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2008 (8) TMI 454 - AT - Income TaxComputation of deduction u/s 10A - assessee has claimed deduction without reducing the unabsorbed depreciation allowance from the profits of the business - telecommunication charges - CIT(A) held that unabsorbed depreciation is to be treated as current year s depreciation as per s. 32(2) and to be deducted while computing profits of business under Chapter IV-D - telecommunication charges being reduced from the export turnover. HELD THAT - The issue regarding telecommunication charges stands covered by the various decisions of Tribunal Bangalore Benches in IGate Global Solutions Ltd. vs. Asstt. CIT 2007 (11) TMI 444 - ITAT BANGALORE Tata Elexsi Ltd. vs. Asstt. CIT 2007 (10) TMI 630 - ITAT BANGLORE Asstt. CIT vs. Infosys Technologies Ltd. 2007 (10) TMI 627 - ITAT BANGALORE as relied upon by the ld counsel for the assessee. The ld counsel for the assessee has not disputed the quantum of telecommunication charges so considered to be reduced from the export turnover and therefore stands partly allowed on the agitation of the assessee before us that the said amount is to be correspondingly reduced from the total turnover as well for the purpose of arriving at the deduction in the ratio of export turnover to the total turnover. This issue stands partly allowed. We are of the opinion that even if it is agreed that s. 10A deduction is to be given effect to after applying ss. 28 to 44D the same would be without giving effect to the provisions of s. 32(2). This is because s. 32(2) is to be given effect to after the provisions of s. 72 are applied. The prioritization between ss. 72 and 32(2) is provided for in each of the said sections. Once the income of the present year is computed one would have to first give effect to the provisions of s. 72(1) and thereafter come back to s. 32(2). In the process of giving effect to s. 72(1) one would traverse out of the regime of Chapter IV-D. Therefore the provisions of s. 32(2) are not to be given effect to while computing the profits of the undertaking eligible for deduction under s. 10A. The Supreme Court in the case of CIT vs. Mother India Refrigeration Indus. (P) Ltd. 1985 (8) TMI 2 - SUPREME COURT explained it in the following words The avowed purpose of the legal fiction created by the deeming provision contained in provision (b) to s. 10(2)(vi) of the Indian IT Act 1922 and in s. 32(2) of the IT Act 1961 is to make the unabsorbed carried forward depreciation partake of the same character as the current depreciation in the following year so that it is available unlike unabsorbed carried forward business loss. for being set off against other heads of income of that year. Such being the purpose for which the legal fiction is created the fiction cannot be extended beyond its legitimate field and will have to be confined to that purpose. It cannot be said that because of the legal fiction. the unabsorbed carried forward losses should be given preference not merely over the unabsorbed carried forward depreciation but also over the current year s depreciation. Thus the process ascertaining the total income where s. 10A deduction is involved would comprise by computing profits and gains derived by the unit and in this process the unabsorbed depreciation which is not part of the depreciation of the impugned assessment year is not to be factored then the deduction as computed which will be available for carrying out set off of unabsorbed depreciation. Sec. 10A deduction is to be done under ss. 28 to 44B but separately and independent of computation of profits and gains from eligible business and without factoring unabsorbed depreciation. This ground agitated therefore stands allowed. In the result the appeal by the assessee is partly allowed.
Issues Involved:
1. Computation of deduction under Section 10A after reducing unabsorbed depreciation allowance. 2. Reduction of telecommunication charges from export turnover and total turnover for computing deduction under Section 10A. Issue-wise Detailed Analysis: 1. Computation of Deduction under Section 10A After Reducing Unabsorbed Depreciation Allowance: The assessee filed its return for the assessment year 2004-05, claiming a deduction under Section 10A without reducing the unabsorbed depreciation allowance from the profits of the business. The Assessing Officer (AO) allowed the deduction under Section 10A only after reducing the unabsorbed depreciation allowance from the profits. The CIT(A) upheld this decision, relying on the Tribunal's decision in Infocon International Ltd. and the Karnataka High Court's decision in CIT vs. Himatasingike Seide Ltd., which held that unabsorbed depreciation should be treated as current year's depreciation and deducted while computing profits. The assessee argued that the authorities misdirected themselves by holding that brought forward losses and unabsorbed depreciation allowance should be set off against current year's profits before claiming deduction under Section 10A. The counsel for the assessee contended that income eligible for deduction under Section 10A does not form part of the total income and should not be influenced by business losses and unabsorbed depreciation of the current or previous years. The profits eligible for deduction under Section 10A should be computed without considering brought forward losses or depreciation. The Tribunal noted that the term "total income" in Section 10A is contextual and does not have the same meaning as defined in Section 2(45). The Tribunal agreed with the assessee's argument that the unabsorbed depreciation should not be factored in the computation of profits eligible for deduction under Section 10A. The Tribunal emphasized that the deduction under Section 10A should be allowed for each eligible undertaking separately under Chapter IV itself, and the total income should be computed after giving effect to the deductions enumerated in Chapter VI. The Tribunal distinguished the decision of the Karnataka High Court in CIT vs. Himatasingike Seide Ltd., noting that it pertained to the old Section 10B, which operated as an exemption section, whereas Section 10A currently provides for a deduction from total income. The Tribunal also highlighted that the judicial principles rendered in the context of deductions under Chapter VI-A cannot be applied to Section 10A, which is placed in Chapter III. The Tribunal concluded that the unabsorbed depreciation should not be considered while computing the profits of the undertaking eligible for deduction under Section 10A, and the deduction should be computed independently of the unabsorbed depreciation. This ground was allowed in favor of the assessee. 2. Reduction of Telecommunication Charges from Export Turnover and Total Turnover: The AO reduced telecommunication charges from the export turnover while calculating the deduction under Section 10A but did not reduce the same from the total turnover. The CIT(A) upheld this approach. The assessee contended that the telecommunication charges should be reduced from both the export turnover and the total turnover to maintain consistency in the computation formula. The learned Departmental Representative agreed that the issue stands covered by various decisions of the Tribunal Bangalore Benches, which have held that the amount reduced from the export turnover should be correspondingly reduced from the total turnover. The Tribunal, citing various decisions of the Tribunal Bangalore Benches, concluded that the telecommunication charges should be reduced from both the export turnover and the total turnover for the purpose of computing the deduction under Section 10A. This issue was partly allowed in favor of the assessee. Conclusion: The appeal by the assessee was partly allowed. The Tribunal held that the unabsorbed depreciation should not be factored in the computation of profits eligible for deduction under Section 10A, and the deduction should be computed independently of the unabsorbed depreciation. Additionally, the telecommunication charges should be reduced from both the export turnover and the total turnover for the purpose of computing the deduction under Section 10A.
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