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2015 (7) TMI 745 - HC - Income TaxEntitlement to claim deduction under section 80-IA - AO disallowed the assessees claim under Section 80IA of the Income Tax Act primarily on the ground that carried forward loss of earlier years should be set off before computing the profit for the current year. - Held that - All the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. See Velayudhasamy Spinning Mills (2010 (3) TMI 860 - Madras High Court ) - Decided in favour of the assessee
Issues Involved:
1. Entitlement to deduction under Section 80-IA of the Income Tax Act. 2. Treatment of losses and deductions set off against previous years' income in computing current year income under Section 80-IA. 3. Application and interpretation of Section 80-IA(5) of the Income Tax Act. 4. Relevant precedents and their applicability to the present case. Issue-wise Detailed Analysis: 1. Entitlement to Deduction under Section 80-IA: The core issue is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The court referenced the precedent set in the case of Velayudhaswamy Spinning Mills v. Asst. CIT, which affirmed that the assessee is entitled to such deductions. The decision emphasized that deductions under Chapter VI-A, including Section 80-IA, are profit-linked incentives and should be computed without reopening losses and deductions already set off in previous years. 2. Treatment of Losses and Deductions Set Off Against Previous Years' Income: The court reiterated that once losses and other deductions have been set off against the income of previous years, they should not be reopened for the purpose of computing current year income under Section 80-IA. This principle was upheld in the precedent cases of Liberty India v. CIT and CIT v. Mewar Oil and General Mills Ltd., which the court relied upon. The court noted that the fiction created by Section 80-IA(5) does not allow for the notional bringing forward of losses that have already been set off. 3. Application and Interpretation of Section 80-IA(5): Section 80-IA(5) dictates that for determining the quantum of deduction, the eligible business should be treated as the only source of income from the initial assessment year and every subsequent assessment year. The court clarified that this provision creates a fiction for a limited purpose and does not permit the reopening of set-off amounts from earlier years. The court highlighted that the "initial assessment year" under Section 80-IA(5) is distinct from the "beginning from the year" mentioned in Section 80-IA(2), and the losses prior to the initial assessment year, once set off, cannot be brought forward. 4. Relevant Precedents and Their Applicability: The court heavily relied on the decision in Velayudhaswamy Spinning Mills v. Asst. CIT, confirming that the principles established in that case apply to the present case. The court also referenced the decision in CIT v. Mewar Oil and General Mills Ltd., which supported the non-reopening of set-off losses for computing current income under Section 80-IA. The court dismissed the Revenue's reliance on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, stating that it does not mandate the notional bringing forward of set-off amounts. Conclusion: The court dismissed the appeal, confirming the Tribunal's order in favor of the assessee. It held that the assessee is entitled to the deduction under Section 80-IA and that losses and deductions set off in previous years should not be reopened for current year computation. The court's decision aligns with the precedents and principles established in earlier cases, particularly Velayudhaswamy Spinning Mills v. Asst. CIT. The questions of law were answered against the Revenue and in favor of the assessee.
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