TMI Blog2017 (9) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs called for calculation of deduction u/s 10A and 10AA of the Act. In fact perusal of the order of assessment u/s 143(3) of the Act shows that the AO has disallowed the expenses claimed by the assessee by way of provision for leave encashment while arriving at the eligible provision of section 10A and 10AA units. It cannot therefore be said that there was any failure on the part of the AO for proper or adequate enquiries to claim deduction u/s 10A and 10AA before completing the assessment. Hon'ble Supreme Court in the case of CIT vs Yokogawa India Ltd. (2016 (12) TMI 881 - SUPREME COURT ) has taken the view that the provision of section 10A and 10AA of the Act are deduction provisions but the stage of deduction would be while computing gross total income of eligible undertaking under Chapter-IV of the Act and not at the stage of computation of total income under Chapter-VI of the Act. The effect of the aforesaid decision would be that the provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought to be done by the CIT by seeking to rely on the provision of section 70(1) of the Act and seekin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead Business Profession[A]+[B]+[C] (Rs.7,90,41,626) Short Term Capital Gains ₹ 45,692 Income from other sources ₹ 32,10,941 Taxable Income/(Loss)......Carry Forward (Rs. 7,57,84,993) 3. The AO completed the assessment u/s 143(3) of the Act wherein the AO allowed deduction u/s 10A and 10AA of the Act without set off of loss of taxable unit. It can be seen from the aforesaid computation that out of the 4 units of the Assessee, two units whose income is chargeable to tax i.e., units other than the Sec.10A and 10AA units, incurred loss of ₹ 8,37,63,777. 4. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional incometax) of this Act in respect of the total income of the previous year of every person. The charge of tax is thus on total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in this Act. An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the total amount of income, profits and gains. Secondly, it must be computed in the manner laid down in the Act . If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. If income includes loss and if income of the eligible unit does not form part of the total income under the Act by virtue of provisions of Sec.10A or 10AA of the Act contained in Chapter III of the Act, then neither the gain nor loss would be considered for computation of total income. (emphasis supplied). Therefore if the income of the eligible unit is considered as falling within Chapter III then the computation of total income as done by the Assessee is correct. On the other hand if the income of the eligible unit is considered as falling within Chapter VIA of the Act dealing with deductions from Gross Total Income, then the provisions of Chapter VI of the Act, especially Sec.70(1) of the Act has to be given effect to. In that case, the loss of the non eligible units would get set off completely by the profits of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As Per Para 6.8. Rs.6,52,00,000/- As Per Para 7 ₹ 97,99,448/- As per Para 8 ₹ 15,81,914/- Rs.7,70,68,620/- Rs.55,86,57,869/- Less: Deduction u/s 10A Rs.57,54,93,579/- Add: As discussed in para7 ₹ 76,85,863 Rs.58,31,79,442/- Less: Deduction u/s 10AA ₹ 5,24,06,468/- Add: As discussed in para 7 ₹ 21,13,585/- ₹ 5,45,20,053/- Rs.63,76,99,495/- (-) ₹ 7,90,41,626/- II Income from Capital Gain Short Term Capital Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a literal reading thereof requires a deduction from total income. The Act provides for deductions in computing the total income but no mechanism is provided for any deduction from the total income already computed. In other words, once total income is computed, the next step would be computation of tax and there would be no further deductions. The phrase 'total income' as used in Section l0A is to be understood in commercial sense. In the context of section l0A, total income is of the undertaking and not the total income of the Taxpayer. Further, the relief under Section l0A is with respect to an undertaking and not the business of the Taxpayer as a whole. The relief under Section 10A is in the nature of exemption, although termed as deduction. The relief is in respect of commercial profits, which are neither subject to charge under the ITA nor includible in the total income. Relief under section 10A would have to be given effect before Chapter-IV of ITA which deals with the computation of total income. In other words, deduction shall be given before process of computation of profits or gains of business or profession begins. As the income of 10A unit was to be excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT in the show cause notice based upon CBDT circular to the extent it suggests aggregation is in conflict with correct legal position and judicial rulings. The Assessee therefore submitted that circular is not binding as it is contrary to the decisions sighted above. 11. The CIT however observed in para-4 and 5 of his order that the AO failed to make necessary inquiry with regard to the existence of separate units and as to how the assessee has maintained its accounts viz., whether one account was maintained for all the units or separate accounts were maintained for separate units. The CIT in para-4 of his order concluded that failure to make such enquiry rendered the order of AO erroneous and prejudicial to the interest of the revenue. The CIT has also observed that in exercise of his powers u/s 263 of the Act he can even go into a debatable issue and he has wide powers. Thereafter in para-6 of his order the CIT has also expressed his view that provisions of section 10A and 10AA of the Act were deduction provisions and therefore loss of the units which were not entitled to tax exemption ought to be set off against the profits of 10A and 10AA unit and only on the remind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le units should not be set off against the income of the units eligible for deduction u/s 10A and 10AA of the Act. The view taken by the AO was a possible view supported by several decisions of the High Courts referred to by the assessee in reply to the show cause notice u/s 263 of the Act. Therefore order of AO in not setting off of the loss of the taxable units against the income of 10A and 10AA units cannot be termed as erroneous. It was further submitted by him that when the show cause notice u/s 263 of the Act dated 08.01.2015 was issued by CIT and as on 18.03.2015 when the CIT passed the impugned order, the issue was debatable. The issue was ultimately considered by the Hon ble Supreme Court in the case of CIT vs Yokogawa India Ltd. (2017) 77 Taxman.,com 41 (SC) by its order dated 16.12.2016 and in the aforesaid decision the Hon ble Supreme Court took the following view :- That from a reading of the relevant provisions of section 10A it is more than clear that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or noneligible units or undertakings of the assessee. The benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a very careful consideration to the rival submissions. As we have observed, the AO while completing the assessment has called for complete details of calculation of deduction u/s 10A and 10AA of the Act. We have referred to the enquiries made by the AO in this regard in the earlier paragraphs of this order. In the light of the enquiries made by the AO in the course of assessment proceedings, we are of the view that the findings of CIT in para-4 of his order that the AO did not make necessary enquiries regarding the existence of a single account for various units or separate accounts of various units and about the nature of work of separate units, cannot be sustained. We also are of the view that the AO was fully conscious of the issue where provision of section 10A and 10AA of the Act were to be construed as deduction provision or exemption provisions and had in the course of assessment proceedings called for calculation of deduction u/s 10A and 10AA of the Act. In fact perusal of the order of assessment u/s 143(3) of the Act shows that the AO has disallowed the expenses claimed by the assessee by way of provision for leave encashment while arriving at the eligible provision of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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