AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1380
X X X X Extracts X X X X
X X X X Extracts X X X X
....2003-04 in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal"), read as under:- " On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. The Ld. CIT(A) has erred in allowing the expenses on shelved project amounting to Rs. 1,68,94,456/- and expenses on feasibility studies amounted to Rs. 9,16,589/- without appreciating that these expenses are capital expenses. 2. The Ld. CIT(A) has erred in deleting the taxation of a sum of Rs. 2,31,67,715/- being the foreign exchange gain on repatriation of certificates of deposits (Euro Notes) without appreciating that the assessee itself is following a dual policy in respect of foreign exchange fluctuation gain/loss in various years. 3. The Ld. CIT(A) has erred in deleting the disallowance of provision for wages of Rs. 19,81,60,000/- without appreciating the fact that the provision debited by the assessee is contingent in nature and the liability is not accrued and / or crystallized. 4. For these and other grounds that may be urged at the time of hearing, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s incurred on preliminary studies, feasibility reports etc. on the projects which have not taken off to the tune of Rs. 9,16,589/-, aggregating to Rs. 1,78,11,045/-. The assessee had claimed these expenses as Revenue Expenses while the AO held the same to be capital expenditure. The AO observed that this issue being recurring in nature and in preceding years also these expenses were disallowed, the AO disallowed these expenses in this year also and added the same to the income of the assessee, vide assessment order dated 23.02.2016 passed by the AO u/s. 143(3) of the 1961 Act. 6. The assessee being aggrieved by the additions as were made by the AO carried the matter in appeal before Ld. CIT(A) by filing first appeal. The assessee submitted before learned CIT(A) that these expenses aggregating to Rs. 1,78,11,045/- were incurred on shelved projects and on preliminary studies, feasibility studies etc. on projects which never took off due to commercial expediency as they were found not to be profitable. It was claimed that these expenses were incurred for the projects which were connected with its existing business of generation, transmission and distribution of electricity. The asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lications 41,143 Power Plant at Dharamtar 19,360 LNG terminal at Trombay 2,58,740 Mulshi Mini Hydel scheme 62,247 New intake at Khand - Bhivpuri generating station 77,586 Installation of CFBC Boiler for Unit 4 15,000 Installation of FGD on Unit 6 3,47,221 Feasibility studies re. misc. power projects 95,292 Total 9,16,589 6.2.2 The appellant has submitted that the above projects are connected with the existing business of the appellant i.e. generation, transmission and distribution of electricity. 6.3 The decisions relied upon by the appellant, including the decisions of the CIT(A) for A.Y. 2001-02 and the Hon'ble Tribunal in the appellant's own case squarely cover the facts of the appellant's case for the year under reference and hence, this ground is decided in favour of the appellant. 6.4 In the result, this ground is allowed." Thus, Ld. CIT(A) followed the earlier year decision of leaned CIT(A) for AY 2001-02 and decision of Hon‟ble ITAT in assessee‟s own case while allowing the claim of the assessee, vide appellate order dated 27.02.2009 passed by learned CIT(A). 7. Now, the Revenue is aggrieved by the decision of learne....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... these expenses were written off in the books of accounts by the assessee. Since these expenses were incurred for the projects which were closely connected with the business activities of the assessee company and these projects had either not taken off or were shelved, these expense are to be held as business expenses as rightly held by learned CIT(A). We have observed that tribunal in assessee‟s own case in ITA no. 3035/Mum/2009 for AY 2002-03 has decided this issue in favour of the assessee, vide orders dated 20.04.2012, by holding as under:- "16. Ground No.2 raised by the revenue reads as follows: "The ld. CIT(A) has erred in allowing the expenses on shelved project amounting to Rs. 17,26,02,558/- and expenses on feasibility studies amounted to Rs. 5,27,462/- without appreciating that these expenses are capital expenses." 17. As far as expenses on shelved projects of Rs. 17,26,02,558/- and expenditure of Rs. 5,27,462/- on account of feasibility studies are concerned the issue has already been considered by the Tribunal in A.Y 2001-02 in ITA No.4497/M/2008 & ITA No.4572/M/2008 and this Tribunal has held as follows: "30. The assessee has claimed expenditure incurred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Madras High Court in the case of B.Nagi Reddy vs. CIT (199 ITR 451) which according to the Assessee was directly on the issue. 