2010 (8) TMI 1057 - AT - Income Tax

Summary

Issues Involved:
The appeal concerns the order of the CIT u/s 263 of the Income Tax Act, involving the deduction claimed u/s 10A and the set off of losses between different units of the assessee.

Grounds of Appeal:
1. The CIT erred in setting aside the assessment for asst. year 2005-06 and directing a fresh assessment regarding the deduction u/s 10A.
2. The CIT wrongly decided that the Assessing Officer allowed the deduction u/s 10A without proper application of mind.
3. The CIT overlooked the certification requirement u/s 10A and the completion of assessment after due verification.
4. The CIT failed to consider the ITAT's dismissal of a departmental appeal on a similar issue for the same year.

Facts and Assessment:
The assessee, engaged in various business activities, filed returns declaring a loss. The Assessing Officer disallowed certain expenses related to foreign exchange, leading to an appeal and subsequent dismissal by the Tribunal. The CIT u/s 263 found the deduction u/s 10A erroneous due to not setting off losses between units.

Arguments and Decision:
The assessee argued that the Assessing Officer had considered the deduction u/s 10A and applied his mind. The CIT held that the deduction is unit-specific and losses cannot be set off. The Tribunal found the CIT's order unsustainable, citing a Special Bench decision that losses of a non-eligible unit cannot be set off against profits eligible for deduction u/s 10A. Therefore, the order of the Assessing Officer was upheld, and the CIT's order u/s 263 was set aside.

This judgment clarifies the application of deduction u/s 10A and the treatment of losses between different units of an assessee, emphasizing the unit-specific nature of the deduction and the inapplicability of set off provisions.