Whether Sec 80-IA allows Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though same were set off against other income - NO: HC

THE issue before the Bench is - Whether Sec 80-IA allows Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though same were set off against other income. NO is the answer.

Facts of the case

The assessee had claimed deduction u/s 80-IA of the Income Tax Act for all the eligible business undertakings for the assessment years in question and for the subsequent years as well. The assessee contended that it had exercised its option u/s 80-IA and since all the losses of the undertakings have been set off already against other income of the business enterprise, it fell within the scope of Section 80-IA. However, the AO disallowed the claim of the assessee. The AO found out if there was any loss of earlier years and brought them 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. On appeal, the deduction was allowed by the Tribunal.

Hence, this appeal by the Revenue.

Having heard the parties, the High Court held that,

++ in the decision Velayudhaswamy Spinning Mills V. Asst. CIT, this Court, while dealing with the benefit under Chapter VIA of the Income Tax Act, placed reliance on the decision in Liberty India V. CIT, wherein the Supreme Court considered the scope of Section 80I, 80IA and 80IB of the Income Tax Act and held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". This Court also placed reliance on the decision in CIT V. Mewar Oil and General Mills Ltd., and came to the conclusion that once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income under Section 80I or 80IA of the Income Tax Act and the assessee should not be denied the admissible deduction under Section 80IA of the Income Tax Act. A mere reading of the provision in Chapter VI-A 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 de

rived or received by the assessee and which is included in the gross total income;

++ from a reading of Section 80-IA, 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;

++ 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 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, this Court agrees entirely with the Division Bench judgment of this court;

++ this Court is 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).