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TMI Blog2004 (3) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... any other disability or restrictions in respect of the set off of carry forward etc., has been specifically provided in section 10A(4) of the Act itself. Therefore, these provisions need to be considered in totality keeping in view the intention of the legislation regarding taxability of such units in the Export Processing Zone. Section 10A(4)(ii) specifically prohibits the carry forward and set off of the loss incurred by such units by specifically referring to sections 72(1) and 72(4)(i) or with effect from 1 -4-1988 under section 74(3). It does not refer to sections 70 or 71 which clearly means that there is no prohibition prescribed in the section regarding set off of the loss of such units against the income from other units or other business income of other sources. We find that section 14A was not in existence when the impugned order was passed. So also, by the insertion of provision, the intention of the legislation is clear that it is not to be applied to the past assessments by restricting the officers to reopen the assessments etc. Therefore, if the Assessing Officer cannot do a particular action like reopening of assessment already completed, the Tribunal cannot use tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e train at Kota, the Railway authorities cannot force him to go up to Delhi. If the benefit is conferred on the assessee, he cannot be forced to avail the same. Section 10A of the Act, is a code by itself. It contains the scheme of taxation formulated by the Government for taxability of units set up in the export processing zone. As such, it cannot be compared with section 10 of the Act. Ex consequenti, the decisions rendered in the cases of Harprasad Co. (P.) Ltd. [ 1975 (2) TMI 2 - SUPREME COURT] and S.S. Thiagarajan [ 1978 (3) TMI 8 - MADRAS HIGH COURT] , in the context of section 10 of the Act, cannot be applied over here. Coming to the applicability of section 10A(4)(ii) of the Act, I find that it put interdict qua sections 72 and 74. It does not preclude the operation of sections 70 and 71. Section 14A of the Act is applicable in respect of 'expenditure'. Loss is different from expenditure. As such, the assessed is entitled to setting off the loss incurred by the SEEPZ unit. In view of this finding, the question whether section 14A-of the Act is prospective or retrospective in operation, has become academic. I concur with the finding of the learned Accountant Member. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above amount, a sum of Rs. 1,43,531 was towards advertisement and remaining Rs. 2,41,066 was towards sales promotion, details of which are as under :- Gift Articles ... Rs. 17,337 Expenses on boarding lodging of foreign buyers ... Rs. 92,717 Other expenses incurred in various hotels restaurants ... Rs. 1,31,010 Total ... Rs. 2,41,056 8. It was submitted before the Assessing Officer that the assessee being an export trader, various foreign delegates come to India for whom hotel rooms are engaged for exhibition of products. Number of employees employed during the course of exhibition is also substantial. Hence, major portion of the expenses has to be incurred on employees and rooms for display. The total disallowance offered in the return out of the above towards entertainment was Rs. 70,525 and Rs. 11,637 in respect of gift articles (above Rs. 50). Thus, the assessee itself offered more than 36% of the disallowance. The Assessing Officer, however, estimated an additional disallowance of Rs. 60,000 on this account after considering allowable deduction under section 37(2A), making the total disallowance of Rs. 1,47,862. In addition, he made further disallowance of Rs. 5,000 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f liability has happened during the year, it cannot be treated as prior year's expenses. The learned CIT(Appeals), however, confirmed the addition. 15. The learned Counsel for the assessee further submitted that even though the assessee is following Mercantile system of accounting, since the liability in respect of the rent has crystallized during the year, though related to some period of the earlier year, it cannot be treated as prior period expenses. In this regard, reliance was placed on the definition of prior period expenses given in the Accounting Standard-1 issued by the Institute of Chartered Accountants of India and Accounting Standard issued by the CBDT. 16. The learned Departmental Representative submitted that since the expenditure is related to the prior period, it has to be disallowed. 17. We have heard the rival submissions and perused the facts on record. The facts which emerge from the Orders of the authorities below indicate that bill in respect of rent as well as payment of the rent was done during the previous year relevant to the assessment year 1990-91. Merely because some portion of the rent relates to prior year, i.e., one month and nine days, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 and in the case of CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149(SC). 21. The learned Counsel for the assessee also brought to our notice that the decisions referred to by the learned CIT(Appeals) are not applicable to the facts of the assessee's case as these decisions were referred to income which were not chargeable under section 10 of the IT Act and not dealing with the situation like in the present case i. e., where the income of the Units in the Export Processing Zone are assessable as per the separate provisions which is a code by itself. Therefore, it was submitted that the decisions relied upon by the learned CIT (Appeals) have no relevance to the issue which is for consideration. He further reiterated that since there is no specific provision either under section 10A or in section 70 or under section 71, the loss suffered by SEEPZ Unit cannot be set off against the income from other units and other sources, the same should be allowed to be set off. In reply to a query from the Bench regarding the applicability of section 14A, the learned Counsel for the assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head income from horses . Both the aforesaid cases are in respect of exempt income contained in section 10, which is not the code by itself as compared to section 10A. Similarly, as held by the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd and Gwalior Rayon Silk Mfg. Co. Ltd.'s case, while interpreting the incentive provisions, if there are two interpretations possible, the interpretation, which is harmonious with the object of the statute to effectuate the legislative intention and in consonance with the justice, a purposive approach should be adopted. So also, the provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee. 25. Coming to section 14A relied upon by the learned Departmental Representative, we find that even though section 14A has been given retrospective effect with effect from 1 -4-1962, the operation of the section has been made prospective. This was also clarified by the circular No. 11/2001 dated 23-7-2001. According to the circular, the Assessing Officer should not re-open the assessments to disallow the expenditure to earn the exempt income by applying the provisions of newly inserted section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abric or wastage depends on the type of products manufactured and exported and in fact, the wastage during the year has gone down from 1.33% in immediately previous year to 1.10% during the year. He also drew our attention to the fact that the addition made in the previous year was reduced by the I.T.A.T., in assessment year 1989-90 in the assessee's own case from Rs. 83,000 to Rs. 45,000, a copy of which has been filed in the Paper Book. 30. The learned Departmental Representative relied on the orders of the authorities below. 31. We have considered the rival submissions and perused the facts on record. Respectfully following the decision of the I.T.A.T., in the assessee's own case in the earlier year and taking into account the fact that the wastage has gone down from 1.33% to 1%, we restrict the addition to Rs. 35,000 as against Rs. 83,000 sustained by the learned CIT(Appeals). The assessee will be entitled to a relief of Rs. 48,000. This ground accordingly succeeds in part. 32. Ground Nos. 6 7 read as under:- 6. The learned CIT(Appeals) erred in holding that interest earned on fixed deposits made with the Banks for the purpose of lodging the said fixed deposits with Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total interest paid to the bank on the packing credit and other loans was Rs. 28,77,745. Therefore, in effect, in substance there was no interest received after considering the set off of interest received against the interest paid. He further submitted that the action of the learned CIT(Appeals) in not considering the same as business income is not justified as he himself has accepted that if the income is earned on the deposits which are not kept for the purpose of earning the interest, the same should be treated as business income. In support of his contention, the learned Departmental Representative relied upon the following decisions:- (1) CIT v. Paramount Premises (P.) Ltd. [1991] 190 ITR 259 (Bom.) (2) CIT v. Nagpur Engg. Co. Ltd. [2000] 245 ITR 806 (Bom.) (3) Sealink Construction Co. (P.) Ltd. [IT Appeal No. 4433/M/2000, dated 6-12-2001.] (4) Neha Ransmission [IT Appeal No. 4877/M/99, dated 6-7-2001] (5) Dy. CIT v. Jagdish Electronics (P.) Ltd. [1998] 66 ITD 542 (Pune) Without prejudice it was submitted that even if interest of Rs. 1,47,649 was to be treated as income from other sources since it is out of the borrowed funds, same need to be set off against the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net profit shown in the P L A/c, except to the extent provided in the section. While dealing with the eligibility of deduction under section 32AB in respect of dividend income which has been declared by the assessee as Income from other sources , the Supreme Court at page 281 has observed as under:- A perusal of section 32AB, as it stood at the relevant time, shows that if an assessee has a total income including income chargeable to tax under the head profits and gains of business or profession and if the income from such business is derived from an eligible business and if the assessee has out of such income utilized any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent of the profit of such eligible business as computed in the accounts of the assessee which account has been audited in accordance with sub-section (5) of section 32AB. The Supreme Court at page 282 concluded as under:- Therefore, there is no doubt that the business of the assessee company is an eligible business. The fact that it is shown under a different head of income would not deprive the company of its benefit under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of interest of fixed deposits, discussed in Ground Nos. 6 7 above. It is also noted that the assessees had paid rent of Rs. 9,98,871, against which rent of Rs. 55,560 has been received. As per the detailed discussions in the previous paragraphs, we direct the Assessing Officer to consider the rental compensation of Rs. 55,560 as part of the book profit for the purpose of section 32AB and rework the deduction accordingly. Similarly, for the purpose of working out of profit for the purpose of deduction under section 80HHC, we direct the Assessing Officer to verify the direct nexus in respect of earning of rent and payment of rent and grant set off against each other if it is there. 43. Ground No. 9 reads as under :- The appellant prays that various disallowances confirmed be deleted and correct deduction be allowed under section 32AB and under section 80HHC by not excluding the interest received and the compensation received from business income or alternatively to reduce relating expenses thereto out of the said income and only to deduct the net income out of the business income to arrive at business income for calculation under section 32AB and under section 80HHC. 44. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nality. In the present case addition was made by Assessing Officer and has been upheld by the CIT(A). The appeal is pending before Tribunal, therefore, the issue is alive. Proviso to section 14A is applicable to a situation where the assessment has got finality and on such assessment provisions of section 147 or 154 cannot be made applicable. In my view the provision of section 14A is applicable to the case of assessee and the loss claimed is inadmissible. The Tribunal is duty bound to consider the provisions which is on the statute. The provisions of section 14A has been brought into statute with retrospective effect from 1-4-1962 and covers the period under consideration. Therefore, in my view the claim of the assessee has to be rejected. 