Windmill power generation unit entitled to section 80IA(5) deduction despite initial year losses

ITAT Surat allowed the assessee's claim for deduction under section 80IA(5) for power generation through windmill. The AO had denied the deduction, arguing that losses from the power unit in initial years should be set off against current year profits, leaving no profit eligible for deduction. The Tribunal held that notional losses cannot be set off against profits of eligible business units as no such mandate exists in section 80IA(5). Following the Madras HC precedent in Velayudhaswamy Spinning Mills case and the assessee's own favorable decision for AY 2010-11, the Tribunal directed the AO to allow the deduction as claimed.

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Issues involved:
1. Disallowance of deduction under section 80IA(5) of the Act.
2. Not allowing credit of seized cash and interest u/s. 234B and 234C.

Analysis:

Issue 1: Disallowance of deduction under section 80IA(5) of the Act:
The appeal was filed against the order confirming the disallowance of deduction of Rs. 1,24,93,596 under section 80IA(5) of the Act for the Assessment Year 2011-12. The assessee, engaged in various business activities including power generation through windmill, claimed the deduction. However, the Assessing Officer (AO) disallowed the deduction stating that there was no profit available from the power unit in the current year after setting off losses from previous years. The assessee argued that as per section 80IA(5), the income or loss of an undertaking should be treated as a separate unit from the initial year chosen for deduction. The assessee contended that since the losses were already set off against income from other divisions in earlier years, the entire income of the power division for the assessment year 2008-09 should be eligible for deduction. The CIT(A) relied on precedents and held that the assessee was not eligible for the deduction. However, the Tribunal, considering its own previous decision in a similar case, directed the AO to allow the claim of deduction under section 80IA(5) for the current year as well.

Issue 2: Not allowing credit of seized cash and interest u/s. 234B and 234C:
The third ground of appeal related to the non-allowance of credit for seized cash and interest under sections 234B and 234C. This ground was not pressed by the assessee and was treated as dismissed. Therefore, the Tribunal did not provide any further analysis on this issue.

In conclusion, the Tribunal partly allowed the appeal of the assessee concerning the disallowance of deduction under section 80IA(5) of the Act, based on its previous decision in a similar case. The issue regarding the credit of seized cash and interest u/s. 234B and 234C was not pursued by the assessee and was dismissed.

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