CIT Vs Ucal Fuel Systems Ltd. (Madras High Court)
This Tax Case (Appeal) before the Madras High Court relates to Assessment Year 2003-04 and involved two substantial questions of law admitted on 02.12.2024. The first question concerned whether notional loss of depreciation that had already been set off against other income in earlier years prior to the initial assessment year could be carried forward and set off in the initial assessment year for computing deduction under Section 80IA of the Income Tax Act, particularly in light of Section 80IA(5). The second question was whether, in computing deduction under Section 80IB, deduction under Section 80HHC should be excluded, considering the intent of Section 80IA(9) to prevent double deduction on the same profits.
On the first issue, both parties agreed that the matter was covered by the decision of the same Court in Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income-tax [340 ITR 477]. The operative portion of that judgment clarified that when the assessee exercises the option under Section 80-IA, only losses beginning from the initial assessment year are to be brought forward. Losses of earlier years that had already been set off against other income cannot be notionally brought forward and adjusted again. The provision contemplates a forward-looking period of ten years from the initial assessment year and does not permit the Revenue to revisit earlier years and rework set-off amounts that had already been absorbed. The fiction created in Section 80-IA(5) is limited in scope and cannot be extended beyond its purpose.
