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Income Tax Appellate Tribunal, BENCH “C”,MUMBAI
Before: SHRI B.R.BASKARAN & SHRI PAWAN SINGH
O R D E R
PER PAWAN SINGH, JM:
This appeal u/s 253 of the Income-tax Act is directed by assessee against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] -6 Mumbai dated 01.08.2014 for Assessment Year (AY) 2010-11. The assessee has raised following Grounds of appeal:
1. The learned Commissioner of Income Tax (Appeals) erred in confirming denial of deduction of Rs.1,21,46,018/- claimed u/s 80IA(4) (iv) of Income Tax Act,1961.
2. The learned Commissioner of Income Tax (Appeals) erred in not appreciating that the term "initial assessment year" referred to the first year in which the assessee claimed the deduction under section SO-IA and not the first year of operation.
3. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that section 80-IA(5) provides that the eligible business shall be deemed to be the only business of the assessee from the assessment year immediately succeeding the initial assessment year and not from the initial assessment year itself.
4. The learned Commissioner of Income Tax (Appeals) erred in notionally carrying forward losses already set off in the years prior to the year for which the deduction under section 80-IA was claimed.
2 Calibre Chemicals Pvt. Ltd.
The learned Commissioner of Income Tax (Appeals) erred in confirming denial of deduction of Rs. l,24,46,018 claimed u/s 80IA thereby effectively denying the option granted by section 80-IA (2) to claim deduction for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking starts generating power.
The Commissioner of Income Tax (Appeals) erred in concluding that the appellant has claimed double benefit by setting off of loss of eligible business against the profits of non eligible business without opting those years to be initial assessment years and in subsequent years opting to claim deduction u/s 80IA when the eligible business starts making profit.
The Commissioner of Income Tax (Appeals) erred in ignoring distinction between date of commencement and initial assessment year as referred at Clause 8 & 9 of Audit Report in Form 10CCB.
The Commissioner of Income Tax (Appeals) erred in not appreciating that section 80IA as it stands in AY 2010-11 has evolved over a period of time from erstwhile section and pre amended section 80IA and hence case laws interpreting erstwhile section 80I and pre amended section 80IA cannot be applied for interpretation of post amended section 80IA of Income Tax Act, 1961. Relief claimed Your appellant prays that the order of the learned Commissioner of Income Tax (Appeals) be modified by allowing deduction of Rs. 1,21,46,018/- under sec 80-IA.
Brief facts of the case are that the assessee-company engaged in the business of manufacturing of inorganic chemicals and generation & sale of wind power and its unit is qualified for deduction u/s 80IA. The unit commenced production in AY- 2006-07. Accordingly, the assessee claimed benefit from AY 2008-09 and this was the third year for claiming deduction u/s 80IA. The Assessing Officer (AO) denied the deduction holding that assessee has to set off of notional brought forward losses from first year of production. Hence, The AO computed the profit on Wind Mill Unit for the current year against the net profit of Unit without setting off of the loss of earlier years. Resultantly, not allowed the deduction claimed u/s 80IA. The assessee filed appeal before the ld. CIT(A) but no relief was granted. Thus, the present appeal is filed before us.
We have heard ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for Revenue and perused the material available on record. Ld. AR of the assessee argued that the assessee is entitled for deduction u/s 80IA as this was the third year of assessee of claiming eligibility u/s 80IA. Ld. AR of the assessee further argued that the grounds of appeal raised in the present appeal are covered in his favour by the decision of Hon’ble Madras High Court in 3 Calibre Chemicals Pvt. Ltd. Velayudhaswamy Spinning Mills P. Ltd. vs. ACIT [2012] 340 ITR 477 (Mad). On the other hand, ld. DR for Revenue strongly relied upon the orders of authorities below.
4. We have considered the rival contention of the parties and gone through the orders of authorities below. There is no dispute that eligible unit t commenced production in AY-2006-07. Accordingly, the assessee claimed benefit from AY 2008-09 and this was the third year for claiming deduction u/s 80IA. The Hon’ble Madras High Court in Velayudhaswamy Spg. Mills (P.) Ltd’s case (supra) held: while interpreting the very provision held, that 'initial assessment year' employed in sub-section (5) is different from the words 'beginning from the year' referred to in sub-section (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, 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. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. [Para 9] Therefore, keeping in mind the object with which these provisions (of section 80- IA) are introduced, it is clear that an assessee is given the benefit of 100 per cent
4 Calibre Chemicals Pvt. Ltd. deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is set-off against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of section 80-IA, the revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under section 80-IA. Therefore, the approach of the Tribunal is in accordance with law. The assessing authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under section 80- IA against the losses and depreciation of the eligible business which is already set off from other source before such a claim is put forth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the assessing authority as well as the lower appellate authority. The substantial question of law is answered in favour of the assessee and against the revenue. [Para 10]”
5. In view of the above legal position, the assessee is entitled for the deduction u/s 80IA(5), which was rightly exercised by the assessee, thus, the disallowance made by AO and confirmed by ld. CIT(A) is set-aside by accepting the appeal of the assessee.