2005 (9) TMI 238 - AT - Income Tax

Treatment Of Unabsorbed Depreciation - deduction claimed u/s 80-IA - HELD THAT - From the facts it is clear that, AO is not justified in again making a notional concept of unabsorbed depreciation pertaining to the wind mill project relating to the earlier assessment year and notionally bring the same to the account of the impugned assessment year and setting off against the profit of the wind mill project for the impugned assessment year. Such a notional adjustment is not called for and not contemplated in the claim of deduction provided in s. 80-IA. As the entire 100 per cent depreciation claimed by the assessee for the earlier asst. yr. 1996-97 has already been set off against the income from business for the said assessment year, there remains nothing to be brought forward to the account of the impugned asst. yr. 1997-98. Therefore, the claim of the assessee has to be allowed by the assessing authority on the basis of the profit of the wind mill project for the impugned assessment year not fettered by any notional amount of unabsorbed depreciation pertaining to the preceding assessment year. The assessee succeeds in its appeal. The whole confusion has been arising in this case only for the reason that the assessee was entitled for 100 per cent depreciation. If the view taken by the Revenue has to be accepted, assessee's setting up wind mill projects would never have an occasion to claim the benefit of deduction u/s 80-IA as the entire profits of such units would be eaten away by the unabsorbed depreciation arising to the assessee against depreciation allowance of 100 per cent. In result, the appeal by the assessee filed is allowed.

Summary

Issues:
Disallowance of deduction under section 80-IA of the IT Act for the assessment year 1997-98.

Analysis:
The appeal concerns the disallowance of a deduction under section 80-IA of the IT Act for the assessment year 1997-98. The assessee had constructed wind mill electric generators in the previous year, which were sold to the Tamil Nadu State Electricity Board. The dispute arose when the assessing officer did not allow the deduction claimed by the assessee, citing unabsorbed depreciation from the preceding assessment year. The contention was that the unabsorbed depreciation should be considered for set off in the current assessment year, potentially nullifying any profit eligible for deduction under section 80-IA.

Upon appeal, the CIT(A) supported the assessing authority's decision, emphasizing the need to consider unabsorbed depreciation from the earlier assessment year before computing the deduction under section 80-IA. The assessee challenged this decision, leading to further examination of the issue.

The Tribunal referred to precedents set by the Kerala High Court and the Madras High Court in similar cases. These judgments highlighted that deductions under specific sections of the IT Act should not be diminished by losses carried forward from previous years. The Tribunal concluded that the lower authorities erred in offsetting unabsorbed depreciation from the earlier assessment year against the profits of the wind mill unit for the current assessment year. It was noted that the depreciation claimed by the assessee had already been absorbed by profits from various business sources, leaving no unabsorbed depreciation to be carried forward.

The Tribunal determined that the assessing officer's notional adjustment of unabsorbed depreciation from the previous year against the current year's profits was unwarranted and not in line with the provisions of section 80-IA. As the entire depreciation claimed for the earlier year had been utilized, the deduction under section 80-IA should be allowed based on the profit of the wind mill project for the current assessment year without any additional adjustments.

The Tribunal highlighted that denying the deduction under section 80-IA due to unabsorbed depreciation would undermine the purpose of the provision, especially for projects eligible for 100% depreciation. The appeal by the assessee was allowed, emphasizing the importance of correctly applying the provisions of the IT Act to ensure rightful deductions for eligible businesses.