SECTION 80IB

[taxqueries]

If the assessee has set off losses of a particular business unit which is eligible for 80IB benefit against profit of another unit in a particular year, can he claim 80IB benefit in susequent year..??

[PANKAJ JAIN]

NO, till loss from that unit in the earlier year (as a independent source) is not notionally adjusted.

Refer section 80IA(5).

Also refer Special Bench decision in the case of Gold Mine Shares 113 ITD 209.

[pawansingla]

But it is still a debateful issue.According to me the reasoning giveb by special bench is correct , but still there is lots of contraversy on the issue. because 80IA(5) has to be seen in reference to 80A and 80AB. Lots of different judgements are coming from different High Courts.Whether profits of eligible units has to be set off aginst non eligible units for working out quantum of deduction under 80IB. Again there is dispute in section 80IA , about what is initial year.?Because you are eligible to claim deduction in 10 years out of 15 years.

[pawansingla]

The judgement of goldmine has been overuled by Madras High court . It has aggreed with chennai bench decision of mohan breweries that initial assessment year is the year of option excercised by assessee out of 15 years available to him.The judgment has been reported in DTR.I will write citations tmrwo mrg.

[pawansingla]

The provisions of sec. 80IA(5) provides that "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made".
There was controversy between various benches of ITAT's regarding applicability of provisions of sec. 80IA(5) of the Act.
The decision of the Tribunal, Bombay Benches, in the case of M. Pallonji & Co. (P.) Ltd. v. Jt. CIT [2006] 6 SOT 287 is in favour of the assessee and it held that unabsorbed depreciation of eligible project could not be set off against profit of eligible business for the purposes of deduction under section 80-IA which unabsorbed depreciation stood already adjusted against profits of assessee from other business. Whereas, another Bench of the Tribunal in Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160 (Mum.) is stated to have held against the assessee by observing that for the purpose of applying the provisions contained in section 80-IA of the Act, the profits or gains of the eligible business are to be computed as if the eligible business were the only business of the assessee right from the initial year, brought forward losses of the unit have to be set off against the profits and in the absence of profit from the eligible units after set off of brought forward losses of the said units, deduction under section 80-IA could not be allowed. The Tribunal, Kolkata Benches, in the case of ITO v. Kanchan Oil Industries Ltd. [2005] 92 ITD 557 has concluded that in view of sub-section (7) of section 80-IA, for computing deduction under section 80-IA, brought forward losses and unabsorbed depreciation of ineligible business cannot be deducted from the income of eligible business and only the unabsorbed depreciation/brought forward losses of eligible business can be so deducted.
To resolve this controversy, a reference was made by revenue for constitution of Special Bench.
Because of the cleavage of opinion between the Benches of Tribunal viz., Mumbai and Kolkata the President, Income-tax Appellate Tribunal, has constituted this Special Bench for considering the following issue:
"Whether in view of the provisions of section 80-IA(5) of the Income-tax Act, 1961, the profit from the eligible business for the purpose of deduction under section 80-IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years."
The Special Bench in below mentioned case
Assistant Commissioner of Income-tax*, Circle-4, Ahmedabad v/s
Goldmine Shares and Finance (P.) Ltd [2008] 113 ITD 209  ITAT AHMEDABAD (SPECIAL BENCH)  decided the issue in favour of revenue by holding that "Section 80IA of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after certain dates/infrastructure undertakings - Assessment years 1997-98 to 2002-03 - Whether in view of specific provisions of section 80-IA(5), profit from eligible business for purpose of determination of quantum of deduction under section 80-IA has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set-off against other income in earlier years - Held, yes"

