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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Mahavir Singh & Shri Rajesh Kumar
O R D E R Per Mahavir Singh, Judicial Member
This appeal by assessee is arising out of the order of the CIT(A) – 27, Mumbai, in appeal No.CIT(A)-27/Addl. CIT-16(2)/137/13-14 dated 27.08.2014. The assessment was framed by the Addl. CIT 16(2), Mumbai, for A.Y. 2010-11 vide his order dated 28.03.2013 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The only issue in this appeal of the assessee is against the order of the CIT(A) confirming the action of the AO denying deduction u/s. 80IA of the Act by invoking the provisions of section 80 IA(5) of the Act. Briefly stated facts are that the assessee claimed deduction u/s. 80IA of the Act on profit earned by it in the business of generation of power by setting up windmills. The assessee is a registered partnership firm having three partners and engaged in the business of export of cut and polished diamonds and also deriving income from generation of power. The assessee started the business of generation of power by setting up windmills in Maharashtra and first year of commencement of production of electricity was FY 2005-06 relevant to AY 2006-07. The assessee incurred heavy losses due to high depreciation on windmills and these losses were set off against regular business of export of cut and polished diamonds. The assessee did not opt for claim of deduction u/s. 80IA of the Act until A.Y. 2009-10. This fact is coming out of the record of the lower authorities and has not been disputed by the learned senior DR. The assessee opted for the first time to claim deduction u/s 80IA of the Act from A.Y. 2010-11, i.e. the year under consideration. The AO while framing assessment adjusted the depreciation loss already claimed against regular business income, against the income of this year and disallowed the claim of deduction u/s. 80IA of the Act. Aggrieved, the assessee preferred appeal before the CIT(A).
Before the CIT(A) the assessee claimed that the AO erred in not allowing the claim of deduction u/s. 80IA by treating the initial year as AY 2006-07 and not AY 2010-11, when the assessee opted for the claim of deduction. The learned counsel for the assessee now before us argued that the CIT(A) also erred in not following the co-ordinate Bench decision of this Tribunal in the case of Hercules Hoists Ltd., Mumbai vs. ACIT in 7946, 2255 & 7943/Mum/2011 dated 13.02.2013. Aggrieved against the order of the CIT(A), the assessee preferred appeal before the Tribunal.
At the outset, the learned counsel for the assessee stated that now CBDT vide Circular No.1/2016 [F.No.200/31/2015-ITA-I] dated 15-2-2016, has considered the issue of deduction u/s. 80IA of the Act and clarify the term initial assessment year as provided in section 80IA(5) of the Act. On the other hand, learned senior DR fairly agreed that ‘yes’ the Board has issued circular and initial year will be the year when the assessee opts for claiming deduction and that will be considered as initial assessment year for the purpose of claiming deduction u/s. 80IA of the Act.
We have gone through the above circular, which reads as under:
“Section 80IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under - "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.
The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.
The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed.
The above be brought to the notice of all Assessing Officers concerned.”
The above facts are not disputed that assessee’s operation of power generation started in FY 2005-06 relevant to A.Y. 2006-07, but due to losses and depreciation loss, the assessee has not claimed any deduction u/s. 80IA of the Act. The assessee has claimed those losses against regular business income arising from export of cut and polished diamonds. The assessee claimed deduction u/s. 80IA and opted the initial assessment year i.e. A.Y. 2010-11, the year under consideration. In view of the above Board Circular, which clarifies the initial assessment year, we are of the considered view that the assessee has rightly claimed the deduction in A.Y. 2010-11 treating the same as initial assessment year and we hold the same. Accordingly, the orders of the lower authorities that AO and the CIT(A) are reversed and the appeal of the assessee is allowed.
Order pronounced in the open court on this day of 8th June 2016.