INDIANA GRATING P.LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 1967/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1683 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

1 ITA NO. 1967/M/15 - INDIANA GRATING PVT LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH I ,MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.1967/MUM/2015 FOR (A Y : 2011-12) INDIANA GRATING PVT LIMITED, INDIANA HOUSE, MAKWANA ROAD, OFF M. VASANJI ROAD, MAROL NAKA, ANDHERI (E), MUMBAI-400059 . PAN : AAACI2546Q VS. DY COMMISSIONER OF INCOME- TAX, RANGE 8(2), 2 ND FLOOR , AAYAKAR BHAVAN, MUMBAI -400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. ADITYA R. AJGAONKAR (AR) : MR. SHRIKANT NAMDEO (DR) REVENUE BY DATE OF HEARING : 28.11.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JM: 1. THIS APPEAL UNDER SECTION 253 OF THE ACT (ACT) IS DIRECTED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEAL S) (FOR SHORT THE CIT(A)-II, THANE, DATED 28.01.2015 FOR ASSESSMENT YEAR (AY)-20 11-12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (I) (A). THE LD CIT(A) ERRED IN MAKING DISALLOWANCE OF DEDUCTION UNDER SECTION 80 IA AND NOT CONSIDERING THE FACT THAT DEDUCTION UNDER S ECTION 80 IA IS TO BE CLAIMED AND ALLOWED ON A STAND-ALONE BASIS AS IF THE ELIGIB LE BUSINESS WAS THE ONLY SOURCE OF INCOME. (B). THE LD CIT(A) ERRED IN HOLDING THAT LOSSES OF EARLIER YEAR HAD TO BE REDUCED BEFORE ALLOWING CLAIM UNDER SECTION 80 IA AND DISRE GARDING THE FACT THAT THERE WAS NO COLLECTED LOSSES OF EARLIER YEARS AS THEY HA D BEEN SET OFF AGAINST OTHER INCOME OF THOSE YEARS. (II) THE LD AO ERRED IN DENYING DEDUCTION UNDER SECTION 80IA BY FOLLOWING DECISION OF CIT(A) FOR AY 2010-11, AND NOT FOLLOWING DECISION O F MADRAS HIGH COURT (THE SOLE HIGH COURT JUDGMENT ON THE ISSUE) WHEREIN IT H AS BEEN HELD THAT LOSSES OF THE YEAR PRIOR TO THE INITIAL YEAR CANNOT BE SET OFF AND HAS ALLOWED THE DEDUCTION UNDER SECTION 80IA ON THE STAND-ALONE PROFIT FOR TH E YEAR(S) AFTER THE INITIAL YEAR. 2 ITA NO. 1967/M/15 - INDIANA GRATING PVT LIMITED THE INCOME TAX APPELLATE TRIBUNAL IN THE EARLIER YE ARS I.E. AY 2009-10 HAS ALSO ACCEPTED THIS POSITION VIDE ITS ORDER DATED 11.02.0 15. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRO-FORCED GRATING, CABLE TRAY S, HANDRAILS AND FRP GRATING, CABLE TRAYS AND GENERATION OF ELECTRICITY FROM WIND MILL FILED ITS RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 30 SEPTEMBER 2011 D ECLARING TOTAL INCOME AT RS. 19,14,23,030/-. THE ASSESSMENT U/S 143(3) WAS COMPL ETED ON 30 TH JANUARY 2014. WHILE MAKING ASSESSMENT THE AO DISALLOWED THE DEDUC TION CLAIMED U/S 80IA ON WIND POWER GENERATION PROJECT. ON APPEAL BEFORE COM MISSIONER APPEAL THE DISALLOWANCE WAS SUSTAINED OBSERVING THAT SIMILAR D ISALLOWANCE WAS SUSTAINED IN ASSESSEES CASE FOR AY 2010-11. THUS FURTHER AGGRIE VED BY THE ORDER OF COMMISSIONER (APPEALS) THE ASSESSEE HAS FILED PRESE NT APPEAL BEFORE TRIBUNAL. 