TMI Blog2020 (7) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT has also clarified that embargo placed under s.80IA(5) of the Act for quantification of deduction of profits and gains of an eligible business would apply from the assessment years immediately succeeding initial assessment years only. Having regard to express elucidation by CBDT, the CIT(A), in our view, has rightly decided the issue of manner of computation of quantum of deduction under s.80IA(5) in favour of the assessee. The assessee while determining the eligible profit, is not required to notionally reduce losses arising from eligible business in the earlier years already set off against other business of assessee in terms of Sections 70, 71 72 of the Act prior to exercise of option of initial assessment year . The losses arising in eligible business , if any, subsequent to earmarking of initial assessment year shall however continue to be governed by embargo placed in Section 80IA(5) of the Act. - Decided in favour of assessee. - I.T.A. No. 567/Ahd/2017 - - - Dated:- 20-7-2020 - Shri P. P. Bhatt, President And Shri Pradip Kumar Kedia, Accountant Member For the Appellant : Shri Vidhyut Trivedi, Sr.D.R. For the Respondent : Shri S. N. Soparkar, S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness which already stood set off in accordance with law from other stream of income. The AO denied the deduction of profits arising from eligible business by invoking embargo placed by sub-section (5) of Section 80IA of the Act and proceeded to make adjustment on account of notionally carry forward losses/depreciation of earlier years from actual commencement of eligible business. While doing so, the AO essentially observed that the assessee is required to treat the eligible business as the only source of income of eligible undertaking and set off provisions of Section 70, 71 72 is required to be ignored for the quantification of eligible profits for deduction. Resultantly, deduction under s.80IA(1) of the Act on profits amounting to ₹ 3,61,15,115/- arising from generation of electricity through wind mills was denied by artificial set off of losses arising from eligible business notionally carry forward for the purposes of determination of eligible profits. 4. Aggrieved by the denial of deduction claimed under s.80IA(1) of the Act, the assessee preferred appeal before the CIT(A). The CIT(A) took cognizance of various judicial precedents as well as the CBDT Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher Authorities (High Court or Supreme Court). After going through the decisions relied upon by the Ld. Authorized Representative, I find that the issue on hand is squarely covered in the favour of appellant. The lead case on the issue under consideration is of Hon'ble Madras High Court which is as under:- Velayudhaswamy Spinning Mills (P) Ltd. v/s ACIT [2012] 21 taxmann.corn 95 (Mad.) Section 80-IA of the Income-tax Act, 1961 - Deductions -Profits and gains from infrastructure undertakings -Assessment years 2004-05 and 2005-06 Loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5) [Assessment years 2004-05 2005-06] [In favour of assesses] Under section 80-IA(1), 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 and if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar alone are to be brought forward; loss prior to initial assessment year which has already been set-off cannot be brought forward and adjusted into period of ten years from initial assessment year - Held, yes- Whether where assessee had not suffered any loss in relevant years and brought forward loss or depreciation did not relate to initial years, same could not be reduced for determining amount for which deduction is to be allowed under section 80-IA - Held, yes [Para 28] [In favour of assessee] In all the appeals under consideration the initial year chosen by the assessee for claiming deduction was after 1-4-2000 when the amended provision of section 80-IA was applicable. [Para 18] Section 80-IA, which has been substituted with effect from 1-4-2000, 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 and subject to the provisions of this section, be allowed in computing the deduction of an amount equal to 100 per cent of the profits and gains derived from such business for 10 consecutive years. Substituted subsecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses incurred by the assessee 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). 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 was a positive profit during the year. [Para 22] Thus, 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-IA for the purpose of computing admissible deductions thereunder. [Para 24] Since assessee had not suffered any loss in the said years, no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed under section 80-IA. Hence, the orders of the lower authorities on this issue were set aside and ground of appeal of the assessee was allowed. [Para 28] . ii) Sadbhav Engineering Ltd, v/s DCIT T20141 45 taxmann.com 333 (And -Trib.) Section 80-IA of the Income-tax Act, 1961 - Deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount equal to 100 % of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80-IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80-IA 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the above mentioned circular, Hon'ble Madras High Court vide order dated 01.03.2016 in the case of CIT Vs. M/s. G.R.T. Jewellers (India) Pvt. Ltd. contained in TCA No. 176 of 2016 have held that losses/unabsorbed depreciation pertaining to Wind Mill, which were set off in the earlier year against other business income of the assessee, cannot be notionally brought forward and again set off against the income of eligible business of the year which was chosen as initial assessment year for claim of deduction u/s. 80IA. I also find that SLP filed by the Department against the decision of Hon'ble Madras High Court in the lead case of Velayudhaswamy Spinning Mills (P) Ltd. (supra) has also been dismissed and the same is reported as ACIT Vs. Velayudhaswamy Spinning Mills (P) Ltd. (2016) 76 taxmann.com 176 (SC). 4.1.3. Therefore, in view of the above discussion and legal position, it is crystal clear that losses/depreciation of the Wind Mill business for the years prior to the initial assessment year which had been already set off against the income of other business, cannot be brought forward notionally and again set off against the income of eligible business whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible business in the initial assessment year and subsequent assessment years for the purposes of Section 80IA(5) of the Act. 9. The manner of determination of quantum of deduction as provided under s.80IA(5) of the Act has since been clarified by the CBDT Circular No.1 of 2016 dated 15.02.2016 and is devoid of controversy any more. Having regard to the wide ranging controversies, the CBDT circular has given categorical interpretation on exercise of option of choosing initial assessment year referred to sub-section (5) of Section 80IA of the Act in favour of the assessee. The CBDT has also clarified that embargo placed under s.80IA(5) of the Act for quantification of deduction of profits and gains of an eligible business would apply from the assessment years immediately succeeding initial assessment years only. Having regard to express elucidation by CBDT, the CIT(A), in our view, has rightly decided the issue of manner of computation of quantum of deduction under s.80IA(5) of the Act in favour of the assessee. The assessee, thus, while determining the eligible profit, is not required to notionally reduce losses arising from eligible business in the earlier years alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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