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2014 (11) TMI 347 - AT - Income TaxComputation of amount of deduction u/s 10A - Setting off of unabsorbed depreciation Held that - In M/s. Himatsingka Seide Ltd. Versus Commissioner of Income Tax 2013 (10) TMI 823 - SUPREME COURT it has been held that the unabsorbed depreciation should be taken into consideration while computing the deduction u/s 10B of the Act - the unabsorbed business loss has to be deducted only from the profit available after allowing deduction u/s 10A of the Act the order of the CIT(A) is modified. Exclusion of Travelling expenses and Software development charges incurred in foreign currency from the amount of Export Turnover Held that - In CIT Vs. Gem Plus Jewellery India Ltd 2010 (6) TMI 65 - BOMBAY HIGH COURT it has been held that the items excluded from the Export turnover are required from the total turnover also - the amount of travelling expenses and Software development charges incurred in foreign currency is required to be excluded both from Export turnover and Total turnover for the purpose of computing deduction u/s 10A of the Ac - Decided in favour of revenue..
Issues Involved:
1. Rejection of claim for set off of unabsorbed depreciation of Rs. 6,40,171/- pertaining to assessment year 2001-02. 2. Setting off of unabsorbed depreciation and unabsorbed business loss brought forward from assessment year 2003-04 before allowing deduction u/s 10A of the Income Tax Act, 1961. 3. Exclusion of expenses incurred in foreign currency from the amount of "Export turnover" while computing the deduction u/s 10A of the Act. Detailed Analysis: 1. Rejection of Claim for Set Off of Unabsorbed Depreciation Pertaining to Assessment Year 2001-02: The assessee contested the rejection of the claim for set off of unabsorbed depreciation of Rs. 6,40,171/- from the assessment year 2001-02. The AO rejected the claim based on section 10A(6)(ii) of the Act, which states that no loss related to the business of the undertaking shall be carried forward or set off if it pertains to any relevant assessment years ending before April 1, 2001. The CIT(A) upheld the AO's decision. However, the Tribunal found merit in the assessee's contention, citing that section 10A(6) applies only after the period during which the deduction u/s 10A was allowable. Since the present assessment year falls within the period of ten consecutive assessment years, the provisions of section 10A(6) do not apply. Consequently, the Tribunal directed the AO to allow the claim for set off of unabsorbed depreciation pertaining to AY 2001-02. 2. Setting Off of Unabsorbed Depreciation and Unabsorbed Business Loss Brought Forward from Assessment Year 2003-04 Before Allowing Deduction u/s 10A: The AO had set off unabsorbed depreciation and business loss from AY 2003-04 before allowing deduction u/s 10A, resulting in a reduced deduction. The CIT(A) concurred with the AO's view. The Tribunal examined the issue and referred to the decision of the Hon'ble Supreme Court in the case of Himatsingka Seide Ltd, which held that unabsorbed depreciation should be taken into consideration while computing the deduction u/s 10B of the Act. Following this precedent, the Tribunal held that unabsorbed depreciation should be deducted before allowing deduction u/s 10A. However, the unabsorbed business loss should be deducted only from the profit available after allowing deduction u/s 10A. The AO was directed to compute the total income accordingly. 3. Exclusion of Expenses Incurred in Foreign Currency from the Amount of "Export Turnover" While Computing the Deduction u/s 10A: The revenue was aggrieved by the CIT(A)'s decision that expenses incurred in foreign currency for providing technical services outside India should not be deducted from "Export turnover" while computing the deduction u/s 10A. The Tribunal noted that if expenses are excluded from Export turnover, they should also be excluded from the Total turnover, as per the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Gem Plus Jewellery India Ltd. The Tribunal held that the amount of travelling expenses and software development charges incurred in foreign currency should be excluded from both Export turnover and Total turnover for the purpose of computing deduction u/s 10A. Additional Grounds and Other Assessment Years: - For AY 2005-06, the Tribunal followed the same reasoning as above and directed the exclusion of travelling expenses, professional charges, and software development charges from both Export turnover and Total turnover. - For AY 2006-07, the Tribunal directed the AO to allow applicable depreciation on disallowed repairs expenses and upheld the decision regarding the set off of unabsorbed depreciation and business loss. - For AY 2007-08 and AY 2008-09, similar directions were given regarding the exclusion of expenses incurred in foreign currency from both Export turnover and Total turnover. Conclusion: The appeals filed by the assessee were partly allowed, and both appeals filed by the revenue were allowed. The Tribunal provided detailed directions on the computation of total income and the treatment of unabsorbed depreciation and business losses in relation to the deduction u/s 10A of the Act.
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