Page 143 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes under section 10A and `32,15,58,051/- allowed by the Assessing Officer in the assessment
order. Since this was not done, there has been an escapement of income to the extent of
`2,98,94,191/-, which is the difference between `3,07,30,529/- and `8,36,338/-. According
to the CIT the losses of the local units not eligible for deduction under section 10A,
amounting to `2,96,94,241/- was adjusted against the 10% of the profits of the units enjoying
deduction under section 10A, which were to be brought to tax. The CIT also observed in
the notice that the assessee has been allowed deduction of `9,37,546/- under Chapter VI-A
which was not allowable in view of the loss from the non 10A units and this has also
resulted in short levy of tax.
The assessee objected to the notice and submitted that there was nothing in section 10A
which prohibits the setting off of the 10% of the taxable profits of the units eligible for the
benefit under section 10A against the loss of the local units which do not enjoy any benefit
under section 10A of the Act. It was pointed out that once the 10% of the profits of the units
enjoying the benefit of section 10A are taxed as profits and gains of the business, the 4 ITA
No: 4324/Mum/2008 provisions relating to set off of losses from other sources under the
same head and under other heads of income, as provided in sections 70 and 71 of the Act,
automatically come into play. In support of these submissions the assessee relied on the
order of the Mumbai Bench of the Tribunal in Navin Bharat Industries Ltd. vs. DCIT (2004)
90 ITD 1 (Mum) (TM) and the Bangalore Bench of the Tribunal in Mindtree Consulting Pvt.
Ltd. vs. ACIT (2006) 102 TTJ (Bang) 691. It was thus pleaded that the assessment order was
neither erroneous nor prejudicial to the interests of the revenue.
The CIT did not accept the assessee’s submissions. According to him the 10% of the profits
of the section 10A undertakings have to be set apart and separately considered and brought
to tax and cannot be utilized to be adjusted against the losses under the same head or under
other heads of income. He held that the profits computed under section 10A have to be
given separate treatment and cannot be merged with the profits computed under the
remaining provisions of the Act. Section 10A, he opined, was a self-contained code and
none of the other provisions of the Act will apply.
He also held that the income computed under section 10A will not constitute part of the
gross total income as defined under section 80B against which alone deductions under
Chapter VI-A are allowed. In addition to this line of reasoning, the CIT also held that the
orders of the Mumbai and Bangalore Benches of the Tribunal were not applicable and that
he was in respectful disagreement with those orders. In this view of the 5 ITA No: 4324/
Mum/2008 matter, he directed the Assessing Officer to compute the total income of section
10A undertakings separately without allowing any set off of loss or unabsorbed
depreciation in respect of the non 10A units. He also held that since there was a loss in the
non 10A units, the deductions under sections 80G and 80-O were incorrectly allowed
against the income from section 10A units. He thus directed the Assessing Officer to pass
a fresh assessment order after giving the assessee proper opportunity.
The assessee is in further appeal before the Tribunal to contend that the assessment order
was neither erroneous nor prejudicial to the interests of the revenue inasmuch as it was in
conformity with the views expressed in several orders of the Tribunal. It was submitted
that where the assessment order is in accordance with the views expressed by a higher
judicial forum, it cannot be termed to be erroneous. It was argued that in any case the
matter raised several legal questions and was highly debatable and just because the
Assessing Officer adopted one of the possible legal interpretations of the provisions of the
statute it does not follow that his order is erroneous. Our attention was drawn to several
orders of different Benches of the Tribunal in which the view was taken that the 10%
profits of the section 10A unit which are brought to tax for the assessment year 2003–04 can
Contd...

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