M/s. Radha Madhav Industries, Daman V. The Income tax Officer, Vapi Ward-4, Daman

ITA 1935/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9595 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-09-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 08-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Keywords: Business income; Depreciation
• Section: 80IB; 32; 28; 154

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND D.C.AGRAWAL, AM M/S RADHA MADHAV INDUSTRIES, PLOT NO.54/3A, DAMAN INDUSTRIAL ESTATE, KADAIYA, NANI DAMAN. VS. INCOME-TAX OFFICER, VAPI, WARD-4, DAMAN. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. URVASHI SHODHAN, AR RESPONDENT BY:- SHRI R. K. DHANESTA, DR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS:- (1) THE ORDER OF THE LD. CIT(A) VALSAD, IN CONFIRMING T HE ACTION OF THE AO IN CALCULATING THE WDV OF DEPRECIABLE ASSETS AT THE BEGINNING OF THE YEAR ON THE BASIS AS IF DEPRECIATI ON WAS ACTUALLY ALLOWED DURING THE ASST. YEAR 2000-01 AND 2001-02, EVEN THOUGH THE APPELLANT FIRM HAD OPTED NOT TO CLA IM DEPRECIATION FOR ALL THESE YEARS IN COMPUTING THE A LLOWABLE DEPRECIATION FOR THE YEAR UNDER CONSIDERATION, IS C ONTRARY TO LAW AND THE FACTS OF THE CASE, ESPECIALLY WHEN THE HONO RABLE ITAT HAD QUASHED THE ORDER U/S 154 FOR ASST. YEAR 2000-0 1, THRUSTING UPON YOUR APPELLANT THE ALLOWANCE OF DEPRECIATION W HICH YOUR APPELLANT HAD EXPRESSLY DISCLAIMED IT. (2) THE ORDER OF THE LD. CIT(A) VALSAD, IN CONFIRMING T HE ACTION OF THE AO IN NOT ALLOWING THE DEDUCTION UNDER SECTION 80IA OF THE ACT ON RS.3,98,386 BEING THE AMOUNT WRITTEN BACK BY YOUR APPELLANT ON ACCOUNT OF THE AMOUNT DEDUCTED WHILE M AKING ITA NO.1935/AHD/2007 ASST. YEAR :2004-05 ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 2 PAYMENT FOR VARIOUS EXPENSES WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT EITHER OF THE SAME YEAR OR OF EARLIER YEAR. (3) THE ORDER OF THE LD. CIT(A) VALSAD IN CONFIRMING TH E ACTION OF THE AO IN NOT ALLOWING THE DEDUCTION UNDER SECTION 80IA OF THE ACT FOR INSURANCE CLAIM OR NOT ALLOWING SET OFF OF THIS CLAIMED AMOUNT AGAINST THE EXPENSES INCURRED TO RESTORE THE LOSS, WHICH HAS ALREADY BEEN DEBITED TO THE PROFIT AND LOSS ACC OUNT OF RS.3,10,000/-. 2. IN THIS CASE THE ASSESSEE HAS CHALLENGED THE ORD ER OF LD. CIT(A) IN CONFIRMING THE ORDER OF AO IN NOT ALLOWING DEDUCTIO NS UNDER SECTION 80IB ON FOLLOWING THREE AMOUNTS :- I) INSURANCE CLAIM RS.3,10,000/- II) SUNDRY BALANCE WRITTEN BACK RS.3,98,386/- III) DEPRECIATION AS PER DISCUSSED RS.9,34,071/- RS.16,43,457/- IN SUPPORT OF THE THIRD AMOUNT BEING DEPRECIATION T HE AO FOUND THAT ASSESSEE HAS CLAIMED DEPRECIATION OF RS.12,79,784/- WHILE COMPUTING PROFITS FOR DEDUCTION UNDER SECTION 80IB WHEREAS AC CORDING TO THE AO SUCH AMOUNT WORKS OUT TO RS.9,34,071/-. THE REASONS FOR DIFFERENCE WAS THAT ASSESSEE DID NOT CLAIM DEPRECIATION IN ASST. Y EARS 2000-01, 2001-02 AND 2003-04 AND CALCULATED DEPRECIATION IN THE CURR ENT ASST. YEAR 2004- 05 BY ADOPTING THE WDV AS AVAILABLE TO HIM IN THE B EGINNING OF ASST. YEAR 2000-01 WHEREAS THE AO CALCULATED ALLOWABLE DE PRECIATION BY NOTIONALLY DEDUCTING DEPRECIATION AVAILABLE FOR THO SE YEARS, CALCULATED WDV THEREAFTER AND ADOPTED WDV SO ARRIVED AT THE BE GINNING OF ASST. YEAR 2004-05 AND THEN CALCULATED DEPRECIATION THERE ON. THE RELEVANT CALCULATION GIVEN BY THE AO IS AS UNDER :- ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 3 ASST. YEAR OPENING WDV ADDITION DURING THE YEAR [NET] TOTAL DEPRECIATION CLOSING WDV 00-01 0 2199543 2199543 274943 1924600 01-02 1924600 4143542 6068142 1043607 5024535 02-03 5024535 295401 5319936 1167429 4152507 03-04 4152507 914801 5067308 1050634 4016674 04-05 4016674 1241042 5257716 934071 4323645 WHILE ALLOWING SUCH NOTIONAL DEPRECIATION AO FOLLOW ED THE DECISION OF HON. SUPREME COURT IN CAMBAY ELECTRIC SUPPLY CO. VS . CIT (1978) 113 ITR 84 AND THAT OF INDIAN RAYON CORPORATION LTD. VS . CIT (2003) 261 ITR 98. ON THE OTHER HAND THE ASSESSEE RELIED ON JU DGMENTS FOR THE PROPOSITION THAT SUCH DEPRECIATION WHICH HAS NOT BE EN CLAIMED BY THE ASSESSEE CANNOT BE THRUST UPON HIM AND THEN CALCULA TE WDV DEPRECIATION THEREON AS AGAINST ADOPTING OF WDV OF THE INITIAL A SST. YEAR, AND WITHOUT FURTHER REDUCING DEPRECIATION THEREFROM IN SUBSEQUE NT YEARS. ACCORDING TO THE AO THE TRIBUNAL HAS AFFIRMED IN ASST. YEAR 2 001-02 THE ACTION OF AO IN ALLOWING NOTIONAL DEPRECIATION EVEN THOUGH IT WAS NOT SO CLAIMED. IN THIS WAY THE AO CALCULATED THE DEPRECIATION TO T HE EXTENT OF RS.3,45,713/- BEING THE DIFFERENCE BETWEEN THE DEPR ECIATION CLAIMED BY THE ASSESSEE THIS YEAR AND ACTUALLY ALLOWED BY THE AO. 3. THE LD. CIT(A) CONFIRMED THE ORDER OF THE AO BY RELYING ON THE DECISION OF TRIBUNAL VIDE ITS ORDER DATED 9.11.2005 IN ITA NO.1686/AHD/2004 ASST. YEAR 2001-02 IN THE CASE OF VAHID PAPER CONVERTERS & OTHERS. 4. BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT FOR CALCULATING DEDUCTION UNDER SECTION 80IB, THE TRIBUNAL HAS BEEN ACCEPTING THE CLAIM OF THE ASSESSEE THAT DEPRECIATION SHOULD BE WORKED ON THE BASIS OF WDV WITHOUT ADJUSTING IT BY NOTIONAL DEPRECIATION. IN O THER WORDS ONLY THE ACTUAL CLAIM OF DEPRECIATION SHOULD BE DEDUCTED WHI LE COMPUTING WDV AND NOT NOTIONAL DEPRECIATION. SHE REFERRED THE ORD ER OF THE TRIBUNAL DATED ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 4 30.6.2010 IN ITA NO.3166/AHD/2007 FOR ASST. YEAR 20 04-05 IN THE CASE OF M/S WELL TUFF SAFETY GLASS VS. ACIT. THE AFORESAID DECISION DATED 28.11.2008 WAS SUBSEQU ENTLY FOLLOWED BY ANOTHER BENCH IN THE CASE OF M/S SIDDHARTH CORPORATION IN ITA NO R 866/AND/2007 AND IN THE CASE OF M/S GAUTAM ENTERPRI SES IN ITA NO.867/AND/2007 AND IN ITA NO.1885/AHD/2005 ASST. Y EAR 2002-03 IN THE CASE OF KHEMANI DISTILLERIES (P) LTD. VS. ACIT PRONOUNCED ON 28.11.2008. AS PER LD. AR SINCE DEPRECIATION SHOULD BE ALLOWED ON ACTUAL WDV AND NOT ON NOTIONAL WDV THE DECISION OF LD. CIT(A) SHO ULD BE REVERSED. 5. ON THE OTHER HAND, LD. DR RELIED ON THE DECISION OF THE TRIBUNAL, AHMEDABAD BENCH IN VAHID PAPER CONVERTERS VS. ITO & ORS (2007) 289 (AT) 10(AHD) AND THE DECISION OF HON. BOMBAY HIGH C OURT PLASTIBLENDS INDIA LTD. VS. ADDL.CIT & ANR. (2009) 318 ITR 352 ( BOM) FOR THE PROPOSITION THAT FOR COMPUTING ALLOWABLE DEDUCTION UNDER SECTION 80IA, DEPRECIATION ALLOWABLE UNDER SECTION 32 HAS TO BE D EDUCTED TO ARRIVE AT GROSS TOTAL INCOME AND THEN TO COMPUTE PROFITS WHIC H IS THE BASIS FOR COMPUTING DEDUCTION U/S 80IA. REFERRING TO THE DECI SION OF HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. VS. ADDL. CIT (SUPRA), THE LD. DR SUBMITTED THAT SECTION 80IA OR 80IB IS A COMPLETE C ODE IN ITSELF AND NO ITEM TO REDUCE OR INFLATE THE ALLOWABLE DEDUCTION U NDER THOSE SECTIONS SHOULD BE PERMITTED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. EVEN THOUGH CO-ORDINATE BENCH AS REFERRE D BY THE LD. AR AND MENTIONED ABOVE HAVE DIRECTED TO ALLOW DEDUCTION UN DER SECTION 80IB AFTER CONSIDERING THE DEPRECIATION CALCULATED ON WD V WITHOUT CONSIDERING NOTIONAL DEPRECIATION FOR IN BETWEEN PE RIODS. HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA) HAVE CLEARLY LAID DOWN THAT DEDUCTION UNDER SECTION 80IB AND 80IA IS A CODE BY ITSELF AND DEDUCTION ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 5 ALLOWABLE UNDER THESE SECTIONS IS A SPECIAL DEDUCTI ON WHICH IS LINKED TO PROFITS. DEDUCTION UNDER SECTION 80IA IS ALLOWED AT A PERCENTAGE OF THE BASIC PROFITS COMPUTED IN THE MANNER SPECIFIED IN T HAT SECTION AND OTHER PROVISIONS CONTAINED IN CHAPTER VIA. SECTION 80IA C ONTAINS BOTH SUBSTANTIVE AND PROCEDURAL PROVISIONS FOR COMPUTING SUCH SPECIAL DEDUCTION AND ANY DEVICE ADOPTED TO REDUCE OR INFLA TE THE PROFITS OF ELIGIBLE BUSINESS HAS TO BE REJECTED. IN THE PRESEN T CASE THE ASSESSEE BY NOT CLAIMING DEPRECIATION IN EARLIER YEARS HAS SOUGHT T O INFLATE PROFITS LINKED INCENTIVE PROVIDED UNDER SECTION 80IA OF THE ACT. I N THIS REGARD WE REFER TO SUMMARY OF THE JUDGMENT GIVEN BY HON. BOMBAY HIG H COURT AS UNDER: TO SUMMARISE, FIRSTLY, THE APEX COURT DECISION IN THE CASE OF MAHENDRA MILLS [2000] 243 ITR 56 CA NNOT BE CONSTRUED TO MEAN THAT BY DISCLAIMING DEPRECIATION, THE ASSESSEE CAN CLAIM ENHANCED QUANT UM OF DEDUCTION UNDER SECTION 80-IA. SECONDLY, THE APEX COURT IN TH E CASE OF DISTRIBUTORS (BARODA) P. LTD. [1985] 155 ITR 120 A ND IN THE CASE OF LIBERTY INDIA [2009] 317 ITR 218 HAS CLEARLY HELD THAT THE SPECIA L DEDUCTION UNDER CHAPTER VI-A HAS TO BE COMPUTED ON THE GROSS TOTAL INCOME DETERMINED AFTER DEDUCTING ALL DEDUCTIONS ALLOWABLE UNDER SECT IONS 30 TO 43D OF THE ACT AND ANY DEVICE ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAS GOT TO BE REJECTED. THIRDLY, THIS COUR T IN THE CASE OF ALBRIGHT MORARJI AND PANDIT LTD. [1999] 236 ITR 914, GRASIM INDUSTRIES LTD. [2000] 245 ITR 677 ( BOM) AND ASIAN CABLE CORPORATION LTD. [2003] 262 ITR 537 ( BOM) HAS ONLY FOLLOWED THE DECISIONS OF THE APEX CO URT IN THE CASE OF DISTRIBUTORS (BARODA) P. LTD. [1985] 15 5 ITR 120. THUS, ON ANALYSIS OF ALL THE DECISIONS REFERRED HEREINABOVE, IT IS SEEN THAT THE QUANTUM OF DEDUCTION ALLOWABLE UNDER SECTION 80-IA OF THE ACT HAS TO BE DETERMINED BY COMPUTING THE GROSS TOTAL INCOME FROM BUSINESS, AFTER TAKING INTO CONSIDERATION ALL THE DEDUCTIONS ALLOWA BLE UNDER SECTIONS 30 TO 43D OF THE ACT. THEREFORE, WHETHER THE ASSESSEE HAS CLAIMED THE DEDUCTIONS ALLOWABLE UNDER SECTIONS 30 TO 43D OF TH E ACT OR NOT, THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA HAS TO BE DETERMINED ON THE TOTAL INCOME COMPUTED AFTER DEDUCTING ALL DEDUCTION S ALLOWABLE UNDER SECTIONS 30 TO 43D OF THE ACT. ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 6 THE HEAD NOTES FROM THAT DECISION READS AS UNDER :- COMPUTATION OF BUSINESS INCOME CHARGEABLE TO INCOM E-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IN CHAPTER IV OF THE INCOME-TAX ACT, 1961 HAS TO BE MADE BY DEDUCTING FROM THE BUSINESS INCOME SPECI FIED IN SECTION 28, VARIOUS DEDUCTIONS ALLOWABLE UNDER SECTIONS 30 TO 43D OF TH E ACT. SECTION 80-IA OF THE ACT IS A CODE BY ITSELF AND TH E DEDUCTION ALLOWABLE UNDER SECTION 80-IA IS A SPECIAL DEDUCTION WHICH IS LINKED TO PRO FITS, UNLIKE DEDUCTIONS CONTAINED IN CHAPTER IV OF THE ACT WHICH ARE LINKED TO INVESTMEN TS. THE DEDUCTION UNDER SECTION 80-IA IS ALLOWED AT A PERCENTAGE OF THE BUSINESS PR OFITS COMPUTED IN THE MANNER SPECIFIED IN THAT SECTION AND OTHER PROVISIONS CONT AINED IN CHAPTER VI-A. SECTION 80- IA CONTAINS BOTH SUBSTANTIVE AND PROCEDURAL PROVISI ONS FOR COMPUTATION OF THE SPECIAL DEDUCTION AND ANY DEVICE ADOPTED TO REDUCE OR INFLA TE THE PROFITS OF ELIGIBLE BUSINESS HAS TO BE REJECTED. THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA WOULD NOT BE DEPENDENT UPON THE ASSESSEE CLAIMING OR NOT CLAIMING CURRENT DEPRECIAT ION, BECAUSE THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA HAS TO BE COMPUTED ON THE PROFITS DETERMINED AFTER DEDUCTING ALL DEDUCTIONS ALLOWABLE UNDER THE ACT. THE CONSISTENT VIEW TAKEN BY THE SUPREME COURT IS T HAT THE DEDUCTION UNDER CHAPTER VI-A IS A SPECIAL DEDUCTION AND THE QUANTUM OF DEDU CTION THERE-UNDER HAS TO BE COMPUTED BY ASCERTAINING THAT PART OF THE TOTAL INC OME WHICH REPRESENTS THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING AFTER DEDUCTING ALL THE DEDUCTIONS ALLOWABLE UNDER SECTIONS 30 TO 43D OF THE ACT. THEREFORE, ASS UMING THAT IN THE ASSESSMENT YEAR IN QUESTION THE ASSESSEE HAS AN OPTION TO DISCLAIM DEPRECIATION, THAT WOULD NOT HAVE ANY BEARING ON THE COMPUTATION OF QUANTUM DEDUCTION UNDER SECTION 80-IA OF THE ACT. THE DECISION OF THE SUPREME COURT IN THE CASE OF MA HENDRA MILLS [2000] 243 ITR 56 HAS TO BE UNDERSTOOD IN THE CONTEXT IN WHICH THE DE CISION WAS RENDERED, I.E., OF DETERMINING THE TOTAL INCOME OF AN INDUSTRIAL UNDER TAKING UNDER CHAPTER IV OF THE ACT AND NOT IN THE CONTEXT OF DETERMINING THE DEDUCTION UNDER CHAPTER VI-A OF THE ACT. THE COURT IN THE CASE OF MAHENDRA MILLS [2000] 243 ITR 56 HAS NOT LAID DOWN ANY PROPOSITION OF LAW THAT BY DISCLAIMING DEPRECIATION , THE ASSESSEE CAN CLAIM ENHANCED DEDUCTION ALLOWABLE UNDER ANY OTHER PROVISION IN TH E ACT. IT IS CLEAR THAT QUANTUM OF DEDUCTION UNDER SECTION 80IA WOULD BE CALCULATED AFTER DEDUCTING ALL THE DEDUCTIONS ALLOW ABLE UNDER THE ACT. EVEN THOUGH THE JUDGMENT OF HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA) PERTAINED TO ASSESSEE NOT CLAIMI NG CURRENT YEARS DEPRECIATION AND THUS CLAIMING HIGHER DEDUCTION UND ER SECTION 80IA BUT IT IS EQUALLY APPLICABLE IN RESPECT OF DEPRECIATION NO T CLAIMED BY THE ASSESSEE IN EARLIER YEARS AND CLAIMING ENTIRE DEDUC TION UNDER SECTION 80IA ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 7 THIS YEAR. IN FACT THERE IS APPARENTLY A CASE OF RE DUCING DEDUCTION UNDER SECTION 80IA BY ADOPTING A DEVICE BY DEFERRING THE CLAIM OF DEPRECIATION TO SUBSEQUENT YEARS BY KEEPING THE WDV INTACT AND W HEN SUITS TO BRING FORWARD THAT WDV TO 4 TH OR 5 TH ASST. YEAR (BY NOT CLAIMING DEPRECIATION IN THE INTERVENING ASST. YEAR AND THUS KEEPING WDV INTACT AND CARRY FORWARD THE SAME TO THE ASST. YEAR WHERE IT SUITS T O INFLATE THE CLAIM OF HIGHER DEDUCTION U/S 80IA). BY NOT CLAIMING DEPRECI ATION IN INTERVENING PERIOD THE ASSESSEE HAS SOUGHT TO INFLATE THE PROFI TS IN THOSE YEARS AND, THEREFORE, CLAIMED HIGHER AMOUNT OF DEDUCTION UNDER SECTION 80IA. IN THE CURRENT ASST. YEAR ASSESSEE HAS SOUGHT TO REDUCE AV AILABLE DEDUCTION UNDER SECTION 80IA BY CLAIMING HIGHER AMOUNT OF DEP RECIATION BY ADOPTING WDV AT THE BEGINNING OF ASST. YEAR 2000-01 . HON. SUPREME COURT IN LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) HAS CLEARLY LAID DOWN THAT ANY ATTEMPT TO INFLATE OR REDUCE AVAILABL E DEDUCTION UNDER SECTION 80IA OR 80IB UNDER CHAPTER VIA SHOULD BE DI SCOURAGED AND REJECTED IN VIEW OF THE PROVISIONS OF SUB-SECTION ( 5) OF SECTION 80IB WHICH IS SIMILAR TO SECTION 80IA(7). 7. THE CLAIM OF HIGHER DEPRECIATION OR LOWER DEPREC IATION MAY NOT ULTIMATELY AFFECT THE TAX LIABILITY OF THE ASSESSEE AS WHATEVER PROFIT IS DERIVED AFTER DEDUCTING DEPRECIATION WOULD BE ELIGI BLE FOR 100% DEDUCTION UNDER SECTION 80IB. A CONTRARY VIEW HAS B EEN TAKEN IN DECISIONS OF HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA) AND THAT OF HON. SUPREME COURT IN LIBERTY INDIA LTD . (SUPRA), WHICH ARE LATER JUDGMENTS AND OF SUPERIOR COURTS. THE JUDGMEN TS OF THE TRIBUNAL REFERRED TO BY THE LD. AR DID NOT HAVE THE BENEFITS OF THESE JUDGMENTS OF SUPERIOR COURT. THEREFORE, WE ARE INCLINED TO FOLLO W THE JUDGMENTS OF SUPERIOR COURTS I.E. HON. BOMBAY HIGH COURT AND HON . SUPREME COURT AS REFERRED TO ABOVE AND THUS WE ARE OF THE VIEW THAT DEDUCTION UNDER SECTION ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 8 80IA SHOULD BE GIVEN ON CORRECT AMOUNT OF THE PROFI TS CALCULATED AFTER DEDUCTING ALLOWABLE DEDUCTIONS UNDER SECTION 28 TO 43D. ACCORDINGLY, WE HOLD FOLLOWING THE DECISION OF HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA) THAT DEDUCTION UND ER SECTION 80IA/80IB SHOULD BE CALCULATED AFTER DEDUCTING ALL ALLOWABLE DEDUCTIONS UNDER SECTIONS 28 TO 43D. WHEN THE MATTER WAS PUT UP IN T HE FRESH HEARING BEFORE THE PARTIES, THE LD. AR POINTED OUT THAT THE DECISION OF HON. BOMBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA ) PERTAINS TO CLAIM OF DEDUCTION U/S 80IB IN THE CURRENT YEAR AND, THEREFO RE, IF DEPRECIATION IS NOT CLAIMED IN THE CURRENT YEAR STILL THEN FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IB DEPRECIATION SHOULD BE CALCULATE D AND ONLY THEREAFTER DEDUCTION UNDER SECTION 80IB SHOULD BE ALLOWED. THE PRESENT CASE ACCORDING TO THE LD. AR PERTAINS TO EARLIER YEARS W HERE MATTER IS CONCLUDED INASMUCH AS ASSESSED INCOME HAS BECOME FI NAL ON THE BASIS OF NOT-CLAIMING DEPRECIATION. THEREFORE, SUCH FINALLY ASSESSED INCOME COULD NOT BE DISTURBED BY CONSIDERING NOTIONALLY ALLOWABL E DEPRECIATION AND THEN WORK OUT WDV FOR THE CURRENT YEAR. ACCORDING T O THE LD. AR THIS IS A VITAL DIFFERENCE AND, THEREFORE DECISION OF HON. BO MBAY HIGH COURT IN PLASTIBLENDS INDIA LTD. (SUPRA) SHOULD NOT BE FOLLO WED. WE ARE, HOWEVER, OF THE CONSIDERED VIEW THAT SUCH DISTINCTION IS SUP ERFICIAL. IN FACT ASSESSED INCOME OF EARLIER YEARS IS NOT AT ALL DISTURBED AND IT IS ONLY FOR THE PURPOSE OF CALCULATING ALLOWABLE DEDUCTION UNDER SECTION 80 IB THE DEPRECIATION, WHETHER CLAIMED OR NOT IN EARLIER YEAR IS TAKEN INT O ACCOUNT TO WORK OUT RESIDUARY WDV IN THE BEGINNING OF THE CURRENT YEAR. IF JUDGMENT OF HON. BOMBAY HIGH COURT IS APPLICABLE FOR CALCULATING DED UCTION UNDER SECTION 80IB CONSIDERING ALLOWABLE DEPRECIATION EVEN THOUGH NOT CLAIMED THEN THERE IS NO REASON WHY THIS PRINCIPLE WILL NOT BE A PPLIED FOR CALCULATING WDV BY CONSIDERING ALLOWABLE DEPRECIATION FOR THE I NTERVENING PERIOD. ACCORDINGLY, WE HOLD THAT THE JUDGMENT OF HON. BOMB AY HIGH COURT IS ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 9 APPLICABLE TO THE FACTS OF THE PRESENT CASE ALSO. T HUS WE UPHOLD THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS GROUND OF ASSESSE E IS REJECTED. 8. THE NEXT ISSUE RELATES TO CLAIM OF DEDUCTION UND ER SECTION 80IA ON AMOUNT WRITTEN BACK BY THE ASSESSEE. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA ON A SUM OF RS.3,98,386/- BEING THE AM OUNT WRITTEN BACK WHICH WERE DUE TO BE PAID TO FOUR PARTIES. THE ASSE SSEE HAD GIVEN PARTY- WISE NARRATION OF AMOUNT SO WRITTEN OFF. ACCORDING TO THE AO, MAJORITY OF THE EXPENDITURE WRITTEN OFF ARE OF CAPITAL IN NATUR E. HE DISALLOWED THE CLAIM UNDER SECTION 80IA ON THE GROUND THAT THEY DI D NOT PERTAIN TO MANUFACTURING PROFITS AND, THEREFORE, THEY ARE NOT THE PROFITS ELIGIBLE FOR DEDUCTION. IN OTHER WORDS ANY TAX UNDER SECTION 41( 1) WILL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA. THE LD. CIT(A) CO NFIRMED THE SAME BY HOLDING THAT THERE IS NO NEXUS WITH THE PROFITS GEN ERATED FROM INDUSTRIAL UNDERTAKING WITH THE WRITTEN BACK AMOUNT. 9. AGAINST THIS, THE LD. AR SUBMITTED BEFORE US THA T THESE AMOUNTS WERE CLAIMED AS DEDUCTION IN EARLIER YEARS AND NOW THEY ARE WRITTEN BACK. SINCE THEY ARE PART OF THE PROFITS THEY ARE ELIGIBL E FOR DEDUCTION UNDER SECTION 80IA. 10. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORD ERS OF AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE MATTER REQUIR ES TO BE RE-EXAMINED SO AS TO GIVE A FINDING BY THE AO WHETHER THESE AMO UNTS WRITTEN BACK BY THE ASSESSEE WERE CLAIMED AS DEDUCTION IN ANY EARLI ER YEAR. IF SUCH DEDUCTION WAS CLAIMED AND ALLOWED IN ANY EARLIER YE AR THEN CLEARLY THERE ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 10 WAS REDUCTION OF PROFIT IN THOSE EARLIER YEARS AND ONCE THE CREDITORS REMIT THE LIABILITY OR LIABILITY CEASED TO EXIST AND ASSE SSEE DECLARED IT AS PART OF THE PROFIT THEN NEXUS OF SUCH PROFIT WRITTEN BACK W ITH THE INDUSTRIAL UNDERTAKING IS NOT SEVERED. IT IS BECAUSE WHILE ALL OWING DEDUCTION THE ELIGIBLE PROFITS OF THE BUSINESS DERIVED FROM THE I NDUSTRIAL UNDERTAKING WERE REDUCED AS THEY WERE ALLOWABLE EXPENDITURE. ON CE THE LIABILITY CEASED TO EXIST IN FAVOUR OF THE ASSESSEE THEN THEY BECOME PROFITS OF THE ASSESSEE IN THE CURRENT YEAR AS PER PROVISIONS OF S ECTION 41(1). WHEN WE EXAMINE THE NEXUS OF THE PROFIT WITH THE INDUSTRIAL UNDERTAKING IT IS NOT TO BE SEEN AS TO FROM WHOM THE PROFIT IS DERIVED BUT I T IS TO BE SEEN WHETHER IT IS DERIVED FROM THE BUSINESS. SO LONG MONEY IS R ECOVERABLE FROM THE PARTIES OR PAYABLE TO THE PARTIES DURING THE COURSE OF BUSINESS THE TRANSACTIONS HAVE A DIRECT NEXUS WITH THE BUSINESS AND ONE CANNOT VIEW THESE TRANSACTIONS AWAY FROM THE BUSINESS. SUCH TRA NSACTIONS INCLUDE RECEIPTS AND PAYMENT OF MONEY IN CASH OR IN KIND IM MEDIATELY OR ON CREDIT AND ARE PART OF BUSINESS ACTIVITIES. IF THE ASSESSEE HAS TO MAKE THE PAYMENT TO THE ABOVE FOUR PARTIES, WHICH WERE STAND ING IN THE BALANCE SHEET AS CREDITORS AND WHICH HAVE BEEN CLAIMED AS B USINESS DEDUCTION IN AN EARLIER YEAR THEN ONLY COURSE LEFT TO THE ASSESS EE IS EITHER TO MAKE THE PAYMENT OR IF NO PAYMENT IS LEGALLY REQUIRED, TO SH OW AS PROFIT UNDER SECTION 41(1) WHICH HAS BEEN SO DONE BY THE ASSESSE E. THERE IS A CLEAR AND DIRECT BUSINESS CONNECTION OF SUCH CESSATION OR REM ISSION AND SUCH PROFITS TAXABLE UNDER SECTION 41(1) CAN BE HELD AS DERIVED FROM INDUSTRIAL UNDERTAKING. THE ARGUMENTS OF THE LD. DR THAT THEY ARE NOT CURRENT YEARS PROFIT FROM MANUFACTURING ACTIVITY IS DEVOID OF AN Y MERIT BECAUSE DEDUCTION UNDER SECTION 80IA IS AVAILABLE ONLY ON P ROFITS DERIVED FROM INDUSTRIAL UNDERTAKING WHICH IS CARRYING ON MANUFAC TURING ACTIVITIES AND IT IS NOT CONFINED TO ONLY CURRENT YEARS PROFIT AS PER P & L ACCOUNT. THE DEDUCTION UNDER SECTION 80IA OR 80IB IS AVAILABLE O N PROFITS AND GAINS ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 11 COMPUTED IN ACCORDANCE WITH SECTION 20A- 43D WHICH INCLUDES SECTION 41(1) ALSO. 12. THUS WHERE AO FINDS THAT CLAIM HAS ALREADY BEEN ALLOWED IN THE EARLIER YEAR THEN SUCH BENEFIT UNDER SECTION 80IA S HOULD BE GIVEN TO THE PROFITS TAXED U/S 41(1). THE ARGUMENT OF LD. AR IS THAT ONCE IT HAS DECLARED PROFITS UNDER SECTION 41(1) IT WOULD MEAN THAT ASSESSEE HAS ALREADY CLAIMED AND ALLOWED DEDUCTION THEREOF IN EA RLIER YEARS BUT IN OUR CONSIDERED VIEW IT REQUIRES VERIFICATION AND FOR TH AT MATTER WE RESTORE THE MATTER TO THE FILE OF AO. ACCORDINGLY THIS GROUND O F ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. THE THIRD GROUND RELATES TO ALLOWABILITY OF DED UCTION UNDER SECTION 80IA IN RESPECT OF INSURANCE CLAIM. THE LD. AO DISA LLOWED THE CLAIM OF SUM OF RS.3,10,000/- BY HOLDING THAT IT IS NOT DERI VED FROM BUSINESS OR INDUSTRIAL UNDERTAKING. THE LD. CIT(A) CONFIRMED TH E SAME. 14. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ASSESSEE IS NOT ENTITLED TO CLAIM OF DEDUCTION UNDER SECTION 80IA OF INSURANCE CLAIM BEC AUSE IMMEDIATE SOURCE OF RECEIPT IS THE INSURANCE COMPANY WITH WHO M THE CLAIMS WERE FILED. THE ARGUMENT THAT IT IS A REIMBURSEMENT FOR THE COMPENSATION FOR THE LOSS CAUSED TO IT, THEREFORE IT HAS DIRECT NEXU S WITH THE BUSINESS OF INDUSTRIAL UNDERTAKING CANNOT BE ACCEPTED BECAUSE I NSURANCE CLAIM IS NOT DERIVED FROM BUSINESS OF INDUSTRIAL UNDERTAKING BUT IT IS DERIVED FROM INSURANCE COMPANIES. INSURANCE COMPANY MAY ACCEPT O R MAY NOT ACCEPT THE CLAIM AND REIMBURSEMENT IS DONE ONLY ON THE FUL FILLMENT OF CONDITIONS AS PER AGREEMENT AND, THEREFORE, IT HAS NO IMMEDIAT E NEXUS WITH CARRYING ON OF THE BUSINESS. THE MOMENT THE REPLY TO THE QUE RY AS TO THE SOURCE OF RECEIPT ENDS WHICH IS INSURANCE COMPANY AND NOT THE BUSINESS OF ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 12 INDUSTRIAL UNDERTAKING, NO FURTHER ENQUIRY IS NECES SARY SO AS TO FINDING OUT AS TO WHETHER CLAIMS WERE IN CONNECTION WITH BUSINE SS OR NOT. EVERY ACTIVITY SUCH AS PUTTING MONEY IN THE BANK AS SECUR ITY OR PURCHASING INSURANCE POLICY TO ENSURE BUSINESS OR TO GUARD AGA INST LOSS DOES NOT HAVE DIRECT NEXUS WITH THE BUSINESS BUT ONLY A CONSEQUEN CE OF BUSINESS AND CAN ONLY BE SAID TO BE ATTRIBUTABLE TO BUSINESS. THUS L IKE INTEREST RECEIPT OF FDR INSURANCE CLAIMS ALSO CANNOT BE SAID TO BE DERI VED FROM BUSINESS OF INDUSTRIAL UNDERTAKING AND THUS THEY ARE NOT ELIGIB LE FOR DEDUCTION UNDER SECTION 80IA. AS A RESULT, WE CONFIRM THIS PART OF CIT(A)S ORDER. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 15/10/10. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT ME MBER AHMEDABAD, DATED : 15/10/10. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO.1935/AHD/2007 ASST. YEAR 2004-05 13 1.DATE OF DICTATION 8/10/2010. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 12/10/10 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..