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TMI Blog2011 (1) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. - Decided in favor of the assessee. Thus following the judgment of Velayudhaswamy Spinning Mills P. Ltd. v. ACIT [2010 (3) TMI 860 - Madras High Court] the contention of the assessee accepted and direct the assessing authority to grant deduction to the assessee u/s. 80IA for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation. In favour of assessee. Cash seized in the course of search - Held that:- As assessee has not explained anywhere the source of this much amount as discernible from the books of account or any other documents - Decided against the assessee - I.T.A No. 1262/Bang/2010 - - - Dated:- 7-1-2011 - O R D E R PER DR. O. K. NARAYANAN, VICE PRESIDENT : This is an appeal filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the disallowance and deleted the addition of Rs. 1,68,43,841/-. The grounds raised on levy of interest were disposed off as consequential. 5. The assessee is aggrieved on the two additions sustained by the Commissioner of Income-tax(A) and also in respect of levy of interest u/s.234B and 234C. 6. The relevant grounds raised by the assessee in the above background read as below: i) The learned Commissioner of Income-tax (A) is not justified in upholding the denial of the deduction claimed u/s.80IA of the Act amounting to Rs. 1,97,73,931/- under the facts and in the circumstances of the appellant s case. ii) The learned Commissioner of Income-tax(A) is not justified in upholding the addition of Rs. 24,06, 700/- being the cash seized by the department under the facts and in the circumstances of the appellant s case. iii) Without prejudice to the right to seek waiver with the Hon ble CCIT/DG the appellant denies himself liable to be charged to interest u/s. 234B and 234C of the Act, which under the facts and in the circumstances of the appellant s case and the levy deserves to be cancelled. 7. First we will consider the issue of deduction u/s.80IA of the IT Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and set off, the assessing authority has relied on sub-section 5 of Section 80IA. 11. Sub-section 5 of section 80IA reads as follows: (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. 12. On the basis of the above statutory provision, the Assessing Officer came to the following two grounds: (i) That the income or loss of the eligible unit has to be worked out on standalone basis and as only source of income. (ii) The computation of the deduction u/s.80IA should start with the initial assessment year and the unabsorbed depreciation and loss relating to the initial assessment year and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td (116 TTJ (Ahd) (SB) 705). It has been held by the Special Bench in the said case that in view of the specific provisions of section 80IA (5) of the IT Act, 1961, profit from eligible business for the purpose of determination of the quantum of deduction u/s.80IA of the Act has to be computed after deduction of the notionally brought forward losses and depreciation of eligible business even though they have been allowed to be set off against other income in the earlier years. Accordingly, the Commissioner of Income-tax(A) dismissed the contentions of the assessee and confirmed the addition of Rs.1,97,73,931/-. 15. The assessee as well as the Revenue has raised the same set of contentions before us which were already placed before the Commissioner of Income-tax (A) and before the assessing authority. 16. It is a fact that the Special Bench of the ITAT, Ahmedabad in ACIT v. Gold Mines Shares Finance P. Ltd (116 TTJ (Ahd) (SB) 705), has held that the notional exercise is called for in computing the quantum of deduction u/s.80IA which supports the stand taken by the Revenue contained in section 80IA(5). 17. Even though the Commissioner of Income-tax (A) has made an attempt to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance was made on the ground that the eligible income of the unit for the impugned assessment year is a negative figure. The negative figure was worked out by the assessing authority by notionally setting off the depreciation and loss of the earlier assessment years treating the year of commencement of business as initial assessment year. In fact, the depreciation and loss of those assessment years have been set off against the income arising from other business carried on by the assessee. In first appeal the Commissioner of Income-tax(A) held that the year of commencement need not be the initial assessment year and the initial assessment year is the year in which the assessee makes an effective claim of deduction. As the assessment year 2005-06 is the assessment year in which the effective claim by the assessee has been made, the same should be the initial assessment year and therefore unabsorbed depreciation of earlier years which had already been absorbed against the income arising from other income of the business of the assessee cannot be notionally carried forward and taken into consideration for computing the deduction u/s.80IA. The matter was again taken up by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development rebate remained unabsorbed and nothing could be deducted in respect of the set off while determining the deduction u/s. 80I of the Act. 25. The above finding was given by the Hon ble High Court in the said unreported case in reply to the following question placed before their lordships: Whether the Tribunal was right in holding that for the purpose of allowing deduction under s. 80-I, the brought forward losses and unabsorbed depreciation etc., of the new industrial undertaking need not be taken into consideration, once they have been set off against other sources of income, especially in view of the clear provisions of sub-s.6 of s. 80-I, the application of which is mandatory? 26. By making a reference to the above unreported judgement and further examining the statutory provisions of section 80IA(5), the Hon ble Madras High Court has held as follows : From a reading of the above, it is clear that the benefit is given to the profits and gains derived from the business of the hotel or business of repairs to ocean-going vessels or other powered craft. The deduction is allowed to the extent of 20 per cent from the profits and gains of the assessee. Sub-s. (5) g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this chapter. Heading B deals with deductions in respect of certain payments which consists of ss. 80C to 80GGC. Heading C deals with deductions in respect of certain incomes , which consists of ss. 80H to 80TT. The last heading D deals with other deductions , which consists of ss. 80U to 80VV. Heading C is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are ss. 80-I, 80-IA and 80-IB. In the case of Liberty India v. Commissioner of Income-tax (2009) 225 CTR (SC) 233; (2009) 28 DTR (SC) 73 ; (2009) 317 ITR 218 (SC), the apex Court considered the scope of ss. 80-I, 80-IA and also s. 80-IB of the Act, wherein, it has been held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of profit-linked incentives . Therefore, when s. 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that ss. 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgement that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 27. Thus the Hon ble Madras High Court has clearly held that where the depreciation and loss of earlier assessment years have already been set off against other business income of those assessment years, there is no need for notionally carrying forward and setting off of the same depreciation and los ..... X X X X Extracts X X X X X X X X Extracts X X X X
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