DCIT, Circle-24(2), New Delhi V. Sterling Agro Inds. Ltd, New Delhi

ITA 584/DEL/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4534 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2016-2017
• Appeal Filed On: 29-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Unabsorbed depreciation; Rule 8D
• Section: 14A; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI C.M. GARG, JUDICIAL MEMBER ITA No.584/Del/2020 Assessment Year: 2016-17 DCIT, Circle-24(2), New Delhi. Vs. Sterling Agro Inds. Ltd., 11 th Floor, Agarwal Cyber Plaza-II, Netaji Subhash Place, New Delhi. PAN: AAACS2278R (Appellant) (Respondent) Assessee by : Shri Amit Sharma, Advocate Revenue by : Shri Sanjay Kumar, CIT-DR Date of Hearing : 05.07.2022 Date of Pronouncement : 22.07.2022 ORDER PER C.M. GARG, JM: This appeal filed by the Revenue is directed against the order of the ld.CIT(A)-8, New Delhi, dated 27.11.2019, relating to Assessment Year 2016.- 17. 2. The sole ground of appeal raised by the Revenue in this appeal reads as follows:- “1. Whether on the facts and circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition made by the AO on ITA No.584/Del/2020 2 account of disallowance of deduction u/s 80IA of the Income-tax Act, 1961 amounting to Rs.12,63,07,697/-.” 3. Apropos the sole ground of the Revenue, the ld. CIT-DR, supporting the assessment order, submitted that the AO rightly disallowed the claim of the assessee u/s 80IA of the Act and the ld.CIT(A) was not right in deleting the addition made by the AO and in allowing claim of set off of unabsorbed depreciation u/s 80IA of the Act to the assessee. 4. Replying to the above, the ld. Counsel of the assessee, supporting the first appellate order, submitted that the ld.CIT(A), after considering all the relevant facts and circumstances of the issue, the stand taken by the AO and under the provisions of section 80IA of the Act, rightly held that the appellant is eligible for deduction u/s 80IA as claimed as notional carried forward loss since the year of commencement in eligible undertaking is not in accordance with the provisions of law as well as clarification issued by CBDT Circular No.1/2016. The ld. Counsel also laced reliance on the order of the ITAT Delhi Bench dated 18.03.2021 in the case of Petronet LNG Ltd. vs. DCIT, in ITA No.5230/Del/2015 and other connected appeals and submitted that in the similar facts and circumstances, considering the CBDT Circular and identical facts and circumstances, held that the assessee is entitled to claim deduction from AY 2009-10 as the initial assessment year for the purpose of section 80IA(5) of the Act even though this is the fourth year of operation of the activities u/s 80IA of ITA No.584/Del/2020 3 the Act. The ld. Counsel of the assessee also contended that in the said order, the ITAT, Delhi Bench clarified that the initial assessment year for claim of deduction u/s 80IA of the Act need not be the first year of commencement of operation of the assessee. The ld. Counsel also filed copy of audit report u/s 80IA and other relevant provisions of the Act r.w. Rule 18VVV of the IT Rules, 1962 in Form No.10CCB and submitted that the ld.CIT(A) was right in allowing claim of the assessee as per the clarification issued by CBDT in Circular No.1/2016. 5. On careful consideration of the rival submissions, first of all, from the relevant part of the order of the ITAT Delhi Bench in the case of Petronet LNG Ltd. (supra), identical issued was placed for adjudication wherein it was held thus:- “7. In ITA No. 4904/Del/2015, following grounds have been raised by the revenue: "1. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the deduction of Rs.55,78,92,170/- instead of on the eligible profit of Rs.39,66.06.865/- worked out by Assessing Officer thereby deleting the addition of Rs. 16,12,85,305/- by ignoring the provision of sub section 5 of section 801A of the Income tax Act, 1961. 2. On the facts and in the circumstances of the case, the Id CIT(A) has erred in law in deleting the disallowance of Rs. 469.01 lakhs under Rule 8D(2)(ii) by ignoring the mandatory provisions of Rule 8D w.r.s. 14A of the Income tax Act, 1961. ITA No.584/Del/2020 4 3. i. On the facts and in the circumstances of the case, Id CIT(A) has erred in law in deleting the addition of Rs. 27.58,705/- treating the Notification No 56/2012 dated 31-12-2012 effective from 01-01- 2013 for the deduction of tax payment to India Bank under the Income tax Act, 1961 as merely a clarificatory in nature. ii. On the facts and in the circumstances of the case, Id CIT(A) has erred in law in deleting the addition of Rs. 8,90,700/- and Rs.27,58,705/- by accepting the plea of the assessee that the said amount not charged to Profit and loss account without giving the Assessing Officer an opportunity to rebut the same." 8. The assessee is a company engaged in the business of operation of port, purchase of LNG etc having port at Dahej in Gujarat. The port undertaking of the assessee commenced operations from the F.Y. 2004-05. In the first year of operation the assessee incurred substantial losses. In A.Y.'s 2006-07, 2007-08 & 2008-09, the assessee made profits and the profits were set off against the losses. In the relevant A.Y. 2009-10, the assessee also had profits and claimed a deduction u/s 80IA. ITA No. 4902/Del/2015 (Revenue's Appeal): Disallowance u/s 80IA: 9. The AO disallowed deduction claimed stating that the assessee does not have any profits available for claiming deduction. The business losses/deprecation of earlier years, which have been set off against the income have been notionally brought forward and set off against the profits for the relevant assessment year thereby reducing the profits. 10. The assessee stated that for the purpose of computing deduction u/s 80IA, unabsorbed depreciation of earlier years already set off against income of the assessee in the preceding years should not be notionally brought forwarded and set off u/s 80IA(5) for determining claim of deduction. 11. The ld. CIT (A) deleted the addition on the grounds that the action of the Assessing Officer to bring losses again notionally cannot be accepted. 12. Heard the arguments of both the parties and perused the material available on record. ITA No.584/Del/2020 5 13. The profits and the brought forward and carried forward losses from A.Y. 2005-06 till the current assessment year as per the AO are given below: Assessment Years Port Unit 2006-07 B/FLosses Taxable profits f or A.Y 06-07 Carry forward balance losses t o AY 07 -08 (310,09,69,047) 6,86,05,536 (303,23,63,511) Deduction u/s 80IA Nil 2007-08 B/F Losses Taxable profits f or A.Y 07-08 Carry forward balance losses to AY 08 -09 (303,23,63,511) 54,39,28,860 (248,84,34,651) Deduction u/s 80IA Nil 2008-09 B/F Losses Taxable profits for A.Y 08-09 Carry forward balance losses to AY 09 -10 (248,84,34,651) 89,75,27,557 (159,09,07,094) Deduction u/s 80IA Nil 2009-10 B/F Losses Taxable profits for A.Y 09-10 Carry forward balance losses to AY 10 -11 (159,09,07,094) 109,65,21,389 (49,43,85,705) Deduction u/s 80IA 109,65,21,389 14. Similar is the case for the profits of the Power Unit. The grounds before us pertain to deduction u/s 80IA. Hence, there is no need to dwell into the issue of production/ generation of power per se. 15. The claim of the assessee in the current year leads the examination of two issues. a. Whether the assessee is entitled to consider the "Year-4"of the operation as the initial assessment year for computation of deduction under eligible business or not. ITA No.584/Del/2020 6 b. Whether the revenue was right in notionally carrying forward the losses and unabsorbed depreciation of the earlier years to be taken into consideration for computing deduction u/s 80IA. c. Whether the brought forward losses needs to be set off against the profits earned during the year before claiming the deduction u/s 80IA or not. 16. With regard to the issue mentioned at point (a.) above, we have perused the provisions of Section 80IA(5) which are as under: "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quantum of deduction under that subsection for the 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 year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 17. Owing to the non-specificity of the "initial assessment year" which lead to conflicting interpretations, CBDT has clarified as to what constitutes initial assessment year with reference to Section 80IA(5) vide Circular No. 1 of 2016 dated 15.02.2016. Since, the Circular is clarificatory in nature, it is treated as applicable from the year, the statute came into force. “Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clarification of the term 'initial assessment year' in section 80IA (5) of the Income-tax Act, 1961 Section 80IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100 % of the profits and gains ITA No.584/Del/2020 7 derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2j of section 80IA 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 commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under:- "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 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 relevant to the initial assessment year 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 manner 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 under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. 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 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 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 ITA No.584/Del/2020 8 of years 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 be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 80IA 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 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. Sd/- (Deepshikha Sharma) Director to the Government of India (F.No. 200/31/2015-ITA-I) 18. Straight to the issue- Taking into consideration, the above Circular of the CBDT, we hold that the assessee is entitled to claim the deduction from the assessment year 2009-10 as the "initial assessment year" u/s 80IA(5) even though this is the fourth year of operation of the activities u/s 80IA. We clarify that the "initial assessment year" for the "claim of deduction" need not be the "first year" of the "commencement of operations" of the assessee.” 6. In the present case, from the impugned first appellate order, we observe that the ld.CIT(A) has granted relief to the assessee with the following observations and findings:- “4.4 On the said issue, the Circular of CBDT's No. 1/2016 dated 15th February 2016 is also very important, because it was issued specifically to clarify the term "Initial assessment Year" since some of the Assessing Officers were interpreting the term 'Initial assessment year' as the year in which the eligible business / manufacturing activity had commenced ignoring the clear mandate provided under section 80-IA(2) of the IT Act which provides a choice to the assessee for deciding the year from which it desires to claim deduction out of ITA No.584/Del/2020 9 the applicable slab of fifteen (or twenty) years.In the said CBDT Circular it has unambiguously clarified the meaning of the term 'Initial assessment year' as referred in Section 80IA (5) of the Income Tax Act, 1961. The relevant extracts of this Circular are being reproduced below for your reference: "It is abundantly clear from sub-section (2) that an assessee who' Is eligible to claim deduction u/s 80-1 A 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 year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80-IA 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 80- IA." It has also been specifically mentioned in the abovementioned CBDT circular that "The Assessing Officers are, therefore, directed to allow deduction u/s 80-IA in accordance 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 sub-section(5) of that section......” • Disallowance of the benefit u/s 80-IA of the IT Act by the learned AO is clear disregard to the above CBDT circular issued to clarify the specific points disputed by the AO in the case of the Appellant for AY 2016-17. • Post issuance of abovementioned CBDT circular, Madras High Court in case of PCIT vs. Prabhu Spinning Mills (P.) Ltd once again upheld the judgements made in case of M/s Velayudhaswamy Spinning Mills P Ltd. vs ITA No.584/Del/2020 10 ACIT[231 CTR 368] and also referred to the abovementioned CBDT circular to held that initial assessment year in section 80- IA(5) would only mean year of claim of deduction under section 80-IA and not year of commencement of eligible business. Madras High Court has also gone ahead to record the following statement in its order: " ......we cannot resist our temptation to record one 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 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 of a decision, on which, a circular has been issued. The Department shall take note of this for future guidance" 4.5 Considering above, it is being submitted that, on the basis of judgments pronounced by various courts as well as the clarification issued by CBDT, squarely covering the present case of the Appellant, in regard with interpretation of term 'Initial Assessment Year', it may be concluded that where loss of eligible industrial undertaking in year earlier to the initial assessment year has already been absorbed against profit of other business, the same cannot be notionally brought forward and set off against profits of eligible business undertaking as no such mandate is provided in section 80-IA of the IT Act. 4.6 As far as, the Karnataka High Court Judgment so referred by the AO, the same was squarely relying on ITAT judgement in case of ACIT vs Goldmine Shares and Finance Pvt Ltd [(2008) (113 ITD 209 (AHD) (SB)], wherein the amendment brought in Finance Act, 1999 in section 80IA was not discussed. Furthermore, Karnataka High Court has also not considered its very own decision on the same matter in case of Sh. Anil H Lad [2014] 25 which was held in favour of the Assessee. 4.7 I also find that in the scrutiny assessment of 2013-14, 2014-15 and 2015-16 the predecessor Assessing Officer did not disallow the claims made by the appellant under section 80IA nor adjusted any notional depreciation or losses of the previous year so set off against other income prior to initial assessment year. ITA No.584/Del/2020 11 4.8 I also find that Section 80IA of the Act which has been substituted w.e.f. 1.04.2000 provides that where the GTI of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub-section (4), there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income, a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive years. Substituted sub-section (2) of Section 80IA provides that an option is given to the assessee for claiming any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate. The fifteen years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction (or an eligible business .... Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the "initial assessment year" or any subsequent assessment year. It nowhere defines as to what is the "initial assessment year". Prior to 1.04.2000, the "initial assessment year" was defined for various types of eligible assessees u/s. 80IA(J2). However, after the amendment brought in statute by the Finance Act. 1999, the definition of "Initial Assessment Year" has been specifically taken away. Now, when the assessee exercises the option of choosing the "initial assessment year", as culled out in sub-section (2) of Section 80IA from which it chooses its ten years of deduction out of fifteen years, then only the losses of the years starting from the "initial assessment year" alone are to be brought forward as stipulated in Section 80IA(5). The loss prior to the "initial assessment year" which has already been set-off cannot be brought forward and adjusted into the period of ten years from the "initial assessment year" as contemplated or chosen by the assessee. This is the true import of Section 80IA(5).” Set off of losses of 80IA unit in the AY 2007-08 & AY 2008-09 was permissible set off against other business income of the appellant of the same year and shouldn't have any consequences on claim of 80IA benefit by the appellant in subsequent years In the light of the above judgment, if we consider the facts of the instant case, we find that there is no dispute as to eligibility of deduction u/s. 80IA(1), but, the only dispute is whether computing provisions of sub- section (5) of Section 80IA would apply to the years earlier to initial assessment year or not. When we read the above judgment, it becomes clear that the "initial assessment year 2010-11 for undertaking - I and 2013-14 for undertaking -II and 2016-17 for undertaking - III ITA No.584/Del/2020 12 Therefore, I am of the considered opinion and in the light of the judgment cited above, the appellant is eligible for deduction u/s. 80IA as claimed as notional carry forward of losses since year of commencement in eligible undertakings is not in accordance with the provisions of law as well as clarification issued by CBDT in circular No. 1/2016. 4.9 In view of above factual and legal matrix, the ground 2 & 3 raised by the appellant are decided in favour of the appellant and the disallowance so made u/s 80IA for Rs. 12,63,07,697/- is deleted and the Assessing Officer is directed to allow the exemption of Rs.12,63,07,697/- as claimed by the appellant.” 7. From the assessment order, we observe that the AO also denied applicability of CBDT Circular No.1/2016 dated 15.02.2016 by holding that the Circular does not address/comment on the issue of setting off of (notional) loss of eligible undertaking/business/enterprise. Thereafter, the AO denied the claim of the assessee. Further, from the relevant part of the first appellate order, first of all, we observe that the ld.CIT(A) firstly considered the CBDT Circular and held that it has unambiguously clarified that the meaning of the term ‘initial assessment year’ as referred in section 80IA(5) of the Act provides a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of 15/20 years. The ld.CIT(A) also considered a very relevant fact that in the scrutiny assessment orders for AY 2013-14, 2014-15 and 2015-16, the predecessor assessing officer did not disallow the claim made by the appellant u/s 80IA of the Act nor adjusted any notional depreciation/loss of previous years to set off against other income prior to initial assessment year. The ld.CIT(A) also considered the provisions of section 80IA of the Act in detail and held that ITA No.584/Del/2020 13 the provisions of sub-section (5) of section 80IA of the Act would apply to the years earlier to the initial assessment year or not is the only dispute in this case. Thereafter, the ld.CIT(A) concluded that the appellant is eligible for deduction u/s 80IA of the Act as claimed as notional carried forward losses since the year of commencement in eligible undertaking is not in accordance with the provisions of law as clarified by CBDT vide Circular No.1/2016. In view of the above and by taking respectful cognizance of the judgment of the Hon’ble Madras High Court in the case of PCIT vs. Prabhu Spinning Mills (P) Ltd., we have no hesitation to hold that the ld.CIT(A) was right in allowing the claim of the assessee by considering the CBDT Circular No.1/2016 and sub-section (5) of section 80IA of the Act for understanding the definition of initial assessment year which provides a choice to the assessee for deciding the year from which it desires to claim the deduction u/s 80IA of the Act. In view of the foregoing discussion, we are unable to see any ambiguity, perversity or any other valid reason to interfere with the findings of the ld.CIT(A). Our conclusion also finds support from the ITAT Delhi Bench decision in the case of Petronet LNG Ltd. (supra). Consequently, the sole ground of the Revenue being devoid of merits is dismissed. ITA No.584/Del/2020 14 8. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 22.07.2022. Sd/- Sd/- (SHAMIM YAHYA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 22 nd July, 2022. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi