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.

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.