2016 (6) TMI 290 - HC - Income Tax

Assessee entitled to Section 80IA deduction clarified by court. Losses pre-initial assessment year not adjustable.

Commissioner of Income Tax Versus M/s. SAS Hotels and Enterprises Ltd.

The court confirmed that the assessee is entitled to the deduction under Section 80IA of the Income Tax Act. It clarified that the 'initial assessment ... Entitlement for deduction under section 80IA - interpretation of initial assessment year - Held that:- The business undertaking of the assessee is wind mill power generation/hosiery goods, etc., 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 of the assessee to deduction under Section 80IA of the Income Tax Act.2. Interpretation of 'initial assessment year' under Section 80IA(5) of the Act.3. Treatment of losses absorbed in years prior to the initial assessment year for computing deduction under Section 80IA.Detailed Analysis:1. Entitlement of the Assessee to Deduction under Section 80IA:The core issue addressed was whether the Tribunal was correct in law to hold that the assessee is entitled to claim deduction under Section 80IA of the Income Tax Act. The court referred to the precedent set in Velayudhaswamy Spinning Mills Vs Asst. CIT [2012) 340 ITR 477], which established 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 computing current year income under Section 80I or 80IA. The court upheld the Tribunal's decision, confirming that the assessee is entitled to the deduction under Section 80IA.2. Interpretation of 'Initial Assessment Year' under Section 80IA(5):The court examined whether the 'initial assessment year' refers to the year of claim or the year of commencement of operations of an undertaking. It clarified that the 'initial assessment year' is the year in which the assessee first claims the deduction under Section 80IA, not the year of commencement of operations. This interpretation aligns with the decision in Velayudhaswamy Spinning Mills, where it was determined that the initial assessment year is distinct from the year the undertaking begins operations. The court emphasized that the option to choose the initial assessment year lies with the assessee, and this choice dictates the period for which the deduction can be claimed.3. Treatment of Losses Absorbed in Years Prior to the Initial Assessment Year:The court addressed whether losses from years prior to the initial assessment year, which had already been absorbed, could be notionally brought back and adjusted against the income of the initial and subsequent assessment years. It was concluded that such losses should not be brought forward and set off against the profits of the eligible business. This conclusion was drawn from the interpretation of Section 80IA(5), which does not mandate the notional bringing forward of previously absorbed losses. The court cited the decision in CIT v. Mewar Oil and General Mills Ltd. [2004) 271 ITR 311 (Raj)], reinforcing that losses or deductions already set off in previous years should not be reopened for current income computation under Section 80I or 80IA.Conclusion:The court dismissed the Revenue's appeal, confirming the Tribunal's order in favor of the assessee. It upheld that:- The assessee is entitled to the deduction under Section 80IA.- The 'initial assessment year' is the year of claim, not the year of commencement of operations.- Losses absorbed in years prior to the initial assessment year cannot be notionally brought forward for adjustment.The court noted that similar appeals by the Revenue are pending before the Supreme Court but have not yet been admitted. The judgment reaffirms the principles established in previous cases, particularly Velayudhaswamy Spinning Mills, ensuring consistency in the application of Section 80IA.