9911796707
TMI Blog2023 (8) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... up for consideration by this Court: (i) Given the facts and circumstances of the case, has the Income Tax Appellate Tribunal [in short, "Tribunal"] erred in deleting the addition made by the Assessing Officer on account of disallowance of deduction under Section 80IA of the Income Tax Act, 1961 [in short, "Act"], amounting to Rs. 12,63,07,697/-, ignoring the mandate of provisions of Section 80IA(5) of the Act? 7. This appeal concerns Assessment Year (AY) 2016-17 and is directed against the order dated 22.07.2022 passed by the Tribunal. 8. Mr Puneet Rai concedes that insofar as the proposed issue is concerned, the judgment of the Madras High Court rendered in Velayudhaswamy Spinning Mills P. Ltd. and Anr. vs. Assistant Commissioner of Income Tax, 2010 SCC OnLine Mad 6191, which was followed in Principal Commissioner of Income-tax-3, Coimbatore vs. Prabhu Spinning Mills (P.) Ltd., (2016) 76 taxmann.com 8 (Madras), is in favour of the assessee, and against the revenue. 8.1 Mr Rai, however, seeks to place reliance on the judgment of the Karnataka High Court rendered in Microlabs Ltd. vs. Assistant Commissioner of Income-tax, Bangalore, (2015) 56 taxmann.com 160 (Karnataka) to burn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal, in support of its reasoning, also relied upon the judgment of the Madras High Court in Prabhu Spinning Mills (P.) Ltd. 11.4 Likewise, insofar as the second issue was concerned, the Tribunal ruled in favour of the respondent/assessee. 12. Mr Rai says that since the Mircrolabs Ltd. case is pending in the Supreme Court, in which the Karnataka High Court has taken a decision in favour of the appellant/revenue, the appellant/revenue's appeal is sustainable. 13. We have examined in detail the facts of this case as noted above, and also the ratio of the three judgments cited before us. 13.1 As noted right in the beginning, there are two judgments of the Madras High Court, which are relevant for the purposes of determining the issue at hand, i.e., the Velayudhaswamy Spinning Mills (P.) Ltd. case and the Prabhu Spinning Mills (P.) Ltd. case. 13.2 We may note that insofar as the issue proposed by the revenue is concerned, the Division Bench of the Madras High Court in the Prabhu Spinning Mills (P.) Ltd. case has followed its own decision in the Velayudhaswamy Spinning Mills (P.) Ltd. case. The Division Bench has noted that they have followed the said decision in a number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of determining the quantum of deduction; (3) For the assessment year immediately succeeding the initial assessment year; (4) It is a deeming provision; (5) Fiction created that the eligible business is the only source of income; and (6) During the previous year relevant to the initial assessment year and every subsequent assessment year. 17. From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years 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 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon a reading of paragraph 16 of the said judgement. 14.1 According to us, the indices noted in paragraph 16 of the said judgement clearly and distinctly emerge even on a plain reading of the said provision. 14.2 The argument advanced before us on behalf of the appellant/revenue, which was also the submission put forth before the Madras High Court, proceeded on the following lines: Because sub-section (5) of Section 80IA opens with a non-obstante clause, therefore, loss or unabsorbed depreciation which has already been set off prior to the initial year against the other business [i.e. business apart from the eligible business], should be notionally carried forward and adjusted against the profits of the eligible business in order to determine the deduction that an assessee can avail under Section 80IA of the Act. 14.3 According to us, there is nothing to suggest in Sub-clause (5) of Section 80IA of the Act that the profits derived by an assessee from the eligible business can be adjusted against "notional losses which stand absorbed against profits of other business." The deeming fiction created by sub-section (5) of Section 80IA does not envisage such an adjustment. The fictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 15. We are unable to persuade ourselves to agree with the view taken by the Karnataka High Court in the Microlabs Ltd. case. We respectfully agree with the view taken by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case, which has been followed in the Prabhu Spinning Mills (P.) Ltd. case as well. 16. We have given our own reasons as to how sub-section (5) of Section 80IA should operate. 17. There is another additional reason why we agree with the view of the Tribunal. The Tribunal has noted that in earlier AYs, the AO has neither disallowed the claim nor adjusted notional depreciation/losses of previous years set off against other income in the years prior to the initial ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
