Shankarlal Kundanmal Parrek, V. Asstt.CIT, Ichalkaranji Cir., Ichalkaranji,

ITA 584/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3162 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS MITALI MADHUSMITA
• Keywords: Depreciation; Opportunity of being heard
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS. 583 & 584/PN/2009 ASSESSMENT YEARS: 2004-05 & 2005-06 SHRI SHANKARLAL KUNDANMAL PAREEK, APPELLANT 9/939-8-B, STATION ROAD, ICHALKARANJI, (PAN ABIPP0423N) VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPONDENT ICHALKARANJ CIRCLE, ICHALKARANJI APPELLANT BY : MR. M.K. KULKARNI RESPONDENT BY : MRS. MITALI MADHUSMITA ORDER PER G.S. PANNU, A.M.: BOTH THE CAPTIONED APPEALS BY THE ASSESSEE ARE DIR ECTED AGAINST THE RESPECTIVE ORDERS OF THE COMMISSIONER O F INCOME-TAX- II, KOLHAPUR ( IN SHORT THE COMMISSIONER) DATED 3 0 TH MARCH, 2009 PASSED U/S 263 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERAINING TO THE ASSESSMENT YEARS 2004-05 AND 2005-06, WHICH IN TURN, HAVE ARISEN FROM THE ORDERS PASSED B Y THE ASSESSING OFFICER U/S 143(3) OF THE ACT DATED 26/10 /06 AND 02/04/07 RESPECTIVELY. 2. IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT THE ISSUES INVOLVED, FACTS AND CIRCUMSTANCES IN BOTH TH E APPEALS ARE IDENTICAL. THEREFORE, WE TAKE UP FOR CONSIDERATION, ITA NO. 583/PN/09 PERTAINING TO ASSESSMENT YEAR 2004-05. ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 2 3. IN BRIEF, THE GRIEVANCE OF THE ASSESSEE IS THAT THE COMMISSIONER WAS NOT JUSTIFIED IN INVOKING THE PROV ISIONS OF SECTION 263(1) OF THE ACT, IN ORDER TO DENY THE DED UCTION GRANTED BY THE ASSESSING OFFICER OF RS. 48,03,026/- U/S 80- IA OF THE ACT, AND ALSO HOLDING THAT THE INCOME EARNED BY WAY OF S ALES TAX INCENTIVES AVAILED BY THE ASSESSEE AMOUNTING TO RS. 29,28,050/- IS NOT ENTITLED FOR DEDUCTION U/S 80-IA OF THE ACT. 4. THE BRIEF BACKGROUND IS THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF TRADING OF YARN AND CLOTH, GENERATION O F ELECTRICITY, ETC. FOR THE ASSESSMENT YEAR 2004-05, HE FILED A RE TURN OF INCOME DECLARING TOTAL INCOME AT RS. NIL, INTER-ALI A, CLAIMING DEDUCTION U/S 80IA OF THE ACT OF RS. 48,03,026/- IN TERMS OF SECTION 80-IA(4)(IV) OF THE ACT, IN RELATION TO THE PROFITS DERIVED FROM THE UNDERTAKING ENGAGED IN GENERATION OF POWER . THE SAID RETURN WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143 (3) OF THE ACT VIDE ORDER DATED 26/10/2006 WHEREBY THE TOTAL I NCOME HAS BEEN ASSESSED AT RS. NIL. SUBSEQUENTLY, THE COMMISS IONER EXAMINED THE RECORD OF THE PROCEEDINGS AND SHOW-CAU SED THE ASSESSEE AS TO WHY THE ASSESSMENT ORDER DATED 26/10 /06 BE NOT CONSIDERED AS ERRONEOUS IN SO FAR AS IT IS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE ON TWO ASPECTS. FIRSTLY, A S PER THE COMMISSIONER, THE ASSESSING OFFICER FAILED TO APPLY THE PROVISIONS OF SECTION 80IA(5) OF THE ACT WHILE COMP UTING THE DEDUCTION U/S 80-IA OF THE ACT. AS PER SECTION 80I A OF THE ACT, THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS ARE REQUIRED TO BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF THE INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASS ESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH T HE DETERMINATION IS TO BE MADE. AS PER THE COMMISSIONE R, THE ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 3 DEDUCTION U/S 80IA OF THE ACT WAS COMPUTED AND ALLO WED BY THE ASSESSING OFFICER WITHOUT CONSIDERING THE NOTIONAL UNABSORBED BROUGHT FORWARD DEPRECIATION IN RESPECT OF WINDMILL UNIT. SECONDLY, AS PER THE COMMISSIONER, RECEIPTS OF RS. 29,28,050/- IN THE FORM OF SALES TAX BENEFITS CANNOT BE SAID TO HAVE BEEN DERIVED FROM ELIGIBLE BUSINESS AND, THEREFORE, THE DEDUCTION U/S 80IA OF THE ACT HAS BEEN WRONGLY ALLOWED ON THE SAM E. 5. ON BOTH THE TWO ASPECTS, ASSESSEE CONTESTED THE STAND OF THE COMMISSIONER. AS PER THE ASSESSEE, THE UNABSORB ED DEPRECIATION OF THE ELIGIBLE UNDERTAKING ALREADY ST OOD SET-OFF AGAINST THE OTHER INCOMES IN THE EARLIER YEAR AND, THEREFORE, THE SAME WAS NOT REQUIRED TO BE NOTIONALLY CARRIED FORW ARD AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA OF THE ACT. FURTHER MORE, WITH RESPECT TO THE INITIAL ASSESSMENT YEAR, AS APPEAR ING IN SECTION 80IA(5) OF THE ACT, THE ASSESSEE CONTENDED THAT THE SAME REFERS TO THE ASSESSMENT YEAR IN WHICH THE ASSESSEE FIRST PREFERRED THE CLAIM AND ACCORDINGLY CONTESTED THE BASIS OF THE AD OPTION OF THE INITIAL ASSESSMENT YEAR DIFFERENTLY BY THE DEPART MENT. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE DECISIO N OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF MOHAN BREWERIES AND DISTILLERIES LTD. VS. ACIT [2008] 114 TTJ 532. SECONDLY, EVEN WITH REGARD TO THE RECEIPTS ON ACCOUNT OF SALE S TAX BENEFITS, THE CLAIM OF THE ASSESSEE WAS THAT THE SAME CONSTIT UTED A PART OF THE PROFITS OF THE BUSINESS OF GENERATION AND DISTR IBUTION OF POWER AND WAS, THEREFORE, ELIGIBLE FOR DEDUCTION U/ S 80IA OF THE ACT. 6. ON BOTH THE ASPECTS, THE COMMISSIONER HAS NOT AC CEPTED THE PLEAS OF THE ASSESSEE. THE COMMISSIONER HELD TH AT THE ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 4 DEDUCTION U/S 80IA OF THE ACT ALLOWED BY THE ASSESS ING OFFICER WAS INCORRECT AND HE DIRECTED THE ASSESSING OFFICER TO RE- COMPUTE THE ELIGIBLE DEDUCTION IN TERMS OF SECTION 80IA(5) OF THE ACT, BY SETTING OFF THE LOSSES AND UNABSORBED DEPRE CIATION OF EARLIER YEARS ON NOTIONAL BASIS, AGAINST THIS YEAR S PROFITS OF THE ELIGIBLE INDUSTRIAL UNDERTAKING. SECONDLY, WITH REG ARD TO THE CLAIM OF DEDUCTION U/S 80IA OF THE ACT WITH RESPECT TO SALES TAX BENEFITS, HE DIRECTED THE ASSESSING OFFICER TO EXCL UDE THE AMOUNT OF SALES TAX BENEFITS FROM THE AMOUNT OF ELIGIBLE P ROFITS FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80IA OF THE ACT . IN THIS MANNER, THE COMMISSIONER DIRECTED THE ASSESSING OFF ICER TO RE- COMPUTE THE DEDUCTION U/S 80IA AND MODIFYTHE ASSESS MENT ORDER DATED 26/10/06. 7. AGAINST THE AFORESAID, THE LEARNED COUNSEL FOR T HE ASSESSEE QUITE FAIRLY CONCEDED THAT ON THE ASPECT OF APPLIC ABILITY OF SECTION 80IA(5) OF THE ACT, PUNE BENCH OF THE TRIBU NAL IN THE CASE OF PADMAVATI WIND ENERGY P. LTD. (ITA NO. 618 /PN/2008 ORDER DATED 29 TH OCTOBER10) HAD CONSIDERED A SIMILAR SITUATION, AND A COPY OF THE SAID PRECEDENT HAS BEEN PLACED ON RECORD. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, HE HAS NO OBJECTION IF DIRECTIONS SIMILAR TO THOSE GIVEN BY T HE TRIBUNAL IN THE CASE OF PADMAVATI WIND ENERGY P. LTD. (SUPRA) A RE GIVEN IN THE PRESENT CASE IN ORDER TO RE-COMPUTE THE DEDUCTI ON U/S 80IA OF THE ACT ON THE ASPECT OF APPLICABILITY OF SECTIO N 80IA(5) OF THE ACT. WITH REGARD TO THE DECISION OF COMMISSIONER FO R EXCLUDING SALES TAX BENEFIT FOR THE PURPOSES OF COMPUTING DED UCTION U/S 80IA OF THE ACT, IT HAS BEEN CONTENDED THAT AS PER THE SCHEME, THE ASSESSEE IS ENTITLED TO SALES TAX BENEFIT ONLY IF CERTAIN CONDITIONS ARE COMPLIED BY THE UNDERTAKING. IT IS P OINTED OUT THAT THE ASSESSEES POWER GENERATION UNIT IS TO MAI NTAIN ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 5 PRESCRIBED PLANT LOAD FACTOR AND IT IS ONLY IN SUCH SITUATION, IT CAN AVAIL SALES TAX BENEFIT AND, THE SCHEME SHOWS T HAT SUCH PROFITS CAN BE SAID TO HAVE BEEN DERIVED FROM THE E LIGIBLE BUSINESS. ACCORDING TO THE LEARNED COUNSEL, THE COM MISSIONER HAS ERRED IN HOLDING TO THE CONTRARY WITHOUT APPREC IATING THE SCHEME OF THE STATE GOVERNMENT IN TERMS WHICH THE S ALES TAX BENEFITS HAVE ACCRUED TO THE ASSESSEE. 8. ON THE OTHER HAND, THE LEARNED DR APPEARING FOR THE REVENUE HAS DEFENDED THE ACTION OF THE COMMISSIONER ON BOTH THE ASPECTS BY PLACING RELIANCE ON THE SAME. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, PERUSED THE IMPUGNED ORDER OF THE COMMISSIONER AS W ELL AS THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/ S 143(3) ON 26/10/06 AND THE PRECEDENT IN THE CASE OF PADMAVATI WIND ENERGY P. LTD. (SUPRA). OUR CO-ORDINATE BENCH IN TH E CASE OF PADMAVATI WIND ENERGY P. LTD. (SUPRA) WAS CONSIDERI NG AN ORDER PASSED BY THE COMMISSIONER U/S 263 OF THE ACT, WHE REBY THE ASSESSMENT ORDER WAS FOUND TO BE ERRONEOUS IN SO FA R AS IT WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE ASPECT OF NON- APPLICATION OF SECTION 80IA(5) OF THE ACT BY THE AS SESSING OFFICER WHILE DETERMINING THE DEDUCTION U/S 80IA OF THE A CT. IN THE CASE OF PADMAVATI WIND ENERGY P. LTD. (SUPRA) IT WA S OBSERVED THAT NO ENQUIRY APPEARED TO HAVE BEEN MADE BY THE A SSESSING OFFICER WITH REGARD TO THE CLAIM OF DEDUCTION U/S 8 0IA OF THE ACT, AND ACCORDINGLY, THE COMMISSIONER WAS HELD TO HAVE RIGHTLY INVOKED THE POWER VESTED IN HIM U/S 263 OF THE ACT. IN THE PRESENT CASE TOO, WE HAVE CAREFULLY PERUSED THE ASS ESSMENT ORDER DATED 26/10/06 AND FIND THAT APPLICABILITY OF SECTION 80IA(5) HAS NOT BEEN EXAMINED BY THE ASSESSING OFFI CER AT ALL. IN ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 6 FACT, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO NOT LED ANY MATERIAL TO ESTABLISH THAT ANY ENQUIRIES IN THIS RE GARD WERE MADE BY THE ASSESSING OFFICER DURING THE COURSE OF ASSES SMENT PROCEEDINGS. THEREFORE, IN THIS FACTUAL SITUATION, WE HEREBY AFFIRM THE ACTION OF THE COMMISSIONER IN HOLDING TH AT THE ASSESSMENT HAS ERRONEOUS AND PREJUDICIAL TO THE INT ERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE AC T. THE TRIBUNAL IN THE CASE OF PADMAVATI WIND ENERGY P. LT D. (SUPRA), RELYING ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT [2010 38 DTR 57 UPHELD THE PRINCIPLE THAT LOSSES AND DEPR ECIATION OF THE YEARS EARLIER TO THE INITIAL ASSESSMENT YEAR, WHICH HAVE ALREADY BEEN ABSORBED AGAINST THE PROFITS OF OTHER BUSINESS, CANNOT BE NOTIONALLY BROUGHT FORWARD AGAINST THE PR OFITS OF THE ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA OF THE ACT. NOTABLY, IN TERMS OF SECTION 80IA(2) OF THE ACT, THE ASSESSEE HAS AN OPTION TO C LAIM DEDUCTION IN ANY OF THE TEN CONSECUTIVE YEARS OUT OF THE FIFT EEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING GE NERATES THE POWER OR UNDERTAKES TRANSMISSION OF POWER. IT IS ON LY WHEN THE ASSESSEE CHOOSES THE INITIAL ASSESSMENT YEAR THAT PROVISIONS OF SECTION 80IA(5) OF THE ACT RELATING TO ISOLATING TH E UNIT SHALL START FROM THE SAID YEAR. CONSEQUENTLY, LOSS OR DEPRECIA TION OF THE YEAR PRIOR TO THE INITIAL ASSESSMENT YEAR CANNOT BE CONSIDERED IN THE MANNER PROVIDED U/S 80IA(5) OF THE ACT. IN THIS BACKGROUND OF THE MATTER, IN OUR CONSIDERED OPINION, THE ORDER OF THE COMMISSIONER DESERVES TO BE MODIFIED. WHILE UPHOLDI NG THE VALIDITY OF INVOKING SECTION 263 BY THE COMMISSIONE R, WE HEREBY MODIFY HIS DIRECTIONS TO THE ASSESSING OFFICER. THE ASSESSING OFFICER IS HEREBY DIRECTED TO EXAMINE THE ISSUE OF INITIAL ASSESSMENT ORDER AND THE RELATED COMPUTATION OF DE DUCTION U/S ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 7 80IA AS PER THE PROVISIONS OF THE ACT, AFTER AFFOR DING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. AS A RESULT, DIRECTIONS OF THE COMMISSIONER IN PARA 16 O F THE IMPUGNED ORDER ARE HEREBY MODIFIED. 10. IN SO FAR AS THE ASPECT OF SECTION 80IA BENEFIT S ON SALES TAX ENTITLEMENT IS CONCERNED, IT IS A TRITE LAW THAT U/ S 80IA OF THE ACT, ONLY THE INCOME DERIVED FROM THE ELIGIBLE I NDUSTRIAL UNDERTAKING IS ENTITLED FOR DEDUCTION. THE ASSESSME NT ORDER DOES NOT BRING OUT ANY PERTINENT FACTS, WHICH SHOW THAT SUCH INCOME CAN BE SAID TO HAVE BEEN DERIVED FROM THE ELIGIBL E INDUSTRIAL UNDERTAKING. HOWEVER, EVEN THE COMMISSIONER HAS NOT DEMONSTRATED THE MECHANICS OF SCHEME OF THE GOVERNM ENT OF MAHARASHTRA TO POINT OUT AS TO IN WHAT MANNER THE S AID BENEFITS CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE INDUST RIAL UNDERTAKING. ADMITTEDLY, THE ASSESSING OFFICER ALLO WED THE CLAIM OF THE ASSESSEE WITHOUT PROPER ENQUIRY AND THE SAID ASPECT HAS ALSO NOT BEEN DISPUTED BY THE ASSESSEE BEFORE US. IN THESE CIRCUMSTANCES, IN PRINCIPLE, WE UPHOLD THE ACTION O F THE COMMISSIONER IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT, HOWEVER, HIS DIRECTION TO DISALLOW THE CLAIM IS MOD IFIED. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ASSESS EES CLAIM ON THE BASIS OF THE SCHEME UNDER WHICH THE ASSESSEE HAS AV AILED THE SALES TAX BENEFITS AFTER ALLOWING THE ASSESSEE A REASONAB LE OPPORTUNITY OF BEING HEARD ON THIS ASPECT AND THEREAFTER DECIDE TH E MATTER AFRESH IN ACCORDANCE WITH LAW. AS A RESULT, THE DIRECTIONS OF THE COMMISSIONER IN PARA 23 OF THE IMPUGNED ORDER ARE M ODIFIED TO THAT EXTENT. 11. IN FINALITY, ON BOTH THE ASPECTS, THE ACTION OF THE COMMISSIONER IN INVOKING PROVISIONS OF SECTION 263 IS UPHELD, IN PRINCIPLE AND THE ASSESSING OFFICER IS DIRECTED TO REFRAME THE ASSESS MENT DE-NOVO ON ITA NOS. 583 & 584/PN/09 SHANKARLAL KUNDANLAL PAREEK 8 THE ABOVE ASPECTS IN ACCORDANCE WITH LAW AFTER AFFO RDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA N O. 583/PN/09 IS PARTLY ALLOWED. 13. SINCE THE FACTS AND CIRCUMSTANCES ARE IDENTICAL IN ITA NO. 584/PN/09 PERTAINING TO ASSESSMENT YEAR 2005-06, OU R DECISION IN ITA NO. 563/PN/09 (SUPRA) WOULD APPLY MUTATIS-MUTAN DIS IN THE OTHER APPEAL ALSO. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 24/11/10 SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT M EMBER PUNE, DATED: 24 TH NOVEMBER, 2010 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., PUNE KV