2013 (3) TMI 724 - AT - Income Tax

Summary

Issues Involved:
1. Calculation of deduction u/s 10A of the Income Tax Act.
2. Set-off of brought forward losses and unabsorbed depreciation against current year profits.

Summary:

Issue 1: Calculation of Deduction u/s 10A
The assessee contested the reduction of the deduction u/s 10A by the Assessing Officer (AO) and confirmed by the CIT(A). The AO observed that the assessee claimed a deduction of Rs. 41,51,891/- u/s 10A for the year under appeal. The AO noted that the assessee had carried forward losses and depreciation from previous years and questioned whether these were related to STPI business transactions. The assessee argued that the deduction u/s 10A should be computed without adjusting for brought forward losses and unabsorbed depreciation, which pertained to non-STPI activities. The AO, however, concluded that the expenses and losses were related to the STPI unit and should be set off against the profits of the STPI unit before allowing the deduction u/s 10A.

Issue 2: Set-off of Brought Forward Losses and Unabsorbed Depreciation
The CIT(A) upheld the AO's decision, stating that the brought forward business losses and unabsorbed depreciation of the non-STPI unit must be set off against the income of the STPI unit before claiming the deduction u/s 10A. The assessee appealed to the ITAT, citing the jurisdictional High Court's decision in CIT(A) vs. Ace Software Exports Ltd., which ruled in favor of the assessee. The High Court held that the deduction u/s 10A should be allowed without adjusting for losses of other units or brought forward losses and unabsorbed depreciation. The ITAT, following this precedent, allowed the assessee's appeal, concluding that the deduction u/s 10A should be computed without adjusting for brought forward losses and unabsorbed depreciation.

Conclusion:
The ITAT ruled in favor of the assessee, allowing the deduction u/s 10A without the adjustment of brought forward losses and unabsorbed depreciation, in line with the jurisdictional High Court's decision. The appeals of the assessee were allowed.