ACIT, CHENNAI V. M/s. Ceebros Hotels (P) Ltd., CHENNAI

ITA 2276/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1088 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-02-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 18-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHARANA
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Earning of tax free income; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 37; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.2185/MDS/2012 ASST. YEARS : 2009-10 M/S. CEEBROS HOTELS P. LTD., NO.19/1, 3 RD CROSS STREET, R.A. PURAM, CHENNAI-600 028. PAN : AAACC3051E. (APPELLANT) V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI. (RESPONDENT) ITA NO.2276/MDS/2012 ASST. YEARS : 2009-10 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(3), CHENNAI. (APPELLANT) V. M/S. CEEBROS HOTELS P. LTD., NO.19/1, 3 RD CROSS STREET, R.A. PURAM, CHENNAI-600 028. PAN : AAACC3051E. (RESPONDENT) ASSESSEE BY : MR. S. SRIDHAR, ADVOCATE DEPARTMENT BY MR. MOHARANA, CIT DATE OF HEARING : 27 FEB 2013 DATE OF PRONOUNCEMENT : 08 MAR 2 013 ITA 2185/MDS/12 2 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THESE APPEALS ARE FILED BY THE ASSESSEE AND THE DEPARTMENT AGAINST THE ORDER OF COMMISSIONER OF INC OME TAX (APPEALS)III, CHENNAI DATED 12.9.2012 FOR THE ASST. YEAR 2009-10. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE A SSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN PARTL Y SUSTAINING THE DISALLOWANCE UNDER SEC.14A READ WITH RULE 8D OF I.T . RULES. 2. THE ASSESSING OFFICER, WHILE COMPLETING THE ASS ESSMENT, DISALLOWED @4,37,363/- TOWARDS EXPENSES INCURRED FO R EARNING EXEMPT INCOME APPLYING THE PROVISIONS OF SEC.14A O F THE ACT READ WITH RULE 8D OF THE I.T. RULES. ON APPEAL, THE COM MISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE DISALLOWANCE TO @.3,58,035/- AS AGAINST @.4,37,363/- DISALLOWED. ITA 2185/MDS/12 3 3. THE COUNSEL FOR THE ASSESSEE RELYING ON THE GR OUNDS OF APPEAL SUBMITTED THAT THE COMMISSIONER OF INCOME TA X (APPEALS) SHOULD HAVE DELETED THE ENTIRE DISALLOWANCE MADE UN DER SEC.14A OF THE ACT. 4. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE OR DER OF COMMISSIONER OF INCOME TAX (APPEALS). 5. WE HAVE HEARD BOTH SIDES. PERUSED THE MATERIAL S ON RECORD AND THE ORDERS OF AUTHORITIES BELOW. THE C OMMISSIONER OF INCOME TAX (APPEALS) WHILE RESTRICTING THE DISALLOW ANCE TO @.3,58,035/- OBSERVED AS UNDER :- 4.3 AS REGARDS THE QUANTUM OF SUCH DISALLOWANCE, T HE A.O. HAS APPLIED RULE 8D AND DETERMINED @.4,37,363/ - AS AMOUNT DISALLOWABLE TO EARN TAX-FREE INCOME OF @.93,22,845/-. THE AMOUNTS DETERMINED UNDER CLAUSE S (I), (II) AND (III) OF RULE 8D(2) WERE @.NIL, @.79, 328/- AND @.3,58,035/- RESPECTIVELY. THERE IS NO DISPUTE REGARDING CLAUSE (I) BECAUSE IT WAS NIL. THE APPE