2018 (6) TMI 880 - AT - Income Tax

Deduction u/s 10B - Disallowance of unabsorbed depreciation/losses of two exempted units from the profit of one other exempted unit u/s 10B - Held that - An identical issue has been adjudicated in favour of the assessee in assessee s own case in 2017 (4) TMI 1357 - ITAT DELHI where the judgment of the Hon ble Supreme Court in the case of CIT & Another Vs M/s Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT held that the introduction of the word deduction in Section 10A by the amendment made by Finance Act,2003, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions. As per Section 10A, the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. Though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI - hence appeal of the department is dismissed - Thus unabsorbed depreciation of one eligible unit cannot be adjusted with the profit of the other eligible unit, while calculating the deduction available to the other eligible unit under Section 10B - Decided in favor of assessee.

Summary

Issues:
Appeal against deletion of addition by AO
Claim of set off of losses with non-exempted income
Interpretation of Section 10B of the Income Tax Act

Analysis:
The department appealed against the deletion of an addition made by the Assessing Officer (AO) regarding the reduction of unabsorbed depreciation from the profit of an exempted unit. The main issue revolved around the correct application of Section 10B of the Income Tax Act, 1961. The department argued that unabsorbed depreciation/losses of two exempted units should be reduced from the profit of another exempted unit to calculate the exemption under Section 10B.

During the hearing, the assessee's counsel cited a previous ITAT Delhi Bench decision in the assessee's favor for the assessment year 2010-11. The department did not contest this contention. The ITAT noted that a similar issue had been decided in favor of the assessee in a previous order dated 28.04.2017 for the same assessment year. This decision was based on a judgment of the Hon'ble Supreme Court in the case of CIT & Another Vs M/s Yokogawa India Ltd., which clarified the provisions of Section 10A and Section 10B.

The Supreme Court's decision emphasized that deductions under Section 10A and 10B are specific to individual undertakings without reference to other units. It highlighted that unabsorbed depreciation of one eligible unit cannot be adjusted with the profit of another eligible unit under Section 10B. The Court also clarified that such unabsorbed depreciation can only be carried forward and set off after the tax holiday period ends.

Based on the precedent set by the Supreme Court and the previous ITAT order, the ITAT upheld the CIT(A)'s decision to delete the addition made by the AO. The ITAT concluded that there was no merit in the department's appeal and dismissed it accordingly. The judgment reaffirmed the interpretation of Section 10B and the correct treatment of unabsorbed depreciation for eligible units under the Income Tax Act.

In conclusion, the ITAT's decision aligned with the principles outlined by the Hon'ble Supreme Court and previous ITAT rulings, emphasizing the independent treatment of deductions for eligible undertakings under Section 10B. The judgment clarified the correct application of tax provisions and upheld the CIT(A)'s decision in favor of the assessee.