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2023 (8) TMI 768 - DELHI HIGH COURTDeduction u/s 80IA - which AY would qualify as “the initial AY”? - HELD THAT:- Tribunal, inter alia, relied upon CBDT Circular no.1/2016 dated 15.02.2016 as emphasized the fact that the initial AY was the year which the assessee chooses to opt for, and was not the year when the eligible business commenced or the point in time when the manufacturing activity was carried out in the first instance. Tribunal, in support of its reasoning, also relied upon the judgment of Prabhu Spinning Mills (P.) Ltd. [2016 (3) TMI 1309 - MADRAS HIGH COURT] Whether unabsorbed losses/depreciation could be notionally carried forward for the purposes of determining profit for the eligible business u/s 80IA? - According to us, there is nothing to suggest in Sub-clause (5) of Section 80IA of the Act that the profits derived by an assessee from the eligible business can be adjusted against “notional losses which stand absorbed against profits of other business.” The deeming fiction created by sub-section (5) of Section 80IA does not envisage such an adjustment. The fiction which has been created is simply this: the eligible business will be the only source of income. There is no fiction created, that losses which have already been absorbed, will be notionally carried forward and adjusted against the profits derived from the eligible business to quantify the deduction that the assessee could claim u/s 80IA of the Act. A perusal of the judgment rendered in the Microlabs Ltd. case [2015 (4) TMI 678 - KARNATAKA HIGH COURT] would show that the Karnataka High Court gave weight to the fact that sub-section (5) of Section 80IA commenced with a non-obstante clause. It was based on this singular fact that the Karnataka High Court chose to veer away from the view expressed by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. [2010 (3) TMI 860 - MADRAS HIGH COURT] case. We are unable to persuade ourselves to agree with the view taken by the Karnataka High Court in the Microlabs Ltd. case. We respectfully agree with the view taken by the Madras High Court in the Velayudhaswamy Spinning Mills (P.) Ltd. case, which has been followed in the Prabhu Spinning Mills (P.) Ltd. case as well. We have given our own reasons as to how sub-section (5) of Section 80IA should operate. Another additional reason why we agree with the view of the Tribunal. The Tribunal has noted that in earlier AYs, the AO has neither disallowed the claim nor adjusted notional depreciation/losses of previous years set off against other income in the years prior to the initial AY. Question of law is answered against the appellant/revenue and in favour of the respondent/assessee.
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