Provisions Regarding Loss Carry Forward under Section 80-IA (5)

Narendra Kumar

04 Sep, 2019

Issues on Provisions Regarding for Carrying Forward of Loss under Section 80-IA (5) Of Income Tax Act, 1961

Income tax of India has always been progressive nature and emphasize and motivate the investor to invest in India for the growth of parties involved therein. A number of Schemes and offer in tax have always incentivized the different sector and business activity of the country. Provisions Regarding of tax in India somewhere provide a benefit based on Investment made in particular sector in order to boost that sector. In this article, we will discuss the most disputable provisions Regarding of Section 80-IA (5).

The series of Section 80 is investment-linked benefit out of which on today’s article, we will discuss on Section 80-IA and it stands for deduction in respect of profits and gains from Industrial Undertakings or enterprises engaged in Infrastructure Development. Moving ahead, we will discuss the most disputable provisions Regarding of Section 80-IA in this article i.e. Section 80-IA (5) the provisions Regarding is given below:-

The provision given in Act is read as below:-

“(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 assesse 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.”

The beginning of this provision gives it’s a specific right to prevail over and above the other provisions Regarding stated in this act. Further below points to be satisfied

1. Profit and gains of an eligible business
2. Section 80-IA (1) need to apply on such business
3. Quantum of Deduction for AY immediately succeeding the initial AY or any subsequent AY is computed as if such eligible business were the only source of income of the assessee.

Now let’s have a pointwise discussion on brief:-

1. Profit and gains of an eligible business.

The provision of the act is quite clear on the deduction portion if any are based on profits and gains of an eligible business.

An eligible business is defined u/s 80-IA (4) which more or less describe the following the business.

• Enterprise carrying the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining infrastructure facility

• Telecommunication services on or after the 1^st day of April 1995 but on or before the 31^st day of March 2005
• Any Undertaking which develops and operates or maintains and operates an Industrial Park or special economic zone for the period beginning on the 1^st day of April 1997 and ending on the 31^st day of March
• An undertaking which set up generation or generation and distribution of power if it begins to generate Power
• An undertaking owned by an Indian Company and set up for reconstruction or revival of a power generating plant.

(Note: As this is Investment linked deduction benefit under Income Tax Audit so it does have condition and criteria to meet.)

1. Section 80-IA (1) need to apply on such business

This provides the deduction of an amount equal to 100% of the profits and gains derived from the eligible business for ten consecutive assessment years.

1. Quantum of Deduction for AY immediately succeeding the initial AY or any subsequent AY is computed as if such eligible business were the only source of income of the assessee.

For example, any access doing eligible business and say for Financial Year 2012-13 then the assessment year will be 2013-14 where the assessee can claim 100% deduction of profits and gains derived from eligible business for ten consecutive assessment years.

This is a basic requirement of Section 80-IA, now as we have a practical approach to understanding the matter. It is very clear on the provision that the provisions Regarding entirely talks about the profits and gains derived from the eligible business which will get a deduction of 100% from initial assessment year to ten consecutive assessment years. Now the query is what the taxation treatment of loss accumulated from the starting period to that first assessment year in which the assessee derives the profits and gains from eligible business.

Suppose assess having an eligible business which started from the financial year 2005-06 and has derived profit and gains on the financial year 2008-09. The question of debate is the profit earned during the assessment year 2009-10 [Financial Year 2008-09] would be entitled to the deduction under Section 80-IA (5) of the Act without deducting the losses from the financial year 2005-06 to 2007-08, which were absorbed in the earlier years.

In the judgment of the Madras High Court in case of Velayudhaswamy Spinning Mills Private Limited & Sudan Spinning Mills Private Limited, court observed and decide when the assessed exercises the option, the only losses of the years beginning from initial assessment years alone are to be brought forward and no losses of earlier years which were already set off against the income of assessee, is not eligible to set off against the income of assessee. In our example assess has already set off the losses of earlier years and the profit and gains derived from the eligible business Assessment Years 2009-10 are not allowed to set off against such profits and gains. Hence the first initial assessment year will be Assessment Years 2009-10, and the ten consecutive assessment years will count from Assessment years 2009-10.

Recently Bombay High Court in CIT vs Hercules Hoists Ltd has also announced the similar version of opinion regarding the allowability of losses carried forward and set off earlier years in case of first assessment years of eligible business described and mention in Section 80-IA (5) of Income Tax Act^[1].

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