2018 (12) TMI 526 - AT - Income Tax

Claim of deduction u/s 80IA - brought forward losses have to be adjusted against the current year income before calculating the eligible amount of deduction under section 80IA - Held that - Once the assessee has opted for the first year of relief then it continues for further 9 consecutive years. The section mandates that the year in which the relief is claimed under this section for the first time is called as the initial assessment year. This will be the year in which the undertaking has to be treated as a separate sole source of income within meaning of s.80IA(5) of the Act and, therefore, depreciation and loss of earlier years cannot be notionally carried forward to be set off against income of the initial assessment year for computing deduction under section 80IA of the Act CIT(A) following the decision of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 2010 (3) TMI 860 - MADRAS HIGH COURT and CBDT circular No. 1/2016 and in ITAT decision in the case of The Tata Power Co. Ltd vs. ACIT 2011 (5) TMI 236 - ITAT MUMBAI allowed the Claim of the assessee Since, there is no dispute about the dates of commissioning of the windmills under consideration and Initial Assessment Year in which the deduction u/s 80lA of the Act was claimed by the assessee in respect of these Windmills, considering the fact that the Appellant s case is squarely covered by the above decisions of Hon ble Madras High Court and Mumbai ITAT, it is held that the assessee had the option to opt for the Initial assessment year for claiming deduction u/s 80IA and hence, loss or depreciation in the year earlier to initial assessment year already absorbed against the profit of other business could not be notionally brought forward and set off against the profits of the eligible of the assessee. The Ground is accordingly Allowed. See HERCULES HOISTS LTD. 2015 (5) TMI 825 - BOMBAY HIGH COURT - Decided against revenue.

Summary

Issues:
- Whether the claim of deduction under section 80IA of the Income Tax Act is allowable without adjusting brought forward losses against current year income?
- Whether the decision of the Commissioner of Income Tax (Appeals) in allowing the claim of deduction under section 80IA is legally sound?
- Whether the judgments cited in support of the Revenue's case are applicable to the present situation?

Analysis:
1. The primary issue in this case revolves around the allowance of deduction under section 80IA of the Income Tax Act without adjusting brought forward losses against the current year's income. The Revenue contended that the brought forward losses should be considered before calculating the eligible amount of deduction under section 80IA. The Commissioner of Income Tax (Appeals) allowed the claim of deduction under section 80IA, emphasizing the option provided to the assessee to choose the initial assessment year for claiming relief under this section. The Commissioner relied on judicial pronouncements and the CBDT circular to support the decision.

2. The assessee, engaged in the business of generating electricity through windmills, claimed deduction under section 80IA of the Act. The Assessing Officer (AO) raised concerns regarding the losses of the initial years not being considered while calculating the profit for the year under consideration. The AO questioned why these losses were not factored in. The assessee argued that section 80IA allows for relief for ten consecutive assessment years out of fifteen, starting from the year in which the infrastructure facility begins operation. The Commissioner, following relevant judicial decisions and circulars, upheld the assessee's claim, stating that losses of earlier years need not be notionally carried forward for set off against the income of the initial assessment year.

3. The judgment highlighted the decision of the Madras High Court and the Mumbai Tribunal in similar cases, where it was established that losses of earlier years, already set off against other income, need not be notionally brought forward and set off against the profits of the eligible business. The Tribunal affirmed that the assessee had the option to select the initial assessment year for claiming deduction under section 80IA, and losses or depreciation from years prior to the initial assessment year need not be considered for set off against the current income of the eligible business.

4. The Tribunal also referenced the decision of the Bombay High Court in a related case, emphasizing that losses of earlier years set off against other income do not need to be notionally brought forward for set off against the profits of the eligible business. The Tribunal found no adverse judgment and upheld the Commissioner's decision, dismissing the Revenue's appeal. The judgment confirmed that the issue was legally settled in favor of the assessee, based on established legal principles and precedents.

In conclusion, the judgment extensively analyzed the provisions of section 80IA of the Income Tax Act, relevant judicial decisions, and circulars to determine the eligibility for deduction and the treatment of brought forward losses. The decision emphasized the assessee's right to choose the initial assessment year for claiming deduction under section 80IA and established that losses of earlier years need not be notionally carried forward for set off against the profits of the eligible business.