TMI Blog2018 (8) TMI 1126X X X X Extracts X X X X X X X X Extracts X X X X ..... by Hon’ble Special Bench in the case of Goldmine Shares [2008 (4) TMI 405 - ITAT AHMEDABAD], the losses incurred in 2003-04 and 2004-05 required to be set off against 2005-06 and in subsequent assessment years. Having not claimed the set off losses in the A.Y.2005-06, the assessee is disentitled to claim the set off of such losses in the impugned assessment year. Decided in favor of revenue. - I.T.A.No.225/Viz/2017 - - - Dated:- 31-7-2018 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER For The Appellant : Shri K.C.Das, DR For The Respondent : None ORDER PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-1, Guntur vide I.T.A.No.7/15-16/CIT(A-1)/GNT dated 31.01.2017 for the assessment year 2012-13. 2. All the grounds of appeal are related to the set off of business losses claimed by the assessee pertaining to the earlier years. In this case, the assessee filed the return of income on 25.09.2012 admitting total income of ₹ 81,24,780/- after setting off brought forward losses. The AO observed that, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income at ₹ 1,88,81,260/-. 4. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A). The Ld.CIT(A) deleted the addition made by the AO holding that the assessee is eligible for deduction u/s 80IA for 100% of profits and section 80IA is a special provision and the normal provisions of setting off of carry forward losses is not applicable since the assessee was given an option for claiming the deduction u/s 80IA for10 consecutive assessment years out of 15 years period. The Ld.CIT(A) relied on the decision of Hon ble ITAT A Bench, in the case of M/s Hercules Hoists Limited, Mumbai Vs. ACIT, Range-10(3), accordingly allowed the appeal of the assessee. 5. Aggrieved by the order of the AO, the revenue has filed appeal before the Tribunal. During the appeal hearing, the Ld.DR submitted that the assessee had incurred the losses in the year 2003-04 and 2004-05 and in subsequent assessment years i.e. 2005-06 to 2010-11, there were profits derived by the assessee from the business and the assessee should have claimed the set off of losses as provided u/s 72 of the Act in the subsequent assessment years i.e. from 2005-06 onwards till the losse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year for which the determination is to be made. 6.1. From the profits derived by the assessee from the 80IA unit earlier years brought forward unabsorbed losses required to be set off in the subsequent year and the resultant profit would be eligible for deduction u/s 80IA.. Manner and method of computation of deduction u/s 80IA is discussed elaborately by Hon ble Special Bench of Ahmedabad in the case of ACIT Vs. Goldmine Shares and Finance Pvt. Ltd. (2008) [113 ITD 209] as under : HELD The provisions of section 80-IA were divided in two parts by the Finance Act, 1999 with effect from 1-4-2000 - one by the replaced section 80-IA and other, by the newly inserted section 80-IB. For material purposes and in order to resolve the controversy in these cases, the new provisions are almost identically worded to those of the aforesaid earlier provisions of sections 80-I and 80-IA. Under section 80-IA(1) the deduction is to eligible business, as defined in sub-section (4) thereof. [Para 21] Apparently, section 80-IA(5) identically deems, for the purposes of determining the quantum of deduction, the eligible business as the only source of income of the assessee dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be allowed. Section 80B(5) defines the expression 'Gross total income' to mean the total income computed in accordance with the provisions of the Act without making any deductions under Chapter VI-A. The effect of section 80B(5), is that gross total income will be arrived at after making the computation as follows :- (i) making deductions under the appropriate computation provisions; (ii) including the incomes, if any, under sections 60 to 64 in the total income of the individual; (iii) adjusting intra-head and/or inter-head losses; and (iv) setting-off brought forward unabsorbed losses and unabsorbed depreciation, etc. [Para 25] The contention raised by the assessee that the deduction must first be allowed under section 80-I and then only the gross total income as computed under the provisions of the Act before allowing deductions under Chapter VI-A should be worked out, could not be accepted. It reiterated that section 80A provides that the deductions shall be allowed out of the gross total income whereas sub-section (2) restricts the deductions of the gross total income. It is, therefore, clear that gross total income of the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inevitably have flown from or accompanied it, i.e., there was no other source of income of the assessee. The statute says that one must imagine a certain state of affairs (eligible business being the only source); it does not say that having done so, one must cause or permit one's imagination to boggle when it comes to the inevitable corollaries of the state of affairs, that there are other sources and that against those sources the unabsorbed depreciation or losses of eligible business have been set-off. [Para 30] It is implicit from the tenor and phraseology implied in section 80-IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction it will be proper and necessary to assume all those facts on which alone the fiction can operate; so, necessarily, all the provisions in the Act in respect of a source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and, consequently, any depreciation or loss cannot be set-off against any other source which is assumed to have not been in existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only source of income of the assessee was the eligible business. The income or loss of this business alone was to be considered as if that was the only source. This means neither the income of the undertaking nor the loss thereof could be set-off or carried forward and set-off or adjusted against any other source of income or loss. As a corollary the income or the loss of the other business or source could not be considered or set-off for determining the quantum of the deduction of the eligible business. [Para 33] Neither the income nor loss of a business other than the eligible business of any year can be taken into consideration; nor the earlier years' losses of the eligible business can be ignored in computing the profit and gains to determine the quantum of the deduction under this section. Losses of the eligible business are to be set-off only against the subsequent years' income of the eligible business, even though these might have been set-off against other income of the assessee in that earlier year. [Para 34] 6.2. The coordinate bench of ITAT, Ahmedabad in the case of Sadbhav Engineering Ltd. v. Deputy Commissioner of Income-tax, Circle-8, Ahmedabad, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of 80IA as held by the Ld.CIT(A). In the instant case, the assessee had incurred losses during the assessment year 2003-04 and 2004-05 aggregating to 1,07,02,448/- and the assessee had the profit of ₹ 1,35,72,656/- in the assessment year 2005-06 and the assessee ought to have set off of the brought forward losses of ₹ 1,07,02,498 in the assessment year 2005-06 and claim the balance income as deduction u/s 80IA. In the instant case, the assessee has carried forward the losses till exhausting the 10 years tax holiday period and claimed the loss in the impugned assessment year which is against the provisions of law. As held by Hon ble Special Bench in the case of Goldmine Shares (supra), the losses incurred in 2003-04 and 2004-05 required to be set off against 2005-06 and in subsequent assessment years. Having not claimed the set off losses in the A.Y.2005-06, the assessee is disentitled to claim the set off of such losses in the impugned assessment year. Hence, we hold that the CIT(A) erred in allowing the set off of losses in the impugned assessment year which is not correct in accordance with law and provisions of the Act. Therefore, we set aside the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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