Tribunal allows appeal for deduction under Section 80IA & excludes interest subsidy from book profits.

The Tribunal allowed the assessee's appeal, directing the Assessing Officer to allow the deduction under Section 80IA and exclude the interest subsidy from the computation of book profits under Section 115JB. The Tribunal held that notional losses from earlier years, already set off against other income, cannot be adjusted against the profits of the eligible undertaking for the purpose of disallowing the statutory deduction under Section 80IA. Additionally, it determined that the interest subsidy received should be treated as a capital receipt and excluded from the book profits computation under Section 115JB.

---

---

Issues Involved:
1. Disallowance of statutory deduction under Section 80IA.
2. Exclusion of interest subsidy from book profit computation under Section 115JB.

Summary of Judgment:

Issue 1: Disallowance of Statutory Deduction under Section 80IA

The assessee's claim for deduction under Section 80IA was denied by the Assessing Officer (AO) on the basis that unabsorbed losses and depreciation from earlier years were not set off against the current year's profits from the windmill division. The AO argued that if these losses were considered, there would be no positive income, thus making the deduction under Section 80IA inapplicable. The CIT(A) upheld this view, referencing decisions in favor of the Revenue by the Special Bench of Ahmedabad Tribunal and the Karnataka High Court.

The Tribunal, however, sided with the assessee, referencing the Bombay High Court's decision in CIT vs. Hercules Hoists Ltd., which followed the Madras High Court's ruling in Velayudhaswamy Spinning Mills (P) Ltd. The Tribunal concluded that notional losses from earlier years, already set off against other income, cannot be brought forward and adjusted against the profits of the eligible undertaking. Consequently, the AO was directed to allow the deduction under Section 80IA.

Issue 2: Exclusion of Interest Subsidy from Book Profit Computation under Section 115JB

The assessee argued that the interest subsidy received under the Technology Upgradation Fund Scheme (TUFS) should be excluded from book profits as it is a capital receipt. The CIT(A) acknowledged the subsidy as a capital receipt but denied its exclusion from book profits under Section 115JB, citing the Karnataka High Court's decision in B&B Infratech Ltd., which stated that only adjustments specified in the explanation to Section 115JB are permissible.

The Tribunal, however, referenced the Delhi Tribunal's decision in Indogulf Cropsciences Ltd., which considered the Karnataka High Court's ruling but followed the Calcutta High Court's decision in Ankit Metal and Power Ltd. The Tribunal held that since the interest subsidy is a capital receipt, it should be excluded from book profits under Section 115JB. Therefore, the AO was directed to exclude the interest subsidy while computing book profits.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal directing the AO to:
1. Allow the deduction under Section 80IA.
2. Exclude the interest subsidy from the computation of book profits under Section 115JB.

---