2011 (12) TMI 414 - AT - Income Tax

Set off of loss of the undertaking eligible for deduction u/s 10A against profit of the undertaking eligible for deduction u/s 80HHE AO stated that while two units were eligible for deduction u/s 10A, the assessee could not claim deduction u/s 10A in respect of its Hyderabad Unit since there was a taxable loss in it appeal allowed by CIT(A) Held that - uphold the order of the CIT(A) by deciding this issue in favour of the assessee as relied upon the case CIT LTU vs. M/s. Yokogawa India Ltd. and others (2011 - TMI - 211353 - Karnataka High Court) stating that deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise - against revenue. Deleting the addition being the provision for gratuity while determining the book profits u/s 115JB of the Act - CIT(A) allowed the assessee s claim by holding that the provision for gratuity could not be added back under the Explanation (1c) to sec.115JB while determining the book profits revenue appeal Held that - no infirmity in the order of the CIT(A) who made the decision relying on Bharat Earth Movers vs. CIT (2000 - TMI - 5816 - SUPREME Court) case stating that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date against the revenue.

Summary

Issues:
1. Set off of loss of the undertaking eligible for deduction u/s 10A against profit of the undertaking eligible for deduction u/s 80HHE.
2. Deletion of addition of provision for gratuity while determining book profits u/s 115JB.

Issue 1: Set off of Loss against Profit:
The appeal involved assessing whether the CIT(A) was justified in directing the AO to allow set off of the loss of the undertaking eligible for deduction u/s 10A against the profit of the undertaking eligible for deduction u/s 80HHE. The assessee had three business undertakings, each eligible for different deductions under the Income-tax Act, 1961. The assessee claimed that the loss from one unit could be set off against the profit of another unit based on provisions of sec.70 and judicial decisions. The ITAT, Bangalore, examined the case and upheld the CIT(A)'s decision in favor of the assessee, citing the decision of the jurisdictional High Court. The ITAT concluded that the assessee was entitled to set off the loss against profits, following the provisions of the Act and relevant judicial precedents.

Issue 2: Deletion of Provision for Gratuity:
The second issue revolved around the deletion of an addition of provision for gratuity while computing income under the book profit u/s 115JB. The AO disallowed the provision for gratuity, arguing it was not an ascertained liability as it was based on actuarial calculations. The CIT(A) relied on the decision of the Hon'ble Supreme Court regarding a similar provision for leave encashment and allowed the assessee's claim. The ITAT, after considering the arguments and legal precedents, upheld the CIT(A)'s decision, emphasizing the principle that if a business liability has definitely arisen in the accounting year, the deduction should be allowed even if the actual quantification and discharge would be in the future. The ITAT rejected the revenue's appeal and upheld the decision in favor of the assessee.

In conclusion, the ITAT dismissed the revenue's appeal, affirming the decisions of the CIT(A) regarding both issues. The judgment provided detailed analysis based on legal provisions, judicial decisions, and factual circumstances, ensuring a fair and thorough assessment of the matters in question.