COMMISSIONER OF INCOME TAX Vs. GALAXY SURFACTANTS LTD

JUDGEMENT

(1.) This appeal by the Revenue under Section 260A of the Income Tax Act, 1961, arises out of the decision rendered by the Income Tax Appellate Tribunal on 22 September 2009 in relation to Assessment Years 200506. The following two questions of law have been raised by the Revenue in this appeal :

(2.) As regards the first question, the Tribunal has noted in paragraph 4 of its decision that the issue raised in the grounds of appeal is covered against the Revenue by the Tribunal's order in the case of the assessee, dated 7 February 2005 for Assessment Years 199697 to 199899. The Tribunal by its order held that the assessee had made payment for the use of trade mark which was genuine and in accordance with business exigencies. The payment was held to be allowable as business expenditure. Counsel appearing on behalf of the Revenue states that no appeal has been filed against the decision of the Tribunal in regard to Assessment Years 199697 to 199899. In that view of the matter, since the Tribunal has followed its own decision for the earlier years which has been accepted by the Revenue, no substantial question of law would arise.

(3.) The second question is now to be taken up for consideration. The assessee has a hundred percent Export Oriented Unit (EOU) which is entitled to a deduction under Section 10B. The previous year relevant to Assessment Year 200506 was the first year of production in the unit. During the year under consideration, the assessee disclosed a total profit of Rs. 16.82 crores from business. From this profit, a loss of Rs. 5.56 crores sustained by the hundred percent EOU was reduced. The loss in the EOU was principally on account of current depreciation which was set off against the profits of the EOU. After reducing the loss sustained by the EOU against the profits of other units, the assessee disclosed a net taxable income of Rs. 10.76 crores. The Assessing Officer held that a deduction under Section 10B has to be given in respect of the profits of the undertaking independently. The Assessing Officer held that a loss sustained by the eligible unit could not be set off against the income of the other units. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. In appeal the Tribunal, relying inter alia on a decision of its Delhi Bench in Honeywell International (India) Pvt. Ltd. vs. DCIT, 108 TTJ (Del) 924 held that there was no justification in the action of the Revenue in denying a set off of a loss of the EOU against the profits of other units as claimed by the assessee.