Court Invalidates DAO for A.Y. 2007-08, Allows Deductions

The court held that the Draft Assessment Order (DAO) issued under Section 144C for A.Y. 2007-08 was invalid and time-barred, as Section 144C could not be applied retrospectively and was effective only from A.Y. 2010-11 onwards. Deductions under Sections 80IA and 80IB were allowed based on previous judgments in favor of the petitioner. The issue regarding Section 10B was remanded to the Assessing Officer for further examination. The court emphasized that the clarificatory circular issued by the CBDT in 2013 did not accurately reflect the legal position.

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Issues Involved:
1. Validity of the draft assessment order (DAO) under Section 144C.
2. Rejection of deductions under Sections 80IA, 80IB, and 10B of the Income Tax Act.

Detailed Analysis:

1. Validity of the Draft Assessment Order (DAO) under Section 144C:

The petitioner contended that the DAO dated 30.12.2010 was barred by time under Section 153(1) and (3) read with Section 92C(4) of the Income Tax Act. The petitioner argued that Section 144C, inserted by the Finance (No.2) Act, 2009, effective from 01.04.2009, was applicable only to A.Y. 2010-11 and subsequent years. The Central Board of Direct Taxes (CBDT) initially issued an explanatory circular supporting this view, but later issued a clarificatory circular in 2013 stating that Section 144C applied to all pending proceedings as of 01.04.2009. The petitioner argued that this retrospective application was incorrect and contrary to the settled position of law.

The court examined the legislative intent behind Section 144C, which introduced a new scheme of assessment for cases involving transfer pricing, distinct from regular assessments. The court referenced the Supreme Court's judgment in Karimtharuvi Tea Estate Ltd. v. State of Kerala, which established that the law applicable on the first day of the assessment year governs that year's assessments. The court concluded that Section 144C, being a substantive change, could not be applied retrospectively and was applicable only from A.Y. 2010-11 onwards. Consequently, the DAO issued for A.Y. 2007-08 was deemed invalid and barred by limitation.

2. Rejection of Deductions under Sections 80IA, 80IB, and 10B:

Section 80IA:
The Assessing Officer (AO) rejected the deduction under Section 80IA, stating that the power generated by the petitioner's power plant was used captively and not sold to third parties. The court noted that this issue had already been decided in favor of the petitioner in a previous judgment (W.P.No.7400 of 2008) which had attained finality. Therefore, the deduction under Section 80IA was allowed.

Section 80IB:
The AO disallowed the deduction under Section 80IB, arguing that it related to the 10th year of the Chinchpada Unit. The court referenced another judgment in the petitioner's favor (W.P.Nos.24476 to 24478 of 2009), which clarified that the initial assessment year for deduction purposes should be based on the date of commercial production, not the date of the license. This decision had also attained finality. Consequently, the deduction under Section 80IB was allowed.

Section 10B:
The AO partially disallowed the deduction under Section 10B, arguing that the conversion of copper anode to copper cathode did not constitute "manufacture" as no new product emerged. The court acknowledged that the exercise of fact-finding on this issue should be undertaken by the AO, subject to the court's conclusion on jurisdiction.

Conclusion:
The court allowed the writ petition, holding that the DAO issued under Section 144C was invalid for A.Y. 2007-08 as it was barred by limitation and the provision was not applicable retrospectively. The deductions under Sections 80IA and 80IB were allowed based on previous judgments in favor of the petitioner. The issue under Section 10B was remanded to the AO for fact-finding. The court emphasized that the clarificatory circular issued by the CBDT in 2013 did not bind the AO as it did not reflect the correct legal position.

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