Madras H.C : The appellant is not entitled to claim deduction under section 80-IA

High Court Of Madras

Velayudhaswamy Spinning Mills (P.) Ltd. vs. ACIT

Assessment Years : 2004-05 And 2005-06

Section : 80-IA

Murugesan And P. P. S. Janarthana Raja, JJ.

Tax Case (Appeal) Nos. 909 And 940 Of 2009 And 918 Of 2008

March  11, 2010 

JUDGMENT

P. P. S. Janarthana Raja, J. – Tax Case (Appeal) Nos. 909 and 940 of 2009 are filed by the assessee under section 260A of the Income-tax Act, 1961, against the order of the Tribunal, “C” Bench, Chennai, dated April 24, 2009, made in I. T. A. Nos. 1507/Mad/2008 and 1505/Mad/2008 respectively.

2 Tax Case (Appeal) No. 918 of 2008 is filed by the Revenue under section 260A of the Income-tax Act, 1961, against the order of the Tribunal, “B” Bench, Chennai, dated October 31, 2007, made in I. T. A. No. 1077/Mad/ 2007 (since reported in Mohan Breweries and Distilleries Ltd. v. Asst. CIT [2009] 311 ITR (AT) 346 (Chennai)).

3. Even though the issue involved in the above tax cases is common, the assessees are different and the facts are also different, hence we are inclined to decide the matter one by one.

4. The brief facts which are necessary to decide these appeals are as follows :

Tax Case No. 909 of 2009 :

4.1 The assessment year is 2005-06 and the corresponding accounting year ended on March 31, 2005. The assessee is engaged in the business of manufacture of yarn and electricity generation through wind electric generator and filed its return of income for the relevant year 2005-06 on October 30, 2005, admitting a total income of Rs. 1,36,36,470 under normal computation and Rs. 2,95,73,840 under book profit under section 115JB. The said return of income was processed under section 143(1) on December 6, 2005. Subsequently, this case was selected for scrutiny and notice was issued under section 143(2) on May 4, 2006. While computing the assessment, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs. 1,70,76,945 on the ground that the eligible income is a negative figure. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The said appeal was allowed by the Commissioner of Income-tax (Appeals) on the ground that since the assessment year 2005-06 is the initial assessment year, unabsorbed depreciation of earlier years, which had already been absorbed, cannot be notionally carried forward and taken into consideration for computing deduction under section 80-IA. Aggrieved over the said order, the Revenue filed an appeal before the Tribunal. The Tribunal by following the decision of the Special Bench of the Tribunal in the case of Asst. CIT v. Goldmine Shares and Finance (P) Ltd. [2008] 302 ITR (AT) 208 (Ahd.) [SB] ; [2008] 116 TTJ (Ahd) (SB) 705 ; [2008] 9 DTR (Ahd)(SB)(Trib) 282 allowed the Departmental appeal and set aside the order of the Commissioner of Income-tax (Appeals) and thereby, restored the order of the Assessing Officer. Aggrieved by the said order, the assessee filed the present appeal by raising the following substantial questions of law :

“(a) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the appellant is not entitled to claim deduction under section 80-IA ?

(b) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that initial assessment year in section 80-IA(5) would only mean the year of commencement and not the year of claim ?

(c) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in saying that unabsorbed depreciation of earlier years before the first year of claim, which has already been absorbed, could be notionally carried forward and taken into consideration for computation of deduction under section 80-IA ?

(d) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in following the decision of the Special Bench in the case of Goldmine Shares and Finance (P) Ltd. [2008] 302 ITR (AT) 208 (Ahd.) when admittedly the said decision was rendered prior to the amendment to section 80-IA by the Finance Act, 1999 ?”

