M/s. G.B.Rubber Products, Pune V. Dy. CIT, Cir.8, Pune, Pune

ITA 1466/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49787 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 24-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JHA
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 1466/PN/2009: A.Y. 2005-06 G.B. RUBBER PRODUCTS S-157 MIDC BHOSARI, PUNE-411 026 PAN AACFG 5404 A APPELLANT VS. DY. CIT CIR. 8, PUNE RESPONDENT APPELLANT BY: SHRI M.K. KULKARNI RESPONDENT BY: SHRI JHA ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT-V, PUNE DATED 24-9-2009 FOR A.Y. 2 005-06 WHEREIN ACTION OF THE CIT UNDER THE PROVISIONS OF S ECTION 263 HAS BEEN OPPOSED. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF RUBBER COMPONENTS AND PARTS. IT I S ALSO ENGAGED IN THE BUSINESS OF POWER GENERATION SINCE F .Y. 2001-02 RELEVANT TO A.Y. 2002-03. THE RETURN OF IN COME FOR THE ASSESSMENT YEAR 2005-06 WAS FILED BY THE ASSESS EE ON 31-10-2005 DECLARING TOTAL INCOME AT RS. 1,98,62,54 8/-. THE ASSESSING OFFICER FINALIZED THE ASSESSMENT U/S 143(3) OF THE ACT ON 24-10-2007 ON ASSESSED INCOME OF RS. PAGE 2 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 2,01,48,090/-FOR A.Y. 2005-06. THE CIT ON EXAMINATI ON OF RECORDS AND VERIFICATION OF THE MANUFACTURING AND P ROFIT AND LOSS ACCOUNT ATTACHED TO THE RETURN OF INCOME O BSERVED THAT THE ASSESSEE HAS SHOWN INCOME OF RS. 15,64,381 /- FROM SALE OF POWER AND THE SAID INCOME HAS BEEN CLA IMED AS DEDUCTION U/S 80-IA OF THE ACT FOR A.Y. 2005-06 WHICH IS THIRD CONSECUTIVE YEAR OF CLAIMING THE ABOVE DEDUCT ION. THE DEDUCTION CLAIMED U/S 80-IA OF THE ACT FOR A.Y. 200 5-06 WAS ALLOWED BY THE ASSESSING OFFICER WITHOUT CONSID ERING THE PROVISIONS OF SECTION 80-IA(5) OF THE ACT WHICH PROVIDED FOR DETERMINATION OF THE QUANTUM OF DEDUCTION FROM THE ELIGIBLE BUSINESS AFTER TAKING INTO ACCOUNT THE NOT IONAL BROUGHT FORWARD LOSSES AND/OR DEPRECIATION EVEN THO UGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME OF EARLIER YEARS. THUS, THE ASSESSMENT ORDER PASSED B Y THE ASSESSING OFFICER ON 24-10-2007 FOR A.Y. 2005-06 WA S FOUND ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE ORDER OF THE ASSESSING OFFICER WAS SET ASIDE UNDER THE PROVISIONS OF SECTI ON 263 OF THE ACT BY OBSERVING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS MADE BY THE ASSESSEE. HOWEVER, IN VIEW OF THE SPECIFIC PROVISIONS OF SUB-SECTION (5) OF SE CTION 80-IA, THE A.O HAS CLEARLY COMMITTED AN ERROR IN ALLOWING DEDUCTION OF RS. 15,64,381/- U/S 80-IA FOR A.Y. 2005-06. THEREFORE, IN THE FITNESS OF THE THI NGS IT IS ESSENTIAL TO SET ASIDE THE ASSESSMENT FOR THE YE AR UNDER CONSIDERATION SO THAT THE A.O WILL HAVE FULL OPPORTUNITY TO ARRIVE AT CORRECT CONCLUSION. ACCORDINGLY, THE ASSESSMENT ORDER IS SET ASIDE WITH A DIRECTION TO THE A.O TO FRAME IT DE-NOVO AFTER TAKI NG PAGE 3 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 INTO ACCOUNT THE FACTS OF THE CASE AND THE SUBMISSI ONS MADE BY THE ASSESSEE. THE A.O SHOULD GIVE FULL OPPORTUNITY TO THE ASSESSEE AND GIVE EFFECT TO THIS ORDER. 3. THE LEARNED AR FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL HAD OCCASION TO DECIDE A SIMILAR ISSUE IN ASSESSEES OWN CASE FOR A.Y. 2004-05 IN ITA NO. 459/PN/2009 WHEREIN THE TRIBUNAL VIDE ITS ORDER DAT ED 16- 12-2010 DECIDED THE ISSUE BY OBSERVING AS UNDER: 4. THE LEARNED AR POINTED OUT THAT THE TRIBUNAL HA D OCCASION TO DECIDE A SIMILAR ISSUE IN THE CASE OF PADMAVATI WIND ENERGY P. LTD. VS. ACIT IN ITA NO. 618/PN/2008 FOR A.Y. 2003-04 WHEREIN THE TRIBUNAL VIDE ITS ORDER DATED 29-10-2010 HAS SET ASIDE THE I SSUE TO THE FILE OF THE ASSESSING OFFICER BY OBSERVING A S UNDER: 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CONTENTIONS OF BOTH THE PARTIES. THE ITAT IN THE CA SE OF MRS. KHATIZA S. OOMERBHOY V. ITO (2006) 101 TTJ (MU M.) 1095, ANALYZED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 RELIED ON BY THE COUNSEL A S WELL AS HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE O F CIT V. GABRIEL INDIA LTD. (1993) 203 ITR 108 AND HAS PRONOUNCED THE FOLLOWING BROADER PRINCIPLES TO JUDG E THE ACTION OF CIT TAKEN UNDER SECTION 263: - 'THE FUNDAMENTAL PRINCIPLE WHICH EMERGES FROM THE ABOVE CASE MAY BE SUMMARIZED BELOW.' I. THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. II. SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. III. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. PAGE 4 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 IV. IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. V. EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADOPTED ONE OF THE COURSE PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UNDER LAW. VI. IF WHILE MAKING THE ASSESSMENT, THE ASSESSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER SECTION 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE ASSESSING OFFICER. VII. THE ASSESSING OFFICER EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. VIII. THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. IX. IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE ASSESSING OFFICER ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD.' 5.1 CONSIDERING THE ABOVE PRINCIPLES, THE FACTS IN THE PRESENT CASE HAS BEEN EXAMINED. BEFORE ADVERTING TO THE ISSUE OF JURISDICTION, IT IS NECESSARY TO EXTRACT T HE COMPUTATION GIVEN BY THE ASSESSEE WHICH IS AS UNDER :- SR. NO. PARTICULARS AMOUNT AMOUNT PAGE 5 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 RS 6,881,857.15 100,600.00 RS 6,982,457.15 1 2 INCOME FROM BUSINESS NET PROFIT AS PER PROFIT & LOSS A/C ADD:- DISALLOWED EXPS. CLUB MEMBERSHIP FEES INCOME FROM OTHER SOURCES GROSS TOTAL INCOME LESS:- DEDUCTION UNDER CHAPTER VIA U/S 80IA-INOCME FROM POWER GENERATION (AS PER ANNEXURE ATTACHED) 6,982,457.15 3,741,304.15 TOTAL INCOME LESS:- UNABSORBED DEPRECIATION/LOSSES BROUGHT FORWARD AND ADJUSTED BUSINESS LOSS A.Y 2000-01 DEPRECIATION LOSS A.Y 2001- 02 (TO THE EXTENT ADJUSTED) 18,840.00 3,222,313.00 3,241,153.00 3,241,153.00 TAXABLE INCOME TAXABLE INCOME (ROUNDED OFF) TAX ON TOTAL INCOME LESS:-TAX DEDUCTED AT SOURCE