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Deputy Commissioner of Income-Tax Versus Yamuna Power and Infrastructure Ltd.

Disallowance under section 80-IA - choosing of the initial assessment year - Held that:- Choosing of the initial assessment year for claiming deduction under section 80-IA of the Act in a block of ten years out of fifteen years is with the assessee, i.e., it is the option of the assessee to choose the initial assessment year for claiming deduction under section 80-IA of the Act. Further, the loss claimed by the assessee in respect of eligible business is to be set off against the income of the a .....

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eal filed by the Revenue is directed against the order of the learned Commissioner of Income-tax (Appeals), Panchkula, dated November 26, 2015, relating to the assessment year 2012-13, passed under section 250(6) of the Income- tax Act, 1961 (in short "the Act"). 2. Briefly, the facts of the case are that the assessee established two wind mills in District Jaisalmer, Rajasthan, a 20 mega watt (MW) at village Gorera and 25 MW at village Soda Mada on March 30, 2004, and January 24, 2004, .....

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on 80-IA of the Act. The assessee also earned and declared income from the business of wind power project for the assessment years 2007-08 to 2012-13. Referring to the provisions of section 80-IA(5) of the Act, the Assessing Officer observed that the brought forward losses of the eligible business need not to be set off against the income from the eligible business even though if they were set off against the non-eligible business in the respective years. The Assessing Officer further noted that .....

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ssessee stated that as per section 80-IA(2), the deduction at the option of the assessee can be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility. As per section 80-IA(2), the first previous year for the purpose works out to the assessment year 2004-05 and the end year works out to the assessment year 2019-20. The assessee had option to start cl .....

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essment year, i.e., the assessment year 2008- 09 and not the assessment year 2004-05. The Assessing Officer made the disallowance by holding that the assessment year 2004-05 is the initial assessment year. The contention of the assessee was that this disallowance is legally and factually not correct. 4. After considering the submissions of the assessee, the learned Commissioner of Income-tax (Appeals) noted that same issue was decided by him in the assessee's own case for the assessment year .....

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imed under section 80-IA of the Income-tax Act. 2. It is prayed that the order of the learned Commissioner of Income-tax (Appeals) be set aside and that of the Assessing Officer be restored. 3. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed of." 6. The learned Departmental representative, while arguing before us, relied on the order of the Assessing Officer submitting that by not considering the year of start of manufacturing as the .....

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the Income-tax Appellate Tribunal, Chandigarh Bench, in ITA No. 1062/ Chd/2014 (Deputy CIT v. Yamuna Power and Infrastructure Ltd. ITA No. 1062/Chd/2014, dated February 10, 2016) has decided the issue in favour of the assessee. His contention was that since the Commissioner of Income- tax (Appeals) has also relied on his order for the assessment year 2010-11, the claim of the assessee in this year may also be allowed. Further a Circular of CBDT No. 1 of 2016, dated February 15, 2016 ([2016] 382 .....

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; would mean the first year opted for by the assessee for claiming deduction under section 80-IA of the Act. In view of this, the officers of the Department were directed to allow the deduction under section 80-IA of the Act after duly satisfying as to the compliance with the eligibility condition. It was also instructed that the pending litigation of allowability of deduction under section 80-IA of the Act was also not to be pursued to the extent which relates to interpreting initial assessment .....

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se and the Commissioner of Income-tax (Appeals) in the present year has relied on his own order for the assessment year 2010-11. The issue was decided by the Income-tax Appellate Tribunal in favour of the assessee in the following terms : "8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On a perusal of the order of the learned Commissioner of Income-tax (Appeals) we see that he h .....

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he enterprise begins operating and maintaining the infrastructure facility. Under section 80-IB and also under section 80-IC, section 80-ID and section 80-IE, the first year in which the production is started is taken as initial previous year whereas after the amendment in the provisions of section 80-IA with effect from April 1, 2000, the initial assessment year is at the option of the assessee. It may be the first year of the commencement of activity or a subsequent year as selected by the ass .....

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deduction for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year on the profits and gains from the eligible business as if such eligible business was the only source of income of the assessee during the previous year relevant to the initial assessment year or to every subsequent assessment year up to and including the assessment year for which the determination is to be made. In the instant case, the provisions of section 80-IA(5) would be ap .....

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'ble Madras High Court in the case of Velayudhaswamy Spinning Mills P. Ltd. v. Asst. CIT [2012] 340 ITR 477 (Mad) and the hon'ble Karnataka High Court in the case of Anil H. Lad (supra). 4.12 Therefore, in view of the above discussions on the applicability of the provisions of section 80-IA(2) and (5) and judicial pronouncements, the Assessing Officer was not justified in disallowance of claim of deduction of ₹ 1,09,82,471 under section 80-IA of the Act. The Assessing Officer is di .....

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before claiming deduction under section 80-IA of the Act. We have also perused the judgment of the Karnataka High Court in the case of Anil H. Lad (supra), whereby adjudicating the same issue, the hon'ble court has analysed the judgment of the Madras High Court in case of Velayudhaswamy Spinning Mills P. Ltd. (supra), which has been relied upon very heavily by the assessee. The findings of the hon'ble court are at paragraphs 9 and 10 of the judgment, which reads as under : '9. The M .....

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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 .....

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tion (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; for the purpose of determining the quantum of deduction ; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year a .....

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same were set off against other income of the asses see and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 1 .....

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ion is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section(5) of section 80-IA, the revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under section 80-IA. Therefore, the approach of the Tribunal is in accordance with law. The assessing authority and the Commissioner committed a serious error in setting off the profit earned .....

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n the case of Shevie Exports (supra), whereby all the judgments relied on by the assessee as well as the Revenue have been considered and the Bench has given findings at paragraphs 9 to 12, which reads as under : '9. Section 80-IA, which has been substituted with effect from April 1, 2000, provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub-section (4), there shall, in accordance with .....

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limit within which the assessee can choose the period of claiming the deduction. Sub- section (5) is a non obstante clause which deals with the quantum of deduction for an eligible business. The relevant provisions of sub- section (5) of section 80-IA, reads as under : "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of deter mining the quantum o .....

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n obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80-IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subse .....

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ction 80-IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80-IA(5). The loss prior to the initial assessment year which has already been set off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initia .....

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ment year 1996-97 onwards and the assessee had claimed deduction under section 80-IA starting from the first year itself, i.e., the assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80-IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) after considering .....

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losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the cur .....

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were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a pos .....

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ection 80-I and held as follows (page 314) : "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 .....

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as required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-I in the present case, .....

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order as to costs." From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 12. This judgment has been further followed by the same High Court in .....

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