M/s Tecnotree Convergence Ltd., New Delhi v. DCIT, New Delhi

ITA 5698/DEL/2010 | 2004-2005
Pronouncement Date: 30-03-2012 | Result: Partly Allowed

Appeal Details

RSA Number 569820114 RSA 2010
Assessee PAN AAACL7345L
Bench Delhi
Appeal Number ITA 5698/DEL/2010
Duration Of Justice 1 year(s) 3 month(s) 14 day(s)
Appellant M/s Tecnotree Convergence Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 30-03-2012
Date Of Final Hearing 05-03-2012
Next Hearing Date 05-03-2012
Assessment Year 2004-2005
Appeal Filed On 16-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI U.B.S. BEDI AND SHRI K.G. BANSAL ITA NOS. 5697 & 5698(DEL)/2010 ASSESSMENT YEARS: 2003-04 &2004-05 TECHNOTREE CONVERGENCE LTD. DE PUTY COMMISSIONER OF INCOME (FORMERLY KNOWN AS LIFETREE VS. TAX CIRCLE 4(1) NEW DELHI. CONVERGENCE LTD.) C/O O.P. SAPRA &ASSOCIATES C-763 NEW FRIENDS COLONY NEW DELHI. PAN: AAACL7345L (APPELLANT) (RESPOND ENT) APPELLANT BY : SHRI SANJEEV SAPRA ADVOCATE RESPONDENT BY: SHRI C.B. SINGH SR. DR DATE OF HEARIN G : 14.03.2012 DATE OF PRONOUN CEMENT: 30 .03.2012 ORDER PER K.G. BANSAL : AM THESE TWO APPEALS OF THE ASSESSEE FOR TWO DIFFER ENT YEARS HAVE BEEN ARGUED IN A CONSOLIDATED MANNER BY THE LD. COUNS EL FOR THE ASSESSEE AND THE LD. DR. THEREFORE WE FIND IT CONVENIENCE TO PASS A CONSOLIDATED ORDER. 2. WE START WITH THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003- 04. IN THIS APPEAL THE ASSESSEE HAS TAKEN OBJ ECTION TO THE INITIATION OF RE- ITA NOS. 5697 & 5698(DEL)/2010 2 ASSESSMENT PROCEEDINGS INITIATED U/S 147 AND COM PLETION THEREOF ON 24.12.2009. 2.1 IN THE ASSESSMENT ORDER IT IS MENTIONED THAT ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED IN THE MONTH OF JANUARY 200 6 AT TOTAL INCOME OF RS. 7 94 070/-. THEREAFTER NOTICE U/S 148 WAS ISSU ED ON 26.08.2008 AFTER OBTAINING THE PRIOR APPROVAL OF THE COMMISSIONER O F INCOME-TAX. FOLLOWING REASONS WERE RECORDED FOR ISSUING NO TICE U/S 148:- ON EXAMINATION OF THE RECORDS IT IS SEEN THAT THE ASSESSMENT OF THE ASSESSEE COMPANY WAS MADE AFTER SCRUTINY A T AN INCOME OF RS. 7 94 070/- AFTER ALLOWING EXEMPTION OF RS . 27 95 494/- UNDER SECTION 10 AND AFTER SPECIAL PROVISION NIL INCOME. THE EXEMPTION OF RS. 27 95 494/- WAS ALLOWED BEF ORE SETTING OFF BF LOSSES/UNABSORBED DEPRECIATION AMOUNTING TO RS. 53 07 000/- WHICH IS NOT CORRECT. IN VIEW OF THE ABOVE I HAVE REASON TO BELIEVE THA T THE INCOME OF RS. 27 95 494/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147/148. 2.2 THE LIMITED CASE OF THE LD. COUNSEL BEFORE US IS THAT THE ASSESSMENT PERTAINS TO ASSESSMENT YEAR 2003-04. ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) IN JANUARY 2006. NOTICE U/S 148 WAS ISSUED ON 26.08.2008. FOUR YEARS FROM THE END OF THE ASSE SSMENT YEAR EXPIRED ON 31.03.2008. THUS NOTICE U/S 148 WAS ISSUED AFT ER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. SUCH A NOTICE AT THAT POINT ITA NOS. 5697 & 5698(DEL)/2010 3 OF TIME COULD BE ISSUED ONLY IF INCOME CHARGE ABLE TO TAX ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT AS PROVIDED IN THE FIRST PROVISO TO SECTION 147. T HERE IS NO ALLEGATION IN THE REASONS THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL NECESSARY FACTS FOR THE ASS ESSMENT OF THIS YEAR. THUS THE NOTICE IS BAD IN LAW. 2.3 IN REPLY THE LD. DR SUBMITTED THAT THE P ROFIT OF THE ELIGIBLE UNDERTAKING REQUIRED TO BE EXCLUDED FROM THE TOT AL INCOME WERE COMPUTED BY THE ASSESSEE BY TAKING INTO ACCOUNT UNABSORBE D DEPRECIATION AND BROUGHT FORWARD LOSS. THIS COMPUTATION WAS WRO NG AND THEREFORE THE ASSESSEE HAD NOT FURNISHED TRULY AND FULLY THE MATERIAL FACTS REQUIRED FOR THE PURPOSE OF ASSESSMENT. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE. TH E PROVISO TO SECTION 147 READS AS UNDER:- PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SEC TION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDE R THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE T O TAX HAS ITA NOS. 5697 & 5698(DEL)/2010 4 ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YER BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS A SSESSMENT FOR THAT ASSESSMENT YEAR: 3.1 THIS PROVISO USES THE WORDS DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. A CLAIM IS BA SED UPON THE MATERIAL FILED IN THE COURSE OF ASSESSMENT. THE MATERIAL IS I