The relevant extract of Calcutta High Court order in the case of Balmer Lawrie & Co Ltd (1995) 215 ITR 249 (Cal) is reproduced below:

Transcription

1 Caselaws Analysis: The relevant extract of Calcutta High Court order in the case of Balmer Lawrie & Co Ltd (1995) 215 ITR 249 (Cal) is reproduced below: The relief under sec 80-I of the Act has to be calculated as if the profits and gains of the industrial undertaking were the only source of income of the assessee of the assessee during the previous years. This legal fiction is not to be found in sec 80HH of the Act. Therefore, for calculating relief under sec 80HH it has to be seen whether the gross total income of the assessee includes any profits and gains derived from a newly established undertaking in a backward area. If that be the case, then the assessee has to be given relief calculated on the profits and gains of an amount equal to twenty per cent thereof. Past losses which have already been set off against other income of earlier assessment years cannot be set off once again against the profits of the new industrial undertaking in the current accounting year. The aforesaid view is in line with the view taken by several High Courts which have held that losses of ineligible units (in same legal entity) cannot be set off against the profits of the eligible unit, before giving the deduction under secs 10A / 10AA / 10B / 10BA of the Act. The High Courts have interpreted the words total income specified in secs 10A / 10AA / 10B / 10BA as total business income of the undertaking as opposed to the total taxable income of the assessee under the Act. The Courts have ruled that income from eligible units should not enter the computation under Chapter IV dealing with computation of computation of total income under various heads and it follows that the relief under secs 10A / 10AA / 10B / 10BA should be given prior to computing total income under Chapter IV. In the following judicial precedents, it has been held that deduction under sec 10A / 10B of the Income Tax Act, 1961 is to be calculated without setting off of the carried forward business loss of the assessee in respect of earlier years. i. Hindustan Unilever Ltd v. DCIT (2010) 325 ITR 102 (Bom) 24. There is merit in the submission which has been urged on behalf of the assessee that the A.O. has while reopening the assessment ex facie proceeded on the erroneous premise that sec. 10B is a provision in the nature of an exemption. Plainly, sec. 10B as it stands is not a provision in the nature of an exemption but provides for a deduction. Sec 10B was substituted by the Finance Act, 2000 w.e.f Prior to the substitution of the provision, the earlier provision stipulated that any profits and gains derived by an assessee from a 100% EOU, to which the section applies "shall not be included in the total income of the assessee". The provision, therefore, as it earlier stood was in the nature of an exemption. After the substitution of sec 10B by the Finance Act 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100% EOU from the export of articles or things or computer software for 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The AO was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the 4 units of the assessee were eligible under sec 10B three units had returned a profit during the course of the assessment year, while the Crab Stick Unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units

2 while the loss sustained by the 4 th unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be re-opened is contrary to the plain language of sec. 10B." ii. Scientific Atlanta India Technology (P) Ltd v. ACIT (2010) 2 ITR (Trib) 66 / 38 SOT 252 (Chenn) (SB) Business losses of a non-eligible unit, i.e., whose income is not eligible for deduction under sec 10A, cannot be set off against profits of an undertaking eligible for deduction under sec 10A. iii. T Gate Global Solutions Ltd v. ACIT (2010) 194 Taxman 83 (Bang) The assessee had 3 STP units, suffered loss in unit 1 and had profits in other two units. The AO adjusted the loss against profit of other two units. The assessee contended that loss incurred in unit 1 shall be disregarded and deduction under sec 10A shall be granted in respect of other two units. The Tribunal held that if the loss making unit 1 is independent and the activities were not associated with other two units, then the loss from such unit was to be independently calculated and cannot be adjusted against profits of other two units. iv. CIT v. Yokogawa India Ltd (2012) 341 ITR 385, 401 (Kar) [CIT v. Yokogawa India Ltd (2007) 13 SOT 470 (Bang) approved], ITO v. Business Process Outsourcing (I) Pvt Ltd (2013) 61 SOT 83 (URO) / 35 taxmann.com 574 (Bang), Avineon India (P) Ltd v. DCIT (2014) 29 ITR (Trib) 404 / 41 taxmann.com 334 (Hyd) One of the issues before the Court whether brought forward unabsorbed loss and unabsorbed depreciation of the ineligible unit has to be set off against the profits of the eligible unit before