DCIT, Tiruppur V. Viking Textiles P Ltd., Tiruppur

ITA 604/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4662 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: T BHANUSEKAR
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER APPELLANT BY : MR. S.DAS GUPTA, JCIT RESPONDENT BY : MR. T.BHANUSEKAR, C.A DATE OF HEARING : 28 TH AUGUST, 2013 DATE OF PRONOUNCEMENT : 29 TH AUGUST, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : THESE TWO APPEALS ARE FILED BY THE REVENUE RAISIN G THE FOLLOWING COMMON GROUNDS:- 2. THE DECISION OF THE LEARNED CIT(A) IS NOT JUSTI FIED IN LAW IN A) HOLDING THAT THE INITIAL ASSESSMENT YEAR IN SEC T ION 80IA(5) WOULD ONL Y MEAN THE YEAR OF CLAIM AND NOT THE YEAR OF COMMENCEMENT B) HOLDING THAT APPORTIONING OF INTEREST PAYABLE TO THE E X TENT OF ` 9,45,411/- ON BORROWINGS (FOR ACQUISITION OF PLANT AND M A CHINERY) FROM DISA L LOWING IT FROM THE ITA NO. APPELLANT RESPONDENT ASSESS- MENT YEAR 604 /MDS/2013 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, 121, SIXTY FEET ROAD, TIRUPUR M/S. VIKING TEXTILES P. LTD., 505, AVINASHI ROAD, TIRUPUR-641 603. PAN:AAACV7564P 2009-10 605 /MDS/2013 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, TIRUPUR. M/S. VIKING KNITTERS, 4, VOC NAGAR 1 ST STREET, TIRUPUR-641 602. PAN:AABFV8542R 2009-10 ITA NOS. 618 & 613/MDS//2013 2 WINDMILL DIVISION A ND A DDING IT TO THE SPINNING DIVISION IS IN VIOLATION OF SECTION 14A OF THE IT ACT . 3.( A )THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE C L AIM OF RS.69,51,12 0 /- MADE BY THE ASSESSEE U/S 80LA WITH DIRECTIONS TO THE ASSESS ING OFFICER TO COMPUTE THE PROFITS U/S 80IA(5) AS IF SUCH E LI G IBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE AND ONLY THE LOSSES OF T HE YEARS BEGINNING FROM THE INITIAL ASSESSMENT YEAR (C HO S EN B Y THE ASSESSEE F O R INITI AL C L AIM OF DEDUCT I ON U/S 80 1A) A R E TO BE NOTIONALLY BROUGHT FORWARD AND NOT LOSSES OF EARLIER YEARS W HI C H HAVE ALREADY BEEN SET-OFF AGAINST THE INCOME OF THE ASSESSE E . 4.(A ) T H E LEARNED CIT(A) WHILE DECIDING THE CASE OUGHT TO HAV E CONSIDERED THAT THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M / S SRI VELAYUDHASAMY SPINNING MIL L S (P) L TD IN 231CTR 368 RAISING I DENTICA L ISS U E I S CH A LL E N GED BY THE REVENUE BY WAY OF FILING SPECIA L LEAVE PETITION TO THE SUPREME COURT . 5. B ) THE LEARNED CITCA) SHOULD HAVE CONSIDERED THAT HAVING CO NSID ER ED THE INITIAL A.Y. AS 2009-10 THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80LA FROM THE PROFITS OF THE ELIGIBLE BUSINESS ( WINDMILL DIVISI ON) ONLY AND HENCE THE A.O. HAD DISALLOW E D EX PENDITURE (INTEREST ON BORROWINGS) FROM THE WINDMILL DIVISION R E L A T E D TO THE SPINNING DIVISION IN AR R IVING AT THE PROFITS OF THE W INDMILL DIVISION . 6) TH E LEARNED CIT(A) OUGHT TO HAVE CONSID E RED THAT SECTION 14 A I S NOT INVOKED BY THE A . O. BUT ONLY APPORTIONING OF INTEREST IS DONE AS PER THE PROVISI ONS OF SECTION 36(I)(III) OF THE ACT. ITA NOS. 618 & 613/MDS//2013 3 2. AT THE TIME OF HEARING, THE COUNSEL FOR THE ASSE SSEE SUBMITS THAT THE ISSUES IN APPEAL ARE SQUARELY COVE RED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAMRAJ HANDLOOM IN ITA NO.585/MDS/2013 VIDE ORDE R DATED 26 TH JUNE, 2013. A COPY OF THE ORDER IS PLACED ON RECORD. 3. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE OR DER OF THE ASSESSING OFFICER. 4. HEARD BOTH SIDES. PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE DECISION OF THIS TRIBUNAL RELIE D ON BY THE COUNSEL FOR THE ASSESSEE. WE HAVE GONE THROUGH THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL PLACED ON RE CORD AND FIND THAT THE ISSUES IN THE APPEALS ARE SQUARELY CO VERED BY THE SAID DECISION. THE TRIBUNAL WHILE DECIDING THE ISSU ES OBSERVED AS UNDER:- 2. THE ASSESSEES ARE ENGAGED IN THE BUSINESS OF MANUFACTURING/PURCHASE/SALE OF CLOTH OR SPINNING AN D GENERATION OF POWER THROUGH WIND MILL. WHILE COMP LETING ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT), THE ASSESS ING OFFICER HELD THAT THE ASSESSEES ARE NOT ENTITLED TO CLAIM D EDUCTION U/S. 80IA AS THEY HAVE VIOLATED THE PROVISIONS OF S ECTION 80IA(5) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS REQUIRED TO COMPUTE PROFITS OF THE ELIGIBLE ITA NOS. 618 & 613/MDS//2013 4 BUSINESS AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY S OURCE OF INCOME OF THE ASSESSEE FROM THE INITIAL ASSESSMENT YEAR (AY) ONWARDS I.E., THE YEAR IN WHICH THE ASSESSEE COMMENCES THE ELIGIBLE BUSINESS. THE ASSESSING OFF ICER HELD THAT THE ASSESSEES HAVE WRONGLY TAKEN THE INIT IAL AY, THE YEAR IN WHICH ASSESSEE BEGINS TO CLAIM DEDUCTIO N U/S. 80IA OF THE ACT AND ADDED BACK THE ENTIRE AMOUNT OF PROFITS AVAILABLE ON WINDMILLS. 3. THE OTHER ISSUE IN THESE APPEALS RELATES TO DIS- ALLOWANCE OF INTEREST UNDER RULE 8D. THE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT DIS-ALLOWED INT EREST OF SPINNING MILL DIVISION ALLEGING THAT PROPORTIONA TE INTEREST IS TO BE ALLOCATED TO THE WIND MILL DIVISION. THE ASSESSING OFFICER ACCORDINGLY REDUCED THE PROFIT ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT. 4. SHRI P. PEERYA, CIT REPRESENTING THE REVENUE SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN HOLDIN G THAT THE INITIAL AY IN SECTION 80IA(5) WOULD ONLY MEAN T HE YEAR OF CLAIMING DEDUCTION AND NOT THE YEAR OF COMMENCEM ENT. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FURTHER SUBMITTED THAT THE CIT(APPEALS) HAS ERRED IN DIRECT ING THE ASSESSING OFFICER TO COMPUTE THE PROFITS U/S. 80IA( 5) AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE AND ONLY THE LOSSES OF THE YEARS BEGINNING FROM THE INITIAL AY AS CHOSEN BY THE ASSESSEE FOR CLAIMI NG INITIAL DEDUCTION U/S. 80IA BROUGHT FORWARDED AND NOT LOSSE S OF THE EARLIER YEARS WHICH HAVE ALREADY BEEN SET-OFF A GAINST THE INCOME OF THE ASSESSEE. THE LD. DR CONTENDED T HAT THE PROVISIONS OF SECTION 14A R.W. RULE 8D HAVE NOT BEEN INVOKED BY THE AO. IT IS ONLY APPORTIONMENT OF THE INTEREST WHICH HAS BEEN DONE IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 36(1)(III) OF THE ACT. 5. ON THE OTHER HAND, SHRI T. BHANUSEKHAR, APPEARING ON BEHALF OF THE ASSESSEE STRONGLY SUPPORTED THE OR DER OF THE CIT(APPEALS). THE LD. AUTHORISED REPRESENTATIVE (AR) CONTENDED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS VS. ACIT REPORTED AS 340 ITR 477. THE LD. AR ON DISALLOWANCE OF INTEREST UNDER RULE 8D SUBMITTED TH AT THE AMOUNT FROM ACCUMULATED SURPLUS OF EARLIER YEARS HA S BEEN INVESTED IN WINDMILL DIVISION. THE AMOUNT OF ACCUMULATED RESERVES AND CAPITAL ARE IN MUCH EXCESS OF ITA NOS. 618 & 613/MDS//2013 5 THE AMOUNT OF BORROWINGS. THEREFORE, THERE IS NO Q UESTION OF BORROWING AND PAYING INTEREST FOR WINDMILLS DIVI SION. THE LD. AR PRAYED FOR DISMISSAL OF THE APPEALS OF T HE REVENUE. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVE OF BOTH THE SIDES AND HAVE ALSO PERU SED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISIONS RELIED UPON BY THE AR. ON THE BASIS OF THE SUBMISS IONS MADE BUY THE LD. DR, TWO ISSUES HAVE EMERGED: 1. DETERMINATION OF INITIAL ASSESSMENT YEAR A ND DEDUCTION UNDER THE PROVISIONS OF SECTION 80IA; 2. APPORTIONMENT OF INTEREST ON BORROWINGS BET WEEN THE TWO SEPARATE DIVISIONS. BEFORE ADVERTING TO THE FA CTS OF THE PRESENT CASE, IT WILL BE RELEVANT TO SEE THE PROVIS IONS OF SECTION 80IA. THE RELEVANT EXTRACTS OF SECTION 80I A ARE RE-PRODUCED BELOW: 80-IA . [(1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING OR AN ENTERPRISE FROM ANY BUSINESS REFERRED TO IN S UB- SECTION (4) (SUCH BUSINESS BEING HEREINAFTER REFERR ED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUC TION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFI TS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSECUTIV E ASSESSMENT YEARS.] (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY, AT THE OPTION OF THE ASSESSEE, BE CLAIMED BY HIM FOR ANY T EN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY OR STARTS PROVIDING TELECOM MUNICATION SERVICE OR DEVELOPS AN INDUSTRIAL PARK [OR DEVELOPS [***] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) O F SUB- SECTION (4)] OR GENERATES POWER OR COMMENCES TRANSMISSION OR DISTRIBUTION OF POWER [OR UNDERTAKE S SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXI STING TRANSMISSION OR DISTRIBUTION LINES [***]] : (3) XXXXX (4) XXXXX (5) 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 ITA NOS. 618 & 613/MDS//2013 6 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 I NITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WH ICH THE DETERMINATION IS TO BE MADE. A COMBINED READING OF ABOVE PROVISIONS LEADS TO THE CONCLUSION THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFIT & GAINS DERIVED BY AN UNDERTAKING FROM ANY ELIGIBLE BUSINESS AS REFERRED TO IN SUB-SECTION (4) OF SECTION 80IA, THERE SHALL, IN AC CORDANCE WITH THE PROVISIONS OF THE SECTION, BE ALLOWED IN C OMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION EQUAL TO 100% OF THE PROFITS AND GAINS DERIVED FROM SUCH ELI GIBLE BUSINESS FOR THE PERIOD OF 10 CONSECUTIVE ASSESSMEN T YEARS OUT OF THE BLOCK OF 15 YEARS AT THE OPTION O F THE ASSESSEE. THE TERM INITIAL ASSESSMENT YEAR MEANS, THE ASSESSMENT YEAR SPECIFIED BY THE ASSESSEE AT HIS OP TION TO BE THE INITIAL YEAR. BUT IT DOES NOT FALL BEYON D THE 15 TH AY STARTING FROM THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY. THE ISSUE HAS BEEN DECIDE D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS VS. ACIT (SUPRA), THE RELEVANT EXTRACT OF THE ORDER IS RE-PRODUCED BELOW: THE WORDS 'INITIAL ASSESSMENT YEAR' ARE USED IN SUB-S. (5) AND THE SAME IS NOT DEFINED UNDER THE PROVISIONS. IT IS TO BE NOTED THAT 'INITIAL ASSESSM ENT YEAR' EMPLOYED IN SUB-S. (5) IS DIFFERENT FROM THE WORDS 'BEGINNING FROM THE YEAR' REFERRED TO IN SUB-S. (2) . IMPORTANT FACTORS ARE TO BE NOTED IN SUB-S. (5) AND THEY ARE AS UNDER : '(1) IT STARTS WITH NON OBSTANTE CLAUSE WHICH MEANS IT OVERRIDES ALL THE PROVISIONS OF THE ACT AND OTHER P ROVISIONS ARE TO BE IGNORED; (2) IT IS FOR THE PURPOSE OF DETERMINING THE QUANTU M OF DEDUCTION; ITA NOS. 618 & 613/MDS//2013 7 (3) FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR; (4) IT IS A DEEMING PROVISION; (5) FICTION CREATED THAT THE ELIGIBLE BUSINESS IS T HE ONLY SOURCE OF INCOME; AND (6) DURING THE PREVIOUS YEAR RELEVANT TO THE INITIA L ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEAR.' FROM READING OF THE ABOVE, IT IS CLEAR THAT THE ELI GIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR RELEVANT TO INITIAL ASSESSMENT YEAR A ND EVERY SUBSEQUENT ASSESSMENT YEARS. WHEN THE ASSESSE E EXERCISES THE OPTION, THE ONLY LOSSES OF THE YEARS BEGINNING FROM INITIAL ASSESSMENT YEAR ALONE ARE TO BE BROUGHT FORWARD AND NO LOSSES OF EARLIER YEARS WHIC H WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE I NITIAL ASSESSMENT IS CONTEMPLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS A NY LOSS OF EARLIER YEARS AND BRING FORWARD NOTIONALLY EVEN THOUGH THE SAME WERE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AND THE SET OFF AGAINST THE CURRENT INCOME OF THE ELIGIBLE BUSINESS. ONCE THE SET OFF IS TAKEN PLACE IN EARLIER YEAR AGAINST THE OTHER INCOME OF THE ASSESSEE, THE REVENUE CANNOT REWORK THE SET OFF AMOUNT AND BRING IT NOTIONALLY. FICTION CREATED IN SUB-SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUNT NOTIONALLY. FI CTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME C ANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREA TED. THUS, WE FIND THAT THE CASE OF THE ASSESSEE IS SQUA RELY COVERED BY THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS VS. ACIT (SUPRA). WE DO NOT FIND ANY INFIRMITY IN THE FINDI NGS OF THE CIT(APPEALS) ON THIS ISSUE. ACCORDINGLY, THIS GROU ND OF APPEAL OF THE REVENUE IS DISMISSED. 7. THE SECOND GROUND OF APPEAL RELATES TO THE INTEREST ON BORROWINGS. THE LD. AR HAS STATED THAT THE ASSE SSEE HAD TAKEN LOAN FROM THE BANK FOR SPINNING MILL DIVI SION AND WAS UTILIZED FOR THE SAME. THE LOAN IS CLEARLY IDE NTIFIABLE. THE CIT(APPEALS) HAS GIVEN A WELL REASONED FINDING THAT ITA NOS. 618 & 613/MDS//2013 8 THE PROVISIONS OF SECTION 14A ARE APPLICABLE ONLY F OR EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME AND NOT WITH RESPECT TO INCOME ELIGIBLE FOR DEDUCTION. MOREOVER, IN VIEW OF THE FACT THAT THE LOAN AMOUNT WAS UTILIZED BY THE ASSESSEE FOR THE PURPOSE FOR WHICH IT WAS TAKEN THERE IS NO REASON FOR MAKING PROPORTIONATE DIS-ALLOWANCE IN THE INTEREST. WE CO NCUR WITH THE REASONED FINDINGS OF THE CIT(APPEALS) ON T HIS ISSUE. ACCORDINGLY, THIS GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. IN THE RESULT, ALL THE FIVE APPEALS OF THE REV ENUE ARE DISMISSED BEING DEVOID OF MERIT. 5. AS THE ISSUES ARE IDENTICAL, RESPECTFULLY FOLLOW ING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE REJECT THE GROUNDS RAISED BY THE REVENUE IN BOTH THESE APP EALS. 6. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, T HE 29 TH DAY OF AUGUST, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE ) (CHALLA NA GENDRA PRASAD) ACCOUNTANT MEMBER J UDICIAL MEMBER CHENNAI, DATED THE 29 TH AUGUST, 2013. SOMU COPY TO: (1) ASSESSEE (4) CIT(A) (2) ASSESSING OFFICER (5) D.R. (3) CIT (6 ) G.F.