TMI Blog2013 (1) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961 (for short the Act ) for assessment year 2007-08, on the following grounds:- 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming that the brought forward losses and unabsorbed depreciation of earlier years have to be set off first against the business income of the current year before allowing the deduction under section 10A and further erred in not grant deduction under section 10A though claimed during the assessment proceedings. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not appreciating that the Assessing Officer has failed to issue statutory notice within the specified time as required by proviso to section 143(2) and as such the entire assessment made by the Assessing Officer has been rendered barred by limitation. 2. The facts in brief, apropos ground no.1, is that the assessee is a Private Limited company engaged in the business of providing high quality and time bound medical transcription services to non-resident entities. The assessee s unit is registered under the Software Technology Part Scheme of India as 100% export oriented unit. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act specifically section 4, which is the charging section, definition of total income as defined in section 2(45) r/w section 5, sections 66 to 80, containing provisions relating to aggregation of income under various heads of income and set-off of intra / inter head losses and carried forward of unabsorbed losses and disallowance and also referred to section 80B(5), which defines gross total income. After referring to these section, he observed that in order to arrive at gross total income, adjustment and brought forward losses are necessary. He further held that even though section 10A and 10B are part of Chapter-III, then also, deduction of profit and computation of total income can only be computed only after allowing intra head set-off under section 70 and inter head under section 71. In short, the Assessing Officer had compared the deductions allowable under Chapter-VIA, and held that it is similar to Chapter-III and, therefore, the decision laid down by the Hon'ble Supreme Court in CIT v/s Shirke Construction Equipment Ltd. [2007] 291 ITR 380 (SC), though rendered in respect of section 80HHC, will also be applicable to sections 10A 10B. Thereafter, he analysed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasoning given by the Commissioner (Appeals) and submitted that in both the decisions of High Courts cited by the learned Counsel, the matter pertained to various units and the issue was carried forward of losses and depreciation of a non-eligible unit to be set-off against eligible unit for claiming deduction under section 10A. Therefore, these judgments will not apply. He further relied upon the decisions as have been referred to by the Commissioner (Appeals). He, thus, submitted that none of the decisions relied upon by the assessee either before the Commissioner (Appeals) or before the Tribunal is applicable to the facts of the present case. 9. We have carefully considered the rival contentions of the parties, perused the orders of the authorities below and the judgment relied upon. The main issue before us is while computing the deduction under section 10A, whether carry forward losses and unabsorbed depreciation of the earlier assessment years or the current year has to be set-off first against the current business income and then deduction should be allowed or the same should be allowed at the stage of computing the profit itself without setting-off of any loss / depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction from the total income. In the scheme of the Act, while various deductions are allowed in computing the total income, once the total income is computed no further adjustment of the total income is envisaged. The scheme of the Act provides for deduction in computing the total income but no mechanism for any deduction from the total income already computed is provided under the Act . The computation of the total income begins with only in Chapter-IV and the phrase Total Income used in section 10A, which falls in Chapter- III, cannot be understood in the same sense. The relevant observation of Their Lordships, while interpreting the definition of total income as used in the Act, are as under:- 13 . Sec. 2(45) defines total income to mean the total amount of income referred to in s. 5 and computed in the manner laid down in the IT Act. Sec. 5 defines the scope of total income and it is subject to the provisions of IT Act. Sec. 14 provides that save as otherwise provided by the IT Act, all income shall for the purpose of charge of income-tax and the computation of total income, classified under the following heads of income . Therefore, the total income in its stric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said relief is in respect of commercial profits, such income is neither subject to charge of income tax nor includible in the total income. Therefore, the twin provisions of-s. 14 are not existing in the case of income of STP undertaking and accordingly such income is not liable to be computed under Chapter IV. Therefore the correct view would be that the relief under s. 10A will have to be given before Chapter IV. The deduction shall be given first and process of computation of profits and gains of business or profession begins thereafter. This proposition is in line with the form of return. Allowing deduction at the earliest stage of business income computation almost blurs the difference between the commercial profits and tax profits. 10. While drawing a distinction between Chapter-III and VIA, Their Lordships observed and held as under:- 16 . The substituted s. 10A continues to remain in Chapter III. It is titled as Incomes which do not form part of the total income . It may be noted that when s. 10A was recast by the Finance Act, 2001 (sic-2000), the Parliament was aware of the character of relief given in Chapter III. Chapter III deals with incomes whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions. 19. From the aforesaid discussion it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A unit has to be deducted at source itself and not after computing the gross total income. The total income used in the provisions of s. 10A in this context means the global income of the assessee and not the total income as defined in s. 2(45). Hence, the income eligible for exemption under s. 10A would not enter into computation as the same has to be deducted at source level. 11. This principle has been reiterated by the Jurisdictional High Court in CIT v/s Black Veatch Consultant Pvt. Ltd. (supra), wherein it has been observed and held as under:- Section 10A of the Income-tax Act, 1961, is a provision which is in the nature of a deduction and not an exemption. The deduction under section 10A has 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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