AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 1167
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....nce of Proportionate Compensation Paid for mining activity Ground No. 1 of Revenue Appeal for Asst Year 2008-09 Ground No.1 of Revenue Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision rendered thereon would apply with equal force to Asst Year 2009-10 also except with variance in figures. The assessee is a public limited company is engaged in the business of Manufacturing of cement, Jute goods, PVC goods, calcium carbide, auto trim parts and iron & steel castings. During the course of hearing, it was submitted that for obtaining limestone which is the main raw material for manufacturing of cement, the assessee is required to pay rent/royalty to the State Government in terms of the mining lease which is charged to the profit and loss account. In terms of the mining lease and requirement of the relevant State Land Revenue Law, in addition to the rent/royalty, the assessee is also required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. The assessee claimed payment for mining the raw material by way of rent/royalty as revenue expend....
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.... has also analyzed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the Ld. CIT(A) on this issue and confirmed the same. Ground no. 1 of the Revenue's appeal is thus dismissed.". The facts in the years under dispute is also analogous to that in earlier years and hence respectfully following the order of this tribunal supra, we don't find any infirmity in the order of the ld CITA in this regard. Accordingly the grounds raised by the revenue in this regard are dismissed. 3. Disallowance u/s 14A of the Act Ground Nos. 2 & 3 of Revenue Appeal for Asst Year 2008-09 Ground Nos. 1 & 2 of Assessee Appeal for Asst Year 2008-09 Ground No. 2 of Revenue Appeal for Asst Year 2009-10 Ground Nos.1 & 2 of Assessee Appeal for Asst Year 2009-10 The facts of Asst Year 2008-09 are taken up for adjudication and the decision r....
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....way of fresh investment of Rs. 559.85 lakhs in the assessee's own subsidiary company. In respect of its share investments, the assesse received 8 dividend warrants for an aggregate sum of Rs. 17,31,232/- which were deposited in the assessee;s bank account for the purpose of encashment. The rest of the dividend income of Rs. 17,85,16,317/- was from investment in schemes of mutual funds providing for declaration of dividend. Out of the said mutual fund dividend, dividend of Rs. 15,58,69,753/- was reinvested in the respective schemes without being actually received by the assessee. The balance mutual fund dividend income of Rs. 2,26,46,744/- was received in the form of 25 warrants which were deposited in the assessee's bank account. The break up as on 31.3.2008 of the assessee's investments which provided for payment of dividend and those which did not so provide is tabulated as under:- As at 31.3.07 (Rs. In lakh) As at 31.3.08 (Rs. lakh) Average In (Rs. in lakh) Percentage 1. Investments in mutual fund schemes and other assets including shares which provided for payment of dividend. 21741.36 10862.19 16301.78 30.93% 2. Investments in growth sch....
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....tement includes not only the employee's remuneration but also other office expenses. It is the assessee's case that the formula in Rule 8D cannot be applied in its case at all. Without prejudice to the said contention, it is pertinent to mention that the formula in Rule 8D viz. 0.5% of the average investment could have at best been applied by the Assessing Officer in respect of investments which provided for payment of exempt dividend income, averaging Rs. 16301.78 lakh. There was no question of making any disallowance of 0.5% in respect of investments which did not provide for payment of any dividend and disposal/redemption of such investments was liable to tax. The amount of disallowance under Rule 8D could have at best been 0.5% of Rs. 16301.78 lakh i.e. 81.51 lakh and not Rs. 263.52 lakh as computed by the Assessing Officer. The said contention of the assessee is strictly without prejudice to its contention that the formula in Rule 8D cannot be applied in its case at all. 3.2. The ld CITA allowed partial relief to the assessee by observing as under:- "The appellant has submitted an alternate plea that the formula of Rs. 8D viz. 0.5% of the average investment could h....
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....assessment order as to why the workings of disallowance u/s 14A of the Act need to be rejected. Hence it cannot be said that the ld AO had mechanically applied Rule 8D(2) of the Rules for making disallowance u/s 14A of the Act. It was argued by the ld AR that 69.07% of the assessee's investments (including in non-equity oriented mutual funds growth schemes) did not provide for payment of any dividend. Upon redemption/disposal of such investments, the assessee would be liable to capital gains tax and income from such investments is not exempt under the provisions of the Act. He argued that even in respect of the assessee's investments in other schemes of mutual funds providing for payment of dividend, the assessee is liable for capital gains tax upon disposal/redemption of the units since such schemes are also not equity oriented. We find that the ld AR also made an alternative argument that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that strategic investments should be excluded. We find lot of force in the alternative argument of the ld AR that only dividend bearing investments are to be considered for making disallo....
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....investment of Rs. 6,07,75,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicle (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s 14A r.w. Rule 8D because it cannot be termed as expense/interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum of Rs. 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld.Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and doe....
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....unit in the state of West Bengal rather than towards acquisition of specific capital assets in that industrial unit. The intention was with the object of supplementing trade receipt and profits of the assessee company rather than to assist the assessee in acquiring a capital asset, accordingly, it was incidental to carrying on the business of the assessee. Moreover, the subsidy in question has been granted to the assessee only after commencement of production and subsidy granted after commencement of production is operation subsidy which is of revenue nature. The assessee's claim for treating the subsidy in the nature of capital receipt is therefore not accepted. Further, any claim not made through I.T. Return or Revised Return, same is not allowable by AO. The Hon'ble Supreme Court in case of Goetze (India) Ltd. in 284 ITR 323, confirmed this decision. Therefore, fresh claim of reducing the amount in computation furnished with return is not accepted . 4.1. The assessee explained before the ld CITA as below:- "5.1 The next ground raises the contention that industrial promotion assistance of Rs. 4,01,64,232/- received from the West Bengal State Government is a capita....
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....axman 437 (Cal) and Maynak Poddar (HUF) v WTO, (2003) 262 ITR 633 (Cal). The same view has also been taken by the Hon 'ble Tribunal in the assessee's own case for the assessment year 2006-07. 5.4 The 2000 Scheme was formulated by the West Bengal State Government for the promotion of industry in the State. The 2000 Scheme was for industries in large, medium, small scale and tourism sectors. The 2000 Scheme provided for special package of benefits for Mega Projects having a minimum investment of Rs. 25 crores. Districts in the State were put under different groups. Group A comprised area falling under Calcutta Municipal Corporation and no incentive was available for any industry located in Group A. 5.5 The 2000 Scheme was applicable in respect of units to be set up and also to expansion projects of existing units having investment in fixed asset. Commercial production in the new unit or the expanded portion of an existing unit was required to commence on or after January 1, 2000. In case of expansion, the fixed capital investment made had to result in increase of the total value of the fixed capital investment by not less than 25% of the net value of fixed a....
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....er considering the merits of the case and subject to other condition stipulated in the 2000 Scheme and the order of extension. It was stipulated in the eligibility certificate that during the validity period thereof, the unit shall furnish to the Directorate of Industries, West Bengal and WBIDC the following information :- (a) Date of taking effective step; (b) Quarterly progress report on the implementation of the project, physical target achieved and new fixed capital investment made; (c) Date of commencement of power supply for production purposes; (d) Date of starting commercial production/operation; (e) Total number and date of appointment of new/additional factory workers in the unit: (f) Yearly report on the working and performance of the unit; 5.8 One of the conditions stipulated in the said eligibility certificate was that a true account of the value of fixed assets acquired, sold or otherwise disposed of had to be kept. Conditions (III) and (IV) of the eligibility certificate: (III) If the Industrial unit for which this eligibility certificate is issued without obtaining prior written permission from ....
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....lt, the benefit allowed under the 2000 scheme was to become immediately recoverable. If loans were not repaid by due date, the entire loan/balance loan was to become due on the date of default and action for recovery could be taken immediately. Measurement of the amount of assistance with reference to the sales tax paid and payment of the assistance by way of adjustment against the sales tax liability merely relate to the form or mechanism through which the assistance is granted and do not determine the character of the subsidy. The amount of sales tax paid is only the measure for determining the quantum of assistance. It is not a case of relaxation of tax or supplementing of trade receipt/profits as erroneously held by the Assessing Officer. Further, the time of payment of the assistance is also of no relevance. It is submitted that the treatment of the assistance as a revenue receipt by the Assessing Officer is contrary to the law laid down by the Hon'ble Supreme Court and the Hon'ble High Courts including the jurisdictional High Court". 4.2. The ld CITA by following the tribunal order in assessee's own case for the Asst Year 2006-07 held that the ground of appeal on the c....
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....y the revenue were as under:- Assessee Ground No. 1 That on the facts and circumstances of the case, the learned CIT(Appeals) though holding that sales-tax incentive of Rs. 1238000 allowed by the State Govt. is the nature of capital receipt but erred in directing the Assessing Officer (AO) for reducing the same from the cost of Fixed Assets for the purpose of computing depreciation by applying the Explanation 10 to Sec. 43(1) of I.T.Act. Revenue Ground No. 2 That Ld.CIT(A)-VI Kolkata has erred in law as well as on facts by deleting the addition made by the AO on account of Sales Tax Subisidy received by the assessee as revenue income of Rs. 12,38,000/-. The decision rendered thereon by this tribunal is as under:- 7. We have heard rival contentions on this issue and gone through the facts and circumstances of the case. We find that the facts are discussed in detail and which are undisputed. It is admitted that the assessee's issue of Sales Tax Incentive is capital in nature for the reason that the very scheme under which the expansion of the unit and subsidy under Rajasthan Sales Tax Scheme, 1998 was received explains the purpose o....
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....meeting a portion of the cost of the assets, though quantified as a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the "actual cost". By implication, the above judgment also provides that if the subsidy is intended for meeting a portion of the cost of the assets, then such subsidy should be deducted from the actual cost, for the purpose of computing depreciation. As per Hon'ble Supreme Court, law is that if the subsidy is asset-specific, such subsidy goes to reduce the actual cost. If the subsidy is to encourage setting up of the industry, it does not go to reduce the actual cost, even though the amount of subsidy was quantified on the basis of the percentage of the total investment made by the assessee. The law is already settled on the subject. Now, the only wavering is with reference to Explanation 10 provided under sec.43(l) of the Act. The said Explanation provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsi....
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....ets in terms of Explanation 10 to Section 43(1) of the Act. Accordingly, the grounds raised by the revenue are dismissed and grounds raised by the assessee are allowed. 5. Deduction u/s 80IA of the Act Ground Nos. 6 & 7 of Revenue Appeal for Asst Year 2008-09 Ground Nos. 8 to 12 of Assessee Appeal for Asst Year 2008-09 Ground No. 4 of Revenue Appeal for Asst Year 2009-10 Ground Nos. 8 to 12 of Assessee Appeal for Asst Year 2009-10 The brief facts of this issue is that the assessee claimed the deduction u/s 80IA of the Act in respect of the Thermal Power Plants set up by it at Satna, M.P. and Chanderia, Rajasthan. The electricity generated by the two power plants was transferred to the assessee's cement manufacturing units. Though there was no sale of electricity to any outsider during the previous year relevant to the Asst Year 2008-09, sales to independent third parties were made during the previous year relevant to the Asst Year 2009-10. The electricity transferred from the power plants to the cement manufacturing units (i.e captive consumption) was valued by the assessee with reference to the amount charged by the concerned State Electricity Board in its bills ....
