2018 (5) TMI 1100 - HC - Income Tax

Allowing deduction u/s. 10B on export profit of EOU before setting off carried forward unabsorbed depreciation of earlier years as provided u/s. 32(2) - Held that - We record the statement of counsel for the assessee that there was no question of set off of unabsorbed depreciation during the year under consideration and all that the assessee had proposed before the Assessing Officer was that the deduction under section 10B has to be granted without setting off of the carry forward losses. We notice that the Karnataka High Court in case of Yokogawa India Ltd (2011 (8) TMI 845 - Karnataka High Court) had examined the provisions of section 10A of the Act (in which, similar exemption provisions have been made) before and after the amendments. The Court was of the opinion that the said provision provided for an exemption and it was not a deduction provision since section 10A is continued in Chapter III of the Act which carries the title incomes which do not form part of total income . The Court was of the opinion that if the Parliament intended to grant the relief under section 10A by way of a deduction, it would have placed such a provision in Chapter VI-A which contains deduction sections 80HHC and 80-IA etc. The fact that, even after its recast, relief was retained in Chapter III indicates that the intention of the Parliament is to grant exemption and not a deduction. Somewhat similar issue reached the Supreme Court in case of Yokogawa India Ltd 2016 (12) TMI 881 - SUPREME COURT

Summary

Issues:
- Whether the Income Tax Appellate Tribunal was correct in allowing deduction u/s. 10B on export profit of EOU before setting off carried forward unabsorbed depreciation of earlier years as provided u/s. 32(2) of the Act?

Analysis:
1. The respondent-assessee, a company providing business auxiliary and consulting engineering services, filed a return of income claiming exemption for its eligible unit under section 10B without setting off its business from eligible or ineligible units for the assessment year 2010-11. The Assessing Officer disagreed, stating that deduction under section 10B required set off of carry forward losses. The Tribunal ruled in favor of the assessee, citing judgments of the Karnataka High Court and the Supreme Court. The Revenue appealed against this decision.

2. The counsel for the assessee clarified that no set off of unabsorbed depreciation was required during the year under consideration, arguing that deduction under section 10B should be granted without setting off carry forward losses. The Karnataka High Court in a similar case had analyzed section 10A, concluding that it provided for exemption, not deduction. The Supreme Court, in the same case, emphasized that deductions under section 10A must be made independently before the total income computation stage.

3. The Supreme Court's decision in the case mentioned above directly applies to the present appeal, affirming that the stage for working out deductions under section 10B is distinct from the total income computation stage. Therefore, the Tribunal's ruling in favor of the assessee aligns with the legal interpretation provided by the Supreme Court. Consequently, the High Court dismissed the Tax Appeal, upholding the Tribunal's decision in favor of the respondent-assessee.