|COURT:||Bombay High Court|
|CORAM:||G. S. Kulkarni J, S. V. Gangapurwala J|
|CATCH WORDS:||initial assessment year, new industrial undertaking, set-off of loss|
|COUNSEL:||Atul Jasani, J.D. Mistri|
|DATE:||June 14, 2017 (Date of pronouncement)|
|DATE:||December 29, 2017 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 80-IA(5): Only losses of the years beginning from the initial assessment year are to be brought forward for set-off against profits of the eligible unit. Losses of earlier years which are already set off against income cannot be brought forward notionally for set-off. The fiction in s. 80-IA(5) is created only for a limited purpose and cannot be extended|
The High Court had to consider the following questions of law in appeal filed by the Revenue:
(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in holding that the respondent company was eligible for deduction u/s 80IA of the I.T. Act, 1961.
(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation of Section 80IA(5) of the I.T. Act, 1961 that unabsorbed depreciation of the eligible units need not be necessarily set off from the profits of the same units, but could be set off from other noneligible units as well.
(iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation considering the fact that Section 80IA(5) of the I.T. Act, 1961 points out that the eligible unit be considered as a standalone unit, thereby mandating that unabsorbed depreciation or losses be set off before allowing profits as deduction.
HELD by the High Court dismissing the appeal:
(i) It is not disputed that the respondent assessee is entitled for deduction of the profits and gains as contemplated u/s 80IA. It is also not disputed that the assessee is entitled for deduction of the profits and gains for the period of 10 consecutive years beginning with initial assessment year. It is further not disputed that the initial assessment year of the assessee’s unit is 2009-10, though it started functioning from the year 2005-06. The losses of the years 2005-06 to 2008-09 were absorbed during the relevant years and no losses were carried forward. The only question of debate before the Tribunal was whether the profit earned during the Assessment Year 2009-10 would be entitled for deduction under Section 80IA(5) of the Act without deducting the losses, which were absorbed in the earlier years.
(ii) The said issue is now no longer resintegra in view of the judgment of the Madras High Court in a case of Velayudhaswamy Spinning Mills P. Ltd. and Sudan Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax, (2012) 340 ITR 477, the Court observed as under:
“From a readying of the above, it is 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. 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 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 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. A fiction created in subsection does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.”
(iii) The said judgment of the Madras High Court has been confirmed by the Apex Court, as such has attained finality. Even in the assessee’s own case for the previous year, the losses were set off in the relevant years. The Revenue had challenged the said action before this Court in Income Tax Appeal No.2485 of 2013 and it was held that the said action is legal and proper. The said judgment is also upheld by the Apex Court.
(iv) Considering the above, we do not find any error committed by the Tribunal in allowing the deduction of the profit u/s 80IB(5) of the Act without deducting the losses of the earlier years.