2022 (4) TMI 737 - AT - Income Tax

Deduction u/s 80IA - initial/first year - interpreting 'initial assessment year' as mentioned in subsection (5) of section 80IA - HELD THAT - Circular No.1/2016 issued by the CBDT 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.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. Thus the Assessing Officers are directed to allow deduction u/s 80IA in accordance with this clarification and Standing Counsels/D.R.s are suitably instructed 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 subsection (5) of section 80IA of the Act. Set off of losses as per section 80IA(5) for computation of income of eligible unit - Following this Circular the SLP filed by the department was also dismissed against High Court's ruling that loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5) of the IT Act reported in Assistant Commissioner of Income-tax, Tirupur-Vs-Velayudhaswamy Spinning Mills (P.) Ltd. 2016 (11) TMI 373 - SC ORDER - Following the same we hereby reject the Grounds of appeal filed by the Revenue and allow the claim of deduction u/s.80IA in favour of the assessee. Disallowance of deduction of amount from the book profits under s.115JB - Tribunal in 2022 (4) TMI 642 - ITAT AHMEDABAD allowed the claim of deduction u/s 80IA of the Act in favour of the assessee for earlier assessment years. Considering above, this issue is also remitting back to the AO for verification and allowed the necessary deductions in accordance with the provisions of law.

Summary

Issues:
1. Disallowance of deduction under section 80IA for AY 2006-07 and AY 2007-08.
2. Disallowance of deduction of amount from the book profits under section 115JB for AY 2007-08.

Issue 1 - Disallowance of Deduction under Section 80IA:
The appeal was filed against the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's disallowance of deduction under section 80IA for AY 2006-07 and AY 2007-08. The Circular No. 1/2016 clarified that the "initial assessment year" means the first year opted by the assessee for claiming deduction under section 80IA. It further stated that an assessee has the option to choose the initial year for claiming deduction for ten consecutive years. The Circular resolved the issue regarding the set off of losses and unabsorbed depreciation. The Tribunal, following the Circular and the judgment of the High Court of Madras, dismissed the Revenue's appeal and allowed the deduction under section 80IA in favor of the assessee.

Issue 2 - Disallowance of Deduction from Book Profits under Section 115JB:
The issue concerned the disallowance of an amount from the book profits under section 115JB for AY 2007-08. The CIT(A) directed the AO to tax specific interest income under normal provisions and section 115JB. The AO was instructed to follow the directions of the CIT(A) without exceeding them. It was noted that the issue of deduction under section 80IA was not raised during the appellate proceedings for AY 2004-05. The Tribunal, referring to a previous order, remitted the issue back to the AO for verification and allowed the necessary deductions in accordance with the law. The Tribunal partly allowed both appeals filed by the assessee.

In conclusion, the Tribunal's judgment clarified the interpretation of the "initial assessment year" for claiming deduction under section 80IA, following Circular No. 1/2016. It also addressed the disallowance of an amount from book profits under section 115JB for AY 2007-08, remitting the issue back to the AO for verification. The appeals filed by the assessee were partly allowed based on the findings and directions provided in the judgment.