TaxTMI 
TaxTMI 
2016 (5) TMI 1476
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.... "The appellant objects to the order dated 27th February, 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 Brie....
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....een 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. 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 as....
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....e initial assessment year in respect of Jojobera 67.5 MW unit. For A. Y.2002-03, the Company as a whole has no brought forward absorbed depreciation. Hence, whilst 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....
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....lley 30%, therefore, upto the assessment year 2000-01 the three companies were collectively called Tata Electric (AOP) with their shares determined as above. However, from the assessment year 2001-02 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 r....
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....01-02 leave behind a net loss of Rs. 43,37,91,438/- , vide assessment orders dated 25.10.2006 passed by the AO u/s 143(3) read with Section 147 of the Act. 5. Aggrieved by the assessment orders dated 25.10.2006 passed by the A.O. u/s. 143(3) read with Section 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 inc....
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....v. Foramer France , 264 ITR 566(SC) ii) IPCA Laboratories Limited v. DCIT, 251 ITR 416(Bom.) iii) Parshuram Pottery Works Co. Ltd. v. ITO ,106 ITR 1(SC) iv) Addl. CIT v. Shankerdas B. Pahljani in ITA no. 5085/Mum/ 2001(Mum Trib.) v) CIT v. Kelvinator of India Limited 256 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....
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.... ten consecutive years out of 15 years beginning from the year in which the undertaking start generating power. The assessee company submitted 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 company 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. 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....
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.... that the section starts with notwithstanding clause, therefore, it supersedes all other provisions of the Act. It was also held that the deduction shall be computed as if eligible industrial undertaking was only source of income of the assessee company during the previous year relevant to the 'initial assessment year' and to every subsequent assessment year. Thus, the case of the 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 as....
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....omputed 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 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 cl....
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....omplete disclosure in the clause 26 of the tax audit report about the claim of the assessee company u/s 80IA with respect to the Jojobera 67.5 MW power generating unit for which the assessee company has exercised the option to claim deduction u/s 80IA of the Act beginning from assessment year 2002-03 and no adjustment is made for notional unabsorbed depreciation relating to the earlier assessment years which had already been set off against the other business income in the earlier years. The Ld. Senior Counsel submitted 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 res....
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....e profit of Rs. 20,39,98,805/- is eligible to be allowed as deduction u/s 80IA of the Act . The assessee company has chosen the initial assessment year as 2002-03 from which relief u/s 80IA of the Act will be available for a period of ten consecutive assessment years of the fifteen assessment years from the year of commencement of generation of power, although the generation of power has commenced in the assessment year 1997-98. The Ld. Senior Counsel for the assessee company submitted that the assessee company is fully 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 pro....
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....assessee company during the current proceedings before the Tribunal, and only when the Tribunal directed the Revenue to give reasons for re-opening. Thus it was submitted that no new tangible material has come into the possession of A.O. which has a live nexus with the formation of belief by the AO that income has escaped assessment. There is clearly a change of opinion on the part of the A.O. based on the audit objection received by the AO, thus there is no question of reopening of the assessment and the entire proceedings 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 rec....
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....the earlier years and set-off was allowed by the Revenue. The assessee company has the option to choose the 'initial assessment year' and thereafter deduction of 100% of the profit from generation of power is eligible for deduction u/s.80IA of the Act for ten consequent assessment years out of the fifteen years beginning from the commencement of generation of power . The CBDT has now come with Circular No. 1/2016[F. No. 200/31/2015-ITA- I] dated 15- 2-2016 which is binding on the Revenue , whereby the Board has clarified the 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 fo....
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....e 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 mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to cla....
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....ctor to the Government of India" The word 'initial assessment year' has been referred in section 80IA(5) of the Act being the year at the option of the tax-payer chosen to be the year from which the deduction u/s 80IA of the Act is to be available for ten consecutive assessment year out of fifteen assessment years commencing form the year when the power undertaking start generating power, and thereafter for the succeeding assessment years onward it will be considered that this undertaking is the only source of income of the assessee company as per section 80IA of the Act. Thus, in our considered view , the assessee company is entitled for deduction u/s 80IA 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 ....
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....equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-Section (5) of Section 801A 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 ....
