9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (12) TMI 1673 - AT - Income TaxSet off of losses of Unit-II against the business income - plea of Revenue is that such losses cannot be adjusted against taxable profits of the assessee and has to be carried forward to be set off against future profits of such eligible units only - Held that - Section 10A of the Act was an exemption provision and section 10(6) of the Act provided restriction on set off and carried forward of business losses and unabsorbed depreciation. However the said restriction has been withdrawn by way of amendment by the Finance Act 2003 w.e.f. 2001-02. Therefore after determining the balance profits of eligible units i.e. after allowing deduction claimed under section 10A of the Act the losses from other units are to be set off against the balance profits and the income / loss from business is to be accordingly computed in the hands of assessee. Computation of profits under section 10A(7) - Held that - Assessing Officer has not proved that any arrangement had been arrived between the parties which resulted in higher profits. Consequently the re-working of the profits by Assessing Officer by invoking section 10A r.w.s. 80-IA(10) of the Act is not justified. Set off the losses arising from STPI units against the balance profits determined of the eligible units after allowing deduction under section 10A of the Act.
Issues Involved:
1. Set-off of losses of Unit-II against the business income. 2. Deletion of addition under section 10A(7) read with section 80IA(10) of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Set-off of losses of Unit-II against the business income: The Revenue contended that the Commissioner of Income-tax (Appeals) erred in allowing the set-off of losses of Unit-II against the business income. The Revenue argued that such losses should be carried forward to be set off against the future profits of the eligible unit only. The assessee had claimed deduction under section 10A of the Act for Pune Unit-I and Nagpur Unit, while showing losses in Pune Unit-II. The Assessing Officer (AO) asserted that the losses from Pune Unit-II should be carried forward and not set off against the taxable profits of the assessee. The CIT(A), however, allowed the set-off of losses of Pune Unit-II as claimed by the assessee, following the ratio laid down by the Hon’ble Bombay High Court in Hindustan Lever Ltd. Vs. DCIT & UOI and in CIT Vs. Black & Veatch Consulting Pvt. Ltd. The CIT(A) observed that the deduction under Chapter VIA, sections 70, 71, and 72 would operate, and relief would be admissible to the assessee even if the assessee does not make any claim for granting such relief in the return of income. The Tribunal upheld the CIT(A)'s decision, stating that after determining the balance profits of eligible units (after allowing deduction under section 10A), the losses from other units should be set off against the balance profits. The Tribunal found no merit in the Revenue's ground of appeal and dismissed the same. 2. Deletion of addition under section 10A(7) read with section 80IA(10) of the Act:The Revenue argued that the CIT(A) erred in deleting the addition made under section 10A(7) read with section 80IA(10) of the Act. The AO had re-computed the profits eligible for deduction under section 10A by applying these provisions, noting that the assessee had shown margins on transactions with its associate enterprises at 26.986%, compared to the arm's length margins of 12.01% as per the transfer pricing report. The AO held that the assessee had shown more than ordinary profits and excluded ?1,76,22,740/- from eligible profits for the purpose of computation of deduction under section 10A for Pune Unit-I. The CIT(A) accepted the assessee's contention that the arm's length margins could not be considered as ordinary profits and deleted the addition made by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not provided any material or evidence to indicate that the course of business between the assessee and the associated enterprises was so arranged as to inflate profits with the intent to abuse the tax concession under section 10A. The Tribunal pointed out that the AO's approach was misdirected, as the mere existence of a close connection and more than ordinary profits was not sufficient to justify invoking section 80IA(10). The Tribunal emphasized that it was imperative for the AO to establish, based on substantive evidence, that the course of business was so arranged as to result in more than ordinary profits with the intent of abusing the tax concession. The Tribunal found that the AO had failed to prove any arrangement between the parties that resulted in higher profits. Consequently, the re-working of the profits by the AO was not justified, and the Tribunal set aside the AO's action to restrict the deduction under section 10A. Conclusion:In conclusion, the Tribunal dismissed all the appeals of the Revenue. It upheld the CIT(A)'s decisions on both issues: allowing the set-off of losses of Unit-II against the business income and deleting the addition made under section 10A(7) read with section 80IA(10) of the Act. The Tribunal's decisions were based on the lack of substantive evidence provided by the AO to justify the re-computation of profits and the set-off of losses.
|
