DCIT 5(2), MUMBAI V. LAHOTI OVERSEAS LTD, MUMBAI

ITA 3812/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3370 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-07-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Unexplained cash credit; Business income; Depreciation; Search and seizure; Share purchase agreement; Opportunity of being heard; Principle of natural justice; Opportunity of cross examination; Earning of tax free income; Source of fund; Additional evidence; Wholly owned subsidiary; Tangible material; Difference of opinion; Competent authority; Assessment record; Commercial expediency; Reason to believe; Unabsorbed depreciation; Change of opinion
• Section: 143(3); 133A; 14A; 80IB; 147; 68; 148; 54

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3812 /MUM/2012 ( / ASSESSMENT YEAR : 2003-04) DY. COMMISSIONER OF INCOME TAX , 5(2),ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S LAHOTI OVERSEAS LTD., 307, ARUN CHAMBERS, TARDEO ROAD, TARDEO, MUMBAI - 400034. ./ PAN : AAACL2578 H ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 821 /MUM/2014 ( / ASSESSMENT YEAR : 2007-08) M/S LAHOTI OVERSEAS LTD., 307, ARUN CHAMBERS, TARDEO ROAD, TARDEO, MUMBAI - 400034. / V. DY. COMMISSIONER OF INCOME TAX 5(2), ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACL2578 H ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO. 3813 /MUM/2012 ( / ASSESSMENT YEAR : 2008-09) DY. COMMISSIONER OF INCOME TAX 5(2),ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / V. M/S LAHOTI OVERSEAS LTD., 307, ARUN CHAMBERS, TARDEO ROAD, TARDEO, MUMBAI - 400034. ./ PAN : AAACL2578 H ( / APPELLANT ) .. ( / RESPONDENT ) ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 2 ./ I.T.A. NO. 3821 /MUM/2014 ( / ASSESSMENT YEAR : 2008-09) M/S LAHOTI OVERSEAS LTD., 307, ARUN CHAMBERS, TARDEO ROAD, TARDEO, MUMBAI - 400034. / V. DY. COMMISSIONER OF INCOME TAX 5(2), ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACL2578 H ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI GANESH BARE (SR.DR) ASSESSEE BY : SHRI YOGESH THAR / DATE OF HEARING : 20-01-2016 / DATE OF PRONOUNCEMENT : 30-03-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE FOUR APPEALS, FILED BY THE ASSESSEE COMPANY AND REVENUE PERTAINS TO THE ASSESSMENT YEARS 2003-04, 2007-08 A ND 2008-09. 2. FIRST WE SHALL TAKE THE APPEAL OF THE REVENUE BE ING ITA NO. 3812/MUM/2012, WHICH IS DIRECTED AGAINST THE ORDER DATED 14.03.2012 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEA LS)-9,MUMBAI (HEREINAFTER CALLED THE CIT(A)) , THE AFORE-SAID APPEAL ORDER DATED 14.3.2012 OF THE CIT(A) ARISING FROM THE RE-ASSESSMENT ORDER DATED 16.12.2010 PASSED BY THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLE D THE AO) U/S 143(3) READ WITH SECTION 147 & 254 OF THE INCOME TAX ACT,1961 ( HEREINAFTER CALLED THE ACT), FOR THE ASSESSMENT YEAR 2003-04. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 3 3. THE GROUNDS RAISED BY THE ASSESSEE COMPANY IN TH E MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- (1) WHETHER ON THE FACTS, CIRCUMSTANCES AND IN THE LA W, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION AMOUNTING TO RS.1.86 CRORES ON THE WINDMILL WITHOUT AP PRECIATING THAT DURING THE SURVEY ACTION U/S. 133A OF THE I.T. ACT, IT W AS CLEARLY ESTABLISHED THAT THE WINDMILL WAS NOT COMMISSIONED AND P UT TO USE DURING THE RELEVANT ASSESSMENT YEAR FOR THE A.Y. 200 3-04 ? (2) WHETHER ON THE FACTS, CIRCUMSTANCES AND IN THE LAW , THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO A LLOW DEPRECIATION AMOUNTING TO RS.I.86 CRORES, WITHOUT APPRECIATING THAT TH E WINDMILL WAS NOT MADE OPERATIONAL AND THAT ONE OF THE EMPLOYEE S OF M/S. SUZLON ENERGY LTD., SUBSTANTIATED THAT THE WIND MILL WAS INSTAL LED BEYOND THE RELEVANT ACCOUNTING PERIOD ? THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THE ORDER OF THE A.O BE RESTORED. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY DERIVED INCOME FROM TRADING IN COTTON YARN, FABRIC, RAW COT TON, PAPER AND WINDMILL POWER. THE ASSESSEE COMPANYS ORIGINAL ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT VIDE ORDERS DATED 30/01/2 006 . IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE COMPANY WITH REVENUE, THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON WINDMILL AMOUNT ING TO RS.1,86,00,000/- AND THE SAID CLAIM OF THE ASSESSEE COMPANY WAS ALLOWED BY THE AO IN THE ORIGINAL ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 30.01.2006. SUBSEQUENTLY, THE AO WAS IN THE POSSESSION OF THE I NFORMATION THAT THE WINDMILL ON WHICH ASSESSEE COMPANY HAS CLAIMED DEPR ECIATION WAS NOT INSTALLED ON 30-03-2003 AS CLAIMED BY THE ASSESSEE COMPANY BUT WAS INSTALLED ON 01/04/2003 I.E. DURING THE PERIOD RELE VANT TO THE SUBSEQUENT ASSESSMENT YEAR, HENCE, THE ASSESSEE COMPANY'S CLAI M OF DEPRECIATION WAS NOT AN ALLOWABLE DEDUCTION SINCE THE ASSET WAS NOT PUT TO USE DURING THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 4 RELEVANT PREVIOUS YEAR TO THE IMPUGNED ASSESSMENT Y EAR 2003-04. THE ORIGINAL ASSESSMENT FRAMED U/S 143(3) OF THE ACT VI DE ORDERS DATED 30-1-2006 WAS REOPENED BY THE AO U/S 147 OF THE ACT AFTER REC ORDING REASONS AND MAKING COMPLIANCE TO PROVISIONS OF SECTION 151(1) O F THE ACT. ACCORDINGLY, NOTICE U/S 148 OF THE ACT DATED 8-12-2009 WAS ISSUE D TO THE ASSESSEE COMPANY, WHICH WAS DULY SERVED ON THE ASSESSEE COMP ANY ON 9-12-2009. THE ASSESSEE COMPANY FILED RETURN OF INCOME IN PURS UANCE TO NOTICE DATED 08- 12-2009 ISSUED BY THE AO U/S 148 OF THE ACT, ON 18- 01-2010 DECLARING TOTAL INCOME AT RS. 51,03,650/- WHICH IS AS PER THE ORIGI NAL RETURN OF INCOME FILED BY THE ASSESSEE COMPANY WITH REVENUE. THE ASSESSEE COMPANY VIDE ITS LETTER DATED 16-9-2010 ASKED THE REVENUE FOR FURNISHING OF THE REASONS FOR REOPENING OF THE ASSESSMENT WHICH WAS PROVIDED BY T HE REVENUE TO THE ASSESSEE COMPANY ON 8-10-2010. THE ASSESSEE COMPAN Y VIDE ITS LETTER DATED 22-10-2010 OBJECTED TO THE RE-OPENING PROCEEDINGS, WHICH WERE DEALT WITH BY THE AO BY PASSING A SPEAKING ORDER ON 16-12-2010. THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED TO JUST IFY THE CLAIM OF DEPRECIATION ON WINDMILL NO. J-208 AT SODA-MADA-JAI SALMER. IN REPLY, THE ASSESSEE COMPANY SUBMITTED THAT WINDMILL HAS BEEN S UCCESSFULLY COMMISSIONED ON 30/03/2003 AND IN SUPPORT THEREOF, THE ASSESSEE COMPANY HAS FILED COPY OF LETTER DATED 17/04/2003 WRITTEN T O THE SUPERINTENDING ENGINEER (COMMERCIAL), JAIPUR, REGARDING POWER PURC HASE AGREEMENT AND INFORMING ABOUT RAISING OF INVOICE DURING THE MONTH OF MARCH 2003, AMOUNTING TO RS.327/-. THE A.O. OBSERVED THAT IN THE CASE OF M/S. SUZLON E NERGY LTD., ACTION U/S. 133A OF THE ACT WAS CARRIED OUT BY THE INVESTIGATIO N WING ON 05-04-2006 AND DURING THE COURSE OF SURVEY ON 05-04-2006, THE SURV EY TEAM PHYSICALLY INSPECTED THE WINDMILL IN THE PRESENCE OF COMPANY'S REPRESENTATIVES AS ALSO STATEMENT OF THE RESPONSIBLE PERSONS WERE RECORDED AND DURING THE COURSE OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 5 SURVEY, IT WAS FOUND THAT THE DATE OF INSTALLATION OF ASSESSEE COMPANY'S WINDMILL AT SODA-MADA WAS 01/04/2003 WHICH WAS CERT IFIED BY THE COMPETENT PERSON OF M/ S. SUZLON ENERGY LIMITED. SI NCE THE SUPPLIER OF WINDMILL I.E., M/S. SUZLON ENERGY LTD., HAS CERTIFI ED THAT THE WINDMILL WAS INSTALLED ON 01/04/2003, WHO WERE RESPONSIBLE OF IN STALLING THE WINDMILL BEING SUPPLIER OF THE WINDMILL. THE A.O. CONTENDED THAT THE WINDMILL CANNOT BE COMMISSIONED BEFORE INSTALLATION. THE AO HELD TH AT THE DOCUMENTS SUBMITTED BY THE ASSESSEE COMPANY VIDE ABOVE REFERR ED LETTER CANNOT BE TAKEN AS AN AUTHENTIC DOCUMENT SINCE THE SAME IS NOT SUPP ORTED BY FULL FACTS AND DOCUMENTARY EVIDENCES AS ALSO THE SAME ARE SELF GEN ERATED DOCUMENTS. THE CERTIFICATE OF EXECUTIVE ENGINEER, JAISALMER DO NOT BEAR THE SEAL OF THE AUTHORITY AND HENCE THE AUTHENTICITY OF THE CLAIM I S DOUBTFUL. THE A.O. ACCORDINGLY HELD THAT THE ASSESSEE COMPANY IS NOT E NTITLED FOR CLAIM OF DEPRECIATION OF WINDMILL FOR THE IMPUGNED ASSESSMEN T YEAR I.E. 2003-04 AND THEREFORE THE AO DISALLOWED AN AMOUNT OF RS. 1,86,0 0,000/- CLAIMED BY THE ASSESSEE COMPANY TOWARDS DEPRECIATION ON WINDMILL, VIDE ORDER DATED 16.12.2010 PASSED U/S 143(3) R.W.S. 147 AND 254 OF THE ACT. 5. AGGRIEVED BY THE AFORE-SAID RE-ASSESSMENT ORDER DATED 16.12.2010 OF THE A.O. PASSED U/S 143(3) R.W.S. 147 AND 254 OF THE AC T , THE ASSESSEE COMPANY PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTH ORITY I.E. CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE COMPANY SUBMITTE D THAT IT HAD FURNISHED CORRECT RETURN OF INCOME OF THE ACT DISC LOSING TOTAL INCOME OF RS. 51,03,650/- ON 3.11.2003. THE ASSESSEE COMPANY SUBM ITTED THAT THE ORIGINAL ASSESSMENT WAS COMPLETED ON 30.01.2006 ACCEPTING TH E CLAIM OF THE ASSESSEE COMPANY THAT THE WINDMILL NO. J-208 AT SODA-MADA - JAISALMER WAS COMMISSIONED ON 30.03.2003 AND THE A.O. ALLOWED THE DEPRECIATION ON THE WINDMILL AT THE RATE OF 50% AMOUNTING TO RS. 1,86,0 0,000/-ON THE BASIS OF EVIDENCES PRODUCED BEFORE THE A.O. . SUBSEQUENTLY, THE A.O RE-OPENED THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 6 ASSESSMENT ON SOME KIND OF ONE PAGE ANNEXURE ALLEGE DLY SIGNED BY AN EMPLOYEE OF M/S SUZLON ENERGY LIMITED. NEITHER THE NAME OF THE SAID EMPLOYEE NOR THE SIGNATURE OF THE SAID EMPLOYEE IS LEGIBLE. THE SAID PAGE DOES NOT CONTAIN ANY STATEMENT MADE BY M/S SUZLON ENERGY LIMITED, NEITHER BY THEIR DIRECTOR NOR BY THEIR AUTHORIZED REPRESENTATI VE. NEITHER THE SEAL NOR STAMP OF M/S SUZLON ENERGY LIMITED IS PLACED . EVEN THE AUTHORIZED OFFICER'S OF THE REVENUE NAME NOR HIS STAMP NOR SEAL IS MENTI ONED. IN THE SAID ONE PAGE ANNEXURE; XEROX COPY OF WHICH WAS GIVEN TO THE ASSESSEE COMPANY DURING THE COURSE OF APPELLATE PROCEEDINGS, THE SAI D PAGE RECORDS POWER GENERATION AS PER METER FROM 1-1-2006 TO 5-4-2006 A T 291097 UNITS. THE AIRCONDITIONER OF HITACH AIR COOL WAS FOUND INSTALL ED. THE ASSESSEE COMPANY SUBMITTED THAT THE SAID ONE PAGE ANNEXURE DEFINITEL Y CONFIRMS THAT THE ASSESSEE COMPANY HAD INSTALLED WINDMILL AND THE DEP RECIATION IS ALLOWABLE TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY CONTENDE D THAT THE ONLY DIFFERENCE BETWEEN THE DEPARTMENT AND THE ASSESSEE COMPANY IS THAT THE DEPARTMENT IS RELYING ON AN UNSUBSTANTIATED, UNSTAM PED, XEROX COPY OF THE PAPER WHICH MERELY MENTIONED DATE OF INSTALLATION A S 1.04.2003. THE ASSESSEE COMPANY SUBMITTED THAT THAT THE SAID XEROX PAPER IS NOT AN EVIDENCE AT ALL. THE SAID XEROX PAPER HAS NEITHER BEEN SIGNED BY THE CHAIRMAN NOR BY THE RESPONSIBLE DIRECTOR OF M/S SUZLON ENERGY LIMITED. IT DOES NOT BEAR NAME, STAMP NOR SEAL OF ANY INCOME TAX OFFICER NOR AN AUT HORIZED OFFICER OF M/S SUZLON ENERGY LIMITED AND HENCE CANNOT BE RELIED UP ON. THE SAID DOCUMENT WAS PREPARED ON 5-4-2006 WHICH IS AFTER THREE YEARS OF INSTALLATION AND COMMISSIONING OF WINDMILL AT SODA-MADA- JAISALMER A ND WHICH RECORD POWER GENERATION ONLY FROM 1-1-2006 TO 5-4-2006 AT 291097 UNITS AND THE A.O. REOPENED THE CONCLUDED ASSESSMENT U/S 143(3) O F THE ACT BASED ON THE SAID DOCUMENT. THE ASSESSEE COMPANY CONTENDED THAT THE ASSESSEE COMPANY HAD COMPLETED THE INSTALLATION AND COMMISSIONING OF THE WINDMILL ON 30.03.2003 AND THE DEPRECIATION AT 50% WAS CORRECTL Y CLAIMED ON THE BASIS OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 7 THE FOLLOWING EVIDENCES, WHICH SUBMISSIONS CONTAINI NG RELIANCE ON THE DOCUMENTS BY THE ASSESSEE COMPANY ARE REPRODUCED HE REUNDER: 1. THE OFFICE OF THE EXECUTIVE ENGINEER ( O & M), J .V.V.N.L., JAISALMER, WHICH IS THE APPROPRIATE GOVERNMENT AUTHORITY HAS C ERTIFIED THAT THE AFORESAID WIND MILL INSTALLED AT VILLAGE SODA-MADA, JAISALMER DISTRICT BY THE APPELLANT HAS BEEN SUCCESSFULLY COMMISSIONED ON 30TH MARCH, 2 003. (EXHIBIT 1.1.) 2. COPY OF CERTIFICATE OF COMMISSIONING AND HANDING OVER OF WTG BY COMMISSIONING ENGINEER (EXHIBIT 1.2). 3. FURTHER RAJASTHAN RAJYA VIDHYUT PRASARAN NIGAM L TD. HAS ALSO GIVEN JOINT INSPECTION REPORT OF 10.0 MW WIND FARM IN RES PECT OF COMMON MAIN METERING SYSTEM ON 30TH MARCH, 2003. (EXHIBIT 2). 4. COPY OF INVOICE DATED MARCH 31. 2003 FOR GENERAT ION OF POWER FROM MARCH 30 TO MARCH 31. 2003 RAISED ON THE SUPERINTEN DING ENGINEER (COMMERCIAL), RAJASTHAN RAJYA VIDHYUT PRASARAN NIGA M LTD. (EXHIBIT 3). 5. COPY OF MONTHLY GENERATION RECORD FOR THE MONTH OF MARCH 2003. (EXHIBIT 4). 6. COPIES SHOWING BREAKUP OF NET EXPORT UNITS (KWH) AS RECORDED AT MAIN METER OF RVPNL FOR THE MONTH OF MARCH, 2003. (EXHIB IT 5 ). 7. COPY OF CHEQUE ISSUED BY RVPNL SHOWING RS. 327/- AND INTIMATION LETTER DULY SIGNED BY SR. ACCOUNTS OFFICER (CPC), RVPNL. ( EXHIBIT 6). 8. INVOICE RAISED FOR APRIL 2003 TO MARCH 2004 ALON G WITH MONTHLY GENERATION RECORD AND BREAK UP OF NET EXPORT UNITS (KWH) AND XEROX OF CHEQUES ALONG WITH INTIMATION LETTER ISSUED BY RVPNL FOR EA CH MONTH. (EXHIBIT 7.1 TO 7.48). THE ASSESSEE COMPANY RELIED UPON THE DECISION OF TH E MUMBAI-TRIBUNAL IN THE CASE OF HINDUSTAN PLATINUM PVT LTD V. ACIT (ITA NO. 3352/MUM/2010) WHEREBY IT WAS HELD THAT EVEN THE TEST RUN AND COMM ISSIONING OF WINDMILL WOULD BE SUFFICIENT TO HOLD THAT THE WINDMILL WAS U SED FOR THE PURPOSE OF BUSINESS AND THE TAX-PAYER WAS ENTITLED TO CLAIM DE PRECIATION. THE ASSESSEE COMPANY ALSO RELIED UPON SIMILAR DECISION OF THE MUMBAI-TRIBUNAL IN THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 8 CASE OF GODAVARI CORPORATION PVT. LTD. V. ITO (ITA NO. 309/MUM/2008) DATED 15.04.2009. THE ASSESSEE COMPANY ALSO PLACED RELIAN CE IN THE CASE OF GUJARAT ASHIMA SYNTEX LIMITED, 251 ITR 133 (GUJ.) WHEREIN T HE HONBLE GUJARAT HIGH COURT HELD THAT EVEN TRIAL PRODUCTION OF A MACHINER Y WOULD FALL WITHIN THE AMBIT 'USED FOR THE PURPOSE OF BUSINESS'. IT WAS FU RTHER HELD THAT AS A STATUTE DOES NOT PRESCRIBE A MINIMUM TIME LIMIT FOR THE USE OF THE MACHINERY, THE TAX-PAYER CANNOT BE DENIED THE BENEFIT OF DEPRECIAT ION ON THE GROUND THAT THE MACHINERY WAS USED FOR A VERY SHORT DURATION FOR TR IAL RUN. THE ASSESSEE COMPANY FURTHER RELIED ON THE HON'BLE CALCUTTA HIGH COURT'S DECISION IN THE CASE OF UNION CARBIDE (I) LTD. , 254 ITR 488 (CAL.) WHEREIN THE HON'BLE CALCUTTA HIGH COURT HELD THAT THE TRIAL PRODUCTION WAS SUFFICIENT TO CLAIM JUSTLY AND PROPERLY BOTH DEPRECIATION AND INVESTMEN T ALLOWANCE. THE ASSESSEE COMPANY FURTHER RELIED ON THE DECISION IN THE CASE OF OMKAR TEXTILE MILLS (P) LTD. V. ITO [2008] 115 TTJ 716 (AH. TRIBUNAL) AND S OME OTHER CASE LAWS TO SUPPORT THE CLAIM OF THE ASSESSEE COMPANY. THE ASSE SSEE COMPANY CONTENDED THAT THE ORIGINAL ASSESSMENT ORDER GRANTING DEPRECI ATION ON WINDMILL WAS CORRECT AND THE ASSESSEE COMPANY CHALLENGED THE REO PENING AS BAD IN LAW AND ILLEGAL. THE ASSESSEE COMPANY FURTHER RELIED ON THE FOLLOWING DECISIONS:- I) ASIAN PAINTS LTD V. DCIT 308 ITR 195 (BOM) II) KELVINATOR OF INDIA LIMITED (2002) 256 ITR 1 (DEL) (FB) III) CARTINI INDIA LIMITED V. ACIT 314 ITR 275 BOM) IV) CIT V. KELVINATOR OF INDIA LIMITED (2010) 320 ITR 5 61 (SC) V) RALLIES INDIA LIMITED V. ACIT 232 CTR 143 (BOM) VI) MITSUI MARUBHENI CORPN V. DCIT 298 ITR (AT) 283 VII) IPCA LAQBORATORIES LIMITED V. JAGDANAND MEENA DCIT, 251 ITR 416 (BOM). THE ASSESSEE COMPANY CONTENDED THAT THERE WAS NO FA ILURE ON THE PART OF THE ASSESSEE COMPANY TO DISCLOSE FULL AND TRUE FACTS A ND THE A.O. HAS INCORRECTLY CHANGED HIS MIND AND WITHDRAWN DEPRECIATION @ 50% E VEN THOUGH THE A.O. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 9 HAS ACCEPTED THAT THE WINDMILL HAS ACTUALLY BEEN CO MMISSIONED. IT WAS SUBMITTED THAT THE ORIGINAL ASSESSMENT WAS COMPLETE D U/S. 143(3) OF THE ACT ON JANUARY 30, 2006. THE A.O. ISSUED NOTICE U/S. 14 8 OF THE ACT ON 9-12- 2009 WHICH IS BEYOND THE PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSE SSMENT HAS BEEN REOPENED BASED ON THE MATERIALS GATHERED DURING THE COURSE OF SURVEY U/S 133A OF THE ACT ON 05-04-2006 AT THE PREMISES OF SU ZLON ENERGY LIMITED BASED ON WHICH OPINION WAS FORMED THAT THE SUBJECT WINDMILL WAS COMMISSIONED AND PUT TO USE ON 1-4-2003 AS AGAINST ACTUAL DATE OF COMMISSIONING/PUT TO USE ON 30-3-2003 AND CONTENDED THAT THE A.O. HAS WRONGLY REOPENED THE ASSESSMENT U/S 147 OF THE ACT BASED ON THIRD PARTY INFORMATION COLLECTED DURING THE SURVEY CONDUCTED O N 05-04-2006 AT THIRD PARTY PREMISES I.E. THE PREMISES OF SUZLON ENERGY L TD. WHICH DO NOT HAVE ANY LEGAL BASIS FOR REOPENING THE ASSESSMENT OF THE ASS ESSEE COMPANY. THE ASSESSEE COMPANY SUBMITTED THAT INSPITE OF THE REQU EST BY THE ASSESSEE COMPANY, THE A.O. DENIED TO GIVE THE COPIES OF INFO RMATION RELIED UPON TO REOPEN THE ASSESSMENT AND NO OPPORTUNITY WAS GIVEN TO THE ASSESSEE COMPANY TO REBUT THE CLAIM OF THE A.O. OR TO CROSS EXAMINE THE PARTY. THE ASSESSEE COMPANY SUBMITTED THAT IT HAS PROVIDED ALL THE MATERIAL AND DOCUMENTARY FACTS NECESSARY TO SHOW THE COMMISSIONI NG OF THE WINDMILL ON 30-3-2003 WHICH WAS DULY ACCEPTED BY THE A.O. IN TH E ORIGINAL ASSESSMENT PROCEEDINGS AND THERE WAS NO FAILURE ON THE PART OF ASSESSEE COMPANY IN FILING AND DISCLOSING ALL THE MATERIAL FACTS BEFORE THE A. O. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE A CT AND REOPENING OF ASSESSMENT ON CHANGE OF OPINION BASED ON SOME IRREL EVANT DOCUMENTS IS NOT PERMISSIBLE IN LAW. THE ASSESSEE COMPANY HAS OBJEC TED TO THE RE-OPENING VIDE ITS LETTER DATED 22-10-2010 WHICH WAS REJECTED BY T HE A.O. VIDE HIS LETTER DATED 16-12-2010. THE A.O. HAS WRONGLY REOPENED TH E ASSESSMENT U/S 147 OF THE ACT BASED ON THIRD PARTY INFORMATION COLLECT ED DURING THE SURVEY ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 10 CONDUCTED AT THIRD PARTY PREMISES. THE ASSESSEE CO MPANY RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS CLAIM:- I) IPCA LAQBORATORIES LIMITED V. JAGDANAND MEENA DCIT, 251 ITR 416 (BOM). II) NIHILENT TECHNOLOGIES PRIVATE LTD. V. DCIT (WRIT PE TITION NO. 10104 OF 2010)(BOMBAY). III) INDIAN OIL CORPORATION LIMITED V. DCIT (WRIT PETITI ON NO. 53 OF 2010)(BOMBAY). IV) SITA WORLD TRAVEL (INDIA) LIMITED V. CIT & ANR. (24 7 ITR 186)(DELHI). V) WEL INTERTRADE P. LIMITED & ANR. V. ITO (308 ITR 22 )(DEL) THE ASSESSEE COMPANY SUBMITTED THAT THE AMOUNT OF R S. 1,86,00,000/- WHICH WAS RIGHTLY ALLOWED BY THE A.O. IN THE ORIGINAL ASS ESSMENT U/S 143(3) OF THE ACT , HAS NOW BEEN WRONGLY DISALLOWED BY THE AO BY REJECTING THE CLAIM OF THE ASSESSEE COMPANY FOR ALLOWANCE OF DEPRECIATION IN R ESPECT OF WINDMILL INSTALLED DURING THE YEAR UNDER CONSIDERATION BY HO LDING THAT THE SUBJECT WINDMILL WAS COMMISSIONED AND PUT TO USE ON APRIL 0 1, 2003 AS AGAINST ACTUAL DATE OF COMMISSIONING/PUT TO USE ON MARCH 30 , ,2003 REJECTING CLINCHING EVIDENCES PLACED ON RECORDS AND ACCEPTED BY THE THEN A.O. THE ASSESSEE COMPANY SUBMITTED THAT THE A.O. WHILE PASS ING THE RE-ASSESSMENT ORDER DATED 16.12.2010 BASED HIS DECISION ON THE DA TA OF DAILY GENERATION OF ELECTRICITY FROM 1.1.2006 TO 5-4-2006 AND STATEMENT RECORDED ALLEGEDLY OF AN EMPLOYEE OF SUZLON ENERGY LIMITED WHICH DOCUMENTS W ERE COLLECTED BY A SURVEY TEAM DURING THE COURSE OF SURVEY U/S. 133A O F THE ACT ON 05-04-2006 IN THE CASE OF M/S. SUZLON ENERGY LTD. BASED ON WHI CH HE HAS HELD THAT THE SUBJECT WINDMILL WAS COMMISSIONED ON 01-04-2003. TH E ASSESSE COMPANY HAD SUBMITTED THE FOLLOWING DOCUMENTARY EVIDENCES D URING ORIGINAL ASSESSMENT, REASSESSMENT AND REMAND PROCEEDINGS TO PROVE THAT THE WINDMILL WAS PUT TO USE BEFORE 31.03.2003 AND THE S AME IS REPRODUCED HEREUNDER:- ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 11 1. THE OFFICE OF THE EXECUTIVE ENGINEER (O & M), J .V.V.N.L., JAISALMER, WHICH IS THE APPROPRIATE GOVERNMENT AUTH ORITY HAS CERTIFIED THAT THE AFORESAID WIND MILL INSTALLED AT VILLAGE S ODA-MADA, JAISALMER DISTRICT BY YOUR APPELLANT HAS BEEN SUCCESSFULLY CO MMISSIONED ON 30TH MARCH, 2003. (EXHIBIT 1.1) 2. COPY OF CERTIFICATE OF COMMISSIONING AND HANDING OVER OF WTG BY COMMISSIONING ENGINEER (EXHIBIT 1.2). 3. FURTHER RAJASTHAN RAJYA VIDHYUT PRASARAN NIGAM L TD. HAS ALSO GIVEN JOINT INSPECTION REPORT OF 10.0 MW WIND FARM IN RESPECT OF COMMON MAIN METERING SYSTEM ON 30TH MARCH. 2003. (EXHIBIT 2). 4. COPY OF INVOICE DATED MARCH 31. 2003 FOR GENERAT ION OF POWER FROM MARCH 30 TO MARCH 31. 2003 RAISED ON THE SUPER INTENDING ENGINEER (COMMERCIAL), RAJASTHAN RAJYA VIDHYUT PRASARAN NIGA M LTD. (EXHIBIT 3). 5. COPY OF MONTHLY GENERATION RECORD FOR THE MONTH OF MARCH 2003. (EXHIBIT 4). 6. COPIES SHOWING BREAKUP OF NET EXPORT UNITS (KWH) AS RECORDED AT MAIN METER OF RVPNL FOR THE MONTH OF MARCH, 2003. ( EXHIBIT 5 ). 7. COPY OF CHEQUE ISSUED BY RVPNL SHOWING RS. 327/- AND INTIMATION LETTER DULY SIGNED BY SR. ACCOUNTS OFFIC ER (CPC), RVPNL. (EXHIBIT 6). 8. INVOICE RAISED FOR APRIL 2003 TO MARCH 2004 ALON G WITH MONTHLY GENERATION RECORD AND BREAK UP OF NET EXPORT UNITS (KWH) AND XEROX OF CHEQUES ALONG WITH INTIMATION LETTER ISSUED BY RVPN L FOR EACH MONTH. (EXHIBIT 7.1 TO 7.48). THE ASSESSEE COMPANY SUBMITTED THAT M/S. SUZLON ENE RGY LTD. IS NOT A COMPETENT AUTHORITY TO CERTIFY THE COMMISSIONING OF WIND MILL WHILE THE A.O. IGNORED THE CERTIFICATE OF COMMISSIONING OF WIND MI LL ISSUED BY THE OFFICE OF THE EXECUTIVE ENGINEER (O&M) J.V.V.N.L., JAISALMER, WHICH IS THE APPROPRIATE GOVERNMENT AUTHORITY AND THEREFORE EVIDENCE RELIED BY THE A.O. IS TOTALLY IRRELEVANT, NOT HAVING ANY LEGAL RECOGNITION. THE A SSESSE COMPANY SUBMITTED THAT THE SURVEY AS WELL AS PHYSICAL INSPECTION OF W INDMILL WAS CONDUCTED ON ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 12 5TH APRIL, 2006 I.E. AFTER 3 YEARS OF THE COMMISSIO NING OF THE WINDMILL AND FROM THE COPY OF SURVEY REPORT IT IS EVIDENT THAT T HE DATA OF POWER GENERATION FOR VARIOUS PERIODS STARTING FROM 1ST JANUARY, 2006 ONWARDS IS GIVEN AND IT DOES NOT HAVE OR REFER TO ANY DATA FOR THE PERIOD I N WHICH THE WINDMILL WAS INSTALLED I.E. 30-3-2003. HENCE EVEN FROM THE SURVE Y REPORT DATED 05-04- 2006 WITH RESPECT TO SURVEY CONDUCTED ON 05-04-2006 , THERE IS NO CONCLUSIVE EVIDENCE THAT THE WINDMILL WAS NOT INSTALLED ON 30T H MARCH, 2003 AS CLAIMED BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY SUBMI TTED THAT IT HAS NOT BEEN SHOWN THE ORIGINAL COPY OF THE FORM NO. 13 WHI CH IS A PART OF SURVEY REPORT AND THE AO HAS APPARENTLY RELIED ON A PHOTOC OPY OF THE ORIGINAL WHILE NEITHER THE A.O. NOR THE ASSESSEE COMPANY HAD SEEN THE ORIGINAL FORM NO 13, HENCE, THE UNCERTIFIED PHOTOCOPY CANNOT BE RELIED U PON BY THE AO FOR DISALLOWING THE CLAIM OF DEPRECIATION AND THE SAME CANNOT BE CONSIDERED AS AN AUTHENTIC DOCUMENT. ALSO NOWHERE ON THE DOCUMENT NAME OF SUZLON ENERGY LIMITED APPEARS WHICH AGAIN RAISES A DOUBT A S TO THE VALIDITY OF THE DOCUMENT. THE PERSON WHO HAS SIGNED THE SURVEY REPO RT HAS NOT BEEN IDENTIFIED AND THAT HE IS A REPRESENTATIVE OF SUZLO N ENERGY LIMITED HAS ALSO NOT BEEN MENTIONED ON THE SURVEY REPORT AND IN FACT THE PERSON WHO HAS SIGNED THE REPORT IS NOT THE AUTHORIZED SIGNATORY O F SUZLON ENERGY LIMITED. IT WAS SUBMITTED THAT EVEN THE NAME AND DESIGNATION OF THE REVENUE OFFICER COUNTERSIGNING THE DOCUMENT IS ALSO NOT MENTIONED I N THE SAID XEROX COPY . THE ASSESSEE COMPANY VIDE ADDITIONAL EVIDENCE HAD S UBMITTED DELIVERY CHALLANS OF SUZLON ENERGY LIMITED TOGETHER WITH CON SIGNMENT NOTE EVIDENCING DATE OF DELIVERY OF WINDMILL PARTS AT SITE AND THE LAST DELIVERY WAS ON 02-03- 2003 WHICH PROVE THAT THE PARTS OF THE WINDMILL WER E RECEIVED WELL BEFORE TIME OF INSTALLATION AND COMMISSIONING OF WINDMILL ON 30 -3-2003. THE A.O.S STATED IN HIS REMAND REPORT THAT THE ADDITIONAL EVI DENCE SUBMITTED VIDE LETTER DATED DECEMBER, 26, 2011 DOES NOT PROVE THAT THE WI NDMILL WAS INSTALLED AND MADE OPERATIONAL BEFORE THE END OF THE RELEVANT FIN ANCIAL YEAR I.E. 31.3.2003, THE ASSESSEE COMPANY STATED THAT THE WINDMILL EQUIP MENT WERE DELIVERED TO ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 13 THE SITE WELL IN ADVANCE WHICH COULD BE VERIFIED FR OM THE COPIES OF DELIVERY CHALLANS AND TRANSPORT RECEIPTS SUBMITTED AND NOT O NLY WAS THE INSTALLATION COMPLETED, BUT WAS ALSO TESTED AND PUT TO USE ON 30 -3-2003. THUS, IT IS SUBMITTED THAT BASED UPON THE SURVEY REPORT DATED 0 5-04-2006 PREPARED AFTER THREE YEARS OF INSTALLATION AND COMMISSIONING OF WINDMILL ON 30-03- 2003, IT CANNOT BE SAID THAT THE ASSESSEE COMPANY H AS NOT INSTALLED WINDMILL ON 30-3-2003. NO OPPORTUNITY OF CROSS EXAMINATION OF THE SUZLON ENERGY LIMITED PERSONNEL WAS PROVIDED TO THE ASSESSEE COMP ANY DURING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED BY THE ASS ESSEE COMPANY THAT THE ELECTRICITY GENERATED WAS FROM 30 TH MARCH 2003 TO 31 ST MARCH 2003 WAS METERED , JOINT METER READING WITH REPRESENTATIVES OF RRVPNL WAS TAKEN AND AN INVOICE WAS RAISED FOR THE SAME.PAYMENT FOR THE SAID INVOICE HAS ALSO BEEN RECEIVED FROM RRVPNL. 7. THE CIT(A) AFTER CONSIDERING THE FACTS AND CIRCU MSTANCES, ASSESSMENT ORDER AND THE SUBMISSION OF THE ASSESSEE COMPANY, U PHELD THE REOPENING OF THE ASSESSMENT U/S 148 OF THE ACT. THE CIT(A) HELD THAT THE REASONS WERE RECORDED BY THE A.O. U/S 147 OF THE ACT PRIOR TO IS SUE OF NOTICE U/S 148 OF THE ACT . THE REASONS WERE COMMUNICATED TO THE ASSESSEE COMPANY AND NOTICE U/S 148 OF THE ACT WAS ISSUED WITHIN SIX YEARS FROM THE END OF ASSESSMENT YEAR AND WAS DULY SERVED ON THE ASSESSEE COMPANY. I N THE ORIGINAL ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDERS DATED 30-1-2006, THE ASSESSEE COMPANY CLAIM OF DEPRECIATION ON WINDMILL WAS ALLOWED BY THE REVENUE. SUBSEQUENTLY, THE A.O. RECEIVED INFORMATI ON THAT THE WINDMILL WAS NOT INSTALLED ON 30-3-2003 , WHEREAS THE SAME WAS I NSTALLED ON 1-4-2003. THE A.O. HAS REASONS TO BELIEVE THAT INCOME CHARGEA BLE TO TAX AMOUNTING TO RS. 1.86 CRORES HAD ESCAPED ASSESSMENT OWNING TO FA ILURE ON THE PART OF THE ASSESSEE COMPANY TO DISCLOSE TRULY AND FULLY ALL TH E MATERIAL FACTS NECESSARY FOR COMPLETION OF THE ORIGINAL ASSESSMENT. THE CIT (A) HELD THAT THERE IS NO ILLEGALITY IN THE REOPENING OF THE ASSESSMENT BECAU SE THE A.O. RECEIVED ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 14 INFORMATION SUBSEQUENT TO COMPLETION OF THE ORIGINA L ASSESSMENT U/S 143(3) OF THE ACT ON 30-1-2006 AND ACCORDINGLY THE CIT(A) UPHELD THE RE-OPENING OF THE CONCLUDED ASSESSMENT BY THE AO. THE CIT(A) REL IED UPON THE FOLLOWING CASE LAWS: A) INDO ADEN SALT MANUFACTURING AND TRADING CO. P. LTD . (1986) 159 ITR 624(SC) B) JAWAND SONS V. CIT (2010) 326 ITR 39(P&H) C) RAYMOND WOLLEN MILLS LIMITED V. ITO (1999) 236 ITR 34(SC) ON MERITS, THE CIT(A) OBSERVED THAT IT IS UNDISPUTE D THAT THE ASSESSEE COMPANY HAD INSTALLED WINDMILL AT LOCATION NO. J208 AT SODA-MADA, JAISALMER. EVEN THE SURVEY TEAM LED BY ADDL. DIT, I NVESTIGATION, JODHPUR HAS INSPECTED AND VERIFIED DURING THE COURSE OF SURVEY PROCEEDINGS CONDUCTED ON 5.04.2006 THAT ASSESSEE COMPANYS WINDMILL WAS INST ALLED AND POWER GENERATION AS PER METER FROM 1-1-2006 TO 5-4-2006 W AS AT 291097 UNITS. THE ONLY DISPUTE RAISED BY THE AO IS THAT THE DATE OF I NSTALLATION OF ASSESSEE COMPANYS WINDMILL WAS ALLEGEDLY ON 1.04.2003 AS AG AINST THE DATE OF INSTALLATION CLAIMED BY THE ASSESSEE COMPANY BEING ON 30-03-2003 AND ALLOWED AS SUCH BY THE AO DURING THE REGULAR ASSESS MENT PROCEEDINGS U/S 143(3) OF THE ACT VIDE ORDERS DATED 30-1-2006. FROM THE PERUSAL OF THE RELEVANT RE-ASSESSMENT ORDER DATED 16-12-2010 BY TH E CIT(A) , IT WAS REVEALED THAT THE AO HAS RELIED ON A SURVEY REPORT DATED 05- 04-2006 WHEREIN A LIST OF 28 PERSONS NAMES AND DATE OF COMMISSIONING OF THE W INDMILLS BY THESE 28 PERSONS AS FOUND OUT BY THE SURVEY TEAM HAVE BEEN N OTED. THE ASSESSEE COMPANYS NAME IS NOTED AT S. NO. 4. FROM THE RELEV ANT ANNEXURE WHICH HAS BEEN THE ONLY EVIDENCE ON WHICH THE AO HAS RELIED U PON HAS BEEN GIVEN TO THE ASSESSEE COMPANY DURING THE COURSE OF APPELLATE PRO CEEDINGS. THE ASSESSEE COMPANY HAS OBJECTED TO THE SAID ANNEXURE STATING T HAT THE SAID XEROX COPY IS DEFICIENT ON THE FOLLOWING GROUNDS:- ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 15 (I) THE XEROX PAPER IS NEITHER SIGNED BY THE CHAIRMAN N OR BY ANY DIRECTOR NOR BY ANY RESPONSIBLE AUTHORIZED REPRESEN TATIVE FROM M/S SUZLON ENERGY LIMITED. (II) NEITHER THE NAME NOR THE DESIGNATION NOR THE RELATI ONSHIP OF THE PERSON WHOSE ILLEGIBLE SIGNATURE OF THE XEROX PAPER IS KNOWN. (III) NEITHER THE NAME OF THE AUTHORIZED OFFICER NO R THE DESIGNATION OF THE AUTHORIZED OFFICER IS AVAILABLE ON THE DISPUTED XEROX PAPER. (IV) NEITHER THE STAMP NOR THE SEAL OF THE AUTHORIZED OF FICER IS AVAILABLE ON THE XEROX PAPER. (V) NEITHER THE STAMP NOR THE SEAL OF M/S SUZLON ENERGY LIMITED IS AVAILABLE ON THE XEROX PAPER. (VI) THE DISPUTED XEROX PAPER IS DATED 05-04-2006 WHEREA S THE WINDMILL WAS ACTUALLY INSTALLED ON 30-03-2003. THE ASSESSEE COMPANY HAD ALSO RELIED UPON GOVT. OF RAJASTHAN, EXECUTIVE ENGINEER (O&M), JVVNL, JAISALMERS CERTIFICATE ISSU ED VIDE NO. JUV/NL/XEN/O&L/JSM/SITECH/F DATED 30-03-2003, WHERE IN IT WAS CERTIFIED THAT 1 NOS. WIND ELECTRIC GENERATOR SUZLO N MAKE 1250KW EACH HAS BEEN SUCCESSFULLY COMMISSIONED ON 30-03-2003 AT LOC ATION NO. J-208 INSTALLED AT VILALGE SODA-MODA, JAISALMER DISTRICT BY THE ASSESSEE COMPANY AND THIS GENERATOR IS CONNECTED TO 33KV KHURI FEEDE R. THE ASSESSEE COMPANY HAS ALSO PRODUCED COPY OF CERTIFICATE OF COMMISSION ING AND HANDING OVER OF WTG (WINDMILL) BY COMMISSIONING ENGINEER, WHICH CLE ARLY MENTIONS COMMISSIONING START DATE AS ON 27.3.2003 AND FINISH ED DATE AS ON 30.03.2003 AND HAS BEEN SIGNED AND APPROVED BY ONE MR. NILAY SEN, THE RESPONSIBLE ENGINEER. THE ASSESSEE COMPANY HAS ALSO RELIED ON A COPY OF JOINT INSPECTION REPORT OF THE RELEVANT WINDFARM IN RESPE CT OF COMMON MAIN METERING SYSTEM AND ITS LOADING ON 30.03.2003. THE ASSESSEE COMPANY HAS ALSO RELIED ON THE COPY OF INVOICE FOR THE MONTH O F MARCH 2003 RAISED VIDE INVOICE NO. LOL-WPD/2003-04/1 DATED 17.04.2003 WHIC H MENTIONS ENERGY EXPORTS OF 107 KWH, ENERGY IMPORT OF 9 KWH AND NET EXPORT OF ENERGY OF 98 KWH. THE INVOICE VALUE WAS RAISED AT RS. 327 @ RS. 3.34 PER KWH. THE ASSESSEE COMPANY HAS FURTHER RELIED ON COPY OF CHEQ UE ISSUED BY GOVT. OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 16 RAJASTHAN, I.E. RAJASTHAN VIDYUT PRASARAN NIGAM LIM ITED VIDE CHEQUE NO. 584233 DATED 16.5.2003 FROM RVPN ACCOUNT NO. 65106 IN FAVOUR OF THE ASSESSEE COMPANY FOR RS.327/- FOR PAYMENT OF ENERGY BILL FOR MARCH 2003 . THE ASSESSE COMAPNY HAS ALSO RELIED ON THE GOVT. OF RAJASTHANS FORWARDING MEMO NO. RPM/CCA/CPC/F/D/605 DATED 16.5.2003, MENTI ONING THE AFORE- STATED CHEQUE AMOUNTING TO RS. 327/- BEING FORWARDE D TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS FURTHER RELIED ON COPY OF MONTHLY GENERATED RECORD FOR THE MONTH OF MARCH 2003 WHICH HAVE BEEN DULY SIGNED BY THE JODHPUR DISCON, BY THE RESPONSIBLE AUTHORITY OF RUPNL AND BY M/S SUZLON ENERGY LIMITED. THE ASSESSEE COMPANY HAS ALS O ENCLOSED A STATEMENT AT ANNEXURE-L GIVING DETAILS AND DESCRIPTION OF THE MATERIAL DELIVERED, DATE OF DISPATCH, DELIVERY CHALLAN NUMBER, CHALLAN DATE, L/ R NUMBER, L/R DATE, NAME OF TRANSPORTER, DATE OF RECEIPT OF MATERIAL AT SITE, THE RELEVANT DELIVERY CHALLANS, L/R RECEIPTS ISSUED BY THE TRANSPORTER, C ERTIFICATE OF GOODS RECEIVED ETC HAVE BEEN FURNISHED AND PLACED ON RECORD EVIDEN CING THE INSTALLATION OF THE WINDMILL IN THE MONTH OF MARCH 2003. THE WINDM ILL TOWER PARTS WERE RECEIVED AT THE SITE BEFORE 24-2-2003. THE POWER PA NEL + CAPACITY PANEL WERE RECEIVED AT THE SITE ON 8-3-2003. THESE ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSE E COMPANY WERE FORWARDED BY THE CIT(A) FOR REMAND REPORT. THE AO O BJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCES UNDER RULE 46A OF THE INCOM E TAX RULES, 1962. THE AO ALSO EXAMINED THE EVIDENCES AND REPORTED VIDE REMAN D REPORT THAT THE SURVEY PROCEEDINGS U/S 133A OF THE ACT ON 05-04-2006 INDIC ATE THAT THE WINDMILL WAS INSTALLED AND MADE OPERATIONAL/PUT TO USE ON 1 .04.2003. IN VIEW OF THE SURVEY REPORT DATED 05-04-2006, THE AO CONCLUDED TH AT THE ADDITIONAL EVIDENCES DID NOT JUSTIFY THAT THE WINDMILL WAS INS TALLED AND MADE OPERATIONAL BEFORE 31.03.2003 MAKING ASSESSEE COMPANY ELIGIBLE FOR DEPRECIATION ON THE SAME IN THE ASSESSMENT YEAR 2003-04. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 17 A COPY OF THE SAID REMAND REPORT WAS FORWARDED TO T HE ASSESSEE COMPANY FOR ITS REFERENCE AND COUNTER SUBMISSIONS AND THE ASSES SEE COMPANY REITERATED ITS SUBMISSION WHAT WAS MADE EARLIER WHICH ARE NOT REPEATED FOR THE SAKE OF BREVITY. THE CIT(A) ADMITTED THE ADDITIONAL EVIDENC ES IN THE INTEREST OF JUSTICE AND PROPER ADJUDICATION OF THE MATTER AND HELD THAT THE ASSESSEE COMPANY SUBMITTED CLINCHING EVIDENCES BY SUBMITTING VARIOUS CERTIFICATES OF GOVERNMENT AUTHORITIES, WHICH EVIDENCES THAT THE AS SESSEE COMPANY HAS SUCCESSFULLY COMMISSIONED THE WINDMILL IN MARCH, 20 03 AND POWER GENERATED ON 30 TH - 31 ST MARCH 2003 WAS SUPPLIED TO THE GOVERNMENT OF RAJAS THAN WHICH WAS ALSO DULY PAID BY THE GOVERNMENT TO THE A SSESSEE COMPANY. ON THE OTHER HAND, THE A.O. RELIED ON THE XEROX COPY O F A DOCUMENT DATED 5-4- 2006 STATING THAT THE WINDMILL WAS INSTALLED ON 01- 04-2003, SIGNED BY SOMEONE AND NEITHER THERE IS SIGNATURE NOR ANY DESI GNATION OF PROPER AUTHORITY. THE CIT(A) OBSERVED THAT SIMILAR ISSUE W AS DECIDED BY VARIOUS COURTS AND DEPRECIATION WAS AVAILABLE ON WINDMILL E VEN WHEN THE SAME IS COMMISSIONED ON 1ST APRIL AND 2 ND APRIL BUT TRIAL RUN WAS DONE ON 30 TH MARCH OR SO. ACCORDINGLY, THE CIT(A) VIDE ORDERS DATED 14 -3-2012 DIRECTED THE AO TO ALLOW DEPRECIATION AS ORIGINALLY ALLOWED BY THE A.O . VIDE ASSESSMENT ORDERS DATED 30-01-2006 PASSED BY THE AO U/S 143(3) OF THE ACT . 8.AGGRIEVED BY THE ORDERS DATED 14-3-2012 OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. D.R. SUBMITTED THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION ON WINDMILL OF RS. 1.86 CRORES FOR THE ASSESSMENT YEAR 2003-04 WHILE THE WINDMILL WAS INSTALLED ON 1-4-2003 AND SI NCE THE WINDMILL WAS NOT PUT TO USE BEFORE THE END OF FINANCIAL YEAR ENDING ON 31-03-2003 , THE A.O. HAS RIGHTLY DENIED THE BENEFIT OF DEPRECIATION IN T HE ASSESSMENT YEAR 2003-04 AND THE CIT(A) ERRED IN ALLOWING THE DEPRECIATION W ITHOUT APPRECIATING THE SURVEY CONDUCTED BY THE REVENUE U/S 133A OF THE ACT ON 05-04-2006 , CLEARLY ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 18 ESTABLISHED THAT THE WINDMILL WAS NOT INSTALLED ON 30-3-2003 BUT ON 01-04- 2003 AND THE SAME WAS CERTIFIED BY ONE OF THE EXECU TIVES OF SUZLON ENERGY LIMITED. M/S SUZLON ENERGY LIMITED BEING THE SUPPLI ER OF THE WINDMILL AND ENGAGED IN THE INSTALLATION AND COMMISSIONING OF TH E WINDMILL, THE CERTIFICATE DATED 05-04-2006 BY THE EXECUTIVE OF SUZLON ENERGY LIMITED WAS VALID AND RELEVANT PIECE OF EVIDENCE WHICH WAS RIGHTLY RELIED UPON BY THE A.O. TO WITHDRAW THE CLAIM ALLOWED OF DEPRECIATION OF RS.1. 86 CRORES ON WINDMILL IN THE RE-ASSESSMENT PROCEEDINGS. THE LD. DR RELIED UP ON THE ORDERS OF THE AO. 10. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE COMPANY RELIED UPON THE ORDERS OF THE CIT(A) AND REITERATED SUBMIS SIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW WHICH ARE NOT REPEATED FOR TH E SAKE OF BREVITY. THE LD. COUNSEL FOR THE ASSESSEE COMPANY CHALLENGED THE REO PENING OF THE ASSESSMENT WHICH HAS BEEN DONE AFTER 4 YEARS FROM T HE END OF THE ASSESSMENT YEAR AND SUBMITTED THAT WHILE FILING THE RETURN OF INCOME WITH THE REVENUE AND DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE COMPANY HAS FULLY AND TRULY DISCLOSED ALL THE MATER IAL FACTS AND THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON 30-0 1-2006 AFTER CONSIDERING THE ENTIRE MATERIAL ON RECORD AND, HENCE, REOPENING IS BAD IN LAW AND ILLEGAL WHICH IS NOTHING BUT CHANGE OF OPINION BY THE AO, T HEREFORE, LIABLE TO BE QUASHED. HE RELIED UPON THE ORDER OF THE CIT(A) AN D SUBMITTED THAT THE INFORMATION PROVIDED BY THE THIRD PARTY BEING ALLEG EDLY EMPLOYEE OF THE SUZLON ENERGY LIMITED DURING THE COURSE OF SURVEY PROCEEDI NGS U/S 133A OF THE ACT ON 5-4-2006 HAS BEEN RELIED UPON BY THE AO WITHOUT PROVIDING OPPORTUNITY OF CROSS EXAMINATION WHICH IS AGAINST THE PRINCIPLES O F NATURAL JUSTICE AND ON THIS SHORT GROUND ITSELF THE RE-ASSESSMENT IS LIABL E TO BE QUASHED. HE SUBMITTED THAT DURING THE COURSE OF ORIGINAL ASSESS MENT PROCEEDINGS U/S 143(3) OF THE ACT ON 16 TH AUGUST, 2005 THE ASSESSEE COMPANY HAS DULY REPLIED TO THE A.O. REGARDING INSTALLATION, COMMISSIONING A ND START OF COMMERCIAL PRODUCTION OF WINDMILL ON 30-03-2003 I.E. DURING TH E PREVIOUS YEAR RELEVANT TO ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 19 THE ASSESSMENT YEAR 2003-04,VIDE REPLY DATED 16-8-2 005 WHICH IS PLACED IN PAPER BOOK PAGE 94-95. HE SUBMITTED THAT THE POWER PURCHASE AGREEMENT WAS ENTERED BY THE ASSESSEE COMPANY WITH RAJASTHAN RAJYA VIDYUT PRASARAN NIGAM LIMITED , JODHPUR VIDYUT VITRAN NIGAM LTD. AN D SUZLON ENERGY LIMITED ON 19-3-2003 FOR SUPPLY OF POWER GENERATED FROM THE WINDMILL, COPY OF WHICH IS ALSO PLACED IN PAPER BOOK PAGE 99 TO 11 0 , WHICH WAS ALSO FURNISHED TO THE AO VIDE REPLY DATED 12-09-2005 WHI CH REPLY OF THE ASSESSEE COMPANY IS PLACED IN PAPER BOOK PAGE 96-98. THE LD . COUNSEL ALSO SUBMITTED THAT ALL RELEVANT DOCUMENTS SUCH AS INVOICE FOR ENE RGY FOR MONTH OF MARCH 2003, COMMISSIONING CERTIFICATE ISSUED BY JVVN ON 3 0-03-2003 AND JOINT INSPECTION REPORT DATED 30-03-2003 WAS DULY SUBMITT ED BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITH REGARD TO COMMENCEMENT OF COMMERCIAL PRODUCTION OF THE WINDMILL ON 30-03-2003 , VIDE REPLIES DATED 16- 08-2005 AND 12-09-2005 WHICH ARE PLACED IN PAPER BO OK PAGE 94-119. THE LD. COUNSEL FOR THE ASSESSEE COMPANY DRAWN OUR ATTE NTION TO THE CERTIFICATES ISSUED BY THE RAJASTHAN GOVERNMENT AUTHORITIES CERT IFYING THAT THE WINDMILL WAS SUCCESSFULLY COMMISSIONED ON 30-03-2003 WHICH I S PLACED IN PAPER BOOK AT PAGE 116. HE ALSO DREW OUR ATTENTION TO THE JOI NT INSPECTION IN RESPECT TO THE WINDMILL POWER PLANT OF THE ASSESSEE COMPANY CA RRIED ON BY THE RRVPN WHICH WAS ALSO CERTIFIED THAT THE INSTALLATION AND COMMISSIONING OF THE WINDMILL WAS COMPLETED ON 30-3-2003 WHICH IS PLACED AT PAPER BOOK PAGE 117 TO 119. HE ALSO DREW OUR ATTENTION TO THE INVO ICES RAISED BY THE ASSESSEE COMPANY FOR THE MONTH OF MARCH, 2003 FOR ENERGY SUP PLIED TO THE GOVERNMENT OF RAJASTHAN FOR AN AMOUNT OF RS. 327/- WHICH IS PLACED AT PAPER BOOK PAGE 36 TO 38. HE ALSO DREW OUR ATTENTI ON TO THE PAYMENT RECEIVED OF RS. 327/-FROM THE RVPNL AGAINST THE INV OICE FOR MONTH OF MARCH 2003 WHICH IS PLACED AT PAPER BOOK PAGE 39.THE LD C OUNSEL FOR THE ASSESSEE COMPANY DREW OUR ATTENTION TO DELIVERY CHALLANS AND INVOICES RAISED BY SUZLON ENERGY LIMITED FOR SUPPLY AND ERECTION/INSTA LLATION OF WINDMILL WHICH ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 20 ARE ALL PLACED IN THE PAPER BOOK AT PAGE 1-30 TO CO RROBORATE THAT THE WINDMILL WAS INSTALLED AND COMMISSIONED ON 30-03-2003. 11. WE HAVE CONSIDERED THE RIVAL CONTENTION AND ALS O PERUSED THE MATERIAL ON RECORD INCLUDING THE CASE LAWS CITED BY BOTH THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS PURCHASED THE WINDMIL L WITH CAPACITY OF 1.25 MW FROM SUZLON ENERGY LTD. WHICH WAS DULY SUPPLIED IN THE MONTH OF FEBRUARY/MARCH, 2003 AS IS EVIDENCED FROM THE INVOI CES AND DELIVERY CHALLANS OF SUZLON ENERGY LIMITED. IT WAS FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS DULY INSTALLED, COMMISSIONED AND SET UP THE SAID WINDMILL IN THE MONTH OF MARCH, 2003 ITSELF I.E. ON 30-03-2003. THE SAID INSTALLATION AND COMMISSIONING OF THE WINDMILL WAS DONE BY SUZLON EN ERGY LIMITED WHICH IS ALSO SUPPORTED BY THE INVOICE DATED 04-3-2003 AND 3 0-3-2003 RAISED BY SUZLON DEVELOPERS LIMITED FOR CIVIL WORK, ERECTION AND INSTALLATION OF THE SAID WINDMILL , WITH AGGREGATE AMOUNT OF RS37,50,000/- W HICH ARE PLACED IN PAPER BOOK PAGE 29-30 . THE ASSESSEE COMPANYS WINDMILL P OWER PLANT WAS SUCCESSFULLY COMMISSIONED ON 30-03-2003 AND WAS ALS O CONNECTED TO 33 KV KHURI FEEDER BY 30-3-2003 , WHICH IS CERTIFIED BY T HE EXECUTIVE ENGINEER(O&M), JVVNL, JAISALMER VIDE CERTIFICATE NO JVVNL/XEN/O&M/JSM/S:TECH/F: D 200 DATED 30-3-2003 W HICH IS PLACED AT PAGE 31 OF PAPER BOOK . THE ASSESSEE COMPANY HAS ALSO ENTERED INTO POWER SUPPLY AGREEMENT WITH THE RAJASTHAN RAJYA VIDYUT PR ASARAN NIGAM LIMITED , JODHPUR VIDYUT VITRAN NIGAM LTD. AND SUZLON ENERGY LIMITED ON 19-3-2003 FOR SUPPLY OF POWER GENERATED FROM THE WINDMILL, CO PY OF WHICH IS ALSO PLACED IN PAPER BOOK PAGE 99 TO 110. THE ASSESSEE COMPANY HAS DULY GENERATED POWER IN THE MONTH OF MARCH, 2003 AND SUPPLIED NET- ENERGY TO THE TUNE OF 98KWH TO RVPNL AND INVOICED THEM TO THE TUNE OF RS .327 AND THE CHEQUE OF RS. 327/- AGAINST THE SAID INVOICE FOR MONTH OF MAR CH 2003 WAS ALSO DULY RECEIVED BY THE ASSESSEE COMPANY FROM THE RVPNL , T HE COPIES OF WHICH ARE PLACED IN PAPER BOOK AT PAGE 36-40. ON THE OTHER H AND, THE REVENUE HAS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 21 RELIED UPON THE SURVEY REPORT WHICH WAS CARRIED OUT ON 5-4-2006 I.E 3 YEARS AFTER THE COMMENCEMENT OF THE COMMERCIAL PRODUCTION CLAIMED BY THE ASSESSEE COMPANY TO BE STARTED ON 30-03-2003. THER E WAS NO MENTION ABOUT THE AUTHORIZED PERSON , SIGNATURE, DESIGNATION OR S EAL OF THE PERSON PREPARING THE SURVEY REPORT ON 05-04-2006 BEING ALLEGEDLY EMP LOYEE OF SUZLON ENERGY LIMITED NOR IS THERE ANY DETAIL OF THE OFFICER OF R EVENUE COUNTERSIGNING THE SAID REPORT DATED 05-04-2006. THE REVENUE HAS ALSO NOT RECORDED ANY STATEMENT OF THE DIRECTOR OR ANY OTHER AUTHORIZED PERSON OF SUZLON ENERGY LIMITED OR OF THE ASSESSEE COMPANY DURING THE COURS E OF SURVEY PROCEEDINGS. ON THE OTHER HAND, THE ASSESSEE COMPANY HAS BROUGHT ON RECORD COGENT AND CLINCHING MATERIAL AND EVIDENCES IN SUPPORT OF ITS CLAIM INCLUDING FROM THE GOVERNMENT AUTHORITIES WHICH CONCLUSIVELY PROVED B EYOND SHADOW OF ANY DOUBT THAT THE WINDMILL OF THE ASSESSEE COMPANY WIT H THE CAPACITY 1.25 MW WAS DULY INSTALLED , COMMISSIONED AND PUT TO USE ON 30-03-2003 AND WAS ALSO CONNECTED TO 33KV KHURI FEEDER ON 30-3-2003 A ND THE ASSESSEE COMPANY HAS ALSO SUPPLIED NET-ENERGY BEING 98KWH TO RVPNL IN MARCH 2003 WHICH WAS DULY PAID BY RVPNL , WHICH HAS NOT BEEN C ONTROVERTED AND DEMOLISHED BY THE REVENUE. WE ,THERE-FORE, HOLD TH AT THE INSTALLATION , COMMISSIONING AND PUT TO USE OF THE WINDMILL NO. J- 208 AT SODA-MADA- JAISALMER, RAJASTHAN WITH CAPACITY OF 1.25 MW OF TH E ASSESSEE COMPANY WAS COMPLETED ON 30-03-2003 I.E. DURING THE PREVIOUS YE AR 2002-03 RELEVANT TO THE ASSESSMENT YEAR 2003-04 WHICH IS DULY ESTABLISH ED AND PROVED CONCLUSIVELY BY THE ASSESSEE COMPANY WITH COGENT MA TERIAL AND CLINCHING EVIDENCES WHICH HAS REMAINED UN-CONTROVERTED AND/OR DEMOLISHED BY THE REVENUE AND RELIANCE OF THE REVENUE ON THE SURVEY R EPORT OF 05-04-2006 IS MISCONCEIVED AND IS NOT BACKED BY THE COGENT MATERI AL AND EVIDENCES BUT RATHER THE SAME SURVEY REPORT DATED 05-04-2006 WHIC H IS NOT ONLY TECHNICALLY DEFECTIVE DUE TO REASONS AS DETAILED ABOVE BUT WAS ALSO DRAWN ON THE BASIS OF CONJECTURES, SURMISES , ASSUMPTIONS AND PRESUMPTION S WITHOUT BACKING OF ANY COGENT MATERIAL/EVIDENCES, WHICH IS ALIEN TO TH E ACT AND IS NOT SUFFICIENT ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 22 FOR FASTENING LIABILITY ON THE ASSESSEE COMPANY . IN VIEW OF OUR ABOVE FINDINGS AND REASONING DETAILED ABOVE, WE FIND NO INFIRMITY IN THE WELL REASONED AND DETAILED ORDER PASSED BY THE CIT(A) WHICH WE DECLIN E AND REFUSE TO INTERFERE AND HENCE, WE CONFIRM THE ORDERS OF THE CIT(A). WE ORDER ACCORDINGLY. 12.IN THE RESULT, THE APPEAL FILED BY THE REVENUE I N ITA N0. 3812/MUM/2012 FOR THE ASSESSMENT YEAR 2003-04 IS DISMISSED. 13. NOW, WE SHALL TAKE UP ASSESSEE COMPANYS APPEAL IN ITA NO. 821/MUM/2014 FOR THE ASSESSMENT YEAR 2007-08 WHICH IS DIRECTED AGAINST THE ORDER DATED 01.11.2013 PASSED BY LEARNED COMMIS SIONER OF INCOME TAX (APPEALS)-9,MUMBAI (HEREINAFTER CALLED THE CIT(A) ) , THE AFORE-SAID APPEAL ORDER DATED 01.11.2013 OF THE CIT(A) ARISING FROM T HE RE-ASSESSMENT ORDER DATED 31.10.2012 PASSED BY THE LEARNED ASSESSING OF FICER (HEREINAFTER CALLED THE AO) U/S 143(3) READ WITH SECTION 147 OF THE I NCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT), FOR THE ASSESSMENT YEAR 2007-08. 14. THE GROUNDS RAISED BY THE ASSESSEE COMPANY IN T HE MEMO OF APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- 1. THE LD. C.I.T.(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF ASSESSING THE TOTAL INCOME AT RS . 4,24,74,6801- AS AGAINST RS. 3,02,22,286/- RETURNED BY YOUR APPELLANT I N THE RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S. 148. 2. THE C.I.T. (A) ERRED IN NOT APPRECIATING THE FACT THAT NO FRESH FACTS HAVE COME TO LIGHT WHICH WERE NOT PRESENT AT THE TI ME OF ORIGINAL ASSESSMENT WHICH COULD CONSTITUTE 'REASON TO BELIEVE LEADING TO JUSTIFICATION OF REOPENING U/S. 147 AND THUS EARED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF REOPENING THE ALREADY COMPLETED ASSESSMENT U/S. 143(3) WHICH IS MERELY ON THE GROUND OF CHANGE OF OPINION. 3. THE C.I.T. (A) ERRED IN CONFIRMING THE ACTION OF T HE LEARNED ASSESSING OFFICER OF NOTIONALLY SETTING THE UNABSORBE D LOSS OF EARLIER ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 23 YEARS OF WINDMILL DIVISION OF RS. 94.39 LACS WHICH HAVE ALREADY BEEN SET OFF AGAINST OTHER BUSINESS INCOME OF YOUR APPELLANT. 4. THE C.I.T. (A) ERRED IN NOT TAKING COGNIZANCE OF TH E FACT WHICH WAS BROUGHT TO HIS NOTICE THAT NOTIONAL LOSS OF WIND MILL DIVISION WAS ALREADY SET OFF WHILE CONSIDERING DEDUCTION U/S. 80- IA FOR A.Y. 2008-09 AND A.Y. 2009-10 THEREBY AMOUNTING TO DOUBLE TAXATION . 5. THE CIT(A) ERRED IN NOT FOLLOWING THE BINDING PRE CEDENT THAT 'THE JUDGMENT OF NON-JURISDICTIONAL HIGH COURT IS A BINDIN G PRECEDENT, IF NO CONTRARY JUDGMENT OF ANOTHER HIGH COURT IS AVAILABLE'. 15. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY DERIVES INCOME FROM TRADING IN COTTON YARN, FABRIC, RAW COT TON , PAPER AND WIND MILL POWER. THE ASSESSEE COMPANY FILED RETURN OF INCOME ON 31/10/2007 , WHICH WAS ASSESSED BY THE AO U/S 143(3) OF THE ACT VIDE O RDERS DATED 17/12/2009. SUBSEQUENTLY, THE AO ON VERIFICATION OF THE ASSESSM ENT RECORDS FOUND THAT THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S . 80-IA OF THE ACT OF RS.94.39 LACS FROM THE PROFIT AND GAINS OF WINDMILL BUSINESS. IT WAS OBSERVED BY THE AO THAT IN THE EARLIER ASSESSMENT YEAR, THE ASSESSEE COMPANY HAS CLAIMED LOSS OF RS.171.91 LACS FROM WINDMILL BUSINE SS AND AS PER SECTION 80IA(5) OF THE ACT , LOSS OF WIND MILL BUSINESS OF SAID ASSESSMENT YEAR 2006- 07 AMOUNTING TO RS.171.91 LACS WAS FIRST REQUIRED T O BE SET OFF WITH THE PROFIT OF WINDMILL DIVISION FOR THE CURRENT ASSESSMENT YEA R AND THE REMAINING PROFIT SHOULD HAVE BEEN ALLOWED AS DEDUCTION. THUS, THE AO OBSERVED THAT INCOME HAS ESCAPED ASSESSMENT IN VIEW OF THE PROVISIONS A S CONTAINED U/S. 147 OF THE ACT WHEREBY REASONS WERE RECORDED FOR REOPENING OF THE CASE U/S 147 OF THE ACT AND PRIOR APPROVAL WAS OBTAINED OF COMMISSI ONER OF INCOME TAX-5, MUMBAI. NOTICE U/S 148 OF THE ACT WAS SERVED ON THE ASSESSEE COMPANY ON 30/03/2012. THUS AS PER THE AO, THE DEDUCTION ALLOW ED U/S. 80-IA OF THE ACT AMOUNTING TO RS.94.39 LACS WAS NOT IN ACCORDANCE WI TH LAW AND HENCE TO THE EXTENT OF RS. 94.39 LACS , INCOME HAS ESCAPED ASSES SMENT AND THE ASSESSMENT WAS THEREFORE REOPENED U/S 147 OF THE ACT. THE COPY OF THE REASONS RECORDED WAS PROVIDED TO THE ASSESSEE COMPANY FOR COMMENT ON 01/10/2012 AND IN ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 24 REPLY THEREOF ,THE ASSESSEE COMPANY SUBMITTED THAT IN REGULAR ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDERS DATED 17.1 2.2009 , THE A.O. HAD CORRECTLY ALLOWED THE DEDUCTION U/S. 80-IA OF RS.94 .39 LAKHS FOR THE PROFITS AND GAINS OF WINDMILL BUSINESS AS CLAIMED BY THE AS SESSEE COMPANY IN THE RETURN OF INCOME AFTER CONSIDERING THE PROVISIONS O F SECTION 80-IA OF THE ACT. IT WAS SUBMITTED THAT THE STATUTE IN SECTION 80-IA(5) OF THE ACT HAS USED THE WORD 'INITIAL ASSESSMENT YEAR' AND NOT 'YEAR OF CO MMENCEMENT' AND DIFFERENCE BETWEEN THE TWO IS NOT APPRECIATED. ACCO RDINGLY, PROVISIONS OF SEC 80-IA(5) WOULD BE APPLICABLE ONLY IN THE YEAR SUBSE QUENT TO THE INITIAL ASSESSMENT YEAR AND THE UNABSORBED DEPRECIATION OF WINDMILL DIVISION FOR ALL YEARS EARLIER TO INITIAL ASSESSMENT YEAR, WHICH HAD ALREADY BEEN ABSORBED AGAINST THE PROFIT OF OTHER BUSINESS, CANNOT BE NOT IONALLY BROUGHT FORWARD AND BE CONSIDERED FOR COMPUTING DEDUCTION U/S. 80-IA(5) OF THE ACT. THE ASSESSEE COMPANY SUBMITTED THAT THE ASSESSEE COMPANY HAS C OMMENCED GENERATION OF ELECTRICITY IN THE ASSESSMENT YEAR 2003-04 AND H AS OPTED TO CLAIM DEDUCTION U/S. 80-IA ONLY FROM THE ASSESSMENT YEAR 2007-08. HENCE THE 'INITIAL ASSESSMENT YEAR' FOR THIS UNDERTAKING WOUL D BE ASSESSMENT YEAR 2007-08. THE A.O., HOWEVER, REJECTED THE CONTENTION S OF THE ASSESSEE COMPANY. THE A.O. RELIED UPON THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2009-10 WHICH WAS CONFIRMED BY THE CIT(A)-9,MUMBAI VIDE ORDER DATED 2-7- 2012 WITH THE FOLLOWING REMARKS AS UNDER:- I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOT DISPUTED THAT THE APPELLANT H AS INCURRED VARIOUS LOSSES/DEPRECIATION, ATTRIBUTED TO THE WINDMILL POWER DIVISION, AS NOTED BY THE LAO IN THE RELEVANT ASSESSMENT ORDER AND EXTRACTE D AS UNDER: A.Y. DEPRECIATION LOSS 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 25 2006-07 21,54,000 5.3.2 THE LAO HAS ENFORCED THE PROVISIONS OF SUB-SE C. 5 OF 80IA OF THE ACT AND ADJUSTED B/F LOSS/DEPRECIATION ETC SET OFF IN EARLIE R YEARS AGAINST OTHER SOURCES OF INCOME AGAINST THE PROFITS DECLARED BY THE APPEL LANT FROM THE SAID WINDMILL POWER DIVISION IN ASSESSMENT YEAR 2009-10. FOR THE PURPOSE OF DETERMINING OF QUANTUM OF DEDUCTION UNDER SECTION 80IA OF THE ACT, TH E LAO DETERMINED THE TAXABLE INCOME OF THE RELEVANT INDUSTRIAL UNDERTAKIN G (WINDMILL POWER DIVISION) AS IF SUCH UNDERTAKING IS AN INDEPENDENT UN IT OWNED BY THE APPELLANT AND THE APPELLANT HAD NO OTHER SOURCE OF INC OME FOR THE PURPOSES OF OVERRIDING PROVISIONS OF S.SEC.5 OF SEC.80-IA OF T HE ACT. 5.3.3 SECTION 80IA OF THE ACT IS A CODE BY ITSELF AND T HE DEDUCTION ALLOWABLE UNDER SECTION 80IA IS A SPECIAL DEDUCTION WHICH IS LINKED TO PROFITS, UNLIKE DEDUCTIONS CONTAINED IN CHAPTER IV WHICH ARE LINKED TO INVESTMENTS. DEDUCTION UNDER SECTION 80IA IS ALLOWED AT A PERCENTAG E OF THE BUSINESS PROFITS COMPUTED IN THE MANNER SPECIFIED IN THAT SECTI ON AND OTHER PROVISIONS CONTAINED IN CHAPTER VIA. SECTION 80IA CONTAINS BOTH SU BSTANTIVE AND PROCEDURAL PROVISIONS FOR COMPUTATION OF THE SPECIAL DEDUCTION AND ANY DEVICE ADOPTED TO REDUCE OR INFLATE THE PROFITS OF ELIGIBLE B USINESS HAS TO BE REJECTED. IN THE PRESENT CASE, THE APPELLANT BY NOT CLAIMING EA RLIER ASSESSMENT YEAR'S BUSINESS LOSSES AND DEPRECIATION SEEKS TO INFLATE TH E PROFIT LINKED INCENTIVES PROVIDED UNDER SECTION 80IA WHICH IS NOT PERMISSIBLE. 5.3.4 IN VIEW OF THE SPECIFIC PROVISIONS OF S. 80IA (5), THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUAN TUM OF DEDUCTION UNDER SECTION 80IA HAS TO BE COMPUTED AFTER DEDUCTION OF TH E NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINES S EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEARS. 5.3.5 THE HON'BLE ITAT, SPECIAL BENCH IN THE CASE OF ACIT VS GOLDMINE SHARES AND FINANCE (P) LIMITED (2008) 113 ITD 209 ( AHD) (SB) HAS HELD THAT LOSSES OF THE ELIGIBLE BUSINESS HAVE TO BE SET OFF ONL Y AGAINST THE SUBSEQUENT YEARS INCOME OF (HE ELIGIBLE BUSINESS, EVEN THOUGH TH ESE WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE IN THE EARLIER YEAR. THIS IS SO EVIDENT FROM CBDT'S CIRCULAR NO.281 DATED 22.09.1980. IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80-IA(5), THE PROFIT FROM THE ELIGIBLE BUSINES S FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SECTI ON 80IA OF THE ACT HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HA VE BEEN ALLOWED SET OFF AGAINST THE OTHER INCOME IN EARLIER YEARS. 5.3.6 THE HON'BLE ITAT, MUMBAI 'H' THIRD MEMBER BENC H IN THE CASE OF GUJARAT AMBUJA CEMENT LIMITED VS DCIT (2009) 117 ITD 87 (MUM) (TM) HAS FURTHER HELD THAT AGGREGATE OF BROUGHT FORWARD UNABSOR BED LOSSES, DEPRECIATION AND INVESTMENT ALLOWANCE RELATING TO THE E LIGIBLE INDUSTRIAL ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 26 UNDERTAKING SET OFF IN ASSESSMENT YEARS 1988-89 TO 19 91-92 AGAINST INCOME OF ASSESSEE FROM INTEREST, CAPITAL GAINS AND DIVIDEND WH ICH IS NEITHER INCOME DERIVED FROM NOR ATTRIBUTABLE TO ELIGIBLE INDUSTRIAL U NDERTAKING ARE REQUIRED TO BE REDUCED AS PER SEC. 80-I(1) FROM CURRENT YEAR'S P ROFITS DERIVED BY THE ASSESSEE FROM ITS ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-I(1). 5.3.7 THE HONBLE ITAT, HYDERABAD A BENCH IN TH E CASE OF HVDERABAD CHEMICALS SUPPLIES LIMITED VS ACIT (2011) 53 DTR 37 1 (HYD) HAS FURTHER APPROVED THAT NOTIONAL BROUGHT FORWARD UNABSORBED BUSI NESS LOSES OR DEPRECIATION OF ELIGIBLE BUSINESS UNIT HAVE TO BE SET OFF AGAINST THE INCOME EARNED BY THE UNIT FOR CLAIM OF DEDUCTION UNDER SECTI ON 8O-IA OF THE ACT. 5.3.8 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN ACCORDANCE WITH THE PROVISIONS OF SUB-SEC.80-IA(5) O F THE ACT AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT, SPECIAL BENC H IN THE CASE OF ACIT VS GOLDMINE SHARES AND FINANCE (P) LIMITED (SUPRA) AND HON'BLE ITAT, MUMBAI, THIRD MEMBER BENCH IN THE CASE OF GUJARAT AMBUJA CEME NT LIMITED VS DCIT (SUPRA), THE LAO'S ACTION IN ADJUSTING THE BROUGHT FOR WARD BUSINESS LOSSES/DEPRECIATION AGAINST APPELLANT'S CURRENT YEAR' S BUSINESS PROFIT FROM THE ELIGIBLE BUSINESS UNDERTAKING IS CONFIRMED. GROUNDS OF APPEAL NO.2 IS THEREFORE, DISMISSED. THUS, THE A.O. VIDE RE-ASSESSMENT ORDERS DATED 31-1 0-2012 PASSED U/S 143(3) READ WITH SECTION 147 OF THE ACT HELD THAT AS PER THE STATUTORY PROVISIONS OF 80-IA(5) OF THE ACT, THE ASSESSEE COM PANY OUGHT TO HAVE TAKEN COGNIZANCE FIRSTLY OF BROUGHT FORWARD DEPRECIATION / LOSSES TO BE SET OFF AGAINST THE CURRENT YEAR'S INCOME AND THUS THE CLAIM OF THE ASSESSEE COMPANY U/S 80IA OF RS. 94.39 LACS WAS DISALLOWED BY THE AO AS THE ASSESSEE COMPANY HAD CLAIMED LOSS ON WINDMILL BUSINESS IN EARLIER YEARS AT RS. 171.91 LAKHS WHICH HAS TO BE SET OFF WITH THE PROFIT OF WINDMILL DIVIS ION FOR THE CURRENT ASSESSMENT YEAR. 16. AGGRIEVED BY THE RE-ASSESSMENT ORDERS DATED 31- 10-2012 PASSED BY THE AO U/S 143(3) READ WITH SECTION 147 OF THE ACT, THE ASSESSEE COMPANY PREFERRED AN APPEAL BEFORE THE CIT(A). 17. BEFORE THE CIT(A), THE ASSESSEE COMPANY SUBMITT ED THAT REOPENING U/S 147/148 OF THE ACT IS BAD IN LAW FOR THE FOLLOWING REASONS; (I) THE REOPENING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 27 WAS DONE WITHIN 4 YEARS FROM THE END OF THE ASSESSM ENT YEAR, (II) THE ASSESSEE COMPANY HAS DISCLOSED ALL THE MATERIAL FACTS FOR TH E DETERMINATION OF THE TAX LIABILITY WHILE FILING RETURN OF INCOME AND ALSO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(2) READ WITH SECTION 143(3) OF THE ACT AND (III) REGULAR ASSESSMENT WAS FRAMED BY THE REVENUE U/S 143(3) OF THE ACT. THE ASSESSEE COMPANY RELIED ON THE DECISION OF HON BLE APEX COURT IN THE CASE OF CALCUTTA DISCOUNT CO. LTD. V. ITO, 41 ITR 1 91 (SC). THE ASSESSEE COMPANY SUBMITTED THAT DISCOVERY OF NEW AND TANGIBL E MATERIAL FACTS WHICH WERE NOT PRESENT DURING THE COURSE OF REGULAR ASSES SMENT PROCEEDINGS AND WHICH HAVE DIRECT NEXUS AND LIVE LINK WITH REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 14 7 OF THE ACT IS MUST FOR RE-OPENING OF THE ASSESSMENT. THE ASSESSEE COMPANY SUBMITTED THAT NO NEW MATERIAL AND TANGIBLE FACTS HAS COME TO THE NOTICE OF THE AO SUBSEQUENT TO THE FRAMING OF THE REGULAR ASSESSMENT VIDE ORDERS D ATED 17.12.2009 U/S 143(3) OF THE ACT. IN SUPPORT, THE ASSESSEE COMPAN Y RELIED UPON THE FOLLOWING DECISIONS OF THE HONBLE SUPREME COURT: (I) PHOOL CHAND BAJRANG LAL V. ITO , 203 ITR 456,477 (II) ALA FIRM V. CIT 189 ITR 285, 298 (III) INDIAN AND EASTERN NEWSPAPER SOCIETY V. CIT 119 ITR 996, 1004 (IV) ITO V. LAKHMANI MEWAL DAS 103 ITR 437, 445 THE ASSESSEE COMPANY SUBMITTED THAT FOLLOWING DOCU MENTS WERE GIVEN TO THE AO DURING THE COURSE OF REGULAR ASSESSMENT PROCEEDI NGS WITH RESPECT TO THE CLAIM U/S 80IA OF THE ACT AND NO NEW MATERIAL AND T ANGIBLE FACTS HAVE COME TO LIGHT WARRANTING INVOKING OF PROVISIONS OF SECTI ON 147/148 OF THE ACT FOR RE- OPENING OF CONCLUDED ASSESSMENT:- (I) VIDE LETTER DATED NOVEMBER 13, 2009, A COPY OF THE ASSESSMENT ORDER FOR AY. 2006-07 WAS SUBMITTED-AT ANNEXURE 34. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 28 (II) BOOKS OF ACCOUNT OF THE COMPANY WERE PRODUCED FOR V ERIFICATION AS MENTIONED AT SR. NO. 8 OF OUR LETTER DATED NOVEMBER 13,2009. (III) BOOKS OF ACCOUNT FOR WIND POWER DIVISION WERE PRODU CED FOR VERIFICATION AS PER SR. NO. 6 OF LETTER DATED NOVEM BER 25, 2009. (IV) COPY OF LEDGER ACCOUNT OF WIND POWER PROJECT WAS SU BMITTED AT ANNEXURE 50 VIDE LETTER DATED NOVEMBER 25,2009. (V) BRIEF NOTE ON CLAIM U/S 80LA WAS SUBMITTED AT ANNEX URE, 32 VIDE LETTER DATED NOVEMBER 4, 2009. (VI) AUDIT REPORT U/S 80LA (7) IN FORM 10 CCB WAS SUBMIT TED AT ANNEXURE 32. 1 VIDE LETTER DATED NOVEMBER 4, 2009. THE ASSESSEE COMPANY CONTENDED THAT AFTER EXAMINING ALL THE DOCUMENTS WHICH WERE SUBMITTED BY THE ASSESSEE COMPANY DURING THE REGULAR ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE A.O. AFTER DUE APPLICATION OF MIND ALLOWED THE DEDU CTION U/S 80IA OF THE ACT WHILE PASSING THE ORDER DATED 17.12.2009 U/S 143(3 ) OF THE ACT. THE A.O. IN THE REOPENING PROCEEDING FAILED TO DISCLOSE THE FRE SH FACTS AND /OR NEW TANGIBLE MATERIAL THAT HAVE COME TO LIGHT WHICH WER E NOT PRESENT AT THE TIME OF THE ORIGINAL ASSESSMENT WHICH WOULD CONSTITUTE I N FORMING REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT LEADING TO JUSTIFICATION FOR REOPENING U/S 147 /148 OF THE ACT OF THE CONCLUDED ASSESSMENTS FRAMED U/S 143(3) OF THE ACT AND, HENCE, THE ACTION OF REOPENI NG OF ALREADY COMPLETED ASSESSMENT U/S 143(3) OF THE ACT IN THIS CASE IS NO T IN ACCORDANCE WITH LAW AND SHOULD BE QUASHED AS THE REOPENING HAS BEEN DON E MERELY ON THE BASIS OF CHANGE OF OPINION. SECTION 147 OF THE ACT DOES NOT EMPOWER THE AO TO REVIEW ON THE SAME SET OF FACTS , THE ASSESSMENT OR DER WHICH HAD ALREADY BEEN FRAMED MERELY BY FRESH APPLICATION OF MIND TO ITS OWN DECISION OR THE DECISION OF PREDECESSOR WHICH WILL LEAD TO REVIEW O F EARLIER DECISION WHICH IS NOT PERMITTED U/S 147/148 OF THE ACT AS THE POWER U /S 147/148 OF THE ACT IS TO RE-ASSESS THE INCOME AND NOT TO REVIEW THE EARLI ER DECISION AS THE AO CANNOT HAVE SECOND INNINGS TO COVER THE MISTAKES CO MMITTED IN THE FIRST INNING. THE ASSESSEE COMPANY RELIED UPON THE DECISI ON OF FULL BENCH DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 29 LIMITED,256 ITR (DEL) WHICH WAS CONFIRMED BY HONB LE SUPREME COURT IN 320 ITR 561 (SC), WHEREBY THE HONBLE SUPREME COURT HEL D THAT THE A.O. HAS NO POWER TO REVIEW THE CONCLUDED ASSESSMENTS AND CHANG E OF OPINION IS NOT PERMITTED. THE ASSESSEE COMPANY ALSO RELIED UPON TH E FOLLOWING DECISIONS:- - CHANDRASHEKHAR KARONDIA HUF V. ITO 14 TAXMANN.COM 37 (MUM. ITAT). - B.J. SERVICES COMPANY MIDDLE EAST LTD. V. DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), DEHRADUN [2011 ] 12 TAXMANN.COM 493(UTTARAKHAND) - CIT V. MANAK SHOES CO. (P.) LTD. [2011] 200 TAXMA NN 133 (DEL.): 2011)11 TAXMANN.COM 217 (DELHI) - CIT V. FEATHER FOAM ENTERPRISES (P) LTD. [2008] 2 96 ITR 342 (DEL.) - CIT VS. BHANJI LAVJI [1971] 79 ITR 582 (SC) - ITO V. NAWAB MIR BARKAT AII KHAN BAHADUR [1974] 9 7 ITR 239 (SC) - RAYMOND WOOLEN MILLS LTD. V. ITO AND OTHERS (1999 ) 236 ITR 34 (SC) - CIT V. FORMER FINANCE (2003) 264 ITR 566 (SC) - M.J. PHARMACEUTICALS LTD. V. DCIT [2008] 297 ITR 119 (BOM.) - CARLTON OVERSEAS P. LTD. V.. ITO [2009] 318 ITR 2 95 (DEL.) - CIT V. CHAKIAT AGENCIES PVT. LTD. [2009] 314 ITR 200 (MAD.) - CAETINI INDIA LTD. V. ADDL. CIT [2009] 314 ITR 27 5 (BOM.) - PAN DRUGS LTD. V. DCIT [2009] 316 ITR (AT) 72 (AH M.) THE ASSESSEE COMPANY SUBMITTED THAT THE HONBLE SUP REME COURT IN THE CASE OF GKN DRIVESHAFTS (INDIA) LTD. V. ITO HELD THAT WH EN A NOTICE U/S 148 IS ISSUED, THE A.O. IS BOUND TO FURNISH REASONS WITHIN A REASONABLE TIME AND THE ASSESSEE COMPANY IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE A.O. IS BOUND TO DISPOSE OF THE SAME BY PASSING A S PEAKING ORDER BEFORE PROCEEDING WITH THE REASSESSMENT U/S 147/148 OF THE ACT. THE ASSESSEE COMPANY SUBMITTED THAT THE RETURN OF INCOME IN PURS UANCE TO NOTICE U/S 148 OF THE ACT WAS FILED ON 30-4-2012 ,WHEREAS THE COPY OF REASONS TO REOPEN WAS PROVIDED BY THE REVENUE TO THE ASSESSEE COMPANY ONL Y ON 5 TH OCTOBER, 2012 AND THE ASSESSEE COMPANY FILED OBJECTIONS TO THE RE ASONS RECORDED VIDE LETTERS DATED 10 TH AND 15 TH OCTOBER 2012 . THE A.O. HAS FAILED TO DISPOSE OF T HE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 30 OBJECTIONS AND MADE ONLY A PASSING REFERENCE TO THE SAME WHILE PASSING AN ORDER DATED 31-10-2012 U/S 147 R.W.S. 143(3) OF THE ACT AND SOME OF THE ASSESSEE COMPANYS OBJECTIONS RAISED BY THE ASSESSE E COMPANY HAVE NOT EVEN TOUCHED UPON BY THE A.O. AND THE AO PASSED THE ORDE R U/S 147 OF THE ACT AND THUS THE A.O. HAS FAILED TO PASS A SPEAKING ORD ER TO DISPOSE OF THE OBJECTIONS OF THE ASSESSEE COMPANY BEFORE PASSING A N ORDER U/S 147 OF THE ACT. THE A.O. HAS NOT DISCLOSED THE FACT OR MATERIA L THAT WERE NOT DISCLOSED BY THE ASSESSEE COMPANY FULLY AND TRULY DURING THE COU RSE OF REGULAR ASSESSMENT PROCEEDINGS AND WHICH FORMED THE BASIS ON WHICH THE ASSESSMENT WAS REOPENED. IN THE ABSENCE OF SUCH A FINDING OR DISCL OSURE, IT CAN BE CONCLUDED THAT THE REOPENING OF CONCLUDED ASSESSMENT IS ARBIT RARY IN NATURE WHICH IS NOT PERMITTED IN LAW. NOTIONAL SET OFF OF UNABSORBE D LOSSES OF EARLIER YEARS (WHICH WERE ALREADY SET OFF AGAINST OTHER BUSINESS INCOME IN RESPECTIVE YEARS) AGAINST PROFITS OF WIND MILL DIVISION FOR THE YEAR UNDER APPEAL AND THEREBY CONSEQUENTIAL DENIAL OF DEDUCTION U/S 80IA IS AGAIN ST THE WORDINGS AND INTERPRETATION OF SECTION 80IA OF THE ACT AS HAS BE EN HELD IN VARIOUS CASE LAWS AND THE A.O. ERRED IN DISALLOWING THE CLAIM OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS CHOSEN TO CLAIM DEDUCTION ONLY FROM THE ASSESSMENT YEAR 2007-08, WHICH IS THE INITIAL ASSESSMENT YEAR AND THE SAME HAS ALSO BEEN MENTIONED IN FORM NO. 10CCB JUSTIFYING THE CLA IM OF DEDUCTION U/S 80IA OF THE ACT. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF THE TRIBUNAL IN ITA NO. 321/MUM/2012 FOR THE ASSESSMENT YEAR 2008-09 IN THE CASE OF M/S SHEVIE EXPORTS V. JCIT AND HONBLE MADR AS HIGH COURT DECISION IN VELAYUDHASWAMY SPINNING MILLS PRIVATE LIMITED V. ACIT (2012) 340 ITR 477(MAD.) AND CIT V. EMERALA JEWEL INDUSTRY PRIVATE LIMITED (2011) 53 DTR 262(MAD.). THE CIT(A) UPHELD THE ACTION OF THE A.O . WITH RESPECT TO THE REOPENING OF THE ASSESSMENT U/S 147/148 OF THE ACT. THE CIT(A) UPHELD THAT ACTION OF THE AO WITH RESPECT TO RE-OPENING OF CONC LUDED ASSESSMENTS U/S 147/148 OF THE ACT, WHICH AS PER CIT(A) HAS BEEN OP ENED BASED ON FINDINGS IN SUBSEQUENT YEAR BASED ON JUDICIAL DECISIONS AND HEN CE AS PER CIT(A) , IT IS NOT ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 31 A CASE OF CHANGE OF OPINION. THE CIT(A) HELD THAT T HE ADDITION ON ACCOUNT OF DEDUCTION U/S 80IA WAS CONFIRMED BY HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2009-10 AND THE RELEVANT FINDINGS OF THE CIT(A) ARE AS UNDER:- 5.3GROUND NO. 2 : DEDUCTION UNDER SECTION 80-IA(5) 5.3.1 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDER ED THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOT DISPUTED THAT THE APPELLANT HAS INCURRED VARIOUS LOSSES/DEPRECIATION, ATTRIBUTED TO THE WINDMILL POWER DIVISION, AS NOTED BY THE LAO IN THE RELEVANT ASSESSMENT ORDER AND EXTRACTED AS UNDER: A.Y. DEPRECIATION LOSS 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 2006-07 21,54,000 5.3.2 THE LAO HAS ENFORCED THE PROVISIONS OF SUB-SEC . 5 OF 80LA OF THE ACT AND ADJUSTED B/F LOSS/DEPRECIATION ETC SET OFF IN EARLIER YEARS AGAINST OTHER SOURCES OF INCOME AGAINST THE PROFITS DEC LARED BY THE APPELLANT FROM THE SAID WINDMILL POWER DIVISION IN AS SESSMENT YEAR 2009-10. FOR THE PURPOSE OF DETERMINING OF QUANTUM O F DEDUCTION UNDER SECTION 80IA OF THE ACT, THE LAO DETERMINED THE TAX ABLE INCOME OF THE RELEVANT INDUSTRIAL UNDERTAKING (WINDMILL POWER DIVISION) AS IF SUCH UNDERTAKING IS AN INDEPENDENT UNIT OWNED BY THE APPELLANT AND THE APPELLANT HAD NO OTHER SOURCE OF INCOME FOR THE P URPOSES OF OVERRIDING PROVISIONS OF S.SEC.5 OF SEC.80-IA OF THE ACT. 5.3.3 SECTION 80IA OF THE ACT IS A CODE BY ITSELF AND THE DEDUCTION ALLOWABLE UNDER SECTION 80IA IS A SPECIAL DEDUCTION WHICH IS LINKED TO PROFITS, UNLIKE DEDUCTIONS CONTAINED IN CHAPTER IV WHI CH ARE LINKED TO INVESTMENTS. DEDUCTION UNDER SECTION 80IA IS ALLOWED AT A PERCENTAGE OF THE BUSINESS PROFITS COMPUTED IN THE MANNER SPECIF IED IN THAT SECTION AND OTHER PROVISIONS CONTAINED IN CHAPTER VIA . SECTION 80IA CONTAINS BOTH SUBSTANTIVE AND PROCEDURAL PROVISIONS FOR COMPUTATION OF THE SPECIAL DEDUCTION AND ANY DEVICE ADOPTED TO REDUC E OR INFLATE THE PROFITS OF ELIGIBLE BUSINESS HAS TO BE REJECTED. IN TH E PRESENT CASE, THE APPELLANT BY NOT CLAIMING EARLIER ASSESSMENT YEAR'S B USINESS LOSSES AND DEPRECIATION SEEKS TO INFLATE THE PROFIT LINKED INCE NTIVES PROVIDED UNDER SECTION 80IA WHICH IS NOT PERMISSIBLE. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 32 5.3.4 IN VIEW OF THE SPECIFIC PROVISIONS OF S. 80IA( 5), THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SECTION 80IA HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DEPRECIATION OF EL IGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN EARLIER YEARS. 5.3.5 THE HON'BLE ITAT, SPECIAL BENCH IN THE CASE OF ACIT V. GOLDMINE SHARES AND FINANCE (P) LIMITED (2008) 113 ITD 209 ( AHD) (SB) HAS HELD THAT LOSSES OF THE ELIGIBLE BUSINESS HAVE TO BE SET OF F ONLY AGAINST THE SUBSEQUENT YEARS INCOME OF THE ELIGIBLE BUSINESS, E VEN THOUGH THESE WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE IN THE EARLIER YEAR. THIS IS SO EVIDENT FROM CBDT'S CIRCULAR NO.281 DATED 22.09.1980. IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80IA(5), THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SECTION 80IA OF THE ACT HAS TO BE COMPU TED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARD LOSSES AND DE PRECIATION OF ELIGIBLE BUSINESS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST THE OTHER INCOME IN EARLIER YEARS. 5.3.6 THE HON'BLE ITAT, MUMBAI 'H' THIRD MEMBER BEN CH IN THE CASE OF GUJARAT AMBUJA CEMENT LIMITED V. DCIT (2009) 117 I TD 87 (MUM) (TM) HAS FURTHER HELD THAT AGGREGATE OF BROUGHT FORWA RD UNABSORBED LOSSES, DEPRECIATION AND INVESTMENT ALLOWANCE RELATI NG TO THE ELIGIBLE INDUSTRIAL UNDERTAKING SET OFF IN ASSESSMENT YEARS 19 88-89 TO 1991-92 AGAINST INCOME OF ASSESSEE FROM INTEREST, CAPITAL GAI NS AND DIVIDEND WHICH IS NEITHER INCOME DERIVED FROM NOR ATTRIBUTABLE TO ELIGIBLE INDUSTRIAL UNDERTAKING ARE REQUIRED TO BE REDUCED AS PER SEC. 80-I(1) FROM CURRENT YEAR'S PROFITS DERIVED BY THE ASSESSEE FR OM ITS ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-I(1). 5.3.7 THE HONBLE ITA T, HYDERABAD A BENCH IN THE CASE OF HVDERABAD CHEMICALS SUPPLIES LIMITED V. ACIT (2011) 53 DTR 37 1 (HYD) HAS FURTHER APPROVED THAT NOTIONAL BROUGHT FORWARD UNABSO RBED BUSINESS LOSES OR DEPRECIATION OF ELIGIBLE BUSINESS UNIT HAVE TO BE SET OFF AGAINST THE INCOME EARNED BY THE UNIT FOR CLAIM OF DEDUCTION U NDER SECTION 80- IA OF THE ACT. 5.3.8 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN ACCORDANCE WITH THE PROVISIONS OF SUB-SEC.80-IA(5) O F THE ACT AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT , SPECIAL BENCH IN THE CASE OF ACIT V. GOLDMINE SHARES AND FINANCE (P) LIM ITED (SUPRA) AND HON'BLE ITAT, MUMBAI, THIRD MEMBER BENCH IN THE CASE OF GUJARAT AMBUJA CEMENT LIMITED V. DCIT (SUPRA), THE LAO'S ACTIO N IN ADJUSTING THE BROUGHT FORWARD BUSINESS LOSSES/DEPRECIATION AGAIN ST APPELLANT'S CURRENT YEAR'S BUSINESS PROFIT FROM THE ELIGIBLE BUSIN ESS UNDERTAKING IS CONFIRMED. GROUNDS OF APPEAL NO.2 IS THEREFORE, DISMI SSED . ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 33 18. THUS, THE ACTION OF THE A.O. WAS UPHELD BY THE CIT(A) VIDE ORDER DATED 1-11-2013 BY RELYING UPON THE ORDER OF HIS PREDECES SOR. 19.AGGRIEVED BY THE ORDER DATED 01-11-2013 OF THE C IT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 20. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT THE REVENUE HAS REOPENED THE ASSESSMENT U/S 147/148 OF THE ACT WITHIN 4 YEARS FROM THE END OF THE ASSESSMENT YEAR. THE ORIGINAL ASSESSMEN T WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDERS DATED 17-12-2009. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMITTED THAT THE REASONS FOR REOPENING (P APER BOOK PAGE NO. 130) WHEREBY IT IS STATED THAT ON VERIFICATION OF THE AS SESSMENT RECORDS OF THE ASSESSEE COMPANY, IT IS SEEN THAT THE ASSESSEE COMP ANY HAS CLAIMED DEDUCTION U/S 80IA OF THE ACT OF RS.94.39 LACS FOR THE PROFIT AND GAINS OF WINDMILL BUSINESS WHILE IN THE EARLIER ASSESSMENT Y EAR, THE ASSESSEE COMPANY HAS CLAIMED LOSS OF RS 171.91 LACS FROM WINDMILL BU SINESS AND AS PER SECTION 80IA(5) OF THE ACT , LOSS OF THE WIND POWER MILL BU SINESS OF THE SAID ASSESSMENT YEAR 2006-07 WAS FIRST REQUIRED TO BE SE T OFF WITH THE PROFIT OF WINDMILL BUSINESS FOR THE CURRENT ASSESSMENT YEAR A ND THE REMAINING PROFIT , IF ANY SHOULD HAVE BEEN ALLOWED AS DEDUCTION , THUS THE DEDUCTION ALLOWED U/S 80IA OF THE ACT AMOUNTING TO RS.94.39 LACS WAS NOT IN ACCORDANCE WITH THE LAW. IT WAS SUBMITTED BY THE ASSESSEE COMPANYS COUNSEL THAT THE CONCLUDED ASSESSMENTS ARE REOPENED U/S 147/148 OF T HE ACT BASED ON ASSESSMENT RECORDS AND NO NEW TANGIBLE MATERIAL HAS COME BEFORE THE A.O. AFTER CONCLUSION OF REGULAR ASSESSMENT ON 17-12-200 9 U/S 143(3) OF THE ACT , WHICH WARRANTS RE-OPENING U/S 147/148 OF THE ACT WH ICH IS AN ESSENTIAL REQUIREMENT FOR RE-OPENING OF THE CONCLUDED ASSESSM ENTS U/S 147/148 OF THE ACT . THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUB MITTED THAT IN THE REGULAR ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 17-12-2009 , THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 34 CLAIM OF DEDUCTION U/S 80IA OF THE ACT WAS EXAMINED BY THE A.O. ALTHOUGH NO SPECIFIC QUERY WAS RAISED IN THE REGULAR ASSESSMEN T PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, BUT AS PER ANN EXURE A OF THE ASSESSMENT ORDER DATED 17.12.2009 U/S 143(3) OF THE ACT, THE A.O. HAS WORKED OUT THE DETAILS OF CALCULATION OF THE CLAIM U/S 80IA ALLOWABLE TO THE ASSESSEE COMPANY. NO NEW TANGIBLE MATERIAL HAS COM E TO THE NOTICE OF THE A.O. AFTER THE CONCLUSION OF THE REGULAR ASSESSMEN T PROCEEDINGS ON 17-12- 2009 U/S 143(2) READ WITH SECTION143(3) OF THE ACT TO REFLECT THAT THE INCOME HAS ESCAPED ASSESSMENT WHICH WARRANTS RE-OPENING U/ S 147/148 OF THE ACT. THE ASSESSEE COMPANY RELIED UPON THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF CIT V. ORIENT CRAFT LTD. [ITA NO. 555/2 012, DATE OF DECISION 12 TH DECEMBER, 2012) AND CONTENDED THAT NO REASSESSMENTS CAN BE FRAMED U/S 147/148 OF THE ACT IF NO NEW TANGIBLE MATERIAL HAS COME TO THE NOTICE OF THE A.O. AS THERE IS NO REASON TO BELIEVE BASED UPON T HE NEW TANGIBLE MATERIAL COMING INTO THE POSSESSION OF THE A.O. WHICH COULD LEAD TO FORMING AN OPINION THAT AN INCOME HAS ESCAPED ASSESSMENT, THUS, IT WOU LD WARRANT THAT NO INCOME HAS ESCAPED ASSESSMENT. THE ASSESSEE COMPANY ALSO RELIED UPON THE FOLLOWING DECISIONS AND SUBMITTED THAT THE REOPENIN G IS BAD IN LAW:- I) CIT V. ORIENT CRAFT LTD. (ITA NO. 555/2012 [DEL HC] II) WADIA GHANDY & CO. V. ACIT (ITA NO. 7191/MUM/2011)( MUM) III) ACIT V. M/S SAF YEAST CO. PVT. LTD. (ITA NO. 2905 & 2984/MUM/2011)(MUM) IV) MOTILAL R. TODI V. ACIT (ITA NO. 2910/MUM/2013)(MUM ) V) M/S M. SAYARCHAND MEHTA (HUF) V. ITO (ITA NO. 1997/MUM/2012)(MUM) VI) DELTA AIR LINES, INC V. ITO (ITA NO. 3476/MUM/2008) (MUM). 21. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE REVENUE HAS REOPENED THE ASSESSMENT WITHIN 4 YEARS FROM THE END OF THE ASSESSMENT YEAR AND THE PROVISO TO SECTION 147 IS NOT APPLICABLE. T HE LD. DR STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A). ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 35 22. IN THE REJOINDER, THE LD COUNSEL FOR THE ASSESS EE COMPANY SUBMITTED THAT THE LAW HAS UNDERGONE CHANGE BY FINANCE ACT,19 99 W.E.F. 1-4-2000 WHEREBY THE TAX-PAYER NOW HAS CHOICE TO SELECT INI TIAL ASSESSMENT YEAR VIDE AMENDED SECTION 80IA OF THE ACT AND DEDUCTION SHALL BE ALLOWED FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH UNDERTAKING START GENERATING POWER IN ACCORDANCE WITH SECTION 80IA(2) AND 80IA(5) OF THE ACT AND IN THE INSTANT C ASE THE ASSESSEE COMPANY STARTED COMMERCIAL PRODUCTION BY WAY OF GENERATION OF POWER W.E.F. ASSESSMENT YEAR 2003-04 , WHILE THE INITIAL ASSESSM ENT YEAR CHOSEN BY THE ASSESSEE COMPANY FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT IS W.E.F. ASSESSMENT YEAR 2007-08 AND HENCE DEDUCTION U/S 80I A SHALL BE ALLOWED W.E.F. ASSESSMENT YEAR 2007-08 AND SUBSEQUENT ASSES SMENT YEARS AS PER PROVISIONS OF SECTION 80IA(2) AND 80IA(5) OF THE AC T. IT IS SUBMITTED BY THE LD COUNSEL FOR THE ASSESSEE COMPANY THAT THE DECISION RELIED UPON BY THE REVENUE RELATES TO THE PRE-AMENDED SECTION 80IA OF THE ACT WHICH EXISTED PRIOR TO AMENDMENT BY FINANCE ACT,1999 W.E.F. 1-4-2 000.IN SUPPORT, THE LD. COUNSEL RELIED UPON THE DECISION MUMBAI ITAT IN THE CASE OF SHEVIE EXPORTS V. JCIT, [2013] 33 TAXMANN.COM 446 (MUMBAI-TRIB). 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS SET UP THE WINDMILL POWER PLANT FROM WHICH ELECTRICITY IS GENERATED. THE ASS ESSEE COMPANY HAS COMMENCED ITS COMMERCIAL PRODUCTION WITH EFFECT FRO M ASSESSMENT YEAR 2003-04 (WHICH WE HAVE ALSO UPHELD VIDE ITA NO. 381 2/MUM/2012 FOR ASSESSMENT YEAR 2003-04 VIDE THIS COMMON ORDER) WHI LE THE ASSESSEE COMPANY HAS CLAIMED DEDUCTIONS U/S 80IA W.E.F. ASS ESSMENT YEAR 2007-08 CONSIDERING THE SAME TO BE THE INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 80IA OF THE ACT IN ACCORDANC E WITH SECTION 80IA(2) ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 36 AND 80IA(5) OF THE ACT. THE REVENUE HAS FRAMED THE REGULAR ASSESSMENT U/S 143(3) OF THE ACT VIDE ASSESSMENT ORDERS DATED 17-1 2-2009 , WHEREBY DEDUCTION U/S 80IA WAS DULY ALLOWED BY THE AO. WE HAVE OBSERVED FROM THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT U/ S 147 OF THE ACT WHEREIN THE A.O. STATED THAT ON VERIFICATION OF THE ASSESSM ENT RECORDS OF THE ASSESSEE COMPANY, THE CLAIM OF THE ASSESSEE COMPANY U/S 80IA OF THE ACT WAS WRONGLY ALLOWED TO THE ASSESSEE COMPANY AS IT WAS NOT IN AC CORDANCE WITH LAW AND NO NEW TANGIBLE MATERIAL HAS COME TO THE NOTICE OF THE A.O. AFTER CONCLUSION OF REGULAR ASSESSMENT U/S 143(3) OF THE ACT ON 17-12-2 009, WHICH HAS DIRECT NEXUS OR LIVE LINK WITH THE FORMATION OF REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT WARRANTING INVOCATION OF SECTION 147/148 OF THE ACT . ALTHOUGH THE ASSESSMENT HAS BEEN REOPENED U/S 147/1 48 OF THE ACT BUT WITHIN A PERIOD OF 4 YEARS BUT IT IS THE SETTLED PR OPOSITION OF LAW THAT CONCLUDED ASSESSMENTS CANNOT BE REOPENED IN THE ABS ENCE OF ANY NEW TANGIBLE MATERIAL COMING TO THE POSSESSION OF A.O. WHICH HAVE A DIRECT NEXUS AND LIVE LINK WITH THE FORMATION OF REASONS TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE ASSESSEE COMPANYS CLAIM W AS DULY ALLOWED BY THE A.O. IN REGULAR ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDERS DATED 17- 12-2009 AND NO NEW TANGIBLE MATERIAL HAS COME TO TH E POSSESSION OF THE AO TO WARRANT THAT INCOME HAS BEEN ESCAPED ASSESSMENT. IT IS A SETTLED PROPOSITION OF LAW THAT SECTION 147/148 OF THE ACT GIVE TO THE AO , POWER TO RE-ASSESS THE INCOME AND NOT POWER TO REVIEW ITS EA RLIER DECISIONS .OUR VIEW IS FORTIFIED BY THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT V. ORIENT CRAFT LIMITED IN ITA NO. 555/2012 DELIVERED ON 12-12-2012 AND CIT V. KELVINATOR OF INDIA (2010) 320 ITR 561(SC). THUS, W E ARE OF THE CONSIDERED VIEW THAT THE COMPLETED ASSESSMENTS U/S 143(3) OF T HE ACT IN THE INSTANT CASE HAS BEEN REOPENED U/S 147/148 OF THE ACT WITHOUT HA VING ANY NEW TANGIBLE MATERIAL COMING TO THE POSSESSION OF THE A.O. AFTER CONCLUSION OF THE ASSESSMENT U/S 143(3) OF THE ACT ON 17-12-2009 WHIC H COULD WARRANT REOPENING OF ASSESSMENT U/S 147/148 OF THE ACT RATH ER THE AO WHILE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 37 RECORDING REASONS FOR RE-OPENING HAS CLEARLY STATED THAT ON VERIFICATION OF ASSESSMENT RECORDS , THE CLAIM OF THE ASSESSEE COMP ANY U/S 80IA WAS WRONGLY ALLOWED IN THE SCRUTINY ASSESSMENT FRAMED U /S 143(3) OF THE ACT MEANING THEREBY THE AO IS ATTEMPTING TO REVIEW HIS OWN DECISION TAKEN IN CONCLUDED REGULAR ASSESSMENT U/S 143(3) OF THE ACT WHICH IS NOT PERMISSIBLE AS PER MANDATE OF SECTION 147/148 OF THE ACT. THUS IN OUR CONSIDERED VIEW, THE REOPENING IN THE INSTANT CASE U/S 147/148 OF TH E ACT IS BAD IN LAW LIABLE TO BE QUASHED AND THUS, RE-OPENING OF THE CONCLUDED ASSESSMENT IN THE INSTANT CASE U/S 147/148 IS HEREBY QUASHED. SINCE W E HAVE QUASHED THE REOPENING U/S 147/148 OF THE ACT, WE REFRAIN FROM C OMMENTING ON THE MERITS OF THE CASE. WE ORDER ACCORDINGLY. HOWEVER, WE WILL BE FAILING IN OUR DUTY IF WE DO NO T BRING ON RECORD TWO IMPORTANT DEVELOPMENTS WHICH HAS TAKEN PLACE WITH R ESPECT TO THE ISSUE IN DISPUTE AFTER THE CONCLUSION OF THE HEARING ON 20 -01-2016, FIRSTLY, THE CBDT HAS NOW COME WITH CIRCULAR NO. 1/2016[F. NO. 200/31 /2015-ITA-I] DATED 15- 2-2016 WHICH IS BINDING ON REVENUE , WHEREBY THE BO ARD HAS CLARIFIED THE TERM INITIAL ASSESSMENT YEAR IN SECTION 80-IA(5) OF THE ACT WHEREIN IT HAS BEEN CATEGORICALLY MENTIONED THAT THE MATTER HAS BE EN EXAMINED BY THE BOARD AND IT IS ABUNDANTLY CLEAR FROM SUB-SECTION ( 2) OF SECTION 80IA OF THE ACT THAT AN TAX-PAYER WHO IS ELIGIBLE TO CLAIM DEDU CTION U/S 80-IA OF THE ACT HAS THE OPTION TO CHOOSE THE INITIAL/FIRST YEAR FRO M WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS, OUT O F A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT HAS BEEN CLARIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE TAX-PAYER, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 80IA OF THE ACT FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE, IT WAS CLARIFIED BY THE CBDT THAT THE TERM 'INITIAL ASSESS MENT YEAR' WOULD MEAN THE FIRST YEAR OPTED FOR BY THE TAX-PAYER FOR CLAIMING DEDUCTION U/S 80-1A OF THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 38 ACT. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMIN G DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTIN UITY. THUS, THE CBDT DIRECTED ALL THE ASSESSING OFFICERS CONCERNED TO AL LOW DEDUCTION U/S 80-IA OF THE ACT IN ACCORDANCE WITH THIS CLARIFICATION AND A FTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTICULA R CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 LA OF THE ACT SHALL ALSO NOT BE PURSUED TO THE EXTENT IT RELATES TO INT ERPRETING 'INITIAL ASSESSMENT YEAR' AS MENTIONED IN SUB-SECTION (5) OF THAT SECTION. IN VIEW OF THE SAID CIRCULAR ALSO THE CLAIM OF THE REVENUE IS NOW NOT SUSTAINABLE AS THE CIRCULAR IS BINDING ON REVENUE. THE RELEVANT C BDT CIRCULAR NO 1/2016 (F.NO.200/31/2015-ITA-1)DATED 15-2-2006 IS REPRODUC ED BELOW:- CIRCULAR NO.1I2016 [F.NO.200/311201S-ITA-I] SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTI ONS PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - ARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SE CTION 80-IA(5) CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-LL, DATED 15-2-2016 SECTION 80-IA OF THE INCOME-TAX ACT, 1961 (ACT'), A S SUBSTITUTED BY THE FINANCE ACT, 1999 WITH EFFECT FROM 1-4-2000, PROVIDES FOR D EDUCTION OF AN AMOUNT EQUAL TO 100 % OF THE PROFITS AND GAINS DERIVED BY AN UND ERTAKING OR ENTERPRISE FROM AN ELIGIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECT ION (2) OF SECTION 80-IA FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN B E CLAIMED BY THE ASSESSEE, AT HIS OPTION, FOR ANY TEN CONSECUTIVE ASSESSMENT Y EARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS PROVIDING SERVICES ETC. AS STIPULATED THEREIN. SUB-SECTION (5 ) OF SECTION 80-IA FURTHER PROVIDES AS UNDER- ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 39 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WH ICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DE TERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSM ENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE'. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE HAS BEEN MADE TO THE TERM 'INITIAL ASSESSMENT YEAR'. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERPRETING THE TERM 'INITIAL ASSESSMENT YEAR' AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/ MANUFACTURING ACTIVITY HAD COMMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT/OPERATION ETC. ITSELF AS THE FIRST YEAR FOR GRANTING DEDUCTION, IGNORING THE CLEAR MANDATE PROVIDED UNDE R SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECIDING THE YE AR FROM WHICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPLICABLE SLAB OF FIFTE EN (OR TWENTY) YEARS. THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS AB UNDANTLY CLEAR FROM SUB- SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLA IM DEDUCTION U/S.80-IA HAS THE OPTION TO CHOOSE THE INITIAL/ FIRST YEAR FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLA RIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJE CT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE, THE TE RM 'INITIAL ASSESSMENT YEAR' WOULD MEAN THE FIRST YEAR OPTED FOR BY THE ASSESSEE FOR CLAIMING DEDUCTION U/S. 80-1A. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIM ING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTIN UITY. THE ASSESSING OFFICERS ARE, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S. 80-IA IN ACCORDANCE WITH THIS CLARIFICATION AND AFTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTICULAR CA SE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 LA S HALL ALSO NOT BE PURSUED TO THE EXTENT IT RELATES TO INTERPRETING 'INITIAL ASSESSME NT YEAR' AS MENTIONED IN SUB- SECTION (5) OF THAT SECTION FOR WHICH THE STANDING COUNSELS/D.R.S BE SUITABLY INSTRUCTED. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 40 THE ABOVE BE BROUGHT TO THE NOTICE OF ALL ASSESSING OFFICERS CONCERNED. SECONDLY , IN A VERY RECENT JUDGMENT DELIVERED ON 0 1-03-2016 BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. GRT JEWELLE RS (INDIA) PRIVATE L IMITED IN TCA NO 176 OF 2016 ON AN IDENTICAL ISSUE , THE H ONBLE MADRAS HIGH COURT HAS DISMISSED THE REVENUE APPEAL AFTER CONSIDERING THE AFORE-STATED CIRCULAR NO 1 OF 2016 AS UNDER: THE REVENUE HAS COME UP WITH THE ABOVE APPEAL RAIS ING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW : '(1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ASSES SEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IA WITHOUT SETTING OFF THE LOSSES/UNABSOR BED DEPRECIATION PERTAINING TO THE WINDMILL, WHICH WERE SET OFF IN THE EARLIER YEAR AG AINST OTHER BUSINESS INCOME OF THE ASSESSEE FOLLOWING THE DECISION OF THE JURISDICTION AL HIGH COURT IN THE CASE OF M/S.VELAYUDHASWAMY SPINNING MILLS (340 ITR 477), WH EN THE SAME IS PENDING APPEAL BEFORE THE SUPREME COURT IN SLP.CIVIL NO.33475 OF 2 012 ? (2) WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INITIAL AS SESSMENT YEAR IN SECTION 80IA(5) WOULD ONLY MEAN THE YEAR OF CLAIM OF DEDUCTION UNDE R SECTION 80IA AND NOT THE YEAR OF COMMENCEMENT OF ELIGIBLE BUSINESS ? AND (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE HAS THE OPTION TO CHOOSE THE FIRST/INITIAL ASSESSMENT YEAR OF CLAIM FOR DEDUCTION UNDER SECTION 80IA ?' 2. HEARD MR.T.R.SENTHILKUMAR, LEARNED STANDING COUN SEL FOR THE DEPARTMENT. MR.M.P.SENTHILKUMAR, LEARNED COUNSEL TAKES NOTICE F OR THE RESPONDENT. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 41 3. EVEN ACCORDING TO THE LEARNED STANDING COUNSEL F OR THE DEPARTMENT, THIS COURT HAS CONSISTENTLY FOLLOWED THE DECISION IN M/S.VELAYUDHA SWAMY SPINNING MILLS (340 ITR 477), DESPITE THE HONOURABLE SUPREME COURT ORDERING NOTICE. 4. INTERESTINGLY, ON THE BASIS OF THE DECISION IN V ELAYUDHASWAMY SPINNING MILLS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED CIRCULAR N O.1/ 2016 DATED 15.2.2016. IT WILL BE USEFUL TO EXTRACT THE CIRCULAR IN ENTIRETY, WHIC H IS AS FOLLOWS : 'CIRCULAR NO. 1 /2016 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK, NEW DELHI, THE 15TH FEBRU ARY, 2016 SUBJECT: CLARIFICATION OF THE TERM INITIAL ASSESSM ENT YEAR' IN SECTION 80IA(5) OF THE INCOME TAX ACT, 1961 SECTION 801A OF THE INCOME-TAX ACT, 1961 (ACT), A S SUBSTITUTED BY FINANCE ACT, 1999 WITH EFFECT FROM 1.4.2000, PROVIDES FOR DEDUCTION O F AN AMOUNT EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR ENTE RPRISE FROM AN ELIGIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECTION (2) OF SECTION 801A FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN BE CLAIMED BY THE ASSESSEE, AT HIS OP TION, FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS PROVIDING SERVICES ETC. AS STIPULATED THEREIN. SUB- SECTION (5) OF SECTION 801A FURTHER PROVIDES AS UNDER : NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIO NS OF SUBSECTION (1) APPLY SHALL, FOR ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 42 THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTIO N UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BU SINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND I NCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE HAS BEEN MADE TO THE TERM I NITIAL ASSESSMENT YEAR. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERP RETING THE TERM INITIAL ASSESSMENT YEAR AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/MA NUFACTURING ACTIVITY HAD COMMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT /OPERATION ETC. ITSELF AS THE FIRST YEAR FOR GRANTING DEDUCTION, IGNORING THE CLEAR MAN DATE PROVIDED UNDER SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECID ING THE YEAR FROM WHICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPLICABLE SLAB OF FIFTE EN (OR TWENTY) YEARS. THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS A BUNDANTLY CLEAR FROM SUB-SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUC TION U/S 80IA HAS THE OPTION TO CHOOSE THE INITIAL/FIRST YEAR FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLARIFIED THAT ONCE SUCH INITIAL ASSESSME NT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U /S 801A FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION . HENCE, THE TERM INITIAL ASSESSMENT YEAR WOULD MEAN THE FIRST YEAR OPTED FOR BY THE AS SESSEE FOR CLAIMING DEDUCTION U/S 801A. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMI NG DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 43 THE ASSESSING OFFICERS ARE, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S 801A IN ACCORDANCE WITH THIS CLARIFICATION AND AFTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTICULAR CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 IA SHALL ALSO NOT BE PURSUED TO THE EXTENT IT RELATES TO INTERPRETING INITIAL ASSESSMENT YEAR AS MENTIONED IN SUBSECTION (5) OF THAT SECTION FOR WHICH THE STANDING COUNSEL/DRS BE SUITABLY INSTRUCT ED. THE ABOVE BE BROUGHT TO THE NOTICE OF ALL ASSESSING OFFICERS CONCERNED.' 5. THEREFORE, ADMITTEDLY, QUESTIONS OF LAW 2 AND 3 ARE ALSO COVERED BY THE ABOVE CIRCULAR. HENCE, THE APPEAL DESERVES TO BE DISMISSE D 6. ACCORDINGLY, THE ABOVE TAX CASE APPEAL IS DISMIS SED. NO COSTS. 7. BUT, WE CANNOT RESIST OUR TEMPTATION TO RECORD O NE MORE FACT. IF AN ISSUE IS COVERED BY THE JUDGMENT OF THE HIGH COURT, IT IS ALWAYS OPE N TO THE DEPARTMENT TO TAKE IT ON APPEAL TO THE SUPREME COURT AND GET THE LAW SETTLED ONCE AND FOR ALL. BUT, ONCE A DECISION IS TAKEN AT THE LEVEL OF THE BOARD, WE DO NOT KNOW WHY REPEATED APPEALS SHOULD BE FILED, ONLY TO MEET WITH THE SAME FATE AS THAT O F A DECISION, ON WHICH, A CIRCULAR HAS BEEN ISSUED. THE DEPARTMENT SHALL TAKE NOTE OF THIS FOR FUTURE GUIDANCE. 24. IN VIEW OF THE ABOVE DISCUSSION AND REASONING, WE ALLOW THE APPEAL FILED BY THE ASSESSEE COMPANY. WE ORDER ACCORDINGLY. 25. IN THE RESULT, ASSESSEE COMPANYS APPEAL IN ITA NO. 821/MUM/2014 FOR THE ASSESSMENT YEAR 2007-08 IS ALLOWED. ITA NO. 3813/MUM/2012 FOR ASSESSMENT YEAR 2008-09 ( REVENUES APPEAL) ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 44 26. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN MEMO OF APPEAL FILED WITH THE TRIBUNAL:- (1) WHETHER ON THE FACTS, CIRCUMSTANCES AND IN THE LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER IN DELETIN G THE ADDITION OF RS.5.10 CRORES MADE U/S. 68 OF THE I.T. ACT WITHOUT APPRECI ATING THAT THE ASSESSEE COMPANY HAS FAILED TO PROVE THE IDENTITY A ND CREDIT WORTHINESS OF THE LOAN CREDITORS AND GENUINENESS OF THE TRANSA CTION ? (2) 'WHETHER ON THE FACTS, CIRCUMSTANCES AND IN THE LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.5.10 CRORES HOLDING THAT THE CAPACITY OF THE SHARE HOLDE R HAS BEEN ESTABLISHED WITHOUT APPRECIATING THE FACT THAT THE INVESTMENT M ADE BY THE FOREIGN COMPANIES WAS NOT OUT OF OWN FUNDS AND NO BUSINESS ACTIVITIES WERE CARRIED OUT BY THE FOREIGN COMPANIES ? THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) BE SET ASIDE AND THE ORDER OF THE A.O BE RESTORED. 27. THE BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF THE BALANCE SHEET, IT WAS OBSERVED BY THE A.O. THAT ISSUED CAPITAL OF THE ASSESSEE COMPANY HAS GONE UP FROM RS. 502.65 LAKHS TO RS.587.65 LAKHS , WHILE SHARE PREMIUM HAS GONE UP BY RS.491.48 LAKHS TO RS. 916.48 LAKHS. THE ASSESSEE COMPANY WAS SPECIFICALLY ASKED TO PROVIDE THE DETAILS OF SHAREH OLDERS SUBSCRIBING TO THE SHARE CAPITAL AND SHARE PREMIUM. THE ASSESSEE COMPA NY WAS ALSO REQUIRED TO ESTABLISH IDENTITY, CREDITWORTHINESS AND GENUINENES S OF THE TRANSACTION. FROM THE DETAILS FURNISHED BY THE ASSESSEE COMPANY, IT W AS OBSERVED BY THE A.O. THAT THE ENTIRE SHARE CAPITAL IS SUBSCRIBED BY A SI NGLE FOREIGN COMPANY, NAMELY M/S. BILLION WAY GARMENT LIMITED(HEREINAFTER CALLED BWGL), HAVING ITS REGISTERED OFFICE IN HONG KONG AND SHARE CAPITA L HAS BEEN RECEIVED BY THE ASSESSEE COMPANY BY WAY OF REMITTANCE ON 24/10/2007 FROM BWGL. THE A.O. OBSERVED THAT THE SAID BWGL WAS INCORPORATED I N HONG KONG ON 10/07/2007 WITH THE MAIN OBJECT OF TRADING IN GARME NTS, FABRICS AND ACCESSORIES AS EVIDENT FROM THE CERTIFICATE OF BUSI NESS REGISTRATION ORDINANCE ISSUED BY THE COMPETENT AUTHORITY. IT WAS ALSO NOTE D BY THE A.O. THAT THE SAID ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 45 COMPANY WAS ORIGINALLY INCORPORATED WITH AUTHORIZED SHARE CAPITAL OF HK$ 10,000/- , WHICH WAS SUBSEQUENTLY INCREASED TO HK$ 1,10,00,000/- ON 19-9- 2007 AND FURTHER INCREASED TO HK$ 1,87,50,000/-. I T WAS OBSERVED BY THE A.O. THAT BWGL WHICH HAD ISSUED SHARE CAPITAL OF HK $ 1,10,00,000/-, THE SHARES WAS FULLY SUBSCRIBED BY ANOTHER HONG KONG BA SED COMPANY M/S. FORTUNE EXIM LIMITED(HEREINAFTER CALLED FEL), BY REMITTANCE ON 08/10/2007 AND 15/10/2007 AND BOTH THE COMPANIES HA VING COMMON REGISTERED OFFICE ADDRESS IN HONG KONG AND BOTH THE COMPANIES WERE INCORPORATED ON 10-08-2007. THE A.O. OBSERVED THAT THE SHARE INVESTMENT MADE BY THE SAID BWGL IS OUT OF FUNDS RECEIVED BY I T FROM FEL BY WAY OF SHARE CAPITAL. THEREFORE IT WAS REQUIRED TO BE SEEN THE CREDITWORTHINESS OF FEL SINCE INVESTMENT IN ASSESSEE COMPANY'S SHARE CAPITA L BY BWGL IS GENERATED OUT OF FUNDS FROM FEL . THE ASSESSEE COMPANY WAS AS KED TO FILE COPY OF BALANCE SHEET OF FEL FOR THE RELEVANT PERIOD , WHIC H WAS DULY FILED BY THE ASSESSEE COMPANY BEFORE THE AO. ON PERUSAL OF THE REPORTS AND FINANCIAL STATEMENTS OF FEL IT WAS OBSERVED BY THE A.O. AS UN DER:- FORTUNE EXIM LIMITED (FORMERLY KNOWN AS SUN FORTUNE HOLDING LIMITED) BALANCE SHEET AS AT 31 DECEMBER 2008. NON CURRENT ASSETS HK$ INVESTMENT IN SUBSIDIARY 10,999,999.00 CURRENT ASSETS TRADE RECEIVABLES 5,405,258.12 BILLS RECEIVABLE 17,675,265.68 AMOUNT DUE FROM ULTIMATE HOLDING COMPANY 4,130,0 00.00 AMOUNT DUE FROM A SUBSIDIARY 7,757,750.00 AMOUNT DUE FROM THE SOLE DIRECTOR 49,488.18 BANK BALANCES 38,349.51 ------------------- 35,056,111.50 DEDUCT: CURRENT LIABILITIES ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 46 TRADE PAYABLES 14,288,947.39 AMOUNT DUE TO A RELATED COMPANY 13,267,953.66 ACCRUED EXPENSES 682,721.11 BANK BORROWINGS 5,299,224.47 PROVISION FOR PROFITS TAX 88,292.00 33,627,138.63 NET CURRENT ASSETS 1,428,972.87 NET ASSETS 12,428,971.87 FINANCED BY: SHARE CAPITAL AUTHORISED, ISSUED AND FULLY PAID 12,000,000.0 0 12,000,000 ORDINARY SHARES OF HK$1.00 EACH RETAINED PROFIT 428,971.87 SHAREHOLDERSFUND 12,428,971.87 FROM THE ABOVE BALANCE SHEET, THE A.O. OBSERVED THA T THE SAME IS AT 31ST DECEMBER 2008, HOWEVER, THE RELEVANT BALANCE SHEET WHICH WOULD HAVE BEEN REQUIRED IS AS AT 31 ST DECEMBER 2007 WHICH COULD HAVE SHOWN THE CORRECT CREDITWORTHINESS OF THE COMPANY I.E. FEL , SINCE TH E TRANSACTION OF INVESTMENT IN SHARES HAS HAPPENED ON 24/10/2007 AND THE A.O. , THEREFORE, INFERRED THAT THE ENTIRE INVESTMENT IN ITS SUBSIDIARY COMPAN Y BWGL IS OUT OF SHARE CAPITAL OF THIS COMPANY, FEL DATE OF INCORPORATION OF WHICH IS ALSO 10 TH AUGUST, 2007, THE FUNDS IN THIS COMPANY MUST HAVE B EEN FLOWN ONLY AFTER THIS DATE OF INCORPORATION I.E. 10-08-2007. THE A.O. OBS ERVED THAT THE ASSESSEE COMPANY FAILED TO ESTABLISH THE CREDITWORTHINESS OF BWGL AND FEL. FURTHER, FROM THE CERTIFICATE DATED 19-11-2010 ISSUED BY CER TIFIED PUBLIC ACCOUNTANT, IT WAS CLEARLY SHOWN THAT BWGL WAS NOT HAVING ANY A SSESSABLE PROFIT OR LOSS AS PER THE PROFIT TAX RETURN FILED FOR THE ASSESSME NT YEAR 2007-08 AND 2008- 09 SUBMITTED TO THE INLAND REVENUE DEPARTMENT, HONG KONG , WHICH ALSO EVIDENCES THAT THE SAID BWGL WAS NOT ENGAGED IN THE EARNING OF ANY INCOME, LEAVE ASIDE BUSINESS ACTIVITIES. THE A.O. FURTHER OBSERVED THAT ASSESSEE COMPANY IS A REGISTERED COMPANY LISTED ON BOMBAY STOCK EXCHANGE) AND THE AVERAGE M ARKET RATE PER SHARE OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 47 THE ASSESSEE COMPANY AS CERTIFIED BY THE CHARTERED ACCOUNTANT DURING THE PREVIOUS YEAR RELEVANT TO THE FINANCIAL YEAR 2007-0 8 WAS RS. 7.04 PER SHARE . IT WAS OBSERVED BY THE AO THAT IF BWGL WAS THE REAL INVESTOR IN THE SHARES AND WAS REALLY INTERESTED IN ACQUIRING THE SHARES O F THE ASSESSEE COMPANY, THEN THE SHARES COULD HAVE BEEN ACQUIRED FROM THE M ARKET AT THE RATE OF 7.04 PER SHARE BUT THE BWGL PREFERRED TO PAY RS. 12/- PE R SHARE TO THE ASSESSEE COMPANY, HENCE, THE TRANSACTION OF ISSUE OF SHARE CAPITAL TO THE FOREIGN COMPANY BWGL IS NOT A GENUINE TRANSACTION AND A COL ORABLE DEVICE ADOPTED BY THE ASSESSEE COMPANY , WHICH WARRANT INVOKING O F PROVISIONS OF SECTION 68 OF THE ACT. THUS, IT WAS HELD BY THE AO THAT THE A SSESSEE COMPANY FAILED TO PROVE THE CREDITWORTHINESS AND GENUINENESS OF TRANS ACTION IN RESPECT OF SHARE CAPITAL RECEIVED BY IT AND ACCORDINGLY THE AO TREAT ED THE AMOUNT OF RS. 5,10,00,000/- RECEIVED BY THE ASSESSEE COMPANY AS I NCOME OF THE ASSESSEE COMPANY U/S 68 OF THE ACT AND THE SAME WAS ADDED TO THE TOTAL INCOME IN THE HANDS OF THE ASSESSEE COMPANY BY THE AO VIDE AS SESSMENT ORDERS DATED 30-12-2010 PASSED U/S 143(3) OF THE ACT. 28. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2 010 PASSED U/S 143(3) OF THE ACT BY THE A.O., THE ASSESSEE COMPANY PREFER RED AN APPEAL BEFORE THE CIT(A). 29. BEFORE THE CIT(A) , THE ASSESSEE COMPANY SUBMIT TED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY MADE PREFERENTIAL ALLOTMENT OF SHARES TO BWGL, A COMPANY INCORPORATED AT HONG K ONG @ RS. 12/- PER SHARE (FACE VALUE OF SHARE RS 2/- PER SHARE ) AMOUN TING TO RS. 5,10,00,000/- INCLUDING SECURITIES PREMIUM OF RS.10/- PER SHARE A FTER COMPLYING WITH ALL THE REQUISITE FORMALITIES OF RESERVE BANK OF INDIA(RBI FOR SHORT), BOMBAY STOCK EXCHANGE (BSE FOR SHORT) AND GUIDELINES OF SECURI TIES AND EXCHANGE BOARD OF INDIA (SEBI FOR SHORT) ON PREFERENTIAL ALLOTMENT OF SHARES. THE ASSESSSEE COMPANY SUBMITTED BEFORE THE CIT(A) THAT OUT OF THE TOTAL SHARE CAPITAL OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 48 BWGL OF HONG KONG DOLLAR(HKD)1,87,50,000/- , AN AMO UNT OF HKD 1,87,49,999/- WAS SUBSCRIBED BY ANOTHER HONG KONG B ASED COMPANY FEL. IT WAS STATED BY THE ASSESSEE COMPANY BEFORE THE CIT(A ) THAT THE A.O WITHOUT GOING INTO THE SOURCES OF FEL CONSIDERED THE ENTIRE AMOUNT I.E. RS. 5,10,00,000/- AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. IT WAS STATED BEFORE THE CIT(A) THAT THE ULTIMATE INVESTOR MR. NI MISH G. CHANDAK WHO IS AN NRI HAS INVESTED IN THE SHARES OF THE ASSESSEE C OMPANY THROUGH SPECIAL PURPOSE VEHICLE CREATED FOR THIS PURPOSE. THE CHANN EL OF INVESTMENT WAS BRIEFLY EXPLAINED BY THE ASSESSEE COMPANY TO THE CI T(A) AS DETAILED BELOW: - M/S FORTUNE EXIM PROPRIETARY CONCERN OF MR. NIMISH CHANDAK HAS SUBSCRIBED TO THE ENTIRE SHARE CAPITAL OF RICHGUARD HOLDINGS LTD. (RHL) WHICH IN TURN HELD TH E SHARE CAPITAL OF FEL. - FEL IS THE HOLDING COMPANY OF BWGL. FEL SUBSCRIBE D THE AMOUNT OF HKD 1,87,49,999/- OUT OF TOTAL SHARE CAPI TAL OF BWGL OF HKD 1,87,50,000/- . - BWGL HAS IN TURN SUBSCRIBED FOR 42,50,000/- EQUIT Y SHARES OF YOUR APPELLANT COMPANY OUT OF THE MONEY RECEIVE D FROM FEL TOWARDS ITS SHARE CAPITAL. THE ASSESSEE COMPANY SUBMITTED THE FOLLOWING DOCUME NTS BEFORE THE CIT(A) TO PROVE THE IDENTITY OF THE INVESTOR, CREDITWORTHI NESS OF THE ULTIMATE INVESTOR AND GENUINENESS OF THE TRANSACTION WHICH ARE THE TH REE BASIC INGREDIENT OF SEC 68 OF THE ACT, WHICH ARE REPRODUCED HEREUNDER:- IDENTIFICATION OF THE PARTY A) NIMISH CHANDAK, PROPRIETOR OF FORTUNE EXIM. -COPY OF HONG KONG IDENTITY OF NIMISH CHANDAK ENCLO SED AT EXHIBIT 17. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 49 -COPY OF HONG KONG PERMANENT CARD OF NIMISH CHANDAK ENCLOSED AT EXHIBIT 18. -COPY OF PASSPORT OF NIMISH CHANDAK ENCLOSED AT EXH IBIT 19. INCIDENTALLY AS ON THE DATE OF THIS TRANSACTION, NI MISH CHANDAK HOLDS AN INDIAN PASSPORT. WE ARE NOW GIVEN TO UNDER STAND THAT HE HAS GOT A HONG KONG PASSPORT. -COPY OF FORM NO. 2 OF FORTUNE EXIM BEING BUSINESS REGISTRATION CERTIFICATE ENCLOSED AT EXHIBIT 21. -COPY OF BUSINESS PARTICULARS OF FORTUNE EXIM ISSUE D BY BUSINESS REGISTRATION OFFICE ENCLOSED AT EXHIBIT 22. -COPY OF AFFIDAVIT FROM NIMISH CHANDAK ENCLOSED AT EXHIBIT 30. B) RICHGUARD HOLDINGS LTD . -BANK STATEMENT OF RHL EVIDENCING TRANSFER OF FUNDS TO FORTUNE EXIM LTD. FOR SUBSCRIPTION OF SHARE CAPITAL ENCLOSE D AT EXHIBIT 13. C) FORTUNE EXIM LTD . -BANK STATEMENT OF FEL EVIDENCING TRANSFER OF FUNDS TO BILLION WAY GARMENTS LTD. FOR SUBSCRIPTION OF SHARE CAPITAL ENC LOSED AT EXHIBIT 12. D) BILLION WAY GARMENTS LTD . -MEMORANDUM AND ARTICLES OF ASSOCIATION AND CERTIFI CATE OF INCORPORATION OF BWGL HAVING COMPANY NO. 1149123 EN CLOSED AT EXHIBIT 2. -BUSINESS REGISTRATION CERTIFICATE OF BWGL IN FORM NO. 2 DULY ATTESTED BY CONSULATE GENERAL OF INDIA, HONG KONG A ND NOTARY PUBLIC HONG KONG FOR THE PERIOD FROM 12.07.2007 TO 11.07.2008 AND FROM 12.07.2008 TO 11.07.2009 ENCLOSED AT EXHIB IT 3. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 50 -ANNUAL RETURN IN FORM AR1 OF BWGL FILED WITH COMPA NY REGISTRY, H.K ENCLOSED AT EXHIBIT 7. -BANK STATEMENT OF BWGL HIGHLIGHTING AMOUNT REMITTE D TO LOL (APPELLANT) ENCLOSED AT EXHIBIT 8. -PASSPORT OF MS. LI KANG TAL, DIRECTOR OF BWGL DULY ATTESTED BY CONSULATE GENERAL OF INDIA, HONG KONG AND NOTARY PU BLIC HONG KONG ENCLOSED AT EXHIBIT 4. CREDITWORTHINESS OF THE PARTY A) NIMISH CHANDAK, PROPRIETOR OF FORTUNE EXIM . -TAX RETURN OF NIMISH CHANDAK FOR YEAR OF ASSESSMEN T 2006-07 AND 2007-08 ENCLOSED AT EXHIBIT 20. -COPY OF ASSESSMENT ORDERS OF PROFIT TAX OF NIMISH CHANDAK TRADING AS FORTUNE EXIM FOR YEAR OF ASSESSMENT 2002 -03, 2003-04, 2004-05, 2005-06, 2006-07,2007-08 AND 2008-09 ENCLO SED AT EXHIBIT 23. -COPY OF ASSESSMENT ORDERS OF PROFIT TAX OF NIMISH CHANDAK TRADING AS PACIFIC INTERNATIONAL FOR YEAR OF ASSESS MENT 2006-07 ENCLOSED AT EXHIBIT 24. -COPY OF PERSONAL ASSESSMENT ORDERS OF NIMISH CHAND AK FOR YEAR OF ASSESSMENT 2007-08 ENCLOSED AT EXHIBIT 25. -COPY OF BOI LETTER REGARDING SATISFACTORY CONDUCT OF ACCOUNT OF FORTUNE EXIM ENCLOSED AT EXHIBIT 28. -COPY OF LETTER OF BOI FOR GRANTING FACILITIES TO F ORTUNE EXIM ENCLOSED AT EXHIBIT 27. -COPY OF AFFIDAVIT FROM NIMISH CHANDAK CONFIRMING T HE ENTIRE TRANSACTION ENCLOSED AT EXHIBIT 30. B) RICHGUARD HOLDINGS LTD . ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 51 -COPY OF DIRECTORS REPORT, AUDITORS REPORT, BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 31ST DECEMBE R, 2007 ALONG WITH NOTES TO ACCOUNT OF RHL ENCLOSED AT EXHI BIT 15. FORTUNE EXIM LTD . -COPY OF DIRECTORS REPORT, AUDITORS REPORT, BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 31ST DECEMBE R, 2007 ALONG WITH NOTES TO ACCOUNT OF FEL ENCLOSED AT EXHI BIT 11. -COPIES OF LETTER OF HSBC BANK FOR GRANTING FACILIT IES TO FEL ENCLOSED AT EXHIBIT 26. -COPY OF HSBC LETTER REGARDING SATISFACTORY CONDUCT OF ACCOUNT OF FEL ENCLOSED AT EXHIBIT 29. D) BILLION WAY GARMENTS LTD . -CERTIFICATE OF CERTIFIED PUBLIC ACCOUNTANTS CERTIF YING FEL AS A MAJOR SHAREHOLDER OF BWGL ENCLOSED AT EXHIBIT 5. -CERTIFICATE REGARDING PROFIT TAX RETURN OF BWGL EN CLOSED AT EXHIBIT 6. -COPY OF DIRECTORS REPORT, AUDITORS REPORT, BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 31ST DECEMBE R, 2007 ALONG WITH NOTES TO ACCOUNT OF BWGL ENCLOSED AT ANN EXURE 73. GENUINENESS OF THE TRANSACTION -COPY OF AFFIDAVIT FROM NIMISH CHANDAK CONFIRMING T HE ENTIRE TRANSACTION ENCLOSED AT EXHIBIT 30. -COPY OF BANK FOREIGN INWARD REMITTANCE CERTIFICATE FROM STATE BANK OF INDIA CERTIFYING THE REMITTANCE FROM BWGL T O YOUR APPELLANT BY WAY OF SHARE APPLICATION MONEY ENCLOSE D AT EXHIBIT 10. -INTIMATION TO RBI BY YOUR APPELLANT IN CONNECTION WITH RECEIPT OF REMITTANCE ENCLOSED AT ANNEXURE 68.2. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 52 -EXTRACTS OF RESOLUTION PASSED AT THE MEETING OF TH E COMMITTEE OF THE DIRECTORS OF YOUR APPELLANT COMPANY FOR ALLOTME NT OF SHARES ENCLOSED AT ANNEXURE 68.3. -CERTIFICATE FROM STATUTORY AUDITORS OF LOL GIVING AVERAGE PRICE OF SHARES OF LOL TO BE GIVEN IN CONNECTION WITH ISSUE OF EQUITY SHARES ON PREFERENTIAL BASIS ENCLOSED AT ANNEXURE 68.4. -IN PRINCIPLE APPROVAL FROM BSE FOR ISSUE OF 42,50, 000 EQUITY SHARES ON PREFERENTIAL BASIS ENCLOSED AT ANNEXURE 6 8.5. -SET OF DOCUMENTS (FCGPR FORMS & OTHER RELATED DOCU MENTS) FILED WITH AUTHORIZED DEALERS FOR ONWARD SUBMISSION TO RB I ENCLOSED AT ANNEXURE 68.6 AND EXHIBIT 39.2 TO 39.13. -LETTER DATED 16.01.08 FROM RBI IN CONNECTION WITH APPLICATION IN FORM FCGPR ENCLOSED AT ANNEXURE 68.7. -LETTER DATED 04.02.08 FROM THE COMPANY ADDRESSED T O RBI IN RESPONSE TO RBI LETTER DATED 16.01.08 AS REFERRED A BOVE ENCLOSED AT ANNEXURE 68.8. -LETTER DATED 25.08.08 FROM RBI RECORDING THE RECEI PT OF APPLICATION IN FORM FCGPR RECEIVED THROUGH SBI (AUTHORIZED DEAL ER) OF 42,50,000 EQUITY SHARES OF 2/- EACH AT PREMIUM OF R S. 10/- PER SHARE TO BWGL ENCLOSED AT ANNEXURE 68.9 AND EXHIBIT 39.1. -LETTER FROM BWGL GIVING CONSENT TO SUBSCRIBE FOR 4 2,50,000 EQUITY SHARES OF RS. 2/- EACH AT PRICE OF RS.12/- ON PREFE RENTIAL ALLOTMENT BASIS ENCLOSED AT ANNEXURE 68.10. -BANK STATEMENT OF LOL FOR SBI, COMMERCIAL BRANCH, MUMBAI. HIGHLIGHTING THE RECEIPT OF SUBSCRIPTION AMOUNT ENC LOSED AT ANNEXURE 68.11. -APPLICATION FOR LISTING OF 42,50,000 EQUITY SHARES TO BSE ENCLOSED AT ANNEXURE 68.12. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 53 -FORM NO. 2 - RETURN OF ALLOTMENT FILED BY YOUR APP ELLANT WITH MCA FOR ALLOTMENT OF EQUITY SHARES TO BWGL ENCLOSED AT ANNEXURE 68.13. -SHARE APPLICATION FORM FOR ISSUE OF EQUITY SHARES FROM BWGL TO LOL ENCLOSED AT ANNEXURE 68.14. -LETTER DATED 27.09.10 FROM CENTRAL DEPOSITORY SERV ICES INDIA LIMITED CONFIRMING THE DEMATERIALIZATION OF SHARES ALLOTTED TO BWGL ENCLOSED AT ANNEXURE 68.15. -LETTER DATED 03.12.07 ADDRESSED TO BSE FOR LISTING THE SHARES ALLOTTED ON PREFERENTIAL BASIS ENCLOSED AT ANNEXURE 68.16 AND EXHIBIT 40.3. -LETTER DATED 25.03.08 FROM BSE REGARDING LISTING O F NEW SECURITIES ENCLOSED AT ANNEXURE 68.17 AND EXHIBIT 40.4. -SHARE CERTIFICATE ISSUED BY LOL TO BWGL ENCLOSED A T ANNEXURE 68.18. -RESOLUTION PASSED BY BWGL FOR INVESTMENT IN LOL DU LY ATTESTED BY CONSULATE GENERAL OF INDIA, HONG KONG AND NOTARY PUBLIC HONG KONG ENCLOSED AT ANNEXURE 69.11. -BANK STATEMENT OF BWGL HIGHLIGHTING AMOUNT REMITTE D TO LOL ENCLOSED AT ANNEXURE 69.24 AND EXHIBIT 8. -BANK STATEMENT OF LOL EVIDENCING RECEIPT OF SUBSCR IPTION AMOUNT ENCLOSED AT ANNEXURE 68.25 AND EXHIBIT 9. THE ASSESSEE COMPANY SUBMITTED THAT THE A.O. HAS PA SSED THE ASSESSMENT ORDER U/S 143(3) OF THE ACT DATED 30-12-2010 IN HAS TE WITHOUT CONVEYING DIS- SATISFACTION OVER THE DOCUMENTS SUBMITTED BY THE AS SESSEE COMPANY . THE AO DID NOT ASKED THE ASSESSEE COMPANY TO PROVE THE CREDITWORTHINESS OF FEL NOR ANY OPPORTUNITY WAS PROVIDED TO THE ASSESSEE CO MPANY. THE ASSESSEE COMPANY ALSO SUBMITTED THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 54 U/S 143(3) READ WITH SECTION 143(2) OF THE ACT, THE ASSESSEE COMPANY HAS EXPLAINED THE SOURCE OF SOURCE OF THE TRANSACTION A ND THE ASSESSEE COMPANY HAS NOW BEFORE THE CIT(A) EVEN PROVED THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE ULTIMATE INVESTOR MR. NIMIS H CHANDAK AND THE ASSESSEE COMPANY HAS ALSO SATISFACTORILY EXPLAINED EVEN THE SOURCE OF SOURCE OF SOURCE BY PRODUCING THE ADDITIONAL EVIDENCES BEF ORE THE CIT(A). THE ASSESSEE COMPANY RECEIVED THE MONEY TOWARDS SHARE C APITAL INCLUDING SHARE PREMIUM SUBSCRIBED BY BWGL OF RS.5,10,00,000/- IN I TS BANK ACCOUNT THROUGH BANKING CHANNELS AND THE INVESTOR CONTINUES TO BE THE SHAREHOLDER OF THE ASSESSEE COMPANY EVEN TODAY. THE ASSESSEE COMPA NY IS ALSO DECLARING THE REGULAR DIVIDEND FROM LAST 15 YEARS AND IS ALSO PAY ING DIVIDEND DISTRIBUTION TAX ON THE SAME. BWGL IS ALSO RECEIVING DIVIDEND FR OM THE ASSESSEE COMPANY WHICH IS BEING REPATRIATED AS PER RBI NORMS AND THE AMOUNT INVESTED IN THE ASSESSEE COMPANY IS ALSO REFLECTED IN THE AUDITED B ALANCE SHEET OF THE INVESTOR COMPANY I.E. BWGL . ALSO THE AMOUNT INVEST ED BY FEL IN BWGL IS REFLECTED IN THE AUDITED BALANCE SHEET OF BOTH THE COMPANIES. THE ASSESSEE COMPANY ALSO DISCUSSED THE BASIS ON WHICH THE A.O. HAS MADE THE ADDITION AND THE ASSESSEE COMPANYS REBUTTAL IS AS FOLLOWS:- AO'S STAND: THE AO HAS OBSERVED THAT BWGL HAD ISSUED SHARE CAPI TAL OF HKD 1,10,00,000/- WHICH WAS FULLY SUBSCRIBED BY ANOTHER HONG KONG BASED COMPANY FEL. THE AO CONFIRMS THAT FEL HAD MADE A RE MITTANCE TO BWGL ON OCTOBER 08, 2007 AND OCTOBER 15, 2007. HOWEVER, IN HIS OPINION IT WAS OBJECTIONABLE AND 'PERTINENT TO NOTE THAT REGISTERE D OFFICE OF BOTH THE COMPANIES WERE AT THE SAME ADDRESS.' REBUTTAL: ADMITTEDLY, BWGL IS A 100% SUBSIDIARY OF FEL AND IT IS A COMMON PRACTICE THAT THE HOLDING COMPANY AND THE SUBSIDIARY COMPANY WOUL D BE LOCATED AT THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 55 SAME ADDRESS. NEEDLESS TO SAY A 100% SUBSIDIARY COM PANY WOULD ALWAYS BE OWNED BY THE SAME GROUP OF PROMOTERS AS THE HOLDING COMPANY. AO'S STAND: AS DESIRED BY THE AO, A COPY OF THE BALANCE SHEET O F FEL FROM THE DATE OF ITS INCORPORATION TILL DECEMBER 31, 2008 WAS SUBMITTED AND THE AO WAS SHOCKED TO NOTE THAT BWGL AND FEL WERE INCORPORATED ON THE SAME DATE I.E. AUGUST, 10, 2007. REBUTTAL: A HOLDING COMPANY AND THE SUBSIDIARY COMPANY CAN BE INCORPORATED ON THE SAME DATE. THERE IS NO PROHIBITION IN LAW THAT THE HOLDING COMPANY HAS TO BE INCORPORATED PRIOR TO THE INCORPORATION OF A SUBSID IARY COMPANY. IN FACT A SUBSIDIARY COMPANY MAY EVEN BE INCORPORATED PRIOR T O THE INCORPORATION OF THE HOLDING COMPANY WHERE THE HOLDING COMPANY ACQUIRES THE SHARE OF THE SUBSIDIARY COMPANY AT A LATER DATE. IN ANY CASE THE LD. AO. WAS REQUIRED TO EXAMINE THE OWNERSHIP AND FLOW OF FUNDS TO ESTABLIS H THE CREDITWORTHINESS OF THE SHAREHOLDER AND GENUINENESS OF THE TRANSACTION AND THE DATE OF INCORPORATION IS IMMATERIAL WHEN IT COMES TO EXAMIN ING THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. AO'S STAND: THE LD. AO. ON PAGE 2 OF THE ASSESSMENT ORDER NOTED THE OBSERVATIONS OF THE AUDITOR OF FEL WHICH TALKS ABOUT UPDATED FINANCIAL STATEMENT OF BWGL. REBUTTAL: ONCE AGAIN THIS HAS NO RELEVANCE ON THE CREDITWORTH INESS AND GENUINENESS OF TRANSACTION WHEREIN BWGL HAS INVESTED IN THE SHARE CAPITAL OF YOUR ASSESSEE COMPANY. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 56 AO'S STAND: THE LD. AO ALSO OBJECTED ON THE POINT THAT THE BALA NCE SHEET OF FEL HAS NOT BEEN PREPARED AS AT DECEMBER 31, 2007. IN FACT, FEL HAS PREPARED THE BALANCE SHEET SINCE THE DATE OF ITS INCORPORATION ON AUGUST 10, 2007 TO DECEMBER 31, 2008 AS PER THE LAWS PREVAILING IN HONG KONG. THE AO AS EARLIER CONFIRMED THAT REMITTANCE HAS BEEN RECEIVED FROM FEL ON OCTOB ER 08, 2007 AND OCTOBER 15, 2007 WHICH IS APPARENT FROM THE COPY OF THE BAN K STATEMENT SUBMITTED. REBUTTAL: THE ASSESSEE HAS ALREADY SUBMITTED A COPY OF THE AU DITED BALANCE SHEET OF FEL AS AT 31.12.2008 WHEREFROM IT IS CLEAR THAT FEL HAS INVESTED HK$10,999,999 BY ACQUIRING SHARES OF THE SUBSIDIARY COMPANY, I.E. BWGL. AO'S STAND: THE LD. A.O. IS CONCERNED OF THE FACT THAT BWGL WAS NOT HAVING ANY ASSESSABLE PROFIT OR LOSS AS PER THE PROFIT TAX RETURN FILED F OR THE YEAR OF ASSESSMENT 2007- 08 AND 2008-09 SUBMITTED TO THE INLAND REVENUE DEPA RTMENT, HONG KONG. HE HAS FURTHER CONCLUDED FROM THIS THAT BWGL WAS NOT E NGAGED IN EARNING OF ANY INCOME AND HAD NO BUSINESS ACTIVITIES. REBUTTAL: IT IS AN ADMITTED FACT THAT BWGL IS AN INVESTMENT C OMPANY WHERE THE ONLY ACTIVITY WAS ACQUISITION OF SHARES OF YOUR APPELLAN T AND WAS NOT FORMED WITH ANY OBJECTIVE OF DOING BUSINESS. HOWEVER, ONCE AGAI N WHETHER BWGL HAS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 57 BUSINESS ACTIVITIES OR OTHERWISE DOES NOT MEAN THAT IT DID NOT HAVE THE FUNDS FOR ACQUIRING THE SHARES OF THE ASSESSEE. AO'S STAND: THE AO HAS ARGUED THAT BWGL WAS INCORPORATED WITH A N OBJECTIVE OF TRADING IN GARMENTS, TEXTILES AND ACCESSORIES WHICH WAS NEVER A CASE AS EVIDENCED FROM THE CERTIFICATE OF CERTIFIED PUBLIC ACCOUNTANT. REBUTTAL: IT IS A COMMON KNOWLEDGE THAT WHEN A COMPANY IS INC ORPORATED IT IS EMPOWERED TO CARRY OUT SEVERAL ACTIVITIES AS PER IT S MEMORANDUM OF ASSOCIATION AND IT IS ONLY SOME OF THESE ACTIVITIES THAT MAY AC TUALLY BE CARRIED OUT. THE OBJECT CLAUSE OF ANY COMPANY IS WIDELY DRAFTED TO I NCLUDE VARIOUS OBJECTIVES WHICH IT MIGHT CARRY OUT IN FUTURE. THIS HAS NO REL EVANCE WITH THE SUBJECT MATTER. AO'S STAND: THE A.O. HAS MENTIONED THAT BWGL HAS PURCHASED SHAR ES AT RS.12/- AS AGAINST VALUATION OF RS. 7.04 PER SHARE. THE A.O. H AS FURTHER MENTIONED THAT IF BWGL WAS A REAL INVESTOR IN THE SHARES AND WAS REAL LY INTERESTED IN ACQUIRING THE SHARES, IT COULD HAVE BEEN ACQUIRED FROM THE MA RKET AT THE RATE OF RS.7.04 PER SHARE BUT BWGL HAS PREFERRED TO PAY A PREMIUM O VER THE MARKET VALUE OF RS.5/- PER SHARE. THE A.O. FEARS SOME SECRET MOTIVE IN THE ACQUISITION OF THESE SHARES OF YOUR APPELLATE AND FEELS THAT THIS WAS ON LY TO POUR MONEY IN THE KITTY OF YOUR ASSESSEE COMPANY FROM UNDISCLOSED SOURCES. REBUTTAL: ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 58 IT IS COMMON KNOWLEDGE THAT PEOPLE ALL OVER THE WOR LD ARE LOOKING TO INDIA AS INVESTMENT DESTINATION PURELY BECAUSE OF THE GROWTH THAT THEY SEE IN INDIA. THE A.O. HAS NOT UNDERSTOOD THE MECHANICS OF ANY ACQUIS ITION OF SHARES. TO ELABORATE, THE COMPANY PRIOR TO ACQUISITION OF SHAR ES BY BWGL HAD 2,51,32,500 SHARES OUT OF WHICH THE PROMOTERS WERE HOLDING 69%. THUS , THE FLOATING STOCK OF SHARES HELD BY OUTSIDE PUBLIC WAS 31% I.E. 77,91 ,075 SHARES. BWGL HAS ACQUIRED 42,50,000 SHARES WHICH WOULD MEAN THAT IT WOULD HAVE TO ACQUIRE ALMOST 55% OF THE FLOATING STOCK OF SHARES. THE SHA RES OF THE ASSESSEE COMPANY ARE NOT WIDELY TRADED AND THE VOLUME OF TRADING EAC H DAY WOULD NOT EXCEED A FEW THOUSAND SHARES. IF THEY TRY TO ACQUIRE THE SHA RES IN THE OPEN MARKET IT WOULD LEAD TO FOLLOWING CONSEQUENCES: -PRICES OF THE SHARES WOULD SUDDENLY FLARE UP AND T HEY WOULD NOT BEEN ABLE TO ACQUIRE THE DESIRED NUMBER OF SHARES. -AS PER THE SEBI RULES ANY PERSON ACQUIRING 5% OF T HE PAID UP CAPITAL WOULD REQUIRE THE PERMISSION OF THE STOCK EXCHANGE AND SE BI. -IF THE ACQUISITION EXCEEDS 15% OF THE CAPITAL, THE COMPANY INVESTOR WOULD BE BOUND TO APPOINT MERCHANT BANKERS AND MAKE AN OPEN OFFER TO ALL THE SHAREHOLDERS. THE ABOVE WOULD LEAD TO CONSIDERABLE DIFFICULTIES AND THE END RESULT WOULD BE THAT THEY WOULD EITHER NOT ABLE TO ACQUIRE NUMBER OF SHARES THEY HAVE ACQUIRED OR THEY WOULD HAVE PAID A MUCH H EAVIER PRICE THEN THE AMOUNT PAID TO THE COMPANY BY WAY OF SHARE PREMIUM. FURTHER IF THE INVESTOR IS INTERESTED IN WELL BEING OF THE COMPANY IN WHICH HE HAS INVESTED HE WOULD BE HAPPY TO PUT THE MONEY IN THE HANDS OF THE COMPA NY RATHER THAN BUY THE SHARES FROM THE MARKET AT A PREMIUM BECAUSE IF THE SHARES ARE ISSUED BY THE COMPANY, THE SHARE VALUE AND PREMIUM WOULD BE AVAIL ABLE IN THE HANDS OF THE COMPANY WHICH WOULD BE USED FOR THE EXPANSION OF TH E BUSINESS OF THE COMPANY WHICH WILL FUEL GROWTH AND BETTER DIVIDENDS . ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 59 30. THE ASSESSEE COMPANY MADE SUBMISSIONS WITH RESP ECT TO ADMISSION OF ADDITIONAL EVIDENCES SUBMITTED BEFORE THE CIT(A) AN D SUBMITTED THAT THE AO PASSED THE ORDER IN GREAT HURRY WITHOUT GIVING PROP ER OPPORTUNITY OF BEING HEARD. THE ASSESSEE COMPANY ALSO REBUTTED THE REMAN D REPORT OF THE AO BY REITERATING THE SUBMISSIONS AS MADE EARLIER WHICH A RE NOT REPEATED FOR SAKE OF BREVITY. THUS, THE ASSESSEE COMPANY SUBMITTED THAT ASSESSEE COMPANY HAS FULLY PROVED THE IDENTITY OF THE CREDITORS ,CREDITW ORTHINESS OF THE CREDITORS, AND GENUINENESS OF THE TRANSACTION BUT THE A.O. HAS PASSED THE ORDER ON PRESUMPTION AND ASSUMPTION. IT WAS ALSO SUBMITTED THAT MR. NIMISH G. CHANDAK HAD APPEARED BEFORE THE CIT(A) AND HIS PRES ENCE HAS BEEN NOTED IN THE ORDER SHEET. THE ASSESSEE COMPANY ALSO FILED AF FIDAVIT OF MR NIMISH G CHANDAK AND ALSO SUBMITTED BEFORE THE AO DURING REM AND PROCEEDINGS TO PRODUCE MR NIMISH G CHANDAK BEFORE THE AO. THE ASS ESSEE COMPANY RELIED UPON THE FOLLOWING DECISIONS:- I) SHANKAR INDUSTRIES V. CIT (114 ITR 689)(CALCUTTA) II) CIT V. PRECISION FINANCE PVT. LTD. (208 ITR 465) III) CIT VS. CORLEY TRADING COMPANY LIMITED (232 ITR 820 ) IV) CIT V. LOVELY EXPORTS PVT. LTD. (216 CTR 195 (SC) V) CIT V. KINETIC CAPITAL FINANCE LTD. (ITA NO. 87/200 7)(DELHI) VI) M/S KIARA JEWELLERY PVT. LTD. V. ACIT (ITA NO. 4911 /MUM/09) THE CIT(A) ADMITTED THE ADDITIONAL EVIDENCE WHICH W ERE MAINLY BY WAY OF BANK STATEMENTS, DIRECTORS REPORTS, AUDITORS REPO RT , BALANCE SHEET, IDENTITY CARD , PERMANENT CARD , COPY OF PASSPORT, COPY OF T AX RETURN, ASSESSMENT ORDER AND PROFIT TAX AND AFFIDAVIT OF THE SAID MR N IMESH G. CHANDAK, PRODUCED BY THE ASSESSEE COMPANY , AS IN THE OPINIO N OF THE CIT(A) ,THESE ADDITIONAL EVIDENCES ARE IMPORTANT AND RELEVANT FOR ADJUDICATING THE APPEAL ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 60 ON MERITS AND IN THE INTEREST OF JUSTICE AND FAIR P LAY THE ADDITIONAL EVIDENCES SUBMITTED BY THE ASSESSEE COMPANY WERE ADMITTED BY THE CIT(A) , RELYING ON THE FOLLOWING JUDGMENTS :- I) JUTE CORPORATION OF INDIA LIMITED V. CIT 187 ITR 68 8(SC) II) CIT V. KANPUR COAL SYNDICATE 53 ITR 225(SC) III) NARONDAS MANORDAS V. CIT 31 ITR 909 (BOM.) IV) AHMEDABAD ELECTRICITY COMPANY LIMITED V. CIT 199 IT R 351(BOM-FB) V) NIRBHERAM DELURAM V. CIT 224 ITR 610(SC) THE CIT(A) OBSERVED THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS, REMAND PROCEEDINGS AND APPELLATE PROCEEDINGS, THE A SSESSEE COMPANY HAS EXPLAINED THAT IT ISSUED PREFERENTIAL SHARES TO M/S BWGL AT THE RATE OF RS.12/- PER SHARE AFTER COMPLYING WITH THE REQUISIT E FORMALITIES AND WITH DUE APPROVAL OF RBI, BSE AND SEBI GUIDELINES ON PREFERE NTIAL ALLOTMENT OF SHARES. THE ASSESSEE COMPANY HAS RECEIVED RS.5.10 CRORES VI DE CERTIFICATE OF FOREIGN INWARD REMITTANCE REFERENCE NO. 0607007TP0000762 DA TED 7.11.2007 ISSUED BY SBI COMMERCIAL BRANCH, MUMBAI ON 7.11.200 7. THE SAID REMITTANCE CERTIFICATE CERTIFIES THAT THE SAID BWGL REMITTED US$ 1295000.00 RUPEE EQUIVALENT TO RS.5,12,08,250/- VIDE BANK OF A MERICA, NA, NEW YORK DEDUCTION/TT/MT NO. 2007102400038709 DATED 24.10.20 07 FAVOURING M/S LAHOTI OVERSEAS LIMITED, MUMBAI , I.E. THE ASSE SSEE COMPANY FOR THE PURPOSE OF SHARE APPLICATION MONEY AT THE RATE OF R S.12/- PER SHARE. THE SAID MONEY WAS DEPOSITED IN ASSESSEE COMPANY'S SBI COMME RCIAL BRANCH, MUMBAI A/C NO. 11079527922 ON 25.10.2007.THE SAID R ECEIPT OF REMITTANCE WAS DULY NOTIFIED TO RBI. EXTRACTS OF THE RESOLUTIO N PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY FOR ALLOTMENT OF SHARES WERE ALSO PROVIDED TO THE A.O. AND CIT(A). CERTIFICATES OF CHARTERED ACCOUNTANT ISSUED IN CONNECTION WITH ISSUE OF EQUITY SHARES WE RE ALSO PRODUCED BEFORE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 61 THE AO AND CIT(A). FCGPR FORMS AND OTHER RELEVANT D OCUMENTS WERE ALSO SUBMITTED TO RBI. RBI VIDE THEIR LETTER DATED 16.01 .2008 ACKNOWLEDGED THE RECEIPT OF APPLICATION IN FORM NO. FCGPR. THE ASSES SEE COMPANY REPLIED TO RBI VIDE LETTER DATED 04-02-2008. RBI RECORDED THE RECEIPT OF APPLICATION FORM FROM THE ASSESSEE COMPANY IN FORM NO FCGPR RECEIVED FROM SBI FOR ISSUE OF 42,50,000 EQUITY SHARES AT RS.12/- PER SHARE TO SAI D BWGL. THESE COMMUNICATIONS WITH RBI WERE ALSO FURNISHED BEFORE THE AO AND CIT(A). BWGL LETTER GIVING CONSENT TO SUBSCRIBE 42,50,000 E QUITY SHARES AT RS.12/- PER SHARE ON PREFERENTIAL ALLOTMENT BASIS WAS ALSO PRODUCED BEFORE THE AO AND THE CIT(A). BANK STATEMENT EVIDENCING RECEIPT O F SUBSCRIPTION AMOUNT BY THE ASSESSEE COMPANY AS ALSO APPLICATION MADE TO BS E FOR LISTING OF 42,50,000 EQUITY SHARES AND FORM NO 2 I.E. RETURN O F ALLOTMENT AND SHARE APPLICATION RECEIVED FROM BWGL WAS ALSO SUBMITTED B EFORE THE AO AND CIT(A). THE ASSESSEE COMPANY LETTER DATED 3-12-2007 TO BSE AND BSES LETTER DATED 25-03-2008 REGARDING LISTING OF THE NEW SECURITIES AS WELL SHARE CERTIFICATES ISSUED TO BWGL WAS ALSO ENCLOSED BEFORE THE AO AND CIT(A) . THESE CLINCHING EVIDENCES, IN THE OPINION OF CIT(A) CLEARLY PROVES THE GENUINENESS OF THE TRANSACTION BETWEEN BWGL AND THE ASSESSEE COMPANY B ECAUSE THE PROPOSAL OF ALLOTMENT OF 42,50,000 SHARES AT THE RATE OF RS 12 PER SHARE INCLUDING SHARE PREMIUM OF RS 10 PER SHARE WAS DULY APPROVED BY RBI, BSE AND SEBI. AS FAR AS THE IDENTITY AND CREDITWORTHINESS OF THE SAID M/S BWGL IS CONCERNED, THE CIT(A) OBSERVED THAT THE ASSESSEE CO MPANY HAS FURNISHED MEMORANDUM AND ARTICLES OF ASSOCIATION AND CERTIFIC ATE OF INCORPORATION OF M/S BWGL HAVING COMPANY NO.1149123 IN HONG KONG. BU SINESS REGISTRATION CERTIFICATE OF BWGL IN FORM NO.2 DULY ATTESTED BY CONSULATE GENERAL OF INDIA, HONG KONG AND NOTARY PUBLIC HONG KONG FOR THE PERIOD 12.07.2007 TO 11.07.2008 AND FROM 12.07.2008 TO 11. 07.2009 HAVE ALSO BEEN PRODUCED BEFORE THE AO AND CIT(A). THE COPY OF PASS PORT OF DIRECTOR OF BWGL MS LI KANG TAI DULY ATTESTED BY CONSULATE GENERAL O F INDIA, HONGKONG WAS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 62 ALSO PRODUCED BEFORE THE AO AND CIT(A). THE ASSESSE E COMPANY HAS ALSO SUBMITTED ANNUAL RETURN IN FORM NO ARI OF BWGL FILE D WITH THE REGISTRY, HONGKONG AND BANK STATEMENT OF BWGL HIGHLIGHTING TH E AMOUNT REMITTED TO THE ASSESSEE COMPANY BY BWGL ALONG WITH BANK STATEM ENT OF THE ASSESSEE COMPANY EVIDENCING RECEIPT OF SHARE CAPITAL AND SHA RE PREMIUM AGGREGATING TO RS. 5.10 CRORES WAS SUBMITTED BEFORE THE AO AND CIT(A) . THE ASSESSEE COMPANY HAS FURTHER PRODUCED CERTIFICATE OF CERTIFI ED PUBLIC ACCOUNTANT FUNG , YU & COMPANY REGARDING PROFITS TAX RETURN OF BWGL. THE COPIES OF DIRECTORS REPORT , AUDITORS REPORT , BALANCE SHEET AND INCOME STATEMENTS FOR THE PERIOD ENDED 31.12.2007 ALONG WITH NOTES OF ACC OUNT OF BWGL WERE ALSO PRODUCED BEFORE THE CIT(A) AND AO. THUS, THE CIT(A) HELD THAT THE IDENTITY AND CREDITWORTHINESS OF BWGL HAS BEEN PROVED , VIDE ORDERS DATED 12-03- 2012. THE ASSESSEE COMPANY HAS FURTHER EXPLAINED THE IDEN TITY AND CREDITWORTHINESS OF FEL BY PRODUCING VARIOUS DOCUME NTS INCLUDING THE BANK STATEMENT OF FEL EVIDENCING TRANSFER OF FUNDS TO TH E SAID BWGL. MR. NIMESH G. CHANDAK IS THE PROPRIETOR OF THE SAID FEL AND A COPY OF HIS HONGKONG IDENTITY, HONGKONG PERMANENT CARD BEARING NO. R0779 78(3) DATED 5-08.2009 ISSUED BY GOVERNMENT OF HONGKONG AND OF EVEN NO. DA TED 11.11.2005 ISSUED BY GOVERNMENT OF HONGKONG WERE ALSO PRODUCED. A COP Y OF INDIAN PASSPORT NO, F7813390 ISSUED BY MR. DEEPAK MISRA CONSUL, CON SULATE GENERAL OF INDIA WAS ALSO PRODUCED TO PROVE THE IDENTITY OF TH E SAID MR. NIMESH G CHANDAK, PROPRIETOR OF FEL. THE COPY OF FORM NO 2 O F FEL BEING BUSINESS REGISTRATION CERTIFICATE AND COPY OF BUSINESS PARTI CULARS OF FEL ISSUED BY BUSINESS REGISTRATION OFFICE WERE ALSO PRODUCED BEF ORE THE AO AND CIT(A) THE SAID MR NIMESH G CHANDAK ALSO PRODUCED AN AFFIDAVIT DATED 27 TH JUNE 2011 , STATING AND CONFIRMING THE INVESTMENT OF RS.5.10 CR ORES MADE BY BWGL IN THE ASSESSEE COMPANY AND THE SOURCES OF THE SAID IN VESTMENT WAS EXPLAINED ALONG WITH THE CORPORATE STRUCTURE OF THE GROUP FOR MAKING THIS INVESTMENT. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 63 THE CIT(A) HELD THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE COMPANY HAS PROVED THE SOURCE OF SHARE APPLICATION MONEY RECEIVED FROM THE SAID BWGL. THE AO HAS ASKED THE A SSESSEE COMPANY TO PROVE ONE STEP FURTHER ABOUT FEL AND THE ASSESSEE C OMPANY EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) REA D WITH SECTION 143(2) OF THE ACT, THE SOURCE OF SOURCE OF THE TRANSACTION. WHEN FURTHER CONFRONTED AND ASKED TO PROVE ONE MORE STEP FURTHER ABOUT MR. NIMI SH G. CHANDAK, THE ASSESSEE COMPANY PROVED SOURCE OF SOURCE OF SOURCE OF THE TRANSACTIONS AND PROVED THE IDENTITY, GENUINENESS AND CREDITWORTHINE SS OF THE ULTIMATE INVESTOR, MR. NIMISH G. CHANDAK, THE HONGKONG RESID ENT HOLDING GOVERNMENT PERMANENT CARD NO. R077978(3).THE AFFIDAVIT OF NIME SH G CHANDAK HAS NOT BEEN DOUBTED BY THE AO. THE ASSESSEE COMPANY HAS RE CEIVED THE MONEY IN ITS SBI COMMERCIAL BANK ACCOUNT AND THE SAID BWGL EVEN TODAY CONTINUES TO BE THE SHAREHOLDER OF THE PRESENT ASSESSEE COMPANY. THE ASSESSEE COMPANY HAS COMPLIED WITH THE SEBI GUIDELINES FOR PREFERENT IAL ALLOTMENT OF SHARES, THE BOOK VALUE OF THE SHARE OF THE ASSESSEE COMPANY AS AT 31-3-2007 WAS RS 15.84 PER SHARE WHILE THE AVERAGE MARKET PRICE OF T HE SHARES OF THE ASSESSEE COMPANY WAS RS7.04 AS CERTIFIED BY THE CHARTERED AC COUNTANT. THE ASSESSEE COMPANY WAS PAYING DIVIDEND CONSISTENTLY SINCE 1995 . THE ASSESSEE COMPANY AS PER SEBI GUIDELINES COULD NOT HAVE ISSUE D SHARES AT PRICE BELOW RS 7.04 PER SHARE, IT WAS ISSUED AT RS 12 PER SHARE WHICH IS IN COMPLIANCE WITH SEBI GUIDELINES FOR ISSUE OF PREFERENTIAL SHAR ES BY LISTED COMPANIES. THE INVESTOR BWGL AGREED TO PAY RS 12 PER SHARES WHICH IS A NEGOTIATED PRICE OF THE SHARE. BY ISSUING THE FRESH SHARES, THE FUNDS H AVE COME INTO ASSESSEE COMPANYS BANK ACCOUNT WHICH COULD BE UTILIZED FOR COMPANYS BUSINESS AND EXPANSION WHILE IF BWGL HAS GONE FOR MARKET ACQUISI TION OF SHARES, THEN FUNDS WOULD NOT HAVE COME TO ASSESSEE COMPANY FOR I TS BUSINESS BUT WOULD HAVE GONE TO SHAREHOLDERS WHO HAVE SOLD THE SHARES IN OPEN MARKET AND ALSO BEYOND ACQUISITION OF 5% OF THE CAPITAL, SEBI TAKEO VER CODE IS APPLICABLE AND OPEN OFFER IS TO BE MADE BY THE INVESTOR. THE SHARE S OF THE ASSESSEE COMPANY ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 64 ARE THINLY LISTED AND ACQUIRING 42,50,000/- SHARES FROM OPEN MARKET WOULD HAVE LED TO SUBSTANTIAL SURGE IN THE MARKET PRICE O F THE SHARES AS TOTAL FLOATING STOCK IS MERELY 76,76,075 SHARES . THE AMO UNT INVESTED BY THE SAID BWGL CONTINUES TO BE REFLECTED IN THE AUDITED BALAN CE SHEET OF BWGL AS WELL AS IN THE AUDITED BALANCE OF THE ASSESSEE COMPANY. ALSO, THE AMOUNT INVESTED BY FEL IN BWGL IS ALSO REFLECTED IN THE AUDITED BAL ANCE SHEET OF BOTH THE COMPANIES. HENCE, THE CIT(A) VIDE ORDERS DATED 12-3 -2012 DELETED THE ADDITIONS MADE BY THE A.O. WITH RESPECT TO THE TRAN SACTION OF SHARE SUBSCRIPTION(INCLUDING SHARE PREMIUM) AGGREGATING T O RS. 5.10 CRORES BETWEEN THE ASSESSEE COMPANY AND ITS IMMEDIATE CRED ITOR BWGL HOLDING THAT THE ASSESSEE COMPANY HAS PROVED THE IDENTITY OF CRE DITORS, CREDITWORTHINESS OF CREDITORS AND GENUINENESS OF THE TRANSACTION. 31. AGGRIEVED BY THE ORDERS DATED 12.3.2012 OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 32. THE LD. D.R. STRONGLY RELIED UPON THE ORDER OF THE A.O. AND SUBMITTED THAT THE ASSESSEE COMPANY HAS RECEIVED THE SHARE CA PITAL TO THE TUNE OF RS. 5,10,00,000/- AND THE ASSESSEE COMPANY FAILED TO PR OVE THE CREDITWORTHINESS OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION, THEREFORE, THE A.O. IS QUITE RIGHT IN TREATING THE SHARE CAPITAL AND SHARE PREMI UM OF RS.5.10 CRORES RECEIVED BY THE ASSESSEE COMPANY FROM BWGL AS INCOM E OF THE ASSESSEE COMPANY IN ACCORDANCE WITH PROVISIONS OF SECTION 68 OF THE ACT. 33. THE LD. COUNSEL FOR THE ASSESSEE COMPANY, ON TH E OTHER HAND, SUPPORTED THE ORDERS OF THE CIT(A) AND SUBMITTED TH AT THE ASSESSEE COMPANY SUCCESSFULLY EXPLAINED THE NAME, IDENTITY, CREDITWO RTHINESS AND GENUINENESS OF THE TRANSACTION BEFORE THE AO AND THE CIT(A) AND ALSO EXPLAINED THE SOURCE OF SOURCE OF THE SOURCES OF THE TRANSACTION. THE L D. COUNSEL FOR THE ASSESSEE COMPANY REITERATED THE SUBMISSIONS AS WERE MADE BEF ORE THE AUTHORITIES ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 65 BELOW WHICH ARE DETAILED IN THE PRECEDING PARAS OF THIS ORDER AND ARE NOT REPEATED FOR SAKE OF BREVITY. THE LD. COUNSEL RELIE D UPON THE DECISION IN THE CASE OF CIT V. STELLAR INVESTMENT LIMITED 251 ITR 2 63 (SC) , CIT V. LOVELY EXPORTS PRIVATE LIMITED 216 CTR 195(SC) AND OTHER D ECISIONS AS PER LARGE NUMBER OF CASES SUBMITTED ALONG WITH PAPER BOOK FIL ED WITH THE TRIBUNAL. THE ASSESSEE COMPANY HAS ALSO FILED IN THE PAPER BOOK , PAGE 51-223 , SEVERAL DOCUMENTARY EVIDENCES WHICH WERE FILED BEFORE THE A UTHORITIES BELOW AND LISTED IN THE PRECEDING PARAS OF THIS ORDER TO SUB STANTIATE THE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION OF RECEIPT OF RS.5.10 CRORES FROM BWGL AND THE SAME ARE NOT REPEATED FOR THE SAKE OF BREVITY. 34. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS RAIS ED RS 5.10 CRORES FROM M/S BILLION WAY GARMENT LIMITED, HONG KONG (BWGL) B Y WAY OF ISSUE OF 42,50,000/- EQUITY SHARES AT RS 12/- PER SHARE (EQU ITY SHARES OF FACE VALUE OF RS 2 EACH ISSUED AT RS 12/- PER SHARE INCLUDING SHA RE PREMIUM OF RS 10 EACH) . THE SAID BWGL ISSUED SHARE CAPITAL OF HK$ 1,10,00,000/- WHICH WAS SUBSCRIBED BY ANOTHER HONG KONG COMPANY FEL AND THE SAID AMOUNT RAISED BY BWGL FROM FEL WAS INVESTED IN THE ASSESSE E COMPANY TO THE TUNE OF RS 5.10 CRORES ( EQUIVALENT HK$ 1,01,01,000/-) . THESE COMPANIES ARE ULTIMATELY OWNED AND CONTROLLED BY AN NRI MR. NIMES H G CHANDAK . WE FIND FROM THE FACTS AND EVIDENCES AS EMANATING AND EMERG ING FROM THE RECORDS THAT THE ASSESSEE COMPANY HAS BROUGHT ON RECORD ALL THE NECESSARY AND RELEVANT DOCUMENTARY EVIDENCES AND SATISFACTORY EXP LANATIONS WITH RESPECT TO THE TRANSACTION OF RECEIPT OF RS. 5.1 CRORES TOWAR DS SHARE CAPITAL AND SHARE PREMIUM AND HAS PROVED BY COGENT MATERIAL AND EVIDE NCES THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE INVESTING C OMPANY BWGL AND ALSO FILED DOCUMENTARY EVIDENCES SUBSTANTIATING THE FLOW OF FUNDS THROUGH CHAIN OF HOLDING COMPANIES FROM THE ULTIMATE INVESTOR, MR. N IMISH G CHANDAK, THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 66 HONG KONG RESIDENT INTO BWGL WHICH FINALLY WAS INVE STED IN THE ASSESSEE COMPANY. THE DOCUMENTARY EVIDENCES RELIED UPON BY T HE ASSESSEE COMPANY AND EXPLANATIONS OFFERED TO SUBSTANTIATE IDENTITY OF CREDITOR, CREDITWORTHINESS OF CREDITOR AND GENUINENESS OF THE TRANSACTION OF R ECEIPT OF RS 5.10 CRORES AS SHARE CAPITAL AND SHARE PREMIUM FROM BWGL BY THE AS SESSEE COMPANY AS WERE FILED BEFORE THE AUTHORITIES BELOW ARE DETAILE D IN THE PRECEDING PARAS OF THIS ORDER WHICH IS NOT REPEATED FOR SAKE OF BREVIT Y AND SUCH DOCUMENTARY EVIDENCES ARE ALSO FILED BY THE ASSESSEE COMPANY BE FORE THE TRIBUNAL IN THE PAPER BOOK , PAGE 51-223 AND WE HAVE PERUSED THE SA ID DOCUMENTARY EVIDENCES FILED WITH THE TRIBUNAL AND ARE OF CONSID ERED VIEW THAT THE ASSESSEE COMPANY HAS DULY DISCHARGED ITS BURDEN CAST U/S 68 OF THE ACT AND IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR A ND GENUINENESS OF THE TRANSACTION STOOD PROVED. DETAILED FINDINGS BASED O N SOUND REASONING HAS BEEN GIVEN BY THE CIT(A) VIDE ORDERS DATED 12.03.20 12 WHILE ACCEPTING THE CONTENTIONS OF THE ASSESSEE COMPANY AS THE COMPLIAN CE WITH THE MANDATE OF SECTION 68 OF THE ACT, WITH WHICH WE COMPLETELY AGR EE AND CONCUR , THE SAID FINDINGS OF THE CIT(A) IS DETAILED BY US IN THE PRE CEDING PARAS OF THIS ORDER AND IS NOT REPEATED FOR THE SAKE OF BREVITY . THE ASSESSEE COMPANY IS A LISTED COMPANY WHICH IS SUBJECT TO STRICT REGULATORY AND / OR STATUTORY SCRUTINY AND CONTROLS BY GOVERNMENT AUTHORITIES SUCH AS RBI, BSE ,SEBI AND MCA APART FROM THE COMMUNITY OF INVESTORS WHO HAVE INVESTED I N SHARES OF THE ASSESSEE COMPANY BEING WIDELY HELD LISTED COMPANY. THE ASSES SEE COMPANY HAS DULY EXPLAINED THE PREFERENTIAL ALLOTMENT OF SHARES BEIN G 42,50,000 EQUITY SHARES TO BWGL AT THE RATE OF RS.12/- PER SHARE , WHICH SH ARES WERE ISSUED AFTER COMPLYING WITH THE STATUTORY AND/OR REGULATORY REQU IREMENTS OF RBI, BSE AND SEBI GUIDELINES ON PREFERENTIAL ALLOTMENT OF SHARES . THE ASSESSEE COMPANY ALSO COMPLIED WITH THE STATUTORY FORMALITIES WITH T HE MINISTRY OF CORPORATE AFFAIRS, GOVERNMENT OF INDIA. THE SAID SHARE SUBSC RIPTION AMOUNT OF RS.5.10 CRORES WAS RECEIVED BY THE ASSESSEE COMPANY THROUGH BANKING CHANNEL AND ALL THE RELATED DOCUMENTARY EVIDENCES HAVE BEEN BRO UGHT ON RECORD TO SATISFY ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 67 INGREDIENTS OF SECTION 68 OF THE ACT, WHICH ARE PLA CED IN PAPER BOOK FILED WITH THE TRIBUNAL AT PAGE 51-223. AFTER PERUSING THE ENT IRE RECORDS , WE ARE OF CONSIDERED VIEW THAT THE ASSESSEE COMPANY HAS SATIS FACTORILY DISCHARGED THE PRIMARY ONUS AND DUTY CAST ON THE ASSESSEE COMPANY TO SATISFY THE INGREDIENTS OF SECTION 68 OF THE ACT WITH RESPECT T O IDENTITY OF CREDITORS, CREDITWORTHINESS OF CREDITORS AND GENUINENESS OF TH E TRANSACTION AND THEREAFTER THE ONUS HAD SHIFTED TO REVENUE TO REBUT AND DEMOLISH THE EVIDENCES AND EXPLANATIONS BROUGHT ON RECORD BY THE ASSESSEE COMPANY WHICH HAS NOT BEEN DONE IN THE INSTANT CASE BY THE REVENUE . WE FIND THAT THE A.O. HAS NOT BROUGHT ON RECORD ANY COGENT MATER IAL/RECORD TO PROVE THAT THE ASSESSEE COMPANY HAS FAILED TO COMPLY WITH THE INGREDIENTS OF SECTION 68 OF THE ACT OR TO DEMOLISH THE EVIDENCES FILED BY TH E ASSESSEE COMPANY OR EXPLANATION OFFERED THERE-TO DURING ASSESSMENT OR R EMAND REPORT PROCEEDINGS, RATHER THE ENTIRE CASE OF THE REVENUE IS BASED ON C ONJECTURES, SURMISES AND ASSUMPTIONS WHICH IS NOT PERMISSIBLE UNDER THE ACT WHILE THE ASSESSEE COMPANY HAS SATISFIED THE INGREDIENTS OF SECTION 68 OF THE ACT BY UNCONTROVERTED COGENT DOCUMENTARY EVIDENCES AND EXP LANATIONS OFFERED DURING ASSESSMENT AND APPELLATE PROCEEDINGS. THE SA ID MR NIMESH G. CHANDAK , THE ULTIMATE INVESTOR OF THE INVESTING GR OUP WAS PRODUCED BY THE ASSESSEE COMPANY BEFORE THE CIT(A) .THE ASSESSEE CO MPANY ALSO OFFERED TO PRODUCE SAID MR NIMESH G. CHANDAK BEFORE THE AO DUR ING REMAND REPORT PROCEEDINGS BUT THE AO FAILED TO AVAIL THE OPPORTUN ITY TO EXAMINE HIM AND /OR RECORD HIS STATEMENT AND/OR TO CROSS EXAMINE HIM TO STRENGTHEN HIS CASE TO BRING , THE TRANSACTION OF SHARE SUBSCRIPTION OF RS .5.10 CRORES BY BWGL IN THE ASSESSEE COMPANY , WITHIN FOLD OF CHARGEABILITY TO TAX UNDER SECTION 68 OF THE ACT. THE SAID MR. NIMESH G CHANDAK HAS ALSO FILED D ULY ATTESTED AFFIDAVIT STATING THE ENTIRE DETAILS OF INVESTMENT OF RS.5.10 CRORES IN THE ASSESSEE COMPANY , THE CONTENTS THEREOF HAS ALSO NOT BEEN DE MOLISHED BY THE REVENUE AND HAD REMAINED UNCONTROVERTED. IN OUR CONSIDERED VIEW, THE CIT(A) HAS PASSED A VERY DETAILED AND WELL REASONED ORDER DATE D 12.03.2012 ACCEPTING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 68 THE CONTENTIONS OF THE ASSESSEE COMPANY WITH WHICH WE CONCUR , AGREE AND UPHOLD THE SAME. THE REVENUE HAS ALSO RAISED GROUND OF APPEAL NO. 2 THAT THE FOREIGN COMPANIES HAVE NOT INVESTED IN THE ASSESSEE COMPANY FROM OWN FUNDS AND NO BUSINESS ACTIVITIES WERE CARRIED ON BY THE FOREIGN COMPANIES. IN OUR CONSIDERED VIEW, THE REVENUE HAS COMPLETED MISDIREC TED ITSELF AND COMPLETELY IGNORED THE PRESENT DAY REALITIES AS TO HOW CORPORATE STRUCTURES ARE DEVISED AND CREATED THROUGH WHICH BUSINESSES AR E STRUCTURED, OWNED , CONTROLLED , OPERATED, RUN AND MANAGED BY THE BUSIN ESS GROUPS DUE TO SEVERAL AND VARIED BUSINESS REASONS BASED ON PERCEI VED COMMERCIAL EXIGENCIES AND COMMERCIAL EXPEDIENCY. THE WORLD ECO NOMIES HAVE ADVANCED AND EXPANDED MULTIFOLD , AND HAVE RAPIDLY INTEGRATE D THEMSELVES IN THE LAST FEW DECADES, SO AS THE SCALE OF OPERATIONS HAVE GR OWN MANIFOLD IN LAST FEW DECADES NECESSITATING COLLABORATIVE ACTIONS ACROSS GLOBE. BUSINESS HOUSES HAVE DIVERSIFIED, COLLABORATED AND INTEGRATED THEMS ELVES WITH CONGLOMERATES ACROSS GLOBE AND ARE ENGAGED AND OPERATING IN MULTI -PRODUCT/SERVICES AND MULTI-LOCATION BUSINESSES GEOGRAPHICALLY SPREAD ACR OSS NATIONAL AND INTERNATIONAL TERRITORIES. THE BUSINESSES ARE NOW A RRANGED THROUGH WEB OF CORPORATE ENTITIES IN THE LADDER OF CORPORATE STRUC TURE COMPRISING OF CHAIN OF ULTIMATE HOLDING COMPANIES, HOLDING COMPANIES, SUBS IDIARY COMPANIES, ULTIMATE SUBSIDIARY COMPANY, ASSOCIATE COMPANIES, J OINT VENTURE COMPANIES ETC. KEEPING IN VIEW THE PERCEIVED BUSINESS EXIGENC IES AND COMMERCIAL EXPEDIENCY, WHICH ARE PURELY IN THE REALM OF BUSINE SS DECISIONS OF THE BUSINESSMEN BASED ON PERCEIVED PRUDENCE. THE REVENU E CANNOT PUT ITSELF INTO AN ARM-CHAIR OF BUSINESSMEN TO DECIDE HOW BUSI NESSES ARE TO BE STRUCTURED, CONTROLLED, OWNED , OPERATED, RUN AND M ANAGED, SO LONG THE PURPOSES AND OBJECTIVES ADOPTED BY BUSINESSMEN ARE NOT DUBIOUS WITH AN INTENTION TO EVADE TAXES TO DEFRAUD REVENUE WARRAN TING LIFTING OF CORPORATE VEIL. IN THE INSTANT CASE, THE INVESTING COMPANY HA S DULY EXPLAINED THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 69 IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE C REDITOR AND GENUINENESS OF THE TRANSACTION OF INVESTING RS.5.10 CRORES IN THE SHARE CAPITAL ( INCLUDING SHARE PREMIUM) OF THE ASSESSEE COMPANY BY BRINGING ON RECORD THE COGENT EVIDENCES AND MATERIAL AND SATISFACTORY EXPLANATION NOT ONLY RELATING TO THE INVESTING COMPANY , BUT OF ITS WEB OF COMPLETED CHA IN OF ULTIMATE HOLDING COMPANY AND HOLDING COMPANIES ALL REGISTERED IN HON G KONG , TILL THE ULTIMATE INVESTOR MR NIMESH G CHANDAK WHO ULTIMATELY IS THE OWNER OF THE BUSINESS GROUP INVESTING IN THE ASSESSEE COMPANY, MEANING TH EREBY SOURCE OF THE TRANSACTION IS PROVED BY THE ASSESSEE COMPANY INCLU DING CHAIN OF FLOW OF FUNDS FROM THE INVESTOR MR. NIMESH G CHANDAK AND UL TIMATELY IT REACHES THE ASSESSEE COMPANY THROUGH HIS CORPORATE STRUCTURE OF HOLDING AND SUBSIDIARY COMPANIES. IT IS TOTALLY IRRELEVANT ON PART OF THE REVENUE TO CONTEND THAT THESE FOREIGN COMPANIES DO NOT HAVE OWNED FUNDS OR THERE ARE NO BUSINESS ACTIVITIES OF THESE FOREIGN COMPANIES, SO LONG THE ASSESSEE COMPANY IS ABLE TO ESTABLISH AND SUBSTANTIATE WITH COGENT MATERIAL AND EVIDENCES, IDENTITY OF THE CREDITOR, CREDITWORTHINESS OF THE CREDITOR AND GENU INENESS OF THE TRANSACTION , WHICH IN OUR CONSIDERED VIEW, THE ASSESSEE COMPANY HAS DULY PROVED BY CLINCHING AND CONCLUSIVE EVIDENCES TO SATISFY THE M ANDATE OF PROVISIONS OF SECTION 68 OF THE ACT. THE CONTENTION OF THE REVENU E THAT THE SAID FOREIGN COMPANIES ARE NOT HAVING ANY BUSINESS ACTIVITIES IS ALSO PERVERSE , AS THE DOCUMENTS PRODUCED BY THE ASSESSEE COMPANY REVEALS THE FOLLOWING BUSINESS ACTIVITIES OF THE HOLDING COMPANY FEL OF BWGL : S.NO. NAME OF COMPANY TURNOVER NET OWNED FUNDS 1. FORTUNE EXIM LIMITED, HONG KONG HK$ 3,78,77,247 HK$1,24,28,971 ( FROM 10-08-2007 TO 31-12-2008) THE BALANCE SHEET HAS BEEN PREPARED BY FEL FROM THE DATE OF INCORPORATION ON 10-08-2007 TO 31-12-2008 WHICH IS STATED TO BE C OMPLIANT TO HONG KONG LAWS AS THE DATE OF INCORPORATION WAS 10-08-2007 AN D THIS IS THE FIRST ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 70 BALANCE SHEET BUT TO MAKE BALD ASSERTION THAT THESE COMPANIES ARE NOT ENGAGED IN ANY BUSINESSES AND DOES NOT HAVE THEIR O WNED FUNDS WITHOUT BRINGING ON RECORD COGENT MATERIAL LACKS MERIT AND IS REJECTED. THE ASSESSEE COMPANY HAS ALSO PRODUCED ASSESSMENT RECORDS OF THE MR NIMESH G CHANDAK TO CONTEND THAT HE IS ASSESSED TO TAX IN HONG KONG FOR LAST SEVERAL YEARS. THE REVENUE HAS NOT BROUGHT ON RECORD ANY PLEA OR C ONTENTION BACKED WITH EVIDENCES THAT THESE WEB OF CHAIN OF HOLDING AND S UBSIDIARY COMPANIES SO CREATED BY MR. NIMESH G CHANDAK WERE WITH DUBIOUS P URPOSES AND OBJECTIVES WITH AN INTENTION TO EVADE TAXES TO DEFR AUD REVENUE OR THE TRANSACTION PER-SE IS UNDERTAKEN WITH AN INTENTION TO EVADE TAXES TO DEFRAUD REVENUE WARRANTING LIFTING OF CORPORATE VEIL. THUS, THIS GROUND NO. 2 OF GROUNDS OF APPEAL RAISED BY THE REVENUE IS ALSO REJ ECTED. THUS, IN OUR CONSIDERED VIEW AND AS PER REASONING D ETAILED ABOVE, WE FIND NO INFIRMITY IN THE WELL REASONED AND DETAILED ORDER D ATED 12.03.2012 PASSED BY THE CIT(A) WHICH HAS BEEN PASSED BY THE CIT(A) AFTE R REFERRING TO ALL THE DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE COMPANY AND THE CASE LAWS RELATED TO THE ISSUE RELIED BY THE ASSESSEE COMPANY , HENCE, WE REFUSE AND DECLINE TO INTERFERE WITH THE ORDERS DATED 12.3.201 2 OF THE CIT(A) WHICH WE CONFIRM, CONCUR AND UPHOLD THE SAME. OUR VIEW IS S UPPORTED BY AND FORTIFIED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CAS E OF CIT V. STELLER INVESTMENT LIMITED ((2001) 251 ITR 263(SC)) , CIT V . LOVELY EXPORTS PRIVATE LIMITED ((2008) 216 CTR 195(SC) ) AND CIT V. TANIA INVESTMENTS PRIVATE LIMITED 322 ITR 394(BOM.HC). WE ORDER ACCORDINGLY. 35. IN THE RESULT, REVENUE APPEAL IN ITA NO. 3813/M UM/2012 FOR THE ASSESSMENT YEAR 2008-09 IS DISMISSED. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 71 ITA NO. 3821/MUM/2012 FOR ASSESSMENT YEAR 2008-09 ( ASSESSEES APPEAL). 36. THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING G ROUNDS OF APPEAL IN MEMO OF APPEAL FILED WITH THE TRIBUNAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) [LD. CIT (A)] ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSI NG OFFICER OF DENIAL OF DEDUCTION U/S 80LA AMOUNTING TO RS. 1,57,90,301/-. 2. WITHOUT PREJUDICE TO ABOVE, THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF A.O OF NOT TREATING A SUM OF RS. 35,55,880/- RECEIVED AS COMPENSATION FROM M/S. SUZLON ENERGY LIMITED (TOWARD S SPECIFIC PERFORMANCE AGAINST GUARANTEED GENERATION OF POWER) AS INCOME FROM THE INDUSTRIAL UNDERTAKING AND ERRED IN NOT CONSIDERING THE SAID AMOUNT AS ELIGIBLE FOR DEDUCTION U/S 80LA. 3. THE LD. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF DISALLOWANCE U/S 14A R. W. RUL E 8D OF RS. 13,66,079/-. 37. WITH RESPECT TO GROUND NO. 1, THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY EARNED INCOME FROM SALE OF POWER GENERATED FROM WIND MILL AND CLAIMED DEDUCTION U/S 80IA OF THE ACT AMOUNTING TO RS.1,57,90,301/- . THE ASSESSEES COMPANY FILED AUDITORS REPORT IN FORM 1 0CCB TO SUBSTANTIATE ITS CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE AO OBSE RVED THAT WHILE COMPUTING DEDUCTION U/S 80IA OF THE ACT, THE ASSESSEE COMPANY HAS IGNORED THE MANDATE OF SECTION 80IA(5) OF THE ACT. PERUSAL OF P ROVISIONS OF SECTION 80IA(5) OF THE ACT WILL REVEAL THAT UNDERTAKING IN RESPECT OF WHICH DEDUCTION IS CLAIMED SHOULD BE TREATED AS SINGLE AND INDEPENDENT UNIT FROM THE DAY OF COMMENCEMENT AND EVEN IF DEDUCTION U/S 80IA HAS NOT BEEN CLAIMED IN THE INITIAL YEARS AND BY VIRTUE OF DEPRECIATION THE UND ERTAKING SUFFERS A LOSS , THIS LOSS IS NOTHING BUT THE DEPRECIATION ALLOWABLE U/S 32 OF THE ACT AND EVEN IF SUCH DEPRECIATION IS SET OFF AGAINST ANY OTHER INCO ME , EVEN THEN THE LOSS OF SUCH UNDERTAKING HAS TO BE NOTIONALLY CARRIED FORWA RD TO ASCERTAIN THE CORRECT ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 72 FIGURE OF ALLOWABLE DEDUCTION U/S 80IA OF THE ACT I N THE YEAR IN WHICH IT IS CLAIMED. THE AO OBSERVED THAT VERIFICATION OF RECOR DS REVEALS THAT IN RESPECT OF WIND MILL POWER DIVISION WHICH HAS BEEN COMMISSIONE D BY THE ASSESSEE COMPANY IN THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2003-04 , THE LOSS/DEPRECIATION ATTRIBUTABLE TO THIS ACTIVITY OF WIND-MILL STANDS AS UNDER: AY DEPRECIATION LOSS 2003-04 RS.58,263 2004-05 RS.17,02,898 2005-06 RS.187,90,690 2006-07 RS.21,54,000 THUS, AS PER AO THE ABOVE BROUGHT FORWARD LOSS ALTH OUGH SET OFF AGAINST OTHER INCOME OF THE ASSESSEE COMPANY IN THE RELEVANT ASSE SSMENT YEAR IS TO BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST CLAI M OF DEDUCTION U/S 80IA OF THE ACT AND THE REMAINING AMOUNT AFTER SET OFF CAN BE CLAIMED AS DEDUCTION. SINCE THE ASSESSEE COMPANY DID NOT SET-OFF THE BROU GHT FORWARD NOTIONAL LOSS AGAINST THE DEDUCTION OF RS. 1,57,90,301/- CLAIMED U/S 80IA OF THE ACT, THE CLAIM WAS DENIED TO THE ASSESSEE COMPANY BY THE AO VIDE ASSESSMENT ORDERS DATED 30-12-2010 PASSED U/S 143(3) OF THE ACT , AFT ER REJECTING THE CONTENTIONS OF THE ASSESSEE COMPANY . 38. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 30-12- 2010 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED FIRST APPEAL BEFORE THE CIT(A). 39. THE ASSESSEE COMPANY CONTENDED BEFORE THE CIT(A ) THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE COMPANY EARNED I NCOME FROM SALE OF POWER GENERATED FROM WIND MILL AND CLAIMED THE DEDU CTION U/S.80IA OF THE ACT AMOUNTING TO RS.1,57,90,301/-. THE AO DENIED TH E CLAIM OF DEDUCTION ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 73 U/S 80IA ON THE GROUNDS THAT NOTIONAL BROUGHT FORWA RD LOSSES/DEPRECIATION OF ELIGIBLE BUSINESS WHICH HAS ALREADY BEEN SET OFF IN THE RELEVANT ASSESSMENT YEAR AGAINST OTHER INCOME OF THOSE YEARS IN WHICH T HOSE LOSSES ARISES AND WERE ALLOWED BY THE REVENUE ARE TO BE NOTIONALLY BR OUGHT FORWARD AND ADJUSTED AGAINST THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT OF THE IMPUGNED ASSESSMENT YEAR BEFORE ALLOWING DEDUCTION U/S 80IA OF THE ACT AND HENCE THE ENTIRE CLAIM OF DEDUCTION OF THE ASSESSEE COMPANY A MOUNTING TO RS.1,57,90,301/- U/S 80IA OF THE ACT WERE DISALLOWE D BY THE AO WITHOUT APPRECIATING THE PROVISIONS OF SECTION 80IA(5) OF T HE ACT AND DIFFERENCE BETWEEN INITIAL ASSESSMENT YEAR AND YEAR OF COMM ENCEMENT HAS NOT BEEN PROPERLY UNDERSTOOD BY THE AO .THE ASSESSEE COMPANY SUBMITTED THAT THE FICTION CREATED BY SECTION 80IA(5) OF THE ACT IS AP PLICABLE ONLY IN THE YEARS SUBSEQUENT TO INITIAL ASSESSMENT YEAR AND THE UN-AB SORBED DEPRECIATION OF WIND MILL DIVISION FOR ALL YEARS EARLIER TO THE INI TIAL ASSESSMENT YEAR, WHICH HAD ALREADY BEEN ABSORBED AGAINST THE PROFIT OF OTH ER BUSINESSES, CANNOT BE NOTIONALLY BROUGHT FORWARD AND BE CONSIDERED FOR CO MPUTING DEDUCTION U/S 80IA OF THE ACT AND THE AO ERRED IN THE ADJUSTING N OTIONAL BROUGHT FORWARD LOSSES/DEPRECIATION AND ADJUSTING AGAINST THE CLAIM OF THE ASSESSEE COMPANY U/S 80IA OF THE ACT. THE CIT(A) OBSERVED THAT IT IS NOT DISPUTED THAT TH E ASSESSEE COMPANY INCURRED LOSSES/DEPRECIATION ATTRIBUTED TO WINDMILL POWER DIVISION AS UNDER: AY DEPRECIATION LOSS 2003-04 RS.58,263 2004-05 RS.17,02,898 2005-06 RS.187,90,690 2006-07 RS.21,54,000 ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 74 THE CIT(A) HELD THAT THE AO HAS RIGHTLY INVOKED PRO VISIONS OF SECTION 80IA(5) OF THE ACT AND ADJUSTED BROUGHT FORWARD LOSSES/DEPR ECIATION SET OFF IN EARLIER YEARS AGAINST OTHER SOURCES OF INCOME , AGAINST THE PROFIT DECLARED BY THE ASSESSEE COMPANY FROM THE SAID WINDMILL POWER DIVIS ION IN THE ASSESSMENT YEAR 2008-09 FOR THE PURPOSES OF DETERMINING QUANTU M OF DEDUCTION U/S.80IA OF THE ACT. THE AO HAS RIGHTLY DETERMINED THE TAXAB LE INCOME OF THE RELEVANT INDUSTRIAL UNDERTAKING ( WINDMILL POWER DIVISION ) AS IF SUCH UNDERTAKING IS AN INDEPENDENT UNIT OWNED BY THE ASSESSEE COMPANY AND THE ASSESSEE COMPANY HAS NO OTHER SOURCE OF INCOME FOR THE PURPOSES OF O VER-RIDING PROVISIONS OF SUB-SECTION 5 OF SECTION 80IA OF THE ACT. THE SECTI ON 80IA OF THE ACT IS A CODE IN ITSELF AND THE ASSESSEE COMPANY BY NOT CLAIMING EARLIER ASSESSMENT YEARS BUSINESS LOSSES AND DEPRECIATION SEEKS TO INFLATE T HE PROFIT LINKED INCENTIVES PROVIDED U/S 80IA OF THE ACT WHICH IS NOT PERMISSIB LE AND IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 80IA(5) OF THE ACT, THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSES OF DETERMINATION OF THE Q UANTUM OF DEDUCTION U/S 80IA OF THE ACT HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FORWARDS LOSSES AND DEPRECIATION OF ELIGIBLE BUSINE SS EVEN THOUGH THEY HAVE BEEN ALLOWED SET OFF AGAINST OTHER INCOME IN THE EA RLIER YEARS. THE CIT(A) RELIED UPON FOLLOWING DECISIONS TO SUPPORT HIS DECI SION : 1. ACIT V. GOLDMINE SHARES AND FINANCE PRIVATE LIMITED (2008) 113 ITD 209(AHD.) (SB). 2. GUJARAT AMBUJA CEMENT LIMITED V.DCIT(2009) 117 ITD 87(MUM)(TM) 3. HYDERABAD CHEMICALS SUPPLIES LIMITED V. ACIT (2011) 53 DTR 371(HYD.) THE CIT(A) CONFIRMED THE DECISION OF THE AO VIDE AP PELLATE ORDERS DATED 12.03.2012, WHEREBY THE CLAIM OF DEDUCTION OF THE A SSESSEE COMPANY U/S 80IA OF THE ACT AMOUNTING TO RS.1,57,90,301/- WAS D ENIED AND DIRECTED TO BE ADJUSTED AGAINST THE BROUGHT FORWARD NOTIONAL LOSS/ DEPRECIATION FROM THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 75 WINDMILL BUSINESS RELATING TO EARLIER YEARS DESPITE THE FACT THAT THE SAME WERE ALREADY SET OFF BY THE ASSESSEE COMPANY AGAINST OTH ER SOURCES OF INCOME AND ALLOWED BY THE REVENUE IN THE PRECEDING ASSESSMENT YEARS. 40. AGGRIEVED BY THE ORDERS DATED 12.03.2012 PASSED BY THE CIT(A), THE ASSESSEE COMPANY FILED APPEAL WITH THE TRIBUNAL. 41. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT THE WIND MILL DIVISION OF THE ASSESSEE COMPANY COMMENCED COMMERCI AL PRODUCTION OF GENERATION OF POWER IN THE PREVIOUS YEAR RELEVANT T O THE ASSESSMENT YEAR 2003-04 , BUT STARTED CLAIMING DEDUCTION U/S.80IA O F THE ACT W.E.F. ASSESSMENT YEAR 2007-08 CHOOSING THE SAME TO BE IN ITIAL ASSESSMENT YEAR. THE LD COUNSEL SUBMITTED THAT THE LOSSES INCURRED I N THE WIND MILL DIVISION BY THE ASSESSEE COMPANY TILL ASSESSMENT YEAR 2006-07 A RE ALREADY ADJUSTED AGAINST THE INCOME ARISING FROM OTHER SOURCES AND T HE SAME WERE ALLOWED TO BE ADJUSTED BY THE REVENUE IN THE RELEVANT ASSESSME NT YEARS. THE REVENUE IS NOW CONTENDING TO ADJUST NOTIONAL BROUGHT FORWARD L OSSES/DEPRECIATION WHICH ARE ALREADY ADJUSTED AND EXHAUSTED BY THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEARS BY ADJUSTING THE SAME AGAINST TH E INCOME EARNED FROM OTHER SOURCES IN THOSE RELEVANT ASSESSMENT YEARS A ND THE REVENUE CANNOT ADJUST NOTIONAL LOSSES AGAINST DEDUCTION U/S 80IA C LAIMED BY THE ASSESSEE COMPANY. THE LD. COUNSEL SUBMITTED THAT AS PER SECT ION 80IA(2) AND 80IA(5) OF THE ACT, THE ASSESSEE COMPANY HAS CHOICE OF SELE CTING INITIAL ASSESSMENT YEAR AND THE ASSESSEE COMPANY CHOSE ASSESSMENT YEA R 2007-08 AS INITIAL ASSESSMENT YEAR DESPITE STARTING COMMERCIAL PRODUC TION OF GENERATION OF POWER IN THE ASSESSMENT YEAR 2003-04 AND THE FICTIO N CREATED BY SECTION 80IA(5) OF THE ACT SHALL BE APPLICABLE FROM ASSESSM ENT YEAR 2007-08 AND NOT FROM ASSESSMENT YEAR 2003-04 . THE ASSESSEE COMPANY CLAIM IS SUPPORTED BY AUDITOR CERTIFICATE DATED 25-08-2008 IN FORM NO 10C CB FOR THE IMPUGNED ASSESSMENT YEAR, WHEREBY THE AUDITORS OF THE COMPAN Y HAS CERTIFIED THAT THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 76 ASSESSEE COMPANY IS ENTITLED FOR DEDUCTION U/S 80IA OF THE ACT AMOUNTING TO RS.157.90 LACS. THE ASSESSEE COMPANYS COUNSEL RELI ED UPON THE FOLLOWING DECISIONS : 1. VELAYUDHASWAMY SPINNING MILLS PRIVATE LIMITED V. AC IT (340 ITR 477(MAD.)). 2. CIT V. ANIL H LAD (45 TAXMANN.COM 98(KAR)) . 3. SHEVIE EXPORTS V. JCIT (156 TTJ 525(MUM.)) 4. CIT V. EASTERN SPINNING MILLS PRIVATE LIMITED (372 ITR 88(MAD)) 5. JIVRAJ TEA AND INDUSTRIES LIMITED V. ACIT (42 TAXMA NN.COM 462(AHD.)) 6. ACIT V. EVEREADY SPINNING MILLS LIMITED ( 27 TAXMAN N.COM 171(CHEN.)) 7. SADBHAV ENGINEERING LIMITED V. DCIT ( 45 TAXMANN.CO M 333(AHD.)) 8. INDIA GRATINGS PRIVATE LIMITED V. DCIT (ITA NO 4311/MUM/2013(MUM.)) 9. ACIT V. PATANKAR WINDS FARMS PRIVATE LIMITED ( 56 T AXMANN.COM 178(PUNE)) 42. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 43. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON BY THE PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS STARTED GENERATION OF ELECTRIC ITY FROM WIND MILL IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003- 04. THE ASSESSEE COMPANY HAS CHOSEN THE INITIAL ASSESSMENT YEAR FO R CLAIMING THE DEDUCTION U/S 80IA OF THE ACT WITH EFFECT FROM ASSESSMENT YEA R 2007-08 AS PER SECTION 80IA(2) AND 80IA(5) OF THE ACT. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 77 SECTION 801A OF THE ACT, AS SUBSTITUTED BY FINANCE ACT, 1999 WITH EFFECT FROM 1.4.2000, PROVIDES FOR DEDUCTION OF AN AMOUNT EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISE F ROM AN ELIGIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECTION (2) OF SECTION 8 01A OF THE ACT FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN BE CLAIME D BY THE TAX-PAYER, AT HIS OPTION, FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OU T OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS P ROVIDING SERVICES ETC. AS STIPULATED THEREIN. SUB-SECTION (5) OF SECTION 801A OF THE ACT FURTHER PROVIDES AS UNDER : NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WH ICH THE PROVISIONS OF SUB SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DE TERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSM ENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE HAS BEEN MADE TO THE TERM INITIAL ASSESSMENT YEAR. THE CLEAR MANDATE PROVIDED UNDER SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE TAX-PAYER FOR DECIDING THE Y EAR FROM WHICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPLICABLE SLAB OF FIFTE EN (OR TWENTY) YEARS. AN TAX- PAYER WHO IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA O F THE ACT HAS THE OPTION TO CHOOSE THE INITIAL/FIRST YEAR FROM WHICH IT MAY DES IRE THE CLAIM OF DEDUCTION ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 78 FOR TEN CONSECUTIVE YEARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. THUS, THE TERM INITIAL ASSESSMENT YEAR WOULD MEAN THE FIRST YEAR OPTED FOR BY THE TAX-PAYE R FOR CLAIMING DEDUCTION U/S 801A OF THE ACT. HOWEVER, THE TOTAL NUMBER OF Y EARS FOR CLAIMING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD B E AVAILED IN CONTINUITY . THE ISSUE OF ADJUSTMENT OF NOTIONAL BROUGHT FORWARD NOTIONAL LOSSES / DEPRECIATION WHICH WERE ALREADY ADJUSTED IN THE REL EVANT ASSESSMENT YEARS AGAINST THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT HAS BEEN DECIDED BY HONBLE MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNIN G MILLS PRIVATE LIMITED V. ACIT(SUPRA) WHEREBY HONBLE MADRAS HIGH COURT HELD THAT ALREADY ADJUSTED LOSSES/DEPRECIATION AGAINST INCOME FROM OT HER SOURCES IN THE EARLIER YEARS CANNOT BE BROUGHT FORWARD NOTIONALLY TO BE AD JUSTED AGAINST THE CLAIM OF THE DEDUCTION U/S. 80IA OF THE ACT IF THERE EXIS TS NO BROUGHT FORWARD LOSSES/DEPRECIATION. THE TAX-PAYER HAS AN OPTION TO CHOOSE INITIAL ASSESSMENT YEAR UNDER THE SUBSTITUTED SECTION 80IA OF THE ACT W.E.F 01-04-2000 VIDE S.SECTION 2 WHICH SHALL BE TO CHOOSE 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS AND THE FICTION CREATED BY S.SECTION 5 OF SECTION 80IA OF THE ACT SHALL OPERATE FROM THE INITIAL ASSESSMENT YEAR AND ONLY L OSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND EARLIER YEAR LOSSES WHICH ARE ALREADY SET OFF AGAIN ST THE INCOME OF THE TAX- PAYER CANNOT BE NOTIONALLY BROUGHT FORWARD TO DENY THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT AS UNDER: 16. SECTION 80-IA READS AS FOLLOWS : '80-IA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSE SSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL, IN ACCORDANCE WITH AND SUBJE CT TO THE PROVISIONS OF THIS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 79 SECTION, BE ALLOWED IN COMPUTING THE TOTAL INCOME O F THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT. OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSESSMENT YEARS. (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMEN T YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY O R STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK OR DEVELOPS A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB-SE CTION (4) OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OR POWER OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXISTING TRANSM ISSION OR DISTRIBUTION LINES. (4) THIS SECTION APPLIES TO- (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING, OR (II) OPERATING AND MAINTAINING, OR (III) DEVELOPING, OPERATING AND MAI NTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLOWING CONDITIONS , NAMELY :- (A)IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM OF SUCH COMPANIES (OR BY AN AUTHORITY OR A BOARD OR A CORPO RATION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRAL OR STA TE ACT) ; (B)IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTRA L GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUT ORY BODY FOR (I) DEVELOPING, OR (II) OPERATING AND MAINTAINING, OR (III)DEVELOPING, OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY ; (C)IT HAS STARTED OR STARTS OPERATING AND MAINTAINI NG THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1ST APRIL, 1995. (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING TH E QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATEL Y SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 80 ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE.' 17. FROM A READING OF SUB-SECTION (1), IT IS CLEAR THAT IT PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDE S ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FR OM ANY BUSINESS REFERRED TO IN SUB-SECTION (4), I.E., REFERRED TO A S THE ELIGIBLE BUSINESS, THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THE SECTION, BE ALLOWED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION OF AN AMOUNT EQUAL TO 100 PER CENT. OF TH E PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIVE ASSE SSMENT YEARS. DEDUCTION IS GIVEN TO ELIGIBLE BUSINESS AND THE SAM E IS DEFINED IN SUB- SECTION (4). SUB-SECTION (2) PROVIDES OPTION TO THE ASSESSEE TO CHOOSE 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS. OPTIO N HAS TO BE EXERCISED, IF IT IS NOT EXERCISED, THE ASSESSEE WIL L NOT BE GETTING THE BENEFIT. FIFTEEN YEARS IS OUTER LIMIT AND THE SAME IS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEV ELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE ACTIVITY, ETC. SUB-SECTI ON (5) DEALS WITH QUANTUM OF DEDUCTION FOR AN ELIGIBLE BUSINESS. THE WORDS 'INITIAL ASSESSMENT YEAR' ARE USED IN SUB-SECTION (5) AND TH E SAME IS NOT DEFINED UNDER THE PROVISIONS. IT IS TO BE NOTED THAT 'INITI AL ASSESSMENT YEAR' EMPLOYED IN SUB-SECTION (5) IS DIFFERENT FROM THE W ORDS 'BEGINNING FROM THE YEAR' REFERRED TO IN SUB-SECTION (2). THE IMPOR TANT FACTORS ARE TO BE NOTED IN SUB-SECTION (5) AND THEY ARE AS UNDER : '(1)IT STARTS WITH A NON OBSTANTE CLAUSE WHICH MEAN S IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER PROVISIONS ARE TO B E IGNORED ; (2)IT IS FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION ; (3)FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING T HE INITIAL ASSESSMENT YEAR ; ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 81 (4)IT IS A DEEMING PROVISION ; (5)FICTION CREATED THAT THE ELIGIBLE BUSINESS IS TH E ONLY SOURCE OF INCOME ; AND 6)DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR.' 18. FROM A READING OF THE ABOVE, IT IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESS MENT YEARS. WHEN THE ASSESSEE EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGH T FORWARD AND NO LOSSES OF EARLIER YEARS WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YE ARS FROM THE INITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE R EVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLI ER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OF F AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNO T REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. A FICTION CREATED I N SUB-SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. TH E FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTE NDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. 19. IN THE PRESENT CASES, THERE IS NO DISPUTE THAT LOSS ES INCURRED BY THE ASSESSEE WERE ALREADY SET OFF AND ADJUSTED AGAINST THE PROFITS OF THE EARLIER YEARS. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE EXERCISED THE OPTION UNDER SECTION 80-IA(2). IN TAX CASE NOS. 909 OF 2009 AS WELL AS 940 OF 2009, THE ASSESSMENT YEAR WAS 200 5-06 AND IN TAX CASE NO. 918 OF 2008 THE ASSESSMENT YEAR WAS 2004-0 5. DURING THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 82 RELEVANT PERIOD, THERE WERE NO UNABSORBED DEPRECIAT ION OR LOSS OF THE ELIGIBLE UNDERTAKINGS AND THE SAME WERE ALREADY ABS ORBED IN THE EARLIER YEARS. THERE IS A POSITIVE PROFIT DURING THE YEAR. THE UNREPORTED JUDGMENT OF THIS COURT CITED SUPRA CONSIDERED THE SCOPE OF S UB-SECTION (6) OF SECTION 80-I, WHICH IS THE CORRESPONDING PROVISION OF SUB-S ECTION (5) OF SECTION 80- IA. BOTH ARE SIMILARLY WORDED AND, THEREFORE, WE AG REE ENTIRELY WITH THE DIVISION BENCH JUDGMENT OF THIS COURT CITED SUPRA. IN THE CASE OF CIT V. MEWAR OIL AND GENERAL MILLS LTD. (NO. 1) [2004] 271 ITR 311 (RAJ) ; [2004] 186 CTR (RAJ) 141 , THE RAJASTHAN HIGH COURT ALSO CONSIDERED THE SCOPE OF SECTION 80-I AND HELD AS FOLLOWS (PAGE 314 OF 271 ITR) : 'HAVING CONSIDERED THE RIVAL CONTENTIONS WHICH FOLL OW ON THE LINE NOTICED ABOVE, WE ARE OF THE OPINION THAT ON FINDING THE FA CT THAT THERE WAS NO CARRY FORWARD LOSSES OF 1983-84, WHICH COULD BE SET OFF A GAINST THE INCOME OF THE CURRENT ASSESSMENT YEAR 1984-85, THE RECOMPUTATION OF INCOME FROM THE NEW INDUSTRIAL UNDERTAKING BY SETTING OFF THE CARRY FOR WARD OF UNABSORBED DEPRECIATION OR DEPRECIATION ALLOWANCE FROM PREVIOU S YEAR DID NOT SIMPLY ARISE AND ON THE FINDING OF FACT NOTICED BY THE COM MISSIONER OF INCOME-TAX (APPEALS), WHICH HAS NOT BEEN DISTURBED BY THE TRIB UNAL AND CHALLENGED BEFORE US, THERE WAS NO ERROR MUCH LESS ANY ERROR A PPARENT ON THE FACE OF THE RECORD WHICH COULD BE RECTIFIED. THAT QUESTION WOUL D HAVE BEEN GERMANE ONLY IF THERE WOULD HAVE BEEN CARRY FORWARD OF UNAB SORBED DEPRECIATION AND UNABSORBED DEVELOPMENT REBATE OR ANY OTHER UNABSORB ED LOSSES OF THE PREVIOUS YEAR ARISING OUT OF THE PRIORITY INDUSTRY AND WHETHER IT WAS REQUIRED TO BE SET OFF AGAINST THE INCOME OF THE CURRENT YEA R. IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR SHOULD BE REOPENED AGAI N FOR COMPUTATION OF CURRENT INCOME UNDER SECTION 80-I FOR THE PURPOSE O F COMPUTING ADMISSIBLE DEDUCTIONS THEREUNDER. IN VIEW THEREOF, WE ARE OF THE OPINION THAT THE TRI BUNAL HAS NOT ERRED IN HOLDING THAT THERE WAS NO RECTIFICATION POSSIBLE UNDER SECT ION 80-I IN THE PRESENT CASE, ALBEIT, FOR REASONS SOMEWHAT DIFFERENT FROM THOSE W HICH PREVAILED WITH THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 83 TRIBUNAL. THERE BEING NO CARRY FORWARD OF ALLOWABLE DEDUCTIONS UNDER THE HEAD DEPRECIATION OR DEVELOPMENT REBATE WHICH NEEDED TO BE ABSORBED AGAINST THE INCOME OF THE CURRENT YEAR AND, THEREFORE, RECOMPUT ATION OF INCOME FOR THE PURPOSE OF COMPUTING PERMISSIBLE DEDUCTION UNDER SE CTION 80-I FOR THE NEW INDUSTRIAL UNDERTAKING WAS NOT REQUIRED IN THE PRES ENT CASE. ACCORDINGLY, THIS APPEAL FAILS AND IS HEREBY DISMIS SED WITH NO ORDER AS TO COSTS.' 20. FROM A READING OF THE ABOVE, THE RAJASTHAN HIGH COU RT HELD THAT IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEA R SHOULD BE REOPENED AGAIN FOR COMPUTATION OF CURRENT INCOME UNDER SECTI ON 80-I FOR THE PURPOSE OF COMPUTING ADMISSIBLE DEDUCTIONS THEREUND ER. WE ALSO AGREE WITH THE SAME. WE SEE NO REASON TO TAKE A DIFFERENT VIEW. HOWEVER, WE WILL BE FAILING IN OUR DUTY IF WE DO NO T BRING ON RECORD TWO IMPORTANT DEVELOPMENTS WHICH HAS TAKEN PLACE WITH R ESPECT TO THE ISSUE IN DISPUTE AFTER THE CONCLUSION OF THE HEARING ON 20 -01-2016 IN THE INSTANT APPEAL, FIRSTLY, THE CBDT HAS NOW COME WITH CIRCULA R NO. 1/2016[F. NO. 200/31/2015-ITA-I] DATED 15-2-2016 WHICH IS BINDING ON REVENUE , WHEREBY THE BOARD HAS CLARIFIED THE TERM INITIAL ASSESSME NT YEAR IN SECTION 80-IA(5) OF THE ACT WHEREIN IT HAS BEEN CATEGORICALLY MENTIO NED THAT THE MATTER HAS BEEN EXAMINED BY THE BOARD AND IT IS ABUNDANTLY CLE AR FROM SUB-SECTION (2) OF SECTION 80IA OF THE ACT THAT AN TAX-PAYER WHO IS EL IGIBLE TO CLAIM DEDUCTION U/S 80-IA OF THE ACT HAS THE OPTION TO CHOOSE THE I NITIAL/FIRST YEAR FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSEC UTIVE YEARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT HAS BEEN CLARIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HA S BEEN OPTED FOR BY THE TAX- PAYER, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 80IA OF THE ACT FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPEC T OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 84 SECTION. HENCE, IT WAS CLARIFIED BY THE CBDT THAT T HE TERM 'INITIAL ASSESSMENT YEAR' WOULD MEAN THE FIRST YEAR OPTED FOR BY THE TA X-PAYER FOR CLAIMING DEDUCTION U/S 80-1A OF THE ACT. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCR IBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. THUS, THE CBDT DIRECTED ALL THE ASSESSI NG OFFICERS CONCERNED TO ALLOW DEDUCTION U/S 80-IA OF THE ACT IN ACCORDANCE WITH THIS CLARIFICATION AND AFTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDI TIONS APPLICABLE IN A PARTICULAR CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 LA OF THE ACT SHALL ALSO NOT BE PU RSUED TO THE EXTENT IT RELATES TO INTERPRETING 'INITIAL ASSESSMENT YEAR' A S MENTIONED IN SUB- SECTION (5) OF THAT SECTION. IN VIEW OF THE SAID CIRCULAR ALSO THE CLAIM OF THE REVENUE IS NOW NOT SUSTAINABLE AS THE CIRCULAR IS B INDING ON REVENUE. THE RELEVANT CBDT CIRCULAR NO 1/2016 (F.NO.200/31/2015- ITA-1)DATED 15-2- 2006 IS REPRODUCED BELOW:- CIRCULAR NO.1I2016 [F.NO.200/311201S-ITA-I] SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTI ONS PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - ARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SE CTION 80-IA(5) CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-LL, DATED 15-2-2016 SECTION 80-IA OF THE INCOME-TAX ACT, 1961 (ACT'), A S SUBSTITUTED BY THE FINANCE ACT, 1999 WITH EFFECT FROM 1-4-2000, PROVIDES FOR D EDUCTION OF AN AMOUNT EQUAL TO 100 % OF THE PROFITS AND GAINS DERIVED BY AN UND ERTAKING OR ENTERPRISE FROM AN ELIGIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECT ION (2) OF SECTION 80-IA FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN B E CLAIMED BY THE ASSESSEE, AT HIS OPTION, FOR ANY TEN CONSECUTIVE ASSESSMENT Y EARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS PROVIDING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 85 SERVICES ETC. AS STIPULATED THEREIN. SUB-SECTION (5 ) OF SECTION 80-IA FURTHER PROVIDES AS UNDER- 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WH ICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DE TERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSM ENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE'. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE HAS BEEN MADE TO THE TERM 'INITIAL ASSESSMENT YEAR'. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERPRETING THE TERM 'INITIAL ASSESSMENT YEAR' AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/ MANUFACTURING ACTIVITY HAD COMMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT/OPERATION ETC. ITSELF AS THE FIRST YEAR FOR GRANTING DEDUCTION, IGNORING THE CLEAR MANDATE PROVIDED UNDE R SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECIDING THE YE AR FROM WHICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPLICABLE SLAB OF FIFTE EN (OR TWENTY) YEARS. THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS AB UNDANTLY CLEAR FROM SUB- SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLA IM DEDUCTION U/S.80-IA HAS THE OPTION TO CHOOSE THE INITIAL/ FIRST YEAR FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE YEARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLA RIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJE CT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE, THE TE RM 'INITIAL ASSESSMENT YEAR' WOULD MEAN THE FIRST YEAR OPTED FOR BY THE ASSESSEE FOR CLAIMING DEDUCTION U/S. 80-1A. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIM ING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTIN UITY. THE ASSESSING OFFICERS ARE, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S. 80-IA IN ACCORDANCE WITH THIS CLARIFICATION AND AFTER BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTICULAR CA SE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 LA S HALL ALSO NOT BE PURSUED TO THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 86 EXTENT IT RELATES TO INTERPRETING 'INITIAL ASSESSME NT YEAR' AS MENTIONED IN SUB- SECTION (5) OF THAT SECTION FOR WHICH THE STANDING COUNSELS/D.R.S BE SUITABLY INSTRUCTED. THE ABOVE BE BROUGHT TO THE NOTICE OF ALL ASSESSING OFFICERS CONCERNED. SECONDLY , IN A VERY RECENT JUDGMENT DELIVERED ON 0 1-03-2016 BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. GRT JEWELLE RS (INDIA) PRIVATE L IMITED IN TCA NO 176 OF 2016 ON AN IDENTICAL ISSUE , THE H ONBLE MADRAS HIGH COURT HAS DISMISSED THE REVENUE APPEAL AFTER CONSIDERING THE AFORE-STATED CIRCULAR NO 1 OF 2016 AS UNDER: THE REVENUE HAS COME UP WITH THE ABOVE APPEAL RAIS ING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW : '(1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80IA WITHOUT SE TTING OFF THE LOSSES/UNABSORBED DEPRECIATION PERTAINING TO THE WI NDMILL, WHICH WERE SET OFF IN THE EARLIER YEAR AGAINST OTHER BUSINESS INCOME OF THE ASSESSEE FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF M/S.VELAYUDHASWAMY SPINNING MILLS (340 ITR 477), WH EN THE SAME IS PENDING APPEAL BEFORE THE SUPREME COURT IN SLP.CIVI L NO.33475 OF 2012 ? (2) WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE INCOME TAX APPELLATE TRIBUNAL WAS CORRECT IN HOLDING THAT THE INITIAL ASSESSMENT YEAR IN SECTION 80IA(5) WOULD ONLY MEAN THE YEAR OF CLAIM OF DEDUCTION UNDER SECTION 80IA AND NOT THE YEAR OF COMMENCEMENT OF ELIGIBLE BUSINESS ? AND ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 87 (3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE HAS THE OPTION TO CHOOSE THE FIRST/INITIAL ASSESSMENT YEAR OF CLAIM FOR DEDU CTION UNDER SECTION 80IA ?' 2. HEARD MR.T.R.SENTHILKUMAR, LEARNED STANDING COUN SEL FOR THE DEPARTMENT. MR.M.P.SENTHILKUMAR, LEARNED COUNSEL TA KES NOTICE FOR THE RESPONDENT. 3. EVEN ACCORDING TO THE LEARNED STANDING COUNSEL F OR THE DEPARTMENT, THIS COURT HAS CONSISTENTLY FOLLOWED THE DECISION I N M/S.VELAYUDHASWAMY SPINNING MILLS (340 ITR 477), DE SPITE THE HONOURABLE SUPREME COURT ORDERING NOTICE. 4. INTERESTINGLY, ON THE BASIS OF THE DECISION IN V ELAYUDHASWAMY SPINNING MILLS, THE CENTRAL BOARD OF DIRECT TAXES H AS ISSUED CIRCULAR NO.1/ 2016 DATED 15.2.2016. IT WILL BE USEFUL TO EX TRACT THE CIRCULAR IN ENTIRETY, WHICH IS AS FOLLOWS : 'CIRCULAR NO. 1 /2016 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK, NEW DELHI, THE 1 5TH FEBRUARY, 2016 SUBJECT: CLARIFICATION OF THE TERM INITIAL ASSESSM ENT YEAR' IN SECTION 80IA(5) OF THE INCOME TAX ACT, 1961 SECTION 801A OF THE INCOME-TAX ACT, 1961 (ACT), A S SUBSTITUTED BY FINANCE ACT, 1999 WITH EFFECT FROM 1.4.2000, PROVID ES FOR DEDUCTION OF AN AMOUNT EQUAL TO 100% OF THE PROFITS AND GAINS DERIV ED BY AN UNDERTAKING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 88 OR ENTERPRISE FROM AN ELIGIBLE BUSINESS (AS REFERRE D TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PRO VISIONS. SUB-SECTION (2) OF SECTION 801A FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN BE CLAIMED BY THE ASSESSEE, AT HIS OPTION, FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING CO MMENCES OPERATION, BEGINS DEVELOPMENT OR STARTS PROVIDING SERVICES ETC . AS STIPULATED THEREIN. SUB-SECTION (5) OF SECTION 801A FURTHER PROVIDES AS UNDER : NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WH ICH THE PROVISIONS OF SUB SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DE TERMINING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSM ENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE. IN THE ABOVE SUB-SECTION, WHICH PRESCRIBES THE MANN ER OF DETERMINING THE QUANTUM OF DEDUCTION, A REFERENCE HAS BEEN MADE TO THE TERM INITIAL ASSESSMENT YEAR. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERPRETING THE TERM INITIAL ASSESSMENT YEAR AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/MANUFACTURING ACTIVITY HAD CO MMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT/OPERATI ON ETC. ITSELF AS THE FIRST YEAR FOR GRANTING DEDUCTION, IGNORING THE CLE AR MANDATE PROVIDED UNDER SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECIDING THE YEAR FROM WHICH IT DESIRES TO CLAIM DEDUCTION O UT OF THE APPLICABLE SLAB OF FIFTEEN (OR TWENTY) YEARS. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 89 THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS A BUNDANTLY CLEAR FROM SUB-SECTION (2) THAT AN ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUCTION U/S 80IA HAS THE OPTION TO CHOOSE THE INITIAL/FIRST YEA R FROM WHICH IT MAY DESIRE THE CLAIM OF DEDUCTION FOR TEN CONSECUTIVE Y EARS, OUT OF A SLAB OF FIFTEEN (OR TWENTY) YEARS, AS PRESCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLARIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL BE ENTITLED TO CLAIM DEDUCTION U/S 801A FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RE SPECT OF WHICH HE HAS EXERCISED SUCH OPTION SUBJECT TO THE FULFILLMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE, THE TERM INITIAL ASSESSMENT YE AR WOULD MEAN THE FIRST YEAR OPTED FOR BY THE ASSESSEE FOR CLAIMING D EDUCTION U/S 801A. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMING DED UCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. THE ASSESSING OFFICERS ARE, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S 801A IN ACCORDANCE WITH THIS CLARIFICATION AND AFTE R BEING SATISFIED THAT ALL THE PRESCRIBED CONDITIONS APPLICABLE IN A PARTI CULAR CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DE DUCTION U/S 80 IA SHALL ALSO NOT BE PURSUED TO THE EXTENT IT RELATES TO INT ERPRETING INITIAL ASSESSMENT YEAR AS MENTIONED IN SUBSECTION (5) OF THAT SECTION FOR WHICH THE STANDING COUNSEL/DRS BE SUITABLY INSTRUCTED. THE ABOVE BE BROUGHT TO THE NOTICE OF ALL ASSESSING OFFICERS CONCERNED.' 5. THEREFORE, ADMITTEDLY, QUESTIONS OF LAW 2 AND 3 ARE ALSO COVERED BY THE ABOVE CIRCULAR. HENCE, THE APPEAL DESERVES TO B E DISMISSED 6. ACCORDINGLY, THE ABOVE TAX CASE APPEAL IS DISMIS SED. NO COSTS. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 90 7. BUT, WE CANNOT RESIST OUR TEMPTATION TO RECORD O NE MORE FACT. IF AN ISSUE IS COVERED BY THE JUDGMENT OF THE HIGH COURT, IT IS ALWAYS OPEN TO THE DEPARTMENT TO TAKE IT ON APPEAL TO THE SUPREME COURT AND GET THE LAW SETTLED ONCE AND FOR ALL. BUT, ONCE A DECISION IS T AKEN AT THE LEVEL OF THE BOARD, WE DO NOT KNOW WHY REPEATED APPEALS SHOULD B E FILED, ONLY TO MEET WITH THE SAME FATE AS THAT OF A DECISION, ON W HICH, A CIRCULAR HAS BEEN ISSUED. THE DEPARTMENT SHALL TAKE NOTE OF THIS FOR FUTURE GUIDANCE. THUS, BASED ON OUR ABOVE DISCUSSIONS AND REASONING , WE HOLD THAT ALREADY ADJUSTED LOSSES/DEPRECIATION AGAINST INCOME FROM OT HER BUSINESSES IN THE EARLIER YEARS (I.E. UP-TO ASSESSMENT YEAR 2006-07 A S THE ASSESSEE COMPANY HAS CHOSEN ASSESSMENT YEAR 2007-08 AS THE INITIAL ASSESSMENT YEAR FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT )BY THE ASSE SSEE COMPANY CANNOT BE BROUGHT FORWARD NOTIONALLY TO BE ADJUSTED AGAINST T HE CLAIM OF THE DEDUCTION U/S 80IA OF THE ACT FOR THE IMPUGNED ASSESSMENT YEA R AS THERE EXISTED NO BROUGHT FORWARD UN-ADJUSTED LOSSES/DEPRECIATION IN THE HANDS OF THE ASSESSEE COMPANY AS PER FACTS EMANATING FROM RECORDS . GROUN D NO 1 OF THE ASSESSEE COMPANY IS ALLOWED. 44. THE GROUND NO 2 IS RAISED BY THE ASSESSEE COMPA NY WHICH IS RAISED WITHOUT PREJUDICE TO GROUND NO 1 . THE BRIEF FACTS ARE THAT IT WAS OBSERVED BY THE A.O . THAT SALE OF WINDMILL POWER OF RS. 179.08 LACS SHOWN BY THE ASSESSEE COMPANY WH ICH INCLUDE AN AMOUNT OF RS. 35,55,880/- WHICH IS NOT ON ACCOUNT OF SALE OF POWER GENERATED BUT THE SAME IS RECEIVED BY THE ASSESSEE COMPANY ON ACCOUNT OF COMPENSATION RECEIVED FROM SUZLON ENERGY LTD. SINCE THIS INCOME IS NOT DERIVED FROM THE INDUSTRIAL UNDERTAKING, AS PER THE AO , THE SAME DO NOT QUALIFY FOR DEDUCTION U/S 80IA OF THE ACT AND ACCORDINGLY WAS DISALLOWED BY THE A.O. SINCE THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 91 ENTIRE CLAIM OF THE ASSESSEE COMPANY FOR DEDUCTION UNDER SECTION 80IA OF THE ACT WAS DISALLOWED BY THE AO , NO SEPARATE DISALLOW ANCE WAS MADE ON THIS ACCOUNT BY THE AO , VIDE ASSESSMENT ORDERS DATED 30 -12-2010 PASSED BY THE AO U/S 143(3) OF THE ACT. 45. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2 010 PASSED BY THE A.O. U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY PREFERR ED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) UPHELD THE DECISION OF A.O. BY HOLDING THAT THE ASSESSEE COMPANY HAS RECEIVED RS.35,55,880/- WHICH WAS NOT ON ACCOUNT OF SALE OF POWER GENERATED BUT ON ACCOUNT OF COMPENSAT ION RECEIVED FROM SUZLON ENERGY LIMITED AND HENCE THE AO HAS RIGHTLY MENTION ED THAT SUCH RECEIPTS FROM SUZLON ENERGY LIMITED IS NOT THE INCOME DERIVE D FROM THE INDUSTRIAL UNDERTAKING , VIDE ORDERS DATED 12-03-2012. 46. AGGRIEVED BY THE ORDERS DATED 12-03-2012 OF THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 47. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT THE BENEFIT OF DEDUCTION U/S 80IA OF THE ACT TO THE EXTENT OF RS. 35,55,880/- WAS DENIED TO THE ASSESSEE COMPANY AND THE SAID COMPENSATION WAS RECEIVED FROM M/S SUZLON ENERGY LTD ON ACCOUNT OF SHORTFALL IN GENERA TION OF POWER AS AGAINST THE CERTIFIED MINIMUM GUARANTEED GENERATION OF POWE R BY SUZLON ENERGY LIMITED WHO WERE THE EQUIPMENT SUPPLIERS FOR WINDMI LL POWER PROJECT OF THE ASSESSEE COMPANY. THERE WAS A COMMITMENT OF MINIMUM GUARANTEED GENERATION OF POWER GIVEN BY M/S SUZLON ENERGY LTD WHO WHILE SUPPLYING WINDMILL POWER EQUIPMENTS ASSURED MINIMUM GENERATIO N OF POWER BY THEIR EQUIPMENTS AND IN CASE OF FAILURE OF GENERATION OF MINIMUM GUARANTEED RATED CAPACITY OF POWER GENERATION, THE SUZLON ENERGY LIM ITED UNDERTOOK TO COMPENSATE THE ASSESSEE COMPANY FOR SUCH SHORTFALL . DUE TO THE PERFORMANCE OF THE ASSESSEE COMPANY BEING LOWER THAN THE MINIMU M GUARANTEED ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 92 PERFORMANCE ASSURANCE GIVEN BY M/S SUZLON ENERGY LT D. WHO SUPPLIED WINDMILL EQUIPMENT, SUZLON ENERGY LIMITED HAS PAID /COMPENSATED THE SAID AMOUNT AGGREGATING TO RS.35,55,880/- TO COVER THE L OWER PRODUCTION THAN THE MINIMUM RATED GUARANTEED PRODUCTION AND HENCE THE S AID AMOUNT IS INCOME DERIVED FROM WINDMILL UNDERTAKING OF THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF GENERATION OF POWER AND THERE IS A FIRS T DEGREE NEXUS OF THE SAID RECEIPT AND THE GENERATION OF POWER BY THE WINDMIL L UNDERTAKING OF THE ASSESSEE COMPANY AND THE COMPENSATION RECEIVED FOR UNDER-PERFORMANCE OF THE WIND MILL BELOW GUARANTEED CAPACITY IS TOWARDS DEEMED GENERATION OF POWER AND BENEFIT U/S 80IA OF THE ACT CANNOT BE DE NIED TO THE ASSESSEE COMPANY. THE LD. COUNSEL OF THE ASSESSEE COMPANY R ELIED UPON THE FOLLOWING CASE LAWS : 1. MAGNUM POWER GENERATION LIMITED V. DCIT (2011) 16 T AXMANN.COM 75(DELHI) 2. C.N.V. TEXTILES PRIVATE LIMITED V. DCIT IN ITA NO. 746/MDS/2014 (CHENNAI TRIBUNAL), DATED 21.11.2014 3. BEST CORPORATION PVT. LTD. V. JCIT IN ITA NO 1958/M DS/2014 DATED 20-5-2015 48. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE COMPANY HAS RECEIVED COMPENSATION WHICH IS NOT FOR GENERATI ON OF ELECTRICITY BUT FOR NON-PERFORMANCE OF THE POWER EQUIPMENT AND SAME CAN NOT BE ALLOWED AS DEDUCTION U/S 80IA OF THE ACT. THE LD DR RELIED UPO N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LIMITED( 2009) 317 ITR 218(SC) 49. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT FROM TH E FACTS WHICH ARE EMERGING FROM THE RECORDS AND ORDERS OF THE AUTHORITIES BELO W AND SUBMISSIONS MADE BY BOTH THE COUNSELS, IT IS OBSERVED THAT THE ASSES SEE COMPANY HAS RECEIVED ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 93 AN AMOUNT OF RS. 35,55,880/- FROM SUZLON ENERGY LIM ITED WHICH IS INCLUDED IN THE SALE OF WINDMILL POWER BUT THE SAID AMOUNT W AS RECEIVED BY THE ASSESSEE COMPANY NOT ON ACCOUNT OF SALE OF POWER GE NERATED BUT ON ACCOUNT OF COMPENSATION RECEIVED FROM SUZLON ENERGY LIMITED (POWER EQUIPMENT SUPPLIER TO ASSESSEE COMPANY ) FOR PERFORMANCE OF T HE POWER EQUIPMENT BELOW THE MINIMUM GUARANTEED ASSURED CAPACITY UTILIZATION AND GENERATION OF POWER AS ASSURED BY SUZLON ENERGY LIMITED AND THE A .O. TREATED THE SAME AS INCOME WHICH IS NOT DERIVED FROM INDUSTRIAL UNDERTA KING. WE HAVE ALSO OBSERVED THAT THE WORD USED IN SECTION 80IA OF THE ACT IS WHERE THE GROSS TOTAL INCOME OF AN TAX-PAYER INCLUDES ANY PROFITS AND GAI NS DERIVED BY AN UNDERTAKING OR AN ENTERPRISE FROM ANY BUSINESS REFE RRED TO IN SUB SECTION (4) OF SECTION 80-IA OF THE ACT. THE WORD DERIVED FRO M MEANS THAT THE RECEIPT SHOULD HAVE A CLOSE AND FIRST DEGREE NEXUS WITH THE GENERATION OF POWER. THE ASSESSEE COMPANY HAS RECEIVED THE AMOUNT FROM M/S S UZLON ENERGY LTD. WHICH IS ON ACCOUNT OF SHORTFALL IN GENERATION OF POWER AS COMPARED TO GUARANTEED GENERATION OF POWER BY SUZLON ENERGY LIM ITED . THE ISSUE IN THIS GROUND OF APPEAL IS SQUARELY COVE RED BY THE DECISION OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN FAVOUR OF TH E ASSESSEE COMPANY IN FOLLOWING CASES: 1. MAGNUM POWER GENERATION LIMITED V. DCIT (2011) 16 T AXMANN.COM 75(DELHI) 2. C.N.V. TEXTILES PRIVATE LIMITED V. DCIT IN ITA NO. 746/MDS/2014 (CHENNAI TRIBUNAL), DATED 21.11.2014 3. BEST CORPORATION PVT. LTD. V. JCIT IN ITA NO 1958/M DS/2014 DATED 20-5-2015 THE TRIBUNAL , CHENNAI BENCHES IN C.N.V.TEXTILES PR IVATE LIMITED (SUPRA) HELD AS UNDER: ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 94 9. THE ASSESSEES LAST GROUND PERTAINS TO GENERATI ON LOSS COMPENSATION RECEIPT OF RS.10,00,569/- FROM ITS SUP PLIER FOR LOSS OF WIND POWER PRODUCTION. THE REVENUES OBJECTIONS ARE BASED ON THE WORD DERIVED (SUPRA). THE ASSESSEES WINDMILL SUP PLIER HAS PAID THE AFORESAID AMOUNT IN LIEU OF ASSURED POWER GENER ATION FAILURE AT A RATE FIXED VERY WELL IN ADVANCE. IN IDENTICAL CIR CUMSTANCES, WE FIND THAT IN CASE LAW [2011] 16 TAXMANN.COM 75(DELH I) MAGNUM POWER GENERATION LTD. VS DCIT HOLDS THAT SUCH A REC EIPT ARISING FROM COMPENSATION IS ENTITLED FOR SECTION 80IA DEDU CTION. THE REVENUE DOES NOT CITE ANY JUDICIAL PRECEDENCE IN IT S FAVOUR. THUS, WE ADOPT THE SAME VIEW AND ALLOW THE ASSESSEES COR RESPONDING GROUND. THE ASSESSING OFFICER IS DIRECTED TO PASS A CONSEQU ENTIAL COMPUTATION ORDER. WE WOULD ALSO LIKE TO SUBMIT THAT THE HONBLE SUPRE ME COURT HAD RECENTLY ON 09 TH MARCH 2016 (POST CONCLUSION OF HEARING IN THE INST ANT CASE) AFTER CONSIDERING THE ENTIRE LAW ON THE SUBJECT HAS DELIV ERED A LANDMARK JUDGMENT IN THE CASE OF CIT V. MEGHALAYA STEELS LIMITED IN CIVIL APPEAL NO. 7622 OF 2014 WHEREBY POWER SUBSIDY, INTEREST SUBSIDY AND TR ANSPORT SUBSIDY WERE HELD TO HAVE DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ARE HELD TO BE INCOME DERIVED FROM THE UNDERTAKING AS IT GO ES TO REDUCE THE COST OF PRODUCTION AND DEDUCTION U/S 80IB OF THE ACT WAS H ELD TO BE ALLOWABLE. THE RELEVANT PORTION OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. MEGHALAYA STEELS LIMITED (SUPRA) IS REPRODUCED B ELOW: 13. A SERIES OF DECISIONS HAVE MADE A DISTINCTION BETWEEN PROFIT ATTRIBUTABLE TO AND PROFIT DERIVED FROM A BUSINE SS. IN ONE OF THE EARLY JUDGMENTS, NAMELY, CAMBAY ELECTRIC SUPPLY INDUSTRI AL COMPANY LIMITED ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 95 V. COMMISSIONER OF INCOME TAX, GUJARAT II, (1978) 2 SCC 644, THIS COURT HAD TO CONSTRUE SECTION 80-E OF THE INCOME TAX ACT, WHICH REFERRED TO PROFITS AND GAINS ATTRIBUTABLE TO THE BUSINESS OF G ENERATION OR DISTRIBUTION OF ELECTRICITY. THIS COURT HELD: AS REGARDS THE ASPECT EMERGING FROM THE EXPRESSION 'ATTRIBUTABLE TO' OCCURRING IN THE PHRASE 'PROFITS AND GAINS ATTR IBUTABLE TO THE BUSINESS OF' THE SPECIFIED INDUSTRY (HERE GENERATIO N AND DISTRIBUTION OF ELECTRICITY) ON WHICH THE LEARNED S OLICITOR GENERAL RELIED, IT WILL BE PERTINENT TO OBSERVE THAT THE LE GISLATURE HAS DELIBERATELY USED THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT THE EXPRESSION 'DERIVED FROM'. IT CANNOT BE DISPUTED TH AT THE EXPRESSION 'ATTRIBUTABLE TO' IS CERTAINLY WIDER IN IMPORT THAN THE EXPRESSION 'DERIVED FROM'. HAD THE EXPRESSION 'DERI VED FROM' BEEN USED IT COULD HAVE WITH SOME FORCE BEEN CONTENDED T HAT A BALANCING CHARGE ARISING FROM THE SALE OF OLD MACHI NERY AND BUILDINGS CANNOT BE REGARDED AS PROFITS AND GAINS D ERIVED FROM THE CONDUCT OF THE BUSINESS OF GENERATION AND DISTRIBUT ION OF ELECTRICITY. IN THIS CONNECTION IT MAY BE POINTED OUT THAT WHENE VER THE LEGISLATURE WANTED TO GIVE A RESTRICTED MEANING IN THE MANNER SUGGESTED BY THE LEARNED SOLICITOR GENERAL IT HAS U SED THE EXPRESSION 'DERIVED FROM', AS FOR INSTANCE IN S. 80 J. IN OUR VIEW SINCE THE EXPRESSION OF WIDER IMPORT, NAMELY, 'ATTR IBUTABLE TO HAS BEEN USED, THE LEGISLATURE INTENDED TO COVER RECEIP TS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GE NERATION AND DISTRIBUTION OF ELECTRICITY. (PARA 8) 14. IN COMMISSIONER OF INCOME TAX, KARNATAKA V. STE RLING FOODS, MANGALORE, (1999) 4 SCC 98, THIS COURT HAD TO DECID E WHETHER INCOME DERIVED BY THE ASSESSEE BY SALE OF IMPORT ENTITLEME NTS ON EXPORT BEING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 96 MADE, WAS PROFIT AND GAIN DERIVED FROM THE RESPONDE NTS INDUSTRIAL UNDERTAKING UNDER SECTION 80HH OF THE INDIAN INCOME TAX ACT. THIS COURT REFERRED TO THE JUDGMENT IN CAMBAY ELECTRIC S UPPLY (SUPRA) AND EMPHASIZED THE DIFFERENCE BETWEEN THE WIDER EXPRESS ION ATTRIBUTABLE TO AS CONTRASTED WITH DERIVED FROM. IN THE COURSE OF THE JUDGMENT, THIS COURT STATED THAT THE INDUSTRIAL UNDERTAKING ITSELF HAD TO BE THE SOURCE OF THE PROFIT. THE BUSINESS OF THE INDUSTRIAL UNDERTAK ING HAD DIRECTLY TO YIELD THAT PROFIT. HAVING SAID THIS, THIS COURT FINALLY H ELD:- WE DO NOT THINK THAT THE SOURCE OF THE IMPORT ENTI TLEMENTS CAN BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE ASSESS EE. THE SOURCE OF THE IMPORT ENTITLEMENTS CAN, IN THE CIRCUMSTANCES, ONLY BE SAID TO BE THE EXPORT PROMOTION SCHEME OF THE CENTRAL GOVT. WHERE UNDER THE EXPORT ENTITLEMENTS BECOME AVAILABLE. THERE MUS T BE FOR THE APPLICATION OF THE WORDS 'DERIVED FROM', A DIRECT N EXUS BETWEEN THE PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. I N THE INSTANT CASE THE NEXUS IS NOT DIRECT BUT ONLY INCIDENTAL. T HE INDUSTRIAL UNDERTAKING EXPORTS PROCESSED SEA FOOD. BY REASON O F SUCH EXPORT, THE EXPORT PROMOTION SCHEME APPLIES. THERE UNDER, T HE ASSESSEE IS ENTITLED TO IMPORT ENTITLEMENTS, WHICH IT CAN SELL. THE SALE CONSIDERATION THEREFROM CANNOT, IN OUR VIEW, BE HEL D TO CONSTITUTE A PROFIT AND GAIN DERIVED FROM THE ASSESSEES' INDUSTR IAL UNDERTAKING. (PARA 13) 15. SIMILARLY, IN PANDIAN CHEMICALS LIMITED V COMMI SSIONER OF INCOME TAX, 262 ITR 278, THIS COURT DEALT WITH THE CLAIM F OR A DEDUCTION UNDER SECTION 80HH OF THE ACT. THE QUESTION BEFORE THE CO URT WAS AS TO WHETHER INTEREST EARNED ON A DEPOSIT MADE WITH THE ELECTRIC ITY BOARD FOR THE SUPPLY OF ELECTRICITY TO THE APPELLANTS INDUSTRIAL UNDERTAKING SHOULD BE TREATED AS INCOME DERIVED FROM THE INDUSTRIAL UNDER TAKING UNDER SECTION 80HH. THIS COURT HELD THAT ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 97 PURPOSES OF THE INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRI AL UNDERTAKING. THE DERIVATION OF PROFITS ON THE DEPOSIT MADE WITH THE ELECTRICITY BOARD COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UN DERTAKING ITSELF. ON THIS BASIS, THE APPEAL WAS DECIDED IN FAVOUR OF REVENUE. 16. THE SHEET ANCHOR OF SHRI RADHAKRISHNANS SUBMIS SIONS IS THE JUDGMENT OF THIS COURT IN LIBERTY INDIA V. COMMISSI ONER OF INCOME TAX, (2009) 9 SCC 328. THIS WAS A CASE REFERRING DIRECTL Y TO SECTION 80-IB IN WHICH THE QUESTION WAS WHETHER DEPB CREDIT OR DUTY DRAWBACK RECEIPT COULD BE SAID TO BE IN RESPECT OF PROFITS AND GAINS DERIVED FROM AN ELIGIBLE BUSINESS. THIS COURT FIRST MADE THE DISTINCTION BET WEEN ATTRIBUTABLE TO AND DERIVED FROM STATING THAT THE LATTER EXPRESSI ON IS NARROWER IN CONNOTATION AS COMPARED TO THE FORMER. THIS COURT F URTHER WENT ON TO STATE THAT BY USING THE EXPRESSION DERIVED FROM PARLIAM ENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. THIS COURT WEN T ON TO HOLD:- 34. ON AN ANALYSIS OF SECTIONS 80-IA AND 80-IB IT BECOMES CLEAR THAT ANY INDUSTRIAL UNDERTAKING, WHICH BECOMES ELIG IBLE ON SATISFYING SUB-SECTION(2), WOULD BE ENTITLED TO DED UCTION UNDER SUB- SECTION (1) ONLY TO THE EXTENT OF PROFITS DERIVED F ROM SUCH INDUSTRIAL UNDERTAKING AFTER SPECIFIED DATE(S). HENCE, APART F ROM ELIGIBILITY, SUB-SECTION (1) PURPORTS TO RESTRICT THE QUANTUM OF DEDUCTION TO A SPECIFIED PERCENTAGE OF PROFITS. THIS IS THE IMPORT ANCE OF THE WORDS 'DERIVED FROM INDUSTRIAL UNDERTAKING' AS AGAINST 'P ROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKING'. 35. DEPB IS AN INCENTIVE. IT IS GIVEN UNDER DUTY EX EMPTION REMISSION SCHEME. ESSENTIALLY, IT IS AN EXPORT INC ENTIVE. NO DOUBT, THE OBJECT BEHIND DEPB IS TO NEUTRALIZE THE INCIDEN CE OF CUSTOMS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 98 DUTY PAYMENT ON THE IMPORT CONTENT OF EXPORT PRODUC T. THIS NEUTRALIZATION IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST EXPORT PRODUCT. UNDER DEPB, AN EXPORTER MAY APPLY F OR CREDIT AS PERCENTAGE OF FOB VALUE OF EXPORTS MADE IN FREELY C ONVERTIBLE CURRENCY. CREDIT IS AVAILABLE ONLY AGAINST THE EXPO RT PRODUCT AND AT RATES SPECIFIED BY DGFT FOR IMPORT OF RAW MATERIALS , COMPONENTS ETC.. DEPB CREDIT UNDER THE SCHEME HAS TO BE CALCUL ATED BY TAKING INTO ACCOUNT THE DEEMED IMPORT CONTENT OF THE EXPOR T PRODUCT AS PER BASIC CUSTOMS DUTY AND SPECIAL ADDITIONAL DUTY PAYA BLE ON SUCH DEEMED IMPORTS. 