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Jt. Commissioner of Income Tax Range18(2), Mumbai VS. Dr. K. Shivram a/w
April, 15th 2013
                   , 
                   ,                           `' 

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                               "E" BENCH, MUMBAI

       .  ,   ,      ,      

       BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND
                  SHRI AMIT SHUKLA, JUDICIAL MEMBER


                      . / ITA no. 321/Mum./2012
                    (   / Assessment Year : 2008­09)


M/s. Shevie Exports                                         ....................  /
304/A, Phonix House
                                                                              Appellant
462, Senapati Bapat Marg
Lower Parel, Mumbai 400 013

                                     v/s

Jt. Commissioner of Income Tax                                 ...................    /
Range­18(2), Mumbai                                                      Respondent

   ./ Permanent Account Number ­ AABFS3445E


                       / Assessee by         : Dr. K. Shivram a/w
                                      Mr. Rahul K. Hakani
                       / Revenue by : Mr. Girija Dayal


         /                                               /
Date of Hearing ­ 12.02.2013                       Date of Order ­ 10.04.2013


                                   / ORDER


   ,                            /
PER AMIT SHUKLA, J.M.


      In the present appeal, the assessee has challenged the impugned
order dated 7th December 2011, passed under section 263 of the Income Tax
                                                               M/s. Shevie Exports

                                                                               2


Act, 1961 (for short "the Act") for the assessment year 2008­09, by the
learned Commissioner of Income Tax holding that the assessment made by
the Assessing Officer is erroneous inasmuch as it is prejudicial to the
interests of the Revenue.





2.    Facts in Brief:­ The assessee is a partnership firm which is engaged in
the business of export of hand embroidered items and supplying the same to
top fashion houses in Europe and U.S.A. Besides this, the assessee is also
engaged in power generation through Wind mills installed in District Dhule,
Maharashtra. The return of income was filed for assessment year 2008­09
on a total income of ` 3,77,80,540 on 18th September 2008. Along with the
said return of income, the assessee had filed audit report in Form­10CCB for
claiming deduction under section 80IA with regard to wind mill undertaking.
In   the said   report,   the   assessee   had   mentioned   that   the date       of
commencement and operation of the undertaking was 29th September 2006,
and the initial assessment year from which the deduction has been claimed is
assessment year 2008­09. The deduction under section 80IA was claimed at
` 7,16,904. Such a return of income was subjected to scrutiny under section
143(3) and the assessment was completed at an income of ` 3,80,34,580,
vide order dated the December 2010, after making disallowance under the
head "Foreign Travel Expenses" for a sum of ` 1,31,075, disallowance under
section 14A at ` 59,896 and excess payment of embroidery charges of `
63,070. The deduction claimed under section 80IA as per audit report for a
sum of ` 7,60,904 was allowed.


3.    Thereafter a show cause notice under section 263 was issued by the
learned Commissioner of Income­tax on 3rd November 2011 on the ground
that the assessment order is erroneous inasmuch as it is prejudicial to the
interests of the Revenue mainly on three grounds; firstly, the wind mill was
installed in the year 2006 which has commenced its operation on 29th
September 2006 and in the first year of its operation i.e., for the assessment
year 2007­08, the assessee had shown a loss of ` 3,52,47,398, on account
                                                             M/s. Shevie Exports