Tax Case No. 940 of 2009 :

4.2 The assessment year is 2005-06 and the corresponding accounting year ended on March 31, 2005. The assessee is engaged in the business of manufacture of yarn and electricity generation through wind electric generator and filed its return of income for the relevant year 2005-06 on October 30, 2005, admitting a total income of Rs. 1,71,70,460 under normal computation and Rs. 4,10,99,730 under computation of income under section 115JB. The said return of income was processed under section 143(1) of the Income-tax Act, 1961. Subsequently, this case was selected for scrutiny and notice was issued under section 143(2) on May 4, 2006. While computing the assessment, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs.2,82,67,370 on the ground that the eligible income is a negative figure. Aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). The said appeal was allowed by the Commissioner of Income-tax (Appeals) on the ground that since the assessment year 2005-06 is the initial assessment year, unabsorbed depreciation of earlier years which had already been absorbed cannot be notionally carried forward and taken into consideration for computing deduction under section 80-IA. Aggrieved over the said order, the Revenue filed an appeal before the Tribunal. The Tribunal by following the decision of the Special Bench of the Tribunal in the case of Asst. CIT v. Goldmine Shares and Finance (P) Ltd. [2008] 302 ITR (AT) 208 (Ahd.) allowed the Departmental appeal and set aside the order of the Commissioner of Income-tax (Appeals) and thereby, restored the order of the Assessing Officer. Aggrieved by the said order, the assessee filed the present appeal by raising the following substantial questions of law :

“(a) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the appellant is not entitled to claim deduction under section 80-IA ?

(b) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that initial assessment year in section 80-IA(5) would only mean the year of commencement and not the year of claim ?

(c) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in saying that unabsorbed depreciation of earlier years before the first year of the claim, which has already been absorbed, could be notionally carried forward and taken into consideration for computation of deduction under section 80-IA ?

(d) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in following the decision of the Special Bench in the case of Goldmine Shares and Finance (P) Ltd. [2008] 302 ITR (AT) 208 (Ahd.) [SB] when admittedly the said decision was rendered prior to the amendment to section 80-IA by the Finance Act, 1999 ?”

Tax Case No. 918 of 2008 :

4.3 The assessee is engaged in the business of manufacture of IMFL products, generation of power through wind and biomass and also trading in iron ore and coal. The return of income for the assessment year 2004-05 was filed on November 1, 2004, admitting a total income of Rs. 9,54,41,024. The said return of income was processed under section 143(1) on February 19, 2005. Subsequently, this case was selected for scrutiny and notice was issued under section 143(2) on October 21, 2005. While computing the assessment, the Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs. 10,63,74,164 on the ground that the eligible deduction under section 80-IA after setting off, of the loss, which works out to “nil”. Aggrieved by the said order, an appeal was filed by the assessee before the Commissioner of Income-tax (Appeals) and the same was dismissed. Against the said order, the assessee filed an appeal before the Tribunal. The said appeal was allowed by the Tribunal on a finding that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on current assessment year on the current year’s profit and thereby, set aside the order of the authority below. Aggrieved by the said order, the Revenue filed the present appeal by raising the following substantial questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in not admitting the letter from the Assessing Officer showing that the assessee had exercised the option of claiming the deduction under section 80-IA during the assessment year 1999-2000 which is the first/initial assessment year for the purpose of deduction under section 80-IA, as additional evidence and holding that the assessment year 2004-05 is first/initial assessment year in which the assessee had claimed the deduction under section 80-IA ?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that carried forward loss and unabsorbed depreciation cannot be set off against the profits of the units and, therefore, the assessee is entitled for deduction under section 80-IA read with section 80AB ?

3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year of claim for deduction under section 80-IA ?”

