Notional brought forward losses and depreciation should be set off in the current year while calculating the deduction u/s. 80-IA even though they have been set off against other income in earlier years

Hyderabad bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Hyderabad Chemicals Supplies Limited Vs. ACIT (ITA No. 352/Hyd/2005) (Judgment date: 21 January 2011) held that as per the provision of Section 80-IA(5) of the Income-tax Act, 1961 (the Act) profit from the eligible undertaking has to be computed after deduction of the notional brought forward losses and depreciation of eligible undertaking even though they have been allowed to set off against other income in earlier years.

Facts of the case

The taxpayer, an eligible undertaking to claim benefits of Section 80-IA of the Act, was engaged in manufacture and trading of agro-chemicals and generation, distribution and sale of power. The taxpayer started its windmill unit on 31 March 1999. For the year under consideration, the taxpayer calculated the benefit under Section 80-IA of the Act without considering the notional brought forward losses or depreciation of the eligible undertaking already set off against the profits of other business income in that year.

The Assessing Officer (AO) accepted the claim of the taxpayer. However, the Commissioner of Income-tax (CIT) invoked the revisionary power under Section 263 of the Act and directed AO to work out the correct amount of depreciation and business losses of the earlier years relating to the eligible undertaking and to carry forward the same and set off against the income of the undertaking in the current year treating the undertaking as if the only business of the taxpayer for the purpose of computing benefits under Section 80-IA of the Act.

Contentions of the taxpayer

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