2009 (11) TMI 909 - AT - Income Tax

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

The Tribunal allowed the appeal of the assessee, holding that the assessee could choose the initial year for claiming the deduction under Section 80-IA. ... Deduction u/s 80-IA(5) - 'initial year' - as observed by the AO that the deduction u/s 80-IA would be computed with reference to profits of the eligible unit unaffected by losses suffered in other units - CIT(A) dismissing assessee's claim u/s 80-IA by relying on the decision of Goldmine Shares & Finance ( P) Ltd. [2008 (4) TMI 405 - ITAT AHMEDABAD] and ignoring the decision of Mohan Breweries & Distilleries Ltd. [2007 (10) TMI 354 - ITAT MADRAS-B] - whether assessee can opt for the year of deduction for any 10 consecutive years out of 15 years taken from the first year in which the enterprise develops and begins to operate in any infrastructure activity and it does not mandate that first of 10 consecutive assessment years should be always the first year of set up of enterprise? HELD THAT:- As in computing the total income of the assessee, derived from profits and gains from an eligible business, which are detailed in sub-s. (4), 100 per cent deduction is allowed for ten consecutive assessment years. Sub-s. (2) of s. 80-IA gives option to the assessee to choose the 10 consecutive assessment years out of 15 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 parks. Sub-s. (5.) of s. 80-IA qualifies deduction of sub-s. (1) of s. 80A with a non obstante clause and overrides every other provision in this Act providing mechanism by way of assumption that for determining the quantum of deduction for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, it would be deemed 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 assessment year upto and including the assessment year for which the determination is to be made. The above provisions are very clear, plain and direct in meaning. But only difficulty is cast by the term 'initial year' which has nowhere been defined in the Act, yet by sub-s. (2) it is obvious that it is referring to the option vested in the assessee to choose any 10 years out of 15 or 20 years, period provided, as the case may be. The year from which option has been exercised is to be treated as the initial assessment year, but after that the 10 years have in continuity. The Chennai Bench has directly dealt with the question which is really involved in this appeal. Hence, sub-s. (5) of s. 80-IA would come into operation only from the year in which the appellant started claiming deduction under s. 80-IA i.e., from the initial year, as we have described earlier, and the depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. But for the 10 year lag opted by the assessee the ratio of Special Bench would apply verbatim in its letters and spirit. Therefore, we allow this issue in favour of the assessee by following the Special Bench and the Chennai Bench decision. Windmill is a separate undertaking - Each co-generation, plant installed in different years has to be considered as a separate undertaking and the profit/loss cannot be clubbed in order to compute the deduction under s. 80-IA.Appeal of the assessee stands allowed. 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.