2010 (10) TMI 1132 - AT - Income Tax

Summary

Issues Involved:
1. Justification of invoking Section 263 to withdraw the deduction claimed under Section 80-IA.
2. Treatment of the assessment order as erroneous and prejudicial to the interests of the revenue.
3. Applicability of Section 80-IA(5) read with Section 80-IA(1) regarding initial assessment year and carrying forward losses.
4. Requirement for a speaking order by the CIT demonstrating ineligibility for deduction under Section 80-IA(4)(iv)(a).
5. Applicability of Section 115-JB for computing the assessee's income.

Issue-wise Detailed Analysis:

1. Justification of invoking Section 263 to withdraw the deduction claimed under Section 80-IA:
The CIT invoked powers under Section 263 to examine the issues and directed the A.O to reconsider the deduction claimed under Section 80-IA. The assessee argued that the CIT was not justified in invoking Section 263, as the initial assessment year was the first year the deduction was claimed, and losses from earlier years should not be considered. The CIT, however, did not agree and directed the A.O to withdraw the deduction of Rs. 37,41,304/- under Section 80-IA, stating that the unabsorbed depreciation should be considered.

2. Treatment of the assessment order as erroneous and prejudicial to the interests of the revenue:
The CIT found the A.O's order erroneous and prejudicial to the interests of the revenue because the A.O did not consider the provisions of Section 80IA(5) and Section 115JB while completing the assessment. The ITAT upheld the CIT's action, stating that the A.O did not make any enquiries regarding the claim under Section 80-IA or Section 115JB, making the order erroneous and prejudicial to the revenue.

3. Applicability of Section 80-IA(5) read with Section 80-IA(1) regarding initial assessment year and carrying forward losses:
The assessee contended that the initial assessment year was the first year the deduction under Section 80-IA was claimed, and losses from earlier years should not be considered. The ITAT agreed with the assessee's contention, referencing the judgments in the cases of Mohan Breweries and Distilleries Ltd. and Velayudhaswamy Spinning Mills (P) Ltd., which held that the initial assessment year is the year the assessee chooses to claim the deduction, and losses or depreciation from prior years cannot be considered.

4. Requirement for a speaking order by the CIT demonstrating ineligibility for deduction under Section 80-IA(4)(iv)(a):
The assessee argued that the CIT should have passed a speaking order demonstrating how the assessee was not entitled to the deduction under Section 80-IA(4)(iv)(a). The ITAT found that the CIT did not provide a detailed explanation or analysis in the order, which was necessary to justify the withdrawal of the deduction.

5. Applicability of Section 115-JB for computing the assessee's income:
The CIT held that the A.O erred in not computing the assessee's income under Section 115-JB. The assessee argued that Section 115-JB was not applicable as it was engaged in the business of power generation. The ITAT found that the A.O did not consider the provisions of Section 115-JB, and the CIT's direction to consider Section 115-JB was correct. However, the CIT did not provide specific directions regarding the computation under Section 115-JB, which was necessary.

Conclusion:
The ITAT upheld the CIT's exercise of jurisdiction under Section 263 but modified the directions given by the CIT. The ITAT directed the A.O to reconsider the issues of the initial assessment year, computation of profits under Section 80-IA, computation of total income, carry forward of losses and depreciation, and computation under Section 115-JB as per the provisions of the Act after giving due opportunity to the assessee. The assessment made under Section 143(3) was set aside, and the A.O was directed to redo the assessment de novo accordingly. The appeal was considered allowed to the extent of modifying the CIT's directions.