2010 (8) TMI 648 - HC - Income Tax

Deduction under section 80IA - Computation - Unabsorbed depreciation of the earlier years - As per the decision of the Rajasthan High Court in CIT vs. Mewar Oil and General Mills Ltd. the Rajasthan High Court held that 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 - Accordingly this appeal fails and is hereby dismissed with no order as to costs - Decided against of revenue.

Summary

Issues:
1. Eligibility for deduction under section 80IA for Wind Mill installation and treatment of unabsorbed depreciation.
2. Application of a decision by the Special Bench in a similar case.
3. Interpretation of the treatment of unabsorbed depreciation and losses for computation of deduction under Section 80IA.

Analysis:
1. The High Court examined the eligibility of an assessee company for deduction under section 80IA concerning a Wind Mill installation. The key issue was whether unabsorbed depreciation from earlier years should be reduced from profits for computing the deduction. The Court referred to a previous decision where similar questions were answered against the Revenue. The Court emphasized that losses or deductions already set off against previous year's income need not be reopened for current income computation under Section 80-I, concurring with the Rajasthan High Court's view.

2. The Court addressed the application of a decision by the Special Bench in a different case. Despite the Special Bench's decision predating an amendment to section 80-IA, the Court chose to follow the decision of the Rajasthan High Court in a similar matter. The Court highlighted that losses absorbed against profits from other businesses in previous years cannot be notionally carried forward and set off against profits of the eligible business, as no mandate for such action exists in Section 80-IA(5).

3. The judgment emphasized that losses or deductions already absorbed against previous year's income do not need to be reconsidered for computing the current income under Section 80-I. The Court held that losses from the year preceding the initial assessment year, already absorbed against profits from other businesses, cannot be notionally brought forward and set off against profits of the eligible business. Consequently, the Court set aside the Appellate Tribunal's order and ruled in favor of the appellant/assessee in Tax Cases 909 and 940 of 2009, allowing the tax cases based on the Division Bench's decision.

Overall, the High Court's judgment clarified the treatment of unabsorbed depreciation and losses for the computation of deductions under Section 80IA, aligning with previous decisions and emphasizing that losses already set off against previous year's income need not be revisited for current income calculations.