allowing deduction under sec 10A / 10B. The Court held- "After making all such computations the assessee would be entitled to the benefit of set off or carry forward of loss as provided under sec 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings under sec 10B of the Act. The expression 'deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee', has to be understood in the context with which the said provision is inserted in Chapter III of the Act. Sub-sec (4) of sec 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of sec 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. It is only after the deduction of the said profits and gains, the income of the assessee has to be computed. The provisions of this sub-section will apply even in the case where an assessee has opted out of sec 10A by exercising his option under sub-sec (8). As discussed, it is permissible for an assessee to opt in and opt out of sec 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the STP undertaking would suffer tax in the normal course subject to various provisions of the Act including those of

3 Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance, if any, thereafter can be carried forward for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. As the income of the sec 10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-sec 10A unit cannot be set off against the income of the sec 10A unit under sec 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 sec 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 not arise. Similarly, as per sec 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under sec 32(2) is to be set off. As deduction under sec 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 sec 10A to the assessee." [Pls also see Enercon Wind Farms (Krishna) Ltd v. CIT (2008) 21 SOT 29 (Mum) and Genisys Integrating System (India) (P.) Ltd v. DCIT (2013) 31 taxmann.com 235 (Bang)- wherein it has been held that deduction under sec 10A is to be allowed prior to setting off of losses of other industrial units, i.e., non-stp units. Deduction under sec 10A is to be computed without setting off carried forward business loss of the assessee in respect of earlier assessment years.] v. Clearwater Technology Services (P.) Ltd v. ITO (2012) 139 ITD 479 (Bang) Respectfully following the dictum laid down by the Hon'ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra), we hold that the deduction under sec 10A/10B of the Act is to be calculated without setting off of the carried forward business loss of the assessee in respect of the earlier assessment years. vi. Patspin India Ltd v. CIT (2010) 38 SOT 369 / 132 TTJ 227 (Coch) Benefit of sec 10B has to be allowed to an assessee before setting off of brought forward loss and unabsorbed depreciation. vii. FCI Technology Services Ltd v. ACIT (2011) 43 SOT 460 / 137 TTJ 508 (Coch) Deduction under sec 10A in respect of an eligible undertaking is to be computed only qua its profits, i.e., without any adjustment or set off of any loss from any other source, either eligible or non-eligible under sec 10A. viii. Patspin India Ltd v. DCIT (2011) 129 ITD 35 (Coch) (TM)

4 Unabsorbed depreciation of earlier assessment years, on which no deduction was claimed by the assessee under sec 10B, could be set off against income of subsequent assessment years from other business, not covered by sec 10B of the Act. ix. CIT v. Black & Veatch Consulting (P) Ltd (2012) 348 ITR 72 (Bom) The Court following Hindustan Unilever Ltd v. DCIT (2010) 325 ITR 102 (Bom) held that sec 10A is a deduction provision and not an exemption. Deduction under sec 10A has to be given effect to at the stage of computing profits and gains of such eligible business and much before application of the provisions of sec 72. It explained the distinction drawn by the Legislature while incorporating Chapter VI-A deductions vis-à-vis the specific reference in sec 80A. It also held that sec 80B(5) defines the term gross total income for the purposes of Chapter VI-A to mean total income computed in accordance with the provisions of the Act before making any deduction under the Chapter. The Court held that what the Revenue had attempted to telescope the provisions of Chapter VI-A in the context of deduction allowable under sec 10A which is contained in Chapter III. The Court affirmed the Tribunal decision to hold that deduction under sec 10A must be given at the time of computing the profits and gains of the eligible business in the first instance and the brought forward depreciation or business loss will not go to reduce the benefit conferred under sec 10A. Thus, the brought forward depreciation and business loss need not be reduced by setting off against income eligible for incentive contained in sec 10A. The brought forward depreciation and business loss without any reduction could be carried forward to the subsequent assessment years for set off against income of other business excluding the business, income eligible for deduction under sec 