Ultimate Alloys (P) Ltd., Tiruppur vs Department Of Income Tax

[PAN: AAACU 3303P] (अपीलाथ&/Appellant) (!'यथ&/Respondent) :- 2 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

अपीलाथ क ओर से / Appellant by : Dr. Nischal, JCIT. यथ क ओर से / Respondent by : Shri. N. Vijaykumar, C.A., Shri. S. Hari Shankar, C.A.,

सन ु वाई क तार ख/Date of hearing : 17.03.2015 घोषणा क तार ख /Date of Pronouncement : 17.03.02015

आदे श / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

These three appeals by department directed against different

orders of Commissioner of Income Tax (Appeals)-II, Coimbatore for

the above assessment years in respect of above assessees. Since the

issues in these appeals are common in nature, hence these appeals

are disposed of by a common order for the sake of convenience.

2. In these appeals, the Revenue has raised the following grounds:

1. The order of the learned CIT(Appeals)-II, Coimbatore is against facts and circumstances of the case.

2. The learned CIT(Appeals)-II, Coimbatore has erred in holding that the assessee is entitled for deduction u/s-80IA.

3. The learned CIT(Appeals)-II, Coimbatore has erred in holding that the assessment year 2005-06 is the initial Assessment Year in which the assessee had claimed the deduction u/s-80IA, and, therefore the depreciation of earlier years (which already have been absorbed) cannot be notionally carried forward and considered in computing the quantum of deduction u/s-80IA.

4. The learned CIT(Appeals)-II, Coimbatore should have observed that as per the provisions of Section-80IA(2) an assessee can opt for :- 3 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

deduction of any ten consecutive years out of fifteen years, reckoned from the first year in which the undertaking enterprise generates power or commences transmission or distributes power, etc.

5. The learned CIT(Appeals)-II, Coimbatore, ought to have appreciated, that as per the provisions of Section-80IA(5) the eligible undertaking should be treated as only source of income for computing the quantum of deduction allowable u/s-80IA.

6. The learned CIT(Appeals)-II, Coimbatore, should have taken not of the fact that the Sec-80IA(5) begins with a non-obstante clause; and, therefore, the restriction therein, shall prevail in computing and allowing the deduction u/s-80IA.

7. For these and other grounds that may be adduced at the time of hearing, the order of the learned CIT(Appeals)-II, Coimbatore may be cancelled and that of the Assessing Officer restored'.

3. The facts as narrated in ITA No.3024/Mds/2014 is considered for

adjudication. The assessee firm filed the return of income for the

assessment year 2011-12 on 30/09/2011 admitting Nil income. The

case was selected for scrutiny and the assessment was completed.

The relevant portion from the assessment order is reproduced below:

3.1 Sale of Cotton Waste :

The Assessing Officer in his order has stated as under:

"During the course of assessment proceedings it was noticed that the assessee has admitted F75,49,704/- as sale proceeds of cotton waste. On examination of books it was noticed that average sale price of cotton waste was too low compared to prevailing market price during the financial year 2010-11. When this issue was taken up with the representative, it was submitted that the quality of cotton waste depends on so many factor and it cannot be compared with products of other spinning mills. However, after discussion with the authorized representative an amount of F20,00,000/- was added to the total income of the assessee on account of sale of cotton waste sold."

:- 4 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

3.2 80IA

The Assessing Officer in his order has stated as under:

"On examination of books of account of wind mill, it was noticed that the assessee does not have any income from eligible business for claiming deduction u/s 80IA of the Act. When the computation has been done by giving notional effect for various expenses incurred while running the windmill including the depreciation for earlier years by treating the eligible unit as an independent unit for all the four wind mills, the following income has been arrived at:

Windmill SC No.662 F72,54,435/-

(unabsorbed depreciation) SC No.793 F7468267/-

SC No.794 F86,21,476/-

SC No.796 F73,19,441/-

3.3 Since none of the eligible units is having profit eligible for

deduction u/s 80-IA of the Income-tax Act, 1961, the entire deduction

of F1,41,87,589/- claimed by the assessee is beyond the scope of S.

80-IA of the Act."

3.4 The Assessing Officer completed the assessment as under:

"Gross Total Income : F 1,37,96,828/-

Deduction claimed u/s 80IA : F 1,37,96,828/-

Eligible deduction u/s 80IA : F NIL

Add: As discussed : F 20,00,000/-

Income assessed : F 1,57,96,828/- :- 5 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

3.5 Aggrieved, the assessee preferred an appeal before the

Commissioner of Income Tax (Appeals).

4. The ld. CIT(A) observed that the issue is covered in favour of

the assessee by the judgment of jurisdictional High Court in the case

of CIT vs. Velayudhaswamy Spinning Mills (P) Ltd reported in 231 ITR

368. Accordingly, he observed that the assessee is entitled for

deduction u/s. 80-IA of the Act. Against this, the Revenue is in appeal

before us.

5. After hearing both parties, we are of the opinion that the ld.

CIT(A) took a correct view on the issue as the issue in dispute is

squarely covered by the judgment of jurisdictional High Court in the

case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT (2012) 340

ITR 477 wherein it was held that -

" from reading of sub-s (1) of s. 80IA, 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 sub-s (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the sections, 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 sub-s. (4). Sub-s(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 years in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc Sub-s. (5) deals with quantum of deduction for an eligible business. The words ''initial assessment year'' are used in sub-s (5) and the same is not defined under the provisions. It is to be noted that initial assessment year employed in sub-s (5) is different from the words :- 6 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

''beginning from the year'' referred to in sub-s(2). Important factors are to be noted in sub-s(5) and they are as under: (1)it starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; (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 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 not 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 contemplated.

It does not all the Revenue to look backward and find out if there is any loss of earlier years and bring forward nationally 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-s(5) 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. 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 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 relevant year.

Therefore, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate is provided in S. 80- IA(5) - CIT vs. TTK Pharma Ltd (Tax Case (Appeal ) No.298 of 2004, dt. 23rd Dec., 2009) Followed; CIT vs. Mewar Oil & General Mills Ltd (2004) 186 CTR (Raj) 141; (2004) 271 ITR 311 (Raj) concurred with; Mohan Breweries & Distilleries Ltd vs. Asst. CIT (2008) 114 TTJ (Chennai) 532: (2008) 3 DTR (Chennai) (Trib) 477 affirmed''.

In view of the above, we are of the opinion that there is

no merit in the ground raised by the department. Accordingly, the

appeal is dismissed.

:- 7 -: I.T.A.Nos.3024, 3025 & 3026/Mds/14

6. In the result, all the three appeals of the Revenue in ITA Nos.

3024, 3025 and 3026/Mds/2014 are dismissed.

Order pronounced in the open court at the time of hearing on

Tuesday, the 17th of March, 2015 at Chennai.

Sd/- Sd/- (च ला नागे !साद ) (चं पज ू ार ) (CHALLA NAGENDRA PRASAD) (CHANDRA POOJARI) या"यक सद य/ JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER

चे$नई/Chennai. %दनांक/Dated:17.03.2015. KV आदे श क

त(ल)प अ*े)षत/Copy to: 1. अपीलाथ /Appellant 2. यथ / Respondent 3. आयकर आय, ु त (अपील)/CIT(A) 4. आयकर आय, ु त/CIT 5. )वभागीय त न/ध/DR

6. गाड फाईल/GF.