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Techtran Polylenses Ltd. Vs. Income Tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(2008)113TTJ(Hyd.)1007
AppellantTechtran Polylenses Ltd.
Respondentincome Tax Officer
Excerpt:
.....under section 10b. the relevant finding of the ao is as under: the essential conditions to claim exemption under section 10b are that: (i) the undertaking should be an approved 100 per cent export oriented undertaking. (ii) it manufactures or produces any article or thing or computer software, (iii) the report of an accountant shall be furnished in form no. 56g. (iv) should not be formed by splitting up or reconstruction of any existing business. (v) should not be formed by transfer of machinery or plant previously used for any purpose. (vi) the sale proceeds of article or thing exported out of india should be received in or brought into india by assessee in convertible foreign exchange within the specified period. since the assessee has satisfied all the above conditions,.....
Judgment:
1. These appeals by the assessee are directed against the order dt. 9th Aug., 2004 (for asst. yr. 2001-02) of the CIT(A)-IV, Hyderabad and orders dt. 30th March, 2007 (for asst. yrs. 2002-03 and 2004-05) and order dt. 29th Sept., 2006 (for asst. yr. 2003-04) of the CIT(A)-IH, Hyderabad.

2. The grounds raised in these appeals are based on identical set of facts and therefore, for the sake of convenience all the appeals are taken up together and disposed of by this common order. For the purpose of knowing the exact grounds of appeal, grounds of appeal raised in ITA No. 1084/Hyd/2004 for asst. yr. 2001-02 are reproduced below: (1) The CIT(A) erred in law and facts of the case in allowing the exemption under Section 10B when your appellant had submitted that the unit is eligible for exemption under Section 10A and also that the claim in the returns of income was wrong.

(2) The CIT(A) should have considered the notice of not claiming the exemption user Section 10A/10B submitted during the course of hearing and may not have confirmed the exemption under Section 10B. (3) The CIT(A) erred in law and facts of the case in not allowing the carry forward of unabsorbed depreciation and losses in view of exemption under Section 10A/10B. (4) The CIT(A) erred in law and facts of the case in including the earlier assessment years in which no exemption under Section 10B should be withdrawn and carry forward of unabsorbed losses and depreciation should be allowed.

3. The assessee company is engaged in manufacture of ophthalmic lenses.

The assessee was having profit of Rs. 1,78,39,352 for asst. yr. 2001-02 and claimed exemption under Section 10A/10B of the IT Act. During the assessment proceedings, the AO noticed that the assessee has also claimed carry forward of unabsorbed depreciation and business (losses) amounting to Rs. 20,91,03,841. From the computation of total income, the AO noticed that the assessee claimed exemption under Section 10A/10B as per tax audit report submitted in Form 56G; it was certified that the assessee had claimed exemption under Section 10B of the IT Act, 1961. The assessee has also filed Form No. 56F along with the letter dt. 19th Sept., 2003 requesting to allow exemption under Section 10A of the IT Act. The assessee also made a request before the AO for withdrawal of claim under Section 10A. The AO rejected the assessee's request for withdrawing exemption under Section 10A but he has allowed the claim of exemption under Section 10B. The relevant finding of the AO is as under: The essential conditions to claim exemption under Section 10B are that: (i) The undertaking should be an approved 100 per cent export oriented undertaking.

(ii) It manufactures or produces any article or thing or computer software, (iii) The report of an accountant shall be furnished in Form No. 56G. (iv) Should not be formed by splitting up or reconstruction of any existing business.

(v) Should not be formed by transfer of machinery or plant previously used for any purpose.

(vi) The sale proceeds of article or thing exported out of India should be received in or brought into India by assessee in convertible foreign exchange within the specified period.

Since the assessee has satisfied all the above conditions, exemption under Section 10B is available to it.

