Whether once losses and other deductions were set off against income of previous year, same cannot be reopened again for computation of current year benefits under Ss 80I or 80IA - YES: HC

THE issue before the Bench is - Whether once losses and other deductions were set off against income of previous year, the same cannot be reopened again for computation of current year benefits under Ss 80I or 80IA. YES is the answer.

Facts of the case

The assessee is a manufacturer of cotton yarn. The assessee had claimed deduction under section 80-IA. It had incurred losses which were already set off and adjusted against the profits of the earlier years. During relevant year, the assessee exercised the option under section 80-IA(2). As there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. The AO observed that the loss in the year earlier to the initial assessment year were already absorbed against the profit of other business, thus it notionally brought forward and set off against the profits of the eligible business.

The Tribunal however passed an order in favour of the assessee. Hence, the present appeal.

The HC held that,

++ in the decision reported in 2011-TIOL-979-HC-MAD-IT (Velayudhaswamy Spinning Mills V. Asst. CIT), this Court, while dealing with the benefit under Chapter VIA, placed reliance on the decision reported in 2009-TIOL-100-SC-IT (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 reported 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 and the assessee should not be denied the admissible deduction under Section 80IA;

++ 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;

++ 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); The facts in the present case are also identical to the above-said decision of this Court that all the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. In the decision reported in Velayudhaswamy Spinning Mills V. Asst. CIT, there appears to be no distinction on facts;

++ we, therefore, taking note of the decision rendered by this Court in the case of Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A)Nos.408 of 2012, are inclined to dismiss the above Tax Case (Appeal), thereby confirm the order passed by the Tribunal.