The ACIT, Circle-5, Ahmedabad V. Parry Enginnering & Electronics Pvt.Ltd., Ahmedabad

ITA 1033/AHD/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8164 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 23-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH SINGH
• Assessee Lawyers: G C PIPARA
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation
• Section: 14A; 80G; 32

Judgement Text

, , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV, JUDICIAL MEMBER IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ IZEKSN DQEKJ , ./ ITA NOS. 1033 & 1034/AHD/2015 / ASSESSMENT YEARS: 2010-11 & 2011-12 INCOME TAX OFFICER, WARD-3(1)(2), AHMEDABAD. VS PARRY ENGINEERING & ELECTRONICS PVT. LTD. B-608, NIRMAN COMPLEX, OPP. HAVMORE RESTAURANT, NAVRANGPURA, AHMEDABAD. ./ ./ PAN/GIR NO. : AAACP 6747 J !' / (APPELLANT) #$ !' / (RESPONDENT) REVENUE BY : SHRI SAURABH SINGH, SR.D.R. ASSESSEE BY : SHRI G. C. PIPARA, A.R. ! '# / DATE OF HEARING : 13/03/2018 $%&' ! '# /DATE OF PRONOUNCEMENT : 06/06/2018 PER RAJPAL YADAV, JUDICIAL MEMBER: THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANC E OF REVENUE AGAINST SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-9, AHMEDABAD DATED 02.01.2015 AND 05.01.2 015 PASSED FOR ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY. 2. SINCE, COMMON ISSUES ARE INVOLVED IN BOTH THE AP PEALS THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO D ECIDE BY THIS COMMON ORDER. SINCE FACTS ON ALL VITAL POINTS ARE COMMON, THEREFORE, FOR ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 2 THE FACILITY OF REFERENCE, WE TAKE THE FACTS MAINLY FROM THE ASSESSMENT YEAR 2010-11 I.E. ITA NO.1033/AHD/2015. 3. IN THE FIRST GROUND OF APPEAL, REVENUE HAS PLEAD ED THAT LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION OF RS.89,206/- AND RS.80,578/- MADE BY THE ASSESSING OFFICER U/S.14A O F THE INCOME TAX ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ELECTRONICALLY, ON 14/10/2010 AND 30/09/2010 DECLARING TOTAL INCOME AT RS.30,50,790/- AND NIL IN A.Y. 2010-11 AN D 2011-12 RESPECTIVELY. THE RETURNS OF BOTH THE YEARS WERE PR OCESSED U/S 143(1) AND THEREAFTER, CASES WERE SELECTED FOR SCRUTINY AS SESSMENT, NOTICE U/S. 143(2) OF THE ACT WAS ISSUED AND SERVED IN BOTH THE YEARS. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE HAS SHOWN TAX FREE DIVIDEND INCOME OF RS.2,28,073/- IN A.Y. 2010-11, WHEREAS NO TAX FREE INCOME IS BEING NOTED BY THE AS SESSING OFFICER IN A.Y. 2011-12. THE ASSESSEE HAS MADE TOTAL INVESTMEN T OF RS.19,49,122/- IN A.Y. 2010-11 AS WELL AS IN A.Y. 2011-12. THE ASS ESSING OFFICER WITH THE HELP OF RULE 8D DISALLOWED A SUM OF RS.89,206/- IN A.Y. 2010-11 AND RS.80,578/- IN A.Y. 2011-12. THIS DISALLOWANCE MADE BY THE AO HAS BEEN DELETED PARTLY BY THE LD. CIT(A). THE FINDINGS OF T HE LD. CIT(A) RECORDED IN A.Y. 2010-11 ON THIS ISSUE READ AS UNDE R: 2.2 I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE APPELLANT. AS FAR AS THE CLAIM OF THE APPELLANT THAT NO EXEMPT INCOME HAS BE EN EARNED DURING THE YEAR IS CONCERNED THE SAME IS NOT ACCEPTED SINCE THE ACT PR OVIDES THAT THE INVESTMENTS ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 3 MADE BY THE APPELLANT