Mohan Breweries & Di... v. Assistant Commissio..., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

IT Appeal No. 1077 (Mad.) of 2007

Advocates

V. Jayaram

Judges

N. VIJAYAKUMARANCHANDRA POOJARI

Acts

clause (i) of sub-section (4), the provisions of this sub-section
section 80-IA. Therefore, the provisions of sub-section (5)
provisions of section 80-IA(5) read with section 80-IA(1)
section 80-IA. Hence the provisions of section 80-IA(5)
SECTION 80 IA INCOME TAX ACT
section 143(3) read with section 263.
section 80-IA(4)(iv). Section 80-IA(2)
section 80-IA, the section 80-IA(5)
(b) Sub-section (2) of section 80-IA
sub-section (1) of section 80-IA
section 80-IA or section 80-IB
section 80-IA."80-IA. Deductions
provisions of section 80-IA(5)
section 80-I(6) the provisions
section 80-IA(7).Section 80-IA,
provision of section 80-IA(5)
clause (iii) of sub-section (4)
provisions of sub-section (1)
FINANCE ACT 1999
provisions of section 80-IA
provision of sub-section (1)
provision of sub-section (5)
provision of section 80-IA
1-4-2000, section 80-IA(2)
sub-section (1) of 80-IA
section 80-IA.3.2
Section 80-IA(5)
(c) Sub-section (5)
section 80-IA(7)
section 80-IA(2)
section 80-IA(1)
INCOME TAX ACT
section 80-IA

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Smart Summary

Factual and Procedural Background

The assessee company set up three power projects (two relevant to assessment year 1996-97 and one relevant to assessment year 1999-2000). The assessee claimed deduction under section 80-IA for the first time in assessment year 2004-05 (this fact is recorded by the CIT(A)). The Profit & Loss account showed that losses from these three units had been set off against the company's income in earlier years. The Assessing Officer (AO) took the view that, when computing gross total income for the year in which deduction under section 80-IA is first claimed, notionally brought forward losses from earlier years must be taken into account first and only the remaining profit, if any, would be eligible for deduction under section 80-IA. The CIT(A) confirmed the AO's approach, holding that earlier years' losses must be notionally brought forward and adjusted to determine the actual profit for the purpose of the section 80-IA deduction. The assessee appealed to the Tribunal against the CIT(A)'s order dated 21-3-2007. The present order by the Tribunal (Accountant Member Chandra Poojari) disposes of that appeal.

Legal Issues Presented

Whether a deduction under section 80-IA, claimed for the first time in a later assessment year (here, 2004-05), must be computed after notionally carrying forward and setting off unabsorbed losses and depreciation attributable to the eligible undertaking from earlier years.
Whether section 80-IA(5) (treating the eligible business as if it were the only source of income for determination of deduction) can be applied to assessment years prior to the initial assessment year chosen by the assessee for claiming relief under section 80-IA.
What is the effect of the amendment to section 80-IA by the Finance Act, 1999 (effective 1-4-2000) — in particular the option in section 80-IA(2) to claim deduction for any ten consecutive assessment years out of fifteen — on the computation of deduction and on the applicability of prior tribunal decisions delivered before the amendment.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The deduction under section 80-IA should be allowed in respect of the income of the industrial undertaking without adjustment or set off of notionally brought forward losses from earlier years; there is no concept in the Income-tax Act of notionally carrying forward losses in the manner contended by the AO.
Section 80-IA(2) (as amended by Finance Act, 1999) gives the assessee an option to claim deduction under section 80-IA(1) for any 10 consecutive years out of 15 beginning from the year in which the undertaking begins to operate or generate power; it is the assessee's option to choose the initial assessment year for claiming the ten-year block.
If the assessee exercises the option to claim deduction in a particular year, the deduction should be computed as if the eligible business were the only source of income for 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 — but this computation applies only from the initial assessment year chosen by the assessee.
Section 80-IA(5) (or sub-section (5) of the section) applies only to assessment years when sub-section (1) applies, i.e., when the deduction is actually claimed. If the deduction was not claimed in earlier years, provisions of sub-section (5) are not operative for those years.
The definition and concept of "initial assessment year" must be read in the context of the option given to the assessee; where the statute gives an option, the initial assessment year is the year from which the deduction is claimed by the assessee. The assessee relied on the Mumbai Tribunal decision in Jt. CIT v. Cipla Ltd. ([2005] 2 SOT 617) as supporting this view.
Accordingly, for the facts of the present case, the assessee argued that the initial assessment year is the current year in appeal (2004-05), and therefore depreciation and losses of earlier years cannot be notionally carried forward under section 80-IA(5) to defeat the current-year claim.

Respondent's (Departmental) Arguments

The Department relied on earlier tribunal decisions (Prasad Productions (P.) Ltd. v. Dy. CIT [2006] 98 ITD 212 (Chennai), Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160 (Mumbai), and ITO v. Kanchan Oil Industries Ltd. [2005] 92 ITD 557 (Kol.)) which held that, because of the non obstante clause in the relevant provision, profits and gains of a new industrial undertaking are to be computed as if the undertaking were the only business of the assessee from its establishment and that past years' depreciation and losses relating to the undertaking are to be set off against the income of the assessee from the undertaking.
The Department filed a letter asserting that the assessee had in fact claimed section 80-IA deductions in earlier assessment years (1999-2000 and 2000-01), and therefore assessment year 1999-2000 should be treated as the initial assessment year rather than 2004-05.
Relying on the wording of section 80-IA(7) (as used in some earlier decisions), the Department argued that unabsorbed losses and depreciation relating to the eligible business must be taken into account in determining the quantum of deduction under section 80-IA even if those had been set off against profits from other sources.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Prasad Productions (P.) Ltd. v. Dy. CIT [2006] 98 ITD 212 (Chennai)	Held that due to the non obstante clause the profits of a new industrial undertaking are to be computed as if it were the only business of the assessee and past years' depreciation and losses are to be set off against income of the undertaking.	The Tribunal considered this authority but observed that it relates to assessment years prior to the Finance Act, 1999 amendment; consequently the court held that such pre-amendment decisions are not applicable to the facts governed by the amended section 80-IA effective 1-4-2000.
Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160 (Mumbai)	Interpreted section 80-IA(7) (pre-amendment context) to require that taxable income of the eligible business be ascertained as if it were an independent unit, resulting in taking into account unabsorbed losses and depreciation relating to the eligible business for determining deduction.	The Tribunal noted this authority but treated it as a pre-amendment decision and therefore not applicable to the present case governed by the post-1999 amendment to section 80-IA.
Jt. CIT v. Cipla Ltd. [2005] 2 SOT 617 (Mumbai Tribunal)	Supported the view that the initial assessment year is the year in which relief under section 80-IA is claimed, and that unabsorbed depreciation from years prior to the initial assessment year need not be notionally carried forward.	The Tribunal recorded that this decision supports the assessee's argument and cited it as persuasive support for treating the year of first claim (2004-05) as the initial assessment year for application of section 80-IA(5).
ITO v. Kanchan Oil Industries Ltd. [2005] 92 ITD 557 (Kol.)	Held that unabsorbed losses and depreciation relating to the eligible business must be taken into account in determining the quantum of deduction under section 80-IA even if they were set off against other income.	The Tribunal noted this authority but treated it as a pre-amendment decision and therefore not applicable to the facts controlled by the amended section 80-IA effective 1-4-2000.

Court's Reasoning and Analysis

The Tribunal heard rival submissions, examined the material on record and reviewed the authorities relied upon by the Departmental Representative. The Tribunal made these central analytical points (as recorded in the order):

Applicability of the Finance Act, 1999 amendment: The Tribunal noted that section 80-IA was amended by the Finance Act, 1999 with effect from 1-4-2000. The post-amendment text (quoted in the order) includes section 80-IA(2), which expressly gives an option to the assessee to claim the ten-year deduction for any ten consecutive assessment years out of fifteen beginning from the year the undertaking begins to operate/generate power, and section 80-IA(5), which prescribes computation of profits of the eligible business "for the purposes of determining the quantum of deduction" as if the eligible business were the only source of income for the previous year relevant to the initial assessment year and subsequent years.
Interpretation of section 80-IA(2): The Tribunal concluded that section 80-IA(2) grants the assessee the option to decide the initial assessment year for claiming the ten consecutive years of deduction and does not mandate that the option must be exercised in the first year of the enterprise's operation. Thus the legislative scheme allows the assessee to choose which year within the statutory block to begin the ten-year claim.
Scope of section 80-IA(5): The Tribunal held that section 80-IA(5) is applicable only when the assessee chooses to claim the deduction under section 80-IA. If the assessee has not chosen to claim deduction in earlier years, then section 80-IA(5) cannot be made applicable retroactively to those prior years to notionally carry forward depreciation or losses.
On the Department's factual contention about earlier claims: The Tribunal observed that the lower authorities (AO and CIT(A)) had found that the first year in which the assessee claimed deduction was assessment year 2004-05. The Departmental Representative filed a letter asserting claims in earlier years (1999-2000 and 2000-01), but the Tribunal held that this letter contradicted the findings of the lower authorities and was not supported by proper evidence as required by ITAT Rules (Rules 10 and 29). Because the Department had not produced supporting affidavits or documents in accordance with those rules, the Tribunal declined to consider the Department's contrary statement.
Conclusion on facts and law: Given the assessee's recorded position (and the Tribunal's acceptance of the lower authorities' factual finding that 2004-05 was the first year the deduction was claimed), and given the statutory option under section 80-IA(2) as amended, the Tribunal concluded that the "initial assessment year" for the purposes of section 80-IA(5) was the assessment year 2004-05. Consequently, section 80-IA(5)'s notion of treating the eligible undertaking as a sole source of income could not be applied to years prior to 2004-05; unabsorbed depreciation and carried forward losses of earlier years could not be notionally brought forward and set off against the assessee's profits for determining the section 80-IA deduction in 2004-05.
Treatment of earlier precedents: The Tribunal explicitly noted that the case law relied upon by the Department concerned assessment years prior to the Finance Act, 1999 amendment and therefore did not govern the present matter which is controlled by the amended section 80-IA effective from 1-4-2000.

Holding and Implications

Holding: The Tribunal allowed the appeal of the assessee. It held that the initial assessment year is the assessment year in which the assessee first exercises the option to claim deduction under section 80-IA (here, 2004-05), and that section 80-IA(5) (treating the eligible business as the sole source of income) cannot be applied to assessment years prior to that initial assessment year. Consequently, notionally carrying forward and setting off unabsorbed depreciation or losses from earlier years against the profits of the units for the purpose of computing the section 80-IA deduction in 2004-05 was not permissible; the assessee was entitled to claim the deduction on the current year's profit for that assessment year. The appeal was allowed.

Implications:

Direct effect on the parties: The assessee's claim for deduction under section 80-IA for assessment year 2004-05 is allowed; notionally carried forward unabsorbed depreciation and losses from years prior to 2004-05 will not be set off for computing that deduction.
No broader rule beyond the statutory amendment was declared: The Tribunal relied on the amended statutory scheme (Finance Act, 1999, effective 1-4-2000) to reach its conclusion and observed that earlier tribunal decisions delivered before the amendment were not applicable to the present facts. The order does not purport to create a new principle beyond the application of the post-amendment text to the facts before it.

Result recorded in the order: The appeal of the assessee is allowed.

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Mohan Breweries & Distilleries Ltd. v. Assistant Commissioner of Income-tax, Central Circle I(3), Chennai

ORDER

Per Chandra Poojari, Accountant Member. - This appeal by the assessee is directed against the order of the CIT(A) dated 21-3-2007. The assessee raised the ground that CIT(A) erred in confirming the withdrawal of deduction under section 80-IA and confirming the setting off the notionally carried forward loss against profits generated by the industrial undertaking during the relevant assessment year.

2. The brief facts of the issue are that the assessee company has started three power projects. Two power projects in the previous year relevant to the assessment year 1996-97 and one in the previous year relevant to assessment year 1999-2000. As per findings of the CIT(A) which appeared in para 2 of appellate order, the assessee claimed deduction under section 80-IA for the first time in the current assessment year viz., assessment year 2004-05. On going through the P&L a/c, it is seen that the assessee has been setting off loss from these three units against income of the company for the earlier years. This is the first year of claim of deduction under section 80-IA. According to the Assessing Officer while computing the gross total income, the notional brought forward loss has to be taken into account first and after this, if any remaining profit is available then the deduction under section 80-IA has to be given. Being aggrieved the assessee went in appeal before the CIT(A). The CIT(A) considered submission of assessee and observed that provisions of section 80-IA are to be applied only in the year in which the deduction is claimed. But when the claim is made, deduction has to 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 years and to every subsequent assessment year. Therefore, the only interpretation of this can be that the earlier years' losses are to be notionally brought forward and adjusted and arrive at what exactly is the actual profit and if the actual profit arrived in this way is negative, then the assessee is not eligible for any deduction. Thus he rejected the claim of the assessee. Aggrieved the assessee is in appeal before us.

3.1 The learned counsel for the assessee submitted that deduction under section 80-IA should have been allowed in respect of income of the assessee from the industrial undertaking without adjustment or set off of any notionally brought forward losses of earlier years pertaining to this industrial undertaking. He submitted that there is no concept under the Income-tax Act of notionally carrying forward the losses. Further he submitted that the assessee has option to claim deduction under section 80-IA(1) for any 10 consecutive years out of 15 years beginning from the year in which the undertaking begins to operate/generate power. He submitted that the assessee can claim this deduction for 10 consecutive years out of 15 years from the assessment year immediately succeeding the initial assessment year or subsequent assessment years. Further he submitted that it is at the option of the assessee to claim deduction from first; second; third; fourth or fifth or any year. It is the option of the assessee. The Department cannot compel the assessee to claim the deduction from first year only. When the assessee exercises such option then deduction should be computed as if such eligible business were only the source of income of the assessee during the previous year relevant to the initial assessment year and every subsequent assessment year upto and including the assessment year which the determination has to be made. Further he submitted that the case law in the cases of Prasad Productions (P.) Ltd. v. Dy. CIT [2006] 98 ITD 212 (Chennai) and Addl. CIT v. Ashok Alco Chem Ltd. [2005] 96 ITD 160 (Mum.) were not applicable to the facts of the case. These order were delivered before the amendment to section 80-IA. By amendment by the Finance Act, 1999 with effect from 1-4-2000, section 80-IA(2) was introduced which has given the option to the assessee to opt the initial assessment year to claim deduction under section 80-IA.

3.2 Further he submitted that :

(a) Without prejudice assuming but not accepting that the interpretation of the Assessing Officer is adopted, still the provisions of section 80-IA(5) cannot be applied in the case of the assessee in respect of the years prior to the year under appeal. section 80-IA(5) refers only to assessment years, when sub-section (1) of 80-IA is applicable, i.e., when the deduction in that section is claimed. If the deduction is not at all claimed, then provision of sub-section (1) is not applicable and consequently provision of sub-section (5) is also not applicable.

3.3 The learned counsel submitted that :

(b) Sub-section (2) of section 80-IA gives an option to the assessee to claim deduction under sub-section (1) of section 80-IA for any 10 consecutive years within 15 years from the year of generation of electricity. Therefore, when the assessee does not opt for deduction under section 80-IA in the initial years, the provision of section 80-IA itself will not apply. So, for the period when this was not claimed, provision of sub-section (1) is not at all applicable.

3.4 The learned counsel submitted that :

(c) Sub-section (5) becomes applicable from 'initial assessment year'. But the words 'initial assessment year' have not been defined in section 80-IA or section 80-IB in this year. However, a reading of sub-section (5) would clearly show that the initial assessment year will commence and apply only to the previous year in which sub-section (1) applies to an undertaking i.e., when the undertaking claims deduction for the first time under section 80-IA. Therefore, the provisions of sub-section (5) and treating each undertaking as a separate and sole source of income, undertaking cannot be applied to years prior to the year in which relief under section 80-IA is claimed for the first time. Therefore for the years in which relief under section 80-IA was not claimed, depreciation and loss relating to an eligible unit, which has not been set off against the income of the other business of the assessee, cannot be notionally carried forward under sub-section (5) of section 80-IA—as it is not at all operative or applicable for those years. The decision of the Mumbai Tribunal in the case of Jt. CIT v. Cipla Ltd. [2005] 2 SOT 617 also supports this view.

3.5 The learned counsel submitted that :

(d) In the case of an enterprise carrying on the business of developing, operating and maintaining any infrastructure facilities, there was an option to claim deduction under section 80-IA for a period of 10 consecutive assessment years, within a block of 12 assessment years from the year of commencement of the activity. In this context, the initial assessment year has been defined as the assessment year specified by the assessee at his option to be the initial year not falling beyond the 12th assessment year from the previous year in which the enterprise begins to operate the facility. Therefore, wherever the option for claiming the relief is given in the statute, the initial assessment year would mean the year from which the deduction is claimed by the assessee.

3.6 The learned counsel for the assessee further submitted that:

(e) In the circumstances and the facts of the present case, the initial assessment year is the current year in appeal and the assessee has claimed the relief for the first time. Therefore, the provisions of section 80-IA(5) read with section 80-IA(1) will not be applicable for the earlier assessment years and there is no question of notionally carrying forward any loss or unabsorbed depreciation from these years. The decision of the Mumbai Tribunal in the case of Cipla Ltd. ( supra ) also supports this view. In that case, the assessee had claimed depreciation in the year when there was commercial production, but relief under section 80-IA was claimed in the subsequent year of commercial production. Mumbai Tribunal held that the year in which the relief was claimed was the initial assessment year and therefore, there was no question of carrying forward unabsorbed depreciation from any year prior to the initial assessment year.

4. On the other hand, the Departmental Representative relied on the Tribunal decision in the case of Prasad Productions (P.) Ltd. (supra) wherein it is held :

"Because of non obstante clause contained in section 80-I(6) the provisions will have overriding effect over other provisions of the Act. Section 80-I(6) does enact a legal fiction providing that the profits and gains of new industrial undertaking shall be computed as if the new industrial undertaking were the only business of the assessee from the date of its establishment and the past years' depreciation and losses are to be set off against the income of assessee from the undertaking. Therefore, the new industrial undertaking is retrospectively quarantined or isolated from the other income-producing activity for determining the profits and gains for the purpose of eligibility under section 80-I."

He further relied on the Tribunal decision in the case of Ashok Alco Chem. Ltd. (supra) wherein it is held :

"The language of section 80-IA(7) is clear, according to which, taxable income of eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee and the assessee had no other source of income. It is only consequential that the unabsorbed losses, unabsorbed depreciation, etc., relating to eligible business are to be taken into account in determining the quantum of deduction under section 80-IA, even though these may have actually been set off against the profits of the assessee from other sources. In that view of the situation, the Assessing Officer had rightly denied the deduction under section 80-IA in respect of these two units, there being a loss in respect of the said units as computed within the meaning of section 80-IA(7).

section 80-IA, being beneficial provision, even though liberal interpretation has to be given to such a provision, the interpretation has to be as per the wordings of the section. The wordings of section 80-IA(7) are clear and there is no ambiguity therein. Therefore, there was no scope for conferring the benefit sought by the assessee by ignoring or misinterpreting words in section 80-IA(7)."

The Departmental Representative also placed reliance on the Tribunal decision in the case of ITO v. Kanchan Oil Industries Ltd. [2005] 92 ITD 557 (Kol.) wherein it is held as follows :

"Conversely, the unabsorbed losses, unabsorbed depreciation etc., relating to the eligible business are to be taken into account in determining the quantum of deduction admissible under section 80-IA even though these unabsorbed losses, unabsorbed depreciation etc., relating to the eligible business may actually have been set off against the profits of the assessee from non-eligible business or other sources. Thus, the gross total income referred to in sections 80A(1) and (2), 80AB and 80B(5), for the purpose of determining the quantum of deduction available under section 80-IA for the relevant assessment year, would mean the total income computed in accordance with the provisions of the Act, before making any deduction under Chapter VI-A, with reference to the profits and gains of an eligible business only to which section 80-IA apply as if such eligible business were the only source of income of the assessee during that assessment year. This is what which can be reasonably and harmoniously emerged from and derived out on conjoint reading of sections 80-IA(5), 80A, 80AB and 80B(5) of the Act."

5. We have heard the rival submissions and perused the material on record. We have gone through the case laws relied on by the Departmental Representative. These case laws are relating to the assessment years prior to the amendment inserted by Finance Act, 1999. The new amended section 80-IA came into force from 1-4-2000. Hence the new amended section 80-IA is applicable to the facts of the case. Now let us examine the case in view of the new amendment in section 80-IA.

"80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.—(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 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 of 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 have effect as if for the words 'fifteen years', the words twenty years' had been substituted.

(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 upto and including the assessment year for which the determination is to be made."

section 80-IA as enacted by Finance Act, 1999 with effect from 1-4-2000 as stated earlier gives an option to the assessee with effect from 1-4-2000 to claim relief under this section for any 10 consecutive assessment years out of 15 years beginning from the year ending in which the undertaking or enterprise develops or begins to operate any infrastructure facility etc. It is left to the assessee at its will to claim this relief from the first assessment year, or from the second or from the third or so as it might think fit. Once the assessee has opted the first year of relief then it continues for further 9 consecutive years. To claim this relief the undertaking is to be set up during the period 1-4-1993 to 31-3-2006. This is as per section 80-IA(4)(iv). section 80-IA(2) clearly states that assessee can opt for year of deduction for any 10 consecutive years out of 15 years taken from the first year in which the undertaking or enterprise develops and begins to operate any infrastructure activity. It can be seen that section 80-IA(2) does not mandate that first year of 10 consecutive assessment years should be always the first year of set up of enterprise. If the intention of the Legislature is that the first year of set up is the initial assessment year to claim deduction under section 80-IA, then there is no meaning giving option to the assessee to claim deduction for 10 consecutive assessment years out of 15th years. The meaning of the section 80-IA(2) is that the assessee can exercise the option in any 10 consecutive years starting from the first year in which the undertaking begins to operate any infrastructure facility. If the assessee opts to exercise the claim for first year, it should continue to claim the deduction for another 9 years. If it opted the second year to claim deduction, it should continue for another 9 years till the 11th year; similarly if it opted to claim relief from the 3rd year, it will end in the 12th year; if it opted to claim from the 4th year then it will end in the 13th year; if it opted to claim from the 5th year it will end in the 14th year and if it opted to claim from the 6th year it will end in the 15th year. section 80-IA(2) has no provision for the assessee to claim deduction in any assessment year starting from the first assessment year. The provision of section 80-IA(5) is applicable only when assessee chooses to claim deduction under section 80-IA and if the assessee has not chosen to claim the deduction under section 80-IA, the section 80-IA(5) cannot be made applicable. In the present case, there is a categorical finding by the Assessing Officer and CIT(A) that the fist year claimed is from the assessment year 2004-05. At the time of hearing the learned Departmental Representative filed a letter which reads as follows :

"Assessee's claim is that assessment year 2004-05 is the 'initial assessment year'. However, from a perusal of records the following facts are observed:

Asst. yr. 1999-2000

Assessee claimed deduction of Rs. 2,15,59,112 under section 80-IA of the Income-tax Act. The Assessing Officer rejected the claim under section 143(3) read with section 263. Aggrieved by the order the assessee preferred an appeal before the CIT(A) agitating inter alia the claim for a deduction under section 80-IA. The CIT(A) vide his order in ITA No. 39/2005-06/dated 4-8-2005 in para No. 12 directed the Assessing Officer to allow the claim under section 80-IA which was accordingly allowed.

Asst. yr. 2000-01

In this assessment year also the assessee in the computation memo claimed deduction under section 80-IA of an amount of Rs. 1,20,19,495 which was allowed in full by the Assessing Officer in the regular assessment order under section 143(3) dated 28-3-2003.

This being the position, the statement of the assessee that the claim under section 80-IA claimed for the first time in the assessment year 2004-05 is totally contrary to the facts as mentioned. This proves that assessment year 2004-05 is not the initial assessment year as claimed by the assessee.

The fact of the matter is that assessee exercised its option of claiming deduction under section 80-IA in the assessment year 1999-2000 itself Therefore, assessment year 1999-2000 is initial assessment year."

But this letter is contrary to the findings of the lower authorities. The lower authorities categorically observed that the first year in which deduction was claimed was 2004-05. We have already narrated in the facts of the case that if the facts stated by the Assessing Officer or CIT(A) are wrong the Departmental Representative is required to adduce the evidence as per rules 10 and 29 of ITAT Rules, 1963 which read as follows :

"Rule 10. Filing of affidavits.—Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit."

"Rule 29. Production of additional evidence before the Tribunal.—The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the Income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced."

These facts are contrary to the facts recorded by the CIT(A) and Assessing Officer. It cannot be considered. The above statement made by the Assessing Officer is not in accordance with rules 10 and 29. Hence we are decline to consider the same.

6. Adverting to the facts of the case the initial assessment year in this case starts from 2004-05. Since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA. Hence the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA. At the cost of repetition, we make it clear that the case laws relied on by the Departmental Representative are delivered before the amendment to section by Finance Act, 1999. Before the amendment the initial assessment year was defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year of claiming relief under section 80-IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and assessee is entitled to claim deduction under section 80-IA on current assessment year on the current year profit. Accordingly we allow the claim of the assessee.

7. In the result, the appeal of the assessee is allowed.

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Mohan Breweries & Di... v. Assistant Commissio...