LLANT, IN ITS SUBMISSION, HAS ARGUED THAT ALL THE INVESTME NTS DURING THE YEAR WERE MADE FROM ITS OWN FUND AND NO BORROWED FUND WAS UTILIZED FOR INVESTMENTS. I HAVE ITA 2185/MDS/12 4 CONSIDERED THE ABOVE CONTENTION AND PERUSED THE DETAILS SUBMITTED BY THE APPELLANT. THE APPELLANT HAD SUFFICIENT OWN FUNDS AND INTERNAL ACCRUALS TO MEET ITS INVESTMENTS. THE SHARE CAPITAL WAS @.2,55,04,750/- AND THE SET APART AS PREPAID COSTS AND COULD NOT BE ALLOWED AS EXPENDITURE FOR THE YEAR. HE ARRIVED THE VALUE OF SUCH PREPAID COST AT @.4,93,170/- AND DISALLOWANCE THE SAME AS IT WAS NOT INCURRED WHOLLY AND EXCLUSIVELY IN RESPECT OF THE BUSINESS CARRIED ON DURING THE YEAR. HE ALSO STATED THAT THE ADDITION WAS AGREED TO BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS), WE FIND NO INFIRMITY OR GOOD REASON TO I NTERFERE WITH HIS ORDER AND HENCE WE CONFIRM THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 6. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF @.41,71,198/- BEING THE EXPENSE S INCURRED UNDER THE HEAD REPAIRS AND REPLACEMENTS. ITA 2185/MDS/12 5 7. THE ASSESSING OFFICER, WHILE COMPLETING THE ASS ESSMENT, TREATED EXPENDITURE OF @.41,71,198/- INCURRED BY TH E ASSESSEE ON REPLACEMENT OF KITCHEN UTENSILS, FURNITURE, REPAIR S TO BUILDINGS, GENERAL REPAIRS AND MAINTENANCE, REPAIRS TO PLANT A ND MACHINERY ETC., AS CAPITAL EXPENDITURE AND ALLOWED DEPRECIATI ON THEREON AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAID EXP ENDITURE IS ALLOWABLE AS DEDUCTION UNDER SEC.37(1) OF THE I.T. ACT. THE SAME WAS CONFIRMED BY THE COMMISSIONER OF INCOME TAX (AP PEALS). 8. THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITUR E WAS INCURRED ON REPLACEMENTS AND REPAIRS FOR THE DAY TO DAY RUNNING OF THE BUSINESS AND THERE IS NO ENDURING BENEFIT OUT O F SUCH REPAIRS AND REPLACEMENTS. THE COUNSEL FOR THE ASSESSEE SUBMIT TED THAT IN THE COURSE OF BUSINESS OF THE ASSESSEE, IE., HOSPITALIT Y BUSINESS, THE ASSESSEE HAS TO INCUR THESE EXPENSES TO MAINTAIN T HE AMBIENCE OF HOTEL. FURTHER, CONSTANT REPLACEMENTS AND REPAIRS ARE NECESSARY AND, THEREFORE, THE ASSESSEE TOOK UP MODERNIZATION OF IT S HOTEL TO ATTRACT THE CUSTOMERS. THEREFORE, SUCH EXPENDITURE WHICH W AS INCURRED TOWARDS REPAIRS AND REPLACEMENTS OF OLD UTENSILS ET C., HAS NO ITA 2185/MDS/12 6 ENDURING BENEFIT AND, THEREFORE, SHOULD BE TREATED AS REVENUE EXPENDITURE. THE COUNSEL FOR THE ASSESSEE IN SUPP ORT OF HIS CONTENTION RELIED ON THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. OOTY DASAPRAKASH (237 ITR 902). 9. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE O RDERS OF LOWER AUTHORITIES IN TREATING THE SAID EXPENDITURE AS CAPITAL EXPENDITURE. 10. WE HAVE HEARD BOTH SIDES. PERUSED THE MATERIA LS ON RECORD AND THE ORDERS OF AUTHORITIES BELOW. THE A SSESSEE INCURRED VARIOUS EXPENSES ON REPAIRS AND REPLACEMENTS IN THE COURSE OF ITS BUSINESS OF RUNNING A HOTEL AND SUCH EXPENDITURE WA S INCURRED IN REPLACING THE KITCHEN UTENSILS, PAINTINGS, SCULPTUR ES, REPAIRS TO BUILDINGS, FURNITURE ETC., AND CLAIMED SUCH EXPENDI TURE ALLOWABLE AS REVENUE EXPENDITURE EITHER UNDER SEC.31(1) OF THE I .T. ACT OR UNDER SEC.37 OF THE ACT. WE FIND THAT IN ALMOST SIMILAR CIRCUMSTANCES THE MADRAS HIGH COURT IN THE CASE OF CIT V. OOTY DASAPR AKASH (SUPRA) HELD THAT THE EXPENDITURE INCURRED FOR REPAIRS AND MODERNIZATION OF HOTEL, REPLACING THE EXISTING COMPONENTS OF THE BUI LDING, FURNITURE ITA 2185/MDS/12 7 ETC., IS REVENUE EXPENDITURE. THE ASSESSEE IN THI S CASE CONTENDED THAT NO PART OF THE EXPENDITURE IS CAPITAL IN NATUR E BECAUSE IT WAS SPENT ONLY FOR REPAIRING AND REPLACING AND MODERNI ZING THE HOTEL AND REPLACING THE EXISTING COMPONENTS OF THE BUILDINGS, FURNITURE ETC. THE REVENUE CONTENDED THAT THE MODERNIZATION PROGRAMME INVOLVED LARGE AMOUNTS SPREAD OVER THREE YEARS AND, THEREFOR E, IT SHOULD HAVE DEFINITELY GIVEN THE ASSESSEE ENDURING BENEFIT AND, THEREFORE, SUCH EXPENDITURE IS CAPITAL IN NATURE. IN THE CIRCUMSTA NCES, THE HON'BLE HIGH COURT HELD AS UNDER :- THE ISSUE FALLING FOR CONSIDERATION IN THE QUESTIO N UNDER REFERENCE IS AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS IS O NE FALLING UNDER 'CAPITAL EXPENDITURE' AND CONSEQUENTL Y NOT ALLOWABLE AS A DEDUCTION OR FALLING UNDER 'REVENUE EXPENDITURE' AND THEREFORE TO BE ALLOWED AS A DEDUC TION UNDER SECTION 31(1) OR SECTION 37 OF THE INCOME TAX ACT. OUR ATTENTION HAD BEEN DRAWN TO THE ASSESSEE'S OWN CASE IN CIT V. DASAPRAHASH (1978) 114 ITR 210 (MAD), WHEREIN THE ASSESSEE CLAIMED A DEDUCTION OF AN EXPENDITURE OF RS. 37,390 INCURRED IN PROVIDING DECORATED MIRRORS, PLASTER-MOULDED ROOF PLYWOOD PAN ELS, ETC., IN RESPECT OF THE HOTEL PREMISES DURING THE P REVIOUS YEAR AND THE SAME WAS NEGATIVED BY THE INCOME TAX OFFICER IN THE VIEW THAT THE EXPENDITURE COULD NOT BE SAID ITA 2185/MDS/12 8 TO BE IN THE NATURE OF CURRENT REPAIRS TO THE BUILD ING, AS IT HAD BROUGHT INTO EXISTENCE AN ASSET OF AN ENDURING NATURE AND HENCE IT WAS OF A CAPITAL NATURE. THE DISALLOWANCE WAS CONFIRMED BY THE APPELLATE ASSISTANT COMMISSIONER. THE TRIBUNAL, HOWEVER, HELD THAT THE EXPENDITURE WA S INCURRED WHOLLY FOR THE PURPOSE OF THE BUSINESS AND WAS ALLOWABLE AS A DEDUCTION UNDER SECTION 37. ON A REFERENCE, AT THE INSTANCE OF THE DEPARTMENT, THIS COURT HELD THAT SOME OF THE ITEMS IN QUESTION WERE IN THE NATURE OF PETTY REPLACEMENT OF ITEMS WHICH ALREADY EXISTED AND CANNOT BE TAKEN AS CAPITAL, EXPENDITURE AT ALL. OTHER ITEMS OF EXPENDITURE WERE INCURRED WITH A VIE W TO BEAUTIFY THE PREMISES AND OBVIOUSLY WITH A VIEW TO KEEP THE PLACE FIT FOR THE PURPOSE FOR WHICH PERSONS ASS EMBLED IN THE PLACE, NAMELY, FOR TAKING FOOD