2016 (3) TMI 914 - AT - Income Tax

Tribunal confirms initial year for deduction under Section 80IA, upholds assessee's right to choose.

The Tribunal upheld the CIT(A)'s decision, determining that the initial assessment year for Section 80IA(5) deduction is the first year of claim. It ... Computation of profit of eligible business as if it were the only source of income - initial assessment year for claiming deduction under section 80IA - notional carry forward of pre option losses and depreciation - binding effect of a non jurisdictional High Court decision on the TribunalInitial assessment year for claiming deduction under section 80IA - computation of profit of eligible business as if it were the only source of income - Whether the fiction in section 80IA(5) must be applied from the year of commencement of the eligible business or from the initial assessment year chosen by the assessee when it first claims deduction under section 80IA - HELD THAT: - The Tribunal followed the decision of the Madras High Court in Velayudhaswamy Spinning Mills and the Pune Bench decisions interpreting section 80IA(5) to mean that when an assessee exercises the option under section 80IA(2), the 'initial assessment year' for applying the fiction in sub section (5) is the first year in which deduction under section 80IA(1) is actually claimed after exercising the option. Accordingly only losses beginning from that chosen initial year are to be notionally carried forward for computing profit of the eligible business; losses and depreciation of earlier years which have already been set off against other income cannot be notionally brought forward and set off again against the current income of the eligible business. The Tribunal held that this approach correctly gives effect to the statutory option and the fiction in sub section (5) and is binding on the Tribunal in absence of a contrary decision of a competent High Court. [Paras 13]When the assessee exercises the option the fiction in section 80IA(5) is to be applied from the chosen initial assessment year (the first year of claim), and pre option losses already set off against other income are not to be notionally carried forward.Binding effect of a non jurisdictional High Court decision on the Tribunal - Whether the Tribunal must follow a decision of a non jurisdictional High Court on an identical issue in the absence of a contrary decision of any other High Court - HELD THAT: - The Tribunal observed that a decision of a non jurisdictional High Court on an identical question is binding on the Tribunal so long as there is no contrary decision of any other competent High Court. The Pune Bench applied this principle in following the Madras High Court decision and earlier coordinating Bench decisions, concluding that the CIT(A)'s allowance conformed with those precedents and therefore should be sustained. [Paras 13]The Tribunal will follow a non jurisdictional High Court decision on an identical issue unless there is a contrary decision of another competent High Court; accordingly the Madras High Court ruling was followed.Allowance of deduction under section 80IA - Whether the assessee was entitled to the deduction claimed under section 80IA for the relevant year in view of the above interpretation - HELD THAT: - Applying the principle that only losses from the chosen initial assessment year are to be notionally carried forward, the Tribunal found no material to justify taking a contrary view. The CIT(A)'s order allowing the deduction was held to be in consonance with the binding decisions relied upon and therefore free from infirmity. [Paras 14]The CIT(A) order allowing the deduction under section 80IA is upheld and the Revenue's appeal is dismissed.Final Conclusion: The Revenue's appeal is dismissed. The CIT(A)'s allowance of the deduction under section 80IA is upheld: for an assessee who exercises the option under section 80IA(2) the fiction in section 80IA(5) applies from the initial assessment year chosen (the first year of claim), and losses of earlier years already set off against other income cannot be notionally carried forward; the Tribunal followed the relevant High Court and coordinating Bench precedents in reaching this conclusion. Issues Involved:1. Interpretation of the operation of Section 80IA(5) from the year of the first claim of deduction.2. The binding nature of non-jurisdictional High Court judgments versus jurisdictional High Court judgments.3. Justification of allowing deduction under Section 80IA(4) by considering the initial assessment year as the first year of claiming the deduction.Issue-wise Detailed Analysis:Issue 1: Interpretation of Section 80IA(5)The primary issue revolves around whether Section 80IA(5) should be interpreted from the year of the first claim of deduction or from the year the eligible business commenced. The assessee claimed the deduction for the first time in A.Y. 2009-10, considering it as the 'initial year.' The Assessing Officer (AO) argued that the profits must be computed as if the eligible business were the only business of the assessee from the year of commencement, not the first year of the claim. The AO disallowed the deduction, stating that the losses from previous years should be brought forward and adjusted against the current year's income, resulting in no profit for deduction.Issue 2: Binding Nature of Non-Jurisdictional High Court JudgmentsThe Revenue contended that the CIT(A) and ITAT erred in treating the judgment of the non-jurisdictional Madras High Court in the case of Vellayudhaswamy Spinning Mills Pvt. Ltd. as binding, disregarding the principle laid down by the jurisdictional Bombay High Court in CIT Vs. Thane Electricity Supply Ltd. The Revenue argued that the initial year should be the year in which power generation commenced, not the year the assessee chose to claim the deduction.Issue 3: Justification of Allowing Deduction under Section 80IA(4)The CIT(A) allowed the deduction under Section 80IA(4) by considering the initial assessment year as the first year in which the assessee claimed the deduction. The CIT(A) relied on the decision of the Pune Bench of the Tribunal in the case of Serum International Ltd. and the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd., which held that only losses from the initial year of claim should be considered, not the losses from prior years.Analysis and Judgment:Section 80IA(5) Interpretation:The Tribunal upheld the CIT(A)'s decision, agreeing that the initial assessment year for the purpose of Section 80IA(5) is the first year in which the assessee claimed the deduction. The Tribunal referenced the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd., which established that only losses from the initial year of claim should be brought forward, not losses from prior years. This interpretation aligns with the assessee's option to choose any 10 consecutive assessment years for claiming the deduction within a 15-year period from the commencement of the eligible business.Binding Nature of Judgments:The Tribunal noted that even a non-jurisdictional High Court's decision is binding unless there is a contrary decision from another competent High Court. The Tribunal cited the Bombay High Court's ruling in Commissioner of Central Excise Vs. Valson Dyeing, Bleaching and Printing Works, which emphasized respecting High Court decisions across different states in the absence of conflicting judgments. Thus, the Tribunal followed the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd.Justification of Deduction under Section 80IA(4):The Tribunal found no infirmity in the CIT(A)'s order, which was consistent with the Tribunal's earlier decisions. The Tribunal upheld the CIT(A)'s decision to allow the deduction under Section 80IA(4), dismissing the Revenue's appeal. The Tribunal reiterated that the initial assessment year for claiming the deduction is the first year the assessee opts to claim it, and losses from prior years already set off against other income should not be notionally brought forward.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to allow the assessee's deduction under Section 80IA(4) by considering the initial assessment year as the first year of claiming the deduction. The Tribunal emphasized the binding nature of the Madras High Court's decision in Vellayudhaswamy Spinning Mills Pvt. Ltd. and the assessee's right to choose the initial year for claiming deductions within the stipulated period.