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TMI Blog2015 (9) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... al turnover for arriving at the eligible deduction U/s.10A of the Act. 3. The brief facts of the case are that the assessee is a domestic company, engaged in the business of data and call center operation, filed its return of income declaring 'Nil' income on 30.11.2006 after claiming deduction U/s. 10A of the Act. Subsequently the assessee had revised its return of income on 28.03.2008. The case was taken up for scrutiny and assessment was made U/s. 143(3) of the Act on 28.11.2008 wherein the Ld. Assessing Officer had:- (i) set-off the brought forward losses and unabsorbed depreciation from the current year profit of the eligible 10A unit of the assessee U/s. 72 of the Act and thereafter granted deduction U/s. 10A of the Act for the remaining profit. (ii) excluded the entire telecommunication expenses incurred outside India in foreign exchange and in Indian currency from the export turn over, however the same was not excluded from the total turnover while computing eligible deduction U/s.10A of the Act. 4. When the matter cropped up before the Ld. CIT (A) with respect to the first issue supra, the Ld. CIT (A) allowed the appeal of the assessee by relying on the decision of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the section itself that what is to be given is only a deduction and not exemption. Under the scheme of the Act, the profits of the unit eligible for deduction under s. 10A of the Act, would form part of the income computed under the head "Profits and gains of business or profession". However, in order that the same will not suffer tax, deduction will have to be made in respect of such profits while computing the income under the head "Profits and gains of business or profession". In other words, a deduction in respect of profits eligible under s. 10A is required to be made at the stage of computing the income under the head "Profits and gains of business or profession". Thus, we find that what is contemplated by the legislature is that profits and gains of the undertakings from the export of articles or things or computer software are to be deducted while computing the profits and gains of business or profession (at hundred per cent upto asst. yr. 2002-03 and ninety per cent thereafter). Even though it is a deduction to be given, it is to be deducted while arriving at the profits of business and profession and not from the gross total income as envisaged under Chapter VI-A. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -A, so long as the legislature has not specifically mentioned so, to apply the provisions of s. 80AB of the Act, to the claim of deduction under s. 10A. It can be noticed that even though there is a mention about ss. 80HH, 80HHA, 80-I, 80-IA and 80-IB in s. 10A(6), no mention about ss. 80AB, 80HHC and 80HHE has been made. The Bombay High Court in the case of Siemens Information System Ltd. vs. Asstt. CIT & Ors. (2007) 211 CTR (Bom) 10 : (2007) 293 ITR 548 (Bom), has held asunder :- "'Total income' means the total amount of income referred to in s. 5, computed in the manner laid down in this Act. Next, our attention is invited to what is gross total income under s. 80B(5). The gross total income has been described to be the total income computed in accordance with the provisions of the Act before making any deduction under the relevant chapter. A perusal of s. 10A(1), as it stood at the relevant time, clearly sets out that subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which the section applies shall not be included in the total income of the assessee. In other words, it is clear that the income derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 84 has to be with respect to the particular undertaking and not to the company in general. When we apply s. 84 to a particular undertaking it has to be seen when that undertaking commenced the manufacture or production of articles. It is true that the word 'undertaking' has not been defined under the IT Act. But in common parlance it is taken as a concern started or formed for a specific purpose or a project engaged in." We also note that in the Circular F. No. 15/563-IT(AT), dt. 13 Dec., 1963, issued by CBR in the context of s. 80J, the Board agrees that the benefit of s. 84/80J of the IT Act, 1961, attaches to the undertaking and not the owner thereof. We also find that in the CBDT Circular No. 308 dt.29th June , 1981, also it is mentioned that complete tax exemption in respect of the profits and gains derived from undertakings set up in free trade zones are available to export oriented industries. In Circular No. 8 of 2002 dt. 27th Aug., 2002, para No. 19 reads as under :- "Under the existing provisions of s. 10A, a deduction is given of 100 per cent of profits and gains from export earnings of new undertakings (emphasis, italicized in print, supplied) establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from Chapter IV cannot be clubbed with those from Chapter III and the resultant figure determined as the total taxable income of the assessee. iii. The brought forward business losses and unabsorbed depreciation of a non-10A unit cannot be set off against the profits of the undertaking eligible for deduction u/s 10A. In view of the above decision, the issue (i) above is answered in negative and hence the A.O. is directed to rework out of the exemption u/s 10A without setting off the said unabsorbed losses and depreciation brought forward and allow these to be carried forward to subsequent years. Hence the ratio relied upon by the learned A.O. cannot be accepted here and that the order of set off as claimed by the assessee company is in order and the brought forward losses and unabsorbed depreciation of earlier years cannot be set off against the profits and gains of undertaking claiming exemption u/s 10A. 11. Coming to the issue (ii) of losses allowed to be treated as non-10A losses, it is essential to extract the provisions of sec.10A(8) here. "10A. Special provision in respect of newly established undertakings in free trade zone, etc. (1) .... (8) Notwithstanding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed and accepted u/s 10A(8). Accordingly, the A.O. is directed to exclude the unabsorbed losses and depreciation of A.Ys 2003- 04 and 2004-05 in working out the deduction u/s 10A. Hence, both the issues (i) and (ii) are held in favour of the assessee company. Ground is allowed." 5. Since the Ld. CIT (A) has held that unabsorbed losses and depreciation of the earlier years cannot be set off against the profits from the eligible unit for computing the eligible deduction U/s. 10A of the Act following the decision of the Tribunal cited supra, we do not have any hesitation to confirm the order of the Ld. CIT (A) on this issue. Hence, this ground raised by the assessee is allowed in favour of the assessee. 5. With respect to second issue supra, following various decisions of higher judicial forum the Ld. CIT (A) allowed the appeal of the assessee. The relevant portion of the order is reproduced herein below for reference:- "The appellant also submits the following decisions in support of its claim: "DCIT Vs. M/s.Honeywell International India Circle (P) Ltd. -2013 -TIOL- 269-ITAT-DEL-Income Tax-Sections 10A, 36, 92CA -"export turnover" - whether when telecommunication expenses excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educted from the total turnover in the denominator also in arriving at the eligible deduction U/s.10A. Accordingly the Assessing Officer is directed to re-compute the eligible deduction U/s. 10A by reducing the expenditure incurred in foreign currency or any other expenditure required to be deducted, both from the export turnover in the numerator as well as the total turnover in the denominator." 6.1 At the outset we find that the Ld. CIT (A) has simply followed the decision in the case of ITO Vs. Sak Soft Ltd., reported in 313 ITR (AT) 353 (Chennai)(SB) and decided the matter in favour of the assessee. The relevant portion of the aforesaid portion is reproduced herein below for reference:- "For the purpose of applying the formula under sub-section (4) of section 10B, the freight, telecom charges, or insurance attributable to delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula." The same analogy is applicable with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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