2008 (11) TMI 692 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) allowing deduction u/s 10B without setting off losses of non-EOU units and interpretation of sec. 10B w.e.f. 01.04.2001.

Issue 1: Deduction u/s 10B without setting off losses

The assessee, a 100% EOU engaged in pharmaceutical products manufacturing, claimed exemption u/s 10B for export profits in EOU and domestic profits. The AO set off losses of non-EOU units against entire EOU unit profit, disallowing carried forward benefit. CIT(A) granted relief to assessee citing precedent in CIT vs. Himatasingake Seide Ltd. where deduction u/s 10A was allowed without setting off losses of non-10A unit. ITAT upheld CIT(A)'s decision, stating that deduction u/s 10B should be allowed in respect of EOU profits without setting off losses of non-EOU units, as per the appellant's claim.

Issue 2: Interpretation of sec. 10B w.e.f. 01.04.2001

The revenue contended that deduction u/s 10B should be allowed from 'total income' as per amendment w.e.f. 01.04.2001. However, CIT(A) and ITAT held that deduction u/s 10B should be granted in respect of EOU profits without setting off losses of non-EOU units, following the principle of liberal construction of beneficent provisions. The ITAT dismissed the appeal filed by the revenue, upholding the decision of CIT(A) to grant relief to the assessee as claimed.

In conclusion, the ITAT Bangalore ruled in favor of the assessee, allowing deduction u/s 10B in respect of EOU profits without setting off losses of non-EOU units, based on the interpretation of relevant legal provisions and precedents. The appeal filed by the revenue was dismissed, affirming the decision of the CIT(A) and providing relief to the assessee in accordance with the law.