M/s Shilpa Medicare Ltd., Raichur V. Addl.C.I.T., Raichur

ITA 1352/BANG/2015

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6539 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-01-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S ANNAMALAI
• Assessee Lawyers: PRADEEP KUMAR ITAT BENGALURU
• Keywords: Invalid notice; Business income; Depreciation; Transfer pricing; International transaction; Question of law; Notional interest; Capital receipt; Commercial expediency; Revised return; Unabsorbed depreciation; Set aside
• Section: 10B; 80IA; 201; 251; 143(2); 139(1); 48; 13; 22; 11; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO S . 1373 & 1374/BANG/2015 ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, RAICHUR. VS. SHILPA MEDICARE LTD., 10/80, 1 ST FLOOR, RAJENDRA GUNG, RAICHUR 584 102. PAN: AADCS 8788F APPELLANT RESPONDENT IT A NO S . 1351 & 1352/BANG/2015 ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 SHILPA MEDICARE LTD., RAICHUR 584 102. PAN: AADCS 8788F VS. THE ADDL. COMMISSIONER OF INCOME TAX, CIRCLE 1, RAICHUR. APPELLANT RESPONDENT REVENUE BY : SHRI PRADEEP KUMAR, CIT(DR) (ITAT), BENGALURU. RESPONDENT BY : SHRI S. ANNAMALAI, ADVOCATE DATE OF HEARI NG : 20 .01.2020 DATE OF PRONOUNCEMENT : 06 .0 2 .2020 ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 2 OF 26 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT ITA NOS. 1351 & 1373/BANG/2015 BOTH THESE ARE CROSS APPEALS BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS DATED 9.9.2015 OF THE C IT(APPEALS), KALABURGI RELATING TO ASSESSMENT YEAR 2010-11. ITA NO.1351/B/15 (AY 2010-11) ASSESSEES APPEAL 2. GROUND NO.1 IS GENERAL IN NATURE AND CALLS FOR N O SPECIFIC ADJUDICATION. 3. GROUND NOS.2 & 3 RAISED BY ASSESSEE READS AS FOL LOWS:- 2. THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIE D IN LAW IN PASSING THE ASSESSMENT ORDER WITHOUT ISSUING THE MA NDATORY NOTICE UNDER SECTION 143(2) OF THE ACT ON THE SECON D REVISED RETURN OF INCOME FILED BY THE APPELLANT ON THE FACT S AND CIRCUMSTANCES OF THE CASE. 3. THE ASSESSMENT ORDER PASSED BY THE LEARNED ASSES SING OFFICER ON THE INVALID NOTICE ISSUED UNDER SECTION 143(2) ON THE ORIGINAL RETURN FILED BY THE APPELLANT IS BAD IN LA W, CONSEQUENTLY THE ORDER PASSED ON THE INVALID NOTICE IS LIABLE TO BE SET ASIDE ON THE FACTS AND CIRCUMSTANCE OF THE CASE. 4. AS FAR AS THE AFORESAID GROUNDS ARE CONCERNED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F BULK DRUG MANUFACTURING AND INTERMEDIARY PRODUCTS BESIDES OPE RATING WINDMILLS. FOR AY 2010-11, THE ASSESSEE FILED RETURN OF INCOME ON 28.9.2010 DISCLOSING A TOTAL INCOME OF RS.54,96,04,630. THE FIRST REVISED RETURN WAS FILED ON 10.1.2012 AND THE SECOND REVISED RETURN FILED ON 28 .2.2012. THE AO ISSUED NOTICE U/S. 143(2) OF THE INCOME-TAX ACT, 19 61 [THE ACT] DATED 26.8.2011 WHICH WAS DULY SERVED ON ASSESSEE ON 3.9. 2011. THIS NOTICE ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 3 OF 26 U/S. 143(2) OF THE ACT WAS SERVED WITHIN TIME CONTE MPLATED U/S. 143(2) OF THE ACT AND THERE IS NO DISPUTE ON THIS ASPECT. TH E GRIEVANCE PROJECTED BY THE ASSESSEE IN GROUNDS 2 & 3 BEFORE THE TRIBUNAL I S THAT SINCE THE ASSESSEE HAD FILED A SECOND REVISED RETURN ON 28.2. 2012, THE AO OUGHT TO HAVE ISSUED A NOTICE U/S. 143(2) OF THE ACT ON THIS REVISED RETURN OF INCOME AND FAILURE TO DO SO RENDERS THE ORDER OF ASSESSMEN T INVALID. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF ITAT BANGALORE BENCH IN THE CASE OF DCIT V. IDEB BUILDCON P. LTD., ITA NO.317/BANG/2013 FOR THE AY 2009-10 , ORDER DATED 18.7.2014. IN THE AFORESAID DECISION, THE AO DID NOT TAKE COGNIZANCE OF RETURN OF INCOME AND PROCEEDED TO FRAME ASSESSMENT ON THE BASIS OF ORIGI NAL RETURN. THE TRIBUNAL HELD THAT SINCE THE REVISED RETURN WAS FIL ED WITHIN TIME, THE AO OUGHT NOT TO HAVE FRAMED THE ASSESSMENT WITH REFERE NCE TO ORIGINAL RETURN OF INCOME. THIS ORDER OF TRIBUNAL WAS TAKEN IN APP EAL BY THE REVENUE TO THE HIGH COURT IN ITA NO.507/2014, BUT THE HONBLE KARNATAKA HIGH COURT VIDE ORDER DATED 2.2.2016 DISMISSED THE APPEAL AT T HE ADMISSION STAGE. THE LD. COUNSEL FOR THE ASSESSEE PLACING RELIANCE O N THE AFORESAID DECISION SUBMITTED THAT THE 2 ND REVISED RETURN WAS FILED ON 28.2.2012 AND THAT RET URN WAS TAKEN COGNIZANCE BY THE AO AS TOTAL INCOME WAS COMPUTED WITH THE STARTING POINT OF COMPUTATION BEING INCOME RETURNED AS PER THE 2 ND REVISED RETURN. ACCORDING TO HIM, THEREFORE, THE RATIO LAI D DOWN IN THE AFORESAID DECISION SHOULD BE APPLIED AND IT SHOULD BE HELD TH AT THE ORDER OF ASSESSMENT IS NULL AND VOID. 5. WE HAVE CONSIDERED THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE AND WE FIND THAT IN THE PRESENT CASE, THE AO ASSUME D JURISDICTION ON THE BASIS OF ORIGINAL RETURN OF INCOME FILED BY THE ASS ESSEE BY ISSUING A NOTICE U/S. 143(2) OF THE ACT DATED 26.8.2011 WHICH WAS SE RVED ON ASSESSEE ON 3.9.2011. THIS NOTICE HAVING BEEN ISSUED AND SERVE D WITHIN THE PERIOD CONTEMPLATED BY THE PROVISIONS OF SECTION 143(2) OF THE ACT, THE AO HAS ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 4 OF 26 ASSUMED VALID JURISDICTION. THE FACT THAT THE ASSE SSEE SUBSEQUENTLY ON 28.2.2012 FILED A REVISED RETURN IS NOT OF ANY SIGN IFICANCE. THE AO WAS ALREADY SEIZED OF THE ASSESSMENT PROCEEDINGS. IN T HIS CASE, REVISED RETURN WAS TAKEN COGNIZANCE BY THE AO, WHEREAS THE DECISIO N OF THE BANGALORE BENCH OF TRIBUNAL IN IDEB BUILDCON P. LTD. (SUPRA), THE REVISED RETURN WAS NOT TAKEN COGNIZANCE AND THEREFORE THE DECISION CIT ED BY THE LD. COUNSEL FOR THE ASSESSEE IS CLEARLY DISTINGUISHABLE. IN OUR OP INION, THE AO HAS ASSUMED VALID JURISDICTION IN THIS CASE BY ISSUE OF PROPER NOTICE U/S. 143(2) OF THE ACT WITHIN THE TIME CONTEMPLATED BY LAW. TH E ORIGINAL RETURN U/S. 139(1) OF THE ACT HAS NOT BEEN TREATED AS NON EST AND THE REVISED RETURN IS ONLY FOR THE PURPOSE OF CERTAIN ERRORS AND MISTAKES IN THE ORIGINAL RETURN. IN SUCH CIRCUMSTANCES, THERE IS NO REQUIREMENT OF LAW TO ISSUE A NOTICE U/S. 143(2) OF THE ACT WITH REFERENCE TO REVISED RETURN. WE DERIVE SUPPORT FOR THE AFORESAID CONCLUSIONS FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF VINOD KUMAR KHATRI V. DCIT [2016] 129 DTR 377 (DEL) . WE ARE THEREFORE OF THE VIEW THAT THERE IS NO MERIT IN GROUNDS NO.1 & 2 RAISED BY THE ASSESSEE AND ACCORDINGLY THE SAID GROUNDS AR E DISMISSED. 6. GROUND NOS.4 & 5 IS WITH REGARD TO THE ACTION OF THE REVENUE AUTHORITIES IN NOT TREATING THE SUBSIDY GRANT FROM THE STATE GOVT. AS A AS CAPITAL RECEIPT AND CONSEQUENTLY NOT IN THE NATURE OF INCOME. THE ADMITTED FACTUAL POSITION AS IT EMANATES FROM THE ORDER OF A O AND THE CIT(APPEALS) IS THAT THE ASSESSEE DID NOT FILE A COPY OF THE SCH EME UNDER WHICH SUBSIDY WAS RECEIVED BY ASSESSEE. IN THE ABSENCE OF DETAIL S OF THE SCHEME, IT IS NOT POSSIBLE TO DECIDE THE QUESTION, WHETHER THE SU BSIDY IS CAPITAL OR REVENUE IN NATURE. SINCE THE BURDEN WAS ON THE ASS ESSEE TO SHOW THAT THE SUBSIDY RECEIVED WAS CAPITAL RECEIPT NOT CHARGEABLE TO TAX AND SINCE THE ASSESSEE FAILED TO DO SO, WE UPHOLD THE ORDER OF CI T(APPEALS) ON THIS ISSUE AND DISMISS GROUNDS 4 & 5. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 5 OF 26 7. GROUNDS 6 TO 10 RAISED BY ASSESSEE ARE WITH REGA RD TO REJECTION OF THE CLAIM OF ASSESSEE FOR GRANT OF WEIGHTED DEDUCTI ON U/S. 35(2AB) OF THE ACT. THE ADMITTED POSITION U/S. 35(2AB) OF THE ACT IS THAT APPROVAL OF PRESCRIBED AUTHORITY ON THE SCIENTIFIC RESEARCH ON IN HOUSE R&D FACILITY IS REQUIRED TO BE OBTAINED. IT IS ALSO THE ADMITTED P OSITION THAT THE ASSESSEE OBTAINED THE APPROVAL FROM THE PRESCRIBED AUTHORITY W.E.F. 1.4.2011. THE ASSESSEE HAD MADE APPLICATION TO THE PRESCRIBED AUT HORITY FOR GRANT OF APPROVAL ON 12.5.2011 AND THE DATE OF APPROVAL OF T HE SCIENTIFIC RESEARCH BY THE PRESCRIBED AUTHORITY WAS 7.12.2011. IT WAS THE CASE OF AO THAT SINCE IN THE PREVIOUS YEAR RELEVANT TO AY 2010-11, THE ASSES SEE HAD NOT EVEN MADE APPLICATION FOR GRANT OF APPROVAL TO THE PRESC RIBED AUTHORITY AND SINCE THE APPROVAL OF THE PRESCRIBED AUTHORITY IS ONLY W. E.F. 1.4.2011, THE DEDUCTION CANNOT BE ALLOWED FOR AY 2010-11. THE AS SESSEE, HOWEVER, HAD PLACED RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFESCIENCES LTD. [326 ITR 251 (GUJ)] WHEREIN THE HONBLE HIGH COURT HELD THAT THE PROVISIONS OF SECTION 35(2AB) NOWHERE SUGGESTS OR IMPLIES THAT THE R&D FACILITY IS TO BE APPROVED FROM A PART ICULAR DATE OR THAT THE DATE OF APPROVAL ONLY WILL BE THE CUT-OFF DATE FOR ALLOWABILITY OF WEIGHTED DEDUCTION. THE CIT(APPEALS) ON THIS ASPECT HELD A S FOLLOWS:- THE CONTENTS OF THE ASSESSMENT ORDER AND THE SUBM ISSIONS OF THE ASSESSEE ARE PERUSED AND CONSIDERED. THE HON'BL E HIGH COURT OF GUJARAT HAS APPROVED IN-PRINCIPLE THAT CUT-OFF D ATE FOR CLAIMING DEDUCTION UNDER SECTION 35(2AB) IS NOT THE DATE OF APPROVAL BY THE GOVERNMENT. IN THE INSTANT CASE, THE APPROVAL H AS BEEN RECEIVED DURING THE FY 2011-12, WHICH IS AFTER 2 YE ARS OF THE CURRENT AY. THE ASSESSEE IS INTO THE BUSINESS OF MA NUFACTURING OF BULK DRUGS AND INTERMEDIARIES, WHICH GO INTO PRO DUCTION OF PHARMACEUTICAL PRODUCTS. IN THIS KIND OF INDUSTRY, RESEARCH AND DEVELOPMENT IS PART AND PARCEL OF THE PRODUCTION AN D WITHOUT WHICH SURVIVAL BECOMES DIFFICULT. THE APPELLANT'S E LIGIBILITY TO CLAIM THE DEDUCTION IS ALSO NOT IN DISPUTE, HOWEVER , WHAT IS UNACCEPTABLE IS THAT THE ASSESSEE HAS CLAIMED THE D EDUCTION IN ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 6 OF 26 RESPECT OF THE CURRENT AY. WITHOUT RECEIVING APPROV AL DURING THE YEAR. AS DISCUSSED ELSEWHERE, APPROVAL HAS BEEN REC EIVED BY THE ASSESSEE-COMPANY DURING THE PERIOD RELEVANT TO SUBS EQUENT AY 2012-13. OF COURSE, A DEDUCTION IS ALLOWED IN ASSES SMENT IN AY 2012-13. THE DECISION IN THE CASE OF CLARIS LIFE SC IENCES, IS DISTINGUISHABLE FOR THE REASON THAT APPROVAL IN THA T CASE WAS RECEIVED DURING THE YEAR ITSELF. WHEREAS IN THE CAS E ON HAND, AS SAID ABOVE, THE APPROVAL IS RECEIVED NOT DURING THE CURRENT YEAR. IN THE CIRCUMSTANCES, I TAKE THE VIEW THAT THE APPE LLANT IS NOT ELIGIBLE TO TAKE A DEDUCTION IN THE CURRENT AY. ACC ORDINGLY. I UPHOLD THE STAND OF THE AO IN DISALLOWING THE DEDUC TION. 8. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL FOR THE ASSESSEE APART FROM RELY ING ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFE SCIENCE (SUPRA) FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. SANDAN VIKAS (INDIA) PVT. LTD., 335 ITR 117 (DEL) LAYING DOWN IDENTICAL PROPOSITION AND ALSO ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BANCO PRODUCTS (I) LTD., 405 ITR 318 (GUJ) . 10. WE HAVE PERUSED THE AFORESAID DECISIONS AND WE FIND THAT IN THE CASE OF CLARIS LIFESCIENCES (SUPRA) , WEIGHTED DEDUCTION WAS CLAIMED BY THE ASSESSEE IN AY 2001-02 AND THE APPROVAL WAS RECEIVE D IN THAT YEAR ITSELF. SIMILARLY IN THE CASE OF SANDAN VIKAS (INDIA) PVT. LTD. (SUPRA) , WEIGHTED DEDUCTION WAS CLAIMED IN AY 2005-06 AND THE APPLICA TION WAS FILED BY THE ASSESSEE COMPANY ON 10.1.2005 I.E., DURING THE RELE VANT PREVIOUS YEAR. IN THE CASE OF BANCO PRODUCTS (I) LTD. (SUPRA) , WEIGHTED DEDUCTION WAS CLAIMED FOR AY 2008-09 AND APPLICATION TO THE PRESC RIBED AUTHORITY WAS MADE ON 22.12.2006, MUCH PRIOR TO THE PREVIOUS YEAR RELEVANT TO AY 2008- 09. IT WAS IN THOSE CIRCUMSTANCES THAT THAT THE HI GH COURT TOOK THE VIEW THAT THE DATE OF RECOGNITION OR DATE OF APPROVAL IS IRRELEVANT, BUT THE EXISTENCE OF RECOGNITION OR APPROVAL IS SUFFICIENT TO GRANT DEDUCTION U/S. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 7 OF 26 35(2AB). IN OUR VIEW, THE RATIO LAID DOWN IN THE A FORESAID DECISION CANNOT BE APPLIED TO THE CASE OF ASSESSEE. AS WE HAVE ALR EADY MENTIONED THAT THE APPROVAL FOR GRANT OF RECOGNITION TO THE PRESCR IBED AUTHORITY WAS MADE BY THE ASSESSEE ONLY ON 12.5.2011 AND NOT AT ANY TI ME DURING THE RELEVANT PREVIOUS YEAR. IN THE GIVEN FACTS AND CIRCUMSTANCE S, WE ARE OF THE VIEW THAT THE ORDER OF CIT(APPEALS) SHOULD BE UPHELD ON THIS BASIS. WE MAY ALSO MENTION A SIMILAR CLAIM HAS BEEN MADE BY THE A SSESSEE IN AY 2011- 12 WHICH IS ALSO BEING DECIDED IN THIS COMMON ORDER AND IN THAT YEAR THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF DEDUCT ION U/S. 35(2AB) AS THE APPROVAL WAS RECEIVED ON 12.5.2011 DURING THE PREVI OUS YEAR RELEVANT TO AY 2011-12. WE WILL DISCUSS THIS ISSUE WHILE DECI DING THE RELEVANT GROUND OF APPEAL FOR AY 2011-12. AS FAR AS AY 2010-11 IS CONCERNED, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUNDS NO.6 TO 10 AND CONSEQUENTLY THEY ARE DISMISSED. 11. IN THE RESULT, THE ASSESSEES APPEAL FOR AY 201 0-11 IS DISMISSED. ITA NO.1373/B/15 (AY 2010-11) REVENUES APPEAL 12. THE FIRST GROUND OF APPEAL OF THE REVENUE READS AS FOLLOWS:- 1. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ALLOCAT ION OF PROPORTIONATE EXPENSES RELATING TO WINDMILLS ON THE BASIS OF TURNOVER, PARTICULARLY WHEN THE ASSESSEE HAD NOT MA INTAINED SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF WINDMILLS. 13. AS FAR AS THE AFORESAID GROUND IS CONCERNED, TH E FACTS ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF INCOME DERIVED FROM POWER GENERATION OUT OF 4 WINDMILL UNI TS TO THE TUNE OF RS.2,46,06,965. AFTER CLAIMING EXPENSES ON ACCOUNT OF DEPRECIATION AND OPERATING & MAINTENANCE EXPENSES, THE NET PROFIT WA S RS.2,12,79,462 WHICH WAS CLAIMED AS DEDUCTION U/S. 80IA OF THE ACT . THE AO WAS OF THE VIEW THAT IN ARRIVING AT THE NET PROFIT, THE ASSESS EE HAS NOT REDUCED FINANCE ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 8 OF 26 CHARGES INCURRED ON LOANS FOR THE PURPOSE OF INSTAL LATION OF WINDMILLS AND ALSO EMPLOYEE COST AND OTHER ADMINISTRATIVE EXPENSE S BEFORE ARRIVING AT THE NET PROFIT OF WINDMILL POWER GENERATION. ACCOR DING TO THE AO, THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOU NT IN RESPECT OF WINDMILL UNITS AND THEREFORE HE ALLOCATED THE FINAN CE CHARGES, EMPLOYEE COST AND OTHER ADMINISTRATIVE CHARGES ON THE BASIS OF TURNOVER OF THE VARIOUS BUSINESSES OF THE ASSESSEE AND ACCORDINGLY REDUCED THE NET PROFIT OF THE WINDMILL UNITS ON WHICH DEDUCTION U/S. 80IA OF THE ACT WAS TO BE ALLOWED. 14. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) DEL ETED THE ADDITION MADE BY THE AO, BY FOLLOWING THE DECISION OF HIS PR EDECESSOR CIT(APPEALS) ON A SIMILAR ALLOCATION OF EXPENSE IN AY 2008-09 & 2009-10, WHEREIN THE CIT(APPEALS) HELD THAT THE ALLOCATION OF EXPENSES W AS UNCALLED FOR BECAUSE THERE WAS AN OPERATING & MAINTENANCE CONTRACT WITH A PERSON WHO SUPPLIED AND INSTALLED WINDMILL AND THEREFORE THERE WAS NO P ERSONNEL OF THE ASSESSEE USED FOR THE PURPOSE OF RUNNING THE WINDMI LL. SIMILARLY, IT WAS ALSO FACTUALLY FOUND THAT NO LOANS WERE AVAILED FOR INSTALLATION OF WINDMILLS WHICH WERE OUTSTANDING DURING THE PREVIOUS YEAR AND THEREFORE THERE WAS NO REASON WHY FINANCE CHARGES SHOULD BE ALLOCATED. THE CIT(APPEALS) ALSO FOUND THAT THE DEPARTMENT DID NOT DISPUTE THE ORDER OF CIT(A) FOR AY 2008-09 AND 2009-10 AND THEREFORE THOSE ISSUES ATTA INED FINALITY. THE CIT(APPEALS) THEREFORE HELD THAT ALLOCATION OF EXPE NSES FOR WINDMILL UNIT WAS UNCALLED FOR. AGGRIEVED BY THE ORDER OF CIT(AP PEALS), THE REVENUE HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 15. THE ONLY POINT URGED BY THE REVENUE IN GROUND N O.1 IS THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOU NT IN RESPECT OF WINDMILL UNITS. IN OUR VIEW, THIS GRIEVANCE IS WIT HOUT ANY BASIS BECAUSE THE REVENUE HAS NOT DISPUTED THE FACT THAT NEITHER THE OPERATING & MAINTENANCE ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 9 OF 26 EXPENSES, EMPLOYEE COST AND OTHER FINANCE & ADMINIS TRATIVE EXPENSES NOR THE CLAIM OF DEPRECIATION, IS ATTRIBUTABLE TO THE W INDMILL UNIT AND THIS FINDING OF FACT REMAINS UNCONTROVERTED. THE QUESTION OF AL LOCATION OF EXPENSES THEREFORE WILL NOT ARISE FOR CONSIDERATION AT ALL. WE THEREFORE FIND NO MERIT IN GROUND NO.1. 16. GROUNDS 2 TO 4 READ AS FOLLOWS:- 2. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT ASSESSEE'S RELIANCE ON ACCOUNTING STANDARD-10 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS OUT OF CONTEXT AND THAT THE RE IS NO DISPUTE WITH REGARD TO THE ISSUE THAT THE COST OF ROADS IS TO BE CAPITALIZED BUT THAT THE DISPUTE IS REGARDING THE BLOCK UNDER W HICH IT HAS TO BE CAPITALIZED. 3. LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT WHEN D IFFERENT PERCENTAGES ARE PROVIDED FOR DIFFERENT BLOCKS OF AS SETS BY LAW, THEY CANNOT BE CLUBBED FOR THE SIMPLE REASON THAT A CONSOLIDATED INVOICE WAS RECEIVED FOR ERECTION AND COMMISSIONING COST. 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E DECISION OF ITAT, AHMEDABAD IN THE CASE OF ACIT (OS D) VS. PARRY ENGINEERING & ELECTRONICS PVT. LTD. IS ONLY W ITH REGARD TO CIVIL WORK AND FOUNDATION FOR INSTALLING THE WINDMI LL AND NOT RELATING TO APPROACH ROADS. 17. THE ISSUE IN THE AFORESAID GROUNDS IS WITH REGA RD TO CLAIM OF ASSESSEE FOR HIGHER DEPRECIATION ON INTERNAL ROAD L AID FOR APPROACH TO WINDMILLS. THESE GROUNDS ARE RELATED TO THE PROFIT S OF THE WINDMILL UNIT FOR WHICH DEDUCTION U/S. 80IA WAS CLAIMED BY ASSESSEE. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSUE WAS RAISED BY REVENU E IN ASSESSEES OWN CASE FOR AYS 2008-09 & 2009-10 IN ITA NOS. 174 & 17 5/BANG/2014 AND THIS TRIBUNAL VIDE ORDER DATED 12.04.2016 HAS ADJUD ICATED THE SAID GROUNDS AS FOLLOWS:- ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 10 OF 26 10. GROUNDS 5 TO 8 ARE REGARDING HIGHER DEPRECIATION ON INTERNAL ROADS APPROACHING THE WIND-MILLS. 11. ASSESSEE CLAIMED HIGHER DEPRECIATION ON THE COS T OF INSTALLATION OF WIND-MILLS WHICH INCLUDE THE COST O F THE ROADS CONSTRUCTED / PREPARED FOR THE PURPOSE OF INSTALLAT ION OF THE WIND- MILL. AO DENIED THE CLAIM OF HIGHER DEPRECIATION (8 0%) IN RESPECT OF ROADS. 12 ON APPEAL, CIT (A) HAS ALLOWED THE CLAIM OF DEPR ECIATION ON THE ENTIRE WIND-MILL COST BY HOLDING THAT THE FOUND ATION, CIVIL AND ELECTRICAL WORKS ARE NECESSARY FOR INSTALLATION OF WIND-MILL AND IS PART AND PARCEL OF THE WIND-MILL PROJECT WHICH IS E LIGIBLE FOR DEPRECIATION AT THE RATE OF 80%. WHILE ALLOWING THE CLAIM OF HIGHER DEPRECIATION CIT (A) HAS FOLLOWED THE DECISION OF A HMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. PARRY ENGINEERING [ITA NO.3317/AHD/2011]. 13. BEFORE US LD. DR HAS SUBMITTED THAT ROADS ARE N OT PART OF WIND-MILLS AND THEREFORE, NOT ELIGIBLE FOR HIGHER D EPRECIATION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DE CISION DT.29.05.2013 OF PUNE BENCHES OF THIS TRIBUNAL IN T HE CASE OF RAJMAL LAKHICHAND JEWELLERS P. LTD V. DCIT IN ITA.3 19 TO 322 /PUNE/2012, DT.29.05.2013, AND SUBMITTED THAT THE T RIBUNAL HAS HELD THAT DEPRECIATION ON APPROACH ROAD IS ALLOWABLE ONL Y AT THE RATE OF 10%. 