                                                                            3


of depreciation and interest and this loss was set­off against export business
income of non­eligible units in the assessment year 2007­08 itself. In
assessment year 2008­09, the profit of ` 7,16,904, has been claimed as
deduction under section 80IA without setting off the loss. It was further
observed that while completing the assessment in assessee's case for
assessment year 2009­10, the claim of deduction under section 80IA at `
19,65,160, has been disallowed by the Assessing Officer on the ground that
as per the provisions of section 80 IA, deduction is to be allowed after
adjustment of carried forward losses from the wind mill division and this
finding of the Assessing Officer was duly supported by the Special Bench
decision of Ahmedabad Bench of the Tribunal in ACIT v/s Goldmine Shares
And Finance Pvt. Ltd. [2008] 302 ITR (AT) 208 (SB) (Ahd.). The said finding
of the Assessing Officer will also be applicable for assessment year 2008­09
also as the profit of ` 7,16,904 would be adjusted against brought forward
losses of ` 3,52,47,398 of earlier assessment year 2007­08 and, therefore,
the deduction claimed under section 80IA for a sum of ` 7,16,904, has
wrongly being allowed. The second ground was that the disallowance of
foreign travel expenses has been made on fixed percentage of 4% of the
expenses despite that the Assessing Officer has noted that the desired details
/ documentary evidences were not submitted. The third ground was that the
Assessing Officer has failed to examine the generator guarantee claim
receivable of ` 28,00,000 and also other receivable of ` 30,41,000 as no
enquiry has been done to find out the exact nature of the sources and other
taxability.


4.    In response, the assessee filed a detail reply before the learned
Commissioner wherein it was contended that all the documents and
information on which the proposed revision has been invoked was duly
available with the Assessing Officer who had applied his mind in determining
the allowability of deduction under section 80IA and the Special Bench
decision cannot be the reason for revision under section 263. Secondly, the
view taken by the Assessing Officer is a possible view under the law and,
                                                                  M/s. Shevie Exports

                                                                                 4


therefore, in view of the various case laws wherein it has been upheld that
where the Assessing Officer has taken one possible view, then the
assessment cannot be held as erroneous inasmuch as it is prejudicial to the
interest of Revenue under section 263. Further, after the amendment in
section 80IA by the Finance Act, 1999, an assessee has an option for
selecting the year of claiming relief under section 80IA and the assessee has
chosen assessment year 2008­09 as the initial assessment year, therefore,
there is no question of setting­off notionally carried forward unabsorbed
depreciation or loss against the profits of the eligible business unit. The
Special Bench decision will not be applicable as the same pertains to the
assessment year prior to the amendment. With regard to foreign travel
expenses, it was submitted that all the details of foreign traveling expenses
and ratio of claim of such expenses with that of export sales were duly
produced before the Assessing Officer and also for the earlier years for
comparison. Based on the earlier years' parameter, the Assessing Officer has
disallowed 4%. Thus, a view has been taken by the Assessing Officer about
the nature of disallowability of such expenses. Regarding the amount
receivable, it was submitted that the same was already credited to the
revenue account in Profit & Loss Account, hence, there is no question of
taking any adverse view.


5.   The learned Commissioner, however, with regard to the two aspects
i.e., the claim of deduction under section 80IA and foreign traveling
expenses, set aside the assessment and directed the Assessing Officer to re­
examine both the issues after observing and holding as under:­

     "7. On careful consideration of submission made by the Ld. AR., I do
     not find any merit therein with regard to both the issues in hand. In
     respect the deduction u/s 801A, the A.O. has not appreciated the
     provision of Sec 801A(5) of the Act in proper prospective. The Hon'ble
     Special Bench has deliberated at length in the case referred above and
     categorically held that the eligible business has to be considered on
     stand alone basis. Accordingly, profit of the eligible limit is to be
     determined after deduction of notional brought forward loses and
     deprecation of eligible unit even though they were set off in the earlier
     years. The assessee has not been able to place on record any contrary
                                                                    M/s. Shevie Exports

                                                                                   5


      decision in any other court of law. Therefore, there is neither a case of
      debatable issue nor change of opinion. Since the A.O. has failed to
      apply correct provision of law, provisions of section 263 are clearly
      applicable.

      8. With regard to foreign travelling expenses also, contention of the
      assessee can not be accepted in view of the contradiction in the
      assessment order by the A.O. himself. It is evident that despite the
      fact that the assessee could not produce relevant documentary
      evidences, the A.O. went on to make only a negligible disallowance
      vis-a­vis quantum of claim. It is quite apparent that the A.O. has
      allowed deduction despite the same being unproved. In such a
      situation, the order could be considered to prejudicial to the interest of
      the Revenue, as held in the case of Emery Swoon Manufacturing Co
      213 ITR 843 (Rajasthan)."


