TMI Blog2009 (8) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... d wrongly allowed deduction u/s 10A without setting off of the unabsorbed depreciation and brought forward business losses of earlier years, as required under the law. The CIT was of the further opinion that the AO had allowed the deduction u/s 10A without proper application of mind which in his view, the impugned order of the AO was erroneous and prejudicial to the interest of the revenue within the meaning of s.263 of the Act. Accordingly, the CIT had called for the objections of the assessee company, if any, for his proposal u/s 263 of the Act. 4. The objections of the assessee company are summarized as under: (a) During the previous year, the assessee had two STPI Units - one at Bangalore and the other at Hyderabad and as the Hyderabad unit had incurred losses during the year, the assessee had opted out of 10A for Hyderabad undertaking by filing a declaration u/s 10A(8) that the provisions of s. 10A would not apply to the STPI Unit at Hyderabad. Declaration u/s 10A (8) was made under the condition that the undertaking will be entitled to the claim u/s 10A in those years when taxable income arises. As regards the set off of the brought forward business losses against the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) ACIT v. Yokogawa India Ltd. - ITAT, Bangalore Bench; (ii) ITO v. SCT Software solutions (India) Pvt. Ltd. - ITAT, Bangalore Bench; (iii) Notification No.SO 3231 dt: 29/9/1987 - CBDT which was relied on by the Bangalore Bench of ITAT in ITO v. SCT Software Solutions (India) Pvt. Ltd, (iv) Nous Info systems Pvt. Ltd. v. ITO - ITAT, Bangalore Bench (iv) ITO v. TCS Business Transformation solutions ltd, [presently TCS] 4.1 After elaborately quoting the sections 14A., 70, 71, it was contended that s.10A is an exempt provision, even if it was assumed that s.10A was a deduction provision and not an exemption provision, the deduction was required to be done at source from the total income and not after computing the gross total income, that the method of computation adopted by the assessee company was in accordance with the provisions of the Act and that the assessee had correctly considered the appropriate proportion of the profit/gain of S.10A undertaking in the total income, that in respect of the profits of the undertaking eligible for deduction u/s 10A, the deduction was to be arrived at without setting off o the loss of the non STPI unit with the profit of the STPI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d provisions of s. 10A were concerned. The provisions of s.10A which authorize the AO to disallow any expenses claimed against exempt income have no relevance in so far as the application of the provisions of s. 70 and 71 are concerned while determining the total income from which the deduction u/s 10A was required to be allowed; (iv) the assessee had failed to appreciate the basic change in the provisions of s. 10A brought about by the Finance Act 2000 w.e.fi 1/4/2001. There is an inbuilt restriction in s.10A itself that the deduction u/s 10A is allowable as a deduction from the total income and the Ch. In which the relevant section appears in not relevant in this regard. Though the business profits eligible for deduction u/s 10B is that of the undertaking only and has to be computed in accordance with sub-section4, the deduction so computed has to be finally allowed from the total income of the assessee. This implies that deduction u/s 10A to be allowed for a particular AY cannot exceed the total income of the assessee for the relevant AY. As per s.2(45), total income means, the total income referred to u/s 5 computed in the manner laid-down in the Act. As the total income for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. was also based on the amended provisions of s.10A and would ipso facto apply to the assessee company's case; the recent decisions in the cases of Nous Info systems [ITA Nos.606 and 607/B/08] and TCS BTS [ITA No:590/B/08] which pertain to AY 2005-06 and 03-04 respectively; (iv) in stating that though the business profits eligible for deduction u/s 10A were that of the undertaking only and have to be computed in accordance with sub-section 4, the deduction so computed has to be finally allowed from the total income of the assessee; (v) in not appreciating the fact that the deduction u/s 10A of the Act was computed based on the eligible profits of the undertaking and not of the assessee. Further, the income contemplated in Ch.III of the Act is not only to be excluded from the total income at the source itself but also cannot be considered as part of the taxable income; (vi) in directing the AO to set off the brought forward losses while arriving at the business profit eligible for deduction u/s 10A of the Act; (vii) in appreciating the fact that the brought forward losses proposed to set off against profits eligible for deduction u/s 10A of the Act, pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 10A after reducing the unabsorbed depreciation allowance from the profits of the business. Besides, telecommunication charges were also reduced from the export turnover, while calculating deduction under section 10A. On appeal, the Commissioner (Appeals) confirmed the order of the AO. On appeal, the Hon'ble Tribunal, after considering the rival submissions and also deliberating the issue at length, has observed that - 11. Under section 10A(1), the deduction 'shall be allowed from the total income of the assessee . Instruction No. 18 in the Instruction infilling Form No.1 reads as follows Item No. 18; sections 10A and 10C permit the claiming of deduction from incomes of some specified businesses. This item is meant to eliminate such income (s) from the computation of profits/gains . The Instructions are clear that section 10A would operate to eliminate the relevant income from the computation of profits and gains. In the context of the purpose, object and the placement of the section in Chapter III, it would be appropriate to rephrase sub- section (1) as follows: the deduction shall be allowed while computing or arriving at the total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to take a contrary stand. 22. The lower authorities in support of their stand have relied on the decision of Karnataka High court in the case of Himatasingika Seide Ltd. (supra). The Karnataka High court held that unabsorbed depreciation and investment allowance have to be set off against income of eligible units before the computation of exemption under section 10B. it was also held that the income eligible for exemption has to be computed as per the provisions of the income-tax Act and not on a commercial basis. The case before the Karnataka High Court pertained to the assessment year 1994-95. Section JOB at the relevant time excluded certain incomes in the process of arriving at the total income. Section 10B at the relevant time operated as an exemption section. The terminology of section 10B has not been changed. The section currently provides for a deduction from total income. This change was brought about when section JOB was substituted. Thus, the decision of the Karnataka High court having rendered in the context of old section 10B, cannot be made applicable to the present case. Also the various citations referred and relied by the Hon'ble Karnataka High co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in the case of Tata Consultancy Services Ltd. (Formerly TCS Business Transformation solutions Ltd) v. ACIT [ITA NO.590/Bang/08 dated: 14/11/2008] after analyzing the issue in a comprehensive and in an elaborative manner, extensively quoting the findings of the Hon'ble Tribunal (s) in the cases of (i) Nous Infosystems Pvt. Ltd, vs. ITO; (ii) ACIT vs. Yokogawa India Ltd.; (iii) SCT Software Solutions (I) Pvt. Ltd. and also referring to the decisions of jurisdictional High Court in the case of Shankar Construction Company v. CIT reported in 189 ITR 463, ITAT, Bangalore Bench's decision, in the case of I Gate Global Solutions Ltd. v. ACIT reported in 112 TTJ 1002 and the Hon'ble Apex Court's ruling in the case of Malabar Industrial Co., Ltd. reported in 243 ITR 83 with regard to the exercise of power u/s 263 of the Act, had observed that - 21. Thus, when the assessing officer has taken one of the possible views then the order of assessing officer cannot be termed as erroneous and the CIT was having no power to cancel that order u/s 263 of the I. T Act........... 7.2. The Revenue has placed reliance in the cases of -CIT v. Himatasingike Seide Ltd. repor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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