2016 (9) TMI 63 - HC - Income Tax

Claim for setting off Unabsorbed Depreciation and Business Loss - Whether ITAT was justified in law in allowing the assessee s claim for setting off Unabsorbed Depreciation and Business Loss in respect of 100% Export Oriented Unit of the assessee against the profit of other units? - Held that - The learned Tribunal passed a right order. But it would have been better, if the learned Tribunal had clarified that the set off was to be allowed in the order as laid down in Section 70 and other relevant sections of the Income Tax Act. In that view of the matter, we dispose of the appeal by directing that the losses shall be allowed to be set off and depreciation shall be allowed to be set off in accordance with law.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in allowing the assessee's claim for setting off Unabsorbed Depreciation and Business Loss against the profit of other units?
2. Whether the Income Tax Appellate Tribunal was correct in holding that the benefit granted under Section 10B is a deduction and not an exemption, allowing the set off of loss arising from a unit covered under Section 10B with the profit of other business?

Analysis:
1. The judgment revolved around a challenge to a decision by the Income Tax Appellate Tribunal regarding the allowance of setting off Unabsorbed Depreciation and Business Loss against the profit of other units for the assessment year 2004-05. The Tribunal allowed the appeal by the assessee, leading to the revenue's appeal. The High Court noted that prior to April 1, 2001, profits of export-oriented undertakings were exempt from tax, but post-amendment, they became deductible. The Assessing Officer and CIT(A) erred in treating the income as exempt, leading to a refusal to allow set off. The High Court upheld the Tribunal's decision, emphasizing that the profits were deductible, not exempt, allowing for the set off of losses and depreciation in accordance with the law.

2. The second issue focused on whether the benefit under Section 10B should be considered a deduction or an exemption. The Tribunal held it to be a deduction, enabling the set off of losses from a unit covered under Section 10B with profits from other businesses. The High Court concurred with this interpretation, emphasizing that the income was deductible post-amendment. The Court highlighted that the Assessing Officer's and CIT(A)'s error lay in treating the income as exempt. The High Court disposed of the appeal by directing the allowance of set off for losses and depreciation in accordance with the law, in line with the Tribunal's decision.

In conclusion, the High Court upheld the Tribunal's decision, clarifying the nature of the benefit under Section 10B as a deduction, not an exemption. The judgment emphasized the correct treatment of income post-amendment, allowing for the set off of losses and depreciation in accordance with the law. The Court also considered Circular No.07/DV/2013 issued by the Central Board of Direct Taxes in disposing of the appeal.