The Delhi Bench of the ITAT in the case of M/S Vision I knowledge Solutions Pvt. Ltd versus PR. CIT ruled that Unabsorbed Depreciation can’t be adjusted while claiming deduction under section 10A of the Income Tax Act.
The bench comprising H.S. Sidhu, Judicial Member, and L.P. Sahu, Accountant Member ruled so while allowing the appeal of Assessee. In the instant case, the Assessee Company was engaged in the business of providing IT enabled services (BPO) (Medical billing).
During the proceedings, the AO was noticed that the assessee had reduced exemption of Rs. 21,36,056/- u/s. 10A of the Act before partially setting off unabsorbed depreciation losses of Rs. 13,51,195/- against the income of Rs. 1,82,857/- from other sources and the same was accepted by AO.
Accordingly, the assessment order was modified by the Pr. CIT and AO were directed to compute the income of the assessee by first setting off the unabsorbed depreciation losses and thereafter allow the deduction u/s. 10A on the remaining income.
Being aggrieved, the Assessee carried the matter to this tribunal and submitted that order of Pr. CIT was wrong to direct the AO to first adjust the brought forward unabsorbed depreciation before allowing deduction under section 10A of the Act.
Also, the counsel for Assessee pressed the importance laid in circular No. 794 the unabsorbed amounts cannot be carried forward or set off against profits of subsequent years and deduction u/s. 10A is to be allowed from total income as computed under Chapter IV of the Income Tax Act, 1961.
On the contrary, the counsel for Revenue strongly relied upon the impugned Order passed u/s. 263 by the Ld. Pr. CIT and has invited the attention of bench member to the findings recorded by the same authority.
The bench heard the recitals and perused all the documents available to them. In order to rectify the issue bench refer the provisions of section 10A (1) of the Act therein crystal clear mention that section 10A provide for the deduction from the total income of the assessee.
After analyzing the above provisions and the Circular, the bench held that “deduction u/s 10A is to be allowed from total income as computed under chapter IV of the Income Tax Act, 1961 and not at the stage of computation of total income under chapter VI of the Income Tax Act, 1961. Therefore from this, it is clear that while claiming deduction u/s 10A unabsorbed depreciation is not to be adjusted”.
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