14. ON THE OTHER HAND, LD. AR HAS SUBMITTED THAT CH ENNAI BENCH OF THIS TRIBUNAL VIDE ORDER DT.24.07.2012 IN THE CASE OF DCIT V. MADRAS CEMENT LTD, [ITA NOS.1391, 1392 & 1655/MD S/2011, HAS HELD THAT APPROACH ROADS ARE AN INTEGRAL PART O F THE WIND-MILLS AND THEREFORE IT IS ENTITLED FOR HIGHER RATE OF DEP RECIATION. HE HAS ALSO RELIED UPON THE DECISION DT.25.07.2014 OF JAIP UR BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. SHIVANI ENCLAVE (P) LTD, IN ITA NO.840/JP/2011, DT.25.07.2014, AND SUBMITTED THAT T HE TRIBUNAL HAS BEEN CONSISTENTLY TAKING A VIEW THAT APART FROM CIV IL AND ELECTRICAL WORK FOR INSTALLATION OF WIND-MILLS, THE ROADS ARE ALSO INTEGRAL PART OF THE WINDMILLS AND THEREFORE ELIGIBLE FOR HIGHER DEPRECIATION AS APPLICABLE ON THE WIND-MILLS. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RE LEVANT MATERIAL ON RECORD. WE FIND THAT THE ROAD IN QUESTI ON ARE NOT THE PROPER ROADS CONSTRUCTED FOR THE PURPOSE OF TRANSPO RTATION OR ANY ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 11 OF 26 OTHER USE, BUT THESE ARE OPERATING CONDITION FOR GENERATION OF POWER. ACCORDINGLY, WHEN THE ROADS IN QUESTION ARE INTEGRAL PART OF THE INSTALLATION WORK OF THE WIND-MILL, THE SAME IS ELIGIBLE FOR DEPRECIATION APPLICABLE ON THE WIND-MILL. IN VIEW O F THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A). 18. IN THE LIGHT OF THE AFORESAID DECISION OF THE T RIBUNAL, WE FIND NO MERIT IN GROUNDS 2 TO 4 RAISED BY THE REVENUE. 19. GROUNDS 5 & 6 ARE AS FOLLOWS:- 5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE AO HAS RIGHTLY BROUGHT FORWARD (NOTIONALLY) THE LOSSES OF THE EARLIER YEARS IN RESPECT OF THE ELIGIBLE BUSINESS TO SET IT OFF A GAINST THE INCOME OF THE CURRENT YEAR IN TERMS OF THE PROVISIONS OF S ECTION 80IA(5). 6. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. ANIL H. LAD [2014] 45 TAXMANN.COM 98 (KARNATAKA) RE LIED UPON BY THE ASSESSEE HAS NOT BECOME FINAL AND THE DEPART MENT HAS FILED SLP BEFORE THE SUPREME COURT. 20. ON THE AFORESAID GROUNDS, IT IS NOT IN DISPUTE BEFORE US THAT IN AY 2008-09 IN ITA NOS.174 & 175/BANG/2014 IN ASSESSEE S OWN CASE ( SUPRA ), SIMILAR ISSUE HAD COME UP FOR CONSIDERATION AND THI S TRIBUNAL HELD THAT THE BROUGHT FORWARD LOSSES OF THE EARLIER YEARS NEED NO T BE SET OFF AGAINST THE INCOME OF THE CURRENT YEAR ON WHICH DEDUCTION U/S. 80IA OF THE ACT WAS TO BE ALLOWED TO THE ASSESSEE. FOLLOWING WERE THE REL EVANT OBSERVATIONS:- 4. GROUNDS 2 TO 4 ARE REGARDING DISALLOWANCE OF C LAIM OF DEDUCTION U/S.80IA OF THE ACT AND UNABSORBED DEPREC IATION OF THE EARLIER YEARS. ASSESSEE CLAIMED DEDUCTION U/S.80IA OF THE ACT, BEING INCOME FROM WIND-MILL. AO IN THE ASSESSMENT O RDER OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION U/S.80 IA OF THE ACT, IN RESPECT OF PROFITS DERIVED FROM THREE UNITS TO T HE EXTENT OF RS.1,63,33,926/- AND THE ASSESSEE HAS NOT EXERCISED ITS OPTION TO CLAIM DEDUCTION IN RESPECT OF FOURTH UNIT. IN THE S TATEMENT OF COMPUTATION OF DEDUCTION OF RS.1,63,33,926 ASSESSEE HAS ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 12 OF 26 DEDUCTED THE DEPRECIATION OF THE CURRENT YEAR AS WE LL AS OTHER CHARGES FROM THE GROSS RECEIPTS OF EACH UNIT AND AR RIVED AT NET PROFIT WHICH IS ELIGIBLE FOR DEDUCTION U/S.80IA OF THE ACT. AO WAS OF THE VIEW THAT THE COMPUTATION OF DEDUCTION U/S.8 0IA OF THE ACT, HAS TO BE DONE ON THE PROFIT AFTER ADJUSTMENT OF THE BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION OF THE E ARLIER YEARS. ACCORDINGLY, AO RECOMPUTED ELIGIBLE PROFIT OF THE A SSESSEE AFTER ADJUSTMENT OF THE BROUGHT FORWARD LOSSES AND UNABSO RBED DEPRECIATION OF THE EARLIER YEARS AND ARRIVED AT A NEGATIVE PROFIT. CONSEQUENTLY THE AO DENIED THE DEDUCTION U/S.80IA O F THE ACT. 5. ON APPEAL, CIT (A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL DT.21.05 .2010 IN THE CASE OF SWARNAGIRI WIRE INSULATIONS P. LTD, V. ITO IN ITA NO.200/BANG/2010, DT.21.05.2010. 6. BEFORE US, LD. DR HAS SUBMITTED THAT CIT (A) HAS NOT PROPERLY APPRECIATED THE DECISION OF THE TRIBUNAL I N THE CASE OF SWARNAGIRI WIRE INSULATIONS P. LTD (SUPRA) WHILE AL LOWING THE CLAIM OF THE ASSESSEE. HE HAS CONTENDED THAT WHILE COMPUTING THE DEDUCTION U/S.80IA OF THE ACT, BROUGHT FORWARD LOSS ES AND UNABSORBED DEPRECIATION HAS TO BE NOTIONALLY SET OF F AGAINST THE PROFITS OF THE CURRENT YEAR. HE HAS RELIED UPON THE ORDER OF THE AO. 7. ON THE OTHER HAND, LD. AR OF THE ASSESSEE HAS SU BMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE C OORDINATE BENCH OF THIS TRIBUNAL, DT.19.06.2015, IN THE CASE OF DCI T V. KAMAL TRADING CO. IN ITA NOS.1206 TO 1208/BANG/2013 & ITA NO..63/BANG/2014. HE HAS POINTED OUT THAT THE DECIS ION OF THE TRIBUNAL IN THE CASE OF SWARNAGIRI WIRE INSULATIONS P. LTD (SUPRA), HAS BEEN CONSIDERED BY THE COORDINATE BENC H WHILE DECIDING THIS ISSUE IN FAVOUR OF ASSESSEE. LD. AR H AS ALSO RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT V. ANIL H. LAD [225 TAXMANN 170 (KAR)]. THUS LD. AR HAS SUBMITTED THAT CIT (A) HAS DECIDED THE ISSUE WHICH IS NOW COVERED BY THE JUDGMENT OF HON'BLE JURISDICTION AL HIGH COURT IN FAVOUR OF THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE KNOW THAT AN ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 13 OF 26 IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF KAMAL TRADING CO., (SUPRA) IN PARAS 6.3.1 TO 6.3.3 AS UNDER : 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD; INCLUDING THE JUDICIAL PRONOUNCEMENTS CITED. THE SO LE ISSUE IN THESE FOUR APPEALS PREFERRED BY REVENUE FO R ASSESSMENT YEARS 2006-07 TO 2009-10 IS WITH REGARD T O THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80 IA OF THE ACT WHICH WAS ENTIRELY DISALLOWED BY THE ASSESSIN G OFFICER. THE ASSESSING OFFICER DISALLOWED THE ASSESS EE 5 CLAIM HOLDING THAT EVEN THOUGH DEPRECIATION AND BUS INESS LOSS RELATING TO EARLIER ASSESSMENT YEARS HAD ALREA DY BEEN SET OFF AGAINST THE PROFITS OF THE OTHER BUSINESSES IT IS NECESSARY FOR THE PURPOSE OF DEDUCTION UNDER SECTIO N 80 IA OF THE ACT TO CARRY FORWARD THAT DEPRECIATION AND BUSINESS LOSS IN A NOTIONAL MANNER FOR SET OFF AGAI NST THE PROFIT OF THE IMPUGNED ASSESSMENT YEARS AND IF ON B EING SO SET OFF THERE REMAINED ANY PROFIT AVAILABLE IN T HE HANDS OF THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 80 IA OF THE ACT, DEDUCTION TO THAT EXTENT ONLY CAN BE ALLOWE D. IN OTHER WORDS, THE ASSESSING OFFICER HELD THAT FOR THE PURPOSE OF ARRIVING AT THE PROFITS FROM THE ASSESSE E'S WIND MILL, THE BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSSES ARE TO BE TAKEN INTO ACCOUNT AND AFTER SET OFF OF T HE SAME AGAINST THE INCOME FROM WIND MILL, IF THEREREMAINS ANY POSITIVE INCOME, THE CLAIM OF DEDUCTION UNDER SECTI ON 80 IA OF THE ACT TO THAT EXTENT ONLY WILL BE AVAILABLE. 