2017 (6) TMI 6 - AT - Income Tax

Disallowance on account of exemption u/s 10B - disallow the adjustment of loss of eligible units from a profit of other eligible units - Held that - After considering the relevant finding given in the impugned order as well as the judgment of Hon ble Supreme Court in the case of CIT vs. Yokogawa India Ltd (2011 (8) TMI 845 - Karnataka High Court ), we find that the issue, whether the benefit given u/s 10A/10B is an exemption provision or not or it is dealing with the deduction. Here the case of the AO is that, since the provision of section 10B is in the nature of exemption and not deduction, therefore, the profit of the exempt unit cannot not to be included in the taxable income and accordingly, the loss of exempt unit cannot be set off from income of the non exempt unit. It is an undisputed fact that the assessee had incurred losses from its two units which were eligible for deduction u/s 10B and the said losses have been adjusted against the profit of non-eligible units. We find that this precise issue has been dealt with by the Hon ble Supreme Court after detailed discussion and analyzing the provisions of section 10A (similar to section 10B) as it stood prior to the amendment by Finance Act 2000 and also after the amendment w.e.f. 1.4.2001. In view of the aforesaid law settled by the Hon ble Supreme Court, the reasons given by the ld. Assessing Officer to disallow the adjustment of loss of eligible units from a profit of other eligible units cannot hold ground and consequently is set aside; and the claim of the assessee to allow the adjustment of losses of eligible units with the profits of non-eligible units is directed to be allowed. - Decided against revenue

Summary

Issues:
Disallowance of exemption u/s 10B of the I.T. Act, 1961.

Analysis:
The appeal was filed by the revenue against the order passed by the ld. CIT (Appeals)-32, New Delhi for the quantum of assessment for the A.Y. 2009-10. The revenue raised grounds stating that the CIT(A) erred in law by deleting the disallowance of a certain amount made by the AO on account of exemption u/s 10B. The assessee company, engaged in IT Education and Knowledge Solutions, incurred a loss in two units eligible for deduction u/s 10B. The AO disallowed the adjustment of loss of eligible units against profits of non-eligible units, considering section 10B as an exemption provision. The CIT(A) incorporated the assessee's submissions, following a decision in the assessee's favor for A.Y. 2008-09 and allowed the adjustment. Both parties admitted that the issue was decided in favor of the assessee by the Supreme Court in a related case.

The Supreme Court clarified that section 10A/10B provides for deductions, not exemptions. The Court emphasized that the change in language from "exemption" to "deduction" altered the nature of the provision. The Court highlighted the practical effect of this distinction, allowing for adjustment of losses against profits. The Court's ruling set aside the AO's disallowance, directing the adjustment of losses of eligible units with profits of non-eligible units. The judgment established that the provisions of section 10B are for deductions, not exemptions, allowing for set off of losses against profits. The decision was based on a detailed analysis of the legislative intent and the specific language used in the provision.

In conclusion, the Supreme Court's decision clarified that section 10B provides for deductions, not exemptions, allowing for the adjustment of losses against profits. The judgment emphasized the importance of interpreting the legislative intent and the specific language used in tax provisions. The ruling set aside the AO's disallowance and directed the allowance of the adjustment of losses of eligible units with profits of non-eligible units.