M/s. Jindal Aluminium Ltd., Bangalore V. ACIT, Bangalore

ITA 448/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9527 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-08-2009
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWATHI S PATIL
• Keywords: Depreciation; Principle of natural justice
• Section: 80HHC; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.448/BANG/2009 ASSESSMENT YEAR : 2006-07 M/S. JINDAL ALUMINIUM LTD., JINDAL NAGAR, TUMKUR ROAD, BANGALORE 560 073. : APPELLANT VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 11(5), BANGALORE. : RESPONDENT APPELLANT BY : MS. SHEETAL RESPONDENT BY : SMT. SWATHI S. PATIL O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE COMPANY IS DI RECTED AGAINST THE ORDER OF THE CIT (A)-I FOR THE ASSESSMENT YEAR 2006-07. 2. THOUGH THE ASSESSEE COMPANY HAS RAISED NINE GROU NDS, THE ESSENCE AND CRUX OF THE GRIEVANCE OF THE ASSESSEE A RE LARGELY CONFINED TO ONLY TWO ISSUES, VIZ., (I) DENIAL OF DEDUCTION U/S 80-IA IN FULL; & (II) DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF R S.27,99,772/-. ITA NO.448/B/09 PAGE 2 OF 8 3. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF ALUMINUM EXTRUSIONS AND GEN ERATION AND SALE OF WIND ENERGY. OUT OF FOUR UNITS ENGAGED IN POWER GE NERATION, ONE UNIT WAS INCURRING LOSSES. THE ASSESSEE COMPANY HAD CLAIMED 100% DEDUCTION U/S 80IA AMOUNTING TO RS.4.16 CRORES BEING THE PROFIT E ARNED BY ONE OF THE PROFIT MAKING UNITS. HOWEVER, THE AO TOOK A STAND THAT SINCE S.80 IA PROVIDES FOR COMPUTING PROFIT OF ELIGIBLE BUSINESS , ALL UNITS GENERATING POWER HAD TO BE CONSIDERED AS A SINGLE ELIGIBLE BU SINESS OF POWER GENERATION. THE TOTAL PROFIT EARNED BY THE THREE UNITS AND THE LOSSES OF THE FOURTH UNIT WAS TREATED AS PROFIT OF ELIGIBLE BUSI NESS AND THE NET PROFIT THEREON ONLY WAS ELIGIBLE FOR DEDUCTION U/S 80 IA A ND, THUS, SHE HAD ARRIVED THE TOTAL PROFITS OF THE ELIGIBLE BUSINESS AT (-) R S.18311152/- AND, ACCORDINGLY, THE DEDUCTION ALLOWABLE U/S 80 IA WAS RS.NIL. 4. THE STAND TAKEN BY THE AO WAS CHALLENGED BEFORE THE LD.CIT(A). AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIO NS, THE JUDICIAL PRECEDENTS ON WHICH THE ASSESSEE HAD PLACED STRONG RELIANCE AND ALSO CRITICALLY ANALYZING THE PROVISIONS OF S.80-IA(5) A ND S.80-AB OF THE ACT, THE LD.CIT(A) HAD VIRTUALLY UPHELD THE STAND OF THE AO FOR THE REASONS SET-OUT IN THE IMPUGNED ORDER. BY EXTENSIVELY QUOTING THE FINDINGS OF THE HONBLE APEX COURT IN THE CASES OF (I) IPCA LABORATORY LTD. V. DCIT (2004) 266 ITR 521; (II) CIT V. B.MOHANACHANDRAN NAIR [285 ITR 226 ], (III) A.M.MOOSA V. CIT (2007) 294 ITR 1 & (IV) CIT V. K.RAVINDRANATHAN NAIR (2007) 295 ITR 228, SHE HAD OBSERVED THUS ITA NO.448/B/09 PAGE 3 OF 8 (IV) THE SUPREME COURT DECISIONS AS DISCUSSED IN C LAUSE (II) ABOVE CLEARLY STATE THAT SECTION 80AB HAS BEEN GIVEN AN O VERRIDING EFFECT OVER ALL OTHER SECTIONS IN CHAPTER VI A AS IT PROVI DES THAT NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION , THE AMOUNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WIT H THE PROVISIONS OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SHALL ALONE BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WHICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME. (V) IN OTHER WORDS, SEC.80AB IS AN OMNIBUS PROVISIO N THAT GOVERNS ALL THE OTHER SECTIONS PROVIDING FOR DEDUCTIONS UND ER CHAPTER VIA OF THE ACT. SEC.80AB MAKES IT CLEAR THAT THE COMPUTAT ION OF INCOME HAS TO BE IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IF THE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH THE PROVISION S OF THE ACT, THEN NOT ONLY PROFITS BUT ALSO LOSSES HAVE TO BE TA KEN INTO CONSIDERATION. (VI) RELIANCE IS ALSO PLACED ON THE DECISION OF THE SUPREME COURT IN CIT V. SHIRKE CONSTRUCTION EQUIPMENT LTD. (2007) 29 1 ITR 380 WHICH GAVE A CATEGORICAL FINDING THAT SEC.80HHC WAS GOVERNED BY SEC.80AB AND THAT UNABSORBED LOSSES OF EARLIER YEAR S U/S 72 HAVE TO BE SET OFF IN COMPUTING ELIGIBLE PROFITS FOR PURPOS ES OF SEC.80HHC. IN DOING SO, THE APEX COURT FOLLOWED ITS DECISION I N THE CASE OF IPCA LABORATORY LTD. (SUPRA) AND RELIED ON ITS OWN DECISIONS IN THE CASE OF ITO V. INDUFLEX PRODUCTS (P) LTD (2005) 199 CTR 712 AND P.R.PRABHAKAR V. CIT (2006) 204 CTR 27. THOUGH T HESE DECISIONS PERTAIN TO COMPUTATION OF DEDUCTION U/S 80HHC, THE RATIO OF THESE DECISIONS ARE SQUARELY APPLICABLE TO THAT OF THE IN STANT CASE SINCE BOTH SECTIONS 80HHC AND 80IA STAND ON A SIMILAR FOO TING AND THE BASIC RATIONALE AND LOGIC BEHIND THE DECISIONS OF T HE APEX COURT ARE APPLICABLE TO THE INSTANT CASE MUTATIS MUTANDIS. VIII) ASIDE FROM THE DECISIONS OF THE HONBLE SUPRE ME COURT RELIED ON ABOVE, I WOULD ALSO AGREE WITH THE AO THAT IN GR ANTING THE DEDUCTION IN RESPECT OF PROFITS OF THE ELIGIBLE BU SINESS, THE TERM ELIGIBLE BUSINESS MUST NECESSARILY BE CONSTRUED T O ENCOMPASS THE AGGREGATED ELIGIBLE BUSINESS (IN THIS CASE, WIND EN ERGY) ACROSS UNITS AND NOT UNIT BY UNIT. IN THE CIRCUMSTANCES, I AM O F THE VIEW THAT THE AO HAS CORRECTLY INTERPRETED AND APPLIED THE RELEVA NT PROVISIONS.. ITA NO.448/B/09 PAGE 4 OF 8 5. AGGRIEVED BY THE FINDING OF THE APPELLATE AUTHOR ITY, THE ASSESSEE COMPANY HAS COME UP WITH THE PRESENT APPEAL. THE M AIN CONTENTIONS OF THE LD. A R ARE SUMMARIZED HERE-UNDER: (I) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT EVERY UNI T OF POWER GENERATION OF THE ASSESSEE WAS AN INDEPENDENT INDUSTRIAL UNDERTAKING AND THE PROFIT DERIVED FROM SUCH UNIT WAS ELIGIBLE FOR DEDUCTION U/S 80IA DE HORSE THE P ROFIT OR LOSS DERIVED FROM OTHER INDEPENDENT UNITS OF THE AS SESSEE; (II) THAT THE WIND MILL UNIT IN WHOSE PROFIT THE DEDUCTI ON U/S 80IA CLAIMED WAS AN INDEPENDENT AND VIABLE UNIT IRRESPEC TIVE OF THE FUNCTIONS OF THE OTHER UNITS AND THUS IT WAS AN UNDERTAKING BY ITSELF WHICH WAS ELIGIBLE FOR DEDUCT ION U/S 80IA; (III) SEC.80IA(5) REFERS TO THE UNIT BY ITSELF DE HORSE T HE OTHER UNITS FOR THE PURPOSE OF ASCERTAINING THE PROFIT ELIGIBL E FOR DEDUCTION U/S 80IA; & (IV) THE CASE LAWS CITED BY THE LOWER AUTHORITIES WERE DISTINGUISHABLE AND ACCORDINGLY DENIAL OF DEDUCTION U/S80IA WAS OPPOSED TO LAW AND TO THE PRINCIPLES OF NATURAL JUSTICE. 5.1. DURING THE COURSE OF HEARING, THE LD. A R HAD FURNISHED A PAPER BOOK CONTAINING 1 22 PAGES WHICH CONSISTS OF, INT ER ALIA, COPIES OF CHART SHOWING COMPUTATION OF PROFIT FOR DEDUCTION U/S 80I A, PROFIT AND LOSS ACCOUNT, CORRESPONDENCE WITH THE AO ETC., 5.2. ON THE OTHER HAND, THE LD. D R WAS OF THE FIRM VIEW THAT THE LOWER AUTHORITIES HAVE GONE THROUGH THE ISSUE IN A JUDICI OUS MANNER AND HAVE RIGHTLY ARRIVED AT THE DECISION WHICH REQUIRES TO B E UPHELD. SHE HAD, THEREFORE, PLEADED THAT NO INTERFERENCE IS CALLED F OR AT THIS STAGE. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. WE HAVE ALSO PERUSED THE RELEVANT RECORDS AND ALSO THE PAPER BOO K FURNISHED BY THE LD. A.R. WITH RESPECTS, WE HAVE DULY PERUSED THE VARIO US FINDINGS OF THE ITA NO.448/B/09 PAGE 5 OF 8 HONBLE APEX COURT ON WHICH THE LD.CIT (A) HAD PLAC ED STRONG RELIANCE TO DRIVE HOME HER POINT. 6.1. THE HONBLE I.T.A.T., BANGALORE BENCH A HAD AN OCCASION TO DEAL WITH AN IDENTICAL ISSUE IN ITA NO:294/BANG/2009 DAT ED: 10/7/2009 IN THE CASE OF M/S. KARNATAKA POWER CORPORATION LTD. V. CI T. THE ISSUE BEFORE THE HONBLE TRIBUNAL, IN BRIEF, WAS THAT THE ASSESS EE WAS HAVING SEVEN UNITS IN WHICH POWER WAS BEING GENERATED. OUT OF T HE SEVEN UNITS, THE ASSESSEE HAD LOSS IN TWO UNITS. IN ONE OF THE UNITS , THERE WAS PROFIT FOR THE CURRENT YEAR BUT AFTER ADJUSTING BROUGHT FORWARD LO SS, THE RESULTANT FIGURE WAS THE LOSS. IN RESPECT OF THESE THREE UNITS, THE ASSESSEE HAD NOT CLAIMED DEDUCTION U/S 80IA. THE ASSESSEE HAD CLAIMED DEDUC TION ON THE FOUR UNITS AND COMPUTED THE DEDUCTION ON THE BASIS OF THE PROF ITS OF THE FOUR UNITS WITHOUT SETTING OFF OF LOSS OF THREE UNITS. HOWEVE R, THE AO, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF IP CA LABORATORY LTD. V. DCIT (266 ITR 521), COMPUTED THE DEDUCTION AFTER SE TTING OFF OF THE LOSS OF THREE UNITS FROM THE PROFIT OF FOUR UNITS. ON AN APPEAL, THE CIT(A), RELYING ON THE FINDINGS OF THE HONBLE APEX COURT IN THE CA SES OF IPCA LABORATORY LTD. REFERRED SUPRA AND ALSO IN CIT V. B.MOHANACHAN DRAN NAIR REPORTED IN 285 ITR 226, UPHELD THE ACTION OF THE AO. 6.2. THE ISSUE WAS BROUGHT BEFORE THE HONBLE TRIBU NAL FOR FURTHER ADJUDICATION. AFTER CONSIDERING THE RIVAL SUBMISSIO NS AND ANALYZING THE PROVISIONS OF SECTIONS 80AB, 80IA (1) AND 80IA (5), THE HONBLE TRIBUNAL HAD DELIBERATED THE ISSUE THUS ITA NO.448/B/09 PAGE 6 OF 8 2.6. AS PER SECTION 80IA (1), THE DEDUCTION IS ADM ISSIBLE IN CASE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFIT AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING; THE DEDUCTION IS 20%OF SUCH PROFIT AND GAINS. THE WORD SUCH MENTIONED IN 80IA (1) REFER S TO THE PROFIT AND GAINS OF INDUSTRIAL UNDERTAKING AND NOT TO THE PROF IT AND GAINS OF THE ELIGIBLE BUSINESS. 80IA (5) REQUIRES THAT PROFIT A ND GAINS OF AN UNDERTAKING IS TO BE COMPUTED AS IF SUCH ELIGIBLE B USINESS WERE THE ONLY SOURCE OF INCOME OF THAT UNDERTAKING. A HARMO NIOUS CONSTRUCTION IS PLACED ON 80IA AND 80I (5) (SIC) 80IA (5) CLEARL Y SHOWS THAT THE DEDUCTION IS TO BE CONSIDERED UNDERTAKING-WISE AND ONE HAS NOT TO CONSIDER ALL THE UNDERTAKINGS TOGETHER EVEN THOUGH BUSINESS OF ALL THE UNDERTAKINGS IS COVERED UNDER ELIGIBLE BUSINESS. T HE PURPOSE OF SECTION 80IA IS THAT DEDUCTION UNDER CHAPTER VIA SH OULD NOT EXCEED GROSS TOTAL INCOME. IN THE INSTANT CASE, THE DEDUC TION CLAIMED U/S80IA IS LESS THAN THE GROSS TOTAL INCOME. 2.7. THE SPECIAL BENCH, AHMEDABAD IN THE CASE O F ASST. CIT V. GOLDMINE SHARES & FIN.(P) LTD. 113 ITR 209 HAS HELD AS UNDER: THE ONLY HARMONIOUS CONSTRUCTION OF SECTION 80IA(5 ) CONSISTENT WITH THE OBJECT OF ALLOWING DEDUCTION ONLY TO PROFITS AN D GAINS OF THE ELIGIBLE BUSINESS WOULD BE THAT (A) THE DEDUCTION UNDER THAT SECTION WOULD BE COMPUTED WITH REFERENCE TO PROFITS OF THE ELIGIBLE UNIT, UNAFFECTED BY LOSS ES SUFFERED IN OTHER UNITS; (B) IN CASE OF LOSS SUFFERED BY THE ELIGIBLE UNIT, SUCH LOSS WOULD NOT BE SET OFF AGAINST PROFITS OF OTHER UNITS/OTHER BUSINE SS/OTHER INCOMES IN THE INITIAL YEAR OF THE ASSESSMENT OR SUBSEQUENT YE ARS OF ELIGIBLE YEARS OF ASSESSMENT; (C) WHERE LOSSES OF THE ELIGIBLE UNIT REMAINED TO BE AD JUSTED AGAINST THAT VERY SOURCE, THEY ARE TO BE CARRIED FORWARD TO SUBSEQUENT YEAR(S) AND SET OFF IN THE SUCCEEDING YEAR(S) AND O N THE BALANCE PROFIT ALONE THE DEDUCTION ADMISSIBLE WOULD BE COMP UTED; (D) WHERE THERE ARE NO LOSSES OF THE ELIGIBLE UNIT CARR IED FORWARD (IN VIEW OF SET OFF AGAINST PROFITS OF THAT VERY SOURCE ), IT IS THE MANDATE OF LAW THAT THE LOSSES OF EARLIER YEARS, THOUGH ALR EADY ABSORBED AGAINST OTHER SOURCES, THEY ARE ONCE AGAIN TO BE NO TIONALLY BROUGHT FORWARD AND SET OFF AGAINST PROFITS OF THE ELIGIBLE UNIT TO COMPUTE ELIGIBLE DEDUCTION; (E) THE DEDUCTION WOULD BE LIMITED TO GROSS TOTAL INCOM E. THUS, IN VIEW OF THE SPECIFIC PROVISIONS OF SEC TION 800A(5) (SIC) 80IA(5), THE PROFIT FROM THE ELIGIBLE BUSINESS FOR THE PURPOSE OF DETERMINATION OF THE QUANTUM OF DEDUCTION UNDER SEC TION 80IA HAS TO BE COMPUTED AFTER DEDUCTION OF THE NOTIONAL BROUGHT FO RWARD LOSSES AND ITA NO.448/B/09 PAGE 7 OF 8 DEPRECIATION OF ELIGIBLE BUSINESS, EVEN THOUGH THEY HAVE BEEN ALLOWED TO BE SET OFF AGAINST OTHER INCOME IN HE EARLIER YEARS . 2.8. HENCE, FOLLOWING THE DECISION OF THE SPECIAL B ENCH, WE HOLD THAT THE DEDUCTION U/S 80IA IS TO BE COMPUTED UNDERTAKIN G-WISE. IN CASE, THERE IS A LOSS IN AN UNDERTAKING, THEN IT WILL NOT BE SE T OFF AGAINST THE PROFIT OF ANOTHER UNDERTAKING THOUGH THE LOSS OF THIS UNDERTA KING WILL BE ADJUSTED AGAINST THE PROFIT IN SUBSEQUENT YEAR IN CASE THE D EDUCTION IS CLAIMED U/S 80IA IN RESPECT OF THAT UNIT. THUS, THE LOSSES WHI CH HAVE NOT BEEN CONSIDERED FOR THE YEAR UNDER CONSIDERATION WILL HA VE TO BE SET OFF AGAINST THE PROFIT OF THESE UNITS AS AND WHEN THERE IS PROF IT FROM SUCH UNITS AND THE ASSESSEE CLAIMED DEDUCTION U/S 80IA. IN CASE O F ONE UNIT THERE IS PROFIT DURING THE YEAR BUT AFTER ADJUSTING CARRY FO RWARD LOSS, THE RESULTANT FIGURE IS THE LOSS AND THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 80IA IN RESPECT OF THIS UNIT 6.3. AS THE ISSUE ON HAND IS IDENTICAL TO THAT OF T HE ISSUE DEALT BY THE HONBLE TRIBUNAL REFERRED SUPRA, WE ARE OF THE CONS IDERED VIEW THAT THE STAND OF THE LOWER AUTHORITIES WAS NOT IN ACCORDANC E WITH LAW. THE AO IS, THEREFORE, DIRECTED TO ALLOW DEDUCTION U/S 80IA, IN CONFORMITY WITH THE DIRECTIONS OF THE HONBLE TRIBUNAL CITED SUPRA. 7. THE OTHER GRIEVANCE OF THE ASSESSEE COMPANY IS T HAT OF THE DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT OF R S.27,99,772/-. 7.1. AT THE OUTSET, WE WOULD LIKE TO POINT OUT THA T THE ISSUE WAS NEITHER DEALT WITH BY THE AO IN THE IMPUGNED ORDER NOR TOOK UP THE ISSUE WITH THE APPELLATE AUTHORITY FOR REDRESSAL BY THE ASSESSEE C OMPANY. THE ASSESSEE COMPANY IS, THEREFORE, ADVISED, THROUGH ITS COUNSEL , TO APPROACH THE ASSESSING AUTHORITY TO ADDRESS ITS GRIEVANCE. IN T HE MEANWHILE, IN THE INTEREST OF JUSTICE AND EQUITY, THE AO IS DIRECTED TO LOOK INTO THE GRIEVANCE OF THE ASSESSEE - IF THE CLAIM FALLS WITHIN THE STIPUL ATED TIME FRAME AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROV ISIONS OF THE ACT. WITH ITA NO.448/B/09 PAGE 8 OF 8 THESE OBSERVATIONS, THIS GROUND IS DISMISSED AS NOT MAINTAINABLE AND PRE- MATURE. 8. IN THE RESULT, THE ASSESSE COMPANYS APPEAL IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF SEPTEMBER, 2009. SD/- SD/- ( K.P.T. THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 4 TH SEPTEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.