2010 (6) TMI 439 - AT - Income Tax

Deduction u/s 10A and unabsorbed business loss Assessee is engaged in computer-aided design and engineering services; software development including networking management; and manufacture and sale of tools and moulds, through its three Units located at Chennai, Bangalore and Kochi respectively - Assessing Officer was of the view that the loss from the other two Units had to be first adjusted (set-off), and as that left the assessee with no positive income, it would not be entitled to any exemption under section 10A - Tribunal (Chennai) in the case of Scientific Atlanta India Technology (P.) Ltd. v. Asstt. CIT. Held that the deduction under section 10A in respect of the ISR Centre, Bangalore, is to be computed only qua its profits, i.e., without any adjustment or set off of any loss from another source, either eligible or non-eligible (under section 10A). The allocation of preliminary expenses under section 35D for the purpose could either on some reasonable basis, as turnover, or better still, set off against the specific income(s) of the Unit(s) in relation to the setting up or expansion of which the same stood incurred in the first place. - The income that obtains after the deduction under section 10A, or the unabsorbed claim under section 10A as the Tribunal describes it in the case of Scientific Atlanta India Technology (P.) Ltd. (supra), would stand to be taxed as such, i.e., shall not be set off against any other loss or be carried forward. New issue before appellate authority - t is one thing to raise a legal argument for the first time qua a claim which stands preferred before the assessing authority, and quite another to raise the claim itself for the first time before an appellate authority, so that there is no occasion for the Assessing Officer to consider the same, and it is in respect of the latter that the decision in the case of Goetze (India) Ltd. (2006 -TMI - 5171 - SUPREME Court) would find application. - it is only the return of income coupled with the materials on record that would decide if the claim under reference was in fact pressed before the assessing authority. - In view of the specific findings by the ld. CIT(A) vide para # 8 of his Order, which stood adverted to earlier, and which stand not rebutted by the assessee before us in any manner, we do not consider the assessee s claim as maintainable and, correspondingly, no infirmity in his Order on that ground, which stands upheld as a result.

Summary

Issues Involved:
1. Deduction under Section 10A of the Income-tax Act, 1961.
2. Carry forward of unabsorbed business loss and unabsorbed depreciation allowance.
3. Lease rent claim not allowed by the Assessing Officer.

Detailed Analysis:

1. Deduction under Section 10A of the Income-tax Act, 1961:
The primary issue revolves around the deduction exigible under Section 10A and whether the profits from the eligible unit (Bangalore) should be adjusted against losses from non-eligible units (Kochi and Chennai) before computing the deduction. The assessee claimed a deduction of Rs. 58,67,861 under Section 10A for the Bangalore unit, which was questioned by the Assessing Officer (AO). The AO adjusted the losses from other units against the profit of the Bangalore unit, resulting in no positive income and thus disallowing the deduction under Section 10A.

The Tribunal referenced the Special Bench decision in Scientific Atlanta India Technology (P.) Ltd. v. Asstt. CIT, which clarified that the profits of eligible undertakings under Section 10A should be computed separately and not adjusted against losses from non-eligible units. The Tribunal concluded that the deduction under Section 10A should be computed only for the profits of the eligible unit without any adjustment or set-off from other units' losses. The Tribunal emphasized that Section 10A falls under Chapter III of the Act, which deals with incomes that do not form part of the total income, and thus, the income from Section 10A units should not be aggregated with other incomes.

2. Carry forward of unabsorbed business loss and unabsorbed depreciation allowance:
The Tribunal held that the unabsorbed claim under Section 10A, i.e., the income after deduction, cannot be carried forward as a business loss or unabsorbed depreciation. The income derived from Section 10A undertakings is to be computed separately and would not enter the computation of gross total income. Consequently, any unabsorbed claim under Section 10A would be subject to tax independently and cannot be set off against other losses or carried forward.

3. Lease rent claim not allowed by the Assessing Officer:
The assessee raised an additional ground regarding the AO's failure to allow the lease rent of Rs. 24,92,972. The CIT(A) disallowed the claim, stating that it was not pressed before the AO either in the original or revised return of income, and the final accounts did not support the claim. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Goetze (India) Ltd. v. CIT, which restricts the raising of new claims before appellate authorities if the relevant facts were not on record during the assessment proceedings. The Tribunal found no infirmity in the CIT(A)'s order and concluded that the assessee's claim was not maintainable.

Conclusion:
The Tribunal allowed the assessee's appeal partly, resolving the issue of Section 10A deduction in favor of the assessee by holding that the profits of eligible units should be computed separately without adjustment from non-eligible units' losses. However, it upheld the CIT(A)'s decision regarding the lease rent claim, finding it not maintainable as the relevant facts were not on record during the assessment proceedings.