Unit-specific deductions under Income Tax Act upheld by Tribunal, losses cannot be set off.

The Tribunal allowed the assessee's appeal, holding that deductions under section 10A of the Income Tax Act should be computed at the unit level without intra-head set-off of losses from other units. The Tribunal emphasized that section 10A deductions are unit-specific and should be calculated independently for each eligible unit. Consequently, the appeals for both assessment years 2005-06 and 2006-07 were partly allowed, overturning the CIT(A)'s decision.

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Issues Involved:
1. Computation of taxable income and loss.
2. Deduction under section 10A of the Income Tax Act, 1961.
3. Set-off of losses from other business units/undertakings.

Detailed Analysis:

1. Computation of Taxable Income and Loss:
The assessee challenged the decision of the CIT(A)-I, Pune, which upheld the taxable income determined by the DCIT, Circle 11(1), Pune, at Rs. 8,59,046 instead of the reported loss of Rs. 3,89,37,510. The Tribunal dismissed the grounds of appeal as general, stating that they did not specifically address the core issues.

2. Deduction under Section 10A of the Income Tax Act, 1961:
The primary issue was the computation of deduction under section 10A. The assessee, a software development company with eight units, claimed deductions for each unit separately. The Assessing Officer (AO) reduced the deduction under section 10A from Rs. 24,55,53,914 to Rs. 20,68,49,064 by setting off losses from three units against the profits of other units, based on the provisions of section 70(1) of the Act. The AO's rationale was that the amendment from 2001 changed section 10A from an exemption to a deduction, affecting the set-off provisions. The AO cited the Delhi Tribunal's decision in Honeywell International (India) (P.) Ltd. and the Supreme Court's decision in Synco Industries Ltd. to support intra-head set-off before allowing the deduction.

3. Set-off of Losses from Other Business Units/Undertakings:
The CIT(A) upheld the AO's view, emphasizing that post-amendment, section 10A income forms part of the total income, subject to intra-head set-off under section 70 and inter-head set-off under section 71. The CIT(A) referred to Chapter VI and VIA of the Income Tax Act, stating that losses and depreciation must be carried forward and set off, as per section 10A(6). The CIT(A) concluded that the deduction under section 10A must be computed after intra-head set-off of losses, aligning with the decisions in Honeywell International India Pvt. Ltd. and Synco Industries Ltd.

Tribunal's Findings:
The Tribunal referred to the Bombay High Court's decisions in Hindustan Unilever Ltd. and Black & Veatch Consulting Pvt. Ltd., which held that deductions under section 10A should be computed at the unit level, not after aggregating profits and losses of all units. The Tribunal emphasized that section 10A deductions are unit-specific, not assessee-specific, and should be computed independently for each eligible unit. The Tribunal reversed the CIT(A)'s order, allowing the assessee's appeal on this ground.

Conclusion:
The Tribunal concluded that the computation of deduction under section 10A should be unit-specific, without intra-head set-off of losses from other units. The appeals for both assessment years 2005-06 and 2006-07 were partly allowed, reversing the CIT(A)'s decision. The order was pronounced on November 30, 2015.

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