TaxTMI 
TaxTMI 
2022 (6) TMI 1315
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion. Hence, does not survive. (iv) Ground No.7- Disallowance of expenses in respect of house property Allowed in order giving effect to CIT(A) order. Hence, does not survive. (v) Ground no. 8- Disallowances Allowed in order giving effect to CIT(A) order. Hence, does not survive. (vi) Ground No. 9- Long term capital loss In order u/s 154, AO has allowed. Hence, does not survive." 3. In the light of the aforesaid written letter of the Ld. Counsel Shri Hiro Rai and since there is no objection from the Department, the aforesaid grounds stand dismissed for the reasons given therein (supra). And the additional ground raised regarding allowability of deduction for payment of education cess having not been argued during the hearing stands dismissed. Therefore, now there are effectively three grounds of appeal remaining for our adjudication and the first ground of the appeal of the assessee reads as under: - "1 (a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the Appellant's claim for deduction u/s 80-IA of Rs. 10,47,04,329/- (b) He failed to appreciate that in the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or assessment year 1999-2000 was rejected by the AO on the ground that " there was no commercial production made in that year and for that reason he held the assessee was not entitled to claim deduction u/s 80-IA for that year". And the AO noted that against such a decision of AO in Block assessment, the assessee company preferred an appeal before Ld. CIT(A) [ i.e, against the rejection of its claim u/s 80-IA for that year, i.e. A.Y 1999-2000] and the assessee company before Ld CIT(A) not only claimed that there was production during assessment year 1999-2000, but there was production even during the assessment year 1998-99 and produced before the Ld. CIT(A) the relevant excise records, etc to support such a claim. And the Ld. CIT(A) recorded all these submissions of assessee company in his Appellate order and concluded by giving remarking "It is clear that production took place. The Assessing Officer is therefore, directed to allow deduction as claimed" (bear in mind that the deduction claimed by assessee before Ld CIT(A) was for AY. 1999-2000). And the present AO notes that consequently, the CIT(A)'s order was given effect to and the claim u/s 80IA of the assessee for the assessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is before us. 7. Assailing the action of the Ld. CIT(A) in confirming the action of the AO, the Ld. Counsel of assessee Shri Hiro Rai brought to our notice, the relevant facts which are necessary to understand the issue before us. He drew our attention to assessment order were the AO has discussed this issue from page 2, para 1 to page 13. The Ld. Counsel reminded us that the deduction u/s 80IA was available for a period of 10 years for the eligible unit commencing from the year in which manufacture or production commenced. The Ld. Counsel pointed out that AO has erroneously taken the view that the appellant had commenced production in this Unit at Silvassa in the AY 1998-99. Accordingly, he held that the year under appeal, ie AY 2008-09 being the 11th year, the deduction u/s 80IA is not available to the appellant. And the Ld. CIT(Appeals) has confirmed the erroneous view of the AO. 8. According to Ld. Counsel, in order to rightly appreciate the issue in hand it is very important to consider what happened in the AY 1998-99 (which according to present AO is the first year). It was brought to our notice that for the AY 1998-99, the appellant had claimed depreciation in respect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the assessment order for the AY 1999-2000. Further, he drew our attention to the fact that the deduction u/s 80IA was available at the rate of 100% for the first 5 years and at 30% for the balance 5 years. The Ld. Counsel also brought to our notice that in the case of the appellant, the commercial production had commenced in the AY 1999-2000 and the 5th year from this year would be AY 2003-04. And therefore, it can be seen that in respect of the assessment for the AY 2003-04, the deduction u/s 80IA in respect of this Silvassa Unit was allowed at 100%. The Ld. Counsel also drew our attention to page 102 of the Paper Book which is the relevant portion of the order for the AY 2003-04 and contended before us that if the first year were the AY 1998-99 as is being stated by the present AO, then the deduction u/s 80IA for the AY 2003-04 would have been at the rate of 30% and not 100%. According to Ld. Counsel, this order of AO for the AY 200304 is also final on this issue even as of today i.e. 5th year (100% deduction). Further, it was brought to our notice that thereafter it can be seen from assessment order for the AY 2004-05, (it being the 6th year) the deduction u/s 80IA was all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d around and say that AY 1998-99 is the first year of manufacture/production. In this regard, reliance was placed upon the decision of the Hon'ble Supreme Court in Godrej and Boyce Mfg Co. Ltd 394 ITR 449. At page 451, wherein the Hon'ble Supreme Court has held as under: "While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, there is need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out." 12. Thereafter, the Ld. Counsel drew our attention to the reason attributed by the AO to hold that first year of manufacture of Silvassa Unit was AY. 1998-99 and not as claimed by the assessee as AY. 1999-2000. According to him, the AO had mis-directed himself by the event of search which took place in the case of the appellant on 16-12001 and consequent framing of the Block assessment order dated 28-2-2003, wherein the AO had held that the appellant had not commenced production even in the year subsequent to AY 1998-99, ie AY 1999-2000. He accordingly held that the said deduction u/s 80IA was not available even for the said AY 1999-2000 and too....