2016 (4) TMI 528 - HC - Income Tax

Court upholds assessee's deduction under Section 80-IA, emphasizing no reopening of set-off losses.

The court concluded that the assessee is entitled to the deduction under Section 80-IA as losses of earlier years had already been set off and could not ... Eligibility of deduction under Section 80IA - Held that:- The appellant is engaged in the business of yarn and textile brokerage and in the generation of power through windmills and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills [2010 (3) TMI 860 - Madras High Court ].- Decided in favour of the assessee. Issues Involved:1. Entitlement to deduction under Section 80-IA of the Income Tax Act.2. Applicability of previous court decisions and pending appeals before the Supreme Court.3. Interpretation of 'initial assessment year' and the treatment of losses set off in previous years.4. The impact of Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980.Detailed Analysis:Entitlement to Deduction under Section 80-IA:The core issue in this appeal is whether the respondent/assessee is entitled to claim deduction under Section 80-IA of the Income Tax Act. The court examined the facts and circumstances of the case and referred to previous judgments, particularly the decision in Velayudhaswamy Spinning Mills Vs Asst. CIT [2012) 340 ITR 477], where it was held that once losses and other deductions have been set off against the income of the previous year, they should not be reopened for the purpose of computation of current year income under Section 80I or 80IA.Applicability of Previous Court Decisions and Pending Appeals:The court noted that the issue had already been decided in the Velayudhaswamy Spinning Mills case. The Revenue's counsel informed the court that appeals against this decision were pending before the Supreme Court. However, the court observed that there was no compelling reason to deviate from the established precedent, as the Supreme Court had not yet admitted the appeals, and only notices had been issued.Interpretation of 'Initial Assessment Year' and Treatment of Losses:The court delved into the interpretation of 'initial assessment year' under Section 80-IA(5). It emphasized that the term 'initial assessment year' is distinct from the phrase 'beginning from the year' used in sub-section (2). The court reiterated that the eligible business should be treated as the only source of income during the initial assessment year and subsequent assessment years. Losses of earlier years, which had already been set off against other income, should not be brought forward notionally for the purpose of computing deductions under Section 80-IA.The court cited the Supreme Court's decision in Liberty India Vs CIT [2009) 317 ITR 218 (SC)], which clarified that Chapter VI-A provides profit-linked incentives. It also referenced the Rajasthan High Court's decision in CIT v. Mewar Oil and General Mills Ltd. [2004) 271 ITR 311 (Raj)], which supported the view that losses already set off should not be reopened for computing current income under Section 80-I.Impact of Memorandum Explaining the Provisions in the Finance (No. 2) Bill, 1980:The Revenue's counsel relied on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, to argue that losses and depreciation of earlier years should be taken into account for determining the quantum of deduction under Section 80-IA. However, the court disagreed, stating that the memorandum does not override the clear statutory provisions and judicial interpretations that prohibit reopening of losses already set off.Conclusion:The court concluded that the assessee is entitled to the deduction under Section 80-IA, as the losses of earlier years had already been set off against other income and could not be notionally brought forward. The court dismissed the appeal, confirming the order passed by the Tribunal and answering all questions of law in favor of the assessee and against the Revenue. The court also noted that similar decisions had been rendered in other cases, further supporting the assessee's position.Final Judgment:This Tax Case (Appeal) stands dismissed, and the order passed by the Tribunal is confirmed. The questions of law raised in this appeal are answered against the Revenue and in favor of the assessee.