2016 (5) TMI 1476 - AT - Income Tax

Reopening of assessment u/s 147 - Deduction u/s 80IA - initial assessment year - set off against the other business income in earlier years and set-off being allowed by the Revenue shall not be adjusted from the profit so computed by the assessee company - Held that - No hesitation in holding that the assessment year 2002-03 chosen by the assessee company shall be the initial Assessment year for the purposes of claiming deduction u/s 80IA of the Act although the Jojobera 67.5MW unit started generating power w.e.f. assessment year 1997-98. Thus Jojobera 67.5 MW power undertaking shall be deemed to be the only source of the income as provided u/s 80IA(5) of the Act only from the assessment year succeeding the assessment year 2002-03 being the initial assessment year and subsequent assessment year up-to and including the assessment year for which the determination is to be made which in any case shall not transgress beyond fifteen years from the year when Jojobera 67.5 MW power generating unit started generating power. We also hold that the notionally brought forward losses/ depreciation of the Jojobera 67.5 MW power generating unit for the period from the assessment year 1997-98 to 2001-02 which are already set off against the other business income in earlier years and set-off being allowed by the Revenue shall not be adjusted from the profit so computed by the assessee company with respect to Jojobera 67.5MW power generating unit for the assessment year 2002-03 for the purposes of computing deduction u/s.80IA of the Act. Since we have adjudicated this issue on merit in favour of the assessee company based on detailed discussions and reasoning as set out above the grounds raised by the assessee company challenging the reopening of the assessment u/s 147/148 has become academic and infructuous and hence we refrain from deciding the same and the questions raised by the assessee company in the grounds of appeal are kept open.

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Correctness of deduction under Section 80IA with reference to the profits of 67.5 MW Unit.
3. Interpretation of "initial assessment year" under Section 80IA(5).

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee company challenged the reopening of the assessment under section 147, arguing that it was based on a mere change of opinion. The assessee contended that the reassessment was initiated without any new tangible material and was primarily based on audit observations, which is not permissible under law. The assessee cited several case laws, including CIT v. Foramer France and CIT v. Kelvinator of India Limited, to support its position. The CIT(A) upheld the reopening, stating that the AO had reasons to believe that income had escaped assessment, and since the reopening was within four years, the proviso to section 147 did not apply.

2. Correctness of Deduction under Section 80IA with Reference to the Profits of 67.5 MW Unit:
The assessee contended that the deduction under Section 80IA was correctly allowed without considering the unabsorbed depreciation of the 67.5 MW Unit from earlier years, as such depreciation had already been set off against other income in previous years. The AO, however, held that as per Section 80IA(5), the profits of the eligible business should be computed as if it were the only source of income, thus requiring the set-off of brought forward losses. The CIT(A) agreed with the AO, concluding that the assessee was not eligible for the deduction due to the brought forward losses.

3. Interpretation of "Initial Assessment Year" under Section 80IA(5):
The assessee argued that the "initial assessment year" should be the year chosen by the assessee for claiming the deduction, not necessarily the year in which the unit commenced operations. The assessee relied on the Circular No. 1 of 2016 issued by the CBDT, which clarified that the term "initial assessment year" means the first year opted by the assessee for claiming deduction under Section 80IA. The Tribunal, considering the CBDT Circular and the judgments of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills Private Limited and G.R.T. Jewellers (India), concluded that the assessee was entitled to choose the assessment year 2002-03 as the initial assessment year. Consequently, the notional brought forward losses from earlier years, already set off against other income, should not be adjusted against the profits of the initial assessment year for computing the deduction under Section 80IA.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the assessment year 2002-03 chosen by the assessee shall be the "initial assessment year" for the purposes of claiming deduction under Section 80IA. The notionally brought forward losses/depreciation of the Jojobera 67.5 MW unit for the period from the assessment year 1997-98 to 2001-02, already set off against other business income, should not be adjusted from the profit for the assessment year 2002-03 for computing the deduction under Section 80IA. The grounds challenging the reopening of the assessment were deemed academic and infructuous due to the decision on the merits.