Natural Justice breach by reliance on undisclosed third party statements invalidates tax additions; unit wise 80IA deduction required.

Reliance on undisclosed third party statements and failure to afford cross examination breaches natural justice and cannot sustain income tax additions, so the contested addition and denial of business loss were deleted. Separately, deduction under section 80IA(4) read with section 80IA(5) must be computed unit wise, treating each windmill/solar plant as an independent eligible undertaking for deduction purposes; aggregation across separate units to deny deduction is not permissible where units maintain separate books and operations. The appellate deletion of both impugned additions was therefore upheld and the Revenue appeals dismissed.

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Issues: (i) Whether addition of dividend and disallowance of business loss on the ground that transactions in a mutual fund scheme were sham (and thereby taxing exempt dividend and denying loss) was justified; (ii) Whether deduction under section 80IA(4) of the Income-tax Act, 1961 should be computed unit-wise (each windmill/solar plant as separate undertaking) or on consolidated basis and whether the CIT(A) was right in deleting the disallowance.

Issue (i): Whether the addition of Rs. 2,06,68,835/- as taxable income and denial of set-off of business loss on the ground that the mutual fund transactions were sham is sustainable where the Assessing Officer relied upon statements of third parties not supplied to the assessee and no opportunity of cross-examination was afforded.

Analysis: The Assessing Officer relied on survey-derived material and statements of employees of the mutual fund to conclude that the mutual fund had manipulated distributable surplus and that investors entered into sham arrangements; addition was made treating the dividend as return of capital and treating the loss as fictitious. The Tribunal examined whether those statements were placed before the assessee or whether opportunity for cross-examination was provided, and considered precedent holding that reliance on third-party statements without supplying them and affording cross-examination violates principles of natural justice and is not a sustainable basis for addition.

Conclusion: Addition is not justified; the assessee's grounds on this issue are allowed and the addition of Rs. 2,06,68,835/- (and denial of set-off of the claimed business loss) is deleted.

Issue (ii): Whether the Assessing Officer was correct in disallowing deduction claimed under section 80IA(4) of the Income-tax Act, 1961 by aggregating all windmill/solar units as a single eligible business instead of treating each unit/undertaking separately.

Analysis: The Tribunal followed consistent precedents of coordinate benches and several High Courts which interpret section 80IA(4)/(5) to require computation of deduction unit-wise (each undertaking treated as the only source of income for computing the deduction), and noted earlier orders in the assessee's own and related cases adopting unit-wise treatment. The Assessing Officer's approach of aggregating units and denying deduction where overall eligible-business result is a loss was examined against these authorities and the factual matrix showing separate books, separate PPA/operations, and prior acceptance in earlier assessment years.

Conclusion: The CIT(A)'s order allowing the deduction treating each windmill/solar plant as a separate undertaking is upheld; the Revenue's grounds are dismissed and the addition of Rs. 119,64,11,350/- is deleted.

Final Conclusion: On issue (i) the addition based on undisclosed third-party statements and without opportunity for cross-examination was set aside; on issue (ii) established tribunal and High Court authorities support unit-wise computation of deduction under section 80IA, and the appellate order allowing the deduction is upheld. Overall the assessee's appeal is allowed and the Revenue appeals are dismissed.

Ratio Decidendi: (a) Additions founded primarily on statements of third parties not supplied to the taxpayer and made without affording an opportunity of cross-examination breach principles of natural justice and cannot sustain an income-tax addition; (b) For computing deduction under section 80IA(4) read with section 80IA(5) of the Income-tax Act, 1961, each eligible unit/undertaking (e.g., individual windmill/solar plant) is to be treated independently as the eligible business for computing the deduction unless contrary material is placed on record.

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