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2020 (3) TMI 541 - AT - Income TaxEligible units claiming deduction u/s 10A/10AA - allowed without set off of business loss or not is not a res-integra - HELD THAT - Hon ble Supreme Court, in the case of CIT vs Yokogawa India Limited 2016 (12) TMI 881 - SUPREME COURT has clearly held that the deduction u/s 10A would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act, for arriving at the total income of the assessee from the gross total income. The Hon ble Supreme court, further held that though, section 10A, as amended is a provision for deduction, a stage of deduction would be, while computing the gross total income of the eligible undertaking under Chapter IV of the Act, and not at the stage of computation of the total income under Chapter VI of the Act. The Hon ble Bombay High court in the case of Black and Veatch Consulting Pvt.Ltd.vs CIT 2012 (4) TMI 450 - BOMBAY HIGH COURT has upheld similar position of law. The ITAT, Mumbai benches in asseesee own case for earlier years has held that the deduction u/s 10A of the Act, has to be given at the stage, when the profits and gains of the business is computed in the first instance. The sum and substance of ratio laid down by the Hon ble Supreme Court and Hon ble Bombay High Court, is that the profit of eligible units claiming deduction u/s 10A/10AA of the Act, shall be allowed without setting off of losses of other units. Therefore, we are of the considered view that the AO, as well as the Ld.CIT(A) were erred in set off of loss of business from the profit of eligible units claiming deduction u/s 10AA before allowing deduction provided u/s 10AA of the Act, 1961. Hence, we direct the AO to allow deductions towards profit of eligible units u/s 10AA of the Act, without set off of loss of non eligible/other units. Appeal filed by the assessee is allowed.
Issues Involved:
1. Validity of reopening the assessment under Section 147. 2. Set-off of losses of non-eligible units against the income of eligible units before deduction under Section 10AA. Issue-wise Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147: The assessee challenged the reopening of the assessment on multiple grounds, arguing that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in not considering the objections to the reasons for reopening the assessment. The assessee contended that the notice issued under Section 148 was invalid and void ab initio, as the reasons recorded amounted to a "reason to suspect" rather than a "reason to believe." Moreover, the assessee argued that all facts were fully disclosed during the original scrutiny assessment, and the reopening was based on audit objections, which cannot be considered as the Assessing Officer (AO) forming an independent opinion. The CIT(A) rejected these arguments, stating that if the AO, upon application of mind, finds the audit party's objections valid, the reopening cannot be quashed merely because the issue was brought to the AO's notice by the audit party. The CIT(A) also noted that the reopening was justified as there was no failure on the part of the assessee to disclose material facts, and the reopening was within the permissible timeframe. 2. Set-off of Losses of Non-Eligible Units Against the Income of Eligible Units Before Deduction Under Section 10AA: The assessee argued that the CIT(A) erred in upholding the set-off of losses of non-eligible units against the income of eligible units before allowing the deduction under Section 10AA. The assessee relied on the Supreme Court's decision in CIT vs Yokogawa India Ltd., which held that profits of eligible units claiming exemption under Section 10A should be allowed without set-off of losses of other units. The assessee also cited the Bombay High Court's decision in Black & Veatch Consulting Pvt. Ltd. and the ITAT's decision in the assessee's own case for earlier years, which supported this view. The CIT(A) distinguished the Yokogawa case, stating that it pertained to Section 10A, not Section 10AA. The CIT(A) emphasized that Section 10AA requires aggregation of income of eligible and non-eligible units before granting the deduction. The CIT(A) also referred to Circular No. 7 of 2013 and the Finance Act, 2017, which clarified that the deduction under Section 10AA should be allowed from the total income computed in accordance with the Act's provisions. The Tribunal, however, sided with the assessee, ruling that the issue of whether the deduction under Section 10AA should be allowed without set-off of business loss was not res integra. The Tribunal noted that the Supreme Court in Yokogawa India Ltd. and the Bombay High Court in Black & Veatch Consulting Pvt. Ltd. had established that the deduction under Section 10A/10AA should be allowed without setting off losses of other units. The Tribunal directed the AO to allow deductions for the profits of eligible units under Section 10AA without set-off of losses from non-eligible units. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the deduction under Section 10AA should be granted without setting off losses of non-eligible units, in line with the Supreme Court and Bombay High Court precedents. The Tribunal directed the AO to allow the deductions accordingly.
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