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2017 (9) TMI 556 - AT - Income TaxRevision u/s 263 - Calculation of deduction u/s 10A and 10AA - AO passed an order of assessment u/s 143(3) and did not set off the loss of taxable unit against the income of 10A and 10AA unit - order erroneous or prejudicial to the interest of the revenue - Held that - AO while completing the assessment has called for complete details of calculation of deduction u/s 10A and 10AA of the Act. We have referred to the enquiries made by the AO in this regard in the earlier paragraphs of this order. In the light of the enquiries made by the AO in the course of assessment proceedings, we are of the view that the findings of CIT in para-4 of his order that the AO did not make necessary enquiries regarding the existence of a single account for various units or separate accounts of various units and about the nature of work of separate units, cannot be sustained. We also are of the view that the AO was fully conscious of the issue where provision of section 10A and 10AA of the Act were to be construed as deduction provision or exemption provisions and had in the course of assessment proceedings called for calculation of deduction u/s 10A and 10AA of the Act. In fact perusal of the order of assessment u/s 143(3) of the Act shows that the AO has disallowed the expenses claimed by the assessee by way of provision for leave encashment while arriving at the eligible provision of section 10A and 10AA units. It cannot therefore be said that there was any failure on the part of the AO for proper or adequate enquiries to claim deduction u/s 10A and 10AA before completing the assessment. Hon ble Supreme Court in the case of CIT vs Yokogawa India Ltd. (2016 (12) TMI 881 - SUPREME COURT ) has taken the view that the provision of section 10A and 10AA of the Act are deduction provisions but the stage of deduction would be while computing gross total income of eligible undertaking under Chapter-IV of the Act and not at the stage of computation of total income under Chapter-VI of the Act. The effect of the aforesaid decision would be that the provision of set off and carry forward as contemplated under Chapter-VI of the Act would not be attracted and therefore intra head set off sought to be done by the CIT by seeking to rely on the provision of section 70(1) of the Act and seeking to restrict the deduction u/s 10A and 10AA of the Act to the extent of gross total income as contemplated u/s 80A(2) of the Act, cannot be sustained. - Decided in favour of assessee.
Issues Involved:
1. Whether the provisions of Sections 10A and 10AA of the Income Tax Act, 1961 are deduction provisions or exemption provisions. 2. Whether the Assessing Officer (AO) failed to make necessary inquiries regarding the existence of separate units and the maintenance of accounts. 3. Whether the order of the AO was erroneous and prejudicial to the interest of the revenue for not setting off the loss of taxable units against the income of units eligible for deduction under Sections 10A and 10AA. Issue-wise Detailed Analysis: 1. Provisions of Sections 10A and 10AA: The core issue was whether Sections 10A and 10AA of the Income Tax Act, 1961, should be treated as deduction provisions or exemption provisions. The Assessee argued that these sections are exemption provisions, meaning the income of the eligible units should not form part of the total income, and thus, the losses of non-eligible units should not be set off against the income of eligible units. This interpretation was supported by several judicial decisions and the Supreme Court's ruling in CIT vs Yokogawa India Ltd., which clarified that the deductions under these sections should be made independently of the other units and immediately after determining the profits and gains of the eligible undertaking. Hence, the AO's view that the provisions were exemption provisions was a possible and legally sustainable view. 2. Inquiry by the AO: The CIT contended that the AO did not make necessary inquiries regarding the existence of separate units and the maintenance of accounts. However, the Tribunal found that the AO had indeed made extensive inquiries. The AO had called for and examined detailed calculations of deductions under Sections 10A and 10AA, and the assessment order reflected that the AO had disallowed certain expenses while computing the eligible deductions. Therefore, the Tribunal concluded that the AO had conducted proper and adequate inquiries before completing the assessment. 3. AO’s Order and Revenue Interest: The CIT argued that the AO's order was erroneous and prejudicial to the interest of the revenue because the AO allowed deductions under Sections 10A and 10AA without setting off the losses of non-eligible units. The CIT relied on a CBDT Circular which suggested that the provisions were deduction provisions, implying that losses should be set off before allowing deductions. However, the Tribunal noted that the issue was debatable and that the AO's view was supported by judicial precedents. The Tribunal also emphasized that the Supreme Court's decision in CIT vs Yokogawa India Ltd. supported the AO's view. Consequently, the Tribunal held that the AO's order was neither erroneous nor prejudicial to the interest of the revenue, as the AO had adopted one of the permissible views under the law. Conclusion: The Tribunal quashed the CIT’s order under Section 263, holding that the AO’s order was not erroneous or prejudicial to the interest of the revenue. The Tribunal emphasized that when two views are possible, and the AO has taken one view supported by judicial decisions, it cannot be treated as erroneous or prejudicial to the revenue. The appeal of the Assessee was allowed.
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