Set off of Loss from eligible unit aginst profit of eligible unit - 10A

[ddshah]

There is recent SB decision in Scientific saying that the loss from non-eligible unit cannot be set off against profit from eligible unit while computing 10A. There are decisions that even loss from eligible unit cannot be set off against profit from eligible unit whlie computing 80I deduction.

Is anyone aware of decision on 10A/10B where loss from eligible unit cannot be set off against profit from eligible unit before calcuting 10A deduction which means that the 10A deduciton to be calculated independantly of each unit?

[pawansingla]

There is lot of contraversy on the issue.
in some cases the assessees first claimed deduction u/s 10B from gross total income and the balance was set off against the carry forward business losses. As per the provisions of the said section, the assessees should first set-off the carry forward business losses against the gross total income and it is only on the resultant balance amount on which the assessee is entitled to claim the deduction u/s 10B of the Act."

The above contention is also supported by various rulings given by the High Court/ITAT. Some of the decisions which support the above contention are hereunder:-

(a)   ACIT vs. Jewellery Solutions International Pvt. Ltd. (2009) 28 SOT 405(Mumbai) .
(b)   Sword Global India Pvt. Ltd. Vs. ITO (2008) 306 ITR [AT] 286 (Chennai).
(c)   CIT vs. Himatasingike Seide Ltd. (2006) 156 Taxman 151 (Karnataka).

It has been judicially held by various appellate authorities that "for computing the profits and gains of business or profession of a hundred per cent EOU, the income has to be computed in accordance with sections 30 to 43D and thus effect has to be given to section 32 for computation of the profits and gains of the business or profession; consequently, deduction u/s 10B is to be allowed under the computation of income from profits and gains of business or profession of a hundred per cent EOU after adjusting the unabsorbed depreciation."
[2010] 37 SOT 1 (DELHI)
In the ITAT Delhi Bench 'C'
Global Vantedge (P.) Ltd.
v.
Deputy Commissioner of Income-tax*, Circle 12(1), New Delhi
C.L. Sethi, Judicial Member and K.D. Ranjan, Accountant Member
IT Appeal Nos. 1432, 2321, 2763 and 2764 (Delhi) of 2009
[Assessment years 2003-04 and 2004-05]
December 17, 2009

Section 10A of the Income-tax Act, 1961 - Free trade zone - Assessment year 2004-05 - Whether unabsorbed depreciation or unabsorbed business loss in respect of eligible section 10A unit or division or undertaking is to be set off against profit of same eligible unit for purpose of determining amount of deduction available under section 10A - Held, yes

There are 2,3 judgments which alos favours that deduction is to be calculated at first stage. recently delhi tribunal in global vintage and Bangolore bench has also followed Karnatka high court judgment.
[2008] 21 SOT 29 (MUM.)
IN THE ITAT MUMBAI BENCH 'H'
Enercon Wind Farms (Krishna) Ltd.*
v.
Assistant Commissioner of Income-tax, Range-8(1), Mumbai
J. Sudhakar Reddy, Accountant Member and Rajpal Yadav, Judicial Member
IT Appeal No. 6794 (Mum.) of 2004 [Assessment year 2001-02]
December 28, 2007
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking - Assessment year 2001-02 - Whether entire scheme of section 10B(6) provides for a situation where assessee is not allowed to postpone some of his claims of deduction under various sections during tax holiday period, so that  profits during such period are inflated and profits of business after such period are reduced by claiming these deductions at that particular point of time -Held, yes - Whether restrictions referred to in section 10B(6) would apply to post tax holiday period and restrictions do not apply to previous years within tax holiday period - Held, yes - Whether deduction under section 10B is not controlled by section 80AB as deduction under section 10B is not a deduction under Chapter VI-A - Held, yes
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking - Assessment year 2001-02 - Whether it cannot be said that words 'total income' as appearing in section 10B(1) do not refer to income computed under section 28 but has to be separately computed under section  10B(1); total income has to be computed under  provisions of Act and thereafter a deduction has to be quantified under section 10B as provided in section 10B(4) - Held, yes - Assessee, a domestic company, was engaged in business of exporting components of wind turbine generators manufactured by it - For relevant assessment year, assessee in computation of its income had shown business income of Rs. 70,38,585 and after set off of unabsorbed depreciation of Rs. 2,61,656 had determined profits at Rs. 67,76,929 - Further, assessee had claimed exemption of Rs. 62,10,828 under section 10B and, thus, worked out taxable income at Rs. 5,66,101 - Out of this, assessee claimed set off loss of Rs. 5,66,101 out of loss of Rs. 7,55,789 incurred in assessment year 1999-2000 and, thus, declared taxable income at nil - Commissioner (Appeals) held that since assessee's profits were determined in terms of section 10B(1) and not under head 'Profits and gains of business or profession' or within terms of section  28, assessee was not entitled to set off of loss under section 72 - Whether Commissioner (Appeals) was justified - Held, no
Words and phrases : 'Total income' as occuring in section 5 and section 10B(1) of Income-tax Act, 1961; 'Relevant assessment years' as occuring in clause (v) of Explanation 2 to section 10B of the Income-tax Act, 1961

[2008] 22 SOT 220 (CHENNAI)
IN THE ITAT CHENNAI BENCH 'A'
Changepond Technologies (P.) Ltd.*
v.
Assistant Commissioner of Income-tax, Company Circle-1(3)
T.R. SOOD, ACCOUNTANT MEMBER AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 731 (MAD.) OF 2007 [ASSESSMENT YEAR 2003-04]
FEBRUARY 15, 2008
Section 10A of the Income-tax Act, 1961 - Free trade zone - Assessment year 2003-04 - Assessee was engaged in development of software and export of same - Software development in year under consideration was done partly in India and some technical services were provided outside India - Assessee claimed deduction under section 10A, inter alia, on gain earned due to foreign exchange fluctuation and interest income from bank deposits and further it did not exclude expenses incurred towards salaries, travelling and other perquisites of employees in connection with providing technical services outside India from export turnover - Whether since gain from fluctuation of foreign exchange was directly related to export activities, same would be included in total turnover while computing deduction under section 10A - Held, yes - Whether since interest on fixed deposits was not connected with business activity of assessee, same was to be excluded from total turnover of assessee while computing deduction under section 10A - Held, yes - Whether since technical services provided outside India by assessee were only for development of computer software which was also a part of requirement of assessee in development of software, said activity of assessee would come under definition of on site development of computer software including  services for development of software outside India as provided in Explanation 3 to section 10A, and, therefore, expenses incurred on salaries, travelling and other perquisites were to be included in export turnover of assessee for purpose of computing deduction under section 10A - Held, yes
Section 10A of the Income-tax Act, 1961 - Free trade zone - Assessment year 2003-04 - Whether deduction under section 10A is to be allowed without setting-off of brought forward losses of earlier years - Held, yes

I hope now you can decide .