Hyderabad Chemical Products Pvt.Ltd., Hyd, Hyderabad V. ACIT, Circle-2(2), Hyderabad, Hyderabad

ITA 441/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6310 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.441/HYD/2016 ASSESSMENT YEAR 2010-2011 M/S. HYDERABAD CHEMICAL PRODUCTS P. LTD., HYDERABAD. . PAN AAACH5507Q VS., ACIT, CIRCLE-2(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. A.V. RAGHURAM FOR REVENUE : MR. K.J. RAO DATE OF HEARING : 14.07.2016 DATE OF PRONOUNCEMENT : 20.07.2016 ORDER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2010-2011. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE CIT(A) IN UPHOLDING THE VIEW TAKEN BY THE A.O. IN DENYING DED UCTION UNDER SECTION 80IA IN RESPECT OF ITS WIND MILL PROJECTS I NSTALLED IN THE EARLIER YEARS AND FURTHER IN HOLDING THAT THE PAST LOSSES HAVE TO BE NOTIONALLY ADJUSTED EVEN WHEN THEY WERE ADJUSTED AG AINST THE OTHER BUSINESS INCOME IN EARLIER YEARS. 2 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. 2. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VERY SAME ISSUE HAD ARISEN IN AS SESSEES OWN CASE FOR THE A.Y. 2008-09 AND THIS TRIBUNAL AFTER CO NSIDERING THE ISSUE AT LENGTH HAS ALLOWED THE ASSESSEES APPEAL O N THIS ISSUE. A COPY OF THE ORDER OF THE TRIBUNAL IS FILED BEFORE U S. 3. THE LD. D.R. THOUGH RELIED UPON THE ORDERS OF T HE AUTHORITIES BELOW FAIRLY ADMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEAR. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE TRIBUNAL FOR THE A.Y. 200 8-09 HAS CONSIDERED THIS ISSUE AT LENGTH AND HAS HELD AS UND ER : 2. AS REGARDS OTHER GROUNDS, I.E. GROUNDS NO.1 T O 5, RELATING TO DEDUCTION UNDER S.80IA OF THE ACT, BRIEF FACTS A RE THAT THE ASSESSEE IS INTO THE BUSINESS OF GENERATION OF POWER THROUGH WINDMILLS AND ALSO MANUFACTURE OF PESTICIDES. IT FILED ITS RETURN OF INCOME ON 28.9.2008 FOR THE ASSESSMENT YEAR 2008-09 ADMITTING AN INCOME OF RS.15,60,711. DUR1ING THE ASSESSMENT PROCEEDINGS UNDER S.143(3) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS MADE A CLAIM OF DEDUCTION UNDER S.80IA OF THE ACT FOR TH E THREE WIND MILL UNITS SET UP BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAS COMMISSIONED ITS FIRST WINDMILL UNIT ON 31.3.1999( PHASE I), THE SECOND UNIT IN MARCH, 2005(PHASE II) AND THE THIRD UNIT IN DECEMBER, 2006 (PHASE III) IN MAHARASHTRA. HE OBSERVED THAT T HE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER S.80IA OF THE ACT FOR A LL THE THREE UNITS DURING THE RELEVANT ASSESSMENT YEARS. ON VERIFICAT ION OF RECORDS, THE ASSESSING OFFICER NOTICED THAT THE UNITS 1 AND 2 AR E HAVING UNABSORBED LOSSES OF RS.22,88,972 AND RS.1,17,39,691 FROM ASSE SSMENT YEARS 2001-02 AND 2006-07 PERTAINING TO THE FIRST WINDMIL L UNIT AND SECOND WINDMILL UNIT RESPECTIVELY, AND THAT THE ASSESSEE H AS NOT SET OFF THESE LOSSES AGAINST THE PROFIT OF THE WINDMILLS FOR THE RELEVANT FINANCIAL YEARS BEFORE CLAIMING DEDUCTION UNDER S.80IA OF THE ACT, AS PRESCRIBED