2015 (9) TMI 1009 - AT - Income Tax

Disallowance of deduction u/s. 80IA - eligibility to claim the benefit of deduction u/s.80-IA without first setting off notional brought forward losses against the current year s profit of exempt unit - Held that - This fact is not in dispute that business loss/depreciation of earlier years of the exempt unit have already been set off in earlier years against other income and accepted as such by the Revenue. This fact is also not in dispute that deduction u/s.80IA in the case of exempt unit has been claimed for the first time in the impugned year. In the aforesaid judgment of Shevie Exports 2013 (5) TMI 16 - ITAT MUMBAI , it has been observed that losses of earlier years could not be notionally carried forward in terms of section 80IA(5). Also see Velayudhaswamy Spinning Mills (P)Ltd. case 2010 (3) TMI 860 - Madras High Court Thus, respectfully following these judgments as relied upon ld. Counsel of the assessee, we hold that the AO was not justified in denying the benefit of deduction u/s 80IA of ₹ 71,10,231/-. The AO is directed to grant the benefit of deduction claimed by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of the assessee to claim deduction under section 80-IA without setting off notional brought forward losses and depreciation against the current year's profit of the exempt unit.
2. Determination of the initial assessment year for the purpose of claiming deduction under section 80-IA.

Issue-wise Detailed Analysis:

1. Eligibility of the Assessee to Claim Deduction under Section 80-IA:
The primary issue revolves around whether the assessee can claim the benefit of deduction under section 80-IA without first setting off notional brought forward losses and depreciation against the current year's profit of the exempt unit. The assessee claimed the benefit of deduction under section 80-IA for the first time in the assessment year 2009-10 concerning its windmill farms (referred to as the "exempt unit"). The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee should first notionally reduce the profits of the exempt unit by the amount of losses and unabsorbed depreciation which were set off against the profits of taxable units in the earlier years. However, the Tribunal noted that the losses of the exempt unit had already been set off against the profits in the earlier years, and nothing remained to be brought forward to the impugned year. The Tribunal relied on several judgments, including Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT, CIT vs. Anil H. Lad, and Shevie Exports vs. Jt. CIT, which supported the assessee's position that losses set off in earlier years should not be notionally brought forward.

2. Determination of the Initial Assessment Year:
The assessee contended that the initial assessment year for claiming deduction under section 80-IA should be the assessment year 2009-10, as this was the first year in which the deduction was claimed. The Tribunal observed that as per section 80-IA(2), the assessee has the option to choose any 10 consecutive years out of the first 15 years for claiming the deduction. It was noted that the initial assessment year, as chosen by the assessee, was the assessment year 2009-10, and any losses incurred in earlier years from the exempt unit should have been set off against the profit of taxable units in earlier years. The Tribunal emphasized that the initial assessment year is the year in which the assessee first claims the deduction, and only the losses incurred from the initial assessment year onwards need to be considered for set-off. The Tribunal distinguished the present case from the judgment in Pidilite Industries Ltd. vs. DCIT, where the facts were different, and the initial assessment year was not in dispute.

Conclusion:
The Tribunal concluded that the AO was not justified in denying the benefit of deduction under section 80-IA of Rs. 71,10,231/-. The AO was directed to grant the benefit of deduction claimed by the assessee. The appeal of the assessee was allowed, and the order was pronounced in the open court on 28th August 2015.