Suma Shilp Ltd., V. Joint Commissioner of Income-tax,

ITA 1036/PUN/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9352 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 17-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 32; 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . . . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO. 1036/PUN/2016 / ASSESSMENT YEAR : 2011-12 SUMA SHILP LIMITED, 93/5A, ERANDWANE, PUNE 411 004 PAN : AACCS4724N . / APPELLANT V/S J CIT, RANGE - 6 , PUNE . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI GAURAV BATHAM / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-4, NASHIK DATED 01-03-2016 FOR THE ASSESSMENT YEAR 20 11-12. 2. ASSESSEE RAISED COUPLE OF ISSUES IN THE GROUNDS OF APPEAL. GROUND NOS. 1.1 TO 1.4 DEALS WITH THE FIRST ISSUE RELATI NG TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S.80IA(4)(IV)(A) OF THE ACT AMOUNTING T O RS.91,40,903/- IN RESPECT OF WINDMILL UNITS. GROUND NO.2 RELATES TO THE 2 ND ISSUE OF CLAIM OF DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.66,35 ,717/- WHILE COMPUTING THE DEDUCTION ALLOWABLE U/S.80IA(4)(III) OF THE ACT . / DATE OF HEARING :13.06.2017 / DATE OF PRONOUNCEMENT: 16.06.2017 2 ITA NO.1036/PUN/2016 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS A PROMOTER, ENGAGED IN THE BUSINESS OF DEVELOPMENT OF RESIDENTI AL AND COMMERCIAL PROPERTIES. HE IS ALSO IN THE BUSINESS OF RUNNING WINDMILLS. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASS ESSEE INSTALLED TALL WINDMILLS IN DHULE, MAHARASHTRA RELEVANT TO THE ASS ESSMENT YEAR 2007-08. ASSESSEE INCURRED LOSSES FROM THE ASSESSMENT YEARS 2007-08 TO 2009-10 AND THE SAME WAS SET OFF AGAINST THE OTHER INCOME FROM THE OTHER INELIGIBLE UNITS. IN THE YEAR UNDER CONSIDERATION, ASSESSEE OPTED 201 0-11 AS THE INITIAL ASSESSMENT YEAR AND CLAIMED DEDUCTION ACCORDINGLY. 4. DURING THE ASSESSMENT PROCEEDINGS, AO CONSIDERED WINDMILL UNITS ON STANDALONE BASIS AND ALL THE BROUGHT FORWARD LOSSES FROM THESE UNITS SINCE A.Y.2007-08 WERE SET OFF AGAINST THE INCOME FROM TH E WINDMILLS IN THE YEAR UNDER CONSIDERATION AND THEREBY AO CAUSED LOSS TO T HE ASSESSEE TO THE EXTENT OF CLAIM OF DEDUCTION OF RS.91,40,903/-. TH E ASSESSEE RELIED HEAVILY ON THE ORDERS OF THE TRIBUNAL IN THE CASE OF POONAW ALLA ESTATES STUD & AGRO FARM PVT. LTD. VS. ACIT (136 TTJ 236) (PUNE) AND TH E JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING M ILLS PVT. LTD. VS. ACIT (231 CTR 368) AND OTHERS FOR THE LEGAL PROPOSITION THAT ASSESSEE IS ENTITLED TO OPT FOR INITIAL ASSESSMENT YEAR IN HIS DISCRETIO N AND THE LOSSES OF THE ELIGIBLE UNITS, IF ANY, ARE ALLOWED TO BE SET OFF A GAINST THE OTHER INCOME OF THE INELIGIBLE UNITS OF THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80IB(4)(IV)(A) OF THE ACT. HE ACCORDINGLY MADE ADD ITION OF THE SAID AMOUNT. FURTHER, WHILE RECOMPUTING THE DEDUCTION, AO ALSO A LTERED THE CLAIM OF DEDUCTION U/S.80IB(4) QUA THE CLAIM OF DEPRECIATION U/S.32 OF THE ACT. 5. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE MADE VARIOUS SUBMISSIONS IN WRITING AND RELIED HEAVILY IN THE CA SE OF POONAWALLA ESTATES STUD & AGRO FARM PVT. LTD. VS. ACIT AND THE JUDGMEN T OF MADRAS HIGH COURT 3 ITA NO.1036/PUN/2016 IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. L TD. VS. ACIT (SUPRA). FURTHER, ASSESSEE ALSO RELIED HEAVILY ON THE CBDT C IRCULAR NO.01/2016 DATED 15-02-2016 IN SUPPORT OF THE ASSESSEES CLAIM OF IN ITIAL ASSESSMENT YEAR AND THE MANNER OF COMPUTATION OF LOSSES OF THE ELIGIBLE UNITS AGAINST THE OTHER INCOME EARNED FROM THE INELIGIBLE UNITS OF THE ASSE SSEE. CIT(A) DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE. REGARD ING THE FIRST ISSUE CONTENTS OF PARA NO.4.1 IS RELEVANT. ON THIS ISSUE , CIT(A) OPINED THAT THE SAID DECISION OF THE PUNE BENCH OF THE TRIBUNAL AND THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT CITED (SUPRA) IS ON THE I NITIAL ASSESSMENT YEAR AND NOT RELATING TO THE ISSUE OF SET OFF OF LOSSES. CI T(A) HAS GIVEN THE FOLLOWING REASONING WHILE DECIDING THE FIRST ISSUE. FOR THE SAKE OF COMPLETENESS RELEVANT LINES ARE EXTRACTED AS UNDER : 4.1 . . . . . . . . . . . . IN THE PRESENT CASE TH E BUSINESS INCOME OPERATIONAL IN AY 2007-08 AND DEDUCTION WAS CLAIMED FROM AY 2010- 11. IN CASE OF POONAWALLA ESTATES STUD & AGRO FARM PVT. LTD. VS. A CIT (SUPRA) IN PUNE ITAT, THE APPEAL IS REGARDING THE INITIAL ASSESSMEN T YEAR. AS PER THE CURRENT CASE, THE QUESTION IS FOR SET OFF OF LOSSES U/S.80I A(4)(IV)(A) AND NOT THE INITIAL ASSESSMENT YEAR. THE INITIAL ASSESSMENT YEAR HAS B EEN TAKEN AS AY 2010-11 WHICH HAS BEEN ACCEPTED BY THE ASSESSEE AS WELL AS THE AO. HENCE, THE ABOVE CASE LAW IS NOT RELEVANT FOR THE CURRENT CASE (EMPHASIS PLACED BY ME). AS PER SECTION 80IA(2), THE ASSESSEE HAS THE OPTION TO CLAIM THE DEDUCTION FOR 10 CONSECUTIVE YEARS OUT OF 15 YEARS BEGINNING FROM THE YEAR OF GENERATION OF POWER. ONCE THE INITIAL ASSESSMENT Y EAR OF CLAIMING THE DEDUCTION IS DECIDED BY THE ASSESSEE, HE HAS TO CLA IM THE DEDUCTION FOR THE NEXT 9 YEARS. THE CIRCULAR NO.1/2016 (SUPRA) ISSUE D BY THE CBDT CLARIFIES THE MEANING OF INITIAL ASSESSMENT YEAR AS GIVEN IN SECTION 80IA(5) TO MEAN THE YEAR OF FIRST CLAIMING DEDUCTION AND NOT THE YE AR OF COMMENCEMENT OF ELIGIBLE BUSINESS. IN THIS REGARD, I FIND THAT, AO HAS RIGHTLY TAKEN THE INITIAL ASSESSMENT YEAR IN ACCORDANCE WITH THE CBDT CIRCULA R NO.1/2016 (SUPRA) AND I FIND NO DISPUTE ON THIS ISSUE. 6. AGGRIEVED WITH THE ABOVE FINDINGS OF THE CIT(A) BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ABOVE F INDINGS/OBSERVATIONS OF THE CIT(A) ARE COMPLETELY ERRONEOUS BOTH ON FACTS A ND ON LAW. IN THE CASE OF M/S. POONAWALLA ESTATES STUD & AGRO FARM PVT. LT D. (SUPRA), THE APPEAL DEALS WITH THE MANNER OF COMPUTATION OF LOSSES, AN D ALSO THE OPTION OF THE ASSESSEE IN MATTERS RELATING TO INITIAL ASSESSMENT YEAR. CIT(A) ERRED IN 4 ITA NO.1036/PUN/2016 MENTIONING THAT THE AO AGREED 2010-11 AS THE INITI AL ASSESSMENT YEAR WHICH IS NOT BORNE ON THE FACTS. IN THE CURRENT CA SE, AO IS OF THE OPINION THAT 2007-08 IS THE INITIAL ASSESSMENT YEAR AND THE REBY THE OPTION OF THE ASSESSEE IN CHOSING THE INITIAL ASSESSMENT WAS DENI ED COMPLETELY. FIRST APPELLATE AUTHORITY DID NOT APPRECIATE THE FACT THA T THE CLAIM OF LOSSES/BROUGHT FORWARD LOSSES AGAINST THE OTHER INC OME OF THE INELIGIBLE UNITS OF THE ASSESSEE WHICH IS INTRINSICALLY LINKED THAT LEADS THE ASSESSEE TO CHOSE LATER ASSESSMENT YEAR AS THE INITIAL ASSESSMENT YEA R,. THEREFORE, THE CIT(A) DID NOT APPRECIATE THE ABOVE FACT BEFORE NOT APPLYI NG THE CIRCULAR OF CBDT CITED (SUPRA) TO THE FACTS OF THE PRESENT CASE AND APPROVING THE FINDINGS OF THE AO EVENTUALLY. 7. BRINGING OUR ATTENTION TO THE SAID ORDER OF THE PUNE BENCH OF THE TRIBUNAL, WHERE ONE OF US IS A PARTY (ACCOUNTANT ME MBER), THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS OF THE SA ID CASE ARE IDENTICAL WHERE LOSSES WERE SET OFF AGAINST THE OTHER INCOME OF THE INELIGIBLE UNITS OF THE ASSESSEE SELECTING LATER YEARS AS INITIAL ASSESSMEN T YEARS AND THE SAID OF THE CLAIM OF THE ASSESSEE WAS APPROVED BY THE TRIBUNAL IN THE APPEAL BEFORE THE TRIBUNAL. 8. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE FOR THE REVENUE, ON THIS ISSUE HEAVILY RELIED ON THE ORDERS OF THE A O AND THE CIT(A) AND SUBMITTED FOR CONFIRMING THE SAME. 9. WE HEARD BOTH THE SIDES ON THIS ISSUE AND PERUSE D THE ORDERS OF THE REVENUE AND THE CITED DECISIONS BEFORE US. ON PERU SAL OF THE SAID ORDER OF THE PUNE BENCH OF THE TRIBUNAL, WE FIND THE DECISIO N OF THE TRIBUNAL IS RELEVANT FOR THE FOLLOWING PROPOSITION : 5 ITA NO.1036/PUN/2016 ASSESSEE HAVING CHOSEN A.Y. 2004-05 AS THE INITIAL ASSESSMENT YEAR AND PAID TAXES ON THE PROFITS OF ITS WINDMILL ACTIVITY IN THE EARLIER YEARS AS PER THE STATUTE, THE YEAR IN WHICH THE ASSESSEE STARTED GEN ERATING ELECTRICITY (A.Y. 2002-02) CANNOT BE TREATED AS THE INITIAL ASSESSMEN T YEAR FOR THE PURPOSES OF SEC. 80IA(2) R.W.S. 80IA(5); INITIAL ASSESSMENT YEAR FOR THE ABOVE PURPOSES IS THE FIRST YEAR IN WHICH THE ASSESSEE CL AIMED DEDUCTION U/S.80IA(1) AFTER EXERCISING THE OPTION AS PER THE PROVISIONS OF SEC. 80IA(2). 10. THE ABOVE VIEW OF THE TRIBUNAL WAS APPROVED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING M ILLS PVT. LTD. VS. ACIT (SUPRA). THEREFORE, THE CIT(A) HAS NOT PROPERLY AP PRECIATED THE SAID DECISION (SUPRA). IN THE REMAND PROCEEDINGS, CIT(A ) IS DIRECTED TO CONSIDER THE EXISTING LEGAL POSITION ON THE ISSUE UNDER CONS IDERATION AND ALLOW THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. ASSE SSEE SHALL BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. IN THE PROCESS, WE FIND THERE IS NO REASON FOR DISALLOWING THE CLAIM OF THE ASSESSEE AND THE L OSSES OF THE EARLIER ASSESSMENT YEARS PRIOR TO A.Y. 2010-11 ARE ELIGIBLE FOR SET OFF AGAINST THE PROFITS OF THE OTHER INCOME OF THE INELIGIBLE UNITS OF THE EARLIER YEARS. AO HAS GROSSLY ERRED IN DISALLOWING THE SAID SET OFF OF TH E SAID BROUGHT FORWARD LOSSES AGAINST THE INCOME EARNED FROM THE WINDMILLS OF THE ELIGIBLE UNITS IN THE CURRENT YEAR UNDER CONSIDERATION. ACCORDINGLY, GROUND NOS. 1.1 TO 1.4 RAISED BY THE ASSESSEE ARE ALLOWED, IN PRINCIPLE, S UBJECT TO THE ABOVE CONDITIONS. 11. REGARDING THE ISSUE RAISED IN GROUND NO.2 THE L IMITED ISSUE FOR ADJUDICATION BEFORE US RELATES TO WHETHER THE AUTHO RITIES ARE JUSTIFIED IN REDUCING THE DEPRECIATION CLAIMED OUT OF THE DEDUCT ION QUANTIFIED OR THE DEDUCTION U/S.32 IS REQUIRED TO BE CONSIDERED WHILE DETERMINING THE TOTAL INCOME OF THE ASSESSEE, I.E. PRIOR TO THE COMPUTATI ON OF DEDUCTION UNDER CHAPTER VIA OF THE ACT. 6 ITA NO.1036/PUN/2016 12. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE BR OUGHT OUR ATTENTION TO THE CONTENTS OF PARA NOS. 5 TO 7 AND SUBMITTED THAT THE CIT(A) ERRED IN FOLLOWING THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF PLASTIBLENDS INDIA LIMITED VS. ACIT WITHOUT APPRECIATING THE FAC TS. THE ISSUE UNDER CONSIDERATION IS ENTIRELY DIFFERENT AND IT RELATED TO THE METHOD OF ALLOWING CLAIM OF DEPRECIATION WHILE COMPUTING THE TOTAL INC OME OF THE ASSESSEE. 13. AFTER HEARING BOTH THE SIDES, WE FIND PARA NO.7 OF CIT(A) IS RELEVANT. FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT RELEVANT LINES OF THE SAID PARA (PAGE 14) AND THE SAME READS AS UNDER : 7. . . . . . . . . . . . . . . . . . . . . . . . THUS FOR THE PURPOSE OF DEDUCTIONS UNDER CHAPTER VI -A, THE GROSS TOTAL INCOME HAS TO BE COMPUTED BY CLAIMING DEDUCTION ALL OWABLE UNDER SECTIONS 30 TO 43D OF THE ACT AND THE ASSESSEE CANNOT CLAIM A DOUBLE ADVANTAGE, I.E. IN THE SUBSEQUENT YEARS FOR CLAIMING DEDUCTION U/S. 80IA(4)(III), THE ASSESSEE SHOULD CLAIM DEDUCTION AFTER REDUCING DEPRECIATION IRRESPECTIVE OF THE AMOUNT CLAIMED AS THE TOTAL INCOME. HENCE, IN VIEW OF THE FOREGOING DISCUSSION, AND IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PLASTIBLENDS INDIA LIMITED (SUPRA), THE APPELLANTS CLAIM OF DEDUCTION U/S.80IA(4)(III) WILL BE RESTRICTED TO TH E EXTENT OF RS.1,24,01,288/-. HENCE, THE ORDER OF THE AO RESTRICTING THE CLAIM OF THE APPELLANT U/S.80IA(4)(III) OF THE ACT TO RS.1,24,01,288/- IS UPHELD. THE AO IS, THEREFORE, DIRECTED TO RESTRICT THE CLAIM OF DEDUCT ION U/S.80IA(4)(III) OF THE ACT OF THE EXTENT OF RS.1,24,01,288/-. 14. FROM THE ABOVE, IT IS EVIDENT THAT THE ISSUE CO NSIDERED BY THE CIT(A) IS WHETHER THE ASSESSEE IS JUSTIFIED IN NOT MAKING A CLAIM U/S.32 OF THE ACT WHILE QUANTIFYING THE ALLOWABLE DEDUCTION U/S.80IA( 4) OF THE ACT. CONSIDERING THE FACT, THE AO HAS NO OBJECTION FOR T HRUSTING OF DEPRECIATION AND HOWEVER, THE ISSUE THAT IT TO BE ADJUDICATED IS WHETHER THE SAID DEPRECIATION SHOULD BE REDUCED FROM THE CLAIM OF DE DUCTION OR REDUCING WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE. ON CONSIDERING THE FACTS AND THE DISCUSSION GIVEN IN THE ORDERS OF THE REVEN UE, WE FIND THERE IS SOME CONFUSION WITH REGARD TO THE ISSUE ADJUDICATED BY T HE CIT(A). FURTHER, WE 7 ITA NO.1036/PUN/2016 FIND RELEVANT GROUND NO.2 IS THE RELEVANT ONE WHICH IS RAISED BY THE ASSESSEE BEFORE THE CIT(A) AND CONTRARY TO THE SAME, THE ADJ UDICATION OF THE CIT(A) IS ON DIFFERENT ISSUE AND NOT IN THE ISSUE OF ALLOWING DEPRECIATION WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE AND NOT WHILE COMPUTING DEDUCTION ALLOWABLE U/S.80IA(4)(III)(A) OF THE ACT. THE ISSUE, IN PRINCIPLE, SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE AS THE COMPUTING OF TOTAL INCOME IS DONE IN ACCORDANCE WITH THE PROVISIONS OF SECTIO NS 28 TO 44 WHICH INCLUDE SECTION 32 OF THE ACT. CIT(A) IS DIRECTED TO GRANT REASONABLE OPPORTUNITY TO THE ASSESSEE AND CONSIDER THE GROUND NO.2 RAISED BE FORE HIM IN PROPER PERSPECTIVE AND DECIDE THE ISSUE AFRESH IN ACCORDAN CE WITH LAW. ACCORDINGLY, GROUND NO. 2 IS ALLOWED SUBJECTION TO THE CONDITION DISCUSSED ABOVE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JUNE, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; DATED : 16 TH JUNE, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// /ASSISTANT REGISTRAR , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A) - 4, PUNE 4. CIT - 4, PUNE 5. DR, ITAT, B BENCH PUNE; 6. / GUARD FILE.