2014 (5) TMI 1127 - AT - Income Tax

Claiming the deduction u/s. 80IA(4)(iv)(a) - Held that - We find that the issue stands squarely covered in favour of the assessee by the decision of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT 2010 (3) TMI 860 - MADRAS HIGH COURT and f Serum International Ltd. Vs. Addl. CIT, Range-6 2013 (1) TMI 688 - ITAT PUNE wherein held profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee - no notional brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee.- Decided in favour of assessee.

Summary

Issues Involved:
1. Interpretation of Section 80IA(5) in light of the decision in M/s Hyderabad Chemicals Supplies Ltd. vs. ACIT.
2. Interpretation of "initial assessment year."
3. Applicability of the definition of "initial assessment year" as given in Section 80IB(14) to Section 80IA.
4. Restoration of the AO's order and vacation of the CIT(A)'s order.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 80IA(5):
The primary issue revolves around the interpretation of Section 80IA(5) of the Income-tax Act, which deals with the computation of profits and gains from eligible businesses for tax deductions. The Assessing Officer (AO) opined that the profits from the power generation business should be computed as if it were the assessee's only source of income. Consequently, the AO rejected the assessee's claim for deductions under Section 80IA(4)(iv)(a), citing cumulative unabsorbed losses from previous years. The AO relied on the ITAT Hyderabad decision in M/s Hyderabad Chemicals Supplies Ltd. and the Special Bench decision in ACIT vs. Goldmines Shares & Investments Pvt. Ltd. to support this view.

2. Interpretation of "Initial Assessment Year":
The assessee argued that under Section 80IA(2), the deduction could be claimed for any ten consecutive assessment years out of fifteen years from the year the undertaking started generating power. The assessee contended that the initial assessment year should be the year chosen by the assessee for claiming the deduction, not necessarily the first year of operation. This view was supported by the decision in Mohan Breweries & Distilleries Ltd. vs. CIT, which stated that losses prior to the initial assessment year opted by the assessee should not be considered for calculating the deduction amount.

3. Applicability of the Definition of "Initial Assessment Year" in Section 80IB(14) to Section 80IA:
The AO considered the initial assessment year to be the first year of operation (A.Y. 2006-07) and carried forward the losses accordingly. However, the CIT(A) held that the assessee had the option to select the initial assessment year within the fifteen-year period, as per Section 80IA(2). The CIT(A) referred to various judicial precedents, including the ITAT Pune decision in Serum International Ltd. vs. Addl. CIT, which supported the assessee's interpretation. The CIT(A) concluded that the AO was not justified in disallowing the deduction claimed by the assessee.

4. Restoration of the AO's Order and Vacation of the CIT(A)'s Order:
The Revenue appealed against the CIT(A)'s decision, seeking to restore the AO's order and vacate the CIT(A)'s order. However, the ITAT Pune found that the issue was covered in favor of the assessee by the decisions of the Hon'ble High Court of Madras in Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT and the ITAT Pune in Serum International Ltd. vs. Addl. CIT. These decisions held that the initial assessment year for claiming deductions under Section 80IA should be the year chosen by the assessee, and only losses from that year onwards should be considered.

Conclusion:
The ITAT Pune dismissed the Revenue's appeals, confirming the CIT(A)'s order that allowed the assessee's claim for deductions under Section 80IA(4)(iv)(a). The Tribunal reiterated that the initial assessment year should be the year chosen by the assessee for claiming the deduction, and only losses from that year onwards should be considered, following the precedents set by higher judicial authorities.