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TMI Blog2022 (5) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 29.12.2004 passed by the Assessing Officer (AO) was not erroneous and was not prejudicial to the interest of the revenue within the meaning of section 263 of the Act. The appellants therefore pray that the order of the CIT passed under section 263 of the Act be quashed. 2.(a) The CIT erred in holding that the appellants were not entitled to deduction under section 80HHE after setting off brought forward losses from the earlier years for the purpose of computing business profits under the said section. The appellants submit that deduction under section 80HHE is permissible from the Gross Total Income. Once the Gross Total Income is determined the character of the income is lost. It is also submitted that deduction under section 80HHE has to be computed on the business income by taking into account, the provisions of section 28 to 43D and before setting off the brought forward losses, 2.(b) Without prejudice, the CIT ought to have held that deduction under section 80HHE has to be computed by considering the book profits under section 115JB. 3.(a) The CIT erred in holding that the AO was in error in not disallowing the losses of the 10A units in computing the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. 3. The ground No.1 raised by the assessee is general in nature and does not require any specific adjudication. 4. We find that the ld. AR had not challenged jurisdiction of the ld. Administrative Commissioner in invoking revision jurisdiction u/s.263 of the Act in the instant case. Hence, we proceed to adjudicate the entire issue on merits of the various issues raised by the ld. CIT in the order passed u/s.263 of the Act. 5. We find that the assessee company is engaged in the business of development and marketing of software having unit at SEEPZ, Noida, Ashok Plaza and Mohali, Chandigarh. It provides technical services outside India in connection with the development and production of computer software in respect thereto. The return of income for the A.Y.2002-03 was filed by the assessee company on 24/10/2002 declaring book profit of Rs.23,65,362/- u/s. 115JB of the Act. The revised return of income was filed by the assessee company on 19/08/2003 declaring book profit of Rs.17,11,423/- u/s.115JB of the Act. In the return of income, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business is the profits of the business as computed under the head 'profits and gains of business or profession.' It is pertinent to note that Section 29 of the Act mandate that the business income shall be computed in accordance with the provisions contained in Section 30-43D of the Act. Hence, the profit qualifying for deduction u/s.80HHE of the Act is the profit of the current year. The set off of brought forward business loss is governed by the provisions of Section 72 of the Act and it has no relevance for this purpose. Hence, in our considered opinion, the eligible profits u/s.80HHE cannot be reduced by the brought forward business loss. 6.2. We find that the ld. CIT had held that the profits of the business for the year under consideration has to be reduced by the brought forward losses from earlier year for the purpose of computing profits eligible for deduction u/s.80HHE of the Act. The ld. DR before us placed reliance on the decision of the Hon'ble Madhya Pradesh High Court in the case of Vippy Solvex Products Ltd., vs. CIT reported in 273 ITR 107 and also on the decision of the Hon'ble Supreme Court in the case of Ipca Laboratories vs. DCIT reported in 266 ITR 521, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Hon'ble Jurisdictional High Court in the following cases:- a) CIT vs. Tridoss Laboratories reported in 328 ITR 448 b) V.M.Salgaocar & Brothers (P) Ltd., vs. ACIT reported in 81 taxmann.com 357. c) CIT vs. Eskay Knit (India) Pvt. Ltd., in Income Tax Appeal No.184 of 2007 dated 25/03/2010. d) CIT vs. J.B.Boda & Co., Pvt. Ltd., in Income Tax Appeal No.3224 of 2009 dated 18/10/2010. 6.5. In the instant case, we find that if the set off of brought forward business loss was not taken into account, the assessee would have been entitled to deduction of the entire amount of profit eligible for deduction u/s.80HHE of the Act of Rs.7,65,2,042/-. But since the deduction under 80HHE of the Act is restricted to gross total income and such gross total income is to be computed after setting off the brought forward business losses, the assessee's claim of deduction got reduced. Hence, there cannot be any error in the ld. AO allowing deduction under 80HHE of the Act in the instant case. Hence no adjustment is warranted in the instant case as proposed by the ld. CIT. 6.6. We further find that the ld. DR vehemently placed reliance on the decision of Hon'ble Jurisdictional High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Hon'ble Supreme Court in the case of CIT vs. Yokogawa India Ltd., reported in 77 taxmann.com 41 wherein it has been held that Section 10A of the Act provides that the deduction contemplated therein is qua profits of eligible undertaking on a stand alone basis and without set off of losses of eligible or non-eligible unit or undertaking of the assessee. The relevant operative portion of the said judgment is reproduced hereunder:- "16. From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that, "The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the ld. CIT in holding that the ld. AO had failed to take into account the transfer pricing adjustment while allowing deduction u/s.10A of the Act. 9.1. We have heard rival submissions and perused the materials available on record. In the instant case, we find that assessee has claimed deduction u/s.10A of the Act in the sum of Rs.1,34,13,648/- in the return of income. Only this sum was allowed as deduction by the ld. AO while computing the income of the assessee. We find from the computation of income enclosed in the attached assessment order, no deduction u/s.10A has been allowed in respect of transfer pricing adjustment by the ld. AO. We find that the ld. CIT has proceeded on the basis that deduction u/s.10A of the Act has been allowed by the ld. AO in the present case on higher profit after adding the transfer pricing adjustment in the eligible unit. We find that the ld. CIT has purely proceeded on incorrect assumption of facts. Hence, we have no hesitation in allowing ground No.5 raised by the assessee on the aforesaid facts. 10. The ground No.6 raised by the assessee is challenging the action of the ld. CIT(A) in holding that book profit u/s.115JB of the Act has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB(2) of the Act was introduced in the statute by Finance (No.2) of the Act 2009, with retrospective effect from 01/04/2001 which provides that any amount of provision made for diminution in value of any asset is required to be added back while computing book profits u/s.115JB of the Act. The same argument as advanced for provision for deferred tax liability was argued by the ld. AR for these three items also. But as stated for deferred tax liability supra, the assessee before us has not challenged the validity of assumption of jurisdiction u/s. 263 of the Act by the ld. CIT. Hence we have to address this issue only on merits. On merits, in view of the retrospective amendment brought in the statute, these three items would have to be added back while computing book profits u/s.115JB of the Act. Hence, all the case laws relied upon by the ld. AR before us would not be applicable in the instant case, in view of the retrospective amendment. Accordingly, the ground 7 raised by the assessee is dismissed.
10. In the result, the appeal of the assessee is partly allowed.
Order pronounced on 17/05/2022 by way of proper mentioning in the notice board. X X X X Extracts X X X X X X X X Extracts X X X X
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