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Facts
The Revenue filed appeals against the orders of the CIT(A) for AY 2017-18, 2018-19, and 2020-21, wherein the CIT(A) had allowed the assessee's appeals. The assessee was engaged in manufacturing dairy products and generating wind-based electricity. The assessing officer made several disallowances, including those under Section 80-IA and Section 14A.
Held
The Tribunal held that the disallowance under Section 80-IA, relating to the set-off of brought forward losses, was incorrectly made by the AO. The CIT(A)'s deletion of this disallowance was upheld, following the precedent of the Delhi High Court in the assessee's own case. Regarding the disallowance under Section 14A, the Tribunal noted the well-settled law that such disallowance cannot exceed the exempt income.
Key Issues
Whether the disallowance of deduction under Section 80-IA, concerning the set-off of brought forward losses, was justified? Whether the disallowance under Section 14A was correctly calculated?
Sections Cited
80-IA, 14A, Rule 8D, 115B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI
Before: YOGESH KUMAR U.S. & SHRIMANISH AGARWAL
(A.Y. 2020-21) Deputy Commissioner of Income Vs Sterling Agro Industries Tax, Central Circle-20 Limited Room No. 269A, 2nd floor, 2nd Floor, A-10, Sanskrit ARA Centre, Jhandewalan Bhawan, Qutub Institutional Extension, Delhi area, ArunaAsaf Ali Marg, Delhi PAN: AAACS2278R Appellant Respondent Assessee by Sh. Sanjay Kumar, CA, Shri UdayanGarg, CA and Ms. Uditie Aggarwal, Adv Revenue by Ms. PoojaSwaroop, CIT(DR) Date of Hearing 23/12/2025 Date of Pronouncement 16/01/2026 ORDER
PER YOGESH KUMAR, U.S. JM:
The captioned appeals are filed by the Revenue against the orders of Ld. Commissioner of Income Tax (Appeals)-27, New Delhi (‘Ld. CIT(A)’ for short), dated 22/04/2025 pertaining to Assessment Years2017-18, 2018-19 and 2020-21 respectively, wherein the Ld.
CIT(A) has allowed the Appeals filed by the Assessee.
Since, the Revenue has raised identical grounds of Appeal, the captioned appeals of the Revenue are heard
together and decided in this common order. For the sake of convenience, the Appeal of the Revenue pertaining to Assessment Year 2018-19 is taken as lead matter.
The Grounds of Appeal of the Revenue for the Assessment Year 2018-19 reads as under:-
“1. Whether the Ld.CIT(A) has erred in facts and in law while deleting the addition of assessee has u/s 80IA of the Act of Rs. 26,22,32,988/- without appreciating the fact that the not set-off brought forward unabsorbed depreciation of the eligible unit. Hon'ble
Whether Delhi High the Ld.CIT(A) has erred in facts and in law by relying upon the judgment of provided relief Court in assessee's own case in which the Hon'ble High Court has to the assessee on the issue of deduction u/s 80IA of the Act without has appreciating been recommended the fact the said judgment has not been accepted by the department and an SLP against the same?
Whether the Ld.CIT(A) has erred in facts and in law while deleting the disallowance of Rs. computation 26,22,32,988/- of quantum by ignoring the express provision of Section 80IA(5) providing for were the of deduction as if the business is eligible for deduction u/s 80IA(1) year only source of income of the assessee during the period between initial assessment profits and of relevant other businesses? assessment year thus clearly debarring set-off losses of previous year against
Whether the Ld.CIT(A) has erred in facts and in law by deleting the disallowance of Rs. 6,56,442/- made by the AO u/s 14A r.w. Rule 8D by not appreciating the fact that the calculated assessee has not shown unquoted shares as dividend generating investment and wrongly the investments made by it during the year under consideration?”
Brief facts of the case for Assessment Year 2018-19 are considered for the sake of convenience. The Assessee company was engaged in the business of manufacturing diary products under the brand name of "NOVA" and generation of wind-based electricity.
The Assessee filed its Original return of income on 31.10.2018 declaring income of Rs. 86,35,98,160/- which was revised on 26.03.2019. The case was selected for scrutiny, an assessment order came to be passed u/s 143(3) r.w.Section 144B of the Income Tax Act, 1961 ('Act' for short) by making disallowance of deduction u/s 80-1A of the Act under normal provisions of the Income Tax Act of Rs.
26,22,32,988/-, disallowed u/s 14A of the Act under normal provisions of the Income Tax Act 6,56,442/-, disallowed on account ofICDS application of Rs. 3,29,27,827/- and alsodisallowed CSR expenses in computing book profit U/s 115B of the Income Tax Act of Rs. 1,45,35,910/-. Aggrieved by the order dated 21/09/2021, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 22/04/2025, allowed the Appeal of the Assessee.
Aggrieved by the order of the Ld. CIT(A) dated 22/04/2025, Revenue preferred Appeal on the grounds mentioned above.
The Ground No. 1 to 3 of the Revenue are against the action of the Ld. CIT(A) in deleting the disallowance made u/s 80IA of the Act to the tune of Rs. 26,22,32,988/-. The Ld. CIT(A) while deleting the addition held as under:-
“Ground No. 2:-1 have carefully considered the appellant submissions and Assessment Order. In this case, the ground of appeal number 2 pertains to disallowance of deduction claimed U/s 80-IA amounting to Rs.26,22,32,988/-. 4.1 The AO disallowed the deduction U/s 80-IA by stating that the concept of "Initial Assessment Year" as mentioned in Section 80-IA(5) of the Act is only to determine the period of deduction available for a consecutive period of 10/15/20 years. The concept of "Initial assessment year" and "First year" is not relevant to the facts of the present case for the relevance to the issue of setting off of (notional) losses of earlier years with the profit of the eligible undertaking/business/enterprises. The rationale for issue of CBDT circular no. 1/2016 dated 15.02.2016 was also to clarify the term "initial assessment year". The circular does not address/comment on the issue of setting off of (notional) losses of eligible undertaking/business/enterprises. Thus it was held by AO thatbecause the set off amounts against other income of the assessee in previous years have to be ignored and because of the fiction created in the sub- section notionally, the set off losses are to be treated as losses to be carried forward for the purpose of determination of profit of the eligible business/undertaking for the purpose of deduction U/s 80-IA of the Act. 4.2 Further, during the appellate proceedings it is contended by the Appellant that the notional carried forward losses since the year of commencement in eligible undertaking is not in accordance with the provisions of law as clarified by CBDT vide circular No.1/2016. Similar view was also taken by Hon'ble Madras High Court in the case of PCIT Vs. Prabhu spinning Mills (P) Ltd wherein considering the CBDT circular No.01/2016 and sub section (5) of Section 80-IA of the Act for understanding the definition of initial assessment year which provides a choice to the assessee for deciding the year from which it desires to claim the deduction 4.3 u/s 80-IA ofthe Act. In this case, I find force in the contentions ofthe Appellant, where indisputably assessee is given a choice for deciding the year from which it desires to claim the deduction u/s 80-IA of the Act considering the CBDT circular No.01/2016 and sub section (5) of Section 80-IA of the Act. Further appellant in its own case for A.Y 2016
17. Hon'ble Jurisdictional Delhi High Court vide its order dated 20.02.2023 had upheld the decision of CIT(A) by allowing deduction U/s 80-IA in the preceding assessment year to the Appellant. 4.4 Sterling Agro industriesLimited, A.Y. 2018
19. Appeal No.: NFAC/2017- 18/10082748 Therefore, after careful consideration of the above narrated facts, circumstances of the case, the submissions of the Appellant, Assessment Order and respectfully following the judgement of Hon'ble jurisdictional Delhi High Court in the Assessee’s own case (Supra) the Ld. Assessing Officer is directed to allow the deduction U/s 80-IA amounting to Rs.26,22,32,988/-.Therefore, this ground of appeal is allowed.”
6. In the present case, the Ld. A.O. disallowed the deduction u/s 80IA of the Act on the concept of ‘initial Assessment Year’ as mentioned in Section 80IA(5) of the Act is only to determine the period of deduction available for a consequent period of 10/15/20 years. The Ld. CIT(A) observed that the concept of "Initial assessment year" and "First year" is not relevant to the facts of the present case for the relevance to the issue of setting off of (notional) losses of earlier years with the profit of the eligible undertaking/business/enterprises.
Further, the Ld. CIT(A) has also considered the CBDT Circular 1/2016 dated 15.02.2016, which it does not address/comment on the issue of setting off of (notional) losses of eligible undertaking/business/enterprises. During the proceedings before the Ld. CIT(A), it wasalso contended by the Assessee that the notional carried forward losses since the year of commencement in eligible undertaking is not in accordance with the provisions of law as clarified by CBDT vide circular No.1/2016. The Ld. CIT(A) while adjudicating the Appeal, considered the Judgment of Hon'ble Madras High Court in the case of PCIT Vs. Prabhu spinning Mills (P) Ltd.,reported in (2016)
76 taxmann.com 8 (Mad. HC), wherein the Hon'ble High Court after considered the CBDT circular No.01/2016 and sub section (5) of Section 80-IA of the Act for understanding the definition of ‘initial assessment year’ which provides a choice to the assessee for deciding the year from which it desires to claim the deduction u/s 80-IA of the Act. In the absence of any contrary judicial precedents brought on record and in view of the above facts and circumstances, we find no merits in the Ground No. 1 to 3 of the Revenue, accordingly, Ground No. 1 to 3 of the Revenue are dismissed.
Ground No. 4 is of the Revenue is against the deletion of disallowance of Rs. 6,56,442/- made by the A.O. u/s 14A r.w. Rule 8D of the Rules. The Ld. Department's Representative submitted that the Ld. CIT(A) has not appreciated the fact that the Assessee has not shown unquoted shares as dividend generating investment and wrongly calculated the investments made by during the year under consideration.
Per contra, the ld. Assessee's Representative submitted that the Ld. CIT(A) while deleting the addition relied on the settled principals of law down by the Hon'ble High Court of Delhi in the case of Joint Investment Private Limited Vs CIT (372 ITR 694) and CIT Vs. Holcim India (P) Ltd (2014) 272 CTR 282(Delhi), wherein it was held that disallowance U/s 14A of the Act cannot be more than the exempt income. Thus, sought for dismissal of the Appeal.
We have heard both the parties and perused the material available on record. It is well settled law that disallowance u/s 14A of the Act cannot be more than the exempt income as held in the case of Joint Investment Private Limited Vs CIT (372 ITR 694) and CIT Vs.
Holcim India (P) Ltd (2014) 272 CTR 282(Delhi). In view of the above, we find no merit in the Ground No. 4 of the Revenue. Accordingly, Ground No. 4 of the Revenue is dismissed.
In the Appeals filed for Assessment Year 2017-18 and 2020-21 by the Revenue, the Department is aggrieved by the action of the Ld.
CIT(A) in deleting the disallowance of Rs. 11,09,56,920/- and Rs.
37,38,29,246/-u/s 80IA of the Act respectively. The said solitary issue involved in the Appeals is already decided by us in favour of the Assessee in Assessee’s own case for Assessment Year 2018-19 while deciding Ground No. 1 to 3 of the Revenue therein.Therefore, applying the very same reasoning and the conclusion mutatis-mutandis, we dismiss the grounds of Appeal for the present Appeals of the Revenue pertaining to Assessment Year 2017-18 and 2020-21.
In the result, Appeals of the Revenue in and 4716/Del/2025 are dismissed.
Order pronounced in the open court on 16th January, 2026.
Sd/- Sd/-