2020 (1) TMI 291 - AT - Income Tax

Revision u/s 263 - deduction u/s 10A - view of the PCIT that deduction u/s 10A should have been allowed by the AO after considering the business loss and carry forward the business loss of the assessee and since AO had accepted the return of income without giving effect to carry forward losses, excess deduction u/s 10A of the Act was erroneously allowed by the AO - HELD THAT - We find that Hon ble Apex Court in the case of CIT Vs. Yokogawa India Ltd. 2016 (12) TMI 881 - SUPREME COURT held that the deduction u/s 10A of the Act would be prior to the commencement of the exercise to be taken under Chapter IV for arriving at the total income of the assessee from the gross total income. It further held that though Section 10A of the Act as amended provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV and not at the stage of computation of the total income under Chapter VI. In view of the aforesaid decision of Hon ble Apex Court, we are of the view that Ld. PCIT was not justified in invoking the provisions of Sec.263 of the Act so as to term the order of AO to be erroneous and prejudicial to the interest of Revenue. We therefore set aside the order of Ld. PCIT. Thus, the grounds of the assessee are allowed.

Issues:
1. Revisionary proceedings u/s 263 of the ITA, 1961.
2. Original assessment order passed u/s 143(3) of the ITA, 1961 being prejudicial to the interest of the revenue.
3. Setting aside the matter to the file of Assessing Officer for proper examination of facts and provisions of the law.
4. Nature of relief u/s 10A of the ITA, 1961 - exemption or deduction.
5. Whether the assessment is erroneous or prejudicial to the interest of the revenue due to a debatable issue on deduction u/s 10A.

Analysis:

Issue 1: Revisionary proceedings u/s 263 of the ITA, 1961
The appeal arose from the order of the Principal Commissioner of Income Tax (PCIT) invoking revisionary proceedings under section 263 of the Income Tax Act, 1961. The PCIT found the original assessment order to be erroneous and prejudicial to the interest of the revenue as excess deduction u/s 10A was allowed by the Assessing Officer (AO) without considering carry forward losses. The PCIT directed the AO to reframe the assessment. The Tribunal set aside the PCIT's order, citing a decision by the Hon'ble Apex Court that the deduction u/s 10A should be allowed before arriving at the total income under Chapter IV.

Issue 2: Original assessment order under section 143(3) of the ITA, 1961
The PCIT considered the original assessment order passed by the AO under section 143(3) to be prejudicial to the revenue due to the incorrect allowance of excess deduction u/s 10A without considering the carry forward losses. However, the Tribunal disagreed with this assessment, emphasizing that the deduction u/s 10A should be granted before computing the gross total income of the eligible undertaking, as per the decision of the Hon'ble Apex Court in CIT Vs. Yokogawa India Ltd.

Issue 3: Setting aside the matter for proper examination
The PCIT set aside the matter to the file of the Assessing Officer for a re-examination based on the incorrect allowance of deduction u/s 10A. The Tribunal, following the decision of the Hon'ble Apex Court, concluded that the PCIT was not justified in invoking section 263, as the deduction u/s 10A should be allowed before computing the gross total income under Chapter IV, not during the computation of total income under Chapter VI.

Issue 4: Nature of relief u/s 10A - exemption or deduction
The appeal also raised the issue of whether the relief under section 10A of the ITA, 1961 should be considered as an exemption or a deduction while computing the gross total income. The Tribunal's decision was based on the interpretation that the deduction u/s 10A should be granted before computing the gross total income of the eligible undertaking, as per the decision of the Hon'ble Apex Court.

Issue 5: Assessment based on debatable issue on deduction u/s 10A
The PCIT considered the assessment to be erroneous and prejudicial to the revenue due to the debatable issue regarding the deduction u/s 10A. However, the Tribunal disagreed, citing the decision of the Hon'ble Apex Court, which clarified that the deduction u/s 10A should be allowed before arriving at the total income under Chapter IV. The Tribunal allowed the grounds raised by the assessee and set aside the PCIT's order.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the correct interpretation of the deduction u/s 10A as per the decision of the Hon'ble Apex Court, and set aside the order of the PCIT.

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