DCIT, V. M/s V.S. Lad & Sons,

ITA 144/BANG/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6090 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 05-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT CITIIIDR
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Capital asset; Business income; Depreciation; Additional depreciation; Question of law; Unabsorbed depreciation; Revenue expenditure
• Section: 153A; 37(1); 32; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.18 TO 20/BANG/2013 ASSESSMENT YEARS : 2006-07 TO 2008-09 M/S. V.S. LAD & SONS, PRASANTH NIVAS, KRISHNA NAGAR, SANDUR 583 119. PAN : AACFV 3909R VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(3), BANGALORE. APPELLANT RESPONDENT ITA NOS.144 TO 146/BANG/2013 ASSESSMENT YEARS : 2006-07 TO 2008-09 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(3), BANGALORE. VS. M/S. V.S. LAD & SONS, PRASANTH NIVAS, KRISHNA NAGAR, SANDUR 583 119. PAN : AACFV 3909R APPELLANT RESPONDENT ASSESSEE BY : SHRI S. RAMASUBRAMANIAN, C.A. REVENUE BY : MS. PRISCILLA SINGSIT, CIT-III(DR) DATE OF HEARING : 10.06.2014 DATE OF PRONOUNCEMENT : 13.06.2014 ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 2 OF 38 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NOS.144 TO 146/BANG/2013 ARE APPEALS BY THE RE VENUE, WHILE ITA NOS.18 TO 20/BANG/2013 ARE APPEALS BY THE ASSES SEE. ALL THESE APPEALS ARE DIRECTED AGAINST THE COMMON ORDER DATED 14.09.2012 OF THE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEARS 2 006-07 TO 2008-09. 2. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE AP PEALS BY THE REVENUE. ITA NO.144/BANG/2013 (AY 2006-07) 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF MINING AND EXPORTS. THE ASSESSEE INSTALLED WINDMIL LS FOR POWER GENERATION. UNDER SECTION 80IA(4)(IV)(A) R.W.S. 80 IA(1) OF THE INCOME TAX ACT, 1961 (ACT), ANY PROFITS AND GAINS DERIVED BY A N UNDERTAKING WHICH IS SET UP IN ANY PART OF INDIA FOR GENERATION AND DIST RIBUTION OF POWER AFTER 1.4.1999 WILL BE ENTITLED TO A DEDUCTION OF AN AMOU NT EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TE N CONSECUTIVE ASSESSMENT YEARS. THE ABOVE PROVISIONS DO NOT REFE R TO THE PERIOD FROM WHEN THE TEN CONSECUTIVE ASSESSMENT YEARS WILL COMM ENCE FOR WHICH THE DEDUCTION WILL BE ALLOWED. SECTION 80IA(5) PROVIDES THAT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURI NG THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVER Y SUBSEQUENT ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 3 OF 38 ASSESSMENT YEAR UPTO AND INCLUDING THE ASSESSMENT Y EAR FOR WHICH THE DETERMINATION IS TO BE MADE. 4. IT IS NOT IN DISPUTE THAT DURING THE PREVIOUS YE AR THERE WERE THREE SEPARATE UNDERTAKINGS ESTABLISHED BY THE ASSESSEE B Y INSTALLATION OF WINDMILLS FOR GENERATION OF POWER AND BOTH THESE UN ITS ON THEIR OWN WERE ENTITLED TO CLAIM DEDUCTION U/S.80-IA(4)(IV)(A) OF THE ACT. THE FIRST UNIT KNOWN AS UNIT-I WAS SITUATED AT SHIVALINGANAHALLI, GUJNUR, HOOVINAHADAGALI TALUK, KARNATAKA WHERE 3 WINDMILLS WERE INSTALLED. THE SECOND UNIT, UNIT-II WAS ESTABLISHED AT BASAVAPATNA SITE, HARIHAR DISTRI CT, KARNATAKA, WHERE TWO WINDMILLS HAD BEEN INSTALLED. THE WINDMILLS AT BASAVAPATNA SITE WAS INSTALLED ON 28.3.2006. THE DATE OF SETTING UP OF WINDMILL AT THE SHIVALINGANAHALLI SITE IS NEITHER FOUND IN ANY OF T HE IMPUGNED ORDERS NOR IN THE SUBMISSIONS FILED BY THE ASSESSEE BEFORE US. T HE THIRD WINDMILL UNIT, UNIT-III, WAS ESTABLISHED BY THE ASSESSEE AT KALAKE RI VILLAGE, MUNDARAGI TALUK, GADAG DISTRICT, KARNATAKA. 5 WINDMILLS WERE INSTALLED IN THIS UNIT. TWO WINDMILLS WERE INSTALLED ON 28.9.2006 AND THREE WINDMILLS WERE INSTALLED ON 10.8.2006. THESE THREE UNITS WILL HER EINAFTER BE REFERRED TO AS UNIT-I, UNIT-II OR UNIT-III OR SHIVALINGANAHALLI UN IT, BASAVAPATNA UNIT AND KALAKERI UNIT RESPECTIVELY. IT IS NOT IN DISPUTE TH AT ALL THESE THREE UNITS HAD BEEN REGARDED AS A SEPARATE UNDERTAKING FOR WHICH S EPARATE DEDUCTION U/S. 80IA(4)(IV)(A) OF THE ACT HAS TO BE ALLOWED. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 4 OF 38 5. IN THE A.Y. 2006-07, UNIT-II HAD STARTED GENERAT ING POWER. AS FAR AS UNIT-I IS CONCERNED, THE ASSESSEE CLAIMED DEDUCTION U/S. 80IA OF A SUM OF RS.63,34,603. THIS INCOME WAS ARRIVED AT BY THE AS SESSEE WITHOUT SETTING OFF THE DEPRECIATION ON THE WINDMILLS FOR THE PREVI OUS YEAR RELEVANT TO A.Y. 2006-07 FOR WHICH NO DEDUCTION WAS CLAIMED U/S. 80I A IN RESPECT OF UNIT-II (BASAVAPATNA UNIT). THE COMPUTATION OF TOTAL INCOM E DECLARED BY THE ASSESSEE IN THE REVISED STATEMENT OF TOTAL INCOME F OR THE A.Y. 2006-07 IS AS FOLLOWS:- PROFITS AND GAINS OF BUSINESS NET PROFIT AS PER PROFIT & LOSS ACCOUNT 62,40,20,679 ADD : INADMISSIBLE EXPENSES / ITEMS CONSIDERED SEPARATELY PROVISION OF INCOME TAX DEPRECIATION AS PER BOOKS 316619476 257088411 57,37,07,887 1,19,77,28,566 LESS : ADMISSIBLE EXPENSES/ ITEMS CONSIDERED SEPARATELY INCOME FROM WINDMILL (CREDITED TO PROFIT & LOSS ACCOUNT) TOTAL DEPRECIATION AS PER INCOME TAX ACT LESS: DEPRECIATION ON WINDMILL (CONSIDERED SEPARATELY). 25,65,53,788 21,88,00573 1127 3,77,53,215 3,77,54,342 BOOK PROFIT AS PER SECTION 40(B) 1,15,99,74,224 ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 5 OF 38 WINDMILL INCOME (WINDMILL SITUATED AT SHIVALINGANAHALLI, NAGATIBASSAPUR HUVINAHADAGALI TALUKA, DAVANGERE, KARNATAKA) (CREDITED DIRECTLY TO PARTNERS ACCOUNTS) LESS: EXPENSES CONNECTED TO WINDMILL DEPRECIATION 63,33,476 18,90,00573 (18,26,67,097) WINDMILL INCOME (WINDMILL SITUATED AT BASAVAPATNA SITE, HARIHAR DISTRICT, KARNATAKA) LESS : EXPENSES CONNECTED TO WINDMILL DEPRECIATION 1127 2,98,00,000 (2,97,98,873) (21,24,65,970) GROSS TOTAL INCOME 94,75,08,254 TOTAL INCOME 94,75,08,254 6. IT CAN BE SEEN FROM THE ABOVE COMPUTATION OF TO TAL INCOME THAT INCOME OF UNIT-I ON WHICH DEDUCTION U/S.80-IA(4)(IV )(A) OF THE ACT WAS CLAIMED AT RS.63,33,476 WAS ARRIVED AT WITHOUT SETTING OFF THE DEPRECIATION ON WINDMILLS IN RESPECT OF THIS UNIT O F RS.18,90,00,573/. T HE ASSESSING OFFICER EXAMINED THE AFORESAID CLAIM OF THE ASSESSEE AND OBSERVED THAT AS PER THE PROVIS IONS OF SECTION 80IA(5) OF THE ACT, THE PROFIT FROM THE BUSINESS OF RUNNING WINDMILL HAS TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR. THE AO THEREAFT ER NOTICED THAT AS PER ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 6 OF 38 THE COMPUTATION OF INCOME, DEPRECIATION OF UNIT-I & UNIT-II HAS TO BE SET OFF AND IF DONE SO, THERE WOULD BE A LOSS ON ACCOUNT OF UNABSORBED DEPRECIATION TO THE TUNE OF RS.21,24,65,970. SINCE THERE WAS NO PROFIT FROM THE BUSINESS OF GENERATION OF POWER THROUGH WINDMIL L, THE AO DENIED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S. 80IA(4)(IV )(A) OF THE ACT. THE AO FURTHER HELD THAT THE AFORESAID LOSS HAS TO BE NOTI ONALLY CARRIED FORWARD FOR SETTING OFF IN THE SUBSEQUENT ASSESSMENT YEARS AGAI NST THE INCOME FROM THE VERY SAME SOURCE. 