GOLDMINE SHARES AND FINANCE PVT LTD vs ASSISTANT COMMISSIONER OF INCOME TAX

C/TAXAP/1521/2010 CAV JUDGMENT DATED: 30/10/2026
(GJHC240462222010)
Reserved On : 29/07/2026
Pronounced On : 30/10/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1521 of 2010
With
R/TAX APPEAL NO. 1522 of 2010
With
R/TAX APPEAL NO. 1523 of 2010
With
R/TAX APPEAL NO. 1524 of 2010
With
R/TAX APPEAL NO. 1525 of 2010
With
R/TAX APPEAL NO. 1526 of 2010

FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BHARGAV D. KARIA

and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI

==========================================================
Approved for Reporting Yes No

✓
==========================================================
GOLDMINE SHARES AND FINANCE PVT LTD
Versus
ASSISTANT COMMISSIONER OF INCOME TAX
==========================================================
Appearance:
MR SN SOPARKAR SENIOR ADVOCATE WITH MR BS SOPARKAR WITH
MRS SWATI SOPARKAR(870) for the Appellant(s) No. 1
MR.VARUN K.PATEL(3802) for the Opponent(s) No. 1
==========================================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI


CAV JUDGMENT
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C/TAXAP/1521/2010 CAV JUDGMENT DATED: 30/10/2026
(GJHC240462222010)
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1.Heard learned advocate Mr.B.S. Soparkar for
the appellant-assessee and learned Senior
Standing Counsel Mr. Varun K. Patel for the
respondent.
2.Tax Appeal No.1521 of 2010 is filed by the
appellant assessee under section 260A of the
Income Tax Act, 1961 (For short “the Act”)
against the common judgment and order dated
30.04.2008 passed by the Income Tax Appellate
Tribunal, Special Bench, Ahmedabad Bench (For
short “the Tribunal”) in ITA No.4049/AHD/2003
for Assessment Year 2002-2003. Tax Appeal
No.1521 of 2010 is admitted by order dated
21.09.2011 raising the following substantial
question of law:
“Whether in the facts and
circumstances of the case, the
Income Tax Appellate Tribunal was
right in law in holding that as per
the provisions of Section 80 IA(7)
of the Act, while calculating the
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profit from the eligible business
for the purpose of deduction u/s. 80
IA of the Act, deduction of the
notional brought forward losses and
depreciation of the eligible
business has to be set off even
though they had been allowed set off
against other income in earlier
years?”
3.Tax Appeal Nos. 1522/2010 to 1526/2010 are
filed challenging the common judgment and
order dated 30.04.2008 passed by the Tribunal
in ITA No.4048/AHD/2003 for Assessment Year
2001-2002, in ITA No.4047/AHD/2003 for
Assessment Year 2000-2001, in ITA
No.4046/AHD/2003 for Assessment Year 1999-
2000, in ITA No.4045/AHD/2003 for Assessment
Year 1998-1999 and in ITA No.4044/AHD/2003
for Assessment Year 1997-1998 respectively.
Tax Appeal Nos. 1522/2010 to 1526/2010 are
admitted on similar substantial questions of
law by order dated 19.09.2011 arising from
the aforesaid common order passed by the
Tribunal as under:
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“Whether, in the facts and
circumstances of the case, the
Income Tax Appellate Tribunal was
right in law in holding that as per
the provisions of Section
80IA(5)/80IA(7) of the Act, while
calculating the profit from the
eligible business for the purpose of
deduction u/s. 80IA of the Act,
deduction of the notional brought
forward losses and depreciation of
the eligible business has to be set
off even though they had been
allowed set off against other income
in earlier years?”
FACTS :
4.Brief facts of the case are that the
appellant assessee is mainly dealing in
shares and securities. During the Financial
Year 1995-1996 relevant to Assessment Year
1996-1997, the assessee purchased Wind Mills
and started producing electricity. The
receipt of electric power generated through
these mills is shown as credit in the Profit
and Loss Account at Rs.95,388/- and
Rs.6,40,296/ in the Financial Year 1995-1996
and 1996-1997 respectively-. For the
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Financial Year 1994-1995, income from
Electric power charges was shown as Nil.
Details of income for three Financial Years
ending on 31.03.1995, 31.03.1996 and
31.03.1997 are as under:
Sr.
No.
Head of Income F.Y. 1994-
95
F.Y.1995-
96
F.Y. 1996-
97
1. Net Income from
sale/purchase
of
shares/debentur
es
25,43,055 96,57,818 2,00,083
2. Dividend income 15,321 53,647 1,59,865
3. Electric power
charges
receivable
Nil 95,388 6,40,296
4. Income from
bill
discounting
- - 19,726
5. Interest on
Bank FDR
- - 2,268
5.The assessee claimed depreciation of
Rs.1,04,44,150/- for the Financial Year 1995-
1996 and in the return of income for A.Y.
1996-1997, depreciation against other income
was set-off leaving thereby a balance of
unabsorbed depreciation at Rs.9,89,675/-. The
assessee attached a Note No.4 to the return
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of income for A.Y. 1996-1997 stating that the
assessee is entitled to get deduction/benefit
under section 80IA of the Act in respect of
income derived by it from the undertaking
engaged in generation and distribution of
power and during the previous year income
derived from said power generation unit has
been set-off against the claim of
depreciation under section 32(1) and hence,
amount deductible under section 80IA is Nil.
6.For the subsequent year i.e. A.Y. 1997-1998,
the assessee claimed deduction under section
80IA on power generation income of
Rs.6,40,296/- restricted to gross total
income of Rs. 1,59,865/- representing the
income from dividend as business income of
Rs.5,66,219/- was set-off against unabsorbed
depreciation of Rs.9,89,675/- and balance
unabsorbed depreciation was carried forward
at Rs.4,23,456/-. In the subsequent years,
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same method was repeated.
7.Therefore, in all the assessment years, from
Assessment Year 1997-1998 to 2000-2001,
deduction under section 80IA of the Act was
claimed by the assessee on the basis of the
profits earned in the respective year subject
to the maximum of gross total income.
8.However, the Assessing Officer reduced the
claim under section 80IA of the Act in view
of provisions of section 80IA(5)/80IA(7) of
the Act. The Assessing officer held that
deduction in the years from Assessment Years
1997-1998 to 2000-2001 would be allowable
only on income which is computed after
setting off of the carried forward losses on
notional basis of the eligible business even
though such losses of the eligible business
were set off against other incomes of the
assessee in Assessment Year 1996-1997.
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9.Being aggrieved, the assessment order was
challenged before the CIT(Appeals).
CIT(Appeals)allowed the appeal and decided
the issue in favour of the assessee relying
upon the judgment of Hon’ble Calcutta High
Court in case of CIT v. Balmer Lawrie & Co.
Ltd. reported in 215 ITR 249.
10. Being aggrieved by the order passed by
the CIT(Appeals), Revenue preferred an appeal
before the Tribunal. There was a difference
of opinion between the two Benches of the
Tribunal at Bombay and Calcutta. The
President of Income Tax Appellate Tribunal
therefore, constituted a Special Bench for
considering the following substantial
question of law:
“Whether in view of the provisions
of Section 80IA(5) of the Income Tax
Act, 1961, the profit from the
eligible business for the purpose of
deduction u/s 80IA of the Act has to
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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."
11. The decision of the Tribunal, Bombay
Bench, in the case of M. Pallonji & Co. Pvt.
Ltd. Vs JCIT , reported in 105 TTJ 136 (Bom.)
was in favour of the assessee wherein it was
held that unabsorbed depreciation of eligible
project/business could not be set-off only
against profit of eligible business for the
purposes of deduction under section 80IA for
unabsorbed depreciation which stood already
adjusted against profits of assessee from
other business. Whereas, another Bench of the
Tribunal in ACIT Vs Ashok Alco Chem Ltd ,
reported in 96 ITD 160 (Mum.) has held
against the assessee by observing that for
the purpose of applying the provisions
contained in section 80IA of the Act, the
profits or gains of the eligible business are
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to be computed as if the eligible business
was 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 eligible business
units, deduction under section 80IA could not
be allowed. The Tribunal, Kolkata Bench, in
the case of ITO Vs Kanchan Oil Industries
Ltd. , 92 ITD 557 (Kol.) has concluded that in
view of sub-section (7) of section 80IA, for
computing deduction under section 80IA,
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.
12. The Special Bench of the Tribunal after
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considering the submissions made by both the
sides decided the group of appeals being ITA
No.4044 to 4049/Ahd/2003 for Assessment Years
1997-1998 to 2002-2003 by the impugned order
by answering the question referred in
affirmative in favour of the Revenue and
against the assessee in the terms that in
view of the specific provisions of section
80IA(5) of the Act, the profit from the
eligible business for the purpose of
determination of the quantum of deduction
under section 80IA 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.
13. Similar issue which is decided by the
Special Bench of the Tribunal arose before
the Madras Bench of the Tribunal which
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followed the view taken in judgment of the
Special Bench impugned in these appeals.
14. Decision of Madras Bench of the Tribunal
was challenged before the Hon’ble High Court
of Madras. By judgment rendered in case of
Velayudhaswamy Spinning Mills (P.) Ltd. v.
Assistant Commissioner of Income-tax reported
in (2012) 340 ITR 477, Hon’ble Madras High
Court reversed the decision of Special Bench
of the Ahmedabad Tribunal impugned in these
appeals. One of the questions framed by
Hon’ble Madras High Court was whether the
decision of Special Bench in case of
appellant assessee i.e. Goldmine Shares and
Finance (P) ltd was correctly decided when
the said decision was rendered prior to
amendment in section 80IA by the Finance Act,
1999. The Hon’ble Madras High Court decided
the issue in favour of the assessee.
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15. It is also pointed out by the learned
advocate for the parties that decision of
Madras High Court was challenged before the
Hon’ble Apex Court by the Revenue and after
condoning delay, Special Leave to Appeals are
dismissed by the Hon’ble Apex Court by order
dated September 5, 2016 which is reported in
(2017) 244 Taxman 58(SC).
Relevant Provisions prior to 1-4-2000 read as
under:
“SECTION 72 : Carry forward and set
off of business losses.
[(1) Where for any assessment year,
the net result, of the computation
under the head “Profits and gains of
business or profession” is a loss to
the assessee, not being a loss
sustained in a speculation business,
and such loss cannot be or is not
wholly set off against income under
any head of income in accordance
with the provisions of section 71,
so much of the loss as has not been

so set off or, [ *] where he has
no income under any other head, the
whole loss shall, subject to the
other provisions of this Chapter, be
carried forward to the following
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assessment year, and-
(i) it shall be set off against the
profits and gains, if any, of any
business or profession carried on by
him and assessable for that
assessment year;
Provided that the business or
profession for which the loss was
originally computed continued to be
carried on by him in the previous
year relevant for that assessment
year; and
(ii) if the loss cannot be wholly so
set off, the amount of loss not so
set off shall be carried forward to
the following assessment year and so
on:]
[ Provided that where the whole or
any part of such loss is sustained
in any such business as is referred
to in section 33B which is
discontinued in the circumstances
specified in that section, and,
thereafter, at any time before the
expiry of the period of three years
referred to in that section, such
business is re-established,
reconstructed or revived by the
assessee, so much of the loss as is
attributable to such business shall
be carried forward to the assessment
year relevant to the previous year
in which the business is so re-
established, reconstructed or
revived, and-
(a) it shall be set off against the
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profits and gains, if any, of that
business or any other business
carried on by him and assessable for
that assessment year; and
(b) if the loss cannot be wholly so
set off, the amount of loss not so
set off shall, in case the business
so re-established, reconstructed or
revived continues to be carried on
by the assessee, be carried forward
to the following assessment year and
so on for seven assessment years
immediately succeeding.]
