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2018 (8) TMI 1126 - AT - Income TaxClaim of set off of brought forward losses - deduction u/s 80IA - The AO was of the view that having positive income from the assessment year 2005-06 to the assessment year 2011-12 the assessee ought to have claimed the set off losses in the immediately subsequent assessment year and it is incorrect to claim the set off of losses after completion of tax holiday period. The income of the assessee is required to be computed each year independently after setting off of losses of earlier years in the subsequent assessment years. If the losses could not allowed to be set off the losses are allowed to be carried forward for the 7 consecutive assessment years from the end of the assessment year in which the loss was incurred. There is no special provisions to allow the carry forward of losses in the case of 80IA as held by the Ld.CIT(A). In the instant case, the assessee has carried forward the losses till exhausting the 10 years tax holiday period and claimed the loss in the impugned assessment year which is against the provisions of law. As held by Hon ble Special Bench in the case of Goldmine Shares 2008 (4) TMI 405 - ITAT AHMEDABAD , the losses incurred in 2003-04 and 2004-05 required to be set off against 2005-06 and in subsequent assessment years. Having not claimed the set off losses in the A.Y.2005-06, the assessee is disentitled to claim the set off of such losses in the impugned assessment year. Decided in favor of revenue.
Issues Involved: Set off of business losses, Section 80IA, tax holiday period, brought forward losses, and computation of income.
Issue-wise Detailed Analysis: 1. Set off of Business Losses: The primary issue revolves around the set off of business losses claimed by the assessee pertaining to earlier years. The assessee filed a return of income admitting a total income of ?81,24,780 after setting off brought forward losses. The Assessing Officer (AO) observed that the assessee derived gross total income of ?1,88,27,273 and claimed the set off of brought forward losses amounting to ?1,07,02,498, leading to a taxable income of ?81,24,780. The AO found that the set off of losses claimed by the assessee for the years 2003-04 and 2004-05 was incorrect, as the assessee had positive income from the assessment year 2005-06 onwards and should have claimed the set off in the immediately subsequent years. 2. Section 80IA Deduction and Tax Holiday Period: The assessee is engaged in the business of power generation and is eligible for deduction under Section 80IA for 10 consecutive assessment years out of 15 years, beginning from the year in which the undertaking generates power. The assessee started claiming the deduction from the assessment year 2000-01 and completed the tax holiday period in 2010-11. During the intervening period 2003-04 and 2004-05, the assessee incurred losses but did not set off these losses in the subsequent assessment years, instead carrying them forward until the completion of the tax holiday period and then claiming the deduction in the assessment year 2012-13. The AO disallowed the set off of losses in the impugned assessment year, stating it was against the provisions of Section 80AB. 3. CIT(A) Decision: Aggrieved by the AO's order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition made by the AO. The CIT(A) held that the assessee is eligible for deduction under Section 80IA for 100% of profits and that the normal provisions of setting off carry forward losses are not applicable. The CIT(A) relied on the decision of the Hon’ble ITAT in the case of M/s Hercules Hoists Limited. 4. Revenue's Appeal to the Tribunal: The revenue filed an appeal before the Tribunal, arguing that the assessee should have claimed the set off of losses in the subsequent assessment years as provided under Section 72 of the Act. The departmental representative relied on the decision of the Hon’ble Supreme Court in the case of IPCA Laboratory Ltd. Vs. DCIT. 5. Tribunal's Analysis and Decision: The Tribunal analyzed the provisions of Section 80IA and the relevant case laws, including the Hon’ble Special Bench decision in the case of Goldmine Shares and Finance Pvt. Ltd. The Tribunal noted that Section 80IA(5) requires the profits and gains of the eligible business to be computed as if it were the only source of income, and the brought forward losses must be set off in the subsequent year. The Tribunal concluded that the assessee should have set off the losses incurred in 2003-04 and 2004-05 against the profits in the assessment year 2005-06 and subsequent years. Since the assessee did not claim the set off in the subsequent years, it was disentitled to claim the set off in the impugned assessment year. Therefore, the Tribunal set aside the order of the CIT(A) and restored the AO's order. Conclusion: The appeal of the revenue was allowed, and the Tribunal held that the assessee is disentitled to claim the set off of losses in the impugned assessment year 2012-13. The order of the CIT(A) was set aside, and the AO's order was restored. The above order was pronounced in the open court on 31st July, 2018.
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