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TMI Blog2023 (11) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... ch deduction is claimed must be notionally carried forward and adjusted. See M/S STERLING AGRO INDUSTRIES LTD [ 2023 (8) TMI 768 - DELHI HIGH COURT] There is no requirement u/s 80IA(5) of the Act to adjust profits derived from the eligible units against the losses that stand absorbed against profits of the 'other non-eligible businesses or losses that have already been adjusted against the profits of the eligible businesses in the years before the previous year in relation the first assessment year in which the deduction was claimed. Therefore, in this case, the respondent/assessee was not required to set off losses of other units against its profitable units. Disallowance u/s 80M - dividend received by assessee had not been distributed to its shareholders - HELD THAT:- As assessee can only claim a deduction to the extent of the dividend it distributed to its shareholders. Although revenue sought to place reliance on the assessment order to submit that the dividend was not distributed by the respondent/assessee, it appears to be based on an erroneous factual foundation. CIT(A) has returned the finding of fact, which was sustained by the Tribunal, that the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2 The respondent s/assessee s case was, thereafter, picked up for scrutiny, and an assessment order under Section 143(3) of the Act was framed on 29.03.2006. The order pegged the income of the respondent/assessee at Rs. 1,14,29,476 [the same income disclosed by the respondent/assessee in its ROI]. However, book profit, this time, was increased to Rs. 13,53,28,238/-. 8.3 The record shows that on 10.03.2010, the respondent/assessee was issued a notice under Section 148 of the Act. The respondent/assessee filed a response to the same via communication dated 12.04.2010. Inter alia, in the said response, the respondent/assessee took the stand that the ROI filed originally should be treated as return filed in compliance with the notice issued under Section 148 of the Act. 8.4 The record also discloses that the AO proceeded to pass an assessment order under Section 147/143(3) of the Act. This assessment order was passed on 01.11.2010 and, accordingly, the respondent s/assessee s income was assessed at Rs. 5,11,63,951/-. 8.5 Via the assessment order passed on 01.11.2010, as noticed hereinabove, the AO computed the total income of the respondent/assessee at Rs. 5,11,63,951/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs on behalf of the appellant/revenue, in support of the appeal filed by the appellant/revenue, seeks to rely on the assessment order dated 01.11.2010. 14. Mr Rai submits that the respondent/assessee was required to adjust losses suffered by the other three (3) eligible units and, therefore, the deletion of the claim made under Section 80IA/80IB of the Act by the AO was the correct view in law. In support of his plea, Mr Rai seeks to rely on the judgment rendered by the Karnataka High Court in Microlabs Ltd. v. Assistant Commissioner of Income Tax, Bangalore (2015) 56 taxmann.com 160 (Karnataka). 15. As regards the other aspect i.e., the disallowance of the claim made by the respondent/assessee under Section 80M, Mr Rai has asserted that since dividend was not distributed by the respondent/assessee, it could not claim the benefit of section 80M. 16. Mr Rohit Jain, counsel who appears on behalf of the respondent/assessee, in rebuttal, relies on the order passed by the CIT(A) and the Tribunal. He states that, firstly, the CIT(A) and the Tribunal have returned concurrent findings of fact that the assessee had computed the quantum of deduction after setting off the notion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not mandate that losses that have been adjusted against the profits of 'other non-eligible businesses have to be, once again, adjusted against the profits of the 'eligible business, or that absorbed losses against the 'eligible businesses of the time before the second AY in which deduction is claimed must be notionally carried forward and adjusted. 18.1 This aspect stands clarified by a decision of this court rendered in Pr. Commissioner of Income Tax-7 v. Sterling Agro Industries Ltd. 2023:DHC:2330-DB. The relevant observations made in that behalf is set forth hereafter: 11. We may note that before the Tribunal, two issues were raised. Firstly, which AY would qualify as the initial AY . Secondly, as to whether unabsorbed losses/depreciation could be notionally carried forward for the purposes of determining profit for the eligible business under Section 80IA of the Act. xxx xxx xxx 11.4 Likewise, insofar as the second issue was concerned, the Tribunal ruled in favour of the respondent/assessee. xxx xxx xxx 13. We have examined in detail the facts of this case as noted above, and also the ratio of the three judgments cited befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words initial assessment year are used in sub- section (5) and the same is not defined under the provisions. It is to be noted that initial assessment year employed in sub-section (5) is different from the words beginning from the year referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under: (1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; (2) It is for the 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 subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of the taxpayer from other sources. 21. We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). 14. As would be evident, the Division Bench of the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case has broken down subsection (5) of Section 80IA of the Act and analysed as to what would be the important indices of the said provision. This is evident 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rementioned portion of the judgement along with Mr Rai. For the sake of convenience, the same is extracted hereafter: 6. It is stated that the non-obstante clause in sub-section (5) means it overrides all the provisions of the Act and other provisions are to be ignored. In the absence of non obstante clause, what the judgment of the Madras Court states is the legal position, because of the non obstante clause, the set off amount against other income of the assessee has to be ignored and because of the fiction created in the sub-section notionally, the set losses is to be treated as losses being carried forward and after deducting the said losses, the profit prior to business is to be calculated, i.e., precisely what the Special Bench has stated and the relevant portion of the judgment reads as under: From the reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of this section, the expression due date means the date for furnishing the return of income under sub-section (1) of section 139. [Emphasis is ours] 20. Therefore, the respondent/assessee can only claim a deduction to the extent of the dividend it distributed to its shareholders. Although Mr Rai sought to place reliance on the assessment order to submit that the dividend was not distributed by the respondent/assessee, it appears to be based on an erroneous factual foundation. 21. The CIT(A) has returned the finding of fact, which was sustained by the Tribunal, that the respondent/assessee had placed the relevant material before the AO which showed that dividend to the extent of Rs. 3,97,34,475/- had been distributed by it to its shareholders. In this regard, the CIT(A) notes: Examined the rival submissions. During the relevant period Rs. 5,09,19,998/- was received by way of dividend out of which Rs. 3,97,34,475/- was distributed to its share holder. Further all these facts were brought to the notice of the Ld AO by the appellant during 147 proceeding, so much so a certificate was also filed along with the return for the relevant period. Here also th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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