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2014 (1) TMI 234

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....ed an additional ground of appeal that the learned CIT(A) ought to have treated the amount received on sale of sales tax entitlement as capital receipt instead of Revenue receipt and thereby treated it as non taxable. 4. At the time of hearing, learned AR of the assessee submitted that as the facts and issue involved in all these appeals are the same, therefore, he is arguing all the appeals together. 5. Learned AR submitted the assessee has raised an additional ground of appeal in all the years that the learned CIT(A) ought to have treated the amount of received on sale of sale tax entitlement as capital receipt not liable to tax and that this ground was omitted to be taken at the time of filing of the appeal by the assessee and the omission was not mala fide. He submitted that is a legal issue and all the facts are available on record and hence, the same may be admitted for hearing. 6. Learned Department Representative did not have any objection to the admission of this additional ground of appeal raised by the assessee. Hence, the same was admitted and the parties were allowed to make their submissions thereon. 7. The learned AR submitted that in all these appeals except for....

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....remains no profit from the windmill units. For this, the Assessing Officer has relied on the decision of Hon'ble ITAT Special Bench Ahmedabad in the case of ACIT vs Goldmine Shares & Finance Pvt Ltd. 113 ITD 209/Ahd(SB) whereon it was held that, in view of specific provisions of section 80IA(5), profits from the eligible business for the purposes of determination of quantum of deduction u/s.80IA, has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against other income in earlier years. Hence, deduction u/s.80IA is nil. Accordingly, the claim of deduction u/s.80IA for Rs.92,41,888/-, Rs.63,69,121/- and Rs.2,48,928/- respectively was disallowed. 6.4 The appellant has submitted that the profit on sale of sales tax exemption and entitlement is derived from the Industrial Undertaking being the windmill and on this u/s.80IA is allowable. The decision of Hon'ble Supreme Court in the case of Liberty India Limited was in respect of profit received from DEPB and Duty Draw Back Scheme and it was held that such profit cannot be treated as having been derived from the eigible industrial un....

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....ax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon'ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to the facts of the present case. In this case, the source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. Hence, by following the decision of Hon'ble Supreme Court, it is held that the Assessing Officer was justified in holding that the profit on sale of sales tax exemption entitlement, is not derived from the industrial undertaking and thus, not eligible for deduction u/s.80IA of the Act. 7. Regarding application of section 80IA(5), the section reads as under: "(5) Notwithstanding anything contain....

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....loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the ineligible business which could not be set off against the loss of the eligible business itself has to be carried forward or set off of the profits of the very source of ineligible business in the subsequent year", (para 31) The words "as if such eligible business were the only source of income of the assessee" compel us to assume that the assessee is not having any other source of income except that which is eligible to deduction u/s.80IA which in this case is the units/undertaking, the units of the windmill generating electricity for the assessee. As per the wording of the sub section (5) of section 80IA, for the purposes of computation of the deduction, it has to be assumed that the only source of income of the assessee is the eligible business. The income or loss of this business alone is to be considered as if that were the only source. This means neither the income of the undertaking nor the loss thereof can be set off or carried forward and set off or adjusted against any other source of income or loss. As a corollary, the income ....

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....lled same windmill in A.Y.2002-03 and incurred the same loss from windmill in A.Ys.2002-03 & 2003-04, and does not have any other business having profit to set off with this loss, he will not have benefit of deduction u/s.80IA for same amount of profit earned in A.Y.2004-05. This will lead to discrimination. The logical and equitable interpretation warrants that initial assessment year has to be taken as the year of installation/commencement of business and not the year when the claim is made for the first time. If this interpretation is taken, then the same treatment will be met out for both the assesses in the above example. 7.4 Further, the deduction u/s.80IA is allowed to an undertaking or an enterprise or an eligible business and not to an assessee. Hence, for allowing deduction u/s.80IA, only the windmill unit has to be considered separately ignoring the other businesses. 7.5 The amendment in section 80IA by Finance Act, 1999, has not made any material change on this point. The new section 80IA(2) is only in respect of period for claim of deduction u/s.80IA of the Act. Earlier it was from ten years beginning from the year of installation/commencement of business of eligibl....

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....mine Shares and Finance (P.) Ltd., (2008), 113 ITD 209 (Ahd) (SB), arrived at the conclusion that sub section (5) would come into operation only in the year in which the assessee started claiming deduction u/s.80IA, i.e., from the initial year and 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. It was held that the decision of the Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra) would apply to the 10 consecutive years starting from the initial year in which the assessee exercises its option to avail the deduction u/s. 80IA. 9. On the other hand, learned DR relied on the decision of Ahmedabad Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) and submitted that Section 80IA(5) would apply and the losses of the earlier years were to be brought forward notionally and adjusted against the profit of the initial year of the assessee from eligible business as if this was the only business carried on by the assessee. It was the argument of the learned DR that the decision of ....

