Section 10A deduction must be computed before set-off of non-eligible unit losses, ITAT Mumbai says.

The Tribunal held that deduction under section 10A must be computed on the profits of the eligible undertaking before setting off brought forward losses of non-10A units. It treated section 10A as a Chapter III deduction, not an exemption, and held that section 80AB of Chapter VI-A does not govern its computation. On that basis, the eligible unit's profits were first taken for section 10A relief, and the losses of other units could be adjusted only afterwards. The issue was decided in favour of the assessee.

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Issues: Whether the deduction under section 10A of the Income-tax Act, 1961 was to be allowed on the profits of the eligible 10A unit before setting off the brought forward losses of non-10A units.

Analysis: The dispute concerned the sequence of computation where the assessee had one eligible 10A unit and other non-10A units with brought forward losses. The Tribunal followed the Special Bench decision in Scientific Atlanta and held that deduction under section 10A is a deduction under Chapter III, not an exemption. It further held that section 80AB of Chapter VIA does not govern the computation of deduction under section 10A, and that the profit of the eligible unit must first be considered for such deduction before any set-off of losses of non-eligible units. As the assessee's facts were identical, the same principle applied.

Conclusion: The deduction under section 10A had to be allowed first on the eligible unit's profits, and the brought forward losses of non-10A units could be set off only thereafter. The issue was decided in favour of the assessee.

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