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2014 (7) TMI 4 - AT - Income TaxSet off of brought forward loss and unabsorbed depreciation Income from Profits and gains of business or profession Deduction u/s 10B of the Act Held that - Brought forward business loss cannot be set off against the profit of the eligible unit for computing deduction u/s 10B of the Act and such profit is to be determined after set off of brought forward unabsorbed depreciation - CIT(A) decided in favour of the assessee holding that the brought forward business loss cannot be set off against profit of the eligible unit for the purpose of computing deduction u/s 10B of the Act - the issue only relating to set off of unabsorbed depreciation against the profit of the eligible unit for the purpose of computing deduction u/s 10B of the Act. Relying upon The Commissioner of Income Tax-10 Versus Black & Veatch Consulting Pvt. Ltd. 2012 (4) TMI 450 - BOMBAY HIGH COURT - brought forward unabsorbed depreciation and losses of the unit, the income of 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 deduction us/ 10B of the Act - the issue relating to set off of brought forward unabsorbed depreciation against the profit of the eligible unit for computing deduction u/s 10B of the Act - the AO is directed to allow the claim of the assessee for deduction u/s 10B of the Act on the profit of the eligible unit without setting off the brought forward unabsorbed depreciation - Decided in favour of Assessee.
Issues Involved:
1. Validity of reopening the assessment under Section 147/148 of the Income Tax Act. 2. Deduction under Section 10B of the Income Tax Act before setting off brought forward unabsorbed depreciation and business losses. Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147/148: The assessee challenged the validity of the reopening of the assessment for A.Y. 2004-05 by the Assessing Officer (A.O.) under Section 147/148 of the Income Tax Act. The A.O. had reopened the assessment after issuing a notice under Section 148 on 7-3-2011, following the acceptance of the original return under Section 143(1) on 30-12-2004. The assessee contended that the reopening was not justified. However, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s action, dismissing the assessee's preliminary issue. The Tribunal did not find it necessary to adjudicate this issue since the assessee's claim for deduction under Section 10B was allowed, rendering the preliminary issue infructuous. 2. Deduction under Section 10B Before Setting Off Brought Forward Unabsorbed Depreciation and Business Losses: The primary issue in both appeals for A.Y. 2004-05 and A.Y. 2006-07 was whether the deduction under Section 10B should be computed before setting off brought forward unabsorbed depreciation and business losses. The assessee argued that the deduction under Section 10B should be calculated on the profit of the eligible unit before any set-off, relying on the Tribunal's decision in its own case for A.Y. 2005-06 and the Hon'ble Bombay High Court's decision in CIT vs. Black & Veatch Consulting (P) Ltd. The A.O. had set off the entire brought forward business loss and unabsorbed depreciation against the income declared under the head "profits and gains from business or profession," resulting in nil income and disallowing the deduction under Section 10B. The CIT(A) partially agreed with the assessee, holding that brought forward business losses should not be set off before computing the deduction under Section 10B, but unabsorbed depreciation should be set off first, based on the Hon'ble Kerala High Court's decision in CIT vs. Patspin India Ltd. The Tribunal, however, reversed the CIT(A)'s decision, holding that both brought forward business losses and unabsorbed depreciation should not be set off before computing the deduction under Section 10B. The Tribunal relied on the subsequent decision of the Hon'ble Bombay High Court in CIT vs. M/s Ganesh Polychem Ltd., which followed the earlier decision in Black & Veatch Consulting (P) Ltd., and held that the deduction under Section 10B should be allowed without setting off brought forward losses and unabsorbed depreciation. The Tribunal also dismissed the Revenue's reliance on CBDT Circular No. 7/DV/2013, clarifying the aggregation of income/loss from various sources before allowing deductions under Sections 10A, 10B, etc., as the circular was not applicable to the specific issue of set-off of unabsorbed depreciation in this case. Conclusion: The Tribunal allowed the assessee's appeals for both A.Y. 2004-05 and A.Y. 2006-07, directing the A.O. to allow the deduction under Section 10B on the profit of the eligible unit without setting off the brought forward unabsorbed depreciation. The preliminary issue regarding the validity of reopening the assessment for A.Y. 2004-05 was rendered infructuous and was not adjudicated upon. The orders of the CIT(A) were reversed, and the A.O. was directed to recompute the deduction under Section 10B as claimed by the assessee.
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