Deduction u/s 80 IA cannot be denied if losses set off against previous year income

Issue before court:

• The only issue before Hon’ble court is that whether assessee is entitled to claim deduction u/s 80 IA even though it have been set off losses against the profits from other sources.

Brief Facts:

• Assessee installed windmills and generate windpower during the years in concern.
• Assessee claimed deduction u/s 80 IA after setting off losses incurred and adjusted against the profits of earlier years.
• AO denied deduction but tribunal favoured assessee on this issue and allowed appeal.

Contention of the revenue:

• Revenue contended that the case law relied upon the assessee in case of Velayudhaswamy Spinning Mills P. Ltd Vs. ACIT 340 ITR 477 was challenged before Hon’ble SC and are pending.
• Revenue also relied upon the memorandum explaining provision in the Finance (No. 2) Bill, 1980 which describes that taxable income derived from the new industrial units will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income.
• Losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may have been set off against the profits of the taxpayer from other sources.

Contention of the Assessee:

• Assessee relied upon the decision of jurisdictional HC in case of Velayudhaswamy Spinning Mills P. Ltd Vs. ACIT 340 ITR 477.

Held by the Court:

• While dismissing appeal of revenue court held that while dealing with identical issue in case of Velayudhaswamy Spinning Mills vs. ACIT court placed reliance on the decision in Liberty India vs. CIT, wherein the Supreme Court considered the scope of Section 80-I, 80-IA and 80-IB of the Income Tax Act and held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of “profit-linked incentives”.
• This Court also placed reliance on the decision in CIT V. Mewar Oil and General Mills Ltd., and came to the conclusion that once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income u/s 80-I or 80-IA and the assessee should not be denied the admissible deduction u/s 80-IA. It was clear that the eligible business were the only source of income, during the previous year relevant to the 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.
• Loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5).

Comments:

Once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income under Section 80I or 80IA of the Income Tax Act and the assessee should not be denied the admissible deduction under Section 80IA of the Income Tax Act.

(Compiled by our Team Member- Advocate Jagjeet Singh )