2012 (8) TMI 261 - AT - Income Tax

Tribunal Decides on IT Act 10A Deductions, Aligns with Precedents

The Tribunal allowed the assessee's cross objection, condoning the delay in filing and emphasizing the correct treatment of expenses and income for ... Deduction under section 10A of the Act – Held that:- When the miscellaneous income was not relating to export and was reduced from the export turnover, it should have also been reduced from the total turnover for the purposes of working out the deduction under section 10A of the Act - if the income is to be reduced from the export turnover, the same should also to be reduced from the total turnover while working out the deduction under section 10A of the Act. In that view of the matter, we direct the Assessing Officer to reduce the miscellaneous income in question from the export turnover as well as the total turnover while computing the deduction under section 10A of the Act. Deduction under section 10A of the IT Act - Setting off of the loss of Mumbai STPI undertaking from the profits of the business of Bangalore STPI - Held that:- As the profits and gains under section 10A were not to be included in the income of the assessee at all, the question of setting off the loss of the assessee from any business against such profits and gains of the undertaking would not arise - as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year’s depreciation under section 32(2) is to be set off. As the deduction under section 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise - In favor of assessee. Issues:1. Condonation of delay in filing cross objection.2. Exclusion of certain expenses from total turnover for deduction under section 10A of the IT Act.3. Treatment of miscellaneous income and setting off losses in computing deduction under section 10A of the IT Act.Issue 1: Condonation of Delay in Filing Cross Objection:The assessee filed a cross objection 37 days beyond the deadline, attributing the delay to senior management changes. The application for condonation of delay was supported by an affidavit emphasizing the absence of malafide intent. The department opposed the condonation. The Tribunal, considering the reasonable cause due to management changes, allowed the delay condonation and admitted the cross objection.Issue 2: Exclusion of Expenses from Total Turnover for Deduction under Section 10A:The department disputed the exclusion of leased line charges, half circuit charges, and travel expenses from total turnover for computing deduction under section 10A. The Tribunal referred to a Special Bench decision and High Court rulings, emphasizing that certain expenses, not constituting turnover, should be excluded. Citing precedents, the Tribunal upheld the CIT(A)'s decision to exclude the expenses, finding no fault in the order.Issue 3: Treatment of Miscellaneous Income and Setting Off Losses in Computing Deduction under Section 10A:The cross objection raised concerns about including miscellaneous income in total turnover and setting off Mumbai STPI unit losses against Bangalore STPI unit profits for section 10A deduction. The Tribunal directed the reduction of miscellaneous income from both export and total turnover, aligning with High Court precedent. Additionally, following a High Court ruling, the Tribunal disallowed the setting off of Mumbai unit losses against Bangalore unit profits for section 10A deduction.In conclusion, the Tribunal dismissed the department's appeal and allowed the assessee's cross objection, emphasizing the correct treatment of expenses and income for computing deductions under section 10A of the IT Act. The judgment provided detailed analyses for each issue, aligning decisions with legal precedents and ensuring fair application of tax laws.