2014 (7) TMI 858 - AT - Income Tax

Deduction u/s 80IA(4)(iv) of the Act Computation of income - Unabsorbed depreciation on standalone basis u/s 80IA(5) of the Act Held that - The decision in M/s. Easun Reyrolle Ltd. Versus Deputy Commissioner of Income Tax 2014 (7) TMI 497 - ITAT CHENNAI followed - Revenue has failed to controvert the same - only AY 2000-01 instead of 1995-96 has to be held as the initial assessment year for the purpose of sec 80IA deduction Relying upon M/s. Velayutha Swamy Spinning Mills vs. ACIT 2010 (3) TMI 860 - Madras High Court - unabsorbed depreciation and carried forward business losses pertaining to AY 1995-96 to 1999-2000 could not have been ordered to be set off against income and profits of the assessment year Decided in favour of Assessee.

Summary

Issues involved:
Assessment years 2003-04 and 2004-05 - Disallowance of deduction claim u/s. 80IA(4)(iv) and computation of income based on unabsorbed depreciation/losses under Sec 80IA(5).

Analysis:

Issue 1: Disallowance of deduction claim u/s. 80IA(4)(iv)
The appeals arose from a common order by the Commissioner of Income Tax (Appeals)-II, Chennai. The key contention was the disallowance of deduction claims u/s. 80IA(4)(iv) amounting to F.62,37,984/- and F.65,27,438/- for the respective assessment years. The Assessing Officer had initially raised demands, which were subsequently reduced by the CIT(A). However, a re-assessment was initiated based on the commencement of windmill operations in 1995-96, challenging the deduction claims from 2000-2001 onwards. The Assessing Officer applied Sec 80IA(5) to restrict the deduction, resulting in additional income. The lower appellate proceedings saw the assessee challenging the validity of the reassessment, the determination of the 'initial assessment year,' and the setoff of unabsorbed depreciation and losses. The CIT(A) upheld the Assessing Officer's findings, leading to the appeal before the ITAT.

Issue 2: Computation of income based on unabsorbed depreciation/losses under Sec 80IA(5)
The Assessing Officer's application of Sec 80IA(5) to restrict the deduction and add F.62,37,984/- was a crucial aspect of the case. The assessee contended that assessment year 2000-01 should be considered the 'initial assessment year' for claiming the deduction u/s. 80IA, citing a precedent by a co-ordinate bench. The ITAT, after reviewing the co-ordinate bench's decision and the lack of rebuttal from the Revenue, held in favor of the assessee. It concluded that only assessment year 2000-01 should be the 'initial assessment year' and that unabsorbed depreciation and carried forward losses from 1995-96 to 1999-2000 could not be set off against the income of the impugned assessment year. Citing the case of M/s. Velayutha Swamy Spinning Mills vs. ACIT, the ITAT allowed the appeals, stating that the assessee succeeded on both counts.

In conclusion, the ITAT allowed both appeals, emphasizing the determination of the 'initial assessment year' for claiming deductions u/s. 80IA and rejecting the setoff of unabsorbed depreciation and losses against the income of the impugned assessment year. The judgment provided clarity on these issues, setting a precedent for similar cases.