6.    Before us, the learned Counsel submitted that in Form no.10CCB, the
assessee has clearly shown that the initial assessment year for claim of
deduction was assessment year 2008­09, therefore, there was no question
of carry forward of notional loss to be set­off in this year. In support of this
contention, he relied upon the judgment of Hon'ble Madras High Court in
Velayudhaswamy Spinning Mills Pvt. Ltd. v/s ACIT, [2012] 340 ITR 477
(Mad.) and CIT v/s Emerala Jewel Industry Pvt. Ltd., [2011] 53 DTR 262
(Mad.). Regarding Special Bench decision of the Tribunal in Goldmine Shares
And Finance Pvt. Ltd. (supra), the learned Counsel submitted that this
decision will not be applicable, as the same was relevant for the provisions
applicable in the assessment years 1996­97 and 1997­98, which was prior
to the amendment brought in the statute by the Finance Act, 1999. He
further submitted that the assessee's claim for deduction under section 80IA
and Assessing Officer's decision to allow such a claim was based on various
decisions in favour of the assessee at that time and if the same has been
allowed by taking one possible view, the same cannot be held to be
erroneous and prejudicial to the interests of the Revenue within the meaning
of section 263. In support of this contention, he relied upon the judgment of
Hon'ble Supreme Court in Malabar Industries Co. Ltd. v/s CIT, [2000] 243
ITR 83 (SC), Grasim Industries Ltd. v/s CIT, [2010] 321 ITR 92 (Bom.) and
Ranka Jewellers v/s ACIT [2010] 328 ITR 148 (Bom.). Regarding foreign
                                                              M/s. Shevie Exports

                                                                             6


travel expenses, he submitted that in earlier years also, on similar facts,
disallowance of 4% was made based on the ratio of export sales. Moreover,
all the necessary details were filed before the Assessing Officer. Thus, the
view taken by the Assessing Officer cannot be held to be erroneous. He
submitted that the impugned order canceling the assessment on the
aforesaid two issues is erroneous both in law and on facts.


7.    On the other hand, the learned Departmental Representative relying
heavily upon the order of the learned Commissioner submitted that the
Tribunal, Hyderabad Bench, in Hyderabad Chemical Supplies Ltd. v/s ACIT,
[2011] 137 TTJ 732 (Hyd.) has upheld the revision order under section 263
on similar grounds. He drew our attention to the relevant facts and findings
given by the Tribunal. Further, reliance was also placed on the decision of
Pidilite Industries v/s DCIT, [2011] 46 SOT 263 (Mum.) (URO) and drew our
specific attention to Paras­4, 5 and 6 of the order wherein the Tribunal has
considered the Special Bench decision in Goldmine Shares And Finance Pvt.
Ltd. (supra) and also the decision of the Hon'ble Madras High Court in
Velayudha Swamy Spinning Mills Pvt. Ltd. (supra). Based on this decision, he
made his detail submissions.


8.    We have heard the rival contentions and perused the relevant material
placed on record and various case laws relied upon by either party. The
assessee had set­up a Wind mill at District Dhule, Maharashtra and
commencement of its operation was started on 29th September 2006 i.e.,
assessment year 2007­08. In assessment year 2007­08, the assessee had
shown a loss of ` 3,52,47,398 on account of depreciation and interest from
wind mill undertakingand this loss was set­off against the export business
income (which in the present case, can be considered as non­eligible unit) in
the assessment year 2007­08. In the assessment year 2008­09, the
assessee has earned profit of ` 7,16,904 and has claimed deduction under
section 80IA by treating the assessment year 2008­09 as initial assessment
year. The sole ground for canceling the assessment order under section 263
                                                                M/s. Shevie Exports

                                                                               7


by the learned Commissioner in this regard is that in the subsequent year
i.e., the assessment year 2009­10, the claim of the assessee under section
80IA has been rejected by the Assessing Officer on the ground that the
Special Bench decision of the Tribunal, Ahmedabad Bench in Goldmine
Shares And Finance Pvt. Ltd. (supra) does not support such a claim.





