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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI ABRAHAM P. GEORGE
Per Asha Vijayaraghavan, Judicial Member
This appeal by the Revenue is against the order dated 15.11.2011 of the CIT(Appeals)-III, Bangalore for the assessment year 2005-06.
The assessee company had filed its return of income for the AY 2005-06 on 31.10.2005, disclosing taxable income at 3,66,32,180 u/s. 115JB of the Act. It had taxable income under the regular provisions of the Act amounting to Rs. 3,17,54,394/- after claiming deduction u/s. 10A
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amounting to Rs. 2,12,21,787/-. The assessee had brought forward business losses amounting to Rs. 64,34,368/- and brought forward
unabsorbed depreciation amounting to Rs. 5,90,98,059/- as at the beginning of the assessment year 2005-06.
During the Assessment Year 2005-06 the assessee earned taxable
profits from its STPI unit and non-STPI unit amounting to Rs. 2,26,78,826 and Rs. 3,02,97,354 respectively. It claimed a deduction u/s. 10A of the
Act amounting to Rs. 2,12,2 1,787 from the taxable profits of the STPI unit. After such claim, it set off the balance profits under the STPI unit and the
non-STPI unit with the available brought forward business loss and the
unabsorbed depreciation. The details of brought forward loss and set off as per the Return of Income are as follows:-
Particulars STPI unit Non-STPI unit Total Amount in Rs. Amount in Rs. Amount in Rs.
Total Income 2,26,78,826 3,02,97,354 5,29,76,181 Less: Exemption u/s. 10A 2,12,21,787 - 2,12,21,787 Total Income 14,57,639 3,02,97,354 3,17,54,394 Business loss and unabsorbed depreciation of 3,17,54,394 AY 2002-03 and 2003-04 set off Net Taxable Income NIL
In the assessment order, the Assessing Officer adjusted the brought
forward losses and unabsorbed depreciation against the profits of STPI
undertaking before computing deduction u/s. 10A of the Act resulting in
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setting off the entire current year profits of the company for A.Y. 2005-06 under the regular provisions of the Act.
Aggrieved by the assessment order, the assessee preferred appeal before the CIT(Appeals).
In the appellate proceedings before the CIT(Appeals), the ld. counsel for the assessee submitted that deduction u/s. 10A is to be computed on the income of the STPI unit without setting off the losses of the non-STPI unit and consequently the carry forward of losses and depreciation of non-STPI unit is to be allowed. Reliance was placed on the order of the Hon’ble jurisdictional High Court of Karnataka in ITA No.78 of 2011 in the case of CIT, LTU v. M/s. Yokogawa India Ltd.
The ld. CIT(Appeals) was of the view that the issue is settled by the decision of the Hon’ble jurisdictional High Court in the case of Yokogawa India Ltd. cited supra. Following this decision, he held that deduction u/s. 10A is to be computed without setting off the brought forward business loss of the assessee.
Aggrieved by the order of CIT(Appeals), the Revenue is appeal before us on the following effective ground:-
“2. The Id. CIT(A) erred in holding that the deduction u/s 10A should be allowed in respect of profits of 10A unit without setting off of unabsorbed brought forward business loss and depreciation by relying on the order of Hon’ble High Court of Karnataka in the case of CIT(LTU) Vs. Yokogawa India Ltd., while this
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decision runs contrary to the provisions of Sec.70, 32(2) and 72 of the l.T. Act and accordingly it was contested before the Hon’ble Apex Court in a SLP filed by the Department.”
We find that the issue is covered by the decision of the Hon’ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra), wherein it has been held as follows:-
“33. As the income of the section10A unit has to be excluded at source itself before arriving at the gross total income, the loss of the non-section 10A unit cannot be set off against the income of the section 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 the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year's depreciation under section 32(2) is to be set off. As deduction under section 10A has 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. In that view of the matter, the approach of the assessing authority was quite contrary to the aforesaid statutory provisions and the Appellate Commissioner as well as the Tribunal were fully justified in setting aside the said assessment order and granting the benefit of section 10A to the assessee. Hence, the main substantial question of law is answered in favour of the assessees and against the Revenue.”
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Since the CIT(A) has followed the decision of the Hon’ble jurisdictional High Court, we find no infirmity in his order. We therefore dismiss the appeal filed by the Revenue.
In the result, the appeal by the Revenue is dismissed.
Pronounced in the open court on this 28th day of October, 2015.
Sd/- Sd/-
( ABRAHAM P. GEORGE ) (ASHA VIJAYARAGHAVAN ) Accountant Member Judicial Member
Bangalore, Dated, the 28th October, 2015.
/D S/
Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.