2017 (4) TMI 1357 - AT - Income Tax

Exemption u/s 10B - reducing unabsorbed depreciation of Section10B exempted units from the profits of Section 10B exempted unit - set off losses of Section 10B units with non exempted income of such units - Held that - The issues contested in the present appeal are squarely covered by the Hon ble Apex Court decision in case of Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT as Section 10A as well as Section 10B are provisions relating to deduction. CIT(A) rightly held that the unabsorbed depreciation of one eligible unit cannot be adjusted with the profit of the other eligible unit, while calculating the deduction available to the other eligible unit under Section 10B of the Act. CIT(A) has also rightly rejected the contention of the assessee that such unabsorbed depreciation should be set off against the income of the assessee under the head Income from other sources . Such unabsorbed depreciation of Section 10B eligible unit can only be carried forward and set off only after the tax holiday period is over.

Summary

Issues:
1. Addition of unabsorbed depreciation of Section 10B exempted units to profits.
2. Set off losses of Section 10B units with non-exempted income.

Analysis:
1. The case involved appeals by the Assessee and the Revenue against an order passed by CIT(A) regarding the addition of unabsorbed depreciation of Section 10B exempted units to profits and the set off of losses of Section 10B units with non-exempted income. The Assessee, engaged in software development, had three units, two profitable and one incurring a loss due to depreciation.
2. The Assessing Officer set off the loss of the third unit with the profits of the other two units, reducing the exempted profits. The Assessee requested the AO to finalize the assessment without adding disallowance u/s 14A, which was rejected. The AO also rejected the claim for setting off unabsorbed depreciation of the loss-making unit with income from other sources.
3. The CIT(A), following the Karnataka High Court decision, ruled in favor of the Assessee, holding that the AO's addition should be deleted. The Revenue argued that the loss of eligible Section 10B units must be set off with the profits of eligible units, citing a different court decision related to Section 10A.
4. The Assessee argued that Section 10B exempts individual undertakings, and deductions should be made independently for each unit. The Hon'ble Supreme Court's decision in a similar case supported this argument, emphasizing that deductions under Section 10B should be calculated independently for each eligible unit.
5. The Court noted that the issues in the appeal were covered by the Supreme Court decision, affirming that unabsorbed depreciation of one eligible unit cannot be adjusted with the profit of another eligible unit under Section 10B. Such depreciation can only be carried forward and set off after the tax holiday period ends.
6. Consequently, both appeals were dismissed, upholding the CIT(A)'s decision based on the Supreme Court's interpretation of Sections 10A and 10B of the Income Tax Act, 1961.