TaxTMI 
TaxTMI 
2018 (4) TMI 391
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.... in ITA no. 923/Mum/2016 for AY 2011-12, read as under:- " 1. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in disallowing depreciation @ 70% on the cost of civil construction completely ignoring the fact that the civil construction is integral part of windmill and is eligible for higher rate of depreciation @ 80%. 2. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in applying rule 8D for making disallowance of Rs. 9,30,874/- u/s 14A of the Income Tax Act, 1961. 3. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in disallowing other income of Rs. 9,51,184/- for deduction u/s 10B and taxing it separately. 4. The appellant craves leave to add to, alter, to delete from or substantiate the above ground of appeal." 3. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 319/Mum/2016 for AY 2011-12, read as under:- 1. "On the facts and in the ci....
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....ssee has invested its own funds for making investments from where earning of an exempt income has arisen and no separate disallowance of expenditure u/s 14A is warranted. The AO however invoked provisions of Section 14A of the 1961 Act r.w.r. 8D of the 1962 Rules and made disallowances as under: "DISALLOWABLE EXPENDITURE (as per Rule 8) (Amount in Rs.} (i) Expenditure directly attributable to exempt income: ---- (ii) Interest not directly attributable to exempt income: Interest X Average value of investment attributable to exempt income Average of Total Assets appearing in Balance Sheet 45,17,817 x 11,54,83,730 / 147,60,95,782 Rs.3,53,455 (iii) 0.5% of average value of investments (11,54,83,730/-X 0.5%) Rs.5,77,419 Aggregate of expenditure disallowable : Rs.9,30,874 Thus, the disallowance u/s 14A r.w. Rule 8D came to Rs. 9,30,874/- which was added to the income of the assessee by the AO vide assessment order dated 14-03-2014 passed u/s. 143(3) of the 1961 Act. Disallowance of depreciation on civil components of windmills: 6. The assessee owns six wind mills at various locations in Tamil Nadu and Karnataka, the d....
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....wind velocity, the final structure of machine is very heavy and need to be supported by solid foundation of concrete and iron, so as to withstand strong winds and weight of Plant & Machinery itself. The assessee submitted that an internal road is essential for connecting electrical apparatus of the windmill to the grid of the electricity board and the entire civil and electrical work is an integral part of Plant and Machinery. It was submitted that wind mills cannot be run without erection and installation which involves civil and electrical construction. The assessee also relied upon decision of the ITAT Ahmadabad in the case of ACIT v. Parry Engineering & Electronics P. Ltd. in ITA No. 3317/Ahd/2011, wherein the tribunal has held as under:- "The depredation is allowable on renewable energy device which also includes windmill. The depreciation at the rate of 80% is allowable on the entire device which is capable of generating electricity using wind energy. There is no provision in the Act to bifurcate the device into several parts and allow depreciation thereon at different rates of depreciation. The foundation, civil and electrical works are necessary for the installation of th....
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....eduction u/s. 80IA . The AO also observed that the AO had already disallowed claim of deduction u/s. 80IA for AY 2010-11. The assessee submitted that in the preceding year i.e. AY 2010-11 the said claim was disallowed by the AO by stating that the unabsorbed depreciation of the windmill which has been set-off with other business incomes in previous years should first notionally be reduced from profit of windmill before computing quantum of profit eligible for deduction u/s. 80IA. The assessee submitted that deduction u/s. 80IA is available for any ten consecutive assessment years out of 15 years beginning from the year ending in which the undertaking or enterprise develops or begins to operate any infrastructure facility etc. . Once the assessee has opted for the first year of relief then it continues for further 9 consecutive years. The first year in which the relief is claimed for the first time is called „initial assessment year‟ and in this initial year, the undertaking has to be treated as a separate sole source of income within provisions of Section 80IA(5) and therefore, depreciation and loss of earlier years cannot be notionally carry forward to be set off again....
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....preferred an appeal before the ITAT. Exemption u/s. 10B: 8. The AO observed that assessee has claimed an amount of Rs. 4,83,46,432/- as exemption u/s. 10B on the profit of the Nilakottai Unit. The assessee had filed separate audited Balance Sheet & Profit and Loss account of the unit along with auditors certificate in form no. 56G. This is the 9th consecutive year of the claim of exemption u/s. 10B. The assessee submitted that the said unit located at Nilakottai is an export oriented unit duly registered with appropriate authority and the claim for exemption u/s 10B was allowed by learned CIT-A for AY 2010-11. It was submitted that Revenue has not preferred any appeal against the said order of learned CIT(A) and the matter has reached finality. The AO allowed the claim of the assessee but however AO observed that the assessee had filed the claim of exemption u/s 10B with respect to the interest income of Rs. 9,16,076/- and miscellaneous income of Rs. 35,108/- as business income aggregating of Rs. 9,51,184/- which stood disallowed by the AO to the tune of Rs. 9.51,184/- because as per AO only profit derived from the business are eligible for exemption u/s 10B. Thus, the AO added....
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....4,83,730/- X 0.5%) Rs. 5,77,419/- Rs. 9,30,874/- The assessee submitted before learned CIT-A that the assessee received dividend income of Rs. 68,71,376/- and an amount of Rs. 18.66 crores has been shown as investment in „HDFC Cash Management Fund‟ . The assessee has its own funds to the tune of Rs. 50.51 crores (share capital and reserves) and it was submitted that out of its own/mixed funds, the assessee had made investment in mutual funds from time to time and owned funds were used for making investments and hence no separate disallowance u/s. 14A is warranted. The assessee relied upon the decision of Hon‟ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and submitted that since owned funds are more than investments presumption shall apply that the assessee has invested in Mutual funds out of owned funds. It was submitted by the assessee before learned CIT(A) that assessee invested in liquid funds of mutual funds in the earlier years and it is merely continuing with the said investment in existing portfolios and no disallowance is warranted u/s. 14A r.w.r. 8D of the 1962 Rules. It was also submitte....
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....e assessing Officer is thus upheld on this account." Thus, the learned CIT(A) by following the decision of his predecessor for AY 2006-07 to 2010-11, dismissed the appeal of the assessee by upholding the disallowance made by the AO u/s 14A, vide appellate orders dated 30.11.2015. 11. With respect to disallowance u/s 80IA of set off depreciation of earlier years on notional basis which was already set off against income from other businesses of the assessee, the assessee submitted before learned CIT-A that this claim was allowed in the appellate proceedings for the assessment year 2010-11 by learned CIT-A in assessee‟s favour. The learned CIT-A by following the decision of his predecessor in the case of the assessee for AY 2010-11, allowed the relief to the assessee by holding as under:- " I have carefully considered the facts of the case and the submission made by the appellant. The controversy in the present case is only in respect of earlier year's depreciation and not the initial year which was the subject matter in Goldmine Shares case. The preposition that losses on windmill before the initial assessment year which have already been set off against other incomes....
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....bai Benches as per the assessee's request letter dated 11/06/2013. The Hon'ble President's order dated 26/03/2014 permitted / directed the registry to transfer the appeals of the assessee to Mumbai Benches. Therefore, we are of the view that the same could be disposed off independently particularly in view of the fact that the same are pending since a long time and ample time has already been granted to the revenue to recall the orders of the Pune Tribunal dismissing the appeal of the revenue. 6. On merits, the basic facts are not in dispute. The only dispute is whether the assessee was entitled for higher depreciation on civil construction used for installation of windmills or not? The factual position is that the First Appellate Authority has allowed the higher claim on certain electrical items but denied the same on civil construction. In our considered opinion, the break-up of the various cost components to allow different rate of depreciation is not proper particularly when the same forms part and parcel of same plant & machinery. We also find that the impugned issues stands covered in assessee's favor by the above cited judgments of the Hon'ble High Cou....
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....urt relied upon by the assessee. Therefore, respectfully following the same and on the facts and circumstances of the case, we find that the assessee was entitled for higher rate of depreciation on civil construction. Hence by deleting the impugned additions, we allow the assessee's appeal for all the years. The revenue is at liberty to take recourse to law on the basis of its outcome of miscellaneous application filed before the Pune Benches." The Ld. DR fairly agreed that the above issue is covered in favour of the assessee by decision of the tribunal in assessee‟s own case . After hearing both the parties and Respectfully following the decision of the tribunal in assessee‟s own case, we allow the claim of the assessee in line with the decision of the tribunal in ITA no. 2490-2494/Pune/2012 dated 21.02.2017 for AY 2006-07 to 2010-11. The assessee succeeds on this ground. We order accordingly. 14. With respect to the disallowance u/s 14A r.w.r. 8D2(ii) and (iii), it was submitted that learned CIT(A) has followed earlier year decision . It was submitted that the assessee has its owned funds to the tune of Rs. 50.51 crore and investments are only to the tune of Rs....
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....able under the head income from other sources which has no direct nexus with export business and cannot be termed as income derived from exports and hence no exemption u/s 10B can be granted to the assessee . Heard both the parties and perused the material on record including cited case laws. We are of the considered view that the AO has not examined the direct nexus between the interest income as well miscellaneous income and export income derived by the assessee from eligible industrial undertaking of the assessee on which deduction u/s 10B is available which requires examination of the facts, hence keeping in view ratio of decision of Hon‟ble Supreme Court in the case of India Comnet International v. ITO reported in (2013) 354 ITR 673 (SC), the matter is set aside to the file of the AO for examination/verification of direct nexus between income from interest as well miscellaneous income and income derived from exports business by 100% export oriented eligible undertaking of the assessee to see whether the said income can fall within the ambit of being derived from export business of the eligible industrial undertaking being 100% EOU. The decision of Hon‟ble Supreme C....
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....t and industrial undertaking. Thus, the judgment of the Madras High Court in Menon Impex (P.) Ltd. (supra) was based on the examination of the transaction in detail which exercise has not been undertaken in the present case. For the above reasons, we set aside the impugned judgment and remit the cases to the Income Tax Appellate Tribunal ['ITAT', for short] for deciding the matter afresh after examining the transaction in question, as done by the Madras High Court in the case of Menon Impex (P.) Ltd. (supra). 5. Needless to state that ITAT will give an opportunity to the assessee to produce relevant documents in support of the transaction in question before deciding the question on law. 6. Accordingly, the civil appeals filed by the assessee stand allowed with no order as to costs." Thus, this ground of appeal filed by the assessee is allowed for statistical purposes following the ratio of decision of Hon‟ble Supreme Court in the case of India Comnet International(supra) and matter is restored to the file of the AO for necessary examination/ verifications. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assess....
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....rt in the case of Velayudhaswamy Spiining Mills P. Ltd. & Sudan Spinning Mills (P) Ltd. (supra), the Court observed as under: " From a reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue 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 onl....