2016 (7) TMI 253 - AT - Income Tax

Deduction under S.80IA in respect of its windmill units denied - initial assessment year - Held that - From a reading of the circular dated 15.2.2016, it is clear that the assessee who is eligible to claim deduction under S.80IA has been given an option to choose initial/first year from which it may desire to claim the deduction for ten consecutive years out of the slab of 15 or 20 years as prescribed under the above sub-section. The term initial assessment year has been held to mean the first year opted to by the assessee for claiming deduction under S.80IA of the Act. Thus, it is clear that the initial assessment year is not the year of operation or commencement of business, as interpreted by the Assessing Officer, but it is the first year in which the assessee has opted to claim the deduction under S.80IA. In view of this clarification of the Board, which clinches the issue in favour of the assessee, and is binding on the Revenue authorities, we accept the contentions of the assessee in this behalf, and direct the Assessing Officer to allow the claim of the assessee, after verifying the records as to the initial assessment year in which the assessee for the first time has claimed the deduction under S.80IA of the Act, and consider the income of the assessee from the eligible unit from that year alone on a stand alone basis.

Summary

Issues:
- Disallowance of deduction under S.80IA of the Act for windmill units
- Notional adjustment of past losses for deduction under S.80IA
- Disallowance of weighted deduction under S.35(2AA) of the Act
- Interpretation of initial assessment year for deduction under S.80IA

Analysis:
1. The appellant appealed against the order of the CIT(A) denying deduction under S.80IA of the Act for windmill units and notional adjustment of past losses. The assessing officer disallowed the deduction as the assessee did not set off earlier years' unabsorbed losses against windmill profits before claiming the deduction. This was in line with the Special Bench decision of the Tribunal in a similar case. The CIT(A) upheld this disallowance.

2. The appellant argued that the CBDT circular dated 15.2.2016 clarified the term 'initial assessment year' under S.80IA(5), stating that it is the year opted by the assessee for claiming the deduction, not the year of business commencement. Citing the Madras High Court judgment, the appellant contended that only losses from the opted initial assessment year should be considered for disallowance under S.80IA(5).

3. The Tribunal examined the relevant provision of the Act, emphasizing that profits for deduction under S.80IA should be computed on a standalone basis from the initial assessment year chosen by the assessee. The CBDT circular clarified that the initial assessment year is the first year opted for claiming the deduction, not the year of business commencement. As per this interpretation, the Tribunal directed the AO to allow the deduction after verifying the initial assessment year chosen by the assessee.

4. Consequently, the Tribunal partially allowed the appeal, ruling in favor of the appellant based on the CBDT circular's clarification regarding the initial assessment year for claiming deduction under S.80IA. The decision was pronounced on 10th June 2016.