However MADRAS HIGH COURT in latest judgment in case of VELAYUDHASWAMY SPINNING MILLS (P) LTD v/s ACIT . 38 DTR 57 (2010) , overruled the Ahmedabad Special Bench decision  and upheld the judgment of  Chennai Bench in case of  MOHAN BREWERIES & DISTILLERIES LTD v/s ACIT(2008) 114 TTJ 532 which has held that
"Section 80IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment year 2004-05 - Whether section 80-IA(2) gives an option to assessee with effect from 1-4-2000 to claim relief under section 80-IA for any 10 consecutive assessment years out of 15 years beginning from year ending in which undertaking or enterprise develops or begins to operate any infrastructure facility, etc., and it does not mandate that first year of 10 consecutive assessment years should be always first year of set-up of enterprise - Held, yes - Whether provision of section  80-IA(5), treating eligible undertaking as a separate sole source of income, is applicable only when assessee chooses to claim deduction under section 80-IA and same cannot be applied to a year prior to year in which assessee opted to claim relief under section 80-IA for first time - Held, yes - In respect of profits of eligible units established during assessment years 1996-97 and 1999-2000, assessee claimed deduction under section 80-IA for first time in assessment year 2004-05 - Assessing Officer held that notional brought forward loss incurred by those units in earlier years was to be first set-off against their income of current assessment year and, thereafter, if any remaining profit was available then deduction under section 80-IA had to be given - Whether since assessee had opted to claim deduction under section 80-IA only in assessment year 2004-05, in view of section 80-IA(5), there was no question of setting-off notionally carried forward unabsorbed depreciation or loss of earlier years against profits of units and assessee was entitled to claim deduction under section 80-IA on current assessment year's profit - Held, yes
The High Court has held that as initial year is not defined in section 80IA as compared to 80IB where it is specifically provided that the year of commencement of business will be the initial year for the purpose of claiming the deduction .However as initial year is not defined in sec. 80IA , the year of option has to be treated as initial assessment year for the purpose of section 80IA.

[satyanveshi]

the above analysis is excellent but there is no conclusion drawn. In my opinion, what has been held by Chennai High Court is that if the loss of eligible unit is pertaining to the Asst year during which the unit is not claimed to be eligible unit for deduction u/s 80IA, then that loss should not be set off against the profits of the unit for the A.Y. in which the unit is claimed to be eligible for deduction u/s 80IA whereas if the unit gets losses in one of the year during which the unit is claimed to be eligible for deduction u/s 80IA and in subsequent years it gets profits then sec. 80IA(5) is applicable and in those circumstances, the decision of Chennai High court is not applicable and Special Bench decision is applicable the essence of which is profits are first to be set off with brought forward losses and then the quantum of deduction u/s 80 IA is to be computed.

[pawansingla]

Thus now when assessee has loss from the eligible business, same will be set off against the income from other sources of business (normal).In this way loss from eligible undertaking will be set off against the non eligible undertakings and assessee will save tax during first 4,5 years . However, when the eligible unit starts earning profit, he will opt for deduction and will again save tax by claiming deduction u/s 80IA for next 10 years. Thus in this way he is saving tax for 15 years as against the period of 10 years which was the intention of legislature while inserting section 80IA(5) in the Act.There is no issue regarding applicablity of provisions of sec. 80IA(5). The issue is whether it should be apllied from the year of commencement of business as held by Special Bench or now as per Madras High court in above case fron the year of option. For example ,take windmill. In first 4,5 years because of heavy depreciation , there will be loss in this unit due to heavy depreciation which will be set off against the normal business income and assessee will asve tax. After,4,5 years , assessee will opt for deduction under 80IA and will get benefit for next 10years. Thus assessee is saving tax in 15 years and not in 10years.If you apply 80IA(5) right from the commencement of business , then entrie tax saved by eligible unit has to be refunded back in future years when unit has profit.Thus there is just postponement of tax liability and there was no saving. Now if this judgment is upheld , it will be big bonaza for the taxpayers.Specially , windmills and other big groups which have elgible busines and also normal business.

[ust1949]

A company is having two units manufacturing  different products. ABC unit started production in A.Y.2005-06 and  was eligible for deduction u/s 80IB. XYZ unit started production in A.Y.2008-09 and was eligible for deduction u/s 80IB. In Previous year relating to A.Y.2010-11.ABC unit incurred a loss of 10 lacs and in XYZ unit there was a of profit 20 lacs.Company is   also having non 80IB units where in there was a profit of 50 lacs.Company filed return as under:-
Profit of Non 80IB Units         50
Loss ABC unit                       -10
Profit XYZ unit                        20
GTI                                         60 
Deduction u/s 80IB                20
Total Income                          40
However A.O.allowed deduction u/s Rs 10 i.e.20-10 being loss of ABC unit.
Will some one enlighten about the action of A.O.

