2019 (2) TMI 52 - AT - Income Tax

Deduction u/s 10A before setting off of brought forward losses of eligible unit - Held that - It is not in dispute that the brought forward losses set off by the assessee are of eligible unit. It is no more res integra that the assessee can claim deduction u/s 10A of the Act before claiming setting off of brought forward losses. As in the case of Black & Veath Consulting Pvt. Ltd., (2012 (4) TMI 450 - BOMBAY HIGH COURT) and in the case of CIT Vs. Yokogawa India Ltd. 2011 (8) TMI 845 - KARNATAKA HIGH COURT has held that the deduction u/s 10A of the Act can be claimed before setting off of brought forward losses of non-eligible units. The Hon ble Apex Court in the case of CIT & another Vs. Yokogawa India Ltd. (2016 (12) TMI 881 - SUPREME COURT) has upheld the decision of Hon ble Karnataka High Court. We find no infirmity in the order of CIT(A) in allowing the benefit of deduction u/s 10A of the Act to the assessee. The impugned order is upheld and the appeal of Revenue is dismissed being devoid of any merit. - Decided against revenue

Issues involved:
Appeal against order of CIT(A) for assessment year 2011-12, Delay in filing appeal, Deletion of addition made u/s 10A of the Income Tax Act, 1961, Interpretation of CBDT Circular No.07/DV/2013, Claiming deduction u/s 10A before setting off brought forward losses, Legal precedents regarding deduction u/s 10A, Contention on deduction before setting off brought forward losses, Application of Circular No. 794 dated 9.8.2000, Reconciliation of expression "total income of the assessee" in Section 10A.

Analysis of Judgment:

1. Delay in Filing Appeal:
The appeal by the Revenue was directed against the order of Commissioner of Income Tax (Appeals) for the assessment year 2011-12, with a delay of 3 days. The delay was condoned upon oral request by the ld.D.R., and the appeal was taken up for hearing on merits.

2. Deletion of Addition made u/s 10A:
The primary issue raised in the appeal was against deleting the addition made u/s 10A of the Income Tax Act, 1961. The assessee, a Private Limited Company engaged in software development services, claimed deduction of ?2,69,76,031/- u/s 10A for its export-oriented unit. The CIT(A) allowed the claim based on legal precedents, including the decision of the Hon'ble Bombay High Court and the subsequent decision of the Hon'ble Apex Court in a related case. The Revenue contested this deletion, relying on CBDT Circular No.07 dated 16.07.2013.

3. Interpretation of CBDT Circular No.07/DV/2013:
The Department argued in support of the assessment order, emphasizing the relevance of CBDT Circular No.07 dated 16.07.2013. However, the Tribunal considered various legal aspects and precedents to analyze the impact of the Circular on the deduction claimed u/s 10A before setting off brought forward losses.

4. Claiming Deduction u/s 10A Before Setting Off Losses:
The Tribunal deliberated on the issue of claiming deduction u/s 10A before setting off brought forward losses. It was established that the deduction under Section 10A is specific to the eligible undertaking and can be claimed independently of other units or undertakings of the assessee. Legal precedents, including decisions of the Hon'ble Bombay High Court and the Hon'ble Karnataka High Court, supported the assessee's position on claiming deduction before setting off losses.

5. Application of Circular No. 794 dated 9.8.2000:
The Tribunal referred to Circular No. 794 dated 9.8.2000 to clarify that the benefit of deduction u/s 10A pertains to the individual undertaking without a material relationship with other business activities of the assessee. This interpretation was crucial in determining the eligibility of the assessee for the deduction claimed.

6. Reconciliation of Expression "Total Income of the Assessee" in Section 10A:
The Tribunal analyzed the expression "total income of the assessee" in Section 10A, reconciling it as the "total income of the undertaking." This interpretation was aligned with the provisions of Section 10A, ensuring that the deduction of profits and gains of the eligible undertaking is independent and precedes the set off and carry forward provisions under the Act.

7. Conclusion:
Based on the settled legal position and the interpretation of relevant provisions and Circulars, the Tribunal upheld the order of CIT(A) allowing the deduction u/s 10A to the assessee. Consequently, the appeal of the Revenue was dismissed for lacking merit.

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