36. THEREFORE, IN OUR VIEW, DEPB/DUTY DRAWBACK ARE INCENTIVES WHICH FLOW FROM THE SCHEMES FRAMED BY CENTRAL GOVER NMENT OR FROM S. 75 OF THE CUSTOMS ACT, 1962, HENCE, INCENTI VES PROFITS ARE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDE R SECTION 80-IB. THEY BELONG TO THE CATEGORY OF ANCILLARY PROFITS OF SUCH UNDERTAKINGS. (PARAS 34,35 AND 36) 17. AN ANALYSIS OF ALL THE AFORESAID DECISIONS CITE D ON BEHALF OF THE REVENUE BECOMES NECESSARY AT THIS STAGE. IN THE FIR ST DECISION, THAT IS IN CAMBAY ELECTRIC SUPPLY INDUSTRIAL COMPANY LIMITED V COMMISSIONER OF INCOME TAX, GUJARAT II, THIS COURT HELD THAT SINCE AN EXPRESSION OF WIDER IMPORT HAD BEEN USED, NAMELY ATTRIBUTABLE TO INST EAD OF DERIVED FROM, THE LEGISLATURE INTENDED TO COVER RECEIPTS FROM SOU RCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF GENERATION AND DI STRIBUTION OF ELECTRICITY. IN SHORT, A STEP REMOVED FROM THE BUSI NESS OF THE INDUSTRIAL UNDERTAKING WOULD ALSO BE SUBSUMED WITHIN THE MEANI NG OF THE EXPRESSION ATTRIBUTABLE TO. SINCE WE ARE DIRECTLY CONCERNED WITH THE EXPRESSION DERIVED FROM, THIS JUDGMENT IS RELEVAN T ONLY INSOFAR AS IT MAKES A DISTINCTION BETWEEN THE EXPRESSION DERIVED FROM, AS BEING ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 99 SOMETHING DIRECTLY FROM, AS OPPOSED TO ATTRIBUTABL E TO, WHICH CAN BE SAID TO INCLUDE SOMETHING WHICH IS INDIRECT AS WELL . 18. THE JUDGMENT IN STERLING FOODS LAYS DOWN A VERY IMPORTANT TEST IN ORDER TO DETERMINE WHETHER PROFITS AND GAINS ARE DE RIVED FROM BUSINESS OR AN INDUSTRIAL UNDERTAKING. THIS COURT HAS STATED THAT THERE SHOULD BE A DIRECT NEXUS BETWEEN SUCH PROFITS AND GAINS AND T HE INDUSTRIAL UNDERTAKING OR BUSINESS. SUCH NEXUS CANNOT BE ONLY INCIDENTAL. IT THEREFORE FOUND, ON THE FACTS BEFORE IT, THAT BY RE ASON OF AN EXPORT PROMOTION SCHEME, AN ASSESSEE WAS ENTITLED TO IMPOR T ENTITLEMENTS WHICH IT COULD THEREAFTER SELL. OBVIOUSLY, THE SALE CONSI DERATION THEREFROM COULD NOT BE SAID TO BE DIRECTLY FROM PROFITS AND GAINS B Y THE INDUSTRIAL UNDERTAKING BUT ONLY ATTRIBUTABLE TO SUCH INDUSTRIA L UNDERTAKING IN AS MUCH AS SUCH IMPORT ENTITLEMENTS DID NOT RELATE TO MANUFACTURE OR SALE OF THE PRODUCTS OF THE UNDERTAKING, BUT RELATED ONLY T O AN EVENT WHICH WAS POST MANUFACTURE NAMELY, EXPORT. ON AN APPLICATION OF THE AFORESAID TEST TO THE FACTS OF THE PRESENT CASE, IT CAN BE SAID TH AT AS ALL THE FOUR SUBSIDIES IN THE PRESENT CASE ARE REVENUE RECEIPTS WHICH ARE REIMBURSED TO THE ASSESSEE FOR ELEMENTS OF COST RELATING TO MA NUFACTURE OR SALE OF THEIR PRODUCTS, THERE CAN CERTAINLY BE SAID TO BE A DIRECT NEXUS BETWEEN PROFITS AND GAINS OF THE INDUSTRIAL UNDERTAKING OR BUSINESS, AND REIMBURSEMENT OF SUCH SUBSIDIES. HOWEVER, SHRI RADH AKRISHNAN STRESSED THE FACT THAT THE IMMEDIATE SOURCE OF THE SUBSIDIES WAS THE FACT THAT THE GOVERNMENT GAVE THEM AND THAT, THEREFORE, THE IMMEDIATE SOURCE NOT BEING FROM THE BUSINESS OF THE ASSESSEE, THE EL EMENT OF DIRECTNESS IS MISSING. WE ARE AFRAID WE CANNOT AGREE. WHAT IS TO BE SEEN FOR THE APPLICABILITY OF SECTIONS 80-IB AND 80-IC IS WHETHE R THE PROFITS AND GAINS ARE DERIVED FROM THE BUSINESS. SO LONG AS PROFITS A ND GAINS EMANATE DIRECTLY FROM THE BUSINESS ITSELF, THE FACT THAT TH E IMMEDIATE SOURCE OF THE SUBSIDIES IS THE GOVERNMENT WOULD MAKE NO DIFFERENC E, AS IT CANNOT BE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 100 DISPUTED THAT THE SAID SUBSIDIES ARE ONLY IN ORDER TO REIMBURSE, WHOLLY OR PARTIALLY, COSTS ACTUALLY INCURRED BY THE ASSESSEE IN THE MANUFACTURING AND SELLING OF ITS PRODUCTS. THE PROFITS AND GAINS SPOKEN OF BY SECTIONS 80-IB AND 80-IC HAVE REFERENCE TO NET PROFIT. AND N ET PROFIT CAN ONLY BE CALCULATED BY DEDUCTING FROM THE SALE PRICE OF AN A RTICLE ALL ELEMENTS OF COST WHICH GO INTO MANUFACTURING OR SELLING IT. THU S UNDERSTOOD, IT IS CLEAR THAT PROFITS AND GAINS ARE DERIVED FROM THE BUSINES S OF THE ASSESSEE, NAMELY PROFITS ARRIVED AT AFTER DEDUCTING MANUFACTU RING COST AND SELLING COSTS REIMBURSED TO THE ASSESSEE BY THE GOVERNMENT CONCERNED. 19. SIMILARLY, THE JUDGMENT IN PANDIAN CHEMICALS LI MITED V COMMISSIONER OF INCOME TAX IS ALSO DISTINGUISHABLE, AS INTEREST ON A DEPOSIT MADE FOR SUPPLY OF ELECTRICITY IS NOT AN EL EMENT OF COST AT ALL, AND THIS BEING SO, IS THEREFORE A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. THE DERIVATION OF PROFITS O N SUCH A DEPOSIT MADE WITH THE ELECTRICITY BOARD COULD NOT THEREFORE BE S AID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF, UNLIKE THE FACTS OF THE PRESENT CASE, IN WHICH, AS HAS BEEN HELD ABOVE, ALL THE SUBSIDIES AF OREMENTIONED WENT TOWARDS REIMBURSEMENT OF ACTUAL COSTS OF MANUFACTUR E AND SALE OF THE PRODUCTS OF THE BUSINESS OF THE ASSESSEE. 20. LIBERTY INDIA BEING THE FOURTH JUDGMENT IN THIS LINE ALSO DOES NOT HELP REVENUE. WHAT THIS COURT WAS CONCERNED WITH WAS AN EXPORT INCENTIVE, WHICH IS VERY FAR REMOVED FROM REIMBURSEMENT OF AN ELEMENT OF COST. A DEPB DRAWBACK SCHEME IS NOT RELATED TO THE BUSINESS OF AN INDUSTRIAL UNDERTAKING FOR MANUFACTURING OR SELLING ITS PRODUC TS. DEPB ENTITLEMENT ARISES ONLY WHEN THE UNDERTAKING GOES ON TO EXPORT THE SAID PRODUCT, THAT IS AFTER IT MANUFACTURES OR PRODUCES THE SAME. PITH ILY PUT, IF THERE IS NO EXPORT, THERE IS NO DEPB ENTITLEMENT, AND THEREFORE ITS RELATION TO MANUFACTURE OF A PRODUCT AND/OR SALE WITHIN INDIA I S NOT PROXIMATE OR ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 101 DIRECT BUT IS ONE STEP REMOVED. ALSO, THE OBJECT BE HIND DEPB ENTITLEMENT, AS HAS BEEN HELD BY THIS COURT, IS TO NEUTRALIZE TH E INCIDENCE OF CUSTOMS DUTY PAYMENT ON THE IMPORT CONTENT OF THE EXPORT PR ODUCT WHICH IS PROVIDED FOR BY CREDIT TO CUSTOMS DUTY AGAINST THE EXPORT PRODUCT. IN SUCH A SCENARIO, IT CANNOT BE SAID THAT SUCH DUTY EXEMPT ION SCHEME IS DERIVED FROM PROFITS AND GAINS MADE BY THE INDUSTRIAL UNDER TAKING OR BUSINESS ITSELF. 21. THE CALCUTTA HIGH COURT IN MERINO PLY & CHEMICA LS LTD. V. CIT, 209 ITR 508 [1994], HELD THAT TRANSPORT SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE BUSINESS CARRIED ON BY THE ASSES SEE. IN THAT CASE, THE DIVISION BENCH HELD:- WE DO NOT FIND ANY PERVERSITY IN THE TRIBUNALS FI NDING THAT THE SCHEME OF TRANSPORT SUBSIDIES IS INSEPARABLY CONNEC TED WITH THE BUSINESS CARRIED ON BY THE ASSESSEE. IT IS A FACT T HAT THE ASSESSEE WAS A MANUFACTURER OF PLYWOOD, IT IS ALSO A FACT TH AT THE ASSESSEE HAS ITS UNIT IN A BACKWARD AREA AND IS ENTITLED TO THE BENEFIT OF THE SCHEME. FURTHER IS THE FACT THAT TRANSPORT EXPENDIT URE IS AN INCIDENTAL EXPENDITURE OF THE ASSESSEES BUSINESS A ND IT IS THAT EXPENDITURE WHICH THE SUBSIDY RECOUPS AND THAT THE PURPOSE OF THE RECOUPMENT IS TO MAKE UP POSSIBLE PROFIT DEFICIT FO R OPERATING IN A BACKWARD AREA. THEREFORE, IT IS BEYOND ALL MANNER O F DOUBT THAT THE SUBSIDIES WERE INSEPARABLY CONNECTED WITH THE P ROFITABLE CONDUCT OF THE BUSINESS AND IN ARRIVING AT SUCH A D ECISION ON THE FACTS THE TRIBUNAL COMMITTED NO ERROR. 22. HOWEVER, IN CIT V. ANDAMAN TIMBER INDUSTRIES LT D., 242 ITR 204 [2000], THE SAME HIGH COURT ARRIVED AT AN OPPOSITE CONCLUSION IN CONSIDERING WHETHER A DEDUCTION WAS ALLOWABLE UNDER SECTION 80HH OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 102 THE ACT IN RESPECT OF TRANSPORT SUBSIDY WITHOUT NOT ICING THE AFORESAID EARLIER JUDGMENT OF A DIVISION BENCH OF THAT VERY C OURT. A DIVISION BENCH OF THE CALCUTTA HIGH COURT IN C.I.T. V. CEMENT MANU FACTURING COMPANY LIMITED, BY A JUDGMENT DATED 15.1.2015, DISTINGUISH ED THE JUDGMENT IN CIT V. ANDAMAN TIMBER INDUSTRIES LTD. AND FOLLOWED THE IMPUGNED JUDGMENT OF THE GAUHATI HIGH COURT IN THE PRESENT C ASE. IN A PITHY DISCUSSION OF THE LAW ON THE SUBJECT, THE CALCUTTA HIGH COURT HELD: MR. BANDHYOPADHYAY, LEARNED ADVOCATE APPEARING FOR THE APPELLANT, SUBMITTED THAT THE IMPUGNED JUDGMENT IS CONTRARY TO A JUDGMENT OF THIS COURT IN THE CASE OF CIT V. ANDAMA N TIMBER INDUSTRIES LTD. REPORTED IN (2000) 242 ITR, 204 WHE REIN THIS COURT HELD THAT TRANSPORT SUBSIDY IS NOT AN IMMEDIATE SOU RCE AND DOES NOT HAVE DIRECT NEXUS WITH THE ACTIVITY OF AN INDUS TRIAL UNDERTAKING. THEREFORE, THE AMOUNT REPRESENTING SUC H SUBSIDY CANNOT BE TREATED AS PROFIT DERIVED FROM THE INDUST RIAL UNDERTAKING. MR. BANDHYPADHYAY SUBMITTED THAT IT IS NOT A PROFIT DERIVED FROM THE UNDERTAKING. THE BENEFIT UNDER SECTION 80IC COU LD NOT THEREFORE HAVE BEEN GRANTED. HE ALSO RELIED ON A JUDGMENT OF THE SUPREME COURT I N THE CASE OF LIBERTY INDIA V. COMMISSIONER OF INCOME TAX, REPORT ED IN (2009) 317 ITR 218 (SC) WHEREIN IT WAS HELD THAT SUBSIDY B Y WAY OF CUSTOMS DUTY DRAW BACK COULD NOT BE TREATED AS A PR OFIT DERIVED FROM THE INDUSTRIAL UNDERTAKING. WE HAVE NOT BEEN IMPRESSED BY THE SUBMISSIONS ADVAN CED BY MR. BANDHYOPADHYAY. THE JUDGMENT OF THE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) WAS IN RELATION TO THE SUBSID Y ARISING OUT OF CUSTOMS DRAW BACK AND DUTY ENTITLEMENT PASS-BOOK SC HEME ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 103 (DEPB). BOTH THE INCENTIVES CONSIDERED BY THE APEX COURT IN THE CASE OF LIBERTY INDIA COULD BE AVAILED AFTER THE MA NUFACTURING ACTIVITY WAS OVER AND EXPORTS WERE MADE. BUT, WE AR E CONCERNED IN THIS CASE WITH THE TRANSPORT AND INTEREST SUBSIDY W HICH HAS A DIRECT NEXUS WITH THE MANUFACTURING ACTIVITY INASMU CH AS THESE SUBSIDIES GO TO REDUCE THE COST OF PRODUCTION. THER EFORE, THE JUDGMENT IN THE CASE OF LIBERTY INDIA V. COMMISSION ER OF INCOME TAX HAS NO MANNER OF APPLICATION. THE SUPREME COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. & OTHERS VERSU S COMMISSIONER OF INCOME TAX, REPORTED IN [1997] 228 ITR AT PAGE 257 EXPRESSED THE FOLLOWING VIEWS:- . SIMILARLY, SUBSIDY ON POWER WAS CONFINED TO PO WER CONSUMED FOR PRODUCTION. IN OTHER WORDS, IF POWER IS CONSUMED FOR ANY OTHER PURPOSE LIKE SETTING UP THE PLANT AND MACHINERY, THE INCENTIVES WILL NOT BE GIVEN. REFUND OF SALES TAX WILL ALSO BE IN RESPECT OF TAXES LEVIED AFTER COMMENCEMENT OF PRODUCTION AND UP TO A PERIOD OF FI VE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. IT IS DIFFICULT TO HOLD THESE SUBSIDIES AS ANYTHING BUT OPERATION SUBS IDIES. THESE SUBSIDIES WERE GIVEN TO ENCOURAGE SETTING UP OF INDUSTRIES IN THE STATE OF ANDHRA PRADESH BY MAKING THE BUSINESS OF PRODUCTION AND SALE OF GOODS IN THE STA TE MORE PROFITABLE. 23. WE ARE OF THE VIEW THAT THE JUDGMENT IN MERINO PLY & CHEMICALS LTD. AND THE RECENT JUDGMENT OF THE CALCUTTA HIGH COURT HAVE CORRECTLY APPRECIATED THE LEGAL POSITION. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 104 24. WE DO NOT FIND IT NECESSARY TO REFER IN DETAIL TO ANY OF THE OTHER JUDGMENTS THAT HAVE BEEN PLACED BEFORE US. THE JUDG MENT IN JAI BHAGWAN CASE (SUPRA) IS HELPFUL ON THE NATURE OF A TRANSPORT SUBSIDY SCHEME, WHICH IS DESCRIBED AS UNDER: THE OBJECT OF THE TRANSPORT SUBSIDY SCHEME IS NOT AUGMENTATION OF REVENUE, BY LEVY AND COLLECTION OF TAX OR DUTY. THE OBJECT OF THE SCHEME IS TO IMPROVE TRADE AND COMMERCE BETWEEN THE REMOTE PARTS OF THE COUNTRY WITH OTHER PARTS, SO AS TO BRI NG ABOUT ECONOMIC DEVELOPMENT OF REMOTE BACKWARD REGIONS. THIS WAS SO UGHT TO BE ACHIEVED BY THE SCHEME, BY MAKING IT FEASIBLE AND A TTRACTIVE TO INDUSTRIAL ENTREPRENEURS TO START AND RUN INDUSTRIE S IN REMOTE PARTS, BY GIVING THEM A LEVEL PLAYING FIELD SO THAT THEY COULD COMPETE WITH THEIR COUNTERPARTS IN CENTRAL (NON-REM OTE) AREAS. THE HUGE TRANSPORTATION COST FOR GETTING THE RAW MATERI ALS TO THE INDUSTRIAL UNIT AND FINISHED GOODS TO THE EXISTING MARKET OUTSIDE THE STATE, WAS MAKING IT UNVIABLE FOR INDUSTRIES IN REMOTE PARTS OF THE COUNTRY TO COMPETE WITH INDUSTRIES IN CENTRAL A REAS. THEREFORE, INDUSTRIAL UNITS IN REMOTE AREAS WERE EXTENDED THE BENEFIT OF SUBSIDIZED TRANSPORTATION. FOR INDUSTRIAL UNITS IN ASSAM AND OTHER NORTHEASTERN STATES, THE BENEFIT WAS GIVEN IN THE F ORM OF A SUBSIDY IN RESPECT OF A PERCENTAGE OF THE COST OF TRANSPORT ATION BETWEEN A POINT IN CENTRAL AREA (SILIGURI IN WEST BENGAL) AND THE ACTUAL LOCATION OF THE INDUSTRIAL UNIT IN THE REMOTE AREA, SO THAT THE INDUSTRY COULD BECOME COMPETITIVE AND ECONOMICALLY VIABLE. (PARAS 14 AND 15) 25. THE DECISION IN SAHNEY STEEL AND PRESS WORKS LT D. V. COMMISSIONER OF INCOME TAX, A.P. - I, HYDERABAD (1997) 7 SCC 764 , DEALT WITH SUBSIDY RECEIVED FROM THE STATE GOVERNMENT IN THE FORM OF R EFUND OF SALES TAX ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 105 PAID ON RAW MATERIALS, MACHINERY, AND FINISHED GOOD S; SUBSIDY ON POWER CONSUMED BY THE INDUSTRY; AND EXEMPTION FROM WATER RATE. IT WAS HELD THAT SUCH SUBSIDIES WERE TREATED AS ASSISTANCE GIVE N FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE. 26. WE DO NOT FIND IT NECESSARY TO FURTHER ENCUMBER THIS JUDGMENT WITH THE JUDGMENTS WHICH SHRI GANESH CITED ON THE NETTIN G PRINCIPLE. WE FIND IT UNNECESSARY TO FURTHER SUBSTANTIATE THE REASONING I N OUR JUDGMENT BASED ON THE SAID PRINCIPLE. 27. A DELHI HIGH COURT JUDGMENT WAS ALSO CITED BEFO RE US BEING CIT V. DHARAMPAL PREMCHAND LTD., 317 ITR 353 FROM WHICH AN SLP PREFERRED IN THE SUPREME COURT WAS DISMISSED. THIS JUDGMENT ALSO CONCERNED ITSELF WITH SECTION 80-IB OF THE ACT, IN WHICH IT WAS HELD THAT REFUND OF EXCISE DUTY SHOULD NOT BE EXCLUDED IN ARRIVING AT THE PROF IT DERIVED FROM BUSINESS FOR THE PURPOSE OF CLAIMING DEDUCTION UNDE R SECTION 80-IB OF THE ACT. 28. IT ONLY REMAINS TO CONSIDER ONE FURTHER ARGUMEN T BY SHRI RADHAKRISHNAN. HE HAS ARGUED THAT AS THE SUBSIDIES THAT ARE RECEIVED BY THE RESPONDENT, WOULD BE INCOME FROM OTHER SOURC ES REFERABLE TO SECTION 56 OF THE INCOME TAX ACT, ANY DEDUCTION THA T IS TO BE MADE, CAN ONLY BE MADE FROM INCOME FROM OTHER SOURCES AND NOT FROM PROFITS AND GAINS OF BUSINESS, WHICH IS A SEPARATE AND DISTINCT HEAD AS RECOGNISED BY SECTION 14 OF THE INCOME TAX ACT. SHRI RADHAKRIS HNAN IS NOT CORRECT IN HIS SUBMISSION THAT ASSISTANCE BY WAY OF SUBSIDIES WHICH ARE REIMBURSED ON THE INCURRING OF COSTS RELATABLE TO A BUSINESS, ARE UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH IS A RE SIDUARY HEAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME DOES NOT FALL UNDER ANY OF THE OTHER FOUR HEADS OF INCOME. SECTION 28(III)(B) SPEC IFICALLY STATES THAT ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 106 INCOME FROM CASH ASSISTANCE, BY WHATEVER NAME CALLE D, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME CHARGEABLE TO I NCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IF CASH ASSISTANCE RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES ARE INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION, IT IS OBVIOUS THAT SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAINS OF BUSIN ESS OR PROFESSION, AND NOT UNDER THE HEAD INCOME FROM OTHER SOURCES. 29. FOR THE REASONS GIVEN BY US, WE ARE OF THE VIEW THAT THE GAUHATI, CALCUTTA AND DELHI HIGH COURTS HAVE CORRECTLY CONST RUED SECTIONS 80-IB AND 80-IC. THE HIMACHAL PRADESH HIGH COURT, HAVING WRONGLY INTERPRETED THE JUDGMENTS IN STERLING FOODS AND LIB ERTY INDIA TO ARRIVE AT THE OPPOSITE CONCLUSION, IS HELD TO BE WRONGLY DECI DED FOR THE REASONS GIVEN BY US HEREINABOVE. 30. ALL THE AFORESAID APPEALS ARE, THEREFORE, DISMI SSED WITH NO ORDER AS TO COSTS . LD. DR HAD RELIED UPON THE JUDGMENT OF HONBLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA LIMITED(SUPRA) WHICH HAS BEEN DISTING UISHED BY HONBLE SUPREME COURT IN THE ABOVE LANDMARK JUDGMENT IN MEG HALAYA STEELS LIMITED(SUPRA) AS IN THE SAID CASE OF LIBERTY INDIA THE TAX-PAYER RECEIVED SUBSIDY IN THE FORM OF DEPB/DRAWBACK INCENTIVES WHI CH WAS HELD BY HONBLE SUPREME COURT TO BE NOT DERIVED FROM BUSINESS OF UN DERTAKING FOR MANUFACTURING OR SELLING OF PRODUCTS BUT THESE INC ENTIVES HAVE ARISEN FROM EXPORTS OF THESE PRODUCTS AND THESE INCENTIVES HAS ARISEN OUT OF SCHEMES OF THE GOVERNMENT GRANTING DEPB/DRAWBACK INCENTIVES AN D/OR PROVISIONS OF ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 107 CUSTOMS ACT AND NOT FROM THE MANUFACTURING ACTIVITY BUT FROM EXPORTS OF PRODUCTS AND HENCE DEDUCTIONS U/S 80IB WAS HELD TO BE NOT ALLOWABLE AS THESE DEPB/DRAWBACK INCENTIVES ARE NOT AN INCOME DE RIVED FROM BUSINESS OF MANUFACTURING AND/OR SALE ACTIVITIES OF THE UNDERTA KING . IN THE INSTANT CASE THE AMOUNT IS PAID BY SUZLON IN DIA LIMITED TOWARDS SPECIFIC PERFORMANCE DUE TO SHORT GENERATION OF POW ER THAN MINIMUM GUARANTEED POWER GENERATION CERTIFIED BY THE EQUIPM ENT SUPPLIERS I.E. SUZLON ENERGY LIMITED AND IT HAS A DIRECT AND CLOSE NEXUS OF FIRST DEGREE WITH THE GENERATION OF POWER BEING SHORTFALL IN GENERATION O F POWER THAN THE GUARANTEED RATED CAPACITY BY EQUIPMENT SUPPLIER AND THE SUBSIDY GOES ON TO REDUCE THE COST OF GENERATION OF POWER AS THE FIXED COSTS AND OTHER COST WHICH ARE STILL INCURRED DESPITE SHORT GENERATION OF POWE R ARE RECOUPED BY THE SAID SUBSIDY FROM SUZLON ENERGY LIMITED AND THUS HAS DIR ECT AND CLOSE NEXUS WITH THE BUSINESS OF GENERATION OF POWER BY THE WINDMILL UNDERTAKING OF THE ASSESSEE COMPANY AND DEDUCTION U/S.80IA OF THE ACT IS ALLOWABLE. KEEPING IN VIEW OF THE RATIO OF LAW LAID DOWN BY TH E HONBLE SUPREME COURT IN THE CASE OF MEGHALAYA STEELS LIMITED (SUPRA) AND TH E CITED JUDGMENT OF CO- ORDINATE BENCHES OF THE TRIBUNAL IN FAVOUR OF THE A SSESSEE COMPANY , WE HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY F ROM M/S SUZLON ENERGY LTD. OF RS.35,55,880/- ON ACCOUNT OF SPECIFIC PERFO RMANCE BEING COMPENSATION ON ACCOUNT OF SHORTFALL IN THE POWER G ENERATED BY THE ASSESSEE COMPANY VIS-A-VIS THE MINIMUM GUARANTEE RATED CAPAC ITY OF PRODUCTION OF POWER ASSURED BY SUZLON ENERGY LIMITED IS TO BE HEL D TO BE DERIVED FROM THE WINDMILL POWER UNDERTAKING ENGAGED IN GENERATION OF POWER AND IS ENTITLED FOR DEDUCTION U/S 80IA OF THE ACT. 50. NOW COMING TO THE GROUND NO 3, IT WAS OBSERVED BY THE A.O. FROM THE P&L ACCOUNT OF THE ASSESSEE COMPANY THAT THE ASSESS EE COMPANY HAS ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 108 RECEIVED EXEMPT INCOME BEING DIVIDEND OF RS.2,50,00 0/- ON INVESTMENT OF RS. 810.30 LACS. DURING THE COURSE OF ASSESSMENT PROCEE DINGS U/S.143(3) OF THE ACT, ASSESSEE COMPANY WAS SPECIFICALLY ASKED TO EXP LAIN AS TO WHY DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 SHOULD NOT BE MADE. IN RESPONSE, THE ASSESSEE COMPANY WORKED OUT DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 AT RS.2,45,514/-WITHOUT PREJUDICE TO THE CONTE NTION RAISED THAT NO DISALLOWANCE IS CALLED FOR U/S. 14A OF THE ACT. THE A.O. AFTER CONSIDERING THE SUBMISSION REJECTED THE CLAIM OF ASSESSEE COMPANY A ND HELD THAT THE DISALLOWANCE COMPUTED BY THE ASSESSEE COMPANY IS NO T IN ACCORDANCE WITH RULE 8D OF INCOME TAX RULES, 1962 AND THE CORRECT D ISALLOWANCE WORKED OUT TO RS. 13,66,079/- AS UNDER: A) NIL B) INTEREST EXPENSES X AVERAGE INVESTMENT AVERAGE ASSET 123.13X543.32 --------------------- 6112.74 RS.1094419/- C) 0.5% OF AVERAGE INVESTMENT 0.5% X543.32 RS.2,71,660/- TOTAL DISALLOWANCE UNDER THE HEAD WORKS OUT TO RS.1 3,66,079/- U/S 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES,1962 BY THE AO VIDE ASSESSMENT ORDERS DATED 30.12.2010 PASSED U/S. 143( 3) OF THE ACT. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 109 51. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 30.12. 2010 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE COMPANY FILED F IRST APPEAL WITH THE CIT(A). 52. THE ASSESSEE COMPANY SUBMITTED BEFORE THE CIT(A ) THAT THE ASSESSEE COMPANY RECEIVED DIVIDEND INCOME OF RS.2,50,000/- A ND THE AO HAS DISALLOWED EXPENSES U/S 14A OF THE ACT BY APPLYING RULE 8D OF INCOME TAX RULES, 1962 OF RS.13,66,079/- WHICH IS MORE THAN EX EMPTED INCOME. THE ASSESSEE COMPANY SUBMITTED THAT ENTIRE INTEREST ON PACKING CREDIT WHICH IS UTILIZED FOR EXPORT BUSINESS IS CONSIDERED FOR DIS ALLOWANCE BY THE AO. THE SAID INTEREST ON PACKING CREDIT HAS NO NEXUS WITH E ARNING OF EXEMPT INCOME. THE ASSESSEE COMPANY SUBMITTED THAT ENTIRE BANK CH ARGES AND COMMISSION IS CONSIDERED AS INTEREST FOR DISALLOWANCE WHILE TH E SAID BANK CHARGES AND COMMISSION HAS NO NEXUS WITH TAX-FREE INCOME. THE A O HAS ALSO CONSIDERED THE INVESTMENT IN SUBSIDIARY COMPANY AS PART OF AVE RAGE INVESTMENT FOR WORKING OUT DISALLOWANCE WITHOUT CONSIDERING THAT S UCH INVESTMENT IS MADE NOT FOR PURPOSES OF EARNING TAX-FREE DIVIDEND INCOM E BUT FOR EARNING CAPITAL GAINS. THE CAPITAL GAINS EARNED ON SALE OF SUBSIDIA RY COMPANY HAS BEEN OFFERED FOR TAX IN THE IMPUGNED ASSESSMENT YEAR. IT WAS ALSO SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE CIT(A) THAT EVEN INVEST MENT IN PROPERTY, NSC AND DEBT FUNDS ARE CONSIDERED BY THE AO AS PART OF INVESTMENT FOR DISALLOWANCE ON WHICH NO TAX-FREE INCOME IS GENERAT ED. THE CORRECT DISALLOWANCE AS PER RULE 8D OF INCOME TAX RULES, 19 62 AFTER CONSIDERING THE ABOVE FACTORS WAS SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE CIT(A). 53. THE CIT(A) OBSERVED THAT THE ASSESSEE COMPANY C OULD NOT ESTABLISH THE NEXUS BETWEEN THE ENTIRE CAPITAL BEING INVESTED IN SECURITIES AND THAT IT WAS IMPOSSIBLE TO BELIEVE THAT OUT OF THE COMMON HOTCH- POTCH OF THE FUNDS, THE ENTIRE CAPITAL COULD HAVE GONE INTO THE INVESTMENT IN SHARES WITHOUT A PART OF THE SHARES GOING TO THE BUSINESS, ALSO IT WAS NOT P OSSIBLE THAT THE ENTIRE INCOME WOULD HAVE BEEN INVESTED IN SHARES AND DEBEN TURES AND SHARE ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 110 APPLICATION MONEY ESPECIALLY WHEN THE ASSESSEE HIMS ELF WAS NOT CATEGORICAL AS TO HOW MUCH OF THE SUM HAD BEEN INVESTED IN BUSI NESS. SECONDLY, EVEN THE ASSESSEE COMPANY HAD NOT GIVEN ANY DETAILS TO W ORK OUT THE DIRECT NEXUS OF THE INTEREST EXPENDITURE RELATED TO THE EXEMPT I NCOME WHICH WAS NOT INCLUDED IN THE TOTAL TAXABLE INCOME. THE ASSESSEE S PRESENT CASE IS COVERED BY SUB SECTION (3) OF SECTION 14A OF THE ACT BECAUS E THE ASSESSEE COMPANY HAD CLAIMED BEFORE THE AO THAT NO EXPENDITURE WAS I NCURRED BY IT IN RELATION TO THE EXEMPT INCOME WHICH DID NOT FORM PART OF TOT AL INCOME. THE ASSESSEE COMPANYS CLAIM IS ALSO COVERED BY SUB SECTION (2) OF SECTION 14A OF THE ACT BECAUSE THE AO WAS NOT SATISFIED WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. HENCE THE DISALLOWANCE OF RS. 13,66,079/- WAS CONFIRMED BY THE CIT(A), VIDE ORDER S DATED 12-3-2012. 54.AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 12-3 -2012, THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 55. THE LD. COUNSEL FOR THE ASSESSEE COMPANY SUBMIT TED THAT DIVIDEND INCOME OF RS. 2.5 LACS WAS RECEIVED WHILE DISALLOWA NCE WAS MADE OF RS. 13,,66,079/- U/S 14A OF THE ACT READ WITH RULE RULE 8D OF INCOME TAX RULES, 1962. THE LD. COUNSEL SUBMITTED THAT DEDUCTION SHO ULD BE RESTRICTED TO RS. 2.5 LACS. THE LD. COUNSEL SUBMITTED THAT IN VIEW O F THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD V. C IT (2015) 61 TAXMANN.COM 118 (DELHI), IT SHOULD BE RESTRICTED TO 2.5 LACS. HE SUBMITTED THAT THE SHARE APPLICATION MONEY OUGHT TO BE EXCLUDED FROM THE DIS ALLOWANCE U/S 14A OF THE ACT. THE LD. COUNSEL REITERATED HIS SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW WHICH ARE NOT REPEATED FOR SAKE O F BREVITY.THE LD. COUNSEL RELIED UPON LARGE NUMBER OF CASE LAWS WHICH ARE PLA CED IN PAPER BOOK OF CASE LAWS PAGES 110-397. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 111 56. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDERS OF AUTHORITIES BELOW. 57. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PER USED THE MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS RECEIVED DIVIDEND INCOME OF RS. 2.5 LACS, WHILE ADDITION HAVE BEEN MA DE TO THE EXTENT OF RS. 13,66,079/- .WE HAVE OBSERVED THAT THE ASSESSEE CO MPANY HAS RAISED SEVERAL RELEVANT PLEAS BEFORE THE AUTHORITIES BELOW AND ALS O BEFORE US WHICH WERE NOT ADJUDICATED BY THE AUTHORITIES BELOW AND NO REASONI NG HAVE BEEN GIVEN IN THE ORDERS OF AUTHORITIES BELOW FOR REJECTION OF THE S AID ASSESSEE COMPANYS PLEAS. THE ADJUDICATION OF SAID PLEAS RAISED BY THE ASSES SEE COMPANY REQUIRES VERIFICATION OF THE ACCOUNTS AND RECORDS. THE MAIN PLEAS RAISED BY THE ASSESSEE COMPANY BEFOR E THE AUTHORITIES BELOW WERE THAT THE ENTIRE INTEREST ON PACKING CREDIT WHI CH IS UTILIZED FOR EXPORT BUSINESS WAS CONSIDERED FOR DISALLOWANCE BY THE AO . THE SAID INTEREST ON PACKING CREDIT HAS NO NEXUS WITH EARNING OF EXEMPT INCOME. THE ASSESSEE COMPANY HAD ALSO SUBMITTED THAT ENTIRE BANK CHARGE S AND COMMISSION IS CONSIDERED AS INTEREST FOR DISALLOWANCE WHILE THE S AID BANK CHARGES AND COMMISSION HAS NO NEXUS WITH TAX-FREE INCOME. THE A O HAD ALSO CONSIDERED THE INVESTMENT IN SUBSIDIARY COMPANY AS PART OF AVE RAGE INVESTMENT FOR WORKING OUT DISALLOWANCE WITHOUT CONSIDERING THAT S UCH INVESTMENT IS MADE NOT FOR PURPOSES OF EARNING TAX-FREE DIVIDEND INCOM E BUT FOR EARNING CAPITAL GAINS. THE CAPITAL GAINS EARNED ON SALE OF SUBSIDIA RY COMPANY HAS BEEN OFFERED FOR TAX IN THE IMPUGNED ASSESSMENT YEAR.IT WAS ALSO SUBMITTED BY THE ASSESSEE COMPANY BEFORE THE CIT(A) THAT EVEN INVEST MENT IN PROPERTY, NSC AND DEBT FUNDS ARE CONSIDERED BY THE AO AS PART OF INVESTMENT FOR DISALLOWANCE ON WHICH NO TAX-FREE INCOME IS GENERAT ED. THE CORRECT DISALLOWANCE AS PER RULE 8D OF INCOME TAX RULES, 19 62 AFTER CONSIDERING THE ABOVE FACTORS WAS ALSO SUBMITTED BY THE ASSESSEE CO MPANY BEFORE THE CIT(A). ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 112 IN OUR CONSIDERED VIEW AND IN THE INTEREST OF INTER EST, AS THE AFORE-STATED PLEAS RAISED BY THE ASSESSEE COMPANY WERE NOT ADJUDICATED BY THE AUTHORITIES BELOW PROPERLY AND NO REASONS HAVE BEEN GIVEN IN THEIR ORDERS FOR THEIR REJECTION, THIS MATTER NEED TO BE SET ASIDE TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE A CT ON MERITS IN ACCORDANCE WITH LAW AFTER CONSIDERING ALL THE PLEAS OF THE ASS ESSEE COMPANY AS MAY BE RAISED BY THE ASSESSEE COMPANY BEFORE THE AO. THE A O SHALL ALSO SATISFY THE CONDITIONS AS STIPULATED U/S. 14A(2) AND 14A(3) OF THE ACT BEFORE MAKING DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. NEE DLESS TO SAY THAT THE ASSESSEE COMPANY SHALL BE ALLOWED PROPER AND ADEQUA TE OPPORTUNITY OF BEING HEARD BY THE AO IN ACCORDANCE WITH PRINCIPLES OF NA TURAL JUSTICE AND IN ACCORDANCE WITH LAW AND THE ASSESSEE COMPANY SHALL BE ALLOWED TO SUBMIT EVIDENCES IN ITS DEFENSE. WE ARE REFRAINING ON COM MENTING ON MERITS OF THE PLEAS RAISED BY THE ASSESSEE COMPANY , WHICH THE AO SHALL DECIDE ON MERITS IN ACCORDANCE WITH LAW AND AFTER VERIFICATION OF RE CORDS. WE ORDER ACCORDINGLY. 58. IN THE RESULT, APPEAL OF THE ASSESSEE COMPANY I N ITA NO.3821/MUM/2012 IS PARTLY ALLOWED. 59. IN THE RESULT , APPEAL OF THE REVENUE IN ITA N O. 3812/MUM/2012 FOR ASSESSMENT YEAR 2003-04 IS DISMISSED, APPEAL OF THE ASSESSEE COMPANY IN ITA NO.821/MUM/2014 FOR ASSESSMENT YEAR 2007-08 IS ALLO WED, APPEAL OF THE REVENUE IN ITA NO. 3813/MUM/2012 FOR ASSESSMENT YEA R 2008-09 IS DISMISSED AND APPEAL OF THE ASSESSEE COMPANY IN ITA NO. 3821/MUM/2012 FOR ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. ITA 3813/M/12, 821/M/14, ITA 3812/M/12 & 3821/M/12 113 ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH, 2016. # $% &' 30-03-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 30-03-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI