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Facts
The Revenue's appeal pertained to AY 2011-12 against an order allowing deduction u/s.10A before setting off unabsorbed depreciation and brought forward losses. The assessee had both eligible and non-eligible undertakings.
Held
The Tribunal held that the assessee's claim of firstly claiming exemption u/s.10A and thereafter setting off brought forward unabsorbed business losses is justified. The DRP's finding in this regard was affirmed.
Key Issues
Whether deduction u/s. 10A should be allowed before or after setting off unabsorbed depreciation and brought forward losses.
Sections Cited
143(3), 144C(13), 10A, 70, 72, 74, 80HHC, 80HHE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BOARD, ACCOUNTANT MEMBER :
1. The captioned appeal at the instance of Revenue pertaining to A.Y. 2011-12 is directed against the order dated 29.01.2016 framed by Assessing Officer u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961.
This appeal has been recalled by this Tribunal vide order dated 07.02.2023 in M.A.No.43/PUN/2022 for the limited purpose of adjudicating Ground of appeal No.5 raised in Form No.36. We therefore proceed to adjudicate the said ground.
Ground of appeal No.5 raised by the Revenue reads as under :
“whether the DRP was right in law and on facts in directing AO to allow deduction u/s.10A before setting off unabsorbed depreciation and brought forward losses.”
At the outset, ld. Counsel for the assessee submitted that the finding of Ld. Dispute Resolution Panel (DRP) deserves to be affirmed in view of plethora of judgements including the judgment of Hon’ble Apex Court in the case of CIT Vs. Yokogawa India Ltd. (2017) 77 taxmann.com 41 (SC)/391 ITR 274 wherein it has been held that in case of an assessee having the business of eligible and non-eligible undertakings, then for the purpose of claiming set off of unabsorbed depreciation and brought forward business loss, the assessee is first entitled to legitimate claim of exemption u/s.10A of the Act for the profits earned from eligible undertaking and from the remaining profit, if any, from non-eligible undertaking, assessee can claim set off of unabsorbed depreciation and brought forward business losses. Reliance also placed on the following decisions :
CIT Vs. Black and Veatch Consulting (P) Ltd. (2012) 20 taxmann.com 727 (Bom.) 2. DCIT Vs. Applied Micro Circuits India (P) Ltd. (2017 88 taxmann.com 276 (Pune-Trib.) 3. Entrata India Pvt. Ltd. Vs.DCIT – dated 24.12.2024 4. Flexituff International Ltd. Vs. PCIT – dated 14.05.2019
On the other hand, ld. Departmental Representative though supported the order of ld. Assessing Officer, but failed to controvert the contentions made by ld. Counsel for the assessee.
We have heard the rival contentions and perused the record placed before us. We observe that ld. Assessing Officer granted deduction u/s.10A of the Act after setting off of the unabsorbed depreciation available with the assessee and disallowed the claim of deduction u/s.10A of the Act partially to the extent of Rs.38,57,245/-. Admittedly, the assessee which is engaged in the business of designing and developing products in CAD/CAM of Autoparts runs business under eligible as well as non eligible undertaking. The profits from eligible undertaking are allowable for exemption u/s.10A of the Act subject to fulfilment of the conditions provided u/s.10A of the Act. Assessee also had unabsorbed depreciation and brought forward losses from preceding years. In the computation of income, assessee has firstly claimed exemption u/s.10A of the Act and from the remaining profit available from non-eligible undertaking, the claim of unabsorbed depreciation loss has been claimed. However, ld. Assessing Officer declined the said claim and observed that prior to claiming exemption u/s.10A of the Act assessee should first set off brought forward unabsorbed depreciation and losses.
Ld. DRP in its finding has allowed the assessee’s claim that prior to set off of unabsorbed depreciation and brought forward losses, assessee has rightly claimed deduction u/s.10A of the Act. Ld. DRP placed reliance on the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Black and Veatch Consulting (P) Ltd. 20 taxmann.com 727 and Hindustan Unilever Ltd. 2347 CTR 287.
We find that the above finding of ld. DRP deserves to be affirmed in light of plethora of judgements referred and relied on by the ld. Counsel for the assessee. We take note of the judgment of Hon’ble Apex Court in the case of CIT Vs. Yokogawa India Ltd. (supra) placed at pages 1 to 9 of the paper book and the finding of Hon’ble Apex Court reads as under :
“12. We have considered the submissions advanced and the provisions of Section 10A as it stood prior to the amendment made by Finance Act, 2000 with effect from 1.4.2001; the amended Section 10A thereafter and also the amendment made by Finance Act, 2003 with retrospective effect from 1.4.2001.
The retention of Section 10A in Chapter III of the Act after the amendment made by the Finance Act, 2000 would be merely suggestive and not determinative of what is provided by the Section as amended, in contrast to what was provided by the un- amended Section. The true and correct purport and effect of the amended Section will have to be construed from the language used and not merely from the fact that it has been retained in Chapter III. The introduction of the word ‘deduction’ in Section 10A by the amendment, in the absence of any contrary material, and in view of the scope of the deductions contemplated by Section 10A as already discussed, it has to be understood that the Section embodies a clear enunciation of the legislative decision to alter its nature from one providing for exemption to one providing for deductions.
The difference between the two expressions ‘exemption’ and ‘deduction’, though broadly may appear to be the same i.e. immunity from taxation, the practical effect of it in the light of the specific provisions contained in different parts of the Act would be wholly different. The above implications cannot be more obvious than from the case of Civil Appeal Nos. 8563/2013, 8564/2013 and civil appeal arising out of SLP(C) No. 18157/2015, which have been filed by loss making eligible units and/or by non- eligible assessees seeking the benefit of adjustment of losses against profits made by eligible units.
Sub-section 4 of Section 10A which provides for pro rata exemption, necessarily involving deduction of the profits arising
out of domestic sales, is one instance of deduction provided by the amendment. Profits of an eligible unit pertaining to domestic sales would have to enter into the computation under the head “profits and gains from business” in Chapter IV and denied the benefit of deduction. The provisions of Sub-section 6 of Section 10A, as amended by the Finance Act of 2003, granting the benefit of adjustment of losses and unabsorbed depreciation etc. commencing from the year 2001-02 on completion of the period of tax holiday also virtually works as a deduction which has to be worked out at a future point of time, namely, after the expiry of period of tax holiday. The absence of any reference to deduction under Section 10A in Chapter VI of the Act can be understand by acknowledging that any such reference or mention would have been a repetition of what has already been provided in Section 10A. The provisions of Sections 80HHC and 80HHE of the Act providing for somewhat similar deductions would be wholly irrelevant and redundant if deductions under Section 10A were to be made at the stage of operation of Chapter VI of the Act. The retention of the said provisions of the Act i.e. Section 80HHC and 80HHE, despite the amendment of Section 10A, in our view, indicates that some additional benefits to eligible Section 10A units, not contemplated by Sections 80HHC and 80HHE, was intended by the legislature. Such a benefit can only be understood by a legislative mandate to understand that the stages for working out the deductions under Section 10A and 80HHC and 80HHE are substantially different. This is the next aspect of the case which we would now like to turn to.
From a reading of the relevant provisions of Section 10A it is more than clear to us that the deductions contemplated therein is qua the eligible undertaking of an assessee standing on its own and without reference to the other eligible or non-eligible units or undertakings of the assessee. The benefit of deduction is given by the Act to the individual undertaking and resultantly flows to the assessee. This is also more than clear from the contemporaneous Circular No. 794 dated 9.8.2000 which states in paragraph 15.6 that,
“The export turnover and the total turnover for the purposes of sections 10A and 10B shall be of the undertaking located in specified zones or 100% Export Oriented Undertakings, as the case may be, and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision.”
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (1A) and 10A (4)] that the unit that is contemplated for grant of benefit of deduction is the eligible undertaking and that is also how the contemporaneous Circular of the department (No.794 dated 09.08.2000) understood the situation, it is only logical and natural that the stage of deduction of the profits and gains of the business of an eligible undertaking has to be made independently and, therefore, immediately after the stage of determination of its profits and gains. At that stage the aggregate of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act would be premature for application. The deductions under Section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in Section 10A has already been dealt with earlier and in the overall scenario unfolded by the provisions of Section 10A the aforesaid discord can be reconciled by understanding the expression “total income of the assessee” in Section 10A as ‘total income of the undertaking’.
For the aforesaid reasons we answer the appeals and the questions arising therein, as formulated at the outset of this order, by holding that though Section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. All the appeals shall stand disposed of accordingly.”
Respectfully following the above finding of Hon’ble Apex Court in the case of CIT Vs. Yokogawa India Ltd. (supra) and the ratio laid down therein, we find that assessee’s claim of firstly claiming exemption u/s.10A of the Act and thereafter set off brought forward unabsorbed business losses is justified and deserves to be allowed. No interference is thus called for in the finding of ld. DRP. Ground of appeal No.5 raised by the Revenue is dismissed.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced on this 28th day of November, 2025.