2019 (11) TMI 1044 - AT - Income Tax

Setting off of unabsorbed business losses before allowing deduction u/s.10A - HELD THAT - A distinction has been made by the Legislature while incorporating the provisions of Chapter VI-A. Section 80A(1) stipulates that in computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of the Chapter, the deductions specified in ss. 80C to 80U. S. 80B(5) defines for the purposes of Chapter VI-A gross total income to mean the total income computed in accordance with the provisions of the Act, before making any deduction under the Chapter. What the Revenue in essence seeks to attain is to telescope the provisions of Chapter VI-A in the context of the deduction which is allowable u/s 10A. which would not be permissible unless a specific statutory provision to that effect were to be made. In the absence thereof, such an approach cannot be accepted. ITAT was correct in holding that the brought forward unabsorbed depreciation and losses of the unit the Income which is not eligible for deduction u/s 10A of the Act cannot be set off against the current profit of the eligible unit for computing the deduction under s. 10A of the IT Act. Hon ble Supreme Court of India in the case of CIT Anrs. Vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT held that from a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. Hon ble Apex Court is the view that the deduction u/s.10A of the Act should be allowed qua the eligible undertaking standing on its own without reference to the other eligible or non-eligible unit or undertakings. To put it simply, the profits of the eligible units should be considered on standalone basis. It is undisputed fact that otherwise, the assessee is eligible for claiming deduction u/s.10A of the Act. The dispute was at what stage this could be provided to the assessee. That now we have taken guidance from the binding judicial pronouncements as mentioned herein above and accordingly following the view as aforesaid, we allow the appeal of the assessee and direct the AO to allow deduction u/s.10A to the assessee before allowing set off of unabsorbed business loss. - Appeal of the assessee is allowed.

Summary

Issues:
- Whether the Assessing Officer erred in setting off unabsorbed business losses before allowing deduction u/s.10A of the Income Tax Act?
- Interpretation of relevant provisions and judicial pronouncements regarding the stage at which deduction u/s.10A should be allowed.

Analysis:
1. The appeal questioned the decision of the Ld. CIT(Appeals) regarding the sequence of setting off unabsorbed business losses before allowing deduction u/s.10A of the Act for the assessment year 2011-12.
2. The assessee claimed deduction u/s.10A and set off brought forward losses against residual income, following which the Assessing Officer cited the Himatsingka Seide Ltd. case, emphasizing setting off losses before claiming deduction u/s.10A.
3. The assessee argued that post-amendment, deduction under section 10A was from total income, not exemption, and the Karnataka High Court's decision in Himatsingka Seide Ltd. was not applicable to amended provisions.
4. The Ld. CIT(Appeals) upheld the Assessing Officer's decision based on a CBDT Circular, noting conflicting judgments of the Hon'ble Supreme Court and Bombay High Court.
5. During the hearing, the assessee's representative referenced relevant case laws supporting the allowance of deduction u/s.10A before setting off losses.
6. The ITAT analyzed the issue, considering the legislative intent behind Chapter VI-A deductions and the specific provisions of section 10A, emphasizing the deduction's application to the eligible undertaking independently.
7. Citing the Hon'ble Bombay High Court and Supreme Court judgments, the ITAT concluded that deduction u/s.10A should be allowed independently for the eligible undertaking, irrespective of other units' profitability, thereby directing the Assessing Officer to allow the deduction before setting off unabsorbed business losses.
8. The ITAT's decision aligned with the principle that the profits of eligible units should be assessed on a standalone basis for claiming deduction u/s.10A, ultimately allowing the assessee's appeal and settling the dispute on the timing of deduction provision.

This detailed analysis of the judgment clarifies the interpretation of legal provisions and judicial precedents regarding the sequence of setting off losses and allowing deductions under section 10A of the Income Tax Act.