2009 (2) TMI 858 - AT - Income Tax

Tribunal rules in favor of taxpayer on section 10A deduction without setting off losses

The Tribunal found that the initiation of proceedings under section 263 of the Income-tax Act was not justified. It held that the assessment order was not ... - Issues Involved:1. Validity of initiation of proceedings u/s 263 of the Income-tax Act, 1961.2. Whether the assessment order u/s 143(3) was erroneous and prejudicial to the interests of revenue.3. Correctness of the CIT's direction to recompute the deduction u/s 10A after adjusting brought forward business losses and unabsorbed depreciation.Summary:1. Validity of initiation of proceedings u/s 263 of the Income-tax Act, 1961:The assessee contended that the preconditions necessary for initiation of proceedings u/s 263 did not exist and that the notice issued was bad in law, rendering the entire proceedings and order invalid. The Tribunal examined the validity of the initiation of proceedings and found that the CIT's action was not justified.2. Whether the assessment order u/s 143(3) was erroneous and prejudicial to the interests of revenue:The CIT held that the assessment order dated March 20, 2006, was erroneous and prejudicial to the interests of revenue. The Tribunal referred to previous decisions, including ACIT vs. M/s. Webspectrum Software (P) Ltd. and GE India Exports Pvt. Ltd., which established that the deduction u/s 10A should be allowed without setting off brought forward and current year losses of non-10A units. The Tribunal concluded that the CIT's order was not sustainable.3. Correctness of the CIT's direction to recompute the deduction u/s 10A after adjusting brought forward business losses and unabsorbed depreciation:The CIT directed the AO to recompute the deduction u/s 10A after considering brought forward losses and unabsorbed depreciation. The Tribunal, however, held that the deduction u/s 10A should be computed without setting off losses of non-10A units, following the principles laid down in previous judgments. The Tribunal annulled the CIT's order dated 13.12.2007 passed u/s 263 of the IT Act.Conclusion:The appeal filed by the assessee was allowed, and the order of the learned CIT dated 13.12.2007 was annulled. The Tribunal directed that the deduction u/s 10A should be allowed without setting off brought forward and current year losses of non-10A units. The order was pronounced in the open court on 13.02.2009.