2013 (1) TMI 802 - AT - Income Tax

Deduction under section 10A allowed before setting off losses. Statutory notice issue dismissed.

The Tribunal allowed the assessee's appeal, holding that deduction under section 10A should be allowed before setting off brought forward losses and ... Whether deduction under section 10A or brought forward losses and unabsorbed depreciation shall first be allowed from business income - Held that:- Section 10A is a provision which is in the nature of a deduction and not an exemption - The deduction under section 10A has to be given effect to at the stage of computing the profits and gains of business - Hence it is clear that exemption under section 10A, is to be allowed without setting off carry forward unabsorbed losses and the depreciation from the earlier AY or current AY Decided in favor of assessee Issues Involved:1. Set-off of brought forward losses and unabsorbed depreciation before allowing deduction under section 10A.2. Non-issuance of statutory notice within the specified time under section 143(2) of the Income Tax Act.Issue-wise Detailed Analysis:1. Set-off of Brought Forward Losses and Unabsorbed Depreciation Before Allowing Deduction Under Section 10AThe primary issue was whether the brought forward losses and unabsorbed depreciation of earlier years should be set off against the business income of the current year before allowing the deduction under section 10A. The assessee, a Private Limited company engaged in medical transcription services, claimed a deduction under section 10A, which was contested by the Assessing Officer (AO). The AO argued that the losses and depreciation must be set off first before allowing any deduction under section 10A, drawing parallels between Chapter-VIA and sections 10A/10B. The AO cited the Supreme Court judgment in CIT v/s Shirke Construction Equipment Ltd. [2007] 291 ITR 380 (SC) to support this view.The Commissioner (Appeals) upheld the AO's decision, distinguishing the case from the ITAT Special Bench decision in Scientific Atlanta Technology, which involved two units, one eligible and one non-eligible for deduction under section 10A. The Commissioner relied on the Tribunal's decision in Sword Global India Pvt. Ltd. and ACIT v/s Jewellery Solution International Pvt. Ltd.However, the Tribunal, referencing the decisions of the Delhi High Court in CIT v/s Black Veatch Consulting Pvt. Ltd. [2012] 348 ITR 72 (Del.) and the Karnataka High Court in CIT v/s Yokogawa India Ltd. [2012] 246 CTR 226 (Kar.), concluded that the deduction under section 10A should be allowed at the stage of computing the profits and gains of business before applying the provisions of section 72. The Tribunal emphasized that section 10A falls under Chapter-III, which deals with 'Incomes which do not form part of the total Income,' and thus, the income of the eligible unit should be excluded before arriving at the gross total income.The Tribunal noted that the distinction between Chapter-III and Chapter-VIA is crucial, as Chapter-VIA deals with deductions from the total income, while Chapter-III pertains to exemptions at the source itself. The Tribunal cited the Karnataka High Court's interpretation that the income of the 10A unit should be deducted at source before computing the gross total income, and the exemption under section 10A should be allowed without setting off carry forward losses and unabsorbed depreciation.Therefore, the Tribunal set aside the impugned order and held that the assessee is eligible for claiming deduction under section 10A before setting off carry forward losses and unabsorbed depreciation of the earlier years, allowing ground no.1.2. Non-issuance of Statutory Notice Within the Specified Time Under Section 143(2)The second issue concerned the non-issuance of statutory notice within the limitation period provided under the proviso to section 143(2). Since the Tribunal allowed the assessee's appeal on merit regarding the first issue, the legal issue raised in ground no.2 was treated as academic in nature and thus dismissed.ConclusionIn conclusion, the Tribunal allowed the assessee's appeal in part, holding that the deduction under section 10A should be allowed before setting off brought forward losses and unabsorbed depreciation. The issue of non-issuance of statutory notice was dismissed as academic. The order was pronounced in the open Court on 24th January 2013.