3. WE HAVE HEARD LD AR OF THE ASSESSEE AND THE LD DR F OR THE REVENUE. THE LD. AR OF THE ASSESSEE ARGUED THAT THE ISSUE RAISED IN THE PR ESENT APPEAL IS SQUARELY COVERED IN HIS FAVOUR BY THE DECISION OF TRIBUNAL IN ASSESS EE OWN CASE FOR ASSESSMENT YEARS 2008-09 & 10- 11. THE LD. AR OF THE ASSESSEE HAS PLACED ON RECORD THE COPY OF DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2009-10 &1 0-11. THE LD. DR FOR THE REVENUE NOT DISPUTED THE FACTUAL POSITION. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PARTIES AND GONE THROUGH THE DECISIONS OF EA RLIER YEARS IN ASSESSEE OWN CASE WHEREIN THE IDENTICAL GROUNDS OF APPEAL WERE RAISED AND THE SAME WERE DECIDED IN FAVOUR OF ASSESSEE WOULD HOLDING AS UNDER: 6. CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO. 6013/M UM/03 HAS HELD AS UNDER: IF THE FIRST YEAR OF CLAIM OF DEDUCTION U/S.80IA(1) IS ITSELF TAKEN AS A INITIAL ASSESSMENT YEAR, THE WHOLE PURPOSE OF THE PROVISION GETS DEFEATED; RATHER, BOTCHED, WHERE THERE IS AN UNABSORBED DEPRECATION / LOSS INCURRED PRIOR TO THAT YEAR, SO THAT THERE IS NO SCOPE FOR THE SAME B EING CARRIED FORWARD AND SET OFF. THERE IS NO RATIONALE FOR SUCH AN EMBARGO OR R ESTRICTION, WHICH IS THUS INCOMPREHENSIBLE INASMUCH AS IT IS NEITHER BORNE OU T BY THE CLEAR LANGUAGE OF THE PROVISION NOR BY ITS RATIONALE; RATHER, GOES AG AINST ITS GRAIN, BESIDES BEING INCONSISTENT WITH THE MEMORANDUM, EXPLANATORY NOTES AND THE BOARD CIRCULAR EXPLAINING THE PROVISION, WHICH OPERATE AS A CONTEMPORANEA EXPOSITO INASMUCH AS THEY CLARIFY THE LEGISLATIVE I NTENT THAT THE AGGREGATION WOULD BE APPLICABLE FOR THE INITIAL, LOSS YEARS. TR UE, THE SAID CIRCULAR IS NOT BINDING ON THE HIGHER COURTS OF LAW, OR THE TRIBUNA L FOR THAT MATTER, BUT ONLY ON THE REVENUE AUTHORITIES. SO, HOWEVER, THE QUESTI ON THAT REMAINS UNANSWERED IS THE LEGAL OR THE LOGICAL BASIS FOR IG NORING THE SAME. WHAT, ONE MAY ASK, COULD BE THE PURPOSE IN EXCLUDING THE LOSS ES FOR THE INITIAL YEARS FOR AGGREGATION; FOR WHICH THOUGH WE SEE NO REASON, GIV EN THE LEGISLATIVE INTENTION AS EXPRESSED AND NOTED HEREINABOVE, AND T HE FACT THAT NO DEDUCTION WOULD EVEN OTHERWISE BE AVAILABLE IN CASE OF A LOSS . AFTER ALL, THERE IS NO 3 ITA NO. 1967/M/15 - INDIANA GRATING PVT LIMITED QUESTION OR REASON FOR THE ASSESSEE TO OPT FOR THE YEAR OF LOSS AS THE 'INITIAL ASSESSMENT YEAR', AND OF WHICH THE LEGISLATURE COUL D NOT BUT BE CONSIDERED TO BE AWARE OF. THIS IS ASSUMING THAT THE PROVISION CO NFERS THAT OPTION TO THE ASSESSEE. IN OTHER WORDS, SOME INFIRMITY THEREIN (T HE CIRCULAR AND THE MEMORANDUM EXPLAINING THE PROVISIONS AS WELL AS NOT ES ON CLAUSES) HAS TO BE SHOWN SO AS TO DISREGARD THE SAME AS NOT VALID O R ACCEPTABLE. IT 4 ITA NO. 6012/M/13 INDIANA GRATINGS PVT. LTD IS IN FACT NOT MERELY A CASE OF A CIRCULAR, EVEN AS POINTED OUT BY THE SPECIAL BENCH AT PARA 59 (ALSO READ PARAS 16 TO 18) OF ITS ORDER. IN FACT, THE ASSESSEE IN TH E INSTANT CASE ITSELF RELIES ON THE SAID CIRCULAR TO PRESS FOR ITS CLAIM FOR THE IM PUGNED SET OFF. FURTHER, LET US CONSIDER THE LOSSES INCURRED AFTER SUCH A YEAR, I.E., THE FIRST YEAR OF DETERMINATION OF DEDUCTION U/S. 80IA(1) (TR EATING IT AS THE INITIAL ASSESSMENT YEAR), THE SCOPE OF WHICH, THOUGH REMOTE , CANNOT BE EXCLUDED. THE SAME, GOING BY THE ASSESSEES CONTENTION BEFORE US (REFER PARA 3.1 OF THIS ORDER), WOULD NOT STAND TO BE CONSIDERED U/S. 80IA( 5) AS THERE IS NO QUESTION OF COMPUTING DEDUCTION U/S. 80IA(1) FOR SUCH YEAR. FURTHER, EVEN IGNORING THE SAID ARGUMENT, SO THAT S. 80IA(5) APPLIES, THE QUES TION THAT ARISES IS: WHAT IS A RATIONALE IN INCLUDING SOME LOSSES WHILE DISREGAR DING OTHERS? IN FACT, EMPIRICALLY SPEAKING, THE UNABSORBED DEPRECIATION A ND LOSSES WOULD ONLY BE DURING THE INITIAL YEARS OVER WHICH THE CHARGE OF D EPRECIATION IS MORE AND THE BUSINESS IS YET TO STABILIZE, SO THAT THE POSSIBILI TY OF UN ABSORBED DEPRECIATION OR LOSSES AFTER THE UNIT'S COMING INTO PROFITS, WHE RE THE BUSINESS IS SUCCESSFUL, RETURNING PROFITS (ONLY WHEREUPON THE QUESTION OF D EDUCTION U/S.80IA(1) WOULD ARISE), IS EVEN OTHERWISE REMOTE. SO, HOWEVER , SUCH LOSSES/ALLOWANCE, WHERE SO, WOULD STAND TO BE CARRIED FORWARD, AS MUC H AS THE LOSS/ALLOWANCE INCURRED PRIOR TO THE FIRST YEAR OF DEDUCTION, TO T HE SUBSEQUENT YEARS FOR SET OFF. THE MORE BASIC QUESTION THAT THOUGH ARISES IS THE ABSENCE OF ANY LEGAL OR LOGICAL (THE RAISON DE'TREI BASIS FOR ARTIFICIALLY SEGREGATING THE LOSSES/UNABSORBED DEPRECIATION FOR THE YEARS PRIOR AND SUBSEQUENT TO THE FIRST YEAR AFORESAID. THE TWO, THEREFORE, CANNOT BE SEGRE GATED OR TREATED SEPARATELY, BUT HAVE TO BE SO ONLY UNIFORMLY, AND I N A MANNER CONSISTENT AND IN HARMONY WITH THE OBJECT AND THE LANGUAGE OF THE PROVISION. 4.3 CONTINUING FURTHER, THOUGH THE PERIOD O F DEDUCTION U/S.80IA(1) OVER WHICH THE DEEMING OF SECTION 80IA(5) IS TO BE APPLIED COM MENCES WITH THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR, AND U P TO THE YEAR OF DETERMINATION OF DEDUCTION, ITS STATED PURPOSE IS F OR THE DETERMINATION OF QUANTUM OF DEDUCTION U/S. 801A(1) FOR THE YEAR IMME DIATELY' SUCCEEDING THE INITIAL ASSESSMENT YEAR (AND NOT THE INITIAL ASSESS MENT ITSELF) AND FOR EVERY SUBSEQUENT YEAR. WHY? THE REASON IS SIMPLE. THERE C OULD BE NO BROUGHT FORWARD ALLOWANCE OR LOSS PRIOR TO THE INITIAL (ASS ESSMENT) YEAR. THE FIRST YEAR FOR WHICH THERE COULD BE, IF SO, A LOSS OR UNABSORB ED DEPRECIATION, IS THE FIRST YEAR OF OPERATIONS, SO THAT THE QUESTION OF AGGREGA TION OF INCOME FOR THE PURPOSE OF DETERMINATION OF QUANTUM OF DEDUCTION CO ULD, AT THE EARLIEST, BE THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. IT IS F OR THIS REASON THAT WHILE THE AGGREGATION IS APPLICABLE FROM THE INITIAL ASSE SSMENT YEAR ITSELF (OF COURSE, UP TO THE YEAR OF DETERMINATION OF DEDUCTIO N), THE DETERMINATION OF QUANTUM OF DEDUCTION, WHICH IS THE STATED PURPOSE O F THE PROVISION, IS TO BE 4 ITA NO. 1967/M/15 - INDIANA GRATING PVT LIMITED FOR OR BEGINS FROM THE YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR. ALSO, ONCE THE DEEMING COMMENCES WITH THE INI TIAL ASSESSMENT YEAR, THE AGGREGATION OF INCOME IS TO CONTINUE OVER EVERY SUB SEQUENT YEAR, I.E., IRRESPECTIVE OF WHETHER THE DEDUCTION UNDER THE PRO VISION IS ELIGIBLE FOR THE SAID YEAR OR NOT. THE DEEMING WOULD THUS CONTINUE T O BE OPERATIVE, AND IS NOT DEPENDENT ON WHETHER DEDUCTION FOR A PARTICULAR YEA R IS BEING CLAIMED OR NOT. THE FIRST YEAR OF DETERMINATION OF DEDUCTI ON U/S. 80IA(1), OR OF RETURNING PROFITS OF THE ELIGIBLE BUSINESS, IGNORING THE LOSS ES, IF ANY, INCURRED PRIOR TO THAT YEAR, OR ASSUMING THE SAME AS HAVING BEEN ABSO RBED AGAINST ANY OTHER INCOME, CANNOT, THUS, BE CONSIDERED AS THE INITIAL ASSESSMENT YEAR. THIS EMANATES CLEARLY FROM THE LANGUAGE EMPLOYED AND THE RATIONALE OF THE PROVISION, AS EXPLAINED, BESIDES BEING ENDORSED BY THE DECISIONS BY THE TRIBUNAL CITED AND RELIED UPON BY THE PARTIES BEFOR E US. 4. WE HAVE NOTICED THAT THE LD. CIT(A) CONFIRMED THE D ISALLOWANCE ON THE BASIS OF HIS ORDER IN PREVIOUS ASSESSMENT YEAR. WE HAVE S EEN THAT THE TRIBUNAL HAS ALREADY ALLOWED THE SIMILAR RELIEF TO THE ASSESSEE IN AY 2010-11. THUS, THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATI ON IS ALSO SQUARELY COVERED BY THE ABOVE REFERRED DECISION. HENCE, RESPECTFULLY FOLLOWING THE JUDGMENT OF CO-ORDINATE BENCH, HOLD THAT THE DISALLOWANCE OF CLAIM OF ASSESSEE U/S 80IA MADE BY THE AO AND CONFIRMED BY THE CIT(A) ARE LIABLE TO BE REVERSED. 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH NOVEMBER, 2016. SD/- SD/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 30/11/2016 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/