2009 (11) TMI 909 - AT - Income Tax

Assessee wins appeal on Section 80-IA deduction, each windmill treated separately

Rangamma Steels & Malleables Versus Assistant Commissioner of Income-tax

Rangamma Steels & Malleables Versus Assistant Commissioner of Income-tax - TMI Issues Involved:1. Disallowance of deduction under Section 80-IA of the IT Act, 1961.2. Determination of the 'initial year' for claiming deduction under Section 80-IA.3. Treatment of each windmill as a separate undertaking for the purpose of deduction under Section 80-IA.Issue-wise Detailed Analysis:1. Disallowance of Deduction under Section 80-IA:The assessee firm, engaged in manufacturing automobile components and windmill power generation, filed its return for the assessment year 2006-07, declaring a total income of Rs. 70,67,640 after claiming a deduction of Rs. 62,49,568 under Section 80-IA of the IT Act, 1961. The AO disallowed this deduction, reasoning that the requisite conditions of Section 80-IA(5) were not fulfilled. The AO observed that the deduction under Section 80-IA should be computed with reference to the profits of the eligible unit unaffected by losses suffered in other units. The AO also noted that losses of the eligible unit, when remained to be adjusted, should be carried forward and set off in subsequent years. The CIT(A) upheld the AO's decision by relying on the decision in Asstt. CIT v. Goldmine Shares & Finance (P) Ltd. and ignored the Chennai Bench decision in Mohan Breweries & Distilleries Ltd. v. Asstt. CIT.2. Determination of the 'Initial Year' for Claiming Deduction under Section 80-IA:The assessee argued that the term 'initial year' was not defined in the Act and that the assessee had the option to choose the initial year for claiming the deduction for any 10 consecutive years out of 15 years. The Tribunal noted that the Special Bench decision did not address the relevance of the term 'initial year.' The Tribunal held that the initial assessment year could be the year in which the assessee chose to claim the deduction under Section 80-IA, and the provisions of Section 80-IA(5) treating it as a separate sole source of income could not be applied to a year prior to the year in which the assessee opted to claim relief under Section 80-IA for the first time. The Tribunal concluded that the Special Bench decision did not overrule the Chennai Bench decision, which allowed the assessee to choose the initial year for claiming the deduction.3. Treatment of Each Windmill as a Separate Undertaking:The Tribunal addressed the issue of whether each windmill should be treated as a separate undertaking for the purpose of deduction under Section 80-IA. The Tribunal referred to the decision of the Chennai Bench in the case of Bennari Amman Sugars, which held that each co-generation plant installed in different years should be considered a separate undertaking, and the profit/loss could not be clubbed to compute the deduction under Section 80-IA. The Tribunal found the facts of the present case similar to those in Bennari Amman Sugars and allowed the ground in favor of the assessee.Conclusion:The Tribunal allowed the appeal of the assessee. It held that the assessee could choose the initial year for claiming the deduction under Section 80-IA, and the depreciation or losses of the years prior to the initial assessment year could not be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. Additionally, each windmill was to be treated as a separate undertaking for the purpose of deduction under Section 80-IA.