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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
Per Asha Vijayaraghavan, Judicial Member
This appeal by the Revenue is directed against the order of the CIT(Appeals), Bengaluru-3, for the assessment year 2007-08.
The assessee is a company engaged in research & development activities in Bio-technology. For the year under consideration, the assessee filed its return of income on 02.11.2007 declaring an income of Rs.2,550 after claiming deduction of Rs.29,37,860 u/s. 10B of the Act. The Assessing Officer in the assessment order has set off the brought forward business loss of A.Y. 2002-03 and arrived at NIL income.
Aggrieved by the order of AO in setting off the brought forward business loss and denying deduction 10B, the assessee filed appeal before CIT(Appeals). It was pointed out by the assessee that the issue is covered in favour of the assessee by the orders of the Tribunal for AYs 2005-06 & 2006-07 in assessee’s own case.
The CIT(Appeals) allowed the assessee’s appeal by holding as follows:-
“I have perused the orders in dt. 17.07.2009 and ITA No.1048/Bang/2013. The Hon’ble Tribunal has in the aforesaid orders held that deduction u/s.10B should be allowed before considering brought forward losses. In the ratio of the decision of the Karnataka High Court in the case of CIT Vs Yokogawa India Ltd 341 ITR 385 a similar principle has been enunciated. “…. the income of 10-A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10-A unit has to be deducted at source itself and not after computing the gross total income. The total income used in the provisions of section 10-A in this context means the global income of the assessee and not the total income as defined in section 2(45). Hence, the income eligible for exemption under Section 10-A would not enter into computation as the same has to be deducted at source level.” 3.1 Following the above decision, the AO is directed to allow the deduction u/s.10B as claimed.”
Aggrieved by the order of CIT(Appeals), the Department is in appeal and has raised the following effective ground of appeal:-
“2. On the facts and in the circumstances of the case the learned CIT(A) erred in directing the AO to compute deduction u/s 10A without setting off brought forward losses (depreciation/ business) pertaining to units non eligible for deduction against the profit of eligible units by placing reliance on the decision of Hon’ble High Court of Karnataka in the case of M/s Yokogawa India Ltd., but without appreciating the fact that deduction u/s 10A has to be allowed from the total income of the assessee, and as per Section 2(45) of the IT Act, the total income should be computed from various sources after set off of losses from one source against income from other sources under the same head of income in terms of Section 70(1).”
We have heard both the parties. We find that similar issue came up for consideration before the Chennai Bench of the Tribunal in the case of S.R.A. Systems Ltd. in and the Tribunal by its order dated 21.02.2014 held as follows:-
“7. The third issue in appeal relates to the method of computation of deduction u/s.10A of the Act. The assessee has claimed deduction u/s.10A before setting off of unabsorbed depreciation and brought forward losses. The ld.AR of the assessee in order to fortify the stand of assessee has placed reliance on the decision of the Tribunal in assessee’s appeal for the AY.2005-06 and AY.2007-08 (supra). The ld.AR has also drawn support from the judgment of the Hon’ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd.(supra). On the other hand, the ld.DR has relied on the latest decision of the Hon’ble Apex Court in the case of M/s.Himatsingka Seide Ltd., Vs. CIT (supra). The Hon’ble Supreme Court of India dismissed the appeal of the assessee and has upheld the judgment of the Hon’ble Karnataka High Court. The Hon’ble High Court has held that the brought forward depreciation has to be adjusted against the profits of the EOU before computing the exemption allowable u/s.10B. The provisions of section 10A are pari materia with the provisions of section 10B of the Act.
We find that as far as un-absorbed depreciation is concerned, the Hon’ble Supreme Court of India in the case of M/s.Himatsingka Seide Ltd., Vs. CIT (supra), has up-held the findings of the Hon’ble Karnataka High Court and as such, un- absorbed depreciation has to be set-off before computing the exemption allowable u/s.10A. In respect of setting-off of the brought forward losses, the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd.(supra) still holds good. Accordingly, the assessee can claim deduction u/s.10A before setting off of brought forward losses. In view of the above, this ground of appeal of the assessee is partly allowed.”
We are of the view that in the present case, the issue has to be set aside to the file of the Assessing Officer. Accordingly, we remit the issue to the Assessing Officer for fresh consideration and decision in accordance with the decision of the Chennai Bench of the Tribunal in the case of S.R.A. Systems Ltd. (supra).
In the result, the appeal of the Revenue is allowed for statistical purposes.
Pronounced in the open court on this 28th day of December, 2015.