N THE FORM OF VARIOUS DETAILS. THE CLAIM ITSELF MAY BE CORRECT OR INCORR ECT HOWEVER THAT IS NOT THE MATERIAL CONSIDERATION FOR RE-OPENING THE A SSESSMENT. WHAT IS MATERIAL IS THAT EVIDENCE FILED WITH THE RETURN IN THE FOR M OF VARIOUS MATERIAL FACTS SHOULD BE DISCLOSED FULLY AND TRULY. THE FACT THAT IT HAS NOT BEEN DONE SO SHOULD COME OUT FROM THE REASONS ITSELF. NOT HING HAS BEEN MENTIONED IN THE RECORDED REASONS TO THE EFFECT THAT MATE RIAL FACTS WERE NOT FULLY AND TRULY DISCLOSED. THEREFORE WE ARE OF THE VIEW T HAT THE REASONS RECORDED BY THE AO DO NOT CONFORM TO THE PROVISION CONTAI NED IN THE AFORESAID PROVISO. THE PROVISIONS HAD TO BE STRICTLY COMP LIED WITH FOR REOPENING THE ASSESSMENT. IN ABSENCE OF STRICT COMPLIANCE WE ARE OF THE VIEW THAT FOUNDATION FOR ISSUING NOTICE U/S 148 IS MISS ING AND THEREFORE THE AO HAS NOT PROPERLY ASSUMED JURISDICTION TO ISSUE N OTICE U/S 148. THUS THE NOTICE IS BAD IN LAW. AS THE STATUTORY PROVIS ION HAS NOT BEEN COMPLIED ITA NOS. 5697 & 5698(DEL)/2010 5 WITH IT IS NOT NECESSARY FOR US TO DISCUSS VARI OUS CASE LAWS IN THE MATTER. ACCORDINGLY GROUND NO. 1 IS ALLOWED. 3.2 IN VIEW OF THIS FINDING IT IS ALSO NOT NECESS ARY FOR US TO GO INTO GROUND NO. 2 REGARDING THE MERITS OF THE CLAIM O F EXEMPTION U/S 10A. 4. COMING TO ASSESSMENT YEAR 2004-05 THE ASSE SSEE HAS AGAIN TAKEN UP GROUND NO. 1 AGAINST VALIDITY OF THE NOTICE IS SUED U/S 148 OF THE ACT. THE ASSESSEE HAS ALSO TAKEN UP GROUND NO. 2 R EGARDING THE REDUCTION OF CLAIM OF EXEMPTION U/S 10A. WE PROCEED WITH GROU ND NO. 1 AT THE FIRST INSTANCE. THE FACTS MENTIONED IN THE ASSESSMEN T ORDER ARE THAT ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 10.01.200 6. THEREAFTER NOTICE WAS ISSUED U/S 148 ON 24.06.2008 AFTER OBTAINING APPROVAL OF THE CIT. THE REASONS RECORDED FOR ISSUANCE OF NOTICE U/S 148 ARE AS UNDER:- THE ASSESSMENT WAS COMPLETED IN SCRUTINY ON AN INCOME OF RS. 25 209/- UNDER NORMAL PROVISION AND RS. 9 57 987/- UNDER SPECIAL PROVISION. ON EXAMINATION OF THE RECOR DS IT IS FOUND THAT THE ASSESSEE HAD UNABSORBED DEPRECIAT ION OF RS. 4 44 952/- ONLY TO BE SET OFF INSTEAD OF RS. 17 35 684/- WHICH WAS SET OFF. THUS A SUM OF RS. 12 90 732/- HA S BEEN SET OFF IN EXCESS. IN VIEW OF THE ABOVE I HAVE REASON TO BELIEVE THAT THE INCOME OF RS. 12 90 732/- CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147/1 48. ITA NOS. 5697 & 5698(DEL)/2010 6 4.1 IT IS FURTHER MENTIONED THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF DEVELOPING SOFTWARE PRODUCTS USED BY TELECO MMUNICATION COMPANIES ETC.. IT CLAIMED DEDUCTION U/S 10A OF RS. 32 72 468/-. WHILE MAKING CLAIM THE UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS AGGREGATING TO RS. 17 35 684/- WERE NOT DEDUCTED FROM THE PR OFITS. THE ASSESSEE OBJECTED TO THE NOTICE. THESE OBJECTIONS WERE D ISPOSED OFF BY WAY OF AN INTERIM ORDER ON 18.11.2009. THEREAFTER THE AS SESSEE WAS GRANTED AN OPPORTUNITY TO STATE ITS CASE IN RESPECT OF NON -DEDUCTION OF AFORESAID LOSS AND DEPRECIATION. HOWEVER THE ASSESSEE AGAIN RAISED OBJECTIONS TO 148 PROCEEDINGS BUT REMAINED SILENT ON THE ISSUE OF MERITS OF THE CLAIM. THE AO PRESUMED THAT THE ASSESSEE HAD NOTHING TO SAY IN THE MATTER. THEREFORE WHILE COMPUTING EXEMPTION U/S 10A UNAB SORBED DEPRECIATION AND BROUGHT FORWARD LOSS NOW COMPUTED AT RS. 4 44 952/- WERE DEDUCTED FROM THE PROFITS OF THE ELIGIBLE UNIT. 4.2 THE ASSESSEE CHALLENGED THE REOPENING OF TH E ASSESSMENT AS WELL AS DOWNWARD REVISION OF THE CLAIM BEFORE THE LD . CIT(APPEALS). IN RESPECT OF REOPENING OF THE ASSESSMENT HIS FIND ING IS THAT THE AO DID NOT CONSCIOUSLY CONSIDER THE CLAIM AND THERE WAS NO APPLICATION OF MIND IN RESPECT OF NON-DEDUCTION OF BROUGHT FORWARD LOSS AND UNABSORBED ITA NOS. 5697 & 5698(DEL)/2010 7 DEPRECIATION. IN THIS CONNECTION HE CONSIDERED CERTAIN DECIDED CASES WHICH ACCORDING TO HIM LEAD TO THE INFERENCE THAT THE BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATION SHOULD BE DEDUCT ED WHILE COMPUTING THE PROFIT OF THE ELIGIBLE BUSINESS FOR DEDUCTION U/ S 10A. SINCE THERE WAS NO APPLICATION OF MIND BY THE AO THE VALIDITY OF TH E PROCEEDINGS HAS BEEN UPHELD. THE GROUND ON MERIT WAS ALSO DISMISSED IN VIEW OF THE DECISION CONSIDERED BY HIM IN RESPECT OF THE VALIDITY OF THE REOPENING OF THE ASSESSMENT. 