Karle International Private Ltd. (Formerly Known as Karle International) v. The Assistant Commissioner of Income-tax Circle-6(1), Bangalore
[Citation -2020-LL-0907-28]

Citation 2020-LL-0907-28
Appellant Name Karle International Private Ltd. (Formerly Known as Karle International)
Respondent Name The Assistant Commissioner of Income-tax Circle-6(1), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 07/09/2020
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags set off of business loss • prescribed time limit • benefit of deduction • export oriented unit • levy of interest • set off of loss • due date
Bot Summary: Learned Senior counsel for the assessee while inviting the attention of this court to the return of income for the Assessment year 2008-09 submitted that the assessee has neither claimed any deduction under Section 10B of the Act in respect of any of the three units of the assessee nor has filed any audit report in Form 56G in accordance with Section 10B(5) of the Act read with Rule 16E for the Assessment year 2008-09, which is a mandatory requirement for claiming deduction under Section 10B of the Act. Section 10B(5) The deduction under sub-Section shall not be admissible for any assessment year beginning on or after the 1st day of April 2001, unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-Section of Section 288, certifying that the 11 deduction has been correctly claimed in accordance with the provisions of this section. Section 10B(6)(ii) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment year, or of any previous year, relevant to any subsequent assessment year-xxxxx no loss referred to in sub-section of Section 72 or sub-Section or sub- Section of Section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April 2001. If after giving effect to the provisions of Sections 70 and 71 of the Act there is any income and the same is eligible in accordance with the provisions of Chapter VI- A or Sections 10A, 10B etc. Section 10B does not contain any prohibition to prevent an assessee from setting off losses from one source against income from another source under the same head of income as prescribed under Section 70 of the Act. Section 10B(6)(ii) of the Act restricts carry forward and set off of loss under Sections 72 and 74 of the Act but does not provide anything regarding intra-head set off under Section 70 and inter-head set off under Section 71 of the Act. Section 10A of the Act is a code by itself and it is pertinent to note that Section 10A(6)(ii) does not preclude the operation of Sections 70 and 71 of the Act.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 7TH DAY OF SEPTEMBER 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.377 OF 2012 BETWEEN: M/S. KARLE INTERNATIONAL PRIVATE LTD, (FORMERLY KNOWN AS KARLE INTERNATIONAL) REP. BY ITS DIRECTOR, MAHENDRA KARLE No.203/73, TUMKUR ROAD NAGASANDRA VILLAGE BANGALORE NORTH, BANGALORE-560022. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.,) AND: ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-6(1), NRUPATHUNGA ROAD R.P. BHAVAN, OPP. RESERVE BANK OF INDIA BANGALORE-560001. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) --- THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 12.10.2012 PASSED IN ITA NO.381/BANG/2012 FOR ASSESSMENT YEAR 2008-09, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: (I) FORMULATE SUBSTANTIAL QUESTION OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE FINDINGS TO EXTENT AGAINST APPELLANT IN ORDER PASSED BY 2 TRIBUNAL IN ITA NO.381/BANG/2012 DATED 12/10/2012 VIDE ANNEXURE-A, IN INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 2008-09. appeal was admitted by bench of this Court vide order dated 23.12.2004 on following substantial question of law: (i) Whether Tribunal was justified in law in not setting off losses from Export Oriented Unit (Section 10B unit) against income earned in Domestic Tariff Area Unit in accordance with section 70 of Act on facts and circumstances of case? (ii) Whether Tribunal was justified in law in holding that appellant is not 3 entitled to set off loss of Export Oriented Unit against income in Domestic Tariff Area Unit contrary to ratio of Hon ble High Court decision in case of CIT Vs. Yokogawa India Limited and Ors. on facts and circumstances of case? (iii) Whether Tribunal was justified in law in not adjudicating ground No.3 related to issue of appellant not claiming deduction under Section 10B of Act and consequently entitled for set off losses on facts and circumstances of case? (iv) Whether Tribunal was justified in law in not adjudicating grounds raised in respect of levy of interest under section 234B and 234D of Act on facts and circumstances of case? 2. Facts leading to filing of this appeal briefly stated are that assessee is private limited company engaged in business of manufacture and 4 export of readymade garments. assessee for Assessment year 2008-09 filed return of income declaring total income of Rs.12,89,760/-. assessee has three units and showed profit and loss from Units I to III. assessee had set off losses of units against profits of unit making profits and offered balance as income tax payable under head income from business at Rs.12,89,762/- which was declared in return of income. Assessing Officer by order dated 31.12.2010 inter alia held that losses of export oriented units cannot be allowed to set off against profits of Unit No.I and added back losses of export oriented unit i.e., Rs.6,65,23,391/- against income of profit making unit and determined total income of assessee at Rs.6,78,13,151/- and created demand of Rs.2,99,27,080/-. 3. assessee challenged order passed by Assessing Officer in appeal before Commissioner of Income Tax (Appeals), which was 5 dismissed by order dated 02.02.2012. Being aggrieved, assessee filed appeal before Income Tax Appellate Tribunal (hereinafter referred to as Tribunal , for short). Tribunal by order dated 12.10.2012 dismissed appeal preferred by assessee and upheld order of Commissioner of Income Tax (Appeals). In aforesaid factual background, assessee has filed this appeal. 4. Learned Senior counsel for assessee while inviting attention of this court to return of income for Assessment year 2008-09 submitted that assessee has neither claimed any deduction under Section 10B of Act in respect of any of three units of assessee nor has filed any audit report in Form 56G in accordance with Section 10B(5) of Act read with Rule 16E for Assessment year 2008-09, which is mandatory requirement for claiming deduction under Section 10B of Act. It is also argued that since, assessee had not claimed deduction 6 under Section 10B of Act, assessee is eligible to set off losses incurred in eligible (EOU) against profits earned by ineligible (DTA) units in accordance with Section 70 of Act, even assuming that assessee had claimed deduction under Section 10B of Act. It is also urged that claim for deduction under Section 10B of Act cannot be thrust upon assessee. It is also submitted that claim of assessee for set off of loss from one unit against profit of other units is also supported by circular issued by Central Board of Direct Taxes (CBDT) dated 16.07.2013. In this connection, our attention has been invited to paragraph 5.2 of Circular and it is argued that Circulars are binding on authorities. It is also pointed out that similar issue has been decided by bench of this court against revenue by Income Tax Appellate Tribunal in MINDTREE CONSULTING P LTD., VS. ASSISTANT COMMISSIONER OF INCOME TAX and aforesaid decision has been upheld by this 7 court in COMMISSIONER OF INCOME TAX VS. YOKOGAWA INDIA LTD., , (2012) 341 ITR 385. In support of aforesaid submissions, reference has also been made to decisions in CIT VS. YOKOGAWA INDIA LTD., , 391 ITR 274 (SC), CIT VS. YOKOGAWA INDIA LTD , 341 ITR 385 (KARNATAKA), CIT VS. GALAXY SURFACANTS LTD , 343 ITR 108 (BOMBAY), MINDTREE CONSULTING (P) LTD VS. ACIT , 102 TTJ 691 (BANGALORE), HINDUSTAN UNILEVER LTD. VS. DCIT , 325 ITR 102 (BOMBAY), CIT VS. BALCK AND VEATCH CONSULTING (P) LTD , 348 ITR 72 (BOMBAY), CIT VS. SHANTIVIJAY JEWELS LTD , 374 ITR 520 (BOMBAY), CIT VS. CHESLIND TEXTILES LTD , 354 ITR 29 (KARNATAKA), CIT VS. MINDTREE CONSULTING LTD. IN ITA NO.797/2006 DATED 09.08.2011 and BOARD CIRCULAR 7/DV/2013 DATED 16.07.2013. 8 5. On other hand, learned counsel for revenue submitted that due date of filing return under Section 139(1) of Act was 30.09.2008. However, return, which was referred to by learned Senior counsel for assessee is dated 07.11.2012 and was not even filed. Therefore, Assessing Officer was not under obligation to take note of return which was filed beyond prescribed time limit, which otherwise had not legal sanctity. Alternatively, it is submitted that even if return filed by assessee on 30.09.2008 is examined, it is evident that same does not contain any declaration that assessee is not making claim under Section 10B of Act. It is further submitted that declaration has to be made in writing before return and mere mentioning of word not applicable in return does not amount to compliance with requirements of Section 10B(8) of Act. It is further submitted that since, assessee had not filed declaration before filing of return, Section 9 70 of Act does not apply to fact situation of case. It is also submitted that while construing taxing statute, literal construction has to be adhered to unless context renders it plain that such construction cannot be put up on words. In support of his submissions, learned counsel for revenue has referred to decision of Supreme Court in YOKOGAWA INDIA LTD. supra as well as COMMISSIONER OF INCOME TAX-III VS. CALCUTTA KNITWEARS , (2014) 43 TAXMANN.COM 446 (SC) and K.NAGESH VS. ASSISTANT COMMISSIONER OF INCOME-TAX, BANGALORE , (2015) 57 TAXMANN.COM 439 (KARNATAKA). 6. We have considered submissions made by learned counsel for parties and have perused record. Before proceeding further, it is apposite to take note of relevant statutory provisions namely Section 10B(i), 10B(5), 10B(6)(ii), and Section 70 as well as 10 para 5.2 of Circular issued by Central Board of Direct Taxes. Section 10B(1) Subject to provisions of this section, deduction of such profits and gains as are derived by hundred per cent export-oriented undertaking from export of articles or things or computer software for period of ten consecutive assessment years beginning with assessment year relevant to previous year in which undertaking begins to manufacture or produce articles or things or computer software, as case may be, shall be allowed from total income of assessee. Section 10B(5) deduction under sub-Section (1) shall not be admissible for any assessment year beginning on or after 1st day of April 2001, unless assessee furnishes in prescribed form, along with return of income, report of accountant, as defined in Explanation below sub-Section (2) of Section 288, certifying that 11 deduction has been correctly claimed in accordance with provisions of this section. Section 10B(6)(ii) Notwithstanding anything contained in any other provision of this Act, in computing total income of assessee of previous year relevant to assessment year immediately succeeding last of relevant assessment year, or of any previous year, relevant to any subsequent assessment year- (i)xxxxx (ii) no loss referred to in sub-section (1) of Section 72 or sub-Section (1) or sub- Section (3) of Section 74, in so far as such loss relates to business of undertaking, shall be carried forward or set off where such loss relates to any of relevant assessment years ending before 1st day of April 2001. Section 70(1) Save as otherwise provided in this act, where net result for any assessment year in respect of any source falling under any 12 head of income, other than Capital gains , is loss, assessee shall be entitled to have amount of such loss set off against his income from any other source under same head. (2) Where result of computation made for any assessment year under Sections 48 to 55 in respect of any short-term capital asset is loss, assessee shall be entitled to have amount of such loss set off against income, if any, as arrived at under similar computation made for assessment year in respect of any other capital asset. (3) Where result of computation made for any assessment year under Sections 48 to 55 in respect of any capital asset (other than short-term capital Asset) is loss, assessee shall be entitled to have amount of such loss set off against income, if any, as arrived at under similar computation made for assessment year in respect of any other capital asset not being short-term capital asset. 13 Para 5.2 of Circular dated 10.7.2013 income computed under various heads of income in accordance with provisions of Chapter IV of IT Act shall be aggregated in accordance with provisions of Chapter VI of IT Act, 1961. This means that first income / loss from various sources i.e., eligible and ineligible units, under same head are aggregated in accordance with provisions of Section 70 of Act. Thereafter, income from one ahead is aggregated with income or loss of other head in accordance with provisions of Section 71 of Act. If after giving effect to provisions of Sections 70 and 71 of Act there is any income (where there is no brought forward loss to be set off in accordance with provisions of Section 72 of Act) and same is eligible in accordance with provisions of Chapter VI- or Sections 10A, 10B etc. of Act, same shall be allowed in computing total income of assessee. 14 7. Section 10B of Act was substituted by Finance Act, 2000 w.e.f. 01.04.2001. Section 10B as it stands is not provision in nature of exemption but provides for deduction of such profit and gains as are derived by 100% export oriented undertaking from export of articles or things or computer software for 10 consecutive assessment years beginning with assessment year relevant to previous year in which undertaking begins to manufacture or produce. Section 10B does not contain any prohibition to prevent assessee from setting off losses from one source against income from another source under same head of income as prescribed under Section 70 of Act. Section 10B(6)(ii) of Act restricts carry forward and set off of loss under Sections 72 and 74 of Act but does not provide anything regarding intra-head set off under Section 70 and inter-head set off under Section 71 of Act. business income can be computed only after set off of business loss against 15 business income in year as per provisions of Section 70 of Act. Section 10A of Act is code by itself and it is pertinent to note that Section 10A(6)(ii) does not preclude operation of Sections 70 and 71 of Act. Para 5.2 of Circular issued by Central Board of Direct Taxes dated 16.07.2013 clearly provides that income / loss from various sources i.e. eligible and ineligible units under same head are aggregated in accordance with provisions of Section 70. 8. It is equally well settled legal proposition that where assessee does not want benefit of deduction from taxable income, same cannot be thirst upon it. There is no provision which makes compulsory on part of income tax officer to make deduction in all cases. (See: COMMISSIONER OF INCOME-TAX Vs. MAHINDRA MILLS (2000) 243 ITR 56 (SC). From return of income for assessment year 2008-09 in Schedule BP, Sl.No.35(iii), 16 assessee has shown deduction under Section 10B of Act as zero. Similarly, at Sl.No.57 assessee has filed deduction under Section 10B as not applicable. Thus, from perusal of return of assessment year 2008-09 it is evident that assessee has not claimed any deduction under Section 10B of Act in respect of any of three units of assessee. It is pertinent to mention here that Section 10B(5) read with Rule 16E mandates that assessee has to file audit report in Form-56G for claiming deduction under Section 10B of Act. Admittedly, in instant case, assessee has not filed any audit report in Form-56G which is mandatory requirement for claiming deduction under Section 10B of Act. Therefore, deduction under Section 10B of Act cannot be thirst upon assessee. 9. Admittedly, in instant case, two units of assessee namely unit No.II and unit No.III were export 17 oriented units and were eligible for exemption. assessee had sustained loss in respect of unit No.I and therefore, assessee had claimed set off, as permissible under Section 70 of Act and had offered balance as income taxable under head income from business of Rs.12,89,762/- which has been declared in return. provisions of Section 70 of Act have to be given effect to. It is pertinent to mention here that Income Tax Appellate Tribunal had taken similar view in MINDTREE CONSULTING (P) LTD., supra, which was upheld by Division Bench of this Court in COMMISSIONER OF INCOME-TAX Vs. YOKOGAWA INDIA LTD., supra. Similar view has been taken by Bombay High Court in GALAXY SURFACTANTS LTD., supra. We respectfully agree with view taken by Division Bench of this Court as well as Bombay High Court. 18 It is pertinent to mention here that decision of Supreme Court in YOKOGAWA, supra is not authority for proposition that assessee cannot claim set off under Section 70 of Act and therefore, aforesaid decision has no application to facts of case. Since we have dealt with issues involved in this appeal with reference to return filed for assessment year 2008-09 on 30.08.2009, therefore, it is not necessary for us to deal with contention raised by learned counsel for revenue that return had filed beyond prescribed period and therefore, has no legal sanctity. In view of preceding analysis, substantial question of law framed by this Court are answered in favour of assessee and against revenue. In result, order of income tax appellate tribunal date 12.10.2012 in so far as it contains finding against Assessee is hereby quashed. 19 In result, appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss Karle International Private Ltd. (Formerly Known as Karle International) v. Assistant Commissioner of Income-tax Circle-6(1), Bangalore
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