After allowing exemption under Section 10B, the AO examined the issue pertaining to benefit of carry forward of depreciation and business losses. The AO was of the view that the provisions of Section 10B(6) start with a non obstante clause. A non obstante clause is usually used in a provision to indicate that that provision should prevail despite anything over the other clause. Thus the non obstante clause will exclude the operation and the applicability of every other provision in the Act. As per Clauses (i) and (iv) of Sub-section (6) of Section 10B, the assessee cannot claim depreciation allowance and the benefit of carry forward of depreciation loss for the relevant assessment year when the assessee is allowed exemption under Section 10B. It was also noticed by the AO that the exemption under Section 10B is available to the assessee for a period of 10 consecutive assessment years starting from the assessment year relevant to the previous year in which it began to produce an article or thing. Since the assessee has produced ophthalmic lenses in the previous year 1992-93 it will have the benefit of exemption under Section 10B for 10 consecutive years starting from the asst. yr. 1993-94. According to this the relevant assessment year of the assessee company starts from the asst. yr. 1993-94 and it goes upto 2002-03 as the assessee company commenced production on 26th Feb., 1993. The assessee has not claimed exemption under Section 10B for the earlier year because there was no profit to the assessee company. It has claimed exemption under Section 10B for the current year as there was a profit of Rs. 1,78,39,352. Thus the AO allowed exemption claimed under Section 10B and rejected the benefit of carry forward of depreciation and business loss amounting to Rs. 20,91,03,841. The CIT(A) confirmed the order of the AO.4. The learned Authorised Representative submitted that the assessee filed Form 56F on 19th Sept., 2003 claiming exemption under Section 10A but the same was rejected by the AO citing the provisions of Section 10A(8), stating that the assessee had to furnish to the AO, a declaration in writing that the provisions of this section may not be applicable to the assessee and such declaration should be filed before the due date for furnishing the return of income under Section 139(1).

The learned Authorised Representative submitted that the assessee has filed letter dt. 19th Sept., 2003 requesting the AO regarding withdrawal of exemption under Section 10B. The learned Authorised Representative further submitted that filing of declaration under Section 10A(8) within the time stipulated under Sections 139(1) and 139(2) is not mandatory and it could be filed during the assessment proceedings. The learned Authorised Representative in support of his contention relied upon the decision of the Tribunal Ahmedabad Bench in the case of ITO v. Expo Packaging (1995) 51 TTJ (Ahd) 174. The learned Authorised Representative further submitted that during the course of assessment proceedings, the assessee filed a letter dt. 19th Sept., 2003 before the ITO requesting that it should not be assessed under Section 10A or 10B. Having withdrawn the claim, the AO should not have considered the withdrawal letter in his assessment order. Being a beneficiary provision where the option, is given to the assessee whether to avail the benefit or not to avail the benefit should be left to the assessee; at any rate it is not for the AO to decide what benefits he will give to the assessee when the provision is not mandatory. The AO rejected the claim under Section 10A on the ground that exemption is being allowed under Section 10B. The AO rejected the assessee's contention regarding withdrawal of the claim and has made available exemption under Section 10B for the reason that all the conditions for filing exemption under Section 10B are satisfied. The learned Authorised Representative submitted that the AO cannot thrust the exemption provided under Section 10B on the assessee. The learned Authorised Representative in support of his contention relied upon the decision of the Tribunal, Delhi Bench in the case of Moser Baer India Ltd. v. Jt CIT (2007) 110 TTJ (Del) 807 : (2007) 11 SOT 715 (Del) wherein it was held as under: The requirement for filing the declaration as per the provisions of Section 10B(7) is merely directory in nature and not mandatory.

Thus, if such declaration is filed during the assessment proceedings, it would be sufficient compliance with the provisions of Section 10B(7). Therefore, it is open to an assessee not to claim tax holiday benefit under Section 10B for any one year or more of the relevant block of five assessment years by filing declaration under Sub-section (7) if that section before the due date of filing the return of income for the said assessment years. Since the assessee had opted out of the provisions of Section 10B, by filing declaration under Section 10B(7) during the course of assessment proceedings of the relevant assessment years, Revenue could not thrust exemption provided under Section 10B upon the assessee.

The learned Authorised Representative also relied upon the judgment of the apex Court in the case of CIT v. Mahendra Mills (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC). The relevant finding of the apex Court is reproduced as below: The language of the provisions of Sections 32 and 34 is specific and admits of no ambiguity. Section 32 allows depreciation as deduction subject to the provisions of Section 34. Section 34 provides that deduction under Section 32 shall be allowed only if prescribed particulars have been furnished. We have seen Rule 5AA of the IT Rules, 1962 since deleted, provided for the particulars required for the purpose of deduction under Section 32. Even in the absence of Rule 5AA, the return of income in the' form prescribed itself requires particulars to be furnished if the assessee claims depreciation. These particulars are required to be furnished in great detail. There is a circular of the Board dt. 31st Aug., 1965, which provides that depreciation could not be allowed where the required particulars have not been furnished by the assessee and no claim for the depreciation has been made in the return. The ITO in such a case is required to compute the income without allowing depreciation allowance. The circular of the Board dt. 11th April, 1955, imposes merely a duty on the officers of the Department to assist the taxpayers in every reasonable way, particularly, in the matter of claiming and securing relief. The officer is required to do no more than to advise the assessee. It does not place any mandatory duty on the officer to allow depreciation if the assessee does not want to claim that. The provision for claim of depreciation is certainly for the benefit of the assessee. If he does not wish to avail that benefit for some reason, benefit cannot be forced upon him. It is for the assessee to see if the claim of depreciation is to his advantage. Income under the head 'Profits and gains of business or profession' is chargeable to income tax under Section 28 and that income under Section 29 is to be computed in accordance with the provisions contained in Sections 30 to 43A. The argument that since Section 32 provides for depreciation it has to be allowed in computing the income of the assessee cannot in all circumstances be accepted in view of the bar contained in Section 34. If Section 34 is not satisfied and the particulars are not furnished by the assessee, his claim for depreciation under Section 32 cannot be allowed. Section 29 is thus to be read with reference to other provisions of the Act. It is not in itself a complete code.

If the revised return is a valid return and the assessee has withdrawn the claim of depreciation it cannot be granted relying on the original return when the assessment is based on the revised return. Allowance of depreciation is calculated on the written down value of the assets, which written down value would be the actual cost of acquisition less the aggregate of all deductions 'actually allowed' to the assessee for the past years. 'Actually allowed' does not mean 'notionally allowed'. If the assessee has not claimed deduction of depreciation in any past year it cannot be said that it was notionally allowed to him. A thing is 'allowed' when it is claimed. A subtle distinction is there when we examine the language used in Section 16 and Sections 34 and 37 of the IT Act. It is rightly said that a privilege cannot be to a disadvantage and an option cannot become an obligation. The AO cannot grant depreciation allowance when the same is not claimed by the assessee.

The learned Authorised Representative submitted that in the light of the above decision of the Tribunal, Delhi Bench, the assessee may be permitted to withdraw the claim under Section 10B given by the AO. The learned Authorised Representative further submitted that the assessee commenced production in the previous year relevant to the asst. yr.

1993-94 and according to the provision of Section 10A, the claim is allowable upto asst. yr. 2000-01. It is also the submission of the learned Authorised Representative that in this case no claim has been made till this year i.e. asst. yr. 2000-01 from the inception. The assessee's first year of production is asst. yr. 1993-94. Therefore, "the 8 years" period begins with asst. yr. 1993-94 and ends with 2000-01. Upto asst. yr. 2000-01, the assessee has not got any benefit by virtue of Section 10A or 10B of the Act. Even on consideration of amended provisions of Section 10B applicable to period 1st April, 1999 to 31st March, 2001 where period of 8 assessment years has been substituted by 10 assessment years. The last eligible assessment year for the assessee is 2002-03. But that does not change the assessee's case as in earlier years there is no claim allowed under Section 10B to the assessee.

4.1 The learned Authorised Representative while explaining the note given in the assessment order for 1997-98 in para 2 submitted that exemption under Section 10A or 10B can be considered only if there is a profit. The learned Authorised Representative submitted that the first year in which the assessee made profit was 2000-01 and in earlier years there was no profit. The learned Authorised Representative submitted that even if the assessee chose to be assessed under Section 10A or 10B it must have got the benefit which the section contemplates. The learned Authorised Representative submitted that for the first four years commencing from asst. yr. 1997-98, the assessee had not derived any benefit either under Section 10A or 10B. The learned Authorised Representative submitted that for the purpose of carry forward and set off of depreciation and losses as provided in the section is allowable unless exemption claimed under Section 10A or 10B has been allowed. The learned Authorised Representative submitted that merely on the basis of notionality of allowability of the claim, the benefit of set off of carry forward of losses cannot be denied. The learned Authorised Representative in support of his contention relied upon the judgment of the apex Court in the case of Mahendra Mills (supra). The learned Authorised Representative submitted that the apex Court has clearly stated that deduction "actually allowed" cannot mean deduction "notionally allowed". In fact it is clearly said that a privilege cannot be to a disadvantage and an option cannot become on obligation.

4.2 The learned Authorised Representative referred to the judgment in the case of Indian Oil Corporation Ltd. v. S. Rajagopalan, ITO and pointed out that in that case the Department's plea that development rebate reserve must be created irrespective of whether there is profit or not was negatived on the ground that condition precedent to the actual allowance of development rebate namely creation of a reserve was not possible in the absence of profits. In Sections 10A and 10B the allowance is based on profits; since there was no profit in the earlier years the Department cannot claim that they have given the benefit of Section 10A or 10B.5. The learned Departmental Representative submitted that in the case under consideration, the assessee's claim under Section 10A has been rejected by the AO because he has rightly allowed exemption claimed under Section 10B. The learned Departmental Representative while arguing in the appeal, submitted that the assessee's claim was under Section 10A/10B. He submitted that the assessee is eligible for exemption under Section 10B and not under Section 10A. The learned Departmental Representative submitted that the assessee has started production from 26th Feb., 1993 which is an undisputed fact and the assessee's first year for claiming exemption under Section 10B is asst.

yr. 1993-94 which has ended with asst. yr. 2000-01 on completion of eight years. However, this period of 8 years was extended to 10 years by subsequent amendment. The learned Departmental Representative further submitted that in asst. yrs. 1993-94, 1994-95 and 1995-96, the assessee did not make claim under Section 10B. He further submitted that the assessee has opted for exemption under Section 10B for asst.

yrs. 1996-97, 1997-98, 1998-99, 1999-2000 and 2000-01 but same was not allowed. He submitted that in asst. yr. 2001-02, the assessee made claim under Section 10B but during assessment proceedings, same has been withdrawn. The learned Authorised Representative submitted that once the assessee has opted for benefit under Section 10B and once the option is exercised, it is irrevocable. The learned Departmental Representative submitted that Section 10B(8) itself provides option to the assessee. If he does not want to avail the exemption under Section 10B, the assessee is to file a declaration before the stipulated period for filing of return under Section 139(1). The learned Departmental Representative further submitted that since the assessee did not opt and filed the declaration before the time stipulated for filing return under Section 139(1), the AO is fully justified in allowing the claim of exemption under Section 10B. He further submitted that once the claim under Section 10B is allowed, the assessee is not entitled to get the benefit of carry forward and set off of unabsorbed depreciation and business loss.

6. We have heard the learned representatives of the parties, records perused and have also gone through the decisions cited. Some undisputed facts of the case are that the assessee is eligible for exemption under Section 10A/10B for the period asst. yrs. 1993-94 to 2002-03, as assessee begins manufacture on 26th Feb., 1993. Originally, this period of exemption, as per provisions of Section 10B for the period 1st April, 1993 to 31st March, 1994 was 8 assessment years beginning with assessment years relevant to previous year in which the undertaking begins to manufacture. But subsequent amendments applicable to period 1st April, 1999 to 31st March, 2001 in provisions of Section 10B this period of 8 assessment years has expanded to 10 assessment years. It is also stated that the assessee was never allowed actual exemption benefit under Section 10A/10B for earlier years except in asst. yr.

2001-02. The crux of the matter to be examined in the case under consideration is two-fold. The first one is whether the AO can thrust upon the assessee, exemption under Section 10B, while the second aspect is whether the assessee is entitled to claim exemption under Section 10A/10B v/hen the same was claimed by filing prescribed form along with return of income but withdrawn at the time of assessment proceedings.

In this regard relevant provisions under IT Act read as under: Section 10B(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under Sub-section (1) of Section 139, furnishes to the AO a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.

6.1 Section 10B(8) provides that where the assessee before the due date for furnishing the return of income under Sub-section (1) of Section 139, furnished to the AO a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. Now the question is whether this requirement of Section 10B(8) is mandatory or procedural. In the case under consideration, admittedly, the assessee has not filed declaration as required under Section 10B(8) before the stipulated period under Section 139(1) but filed it during the course of assessment proceedings. On going through the scheme of Section 10B it may appear that the assessee who is covered by the provisions of Section 10B had not given an option to avail or not to avail the tax concession provided under Section 10B at the time of filing of return of income as per provisions of Section 10B(8) cannot be deprived of its claim for the lapse only as a procedure of utilizing the option cannot be treated as mandatory. The same is just directory. In the case under consideration, the assessee has filed letter dt. 19th Sept., 2003 for withdrawing the claim under Section 10A/10B during assessment proceedings and before the assessment was completed. We find that the rejection of this request by the AO while framing the assessment under Section 143(3) was not justified.

Our above finding is fortified by the decision of the Ahmedabad Bench in the case of ITO v. Expo Packaging (supra). The relevant finding is reproduced as below: At the very outset it may be pointed out that Section 10A was inserted in the Act through Finance Act, 1981 with a view to encourage the establishment of export oriented industries in free trade zones. This new section provides for a complete tax exemption in respect of the profits and gains derived from an industrial undertaking set up in any free trade zone for five initial assessment years. The assessee firm has established its factory at Kandla Free Trade Zone and is also entitled for the benefit of Section 10A as the same is situated in the free trade zone area as well as it fulfils the conditions laid down in Sub-section (2) of Section 10A. However, the legislature has also given an option to assessee to make a declaration in writing to the AO before the expiry of time allowed under Section 139(1) or under Section 139(2) of the Act mentioning his intention not to avail of this tax concession. In the case in hand option admittedly has not been utillized by the assessee as was required under Section 10A(7) because declaration in writing has not been submitted with the return of income but filed during the course of assessment proceedings. After going through the scheme of Section 10A, it may appear that assessee who is covered under the provisions of Section 10A having not given an option to avail or not to avail the tax concession provided under the said Section 10A at the time of filing of return of income as per provisions of Section 10A(7) of the Act, cannot be deprived of its claim for the lapse only as procedure of utilizing the option cannot be treated as mandatory. The same is just directory. Their Lordships in the case of CIT v. Gujarat Oil & Allied Industries (supra) were seized with the provisions of Sub-section (6A) of Section 80J(l) of the Act where the assessee who claims any benefit under that Section 80J was supposed to file report of auditors along with its return of income. Sub-section (6A) further provides that deduction under Sub-section (1) of Section 80J shall not be admissible to the assessee who did not file the auditors report. Their Lordships observed that the word 'shall' be read as 'may' and the requirement of filing of audit report be not treated as mandatory condition but in case audit report is filed after return was submitted but before assessment was framed then it should be treated as sufficient compliance with the condition. This reasoning of their Lordships is fully applicable to the facts of the case in hand as provisions of Section 10A(7) which provide the option to the assessee is not so rigorous as the provisions of Sub-section (6A) of Section 80J(l). In the case in hand the assessee has filed declaration in writing on 26th Nov., 1986 before assessment was completed then it shall be taken that he has utilized the option provided under Section 10A(7) of the Act and approach of the ITO to frame the assessment order under Section 143(3) r/w Section 10A of the Act was not justified.

6.2 The Gujarat High Court in the case of S.R. Koshtt v. CIT held that the authorities under the Act are under an obligation to Act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. The Gujarat High Court in an unreported decision in the case of Vinay Chandull Satla v. Parekh, CIT (Splr Civil Appln. No. 622 of 1981) rendered on 20th Aug., 1981 has laid down the approach the authorities must adopt in such matters in the following terms: The Supreme Court has in numerous decisions, including Ramlal and Ors. v. Reaw Coalfields Ltd. ; The State of West Bengal v. The Administrators, Howrah Municipality and Ors. and Babulmal Raichand Oswalvs Laxmibai R. Tarte , that the State authorities should not raise technical plea if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt.

6.3 The second aspect of the matter is whether or not the Revenue can thrust upon the assessee exemption provided under Section 10B of the Act. We find that the same controversy came up before the Tribunal Delhi Bench in the case of Moser Baer India Ltd. v. Jt. CIT (supra) wherein it was held that the Revenue could not thrust exemption provided under Section 10B upon the assessee. The relevant finding of the Tribunal is reproduced as below: The requirement for filing the declaration as per the provisions of Section 10B(7) is merely directory in nature and not mandatory.

Thus, if such declaration is filed during the assessment proceedings, it would be sufficient compliance with the provisions of Section 10B(7). Therefore, it is open to an assessee not to claim tax holiday benefit under Section 10B for any one year or more of the relevant block of five assessment years by filing declaration under Sub-section (7) of that section before the due date of filing the return of income for the said assessment years. Since the assessee had opted out of the provisions of Section 10B, by filing declaration under Section 10B(7) during the course of assessment proceedings of the relevant assessment years, Revenue could not thrust exemption provided under Section 10B upon the assessee.

6.4 In the light of our above discussion, we are of the considered view that the AO ought to have allowed the assessee to withdraw the claim under Section 10A/10B. We are also of the view that the AO cannot thrust exemption under Section 10B upon the assessee. We, therefore, set aside the orders of the lower authorities and cancel the claim allowed by the AO under Section 10B by allowing the assessee's request to withdraw the claim under Section 1OA or 10B.6.5 As regards the issue pertaining to carry forward or set off of depreciation and losses, we notice from Sub-section (6) of Section 10A/10B that in cases where exemption under Section 10A/10B is allowed, the assessee is not entitled for carry forward or set off of deprecation and losses. Since we set aside the order of the AO for asst. yr. 2001-02 wherein exemption under Section 1013 has been allowed, and allowed the request of the assessee for withdrawing the claim under Section 10A/10B, Sub-section (6) of Section 10A/10B is not applicable and the assessee is entitled to carry forward and set off of depreciation/losses in accordance with law. In this regard it is pertinent to note that whether in an earlier year, claim for exemption under Section 10A/10B has been actually allowed or not is subject to verification. However, in this regard, it is apt to mention that while considering the allowability of the exemption under Section 10A/10B, the AO is required to examine in the light of what is actually allowed and not notionally allowed as per the ratio laid down by the apex Court in the case of CIT v. Mahendra Mills (supra). If in earlier/subsequent years, there is no profit, question of actual allowance of exemption under Section 10A/10B does not arise and same is to be taken as exemption under Section 10A/10B actually not allowed. On the basis of our above finding, the total income of the assessee for the asst. yrs.

2001-02 to 2004-05 under appeals before us is required to be verified and recalculated by the AO. We therefore, set aside the matter to the file of the AO with direction to recompute the total income in accordance with the above direction after providing reasonable opportunity of hearing to the assessee.


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