COMMISSIONER OF INCOME TAX Vs. PATSPIN INDIA LTD

JUDGEMENT

(1.) The short question arising in all the connected appeals filed by the Revenue against the very same assessee is whether deduction of export profit for 100 % export oriented industrial unit has to be granted with reference to the profit of the industrial unit computed under the provisions of the Act which includes set off of unabsorbed depreciation carried forward from earlier years as provided under section 32(2) of Income-tax Act, (hereinafter called "the Act"). The assessments involved are for the years 2001-02 to 2005-06 (5 assessment years). The assessee filed returns for regular assessment on the profit determined under the provisions of the Act and in the alternative, for assessment on book profit as provided under section 115JB of the Act. The controversy arose in the determination of deduction admissible under section 10B(4) to both of the industrial units run by the assessee which are admittedly 100 % EOUs eligible for deduction on export profits under the Act. The assessee computed eligible deduction of export profit under Section 10B from both the units without setting off unabsorbed depreciation as provided under section 32(2) of the Act and besides this, assessee treated "interest income" as business income and also claimed excess benefit under Section 35D of the Act. The assessments for the first four years were completed accepting the claims made by the assessee. However, the Assessing Officer himself proposed to rectify the assessments under Section 154 for correcting mistakes in the assessments. When this proposal was pending, the Commissioner of Income Tax issued notice under Section 263 of the Act and ordered revision of assessments for 2001-02 to 2004-05 holding that deduction under section 10B(4) on export profit of both the 100 % EOUs have to be computed after setting off carried forward unabsorbed depreciation as provided under Section 32(2) of the Act. Similarly, the Commissioner held that the treatment of "interest income" as "business income" is incorrect and excess deduction allowable under Section 35D was also ordered to be corrected. So far as the assessment year 2005-06 is concerned, the original assessment itself was completed by computing deduction under Section 10B with reference to profit obtained after setting off carried forward unabsorbed depreciation, against which assessee filed first appeal before the CIT (Appeals), who dismissed the same. The assessee filed second appeals before the Tribunal against the suo motu revisional orders issued by the Commissioner under Section 263 for the first four years and for the year 2005-06 second appeal was filed against the order of the CIT (Appeals) confirming the regular assessment. Even though several grounds were raised before the Tribunal, the assessee gave up their claim that interest income is business income and gave up claim of excess deduction under Section 35D by limiting the claim to the extent declared as eligible by the Commissioner of Income Tax and Commissioner of Income Tax (Appeals) etc. Ultimately the assessee pressed only one ground of appeal before the Tribunal i.e. whether as held by the Commissioner in the order issued under Section 263 that the deduction admissible under Section 10B(4) of the Act on the export profit earned by 10096 export oriented industrial units has to be determined based on "business income" computed under Sections 30 to 43D of the Act including setting off of carried forward unabsorbed depreciation under Section 32(2) or whether the eligible deduction is to be computed without setting off carried forward unabsorbed depreciation. The Tribunal by following one decision of the Hyderabad Bench of the Tribunal in ITC Technologies (P.) Ltd. v. Dy. CIT and another decision of the Chennai Bench of the Tribunal in the case of Ford Business Services Centre (P.) Ltd v. Asstt CIT,2008 114 TTJ 881 allowed the assessee's claim by declaring that assessee is entitled to deduction under Section 10B(4) on the profit of eligible industrial units determined under the provisions of the Act but before setting off unabsorbed depreciation carried forward from earlier years as provided under Section 32(2) of the Act. It is against this common order of the Tribunal the Revenue has filed these appeals. We have heard Senior counsel Sri. P.I.C.R. Menon appearing for the Revenue and Adv. Sri Parthasarathi appearing for the respondent-assessee.

(2.) Before proceeding with the matter Senior counsel for the Revenue submitted that the same issue stands decided by decision of the Karnataka High Court in CIT v. Himatasingike Seide Ltd, 2006 286 ITR 255. However, counsel for the assessee contended that in the SLP filed against the above referred judgment, leave is granted by the Supreme Court, in SLP No. 21101/2006. When the Supreme Court grants leave against the judgment relied on, we have to consider the issue on merit in our own way.

(3.) Since the issue pertains to method of computation of deduction eligible under Section 10B(4), we extract hereunder the relevant provisions of Section 10B of the Act: