M/s. Super Spinning Mills Ltd, Coimbatore V. ACIT, Coimbatore

ITA 1672/CHNY/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5225 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 06-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL: D - BENCH:CHEN NAI (BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER & ABRAHAM P. GEORGE. ACCOUNTANT MEMBER) ITA NOS.1672/MDS/08 ASST. YEAR 2005-06 M/S SUPER SPINNING MILLS LTD, ELGI TOWERS GREEN FIELDS, 737 D, PULIAKULAM RD, COIMBATORE 641045 (PAN AADCS0672G) (APPELLANT) VS. THE ACIT, CO. CIR.1(2), COIMBATORE (RESPONDENT) APPELLANT BY RESPONDENTS BY: SHRI K.RAVI SHRI K.E.B.RENGARAJAN, JR.STANDING COUNSEL. ORDER PER SHRI ABRAHAM P.GEORGE, A.M: IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVAN CE IS THAT DEDUCTION UNDER SEC. 80IA OF THE INCOME-TAX ACT, 1961 (THE A CT FOR SHORT) WAS NOT ALLOWED TO IT. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD CLAIME D DEDUCTION UNDER SEC. 80IA OF THE ACT ON ITS INCOME FROM WINDMILLS A ND NECESSARY AUDIT ITA NO. 1672/MDS /08 2 REPORT IN FORM NO.10CCB PRESCRIBED UNDER THE INCOME -TAX RULES WAS ALSO FILED. ASSESSEE HAD THREE WINDMILL UNITS, ONE AT MU PPANDAL, ONE AT PALLADAM AND ONE AT SANGNERI. ASSESSEE HAD CLAIMED SUCH DEDUCTION CONSIDERING EACH OF THE WINDMILL TO BE A SEPARATE U NDERTAKING. HOWEVER, AO WAS OF THE OPINION THAT THE TERM USED IN SEC.80I A WAS ANY BUSINESS AND HENCE, THE THREE WINDMILLS HAD TO BE CONSIDERED IN A COMBINED MANNER AND ONLY COMBINED NET INCOME WOULD BE ELIGIB LE FOR CALCULATING DEDUCTION UNDER SEC. 80IA OF THE ACT. THOUGH ASSESS EE PLEADED THAT EACH WINDMILL HAD TO BE CONSIDERED AS A SEPARATE UNDERTA KING, IT WAS NOT ACCEPTED. HOWEVER, THE AO WAS OF THE OPINION THAT WINDMILL ITSELF WAS NOT A SEPARATE UNDERTAKING AND FOR TAKING THIS VIEW HE RELIED ON THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CHETTINAD CEMENT CORPORATION LTD. VS. ACIT (ITA NO.1029/MDS/05 DATED 05-01-2007). AO THUS HELD THAT ASSESSEE WAS NOT ELIGIBLE FOR CLAIMI NG ANY DEDUCTION UNDER SEC. 80IA OF THE ACT IN RESPECT OF ITS WINDMILL UNI TS. APPEAL OF THE ASSESSEE BEFORE THE CIT(A) WAS ALSO NOT SUCCESSFUL. ACCORDIN G TO THE LD. CIT(A), DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N CHETTINAD CEMENT CORPORATION LTD. (SUPRA) WENT AGAINST THE ASSESSEE AND HE CONFIRMED THE ORDER OF THE AO DENYING THE CLAIM. 3. NOW BEFORE US, LD. AR SUBMITTED THAT IN THE FIRS T PLACE THIS WAS NOT A CASE OF CAPTIVE CONSUMPTION BUT THE SALE OF ELECTRI CITY WAS TO TNEB GRID. ITA NO. 1672/MDS /08 3 ACCORDING TO HIM, WINDMILL HAD TO BE CONSIDERED AS A SEPARATE UNDERTAKING, AS MANDATED UNDER SUB-CL. (5) OF SEC.8 0IA OF THE ACT. THE WINDMILLS WERE LOCATED AT DIFFERENT LOCATIONS AND E ACH WINDMILL GENERATOR HAD TO BE TREATED AS A SEPARATE UNDERTAKING. RELIAN CE WAS PLACED ON THE DECISION OF THE BANGALORE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S JINDAL ALUMINIUM LTD. V. ACIT (ITA NO.448/BANG/09 DATED 04 -09-2009)AND ALSO THAT OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF ACIT VS. GOLDMINE SHARES & FINANCE (P) LTD. [ (2009) 113 ITD 209)]. A S PER THE LD. AR, THE CLAIM UNDER SEC. 80IA WAS UNJUSTIFIABLY DENIED TO T HE ASSESSEE. ON THE QUESTION WHETHER THE BENEFIT UNDER SEC. 80-IA COULD BE AVAILED FOR POWER GENERATED AND USED CAPTIVELY, LD. COUNSEL SUBMITTED THAT DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. TH IAGARAJAR MILLS LTD. IN T.C.A NO.68-70 OF 2010 DATED 07-06-2010 WAS CLEARLY IN ITS FAVOUR. PER CONTRA, LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. INSOFAR AS THE ISSUE WHETHER DEDUCTION UNDER SEC. 80IA OF T HE ACT COULD BE CLAIMED FOR POWER PRODUCED AND CAPTIVELY CONSUMED, IN OUR OPINION, DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH IAGAJAR MILLS LTDS CASE (SUPRA) CLEARLY GOES IN FAVOUR OF THE ASSESSEE. REL EVANT PARAS 8 AND 9 OF THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IS REPRODUCED HEREUNDER: ITA NO. 1672/MDS /08 4 8. THE CONTENTION THAT ONLY WHATEVER POWER GENERAT ED FROM THE SALE TO AN OUTSIDER OF THE ELECTRICITY BOARD, AND THE PR OFIT OR GAIN DERIVED BY SUCH SALE ALONE CAN BE TAKEN AS PROFIT OR GAINS DERIVED BY THE ASSESSEE AS MENTIONED IN SEC. 80IA(1) OF THE ACT, H AS BEEN REJECTED BY THE TRIBUNAL IN THE ORDER IMPUGNED. IN OUR CONSI DERED VIEW, THE TRIBUNAL WAS WELL JUSTIFIED IN HAVING REJECTED SUCH A STAND OF THE APPELLANT. HAVING REFERRED TO SEC. 80IA(1) OF THE A CT, WE ARE ALSO CONVINCED THAT WHAT ARE ALL TO BE SATISFIED IN ORDE R TO BE ELIGIBLE FOR THE DEDUCTION AS PROVIDED UNDER SUB-SEC.(1) OF SEC. 80IA, THE ASSESSEE SHOULD HAVE SET UP AN UNDERTAKING OR AN EN TERPRISE AND FROM AND OUT OF SUCH AN UNDERTAKING OR AN ENTERPRIS E SET UP, ANY PROFIT OR GAIN IS DERIVED, FALLING UNDER ;SUB-SEC. COVERED BY SUB- SEC.(4) OF SEC.80IA OF THE ACT SUCH PROFIT OR GAIN DERIVED BY THE ASSESSEE CAN BE DEDUCTED IN ITS ENTIRETY FOR A PERI OD OF 10 YEARS STARTING FROM THE DATE OF FUNCTIONING OF THE SET UP . THE CONTENTION THAT PROFIT OR GAINS CAN BE CLAIMED BY THE ASSESSEE ONLY IF SUCH PROFIT OR GAIN IS DERIVED BY THE SALE OF ITS PRODUCT OR PO WER GENERATED TO AN OUTSIDER CANNOT BE THE MANNER IN WHICH THE PROVISIO NS CONTAINED IN SEC.80IA(1) CAN BE INTERPRETED. THE EXPRESSION DER IVED; USED IN THE SAID SEC.80IA(1) IN THE BEGINNING AS WELL AS IN THE LAST PART OF THE SUB-SEC. (4) MAKES IT ABUNDANTLY CLEAR THAT SUCH PR OFIT OR GAIN COULD BE OBTAINED BY ONES OWN CONSUMPT8IN OF THE OUTCOME OF ANY SUCH UNDERTAKING OR BUSINESS ENTERPRISES AS REFERRED TO IN ;SUB-SEC.(4) OF SEC.80IA. THE DICTIONARY MEANING OF THE EXPRESSION DERIVE IN THE NEW OXFORD DICTIONARY OF ENGLISH STATES OBTAINING SOMETHING FROM A SPECIFIED SOURCE. IN SEC.80IA(1) ALSO NO RESTRICTI ON HAS BEEN IMPOSED AS REGARDS THE DERIVING OF PROFIT OR GAIN I N ORDER TO STATE THAT SUCH PROFIT OR GAIN DERIVED ONLY THROUGH AN OUTSIDE SOURCE ALONE WOULD MAKE ELIGIBLE FOR THE BENEFITS PROVIDED IN TH E SAID SECTION. 9. THEREFORE, THERE IS NO DIFFICULTY IN HOLDING TH AT CAPTIVE CONSUMPTION OF THE POWER GENERATED BY THE ASSESSEE4 FROM ITS OWN POER PLANTS WOULD ENABLE THE RESPONDENT/ASSESSEE TO DERIVE PROFIT AND GAINS BY WORKING OUT THE COST OF SUCH CONSUMPTI ON OF POWER INASMUCH AS THE ASSESSEE IS ABLE TO SAVE TO THAT EX TENT WHICH WOULD CERTAINLY BE COVERED BY SEC.80IA(1). WHEN SUCH WILL BE THE OUTCOME OF OWN CONSUMPTION OF THE POWER GENERATED AND GAINE D BY THE ASSESSEE BY THE ASSESSEE BY SETTING UP ITS OWN POWE R PLANT, WE DO NOT FIND ANY LACK OF MERIT IN THE CLAIM OF THE RESP ONDENT/ASSESSEE WHEN IT CLAIMED BY RELYING UPON SEC. 80IA(1) OF THE ACT BY WAY OF DEDUCTION OF THE VALUE OF SUCH UNITS OF POWER CONSU MED BY ITS OWN PLANT BY WAY OF PROFIT AND GAINS FOR THE RELEVANT A SSESSMENT YEARS. ITA NO. 1672/MDS /08 5 5. INSOFAR AS THE ISSUE WHETHER EACH OF THE POWER U NDERTAKING HAS TO BE CONSIDERED SEPARATELY, OR WHETHER THE CONSOLIDAT ED INCOME FROM ALL THE WINDMILL UNITS HAD TO BE TAKEN UP TOGETHER IN COMPU TING DEDUCTION UNDER SEC.80IA OF THE ACT, THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN JINDAL ALUMINUM LTDS CASE (SUPRA) CLEARLY GOES IN FAVOUR OF THE ASSESSEE. RELYING ON ITS OWN DECISION IN THE CASE OF KARNATAK A POWER CORPORATION LTD. V. C IT (ITA NO.294/BANG/2009 DATED 10-07-2009 ) IT WAS HELD BY THE BANGALORE BENCH AT PARAS 6 TO 6.3 OF ITS ORDER AS U NDER: 6.1. THE HONBLE ITAT, BANGALORE BENCH A HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE IN ITA NO.294/BANG/200 9 DATED 10-07- 2009 IN THE CASE OF M/S KARNATAKA POWER CORPORATION LTD. V. CIT. THE ISSUE BEFORE THE HONBLE TRIBUNAL, IN BRIEF, WA S THAT THE ASSESSEE WAS HAVING SEVEN UNITS IN WHICH POWER WAS BEING GENERATED. OUT OF THE SEVEN UNITS, THE ASSESSEE HAD LOSS IN TWO UNITS. IN ONE OF THE UNITS, THERE WAS PROFIT FOR TH E CURRENT YEAR BUT AFTER ADJUSTING BROUGHT FORWARD LOSS, THE RESULTANT FIGURE WAS THE LOSS. IN RESPECT OF THESE THREE UNITS. THE ASSESSEE HAD NOT CLAIMED DEDUCTION U/S 