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TMI Blog2023 (8) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... ng fiction created by sub-section (5) of Section 80IA does not envisage such an adjustment. The fiction which has been created is simply this: the eligible business will be the only source of income. There is no fiction created, that losses which have already been absorbed, will be notionally carried forward and adjusted against the profits derived from the eligible business to quantify the deduction that the assessee could claim u/s 80IA of the Act. A perusal of the judgment rendered in the Microlabs Ltd. case [ 2015 (4) TMI 678 - KARNATAKA HIGH COURT ] would show that the Karnataka High Court gave weight to the fact that sub-section (5) of Section 80IA commenced with a non-obstante clause. It was based on this singular fact that the Karnataka High Court chose to veer away from the view expressed by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. [ 2010 (3) TMI 860 - MADRAS HIGH COURT ] case. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-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 burnish the appellant/revenue s stand in the instant appeal. 9. Before we proceed further, it may be relevant to note certain broad facts which, in our view, are necessary for the adjudication of the instant appeal. 9.1 The respondent/assessee had filed its return of income under Section 139 of the Act on 14.10.2016. In the said return, the respondent/assessee had quantified its taxable income as Rs. 22,12,03,720/-. This return was revised on 03.05.2017, whereby the total taxable income was reduced marginally and pegged at Rs. 21,29,69,700/-. 9.2 It appears that the respondent/assessee s case was taken up for scrutiny and a notice was served under Section 143(2) of the Act on the respondent/assessee on 14.07.2017. 9.3 The record also shows that an assessment order was framed under Section 143(3) of the Act. This ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cases. The large part of the discussion in the Prabhu Spinning Mills (P.) Ltd. case veered around what would be the initial AY of the eligible business. The court, after noting the CBDT s circular no.1/2016 dated 15.02.2016, concluded that the assessee had an option of choosing its initial AY and, in this regard, adverted to a plain language of sub-section (2) of Section 80IA of the Act. Although this issue is not proposed before us, the reasoning of the Division Bench of the Madras High Court in the Prabhu Spinning Mills (P.) Ltd. case is unimpeachable. 13.3 Insofar as the proposed issue is concerned, the following observations made by the Division Bench of the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case, being relevant, are extracted hereafter: 16. From a readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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. A fiction created in sub-section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. XXX XXX XXX 19. From a reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 20. The st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 fiction which has been created is simply this: the eligible business will be the only source of income. There is no fiction created, that losses which have already been absorbed, will be notionally carried forward and adjusted against the profits derived from the eligible business to quantify the deduction that the assessee could claim under Section 80IA of the Act. 14.4 A perusal of the judgment rendered in the Microlabs Ltd. case would show that the Karnataka High Court gave weight to the fact that sub-section (5) of Section 80IA commenced with a non-obstante clause. It was based on this singular fact that the Karnataka High Court chose to veer away from the view expressed by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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