REFUND DUE 3,241,153.00 - - - 161,071.00 161,071.00 5.2 IN ARRIVING AT THE PROFIT OF RS. 3,741,304.15/- , THE ASSESSEE HAS WORKED OUT THE PROFIT AS UNDER:- PARTICULARS RS RS RS GROSS POWER GENERATION RECEIPTS PAGE 6 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 14,101.00 45,577.00 4,998.00 1,870,177.00 2,254,500.00 64,676.00 4,124,677.00 SALE OF ELECTRICITY SALE OF SALES TAX BENEFIT LESS:- EXPENSES DIRECTLY RELATED THE MACHINES MSEB CHARGES INSURANCE PACKAGE SCHEME (WINDMILL) NON-AGRI TAX PAID FOR MACHINES LAND LESS:- RATIO OF ADMN. EXPS. INCURRED FOR MACHINES AUDIT FEES BANK COMMISSION & CHARGES DIRECTORS REMUNERATION INTEREST ON LOAN SALARY EXPS LEGAL FEES MISC. EXPENSES PROF. FEES PRINTING & STATIONARY TRVELLING & CONVEYANCE 14,500.00 19,134.00 120,000.00 49,678.00 262,000.00 4,850.00 849.00 7,000.00 1,700.00 254,651.00 318,696.85 TOTAL 734,362.00 383,372.85 RATIO= TOTAL ADMN. EXPS. TOTAL INCOME X POWER GENERATION RECEIPTS AMOUNT OF EXEMPTION U/S. 80IA 3,741,304.15 5.3 IN ARRIVING AT THE ABOVE FIGURES THE ASSESSEE H AS GIVEN THE FOLLOWING DETAILS FROM THE COMPILATION IN PARA 2 (A ) AND (B) :- 2) INITIAL ASSESSMENT YEAR A. THE DETAILS OF INCOME A.Y 2000-01 ADMINISTRATION EXPENSES 18840/- NO BUSINESS RECEIPT NO. 80-IA CLAIM A.Y. 2001-02 UNABSORBED DEPRECIATION 6815026/- 18840/- NO 80-IA CLAIM A.Y. 2002-03 PAGE 7 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 ELECTRICITY SALES 1493415/- OTHER INCOME 5104719/- TOTAL EXPENSES 8,78,771/- CARRIED FORWARD LOSS:- 1) UNABSORBED DEPRECIATION 6815026 2) LOSS: ADMINISTRATION EXPENSES 2000-01 18840 ------------ UNABSORBED DEPRECIATION IN 6833866=90 ONLY OUT OF WIND MILL BUSINESS. NO 80-IA CLAIM. A.Y 2003-04 1) POWER GENERATION 4124677/- 2) OTHER INCOME 5379672/- 3) POWER GENERATION 4124677/- B. THE OTHER DETAILS BANK INTEREST 20,391/- LAND DEVELOPMENT CHARGE 53,59,206/- LEASE RENT RECD. 75/- ------------------- 53,79,672/- -------------------- EXPENSES 53,59,206/- LAND DEVELOP. 16,33,176/- -------------------- 37,26,030/- --------------------- DEPRECIATION 69677.85 CLAIM OF 80-IA-FIRST YEAR 3741304/- 5.4 AS CAN BE SEEN FROM THE ABOVE, THE ASSESSEE HA S CERTAIN ELECTRICITY SALES IN A.Y 2002-03 AND OTHER INCOME F ROM THE LAND DEVELOPMENT AND ACCORDING TO THE CONTENTIONS T HERE HAS BEEN NO 80IA CLAIM IN A.Y 2002-03. IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAS THE RECEIPT OF RS . 4,124,677/- OUT OF POWER GENERATION AND OTHER INCOM E OF RS. 5,379,672/- AND AFTER CLAIMING EXPENSES THE NET PR OFIT SHOWN IN P & L ACCOUNT IS RS. 6,881,857/- . IT HAS ARRIVE D AT THE PROFIT FROM THE POWER GENERATION AT RS. 3,741,304/- AFTER EXCLUDING THE OTHER INCOME AND CORRESPONDING EXPENS ES AND PAGE 8 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 DEPRECIATION ON THE OTHER BUSINESS OF LAND DEVELOPM ENT. THUS, THE PROFIT FROM POWER GENERATION WAS ARRIVED AT RS. 3,741,304/- OUT OF THE TOTAL RECEIPTS OF RS. 4,12 4,677/-. THIS WORKING OF PROFITS ON POWER GENERATION AND ALSO THE CLAIM OF SET OFF HAS NOT BEEN EXAMINED BY THE A.O AT ALL IN THE ORDER PASSED U/S. 143(3). AS SEEN FROM THE DISCUSSION EXT RACTED IN PAGE 2 AND 3 OF THE A.O THE ENTIRE ENQUIRY OF THE A .O WAS ON BRIEF HISTORY OF THE BUSINESS ACTIVITY, LIST OF DEB TORS. COMPARATIVE DEPRECIATION CHART FOR THE LAST 3 YEARS ORDERS, PHOTO COPIES OF WIND MILL INSURANCE, COMPARATIVE ST ATEMENT OF P & L A/C., DIRECTORS REMUNERATION DETAILS, TRAVELL ING AND CONVEYANCE ETC WITHOUT THERE BEING ANY DISCUSSION E ITHER ON 80IA CLAIM OR ITS WORKING OR U/S. 115JB. HE ALSO EX AMINED THE INCOME FROM THE LAND DEVELOPMENT AND JUSTIFICAT ION OF THE EXPENSES AND DEDUCTIONS BUT THERE SEEMS TO BE NO EN QUIRY ON THE ABOVE TWO ISSUES. LD. COUNSEL ALSO DID NOT PLAC E ON RECORD ANY ENQUIRIES MADE BY THE A.O DURING THE COURSE OF ASSESSMENT PROCEEDINGS ABOUT ENQUIRIES CONDUCTED WI TH REFERENCE TO THE CLAIM U/S. 80IA OR U/S 115JB. SIN CE THE A.O HAS NOT MADE ANY ENQUIRY ON THESE TWO ISSUES, ON TH E PRINCIPLES ESTABLISHED IN THE JURISDICTIONAL DECISI ONS AS DISCUSSED ABOVE, THE CIT HAS RIGHTLY INVOKED THE PO WERS VESTED IN HIM U/S 263 AS THE ORDER IS NOT ONLY ERRO NEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. 5.5 NOT ONLY THAT, THE WORKING MADE BY THE ASSESSEE IN ITS CLAIM ALSO PRIMA FACIE NOT CORRECT AS THE ASSESSEE HAS TO SET OFF THE CARRIED FORWARD LOSSES AND/OR DEPRECIATION WHIL E ARRIVING AT THE GROSS TOTAL INCOME. HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. VS. AO (2008) 299 ITR 444 (SC) HAS ESTABLISHED THE PRINCIPLES OF SET OFF AS UNDER:- THE EFFECT OF CLAUSE (5) OF SECTION 80B OF THE INC OME-TAX ACT, 1961, IS THAT GROSS TOTAL INCOME WILL BE ARR IVED AT AFTER MAKING THE COMPUTATION AS FOLLOWS: (I) MAKING DEDUCTIONS UNDER THE APPROPRIATE COMPUTATION PROVISIONS, (II) INCLUDING THE INCOMES, IF ANY, UND ER SECTIONS 60 TO 64 IN THE TOTAL INCOME OF THE INDIVI DUAL; (III) ADJUSTING INTRA-HEAD AND /OR INTER-HEAD LOSSES; AND (IV) SETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND UNABSORBED DEPRECIATION, ETC. ONLY IF THE GROSS TOT AL INCOME SO DETERMINED IS POSITIVE THE QUESTION OF AL LOWING THE DEDUCTIONS UNDER CHAPTER VI-A WOULD ARISE, NOT OTHERWISE. 5.6 KEEPING THE ABOVE PRINCIPLES IN MIND, THE CARRI ED FORWARD DEPRECIATION BEING MORE THAN THE PROFIT OF THE YEAR (THE PROFIT BEING RS. 6982457/- AND THE UNABSORBED DEPRECIATION BEING RS. 9492448/-) QUESTION OF DEDUCTION UNDER CHAPTER VIA DOES NOT ARISE AS GROSS TOTAL INCOME WILL BE NIL AFTE R SET OFF OF THE PAGE 9 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 CARRIED FORWARD DEPRECIATION. THEREFORE, EVEN IF TH E ASSESSEE ARRIVED AT THE PROFIT OF RS. 3741304/- TOWARDS THE PROFIT GENERATED IN THE POWER GENERATION UNIT, THE DEDUCTI ON U/S. 80IA CANNOT BE ALLOWED IN VIEW OF THE GROSS TOTAL INCOME BEING NIL. CONSEQUENTLY WORKING MADE BY THE ASSESSE E IN THE COMPUTATION OF THE INCOME IS NOT CORRECT. THE A.O H AS NOT CONSIDERED THIS AND ALLOWED THE CLAIM WRONGLY AND A LSO THE CONSEQUENT COMPUTATION OF UNABSORBED DEPRECIATION T O BE CARRIED FORWARD. 6. ANOTHER ASPECT WHICH HAS NOT BEEN CONSIDERED BY THE AO WAS WHETHER THE ASSESSEE MADE THE CLAIM OF 80IA FOR THE FIRST TIME IN THIS ASSESSMENT YEAR OR IN THE EARLIER ASS ESSMENT YEAR. EVEN THOUGH THE ASSESSEES CONTENTIONS ON INI TIAL ASSESSMENT YEAR IS CORRECT AS THE JUDGMENT OF THE S PECIAL BENCH IN THE CASE OF ACIT VS. GOLDMINE SHARES AND F INANCE (P) LTD. 116 TTJ (AHD) (SB) 705 WAS APPLICABLE TO THE P ROVISIONS AND EFFECTIVE UP TO 31/03/2000. CONSEQUENT TO THE REPLACEMENT OF THE THEN EXISTING PROVISIONS BY TH E FINANCE ACT, 1999 EFFECTIVE FROM 01/04/2000, THE ASSESSEE H AS AN OPTION TO CLAIM THE DEDUCTION U/S. 80IA FROM ANY OF THE ASSESSMENT YEARS WITHIN THE BLOCK OF YEARS U/S. 80I A(2). THE PROVISIONS OF SEC. 80IA(2) IS AS UNDER:- (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY , AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY T EN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK [OR DEVELOPS] A SPECIAL ECONOMIC ZONE REFERRED TO I N CLAUSE (III) OF SUB-SECTION (4)] OR GENERATES POWER OR COM MENCES TRANSMISSION OR DISTRIBUTION OF POWER [OR UNDERTAKE S SUBSTANTIAL RENOVATION AND MODERNIZATION OF THE EXI STING TRANSMISSION OR DISTRIBUTION LINES [OR LAYS AND BEG INS TO OPERATE A CROSS-COUNTRY NATURAL GAS DISTRIBUTION NE TWORK] [ PROVIDED THAT WHERE THE ASSESSEE DEVELOPS OR OPERATES AND MAINTAINS OR DEVELOPS, OPERATES AND MAINTAINS ANY INFRASTRUCTURE FACILITY REFERRED TO IN CLAUSE (A) O R CLAUSE (B) OR CLAUSE (C) OF THE EXPLANATION TO CLAUSE (I) OF SUB- SECTION (4), THE PROVISIONS OF THIS SUB-SECTION SHALL HAVE EFFECT AS IF FOR THE WORDS FIFTEEN YEARS, THE WORDS TWENTY YEARS HAD BEEN SUBSTITUTED.] 6.1 THE 80IA(5) WHICH CONSIDERED BY THE CIT IS AS U NDER:- (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE B USINESS TO PAGE 10 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL , FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION UND ER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUC CEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSES SMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOU S YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVER Y SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO B E MADE. 6.2 AS CAN BE SEEN FROM THE ABOVE PROVISIONS THE AS SESSEE HAS AN OPTION TO CLAIM DEDUCTION IN ANY OF THE 10 C ONSECUTIVE ASSESSMENT YEARS OUT OF THE 15 YEARS BEGINNING FROM THE YEAR IN WHICH UNDERTAKING GENERATES POWER OR UNDERTAKES TRANSMISSION OF POWER. ACCORDINGLY THE ASSESSEE HAS RIGHT TO OPT FOR THE FIRST OF THE 10 CONSECUTIVE ASSESSMENT YEARS CALLED INITIAL ASSESSMENT YEAR AS PER SUB SEC. (5). ONCE THE ASSESSEE CHOOSES THE INITIAL ASSESSMENT YEAR THE PROVISIONS RELATING TO QUARANTINING OF THE UNIT WILL START FROM THAT YEAR ONLY. CONSEQUENTLY THE LOSSES OR DEPRECIATION OF THE YEAR PRIOR TO THE INITIAL ASSESSMENT YEAR CANNOT BE CONSIDERED AS PER THE PROVISIONS U/S. 80IA(5). THE PRINCIPLE WAS CONSIDER ED IN THE COORDINATE BENCH DECISION IN THE CASE OF MOHAN BREW ERIES AND DISTILLERIES LTD. (SUPRA) WHEREIN IT WAS HELD: 'SECTION 80-IA AS AMENDED BY THE FINANCE ACT, 