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2022 (5) TMI 1060 - AT - Income TaxRevision u/s 263 - claim of deduction u/s 80HHE after setting off brought forward losses from the earlier years for the purpose of computing business profits under the said section - HELD THAT - As decided in M/S. RELIANCE ENERGY LTD. (FORMERLY BSES LTD.) THROUGH ITS M.D. 2021 (4) TMI 1237 - SUPREME COURT profit eligible for deduction would be net profit made by the assessee from the eligible business and such deduction is to be allowed from gross total income. In the instant case, we find that if the set off of brought forward business loss was not taken into account, the assessee would have been entitled to deduction of the entire amount of profit eligible for deduction u/s.80HHE - But since the deduction under 80HHE of the Act is restricted to gross total income and such gross total income is to be computed after setting off the brought forward business losses, the assessee s claim of deduction got reduced. Hence, there cannot be any error in the ld. AO allowing deduction under 80HHE of the Act in the instant case. Hence no adjustment is warranted in the instant case as proposed by the ld. CIT. Thus we hold that the ld. CIT grossly held in holding with the profits of the business for the year under consideration has to be reduced by the brought forward losses from earlier year for the purpose of computing profit eligible deduction u/s.80HHE of the Act. Accordingly, the ground No.2(a), 2(b) by the assessee are allowed. Allowing set off of losses and unit eligible for claiming deduction u/s.10A of the Act against non-Software Technology Park (STP) Unit - assessee earned profits in its Ashok Plaza Unit at Pune which was eligible for deduction u/s.10Aand assessee also had three other units which incurred losses during the year and such losses were set off against the income from non-STP Unit - CIT was of the opinion that the losses incurred in three other units should be set off with Pune unit and on the net amount, deduction u/s.10A of the Act should be allowed to the assessee - HELD THAT - We find that this issue is no longer res integra in view of the decision of the Hon ble Supreme Court in the case of CIT vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT wherein it has been held that Section 10A of the Act provides that the deduction contemplated therein is qua profits of eligible undertaking on a stand alone basis and without set off of losses of eligible or non-eligible unit or undertaking of the assessee. Transfer pricing adjustment while allowing deduction u/s.10A - HELD THAT - We find that assessee has claimed deduction u/s.10A in the return of income. Only this sum was allowed as deduction by the ld. AO while computing the income of the assessee. We find from the computation of income enclosed in the attached assessment order, no deduction u/s.10A has been allowed in respect of transfer pricing adjustment by the ld. AO. We find that the ld. CIT has proceeded on the basis that deduction u/s.10A of the Act has been allowed by the ld. AO in the present case on higher profit after adding the transfer pricing adjustment in the eligible unit. We find that the ld. CIT has purely proceeded on incorrect assumption of facts. Hence, we have no hesitation in allowing ground No.5 raised by the assessee Book profit u/s.115JB of the Act has to be increased by the losses pertaining to unit eligible for deduction u/s.10A - HELD THAT - We find from the computation of book profit u/s.115JB of the Act in the assessment order, the ld. AO had already carried out this adjustment as required by Clause-f of Explanation-1 to Section 115JB(2) of the Act. Hence, here also the ld. CIT had proceeded purely on incorrect assumption of facts. Hence, the ground No.6 raised by the assessee is allowed. MAT Computation u/s 115JB - deferred tax provision to be added back while computing book profits u/s.115JB - HELD THAT - We find that Clause(h) of Explanation 1 to Section 115JB(2) of the Act which mandated deferred tax provision to be added back while computing book profits u/s.115JB of the Act was introduced in the statute vide Finance Act, 2008 with retrospective from 01/04/2001. Hence, while the ld. CIT passed the order on 30/03/2007, this amendment had not been brought in the statute which means, on the date of passing of the order by the ld. CIT, this amendment could not have been foreseen by the ld. CIT. However, we find that the assessee before us has not challenged the validity of assumption of jurisdiction by the ld. CIT u/s.263 of the Act. The grounds raised by the assessee merely challenged the issues sought to be revised by the ld. CIT on merits. Hence, on merits, this deferred tax provision is required to be added back while computing book profit u/s.115JB of the Act as per Clause(h) of Explanation 1 to Section 115JB(2) of the Act which is retrospectively applicable from 01/04/2001. Provision for doubtful debts, Provision for diminution in value of Asset Provision for doubtful recovery - As in view of the retrospective amendment brought in the statute, these three items would have to be added back while computing book profits u/s.115JB of the Act. Hence, all the case laws relied upon by the ld. AR before us would not be applicable in the instant case, in view of the retrospective amendment. Accordingly, the ground 7 raised by the assessee is dismissed.
Issues Involved:
1. Jurisdiction under Section 263 2. Deduction under Section 80HHE 3. Set-off of losses for Section 10A units 4. Transfer Pricing adjustments and Section 10A 5. Book profits under Section 115JB 6. Provisions for liabilities and Section 115JB Detailed Analysis: 1. Jurisdiction under Section 263: The assessee contended that the Commissioner of Income-tax (CIT) erred in invoking Section 263 of the Income-tax Act, 1961, arguing that the original order by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. The tribunal noted that the jurisdiction of the CIT under Section 263 was not challenged, and thus, proceeded to adjudicate the issues on their merits. 2. Deduction under Section 80HHE: - Grounds 2(a), 2(b), and 8: These grounds were interconnected, challenging the computation of deduction under Section 80HHE. The AO had computed the eligible profits for deduction without considering brought forward losses. The CIT held that brought forward losses should reduce the profits for deduction purposes. The tribunal found that the profits qualifying for deduction under Section 80HHE should not be reduced by brought forward business losses, as these are governed by Section 72 and not relevant for this purpose. The tribunal relied on the Supreme Court decision in Reliance Energy Ltd. and other jurisdictional High Court decisions, concluding that the AO's computation was correct and no adjustment was warranted. Ground 8 was dismissed as not pressed. 3. Set-off of losses for Section 10A units: - Grounds 3(a) to 3(c): The CIT held that the AO erred in allowing set-off of losses from units eligible for Section 10A deduction against non-STP units. The tribunal referred to the Supreme Court decision in CIT vs. Yokogawa India Ltd., which clarified that deductions under Section 10A are to be computed on a stand-alone basis without set-off of losses from other units. Thus, the tribunal allowed these grounds in favor of the assessee. 4. Transfer Pricing adjustments and Section 10A: - Ground 5: The CIT contended that the AO failed to consider transfer pricing adjustments while allowing Section 10A deductions. The tribunal found that the AO had not allowed any deduction under Section 10A in respect of transfer pricing adjustments, and the CIT's assumption was incorrect. Hence, this ground was allowed in favor of the assessee. 5. Book profits under Section 115JB: - Ground 6: The CIT held that book profits should be increased by losses pertaining to Section 10A units. The tribunal noted that the AO had already carried out this adjustment, and the CIT's assumption was incorrect. Therefore, this ground was allowed in favor of the assessee. 6. Provisions for liabilities and Section 115JB: - Ground 7: The CIT held that certain provisions should be added back while computing book profits under Section 115JB. The tribunal addressed each item: - Deferred Tax Liability: The tribunal noted that the amendment mandating the addition of deferred tax liability was retrospective from 01/04/2001, and thus, this provision should be added back. - Provision for Doubtful Debts, Diminution in Value of Assets, and Doubtful Recovery: Similar to deferred tax liability, the tribunal noted that retrospective amendments required these provisions to be added back while computing book profits. Consequently, this ground was dismissed. Conclusion: The tribunal partly allowed the appeal, favoring the assessee on grounds related to Section 80HHE computation, set-off of losses for Section 10A units, transfer pricing adjustments, and book profits under Section 115JB. However, it dismissed the grounds regarding provisions for liabilities under Section 115JB due to retrospective amendments.
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