Undisputedly, this is settled principle of law that even after amendment to Section 10A by the Finance Act 2000 w.e.f. 01.04.2001, Section 10A continues to be an exemption provision, though it is termed as provision providing deduction. Hon’ble Jurisdictional High Court in the judgement cited as 2012, 210 Taxman 237 (Del.) CIT Vs TEI Technologies (P) Ltd. held that Section 10A as it stands though decided as deduction provision is essential and in substances exemption provision.
In order to decide the moot point that ‘as to whether the deduction u/s 10A of the Act with respect to it derived by the eligible undertaking would be computed after set off of brought forward unabsorbed depreciation of Rs.36,70,496/- from the prior year.’ Hon’ble Karnataka High Court in the judgement cited as CIT Vs Yokogawa India Ltd. 341 ITR 385 (Kar.) thrashed the issue in controversy at hand, operative part of which is reproduced as under for ready reference:
“The expression “deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee”, has to be understood in the context with which the said provision is inserted in Chapter –III of the Act. Sub-section (4) of section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to be included in the total income of the assessee. The provisions of this sub-section will apply even in the case where an assessee has opted out of section 10A by exercising his option under sub-section (8). It is permissible for an assessee to opt in and opt out of section 10A. In the year when the assessee has opted out, the normal provisions of the Act would apply. The profits derived by him from the undertaking would suffer tax in the normal course subject to various provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment.
Held that 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 years 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.”
The ratio of the judgement in the case cited as Yokogawa India Ltd. (supra) is inter alia that the profits and gains u/s 10A were not to be included in the income of the assessee at all and as such the question of setting off of loss of assessee of any profits & gains of business against such profits and gains of undertaking does not arise; that under Section 72(2) of the Act, unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year depreciation u/s 32(2) is to be first set off; that since deduction u/s 10A has to be excluded from the total income of the assessee, the question of unabsorbed business loss being set off against such profits & gains of the undertaking does not arise. The case at hand is squarely covered by the judgement (supra) and as such, the A.O. and Ld. CIT(A) have erred in holding that the deduction u/s 10A of the Act in respect of the profits by the eligible undertaking would be computed after set off of brought forward unabsorbed depreciation of Rs.36,70,496/- from prior year.