2014 (1) TMI 296 - AT - Income Tax

Exemption u/s 10AA - Held that - Following Scientific Atlanta India Technology (P) Ltd V/s ACIT 2010 (2) TMI 658 - ITAT CHENNAI - Section 10A deduction has to be computed before computing the gross total income - Brought forward losses and unabsorbed depreciation cannot be set off against the total income while computing the deduction u/s 10AA - Decided in favour of assessee.

Summary

Issues:
- Allowance of deduction u/s 10AA without setting off brought forward business losses and unabsorbed depreciation.
- Interpretation of section 10A and computation of income.
- Applicability of decisions of Karnataka High Court and Bombay High Court.

Issue 1: Allowance of deduction u/s 10AA without setting off brought forward business losses and unabsorbed depreciation:
The Department filed an appeal against the order of the ld. CIT(A) allowing deduction u/s 10AA without setting off brought forward business losses and unabsorbed depreciation. The AO observed that the assessee had claimed exemption u/s 10A but did not set off unabsorbed depreciation against the business income. The AO relied on the decision of the Bombay High Court to emphasize that after the amendment in 2000, the benefit u/s 10B is a deduction, not an exemption. The AO also referred to decisions of the Karnataka High Court and Kerala High Court to support the computation of business profit after setting off unabsorbed depreciation. The assessee disagreed with the AO's stance, citing relevant case laws and jurisdictional decisions in their favor.

Issue 2: Interpretation of section 10A and computation of income:
The assessee engaged in IT-enabled services and BPO business, filed a return of income showing business income and claimed exemption u/s 10A. The AO questioned why unabsorbed depreciation was not set off against business income. The assessee argued that deduction u/s 10A should be allowed before setting off losses or unabsorbed depreciation. The ld. CIT(A) held that deduction u/s 10A must be computed before gross total income, disallowing set off of brought forward losses against the deduction. The department challenged this decision in appeal.

Issue 3: Applicability of decisions of Karnataka High Court and Bombay High Court:
The assessee relied on decisions of the Karnataka High Court and Mumbai Tribunal to support their case before the ld. CIT(A). The ld. CIT(A) considered these submissions, along with relevant provisions of section 10A and case laws, and concluded in favor of the assessee. The ITAT, after reviewing the facts, submissions, and case laws presented by both parties, found that the issue was covered in favor of the assessee by the decisions cited. Consequently, the ITAT confirmed the order of the ld. CIT(A) and dismissed the department's appeal.

In conclusion, the ITAT upheld the decision of the ld. CIT(A) regarding the allowance of deduction u/s 10AA without setting off brought forward business losses and unabsorbed depreciation. The judgment emphasized the interpretation of section 10A and the computation of income, considering relevant case laws and precedents cited by both parties.