2012 (8) TMI 589 - AT - Income Tax

Tribunal grants deduction under section 80-IA without considering notionally brought forward losses.

The Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction under section 80-IA to the assessee without considering notionally ... Denial of deduction u/s 80-IA - Held that:- As it is only during the assessment year under consideration, i.e. 2007-08 that the assessee company exercised the option of claiming deduction under section 80-IA and, therefore, losses suffered in the earlier years cannot be considered by wrongly interpreting section 80-IA(5) as application of section 80-IA(5) is canvassed to be applicable only after the option is exercised by the assessee in terms whereof losses of the period prior to the exercise of option are not liable to be set off while computing deduction under section 80-IA. As decided in Velayudhaswamy Spinning Mills P. Ltd. & Others Versus ACIT (2010 (3) TMI 860 - MADRAS HIGH COURT) holding that as per Sub-section (5) of Section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee - there is no question of setting off notionally carried forward loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit - in favour of the assessee Issues Involved:1. Denial of deduction under section 80-IA of the Income-tax Act, 1961, amounting to Rs 10,66,354/- claimed by the assessee with respect to the profits from the Windmill.Detailed Analysis:Issue 1: Denial of Deduction under Section 80-IAFacts:The assessee claimed a deduction of Rs 10,66,354/- under section 80-IA for the profits from a Windmill set up on December 1, 2001, corresponding to the assessment year 2002-03. The deduction was claimed for the first time in the assessment year 2007-08 as the unit had incurred losses in previous years. The Assessing Officer (AO) denied the deduction, stating that after considering the losses up to the last assessment year, there was no profit, making the deduction under section 80-IA(4) not allowable.Assessee's Argument:The assessee argued that under section 80-IA(2), the deduction was claimed for the first time in the assessment year 2007-08. The assessee contended that the losses from previous years should not be deducted when computing the eligible deduction under section 80-IA(5). Additionally, the assessee pointed out that earlier years' losses had already been set off against other income.Revenue's Stand:The AO and the Commissioner of Income-tax (Appeals) upheld the denial of the deduction, relying on section 80-IA(5), which they interpreted as requiring the consideration of losses from previous years.Tribunal's Analysis:The Tribunal examined the relevant facts and legal provisions. It noted that the assessee set up the Windmill in the assessment year 2002-03 and claimed the deduction for the first time in the assessment year 2007-08. The Tribunal referred to the Pune Bench's decision in the case of Serum International Ltd. and the judgment of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT, which held that only losses from the year in which the deduction is first claimed should be considered, not the losses from prior years that have been set off against other income.Precedents:The Tribunal cited the following precedents:- Serum International Ltd. Pune v. Addl. CIT: The Tribunal held that the initial assessment year for section 80-IA(5) is the year the assessee first claims the deduction, not the year the unit started operations.- Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT: The Hon'ble Madras High Court ruled that only losses from the initial assessment year (when the deduction is first claimed) should be brought forward, not losses from earlier years already set off against other income.Conclusion:The Tribunal concluded that the assessee's claim was valid and directed the AO to grant the deduction under section 80-IA as claimed. The Tribunal emphasized the need to follow judicial discipline and respect the law laid down by any High Court, even a non-jurisdictional one, unless there is a contrary decision by another High Court.Result:The appeal of the assessee was allowed, and the AO was directed to grant the deduction under section 80-IA without considering the notionally brought forward losses from earlier years.Pronouncement:The judgment was pronounced in the open Court on June 26, 2012.