2011 (1) TMI 173 - AT - Income Tax

Tribunal Upholds Deduction Calculation under Income Tax Act, Emphasizes Proper Application of Section 80IA(5)

The Tribunal upheld the computation of deduction under Section 80IA of the Income Tax Act, ruling that notional brought forward losses and depreciation ... Deduction u/s 80IA - The issue relating to computation of 80IA deduction that it has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years has been dealt by the Special Bench in the case of ACIT Vs. Gold Mine Shares & Finance (P) Ltd. (Ahemadabad) and decide the issue against the assessee relating to allowability of deduction u/s 80IA that in terms of provisions of u/s 80IA(5) of the IT Act, the profit from the eligible business for the purpose of determination of the quantum of deduction u/s 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years Under section 263 - The word ‘erroneous’ in section 263 includes failure to make such an enquiry by the assessing officer - The failure of the assessing officer to make an enquiry with regard to the claim of the assessee and to record such a reason, why he is taking particular view, makes the assessment order erroneous and prejudicial to the interest of the revenue - The opinion that there is no merit in the arguments of the assessee’s counsel against observation made by CIT in his order u/s 263 - The appeals of the assessees are dismissed Issues Involved:1. Computation of deduction under Section 80IA of the Income Tax Act.2. Invocation of provisions under Section 263 of the Income Tax Act.Detailed Analysis:Issue 1: Computation of Deduction under Section 80IAThe primary contention revolves around the computation of profit for the purpose of deduction under Section 80IA. The assessee argued that the losses and depreciation of the eligible business unit, which were already absorbed against other income in earlier years, should not be notionally brought forward and set off against the current year's profit for computing the deduction under Section 80IA. The assessee cited various judgments to support this claim, including those from the Rajasthan High Court and Chennai ITAT, asserting that past losses absorbed should not affect the current year's deduction.However, the Tribunal relied on the Special Bench decision in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd., which held that the profit from the eligible business for the purpose of deduction under Section 80IA must be computed after deducting the notional brought forward losses and depreciation, even if they were set off against other income in earlier years. The Tribunal noted that the Special Bench had considered all arguments similar to those presented by the assessee and concluded that the provisions of Section 80IA(5) require such computation.Issue 2: Invocation of Provisions under Section 263The assessees contended that the Commissioner of Income Tax (CIT) erred in invoking Section 263, arguing that the original assessments were completed under Section 143(3) with all relevant information provided, and that the CIT cannot invoke Section 263 to conduct a roving enquiry. The Tribunal examined whether the Assessing Officer (AO) had made adequate enquiries and applied his mind to the provisions of Section 80IA(5) during the original assessment.The Tribunal found that the AO had not properly examined the facts or recorded reasons for accepting the assessee's claims regarding the deduction under Section 80IA. The assessment order was deemed cryptic, lacking discussion or methodology for computing the deduction. The Tribunal emphasized that an order passed without proper enquiry or application of mind is erroneous and prejudicial to the interests of the revenue. Therefore, the CIT's invocation of Section 263 was justified as the AO's failure to make necessary enquiries rendered the original assessment order erroneous.ConclusionThe Tribunal dismissed all appeals by the assessees, affirming that:1. The deduction under Section 80IA must be computed after deducting notional brought forward losses and depreciation, as per the Special Bench decision in ACIT Vs. Goldmine Shares & Finance (P) Ltd.2. The invocation of Section 263 by the CIT was valid due to the AO's failure to make necessary enquiries and properly apply the provisions of Section 80IA(5) during the original assessments.