TaxTMI 
TaxTMI 
2016 (5) TMI 1476
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....ruary, 2009 passed by the Commissioner of Income-tax (Appeals) XXX, Mumbai (hereinafter referred to as the CIT(A)) for the aforesaid assessment year on the following grounds :- 1. The learned CIT(A) erred in reopening the assessment under section 147 of the Act. The appellant submits that the reassessment has been done merely on the basis of change of opinion. 2.The learned CIT(A) erred in not appreciating the fact that deduction under Section 80IA has been correctly allowed in the assessment order with reference to the profits of 67.5 MW Unit without considering the unabsorbed depreciation of that Unit for earlier assessment years, since such unabsorbed depreciation has been set off against other income in earlier years. 3. The learned CIT(A) erred in not appreciating the fact that despite Section 80IA(5), the requirement to treat the undertaking as the only business of the assessee is from the "initial assessment year" and not from the year of commencement of generation/distribution of power. 4. Each one of the above grounds of appeal is without prejudice to the other." 3. The Brief facts of the case are that the assessee company filed its return of income on 30th Octo....
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....t considering the unabsorbed depreciation of that Unit for earlier assessment years, since such unabsorbed depreciation has been set off against other income in earlier years. Our detailed submissions are as under: As per the provisions of sub-sections(l) and (2) of Section 80lA, an assessee is entitled to claim deduction of 100% of the profits and gains from the specified business for ten consecutive assessment years. The deduction may, at the option of the assessee, be claimed by him for any 10 consecutive years out of 15 years beginning from the year in which the undertaking generates power. The guidelines for computing the profits of the eligible undertaking are laid down in sec. 80IA(5) which specifies that the quantum of deduction 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 upto and including the assessment year for which the determination is to be made immediately. The requirement of sec.80IA(5) makes it imperati....
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.... calculating the profits attributable to Jojobera 67.5 MW unit, which forms part of the total profits of the Company, the question of setting off unabsorbed depreciation of earlier years does not arise, since such depreciation has already been set off against the profit of the other undertakings of the Company in earlier years. In this connection, we rely on the following decisions: 1. Rajasthan High Court in the case of CIT vs. MEWAR Oil and General Mills Ltd.(186 CTR 141) (copy enclosed-Annex. 1) 2. Supreme Court in the case of CIT vs. Patiala Flour Mills Co. P. Ltd. (115 ITR 640) 3. Supreme Court in the case of Rajapalayam Mills Ltd. vs. CIT (115 ITR 777)." The assessee company submitted that the treatment of the undertaking as the only business of the assessee company is from the initial assessment year, would be the assessment year specified by the assessee company at its option. Thereafter, again the assessee company was show caused by the AO as to why the deduction u/s 80IA of the Act should not be computed after considering unabsorbed depreciation of earlier years. The assessee company vide its letter dated 29th September, 2006 submitted that the assessment year ....
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.... all the companies were merged under the assessee company with 100% share. In view of the above, while computing deduction u/s 80IA of the Act for considering the losses or income in respect of Jojobera 67.5 MW power generating unit for earlier years income/losses of Tata Electric (AOP) is taken from assessment years 1997-98 to 2000-01 instead of the income/losses of the assessee company for the above assessment years. In the relevant assessment years i.e. 1997-98 to 2000-01, the assessee company was holding only 50% share in the AOP. Therefore, income/loss in respect of Jojobera 67.5 MW unit also would be attributable to the assessee company to the extent of 50% only for the above years. Thus, the AO held that it would be fair and right to consider the losses of Tata Electric (AOP) which is 100% while computing the deduction u/s 80IA of the Act for the 'initial assessment year' considered by the assessee company i.e. the assessment year 2002-03. Thus, the brought forward losses which represents unabsorbed depreciation in all the years from the assessment year 1997-98 of Tata Electric (AOP) for Jojobera 67.5 MW power generating unit was as under:- B/f loss of A.Y. 1997-98 (-)59,2....
