2015 (10) TMI 1500 - AT - Income Tax

Set-off the losses of the assesse s Gurgaon 10A unit against the profits of its other 10A unit - Held that - As decided in Hindustan Unilever Limited 2010 (4) TMI 206 - BOMBAY HIGH COURT after the substitution of section 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent. export oriented undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the assessment has sought to be reopened is belied by a plain reading of the provision. The Assessing Officer was plainly in error in proceeding on the basis that because the income is exempted, the loss was not allowable. All the four units of the assessee were eligible under section 10B. Three units had returned a profit during the course of the assessment year, while the Crab Stick unit had returned a loss. The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of section 10B - Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of deduction u/s 10A and set-off of losses against profits.
2. Allowance of carry forward of losses under section 10A.

Analysis:
1. The appeal involved a dispute regarding the computation of deduction u/s 10A for the assessment year 2008-09. The revenue contested the direction of the CIT(A) not to set-off the losses of the assessee's Gurgaon unit against the profits of its other unit before calculating the deduction u/s 10A. The revenue argued that the deduction u/s 10A should be allowable after set-off of losses as per Chapter VI of the Income Tax Act. However, the CIT(A) allowed the claim of the assessee based on precedents like Hindustan Unilever Ltd V/s DCIT and CIT V/s Patni Computer System Ltd.

2. The assessee had earned profits from a 100% export-oriented unit eligible for deduction u/s 10A but had also incurred losses in a non-10A unit. The AO initially recomputed the deduction u/s 10A by setting off the losses from the non-10A unit. However, the CIT(A) allowed the deduction in line with the judgments of the High Court, emphasizing that the losses should be set off against the profits of the year, and only unabsorbed losses remaining thereafter are eligible for carry forward.

3. The Tribunal noted that the issue was settled by the judgment of the Jurisdictional High Court in the case of Hindustan Unilever Ltd, where it was clarified that section 10B provides for a deduction, not an exemption. The Tribunal also referred to the similar view taken by the Karnataka High Court in the case of CIT V/s Yokigawa India Ltd. Consequently, the Tribunal upheld the order of the CIT(A) based on the legal interpretation provided by the High Courts, dismissing the revenue's grounds.

4. The cross-objection filed by the assessee merely supported the order of the CIT(A) without raising any new issues. Since the Tribunal's findings on the revenue's appeal were conclusive, the cross-objection was deemed infructuous. As a result, both the appeal of the revenue and the cross-objection of the assessee were dismissed by the Tribunal on 13.5.2015.