2014 (1) TMI 1492 - HC - Income Tax

Whether deduction u/s 10A be allowed without adjustment of losses of other units and without adjustment of brought forward losses and/or its depreciation - Held that - Decision in Commissioner of Income Tax Vs. Black and Veatch Consulting Pvt. Ltd. 2012 (4) TMI 450 - BOMBAY HIGH COURT followed - Deduction section 10A under of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years is to be allowed from the total income of the assessee - The deduction under section 10A, has to be given effect to at the stage of computing the profits and gains of business - This is anterior to the application of the provisions of section 72 which deals with the carry forward and set off of business losses - Decided against Revenue. Whether the income and expenditure of eligible undertaking u/s. 10A be allowed while computing the book profit u/s 115JB - Held that - As per the provisions existing prior to 1st April 2007, the explanation to Section 115JB referring to the term Book Profit included the expenditure and income relatable to any income to which section 10A or section 10B applied for the purpose of increase in the book profit and the income itself for the purpose of decreasing the book profit - It is precisely therefore that the CIT A has given a direction for working out the book profit of the assessee by applying the said formula - This is in consonance with the provisions of Section 115JB as it stood at the relevant time - The said provision was materially changed, by the Finance Act, 2007 w.e.f. 1st April, 2008 Decided against Revenue.

Summary

Issues:
1. Whether deduction claimed under section 10A should be allowed without adjustment of losses of other units and without adjustment of brought forward losses/unabsorbed depreciation.
2. Whether the deletion of addition made on account of disallowance of claim of deduction under section 10A is justified.
3. Whether income and expenditure attributable to an eligible undertaking under section 10A should be allowed while computing book profit under section 115JB.

Analysis:
1. The High Court, in this case, analyzed the issue of allowing a deduction claimed under section 10A without adjusting losses of other units or brought forward losses. Referring to the decision of the Bombay High Court in Commissioner of Income Tax Vs. Black and Veatch Consulting Pvt. Ltd., the court emphasized that section 10A provides for a deduction, not an exemption, which should be given effect at the stage of computing business profits. The court affirmed the Tribunal's decision in favor of the assessee, dismissing the Revenue's appeal as it did not raise substantial legal questions. The court highlighted the distinction made by the Legislature in incorporating Chapter VIA provisions, emphasizing that the deduction under section 10A must be allowed when computing business profits initially.

2. The court addressed the issue of deleting an addition made on account of disallowance of a claim of deduction under section 10A. The court referred to the provisions of the Income Tax Act and the changes made by the Finance Act, 2007, emphasizing that prior to April 1, 2007, the explanation to Section 115JB included expenditure and income related to sections 10A and 10B for calculating book profits. The court noted that the CIT [A] had directed the computation of book profit in line with the statutory provisions prevailing at the relevant time. As the directions were confirmed by the Tribunal and aligned with the law, the court found no reason to reconsider this issue, ultimately dismissing the Tax Appeal.

3. Lastly, the court focused on the computation of book profit under section 115JB concerning income and expenditure attributable to an eligible undertaking under section 10A. The CIT [A] had directed the treatment of the STP Rajkot unit as a separate eligible undertaking for deduction under section 10A. The court noted that the AO had not correctly worked out the book profits as required. The Tribunal rejected the Revenue's appeal, leading to the current appeal before the High Court. After considering the provisions of Section 115JB and the directions given by the CIT [A] in line with the law, the court dismissed the Tax Appeal, affirming the Tribunal's decision regarding the computation of book profit under section 115JB.