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....ion 147 of the Act, the assessee company filed its first appeal before the ld. CIT(A). 6. Before the ld. CIT(A), the assessee company challenged the validity of the reopening u/s 147 of the Act and submitted that the assessee company had claimed deduction of Rs. 20,70,84,187/- u/s 80IA of the Act in respect of Jojobera 67.5 MW power generating unit in the return of income filed with the Revenue for the assessment year 2002-03. Under clause 26 of the tax audit report for the assessment year 2002-03, the tax auditors have made the following disclosure: "The claim is in respect of Jojobera 67.5 MW unit for which the company has exercised the option that the claim under section 80IA will be for ten consecutive assessment years beginning with A.Y. 2002-03 and accordingly, no adjustment has been made for the unabsorbed depreciation relating to earlier assessment years, which has been set off against the other business income of the assessee in earlier years" It was submitted that despite the above disclosure, assessment was completed u/s 143(3) of the Act and deduction of Rs. 68,25,97,659/- was granted u/s 80IA of the Act , which included a deduction of Rs. 20,39,98,805/- u/s 80IA of....
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....56 ITR 1(Del.)(FB) vi) Wyeth India Private Limited v. IAC 137 ITR 20(Bom.) vii) Garden Silk Mills Private Limited v. DCIT 237 ITR 668(Guj.) viii) Jindal Photo Mills Limited v. DCIT 234 ITR 170(Del) ix) India Steamship Co. Limited v. JCIT 194 CTR 386(Cal.) x) Transworld International Inc. 192 CTR 97(Del) It was also submitted that reassessment has been made mainly based on the audit observation which is not permitted in law. The assesse company also relied upon following case laws to support its contentions : i) Siemens Information Systems Limited v. ACIT 295 ITR 333(Bom.) ii) IL&FS Investment Managers Limited v. ITO 209 CTR 1 iii) Eastern Newspaper Society v. CIT 119 ITR 996(Bom.) iv) CGT v. Nabe Shah 279 ITR 383(All.) v) CIT v. Ambika Gwar Gum Mills 266 ITR 446(Raj.) The ld. CIT(A) after perusing the submission of the assessee company held that if the A.O. has reason to believe that income chargeable to tax has escaped assessment for any assessment year, subject to provisions of sections 148 to 153 of the Act , the AO can assess or reassess such income. The A.O. clearly had reasons to believe that income has escaped assessment and the same can be reopened und....
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....ing 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. Thus, as per section 80IA(5) of the Act it is imperative to determine the 'initial assessment year' and the profits of the undertaking in that assessment year on a standalone basis. It was submitted that the undertaking is to be treated as the only source of income from the 'initial assessment year'. A similar provision for deduction in any ten consecutive assessment years out of 12/20 years was available in respect of operation and maintenance of infrastructure facility under the earlier section 80IA of the Act. Thus the 'initial assessment year' in such a case was defined to mean the assessment year specified at the option of the assessee company to be the initial year , not falling beyond the 12th assessment year starting from the previous year in which the enterprise begins operation and maintaining the infrastructure facility. Thus, on the same analogy for the 'initial assessment year' under the new Section 80IA for an undertaking engaged in generation/distribution of power is to be applied fo....
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.... assessee company is covered by the above provisions. Thus, the ld. CIT(A) held that the reliance on various case laws by the assessee company is not correct. The decision of Hon'ble Rajasthan High court in CIT v. Mewar Oil & General Mills(Supra) was with respect to invocation of provisions of Section 154 of the Act with respect to applicability of Section 80IA(5) for which court held that as the matter is debatable , provisions of Section 154 cannot be invoked. The CIT(A) held that it becomes crystal clear that the profit for the unit is to be computed u/s 80IA(5) of the Act and after reducing the losses incurred by the same unit in the earlier years even though the same has been set off against income of the earlier years , only then deduction u/s 80IA of the Act needs to be allowed. In this case, the assessee company is not eligible for deduction u/s 80IA of the Act in respect of profit earned on the Jojobera 67.5 MW unit. Therefore, the assessee company is not eligible for deduction u/s 80IA of the Act in respect of Jojobera Unit 67.5 MW of Rs. 20,70,84,187/- and the A.O. has rightly disallowed the same, vide orders dated 27-02-2009. The CIT(A) also relied upon decision in the ....
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....nitial 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 mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescrib....
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....d that the assessee company has opted the assessment year 2002-03 as the 'initial assessment year' although the unit commenced generation of power w.e.f. assessment year 1997-98. It is submitted that the unit is an independent source and the earlier years losses are not to be set off as they were already set off against the other business income in the earlier years and allowed by the Revenue which is an undisputed position between the rival parties. The ld Senior Counsel submitted that the Revenue has framed the original assessment order dated 24th February 2005 u/s 143(3) of the Act after considering the tax audit report whereby complete disclosure was made with respect to the claim of deduction u/s 80IA of the Act with respect to the Jojobera 67.5 MW power generating unit . It was submitted that the tax audit report is a statutory document which is issued under the provisions of 44AB of the Act and it cannot be contended by the Revenue that they have not gone through the tax audit report while framing the original assessment u/s 143(3) of the Act, as the tax audit report which is certified by a Chartered Accountant is meant for the benefit of the Revenue containing all the speci....
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....y covered by the Circular No. 1/2016. The ld. Senior Counsel submitted that the reasons which were recorded by the Revenue while reopening the assessment has not been furnished to the assessee company till the completion of the assessment u/s 143(3) read with Section 147 of the Act which culminated into an assessment order dated 25- 10-2006. It is only on the direction of the Tribunal in second appeal filed by the assessee company , the Revenue gave reasons for re-opening to the assessee company on the directions of the Tribunal. The assessee company asked for the reasons for reopening when the notice u/s 147 of the Act was received during the course of assessment proceedings u/s 143(3) read with Section 147 of the Act, but the same were not furnished to the assessee company . The ld counsel for the assessee company stated before us that the A.O. erroneously stated in the assessment order dated 25.10.2006 passed u/s 143(3) read with Section 147 of the Act that the reasons for reopening were given, while no reasons for reopening were provided to the assessee company till as per the directions of the Tribunal. The Tribunal directed the assessee company to file the affidavit to that e....
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....dings u/s 147/148 of the Act are bad in law liable to be quashed. The assessee company also relied upon several case laws which are given in compilation in the form of paper book filed with the Tribunal to support the propositions of the ld. Senior Counsel for the assessee company as set out above, which are placed in the file. 9. The ld. D.R., on the other hand, after verification of the case records submitted that from the record it is not coming out whether the reasons for reopening were supplied to the assessee company or not before the conclusion of re-assessment proceedings. Notice dated 25.09.2006 u/s. 148 was issued to the assessee company but it is not recorded in the file that reasons recorded were supplied to the assessee company or not. It was submitted that there is no change of opinion on the part of A.O. which has been discussed by the ld. CIT(A) in his order in details. The reopening has been done within a period four years from the end of the assessment year. The ld. D.R. supported the order of the ld. CIT(A) and relied upon the decision of Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 161 Taxman 316(SC). However,....
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....he term "initial assessment year" in section 80-IA(5) of the Act wherein it has been categorically mentioned that the matter has been examined by the Board and it is abundantly clear from sub-section (2) of Section 80IA of the Act that an tax-payer who is eligible to claim deduction u/s 80-IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It has been clarified that once such 'initial assessment year' has been opted for by the tax-payer, he shall be entitled to claim deduction u/s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be ....
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....on 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 mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduc....
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....0IA of the Act from the assessment year 2002- 03 which has been chosen by the assessee company as the 'initial assessment year' without adjusting the notionally brought forward unabsorbed business losses/depreciation of the earlier years which are stated to be already adjusted against the business income of the earlier years and the said set off was also allowed by the Revenue in the preceding years . Our view is consistent with the view recently taken by Hon'ble Madras High Court in the case of CIT v. G.R.T.Jewellers (India) in TCA no. 176 of 2016 vide judgment dated 01-03-2016 as under: "The Revenue has come up with the above appeal raising the following substantial questions of law : "(1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal....
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....ns 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 mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has be....
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....here will be no adjustment of brought forward notional business losses/depreciation which has already been set off against other income of earlier years against the profit of the undertaking of the initial year chosen by the tax-payer for computing deduction u/s 80IA of the Act, while granting deduction u/s 80IA of the Act as under: "8. Heard the counsel appearing for the parties and perused the materials available on record. 9. On a perusal of the order of the Assessing Officer, it is seen that the eligible income for deduction under section 80-IA is worked out in all the cases as follows : Rs. Tax Case (Appeal) No. 909 of 2009 : Net income from Windmill Division 1 (2002-03) 1,70,76,945 Unabsorbed depreciation allowance assessment year 2003-04 8,26,84,110 Income from Windmill Division 1 (2002-03) assessment year 2004-05 71,16,270 Balance of unabsorbed depreciation allowance 7,55,67,840 Unabsorbed depreciation allowance balance (-) 5,84,90,895 Tax Case (Appeal) No. 940 of 2009 : Net income from Windmill Division 2,82,67,370 Unabsorbed depreciation allowance (initial assessment year) assessment year 2003-04 12,11,01,360 -do- assess....
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....e total income of the assessee for those assessment years and no further depreciation allowance or development rebate remain unabsorbed and nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act." 13. The above unreported judgment considered section 80-I and had taken the view that the entire depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years and no further depreciation allowance or development rebate remained unabsorbed and, therefore, nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act. Section 80-I was introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The said sub-section deals with deduction in respect of profits and gains from industrial undertakings after a certain date. Section 80-I reads as follows : "80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or oth....
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....ing provision. The fiction created by the undertaking was the only source of income during the previous year initially and subsequent assessment years. Sub-section (6) was the subject-matter before this court in the above-mentioned unreported judgment, wherein this court had held that while interpreting the above provision, for the purpose of allowing deduction under section 80-I brought forward losses and unabsorbed depreciation of the new industry need not be taken into consideration once they have been set off from other sources of income earlier. In the present case, we are concerned with the provision of section 80-IA. The said provision was introduced by the Finance Act, 1999, with effect from April 1, 2000. The provisions of sections 80- I and 80-IA are also more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-tax Act. Chapter VI-A deals with deductions to be made in computing total income. There are two tax incentives contemplated in Chapter VI-A. One is investment incentive and the other one is profit-linked investment. Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1965, and it consists of four headin....
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....ons essentially belong to the category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgment that sub-section (5) of section 80-IA provides for manner of computation of profits of an eligible business. Accordingly such profits are to be computed as if such eligible business is the only source of income of the assessee. 16. Section 80-IA reads as follows : "80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten co....
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.... i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and the....
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....on (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 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 v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 ITR) : "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 assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there....
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....rtaking, ship or approved hotel will be taken into account in determining the quantum of deduction admissible under the new section 80-I even though they may have been set off against the profits of the taxpayer from other sources." 22. We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). 23. Under these circumstances, we set aside the order of the Tribunal and answer all the questions in favour of the appellant/assessee and against the Revenue in Tax Case Nos. 909 and 940 of 2009 respectively. Accordingly, tax cases are allowed. Tax Case No. 918 of 2008 : 24. It is filed by the Revenue by raising three questions of law as stated above. In respect of the second question, which is the same as the issue involved in the above tax cases in Tax Case Nos. 909 and 940 of 2009, we also answer in favour of the assessee and against the Revenue. 25. In respect of questions Nos. 1 and 3, the issues....
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....Income-tax Act. The Assessing Officer rejected the claim under section 143(3) read with section 263. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) agitating, inter alia, the claim for a deduction under section 80-IA. The Commissioner of Income-tax (Appeals), vide his order in I. T. A. No. 39/2005-06, dated August 4, 2005, in paragraph 12 directed the Assessing Officer to allow the claim under section 80-IA which was accordingly, allowed. Assessment year 2000-01 : In this assessment year also the assessee in the computation memo claimed deduction under section 80-IA of an amount of Rs. 1,20,19,495 which was allowed in full by the Assessing Officer in the regular assessment order under section 143(3), dated March 28, 2003. This being the position, the statement of the assessee that the claim under section 80-IA claimed for the first time in the assessment year 2004-05 is totally contrary to the facts as mentioned. This proves that assessment year 2004-05 is not the initial assessment year as claimed by the assessee. The fact of the matter is that the assessee exercised its option of claiming deduction under section 80....
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....e assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80- IA. At the cost of repetition, we make it clear that the case law relied on by the Departmental representative are delivered before the amendment to section 80-IA by the Finance Act, 1999. Before the amendment, the initial assessment year was defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year of claiming relief under section 80-IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit. Accordingly, we allow the claim of the assessee." 27. From a reading of the above order, it is clear that all the authorities below ....