2011 (1) TMI 1047 - AT - Income Tax

Deduction u/s. 80IA - Search and seizure - 153A assessment - whether the exercise of notionally carried forward and set off of depreciation and loss of the eligible business relating to the earlier assessment years is called for when the depreciation and loss of those assessment years have already been allowed to be set off against other income of those assessment years? - Held that - The eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. - Decided in favor of the assessee. Thus following the judgment of Velayudhaswamy Spinning Mills P. Ltd. v. ACIT 2010 (3) TMI 860 - Madras High Court the contention of the assessee accepted and direct the assessing authority to grant deduction to the assessee u/s. 80IA for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation. In favour of assessee. Cash seized in the course of search - Held that - As assessee has not explained anywhere the source of this much amount as discernible from the books of account or any other documents - Decided against the assessee

Issues Involved:
1. Deduction under Section 80IA of the IT Act, 1961.
2. Addition of cash seized during the search.
3. Levy of interest under Sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA of the IT Act, 1961:

The assessee installed a windmill in the financial year 2005-06 and claimed a deduction under Section 80IA for the assessment year 2008-09. The Assessing Officer disallowed the deduction of Rs. 1,97,73,931/- on the grounds that the unabsorbed depreciation and loss from earlier years (2006-07 and 2007-08) should be notionally carried forward and set off against the profits of the impugned assessment year, as per Section 80IA(5). This resulted in no profit being available for deduction under Section 80IA.

The Commissioner of Income-tax (A) upheld the Assessing Officer's decision, relying on the Special Bench decision of the ITAT, Ahmedabad in ACIT v. Gold Mines Shares & Finance P. Ltd., which supported the notional carry forward and set off of losses.

However, the Tribunal referred to the judgment of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills P. Ltd. v. ACIT, which held that once losses and depreciation have been set off against other income in earlier years, they should not be notionally carried forward for the purpose of Section 80IA. The Tribunal concluded that the judgment of the constitutional court (Madras High Court) has overriding effect over the Special Bench decision and directed the assessing authority to grant the deduction under Section 80IA for the quantum claimed by the assessee without the notional deduction of earlier losses and depreciation.

2. Addition of Cash Seized During the Search:

The Assessing Officer added Rs. 24,06,700/- to the assessee's income as unexplained cash seized during the search. The Commissioner of Income-tax (A) confirmed this addition. The Tribunal upheld the addition, noting that the assessee failed to explain the source of the cash as discernible from the books of account or any other documents, thereby justifying the addition as unexplained income.

3. Levy of Interest under Sections 234B and 234C:

The levy of interest under Sections 234B and 234C was contested by the assessee. The Tribunal noted that the grounds raised on the levy of interest were consequential and directed the assessing authority to modify the computation of interest accordingly.

Conclusion:

The appeal filed by the assessee was partly allowed. The Tribunal directed the assessing authority to grant the deduction under Section 80IA without the notional deduction of earlier losses and depreciation, upheld the addition of Rs. 24,06,700/- as unexplained income, and directed the modification of the computation of interest under Sections 234B and 234C.

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