2021 (11) TMI 105 - AT - Income Tax

High Court emphasizes standalone treatment for deduction calculation under Income Tax Act

The Asst. Commissioner of Income-tax, Circle – 1, Kolhapur Versus Priyadarshini Polysacks Ltd.

The Asst. Commissioner of Income-tax, Circle – 1, Kolhapur Versus Priyadarshini Polysacks Ltd. - TMI Issues Involved:- Interpretation of provisions of section 80IA(5) of the Income Tax Act for deduction eligibility.- Application of set off and carry forward provisions before determining gross total income for deduction u/s. 80IA.- Consideration of each unit of eligible business as a separate profit center for deduction computation.- Deduction reference to profits derived from eligible business, not every unit engaged in eligible business.- Setting off unabsorbed losses against current year profits for deduction calculation.Analysis:1. Interpretation of Section 80IA(5): The case involved a dispute over the computation of deduction under section 80IA of the Income Tax Act. The AO restricted the deduction claimed by the assessee based on the set off of unabsorbed losses from earlier years against current year profits. However, the Tribunal emphasized that section 80IA provisions are standalone and require profits and losses to be treated separately for each unit. The High Court's decision in CIT Vs. Dewan Kraft Systems supported this approach, highlighting that losses of ineligible units cannot be set off against profits of eligible units for deduction calculation.2. Application of Set Off Provisions: The AO's methodology of setting off unabsorbed losses against current year profits was challenged by the assessee, arguing that losses incurred before the initial assessment year cannot be set off against eligible unit profits. The Tribunal referred to the Madras High Court's ruling in Velayudhaswamy Spinning Mills Vs. ACIT, clarifying that the initial assessment year is the year chosen by the assessee for claiming deduction, not the year of commencing operations. The Tribunal remitted the matter back to the AO for detailed verification on whether the unabsorbed losses pertained to periods before or after the initial assessment year.3. Judgment and Application to A.Y. 2014-15: The Tribunal partially allowed the Revenue's appeal for A.Y. 2013-14, emphasizing the need for a factual examination of the timing of unabsorbed losses set off against current year profits. The decision for A.Y. 2014-15 mirrored that of A.Y. 2013-14, applying the same reasoning and outcome. Both appeals were partly allowed for statistical purposes, with the matter remitted back to the AO for further verification.In conclusion, the judgment focused on the correct interpretation and application of section 80IA provisions, emphasizing the standalone treatment of profits and losses for each eligible unit. The Tribunal's decision highlighted the importance of adhering to legal principles and factual considerations in determining deductions under the Income Tax Act.