2010 (5) TMI 557 - AT - Income Tax

set off of unabsorbed depreciation - Interest u/s 234B, 234C and 234D - Deduction u/s 80IA - . The carried forward losses of the eligible business are required to be set off first against the income of the subsequent years of the eligible business while determining the profits eligible for deduction under section 80-IA - since the specific provisions of section 80-IA(5) have overriding affect, the other provisions of law including section 70 on set-off of unabsorbed depreciation/business loss relied upon by the appellant is not attracted in the case of the appellant - it may appear that the carried forward loss of the eligible business were required to be set off first against the income of the subsequent years of eligible business while determining the profits eligible for deduction under section 80-IA of the Act and set-off of losses from other sources under the same head is not permissible Regarding interest - This ground of the assessee is not maintainable as charging of interest under sections 234B and 234C of the Act is mandatory and consequential in nature - levy of interest under section 234D is purely a legal ground and is chargeable, following the order of the Hon ble ITAT, Delhi E, Special Bench in ITO v. Ekta Promoters (P.) Ltd. 2008 (7) TMI 452 - ITAT DELHI-E - the assessee s appeal is allowed

Summary

Issues Involved:
1. Set-off of unabsorbed depreciation on windmill against the income from manufacturing business.
2. Charging of interest under sections 234B, 234C, and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Set-off of Unabsorbed Depreciation on Windmill Against Income from Manufacturing Business:

The assessee-company, involved in manufacturing super enamelled copper winding wires and generating power through a windmill, claimed depreciation on the windmill installation. The Assessing Officer (AO) denied this claim, stating the windmill was not installed in the assessment year 2005-06. For the assessment year 2006-07, the assessee filed a revised statement, showing business income of Rs. 60,00,829 and attempting to deduct Rs. 73,20,339 for windmill depreciation. The AO, referencing section 80-IA(5) of the Act and the case of CIT v. M.K. Raju Consultants (P.) Ltd., held that non-taxable income under section 80-IA cannot be set off against non-eligible business income, carrying forward the windmill depreciation to the next year.

The CIT(A) upheld this view, emphasizing that only profits from 'eligible business' under section 80-IA(4) qualify for deductions. Since the manufacturing of copper wires is not an eligible business, the windmill's depreciation loss must be absorbed by the windmill's future profits. The CIT(A) concluded that the assessee's claim was unjustified and in violation of section 80-IA(5), which mandates treating the eligible business as the sole source of income for deduction purposes.

Upon appeal, the Tribunal analyzed section 80-IA(1) and (4), affirming that only profits from eligible businesses like power generation qualify for deductions. However, it noted that section 80-IA(5)'s deeming provisions should not override section 70(1), which allows setting off losses from one source against another under the same head of income. The Tribunal illustrated this with examples, demonstrating that while section 80-IA(5) requires treating the eligible business as the only source for deduction purposes, section 70(1) permits setting off losses from different sources within the same head, provided no double deductions occur.

The Tribunal directed the AO to allow the set-off of the windmill's depreciation loss against the manufacturing income, ensuring compliance with section 70(1) while maintaining the integrity of section 80-IA for future deductions.

2. Charging of Interest Under Sections 234B, 234C, and 234D of the Act:

The assessee contested the interest charged under sections 234B and 234C, which the Tribunal deemed mandatory and consequential. The interest under section 234D, being a legal ground, was upheld following the ITAT, Delhi E, Special Bench ruling in ITO v. Ekta Promoters (P.) Ltd., confirming its chargeability.

Conclusion:

The Tribunal allowed the assessee's appeal on the first issue, directing the AO to set off the windmill's depreciation loss against the manufacturing business income per section 70(1). The appeal regarding interest charges under sections 234B, 234C, and 234D was dismissed, affirming their mandatory and legal nature.