Court overturns Tribunal's decision, allowing set-off of losses from eligible units against profits of non-eligible units under Income Tax Act.
In a significant ruling dated August 11, 2026, the Delhi High Court has favored Aricent Technologies Holding Ltd, formerly known as Flextronics Software System Ltd, in a tax-related dispute against the Deputy Commissioner of Income Tax (DCIT), Circle-11(1), New Delhi. The judgment addresses a pivotal question of law concerning the set-off of losses incurred by eligible units under Section 10B of the Income Tax Act, 1961.
The court, comprising Justices Mr. Dinesh Mehta and Rajneesh Kumar Gupta, heard the appeal against the Income Tax Appellate Tribunal's (ITAT) previous order, which denied Aricent Technologies the right to set off losses from an eligible unit against profits from non-eligible units. The Tribunal’s decision was based on the premise that the income eligible for deduction under Section 10B should not be included in the gross total income and therefore cannot be offset against profits from other units.
Aricent Technologies argued that Section 10B is a deduction provision rather than an exemption, allowing for inter-source and inter-head set-offs under Sections 70, 71, and 72 of the Act. They cited the Supreme Court's decision in the case of Yokogawa India Ltd., which affirmed the Karnataka High Court's view that the deduction for eligible units should be computed at the gross total income stage and not the total income stage.
The Delhi High Court agreed with Aricent's position, ruling that the profits or losses of each unit must be treated independently for the purpose of calculating the deduction under Section 10B. However, this does not affect the applicability of inter-source and inter-head set-off provisions. The court emphasized that the Tribunal’s reliance on an earlier Delhi High Court judgment in the case of KEI Industries was misplaced in light of the Supreme Court's decision, which clarified the nature of deductions under Section 10B.
Furthermore, the court noted the Central Board of Direct Taxes (CBDT) Circular No. 7/DV/2013, which clarifies that losses from eligible units can be carried forward and set off in accordance with Sections 70, 71, and 72 of the Act, reinforcing the binding nature of this circular on tax authorities.
This judgment sets a precedent for how deductions under Section 10B should be interpreted, allowing businesses to benefit from the set-off of losses from eligible units against other profits, thus impacting numerous companies operating under similar tax provisions.
Bottom Line :
Income Tax - Loss incurred by an eligible unit under Section 10B of the Income Tax Act, 1961 can be set off against the profits of other non-eligible units, as per provisions of Sections 70, 71, and 72 of the Act.
Statutory provision(s):
Income Tax Act, 1961 Sections 10B, 70, 71, 72; CBDT Circular No. 7/DV/2013 dated 16.07.2013
