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Aesseal India Pvt. Ltd. Versus The Asst. Commissioner of Income Tax, Circle 1 (1) , Pune

2016 (5) TMI 573 - ITAT PUNE

Setting off of losses against income from STPI unit while computing deduction under section 10A - Held that:- Assessee was claiming deduction under section 10A of the Act in respect of export of software in eight units at different places, out of which five units had declared positive profits and balance three units had declared losses for the captioned assessment years. The assessee had claimed deduction under section 10A of the Act unit-wise, whereas the Assessing Officer was of the view that .....

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- ITAT PUNE] - Decided in favour of assessee. - ITA No. 1356/PN/2014 - Dated:- 5-5-2016 - Ms. Sushma Chowla, JM And Shri Pradip Kumar Kedia, AM For the Appellant : Shri Kishore Phadke For the Respondent : Shri S.K. Rastogi, CIT ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against the order of CIT(A)-I, Pune, dated 03.02.2014 relating to assessment year 2007-08 against order passed under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised .....

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in relying on the decision of Hon'ble Karnataka High Court in the case of Himatsingike Seide Ltd. - 286 ITR 255, which was based on the erstwhile exemption section, whereas the appellant had claimed deduction based on the provisions of revised sec.10A of the ITA, 1961. 4. The learned CIT(A)-I, Pune erred in law and on facts in not appreciating that facts pertaining to the case of Himatsingike Seide Ltd. (supra) pertains to set off of brought forward un-absorbed depreciation against profit o .....

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n facts identical to the case the appellant have been dealt. 7. The learned CIT(A)-I, Pune erred in law and on facts in importing the provisions of Circular No.7/DV /2013 dated 16/07/2013 whereas the said circular was not available at the point of filing of return of income for AY 2007-08. 3. The issue arising in the present appeal is setting off of losses against income from STPI unit while computing deduction under section 10A of the Act. 4. The learned Authorized Representative for the assess .....

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ereof. Both the units were set up at different time intervals. The software development undertaking was registered under STPI and had claimed deduction under section 10A of the Act. In the return of income filed for instant assessment year, the assessee had claimed deduction under section 10A of the Act against the profits from software export activity, which was registered under STPI. The loss arising from the manufacturing activity was carried forward to be adjusted in the later years. The Ass .....

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Act at ₹ 49,33,122/- as against the claim of assessee at ₹ 1,71,39,375/-. The Assessing Officer did not allow carry forward of losses. 6. The CIT(A) upheld the order of Assessing Officer holding that the deduction under section 10A of the Act was to be allowed after adjusting losses of other units against income from profits & gains of business of eligible undertaking. The CIT(A) further held that the Assessing Officer was justified in not allowing carry forward of the current ye .....

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ositive profits and balance three units had declared losses for the captioned assessment years. The assessee had claimed deduction under section 10A of the Act unit-wise, whereas the Assessing Officer was of the view that the said deduction under section 10A of the Act is to be allowed to the assessee after setting off of losses of three units against the profits of five units and on the balance, the assessee was entitled to claim the said deduction. The Tribunal after considering the issue and .....

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in export of software and IT enabled services. During the year under consideration the assessee was running eight units at different places and five of which units had declared positive profits and the balance three units declared losses for the captioned assessment year. The assessee was entitled to claim deduction u/s. 10A of the Act in respect of export of software. The assessee computed the deduction u/s. 10A of the Act by treating each of the unit as separate unit/undertaking and claimed th .....

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deduction under section 10A of the Act was reduced to ₹ 20,68,49,064/- and there were nil carry forward loss in the hands of the assessee. The reason for the said adjustment by the Assessing Officer and Commissioner of Income Tax (Appeals) was on the surmise that the amendment brought to section 10A of the Act w.e.f. 1 st April, 2001 under which deduction from income was to be allowed to the assessee and not any exemption. Further, the Assessing Officer referred to the provisions of secti .....

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words the said income did not form part of the total income and was excluded at the entity level itself. The question which arises for adjudication is whether in view of the amended provisions of section 10A of the Act, under which deduction can be claimed by an enterprises, whether the intra head adjustment of losses of certain units is to be made against the profits of other units of the same assessee, before computing the deduction under section 10A of the Act. 14. The Hon'ble Bombay High .....

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under section 10B, the loss of that unit was wrongly set off against the normal business income. The Hon'ble High Court noted that after the substitution of section 10B of the Act by the Finance Act of 2000, the provisions provided for deduction of such profit or gains as were derived by 100% EOU for the period prescribed under that section. The Hon'ble High Court thus held that the basis on which the assessment was sought to be reopened was belied by a plain reading of the provisions an .....

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gible units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the Hon'ble High Court held that the basis on which the assessment was sought to be reopened was contrary to the plain language of section 10B. 15. The Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (supra) also observed that section 10A was a provision which was in the nature of a deduction and not an exemption. The Hon'bl .....

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;ble High Court was with regard to the adjustment of brought forward unabsorbed depreciation and loss of the unit, which were not eligible for deduction under section 10A of the Act and it was held that the same could not be set off against the current profit of the eligible units while computing the deduction under section 10A of the Act. 16. The case of the Revenue before us on the other hand is that ratio laid down by the Hon'ble Supreme Court in Synco Industries Ltd. Vs. Assessing Office .....

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assessee would not be entitled to deduction under Chapter VI-A. 17. The authorities below have further placed reliance on the provisions of section 70(1) for the proposition of set off of loss from one source against income from another source under the same head of income. The provisions of section 10A and 10B of the Act are para materia. In such a situation the ratio laid down by the jurisdictional High Court in Hindustan Unilever Ltd. Vs. DCIT & Anr. (supra) are to be applied. The Hon .....

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see specific. The assessee while claiming the deduction u/s. 10A of the Act in respect of each of its unit has to satisfy the conditions viz-a-viz each unit/undertaking. Even the quantification of amount of deduction has to be worked out independently in each unit. 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 .....

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ct to be computed. We find support from the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (supra) wherein 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. 18. Now coming to the reliance placed by the ld. DR for the Revenue of .....

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