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2008 (8) TMI 454 - AT - Income TaxComputation of deduction u/s 10A - assessee has claimed deduction without reducing the unabsorbed depreciation allowance from the profits of the business - telecommunication charges - CIT(A) held that unabsorbed depreciation is to be treated as current year's depreciation as per s. 32(2) and to be deducted while computing profits of business under Chapter IV-D - telecommunication charges being reduced from the export turnover. HELD THAT:- The issue regarding telecommunication charges stands covered by the various decisions of Tribunal Bangalore Benches in IGate Global Solutions Ltd. vs. Asstt. CIT [2007 (11) TMI 444 - ITAT BANGALORE], Tata Elexsi Ltd. vs. Asstt. CIT [2007 (10) TMI 630 - ITAT BANGLORE], Asstt. CIT vs. Infosys Technologies Ltd.[2007 (10) TMI 627 - ITAT BANGALORE], as relied upon by the ld counsel for the assessee. The ld counsel for the assessee has not disputed the quantum of telecommunication charges so considered to be reduced from the export turnover and therefore stands partly allowed on the agitation of the assessee before us that the said amount is to be correspondingly reduced from the total turnover as well for the purpose of arriving at the deduction in the ratio of export turnover to the total turnover. This issue stands partly allowed. We are of the opinion that even if it is agreed that s. 10A deduction is to be given effect to after applying ss. 28 to 44D, the same would be without giving effect to the provisions of s. 32(2). This is because s. 32(2) is to be given effect to after the provisions of s. 72 are applied. The prioritization between ss. 72 and 32(2) is provided for in each of the said sections. Once the income of the present year is computed, one would have to first give effect to the provisions of s. 72(1), and thereafter come back to s. 32(2). In the process of giving effect to s. 72(1), one would traverse out of the regime of Chapter IV-D. Therefore the provisions of s. 32(2) are not to be given effect to while computing the profits of the undertaking eligible for deduction under s. 10A. The Supreme Court in the case of CIT vs. Mother India Refrigeration Indus. (P) Ltd. [1985 (8) TMI 2 - SUPREME COURT] explained it in the following words, "The avowed purpose of the legal fiction created by the deeming provision contained in provision (b) to s. 10(2)(vi) of the Indian IT Act, 1922 and in s. 32(2) of the IT Act, 1961, is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year so that it is available unlike unabsorbed carried forward business loss. for being set off against other heads of income of that year. Such being the purpose for which the legal fiction is created, the fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose. It cannot be said that because of the legal fiction. the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current year's depreciation." Thus, the process ascertaining the total income where s. 10A deduction is involved, would comprise by computing profits and gains derived by the unit and in this process the unabsorbed depreciation which is not part of the depreciation of the impugned assessment year is not to be factored, then the deduction as computed which will be available for carrying out set off of unabsorbed depreciation. Sec. 10A deduction is to be done under ss. 28 to 44B but separately and independent of computation of profits and gains from eligible business and without factoring unabsorbed depreciation. This ground agitated therefore stands allowed. In the result, the appeal by the assessee is partly allowed.
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