[pawansingla]

[2010] 189 TAXMAN 110 (DELHI)
HIGH COURT OF DELHI
Commissioner of Income-tax
v.
Sona Koyo Steering Systems Ltd.*
BADAR DURREZ AHMED AND SIDDHARTH MRIDUL, JJ.
IT APPEAL NOS. 1279 OF 2008, 194, 416, 761 AND 788 OF 2009†
FEBRUARY 10, 2010

Section 80-I of the Income-tax Act, 1961 - Deductions - Profits and gains from industrial undertakings, etc., after certain dates - Assessment years 1992-93 to 1995-96 and 2000-01 - Whether where assessee has two units, loss of one unit can be set off against profit of other unit to arrive at computation of quantum of deduction that is to be allowed to assessee under section 80-I(1) - Held, no
FACTS
The assessee had two units, namely, a steering unit and an axle unit. In the relevant assessment years, the assessee incurred losses in one unit and profit in the other unit. The assessee claimed deduction under section 80-I. The Assessing Officer, while computing the deduction allowable to the assessee, set off the losses of one unit against the profits of the other unit. The Commissioner (Appeals) also took the same stand as that of the Assessing Officer. On second appeal, the Tribunal accepted the assessee's plea that the two units were independent units and only the profit making unit should be considered eligible for the purpose of computing the deduction under section 80-I, read with the provisions of section 80-I(6).
On the revenue's appeal :
HELD
A plain reading of the provisions of sections 80-I(1) and 80B(5) makes it clear that gross total income referred to in section 80-I has to be computed in accordance with the provisions of the Act before making any deduction under Chapter VI-A. It is, therefore, clear that while computing gross total income, the deductions referred to in Chapter VI-A, which includes section 80-I, are not to be considered. The gross total income of the assessee has to be computed after making all other adjustments of losses and carry forward losses, ignoring the deductions available under Chapter VI-A. There is no dispute with this proposition. [Para 7]
Further, the deduction under section 80-I is to be made in case the gross total income includes any profits and gains derived from an industrial undertaking, etc., in case such profits and gains are included in the gross total income of the assessee. The deduction in the case of a company, in view of the proviso of section 80-I(1), is to be given to the extent of 25 per cent of such profits and gains of such an industrial undertaking. In view of section 80-I(6), which begins with a non obstante clause, quantum of deduction is to be computed as if the industrial undertaking was the only source of income of the assessee during the relevant years. In other words, each industrial undertaking or unit is to be treated separately and independently. It is only those industrial undertakings, which have a profit or gain, which would be considered for computing the deduction. The loss making industrial undertaking would not come into the picture at all. The plain reading of the provision suggests that the loss of one industrial undertaking cannot be set off against the profit of another such industrial undertaking to arrive at computation of the quantum of deduction that is to be allowed to the assessee under section 80-I(1). [Para 8]
The decision of the Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer, Income-tax [2008] 299 ITR 444 / 168 Taxman 224 was strongly relied upon by the revenue. On going through the entire decision, it was found that the Supreme Court was primarily concerned with the question as to whether any deduction could be allowed under Chapter VI-A if the gross total income was 'Nil'. It is in that context that the Supreme Court considered the concept of gross total income and came to the conclusion, following its earlier decision in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 / 91 Taxman 214 , that the gross total income has to be computed in accordance with the Act after adjusting the losses, etc., and that if the gross total income so determined is positive, then the question of allowing deductions under Chapter VI-A would arise, but not otherwise. [Para 10]
The Supreme Court did not at all hold that while computing the deduction under section 80-I(6), the loss of one eligible industrial undertaking is to be set off against the profit of another eligible industrial undertaking. All that the Supreme Court said was that in computing the gross total income of the assessee, the same has to be determined after adjusting the losses and that, if the gross total income of the assessee so determined turns out to be 'Nil' , then the assessee would not be entitled to deduction under Chapter VI-A of the said Act. [Para 11]
In fact, the Supreme Court clearly held that while computing the quantum of deduction under section 80-I(6), the Assessing Officer has to treat the profits derived from an industrial undertaking as the only source of income of the assessee in order to arrive at a deduction under Chapter VI-A. The Supreme Court also held that under section 80-I(6), for the purposes of calculating the deduction, the loss sustained in one of the units is not to be taken into account because sub-section (6) contemplates that only the profit shall be taken into account as if it was the only source of income. [Para 12]
The above discussion makes it absolutely clear that the Supreme Court's decision sought to be relied upon by the revenue, rather than deciding the issue in favour of the revenue, clinched the matter in favour of the assessee. In view of the foregoing discussion, the Tribunal was justified in holding that the loss of one unit could not be set off against the profit of other unit in view of the provisions of section 80-I(1)(6) and section 80B(5). [Para 13]
CASE REVIEW
Synco Industries Ltd. v. Assessing Officer, Income-tax [2008] 299 ITR 444 / 168 Taxman 224 (SC) [Para 13], and CIT v. Dewan Kraft Systems (P.) Ltd. [2008] 297 ITR 305/[2007] 160 Taxman 343 (Delhi) [Para 9] followed.