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THE SEQUENCE OF EVENTS. IT IS MENTIONED THEREIN THAT THE RETU RN WAS FILED ON 01.11.2004 DECLARING TOTAL INCOME OF RS. 25 210/- AND ADJUST ED BOOK PROFIT OF RS. 9 57 987/- U/S 115JB. ORIGINAL ASSESSMENT U/S 1 43(3) WAS COMPLETED ON 10.01.2006 IN WHICH DEDUCTION WAS RESTRICTED TO RS. 32 72 468/- AGAINST THE CLAIM OF RS. 37 60 074/-. THE WORKING OF THE E XEMPTION IS AS UNDER:- LESS: EXEMPTION U/S 10A PROFIT OF THE BUSINESS X EXPORT TURNOVER TURNOVER I.E. RS. 50 08 152 X 8 41 09 477/- RS. 12 87 20 290/- = RS. 32 72 468/- ITA NOS. 5697 & 5698(DEL)/2010 8 5.1 THIS MATTER HAS BEEN DISCUSSED BY THE CIT(APPE ALS) IN ORDER DATED 07.03.2007 IN WHICH PART RELIEF HAS BEEN GRANTE D. IT IS SEEN THAT THE ORDER DEALS ONLY WITH REALIZATION OF EXPORT SALES AND REVERSAL OF ENTRIES UNDER THE CREDIT NOTES. IT WAS THE CLAIM OF THE ASS ESSEE THAT OUT OF ALLEGED EXPORT SALES OF RS. 1 25 32 523/- DEDUCTION U/S 10A CAN ONLY BE ALLOWED AGAINST EXPORT SALES OF RS. 18 02 700/- (67 100/- + 17 35 600/-). CONSEQUENTLY THE ASSESSEE IS ENTITLED TO DED UCTION U/S 10A OF RS. 36 89 936/- AS PER REVISED COMPUTATION FILED WI TH HIM. THE LD. CIT(APPEALS) CONSIDERED THE FACTS AND MADE OBSE RVATIONS ABOUT VARIOUS CONTENTIONS RAISED. FINALLY THE AO WAS DIRECTED TO WORK OUT THE FOREIGN EXCHANGE REMITTANCES ELIGIBLE U/S 10A IN THE LIG HT OF HIS OBSERVATIONS. THUS IT WILL BE SEEN THAT THE ORDER DOES NOT DEAL WITH THE ISSUE AT HAND NAMELY THE TREATMENT TO BE GIVEN TO UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS. 5.2 THE ORDER OF THE TRIBUNAL WAS PASSED ON 12.1 2.2008 IN WHICH PART RELIEF WAS ALLOWED. THIS ORDER DEALS WITH THE E XTENSION OF TIME FOR REALIZATION OF EXPORT PROCEEDS BEYOND SIX MONT HS AND SETTING OFF OF MARKETING EXPENSES AGAINST FOREIGN REMITTANCES RECEIVED. AFTER CONSIDERING THESE ISSUES THE APPEAL OF THE ASSESS EE WAS PARTLY ALLOWED. ITA NOS. 5697 & 5698(DEL)/2010 9 THE AO GAVE EFFECT TO IT ON 24.02.2009. THE E XEMPTION U/S 10A WAS DETERMINED AT RS. 36 84 555/- AGAINST THE CLAIM OF RS. 37 60 074/-. IT MAY BE OBSERVED HERE THAT THIS ORDER OF THE TRIBUN AL ALSO DOES NOT DEAL WITH THE ISSUE AT HAND REGARDING UNABSORBED DEPRECIAT ION AND BROUGHT FORWARD LOSS. IN THE MEAN TIME THE AO HAD ISSUED NOTIC E U/S 148 ON 24.06.2008. THE RE-ASSESSMENT PROCEEDINGS WERE COMPLETED ON 2 4.12.2009 IN WHICH DEDUCTION U/S 10A WAS COMPUTED AT RS. 29 81 724/- . 5.3 THE MAIN CASE OF THE LD. COUNSEL IS THAT THE N OTICE IS BAD IN LAW AS IT IS IN VIOLATION OF THE PROVISION CONTAINED IN SEC OND PROVISO TO SECTION 147 WHICH ENACTS THAT THE ASSESSING OFFICER MAY ASSES S OR RE-ASSESS SUCH INCOME OTHER THAN THE INCOME INVOLVING MATTERS WHICH ARE SUBJECT MATTER IN APPEAL REFERENCE OR REVISION WHICH IS CHARG EABLE TO TAX AND HAS ESCAPED ASSESSMENT. 5.4 IN ORDER TO SUPPORT THE AFORESAID CONTENTION RELIANCE IS PLACED ON THE DECISION IN THE CASE OF INDIAN OIL CORPORATI ON LTD. VS. DEPUTY CIT & OTHERS (2011) 238 CTR (BOM.) 283. IN THIS CASE THE AO NOTED THAT THE DIVIDEND INCOME OF RS. 206.95 CRORE EXEMPT U/ S 10(33) WAS GENERATED OUT OF INVESTMENTS WHICH WERE MADE THROUGH INTERN AL ACCRUALS AND NO ITA NOS. 5697 & 5698(DEL)/2010 10 BORROWING WAS MADE FOR THIS PURPOSE. FROM THE RE PLY OF THE ASSESSEE IT CAN BE SAID THAT A FAIR DISCLOSURE WAS MADE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVIDEND INCOME AN D THAT EVEN IN THE IMMEDIATELY PRECEDING YEAR THE AO HAD ACCEPTED THE PLEA. IT HAS BEEN HELD THAT NO ACTION CAN BE TAKEN AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS IT IS SH OWN THAT THERE HAS BEEN A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE F ULLY AND TRULY ALL MATERIAL FACTS. IN THE CASE OF PRASHANT PROJECTS LTD. VS. ACIT & ANOTHER (2011) 333 ITR 368 (BOM.) THE CHALLENGE WAS BY THE ASSESSEE TO THE REOPENING OF THE ASSESSMENT FOR ASSESSMENT YEAR 2002-03 I N EXERCISE OF POWERS CONFERRED U/S 147. THE NOTICE U/S 148 HAD BEEN ISSUED ON A DATE BEYOND EXPIRY OF FOUR YEARS OF THE END OF THE RELEVAN T ASSESSMENT YEAR. THE RECORDS DISCLOSED THAT THE ASSESSEE HAD FURNISHE D DETAILS OF GROSS TOTAL INCOME CLAIM OF DEDUCTION U/S 80HHC DETAILS O F PROFIT AND LOSS ACCOUNT PERTAINING TO EXPORT AND DOMESTIC TURNOVER AND RELEVANT INFORMATION IN FORM NO. 10CCAC. THE AO OBVIOUSLY APPLIED HIS M IND BECAUSE IT WAS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASS ESSEE WAS CARRYING ON MANUFACTURING ACTIVITY AND IT WAS EXPORTING THE M ANUFACTURED GOODS. DURING THE PROCEEDINGS BEFORE CIT(APPEALS) A REM AND REPORT WAS CALLED FOR AND IT WAS REPORTED THAT THE ASSESSEE HAS PURCHASED THE GOODS WHICH ITA NOS. 5697 & 5698(DEL)/2010 11 WERE THEN EXPORTED THEREFORE THE CASE FELL WIT HIN THE PURVIEW OF SUB- SECTION (3)(B) OF SECTION 80HHC. THE CIT(APPEAL S) ACCEPTED THE CONTENTION OF THE ASSESSEE. THIS SHOWS THAT THERE WAS A FULL AND TRUE DISCLOSURE OF FACTS AND APPLICATION OF MIND BY TH E AO. THEREFORE IT WAS HELD THAT THE ASSESSMENT COULD NOT BE REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT Y EAR. IT WAS ALSO MENTIONED THAT UNDER SECOND PROVISO TO SECTION 14 7 THE AO MAY ASSESS OR RE-ASSESS SUCH INCOME OTHER THAN INCOME INVOL VING MATTERS WHICH ARE SUBJECT MATTER OF ANY APPEAL ETC. THE ISSUE ON W HICH ASSESSMENT WAS SOUGHT TO BE REOPENED WAS CANVASSED IN APPEAL AND IT WAS DECIDED. THEREFORE THE ASSESSMENT COULD NOT BE REOPENED BY DINT OF THIS PROVISION ALSO. IN THE CASE OF CIT VS. EMPIRE INDUSTRIES LTD. (1994) 210 ITR 267 THE QUESTION BEFORE THE COURT WAS- WHETHER ON TH E FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ITO COULD NOT ASSUME VALID JURISDICTION TO PROC EED U/S 147(B) OF THE INCOME-TAX ACT 1961? AFTER REFERRING TO A NUMB ER OF DECISIONS IT WAS HELD THAT RE-ASSESSMENT PROCEEDINGS U/S 147(B) C ANNOT BE UPHELD WHEN THE NOTICE HAS BEEN ISSUED ON A GROUND WHICH HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN APPEAL AGAINST THE ORIGINAL ASS ESSMENT ORDER. ITA NOS. 5697 & 5698(DEL)/2010 12 5.5 IN REPLY THE LD. DR SUBMITTED THAT THE IS SUE REGARDING SETTING OFF OF UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS WAS NOT THERE BEFORE THE LD. CIT(APPEALS) OR HONBLE TRIBUNAL IN APPEAL AGAINST THE ORIGINAL ORDER. THEREFORE THE RATIO OF AFORESAID CASES IS NOT APPLICABLE. IN THIS CASE NOTICE HAS BEEN ISSUED WITHIN A PERI OD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE AFORESA ID DECISIONS ARE NOT APPLICABLE IN VIEW OF THIS FACTUAL POSITION ALSO . 6. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE HAVE ALREADY DISCUSSED THE ISSUE S DECIDED BY THE LD. CIT(APPEALS) AND THE TRIBUNAL. THE ISSUE WAS PRI MARILY IN RESPECT OF COMPUTATION OF FOREIGN EXCHANGE REMITTANCES RECEIV ED IN INDIA. THE TRIBUNAL ALSO TOOK INTO ACCOUNT THE FACT THAT FOR EIGN EXCHANGE REMITTANCES RECEIVED IN INDIA BEYOND A PERIOD OF SIX MONTHS COULD ALSO BE CONSIDERED IF REQUISITE CONDITIONS ARE SATISFIED. IT ALSO CONSIDERED THE ISSUE OF SETTING OFF OF MARKETING EXPENSES AGAINST FOREIGN EXCHAN GE REMITTANCES. THUS IT CAN BE SAID THAT NONE OF THESE AUTHORITIES CONSIDE RED THE ISSUE REGARDING SETTING OFF OF UNABSORBED DEPRECIATION AND BROUGH T FORWARD LOSS WHILE COMPUTING DEDUCTION U/S 10A. THEREFORE THE F ACTS OF THE AFORESAID DECISIONS ARE DISTINGUISHABLE. THE NOTICE HAS A LSO BEEN ISSUED WITHIN A ITA NOS. 5697 & 5698(DEL)/2010 13 PERIOD OF FOUR YEARS FROM THE END OF THE RELEVAN T PREVIOUS YEAR. THE FACTS ARE DISTINGUISHABLE IN THIS RESPECT ALSO. AS T HE MATTER REGARDING DEDUCTION OF UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS WAS NOT CONSIDERED EARLIER BY THE CIT(APPEALS) OR THE TRIBUNAL IT IS HELD THAT SECOND PROVISO TO SECTION 147 DOES NOT COME TO THE AID OF THE ASSESSEE. 6.1 WHILE STILL ON THE VALIDITY OF NOTICE U/S 1 48 THE LD. COUNSEL RELIED ON VARIOUS DECISIONS WHICH ARE LISTED AS UNDER:- (A) CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 551 (SC ) (B) CIT VS. FORAMER FRANCE 264 ITR 566 (C) TECHSPAN INDIA (P) LTD. VS. ITO 283 ITR 212 (DE L) (D) UNITED ELECTRICAL CO. (P) LTD. VS. CIT 258 ITR 37 1 (DEL) (E) JINDAL PHOTO FILMS LTD. VS. DEPUTY CIT 234 ITR 170(DEL) (F) DIRECT INFORMATION (P) LTD. VS. ITO 203 RAXMAN 70 (BOM.) WHILE CASES AT (A) TO (E) ABOVE WERE MERELY MENTIONED IT WAS SUBMITTED THAT THE ASSESSMENT FOR ASSESSMENT YEA R 2006-07 AND 2007-08 WAS SOUGHT TO BE REOPENED IN THE CASE OF DIRECT INFORMATION (P) LTD. (SUPRA) FOR THE PURPOSE OF WITHDRAWING DEDUCTION U/S 10A. THE COURT DID NOT APPROVE OF THE ACTION ON THE GROUND THAT IT W AS A CASE OF MERE CHANGE ITA NOS. 5697 & 5698(DEL)/2010 14 OF OPINION. THE CASES RELIED UPON BY THE AO AND THE LD. CIT(APPEALS) HAVE BEEN DISTINGUISHED PRIMARILY ON THE GROUND TH AT IN THE INSTANT CASE THE CLAIM IS U/S 10A UNDER CHAPTER III AND NOT UN DER ANY SECTION IN CHAPTER VIA THEREFORE THE WORDS TOTAL INCOME USED IN SECTION 10A WILL HAVE TO BE UNDERSTOOD DIFFERENTLY FROM THE WO RDS GROSS TOTAL INCOME USED IN SECTION 80B(5). 