2016 (11) TMI 1645 - AT - Income Tax

Disallowance u/s 80IA(iv) - selection of initial year out of the block of 15 years - HELD THAT - As far as selection of initial year is concerned, the Board has already clarified this issue in Circular no.1/2016. This discretion is with the assessee to select any initial year. It is the discretion of the assessee to opt any 10 years. Once the assessee has opted initial year, then it has to claim deduction under section 80IA consecutively for 10 years. The approach of the AO to construe that initial year ought to be selected from the year of manufacturing, was not approved by the Board. Considering all these aspects, we do not see any reason to interfere in the order of the ld.CIT(A). Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of claim under section 80IA(iv) of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of disallowance of claim under section 80IA(iv) of the Income Tax Act, 1961:

The Revenue appealed against the order of the CIT(A) which deleted the disallowance of a claim of ?85,71,651/- made under section 80IA(iv) of the Income Tax Act, 1961. The key issue revolves around whether the losses from initial years, which were set off against other income streams, should be notionally brought forward and set off against the eligible income under section 80IA(iv).

Facts of the Case:
The assessee filed a return of income declaring a total income of ?10,85,43,640/- and claimed deductions under section 80IA for its power generation undertakings in Maharashtra and Rajasthan. The Maharashtra unit was established in AY 2002-03 and the Rajasthan unit in AY 2003-04. The assessee opted for AY 2008-09 as the initial year for claiming the deduction for the Rajasthan unit.

Assessing Officer's (AO) Stand:
The AO disallowed the deduction, arguing that losses from the initial years should be notionally brought forward and set off against the current year's income. This view was based on the Special Bench decision in the case of Goldmine Shares and Finance (P) Ltd.

CIT(A)'s Decision:
CIT(A) allowed the deduction by relying on the decision of the Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills P.Ltd. vs. ACIT, which held that only the losses from the initial assessment year should be brought forward, and not the losses of earlier years which were already set off against other income.

Tribunal's Analysis:
The Tribunal noted that the CIT(A) had made a detailed analysis of the law and facts. The Tribunal found that the CIT(A)'s decision was based on the Madras High Court's ruling, which was upheld by the Supreme Court. The Tribunal emphasized that the discretion to select the initial year lies with the assessee, as clarified by the Board in Circular No. 1/2016. The AO's approach of considering the initial year from the year of manufacturing was not approved by the Board.

Key Legal Provisions and Interpretations:
- Section 80IA: Provides a deduction of 100% of the profits and gains derived from eligible business for ten consecutive assessment years out of fifteen years, beginning from the year the undertaking starts its eligible business.
- Section 80IA(5): For determining the quantum of deduction, the eligible business is deemed to be the only source of income from the initial assessment year and subsequent years.
- Madras High Court's Decision in Velayudhaswamy Spinning Mills: Held that only losses from the initial assessment year should be brought forward, and not earlier years' losses already set off against other income.

Conclusion:
The Tribunal upheld the CIT(A)'s order, agreeing that the assessee's selection of the initial year was correct and that the AO's approach was not justified. The appeal of the Revenue was dismissed.

Final Order:
The appeal of the Revenue is dismissed, and the order was pronounced on 22nd November 2016 at Ahmedabad.