6.3.2 AS CONTENDED BY THE LEARNED AUTHORISED REPRESENTATIVE, WE FIND THAT THE SOLITARY ISSUE IN THESE FOUR APPEALS OF THE ALLOWABILITY OF THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT: IS COVERE D BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN THE CASE OF ANIL H LAD (SUPRA) WHICH WAS CONFIRMED B Y THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE REPORTE D IN 225 TAXMAN 170. THE HON'BLE HIGH COURT IN THE CASE OF ANIL H LAD (SUPRA) AT PARA 10 THEREOF HAS HELD AS UN DER :- '10. THEREFORE, KEEPING IN MIND THE OBJECT WITH WHICH THESE PROVISIONS ARE INTRODUCED, IT IS CLEAR THAT AN ASSESSEE IS GIVEN THE BENEFIT OF 100% DEDUCTION OF THE PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS. T HE ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 14 OF 26 QUANTUM OF DE-DUCT/ON IS TO BE CALCULATED WHEN THE CLAIM FOR DEDUCTION IS MADE. IF BEFORE CLAIMING DEDUCTION, THE LOSS AND DEPRECIATION CLAIMED BY THE ASSESSEE EVEN IN RESPECT OF ELIGIBLE BUSINESS IS SE T OFF AGAINST INCOME OF THE ASSESSEE OR OTHER SOURCE, THE SAID LOSS OR DEPRECIATION IS ALREADY ABSOLVED, IT D OES NOT EXIST. FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION UNDER SUB-SECTION (5) OF SECTION 80-IA, THE REVENUE CANNOT TAKE INTO CONSIDERATION THE LOSS AND DEPRECIATION WHICH IS ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE FROM OTHER SOURCE AND COMPUTE THE PROFIT UNDER SECTION 80-IA. THEREFORE, THE APPROACH OF THE TRIBUNAL IS IN ACCORDANCE WITH LAW. THE ASSESSING AUTHORITY AND THE COMMISSIONER COMMITTED A SERIOUS ERROR IN SETTING OFF THE PROFIT EARNED BY T HE ASSESSEE UNDER SECTION 80-IA AGAINST THE LOSSES AND DEPRECIATION OF THE ELIGIBLE BUSINESS WHICH IS ALRE ADY SET OFF FROM OTHER SOURCE BEFORE SUCH A CLAIM IS PU T FORTH. THUS, THERE IS NO ERROR COMMITTED BY THE TRIBUNAL IN SETTING ASIDE THE ORDER PASSED BY THE ASSESSING AUTHORITY AS WELL AS THE LOWER APPELLATE AUTHORITY. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' 6.3.3 FROM THE DECISION OF THE HON'BLE HIGH COURT O F KARNATAKA IN THE CASE OF ANIL H LAD (SUPRA) WHICH IS EXTRACTED ABOVE, AT PARA 6.3.2 OF THIS ORDER, IT IS CLEAR THAT WHEN DEPRECIATION AND LOSSES OF EARLIER YEARS, EVEN IN RESPECT OF THE ELIGIBLE BUSINESS (VIZ. IN THE INSTA NT CASE; THE WINDMILL), HAVE ALREADY BEEN SET OFF AGAINST OTHER BUSINESS INCOME OF THOSE ASSESSMENT YEARS. THERE IS NO NEED FOR NOTIONALLY CARRYING FORWARD AND SETTING OFF THE SOM E DEPRECIATION AND BUSINESS LOSS FOR COMPUTING THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT A S SUCH ACTION WOULD BE CONTRARY TO THE SCHEME OF THE ACT. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF ANIL H LAD (SUPRA), WE DISMISS THE GROUNDS R AISED BY REVENUE AT 5.NOS. 2 TO 4 OF THESE APPEALS AND CONSEQUENTLY UPHOLD THE IMPUGNED ORDERS OF THE LEAR NED CIT (APPEALS) FOR ASSESSMENT YEARS 2006-07 TO 2009-10 ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 15 OF 26 IN ALLOWING THE ASSESSEE THE DEDUCTION CLAIMED UNDE R SECTION 80-IA OF THE ACT. 9. AS IT IS CLEAR FROM THE DECISION OF THE COORDINA TE BENCH THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF ANIL H. LA D (SUPRA) AND BY FOLLOWING THE SAID JUDGMENT OF HON'BLE JURISDICT IONAL HIGH COURT. THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOU R OF THE ASSESSEE BY HOLDING THAT THE DEPRECIATION AND LOSSE S OF THE EARLIER YEAR EVEN IN RESPECT OF THE ELIGIBLE BUSINESS (THE WIND-MILL) HAS ALREADY BEEN SET OFF AGAINST OTHER BUSINESS INCOME OF THOSE ASSESSMENT YEARS, THERE IS NO NEED FOR NOTIONALLY C ARRYING FORWARD AND SET OFF OF THE SAME FOR COMPUTING THE QUANTUM O F DEDUCTION U/S.80IA OF THE ACT. RESPECTFULLY FOLLOWING THE JUD GMENT OF HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS THE CO ORDINATE BENCH OF THIS TRIBUNAL IN PRINCIPLE, WE CONCUR WITH THE V IEW OF THE CIT (A) ON THIS ISSUE SUBJECT TO VERIFICATION OF THE FA CT THAT THE LOSSES AND DEPRECIATION OF THE EARLIER YEARS HAS ALREADY B EEN SET OFF AGAINST THE OTHER BUSINESS INCOME OF THOSE ASSESSME NT YEARS. AO IS DIRECT TO VERIFY THE SAME AND GIVE EFFECT TO THE FINDINGS ON THIS ISSUE. 21. IN VIEW OF THE ABOVE, WE FIND NO MERIT IN GROUN D NO.6 RAISED BY THE REVENUE. 22. GROUND NO.7 READS AS FOLLOWS:- 7. THE LD. CIT(A) ERRED IN DELETING THE ADDITION M ADE TOWARDS NOTIONAL INTEREST ON INTEREST FREE LOAN GIV EN TO THE ASSOCIATED ENTERPRISE OF THE ASSESSEE IGNORING THE SPECIAL PROVISIONS CONTAINED IN CHAPTER X OF THE INCOME-TAX ACT GOVERNING THE INTERNATIONAL TRANSACTIONS WHEN THE T RANSACTION WAS NOT AT THE ARM'S LENGTH PRICE. 23. ON THIS ISSUE, THE ADMITTED FACTUAL POSITION I S THAT THE ASSESSEE GAVE ADVANCES TO ITS SUBSIDIARY BY NAME ZATORTIA HO LDINGS LTD., A CYPRUS BASED COMPANY. IT CAME TO BE NOTICED BY THE AO THA T THE ASSESSEE HAD INVESTED RS. 107,380 TOWARDS 1,000 NO OF EQUITY SHA RES IN THE FINANCIAL YEAR RELEVANT TO THE AY 2008-09 IN M/S. ZATORTIA HO LDINGS LIMITED. HE ALSO ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 16 OF 26 NOTICED THAT A SUM OF RS. 4,66,53,500 IS ADVANCED T O THE SAID COMPANY DURING THE YEAR ON VARIOUS DATES. AS ON 31.3.2010, THE TOTAL AMOUNT ADVANCED BY THE ASSESSEE COMPANY TO THE SAID ZATORT IA HOLDINGS LIMITED (`ZHL') STOOD AT RS. 22,51,16,941/- WHICH INCLUDES THE OPENING BALANCE OF RS. 17,84,63,441. THE AO, THEREFORE, PROPOSED TO CH ARGE INTEREST ON THE ADVANCES MADE TO ZHL, SINCE NO INCOME HAD ACCRUED T O THE ASSESSEE FROM THE SAID INVESTMENTS. THE PROPOSAL WAS OBJECTE D TO BY THE ASSESSEE SAYING THAT ADVANCES WERE MADE TO ZHL, WHICH IS A W HOLLY-OWNED SUBSIDIARY, A SPECIAL PURPOSE VEHICLE FOR ACQUIRING A STEP-DOWN SUBSIDIARY COMPANY CALLED, LOBA FEINCHEMIE FROM ITS OWN SOURCES. LOBA IS SITUATED IN AUSTRIA, AND ACQUISITION OF THE COMPANY WAS NECESSARY FOR THE PURPOSE OF PENETRATING INTO THE VAST REGULA TED MARKETS WITH POTENTIAL TO REACH HIGHER MARGINS. THE ASSESSEE ALSO STATED T HAT THE DECISION TO MAKE THE INVESTMENT WAS BASED ON COMMERCIAL EXPEDIE NCY. THE COMPANY LOBA HAD ALREADY BEEN ACQUIRED IN THE PREVI OUS YEARS. LOBA WAS A SICK COMPANY AND THE INFUSION DURING THE CURR ENT YEAR AS WELL AS IN THE PREVIOUS YEARS WAS TO RUN THE SAID COMPANY. FUR THER, IT WAS USED AS EQUITY INFUSION IN LOBA BY ZHL. THE INVESTMENTS WER E IN ACCORDANCE WITH THE PROVISIONS OF FOREIGN INVESTMENT POLICY AND THE ASSESSEE COMPANY WAS ENTITLED TO HAVE OVERSEAS DIRECT INVESTMENT UND ER THE AUTOMATIC ROUTE. THE CONDITION WAS THAT THE INVESTMENT IS MAD E TO ACQUIRE A COMPANY IN THE SAME FIELD, THE ASSESSEE STATED TO T HE AO. THE ASSESSEE RELIED ON THE DECISION RENDERED.* THE HON'BLE SUPRE ME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 228 ITR 1 (SC) . 24. THE AO REJECTED THE CLAIM OF THE ASSESSEE AND HELD THAT THE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND THAT O F SUBSIDIARY COMPANY (ZHL) IS IN THE NATURE OF INTERNATIONAL TRA NSACTION AND HE FURTHER HELD THAT COMMERCIAL PRINCIPLES ARE TO BE APPLIED T O EVALUATE THE INTERNATIONAL TRANSACTION. THE AO FURTHER HELD THAT INTERNATIONAL LENDING ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 17 OF 26 RATE OF LIBOR HAS TO BE CONSIDERED WHILE DETERMININ G THE ARM'S LENGTH INTEREST RATE. THE AO AGAIN HELD THAT THE DECISION RENDERED IN THE CASE OF SA BUILDERS (SUPRA) WOULD NOT BE RELEVANT IN TAXING NOTIONAL INTEREST WHICH INVOLVES APPLICATION OF CHAPTER-X DEALING WITH TRAN SFER PRICING PROVISIONS. THE AO DID NOT ACCEPT THE ASSESSEE'S CONTENTION THA T THE ASSOCIATED ENTERPRISE WAS IN A START-UP PHASE AND THE ASSESSEE HAD TO FINANCE THEM AS NO ONE WOULD HAVE GIVEN LOAN. THE CONTENTION OF THE ASSESSEE THAT THE ADVANCEMENT OF FUND TO THE SUBSIDIARY IN TURN TO TH E STEP-DOWN SUBSIDIARY WAS FOR THE PURPOSE OF INVESTMENT AS QUASI-EQUITY W AS NOT ACCEPTED TO THE AO WHO REJECTED THE THEORY THAT THE ADVANCES WERE M ADE OUT OF COMMERCIAL EXPEDIENCY. ACCORDINGLY, THE AO ADOPTED THE LIBOR RATE AT 6% RELEVANT FOR THE AY 2008-09 PLUS MARK UP OF 1% F OR OTHER PROFIT ELEMENTS AND COMPUTED THE INTEREST THAR WAS CHARGEA BLE ON THEIR ADVANCES MADE TO THE SUBSIDIARY COMPANY. IT WORKED TO RS. 1, 45,92,830, THE DETAILS ARE AS UNDER: RS. A. INTEREST @ 7% ON OPENING BALANCE OF RS. 17,84,63,441/ - 1,24,92,441/- B. INTEREST @ 7% ON LOAN GIVEN ON 28.05.2009 AT RS. 1,98,66,750 (307 DAYS 11,69,689/- C. INTEREST @ 7% ON LOAN GIVEN ON 22.06.2009 AT RS. 1,01,23,125 (282 DAYS) 5,47,481/- D. INTEREST @ 7% ON LOAN GIVEN ON 15.10.2009 AT RS. 1,03,36,125 (167 D AYS) 3,31,039/- E. INTEREST @ 7% ON LOAN GIVEN ON 16.02.2010 AT RS. 63,27,500 (43 DAYS) 52,180/- TOTAL INTEREST 1,45,92,830/ - 25. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE ADVANCES MADE TO THE SUBSIDIARY COMPANY, ZHL WAS USED AS EQUITY INFU SION INTO THE STEP- DOWN SUBSIDIARY COMPANY, LOBA, WHICH IS ALSO A WHOL LY OWNED SUBSIDIARY. FURTHER, THE SAID ADVANCE TO ZHL WAS ALSO CONVERTED INTO EQUITY IN THE ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 18 OF 26 SUBSEQUENT YEAR. THE AMOUNT WAS GIVEN AS AN ADVANCE TO THE SUBSIDIARY AS THERE WAS A DELAY IN OBTAINING REGULATORY APPROV ALS FROM THE CYPRUS JURISDICTION. THE SAME AO WHO PASSED THE ORDER FOR THE AYS 2008-0 9 AND 2009-10 HAS NOT ADDED ANY NOTIONAL INTEREST ON THE SAME ADVANCES. THE ASSESSEE HAS RELIED ON THE DECISION OF THE HON 'BLE SUPREME COURT IN THE CASE OF SA BUILDERS (SUPRA) , WHEREIN IT HAS BEEN HELD THAT MONEY ADVANCED TO SISTER CONCERNS, IF IT IS PR OVED TO BE FOR COMMERCIAL EXPEDIENCY THEN INTEREST IS NOT TO DISALLOWED ON IN TEREST PAID ON BORROWINGS. IN THE INSTANT CASE, THE ADVANCES ARE F OUND TO HAVE BEEN MADE OUT OF OWN FUNDS AND THAT FOR MAKING INVESTMENT AS EQUITY. 26. THE CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSE SSEE. HE HELD THAT THE FUND HAS FLOWN FROM THE BOOKS OF THE ASSESSEE T O THE STEP-DOWN SUBSIDIARY THROUGH THE SUBSIDIARY COMPANY FOR THE P URPOSE OF BEING USED AS INVESTMENT IN EQUITY AND ALSO OF THE FACT THAT T HE ADVANCES HAVE NOT BEEN MADE OUT OF BORROWALS. IN VIEW OF THE ABOVE, HE HELD THAT THE DISALLOWANCE BEING UNWARRANTED AND UNJUSTIFIED AND ACCORDINGLY, THE ADDITION WAS DIRECTED TO BE DELETED. 27. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(APP EALS), THE REVENUE HAS RAISED GROUND NO.7 BEFORE THE TRIBUNAL. 28. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS) AND THE LD. DR RELIED ON THE STAND OF THE REVENUE A S REFLECTED IN THE GROUND OF APPEAL BEFORE THE TRIBUNAL. 29. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NOTICE T HAT THE SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF INSTRUMENTARIAM CORPORATION LTD. V. ADIT (IT) IN ITA NO.1548 & 1549/2009 DATED 15.7.2016 HELD THAT INTEREST-FREE LOANS ARE SUBJECT TO THE PROVISIONS OF SECTION 92 OF THE ACT AND THE ALP OF SUCH ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 19 OF 26 TRANSACTION HAVE TO BE DETERMINED. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE CONCLUSION OF THE CIT(APPE ALS) THAT THE PROVISIONS OF SECTION 92 OF THE ACT WERE NOT ATTRACTED, CANNOT BE SUSTAINED. WE, HOWEVER, REMAND THE QUESTION OF DETERMINATION OF AL P TO THE AO/TPO, WHO SHALL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92 REFER THE QUESTION OF DETERMINATION OF ALP INTEREST TO THE TPO, ONLY WITH REGARD TO RATE OF INTEREST TO BE ADOPTED IN ADOPTED IN DETERMINING THE ALP OF THE INTEREST PAYMENT. THIS GROUND IS ACCORDINGLY TREATED AS PARTLY ALLOWE D. 30. IN THE RESULT, THE REVENUES APPEAL FOR AY 2010 -11 IS PARTLY ALLOWED. ITA NOS. 1352 & 1374/BANG/2015 31. THESE ARE CROSS APPEALS BY THE REVENUE AND ASS ESSEE DIRECTED AGAINST THE SEPARATE ORDERS DATED 9.9.2015 OF THE C IT(APPEALS), KALABURGI RELATING TO ASSESSMENT YEAR 2011-12. ITA NO.1352/B/15 (AY 2011-12) ASSESSEES APPEAL 32. AS FAR AS THIS APPEAL OF ASSESSEE FOR AY 2011-1 2 IS CONCERNED, GROUND NOS.1, 7 & 8 ARE GENERAL IN NATURE AND CLASS FOR NO SPECIFIC ADJUDICATION. 