2016 (5) TMI 537 - AT - Income Tax

Eligible for deduction u/s. 10A - Held that - Commissioner of Income Tax (Appeals) has allowed deduction u/s. 10A to the assessee on the profits of Unit 1 for the subsequent assessment year. Assessee is eligible to claim deduction u/s. 10A, before adjusting losses of Nagpur Unit.

Issues Involved:
1. Denial of deduction under section 10A for revenues from contracts entered prior to the formation of Unit 1.
2. Setting off the loss of the Nagpur Unit against the profits of other units eligible for deduction under section 10A.
3. Eligibility of the new unit for deduction under section 10A, and the delay in filing the appeal by the Revenue.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 10A for Revenues from Contracts Entered Prior to the Formation of Unit 1:
The assessee claimed a deduction under section 10A for revenues amounting to ?1,73,67,109/- from contracts entered into prior to the formation of Unit 1. The Assessing Officer (AO) rejected this claim, which was upheld by the Commissioner of Income Tax (Appeals). The Tribunal noted that this issue had already been adjudicated in the assessee’s favor for the assessment years 2003-04 and 2004-05. The Tribunal had previously held that the deduction under section 10A is available on the profits derived from the export of articles or software executed by the new unit, regardless of the origin of the contracts. The Hon'ble Bombay High Court had upheld these findings. Consequently, the Tribunal allowed the assessee's claim for the current assessment year, stating that the work executed by the new unit qualifies for the deduction under section 10A.

2. Setting off the Loss of the Nagpur Unit Against the Profits of Other Units Eligible for Deduction under Section 10A:
The AO had set off the loss of the Nagpur Unit against the profits of other units before allowing the deduction under section 10A. The Tribunal referred to the judgments of the Hon'ble Bombay High Court in the cases of Hindustan Unilever Ltd. and Black & Veatch Consulting Pvt. Ltd., which held that the deduction under section 10A should be allowed before setting off any losses of non-eligible units. The Tribunal also cited the Hon'ble Karnataka High Court's decision in Commissioner of Income Tax Vs. Yokogawa India Ltd., which supported the view that the income of the section 10A unit should be excluded at source before arriving at the gross total income. The Tribunal concluded that the assessee is eligible to claim the deduction under section 10A without adjusting the losses of the Nagpur Unit.

3. Eligibility of the New Unit for Deduction under Section 10A and Delay in Filing the Appeal by the Revenue:
The Revenue's appeal questioned the eligibility of the new unit for deduction under section 10A, claiming it was formed by reconstructing an existing business. The appeal was filed with a delay of 696 days. The Tribunal found the reasons provided for the delay to be insufficient and noted that the delay cannot be condoned in a casual manner. The Tribunal cited the Hon'ble Supreme Court's decision in the case of Office of the Chief Post Master General and Others Vs. Living Media India Ltd., which emphasized that government departments should not be granted condonation of delay without a reasonable and acceptable explanation. The Tribunal dismissed the Revenue's appeal as time-barred and noted that the grounds raised did not emanate from the issues decided in the assessment order or raised before the First Appellate Authority.

Conclusion:
The Tribunal allowed the appeal of the assessee, granting the deduction under section 10A for the revenues from contracts executed by the new unit and without setting off the losses of the Nagpur Unit. The Revenue's appeal was dismissed due to an inordinate delay in filing and lack of substantial grounds.

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