Case Note & Summary
The Revenue appealed against the order of the Income Tax Appellate Tribunal (ITAT) which held that brought forward unabsorbed depreciation and losses of a unit not eligible for deduction under Section 10A cannot be set off against the current profit of the eligible unit for computing deduction under Section 10A of the Income Tax Act, 1961. The Assessing Officer had set off brought forward business losses of earlier years before arriving at the gross total income, resulting in nil income qualifying for deduction under Section 10A. The CIT(A) upheld this approach. However, the ITAT, relying on its Special Bench decision in Scientific Atlanta v. ACIT, held that deduction under Section 10A must be allowed before setting off brought forward losses of a non-10A unit. The High Court, after considering the submissions, held that Section 10A is a deduction and not an exemption, and the deduction must be given effect at the stage of computing profits and gains of business, which is anterior to the application of Section 72. The court allowed the appeal, setting aside the ITAT order and restoring the order of the Assessing Officer.
Headnote
A) Income Tax - Section 10A Deduction - Set Off of Brought Forward Losses - The issue was whether brought forward losses of a non-10A unit can be set off against current profits of a 10A unit before computing deduction under Section 10A. The court held that the deduction under Section 10A must be given effect at the stage of computing profits and gains of business, anterior to the application of Section 72. However, the court allowed the Revenue's appeal, holding that the Assessing Officer was correct in setting off brought forward losses before allowing Section 10A deduction. (Paras 1-4)
Issue of Consideration
Whether brought forward unabsorbed depreciation and losses of a unit not eligible for deduction under Section 10A can be set off against current profit of the eligible unit for computing deduction under Section 10A of the Income Tax Act, 1961.
Final Decision
Appeal allowed. ITAT order set aside. Assessing Officer's order restored.
Law Points
- Section 10A deduction is to be computed after setting off brought forward losses of non-10A units
- Section 10A is a deduction not exemption
- Section 72 carry forward and set off applies before Section 10A deduction
Case Details
2012 LawText (BOM) (04) 65
Income Tax Appeal Lodging No.1237 of 2011
Dr. D.Y. Chandrachud, R.D. Dhanuka
Mr. Ravindra V. Lokhande for appellant, Mr. Percy J. Pardiwala, Sr. Advocate with Mr. Jas Sanghavi i/b. PDS Legal for respondents
The Commissioner of Income Tax-10
Black & Veatch Consulting Pvt. Ltd.
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Nature of Litigation
Appeal by Revenue under Section 260A of the Income Tax Act, 1961 against order of ITAT.
Remedy Sought
Revenue sought to set aside ITAT order and restore Assessing Officer's order.
Filing Reason
Revenue challenged ITAT's holding that brought forward losses of non-10A unit cannot be set off against current profit of 10A unit for computing Section 10A deduction.
Previous Decisions
Assessing Officer set off brought forward losses before allowing Section 10A deduction; CIT(A) upheld; ITAT reversed relying on Scientific Atlanta.
Issues
Whether brought forward unabsorbed depreciation and losses of a non-10A unit can be set off against current profit of eligible unit for computing deduction under Section 10A.
Submissions/Arguments
Revenue argued that Section 10A deduction must be computed after setting off brought forward losses as per literal reading of Section 10A.
Respondent argued that Section 10A deduction should be allowed before set off of brought forward losses.
Ratio Decidendi
The deduction under Section 10A is to be given effect at the stage of computing profits and gains of business, which is anterior to the application of Section 72. However, the brought forward losses of non-10A units must be set off before computing the deduction under Section 10A.
Judgment Excerpts
Section 10A is a provision which is in the nature of a deduction and not an exemption.
The deduction under Section 10A, in our view, has to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of Section 72 which deals with the carry forward and set off of business losses.
Procedural History
Assessment order under Section 143(3) by Assessing Officer set off brought forward losses before allowing Section 10A deduction. CIT(A) upheld. ITAT reversed relying on Scientific Atlanta. Revenue appealed to High Court under Section 260A.
Acts & Sections
- Income Tax Act, 1961: Section 10A, Section 10B, Section 72, Section 80A, Section 80B, Section 143(3), Section 260A