9.    Section 80IA, which has been substituted w.e.f. 1st April 2000, provides
that where the gross total income of an assessee includes any profits and
gains derived by an undertaking from any eligible business referred to in
sub­section 4, there shall, in accordance with and subject to the provisions
of this section, be allowed in computing the total income, the deduction of an
amount equal to 100% of the profits and gains derived from such business
for 10 consecutive years. Substituted sub­section (2) of section 80IA,
provides that an option is given to the assessee for claiming any 10
consecutive assessment year out of 15 years beginning from the year in
which the undertaking or the enterprise develops and begin to operate. The
15 years is the outer limit within which the assessee can choose the period of
claiming the deduction. Sub­section (5) is a non­obstante clause which deals
with the quantum of deduction for an eligible business. The relevant
provisions of sub­section (5) of section 80IA, reads as under:­


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


10.   From a plain reading of the above, it can be gathered that it is a non­
obstante clause which overrides the other provisions of the Act and it is for
the purpose of determining the quantum of deduction under section 80IA, for
the assessment year immediately succeeding the initial assessment year or
                                                            M/s. Shevie Exports

                                                                           8


any subsequent assessment year to be computed as if the eligible business
is the only source of income. Thus, the fiction created is that the eligible
business is the only source of income and the deduction would be allowed
from the initial assessment year or any subsequent assessment year. It
nowhere defines as to what is the initial assessment year. Prior to 1st April
2000, the initial assessment year was defined for various types of eligible
assessees under section 80IA(12). However, after the amendment brought in
statute by the Finance Act, 1999, the definition of "initial assessment year"
has been specifically taken away. Now, when the assessee exercises the
option of choosing the initial assessment year as culled out in sub­section
(2) of section 80IA from which it chooses its 10 years of deduction out of 15
years, then only the losses of the years starting from the initial assessment
year alone are to be brought forward as stipulated in section 80IA(5). The
loss prior to the initial assessment year which has already been set­off
cannot be brought forward and adjusted into the period of ten years from the
initial assessment year as contemplated or chosen by the assessee. It is only
when the loss have been incurred from the initial assessment year, then the
assessee has to adjust loss in the subsequent assessment years and it has to
be computed as if eligible business is the only source of income and then
only deduction under section 80IA can be determined. This is the true import
of section 80IA(5).


11.   In the decision of Goldmine Shares and Finance Pvt. Ltd. (supra),
decided by the Special Bench of the Tribunal, the claim of deduction by the
assessee had started from assessment year 1996­97 onwards and the
assessee had claimed deduction under section 80IA starting from the first
year itself i.e., assessment year 1996­97. Thus, the Special Bench was
dealing with the operation of section 80IA(5) where the assessee had first
claimed the deduction in the assessment year 1996­97 and for subsequent
assessment years. This aspect of the matter has been very well elaborated
by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra)
after considering the Special Bench decision of the Tribunal in Goldmine
                                                                  M/s. Shevie Exports

                                                                                 9


Shares And Finance Pvt. Ltd. (supra) and relevant provisions of the Act i.e.,
pre amendment and post amendment have come to the same conclusion:­


     "From reading of the above, it is clear that the eligible business were
     the only source of income, during the previous year relevant to initial
     assessment year and every subsequent assessment years. When the
     assessee exercises the option, the only losses of the years beginning
     from initial assessment year alone are to be brought forward and no
     losses of earlier years which were already set off against the income of
     the assessee. Looking forward to a period of ten years from the initial
     assessment is contemplated. It does not allow the Revenue to look
     backward and find out if there is any loss of earlier years and bring
     forward notionally even though the same were set off against other
     income of the assessee and the set off against the current income of
     the eligible business. Once the set off is taken place in earlier year
     against the other income of the assessee, the Revenue cannot rework
     the set off amount and bring it notionally. Fiction created in sub-
     section does not contemplates to bring set off amount notionally.
     Fiction is created only for the limited purpose and the same cannot be
     extended beyond the purpose for which it is created.

     14. In the present cases, there is no dispute that losses incurred by
     the assessee were already set off and adjusted against the profits of
     the earlier years. During the relevant assessment year, the assessee
     exercised the option under s. 80-IA(2). In Tax Case Nos. 909 of 2009
     as well as 940 of 2009, the assessment year was 2005-06 and in the
     Tax Case No. 918 of 2008 the assessment year was 2004-05. During
     the relevant period, there were no unabsorbed depreciation or loss of
     the eligible undertakings and the same were already absorbed in the
     earlier years. There is a positive profit during the year. The unreported
     judgment of this Court cited supra considered the scope of sub-s. (6)
     of s. 80-I, which is the corresponding provision of sub-s. (5) of s. 80-
     IA. Both are similarly worded and therefore we agree entirely with the
     Division Bench judgment of this Court cited supra. In the case of CIT
     vs. Mewar Oil & General Mills Ltd. (2004) 186 CTR (Raj) 141 : (2004)
     271 ITR 311 (Raj), the Rajasthan High Court also considered the scope
     of s. 80-I and held as follows:­

           "Having considered the rival contentions which follow on
           the line noticed above, we are of the opinion that on
           finding the fact that there was no carry forward losses of
           1983-84, which could be set off against the income of the
           current asst. yr. 1984-85, the recomputation of income
           from the new industrial undertaking by setting off the
           carry forward of unabsorbed depreciation or depreciation
           allowance from previous year did not simply arise and on
           the finding of fact noticed by the CIT(A), which has not
           been disturbed by the Tribunal and challenged before us,
           there was no error much less any error apparent on the
                                                                       M/s. Shevie Exports

                                                                                       10


             face of the record which could be rectified. That question
             would have been germane only if there would have been
             carry forward of unabsorbed depreciation and unabsorbed
             development rebate or any other unabsorbed losses of
             the previous year arising out of the priority industry and
             whether it was required to be set off against the income
             of the current year. It is not at all required that losses or
             other deductions which have already been set off against
             the income of the previous year should be reopened again
             for computation of current income under s. 80-I for the
             purpose of computing admissible deductions thereunder.

             In view thereof, we are of the opinion that the Tribunal
             has not erred in holding that there was no rectification
             possible under s. 80-I in the present case, albeit, for
             reasons somewhat different from those which prevailed
             with the Tribunal. There being no carry forward of
             allowable deductions under the head depreciation or
             development rebate which needed to be absorbed against
             the income of the current year and, therefore,
             recomputation of income for the purpose of computing
             permissible deduction under s. 80-I for the new industrial
             undertaking was not required in the present case.
             Accordingly, this appeal fails and is hereby dismissed with
             no order as to costs."

      From reading of the above, the Rajasthan High Court held that it is not at all
      required that losses or other deductions which have already been set off
      against the income of the previous year should be reopened again for
      computation of current income under s. 80-I for the purpose of computing
      admissible deductions thereunder. We also agree with the same. We see no
      reason to take a different view."


12.   This judgment has been further followed by the same High Court in CIT
v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTR 262 (Mad.). From the
above, ratio of the High Court, it is amply clear that sub­section (5) of
section 80IA will come into operation only from the initial assessment year or
any subsequent assessment year. The option of choosing the initial
assessment year is wholly upon the assessee in the post amendment period
i.e., after 1st April 2000 by virtue of section 80IA(2).

13.   Now coming to the decision of the Mumbai Bench Tribunal in Pidilite
Industries   (supra)     as    relied    upon     by    the    learned     Departmental
Representative in this case, the Tribunal was dealing with regard to two
                                                               M/s. Shevie Exports

