Kirloskar Industries Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 1722/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5835 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 11-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Keywords: Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , , ! BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO.1722/PUN/2016 / ASSESSMENT YEAR : 2010-11 KIRLOSKAR INDUSTRIES LIMITED, 13/A, KARVE ROAD, KOTHRUD, PUNE 411 038 PAN : AAACP3590P /APPELLANT VS. DCIT, CIRCLE-9, PUNE . / RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / RESPONDENT BY : SHRI O.A. MAO / DATE OF HEARING : 29.01.2019 / DATE OF PRONOUNCEMENT: 30.01.2019 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-2, PUNE, DATED 02-05-2016 FOR THE ASSESSMENT YEAR 2010-11. 2. BRIEFLY STATED, RELEVANT FACTS INCLUDE, THAT THE ASSESSEE IS A COMPANY CAME INTO EXISTENCE W.E.F., 31-03-2010 BY A SCHEME OF DEMER GER. IT FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.13,99,64,208/-. SUBSEQUENTLY, A REVISED RETURN WAS FILED DECLARING TOTAL INC OME OF RS.14,71,45,097/-. IN THE ASSESSMENT, THE AO MADE CERTAIN DISALLOWANCES VIZ., (1) DISALLOWANCE U/S.14A AMOUNTING TO RS.1,41,23,169/-; (2) DISALLOWANCE OF UNEXPLAINED EXPENSES AMOUNTING TO RS.83,02,97 3/-; AND (3) DISALLOWANCE OF DEDUCTION U/S.80IA AMOUNTING TO RS.3,18,33,0 46/-. THUS, IN EFFECT, THE AO ASSESSED THE TOTAL INCOME AT RS.20,14,04,290/-. ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 2 3. AGGRIEVED WITH THE SAID ASSESSMENT, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). HOWEVER, THE ASSESSEE REMAINED UNSUCC ESSFUL BEFORE THE FIRST APPELLATE AUTHORITY. NOW, AGAINST THE ORDER OF FIRST APPELLATE AUTHORITY, THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNA L. 4. BEFORE US, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS. 1 AND 2. THEREFORE, THE SAID GROUNDS ARE DISMISSED AS SUCH . THUS, THE ONLY EFFECTIVE GROUND THAT REMAINS TO BE ADJUDICATED IN THIS AP PEAL READS AS UNDER : 3. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF VALID CLAIM U/S.80IA OF THE INCOME TAX ACT, 1961 CONTENDING THAT, THERE ARE NO ACTUAL PROFITS AVAILAB LE WITH THE ASSESSEE. HE ERRED IN SETTING OFF NOTIONAL LOSSES OF THE UNDERTAKING WHERE THERE IS NO SUCH PROVISION IN LAW. 5. BRIEFLY STATED, RELEVANT FACTS RELATING TO GROUND NO.3 IN CLUDE THAT THE ASSESSEE REPORTED WINDMILL BUSINESS FROM A.Y. 2007-08. THE INITIAL ASSESSMENT YEAR AT THE OPTION OF THE ASSESSEE IS A.Y. 2 009-10. ASSESSEE REPORTED EARNING PROFITS OF RS.2.23 CRORE IN THAT YEAR. AO DISALLOWED THE SAME HOLDING THAT THE LOSSES OF THE UNDERTAKING FOR A.Y. 20 07-08 & 2008- 09 ARE MORE THAN THE PROFITS REPORTED OF RS.2.23 CRORE. AS PER AO, AFTER GIVING SET OFF, THE PROFITS OF THE UNDERTAKING IS LOSSES. HENC E, THE ASSESSEE IS NOT ELIGIBLE FOR ANY CLAIM OF DEDUCTION FOR A.YRS. 2009-10 & 2010-11. AO WORKED OUT THE LOSSES OF THE UNDERTAKING AT RS.18.50 CRO RE AS ON 01-04-2009. FOR THE A.Y. 2010-11, AO HELD THAT, WHEN SET OFF THE PROFITS OF THE YEAR WITH THE SAID LOSS OF RS.18.50 CRORE (ROUNDED OFF), THE CLAIM OF DEDUCTION IS NOT AVAILABLE FOR THE YEAR UNDER CONSIDERATION . ACCORDINGLY, IN PARA NO.7.11, AO DENIED THE CLAIM OF DEDUCTION OF RS.3,18,33,046 /- U/S.80IA(4) OF THE ACT. ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 3 IN THE FIRST APPELLATE PROCEEDINGS, RELYING ON THE KARNA TAKA HIGH COURT JUDGMENT IN THE CASE OF MICROLABS LTD. VS. ACIT 230 TAXMAN 647, CIT(A) CONFIRMED THE DECISION OF THE AO ON THIS ISSUE. AGGR IEVED, THE ASSESSEE IS IN APPEAL. 6. BEFORE US, ON THIS ISSUE, LD. AR SUBMITTED THE MANNER OF QUANTIFYING THE ALLOWABLE DEDUCTION U/S.80IA(4) IS NOT IN TUNE WITH THE S ETTLED RATIO OF THE BINDING JUDGMENTS. ASSESSEE OBJECTED TO THE MANNE R OF CARRY FORWARD OF LOSSES NOTIONALLY TO EAT AWAY THE PROFIT OF THE YEAR. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF HONB LE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HERCULES HOISTS LTD WHE RE THE HONBLE COURT HELD THAT ELIGIBLE BUSINESS IS ONLY SOURCE OF INCOME, DURING PRE VIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR AND ONCE SET O FF IS TAKEN PLACE IN EARLIER YEAR AGAINST OTHER INCOME OF ASSESSEE, REVEN UE CANNOT REWORK SET OFF AMOUNT AND BRING IT NOTIONALLY. THUS, LD. COUNSEL PRAYED FOR ALLOWING GROUND NO.3 IN FAVOUR OF ASSESSEE. 7. PER CONTRA, LD. DR FOR THE REVENUE RELIED ON THE ORDER S OF THE AO/CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW ON THIS SOLITARY ISSUE OF DEDUCTION U/S.80I A. WE FIND THAT, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O NOTICED THE CLAIM OF DEDUCTION U/S.80IA AMOUNTING TO RS.3.18 CRORE IS NO T ALLOWABLE IF THE PROFITS ARE SET OFF AGAINST THE BROUGHT FORWARD LOSSES OF THE EARLIER ASSESSMENT YEARS. ASSESSEE CLAIMED SUCH DEDUCTION FOR T HE FIRST TIME IN THE A.Y. 2009-10. ASSESSEE HAS THE OPTION TO CHOOSE T HE INITIAL YEAR FOR 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS BEGINNING THE YEAR FROM WHICH THE UNDERTAKING STARTS GENERATING THE POWER. AC CORDINGLY, ASSESSEE CHOSE THE A.Y. 2009-10 AS THE INITIAL YEAR. AO DENIED THE CLAIM OF ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 4 DEDUCTION FOR THIS YEAR TOO. THE CLAIM OF SUCH DEDUCTION IN THE CURRENT YEAR IS THE SECOND YEAR. TO MAINTAIN CONSISTENCY, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE IN THE INSTANT YEAR TOO ON THE GROUND THAT T HE NOTIONAL LOSSES OF THE WINDMILL UNDERTAKEN MUST BE FIRST SET OFF AGAINS T THE PROFITS OF THE WINDMILL. WE FIND THE CIT(A) DISCUSSED THE ISSUE OF DEDUCT ION U/S.80IA VIDE PARA NO.7.11 AND 7.12 OF HIS ORDER AND CONFIRMED THE O RDER OF AO RELYING ON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF MICROLABS LTD. VS. ACIT (SUPRA) 8.1 ASSESSEE CONTESTED THE SAME HOLDING THAT THE PROVIS IONS OF SECTION 80IA(4) AND 80IA(5) ALLOWS THE COMPUTATION ON STANDALONE B ASIS. IF THE CONCLUSIONS OF THE AO IS CONSIDERED FAVOURABLY, IT DEFEATS T HE PURPOSE OF PROVISIONS OF SECTION 80IA(4) AND 80IA(5) READ WITH UMPTEEN DECISIONS ON THIS SUBJECT INCLUDING THE TRIBUNALS DECISION IN THE CASE OF POONAWALA ESTATE STUD & AGRO FARM (P) LTD. VS. ACIT 136 TTJ 236 (PUNE). 8.2 WE FIND THAT THERE IS NO DISPUTE ON THE FACT THAT TH E ASSESSMENT YEAR 2009-10 IS THE INITIAL ASSESSMENT YEAR IN THE HANDS OF KIRLO SKAR OIL LTD. THE DISPUTE IS ONLY WITH RESPECT TO THE MANNER OF COMPU TATION OF DEDUCTION QUA THE SET OFF OF CARRY FORWARD OF LOSSES. FURTHER, WE FIND THERE IS NO CLARITY AS TO THE OUTCOME OF APPEAL BY THE REVENUE FOR T HE A.Y. 2009-10 IN THE HANDS OF KIRLOSKAR OIL LTD. WHO IS THE OWNER OF THE UNIT BEFORE DEMERGER. 8.3 IN THIS CASE, ASSESSEE ACQUIRED WINDMILL UNDERTAKING FROM THE KIRLOSKAR OIL LTD. A.Y. 2009-10 IS THE INITIAL ASSESSMENT YEAR IN THE HANDS OF KIRLOSKAR OIL LTD. HENCE, THE A.Y. 2010-11 IS THE 2 ND YEAR IN THE HANDS OF THE ASSESSEE. OTHERWISE, THERE IS NO CLARITY IN THE ORD ERS OF THE AO ON THE AMOUNT OF LOSS VALIDLY QUANTIFIED IN THE HANDS OF UNDER TAKING AT THE TIME OF DEMERGER TO THE ASSESSEE. THEREFORE, THERE IS RE QUIREMENT OF BASIC ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 5 DETAILS ON THE SAID ISSUE QUA THE FIGURES OF LOSSES AND PRO FITS OVER THE YEARS OF THE UNDERTAKING. FURTHER, WE FIND THE LAW IS MORE OR LESS SETTLED ON THIS IS SUE ON THE ISSUE OF MANNER OF SET OFF OF NOTIONAL LOSSES OF EARLIER ASSE SSMENT YEARS WHICH WAS ALREADY SET OFF AGAINST THE PROFITS OF THE OTHER UNDERTAKINGS. THE JUDGMENTAL LAW DOES NOT PERMIT THE SET OFF OF NOTIONAL LOSS ES BY THE AO FOR EATING AWAY THE ELIGIBLE PROFITS FOR THE YEAR UNDER CONSIDERATION. AP ART FROM OTHERS, THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. HERCULES HOISTS LTD. (SUPRA) IS ONE SUCH JUDGMENT WHICH IS REQUIRED TO BE REGARDED AND APPLIED TO THE FACTS OF THE PRESENT CASE. IN OUR CONSIDERED OPINION, THIS ISSUE REQUIRED FRESH CONSIDERATION AT THE LEVE L OF CIT(A) FOR APPLYING THE BINDING JUDGMENTS ON THE ISSUE. LD. COUNSEL FOR THE ASSESSEE IS ALSO DIRECTED TO SUPPLY NECESSARY JUDGMENTS ON THE SPECIFIC ISSUE OF THE MANNER OF COMPUTATION OF DEDUCTION U/S.80IA(4) OF THE ACT IN THE SECOND YEAR OF THE BLOCK OF ASSESSMENT YEARS SPECIFIED IN THE LAW. WITH THESE DIRECTIONS, WE ALLOW GROUND NO.3 FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 30 TH DAY OF JANUARY, 2019. SD/- SD/- ( /VIKAS AWASTHY) ( . /D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 30 TH JANUARY, 2019 SATISH ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 6 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-7, PUNE 4. / THE PR.CIT-6, PUNE 5. , , / DR A, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE. ITA NO.1722/PUN/2016 KIRLOSKAR INDUSTRIES LIMITED 7 DATE 1. DRAFT DICTATED ON 29-01-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 30-01-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER.