TaxTMI 
TaxTMI 
2019 (6) TMI 1441
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Power Project at Akrimota Unit which is subjected to deduction u/s 80IA. 3. It appears from the records that the assessee, a Government company originally filed its return of income for A.Y. 2011-12 on 28.09.2011 declaring total income of Rs. 557,66,01,050/- followed by revised return on 04.02.2012 without changing the figure of total income and again on 10.09.2012, a revised return declaring total income at Rs. 555,33,44,360/- was filed by the assessee. Upon scrutiny notice u/s 143(2) dated 06.08.2012 followed by a notice u/s 142(1) was served upon the assessee. The assessment was finalized inter alia upon making disallowance of deduction u/s 80IA of Rs. 31,15,94,168/- which was in turn deleted by the Learned CIT(A). However, while deciding the issue related to deduction u/s 80IA the Learned CIT(A) reduced an amount of Rs. 6,63,71,309/- towards allocation of head office expenses in respect of Akrimota Power Project u/s 80IA of the Act which is under challenge before us by the assessee. The brief facts leading to such enhancement is this that the Learned CIT(A) noted that certain common expenditure incurred in the head office were not allocated to the eligible units. According t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fic basis on which the expenses can be allocated. Accordingly, the appellant was show caused as to why the deduction claimed by it be reduced to the extent of proportionate had office expenses pertaining to the eligible units for which the deduction under section 80 I-A has been claimed. The appellant vide letter dated 25/02/2015 has submitted that the expenses pertaining to the power project were accounted for in the books of power project only and, therefore, no had office expenses were allocated to work out the claim for deduction under section 80 I-A. It has further been submitted by the appellant that in the books of the head office, income is more than expenses on account of interest earned by the head office and, therefore, no allocation of expenses has been done. The head office was treated as a separate profit centre aped segment and, therefore, there was no allocation of expenses to any of the projects. On a careful consideration of the entire facts related to the issue it is noted that even though the head office has been treated by the appellant has a separate unit and the income has been computed on that basis which has resulted into a positive income on account of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2904779 21501 Conveyance Expenses 269134 269134 21503 Petrol, Diesel & Oil (for 2173541 2173541 21504 T.A.D.A to Chairman 8947 8947 21505 T.A.D.A. to Managing 541001.5 541001.5 21506 T.A.D.A. to others 411752 411752 21507 T.A.D.A. to Staff 2154977 2154977 21508 Vehicles Hire Charges 983436 983436 21601 Advertisement and Publicity 11650750 11650750 21602 Computer Stationary and 505958 505958 21603 Internet Communication 940712 940712 21604 Postage and Telegrams 2042897 2042897 21605 Satellite Communication 134723 134723 21606 Stationery & Printing 1902803 1902803 21607 Telephone Expense 1227142.29 1227142.29 21703 Paid to Statutory Auditors 10000 10000 21701 Statutory Audit Fees 474290 474290 21702 Statutory Auditors Fees for 110300 110300 21801 Interest on fixed Term 986301 986301 21806 Bank Commission 229354.15 229354.15 21805 Interest on O/D & Other 160000 160000 21804 Interest On Sales- 2644879 2644879 22101 Books & Periodicals for 123714 123714 22118 Business Promotion Exp. 8233308 8233308 22104 Computer Data Job Work 32917 32917 22105 Computer Software Expenses 812059 812059 22....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me of them may not be directly linked with the concerned Power Project Unit at Akrimota; the share transfer fee, seminar expense, security expenses, donation, sundry balances, telephone expenses ought not to have been allocated on the basis of the turnover to various units. They are neither required to be allocated to the Power Project Unit as well. We find no justification and/or rational as to how these expenses linked to the power project unit particularly. On the other hand though some of the expenditure pertain to the eligible unit but proper linkage has not been pointed out which should have been made by the Learned CIT(A) upon considering the concrete documents of such expenditure to the said power project unit. Neither it is ascertainable from the order that any verification during the appellate proceeding was made before enhancing the income of the assessee by reducing the allocation of head office expenses to the said unit. In that view of the matter, we find it fit and proper to set aside the issue to the file of the Learned CIT(A) for verification of the same after going through the details of expenditure incurred by the head office in respect of Akrimota Power Project ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een earned in a particular 3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 5,00,000/- towards depreciation on account of Multi Metal Project as assessee could not produce any supporting document for the assets and that the said assets had been put to use for the purpose of the business of the assessee during the period under consideration . 4. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of claim of deduction u/s 80IA of the Act for Rs. 31,15,94,168/-. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent." 9. Ground No.1: The revenue has challenged the order passed by the Learned CIT(A) in directing to make proportionate disallowance out of total disallowance of Rs. 47,83,671/- made u/s 36(1)(iii) of the Act. 10. The brief facts leading to this case is that during the course of assessment proceeding, it was noticed that the assessee has advanced loans and made investment in group companies. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant company paid up capital of Rs. 63,60,000/- and free Reserve & Surplus of Rs. 16,06,16,98,572/- for the purpose of making of such payments. In the similar set of facts, the Learned CIT(A) since in A.Y. 2010-11 directed the Learned AO for computing the disallowance after excluding the interest having direct nexus with the purpose for which the money has been borrowed; in the year under consideration identical order has been passed. Hence, the Learned authorized representative of the assessee relied upon the order passed by the first appellate authority. Though the Learned DR relied upon the order passed by the Learned AO failed to controvert the submission made by the Learned AR in support of his case. 12. We have heard the respective parties, perused the relevant materials available on record. We find that during the appellate proceeding, the appellant company submitted following before the Learned CIT(A): "1.1. "The appellant company had given advance of Rs. 7,50,000/- to Bhavnagar Energy Co. Ltd and Rs. 3,91,13,925/- to Gujarat Alluminium & Bauxite Ltd during the previous years. The Ld Assessing had disallowed the amount of Rs. 47,83,671/- u/s 36(1)(iii) of the Income Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect of other Term Loans & Interest on income Tax, Sales tax, Service Tax and other Miscellaneous Interest for late payments respectively, which has no connection with the Advances in question. In respect of the use of the fund borrowed for the term loan we would like to state that end use of fund are closely monitored by the Sanction authority, hence such fund cannot be used for advancing the related parties. Now if the interest of Rs. 11,34,24,434/- was directly relatable to power plant, Rs. 3,25,89,873/- for other term loan for the purchase of machineries and the remaining amount is for late payment of taxes etc., the disallowance u/s 36(1)(iii) is not justified." We have carefully considered the order passed by the Learned CIT(A) and the AO as well. It appears from the record that the Learned AO was of the view that the appellant has failed to explain the purpose of business for which the loan was given but the appellant submitted that the loan given to those companies were for the purpose of business and there was a direct nexus with those companies. It was further submitted by the appellant that most of the interest expenses incurred by the appellant were in the nature of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee submitted that the assessee took loan for its wind power project and such term loan had been granted for specific project, hence such interest cost had direct nexus with such respective project. No amount of borrowed funds had been utilized for the purpose of investment. Apart from that, it was further contended that the company had sufficient funds at the time of investments in securities from which said exempt income has been generated. Since the company has not borrowed funds for the purpose of investments the question of applicability of Section 14A r.w.r. 8D does not and cannot arise at all. In support of his claim the assessee also relied upon the judgment passed by the ITAT, Mumbai Bench in the matter of Shoppers Stop Ltd.-vs-ACIT wherein it was held that when the assessee has made investments out of his own funds Section 14A will not be applied. In fact, the tax auditor of the company has already worked out disallowance u/s 14A to the tune of Rs. 51,66,612/- being 0.5% of the average value of investment to cover all incidental and administrative expenses, which has been added back to the income of the appellant. Further addition is not required as submitted by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has been made. The appellant on the other hand has submitted that during the year, the interest expenditure which are shown and claimed in the profit and loss account have been incurred exclusively for the power plant of the appellant company. No expenditure claimed in interest is for general purpose, so that it can be located for the purpose of Rule 8D. It has also been submitted by the appellant that the investment of Rs. 52.83 crores were made prior to 01/04/2000 and at that time the appellant company was debt free. The investments made during the previous year relevant to the assessment in question were also out of the internal funds which were interest-free. The appellant company has not made any fresh borrowings during the year but made the repayments of the loan. The appellant has also submitted that in respect of the investments of Rs. 29.20 crores, the appellant has not earned any dividend income and, therefore, the same should not be considered for making the disallowance. On a careful consideration of entire facts of the case, it is noted that the appellant has not been able to explain that no expenditure has been incurred for earning the dividend and the exempt income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld be made. Respectfully following the judgment, the investment of Rs. 29.20 crore should be excluded for working out the disallowance out of interest, as well as, out of the administrative expenditure. However, it is noted that the appellant has itself made a disallowance of Rs. 51,66,612/- on account of administrative expenses by taking 0.5% of the average value of investment. After excluding the investment of Rs. 29.20 crores, the disallowance comes to the same amount which has been disallowed by the appellant itself. Accordingly no further disallowance on account of administrative expenditure is called for." It appears from the records that the appellant has incurred an amount of Rs. 11,53,706/- interest on Over Draft and other miscellaneous interest and interest paid to others and the same is directly not allocable to any other specific use. In the absence of any explanation rendered by the assessee that this interest has not been incurred on the funds which has been utilized for making the investment giving exempt income, the Learned CIT(A) directed the AO to work out the disallowance taking into consideration the said interest of Rs. 11,53,706/-. Since certain disallowance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is also annexed to the paper book at Page 221. The Learned DR, however, failed to controvert the said contention made by the Learned AR of the assessee. 