Mumbai ITAT: Section 80-IB Does Not Require Setting Off Losses from One Eligible Unit Against Profits of Another for Tax Deduction

The Mumbai ITAT has mentioned that an industrial undertaking was not mandated to set off the losses made by it in one qualified unit against the profits made from the other qualified unit for the objective of computing the deduction under section 80-IB.

As per Section 80-I of the Income-tax Act, 1961, the gross total income of the taxpayer comprises any profits and gains made through an industrial undertaking or a ship or the business of a hotel, or the business of repairs to ocean-going vessels or other powered craft to which this section is applicable then as per that and subject to the provisions of the same section be permitted in calculating the taxpayer’s total income, a deduction from these profits and gains of an amount equal to 20%.

Directing to the decision in the case of CIT v. Dewan Kraft Systems [2008] 297 ITR 305, the Division Bench of Saktijit Dey (Vice President) and Narendra Kumar Billaiya (Accountant Member) repeated that “in computing the gross total income of assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the assessee so determined turns out to be ‘Nil’, then the assessee would not be entitled to deduction under Chapter VI-A of the said Act”.

Case Facts

It was marked by the department that a business loss of Rs 15.89 lakhs that the applicant made in the AY 2002-03 from Daman Unit-I, was not set off against the profits of Rs. 98.74 lakhs made via the Daman Unit-II and profits of Rs. 167.47 lakhs derived from Daman Unit-III.

The same shall directed to assume that the income levied to tax has been under-disclosed and indeed under-assessed via the cited amount of Rs 15.89 lakhs. Therefore the taxpayer was mandated to Show cause as to why these losses of Daman Unit-I were not adjusted and set off against the profits made via other Units at Daman, and therefore, as to why the deduction under section 80IB must not be lowered from that amount.

Subsequently, CIT(A) increased the taxpayer’s income by the cited amount of the business loss which has been contested in a plea to the ITAT.

It was claimed by the department that these losses from the priority undertaking must have been set off against the profits via the other priority undertaking.

The taxpayer opposing it claimed that the same was not needed and that the loss of one industrial undertaking must be required to get adjusted against the profit of another qualified industrial undertaking.

Tribunals Observations

It was marked by the Bench that the departments placed reliance on Synco Industries Ltd, to improve the taxpayer’s income by requiring set-off loss via one qualified unit against the profit from the other qualified unit was misplaced.

Read Also: Claimable Income Tax Deductions for Expenses U/S Section 80C

In the mentioned case the Supreme Court dealt with the problem of finding the gross total income for the objective of the deductions under Chapter VI-A of the Income Tax Act and carried that the ordinary provisions of the act related to the set-off losses are required to be furnished outcome for finding out the gross total income.

The Bench Referring to the decision of Apex Court in Synco Industries Ltd. v. Assessing Officer, [2008] 299 ITR 444 said that the Apex court does not at all hold that at the time of calculating the deduction under section 80-I(6), the loss of one qualified industrial undertaking is to be set off against the profit of another qualified industrial undertaking.

The Apex Court in the case carried that “u/s 80-I(6), for the purposes of calculating the deduction, the loss sustained in one of the units is not to be taken into account because sub-section (6) contemplates that only the profits shall be taken into account as if it was the only source of income”, added the Bench.

Therefore the ITAT carried that the taxpayer was not needed to set off the losses of one eligible unit against the profits of the other eligible unit, and permitted the plea of the taxpayer by removing the enhancement incurred via the Commissioner (Appeals).