CIT & Ors. v. Tyco Electronics Tools India (P) Ltd.

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The Tax PublishersITA No. 431 C/W 430 of 2010 2012 TaxPub(DT) 1627 (Karn-HC) : (2012) 205 TAXMAN 0403 INCOME TAX ACT, 1961 --Deduction under section 10A--Computation Deductibility of set off of earlier years loss and depreciation--The AO, by order dated 3-3-2005, processed the return filed by the respondent for the assessment year 2002-03, which was filed on 31-10-2002 declaring total income as nil after claiming exemption under section 10A and set-off of unabsorbed depreciation carried forward from assessment years 1993-1994 and 1994-95 and a book profit of Rs. 77,34,727 under section 115JB. The return was processed under section 143(1) on 28-2-2003 and it was found that the assessee had treated income as 'business income' and had claimed exemption under section 10A and set-off of unabsorbed depreciation against the same pertaining to assessment year 1993-94 and 1994-95. Notice under section 148 was issued on 31-7-2003. In response to the said notice, the assessee filed a return of income on 29-8-2003. The AO, after hearing the representative of the assessee, by order dated 3-3-2005, overruled the objections of the assessee and held that the assessee is not entitled for carry forward and set off of unabsorbed depreciation for the assessment years 1993-94 and 1994-95 against the income determined for the assessment year 2001-02. Being aggrieved by the said order of the AO, the assessee preferred appeal before the CIT(A). The appellate authority, by order dated 28-11-2005, allowed the appeal, in part and held that the assessee was entitled for carry forward and set-off of unabsorbed depreciation for the assessment years 1993-94 and 1994-95 against the income determined for the assessment year 2001-02. Thereafter, an order of assessment was passed on 11-1-2006 giving effect to the order passed by the appellate authority. The CIT in exercise of powers under section 263, while reviewing the order passed by the AO dt. 11-1-2006, issued notice to the assessee and held that the AO while completing the assessment on 3-3-2005, did not allow the set-off of unabsorbed depreciation relating to assessment years 1993-94 to 1994-95 against the business income of the assessment year 2002-03 by invoking the provisions of section 10A(6). The relevant assessment year for the purpose of section 10A(6) is not the present assessment year 2002-03, but the assessment year 2003-04, i.e., the assessment year which immediately follows the block of ten assessment years from assessment years 1993-94 to 2002-03. Therefore, the action of the AO in not setting off of carried forward unabsorbed depreciation, before allowing exemption under section 10A was erroneous and contrary to the provisions of law and in the assessment year 2002-03, there remained unabsorbed depreciation to that extent, available to the assessee for claiming set-off against the income of the assessment year 2003-04, causing loss of revenue in the assessment year 2003-04. Accordingly, the revisional authority held that both the orders of the AO, i.e., assessment order dt. 3-3-2005 and the order dated 11-1-2006 giving effect to the order of the appellate authority, were erroneous as well as prejudicial to the interest of the revenue and set aside the said orders of the AO and directed the AO to redo the same setting off the unabsorbed depreciation before allowing exemption under section 10A. Being aggrieved by the said order of the revisional authority dt. 26-3-2007, the assessee preferred appeal before the Tribunal, in ITA Nos. 494, 495 and 701/Coch/2007. The Tribunal, by order dated 26-4-2010, allowed the appeals by the assessee in respect of the assessment years 2001-2002 and 2002-2003. Held: Justified. The material on record would clearly show that the only question of law that would arise for consideration between the parties to this appeal is as to whether the profit for the purpose of deduction under section 10A should be allowed without setting off of unabsorbed loss and depreciation or including the same. The fact that the said question has already been answered by this Court in favour of the assessee and against the revenue in ITA No. 78/2011 and connected cases disposed of on 9-8-2011 is not in dispute. [Para 7] In ITA No. 78/2011, this Court has held as follows : 31. As the income of 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10A unit cannot be set off against the income of 10A unit under section 72. The loss incurred by the assessee under the head 'Profits and gains of business or profession' has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would of arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the Appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of section 10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the revenue.Ã¢â‚¬ Therefore, following the reasons assigned in the said judgment of this Court passed in ITA No. 78/2011 and connected cases, the substantial question of law that has arisen for determination in these appeals is answered in favour of the respondent Ã¢â‚¬“ assessee and against the revenue. This court holds that no other substantial question of law arises for determination in these appeals between the parties. [Para 7] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 431 C/W 430 of 2010
2012 TaxPub(DT) 1627 (Karn-HC) : (2012) 205 TAXMAN 0403

