Page 153 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes 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 profi ts of

the units enjoying the benefit of section 10A are taxed as profits and gains of the business,
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 profi ts
of the section 10A undertakings have to be set apart and separately considered and brought
to tax and cannot be utilised 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 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 Offi cer
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 be utilised for being
adjusted against the brought forward losses and the losses for the same year either under
the same head of income but from a different source or under another head of income for
the same year. It was thus submitted that the order under section 263 was bad in law.
The learned CIT Departmental Representative strongly relied on the order passed by the
CIT and the reasoning given therein. She further submitted that the assessment order was
contrary to the provisions of the statute and, therefore, was rightly held to be erroneous
by the CIT. It was her contention that the 10% profi ts which are taxed under section 10A
for the assessment year 2003- 04 cannot be utilised for being adjusted against losses for the
same year under different sources or heads of income or against brought forward losses.
She submitted that such profits stand on a separate footing and cannot be considered to

be part of the profits and gains of the business as computed under sections 29 to 43 of the

Act.
Contd...

148 LOVELY PROFESSIONAL UNIVERSITY