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M/s. Devi Seafoods Ltd. Versus JCIT, Range-3, Visakhapatnam

2016 (5) TMI 320 - ITAT VISAKHAPATNAM

Deduction u/s 80IA - whether initial assessment year referred to in section 80IA(1) of the Act, would mean the year of commencement of eligible business or the year in which the deduction is claimed? - Held that:- the circular issued by the CBDT vide circular no.1 of 2016, has settled the controversies of initial assessment year for the purpose of section 80IA of the Act. The initial assessment year would mean the first year opted by the assessee for claiming deduction u/s 80IA of the Act and no .....

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ishna, DR ORDER PER G. MANJUNATHA, Accountant Member: This appeal filed by the assessee is directed against the order of CIT(A), Visakhapatnam dated 15.11.2013 and it pertains to the assessment year 2009-10. 2. The brief facts of the case are that the assessee is a company which is engaged in the business of aqua culture, export of frozen shrimp and also engaged in the activity of generation of wind power. The assessee has filed its return of income for the assessment year 2009-10 on 26.9.2009 d .....

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uction u/s 80IA of the Act, towards profits from the activity of generation of power. The A.O. further noticed that that the assessee has commenced the generation of power from the financial year 2004-05, but the deduction u/s 80IA of the Act has been claimed first time for the assessment year 2009-10. Therefore, issued a show cause notice and asked to explain why the deduction claimed u/s 80IA of the Act shall not be disallowed. In response to show cause notice, the assessee has submitted that .....

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10 consecutive assessment years out of 15 assessment years, beginning from the assessment year in which it has commenced its eligible business. Since, it has incurred losses for the initial assessment year, it has choose to claim deductions from the assessment year 2009-10, which is in accordance with the provisions of section 80IA(2) of the Act. 3. The A.O. after considering the submissions made by the assessee, held that the initial assessment year referred to in section 80IA of the Act, woul .....

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be set off against the profit of the current financial year to determine the income available for deduction u/s 80IA of the Act. In support of his arguments, the A.O. has relied upon the special bench decision of ITAT, Ahmedabad in the case of ACIT Vs. Gold Mine Shares & Finance Pvt. Ltd. (2008) 113 ITD 209 and held that in view of the provisions of section 80IA(5) of the Act, the profit from the eligible business for the purpose of deduction u/s 80IA of the Act, has to be computed after ded .....

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he Act, may at the option of the assessee be claimed for any 10 consecutive assessment years out of 15 years, beginning from the year in which the undertaking or the enterprise commenced its eligible business. The assessee further submitted that it is the option of the assessee to claim from the beginning of the assessment year or subsequent assessment year. However, the claim should be restricted to 10 consecutive assessment years within the block of 15 years allowed under the sub section (2) o .....

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s 80IA of the Act, the loss and depreciation incurred by the assessee in respect of eligible business has been set off against income of the assessee from other source, the said loss or depreciation cannot again be notionally brought forward and set off against the profits against eligible business for computing deduction. Therefore, the A.O. was erred in denying the benefit of deduction u/s 80IA of the Act. 5. The CIT(A) after considering the explanations furnished by the assessee confirmed the .....

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attributed to those words. The CIT(A) while confirming the additions made by the A.O. distinguished the Hon ble Madras High Court judgement, in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. Vs. ACIT (supra) and held that the Hon ble Madras High Court has not specifically considered the scope of non-obstante clause and also the explanatory memorandum provided in the Finance Bill, 1980. With these observations, the CIT(A) upheld the assessment order and denied the benefit of deduction u/s 8 .....

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such eligible business was commenced. The assessee has commenced the eligible business from the financial year 2004-05 and incurred losses in the initial financial years. Therefore, it does not have an occasion to claim the deduction from the initial assessment year. Therefore, the deduction claimed by the assessee from the assessment year 2009-10 is in accordance with law and also supported by the judgement of Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. Vs. .....

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in TCA No.176 of 2016 has considered the circular issued by the CBDT and after considering the circular, held that the initial assessment year would mean the year in which the assessee has first claimed deduction u/s 80IA of the Act. The Ld. D.R. on the other hand, strongly supported the order of CIT(A). 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. denied the deduction u/s 80IA of the Act, for the reas .....

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t withstanding anything contained in any other provisions of this Act makes it clear that it is independent of any other provisions of the Act. As per sub section (5), the assessee has to consider the eligible business as if such eligible business were the only source of income of the assessee during the previous year relevant to the assessment year to other subsequent assessment year for the purpose of determination of income eligible for deduction. Therefore, the assessee has to brought forwar .....

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initial assessment year referred to in section 80IA(1) of the Act, would mean the year of commencement of eligible business or the year in which the deduction is claimed. Sub section (2) of section 80IA of the Act provides for deduction specified in sub section (1), may at the option of the assessee, be claimed by him for any 10 consecutive assessment years out of 15 years, beginning from the year in which the undertaking begins or starts its eligible business. Sub section (5) of section 80IA o .....

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80IA of the Act, was of the opinion that the assessment year would mean the year in which the assessee begins its eligible business. Admittedly, the Act does not define initial assessment year u/s 80IA of the Act. The A.O. referred sub section (5) of section 80IA of the Act and held that because of non obstante clause used in section 80IA(5) of the Act, strict interpretation should be given to the words used in the section to mean and understood as if the words are intended to be used. Accordin .....

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al assessment year would mean the year of commencement of eligible business and hence, the notional losses including depreciation should be set off against eligible profits, even though they have been allowed set off against other income in earlier years. 9. The assessee contention is that the initial assessment year would mean the initial year of claim of deduction under sub section (1) of section 80IA of the Act. Therefore, the A.O. was not correct in interpretation of initial assessment year .....

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s 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. Sub section (2) The deduction specified in sub-section (1) may, at the option of the assessee, 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 infrastruct .....

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rovisions of sub-section(1) apply shall, for the purpose of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be m .....

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r in which the undertaking begins its operation. From this, it is abundantly clear that the claim is at the option of the assessee, but it should be within 15 years from the date of commencement of its eligible business. Sub section (5) provides for determination of quantum of deduction for the assessment year immediately succeeding the initial assessment year or in subsequent assessment year. As per sub section (5), the profits of eligible business shall be computed as if such eligible business .....

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to claim deduction out of the allowable 15 years. From the reading of sub section (2) of section 80IA of the Act, it is very clear that the deduction is at the option of the assessee and the assessee can claim deduction, beginning from any assessment year within the block of 15 assessment years. However, the deduction can be claimed for a period of 10 consecutive assessment years and it shall not go beyond 15 years provided under the Act. In the present case on hand, on perusal of the facts ava .....

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ed by the judgement of Hon ble Madras High Court, in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. Vs. ACIT (2012) 340 ITR. The A.R. submitted that the Hon ble High Court of Madras had an occasion to deal with initial assessment year and set off brought forward losses u/s 80IA(5) of the Act. After considering the relevant provisions of section 80IA of the Act, the court held that the initial assessment year would mean the year in which the assessee made claim of deduction and not year of c .....

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udes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-s (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assesses, 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 .....

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n sub-s. (5) and the same is not defined under the provisions. It is to be noted that initial assessment year employed in sub-s. (5) is different from the words beginning from the year referred to in sub-s. (2). Important factors are to be noted in sub-s. (5) and they are as under: It starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; (2) it is for the purpose of determining the quantum of deduction; (3) for the assessme .....

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rcises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and not 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 .....

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ady set off and adjusted against the profits of the earlier years During the relevant assessment year, the assessee exercised the option under s 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 â1rady absorbed In the earlier years There is a positive profit duri .....

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lleries Ltd vs Asstt CIT (2008) 114 TTJ (Chennai) 532 (2008) 3 DTR (Chennai)(Trib) 477 affirmed All the authorities below had given a categorical finding that the first year is 2004-05. The issue also reached finality. The Revenue has accepted the finding given by the CIT(A) and therefore, the same cannot be raised in the assessee s appeal before the Tribunal. It is a question of fact. It is not a perverse order. There is no error or illegality in the order of the Tribunal warranting interferenc .....

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ct. The relevant portion is extracted below: "Circular No. 112016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clarification 1 of the term 'initial assessment year' in Section 801A(5) of the Income Tax Act, 1961 Section 801A of the Income-tax Act, 1961 ('Act'), as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% .....

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starts providing services etc. as stipulated therein. Sub-Section (5) of Section 801A further provides as under: "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 determining the quantum of deduction under that Sub-Section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as If .....

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term 'initial assessment year' as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is .....

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