7. THE ASSESSEE ACCEPTED THE FACT THAT DEPRECIATION FOR THE CURRENT YEAR HAS TO BE ALLOWED AND IT IS ONLY IF PROFITS ST ILL REMAIN THAT THE DEDUCTION CAN BE CLAIMED U/S.80-IA(4)(IV)(A) OF THE ACT. THE ASSESSEE WAS HOWEVER AGGRIEVED BY THE FURTHER DIRECTION OF THE AO THAT T HE DEPRECIATION IN UNIT-I AND II BE CARRIED FORWARD TO BE SET OFF AGAINST INC OME OF UNIT-I AND II RESPECTIVELY IN THE SUCCEEDING ASSESSMENT YEARS. I T CAN BE SEEN FROM THE AFORESAID COMPUTATION OF INCOME THAT THE ASSESSEE H AS ARRIVED AT HIS TOTAL INCOME AFTER DULY SETTING OFF THE DEPRECIATION ON W INDMILLS OF UNIT-I AND II OF RS. 21,24,65,970 AND THE AO ALSO COMPUTED TOTAL INC OME ACCORDING TO THE COMPUTATION FILED BY THE ASSESSEE. ACCORDING TO TH E ASSESSEE WHEN THE DEPRECIATION IS FULLY SET OFF AGAINST INCOME FROM O THER BUSINESS OF THE ASSESSEE, THERE WAS NO NEED FOR THE DIRECTION TO CA RRY FORWARD DEPRECIATION. HENCE, THE ASSESSEE CHALLENGED THAT PART OF THE ORDER OF AO DIRECTING CARRY FORWARD OF DEPRECIATION BEFORE THE CIT(APPEALS). THE ASSESSEE SUBMITTED THAT SUCH DIRECTION GIVEN BY THE AO WAS NOT IN ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 7 OF 38 ACCORDANCE WITH LAW AND IN PARTICULAR IT WAS SUBMIT TED THAT THE TRIBUNAL IN THE CASE OF ANIL H. LAD IN ITA NO.1262/BANG/2010 DATED 7.1.2011 , FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH C OURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD. V. ACIT, 35 D TR 57 , IN WHICH IT WAS HELD THAT THE ASSESSEE NEED NOT NOTION ALLY CARRY FORWARD AND SET OFF THE LOSS IN RESPECT OF THE ELIGIBLE UNIT, W HEN SUCH LOSS WAS INCURRED IN A YEAR EARLIER TO THE FIRST YEAR OF CLAIM OF DED UCTION U/S.80-IA(4)(IV)(A) OF THE ACT. THE ASSESSEE THUS TOOK A STAND THAT IN RE SPECT OF UNIT-I & UNIT-II, DEDUCTION U/S. 80IA(4)(IV)(A) OF THE ACT HAD NOT BE EN CLAIMED IN THE PAST AND THEREFORE THE PAST LOSSES OF UNIT-I & UNIT-II S HOULD NOT BE CARRIED FORWARD FOR SETTING OFF AGAINST THE INCOME OF UNIT- I & UNIT-II IN THE SUCCEEDING ASSESSMENT YEARS. 8. THE CIT(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSEE AND FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANIL H. LAD (SUPRA) , HELD THAT THE DIRECTION OF THE AO TO CARRY FORWARD THE LOSS OF UNIT-I & UNIT-II FOR SETTING OFF AGAINST THE INCOME OF THESE UNITS I N THE SUCCEEDING ASSESSMENT YEARS IS NOT VALID. 9. WE MAY ALSO CLARIFY HERE THAT THE COMPUTATION OF INCOME FOR THE A.Y. 2006-07 CLEARLY SHOWS THAT THE UNABSORBED DEPRECIAT ION IN UNIT-I & UNIT-II HAD BEEN FULLY SET OFF AGAINST THE INCOME OF THE OT HER BUSINESS OF THE ASSESSEE AND THEREFORE THE ENTIRE UNABSORBED DEPREC IATION OF ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 8 OF 38 RS.21,24,65,970 HAD BEEN FULLY ABSORBED LEAVING BEH IND NOTHING TO BE CARRIED FORWARD. 10. AGGRIEVED BY THE AFORESAID DIRECTION OF THE CIT (APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF THE ASSESSING OFFICER. IN OUR VIEW, THE I SSUE IS FULLY SETTLED BY THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. ANIL H. LAD IN ITA NO.176/2001 DATED 5.2.2014 WHICH IS AN APPEAL AGAINST THE ORDER OF THE TRIBUNAL WHICH WAS FOLLOWED BY THE CIT(A) IN GIVING RELIEF TO THE ASSESSEE. IN THIS CASE BEFORE THE HONBLE HIGH COURT OF KARNA TAKA, THE FACTS WERE THAT THE ASSESSEE HAD INSTALLED WINDMILL FOR THE F.Y. 2005-06 RELEVANT TO ASSESSMENT YEAR 2006-07. AFTER CLAIMIN G DEPRECIATION THERE WAS NO PROFIT ON WHICH THE ASSESSEE COULD CLAIM DED UCTION U/S. 80IA. IN A.Y. 2007-08, THERE WAS A LOSS OF RS.3.23 CRORES AN D HENCE DEDUCTION U/S. 80IA COULD NOT BE CLAIMED. IN THE A.Y. 2008-09, TH E ASSESSEE DERIVED A PROFIT OF RS.1.97 CRORES FROM OPERATION OF WINDMILL S AND CLAIMED DEDUCTION U/S. 80IA OF THE ACT. THE AO SET OFF THE UNABSORBE D DEPRECIATION FOR A.YS. 2006-07 AND 2007-08 AGAINST THE PROFITS FOR THE A.Y .2008-09 FROM THE ELIGIBLE BUSINESS. FACTUALLY IT WAS FOUND THAT THE DEPRECIATION AND LOSSES FOR THE A.YS. 2006-07 AND 2007-08 HAD BEEN FULLY SE T OFF AGAINST THE PROFITS GENERATED FROM OTHER BUSINESS CARRIED ON BY THE ASS ESSEE. THEREFORE, THERE WAS NO LOSS OR UNABSORBED DEPRECIATION WHICH HAD TO BE CARRIED ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 9 OF 38 FORWARD FOR SET OFF AGAINST THE PROFITS OF ELIGIBLE BUSINESS FOR THE A.Y. 2008-09. 11.1 THE REVENUE RELIED ON THE PROVISIONS OF SECTI ON 80IA(5) OF THE ACT AND CONTENDED THAT PROFITS FOR THE PURPOSE OF SECTI ON 80IA OF THE ACT HAD TO BE COMPUTED AS IF THE WINDMILL BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE AND THEREFORE THE PAST LOSSES AS WELL AS T HE UNABSORBED DEPRECIATION HAD TO BE SET OFF AGAINST THE PROFITS FOR A.Y. 2008-09. THE TRIBUNAL ON THE ABOVE ASPECT, FOLLOWING THE DECISIO N OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD. (SUPRA) , HELD AS FOLLOWS:- 27. THUS THE HON'BLE MADRAS HIGH COURT HAS CLEAR LY HELD THAT WHERE THE DEPRECIATION AND LOSS OF EARLIER ASSESSME NT YEARS HAVE ALREADY BEEN SET OFF AGAINST OTHER BUSINESS INCOME OF THOSE ASSESSMENT YEARS, THERE IS NO NEED FOR NOTIONALLY C ARRYING FORWARD AND SETTING OFF OF THE SAME DEPRECIATION AND LOSS I N COMPUTING THE QUANTUM OF DEDUCTION AVAILABLE U/S.80I. THE HON'BLE COURT HAS HELD FURTHER THAT THE YEAR OF COMMENCEMENT ALONE NE ED NOT BE THE 'INITIAL YEAR', BUT DEPENDING UPON THE 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 HAS ALSO EXAMINED THE ISSUE FROM A DIFFERENT LEGAL ANGLE AND HELD THAT THE PROPOSITION ARGUED BY THE REVENUE IS NOT COMPATIBLE WITH THE SCHEME OF GROSS TOTAL INCOME CONCEPTUALIZED IN THE IT ACT, ESPECIALLY IN THE LIGHT OF SECTION 80AB WHICH ARE A LL RELEVANT WHILE CONSIDERING THE DEDUCTION U/S.80IA WHICH IS F ALLING UNDER CHAPTER VIA OF THE IT ACT, 1961. WHERE THE EARLIER DEPRECIATION AND LOSSES HAVE ALREADY BEEN SET OFF, THOSE LOSS AN D DEPRECIATION DO NOT GO TO REDUCE THE GROSS TOTAL INCOME OF AN AS SESSEE WITHIN THE MEANING OF SECTION 80AB AND THEREFORE BRINGING THE NOTIONAL CONCEPT OF CARRYING FORWARD AND SET OFF WILL BE CON TRARY TO THE SCHEME OF SECTION 80AB AND CONCEPT OF GROSS TOTAL I NCOME. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 10 OF 38 28. NOW IT IS CLEAR AS WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE ABOVE DISCUSSED JUDGEMENT OF THE HON 'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING M ILLS P. LTD. V. ACIT (38 DTR 57). WHERE SUCH AN OVERRIDING JUDGEMENT OF THE CONSTITUTIONAL COURT IS GOVERNING THE ISSUE, WE ARE NOT PERMITTED TO RELY ON THE DECISION OF THE SPECIAL BE NCH OF THE AHMEDABAD TRIBUNAL. 29. THEREFORE, FOLLOWING THE ABOVE JUDGEMENT OF TH E HON'BLE HIGH COURT OF MADRAS, WE ACCEPT THE CONTENTION OF T HE ASSESSEE AND REVERSE THE ORDER OF THE COMMISSIONER OF INCOME -TAX(A) ON THIS POINT AND DIRECT THE ASSESSING AUTHORITY TO GR ANT DEDUCTION TO THE ASSESSEE U/S. 80IA FOR THE QUANTUM CLAIMED BY T HE ASSESSEE WITHOUT DILUTING THE SAME BY THE NOTIONAL DEDUCTION OF EARLIER LOSS AND DEPRECIATION. 11.2 THE REVENUE FILED AN APPEAL AGAINST THE AF ORESAID ORDER OF THE TRIBUNAL. THE HONBLE HIGH COURT OF KARNATAKA UPHE LD THE ORDER OF THE TRIBUNAL WITH THE FOLLOWING OBSERVATIONS :- 9. . THE WORDS 'INITIAL ASSESSMENT YEAR' ARE US ED IN SUB- SECTION (5) AND THE SAME IS NOT DEFINED UNDER THE P ROVISIONS. IT IS TO BE NOTED THAT 'INITIAL ASSESSMENT YEAR' EMPLOYED IN SUB-SECTION (5) IS DIFFERENT FROM THE WORDS 'BEGINNING FROM THE YEAR' REFERRED TO IN SUB-SECTION (2). SUB-SECTION (5) STARTS WITH NON OBSTANTE CLAUSE WHICH MEANS IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO BE IGNORED; FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION; FOR THE ASSESSMENT YEAR I MMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR, THEREBY A F ICTION IS CREATED BY INTRODUCING A DEEMING PROVISION AND THEREFORE, I T IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOM E, DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR A ND EVERY SUBSEQUENT ASSESSMENT YEARS. WHEN THE ASSESSEE EXER CISES 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 TH E INCOME OF THE ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 11 OF 38 ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE INITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE R EVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME W ERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OF F AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE S ET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF T HE ASSESSEE, THE REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATE S 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. 10. THEREFORE, KEEPING IN MIND THE OBJECT WITH WHI CH THESE PROVISIONS ARE INTRODUCED, IT IS CLEAR THAT AN ASSE SSEE IS GIVEN THE BENEFIT OF 100% DEDUCTION OF THE PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS. THE QUANTUM OF DEDUCTION IS TO B E CALCULATED WHEN THE CLAIM FOR DEDUCTION IS MADE. IF BEFORE CLA IMING DEDUCTION, THE LOSS AND DEPRECIATION CLAIMED BY THE ASSESSEE EVEN IN RESPECT OF ELIGIBLE BUSINESS IS SETOFF AGAINST I NCOME OF THE ASSESSEE OR OTHER SOURCE, THE SAID LOSS OR DEPRECIA TION IS ALREADY ABSOLVED, IT DOES NOT EXIST. FOR THE PURPOSE OF DET ERMINING THE QUANTUM OF DEDUCTION UNDER SUB-SECTION (5) OF SECTI ON 80IA, THE REVENUE CANNOT TAKE INTO CONSIDERATION THE LOSS AND DEPRECIATION WHICH IS ALREADY SETOFF AGAINST THE INCOME OF THE A SSESSEE FROM OTHER SOURCE AND COMPUTE THE PROFIT UNDER SECTION 8 0IA. THEREFORE, THE APPROACH OF THE TRIBUNAL IS IN ACCOR DANCE WITH LAW. THE ASSESSING AUTHORITY AND THE COMMISSIONER C OMMITTED A SERIOUS ERROR IN SETTING OFF THE PROFIT EARNED BY T HE ASSESSEE UNDER SECTION 80IA AGAINST THE LOSSES AND DEPRECIATION OF THE ELIGIBLE BUSINESS WHICH IS ALREADY SETOFF FROM OTHER SOURCE BEFORE SUCH A CLAIM IS PUTFORTH. THUS, THERE IS NO ERROR COMMITTE D BY THE TRIBUNAL IN SETTING ASIDE THE ORDER PASSED BY THE A SSESSING AUTHORITY AS WELL AS THE LOWER APPELLATE AUTHORITY. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. 12. THE SUM AND SUBSTANCE OF THE JUDGMENT OF THE HO NBLE COURT WAS THAT SEC.80-IA(5) OF THE ACT WILL BEGIN TO OPERATE ONLY WHEN DEDUCTION ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 12 OF 38 U/S.80-IA OF THE ACT IS FIRST CLAIMED AND THEREAFTE R FOR A PERIOD OF 10 YEARS FROM THE INITIAL ASSESSMENT YEAR. THE INITIAL ASSE SSMENT YEAR IS NOT THE YEAR IN WHICH THE ASSESSEE BEGINS TO MAKE PROFITS I N THE ELIGIBLE BUSINESS BUT THE YEAR IN WHICH DEDUCTION IS CLAIMED FROM ELI GIBLE BUSINESS. IN RESPECT OF PERIOD PRIOR TO SUCH CLAIM LOSS/DEPRECIA TION IF THEY REMAIN ABSORBED CANNOT FICTIONALLY BE REDUCED FROM THE PRO FITS ON WHICH DEDUCTION IS TO BE ALLOWED. IN THE LIGHT OF THE AFORESAID JU DGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. ANIL H. LTD. (SUPRA) , WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THIS APPEAL BY T HE REVENUE AND CONSEQUENTLY THE SAME IS DISMISSED. ITA 145/BANG/2013 (AY 2007-08) 13. IN THIS APPEAL FOR THE A.Y. 2007-08, THE REVENU E HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN D IRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT IGNORING THE PROVISIONS OF SU B-SECTION (5) OF SECTION 80IA OF THE INCOME TAX ACT. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN D IRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80IA OF THE INCOME TAX ACT IGNORING THE FACT THAT THE DEDUCTION U/S. 8 0IA WAS NOT CLAIMED IN THE RETURN OF INCOME FILED U/S. 139(1) C OMPLIED WITH THE PROVISIONS OF SECTION 80AC AND 80IA(7) OF THE I NCOME TAX ACT. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 13 OF 38 14. AT THE OUTSET, WE HAVE TO POINT OUT THAT GROUND NO.2 RAISED BY THE REVENUE WAS NOT THE BASIS ON WHICH THE REVENUE PROC EEDED TO DISALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/.S 80IA OF TH E ACT. HOWEVER, IT IS NOTICED THAT FOR THE A.Y. 2007-08 ON 19.11.2009 REV ISED STATEMENT OF TOTAL INCOME WAS FILED BY THE ASSESSEE IN WHICH DEDUCTION U/S. 80IA WAS CLAIMED. IT IS ALSO RELEVANT TO MENTION THAT THE A SSESSEE HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2007-08 ON 22.10.2007 WHICH WAS WELL WITHIN THE TIME FOR FILING THE RETURN U/S. 139(1) OF THE ACT. SECTION 80AC OF THE ACT REFERRED TO GROUND NO.2 WILL COME INTO OPERATION ON LY IF THE ASSESSEE DOES NOT FILE THE RETURN OF INCOME ON OR BEFORE THE DUE DATE SPECIFIED U/S. 139(1) OF THE ACT AND LAYS DOWN THE CONSEQUENCE THAT NO DE DUCTION UNDER CHAPTER VIA WILL BE ALLOWED IN SUCH AN EVENT. IN THIS PROV ISION, THERE IS NO CONDITION THAT DEDUCTION CLAIMED UNDER CHAPTER VIA SHOULD BE CLAIMED IN THE RETURN FILED U/S. 139(1) OF THE ACT. SIMILARLY, SECTION 8 0IA(7) OF THE ACT IS ALSO NOT ATTRACTED IN THIS CASE AS THE NECESSARY CERTIFICATE S HAD BEEN DULY FILED BY THE ASSESSEE AND FURNISHED BEFORE THE AO IN THE ASS ESSMENT PROCEEDINGS. THEREFORE, GROUND NO.2 BY THE REVENUE IS DISMISSED. 15. AS FAR AS GROUND NO.1 IS CONCERNED, THE FACTUAL BACKGROUND IS THAT, DEDUCTION U/S. 80IA HAD BEEN CLAIMED IN RESPECT OF UNIT-I. IN RESPECT OF UNIT-II AND III, THERE WAS A LOSS AND THEREFORE NO 80IA DEDUCTION WAS CLAIMED. THE FOLLOWING WAS THE STATEMENT OF TOTAL INCOME FROM WINDMILLS FOR THE A.Y. 2007-08:- ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 14 OF 38 WINDMILL I UNIT (WINDMILL SITUATED AT SHIVALINGANAHALLI, NAGATIBASSAPUR HUVINAHADAGALI TALUKA, DAVANGERE, KARNATAKA) (CREDITED DIRECTLY TO PARTNERS ACCOUNTS) LESS: EXPENSES RELATING TO WINDMILL INTEREST ON WINDMILL LOAN 1,17,69,2887 2,57,88,686 1,17,69,287 1,40,19,399 INCOME FROM WINDMILL QUALITY FOR EXEMPTION U/S 80IA 1,40,19,399 WINDMILL II UNIT (WINDMILL SITUATED AT BASAVAPATNA SITE, HARIHAR DISTRICT, KARNATAKA) LESS : EXPENSES RELATING TO WINDMILL INSURANCE INTEREST ON LOAN DEPRECIATION ON WINDMILL 1,05,087 22,57,662 2,98,00,000 64,34,506 3,21,62,749 (2,57,28,243) WINDMILL III UNIT (WINDMILL SITUATED AT KALAKERI VILLAGE,MUNDARAGI TALUK, GADAG DISTRICT, KARNATAKA) LESS: EXPENSES RELATING TO WINDMILL DEPRECIATION INTEREST ON WINDMILL LOAN 31,27,30,740 1,27,09,246 63,34,506 32,54,39,986 (30,86,23,614) LOSS FROM WINDMILL NO 80IA (33,43,51,857) 16. THE AO DID NOT ALLOW DEDUCTION U/S. 80IA OF THE ACT FOR UNIT-I FOR THE FOLLOWING REASONS:- ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 15 OF 38 5.7 IN VIEW OF THE SAME, THE UNIT WISE PROFIT FROM THIS SOURCE IS COMPUTED AS PROVIDED UNDER SECTION AS UNDER: UNIT-I : WINDMILL AT SHIVALINGAHALLI, NAGATIBASSAPU R NET INCOME FOR THE YEAR : RS. 1,40,19,399 NOTIONAL B/F LOSS BF FROM AY 2006-07 : RS.18,26,6 7,097 (-) RS.16,86,47,698 UNIT-II: WINDMILL AT BASAVAPATNA SITE, HARIHAR DIS TRICT LOSS FOR THE YEAR : (-) RS.2,57,28,243 UNIT-III: WINDMILL AT KALAKERI VILLAGE, MUNDARGI TA LUK LOSS FOR THE YEAR : (-) RS.30,86,23,614 5.8 IT IS SEEN THAT THERE IS NO PROFIT FOR THE YEA R FROM ANY OF THE UNITS. THOUGH THERE WAS PROFIT OF RS.1,40,19, 399 FROM UNIT- I, THE SAME HAS BECOME NEGATIVE AFTER SET OFF OF TH E SAME WITH THE NOTIONAL LOSS BROUGHT FORWARD FROM THE ASSESSMENT Y EAR 2006-07. HENCE, NO DEDUCTION U/S. 80IA IS ALLOWABLE IN THE C ASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATIO N. THEREFORE, NO DEDUCTION U/S. 80IA OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS TO NOTIONALLY CARRY FORWARD THE LOSS F ROM THIS SOURCE AS PER PROVISIONS OF SECTION 80IA(5) OF THE I T ACT . 17. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS), F OLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANIL H. LAD (SUPRA), DIRECTED THE AO TO ALLOW DEDUCTION U/S. 80IA OF THE ACT IN RESPE CT OF UNIT-I AND FURTHER HELD THAT THE DIRECTION OF THE AO TO NOTIONALLY CAR RY FORWARD THE LOSS U/S. 80IA(5) OF THE ACT FOR UNIT-I & UNIT-II FOR BEING S ET OFF AGAINST THE INCOME OF THESE UNITS IN THE SUBSEQUENT ASSESSMENT YEARS WAS INVALID. 18. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE US. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 16 OF 38 19. AS WE HAVE ALREADY SEEN WHILE DECIDING A SIMILA R ISSUE FOR THE A.Y. 2006-07, THE ACTION OF THE CIT(APPEALS) WAS PERFECT LY JUSTIFIED IN THE LIGHT OF THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF ANIL H. LAD (SUPRA) . WE MAY ALSO ADD THAT THE LOSSES OF WINDMILL UNIT -II & UNIT-III FOR THE A.Y. 2007-08 HAD BEEN FULLY SET OFF AGAINST THE OTHER BUSINESS INCOME OF THE ASSESSEE AND THIS IS CLEAR FROM THE C OMPUTATION OF TOTAL INCOME FOR THE A.Y. 2007-08 FILED BY THE ASSESSEE B EFORE US IN WHICH THE LOSS OF UNIT-II & UNIT-III TOTALING RS.33,43,51,857 HAS BEEN SET OFF AGAINST THE OTHER INCOME OF THE ASSESSEE FROM BUSINESS OF R S.128,80,97,475. WE THEREFORE DISMISS GROUND NO.1 RAISED BY THE REVENUE . 20. IN THE RESULT, THE APPEAL BY THE REVENUE IS DIS MISSED. ITA NO.146/BANG/2013 (AY 2008-09) 21. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEA L FOR THE A.Y. 2008- 09 READS AS UNDER:- 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION UNDER SECTION 80IA OF THE INCOME TAX ACT IGNORING THE PROVISIONS OF SU B-SECTION (5) OF SECTION 80IA OF THE INCOME TAX ACT. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN D IRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80IA OF THE INCOME TAX ACT CLAIMED BY THE ASSESSEE DURING THE PROCEEDI NGS U/S. 153A OF THE INCOME TAX ACT EVEN THOUGH THE CONDITIO NS OF SECTION 80(IA)(7) AND 80AC OF THE INCOME TAX ACT WE RE NOT FULFILLED. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 17 OF 38 22. FOR THE VERY SAME REASONS GIVEN WHILE DISMISSIN G GROUND NO.2 IN A.Y. 2007-08, WE DISMISS GROUND NO.2 IN THIS ASSESS MENT YEAR ALSO. WE MAY ALSO ADD THAT FOR THE A.Y. 2008-09 THE ASSESSEE HAD FILED RETURN OF INCOME WELL WITHIN THE DUE DATE U/S. 139(1) OF THE ACT. 23. AS FAR AS GROUND NO.1 IS CONCERNED, THE FACTUAL DETAILS TO BE NOTED ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S. 80IA O F THE ACT FOR THE A.Y. 2008-09. THE COMPUTATION OF DEDUCTION U/S. 80IA OF THE ACT FOR THE THREE UNITS IS AS FOLLOWS:- NOTE I STATEMENT OF INCOME FROM WINDMILL FOR THE ASSESSMEN T YEAR 2008-09 WINDMILL I UNIT (WINDMILL SITUATED AT SHIVALINGANAHALLI, NAGATIBASSAPUR HUVINAHADAGALI TALUKA, DAVANGERE, KARNATAKA) LESS: EXPENSES RELATING TO WINDMILL INSURANCE INTEREST ON WINDMILL LOAN 74,266 63,42,777 2,46,53,303 64,17,043 1,82,36,260 WINDMILL II UNIT (WINDMILL SITUATED AT BASAVAPATNA SITE, HARIHAR DISTRICT, KARNATAKA) LESS : EXPENSES RELATING TO WINDMILL INTEREST ON LOAN INSURANCE ON WINDMILL 11,91,541 80,274 36,98,787 12,71,815 24,26,972 ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 18 OF 38 WINDMILL III UNIT (WINDMILL SITUATED AT KALAKERI VILLAGE,MUDARAGI TALUK, GADAG DISTRICT, KARNATAKA) LESS: EXPENSES RELATING TO WINDMILL INSURANCE INTEREST ON WINDMILL LOAN 2,13,316 1,61,25,554 4,10,34,438 1,63,38,870 2,46,95,568 TOTAL INCOME FROM WINDMILL 4,53,58,800 24. IN THIS YEAR, THERE WAS A FOURTH WINDMILL UNIT (UNIT-IV) STARTED AT KOLAHALU VILLAGE, CHITRADURGA DISTRICT, IN WHICH TH ERE WAS NO INCOME, BUT THERE WAS UNABSORBED DEPRECIATION OF RS.9,39,97,000 . 25. THE AO DENIED THE CLAIM OF THE ASSESSEE FOR DED UCTION U/S. 80IA(4) OF THE ACT FOR ALL THE THREE UNITS FOR THE VERY SAM E REASONS FOR WHICH DEDUCTION WAS NOT ALLOWED IN A.YS. 2006-07 & 2007-0 8. THE AO ULTIMATELY DENIED DEDUCTION U/S. 80IA OF THE ACT FOR THE FOLLO WING REASONS:- FOR THE PURPOSE OF SECTION 80-IA OF THE INCOME TAX ACT, 1961, THE ASSESSEES PROFIT FROM THIS BUSINESS IS COMPUTE D UNIT WISE AS UNDER: UNIT-I : WINDMILL AT SHIVALINGANAHALLI, NAGATIBASSA PUR NET INCOME FOR THE YEAR : RS. 1,82,36,260 NOTIONAL B/F LOSS BF FROM AY 2007-08 : RS.16,86,4 7,243 LOSS: (-) RS.15,04,10,983 UNIT-II: WINDMILL AT BASAVAPATNA SITE, HARIHAR DIS TRICT NET INCOME FOR THE YEAR : RS. 24,26,972 NOTIONAL B/F LOSS BF FROM AY 2007-08 : RS. 2,57,2 8,243 ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 19 OF 38 LOSS : (-) RS. 2,33,01,271 UNIT-III: WINDMILL AT KALAKERI VILLAGE, MUNDARGI TA LUK NET INCOME FOR THE YEAR : RS. 2,46,95,568 NOTIONAL B/F LOSS BF FROM AY 2007-08 : RS.30,86,23 ,614 LOSS : (-) RS.28,39,29,046 UNIT-IV: WINDMILL AT KOLAHALU VILLAGE, CHITRADURGA TALUK NET LOSS FOR THE YEAR : (-) RS.9,38,97,000 8.5 IT IS SEEN THAT THERE IS NO PROFIT FOR THE YEA R FROM ANY OF THE UNITS AFTER SET OFF OF THE NOTIONAL LOSS BROUGH T FORWARD FROM THE PRECEDING ASSESSMENT YEAR. THEREFORE THERE IS NO PROFIT FROM THE WINDMILL SOURCES ELIGIBLE FOR DEDUCTION U/S. 80 IA. HENCE, NO DEDUCTION U/S. 80IA IS ALLOWABLE IN THE CASE OF HE ASSESSEE. THEREFORE, NO DEDUCTION U/S. 80IA OF THE INCOME TAX ACT, 1961. THE NOTIONAL LOSSES FROM THESE UNITS ARE TO BE CARR IED FORWARD. 26. THE CIT(APPEALS), FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF ANIL H. LAD (SUPRA) , DIRECTED THE AO TO ALLOW THE CLAIM OF DEDUCTION U /S. 80IA OF THE ACT FOR UNIT-I, UNIT-II & UNIT-III. HE FURTHER DIRECTED THAT THE LOSS OF UNIT-III SHOULD NOT BE CARRIED FORWARD FOR SET O FF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM UNIT-IV IN THE SUC CEEDING ASSESSMENT YEAR. WE MAY ALSO ADD THAT UNABSORBED DEPRECIATION OF UNIT-IV HAD ALREADY BEEN SET OFF BY THE ASSESSEE AGAINST ITS INCOME FRO M OTHER BUSINESS OF RS.326,41,03,558 AND THEREFORE THERE IS NO QUESTION OF CARRY FORWARD OF LOSS OF WINDMILL UNIT-IV. CONSEQUENTLY, THIS APPEA L BY THE REVENUE IS ALSO DISMISSED. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 20 OF 38 ITA NOS.18 TO 20/BANG/2013 (ASSESSEES APPEALS) (AY 2006-07 TO 2008-09) 27. A COMMON ISSUE ARISES FOR CONSIDERATION IN ALL THESE APPEALS BY THE ASSESSEE AS WE HAVE ALREADY SEEN, THE ASSESSEE HAD INSTALLED WINDMILLS AND GENERATED POWER IN ALL THE THREE ASSESSMENT YEA RS AND CLAIMED DEDUCTION U/S. 80IA(4)(IV)(A) OF THE ACT. WE HAVE ALSO SEEN THAT THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION ON WINDMILL S IN ALL THESE ASSESSMENT YEARS. THE ASSESSEE HAD PURCHASED WINDM ILLS FROM M/S. SUZLON ENERGY LTD. [SUZLON FOR SHORT]. ACCORDING TO THE ASSESSEE, FOR PROPER GENERATION OF POWER THROUGH WINDMILL TURBINE S, FLOW OF THE WIND AND THE SPEED AT WHICH THE WIND FLOWS IS VERY CRUCIAL. IN ALL THE DISTRICTS THE ASSESSEE HAD INSTALLED THE WINDMILLS ON HILLOCKS AN D MOUNTAINS WHICH IS AN IDEAL PLACE TO KEEP THE WINDMILL AND TURBINE SO THA T THE WINDMILL TURBINES RUN AT GOOD SPEED TO GENERATE POWER. THE MOUNTAINS AND HILLOCKS OVER WHICH THE WINDMILLS AND TURBINES WERE INSTALLED WER E OWNED BY THE KARNATAKA FOREST DEPARTMENT. SUZLON ENTERED INTO A LEASE AGREEMENT WITH THE KARNATAKA FOREST DEPARTMENT AND HAD A RIGHT TO SUB-LEASE THE SAME TO THE THIRD PARTIES. SUZLON CHARGES LEASE RENT FOR T HE LAND SUB-LEASED TO THE ASSESSEE SO THAT THE WINDMILLS CAN BE INSTALLED ON HILLOCK. IN OTHER WORDS, THE LEASE RENT CHARGED FOR THE ENTIRE PERIOD OF 30 YEARS OF LEASE WAS ALSO INCLUDED AS PART OF THE MACHINERY IN THE BILLS RAIS ED BY SUZLON. THE ASSESSEE WHILE CLAIMING DEPRECIATION INCLUDED THE C HARGES PAID FOR LEASEHOLD RIGHTS OVER THE LAND, APART FROM THE COST OF MACHINERY AND ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 21 OF 38 CLAIMED DEPRECIATION. ACCORDING TO THE ASSESSEE, T HE LEASEHOLD RIGHTS OVER THE LAND WOULD ALSO CONSTITUTE PLANT ON WHICH DEPRE CIATION SHOULD BE ALLOWED. ACCORDING TO THE ASSESSEE, TAKING INTO CO NSIDERATION THE PECULIAR FACTS OF THE CASE, WHERE HILLY TERRAIN AND MOUNTAIN S ARE REQUIRED FOR THE USE OF THE WINDMILLS, THE CONSIDERATION PAID FOR ACQUIR ING THE LEASEHOLD RIGHTS OVER THE LAND SHOULD ALSO BE CONSIDERED AS A PAYMEN T MADE FOR ACQUISITION OF A PLANT. ALTERNATIVELY, THE ASSESSEE CLAIMED TH AT THE EXPENDITURE IN QUESTION IS REVENUE EXPENDITURE AND SHOULD BE ALLOW ED AS A DEDUCTION U/S. 37(1) OF THE ACT. 28. ACCORDING TO THE REVENUE, ACQUIRING A RIGHT OVE R THE LAND AND COST PAID FOR SUCH ACQUISITION CANNOT BE EQUATED WITH TH E CONSIDERATION PAID FOR ACQUIRING A PLANT. ACCORDING TO THE REVENUE, ACQUI RING LEASEHOLD RIGHTS OVER A LAND OVER A PERIOD OF 30 YEARS RESULTS IN AN ENDU RING BENEFIT TO THE ASSESSEE AND THEREFORE EXPENDITURE CANNOT BE ALLOWE D AS DEDUCTION U/S. 37(1) OF THE ACT ALSO. THE QUANTUM OF LUMP SUM CON SIDERATION PAID FOR ACQUIRING LEASEHOLD RIGHTS ARE DIFFERENT IN EACH OF THE ASSESSMENT YEARS. WE NEED NOT MAKE A REFERENCE TO THOSE PAYMENTS AS T HE ISSUE TO BE DECIDED BY US IS AS TO WHETHER PAYMENT MADE FOR ACQ UIRING LEASEHOLD RIGHTS CAN BE CONSIDERED AS COST OF WINDMILL (PLANT) FOR A LLOWING DEPRECIATION; OR WHETHER ALTERNATIVE CLAIM OF THE ASSESSEE TO ALLOW THE SAID EXPENDITURE AS REVENUE EXPENDITURE CAN BE SUSTAINED. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 22 OF 38 29. BOTH THE AO AND THE CIT(APPEALS) DECIDED THE IS SUE AGAINST THE ASSESSEE GIVING RISE TO THESE APPEALS BY THE ASSESS EE FOR THE THREE ASSESSMENT YEARS UNDER CONSIDERATION. 30. THE REASONS GIVEN BY THE CIT(APPEALS) FOR REJEC TING THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THE VALUE OF LEASE REN T PAID BY INCLUDING IT AS PART OF THE PLANT (WINDMILL) ARE AS FOLLOWS:- I HAVE CONSIDERED THE RIVAL CONTENTION CAREFULLY . IT IS NOT A BUILDING OR STRUCTURE AT WHICH THE BUSINESS ACTIVIT Y IS CARRIED OUT THAT HAS BEEN TAKEN ON LEASE BY THE APPELLANT. HENC E, THE FACTS OF THE CASE LAW CITED BY THE APPELLANT IN 243 ITR 81 I S DISTINGUISHABLE. IT IS THE LAND THAT WAS TAKEN ON LEASE AND LAND BY ITSELF CANNOT BE TREATED AS PLANT AND MACHINERY AND DOES NOT HAVE DEPRECIATION RATE IN DEPRECIATION SCHEDULE ALSO. 4.3 THE ALTERNATIVE ARGUMENT OF THE APPELLANT IS TH AT THE LEASE AMOUNT IS REVENUE EXPENDITURE. IN THE CASE OF HMT LTD. 203 ITR 820, IT WAS A FACTORY BUILDING THAT WAS TO BE RETUR NED AFTER THE EXPIRY OF LEASE PERIOD. HENCE, THE LEASE RENT IS I N THE NATURE OF RENT FOR PLANT AND MACHINERY. IN THE CASE OF THE A PPELLANT, THE APPELLANT HAS OBTAINED THE RIGHT ON LAND FOR 30 YEA RS ON LEASE WHICH IS AN ENDURING BENEFIT AND LAND IS NOT A DEPR ECIABLE ASSET AND HENCE I AM IN AGREEMENT WITH THE AO THAT THE EX PENDITURE IS CAPITAL IN NATURE. ACCORDINGLY THE ADDITION ON THI S COUNT IS CONFIRMED. 31. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THE WINDMILLS ARE TO BE ERECTED AT HIGH ALTITUDE FOR PR OPER GENERATION OF POWER AND THEREFORE THE LAND ON WHICH THE WINDMILLS ARE E RECTED IS A TOOL OF THE TAX PAYER AND HAS TO BE CONSIDERED AS PART OF THE P LANT (WINDMILL). IT WAS FURTHER SUBMITTED THAT AFTER THE EXPIRY OF THE LEAS E PERIOD, THE LEASED LAND ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 23 OF 38 REVERTS BACK TO GOVERNMENT OF KARNATAKA AND THIS AS PECT IS NOT MATERIAL FOR DECIDING THE ISSUE AS TO WHETHER THE LAND FORMS PAR T OF THE TOOL WITH WHICH THE ASSESSEE CARRIES ON ITS BUSINESS. 32. THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANC E ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. B. VENKATA RAO, 243 ITR 81 . IN THE AFORESAID DECISION, THE QUESTION FOR CONS IDERATION WAS AS TO WHETHER A BUILDING WHICH WAS SPECIFICALLY DESIGN ED AND EQUIPPED TO FUNCTION AS NURSING HOME WOULD CONSTITUTE PLANT TO ENTITLE DEPRECIATION AT A HIGHER RATE OF 10%, INSTEAD OF BEING CONSIDERED AS A BUILDING ON WHICH THE LESSER RATE OF DEPRECIATION WAS ALONE TO BE ALLOWED . THE HONBLE SUPREME COURT APPLIED THE FUNCTIONAL TEST AND CAME TO THE C ONCLUSION THAT THE BUILDING CONSTITUTED A PLANT. FOLLOWING OBSERVATIO NS WERE BROUGHT TO OUR NOTICE:- REFERENCE WAS MADE TO AN EARLIER JUDGMENT, WHERE A LSO THE FUNCTIONAL TEST APPROVED BY THIS COURT IN SEVERAL D ECISIONS WAS APPLIED. IT WAS HELD THAT IF IT WAS FOUND THAT THE BUILDING OR STRUCTURE CONSTITUTED AN APPARATUS OR A TOOL OF THE TAXPAYER BY MEANS OF WHICH BUSINESS ACTIVITIES WERE CARRIED ON, IT AMOUNTED TO A PLANT; BUT WHERE THE STRUCTURE PLAYED NO PAR T IN THE CARRYING ON OF THOSE ACTIVITIES BUT MERELY CONSTITUTED A PLA CE WHEREIN THEY WERE CARRIED ON, THE BUILDING COULD NOT REGARDED AS A PLANT. THE TRIBUNAL AND THE HIGH COURT IN THE INSTANT CASE PRO CEEDED UPON ASSUMPTIONS OF WHAT A NURSING HOME SHOULD CONTAIN. THIS MAY NOT BE ALTOGETHER APPROPRIATE. WHAT IS TO BE DETERMINED IS WHETHER THE PARTICULAR NURSING HOME BUILDING WAS EQ UIPPED SO AS TO ENABLE THE ASSESSEE TO CARRY ON THE BUSINE SS OF A NURSING HOME THEREIN OR WHETHER IT IS JUST ANY PREM ISES UTILISED FOR THAT OBJECT. WE FIND FROM THE ORDER OF THE TRIBUNAL AS ALSO THE ASSESSMENT ORDER THAT THE ASSESSEES NU RSING HOME IS ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 24 OF 38 EQUIPPED TO ENABLE THE STERILIZATION OF SURGICAL IN STRUMENTS AND BANDAGES TO BE CARRIED ON. IT IS REASONABLE TO ASS UME IN THE CIRCUMSTANCES, PARTICULARLY HAVING REGARD TO THE TR IBUNALS ORDER WHICH STATES THAT THE STERILIZATION ROOM COVERS ABO UT 250 SQ.FT. THAT THE NURSING HOME IS ALSO EQUIPPED WITH AN OPER ATION THEATRE. IN THE CIRCUMSTANCE, WE THINK THAT THE FINDING OF T HE HIGH COURT SHOULD BE ACCEPTED. WE WOULD, HOWEVER, ADD THAT IN A CASE SUCH AS THIS, THE TRIBUNAL SHOULD PROCEED UPON MATERIAL PLACED BY THE ASSESSEE WHICH ESTABLISHES THAT THE BUILDING IS SPE CIALLY EQUIPPED AS A PLANT FOR THE ASSESSEES BUSINESS. THE APPEAL IS DISMISSED. NO ORDER AS TO COSTS. (EMPHASIS SUPPLIED) 33. WITH REGARD TO THE ALTERNATIVE CONTENTION THAT THE EXPENDITURE SHOULD BE TREATED AS A REVENUE EXPENDITURE, THE LD. COUNSE L FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF CIT V. EMPIRE JUTE CO. LTD., 124 ITR 1 (SC) , WHEREIN THE SUPREME COURT HELD THAT THE TEST OF ENDURING BENEFIT MAY NOT BE R ELEVANT IN ALL CASES AND ONE HAS TO SEE THE NATURE OF ADVANTAGE OBTAINED BY THE ASSESSEE IN A COMMERCIAL SENSE. IT IS ONLY WHEN THE ADVANTAGE IS IN A CAPITAL FIELD THAT THE EXPENDITURE SHOULD BE DISALLOWED. IF THE ADVAN TAGE IS MERELY FACILITATES THE ASSESSEES TRADING OPERATION OR ENABLES THE MAN AGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS MORE EFFICIENTLY AND MOR E PROFITABLY LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE O N REVENUE ACCOUNT. STRONGLY RELIANCE WAS ALSO PLACED BY THE LD. COUNSE L FOR THE ASSESSEE ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 25 OF 38 HMT LTD., 203 ITR 820 (KAR) , WHEREIN IT WAS HELD THAT LEASE PREMIUM PAID HAS TO BE ALLOWED AS REVENUE EXPENDITURE IN T HE YEAR OF PAYMENT. 34. IN THE CASE OF HMT LTD. (SUPRA) , THE FACTS WERE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH MIDC FOR LEASE OF A PLOT OF LAND OWNED BY MIDC IN FAVOUR OF THE ASSESSEE. THE LEASE WAS FOR A PERIOD OF 95 YEARS. THE ASSESSEE WAS REQUIRED TO CONSTRUCT A BUILDING T HEREON WITHIN TWO YEARS AND PAY A MONTHLY RENT OF RS.1 PER ANNUM. AFTER TH E EXPIRY OF LEASE PERIOD, THE PLOT TOGETHER WITH BUILDING WOULD REVERT TO MID C. THE ASSESSEE HAD TO PAY A SUM OF RS.12,09,200 AS PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS AS TO WH ETHER THE AFORESAID PREMIUM PAID WAS A REVENUE EXPENDITURE OR CAPITAL E XPENDITURE. THE HONBLE COURT HELD THAT WHILE PAYING A LUMP SUM PRE MIUM TO MIDC, THE ASSESSEE WAS IN EFFECT PAYING FUTURE RENTS PAYABLE BY IT PERIODICALLY. THE HONBLE HIGH COURT HELD THAT THE EXPENDITURE WAS RE VENUE IN NATURE, AS IT MERELY FACILITATES THE ASSESSEES TRADING OPERATION S AND THE TEST OF ENDURING BENEFIT SHOULD NOT BE APPLIED. 35. THE LD. DR RELIED ON THE ORDER OF THE CIT(APPEA LS). 36. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. ON THE ISSUE WHETHER THE PAYMENT FOR ACQUIRING LEAS EHOLD RIGHTS ON THE LAND ON WHICH WINDMILLS ARE ERECTED COULD BE TREATE D AS COST OF PLANT ON WHICH DEPRECIATION CAN BE ALLOWED, WE ARE OF THE VI EW THAT THE FACT THAT THE ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 26 OF 38 WINDMILLS NEED TO BE ERECTED ON A HIGH TERRAIN FOR EFFECTIVE GENERATION OF POWER CANNOT BE THE BASIS TO CONCLUDE THAT RENTS PA ID FOR ACQUIRING LEASEHOLD RIGHTS OVER THE LAND AS PART OF THE COST OF PLANT FOR THE PURPOSE OF ALLOWING DEPRECIATION. THE ARGUMENT OF THE LD. COU NSEL FOR THE ASSESSEE HAS BEEN THAT REQUIREMENT OF ERECTING THE WINDMILL AT MOUNTAIN TERRAINS AT A HIGH ALTITUDE IS A TECHNICAL REQUIREMENT FOR GENERA TION OF POWER. THOUGH THIS CONTENTION HAS NOT BEE DISPUTED BY THE REVENUE , THERE IS NO EVIDENCE ON RECORD TO SHOW THAT THERE IS A TECHNICAL REQUIRE MENT OF ERECTING THE WINDMILLS AT HIGH ALTITUDES. WE WILL, HOWEVER, PRO CEED ON THE ASSUMPTION THAT SUCH A TECHNICAL REQUIREMENT EXISTS. EVEN THE N, IN OUR VIEW, THE LEASE RENT PAID FOR ACQUIRING LEASEHOLD RIGHTS OVER THE L AND CAN NEVER BE TREATED AS COST OF THE PLANT (WINDMILL). THE FUNCTIONAL TE ST CANNOT BE EXTENDED TO A CASE OF LEASE RENT FOR ACQUIRING LEASEHOLD RIGHTS O VER THE LAND, WHATEVER BE THE TECHNICAL REQUIREMENT OF ERECTING A PLANT. THE LAW IS WELL SETTLED THAT NO DEPRECIATION IS TO BE ALLOWED ON LAND. BY PLACING RELIANCE ON THE FUNCTIONAL TEST, IT IS NOT POSSIBLE TO ALLOW DEPRECIATION ON L AND INDIRECTLY. IF SUCH A CLAIM WERE TO BE ALLOWED, THEN IT COULD BE EXTENDED TO A CASE OF A LAND OVER WHICH A SHOPPING MALL IS CONSTRUCTED. A SHOPPING M ALL REQUIRES A GOOD AREA/LOCATION, MAIN ROAD FOR GOOD BUSINESS. CAN IT BE SAID THAT THE RENT PAID FOR THE LAND OVER WHICH THE SHOPPING MALL IS C ONSTRUCTED IS PART OF THE BUILDING ON WHICH DEPRECIATION IS TO BE ALLOWED? I N OUR VIEW, BY APPLYING THE FUNCTIONAL TEST, IT IS POSSIBLE TO CONTEND IN A LL THE CASES THAT THE LAND IS A ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 27 OF 38 TOOL OF TRADE AND HAS TO BE REGARDED AS PLANT OR BU ILDING. WE THEREFORE DECLINE TO ACCEPT THE PROPOSITION CANVASSED ON BEHA LF OF THE ASSESSEE. 37. WITH REGARD TO THE ALTERNATIVE CLAIM MADE BY TH E ASSESSEE, THE CLAIM CANNOT FALL WITHIN THE PARAMETERS OF SECTION 30 OF THE ACT, BECAUSE THAT SECTION COVERS ONLY RENT PAID ON BUILDING. THE CLA IM HAS THEREFORE TO BE CONSIDERED U/S. 37(1) OF THE ACT. ON THIS ASPECT, WE FIND THAT THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF HMT LTD. (SUPRA), HAS CONSIDERED THE PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS AS NOTHI NG BUT RENT PAID IN ADVANCE. THE RENT PAID IN ADVANCE WAS FOR ACQUIRIN G LEASEHOLD RIGHTS OVER THE LAND. SUCH PAYMENT HAD BEEN CONSIDERED BY THE HONBLE COURT AS REVENUE EXPENDITURE. IN VIEW OF THE AFORESAID DEC ISION OF THE HONBLE HIGH COURT WHICH IS IN PARI MATERIA WITH THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE LUMP SUM RENT PAID FOR THE ENTIRE PERIOD OF 30 YEARS HAS TO BE CONSIDERED AS REVENUE EXPENDITURE. THE CIT(A) W RONGLY DISTINGUISHED THIS DECISION AS A CASE OF LEASE OF FACTORY BUILDIN G. WE THEREFORE ACCEPT THE ALTERNATIVE PRAYER OF THE ASSESSEE. THUS, THE RELEVANT GROUNDS OF APPEAL IN ALL THE THREE ASSESSMENT YEARS ARE TREATE D AS ALLOWED ON THE ALTERNATIVE GROUND. 38. THE ONLY OTHER ISSUE THAT REMAINS FOR CONSIDERA TION IN ASSESSEES APPEAL IS GROUND NO.2 IN ITA NO.20/BANG/2013, WHICH READS AS UNDER:- 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) ERRED IN LAW AND ON FACTS IN DISALLOWING DEPRECIATI ON ON WINDMILL ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 28 OF 38 INSTALLED AT KOLAHALU VILLAGE ON THE GROUND THAT TH E WINDMILL WAS NOT ACTUALLY PUT TO USE. 39. THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO A .Y. 2008-09 HAD STARTED UNIT-IV AT KOLAHALU VILLAGE. THE ASSESSEE CLAIMED DEPRECIATION ON WINDMILL THAT WAS COMMISSIONED ON 28.3.2008. IT IS NOT IN DISPUTE THAT THE EXECUTIVE ENGINEER (ELECTRICAL), KPTCL, CHITRADURGA CERTIFIED THE COMMISSIONING OF WINDMILL AS ON 28.3.2008. IT IS A LSO NOT IN DISPUTE THAT THOUGH THE WINDMILL WAS COMMISSIONED AND WAS READY FOR USE, THE SAME WAS NOT PUT TO USE ON OR BEFORE 31.3.2008. IT IS I N THIS BACKGROUND THAT DEPRECIATION ON THE WINDMILL COMMISSIONED WAS CLAIM ED. IN THIS REGARD, THE SUBMISSION OF THE ASSESSEE WAS THAT DEPRECIATION O F RS.9,38,97,000/- WAS CLAIMED ON THE WINDMILL FOR ASSESSMENT 20082009, I N RESPECT OF 2 WINDMILLS INSTALLED DURING THE PREVIOUS YEAR AT A C OST OF RS.18,77,94,000/-. THE INSTALLATION OF WINDMILL WAS COMPLETED ON MARCH 28, 2008. SINCE THE ASSET IS READY FOR USE IS FOR PERIOD LESS THAN 180 DAYS AS AT THE END OF THE FINANCIAL YEAR, THE ASSESSEE ENTITLED TO CLAIM THE DEPRECIATION OF 50% OF THE DEPRECIATION RATE. FOR THE PREVIOUS YEAR RELEVANT T O ASSESSMENT YEAR 20082009, THE RATE OF DEPRECIATION ON WINDMILL WAS 80% PLUS ADDITIONAL DEPRECIATION OF 20%. TOTAL DEPRECIATION CLAIMED WAS RS.9,38,97,000/- ((18,77,94,000*50%). IT WAS ALSO SUBMITTED BY THE A SSESSEE THAT THERE IS NO REQUIREMENT UNDER INCOME-TAX ACT, 1961 OR UNDER ANY RULES MADE THERE UNDER THAT EACH ADDITION TO THE ASSET THAT NEEDS TO GENERATE INCOME TO CLAIM THE DEPRECIATION. THE ONLY CONDITION THAT NEE DS TO FULFILL TO CLAIM THE ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 29 OF 38 DEPRECIATION IS ASSET IS PUT TO USE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE RELIED ON THE FOLLOWING DEC ISIONS FOR THE PROPOSITION THAT THE ASSET IS READY FOR USE IS ENOU GH TO CLAIM THE DEPRECIATION: 1. COMMISSIONER OF INCOME TAX VS GEO TECH CONSTRUCT ION CORPORATION (200) 244 ITR 452 (KER) 2. DINESHKUMAR GULABCHAND AGARWAL VS CIT (2004) 267 ITR 768 (BOM) 3. WHITTLE ANDERSON LIMITED VS CIT (1971) 79 ITR 61 3 (BORN) FURTHER RELIANCE WAS ALSO PLACED BY THE ASSESSEE ON THE DECISION OF MADRAS HIGH COURT IN ASSISTANT COMMISSIONER OF INCOME TAX VS KENCES FOUNDATION PRIVATE LIMITED 289 ITR 509 (MAD) WHEREIN FOLLOWING RULINGS HAS GIVEN: (I) THAT SINCE THE WINDMILL INSTALLED BY THE ASSESS EE GOT COMMISSIONED ON SEPTEMBER 30, 1985, AS CERTIFIED BY ELECTRICITY BOARD, THE ENTITLEMENT OF THE ASSESSEE FOR 100 PERCENT DEPRECIATION WITH RESPECT TO ITS INVESTMENT IN THE INSTALLATION OF THE WINDMILL COULD NOT BE DISPUTED AND HENCE THE ASSESSEE WAS ENTITLED TO 100 PERCENT DEPRECIATION WITH REFERENCE TO ITS INVESTMENTS IN T HE WINDMILL. IT WAS SUBMITTED THAT TAKING INTO CONSIDERATION THE FACTS OF THE PRESENT CASE AND THE RATIO OF THE DECISIONS, DEPRECIATION C LAIMED BY THE ASSESSEE IS AS PER LAW. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 30 OF 38 40. THE AO, HOWEVER, WAS OF THE VIEW THAT SINCE THE RE WAS NO USER OF THE WINDMILL DURING THE PREVIOUS YEAR, DEPRECIATION CLAIMED CANNOT BE ALLOWED. THE AO IN THIS REGARD RELIED ON THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DINESHKUMAR GULABCHAND AGARWAL VS CIT (2004) 267 ITR 768 (BOM) , WHEREIN THE HONBLE COURT TOOK A VIEW THAT THE EXPRESSION USE IN SECTION 32 OF THE ACT, HAD BEEN AMENDED AND THE WORD USED HAD BEEN SUBSTITUTED. BY THE A FORESAID AMENDMENT, THE HONBLE COURT HELD THAT ACTUAL USER IS NECESSAR Y FOR ALLOWING DEPRECIATION. 41. ON THIS ISSUE, THE CIT(APPEALS) ALSO CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER. BEFORE THE CIT(A), THE DECISIO N OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF DCIT V. YELLAMMA DASAPPA HOSPITAL, 290 ITR 353 WAS RELIED UPON BY THE REVENUE, WHEREAS THE ASSESSEE SOUGHT TO PLACE RELIANCE ON THE DECISION O F CIT V. CHAMUNDESHWARI SUGARS LTD., 309 ITR 326 (KARN) . IN YELLAMMA DASAPPA HOSPITAL S CASE, THE HONBLE HIGH COURT TOOK A VIEW THAT THE FACT THAT MACHINERY WAS KEPT FOR READY FOR USE, WOU LD ALONE NOT ENTITLE THE ASSESSEE TO CLAIM DEPRECIATION UNLESS THERE WAS ACT UAL USER OF THE MACHINERY. THIS DECISION PERTAINED TO THE A.Y. 198 9-90. IN THE CASE OF CHAMUNDESHWARI SUGARS LTD., THE FACTS WERE THAT MACHINERY WAS INSTALLED BEFORE THE END OF THE PREVIOUS YEAR, BUT COULD NOT BE USED ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 31 OF 38 BECAUSE IT WAS DEFECTIVE. IN SUCH CIRCUMSTANCES, T HE HONBLE HIGH COURT OF KARNATAKA TOOK A VIEW THAT THE ASSESSEE WAS ENTITLE D TO DEPRECIATION BY APPLYING THE PRINCIPLE OF MACHINERY BEING READY TO USE AND THE PRINCIPLE OF PASSIVE USER OF THE ASSET. THE HONBLE HIGH COUR T ALSO FOLLOWED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LIQUIDATORS OF PURSA LTD. V. CIT, 25 ITR 265 (SC) , WHEREIN THE PRINCIPLE OF ACTIVE AND PASSIVE USERS WAS LAID DOWN BY THE HONBLE SUPR EME COURT. THE HONBLE HIGH COURT OF KARNATAKA ALSO DISTINGUISHED ITS EARLIER DECISION IN THE CASE OF YELLAMMA DASAPPA HOSPITAL (SUPRA) AND HELD THAT IN THAT CASE, NO EVIDENCE WAS PLACED TO PROVE USER OF THE M ACHINERY. THE CIT(APPEALS) PREFERRED TO FOLLOW THE DECISION OF YELLAMMA DASAPPA HOSPITAL . 42. BEFORE THE CIT(APPEALS), ANOTHER ARGUMENT WAS P UT FORTH BY THE ASSESSEE THAT WITH THE CONCEPT OF INTRODUCTION OF B LOCK OF ASSETS, THE USER OF MACHINERY FOR THE PURPOSE OF ALLOWING DEPRECIATI ON U/S. 32 HAS BECOME IRRELEVANT AND IN THIS REGARD, RELIED ON THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. BHARAT ALUMINIUM CO. LTD., 187 TAXMAN 111 . THE CIT(APPEALS), HOWEVER, DID NOT EXPRESS ANY O PINION ON THIS ARGUMENT PUT FORTH BY THE ASSESSEE. 43. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 32 OF 38 44. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BE FORE THE REVENUE AUTHORITIES. THE LD. DR RELIED ON THE ORDER OF THE CIT(APPEALS). 45. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. BEFO RE GOING INTO THE QUESTION AS TO WHETHER THE WORD USED REFERS TO TH E ACTUAL USER OR EVEN PASSIVE USER IS COVERED U/S. 32 OF THE ACT, WE ARE OF THE VIEW THAT WITH THE INTRODUCTION OF CONCEPT OF BLOCK OF ASSETS W.E.F. 1 .4.1988, THE QUESTION OF USER OF ASSETS FOR THE PURPOSE OF DEPRECIATION HAS BECOME IRRELEVANT. THIS ASPECT HAS BEEN VERY CLEARLY BROUGHT OUT BY THE HON BLE DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINIUM CO. LTD. (SUPRA) . THE HONBLE DELHI HIGH COURT REFERRED TO THE AMENDED PROVISIONS AND RELEVA NT RULES FOR ALLOWING DEPRECIATION. THE CONCEPT OF BLOCK OF ASSETS WAS INTRODUCED WITH EFFECT FROM 01.04.1988. SECTION 32 (1) OF THE INCOME TAX ACT, 1061 (THE ACT) READS AS FOLLOWS: 32. (1) IN RESPECT OF DEPRECIATION OF - (I) BUILDING, MACHINERY, PLANT OR FURNITURE, BEIN G TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, L ICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH T OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED WHOLLY OR PARTLY, BY THE ASSESSES AND USED FO R THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCT IONS SHALL BE ALLOWED - ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 33 OF 38 (I) .. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERC ENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. 46. SECTION 43(6) OF THE ACT DEFINES THE EXPRESSION WRITTEN DOWN VALUE AND IT READS AS UNDER:- (6) 'WRITTEN DOWN VALUE' MEANS . ( C ) IN THE CASE OF ANY BLOCK OF ASSETS, ( I ) IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, THE AGGREGATE OF THE WRITTEN DOWN VALUES OF A LL THE ASSETS FALLING WITHIN THAT BLOCK OF ASSETS AT THE B EGINNING OF THE PREVIOUS YEAR AND ADJUSTED, (A) BY THE INCREASE BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK, ACQUIRED DURING THE PREVIOUS YEA R; ( B ) BY THE REDUCTION OF THE MONEYS PAYABLE IN RESPEC T OF ANY ASSET FALLING WITHIN THAT BLOCK, WHICH IS SOLD OR DISCARDED OR DEMOLISHED OR DESTROYED DURING THAT PREVIOUS YEAR TOGETHER WITH THE AMOUNT OF THE SCRAP VALUE, IF ANY, SO, HOWEVER, THAT THE AMOUNT OF SUCH REDUCTION DOES NOT EXCEED THE WRITTEN DOWN VALUE AS SO INCREASED; AND 47. THE TERM BLOCK OF ASSETS IS DEFINED IN SECT ION 2(11) OF THE ACT AS UNDER:- 2( 11 ) BLOCK OF ASSETS MEANS A GROUP OF ASSETS FALLING WITHIN A CLASS OF ASSETS COMPRISING ( A ) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLAN T OR FURNITURE; ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 34 OF 38 ( B ) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADE- MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE, IN RESPECT OF WHICH THE SAME PERCENTAGE OF DEPRECIA TION IS PRESCRIBED; 48. PRIOR TO THE INTRODUCTION OF NEW CONCEPT OF BL OCK OF ASSETS WITH EFFECT FROM 01.04.1988, DEPRECIATION USED TO BE CLAIMED SE PARATELY ON EACH ASSET. THE LEGISLATURE FOUND THAT THIS WAS A CUMBE RSOME PROCEDURE LEADING TO VARIOUS DIFFICULTIES. THIS NECESSITATED INTRODUCTION OF THE CONCEPT OF BLOCK ASSETS AND ALLOWABILITY OF DEPRECIATION ON SUCH A BLOCK. THE RATIONALE BEHIND SUCH A PROVISION IS CONTAINED IN C IRCULAR NO.469 DATED 23.09.1986 ISSUED BY THE CENTRAL BOARD OF DIRECT TA XES (CBDT). AFTER REFERRING TO THE BUDGET SPEECH OF THE FINANCE MINIS TER WHEREIN REFERENCE WAS MADE TO THE PROPOSAL TO INTRODUCE A SYSTEM OF A LLOWING DEPRECIATION IN RESPECT OF BLOCK OF ASSETS INSTEAD OF THE PRESENT S YSTEM OF DEPRECIATION ON INDIVIDUAL ASSETS AT PARAGRAPH 6.3, THE BOARD STATE D AS FOLLOWS: AS MENTIONED BY THE ECONOMIC ADMINISTRATION REFOR MS COMMISSION (REPORT NO.12, PARA 20), THE EXISTING SY STEM IN THIS REGARD REQUIRES THE CALCULATION OF DEPRECIATION IN RESPECT OF EACH CAPITAL ASSET SEPARATELY AND NOT IN RESPECT OF BLOC K OF ASSETS. THIS REQUIRES ELABORATE BOOK-KEEPING AND THE PROCESS OF CHECKING THE ASSESSING OFFICER IS TIME CONSUMING. THE GREATER D IFFERENTIATION IN RATES, ACCORDING TO THE DATE OF PURCHASE, THE TY PE OF ASSET, THE INTENSITY OF USE, ETC., THE MORE DISAGGREGATE HAS T O BE THE RECORD KEEPING. MOREOVER, THE PRACTICE OF GRANTING THE TER MINAL ALLOWANCE AS PER SECTION 32(1)(III) OR TAXING THE B ALANCING CHARGE AS PER SECTION 41(2) OF THE INCOME-TAX ACT, NECESSI TATE THE KEEPING OF RECORDS OF DEPRECIATION ALREADY AVAILED OF BY EACH ASSET ELIGIBLE FOR DEPRECIATION. IN ORDER TO SIMPLI FY THE EXISTING ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 35 OF 38 CUMBERSOME PROVISIONS, THE AMENDING ACT HAS INTRODU CED A SYSTEM OF ALLOWING DEPRECIATION ON BLOCK OF ASSETS. THIS WILL MEAN THE CALCULATION OF LUMP-SUM AMOUNT OF DEPRECIA TION FOR THE ENTIRE BLOCK OF DEPRECIABLE ASSETS IN EACH OF THE F OUR CLASSES OF ASSETS NAMELY, BUILDING, MACHINERY, PLANT AND MACHI NERY. 49. THE RATIONALE AND PURPOSE FOR WHICH THE CONCEPT OF BLOCK ASSET WAS INTRODUCED, AS REFLECTED IN THE CBDTS CIRCULAR DAT ED 23.09.1988 IS THAT ONCE THE VARIOUS ASSETS ARE CLUBBED TOGETHER AND BE COME BLOCK ASSET WITHIN THE MEANING OF S. 2(11), IT BECOMES ONE ASSE T. EVERY TIME, A NEW ASSET IS ACQUIRED, IT IS TO BE THROWN INTO THE COMM ON HOTCHPOTCH, I.E., BLOCK ASSET ON MEETING THE REQUIREMENT OF DEPRECIATION BE ING ALLOWABLE AT THE SAME RATE. INDIVIDUAL ASSETS LOSE THEIR IDENTITY AN D BECOME AN INSEPARABLE PART OF BLOCK ASSET IN SO FAR AS CALCULATION OF DEP RECIATION IS CONCERNED. THE MERGER OF VARIOUS ASSETS INTO THE BLOCK ASSET C AN BE ALTERED ONLY WHEN THE EVENTUALITY CONTAINED IN CLAUSE (C) OF S. 43(6) TAKES PLACE, VIZ., WHEN A PARTICULAR ASSET IS SOLD, DISCARDED OR DESTROYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHICH FIRST BROUGHT IN US E). EVEN IN THAT EVENT, THE AMOUNT BY WHICH THE MONEYS PAYABLE IN RESPECT OF TH AT PARTICULAR BUILDING, MACHINERY, ETC. TOGETHER WITH THE AMOUNT OF SCRAP V ALUE IS TO BE DEDUCTED FROM TOTAL WRITTEN DOWN VALUE OF THE BLOCK ASSET. IT IS THUS CLEAR FROM THE AFORESAID PROVISIONS THAT THE ONLY WAY BY WHICH THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION IS TO BE ALLOWED AS PER THE PROV ISIONS OF SEC.32(1) (II) CAN BE ALTERED IS AS PER THE SITUATION REFERRED TO IN SEC.43(6)(C)(I) A AND B. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 36 OF 38 50. THE HONBLE DELHI HIGH COURT THEREAFTER HELD T HAT USER OF THE ASSET AFTER THE CONCEPT OF BLOCK OF ASSETS IS NO LONGER A REQUIREMENT FOR ALLOWING DEPRECIATION. THE FOLLOWING WERE THE RELEVANT OBSE RVATIONS. 31. AFTER GOING THROUGH THESE DECISIONS OF THE VARIOUS BENCHES OF THE TRIBUNAL AND THE SCHEMATIC INTENTION BEHIND THE PROVISIONS RELATING TO DEPRECIATION CONTAINED IN THE AFORESAID PROVISIONS, WE ARE INCLINED TO AFFIRM THE VIEW TAKEN BY THE TRIBUN AL IN THE INSTANT CASE. WHILE DOING SO, WE HAVE IN MIND THE RATIONALE AND PURPOSE FOR WHICH THE CONCEPT OF BLOCK ASSET WAS INTRODUCED BY THE AMENDMENT IN THE PROVISIONS OF THE ACT, AS REFLECTE D IN THE CIRCULAR DT. 23RD SEPT., 1988 OF THE CBDT. INTENTION BEHIND THESE PROVISIONS IS APPARENT. ONCE THE VARIOUS ASSETS ARE CLUBBED TOGETHER AND BECOME BLOCK ASSET WITHIN THE MEANING OF S. 2(11) OF THE ACT, FOR THE PURPOSE OF DEPRECIATION, IT IS ONE ASSET. EVERY TIME, A NEW ASSET IS ACQUIRED, IT IS TO BE THROWN INTO TH E COMMON HOTCHPOTCH, I.E., BLOCK ASSET ON MEETING THE REQUIR EMENT OF DEPRECIATION ALLOWABLE AT THE SAME RATE. THE VALUE OF THE BLOCK ASSET INCREASES AND THE DEPRECIATION IS TO BE GIVEN ON THE AFORESAID VALUE, WHICH IS TO BE TREATED AS WDV. INDIVIDUAL AS SETS LOSE THEIR IDENTITY FROM THAT VERY MOMENT IT BECOMES INSEPARAB LE PART OF BLOCK ASSET INSOFAR AS CALCULATION OF DEPRECIATION IS CONCERNED. FUSION OF VARIOUS ASSETS INTO THE BLOCK ASSET GETS DISTURBED ONLY WHEN EVENTUALITY CONTAINED IN CL. (III) OF S. 32 TA KES PLACE, VIZ., WHEN A PARTICULAR ASSET IS SOLD, DISCARDED OR DESTR OYED IN THE PREVIOUS YEAR (OTHER THAN THE PREVIOUS YEAR IN WHIC H FIRST BROUGHT IN USE). EVEN IN THAT EVENT, THE AMOUNT BY WHICH TH E MONEYS PAYABLE IN RESPECT OF THAT PARTICULAR BUILDING, MAC HINERY, ETC., TOGETHER WITH THE AMOUNT OF SCRAP VALUE IS TO BE DE DUCTED FROM TOTAL WDV OF THE 'BLOCK ASSET'. 32. ONCE WE UNDERSTAND AND APPRECIATE THIS SCHEME CONT AINED IN THE AFORESAID PROVISIONS, IT IS NOT POSSIBLE TO ACC EPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE REVENUE THAT UNLESS A PARTICULAR ASSET IS USED FOR THE PURPOSE OF BUSINESS OR PROVIS ION, DEPRECIATION IS NOT ALLOWED. NO DOUBT, AS PER S. 32(1) OF THE AC T, IN ORDER TO BE ENTITLED TO CLAIM DEPRECIATION, THE ASSET IS TO BE OWNED BY THE ASSESSEE AND IT IS ALSO TO BE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. HOWEVER, THE EXPRESSION 'USED FOR THE P URPOSE OF BUSINESS', WHEN APPLIED TO BLOCK ASSET, WOULD MEAN USE OF BLOCK ASSET AND NOT ANY SPECIFIC BUILDING, MACHINERY, PLA NT OR FURNITURE IN THE SAID BLOCK ASSET AS INDIVIDUAL ASSETS HAVE LOST THEIR IDENTITY AFTER BECOMING INSEPARABLE PART OF THE BLOCK ASSET. THAT IS THE ONLY MANNER IN WHICH VARIOUS PROVISIONS CAN BE HARMONIZE D. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 37 OF 38 33. ONCE WE LOOK INTO THE PROVISIONS OF THIS ANGLE, AN SWER TO THE ARGUMENT OF THE LEARNED COUNSEL FOR THE REVENUE PRE DICATED ON SECOND PROVISO TO S. 32 SHALL ALSO BE PROVIDED. IT WAS HER SUBMISSION THAT IF A PARTICULAR ASSET IS ACQUIRED A FTER 30TH SEPTEMBER DURING THE PREVIOUS YEAR AND IS PUT TO US E FOR A PERIOD OF LESS THAN 180 DAYS IN THE PREVIOUS YEAR, THE DED UCTION UNDER SUB-S. (1) OF S. 32 IS RESTRICTED TO 50 PER CENT OF AMOUNT ADMISSIBLE. ON THAT BASIS, SHE HAD ARGUED THAT REQU IREMENT OF USER OF INDIVIDUAL ASSET REMAINS INTACT. ANSWER TO THIS ARGUMENT IS THAT THIS WOULD BE THE POSITION IN THE FIRST YEAR WHEN T HE PARTICULAR ASSET IS ACQUIRED. WITH THE USER, IT WOULD MEET THE REQUI REMENT OF S. 32. IN THE SUBSEQUENT YEARS, IT IS THE USE OF BLOCK ASS ET, WHICH BECOMES THE YARDSTICK AND NOT THE INDIVIDUAL ASSET ALREADY ACQUIRED IN THE EARLIER YEARS, OTHER THAN THE PREVI OUS YEAR IN WHICH IT IS FIRST BROUGHT INTO USE. 34. IN THE INSTANT CASE, THE PSL EQUIPMENT WAS PURCHAS ED AND PUT TO USE BY THE ASSESSEE IN PREVIOUS YEAR RELEVANT TO THE ASST. YR. 1990-91 AND THE SAME HAD ENTERED INTO THE BLOCK ASS ET IN THAT YEAR. IT, THUS, LOST INDIVIDUAL IDENTITY FOR THE AL LOWANCE OF DEPRECIATION IN THAT YEAR. SINCE IT IS NOT IN DISPU TE FOR THE YEAR IN QUESTION AND BLOCK OF ASSETS WAS USED, THE ASSESSEE WAS RIGHTLY GIVEN THE BENEFIT OF DEPRECIATION IN THE YEARS IN Q UESTION. THE QUESTION STANDS ANSWERED AGAINST THE REVENUE. 51. IN THE LIGHT OF THE AFORESAID DECISION OF THE H ONBLE DELHI HIGH COURT, WE ARE OF THE VIEW THAT THE ISSUE CAN BE DECIDED FR OM THIS ANGLE AND THE ASSESSEE SHOULD BE ALLOWED THE BENEFIT OF DEPRECIAT ION. ADMITTEDLY THE VALUE OF THE WINDMILLS ON WHICH DEPRECIATION WAS CL AIMED BY THE ASSESSEE ENTERED THE BLOCK OF ASSETS ON WHICH DEPRECIATION W AS CLAIMED. THE WINDMILLS HAD BEEN INSTALLED AND ACQUIRED BY THE AS SESSEE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF BHARAT ALUMINIUM CO. LTD. (SUPRA) WILL SQUARELY APPLY. WE ACCORDINGLY ALLOW GROUND NO.2 RAISED BY THE ASSESSEE. ITA NOS.18 TO 20/BANG/2013 & 144 TO 146/BANG/2013 PAGE 38 OF 38 52. IN THE RESULT, THE APPEALS BY THE REVENUE ARE D ISMISSED, WHILE THE APPEALS BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF JUNE , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 13 TH JUNE , 2014 . /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.