2020 (10) TMI 799 - HC - Income Tax

Deduction u/s 10B - Whether the Tribunal was justified in holding that deduction u/s 10B of the Income Tax Act should first be excluded from the profits of the year, before set off brought forward unabsorbed depreciation as current year depreciation as per Section 32 2 pertaining to the said Export Oriented Unit? - HELD THAT - As decided in M/S. COMSTAR AUTOMATIVE TECHNOLOGIES PRIVATE LTD., (FORMERLY KNOWN AS VISTEON POWERTRAIN CONTROL SYSTEMS INDIA PRIVATE LIMITED) 2020 (3) TMI 814 - MADRAS HIGH COURT deductions either under Section 10A or 10B would be made while computing the gross total income of the eligible undertaking (like the Assessee) under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI of the Act. Here in the case in hand, the total income was first arrived at by the Revenue through the Assessing Officer in the Assessment Order by computing the total income by way of brought forward or carry forward the depreciation allowance of the earlier Assessment Years and set off the unabsorbed depreciation first and making the return Nil, thereby leaving the Assessee in a position where it could not claim any deduction under Section 10B as there was no income after set off of carry forward depreciation and unabsorbed depreciation from earlier years. This method of computing the income in the present case made by the Revenue is totally against the said law as has been declared in the aforesaid decision in Commissioner of Income-tax v. Yokogawa India Ltd., 2016 (12) TMI 881 - SUPREME COURT Decision of the ITAT, which is impugned herein, would not stand in the legal scrutiny, in view of the law having been declared by the Hon'ble Apex Court. Therefore, we are of the view that, the Substantial Question of Law in favour of assessee.

Summary

Issues:
1. Interpretation of deduction u/s 10B of the Income Tax Act.
2. Correct interpretation of the judgment of the Supreme Court in a specific case.
3. Allowance of deduction u/s 10B to the assessee.
4. Adherence to previous legal decisions.

Issue 1: Interpretation of deduction u/s 10B of the Income Tax Act:
The Revenue challenged a Tribunal order regarding the exclusion of deduction u/s 10B from profits before set off of unabsorbed depreciation. The Tribunal's decision was based on a specific legal interpretation. The Court referred to a case involving Comstar Automotive Technologies, where the issue was decided in favor of the assessee. The Court cited the Supreme Court's judgment on the nature of deductions under Section 10A, emphasizing that deductions should be made while computing the gross total income of the eligible undertaking under Chapter IV of the Act, not during the computation of total income under Chapter VI.

Issue 2: Correct interpretation of the judgment of the Supreme Court:
The Appellate Tribunal's interpretation of the Supreme Court's judgment in Yokogawa India Ltd was questioned by the Revenue. The Court reiterated the Supreme Court's stance that deductions under Section 10A or 10B should be made while computing the gross total income of the eligible undertaking under Chapter IV, not during the total income computation under Chapter VI. The Court emphasized that the Revenue's method of computing income, which precluded the claim of deduction under Section 10B, contradicted the legal position established by the Supreme Court.

Issue 3: Allowance of deduction u/s 10B to the assessee:
The Tribunal allowed the deduction u/s 10B to the assessee, contrary to the Revenue's contention that the AO's approach was correct. The Court, following the precedent set by the Supreme Court's judgment, upheld the Tribunal's decision, dismissing the Revenue's appeal and answering the substantial questions of law against the Revenue. The Court emphasized that deductions under Section 10B should be granted while computing the gross total income of the eligible undertaking under Chapter IV of the Act.

Issue 4: Adherence to previous legal decisions:
The Court highlighted the importance of adhering to previous legal decisions, particularly the Supreme Court's judgment in Yokogawa India Ltd. The Court ruled that the Tribunal's decision aligning with the legal position established by the Supreme Court was correct. The Court dismissed the Tax Case Appeals, answering the substantial questions of law against the Revenue, and closed the connected miscellaneous petitions without costs.

This detailed analysis of the judgment addresses the issues raised by the Revenue in the context of the legal interpretations and precedents established by the Supreme Court and previous decisions.