INCOME TAX ACT, 1961

--Deduction under section 10A--Computation Deductibility of set off of earlier years loss and depreciation--The AO, by order dated 3-3-2005, processed the return filed by the respondent for the assessment year 2002-03, which was filed on 31-10-2002 declaring total income as nil after claiming exemption under section 10A and set-off of unabsorbed depreciation carried forward from assessment years 1993-1994 and 1994-95 and a book profit of Rs. 77,34,727 under section 115JB. The return was processed under section 143(1) on 28-2-2003 and it was found that the assessee had treated income as 'business income' and had claimed exemption under section 10A and set-off of unabsorbed depreciation against the same pertaining to assessment year 1993-94 and 1994-95. Notice under section 148 was issued on 31-7-2003. In response to the said notice, the assessee filed a return of income on 29-8-2003. The AO, after hearing the representative of the assessee, by order dated 3-3-2005, overruled the objections of the assessee and held that the assessee is not entitled for carry forward and set off of unabsorbed depreciation for the assessment years 1993-94 and 1994-95 against the income determined for the assessment year 2001-02. Being aggrieved by the said order of the AO, the assessee preferred appeal before the CIT(A). The appellate authority, by order dated 28-11-2005, allowed the appeal, in part and held that the assessee was entitled for carry forward and set-off of unabsorbed depreciation for the assessment years 1993-94 and 1994-95 against the income determined for the assessment year 2001-02. Thereafter, an order of assessment was passed on 11-1-2006 giving effect to the order passed by the appellate authority. The CIT in exercise of powers under section 263, while reviewing the order passed by the AO dt. 11-1-2006, issued notice to the assessee and held that the AO while completing the assessment on 3-3-2005, did not allow the set-off of unabsorbed depreciation relating to assessment years 1993-94 to 1994-95 against the business income of the assessment year 2002-03 by invoking the provisions of section 10A(6). The relevant assessment year for the purpose of section 10A(6) is not the present assessment year 2002-03, but the assessment year 2003-04, i.e., the assessment year which immediately follows the block of ten assessment years from assessment years 1993-94 to 2002-03. Therefore, the action of the AO in not setting off of carried forward unabsorbed depreciation, before allowing exemption under section 10A was erroneous and contrary to the provisions of law and in the assessment year 2002-03, there remained unabsorbed depreciation to that extent, available to the assessee for claiming set-off against the income of the assessment year 2003-04, causing loss of revenue in the assessment year 2003-04. Accordingly, the revisional authority held that both the orders of the AO, i.e., assessment order dt. 3-3-2005 and the order dated 11-1-2006 giving effect to the order of the appellate authority, were erroneous as well as prejudicial to the interest of the revenue and set aside the said orders of the AO and directed the AO to redo the same setting off the unabsorbed depreciation before allowing exemption under section 10A. Being aggrieved by the said order of the revisional authority dt. 26-3-2007, the assessee preferred appeal before the Tribunal, in ITA Nos. 494, 495 and 701/Coch/2007. The Tribunal, by order dated 26-4-2010, allowed the appeals by the assessee in respect of the assessment years 2001-2002 and 2002-2003. Held: Justified.

The material on record would clearly show that the only question of law that would arise for consideration between the parties to this appeal is as to whether the profit for the purpose of deduction under section 10A should be allowed without setting off of unabsorbed loss and depreciation or including the same. The fact that the said question has already been answered by this Court in favour of the assessee and against the revenue in ITA No. 78/2011 and connected cases disposed of on 9-8-2011 is not in dispute. [Para 7] In ITA No. 78/2011, this Court has held as follows : 31. As the income of 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10A unit cannot be set off against the income of 10A unit under section 72. The loss incurred by the assessee under the head 'Profits and gains of business or profession' has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would of arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current years depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the Appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of section 10-A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the revenue.Ã¢â‚¬ Therefore, following the reasons assigned in the said judgment of this Court passed in ITA No. 78/2011 and connected cases, the substantial question of law that has arisen for determination in these appeals is answered in favour of the respondent Ã¢â‚¬“ assessee and against the revenue. This court holds that no other substantial question of law arises for determination in these appeals between the parties. [Para 7]