of the Act by taking the net profit as per the profit and loss account at Rs. 21,14,42,000/- and after making adjustments for inadmissible as well as admissible deductions and also setting off brought forward loss relating to earlier years declared to Rs. 3,26,76,628/- to be the taxable income of the assessee. He also observed that while computing income u/s 115JB of the Act, a note was attached to audit report explaining that lower of business loss brought forward or unabsorbed depreciation has been reduced after giving effect to the exemption u/s 10A of the Income-tax Act. A letter was also filed giving justification for not applying the provisions of sec. 115JB of the Act. In the said letter, it was explained that br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the authorities below, submitted that the assessee operated through three broad divisions or units, namely : ( a ) Software Services Division ( b ) Product Services Division ( c ) System Services Division. 6. He submitted that only Software Services Division is registered as a Software Technology Park unit with STPI, while the other two units are non-STPI units. He submitted that deduction u/s 10A is available to the STP unit for a period of 10 years starting from the assessment year relevant to the assessment year in which the unit begins to manufacture or produce articles or thing or computer software and Assessment Year 2004-05 was the 10th year of operation. Till asst. year 2004-05 the deduction was claimed and no deduction was claimed u/s 10A for assessment year 2005-06. The learned counsel for the assessee submitted that for the assessment year under consideration as per the computation made, the tax payable under regular provisions of Act was higher than the tax determined on book profits u/s 115JB of the Act and, therefore, income determined under regular provisions of the Act was declared in the return of income. He submitted that in the process of computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular year, it could not have provided for reduction of brought forward losses or unabsorbed depreciation allowance of the same unit i.e 10A unit again in a subsequent year. According to him, the sanctity of a process adopted to arrive at the book profits or losses for a year is not to be discarded for subsequent years because continuity is to be maintained and this is possible if the results of sec. 115JB computation if resulting in a loss is preserved and that figure is taken into account while giving effect to the adjustment of lower of past loss or depreciation. Thus, according to him, the reduction of brought forward losses or unabsorbed deprecation in Clause (iii) to Explanation 1 would refer to non-10A units only. 8. The learned counsel for the assessee also argued that the profits or losses of 10A units are exempt from MAT and, therefore, the brought forward losses or unabsorbed depreciation relating to 10A units would also take the same character i.e losses from exempt source and it is a settled principle that if profits from a particular source are exempt, the losses from such source cannot be set off against other income. For this proposition, he placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in view of various possibilities can choose what is more favourable and where a provision is capable of two reasonable constructions, the view favourable to the assessee should be preferred. For this proposition the learned counsel for the assessee placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. The learned counsel for the assessee thus submitted that for the earlier years, the operation of 10A unit resulted in profit while the non-10A unit resulted in loss. In the profit and loss account, a consolidated figure after setting off 10A profits with non-10A was shown. But for the purposes of computing book profits, this figure has to be segregated and only the brought forward losses or unabsorbed depreciation of non 10A units should be considered. It is also the contention of the learned counsel for the assessee that Tribunal has the power to interpret the provisions if there is any ambiguity in the same and if two interpretations are possible, interpretation which is favourable to the assessee is to be adopted. He has drawn our attention to the various examples to show that if the adjustments are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss account for the relevant previous year prepared under sub-sec. (2) i.e in accordance with provision of arts II III of Schedule VI of the Companies Act, 1956 and thereafter increased by the amount specified in clauses (a) to (f) and reduced by clauses (i) to (viii). Thus, it can be seen that the net profits is to be determined as per the provisions of the Companies Act and thereafter the adjustments are to be made. 12. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. ( supra ) has also held that the book profits prepared by the company in accordance with Companies Act cannot be interfered with by the Assessing Officer. When the Assessing Officer cannot interfere with the book profits computed by the assessee under the Companies Act, the same law would apply to the assessee also i.e the assessee cannot adjust the book profits except as provided under the Companies Act. In the case before us, the assessee is trying to compute the brought forward losses under the normal Income-tax Act provisions and not under the Companies Act. The decision relied upon by the learned counsel for the assessee from making the adjustment is not relevant to the facts of the case bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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