2017 (6) TMI 1125 - HC - Income Tax

Eligibility for deduction u/s 80IA - Whether the profit earned during the Assessment Year 200910 would be entitled for deduction under Section 80IA(5) of the Act without deducting the losses, which were absorbed in the earlier years? - Held that - No error committed by the Tribunal in allowing the deduction of the profit u/s 80IB(5) of the Act without deducting the losses of the earlier years. See Velayudhaswamy Spinning Mills P. Ltd. & Sudan Spinning Mills (P). Ltd. 2010 (3) TMI 860 - Madras High Court wherein held that only losses of the years beginning from the initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of assessee, can be looked into.

Summary

Issues:
1. Interpretation of Section 80IA of the Income Tax Act, 1961 regarding eligibility for deduction.
2. Correct interpretation of Section 80IA(5) regarding set off of unabsorbed depreciation and losses.
3. Whether losses of earlier years should be set off against profits of eligible units for deduction under Section 80IA.

Analysis:
1. The appeal related to the Assessment Year 2009-10 where the Revenue challenged the Tribunal's order partly allowing the assessee's appeal. The main issue was the eligibility of the respondent company for deduction under Section 80IA of the Income Tax Act, 1961. The appellant contended that the Tribunal misinterpreted Section 80IA(5) by allowing the deduction without deducting losses from earlier years against profits of eligible units.

2. The Tribunal's interpretation of Section 80IA(5) was questioned, specifically regarding the set off of unabsorbed depreciation and losses. The appellant argued that losses from earlier years, even if absorbed against other income, should be notionally brought forward and set off against profits of eligible units to compute the eligible deduction. The appellant emphasized that the deduction should be computed with reference to eligible units only.

3. The judgment referred to precedents from the Madras High Court and the Apex Court, confirming that losses of earlier years already set off against the assessee's income should not be considered for deduction under Section 80IA(5). The Court highlighted that the provision mandates considering eligible business as the sole source of income for deduction calculation, without revisiting losses already set off against other income. The Court concluded that the Tribunal did not err in allowing the deduction without deducting losses from earlier years, as per the legal interpretation provided by the Madras High Court and the Apex Court.

4. Ultimately, the Court found no substantial question of law in the appeal and dismissed it, upholding the Tribunal's decision to allow the deduction under Section 80IA(5) without deducting losses from earlier years. The judgment emphasized the finality of the legal interpretation provided by the Madras High Court and the Apex Court in similar cases, supporting the decision to allow the deduction based on the correct interpretation of the law.