2015 (10) TMI 585 - AT - Income Tax

Claim for deduction u/s. 10B allowed without setting off the brought forward losses - CIT(A) allowed claim of assessee as relying on case of Yokogawa India Ltd. 2011 (8) TMI 845 - Karnataka High Court - Held that - As already seen, in Yokogawa India Ltd. (supra), it was held that even after s. 10A/10B were converted into a deduction provision w.e.f 1.4.2001, the benefit of relief u/s 10A/10B is in the nature of exemption with reference to commercial profits and that as the income of the s. 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year s or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise. Therefore the decision of the Hon ble Karnataka High Court in the case of Himatasingike Seide (2006 (8) TMI 125 - KARNATAKA High Court) will not apply to the facts of the present case. In view of the aforesaid decision of the Hon ble Karnataka High Court in the case of Yokogawa India Ltd. (supra), we are of the view that there is no merit in this appeal by the Revenue. - Decided against revenue

Summary

Issues:
1. Revenue's grievance regarding deduction u/s. 10B without setting off brought forward losses.
2. Assessee's cross objection supporting CIT(Appeals) order.
3. Interpretation of provisions regarding deduction u/s. 10B.
4. Application of High Court judgments on set off of losses and profits.

Analysis:

1. Revenue's Grievance:
The Revenue contested the CIT(Appeals) decision allowing deduction u/s. 10B without setting off brought forward losses. It argued that the decision contradicted Circulars and filed a SLP against it. The AO disallowed the deduction as the profits were claimed before setting off losses. The Tribunal noted the Revenue's plea but upheld the CIT(Appeals) order following the High Court's decision in Yokogawa India Ltd. case.

2. Assessee's Cross Objection:
The assessee's cross objection supported the CIT(Appeals) decision, emphasizing the eligibility for deduction u/s. 10B without setting off brought forward losses. The Tribunal dismissed the cross objection as it aligned with the CIT(Appeals) order.

3. Interpretation of Provisions:
The Tribunal referred to the High Court's interpretation of the term "Deduction" in the context of u/s. 10B, emphasizing that the deduction should be allowed from the profits of the eligible unit without setting off losses from non-eligible units. The judgment clarified that the income of the eligible unit should be quarantined for deduction purposes, in line with commercial sense.

4. Application of High Court Judgments:
The Tribunal highlighted the relevance of the High Court's decision in Yokogawa India Ltd. and Himatasingike Seide cases. It noted that the set off of losses and profits should be specific to the eligible unit under u/s. 10B. The judgment differentiated between the treatment of losses and depreciation of the same unit versus other undertakings/non-10A/10B units. It concluded that the benefits of u/s. 10A/10B were in the nature of exemption, not subject to set off against losses of other units.

In conclusion, the Tribunal dismissed the Revenue's appeal and the assessee's cross objection, upholding the CIT(Appeals) decision based on the interpretation of relevant provisions and High Court judgments. The judgment emphasized the specific treatment of losses and profits concerning eligible units under u/s. 10B, in line with commercial principles and legal precedents.