1999 GIVES AN OPTION TO THE ASSESSEE WITH EFFECT FROM 1-4-2000 TO CLAIM RELIEF UNDER THIS SECTION FOR ANY 10 CONSECUTIVE ASSESSMEN T YEARS OUT OF 15 YEARS BEGINNING FROM THE YEAR ENDING IN W HICH THE UNDERTAKING OR ENTERPRISE DEVELOPS OR BEGINS TO OPE RATE ANY INFRASTRUCTURE FACILITY, ETC. IT IS LEFT TO THE ASS ESSEE AT ITS WILL TO CLAIM THIS RELIEF FROM THE FIRST ASSESSMENT YEAR, O R FROM THE SECOND OR FROM THE THIRD OR SO AS IT MIGHT THINK FI T. ONCE THE ASSESSEE HAS OPTED THE FIRST YEAR OF RELIEF THEN IT CONTINUES FOR FURTHER 9 CONSECUTIVE YEARS. TO CLAIM THIS RELIEF, THE UNDERTAKING IS TO BE SET-UP DURING THE PERIOD 1-4-1 993 TO 31- 3-2006. THIS IS AS PER SECTION 80-IA(4)(IV). SECTIO N 80-IA(2) CLEARLY STATES THAT THE ASSESSEE CAN OPT FOR YEAR O F DEDUCTION FOR ANY 10 CONSECUTIVE YEARS OUT OF 15 YEARS TAKEN FROM THE FIRST YEAR IN WHICH THE UNDERTAKING OR ENTERPRISE D EVELOPS AND BEGIN TO OPERATE ANY INFRASTRUCTURE ACTIVITY. SECTI ON 80-IA(2) DOES NOT MANDATE THAT FIRST YEAR OF 10 CONSECUTIVE ASSESSMENT YEARS SHOULD BE ALWAYS THE FIRST YEAR OF SET-UP OF ENTERPRISE. IF THE INTENTION OF THE LEGISLATURE IS THAT THE FIRST YEAR OF SET-UP IS THE INITIAL ASSESSMENT YEAR TO CLAIM DEDUCTION U NDER SECTION 80-IA, THEN THERE IS NO MEANING IN GIVING OPTION TO THE ASSESSEE TO CLAIM DEDUCTION FOR 10 CONSECUTIVE ASSE SSMENT YEARS OUT OF 15 YEARS. THE MEANING OF SECTION 80-IA (2) IS THAT THE ASSESSEE CAN EXERCISE THE OPTION IN ANY 10 CONS ECUTIVE YEARS STARTING FROM THE FIRST YEAR IN WHICH THE UND ERTAKING PAGE 11 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY. IF T HE ASSESSEE OPTS TO EXERCISE THE CLAIM FOR FIRST YEAR, IT SHOUL D CONTINUE TO CLAIM THE DEDUCTION FOR ANOTHER 9 YEARS. IF IT OPTS THE SECOND YEAR TO CLAIM DEDUCTION, IT SHOULD CONTINUE FOR ANO THER 9 YEARS TILL THE 11TH YEAR; SIMILARLY IF IT OPTS TO CLAIM R ELIEF FROM THE 3RD YEAR, IT WILL END IN THE 12TH YEAR; IF IT OPTS TO C LAIM FROM THE 4TH YEAR THEN IT WILL END IN THE 13TH YEAR; IF IT O PTS TO CLAIM FROM THE 5TH YEAR IT WILL END IN THE 14TH YEAR AND IF IT OPTS TO CLAIM FROM THE 6TH YEAR IT WILL END IN THE 15TH YEA R. SECTION 80-IA(2) HAS NO PROVISION FOR THE ASSESSEE TO CLAIM DEDUCTION IN ANY ASSESSMENT YEAR STARTING FROM THE FIRST ASSE SSMENT YEAR. THE PROVISION OF SECTION 80-IA(5) IS APPLICAB LE ONLY WHEN THE ASSESSEE CHOOSES TO CLAIM DEDUCTION UNDER SECTI ON 80-IA AND IF IT HAS NOT CHOSEN TO CLAIM THE DEDUCTION UND ER SECTION 80-IA, SECTION 80-IA(5) CANNOT BE MADE APPLICABLE. IN THE INSTANT CASE, THERE WAS A CATEGORICAL FINDING BY TH E ASSESSING OFFICER AND THE COMMISSIONER (APPEALS) THAT THE FIR ST YEAR CLAIMED BY THE ASSESSEE WAS FROM THE ASSESSMENT YEA R 2004- 05. SINCE THE ASSESSEE HAD OPTED TO CLAIM THIS DEDUCTIO N ONLY IN THIS ASSESSMENT YEAR, THE INITIAL ASSESSMENT YEAR C OULD NOT BE THE YEAR IN WHICH THE UNDERTAKING COMMENCED ITS OPE RATIONS AND IN THE INSTANT CASE, THE INITIAL ASSESSMENT YEA R WAS THE ASSESSMENT YEAR IN WHICH THE ASSESSEE HAD CHOSEN TO CLAIM DEDUCTION UNDER SECTION 80-IA. HENCE, THE PROVISION