The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that losses incurred by eligible units under Section 10B can not be set off against income of other units.
The assessee, KEI Industries Ltd. preferred the appeal before the CIT(A) for the denial of carry forward loss in its 100% Export Oriented Unit (EOU) at Chopanki, Bhiwandi (Rajasthan).
The AO relying upon the Order for the preceding assessment year did not allow carry forward of business losses.
The assessee submitted that the assessee is a 100% EOU which is registered as EOU and is eligible for deduction under section 10B of the Income Tax Act, 1961.
The unit became operational in Assessment Year 2008-2009. For the previous year relevant to Assessment Year 2009-2010, the unit suffered a loss which was carried forward as “business loss”.
It was also submitted that in Assessment Year 2008-2009 the Tribunal vide Order has allowed similar claims of assessee following the decision of Bombay High Court. The CIT(A) allowed the claim of assessee.
The CIT(A) held that the Assessing Officer had only reduced the returned loss being the loss of Chopanki Unit eligible for deduction under section 10B after excluding depreciation on capitalization of exchange fluctuation. Hence, the addition in return loss is deleted and the loss of the Chopanki Unit is not to be separately carried forward but as part of the loss from other units only.
The issue involved in this case was whether the CIT(A) erred in deleting the addition of Rs. 56,28,605 in returned loss of the exempted unit under section 10B.
The assessee contended that findings under section 10A would be applicable to the cases governed by provisions of Section 10B and it was a group appeals which have been decided by the Supreme Court by holding that deduction under section 10A/10B is to be allowed while computing the gross total income and not at the stage of computation of total income in Chapter-VI of the Income Tax Act dealing in the aggregation of the income set-off or carried forward of the loss.
The Coram consisting of Accountant Member, Anil Chaturvedi and Judicial Member, Bhavnesh Saini while upholding the order of the CIT(A) held that the eligible profits are not to be subjected to the adjustment under Section 72 of the Act, and the brought forward loss from the unit eligible for the relief under Section 10B cannot be adjusted against the profits from the other units, which in effect reiterates the position that the loss does not enter the field of taxation just as the profits also do not enter the field.
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