SECTION 79 : Carry forward and set
off of losses in case of certain
companies .
(a)Notwithstanding anything
contained in this Chapter, where a
change in shareholding has taken
place in a previous year in the case
of a company, not being a company in
which the public are substantially
interested, no loss incurred in any
year prior to the previous year
shall be carried forward and set off
against the income of the previous
year, unless on the last day of the
previous year, the shares of the
company carrying not less than
fifty-one per cent of the voting
power were beneficially held by
persons who beneficially held shares
of the company carrying not less
than fifty-one per cent of the
voting power on the last day of the
year or years in which the loss was
incurred:
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[Provided that nothing contained in
this section shall apply to a case
where a change in the said voting
power takes place in a previous year
consequent upon the death of a
shareholder or on accounts of
transfer of shares by way of gift to
any relative of the shareholder
making such gift.]
SECTION 80A : Deductions to be made
in computing total income.
(1) In computing the total income of
an assessee, there shall be allowed
from his gross total income, in
accordance with and subject to the
provisions of this Chapter, the
deductions specified in sections 80C

to [80U].
(2) The aggregate amount of the
deductions under this Chapter shall
not, in any case, exceed the gross
total income of the assessee.
SECTION 80AB : Deductions to be made
with reference to the income
included in the gross total income.
Where any deduction is required to
be made or allowed under any
section [except section 80M]
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
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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.]
SECTION 80IA : Deductions in respect
of profits and gains from industrial
undertakings, etc., in certain
cases.
[(1) Where the gross total income of
an assessee includes any profits and
gains derived from any business of
an industrial undertaking or a hotel
or [operation of a ship or
developing, maintaining and
operating any infrastructure
facility [or scientific and
industrial research and development]
[or providing telecommunication
services whether basic or cellular]
[or operating an industrial park or
commercial production of mineral oil
in the North-Eastern region] (such
business being hereinafter referred
to as the eligible business)], 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 the
percentage specified in sub-section
(5) and for such number of
assessment years as is specified in
sub-section (6).
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xxxx
(5) The amount referred to in sub-
section (1) shall be-
(a) in the case of an industrial
undertaking referred to in sub-
clause (a) [or sub-clause (d)] of
clause (iv) of sub-section (2),
twenty-five per cent of the profits
and gains derived from such
industrial undertaking;
(b) in the case of an industrial
undertaking referred to in sub-
clause (b) [or sub-clause (c)] of
clause (iv) of sub-section (2),
hundred per cent of the profits and
gains derived from such industrial
undertaking for the initial five
assessment years and thereafter
twenty-five per cent of the profits
and gains derived from such
industrial undertaking:
Provided that where the assessee is
a company, the provisions of this
clause shall have effect as if for
the words “twenty-five per cent”,
the words “thirty per cent” had
been substituted;]
(ia) in the case of an enterprise
referred to in sub-section (4A),
hundred per cent of the profits and
gains derived from such business
for the initial five assessment
years and thereafter, thirty per
cent of such profits and gains;]
(ib) in the case of a company
referred to in sub-section (4B),
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hundred per cent of the profits and
gains derived from such business;]
(ic) in the case of an undertaking
referred to in sub-section (4C),
hundred per cent of the profits and
gains derived from such businesses
for the initial five assessment
years and thereafter, twenty-five
per cent of the profits and gains
derived from such business:
Provided that where the assessee is
a company, the provisions of this
clause shall have effect as if for
the words “twenty-five per cent”,
the words “thirty per cent” had
been substituted;]
(id) in the case of an industrial
park referred to in sub-section
(4D), hundred per cent of the
profits and gains derived from such
business for the initial five
assessment years and thereafter,
twenty-five per cent of the profits
and gains derived from such
business:
Provided that where the assessee is
a company, the provisions of this
clause shall have effect as if for
the words “twenty-five per cent”,
the words “thirty per cent” had
been substituted;
(ii) in the case of a hotel
referred to in clause (iii) of sub-
section (4), fifty per cent of the
profits and gains derived from the
business of such hotel:
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Provided that the said hotel is
approved by the prescribed
authority for the purpose of this
clause in accordance with the rules
made under this Act:
Provided further that the said
hotel approved by the prescribed
st
authority before the 31 day of
March, 1992, shall be deemed to
have been approved by the
prescribed authority for the
purpose of this section in relation
to the assessment year commencing
st
on 1 day of April, 1991;
(iia) in the case of a hotel
referred to in clause (iiia) of
sub-section (4), fifty per cent of
the profits and gains derived from
the business of such hotel:
Provided that the said hotel is
approved by the prescribed
authority for the purposes of this
clause in accordance with the rules
made under this Act;
(iii) in the case of a hotel
referred to in clause(iv) [or
clause (iva)] of sub-section (4),
thirty per cent of the profits and
gains derived from the business of
such hotel;
(iv) in the case of a ship, thirty
per cent of the profits and gains
derived from such ship;
(v) in the case of undertaking
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referred in sub-section (4E)
hundred per cent of profits and
gains derived from such business
for the initial seven assessment
years.
Xxx
(7) 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 sub-section (5) 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.”
16. With effect from 1-4-2000, 80IA has
been substituted. Sub-sections (1), (2), (5)
and (7) after 01.04.2000 read as under:
“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-
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section (4) (such consecutive
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 of power [or undertakes
substantial renovation and
modernisation of the existing
transmission or distribution
lines :
[ Provided that where the assessee
develops or operates and maintains
or develops, operates and maintains
any infrastructure facility referred
to in clause ( a ) or clause ( b ) or
clause ( c ) of the Explanation to
clause ( i ) of sub-section (4), the
provisions of this sub-section shall
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have effect as if for the words
“fifteen years”, the words “twenty
years” had been substituted.]
xxx
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.
