2011 (4) TMI 1389 - AT - Income Tax

Summary

Issues involved: Adjustment of brought forward losses of non 10A units against the profit of 10A unit before allowing deduction u/s 10A.

The Appellate Tribunal ITAT MUMBAI, in the case concerning the assessment year 2006-07, addressed the dispute raised by the assessee regarding the adjustment of brought forward losses of non 10A units against the income of the 10A unit before allowing deduction u/s 10A. The assessee, engaged in providing I.T. enabled services, had a unit in a software technology park in Mumbai eligible for deduction u/s 10A. Additionally, the assessee had non 10A units with brought forward losses. The Assessing Officer (AO) initially set off the brought forward losses of the non 10A unit against the profit of the 10A unit, resulting in no deduction being allowed u/s 10A. The CIT(A) upheld the AO's decision, leading the assessee to appeal before the tribunal.

During the proceedings, the Learned AR for the assessee contended that the issue was settled in favor of the assessee by a Special Bench decision in the case of Scientific Atlanta Vs ACIT. On the other hand, the Learned DR relied on the orders of the lower authorities.

Upon careful consideration of the contentions and examination of the records, the tribunal referred to the Special Bench decision in the case of Scientific Atlanta Vs ACIT. The tribunal clarified that deduction u/s 10A was not an exemption but a deduction under Chapter III of the Income-tax Act, making the provisions of section 80AB of Chapter VIA inapplicable. It was emphasized that the deduction u/s 10A should be allowed concerning the profit of the eligible unit and not from the gross total income as per Chapter VI A. The tribunal ruled that business losses of non-eligible units cannot be set off against the profits of the undertaking eligible for deduction u/s 10A to determine the deduction allowable. Notably, this decision applied when there was only one eligible undertaking u/s 10A, mirroring the scenario of the present case where there was a single unit eligible for deduction u/s 10A alongside non 10A units with brought forward losses. Consequently, the tribunal set aside the CIT(A)'s order and allowed the assessee's claim.

In conclusion, the tribunal allowed the appeal of the assessee, pronouncing the order in the open court on 20.04.2011.