DCIT, BANGALORE vs. M/S DELIXUS SOFTWARE INDIA PVT. LTD., TUMKUR

This appeal of the revenue is directed against the order dated 26-05- 2015 of the CIT(A)-2, Bangalore for Assessment year: 2007-08. The revenue has raised the following grounds;

“1. The order of the CIT(A) is contrary to the facts and circumstances of the case and hence not sustainable.

2. Whether the CIT(A) was right in allowing the deduction u/s 10B from prior to setting off of brought forward losses.

3. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A)a insofaras it relates to the above grounds may be reversed and that of the AO may be restored.

4. The assessee craves leave to add, alter, amend and/or delete the grounds mentioned above.

“3.3. I have carefully considered the assessee’s submissions and perused the assessment order. I find merit in the assessee’s submissions since its case is covered in its favour by the decision of the Hon’ble High Court of Karnataka in the case of CIT Vs Yokogawa India Ltd. The gist if the said decision is reproduced below;

“ The assesee company claimed exemption of Rs.3,95,99,100/- u/s10A for its STP unit. The exemption had been claimed before set off of brought forward losses and depreciation. According to the assessing authority the deduction under section 10A has to be allowed from the total income of the assessee. The total income of the assessee was arrived at as per section 80B(5). Therefore, the exemption under section 10A had to be given after setting off of all brought forward losses within the context of sec.32(1) r.w.s.72(2). Accordingly, sec.10A benefit was re-computed. After such re-computation the assessee was held to be not entitled for exemption u/s10A and hence a sum of Rs.36,575/- was treated as income from the sources. Held. As the income of 10A unit has to be excluded at source itself before arriving at the gross total income the loss of non-10A unit cannot be set off against the income of 10A unit under section 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any of any business or profession carried on by such assessee. Therefore, as the profits and gains under section 10A is not be included in the income of the assessee at all, the question of setting off of the loss of the assesee in respect of any business against profits and gains of the undertaking would not arise. Similarly, as per section 72(2); unabsorbed business loss is t be first set off and thereafter unabsorbed depreciation treated as current year depreciation u/s 32(2) is to be set off. As deduction under section 10A ha to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise”. 3.4 Respectfully following the decision of the jurisdictional High Court referred to above, I hereby direct the AO to allow the assessee’s claim for deduction u/s 10B from the total income first and then determine the total income or loss to be carried forward, as the case may be.

Therefore, in view of the latest judgment of the jurisdictional High Court, we do not find any error or illegality in the order of the learned CIT(A).

Order pronounced in the open Court on the 29th February, 2016. \