2016 (7) TMI 675 - HC - Income Tax

Reopening of assessment - entitlement to deduction under Section 80 IA without setting off the losses/unabsorbed depreciation pertaining to the windmill - Held that - Once the losses and other deductions are set off against the income of the assessee in the previous year, it should not be re-opened again, for the purpose of computation of current year income, under Section 80-I and 80-IA of the Act. M/s.Velayudhaswamy Spinning Mills (P) Ltd., v. Assistant Commissioner of Income-Tax 2010 (3) TMI 860 - Madras High Court - Decided in favour of the assessee.

Summary

Issues:
Challenge to ITAT order on deduction under Section 80 IA without setting off losses, interpretation of initial assessment year in Section 80 IA (5), option for choosing the initial assessment year for deduction under Section 80-IA.

Deduction under Section 80 IA without setting off losses:
The Tax Appeal challenged the ITAT order dismissing the revenue's appeal against the CIT (Appeals) order for the Assessment Year 2010-11. The substantial question of law raised was whether the assessee is entitled to deduction under Section 80 IA without setting off losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income. The Circular No.1/2016 clarified the term "initial assessment year" in Section 80 IA (5), emphasizing the assessee's option to choose the initial year for claiming deduction for ten consecutive years. The Court referred to the decision in M/s. Velayudhaswamy Spinning Mills case, holding that once losses and deductions are set off against income in the previous year, they should not be re-opened for the current year's computation under Section 80-I and 80-IA.

Interpretation of initial assessment year in Section 80 IA (5):
The Court considered the interpretation of the term "initial assessment year" in Section 80 IA (5) in light of Circular No.1/2016. The Circular clarified that the assessee has the option to choose the initial/first year for claiming deduction under Section 80 IA, subject to fulfilling prescribed conditions. It emphasized that the total years for claiming deduction should not exceed the slab of fifteen or twenty years, and the period of claim should be continuous. The Court held that the initial assessment year means the first year opted by the assessee for claiming deduction under Section 80 IA, as per the Circular's clarification.

Option for choosing the initial assessment year for deduction under Section 80-IA:
The Court addressed the issue of whether the assessee has the option to choose the first/initial assessment year of claim for deduction under Section 80-IA. Referring to the Circular and previous judgments, the Court concluded that the assessee has the right to choose the initial assessment year for claiming deduction under Section 80-IA. The Court found no valid grounds to reverse the orders, answered the question of law against the revenue, and dismissed the appeal, holding substantial questions of law in favor of the assessee.