5. The learned senior counsel appearing for the assessee submitted that the order passed by the Tribunal is contrary to the facts and circumstances of the case. He further contended that the Tribunal is wrong in holding that deduction under section 80-IA has to be computed after deduction of notional brought forward loss and depreciation of eligible business. He further submitted that the Tribunal should have appreciated the language used in section 80-IA(5) prior to amendment and post-amendment and it will be clear that the Act itself differentiates the initial assessment year from the year of commencement. The year of commencement is used only for the purpose of reckoning the total period but in sub-section (5) the words “initial assessment year” are used for treating the undertaking as the only source of income, which clearly indicates that a separate heading is only from the initial assessment year. It is also further contended that the Tribunal failed to appreciate that losses in the years earlier to the first year claim absorbed against the profit of other business need not be notionally brought forward and the same has no effect on the deduction claim. Further, the Tribunal ought to have considered the provision of section 80-IA(5) and the notional fiction created by the said provision. In view of the same, it would be applicable only in the years subsequent to the initial assessment year and the unabsorbed depreciation of windmill division for all years earlier to the initial assessment year, which had already been absorbed against the profit of other business, cannot be notionally brought forward and be considered for computing deduction under section 80-IA of the Act. It is also further submitted that the assessee can exercise their option under section 80-IA(5) during the assessment year. Therefore, in view of the option exercised, the assessee is governed by section 80-IA only for the assessment year 2005-06. Hence, there is no unabsorbed depreciation or loss to set off against the eligible income during the assessment year 2005-06. It is also contended that the fiction in section 80-IA(5), viz., “eligible business were only source of income” is applicable only from the second year of initial assessment year and not previous year of the initial assessment year. The provision is to be applied only during the ten years from the initial assessment year and the fiction does not look back the year before the claim is made. It is also contended that once the unabsorbed depreciation is already set off earlier, the same cannot be notionally brought forward and recomputed against the income of the assessment year. Therefore, during the relevant assessment year, the assessee has got a positive income. In addition to the above, it is contended that section 80-IA is a beneficial or incentive provision. So, it should be liberally construed. He further submitted that there should be a specific provision in the Act to bring forward the unabsorbed depreciation and losses of the earlier year which were already set off against the other income and relied on the proviso to section 72 which specifically revives the loss.

6. In respect of Tax Case No. 918 of 2008, the learned senior counsel appearing for the assessee submitted that the Assessing Officer and the Commissioner of Income-tax (Appeals) held that the assessee claimed the initial assessment year as 2004-05 and the same reached its finality. Further, a chartered accountant also signed in the prescribed format and specifically stated in the form that the initial assessment year claimed by the assessee is 2004-05. Therefore, the Tribunal is correct in holding that the initial assessment year is 2004-05. Hence, the Revenue is not correct in notionally bringing forward the unabsorbed depreciation and loss which has been already set off against the current income.

7. The learned standing counsel appearing for the Revenue submitted that the assessee is not entitled to claim deduction under section 80-IA of the Act. Since the accumulated losses and unabsorbed depreciation were more than the profits of this year, the same had to be set off against the profits and, therefore, the assessee is not entitled for any deduction as per section 80-IA read with section 80AB of the Act. Further, it is contended that the Special Bench of the Tribunal has correctly decided the issue and held that profits from the eligible business for the purpose of determination of the quantum of deduction under section 80-IA have to be computed only after deduction of notionally brought forward losses and depreciation of the eligible business even though they have been set off against other income in earlier years. Therefore, the assessee is not entitled to the relief of claim under section 80-IA of the Act. In addition to that, the learned counsel appearing for the Revenue also submitted that in respect of Tax Case No. 918 of 2008, the Tribunal is not right in holding that the initial assessment year is 2004-05. He further submitted that before the Tribunal, the Revenue filed a letter stating that the assessee had exercised the option of claiming the deduction under section 80-IA during the assessment year 1999-2000, which is the initial assessment year and not the assessment year 2004-05 as held by the Tribunal. Further, the Tribunal ought to have considered the letter given, after affording one more opportunity to the parties before deciding the matter. Without considering the same, the Tribunal simply rejecting the contention of the Revenue in respect of Tax Case No. 918 of 2008 is not correct and this court may remand the matter to the Tribunal to decide the issue afresh in respect of the initial assessment year.

8. Heard the counsel appearing for the parties and perused the materials available on record.

9. On a perusal of the order of the Assessing Officer, it is seen that the eligible income for deduction under section 80-IA is worked out in all the cases as follows :

Rs.
Tax Case (Appeal) No. 909 of 2009 :
Net income from Windmill Division 1 (2002-03) 1,70,76,945
Less 🙁 a)Unabsorbed depreciation allowance assessment year 2003-04 8,26,84,110
(b)Income from Windmill Division 1 (2002-03) assessment year 2004-05 71,16,270
Balance of unabsorbed depreciation allowance 7,55,67,840
Unabsorbed depreciation allowance balance (-) 5,84,90,895
Tax Case (Appeal) No. 940 of 2009 :
Net income from Windmill Division 2,82,67,370
Less : Unabsorbed depreciation allowance (initial assessment year) assessment year 2003-04 12,11,01,360
-do- assessment year 2004-05 1,59,85,972
13,70,87,332
Balance (-) 10,88,19,962
Tax Case (Appeal) No. 918 of 2008 :
Total loss + depreciation of the units claiming depreciation for all earlier years (-) 24,63,50,426
Less : Current year’s income from the unit 10,63,74,164
Balance income available for deduction under section 80-IA (-) 13,99,76,362

10. Thus, the assessee has been setting off the loss against the income of the company for the earlier years. During the assessment year, the assessee exercised the option claim of deduction under section 80-IA of the Act. But the Assessing Officer denied the exemption on the finding that loss or depreciation already allowed and set off against other sources of the income of the assessee has to be notionally carried forward and set off against the current year’s income from the units for which the assessee is claiming deduction under section 80-IA. There is no dispute that during the year, there is a profit. Therefore, the assessee claimed deduction under section 80-IA and the Revenue has no authority to notionally bring forward the unabsorbed depreciation and loss of the earlier year which has been already set off as against the current year profit from the unit.

11. It is pertinent to note that the learned senior counsel appearing for the assessee invited the attention of this court to an unreported judgment of this court dated December 23, 2009, in Tax Case (Appeal) No. 298 of 2004 wherein, this court considered the similar substantial question of law, which reads as follows :

“Whether the Tribunal was right in holding that for the purpose of allowing deduction under section 80-I, the brought forward losses and unabsorbed depreciation, etc., of the new industrial undertaking need not be taken into consideration, once they have been set off against other sources of income, especially in view of the clear provisions of sub-section (6) of section 80-I, the application of which is mandatory ?”

12. By following the various decisions of the apex court, this court, in paragraph 15 of the said judgment, has held as follows :

“The cumulative consideration of the principles set out in the above referred to decisions and the other factors involved in this case, wherein admittedly the entire depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years and no further depreciation allowance or development rebate remain unabsorbed and nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act.”

13. The above unreported judgment considered section 80-I and had taken the view that the entire depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years and no further depreciation allowance or development rebate remained unabsorbed and, therefore, nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act. Section 80-I was introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The said sub-section deals with deduction in respect of profits and gains from industrial undertakings after a certain date. Section 80-I reads as follows :

“80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof : . . .

(5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning or the company commences work by way of repairs to ocean-going vessels or other powered craft (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year : . . .

(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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.”

14. From a reading of the above, it is clear that the benefit is given to the profits and gains derived from the business of the hotel or the business of repairs to ocean-going vessels or other powered craft. The deduction is allowed to the extent of 20 per cent. from the profits and gains of the assessee. Sub-section (5) gives deduction for the period of seven assessment years immediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction under sub-section (1) and it starts with non obstante clause and also it is a deeming provision. The fiction created by the undertaking was the only source of income during the previous year initially and subsequent assessment years. Sub-section (6) was the subject-matter before this court in the above-mentioned unreported judgment, wherein this court had held that while interpreting the above provision, for the purpose of allowing deduction under section 80-I brought forward losses and unabsorbed depreciation of the new industry need not be taken into consideration once they have been set off from other sources of income earlier. In the present case, we are concerned with the provision of section 80-IA. The said provision was introduced by the Finance Act, 1999, with effect from April 1, 2000. The provisions of sections 80-I and 80-IA are also more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-tax Act. Chapter VI-A deals with deductions to be made in computing total income. There are two tax incentives contemplated in Chapter VI-A. One is investment incentive and the other one is profit-linked investment. Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1965, and it consists of four headings. They are A, B, C and D. Heading “A” is general and it also contains definition. It consists of sections 80A, 80AA, 80AB, 80AC and 80B. Section 80AB deals with “Deductions to be made with reference to the income included in the gross total income”, which reads as follows :

“Where any deduction is required to be made or allowed under any section included in this Chapter under the heading ‘C-Deductions in respect of certain incomes’ in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.”

