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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
M/s. Globe Ecologistics The Deputy Pvt. Ltd. Vinit Moondra Commissioner of C.A. 201, Sarap, Opp. Vs Income Tax, Circle- Navjivan Press Ashram 2(1)(1), Ahmedabad Road, Ahmedabad-380014 (Respondent) PAN No: AAACG3938J (Appellant) Appellant by : Written Submission Respondent by : Shri S.H. Solanki Sr.D.R. Date of hearing : 03-03-2022 Date of pronouncement : 01-06-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (in short referred to as CIT(A)), dated 28-06-2018, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2012-13.
The solitary issue in the present appeal relates to denial of deduction u/s. 80IA of the Act amounting to Rs. 45,58,386/-. The assessee is engaged in the business of transportation and power generation through wind mill. As transpires from Page No 2 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT the orders of the authorities below, the deduction was denied for the reason that as per the Revenue the provisions of law u/s. 80IA, more particularly 80IA(5), required the quantum of eligible deduction to be calculated on stand alone basis as if the eligible unit was the only unit of the assessee and since the assessee had unabsorbed depreciation and business losses in the eligible unit in the preceding year, the same needed to be set off against the profits of the impugned year to arrive at the eligible deduction, which as a consequence resulted in completely wiping off the profits of the assesses eligible unit for the year. The A.O. held that as per the provisions of Section 80IA, the initial assessment year for the purpose of availing deduction had necessarily to be the year of commencement of business and therefore the losses since then had to be set off against the profits for the impugned year as per the provisions of Section 80IA(5) for arriving at the quantum of eligible deduction. The contention of the assessee however all along was that as per the provisions of Section 80IA, the assessee is entitled to choose a period of 10 years, within a block of 15 years from the commencement of business, for the purposes of claiming deduction allowed for a period of 10 years under the section and accordingly the assessee had chosen the assessment year from which it had started earning profits as its initial assessment year which was assessment 2010-11. Having so considered assessment year 2010-11 as its initial assessment year, the provisions of section 80IA(5) treating the eligible unit as on stand alone basis for the purpose of calculating the quantum of deduction available, was to be considered from this assessment year onwards and therefore any notional unabsorbed depreciation and business losses of earlier years could not be set off against the profit of the years.
Page No 3 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT 5. Ld. Counsel for the assessee drew our attention to the facts relating to the profits/losses of the assessee since the year in which it commenced business i.e. A.Y. 2006-07 as tabulated at page 6 of the assessment order:
Assessmen Profit/ Wind Mill Depreciatio Profit/(Loss) Carried t Year Loss) Expense n as per as per Income forward Income tax tax Act loss as per Act I.T. Act 2006-07 648 - 24741462 (24740814) (24740814) 2007-08 5132408 3821030 29689754 (28378376) (53119190)
2008-09 9979366 5610559 5937951 (4368807) (57487997) 2009-10 6724510 7058214 1187590 (1521294) (59009291) 2010-11 6695723 4225590 237518 2232615 (56776576) 2011-12 5657410 3299025 47405 2310881 (54465696) 2012-13 6150570 1582683 9501 4558386 (49907310)
Referring to the above, the Ld. Counsel for the assessee contended that it had chosen assessment year 2010-11 as its initial assessment year for the purpose of availing deduction u/s. 80IA. Therefore all the brought forward losses from the earlier year were not to be set off from the profits of the initial assessment year and subsequent assessment years. Ld. Counsel for the assessee contended that the adoption of any assessment year, within a block of 15 years, as initial assessment year, instead of the year of commencement of business for the purposes of availing deduction u/s Section 80IA of the Act had been approved by the CBDT also vide its Circular No. 1/2016 dated Page No 4 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT 15.02.2016.Copy of the circular was placed before us at paper book at page no. 209 & 210. Ld. Counsel for the assessee thereafter pointed out that this issue has been dealt with by the Hon’ble High Court of Madras in the case of Velayudhaswamy Spinning Mills (P.) Ltd. vs. ACIT reported in [2012] 21 taxmann.com 95 wherein they had categorically held that the losses of years earlier to initial assessment year which already stood absorbed against profit of other business could not be notionally brought forward and set off against profit of the eligible business as per the provisions of Section 80IA(5) of the Act. Ld. Counsel for the assessee thereafter pointed out that the ITAT had reiterated this position of law in the case of Shevie Exports vs. JCIT Range-18(2), Mumbai reported in [2013] 33 taxmann.com 446 (Mum.) and also in the case of Emerald Jewel Industry Pvt. Ltd. vs. Department of Income Tax in dated 19.03.2012.
