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TMI Blog2017 (9) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... construed as deduction provision or exemption provisions and had in the course of assessment proceedings called for calculation of deduction u/s 10A and 10AA of the Act. In fact perusal of the order of assessment u/s 143(3) of the Act shows that the AO has disallowed the expenses claimed by the assessee by way of provision for leave encashment while arriving at the eligible provision of section 10A and 10AA units. It cannot therefore be said that there was any failure on the part of the AO for proper or adequate enquiries to claim deduction u/s 10A and 10AA before completing the assessment. Hon'ble Supreme Court in the case of CIT vs Yokogawa India Ltd. (2016 (12) TMI 881 - SUPREME COURT ) has taken the view that the provision of section 10A and 10AA of the Act are deduction provisions but the stage of deduction would be while computing gross total income of eligible undertaking under Chapter-IV of the Act and not at the stage of computation of total income under Chapter-VI of the Act. The effect of the aforesaid decision would be that the provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s 10A and 10AA of the Act without set off of loss of taxable unit. It can be seen from the aforesaid computation that out of the 4 units of the Assessee, two units whose income is chargeable to tax i.e., units other than the Sec.10A and 10AA units, incurred loss of ₹ 8,37,63,777. 4. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional incometax) of this Act in respect of the total income of the previous year of every person. The charge of tax is thus on total income. Sec. 2 (45) defines total income to mean total amount of income referred to in Sec.5, computed in the manner laid down in this Act. Chapter-II of the Act, from section 4 to 9 deal with Basis of Charge. Chapter-III of the Act, deals with income which do not form part of total income and are contained in Sect. 10 to 13-B of the Act. Chapter IV deals with the computation of total income. Firstly income is categorized u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit does not form part of the total income under the Act by virtue of provisions of Sec.10A or 10AA of the Act contained in Chapter III of the Act, then neither the gain nor loss would be considered for computation of total income. (emphasis supplied). Therefore if the income of the eligible unit is considered as falling within Chapter III then the computation of total income as done by the Assessee is correct. On the other hand if the income of the eligible unit is considered as falling within Chapter VIA of the Act dealing with deductions from Gross Total Income, then the provisions of Chapter VI of the Act, especially Sec.70(1) of the Act has to be given effect to. In that case, the loss of the non eligible units would get set off completely by the profits of the eligible unit and the deduction allowed to the eligible units u/s.10A and 10AA of the Act would be less. More importantly the carry forward of loss as claimed by the Assessee for set off in the subsequent assessment years would be nil. This the background in which the present proceedings u/s.263 of the Act was initiated by the CIT. 6. The AO before completing the assessment u/s 143(3) of the Act, made the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit as per computation Rs.20,44,83,177/- Add: As discussed in para 3.1 ₹ 2,65,493/- Book Profit as assessed Rs.20,47,48,670/- 8. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO was erroneous and prejudicial to the interest of the revenue for two reasons. (i) the deduction u/s10A and 10AA of the Act was allowed without setting off of loss of units whose income was chargeable to tax and (ii) deduction u/s 10A and 10AA of the Act ought to have been restricted to the total income computed under the head " income from business" of ₹ 55,86,57,869/-. The CIT issued a show cause notice on the above issues to the Assessee and calling upon the Assessee to show cause as to why the aforesaid order should not be revised in exercise of powers u/s.263 of the Act. 9. The assessee in reply to the show cause notice dated 08.01.2015 vide its reply dated 19.01.2015 pointed out that the view taken by the AO was a possible view supported by several decisions rendered by Hon'ble High Courts and therefore the CT in exercise of his powers u/s 263 of the Act cannot term the view taken by the AO as erroneous. The Assessee pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in total income of the taxpayer. Prior to amendment in 2003, section 10A(6) provided for complete prohibition from carried forward of business losses and depreciation beyond the tax holiday period. Amendment carried out by Finance Act 2003 w.e.f April 2001 lifted the bar and permitted the taxpayer to carry forward and set off unabsorbed business losses and depreciation beyond the tax holiday period. Having regard to exemption nature of section-10A, ordinarily, loss incurred by an eligible unit would not have been allowed to be carried forward and set off against income of other unit. Grant of carry forward and set off of losses and depreciation does not mitigate against the proposition that benefit or relief under section 10A is in the nature of exemption with reference to the commercial profits. The Assessee placed reliance on the decision of the Hon'ble Supreme Court in Canara Work Shop Ltd. [161 ITR 120] and decision in the case of CIT v Yokogawa India Ltd. [(2012) 341 ITR 385(karn) in this regard. The Assessee thus submitted that a taxpayer should be allowed deduction under s. 10A/10B/10AA with respect to profits of a specific eligible unit without adjustment there again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing were the relevant observations of the CIT :- " 6. It is observed that the assessee was allowed deduction of ₹ 58,31,79,442/- u/s. 10A of the Act and ₹ 5,45,20,053/- u/s. 10AA of Act without setting off of loss of taxable unit. It was further observed that the amount of deduction u/s. 10A and Sec. 10AA of the Act was required to be restricted to the business income of ₹ 55,86,57,869/- as determined in the assessment order but excess carry forward of loss amounting to ₹ 7,90A1,626/- was also allowed to the assessee. It is to be noted that there is no doubt that the cognizance of CBDT's circular No. 07 /DV /2013 dated 16/07/2013 in this respect has to be taken. However, in this case, the AO has not examined all facts and details while allowing excess carry forward of loss to the assessee as mentioned in Para-4. To that extent there is wrong assumption of fact and incorrect application of law. The assessment order u/s. 143(3) is, therefore, erroneous and prejudicial to the interest of revenue. I am of the opinion that the case has to go' pack to the A.O. for prior verification and assessment. 7. In the result, the assessment is set aside for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of the business of an eligible undertaking has to be made independently and, therefore, "immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in sections 70, 72 and 74 would be premature for application. The deductions under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression 'total income of the assessee' in section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of section 10A the aforesaid discord can be reconciled by understanding the expression "total income of the assessee" in section 10A as 'total income of the undertaking'. For the aforesaid reasons it is held that though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and' not at the stage of comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. These decisions have been rendered even after the CBDT Circular dated 16.07.2013 wherein it has been mentioned that provision of section 10A and 10AA of the Act were deduction provision though they are part of Chapter-III of the Act. In the light of the debate that existed when the order of the assessment was framed and when the impugned order u/s 263 of the Act was passed, it cannot be said that the view taken by the AO was an erroneous view. In fact the view taken by the AO was a possible view supported by decisions of courts. It cannot therefore be said that there was either incorrect assumption of fact or incorrect application of law so as to invoke the provision u/s 263 of the Act. Apart from the above we find that the Hon;ble Supreme Court in the case of CIT vs Yokogawa India Ltd. (supra) has taken the view that the provision of section 10A and 10AA of the Act are deduction provisions but the stage of deduction would be while computing gross total income of eligible undertaking under Chapter-IV of the Act and not at the stage of computation of total income under Chapter-VI of the Act. The effect of the aforesaid decision would be that the provision of set off and carry for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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