AND OTHER EDI BLES, AS, WITHOUT THE PROPER ATMOSPHERE, IT WOULD NOT BE POSSIBLE TO ATTRACT THE NECESSARY CUSTOMERS FOR RUN NING THE HOTEL BUSINESS CARRIED ON BY THE ASSESSEE. THE EXPENSES CANNOT BE SAID TO BE OF AN ENDURING NATURE AS THE ITEMS FOR WHICH THEY WERE USED WOULD BE OF NO U SE WITH REFERENCE TO ANY OTHER PLACE AND THEY CANNOT A LSO BE REMOVED AND USED. THEY ARE JUST FIXED IN THE WALLS SO THAT THEY WOULD PRESENT AN INVITING APPEARANCE TO THE CUSTOMERS ASSEMBLED THERE. ACCORDINGLY, THE TRIBUNA L WAS RIGHT IN ITS CONCLUSION THAT THE EXPENSES WERE ALLOWABLE AS A DEDUCTION UNDER SECTION 37 OF THE IN COME TAX ACT. ITA 2185/MDS/12 9 IN THE INSTANT CASES, THE EXPENDITURE WAS INCURRED SOLELY FOR REPAIRS AND MODERNISING THE HOTEL AND REPLACING THE EXISTING COMPONENTS OF THE BUILDING, FURNITURE AND FITTINGS, WITH A VIEW TO CREATE A CONDUCIVE AND BEA UTIFUL ATMOSPHERE FOR THE PURPOSE OF RUNNING OF A BUSINESS OF A HOTEL. TAKING INTO CONSIDERATION THE RATIONALE OR REASONINGS, AS HAD BEEN PROVIDED FOR BY A DIVISION BENCH DECISION OF THIS COURT CITED SUPRA, IN THE ASSESSEE 'S OWN CASE IN CIT V. DASAPRAHASH (1978) 14 ITR 210, IT GO ES WITHOUT SAYING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS IN REPAI RING AND MODERNISING THE HOTEL AND REPLACING THE EXISTIN G COMPONENTS OF A PORTION OF THE BUILDING, FURNITURE AND FITTINGS CANNOT AT ALL BE STATED TO BE OF ENDURING IN NATURE, IN THE NATURE OF BEING A 'CAPITAL EXPENDITU RE' ; BUT, DEFINITELY SUCH AN EXPENDITURE WOULD FALL UNDE R THE CATEGORY OF 'REVENUE EXPENDITURE' IN NATURE TO BE ALLOWED, AS A DEDUCTION UNDER SECTION 37 OF THE INC OME TAX ACT. 11. AS COULD BE SEEN FROM THE ABOVE, THE HIGH COUR T IN AN ALMOST IDENTICAL FACTS HELD THAT REPAIRING AND REPL ACING THE EXISTING COMPONENTS OF PORTION OF THE BUILDINGS, FURNITURE A ND BUILDINGS CANNOT AT ALL BE STATED TO BE OF ENDURING NATURE BU T SUCH EXPENDITURE WOULD FALL IN THE CATEGORY OF REVENUE EXPENDITURE A LLOWABLE AS DEDUCTION UNDER SEC.37 OF THE I.T. ACT. FOLLOWING THE ABOVE DECISION, ITA 2185/MDS/12 10 WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESS EE FOR REPAIRS AND REPLACEMENTS AS REVENUE IN NATURE. THE GROUNDS RAI SED BY THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 12. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF ANNUAL MAINTENANCE CHARGES AMOU NTING TO @.4,93,170/-. 13. THE ASSESSING OFFICER, WHILE COMPLETING THE AS SESSMENT, DISALLOWED @.4,93,170/- STATING THAT THE SAID EXPEN DITURE HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY IN RESPECT OF BUSINESS OF THE ASSESSEE FOR THE YEAR. HE ALSO OBSERVED THAT THE A UTHORISED REPRESENTATIVE AGREED FOR THESE ADDITIONS. THE COM MISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE SAID ADDITIONS M ADE BY THE ASSESSING OFFICER. 14. THE COUNSEL FOR THE ASSESSEE RELIED ON THE GR OUNDS OF APPEAL. 15. THE DEPARTMENTAL REPRESENTATIVE SUPPORTS THE O RDERS OF LOWER AUTHORITIES. ITA 2185/MDS/12 11 16. WE HAVE HEARD BOTH SIDES. PERUSED THE MATERIA LS ON RECORD AND THE ORDERS OF AUTHORITIES BELOW. THE COM MISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE SAID ADDITION OB SERVING AS UNDER:- 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE AND THE SUBMISSIONS OF THE A.R. THE A.O HAS BIFURCATED THE EXPENSES TOWARDS AMC FOR THE PERIOD UPTO 31.3.2009 AND FOR THE SUBSEQUENT PERIOD. HE H AS DISALLOWED THE EXPENSES WHICH PERTAINED TO THE SUBSEQUENT PERIOD. THE RULE OF TAXATION RESTS ON T HE MATCHING PRINCIPLE IN WHICH COST INCURRED TO EARN REVENUE IS RECOGNIZED AS EXPENSE IN THE PERIOD WHEN RELATED REVENUE IS RECOGNIZED AS EARNED. THE A.O. HAS RIGHTLY APPLIED THE MATCHING PRINCIPLE AND THE PORT ION OF AMC EXPENSES WHICH DOES NOT RELATE TO THE MAINTENAN CE COSTS FOR THE YEAR WAS RIGHTLY DISALLOWED. THE A.R . OF THE ASSESSEE HAD ALSO AGREED FOR SUCH DISALLOWANCE DURING THE ASSESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE FACTS, NO INTERFERENCE IS CALLED FOR. THE GR OUND IS, ACCORDINGLY, DISMISSED. ITA 2185/MDS/12 12 ON GOING THROUGH THE OBSERVATIONS OF COMMISSIONER O F INCOME TAX (APPEALS), WE FIND NO REASON TO INTERFERE WITH THE ABOVE FINDINGS, ESPECIALLY WHEN THE AUTHORISED REPRESENTATIVE OF T HE ASSESSEE HAS AGREED FOR SUCH DISALLOWANCE IN THE COURSE OF ASSES SMENT PROCEEDINGS. WE ARE ALSO IN AGREEMENT WITH THE VIE W OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSES SEE COULD NOT PROVE THAT THESE EXPENSES WERE INCURRED FOR THE PUR POSE OF BUSINESS OF THE ASSESSEE. THUS THE GROUNDS RAISED BY THE AS SESSEE ARE REJECTED ON THIS ISSUE. 17. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF @.43,500/-, APPLYING THE PROVIS IONS OF EXPLANATION TO SEC.37(1) OF THE I.T. ACT. 18. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND IS NOT PRESSED AND MAY B E DISPOSED OFF AS NOT PRESSED. ACCORDINGLY, THIS GROUND OF APPEAL IS DISMISSED AS NOT PRESSED. SIMILARLY, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUND TAKEN BY THE ASSESSEE IN THIS APPEAL WITH RE GARD TO PROPER ITA 2185/MDS/12 13 OPPORTUNITY NOT GIVEN BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS ALSO NOT PRESSED AND MAY BE DISMISSED AS NOT PRE SSED. ACCORDINGLY, THIS GROUND IS ALSO DISMISSED AS NOT P RESSED. 