IN THE PROVISIONS OF S.80IA OF THE ACT. THUS, ACC ORDING TO HIM, THE MODE OF COMPUTATION MADE BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HE ALSO OBSERVED THAT SI MILAR ISSUE HAD ARISEN IN ASSESSEES OWN CASE IN EARLIER YEARS, WHE REIN THE DEDUCTION 3 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. UNDER S.80IA WAS ALLOWED AFTER SET OFF OF THE EARLI ER YEARS UNABSORBED LOSSES. DULY FOLLOWING THE SAME AND ALSO THE SPECI AL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF ACIT V/S. GOLD MINE SHA RES AND FINANCE (P) LTD. (302 ITR (AT) 208 (AHD)(SB)), HE DISALLOWED TH E CLAIM OF DEDUCTION UNDER S.80IA OF THE ACT. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALSO FOLLOWED THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND CONFIRMED THE DISALL OWANCE MADE BY THE ASSESSING OFFICER . 4. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE FAI RLY ADMITTED THAT THE ISSUE HAS BEEN DECIDED AGAINST TH E ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R EARLIER YEARS, HE HAS DRAWN OUR ATTENTION TO THE CBDT CIRCULAR DATED 15.2.2016 ON S.80IA(5) AND SUBMITTED THAT IN VIEW OF THE SAID CI RCULAR OF THE BOARD, THE CLAIM OF THE ASSESSEE UNDER S.80IA NEEDS RECONS IDERATION. HE ALSO PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS PVT. LTD . V/S. ACIT (340 ITR 477), WHEREIN IT HAS BEEN CLEARLY HELD THAT ON LY THE LOSES OF THE YEAR BEGINNING FROM THE INITIAL ASSESSMENT YEAR OPT ED TO BY THE ASSESSEE SHALL BE SET OFF AND NO LOSSES OF EARLIER YEARS WHICH ARE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE SHALL BE CONSIDERED FOR DISALLOWANCE UNDER S.80IA (5). 6. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO DRAW N OUR ATTENTION TO THE PROVISIONS OF S.80IA(5) AND SUBMIT TED THAT SINCE INCOME OF THE ELIGIBLE UNIT WAS TO BE COMPUTED ON A STAND ALONE BASIS ONLY FROM THE ASSESSMENT YEAR WHICH HAS BEEN OPTED TO BY THE ASSESSEE FOR CLAIMING DEDUCTION UNDER S.80IA FOR TH E FIRST TIME, THAT YEAR ALONE SHALL BE CONSIDERED AS THE INITIAL ASSES SMENT YEAR AND NOT THE YEAR OF COMMENCEMENT/OPERATION. HE SUBMITTED TH AT THE CBDT, VIDE CIRCULAR DATED 15.2.2016 HAS CLARIFIED THIS PO SITION, AND THEREFORE, ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER S.80IA AND THE NOTIONAL BROUGHT FORWARD LOSSES OF THE EARLIER YEARS MAY NO T BE SET OFF AGAINST THE INCOME OF THE ELIGIBLE UNIT FOR THE RELEVANT F INANCIAL YEAR, WHILE COMPUTING THE DEDUCTION UNDER S.80IA. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE CONTRARY, SUPPORTED THE ORDERS OF THE CIT(A), RELYI NG ON THE DECISIONS OF THE TRIBUNAL ON THIS ISSUE IN ASSESSEES OWN CAS E FOR EARLIER YEARS. 8. HAVING REGARD TO THE RIVAL SUBMISSIONS AND THE M ATERIAL ON RECORD, WE FIND IT NECESSARY TO REPRODUCE THE RE LEVANT PROVISION OF THE ACT FOR PROPER APPRECIATION AND UNDERSTANDING O F THE PROVISION OF LAW. 4 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM IN DUSTRIAL UNDERTAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTU RE DEVELOPMENT, ETC. 80-IA.(1) TO (4) . (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSI NESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION 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 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 ASS ESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WH ICH THE DETERMINATION IS TO BE MADE. (6) FROM A LITERAL READING OF THE ABOVE PROVISION, IT I S SEEN THAT THE PROFITS AND GAINS FROM THE BUSINESS OF THE ASSESSEE SHALL B E COMPUTED ON A STAND ALONE BASIS FROM THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR. THE INITIAL ASSESSMENT YEAR HAS BE EN UNDERSTOOD BY THE ASSESSING OFFICER TO BE THE YEAR OF COMMENCEMEN T OF OPERATION OF THE UNIT BY THE ASSESSEE, WHEREAS THE CBDT VIDE CIR CULAR DATED 15.2.2016 HAS CLARIFIED THE MATTER AS UNDER- SUBJECT: CLARIFICATION OF THE TERM INITIAL ASSESS MENT YEAR IN SECTION, 80IA (5) OF THE INCOME-TAX ACT, 1961 SECTION 80IA OF THE INCOME-TAX ACT, I961 (ACT}, AS SUBSTITUTE D BY THE FINANCE ACT, 1999 WITH EFFECT FROM 01.04.2000, PROV IDES FOR DEDUCTION OF AN AMOUNT EQUAL TO 100 % OF THE PROFIT S AND GAINS DERIVED BY AN UNDERTAKING OR ENTERPRISE FROM AN ELI GIBLE BUSINESS (AS REFERRED TO IN SUB-SECTION (4) OF THAT SECTION) IN ACCORDANCE WITH THE PRESCRIBED PROVISIONS. SUB-SECTION (2) OF SECTION 80IA FURTHER PROVIDES THAT THE AFORESAID DEDUCTION CAN BE CLAIME D BY THE ASSESSEE, AT HIS OPTION, FOR ANY TEN CONSECUTIVE ASSESSMENT Y EARS OUT OF FIFTEEN YEARS (TWENTY YEARS IN CERTAIN CASES) BEGINNING FRO M THE YEAR IN WHICH THE UNDERTAKING COMMENCES OPERATION, BEGINS D EVELOPMENT OR STARTS PROVIDING SERVICES ETC. AS STIPULATED THEREI N. SUB-SECTION (5) OF SECTION 80IA FURTHER PROVIDES AS UNDER 5 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PR OVISION 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 THE QUANTUM OF DEDUCTION UNDER THAT SUB -SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS I F SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING 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 INITIAL ASSESSMENT YEAR. IT HAS BEEN REPRESENTED THAT SOME ASSESSING OFFICERS ARE INTERPRETING THE TERM INITIAL ASSESSM ENT YEAR AS THE YEAR IN WHICH THE ELIGIBLE BUSINESS/ MANUFACTURING ACTIV ITY HAD COMMENCED AND ARE CONSIDERING SUCH FIRST YEAR OF COMMENCEMENT/OPERATION ETC. ITSELF AS THE FIRST YEA R FOR GRANTING DEDUCTION, IGNORING THE CLEAR MANDATE PROVIDED UNDE R SUB-SECTION (2) WHICH ALLOWS A CHOICE TO THE ASSESSEE FOR DECIDING THE YEAR FROM WHICH IT DESIRES TO CLAIM DEDUCTION OUT OF THE APPL ICABLE SLAB OF FIFTEEN (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 ELIGIB LE TO CLAIM DEDUCTION U/S MA HAS THE OPTION TO CHOOSE THE INITI AL/ 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 PRE SCRIBED UNDER THAT SUB-SECTION. IT IS HEREBY CLARIFIED THAT ONCE SUCH INITIAL ASSESSMENT YEAR HAS BEEN OPTED FOR BY THE ASSESSEE, HE SHALL B E ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR TEN CONSECUTIVE YEARS BEGINNING FROM THE YEAR IN RESPECT OF WHICH HE HAS EXERCISED SUCH OPTI ON SUBJECT TO THE FULFILMENT OF CONDITIONS PRESCRIBED IN THE SECTION. HENCE, THE TERM INITIAL ASSESSMENT YEAR WOULD MEAN THE FIRST YEAR OPTED FOR BY THE ASSESSEE FOR CLAIMING DEDUCTION U/S 80IA . HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMING DEDUCTION SHOULD NOT TRANSGRE SS 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 PARTICULAR CASE ARE DULY SATISFIED. PENDING LITIGATION ON ALLOWABILITY OF DEDUCTION U/S 80 IA SHALL ALSO NOT BE PURSUED TO THE EXTENT IT RELAT ES TO INTERPRETING 6 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. INITIAL ASSESSMENT YEAR AS MENTIONED IN SUB-SECTI ON (5) OF THAT SECTION FOR WHICH THE STANDING COUNSELS/DRS BE SUIT ABLY INSTRUCTED. FROM A READING OF THE ABOVE CIRCULAR, IT IS CLEAR THAT THE ASSESSEE WHO IS ELIGIBLE TO CLAIM DEDUCTION UNDER S.80IA HAS BEE N GIVEN AN OPTION TO CHOOSE INITIAL/FIRST YEAR FROM WHICH IT MAY DESIRE TO CLAIM THE DEDUCTION FOR TEN CONSECUTIVE YEARS OUT OF THE SLAB OF 15 OR 20 YEARS AS PRESCRIBED UNDER THE ABOVE SUB-SECTION. THE TERM I NITIAL ASSESSMENT YEAR HAS BEEN HELD TO MEAN THE FIRST YEAR OPTED TO BY THE ASSESSEE FOR CLAIMING DEDUCTION UNDER S.80IA OF THE ACT. THUS, I T IS CLEAR THAT THE INITIAL ASSESSMENT YEAR IS NOT THE YEAR OF OPERATIO N OR COMMENCEMENT OF BUSINESS, AS INTERPRETED BY THE ASSESSING OFFICE R, BUT IT IS THE FIRST YEAR IN WHICH THE ASSESSEE HAS OPTED TO CLAIM THE D EDUCTION UNDER S.80IA. IN VIEW OF THIS CLARIFICATION OF THE BOARD, WHICH CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE, AND IS BINDING ON THE REVENUE AUTHORITIES, WE ACCEPT THE CONTENTIONS OF THE ASSES SEE IN THIS BEHALF, AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE, AFTER VERIFYING THE RECORDS AS TO THE INITIAL ASSES SMENT YEAR IN WHICH THE ASSESSEE FOR THE FIRST TIME HAS CLAIMED THE DED UCTION UNDER S.80IA OF THE ACT, AND CONSIDER THE INCOME OF THE ASSESSEE FROM THE ELIGIBLE UNIT FROM THAT YEAR ALONE ON A STAND ALONE BASIS. ASSESSEES GROUNDS ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 4.1. RESPECTFULLY FOLLOWING THE SAME TO WHICH BOTH OF US ARE SIGNATORIES, THIS APPEAL OF THE ASSESSEE IS ALSO AL LOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 20.07. 2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI ) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 20 TH JULY, 2016 VBP/- 7 ITA.NO.441/HYD/2016 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., HYDERABAD. COPY TO : 1 M/S. HYDERABAD CHEMICAL PRODUCTS PVT. LTD., C/O. RAJU & PRASAD, CHARTERED ACCOUNTANTS, 401, DIAMOND HOUSE, ADJ. AMRUTHA HILLS, PANJAGUTTA, HYDERABAD 500 082. 2. ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE 2(2) H YDERABAD 3. 4. COMMISSIONER OF INCOME-TAX(APPEALS) II, HYDERABAD PR. COMMISSIONER OF INCOME-TAX II, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD 6. GUARD FILE.