2021 (1) TMI 606 - AT - Income Tax

Deduction u/s 35AD and set off u/s 73A against the loss incurred by it in other unit - HELD THAT - We have considered the submission of the assessee in regular hearing and came to the conclusion that assessee is eligible to claim deduction and set off u/s 35AD and 73A respectively. While dealing with individual units, we have already adjudicated that the units Mumbai and Indore are specified business units and eligible to set off u/s 73A and can claim deduction u/s 35AD. We observe that Indore Unit was established before the cut off dates specified in section 35AD. Accordingly, even though Indore unit is comes under specified business, but cannot claim any benefit u/s 35AD. The same was acknowledged by the assessee. Loss of assessee on account of a specified business claiming deduction u/s 35AD would be allowed to set of against the profit of another specified business. U/s 73A, whether or not the later is eligible for deduction u/s 35AD. Therefore, by the above clarification, it is clear that assessee can claim set off against the profit from specified business units of Mumbai and Indore. We notice from the record that assessee has acknowledged that it is not claiming deduction u/s 35AD only. But we came to conclusion that assessee is not claiming deduction u/s 35AD as well as surrendering the set off u/s 73A. From the records placed before us, we direct AO to allow the assessee to claim set off against the profit earned from units Mumbai and Indore against the carry forward losses of Chandigarh units, as per the amended provision and clarification note given for Finance Bill 2011. Accordingly, MA filed for both the AYs are allowed.

Summary

Issues:
Rectification of order for ITA No. 2384/Mum/2017 & 7348/Mum/2016, Set off of profits against losses, Interpretation of Section 35AD and Section 73A, Eligibility criteria for deduction and set off, Clarification on specified business units.

Analysis:

1. Rectification of Order: The appellant filed two Miscellaneous Applications seeking rectification of the order dated 20.12.2019 passed in ITA No. 2384/Mum/2017 & 7348/Mum/2016 to dispose of the appeal on merits. The appellant contended that the profits of its Mumbai and Indore units should be available for set off against the loss of its Chandigarh unit under Section 73A of the Act.

2. Interpretation of Section 35AD and Section 73A: The appellant argued that even if a unit did not qualify for the deduction under Section 35AD, it could still be considered a "Specified Business" as per Section 35AD(8)(c)(iv) for the purpose of set off under Section 73A. The appellant emphasized that the Mumbai and Indore units, though not qualifying for the Section 35AD deduction, were eligible for set off under Section 73A due to falling within the definition of "Specified Business."

3. Eligibility Criteria for Deduction and Set Off: The Department disputed the appellant's claim for set off of profits from its Mumbai and Indore units against the loss of the Chandigarh unit, arguing that these units were not built or owned by the appellant. However, the Hon. ITAT accepted the appellant's argument that the Mumbai unit fell within the definition of "Specified Business" and directed that its profits could be set off against the loss of the Chandigarh unit.

4. Clarification on Specified Business Units: The ITAT acknowledged that the Indore unit was a specified business but established before the cut-off dates specified in Section 35AD, rendering it ineligible for the deduction under that section. However, based on a clarification note on the Finance Bill 2011, it was clarified that the loss of a specified business claiming deduction under Section 35AD could be set off against the profit of another specified business under Section 73A, irrespective of the latter's eligibility for the deduction under Section 35AD.

5. Final Decision: The ITAT directed the Assessing Officer to allow the appellant to claim set off against the profits earned from the Mumbai and Indore units against the carry-forward losses of the Chandigarh unit, in line with the amended provision and clarification note provided for the Finance Bill 2011. Consequently, the Miscellaneous Applications filed by the appellant were allowed, and the orders were rectified to reflect the eligibility for set off as per the clarified provisions.

This detailed analysis of the judgment highlights the key arguments, interpretations of legal provisions, and the final decision rendered by the ITAT in favor of the appellant regarding the set off of profits against losses for specified business units under Sections 35AD and 73A of the Income Tax Act.