2015 (10) TMI 1600 - AT - Income Tax

Disallowance of deduction claimed u/s 80IA - reducing the eligible profit by the amount of losses and depreciation pertaining to earlier year already been set off against the profit of non-eligible unit - Held that - Since the assessee has exercised the option of choosing the asst. yr. 2008-09 as initial assessment year as per sub-section (2) of S. 80-IA, only the losses of the years starting from that initial assessment year alone are to be brought forward as stipulated in S. 80-IA(5). Loss prior to the initial assessment year which has already been set off cannot be brought forward and adjusted in the initial assessment year as chosen by the assessee. It is only when the loss has been incurred in any year beginning from the initial assessment year, that the assessee has to adjust such loss in the subsequent assessment years and the profits have to be computed as if the eligible business is the only source of income and the deduction u/s. 80-IA is to be determined accordingly. This is the true import of section 80-IA(5). Therefore the losses of assessment year prior to the A.Y. 2008-09 which has already been set off against income of non-eligible unit could not be notionally carried forward in accordance with section 80IA for setting off against the income of eligible unit for the assessment years 2008-09 & 2009-10 under consideration. Thus we do not find any merit in the action of the lower authorities for allowing the claim of deduction u/s 80IA by reducing the eligible profit by the amount of losses and depreciation pertaining to earlier year which has already been set off against the profit of non-eligible unit. As we have already decided the issue on merit in the A.Y. 2009-10, following the same reasoning, we do not find any merit in the action of ld. CIT u/s 263 for directing the A.O. in the A.Y. 2008-09 to allow deduction u/s 80IA of the Act after reducing the loss and depreciation of earlier year which have already been set off against the profit of non-eligible unit. - Decided in favour of assessee.

Summary

Issues:
Appeal against order passed u/s 263 for AY 2008-09 and appeal against order passed u/s 143(3) for AY 2009-10 regarding disallowance of deduction claimed u/s 80IA of the Act.

Analysis:
1. AY 2008-09 Disallowance: The assessee appealed against the order passed by the ld. CIT-3, Mumbai for AY 2008-09 regarding the disallowance of deduction claimed u/s 80IA of the Act. The CIT initiated action u/s 263 to examine the eligibility for deduction u/s 80IA(5) after reducing losses in the form of unabsorbed depreciation set off in earlier years. The AO held that the eligible deduction was "nil" after set off of losses and depreciation. The tribunal found that the assessee's windmill unit qualified for deduction u/s 80IA and exercised the option to claim deduction from AY 2008-09. The tribunal referred to various case laws supporting that losses from the eligible business in the year prior to the initial assessment year need not be notionally brought forward and have no effect on the deduction claimed.

2. AY 2009-10 Disallowance: For AY 2009-10, the AO held that the assessee was not entitled to deduction u/s 80IA(5) until unabsorbed losses and depreciation were fully set off. The tribunal analyzed the provisions of Section 80IA(5) and clarified that the losses of assessment years prior to AY 2008-09, which were set off against non-eligible unit profits, could not be notionally carried forward for setting off against eligible unit income in AY 2008-09 and 2009-10. The tribunal concluded that the lower authorities erred in reducing eligible profit by the amount of losses and depreciation from earlier years already set off against non-eligible unit profits.

3. Judgment: The tribunal found no merit in the actions of the lower authorities and allowed the appeals in part based on the reasoning provided for AY 2009-10. The tribunal dismissed the other grounds raised in the appeals as not pressed. The appeals were allowed in part for both AY 2008-09 and AY 2009-10, as indicated in the order pronounced on 3.6.2015.