Commissioner Of Income Tax, Kol-I v. M/S. Gloster Jute Mills Limited.

1. The Court: The subject matter of challenge in the appeal is a judgment and order dated 28th March, 2008 passed by Income Tax Appellate Tribunal “D” Bench, Kolkata in ITA No. 1658.Kol/2007 pertaining to the assessment year 2004-05 by which the learned Tribunal allowed an appeal preferred by the assessee.

2. The aggrieved revenue has come up in appeal. The following questions of law were formulated on 13 August, 2008 when the appeal was admitted:

“[i] Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in law in allowing the assessee's claim for setting off Unabsorbed Depreciation and Business Loss amounting to Rs. 1,93,37,099/- and Rs. 1,01,92,186/- respectively in respect of 100% Export Oriented Unit of the assessee against the profit of other units?

[ii] Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in law in holding that the benefit granted under Section 10B is a deduction and not an exemption and thereby erred in holding that the assessee's claim for setting off loss arising from unit covered under Section 10B with the profit of the other business?”

3. Section 10B underwent an amendment with effect from 1st April, 2001. Prior to 1 April, 2001, profits and gains derived by a hundred per cent export-oriented undertaking were exempt from payment of tax for a specified number of years. By the amendment the profits and gains derived by a hundred per cent export-oriented undertaking became deductible from the total income. Naturally, when the income was exempt there was or could be no question of any set off of any loss. But the position changed when the income became deductible subsequent to the amendment. The Assessing Officer had refused to allow the losses to be set off on the basis that the income accruing to the hundred per cent export-oriented undertaking was an exempt income. The Assessing Officer was obviously wrong because he was concerned with the assessment year 2004-05, when the amendment had already come into force. The same mistake was repeated by the CIT(A). The learned Tribunal, however, corrected the mistake by holding that the profits and gains derived by a hundred per cent export-oriented undertaking was no longer an exemption, but was deductible. In that view of the matter, the losses and depreciation could be set off in accordance with law. The learned Tribunal passed the following order:

“direct the A.O to allow the set off of business loss and unabsorbed depreciation from the profits of other units.”

4. The learned Tribunal passed a right order. But it would have been better, if the learned Tribunal had clarified that the set off was to be allowed in the order as laid down in Section 70 and other relevant sections of the Income Tax Act.

5. In that view of the matter, we dispose of the appeal by directing that the losses shall be allowed to be set off and depreciation shall be allowed to be set off in accordance with law. The question No. 1 is, accordingly, answered.

6. The question no. 2 is answered in the affirmative.

7. The appeal is, thus, disposed of.

8. We have, in disposing of the appeal, also taken into account the Circular No. 07.DV/2013, dated July 16, 2013 issued by the Central Board of Direct Taxes.