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2015 (12) TMI 398 - AT - Income TaxQuantum of deduction to be allowed to the assessee u/s. 10A - Held that - The assessee before us has furnished on record the audit report in Form No. 56F in respect of each of the unit against which it has claimed the deduction under section 10A of the Act. The quantification of the deduction under section 10A of the Act is to be worked out independently for each eligible unit and in case after the deduction so claimed under section 10A of the Act, there are profits in the hands of the assessee for such unit then the same can be set off against the losses, if any, incurred by the assessee in any other unit. There is no merit in first aggregating the profits of each of the eligible unit and setting of the losses of other units and on the net profits, if any, the deduction under section 10A of the Act to be computed. We find support from the ratio laid down in CIT Vs. Black & Veatch Consulting Pvt. Ltd. (2012 (4) TMI 450 - BOMBAY HIGH COURT ) wherein it has been held that the deduction under section 10A of the Act has to be given at the stage when the profits and gains of the business are computed in the first instance. In view thereof we reverse the order of Commissioner of Income Tax (Appeals) in this regard. The said deduction under section 10A of the Act is to be computed unit/undertaking wise and not for the assessee in totality. Reversing the order of the Commissioner of Income Tax (Appeals), we allow the grounds of appeal in favour of assessee.
Issues Involved:
1. Computation of taxable income and loss. 2. Deduction under section 10A of the Income Tax Act, 1961. 3. Set-off of losses from other business units/undertakings. Detailed Analysis: 1. Computation of Taxable Income and Loss: The assessee challenged the decision of the CIT(A)-I, Pune, which upheld the taxable income determined by the DCIT, Circle 11(1), Pune, at Rs. 8,59,046 instead of the reported loss of Rs. 3,89,37,510. The Tribunal dismissed the grounds of appeal as general, stating that they did not specifically address the core issues. 2. Deduction under Section 10A of the Income Tax Act, 1961: The primary issue was the computation of deduction under section 10A. The assessee, a software development company with eight units, claimed deductions for each unit separately. The Assessing Officer (AO) reduced the deduction under section 10A from Rs. 24,55,53,914 to Rs. 20,68,49,064 by setting off losses from three units against the profits of other units, based on the provisions of section 70(1) of the Act. The AO's rationale was that the amendment from 2001 changed section 10A from an exemption to a deduction, affecting the set-off provisions. The AO cited the Delhi Tribunal's decision in Honeywell International (India) (P.) Ltd. and the Supreme Court's decision in Synco Industries Ltd. to support intra-head set-off before allowing the deduction. 3. Set-off of Losses from Other Business Units/Undertakings: The CIT(A) upheld the AO's view, emphasizing that post-amendment, section 10A income forms part of the total income, subject to intra-head set-off under section 70 and inter-head set-off under section 71. The CIT(A) referred to Chapter VI and VIA of the Income Tax Act, stating that losses and depreciation must be carried forward and set off, as per section 10A(6). The CIT(A) concluded that the deduction under section 10A must be computed after intra-head set-off of losses, aligning with the decisions in Honeywell International India Pvt. Ltd. and Synco Industries Ltd. Tribunal's Findings: The Tribunal referred to the Bombay High Court's decisions in Hindustan Unilever Ltd. and Black & Veatch Consulting Pvt. Ltd., which held that deductions under section 10A should be computed at the unit level, not after aggregating profits and losses of all units. The Tribunal emphasized that section 10A deductions are unit-specific, not assessee-specific, and should be computed independently for each eligible unit. The Tribunal reversed the CIT(A)'s order, allowing the assessee's appeal on this ground. Conclusion: The Tribunal concluded that the computation of deduction under section 10A should be unit-specific, without intra-head set-off of losses from other units. The appeals for both assessment years 2005-06 and 2006-07 were partly allowed, reversing the CIT(A)'s decision. The order was pronounced on November 30, 2015.
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