IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘C’ NEW DLEHI

BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
AND

SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER

ITA No. 1372/Del/2016
Assessment Year: 2010-11

M/s. TCS e-Serve International Ltd., vs. ACIT, Circle 1(1),
9th Floor, Nirmal Building, Nariman Gurgaon.

Point, Mumbai.

PAN : AADCC1577A (Respondent)
(Appellant)

Appellant by : Sh. S.P. Singh, CA &
Sh. Sharad Goel, CA

Respondent by: Ms. Anima, Sr. DR

Date of hearing: 20/07/2021
Date of order : 06/08/2021

ORDER

PER K. NARASIMHA CHARY, J.M.
Aggrieved by the order dated 26/11/2015 passed by the

Commissioner of Income Tax (Appeals)-2, Gurgaon ("Ld. CIT(A)") for the
assessment year 2010-11, M/s. TCS e-Serve International Ltd., (“the
assessee”) preferred this appeal.

2. Brief facts of the case, relevant for the disposal of this appeal, are
that the assessee filed their return of income for the assessment year
2010-11 on 20.04.2010 claiming a loss of Rs.67,39,731/- by showing a
sum of Rs.43,50,946/- as other income on account of unclaimed
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balances written back and treating the same as exempt u/s. 10AA of the
Income-tax Act, 1961 (“the Act”). According to the assessee, this amount
was claimed as expenses in the preceding year for the purpose of
calculation of deduction u/s. 10AA of the Act, namely, the quantum of
deduction u/s. 10AA was reduced to the extent of expenditure to the
tune of Rs. 43,50,946/- in the year when such expenses were debited in
the profit and loss account. Learned Assessing Officer observed that the
assessee did not have profits to claim the deduction u/s. 10AA of the Act
in the year when subject expenses were reduced from the profit to
calculate the quantum and the write back of expenses does not fall
under the definition of export turnover given in Explanation to section
10AA of the Act. On this premise, learned Assessing Officer reduced the
exemption u/s. 10AA by this amount of Rs.43,50,946/-.

3. When the assessee preferred appeal, learned CIT(A) observed
that these amounts do not in any way represent the business income of
the assessee; that they are on account of non-availability of persons to
whom salary income/other expenses were payable resulting in resultant
benefits to the assessee; and that such benefits do not arise out of any
business operation. Learned CIT(A) declined to accept the contention of
the assessee that profits derived from export of articles is based on the
profits of the undertaking and observed that as per provisions of section
10AA of the Act, the formula for determining the profits derived from
export of articles comprises profits of business of the undertaking and
not the profits of the undertaking. Learned CIT(A), therefore, declined to
grant any relief to the assessee on this score and confirmed the action of
the Assessing Officer.
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4. Apart from this, learned CIT(A) observed that the learned
Assessing Officer committed three mistakes in computation of total
income, namely, (i) learned Assessing Officer wrongly took the returned
loss at Rs.67,39,731/-; (ii) the computation of deduction claimed by
assessee u/s. 10AA was not correct, inasmuch as the brought forward
loss of eligible business for preceding years was required to be reduced
from the profits of business from current year before allowing deduction
u/d. 10AA which was not done by ld. Assessing Officer; and (iii) the claim
of assessee for set off of unabsorbed depreciation against other income
of Rs.35,25,367/- was not in accordance with the law. He, therefore, by
adding the addition of Rs.43,50,946/-, made by the ld. Assessing Officer
to the total income of the assessee, computed the same at
Rs.80,57,251/-.

5. Learned CIT(A) further held that the assessee’s claim for grant of
credit of tax deducted at source to the tune of Rs.8957/- did not arise
from the order under appeal.

6. Challenging this action of the ld. CIT(A), the assessee filed this
appeal stating that the expenses written back to the profit and loss
account should have been treated as income eligible for deduction u/s.
10AA of the Act despite the fact that the said expenses have not been
reduced from the income eligible for deduction u/s. 10AA in earlier
years; that the brought forward business losses and unabsorbed
depreciation of the eligible unit should not have been set off against the
profits of the business of eligible unit before allowing deduction u/s.
10AA of the Act and in all fairness, learned CIT(A) should have allowed
the carry forward of brought forward business losses and unabsorbed
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depreciation of the eligible unit for set off in subsequent years. Assessee
also prayed to allow the claim for grant of credit of tax deducted at
source of Rs.8957/-.

7. In respect of ground No. 1, 2 & 3, ld. AR submitted that the
amount of Rs.43,50,946/- shown as other income on account of
unclaimed balances written back, was treated to be a part of export
turnover for the purpose of calculation of deduction u/s. 10AA of the Act
since these were claimed as expenses in the preceding year for the
purpose of calculation of deduction u/s. 10AA of the Act. Learned AR
submitted that the quantum of deduction u/s. 10AA was reduced to the
extent of expenditure to the tune of Rs. 43,50,946/- in the year when
such expenses were debited in the profit and loss account. He,
therefore, submits that while giving the same treatment, the write back
of such expenses should be treated as income eligible for deduction u/s.
10AA of the Act. He also submitted that the assessee has brought
forward business losses and unabsorbed depreciation amounting to
Rs.11,73,61,104/- and Rs.5,90,17,382/- respectively pertaining to F.Y.
2008-09 and during the F.Y. 2009-10, the assessee did not set off the
aforesaid brought forward business losses and unabsorbed depreciation
from the total income of assessee for the purpose of computing
deduction u/s. 10AA of the Act. He further submitted that the deduction
provided in Chapter VIA is given at the stage of computing the total
income once gross total income is arrived at, whereas under Chapter-III,
the income of a unit has to be excluded before arriving or computing the
gross total income of the assessee. In support of this proposition, he
places reliance on the decision of Hon’ble Supreme Court in CIT vs.
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Yokogawa India Ltd. (2017) 391 ITR 274(SC) and proceeded to submit
that deduction u/s. 10AA of the Act should be treated as exempt and
cannot be brought to form part of the tax computation and
consequently, brought forward losses and unabsorbed depreciation
cannot be set off against the income which cannot form part of total
income.

8. In respect of assessee’s claim for grant of credit of the tax
deducted at source, he prayed that the Assessing Officer may be
directed to verify and allow the same.

9. Learned DR places reliance on the orders of the authorities below
and submitted that inasmuch as ld. CIT(A) relied upon the decision of the
Co-ordinate Bench of this Tribunal in the case of Technovate eSolution P.
Ltd. vs. ITO (2015) 59 taxmann.com 77 and the decision of Hon’ble
Supreme Court in Himatsinghka Seide Ltd. vs. CIT (2014) 48
taxmann.com 357, the findings recorded by learned CIT(A) may not be
faulted with. She prayed to dismiss the appeal.

10. We have gone through the records in the light of submissions
made on either side. The assessee claimed certain expenses in the year
relevant to assessment year 2009-10 for the purpose of calculation of
deduction u/s. 10AA of the Act and the quantum of deduction u/s. 10AA
was reduced to the extent of expenditure to the tune of Rs. 43,50,946/-
in the year when such expenses were debited in the profit and loss
account. Learned Assessing Officer reduced the deduction u/s. 10AA of
the Act by such amount of Rs.43,50,946/- on the ground that the
assessee had not claimed any deduction u/s. 10AA of the Act in the
immediately preceding year and the write back of such expenses does

not fall under the definition of export turnover given in Explanation to
section 10AA of the Act. It remains an admitted fact that in the
immediately preceding year, the assessee suffered losses and there is no
reason not to believe the explanation on behalf of the assessee that due
to such losses, the assessee did not claim any deduction u/s. 10AA of the
Act in the immediately preceding year, i.e., F.Y. 2008-09. It is, therefore,
clear that in computing the deduction u/s. 10AA for the current year, the
write back of the expenses have to be considered as a part of income,
inasmuch as, the income on account of write back of unclaimed
expenses is accrued to the assessee only due to the export business and
there is direct nexus of export business of assessee and the accrual of
income, in respect of which, the expenses were shown in the preceding
year and such unclaimed expenses were written back for this year. It is
not the case of the Revenue that the expenses of Rs.43,50,946/- had no
relation to export business of the assessee in the earlier year. We,
therefore, conclude that the authorities below are not correct in
reducing the deduction u/s. 10AA of the Act by such an amount which
was written back by the assessee on account of unclaimed balances
written back.

11. So far as the set off of the brought forward business losses and
unabsorbed depreciation of the eligible unit against profit of the
business of eligible unit before allowing deduction u/s. 10AA of the Act
as was done by ld. CIT(A), is concerned, the law is settled and it is no
longer res integra. In Yokogawa India Ltd. (supra), Hon’ble Supreme
Court observed that –
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“17. If the specific provisions of the Act provide [first proviso to Sections
10A(1); 10A (1A) 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
Section10A 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’.

12. The provisions of section 10A are pari materia with the provisions
of section 10AA and therefore, the claim of the assessee for not
reducing the brought forward losses from the profit of business of

current year before allowing deduction u/s. 10AA is proper and has to
be considered in favour of the assessee. For these reasons, we allow
ground No. 1 to 3 of appeal.

13. Now coming to ground No. 4 in respect of claim for grant of
credit of tax deducted at source to the tune of Rs.8,957/-, whether or

not it arises from the assessment order, when once the assessee raised

the issue, it cannot be brushed under the carpet. Ld. DR fairly conceded
the request of the assessee to allow the Assessing Officer to verify this
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fact pleaded by the assessee and, if it is true, to allow the claim of
assessee. We, therefore, direct the Assessing Officer to verify the tax
credit and allow the same to the assessee.

14. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on this the 6th day of August,
2021.

Sd/- Sd/-

(N.K. BILLAIYA) (K. NARSIMHA CHARY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 06/08/2021
‘aks’