2012 (3) TMI 101 - HC - Income Tax

Addition - Deduction u/s 10B - hundred percent Export Oriented Unit (EOU) - Assessing Officer held that a loss sustained by the eligible unit could not be set off against the income of the other units - The earlier provision specifically stipulated that profits and gains derived by an assessee from a hundred percent export oriented undertaking to which the section applies shall not be included in the total income of the assessee - There is no provision in Section 10B by which a prohibition has been introduced by the Legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head - A provision akin to subsection (5) of Section 80IA or for that matter akin to subsection (6) of Section 80I has not been introduced by the Legislature when it enacted Section 10B - Appeal is dismissed

Summary

Issues:
1. Justification of deleting royalty payment addition.
2. Justification of allowing deduction under Section 10B for Export Oriented Units.

Analysis:
1. The first issue revolves around the Tribunal's decision to delete the addition made by the Assessing Officer towards royalty payment, which the Revenue contended was a self-serving arrangement without deriving any benefits. The Tribunal relied on its earlier decision for Assessment Years 199697 to 199899, where it allowed the payment as a genuine business expenditure. The Revenue's failure to appeal against the earlier decision led to the Tribunal's current decision being upheld, as no substantial question of law arose from following precedent.

2. The second issue concerns the deduction under Section 10B for the Export Oriented Unit (EOU) of the assessee. The Assessing Officer and the Commissioner of Income Tax (Appeals) held that the loss of the EOU could not be set off against profits from other units. However, the Tribunal disagreed, citing a similar case and allowing the set off. The Revenue argued that unabsorbed depreciation could be carried forward, thus disallowing the set off. The Court, after analyzing the provisions of Section 10B and related sections, found no statutory prohibition against setting off the EOU's loss against profits from other units. The Court emphasized the absence of any legislative restriction and upheld the assessee's entitlement to the set off under Section 70, dismissing the appeal.

In conclusion, the High Court of Bombay dismissed the Revenue's appeal, upholding the Tribunal's decisions on both issues. The judgment clarified the application of Section 10B and related provisions, emphasizing the absence of statutory restrictions on setting off losses within the same head of income. The decision underscores the importance of legal interpretation and adherence to established precedents in tax matters.