On appeal, the ld.CIT(A) confirmed the action of the AO on the very same reason. We find that the assessee had set up Udaipur Undertaking and Viramgam Undertaking in AY 2003-04. The assessee incurred losses from these two eligible Units for deduction u/s.80-IA and, therefore, no deduction was claimed in the said AY u/s.80-IA of the Act. In the AY 2005-06, the assessee earned profit from these projects and accordingly claimed deduction u/s.80-IA by treating the AY 2005-06 as initial assessment year. The AO while computing the deduction for AY 2005-06 u/s.80-IA reduced the deduction claimed by the assessee by adjusting the losses of previous assessment years 2003-04 & 2004-05 from the eligible profit from the undertakings. The ld.DR has relied on the decision of the Ahmedabad Special Bench of the Tribunal in the case of ACIT vs. Goldmine Shares & Finance (P) Ltd. reported at 302 ITR (AT) 208 and submitted that while computing the deduction allowable to the assessee u/s.80IA losses and depreciation of the earlier assessment years should be notionally brought forward and deducted from the eligible profit of the assessee from the said undertakings. On the other hand, the ld.AR of the assessee has relied on the judgement of Honorable Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. vs. ACIT (2012) 340 ITR 477 and the decision of Honorable Madras High Court in the case of CIT vs. Emerald Jewel Industry (P) Ltd. (2011) 53 DTR (Mad) 262. Regarding the Special Bench decision of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd.(supra), the ld.AR submitted that this decision will not be applicable as the same was relevant for the provisions applicable in the assessment years 1996-97 and 1997-98, which was prior to the amendment brought in the Statute by the Finance Act, 1999.
We find that section 80IA of the Act which has been substituted with effect from 0 1/04/2000 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 an subject to the provisions of this section, be allowed in computing the total income, the deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive years. Substituted sub-section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provisions of sub-section (5) of section 80IA, reads as under:-
“(5) 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 upto and including the assessment year for which the determination is to be made.”
From a plain reading of the above, it can be gathered that it is a non-obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year and any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of “initial assessment year” has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section(2) of section 80IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set off cannot be brought forward and adjusted into the period of 10 years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80IA can be determined. This is the true import of section 80IA(5).
In the decision of Goldmine Shares and Finance Pvt.Ltd.(supra), decided by the Special Bench of the Tribunal, the claim of deduction by the assessee had started from assessment year 1996-97 on wards and the assessee had claimed deduction under section 80IA starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Honorable Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt.Ltd.(supra) after considering the Special Bench decision of the Tribunal in the case of ACIT vs. Goldmine Shares & Finance (P) Ltd. reported at 302 ITR (AT) 208 and the relevant provisions of the Act, i.e., pre- amendment and post-amendment have come to the same conclusion:-
“From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no 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 loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
14. In the present cases, there is no dispute that 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 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 already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-s. (6) of s. 80-I, which is the corresponding provision of sub-s. (5) of s. 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of CIT vs. Mewar Oil & General Mills Ltd. (2004) 186 CTR (Raj) 141 : (2004) 271ITR 311 (Raj), the Rajasthan High Court also considered the scope of s. 80-I and held as follows:-
“Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr. 1984-85, the re computation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the CIT(A), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the M/s. Shevie Exports face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. 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 s. 8o-I for the purpose of computing admissible deductions there under.
In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s. 8o-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, re computation of income for the purpose of computing permissible deduction 1under s. 80-1 for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and From reading of the above, the Rajasthan High Court held that 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 s. 80-1 for the purpose of computing admissible deductions there under. We also agree with the same. We see no reason to take a different view.”
This judgement has been followed by the same High Court in the case of CIT vs. Emerald Jewel Industry (P) Ltd. (2011) 53 DTR 262 (Mad.). From the above ratio of the High Court, it is amply clear that sub-section (5) of section 80IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e. after 1st April 2000 by virtue of section 80IA(2).
Coming to the decision of the Mumbai Bench of the Tribunal in the case of Pidilite Industries vs. DCIT (2011) 46 SOT 263 (Mum.) as relied upon by the ld.Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units, one Gujarat Unit which was set up in the year 1995-96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre- amendment definition of initial assessment year would be applicable, ie.. provisions which were prior to 1st April, 1999 will apply because the assessee had started commercial production in the financial year 1996- 97. Regarding second unit, the Tribunal held that the judgement of Honorable Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt.Ltd.(supra) will not be applicable because the income from non-eligible business was set off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and has been set off against the non-eligible unit after the initial assessment year, then the ratio laid down by the Tribunal is in full consonance with the law. However, this is not the case in the instant case because the loss pertained to prior to initial assessment year which have been set off against the profits of non-eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2005-06 only and, therefore, the losses of assessment years 2003-04 & 2004-05 cannot be notionally carried forward within the meaning of section 80IA(5). Thus, the reliance placed by the learned Departmental Representative on the decision of Pidilite Industries (supra), will not be applicable in the present case.