2019 (1) TMI 1963 - AT - Income Tax

Deduction u/s.80IA - manner of computation of deduction qua the set off of carry forward of losses - Disallowance of valid as there are no actual profits available with the assessee - Claim for second year - AO disallowed the claim of the assessee in the instant year too on the ground that the notional losses of the windmill undertaken must be first set off against the profits of the windmill - HELD THAT - We find that there is no dispute on the fact that the assessment year 2009-10 is the initial assessment year in the hands of Kirloskar Oil Ltd. The dispute is only with respect to the manner of computation of deduction qua the set off of carry forward of losses. Further, we find there is no clarity as to the outcome of appeal by the Revenue for the A.Y. 2009-10 in the hands of Kirloskar Oil Ltd. who is the owner of the unit before demerger. In this case, assessee acquired windmill undertaking from the Kirloskar Oil Ltd. A.Y. 2009-10 is the initial assessment year in the hands of Kirloskar Oil Ltd. Hence, the A.Y. 2010-11 is the 2nd year in the hands of the assessee. Otherwise, there is no clarity in the orders of the AO on the amount of loss validly quantified in the hands of undertaking at the time of demerger to the assessee. Therefore, there is requirement of basic details on the said issue qua the figures of losses and profits over the years of the undertaking. Law is more or less settled on this issue on the issue of manner of set off of notional losses of earlier assessment years which was already set off against the profits of the other undertakings. The judgmental law does not permit the set off of notional losses by the AO for eating away the eligible profits for the year under consideration. Case of CIT Vs. Hercules Hoists Ltd 2017 (6) TMI 1125 - BOMBAY HIGH COURT is one such judgment which is required to be regarded and applied to the facts of the present case. In our considered opinion, this issue required fresh consideration at the level of CIT(A) for applying the binding judgments on the issue. Ld. Counsel for the assessee is also directed to supply necessary judgments on the specific issue of the manner of computation of deduction u/s.80IA(4) of the Act in the second year of the block of assessment years specified in the law. With these directions, we allow Ground No.3 for statistical purposes.

Summary

Issues:
1. Disallowance of deduction u/s.80IA of the Income Tax Act, 1961.
2. Manner of computation of deduction u/s.80IA(4) in the context of set off of carry forward losses.

Issue 1: Disallowance of deduction u/s.80IA of the Income Tax Act, 1961:

The appeal was filed by the Assessee against the order of CIT(A)-2, Pune, for the Assessment Year 2010-11. The Assessee, a company formed by a demerger, initially declared total income of &8377; 13,99,64,208/-, later revised to &8377; 14,71,45,097/-. The Assessing Officer (AO) disallowed certain amounts leading to total income assessment at &8377; 20,14,04,290/-. The Assessee appealed to the CIT(A) but was unsuccessful, leading to an appeal before the Tribunal. The only ground for adjudication was the disallowance of a claim u/s.80IA. The AO held that the Assessee was not eligible for the deduction due to losses exceeding profits. The CIT(A) upheld this decision based on a High Court judgment. The Assessee contended that the deduction should be allowed based on binding judgments. The Tribunal found inconsistencies in the AO's approach and directed fresh consideration at the CIT(A) level to apply relevant judgments, allowing the appeal for statistical purposes.

Issue 2: Manner of computation of deduction u/s.80IA(4) in the context of set off of carry forward losses:

The Assessee's claim for deduction u/s.80IA was denied by the AO due to set off of profits against losses from previous years. The Assessee argued that the deduction should be computed on a standalone basis, citing relevant provisions and judicial decisions. The Tribunal observed that the AO's approach contradicted the purpose of the provisions and previous rulings. It noted the lack of clarity regarding the losses and profits of the undertaking during demerger. The Tribunal emphasized settled law against notionally setting off losses to reduce eligible profits. Referring to the jurisdictional High Court judgment, the Tribunal directed a reevaluation at the CIT(A) level, instructing the Assessee to provide relevant judgments. Consequently, the Tribunal partially allowed the appeal for statistical purposes.

This detailed analysis of the legal judgment highlights the issues of disallowance of deduction u/s.80IA and the computation of deduction u/s.80IA(4) concerning the set off of carry forward losses. The Tribunal's decision emphasizes the importance of applying binding judgments and ensuring consistency in tax assessments.