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4 of the Paper Book and thus it was pointed out that the findings in the assessment order for the AY 199899 have become final and reminded us that even the claim for depreciation had not been allowed in the said order and that the deduction u/s 80IA had neither been claimed nor allowed for the said AY 1998-99. According to Ld. Counsel, the position in law is very clear that for the purposes of Chapter VIA deductions, it is the commercial production and not trial-run/production which will determine the first year of the allowance of the claim. In this regard, he drew our attention to the decision of the Hon'ble Bombay High Court in, CIT v Hindustan Antibiotics Ltd., 93 ITR 548. Therefore, it was submitted by the Ld. Counsel that the present AO and learned CIT(Appeals) were unjustified in taking the view that the AY 2008-09 was the 11th year and accordingly, the claim for deduction u/s 80IA was not available. Therefore, according to Ld. Counsel, from the aforesaid facts discussed, this (AY. 2008-09) is the 10th year of commercial production and the deduction u/s 80IA is clearly allowable and we may allow it. 13. Per contra, the Ld. DR relying on the order of the Ld. CIT(A) contend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urrent year, the assessee only carried trial run." 15. And thus it can be seen on the basis of the aforesaid facts the AO did not even allow the claim for depreciation wherein he clearly made a finding of fact that in AY 1998-99 the assessee had started only trial run of production. So at this juncture one has to keep in mind that the Hon'ble Jurisdictional High Court in the case of Hindustan Antibiotic Ltd. (supra) held that it is the commercial production and not trial production which will determine the first year of allowance of claim of deduction under Chapter VIA of the Act. So on the aforesaid factual finding of AO and the assessee having not claimed for its Silvassa Unit deduction u/s 80IA of the Act the question of allowing the same doesn't arise. Further, it was also brought to our notice that the assessee for A.Y.1998-99 had claimed deduction u/s 80IA of the Act in respect of profits of its new unit (Thane) which was allowed @ to the tune of Rs.2,93,63,428/- which we note from perusal of the assessment order dated 30.10.1999 for A.Y.1998-99. Thus, we find that the assessee had neither claimed deduction u/s 80IA of the Act nor was allowed such a deduction in respect of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, the AO erred in holding that the assessee is not entitled for deduction u/s 80IA of the Act because AY 2008-09 is the 11th years. 18. Therefore, in the aforesaid facts and circumstance, we find that the AO had erred in denying the claim of deduction u/s 80IA of the Act for A.Y.2008-09 and likewise the Ld. CIT(A) also erred in denying the claim of the assessee. Therefore, we are inclined to allow the claim of the assessee u/s 80IA of the Act and direct the AO to allow the claim. Ground no. 1 is allowed. 19. Coming to the ground no. 2 which reads as under: - "2. (a) The learned Commissioner of Income Tax (Appeals) erred in confirming the reallocation of various expenses on turnover basis (as against on actual basis and partly on turnover basis) and thereby confirming the recomputation of the profits of the eligible unit at Silvassa at the reduced amount of Rs.11,63,85,209/-. (b)The learned Commissioner of Income Tax (Appeals) failed to appreciate that profit and loss account alongwith detailed working showing the basis of allocation of various expenses were on record and that it was on the same basis as accepted in the earlier years. The learned A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rought to our notice that the AO apart from disallowing the claim for deduction u/s 80IA of the Act, the AO has taken the view that, even if the said claim were allowable, it would be of a much lesser amount. According to the AO, the assessee has allocated lesser expenses to the Silvassa Unit, so as to increase the profits of the said Unit, so as to claim a higher deduction u/s 80IA of the Act. The Ld. Counsel drew our attention to the AO's discussion on this issue at page 24, para 4 to page 27 of the assessment order to show that the AO has allocated further expenses of over Rs. 20 crores to this Unit and accordingly, reduced the profits therefrom. In this regard, it was submitted by the Ld. Counsel that on this issue the relevant pages are page 115 to 142 of the Paper Book. He also drew our attention to page 27 of the assessment order, wherein computation of the total expenses were seen to be recorded at Rs.9,645.84 crores. Out of which, as per the assessee Rs.5,237.93 crores pertained to the non80IA Thane Unit and Rs.4,264.70 crores pertained to the 80IA Unit at Silvassa. According to Ld. Counsel, it is worth noting that these figures expenses works to 54.3% for the Thane Unit a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts maintained for the same. It was also pointed out to us that there were certain common expenses for both units which are incurred by the head office such as marketing, legal, finances, administration, purchases etc. And these expenses (common expenses) including the salaries of the personnel who were engaged for the aforesaid said common jobs were allocated expenses proportionately as per the respective units turnover; and drew our attention to the fact that the Thane factory has 160 employee whereas Silvassa plant had only 55 numbers of employees and this was one of the reason why salary disbursement/expenses in respect of Thane factory was more. It was also brought to our notice that the Thane Plant (refer page no. 120 of the P.B.) mainly caters for lubes production and speciality production for export market. Whereas the Silvassa Plant mainly caters to speciality products for local market. It was brought to our notice that lube production process is more complex when compared to speciality production. Lubes also requires large packing material and hence more direct labour is involved in lube production in Thane than at Silvassa. It was also brought to our notice that the Silva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tation of profit of the eligible unit at Silvassa as made by assessee and allow deduction accordingly. 25. Coming to the ground no. 3 which reads as under: - "3 (a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the claim of deduction u/s 80-IA of Rs.2,86,23,835/in respect of windmills installed at different locations. (b) He failed to appreciate that the provisions of section 80-IA(5) would apply to the losses pertaining to the first year of the claim (initial assessment year)and thereafter and not to the losses of earlier years when the appellant had not made claim for deduction in pursuance to the option available u/s 80-IA(2). The learned Assessing Officer be directed to allow deduction u/s 80-IA of Rs. 2,86,23,835/- in respect of the windmills installed at different locations." 26. The facts on this issue as noted by Ld. CIT(A) is as under: - "The second ground of appeal pertains to the disallowance of deduction u/s.801A(4)(iv) of the Act amounting to Rs.2,86,23,835/-. It is stated in the assessment order that the assessee claimed the deduction u/s.801A(4)(iv) of the Act in respect of the windmills inst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....were brought forward losses at the beginning of the previous year and the assessee did not consider the same while working out the eligible profits for the year. Accordingly, the A.O worked out the eligible profits as under: Profit & Loss of the Business Unit Satara Gojegaon I Gojegaon II Karnataka I Brought forward losses as on 01.04.2007 1,29,82,526 6,79,35,578 1,78,57,104 1,38,41,668 Profit for the Previous Year as per assessee's working in return 38,18,192 1,58,17,126 47,45,725 42,42,793 Eligible profits for the year 91,64,334 5,21,18,452 1,31,11,379 95,98,875 8.3 In view of the above, the AO held that there were no eligible profits to claim deduction u/s 80IA of the Act in respect of the four windmill units. Accordingly, the AO disallowed the claim of deduction u/s 80IA(4)(iv) of the Act amounting to Rs.2,86,23,835/-." 27. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved by the action of Ld. CIT(A), the assessee is before us. 28. Assailing the action of the AO in disallowing deduction u/s 80IA of the Act....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that an 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 subsection........" 29. Further, according to Ld. AR, the Mumbai Tribunal's decision on this issue is in consonance with the aforesaid preposition given by CBDT (supra) Therefore, he wants us to delete the addition of Rs.2,86,23,835/- which was erroneously made by the AO which has been confirmed by the CIT(A). 30. Per contra, the Ld. DR relied on the order of the Ld. CIT(A) and the AO and submitted that when the losses are set off as per Section 80IA(5) of the Act, the four(4) windmills would no longer have profits, so no deduction u/s 80IA of the Act was available. So the AO and CIT(A) has rightly disallowed the claim of deduction. And therefore, he does not want us to interfere with the order of the Ld. CIT(A). 31. We have heard both the parties and perused the records. We note that the issue raised by assessee is against the order of the Ld. CIT(A) confirming the action of the AO denying the deduction u/s 80IA of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the Assessment Year 2009-10 would be entitled for deduction under Section 80IA(5) of the Act without deducting the losses, which were absorbed in the earlier years. 8. The said issue is now no longer res-integra in view of the judgment of the Madras High Court in a case of Velayudhaswamy Spinning Mills P Ltd. & Sudan Spinning Mills (P). Ltd. (supra), the Court observed as under: "From a readying of the above, it is clear that the eligible business were the only source of income, during the previous year' relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once....