SUPREME ENTERPRISES, MUMBAI V. ADDL CIT 2(3), MUMBAI

ITA 8592/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3068 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 06-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 19-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: IT SR; ASHWANI RAI INSPEC TOR O
• Assessee Lawyers: S M AGRAWAL
• Keywords: Depreciation; Capital receipt; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.8592/M/2011 ASSESSMENT YEAR: 2006-07 M/S. SUPREME ENTERPRISES, GROUND FLOOR, REGENT CHAMBER, 208, NARIMAN POINT, MUMBAI 400 021 PAN: AAAFS 7716D VS. ADDL. CIT 2(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI S.M. AGRAWAL, A.R. REVENUE BY : SHRI ASHWANI RAI, (INSPEC TOR O & IT ) ON BEHALF OF SR. A.R. SHRI NEIL PHILIP, D.R. DATE OF HEARING : 06.10.2015 DATE OF PRONOUNCEMENT : 16.10.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 15.09.2011 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2008-09. THE APPEAL WAS EARLIER HEARD ON 17.06.2015 AND WAS REHEARD ON 06.1 0.2015 FOR SEEKING CERTAIN CLARIFICATIONS FROM THE ASSESSEE. THERE ARE TWO ISS UES INVOLVED IN THIS APPEAL. THE FIRST ISSUE IS IN RESPECT OF CLAIM OF DEDUCTION U /S. 80IA(4)(IV) FOR GENERATING POWER BY WIND MILLS. THE ASSESSEE IN THIS RESPECT H AS TAKEN THE FOLLOWING GROUNDS: (I) THE LEARNED ASSESSING OFFICER HAS ERRED IN DISA LLOWING CLAIM OF DEDUCTIONS AMOUNTING TO RS. 6,00,078/- U/S. 801A(4)(IV) READ W ITH SECTION 80 IA (2) FOR ASSESSMENT YEAR 2006-2007 ON ACCOUNT OF PROFITS EAR NED BY GENERATING POWER BY WIND MILLS ON THE GROUNDS THAT ELIGIBLE INCOME FOR ASSESSMENT YEAR 2006-2007 IS ITA NO.8592/M/2011 M/S. SUPREME ENTERPRISES 2 ADJUSTED AGAINST THE DEEMED NOTIONAL LOSSES OF EARL IER YEAR. II) THE LEARNED ASSESSING OFFICER HAS ERRED IN OVER LOOKING THAT ASSESSEE HAS BEEN GIVEN AN OPTION TO CLAIM DEDUCTIO N FOR ANY 10 CONSECUTIVE YEARS OUT OF 15 YEARS AND ASSESSEE STARTED CLAIMING DEDUC TION FROM ASSESSMENT YEAR 2005-2006 AND THEREFORE INITIAL YEA R FOR DEDUCTION SHOULD BE CONSIDERED, THE ASSESSMENT YEAR 2005-2006 AND THE Q UESTION OF ADJUSTING DEEMED LOSS FROM EARLIER YEARS PRIOR TO ASSESSMENT YEAR 2005-2006 DOES NOT ARISE. III) THE LEARNED ASSESSING OFFICER HAS ERRED IN IGN ORING THAT SECTION 80IA(2) HAS COME INTO FORCE WITH EFFECT FROM 01.04. 2000 GIVING OPTION TO THE ASSESSEE TO CLAIM DEDUCTION FOR ANY 10 CONSECUTIVE ASSESSMENT YEAR OUT OF 15 YEARS AND THEREFORE ERRED IN APPLYING JUDGMENT OF S PECIAL BENCH (AHMEDABAD) IN THE CASE OF ASST CIT V GOLD MINE SHARES & FINANCE P LTD (2008) 113 ITD 209 WHICH IS APPLICABLE FOR ASSESSMENT YEAR 1997-1998 W HEN UNDER OLD PROVISIONS OF 80IA WERE THE PROVISIONS OF THE OPTIO N OF 10 CONSECUTIVE YEARS OUT OF 15 YEARS WAS NOT THERE. 2. REFERRING TO THE ABOVE GROUNDS OF APPEAL, THE L D. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DED UCTION U/S 80-IA OF THE ACT IN RESPECT OF THE PROFITS OUT OF THE GENERATION OF ELE CTRICITY OUT OF WINDMILL ACTIVITY AND THE UNABSORBED DEPRECIATION OF THE EAR LIER YEARS, SINCE ALREADY SET OFF WITH THE INELIGIBLE PROFITS OF THE ASSESSEE FRO M HOTEL BUSINESS, COULD NOT BE REDUCED FROM PROFITS OF ELIGIBLE BUSINESS FOR COMPU TING DEDUCTION U/S 80-IA OF THE ACT. THE LD AR OF THE ASSESSEE HAS FURTHER STAT ED THAT THIS ISSUE IS SQUARELY IN FAVOUR OF THE ASSESSEE BY A SERIES OF DECISIONS AS MENTIONED BELOW: (A ) VELAYUDHASWAMY SPINNING MILLS PVT. LTD. VS. ACIT (2010) 231 CTR (MAD) :[2012] 340 ITR 477 (MAD) (HIGH COURT) (AFTER CONSIDERING SPECIAL BENCH DECISION). (B) CIT VS. EMRALD JEWEL INDUSTRY P. LTD. [2011] 53 DTR 263 (MAD) (HIGH COURT) (AFTER CONSIDERING THE ABOVE DECISION) (C) M/S PRASHANT CATERERS VS. ITO ITA NO. 4226/M/20 11 DECIDED ON 6.02.2013 (MUMBAI TRIBUNAL) 3. FURTHER, THE LD AR HAS MENTIONED THAT IN THE D ECISIONS OF HON'BLE MADRAS HIGH COURT, THE SPECIAL BENCH DECISION IN TH E CASE OF ACIT VS. GOLD ITA NO.8592/M/2011 M/S. SUPREME ENTERPRISES 3 MINE SHARES AND FINANCE (P) LTD. 113 ITD 209(SB), W HICH IS HEAVILY RELIED UPON BY THE LD CIT (A) WHILE DISMISSING THE APPEAL OF THE ASSESSEE, HAS BEEN DULY CONSIDERED. THE LD. DR ON THE OTHER HAND HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES ON THIS ISSUE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. WE F IND THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPI NNING MILLS (P) LTD. VS. ACIT (2010) 231 CTR (MAD) 368 (BCAJ) HAS HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR 10 CONSECUTIVE YEAR S OUT OF 15 YEARS AND THAT INITIAL YEAR OF BENEFIT CAN BE OPTED BY THE ASSESSE E. LOSSES AND DEPRECIATION OF THE YEARS EARLIER TO THE INITIAL ASSESSMENT YEAR WH ICH HAVE ALREADY BEEN ABSORBED AGAINST PROFITS OF OTHER BUSINESSES CANNOT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE ELIG IBLE BUSINESS FOR COMPUTING THE DEDUCTION U/S.80-IA. SIMILAR VIEW HAS BEEN TAK EN IN THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. EM ERALD JEWEL INDUSTRY P. LTD (SUPRA) AND BY THE MUMBAI TRIBUNAL IN THE CASE OF M/S PRASHANT CATERERS VS. ITO (SUPRA). RESPECTFULLY FOLLOWING THE SAME, T HIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. THE AO IS DIRECT ED TO ALLOW THE CLAIM OF DEDUCTION IN THE LIGHT OF THE ABOVE STATED DECISION S. 5. THE OTHER ISSUE TAKEN BY THE ASSESSEE IS RELATI NG TO THE TAXABILITY OF THE DIFFERENCE BETWEEN THE AMOUNT PAID LESS I.E. AT NET PRESENT VALUE AND FUTURE LIABILITY ON ACCOUNT OF INCENTIVE GIVEN BY THE STAT E GOVT. OF DEFERRED SALES TAX LIABILITY. THE RELEVANT GROUND READ AS UNDER: GROUND NO.(IV) IV) THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT ALLOWING CLAIM OF APPELLANT OVERLOOKING THAT APPELLANT WAS ALLOWED BENEFIT BY S ALES TAX DEPARTMENT BY WHICH SALES TAX PAYMENT WAS DEFERRED FOR 10 YEARS TO ENCO URAGE INSTALLATION OF WIND MILLS AND UNDER THE SCHEME THE ASSESSEE WAS ALLOWED TO PA Y THE SALES TAX LIABILITY AT A DISCOUNTED VALUE OR AT NET PRESENT VALUE AND THE DI FFERENCE BETWEEN ITA NO.8592/M/2011 M/S. SUPREME ENTERPRISES 4 FUTURE LIABILITIES AND THE PRESENT DISCOUNTED VALUE OF THE SAME CAN NOT BE CONSIDERED AS TAXABLE INCOME AMOUNTING TO RS.13, 00,700/- FOR THE YEAR ENDING 31.03.2005 AND RS. 13,25,970/- FOR THE YEAR ENDING 31.03.2006 TAKEN AS INCOME IN PROFIT & LOSS ACCOUNT FOR ASSESS MENT YEAR 2006-2007. 6. THE ISSUE RAISED VIDE GROUND NO.(IV) IS AS TO W HETHER THE AMOUNT OF INCENTIVE GRANTED BY STATE GOVERNMENT UNDER PACKAGE SCHEME OF INCENTIVE AND UNDER POWER GENERATION PROMOTION POLICY, 1998 SHOUL D BE TREATED AS CAPITAL RECEIPT OR TAXABLE REVENUE RECEIPT. THE ASSESSEE W AS ALLOWED BENEFIT BY SALES TAX DEPARTMENT BY WHICH THE SALES TAX PAYMENT WAS D EFERRED FOR 10 YEARS TO ENCOURAGE THE INSTALLATION OF WIND MILLS FOR THE GE NERATION OF ELECTRIC POWER UNDER THE SCHEME. HOWEVER, THE ASSESSEE WAS ALLOWE D TO PAY THE DEFERRED/FUTURE SALES TAX LIABILITY PREMATURELY/DUR ING THE YEAR UNDER CONSIDERATION AT DISCOUNTED VALUE I.E. AT NET PRESE NT VALUE. THE AO, HOWEVER, TAXED THE DIFFERENCE BETWEEN THE FUTURE LIABILITY A ND THE PRESENT DISCOUNTED VALUE AS INCOME OF THE ASSESSEE. AT THE OUTSET, THE LD. A.R. OF THE ASSESSEE HAS BRO UGHT OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RELIANCE INDUSTRIES LTD. (2011) 339 ITR 632 (BOM.) WHEREIN THE HONBLE BOMBAY HIGH COURT, WHILE RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICALS LTD . (2008) 306 ITR 392 (SC), HAS HELD THAT IF THE OBJECT OF THE SUBSIDY WA S TO SET UP A NEW UNIT IN A BACKWARD AREA TO GENERATE EMPLOYMENT THEREIN, THEN THE SUBSIDY WAS TO BE TREATED ON CAPITAL ACCOUNT AND THE SALES TAX INCENT IVE WAS TO BE TREATED AS CAPITAL RECEIPT. 7. THE LD. AR OF THE ASSESSEE HAS FURTHER SUBMITTED THAT EVEN OTHERWISE IT COULD NOT BE CONSTRUED AS REMISSION OF LIABILITY, B ECAUSE THE STATE GOVERNMENT HAD NOT WAIVED OF ANY OF THE LIABILITY. HAD THE STA TE GOVERNMENT ACCEPTED LESSOR AMOUNT AFTER TWELVE YEARS OR REDUCED SUCH IN STALLMENTS, THEN IT COULD HAVE BEEN A CASE OF REMISSION/CESSATION. IT WAS A S IMPLE CASE OF COLLECTING THE ITA NO.8592/M/2011 M/S. SUPREME ENTERPRISES 5 AMOUNT AT NET PRESENT VALUE WHICH WAS DUE LATER ON. THEREFORE, SUCH PAYMENT OF NET PRESENT VALUE OF A FUTURE LIABILITY COULD NO T BE CLASSIFIED AS REMISSION OR CESSATION OF THE LIABILITY. 8. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. SULZER INDIA LTD. IN ITA NO.450 OF 2013 AND OTHER S DECIDED ON DECEMBER, 5 TH , 2014 HAS HELD THAT THE DIFFERENCE BETWEEN THE NET PRESENT VALUE OF SALES TAX LIABILITY AND ITS FUTURE LIABILITY IS NOT CHARGEABL E TO TAX UNDER SECTION 41(1) OF THE ACT. IT HAS BEEN HELD THAT WHAT THE ASSESSEE W AS REQUIRED TO PAY AFTER 12 YEARS IN SIX EQUAL INSTALLMENTS WAS PAID BY THE ASS ESSEE PREMATURELY IN TERMS OF THE NET PRESENT VALUE OF THE SAME; THAT THE STATE M AY HAVE RECEIVED A HIGHER SUM AFTER THE PERIOD OF 12 YEARS AND IN INSTALLMENT S. HOWEVER, THE STATUTORY ARRANGEMENT FOR PREMATURE PAYMENT AT NET PRESENT VA LUE DOES NOT AMOUNT TO REMISSION OR CESSATION OF THE ASSESSEES LIABILITY, RATHER, THE STATE OBTAINS A PAYMENT PREMATURELY AND IN TERMS OF THE CORRECT VAL UE OF THE DEBT DUE TO IT. THE REQUIREMENTS OF SECTION 41(1)(A) ARE NOT FULFIL LED IN SUCH CIRCUMSTANCES. 9. ADMITTEDLY, IN THE CASE IN HAND, THE SALES TAX I NCENTIVE WAS GRANTED TO THE ASSESSEE UNDER PACKAGE SCHEME OF INCENTIVE AND UNDER POWER GENERATION PROMOTION POLICY, 1998 TO ENCOURAGE THE INSTALLATIO N OF WIND MILL FOR GENERATION OF ELECTRIC POWER. THE SALES TAX LIABIL ITY WAS DEFERRED WHICH WAS ALLOWED TO BE PAID AT A DISCOUNTED VALUE I.E. AT NE T PRESENT VALUE OF THE FUTURE LIABILITY. HENCE, UNDER THE CIRCUMSTANCES, THE SAL ES TAX INCENTIVE BEING PROVIDED TO THE ASSESSEE TO ENCOURAGE THE SETTING U P OF THE WIND MILL THUS IS TO BE TREATED AS CAPITAL RECEIPT. HOWEVER, THE SAME, EVEN OTHERWISE ALSO, CANNOT BE TREATED AS REMISSION OR CESSATION OF LIABILITY I N THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SULZE R INDIA LTD. (SUPRA). SO, THIS ISSUE IS ALSO SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. ITA NO.8592/M/2011 M/S. SUPREME ENTERPRISES 6 10. IN VIEW OF THE ABOVE OBSERVATIONS, THE APPEAL O F THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.10.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.10.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.