Deduction us 80IA-Notional brought forward of losses even when it were set off against income of the assessee in earlier years not allowed. This was held by ITAT in a recent judgment as under.
ABCAUS Case Law Citation:
946 2016 (06) ITAT
Date of Judgment – June, 2016
Assessment Year : 2009-10
Important Judgments cited:
Velayuddhaswamy Spinning Mills Pvt. Ltd. Vs. ACIT [231 CTR 0368] Madras High Court
Brief Facts of the Case:
The present appeal was filed by the Revenue against the order of CIT(A) in deleting the disallowance made by the Assessing Officer u/s 80IA of the Act in respect of Wind Mill business. While scrutinizing the return of income of the assessee company, the AO found that the assessee had claimed deduction u/s 80IA of the Income Tax Act 1961 on account of income generated from Wind Mill business. The AO was of believed that the profit from the eligible business for the purpose of determination of quantum of deduction u/s 80IA had to be computed after deduction of notional brought forward losses and depreciation of eligible business though they might have been allowed set off against other income in earlier years. Accordingly, the AO held that the assessee company was not eligible for claim of deduction u/s 80IA and denied the claim of deduction.
On appeal CIT(A) held that the appellant company was entitled to the claim u/s. 80IA without notional setting off of losses of earlier years. ITAT also upheld the order of CIT(A).
Important Excerpts from Judgment:
In view of the above mentioned facts, the ratio given by Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd.(Supra) would be squarely applicable. While deciding the issue in that case, the Hon’ble High Court has also considered the decision of Special Bench of ITAT in the case of ACIT vs. Goldmine Shares and Finance P. Ltd. [116 TTJ 705 (Ahd)(SB)], which has been relied by A.O., the Hon’ble Court has examined the provisions of section 80IA and has observed that the eligible business was to be taken as the only source of income during the previous year relevant to initial assessment year and every subsequent assessment years when the assessee exercises the option, only losses beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment year is contemplated. The Hon’ble Court has further held that the revenue cannot look backward to find out whether there was any losses of earlier years and bring forward the same notionally even though it were set off against other income of the assessee.
……………. it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward nationally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it nationally. A fiction created in sub-section does not contemplates to bring set off amount nationally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
…… The unreported judgment of this court cited supra considered the scope of sub-section (6) of section 80-1, which is the corresponding provision of subsection (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra. In the case of CIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR311 (Raj); [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-1 and held as follows (page 314 of 271ITR):
“Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward fosses of 1983-84, which could be set off against the income of the current assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder.
In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-1 in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case.
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