19. THE LAST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS ON DEDUCTION UNDER SEC.80IA OF THE I.T. ACT WITH R EFERENCE TO THE WIND ENERGY GENERATOR INSTALLED AT UDUMALPET TO THE EXTENT OF @.72,88,585/-. THE ASSESSEE RAISED THE FOLLOWING G ROUNDS OF APPEAL:- 17. THE CIT(A) ERRED IN NOT GRANTING DEDUCTION U/S .80IA OF THE ACT WITH REFERENCE TO THE WIND ENERGY GENERA TOR INSTALLED AT UDUMALPET TO THE EXTENT OF @.72,88,585 /- IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 18. THE CIT (APPEALS) FAILED TO APPRECIATE THAT HAV ING ACCEPTED THE ELIGIBILITY TO MAKE SUCH DEDUCTION IN THE COMPUTATION OF TAXABLE TOTAL INCOME, THE DIRECTIONS ISSUED FOR VERIFICATION OF THE ACCEPTED FACTS BEFOR E GRANTING SUCH DEDUCTION WERE ERRONEOUS AND INVALID. ITA 2185/MDS/12 14 20. THE ASSESSING OFFICER WHILE COMPLETING THE ASS ESSMENT DENIED DEDUCTION UNDER SEC.80IA OF THE ACT ON THE W IND ENERGY GENERATOR, UDUMALPET. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS), FOLLOWING THE DECISION OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDASWAMY SPINNING MILLS P VT. LTD. V. ACIT (340 ITR 477) DIRECTED THE ASSESSING OFFICER TO ALL OW DEDUCTION UNDER SEC.80IA OF THE ACT WITH CERTAIN DIRECTIONS T O THE ASSESSING OFFICER REGARDING UNABSORBED DEPRECIATION AND LOSS. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) T HE REVENUE IS IN APPEAL ON ALLOWANCE OF DEDUCTION UNDER SEC.80IA OF THE ACT AND THE ASSESSEE IS IN APPEAL ON THE DIRECTIONS GIVEN B Y THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE ASSESSI NG OFFICER. 21. AT THE TIME OF HEARING, THE DEPARTMENTAL REPRE SENTATIVE FAIRLY CONCEDED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN FAVOUR OF THE ASSESSEE IN THE CASE OF VELAYUDASWAMY SPINNING MILLS PVT. LTD. V. ACIT ( SUPRA). THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THOUGH THE CO MMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSES SEE UNDER ITA 2185/MDS/12 15 SEC.80IA OF THE ACT, HE HAS GIVEN CERTAIN DIRECTION S WHICH WERE NOT NECESSARY AS THE ASSESSING OFFICER EXAMINED THESE ISSUES. 22. WE HAVE HEARD BOTH SIDES. PERUSED THE MATERIA LS ON RECORD AND THE ORDERS OF AUTHORITIES BELOW. THE COM MISSIONER OF INCOME TAX (APPEALS), IN PRINCIPLE, ALLOWED THE CLA IM OF THE ASSESSEE UNDER SEC.80IA OF THE ACT FOLLOWING THE DECISION OF VELAYUDHASAMY SPINNING MILLS PVT. LTD. V. ACIT (SUPRA). HOWEVER, COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN CERTAIN DIRECTIONS T O THE ASSESSING OFFICER OBSERVING AS UNDER :- 8.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSIONS OF THE ID.AR . I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE ID.AR AND THE AO. T HE APPELLANT HAS RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASAMY SPINNING MI LL S P. LTD V. ACIT (340 ITR 477). IN THE SAID CASE, THE AO HAD DISALLOWED DEDUCTION OF RS.1,70,76,945/- CLAIME D U/S 8O-IA ON THE GROUND THAT THE ELIGIBLE INCOME WAS A NEGATIVE FIGURE. THE CIT(A) ALLOWED THE APPEAL ON T HE GROUND THAT THE UNABSORBED DEPRECIATION OF THE ' EARLIER Y EARS, WHICH HAD ALREADY BEEN ABSORBED, COULD NOT BE NOTIONALLY CARRIED , FORWARD A ND TAKEN INTO CONSIDERATION FOR COMPUTING DEDUCTION U/S 8O-IA. THE TRIBUNAL SET ASI DE THE ORDER OF CLT(A) AND RESTORED THE ORDER OF AO. O N FURTHER APPEAL, THE HON'B L E HIGH COURT ALLOWED THE APPEAL OF THE ASSESSEE. , IT HELD THAT THERE WAS NO DISPUTE THAT LOSSES INCURRED BY THE ASSESSEE WERE ALREADY SET , OFF AND ADJUSTED AGAINST THE PROFITS OF THE E ARLIER YEARS. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE EXERCISED OP TION U/S 80-IA(2). DURING THIS PERIOD, T HERE WAS NO UNABSORBED DEPRECIATION OR LOSS OF THE ELIGIBLE UNDERTAKING AN D THESE ITA 2185/MDS/12 16 WERE ALREADY ' SET OFF IN THE EARLIER YEARS. THERE WAS POSITIVE INCOME DURING THE YEAR. THE ' . LOSS IN THE YEAR EARLIER TO INITIAL ASSESSMENT YEAR ALREADY ABSORBED AGAINST THE PROFIT OTHER BUSINESS COULD NOT BE NOT IONALLY BROUGHT FORWARD . AND SET OFF AGAINST THE PROFIT ELIGIBLE BUSINESS AS NO SUCH MANDATE WAS PROVIDED IN SECTION 80- IA(5). ACCORDINGLY THE ORDER OF THE ITAT WAS SET AS IDE AND THE QUESTION WAS ANSWERED IN FAVOUR OF ASSESSE E. THE HON'BLE COURT ALSO RELIED ON THE DECISION OF TH E HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V. MEWAR OIL AND GENERAL MILLS LTD, 271 ITR 311 (RAJ.) . RATIO OF THE ABOVE DECISION IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO VERIFY WHETHER THE UNABSORBED DEPRECIATION AND LOSS OF WINDMILL WERE ALREADY ABSORBED IN THE EARLIER YEAR AND NO UNABSORBED DEPRECIATION AVAILABLE FOR SET OFF IN THE CURRENT , YEAR. IF THE ANSWER IS IN THE AFFIRMATIVE I . E., THERE EXISTED UNABSORBED DEPRECIATION AT THE BEGINNING OF THE YEAR, THEN HE SHOULD SET ' OFF S AME AGAINST THE PROFITS OF THE ELIGIBLE UNIT AND ALLOW DEDUCTION ON THE BALANC E AMOUNT. IT MAY ALSO BE STATED THAT UNABSORBED DEPRECIATION OR LOSS OF THE WINDMILL COULD BE SET O FF AGAINST PROFIT OF THE HOTEL BUSINESS IF THERE WAS I NCOME OF THE ELIGIBLE (WINDMILL). IF, HOWEVER. THE UNABSORBE D DEPRECIATION ARID TOSS WERE ALREADY EXHAUSTS THE EA RLIER YEAR, THE APPELLANT WOULD BE . ENTITLED TO DEDUCTION ON THE ENTIRE PROFIT OF ELIGIBLE UNIT ' . THE AROUND ' IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ON GOING THROUGH THE ORDER OF COMMISSIONER OF INCOM E TAX (APPEALS), WE FIND THAT THERE IS NO INFIRMITY OR AN Y GOOD REASON TO INTERFERE WITH THE DIRECTIONS GIVEN BY THE COMMISSI ONER OF INCOME TAX (APPEALS) IN ALLOWING DEDUCTION UNDER SEC.80IA OF THE ACT TO THE ASSESSEE AS PER THE DECISION OF THE HON'BLE JURISDI CTIONAL HIGH COURT ITA 2185/MDS/12 17 (SUPRA). THEREFORE, WE REJECT THE GROUNDS RAISED B Y THE ASSESSEE AS WELL AS THE DEPARTMENT ON THIS ISSUE. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. 24. ORDER PRONOUNCED ON FRIDAY, THE 8 TH DAY OF MARCH 2013, AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (CHALLA N AGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 08 TH MARCH 2013. JLS. COPY TO:- C.I.T., (1) APPELLANT (2) RESPONDENT (3) CIT-(A), (4) CIT (5) D.R. (6) GUARD FILE