INDIANA GRATINGS P.LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 6012/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2703 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 10-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI R.C.SHARMA, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.6012/MUM/2013 ASSESSMENT YEAR: 2010-11 INDIANA GRATINGS PVT. LTD., INDIANA HOUSE, MAKWANA ROAD, OFF M. VASANJI ROAD, MAROL NAKA, ANDHERI (E), MUMBAI-400059 PAN: AAACI2546Q VS. DCIT, RANGE 8(2), 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI- 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI K.SHIVRAM & R AHUL SARDA REVENUE BY : SHRI MANOJ MISHRA (DR) DATE OF HEARING : 20.08.2015 DATE OF PRONOUNCEMENT : 04.11.2015 O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-17 MUMBAI DATED 19.08.2013 IN RESPECT OF ASSESSMENT YEAR (AY) 2010- 11 ON THE FOLLOWING GROUNDS OF APPEAL: 1A) THE LD.CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF DEDUCTION U/S.801A MADE BY THE AO AND NOT CONSIDERING THE FACT THAT DE DUCTION U/S.80IA IS TO BE CLAIMED AND ALLOWED ON A STAND ALONE BASIS AS I F THE ELIGIBLE BUSINESS WAS THE ONLY SOURCE OF INCOME. B) THE LD.CIT(A) ERRED IN HOLDING THAT LOSSES OF EA RLIER YEAR HAD TO BE REDUCED BEFORE ALLOWING CLAIM U/S.801A AND DISREGAR DING THE FACT THAT 2 ITA NO. 6012/M/13 INDIANA GRATINGS PVT. LTD THERE WERE NO LOSSES OF EARLIER YEARS AS THEY HAD B EEN SET OFF AGAINST OTHER INCOMES OF THOSE YEARS. 2. THE LD.CIT(A) ERRED IN DENYING DEDUCTION U/S.80I A BY FOLLOWING MUMBAI TRIBUNAL DECISION IN CASE OF THE HERCULES HOISTS LT D. AND NOT FOLLOWING THE MADRAS HIGH COURT DECISION WHICH IS A HIGHER AUTHOR ITY THAN THE TRIBUNAL AND ALSO THE CASE OF SHEVIE EXPORTS AND IGNORING TH E PRINCIPLE OF JURISPRUDENCE THAT WHEN THERE ARE TWO CONTRARY DECI SIONS THEN THE DECISION IN FAVOUR OF THE APPELLANT IS TO BE FOLLOWED. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR CANCEL ANY GROUND OR GROUNDS BEFORE OR AT THE TIME OF HEARING OF THE APP EAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, W HO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ELECTRO FORGED GRATINGS, CABLE TRAYS , HANDRAILS AND FRP GRATINGS/CABLE TRAYS. GENERATION OF ELECTRICITY FROM WINDMILL, FILED ITS RETURN OF INCOME ON 29.09.2010 DECLARING TOTAL INCOME AT RS. 19,77,29,980/-. THE RETURN OF I NCOME WAS SELECTED FOR SCRUTINY AND WHILE PASSING THE ASSESSMENT ORDER U/S 143(3) OF TH E INCOME-TAX ACT, 1961 (THE ACT). THE ASSESSING OFFICER (AO) MADE THE ADDITION OF RS. 76, 723/- U/S 40(A)(IA) OF THE ACT AND ADDITION ON ACCOUNT OF CAPITAL EXPENDITURE OF SOFTW ARE EXPENSES OF RS. 8,29,294/- AND FURTHER DISALLOWED THE DEDUCTION CLAIMED U/S 80IA O F RS. 53,93,758/- AND INITIATED PENALTY PROCEEDING U/S 271(1)(C) OF THE ACT VIDE ORDER DATE D 22.10.2012. 3. AGAINST THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL AGAINST THE ADDITION OF CAPITAL EXPENDITURE OF SOFTWARE EXPENSES AND DISALL OWANCE OF DEDUCTION CLAIMED U/S 80IA OF THE ACT BEFORE THE CIT(A). THE LD. CIT(A) WHILE DECIDING THE APPEAL OF THE ASSESSEE DELETED THE CAPITAL EXPENDITURE OF SOFTWARE EXPENSE S AND CONFIRMED THE DEDUCTION CLAIMED U/S 80IA OF THE ACT IN THE IMPUGNED ORDER DATED 27. 11.2012 AGAINST WHICH THE PRESENT APPEAL IS FILED BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE RELIED UPON THE F OLLOWING JUDGMENTS: 1. VALAYUDHASWAMY SPINNING MILL P LTD. V ACIT (2010 ) 38 DTR 57. 2. CIT COIMBATORE VS. M/S EMERALD JEWEL INDUSTRY P LTD. (ITA NO. 715/10 DT. AUGUST 10, 2010 (MADRAS HIGH COURT). 3. PATANKAR WIND FARM P.LTD. (ITA 634/PN/2008 DT. 2 1.01.2011. 4. G B RUBBER PRODUCTS (ITA 1466/PN/2009 DT. 25.05. 2011. 5. VXL SYSTEMS, COIMBATORE VS. DEPARTMENT OF INCOME TAX (ITA NO. 1097/MDS/2010 DATED 25 TH APRIL, 2011. 6. ACIT VS. MSK CONSTRUCTIONS P. LTD. (ITA 563/MDS/ 11 DT. 23.06.2011. 3 ITA NO. 6012/M/13 INDIANA GRATINGS PVT. LTD 7. MOHAN BREWERIES AND DISTILLERIES .... VS. DEPART MENT OF INCOME TAX DATED 13 TH JANUARY, 2012. 8. ANIL H. LAD VS. DCIT (ITA 1262/BANG/2010 DT. 07. 01.11. 9. PIYUSH C. MEHTA VS. ACIT (ITA 1321/M/09. 10. SHEVIE EXPORTS V. JCIT (ITA 32/M/12 DT. 10.04.1 3. 11. EASTMAN EXPORTS GLOBAL CLOTHING P. LTD. 371 ITR 1 (MAD) (2015). 12. HERCULAS HOIST LTD. VS. ADDL CIT RG10(3) DT. 13 .02.13. 13. HERCULAS HOIST LTD. VS. ADDL CIT RG10(3) DT. 13 .09.13. 5. THE LD. AUTHORISED REPRESENTATIVE (AR) OF THE AS SESSEE ARGUED THAT THE DEDUCTION U/S 80IA OF THE ACT HAS TO BE WORKED OUT AFTER DEDU CTING THE LOSS OF EARLIER YEAR IN INCURRED IN WIND POWER GENERATION BUSINESS. IT IS FURTHER AR GUED THAT THE ASSESSEE HAS RIGHT TO CHOSE THE INITIAL ASSESSMENT YEAR FOR AVAILING THE BENEFI T OF SECTION 80IA. THE LD. AR FURTHER ARGUED THAT IN CASE OF VALAYUDHASWAMY SPINNING MILL P LTD. VS/ ACIT REPORTED IN 2012(1) 340 ITR 477 ,HAS DEALT WITH THE SIMILAR ISSUE AND HELD THAT ASSESSEE CAN CHOSE INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF DEDUCTION AND THE EARLIER L OSS CANNOT BE NOTIONALLY FORWARDED AND SET OFF OF AGAINST THE PROFIT OF ELIGIBLE BUSINESS AND ALSO FURTHER ARGUED THAT THE CO-ORDINATE BENCH OF ITAT IN NUMBER OF CASES HAS HELD THAT THE ASSESSEE HAS RIGHT TO CHOSE THE INITIAL YEAR FOR SEEKING THE EXEMPTION U/S 80IB AND RELIED UPON THE JUDGMENT MENTIONED ABOVE. 6. CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO. 6013/MU M/03 HAS HELD AS UNDER: IF THE FIRST YEAR OF CLAIM OF DEDUCTION U/S.80IA(1 ) IS ITSELF TAKEN AS A INITIAL ASSESSMENT YEAR, THE WHOLE PURPOSE OF THE PROVISION GETS DEFEATED; R ATHER, BOTCHED, WHERE THERE IS AN UNABSORBED DEPRECATION / LOSS INCURRED PRIOR TO THA T YEAR, SO THAT THERE IS NO SCOPE FOR THE SAME BEING CARRIED FORWARD AND SET OFF. THERE IS NO RATIONALE FOR SUCH AN EMBARGO OR RESTRICTION, WHICH IS THUS INCOMPREHENSIBLE INASM UCH AS IT IS NEITHER BORNE OUT BY THE CLEAR LANGUAGE OF THE PROVISION NOR BY ITS RATIONALE; RAT HER, GOES AGAINST ITS GRAIN, BESIDES BEING INCONSISTENT WITH THE MEMORANDUM, EXPLANATORY NOTES AND THE BOARD CIRCULAR EXPLAINING THE PROVISION, WHICH OPERATE AS A CONTEMPORANEA EXP OSITO INASMUCH AS THEY CLARIFY THE LEGISLATIVE INTENT THAT THE AGGREGATION WOULD BE AP PLICABLE FOR THE INITIAL, LOSS YEARS. TRUE, THE SAID CIRCULAR IS NOT BINDING ON THE HIGHER COUR TS OF LAW, OR THE TRIBUNAL FOR THAT MATTER, BUT ONLY ON THE REVENUE AUTHORITIES. SO, HOWEVER, T HE QUESTION THAT REMAINS UNANSWERED IS THE LEGAL OR THE LOGICAL BASIS FOR IGNORING THE SAM E. WHAT, ONE MAY ASK, COULD BE THE PURPOSE IN EXCLUDING THE LOSSES FOR THE INITIAL YEA RS FOR AGGREGATION; FOR WHICH THOUGH WE SEE NO REASON, GIVEN THE LEGISLATIVE INTENTION AS EXPRE SSED AND NOTED HEREINABOVE, AND THE FACT THAT NO DEDUCTION WOULD EVEN OTHERWISE BE AVAILABLE IN CASE OF A LOSS. AFTER ALL, THERE IS NO QUESTION OR REASON FOR THE ASSESSEE TO OPT FOR THE YEAR OF LOSS AS THE 'INITIAL ASSESSMENT YEAR', AND OF WHICH THE LEGISLATURE COULD NOT BUT B E CONSIDERED TO BE AWARE OF. THIS IS ASSUMING THAT THE PROVISION CONFERS THAT OPTION TO THE ASSESSEE. IN OTHER WORDS, SOME INFIRMITY THEREIN (THE CIRCULAR AND THE MEMORANDUM EXPLAINING THE PROVISIONS AS WELL AS NOTES ON CLAUSES) HAS TO BE SHOWN SOAS TO DISREGARD THE SAME AS NOT VALID OR ACCEPTABLE. IT 4 ITA NO. 6012/M/13 INDIANA GRATINGS PVT. LTD IS IN FACT NOT MERELY A CASE OF A CIRCULAR, EVEN AS POINTED OUT BY THE SPECIAL BENCH AT PARA 59 (ALSO READ PARAS 16 TO 18) OF ITS ORDER. IN FACT, T HE ASSESSEE ILL THE INSTANT CASE ITSELF RELIES ON THE SAID CIRCULAR TO PRESS FOR ITS CLAIM FOR THE IM PUGNED SET OFF. FURTHER, LET US CONSIDER THE LOSSES INCURRED AFTER SUCH A YEAR, I.E., THE FIRST YEAR OF DETERMINATION OF DEDUCTION U/S. 80IA(1) (TREATING I T AS THE INITIAL ASSESSMENT YEAR), THE SCOPE OF WHICH, THOUGH REMOTE, CANNOT BE EXCLUDED. THE SAME, GOING BY THE ASSESSEES CONTENTION BEFORE US (REFER PARA 3.1 OF THIS ORDER) , WOULD NOT STAND TO BE CONSIDERED U/S. 80IA(5) AS THERE IS NO QUESTION OF COMPUTING DEDUCT ION U/S. 80IA(1) FOR SUCH YEAR. FURTHER, EVEN IGNORING THE SAID ARGUMENT, SO THAT S.80IA(5) APPLIES, THE QUESTION THAT ARISES IS: WHAT IS A RATIONALE IN INCLUDING SOME LOSSES WHILE DISRE GARDING OTHERS? IN FACT, EMPIRICALLY SPEAKING, THE UNABSORBED DEPRECIATION AND LOSSES WO ULD ONLY BE DURING THE INITIAL YEARS OVER WHICH THE CHARGE OF DEPRECIATION IS MORE AND THE BU SINESS IS YET TO STABILISE, SO THAT THE POSSIBILITY OF UN ABSORBED DEPRECIATION OR LOSSES A FTER THE UNIT'S COMING INTO PROFITS, WHERE THE BUSINESS IS SUCCESSFUL, RETURNING PROFITS (ONLY WHEREUPON THE QUESTION OF DEDUCTION U/S.80IA(1) WOULD ARISE), IS EVEN OTHERWISE REMOTE . SO, HOWEVER, SUCH LOSSES/ALLOWANCE, WHERE SO, WOULD STAND TO BE CARRIED FORWARD, AS MUC H AS THE LOSS/ALLOWANCE INCURRED PRIOR TO THE FIRST YEAR OF DEDUCTION, TO THE SUBSEQUENT Y EARS FOR SET OFF. THE MORE BASIC QUESTION THAT THOUGH ARISES IS THE ABSENCE OF ANY LEGAL OR L OGICAL (THE RAISON DE'TREI BASIS FOR ARTIFICIALLY SEGREGATING THE LOSSES/UNABSORBED DEPR ECIATION FOR THE YEARS PRIOR AND SUBSEQUENT TO THE FIRST YEAR AFORESAID. THE TWO, TH EREFORE, CANNOT BE SEGREGATED OR TREATED SEPARATELY, BUT HAVE TO BE SO ONLY UNIFORMLY, AND I N A MANNER CONSISTENT AND IN HARMONY WITH THE OBJECT AND THE LANGUAGE OF THE PROVISION. 4.3 CONTINUING FURTHER, THOUGH THE PERIOD OF DEDUCT ION U/S.80IA(1) OVER WHICH THE DEEMING OF SECTION 80IA(5) IS TO BE APPLIED COMMENCES WITH THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR, AND UP TO THE YEAR OF DETERMINATIO N OF DEDUCTION, ITS STATED PURPOSE IS FOR THE DETERMINATION OF QUANTUM OF DEDUCTION U/S. 801A (1) FOR THE YEAR IMMEDIATELY' SUCCEEDING THE INITIAL ASSESSMENT YEAR (AND NOT THE INITIAL ASSESSMENT ITSELF) AND FOR EVERY SUBSEQUENT YEAR. WHY? THE REASON IS SIMPLE. THERE C OULD BE NO BROUGHT FORWARD ALLOWANCE OR LOSS PRIOR TO THE INITIAL (ASSESSMENT) YEAR. THE FIRST YEAR FOR WHICH THERE COULD BE, IF SO, A LOSS OR UNABSORBED DEPRECIATION, IS THE FIRST YEAR OF OPERATIONS, SO THAT THE QUESTION OF AGGREGATION OF INCOME FOR THE PURPOSE OF DETERMINAT ION OF QUANTUM OF DEDUCTION COULD, AT THE EARLIEST, BE THE IMMEDIATELY SUCCEEDING ASSESSM ENT YEAR. IT IS FOR THIS REASON THAT WHILE THE AGGREGATION IS APPLICABLE FROM THE INITIAL ASSE SSMENT YEAR ITSELF (OFCOURSE, UP TO THE YEAR OF DETERMINATION OF DEDUCTION), THE DETERMINAT ION OF QUANTUM OF DEDUCTION, WHICH IS THE STATED PURPOSE OF THE PROVISION, IS TO BE FOR O R BEGINS FROM THE YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR. ALSO, ONCE THE DEEMING COMMENCES WITH THE INITIAL ASSESSMENT YEAR, THE AGGREGATION OF INCOME IS TO CO NTINUE OVER EVERY SUBSEQUENT YEAR, I.E., IRRESPECTIVE OF WHETHER THE DEDUCTION UNDER THE PRO VISION IS EXIGIBLE FOR THE SAID YEAR OR NO~. THE DEEMING WOULD THUS CONTINUE TO BE OPERATIVE, AN D IS NOT DEPENDENT ON WHETHER DEDUCTION FOR A PARTICULAR YEAR IS BEING CLAIMED OR NOT. 5 ITA NO. 6012/M/13 INDIANA GRATINGS PVT. LTD THE FIRST YEAR OF DETERMINATION OF DEDUCTION U/S. 8 0IA(1), OR OF RETURNING PROFITS OF THE ELIGIBLE BUSINESS, IGNORING THE LOSSES, IF ANY, INCURRED PRIOR TO THAT YEAR, OR ASSUMING THE SAME AS HAVING BEEN ABSORBED AGAINST ANY OTHER INCO ME, CANNOT, THUS, BE CONSIDERED AS THE INITIAL ASSESSMENT YEAR. THIS EMANATES CLEARLY FROM THE LANGUAGE EMPLOYED AND THE RATIONALE OF THE PROVISION, AS EXPLAINED, BESIDES B EING ENDORSED BY THE DECISIONS BY THE TRIBUNAL CITED AND RELIED UPON BY THE PARTIES BEFOR E US. 7. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE REFERRED, WE RESPECTFULLY FOLLOWING THE JUDGMENT OF CO-ORDINATE BENCH, HOLD T HAT THE ADDITION MADE BY THE AO AND WHICH WAS SUBSEQUENTLY CONFIRMED BY THE CIT(A) U/S 80IA FOR DISALLOWANCE ARE LIABLE TO BE DELETED . AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 4 TH OF NOV , 2015. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 04.11.2015 SHARWAN P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT.REGISTRAR, ITAT, MUMBAI.