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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA,AM- लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 5/9/2014 of the CIT(A)-18,Mumbai the a Assessing Officer(AO) has filed the appeals for the above mentioned three AY.s.The details of filing of return assessed incomes dates of asst orders , etc. can be summarised as under :-
Assessment Return of Returned income Assessed on Assessed income Year Income filed on 2009-10 25.09.2009 Rs.2.53 crores 26.03.2013 Rs.3.27 crores 2010-11 14.10.2010 Rs.5.67 crores 26.03.2013 Rs.6.48 crores 2011-12 29.09.2011 Rs.8.09 crores 23.05.2013 Rs.8.91 crores As the effective Ground of appeal for all the years is identical, so, we are adjudicating all the appeals by a single common order. ITA 7005/Mum/2014 : (A.Y.2009-10): 2.Effective Ground of appeal is about deleting the disallowance amounting to Rs.74.28 lakhs claimed u/s. 80IA of the Act. During the assessment proceedings the AO found that the assessee had claimed deduction u/s. 80IA of Rs.74,28,377/- and that same was allowed while processing the case u/s. 143(1) of the Act. He observed that the said deduction was allowed to the assessee without taking into consideration the provisions of section 80IA(5), that deduction u/s. 80IA had to be allowed after considering notional carryforward losses of the undertaking of the past year .Accordingly he issued a show cause notice to the assessee in that regard. In its response the assessee contended that year under appeal was the first AY in which it had claimed the deduction u/s. 80IA and, therefore it was the initial year, that losses /profits of the earlier year of the undertaking would have no bearing for computation of deduction u/s. 80IA. However the AO rejected the claim made by the assessee and observed -7007/M/14-Smita Steel that if the net result of the computation of the undertaking after considering losses of earlier year was not a positive figure , the assessee would not be entitled for deduction u/s. 80IA for the year under consideration. Accordingly he denied the deduction of Rs.74.23 lakhs to the assessee for the year under consideration.
3.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority (FAA). Before him it made elaborate submissions and relied upon the case of Velayudhaswamy Spinning Mills P. Ltd.(340ITR477),Everready Spinning Mills Ltd.(27taxmann.com 171) and Shevie Exports (33taxmann.com446). After considering the submissions of the assessee and the assessment order the FAA held that the assessee was availing the benefit of deduction u/s. 80IB of the Act for its Rolling Mill unit since past many years, that the wind mill power generation unit claimed deduction u/s. 80IA for the first time during the assessment year under appeal, that it chose the financial year as initial year that it had incurred losses in the windmill unit during AY.s 2006-07 and 2007-08, that in the AY 2008-09 the assessee had shown profit but did not claim deduction in that year, that it had set off the losses against the eligible profit of rolling mill unit and had claimed the deduction u/s. 80IB on the reduced profit which was accepted by the department in the relevant AY.s . He referred to the cases of Velayudhaswamy Spinning Mills P. Ltd., Eveready Spinning Mills Ltd. and Shevie Exports (supra) and allowed the appeal filed by the assessee.
4.During the course of hearing before us the Departmental Representative (DR) supported the order of the AO and referred to the provisions of section 80IA(4) of the Act. She further argued that notional carryforward of losses of the undertaking for the past year had to be considered before allowing the deduction. As stated earlier, none appeared on behalf of the assessee.
5.We have perused the material on record. We find that the AO had denied the benefit of deduction u/s. 80IA to the assessee as he was of the opinion that the net result of computation of the undertaking was a negative figure if the earlier two years losses were considered .We further find that the assessee was running a rolling mill in the earlier years and it started generating electricity from the AY 2006-07, that it incurred losses in the windmill business for the initial two years, that in the AY 2008-09 it had returned profit in the windmill unit but did not claim deduction u/s.80IA, that it had set off the losses against the eligible profit of rolling mill unit that was claimed u/s. 80IB of the Act, that the AO had accepted the claims 2 -7007/M/14-Smita Steel made by the assessee in the earlier years, that it claimed deduction u/s. 80IA for the first time in the year 2009-10, it had selected the AY 2009-10 as the initial year .We find that the issue is squarely covered by the judgment of Hon'ble Madras High Court delivered in the case of Velayudhaswamy Spinning Mills P. Ltd.The Mum Tribunal in the case of Shevie Exports has held that losses prior to the initial AY, which had already been set off against the income of other unit, could not be brought forward and adjusted into the period of 10 years from the initial AY as chosen by the assessee.We would like to reproduce the relevant portion of the above referred judgment of Hon'ble High Court of Madras and it reads as follows :- ”6. Section 80-IA reads as follows: XXXXXXXX 17. From a reading of sub-section (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- section (4), i.e., referred to as the 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-section (4). Sub- section (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-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. "
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 3 -7007/M/14-Smita Steel 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.
In the present cases, there is no dispute that losses incurred by the assessee were already and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub- section (6) of section 80-I which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra. In the case of CIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004} 271 1TR 311 (Raj); [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 1TR) : XXXXXXX 20. 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.
The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980} 1231TR (St.) 154 to support this case and the same reads as follows: "Clause 30(iii). In computing the quantum of'tax holiday' profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduc tion admissible under the new section 80-1 even though they may have been set off against the profits of the taxpayer from other sources. "
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). "
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