Section 80-IA

Section 80-IA — the law in short

What the courts have decided on section 80-IA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Shital Fibers Ltd v CIT Supreme CourtHelps taxpayer
  Where a deduction has been allowed under s.80-IA, does s.80-IA(9) require the other Chapter VI-A deduction, such as s.80-HHC, to be computed on a reduced profit?
  No. Section 80-IA(9) operates at the stage of allowance, not computation. The s.80-HHC deduction is still computed on the profits of the business without first reducing them by the s.80-IA deduction; what s.80-IA(9) prevents is the aggregate of the deductions under heading C exceeding the profits of the eligible business. A three-Judge Bench answered a reference to this effect, approving the Bombay High Court's view in Associated Capsules.
• CIT v Jindal Steel & Power Ltd Supreme CourtHelps taxpayer
  Our captive power plant supplies electricity to our own factory. The officer values that power at the low rate the Electricity Board pays us for surplus, not the tariff the Board charges us. Which is 'market value' under s.80-IA(8)?
  The tariff the Board charges its industrial consumers. The Supreme Court held that the rate at which a generator sells surplus power to a State Electricity Board is a rate fixed by contract under a statutory monopoly and is not a price fetched in the open market. The tariff at which the Board supplies industrial consumers is the price at which power is actually available to a buyer, and that is the market value for an inter-unit transfer under s.80-IA(8). Here that meant Rs 3.72 per unit, not Rs 2.32.
• Liberty India v CIT Supreme CourtHelps department
  Can I count DEPB credits and duty drawback in the profits for my 80-IB deduction?
  No. 'Derived from' is narrower than 'attributable to' and confines eligible profits to sources not beyond the first degree. DEPB and drawback flow from Government schemes rather than from the manufacturing activity, so they are ancillary profits outside the deduction.
• Textile Machinery Corporation Ltd v CIT Supreme CourtHelps taxpayer
  I set up a new foundry inside my existing engineering works and it mostly supplies my own divisions. The officer says it is only a reconstruction of my old business. Is he right?
  No. The Supreme Court held that the Steel Foundry Division and the Jute Mill Division were new industrial undertakings and not formed by reconstruction of the existing business. New plant, separate buildings, separate licences, separate books and substantial fresh capital made each a physically separate and identifiable unit that could exist on its own. That the bulk of what they produced was consumed by the assessee's own Boiler Division was not decisive. Reconstruction requires a transfer of the assets of the old business to the new undertaking; there was none here. The Calcutta High Court's contrary view was set aside.
• Pr. CIT-2 v The Tata Power Company Ltd High CourtHelps taxpayerNo later treatment found
  Our eligible undertaking made losses in its early years which were absorbed against our other income. Can the officer bring them back notionally under s.80-IA(5), and can we pick which year is the initial assessment year?
  The Bombay High Court held that the assessee may choose its initial assessment year within the eligible window under s.80-IA(2), and that once that choice is made, depreciation and losses of the eligible undertaking already absorbed against other income in earlier years are not notionally revived under s.80-IA(5) to wipe out the deduction. It relied on CBDT Circular No. 1 of 2016, its own earlier decisions in Hercules Hoists and B.G. Chitale, and the Madras High Court in G.R.T. Jewellers.
• Gateway Terminals India v DCIT High CourtHelps taxpayerNo later treatment found
  Does interest on fixed deposits I was obliged to make for the eligible business, and interest on the refund of TDS my customers wrongly deducted, qualify for the section 80-IA deduction?
  Yes, on these facts. The Bombay High Court held that where the placement of funds is imperative for carrying on the eligible business rather than a way of parking idle surplus, the interest is business income with a direct nexus to the undertaking and qualifies under section 80-IA. The deposits here answered a contractual obligation under the BOT licence to replace container handling cranes, and a High Court order in the tariff dispute requiring the differential collection to be kept aside. Interest on the refund of TDS wrongly deducted by customers was held to be an integral part of the receipt of business income. The Tribunal's contrary order was set aside.
• CIT-II v SAB Industries High CourtHelps taxpayerNo later treatment found
  A retrospective amendment has taken away the deduction I claimed, and the Assessing Officer has charged s.234B interest on the resulting tax. Must I pay the interest as well as the tax?
  The Punjab & Haryana High Court held not. Where the claim was made before the amendment and the amendment came into force later with retrospective effect, the assessee could not have been expected to know on the relevant date that the claim would be unavailable; he is liable for the tax by reason of the retrospective amendment, but he cannot be held liable for interest.
• Velayudhaswamy Spinning Mills v ACIT High CourtHelps taxpayerHigh Courts differ
  My windmill lost money in its first years and those losses were set off against my other business income at the time. Now that the unit is profitable, can the officer bring those same losses back notionally under s.80-IA(5) and wipe out my deduction?
  Not on the Madras High Court's view. The fiction in s.80-IA(5) treats the eligible business as the only source of income, but it runs from the initial assessment year, and the initial assessment year is the year the assessee opts for under s.80-IA(2), not the year the undertaking started. Losses of years before that, which were actually absorbed against other income, are not revived: once the set off has taken place the Revenue cannot rework it and bring it back notionally. The Supreme Court dismissed the department's petitions against this judgment on 5 September 2016 without reasons. The Karnataka High Court has taken the opposite view, the Delhi High Court has expressly refused to follow Karnataka, and a Supreme Court appeal on the Karnataka judgment was admitted in October 2016.
• CIT v ABG Heavy Industries Ltd High CourtHelps taxpayer
  I supplied, installed and maintained cranes at a port under a lease contract and hand them over free at the end. Can I claim section 80-IA when I do not own or run the port?
  Yes. The Bombay High Court held that an enterprise which develops a part of an infrastructure facility qualifies under section 80-IA; it does not have to develop the whole port. The assessee supplied, installed, tested, commissioned, operated and maintained container handling cranes at Jawaharlal Nehru Port Trust for ten years on a build-own-lease-transfer basis, after which the cranes vested in the Port Trust free of cost. The port authority certified that the cranes formed an integral part of the port. The Court also held that developing, operating and maintaining were never cumulative conditions, the Board's circulars having consistently said so and the Finance Act 2001 amendment having put it beyond controversy.
• ITD Cementation India Ltd v DCIT — an omitted Ind-AS reduction from book profit can still be claimed before the appellate authority ITATHelps taxpayerNo later treatment found
  We forgot to claim the one-fifth transition amount and the s.115JB(2A)(b) other-comprehensive-income reduction in the return. We raised it by letter during the assessment. The CIT(A) has thrown it out because no revised return was filed. Is that the end of it?
  No. The bar on entertaining a fresh claim without a revised return operates against the Assessing Officer, not against an appellate authority. Where the material was before the CIT(A) he should have examined it and granted the reduction from book profit if it was allowable, and the Tribunal restored the two Ind-AS claims to the Assessing Officer to be reconsidered on the revised Form 29B.
• ACIT v Celerity Power LLP ITATHelps taxpayerNo later treatment found
  My company converted into an LLP and never met all the s.47(xiiib) conditions. The AO has taxed the capital gain in the LLP's hands under s.47A(4). Can he do that in the very year of conversion?
  No. s.47A(4) is a withdrawal provision: it operates only to take back an exemption that was actually availed under s.47(xiiib), and cannot be used to test eligibility in the year of the conversion itself. Where the conditions were never satisfied there is a transfer, but the gain is chargeable under s.45 read with s.5 in the hands of the transferor company, not deemed into the successor LLP by s.47A(4) — though the LLP remains exposed as a successor under s.170.
• Statutory position — s.80-IAC: the start-up deduction, the incorporation cut-off, and the s.80AC bar on a late return CBDT Circulars & InstructionsCuts both ways
  Until when must a start-up be incorporated to claim s.80-IAC, and what happens to the claim if the return is filed late?
  As the section currently reads, an eligible start-up must be incorporated on or after 1 April 2016 but before 1 April 2030 — the date was substituted for 2025 by Act No. 7 of 2025 with effect from 1 April 2025, which is the extension relied on here. The deduction is one hundred per cent of the profits of the eligible business for three consecutive assessment years, claimable at the assessee's option out of ten years beginning with the year of incorporation, and it is lost entirely if the return is filed after the due date under s.139(1), because s.80AC bars every deduction under the Chapter VI-A heading 'C.—Deductions in respect of certain incomes' in that event.
• Statutory position — s.92BA: clause (i) was OMITTED with effect from 1 April 2017, so a s.40A(2)(b) payment is no longer a specified domestic transaction — what survives, the twenty crore threshold, and clause (va) added for s.115BAB companies CBDT Circulars & InstructionsCuts both ways
  The TPO has been asked to benchmark our payments to related parties under s.40A(2)(b). Is that still a specified domestic transaction at all?
  No. Clause (i) of s.92BA — "any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A" — was OMITTED by Act No. 7 of 2017 with effect from 1 April 2017, and the omitted words are set out in an amendment footnote, so there is no doubt what went. What survives is: clause (ii), any transaction referred to in s.80A; clause (iii), any transfer of goods or services referred to in s.80-IA(8); clause (iv), any business transacted between the assessee and another person as referred to in s.80-IA(10); clause (v), any transaction referred to in any other section under Chapter VI-A or s.10AA to which s.80-IA(8) or (10) applies; clause (va), any business transacted between the persons referred to in s.115BAB(6), inserted by Act No. 46 of 2019 with effect from 1 April 2020; and clause (vi), any other transaction as may be prescribed. The whole definition applies only "where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of twenty crore rupees" — the word "twenty" having been substituted for "five" by the Finance Act, 2015 with effect from 1 April 2016.
• Statutory position — s.35AD(3) and (4): claim s.35AD and you lose s.10AA and every Chapter VI-A 'C' deduction for that business, for that year and every other year CBDT Circulars & InstructionsCuts both ways
  We claimed section 35AD on a hotel and also want a Chapter VI-A deduction on the profits of the same hotel in a later year. The Assessing Officer says we cannot have both. Is that right, and does it affect only the year of the section 35AD claim?
  The Assessing Officer is right, and the bar is wider than most people expect. Section 35AD(3) provides that where a deduction under section 35AD is claimed AND ALLOWED in respect of a specified business for any assessment year, no deduction shall be allowed under section 10AA or under Chapter VI-A under the heading "C.—Deductions in respect of certain incomes" in relation to that specified business "for the same or any other assessment year". So one year's section 35AD claim closes off the profit-linked deductions for that business permanently, not merely for that year. Section 35AD(4) is the companion rule and works on the expenditure rather than the profits: no deduction of the expenditure referred to in sub-section (1) is allowed under any other section in any previous year, or under section 35AD itself in any other previous year, if the deduction has been claimed or opted by the assessee and allowed under section 35AD. Section 35AD(3) did not always include section 10AA — those words were added by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so for AY 2014-15 and earlier the bar reached only Chapter VI-A heading C; and the words "or opted" in sub-section (4) came in with the Finance Act, 2020 (Act 12 of 2020) with effect from 1 April 2020, when the deduction itself became optional.
• Statutory position — s.36(1)(viii): the special reserve, the twenty per cent limit, the twice-the-paid-up-capital ceiling, and the s.41(4A) charge when the reserve is drawn down CBDT Circulars & InstructionsCuts both ways
  My client is a housing finance company and has created a special reserve. How much is deductible under s.36(1)(viii), what caps it, and what happens if the reserve is later withdrawn?
  Section 36(1)(viii) allows a "specified entity" a deduction for a special reserve created and maintained by it, of an amount not exceeding twenty per cent of the profits derived from an "eligible business" computed under the head "Profits and gains of business or profession" (before any deduction under this clause) and actually carried to that reserve account. A proviso caps the cumulative benefit: where the aggregate of the amounts carried to the reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance is made in respect of the excess. And section 41(4A) supplies the sting — where the deduction has been allowed, any amount subsequently withdrawn from the special reserve is deemed to be profits and gains of business or profession and is charged to tax in the year of withdrawal, and by the Explanation to that sub-section it is charged even if the business is no longer in existence.
• ACIT v Goldmine Shares and Finance Pvt Ltd ITATHelps departmentOverruled
  My windmill unit's early losses were already set off against my share trading profits. Must I now notionally bring those losses back and reduce the unit's profit before claiming section 80-IA?
  Yes, on this Special Bench view. The Ahmedabad Special Bench answered the reference in favour of the Revenue: because of section 80-IA(5), the profit of the eligible business for computing the deduction must be arrived at after deducting the notional brought forward losses and depreciation of that business, even though they were actually allowed as a set off against other income in earlier years. The sub-section creates a fiction that the eligible business is the assessee's only source of income, and a fiction must be carried to its logical conclusion. The fiction cuts both ways - other units' losses cannot reduce the eligible profit either - and the deduction remains limited to gross total income.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.