Deduction under Section 10AA of the Income Tax Act refers to gross profits and gains before accounting for deductions such as depreciation.

O RDER

PER BENCH:

These appeals by assessee are directed against different orders of NFAC for the assessment years 2016-17, 2017-18 & 2020-21. The common ground in all these appeals is with regard to allocation of common Corporate expenditure between undertaking entitled for exemption u/s 10AA & Non- 10AA of the Income Tax Act , 1961 (in short “The Act”) resulting in reduction of deduction u/s 10AA of the Act at Rs.95,84,407/-, Rs.1,09,08,930/- & Rs.12,69,96,527/- for the assessment years 2016-17, 2017-18 & 2020-21 respectively.

2. The assessee is an Information Technology company, has operations from SEZ units in respect of profit from such unit, the assessee claimed deduction u/s 10AA of the Act without allocating certain common corporate expenses to the SEZ units eligible for deduction/s 10AA of the Act. While completing the assessment, the ld. AO in these assessment years allocated the common corporate expense between the units in SEZ and Non-SEZ units on the basis of turnover of such units. On appeal, NFAC confirmed the order of the lower authorities. Against this assessee is in appeal before us.

3. After hearing both the parties, we are of the opinion that similar issue came for consideration before the Coordinate Bench Mumbai Tribunal in the case of Reliance Industries Ltd. in ITA No.7299/Mum/2017 for the assessment year 2013-14, the Tribunal vide order dated 10.11.2020 observed as under:

“105 Additional ground 5

"5. The learned CIT(A) Mumbai erred in allowing the deduction in respect of export profits of SEZ unit u/s 10AA of the Act with reference to the income computed under the head 'profits and gains of business or profession' of the SEZ unit instead of 'gross profits and gains' of SEZ unit, as interpreted by Supreme Court in the recent judgement in the case of Vijay Industries .

The Apex court while interpreting the provisions of section 80HH relevant to AY 1979-80 and 1980-81 has held that phrase "profits and gains" means gross profits of the business i.e. before computing income as specified in section 30 to 43D of the Act in para (18) and (19) as under:-

"It is most humbly submitted that the concept 'profits and gains' is a wider concept than the concept of 'income'. The profits and gains/loss are arrived at after making actual expenses incurred from the figure of sales by the assesses. It does not include any depreciation and investment allowance, as admittedly these are not the expenses actually incurred by the assessee. However, the term 'income' does take into consideration the deductions on account of depreciation and investment allowance. Therefore, the term profits and gains are not synonymous with the term 'income'.....

Reading of Section 80HH along with Section 80A would clearly signify that such a deduction has to be of gross profits and gains, i.e., before computing the income as specified in Sections 30 to 43D of the Act."

106. Thus, it has been urged by the assessee by way of the additional ground that the ld. CIT(A), Mumbai erred in allowing the deduction in respect of export profits of SEZ units u/s.10AA of the Act with reference to the income computed under the head ‘profits and gains of business’ or profession of the SEZ unit instead of gross profit and gains of SEZ unit as interpreted by the Hon’ble Supreme Court in the recent judgment in the case of Vijay Industries vs. CIT(SC) in Civil Appeal No.1581/1582 of 2005. Referring to the above additional ground, ld. Counsel of the assessee contended that the above is a pure legal ground and the assessee seeks the same to be admitted as it does not require investigation of any new fact. He submitted that the ground has been raised in view of the interpretation of the term ‘profit and gains’ in the recent decision of the Hon’ble Supreme Court in the case of Vijay Industries Ltd.