                                                                              11


eligible units one Gujarat Unit which was set­up in the year 1995­96 and
second Maharashtra Unit in the year 2000­01. With regard to Gujarat Unit,
the Tribunal held that pre­amendment definition of initial assessment year
would be applicable i.e., provisions which were prior to 1st April 1999 will
apply because the assessee had started commercial production in the
financial year 1996­97. Regarding second unit, the Tribunal held that the
judgment of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd.
(supra) will not be applicable because the income from non eligible business
was set­off from the loss of eligible business in the year of commencement.
In this case, it was not an issue as to whether the losses pertained to prior to
initial assessment year or after the initial assessment year. If the losses have
been incurred in the eligible unit and has been set­off against the non­
eligible unit after the initial assessment year, then the ratio laid down by the
Tribunal is in full consonance with the law. However, this is not the case in
the instant case because the loss pertained to prior to initial assessment year
which have been set­off against the profits of non­eligible units. The
beginning of the initial assessment year as adopted by the assessee is
assessment year 2008­09 only and, therefore, the loss of assessment year
2007­08 cannot be notionally carried forward within the meaning of section
80IA(5).   Thus,   the   reliance   placed   by   the   learned   Departmental
Representative on the decision of Pidilite Industries (supra), will not be
applicable in the present case.


14.   The other decision heavily relied upon by the learned Departmental
Representative in Hyderabad Chemical Supplies Ltd. (supra) will also not
apply to the facts of the present case, as in that case, the wind mill started
its operation on 31st March 1999 and the first year of operation was
assessment year 1999­2000. Thus, in the assessment year 1999­2000, the
definition of "initial assessment year" was already there in the Act and there
was no provision through which the assessee could have chosen its initial
assessment year. This provision was brought in statute w.e.f. 1st April 2000,
by virtue of section 80IA. Thus, this decision also will not help the case of the
                                                                M/s. Shevie Exports

                                                                               12


Department. In assessee's case, as specifically stated in the foregoing
paragraphs, the assessee's claim for initial assessment year i.e., assessment
year 2008­09 and its claim for deduction under section 80IA made for the
first time from assessment year 2008­09, has not been disputed. Thus, the
aforesaid judgment relied upon by the learned Departmental Representative
will not be applicable to the facts of the present case.


15.   Moreover, the claim of deduction under section 80IA was based on
possible legal view which has been allowed by the Assessing Officer,
therefore, it cannot be held that the same is erroneous in so far as it is
prejudicial to the interests of the Revenue. Merely because the Assessing
Officer in the subsequent assessment year has followed Special Bench
decision which admittedly was rendered with regard to the claim of deduction
starting from the assessment year 1996­97 wherein there was no concept of
assessee choosing his option of initial assessment year in view of the
provisions prior to the amendment, it cannot be held that the assessee's
claim of initial assessment year being assessment year 2008­09 and its
claim for deduction allowed by the Assessing Officer under section 80IA is
erroneous in law. Thus, on this count, we do not find any reason to uphold
the cancellation of assessment order under section 263 on the ground that it
is erroneous in so far as it is prejudicial to the interests of Revenue.


16.   Regarding disallowance of foreign travelling expenses, it is seen that on
similar circumstances and facts, the Assessing Officer has disallowed 4% of
the expenditure claimed which was based on ratio of such expenses with
export sales. Thus, such a view taken by the Assessing Officer cannot be
disturbed without any difference in the facts and circumstances of the case.
Thus, we do not find any merits in the impugned order passed under section
263 by the learned Commissioner for cancelling the assessment and to re­
examine the same. Consequently, we set aside the impugned order passed
under section 263 by the learned Commissioner and uphold the assessment
order passed by the Assessing Officer.
                                                                M/s. Shevie Exports

                                                                               13



17.             

16.   In the result, Assessee's appeal is treated as allowed.

                              10th April 2013    
      Order pronounced in the open Court on 10th April 2013


            Sd/-                                                    Sd/-
        .
        .                                                          
                                                                   
    B. RAMAKOTAIAH                                            AMIT SHUKLA
  ACCOUNTANT MEMBER                                         JUDICIAL MEMBER

 MUMBAI,          DATED : 10th April 2013

                / Copy of the order forwarded to:

(1)     / The Assessee;
(2)     / The Revenue;
(3)     () / The CIT(A);
(4)                 / The CIT, Mumbai City concerned;
(5)               ,     ,  / The DR, ITAT, Mumbai;
(6)     / Guard file.
                                                         / True Copy
                                              / By Order
   .  / Pradeep J. Chowdhury
         / Sr. Private Secretary
                                  /   / (Dy./Asstt. Registrar)
                                    ,  / ITAT, Mumbai
 
 
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