Assistant Commissioner of Income-tax, V. M/s. Badve Engineering Ltd., Aurangabad

ITA 1833/PUN/2013

• Counselvise Citation: 183324514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-01-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B D SINGH
• Keywords: Business income; Depreciation; Earning of tax free income; Question of law; Unabsorbed depreciation
• Section: 14A; 80IB

Judgement Text

INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS. 1832 & 1833/PN/2013 (ASSESSMENT YEARS : 2009-10 & 2010-11) ACIT, CIRCLE-1, AURANGABAD .. APPELLANT VS. M/S. BADVE ENGINEERING LTD., P.NO.D-39, MIDC WALUJ, AURANGABAD PAN NO. AAACB9378F .. RESPONDENT ASSESSEE BY : SHRI SANKET JOSHI DEPARTMENT BY : SHRI B.D. SINGH DATE OF HEARING : 14-01-2015 DATE OF PRONOUNCEMENT : 22-01-2015 ORDER PER R.K. PANDA, AM : THE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE SEPARATE ORDERS DATED 31-07-2013 OF THE CIT(A), AURANGABAD RELATING TO ASSESSMENT YEARS 2009-10 & 2 010-11 RESPECTIVELY. SINCE IDENTICAL GROUNDS HAVE BEEN TA KEN BY THE REVENUE IN BOTH THESE APPEALS, THEREFORE, THESE WER E HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER. ITA NO.1832/PN/2013 (A.Y.2009-10) : 2. GROUNDS OF APPEAL NO.1 TO 3 BY THE REVENUE ARE A S UNDER : 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THE PROVISION OF SE CTION 80IA(5) IN THE LIGHT OF DECISION IN THE CASE OF M/S HYDERABAD CHEMICALS SUPPLIES LTD., APIE, BALANAGAR HYDERABAD-37 VS. THE A CIT, CIRCLE 1(4), HYDERABAD DATED 21 ST JANUARY, 2011, ACIT CIRCLE-4, AHMADABAD VS. GOLDMINE SHARE & FINANCE (P) LTD. (200 8) 113 ITD 209 (AHD). 2 2. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) WAS CORRECT IN INTERPRETING 'INITIAL ASSESSMENT YEAR'. 3. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE DEFINITION OF 'INITIAL ASSESSMENT YEAR' AS GIVEN IN SEC TION 80IB(14) OF THE ACT IS NOT APPLICABLE IN THE PROVISION OF SECT ION 80IA OF THE ACT. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE PRESS COMPONENTS AND WINDMILL POWER GENE RATION. IT FILED ITS RETURN OF INCOME ON 30-09-2009 DECLARI NG TOTAL INCOME AT RS.4,96,15,470. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE A SSESSEE HAS CLAIMED DEDUCTION U/S.80IA(4)(IV)(A) OF THE ACT FRO M WINDMILL POWER GENERATION AT RS.12,97,740/-. SINCE THE ASSE SSEE IS HAVING LOSSES IN EARLIER YEARS HE WAS OF THE OPINIO N THAT THE ASSESSEE IS NOT ELIGIBLE FOR THE DEDUCTION AS PER P ROVISIONS OF SECTION 80IA(5). THE AO WAS OF THE OPINION THAT AS PER THE SAID PROVISION, THE PROFIT AND GAIN OF THE INDUSTRI AL UNIT FOR THE PURPOSE OF DETERMINING QUANTUM OF DEDUCTION ADMISSI BLE TO THE UNDERTAKING IN THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING INITIAL ASSESSMENT YEAR AND THE SUBSEQUE NT ASSESSMENT YEAR IS TO BE COMPUTED AS IF THE INDUSTR IAL UNDERTAKING WERE THE ONLY SOURCE OF INCOME OF THE A SSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR AND IF EVERY SUBSEQUENT ASSESSMENT YEARS UPTO AND INCLU DING THE ASSESSMENT YEAR FOR WHICH DEDUCTION HAS TO BE MADE. IN OTHERWORDS INCOME OF THE UNDERTAKING IS TO BE COMPU TED SEPARATELY FOR EACH YEAR BY ALLOWING DEPRECIATION A ND OTHER EXPENSES AND THE LOSS OF THE UNIT, THOUGH IS SET OF F AGAINST INCOME FROM OTHER BUSINESS IN THAT YEAR FOR REGULAR COMPUTATION OF TOTAL INCOME, FOR THE PURPOSE OF DET ERMINATION 3 OF DEDUCTION U/S.80IA FOR THE UNIT, SUCH LOSS IS TO BE NOTIONALLY CARRIED FORWARD AND SET OFF AGAINST PROFIT OF THE U NIT FOR SUBSEQUENT YEARS. HE THEREFORE ASKED THE ASSESSEE AS TO WHY DEDUCTION U/S.80IA(4)(IV)(A) SHOULD NOT BE DISALLOW ED. 2.2 THE ASSESSEE SUBMITTED THE WORKING OF QUANTIFIC ATION OF DEDUCTION CLAIMED U/S.80IA(4)(IA)(A) OF THE ACT WHI CH IS AS UNDER : A.Y. INCOME FROM POWER GENERATION INCOME FROM BUSINESS OTHER THAN POWER GENERATION ADJUSTMENT OF LOSSES GROSS TOTAL INCOME 2001-02 (I)5523819 -- 1,848,124.00 -- (3,675,695.00 ) 2002-03 (-)5525198 (-)8733850 893,177.00 -- (13,365 ,871.00) 2003-04 577711 (-)700990 4,774,982.00 -- 1,648,297. 00) 2004-05 612644 (1)521563 16,720,247.00 (1,68,11,328 .00) -- 2005-06 1109079 1328204 6,138,601.00 (2,022,004.00) 6,553,880.00 2006-07 763760 1624501 (10,050,843.00) -- (7,662,582.00) 2007-08 1078858 1517347 18,880,112.00 (7,662,581.00 ) 13,813,736.00 2008-09 915379 1388853 20,611,899.00 -- 22,916,131. 