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....rs out of 15 years beginning from the year in which the undertaking begins to generate power. He further submitted that in the amended Section 80IA there was no provision as originally existed u/s. 80IA(5) of the Act. He submitted that in Section 80IB (13) it has been provided that provision contained in sub section (5) of Section 80IA so far as may be applied to eligible business undertaking of that section. 11. Learned AR also relied upon the decision of Hon'ble Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. Vs. ACIT (2009) 116 ITD 241 (Chennai). He also relied upon the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steel & Malleables Vs. ACIT, 132 TTJ 365 (Chennai). He further relied upon the decision of the Bangalooru Bench of the Tribunal in the case of Anil H. Lad Vs. DCIT, (2012), 25 taxmann.com 454 (Bang). He further relied upon the decision of Mumbai Bench of the Tribunal in the case of Shevie Exports Vs. JCIT, 33 taxmann.com 446 (Mum). 12. Learned DR also relied on the decision of Ahmedabad Bench (3rd Member) in the case of Kanel Oil and Export Industries Ltd. vs. JCIT (2009) 121 ITD 596 (Ahd) (TN) and submitted t....

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.... entitlement was related to per centage of various capital investments. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once a commercial production commences. However this by itself would not be either a sole or concluding factor. In the case of Sahany Steel Press working Ltd. and Others vs. CIT reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hand of the recipients whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of trade. He referred to pages 4 to 13 of the paper book no.2 and pointed out there from that it contains eligibility certificate ....

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....decision of the Special Bench of the Tribunal rendered in the case of Goldmine Shares and Private Limited (supra) brought forward losses and depreciation of earlier years has to be deducted from the profits of the years under consideration before allowing deduction u/s. 80IA of the Act. On the other hand, the contention of the AR of the assessee is that after the amendment made by the Finance Act, 1999 in Section 80IA whereby u/s. 80IA(2) the assessee has the option to choose the initial year for claiming the deduction u/s. 80IA for 10 consecutive years within 15 consecutive years from the date of the commencement of the eligible unit. By placing reliance on the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) it was the submission of the learned DR that once the assessee selects the initial year for claiming deduction under section 80 IA (4) then the earlier years brought forward losses and depreciations need not be adjusted against the profits of initial year from the eligible unit for allowing deduction under section 80IA to the assessee. The provisions of section 80 IA (5) shall apply for the years after the initial year f....

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.... business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under Section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of Section 80IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and ....

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....ssment year, the assessee exercised the option under s. 8o-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of subs. (6) of s. 8o-I, which is the corresponding provision of sub-s. (5) of s. 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of CIT vs. Mewar Oil &.General Mills Ltd. (2004) 186 CTR (Raj) 141: (2004) 271ITR 311 (Raj), the Rajasthan High Court also considered the scope of s. 80-I and held as follows:- "Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr, 1984-85, the recomputation of income from the new industrial ....

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....ment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2). 26. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995-96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial assessment year would be applicable i.e., provisions which were prior to 1st April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgment of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligible business was set-off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and ....

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....f the lower authorities on this issue and allow the ground of appeal of the assessee. 29. The other issue in this appeal pertains to whether deduction u/s. 80IA will be allowable to the assessee on the sale proceeds of sales tax entitlement received by the assessee during the year under consideration. 30. The AO as well as the learned CIT(A) following the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT, 317 ITR 128, wherein it has been held that profit on sale of DEPB and Duty Trade Back are not derived from the eligible business and therefore not eligible for deduction u/s. 80IA or 80IB of the Act. 31. Learned AR for the assessee during the course of hearing submitted that the main contention of the assessee before the learned CIT(A) was that the sales tax incentive was a capital receipt of the assessee and hence not liable to tax and and for this proposition he relied on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Birla VXL Ltd. (supra). He contended that the learned CIT(A) has not adjudicated upon this contention of the assessee and neither has recorded the same in his order which was submitted to him by way of a written submis....

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....specified areas, or for mere expansion of the existing production capacities of the industries. Thus, the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas. It can be imagined that the industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology. It was for this purpose that the said scheme was framed giving benefit of the Sales Tax Waiver/Deferment, at the option of the industry concerned. Such benefit had to be computed in terms of the percentage of the fixed capital investment. Benefits were to last for specified periods and upto exhausting maximum limit computed in terms of the percentage of the fixed capital investment. 12. It can thus be straightaway seen that the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable. The principle aim of the scheme was to cover the capital outlay already made by the asse....

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....d Bench of the Tribunal deleted the addition vide order dated 26.3.2010 in ITA No.3007/Ahd/2009 observing that yard stick adopted by the Assessing Officer was average purchase price of Tea without ascertaining the price prevailing in the market on the date when purchase was made from sister concerns with that from outside party and without comparing the exact quality and the transactions of purchases from the sister concerns were not the sham transactions. Therefore, facts being identical following the precedent, the learned CIT(A) deleted the addition. 39. Learned DR relied upon the order of the Assessing Officer whereas the learned AR of the assessee supported the order of the CIT(A). 40. We find that in the instant case the addition of Rs.9,34,64,731/- made u/s. 40A(2)(a) of the Assessing Officer was deleted by learned CIT(A) by following the order of the Tribunal in assessee's own case in the immediate preceding year 2006-07. The learned Departmental Representative could not point out nay specific error in the order of learned CIT(A). He also could not bring any material on record to show that the order of the Tribunal for A.Y. 2006-07 was varied in appeal by any High Forum, ....