2023 (2) TMI 191 - AT - Income Tax

Deduction u/s 10B - directors of STPI as competent authority for granting approval or not? - HELD THAT - As following the decision of in the case of Indus Teqsite (P) Ltd vs DCIT 2021 (9) TMI 473 - MADRAS HIGH COURT we are of the considered view that, the assessee is entitled for deduction u/s. 10B towards profit derived from STPI unit. CIT(A) after considering the relevant facts has rightly allowed deduction as claimed by the assessee and thus, we are inclined to uphold the findings of the CIT(A) and reject ground taken by the Revenue. Method of computation of deduction u/s. 10B of the Act, although the Revenue is not disputing the ratio laid in the case of CIT vs Yokogawa India Ltd 2016 (12) TMI 881 - SUPREME COURT with regard to the computation of eligible profit before allowing set off of losses of other units, but disputed the present case in light of different sections under which said deduction has been claimed. According to the Revenue, the Hon ble Supreme Court has considered the provisions of section 10A, whereas in the present case, the assessee has claimed deduction u/s. 10B - In our considered view, the arguments of the Revenue is fallacious for the simple reason that provisions of section 10A 10B of the Act both are deduction provisions which operates under same set of terms and conditions and thus, the ratio laid down in the case of CIT vs Yokogawa India Ltd 2016 (12) TMI 881 - SUPREME COURT squarely applies for computation of eligible profit in terms of provisions of section 10B of the Act also - there is no error in the reasons given by the ld. CIT(A) to direct the AO to compute eligible profit of unit claiming deduction u/s. 10B of the Act, without allowing set off of losses of other unit or brought forward losses of earlier years, and thus, we reject ground taken by the revenue on this issue also. Decided against revenue.

Issues Involved:
1. Competency of the Directors of STPI for granting approval under Section 10B.
2. Requirement of ratification by the Board of Approval for EOU scheme.
3. Set-off of brought-forward losses before claiming deduction under Section 10B.
4. Computation of eligible profit for deduction under Section 10B.

Detailed Analysis:

1. Competency of the Directors of STPI for granting approval under Section 10B:
The Revenue contended that the CIT(A) erred in holding the Directors of STPI as competent authority for granting approval under Section 10B. The AO argued that the approval should be from the Board of Approval for EOU scheme and not just from the Director of STPI. The CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court in the case of Live Connections Software Solutions Pvt. Ltd., which held that approval by the Director of STPI is valid for claiming deduction under Section 10B. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had provided necessary evidence to prove that the approval from the Director of STPI was valid and that the Director had taken steps to get ratification from the Board of Approval.

2. Requirement of ratification by the Board of Approval for EOU scheme:
The AO denied the deduction under Section 10B on the grounds that the approval by the Director of STPI had not been ratified by the Board of Approval for EOU scheme. However, the CIT(A) and the Tribunal noted that the Director of STPI had informed the AO that the approval had been placed before the Board for ratification in subsequent meetings. The Tribunal referred to the decision of the Hon'ble Madras High Court in the case of Indus Teqsite (P) Ltd. vs. DCIT, which held that deduction under Section 10B could not be denied merely because the ratification certificate was not yet given by the Board of Approval. Therefore, the Tribunal concluded that the assessee had satisfied the conditions for claiming deduction under Section 10B.

3. Set-off of brought-forward losses before claiming deduction under Section 10B:
The AO recomputed the eligible profit of the unit claiming exemption under Section 10B by disallowing the set-off of losses of other units. The AO argued that the deduction under Section 10B should be computed after setting off all losses as per Sections 32 and 70 to 74 of the Act. The CIT(A) and the Tribunal, however, referred to the decision of the Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd., which held that the deduction under Section 10A (similar to Section 10B) should be allowed without setting off the losses of other units. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of Sections 10A and 10B operate under the same terms and conditions.

4. Computation of eligible profit for deduction under Section 10B:
The Revenue disputed the computation of eligible profit for deduction under Section 10B, arguing that the Supreme Court's decision in Yokogawa India Ltd. pertained to Section 10A and not Section 10B. The Tribunal rejected this argument, stating that the provisions of Sections 10A and 10B are similar and the ratio laid down by the Supreme Court in Yokogawa India Ltd. applies to Section 10B as well. Therefore, the Tribunal upheld the CIT(A)'s direction to compute the eligible profit of the unit claiming deduction under Section 10B without allowing the set-off of losses of other units or brought-forward losses of earlier years.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue for all three assessment years, upholding the CIT(A)'s decision to allow the deduction under Section 10B as claimed by the assessee. The Tribunal concluded that the assessee had satisfied the conditions for claiming deduction under Section 10B and that the computation of eligible profit should be done without setting off the losses of other units or brought-forward losses.

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