Treatment of Loss from Units availing deduction u/s 80-IC of the Income Tax Act,1961

[CASUNIL BHANSALI]

Query on treatment of Loss from Units availing deduction u/s 80IC. of the Income Tax Act’1961 Background: A manufacturing company duly incorporated under the Companies Act 1956 is having two units i.e. Unit-I & Unit-II. Both the units are separate and separate books of accounts are maintained. Both the units are separately approved by THE STATE GOVT. for availing deduction U/s 80IC of the Income Tax Act’1961. Fact: During the FY 2009-10, the revenue model of the company is as under: 1. Profit from Unit-I 2. Loss from Unit-II 3. Income from House Property and Trading Activity Further, this is sixth year of claiming deduction u/s 80IC for Unit-I, hence deduction u/s 80IC is available upto 30% of the profit from such units. Whereas, it is the first year for Unit-II, so 100% deduction of profit u/s 80IC is available. Query: 1. Can the Loss of Unit-II be set-off with the profit from Unit-I 2. Can the Loss of Unit-II be set-off with the Income from House Property and Trading Activity 3. The Loss of Unit-II can be carried forward and to be set-off with profit from Unit-II in succeeding years.

[Surender Gupta]

If you read the provision of section 80-IA(5) as applicable to section 80-IC, the profit for the purpose of deduction under section 80-IC shall be computed as "if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." Therefore, for the purpose of claim of deduction u/s 80-IC intra head or inter head adjustments are not possible.

AI Summary

Losses from Unit-II Cannot Offset Profits from Unit-I Under Section 80-IC; No Intra-Head Adjustments Allowed A query was raised regarding the treatment of losses from units availing deductions under section 80-IC of the Income Tax Act, 1961. A manufacturing company with two units, both approved for section 80-IC deductions, reported profits from Unit-I and losses from Unit-II. The questions were whether the loss from Unit-II can be set off against the profit from Unit-I, or against income from house property and trading activity, and if the loss can be carried forward. The response clarified that under section 80-IA(5), applicable to 80-IC, intra-head or inter-head adjustments are not permissible, meaning such set-offs are not allowed.