2019 (6) TMI 1555 - AT - Income Tax

Unabsorbed loss of 10A/10B Units set off against other incomes - Whether CIT(A) erred in holding that deduction u/s.10A to be allowed without considering the carry forward of loss - HELD THAT - As decided by CIT-A relying on M/S YOKOGAWA INDIA LTD. 2016 (12) TMI 881 - SUPREME COURT The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to - Appeals filed by the Revenue are dismissed.

Summary

Issues:
- Set off of brought forward losses under Sec.10A(6)(ii)
- Application of Supreme Court decision in CIT Vs. M/s.Yokogawa India Ltd.
- Interpretation of deduction u/s.10A while considering carry forward of loss
- Eligibility of appeal under Circular 3/2018 issued by CBDT
- Dismissal of appeals by Revenue

Set off of Brought Forward Losses under Sec.10A(6)(ii): The case involved appeals by the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the set off of brought forward losses by M/s.CSS Corp. Pvt. Ltd. The AO allowed set off for all years except AY 2000-01 under Sec.10A(6)(ii). The AO, through an order u/s.154, also denied the set off for AY 2000-01. The Revenue contested these decisions, leading to the appeals.

Application of Supreme Court Decision in CIT Vs. M/s.Yokogawa India Ltd.: The Ld.CIT(A) allowed the assessee's appeal by applying the decision of the Hon'ble Supreme Court in the case of CIT Vs. M/s.Yokogawa India Ltd. The Revenue challenged this decision on the grounds that the decision in M/s.Himatsingike Seida case was not overruled or discussed in the Yokogawa India Ltd case, emphasizing the treatment of unabsorbed losses of 10A/10B Units against other incomes.

Interpretation of Deduction u/s.10A while Considering Carry Forward of Loss: The Revenue argued that the Ld.CIT(A) erred in holding that deduction u/s.10A should be allowed without considering the carry forward of loss. They referenced the decision in the Yokogawa India Ltd case, contending that the deduction under Sec.10A should be considered while computing the gross total income of the eligible undertaking under Chapter IV of the Act.

Eligibility of Appeal under Circular 3/2018 issued by CBDT: The Revenue highlighted that although the tax effect was below the prescribed limits as per Circular 3/2018 issued by CBDT, an RAP objection had been accepted by the Department, making the appeal eligible under exception 10(c).

Dismissal of Appeals by Revenue: After hearing the rival submissions, the tribunal found no reason to interfere with the orders of the Ld.CIT(A) as the Ld.CIT(A) had correctly applied the decision of the Hon'ble Supreme Court. Consequently, the appeals filed by the Revenue were dismissed, upholding the decision of the Ld.CIT(A) in favor of the assessee.