For calculating deductions under Section 80-IA of the Income-tax Act, the 'initial assessment year' is the year opted by the assessee to commence the deduction, and specifically, losses incurred in units prior to this initial year which have already been absorbed against other income cannot be notionally carried forward.

O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

This appeal filed by the Revenue is against the order of CIT (A) 50, Mumbai, vide order no. ITBA/APL/S/250/2025-26/1075632908(1), dated 15.04.2025 passed against the assessment order by ACIT,CC 8(4), Mumbai, u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 24.08.2021 for AY 2018-19.

2. Grounds taken by the Revenue are reproduced as under:

“1. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in law in allowing deduction under section 80-IA(4) of the Income tax Act, 1961, without adjusting the losses incurred by the eligible undertaking prior to the initial assessment year, contrary to the provisions of section 80-IA(S)?

2. Whether the Hon'ble CIT(A) was correct in law in relying upon CBDT Circular No. 1/2016 and the decision of the Hon'ble Madras High Court in the case of Vcllayudhaswamy Spinning Mills Pvt. Ltd. (340 ITR 477) when there exist contrary binding judicial precedents mandating that losses of earlier years, even if already set off against other income, must be notionally considered while computing eligible profits for deduction under section 80-IA

3. Whether the Hon'ble CIT(A) erred in law in ignoring the decision of the Ilon'ble, ITAT, Ahmedabad Special Bench in the case of CIT v. Goldmine Shares & Finance Pvt. Ltd. [ 113 ITD 209 (SB) (Ahd)], which mandate the adjustment of earlier years' losses while computing profits for deduction under section 80-IA?

4. Whether the Hon'ble CIT(A) was justified in law in granting deduction under section 80-IA(4) merely based on the assessee's discretion to choose the initial assessment year, overlooking the statutory requirement to compute profits as per the deeming fiction contained in section 80-IA(5) from the year of commencement of eligible business?

5. Whether on the facts and in the circumstances of the case and in law, the Ld. ClT (A) erred in holding that the interest paid on delayed payment of customs duty (IGST) amounting to Rs.78,06,000/- is compensatory in nature and hence allowable under Section 37(I) of the Income-tax Act, 1961.

6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim for gratuity expenditure of Rs. 16,67,413/- which was not claimed in the original return of income.

7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's additional claim of deduction of Rs.6,68,500/- under section 80G of the Income Tax Act, 1961 with respect to C.S.R. activity which was not claimed in the original return of income.”

3. We will take up the grounds taken by the Revenue seriatim. Ground No.1 to 4, they all relate to one single issue in respect of deduction claimed by the assessee u/s.80IA(4) on which Revenue contends that it has been allowed without adjusting the losses incurred by the eligible undertaking prior to the initial assessment year which is contrary to the provisions of section 80IA(5).

4. Facts as culled out from records are that assessee filed its return of income on 18.10.2018 reporting total income at Rs.140,41,29,820/- which was later revised on 30.03.2019 with revised total income at Rs.140,42,34,650/-. Assessment was completed with total assessed income at Rs.152,76,49,225/- by making the following additions of disallowances:

1. Restricted the claim of deduction u/s 80-IA to Rs. 13,46,32,738/- as against the claim of deduction of Rs. 25,02,41,018/-.

2. Disallowance of interest paid on delayed IGST of Rs.78,06,000/-

3. Disallowance of additional claim of deduction u/s 80G of Rs. 13,37,000/-.

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