PRAGATI AROMA OIL DISTILLERS (P) LTD, MUMBAI V. DCIT 4(3), MUMBAI

ITA 923/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7535 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 24-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Question of law; Unabsorbed depreciation
• Section: 143(3); 14A; 10B; 56; 10

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.923/ MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12) PRAGATI AROMA OIL DISTI LLERS (P) LTD., 206 ANAND BHAVAN, 17 BABUGENU ROAD , PRINCESS STREET, MA R INE LINES, MUMBAI 400002 / V. DCIT 4(3) R.NO. 649, 6 TH FLOOR, AAYKAR BHAVAN, M K ROAD, MUMBAI - 400020 ./ PAN : AAACP2213P ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.319/ MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12) DCIT 4(3) R.NO. 649, 6 TH FLOOR, AAYKAR BHAVAN, MUMBAI 400020 / V. PRAGATI AROMA OIL DISTILLERS (P) LTD., 206 , ANAND BHAVNA, 17 BABUG ENU ROAD , PRINCESS STREET, MA R INE LINES, MUMBAI 400002 ./ PAN : AAACP2213P ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. MAHAVEER JAIN SHRI. PRATEEK JAIN REVENUE BY : SHRI. RAJAT MITTAL / DATE OF HEARING : 23 - 01 - 2018 / DATE OF PRONOUNCEMENT : 04 - 04 - 2018 I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 2 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE TWO CROSS APPEAL S , FILED BY THE A SSESSEE AND REVENUE, BEING ITA NO. 923/MUM/2016 AND ITA NO. 319/ MUM/2016 RESPECTIVELY FOR ASSESSMENT YEAR 2011 - 12 ARE DIRECTED AGAINST THE APPELLATE ORDER DATED 30.11.2015 PASSED BY LEARNED COMMIS SIONER OF INCOME - TAX (APPEALS) - 9, MUMBAI (HEREINAFTER CALLED THE CIT(A)) FOR ASSESSMENT YEAR 2011 - 12, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 14.03.2014 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLE D THE AO) U/S 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN ITA NO. 923/MUM/2016 FOR AY 2011 - 12 , READ AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN AFFIRMING THE DECISION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION @ 70% ON THE COST OF CIVIL CONSTRUCTION COMPLETELY IGNORING THE FACT THAT THE CIVIL CONSTRUCTION IS INTEGRAL PART OF WINDMILL AND IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION @ 80%. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN AFFIRMING THE DECISION OF THE ASSESSING OFFICER IN APPLYING RULE 8D FOR MAKING DISALLOWANCE OF RS. 9,30,874/ - U/S 14A OF THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN AFFIRMING THE DECISION OF THE ASSESSING OFFICER IN DISALLOWING OTHER INCOME OF RS. 9,51,184/ - FOR DEDUCTION U/S 10B AND TAXING IT SEPARATELY. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, TO DELETE FROM OR SUBSTANTIATE THE ABOVE GROUND OF APPEAL. 3. THE GROUNDS OF A PPEAL RAISED BY THE R EVENUE IN THE MEMO OF APPEAL FILED WITH T HE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN ITA NO. 319/MUM/2016 FOR AY 2011 - 12, READ AS UNDER: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS.39,60,033/ - MADE U/S.80IA OF THE INCOME TAX ACT WITHOUT I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 3 APPRECIATING THE FACT THAT THE NOTIONAL DEPRECIATION, WHICH THE ASSESSEE HAD CLAIMED ON THE SAID WINDMILL BEFORE CLAIMING DEDUCTION U/S.80IA IN FIRST YEAR I. E. A.Y. 2010 - 11, HAD NOT BE EN ADJUSTED WITH THE PREVIOUS YEAR PROFIT OF THE WINDMILL BEFORE CLAIMING DEDUCTION U/S.80IA OF THE INCOME TAX ACT, 1961.' 2. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 4. THE ASSESSEE IS MANUFACT URE OF ESSENTIAL OILS, PERFUMERY COMPOUNDS, DISTILLERS OF SANDALWOOD OIL, ETC. . I T HAS A FACTORY AT KANN A UJ, SILVASSA AND NILATOTTOI. THE ASSESSEE IS ALSO OWNING SIX WIND MILLS THROUGH WHICH ELECTRICITY IS G ENERATED AND SOLD TO DIFFERENT S TATE ELECTRICITY B OARDS. THE ASSESSEE IS ALSO DEALING IN PURCHASE AND SALE OF PROPERTIES. DISALLOWANCE U/S. 14A 5. THE ASSESSEE HAS CLAIMED EXEMPT AN INCOME AMOUNTING TO RS. 68,71,376/ - IN ACCORDANCE WITH PROVISIONS OF SECTION 10 OF THE ACT. HOWEVER, THE ASSESSEE DID NO A TTRIBUTED ANY EXPENDITURE TOWARDS EARNING OF SUCH EXEMPT INCOME. THE AO REJECTED CONTENTION S OF THE ASSESSEE THAT THERE IS NO EXPENDITURE INCURRED FOR EARNING SUCH AN EXEMPT INCOME AND HELD THAT THERE ARE ALWAYS AN ELEMENT OF INDIRECT EXPENDITURE FOR EARNI NG SUCH AN EXEMPT INCOME WHICH ASSESSEE HAD NEITHER IDENTIFIED NOR OFFERED TO TAX. THE AO INVOKED PROVISION OF S ECTION 14A OF THE 1961 ACT R.W.R . 8D OF I NCOME - TAX R ULE S, 1962. THE ASSESSEE WAS SHOW CAUSED BY THE AO AND IN REPLY , T HE ASSESSEE SUBMITTED THA T IT RECEIVED DIVIDEND INCOME OF RS. 68,71,376/ - WHICH IS EXEMPT FROM TAX . THE ASSESSEE ALSO SUBMITTED BEFORE THE AO THAT IT HAS AN INVESTMENT OF RS. 18,66,69,418 / - IN HDFC CASH MANAGEMENT FUND WHICH WAS MADE OUT OF ITS OWN FUND S WHICH WERE AVAILABLE WI TH THE ASSESSEE TO THE TUNE OF RS. 50.51 CRORE S AND IT WAS SUBMITTED THAT OUT OF THE SE OWN ED /MIXED FUND S , THE ASSESSEE HAD MADE INVESTMENTS IN MUTUAL FUNDS FROM TIME TO TIME. IT WAS SUBMITTED THAT SINCE OWN FUNDS ARE USED FOR MAKING INVESTMENTS, NO SEPARA TE DISALLOWANCE CAN BE MADE U/S 14A . THE ASSESSEE RELIED UPON DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. 221 CTR 435 (BOM) , AND CONTENDED THAT THE PRESUMPTION WILL APPLY THAT THE ASSESSEE HAS INVESTED ITS OWN FUNDS FOR MAKING INVESTMENTS FROM WHERE EARNING OF AN EXEMPT INCOME HAS ARISE N I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 4 AND NO SEPARATE DISALLOWANCE OF EXPENDITURE U/S 14A IS WARRANTED . THE AO HOWEVER INVOKED PROVISION S OF SECTION 14A OF THE 1961 ACT R.W.R. 8D OF THE 1962 RULES A ND MADE DISALLOWANCE S AS UNDER: DISALLOWABLE EXPENDITURE (AS PER RULE 8) (AMOUNT IN RS.} (I) EXPENDITURE DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME: ---- (II) INTEREST NOT DIRECTLY ATTRIBUTABLE TO EXEMPT INC OME: INTEREST X AVERAGE VALUE OF INVESTMENT ATTRIBUTABLE TO EXEMPT INCOME AVERAGE OF TOTAL ASSETS APPEARING IN BALANCE SHEET 45,17,817 X 11,54,83,730 / 147,60,95,782 RS.3,53,455 (III) 0.5% OF AVERAGE VALUE OF INVESTMENTS (11 ,54,83,730/ - X 0.5%) RS.5,77, 419 AGGREGATE OF EXPENDITURE DISALLOWABLE : RS.9,30,874 THUS, THE DISALL OWANCE U/S 14A R.W. RULE 8D CAME TO RS. 9,30,874/ - WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE BY THE AO VIDE ASSESSMENT ORDER DATED 14 - 03 - 2 014 PASSED U/S. 143(3) OF THE 1961 ACT. DISALLOWANCE OF DEPRECIATION ON CIVIL COMPONENTS OF WINDMILLS: 6. T HE ASSESSEE OWN S SIX WIND MILLS AT VARIOUS LOCATIONS IN TAMIL NADU AN D KARNATAKA , THE DETAILS OF WHICH ARE AS UNDER: SUPPLIER SITE NAME CAPACITY NO. OF MACHINE DATE OF COMMISSIONING ENERCON TN - ERODE, DHARAPURAM 800 KW 1 19/9/2005 VESTAS KAR - DAVANGIRI, HARIHAR 600 KW 2 30/9/2006 VESTAS KAR - GADAG, GAJENDRAGAD 600 KW 1 30/3/2007 VESTAS KAR - GADAG, GAJENDRAGAD 600 KW 2 19/5//2007 I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 5 T HE ASSESSEE HAD CLAIMED DEPRECIATION @80% OF WDV ON THE TOTAL COST OF THE FOUR WIND MILL S AND CLAIMED DEPRECIATION @7.69 % SLM ON TOTAL COST OF TWO WIND MILL S, T HE DETAILS OF WHICH ARE AS UNDER: - PARTICULARS ENERCON - TN DHARAMPURAM [SEPT 2005] [1 WINDMILL] VESTAS - KAR - DAVENGERE - [SEPT - 06] [2 WINDMILL] VESTAS - KAR GADAG (MAR - 07) [1 WINDMILL] VESTAS - KAR GADAG (MAY - 07) [2 WINDMILL] DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION 80% WDV 80% + 20% WDV 80% + 20% WDV 7.69% + 20% SLM COST BREAK - UP PLANT & MACHINERY 3,60,00,000 / - 5,61,00,000 / - 2,80,50,000/ - 5,61,00,000/ - CIVIL / ELECTRICAL WORK 14,00,000/ - 29,00,000 / - 14,50,000/ - 29,00,000 / - 3,74,00,000/ - 5,90,00,000 / - 2,95,00,000 / - 5,90,00,000 / - DEPRECIATION CLAIMED BY ASSESSEE APR - 2005 TO MAR - 2006 2,99,20,000 APR - 2006 TO MAR - 2007 59,84,000 5,90,00,000 1,47,50,000 APR - 2007 TO MAR - 2008 11,96,800 - 1,18,00,000 45,77,641 APR - 2008 TO MAR - 2009 2,39,360 - 23,60,000 45,77,641 APR - 2009 TO MAR - 2010 47,872 - 4,72,000 45,77,641 APR - 2010 TO MAR - 2011 9,574 94,400 45,77,641 THE ASSES SEE CLAIMED DEPRECIATION @80% ON FOUR WI NDMILLS ON ENTIRE COST OF WIND MILLS INCLUDING COST O F CIVIL CONSTRUCTION AND ELECTRICAL WORKS .A S PER AO , COST OF CIVIL CONSTRUCTION DOES NOT FROM PART OF PLANT & M ACHINERY AND DEPRECIATION @80% CLAIM ED BY THE ASSESSEE WAS HELD TO BE NOT ALLOWABLE AND I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 6 NORMAL DEPRECIATION WAS HELD TO BE ALLOWABLE BY THE AO ON CIVIL CONSTRUCTION WORK RELATED TO WINDMILL AS UNDER THE BLOCK OF ASSETS OF BUILDING . THE AO OBSERVED THAT IN PRECEDING YEARS I.E. AY 2006 - 07 TO AY 2010 - 11, THE CLAIM OF THE ASSESSEE WAS ALREADY DISALLOWED BY THE AO W.R.T. DEPRECIATION CLAIM @70% OF CI VIL CONSTRUCTION RELATED TO WINDMILL . T HE ASSES SEE HOWEVER SUBMITTED THAT WIND MILL IS A CUSTOM MADE M ACHINE WHICH IS ERECTED AT A SIT E WHICH HAS A VERY GOOD WIND VELOCITY, THE FINAL STRUCTURE OF MACHINE I S VERY HEAVY AND NEED TO BE SUPPORTED BY SOLID FOU NDATION OF CONCRETE AND IRON, SO AS TO WITHSTAND STRONG WINDS AND WEIGHT OF P LANT & M ACHINERY ITSELF. THE ASSESSEE SUBMITTED THAT AN INTERNAL ROAD IS ESSENTIAL FOR CONNECTING E LECTRICAL APPARATUS OF THE WIND MILL TO THE GRID OF THE ELECTRICITY BOARD AND THE ENTIRE CIVIL AND ELECTRICAL WORK IS AN INTEGRAL PART OF PLANT AND M ACHINERY. IT WAS SUBMITTED THAT WIND MILLS CANNOT BE RUN WITHOUT ERECTION AND INSTALLATION WHICH INVOLVES CIVIL AND ELECTRICAL CONSTRUCTION. THE ASSESSEE ALSO RELIED UPON DECISION OF THE I TAT AHMADABAD IN THE CASE OF ACIT V. PARRY ENGINEERING & ELECTRONICS P. LTD. IN ITA NO. 3317/AHD/2011, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: - 'THE DEPREDATION IS ALLOWABLE ON RENEWABLE ENERGY DEVICE WHICH ALSO INCLUDES WINDMILL. THE DEPRECIATION AT THE RATE OF 80% IS ALLOWABLE ON THE ENTIRE DEVICE WHICH IS CAPABLE OF GENERATING ELECTRICITY USING WIND ENERGY. THERE IS NO PROVISION IN THE ACT TO B IFURCATE THE DEVICE INTO SEVERAL PARTS AND ALLOW DEPRECIATION THEREON AT DIFFERENT RATES OF DEPRECIATION. THE FOUNDATION, CIVIL AND ELECTRICAL WORKS ARE NECESSARY FOR THE INSTALLATION OF THE WINDMILL AND IS CLEARLY PART AND PARCEL OF THE WINDMILL PROJECT O N WHICH DEPRECIATION AT THE RATE OF 80% IS ALLOWABLE.' IT WAS SUBMITTED BY THE ASSESSEE THAT AO RELIED UPON DECISION OF ITAT PUNE IN THE CASE OF POONAWALA FINVEST & AGRO P. LTD. V. ACIT [2008] 118 TTJ 68 [PUNE] FOR TAKING A VIEW AGAINST ASSESSEE IN EARLI ER YEARS . IT WAS SUBMITTED THAT THE DECISION IN THE CASE OF PARRY ENGINEERING & ELECTRONICS P. LTD. (SUPRA) WAS RENDERED AFTER THE DECISION OF ITAT PUNE IN THE CASE OF POONAWALA FINVEST & AGRO P. LTD. (SUPRA) AND HENCE CLAIM OF THE ASSESSEE FOR DEPRECIATION @80% ON CIVIL CONSTRUCTION WORK RELATED TO WINDMILL BE ALLOWED . I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 7 THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND MADE DISALLOWANCE @ 70% TOWARDS EXCESS DEPRECIATION CLAIM ED BY THE ASSESSEE TOWARDS COST OF CIVIL CONSTRUCTION AND REVISED DEPRECIATION WAS ALLOWED BY THE AO ON WINDMILLS, AS UNDER: - PARTICULARS CIVIL WORK 10% WIND TURBINE 80% TOTAL REVISED DEP RECIATION . ENERCON TN - DHARAMPURAM :SEP 2005[ 1 WINDMILL] OPENING WDV 01.04.2010 DEPRECIATION 8,26,686 82,669 11,520 9,216 91,858 VESTAS KAR - DAVANGARI:SEP 2006[ 2 WINDMILL] OPENING WDV 01.04.2010 DEPRECIATION 19,02,690 1,90,269 1,90,269 VESTAS KAR - GADAG:SEP 2007[ 1 WINDMILL] OPENING WDV 01.04.2010 DEPRECIATION 9,51,345 95,135 1,12,200 89,760 1,84,865 TOTAL REVISED DEPRECIATION ON 4 WINDMILLS 4,67,048 THE AO ALLOWED DEPRECIATION OF RS. 4,67,048 / - AS AGAINST DEPRECIATION OF RS. 1,03,974/ - CLAIMED BY THE ASSESSEE, BY RE - WORKING THE ENTIRE W . D . V . OF THE ASSETS , VIDE ASSESSMENT ORDER DATED 14 - 3 - 2014 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 8 DISALLOWANCE OF DEDUCTION U/S. 80IA 7 . THE AO OBSERVED DURING ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) THAT THE ASSESSEE HAD CLAIM ED AN AMOUNT OF RS. 39,60,033/ - AS DEDUCTION U/S. 80IA(4)(IV) OF THE 1961 ACT ON THE PROFITS OF WIND MILL (ENERCON) ERODE, DHAMPURAM - TN (SEPT 2005). THIS IS THE 2 ND YEAR OF THE CLAIM OF DEDUCTION UNDER SECTION 80IA . THE ASSESSEE DULY SUBMITTED AUDITED ACC OUNTS OF THE WIND WILL ALONG WITH AUDIT REPORT U/S. 10CCB . T HE AO OBSERVED THAT NOTIONAL DEPRECIATION, WHICH THE ASSESSEE HA D CLAIMED ON THE SAID WIND MILL BEFORE CLAIMING DEDUCTION U/S. 80IA IN FIRST YEAR I.E. AY 2010 - 11 HAD NOT BEEN ADJUSTED WITH THE P REVIOUS YEAR PROFIT OF THE WIND MILL BEFORE CLAIMING DEDUCTION U/S. 80IA . THE AO ALSO OBSERVED THAT THE AO HAD ALREADY DISALLOWED CLAIM OF DEDUCTION U/S. 80IA FOR AY 2010 - 11. T HE ASSESSEE SUBMITTED THAT IN THE PRECEDING YEAR I.E. AY 2010 - 11 THE SAID CLAIM WAS DISALLOWED BY THE AO BY STATING THAT THE UNABSORBED DEPRECIATION OF THE WINDMILL WHICH HAS BEEN SET - OFF WITH OTHER BUSINESS INCOMES IN PREVIOUS YEARS SHOULD FIRST NOTIONALLY BE REDUCED FROM PROFIT OF WINDMILL BEFORE COMPUTING QUANTUM OF PROFIT ELIGIBL E FOR DEDUCTION U/S. 80IA. THE ASSESSEE SUBMITTED THAT DEDUCTION U/S. 80IA IS AVAILABLE FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS BEGINNING FROM THE YEAR ENDING IN WHICH THE UNDERTAKING OR ENTERPRISE DEVELOPS OR BEGINS TO OPERATE ANY INFRAST RUCTURE FACILITY ETC. . ONCE THE ASSESSEE HAS OPTED FOR THE FIRST YEAR OF RELIEF THEN IT CONTINUES FOR FURTHER 9 CONSECUTIVE YEARS. THE FIRST YEAR IN WHICH THE RELIEF IS CLAIMED FOR THE FIRST TIME IS CALLED INITIAL ASSESSMENT YEAR AND IN THIS INITIAL YEA R , THE UNDERTAKING HAS TO BE TREATED AS A SEPARATE SOLE SOURCE OF INCOME WITHIN PROVISIONS OF SECTION 80IA(5) AND THEREFORE, DEPRECIATION AND LOSS OF EARLIER YEARS CANNOT BE NOTIONALLY CARRY FORWARD TO BE SET OFF AGAINST INCOME OF THAT INITIAL ASSESSMENT YEAR OR LATER ASSESSMENT YEAR FOR COMPUTING DEDUCTION U/S. 80IA. IT WAS SUBMITTED BY THE ASSESSEE THAT IT FULFILLED ALL THE REQUIREMENTS TO ENABLE TO CLAIM DEDUCTION U/S 80IA. THUS IT WAS SUBMITTED THAT IT IS IN AY 2010 - 11 RELIEF U/S 80IA WAS CLAIMED FOR T HE FIRST TIME. THUS, THE PROVISIONS OF SECTION 80IA(5) TREATING THE UNDERTAKING AS A SEPARATE SOLE SOURCE OF INCOME CANNOT BE APPLIED TO A YEAR PRIOR TO THE YEAR IN WHICH THE ASSESSEE HAD OPTED TO CLAIM DEDUCTION UNDER THIS SECTION FOR THE FIRST TIME. IT W AS SUBMITTED THAT DEPRECIATION AND CARRY I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 9 FORWARD OF LOSS ES OF THE UNIT OF PREVIOUS YEARS, CANNOT NOTIONALLY BE CARRIED FORWARD AND SET OFF AGAINST THE INCOME FROM THE YEAR IN WHICH THE ASSESSEE STARTED CLAIMING DEDUCTION U/S. 80IA. IT WAS SUBMITTED THAT IN APPELLATE PROCEEDINGS FOR AY 2010 - 11, THE L D. CIT - A HAD ALLOWED THE CLAIM OF THE ASSESSEE AND THUS IT WAS PRAYED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IA BE ALLOWED. THE AO REJECTED THE CONTENTION S OF THE ASSESSEE AND HELD THAT FOR CLAIMING DEDUCTION U/S. 80IA THE UNDERTAKING HAS TO BE TREATED AS A SEPARATE ENTITY AND S ECTION 80IA(5) REQUIRES THAT ELIGIBLE DEDUCTION OF UNDERTAKING SHOULD BE COMPUTED BY TREATING THE UNDERTAKING AS ONLY SOURCE OF INCOME OF THE ASSESSEE. THUS , AS PER AO THE DEPRECIATION OF CLAIM OF THE WINDMILL THOUGH SET OFF WITH THE INCOME OF OTHER BUSINESS ES SHOULD FIRST NOTIONALLY BE REDUCED FROM PROFIT OF WIND MILL BEFORE COMPUTING QUANTUM OF PROFIT ELIGIBLE FOR DEDUCTION U/S. 80IA. IT WAS OBSERVED BY THE AO T HAT THE ASSESSEE HAS NOT SET OFF PRO FITS OF RS. 39,60,033/ - OF WIND MILL AT ERODE - TN. THE DEPRECIATION ON THE SAID WIND MILL WAS CLAIMED AND SET OFF FROM OTHER BUSINESSES OF THE ASSESSEE THE AO OBSERVED THAT HOWEVER FOR CLAIMING DEDUCTION U/S. 80IA , THE SA ID DEPRECIATION SHOULD HAVE BEEN NOTIONALLY REDUCED FROM THE PROFITS OF THE WINDMILL BEFORE COMPUTING QUANTUM ELIGIBLE FOR DEDUCTION U/S. 80IA WHICH HAS NOT BEEN DONE BY THE ASSESSEE AND HENCE CLAIM OF DEDUCTION U/S. 80IA WAS DISALLOWED BY THE AO VIDE ASSE SSMENT ORDER DATED 14 - 03 - 2014 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT . THE AO OBSERVED THAT ASSESSEE VIDE ITS WRITTEN SUBMISSION HAS STA TED THAT SIMILAR ISSUE IN AY 2010 - 11 IS DECIDED BY LEARNED CIT - A IN FAVOUR OF THE ASSESSEE BUT THE SAID APPELLATE OR DER OF THE LEARNED CIT - A WAS NOT ACCEPTED BY THE DEPARTMENT AND REVENUE HAS PREF ERRED AN APPEAL BEFORE THE ITAT. EXEMPTION U/S. 10B: 8 . THE AO OBSERVED THAT ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 4,83,46,432/ - AS EXEMPTION U/S. 10B ON THE PROFIT OF THE NI LAKOTTAI UNIT. THE ASSESSEE HAD FILED SEPARATE AUDITED BALANCE SHEET & PROFIT AND LOS S ACCOUNT OF THE UNIT ALONG WITH AUDITORS CERTIFICATE IN FORM NO. 56G. THIS IS THE 9 TH CONSECUTIVE YEAR OF THE CLAIM OF EXEMPTION U/S. 10B. THE ASSESSEE SUBMITTED THAT THE SAID UNIT LOCATED AT NILAKOTTAI IS AN EXPORT ORIENTED UNIT I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 10 DULY REGISTERED WITH APPROPRIATE AUTHORITY AND THE CLAIM FOR EXEMPTION U/S 10B WAS ALLOWED BY LEARNED CIT - A FOR AY 2010 - 11 . IT WAS SUBMITTED THAT REVENUE HAS NOT PREFERRED ANY APPEAL AGAINST THE SAID ORDER OF LEARNED CIT(A) AND THE MATTER HAS REACHED FINALITY. THE AO ALLOW ED THE CLAIM OF THE ASSESSEE BUT HOWEVER AO OBSERVED THAT THE ASSESSEE HAD FILED THE CLAIM OF EXEMPTION U/S 10B WITH RESPECT TO THE INT EREST INCOME OF RS. 9,16,076/ - AND MISCELLANEOUS INCOME OF RS. 35,108/ - AS BUSINESS INCOME AGGREGATING OF RS. 9,51,184/ - WHICH STOOD DISALLOWED BY THE AO TO THE TUNE OF RS. 9.51,184/ - BECAUSE AS PER AO ONLY PROFIT DERIVED FROM THE BUSINESS ARE ELIGIBLE FOR EXEMPTION U/S 10B . THUS, THE AO ADDED THE SAID SUM OF RS. 9,51,184/ - TO THE INCOME OF THE ASSESSEE BY DISALLOWING THE EXEMPTION U/S 10B TO THAT EFFECT BY HOLDING THAT THE SAID INCOME FROM INTEREST AND MISCELLANEOUS INCOME ARE NOT DERIVED FROM BUSINESS. IT WAS ALSO OBSERVED BY THE AO THAT LEARNED CIT - A HAS NOTED WHILE ALLOWING THE CLAIM OF THE ASSESSEE THAT HONBLE ITAT HAD ALREADY ALLOWED THE RELIEF ON ACCOUNT OF CLAIM OF DEDUCTION U/S 10B FOR THE FIRST YEAR I.E. AY 2003 - 04 AND IN SUBSEQUENT YEARS AND DEPA RTMENTAL APPEAL FOR THOSE YEARS IS ALSO DISMISSED BY HONBLE BOMBAY HIGH COURT. SO THE CLAIM FOR EXEMPTION U/S. 10B WAS ALLOWED TO THE ASSE SSEE BY THE AO WHILE DISALLOWANCE WAS MADE BY THE AO TO THE TUNE OF RS. 9,5 1,184/ - BEING INTEREST INCOME AND MISCEL LANEOUS INCOME AS THE SAID INCOME WERE STATED TO BE NOT DERIVED FROM BUSINESS AND HENCE NOT ELIGIBLE FOR EXEMPTION U/S 10B, VIDE ASSESSMENT ORDER DATED 14 - 03 - 2014 PASSED BY THE AO U/S 143(3) . 9 . AGGRIEVE D BY THE ASSESSMENT ORDER DATED 14 - 03 - 2014 PASSED BY THE AO U/S 143(3) , THE ASSESSEE FILED AN FIRST APPEAL BEFORE LEARNED CIT - A . THE ASSESSEE MADE DETAILED SUBMISSION S WIT H RESPECT TO ITS CLAIM FOR ALLOW ABILITY OF DEPRE CIATION @80% ON CIVIL CONSTRUCTION WORK RELATED TO WINDMILL BUT THE LEARNED CIT - A DISALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF ITAT PUNE BENCH IN THE CASE OF POONAWALA FINVEST & AGRO P. LTD. V. ACIT [2008] 118 TTJ 68 [PUNE] AND ALSO BY FOLLOWING THE DECISION TAKEN BY LEARNED CIT(A) IN ASSESSEES OWN CASE FOR T HE AY 2006 - 07 TO 2011 - 11 , TO KEEP THE ISSUE ALIVE TILL THE ISSUE REACHES FINALITY IN ASSESSEES OWN CASE AND AO WAS DIRECTED TO RE - COMPUTE DEPRECIATION AS PER THE DECI SION OF HONBLE ITAT PUNE B ENCH WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION ON CIVI L CONSTRUCTION I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 11 WORK RELATED TO WINDMILL , VIDE APPELLATE ORDER DATED 30.11.2015 PASSED BY LEARNED CIT(A) . 10 . WITH RESPECT TO THE DISALLOWANCE U/S 14A OF 1961 ACT R.W.R. 8D OF THE 1962 RULES AMOUNTING TO RS.9,30,874/ - AS DETAILED HERE UNDER: - (I) EXPEND ITURE DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME (II) INTEREST NOT DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME INTEREST X AVERAGE VALUE OF INVESTMENT ATTRIBUTABLE TO EXEMPT INCOME AVERAGE OF TOTAL ASSETS APPEARING IN BALANCE SHEET RS. 45,17,817/ - X RS. 11,54,83730 / - / 1,47,60,95,782/ - RS. 3,53,455/ - (III) 0.5% OF AVERAGE VALUE OF INVESTMENTS (RS. 11,54,83,730/ - X 0.5%) RS. 5,77,419/ - RS. 9,30,874/ - T HE ASSESSEE SUBMITTED BEFORE LEARNED CIT - A THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 68,71,376/ - AND AN AMOUNT OF RS. 18.66 CRORES HAS BEEN SHOWN AS INVESTMENT IN HDFC CASH MANAGEMENT FUND . THE ASSESSEE HAS ITS OWN FUNDS TO THE TUNE OF RS. 50.51 CRORES (SHARE CAPITAL AND RESERVES) AND IT WAS SUBMITTED THAT OUT OF ITS OWN/MIXED FUNDS, THE ASSESSEE HAD MADE INVESTMENT IN MUTUAL FUNDS FROM TIME TO TIME AND OWNED FUNDS WERE USED FOR MAKING INVESTMENTS AND HENCE NO SEPARATE DISALLOWANCE U/S. 14A IS WARRANTED. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) AND SUBMITTED THAT SINCE O WNED FUNDS ARE MORE THAN INVEST MENTS PRESUMPTION SHALL APPLY THAT TH E ASSESSEE HAS INVESTED IN MUTUAL FUNDS OUT OF OWNED FUNDS. I T WAS SUBMITTED BY THE ASSESSEE BEFORE L EARNED CIT(A) THAT ASSESSEE INVESTED IN LIQUID FUNDS OF MUTUAL FUNDS IN THE EARLIER YEARS AND IT IS MERELY CONTINUING WITH THE SAID INVESTMENT IN EXISTING PORTFOLIOS AND NO DISALLOWANCE IS WARRANTED U/S. 14A R.W.R. 8D OF THE 1962 RULES . IT WAS ALSO SUBMITT ED THAT THESE ARE LIQUID FUND OF HDFC CASH MANAGEMENT FUND AND USED BY THE ASSESSEE TO PARK ITS SURPLUS FUNDS AND NO SUCH MARKET RESEARCH , DAY TO DAY ANALYSIS OF MARKET TRENDS ARE REQUIRED. THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. HERO CYCLES LTD. 323 ITR 518 WHEREIN IT WAS HELD THAT DISALLOWANCE U/S 14A CAN BE MADE ONLY WHEN A CLEAR NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE EXEMPT INCOME EXISTS. I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 12 T HE LEARNED CIT - A , HOWEVER, REJECTED T HE CONTENTION S OF THE ASSESSEE AS IN THE PRECEDING YEARS FROM AY 2006 - 07 TO 2010 - 11 , THE IDENTICAL ISSUE WAS DECIDED BY LEARNED CIT - A AGAINST THE ASSESSEE BY HOLDING AS UNDE R : - 'I HAVE CAREFULLY CONSIDERED THE FACT OF THE CASE AS WELL AS SUBMISSIONS OF T HE APPELLANT. THE MAIN ARGUMENT BEING PUT FORWARD BY THE APPELLANT IS THAT OUT OF THE TOTAL LIABILITY IN THE BALANCE SHEET, INTEREST FREE LIABILITY WAS SUFFICIENT TO MEET THE INVESTMENTS MADE EVERY YEAR. THIS ARGUMENT OF THE APPELLANT IS BASED ON THE BOMBA Y HIGH COURT'S DECISION IN THE CASE OF CIT VS. RELIANCE UTILIT ES & POWER LTD. THAT IF INTEREST FREE FUNDS ARE AVAILABLE WITH THE APPELLANT WHICH IS SUFFICIENT TO MEET THE INVESTMENT AT THE TIME WHEN THE LOAN WAS RAISED, THEN PRESUMPTION WILL BE THAT INVEST MENT WOULD BE OUT OF THE INTEREST FREE FUNDS. HOWEVER THIS DECISION WAS RENDERED IN THE CONTEXT OF INTEREST DISALLOWANCE IN RESPECT OF LOANS ADVANCED TO SISTER CONCERNS AND IS DISTINGUISHABLE. FURTHER, THIS JUDGMENT WAS NOT RENDERED IN THE CONTEXT OF SECTI ON 14A R.W. RULE 8D AND THEREFORE NO RATIO COULD BE SAID TO HAVE BEEN LAID DOWN. THEREFORE THE APPELLANT CANNOT DRAW ANY SUPPORT FROM THE ABOVE QUOTED JUDGMENT. RELIANCE HAS ALSO BEEN PLACED IN DELHI HIGH COURT'S DECISION IN MAXOPP INVESTMENTS LTD. 203 TA XMANN 364. HOWEVER, IT IS SEEN THAT THIS DECISION PERTAINED TO AY 1998 - 99 TO AY 2005 - 06 WHEREAS SECTION 14A(2) AND (3) WERE INTRODUCED WITH PROSPECTIVE EFFECT FROM AY 2007 - 08. THIS DECISION CANNOT THEREFORE PROVIDE SUPPORT TO THE APPELLANT'S CASE. THE JURI SDICTIONAL BOMBAY HIGH COURT HAS HELD IN GODREJ & BOYCE MFG. CO. LTD. VS. CIT 234 CTR 1 THAT RULE 8D IS APPLICABLE FOR AND FROM A.Y.2008 - 09. THE RELEVANT STATUTE THAT WAS APPLICABLE FROM THE AY 2008 - 09, 2009 - 10 & 2010 - 11 SHOW THAT SECTION 14A(2) & 14A(3) R EAD WITH RULE 8D HAVE TO BE INVOKED BY THE ASSESSING OFFICER. THE ACTION OF THE ASSESSING OFFICER IS THUS UPHELD ON THIS ACCOUNT. THUS, THE LEARNED CIT(A) BY FOLLOWING THE DECISION OF HIS PREDECESSOR FOR AY 2006 - 07 TO 2010 - 11 , DISMISSED THE APPEAL OF THE ASSESSEE BY UPHOLDING THE DISALLOWANCE MADE BY THE AO U/S 14A , VIDE APPELLATE ORDERS DATED 30.11.2015 . 11 . WITH RESPECT TO DISALLOWANCE U/S 80IA OF SET OFF DEPRECIATION OF EARLIER YEARS ON NOTIONAL BASIS WHICH WAS ALREADY SET OFF AGAINST INCOME FROM OTHER BUSINESSES OF THE ASSESSEE , T HE ASSESSEE SUBMITTED BEFORE LEARNED CIT - A THAT THIS CLAIM WAS ALLOWED IN THE APPELLATE PROCEEDING S FOR THE ASSESSMENT YEAR 2010 - 11 BY LEARNED CIT - A IN ASSESSEES FAVOUR . THE LEARNED CIT - A BY FOLLOWING THE DECISION OF H IS PREDECESSOR IN THE CASE OF THE ASSESSEE FOR AY 2010 - 11, ALLOWED THE RELIEF TO THE ASSESSEE BY HOLDING AS UNDER : - I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 13 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE APPELLANT . THE CONTROVERSY IN THE PRESENT CASE IS ONLY IN RESPECT OF EARLIER YEAR'S DEPRECIATION AND NOT THE INITIAL YEAR WHICH WAS THE SUBJECT MATTER IN GOLDMINE SHARES CASE. THE PREPOSITION THAT LOSSES ON WINDMILL BEFORE THE INITIAL ASSESSMENT YEAR WHICH HAVE ALREA DY BEEN SET OFF AGAINST OTHER INCOMES SHALL NOT BE CONSIDERED FOR PURPOSE OF SECTION 80 - IA ARE LAID DOWN BY JURISDICTIONAL PUNE BENCH OF ITAT IN THE CASE OF MALPANI SALES CORPORATION AND AFFIRMED BY THE HON'BLE MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS (P) LTD. IN VIEW OF THE ABOVE POSITION, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S 80 - IA WITHOUT DEDUCTING BROUGHT FORWARD LOSSES OR UNABSORBED DEPRECIATION PRIOR TO AY 2010 - 11 ON NOTIONAL BASIS. ACCORDINGLY GROUND NO. 4 FOR THE AY 2010 - 11 IS ALLOWED IN FAVOUR OF THE ASSESSEE.' 1 2 . WITH RESPECT OF THE DISALLOWANCE OF THE EXEMPTION U/S. 10B TO THE TUNE OF RS. 9,51,184/ - W.R.T. INTEREST INCOME AND MISCELLANEOUS INCOME INCLUDED IN THE PROFITS OF THE BUSINESS, THE CLAIM WAS REJECTED BY LEAR NED CIT - A ON THE GROUNDS THAT EXEMPTION CAN BE GIVEN ONLY FOR THOSE RECEIPTS IN THE FORM OF PROFIT AND GAINS WHICH ARE DERIVED BY A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING FROM THE EXPORT AND IT SHALL NOT INCLUDE INTEREST INCOME OR MISCELLANEOUS SOURCE S WHICH DO NOT FORM PART OF EXPORT EARNINGS. T HE LEARNED CIT - A FOLLOWED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF INTERNATIONAL COMPONENTS INDIA LIMITED (2015) 59 TAXMANN.COM 32(MAD.) AND ALSO DECISION OF ITAT , MUMBAI IN THE CASE OF TRICOM INDIA LIMITED V. ACIT REPORTED IN (2010) 36 SOT 302 AND CONSEQUENTLY THE CLAIM OF THE ASSESSEE WAS REJECTED BY LEARNED CIT(A) . 13 . AGGRIEVED BY THE APPELLATE DECISION OF LEARNED CIT(A), BOTH THE ASSESSEE AND THE REVENUE HAVE COME IN AN APPEAL BEFORE THE TRIBUNAL . W ITH RESPECT TO THE CLAIM OF ASSESSEE FOR GRANT OF DEPRECIATION @80% ON THE CIVIL CONSTRUCTION WORK W.R.T. WINDMILL , IT WAS BROUGHT TO THE NOTICE OF THE BENCH THAT THE TRIBUNAL FOR AY 2006 - 07 TO 2010 - 11 HAS ALLOWED THE CLAIM OF THE AS SESSEE IN ITA NO. 2490 - 2494/PUNE/2012 VIDE ITS ORDERS DATED 21 - 02 - 2017, BY HOLDING AS UNDER: - 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAWS. ALTHOUGH, WE ARE CONSCIOUS OF THE FACT THAT THE CROSS APPEALS SHOULD BE HEARD TOGETHER, YET IT IS ALSO A FACT THAT AS OF TODAY, NO APPEAL BY REVENUE IS PENDING BEFORE THE TRIBUNAL. FURTHER, THE REVENUE IS NOT IN APPEAL FOR AY 2006 - 2007 AND HENCE THERE IS NO BAR IN ANY MANNER TO ADJUDICA TE THE ISSUE FOR AY 2006 - 2007. I T IS ALSO NOTED THAT THE APPEALS OF THE ASSESSEE WERE INITIALLY FILED AT I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 14 PUNE BENCHES BUT SUBSEQUENTLY TRANSFERRED TO MUMBAI BENCHES AS PER THE ASSESSEE'S REQUEST LETTER DATED 11/06/2013. THE HON'BLE PRESIDENT'S ORDER DATED 26/03/2014 PERMIT TED / DIRECTED THE REGISTRY TO TRANSFER THE APPEALS OF THE ASSESSEE TO MUMBAI BENCHES. THEREFORE, WE ARE OF THE VIEW THAT THE SAME COULD BE DISPOSED OFF INDEPENDENTLY PARTICULARLY IN VIEW OF THE FACT THAT THE SAME ARE PENDING SINCE A LONG TIME AND AMPLE TI ME HAS ALREADY BEEN GRANTED TO THE REVENUE TO RECALL THE ORDERS OF THE PUNE TRIBUNAL DISMISSING THE APPEAL OF THE REVENUE. 6. ON MERITS, THE BASIC FACTS ARE NOT IN DISPUTE. THE ONLY DISPUTE IS WHETHER THE ASSESSEE WAS ENTITLED FOR HIGHER DEPRECIATION ON CIVIL CONSTRUCTION USED FOR INSTALLATION OF WINDMILLS OR NOT? THE FACTUAL POSITION IS THAT THE FIRST APPELLATE AUTHORITY HAS ALLOWED THE HIGHER CLAIM ON CERTAIN ELECTRICAL ITEMS BUT DENIED THE SAME ON CIVIL CONSTRUCTION. IN OUR CONSIDERED OPINION, THE B REAK - UP OF THE VARIOUS COST COMPONENTS TO ALLOW DIFFERENT RATE OF DEPRECIATION IS NOT PROPER PARTICULARLY WHEN THE SAME FORMS PART AND PARCEL OF SAME PLANT & MACHINERY. WE ALSO FIND THAT THE IMPUGNED ISSUES STANDS COVERED IN ASSESSEE'S FAVOR BY THE ABOVE C ITED JUDGMENTS OF THE HON'BLE HIGH COURTS. IN PARTICULAR, THE FOLLOWING OBSERVATION OF HON'BLE GUJRAT HIGH COURT IN THE CASE OF CIT VS. PARRY ENGINEERING & ELECTRONICS P. LTD. [SUPRA]FORTIFIES OUR VIEW: - '4. THIS OPINION OF THE APPELLATE AUTHORITY WAS CONF IRMED BY THE TRIBUNAL IN THE IMPUGNED JUDGMENT, IN THE FOLLOWING TERMS; 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AO AND THE CIT( A). THE DEPRECIATION IS ALLOWABLE ON RENEWABLE ENERGY DEVICE WHICH ALSO INCLUDES WINDMILL. THE DEPRECIATION AT THE RATE OF 80% IS ALLOWABLE ON THE ENTIRE DEVICE WHICH IS CAPABLE OF GENERATING ELECTRICITY USING WIND ENERGY. THERE IS NO PROVISION IN THE ACT TO BIFURCATE THE DEVICE INTO SEVERAL PARTS AND ALLOW DEPRECIATION THEREON AT DIFFERENT RATES OF DEPRECIATION. THE FOUNDATION, CIVIL AND ELECTRICAL WORKS ARE NECESSARY FOR THE INSTALLATION OF THE WINDMILL AND IS CLEARLY PART AND PARCEL OF THE WINDMILL PROJE CT ON WHICH DEPRECIATION AT THE RATE OF 80% IS ALLOWABLE, 5. WE ARE OF THE OP INION THAT THE APPROACH OF BOTH THE AUTHORITIES IS PERFECTLY JUSTIFIED. WINDMILL WOULD REQUIRE SCIENTIFICALLY DESIGNED MAC HINERY IN ORDER TO HARNESS THE WIND ENERGY TO THE MAXIMUM POTENTIAL. SUCH DEVICE HAS TO BE FITTED AND MOUNTED ON A CIVIL CONSTRUCTION, EQUIPPED FITTINGS IN ORDER TO TRANSMIT THE ELECTRICITY SO GENERATED. SUCH CIVIL STRUCTURE AND ELECTRIC FITTINGS, THEREFORE, IT CAN BE WELL IMAGINED, WOULD BE HIGHLY SPECIALIZED. THUS, SUCH CIVIL CONSTRUCTION AND ELECTRIC FITTING WOULD HAVE NO USE I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 15 OTHER THAN FOR THE PURPOSE OF FUNCTIONING OF THE WINDMILL. ON THE OTHER HAND, IT CAN BE EASILY IMAGINED THAT WINDMILL CANNOT F UNCTION WITHOUT APPROPRIATE INSTALLATION AND ELECTRIFICATION. IN OTHER WORDS, THE INSTALLATION OF WINDMILL AND THE CIVIL STRUCTURE AND THE ELECTRIC, FITTINGS ARE SO CLOSELY INTERCONNECTED AND LINKED AS TO FORM THE COMMON PLAN. AS ALREADY NOTED, THE LEGISLATURE HAS PROVIDED FOR HIGHER RATE OF DEPRECIATION OF 80 PER CENT ON RENEWABLE ENERGY DEVISES INCLUDING WINDMILL AND ANY SPECIALLY DESIGNED DEVISE, WHICH RUNS ON WINDMILL. THE CIVIL STRUCTURE AND THE ELECTRIC F ITTING, EQUIPMENTS ARE PART AND PARCEL OF THE WINDMILL AND CANNOT BE SEPARA TED FROM THE SAME. THE ASSESSEE S CLAIM FOR HIGHER DEPRECIATION ON SUCH INVESTMENT WAS, THEREFORE, RIGHTLY ALLOWED.' SIMILAR CONCLUSIONS HAVE BEEN DRAWN IN THE OTHER JUDICIAL PRONOUNCEMENTS INCLUDING THAT OF CITED JUDGMENT OF HON'BLE DELHI HIGH COURT RELIED UPON BY THE ASSESSEE. THEREFORE , R ESPECTFULLY FOLLOWING THE SAME AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE WAS ENTITLED FOR HIGHER RATE OF DEPRECIATION ON CIVIL CONSTRUCTION. HENCE BY DELETING THE IMPUGNED ADDITIONS, WE ALLOW THE ASSESSEE'S APPEAL FOR ALL THE YEARS. THE REVENUE IS AT LIBERTY TO TAKE RECOURSE TO LAW ON THE BASIS OF ITS OUTCOME OF MISCELLANEOUS APPLICATION FILED BEFORE THE PUNE BENCHES. THE LD. DR FAIRLY AGREED THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE . A FTE R HEARING BOTH THE PARTIES AND R ESPECTFUL LY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE, WE ALLOW THE CLAIM OF THE ASSESSEE IN LINE WITH THE DECISION OF THE TRIBUNAL IN ITA NO. 249 0 - 2494/PUNE/2012 DATED 21.02.2017 FOR AY 2006 - 07 TO 2010 - 11. THE ASSESSEE SUCCEEDS ON THIS GROUND. WE ORDER ACCORDINGLY. 14. W ITH RESPECT TO THE DISALLOWANCE U/S 14A R.W.R. 8D2(II) AND (III) , IT WAS SUBMITTED THAT LEARNED CIT (A) HAS FOLLOWED EARLIER YEAR D ECISION . I T WAS SUBMITTED THAT THE ASSESSEE HAS ITS OWNED FUNDS TO THE TUNE OF RS.50.51 CRORE AND INVESTMENTS ARE ONLY TO THE TUNE OF RS. 18.66 CRORES AND LEARNED CIT - A HAS ONLY FOLLOWED THE PRECEDING YEAR DECISION. THE LD. DR RELIED UPON THE ORDER OF THE LEARNED CIT - A . A FTER HEARING BOTH THE PARTIES WE ARE OF THE CONSIDER ED VIEW THAT THE ASSESSEE HAD ITS OWN FUNDS TO THE TUNE OF RS 50.5 1 CRORES WHICH IS REFLECTED IN THE AUDITED FINANCIAL STATEMENTS FILED BEFORE THE TRIBUNAL IN PAPER BOOK AT PAGE NO. 13 , WHILE INVESTMENTS IN MUTUAL FUNDS I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 16 ARE TO THE TUNE OF RS. 19.92 CRORES AND IN OUR CONSIDER ED VIEW RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) AND ALSO DECISION OF HONBLE BOMBAY HIGH COURT IN THE C ASE OF HDFC BANK LTD. V. DCIT REPORTED IN (2016) 383 ITR 529(BOM) WILL APPLY AND PRESUMPTION WILL APPLY THAT ASSESSEE HAS INVESTED ITS OWN FUNDS IN MAKING OF THE INVESTMENT IN MUTUAL F UNDS AND THERE IS NO FINDING RECORDED BY AUTHORITIES BELOW THAT INTEREST BEARING FUNDS WERE SPECIFICALLY USED FOR MAKING INVESTMENTS IN MUTUAL FUNDS AND NO DIRECT NEXUS BETWEEN INTEREST BEARING FUNDS WITH THE INVESTMENTS MADE IN MUTUAL FUNDS ARE BROUGHT ON RECORD . THUS, THE ADDITION TO THE TUNE OF RS. 3,53,455/ - AS WAS MADE UN DER RULE 8D2(II) R.W.S. 14A STOOD DELETED BUT SO FAR AS DISALLOWANCE UNDER RULE 8D 2(III) R.W.S. 14A OF THE 1961 ACT TO THE TUNE OF RS. 5,77,419/ - BEING @0.5% OF THE AVERAGE INVESTMENTS AS WAS MADE BY THE AO WHICH WAS LATER UPHELD BY LEARNED CIT(A) STOOD CONFIRMED AS WE FIND NO JUSTIFICATION FOR THE DELETION OF THE SAME AND WE HAVE NO HESITATION IN CONFIRMING THE ADDITION TO THE TUNE OF RS. 5,77,419/ - TO THE INCOME OF THE ASSESSEE U/S 14A R.W.R. 8D(2)(III) . THE ASSESSEE GETS PART RELIEF. WE ORDER ACCORDINGLY. 15. THE ASSESSEE HAS ALSO CLAIMED THAT DEDUCTION U/S. 10B WITH RESPECT TO ITS 100% EOU SHOULD BE ALLOWED EVEN ON INCOME FROM INTEREST AND MISCELLANEOUS INCOME TO TUNE OF RS. 9.51 LAC S . THE ASSESSEE RELIED UPON THE DECISION OF HONBLE KARNATA KA HIGH CO URT IN THE CASE OF CIT V. HEWLETT PACKARD GLOBAL SOFT LIMITED IN ITA NO. 812/2007 VIDE ORDERS DATED 30 - 10 - 2007 REPORTED IN 2017( 11 ) TMI 205. IT WAS SUB MITTED THAT THE HONBLE KARNATAKA HIGH COURT HAS CONSIDERED THE SAID INCOME FROM INTEREST TO B E INTEGRAL PART OF INCOME FROM EXPORT BUSINESS AND IT WAS PLEADED THAT THE SAME SHOULD BE ALLOWED. THE LD. DR ON THE OTHER HAND SUBMITTED THAT THESE ARE INVESTMENTS IN FDRS AND MISCELLANEOUS INCOME WHICH ARE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S WHICH HAS NO DIRECT NEXUS WITH EXPORT BUSINESS AND CANNOT BE TERMED AS INCOME DERIVED FROM EXPORTS AND HENCE NO EXEMPTION U/S 10B CAN BE GRANTED TO THE ASSESSEE . HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS. WE AR E OF THE CONSIDERED VIEW THAT THE AO HAS NOT EXAMINED THE DIRECT NEXUS BETWEEN THE INTEREST INCOME AS WELL MISCELLANEOUS INCOME AND EXPORT INCOME DERIVED BY THE ASSESSEE FROM ELIGIBLE INDUSTRIAL UNDERTAKING OF THE I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 17 ASSESSEE ON WHICH DEDUCTION U/S 10B IS AVA ILABLE WHICH REQUIRES EXAMINATION OF THE FACTS , HENCE KEEPING IN VIEW RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA COMNET INTERNATIONAL V. ITO REPORTED IN (2013) 354 ITR 673 (SC), THE MATTER IS SET ASIDE TO THE FILE OF THE AO FOR EXAMIN ATION /VERIFICATION OF DIRECT NEXUS BETWEEN INCOME FROM INTEREST AS WELL MISCELLANEOUS INCOME AND INCOME DERIVED FROM EXPORTS BUSINESS BY 100% EXPORT ORIENTED ELIGIBLE UNDERTAKING OF THE ASSESSEE TO SEE WHETHER THE SAID INCOME CAN FALL WITHIN THE AMBIT OF BEING DERIVED FROM EXPORT BUSINESS OF THE ELIGIBLE INDUSTRIAL UNDERTAKING BEING 100% EOU . THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA COMNET INTERNATIONAL(SUPRA) IS REPRODUCED HEREUNDER: 1. HEARD LEARNED COUNSEL ON BOTH SIDES. 2. LEAVE GRANTED IN THIS BATCH OF THREE CASES. 3. IN CIVIL APPEAL ARISING OUT OF S.L.P. (C) NO.12756 OF 2008, THE FACTS ARE AS UNDER: THE ASSESSEE IS A 100% EXPORT ORIENTED UNIT, WHICH DEVELOPS AND EXPORTS SOFTWARE. IT EARNS FOREIGN EXCHANGE. IT HAS EARNED I NTEREST INCOME AMOUNTING TO RS.92,06,602/ - ON FOREIGN CURRENCY DEPOSIT ACCOUNT PERMITTED BY FERA UNDER BANKING REGULATIONS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAID SUM SHOULD NOT BE ASSESSED UNDER THE HEAD 'OTHER SOURCES' IN SECTION 56 OF THE INCOME TAX ACT, 1961 ['ACT', FOR SHORT]. THIS QUERY WAS RAISED BECAUSE, IN ITS RETURN OF INCOME, THE ASSESSEE CLAIMED EXEMPTION IN RESPECT OF THE SAID AMOUNT OF RS.92,06,602/ - UNDER SECTION 10A OF THE ACT. THE ASSESSEE HAS LOST THROUGHOUT IN THE PROCEEDINGS. 4. THE IMPUGNED JUDGMENT OF THE HIGH COURT IS BASED ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF CIT V. MENON IMPEX (P.) LTD. [2003] 259 ITR 403 / 128 TAXMAN 11 WH EREIN A SIMILAR QUESTION AROSE AS TO 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE INTEREST INCOME DERIVED BY THE ASSESSEE FROM FUNDS IN CONNECTION WITH LETTER OF CREDIT IS INCOME DERIVED FRO M THE PROFITS OF BUSINESS OF THE INDUSTRIAL UNDERTAKING SO AS TO BE ENTITLED TO GET THE BENEFIT OF SECTION 10A OF THE INCOME TAX ACT, 1961?' IN THAT CASE, THE MADRAS HIGH COURT EXAMINED IN DETAIL THE TRANSACTION IN QUESTION AND FOUND THAT THE ASSESSEE HAD SET UP A NEW INDUSTRIAL UNDERTAKING IN KANDLA FREE TRADE ZONE FOR MANUFACTURING LIGHT ENGINEERING GOODS. THE GOODS THEREIN WERE EXPORTED DURING THE ASSESSMENT YEAR 1985 - 1986. IN THE COURSE OF BUSINESS, I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 18 THE ASSESSEE WAS REQUIRED TO OPEN A LETTER OF CREDIT. ON SUCH DEPOSIT, THE ASSESSEE EARNED INTEREST. UNDER THE SAID CIRCUMSTANCES, THE HIGH COURT HELD, FOLLOWING THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V. STERLING FOODS [1999] 237 ITR 579/ 104 TAXMAN 204 , THAT THE INTEREST RECEIVED BY THE ASSESSEE WAS ON DEPOSIT MADE BY IT IN THE BANKS; THAT SUCH DEPOSIT WAS THE SOURCE OF INCOME; AND THAT, THE MERE FACT THAT THE DEPOSIT WAS MADE FOR OBTAINING LETTER OF CREDIT WHICH LETT ER WAS, IN TURN, USED FOR THE PURPOSE OF BUSINESS UNDERTAKING DID NOT ESTABLISH A DIRECT NEXUS BETWEEN THE INTEREST AND INDUSTRIAL UNDERTAKING. THUS, THE JUDGMENT OF THE MADRAS HIGH COURT IN MENON IMPEX (P.) LTD. ( SUPRA ) WAS BASED ON THE EXAMINATION OF THE TRANSACTION IN DETAIL WHICH EXERCISE HAS NOT BEEN UNDERTAKEN IN THE PRESENT CASE. FOR THE ABOVE REASONS, WE SET ASIDE THE IMPUGNED JUDGMENT AND REMIT THE CASES TO THE INCOME TAX APPELLATE TRIBUNAL ['ITAT', FOR SHORT] FOR DECIDING THE MATTER AFRESH AFTER E XAMINING THE TRANSACTION IN QUESTION, AS DONE BY THE MADRAS HIGH COURT IN THE CASE OF MENON IMPEX (P.) LTD. ( SUPRA ). 5. NEEDLESS TO STATE THAT ITAT WILL GIVE AN OPPORTUNITY TO THE ASSESSEE TO PRODUCE RELEVANT DOCUMENTS IN SUPPORT OF THE TRANSACTION IN QUES TION BEFORE DECIDING THE QUESTION ON LAW. 6. ACCORDINGLY, THE CIVIL APPEALS FILED BY THE ASSESSEE STAND ALLOWED WITH NO ORDER AS TO COSTS. THUS, THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES FOLLOWING THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIA COMNET INTERNATIONAL(SUPRA) AND MATTER IS RESTORED TO THE FILE OF THE AO FOR NECESSARY EXAMINATION/ VERIFICATION S . NEEDLESS TO SAY THAT THE AO SHALL PROVIDE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN SET ASIDE PROCEEDINGS AND THE ASSESSEE WILL BE ALLOWED TO FILE ALL NECESSARY DOCUMENTS/EVIDENCES IN SUPPORT OF ITS CONTENTIONS. WE ORDER ACCORDINGLY. 16. W ITH RESPECT TO THE GROUND OF APPEAL RAISED BY THE REVEN UE CONCERNING DISALLOWANCE OF NOTIONAL DEPRECIATION WHICH WAS ALREADY SET OFF IN EARLIER YEARS AGAINST OTHER BUSINESS INCOME U/S. 80I A , THE ASSESSEE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V . HERCULES HOISTS LTD. IN ITA NO. 707/2014 VIDE ORDERS DATED 14.06.2017, THE HONBLE BOMBAY HIGH COURT WHILE PASSING THE DECISION IN THE CASE OF HERCULES HOISTS I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 19 LTD. (SUPRA) HAS FOLLOWED THE DECISION HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD AND SUD AN SPINNING MILLS P. LTD. (2012) 340 ITR 477 AND IT WA S PLEADED DEDUCTION U/S. 80I A BE ALLOWED WITHOUT DEDUCTING DEPRECIATION OF EARLIER YEARS ON NOTIONAL BASIS. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER S OF THE AO. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT THE DEPRECIATION OF ELIGIBLE UNIT WHICH STOOD ADJUSTED AGAINST OTHER BUSINESS INCOME FROM NON ELIGIBLE IN THE EARLIER YEARS CAN NOT NOW BE ADJUSTED ON NOTIONAL BASIS AGAINST THE INCOME OF E LI GIBLE UNIT FOR THE IMPUGNED ASSESSMENT YEAR WHILE COMPUTING DEDUCTION U/S 80IA. OUR VIEW IS FORTIFIED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HERCULES HOISTS LIMITED(SUPRA) WHICH IS REPRODUCED HEREUNDER: 7. IT IS NOT DISPUTED THAT T HE RESPONDENT ASSESSEE IS ENTITLED FOR DEDUCTION OF THE PROFIT AND GAINS AS CONTEMPLATED U/S 80IA. IT IS ALSO NOT DISPUTED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION OF THE PROFITS AND GAINS FOR THE PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH INITIAL AS SESSMENT YEAR. IT IS FURTHER NOT DISPUTED THAT THE INITIAL ASSESSMENT YEAR OF THE ASSESSEES UNIT IS 2009 - 10 , THOUGH IT STARTED FUNCTIONING FROM THE YEAR 2005 - 06. THE LOSSES OF THE YEARS 2005 - 06 TO 2008 - 09 WERE ABSORBED DURING THE RELEVANT YEARS AND NO LOSSES WERE CARRIED FORWARD. THE ONLY QUESTION OF DEBATE BEFORE THE TRIBUNAL WAS WHETHER THE PROFIT EARNED DURING THE ASSESSMENT YEAR 2009 - 10 WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80IA(5) OF THE ACT WITHOUT DEDUCTING THE LOSSES, WHICH WERE ABSORBED IN THE EARLIER YEARS. 8. THE SAID ISSUE IS NO LONGER RES - INTEGRA IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPIINING MILLS P. LTD. & SUDAN SPINNING MILLS (P) LTD. (SUPRA), THE COURT OBSERVED AS UNDER: FROM A READING OF THE ABOVE, IT IS CLEAR THAT THE ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME, DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND EVERY SUBSEQUENT ASSESSMENT YEARS. WHEN THE ASSESSEE 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 WHICH WERE ALREADY SET OFF AGAINST THE INCOME OF THE ASSESSEE. LOOKING FORWARD TO A PERIOD OF TEN YEARS FROM THE INITIAL ASSESSMENT IS CONTEM PLATED. IT DOES NOT ALLOW THE REVENUE TO LOOK BACKWARD AND FIND OUT IF THERE IS ANY 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. A FICTION CREATED IN SUB - I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 20 SECTION DOES NOT CONTEMPLATES TO BRING SET OFF AMOUN T NOTIONALLY. THE FICTION IS CREATED ONLY FOR THE LIMITED PURPOSE AND THE SAME CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS CREATED. 9. THE SAID JUDGMENT OF THE MADRAS HIGH COURT HAS BEEN CONFIRMED BY THE APEX COURT, AS SUCH HAS ATTAINED FINALITY . EVEN IN THE ASSESSEES OWN CASE FOR THE PREVIOUS YEAR, THE LOSSES WERE SET OFF IN THE RELEVANT YEARS. THE REVENUE HAD CHALLENGED THE SAID ACTION BEFORE THIS COURT IN INCOME TAX APPEAL NO. 2485 OF 2013 AND IT WAS HELD THAT THE SAID ACTION IS LEGAL AND PR OPER. THE SAID JUDGMENT IS ALSO UPHELD BY THE APEX COURT. 10. CONSIDERING THE ABOVE, WE DO NOT FIND ANY ERROR COMMITTED BY THE TRIBUNAL IN ALLOWING THE DEDUCTION OF THE PROFIT U/S 80IB(5) OF THE ACT WITHOUT DEDUCTING THE LOSSES OF THE EARLIER YEARS. 11. IN THE LIGHT OF THE ABOVE, THE PRESENT APPEAL IS BEREFT OF ANY SUBSTANTIAL QUESTION OF LAW. AS SUCH, THE APPEAL IS DISMISSED. NO COSTS. THUS, BY FOLLOWING THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HERCULES HOISTS LIMITED(SUPRA) , WE DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. T HE REVENUE FAILS IN THIS APPEAL. WE ORDER ACCORDINGLY. 17 . IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE STOOD DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 . 0 4 .2018 04 .04 .2018 SD/ - SD/ - (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 04 .04 .2018 NISHANT VERMA SR. PRIVATE SECRETARY I.T.A. NO.923/ MUM/2016 I.T.A. NO.319/ MUM/2016 21 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, H 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI