Anil H. Lad vs. DCIT (ITAT Bangalore)

DATE: (Date of pronouncement)
DATE: November 11, 2011 (Date of publication)

Click here to download the judgement (anil_lad_80_IA_5.pdf)

S. 80IA(5): Loss & Depreciation of eligible unit prior to “initial assessment year”, if set-off against other income, not notionally carried forward

In AY 2006-07 the assessee installed a windmill, the profits of which were eligible for 100% deduction u/s 80-IA. Owing to depreciation and loss, the assessee did not claim s. 80-IA deduction in AY 2006-07 & 2007-08 and set-off the loss and depreciation against other income. In AY 2008-09, the assessee earned profits from the windmill and claimed deduction u/s 80-IA. The AO & CIT (A) relied on the Special Bench decision in ACIT vs. Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 and held that in view of s. 80IA(5), the loss and unabsorbed depreciation of the eligible unit, though set-off against the other income, had to be “notionally” carried forward for set-off against the profits of the eligible undertaking. On appeal by the assessee, HELD allowing the appeal:

Though in Gold Mines Shares & Finance 116 TTJ (Ahd) (SB) 705 it was held that in view of s. 80IA(5), the eligible unit had to be treated as the only source of income and the profits had to be computed after deduction of the notionally brought forward losses and depreciation of the eligible business even though they were in fact set-off against other income in the earlier years, the Madras High Court held in Velayudhaswamy Spinning Mills P. Ltd. v. ACIT 38 DTR 57 that such a notional exercise was not contemplated by s. 80IA (5). It was held that the fiction in s. 80-IA (5) that the eligible unit is the only source of income begins from the “initial assessment year” which is not the same thing as the year of commencement of activity. The law contemplates looking forward to a period of ten years from the initial assessment and does not allow the Revenue to look backward and find out if there is any 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 has taken place in an earlier year against the other income, the Revenue cannot rework the set off amount and bring it notionally. The fiction in s. 80-IA(5) is for a limited purpose and does not contemplate to bring set off amount notionally. The judgement of a constitutional court has overriding effect over the decision of a Special Bench of the Tribunal and the latter cannot be followed.

Note: A contrary view, after noticing Velayudhaswamy Spinning Mills P. Ltd 38 DTR 57, has been taken in Hyderabad Chemicals Supplies (Hyd). For the law on whether non-jurisdictional High Courts prevail over Special Bench judgements, see A MATter of interest!

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  1. […] Gold Mine Shares 113 ITD 209 (SB) (Ahd), Velayudhaswamy Spinning Mills 340 ITR 477 (Mad) & Anil H. Lad (Bang) partly followed/ not followed; Swarnagiri Wire Insulations (Bang) referred. See also Shevie […]

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