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2015 (12) TMI 398 - ITAT PUNE

2015 (12) TMI 398 - ITAT PUNE - TMI - Quantum of deduction to be allowed to the assessee u/s. 10A - Held that:- The assessee before us has furnished on record the audit report in Form No. 56F in respect of each of the unit against which it has claimed the deduction under section 10A of the Act. The quantification of the deduction under section 10A of the Act is to be worked out independently for each eligible unit and in case after the deduction so claimed under section 10A of the Act, there are .....

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it has been held that the deduction under section 10A of the Act has to be given at the stage when the profits and gains of the business are computed in the first instance. In view thereof we reverse the order of Commissioner of Income Tax (Appeals) in this regard.

The said deduction under section 10A of the Act is to be computed unit/undertaking wise and not for the assessee in totality. Reversing the order of the Commissioner of Income Tax (Appeals), we allow the grounds of appeal .....

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2. Both the appeals filed by the assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts and issues in ITA No.1508/PN/2011 to adjudicate the issues. 3. The assessee in ITA No.1508/PN/2011 has raised the following grounds of appeal :- 1. The learned CIT(Appeals)-I, Pune erred in law and on facts in upholding the taxable income of the appellant decided by the learned DCIT, Circle 1 .....

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A should be computed at unit / undertaking level but should be allowed only after set-off of losses of other business units / undertakings. 4. The appellant craves leave to add / modify / delete / amend all / any of the grounds of appeal. 4. The ld. AR for the assessee at the outset pointed out that the issue raised in grounds of appeal Nos. 1 and 2 are general. Hence, the same are dismissed as general. The issue in grounds of appeal No. 3 raised by the assessee is against the computation of ded .....

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d of appeal is not pressed by the assessee. Hence, the same is dismissed as not pressed. 6. We proceed to decided the issue raised vide grounds of appeal No. 3 i.e. the quantum of deduction to be allowed to the assessee u/s. 10A of the Act. 7. Briefly, in the facts of the present case, the assessee was a public limited company engaged in the business of software development. The assessee had eight units from where the software development activity was taking place. The said units were set-up by .....

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hat the assessee had claimed the deduction u/s. 10A of the Act against eligible profits of units showing profits and the losses in respect of three of the units were carried forward, totaling ₹ 3,87,04,852/-. The Assessing Officer was of the view that in view of provisions of section 70(1) the deduction u/s. 10A of the Act would be allowed only against the profits remaining after intra-head set off of losses and consequently the deduction claimed u/s. 10A of the Act was reduced to ₹ .....

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there was a change in the provisions of section 10A of the Act i.e. from exemption it had become deduction. The Assessing Officer noted that the exempt income do not enter the stream of computation and do not form part of the total income and are excluded from the computation, whereas the tax free incomes do form part of the computation process and are tax free by virtue of the enabling provisions i.e. section 10A of the Act. As per the Assessing Officer this difference affected the set off pro .....

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the profits and gains of the eligible undertaking in proportion of export turnover to total turnover are allowed as deduction, while computing the taxable income of the assessee. Consequently, there would not be any deduction worked out in case of a loss in the eligible undertaking and such loss is to be set off with the profit of the other unit/business, if any, as per section 70 of the Act. The Assessing Officer further reiterated that with a view to rationalize the existing tax incentive in .....

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in Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai (2008) 299 ITR 444 (SC). The Assessing Officer, thus, recomputed the deduction allowable to the assessee u/s. 10A of the Act. 8. The Commissioner of Income Tax (Appeals) vide para 4.3.2 at pages 26 and 27 of the appellate order observed that after the amendment brought w.e.f. assessment year 2001-02 the income computed u/s. 10A of the Act could not be considered as exempt from tax. The same would form part of the total income und .....

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apter VIA which deals with deductions and therefore, the restrictive provisions which are available in Chapter VIA will not apply, it cannot be stated that Chapter VI will also not apply which deals with set off and carry forward of losses more so when w.e.f. 1.4.2000 the losses are required to be carried forward as per sec. 10(6) of the I.T. Act. Section 70 applied by the Assessing Officer is part of Chapter VI and therefore, I do not find any reason as to why this will not apply in the facts o .....

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has to be computed under Chapter V under the head 'business and profession . However, the deduction u/s 10A is to be computed subject to the provision of sec. 10A. Section 10A(1) starts with "subject to the provision of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive Assessment Years beginning with the assessment years relevant to the previous years in which t .....

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was not allowed when the benefit was available as exempt income, however, with the change in the nature of benefit to deduction the provision was made harmonious by allowing the carry forward and set off of losses and depreciation. Therefore, with this change this deduction available u/s 10A became subjected to Chapter VI which deals with set off and carry forward of losses/ depreciation. Therefore, the mechanism available in sec. 10A to compute the deduction unitwise, as the same had to be subj .....

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or the assessee referred to the chart under which the deduction claimed under section 10A of the Act as per the assessee and as allowed by the Assessing Officer has been tabulated. It was further pointed out by the ld. AR for he assessee that the issue is covered in favour of the assessee by the ratio laid down by Hon'ble Bombay High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (2011) 325 ITR 102 (Bom.) and also in CIT Vs. Black & Veatch Consulting Pvt. Ltd., ITA No. 1237 of 2011 .....

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Tax & ANR. Vs. Yokogawa India Ltd. & Ors., (2012) 341 ITR 385 (Karn.) while considering the provisions of section 10A of the Act and the deduction thereon for the relevant years had held that the deduction u/s. 10A of the Act was to be allowed without setting off of brought forward unabsorbed losses and deprecation from earlier assessment year or current assessment year. 12. We have heard the rival contentions and perused the record. The assessee is engaged in export of software and IT e .....

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3,914/-. The losses from three units aggregating ₹ 4,55,31,667/- was carried forward to be adjusted in the succeeding years. On the other hand the Revenue authorities were of the view that the losses earned by the assessee from separate unit have to be adjusted against the profits earned by the assessee in separate units and after making this intra-head set off, the deduction under section 10A of the Act were to be allowed to the assessee. In this exercise the deduction under section 10A o .....

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intra-head adjustment had to be made before claiming the deduction u/s. 10A of the Act. The assessee is in appeal against the said order of Assessing Officer, which has been upheld by the Commissioner of Income Tax (Appeals). 13. Undoubtedly, after the amendment w.e.f. 1st April, 2001 under the provisions of section 10A of the Act, the assessee is now entitled to deduction. Prior to the amendment the assessee was entitled to exemption of the said income. In other words the said income did not fo .....

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. Vs. DCIT & Anr. (supra) in an appeal relating to assessment year 2004-05 where reassessment proceedings were initiated under section 147/148 of the Act on several issues, considered the reason to believe recorded by the Assessing Officer with regard to set off of loss incurred by unit eligible for deduction u/s. 10B of the Act. The Assessing Officer had reopened the assessment on the surmise that since the income of the Crab Stick Unit was exempted from tax under section 10B, the loss of t .....

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rror in proceeding on the basis that because the income was exempted, the loss was not allowable. The Hon'ble High Court further considered that all the four units of the assessee were eligible under section 10B, out of which three units had returned profits during the course of the assessment year, while the Crab stick Unit had returned a loss. The High Court further held that The assessee was entitled to a deduction in respect of the profits of the three eligible units while the loss susta .....

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he deduction under section 10A, in our view, was to be given effect to at the stage of computing the profits and gains of business. This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses. The Hon'ble High Court held that the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. The issue before the Hon'ble High Court was with regard .....

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to be applied while computing the deduction under section 10A of the Act. In the facts of the case before Hon'ble Supreme Court the assessee had claimed deduction from the profits and gains of the business under section 80HH r.w.s. 80-I and 80B of the Act. The Hon'ble Supreme Court held that while working out gross total income of the assessee, losses suffered by it in earlier years have to be adjusted and if gross total income of assessee is nil then the assessee would not be entitled .....

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here three units of the assessee had returned profit during the course of assessment year and one unit had returned the loss, the assessee was entitled to deduction in respect of the profits of three eligible units, while the loss sustained by the fourth unit could be set off against normal business income. Applying the said ratio to the facts of the present case we are of the view that the deduction u/s. 10A and 10B are units specific in contradiction to be assessee specific. The assessee while .....

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ut independently for each eligible unit and in case after the deduction so claimed under section 10A of the Act, there are profits in the hands of the assessee for such unit then the same can be set off against the losses, if any, incurred by the assessee in any other unit. There is no merit in first aggregating the profits of each of the eligible unit and setting of the losses of other units and on the net profits, if any, the deduction under section 10A of the Act to be computed. We find suppo .....

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