Losses incurred by eligible units u/s 10B not allowed to be set off against income of other units

Brief facts of the case:

M/s. Kei Industries Ltd., (hereinafter the “Assessee”) is a Public Limited company, engaged in the business of manufacturing cables, wires and stainless steel wires selling them to public sector companies and Electricity Board. It filed its return of income on 29.09.2008 declaring Rs. 1,49,18,516/- as income for the year under consideration. It was assessed under the provisions of Section 143(3) of the Act. The Assessing Officer (AO) during the assessment proceedings, noticed that:

(i)   The Assessee had a hundred per-cent export oriented undertaking (100% EOU) at RIICO Industrial Area, Chopanki, Distt. Alwar (Rajasthan); was registered as EOU in Noida Special Economic Zone and eligible for deduction under Section 10B of the Act. This was the first year of operation of this Unit.

(ii)   However, there was a loss of ` 2,00,29,769/- from this unit which the assessee had set off against the income of the other units. (ineligible units)

The AO disallow the set off of such loss against the other incomes by taking view that since the income since the incomes exempted under section 10B do not form the part of total income ,similarly the losses would not be hence the same not allowable.

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