2011 (4) TMI 1230 - AT - Income Tax

Issues Involved:
1. Rejection of claim of deduction u/s 80-IA(iv)(a) on income generated from the windmill.
2. Entitlement for depreciation on machinery used in job work done by assessee's vendors.
3. Estimating selling and administrative expenses attributable to windmill.
4. Revision of AO's order by CIT invoking provisions of section 263 for A.Y. 2004-05 and 2005-06.
5. Claim of deduction u/s 80-IA/80-IB on income from machining charges, sale of scrap, DEPB sale, turnover tax, and surcharge refund on purchases.

Summary:

1. Rejection of Claim of Deduction u/s 80-IA(iv)(a) on Income Generated from the Windmill:
The assessee's claim for deduction u/s 80-IA(iv)(a) was based on the provisions amended by the Finance Act 1999, allowing a ten-year deduction period within the first fifteen years of business commencement. The assessee exercised this option in A.Y. 2004-05. The Tribunal referred to the decision of the Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (231 CTR 368), which held that losses and depreciation from earlier years absorbed against other business profits cannot be notionally carried forward and set off against profits for computing the deduction u/s 80-IA. Thus, the issue was decided in favor of the assessee.

2. Entitlement for Depreciation on Machinery Used in Job Work Done by Assessee's Vendors:
The Tribunal examined whether the machinery supplied to vendors for job work was used for the assessee's business. It was established that the vendors substantially worked for the assessee, and the ownership and usage of the machinery were not doubted. Citing the decision of the Madras High Court in CIT vs. Indian Express (255 ITR 68 Mad.), the Tribunal concluded that the machinery was used exclusively for the assessee's business, thus entitling the assessee to claim depreciation. The Tribunal reversed the findings of the lower authorities and allowed the claim.

3. Estimating Selling and Administrative Expenses Attributable to Windmill:
The assessee maintained separate accounts for the windmill division and contended that only directly relatable expenses should be allocated while computing the deduction u/s 80-IA. The Tribunal restored the issue to the Assessing Officer to verify the maintenance of separate books of account and decide accordingly, providing an opportunity for a hearing to the assessee.

4. Revision of AO's Order by CIT Invoking Provisions of Section 263 for A.Y. 2004-05 and 2005-06:
The CIT revised the AO's order for A.Y. 2004-05 and 2005-06, invoking section 263, following the view taken in A.Y. 2006-07. The Tribunal found that the AO had adopted a possible view in line with the decision of the Chennai Tribunal in Mohan Breweries and Distilleries Ltd. v. ACIT (114 TTJ 532). Citing the Supreme Court decision in Malabar Industrial Co. Ltd. Vs. CIT (243 ITR 83 SC), the Tribunal held that the CIT was not justified in invoking section 263 and allowed the assessee's appeals.

5. Claim of Deduction u/s 80-IA/80-IB on Income from Machining Charges, Sale of Scrap, DEPB Sale, Turnover Tax, and Surcharge Refund on Purchases:
The Tribunal referred to the decision in Ramchandra Enterprises (ITA No. 1066, 1067/PN/2008 and 353/PN/2009) and allowed the claim of deduction u/s 80-IB on income from machining charges and scrap sale, as these were directly linked to the manufacturing activity. However, the claim for deduction on DEPB sale, turnover tax, and surcharge refund was decided against the assessee, following the Supreme Court decision in Liberty India Vs. CIT (317 ITR 218 SC) and S.N. Gupta (297 ITR 322 SC).

Conclusion:
The assessee's appeal for A.Y. 2006-07 was partly allowed, appeals for A.Y. 2004-05 and 2005-06 were allowed, and the Revenue's appeal for A.Y. 2006-07 was partly allowed. The judgment was pronounced in the open court on 29th April 2011.

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