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2015 (1) TMI 976 - HC - Income TaxEntitlement to deduction under section 80-IA - Held that - Once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income under Section 80I or 80IA of the Income Tax Act and the assessee should not be denied the admissible deduction under Section 80IA of the Income Tax Act. As all the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in each of the appeal falls within the parameters of Section 80IA of the Income Tax Act. - Decided in favour of assessee.
Issues Involved:
1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act. 2. Treatment of losses and unabsorbed depreciation from previous years in computing current year income for deduction purposes. Issue-wise Detailed Analysis: 1. Entitlement to Claim Deduction Under Section 80-IA of the Income Tax Act: The core issue in all the appeals is whether the Tribunal was right in law in holding that the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The counsel for the assessee argued that this issue has already been decided by the Court in the case of Velayudhaswamy Spinning Mills V. Asst. CIT (2012) 340 ITR 477, and thus the same precedent should be followed. The Revenue's counsel mentioned that appeals against this decision are pending before the Supreme Court. The Court referred to its previous decision in Velayudhaswamy Spinning Mills V. Asst. CIT, where it was held that Chapter VI-A of the Income Tax Act provides for incentives in the form of tax deductions, which are "profit-linked incentives." The Supreme Court in Liberty India V. CIT (2009) 317 ITR 218 also held that Sections 80-I, 80-IA, and 80-IB are codes by themselves, containing both substantive and procedural provisions. 2. Treatment of Losses and Unabsorbed Depreciation from Previous Years: The Court extracted relevant portions from its earlier judgment, emphasizing that once losses and other deductions have been set off against the income of the previous year, they should not be reopened for the purpose of computation of current year income under Section 80-IA. The Court explained that Section 80-IA provides for a deduction of 100% of the profits and gains derived from eligible business for ten consecutive assessment years. Sub-section (5) of Section 80-IA, which starts with a non obstante clause, creates a fiction that the eligible business is the only source of income for determining the quantum of deduction. This fiction does not allow the Revenue to bring forward losses from earlier years that have already been set off against other income of the assessee. The Court noted that in the present cases, the losses incurred by the assessee were already set off against profits of earlier years. During the relevant assessment year, the assessee exercised the option under Section 80-IA(2), and there were no unabsorbed depreciation or losses of the eligible undertakings. The Court agreed with the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd. (2004) 271 ITR 311, which held that losses or other deductions already set off against the income of the previous year should not be reopened for computing current income under Section 80-I. The Court concluded that the Revenue cannot notionally bring forward and set off losses from earlier years against the profits of the eligible business for the current year. The Tribunal's order was set aside, and all questions were answered in favor of the assessee and against the Revenue. Conclusion: The Court dismissed all the appeals by the Revenue, confirming the Tribunal's order and holding that the assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The questions of law raised were answered against the Revenue and in favor of the assessee. The Court also noted that appeals against its previous decision in Velayudhaswamy Spinning Mills are pending before the Supreme Court but have not yet been admitted.
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