ACIT, Cir.-6, Pune V. Sharada Erectors Pvt. Ltd, Pune

ITA 472/PUN/2010

• Counselvise Citation: 47224514 RSA 2010
• Duration Of Justice: 3 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 29-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K SINGH
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 472/PN/2010 (ASSESSMENT YEAR : 2005-06) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6, PUNE . APPELLANT VS. SHARADA ERECTORS PVT. LTD. 38, VIJAYANAGAR COLONY, SADASHIV PETH, PUNE 411 030 PAN : AACCS6028D . RESPONDENT ITA NO. 568/PN/2010 (ASSESSMENT YEAR : 2005-06) SHARADA ERECTORS PVT. LTD. SHARADA CENTRE, 11/1, ERANDAVANE, PUNE 411 004 PAN : AACCS6028D . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6, PUNE . RESPONDENT ITA NO. 907/PN/2010 (ASSESSMENT YEAR : 2004-05) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6, PUNE . APPELLANT VS. SHARADA ERECTORS PVT. LTD. 38, VIJAYANAGAR COLONY, SADASHIV PETH, PUNE 411 030 PAN : AACCS6028D . RESPONDENT APPELLANT BY : MR. NIKHIL PATHAK RESPONDENT BY : MR. S.K. SINGH DATE OF HEARING : 22-05-2013 DATE OF PRONOUNCEMENT : 25-06-2013 ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. ORDER PER G. S. PANNU, AM THE CAPTIONED THREE APPEALS PERTAIN TO THE SAME AS SESSEE AND INVOLVE CERTAIN COMMON ISSUES, THEREFORE, THEY HAVE BEEN CL UBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SA KE OF CONVENIENCE AND BREVITY. 2. FIRST, WE SHALL TAKE UP THE CROSS-APPEALS OF THE ASSESSEE AND THE REVENUE PERTAINING TO THE ASSESSMENT YEAR 2005-06 V IDE ITA NOS. 472 & 568/PN/2010 RESPECTIVELY. THESE CROSS-APPEALS ARISE OUT OF AN ORDER OF THE CIT(A) DATED 29.12.2009, WHICH, IN TURN, HAS ARISEN OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ON 28.12.2007 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR T HE ASSESSMENT YEAR 2005-06. 3. IN ORDER TO APPRECIATE THE BACKGROUND OF THE CAS E, BRIEF FACTS ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY INCORPORATED UND ER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA ENGAGED IN THE BUSINESS OF CONSTRUCTION OF COMMERCIAL COMPLEX AND DEVELOPMENT OF PROPERTIES . FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED A RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.35,09,962/- UNDER THE NORMAL PROVISIONS OF THE A CT WHEREAS INCOME FOR MAT PURPOSES I.E. UNDER SECTION 115JB WAS DECLARED AT RS.1,54,80,621/- AND TAXES WERE PAID ACCORDINGLY. 4. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSI NG OFFICE NOTICED THAT ASSESSEE HAD DEBITED AN INTEREST EXPENDITURE OF RS. 2,36,80,096/- AND HAD EARNED BANK INTEREST OF RS.4,65,770/- THEREBY CLAIM ING NET INTEREST EXPENDITURE OF RS.2,32,14,326/-. THE ASSESSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD MADE CERTAIN INTEREST-FR EE ADVANCES TO THE CONCERNS IN WHICH ASSESSEE COMPANY WAS A PARTNER AN D ALSO TO THE CONCERNS ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. IN WHICH THE DIRECTORS OF THE COMPANY WERE INTEREST ED. THE ADVANCES TO THE CONCERNS IN WHICH ASSESSEE WAS A PARTNER AMOUNTED T O RS.3,33,30,209/- AND ADVANCES TO THE CONCERNS IN WHICH THE DIRECTORS OF THE COMPANY WERE INTERESTED AMOUNTED TO RS.5,95,65,827/-. THE ASSESS ING OFFICER NOTED THAT ON ONE HAND ASSESSEE WAS PAYING INTEREST ON THE FUNDS BORROWED WHILE ON THE OTHER HAND IT WAS NOT CHARGING ANY INTEREST ON THE ABOVE FUNDS ADVANCED TO THE SISTER CONCERNS. THE ASSESSING OFFICER COMPUTED THE PROPORTIONATE INTEREST ON THE AMOUNTS ADVANCED TO THE CONCERNS WHERE THE A SSESSEE COMPANY WAS A PARTNER AT RS.25,28,804/- AS PER ANNEXURE F-1 TO THE ASSESSMENT ORDER. THE SAID AMOUNT WAS DISALLOWED UNDER SECTION 14A OF THE ACT ON THE GROUND THAT INCOME BY WAY OF SHARE OF PROFITS FROM SUCH CONCERN S EARNED BY THE ASSESSEE AS A PARTNER, WAS EXEMPT FROM TAX. SECONDLY, WITH R EGARD TO THE ADVANCES MADE TO THE CONCERNS IN WHICH THE DIRECTORS WERE IN TERESTED, THE DISALLOWANCE OF INTEREST WAS ALSO WORKED OUT AT RS.29,63,659/- A S PER DETAILS IN ANNEXURE F- 2 TO THE ASSESSMENT ORDER AND SUCH DISALLOWANCE WAS MADE BY INVOKING SECTION 36(1)(III) OF THE ACT. 5. THE AFORESAID DISALLOWANCES OUT OF INTEREST EXPE NDITURE WERE CARRIED IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOTED THAT THE SIMILAR DISALLOWANCES WERE MADE BY THE ASSESSING OFFICER FOR ASSESSMENT Y EARS 2000-01, 2001-02 AND 2003-04 WHICH WERE DELETED BY HIS PREDECESSOR C IT(A). IT WAS FURTHER NOTED THAT IN APPEALS FILED AGAINST THE ORDER OF TH E CIT(A) FOR ASSESSMENT YEARS 2000-01, 2001-02 AND 2003-04, THE TRIBUNAL HA D RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDIC ATION. THE TRIBUNAL HAD NOTED THE PLEA OF THE ASSESSEE THAT THERE WERE SUFFICIENT SURPLUS INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE, WHICH WERE UTILIZED FO R THE PURPOSE OF ADVANCING MONIES TO THE SISTER CONCERNS. THE TRIBUNAL RESTORE D THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THE CORRECTNESS OF THE AFORESAID PLEA OF THE ASSESSEE AND DIRECTED THAT IF IT WAS FOUND TO BE CO RRECT, NO DISALLOWANCE OF INTEREST BE MADE. FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. OF THE ASSESSEE FOR ASSESSMENT YEARS 2000-01, 2001- 02 AND 2003-04, CIT(A) RESTORED THE MATTER TO THE FILE OF THE ASSESSING OF FICER TO CONSIDER THE DISALLOWANCE AFTER EXAMINING AND VERIFYING THE VARI OUS PARTICULARS AND DETAILS PERTAINING TO THIS YEAR IN THE LIGHT OF THE DIRECTI ONS OF THE TRIBUNAL GIVEN IN THE EARLIER ASSESSMENT YEARS OF 2000-01, 2001-02 AND 20 03-04. 6. AGAINST THE AFORESAID DECISION OF THE CIT(A), AS SESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE, BY W AY OF GROUND NOS. 1 AND 2 IN ITS APPEAL HAS CONTENDED THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER THE DISALLOWANCES AFTER EXAMINI NG AND VERIFYING THE VARIOUS PARTICULARS AND DETAILS IN THE LIGHT OF THE DIRECTI ONS OF THE TRIBUNAL AND INSTEAD THE CIT(A) OUGHT TO HAVE DECIDED THE ISSUE HIMSELF. IN ITS CROSS-APPEAL, THE REVENUE IS ALSO AGGRIEVED WITH THE DIRECTION OF THE CIT(A) TO THE ASSESSING OFFICER TO CONSIDER THE DISALLOWANCE AFTER EXAMININ G AND VERIFYING THE VARIOUS PARTICULARS AND DETAILS IN THE LIGHT OF THE DIRECTI ONS OF THE TRIBUNAL GIVEN IN THE EARLIER ASSESSMENT YEARS OF 2000-01, 2001-02 AND 20 03-04. AS PER THE REVENUE, CIT(A) OUGHT TO HAVE SUSTAINED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. SINCE THE CROSS-GROUNDS RELATE T O THE SAME ISSUE NAMELY, DISALLOWANCE OF INTEREST UNDER SECTIONS 14A AND 36( 1)(III) OF THE ACT MADE BY THE ASSESSING OFFICER, THE SAME ARE BEING TAKEN UP TOGETHER. 7. AT THE TIME OF HEARING, THE RIVAL COUNSELS BROUG HT OUT THEIR GRIEVANCE AGAINST THE ACTION OF THE CIT(A). THE LEARNED COUNS EL FOR THE ASSESSEE ALSO FILED A DETAILED PAPER BOOK AND IN PARTICULAR IT WA S ASSERTED THAT FACTUALLY THE DISALLOWANCES WERE UNTENABLE INASMUCH AS ASSESSEE H AD SUFFICIENT OWN NON-INTEREST BEARING FUNDS TO COVER THE INTEREST-FR EE ADVANCES MADE TO THE SISTER CONCERNS. SINCE THE AFORESAID ASSERTION OF T HE ASSESSEE INVOLVED A FACTUAL MATRIX AND THE FACT THAT BOTH PARTIES ARE A GGRIEVED BY THE DECISION OF THE CIT(A) IN REQUIRING THE ASSESSING OFFICER TO RE -EXAMINE THE ISSUE, THE RIVAL COUNSELS STATED THAT THE MATTER BE DECIDED ONE WAY OR OTHER AT THIS FORUM, AND ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. ACCORDINGLY THE DEPARTMENT WAS DIRECTED TO FURNISH A PARAWISE REPLY ON THE WRITTEN SUBMISSION AND OTHER MATERIAL FURNISHED BY THE ASSESSEE IN SUPPORT OF THE ASSERTION THAT IT HAD SUFFICIENT OWN INTEREST-F REE FUNDS TO COVER THE INTEREST- FREE ADVANCES MADE TO THE SISTER CONCERNS AND THAT NO INTEREST-BEARING BORROWED FUNDS HAVING WERE UTILIZED FOR MAKING THE INTEREST-FREE ADVANCES TO SISTER CONCERNS. A REMAND REPORT ON THE ABOVE LINES WAS CALLED FOR, AND REVENUE HAS FURNISHED ITS REPORT, WHICH IS ON RECOR D. IN THIS BACKGROUND, THE RIVAL COUNSELS MADE THEIR SUBMISSIONS AND THE SAME HAVE BEEN CONSIDERED AND THE RELEVANT MATERIAL PERUSED. 8. BEFORE US, AT THE OUTSET, LEARNED COUNSEL FOR TH E ASSESSEE SUBMITTED THAT SO FAR AS THE DISALLOWANCE UNDER SECTION 14A O F THE ACT IS CONCERNED THE SAME HAS BEEN MADE BY THE ASSESSING OFFICER UNDER A WRONG PRESUMPTION. IT WAS POINTED OUT THAT SECTION 14A OF THE ACT RELATES TO THE DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO AN INCOME EXEMP T FROM TAX. IN THE PRESENT CASE, THE AMOUNTS OF RS.3,33,30,209/- ARE PURE LOAN S ADVANCED TO THE FIRMS IN WHICH ASSESSEE COMPANY IS PARTNER AND IF ANY INTERE ST IS EARNED ON SUCH LOANS, IT IS NOT EXEMPT FROM TAX, AND ONLY SHARE OF PROFITS FROM THE FIRM IS EXEMPT FROM TAX. IN THIS CONTEXT, REFERENCE WAS MAD E TO PAGE 6 OF THE PAPER BOOK WHEREIN THE DETAILS OF THE CAPITAL CONTRIBUTIO N TO THE PARTNERSHIP FIRMS ARE SHOWN, WHICH IS DIFFERENT FROM THE IMPUGNED AMOUNT OF INTEREST-FREE ADVANCES MADE TO THE PARTNERSHIP FIRMS OF RS.3,33,30,209/-. ON THIS ASPECT, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT RAISED ANY SERI OUS OBJECTION. 9. SECTION 14A OF THE ACT PROVIDES THAT FOR THE PUR POSES OF COMPUTING THE TOTAL INCOME UNDER CHAPTER IV OF THE ACT, NO DEDUCT ION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE INCOME EXEMPT UNDER THE ACT IN THE PRESENT CASE IS THE SHARE IN T HE PROFITS OF THE PARTNERSHIP FIRMS EARNED BY THE ASSESSEE AND IT IS CLEAR THAT T HE IMPUGNED ADVANCES ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. MADE TO THE PARTNERSHIP FIRMS ARE NOT BY WAY OF A C APITAL CONTRIBUTION AND THEREFORE DO NOT RELATE TO AN THE EXEMPT INCOME. TH EREFORE INTEREST CORRESPONDING TO SUCH ADVANCES MADE TO THE PARTNERS HIP FIRM IS NOT WITHIN THE PURVIEW OF SECTION 14A OF THE ACT. HOWEVER, THE LEA RNED COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT WITHOUT PREJUDICE TO ASSESSEES PLEA THAT THE DISALLOWANCE OF RS.25,28,804/- WAS NOT JUSTIFIED, I F AT ALL ANY DISALLOWANCE IS TO BE MADE, THE SAME HAS TO BE UNDER SECTION 36(1)(III ) OF THE ACT AND NOT UNDER SECTION 14A OF THE ACT. MERE WRONG INVOKING OF SECT ION 14A OF THE ACT BY THE ASSESSING OFFICER SHALL NOT STRAIGHTWAY INVALIDATE THE DISALLOWANCE. THEREFORE, WE PROCEED FURTHER ON THE BASIS THAT THE DISALLOWAN CE OF RS.25,28,804/- AS WELL AS RS.29,63,659/- MADE BY THE ASSESSING OFFICE R ARE IN TERMS OF SECTION 36(1)(III) OF THE ACT. 10. ON THE AFORESAID ASPECT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS MADE TWO PRIMARY ARGUMENTS. FIRSTLY, IT IS CONTENDE D THAT THE SHARE CAPITAL PLUS RESERVES PLUS INTEREST-FREE ADVANCES AVAILABLE WITH THE ASSESSEE AT THE END OF THE FINANCIAL YEAR UNDER CONSIDERATION WAS H IGHER THAN THE IMPUGNED INTEREST-FREE LOANS AND ADVANCES GIVEN TO THE SISTE R CONCERNS. IN THIS BACKGROUND IT WAS CONTENDED THAT NO DISALLOWANCE IS JUSTIFIED IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM.) WHEREIN I T HAS BEEN HELD THAT IF AN ASSESSEE HAS ADVANCED INTEREST-FREE FUNDS TO THE SI STER CONCERNS AND THE ASSESSEE HAS SUFFICIENT INTEREST-FREE FUNDS AVAILAB LE, A PRESUMPTION CAN BE RAISED THAT FUNDS ADVANCED ARE OUT OF INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AT A LL. IN THIS CONNECTION, OUR ATTENTION HAS BEEN DRAWN TO A CHART PLACED AT PAGE 6 OF THE WRITTEN NOTE, SHOWING POSITION OF INTEREST-FREE FUNDS UTILIZED BY THE ASSESSEE AFTER ACCOUNTING FOR THE AMOUNTS ADVANCED TO THE GROUP CO NCERNS WHICH WOULD SHOW THAT ASSESSEE HAD SUFFICIENT SURPLUS INTEREST- FREE FUNDS AVAILABLE WITH IT. ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. A REFERENCE HAS ALSO BEEN MADE TO PAGES 78 TO 79 OF THE PAPER BOOK WHEREIN IS PLACED A CHART SHOWING DETAILS OF INTEREST-FREE FUNDS ADVANCED TO SISTER CONCERNS AND AVAILABILITY OF INTEREST-FREE FUNDS WI TH THE ASSESSEE ON A DAILY BASIS DURING THE YEAR UNDER CONSIDERATION. 11. SECOND PROPOSITION MADE OUT BY THE LEARNED COUN SEL IS THAT THE ASSESSEE HAD ADVANCED THE INTEREST-FREE LOANS TO TH E SISTER CONCERNS OUT OF CURRENT ACCOUNTS MAINTAINED WITH THE BANKS, ON WHIC H NO INTEREST WAS PAID. THE LEARNED COUNSEL POINTED OUT THAT THE AFORESAID FACTUAL ASSERTION OF THE ASSESSEE WAS NOTED BY THE ASSESSING OFFICER AT PAGE 8 OF THE ASSESSMENT ORDER BUT THE SAME HAS BEEN MERELY DISREGARDED WITH OUT APPRECIATING THE NEXUS BETWEEN THE INTEREST-FREE FUNDS AND THE ADVAN CING OF IMPUGNED INTEREST-FREE LOANS TO THE SISTER CONCERNS. FOR BOT H THE ABOVE REASONS, IT IS CONTENDED THAT NO DISALLOWANCE UNDER SECTION 36(1)( III) IS JUSTIFIED. 12. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESE NTATIVE FOR THE REVENUE RELIED UPON THE ORDER OF THE ASSESSING OFFI CER IN SUPPORT OF THE CASE OF THE REVENUE. ACCORDING TO THE LEARNED DEPARTMENT AL REPRESENTATIVE IN ORDER TO CLAIM DEDUCTION FOR INTEREST EXPENDITURE U NDER SECTION 36(1)(III) OF THE ACT WHAT IS TO BE ESTABLISHED IS THE USE OF BORROWE D FUNDS FOR THE PURPOSES OF BUSINESS. IT IS SUBMITTED THAT IF ASSESSEE WAS IN A POSITION TO OWN SUFFICIENT SURPLUS INTEREST-FREE FUNDS TO COVER THE IMPUGNED A DVANCES MADE FREE OF INTEREST TO THE SISTER CONCERNS, THERE WOULD NOT HA VE ANY NECESSITY FOR THE ASSESSEE TO RAISE INTEREST BEARING LOANS BECAUSE SU CH SURPLUS INTEREST FREE FUNDS WOULD HAVE BEEN UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF ITS OWN BUSINESS. IT IS ALSO SUBMITTED THAT THE ADVANCES MA DE TO THE SISTER CONCERNS ARE NOT FOR ANY BUSINESS PURPOSE AND THEREFORE ON T HIS POINT ALSO THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AS SESSING OFFICER WAS JUSTIFIED. IN THIS MANNER, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. THAT THE CIT(A) ERRED IN NOT SUSTAINING THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN THIS CASE, THE ASSESSING OFFICER NOTED THAT ASSESSEE ADVANCED LOAN S TO THE SISTER CONCERNS AMOUNTING TO RS.9,28,96,036/-, ON WHICH NO INTEREST WAS CHARGED. AS PER THE ASSESSING OFFICER, ON ONE HAND ASSESSEE WAS PAYING INTEREST ON FUNDS BORROWED AND CLAIMING THE SAME AS DEDUCTION WHILE O N THE OTHER HAND, IT WAS ADVANCING LOANS TO ITS SISTER CONCERNS FREE OF INTE REST. AS PER THE ASSESSING OFFICER, THE ADVANCES TO THE SISTER CONCERNS WERE N OT IN THE COURSE OF BUSINESS. THE ASSESSING OFFICER ALSO CAME TO CONCLU DE THAT THE ASSESSEE HAS ADVANCED INTEREST-FREE LOANS TO THE SISTER CONCERNS OUT OF BORROWED FUNDS ONLY. THEREFORE, THE ASSESSING OFFICER DISALLOWED INTERES T PROPORTIONATE TO SUCH INTEREST-FREE ADVANCES, WHICH IS DETERMINED AT RS.5 4,92,463/- (I.E. RS.29,63,659/- + RS.25,28,804/-). 14. THE CONTENTION IS THAT ASSESSEE GENERATED SUFFI CIENT INTEREST-FREE FUNDS OF ITS OWN WHICH ARE UTILIZED NOT ONLY FOR ITS BUSI NESS BUT ALSO IN MAKING SUCH INTEREST-FREE ADVANCES TO ITS SISTER CONCERNS. THE STAND OF THE ASSESSEE IS THAT WHERE THERE ARE BOTH BORROWED FUNDS AS WELL AS INTE REST-FREE FUNDS, THE CHOICE LIES WITH THE ASSESSEE FOR UTILIZATION OF THOSE FUN DS. ON THIS POINT WE MAY REFER TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) WHEREIN IT HAS BEEN HELD THAT IF THERE ARE INTEREST- FREE FUNDS AVAILABLE WITH AN ASSESSEE, WHICH ARE SU FFICIENT TO COVER ITS INVESTMENTS AND AT THE SAME TIME ASSESSEE HAS RAISE D INTEREST-BEARING LOANS, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE MADE F ROM INTEREST-FREE FUNDS AVAILABLE. 15. IN THE PRESENT CASE, THE ASSESSEE HAS SOUGHT TO POINT OUT THAT THE TOTAL INTEREST-FREE FUNDS AVAILABLE TO THE ASSESSEE, NAME LY, SHARE CAPITAL PLUS ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. RESERVES PLUS INTEREST-FREE ADVANCES RECEIVED FROM CUSTOMERS, AT ANY TIME DURING THE YEAR ARE SUFFICIENT TO MEET AND COVER TH E IMPUGNED INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS. IN THIS CONNE CTION, A DETAILED CHART SHOWING INTEREST-FREE FUNDS AVAILABLE WITH THE ASSE SSEE AND THE INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS DURING THE ENT IRE PERIOD OF 01.04.2004 TO 31.03.2005 HAS BEEN PLACED AT PAGES 75 TO 79 OF THE PAPER BOOK. SUCH CHART HAS BEEN MADE DATE WISE AND IT IS SEEN THAT T HE PEAK AMOUNT OF INTEREST- FREE FUNDS AS ALSO THE MINIMUM AMOUNT OF INTEREST-F REE FUNDS AVAILABLE WITH THE ASSESSEE AT ANY GIVEN POINT OF TIME DURING THE YEAR IS SUFFICIENT TO COVER THE IMPUGNED INTEREST-FREE ADVANCES OF RS.9,28,96,0 36/- MADE TO THE SISTER CONCERNS. THE AFORESAID POSITION HAS NOT BEEN CONTR OVERTED BY THE REVENUE EITHER IN THE COURSE OF HEARING OR EVEN IN THE REMA ND REPORT FURNISHED BY THE REVENUE ON THE BASIS OF THE MATERIAL ON RECORD. THE REFORE, IN THE FACE OF THE SAID FACTUAL MATRIX, WHICH IS SUPPORTED BY THE RELE VANT MATERIAL ON RECORD, AND IS NOT CONTROVERTED BY THE REVENUE, THE PRINCIPLE A PPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) CLEARLY MILITATES AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. APPLYING THE PARITY OF REASONING LAID DOWN BY THE H ONBLE HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) IT HAS TO BE HELD IN THE PRESENT CASE THAT AS THERE ARE FUNDS AVAILABLE BOTH INTERES T-FREE AND INTEREST BEARING, THEN THE PRESUMPTION IS THAT THE IMPUGNED INTEREST- FREE ADVANCES MADE TO THE SISTER CONCERNS ARE OUT OF INTEREST-FREE FUNDS AVAI LABLE WITH THE ASSESSEE COMPANY AS THE INTEREST-FREE FUNDS ARE SUFFICIENT T O COVER THE IMPUGNED INTEREST-FREE ADVANCES MADE TO THE SISTER CONCERNS. THEREFORE, THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AS SESSING OFFICER BECOMES UNTENABLE. 16. THE ASSESSING OFFICER IN PARA 4.8 OF THE ASSESS MENT ORDER HAS OBSERVED THAT ASSESSEE HAS ADVANCED INTEREST-FREE F UND TO THE SISTER CONCERNS OUT OF INTEREST BEARING LOANS TAKEN FROM VARIOUS BA NKS. IN COMING TO SUCH ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. CONCLUSION, THE ASSESSING OFFICER TABULATED THE TOT AL LOANS FROM THE BANKS AS ON 01.04.2004 AT RS.21,89,94,220/- AND ALSO NOTED T HE BALANCES STANDING IN THE CURRENT ACCOUNT WITH THE BANKS AS ON 01.04.2004 AT RS.7,81,313/-. AS PER THE ASSESSING OFFICER, THIS SHOWED THAT THERE WAS A NEGATIVE BALANCE IN THE BANK ACCOUNTS AMOUNTING TO RS.21,82,12,907/- AS ON 01.04.2004. THEREAFTER, THE ASSESSING OFFICER HAS TABULATED THE MOVEMENT OF THE BANK ACCOUNTS AND STATED THAT WHENEVER A LOAN WAS ADVANCED TO ANY SIS TER CONCERN, ASSESSEE WAS HAVING NEGATIVE NET BALANCE IN THE BANK ACCOUNT S AND THEREFORE ACCORDINGLY TO THE ASSESSING OFFICER THIS ESTABLISH ED A NEXUS BETWEEN THE BORROWED FUNDS AND THE IMPUGNED INTEREST-FREE ADVAN CES MADE TO THE SISTER CONCERNS. THE AFORESAID HAS BEEN REITERATED BEFORE US ALSO TO SUPPORT THE PROPOSITION THAT THE LOAN FUNDS WERE UTILIZED FOR G IVING INTEREST-FREE ADVANCES TO THE SISTER CONCERNS. THE CASE MADE OUT BY THE AS SESSEE IS THAT THE ASSESSING OFFICER HAS MISDIRECTED HIMSELF IN CARRYI NG OUT THE AFORESAID EXERCISE. IT IS EXPLAINED THAT WHEN THE ASSESSING O FFICER TABULATED THE POSITION OF LOANS RAISED FROM BANK AS ON 01.04.2004, HE FAIL ED TO APPRECIATE THAT THE SAID LOAN FUNDS WERE ALREADY UTILIZED IN THE PURCHA SE OF ASSET, ETC. IN THIS REGARD, POINTING OUT TO THE NEGATIVE BALANCE AS ON 01.04.2004 NOTED BY THE ASSESSING OFFICER WITH REGARD TO THE HDFC A/C NO. 6 000025530 OF RS.8,50,00,000/- AS ON 01.04.2004 THE SAME IS STATE D TO HAVE BEEN UTILIZED FOR PURCHASE OF PROPERTY FOR THE PURPOSES OF BUSINESS I N THE PAST FINANCIAL YEAR OF 2002-03. THUS, IT CANNOT BE SAID THAT THE SAME AMOU NT WAS AGAIN UTILIZED FOR MAKING IMPUGNED ADVANCES TO THE SISTER CONCERNS IN THIS YEAR. EVEN WITH REGARD TO THE LOAN AMOUNTS OF RS.3,90,45,958/- AND 3,94,29,590/- IN SARASWAT BANK A/C NO. 3971 AND SARASWAT BANK A/C NO. 44427 R ESPECTIVELY AS ON 01.04.2004, IT IS SUBMITTED THAT THEY HAVE ALSO BEE N UTILIZED IN THE PAST YEARS FOR PURCHASE OF WINDMILL AND THE SAME CANNOT BE SAI D TO HAVE BEEN NOW UTILIZED FOR PAYMENT OF INTEREST-FREE ADVANCES TO T HE SISTER CONCERNS. WITH REGARD TO THE OTHER TWO BANK ACCOUNTS NOTED BY THE ASSESSING OFFICER I.E. BANK OF BARODA D.L. AND COSMOS BANK A/C NO. 200037 IT IS SUBMITTED THAT THESE ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. ARE OVERDRAFT ACCOUNTS AND THE ADVANCES IN QUESTION HAVE NOT BEEN GIVEN FROM SUCH ACCOUNTS. THE AFORESAID FACTUAL ASSERTION S HAVE NOT BEEN CONTROVERTED BY THE REVENUE BEFORE US EITHER AT THE TIME OF HEARING OR EVEN IN THE REMAND REPORT FURNISHED. IN FACT, WE FIND THAT THE ASSESSEE HAS BEEN CONSISTENTLY MAINTAINING THAT THE INTEREST-FREE ADV ANCES TO THE SISTER CONCERNS HAVE NOT BEEN ADVANCED OUT OF INTEREST-BEARING LOAN ACCOUNTS. THE ASSESSEE HAD FURNISHED A WRITTEN SUBMISSION DATED 23.12.2002 TO THE ASSESSING OFFICER WHICH HAS BEEN REPRODUCED IN PARA 4.6 OF THE ASSESS MENT ORDER. IN THE SAID WRITTEN SUBMISSIONS, IT HAS BEEN ASSERTED BY THE AS SESSEE THAT AT NO OCCASION DURING THE YEAR THE INTEREST-FREE ADVANCES WERE MAD E OUT OF INTEREST BEARING LOAN AMOUNTS. FURTHER, ASSESSEE SUBMITTED THAT THE CURRENT ACCOUNT MAINTAINED WITH BANKS WERE ALSO NOT FUNDED WITH INT EREST-BEARINGS FUNDS TO FACILITATE INTEREST-FREE ADVANCES TO THE SISTER CON CERNS. THE LEARNED COUNSEL AT THE TIME OF HEARING EXPLAINED THE POSITION FURTHER AND SUBMITTED THAT FUNDS WERE ADVANCED FROM THE CURRENT ACCOUNTS MAINTAINED WITH THE BANKS, AND THE SAME HAS ALSO BEEN NOTED BY THE ASSESSING OFFICER I N PARA 4.8 OF THE ASSESSMENT ORDER, AND IN SUCH CURRENT ACCOUNTS INTE REST-FREE FUNDS WERE DEPOSITED IN THE FORM OF RECEIPT THEIR CUSTOMERS, I NTEREST-FREE LOAN ADVANCES, ETC. AND THEREFORE IT COULD NOT BE SAID THAT THE LO AN ACCOUNTS HAVE BEEN UTILIZED FOR GIVING ADVANCES TO THE SISTER CONCERNS . 17. CONSIDERING THE FACTUAL POSITION IN THE PRESENT CASE, WE ARE UNABLE TO UPHOLD THE INFERENCE OF THE ASSESSING OFFICER THAT THE INTEREST-FREE ADVANCES TO THE SISTER CONCERNS HAVE BEEN PAID OUT OF LOAN FUND S. THEREFORE, ON THIS ASPECT ALSO ASSESSEE HAS TO SUCCEED. ANOTHER PLEA RAISED B Y THE REVENUE IS THAT IF ASSESSEE WAS OWING SUFFICIENT SURPLUS INTEREST-FREE FUNDS TO COVER THE IMPUGNED INTEREST-FREE ADVANCES TO THE SISTER CONCE RNS, THERE WAS NO NEED TO RAISE INTEREST BEARING LOANS TO THAT EXTENT, AND TH AT SUCH AMOUNTS OUGHT TO HAVE BEEN UTILIZED FOR ASSESSEES OWN BUSINESS PURP OSE. ON THIS BASIS, IT IS SOUGHT TO BE CANVASSED THAT INSTEAD OF ADVANCING TH E AMOUNT TO SISTER ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. CONCERNS, IF THE SAME WERE UTILIZED BY THE ASSESSEE , IT WOULD HAVE LOWERED THE INTEREST-BEARING BORROWINGS, AND TO THAT EXTENT THE CORRESPONDING INTEREST EXPENDITURE IS NOT ALLOWABLE. IN OUR CONSIDERED OPI NION, THE AFORESAID REASONING IS NOT JUSTIFIED HAVING REGARD TO THE PAR ITY OF REASONING LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIAN CE UTILITIES & POWER LTD. (SUPRA). OSTENSIBLY, THE ASSESSING OFFICER CANNOT S IT IN THE ARM CHAIR OF THE BUSINESSMAN TO DECIDE HOW TO MANAGE ITS AFFAIRS. TH E HONBLE BOMBAY HIGH COURT NOTED THE JUDGEMENT OF THE HONBLE CALCUTTA H IGH COURT IN THE CASE OF WOOLCOMBERS OF INDIA LTD. VS. CIT 134 ITR 219 (CAL. ) WHICH WAS APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT 224 ITR 627 (SC) AND UPHELD THE PROPOS ITION THAT IN CASE BOTH INTEREST-FREE FUNDS AND INTEREST-BEARING FUNDS ARE AVAILABLE DISCRETION LIES IN THE HANDS OF THE ASSESSEE FOR UTILIZATION OF THOSE FUNDS. THUS, THE AFORESAID PLEA OF THE REVENUE IS UNTENABLE. 18. FOR ALL THE AFORESAID REASONS, WE ARE INCLINED TO UPHOLD THE STAND OF THE ASSESSEE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS S ET-ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS. 5 4,92,463/- MADE OUT OF INTEREST EXPENDITURE. GROUNDS OF APPEAL NOS. 1 AND 2 IN THE CASE OF ASSESSEE ARE ALLOWED WHEREAS THE APPEAL OF THE REVENUE IN ITA NO . 472/PN/2010 IS DISMISSED. 19. GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE I S WITH REGARD TO THE ACTION OF THE LOWER AUTHORITIES IN DENYING THE CLAI M OF DEDUCTION UNDER SECTION 80-IA(4) OF THE ACT AMOUNTING TO RS.1,43,62,694/- I N RELATION TO THE PROFITS EARNED FROM WINDMILL. THE ASSESSING OFFICER DENIED THE CLAIM OF THE ASSESSEE BY WAY OF THE DISCUSSION IN PARA 6 OF HIS ORDER. AS PER THE ASSESSING OFFICER, ASSESSEE HAD WITHDRAWN ITS CLAIM MADE UNDER SECTION 80-IA FOR THE ASSESSMENT YEAR 2004-05 AND THERE BEING NO MATERIAL CHANGE IN THE SITUATION IN THE INSTANT YEAR, THE SAID CLAIM WAS DISALLOWED. APART FROM THE AFORESAID, THE ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. ASSESSING OFFICER HAD REQUIRED THE ASSESSEE TO EXPL AIN WHY, IN TERMS OF THE PROVISIONS OF SECTION 80-IA(5) OF THE ACT, THE DEDU CTION SHOULD NOT BE CONSIDERED ONLY AFTER BROUGHT FORWARD DEPRECIATION AND BUSINESS LOSS OF THE ELIGIBLE UNIT HAS BEEN ABSORBED AGAINST THE INCOME DERIVED BY THE ELIGIBLE UNIT, AS IF IT WAS THE ONLY SOURCE OF INCOME OF THE ASSES SEE. THE ASSESSING OFFICER HAS NOTED THAT NO INFORMATION WAS SUBMITTED BY THE ASSESSEE WITH REGARD TO THE PROVISIONS OF SECTION 80-IA (5) OF THE ACT. FOR THE AFORESAID TWIN REASONS, THE CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE A CT WAS DENIED. 20. THE CIT(A) HAS ALSO AFFIRMED THE ACTION OF THE ASSESSING OFFICER. BEFORE THE CIT(A), ASSESSEE CONTENDED THAT CONSEQUENT TO T HE AMENDMENT IN SECTION 80-IA W.E.F. 01.04.2000, SECTION 80-IA(5) IS APPLIC ABLE ONLY WHEN ASSESSEE CHOOSES TO CLAIM DEDUCTION UNDER SECTION 80-IA FOR THE FIRST TIME AS THAT WOULD BE THE YEAR IN WHICH THE UNDERTAKING IS TO BE TREAT ED AS A SEPARATE SOLE SOURCE OF INCOME WITHIN THE MEANING OF SECTION 80-IA(5) OF THE ACT. THEREFORE, THE DEPRECIATION AND LOSSES OF THE EARLIER YEARS CANNOT BE NOTIONALLY CARRIED FORWARD TO BE SET-OFF AGAINST INCOME OF SUCH YEARS FOR COMPUTING THE DEDUCTION OF SECTION 80-IA OF THE ACT. THE CIT(A) HAS NOT AGR EED TO THE INTERPRETATION UNDER SECTION 80-IA(5) CANVASSED BY THE ASSESSEE. A S PER THE CIT(A), IN TERMS OF SECTION 80-IA(5) OF THE ACT, THE UNABSORBE D LOSSES AND DEPRECIATION RELATING TO THE ELIGIBLE UNIT ARE TO BE TAKEN INTO ACCOUNT IN DETERMINING THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT , EVEN THOUGH THE SAME HAVE BEEN ACTUALLY SET-OFF AGAINST THE PROFITS FROM OTHER SOURCE IN THE PAST YEARS. IN THIS MANNER, THE DEDUCTION UNDER SECTION 80-IA OF THE ACT DENIED BY THE ASSESSING OFFICER WAS AFFIRMED. 21. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE WINDMILL WHICH IS ELIGIBLE FOR THE 80-IA BENEFITS W AS SET-UP IN THE ASSESSMENT YEAR 2001-02. FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03, ASSESSEE INCURRED LOSSES IN THE WINDMILL WHICH WERE PARTLY S ET-OFF AGAINST OTHER BUSINESS ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. INCOMES. THE FIRST YEAR OF THE CLAIM UNDER SECTION 80-IA WAS ASSESSMENT YEAR 2004-05 AND CLAIM WAS MADE IN THE RETURN OF INCOME. THE SAME WAS HOWEVER WITHDRAWN IN THE COURSE OF ASSESSMENT PROCEEDINGS O N ACCOUNT OF PAST UNABSORBED LOSSES OF THE WINDMILL ACTIVITY BECAUSE OF WHICH NO PROFIT REMAINED FOR AVAILING BENEFIT UNDER SECTION 80-IA OF THE ACT . THE LEARNED COUNSEL POINTED OUT THAT THE WITHDRAWAL OF THE CLAIM FOR AS SESSMENT YEAR 2004-05 WAS FOR THE AFORESAID REASON AND THE SAME COULD NOT BE A GROUND TO DENY THE CLAIM IN THE ASSESSMENT YEAR 2005-06 AS IN THE INSTANT YE AR ASSESSEE HAD PROFITS IN THE WINDMILL ACTIVITY EVEN AFTER CONSIDERING THE PA ST LOSSES AS PER SECTION 80-IA(5) OF THE ACT. HOWEVER, IN ORDER TO QUANTIFY THE PAST LOSSES ELIGIBLE TO BE SET-OFF FOR THE PURPOSES OF DETERMINING THE DEDUCTI ON UNDER SECTION 80-IA FOR THE ASSESSMENT YEAR 2005-06, THE LEARNED COUNSEL PO INTED OUT THAT INITIAL ASSESSMENT YEAR IN TERMS OF SECTION 80-IA(5) OF TH E ACT IS TO BE CONSIDERED AS ASSESSMENT YEAR 2004-05, WHEN ASSESSEE CLAIMED THE DEDUCTION FOR THE FIRST TIME. ACCORDING TO THE ASSESSEE, THE OPINION OF THE CIT(A) ON THIS ASPECT IS CLEARLY CONTRARY TO THE DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI SANGRAM PATIL VS. ITO, ITA NOS. 177 & 178/P N/2011 DATED 12.12.2012 AND SERUM INTERNATIONAL LTD. VS. ADDL. CIT, ITA NOS . 290 TO 292/PN/2010 DATED 28.09.2011. 22. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE HAS DEFENDED THE STAND TAKEN BY THE CIT(A) BY POINTING OUT THAT THE SECTION 80-IA(5) OF THE ACT REQUIRES THAT PROFITS OF THE ELIGIBLE UNIT I.E. WINDMILL ARE TO BE COMPUTED FOR THE PURPOSES OF DET ERMINING THE QUANTUM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT, IN A MANN ER AS IF SUCH ELIGIBLE BUSINESS WAS THE ONLY SOURCE OF INCOME OF THE ASSES SEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR THEREOF. AS PER THE REVENUE, INITIA L ASSESSMENT YEAR IN THIS CASE IS ASSESSMENT YEAR 2001-02 BEING THE YEAR OF S ET-UP OF THE WINDMILL. THEREFORE, PAST LOSSES STARTING FROM THE ASSESSMENT YEAR 2001-02 HAVE TO BE ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. SET-OFF AGAINST THE PROFITS OF THIS YEAR IN ORDER T O ARRIVE AT THE DEDUCTION COMPUTABLE UNDER SECTION 80-IA OF THE ACT FOR THE Y EAR UNDER CONSIDERATION IRRESPECTIVE OF THE FACT THAT THE SAME MAY HAVE BEE N ABSORBED AGAINST OTHER BUSINESS INCOMES IN THE PAST YEARS. 23. IN OUR CONSIDERED OPINION, IN SO FAR AS THE STA ND OF THE ASSESSING OFFICER IN DENYING THE CLAIM OF DEDUCTION UNDER SEC TION 80-IA BECAUSE OF THE ASSESSEE HAVING WITHDRAWN A SIMILAR CLAIM IN ASSESS MENT YEAR 2004-05 IS CONCERNED, THE SAME IS UNFOUNDED AS PER THE REASONS EXPLAINED BY THE ASSESSEE. THE SAID STAND OF THE ASSESSING OFFICER I S HEREBY SET-ASIDE. 24. THE CLAIM OF THE ASSESSEE FOR THE DEDUCTION UND ER SECTION 80-IA MADE IN THE INSTANT YEAR IS LIABLE TO BE EXAMINED IN THE LIGHT OF PREVALENT LEGAL POSITION. THE DISPUTE RAISED BY THE REVENUE IS WITH REGARD TO THE PROVISIONS OF SECTION 80-IA(5) OF THE ACT. AS PER THE REVENUE, SE CTION 80-IA(5) OF THE ACT REQUIRES THAT THE PROFITS OF THE ELIGIBLE UNITS I.E . WINDMILL ARE TO BE COMPUTED FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTIO N UNDER SECTION 80-IA(1) OF THE ACT, IN A MANNER AS IF SUCH ELIGIBLE BUSINES S WAS 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 THEREOF. AS PER THE REVENUE, INITIAL ASSESSMENT YEAR IN THIS CASE WAS 2001-02 BEING THE YEAR OF SET-UP OF THE WINDMILL. THEREFORE, THE PAST LOSS ES STARTING FROM THE A.Y. 2001-02 HAVE TO BE SET-OFF AGAINST THE PROFITS OF T HIS YEAR IN ORDER TO ARRIVE AT THE DEDUCTION COMPUTABLE UNDER SECTION 80-IA(4) OF THE ACT FOR THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND, THE PLEA OF THE A SSESSEE IS THAT THE INITIAL ASSESSMENT YEAR IN THIS CASE IS TO BE TREATED AS 2 004-05 I.E. THE YEAR IN WHICH ASSESSEE EXERCISED THE OPTION CONTAINED IN SECTION 80-IA(2) OF THE ACT OF IDENTIFYING TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS FOR WHICH THE DEDUCTION IS TO BE AVAILED. IT IS CONTENDED THAT TH E EXPRESSION INITIAL ASSESSMENT YEAR REFERRED TO IN SECTION 80-IA(5) IS TO BE UNDERSTOOD WITH ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. RESPECT TO A.Y. 2004-05 IN THIS CASE AND THEREFORE, THE LOSSES FOR ASSESSMENT YEARS PRIOR TO 2004-05 WHICH WERE OTHERWISE ABSORBE D IN THE RESPECTIVE YEARS, CANNOT BE REDUCED. 25. IN THIS REGARD, IDENTICAL SITUATION HAS BEEN CO NSIDERED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI SANGRAM P ATIL (SUPRA), AFTER REFERRING TO A EARLIER DECISION OF THE PUNE BENCH OF THE TRIB UNAL IN THE CASE OF SERUM INTERNATIONAL LTD. (SUPRA) AND ALSO THE JUDGEMENT O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P.) LTD. VS. ACIT (2010) 38 DTR 57 (MAD.), UPHOLDING THE PROPOSITION CANVASS ED BY THE ASSESSEE. THEREFORE, WE DEEM IT FIT AND PROPER TO SET-ASIDE T HE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO EXAMINE THE PLEA OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 80-IA ON THE BASIS OF THE PARITY OF R EASONING LAID DOWN IN THE AFORESAID PRECEDENTS. THE ASSESSING OFFICER SHALL A LLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASSIN G AN ORDER AFRESH ON THIS ASPECT AS PER LAW. THUS, ON THIS GROUND, ASSESSEE S UCCEEDS FOR STATISTICAL PURPOSES. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO .568/PN/2010 FOR THE ASSESSMENT YEAR 2005-06 IS PARTLY ALLOWED. 27. IN SO FAR AS APPEAL OF THE REVENUE IN ITA NO.90 7/PN/2010 FOR THE ASSESSMENT YEAR 2004-05 IS CONCERNED, IT WAS A COMM ON POINT BETWEEN THE PARTIES THAT THE ISSUE INVOLVED IS SIMILAR TO THAT CONSIDERED IN THE ASSESSMENT YEAR 2005-06. SINCE THE ISSUE INVOLVED IS IDENTICAL TO THAT CONSIDERED IN ASSESSMENT YEAR 2005-06 THEREFORE OUR DECISION IN T HE APPEALS FOR ASSESSMENT YEAR 2005-06 SHALL APPLY MUTATIS-MUTANDIS IN THIS APPEAL ALSO. ACCORDINGLY, ITA NO.907//PN/2010 FOR THE ASSESSMENT YEAR 2004-05 IS ALSO HEREBY DISMISSED. 28. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NOS. 472, 568 & 907/PN/2010 SHARADA ERECTORS PVT. LTD. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JUNE, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 25 TH JUNE, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR, B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE.