2010 (10) TMI 618 - AT - Income Tax

Tribunal affirms CIT(A) decision: Deduction u/s 10A allowed without setting off losses

The Tribunal upheld the CIT(A)'s decision to allow deduction u/s 10A without setting off losses from other units. The Tribunal emphasized that section 10A ... Deduction u/s 10A - Scrutiny - 100% EOU - assessee, while filing the return, quantified the deduction u/s 10A and worked out without considering the results of operation of other units for the relevant year, has also the unabsorbed depreciation and brought forward business loss of non 10A units - following decisions in assessee's own case, it has been held that deduction u/s 10A should be allowed in respect of profits of the business of the eligible undertaking without reducing the losses of other units/brought forward losses/unabsorbed depreciation allowance - it is mentioned in section 10A that such deduction is to be restricted to the total income of the assessee computed under the provisions of the Act - Decided in favour of the assessee Issues Involved: Whether the CIT(A) is justified in directing the Assessing Officer to allow deduction u/s 10A without setting off the brought forward loss and unabsorbed depreciation of other units.Issue-wise Detailed Analysis:1. Facts of the Case:The assessee, a public limited company engaged in industrial automation and information technology, claimed deduction u/s 10A for its profitable software division registered with the STPI. The other two units operated at a loss, carrying forward unabsorbed depreciation and business losses. The Assessing Officer (AO) disallowed the deduction u/s 10A, citing that the net result was a loss of Rs.1,43,34,605/- and thus, no profits were left for the deduction.2. Appeal to CIT(A):The assessee appealed to the CIT(A), who allowed the deduction following the Tribunal's orders in the assessee's own case for the assessment years 2002-03 and 2004-05.3. Revenue's Argument:The revenue argued against the CIT(A)'s decision, citing reliance on the Chennai Special Bench decision in the case of Scientific Atlanta India Technology Ltd. The revenue contended that this case was not applicable due to the Karnataka High Court's decision in Himatsingike Seide Ltd., which discussed the total income and deductions under chapters VIA and III.4. Distinction of Cases:The revenue highlighted that the decision in Himatsingike Seide Ltd. involved set off of unabsorbed business loss and depreciation of the eligible unit against its profits, whereas the present case involved multiple units with losses in non-10A units. The revenue also cited several other decisions, including Synco Industries Ltd. and Siemens Information System Ltd., to support its argument that total income should be calculated as provided under the Act.5. Assessee's Argument:The assessee reiterated the submissions made before the CIT(A), supporting the finding that the issue was covered by the Special Bench order in Scientific Atlanta India Technology Ltd. The assessee argued that the Himatsingike Seide Ltd. and Intellinet Technologies India Pvt. Ltd. cases were not applicable as they involved different contexts.6. Tribunal's Analysis:The Tribunal reviewed the material and found that in the assessee's own case, it was previously held that deduction u/s 10A should be allowed in respect of profits of the eligible undertaking without reducing losses of other units or brought forward losses/unabsorbed depreciation. The Tribunal noted that section 10A is undertaking-specific, and the provisions of sections 28 to 44D apply to each undertaking separately.7. Distinguishing Himatsingike Seide Ltd. Case:The Tribunal distinguished the Himatsingike Seide Ltd. case, noting that it involved a single unit, whereas the present case involved multiple units with the non-10A units incurring losses.8. Applicability of Synco Industries Ltd. Case:The Tribunal found that the Synco Industries Ltd. case, which dealt with section 80I, was not applicable to section 10A/10B deductions, as sections 80A and 80AB do not apply to these sections.9. Special Bench Decision in Scientific Atlanta India Technology Ltd.:The Tribunal relied on the Special Bench decision, which held that deduction u/s 10A should be granted while computing the profits and gains of business and profession and not from the gross total income. The Special Bench emphasized that section 10A is not included in Chapter VI-A, and thus, section 80AB cannot be applied.10. Conclusion:The Tribunal concluded that the AO was not justified in denying the deduction u/s 10A. The order of the CIT(A) was upheld, and the appeal filed by the revenue was dismissed.Final Judgment:The appeal filed by the revenue is dismissed. The order pronounced on 29.10.2010 at Bangalore.