TaxTMI 
TaxTMI 
2010 (3) TMI 860
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....nce we are inclined to decide the matter one by one. 4. The brief facts which are necessary to decide these appeals are as follows : Tax Case No. 909 of 2009 : 4.1 The assessment year is 2005-06 and the corresponding accounting year ended on March 31, 2005. The assessee is engaged in the business of manufacture of yarn and electricity generation through wind electric generator and filed its return of income for the relevant year 2005-06 on October 30, 2005, admitting a total income of Rs. 1,36,36,470 under normal computation and Rs. 2,95,73,840 under book profit under section 115JB. The said return of income was processed under section 143(1) on December 6, 2005. Subsequently, this case was selected for scrutiny and notice was issued under section 143(2) on May 4, 2006. While computing the assessment, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs. 1,70,76,945 on the ground that the eligible income is a negative figure. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The said appeal was allowed by the Commissioner of Income- tax (Appea....
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.... Rs. 4,10,99,730 under computation of income under section 115JB. The said return of income was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, this case was selected for scrutiny and notice was issued under section 143(2) on May 4, 2006. While computing the assessment, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs.2,82,67,370 on the ground that the eligible income is a negative figure. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The said appeal was allowed by the Commissioner of Income-tax (Appeals) on the ground that since the assessment year 2005-06 is the initial assessment year, unabsorbed depreciation of earlier years which had already been absorbed cannot be notionally carried forward and taken into consideration for computing deduction under section 80-IA. Aggrieved over the said order, the Revenue filed an appeal before the Tribunal. The Tribunal by following the decision of the Special Bench of the Tribunal in the case of Asst. CIT v. Goldmine Shares and Finance (P) Ltd. [2008] 302 ITR (AT) 208 (Ahd.) allowed the Depar....
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....The said appeal was allowed by the Tribunal on a finding that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on current assessment year on the current year's profit and thereby, set aside the order of the authority below. Aggrieved by the said order, the Revenue filed the present appeal by raising the following substantial questions of law : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in not admitting the letter from the Assessing Officer showing that the assessee had exercised the option of claiming the deduction under section 80-IA during the assessment year 1999-2000 which is the first/initial assessment year for the purpose of deduction under section 80-IA, as additional evidence and holding that the assessment year 2004-05 is first/initial assessment year in which the assessee had claimed the deduction under section 80-IA ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that carried forward loss and unabsorbed depreciation c....
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....f against the eligible income during the assessment year 2005-06. It is also contended that the fiction in section 80-IA(5), viz., "eligible business were only source of income" is applicable only from the second year of initial assessment year and not previous year of the initial assessment year. The provision is to be applied only during the ten years from the initial assessment year and the fiction does not look back the year before the claim is made. It is also contended that once the unabsorbed depreciation is already set off earlier, the same cannot be notionally brought forward and recomputed against the income of the assessment year. Therefore, during the relevant assessment year, the assessee has got a positive income. In addition to the above, it is contended that section 80-IA is a beneficial or incentive provision. So, it should be liberally construed. He further submitted that there should be a specific provision in the Act to bring forward the unabsorbed depreciation and losses of the earlier year which were already set off against the other income and relied on the proviso to section 72 which specifically revives the loss. 6. In respect of Tax Case No. 918 of....
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....008 is not correct and this court may remand the matter to the Tribunal to decide the issue afresh in respect of the initial assessment year. 8. Heard the counsel appearing for the parties and perused the materials available on record. 9. On a perusal of the order of the Assessing Officer, it is seen that the eligible income for deduction under section 80-IA is worked out in all the cases as follows : Rs. Tax Case (Appeal) No. 909 of 2009 : Net income from Windmill Division 1 (2002-03) 1,70,76,945 Less : (a) Unabsorbed depreciation allowance assessment year 2003-04 8,26,84,110 (b) Income from Windmill Division 1 (2002-03) assessment year 2004-05 71,16,270 Balance of unabsorbed depreciation allowance 7,55,67,840 Unabsorbed depreciation allowance balance (-) 5,84,90,895 Tax Case (Appeal) No. 940 of 2009 : Net income from Windmill Division 2,82.67,370 Less : Unabsorbed depreciation allowance (initial assessment year) assessment year 2003-04 12,11,01,360 -do- assessment year 2004-05 1,59,85,972 13,70,87,332 Balance (-) 10,88,19,962 Tax Case (Appeal) No. 918 of 2008 : Total loss + depreciation of the ....
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....thing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act." 13. The above unreported judgment considered section 80-I and had taken the view that the entire depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years and no further depreciation allowance or development rebate remained unabsorbed and, therefore, nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act. Section 80-I was introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The said sub-section deals with deduction in respect of profits and gains from industrial undertakings after a certain date. Section 80-I reads as follows : "80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be....
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....ally and subsequent assessment years. Sub-section (6) was the subject-matter before this court in the above-mentioned unreported judgment, wherein this court had held that while interpreting the above provision, for the purpose of allowing deduction under section 80-I brought forward losses and unabsorbed depreciation of the new industry need not be taken into consideration once they have been set off from other sources of income earlier. In the present case, we are concerned with the provision of section 80-IA. The said provision was introduced by the Finance Act, 1999, with effect from April 1, 2000. The provisions of sections 80-I and 80-IA are also more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-tax Act. Chapter VI-A deals with deductions to be made in computing total income. There are two tax incentives contemplated in Chapter VI-A. One is investment incentive and the other one is profit-linked investment. Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1965, and it consists of four headings. They are A, B, C and D. Heading "A" is general and it also con- tains definition. It consists of sections 80A, ....
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....80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgment that sub-section (5) of section 80-IA provides for manner of computation of profits of an eligible business. Accordingly such profits are to be computed as if such eligible business is the only source of income of the assessee. Section 80-IA reads as follows : 16. "80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years. (2) The deduction specified in sub-section (1) may, ....
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....he eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent. of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under :  ....
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....considered the scope of sub-section (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra. In the case of CIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 ITR) : "Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That questio....
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....stment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may have been set off against the profits of the taxpayer from other sources." 22. We are not agreeing with the counsel for the Revenue. We are, there-fore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). 23. Under these circumstances, we set aside the order of the Tribunal and answer all the questions in favour of the appellant/assessee and against the Revenue in Tax Case Nos. 909 and 940 of 2009 respectively. Accordingly, tax cases are allowed. Tax Case No. 918 of 2008 : 24. It is filed by the Revenue by raising three questions of law as stated above. In respect of the second question, which is the same as the issue involved in the above tax cases in Tax Case Nos. 909 and 940 of 2009, we also answer in favo....
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....ts are observed : Assessment year 1999-2000 : The assessee claimed deduction of Rs. 2,15,59,112 under section 80-IA of the Income-tax Act. The Assessing Officer rejected the claim under section 143(3) read with section 263. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of Income- tax (Appeals) agitating, inter alia, the claim for a deduction under section 80-IA. The Commissioner of Income-tax (Appeals), vide his order in I. T. A. No. 39/2005-06, dated August 4, 2005, in paragraph 12 directed the Assessing Officer to allow the claim under section 80-IA which was accordingly, allowed. Assessment year 2000-01 : In this assessment year also the assessee in the computation memo claimed deduction under section 80-IA of an amount of Rs.1,20,19,495 which was allowed in full by the Assessing Officer in the regular assessment order under section 143(3), dated March 28, 2003. This being the position, the statement of the assessee that the claim under section 80-IA claimed for the first time in the assessment year 2004-05 is totally contrary to the facts as mentioned. This proves that assessment year 2004-05 is not the ....
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....duction under section 80-IA. Hence, the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA. At the cost of repetition, we make it clear that the case law relied on by the Departmental representative are delivered before the amendment to section 80-IA by the Finance Act, 1999. Before the amendment, the initial assessment year was defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year of claiming relief under section 80-IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the cu....