33. GROUND NOS.2 TO 6 ARE WITH REGARD TO GRANT OF W EIGHTED DEDUCTION TO THE ASSESSEE U/S. 35(2AB) OF THE ACT. WE HAVE ALRE ADY SEEN WHILE DECIDING IDENTICAL GROUND OF ASSESSEE FOR AY 2010-1 1 THAT THE CLAIM OF ASSESSEE WAS REJECTED ONLY BECAUSE OF THE APPROVAL OF THE PRESCRIBED AUTHORITY U/S. 35(2AB) OF THE ACT WAS EFFECTIVE ONL Y FROM 1.4.2011. IN AY 2011-12 ALSO, THE REVENUE TOOK THE SAME STAND THAT THE APPROVAL WAS OBTAINED ONLY ON 7.12.2011 AND IT WAS VALID ONLY FR OM 1.4.2011 TO 31.3.2012 RELEVANT TO AY 2012-13. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 20 OF 26 34. WE HAVE ALREADY HELD WHILE DECIDING IDENTICAL G ROUND FOR AY 2010-11 THAT THE DEDUCTION HAS TO BE ALLOWED FOR AY 2011-12 BECAUSE THE APPLICATION FOR GRANT OF APPROVAL TO THE PRESCRIBED AUTHORITY WAS MADE BY THE ASSESSEE ON 12.5.2011 I.E., DURING THE RELEVANT PREVIOUS YEAR. IN THE CIRCUMSTANCES, THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CLARIS LIFESCIENCES LTD. (SUPRA) AS WELL AS THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SANDAN VIKAS (I) LTD. (SUPRA) WILL BE APPLICABLE. FOLLOWING THE AFORESAID DECISIONS, WE HOLD THAT THE ASSESSEE SHOULD BE ALLOWED WEIGHTED DEDUCTION U/S. 35(2AB) O F THE ACT FOR AY 2011-12. THUS, THE RELEVANT GROUNDS OF APPEAL ARE ALLOWED. 35. IN THE RESULT, THE ASSESSEES APPEAL FOR AY 201 1-12 IS ALLOWED. ITA NO.1374/B/15 (AY 2011-12) REVENUES APPEAL 36. THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR AY 2011-12 ARE AS FOLLOWS:- 1. THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ALLOCAT ION OF PROPORTIONATE EXPENSES RELATING TO WINDMILLS ON THE BASIS OF TURNOVER, PARTICULARLY WHEN THE ASSESSEE HAD NOT MA INTAINED SEPARATE BOOKS OF ACCOUNTS IN RESPECT OF WINDMILLS. 2. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THAT A SSESSEE'S RELIANCE ON ACCOUNTING STANDARD-10 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS OUT OF CONTEXT AND THAT THE RE IS NO DISPUTE WITH REGARD TO THE ISSUE THAT THE COST OF ROADS IS TO BE CAPITALIZED BUT THAT THE DISPUTE IS REGARDING THE BLOCK UNDER W HICH IT HAS TO BE CAPITALIZED. 3. LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT WHEN D IFFERENT PERCENTAGES ARE PROVIDED FOR DIFFERENT BLOCKS OF AS SETS BY LAW, THEY CANNOT BE CLUBBED FOR THE SIMPLE REASON THAT A CONSOLIDATED INVOICE WAS RECEIVED FOR ERECTION AND COMMISSIONING COST. 4. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E DECISION OF ITAT, AHMEDABAD IN THE CASE OF ACIT (OS D) VS. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 21 OF 26 PARRY ENGINEERING & ELECTRONICS PVT. LTD. IS ONLY W ITH REGARD TO CIVIL WORK AND FOUNDATION FOR INSTALLING THE WINDMI LL AND NOT RELATING TO APPROACH ROADS. 5. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E AO HAS RIGHTLY BROUGHT FORWARD (NOTIONALLY) THE LOSSES OF THE EARLIER YEARS IN RESPECT OF THE ELIGIBLE BUSINESS TO SET IT OFF A GAINST THE INCOME OF THE CURRENT YEAR IN TERMS OF THE PROVISIONS OF S ECTION 80IA(5). 6. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS. ANIL H. LAD [2014] 45 TAXMANN.COM 98 (KARNATAKA) RE LIED UPON BY THE ASSESSEE HAS NOT BECOME FINAL AND THE DEPART MENT HAS FILED SLP BEFORE THE SUPREME COURT. 7. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWAN CE OF DEDUCTION U/S. 10B DESPITE THE ASSESSEE FALLING TO SUBSTANTIATE THE CLAIM WITH EVIDENCE. 8. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E FACT THAT THE ASSESSEE NEVER MENTIONED ABOUT FUNCTIONING OF THE 100% EOU UNIT IN THE RETURNS FILED FOR THE EARLIER YEARS AND THAT THERE WAS NO MENTION ABOUT THE SAME IN THE FORM NO.3CD FI LED BEFORE THE AO. 37. GROUND NO.1 IS IDENTICAL TO GROUND NO.1 RAISED IN AY 2010-11 BY THE REVENUE AND FOR THE REASONS STATED THEREIN WHILE DE CIDING THAT GROUND, WE FIND NO MERIT AND DISMISS THE SAME. 38. AS FAR AS GROUNDS 2 TO 4 ARE CONCERNED, THESE A RE IDENTICAL TO GROUND NOS. 2 TO 4 RAISED IN AY 2010-11 BY THE REVE NUE AND FOR THE REASONS STATED THEREIN WHILE DECIDING THOSE GROUNDS , WE FIND NO MERIT AND DISMISS THESE GROUNDS OF APPEAL. 39. GROUND NO.5 & 6 ARE ALSO IDENTICAL TO GROUNDS 5 & 6 IN AY 2010-11 BY THE REVENUE AND FOR THE REASONS STATED THEREIN W HILE DECIDING THOSE GROUNDS, WE FIND NO MERIT AND DISMISS THE SAME. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 22 OF 26 40. GROUND NOS. 7 & 8 ARE WITH REFERENCE TO CLAIM F OR DEDUCTION U/S. 10B WHICH WAS REJECTED BY THE AO, BUT ALLOWED BY THE CI T(APPEALS). THE FACTS IN THIS REGARD ARE THAT THE ASSESSEE CLAIMED DEDUCT ION UNDER SECTION 10B OF THE INCOME TAX ACT AMOUNTING TO RS.18,95,68,278/ - FOR THE A.Y. 2011-12. ON GOING THROUGH THE DETAILS FURNISHED, THE AO NOTI CED THAT THE ASSESSEE HAS SHOWN UNABSORBED DEPRECIATION OF RS. 3,80,21,03 9/- FOR THE A.Y. 2008- 09 AND LOSS OF RS. 27,44,49,575/- FOR THE A.Y. 2009 -10. FOR THE A.Y. 2010- 11 THE ASSESSEE HAS DECLARED PROFIT OF RS. 4,78,70, 069/-. THE AO ALSO OBSERVED THAT IF THE ASSESSEE HAS NOT OPTED FOR APP LICATION OF 10B FOR THOSE YEARS IT SHOULD HAVE FURNISHED A DECLARATION IN WRI TING BEFORE THE DUE DATE FOR FILING THE RETURN U/S. 139(1) AS PROVIDED U/S. 10B(8) OF THE ACT. THE AO FOUND NO SUCH DECLARATION. THE AO WAS THEREFORE OF THE VIEW THAT IN THE ABSENCE OF SUCH DECLARATION THE EARLIER YEARS UNABS ORBED DEPRECIATION AND LOSSES HAVE TO BE SET OFF AGAINST ELIGIBLE PROFITS AND CONSEQUENTLY THERE WOULD BE NO INCOME ON WHICH DEDUCTION U/S.10B OF TH E ACT CAN BE GIVEN. ACCORDINGLY, THE AO REJECTED THE CLAIM OF THE ASSES SEE BY OBSERVING AS FOLLOWS:- AS PER THE INFORMATION FURNISHED BY THE ASSESSEE , THE 100% EOU HAS CLAIMED LOSSES/UNABSORBED DEPRECIATION FOR THE A.YRS. 2008-09 & 2009-10 AND THESE LOSSES HAVE BEEN ADJUSTED AGAINST THE PROFIT OF THE NON-ELIGIBLE UNIT EVEN TH OUGH THE ASSESSEE IS NOT ENTITLED TO MAKE SUCH ADJUSTMENTS. BY MAKING THE ADJUSTMENTS, THE ASSESSEE COMPANY HAS REDUCED THE P ROFIT TO THE EXTENT OF RS. 3,80,21,039/- FOR THE A.Y. 2008-09 AN D RS.27,44,49,575/- FOR THE A.Y. 2009-10. WITH REGARD TO THE DEDUCTION CLAIMED UNDER S. 10B OF THE INCOME TAX ACT FOR THE A.Y. 2011-12, IT IS NOTICED THAT THE ASSESSEE HAD FILED ONLY ONE PROFIT & LOSS ACCOUNT W HEREIN THE NET PROFIT WAS SHOWN AT RS. 65,83,64,069/-. IN THE COMPUTATION STATEMENT, THE ASSESSEE CLAIMED DEDUCTION U/S. 10B AMOUNTING TO RS. 18,95,68,278/- ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 23 OF 26 AS PER THE PROVISIONS OF SECTION 10B (8) OF THE I. T. ACT, WHERE THE ASSESSEE BEFORE THE DUE DATE FOR FURNISHI NG THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139, FURNIS HES TO THE ASSESSING OFFICER A DECLARATION IN WRITING THAT THE PROVISIONS OF THIS SECTION MAY NOT BE MADE APPLICABLE TO HIM, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO HIM FOR ANY OF THE RELEVANT ASSESSMENT YEAR. HOWEVER, IT IS NOTICED THAT THE AS SESSEE HAS NOT FURNISHED ANY SUCH DECLARATION FOR THE A.YRS. 2008- 09 TO 2010- 11. IN THE ABSENCE OF ANY SUCH DECLARATION, IT CANN OT BE SAID THAT THE ASSESSEE HAS NOT OPTED FOR APPLICATION OF PROVI SIONS OF SECTION OF 10B FOR THE A.YRS 2008-09 TO 2010-11. THEREFORE, THE LOSSES PERTAINING TO EARLIER ASSESSMENT YEARS ARE TO BE GI VEN SET OFF AGAINST THE PROFIT EARNED DURING THE YEAR AND THE R EMAINING PROFIT IF ANY ONLY TO BE ALLOWED AS DEDUCTION UNDER SECTIO N 10B OF THE I.T. ACT. AS PER THE DETAILS FURNISHED BY THE ASSES SEE, THE PROFITS OF THE 100% EOU FOR THE CURRENT YEAR AFTER SET OFF OF LOSSES WORKS OUT AS UNDER: A.Y. 2008-09: UNABSORBED DEPRECIATION TO BE CARRIED FORWARD RS. 3,80,21,039/- A.Y. 2009-10: NET LOSS CLAIMED RS. 27,44,49,575/- TOTAL LOSS TO BE CARRIED FORWARD RS. 31,24,70,614/- A.Y. 2010-11: NET PROFIT RS. 4,78,70,069/- LESS BROUGHT FORWARD LOSS RS. 31,24,70,614/- BALANCE LOSS TO BE C/F RS. 26,46,00,545/- A.Y. 2011-12: PROFIT ADMITTED FOR THE YEAR RS. 23,05,22,438/- LESS LOSS OF EARLIER YEARS B/F RS. 26,46,00,545/ BALANCE LOSS TO BE C/F RS. 3,40,78,107/- FROM THE ABOVE, IT CAN BE SEEN THAT NO INCOME IS AVAILABLE FOR THE A.Y. 2011-12 WHICH IS ELIGIBLE FOR CLAIMING DEDUCTION UNDER S. 10-B OF THE I.T. ACT. IN VIEW OF THE ABOVE MENTIONED FACTS, IT IS TO BE STATED THAT THE ASSESSEE HAS NOT FURNISHED ANY DECLARATION IN W RITING AS PROVIDED U/S. 10B(8). FURTHER, SEPARATE FINANCIAL S TATEMENTS HAVE NOT BEEN FURNISHED FROM THE COMMENCEMENT OF UNIT. I N ADDITION, THE PROFIT EARNED IN RESPECT OF THIS UNIT WAS ALSO INCLUDED IN THE PROFIT & LOSS ACCOUNT ENCLOSED TO THE RETURN OF INC OME. THEREFORE, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMIN G DEDUCTION U/S. ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 24 OF 26 10B OF THE I. T. ACT. FURTHER, EVEN FOR ARGUMENT SA KE, IF THE UNIT IS TREATED AS ELIGIBLE DEDUCTION U/S. 10B, THIS UNI T IS NOT HAVING ANY PROFITS AFTER SET OFF OF EARLIER LOSSES FOR CLA IMING DEDUCTION U/S. 10B OF THE I. T ACT. THEREFORE, THE DEDUCTION CLAIMED U/S. 10B AMOUNTI NG TO RS.18,95,68,278/- IS DISALLOWED AND ADDED TO THE IN COME RETURNED. 41. BEFORE CIT(A) IT WAS ARGUED BY THE ASSESSEE TH AT THE PROVISIONS OF SECTION 10B ARE IN THE NATURE OF DEDUCTION AND NOT IN THE NATURE OF EXEMPTION. THE PROVISIONS OF SECTION 10B(6) OF THE INCOME TAX ACT WERE AMENDED VIDE THE FINANCE ACT, 2003 (FA, 2003) W.R.E .F. 1ST APRIL, 2001 TO PERMIT THE LOSSES EARNED IT AN ELIGIBLE UNIT DURING THE PERIOD AFTER 1ST APRIL, 2001 AND BEFORE THE LAST YEAR IN WHICH THE TAX INCE NTIVE TO BE CARRY FORWARD AND SET OFF AGAINST THE PROFITS EARNED FROM THE BUS INESS AFTER THE TAX HOLIDAY PERIOD. THIS AMENDMENT CLEARLY BRINGS OUT THE INTEN TION BEHIND THE AMENDMENT TO SECTION 10B VIDE FINANCE ACT, 2000 THA T THE INCENTIVE PRIOR TO 01.04.2001 WAS IN THE NATURE OF AN EXEMPTION AND POST THE SAME IT HAS BEEN CLASSIFIED AS A DEDUCTION. SECTION 10B IS AN OPTIONAL SECTION AND IS APPLICABLE WHEN ALL THE PROVISIONS OF SECTION 10B A RE COMPLIED WITH IN TOTO. THE COMPANY HAS NOT OPTED FOR APPLICATION OF SECTIO N 10B(6) OF THE ACT FOR THE AYS 2008-09, 2009-10 AND 2010-11 AS IT HAS NOT FILED AUDIT REPORT AS PRESCRIBED UNDER SECTION 10B(5) OF THE INCOME TAX A CT. SECTION 10B(8) CLEARLY STATES THAT THE PROVISIONS OF THIS SECTION WOULD NOT APPLY FOR ANY OF THE RELEVANT ASSESSMENT YEAR WHEREVER THE COMPANY O PTS FOR IT. ONCE THE OPTION IS EXERCISED BY THE COMPANY, THE INCOME WILL HAVE TO BE COMPUTED AS PROVIDED UNDER CHAPTER-IV OF THE ACT. IN SUPPORT OF THE ABOVE THE ASSESSEE RELIED UPON THE FOLLOWING. 1. BOARD'S CIRCULAR DATED 16TH JULY, 2013 WHEREIN T HE DEPARTMENTAL VIEW HAS BEEN COMMUNICATED. 2. DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LIMITED (2010) 325 ITR 102 (BOM.). ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 25 OF 26 3. DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF BLACK & VEATCH CONSULTING PVT. LTD 348 ITR 72(BOM.) AND G ANESH POLYCHEM LTD. 35 TAXMAN.COM 446(BOM.) 4. DECISION OF THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF M/S. GALAXY SURFACTANTS LTD. (2012) 19 TAXMAN.COM141(BOM.). 42. THE CIT(APPEALS) HELD THAT THE ASSESSEE WAS ENT ITLED TO DEDUCTION U/S. 10B OF THE ACT. THE CIT(APPEALS) IN THIS REG ARD RELIED ON THE CBDT CIRCULAR REFERRED TO BY ASSESSEE BEFORE HIM AND ALS O THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF ANIL H. LAD [2014] 45 TAXMANN.COM 98 (KAR) . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 43. AS CAN BE SEEN FROM GROUND NO.8 RAISED BY THE R EVENUE, THE GRIEVANCE SEEMS TO BE THAT ASSESSEES DECLARATION F OR OPTING OUT OF PROVISIONS OF SECTION 10B FOR AYS 2008-09, 2009-10 & 2010-11 WAS NOT MENTIONED IN FORM 3CD FILED BEFORE THE AO. IN OUR VIEW, THIS IS PURELY A TECHNICAL OBJECTION. THE ASSESSEE HAS GIVEN DECLAR ATION OPTING OUT OF THE PROVISIONS OF SEC.10B OF THE ACT FOR THE RELEVANT A YS AND COPIES OF THOSE DECLARATIONS ARE PLACED AT PAGE 46 TO 48 OF ASSESSE ES PAPER BOOK RELATING TO APPEAL FOR AY 2011-12. ONCE THE ASSESSEE OPTS O UT OF PROVISIONS OF SECTION 10B FOR A PARTICULAR YEAR, THEN THE LOSSES/ UNABSORBED DEPRECIATION IN THAT YEAR WILL NOT BE CONSIDERED WHILE ALLOWING DEDUCTION U/S. 10B OF THE ACT FOR THE ELIGIBLE PERIOD WHEN DEDUCTION IS CLAIM ED IN A SUBSEQUENT AY. IN VIEW OF THE ABOVE LEGAL POSITION, WE FIND NO MER IT IN THE GROUND NO.8 RAISED BY THE REVENUE. ACCORDINGLY THE SAME IS DISM ISSED. 44. IN THE RESULT, THE REVENUES APPEAL FOR AY 2011 -12 IS DISMISSED. 45. IN THE COMBINED RESULT, WHILE APPEALS OF THE A SSESSEE FOR AY 2010-11 IS DISMISSED AND FOR AY 2011-12 IS ALLOWED, THE REVENUES APPEAL ITA NOS.1351 & 1352, 1373 & 1374/B/2015 PAGE 26 OF 26 FOR AY 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PU RPOSES AND FOR AY 2011-12 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( B R BA SKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 6 TH FEBRUARY, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.