INDIANA ENGINEERING WORKS ( BOMBAY) P.LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 6013/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2670 (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
• Section: 143(3)

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.6013/MUM/2013 ASSESSMENT YEAR: 2010-11 INDIANA ENGINEERING WORKS (BOMBAY) PVT. LTD., INDIANA HOUSE, MAKWANA ROAD, OFF M. VASANJI ROAD, MAROL NAKA, ANDHERI (E), MUMBAI-400059 PAN: AAACI1465N VS. DCIT, RANGE 8(2), 2 ND FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI K.SHIVRAM & RAHUL 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.80 I A IS TO 2 ITA NO. 6013/M/13 INDIANA ENGINEERING WORKS (BOMBAY ) PVT. LTD 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 THERE WERE NO LOSSES OF EARLIER YEARS AS THEY HAD BEEN SE T 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 ENGINEERING WORKS, ERECTION, FABRICATION WORKS A ND GENERATING THE ELECTRICITY THROUGH WINDMILL, FILED ITS RETURN OF INCOME ON 30. 09.2010 DECLARING TOTAL INCOME OF RS . 6,,65,70.546/-.THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY AND WHILE PASSING THE ASSESSMENT ORDER ON 01.11.2012 U/S 143(3) OF TH E INCOME-TAX ACT, 1961 (THE ACT), WHILE MAKING ASSESSMENT ORDER U/S 143(3) THE AO DISALLOWED THE DEDUCTION U/S 80IA OF RS. 57,00205/- AGAINST WHICH AN APPEAL WAS FILED AND THE DISALLOWANCE MADE BY THE AO WAS SUSTAINED BY THE CIT(A) IN THE I MPUGNED ORDER DATED 14.12.2012 AGAINST WHICH THE PRESENT APPEAL IS FILE D BEFORE US. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. 4. LD. AUTHORISED REPRESENTATIVE (AR) OF THE ASSESS EE STRONGLY RELIED UPON THE JUDGMENT OF CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN ITA NOS. 7944, 7946, 2255 AND 7943/MUM/2011 DATED 13.03.2013 HELD AS UNDER: IF THE FIRST YEAR OF CLAIM OF DEDUCTION U/S.80-IA(1 ) IS ITSELF TAKEN AS A INITIAL ASSESSMENT YEAR, THE WHOLE PURPOSE OF THE PROVISI ON GETS DEFEATED; RATHER, 3 ITA NO. 6013/M/13 INDIANA ENGINEERING WORKS (BOMBAY ) PVT. LTD BOTCHED, WHERE THERE IS AN UNABSORBED DEPRECATION / LOSS INCURRED PRIOR TO THAT YEAR, SO THAT THERE IS NO SCOPE FOR THE SAME B EING CARRIED FORWARD AND SET OFF. THERE IS NO RATIONALE FOR SUCH AN EMBARGO OR R ESTRICTION, WHICH IS THUS INCOMPREHENSIBLE IN-AS-MUCH AS IT IS NEITHER BORNE OUT BY THE CLEAR LANGUAGE OF THE PROVISION NOR BY ITS RATIONALE; RATHER, GOES AGAINST ITS GRAIN, BESIDES BEING INCONSISTENT WITH THE MEMORANDUM, EXPLANATORY NOTES AND THE BOARD CIRCULAR EXPLAINING THE PROVISION, WHICH OPERATE AS A CONTEMPORANEA EXPOSITO INASMUCH AS THEY CLARIFY THE LEGISLATIVE INTENT THA T THE AGGREGATION WOULD BE APPLICABLE FOR THE INITIAL, LOSS YEARS. TRUE, THE S AID CIRCULAR IS NOT BINDING ON THE HIGHER COURTS OF LAW, OR THE TRIBUNAL FOR THAT MATTER, BUT ONLY ON THE REVENUE AUTHORITIES. SO, HOWEVER, THE 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 INIT IAL YEARS FOR AGGREGATION; FOR WHICH THOUGH WE SEE NO REASON, GIVEN THE LEGISLATIV E INTENTION AS EXPRESSED AND NOTED HEREINABOVE, AND THE FACT THAT NO DEDUCTI ON 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 'INITIA L ASSESSMENT YEAR', AND OF WHICH THE LEGISLATURE COULD NOT BUT BE CONSIDERED T O 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 SO AS TO DISREGARD THE SAME AS NOT VALID OR ACCEPTABLE. IT 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, THE ASSESSEE ILL T HE 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 IT 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 DEDUCTION U/S. 80-IA(1) FOR SUCH YEAR. FURTHER, EVEN IGNORING THE SAID ARGUMENT, SO THAT S.80-IA(5) APPLIES, THE QUES TION THAT ARISES IS: WHAT IS A RATIONALE IN INCLUDING SOME LOSSES WHILE DISREGAR DING OTHERS? IN FACT, EMPIRICALLY SPEAKING, THE UNABSORBED DEPRECIATION A ND LOSSES WOULD ONLY BE DURING THE INITIAL YEARS OVER WHICH THE CHARGE OF D EPRECIATION IS MORE AND THE BUSINESS IS YET TO STABILISE, SO THAT THE POSSIBILI TY OF UN ABSORBED DEPRECIATION OR LOSSES AFTER THE UNIT'S COMING INTO PROFITS, WHE RE THE BUSINESS IS SUCCESSFUL, RETURNING PROFITS (ONLY WHERE-UPON THE QUESTION OF DEDUCTION U/S.80-IA(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 T HE SUBSEQUENT YEARS FOR SET OFF. THE MORE BASIC QUESTION THAT THOUGH ARISES IS THE ABSENCE OF ANY LEGAL OR LOGICAL (THE RAISON DE'TREI BASIS FOR ARTIFICIALLY SEGREGATING THE LOSSES/UNABSORBED DEPRECIATION FOR THE YEARS PRIOR AND SUBSEQUENT TO THE FIRST YEAR AFORESAID. THE TWO, THEREFORE, CANNOT BE SEGRE GATED 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.80-IA(1) OVER WHICH THE DEEMING OF SECTION 80-IA(5) IS TO BE APPL IED COMMENCES WITH THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR, AND UP TO THE YEAR OF DETERMINATION OF DEDUCTION, ITS STATED PURPOSE IS F OR THE DETERMINATION OF 4 ITA NO. 6013/M/13 INDIANA ENGINEERING WORKS (BOMBAY ) PVT. LTD QUANTUM OF DEDUCTION U/S. 801A(1) FOR THE YEAR IMME DIATELY' SUCCEEDING THE INITIAL ASSESSMENT YEAR (AND NOT THE INITIAL ASSESS MENT 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 (ASS ESSMENT) YEAR. THE FIRST YEAR FOR WHICH THERE COULD BE, IF SO, A LOSS OR UNABSORB ED DEPRECIATION, IS THE FIRST YEAR OF OPERATIONS, SO THAT THE QUESTION OF AGGREGA TION OF INCOME FOR THE PURPOSE OF DETERMINATION OF QUANTUM OF DEDUCTION CO ULD, AT THE EARLIEST, BE THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. IT IS F OR THIS REASON THAT WHILE THE AGGREGATION IS APPLICABLE FROM THE INITIAL ASSE SSMENT YEAR ITSELF (OF-COURSE, UP TO THE YEAR OF DETERMINATION OF DEDUCTION), THE DETERMINATION OF QUANTUM OF DEDUCTION, WHICH IS THE STATED PURPOSE OF THE PR OVISION, IS TO BE FOR OR BEGINS FROM THE YEAR IMMEDIATELY SUCCEEDING THE INI TIAL ASSESSMENT YEAR. ALSO, ONCE THE DEEMING COMMENCES WITH THE INITIAL ASSESSM ENT YEAR, THE AGGREGATION OF INCOME IS TO CONTINUE OVER EVERY SUB SEQUENT 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 T O BE OPERATIVE, AND IS NOT DEPENDENT ON WHETHER DEDUCTION FOR A PARTICULAR YEAR IS BEING CLAIMED OR NOT. THE FIRST YEAR OF DETERMINATION OF DEDUCTION U/S. 8 0IA(1), OR OF RETURNING PROFITS OF THE ELIGIBLE BUSINESS, IGNORING THE LOSS ES, IF ANY, INCURRED PRIOR TO THAT YEAR, OR ASSUMING THE SAME AS HAVING BEEN ABSO RBED AGAINST ANY OTHER INCOME, CAN NOT, THUS, BE CONSIDERED AS THE INITIAL ASSESSMENT YEAR. THIS EMANATES CLEARLY FROM THE LANGUAGE EMPLOYED AND THE RATIONALE OF THE PROVISION, AS EXPLAINED, BESIDES BEING ENDORSED BY THE DECISIONS BY THE TRIBUNAL CITED AND RELIED UPON BY THE PARTIES BEFOR E US. 5. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE PROPOSITION RENDERED IN THE CASE (SUPRA). IT WAS INCUMBENT UPON THE LD. CIT (A) TO FOLLOW THE JUDGMENT OF THIS TRIBUNAL WHEREIN THE SCOPE OF SECTION 80IA WAS EXPLAINED. 6. WE THEREFORE, FOLLOWING THE ORDER OF CO-ORDINATE BENCH IN CASE (SUPRA) DECIDE THIS GROUNDS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 4 TH OF OCTOBER, 2015. SD/- SD/- (R.C.SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 04.11.2015 SHARWAN P.S. 5 ITA NO. 6013/M/13 INDIANA ENGINEERING WORKS (BOMBAY ) PVT. LTD 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.