Hyderabad Chemical Products Pvt.Ltd., Hyd, Hyderabad V. ACIT, Circle-2(2), Hyd, Hyderabad

ITA 1033/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6465 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: A V RAGHURAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER A ND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1033/HYD/2015 : ASSESSMENT YEARS 2008- 09 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD (PAN - AAACH 5507 Q ) V/S ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 2(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.V.RAGHURAM RESPONDENT BY : SHRI B.KURMI NAIDU DR DATE OF HEARING 2.6.2016 DATE OF PRONOUNCEMENT 10.6.2016 O R D E R PER SMT. P.MADHAVI DEVI, JUDICIAL MEMBER : THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008-09. IN THIS APPEAL, ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN UPHOLDING THE ASSESSMENT ORDER DENYING DEDUCTION U NDER S.80IA OF THE ACT IN RESPECT OF ITS WINDMILL UNITS INSTALLED IN EARLIER YEARS AND ALSO IN HOLDING THAT THE PAST LOSSES HAVE TO BE NOTIONAL LY ADJUSTED EVEN WHEN THEY WERE ADJUSTED AGAINST OTHER INCOME IN EAR LIER YEARS. ASSESSEE HAS ALSO RAISED A GROUND, BEING GROUND OF APPEAL NO.6, AGAINST DISALLOWANCE OF WEIGHTED DEDUCTION MADE BY THE ASSESSING OFFICER UNDER S.35(2AA) OF THE ACT, EVEN THOUGH THE PAYMENTS WERE MADE FOR APPROVED RESEARCH INSTITUTION TO CARRY O N AN APPROVED RESEARCH ACTIVITY. AT THE TIME OF HEARING, THE LEA RNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND OF APPEAL NO.6 WITH REGARD TO DISALLOWANCE OF DEDUCTIO N CLAIMED UNDER S.35(2AA) OF THE ACT. ACCORDINGLY, THE GROUND OF AP PEAL NO6 IS REJECTED AS NOT PRESSED. ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 2 2. AS REGARDS OTHER GROUNDS, I.E. GROUNDS NO.1 TO 5, RELATING TO DEDUCTION UNDER S.80IA OF THE ACT, BRIEF FACTS A RE THAT THE ASSESSEE IS INTO THE BUSINESS OF GENERATION OF POWER THROUGH WINDMILLS AND ALSO MANUFACTURE OF PESTICIDES. IT FILED ITS RETURN OF INCOME ON 28.9.2008 FOR THE ASSESSMENT YEAR 2008-09 ADMITTING AN INCOME OF RS.15,60,711. DUR1ING THE ASSESSMENT PROCEEDINGS UNDER S.143(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE A CLAIM OF DEDUCTION UNDER S.80IA OF THE ACT FOR TH E THREE WIND MILL UNITS SET UP BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAS COMMISSIONED ITS FIRST WINDMILL UNIT ON 31.3.1999( PHASE I), THE SECOND UNIT IN MARCH, 2005(PHASE II) AND THE THIRD UNIT I N DECEMBER, 2006 (PHASE III) IN MAHARASHTRA. HE OBSERVED THAT THE A SSESSEE HAS CLAIMED THE DEDUCTION UNDER S.80IA OF THE ACT FOR A LL THE THREE UNITS DURING THE RELEVANT ASSESSMENT YEARS. ON VERIFICAT ION OF RECORDS, THE ASSESSING OFFICER NOTICED THAT THE UNITS 1 AND 2 AR E HAVING UNABSORBED LOSSES OF RS.22,88,972 AND RS.1,17,39,691 FROM ASSE SSMENT YEARS 2001-02 AND 2006-07 PERTAINING TO THE FIRST WINDMIL L UNIT AND SECOND WINDMILL UNIT RESPECTIVELY, AND THAT THE ASSESSEE H AS NOT SET OFF THESE LOSSES AGAINST THE PROFIT OF THE WINDMILLS FOR THE RELEVANT FINANCIAL YEARS BEFORE CLAIMING DEDUCTION UNDER S.80IA OF THE ACT, AS PRESCRIBED IN THE PROVISIONS OF S.80IA OF THE ACT. THUS, ACC ORDING TO HIM, THE MODE OF COMPUTATION MADE BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HE ALSO OBSERVED THAT S IMILAR ISSUE HAD ARISEN IN ASSESSEES OWN CASE IN EARLIER YEARS, WHE REIN THE DEDUCTION UNDER S.80IA WAS ALLOWED AFTER SET OFF OF THE EARLI ER YEARS UNABSORBED LOSSES. DULY FOLLOWING THE SAME AND ALSO THE SPECI AL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V/S. GOLD MINE SHA RES AND FINANCE (P) LTD. (302 ITR (AT) 208 (AHD)(SB)), HE DISALLOWED TH E CLAIM OF DEDUCTION UNDER S.80IA OF THE ACT. ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 3 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALSO FOLLOWED THE DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE FOR EARLIER YEARS AND CONFIRMED THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER . 4. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE FAI RLY ADMITTED THAT THE ISSUE HAS BEEN DECIDED AGAINST TH E ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R EARLIER YEARS, HE HAS DRAWN OUR ATTENTION TO THE CBDT CIRCULAR DATED 15.2.2016 ON S.80IA(5) AND SUBMITTED THAT IN VIEW OF THE SAID CI RCULAR OF THE BOARD, THE CLAIM OF THE ASSESSEE UNDER S.80IA NEEDS RECONS IDERATION. HE ALSO PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD . V/S. ACIT (340 ITR 477), WHEREIN IT HAS BEEN CLEARLY HELD THAT ON LY THE LOSES OF THE YEAR BEGINNING FROM THE INITIAL ASSESSMENT YEAR OPT ED TO BY THE ASSESSEE SHALL BE SET OFF AND NO LOSSES OF EARLIER YEARS WHICH ARE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE SHALL BE CONSIDERED FOR DISALLOWANCE UNDER S.80IA (5). 6. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO DRAW N OUR ATTENTION TO THE PROVISIONS OF S.80IA(5) AND SUBMIT TED THAT SINCE INCOME OF THE ELIGIBLE UNIT WAS TO BE COMPUTED ON A STAND ALONE BASIS ONLY FROM THE ASSESSMENT YEAR WHICH HAS BEEN OPTED TO BY THE ASSESSEE FOR CLAIMING DEDUCTION UNDER S.80IA FOR TH E FIRST TIME, THAT YEAR ALONE SHALL BE CONSIDERED AS THE INITIAL ASSES SMENT YEAR AND NOT THE YEAR OF COMMENCEMENT/OPERATION. HE SUBMITTED T HAT THE CBDT, VIDE CIRCULAR DATED 15.2.2016 HAS CLARIFIED THIS PO SITION, AND THEREFORE, ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER S.80IA AND THE NOTIONAL ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 4 BROUGHT FORWARD LOSSES OF THE EARLIER YEARS MAY NO T BE SET OFF AGAINST THE INCOME OF THE ELIGIBLE UNIT FOR THE RELEVANT F INANCIAL YEAR, WHILE COMPUTING THE DEDUCTION UNDER S.80IA. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE CONTRARY, SUPPORTED THE ORDERS OF THE CIT(A), RELYI NG ON THE DECISIONS OF THE TRIBUNAL ON THIS ISSUE IN ASSESSEES OWN CAS E FOR EARLIER YEARS. 8. HAVING REGARD TO THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND IT NECESSARY TO REPRODUCE THE RELEV ANT PROVISION OF THE ACT FOR PROPER APPRECIATION AND UNDERSTANDING OF TH E PROVISION OF LAW. DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM IN DUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT, ETC. 80-IA.(1) TO (4) . (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION 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 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 S UCH 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 INCLUDING THE ASSESSMENT YEAR FOR WH ICH THE DETERMINATION IS TO BE MADE. (6) FROM A LITERAL READING OF THE ABOVE PROVISION, IT I S SEEN THAT THE PROFITS AND GAINS FROM THE BUSINESS OF THE ASSESSEE SHALL B E COMPUTED ON A STAND ALONE BASIS FROM THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR. THE INITIAL ASSESSMENT YEAR HAS BE EN UNDERSTOOD BY THE ASSESSING OFFICER TO BE THE YEAR OF COMMENCEMEN T OF OPERATION OF ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 5 THE UNIT BY THE ASSESSEE, WHEREAS THE CBDT VIDE CIR CULAR DATED 15.2.2016 HAS CLARIFIED THE MATTER AS UNDER- SUBJECT: CLARIFICATION OF THE TERM INITIAL ASSESS MENT YEAR IN SECTION, 80IA (5) OF THE INCOME-TAX ACT, 1961 SECTION 801A OF THE INCOME-TAX ACT, I961 (ACT}, A S SUBSTITUTED BY THE FINANCE ACT, 1999 WITH EFFECT FROM 01.04.2000, PROVIDES FOR DEDUCTION OF AN AMOUNT EQUAL TO 100 % OF THE PROFIT S AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISE FROM AN ELI GIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECTION (2) OF SECTION 801A FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN B E CLAIMED BY THE ASSESSEE, AT HIS OPTION, FOR ANY TEN CONSECUTIV E ASSESSMENT YEARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING CO MMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS PROVIDING S ERVICES ETC. AS STIPULATED THEREIN. SUB-SECTION (5) OF SECTION 801A FURTHER PROVIDES AS UNDER NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSI NESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INIT IAL 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 REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASS ESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH T HE DETERMINATION IS TO BE MADE. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE H AS BEEN MADE TO THE TERM INITIAL ASSESSMENT YEAR. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERPRETING THE T ERM INITIAL ASSESSMENT YEAR AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/ MANUFACTURING ACTIVITY HAD COMMENCED AND ARE CONSID ERING 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 DE DUCTION OUT OF THE APPLICABLE SLAB OF FIFTEEN (OR TWENTY) YEARS. THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS AB UNDANTLY CLEAR FROM SUB-SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUCTION U/S MA HAS THE OPTION TO CHOOSE THE INITIA L/ FIRST YEAR ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 6 FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS, OUT OF A SLAB OF FIFTEEN ( OR TW ENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLA RIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 801A FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPEC T OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMEN T 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 801A. HOWEVER, THE TOTAL NUMBER OF YEA RS FOR CLAIMING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCR IBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. THE ASSESSING OFFICERS ARE, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S 801A IN ACCORDANCE WITH THIS CLARIFICATION AND A FTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLIC ABLE IN A PARTICULAR CASE ARE DULY SATISFIED. PENDING LITIGAT ION ON ALLOWABILITY OF DEDUCTION U/S 80 IA SHALL ALSO NOT B E PURSUED TO THE EXTENT IT RELATES TO INTERPRETING INITIAL ASSE SSMENT YEAR AS MENTIONED IN SUB-SECTION (5) OF THAT SECTION FOR WH ICH THE STANDING COUNSELS/DRS BE SUITABLY INSTRUCTED. FROM A READING OF THE ABOVE CIRCULAR, IT IS CLEAR THAT THE ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUCTION UNDER S.80IA HAS BEE N GIVEN AN OPTION TO CHOOSE INITIAL/FIRST YEAR FROM WHICH IT MAY DESIRE TO CLAIM THE DEDUCTION FOR TEN CONSECUTIVE YEARS OUT OF THE SLAB OF 15 OR 20 YEARS AS PRESCRIBED UNDER THE ABOVE SUB-SECTION. THE TERM I NITIAL ASSESSMENT YEAR HAS BEEN HELD TO MEAN THE FIRST YEAR OPTED TO BY THE ASSESSEE FOR CLAIMING DEDUCTION UNDER S.80IA OF THE ACT. THUS, I T IS CLEAR THAT THE INITIAL ASSESSMENT YEAR IS NOT THE YEAR OF OPERATIO N OR COMMENCEMENT OF BUSINESS, AS INTERPRETED BY THE ASSESSING OFFICE R, BUT IT IS THE FIRST YEAR IN WHICH THE ASSESSEE HAS OPTED TO CLAIM THE D EDUCTION UNDER S.80IA. IN VIEW OF THIS CLARIFICATION OF THE BOARD, WHICH CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE, AND IS BINDING ON THE REVENUE AUTHORITIES, WE ACCEPT THE CONTENTIONS OF THE ASSES SEE IN THIS BEHALF, AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE, AFTER VERIFYING THE RECORDS AS TO THE INITIAL ASSES SMENT YEAR IN WHICH THE ASSESSEE FOR THE FIRST TIME HAS CLAIMED THE DED UCTION UNDER S.80IA ITA NO1033/HYD/2015 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD 7 OF THE ACT, AND CONSIDER THE INCOME OF THE ASSESSEE FROM THE ELIGIBLE UNIT FROM THAT YEAR ALONE ON A STAND ALONE BASIS. ASSESSEES GROUNDS ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2016 SD/- SD/- (S.RIFAUR RAHMAN) (P.MADHAVI DEVI) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 10 TH JUNE, 2016 COPY FORWARDED TO: 1. M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., C/O. RA JU &PRASAD, CHARTERED ACCOUNTANTS, 401, DIAMOND HOUSE, ADJ. AMR UTHA HILLS, PANJAGUTTA, HYDERABAD 500 082. 2. ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 2(2) HYDERABAD 3. 4. COMMISSIONER OF INCOME-TAX(APPEALS) II, HYDERABAD PR. COMMISSIONER OF INCOME-TAX II, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.