2017 (8) TMI 474 - AT - Income Tax

Set-off of losses - assessee installed tall windmills relevant to the Assessment Year 2007-08 - assessee opted 2010-11 as the initial assessment year - losses pertain to AY 2007-08 to 2009-10 - eligibility for set off against the profits of the other income of the ineligible units - Held that - Tribunal in Poonawalla Estates Stud & Agro Farm Pvt. Ltd. Vs. ACIT 2010 (9) TMI 1080 - ITAT PUNE was approved by the Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. Vs. ACIT (2010 (3) TMI 860 - Madras High Court ). Therefore, the CIT(A) has not properly appreciated the said decision (supra). In the remand proceedings, CIT(A) is directed to consider the existing legal position on the issue under consideration and allow the claim of the assessee in accordance with law. Assessee shall be given reasonable opportunity of being heard to the assessee in accordance with the principles of natural justice. In the process, we find there is no reason for disallowing the claim of the assessee and the losses of the earlier assessment years prior to A.Y. 2010-11 are eligible for set off against the profits of the other income of the ineligible units of the earlier years. AO has grossly erred in disallowing the said set off of the said brought forward losses against the income earned from the windmills of the eligible units in the current year under consideration. Whether the assessee is justified in not making a claim u/s.32 while quantifying the allowable deduction u/s. 80IA(4) - Held that - On considering the facts we find there is some confusion with regard to the issue adjudicated by the CIT(A). Further, we find relevant Ground No.2 is the relevant one which is raised by the assessee before the CIT(A) and contrary to the same, the adjudication of the CIT(A) is on different issue and not in the issue of allowing depreciation while computing the total income of the assessee and not while computing deduction allowable u/s.80IA(4)(iii)(a) of the Act. The issue, in principle, should be decided in favour of the assessee as the computing of total income is done in accordance with the provisions of sections 28 to 44 which include section 32 of the Act. CIT(A) is directed to grant reasonable opportunity to the assessee and consider the Ground No.2 raised before him in proper perspective and decide the issue afresh in accordance with law Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of claim of deduction u/s.80IA (4) (iv) (a) of the Act in respect of windmill units.
2. Disallowance of depreciation amount while computing the deduction allowable u/s.80IA (4) (iii) of the Act.

Issue 1: Disallowance of Claim of Deduction u/s.80IA (4) (iv) (a) of the Act:
The appellant, engaged in property development and windmill business, claimed deduction u/s.80IA (4) (iv) (a) for windmill units. The AO set off losses from previous years against current income, disallowing the deduction. The appellant cited precedents and CBDT Circular No.01/2016 to support their claim. The CIT(A) disagreed, stating the initial assessment year was correctly chosen and losses could not be set off. The Tribunal disagreed, citing a similar case where losses were allowed to be set off against income. The Tribunal directed CIT(A) to reconsider and allow the claim, emphasizing the eligibility to set off losses against current income.

Issue 2: Disallowance of Depreciation Amount:
The question was whether depreciation should be reduced from the claim of deduction u/s.80IA (4) (iii) or while computing total income. The CIT(A) upheld the AO's decision to restrict the deduction, citing a jurisdictional High Court case. The Tribunal found the CIT(A) misunderstood the issue and directed a reevaluation. The Tribunal noted confusion in the CIT(A)'s decision and instructed a fresh consideration of the matter, emphasizing the need to align with relevant provisions. The Tribunal allowed the appeal, subject to proper consideration of the depreciation issue.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a reassessment of both issues to ensure proper application of the law and relevant provisions.