2018 (10) TMI 783 - AT - Income Tax

Deduction u/s 80IA(4)(iv) - raising of additional claim - additional ground seeking claim of deduction of entire profit generated from windmill power project without reducing notional brought forward losses and depreciation - Held that - It is well settled that the appellate authority is not precluded from adjudicating the additional claims of an assessee regardless of whether the return was revised or not. The Revenue is under duty to assess the true profits of an assessee and cannot take advantage of the ignorance of the assessee on the provisions of the Act. Thus, the action of the CIT(A) to this extent requires to be set aside and additional claim of the assessee amounting to ₹ 7,35,01,934/- requires to be entertained. We notice that the quantification aspects of additional claim flowing from notional set off / carry forward of losses of earlier years from eligible profits has not been examined by the authorities below. Accordingly, we set aside the issue to the file of the AO for the limited purposes of determination of correct quantum of deduction to be computed without setting off any notional losses of the windmill power project pertaining to the earlier assessment years as discussed. AO shall allow enhanced deduction under s.80IA(4) of the Act as eligible to assessee in accordance with law regardless of claim made by the assessee in this regard in its return of income. Ground No.1 of the assessee s appeal is allowed for statistical purposes. Addition on account of differences in the closing balances of one of its party namely Associated Road Carriers Ltd. - Held that - In the course of hearing, the learned AR for the assessee failed to support the aforesaid ground. A perusal of the order of the CIT(A) gives the impression that the CIT(A) has approached the issue correctly and in right perspective. Therefore, without reiterating the observations of the CIT(A) , we find ourselves in agreement therewith. - Decided against assessee.

Summary

Issues Involved:
1. Denial of deduction under Section 80IA(4)(iv) of the Income Tax Act, 1961.
2. Addition on account of non-reconciliation of difference in the closing balance.

Issue-wise Detailed Analysis:

1. Denial of Deduction under Section 80IA(4)(iv):

The assessee, a domestic company engaged in manufacturing and trading of sale tubes and pipes, and in the generation of electricity through windmill projects, claimed a deduction of ?3,05,59,000 under Section 80IA(4) of the Income Tax Act, 1961 for the Assessment Year (AY) 2012-13. The assessee computed this deduction after considering notional brought forward losses and depreciation of the windmill business, even though these losses/depreciation had been set off against other income in earlier years. The Assessing Officer (AO) denied this deduction, arguing that the assessee could not set off the losses of the eligible business against the income of the regular business in the earlier years when it intended to claim the deduction under Section 80IA(4) in the succeeding assessment years. Consequently, an addition of ?3,05,59,000 was made to the total income by denying the claim of deduction.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] accepted the claim of ?3,05,59,000 but denied the additional claim of ?7,35,01,934 raised by the assessee due to the wrong set-off towards notional losses of earlier years. The CIT(A) held that such claims could be entertained only where the assessee had revised its original return under Section 139(5) of the Act.

The Tribunal noted that the CIT(A) had accepted the eligibility of the claim for deduction but denied the additional claim on the grounds of the absence of a revised return. The Tribunal found merit in the assessee's argument that the additional claim should be entertained based on judicial precedents and CBDT Circular No. 1 of 2016, which clarified that the "initial assessment year" within the meaning of Section 80IA(5) has to be necessarily the initial year as chosen by the assessee. The Tribunal held that the appellate authority is not precluded from adjudicating additional claims regardless of whether the return was revised or not. The Tribunal set aside the issue to the AO for the limited purpose of determining the correct quantum of deduction to be computed without setting off any notional losses of the windmill power project pertaining to the earlier assessment years.

2. Addition on Account of Non-Reconciliation of Difference in the Closing Balance:

The assessee challenged an addition of ?1,70,439 made on account of differences in the closing balances with one of its parties, namely Associated Road Carriers Ltd. The CIT(A) upheld the addition, and the Tribunal found no merit in the assessee's appeal on this ground. The Tribunal agreed with the CIT(A)'s observations and dismissed this ground of appeal.

Conclusion:

The appeal was partly allowed. The Tribunal directed the AO to allow the enhanced deduction under Section 80IA(4) as eligible to the assessee in accordance with the law, regardless of the claim made by the assessee in its return of income. The addition on account of non-reconciliation of the difference in the closing balance was upheld.