By TIOL News Service

AHMEDABAD, SEPT 27, 2018: THE ISSUE IS - Whether if additional relief claimed by the assessee on the basis of judicial precedents brings the assessed income below the returned income, an appellate authority has the jurisdiction to allow such deductions whether revised return was filed or not. YES IS THE ANSWER.

Facts of the case

The assessee company, engaged in generation of electricity through windmill, had claimed deduction of Rs. 3,05,59,000/- u/s 80IA(4) of the Act in respect of its windmill project. The assessee submitted that the amount of deduction had been arrived after considering the notional brought forward losses and depreciation of the windmill business even though such losses/depreciation had been duly set off against other income generated in the earlier AYs. The assessee accordingly claimed deduction after set off of carry forward notional losses and computed the eligible profit for deduction at Rs.3,05,59,270/-.

The AO however denied the deduction on the ground that the assessee could not have set off the losses of eligible business against the income of the regular business in the earlier year when it intended to claim deduction u/s 80IA(4) of the Act in the succeeding AYs. Consequently, the addition of Rs. 3,05,59,000/- was made to the total income by denying the claim of deduction.

Aggrieved, the assessee preferred appeal before the CIT(A) and filed additional ground seeking claim of deduction of entire profit generated from windmill power project without reducing notional brought forward losses and depreciation. The CIT(A) agreed in principle that the assessee was eligible for deduction u/s 80IA(4)(iv) of the Act of the entire profit from its windmill projects unencumbered and unimpacted by the claims or carry forward of depreciation or losses of the past years prior to 'initial assessment year' as opted by the assessee. The CIT(A) however observed that such additional claim of deduction 80IA(4) on account of wrong set off of notional business loss/depreciation, could be entertained only where the assessee had revised its original return. The CIT(A) accordingly accepted the claim of Rs. 3,05,59,000/- towards deduction u/s 80IA(4) of the Act as made in the return of income but however declined the additional claim of Rs. 7,35,01,934/- raised by the assessee by way of additional ground that arose due to wrong set off towards notional losses of earlier years.

On appeal, Tribunal held that,

++ the claim made by the assessee in its return of income towards deduction u/s 80IA(4) of the Act was duly accepted by the CIT(A) at the first appellate stage. The CIT(A) refused his indulgence towards the additional claim arose on account of re-working of deduction in the light of prevailing judicial precedents and CBDT Circular No.1 of 2016 dated 15.02.2016 on the ground that the assessee has failed to file the revised return and consequently the additional relief cannot be entertained as it would have the effect of bringing the assessed income below the returned income. But no merit was found in this contention;

++ the appellate authority is not precluded from adjudicating the additional claims of an assessee regardless of whether the return was revised or not. The Revenue is under duty to assess the true profits of an assessee and cannot take advantage of the ignorance of the assessee on the provisions of the Act. Thus, the action of the CIT(A) to this extent requires to be set aside and additional claim of the assessee amounting to Rs.7,35,01,934/- requires to be entertained. However, in the same vain, it was noticed that the quantification aspects of additional claim flowing from notional set off / carry forward of losses of earlier years from eligible profits has not been examined by the authorities below. Accordingly, it was decided to set aside the issue to the file of the AO for the limited purposes of determination of correct quantum of deduction to be computed without setting off any notional losses of the windmill power project pertaining to the earlier assessment years. The AO shall allow enhanced deduction u/s 80IA(4) of the Act as eligible to assessee in accordance with law regardless of claim made by the assessee in this regard in its return of income.

(See 2018-TIOL-1641-ITAT-AHM)