Assistant Commissioner of Income tax, Ichalkaranji V. Kulkarni Power Tools Ltd, Kolhapur

ITA 468/PUN/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0104 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 23-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N ASHOK BABU
• Assessee Lawyers: M P MACHAWE
• Keywords: Depreciation; Question of law; Unabsorbed depreciation
• Section: 143(3); 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 468/PUN/2017 / ASSESSMENT YEAR : 2012-13 ACIT, ICHALKARANJI CIRCLE, ICHALKARANJI. ....... / APPELLANT / V/S. KULKARNI POWER TOOLS LTD., A/P-SHIROL, TALUKA-SHIROL, KOLHAPUR-416115. PAN : AAACK7368Q / RESPONDENT ASSESSEE BY : SHRI M.P.MACHAWE REVENUE BY : SHRI N.ASHOK BABU / DATE OF HEARING : 14.05.2019 / DATE OF PRONOUNCEMENT : 17.05.2019 / ORDER PER ANIL CHATURVEDI, AM : THIS APPEAL BY THE REVENUE IS FILED AGAINST THE ORDER OF THE LD. CIT(APPEALS)-2, KOLHAPUR DATED 01.12.2016 FOR THE ASSESSMENT YEAR 2012-13. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER:- 2. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF POWER TOOLS, INDUSTRIAL BLOWER AND GENERATION OF ELECTRICITY BY WINDMILL. THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 12.09.2012 DECLARING TOTAL INCOME OF RS.84,08,230/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) VIDE ORDER DATED 26.03.2015 AND 2 ITA NOS. 468/PUN/2017 A.Y.2012-13 THE TOTAL INCOME WAS DETERMINED AT RS.1,75,40,790/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO VIDE ORDER DATED 01.12.2016 IN APPEAL NO.ICH/030/2015-16 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW BEFORE US AND HAS RAISED FOLLOWING EFFECTIVE GROUND:- 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS CORRECT IN HOLDING THAT WHEN THE ASSESSEE EXERCISES THE OPTION FOR THE INITIAL ASSESSMENT YEAR, ONLY LOSSES OF THE YEAR BEGINNING FROM THE INITIAL ASSESSMENT YEAR ARE TO BE BROUGHT FORWARD AND NOT THE LOSSES OF EARLIER YEARS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE OTHER INCOME OF THE ASSESSEE, FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IA(4) OF THE I.T.ACT, 1961, THEREBY IGNORING THE PROVISIONS OF SECTION 80IA(5)? 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.90,27,829/-U/S 80IA IN RESPECT OF INCOME ON GENERATION OF ELECTRICITY FROM WINDMILL. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS CLAIMING DEDUCTION U/S 80IA BY IGNORING THE PROVISION OF SECTION 80IA(5) WHICH PROVIDED THAT PROFIT AND GAINS OF ELIGIBLE BUSINESS SHOULD BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF THE INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL AY AND EVERY SUBSEQUENT YEAR UPTO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION WAS TO BE MADE. THE ASSESSEE WAS ASKED TO EXPLAIN THE ALLOWABILITY OF CLAIM OF DEDUCTION IN THE LIGHT OF THE PROVISION OF SECTION 80IA(5) OF THE ACT TO WHICH THE ASSESSEE TO THE QUERY OF THE ASSESSING OFFICER INTER ALIA SUBMITTED THAT IT HAD EXERCISED OPTION U/S 80IA(2) AND THE YEAR UNDER CONSIDERATION WAS THE INITIAL ASSESSMENT YEAR. IT WAS FURTHER SUBMITTED THAT AS PER SECTION 80IA(5), PROFIT AND GAINS OF ELIGIBLE BUSINESS IS TO BE DETERMINED ON STAND ALONE BASIS. IF THERE ARE ANY LOSS EARLIER OF ELIGIBLE BUSINESS UNIT, THEY ARE NOT TO BE CONSIDERED NOTIONALLY AS THEY HAVE ALREADY 3 ITA NOS. 468/PUN/2017 A.Y.2012-13 BEEN SET OFF AGAINST THE INCOME OF THE EARLIER YEAR WHILE ARRIVING AT GROSS TOTAL INCOME. IT WAS FURTHER SUBMITTED THAT THERE WAS NO CARRIED FORWARD LOSSES/DEPRECIATION AS THEY HAVE ALREADY BEEN SET OFF WHILE ARRIVING AT THE GROSS TOTAL INCOME IN THE PAST. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER. THE ASSESSING OFFICER THEREAFTER RECASTED THE P&L A/C AND CAME TO THE CONCLUSION THAT THERE WAS NO PROFIT IN THE ASSESSMENT YEAR/ UP TO ASSESSMENT YEAR UNDER CONSIDERATION AND THEREFORE THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. THE ASSESSING OFFICER ALSO NOTED THAT THE DECISIONS RELIED UPON BY THE ASSESSEE NAMELY THE DECISION OF PUNE TRIBUNAL IN THE CASE OF POONAWALA ESTATES STUD AGRI FARM P.LTD. VS ACIT IN ITA NO.1462/PN/20014 AND DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF ACIT VS VELAYUDHASWAMY SPG. MILLS P.LTD.[2017] 244 TAXMAN 58 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND THE DEPARTMENT WAS IN FURTHER APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT & HONBLE SUPREME COURT RESPECTIVELY. HE ACCORDINGLY DENIED THE CLAIM OF DEDUCTION OF RS.90,27,829/- U/S 80IA OF THE ACT. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER:- 6. .THE LAST REASON MENTIONED BY THE AO IS THAT PROVISIONS OF SEC 80IA(5) MANDATE THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION BE FIRST SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS AND THE BALANCE ONLY IS ELIGIBLE FOR DEDUCTION U/S 80IA. I FIND THAT AN IDENTICAL ISSUE HAD COME UP IN APPEAL BEFORE THE HONORABLE ITAT IN THE CASE OF M/S RDS CONSTRUCTION COMPANY, KOLHAPUR WHEREIN THE TRIBUNAL, VIDE ITS CONSOLIDATED ORDERS DATED 06/11/2O15 FOR THE ASSESSMENT YEARS 2004- 05 TO 2O10-11 IN ITA NOS 377 TO 383/PN/2013 HAS RULED CLEARLY IN FAVOR OF THE APPELLANT. MORE PARTICULARLY, IN PARAGRAPHS 135 AND 136 OF THE CONSOLIDATED ORDER PERTAINING TO ITA NO. 383/PN/2013 FOR ASSESSMENT YEAR 2010-11, THE HONORABLE TRIBUNAL HAS HELD AS UNDER: 4 ITA NOS. 468/PUN/2017 A.Y.2012-13 I35. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE AS TO WHETHER INITIAL ASSESSMENT YEAR U/ S. 80IA(5) MEANS YEAR OF INSTALLATION OF WINDMILL OR YEAR IN WHICH THE CLAIM OF DEDUCTION U/S. 80IA IS FIRST MADE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF POONAWAL ESTATE STUD & AGRO FARM PUT. LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: 136. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE HOLD THAT THE PROVISIONS OF SECTION 80IA(5) ARE APPLICABLE ONLY FROM THE INITIAL ASSESSMENT YEAR, I.E. THE ASSESSMENT YEAR IN WHICH DEDUCTION U/S. 80IA(4) WAS FIRST CLAIMED BY THE ASSESSEE AFTER EXERCISING ITS OPTION AS PER THE PROVISIONS OF SECTION 80IA(2) OF THE ACT. THE ORDER OF LD.CIT(A) IS ACCORDINGLY UPHELD AND THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 6.1. I HAVE ALSO PERUSED THE CLARIFICATION REGARDING THE ASSESSMENT YEAR, IN SECTION 80IA(S) ISSUED BY THE CBDT IN CIRCULAR NO.1/2016 DATED 15/02/2016. QUOTING FROM THE SAME:- THE MATTER HAS BEEN EXAMINED BY THE BOARD. IT IS ABUNDANTLY 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 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 ASSESSMENT YEARS 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 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 ASSESSEE FOR CLAIMING DEDUCTION U/S 80IA. HOWEVER, THE TOTAL NUMBER OF YEARS FOR CLAIMING DEDUCTION SHOULD NOT TRANSGRESS THE PRESCRIBED SLAB OF FIFTEEN OR TWENTY 5 ITA NOS. 468/PUN/2017 A.Y.2012-13 YEARS, AS THE CASE MAY BE AND THE PERIOD OF CLAIM SHOULD BE AVAILED IN CONTINUITY. 6.2. FROM THE ABOVE IT IS EVIDENT THAT THE MATTER REGARDING INITIAL ASSESSMENT YEAR HAS NOW BEEN CLEARLY SETTLED IN FAVOR OF THE APPELLANT. AS PER BOTH, THE HONORABLE ITAT AS WELL AS THE CBDT, THE APPELLANT HAS AN OPTION TO CHOOSE THE INITIAL ASSESSMENT YEAR FOR THE PURPOSES OF DEDUCTION UNDER SECTION 80IA. IN THE LIGHT OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONORABLE ITAT CITED SUPRA AS WELL AS THE CIRCULAR OF THE CBDT CITED SUPRA, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE DEDUCTION UNDER SECTION 80IA. HOWEVER THE QUANTUM OF DEDUCTION IS TO BE RESTRICTED TO RS.88,73,029 AS THE APPELLANT HAS CONCEDED THAT EXPENSES OF RS.1,54,800 PERTAINING TO THE WINDMILL DIVISIONS WERE WRONGLY CLAIMED IN THE REGULAR BUSINESS DIVISION. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 4. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, LD.DR SUPPORTED THE ORDER OF ASSESSING OFFICER. LD.AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A) AND FURTHER SUBMITTED THAT ON IDENTICAL ISSUE, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HERCULES HOISTS LTD. [BOM. HIGH COURT 2017 ITL 1084] AND PCIT VS MAHALAXMI INFRA PROJECTS LTD. [BOM. HIGH COURT 2019 ITL 339] HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE FURTHER SUBMITTED THAT AGAINST THE ORDER OF HONBLE MADRAS HIGH COURT IN THE CASE OF ACIT VS VELAYUDHASWAMY SPG. MILLS P.LTD.(SUPRA), SLP WAS FILED BY THE REVENUE WHICH WAS DISMISSED BY THE HONBLE SUPREME COURT. HE ALSO PLACED ON RECORD THE AFORESAID DECISIONS. HE THEREFORE SUBMITTED THAT IN VIEW OF THE AFORESAID DECISIONS, NO INTERFERENCE TO THE ORDER OF CIT(A) IS CALLED FOR. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN PRESENT GROUND IS WITH RESPECT TO CLAIM OF DEDUCTION U/S 80IA OF THE ACT. THE ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION AS HE WAS OF THE VIEW THAT THE BROUGHT FORWARD UNABSORBED DEPRECIATION BE FIRST 6 ITA NOS. 468/PUN/2017 A.Y.2012-13 SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS AND THE BALANCE ONLY IS ELIGIBLE FOR DEDUCTION U/S 80IA. WE FIND THAT IDENTICAL ISSUE WAS BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HERCULES HOISTS LTD.(SUPRA) WHEREIN THE HONBLE HIGH COURT AFTER RELYING ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF ACIT VS VELAYUDHASWAMY SPG. MILLS P.LTD.(SUPRA) AND NOTING THE FACT THAT THE SLP THAT WAS FILED BY THE REVENUE AGAINST THE DECISION OF MADRAS HIGH COURT IN THE CASE OF ACIT VS VELAYUDHASWAMY SPG. MILLS P.LTD.(SUPRA) WAS DISMISSED HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATION OF HONBLE HIGH COURT IS EXTRACTED HEREUNDER:- 7. IT IS NOT DISPUTED THAT THE RESPONDENT ASSESSEE IS ENTITLED FOR DEDUCTION OF THE PROFITS AND GAINS AS CONTEMPLATED U/S 80IA. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE PROFITS AND GAINS FOR THE PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH INITIAL ASSESSMENT YEAR. IT IS FURTHER NOT DISPUTED THAT THE INITIAL ASSESSMENT YEAR OF THE ASSESSEES UNIT IS 2009-10, THOUGH IT STARTED FUNCTIONING FROM THE YEAR 2005-06. THE LOSSES OF THE YEARS 2005-06 TO 2008-09 WERE ABSORBED DURING THE RELEVANT YEARS AND NO LOSSES WERE CARRIED FORWARD. THE ONLY QUESTION OF DEBATE BEFORE THE TRIBUNAL WAS WHETHER THE PROFIT EARNED DURING THE ASSESSMENT YEAR 2009-10 WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80IA(5) OF THE ACT WITHOUT DEDUCTING THE LOSSES, WHICH WERE ABSORBED IN THE EARLIER YEARS. 8. THE SAID ISSUE IS NOW NO LONGER RESINTEGRA IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN A CASE OF VELAYUDHASWAMY SPINNING MILLS P.LTD. & SUDAN SPINNING MILLS (P.) LTD. (SUPRA), THE COURT OBSERVED AS UNDER:- 'FROM A READYING 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 ASSESSMENT YEARS. WHEN THE ASSESSEE EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF 7 ITA NOS. 468/PUN/2017 A.Y.2012-13 THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE INITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OFF 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 CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. A FICTION CREATED IN SUBSECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. THE FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. THE SAID JUDGMENT OF THE MADRAS HIGH COURT HAS BEEN CONFIRMED BY THE APEX COURT, AS SUCH HAS ATTAINED FINALITY. EVEN IN THE ASSESSEE'S OWN CASE FOR THE PREVIOUS YEAR, THE LOSSES WERE SET OFF IN THE RELEVANT YEARS. THE REVENUE HAD CHALLENGED THE SAID ACTION BEFORE THIS COURT IN INCOME TAX APPEAL NO.2485 OF 2013 AND IT WAS HELD THAT THE SAID ACTION IS LEGAL AND PROPER. THE SAID JUDGMENT IS ALSO UPHELD BY THE APEX COURT. 10. CONSIDERING THE ABOVE, WE DO NOT FIND ANY ERROR COMMITTED BY THE TRIBUNAL IN ALLOWING THE DEDUCTION OF THE PROFIT U/S 80LB(5) OF THE ACT WITHOUT DEDUCTING THE LOSSES OF THE EARLIER YEARS. 11. IN THE LIGHT OF THE ABOVE, THE PRESENT APPEAL IS BEREFT OF ANY SUBSTANTIAL QUESTION OF LAW. AS SUCH, THE APPEAL IS DISMISSED. NO COSTS. 6. BEFORE US, REVENUE HAS NOT POINTED OUT ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE THEREFORE, FIND NO REASON TO INTERFERE IN THE ORDER OF CIT(A) AND THUS, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 17 TH DAY OF MAY, 2019. SD/- SD/- SD/- SD/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 8 ITA NOS. 468/PUN/2017 A.Y.2012-13 / DATED : 17 TH MAY, 2019. AMIT KUMAR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT-ACIT, ICHALKARANJI CIRCLE, ICHALKARANJI. 2. / THE RESPONDENT-KULKARNI POWER TOOLS LTD., A/P-SHIROL, TALUKA-SHIROL, KOLHAPUR-416115. 3. THE CIT(APPEALS), PUNE. 4. THE CCIT, PUNE. 5. , , / DR, ITAT, PUNE. 6. / GUARD FILE. / BY ORDER, SENIOR PRIVATE SECRETARY , / ITAT, PUNE.