Subject:- CIT(A) may be confirmed and the appeal of the Revenue be dismissed.
Referred Sections:
Section 80IA(4)(iv) of the Act.
Sub-section (1)
Sub-section (5)
Subsection (6)
Referred Cases / Judgments
Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT 231 CTR 368
Liberty India Ltd. Vs. CIT 317 ITR 218 (SC)
Velayudhaswamy Spinning Mills vs. ACIT reported in 340 ITR 477.
,
IN THE INCOME TAX APPELLATE TRIBUNAL,
"A" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI PRADIPKUMAR KEDIA, ACCOUNTANT MEMBER
ITA No.1140/Ahd/2017
/ Asstt. Year: 2013-14
ITO, Ward-3(1)(2) M/s.Parry Engineering & Electronics
Ahmedabad. Vs. B-608, Nirman Complex
Opp: Havmor Restaurant
Navrangpura
Ahmedabad 380 009.
PAN AAACP 6747 J
(Applicant) (Responent)
Revenue by : Shri S.K. Dev, Sr.DR
Assessee by : Shri G.C. Pipara, AR
/ Date
of Hearing : 10/05/2019
/ Date of Pronouncement: 13/05/2019
/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Revenue is in appeal before the Tribunal against order of ld.CIT(A)-9,
Ahmedabad dated 2.3.2017 passed for the Asstt.Year 2013-14.
2. Sole grievance of the Revenue in this appeal is that the ld.CIT(A) has
erred in deleting addition of Rs.66,79,702/- made on account of disallowance
of deduction under section 80IA(4)(iv) of the Act.
3. Brief facts of the case are that the assessee company is engaged in
manufacturing of steel windows, channels, tees etc. and trading in iron and
steel material. It is also operating wind-mill for power generation. It has filed
its return of income on 30.9.2013 declaring total income of Rs.4,68,723/- after
ITA No.1140/Ahd/2017
2
claiming deduction of Rs.66,79,702/- under section 80IA(4) of the Act. The
case of the assessee was selected for scrutiny assessment. AO noticed that
assessee has claimed heavy depreication on the windmill, and because that it
has made losses from the undertaking, and therefore, it could not claim any
deduction under section 80IA(4) of the Act. From the details submitted, it
was noticed by the AO that assessee has unabsorbed depreicaiton and brought
forward losses from the windmill during the first three years of its operation,
which was sought to be set off against the profit of other business. This claim
of the assessee was rejected by the AO on the ground that as per the
provisions of secion 80IA(4) such losses/unabsorbed depreciaon can be
allowed only agisnt eligible business income. In other words,
losses/unabsorbed depreciation can be set off against the income generated
from wind-mill only. The ld.AO, accordingly, disallowed the claim of the
assessee and added the same to the income of the assessee. Aggrieved by the
action of the AO, the assessee went in appeal before the ld.CIT(A), who after
considering the issue in detail and following the decision of his predecessor
taken on similar issue in the Asstt.Year 2011-12, deleted the disallowance.
Thus, Revenue is before the Tribunal against this deletion by the CIT(A).
4. Before us, both the parties supported the orders of respective
authorities. The ld.counsel for the assessee further submitted that in the
Asstt.Year 2010-11 and 2011-12 similar issue was agitated by the Revenue
before the Tribunal. The Tribunal in ITA No.1033 & 1034/Ahd/2015 vide
order dated 6.6.2018 concurred with the finding of the ld.CIT(A) in these
assessment years and upheld the order. Therefore, in this year also, issue
being on similar set of facts, order of the ld.CIT(A) may be confirmed and the
appeal of the Revenue be dismissed.
