2015 (4) TMI 375 - HC - Income Tax

Entitlement to deduction under Section 80-IA - Held that - The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills case (2010 (3) TMI 860 - Madras High Court). - Decided in favour of the assessee

Issues Involved:

1. Entitlement to claim deduction under Section 80-IA of the Income Tax Act.
2. Relevance of prior judgments and pending appeals in the Supreme Court.
3. Interpretation of "initial assessment year" and treatment of losses and unabsorbed depreciation.
4. Consistency with previous decisions of the High Court and Supreme Court.

Issue-wise Detailed Analysis:

1. Entitlement to Claim Deduction under Section 80-IA:

The core issue in this appeal is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The Tribunal had ruled in favor of the assessee, allowing the deduction. The High Court examined whether this decision was legally sound based on the facts and circumstances presented.

2. Relevance of Prior Judgments and Pending Appeals in the Supreme Court:

The High Court noted that the issue had already been decided in the case of Velayudhaswamy Spinning Mills vs. Asst. CIT, where it was held that the assessee is entitled to such deductions. The Revenue's counsel mentioned that appeals against this decision were pending before the Supreme Court. However, the High Court observed that these appeals were only at the notice stage and had not been admitted yet, implying no binding effect on the current case.

3. Interpretation of "Initial Assessment Year" and Treatment of Losses and Unabsorbed Depreciation:

The High Court relied heavily on the previous judgment in Velayudhaswamy Spinning Mills, which interpreted Section 80-IA, particularly sub-section (5). It was held that once losses and other deductions have been set off against the income of previous years, they should not be reopened for computing the current year's income under Sections 80I or 80IA. The court emphasized that the "initial assessment year" is distinct from the year in which the business begins operations, and only losses from the initial assessment year onward should be considered.

4. Consistency with Previous Decisions of the High Court and Supreme Court:

The High Court reiterated its stance from the Velayudhaswamy Spinning Mills case and other similar cases, such as CIT vs. Mewar Oil and General Mills Ltd. The court found no compelling reason or contrary judgment to deviate from its earlier decisions. It was emphasized that the fiction created by Section 80-IA(5) does not allow for the reopening of losses already set off in previous years.

Conclusion:

The High Court dismissed the Revenue's appeal, confirming the Tribunal's order in favor of the assessee. The court held that the assessee is entitled to the deduction under Section 80-IA, and prior losses already set off should not be reconsidered. The questions of law raised were answered against the Revenue and in favor of the assessee, reinforcing the legal principles established in earlier judgments.

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