2009 (8) TMI 1180 - AT - Income Tax

Summary

Issues Involved:
1. Erroneous set off of losses of non-10A units against profits of the 10A unit before arriving at the deduction u/s 10A of the Act.
2. Whether the CIT was justified in invoking u/s 263 of the Act to revise the assessment order.

Summary:

Issue 1: Erroneous Set Off of Losses
The assessee company, 24/7 Customer Private Limited, contested the CIT's order u/s 263 of the Act, which directed the AO to set off losses of non-10A units against profits of the 10A unit before arriving at the deduction u/s 10A. The CIT argued that the AO had allowed the deduction u/s 10A without setting off unabsorbed depreciation and brought forward business losses, making the order erroneous and prejudicial to the revenue. The CIT's stance was that s.10A, as amended by the Finance Act 2000, required deductions to be made from the total income, including setting off losses from other units and brought forward losses.

Issue 2: Justification of CIT's Invocation u/s 263
The assessee argued that s.10A is an exemption provision, not a deduction provision, and should be applied before computing the total income. They cited several case laws, including ACIT v. Yokogawa India Ltd. and Nous Infosystems Pvt. Ltd. v. ITO, to support their claim that the deduction u/s 10A should be computed without setting off losses from non-10A units. The CIT, however, maintained that the AO's order was not in line with the amended provisions of s.10A and thus invoked u/s 263 to revise the assessment.

Tribunal's Findings:
The Tribunal examined the relevant case laws and provisions. It noted that the AO had taken a possible view supported by judicial precedents, including the ITAT Bangalore Bench's decision in KPIT Cummins Infosystems (P) Ltd. v. ACIT, which held that s.10A should be considered as an exemption section, and eligible profits should not be reduced by unabsorbed depreciation and business losses of other units. The Tribunal concluded that when the AO has taken one of the possible views, the order cannot be termed erroneous, and the CIT was not justified in invoking u/s 263.

Conclusion:
The Tribunal allowed the appeal, ruling that the AO's order was not erroneous and the CIT did not have the power to cancel the assessment order u/s 263 of the Act. The assessee company's appeal was thus upheld.