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M/s. A.T. Kearney India Pvt Ltd Versus Income Tax Officer, Ward 1 (1) , New Delhi

2015 (11) TMI 67 - ITAT DELHI

Deduction under section l0A - profits derived by the eligible undertaking would be computed after set-off of brought forward unabsorbed depreciation from prior years - Held that:- This is settled principle of law that even after amendment to Section 10A by the Finance Act 2000 w.e.f. 01.04.2001, Section 10A continues to be an exemption provision, though it is termed as provision providing deduction. CIT Vs TEI Technologies (P) Ltd. [2012 (9) TMI 47 - DELHI HIGH COURT] held that Section 10A as it .....

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tion 72(2) of the Act, unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year depreciation u/s 32(2) is to be first set off; that since deduction u/s 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits & gains of the undertaking does not arise. The case at hand is squarely covered by the judgement (supra) and as such, the A.O. and Ld. CIT(A) have erred in .....

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enefit given to the industrial activities only, interest earned from mere parking the funds in the fixed deposits is not eligible for exemption u/s 10A of the Act. So, the judgements relied upon by the Ld. A.R., are inapplicable to the facts and circumstances of the case. Even the Ld. A.R. has failed to point out as to how the surplus money deposited with the bank amounts to activities in the course of business and the interest accrued thereon is to be treated as income from business activities. .....

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aside the impugned order dated 04.01.2010 passed by Ld. CIT(A) IV, New Delhi for the Assessment Year 2006-07 on the grounds inter alia that: "1.1 That on the facts and circumstances of the case and in law, the learned Commissioner or Income Tax (Appeals) ('CIT-A') has erred in upholding the order of the order of the Income Tax Officer, Ward (I), New Delhi ('the assessing officer"), wherein the assessing officer held that deduction under section l0A of the Income-tax Act, 1 .....

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2. That on the facts and circumstances of the case and in law, the learned CIT-A has erred in upholding the order of the assessing officer, wherein the assessing officer has held that the interest of ₹ 2,45,479/- earned by the Appellant on Fixed deposits with banks constitutes "income from other sources" and hence chargeable to income-tax under section 56 (I) of the Act. Consequently, the learned CIT(A) has also erred in upholding the order of the assessing officer in not allowin .....

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the assessee, Shri Puneet Gupta, CA/AR of the assessee attended the proceedings, filed details and documents from time to time and the case was also discussed with him. The assessee company is into the business of I. T. enabled services who has declared its income at ₹ 3,56,74,005/-. 4. Appendix III to Form 3CD transpires that assessee has unabsorbed depreciation of ₹ 36,70,496/- available for carry forward. As per Section 32(2), the assessee was to carry forward this unabsorbed depr .....

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or set off from the business loss carried forward as per the provision of Section 72(1)(i) of the Act which shows that the concealment of income on the part of the assessee to avoid tax. The amount of ₹ 7,91,145/- was taxed at income from other sources. 5. A perusal of Schedule VIII of the P & L account shows the interest on deposits with the bank of ₹ 2,45,479/-. The assessee has stated that the interest income arises from surplus funds deposited with the bank would constitute b .....

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allenged the assessment order and his appeal has been dismissed by Ld. CIT(A) vide impugned order. Feeling aggrieved, the assessee has come up before the Tribunal by filing the present appeal. 6. Ld. A.R. by challenging the impugned order contended inter alia that the Ld. CIT(A) has erred in upholding the order of A.O. that deduction u/s 10A of the Act in respect of profits derived by the eligible undertaking would be computed after set off of brought forward unabsorbed depreciation of ₹ 3 .....

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of ₹ 2,45,479/- was earned which the appellant has treated as business income, however, the same was assessed as income from other sources and relied upon the judgements cited as Deepak Pandurang Gadre vs DCIT in I.T.A. No. 225/PN/07 dt. 31.01.2011 and ITO Vs M/s. Greytrix (India) Pvt. Ltd. I.T.A. No. 5787/Mum/2009 dated 07.10.2011. 7. On the other hand, Ld. D.R. reiterated the arguments addressed before Ld. CIT(A), relied upon the impugned order and contended that since interest income h .....

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1 That on the facts and circumstances of the case and in law, the learned Commissioner or Income Tax (Appeals) ('CIT-A') has erred in upholding the order of the order of the Income Tax Officer, Ward (I), New Delhi ('the assessing officer"), wherein the assessing officer held that deduction under section l0A of the Income-tax Act, 1961 ('Act') in respect or profits derived by the eligible undertaking would be computed after set-off of brought forward unabsorbed depreciati .....

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es to be an exemption provision, though it is termed as provision providing deduction. Hon'ble Jurisdictional High Court in the judgement cited as 2012, 210 Taxman 237 (Del.) CIT Vs TEI Technologies (P) Ltd. held that Section 10A as it stands though decided as deduction provision is essential and in substances exemption provision. 8.3 In order to decide the moot point that 'as to whether the deduction u/s 10A of the Act with respect to it derived by the eligible undertaking would be comp .....

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d in the context with which the said provision is inserted in Chapter - III of the Act. Sub-section (4) of section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Th .....

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section (8). It is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carri .....

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et off and thereafter unabsorbed depreciation treated as current years depreciation under section 32(2) is to be set off. As deduction under section 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise." 8.4 The ratio of the judgement in the case cited as Yokogawa India Ltd. (supra) is inter alia that the profits and gains u/s 10A were not to be included in the in .....

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siness loss being set off against such profits & gains of the undertaking does not arise. The case at hand is squarely covered by the judgement (supra) and as such, the A.O. and Ld. CIT(A) have erred in holding that the deduction u/s 10A of the Act in respect of the profits by the eligible undertaking would be computed after set off of brought forward unabsorbed depreciation of ₹ 36,70,496/- from prior year. 9. Ground No.1.2 as to denying the set off of brought forward unabsorbed depre .....

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ration kept as short term deposits are not chargeable to the income tax u/s 56(1) of the Act rather the same are allowed to be deducted u/s 10A of the Act and relied upon the judgements cited as Deepak Pandurang Gadre Vs DCIT I.T.A.No. 225/Mum/2007 and ITO Vs M/s. Greytrix (India) Pvt. Ltd. I.T.A.No. 5787/Mum/2009. However, the judgements (supra), relied upon by the Ld. A.R. are inapplicable to the facts and circumstances of the case being on distinguishable facts and in the face of law laid dow .....

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taking itself and was not profits or gains derived by the undertaking for the purpose of the special deduction under section 80HH." 10.2 Similarly, Hon'ble Madras High Court in the case cited as Menon Impex Pvt. Ltd. (supra) in identical issue, held as under: "The assessee had set up a new industrial undertaking in the Kandla Free Trade Zone for the manufacture of light engineering goods. In the course of the business of the undertaking, the assessee was required to open letters of .....

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for the purpose of obtaining letters of credit which were in turn used for the purpose of the business of the industrial undertaking did not establish a direct nexus between the interest and the industrial undertaking and, therefore, the assessee was not entitled to get the benefit of Section 10A in relation to the interest." 10.3 The ratio laid down in the judgements cited as Menon Impex Pvt. Ltd. and Pandian Chemicals Ltd. (supra) relied upon by Ld. D.R. are applicable to the facts and c .....

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