2019 (9) TMI 1261 - AT - Income Tax

Computation of deduction u/s 10AA - HELD THAT - AO reduced the aforesaid expenditure incurred in foreign currency for providing technical services outside India from the Export Turnover while computing the deduction u/s 10AA of the Act and accordingly determined the deduction u/s 10AA. There is no dispute that the assessee is entitled for deduction u/s 10AA of the Act in the instant case. CIT-A held that items that were excluded from export turnover should also be correspondingly reduced from total turnover also and hence it would not alter the claim of deduction u/s 10AA of the Act for the assessee. Hon ble Supreme Court in the case of CIT vs HCL Technologies Ltd in Civil 2018 (5) TMI 357 - SUPREME COURT had held that items that were excluded from export turnover should also be excluded from total turnover. In view of this decision, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No.1 raised by the revenue is dismissed. Carry forward of losses without setting it off against the income eligible for deduction u/s 10AA - HELD THAT - High Court in the case of CIT vs Black Veatch Consulting P Ltd 2012 (4) TMI 450 - BOMBAY HIGH COURT wherein it was held that section 10A is a deduction provision and not an exemption provision ; that section 10A benefit has to be given effect to at the stage of computing the profits and gains of business; that it is anterior to the application of the provisions of section 72 of the Act which deals with the carry forward and set off of business losses. As held that the deduction u/s 10A of the Act is to be allowed without setting off of carry forward unabsorbed losses and the depreciation from the earlier assessment year or current assessment year either in the case of non-STPI unit or in the case of very same undertaking. CIT-A for the year under consideration directed the ld AO to allow the carried forward of losses without setting it off against the income exigible for deduction u/s 10A. We find that similar views were endorsed by the Hon ble Supreme Court in the case of PCIT vs Rangsons Electronics Pvt Ltd 2017 (11) TMI 1047 - SC ORDER and in the case of CIT vs Yokogawa India Ltd 2016 (12) TMI 881 - SUPREME COURT - Decided against revenue

Summary

Issues:
1. Whether the Commissioner of Income Tax (Appeals) was justified in directing the Income Tax Officer to exclude specific expenses from the total turnover for computing deduction under section 10AA of the Income Tax Act.
2. Whether the Commissioner of Income Tax (Appeals) was justified in directing the Income Tax Officer to allow the carry forward of losses without setting it off against the income eligible for deduction under section 10AA of the Income Tax Act.

Analysis:

Issue 1:
The first issue in this appeal pertains to the exclusion of certain expenses from the total turnover for the purpose of computing deduction under section 10AA of the Income Tax Act. The assessee had incurred foreign travel expenses, professional consultancy services, US office support services, and other expenses totaling &8377; 1.38 crores. The Income Tax Officer had reduced these expenses from the Export Turnover while computing the deduction under section 10AA. The Commissioner of Income Tax (Appeals) directed that these excluded expenses should also be reduced from the total turnover. This decision was supported by the Supreme Court's ruling in the case of CIT vs HCL Technologies Ltd. The Appellate Tribunal found no fault in the Commissioner's order and dismissed the revenue's appeal on this ground.

Issue 2:
The second issue involves the carry forward of losses without setting them off against the income eligible for deduction under section 10AA of the Income Tax Act. The Commissioner of Income Tax (Appeals) relied on a previous order and a decision of the Hon'ble Jurisdictional High Court to support the allowance of carry forward losses without setting them off against the deduction under section 10AA. This decision was in line with the Supreme Court's rulings in cases such as PCIT vs Rangsons Electronics Pvt Ltd and CIT vs Yokogawa India Ltd. The Appellate Tribunal upheld the Commissioner's decision based on these precedents and dismissed the revenue's appeal on this ground as well.

The grounds raised by the revenue in relation to general issues were deemed not requiring specific adjudication. Consequently, the appeal of the revenue was dismissed by the Appellate Tribunal, affirming the decisions of the Commissioner of Income Tax (Appeals) on both the issues discussed.