4. With regard to ground Nos. 6 and 7,1 agree with the conclusion of the learned Accountant Member that interest income earned on fixed deposits amounting to Rs. 1,47,649 has to be considered for the purpose of deduction under section 32AB as the same is income from business and is not assessable as income from other source . In respect of conclusion relating to deduction under section 80HHC, I am in agreement with the decision of the learned Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Harprasad Co. (P.) Ltd. and the decision of the Madras High Court in the case of S.S. Thiagarajan. 4. In the case of Harprasad Co. (P.) Ltd., there was loss under the head Capital gains , which in that year was not exigible to tax. The question before the Apex Court was whether in such circumstances the loss can be computed and carried forward. The Hon'ble Supreme Court has held that as capital gains did not form part of the 'total income' of the assessee, which could be brought to charge and were therefore not required to be computed under the Act. If the loss is from a source not liable to tax or congenitally exempt from income-tax, neither the assessee is required to show the same in the return, nor is the Assessing Officer under any obligation to compute or assess it, much less for the purpose of 'carry forward'. 5. In the case of S.S. Thiagarajan, the assessee was maintaining race horses for the purpose of running them at horse races, winning stake money and breeding race horses. He was spending money on feeding the horses and training them in training establishments run commercially. The horses were sent by the assessee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off where such loss, or, as the case may be, deficiency relates to any of the relevant assessment years. 8. On the basis of the aforesaid provision it was argued that the said provision does not refer to sections 70 and 71 of the Act, which permits the set off of the loss from one source against the other source during the year. It was submitted that section 10A of the Act is a code by itself. The non obstante clause is qua sections 72 and 74 of the Act. It does not preclude the operation of sections 70 and 71 of the Act. 9. It was further submitted that section 10A of the Act, being an incentive provision, should be construed liberally so as to achieve the objective for which deductions are provided in the Act. Reliance was placed on the decision of the Apex Court rendered in the case of Bajaj Tempo Ltd. In this case the Hon'ble Supreme Court has held that the provision for incentive for growth and development should be interpreted liberally. It should be construed so as to advance objective and not frustrate it. Similar view was taken in the case of Gwalior Rayon Silk Mfg. Co. Ltd. In this case it was held that the provision in the taxing statute for deduction, exemption or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cifically referring to sections 72(1) and 72(4)(i) or with effect from 1-4-1988 under section 74(3). It does not refer to sections 70 or 71, which clearly means that there is no prohibition prescribed in the section regarding set off of the loss of such units against the income from other units or other business income of other sources. (iii) In the case of Harprasad Co. (P.) Ltd., the Assessing Officer was dealing with a situation of carry forward and set off of capital loss against the other income. In the case of S.S. Thiagarajan, it was regarding set off of the loss under the head Income from horses . In both the cases exemption was claimed under section 10, which cannot be considered to be a code by itself as compared to section 10A of the Act. (iv) Hon'ble Supreme Court in the cases of Bajaj Tempo Ltd. and Gwalior Rayon Silk Mfg. Co. Ltd., while interpreting the incentive provisions, has held that if there are two interpretations possible, the interpretation, which is harmonious with the object of the statute to effectuate the legislative intention and in consonance with the justice, a purposive approach should be adopted. So also, the provision for deduction, exemption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 147 or 154 cannot be made applicable. In the circumstances, the learned Judicial Member opined that the Tribunal is duty bound to consider the provision, which is on the statute. The provision of section 14A was brought into statute with retrospective effect from 1-4-1962 and covers the period under consideration. As such, the claim of the assessee was rejected. 15. The learned Judicial Member did not discuss the applicability of section 14A of the Act, vis-a- vis the facts of the present case. It was presumed that this section applies to the case of the assessee and as because it was made operative retrospectively; as such it was applied. Therefore, it is necessary to examine firstly whether section 14A of the Act can be applied in the facts and circumstances of the present case. Subject to its applicability, the question apropos to its retrospective applicability would be pertinent for deciding the issue. 16. Section 14A reads as under :- 14A Expenditure incurred in relation to income not includible in total income For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20. In the present case I find that the benefit of section 10A of the Act was available to the assessee for five years. The assessee claimed benefit for three years. For rest of the years, the assessee did not claim the benefit of section 10A of the Act. The assessee opted to get the profits of new industrial undertaking assessed under the normal provisions. I find no provision in the Act by which the assessee can be forced to avail the benefit for five years. If the assessee wants to put the income under the normal computation procedure, there appears to be no bar for doing so. If one purchases ticket to undertake journey from Mumbai to Delhi; later on he decides to disembark from the train at Kota, the Railway authorities cannot force him to go up to Delhi. If the benefit is conferred on the assessee, he cannot be forced to avail the same. 21. Section 10A of the Act, is a code by itself. It contains the scheme of taxation formulated by the Government for taxability of units set up in the export processing zone. As such, it cannot be compared with section 10 of the Act. Ex consequenti, the decisions rendered in the cases of Harprasad Co. (P.) Ltd, and S.S. Thiagarajan, in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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