6.2 IN REPLY THE LD. DR SUBMITTED THAT THE ISSUE REGARDING DEDUCTION OF UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS WAS NOT SPECIFICALLY BROUGHT TO THE NOTICE OF THE AO IN THE COURSE OF ORIGINAL ASSESSMENT. THIS ISSUE WAS ALSO NOT RAISED BY THE AO. THUS NO OP INION WAS FORMED IN THE MATER. IN SUCH A SITUATION THERE COULD BE NO QU ESTION OF CHANGE OF OPINION A CONCEPT ON WHICH THE ASSESSEE HAS BEE N RELYING FOR ARGUING THAT JURISDICTION HAS NOT BEEN ASSUMED PROPERLY FOR ISSUING NOTICE U/S 147. 7. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT MAY BE MADE ABUNDANTLY CLEAR THAT IN THIS CASE NOTICE HAS BEEN ISSUED WITHIN FOUR YEARS FROM THE END OF TH E RELEVANT PREVIOUS YEAR. THEREFORE FIRST PROVISO TO SECTION 147 IS NOT A PPLICABLE. FURTHER IT HAS NEVER BEEN SHOWN BEFORE US THAT THIS QUESTION WAS DISCUSSED AND DEBATED ITA NOS. 5697 & 5698(DEL)/2010 15 IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS . IT HAS ALSO NOT BEEN SHOWN TO US THAT THE ISSUE WAS SPECIFICALLY BROU GHT TO THE NOTICE OF THE AO. THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE DO HOLD THAT A CASE CANNOT BE REOPENED MERELY ON CHANGE OF OPI NION. HOWEVER THERE ARE OTHER CASES WHICH HOLD THAT JUST BECAUSE MAT ERIAL LIES EMBEDDED IN THE EVIDENCE WHICH THE ASSESSING OFFICER COULD HAVE UN COVERED BUT DID NOT UNCOVER IT IS NOT A GOOD GROUND TO DENY OR S TRIKE DOWN A NOTICE U/S 148. IN THIS CONNECTION ATTENTION IS DRAWN TOWARDS T HE DECISION IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD. VS.DY. CIT (2011) 1 97 TAXMAN 415 (DEL) WHICH HAS BEEN APPROVED BY THE HONBLE SUPR EME COURT IN SLP NO. 1985/2011 REPORTED IN 2011-TIOL-72-SC-IT. THUS A CASE HAS TO BE SEEN NOT ONLY FROM THE POINT OF VIEW OF THE CONCEPT OF CHANGE OF OPINION BUT ALSO FROM OTHER ASPECTS NAMELY WHETHER THE D ETAILS OF THE CLAIM WERE AVAILABLE ON RECORD SPECIFICALLY BROUGHT TO THE N OTICE OF THE AO OR SUCH DETAILS WERE TAKEN INTO ACCOUNT. THIS IS BECAUSE THE WORDS CHANGE OF OPINION DO NOT FIND A SPECIFIC MENTION IN SECTI ON 147. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT SI NCE THE DETAILS WERE NOT FILED AND THE MATTER WAS NOT DISCUSSED IN THE OR IGINAL ASSESSMENT AT ALL NO OPINION WAS FORMED. THUS THERE IS NO QUESTIO N OF CHANGE OF OPINION THUS THE AO WAS WITHIN HIS JURISDICTION TO ISS UE NOTICE U/S 148. ITA NOS. 5697 & 5698(DEL)/2010 16 8. GROUND NO. 2 DEALS WITH THE MERITS OF THE CASE . IT IS MENTIONED THAT THERE WAS NO JUSTIFICATION TO HOLD THAT THE DEDU CTION OF RS. 32 72 468/- WAS NOT ADMISSIBLE TO THE ASSESSEE. IT IS FURTHE R MENTIONED THAT THERE IS A DIFFERENCE OF OPINION ON THE AFORESAID ISSUE AND THEREFORE THE LD. CIT(APPEALS) OUGHT TO HAVE DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. 8.1 IN THIS CONNECTION IT IS MENTIONED IN THE A SSESSMENT ORDER THAT THE ASSESSEE CLAIMED DEDUCTION OF RS. 32 72 468/- BEF ORE SETTING OFF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AMOUNTI NG TO RS. 17 35 684/-. IT MAY BE MENTIONED HERE THAT SUCH LOSS AND DEPREC IATION HAS BEEN TAKEN AT RS. 4 44 952/- IN THE COMPUTATION OF INCOME. THE FI NDING OF THE AO IS THAT DEDUCTION U/S 10A IS ALLOWED FROM THE TOTAL INCOM E WHICH IS ARRIVED AT AFTER SETTING OFF BROUGHT FORWARD LOSS. THE BRO UGHT FORWARD LOSS HAS BEEN COMPUTED AT RS. 4 44 952/-. THE SAME HAS BEEN DEDUCTED FROM THE GROSS TOTAL INCOME FOR THE PURPOSE OF COMPUTING DEDUCTIO N U/S 10. 8.2 THE FINDING OF THE LD. CIT(APPEALS) IS THAT UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS ARE TO BE DEDUCTED IN THE LIGHT OF THE DECISION IN THE CASE OF CIT VS. HIMATASINGIKE SEIDE LTD. (2 006) 286 ITR 255 THEREFORE HE UPHELD THE ORDER OF THE AO. ITA NOS. 5697 & 5698(DEL)/2010 17 9. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE R ELIED ON THE FOLLOWING CASE LAW:- (A) KPIT CUMMINS INFOSYSTEMS (BANGALORE)(P) LTD. VS. ACIT 120 TTJ 956 (BANGALORE); (B) CHANGEPOND TECHNOLOGIES (P) LTD. VS. ACIT 22 SOT 220 (CHENNAI); (C) HINDUSTAN UNILEVER LTD. VS. DCIT 325 ITR 102 (BO M.); (D) CAPEGEMINI INDIA (P) LTD. VS. ADDITIONAL CIT 1 44 TTJ 33 (MUM.) (E) HONEYWELL INTERNATIONAL (INDIA) (P) LTD. VS. DCIT 108 TTJ 924 (DEL). 