2009 (3) TMI 1008 - AT - Income Tax

Summary

Issues involved: Appeal by Revenue for assessment year 2005-06 against CIT(A) order - set off loss of EOU against profit of other units and deletion of disallowance u/s. 14A.

Set off of loss of EOU against profit of other units:
The Assessing Officer disallowed set off of EOU loss against taxable profits citing section 14A. Assessee argued that section 10A allows deduction, not exemption, and loss can be set off against profits. CIT(A) allowed claim based on precedents and CBDT Circular No. 7/2003. Revenue contended that exempted income u/s. 10A does not form part of gross total income. Assessee argued that deduction under section 10A is part of income computation under "profits and gains of business or profession." Tribunal cited precedents supporting assessee's claim and upheld CIT(A) decision.

Deletion of disallowance u/s. 14A:
Tribunal referred to Special Bench decision in Income Tax Officer vs. M/s Daga Capital Management Pvt. Ltd. holding that section 14A applies to dividend income incidental to trading in shares. Directed Assessing Officer to recompute disallowance u/s. 14A as per Rule 8D. Consequently, the appeal by Revenue was partly allowed.