DCIT, Coimbatore V. M/s. VXL Systems, Coimbatore

ITA 1097/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5269 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.1097/MDS/2010 ASSESSMENT YEAR : 2007-08 THE DY. CIT CIRCLE III COIMBATORE VS M/S VXL SYSTEMS 59, SIDCO INDUSTRIAL ESTATE POST COIMBATORE 641 021 [PAN AACFV2118C ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.B.SEKARAN RESPONDENT BY : SHRI S.SRIDHAR O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEAR 2 007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) I, C OIMBATORE, DATED 27.4.2010. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FIRM FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 21.2.2008 WHICH WAS PROCESSED U/S 143(1). SUBSEQUE NTLY, IT WAS SELECTED FOR SCRUTINY. THE ASSESSEE, ENGAGED IN T HE MANUFACTURE OF ACCESSORIES FOR TEXTILE MACHINERIES, HAS CLAIMED DE DUCTION U/S 80IA AMOUNTING TO ` 1,26,71,254/- ON THE INCOME DERIVED FROM GENERATI ON ITA 1097/10 :- 2 -: AND SALE OF ELECTRICITY TO TAMILNADU AND KARNATAKA ELECTRICITY BOARDS FROM SEVEN WINDMILLS TREATED INDEPENDENTLY. THE AS SESSING OFFICER RECOMPUTED THE INCOME OF THE ELIGIBLE BUSINESS AFTE R DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEARS AND THUS DISALLOWED THE ASSESSEES CL AIM U/S 80IA TO THE TUNE OF ` 1,26,71,254/-. AGGRIEVED, THE ASSESSEE PREFERRED A PPEAL BEFORE THE LD. CIT(A), WHO HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE REASONS PUT FORTH BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. BEFORE THE JURISDICTIONAL HIGH COURT OF MADRAS IN ITS ORDER DATED 11.3.2010 IN TAX CASE(APP EAL) NOS.909 AND 940 OF 2009 IN THE CASE OF M/S VELAYUDH ASWAMY SPINNING MILLS(P) LTD & M/S SUDAN SPINNING MILLS(P) LTD VS ACIT, CIRCLE I, TIRUPUR, THE FOLLOWING QUESTION OF LAW INTER ALIA WAS RAISED AS UNDER: 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL IS RIGHT IN LAW IN SAYING THAT UNABSORBED DEPRECIATION OF EARLIER YEARS BEFORE THE FIRST YEAR OF CLAIM WHICH HAS ALREADY BEEN ABSORBED, COULD BE NOTIONALLY CARRIED FORWARD AND TAKEN INTO CONSIDERATION FOR COMPUTATION OF DEDUCTION UNDER SECTION 80LA?' TO THIS, THE HON'BLE HIGH COURT HAS DELIVERE D THAT : 'FROM READING THE ABOVE, IT IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR RELEVANT TO 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. ITA 1097/10 :- 3 -: 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 THE SET OFF I S TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNOT RE- WORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. ' 3. NOW THE REVENUE IS AGGRIEVED AND HAS RAISED THE FOL LOWING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME-TAX (APPEALS) IS AGAINST FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80LA. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT ASSESSMENT YEAR 2007-08 IS TH E FIRST INITIAL ASSESSMENT YEAR IN WHICH THE ASSESSEE HAD CLAIMED THE DEDUCTION UNDER SECTION 80LA AND THEREFORE THE UNABSORBED DEPRECIATION OF THE EARLIE R YEARS WHICH HAD ALREADY BEEN ABSORBED CANNOT BE NOTIONALLY CARRIED FORWARD AND TAKEN INTO CONSIDERATION FOR COMPUTING DEDUCTION U/S 80LA. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) SHOULD HAVE OBSERVED THAT AS PER THE PROVISIONS OF SECTION 80IA(2) THE ASSESSEE CANNOT OPT FOR DEDUCTION OF ANY TEN CONSECUTIVE YEARS OUT OF 15 YEARS TAKEN FROM THE FIRST YEAR IN WHICH THE UNDERTAKING OR ENTERPRISE DEVELOPS AND BEGINS TO OPERATE INFRASTRUCTURAL FACILITY. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT AS PER PROVISIONS OF ITA 1097/10 :- 4 -: SECTION 80IA(5) THE UNDERTAKING ELIGIBLE FOR DEDUCT ION U./S 80LA SHOULD BE TREATED AS ONLY SOURCE OF INCOM E FOR COMPUTING THE QUANTUM OF DEDUCTION. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S ) SHOULD HAVE OBSERVED THAT SINCE SUB-SECTION 5 OF SECTION 80LA STARTS WITH AN NON OBSTANTE CLAUSE, TH E RESTRICTION PUT IN SUB-SECTION (5) WILL PREVAIL AND DEDUCTION U/S 80IA HAS TO BE RESTRICTED ACCORDINGLY . 7. IT IS TO BE SUBMITTED THAT THE DECISION OF THE MADRAS BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN BREWERIE S AND DISTILLERIES LTD (114 TTJ 532) RELIED UPON BY T HE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) IN ADJUDICATING THE ABOVE ISSUE HAS NOT BECOME FINAL AND TAX CASE APPEAL HAS BEEN FILED BEFORE THE HON'BLE MADRAS HIGH COURT. 8. IT IS TO BE SUBMITTED THAT THE HON'BLE TRIBUNAL MAY ALTERNATIVELY CONSIDER WHETHER IN THE LIGHT OF THE DECISION OF THE MADRAS TRIBUNAL IN THE CASE OF M/S CHETTINAD CEMENT CORPORATION LTD IN ITA NO.I02B/MADS/2005 DATED 5.1.2007 THE ASSESSEE IS, BASICALLY, ELIGIBLE FOR DEDUCTION U/S 80LA AS THE WINDMILLS HAVE BEEN INSTALLED FOR MEETING THE IN- HOUSE REQUIREMENTS OF THE COMPANY. 9. FOR THESE AND OTHER G ROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING, THE ORDER OF THE CIT(APPEALS) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER RESTORED. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND T HAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE MADRAS HIGH COURT RE NDERED IN THE CASE OF M/S VELAYUDHASWAMY SPINNING MILLS(P) LTD & M/S S UDAN SPINNING MILLS(P) LTD VS ACIT, CIRCLE I, TIRUPUR, ORDER DATE D 11.3.2010 IN TAX CASE (APPEAL) NOS.909 AND 940 OF 2009. WE, THEREFO RE, HAVE NO CHOICE BUT TO FOLLOW THE SAME FOR THE SAKE OF CONSI STENCY. ACCORDINGLY, ITA 1097/10 :- 5 -: WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25.4. 2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 25 TH APRIL, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR