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Income Tax Appellate Tribunal, BENCH “I”,MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
Assessee by : Mr. Aditya R. Ajgaonkar (AR) Revenue by : Mr. Shrikant Namdeo (DR) Date of hearing : 28.11.2016 Date of Pronouncement : 30.11.2016 Order under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM: 1. This appeal under section 253 of the Act (‘Act’) is directed by the assessee against the order of Ld. Commissioner of Income-tax (Appeals) (for short ‘the CIT(A)-II, Thane, dated 28.01.2015 for Assessment Year (AY)-2011-12. The assessee has raised the following grounds of appeal: (i) (a). The ld CIT(A) erred in making disallowance of deduction under section 80. IA and not considering the fact that deduction under section 80. IA is to be claimed and allowed on a stand-alone basis as if the eligible business was the only source of income. (b). The ld CIT(A) erred in holding that losses of earlier year had to be reduced before allowing claim under section 80. IA and disregarding the fact that there was no collected losses of earlier years as they had been set off against other income of those years. (ii) The ld AO erred in denying deduction under section 80IA by following decision of CIT(A) for AY 2010-11, and not following decision of Madras High Court (the sole High Court judgment on the issue) wherein it has been held that losses of the year prior to the “initial year” cannot be set off and has allowed the deduction under section 80IA on the stand-alone profit for the year(s) after the initial year.
The Income Tax Appellate Tribunal in the earlier years i.e. AY 2009-10 has also accepted this position vide its order dated 11.02.015.
The brief facts of the case are that assessee, who is engaged in the business of manufacturing of electro-forced grating, cable trays, handrails and FRP grating, cable trays and generation of electricity from Wind Mill filed its return of income for relevant assessment year on 30 September 2011 declaring total income at Rs. 19,14,23,030/-. The assessment u/s 143(3) was completed on 30th January 2014. While making assessment the AO disallowed the deduction claimed u/s 80IA on wind power generation project. On appeal before Commissioner Appeal the disallowance was sustained observing that similar disallowance was sustained in assessee’s case for AY 2010-11. Thus further aggrieved by the order of Commissioner (Appeals) the assessee has filed present appeal before tribunal.
We have heard ld AR of the assessee and the ld DR for the revenue. The ld. AR of the assessee argued that the issue raised in the present appeal is squarely covered in his favour by the decision of Tribunal in assessee own case for assessment years 2008-09 & 10- 11. The ld. AR of the assessee has placed on record the copy of decision of Tribunal for Assessment Year 2009-10 &10-11. The ld. DR for the revenue not disputed the factual position. We have considered the rival contention of the parties and gone through the decisions of earlier years in assessee own case wherein the identical grounds of appeal
were raised and the same were decided in favour of assessee would holding as under:
6. Co-ordinate bench of Tribunal in has held as under: ‘’If the first year of claim of deduction u/s.80IA(1) is itself taken as a initial assessment year, the whole purpose of the provision gets defeated; rather, botched, where there is an unabsorbed deprecation / loss incurred prior to that year, so that there is no scope for the same being carried forward and set off. There is no rationale for such an embargo or restriction, which is thus incomprehensible inasmuch as it is neither borne out by the clear language of the provision nor by its rationale; rather, goes against its grain, besides being inconsistent with the Memorandum, Explanatory Notes and the Board Circular explaining the provision, which operate as a contemporanea exposito inasmuch as they clarify the legislative intent that the aggregation would be applicable for the initial, loss years. True, the said circular is not binding on the higher courts of law, or the tribunal for that matter, but only on the Revenue authorities. So, however, the question that remains unanswered is the legal or the logical basis for ignoring the same. What, one may ask, could be the purpose in excluding the losses for the initial years for aggregation; for which though we see no reason, given the legislative intention as expressed and noted hereinabove, and the fact that no deduction would even otherwise be available in case of a loss. After all, there is no question or reason for the assessee to opt for the year of loss as the 'initial assessment year', and of which the Legislature could not but be considered to be aware of. This is assuming that the provision confers that option to the assessee. In other words, some infirmity therein (the Circular and the Memorandum explaining the provisions as well as Notes on clauses) has to be shown so as to disregard the same as not valid or acceptable. It 4 Indiana Gratings Pvt. Ltd is in fact not merely a case of a circular, even as pointed out by the special bench at para 59 (also read paras 16 to 18) of its Order. In fact, the assessee in the instant case itself relies on the said Circular to press for its claim for the impugned set off. Further, let us consider the losses incurred after such a year, i.e., the first year of determination of deduction u/s. 80IA(1) (treating it as the initial assessment year), the scope of which, though remote, cannot be excluded. The same, going by the assessee’s contention before us (refer para 3.1 of this order), would not stand to be considered u/s. 80IA(5) as there is no question of computing deduction u/s. 80IA(1) for such year. Further, even ignoring the said argument, so that s. 80IA(5) applies, the question that arises is: What is a rationale in including some losses while disregarding others? In fact, empirically speaking, the unabsorbed depreciation and losses would only be during the initial years over which the charge of depreciation is more and the business is yet to stabilize, so that the possibility of un absorbed depreciation or losses after the Unit's coming into profits, where the business is successful, returning profits (only whereupon the question of deduction u/s.80IA(1) would arise), is even otherwise remote. So, however, such losses/allowance, where so, would stand to be carried forward, as much as the loss/allowance incurred prior to the first year of deduction, to the subsequent years for set off. The more basic question that though arises is the absence of any legal or logical (the raison de'trei basis for artificially segregating the losses/unabsorbed depreciation for the years prior and subsequent to the first year aforesaid. The two, therefore, cannot be segregated or treated separately, but have to be so only uniformly, and in a manner consistent and in harmony with the object and the language of the provision. 4.3 Continuing further, though the period of deduction u/s.80IA(1) over which the deeming of section 80IA(5) is to be applied commences with the previous year relevant to the initial assessment year, and up to the year of determination of deduction, its stated purpose is for the determination of quantum of deduction u/s. 801A(1) for the year immediately" succeeding the initial assessment year (and not the initial assessment itself) and for every subsequent year. Why? The reason is simple. There could be no brought forward allowance or loss prior to the initial (assessment) year. The first year for which there could be, if so, a loss or unabsorbed depreciation, is the first year of operations, so that the question of aggregation of income for the purpose of determination of quantum of deduction could, at the earliest, be the immediately succeeding assessment year. It is for this reason that while the aggregation is applicable from the initial assessment year itself (of course, up to the year of determination of deduction), the determination of quantum of deduction, which is the stated purpose of the provision, is to be