31. The assessee has claimed expenditure incurred on feasibility reports as revenue expenditure. The assessee furnished the following details of expenditure on feasibility reports and preliminary studies incurred during the year ended 31st March, 2001. Projects Amount (Rs.) Augmentation of air conditioning LSHS Tank augmentation Flue gas desulphyurization- 3rd stream LNG Terminal 6,46,990 7,00,344 3,13,473 2,30,543 Proposed box culvert in Trombay main drainage Electro-chlorination plant Mini Hydro Scheme at Bhira 18,972 35,153 2,56,187 Mini Hydro Scheme at Mulshi Study for evaluation of 2 hydro projects at Zambia Mini Hydro power plant scheme on tailrace of Khopoli Power Plant 2,56,646 17,767 1,73,318 Total 26,18,393 The assessee also furnished statements indicating the break up of the above expenditure under cover of its letter dated 27th November, 2007 and has provided copies of some of the invoices under cover of its letter dated 18th Feb.2008. The above payments have been made to Tata Consulting Enginee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e for immediately preceding year for AY 2002-03 in ITA No. 3035/Mum/2009 vide orders dated 20.04.2012 and keeping in view that facts and circumstances remaining the same in the year under consideration, we allow the said expenses as business expenses of the assessee and uphold the decision of learned CIT(A). This issue is decided in favour of the assessee and the appeal of the revenue on this ground no. 1 stand dismissed. We order accordingly. 10. The next ground raised by Revenue in its appeal filed with tribunal relates to deletion of foreign exchange gain of Rs. 2,31,67,715/- on repatriation of certificates of deposits (Euro Notes). The assessee has received an income of Rs. 2,31,67,715/- being surplus on buy back of Euro notes. The AO observed that the assessee has issued Euro notes on 19.08.1997 to finance its capital expenditure programme. It was observed by AO that some of Euro Notes were maturing in 2007 while balance of Euro Notes were maturing in 2017. The AO observed that the assessee had bought back Euro Notes during the year ending 31st March 2003 at discount to the face value which resulted in surplus of Rs. 2,31,67,715/-. The assessee contended before the AO that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A.Y. 2000-01 and A.Y. 2002-03. 7.3 This ground has been dealt for A.Y. 2000-01 by the CIT(Appeals) and has decided the issue in favour of the appellant. It is noted that the Departmental appeal for that year has been dismissed by the Hon. Tribunal and the order of the CIT(Appeals) has been upheld. 7.4 It may be pointed out that the Hon'ble Tribunal has relied on the decision of the Bombay High Court in the case of Mahindra and Mahmdra Ltd. v/s CIT (261 ITR 501), where the facts of the case closely resemble those of the appellant and the decision of the Karnataka High Court in the case of CIT v/s Industrial Credit and Development Syndicate Ltd. (285 ITR 310), which is based on identical set of facts as those of the appellant. 7.5 Respectfully following the decision of the Hon. Tribunal in the appellant's own case on identical set of facts for A.Y. 2000-01, this ground is decided in the favour of the appellant. This ground of appeal is therefore, allowed." 12. The Revenue is aggrieved by decision of Ld. CIT(A) granting relief to the assessee, which relief was granted by learned CIT(A) by following decision of learned CIT(A) for AY 2000-01 in assessee‟s own case w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer was that the said surplus arising on buy back of euro notes was not in the nature of income of the assessee as envisaged by section 2(24) of the I-T Act. The Assessing Officer, however, did not accept the claim of the assessee. Proceeding on the basis that income/gain/ surplus of any kind has to suffer the incidence of tax,the Assessing Officer has held that the provisions of section 41(1) of the I-T Act are attracted, the assessee has become richer by the amount of surplus and that the surplus has changed colour as revenue receipt and therefore it has to suffer tax. The Assessing Officer has also held that the surplus is taxable alternatively as income from other sources. 23. Aggrieved by the aforesaid order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) has decided the issue in favour of the assessee for the reasons given by him at pages 10-12 of his appellate order. 24. In support of appeal, the ld. Departmental Representative has placed reliance on the order of the Assessing Officer. 25. In reply, the ld. Sr. counsel for the assessee has relied upon the order of the ld. CIT(A) and submitted that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o substantial question arose from the appellate order passed by tribunal, by holding as under:- "1] This appeal is directed against the order passed by the Income Tax Appellate Tribunal on 9th September, 2011. The assessment year in question is 2001-02. 2] The limited issue arising out of the question projected as a substantial question of law, is with regard to the use of repatriated funds. 3] The factual position and which appears to be undisputed is that the return of income along with statutory audit report were filed by the respondent assessee on 31st October, 2001 declaring a certain income Subsequently the revised return was filed on 26th March, 2003. During assessment proceedings, Assessing Officer, inter alia, taxed an amount of Rs. 45,84,92,096/- being the profit on foreign exchange on repatriation of certificates of deposits. Aggrieved by this exercise and the order of the Assessing Officer, the matter was carried in appeal to the Commissioner of Income Tax (Appeals). The assessee's appeal was allowed on 25th April, 2008. Against this order, the revenue approached the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal noted the admitted factual ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... merits and is dismissed." 13. We have considered rival contentions and perused the material on record including cited case law. We have observed that the assessee had raised Euro Notes in 1997 towards incurring capital expenditure. The said Euro Notes were partly redeemable in 2007 and remaining in 2017. On being asked, it is admitted by the assessee that the projects for which Euro Notes were raised were completed and interest expenditure has been claimed as an Revenue expenses. The assessee has prematurity redeemed the said Euro Notes at discount in the year under consideration and surplus of Rs. 2,31,67,715/- has arisen on said premature buy back of Euro Notes. We have observed that the tribunal has decided this issue in AY 2000-01 in ITA no. 6451/Mum/2003 vide orders dated 18.10.2007, wherein the tribunal was pleased to delete the additions by holding as under: "21. Ground nos. 3 to 5 reads as under: "3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 37,97,26,000/- made by the AO u/s. 41(1) of the Act representing the surplus on buy back of euro notes and holding that the surplus on repurchase of euro notes ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(Bom HC) ii) CIT v. Industrial Cr. & Devlp. Syndicate Ltd., 285 ITR 310(Karn. HC) iii) Prism Cement Ltd. v. JCIT, 285 ITR 43 (Bom.) iv) Mohsin Rehman Penkar v. CIT, 16 ITR 183 (Bom.) v) Agarchand Chunnilal v. CIT, 16 ITR 430 (Nag.) vi) Orient Corpn. v. CIT, 18 ITR 28 (Bom.) vii} CIT v. Ganesa Chettiar, 133 ITR 103 (Mad.) viii) CIT v. Kerala Estate Mooriad Chalapurarn, 161 ITR 155 (SC) ix) CIT v. A.V.M. Ltd., 146 ITR 355 (Mad.) x) CIT v. Lal Textile Finishing Mills P. Ltd., 180 ITR 45 (Pun.) xi) Bhagwat Prasad & Co. v. CIT, 99 ITR 111 (All.) 26. We have heard the parties and also perused the orders passed by the Assessing Officer and the Departmental authorities. In our view, the facts of case closely resemble with those in Mahindra and Mahindra Ltd. v. CIT, ITR 501 (Bom.) and CIT v. Industrial Cr. & Development Syndicate Ltd., 285 ITR 310 (Karn.). Both the Hon'ble High Courts have decided the issue in favour of the assessee on identical set of facts. Respectfully following the aforesaid two orders, we hold that the order passed by the ld. CIT(A) is correct on the facts and circumstances of the case. We, therefore confirm the same. Ground nos. 3 to 5 are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es‟ but claimed as business expenses. As per AO, the said provision for wages was a contingent liability which has not accrued or crystallized during the year under consideration. The assessee submitted before the AO that the assessee review the wage agreement with its employees every four years. The last agreement was finalised till during FY 2001-02 and hence a fresh agreement was under negotiation during the FY 2002-03 and pending finalisation of this negotiation, the assessee had made provision of Rs. 19,81,60,000/- on account of revised wages, which was claimed as business expenses. It was submitted by the assessee that the revision of wages had become due in this previous year relevant to the impugned assessment year. The AO was of the view that these expenses cannot be allowed as business expenses as the assessee had neither paid any additional wages nor the same become due as the wage settlerment bagreement was not finalised by the year end i.e. as on 31.03.2003. The AO observed that aforesaid provision for wages debited by the assessee is contingent in nature and the liability has not accrued/ crystallised during the year. The AO added back the said sum to the incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment year were identical as that of AY 1999-2000 wherein tribunal allowed the claim of the assessee for provision for wages. The said order of tribunal for AY 1999-00 in assessee‟s own case is placed in paper book at page 325-337. 16. Revenue being aggrieved by the aforesaid decision of learned CIT(A) in granting relief to the assessee has now filed an appeal before the tribunal. 17. The argument has been advanced by Ld. Counsel for the assessee that this is liability in praesenti which has accrued/crystallised liability and is not a contingent liability. It was submitted that every four years the assessee entered into an revised wage settlement agreement with its employees. It was claimed that the last wage settlement agreement expired on 31.12.2001 and fresh agreement of wage settlement with its employees was to be signed with effect from 1st January 2002. It is claimed that during the assessment year, the negotiations were going on with the employees which did not reached finality and ultimately provision was made towards revised wages keeping in view previous experience and demands raised by workers during negotiations. It is claimed that the assessee is following m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s/employees through their unions were underway which ultimately culminated into an agreement dated 18.06.2004.The assessee is following mercantile system of accounting and in order to comply with generally accepted principle of matching concept wherein incomes are to be matched with costs for the relevant period made the aforesaid provision for wages to the tune of Rs. 19,81,60,000/- which represented liability likely to arise for the period ended 31.03.2003 on account of enhanced wages/salary pursuant to revised wage settlement agreement which was under revision/negotiation with workers/employees to be effective from 01.01.2002. The assessee based on its past experience as well demand raised by its workers/employees had made provision for wages for the previous year 2002-03 relevant to impugned assessment year of Rs. 19,81,60,000/-. Under the revised wage settlement agreement, the workers/employees will be entitled for higher wages/salaries and other amenities attached to their employment for which aforesaid provision for wages for likely liability till 31.03.2003 was made for the year under consideration. This increased wages/salaries is infact a liability in praesenti and cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(Cal) Aggrieved by the above order, assessee is in appeal before the Tribunal. 16. The Learned counsel for the assessee relying upon the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT reported in 245 ITR 428, contended that the claim of the assessee is liable to be allowed. In the case reported in 245 ITR 428, the Hon'ble Supreme Court held, the amount set apart to meet liability and the amount is deductible. In this case the Hon'ble Supreme Court held "if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain." 17. The learned counsel for the assessee also brought ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m/2009-AY 2003-04 22. The first ground of appeal raised by the assessee in its appeal filed with tribunal pertains to the grievances raised by the assessee that Ld. CIT(A) erred in ignoring "other income" of Rs. 1,40,331/- and Rs. 23,55,460/- in the case of Jojobera 67.5 MW unit and Belgaum 81.5MW unit respectively for the grant of deduction u/s. 80IA. The AO had reduced deduction u/s 80IA by reducing the "other income‟ from claim of deduction u/s. 80IA to the tune of "other income‟ of Rs. 83,77,998/- earned for Jojbera unit and "other income‟ of Rs. 23,55,416/- earned for Belgaum unit which albeit was claimed as deduction u/s 80IA in the return of income filed by the assessee with the Revenue, vide assessment order dated 23.02.2006 passed by the AO u/s 143(3) of the 1961 Act. 23. The matter reached Ld.CIT(A) at the behest of the assessee who allowed the claim of deduction u/s 80IA by considering "other income‟ to the tune of Rs. 82,37,667/- with respect to sale of scrap and store from Jojobera 67.5 MW unit (division 12) while the rest of "other income‟ to the tune of Rs. 1,40,331/- earned with respect of Jojobera unit was not allowed as deduction u/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith law. The assessee relied upon the decision of Hon‟ble Madras High Court in the case of Fenner (India) Ltd. v. CIT (2000) 241 ITR 803 (Madras), decision of Hon‟ble Punjab & Haryana High Court in the case of CIT v. Micro Turners (2012) 17 taxmann.com 253 (P&H High Court) and decision of Hon‟ble Delhi High Court in the case of CIT v. Sadhu Forging Ltd. (2011) 336 ITR 444(Delhi). Thus it was submitted by learned counsel for the assessee that income arising from sale of scrap qualified for being considered as income derived from the industrial undertaking by learned CIT(A) wherein deduction u/s 80IA was allowed and revenue has not challenged the same before ITAT. It was prayed that similarly income from sale of sludge be considered as derived from Belgaum unit and deduction u/s 80IA be allowed for which the AO can make verification. With respect to balance disallowance, it was claimed that interest was earned from advances to employees and staff. The assessee relied on the decision of Delhi ITAT in the case of Joyco India P Ltd. v ITO (2009) 122 TTJ 940(Del-trib.). 26. The Ld. DR on the other hand relied on the decision of lower authorities. 27. We have considere....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ground no. 1(a) filed by the assessee is partly allowed for statistical purposes as indicated above.We order accordingly. 28. The next issue vide ground no. 1(b) and 1(c) raised by the assessee in memo of appeal filed with tribunal concerns itself with regard to allowability by learned CIT(A) of deduction u/s 80IA on the taxable income after setting off brought forward unabsorbed depreciation of the units eligible for deduction u/s 80IA albeit assessee is claiming that said depreciation is already been set off against the income of the company as a whole in earlier assessment years. Further the assessee is aggrieved as in view of the assessee requirement to treat the undertaking as the only business of the assessee is from "initial assessment year‟ and not from the year of commencement of generation/distribution of power despite provisions of Section 80IA(5) of the 1961 Act. It is observed that this issue had been adjudicated by tribunal in assessee‟s own case in ITA no. 3078/Mum/2009 for AY 2002-03 vide orders dated 19.05.2016 wherein tribunal vide detailed order to which both of us were part of the Division Bench who pronounced the aforesaid order dated 19.05.2016, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al 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 availed in con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 deduction u/s 80IA for ten c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment 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 before the Supreme Court in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 been examined by the Board. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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- assessment year 2004-05 1,59,85,9....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 other powered craft, to which thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtaking 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 headings. They are A, B, C and D. Heading "A" is gen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fit-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 consecutive assessment years. (2) The deductio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....here 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 they are as under : "(1)It starts with a non ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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 would have been carry forward of unabsorbed dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto 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 are related to the exercising the option of cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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-IA in the assessment year 1999-2000 itself. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0-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 had given a categorical finding that the first y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowed by the Revenue shall not be adjusted from the profit so computed by the assessee company with respect to Jojobera 67.5MW power generating unit for the assessment year 2002-03 for the purposes of computing deduction u/s.80IA of the Act. Since, we have adjudicated this issue on merit in favour of the assessee company based on detailed discussions and reasoning as set out above, the grounds raised by the assessee company challenging the reopening of the assessment u/s 147/148 of the Act has become academic and infructuous and hence we refrain from deciding the same and the questions raised by the assessee company in the grounds of appeal are kept open. We order accordingly." The SLP filed by Revenue against the decision of Hon‟ble Madras High Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT (supra) before Hon‟ble Supreme Court was dismissed by Hon‟ble Supreme Court in the case of ACIT v. Velayudhaswamy Mills Private Limited (2016) 76 taxmann.com 176(SC). Respectfully following the aforesaid order of the tribunal in assessee‟s own case for AY 2002-03, we are deciding both this issue covered by ground number 1(b) and1(c) in favo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and this is also applicable to the Broadband project as far as the capital work in progress is concerned assessee has already capitalized the same and due depreciation on the same is being allowed. 13.1 In view of the above discussion, the income of the broadband project along with income on account of sale of scrap of this project is rightly been treated as income of the appellant by the assessing officer. Therefore, I uphold the action of the assessing officer. This ground of appeal is dismissed." 31. The assessee being aggrieved by the decision of learned CIT(A) has filed an appeal before the tribunal. The Ld. Counsel for the assessee submitted that these income are inextricably connected with the broadband project and were earned during trial run phase before installation of the project, thus the said income were rightly reduced from capital work in progress as the trial runs of broadband projects were underway. The assessee relied on the decision of Hon‟ble Supreme Court in the case of CIT v. Bokaro Steel Limited, (1999) 236 ITR 315(SC) and it was submitted that the trial runs were underway and the assessee has rightly reduced the said income from broadband projects ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tly relied upon the decision of Hon‟ble Supreme Court in the case of Bokaro Steel Limited(supra). Thus, we have no hesitation in holding that income from broadband project to the tune of Rs. 9,81,38,257/- during trial run phase as well income from sale of scrap during pre-installation of the project was rightly reduced by the assessee from capital work in progress and cannot be brought to tax as revenue receipts chargeable to tax. The ground number 2 filed by the assessee in its memo of appeal is allowed. We order accordingly. 33. Ground no. 3 raised by the assessee relates to disallowance upheld by learned CIT(A) u/s. 40A(9) for payments aggregating to Rs. 29,36,361/- made by assessee to local schools. The assessee has suo motu voluntarily disallowed these expenses while filing return of income. The assessee vide letter dated 21.11.2005 submitted before learned AO raised this claim for deduction of aforesaid expenses for the first time, which was not allowed by the AO. It was claimed that the assessee has made payments to the local schools at Khopoli, Tata Vidalaya at Bhivpuri Camp and Tata Vidyalaya at Bhira. It was claimed that children of employees are also studying in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... record including cited case laws. We have observed that the assessee has made payment of Rs. 29,36,361/- to local schools and claim is made that the said local schools are situated in vicinity where the power units of the assessee are located and children of the employees of the assessee were also studying in the said schools during the previous year relevant to the impugned assessment year. The assessee did not raise this claim of deduction for making payments to local schools in the return of income filed with the AO but later during assessment proceedings, the said claim was raised by the assessee for the first time before the AO through a letter dated 21.11.2005 but since the said claim was not raised while filing return of income, the AO did not admit this claim and consequently no deduction was allowed by the AO for making payments to local schools while framing assessment u/s 143(3) of the 1961 Act. The learned CIT(A) also did not admit this claim of deduction for payments made to local schools by the assessee. In our considered view, the learned CIT(A) being appellate authority ought to have admitted this ground and then should have proceeded to decide this claim of deduc....