ITAT Orders Review of S.80I Income Tax Deduction Claim by Windmill Business amidst Conflicting Precedents [Read Order]

The Income Tax Appellate Tribunal ( ITAT ) of Ahmedabad recently remanded a case involving a Section 80IA deduction claim by a company engaged in windmill power business amidst conflicting precedents in previous similar cases.

The case arose after the Revenue challenged a Rs. 1,56,66,658/- deduction allowed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 80IA of the Income tax Act 1961 ( ITA ), claiming it was erroneously granted.

The assessee, Shilp Gravures Limited, engaged in manufacturing electronically engraved copper rollers and operating a windmill power business, filed its return of income for the assessment year 2017-18 declaring a total income of Rs. 8,72,74,960/-, which included a deduction under Section 80IA of the tax statute for income generated from the sale of windmill power.

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This return was initially processed under Section 143(1) of ITA, but it was later selected for full scrutiny under the Centralized Processing of Scrutiny Cases (CASS). The Assessing Officer (AO) raised questions about the large deduction claim in comparison to earlier years, and the assessee responded with detailed evidence and certificates. However, the AO ultimately disallowed the deduction, arguing that it should be computed after considering notional brought-forward losses and depreciation of the eligible business, even if these had already been set off against other income in earlier years. This disallowance raised the total income to Rs. 10,29,41,620/-.

Aggrieved by the AO’s decision, the assessee appealed to the CIT(A), who overturned the AO’s disallowance.

 The CIT(A) relied on the assessee’s previous successful claims for Section 80IA deductions for the assessment years 2010-11 to 2013-14 and also on the favorable ruling by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. v. ACIT (2012), which had held that losses from earlier years absorbed by profits from other businesses should not be brought forward when computing deductions under Income tax Section 80IA. This ruling had been upheld by the Supreme Court, although without creating a binding precedent through the dismissal of the Revenue’s Special Leave Petition (SLP).

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Unsatisfied with the CIT(A)'s ruling, the Revenue appealed to the ITAT.

During the appeal before the tribunal, the Senior Departmental Representative (DR) Mr. Santosh Kumar argued that while the tribunal had previously decided in favor of the assessee for the 2013-14 assessment year, new facts warranted a re-examination of the current case. He requested the case be remitted to the AO for fresh scrutiny.

In opposition, on behalf of the assessee, Senior Counsel Mr. S.N. Divetia reiterated that the tribunal’s earlier favorable rulings should be applied to the present case as well. He presented additional documentation, including certificates from the Gujarat Energy Development Agency ( GEDA ), supporting the assessee's installation of new windmills for power generation.

The tribunal, consisting of Mr. Ramit Kochar and Mr. T.R. Senthil Kumar, examined the conflicting legal precedents. It was observed that the AO’s disallowance was based on the tribunal’s decision in ACIT v. Goldmine Shares & Finance (P) Ltd. (2008), which mandated that notional brought-forward losses be considered. However, the CIT(A) had favored the Madras High Court ruling in Velayudhaswamy Spinning Mills Pvt. Ltd., which supported the assessee’s position.

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The tribunal also noted that different High Courts had conflicting interpretations. The Karnataka High Court, in Micro Labs Ltd. v. ACIT (2015), supported the Revenue, while the Delhi and Madras High Courts had ruled in favor of the taxpayer. Citing the Supreme Court’s decision in CIT v. Vegetable Products (1973), the tribunal stressed that in cases of conflicting non-jurisdictional High Court rulings, the view favorable to the assessee should prevail.

Despite this legal clarity, the tribunal observed  that the CIT(A) had not fully verified important factual elements, such as the installation of a new windmill at Nani Malti, Jamnagar, in the financial year 2013-14, and the fact that the assessment year 2017-18 was the first year for claiming deductions for this windmill. Additionally, the windmill in Navedra had completed its last eligible deduction year during the same assessment period. As these facts had not been thoroughly examined, the tribunal remitted the case back to the CIT(A) for further factual verification.

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In result, the ITAT allowed the Revenue’s appeal for statistical purposes and directed the CIT(A) to reconsider the deduction claim after verifying the facts, particularly in relation to the newly installed windmills and their eligibility for deductions under Section 80IA of the tax statute.

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