Unit-wise Eligibility for Deduction u/s.10B Upheld by Tribunal

The Tribunal dismissed the assessee's appeal, upholding the disallowance of exemption u/s.10B on the profits of the Pune Unit. It emphasized the independent eligibility of each unit for exemption u/s.10B and the computation of business profits for deduction eligibility, rejecting the assessee's argument of claiming deduction on the total income of both units. The decision was influenced by conflicting views from a Special Bench and the Kerala High Court, ultimately favoring the latter's interpretation.

---

---

Issues:
1. Disallowance of exemption u/s.10B on profits of Pune Unit.
2. Interpretation of provisions of Sec.10B regarding independent units.
3. Claiming deduction u/s.10B on total income of both units.
4. Application of sec. 80AB in relation to deduction u/s.10A.
5. Determination of eligible export profit for deduction under section 10B(4).

Issue 1: Disallowance of exemption u/s.10B on profits of Pune Unit
The assessee appealed against the disallowance of exemption u/s.10B on the profits of the Pune Unit. The contention was that both the Pune and Nasik units are independent units eligible for exemption u/s.10B, and the mere similarity in manufacturing products does not make them one 'undertaking.' The AO insisted that the assessee should have claimed deduction u/s.10B on the total income of both units and set off against each other, which the assessee did not do. The assessee argued that each undertaking is entitled to 10B benefit for its profits independently before adjusting against losses in other undertakings.

Issue 2: Interpretation of provisions of Sec.10B regarding independent units
The Tribunal noted that the assessee had two manufacturing units in Pune and Nasik, with separate accounts. The AO's contention was that deduction u/s.10B should be claimed on the total income of both units and set off against each other. However, the assessee maintained that each unit's profits are eligible for exemption u/s.10B without offsetting the losses of other units, citing a Tribunal order supporting this view.

Issue 3: Claiming deduction u/s.10B on total income of both units
The AO did not accept the assessee's contention, arguing that deduction u/s.10B should be claimed on the total income of both units as per sec. 10B(5)(i), considering 'income' to include losses. The CIT(A) confirmed the AO's order. The Tribunal referred to conflicting decisions, including a Special Bench ruling and a Kerala High Court decision, ultimately deciding against the assessee based on the Kerala High Court's interpretation of sec. 10B(4) referring to 'total income.'

Issue 4: Application of sec. 80AB in relation to deduction u/s.10A
The Tribunal discussed the application of sec. 80AB in relation to deduction u/s.10A, highlighting the Special Bench's view that deduction does not fall under Chapter VIA, thus not subject to sec. 80AB. The Kerala High Court decision emphasized computing business profits for determining deduction eligibility under sec. 10B(4) based on specific provisions, leading to the rejection of the assessee's appeal.

Issue 5: Determination of eligible export profit for deduction under section 10B(4)
The Tribunal analyzed the determination of eligible export profit for deduction under section 10B(4), emphasizing the computation of business profits based on specific sections. The Kerala High Court's decision clarified the computation process, leading to the rejection of the assessee's appeal in line with the High Court's interpretation of sec. 10B(4) and 'total income.'

In conclusion, the Tribunal dismissed the assessee's appeal based on the interpretation of provisions of sec. 10B, emphasizing the independent eligibility of each unit for exemption u/s.10B and the computation of business profits for deduction eligibility. The decision was influenced by conflicting views from a Special Bench and the Kerala High Court, ultimately favoring the latter's interpretation.

---