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....aw 2 and 3 are also covered by the above circular. Hence, the appeal deserves to be dismissed. 6. Accordingly, the above tax case appeal is dismissed. No costs. 7. But, we cannot resist our temptation to record one more fact. If an issue is covered by the judgment of the High Court, it is always open to the Department to take it on appeal to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a circular has been issued. The Department shall take note of this for future guidance". The Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT(2012) 340 ITR477(Mad.) has earlier held that there 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 ....
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....2004 wherein, this court considered the similar substantial question of law, which reads as follows : "Whether the Tribunal was right in holding that for the purpose of allowing deduction under section 80-I, the brought forward losses and unabsorbed depreciation, etc., of the new industrial undertaking need not be taken into consideration, once they have been set off against other sources of income, especially in view of the clear provisions of sub-section (6) of section 80-I, the application of which is mandatory ?" 12. By following the various decisions of the apex court, this court, in paragraph 15 of the said judgment, has held as follows : "The cumulative consideration of the principles set out in the above referred to decisions and the other factors involved in this case, wherein admittedly 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 remain unabsorbed and nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the....
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.... any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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." 14. From a reading of the above, it is clear that the benefit is given to the profits and gains derived from the business of the hotel or the business of repairs to ocean-going vessels or other powered craft. The deduction is allowed to the extent of 20 per cent from the profits and gains of the assessee. Sub-section (5) gives deduction for the period of seven assessment years immediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction under sub-section (1) and it starts with non obstante clause and also it is a deeming 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 th....
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....hich is derived or received by the assessee and which is included in the gross total income. Section 80AB defines "gross total income" which means the total income has to be computed in accordance with the Act before making deduction under this Chapter. Heading "B" deals with "deductions in respect of certain payments" which consists of sections 80C to 80GGC. Heading "C" deals with "deductions in respect of certain incomes", which consists of sections 80H to 80TT. The last heading "D" deals with "other deductions" which consists of sections 80U to 80V. Heading "C" is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are sections 80-I, 80- IA and 80-IB. In the case of Liberty India v. CIT [2009] 317 ITR 218 (SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, the apex court considered the scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein, it has been held that Chapter VI-A provides for incentives in the form of tax deductions 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 tha....
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....ating and maintaining a new infrastructure facility ; (c)it has started or starts operating and maintaining the infrastructure facility on or after the 1st April, 1995. (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (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." 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 enterprise from any business referred to in sub-section (4), i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allo....
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....t 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 positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub-section (6) of section 80-I, which is the corresponding provision of sub-sectio....
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...., the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 21. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows : "Clause 30(iii). In computing the quantum of 'tax holiday' profits in all cases, taxable income derived from the new industrial units, etc., will be determined as if such units were an independent unit owned by a taxpayer who does not have any other source of income. In the result, the losses, depreciation and investment allowance of earlier years in respect of the new industrial undertaking, ship or approved hotel will be....
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.... of Income-tax (Appeals). It reached finality. Aggrieved by the order of the Commissioner of Income-tax (Appeals) regarding the quantum of deduction, the assessee filed an appeal before the Tribunal. In the assessee's appeal, the Revenue filed a letter first time before the Tribunal and disputed the fact relating to the assessee's claim that assessment year 2004-05 is the initial assessment year. The Tribunal found that both the Assessing Officer and the Commissioner of Income-tax (Appeals) had given categorical finding that the assessee claimed deduction for the first time during the year 2004-05 and paragraph 5 reads as follows : "In the present case, there is a categorical finding by the Assessing Officer and the Commissioner of Income-tax (Appeals) that the first year claimed is from the assessment year 2004-05. At the time of hearing, the learned Departmental representative filed a letter which reads as follows : 'The assessee's claim is that assessment year 2004-05 is the "initial assessment year". However, from a perusal of records the following facts are observed : Assessment year 1999-2000 : The assessee claimed deduction of Rs. 2,15,59,....
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....to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.' These facts are contrary to the facts recorded by the Commissioner of Income-tax (Appeals) and the Assessing Officer. It cannot be considered. The above statement made by the Assessing Officer is not in accordance with rules 10 and 29. Hence, we decline to consider the same. Adverting to the facts of the case, the initial assessment year in this case starts from 2004-05 since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case, the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA. Hence, the provisions of section 80-IA(5) treating undertaking....