ADDL CIT RG 2(1), MUMBAI V. BAJAJ ELECTRICALS LTD, MUMBAI

ITA 909/MUM/2011

• Counselvise Citation: 90919914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Keywords: Business income; Depreciation; Revised return; Unabsorbed depreciation
• Section: 143(3); 32

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI G.S. PANNU, AM AND SHRI AMIT SHUKLA, JM . / I.T.A. NO. 909/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 DCIT 2(1), AAYAKAR BHAVAN, R. NO. 575, 5 TH FLOOR, M.K. ROAD, MUMBAI 400 020. VS. M/S BAJAJ ELECTRICALS LIMITED, 45-47, BOMBAY LIFE BUILDING, VEER NARIMAN ROAD, FORT, MUMBAI- 400 001 PAN : AAACB2484Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI S.J. SINGH, CIT -DR ASSESSEE BY : SHRI KIRIT KAMDAR DATE OF HEARING 7-05-2015 DATE OF PRONOUNCEMENT 15-05-2015 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 11-11-2010, PASSED BY THE LD. CIT(A), MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEAR 2006-07, ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE U NABSORBED DEPRECIATION OF THE PERIOD PRIOR TO THE OPTED INITI AL ASSESSMENT SHALL BE IGNORED WHILE COMPUTING DEDUCTION UJS.80IA IN RESPECT OF INCOME FROM WINDMILL BUSINESS WITHOUT APPRECIATING THAT UJS.80IA (5) DEDUCTION UJS.80IA OF THE ELIGIBLE BUSINESS SHA LL BE COMPUTED AS IF SUCH BUSINESS WERE THE ONLY SOURCE OF INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD.CIT(A) FAILED TO APPRECIATE THAT IN VIEW OF THE PROVISIONS ITA 909/MUM/2011 2 OF 80IA(5) THE ELIGIBLE BUSINESS BEING THE ONLY SO URCE OF INCOME OF THE ASSESSEE, THE UNABSORBED DEPRECIATION RELATABLE TO SUCH BUSINESS IS TO BE TAKEN INTO CONSIDERATION WHILE CO MPUTING DEDUCTION U/S.80IA. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF VARIOU S ELECTRICAL AND CONSUMER APPLIANCES. IT HAS SET UP A WIND MILL DIVI SION AND INSTALLED WIND MILLS AT VANKUSAWADE, VILLAGE SITARA DIST, MAH ARASHTRA. THE SAID WIND MILL WAS COMMISSIONED IN SEPTEMBER, 1999. IN R EVISED RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 1 ,45,86,123/- U/S 80- IA (4) FOR THE A.Y. 2006-07. THE ASSESSEE IN ITS NO TE FILED ALONG WITH THE COMPUTATION OF REVISED RETURN OF INCOME, STATED THA T THE ASSESSMENT YEAR 2005-06 WAS CHOSEN BY THE ASSESSEE AS A FIRST YEAR FOR CLAIMING THE DEDUCTION EVEN THOUGH IT WAS 6 TH YEAR OF OPERATION OF THE WIND MILL. SINCE THERE WAS NO TAXABLE INCOME AFTER SET OFF OF UNABSORBED DEPRECIATION OF EARLIER YEAR, THEREFORE, DEDUCTION U/S 80IA OF THE ACT WAS CLAIMED IN THE RETURN OF INCOME FOR THE A.Y. 2005-0 6. THE A.O. NOTED THAT WHILE CLAIMING THE DEDUCTION OF RS. 1,45,86,12 3/- IN THE A.Y. 2006- 07, THE ASSESSEE HAS IGNORED THE SET OFF OF UNABSOR BED DEPRECIATION OF EARLIER YEARS OF THE WIND MILL UNIT AMOUNTING TO RS . 4,47,29,590/- AGAINST THE PROFITS OF THE DIVISION FOR THE YEAR. THE A.O. REJECTED THE ASSESSEES CLAIM FOR A.Y. 2005-06. THE ASSESSEES S UBMISSION IN THIS REGARD, BEFORE THE A.O. WERE AS UNDER:- WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT IF AT ALL DEPRECIATION UNDER SECTION 32 IS TO BE DEDUCTED ONL Y THE DEPRECIATION CLAIMED AND ALLOWED UNDER SECTION 32 F OR THE RELEVANT ASSESSMENT YEAR VIZ. ASSESSMENT YEAR 2005-06 OUGHT TO BE CONSIDERED AND UNABSORBED DEPRECIATION OF WINDMILL FOR EARLIER ASSESSMENT YEARS IS NOT TO BE DEDUCTED EVEN AFTER C ONSIDERING THE PROVISIONS OF SECTION 80-IA (5). THIS IS BECAUSE TH E TERM 'INITIAL ASSESSMENT YEAR' FOR THE PURPOSE OF ALLOWING DEDUCT ION UNDER SECTION. 80-IA OUGHT TO BE CONSIDERED AS THE FIRST YEAR IN WHICH THE COMPANY EXERCISES THE OPTION OF CLAIMING DEDUCTION UNDER THE SAID SECTION VIZ. ASSESSMENT YEAR 2005-06 AND NOT T HE FIRST YEAR IN WHICH THE UNIT STARTS GENERATING POWER.' ITA 909/MUM/2011 3 3. HOWEVER, THE A.O. REJECTED THE ASSESSEES CLAIM FOR TREATING THE A.Y. 2005-06 AS INITIAL ASSESSMENT YEAR FOR CLAIMING DED UCTION U/S 80IA OF THE ACT ON THE GROUND THAT THE YEAR OF THE OPERATIO N OF THE UNIT WAS A.Y. 2000-01. AFTER DISCUSSING THE PROVISIONS OF SUB-SEC TION (5) OF SECTION 80IA OF THE ACT, HE HELD THAT UNABSORBED DEPRECIATI ON OF ELIGIBLE BUSINESS CANNOT BE IGNORED AND THE AMOUNT OF UNABSORBED DEPR ECIATION OF RS. 4,47,29,590/- HAS TO BE SET OFF AGAINST THE PROFIT OF THE WIND MILL UNIT AND STILL AVAILABLE TO THE ASSESSEE IN THE BOOK BEF ORE COMPUTING THE INCOME. ACCORDINGLY, HE DISALLOWED THE CLAIM OF DED UCTION OF RS. 1,45,86,123/- U/S 80IA OF THE ACT. 4. BEFORE THE LD. CIT(A), THE ASSESSEE STRONGLY REL IED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUD HASWAMY SPINNING MILLS (P) LTD. VS. ACIT [2012] 340 ITR 477 (MAD.). THE LD. CIT(A) AFTER REFERRING TO THE VARIOUS OBSERVATIONS OF HONBLE HI GH COURT AND FOLLOWING THE RATIO, HELD THAT THERE IS NO QUESTION OF NOTION ALLY BRINGING FORWARD AND SETTING OF THE UNABSORBED DEPRECIATION OR LOSS AGAINST THE CURRENT YEARS INCOME FROM THE UNITS FOR WHICH THE ASSESSEE IS CLAIMING DEDUCTION U/S 80IA OF THE ACT. 5. BEFORE US, THE LD. D.R. STRONGLY RELIED UPON THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF CIT VS. GOLDMI NE SHARES AND FINANCE (P) LTD. [2008] 302 ITR (AT) 208 (AHD.)[SB] AND SUBMITTED THAT THE SPECIAL BENCH AFTER DETAILED DISCUSSION DECIDED THIS ISSUE IN FAVOUR OF THE DEPARTMENT. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THIS ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSE SSEE NOT ONLY BY THE DECISION OF HONBLE MADRAS HIGH COURT AS REFERRED B Y THE LD. CIT(A) BUT ALSO BY THE DECISION OF HONBLE KARNATAKA HIGH COUR T AND HOST OF OTHER DECISIONS OF THE CO-ORDINATE BENCH OF THE ITAT. TH E LIST OF DECISIONS RELIED UPON BY THE LD. COUNSEL BEFORE US ARE AS UND ER:- ITA 909/MUM/2011 4 1. COPY OF THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD VS. ACIT [2012] 340 ITR 477 (MAD) DATED 11 MARCH 2010. 2. COPY OF THE DECISION OF THE KARNATAKA HIGH COU RT IN THE CASE OF CIT & DCIT VS. ANI! H. LAD [2014] 102 DTR 241 (KAR) DATED 5 FEBRUARY 2014 3. COPY OF THE DECISION OF THE BANGALORE TRIBUNAL IN THE CASE OF ANIL H. LAD VS. DCIT [2012] 13 ITR(TRIB) 581 (BANG) DATED 7 JANUARY 2011. 4. RELEVANT EXTRACTS OF THE DECISION OF THE PUNE TRIBUNAL IN THE CASE OF MALPANI TEA CORPORATION VS. DCIT (ITA NO 912/PN/2011) DATED 31 DECEMBER 2012. 5. COPY OF THE DECISION OF THE PUNE TRIBUNAL IN T HE CASE OF CHORDIA FOOD PRODUCTS LTD VS ACIT (ITA NO 478/PN/ 11) DATED 26 JUNE 2012 (PUNE TRIBUNAL) 6. COPY OF THE DECISION OF THE PUNE TRIBUNAL IN T HE CASE OF SERUM INTERNATIONAL LTD VS. ADDL CIT (ITA NO. 290 TO 292/PN/2010) DATED 28 SEPTEMBER 2011. 7. COPY OF THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF INDIAN GRATINGS PVT. LTD VS. DC IT (ITA NO. 4311/MUM/2013) DATED 11 FEBRUARY 2015 8. COPY OF THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF SHEVIE EXPORTS VS. JCIT (36 CCH 17) DATED 10 APR IL 2013. 9. COPY OF THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF EXCEL CROP CARE LTD VS. CIT (ITA NO. 3100/M/10 , 3101/M/10, 8741/M/10, 7155/M/11) DATED 25 JULY 2014 7. THE ONLY DISPUTE BEFORE US, IS, WHETHER THE UNAB SORBED DEPRECIATION ACCUMULATED IN EARLIER YEARS PRIOR TO THE INITIAL YEAR NEEDS TO BE ADJUSTED WHILE COMPUTING THE AMOUNT ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THIS ISSUE HAS BEEN CONSIDERED BY THE HONBLE MADRAS HIG H COURT IN THE CASE ITA 909/MUM/2011 5 OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT [2012] 340 ITR 477 (MAD.), WHEREIN THE HONBLE COURT AFTER CONSIDERING THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF CIT VS. GOLDMI NE SHARES AND FINANCE (P) LTD. [2008] 302 ITR (AT) 208 (AHD.)[SB] AND REFERRING THE PROVISIONS OF SECTION 80IA OF THE ACT, HELD THAT IF THE LOSS IN THE EARLIER YEARS TO THE INITIAL ASSESSMENT YEAR HAS ALREADY BE EN ABSORBED, THEN IT CANNOT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AG AINST THE PROFITS OF THE ELIGIBLE BUSINESS. THIS VIEW HAS BEEN REITERATED A GAIN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & DCIT VS. ANIL H. LAD [2014] 102 DTR 241 (KAR). FOLLOWING THE SAID HIGH COURT DE CISIONS, THE VARIOUS BENCHES OF THE TRIBUNAL HAVE BEEN FOLLOWING THE SAM E RATIO. IN THE CASE OF SHEVIE EXPORTS VS. JCIT (36 CCH 17), THE TRIBUNA L AFTER DISCUSSING VARIOUS DECISIONS PRO AND CONTRA OBSERVED AND HELD AS UNDER:- 9. SECTION 80IA, WHICH HAS BEEN SUBSTITUTED W.E.F. IST APRIL 2000, PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERT AKING FROM ANY ELIGIBLE BUSINESS REFERRED TO IN SUB-SECTION 4, THE RE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE OF THIS SECTION, BE ALLOWED IN COMPUTING THE TOTAL INCOME, THE DEDUCTION OF AN AMO UNT EQUAL TO 100 PERCENT OF THE PROFITS AND GAINS DERIVED FROM S UCH BUSINESS FOR 10 CONSECUTIVE YEARS. SUBSTITUTED SUB-SECTION (2) O F SECTION 80IA, PROVIDES THAT AN OPTION IS GIVEN TO THE ASSESSEE FO R CLAIMING ANY 10 CONSECUTIVE ASSESSMENT YEAR OUT OF 15 YEARS BEGINNI NG FROM THE YEAR IN WHICH THE UNDERTAKING OR THE ENTERPRISE DEV ELOPS AND BEGIN TO OPERATE. THE 15 YEARS IS THE OUTER LIMIT WITHIN WHICH THE ASSESSEE CAN CHOOSE THE PERIOD OF CLAIMING THE DEDUCTION. SU B-(5) IS A NON- OBSTANTE CLAUSE WHICH DEALS WITH THE QUANTUM OF DED UCTION FOR AN ELIGIBLE BUSINESS. THE RELEVANT PROVISIONS OF SUB-S ECTION (5) OF SECTION 80LA, READS AS UNDER:- 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 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 ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL A SSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR TO AND ITA 909/MUM/2011 6 INCLUDING THE, ASSESSMENT YEAR FOR WHICH THE DETERM INATION IS TO BE MADE.' 10. FROM A PLAIN READING OF THE ABOVE, IT CAN BE GA THERED THAT IT IS A NON- OBSTANTE CLAUSE WHICH OVERRIDES THE OTHER PROVISIONS OF THE ACT AND IT IS FOR THE PURPOSE OF DETERMINING THE QU ANTUM OF DEDUCTION UNDER SECTION 80IA, FOR THE ASSESSMENT YE AR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR TO BE COMPUTED AS IF THE ELIGIBLE B USINESS IS THE ONLY SOURCE OF INCOME. THUS, THE FICTION CREATED IS THAT THE ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME AND THE DEDUC TION WOULD BE ALLOWED FROM THE INITIAL ASSESSMENT YEAR OR ANY SUB SEQUENT ASSESSMENT YEAR. IT NOWHERE DEFINES AS TO WHAT IS T HE INITIAL ASSESSMENT YEAR. PRIOR TO IST APRIL 2000, THE INITI AL ASSESSMENT YEAR WAS DEFINED FOR VARIOUS TYPES OF ELIGIBLE ASSESSEES UNDER SECTION 80IA(12). HOWEVER, AFTER THE AMENDMENT BROUGHT IN S TATUTE BY THE FINANCE ACT, 1999, THE DEFINITION OF 'INITIAL ASSES SMENT YEAR' HAS BEEN SPECIFICALLY TAKEN AWAY. NOW, WHEN THE ASSESSE E EXERCISES THE OPTION OF CHOOSING THE INITIAL ASSESSMENT YEAR AS CULLED OUT IN SUB-SECTION (2) OF SECTION 80IA FROM WHICH IT CHOOS ES ITS 10 YEARS OF DEDUCTION OUT OF 15 YEARS, THEN ONLY THE LOSSES OF THE YEARS STARTING FROM THE INITIAL ASSESSMENT YEAR ALONE ARE TO BE BR OUGHT FORWARD AS STIPULATED IN SECTION 80IA(5). THE LOSS PRIOR TO TH E INITIAL ASSESSMENT YEAR WHICH HAS ALREADY BEEN SET-OFF CANNOT BE BROUG HT FORWARD AND ADJUSTED INTO THE PERIOD OF TEN YEARS FROM THE INIT IAL ASSESSMENT YEAR AS CONTEMPLATED OR CHOSEN BY THE ASSESSEE. IT IS ONLY WHEN THE LOSS HAVE BEEN INCURRED FROM THE INITIAL ASSESSMENT YEAR, THEN THE ASSESSEE HAS TO ADJUST LOSS IN THE SUBSEQUENT ASSES SMENT YEARS AND IT HAS TO BE COMPUTED AS IF ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INCOME AND THEN ONLY DEDUCTION UNDER SECTION 80L A CAN BE DETERMINED. THIS IS THE TRUE IMPORT OF SECTION 80IA (5). X X X X X X 12. THIS JUDGMENT HAS BEEN FURTHER FOLLOWED BY THE SAME HIGH COURT IN CIT V/S EMERALD JEWEL INDUSTRY (P) LTD. (2 011) 53 DTR 262 (MAD.). FROM THE ABOVE, RATIO OF THE HIGH COURT, I T IS AMPLY CLEAR THAT SUB-SECTION (5) OF SECTION 80IA WILL COME INTO OPERATION ONLY FROM THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR. THE OPTION OF CHOOSING THE INITIAL ASSESSMEN T YEAR IS WHOLLY UPON THE ASSESSEE IN THE POST AMENDMENT PERIOD I.E. AFTER IST APRIL 2000 BY VIRTUE OF SECTION 80IA(2). THUS, FOLLOWING THE ABOVE RATIO, WE HOLD THAT FIRST LY, THE CHOOSING OF INITIAL ASSESSMENT YEAR FOR THE PURPOSE OF CLAIMING DEDUCTION FOR THE PERIOD OF 10 YEARS OUT OF 15 YEARS IS WITH THE ASSE SSEE AND SECONDLY, BEFORE CLAIMING DEDUCTION U/S 80IA OF THE ACT, THE LOSS ON DEPRECIATION CLAIMED BY THE ASSESSEE IN RESPECT OF ELIGIBLE BUSI NESS IS TO BE SET OFF ITA 909/MUM/2011 7 AGAINST THE INCOME OF THE ASSESSEE FROM OTHER SOURC E, THAT IS, OTHER BUSINESS INCOME AND EARLIER LOSS/DEPRECIATION OF TH E WIND MILL CANNOT BE NOTIONALLY SET OFF AGAINST THE PROFIT OF ELIGIBLE B USINESS FOR THE COMPUTATION OF DEDUCTION. ACCORDINGLY, THE ORDER O F THE LD. CIT(A) IS CONFIRMED AND THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON .15 TH MAY, 2015. SD/- (G.S. PANNU) ACCOUNTANT MEMBER SD/- (AMIT SHUKLA) JUDICAL MEMBER MUMBAI, DATED 15-05-2015. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- 4, MUMBAI 4. COMMISSIONER OF INCOME TAX II, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI