Loss – Set-off – Deduction u/s 10B – Scope of sections 10B and 70 – Assessee having three industrial units two of which export-oriented – Assessee not claiming deduction u/s 10B – Deduction cannot be thrust on it – Assessee entitled to set off losses from export-oriented units against profits of domestic tariff area unit

Loss – Set-off – Deduction u/s 10B – Scope of sections 10B and 70 – Assessee having three industrial units two of which export-oriented – Assessee not claiming deduction u/s 10B – Deduction cannot be thrust on it – Assessee entitled to set off losses from export-oriented units against profits of domestic tariff area unit

The assessee was a private limited company engaged in the business of manufacture and export of readymade garments. For the A.Y. 2008-09 the assessee filed the return of income declaring total income of Rs.12,89,760. The assessee had three units, two of which were export-oriented, and showed profit and loss from all of them. The assessee had set off losses of the units against the profits of the unit making profits and offered the balance to tax under the head ‘Income from business’. The A.O., inter alia, held that losses of the export-oriented units could not be allowed to be set off against the profits of unit No. I.

The Commissioner (Appeals) and the Tribunal upheld the decision of the A.O.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

‘i) It is a well-settled legal proposition that where the assessee does not want the benefit of deduction from the taxable income, it cannot be thrust upon the assessee. Section 10B is not a provision in the nature of an exemption but provides for a deduction of such profit and gains as are derived by 100% export-oriented undertakings from the export of articles or things or computer software.

ii) Section 10B does not contain any prohibition that prevents an assessee from setting off losses from one source against income from another source under the same head of income as prescribed u/s 70. Section 10B(6)(ii) restricts the carrying forward and setting off of loss under sections 72 and 74 but does not provide anything regarding intra-head set-off u/s 70 and inter-head set-off u/s 71. The business income can be computed only after setting off business loss against the business income in the year in accordance with the provisions of section 70.

iii) Section 10A is a code by itself and section 10A(6)(ii) does not preclude the operation of sections 70 and 71. Paragraph 5.2 of the Circular issued by the Central Board of Direct Taxes dated 16th July, 2013 [(2013) 356 ITR (St.) 7] clearly provides that income or loss from various sources, i. e., eligible and ineligible units under the same head, are aggregated in accordance with the provisions of section 70.

iv) The assessee was entitled to set off the loss from the export-oriented unit against the income earned in the domestic tariff area unit in accordance with section 70.’