Hercules Hoists Limited vs. ACIT (ITAT Mumbai)

S. 80-IA(5): Loss of eligible unit, even if set-off against non-eligible profits, has to be aggregated & carried forward for set-off against future eligible profits

The assessee set up two windmills, the income from which was eligible for deduction u/s 80IA. The assessee suffered a loss in the said Wind Mills and claimed a set-off of the same against its other income. The AO and the CIT(A) rejected the claim by relying on Gold Mine Shares 113 ITD 209 (SB) (Ahd) where it was held that in view of s. 80-IA(5), the loss suffered by the eligible unit cannot be set off against the profits of other units / other business in the initial year of assessment or subsequent years of eligible years of assessments. The Tribunal had to consider the following legal issues: (i) what is the “initial assessment year“?, (ii) whether the loss/ depreciation from the eligible unit is entitled to be set-off against the other income?, (iii) whether the said loss/ depreciation of the eligible unit is, after set-off against the other income, still required to be notionally carried forward for set-off against the future profits of the eligible unit? HELD by the Tribunal:

(i) The “initial assessment year” is the year in which the eligible unit commences operations. It is not the year in which the assessee chooses to claim deduction. The requirement of s. 80-IA(5) is that the loss and unabsorbed depreciation of the eligible unit should begin to be aggregated from the “initial assessment year” to the last allowable year. The aggregation has to continue for every year irrespective of whether s. 80-IA (1) deduction for that year is exigible or not;

(ii) If the eligible unit has no profit, the loss & depreciation of the eligible unit is entitled to be set-off against the other income. However, despite such set-off, the loss and depreciation has to be aggregated and notionally carried forward for set-off against the future profits of the eligible unit.