Xxx
(7) [The deduction] under sub-
section (1) from profits and gains
derived from an [undertaking] shall
not be admissible unless the
accounts of the [undertaking] for
the previous year relevant to the
assessment year for which the
deduction is claimed have been
audited by an accountant, as defined
in the Explanation below sub-section
(2) of section 288 , [before the
specified date referred to in
section 44AB and the assessee
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furnishes by that date] the report
of such audit in the prescribed form
duly signed and verified by such
accountant.”

17. Therefore, sub-section(5) as existing
today was equivalent to sub-section(7) which
was prevalent prior to 1-4-2000.
Submissions of the Appellant:
18. Learned Senior Advocate Mr. S.N.Soparkar
with learned advocate Mr. B.S. Soparkar for
the appellant assessee submitted that the
decision of Special Bench impugned in these
appeals now stands reversed by Hon’ble Madras
High Court and therefore, the appeals are
required to be allowed by quashing and
setting aside the impugned order of Special
Bench of the Tribunal.
19. Reference was also made to the Circular
No.1/2016 dated 15.02.2016 issued by the
Central Board of Direct Taxes wherein it is
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clarified that once initial assessment year
has been opted for by the assessee, the
assessee shall be entitled to claim deduction
u/s 80IA for ten consecutive years beginning
from the year in respect of which he has
exercised such option subject to the
fulfillment of the conditions prescribed in
the section.
20. Referring to the provisions of section
80IA at the relevant time and above circular,
it was submitted that the assessee had chosen
to exercise his option claiming deduction u/s
80IA from the Assessment Year 1997-1998.
Therefore, the question of notional carry
forward of losses would not arise when for
the previous year losses incurred by the
assessee was already set-off as held by
Hon’ble Madras High Court in case of
Velayudhaswamy Spinning Mills (P.) Ltd.
(supra).
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21. It was submitted that the losses of the
eligible business suffered by the assessee in
the earlier years to the initial assessment
year was already absorbed against the profits
of other business and therefore, such losses
cannot be notionally brought forward and set
off against the profits of the eligible
business in the initial year as no such
mandate is provided under section 80IA(5) of
the Act. It was therefore, submitted that the
findings of the Tribunal are liable to be
reversed.

22. Learned Senior Advocate Mr. Soparkar
further submitted that in facts of the case
there were losses and unabsorbed depreciation
of the eligible unit in the previous
financial years relevant to Assessment Years
1995-1996 and 1996-1997 whereas initial
assessment year for claiming deduction under
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section 80IA is the Assessment Year 1997-1998
where there is no losses or unabsorbed
depreciation per se in view of set-off in
earlier years as the same was already
absorbed against the other business income of
the assessee in the relevant assessment years
prior to initial Assessment Year 1997-1998.
It was therefore submitted that the Revenue
cannot consider such losses which have
already been absorbed in the earlier years on
notional basis to revive the same as notional
loss for the purpose of computation of
deduction under section 80IA(5) of the Act,
and such computation by considering notional
loss or unabsorbed depreciation is not
permissible as per the computation mechanism
prescribed in the said section.
23. It was submitted that if the
interpretation made on behalf of the Revenue
is accepted, it would defeat the purpose of
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giving choice of selecting the initial
Assessment Year to the assessee inasmuch as
wordings in section 80IA(5) is that “assessee
during the previous year relevant to the
initial assessment year and to every
subsequent assessment year” which suggest
that as per the provisions of the said
section, profits of the year are to be taken
into consideration and section 80IA(5) of the
Act does not provides for consideration of
any notional loss or unabsorbed depreciation
of the eligible unit which was already set
off in earlier years against the other
business income of the assessee.
24. It was further submitted that so far as
deduction under section 80IA(5) of the Act is
concerned, only the income of eligible unit
for a particular assessment year is required
to be considered as if eligible business unit
is only unit of the assessee and the
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interpretation made by the Revenue that while
considering the profits of eligible unit as
the only unit of the assessee, losses or
unabsorbed depreciation which is set off
against the other income of the assessee in
earlier years, have to be considered
notionally as carried forward for the year
under consideration cannot be accepted in
absence of any such computation machinery
provided under section 80IA(5) of the Act.
25. Learned Senior Advocate Mr. S.N.
Soparkar referred to and relied upon the
decision of Hon’ble Rajasthan High Court in
case of case of CIT v. Mewar Oil and General
Mills Ltd. reported in [2004] 271 ITR 311
which is also referred to and relied in the
decision of Hon’ble Madras High Court in case
of Velayudhaswamy Spinning Mills (P.) Ltd.
(supra). It was pointed from the decision of
Hon’ble Rajasthan High Court that it is not
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at all required that 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 80I/80IA for the
purpose of computing admissible deductions
thereunder. It was therefore, submitted that
decision of Hon’ble Rajasthan High Court in
the case of CIT v. Mewar Oil and General
Mills Ltd. (supra) would entirely cover the
case of the assessee and the issue raised in
the present appeals may be held in favour of
the assessee.
26. It was submitted that the decision of
Hon’ble Rajasthan High Court was cited before
the Tribunal. However, the Tribunal has
committed an error in law by not considering
the same in proper perspective.
27. It was further submitted that Hon’ble
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Delhi High Court in the case of PCIT v.
Sterling Agro Industries Limited reported in
[2023] 151 taxmann.com 203 followed the
decision of the Madras High Court in the case
of Velayudhaswamy Spinning Mills (P.) Ltd.
case (supra) while observing that there is
nothing to suggest in Sub-section(5) of
Section 80IA of the Act that the profits
derived by an assessee from the eligible
business can be adjusted against notional
losses which stand absorbed against profits
of other business in earlier years and the
deeming fiction created by sub-section (5) of
Section 80IA does not envisage such an
adjustment, as such deeming fiction is only
qua the source of income of the eligible
business and there is no fiction created that
losses which have already been absorbed are
to be revived notionally as carried forward
losses or unabsorbed depreciation to be
adjusted against the profits derived from the
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eligible business for the year under
consideration to quantify the deduction to be
claimed under section 80IA of the Act.
28. It was further submitted that Hon’ble
High Court of Karnataka in case of Microlabs
Ltd. v. Assistant Commissioner of Income-tax,
Bangalore reported in 230 Taxman 647(Kar.)
has held in favour of the Revenue that as
section 80IA(5) of the Act starts with a non-
obstante clause, the assessee would not be
entitled for claim of deduction as while
computing the profits of eligible business
for allowing such deduction, losses set off
against profit from other business are
required to be treated as losses being
carried forward on notional basis and only
after deducting such losses, profit of the
eligible business is to be calculated for the
purpose of deduction. However, the Hon’ble
Apex Court has granted the Special Leave in
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case of Microlabs Ltd . (supra) by order dated
21.10.2016 in view of dismissal of SLP in
case of Velayudhaswamy Spinning Mills (P.)
Ltd. (supra) by order dated 05.09.2016 and
Civil Appeal is pending for consideration.
29. Learned Senior Advocate Mr. S.N.Soparkar
for the assessee referred to and relied upon
insertion of clause (ia) in sub-section (5)
of section 80IA which provides that in case
of an enterprise referred to in sub-section
(4A), hundred per cent of the profits and
gains derived from such business for the
initial five assessment years and thereafter
thirty percent of such profits and gains is
provided.
30. Reference was made to para no. 34.5 of
the of memorandum explaining such insertion
of clause (ia) and it was submitted that five
years period is required to be counted from
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the initial years and the enterprise is to be
allowed to choose the initial year from which
it wants to avail itself of the five year tax
holiday. It was pointed out that such tax
holiday is to be availed within a span of 12
years beginning with the year of operation
which means that an eligible business
enterprise which chooses the fourth year of
operation as the initial year would get the
full tax holiday for five years from the
fourth to eighth year and 30% deduction for
the remaining four years i.e. the ninth to
twelfth year and similarly, an enterprise
which chooses the eighth year of operation as
the initial year would avail the full tax
holiday for five years from 8th year to 12th
year only and it would not have the advantage
of claiming 30% deduction for any year within
the span of 12 years.
31. It was submitted that this Court in case
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of Vodafone Essar Gujarat Ltd. v. Assistant
Commissioner of Income-tax reported in
(2020) 424 ITR 498 (Guj.) held that section
80IA(5) of the Act indicates that it nowhere
provided that for the purpose of computation
of quantum of deduction under sub-section(1)
of section 80IA, the losses which have lapsed
by operation of section 79 of the Act have to
be considered but the same is required to be
ignored and thereafter the provisions of
section 72 of the Act has to be applied. It
was therefore, submitted that in view of such
interpretation of section 80IA(5), the
notional carry forward of losses which
otherwise is not available to the assessee to
be set off, cannot be considered for the
purpose of computation of quantum of
deduction under sub-section (1) of section
80IA of the Act, when there is only one
eligible business from which the profit and
gain is derived by the assessee for the year
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under consideration.
32. Reliance was also placed on decision in
the case of Commissioner of Income Tax Versus
Reliance Energy Limited (Formerly BSES
Limited) reported in (2022) 441 ITR 346 (SC),
wherein it is held by the Hon’ble Apex Court
that Section 80IA(5) has a limited scope to
determine the quantum of deduction on
standalone basis. It was therefore, submitted
that in facts of the case, when the
depreciation stands absorbed in earlier
years, then the same cannot be considered on
notional basis as unabsorbed depreciation for
the purpose of computation of deduction under
section 80IA(5) for subsequent years.
Submissions of the Respondent:
33. Learned Senior Standing Counsel Mr.
Varun K. Patel for the respondent submitted
that the impugned order of the Special Bench
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of the Tribunal was also considered by the
Hon’ble Karnataka High Court in case of
Microlabs Ltd . (supra), wherein it is held
that for calculating the profits from the
eligible business, the deduction of losses
which are set off against the profits from
other business in previous year are required
to be taken into consideration for
computation of deduction under section 80IA
of the Act.
34. Learned Senior Standing Counsel Mr.
Varun K. Patel submitted that decision of
Hon’ble Karnataka High Court has affirmed the
impugned judgment and order passed by the
Special Bench of Ahmedabad Tribunal and same
is therefore, now required to be considered
as against the decision of Hon’ble Madras
High Court where contrary view is expressed.
35. It was submitted that SLP filed against
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the decision of Hon’ble Madras High Court was
dismissed but SLP filled against the Hon’ble
Karnataka High Court is admitted and CIVIL
Appeal is pending for adjudication before the
Hon’ble Supreme Court as leave is granted in
view of dismissal of SLP against the decision
of Madras High Court.
36. It was submitted that facts of the
present case are different than the facts
before Hon’ble Madras High Court in case of
Velayudhaswamy Spinning Mills (P.) (supra)
inasmuch as sub-section(2) which was added by
the Finance Act, 1999 w.e.f. 01.04.2000
provided an option to the assessee to select
10 years out of the slab of 15 years, to make
claim of deduction, but prior to 01.04.2000,
there was no such option available to the
assessee for selecting 10 years out of 15
years.
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37. It was submitted that as per the
decision of Hon’ble Madras High Court in case
of Velayudhaswamy Spinning Mills (P.)
(supra), more particularly, para no.18
thereof clearly stipulates that the
subsequent year is applicable after the
initial year but only for the period prior to
initial year and if the option is exercised
later on and the loss is already set-off,
notional loss cannot be brought forward.
38. It was submitted that on perusal of
section 80IA(5), each year is to be seen on
standalone basis and therefore, to consider
the provisions of sub-sections (6) or (7)
would be immaterial.
39. Learned Senior Standing Counsel Mr.
Patel invited the attention of the Court to
the opening words of section 80IA which
refers to gross total income and from gross
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total income, what is to be deducted is
restricted only to the profit of the eligible
business and not gross total income of
business.
40. It was therefore, submitted that though
section 80IA provides that deduction is to be
allowed from the gross total income but for
computation of the deduction, the profit of
the eligible business is required to be
computed as per the provisions of sub-
section(5) of section 80IA of the Act read
with sub-section (7) thereof which provides
as to how to compute the quantum of deduction
under sub-section (5).
41. It was submitted that sub-section(7) is
a deeming provision which stipulates that
that only the sole business of the assessee
is required to be considered for the purpose
of computation of profit for claim to be made
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under section 80IA of the Act for the
eligible business.
42. Learned Senior Standing Counsel Mr.
Patel submitted that if the interpretation of
sub-section(5) read with sub-section (7) of
section 80IA of the Act is to be considered
then only interpretation possible is that the
sole business of the eligible unit is
required to be taken into consideration and
therefore, set off of the losses of earlier
years claimed by the assessee against other
income is to be ignored and such losses of
the eligible unit are required to be brought
forward on a notional basis then only
intention of the legislature which is
provided in the memorandum explaining the
amendment, correct computation for deduction
under section 80IA of the Act can be arrived
at.
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43. Learned Senior Standing Counsel Mr.
Patel referred to and relied upon the words
“assessee during the previous year relevant
to the initial assessment year and to every
subsequent assessment year” in sub-section
(7) of section 80IA to highlight the
intention of the legislature that if there
are losses in the initial year in the
eligible business then the same are required
to be set-off against the losses in the
subsequent assessment years of the same
business even though such losses have been
set off against other income of the assessee
in earlier years.
44. It was therefore, submitted that the
Tribunal has rightly held that the decision
of Hon’ble Rajasthan High Court in case if
Mewar Oil and General Mills Ltd. (supra)would
not apply by observing that Hon’ble Rajasthan
High Court has not dealt with and was not
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required to go into the controversy by
noticing the non obstante clause of section
80IA (6) or section 80IA (5), as the case may
be, inasmuch as the issue before the Hon’ble
Rajasthan High Court was whether the
Assessing Officer can be said to be justified
to invoke section 154 on the Act to rectify
the mistake on a contentious matter as to
whether the claim of deduction under section
80IA of the Act can be granted by
rectification of the assessment order.
45. Learned Senior Standing Counsel Mr.
Patel therefore, submitted that in view of
non-obstante clause in sub-section (5) of
section 80IA of the Act, the other provisions
of the Act are required to be ignored. It was
submitted that the Hon’ble Madras High Court
has not considered the effect of non obstante
clause and hence set off against other income
of the assessee has to be ignored and
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accordingly losses which are already set off
against other income in the previous years
are required to be considered on notional
basis for the purpose of computation of
deduction under section 80IA for eligible
business because eligible business is
required to be considered as the only source
of income during the previous year relevant
to the initial assessment year and every
subsequent assessment years for computation
of deduction under section 80IA of the Act.
46. It was therefore, submitted that after
insertion of non obstante clause in the year
1980 in sub-section (6) of section 80IA and
subsequently, in sub-section (5) of section
80IA of the Act, it is to be assumed that for
the purpose of determination of deduction,
the eligible business was and is only source
throughout and therefore, the question of
intra-head set off could not arise and as a
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consequence, the Tribunal has rightly held
that one has to assume the unabsorbed
depreciation or loss were not set off and
have to be notionally brought forward for
setting off the same against the profits of
the eligible undertaking for computing
deduction under section 80IA of the Act. It
was further submitted that merely because the
assessee is given the option of selection of
10 years from the block of 15 years from the
date of commencement of the production, the
method of computation of deduction would not
change.
47. It was therefore, submitted that
decision in case of Hon’ble Madras High Court
is distinguishable in facts of the case
inasmuch as once the assessee has exercised
the option of 10 years beginning from initial
assessment year whatever loss has accrued in
the eligible undertaking has to be considered
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on notional basis irrespective of whether
such losses are set off against the other
income of the assessee or not and the
computation of deduction is to be re-worked
ignoring such set-off of the amount by
considering it brought forward notionally in
view of non obstante clause in section
80IA(5) of the Act.
48. Learned Senior Standing Counsel Mr.
Patel therefore, submitted that losses in the
earlier year to initial assessment year which
are already absorbed against the profit of
the other income have to be considered as
brought forward notionally and set-off
against the profit of the eligible business
for the assessment year in which deduction
under section 80IA of the Act is claimed. It
was therefore, submitted that question of law
may be answered in favour of the Revenue and
against the assessee.
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Analysis and Findings:
49. After the Special Bench of Ahmedabad
Tribunal has held in facts of the case that
for computation of deduction under section
80IA(5) of the Act, losses of earlier years
to the initial year of eligible undertaking
which are already set-off are required to be
considered as brought forward loss notionally
has been overruled by the decision of Hon’ble
Madras High Court in case of Velayudhaswamy
Spinning Mills (P.) (supra) which is followed
in case of Principal Commissioner of Income-
tax-3, Coimbatore v.Prabhu Spinning Mills
(P.) Ltd reported in (2016) 76 taxman.com 8
(Madras) whereas on the other hand, a
contrary view is taken by Hon’ble Karnataka
High Court in case of Microlabs Ltd . (supra).
50. The Hon’ble Delhi High Court had an
occasion to consider both the views in case
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of Sterling Agro Industries Limited (supra).
The Hon’ble Delhi High Court has also
referred to CBDT Circular No.1/2016 which has
clarified that the option to choose
initial/first year from which it may desire
the claim of deduction for ten consecutive
years, out of a slab of fifteen years as
prescribed under the sub-section, then once
such initial assessment year has been opted
for by the assessee, deduction under section
80IA of the Act shall be granted for 10
consecutive years beginning from the year in
respect of which such option is exercised,
subject to fulfillment of the conditions
prescribed in the section. Hence, the term
“initial assessment year” would mean first
year opted for by the assessee for claiming
deduction under section 80IA of the Act.
However, the total number of years for
claiming deduction should not transgress the
prescribed slab of fifteen or twenty years as
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the case may be and the period of claim for
ten consecutive years should be availed in
continuity.
51. In backdrop of such clarification, the
relevant observations of Hon’ble Madras High
Court in case of Velayudhaswamy Spinning
Mills (P.) (supra) are as underr:
“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
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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)
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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
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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
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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
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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
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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
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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
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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
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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).”
52. In view of above analysis of sub-
section(5) of section 80IA of the Act by the
Hon’ble Madras High Court as to what would be
important aspect of the said provision, has
succinctly summarised in para no.16
reproduced here-in-above which clearly and
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distinctively emerge on the plain reading of
the provision.
53. Therefore, the impugned order of the
Special Bench which has heavily referred to
and relied upon the non-obstante clause of
section 80IA(5) of the Act to hold that loss
or unabsorbed depreciation which has already
been set-off prior to initial year against
the other businesses i.e. business profits of
the undertaking other than eligible
undertaking should be notionally carried
forward and adjusted against the profit of
eligible undertaking in order to determine
the deduction that can be availed under
section 80IA of the Act, is contrary to the
plain reading of sub-section(5) of section
80IA of the Act[After 1-4-2000]/80IA(7)[prior
to 1-4-2000] as there is nothing to suggest
therein that profits derived by the assessee
from the eligible business can be adjusted
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against notional loss/unabsorbed depreciation
which have already been set off against the
profits of other business in earlier years.
54. In view of above analysis made by the
Hon’ble Madras High Court to the effect that
fiction has been created for computation of
deduction of eligible business, as it would
be the only eligible business whose profit
will be considered for deduction, however,
there is no fiction created that the loss
which has already been absorbed earlier have
to be notionally carried forward and adjusted
against profit derived from eligible business
so as to compute the deduction which would be
claimed under section 80IA of the Act by the
assessee.
55. As against that Hon’ble Karnataka High
Court in case of Microlabs Ltd . (supra) has
approved the view taken by the Special Bench
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by giving weightage to the non-obstante
clause in Section 80IA(5) of the Act with a
view to compute deduction under section 80IA
for the eligible business as if the only
eligible business is in existence and
therefore, even if the losses/unabsorbed
depreciation which are already set off
against other income of the assessee in
earlier years than the initial year opted by
the assessee, then such losses have to be
notionally considered as not set-off for the
purpose of computation of profit for the year
under consideration.
56. The Hon’ble Karnataka High Court as well
as the Special Bench of the Tribunal have
considered only the effect of non- obstante
clause. Para no.6 of the said decision of
Karnataka High Court in case of Microlabs
Ltd . (supra) reads as under:
“6. It is stated that the non-
obstante clause in sub-section (5)
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means it over-rides all the
provisions of the Act and other
provisions are to be ignored. In the
absence of non obstante clause, what
the judgment of the Madras Court
states is the legal position,
because of the non obstante clause,
the set off amount against other
income of the assessee has to be
ignored and because of the fiction
created in the sub-section
notionally, the set losses is to be
treated as "losses being carried
forward and after deducting the said
losses, the profit prior to business
is to be calculated," i.e.,
precisely what the Special Bench has
stated and the relevant portion of
the judgment reads as under:
"From the reading of the above, it
is clear that the eligible business
were the only source of income,
during the previous year relevant to
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
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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. Fiction created
in sub-section does not contemplates
to bring set off amount notionally.
Fiction is created only for the
limited purpose and the same cannot
be extended beyond the purpose for
which it is created."
57. This Court in case of Vodafone Essar
Gujarat Ltd. (supra), while dealing with the
issue that though the assessee was eligible
for deduction under section 80IA of the Act
by virtue of section 79 of the Act, business
loss of the assessee prior to the year under
consideration has already lapsed, then
whether such loss could be notionally carried
forward and set-off against the profit and
gain of business of the assessee for the year
under consideration for computing the
deduction under section 80IA of the Act or
not.
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58. In facts of the case of Vodafone Essar
Gujarat Ltd. (supra), loss of the eligible
unit had already lapsed as per the provision
of section 79 of the Act and therefore,
relying upon the non obstante clause of
section 80IA(5) of the Act, it was submitted
on behalf of Revenue that the loss which has
already lapsed as per the provisions of
section 79 of the Act has to be considered
notionally for computing the deduction under
section 80IA of the Act, as section 79 would
operate to calculate aggregate total income
as per Chapter VI of the Act whereas
deduction under section 80IA of the Act has
to be computed ignoring the other provisions
of the Act by considering eligible business
only. After considering the provisions of
section 79 and 80A of the Act, it was held as
under:
“ 9. Upon analysis of the above provisions,
it appears that
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( i ) The assessee is required to
compute total income from which
carry forward and set off of
business loss is granted under
section 72 of the Act, 1961
( ii ) Section 79 starts with a non
obstante clause
"Notwithstanding anything
contained in this Chapter"
where a change in the
shareholding takes place in a
previous year in the case of a
company not being a company in
which the public are
substantially interested, no
loss incurred in any year prior
to the previous year shall be
carried forward and set off
against the income of the
previous year. In other words
the company shall not carry
forward or set off the business
losses against the income of
the previous year where there
is a change in the shareholding
of the company subject to the
conditions prescribed in clause
( a ) of section 79 of the Act,
1961.
( iii ) Section 66 which falls under
Chapter-VI and section 80-A
which falls under Chapter VIA
pertain to the computation of
'total income' of the assessee.
Section 66 provides that in
computing the total income of
an assessee, there shall be
included all income on which no
income tax is payable under
Chapter-VII. Chapter -VI also
provides for set-off and carry
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forward of losses and the
mechanism for claim of set-off
of losses. Whereas Chapter VIA
provides for the deduction to
be made in computing total
income. Section 80A provides
that in computing the total
income of an assessee, there
shall be deduction specified in
section 80C to 80U from the
gross total income, in
accordance with and subject to
the provisions of Chapter VIA.
( iv ) As per Section 80B(5) of the
Act, 1961, the 'Gross total
income' means the 'total
income' computed in accordance
with the provisions of the Act
before making any deduction
under Chapter VIA meaning
thereby that the assessee is
required to calculate the total
income computed in accordance
with the provisions of the Act,
1961 to arrive at the gross
total income prior to deduction
under Chapter VIA.
( v ) Section 80-IA of the Act, 1961
which is inserted by the
Finance Act, 1999 with effect
from 1st April, 2000 and
substituted by Finance Act,
2001 with effect from 1st
April, 2002 provides that where
the 'Gross total income' of an
assessee includes any profit
and gains derived by an
undertaking or an enterprise
from any business referred to
in sub-section(4), there shall,
in accordance with and subject
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to the provisions of section
80-IA, be allowed in computing
the total income of the
assessee, a deduction of an
amount equal to 100% of profit
and gains derived from such
business for 10 consecutive
assessment years. Sub-
section(2) of section 80-IA
provides option to select 10
consecutive years out of 15
years beginning from the year
in which the undertaking or the
enterprise develops and begins
to operate any infrastructure
facility or starts providing
telecommunication services etc .
( vi ) In the case on hand, the
assessment year 2005-2006 was
opted as the first year in the
block of 10 consecutive
assessment years for claiming
deduction under section 80-IA
(1) of the Act 1961. This fact
of the option exercised by the
assessee is not disputed by the
Assessing Officer. Therefore,
the assessment year 2005-2006
is initial assessment year and
circular no. 1/2016 would be
applicable to the facts of the
case.
( vii ) Section 80-IA(5) of the Act,
1962 stipulates that in order
to compute the quantum of
deduction under sub-section(1)
of section 80-IA, the profit
and gains of the eligible
business shall be computed as
if such eligible business were
the only source of income of
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the assessee. It is also
stipulated that for this
purpose the other provisions of
the Act are to be ignored
meaning thereby, the profit and
gain of the eligible business
of the assessee is to be
computed on standalone basis
only. If the assessee has more
than one business and one of
such is eligible business for
the purpose of deduction under
section 80-IA(1) of the Act,
1961, then the profit and gains
of such eligible business is
required to be computed as if
no other business of assessee
is in existence. To illustrate,
if loss of eligible business is
set off against the business
income of other business which
is not eligible for deduction
under section 80-IA of the Act,
1961, then such loss which is
already set-off is to be
considered for the purpose of
computation of quantum of
deduction under section 80-IA
of the Act from the profit and
gains of eligible business and
such loss would be deducted
from the profit and gains at
the time of computation of
quantum of deduction under
section 80-IA(1) of the Act,
1961. However, in the facts of
present case, the profit of the
assessee for the year under
consideration is only from the
eligible business of the
assessee and therefore, the
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profit and gains of the
business for the purpose of
determining the quantum of
deduction under sub-section (1)
of section 80-IA of the Act,
1961 is to be computed applying
the provisions of the Act,
1961.
10. In order to apply the provisions
of the Act, 1961, first 'gross total
income' is to be computed. In order
to compute 'gross total income' for
the year under consideration, it is
to be verified whether the assessee
is entitled to any carry forward or
set off of the business losses of
the previous year or not which is
available at the beginning of the
year. For the purpose of computing
'gross total income' in the facts of
the case, it is not in dispute that
after the carry forward loss is set
off, there was positive income prior
to deduction under Chapter VI A of
the Act, 1961.
11. The submission made on behalf of
the Revenue that only section 72 of
the Act should be considered for the
purpose of computation of quantum of
deduction under section 80-IA
without giving effect to the
provisions of section 79 of the Act,
is contrary to the Scheme of the Act
inasmuch as it is not the intention
of the legislature to deny
legitimate deduction available to
the assessee in the manner in which
the authorities have tried to apply
the provisions of section 80-IA(5)
of the Act.
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12. The plain reading of section 80-
IA(5) of the Act indicates that it
nowhere provides that for the
purpose of computation of quantum of
deduction under sub-section(1) of
section 80-IA, the losses which have
lapsed by operation of section 79 of
the Act has to be ignored and
thereafter the provisions of section
72 has to be applied. If such
interpretation is accepted, the
carry forward of losses which
otherwise is not available to the
assessee to be set off, cannot be
considered for the purpose of
computation of quantum of deduction
under sub-section(1) of section 80-
IA of the Act, 1961 when there is
only one eligible business from
which the profit and gain is derived
by the assessee for the year under
consideration.”
59. Applying the ratio to the facts of the
case when the loss is already set-off against
the profit of other business income of the
assessee in the earlier years than the
initial assessment year, then the assessee is
not required to carry forward such loss which
has already been set-off on notional basis
for computation of profit for deduction under
section 80IA of the Act. Decision of Madras
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C/TAXAP/1521/2010 CAV JUDGMENT DATED: 30/10/2026
(GJHC240462222010)
High Court as well as Circular No. 1/2016 has
also been applied by the Delhi High Court in
case of Sterling Agro Industries Limited
(supra).
60. With regard to the decision of Rajasthan
High Court in case of Mewar Oil and General
Mills Ltd. (supra), same has already been
considered and applied by the Madras High
Court and the Madras High Court has also
disagreed with the contention of the Revenue
and held that loss in earlier year to the
initial assessment year already absorbed
against profit of other business, cannot be
notionally brought forwarded and set-off
against profit of the eligible business, as
no such mandate is provided in section
80IA(5)[After1-4-2000]/80IA(7)[prior to 1-4-
2000] of the Act.
61. In view of above conspectus of law and
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C/TAXAP/1521/2010 CAV JUDGMENT DATED: 30/10/2026
(GJHC240462222010)
for the foregoing reasons, the questions of
law are answered in favour of the assessee
and against the Revenue. Appeals are
accordingly allowed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
RAGHUNATH R NAIR
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