9.1 IT HAS ALSO BEEN SUBMITTED THAT WHERE TWO VIEWS ARE POSSIBLE THE ONE FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED AS HELD IN THE CASE OF CIT VS. VEGETABLE PRODUCTS OF INDIA 88 ITR 192 . 9.2 IN REPLY THE LD. DR RELIED ON THE FINDING OF THE LD. CIT(APPEALS) IN PARAGRAPH NO. 5.1 WHICH READS AS UNDER:- 5.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIO NS MADE ON BEHALF OF THE APPELLANT THE FINDINGS OF THE AS SESSING OFFICER AND THE FACTS ON RECORD. IN THIS CONTEXT RELIAN CE IS PLACED ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON CORPORATION LTD. VS. CIT (2003) 261 ITR 9 8 (BOM.) WHEREIN IT HAS BEEN OBSERVED THAT ONE CANNOT EXC LUDE DEPRECIATION ALLOWANCE WHILE COMPUTING PROFIT DER IVED FROM NEWLY ESTABLISHED UNDERTAKING FOR COMPUTING DEDU CTIONS ITA NOS. 5697 & 5698(DEL)/2010 18 UNDER CHAPTER VIA AND IT WAS HELD THAT ASSESSEE S CLAIM FOR ALLOWANCE OF DEDUCTION U/S 80HH WITHOUT TAKING INTO CONSIDERATION THE CURRENT DEPRECIATION WAS TO BE REJECTED. THE DECISION OF THE KARNATAKA HIGH COURT IN THE C ASE OF CIT VS. HIMATASINGIKE SEIDE LTD. (2006) 286 ITR 255 IS ALSO RELEVANT TO THE ISSUE WHEREIN IT WAS HELD THAT EXEMPTION U/S 10A COULD BE GRANTED ONLY AFTER ADJUSTMENT FOR UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSS. THE ISSU E IS ALSO COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF VAHID PAPER CNVER TERS (20050 98 ITD 165 (ALLD.) (SB) WHEREIN THE DECISION I N THE CASE OF INDIAN RAYON CORPORATION LTD. VS. CIT (SUPRA) WAS ALSO CONSIDERED BY THE SPECIAL BENCH. RELIANCE IS AL SO PLACED ON THE DECISIONS OF ITAT BANGALORE IN THE CASE OF M/S INTELLINET TECHNOLOGIES INDIA LTD. VS. ITO DATED 12.03.201 0 (2010- TIOL-167-ITAT-BANG.) AND M/S TYCO ELECTRONIC TOOL S INDIA (P) LTD. VS. ACIT DATED 26.04.2010 2010-TIOL-557- ITAT- BANG. WHEREIN IT WAS HELD THAT EXEMPTION U/S 10A COULD BE GRANTED ONLY AFTER ADJUSTMENT FOR UNABSORBED DEP RECIATION AND BROUGHT FORWARD LOSS. THEREFORE IT IS HELD THAT THE ACTION OF THE ASSESSING OFFICER IN ALLOWING EXEMPTION U/S 1 0A ONLY AFTER SETTING OF UNABSORBED DEPRECIATION AND BR OUGHT FORWARD LOSS IS IN ORDER. AS A RESULT GROUNDS OF APPEAL NO. 3 AND 4 ARE DISMISSED. 9.3 IN THE REJOINDER IT IS SUBMITTED THAT THE DECISION IN THE CASE OF INTELLINET TECHNOLOGIES INDIA LTD. AND TYCO ELECT RONIC TOOLS INDIA (P) LTD. HAVE BEEN OVERRULED BY THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF UKOGAVA INDIA LTD. (2012) 341 ITR 385 (KARNAT AKA). 10. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE FIND THAT THE LD. COUNSEL MERELY F URNISHED CITATIONS OF ITA NOS. 5697 & 5698(DEL)/2010 19 VARIOUS CASES BUT DISCUSSED AT LENGTH THE DEC ISION IN THE CASE OF UKOGAVA INDIA LTD. SINCE WE HAVE THE BENEFIT OF TWO DECISIONS OF KARNATAKA HIGH COURT WE PROCEED TO BASE OUR DE CISION ON THESE CASES. 10.1 THE CASE OF HIMATASINGIKE SEIDE LTD. (SUPRA) WAS DECIDED U/S 10B OF THE ACT. THE QUESTION WAS-WHETHER ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE THE ITAT IS RIGHT IN LAW IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE AO ALLOWING THE CL AIM OF THE ASSESSEE FOR ADJUSTMENT OF UNABSORBED DEPRECIATION AGAINST THE INCOME FROM OTHER SOURCES WAS IN ORDER AND HENCE CANNOT BE CONSIDE RED TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE AND IN CAN CELLING THE ORDER U/S 263? THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A HUNDRED PER CENT EXPORT ORIENTED BUSINESS UNDERTAKING IN TERMS OF PROVIS IONS OF SECTION 10B. PROFITS AND GAINS DERIVED BY IT FROM THE UNDERTA KING ARE NOT LIABLE TO BE INCLUDED IN THE TOTAL INCOME. ALTHOUGH THE OPERAT IONS OF THE UNIT STARTED IN ASSESSMENT YEAR 1988-89 THE ASSESSEE DID NOT CLAIM THE BENEFIT U/S 10B FOR ASSESSMENT YEARS 1988-89 TO 1990-91. IT CLAIMED BENEFIT FROM ASSESSMENT YEAR 1992-93 FOR A CONSECUTIVE PERI OD OF FIVE YEARS. IN ASSESSMENT YEAR 1994-95 THE ASSESSEE HAD OTHER INCOME OVER AND ABOVE PROFITS AND GAINS OF THE BUSINESS OF THE UNDERTAK ING. THE UNABSORBED ITA NOS. 5697 & 5698(DEL)/2010 20 DEPRECIATION AVAILABLE TO THE ASSESSEE IN ASSESSME NT YEAR 1988-89 WAS CARRIED FORWARD TO THIS YEAR AND CLAIMED AGAINST INCOME FROM OTHER SOURCES. THUS THE INCOME WAS REDUCED