10A. The Court impliedly approved the decisions of Scientific Atlanta v. ACIT (2010) 2 ITR (Trib) 66 / 38 SOT 252 / 129 TTJ 273 (Chenn) (SB) and CIT v. Yokogawa India Ltd (2012) 341 ITR 385 (Kar). x. CIT v. Schmetz India Pvt Ltd (2012) 211 Taxman 59 (Mag) / 26 taxmann.com 336 (Bom) Loss of non-eou units cannot be set off against profit of EOU before deduction under sec 10B is allowed to the said EOU. xi. CIT v. Tyco Electronics Tools India (P) Ltd (2012) 205 Taxman 403 (Karn) The assessee claimed exemption under sec 10A without setting off of unabsorbed loss and depreciation, which was allowed by the AO. The said order was revised under sec 263. On appeal by the assessee, the revision order was quashed. On appeal, by the Revenue, the High Court on merit held that profit for the purpose of deduction under sec 10A should be allowed without setting off of unabsorbed loss and depreciation and refrained the opinion as regards the jurisdiction under sec 263. xii. CIT v. TEI Technologies Pvt Ltd (2012) 210 Taxman 237 (Mag)/ 25 taxmann.com 5 (Del) The assessee, a joint venture between a Korean and Mauritius company, claimed exemption under sec 10A in respect of the profits from its unit located in export promotion zone (EPZ). The AO, however, set off the loss from the non-eligible unit against the profit of eligible unit and assessed total income at NIL; thus not considering deduction under sec 10A. The CIT(A) opined that because deduction under sec 10A is merely a deduction and not exemption, claim of deduction could not be entertained if the company did not have any positive income. On appeal, the Tribunal, based on the controversy in ACIT v. Yokogawa India Ltd. [2007] 13 SOT

5 470 (Bang) and other similar orders held that the business loss of the non-eligible units could not be set off against the profits of an undertaking eligible for exemption under section 10A. There is further indication that sec 10A provides for an exemption and not merely a deduction and this is in the form of return of income prescribed by the IT Rules, The return of income in Form No.ITR-6 shows that the first step which an assessee is required while computing the income from business or profession is to commence the computation from the profit as per the profit and loss account. The second step is to adjust the profit figure by excluding receipts which are not subject to tax or which are subject to tax under other heads of income. The third step is to exclude exempt income credited to the profit and loss account. Fourth step is to add back claims which are disallowable under the various provisions of the Act. The fifth step is to claim any other allowance or deduction. This exercise gives the figure of profit or loss before deduction under sec 10A. Thereafter the assessee has to deduct the profits eligible under sec 10A. The form further prescribes the steps involved in the computation of total income. This shows that after aggregating the income from salary, house property, profits and gains from business, capital gains and income from other sources, the total is arrived at and it is from this total that the losses of the current year and the brought forward losses from the past years are to be set off. The resultant figure gives the gross total income of the assessee from which deductions under Chapter VIA are to be made in order to arrive at the total income. The steps given in the income tax return form also are an indication that it is before the adjustment of the losses of the current year and the brought forward losses from the past year that the profits eligible for the relief under sec 10A have to be given the relief. The form of return is also an indication that the relief under sec 10A has to be given before adjustment of the current as well as the past losses. xiii. CIT v. Tata Elxsi Ltd (2012) 349 ITR 98, 111 (Karn) 19. The other substantial question of law raised for consideration in I.T.A. Nos. 1099/2008, 12/2009, 125/2009, 190/2009, 484/2009, 740/2009, 743/2009, 820/2009, 822/2009 and 823/2009 is as under: "Whether the Tribunal was correct in holding that unabsorbed depreciation and brought forward losses should be adjusted and only thereafter deduction under Sec 10-A of the Act should be allowed?" This question is also answered by this Court in I.T.A. No. 78/2011 decided on 9/8/2011- since reported in CIT v. Yokogawa India Ltd (2012) 341 ITR 385 (Karn). Accordingly, that issue is also answered in favour of the assessee and against the revenue. xiv. Insilica Semiconductors India (P) Ltd v. ITO (2012) 53 SOT 157 (URO) / 21 taxmann.com 139 (Bang) Since income of sec 10A unit has to be excluded at source itself before arriving at gross total income, loss of non-10a unit cannot be set off against income of 10A unit under sec 72. xv. ASB International Pvt Ltd v. DCIT (2012) 54 SOT 140 (URO) / 26 taxmann.com 87 (Mum) Carried forward business losses and depreciation cannot be set off against profits of an undertaking while working out claim under sec 10B.

6 xvi. CIT v. Ganesh Polychem Ltd (2013) 216 Taxman 179 (Mag) / 35 taxmann.com 446 (Bom) Deduction under sec 10B is to be allowed on profits of current year without setting off unabsorbed depreciation and brought forward business losses. xvii. CIT v. Cheslind Textiles Ltd (2013) 354 ITR 29 (Karn) While ascertaining the profits of an undertaking, the unabsorbed depreciation of other undertakings cannot be set off for computing deduction under sec 10B of the Act. xviii. ACIT v. Charon Tech (P) Ltd (2013) 20 ITR (Trib) 487 / 30 taxmann.com 408 (Chen) Deduction under sec 10B should be computed and allowed in respect of profits of eligible undertaking for the year under consideration without setting off brought forward losses and unabsorbed depreciation of earlier years. Decisions in the case of CIT v. Yokogawa India Ltd (2012) 341 ITR 385 (Kar), Scientific Atlanta India Technology (P) Ltd v. ACIT (2010) 129 TTJ 273 (Chen) (SB) and CIT v. Black & Veatch Consulting (2012) 348 ITR 72 (Bom) followed while the contrary decision of CIT v. Patspin India Ltd (2011) 129 ITD 35(Coch)(TM) (wherein it was held that before granting exemption under sec 10B, losses of earlier assessment years have to be set off) not followed after referring to the Supreme Court decision in the case of CIT v. Vegetable Products Ltd 88 ITR 192 (SC) which held that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted). xix. Larsen & Toubro Infotech Ltd v. DCIT (2013) 19 ITR (Trib) 361 / 33 taxmann.com 391 (Mum) Where the assessee had maintained separate accounts in respect of each unit and profit had been computed separately, deduction under sec 10A in respect of each unit had to be computed separately and losses from some units could not be adjusted against profit from other units. xx. Medusind Solution (I) Pvt Ltd v. ACIT (2013) 56 SOT 177 (Mum) Deduction under sec 10A will be allowed before set off of brought forward unabsorbed losses from earlier years against current year s profits. xxi. GE India Technology Centre (P) Ltd v. DDIT (2013) 141 ITD 245 (Bang) Losses of non-section 10A units cannot be set off against profit of sec 10A unit and brought forward losses of sec 10A units for previous assessment years cannot be set off against current year s profit of sec 10A units but can be set off against profits of post-tax holiday period. xxii. Valueprocess Technologies (I) Pvt Ltd v. ITO (2013) 141 ITD 447 (Mum) Deduction under sec 10A is to be allowed from current business income, prior to setting off brought forward losses and unabsorbed depreciation.

7 xxiii. Genisys Integrating System (India) Pvt Ltd v. DCIT (2013) 31 taxmann.com 235 (Bang) Deduction under sec 10A is to be allowed prior to setting off of losses of other industrial units, i.e., non-stp units. Deduction under sec 10A is to be computed without setting off carried forward business loss of the assessee in respect of earlier assessment years. xxiv. Cognizant Technology Solutions India Pvt. Ltd v. ACIT (2013) TIOL 745 (Mad ITAT) 2.3. In this case, the A.O. adjusted brought forward losses of assessment year of the eligible units against the current year s profits of the eligible units before computing deduction under sec 10A. The Tribunal held that the very same issue was considered by the B Bench of Chennai ITAT in the case of R.R. Donnelley India Outsource Pvt Ltd v. DCIT [ITA Nos and 1490 (Mds)/2010]. Through their order dated 26/7/2012, the Tribunal following the decision of the Hon ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd (2012) 341 ITR 385 / 246 CTR 226 (Kar) and CIT v. Tata Elxsi Ltd (2012) 349 ITR 98 / 247 CTR 334 (Kar), has held that the current year s profit of the eligible units should not be reduced by setting off of the brought forward losses of earlier years even though relating to eligible units. The A.O. has to give deduction under sec 10A of the eligible profits of the current assessment year. This issue is decided in favour of the assessee. xxv. Mindtree Ltd v. ACIT (2014) TIOL-40 (Bang ITAT) The assessee was engaged in software development and allied services. It claimed deduction under sec 10-B which was disallowed by the A.O. on the ground that the assessee was having accumulated business loss and unabsorbed depreciation brought forward from earlier years which were to be first set off and only thereafter deduction under sec 80-IB was to be allowed. The Tribunal following the decision in the case of CIT v. Yokogawa India Ltd (2012) 341 ITR 385 (Karn) held that deduction under sec 10A / 10B is to be allowed without setting off carried forward business loss and unabsorbed depreciation. xxvi. CIT v. ACE Software Exports Ltd (2014) TIOL-93 (Guj HC) The Gujarat High Court following the decisions in the case of Hindustan Unilever Ltd v. DCIT (2010) 325 ITR 102 (Bom) and CIT v. Schmetz India Pvt Ltd (2012) 211 Taxman 59 (Mag) / 26 taxmann.com 336 (Bom) held that deduction under sec 10A in respect of STP unit shall be allowed without adjustment of losses of other units and without adjustment of brought forward losses / unabsorbed depreciation of earlier years. xxvii. KPIT Cummins Infosystem (Bangalore) (P.) Ltd v. ACIT (2008) 26 SOT 529 (Bang) Provisions of sec 32(2) are not to be given effect to while computing profits of undertaking eligible for deduction under sec 10A. xxviii. I Gate Global Solutions Ltd v ACIT (2008) 24 SOT 3 (URO) / 112 TTJ 1002 (Bang) The assessee-company was engaged in business of software development and was having three STP(I) units located at Bangalore, Chennai and Pune. It claimed deduction under sec 10A. The A.O. having noticed that from Pune unit the assessee had shown loss, set-off said loss against profits of Bangalore and Chennai units and allowed deduction under sec 10A on resultant profit. If it was found that Pune unit of the assessee was an independent unit, in such

8 a situation loss-in-question could not be adjusted against profits of Bangalore and Chennai units of the assessee for the purpose of computing deduction under sec 10A. Since it had not been clarified by the lower authorities that Pune unit was an independent unit and was in no way related with activities carried out at Bangalore and Chennai units of the assessee, issue required reconsideration by the A.O. [Pls also see T Gate Global Solutions Ltd v. ACIT (2010) 194 Taxman 83 (Bang) (Mag)]. Thus, deduction has to be granted under sec 10AA / 10A / 10B without setting off current year s depreciation and business losses. Such losses can be set off against other taxable profits and if something is left out, then it shall be set off against income of the unit eligible for deduction under sec 10AA / 10A / 10B. Thus, profits of eligible units are qualified for deduction under sec 10A / 10B without adjusting losses of even those undertakings which are otherwise qualified for deduction under sec 10A / 10B. Brought forward losses (incurred after 1/4/2001) cannot be deducted from profits of the business of the undertaking. In other words, deduction under sec 10A / 10B will be available in respect of profit of an eligible undertaking without setting off of brought forward losses. Deduction under sec 10A / 10B is not controlled by sec 80AB as deduction under sec 10A / 10B is not a deduction under Chapter VI-A. Further, in G.E. India Technology Centre (P) Ltd v. DCIT (2012) 54 SOT 130 (URO) / 25 taxmann.com 177 (Bang) it has been held that claim of the assessee under sec 10A cannot be disallowed without considering judicial precedents relied upon by the assessee. As per sec 32(2) of the Act, the unabsorbed depreciation allowance of any earlier year shall be added to the amount of the depreciation allowance of the current year and be and deemed to be part of that allowance, and be subject to the provisions of sec 72(2) and 73(3) of the Act for set off. In absence of any brought forward unabsorbed depreciation of any earlier year, the provisions of sec 32(2) of the Act shall not be applicable in the instant case. The decision of the Karnataka High Court in CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (distinguished in Siemens Information System Ltd. v. ACIT (2007) 293 ITR 548 (Bom); Siemens Information System Ltd. v. ACIT (2007) 295 ITR 333 (Bom); Sword Global (I) Pvt Ltd v. ITO (2008) 306 ITR (AT) 286 (Chen); Intellinet Technologies India P. Ltd v. ITO (2010) 5 ITR (Trib) 96 (Bang); KPIT Cummins Infosystems (Bangalore) (P.) Ltd v. ACIT (2008) 26 SOT 529 (Bang); Hercules Hoists Ltd v. ACIT (2013) 22 ITR (Trib) 527 (Mum); CIT v. Yokogawa India Ltd (2012) 341 ITR 385 (Kar) and CIT v. Black and Veatch Consulting Pvt Ltd (2012) 348 ITR 72 (Bom)) has not considered the above arguments, when it held that past losses and depreciation during years, when sec 10B was not available for the undertaking, should go to reduce the eligible profits, where the assessee had surplus income even after set off of past losses against its other income. Against this decision, the taxpayer filed SLP which was dismissed by the Larger Bench of the Hon ble Supreme Court in the case of Himatasingike Seide Ltd v. CIT (2013) TIOL 53 / (2014) 100 DTR 37 (SC) as under: The assessee was a 100% EOU Industrial Unit in terms of the provisions of sec 10B of the Act. The operations of the assessee's undertaking were commenced in A.Y The assessee however, did not claim the benefits under sec 10B of the Act in A.Ys , and The assessee stated claiming benefit under sec 10B of

9 the Act for a consecutive period of 5 years starting from A.Y A.Y , the assessee derived business income from other sources beyond the profits and gains of the EOU. The assessee filed return for A.Y , in its computation of total income after making disallowance of various expenses arrived at a figure of r17,87,315 and claimed the entire amount as exempt under sec 10B of the Act. The income from other source was worked out at r41,09,497. Against this income, it adjusted unabsorbed depreciation available to the assessee in A.Y which was carried forward to the current year. Accordingly, the income of the assessee was reduced for assessment purposes at ^'Nil'. The AO, in the assessment order accepted the claim of the assessee and assessed total income at r Nil. The CIT under sec 263 of the Act set aside the asse ssment order holding that unabsorbed depreciation and unabsorbed investment allowance should be adjusted against the income of the EOU while determining exempted income under sec 10B of the Act and thus exemption under sec 10B was allowed on an inflated amount without deducting unabsorbed deprecation from the export income. The Tribunal allowed the assessee s appeal holding that the assessee was right in adjusting the brought forward unabsorbed depreciation against income from other sources and not adjusting the same against the profit and gains of the EOU. However, the High Court in CIT v. Himatasingike Seide Ltd (2006) 286 ITR 255 (Karn) [followed in CIT v. Patspin India Ltd (2011) 203 Taxman 47 (Ker)] reversed the Tribunal s order and held that to arrive at a profit and gain, one has to necessarily take into consideration, the total income in terms of the Act and one has to take into consideration, various additions and deletions in terms of the Act. Sec 10B of the Act cannot be read in isolation of other provisions of the Act. Sec 10B is only an exemption provision and there has to be some rationale with other provisions of the Act. Therefore, after a combined reading of the definition of exemption, total income-tax liability, deductibility, etc., the High Court concluded that calculation as far as possible is to be in terms of the Act. The High Court further held that it may be true that even after taking into consideration, the unabsorbed depreciation, the assessee may get exemption, nonetheless assessee cannot take only a portion of depreciation just to suit his income for the purpose of nil tax liability and adjust the balance of unabsorbed depreciation against other business income to show nil tax liability. Further, the interpretation of any provision of the statute has to be meaningful and acceptable and it cannot be against the intention of the Legislature. The Legislature never intended that the entire income of the assessee should be exempted by taking advantage of sec 10B of the Act. The intention of the Legislature is only to provide 100% exemption for export income and not for other income. Thus, according to the High Court the computation of taxable income cannot be at the whims and fancies of an assessee for exemption of tax, it has to be in accordance with the provisions of the Act. The High Court noted that the assessee, by providing depreciation contrary to sec 32, had taken exemption from payment of tax even for other business income which is not permissible under the Act. Thus, the High Court concluded that the brought forward depreciation has to be adjusted against the profits of the Export Oriented Industrial Unit before computing the exemption allowable under sec 10B of the Act. The Apex Court dismissed the civil appeal filed by the assessee confirming the High Court order wherein the High Court held that unabsorbed depreciation of the EOU brought forward from earlier years has to be set off against the profits of the current year before computing exempt profits under sec 10B of the Act.

