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TMI Blog2015 (9) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... to have observed that the interest income earned are in the normal course of business and thus should be treated as income under the head "Profits and gains from business and profession" and not under the head "income from other sources". 2.3 Further, the learned Assessing Officer has erred in not setting off of the resultant current year business loss against the income from other sources by virtue of operation of provisions of section 71 of the Act. 3. Levy of Interest under section 234B of the Act of Rs. 2,353,037 3.1 Interest under section 234B of the Act is consequential in nature. 4. Directions issued by the Honorable Commissioner of Income Tax (Appeals) III 4.1 The Honorable CIT/AO has erred in law and on facts in not taking cognizance of the grounds filed by the Appellant in relation to the assessment order passed by the AO in the proceedings before them. 4.2 The Honorable CIT/AO erred in facts and law in disallowing the set-off of the 10A unit loss during the current year against non 10A unit profit and other income in accordance with Sec 70 and Sec 71 of the Act. 5. The Appellant craves leave to add or alter, by deletion, substitution, modification or otherwise, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions made by the assessee as well as material available on record, the ld. CIT(A) did not find merit in the preliminary issue raised by the assessee challenging the validity of assessment made by the AO and rejecting the same, he upheld the validity of assessment made by the AO u/s. 143(3) r.w.s. 147. 8. The ld. CIT(A) also upheld the action of the AO in bringing to tax the interest income in the hands of the assessee under the head 'income from other sources'. As regards the claim of the assessee for setting off of 10A unit loss against interest income, the ld. CIT(A) upheld the order of the AO disallowing the said claim relying on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd,. 341 ITR 385 (Kar), wherein it was held that section 10A being an exemption provision, income of the 10A unit has to be excluded at source itself before arriving at the gross total income and since this income is not to be included in the income of the assessee at all, there is no occasion to setoff the losses of the assessee in respect of its other business against the profits of the exempted unit. The ld. CIT(Appeals) held that the ratio of the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that as stated in para 1 of the Board Circular, it was brought to the notice of the Board that the provisions of sections 10A/10AA/10B/10BA of the Act with regard to applicability of Chapter IV of the Act and carry forward of losses, were being interpreted differently by officers of the department as well as by different High Courts and in order to bring clarify and uniformity, a Circular has been issued by the CBDT giving the departmental view on this issue. He invited our attention to the decision of the Hon'ble Delhi High Court in the case of CIT v. TEI Technologies Pvt. Ltd., 259 CTR (DEL) 186, wherein it was observed while dealing with a similar issue, that subsection (1) of section 10A, after the amendment made by the Finance Act, 2002 w.e.f. 1.4.2001, creates ambiguity or doubt because of the language used, as to whether it provides for an exemption or a deduction. It was further observed by the Hon'ble Delhi High Court that there is uncertainty and lack of clarity or precision in the language employed in sub-section (1) of section 10A. 12. The ld. counsel for the assessee contended that the relevant provisions of section 10A thus are not clear and unambiguous re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an exemption provision, the income of 10A unit has to be excluded at source itself, from the computation of total income and the loss of non-10A unit therefore could not be set off against the income of 10A unit. According to the ld. CIT(A), the ratio of this decision of the Hon'ble jurisdictional High Court was applicable in reverse direction also and therefore neither the income nor the loss of an exempted unit could be adjusted against the results of another unit (whether exempted or not) run by the assessee, as per the rationale of the judgment of the Hon'ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra). The ld. CIT(A) also relied on the decision of the Bangalore Bench of the Tribunal in the case of Karle International Pvt. Ltd. (supra), wherein the it was held, relying on the decision of Hon'ble High Court of Karnataka that in the case of Yokogawa India Ltd. (supra) that section 10A being an exemption provision, the profit or loss of 10A unit does not enter the computation of total income at all and therefore, the loss of such a 10A unit cannot be set off against the other income. 15. At the time of hearing before us, the ld. counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is ambiguity or doubt, because of the language used, as to whether the sub-section provides for an exemption or a deduction. It was also observed by the Hon'ble Delhi High Court that there is uncertainty or lack of precision in sub-section (1) of section 10A. 19. In the CBDT Circular dated 16.7.2013, which has been strongly relied upon by the ld. counsel for the assessee in support of the assessee's claim for set off of the loss of 10A unit against income from other sources, this conflict was taken note of in para 1 of the Circular stating that it had been brought to the notice of the Board that the provisions of section 10A/ 10AA/10B/10BA of the Income-tax Act, with regard to applicability of Chapter IV of the Act and set off and carry forward of losses, are being interpreted differently by the Officers of the Department as well as by different High Courts. The Board then narrated in paras 2 to 4 of the Circular the amendments made in the relevant provisions of section 10A and 10B to overcome this situation before finally giving its views on the purpose that is sought to be achieved by the said amendments in para 5 and 6 of the Circular as under:- "5. From the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be carried forward and may be set off against the profits of eligible unit or ineligible unit as the case may be, in accordance with the provisions of section 72 of the Act. 6. The provisions of Chapter IV and Chapter VI shall also apply in computing the income for the purpose of deduction under section 10AA and 10BA of the Act subject to the conditions specified in the said sections." 20. It is interesting to note that in the case of Biocon Limited (ITA No.248/Bang/2010 & Ors.), the Board Circular dated 16.7.2013 (supra) was relied upon on behalf of the assessee in a different context and on a different issue relating to weighted deduction u/s. 35(2AB) of the Act. The Tribunal, however, held that the said Circular referred to by the ld. counsel for the assessee cannot be said to be a benevolent Circular inasmuch as treating the provisions of section 10A/10AA/10B as a deduction provision results in hardship to the assessee, especially in the context of set off of losses of non-10A/10B unit before allowing deduction u/s. 10A/10B of the Act. The Tribunal, therefore, held that it would be most appropriate in such a situation to follow the binding decision of the Hon'ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal position emanating from the judgments of the Hon'ble Apex Court discussed above that the benevolent Circulars issued by the CBDT are binding on the revenue authorities and having regard to the undisputed position that the Circular dated 16.7.2013 (supra) issued by the CBDT is beneficial to the assessee on the issue involved in the present case, relating to set off of the loss of 10A unit claimed by the assessee against income from other sources, we are of the view that the effect of the said Circular is required to be given, as the same is binding on the revenue authorities. We, therefore, set aside the order of the ld. CIT(Appeals) confirming the disallowance made by the AO on account of the assessee's claim for setting off of 10A unit loss against 'income from other sources' and restore the matter to the file of the Assessing Officer for deciding the same afresh, in the light of CBDT Circular dated 16.7.2013 issued recently after the judgment of Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd, (supra). The relevant grounds of the assessee's appeal on this issue are accordingly treated as allowed. 26. In the result, the appeal of the assessee is treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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