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2019 (5) TMI 940 - AT - Income TaxDisallowance of deduction u/s 80IA(4)(iv) - treatment to notionally brought forward business losses and depreciation of earlier years and notionally set off against the income of the windmill - case of the assessee was selected for scrutiny assessment - HELD THAT - As decided in assessee's own case 2018 (6) TMI 1608 - ITAT AHMEDABAD depreciation already claimed by the assessee and set off against the regular source of income cannot be notionally brought forward and set off against the income of windmill for the current year after selection of initial year for claiming deduction u/s. 80IA(iv). The assessee has been given choice of 10 consecutive years out of 15 years for claiming deduction u/s.80IA(iv). Once assessee has selected initial year then unabsorbed depreciation and losses of that year and subsequent years could be carried forward for set off against the income of those years before computing the deduction admissible u/s.80IA(iv). AO has brought forward the depreciation of A.Y. 2007-08, 2008- 09 etc, which has already been set off against the regular income. He brought forward such depreciation on notional basis, which is contrary to the proposition laid down VELAYUDHASWAMY SPINNING MILLS P. LTD. SUDAN SPINNING MILLS (P.) LTD. MOHAN BREWERIES AND DISTILLERIES LTD. OTHERS 2010 (3) TMI 860 - MADRAS HIGH COURT . FAA has rightly appreciated the controversy and rightly granted the deduction to the assessee. No error in the order of the CIT(A) hence, this ground of appeal is rejected in both the years. - Decided against revenue.
Issues Involved:
1. Disallowance of deduction under Section 80IA(4)(iv) of the Income Tax Act. 2. Treatment of unabsorbed depreciation and brought forward losses in the context of Section 80IA(4). Detailed Analysis: 1. Disallowance of Deduction under Section 80IA(4)(iv): The core issue in this appeal is the disallowance of ?66,79,702/- claimed by the assessee as a deduction under Section 80IA(4)(iv) of the Income Tax Act. The assessee, engaged in manufacturing and operating a windmill for power generation, filed its return declaring a total income of ?4,68,723/- after claiming the deduction. The Assessing Officer (AO) disallowed this deduction on the grounds that the assessee had claimed heavy depreciation on the windmill, resulting in losses from the undertaking, and hence, it could not claim any deduction under Section 80IA(4). The AO noted that the assessee had unabsorbed depreciation and brought forward losses from the windmill's first three years of operation, which were set off against the profits of other businesses. The AO contended that under Section 80IA(4), such losses/unabsorbed depreciation could only be set off against the income generated from the windmill itself. Consequently, the AO disallowed the claim and added the same to the income of the assessee. 2. Treatment of Unabsorbed Depreciation and Brought Forward Losses: The assessee appealed against the AO's decision, and the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, following the decision of his predecessor on a similar issue for the Assessment Year (AY) 2011-12. The Revenue then appealed to the Tribunal, arguing that the CIT(A) erred in deleting the addition. The Tribunal noted that the issue was similar to the one raised in AY 2010-11 and 2011-12, where the Tribunal had upheld the CIT(A)'s decision in favor of the assessee. The Tribunal examined the dispute, which revolved around the AO's notional bringing forward of business losses and depreciation of earlier years to set off against the windmill's income. The assessee argued that under Section 80IA(5), if the depreciation and business losses had already been set off against other income before selecting the initial year for claiming the deduction under Section 80IA(iv), such unabsorbed depreciation should not be notionally brought forward and set off against the current year's income. The CIT(A) accepted this contention, relying on the Madras High Court's decision in Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT, which held that losses and depreciation of years prior to the initial assessment year, already absorbed against other business income, cannot be notionally brought forward for computing the deduction under Section 80IA. The Tribunal concurred with this view, emphasizing that once the assessee has selected the initial year for claiming the deduction, only the unabsorbed depreciation and losses of that year and subsequent years could be carried forward for set-off against the income of those years. The AO's action of bringing forward depreciation from earlier years, already set off against regular income, was contrary to the legal principles established by the Madras High Court. The Tribunal found no error in the CIT(A)'s order and dismissed the Revenue's appeal. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of ?66,79,702/- under Section 80IA(4)(iv), affirming that unabsorbed depreciation and losses from earlier years, already set off against other income, cannot be notionally brought forward for set-off against the windmill's income in the current year. The appeal of the Revenue was dismissed, confirming the assessee's entitlement to the claimed deduction.
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