2016 (12) TMI 1550 - AT - Income Tax

Section 10B Deduction Precedes Loss Setoff: Tribunal Upholds CIT(A)'s Decision

The Tribunal dismissed the Revenue's appeals, confirming that the Section 10B deduction should be allowed before setting off brought forward business ... Entitlement to deduction u/s 10B - assessee is engaged in the business of manufacture of Injection Blow Molding Machines - whether exemption u/s 10B has to be allowed from the total income before set off of brought forward losses and depreciation? - Held that:- Respectfully following the decision of Hon’ble Bombay High Court in the case of Black & Veatch Consulting (P) Ltd. (2012 (4) TMI 450 - BOMBAY HIGH COURT ) , in the case of Ganesh Polychem Ltd. v. ITO (2012 (8) TMI 953 - ITAT MUMBAI) and the latest decision of Hon’ble Bombay High Court in the case of CIT v. Techno Tarp and Polymers Pvt. Ltd. (2015 (12) TMI 909 - BOMBAY HIGH COURT) the appeal of the Revenue is not sustainable in law and hence we dismiss appeal filed by the Revenue , by upholding/sustaining the appellate order of the ld. CIT(A)’s wherein partial relief was granted to the assessee by holding that the assessee is entitled to deduction u/s 10B of the Act from current year’s profits without setting off of carry forward of business losses of the eligible unit and hence the appeal filed by the Revenue is dismissed. We would also like to clarify that Hon’ble Bombay High court in the afore-stated judgment dated 05-12-2015 in the case of CIT v. Techno Tarp and Polymers Pvt. Ltd has laid down proposition of law that even unabsorbed depreciation of eligible unit shall not be set-off against the current year profits of eligible unit while computing deduction u/s 10B of the Act.We order accordingly. Issues Involved:1. Whether the exemption under Section 10B should be allowed before setting off brought forward business losses and unabsorbed depreciation.2. Whether the appellate order of the CIT(A) should be vacated and the order of the Assessing Officer restored.Issue-wise Detailed Analysis:1. Exemption under Section 10B Before Setting Off Brought Forward Business Losses and Unabsorbed Depreciation:The Revenue appealed against the CIT(A)’s decision that the exemption under Section 10B should be allowed before setting off brought forward business losses. The CIT(A) reversed the AO’s assessment, which required brought forward business losses to be set off before allowing the Section 10B deduction. The CIT(A) upheld the AO’s decision regarding unabsorbed depreciation, stating that it must be set off as current year’s depreciation under Section 32(2) while computing profits for Section 10B.The CIT(A) cited the Bombay High Court’s decision, indicating that the deduction under Section 10B should be computed before adjusting brought forward business losses as per Section 72. However, the CIT(A) noted that Section 72 does not bar the application of Section 32(2) for unabsorbed depreciation, which must be set off as current year’s depreciation.The Tribunal referenced previous decisions, including the Bombay High Court’s ruling in CIT v. Black & Veach Consulting Pvt. Ltd. and the Karnataka High Court’s decision in ACIT v. Yokogawa India Ltd., which supported the view that brought forward business losses and unabsorbed depreciation should not be set off against current year profits before computing the Section 10B deduction. The Tribunal concluded that the income of a Section 10A/10B unit must be excluded before arriving at the gross total income, meaning brought forward business losses and unabsorbed depreciation cannot be set off against the current year’s profits of the eligible unit.2. Vacating the Appellate Order of the CIT(A) and Restoring the AO’s Order:The Revenue argued that the CIT(A)’s order should be vacated, and the AO’s decision restored. The Tribunal, however, upheld the CIT(A)’s decision, relying on jurisdictional High Court rulings and previous Tribunal decisions. The Tribunal noted that the CIT(A) correctly applied the law by allowing the Section 10B deduction before setting off brought forward business losses, in line with the Bombay High Court’s interpretation.The Tribunal dismissed the Revenue’s appeal, affirming that the CIT(A)’s order was consistent with legal precedents. The Tribunal emphasized that the Section 10B deduction should be computed before adjusting brought forward business losses, and unabsorbed depreciation should be set off as current year’s depreciation under Section 32(2).Conclusion:The Tribunal dismissed the Revenue’s appeals for both assessment years, confirming that the Section 10B deduction should be allowed before setting off brought forward business losses and unabsorbed depreciation. The Tribunal’s decision was based on consistent legal interpretations by higher courts, ensuring that the CIT(A)’s order was upheld.