Unit-wise computation for section 80IA deductions: each eligible plant can claim deduction even if consolidated eligible business shows loss.

Deduction under section 80IA(4) for power generation businesses must be computed unit-wise, treating each windmill or solar plant as an independent eligible undertaking and as the only source of income in its initial assessment year; applying this principle, a unit showing positive income is entitled to the deduction notwithstanding consolidated losses in the eligible business. The initial assessment year for section 80IA(3)/(5) is the year in which the assessee first exercises the option to claim the deduction. The conclusions favour the assessee and endorse coordinate-bench precedent and CBDT clarification on unit-wise computation.

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Issues: (i) Whether deduction under section 80IA(4) read with section 80IA(5) of the Income-tax Act, 1961 is to be computed unit-wise treating each windmill/solar plant as a separate undertaking or on a consolidated basis for the assessee's power generation business; (ii) Whether deduction under section 80IA(4) can be allowed where the consolidated eligible business shows an overall loss and the role of the initial assessment year for applying section 80IA(5).

Issue (i): Whether each windmill/solar plant is to be treated as a separate undertaking for computation of deduction u/s 80IA(4) of the Income-tax Act, 1961.

Analysis: The issue was examined in light of prior coordinate-bench Tribunal decisions in the assessee's own case and other Tribunal and High Court precedents which interpreted section 80IA to treat eligible units/undertakings independently for computation of deduction. The appellant upheld existence of separate books, separate PPA arrangements and unit-wise profit & loss statements, and earlier Tribunal orders consistently applied unit-wise computation. The Revenue relied on statutory language of section 80IA(5) and pending higher court proceedings but did not produce a binding contrary judicial order distinguishing the facts.

Conclusion: Deduction under section 80IA(4) is to be computed unit-wise by treating each windmill/solar plant as a separate undertaking; conclusion is in favour of the assessee.

Issue (ii): Whether deduction u/s 80IA(4) can be allowed when the consolidated eligible business shows an overall loss and how the initial assessment year under section 80IA(3)/(5) applies.

Analysis: The statutory scheme requires that, for computing quantum of deduction, the eligible business be treated as if it were the only source of income in the relevant (initial) assessment year. Coordinate-bench decisions and CBDT clarification were considered which hold that the initial assessment year is the year in which the assessee first claims the deduction (option exercised), and that profits/losses must be computed unit-wise so that loss in one unit does not nullify deduction in a profit-making unit. The Revenue's contention that deduction requires positive consolidated income was rejected where unit-wise computation yields positive income for particular units and earlier assessments and Tribunal rulings supported that approach.

Conclusion: Deduction u/s 80IA(4) is allowable for units showing positive income even if consolidated eligible business shows an overall loss, and the initial assessment year is the year in which the deduction is first claimed; conclusion is in favour of the assessee.

Final Conclusion: The coordinate-bench and precedent-based rule that each eligible unit must be considered independently for section 80IA computation is applicable; following prior Tribunal decisions and applicable clarifications, the appeals by the Revenue are dismissed and the CIT(A) order allowing the 80IA(4) deduction is upheld.

Ratio Decidendi: For purposes of section 80IA, each eligible unit/undertaking is to be treated as an independent source of income and deduction under section 80IA(4) must be computed unit-wise (treating the unit as the only source of income in its initial assessment year), so that losses of one eligible unit do not negate deduction available to another eligible unit.

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