2016 (4) TMI 470 - AT - Income Tax

Set off of brought forward losses/unabsorbed depreciation against 10A profits disallowed - Held that - Following the latest judgment of the Hon ble High Court in case of M/s Yokogawa India Ltd (2011 (8) TMI 845 - Karnataka High Court ) as well as Co-ordinate Bench decision in case of M/s Safran Aerospace India Pvt. Ltd.,(2015 (1) TMI 773 - ITAT BANGALORE ) we decide this issue in favour of assessee and direct the AO to allow the claim of deduction u/s 10A of the IT Act, without setting off of brought forward losses/unabsorbed depreciation.

Summary

Issues involved:
1. Set off of brought forward losses/unabsorbed depreciation against 10A profits.
2. Set off of unabsorbed depreciation against income from other sources under normal provisions of the Act.
3. Set off of unabsorbed depreciation against book profit under MAT provisions of the Act.

Issue 1: Set off of brought forward losses/unabsorbed depreciation against 10A profits.
The assessee appealed against the order of the CIT(A) confirming the setting off of brought forward losses and unabsorbed depreciation before computing the profits eligible for deduction under section 10A of the Income Tax Act. The assessee argued that the judgment in the case of Yokogawa India Ltd. favored their position. The Tribunal noted conflicting judgments of the High Court and considered the amended provisions of Sec.10A/10B of the IT Act. Following the latest judgment in Yokogawa India Ltd., the Tribunal decided in favor of the assessee, directing the AO to allow the claim of deduction under section 10A without setting off brought forward losses/unabsorbed depreciation.

Issue 2: Set off of unabsorbed depreciation against income from other sources under normal provisions of the Act.
The issue regarding set off of unabsorbed depreciation against income from other sources was not adjudicated by the CIT(A) as brought forward losses/unabsorbed depreciation were already set off against 10A profits. The Tribunal set aside this issue for adjudication by the CIT(A) after finding in favor of the assessee on the deduction under section 10A without set-off.

Issue 3: Set off of unabsorbed depreciation against book profit under MAT provisions of the Act.
Similar to the issue of set off against income from other sources, the Tribunal set aside the matter of set off against book profit under Minimum Alternate Tax (MAT) provisions for adjudication by the CIT(A) after deciding in favor of the assessee on the deduction under section 10A without set-off. The appeal was partly allowed by the Tribunal.

In conclusion, the Tribunal ruled in favor of the assessee on the issue of deduction under section 10A without setting off brought forward losses/unabsorbed depreciation. The matters of set off against income from other sources and book profit under MAT provisions were set aside for further adjudication by the CIT(A).