Appeal allowed for deduction under Section 80IA for assessment year 2002-03

The Tribunal allowed the appeal of the assessee, determining that the assessment year 2002-03 chosen by the assessee would be the "initial assessment year" for claiming deduction under Section 80IA. Notional brought forward losses/depreciation of the 67.5 MW unit for the period from 1997-98 to 2001-02, already set off against other income, should not be adjusted for computing the deduction in 2002-03. The challenge against the reopening of assessment was considered academic and infructuous in light of the decision on the deduction issue.

---

---

Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Correctness of deduction under Section 80IA with reference to the profits of 67.5 MW Unit.
3. Interpretation of "initial assessment year" under Section 80IA(5).

Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee company challenged the reopening of the assessment under section 147, arguing that it was based on a mere change of opinion. The assessee contended that the reassessment was initiated without any new tangible material and was primarily based on audit observations, which is not permissible under law. The assessee cited several case laws, including CIT v. Foramer France and CIT v. Kelvinator of India Limited, to support its position. The CIT(A) upheld the reopening, stating that the AO had reasons to believe that income had escaped assessment, and since the reopening was within four years, the proviso to section 147 did not apply.

2. Correctness of Deduction under Section 80IA with Reference to the Profits of 67.5 MW Unit:
The assessee contended that the deduction under Section 80IA was correctly allowed without considering the unabsorbed depreciation of the 67.5 MW Unit from earlier years, as such depreciation had already been set off against other income in previous years. The AO, however, held that as per Section 80IA(5), the profits of the eligible business should be computed as if it were the only source of income, thus requiring the set-off of brought forward losses. The CIT(A) agreed with the AO, concluding that the assessee was not eligible for the deduction due to the brought forward losses.

3. Interpretation of "Initial Assessment Year" under Section 80IA(5):
The assessee argued that the "initial assessment year" should be the year chosen by the assessee for claiming the deduction, not necessarily the year in which the unit commenced operations. The assessee relied on the Circular No. 1 of 2016 issued by the CBDT, which clarified that the term "initial assessment year" means the first year opted by the assessee for claiming deduction under Section 80IA. The Tribunal, considering the CBDT Circular and the judgments of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills Private Limited and G.R.T. Jewellers (India), concluded that the assessee was entitled to choose the assessment year 2002-03 as the initial assessment year. Consequently, the notional brought forward losses from earlier years, already set off against other income, should not be adjusted against the profits of the initial assessment year for computing the deduction under Section 80IA.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the assessment year 2002-03 chosen by the assessee shall be the "initial assessment year" for the purposes of claiming deduction under Section 80IA. The notionally brought forward losses/depreciation of the Jojobera 67.5 MW unit for the period from the assessment year 1997-98 to 2001-02, already set off against other business income, should not be adjusted from the profit for the assessment year 2002-03 for computing the deduction under Section 80IA. The grounds challenging the reopening of the assessment were deemed academic and infructuous due to the decision on the merits.

---