The Mumbai Income Tax Appellate Tribunal (ITAT) has ruled that for the purpose of claiming deductions under Section 80-IB of the Income Tax Act, 1961, an industrial undertaking is not required to set off losses incurred in one eligible unit against the profits earned by another eligible unit. This decision provides clarity on the application of Section 80-IB, which offers tax deductions to certain industrial undertakings.

Key Highlights

1. Section 80-IB Explained:
   Section 80-IB provides for a deduction of 20% of profits and gains derived from an eligible industrial undertaking, subject to specific conditions. The deduction is calculated on the profits of the eligible unit and is separate from the broader gross total income of the assessee.

2. Case Background:

   • The taxpayer operates multiple eligible industrial units.
   • While one unit incurred losses, another generated profits.
   • The assessing officer contended that the losses of one unit should be set off against the profits of the other before allowing the deduction under Section 80-IB.

3. Tribunal’s Observations:

   • The ITAT bench highlighted that Section 80-IB does not explicitly mandate the setting off of losses of one eligible unit against the profits of another eligible unit.
   • Each eligible unit must be treated independently to calculate deductions under Section 80-IB.
   • The tribunal noted that the objective of Section 80-IB is to promote industrial growth and support eligible units, and requiring inter-unit set-offs would dilute the legislative intent.

4. Precedents and Comparisons:
   The bench referred to similar provisions under Sections 80-I and 80-IA, which also acknowledge the separate treatment of eligible units for claiming deductions. This consistent approach supports the taxpayer’s position.

Implications of the Ruling

• Clarity for Multi-Unit Taxpayers: Industrial undertakings operating multiple eligible units can calculate deductions separately for each unit without being compelled to offset losses and profits across units.
• Legislative Intent Upheld: The ruling reinforces the purpose of Section 80-IB, which is to incentivize industrial activities by offering deductions on profits from eligible units.

Conclusion

The Mumbai ITAT’s ruling provides much-needed clarification on the scope of Section 80-IB, ensuring that eligible industrial undertakings can maximize deductions without being penalized for inter-unit losses. This decision is a significant step toward maintaining consistency and fairness in the interpretation of tax provisions.

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