S OF SECTION 80-IA(5), TREATING UNDERTAKING AS A SEPARAT E SOLE SOURCE OF INCOME, COULD NOT BE APPLIED TO A YEAR PR IOR TO THE YEAR IN WHICH THE ASSESSEE OPTED TO CLAIM RELIEF UN DER SECTION 80-IA FOR THE FIRST TIME. FURTHER, DEPRECIATION AND CARRY FORWARD LOSS RELIEF TO THE UNIT WHICH CLAIMS DEDUCT ION UNDER SECTION 80-IA CANNOT BE NOTIONALLY CARRIED FORWARD AND SET-OFF AGAINST THE INCOME FROM THE YEAR IN WHICH THE ASSES SEE STARTED CLAIMING DEDUCTION UNDER SECTION 80-IA. THEREFORE, THERE WAS NO QUESTION OF SETTING-OFF NOTIONALLY CARRIED FORWA RD UNABSORBED DEPRECIATION OR LOSS OF EARLIER YEARS AG AINST THE PROFITS OF THE UNITS AND THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80-IA ON THE CURRENT ASSESS MENT YEAR'S PROFIT. ASSESSEE HAVING CLAIMED DEDUCTION UNDER S. 80-IA FO R THE FIRST TIME IN ASST. YR. 2004-05, THIS WILL BE THE YEAR IN WHICH THE UNDERTAKING HAS TO BE TREATED AS A SEPARATE SOLE SO URCE OF INCOME WITHIN THE MEANING OF S. 80-IA(5) AND, THERE FORE, DEPRECIATION AND LOSS OF EARLIER YEARS CANNOT BE NO TIONALLY CARRIED FORWARD TO BE SET OFF AGAINST INCOME OF THA T YEAR FOR COMPUTING DEDUCTION UNDER S. 80-IA. 6.3 THE SAME PRINCIPLE WAS UPHELD BY THE HONBLE MA DRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING M ILLS (P) LTD. (SUPRA) WHERE IN IT WAS HELD AS UNDER:- PAGE 12 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 LOSSES AND DEPRECIATION OF THE YEARS EARLIER TO TH E INITIAL ASSESSMENT YEAR WHICH HAVE ALREADY BEEN ABSORBED AGAINST THE PROFITS OF OTHER BUSINESS CANNOT BE NAT IONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS FOR COMPUTING THE DEDUCTION UNDER S. 80-IA. 6.4 IN VIEW OF THE PRINCIPLES ESTABLISHED, IT IS NE CESSARY TO DECIDE THE ISSUE OF INITIAL ASSESSMENT YEAR BEFOR E CONSIDERING THE PROVISIONS OF 80IA(5). SINCE THESE ASPECTS HAVE NOT BEEN EXAMINED PROPERLY OR CONSIDERED AS PER THE PROVISIO NS OF THE ACT THE ORDER OF THE AO U/S 143(3) IS TO BE CONSIDE RED AS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, THE EXERCISE OF POWERS UNDER SECTION 263 HAS TO BE UPHELD. 7. IN THE PROCEEDINGS U/S 263, THE CIT ALSO RAISED THE ALTERNATIVE ISSUE WITH REFERENCE TO SEC. 115JB. AS DISCUSSED ABOVE THE ASSESSEES PROFITS INCLUDED BOTH INCOMES FROM THE POWER GENERATION AS WELL AS INCOME FROM LAND DEVELO PMENT. AS PROVISIONS U/S. 115JB LOSSES OR DEPRECIATION WHI CH EVER IS LESS HAS TO BE CONSIDERED AND IN CASE LOSS IS NIL T HEN IT WAS THE ASSESSEE CONTENTION THAT UN ABSORBED DEPRECIATI ON COULD BE SET OFF. IN VIEW OF THIS THE ASSESSEE CLAIMED SE T OFF OF UNABSORBED DEPRECIATION IN ITS WORKING AND ARRIVED AT NIL PROFIT U/S 115JB. THIS WORKING IS NOT ACCORDING TO THE PROVISIONS OF THE ACT THEREFORE, TO THAT EXTENT NOT CONSIDERING THE PROVISIONS OF SEC. 115JB BY THE A.O ALSO COMES UNDER THE PRINCIPLE OF ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF THIS THE DIRECT ION OF THE CIT TO CONSIDER THE ALTERNATIVE PROVISIONS U/S. 115JB I S CORRECT. HOWEVER, THE CIT HAS NOT DIRECTED SPECIFICALLY WITH REFERENCE TO THE WORKING OF THE SEC. 115JB WHICH ALSO EXCLUDES A MOUNTS ALLOWED U/S. 80IA. THESE ASPECTS HAVE NOT BEEN CON SIDERED BY THE A.O OR BY THE CIT IN ORDER U/S 263. 8. IN VIEW OF THE ABOVE DISCUSSION, WHILE HOLDING T HAT THE CIT HAS EXERCISED THE JURISDICTION CORRECTLY U/S 26 3, WE HOWEVER MODIFY THE DIRECTIONS GIVEN BY THE CIT TO T HE A.O AS THE SAID DIRECTIONS ARE NOT CORRECT ON THE FACTS ST ATED ABOVE. CONSEQUENTLY, WE MODIFY THE DIRECTIONS OF THE CIT T O SET ASIDE THE ORDER OF THE A.O AND DIRECT HIM TO RECONSIDER T HE ISSUE OF THE INITIAL ASSESSMENT YEAR, COMPUTATION OF THE PRO FITS U/S. 80IA, COMPUTATION OF TOTAL INCOME AND CARRY FORWAR D OF LOSSES AND DEPRECIATION AND ALSO THE COMPUTATION U/S. 115J B AS PER THE PROVISIONS OF THE ACT AFTER GIVING DUE OPPORTUN ITY TO THE ASSESSEE. THE ORDER OF THE CIT TO THAT EXTENT, MORE SO THE DIRECTIONS GIVEN IN PARA 5.5 AND 7 OF HIS ORDER HAV E BEEN MODIFIED AND ASSESSMENT MADE U/S. 143(3) DATED 21/1 0/2005 PAGE 13 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 IS HEREBY, SET ASIDE. A.O IS DIRECTED TO REDO THE A SSESSMENT DENOVO ACCORDINGLY. 5. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE HOLD THAT THE CIT HAS EXERCISED HIS JURISDICTION CORRECTLY U/S 263 OF THE ACT. HOWEVER, WE MODIFY THE DIRECTIONS GIVEN TO THE ASSESSING OFFICE R AS THE SAID DIRECTIONS ARE NOT AS PER FACTS ON RECORD. CONSEQUENTLY, WE MODIFY THE DIRECTIONS OF THE CIT T O SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DI RECT HIM TO RE-CONSIDER THE ISSUE OF INITIAL ASSESSMENT ORDER, COMPUTATION OF THE PROFITS U/S 80-IA, COMPUTATION OF TOTAL INCOME, CARRY FORWARD OF LOSSE S AND DEPRECIATION AND CONSEQUENTLY OTHER RELEVANT ISSUES AFTER PROVIDING DUE OPPORTUNITY TO THE ASSES SEE. THE ORDER OF THE CIT IS MODIFIED AS STATED ABOVE AN D THE ASSESSMENT U/S 143(3) IS SET ASIDE. THE A.O IS DIRECTED TO REDO THE ASSESSMENT DENOVO ACCORDINGLY AS DISCUSSED ABOVE. 4. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASO NING, WE HOLD THAT THE CIT HAS EXERCISED HIS JURISDICTION CORRECTLY U/S 263 OF THE ACT. HOWEVER, WE MODIFY TH E DIRECTIONS GIVEN TO THE ASSESSING OFFICER AS THE SA ID DIRECTIONS ARE NOT AS PER FACTS ON RECORD. CONSEQUE NTLY, WE MODIFY THE DIRECTIONS OF THE CIT TO SET ASIDE THE O RDER OF THE ASSESSING OFFICER AND DIRECT HIM TO RE-CONSIDER THE ISSUE OF INITIAL ASSESSMENT ORDER, COMPUTATION OF T HE PROFITS U/S 80-IA, COMPUTATION OF TOTAL INCOME, CAR RY FORWARD OF LOSSES AND DEPRECIATION AND CONSEQUENTLY OTHER RELEVANT ISSUES AFTER PROVIDING DUE OPPORTUNITY TO THE ASSESSEE. THE ORDER OF THE CIT IS MODIFIED AS STATE D ABOVE AND THE ASSESSMENT U/S 143(3) IS SET ASIDE. THE A. O IS DIRECTED TO REDO THE ASSESSMENT DENOVO ACCORDINGLY AS DISCUSSED ABOVE. PAGE 14 OF 14 ITA NO. 1466/PN/2009 G.B. RUBBER PRODUCTS A.Y. 2005-06 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH MAY 2011. SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 25 TH MAY 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- V PUNE 5. THE D.R, B BENCH, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE