2021 (4) TMI 1240 - HC - Income Tax

Deduction u/s 10A - Tribunal held that set off of brought forward losses of non eligible unit against the income of the eligible 10A unit is to be allowed and deduction under section 10A should be allowed without reducing the unabsorbed depreciation and brought forward losses of the non 10A unit - HELD THAT - Issue similar is decided against revenue as decided in M/s. Comstar Automative Technologies Private Ltd 2020 (3) TMI 814 - MADRAS HIGH COURT .

Summary

Issues:
1. Whether set off of brought forward losses of non-eligible unit against the income of the eligible 10A unit should be allowed?
2. Whether deduction under section 10A should be allowed without reducing the unabsorbed depreciation and brought forward losses of the non 10A unit?
3. Whether the Tribunal's decision is proper when section 10A(6)(ii) states that brought forward losses should be set off against the current year gains of business?
4. Whether the Tribunal's finding is valid considering the computation of total income under the Income Tax Act?

Analysis:

1. The Revenue challenged the order passed by the Income Tax Appellate Tribunal regarding the set off of brought forward losses against the income of the eligible 10A unit. The Tribunal's decision was based on the interpretation of relevant provisions. The Hon'ble Division Bench of the High Court, in a previous judgment, clarified that deductions under Section 10A should be made while computing the gross total income of the eligible undertaking, not at the stage of total income computation. The Court held that the Tribunal's decision was not in line with the law declared by the Apex Court. Consequently, the substantial question of law was answered in favor of the Assessee, and the appeal was allowed.

2. The issue of allowing deduction under section 10A without reducing unabsorbed depreciation and brought forward losses of the non-10A unit was also raised. The Hon'ble Division Bench's judgment emphasized that deductions under Section 10A should be considered before the total income computation process. The Court reiterated that the computation of income should prioritize deductions for eligible undertakings. Following this precedent, the Court decided the question against the Revenue, leading to the dismissal of the appeals.

3. The Tribunal's decision was further scrutinized concerning the set off of brought forward losses against current year gains of business as per section 10A(6)(ii). The Court emphasized the importance of correctly applying the provisions related to deductions for eligible units. The judgment highlighted the necessity of adhering to the legal principles established by the Apex Court. As a result, the Court found the Tribunal's decision to be legally unsustainable and ruled in favor of the Assessee.

4. Lastly, the validity of the Tribunal's finding was questioned in light of the Income Tax Act's provisions on the computation of total income. The Court reiterated that the law mandates deductions under Section 10A to be accounted for while computing the gross total income of eligible undertakings. The judgment emphasized the significance of following the legal framework established by previous decisions. Consequently, the Court dismissed the appeals, upholding the legal principles established in the earlier judgment by the Hon'ble Division Bench.

In conclusion, the High Court's judgment in this case reaffirmed the importance of correctly interpreting and applying the provisions of the Income Tax Act, particularly concerning deductions for eligible units and the computation of total income. The decision was based on established legal principles and precedents set by higher courts, ensuring consistency and adherence to the law.