By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Chartered Accountants
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42 2009 TIOL 41 ITAT Bang.
Tata Consultancy Service Ltd. v. ACIT
ITA No. 590/Bang./2008
A.Y. : 2003-2004. Dated : 14-11-2008
S. 10A of the Income-tax Act, 1961 — A.Y. 2003-04 — Assessee
owned two STP units — During the assessment year STP Unit 1 earned profit and
STP Unit 2 suffered loss — Assessee computed deduction u/s.10A in respect of STP
Unit 1 with reference to its profits and without setting off the loss suffered
by STP Unit 2 — AO accepted the manner of computation adopted by the assessee —
CIT invoked S. 263 and directed AO to compute deduction u/s.10A in respect of
Unit 1 on the profits of Unit 1 after setting off loss of Unit 2 — Whether
deduction u/s.10A is to be computed with reference to profits of an undertaking
without setting off loss incurred by another eligible undertaking — Held, Yes.
Whether deduction u/s.10A is to be allowed with reference to profits and gains
derived by an undertaking — Held, Yes. Whether order of CIT u/s.263 needs to be
set aside — Held, Yes.
Facts :
The assessee company owned two STP units for export of
software. During the A.Y. 2003-04, STP Unit 1 earned profit, whereas STP Unit 2
suffered a loss. The assessee in its return of income claimed deduction u/s.10A
of the Act in respect of Unit 1. This deduction was computed with reference to
profits of Unit 1 without setting off the loss of STP Unit 2. No deduction
u/s.10A was claimed in respect of STP Unit 2.
The Assessing Officer (AO) while assessing the total income
of the assessee, accepted the manner of computation of deduction u/s.10A.
The CIT was of the opinion that deduction allowed u/s.10A in
respect of STP Unit 1 without setting off the loss of STP Unit 2 against income
of STP Unit 1 was not in accordance with law and that the order is prejudicial
to the interest of the Revenue. He accordingly directed the AO to modify the
order and allow deduction u/s.10A after setting off the loss from STP Unit 2
against the profit of STP Unit 1.
Aggrieved with the order of CIT u/s.263, the assessee
preferred an appeal to the Tribunal.
Held :
The Tribunal after considering various judicial precedents
and also the provisions of S. 10A(1), 10A(4), notes on clauses while introducing
amendment to S. 10A(4) by Finance Bill, 2001 held as under :
(1) In S. 10A(1), the word ‘an’ has been used before the
undertaking. Deduction is to be allowed on such profit and gains as are
derived from the undertaking. Hence, to apply the provisions of S. 10A, one
has to consider the profit and gains as derived by an undertaking. It does not
refer to profits and gains as are derived by the assessee. The assessee may be
having more than one undertaking.
(2) Deduction u/s.10A is to be computed on the basis of
profits and gains derived by an undertaking. In the instant case, STP Unit 2
was having a loss and therefore, its loss cannot be set off while ascertaining
the deduction u/s.10A for STP Unit 1.
(3) When the AO has taken one of the possible views, then
the order of the AO cannot be termed as erroneous and the CIT was having no
power to cancel that order u/s.263 of the Act.
The Tribunal cancelled the order passed by the CIT u/s.263 of
the Act. The assessee’s appeal was allowed.
