2012 (1) TMI 372 - AT - Income Tax

Tribunal rules: Profits of all units must be considered for exemption under section 10B

The Tribunal upheld the disallowance of exemption u/s.10B on the profits of the Pune Unit, emphasizing the need to consider the total income of all units ... - Issues involved: The judgment deals with the disallowance of exemption u/s.10B on the profits of the Pune Unit and the issue of whether the exemption u/s.10B should be allowed on the Pune Unit after setting off the losses of the Nasik Unit.Summary:Issue 1 - Disallowance of exemption u/s.10B on Pune Unit profits:The assessee contended that both the Pune and Nasik units are independent and separately eligible for the exemption u/s.10B, emphasizing that each unit should be treated as an independent entity for the purpose of exemption. The AO, however, argued that the deduction u/s.10B should be claimed on the total income of both units and set off against each other. The Tribunal found that the assessee had two manufacturing units, Pune and Nasik, with separate accounts for each. While the Pune unit showed a net profit, the Nasik unit incurred a loss. The AO's position was that the deduction should be claimed on the combined income of both units. The assessee's argument that each unit's profits should be exempted u/s.10B without setting off losses was not accepted by the AO and the CIT(A), leading to the dismissal of the appeal.Issue 2 - Interpretation of Section 10B and relevant case laws:The Special Bench of the Tribunal and the Hon'ble Kerala High Court had differing views on the interpretation of Section 10B. The Special Bench held that deduction of a profitable unit was allowable without adjusting it against the loss of other units, while the Kerala High Court emphasized that the total income of all units should be considered for the purpose of exemption u/s.10B. The Kerala High Court's decision was deemed applicable to the case at hand, leading to the dismissal of the assessee's appeal.In conclusion, the Tribunal upheld the disallowance of exemption u/s.10B on the profits of the Pune Unit, emphasizing the need to consider the total income of all units for such deductions. The judgment was pronounced on January 27, 2012.