20. Heard the respective parties, perused the relevant materials available on record including the order passed by the Co-ordinate bench in favour of the assessee on the identical issue in the appeal preferred by the Revenue. The relevant portion of the said judgment is as follows: "4.1 Ground No.1 is regarding deletion of disallowance of Rs. 5 lacs being depreciation on multimodal project at Ambaji. 4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision hi assessee's own ease for the assessment year 1998-99 and 1999-2000 in I.T.A. No.1392 and 1422/Ahd/2003. He farther submitted that the relevant portion of this Tribunal order is at para 19-23 which are available on page 81-82 of the' decision paper book. He further submitted that this tribunal order was followed by the tribunal in assessment year 1997-98 hi I.T.A. No. 2728/Ahd/2000 and the relevant discussion is in para 84 of the Tribunal order on page 76 of the decision paper book. 4.2.1 Ld. D.R. of the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt 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." There is no dispute that subsection (5) creates a fiction. The fiction mandates a notional carry forward of loss from eligible business presuming that the eligible business is the only source of income. The moot issue is the year of applicability of the fiction. For easy analysis, Ss. (5) is divided into phrases as below: (a) for the purposes of determining the quantum of deduction; (b) for the assessment year immediately succeeding the initial assessment year; (c) eligible business was the only source of income; (d) during the previous year relevant to the initial assessment year; (e) and to every subsequent assessment year up to and including the assessment year for which the determination is to be made; Phrase (c) introduces the fiction 'eligible business was the only source of income' and phrase (d) provides for its applicability 'during ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se, the initial year should be 2005-06 i.e. the year of commencement of eligible business. Relying upon the judgment passed by the Hon'ble ITAT, Ahmedabad in the case of ACIT-vs-Goldmine Shares and Finance Pvt. Ltd. The assessee claimed for deduction of Rs. 31,15,94,168/- u/s 80IA has been disallowed and the same was added to the total income of the assessee. In appeal, the same was deleted by the Learned CIT(A). Hence, the instant appeal before us. 23. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the issue is squarely covered by the judgment passed by the Hon'ble ITAT in ITA No.997/Ahd/2015 in assessee's own case for A.Y. 2010-11. Further that, the Learned CIT(A) in his own order relied upon the order passed by him in assessee's case for the same year of 2010-11 in favour of the assessee. However, the Learned DR relied upon the order passed by the Learned AO. 24. We have heard the respective parties, perused the relevant materials available on records. As it appears from the records that the Learned Assessing Officer disallowed the claim of deduction of the assessee by considering the carry forward losses o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ements that the preponderant judicial opinion is in favour of the appellant. The leading judgment on the issue is that of honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). The judgment has subsequently been followed by several other Courts and Tribunals. The basic principle that has been laid down by various courts is that there should be no carry forward loss pertaining to the eligible unit, if the losses of eligible unit had earlier been adjusted with the losses of other units prior to the initial assessment year. The initial assessment year is the year in which the appellant make the claim for the first time and not the year in which the eligible unit commences production. As per the provisions of Act a clear option has been given to the appellant for choosing the initial years of assessment. In the case of the appellant the appellant has chosen the subsequent year later to the year in which the production commenced. There is no need to nationally set-off the losses of that unit for allowing the deduction. Losses and depreciation of the years earlier to the initial assessment year which have been already absorbed against the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he claim for the first time exercising option and not the year in which the eligible unit commences production as per clear provision of law. Since the appellant has chosen the subsequent year later to the year in which the production commenced no necessity was found to notionally set off the losses of that unit for allowing the deduction. In the instant case, losses have been adjusted in the earlier years prior to the initial assessment year, no unadjusted business loss or depreciation loss since not there the claim has rightly been made by the appellant as hold by the Learned CIT(A). The judgment passed in the matter of Sadbhav Engineering Ltd. passed by the Co-ordinate Bench reported in 45 taxmann.com 333 and the judgment passed by the Hon'ble ITAT, Ahmedabad in the matter of Jivraj Tea & Industries Ltd. reported in 42 taxmann.com 462 was also relied upon by the Learned CIT(A). We have also carefully considered the order passed by the Co-ordinate Bench in ITA No.997/Ahd/2015 for A.Y. 2010-11. The relevant portion whereof is as follows: "7. We have heard the rival contention and perused the material on record carefully. We consider that the initial assessment year is the year ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ement/operation 3ic 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 an assessee who is eligible to claim deduction u/s 80-IA 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 80-IA 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, the term initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80-IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen o....