2021 (8) TMI 300 - AT - Income Tax

Deduction u/s. 10AA - unclaimed balances written back, was treated to be a part of export turnover for the purpose of calculation of deduction - HELD THAT - Assessee had not claimed any deduction u/s.10AA of the Act in the immediately preceding year and the write back of such expenses does not fall under the definition of export turnover given in Explanation to section 10AA of the Act. It remains an admitted fact that in the immediately preceding year, the assessee suffered losses and there is no reason not to believe the explanation on behalf of the assessee that due to such losses, the assessee did not claim any deduction u/s. 10AA of the Act in the immediately preceding year, i.e., F.Y. 2008-09. It is, therefore, clear that in computing the deduction u/s. 10AA for the current year, the write back of the expenses have to be considered as a part of income, inasmuch as, the income on account of write back of unclaimed expenses is accrued to the assessee only due to the export business and there is direct nexus of export business of assessee and the accrual of income, in respect of which, the expenses were shown in the preceding year and such unclaimed expenses were written back for this year. It is not the case of the Revenue that the expenses had no relation to export business of the assessee in the earlier year. We, therefore, conclude that the authorities below are not correct in reducing the deduction u/s.10AA of the Act by such an amount which was written back by the assessee on account of unclaimed balances written back. Set off of the brought forward business losses and unabsorbed depreciation of the eligible unit against profit of the business of eligible unit before allowing deduction u/s.10AA - HELD THAT - The provisions of section 10A are pari materia with the provisions of section 10AA and therefore, the claim of the assessee for not reducing the brought forward losses from the profit of business of current year before allowing deduction u/s. 10AA is proper and has to be considered in favour of the assessee. For these reasons, we allow ground No. 1 to 3 of appeal. Grant of credit of tax deducted at source - Whether or not it arises from the assessment order, when once the assessee raised the issue, it cannot be brushed under the carpet? - HELD THAT - DR fairly conceded the request of the assessee to allow the Assessing Officer to verify this fact pleaded by the assessee and, if it is true, to allow the claim of assessee. We, therefore, direct the Assessing Officer to verify the tax credit and allow the same to the assessee.

Summary

Issues:
1. Deduction u/s. 10AA of the Income-tax Act, 1961 - Reduction of deduction due to unclaimed balances written back.
2. Set off of brought forward business losses and unabsorbed depreciation against profit of the eligible unit before allowing deduction u/s. 10AA.
3. Claim for grant of credit of tax deducted at source.

Issue 1: Deduction u/s. 10AA - Unclaimed Balances Written Back
The appellant, a company, claimed a deduction u/s. 10AA for the assessment year 2010-11. The dispute arose when the Assessing Officer reduced the deduction by an amount claimed as other income on account of unclaimed balances written back. The appellant argued that these expenses were claimed in the preceding year for deduction u/s. 10AA and should be treated as income eligible for deduction. The Tribunal held that the write back of expenses should be considered as part of income for deduction u/s. 10AA, as there was a direct nexus between the expenses and the export business of the appellant.

Issue 2: Set Off of Brought Forward Losses and Unabsorbed Depreciation
The Assessing Officer and CIT(A) disallowed the set off of brought forward business losses and unabsorbed depreciation against the profit of the eligible unit before allowing deduction u/s. 10AA. However, the Tribunal referred to the decision in Yokogawa India Ltd. case and concluded that the deduction u/s. 10AA should be considered prior to the stage of arriving at the total income of the assessee. Therefore, the Tribunal allowed the appellant's claim for not reducing the brought forward losses from the profit of the current year before allowing the deduction u/s. 10AA.

Issue 3: Claim for Grant of Credit of Tax Deducted at Source
The appellant also raised a claim for grant of credit of tax deducted at source. The Tribunal directed the Assessing Officer to verify the tax credit claimed by the appellant and allow the same if found to be valid. The Tribunal emphasized that once the issue was raised by the appellant, it should not be ignored, and the Assessing Officer should verify and allow the claim if legitimate.

In conclusion, the Tribunal allowed the appeal of the appellant, ruling in favor of the appellant on all three issues. The Tribunal directed the Assessing Officer to consider the unclaimed balances written back as income eligible for deduction u/s. 10AA, allowed the set off of brought forward losses and unabsorbed depreciation as per the provisions of the Act, and instructed the verification and allowance of the claim for credit of tax deducted at source.