80IA. THE ASSESSEE HAD CLAIMED DEDUCT ION ON THE FOUR UNITS AND COMPUTED THE DEDUCTION ON THE BASIS OF TH E PROFITS OF THE FOUR UNITS WITHOUT SETTING OFF OF LOSS OF THREE UNI TS. HOWEVER, THE AO, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IPCA LABORATORY LTD. V.DCIT (266 ITR 521)=(2004-TIO L-26-SC-IT), COMPUTED THE DEDUCTION AFTER SETTING OFF OF THE LOS S OF THREE UNITS FROM THE PROFIT OF FOUR UNITS. ON AN APPEAL, THE CI T(A0, RELYING ON THE FINDINGS OF THE HONBLE APEX COURT IN THE CASES OF IPCA LABORATORY LTD, REFERRED SUPRA AND ALSO IN CIT VS. B.MOHANACHA NDRAN NAIR REPORTED IN 285 ITR 226= (2005-TIOL-1181-SC-IT), UP HELD THE ACTION OF THE AO. 6.2 THE ISSUE WAS BROUGHT BEFORE THE HONBLE TRIBUN AL FOR FURTHER ADJUDICATION. AFTER CONSIDERING THE RIVAL SUBMISSIO NS AND ANALYZING THE PROVISIONS OF SECTIONS 80AB, 80IA(1) AND 80IA(5 ), THE HONBLE TRIBUNAL HAD DELIBERATED THE ISSUE THUS - ITA NO. 1672/MDS /08 6 2.6. AS PER SEC.80IA, THE DEDUCTION IS ADMISSIBLE IN CASE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROF IT AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING; THE D EDUCTION IS 20% OF SUCH PROFIT AND GAINS. THE WORD SUCH MENTI ONED IN 80IA(1) REFERS TO THE PROFIT AND GAINS OF INDUSTRIA L UNDERTAKING AND NOT TO THE PROFIT AND GAINS OF THE ELIGIBLE BUS YNESS. 80IA(5) REQUIRES THAT PROFIT AND GAINS OF AN UNDERT AKING IS TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE O NLY SOURCE OF INCOME OF THE UNDERTAKING. A HARMONIOUS CONSTRUC TION IS PLACED ON 80IA AND 80I(5) (SIC) 80IA(5) CLEARLY SHO WS THAT THE DEDUCTION IS TO BE CONSIDERED UNDERTAKING-WISE AND ONE HAS NOT TO CONSIDER ALL THE UNDERTAKINGS TOGETHER EVEN THOUGH BUSINESS OF ALL THE UNDERTAKINGS IS COVERED UNDER ELIGIBLE BUSINESS. THE PURPOSE OF SEC.80IA IS THAT DEDUCTION UNDER CHAPTER VIA SHOULD NOT EXCEED GROSS TOTAL INCOME. I N THE INSTANT CASE, THE DEDUCTION CLAIMED; U/S 80IA IS LE S THAN THE GROSS TOTAL INCOME. 2.7 THE SPECIAL BENCH, AHMEDABAD IN THE CASE OF ACI T VS. GOLDMINE SHARES & FIN.(P) LTD. 113 ITR 209=(2008-TI OL- ITAT-AHM-SB) ;HAS HELD AS UNDER: THE ONLY HARMONIOUS CONSTRUCTION OF SEC. 80IA(5) C ONSISTENT WITH THE OBJECT OF ALLOWING DEDUCTION ONLY TO PROFI TS AND GAI9NS OF THE ELIGIBLE BUSINESS WOULD BE THAT - (A) THE DEDUCTION UHNDER THAT SECTION WOULD BE COMPUTED WITH REFERENCE TO PROFITS OF THE ELIGIBLE UNIT, UNAFFECTED BY LOSES SUFFERED ION OTHER UNITS; ` (B) IN CASE OF LOSS SUFFERED BY THE ELIGIBLE UNI T, SUCH LOSS WOULD NOT BE SET OFF AGAINST PROFITS OF OTHER UNITS /OTHER BUSINESS/OTHER INCOMES IN THE INITIAL YEAR OF THE A SSESSMENT OR SUBSEQUENT YEARS OF ELIGIBLE YEARS OF