2013 (5) TMI 44 - HC - Income Tax

Revision u/s 263 of the Act - AO Allowed deduction U/s 10B on the business income without setting-off unabsorbed depreciation amount - The Commissioner of Income tax in his jurisdiction under Section 263 of the Income Tax Act was of the view that the same resulted in excess deduction allowed under Section 10B of the Act and incorrect determination of loss was carried forward. - The Tribunal held that Assessing Officer had adopted one of the permissible views and such an order cannot be said to be erroneous in view of the decision of the Apex Court in the case of Malabar Industrial Company Ltd., V/s. CIT 2000 (2) TMI 10 - SUPREME Court - Held that - following the decision in Commissioner of Income Tax, LTU, V/s. M/s. Yokogawa India Ltd., 2011 (8) TMI 845 - Karnataka High Court and in view of the fact that no substantial question of law arises for consideration in this appeal, the additional question with regard to the jurisdiction under Section 263 of the Revisional Authority becomes purely academic and therefore, that question is not answered. - Decided against the revenue.

Summary

Issues:
1. Whether unabsorbed depreciation of one undertaking can be set-off for computing deduction under Section 10B of the Income Tax Act?
2. Whether the Revisional Authority was justified in modifying the order of the Assessing Officer under Section 263 of the Act?
3. Whether the approach of the assessing authority was contrary to statutory provisions regarding set-off of unabsorbed business loss and depreciation?

Analysis:
1. The first issue revolves around the deduction under Section 10B of the Income Tax Act. The Tribunal held that the Assessing Officer's view was permissible, citing the decision in Malabar Industrial Company Ltd. v. CIT. The Court further clarified that the profits derived from export of articles or software from the business of the undertaking alone should be considered for deduction under Section 10B, excluding profits from other undertakings. The judgment emphasized that unabsorbed depreciation should not be set-off against such profits, in line with the statutory provisions.

2. The second issue pertains to the Revisional Authority's intervention under Section 263 of the Act. The Commissioner set aside the Assessing Officer's order, directing re-computation of total income after setting-off unabsorbed depreciation. However, the Tribunal deemed the Assessing Officer's view as permissible in law, following the principle that an order is erroneous if it prejudices the revenue's interest. The judgment highlighted that the Revisional Authority was not justified in modifying the Assessing Officer's order when a permissible view was taken.

3. The final issue addresses the assessing authority's approach concerning set-off of unabsorbed business loss and depreciation. The Court clarified that the income of a Section 10B unit must be excluded at the source before computing gross total income. Consequently, losses of non-Section 10B units cannot be set-off against Section 10B unit income. The judgment emphasized the proper sequence for setting off unabsorbed business loss and depreciation, highlighting the importance of excluding Section 10B deductions from the total income. The Court concluded that the assessing authority's approach was contrary to statutory provisions, justifying the setting aside of the assessment order.

In conclusion, the judgment upheld the Tribunal's decision, emphasizing the correct application of statutory provisions regarding deductions under Section 10B and the limitations on setting off unabsorbed depreciation. The Court found no merit in the appeal, as no substantial question of law arose, ultimately allowing the appeal.