TaxTMI 
TaxTMI 
2025 (6) TMI 1125
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.... on facts of the case and in law. 2. The Ld.CIT(A) erred in allowing the deduction u/s. 80IA to the extent of Rs. 3,07,91,524/-, out of the total deduction claimed u/s. 80IA of Rs. 3,89,66,079/-. 2.1The Ld.CIT (A) erred in observing that the four wind mill undertakings of the assessee (K-40, K-85, K-50 &K-51 and K-243) have duly complied with the condition laid down in section 80IA(3)(ii) at the time of their formation by the previous owners and the transfer of the such undertakings as going concerns to the assessee by the previous owners did not result in violation of the condition in section 80IA (3)(ii). 2.2 The Ld. CIT (A) erred in not observing that the deduction u/s. 80IA is specific to assessee and not undertaking specific since section 80IA clearly says that"Where the gross total income of an assessee includes any profits and gains derived by an undertaking...." 2.3 The Ld. CIT (A) erred in not appreciating the fact that the windmills in respect of which deductions u/s. 80IA had been claimed were previously used whereas the condition laid down in section 80IA(3)(ii) is, "it is not formed by the transfer to a new business of machinery or p....
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....isite that the assessee has not formed the new business with machinery previously used. 3.5 The Ld. CIT (A) erred in not observing that, as per Explanation 2 to sub-section 3 of 80IA, if the total value of used plant, machinery in the new business is less than 20% then clause ii) of section 80IA(3) will not apply, whereas, in the case of the assessee, since the entire undertaking has been purchased second hand, it means that 100% of plant and machinery in the new business has been previously used. 4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order or Ld.CIT(Appeals) may be set aside and that of Assessing Officer may be restored. ITA Nos.: 3321/Chny/2024 for A.Y.: 2018-19 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld. CIT (A) erred in holding that the additional income of Rs. 25,27,316/- which was disclosed as business income by the assessee in the return of income towards excess physical stock of birds, cannot be brought to tax as Income from Other Sources u/s. 69A r.w.s. 115....
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....on laid down in section 80IA(3)(ii) is, "it is not formed by the transfer to a new business of machinery or plant previously used for any purpose". 5.4 The ld.CIT(A) erred in not observing that the assessee purchased the first unit K-40 in the FY 2011-12 and this unit was previously owned and used by M//s.AmitronicsPvt Ltd, Bangalore and this machine was originally installed on 28-03-2005, as such, the assessee formed this new business or specified business with a plant that was previously used for the purpose of generation of electricity. 5.5 The Ld. CIT (A) erred in not observing that, as per Explanation 2 to subsection 3 of 80IA, if the total value of used plant, machinery in the new business is less than 20% then clause (ii) of section 80IA(3) will not apply, whereas, in the case of the assessee, since the entire undertaking has been purchased second hand, it means that 100% of plant and machinery in the new business has been previously used. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld CIT (Appeals) may be set aside and that of Assessing Office....
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....uation difference in respect of the stock that was already accounted in the books of account without appreciating the fact that the assessee has not furnished any working with evidence for his valuation of stock. Therefore, the ld.DR pleaded that impugned order may be set aside on this issue and order of the AO may be restored. 6. Per contra, the ld. AR for the assessee submitted that the on issue of applicability of higher rate of tax u/s. 69A/69B r.w.s 115BBE in respect of business income admitted by the assessee in the return of income towards stock difference found during the survey, the revenue challenges the decision of the ld.CIT(A). He drew our attention to the findings arrived by the ld.CIT(A) in his order that the conclusion arrived by the AO that there was excess physical stock of birds at the time of survey was not substantiated by unassailable evidence. Further, the Ld.CIT(A)also observed that notwithstanding the admission of additional income of Rs. 25,27,316/- towards the value of such excess physical stock under the head business income by the assessee in the return of income with a view to avoid any litigation, the very finding of excess physical stock of birds ....
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....ct cannot be invoked in the said facts of the case. Consequently, it is held that the additional income of Rs. 25,27,316/-, which was disclosed as business income by the appellant in the return of income towards excess physical stock of birds, cannot be brought to tax as Income from other sources u/s 69A read with section 115BBE. Therefore, the AO is directed to tax the said income at the normal rate of tax applicable to the appellant. 6.2.14 In respect of the second component of stock difference amounting Rs. 1,12,76,930/-, which represents the valuation difference in respect of the stock of birds as per the stock register (numbering 3,22,198) between the valuation made at the time of survey and the valuation made by the appellant. The survey team valued the said birds at a uniform rate Rs. 142/- per bird, whereas the appellant valued them at the average value of Rs. 107/- per bird. The AO did not accept the contention of the appellant that the birds available in the stock consisted of birds of varying age in weeks and the cost/value of the birds also varies based on their age. The AO did not accept the contention of the appellant that some of the birds are required to be....
