2022 (9) TMI 766 - AT - Income Tax

Tribunal dismisses Revenue's appeal on set-off, allows deductions under sections 10A, 80HHE.

Asstt. Commissioner of Income Tax Circle–2 (3), Mumbai Versus M/s. Zensar Technolgies Ltd. And (Vice-Versa)

Asstt. Commissioner of Income Tax Circle–2 (3), Mumbai Versus M/s. Zensar Technolgies Ltd. And (Vice-Versa) - TMI Issues Involved:1. Set-off of losses of STP units against normal business income while computing deduction under section 10A of the Income Tax Act.2. Deduction under section 80HHE of the Income Tax Act considering brought forward losses.3. Computation of deduction under section 10A vis-à-vis transfer pricing adjustment.Issue-wise Detailed Analysis:1. Set-off of losses of STP units against normal business income while computing deduction under section 10A:The Revenue's appeal contested the set-off of losses of STP units against the profit of another STP unit while computing deduction under section 10A. The Tribunal noted that the assessee's STP units at SEEPZ, Noida, and Mohali suffered losses, while the unit at Ashok Plaza, Pune, earned a profit. The Assessing Officer, following a revision order under section 263, set off the losses against the profit, reducing the deduction under section 10A. The CIT(A) allowed the assessee's appeal, citing decisions from the Co-ordinate Bench and the jurisdictional High Court, which held that deductions under section 10A should be computed on a stand-alone basis for each eligible unit. The Tribunal upheld this view, referencing the Supreme Court's decision in CIT v/s Yokogawa India, which confirmed that deductions under section 10A are to be calculated independently for each eligible undertaking without reference to other units. Consequently, the Tribunal dismissed the Revenue's appeal.2. Deduction under section 80HHE considering brought forward losses:The assessee's appeal challenged the denial of deduction under section 80HHE due to the setting off of brought forward losses. The Tribunal noted that the Assessing Officer initially allowed the deduction but later reduced it to NIL following a revision order under section 263. The CIT(A) upheld this reduction. The Tribunal referred to its earlier decision in the assessee's own case, where it was held that profits eligible for deduction under section 80HHE should not be reduced by brought forward business losses. The Tribunal emphasized that the computation of profits for deduction under section 80HHE should be based on current year profits without considering brought forward losses, as supported by various High Court and Supreme Court decisions. Thus, the Tribunal allowed the assessee's appeal on this issue.3. Computation of deduction under section 10A vis-à-vis transfer pricing adjustment:The assessee's appeal also addressed the issue of deduction under section 10A concerning transfer pricing adjustments. The CIT, in a revision order under section 263, observed that payments received for providing software personnel to USA clients should not be considered for deduction under section 10A. The Assessing Officer, following this order, disallowed a portion of the deduction. The CIT(A) directed the Assessing Officer to verify and delete the addition if it resulted in double addition. The Tribunal upheld this direction, instructing the Assessing Officer to ensure no double addition occurred after necessary verification. Consequently, this ground was allowed for statistical purposes.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal on the issues of set-off of losses under section 10A and deduction under section 80HHE, while the issue of transfer pricing adjustment was allowed for statistical purposes, subject to verification by the Assessing Officer.