By Jagdish D. Shah, Jagdish T. Punjabi, Chartered Accountants
Section 80IC – Losses of the eligible unit
which have been fully set off in earlier years against profits of non-eligible
unit cannot be artificially carried forward.
FACTS
The assessee company, engaged in the
business of manufacturing, assembling and repairing construction machinery and
piling equipments, started an additional unit in Uttarakhand in the previous
year relevant to AY 2008-09. Since the said unit was located in a declared
backward area it was entitled to Excise Duty exemption for 10 years and also
income-tax exemption u/s. 80IC(3)(ii) of the Act. The production in Uttarakhand
unit commenced in AY 2008-09.
In respect of the eligible unit at
Uttarakhand, the assessee incurred a loss of Rs. 51,55,665 in AY 2008-09 and a
loss of Rs. 2,38,08,961 in AY 2009-10.
These losses were set off against the profits of non-eligible unit at
Mumbai in AY 2008-09 and AY 2009-10 respectively. Therefore, these losses were
not available to be carried forward and set off in AY 2010-11. However, the
Assessing Officer (AO) while completing the assessment of AY 2010-11 notionally
carried forward the losses of AY 2008-09 and 2009-10 which were already set off
against the profit of non-eligible unit at Mumbai and again set them off
against the profit of Rs. 4,48,33,073 of the eligible unit at Uttarakhand for
AY 2010-11 and allowed only the balance of Rs. 1,58,68,447 as deduction u/s.
80IC of the Act. Thus, he reduced the
claim of deduction u/s. 80IC by Rs. 2,89,64,626.
Aggrieved, the assessee preferred an appeal
to the CIT(A) who held that assessee was not correct in setting off loss of
earlier years in the eligible unit against profit of non-eligible unit. He upheld the action of the AO.
Aggrieved, the assessee preferred an appeal
to the Tribunal where reliance was placed interalia on the following
decisions –
i) Velayudhaswamy Spinning
Mills Pvt. Ltd. vs. ACIT (340 ITR 477)(Mad);
ii) ACIT vs. Hamilton
Houseware Pvt. Ltd. (ITA No. 988/Ahm/2009 dated 9.6.2015);
iii) ACIT vs. Sanjeev Auto
Parts Manufacturers Pvt. Ltd. (ITA No. 1387/PN/2014 for AY 2011-12; dated
17.2.2016);
iv) DCIT vs. Bajaj
Electricals (ITA No. 909/Mum/2011; AY 2006-07; Order dated 15.5.2015).
HELD
The undisputed
facts are that losses of AYs 2008-09 and 2009-10 have already been set off
against the income of unit at Mumbai. The said losses were not available to be
carried forward and set off during the year under consideration i.e. AY 2010-11
under these facts and circumstances, applying the legal propositions discussed
above as referred by learned AR, we do not find any merit in the action of
lower authorities for notionally carry forward and set off of losses which have
already been set off in the earlier years against the profit of eligible unit
during AY 2010-11 under consideration.
The Tribunal also observed that the decisions relied upon by the CIT(A)
were rendered prior to the decision of Madras High Court in the case of Velayudhswamy
Spinning Mills Pvt. Ltd. vs. ACIT (supra).
It also observed that the decision of ACIT vs. Goldmine Shares &
Finance Pvt. Ltd. (113 ITD 209)(Ahd SB) has been overruled by the Madras
High Court in the case of Velayudhswamy Spinning Mills Pvt. Ltd. (supra).
This ground of appeal filed by the assessee
was allowed.