15. A mere reading of the above provision makes it clear that any income of the nature specified in that section, which is included in the gross total income of the assessee for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provision of this Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in the gross total income. Section 80AB defines “gross total income” which means the total income has to be computed in accordance with the Act before making deduction under this Chapter. Heading “B” deals with “deductions in respect of certain payments” which consists of sections 80C to 80GGC. Heading “C” deals with “deductions in respect of certain incomes”, which consists of sections 80H to 80TT. The last heading “D” deals with “other deductions” which consists of sections 80U to 80V. Heading “C” is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are sections 80-I, 80-IA and 80-IB. In the case of Liberty India v. CIT [2009] 317 ITR 218 (SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, the apex court considered the scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein, it has been held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of “profit-linked incentives”. Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgment that sub-section (5) of section 80-IA provides for manner of computation of profits of an eligible business. Accordingly such profits are to be computed as if such eligible business is the only source of income of the assessee.

16. Section 80-IA reads as follows :

“80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines.

(4) This section applies to-

(i) any enterprise carrying on the business of (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :-

(a) it is owned by a company registered in India or by a consortium of such companies (or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act) ;

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, or (ii) operating and maintaining, or (iii)developing, operating and maintaining a new infrastructure facility ;

(c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st April, 1995.

(5) 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.”

17. From a reading of sub-section (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4), i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent. of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words “initial assessment year” are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that “initial assessment year” employed in sub-section (5) is different from the words “beginning from the year” referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under :

“(1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ;

(2) It is for the purpose of determining the quantum of deduction ;

(3) For the assessment year immediately succeeding the initial assessment year ;

(4) It is a deeming provision ;

(5) Fiction created that the eligible business is the only source of income ; and

(6) During the previous year relevant to the initial assessment year and every subsequent assessment year.”

18. From a reading 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 sub-section 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.

19. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub-section (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 80-IA. Both are similarly worded and, therefore, we agree entirely with the Division Bench judgment of this court cited supra. In the case of CIT v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 ITR) :

“Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder.

In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case.

Accordingly, this appeal fails and is hereby dismissed with no order as to costs.”

20. From a reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view.

21. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows :

“Clause 30(iii). In computing the quantum of ‘tax holiday’ profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may have been set off against the profits of the taxpayer from other sources.”

22. We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5).

23. Under these circumstances, we set aside the order of the Tribunal and answer all the questions in favour of the appellant/assessee and against the Revenue in Tax Case Nos. 909 and 940 of 2009 respectively. Accordingly, tax cases are allowed.

Tax Case No. 918 of 2008 :

24. It is filed by the Revenue by raising three questions of law as stated above. In respect of the second question, which is the same as the issue involved in the above tax cases in Tax Case Nos. 909 and 940 of 2009, we also answer in favour of the assessee and against the Revenue.

25. In respect of questions Nos. 1 and 3, the issues are related to the exercising the option of claiming deduction under section 80-IA. As per the assessee, the assessment year is 2004-05. According to the Revenue, the assessment year is 1999-2000. From the records it is clear that the assessee claimed deduction under section 80-IA for the first time during the assessment year 2004-05. The Assessing Officer accepted the same and there is no dispute. The deduction under section 80-IA is rejected only on the ground that there was no positive income and it was held by the Assessing Officer that the eligible deduction under section 80-IA after setting off of the loss worked out to nil. Before the Assessing Officer, there was no dispute regarding the claim during the year. Aggrieved by that order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). Before the appellate authorities also there is no dispute regarding the claim during the year. Line 3 in paragraph 2 of the order reads as follows :

“The appellant has claimed deduction under section 80-IA for the first time in the current year, namely, the assessment year 2004-05.”

