2022 (11) TMI 225 - AT - Income Tax

Exemption u/s 10B - setting off of carried forward loss against the income of the units eligible for exemption u/s. 10B - HELD THAT - As decided in the case of Hindusthan Unilever Ltd 2010 (4) TMI 206 - BOMBAY HIGH COURT and BLACK VEATCH CONSULTING PVT. LTD. 2012 (4) TMI 450 - BOMBAY HIGH COURT allowed the appeal of the assessee by directing the AO to allow as exempt u/s. 10B to the assessee and further, to allow the carry forward of unabsorbed depreciation of Rs.2,00,58,145/- as claimed by the assessee in its return. Hon ble Supreme Court in the case of CIT Vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT wherein the issue has been dealt with by the Hon ble Supreme Court in respect of section 10A which according to the Ld. Counsel is equally applicable to cases governed by the provisions of section 10B in view of the said later provision being pari materia with section 10A of the Act though governing a different situation. We answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly. Appeal of revenue is dismissed.

Summary

Issues Involved:
Setting off of carried forward loss against income eligible for exemption u/s. 10B of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Setting off of carried forward loss against income eligible for exemption u/s. 10B
The appeal by the revenue challenged the order of Ld. CIT(A) allowing exemption u/s. 10B and carry forward of unabsorbed depreciation. The dispute arose from the treatment of carried forward loss and depreciation against the income of units eligible for exemption. The assessee, engaged in manufacturing toothbrushes, had two units - one eligible for exemption u/s. 10B and the other taxable. The AO set off the entire loss and depreciation against the taxable unit's income, resulting in a dispute. The assessee argued that the deduction u/s. 10B should be applied when computing business profits initially, not after adjusting losses. The Ld. CIT(A) allowed the appeal based on precedents and directed the AO to grant the exemption and carry forward depreciation. The revenue's appeal was dismissed by the tribunal, citing the Supreme Court's ruling on a similar provision (section 10A) emphasizing deductions for eligible undertakings independently from other units.

Conclusion:
The tribunal upheld the Ld. CIT(A)'s decision, emphasizing the independent treatment of deductions for eligible undertakings and rejecting the revenue's appeal. The judgment highlighted the need to apply deductions like u/s. 10B at the stage of computing business profits separately, aligning with legal precedents and statutory provisions.