2022 (6) TMI 1315 - AT - Income Tax

Tribunal grants deduction under Section 80-IA for Silvassa Unit & windmills, directs AO to accept expense allocation.

M/s. Savita Oil Technologies Ltd. Versus DCIT, Central Circle-47, Mumbai.

M/s. Savita Oil Technologies Ltd. Versus DCIT, Central Circle-47, Mumbai. - TMI Issues Involved:1. Disallowance of deduction under Section 80-IA for the Silvassa Unit.2. Reallocation of various expenses on a turnover basis.3. Disallowance of deduction under Section 80-IA for windmills.Issue-Wise Detailed Analysis:1. Disallowance of Deduction under Section 80-IA for the Silvassa Unit:The primary issue was whether the assessment year 2008-09 was the 10th or 11th year of the assessee's claim for deduction under Section 80-IA for its Silvassa Unit. The assessee argued that the initial year of commercial production was 1999-2000, making 2008-09 the 10th year of the claim. The AO and CIT(A) contended that production commenced in 1998-99, thus making 2008-09 the 11th year and ineligible for deduction.The Tribunal analyzed the facts and found that:- The original assessment for 1998-99 noted only trial production, not commercial production.- No deduction under Section 80-IA was claimed or allowed for 1998-99.- The first claim for deduction under Section 80-IA for the Silvassa Unit was made in 1999-2000 and allowed by the AO.- Subsequent assessments consistently treated 1999-2000 as the first year of the claim.The Tribunal concluded that the AO and CIT(A) erred in treating 1998-99 as the initial year. Therefore, the Tribunal allowed the deduction under Section 80-IA for the assessment year 2008-09, recognizing it as the 10th year of the claim.2. Reallocation of Various Expenses on Turnover Basis:The AO reallocated expenses between the Silvassa Unit (eligible for deduction) and the Thane Unit (non-eligible) based on turnover, suspecting that the assessee had allocated lesser expenses to the Silvassa Unit to inflate its profits.The Tribunal noted:- The assessee provided detailed records showing the allocation of expenses based on actual usage and turnover.- The Thane Unit had higher expenses due to more employees and complex production processes.- The AO's reallocation was not justified as the expenses were already proportionally allocated based on turnover and actual usage.The Tribunal directed the AO to accept the assessee's computation of profits for the Silvassa Unit and allow the deduction accordingly.3. Disallowance of Deduction under Section 80-IA for Windmills:The AO disallowed the deduction under Section 80-IA for windmills, considering losses from earlier years that were set off against other incomes. The AO held that these losses should be carried forward and set off before calculating the current year's profits.The Tribunal referred to the CBDT Circular 01 of 2016 and the jurisdictional High Court's decision in CIT Vs. Hercules Hoists Ltd., which clarified that:- The initial assessment year for claiming deduction under Section 80-IA can be chosen by the assessee.- Losses from years prior to the chosen initial assessment year should not be considered for set off against the profits of the chosen years.The Tribunal found that there were no carried forward losses for the initial assessment year of the windmills. Hence, the AO and CIT(A) erred in disallowing the deduction. The Tribunal directed the AO to allow the deduction under Section 80-IA for the windmills as per law.Conclusion:The Tribunal allowed the appeal of the assessee, granting the deduction under Section 80-IA for the Silvassa Unit and windmills, and directed the AO to accept the assessee's allocation of expenses.