Hyderabad Chemicals Supplies Ltd vs. ACIT (ITAT Hyderabad)

DATE: (Date of pronouncement)
DATE: February 9, 2011 (Date of publication)

Click here to download the judgement (hyderabad_chemicals_80IA_5.pdf)

Despite absorption in earlier year, s. 80-IA unit loss to be set-off against s. 80-IA profits

The assessee set up a windmill unit in AY 1999-2000 which was eligible for deduction u/s 80IA. The unit suffered losses in AY 1999-2000 & 2000-01 which, together with the depreciation thereon, was absorbed by the other income of the assessee. In AY 2001-02, the assessee claimed s. 80IA deduction on the profits of the unit without setting off the loss/depreciation of the unit of earlier years and this was allowed by the AO. Later, the CIT revised the assessment u/s 263 and held that pursuant to s. 80-IA(5), the loss and depreciation of the unit had to be notionally set off against the profits of the unit. On appeal by the assessee, HELD dismissing the appeal:

(i) That s. 80-IA deduction has to be computed after deduction of the notional brought forward losses and depreciation of business even though they have been allowed set off against other income in earlier years is concluded by the ITAT Special Bench judgement in ACIT vs. Gold Mine Shares & Finance (P) Ltd 113 ITD 209 (SB) (Ahd) against the assessee;

(ii) As regards the High Court judgements in Mewar Oil & General Mills 271 ITR 311 (Raj) (not followed by the Special Bench) & Velayudhaswamy Spinning Mills vs. ACIT 38 DTR 57 (Mad) (delivered after referring to the Special Bench), though a judgement of a non-jurisdictional High Court prevails over a judgement of the Special Bench, the former cannot be followed, even though it is the only High Court judgement on the point, if “rendered without having been informed about certain statutory provisions that are directly relevant“.

Note: In Velayudhaswamy Spinning Mills 38 DTR 57 (Mad) & Rangamma Steels & Malleables 132 TTJ 365 (Che) it was pointed out, after referring to Gold Mine 113 ITD 209 (SB), that the assessee had the option to select the “initial year” (which is not defined in s. 80-IA) for start of the claim and that losses/depreciation prior thereto were not hit by s. 80-IA (5). In Mohan Breweries 116 ITD 241 (Che) it was held that the first year of claim will be the “initial year”. For more see BCAJ article.

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