2021 (3) TMI 977 - HC - Income Tax

Deduction u/s 10A - Whether Tribunal was right in holding that Internet expenses incurred in foreign exchange should be reduced from the total turnover for the purpose of computing deduction? - HELD THAT - Question of Law no.1 is covered by the decision of the Hon'ble Supreme Court reported in Commissioner of Income-tax, Central III Vs. HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT . Entitled to deduction under Section 10A in respect of the alleged new unit even though the said unit had been substantially made up using the assets of the old units and thus not fulfilling the conditions laid down in clauses (ii) and (iii) of Section 10A(2) - HELD THAT - This issue covered by the decision of this Bench in Commissioner of Income Tax, Chennai Vs. M/s.S.R.A. Systems Ltd., No.100, Valluvar Kottam High Road, Nungambakkam, Chennai 2021 (1) TMI 843 - MADRAS HIGH COURT Claim for deduction under Section 10A was to be allowed before adjusting brought forward losses and unabsorbed depreciation - HELD THAT - Question of law no.3 is covered by the decision of the Division Bench of this Court in M/s.Comstar Automative Technologies Private Ltd. 2020 (3) TMI 814 - MADRAS HIGH COURT . We are convinced that the Questions of Law involved in the present appeal are covered by the decisions relied upon by the learned counsel for the respondent, cited supra. Following the decisions of the Hon'ble Supreme Court and the decisions of this Court, the Questions of Law are decided against the Revenue and in favour of the assessee

Summary

Issues Involved:
Challenging the order passed in I.T.A.No.175/Mds/2010 regarding the assessment year 2005-06, the Revenue filed an appeal before the High Court. The issues involved were:
1) Whether internet expenses incurred in foreign exchange should be reduced from the total turnover for computing deduction under Section 10A?
2) Whether the assessee was entitled to deduction under Section 10A for a new unit made up using assets of old units, not fulfilling conditions laid down in Section 10A(2)?
3) Whether the assessee's claim for deduction under Section 10A should be allowed before adjusting brought forward losses and unabsorbed depreciation?

Analysis:
1) The first issue revolved around whether internet expenses in foreign exchange should be deducted from total turnover for Section 10A deduction. The Tribunal held in favor of the assessee, citing relevant case laws and the intention of the legislature to avoid illogical results. The Supreme Court's decision and other judgments supported this interpretation, leading to dismissal of the Revenue's appeal.

2) The second issue focused on the eligibility of the assessee for Section 10A deduction for a new unit formed using old unit assets. Previous judgments highlighted that mere transfer of business location does not violate Section 10A(2) clauses, thus entitling the assessee to the deduction. The Division Bench's decision further confirmed the assessee's entitlement to the deduction, leading to dismissal of the Revenue's appeal.

3) The third issue addressed whether the assessee's deduction under Section 10A should be allowed before adjusting brought forward losses and unabsorbed depreciation. The Division Bench clarified that deductions under Sections 10A or 10B should be made while computing gross total income, not at the stage of computing total income. The judgment emphasized that the Revenue's method of computing income was against established law, leading to the dismissal of the appeal.

In conclusion, the High Court dismissed the Revenue's appeal based on the decisions of the Supreme Court and previous judgments, affirming the assessee's entitlement to deductions under Section 10A and rejecting the Revenue's contentions.