00 2009-10 1080436 1877127 15,240,401.00 -- 18,197,964 .00 2.3 THE A.O. HAS, HOWEVER, HELD THAT THE ADJUSTMENT OF LOSSES FOR EARLIER YEARS HAS TO BE MADE AS PER PROV ISIONS OF SECTION 80IA(5) OF THE ACT, WHICH IS A NON-OBSTINAT E CLAUSE HAVING OVERRIDING EFFECT TO THE PROVISIONS OF THE A CT. ACCORDING TO HIM, THE SAID SECTION PROVIDES THAT FOR THE PURP OSE OF DETERMINING THE QUANTUM OF DEDUCTION U/S.80IA OF TH E ACT FOR THE ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YE AR, THE PROFITS AND GAINS FROM THE ELIGIBLE BUSINESS SHALL BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WAS THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO T HE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR, FOR WHICH THE DEDUCTION IS TO BE MADE. ACCORDINGLY, THE AO WORKED OUT THE ALLOWABLE DEDUCTION U/S 80IA FOR A.Y S.2004- 2005 TO 2008-09 AS UNDER: 4 ASSESSMENT YEAR CURRRENT YEAR NOTIONAL (LOSS PROFIT) LOSS SET OFF CARRIED FORWARD CUMULATIVE BALANCE UNABSORBED LOSSESS 2001-02 (10,787,017.00) - (10,787,017.00) (10,787,017.00) 2002-03 561,963.00 561,963.00 - (10,225,054.00) 2003-04 437,261.00 437,261.00 - (9,787,793.00) 2004-05 1,517,692.00 1,348,919.00 - (8,438,874.00) 2005-06 964,434.00 964,434.00 - (7,474,440.00) 2006-07 1,517,692.00 1,517,692.00 - (5,956,748.00) 2007-08 1,374,740.00 1,374,740.00 - (4,582,008.00) 2008-09 1,297,737.00 1,297,737.00 - (3,284,271.00) 2009-10 657,700.00 657,700.00 - (2,626,571.00) 2.4 THE A.O., THEREFORE, CONCLUDED THAT FOR THE PUR POSE OF DETERMINING QUANTUM OF DEDUCTION U/S 80IA OF THE AC T, THE ASSESSEE COMPANY HAS NO PROFIT AVAILABLE FOR CLAIMI NG DEDUCTION UNDER THE SAID SECTION. IN SUPPORT OF THE DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASSESSEE U /S 80IA(4), THE AO RELIED ON THE FOLLOWING DECISIONS (I) ACIT VS. GOLDMINES SHARES & INVESTME NTS. PVT. LTD. (SPECIAL BENCH AHMADABAD ITAT) 113 ITD 209. (II) SWARNAGIRI WIRE INSULATIONS (P) LTD. VS. ITO, ITA NO.200/BANG/2010 A.Y.2006-07 DATED 21/05/2010. (III) M/S HYDERABAD CHEMICALS SUPPLIERS LTD., APIE, BALANAGAR, HYDERABAD-37 VS. ACIT, CIRCLE-L(4), HYDERABAD DATED 21/01/2011. (IV) DAYA ENGINEERING WORKS LTD. VS. CIT (2010) 3 22 ITR 55. (V) ADDL. CIT VS. ASHOK ALCO CHEMICALS LTD. (2005) 96 ITD 160 (MUM). 2.5 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. DISTINGUISHING THE DECISIONS CITED BEFORE HIM AND RELYING ON VARIOUS D ECISIONS AND THE DEFINITION OF INITIAL ASSESSMENT YEAR WHICH WAS GIVEN BEFORE SUBSTITUTION OF SECTION 80IA AND 80IB BY THE FINANCE ACT 1999, HE HELD THAT THE ASSESSEE IS NOT ENTITLED TO THE 5 DEDUCTION U/S.80IA AT RS.12,97,740/-. HE ACCORDING LY DISALLOWED THE SAME. 3. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION O F THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN BREVERIES AND DISTILLERIES LTD. VS. CIT REPORTED IN 116 ITR 2 41 (AT) CHENNAI, THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VODAFONE ESSAR GUJARAT LTD. REPORTED IN 41 DTR 146 AND THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL IN THE CASE OF M/S. LAXMI RISHAW BODY PVT. LTD.VS. CIT VIDE ITA NO.134/PN/2011 ORDER DATED 30-03-2010 ALLOWED T HE CLAIM OF DEDUCTION U/S.80IA(4)(IV)(A) OF THE ACT. THE RELEVANT OBSERVATION OF THE LD.CIT(A) IS AS UNDER : 5.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER O F THE A.O. AND THE SUBMISSIONS OF THE APPELLANT. THE A.O. HAS CONSID ERED THE INITIAL ASSESSMENT YEAR TO BE A.Y.2001-02 AND HAS ACCOR DINGLY WORKED OUT AND CARRIED FORWARD THE LOSSES OF THE ELIG IBLE BUSINESS IN THE SUBSEQUENT YEARS INCLUDING THE YEARS UNDER APPEA L. THE A.O. HAS, THEREFORE, HELD THAT NO PROFIT OF THE ELIGIBLE BUSINESS IS AVAILABLE FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT . THE APPELLANT HAS CLAIMED THAT AS PER PROVISIONS OF SECTION 80IA(2) O F THE ACT, THE DEDUCTION CAN BE CLAIMED AT THE ASSESSEE'S OPTION FOR A NY TEN CONSECUTIVE ASSESSMENT YEARS, OUT OF THE FIFTEEN YEARS FRO M THE YEAR IN WHICH THE UNDERTAKING STARTED GENERATING POWER. T HE APPELLANT THEREFORE CLAIMED THAT THE LEGISLATURE HAS NOT INTEND ED THAT THE INITIAL ASSESSMENT YEAR IS TO BE THE FIRST YEAR OF OPERAT ION, BUT THE ASSESSEE HAS OPTION TO SELECT INITIAL YEAR NOT FALLING BE YOND THE FIFTEEN ASSESSMENT YEARS STARTING FROM THE PREVIOUS YEARS I N WHICH THE UNDERTAKING BEGINS POWER GENERATION. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE PUNE BENCH OF THE TRIBUNAL IN TH E CASE OF ACIT VS. MRS. SULBHA SUBHASH LODHA. WE FIND THE TR IBUNAL VIDE ITA NO.1845/PN/2013 ORDER DATED 24-09-2014 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSE RVING AS UNDER : 6 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES. THE ONLY DISPUTE TO BE DECIDED IN THE IMPUGNED GROUNDS RAISED BY THE REVENUE IS AS TO WHETHER IN VIEW OF SECTI ON 80IA(5) OF THE I.T. ACT, 1961 THE QUANTUM OF DEDUCTION IS TO BE COMPUTED AFTER REDUCING THE NOTIONAL BROUGHT FORWARD LOSSES AND DEPR ECIATION OF THE ELIGIBLE BUSINESS EVEN THOUGH THE SAME MIGHT HAVE B EEN SET OFF AGAINST OTHER INCOME IN THE EARLIER YEARS OR THE YEAR IN WHICH THE ASSESSEE EXERCISES THE OPTION CONTAINED IN SUB-SECTION 80IA (2) OF THE ACT OF IDENTIFYING 10 CONSECUTIVE ASSESSMENT YEARS OU T OF 15 YEARS FOR WHICH THE DEDUCTION IS TO BE AVAILED. WE F IND AN IDENTICAL ISSUE HAD COME UP BEFORE THE PUNE BENCH OF THE TRIBUN AL IN THE CASE OF SANGRAM PATIL (SUPRA) WHEREIN THE TRIBUNAL, FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CA SE OF SERUM INTERNATIONAL LTD. (SUPRA) HAS DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE BY OBSERVING AS UNDER : 4. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF POWER GENERATION, CONSTRUCTION AND EARTHMOVING. FOR THE A.Y. 2006-07, ASSESSEE FILED A RETURN OF INCOME DECLARING TO TAL INCOME OF RS. 7,44,078/- WHICH, INTER ALIA, INCLUDED A CLAIM F OR DEDUCTION U/S 80-IA OF THE ACT AMOUNTING TO RS. 25,62,413/- IN REL ATION TO THE PROFITS EARNED FROM THE ACTIVITY OF POWER GENERATION IN THE WINDMILL. THE UNDERTAKING OF THE ASSESSEE GENERATING POWER (VIZ. WINDMILL) WAS SET UP IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03 AT VANKUSAWADE, TAL. PATHAN, DI ST. SATARA. IN TERMS OF SECTION 80-IA OF THE ACT, THE PROFITS DERI VED BY SUCH UNDERTAKING OF THE ASSESSEE WAS ELIGIBLE FOR THE BENEFIT OF DEDUCTION TO THE EXTENT OF 100% OF SUCH PROFITS. THIS DEDUCTION WAS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE YEARS AT THE OPTION O F THE ASSESSEE OUT OF THE FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING I.E. WINDMILL STARTED GENERATING POWER. THE ASSESSEE ASSERTED BEFORE THE ASSESSING OFFICER THAT SUCH AN OPTION WAS EXERCISED BY THE ASSESSEE W.E.F. 2004-05 AND IT WAS EXP LAINED THAT THE RELEVANT DISCLOSURE WAS MADE IN THE INCOME-TAX RET URN FILED FOR SUCH ASSESSMENT YEAR. 5. THE BONE OF CONTENTION BETWEEN THE ASSESSEE AND THE REVENUE IS WITH REGARD TO THE PROVISIONS OF SECTION 80- IA(5) OF THE ACT. SECTION 80-IA(5) OF THE ACT CREATES A FICTION THAT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80-IA OF THE ACT, IT WAS TO BE PRESUMED THAT THE ELIGIBLE UNIT WAS ONLY THE SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSE SSMENT YEAR AND ALSO TO EVERY SUBSEQUENT YEAR UPTO AND INCLU DING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MA DE. HAVING SET UP THE WINDMILL UNIT IN THE A.Y. 2002-03, ASSESSEE I NCURRED LOSSES IN A.Y. 2002-03 AS WELL AS 2003-04 FOR RS. 86,74,0 10/- AND RS. 59,58,553/- RESPECTIVELY. SUCH LOSSES WERE SET-OFF A GAINST INCOME FROM OTHER BUSINESS AND INCOMES FROM HEADS OTHER THAN THE BUSINESS INCOME. FOR A.Y. 2003-04 LOSS OF RS. 24,08,079/ - HOWEVER, REMAINED TO BE ABSORBED. IN A.Y. 2004-05, ASSESSEE HAD PROFITS FROM WINDMILL ACTIVITY OF RS. 18,93,846/- AND AFTER SETTING OFF THE BROUGHT FORWARD LOSS FROM THE WINDMILL ACTIVITY OF RS. 24,08,079/-, THERE REMAINED A LOSS OF RS. 3,47,134/-. IN A.Y. 2005 -06, THERE WAS A PROFIT FROM WINDMILL ACTIVITY OF RS. 21,96,821/- A ND AFTER SETTING OFF THE BROUGHT FORWARD LOSS OF WINDMILL ACTIVITY OF RS. 3,47,134/-, ASSESSEE CLAIMED DEDUCTION U/S 80-IA OF THE ACT ON THE B ALANCE OF THE PROFITS. IN THE YEAR UNDER CONSIDERATION I.E. 20 06-07, THE ASSESSEE HAD PROFITS FROM WINDMILL ACTIVITY AT RS. 25,62 ,314/- WHICH HAS CLAIMED TO BE EXEMPT IN TERMS OF SECTION 80- IA OF THE ACT. HOWEVER, AS PER THE REVENUE, THE LOSSES INCURRED BY THE ASSESSEE FOR A.Y. 2002-03 AND 2003-04 FROM THE ACTIVITY OF W INDMILL HAVE TO 7 BE REDUCED FROM THE CURRENT YEARS PROFITS OF THE WIN DMILL ACTIVITY IN ORDER TO COMPUTE THE AMOUNT ELIGIBLE FOR DEDUCTI ON U/S 80-IA OF THE ACT, HAVING REGARD TO THE PROVISIONS OF SECTION 80 -IA(5) OF THE ACT. PERTINENTLY, IT IS NOT DISPUTED THAT THE LOSSES OF A.Y. 2002-03 AND 2003-04 FROM WINDMILL ACTIVITY ARE OTHERWISE LYI NG ABSORBED AGAINST ASSESSABLE INCOMES IN THE PAST YEARS. AS PER THE RE VENUE, SECTION 80-IA(5) OF THE ACT REQUIRES THAT THE PROFITS OF THE ELIGIBLE UNITS I.E. WINDMILL ARE TO BE COMPUTED FOR THE PURPO SES OF DETERMINING THE QUANTUM OF DEDUCTION U/S 80-IA(1) OF THE ACT, IN A MANNER AS IF SUCH ELIGIBLE BUSINESS WAS THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE I NITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR THE REOF. AS PER THE REVENUE, INITIAL ASSESSMENT YEAR IN THIS CASE WAS 2002- 03 BEING THE YEAR OF SET-UP OF THE WINDMILL. THERE FORE, THE PAST LOSSES STARTING FROM THE A.Y. 2002-03 HAVE TO BE SET-OFF AGAINST THE PROFITS OF THIS YEAR IN ORDER TO ARRIVE AT THE DEDUCT ION COMPUTABLE U/S 80-IA(1) OF THE ACT FOR THE YEAR UNDER CONSIDERAT ION. ON THE OTHER HAND, THE PLEA OF THE ASSESSEE IS THAT THE INITIA L ASSESSMENT YEAR IN THIS CASE IS TO BE TREATED AS 2004-05 I.E. THE YEAR IN WHICH ASSESSEE EXERCISED THE OPTION CONTAINED IN SECTION 80-IA( 2) OF THE ACT OF IDENTIFYING TEN CONSECUTIVE ASSESSMENT YEARS OUT O F FIFTEEN YEARS FOR WHICH THE DEDUCTION IS TO BE AVAILED. IT IS CONTENDED THAT THE EXPRESSION INITIAL ASSESSMENT YEAR REFERRED TO IN SECTION 80- IA(5) IS TO BE UNDERSTOOD WITH RESPECT TO A.Y. 2004-05 IN THIS CASE AND THEREFORE, THE LOSSES FOR ASSESSMENT YEAR PRIOR TO 20 04-05 CANNOT BE CONSIDERED, WHICH OTHERWISE ALSO WERE LYING ABSORBED IN THE RESPECTIVE YEARS. IT IS ONLY THE LOSSES WHICH HAVE B EEN INCURRED IN THE YEARS STARTING FROM A.Y. 2004-05 ONWARDS WHICH ARE TO BE SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS IN ORD ER TO QUANTIFY THE DEDUCTION U/S 80-IA OF THE ACT. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SERUM INTERNATIONAL LTD. VS. ADDL. CIT RANGE 6, PUNE IN IT A NOS. 290 TO 292/PN/2010 FOR A.Y. 2004-05 TO 2006-07 VIDE ORDER DATED 28-9- 2011 HAS CONSIDERED AN IDENTICAL CONTROVERSY AND AFTER FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT (2010 ) 38 DTR (MAD) 57 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FO LLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD:- 11. THE ISSUE RAISED BEFORE THE BENCH IS AS TO WHETHER IN VIEW OF THE PROVISIONS OF SEC. 80IA(5) OF THE I.T. ACT 1961, THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DEDUCTION U/S. 80IA OF THE ACT HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTION AL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER NON-ELIG IBLE BUSINESS INCOME IN EARLIER YEARS. THE SUBMISSION OF THE LD A. R. REMAINED THAT ON THE WIND MILLS SET UP IN THE PREVIOUS YEAR R ELEVANT TO A.Y. 2002-03, THE ASSESSEE HAD CLAIMED DEPRECIATION AT THE R ATE OF 100% THEREON I.E. RS. 3.54 CRORES, WHICH WAS FULLY SET OFF A GAINST THE ANOTHER INCOME IN THE SAID A.Y. 2002-03 ITSELF. IN T HE A.Y. 2004-05, THE ASSESSEE HAD POSITIVE INCOME FROM THE SAID GENERATION ACTIVITY AND THERE WERE NO BROUGHT FORWARD LOSSES/ UNABSORBED DEPRECIATION OF THE PRECEDING YEAR, WHICH HAD REMAI NED TO BE SET OFF IN THE A.Y. 2004-05. THE A.O., NOTIONALLY BRO UGHT FORWARD UNABSORBED DEPRECIATION FOR THE A.Y. 2003-04 TO THE IMPUGNED A.Y. 2004-05 AND DENIED THE CLAIM FOR DEDUCTION MADE BY THE ASSESSEE U/S. 80IA IN RESPECT OF THE PROFIT EARNED BY IT IN A. Y. 2004-05. THE LD. A.R. SUBMITTED THAT SUB-SECTION (2) OF SECTION 80I A PROVIDES AN OPTION TO THE ASSESSEE TO CHOOSE 10 CONSECUTIVE A.YS. OU T OF 15 8 YEARS FOR CLAIMING THE DEDUCTION. HE SUBMITTED THAT THE TERM INITIAL YEAR IN SUB-SECTION (5) OF 80IA IS NOT DEFINED AND IS U SED IN CONTRADICTION TO THE WORDS BEGINNING FROM THE YEAR USED IN SUB- SECTION (2). HE SUBMITTED THAT THE ASSESSEE CHOSE A.Y. 2 004-05 AS INITIAL A.Y BEING THE FIRST YEAR IN WHICH IT CLAIMED DEDUCTION U/S. 80IA AND THEREFORE, LOSSES/DEPRECIATION BEGINNING FRO M A.Y. 2004- 05 ALONE COULD ONLY BE BROUGHT FORWARD AND SET OFF. DEPRECIATION OF THE PRECEDING A.Y. 2002-03 COULD NOT HAVE BEEN NOTI ONALLY BROUGHT FORWARD AND SET OFF AGAINST PROFIT FOR THE A.Y. 2004- 05. THE LD. A.R. PLACED HEAVY RELIANCE ON THE DECISION OF HONBLE M ADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT (SUPRA). HE SUBMITTED THAT THE DECISION OF HON BLE MADRAS HIGH COURT WILL PREVAIL UPON THE DECISION OF THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMINE SHARES AND F INANCE (P) LTD. (SUPRA) FOLLOWED BY THE PUNE BENCH OF THE TRIB UNAL IN ITS RECENT DECISION IN THE CASE OF PRIMA PAPER ENGG (P) L TD. VS. ITO (SUPRA) AND THERE THE ASSESSEE DID NOT DISPUTE THE FACT THAT THE AUTHORITIES BELOW HAVE DECIDED THE ISSUE FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMINE SHARES.. THE LD. A.R. POINTED OUT THAT DECISION OF H ONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MI LLS (P) LTD VS. ACIT (SUPRA) WAS NOT CITED BEFORE THE PUNE BENCH IN THE CASE OF PRIMA PAPER ENGG (P) LTD. VS. ITO (SUPRA). THE LD. A.R. HAS ALSO CITED THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. AURANGABAD HOLIDAY RESORTS (P) LTD., (SUPRA) HOLD ING THAT EVEN A DECISION OF NON-JURISDICTIONAL HIGH COURT IS A BIND ING PRECEDENT FOR THE TRIBUNAL UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COMPETENT HIGH COURT. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. M/S. VALSON DYEING, BLEACHING AND PRINTING W ORKS (SUPRA). 12. THE CONTENTION OF THE LD. D.R. ON THE OTHER HAN D REMAINED THAT DEDUCTION U/S. 801 AND 801A COVERED INTER ALIA , INDUSTRIAL UNDERTAKINGS. THE POWER GENERATION UNITS FOUND A SPEC IFIC MENTION FOR THE FIRST TIME W.E.F. 1.4.1993. IN ALL T HE YEARS FROM 1.4.1981 TO 31 TO 31 ST MARCH 2000 IN BOTH U/S. 80I AND 80IA, THE TERM INITIAL A.Y WAS DEFINED AND MEANT THE FIRST A.Y . RELEVANT TO THE PREVIOUS YEAR IN WHICH THE ELIGIBLE UNIT COMMENCES PRODUCTION/POWER GENERATION. ONLY FROM 1.4.2000, W HEN SECTIONS 80IA WAS REPLACED WITH SECTION 80IA AND 80IB, THE DE FINITION OF INITIAL A.Y. DID NOT FIND A MENTION. BUT NOWHER E, IN THE PARLIAMENT SPEECH OF MEMORANDUM EXPLAINING THE FINA NCE BILL HAS ANY MENTION THAT THERE WAS ANY INTENTION TO IGNORE LOSSES AND DEPRECIATION FROM FIRST YEAR OF POWER GENERATION/PRO DUCTION AND THAT SUCH LOSSES TILL FIRST YEAR OF CLAIM OF DEDUCTION IS TO BE IGNORED. THE VIEW CANVASSED BY THE ASSESSEE DOES NOT FIND ANY SUPPOR T. HE SUBMITTED THAT THERE IS NO DISCERNIBLE CHANGE IN LAW O R INTENTION OF PARLIAMENT W.E.F. 1.4.2000. THE LD. D.R. SUBMITTED THAT THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GOLD MINE SHARES AND FINANCE (P) LTD. (SUPRA) IS FULLY APPLICABLE IN THE PRESENT CASE. HE POINTED OUT THAT IN ITS RECENT DECISION DT. 21 ST JANUARY 2011, THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF HYDER ABAD CHEMICAL SUPPLIES LTD. VS. ACIT (SUPRA) HAS ALSO DECIDE D AN IDENTICAL DECISION IN FAVOUR OF THE REVENUE FOLLOWIN G THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMAN SHARES & FINANCE (P) LTD. (SUPRA). HE SUBMITTED TH AT THE HYDERABAD BENCH OF THE TRIBUNAL WHILE DECIDING TH E ISSUE HAS ALSO DISCUSSED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT (SUPRA ). THE LD. D.R. SUBMITTED THAT EVEN IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA), 9 THE HONBLE SUPREME COURT HAS BEEN PLEASED TO EXPLAIN THE INTENTION OF PARLIAMENT AND SCOPE OF DEDUCTION U/S. 8 0IA AND 80IB OF THE ACT. THE HONBLE SUPREME COURT HAS BEEN PLE ASED TO HOLD THAT SUCH PROFITS ARE TO BE COMPUTED AS IF SUCH ELIGIB LE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THE DEVICES ADOPTED TO REDUCE OR INFLATE THE PROFIT OF ELIGIBLE BUSINESS HAS G OT TO BE REJECTED IN VIEW OF THE OVERRIDING PROVISIONS OF SUB -SECTION (5) OF SECTION 80IA OF THE ACT. 13. HAVING BEEN CONSIDERED THE ABOVE SUBMISSIONS, WE FI ND THAT THE ISSUE RAISED IN GROUND NO. 1 AS TO WHAT WOULD BE TH E INITIAL A.Y FOR THE PURPOSES OF SECTION 80IA(5) OF THE ACT HAS BE EN DECIDED IN FAVOUR OF THE ASSESSEE BY THE PUNE BENCH OF THE TRIBUNA L IN THE CASE OF POONAWALLA STUD AND AGRO FARM PVT. LTD. VS. ACIT (SUPRA). IN THAT CASE AFTER DISCUSSING THE ISSUE IN DETAIL, THE TRIBU NAL HAS COME TO THE CONCLUSION THAT THE INITIAL A.Y FOR THE PUR POSE OF CLAIMING DEDUCTION U/S. 80IA WAS THE FIRST YEAR IN WHICH THE AS SESSEE CLAIMED THE DEDUCTION U/S. 80IA (1) AFTER EXERCISING HIS OPTION AS PER THE PROVISIONS OF 80IA (2) OF THE ACT. IT WAS HEL D THAT THE LD CIT(A) HAS ERRED IN HOLDING THAT THE INITIAL A.Y FOR THE PURPOSES OF SECTION 80IA(2) R.W.S. 80IA (5) WAS THE YEAR IN WHIC H THE ASSESSEE STARTED GENERATING ELECTRICITY FROM THE WIND MILL AC TIVITY. WE ALSO FIND THAT THE ISSUE RAISED IN GROUND NO. 2 REGARDING THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S. 80IA UNDIMINISHE D BY UNABSORBED LOSSES AND DEPRECIATION ALSO SET OFF IN EARLIE R YEARS AGAINST THE OTHER INCOME, IS FULLY COVERED BY THE DEC ISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINN ING MILLS (P) LTD VS. ACIT (SUPRA) HOLDING THAT AS PER SUB-SECT ION (5) OF SECTION 80IA, PROFITS ARE TO BE COMPUTED AS IF SUCH E LIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. WHEN THE A SSESSEE EXERCISES THE OPTION, ONLY THE LOSSES OF THE YEARS BEGINN ING FROM THE INITIAL A.Y. ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF THE EARLIER YEARS WHICH HAVE BEEN ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. THE HONBLE MADRAS HIGH COURT HAS BEEN FUR THER PLEASED TO HOLD THAT REVENUE CANNOT NOTIONALLY BRING FORWARD ANY LOSS OF EARLIER YEARS WHICH HAD ALREADY BEEN SET OFF A GAINST THE OTHER INCOME OF ASSESSEE AND SET OFF AGAINST THE CORRECT INCOME OF THE ELIGIBLE BUSINESS. FICTION CREATED BY SUB-SECTION (5) OF SECTION 80IA DOES NOT CONTEMPLATE SUCH NOTIONAL SET OFF, HELD THE HONBLE HIGH COURT. THE HONBLE MADRAS HIGH COURT IN THAT D ECISION HAS ALSO REFERRED THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF LIBERTY INDIA VS. CIT (SUPRA) AND THE DECISION OF SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GOLDMAN SHARES & FINANCE (P) LTD. (SUPRA). THERE IS NO DISPUTE THAT EVEN A DECISION OF NON- JURISDICTIONAL HIGH COURT IS A BINDING PRECEDENT FOR THE TRIBUNAL UNTIL A CONTRARY DECISION IS GIVEN BY ANY OTHER COM PETENT HIGH COURT. IN THIS REGARD, WE FIND STRENGTH FROM THE RE CENT DECISION OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE VS. VALSON DYEING, BLEACH ING AND PRINTING WORKS (SUPRA) WHEREIN THE HONBLE BOMBAY HI GH COURT HAS BEEN PLEASED TO HOLD IN A CASE OF EXCISE MATTER TH AT TRIBUNAL IS BOUND BY THE DECISION OF HIGH COURT , EVEN OF A DIFF ERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIG H COURT. THE HONBLE BOMBAY HIGH COURT HAS BEEN PLEASED TO HOLD FU RTHER THAT THE TRIBUNAL HAD NO OPTION BUT TO FOLLOW THE JUDGME NT OF THE MADRAS HIGH COURT. AN AUTHORITY LIKE AN INCOME TAX TRIBUNAL ACTING ANYWHERE IN THE COUNTRY HAS TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT ON THAT QU ESTION. WE THUS RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER O F CENTRAL 10 EXCISE VS. VAKSON DYEING, BLEACHING AND PRINTING WORKS (SUPRA) HOLD THAT THE TRIBUNAL IS BOUND BY THE DECISION OF TH E HONBLE MADRAS HIGH COURT ON AN IDENTICAL ISSUE IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT (SUPRA ). WE THUS RESPECTFULLY FOLLOWING THE DECISION TAKEN BY THE HON BLE MADRAS HIGH COURT IN THAT CASE ON AN IDENTICAL ISSUE UNDER AL MOST SIMILAR FACTS, HOLD THAT WHEN THE ASSESSEE EXERCISING THE OPTION , ONLY THE LOSSES OF THE YEAR BEGINNING FROM THE INITIAL A.Y. A RE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEAR WHICH HAVE BEEN ALREADY SET OFF AGAINST THE OTHER INCOME OF THE ASSESSEE. THE RE VENUE CANNOT NOTIONALLY BRING FORWARD ANY LOSS OF EARLIER Y EARS WHICH HAS ALREADY BEEN SET OFF AGAINST ANY OTHER INCOME OF THE ASSESSEE AND SET OFF THE SAME AGAINST THE CURRENT INCOME OF THE ELI GIBLE BUSINESS. WE THUS SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW A ND DIRECT THE A.O TO ALLOW THE CLAIMED DEDUCTION U/S. 80IA WITH OUT BRINGING THE NOTIONALLY BROUGHT FORWARD ANY LOSS OR DEPRECIATION OF EARLIER YEARS WHICH HAS ALREADY BEEN SET OFF AGAINST OTHER INCO ME OF THE ASSESSEE. THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PRIMA PAPER ENGINEERING P.LTD. VS. ITO (SUPRA) CITED BY THE LD. DR IS ALSO NOT HELPFUL TO THE REVENUE SINCE FIRSTLY THE DE CISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASW AMY SPINNING MILLS (P) LTD. VS. ACIT (SUPRA) ON THE ISSUE WAS NOT CITED BEFORE THE BENCH AND SECONDLY THE LD. AR FAIRLY AGRE ED THAT THE ISSUE RAISED WAS COVERED AGAINST THE ASSESSEE BY THE DECISIO N OF SPECIAL BENCH IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCE (P) LTD. (SUPRA) FOLLOWED BY THE AUTHORITIES BELOW. THE LD. AR THEREIN THUS CONTENDED THAT THOUGH THE ISSUE MAY BE D ECIDED AGAINST THE ASSESSEE IN VIEW OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCIAL (P) L TD., BUT IT SHOULD NOT BE CONSTRUED AS ACQUIESCENCE FROM THE SIDE OF THE ASSESSEE AS THE LEGAL POSITION ON THE SUBJECT IS YET NOT S ETTLED. THE GROUND NO. 2 IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. 7. OSTENSIBLY, IN THE CASE OF SERUM INTERNATIONAL LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED AN IDENTICAL CONTROVERSY. ON BEHALF OF THE ASSESSEE, THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYDHASWAMY SPINNING MILLS (P) LTD. (SUPRA) WAS BE ING CITED WHEREAS THE REVENUE HAD RELIED UPON THE DECISION OF S PECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. CIT VS. GOLDMINE SHARES AND FINANCE (P) LTD. (2008) 116 TTJ (AHD) (SB) 705 TO T HE CONTRARY. THE TRIBUNAL NOTICED THAT HAVING REGARD TO THE DECI SION OF THE HONBLE MADRAS HIGH COURT THE ISSUE WAS TO BE DECIDED ACCORDINGLY AND NOT ON THE BASIS OF DECISION OF SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF GOLDMINE SHARES AND FINANCE (P) LTD. (SUPR A) WHICH WAS TO THE CONTRARY. IN THIS CONTEXT, THE TRIBUNAL CAM E TO THE CONCLUSION THAT WHEN THE ASSESSEE EXERCISED OPTION IDENTIFYING TEN CONSECUTIVE YEARS AS CONTAINED IN SUB-SECTION (2) OF SECTION 80-IA O F THE ACT, ONLY THE LOSSES OF THE YEAR BEGINNING FROM SUCH INITIAL ASSESSMENT YEAR ARE TO BE BROUGHT FORWARD AND SET-OFF WHILE APP LYING THE PROVISIONS OF SECTION 80-IA(5) OF THE ACT AND NOT THE LOSSES OF EARLIER YEARS WHICH OTHERWISE WERE SET-OFF AGAINST OTHE R INCOME OF THE ASSESSEE. 8. AT THE TIME OF HEARING, THE LEARNED DR HAS NOT BR OUGHT TO OUR NOTICE ANY DECISION OF A HIGH COURT CONTRARY TO THAT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYDHASWAMY SPINNIN G MILLS (P) LTD. (SUPRA) ON THE ISSUE IN QUESTION. THEREFORE, WE FIND THAT THE CONTROVERSY BEFORE US IS NO LONGER RES INTEGRA AND IS IN FACT COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SERUM INTERNATIONAL LD. (SUPR A) WHICH HAS 11 BEEN DECIDED FOLLOWING THE DECISION OF THE HONBLE M ADRAS HIGH COURT IN THE CASE OF VELAYDHASWAMY SPINNING MILLS (P) LTD. (SUPRA). 9. BEFORE PARTING WE MAY ALSO REFER TO THE DECISION O F THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF PRIMA PAPER ENG G. (P) LTD. VS. ITO IN ITA NO. 1755 AND 1205/PN/2007 FOR A.Y. 2002- 03 AND 2003-04 VIDE ORDER DATED 31-1-2011 WHICH IS CONTRARY TO THE AFORESAID POSITION. THE SAID DECISION OF THE TRIBUNAL HAS BEEN EXPLAINED IN THE CASE OF SERUM INTERNATIONAL LTD (SUP RA) WHEREIN IT HAS BEEN CLEARLY BROUGHT OUT AS TO HOW THE SAID DECISIO N DOES NOT HELP THE CASE OF THE REVENUE. FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IS RELEVANT. THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF PRIMA PAPER ENGINEERING P.LTD. VS. ITO (SUPRA) CITED BY TH E LD. DR IS ALSO NOT HELPFUL TO THE REVENUE SINCE FIRSTLY THE DECISION OF THE HONBLE1 MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNI NG MILLS (P) LTD. VS. ACIT (SUPRA) ON THE ISSUE WAS NOT CITED B EFORE THE BENCH AND SECONDLY THE LD. AR FAIRLY AGREED THAT THE ISSUE RAISED WAS COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECI AL BENCH IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCE (P) LTD. (SUPRA) FOLLOWED BY THE AUTHORITIES BELOW. THE LD. AR THERE IN THUS CONTENDED THAT THOUGH THE ISSUE MAY BE DECIDED AGAINS T THE ASSESSEE IN VIEW OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. GOLDMINE SHARES & FINANCIAL (P) LTD., BUT IT SHOULD NOT BE CONSTRUED AS ACQUIESCENCE FROM THE SIDE OF THE ASSESSEE AS T HE LEGAL POSITION ON THE SUBJECT IS YET NOT SETTLED. THE GROUND NO. 2 IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. 10. IN VIEW OF THE AFORESAID DISCUSSION, WE THEREFORE, HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80-IA OF THE ACT FOR THE YEAR UNDER CONSIDERATION IN A MANNER WHEREBY THE INITIAL ASSESSMENT YEAR REFERRED TO IN SECTION 80-IA(5) OF THE A CT IS TO BE TAKEN AS THE A.Y. 2004-05 AND NOT THE A.Y. 2002-03 A S CANVASSED BY THE REVENUE. RESULTANTLY, WE THEREFORE, SET ASIDE T HE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECOMPUTE AN D ALLOW THE DEDUCTION TO THE ASSESSEE U/S 80-IA OF THE ACT AS ABOVE. 10.1 RESPECTFULLY FOLLOWING THE DECISION OF THE COORD INATE BENCH OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE CIT(A). GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 5.1 RESPECTFULLY, FOLLOWING THE DECISION OF THE COO RDINATE BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY , THE SAME IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE AC CORDINGLY DISMISSED. 6. GROUNDS OF APPEAL NO.4 & 5 BY THE REVENUE ARE AS UNDER : 12 4. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) WAS CORRECT IN INTERPRETING THE PROVISION OF S ECTION 14A R.W.RULE 8D IN THE LIGHT OF DECISION OF JURISDICTIONA L HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY. CIT REPORTED IN (2010) 43 DTK (BOM) 328 ITR 81 (BOM). 5. WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE CIT(A) WAS CORRECT IN INTERPRETING THAT THE ASSESSEE HA S NOT EARNED DIVIDEND INCOME AND HAS NOT CLAIMED EXEMPTION, THE P ROVISIONS OF SECTION 14A R.W. RULE 8D ARE NOT APPLICABLE IN VIEW OF THE JUDGMENTS IN THE CASES OF - CHEMINVEST LTD. VS INCOME TAX OFFICER 124 TTJ 577 (DEL) (SB), SHANKAR CHEMICAL WORKS VS. DCIT (2011) 47 SOT 121 (AHMADABAD), CIT VS. RAJENDRA. PRASAD MODY 115 ITR 51 9 (SC), TECHNOPAK ADVISORS (P) LTD. VS. ADDL. CIT'(2012) 50 SO T 31(DELHI) & MAXOPP INVESTMENT LTD. & OTHERS VS CIT (2011) 64 DTR 122 (DEL). 6.1 FACTS OF THE CASE, IN BRIEF, ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS MADE INVESTMENT IN SHARES OF I NDIAN COMPANIES AND HAS INCURRED EXPENDITURE BY WAY OF IN TEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULA R INCOME OR RECEIPT. HE THEREFORE ASKED THE ASSESSEE TO EXPLAI N AS TO WHY DISALLOWANCE U/S.14A R.W. RULE 8D SHOULD NOT BE MAD E. IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAS NOT MADE ANY INVESTMENT IN EQUITY SHARES OF VARIOUS CO MPANIES WITH A VIEW TO EARN DIVIDEND INCOME. THOSE WERE MA DE WITH BUSINESS PURPOSE. THE ASSESSEE HAS NOT RECEIVED AN Y DIVIDEND INCOME FROM THE SAID INVESTMENT DURING THE PREVIOU S YEAR. RELYING ON VARIOUS DECISIONS IT WAS SUBMITTED THAT THERE IS NO EXEMPT INCOME CLAIMED IN THE RETURN OF INCOME AND T HEREFORE NO DISALLOWANCE U/S.14A R.W. RULE8D CAN BE MADE. 6.2 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIE D WITH THE EXPLANATION GIVEN BY THE ASSESSEE. RELYING ON THE DECISION OF THE DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO AND VARIOUS OTHER DECISIONS HE REJECTED THE CLAIM OF THE ASSESSEE AND MADE ADDITIO N OF 13 RS.5,42,925/- TO THE TOTAL INCOME OF THE ASSESSEE U /S.37(1) OF THE I.T. ACT. 7. IN APPEAL THE LD.CIT(A) DELETED THE ADDITION BY HOLDING THAT SINCE THE ASSESSEE HAS NOT EARNED DIVIDEND INC OME AND HAS NOT CLAIMED EXEMPTION IN RESPECT OF DIVIDEND IN COME DURING THE YEAR UNDER APPEAL, THEREFORE, THE PROVIS IONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. FOR THE ABOVE PROPOSITION, THE LD.CIT(A) RELIED ON THE DECISION O F HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES REPORTED IN 319 ITR 204. HE FUR THER HELD THAT THE ASSESSEE COMPANY HAS MADE INVESTMENT IN SH ARES OF RELATED COMPANIES WITH WHOM IT HAS BUSINESS TRANSAC TIONS IN ORDER TO HAVE CONTROL OVER THE BUSINESS MATTERS OF THE SAID COMPANY AND NOT FOR EARNING DIVIDEND INCOME. 8. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US. 9. THE LD. COUNSEL FOR THE ASSESSEE WHILE SUPPORTIN G THE ORDER OF THE CIT(A) FILED A COPY OF THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHR I GOYAL ISHWARCHAND KISHORILAL VS. JCIT VIDE ITA NO.422/PN/ 2013 ORDER DATED 26-06-2014. REFERRING TO THE SAID DECI SION HE SUBMITTED THAT THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHIVAM MOTORS PVT. LTD. VIDE ITA NO.88/PN/2014 ORDER DATED 05-05-2014 AND THE DECISION OF THE HONBLE PUNJAB HIGH COURT IN THE CA SE OF CIT VS. LAKHANI MARKETING VIDE ITA NO.970/2008 ORDER DA TED 02- 09-2014 HAS HELD THAT WHEN THE ASSESSEE HAS NOT REC EIVED ANY DIVIDEND INCOME OUT OF THE SHARES HELD AS INVESTMEN T AND NO DISALLOWANCE U/S.14A HAS BEEN MADE IN THE PRECEDING AS WELL 14 AS SUCCEEDING ASSESSMENT YEARS, DISALLOWANCE U/S.14 A OF THE ACT CANNOT BE MADE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BEING IN CONSONANCE WITH LAW SHOULD B E UPHELD AND THE GROUNDS RAISED BY THE REVENUE SHOULD BE DIS MISSED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF TULIPSTAR HOTELS LTD. VS. ADDL.CIT (2008) 114 ITD 2 02 (DELHI) AND IN THE CASE OF J.K. SYNTHETICS REPORTED IN 200 TAXMANN 101 HAS HELD THAT EVEN IF THERE IS NO EXEMPT INCOME , STILL DISALLOWANCE U/S.14A CAN BE MADE. 11. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT WHEN DIVERGENT VIEWS ARE AVAILABLE T HE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLO WED IN ABSENCE OF ANY DIRECT DECISION OF THE JURISDICTIONA L HIGH COURT. FOR THE ABOVE PROPOSITION HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS VEGETAB LE PRODUCTS REPORTED IN 88 ITR 195 (SC) 12. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BE FORE US. THE ONLY DISPUTE TO BE DECIDED IN THE IMPUGNED GROU NDS ARE AS TO WHETHER DISALLOWANCE U/S.14A CAN BE MADE WHEN TH E ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME NOR CLA IMED ANY SUCH EXEMPT INCOME IN THE RETURN. WE FIND AN IDENT ICAL ISSUE HAD COME UP BEFORE THE PUNE BENCH OF THE TRIBUNAL I N THE CASE OF SHRI GOYAL ISHWARLALCHAND KISHORILAL (SUPRA). W E FIND THE TRIBUNAL VIDE PARA 9 TO 9.4 OF THE ORDER HAS DECIDE D THE ISSUE 15 AND DISMISSED GROUNDS RAISED BY THE REVENUE BY OBSE RVING AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIN D THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.25,10,262/- U/S.14A ON THE GROUND THAT BORROWED FUNDS ARE DIVERTED FOR I NVESTMENT IN SHARES, THE DIVIDEND INCOME OF WHICH IS EXEMPT FROM TA X. THEREFORE, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.19,23,30 0/- OUT OF THE INTEREST EXPENSES U/S.14A. THE ASSESSING OFFICER FURTH ER DISALLOWED AN AMOUNT OF RS.5,86,962/- OUT OF THE ADMI NISTRATIVE EXPENSES ON THE GROUND THAT THE ASSESSEE MIGHT HAVE INCUR RED EXPENSES LIKE BROKERAGE, DOCUMENTATION CHARGES, DEMAT CHARGES, MANPOWER COST ETC. WE FIND THE CIT(A) DELETED THE DI SALLOWANCE OUT OF THE INTEREST EXPENSES FOR WHICH THE REVENUE IS N OT IN APPEAL BEFORE US. SO FAR AS THE DISALLOWANCE OF RS.5,86,962/- BY THE ASSESSING OFFICER BEING 0.5% OF THE AVERAGE VALUE OF IN VESTMENT TOWARDS ADMINISTRATIVE EXPENSES ETC. IS CONCERNED WE FIN D THE CIT(A) SUSTAINED THE SAME. 9.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSE SSEE THAT ALL THE SHARES ARE HELD IN PHYSICAL FORM AND NOT IN DE MAT ACCOUNT AND NO DIVIDEND INCOME HAS BEEN RECEIVED ON ACCOUNT OF SHARES HELD UNDER THE HEAD INVESTMENT. WHATEVER DIVIDEND WAS RECEIVED WAS IN THE SHARE TRADING ACCOUNT. THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE COULD NOT BE CONTROVERTED BY T HE LD. DEPARTMENTAL REPRESENTATIVE. WE FIND VARIOUS COURTS H AVE HELD THAT DISALLOWANCE U/S.14A CANNOT BE MADE WHEN THERE I S NO TAX FREE INCOME. 9.2 WE FIND THE HONBLE ALLAHABAD HIGH COURT IN TH E CASE OF SHIVAM MOTORS PVT. LTD.(SUPRA) HAS OBSERVED AS UNDER : AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME U NDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS I NCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FO R THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NO T EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX F REE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FO R DISALLOWANCE. THE VIEW OF THE C1T(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTI AL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2, 03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER. 9.3 WE FIND THE HONBLE PUNJAB & HARYANA HIGH COUR T IN THE CASE OF LAKHANI MARKETING (SUPRA) HAS ALSO TAKEN SIMILA R VIEW. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FO R THE ASSESSEE ALSO SUPPORTS THE ABOVE CONTENTION. IT IS ALSO AN UNDISPUTED FACT THAT THE ASSESSING OFFICER IN THE ORDERS PASSED U/S.143(3) FOR A.Y. 2008-09 AND 2010-11 (COPIES OF WH ICH ARE PLACED AT PAPER BOOK PAGES 1 TO 4) HAS NOT MADE ANY D ISALLOWANCE U/S.14A OF THE INCOME TAX ACT. 16 9.4 SINCE IN THE INSTANT CASE THE ASSESSEE HAS NOT RECEIV ED ANY DIVIDEND INCOME OUT OF THE SHARES HELD AS INVESTMENT AN D SINCE NO DISALLOWANCE U/S.14A HAS BEEN MADE IN THE PRECEDING AS WELL AS SUCCEEDING ASSESSMENT YEARS, THEREFORE, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO D ISALLOWANCE U/S.14A CAN BE MADE UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF RS.5 ,86,962/- MADE U/S.14A. GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLO WED. 12.1 AS REGARDS THE ARGUMENT OF THE LD. DEPARTMENTA L REPRESENTATIVE THAT EVEN IF THERE IS NO EXEMPT INCO ME STILL DISALLOWANCE U/S.14A CAN BE MADE IN VIEW OF THE DEC ISIONS CITED BY HIM, WE FIND THERE IS NO DECISION OF THE H ONBLE JURISDICTIONAL HIGH COURT DIRECTLY ON THIS ISSUE. WE THEREFORE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR T HE ASSESSEE THAT WHEN DIVERGENT VIEWS ARE AVAILABLE ON THE SAME ISSUE OTHER THAN THE DECISION OF THE JURISDICTIONAL HIGH COURT, THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF VEGETABLE PRODUCTS (SUPRA). THEREFORE, FOLLOWIN G THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL WH ICH INTURN HAS FOLLOWED THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT AND HONBLE PUNJAB & HARYANA HIGH COURT WE UPHOLD T HE ORDER OF THE CIT(A) ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.1833/PN/2013 (A.Y. 2010-11) : 13. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUNDS ARE IDENTICAL TO THE GROUNDS RAISED IN ITA NO.1832/ PN/2013. WE HAVE ALREADY DECIDED THE ISSUE AND THE GROUNDS R AISED BY THE REVENUE HAVE BEEN DISMISSED. FOLLOWING THE SAM E RATIO, THE ABOVE GROUNDS ARE DISMISSED. 17 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 22-01-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 22 ND JANUARY, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A), AURANGABAD 4. CIT, AURANGABAD 5. THE D.R. A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR, ITAT, PUNE BENCHES, PUNE