2016 (9) TMI 1079 - HC - Income Tax

Notional loss of depreciation - whether set off against other income of earlier years prior to initial assessment year could not be carried forward to set off in the initial assessment year for the purpose of working out the deduction under Section 80 IA of the Act when the same is permitted under Section 80 IA (5) of the Act - Held that - Hon ble Division Bench of this Court in Velayudhaswamy Spinning Mills Pvt. Ltd. s case (2010 (3) TMI 860 - Madras High Court ) 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.

Summary

Issues:
Challenge to ITAT order on set off of notional loss for deduction under Section 80 IA.

Analysis:
The High Court of Madras addressed the challenge in a Tax Appeal against an order by the Income Tax Appellate Tribunal (ITAT) regarding the set off of notional loss for the deduction under Section 80 IA for the Assessment Year 2008-09. The Revenue raised substantial questions of law questioning the Tribunal's decision on not carrying forward notional loss of depreciation for the purpose of working out the deduction under Section 80 IA. The Senior Standing Counsel for the Income Tax Department referred to a pending decision in the Hon'ble Apex Court related to a similar case, indicating a legal challenge in progress.

The High Court considered previous judgments, including the decision in Velayudhaswamy Spinning Mills Pvt. Ltd. case, which held that once losses and deductions are set off against the income of the assessee in the previous year, they should not be reopened for the computation of the current year's income under Section 80-I and 80-IA of the Act. The Court also referred to the judgment in Liberty India vs. CIT and a decision by the Rajasthan High Court in CIT vs. Mewar Oil & General Mills Ltd. The Court emphasized the principle that losses set off against income in previous years should not be re-considered for the purpose of computing deductions in the current year.

The Court noted that the ITAT, in line with the Velayudhaswamy Spinning Mills Pvt. Ltd. case, directed the reworking of the deduction under Section 80 IA without setting off losses on a notional basis. After reviewing the material on record, the Court found no valid grounds to reverse the orders. Consequently, the Court ruled in favor of the assessee, dismissing the Tax Case Appeal at the admission stage without costs. The judgment maintained the principle that notional losses already set off against income in previous years should not be carried forward for deduction calculations in subsequent years under Section 80 IA.