GANESH POLYCHEM LTD, MUMBAI v. ITO RG 10(3)(1), MUMBAI

1 ITA NO.7370/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SMC MUMBAI SMC MUMBAI SMC MUMBAI SMC BENCH BENCH BENCH BENCH MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI MUMBAI BENCHES MUMBAI BEFORE SHRI R K PANDA A BEFORE SHRI R K PANDA A BEFORE SHRI R K PANDA A BEFORE SHRI R K PANDA ACCOUNTANT CCOUNTANT CCOUNTANT CCOUNTANT M MM MEMBER EMBER EMBER EMBER ITA NO. ITA NO. ITA NO. ITA NO. 7370/MUM/2010 7370/MUM/2010 7370/MUM/2010 7370/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2007 2007 2007 2007- -- -08 0808 08) )) ) GANESH POLYCHEM LTD 2 ND FLOOR UDYOG KSHETRA MULUND GOREGAON LINK ROAD MUMBAI 400 080 VS THE INCOME TAX OFFICER WARD10(3)(1) MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AABCG6160B AABCG6160B AABCG6160B AABCG6160B ASSESSEE BY SHRI DEEPESH T CHHEDA REVENUE BY SHRI R K GUPTA-DR PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 28.7.2010 OF THE CIT(A)-22 MUMBAI RELATING TO ASSE SSMENT YEAR 2007-08. 2 THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALL ENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING O FFICER IN ADJUSTING THE UNABSORBED DEPRECATION OF NON ELIGIBLE UNDERTAKIN G AGAINST PROFITS OF THE ELIGIBLE UNDERTAKING BEFORE ALLOWING EXEMPTION U/S 10B. 3 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CHEMICALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE A SSESSEE COMPANY HAS TWO MANUFACTURING UNITS I.E. ONE AT WAPI (EOU) HAVING N ET BUSINESS INCOME AND ANOTHER AT DOMBVILI HAVING NET LOSS OF RS. 1 48 40 115/-. FROM THE COMPUTATION OF INCOME HE NOTED THAT THE ASSESSEE HAS COMPUTED BUSINESS INCOME OF RS. 2 ITA NO.7370/MUM/2010 5 48 74 091/- AND CLAIMED THE SAME AS DEDUCTION U/S 10B OF THE ACT. THE UNABSORBED DEPRECIATION OF RS. 75 58 610/- AND BUS INESS LOSS OF RS. 51 70 889/- IN RESPECT OF DOMBIVILI UNIT HAVE BEEN CARRIED FOR WARD. ACCORDING TO THE ASSESSING OFFICER THE CLAIM OF DEDUCTION U/S 10B B Y THE ASSESSEE TO EXPLAIN FROM THE TOTAL INCOME BEFORE SETTING OFF OF BROUGHT FORW ARD LOSS IS INCORRECT. HE THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTION U/S 10B SHOULD NOT BE ALLOWED AFTER SETTING OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPRECIATION. REJECTING THE VARIOUS EXPLANATIONS G IVEN BY THE ASSESSEE THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS ENTITLE D TO DEDUCTION U/S 10B ONLY AFTER SET OF THE BUSINESS LOSS AND BROUGHT FORWARD DEPRECATION. 4 IN APPEAL THE LD CIT(A) FOLLOWING THE DECISION O F THE CHENNAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S SCIENTIFI C ATLANTA INDIA TECHNOLOGY P LTD REPORTED IN 38 SOT 252 DIRECTED THE ASSESSING OFFIC ER TO ALLOW DEDUCTION U/S 10B BEFORE SETTING OFF OF BUSINESS LOSS BUT AFTER ADJUS TING THE BROUGHT FORWARD DEPRECIATION. 4.1 AGGRIEVED WITH SUCH ORDER OF THE LD CIT(A) TH E ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5 THE LD COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DE CISION OF THE CHENNAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF M/S SCIENTIFIC ATLANTA INDIA TECHNOLOGY P LTD (SUPRA). THE CIT(A) HAS WRONGLY MISINTERPRETED THE DECISION AND ALLOWED ONLY PART RELIEF BY DIRECTING THE ASSESSING OFFICER NOT TO SET OFF THE BROUGHT BUSINESS LOSS BUT SET OFF THE DEPRECIATION LOSS FOR COMPUTAT ION OF DEDUCTION U/S 10B. REFERRING TO THE SAID DECISION HE SUBMITTED THAT TH E SPECIAL BENCH OF THE TRIBUNAL 3 ITA NO.7370/MUM/2010 HAS CLEARLY HELD THAT DEDUCTION