TO NIL. TH E AO ACCEPTED THIS POSITION IN THE ORIGINAL ASSESSMENT ORDER. THE COMMISSIONER OF INCOME- TAX EXERCISED HIS REVISIONARY POWER IN RESPECT OF ADJUSTMENT OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES. TH E AO WAS DIRECTED THAT UNABSORBED DEPRECIATION AND UNABSORBED INVES TMENT ALLOWANCE SHOULD BE ADJUSTED AGAINST INCOME OF THE EXPORT ORIENTE D BUSINESS UNDERTAKING. AFTER HEARING BOTH THE PARTIES THE HONBLE COURT CAME TO THE CONCLUSION THAT THE CIT WAS FULLY JUSTIFIED IN HOLDING THAT THE NIL RETURN WAS NOT CORRECT. ACCORDINGLY THE QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE. WHILE DOING SO THE HONBLE COURT INTER-ALIA CONSI DERED THE PROVISIONS CONTAINED IN SECTIONS 4 AND 5. IT ALSO CONSIDERE D THE DECISION IN THE CASE OF DISTRIBUTORS (BARODA) PVT. LTD. VS. UNION OF IND IA (1985) 155 ITR 120 (SC); CAMBAY ELECTRIC SUPPLY CO. 134 ITR 84 (SC ); CIT VS. VIRMANI INDUSTRIES (P) LTD. (1995) 216 ITR 607 (SC); C IT VS. SUN STONE ENGINEERING INDUSTRIES (P) LTD. (1996) 220 ITR 182 (RAJ.); CIT VS. SURENDRA TEXTILES (2002) 258 ITR 387 (RAJ.); I NDIAN RAYON CORPORATION VS. CIT (2003) 261 ITR 98 (BOM.) AND CIT VS. H MT LTD. (1993) 199 ITR 235 (KARNATAKA). IN THE CASE OF INDIAN RAYO N CORPORATION LTD. ITA NOS. 5697 & 5698(DEL)/2010 21 (SUPRA) IT WAS INTER-ALIA OBSERVED BY THE HONBL E BOMBAY HIGH COURT THAT THE SCHEME OF SECTIONS 4 AND 5 DOES INDICATE T HAT INCOME-TAX IS A TAX IN RESPECT OF INCOME COMPUTED AS PER PROVISIONS OF THE ACT. THERE IS A DICHOTOMY BETWEEN CASES OF COMPUTATION OF NORMAL INCOME UNDER THE ACT DE-HORS CHAPTER VIA AND COMPUTATION OF TAXABLE INCOME WHERE A DEDUCTION IS CLAIMED UNDER CHAPTER VIA BECAUSE TH E LEGISLATURE HAS INTENDED THAT THESE SPECIAL DEDUCTIONS SHOULD BE RESTRICTED TO PROFITS DERIVED FROM A NEWLY ESTABLISHED UNDERTAKING. THUS CHAPTER VIA IS A SEPARATE CODE UNTO ITSELF. IN ORDER TO COMPUTE TOTAL INCOME DEDUCTION COMPUTED U/S 80HH HAS TO BE REDUCED FROM THE GRO SS TOTAL INCOME. THIS IS A QUESTION FALLING UNDER CHAPTER VIA. PROFITS AND GAINS OF A NEWLY ESTABLISHED UNDERTAKING HAVE GOT TO BE COMPUTED AS PER PROVISIONS OF SECTIONS 29 TO 43A (EMPHASIS SUPPLIED) AND IF IT CLAIMED RELIEF UNDER CHAPTER VIA OF THE ACT THEN IT IS NOT OPEN TO THE ASSESSEE TO DISCLAIM DEPRECIATION ALLOWANCE. THIS IS BECAUSE CHAPTER VIA IS AN INDEPENDENT CODE BY ITSELF FOR COMPUTING SPECIAL TYPE OF DE DUCTIONS. FOR THIS PURPOSE GROSS TOTAL INCOME HAS TO BE COMPUTED FROM WHIC H DEDUCTION UNDER CHAPTER VIA IS TO BE ALLOWED. THE GROSS TOTAL IN COME HAD TO BE COMPUTED BY TAKING INTO ACCOUNT THE PROVISIONS CONTAINED IN SECTIONS 29 TO 43A ITA NOS. 5697 & 5698(DEL)/2010 22 WHICH ALSO INCLUDES SECTION 32(2). THUS DEPRECI ATION ALLOWANCE CANNOT BE IGNORED. 10.2 WE MAY NOW CONSIDER THE DECISION IN THE C ASE OF UKOGAVA (INDIA) LTD. (SUPRA). THE ASSESSEE CLAIMED EXEMPTION OF RS. 3 95 99 100/- U/S 10A IN RESPECT OF ITS STP UNIT. THIS HAD BEEN CLA IMED BEFORE SET OFF OF UNABSORBED DEPRECIATION AND CARRIED FORWARD LOSS . ACCORDING TO THE AO THE DEDUCTION UNDER THIS PROVISION HAS TO BE ALL OWED FROM THE TOTAL INCOME OF THE ASSESSEE. THE TOTAL INCOME WAS ARRIVED AT AS PER SECTION 80B(5). THEREFORE THE EXEMPTION HAD TO BE GIVEN AFTER SETTING OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION AS PRO VIDED IN SECTIONS 72(2) AND 32 RESPECTIVELY. ON THE FACTS IT WAS HELD T HAT THE ASSESSEE WAS NOT ENTITLED TO ANY EXEMPTION U/S 10A ON THE AFORESA ID BASIS. THE AAC HELD THAT SECTION 10A IS PLACED IN CHAPTER III WHIC H DEALS WITH INCOMES WHICH DO NOT FORM PART OF THE TOTAL INCOME. THIS INCO ME HAS TO BE EXCLUDED BEFORE ARRIVING AT THE GROSS TOTAL INCOME OTHER WISE THE AFORESAID PROVISION WOULD HAVE BEEN PLACED UNDER CHAPTER VIA . THE INCOME HAS TO BE EXCLUDED AT THE THRESHOLD LEVEL. THEREFOR E THE INCOME WOULD NOT ENTER INTO THE GROSS TOTAL INCOME. THE LOSS OF INELIGIBLE UNITS CANNOT BE SET OFF AGAINST THE PROFIT OF THE ELIGIBLE UNIT. THE REFORE THE AO WAS DIRECTED ITA NOS. 5697 & 5698(DEL)/2010 23 TO ALLOW EXEMPTION U/S 10A WITHOUT SETTING OFF O F LOSSES OF NON-ELIGIBLE UNITS AND CONSEQUENTLY ALLOWED THE LOSS AND TH E DEPRECIATION TO BE CARRIED FORWARD. THE TRIBUNAL MENTIONED THAT P ROFITS AND GAINS TO BE EXCLUDED REPRESENT THE PROFITS AND GAINS OF TH E ELIGIBLE UNDERTAKING. SUCH PROFITS ARE TO BE