2011 (12) TMI 315 - HC - Income Tax

Profit for the purpose of deduction under section 10A of the Act should be allowed before or after deduction for set of of unabsorbed loss and depreciation -the assessee had treated income as business income and had claimed exemption under Section 10A of the Act and set off of unabsorbed depreciation against the same pertaining to assessment years 1993-1994 and 1994-1995 - Revenue contented the assessee is not entitled for carry forward and set off of unabsorbed depreciation for the assessment years 1993-1994 and 1994-1995 against the income determined for the assessment year 2001-2002 - Held that - Appeals are devoid of merit and was dismissed . The relevant assessment year for the purpose of Section 10A(6) of the Act year which immediately follows the block of ten assessment years from assessment years - The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee -as the profits and gains under Section 10A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise - appeals in favour of the respondent-assessee and against the revenue.

Summary

Issues:
1. Disallowance of set off of unabsorbed depreciation against business income.
2. Revisional authority's order under Section 263 of the Income Tax Act.
3. Tribunal's decision on set off of unabsorbed depreciation.
4. Question of law on profit deduction under Section 10A of the Act.

Issue 1: Disallowance of set off of unabsorbed depreciation against business income
The case involved the disallowance of the carry forward and set off of unabsorbed depreciation for assessment years 1993-1994 and 1994-1995 against the income determined for the assessment year 2001-2002. Initially, the Assessing Officer overruled the objections of the assessee and held that the set off was not permissible. However, the appellate authority allowed the appeal in part, stating that the assessee was entitled to the set off. The Commissioner of Income Tax, under Section 263 of the Act, reviewed the order and held that the Assessing Officer's actions were erroneous, leading to a loss of revenue in the subsequent assessment year. The revisional authority set aside the orders and directed the Assessing Officer to redo the assessment by allowing the set off before granting exemption under Section 10A of the Act.

Issue 2: Revisional authority's order under Section 263 of the Income Tax Act
The revisional authority, while reviewing the assessment order, found the Assessing Officer's actions to be erroneous and prejudicial to the revenue's interest. It was observed that the unabsorbed depreciation should have been set off before allowing exemption under Section 10A of the Act for the assessment year 2002-2003. The revisional authority set aside the Assessing Officer's orders and directed a reassessment, causing the assessee to appeal to the Income Tax Appellate Tribunal.

Issue 3: Tribunal's decision on set off of unabsorbed depreciation
The Tribunal, in its order, allowed the appeals filed by the assessee for the assessment years 2001-2002 and 2002-2003 but dismissed the appeal for the assessment year 2003-2004. The revenue filed appeals against the Tribunal's decision regarding the set off of unabsorbed depreciation, arguing that the Tribunal had erred in not considering the revisional authority's decision, which was not pending in appeal.

Issue 4: Question of law on profit deduction under Section 10A of the Act
The primary question of law in the appeals was whether the profit for the purpose of deduction under Section 10A of the Act should be allowed before or after the deduction for the set off of unabsorbed loss and depreciation. The senior counsel for the respondent argued that this question had already been answered in favor of the assessee in a previous case. The Court referred to a previous judgment where it was held that the profits and gains under Section 10A should be excluded from the total income of the assessee, and thus, the set off of losses against such profits would not arise. Following the reasoning of the previous judgment, the Court answered the substantial question of law in favor of the assessee and against the revenue, leading to the dismissal of the appeals.

In conclusion, the High Court dismissed the appeals, upholding the Tribunal's decision and the previous judgment regarding the deduction under Section 10A of the Income Tax Act.