ASSESSMENT; (C) WHERE LOSSES OF THE ELIGIBLE UNIT REMAINED T O BE ADJUSTED AGAINST THAT VERY SOURCE, THEY ARE TO BE C ARRIED FORWARD TO SUBSEQUENT YEAR(S) AND SET OFF IN THE SU CCEEDING YEAR(S) AND ON THE BALANCE PROFIT ALONE THE DEDUCTI ON ADMISSIBLE WOULD BE COMPUTED; (D) WHERE THERE ARE NO LOSSES OF THE ELIGIBLE UNI T CARRIED FORWARD (IN VIEW OF SET OFF AGAINST P4ROFITS OF THA T VERY SOURCE), IT IS THE MANDATE OF LAW THAT THE LOSSES OF EARLIER YEARS, THOUGH ITA NO. 1672/MDS /08 7 ALREADY ABSORBED AGAINST OTHER SOURCES, THEY ARE ON CE AGAIN TO BE OPTION ALLY BROUGHT FORWARD AND SET OFF AGAIN ST PROFITS OF THE ELIGIBLE UNIT TO COMPUTE ELIGIBLE DEDUCTION; (E) THE DEDUCTION WOULD BE LIMITED TO GROSS TOTAL INCOME. THUS, IN VIEW OF THE SPECIFIC PROVISIONS OF SEC. 8 0IA(5)(SIC) 80IA(5), THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SEC .80IA HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROU GHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS, EVEN THOUGH THEY HAVE BEEN ALLOWED TO BE SET OFF AGAINST OTHER INCOM E IN THE EARLIER YEARS. 2.8. HENCE, FOLLOWING THE DECISION OF THE SPECIAL BENCH, WE HOLD THAT THE DEDUCTION U/S 80IA IS TO BE COMPUTED UNDERTAKING-WISE. IN CASE, THERE IS A LOSS IN AN UN DERTAKING, THEN IT WILL NOT BE SET OFF AGAINST THE PROFIT OF A NOTHER UNDERTAKING THOUGH THE LOSS OF THIS UNDERTAKING WIL L BE ADJUSTED AGAINST THE PROFIT IN SUBSEQUENT YEAR IN C ASE THE DEDUCTION IS CLAIMED UNDER SEC.80IA IN RESPECT OF T HAT UNIT. THUS, THE LOSSES WHICH HAVE NOT BEEN CONSIDERED FOR THE YEAR UNDER CONSIDERATION WILL HAVE TO BE SET OFF AGAINST THE PROFIT OF THESE UNITS AS AND WHEN THERE IS PROFIT FROM SUCH ; UNITS AND THE ASSESSEE CLAIMED DEDUCTION U/S 80IA . IN CASE O F ONE UNIT THERE IS PROFIT DURING THE YEAR BUT AFTER ADJUSTING CARRY FORWARD LOSS, THE RESULTANT FIGURE IS THE LOSS AND THE ASSE SSEE HAS NOT CLAIMED DEDUCTION U/S 80IA IN RESPECT OF THIS UNIT .. 6. AS FOR THE RELIANCE PLACED BY THE REVENUE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF CHETTINADU CEMENT C ORPORATION LTD. CITED SUPRA, WE ARE OF THE OPINION THAT THIS HAS NOW BEC OME IRRELEVANT, IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF THIAGARAJAR MILLS LTD. (SUPRA). THUS, WE ARE OF THE OPINION THAT ASSESSEES WINDMILLS WERE ELIGIBLE FOR CLAIMING DEDUCTION UNDE R SEC. 80IA OF THE ACT AND THAT TOO, CONSIDERING EACH WINDMILL SEPARATELY. ITA NO. 1672/MDS /08 8 7. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21- 04-2011. SD/- SD/- (U.B.S.BEDI) JUDICIAL MEMBER (ABRAHAM P.GEORGE) ACCOUNTANT MEMBER CHENNAI: 21 ST APRIL, 2011. NBR CC: ASSESSEE/ ASSESSING OFFICER/ CIT(A)/ CIT/ D .R/ GUARD FILE.