[IT Act] Section 80IB Doesn't Mandate Setting Off Losses Of One Eligible Unit Against Profits Of Another Eligible Unit: Mumbai ITAT

The Mumbai ITAT recently clarified that an industrial undertaking was not required to set off the losses incurred by it in one eligible unit against the profits earned from another eligible unit for the purpose of calculating deduction u/s 80-IB.As per Section 80-I of Income tax Act, 1961, where the gross total income of an assessee includes any profits and gains derived from 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 applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof. Referring to the decision in 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) reiterated 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”.Facts of the case:The Department noticed that a business loss of Rs. 15.89 lakhs incurred by the appellant/ assessee in the A.Y 2002-03 from Daman Unit-I, was not set-off against the profits of Rs. 98.74 lakhs derived from Daman Unit-II and profits of Rs. 167.47 lakhs derived from Daman Unit-III. This led to prima facie belief that that income chargeable to tax has been under-disclosed and also under-assessed by the said amount of Rs. 15.89 lakhs. Consequently, the assessee was requested to show-cause as to why such losses of Daman Unit-I were not adjusted and set-off against the profits derived from other Units at Daman, and hence, as to why the deduction u/s 80IB should not be reduced by that amount. Hence, the CIT(A) enhanced the income of assessee by the said amount of business loss, which has been challenged in appeal before the ITAT. The Department argued that such loss from priority undertaking should have been set off against the profits from other priority undertaking. Opposing the same, the assessee argued that it was not necessary that loss of one industrial undertaking should necessarily be adjusted against the profit of another eligible industrial undertaking.Observations of the Tribunal:The Bench observed that the reliance placed by the Department in Synco Industries Ltd., to enhance the income of assessee by requiring set off loss from one eligible unit against the profit from another eligible unit, was misplaced. The Apex Court in the said case dealt with the issue of determining the “gross total income” for the purpose of deductions under Chapter VI-A of the Income tax Act, and held that the ordinary provisions of the Act pertaining to set-off of losses have to be given effect to so as to determine “gross total income”.Referring to the decision of Apex Court in Synco Industries Ltd. v. Assessing Officer, [2008] 299 ITR 444, the Bench pointed that the Supreme Court did not at all hold that while computing the deduction u/s 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking.The Supreme Court in the said case also held 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. Thus, the ITAT held that the assessee was not required to set off the losses of one eligible unit against the profits of another eligible unit, and allowed the assessee's appeal by deleting the enhancement made by the Commissioner (Appeals).Counsel for Appellant/ Assessee: Advocates Ravi Sawana, Neha Sharma and Apurva Chaudhary Counsel for Respondent/ Revenue: Kailash C. Kanojiya Case Title: Medley Pharmaceuticals vs. DCIT Case Number: ITA. No. 1387 to 1390/Mum/2009 Click here to read/ download the Order

[IT Act] Section 80IB Doesn't Mandate Setting Off Losses Of One Eligible Unit Against Profits Of Another Eligible Unit: Mumbai ITAT

Pankaj Bajpai

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