The Delhi High Court, in Aricent Technologies Holding Ltd. (Formerly Known as Flextronics Software System Ltd.) v. DCIT, Circle-11(1), New Delhi, ITA 1015/2019 & CM APPL. 54663/2019, decided on 11 August 2026, examined whether the loss of a unit eligible for deduction under Section 10B of the Income-tax Act, 1961 could be set off against profits of other units.
The assessee was engaged in the export of software through ten units, of which six were export-oriented units. During Assessment Year 2005-06, its Unit V at Gurgaon, which was eligible for benefits under Section 10B, incurred a business loss of Rs. 1,34,24,747. The assessee claimed set-off of this loss against profits of its other undertakings.
Assessing Officer Denied the Set-Off
The Assessing Officer denied the claim on the ground that income eligible for deduction under Section 10B was required to be dealt with at the source level and that losses of the eligible undertaking could not be set off against income of other business undertakings.
The Commissioner of Income Tax (Appeals), however, allowed the assessee’s claim, holding that Section 10B was a provision for deduction and not an exemption provision. The Revenue challenged that order before the Income Tax Appellate Tribunal, which reversed the finding on this issue and held that the loss of the eligible undertaking could not be set off against income of other undertakings.
Section 10B Computation Is Limited to Deduction
The Delhi High Court held that under Section 10B(1), the profit or gain of each eligible unit from export turnover is required to be separately calculated only for determining the quantum of deduction under Section 10B.
The Court clarified that this computation does not alter the treatment of the profit or loss of each unit when the combined business income of the assessee is computed. In other words, computation under Section 10B is confined to Section 10B itself and does not affect the operation of Sections 70, 71 and 72 of the Income-tax Act.
Loss of Eligible Unit Can Be Set Off
The Court held that there could be no denial of the set-off or carry forward of loss merely because the loss arose from an undertaking eligible for deduction under Section 10B.
Relying upon the legal position considered in Yokogawa India Ltd. and the CBDT Circular No. 7/DV/2013 dated 16 July 2013, the Court observed that losses are subject to inter-source and inter-head set-off and any balance remaining thereafter may be carried forward in accordance with Section 72.
The Court therefore answered the substantial question of law in favour of the assessee, holding that the Tribunal had erred in refusing the set-off of the loss of the Section 10B eligible unit against taxable profits of other units.
Final Decision
The Delhi High Court allowed the assessee’s appeal and set aside both the Tribunal’s order dated 21 May 2019 and the assessment order dated 31 December 2008. Consequential relief was directed to follow.
Key Takeaway
The ruling makes it clear that Section 10B is relevant for quantifying the deduction of an eligible undertaking and does not create a separate restriction on normal business loss set-off provisions. Accordingly, a loss arising from a Section 10B eligible unit can be adjusted against profits of other eligible or non-eligible units in accordance with Sections 70 and 71, with any remaining loss eligible for carry forward under Section 72.
Case: Aricent Technologies Holding Ltd. (Formerly Known as Flextronics Software System Ltd.) v. DCIT, Circle-11(1), New Delhi
Court: Delhi High Court
Bench: Division Bench
Case No.: ITA 1015/2019 & CM APPL. 54663/2019
Date of Decision: 11 August 2026
Assessment Year: 2005-06
Relevant Provisions: Sections 10B, 70, 71 and 72 of the Income-tax Act, 1961
Outcome: Appeal Allowed; Tribunal and assessment orders set aside.
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