2021 (4) TMI 416 - HC - Income Tax

Tribunal Order Affirmed on Set-Off & Deductions in AY 2005-2006

The Commissioner of Income Tax, Chennai Versus M/s. Caterpillar India Pvt. Limited

The High Court upheld the Tribunal's decision in a case challenging orders passed for Assessment Year 2005-2006 regarding set off of losses and deductions ... Deduction u/s 10A - Tribunal held that set off of brought forward losses of non eligible unit against the income of the eligible 10A unit is to be allowed - Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that deduction under section 10A should be allowed without reducing the unabsorbed depreciation and brought forward losses of the non 10A unit? - HELD THAT:- As decided in M/S. COMSTAR AUTOMATIVE TECHNOLOGIES PRIVATE LTD., (FORMERLY KNOWN AS VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PRIVATE LIMITED) VERSUS THE DEPUTY COMMISSIONER OF INCOME TAX COMPANY CIRCLE - I (3) , CHENNAI [2020 (3) TMI 814 - MADRAS HIGH COURT] the total income was first arrived at by the Revenue through the Assessing Officer in the Assessment Order by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment Years and set off the unabsorbed depreciation first and making the return Nil, thereby leaving the Assessee in a position where it could not claim any deduction under Section 10B as there was no income after set off of carry forward depreciation and unabsorbed depreciation from earlier years. This method of computing the income in the present case made by the Revenue is totally against the said law as has been declared by the Hon'ble Apex Court in the aforesaid decision in Commissioner of Income-tax v. Yokogawa India Ltd.,[2016 (12) TMI 881 - SUPREME COURT] No hesitation to hold that, the decision of the ITAT, which is impugned herein, would not stand in the legal scrutiny, in view of the law having been declared by the Hon'ble Apex Court. Therefore, we are of the view that, the Substantial Question of Law raised in this Appeal is covered by the said decision, therefore it can be answered accordingly. - Decided in favour of assessee Issues:Challenging orders passed in ITA No.709/Mds/2010 for Assessment Year 2005-2006 regarding set off of losses and deductions under section 10A.Analysis:1. Issue 1 - Set off of brought forward losses against income of eligible unit:The Tribunal allowed set off of brought forward losses of a non-eligible unit against the income of an eligible 10A unit. The appellant questioned the legality of this decision. However, the Hon'ble Division Bench clarified that deductions under Section 10A should be made while computing the gross total income of the eligible undertaking, not during the total income calculation. The Apex Court's decision emphasized that provisions for set off and carry forward under Sections 70, 72, and 74 would be premature at the stage of computing total income. Therefore, the Tribunal's decision to allow set off of losses was in line with the legal interpretation provided by the Apex Court.2. Issue 2 - Deduction under section 10A without reducing unabsorbed depreciation and losses:The Tribunal held that deduction under section 10A should be allowed without reducing unabsorbed depreciation and brought forward losses of the non-10A unit. The appellant contested this decision, but the Division Bench's ruling clarified that deductions under Section 10A should be considered while computing the gross total income of the eligible undertaking. The law established by the Apex Court highlighted that deductions under Section 10A or 10B should be made at the gross total income stage, not during the total income calculation. Therefore, the Tribunal's decision aligns with the legal position set by the Apex Court.3. Issue 3 - Application of section 10A(6)(ii) and computation of total income:The Tribunal's decision was questioned regarding the application of section 10A(6)(ii) and the computation of total income. The Division Bench emphasized that the total income should be computed by setting off losses and unabsorbed depreciation first, as per the provisions of the Income Tax Act. The Apex Court's ruling clarified that deductions under Section 10A should be considered while computing the gross total income of the eligible undertaking. Therefore, the Tribunal's decision was found to be legally sound and aligned with the established legal principles.4. Issue 4 - Adjustment of losses and unabsorbed depreciation in computing total income:The Tribunal's decision was scrutinized concerning the adjustment of losses and unabsorbed depreciation in computing total income. The Division Bench reiterated that deductions under Section 10A should be made while computing the gross total income of the eligible undertaking, not during the total income calculation. The Apex Court's decision emphasized that set off and carry forward provisions should not be applied prematurely during the total income computation. Therefore, the Tribunal's decision to allow deductions under Section 10A was upheld as per the legal interpretation provided by the Apex Court.In conclusion, the High Court upheld the Tribunal's decision, following the legal principles established by the Apex Court regarding the computation of total income and deductions under Section 10A. The appeal was dismissed, and the questions of law were decided in favor of the assessee based on the legal precedents cited.