Ld. D.R. was unable to either distinguish the case laws cited by the ld. Counsel for the assessee before us., nor bring to our notice any contrary decision either of the jurisdictional High Court or the Hon’ble Apex court on the issue.
We have heard both the parties and have also perused the orders of the authorities below. The assessee has been denied deduction u/s 80IA of the Act in the impugned year, i.e. A.Y 2012-13, by treating the year of commencement of business of the eligible unit, i.e. assessment year 2006-07 as its initial assessment year and determining the eligible profits for the impugned year to be NIL by setting off unabsorbed depreciation and business losses of the said unit in preceding years by invoking the provisions of Section 80IA(5) of the Act. On the contrary, the contention of the assessee is that it had claimed its initial assessment year as A.Y 2010-11. This act of the assessee of treating the Page No 5 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT assessment year 2010-11 as its initial assessment year is in accordance with law, we hold, since the section itself grants liberty to the assessee to choose a period of 10 years, for the purposes of claiming deduction, out of block of 15 years and the assessee can therefore chose any assessment year as its initial assessment year and claim deduction for a period of 10 years accordingly. This position of law is accepted by the CBDT also vide Circular 1/2016 referred to by the ld. Counsel for the assesse before us and has been so interpreted by the Hon’ble Madras High court also in the case of Velayudhaswamy Spinning Mills (P.) Ltd. (supra).
Having said so, we find that as far as interpretation of Section 80IA(5) for the purposes of calculating eligible deduction of the assessee for the impugned year is concerned, the Hon’ble Madras High Court has categorically held that notional unabsorbed depreciation and business losses of earlier year to the initial assessment year which already stand set off against profits of the assessee in earlier years, Cannot now be set off against the profits in the assessment years relating to the initial assessment year and thereafter. Meaning thereby that the unabsorbed depreciation and business losses of the eligible business of the assessee prior to the initial assessment year which already stands set off against profits of the assessee in the earlier years, Cannot now be notionally carry forward for set off against profits of the eligible business of the assessee from the initial assessment year onwards invoking Section 80IA(5) by treating the eligible unit as a stand alone unit. The relevant findings of the Hon’ble Court in this regard are as under;
“From reading of sub-s. (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-s. (4) i.e. referred to as the Page No 6 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-s. (4). Sub-s. (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub-s. (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-s. (5) and the same is not defined under the provisions. It is to be noted that 'initial assessment year' employed in sub-s. (5) is different from the words "beginning from the year" referred to in sub-s. (2). Important factors are to be noted in sub- s. (5) and they are as under : "(1) It starts with 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." From 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 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.
Page No 7 M/s. Globe Eco Logistics Pvt. Ltd. vs. DCIT Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.”
Since the facts of the present case have not been examined in the light of the position of law so prevailing and it has not been verified whether business losses and unabsorbed depreciation of assessment years prior to the initial assessment year already stands set off against other profits of the assessee, we consider it fit to restore the issue back to the file of the A.O. to adjudicate the issue afresh in accordance with law after verifying all the facts relating to the issue.
In effect appeal of the Assessee is allowed for statistical purposes. 11.
Order pronounced in the open court on 01 -06-2022