U/S 10A IS NOT AN E XEMPTION BUT ONLY A DEDUCTION UNDER CHAPTER III OF THE I T ACT AND THE PROVISIONS OF SEC. 80AB OF CHAPTER VI-A WOULD NOT BE APPLICABLE TO SUCH DEDUCTION U/S 10A A ND ALSO THAT THE DEDUCTION U/S 10A IS UNDERTAKING SPECIFIC. ACCORDINGLY IT HA S BEEN HELD THAT BUSINESS LOSS OF NON ELIGIBLE UNIT WHOSE INCOME IS NOT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT CANNOT BE SET OFF AGAINST THE PROFITS OF THE UN DERTAKING ELIGIBLE FOR DEDUCTION U/S 10A FOR THE PURPOSE OF DETERMINING THE ALLOWAB LE DEDUCTION U/S 10A OF THE ACT. SINCE THE ASSESSEE ADMITTEDLY HAS TWO MANUFAC TURING UNITS OUT OF WHICH ONE IS ELIGIBLE FOR DEDUCTION U/S 10B HAVING PROFIT S AND THE OTHER NON ELIGIBLE UNIT HAVING BUSINESS LOSS AND BROUGHT FORWARD DEPRECIATI ON; THEREFORE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL CITED SUPRA BROUGHT FORWARD BUSINESS LOSS AS WELL AS BROUGHT DEPRECIATION OF TH E NON ELIGIBLE UNIT CANNOT BE SET OFF FROM THE PROFITS OF THE ELIGIBLE BUSINESS F OR COMPUTATION OF DEDUCTION U/S 10B. 5.1 THE LD DR ON THE OTHER HAND SUPPORTED THE ORD ER OF THE CIT(A). 6 AFTER HEARING BOTH THE SIDES I AM OF THE CONSIDE RED OPINION THAT THE CIT(A) HAS WRONGLY INTERPRETED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL. THE SPECIAL BENCH OF THE TRIBUNAL AT PARA 27 HAS OBSERV ED AS UNDER: 27. HAVING HELD THAT THE DEDUCTION UNDER S. 10A IS NOT AN EXEMPTION BUT ONLY A DEDUCTION UNDER CHAPTER III OF THE IT ACT AN D THE PROVISIONS OF S. 80AB OF CHAPTER VI-A WOULD NOT BE APPLICABLE TO SUC H DEDUCTION UNDER S. 10A AND ALSO THAT THE DEDUCTION UNDER S. 10A IS UN DERTAKING SPECIFIC WE HAVE TO ANSWER THE QUESTION POSED BEFORE US BY HOLD ING THAT THE BUSINESS LOSSES OF A NON-ELIGIBLE UNIT WHOSE INCOME IS NOT ELIGIBLE FOR DEDUCTION UNDER S. 10A OF THE ACT CANNOT BE SET OFF AGAINST THE PROFITS OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER S. 10A FOR THE PURPOSE OF DETERMINING THE ALLOWABLE DEDUCTION UNDER S. 10A OF THE ACT. OF COURSE IF THERE ARE MORE THAN ONE UNDERTAKING WHICH ARE ELIGI BLE FOR DEDUCTION 4 ITA NO.7370/MUM/2010 UNDER S. 10A AND IF SOME OF THE UNITS HAVE PROFIT A ND OTHER UNITS HAVE LOSS IT WOULD BE AN ENTIRELY DIFFERENT CASE WHICH IS BEF ORE US. HENCE THE DECISION RENDERED IN THIS APPEAL WOULD NOT BE APPLI CABLE TO SUCH CASES WHERE THERE ARE MORE THAN ONE ELIGIBLE UNDERTAKING CLAIMING DEDUCTION UNDER S. 10A. IN THIS CASE THERE IS ONLY ONE ELIGI BLE UNIT CLAIMING DEDUCTION UNDER S. 10A AND HENCE THE LOSS FROM NON -ELIGIBLE UNIT CANNOT BE SET OFF AGAINST THE PROFITS OF THE ELIGIBLE UNIT WHILE DETERMINING DEDUCTION UNDER S. 10A. 7 SINCE IN THE INSTANT CASE THE ASSESSEE ADMITTEDLY IS HAVING TWO MANUFACTURING UNITS OUT OF WHICH ONE IS ELIGIBLE F OR DEDUCTION U/S 10B ON ITS PROFITS AND THE OTHER NON ELIGIBLE UNIT HAVING BUSI NESS LOSS AND BROUGHT FORWARD DEPRECIATION; THEREFORE IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL CITED ABOVE THE BUSINESS LOSS AS WELL AS THE BROUGHT FORWARD DEPRECATION OF THE NON ELIGIBLE UNIT CANNOT BE SET OFF AGEIST THE PROFIT OF THE UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 10B OF THE A CT. I HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 8 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 25 TH DAY OF FEB 2011. SD/- ( R K PA R K PA R K PA R K PANDA NDA NDA NDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 25 TH FEB 2011 RAJ* 5 ITA NO.7370/MUM/2010 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI