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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश / O R D E R 1 PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER:
These appeals are filed by the Revenue aggrieved by the order of the Ld.CIT(A)-3 dated 27.11.2017 in 118, 115, 117 & 116/17-18 for the AYs 2002-03, 2003-04, 2004-05, 2005-06 & 2006-07 respectively. Since the issue and grounds in all these appeals are identical, for the sake of convenience, they are heard together and disposed off by this common order. to 387/Chny/2018 :- 2 -:
The Revenue has raised four grounds in all these appeals, however, the crux of the issue is that the Ld.CIT(A) has erred by directing the Ld.AO to allow deduction u/s.10B of the Act even before set off of brought forward depreciation.
The brief facts of the case are that the assessee is a public limited company engaged in the business of manufacturing egg powder, filed its return of income for all these AYs claiming deduction u/s.10B of the Act.
The Ld.AO while computing the eligible profit for allowing deduction u/s.10B of the Act excluded the brought forward losses and depreciation.
Thereafter, the matter reached the Tribunal and the Tribunal following the decision of the Hon’ble Apex Court in the case of CIT Vs. Yokogowa India Ltd., reported in [2017] 291 CTR 0001 (SC) & 391 ITR 274 directed the Ld.AO to grant the benefit of deduction u/s.10B of the Act without setting off of the brought forward losses of the earlier years. However, the Ld.AO while passing the giving effect order u/s.150 of the Act dated 16.08.2017 excluded the brought forward depreciation from the profits of the assessee company for the purpose of granting deduction u/s.10B of the Act by observing as under:
Hon’ble ITAT has directed to grant assessee the benefit of deduction u/s.10B without set off of the brought forward losses of the earlier years. Also as per ruling of the Hon’ble Supreme Court in the case of CIT Vs. Yokogawa lndia Ltd. Income has to be first computed as per the provisions of section 28 to 44 and thereafter deduction under section 10B has to be allowed. Brought forward depreciation is allowable as deduction as per provisions of section 32(2), which reads as follows; where in the assessment of the assessee, full effect cannot be given to any allowance under subsection 32(1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance then the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the to 387/Chny/2018 :- 3 -: allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for the previous year.
Thus, in view of this section, i.e. 32(2), the brought forward depreciation gets merged with the current years depreciation and therefore forms part of the computation of income as per the provisions of section 28 to 44. Also brought forward depreciation is dealt with by section 32(2) and brought forward loss by section 72 of the Income-tax Act, 1961. Appeal effect is accordingly given while following the directions of the Hon’ble ITAT.
Aggrieved by the order of the Ld.AO the assessee carried the matter before the Ld.CIT(A). The Ld.CIT(A) following the decision of the Hon’ble Apex Court and the Tribunal directed the Ld.AO to compute the eligible deduction before setting off of the brought forward unobserved depreciation and business losses.
At the outset, we do not find any infirmity in the order of the Ld.CIT(A). The Hon’ble Apex Court has categorically held the deduction u/s.10A/B of the Act has to be granted before setting off of carried forward of business losses and depreciation. The relevant para of the decision of the Hon’ble Apex Court in the case of Yokogowa India Ltd., reported in 391 ITR 274 is extracted below for reference:
If the specific provisions of the Act provide [first proviso to Sections 10A(1); 10A (IA) 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 to 387/Chny/2018 :- 4 -:
income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter IV. All the appeals shall stand disposed of accordingly. Since Ld.CIT(A) has rightly followed the decision of the Hon’ble Apex Court cited supra and the decision of the Tribunal we do not find it necessary to interfere in his order.
In the result, the appeals filed by the Revenue are dismissed.
Order pronounced in the Open Court in November 12, 2018, in Chennai.