10 The aforesaid decision as also the decision in the case of CIT v. Patspin India Ltd (2011) 203 Taxman 47 (Ker) may be applicable to the facts of a case where the issue relates to set off of current depreciation and not to notionally brought forward losses and unabsorbed depreciation. The Hon'ble High Court while referring to provisions of sec. 28 to 43D of the Act observed that business profit has to be first determined based on secs 32 to 43D of the Act as provided under sec 29 and it is with reference to the profits so determined, deduction eligible under sec 10B(4) has to be computed. Such are not the facts and circumstances since for AY (i.e., previous year ), there is no brought forward unabsorbed depreciation allowance which can be considered as part of current depreciation under sec 32(2) of the Act and thus to be set off against the profits of 100% EOU. Therefore, the ratio of the decision of the Supreme Court in case of Himatasingike (supra) shall not be applicable to the facts of the instant case. Further, Himatasingike s case relates to A.Y and the brought forward depreciation related to A.Y Sec 32(2) of the Act was amended by the Finance Act, 2001 w.e.f. 1/4/2002, and it provided that brought forward unabsorbed depreciation should be added to the current year depreciation allowance and be deemed to be part of that allowance. The issue now arises as to, whether as per amended sec 32(2), is it possible to set-off brought forward unabsorbed depreciation in respect of eligible export business against income from other sources, instead of export business income. Also in the absence of the language employed in sec 80-IA(5) anywhere in the provisions of sec 10A/ 10B make it explicit that unabsorbed depreciation allowance which has already been set off against income / profits of non-eligible tax units will not notionally revive back and thus cannot be set off against the income of eligible 100% EOU unit. Further, the Delhi Tribunal in case of, Aithent Technologies (P.) Ltd. v. ITO (2012) 134 ITD 521 (Del) where the assessee claimed deduction of profit from one of its export oriented units under sec 10B of the Act and carried forward the loss of other units, following the decision in the case of, Hindustan Unilever Ltd. v. DCIT [(2010) 325 ITR 102 (Bom) restore the matter to the file of the A.O. to recompute the deduction under sec 10B of the Act in respect of profits of the eligible unit while the loss sustained by the other units was held to be set off against the normal business income. The Tribunal also referred to the decision of the High Court in the case of, Himatsingka Seide Ltd. (supra) and distinguished the same by observing that, the High Court in the above case was concerned with determining the business profit and in this context the High Court held that business profits have to be first determined based on secs 32 to 43D of the Act as provided under sec 29 and it is with reference to the profits so determined, deduction eligible under sec 10B(4) of the Act has to be computed. In the case before it the Tribunal noted that the issue related to deduction under sec 10B(4) of the Act in respect of each unit separately without setting of losses of other units thus, the decision of Himatsingka Seide Ltd. (supra) was not applicable in case before it. In view of the above, the assessee can argue that in the case of Central Board of Dawoodi Bohra Community 752 AIR SC 755, Director of Settlements, AP & Ors v. M.R. Apparao & Anr AIR 2002 SC 1598 and CIT v. Cascade Holdings Pvt Ltd (2014) TS-218-HC (Bom) it has been held that a binding judicial precedent can only be ignored if it is per incuriam, i.e., a decision rendered by ignorance of a previous binding decision. Merely because certain

11 aspects were not considered or were not brought to the notice of the Court, it is not enough to ignore and brush aside a binding precedent. Thus, in view of the binding precedents of the Hon ble jurisdictional Bombay High Court in the case of Hindustan Unilever Ltd v. DCIT (2010) 325 ITR 102 (Bom), CIT v. Black & Veatch Consulting Pvt Ltd (2012) 348 ITR 72 (Bom), CIT v. Schmetz India Pvt Ltd (2012) 211 Taxman 59 (Mag) / 26 taxmann.com 336 (Bom) and CIT v. Ganesh Polychem Ltd (2013) 216 Taxman 179 (Bom) (Mag), the assessee-company is entitled to claim deduction under sec 10B of the Act in respect of 100% EOU Goa unit without set off of notional carry forward of unabsorbed depreciation allowance of that unit already set off against profits of non-exempt units in the earlier year.