26. The Revenue has not filed an appeal against the order of the Commissioner of Income-tax (Appeals). It reached finality. Aggrieved by the order of the Commissioner of Income-tax (Appeals) regarding the quantum of deduction, the assessee filed an appeal before the Tribunal. In the assessee’s appeal, the Revenue filed a letter first time before the Tribunal and disputed the fact relating to the assessee’s claim that assessment year 2004-05 is the initial assessment year. The Tribunal found that both the Assessing Officer and the Commissioner of Income-tax (Appeals) had given categorical finding that the assessee claimed deduction for the first time during the year 2004-05 and paragraph 5 reads as follows :

“In the present case, there is a categorical finding by the Assessing Officer and the Commissioner of Income-tax (Appeals) that the first year claimed is from the assessment year 2004-05. At the time of hearing, the learned Departmental representative filed a letter which reads as follows :

‘The assessee’s claim is that assessment year 2004-05 is the “initial assessment year”. However, from a perusal of records the following facts are observed :

Assessment year 1999-2000 :

The assessee claimed deduction of Rs. 2,15,59,112 under section 80-IA of the Income-tax Act. The Assessing Officer rejected the claim under section 143(3) read with section 263. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) agitating, inter alia, the claim for a deduction under section 80-IA. The Commissioner of Income-tax (Appeals), vide his order in I. T. A. No. 39/2005-06, dated August 4, 2005, in paragraph 12 directed the Assessing Officer to allow the claim under section 80-IA which was accordingly, allowed.

Assessment year 2000-01 :

In this assessment year also the assessee in the computation memo claimed deduction under section 80-IA of an amount of Rs.1,20,19,495 which was allowed in full by the Assessing Officer in the regular assessment order under section 143(3), dated March 28, 2003.

This being the position, the statement of the assessee that the claim under section 80-IA claimed for the first time in the assessment year 2004-05 is totally contrary to the facts as mentioned. This proves that assessment year 2004-05 is not the initial assessment year as claimed by the assessee.

The fact of the matter is that the assessee exercised its option of claiming deduction under section 80-IA in the assessment year 1999-2000 itself. Therefore, the assessment year 1999-2000 is the initial assessment year.’

But this letter is contrary to the findings of the lower authorities. The lower authorities categorically observed that the first year in which deduction was claimed was 2004-05. We have already narrated in the facts of the case that if the facts stated by the Assessing Officer or the Commissioner of Income-tax (Appeals) are wrong the Departmental representative is required to adduce the evidence as per rules 10 and 29 of the Income-tax (Appellate Tribunal) Rules, 1963, which read as follows :

’10. Filing of affidavits.-Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit.

29. Production of additional evidence before the Tribunal.-The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.’

These facts are contrary to the facts recorded by the Commissioner of Income-tax (Appeals) and the Assessing Officer. It cannot be considered. The above statement made by the Assessing Officer is not in accordance with rules 10 and 29. Hence, we decline to consider the same.

Adverting to the facts of the case, the initial assessment year in this case starts from 2004-05 since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case, the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA. Hence, the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA. At the cost of repetition, we make it clear that the case law relied on by the Departmental representative are delivered before the amendment to section 80-IA by the Finance Act, 1999. Before the amendment, the initial assessment year was defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year of claiming relief under section 80-IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit. Accordingly, we allow the claim of the assessee.”

27. From a reading of the above order, it is clear that all the authorities below had given a categorical finding that the first year is 2004-05. The issue also reached finality. The Revenue has accepted the finding given by the Commissioner of Income-tax (Appeals) and, therefore, the same cannot be raised in the assessee’s appeal before the Tribunal. It is a question of fact. It is not a perverse order. We do not find any error or illegality in the order of the Tribunal warranting interference. The order of the Tribunal is in conformity with law. Under these circumstances, we also answer questions Nos. 1 and 3 in favour of the assessee and against the Revenue. The tax case filed by the Revenue is dismissed.

28. In fine, Tax Case (Appeal) Nos. 909 and 940 of 2009, all the questions answered in favour of the assessee and against the Revenue and, hence, these appeals are allowed.

29. Under these circumstances, we confirm the order of the Tribunal and answer all the questions in favour of the assessee and against the Revenue in Tax Case (Appeal) No. 918 of 2008 and dismiss the appeal.

[Citation : 340 ITR 477]

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