2018 (3) TMI 218 - AT - Income Tax

Order under Section 263 of Income Tax Act quashed as unsustainable in law

The Tribunal held that the order passed by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961, was not sustainable in law. The impugned order ... Adjustment of brought forward unabsorbed depreciation before allowing deduction u/s 10A - revision u/s 263 - Held that:- Unabsorbed depreciation is not to be reduced while working out deduction u/s 10A of the Act. See case of Canam International Pvt. Ltd.[2015 (2) TMI 108 - ITAT DELHI]. The impugned order passed by the learned Pr. CIT u/s.263 of the I.T. Act is not sustainable in the eyes of law. - Decided in favour of assessee Issues Involved:1. Adjustment of brought forward unabsorbed depreciation before allowing deduction under section 10A.2. Legality of the order passed by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961.Issue-Wise Detailed Analysis:1. Adjustment of Brought Forward Unabsorbed Depreciation Before Allowing Deduction Under Section 10A:The primary issue in this case revolves around whether the Assessing Officer (AO) should first adjust the brought forward unabsorbed depreciation before allowing the deduction under section 10A of the Income Tax Act, 1961. The Ld. Pr. CIT directed the AO to first set off the unabsorbed depreciation losses of Rs. 13,51,195 against the income of Rs. 21,36,056 of the eligible unit and then allow the deduction under section 10A on the remaining income of Rs. 7,84,861. The assessee contended that this direction was incorrect and relied on various case laws and CBDT Circular No. 794 dated 09.08.2000, which state that the deduction under section 10A is to be allowed from the total income as computed under Chapter IV of the Income Tax Act, 1961, and not at the stage of computation of total income under Chapter VI.The Tribunal referred to Section 10A(1) of the Act, which provides for a deduction of profits derived from the export of articles or things or computer software for a period of ten consecutive assessment years. It was noted that the provisions of Section 10A provide for a deduction from the total income of the assessee. The Tribunal also examined Department Circular No. 794, which clarified that unabsorbed amounts cannot be carried forward or set off against profits of subsequent years, indicating that the deduction under section 10A is to be allowed before adjusting unabsorbed depreciation.2. Legality of the Order Passed by the Ld. Pr. CIT Under Section 263 of the Income Tax Act, 1961:The second issue pertains to the legality of the order passed by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961. The Ld. Pr. CIT held that the assessment order dated 27.02.2014 was erroneous and prejudicial to the interests of revenue because the AO had erroneously accepted the assessee's claim without proper examination. The Tribunal examined various judicial precedents, including the Supreme Court's decision in Commissioner of Income Tax and Another Vs. Yokogawa India Ltd. (2017-391 ITR 274), where it was held that the deduction under section 10A is to be given before adjusting unabsorbed depreciation or losses as per Chapter VI of the Income Tax Act, 1961.The Tribunal also referred to the Delhi High Court's decision in Commissioner of Income Tax Vs. TEI Technologies Pvt. Ltd. (2012) 25 Taxmann.com 5 (Delhi), which held that the business loss of non-eligible units could not be set off against profits of an undertaking eligible for exemption under section 10A. Additionally, the Tribunal considered the ITAT Delhi's decision in Canam International Pvt. Ltd. Vs. ACIT, Circle 3(1) (2014 ITA No. 1885/Del/2010), which held that deduction under section 10A is to be allowed before reducing unabsorbed loss and depreciation.The Tribunal found that the Ld. Pr. CIT's reliance on the Karnataka High Court's decision in CIT vs. Himatasingike Seide Ltd. was misplaced as it pertained to an assessment year under the old law and was distinguished by subsequent judgments. Based on these precedents, the Tribunal concluded that the deduction under section 10A should be allowed before adjusting unabsorbed depreciation.Conclusion:In light of the above discussions and judicial precedents, the Tribunal held that the order passed by the Ld. Pr. CIT under section 263 of the Income Tax Act, 1961, was not sustainable in law. Accordingly, the impugned order was quashed, and the appeal filed by the assessee was allowed. The Tribunal pronounced the order on 01/03/2018.