Deduction on Profit under Section 10B will not be a bar to set off Loss against Normal Business Income: Bombay HC [Read Order]

Deduction - profit under Section 10B - business Income - High Court - taxscan

In a significant case of Sandvik Asia Pvt.ltd, the Bombay High Court has held that deduction in respect of profit under section 10 B of the Income Tax Act,1961 will not be a bar to set off lost against the normal business income.

The appellant challenged the order dated 14th June 2017 passed by the Income Tax Appellate Tribunal (ITAT), Pune. 

The assessee company, Sandvik Asia Pvt. Ltd is a part of the Sandvik Group a subsidiary of Sandvik AB Sweden engaged in the business of manufacturing hard material specialized tools which are used in drilling besides tubes, pipes and wires. The assessee made a provision for Finished Goods obsolescence for an amount of Rs. 19,52,000/- which was disallowed and added back to the total income of the assessee by the Assessing Officer (A.O.), who held that the closing inventory had to be valued either at cost price or at market price. 

The assessee adjusted the loss of its newly set up Export Oriented Unit (EOU) against the profits earned by its Non-EOU. The A.O. was not allowed the setoff on the ground that the income of an EOU was exempt under Section 10A / 10B and since an exempt income could never be a part of the gross total income

It was observed that Section 10B as it stands is not a provision like an exemption but provides for a deduction. Section 10B was substituted by the Finance Act of 2000 with effect from April 1, 2001, which 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.

Justice Dhiraj Singh Thakur and Justice Abhay Ahuja while dismissing the appeal, held that “there is no provision in Section 10B by which a prohibition has been introduced by the Legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head.”  Mr Suresh Kumar, Advocate appeared for the Appellant and Mr J. D. Mistri, Senior Advocate Mr Atul K. Jasani, Advocate appeared for the Respondent. 

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