COMPUTED IN ACCORDANCE WIT H PROVISIONS CONTAINED IN SECTIONS 29 TO 43DA (EMPHASIS SUPPLIED). SECTION 70 GOVERNS SETTING OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FR OM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. SECTION 10A IS NOT PAR T OF SECTIONS 30 TO 43DA. THEREFORE LOSSES OF INELIGIBLE UNITS CAN NOT BE SET OFF TO ASCERTAIN THE GAINS OF ELIGIBLE UNIT. UNABSORBED BUSINESS LOSS IS TO BE SET OFF UNDER SECTION 72 OF THE ACT. AGAIN IT IS NOT MENTIONED IN SECTIONS 29 TO 43DA. THEREFORE UNABSORBED BUSINESS LOSSES WIL L NOT BE SET OFF AGAINST PROFIT OF THE UNDERTAKING ENGAGED IN THE EXPORT OF COMPUTER SOFTWARE. THE UNABSORBED DEPRECIATION OF INELIGIBLE UNITS CAN ALSO NOT BE SET OFF AGAINST THE PROFIT OF THE ELIGIBLE UNIT. TWO QUESTIONS WE RE ADMITTED FOR ADJUDICATION WHICH ARE AS UNDER:- (I) WHETHER THE APPELLATE AUTHORITIES FAILED TO TAKE INTO CONSIDERATION THAT THE AMENDMENT TO SECTION 10A BY THE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1 2001 THE DEDUCTION OF PROFIT S AND GAINS AS EARNED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE IS REQUIRED TO BE ALLOWED FROM THE TOTA L INCOME OF THE ASSESSEE AND CONSEQUENTLY THE LOSS FROM THE NON -STP UNIT IS REQUIRED ITA NOS. 5697 & 5698(DEL)/2010 24 TO BE SET OFF AGAINST THE INCOME OF THE OTHER STP UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE AMENDED ACT? (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE DEDUCTION UNDER SECTION 10A OR SECTION 10B OF THE ACT DURIN G THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECIATION FROM EARL IER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-STP UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? THE FINDING OF THE HONBLE COURT HAS BEEN RECORDE D IN PLACITUM 33 ON PAGE 402 WHICH IS REPRODUCED BELOW:- AS THE INCOME OF THE SECTION 10A UNIT HAS TO B E EXCLUDED AT SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL INCOME THE LOSS OF THE NON-SECTION 10A UNIT CANNOT BE SET O FF AGAINST THE INCOME OF THE SECTION 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 AGAIN ST THE PROFITS AND GAINS IF ANY OF ANY BUSINESS OR PROFESSION CARRIED ON BY SUCH ASSESSEE. THEREFORE AS THE PROFITS AND GA INS UNDER SECTION 10A IS NOT TO BE INCLUDED IN THE INCOME OF THE ASSESSEE AT ALL THE QUESTION OF SETTING OFF THE LOSS OF T HE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AGAINST SUCH PROFI TS AND GAINS OF THE UNDERTAKING WOULD NOT 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 U/S 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSORBED BUSINESS LO SS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERT AKING WOULD NOT ARISE. IN THAT VIEW OF THE MATTER THE APPR OACH OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AF ORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSION ER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETT ING ASIDE THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SECTION ITA NOS. 5697 & 5698(DEL)/2010 25 10A TO THE ASSESSEE. HENCE THE MAIN SUBSTANTIA L QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEES AND A GAINST THE REVENUE. 10.3 FROM THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF INDIAN RAYON CORPORATION LTD. (SUPRA) AND AFORESAI D DECISIONS OF HONBLE KARNATAKA HIGH COURT IT IS CLEAR THAT PROFITS OF E LIGIBLE UNIT TO BE EXCLUDED ARE TO BE COMPUTED UNDER CHAPTER III CONTAINING S ECTIONS 28 TO 44DA. SECTION 32 IS CONTAINED THEREIN BUT SECTION 72 I S NOT CONTAINED THEREIN. UNDER SECTION 32 UNABSORBED DEPRECIATION OF AN E ARLIER YEAR BECOMES THE DEPRECIATION OF CURRENT YEAR. THUS UNABSORBED DE PRECIATION HAS TO BE DEDUCTED FROM THE PROFIT OF THE CURRENT YEAR BUT BROUGHT FORWARD LOSSES CANNOT BE SO DEDUCTED AS SECTION 72 DOES NOT FA LL UNDER CHAPTER III. THUS IT IS HELD THAT THE LD. CIT(APPEALS) WAS NO T JUSTIFIED IN SETTING OFF UNABSORBED DEPRECIATION AGAINST THE PROFITS AND GAINS OF THIS YEAR. 11. IN THE RESULT APPEAL IN ITA NO. 5697(DEL)/201 0 IS ALLOWED; AND THE APPEAL IN ITA NO. 5698(DEL)/2010 IS PARTLY ALLOWED . SD/- SD/- (U.B.S. BEDI) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA ITA NOS. 5697 & 5698(DEL)/2010 26 COPY OF THE ORDER FORWARDED TO:- M/S TECHNOTREE CONVERGENCE LTD. NEW DELHI. DCIT CIRCLE 4(1) NEW DELHI. CIT(A) CIT THE D.R. ITAT NEW DELHI. ASSISTANT REGISTRAR.