2022 (2) TMI 988 - HC - Income Tax

Deduction u/s 80IA without setting off the losses / unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee - HELD THAT - Sub-section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen ( or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term initial assessment year would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. AO are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting initial assessment year as mentioned in sub section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed. The above be brought to the notice of all Assessing Officers concerned. See Prabhu Spinning Mills (P) Limited 2016 (3) TMI 1309 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
1. Entitlement to deduction under section 80IA without setting off losses/unabsorbed depreciation.
2. Interpretation of the initial assessment year in Section 80IA(5).
3. Option to choose the first/initial assessment year of claim for deduction under section 80-IA.

Entitlement to Deduction under Section 80IA:
The appellant/Revenue challenged the order passed by the Income Tax Appellate Tribunal, questioning the assessee's entitlement to deduction under section 80IA without setting off losses/unabsorbed depreciation. The appellant raised substantial questions of law regarding the correctness of the Tribunal's decision. However, the appellant's counsel acknowledged that previous court decisions, including the one in Prabhu Spinning Mills (P) Limited, had consistently ruled against the Revenue. The Circular No.1/2016 issued by the Central Board of Direct Taxes further clarified the interpretation of the term 'initial assessment year' in Section 80IA(5), emphasizing the assessee's option to choose the first year for claiming deduction. Consequently, the court dismissed the appeal, affirming the entitlement of the assessee to the deduction under section 80IA.

Interpretation of the Initial Assessment Year:
The second substantial question of law revolved around the correct interpretation of the initial assessment year in Section 80IA(5). The Circular No.1/2016 provided clarity on this issue, emphasizing that the initial assessment year should be the year opted for by the assessee for claiming deduction under section 80IA. The circular highlighted that the assessee has the discretion to select the first year for claiming the deduction, subject to the prescribed slab of fifteen or twenty years. This interpretation was crucial in determining the continuity and eligibility of the deduction under section 80IA. Consequently, the court relied on the circular's guidance to dismiss the appeal, reinforcing the significance of the initial assessment year chosen by the assessee.

Option to Choose the First/Initial Assessment Year:
The third substantial question of law pertained to whether the assessee has the option to choose the first/initial assessment year for claiming deduction under section 80-IA. The Circular No.1/2016 provided explicit instructions that the assessee indeed has the discretion to select the initial assessment year for claiming the deduction under section 80IA. This choice is pivotal in determining the eligibility and continuity of the deduction for ten consecutive years, as specified in the circular. The court's decision, guided by the circular's directives, upheld the assessee's right to exercise this option, resulting in the dismissal of the appeal in favor of the respondent/assessee.