ITA No.1140/Ahd/2017
3
5. We have considered rival submisosns and gone through the record
carefully. We find that the issue on hand, is similar to the issue raised in the
Asstt.Year 2010-11 and 2011-12, wherein appeal of the Revenue challenging
orders of CIT(A) in deleting identical additions made were confirmed by the
Tribunal. We would take note of the discussion and finding of the Tribunal in
ITA No.1033 and 1034/Ahd/2015 vide order dated 6.6.2018 for the
convenience of adjudication of the issue on hand. It reads as under:
"8. The dispute between the assessee and Assessing Officer is that
Assessing Officer has notionally brought forward business losses and
depreciation of earlier years and notionally set off against the income
of the windmill. The case of the assessee is that as per Section 80IA(5)
if the deprecation and business losses have already been set off against
other income of the assessee before selection of initial year for
claiming of deduction u/s.80IA(iv) then such unabsorbed depreciation
would not be brought forward notionally and set off against the current
year income in which deduction u/s. 80IA(iv) has been claimed. The Ld.
Assessing Officer did not accept this contention of the assessee.
However, on appeal Ld. First appellate Authority has accepted the
claim and allowed the deduction. The findings recorded by Ld. CIT(A)
in A.Y. 2010-11 on this issue, read as under:
"4.2 I have carefully considered the rival submissions. I have
also gone through the legal decisions relied upon by the
appellant and A.O. First of all it is clarified that the deduction
claimed by the appellant in respect of its windmill unit u/s.
80IA(iv) is of Rs.41,97,875/- and not of Rs.43,58,443/- as
disallowed by the A.O. The amount disallowed by the A.O. also
consists of the deduction u/s. 80G of the Act of Rs.1,60,568/-.
From the perusal of the assessment order it is seen that there is
no discussion and finding of the A.O in respect of the
disallowance of deduction u/s. 80G of the Act. Hence,
disallowance to the extent of Rs.1,60,568/- is directed to be
deleted since factually incorrect.
In respect of deduction of Rs. 41,97,875/- u/s. 80IA(iv) of
the Act, the A.O has disallowed the same in view of the
provisions of Sec.80IA(5) of the Act, which reads as under:-
ITA No.1140/Ahd/2017
4
"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."
Thus, sub-section (5) of Section 80IA of the Act provides
for the quantum of deduction u/s. 80IA(1) of the Act for the
assessment year immediately succeeding the initial assessment
year or any subsequent assessment year as if the eligible
business were the only source of income of the assesses during
the previous year relevant to the initial assessment year and to
every subsequent assessment years. The A.O. has worked out the
income from the eligible unit i.e. windmill as tabulated in the
assessment order and after considering the depreciation
including unabsorbed depreciation u/s. 32 of the Act in respect
of windmill, the A.O has stated that there is no income from
windmill for the assessment year 2010-11.
On the other hand the appellant has submitted that the
unabsorbed losses including the unabsorbed depreciation of
earlier assessment years in respect of the eligible unit being
windmill have already been set off against the income from non-
eligible business and for the assessment year under appeal, there
is no unabsorbed losses of the windmill. Therefore, for
computing the deduction u/s. 80IA(iv) of the Act, no adjustment
on account of unabsorbed losses of eligible business on notional
basis can be made as if there is only one source of income i.e.
eligible business (in the present case windmill). If the
unabsorbed losses including depreciation loss of earlier years
have already been set off against the income of non-eligible
business, then such notional adjustment is outside the purview of
sec. 80IA(5) of the Act. The ratio laid down in the various case
laws relied upon by the appellant also supports the said
contention of the appellant.
ITA No.1140/Ahd/2017
5
The Hon'ble Madras High Court in the case of
Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT 231 CTR 368
(Madras) relied upon by the appellant has held that losses and
depreciation of the years earlier to the initial assessment year
which have already been absorbed against the profit of other
business cannot be notionally brought forward and set off
against the profit the eligible business for computing the
deduction under section 80-IA. Further, Hon'ble Bangalore ITAT
in the similar set of facts relating to windmill, in the case of Anil
H. Lad V. Dy. CIT (2012) 13 (Trib.) ITR 581 (Bang.) has
followed the decision of Hon'ble Madras High Court in the case
of Velayudhaswamy Spg. Mills (P) Ltd. cited supra and held that
the year of commencement alone need not be the initial year, but
depending upon the facts of the case and the option exercised by
the assessee, the year of claim also can be considered as initial
assessment year. The Court further held that where the earlier
depreciation and losses have already been set off, those loss and
depreciation do not go to reduce the gross total income of an
assessee within the meaning of section 80AB and, therefore,
bringing the notional concept of carrying forward and set-off
will be contrary to the scheme of section 80AB and concept of
gross total income. Following the aforesaid judgment, assessing
authority was to be directed to grant deduction to the assessee
under section 80-IA for the quantum claimed by the assessee
without diluting the same by the notional deduction of earlier
loss and depreciation.
On the other hand, the reliance placed by the. A.O. on the
decision in the case of Liberty India Ltd. Vs. CIT 317 ITR 218
(SC) is not relevant to the facts of the present case and since
direct judgments applicable to the facts of the appellant's case
are available, the same are followed.
Considering the facts and the legal decisions relied upon
by the appellant, I am inclined to accept the same and the A.O. is
directed to delete the disallowance of deduction u/s. 80IA(iv) of
the Act. Thus, the appeal on this ground is allowed."
9. With the assistance of learned Representatives, we have gone
through the record carefully. We have find that the issue squarely
covered by the decision of Madras High Court referred in the case of
Velayudhaswamy Spinning Mills vs. ACIT reported in 340 ITR 477. We
ITA No.1140/Ahd/2017
6
deem it pertinent to take note of the relevant discussion made by the
Hon'ble Court which reads as under:
"80-IA. (1) Where the gross total income of an assessee includes
any profits and gains derived by an undertaking or an enterprise
from any business referred to in sub-section (4) (such business
being hereinafter referred to as the eligible business) there shall,
in accordance with and subject to the provisions of this section,
be allowed in computing the total income of the assessee, a
deduction of an amount equal to hundred per cent, of the profits
and gains derived from such business for ten consecutive
assessment years.
(2) The deduction specified in sub-section (1) may, at the
option of the assessee, be claimed by him for any ten consecutive
assessment years out of fifteen years beginning from the year in
which the undertaking or the enterprise develops and begins to
operate any infrastructure facility or starts providing
telecommunication service or develops an industrial park or
develops a special economic zone referred to in clause (iii) of
sub-section (4) or generates power or commences transmission
or distribution or power or undertakes substantial renovation
and modernisation of the existing transmission or distribution
lines.
(4) This section applies to--
(i) any enterprise carrying on the business of (i)
developing, or (ii) operating and maintaining, or (iii)
developing, operating and maintaining any infrastructure facility
which fulfils all the following conditions, namely :--
(a) it is owned by a company registered in India or by a
con- sortium of such companies (or by an authority or a board or
a corporation or any other body established or constituted under
any Central or State Act) ;
(b) it has entered into an agreement with the Central
Government or a State Government or a local authority or any
other statutory body for (i) developing, or (ii) operating and
maintaining, or (iii) developing, operating and maintaining a
new infrastructure facility ;
ITA No.1140/Ahd/2017
7
(c) it has started or starts operating and maintaining the
infrastructure facility on or after the 1st April, 1995.
(5) Notwithstanding anything contained in any other
provision of this Act, the profits and gains of an eligible business
to which the provisions of subsection (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."
17. From a reading of sub-section (1), it is clear that it
provides that where the gross total income of an assessee
includes any profits and gains derived by an undertaking or an
enterprise from any business referred to in subsection (4), i.e.,
referred to as the eligible business, there shall, in accordance
with and subject to the provisions of the section, be allowed, in
computing the total income of the assessee, a deduction of an
amount equal to 100 per cent, of the profits and gains derived
from such business for ten consecutive assessment years.
Deduction is given to eligible business and the same is defined in
subsection (4). Sub-section (2) provides option to the assessee to
choose 10 consecutive assessment years out of 15 years. Option
has to be exercised, if it is not exercised, the assessee will not be
getting the benefit. Fifteen years is outer limit and the same is
beginning from the year in which the undertaking or the
enterprise develops and begins to operate any infrastructure
activity, etc. Subsection (5) deals with quantum of deduction for
an eligible business. The words "initial assessment year" are
used in sub-section (5) and the same is not defined under the
provisions. It is to be noted that "initial assessment year"
employed in sub-section (5) is different from the words
"beginning from the year" referred to in sub-section (2). The
important factors are to be noted in sub-section (5) and they are
as under :
"(1) It starts with a non obstante clause which means it
overrides all the provisions of the Act and other provisions
are to be ignored ;
ITA No.1140/Ahd/2017
8
(2) It is for the purpose of determining the quantum of
deduction;
(3) For the assessment year immediately succeeding the
initial assessment year ;
(4) It is a deeming provision;
(5) Fiction created that the eligible business is the only
source of income; and
(6) During the previous year relevant to the initial
assessment year and every subsequent assessment year."
From a reading of the above, it is clear that the eligible
business were the only source of income, during the
previous year relevant to the initial assessment year and
every subsequent assessment years. When the asses-see
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. A fiction created in
sub-section does not contemplates to bring set off amount
notionally. The fiction is created only for the limited
purpose and the same cannot be extended beyond the
purpose for which it is created.
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
section 80-IA(2). In Tax Case Nos. 909 of 2009 as1 well as
940 of 2009, the assessment year was 2005-06 and in Tax
Case No. 918 of 2008 the assessment year was 2004-05.
ITA No.1140/Ahd/2017
9
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
subsection (6) of section 80-1, which is the corresponding
provision of sub-section (5) of section 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 v. Mewar Oil and General Mills Ltd. (No. 1)
[2004] 271ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the
Rajasthan High Court also considered the scope of section
80-1 and held as follows (page 314 of 271 ITR) :
"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 assessment
year 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
Commissioner of Income-tax (Appeals), which has
not been disturbed by the Tribunal and challenged
before us, there was no error much less any error
apparent on the 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 section 80-1
for the purpose of computing admissible deductions
thereunder.
ITA No.1140/Ahd/2017
10
In view thereof, we are of the opinion that the
Tribunal has not erred in holding that there was no
rectification possible under section 80-1 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 section 80-1 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 a 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 u/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."
10. On the perusal of the above would indicate that
depreciation already claimed by the assessee and set off
against the regular source of income cannot be notionally
brought forward and set off against the income of windmill
for the current year after selection of initial year for
claiming deduction u/s. 80IA(iv). In other words, the
assessee has been given choice of 10 consecutive years out
of 15 years for claiming deduction u/s.80IA(iv). Once
assessee has selected initial year then unabsorbed
depreciation and losses of that year and subsequent years
could be carried forward for set off against the income of
those years before computing the deduction admissible
u/s.80IA(iv). In the present cases, Assessing Officer has
brought forward the depreciation of A.Y. 2007-08, 2008-
09 etc, which has already been set off against the regular
income. He brought forward such depreciation on notional
basis, which is contrary to the proposition laid down by
ITA No.1140/Ahd/2017
11
the Hon'ble Madras High Court. The Ld. First Appellate
Authority has rightly appreciated the controversy and
rightly granted the deduction to the assessee. We do not
find any error in the order of the Ld. CIT(A) hence, this
ground of appeal is rejected in both the years."
6. We do not find any disparity of facts in the present year as well.
Therefore, following the above order of Tribunal, we confirm the order of the
ld.CIT(A) and reject the ground of appeal of the Revenue.
7. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 13th May, 2019 at Ahmedabad.
Sd/- Sd/-
(PRADIP KUMAR KEDIA) (RAJPAL YADAV)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 13/05/2019
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