OMEGA HEALTHCARE MANAGEMENT SERVICES PRIVATE LIMITED,BANGALORE vs. DCIT, BANGALORE

This appeal is filed by the assessee against the order of the CIT (A) – 5, Bengaluru, dt.06.10.2015, for the assessment year 2007-08.

The facts in brief relevant to this appeal are that Omega Healthcare Management Services P. Ltd , the assessee, is engaged in the business of rendering IT enabled services to the healthcare industry from the Software Technology Park Units set up in Bengaluru and ITA.1502/Bang/2015 Page - 2 Chennai as separate undertakings on different dates. It filed its return for this assessment year on 2.11.2007 declaring a total loss of Rs. 43,32,990/- and book profits under Section 1I5JB (MAT) at Rs. 28,786/-.The A O found that the assessee earned an income of Rs.4,80,82,639/- from Bengaluru Unit, a loss of Rs.53,81,511/- in Chennai unit and claimed deductions u/s 10 A on both units . The assessee has not set off the loss pertaining to Chennai unit from the profit of Bengaluru Unit on the plea that each of its unit is separate, independently registered under STPI units and therefore the company has not adjusted the inter-unit losses. The AO did not accept such plea, held that its income has to be assessed as a separate entity irrespective number of units, accordingly adjusted the loss of Chennai unit against the profit of Bengaluru Unit and restricted the deduction under Section 10A. Consequently, the AO has denied the carry forward of loss of Rs 43,32,990/- relating to Chennai STP undertaking.

Aggrieved, the assessee filed an appeal before the CIT (A) – 5, Bengaluru. The CIT (A), after considering the ruling of the Hon’ble Supreme Court in the case of Himatasingike Seide v CIT (286 ITR 255), the Honble jurisdictional High Court decision in the case of Yokogava India Ltd 341 ITR 385 etc, distinguished , inter alia that “the ITA.1502/Bang/2015 Page - 3 purpose, the enactment, the interpretation, the applicability and constitutional validity of any provisions of the Income Tax Act has to be examined and looked into. The principle laid down in the decision in 341 ITR 385 is that the losses of the non STPI unit should not be set off against the profits of the STPI unit and vice versa. Whereas in the appellant's case since both the units are STPI and are eligible for deduction u/s 10A. The losses of one eligible unit can be set off against the profits of the other eligible unit to arrive at the gross total income since both units are standing on the same footing under the one industrial undertaking. Further during the appellate proceedings the appellant could not demonstrate that separate books of account and separate profit and loss accounts were prepared for both the units independently. And therefore one can draw the inference that both the units are one and the same under the one industrial undertaking and the losses of one unit can be set off against the profits of the other unit before arriving the eligible profits for deduction u/s 10A .Even though, the A O has not distinguished on the facts of this case with that of the Yokogawa India Ltd , the CIT (A) confirmed the view taken by the A O. Thus, the CIT (A) has dismissed this issue.

Aggrieved by the CIT (A) order, the assessee filed this appeal with following grounds:

The AR submitted the same plea taken before the CIT(A) and the case laws. We heard the rival submissions. While there is no dispute on the legal settings, since the CIT (A) has recorded a finding that “ during the appellate proceedings the appellant could not demonstrate that separate books of account and separate profit and loss accounts were prepared for both the units independently. ……………………………… deduction u/s 10A”. In our considered view, this aspect requires examination and verification and hence this issue is remitted back to the AO for re- examination and re-adjudication. The AO shall furnish due opportunity to the assessee and decide the matter in accordance with law. The appeal grounds are treated as allowed for statistical purposes.

In the result, assessee’s appeal is treated as allowed for statistical purposes.