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....he excess value of stock of birds, in respect of 3,22,198 birds appearing in the stock register at the time of survey. It is undisputed that the said quantum of birds as per the stock register are duly accounted in the financial records of the appellant. Hence, it is undeniable that this component of stock difference has arisen wholly due to the difference in the cost/value per bird adopted for arriving at the stock value. It is also undisputed that no evidence was found during the survey to show that any unaccounted expenditure/cost was incurred by the appellant towards the maintenance of the birds. Hence, this component of stock difference valued at Rs. 1, 12,76,930/- is merely a valuation difference in respect of the stock that is already accounted in the books of account. Therefore, it cannot be considered that the appellant made unexplained investment towards the stock in the form of the said birds, even if there is divergence of opinion regarding the valuation of the said stock between the AO and the appellant. 6.2.18 In this regard, it is also required to be kept in view that it is the value of the closing stock as determined at the end of the financial year that ha....
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....ead income from business as claimed by the assessee, but not income assessable u/s. 69B of the Act. 6.2.22 In the light of the discussion made above and the judicial precedents applicable to the facts of the case, the undersigned is of the considered view that the additional income of Rs. 1, 12,76,930/-, which has been disclosed as business income by the appellant in the return of income towards the difference in valuation of the stock as per the stock register, cannot be brought to tax as "Income from other sources" invoking the provisions of section 69B r.w.s 115BBE of the Act. Accordingly, the AO is directed to tax the said income at the normal rates of tax. In this back drop, all the grounds raised by the appellant upon this issue are hereby treated as allowed." 8. We find that the ld.CIT(A)has categorically held that it is an undisputed fact that no evidence by way of purchase bills/invoices were found during the survey which reveal that the assessee made unaccounted purchases of birds which could result in such excess physical stock of birds and the AO mainly relied on the statement of the assessee recorded during the course of the survey to evaluate the correctne....
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....ial generation of power Name of previous owner Date of acquisition of unit by assessee Amt. of deduction claimed u/s 80IA Rs. 1 K-40 22.03.2005 Amitronics P.Ltd 23.11.2011 69,11,995 2 K-85 28.03.2008 VSL Mining P Ltd 08.09.2014 86,53,522 3 K-109 30.09.2005 Anil H Lad 08.09.2014 79,75,239 4 K-110 5 K-50 30.09.2005 Vandana Ispate Ltd 01.01.2015 1,67,69,983 6 K-51 7 K-243 31.03.2006 Nav Bharat Intl.Ltd 28.07.2015 48,02,657 Total Rs.4,51,13,396 11. Out of the seven wind mill units, the assessee has withdrawn disputed claim in respect of Units K-109 and K-110 amounting to Rs. 79,75,239/- out of total disallowance of Rs. 4,51,13,396/-. The balance amount of deduction claimed by the assessee in respect of four windmill units u/s. 80IA(4)(iv) of the Act is Rs. 3,71,38,157/-. It is undisputed fact that seven windmill units were constituted into five wind mill undertakings. The windmill units K-40, K- 85 and K-243 were stated to constitute three separate windmill undertakings, as they were separately set up by respective previous owne....
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....e assessee submitted additional evidence under Rule 46A of I.T Rules before the ld.CIT(A) in order to substantiate the factual claims made in the grounds of appeal that the wind mill undertakings were transferred as "going concern" from the previous owners to the assessee and such wind mill undertakings were formed by the previous owners with entirely new machinery. The additional evidence was furnished in respect of 4 wind mill undertakings (i.e K-40, K-50 & K-51, K-85 and K-243) out of the five wind mill undertakings. The assessee did not file any additional evidence in respect of one wind mill undertaking consisting of two units K-109 and K-110. Hence, the assessee has withdrawn the dispute regarding the disallowance of deduction u/s. 80IA(4)(iv) to the extent of the profits & gains of the said fifth wind mill undertaking for all the three assessment years. It is stated that in the remand report furnished with regard to the said additional evidence, the AO did not dispute the facts which are evidenced by the additional evidence to the effect that the four wind mill undertakings were set-up/formed by the previous owners with entirely new machinery supplied by M/s.Suzlon Energy Lt....
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....ng on the judgment of the Hon'ble Madras High Court (Jurisdictional High Court) in the case of CIT v. Premier Cotton Mills Ltd [2000] 108 Taxman 2018 (Madras) opined that the word 'undertaking' is not to be equated with the "legal entity" which may own the undertaking. The ld.CIT(A) also relied on the judgment of the Hon'ble jurisdictional Madras High Courtin the case of Madras Machine Tool Manufacturers v. CIT [1975] 98 ITR 119 (Madras), wherein it was held that a company may own or run many undertakings some of which may be entitled to the benefit of section 84 and others may not be so entitled and hence, it is not possible to equate the "undertaking" with the company which owns the undertaking. It was held therein that when a company owns more than one undertaking, the application of section 84 has to be with respect to the particular undertaking and not to the company in general. The ld.CIT(A) further observed that though the said judgment was rendered while interpreting the provisions of section 84 of the Act, which dealt with the income of newly established industrial undertakings or hotels, the legal principle laid down therein is applicable wherever the tax benefits are ....
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....ertaking at the point of time when the undertaking is formed/established which implies that the undertaking should be formed with new machinery or plant as per the said condition. Accordingly, the ld.CIT(A) held that the fulfillment of the condition laid down in clause (ii) of section 80IA(3) of the Act is required to be evaluated at the time of formation/establishment of the concerned undertaking. 18. Since all the wind mill undertakings were acquired by the assessee from the previous owners as going concern, the ld.CIT(A) expressed the view that the fulfillment of the condition specified in clause (ii) of section 80IA(3) of the Act is required to be evaluated in respect of each of the four wind mill undertakings of the assessee at the time of setting-up/formation of the said undertakings by the respective previous owners and if the undertakings are found to have been set-up/formed with entirely new machinery or plant, it has to be considered that the condition prescribed in section 80IA(3)(ii) of the Act has been fulfilled. The ld.CIT(A) was of the view that the aforesaid legal inference is supported by the decision of the Hon'ble Madras High Court in the case of CIT v. Premie....
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....t another issue which requires examination is whether the eligibility of an undertaking for the deduction u/s. 80IA(4)(iv) for the specified number of assessment years from the initial assessment year is affected by the change in the ownership of the undertaking, when the undertaking is transferred from one legal entity to another legal entity as a 'going concern' with all its assets and liabilities and rights and obligations. The ld.CIT(A) observed that when the entire 'undertaking' is transferred from one legal entity to another as a going concern, the identity of the 'undertaking' does not undergo any change and it remains unaltered. Since the deduction u/s. 80IA(4)(iv) is specific to an 'undertaking' and not to the legal entity which owns the undertaking, the benefit of deduction u/s. 80IA of the Act is attached to the undertaking which fulfils the conditions laid down in the section. The ld.CIT(A) accordingly held that the 'undertaking' which is found to be eligible for the deduction u/s. 80IA(4)(iv) of the Act at the time of its formation on account of its compliance with the conditions stipulated in section 80IA(3) of the Act at that time, continues to be eligible for the sa....
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....l unit formed by transfer of entire business. The ld.CIT(A) observed that though the said decision was rendered with reference to the provisions of section 10A(2)(iii) of the Act, it applies with equal force to the provisions of section 80IA(3)(ii) of the Act also, since the provisions of 10A(2)(iii) and 80IA(3)(ii) are identically worded. The condition prescribed in section 10A(2)(iii) reads as "It is not formed by the transfer to a new business of machinery or plant previously used for any purpose" in relation to an undertaking and the same is identical to the condition prescribed in section 80IA(3)(ii) of the Act in relation to an undertaking. 22. Further, the ld.CIT(A) observed that the said decision in the case of Heartland KG Information Ltd (supra) was followed subsequently in the case of Super Auto Forge Ltd v. Addl. Commissioner of Income-tax in Tax Case (Appeal) Nos.207 and 208 of 2008 by the Hon'ble Madras High Court, while rendering the judgment with reference to the condition prescribed in section 10B(2)(iii), which is also identical to the condition prescribed in section 80IA(3)(ii) of the Act. The ld.CIT(A) placed reliance on the said decision of the Hon'ble Juris....
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.... judgments of the Hon'ble jurisdictional High Court, are squarely applicable to the facts of the assessee's case: (i) Judgment of Hon'ble Madras High Court (jurisdictional High Court) in the case of CIT Vs. Premier Cotton Mills Ltd [2000] 108 Taxman 2018 (Madras) (Page 130 to 134 of the Paper Book). (ii) Judgment of Hon'ble Madras High Court (jurisdictional High Court) in the case of Madras Machine Tool Manufacturers Vs. CIT [1975] 98 ITR 119 (Madras) (Page 116 to 121 of the Paper Book) (iii) Judgment of Hon'ble Madras High Court (jurisdictional High Court) in the case of CIT Vs. Heartland KG Information Ltd [2013] 39 taxmann.com 132 (Madras) (Page 146 to 152 of the Paper Book). (iv) Judgment of Hon'ble Madras High Court (jurisdictional High Court) in the case of Super Auto Forge Ltd Vs Addl. Commissioner of Income-tax in Tax Case (Appeal) Nos.207 and 208 of 2008 (Page 153 to 161 of the Paper Book). (v) Judgment of Hon'ble Bombay High Court in the case of CIT Vs. Heartland KG Information Ltd CIT Vs. Sonata Software Ltd [2012] 21 taxmann.com 23 (Bombay) (Page 162 to 169 of the Paper Book) 26. Further, with regard to the contention of t....
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....ers, the condition in section 80IA(3)(ii) of the Act is duly fulfilled. Hence, it is submitted that the above contention of the revenue in the grounds of appeal is untenable in law, being contrary to the provisions of section 80IA(3)(ii) of the Act and the binding judgments of the Hon'ble Jurisdictional High Court. 28. With regard to the contention of the revenue in the grounds of appeal that the ld.CIT(A) erred in not appreciating that the condition laid down in section 80IA(3)(ii) is violated in the case of the assessee since the wind mills were previously used by the previous owners, it is submitted that the subject matter of prohibition in the condition prescribed in section 80IA(3)(ii) is the transfer of previously used machinery or plant to a new undertaking and it does not apply to the transfer of the "undertaking" itself as a "going concern" to from one legal owner to another legal owner. This legal principle has been laid down by the Hon'ble Jurisdictional High Court in the cases of CIT Vs. Heartland KG Information Ltd (supra) and Super Auto Forge Ltd Vs Addl. Commissioner of Income-tax (supra), as discussed in detail in the order of the ld.CIT(A). The said decisions of....
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....the revenue in the grounds of appeal that the ld.CIT(A) erred in not appreciating that the condition laid down in section 80IA(3)(ii) of the Act is violated in the case of the assessee since the windmills were previously used by the previous owners is not sustainable in law. 32. Further, in this connection, it was contended by the Ld. CIT(DR) during the course of the hearing that the aforementioned judgments of the Hon'ble Jurisdictional High Court in the cases of CIT Vs. Heartland KG Information Ltd (supra) and Super Auto Forge Ltd Vs Addl. Commissioner of Income-tax (supra) which were rendered while interpreting the provisions of section 10A(2) and section 10B(2) are not applicable to the interpretation of section 80IA(3), on the ground that there are no Explanations to section 10A(2) and section 10B(2) similar to the Explanation 1 and Explanation 2 to section 80IA(3) and in the absence of such Explanations, the decisions rendered in the context of the condition laid down in 10A(2)(iii) and 10B(2)(iii) cannot be applied to the interpretation of the condition laid down in section 80IA(3)(ii). 33. In this regard, in our considered view the said contention of the Ld. CIT(DR) i....
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....ertaking" is not to be equated with the "legal entity" which owns the undertaking. In view of such distinction between the undertaking and the legal entity that owns the undertaking (assessee) as per the binding judgments of the Hon'ble Jurisdictional High Court, the condition prescribed in section 80IA(3)(ii) of the Act that "the undertaking is not formed by transfer to the new business of machinery or plant previously used for any purpose" has to be necessarily construed as the condition specific to the undertaking and not a condition specific to the assessee. Therefore, the said observation of the ld.CIT(A) was based on the clear understanding of the provisions of the Act and also supported by the decision of the Hon'ble Jurisdictional High Court and hence, we do not find merit in the contention of the revenue. 36. We find that the windmill undertakings were acquired by the assessee from the previous owners as going concern, the fulfillment of the condition specified in clause (ii) of section 80IA(3) of the Act is required to be evaluated in respect of each of the four windmill undertakings of the assessee at the time of setting-up/formation of the said undertakings by the re....