Adjustment Of Difference In Depreciation To The Profits Eligible For Income Tax Exemption: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that adjustment of the difference in depreciation to the profits makes them eligible for income tax exemption.

The bench of Amit Shukla (Judicial Member) and Padmavathy S. (Accountant Member) has observed that the adjustment of the difference in depreciation to the profits eligible for exemption under Section 10A will not result in any addition to total income. This is so because any increase or decrease to the profit due to the depreciation adjustment, i.e., adding back book depreciation and deduction of depreciation as per Section 32, will be exempt under Section 10A since there is no dispute that the assessee is entitled to claim an exemption under Section 10A.

The assessee is a company engaged in the business of developing and marketing software, with units at SEEPZ, Noida; Ashok Plaza; and Monali, Chandigarh.

During the course of the assessment, the Assessing Officer noticed that the assessee had adjusted the difference between the depreciation as per the Companies Act and the Income Tax Act in the computation of income but had not made a similar adjustment for the purpose of arriving at the exemption under Section 10A. The Assessing Officer, therefore, treated the difference of Rs. 1,61,18,819, being the difference between the book depreciation and depreciation as per the Act, as not eligible for exemption under Section 10A.

The assessee submitted before the CIT(A) that considering the depreciation as per books and as per the Act will not result in any further addition to the total income.

The assessee contended that the adjustment for depreciation will not result in an addition to total income and that the CIT(A) has rightly deleted the addition made by the Assessing Officer.

The tribunal, while upholding the order passed by the CIT(A), held that when the adjusted profit is also eligible for exemption under Section 10A, there is no question of making any addition to the adjustment made to depreciation.

Case Title: DCIT Versus M/s Zensar Technologies Ltd

Case No.: I.T.A. No.5653/Mum/2009

Date: 19-04-2023

Counsel For Appellant: Nitesh Joshi

Counsel For Respondent: Manoj Kumar

Click Here To Read The Order