2019 (8) TMI 927 - AT - Income Tax

Tribunal rules against rectification under section 154, disallows cross-unit set-off for deduction

NSL Renewable Power Private Limited Hyderabad Versus Dy. Commissioner of Income Tax, Circle 16 (1) Hyderabad

NSL Renewable Power Private Limited Hyderabad Versus Dy. Commissioner of Income Tax, Circle 16 (1) Hyderabad - TMI Issues Involved:1. Whether the rectification under section 154 of the Income Tax Act, 1961, was valid.2. Whether the losses of certain eligible units should be set off against the profits of other eligible units for computing the deduction under section 80IA.3. Whether the deduction under section 80IA should be allowed only to the extent of business income and not against the gross total income.Detailed Analysis:Issue 1: Validity of Rectification under Section 154The assessee argued that the rectification under section 154 was not valid as the issue was debatable and not a 'mistake apparent from the record.' The AO had initially accepted the assessee's claim for deduction under section 80IA during the assessment proceedings. However, the AO later issued a notice under section 154 to rectify what was perceived as an excess claim of deduction. The Tribunal examined whether the issue was merely a quantification error or a method of calculation. It concluded that if the issue involves the method of calculation, it is debatable and cannot be rectified under section 154. The Tribunal cited several judgments, including CIT vs. Hero Cycles (P) Ltd and T.S Balaram, ITO vs. Volkart Brothers, which held that only glaring and apparent mistakes could be rectified under section 154. Therefore, the Tribunal ruled that the rectification under section 154 was not valid in this case.Issue 2: Setting off Losses of Eligible Units Against Profits of Other Eligible UnitsThe assessee contended that the deduction under section 80IA should be computed on a standalone basis for each eligible unit and that losses from one eligible unit should not be set off against the profits of another eligible unit. The Tribunal agreed with the assessee, noting that sub-section 5 of section 80IA provides that the deduction should be calculated as if the eligible unit is the only source of income. The Tribunal referenced several decisions, including CIT vs. Dewan Kraft Systems (P) Ltd and Punit Construction Co. vs. JCIT, which supported the view that losses from one eligible unit cannot be set off against the profits of another. Consequently, the Tribunal ruled in favor of the assessee, stating that the AO's adjustment of losses was incorrect.Issue 3: Deduction Extent under Section 80IAThe CIT (A) had observed that the deduction under section 80IA should be allowed only to the extent of business income and not against the gross total income. The Tribunal found this observation incorrect, citing various case laws, including Meera Cotton & Synthetic Mills (P) Ltd vs. ACIT and Sriram Properties (P) Ltd vs. ACIT, which held that the deduction under section 80IA should be computed based on the gross total income. The Tribunal deleted the CIT (A)'s adverse remarks and ruled that the deduction should be allowed against the gross total income.Conclusion:The Tribunal allowed the assessee's appeal, ruling that:1. The rectification under section 154 was not valid as the issue was debatable.2. Losses from one eligible unit cannot be set off against the profits of another eligible unit for computing the deduction under section 80IA.3. The deduction under section 80IA should be allowed against the gross total income, not just the business income.