SHOULD BE CAPABLE OF PRODUCIN G OR GENERATING EXEMPT INCOME. THIS ISSUE IS AMPLY COVERED BY THE DECISION OF HON'BLE DELHI SPECIAL BENCH IN THE CASE OF KEN INVESTMENT LTD 121 ITD 318 (2009) (S.B). WITH REGARD TO THE CLAIM THAT THE INVESTMENTS MADE BY TH E APPELLANT WERE IN THE NATURE OF TRADE INVESTMENT MADE WITH AN OBJECTIVE O F FURTHERING THE BUSINESS INTEREST OF THE COMPANY, THIS ASPECT HAS BEEN CONSI DERED BY VARIOUS JUDICIAL AUTHORITIES, IN THE CASE OF MAXOPP INVESTMENTS LTD. [203 TAXMAN 185 (DELHI)] THE HON'BLE SPECIAL BENCH HAS HELD THAT SEC.14A DISA LLOWANCE IS APPLICABLE TO THE INTEREST PAID ON BORROWINGS USED FOR BUSINESS R ELATED INVESTMENTS. EVEN THOUGH EARNING OF DIVIDEND INCOME IS ONLY INCIDENTA L. RELIANCE IS ALSO PLACED ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CA SE OF SMT. LEENA RAMCHANDRAN REPORTED IN 339 ITR 296 AND DECISION OF HON'BLE COCHIN BENCH OF ITAT IN THE CASE OF STATE BANK OF TRAVANCORE REPO RTED IN 124 ITD 332. HONABLE ITAT CHD [2014] 51 TAXMANN.COM 98 (CHANDIGARH - TRIB.)/[2014] 66 SOT 132 (CHANDIGARH -TRIB.)(URO) IN ITS DECISION D T 8/08/2014 HAS HELD - HELD, YES - WHETHER IN CASE OF MIXED FUNDS, DISALLO WANCE HAS TO BE MADE UNDER SECTION 14A, READ WITH RULE 8D - HELD, YES [PARA 8][ IN FAVOUR OF REVENUE] IT: IN CASE OF MIXED FUNDS, DISALLOWANCE HAS TO BE MADE UNDER SECTION 14A, READ WITH RULE 8D IN THE CASE OF CHEMINVEST LTD [121 ITD 318 2009(DEL)] DELHI SPECIAL BENCH HELD THAT SEC. 14A DISALLOWANCE HAD TO BE MADE IN RESPECT OF INTEREST ON LOANS, WHICH WERE UTILIZED FOR INVES TMENT IN SHARES, EVEN THOUGH NO DIVIDEND INCOME WAS EARNED ON THOSE SHARE S DURING THE RELEVANT YEAR. SIMILARLY IN THE CASE OF SIVA INDUSTRIES & HOLDING L TD [TS-438- ITAT-2011(CHNY) AND TS-317-ITAT-2012(CHNY)] RELYING ON THE SPECIAL BENCH RULING IN CHEMINVEST LTD, CHENNAI ITAT HELD THAT THE DISALLOWANCE U/S 14A WAS APPLICABLE, EVEN THOUGH THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME IN AY 2007-08. SIMILARLY REL IANCE IS ALSO PLACED ON THE FINDING OF CASE OF TECHNOPACK ADVISORS P LTD [(2012) 50 SOT 31 (DELHI) (URO)] WHEREIN IT IS HELD THAT EVEN IF THE INVESTMENT IN SHARES DID NOT YIELD ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION, THE DISALLOWANCE U/S14A ON THE EXPEND ITURE INCURRED FOR EARNING INCOME WAS DISALLOWABLE, NOTWITHSTANDING TH E FACT THAT NO SUCH INCOME WAS EARNED. APPELLANT'S CASE IS CLEARLY A CASE OF MIXED FUND AS HIGHLIGHTED BY THE A.O. BEING USED FOR THE PURPOSE OF EARNING TAXAB LE AS WELL AS EXEMPT INCOME. APPELLANT HAS NOT BEEN ABLE TO SHOW BEFORE THE A.O. THAT NO ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 4 INTEREST EXPENSES HAVE BEEN INCURRED BY IT IN RELAT ION TO THE ASSETS CAPABLE OF GENERATING EXEMPT INCOME. IT MAY BE PERTINENT TO NOTE HERE THAT THE LD.CIT(A) -XI, AHMEDABAD VIDE APPELLATE ORDER DATED 02/11/2011 FOR A.Y.2008-09 IN CASE OF THE APPELLANT ITSELF HAS HELD AS UNDER:- 'THE APPELLANT DURING THE APPELLATE PROCEEDINGS SUB MITTED THAT IN THE YEAR 2005-06, 'IT HAD INVESTED A SUM OF RS.5,00 ,000/- IN SBI MEG FUND. THIS INVESTMENT WAS SWITCHED OUT TO SBI M EG COMMA AND FUND DURING THE YEAR 2007-08 FOR RS.9,48,6 22/-. IT WAS CONTENDED BY THE APPELLANT THAT IT HAD NOT INVE STED RS.4,48,622/- (948622 - 500000) FROM THE BUSINESS FU NDS AND DISALLOWANCE OF THIS SUM SHOULD NOT BE MADE. I AM I NCLINED TO AGREE WITH THE SUBMISSIONS OF THE APPELLANT TO THIS EXTENT IN VIEW OF IT, IT IS HELD THAT DISALLOWANCE U/S. 14A BE MADE ON AN INVESTMENT OF RS. 15,00,500/- (1949122-448622) ONLY. ' IN VIEW OF THESE FACTS, I AM INCLINED TO AGREE WITH MY PREDECESSOR. ON THE CONTRARY I FIND THAT SEC.14A REFERS TO EXPENDITU RE ON RENT, TAXES, SALARIES, INTEREST ETC., IN RESPECT OF WHICH DISALLOWANCES AR E PROVIDED FOR. THESE DEDUCTIONS ARE FOR THE DEBITS IN THE REAL SENSE. TH E PAY BACK DOES NOT CONSTITUTE EXPENDITURE INCURRED IN TERMS OF SEC.14A. IN VIEW OF THESE FACTS, AND IN VIEW OF THE DECISION TAKEN BY MY PREDECESSOR IN THE CASE OF APPELLANT IN A.Y. 08-09, I HOLD THAT DISALLOWANCE FOR THE PURPOSE OF SEC.14A IS TO BE MADE AGAINST INTEREST EXPENDITURE DEBITED IN THE P & L A/C AS PER THE PRO VISIONS OF RULE 8D OF I.T. RULES, 1962 AS DIRECTED BY MY LD. PREDECESSOR, IN VIEW OF IT, IT IS HELD THAT DISALLOWANCE U/S. 14A BE MADE ON AN INVESTMENT OF R S. 15,00,500/- (1949122 - 448622) ONLY. THE A.O. IS DIRECTED TO MODIFY THE DI SALLOWANCE U/S.14A AS PER THE ABOVE DIRECTIONS AND GIVE NECESSARY RELIEF TO THE A PPELLANT. SIMILAR FINDING HAS BEEN RECORDED IN A.Y. 2011-12. 5. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. LD. CIT(A) DIRECTED T HE ASSESSING OFFICER TO MODIFY THE DISALLOWANCE REQUIRED TO BE MADE U/S. 14A BECAUSE SHE FOUND THAT OUT OF THE TOTAL INVESTMENT OF RS.19,49, 122/- A SUM OF RS.4,48,622/- WAS MADE OUT OF INTEREST FREE FUND. T HIS AMOUNT CANNOT BE ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 5 CONSIDERED FOR MAKING THE DISALLOWANCE THUS, LD. CI T(A) HAS RESTRICTED THE DISALLOWANCE REQUIRED TO BE MADE ON AN INVESTME NT OF RS.15,00,500/. THE ASSESSEE HAS NOT CHALLENGED THIS FINDING OF THE LD. CIT(A) AND AFTER GOING THROUGH THE LD.CIT(A)S ORDER, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A) IN A.Y. 2010-11 WHICH IS CON FIRMED. SIMILAR FINDING HAS BEEN RECORDED IN A.Y. 2011-12 AND THERE FORE, THE GROUND OF APPEAL RAISED BY THE REVENUE IN A.Y. 2011-12 IS ALS O REJECTED. GROUND NO.2 AND 2.1: 6. IN THESE GROUNDS OF APPEAL, GRIEVANCE OF THE REV ENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.43, 58,443/- AND RS.37,05,554/-. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS INSTALLED THE WINDMILL AND STARTED OPERATIONS FOR GENERATING THE POWER FROM 09/02/2007 I.E. A.Y 2007-08. HOWEVER, DUE TO HEAVY DEPRECIATION CLAIMED ON THE WINDMILL, THE ASSESSEE HAD MADE LOSS ES FROM THE UNDERTAKING AND HAD NOT CLAIMED ANY DEDUCTION U/S. 80IA(4)(IV). IN A.Y. 2010-11, ASSESSEE HAS MADE CLAIM FOR GRANT OF DEDUCTION U/S.80IA(4)(IV). IT HAS SUBMITTED NECESSARY REPORT IN FORM 10CCB. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE HAS MA DE A CLAIM OF RS.43,58,443/- HOWEVER, ON APPEAL LD. CIT(A) POINTE D OUT THAT THIS CLAIM WAS FOR RS.41,97,875/-. THE ASSESSING OFFICER HAS NOTIONALLY TAKEN THE FIGURE OF RS.43,58,443/-. THE LD. CIT(A) OBSERV ED THAT SUM OF RS.1,60,568/- WAS CLAIMED U/S.80G. IN A.Y. 2011-12 THIS CLAIM HAS BEEN ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 6 RESTRICTED BY THE ASSESSEE TO GROSS TOTAL INCOME OF RS.37,05,554/-. THE LD. CIT(A) HAS UPHELD THE ALLOWANCE TO THIS EXTENT. THU S, GROUNDS MENTIONED IN THE APPEAL ARE NOT CORRECT. 8. THE DISPUTE BETWEEN THE ASSESSEE AND ASSESSING O FFICER IS THAT ASSESSING OFFICER HAS NOTIONALLY BROUGHT FORWARD BU SINESS LOSSES AND DEPRECIATION OF EARLIER YEARS AND NOTIONALLY SET OF F AGAINST THE INCOME OF THE WINDMILL. THE CASE OF THE ASSESSEE IS THAT AS P ER SECTION 80IA(5) IF THE DEPRECATION AND BUSINESS LOSSES HAVE ALREADY BEEN S ET OFF AGAINST OTHER INCOME OF THE ASSESSEE BEFORE SELECTION OF INITIAL YEAR FOR CLAIMING OF DEDUCTION U/S.80IA(IV) THEN SUCH UNABSORBED DEPRECI ATION WOULD NOT BE BROUGHT FORWARD NOTIONALLY AND SET OFF AGAINST THE CURRENT YEAR INCOME IN WHICH DEDUCTION U/S. 80IA(IV) HAS BEEN CLAIMED. THE LD. ASSESSING OFFICER DID NOT ACCEPT THIS CONTENTION OF THE ASSES SEE. HOWEVER, ON APPEAL LD. FIRST APPELLATE AUTHORITY HAS ACCEPTED T HE CLAIM AND ALLOWED THE DEDUCTION. THE FINDINGS RECORDED BY LD. CIT(A) IN A.Y. 2010-11 ON THIS ISSUE, READ AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. I HAVE ALSO GONE THROUGH THE LEGAL DECISIONS RELIED UPON BY THE APPELLANT AN D A.O. FIRST OF ALL IT IS CLARIFIED THAT THE DEDUCTION CLAIMED BY THE APPELLA NT IN RESPECT OF ITS WINDMILL UNIT U/S. 80IA(IV) IS OF RS.41,97,875/- AND NOT OF RS .43,58,443/- AS DISALLOWED BY THE A.O. THE AMOUNT DISALLOWED BY THE A.O. ALSO C ONSISTS OF THE DEDUCTION U/S. 80G OF THE ACT OF RS.1,60,568/-. FROM THE PERUS AL OF THE ASSESSMENT ORDER IT IS SEEN THAT THERE IS NO DISCUSSION AND FINDING OF THE A.O IN RESPECT OF THE DISALLOWANCE OF DEDUCTION U/S. 80G OF THE ACT. HENCE , DISALLOWANCE TO THE EXTENT OF RS.1,60,568/- IS DIRECTED TO BE DELETED S INCE FACTUALLY INCORRECT. ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 7 IN RESPECT OF DEDUCTION OF RS. 41,97,875/- U/S. 80I A(IV) OF THE ACT, THE A.O HAS DISALLOWED THE SAME IN VIEW OF THE PROVISION S OF SEC.80IA(5) OF THE ACT, WHICH READS AS UNDER:- 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING TH E QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMME DIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMEN T YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCO ME OF THE ASSESSEE DURING THE PREVIOUS YEAR .RELEVANT TO THE INITIAL ASSESSMENT Y EAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. THUS, SUB-SECTION (5) OF SECTION 80IA OF THE ACT PROV IDES FOR THE QUANTUM OF DEDUCTION U/S. 80IA(1) OF THE ACT FOR THE A SSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR AS IF THE ELIGIBLE BUSINESS WERE TH E ONLY SOURCE OF INCOME OF THE ASSESSES DURING THE PREVIOUS YEAR RELEVANT TO THE I NITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEARS. THE A.O. HAS WORK ED OUT THE INCOME FROM THE ELIGIBLE UNIT I.E. WINDMILL AS TABULATED IN THE ASSESSMENT ORDER AND AFTER CONSIDERING THE DEPRECIATION INCLUDING UNABSORBED D EPRECIATION U/S. 32 OF THE ACT IN RESPECT OF WINDMILL, THE A.O HAS STATED THAT T HERE IS NO INCOME FROM WINDMILL FOR THE ASSESSMENT YEAR 2010-11. ON THE OTHER HAND THE APPELLANT HAS SUBMITTED THAT THE UNABSORBED LOSSES INCLUDING THE UNABSORBED DEPRECIATION OF EAR LIER ASSESSMENT YEARS IN RESPECT OF THE ELIGIBLE UNIT BEING WINDMILL HAVE AL READY BEEN SET OFF AGAINST THE INCOME FROM NON-ELIGIBLE BUSINESS AND FOR THE ASSES SMENT YEAR UNDER APPEAL, THERE IS NO UNABSORBED LOSSES OF THE WINDMILL. THER EFORE, FOR COMPUTING THE DEDUCTION U/S. 80IA(IV) OF THE ACT, NO ADJUSTMENT ON A CCOUNT OF UNABSORBED LOSSES OF ELIGIBLE BUSINESS ON NOTIONAL BASIS CAN B E MADE AS IF THERE IS ONLY ONE SOURCE OF INCOME I.E. ELIGIBLE BUSINESS (IN THE PRE SENT CASE WINDMILL). IF THE UNABSORBED LOSSES INCLUDING DEPRECIATION LOSS OF EA RLIER YEARS HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF NON-ELIGIBLE BUSINESS , THEN SUCH NOTIONAL ADJUSTMENT IS OUTSIDE THE PURVIEW OF SEC. 80IA(5) OF THE ACT. THE RATIO LAID DOWN IN THE VARIOUS CASE LAWS RELIED UPON BY THE AP PELLANT ALSO SUPPORTS THE SAID CONTENTION OF THE APPELLANT. THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYU DHASWAMY SPINNING MILLS (P) LTD. VS. ACIT 231 CTR 368 (MADRAS) RELIED UPON BY THE APPELLANT HAS HELD THAT LOSSES AND DEPRECIATION OF THE YEARS EARLIER TO THE INITIAL ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 8 ASSESSMENT YEAR WHICH HAVE ALREADY BEEN ABSORBED AG AINST THE PROFIT OF OTHER BUSINESS CANNOT BE NOTIONALLY BROUGHT FORWARD AND S ET OFF AGAINST THE PROFIT THE ELIGIBLE BUSINESS FOR COMPUTING THE DEDUCTION UNDER SECTION 80-IA. FURTHER, HON'BLE BANGALORE ITAT IN THE SIMILAR SET OF FACTS R ELATING TO WINDMILL, IN THE CASE OF ANIL H. LAD V. DY. CIT (2012) 13 (TRIB.) ITR 5 81 (BANG.) HAS FOLLOWED THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CA SE OF VELAYUDHASWAMY SPG. MILLS (P) LTD. CITED SUPRA AND HELD THAT THE YE AR OF COMMENCEMENT ALONE NEED NOT BE THE INITIAL YEAR, BUT DEPENDING UPON TH E FACTS OF THE CASE AND THE OPTION EXERCISED BY THE ASSESSEE, THE YEAR OF CLAIM ALSO CAN BE CONSIDERED AS INITIAL ASSESSMENT YEAR. THE COURT FURTHER HELD THA T WHERE THE EARLIER DEPRECIATION AND LOSSES HAVE ALREADY BEEN SET OFF, THOSE LOSS AND DEPRECIATION DO NOT GO TO REDUCE THE GROSS TOTAL INCOME OF AN ASSES SEE WITHIN THE MEANING OF SECTION 80AB AND, THEREFORE, BRINGING THE NOTIONAL C ONCEPT OF CARRYING FORWARD AND SET-OFF WILL BE CONTRARY TO THE SCHEME OF SECTI ON 80AB AND CONCEPT OF GROSS TOTAL INCOME. FOLLOWING THE AFORESAID JUDGMENT, ASS ESSING AUTHORITY WAS TO BE DIRECTED TO GRANT DEDUCTION TO THE ASSESSEE UNDER S ECTION 80-IA FOR THE QUANTUM CLAIMED BY THE ASSESSEE WITHOUT DILUTING TH E SAME BY THE NOTIONAL DEDUCTION OF EARLIER LOSS AND DEPRECIATION. ON THE OTHER HAND, THE RELIANCE PLACED BY THE. A.O. ON THE DECISION IN THE CASE OF LIBERTY INDIA LTD. VS. CIT 317 ITR 218 (SC) IS NOT RELEVANT TO THE FACTS OF THE PRESENT CASE AND SINCE DIRECT JUDGMENT S APPLICABLE TO THE FACTS OF THE APPELLANT'S CASE ARE AVAILABLE, THE SAME ARE FOLLOW ED. CONSIDERING THE FACTS AND THE LEGAL DECISIONS RELIE D UPON BY THE APPELLANT, I AM INCLINED TO ACCEPT THE SAME AND THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE OF DEDUCTION U/S. 80IA(IV) OF THE ACT. T HUS, THE APPEAL ON THIS GROUND IS ALLOWED. 9. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE HAVE FIND THAT THE ISSUE SQUARELY COVERED BY THE DECISION OF MADRAS HIGH COURT REFERR ED IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS VS. ACIT REPORTED IN 340 ITR 477. WE DEEM IT PERTINENT TO TAKE NOTE OF THE RELEVANT DISC USSION MADE BY THE HONBLE COURT WHICH READS AS UNDER: ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 9 '80-IA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESS EE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRIS E FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL, IN ACCORDANCE WITH A ND 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, O F THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSE SSMENT YEARS. (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB-SECTION (4) OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OR POWER OR UNDERTAKES SUB- STANTIAL RENOVATION AND MODERNISATION OF THE EXISTI NG TRANSMISSION OR DISTRIBUTION LINES. (4) THIS SECTION APPLIES TO (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DE VELOPING, OR (II) OPERATING AND MAINTAINING, OR (III) DEVELOPING, OPER ATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLO WING CONDITIONS, NAMELY : (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CON- SORTIUM OF SUCH COMPANIES (OR BY AN AUTHORITY OR A BOARD OR A CORPORATION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRAL O R STATE ACT) ; (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTRA L GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR (I) DEVELOPING, OR (II) OPERATING AND MAINTAINING, OR (I II) DEVELOPING, OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY ; (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAINI NG THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST APRIL, 1995. (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS T O WHICH THE PROVISIONS OF SUB- SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMI NING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR, BE ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 10 COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE I NITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDIN G THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE.' 17. FROM A READING OF SUB-SECTION (1), IT IS CLEAR THAT IT PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS R EFERRED TO IN SUBSECTION (4), I.E., REFERRED TO AS THE ELIGIBLE BUSINESS, TH ERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE SECTION, BE ALLOWE D, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQ UAL TO 100 PER CENT, OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TE N 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 A SSESSEE TO CHOOSE 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS. OPTIO N 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 WH ICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE ACTIVITY, ETC. SUB- SECTION (5) DEALS WITH QUANTUM OF DEDUCTION FOR AN E LIGIBLE 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 THA T 'INITIAL ASSESSMENT YEAR' EMPLOYED IN SUB-SECTION (5) IS DIFFERENT FROM THE WO RDS '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 OBSTANTE CLAUSE WHICH MEAN S IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO BE IGNORED ; (2) IT IS FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION; (3) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING T HE INITIAL ASSESSMENT YEAR ; (4) IT IS A DEEMING PROVISION; (5) FICTION CREATED THAT THE ELIGIBLE BUSINESS IS TH E ONLY SOURCE OF INCOME; AND (6) DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR.' FROM A READING OF THE ABOVE, IT IS CLEAR THAT THE E LIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEA RS. WHEN THE ASSES-SEE 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 TH E ASSESSEE. LOOKING FORWARD ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 11 TO A PERIOD OF TEN YEARS FROM THE INITIAL ASSESSMEN T 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 AGAINS T THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNOT REWORK T HE SET OFF AMOUNT AND BRING IT NOTIONALLY. A FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. THE FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. IN THE PRESENT CASES, THERE IS NO DISPUTE THAT LOSS ES INCURRED BY THE ASSESSEE WERE ALREADY SET OFF AND ADJUSTED AGAINST THE PROFITS OF THE EARLIER YEARS. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE E XERCISED THE OPTION UNDER SECTION 80-IA(2). IN TAX CASE NOS. 909 OF 2009 AS 1 WELL AS 940 OF 2009, THE ASSESSMENT YEAR WAS 2005-06 AND IN TAX CASE NO. 918 OF 2008 THE ASSESSMENT YEAR WAS 2004-05. DURING THE RELEVANT PERIOD, THERE WERE NO UNABSORBED DEPRECIATION OR LOSS OF THE ELIGIBLE UNDERTAKINGS A ND THE SAME WERE ALREADY ABSORBED IN THE EARLIER YEARS. THERE IS A POSITIVE PROFIT DURING THE YEAR. THE UNREPORTED JUDGMENT OF THIS COURT CITED SUPRA CONSI DERED THE SCOPE OF SUB- SECTION (6) OF SECTION 80-1, WHICH IS THE CORRESPON DING 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 CITE D SUPRA. IN THE CASE OF CIT V. MEWAR OIL AND GENERAL MILLS LTD. (NO. 1) [2004] 27 1ITR 311 (RAJ) ; [2004] 186 CTR (RAJ) 141, THE RAJASTHAN HIGH COURT ALSO CON SIDERED THE SCOPE OF SECTION 80-1 AND HELD AS FOLLOWS (PAGE 314 OF 271 I TR) : 'HAVING CONSIDERED THE RIVAL CONTENTIONS WHICH FOLL OW ON THE LINE NOTICED ABOVE, WE ARE OF THE OPINION THAT ON FINDIN G 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 SETTI NG OFF THE CARRY FORWARD OF UNABSORBED DEPRECIATION OR DEPRECIATION ALLOWANCE FROM PREVIOUS YEAR DID NOT SIMPLY ARISE AND ON THE FINDI NG OF FACT NOTICED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), WHICH HAS NOT BEEN DIS- TURBED BY THE TRIBUNAL AND CHALLENGED BEFORE US, TH ERE WAS NO ERROR MUCH LESS ANY ERROR APPARENT ON THE FACE OF THE REC ORD WHICH COULD BE RECTIFIED. THAT QUESTION WOULD HAVE BEEN GERMANE ON LY IF THERE WOULD HAVE BEEN CARRY FORWARD OF UNABSORBED DEPRECIATION AND UNABSORBED DEVELOPMENT REBATE OR ANY OTHER UNABSORBED LOSSES O F THE PREVIOUS YEAR ARISING OUT OF THE PRIORITY INDUSTRY AND WHETHER IT WAS REQUIRED TO BE SET OFF AGAINST THE INCOME OF THE CURRENT YEAR. IT IS N OT AT ALL REQUIRED THAT ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 12 LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR SHOULD BE REOPENED AGAI N FOR COMPUTATION OF CURRENT INCOME UNDER SECTION 80-1 FOR THE PURPOSE O F COMPUTING ADMISSIBLE DEDUCTIONS THEREUNDER. IN VIEW THEREOF, WE ARE OF THE OPINION THAT THE TRI BUNAL HAS NOT ERRED IN HOLDING THAT THERE WAS NO RECTIFICATION PO SSIBLE UNDER SECTION 80-1 IN THE PRESENT CASE, ALBEIT, FOR REASONS SOMEW HAT DIFFERENT FROM THOSE WHICH PREVAILED WITH THE TRIBUNAL. THERE BEIN G NO CARRY FORWARD OF ALLOWABLE DEDUCTIONS UNDER THE HEAD DEPRECIATION OR DEVELOPMENT REBATE WHICH NEEDED TO BE ABSORBED AGAINST THE INCO ME OF THE CURRENT YEAR AND, THEREFORE, RECOMPUTATION OF INCOME FOR TH E PURPOSE OF COMPUTING PERMISSIBLE DEDUCTION UNDER SECTION 80-1 FOR THE NEW INDUSTRIAL UNDERTAKING WAS NOT REQUIRED IN THE PRES ENT CASE. ACCORDINGLY, THIS APPEAL FAILS AND IS HEREBY DISMISS ED WITH NO ORDER AS TO COSTS.' FROM A READING OF THE ABOVE, THE RAJASTHAN HIGH COU RT HELD THAT IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR SHOULD BE REOPENED AGAIN FOR COMPUTATION OF CURRENT INCOME U/S.80-I FOR THE PURP OSE OF COMPUTING ADMISSIBLE DEDUCTIONS THEREUNDER. WE ALSO AGREE WIT H THE SAME. WE SEE NO REASON TO TAKE A DIFFERENT VIEW. 10. ON THE PERUSAL OF THE ABOVE WOULD INDICATE THAT DEPRECIATION ALREADY CLAIMED BY THE ASSESSEE AND SET OFF AGAINST THE REGULAR SOURCE OF INCOME CANNOT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE INCOME OF WINDMILL FOR THE CURRENT YEAR AFTER SELEC TION OF INITIAL YEAR FOR CLAIMING DEDUCTION U/S. 80IA(IV). IN OTHER WORDS, T HE ASSESSEE HAS BEEN GIVEN CHOICE OF 10 CONSECUTIVE YEARS OUT OF 15 YEAR S FOR CLAIMING DEDUCTION U/S.80IA(IV). ONCE ASSESSEE HAS SELECTED INITIAL YEAR THEN UNABSORBED DEPRECIATION AND LOSSES OF THAT YEAR AND SUBSEQUENT YEARS COULD BE CARRIED FORWARD FOR SET OFF AGAINST THE IN COME OF THOSE YEARS BEFORE COMPUTING THE DEDUCTION ADMISSIBLE U/S.80IA( IV). IN THE PRESENT ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 13 CASES, ASSESSING OFFICER HAS BROUGHT FORWARD THE DE PRECIATION OF A.Y. 2007-08, 2008-09 ETC, WHICH HAS ALREADY BEEN SET OF F AGAINST THE REGULAR INCOME. HE BROUGHT FORWARD SUCH DEPRECIATION ON NOT IONAL BASIS, WHICH IS CONTRARY TO THE PROPOSITION LAID DOWN BY THE HON BLE MADRAS HIGH COURT. THE LD. FIRST APPELLATE AUTHORITY HAS RIGHTL Y APPRECIATED THE CONTROVERSY AND RIGHTLY GRANTED THE DEDUCTION TO TH E ASSESSEE. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) H ENCE, THIS GROUND OF APPEAL IS REJECTED IN BOTH THE YEARS. 11. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMI SSED. ORDER PRONOUNCED IN THE COURT ON 6 TH JUNE 2018 AT AHMEDABAD. SD/- SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 06/06/2018 PRITI YADAV, SR.PS %& ' #()* +%* ( / COPY OF THE ORDER FORWARDED TO : 1. () / THE APPELLANT 2. *+ ) / THE RESPONDENT. 3. ,-.' /' / CONCERNED CIT 4. /' (() / THE CIT(A)-9, AHMEDABAD. 5. 234 *'-. , (# (-.' , / DR, ITAT, AHMEDABAD. 6. 45 6 / GUARD FILE. %& , / BY ORDER, -/ . (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD. TRUE COPY ITA NOS.1033 & 1034/AHD/2015 ITO VS. PARRY ENGINEERING AND ELECTRONICS PVT. LTD. A.YS. 2010-11 & 2011-12 - 14 1. DATE OF DICTATION 24/05/2018 (DICTATION-PAD 6 PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 25/05/2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 06/06/2018 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER