Indiana Grating Sp.Ltd , Mumbai vs Assessee

This appeal has been preferred by the Assessee, against order dated 16.04.2013, passed by Ld. CIT(A)-17, u/s 143(3) for the A.Y. 2009-10, mainly on the following grounds:-

"1a). The Ld. CIT(A) erred in confirming disallowance of deduction u/s 80IA made by the AO and not considering the fact that deduction u/s 80IA is to be claimed and allowed on a stand-

alone basis as if the eligible business was the only source of income.

ITA No. 4311/Mum/2013 2 Assessment Year: 2009-10

b) The Ld. CIT(A) erred in holding that losses of earlier year had to be reduced before allowing claim u/s 80 IA and disregarding the fact that there were no losses of earlier years as they had been set off against other incomes of those years.

2. The Ld. CIT(A) erred in denying deduction u/s 80IA by following Tribunal decisions dealing with position prior to Finance Act, 1999 and not following the Madras High Court decision which is a Higher Authority than the Full Bench of the Tribunal and is based on similar facts/post Finance Act, 1999 position when the Windmills were set up.

2. The brief facts qua the issue involved are that, the assessee company besides engaged in the business of manufacturing of various items is also engaged in the business of generation electricity/power through its windmill plant which was set in the previous year, relevant to the A.Y. 2006-07. The assessee opted to claim deduction u/s 80IA for the first time during the A.Y. 2009-10 by treating it as initial assessment year. The receipts from the windmill was disclosed at Rs.1,14,26,601/- and after claiming deduction of expenses under various heads of Rs.1,00,72,939/- it has shown profit of Rs.13,53,662/-, which was claimed as deduction u/s 80IA being 100% of the profit derived from the windmill. The assessee has acquired and commissioned the windmill in Erode district of Tamil Nadu in the A.Y. 2006-07. Earlier it had incurred loss of Rs.6,06,04,500/-on account of depreciation which was set off against the normal business income in the A.Y. 2006-07. In the A.Ys. 2007-08 & 2008-09 also, the assessee had incurred losses from the Windmill unit of Rs.3,95,02,736/- and Rs.45,71,409/-, respectively, which was set off against the normal business of these years. The assessing officer held that the assessee has been allowed dual benefit, one by setting off losses by which it has not paid taxes on other business income and secondly by claiming deduction for 100% u/s 80IA.

ITA No. 4311/Mum/2013 3 Assessment Year: 2009-10

This has been done because the assessee has chosen the "initial assessment year" from this year i.e. only A.Y. 2009-10. The assessee has already been allowed sufficient benefit and therefore losses incurred in the earlier years from the said unit has to be first set of with the profit of eligible business i.e. Windmill unit and balance profit if any can only be held to be eligible for deduction u/s 80IA. He rejected the assessee's explanation made in this regard and computed the deduction u/s 80IA in the following manner:-

Particulars Amount (Rs.) Less Profit derived from Industrial Undertaking 13,53,662 during the year Brought forward loss till A.Y. 2008-09 10,46,78,645 Restricted to the profit available 13,53,662 Income eligible for deduction u/s 80IA Nil.

3. Before the Ld.CIT(A) the assessee has relied upon various decisions of the Tribunal, however, the Ld.CIT(A) rejected the assessee's submissions and strongly relied upon the decision of ITAT Mumbai Bench in the case of Pidilite Industries Ltd. order dated 10.06.2011 ITA No. 3355/Mum/2009.

4. Before us, learned counsel, Shri Prakash Jotwani submitted that the Hon'ble Karnataka High Court in the case of Velayudha Swami Spinning Mill Pvt. Ltd. Vs. ACIT reported in (2012) 340 ITR 477 has dealt exactly the similar issue and held that the assessee can chose the initial assessment year for the purpose of deduction and the earlier losses cannot be notionally brought forward and set off against the profit of the eligible business. Even the Madras High Court in the case of CIT Vs. ITA No. 4311/Mum/2013 4 Assessment Year: 2009-10

Emerald Jewel Industries has reiterated the same ratio. Besides this he also pointed out various other decisions of the Tribunal including the decision of ITAT Mumbai Bench in the case of M/s. Shevie Exports Vs. JCIT ITAT No. 321/Mum/2012 order dated 10.04.2013, wherein this issue has been discussed in detail after considering the various decisions.

5. On the other hand, Ld. DR strongly relied upon the order of the AO as well as Ld. CIT(A).

6. After careful considering the rival submissions, facts of the case and the issues involved, we find that only issue involved is that whether the earlier year losses of the eligible unit can be set off against the profit of the said unit in this year, when the assessee has exercised to chose the initial assessment year from A.Y. 2009-10. Exactly similar issue was involved in the case of M/s. Shevie Export (supra) wherein, after detailed analysis of the relevant provision and various judicial decisions, including that of Mumbai Bench Tribunal in the case of Pidilite Industries (supra) it was observed and held as under:-

"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 set-up a Wind mill at District Dhule, Maharashtra a commencement of its operation was started on 29th September 2006 i.e., assessment year 2007-08. In assessment year 2007-08, the assessee had shown a loss of Rs.3,52,47,398 on account of depreciation and interest from wind mill undertaking and this loss was set-off against the export business income (which in the present case, can be considered as non-eligible unit) in the assessment year 2007-08. In the assessment year 2008-09, the assessee has earned profit of Rs. 7,16,904 and has claimed deduction under section 80IA by treating the assessment year 2008-09 as initial assessment year, The sole ground for canceling the assessment order under section 263 by the learned Commissioner in this regard is that in the ITA No. 4311/Mum/2013 5 Assessment Year: 2009-10

subsequent year i.e., the assessment year 2009-10, 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 sub-section 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 sub-section (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. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provisions of sub-section (5) of section SOIA, 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 any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is ITA No. 4311/Mum/2013 6 Assessment Year: 2009-10

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" as been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of section 80IA from which it chooses its 10 years of deduction out of is 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 set-off 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 1996-97 onwards and the assessee had claimed deduction under section 80IA starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(S) where the assessee had first claimed the deduction in the assessment year 1996-97 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 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 ITA No. 4311/Mum/2013 7 Assessment Year: 2009-10

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-so (6) of s. 80-1, which is the corresponding provision of sub-so (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. 80-1 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 face of the ITA No. 4311/Mum/2013 8 Assessment Year: 2009-10

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. 80-1 for the purpose of computing admissible deductions there under. In view thereof, we are of the opinion that -the Tribunal has not erred in holding that there was no rectification possible under s. 80-1 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 s. 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 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. 80-1 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 sub-section (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 eligible units one Gujarat Unit which was set-up in the year 1995-96 and second Maharashtra Unit in ITA No. 4311/Mum/2013 9 Assessment Year: 2009-10

the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment 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 1996-97. 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 set-off 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 set-off 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 set-off against the profits of non-eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2008-09 only and, therefore, the loss of assessment year 2007-08 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 1999- 2000. Thus, in the assessment year 1999-2000, 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 Department. In assessee's case, as specifically stated in the foregoing paragraphs, the assessee's claim for initial assessment year i.e., assessment year 2008-09 and its claim for deduction under section 80IA made for the first time from assessment year 2008-09, 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."

ITA No. 4311/Mum/2013 10 Assessment Year: 2009-10

Thus, following the aforesaid decisions, we hold that the assessee's claim for deduction u/s 80IA is allowable from the profits derived from the Windmill unit, starting from A.Y. 2009-10, which is the "initial assessment year" chosen by the assessee. The earlier year losses cannot be set off against the profits for eligible units in this year. Accordingly, grounds raised by the assessee is allowed.

6. In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on this 11th day of February, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 11.02.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "I" Bench

//True Copy// By Order

Dy/Asstt. Registrar, ITAT, Mumbai.