2020 (4) TMI 396 - AT - Income Tax

Correct sequence of deductions under section 10AA & importance of statutory compliance in tax assessments

M/s. East Wind Footwear Company Limited Versus The Deputy Commissioner of Income Tax, International Taxation 1 (1) & 1 (2), Chennai.

The Tribunal directed the Assessing Officer to grant the deduction under section 10AA before setting off any remaining profit and reexamine the levy of ... Deduction u/s 10AA - set off the brought forward loss and depreciation against the profit of the eligible unit - whether the deduction claimed under section 10AA of the Act has to be allowed first and thereafter set off brought forward losses and unabsorbed depreciation from remaining profit, if any, or not? - HELD THAT:- Similar issue was subject matter in appeal before the Tribunal in the case of JCIT v. Lotus Footwear Enterprises Ltd. (assessee’s sister concern), wherein, the issue was decided in favour of the assessee by following the decision in the case of CIT v. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] - we direct the Assessing Officer to first grant deduction under section 10AA of the Act and thereafter set off from the remaining profit if any the brought forward losses and unabsorbed depreciation. Thus, the ground raised by the assessee is allowed. Computation of tax payable and levy of interest under section 234D - HELD THAT:- Referring to submission of assessee that AO has not considered the amount as already paid by the assessee on account of excess refund granted to the assessee, accordingly, we direct the Assessing Officer to verify and decide the issue afresh in accordance with law after allowing an opportunity of being heard to the assessee. Issues:1. Deduction under section 10AA of the Income Tax Act2. Computation of tax payable and levy of interest under section 234D of the ActIssue 1: Deduction under section 10AA of the Income Tax Act:The appeal was against the final assessment order under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 for the assessment year 2014-15. The assessee contended that the Assessing Officer and the DRP erred in law by not allowing the deduction under section 10AA of the Act and in the computation of tax payable and levy of interest under section 234D of the Act. The Assessing Officer disallowed the claim of exemption under section 10AA while allowing the carry forward of unabsorbed depreciation. The DRP confirmed the disallowance of the deduction under section 10AA. The Tribunal analyzed relevant case laws and the provisions of section 10AA. Referring to the Supreme Court's decision in a similar case, the Tribunal held that the deduction under section 10AA should be allowed first, followed by setting off brought forward losses and unabsorbed depreciation. The Tribunal directed the Assessing Officer to grant the deduction under section 10AA before setting off any remaining profit.Issue 2: Computation of tax payable and levy of interest under section 234D of the Act:The second ground raised in the appeal related to the levy of interest under section 234D of the Act. The assessee argued that the Assessing Officer did not consider the amount already paid by the assessee on account of an excess refund. The Tribunal directed the Assessing Officer to reexamine the issue after allowing the assessee an opportunity to be heard, ensuring compliance with the law. Consequently, the appeal by the assessee was partly allowed for statistical purposes.This judgment clarifies the sequence of allowing deductions under section 10AA of the Income Tax Act and emphasizes the importance of following statutory provisions while computing tax liabilities and levying interest. The Tribunal's decision provides guidance on the correct application of tax laws and ensures fair treatment for taxpayers in assessment proceedings.