2016 (3) TMI 914 - AT - Income Tax

Denial of deduction u/s.80IA - claim for initial assessment year - that - 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 this appeal falls within the parameters of Section 80IA of the Income Tax Act. See CIT Vs. See Velayudhasamy Spinning Mills (2010 (3) TMI 860 - Madras High Court ) - Decided in favour of the assessee.

Summary

Issues Involved:
1. Interpretation of the operation of Section 80IA(5) from the year of the first claim of deduction.
2. The binding nature of non-jurisdictional High Court judgments versus jurisdictional High Court judgments.
3. Justification of allowing deduction under Section 80IA(4) by considering the initial assessment year as the first year of claiming the deduction.

Issue-wise Detailed Analysis:

Issue 1: Interpretation of Section 80IA(5)
The primary issue revolves around whether Section 80IA(5) should be interpreted from the year of the first claim of deduction or from the year the eligible business commenced. The assessee claimed the deduction for the first time in A.Y. 2009-10, considering it as the "initial year." The Assessing Officer (AO) argued that the profits must be computed as if the eligible business were the only business of the assessee from the year of commencement, not the first year of the claim. The AO disallowed the deduction, stating that the losses from previous years should be brought forward and adjusted against the current year's income, resulting in no profit for deduction.

Issue 2: Binding Nature of Non-Jurisdictional High Court Judgments
The Revenue contended that the CIT(A) and ITAT erred in treating the judgment of the non-jurisdictional Madras High Court in the case of Vellayudhaswamy Spinning Mills Pvt. Ltd. as binding, disregarding the principle laid down by the jurisdictional Bombay High Court in CIT Vs. Thane Electricity Supply Ltd. The Revenue argued that the initial year should be the year in which power generation commenced, not the year the assessee chose to claim the deduction.

Issue 3: Justification of Allowing Deduction under Section 80IA(4)
The CIT(A) allowed the deduction under Section 80IA(4) by considering the initial assessment year as the first year in which the assessee claimed the deduction. The CIT(A) relied on the decision of the Pune Bench of the Tribunal in the case of Serum International Ltd. and the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd., which held that only losses from the initial year of claim should be considered, not the losses from prior years.

Analysis and Judgment:

Section 80IA(5) Interpretation:
The Tribunal upheld the CIT(A)'s decision, agreeing that the initial assessment year for the purpose of Section 80IA(5) is the first year in which the assessee claimed the deduction. The Tribunal referenced the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd., which established that only losses from the initial year of claim should be brought forward, not losses from prior years. This interpretation aligns with the assessee's option to choose any 10 consecutive assessment years for claiming the deduction within a 15-year period from the commencement of the eligible business.

Binding Nature of Judgments:
The Tribunal noted that even a non-jurisdictional High Court's decision is binding unless there is a contrary decision from another competent High Court. The Tribunal cited the Bombay High Court's ruling in Commissioner of Central Excise Vs. Valson Dyeing, Bleaching and Printing Works, which emphasized respecting High Court decisions across different states in the absence of conflicting judgments. Thus, the Tribunal followed the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd.

Justification of Deduction under Section 80IA(4):
The Tribunal found no infirmity in the CIT(A)'s order, which was consistent with the Tribunal's earlier decisions. The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80IA(4), dismissing the Revenue's appeal. The Tribunal reiterated that the initial assessment year for claiming the deduction is the first year the assessee opts to claim it, and losses from prior years already set off against other income should not be notionally brought forward.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the assessee's deduction under Section 80IA(4) by considering the initial assessment year as the first year of claiming the deduction. The Tribunal emphasized the binding nature of the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd. and the assessee's right to choose the initial year for claiming deductions within the stipulated period.