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....d that the annual weighted average rate should be considered; that electricity duty and cess should be excluded and that the earlier years figures should also be re-worked on the same basis. 5.2. It is necessary to mention that the ld CITA while deciding the matter relied upon an order dated June 30, 2006 passed by this tribunal in the case of ITC Ltd for the Asst Year 2002-03. The said order of this tribunal was considered by the Hon'ble Calcutta High Court in CIT v ITC Ltd., (2016) 236 Taxman 612 (Cal) but the view taken therein was not approved by the Hon'ble High Court. In ITC's case (supra) it was held by the Hon'ble Calcutta High Court, that the quantum of benefit u/s 80IA of the Act was to be worked out with reference to the market rate at which electricity could have been sold to the distribution licensee by a generating company and that benefit cannot be claimed on the basis of rate chargeable by the distribution licensee from the consumer. Such view was taken on the basis that the electricity generated by an assessee in his captive power plant could not be sold to anyone other than a distribution company or a company which was engaged both in generation and distributio....
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....ht to open access for the purpose of carrying electricity from his captive generating plant to the destination of his use. (e) Section 39(2)(d) provides that one of the functions of a State transmission utility, that is, the State Electricity Board or Government company notified by the State Government, will be to provide non-discriminatory open access to its transmission system for use by any consumer as and when such access is provided by the State Regulatory Commission under section 42(2). (f) Section 40 of the 2003 Act vide clause (c) stipulates that it shall be the duty of a transmission licensee to, inter alia, provide non-discriminatory open access to its transmission system for use by any consumer as and when such open access is provided by the State Regulatory Commission under sub-section (2) of section 42. (g) Sub-section (2) of section 42 enjoins upon the concerned State Regulatory Commission to introduce open access within one year of the appointed date (viz. June 10, 2003). (h) Section 49 of the 2003 Act provides that where the appropriate Regulatory Commission has allowed open access to certain consumers under section 42, such consu....
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....censee shall have the option of procuring medium term/long term power from the owner of a captive power plant on competitive bidding, using the guidelines specified by the Ministry of Power, Government of India and in such an event, the State Regulatory Commission shall accept the tariff for power purchase as decided through such competitive bidding. (n) The Rajasthan Electricity Regulatory Commission made the Rajasthan Electricity Regulatory Commission (Terms and Conditions for Open Access) Regulations, 2004 in exercise of the powers conferred by section 42 of the 2003 Act. Regulation 4(1) provides that subject to the provisions of the said Regulations, licensees, generating companies including persons who have established a captive generating plant and consumers shall be eligible for open access to the intra state transmission system of the State Transmission Utility or any transmission licensee or the distribution system of a distribution licensee subject to payment of transmission/wheeling charges. (o) The Rajasthan Electricity Regulatory Commission made the Rajasthan Electricity Regulatory Commission (Tariff for Captive Power Plants) Regulations, 2007 (enclos....
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.... (r) The Rajasthan Rajya Vidyut Prasaran Nigam signified its no objection to the assessee availing open access for sale of power through Indian Energy Exchange and to members of Indian Energy Exchange (enclosed in pages 17 and 18 of the supplementary paper book I). (s) The assessee sold power through the Indian Energy Exchange at rates which were higher than the price at which electricity was purchased by it from the State Electricity Board. (t) To be precise, in Rajasthan, the assessee sold power through the Indian Energy Exchange at Rs. 5.78 per unit and to the Rajasthan distribution companies at Rs. 5.71 per unit, whereas, it purchased power from the State Electricity Board at the average rate of Rs. 4.93 per unit during the financial year 2008-09. 5.4 The ld AR argued that it would be apparent from the aforesaid that during the previous year relevant to the Asst Years 2008-09 and 2009-10, it was open to the assessee to sell electricity to distribution licensees or to consumers. He argued that it was not the position in law that the assessee could sell electricity only to a distribution licensee or a company engaged both in generation and distributi....
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....and distribution and that the rate at which electricity could be sold by the captive power plant was the one fixed by the tariff regulatory commission. However, such position has undergone sea change inasmuch as during the relevant previous years it was open to the assessee to sell even to a consumer and the price for sale to a distribution company or to a consumer that could be mutually agreed upon notwithstanding the tariff fixed by the State Regulatory Commission. We find that during the previous year relevant to the Asst Year 2009-10, the assessee infact sold electricity at rates higher than that charged from it by the State Electricity Board. The assessee nevertheless made the computation for the purpose of section 80IA of the Act with reference to the price charged from it by the State Electricity Board. In such circumstances, we hold that, when it was permissible for the assessee to sell electricity to consumers and distribution licensees at rates higher than that paid by it to the State Electricity Board, the price charged by the State Electricity Board would be a very good indication of the market value of electricity and the assessee did not commit any error in adopting s....
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....hat the assessee was the only buyer in the region where its factory was located." (emphasis added) 5.6.3. The ld AR submitted that as held in the aforesaid judgement of the Hon'ble Supreme Court, the price paid by an assessee for purchase of raw material represents the market price of such raw material produced by the assessee. The said judgment was held not to apply in ITC's case because the Hon'ble Court was of the view that electricity could not be sold to the consumer because of specific prohibition in the erstwhile Electricity Act and as such the price to the consumer could not be taken into account. We find that that is not the position in the instant case. Hence we are in agreement with the arguments of the ld AR. 5.6.4. We find that the method adopted by the assessee viz. to take the average rate charged by the State Electricity Board for the previous month is quite appropriate and reasonable for determining the market value for the month of supply. The annual weighted average adopted by the ld CITA would result in variations occurring during the year at different times being made applicable uniformly for the whole year. In our considered opinion, the assesse....
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....e 5% on maximum side. The said subsidy has been considered by the assessee as capital receipt. The assessee claimed that since subsidiary was realized in the form of sales tax, it is treated as capital receipt and not offered for tax. The ld AO observed that the said subsidy is in the form of relaxation of the tax and was more for encouragement to entrepreneurs to establish/expand industrial unit in the state of Rajasthan rather than towards acquisition of specific capital assets in that industrial unit. The intention is with the object of supplementing trade receipt and profits of the assessee company rather than to assist the assessee in acquiring a capital asset and accordingly the said subsidy is incidental to the carrying on the business of the assessee. Based on these observations, he treated the interest subsidy as a revenue receipt. 6.1. The assessee reiterated the submissions made before the ld AO and also tried to distinguish the earlier order of the ld CITA on the very same issue in the earlier year. The ld CITA observed as under:- "16. The whole of the subsidy has been given in respect of setting up of a captive power plant which is not in the nature of expa....
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....s tax subject to maximum 50% of additional sales tax paid by the industry. The significant fact that under the scheme framed by the Government, no subsidy was given until the time production had actually commenced. Mere setting up of the industry did not qualify an industrialist for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but as assistance only after the industry commenced production and that too minimum three years prior to it. 19. The interest subsidy was @ 5% of capital as interest out of interest paid by the industry on the money borrowed for this purpose. The appellate courts have held that the sales tax subsidy is a revenue receipt and this is also indirectly exemption out of sales tax in the form of interest being paid by the industry and reimbursement of the same by the State out of the sales tax. Therefore, in view of the above discussion and following the reasoning an decision of my predecessor in the case of the appellant in the assessment year 2007-08, it is held that the reimbursement of interest out of sales tax payable is not a capital receipt in nature as it does not meet the capital ....
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....esh adjudication. We find that with regard to treatment of Industrial Promotion Assistance (IPA) as capital receipt or revenue receipt supra in Para 4 above, we have already held it to be a capital receipt and the same need not be reduced from the cost of assets as per Explanation 10 to Section 43(1) of the Act. We find that the subsidy amount was adjusted against the sales tax liability and was not used directly or indirectly to acquire the assets and hence the cost of assets cannot be reduced by the amount of subsidy. We also find that the Hon'ble Jammu and Kashmir High Court in the case of Shree Balaji Alloys vs. CIT, (2011) 333 ITR 335 (J&K) at page 346 held interest subsidy to be a capital receipt. On further appeal by the revenue, the Hon'ble Supreme Court by an order dated 19.4.2016 in Civil Appeal No.10061 of 2011 held that the interest subsidy was a capital receipt in view of its decision in Ponni Sugars (supra) and further held that even if it was treated as a revenue receipt, then the assessee was entitled to deduction under section 80IB/80IC as profits derived from eligible business according to its judgment in CIT v Meghalaya Steels Ltd., (2016) 383 ITR 217 (SC). Hence....
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....ntive which has been allowed in assessment year 2007-08 as per the eligible rate for the said year has not eligibility for claim in the subsequent year to the assessee. In view of the above discussion, I dismiss this grounds of appeal". Aggrieved, the assessee is in appeal before us. 7.2. We have heard the rival submissions and perused the materials available on record. We find that the issue under dispute is squarely covered in favour of the assessee by the decision of this tribunal in the case of Hindustan Gum & Chemicals Ltd vs DCIT in ITA Nos. 462 & 752/Kol/2014 for Asst Year 2008-09 vide order dated 8.3.2017 wherein it was held that :- 6.3. We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the co-ordinate bench of this tribunal supra wherein it was held as under :- "4. Ground no. 1 relating 10 depreciation on plant and machinery which were put to use less than 180 days during the said financial year. During the previous assessment year (2006- 07) the assessee claimed 50% of depreciation and it was allowed. Now for the year under consideration, the assessee claimed further 10% depreciation to....
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....terpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under section 32(1)(iia) of the Act is a one-time benefit to encourage industrialisation. and the provisions related it have to be construed reasonably, liberally and purposively to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. " 8. Heard both parties and perused the relevant material on record. By reading of Clause (iia) to sub-section (1) of section 32 provides for allowance of initial depreciation equal to 20% of the actual cost of new plant and machinery acquired and installed after March 31, 2005 with effect from the assessment year 2006-07 to th....
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....he provision for leave encashment on the ground that the same is allowable only on payment basis in terms of section 43B(f) of the Act, which was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us. 8.1. We have heard the rival submissions. We find that though the Hon'ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 292 ITR 470 (Cal) had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon'ble Supreme Court which initially in Special Leave to Appeal (Civil) CC 12060/2008 dated 8.9.2008 had held as under:- "The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders." Later the Hon'ble Supreme Court in Special Leave to Appeal (Civil) No(s). CC 22889/2008 dated 8.5.2009 had held as under:- "The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Leave granted. Pending hear....
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.... assessment year 2006-07. Because of substantial depreciation on new plant & machinery and other expenditure in initial years, the said plants incurred losses. Such losses including unabsorbed depreciation of the power plants were set off against other income of the assessee in those years. The assessee claimed deduction under section 80IA for the first time in the Assessment year 2008-09 when profits were earned. While computing the profit eligible for deduction under section 80IA, the earlier years' loss/depreciation already set off against other income was inadvertently reduced from current year's profit due to which lesser deduction was claimed by the assessee. 9.2. We find that this issue is squarely covered by the decision of the Hon'ble Madras High Court in favour of the assessee in the case of Velayudhaswamy Spinning Mills P Ltd ; Sudan Spinning Mills P Ltd vs ACIT and CIT vs Mohan Breweries & Distilleries Ltd reported in (2012) 340 ITR 477 (Mad), wherein it was held as under:- 17. From a reading of sub-section (1), it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterpr....
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.... to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub-section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 19. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in 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....
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....ction 80-IA further provides as under- "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed 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 subsequent assessment year up to and including the assessment year for which the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandat....