Tribunal allows set-off of EOU losses against profits for AY 2007-08, directs re-computation for AY 2008-09

The Tribunal allowed the Assessee's appeal for A.Y. 2007-08, permitting the set-off of Export Oriented Unit (EOU) losses against the profits of other units. The Tribunal directed the AO to re-compute the eligible profit for A.Y. 2008-09 in line with the decision for A.Y. 2007-08, allowing the Revenue's appeal for statistical purposes.

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Issues Involved:
1. Disallowance of set-off of losses from an Export Oriented Unit (EOU) against profits of taxable units for A.Y. 2007-08.
2. Addition on account of set-off of loss of EOU brought forward against profit of the eligible business unit for A.Y. 2008-09.

Issue-wise Detailed Analysis:

1. Disallowance of Set-off of Losses from EOU against Profits of Taxable Units for A.Y. 2007-08:
The issue revolves around whether the loss from an EOU can be set off against the profits of non-EOU units. The Assessee claimed a set-off of losses amounting to Rs. 25,91,332/- from the EOU against the profits of its taxable units. The AO disallowed this set-off, arguing that since the EOU was exempt under section 10B, its income did not form part of the total income, and thus, the loss could not be set off against the taxable profits of other units. The CIT(A) upheld the AO's decision, emphasizing that the loss from an EOU, which enjoys tax benefits, cannot be adjusted against other taxable income.

However, the Tribunal observed that after the amendment in section 10B effective from 1/4/2001, the provision allows for a deduction rather than an exemption. The Tribunal referred to the decision in Hindustan Unilever Ltd. v. Dy. CIT, which clarified that section 10B provides for a deduction from the total income, not an exemption. Therefore, the loss from the EOU can be set off against the profits of other units. The Tribunal allowed the Assessee's appeal, directing that the loss from the EOU should be adjusted against the taxable profits of other units.

2. Addition on Account of Set-off of Loss of EOU Brought Forward against Profit of the Eligible Business Unit for A.Y. 2008-09:
For A.Y. 2008-09, the AO adjusted the loss of Rs. 25,91,332/- from the EOU (brought forward from A.Y. 2007-08) against the eligible business profit, reducing the deduction under section 10B. The CIT(A) ruled this as a double disallowance since the Assessee's appeal for A.Y. 2007-08 was dismissed, and directed the AO to delete the addition.

The Tribunal, considering its decision on the Assessee's appeal for A.Y. 2007-08, where the set-off of the loss was allowed, reverted the matter back to the AO for re-computation of the eligible profit for A.Y. 2008-09. The Tribunal emphasized that once the loss is adjusted in A.Y. 2007-08, it should reflect in the computation for A.Y. 2008-09.

Conclusion:
The Tribunal allowed the Assessee's appeal for A.Y. 2007-08, permitting the set-off of EOU losses against the profits of other units. Consequently, the Tribunal also allowed the Revenue's appeal for A.Y. 2008-09 for statistical purposes, directing the AO to re-compute the eligible profit considering the Tribunal's decision for A.Y. 2007-08.

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