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2010 (9) TMI 1080 - AT - Income TaxNature of expenditure - advertisement/sales promotion expenditure as capital or revenue expenditure - as argued stating that 23, 00, 000 each was paid by the four companies of the Poonawala Group and the said amount was allowed as a revenue expenditure in the case of Serum Institute of India Ltd. during the scrutiny proceedings under s. 143(3) - HELD THAT - The impugned sum of 23, 00, 000 is part and parcel of the total payment of 92, 00, 000. The facts of the issue involved in Serum Institute of India Ltd. and the present assessee are one and the same. Revenue did not make out any case to demonstrate that the claims in the cases of the assessee and other three assessees including Serum Institute of India Ltd. are different or distinguishable. Considering the homology of the facts commonality of the agreement and the contents thereof benefits arrived by the impugned four concerns we are of the opinion that the rule of consistency is violated within the meaning of the ratio decidendi in the case of Radhasoami 1991 (11) TMI 2 - SUPREME COURT . Therefore on this reasoning the assessee is also entitled for making claim of deduction without going to the merits of the issue raised in the appeal. Accordingly Appeal is allowed. Deduction u/s 80-IA in respect of the profits of the windmill activity - initial assessment year - HELD THAT - When the statute have granted the option to choose the initial assessment year and when the assessee has so chosen the current assessment year as the initial assessment year and when the assessee accordingly paid the taxes on the profits of the windmill activity in the earlier years as per the statute the AO s decision to thrust the initial assessment year on the assessee is not in tune with the provisions of sec 80-IA(2). Accordingly we are of the opinion the learned CIT(A) erred in holding that the initial assessment year for the purposes of sec 80-IA(2) r/w s. 080-IA(5) was the year in which the assessee started generating the electricity. Therefore the order of the CIT(A) has to be reversed on this issue. It is clear that the initial assessment year for the above purposes was the first year in which the assessee claimed the deduction u/s 80-IA(1) after exercising his option as per the provisions of sec 80-IA(2). Consequently the assessee is entitled to claim the deduction u/s 80-IA in respect of the profits from the windmill activity. Accordingly the clarificatory ground raised is allowed. In the result adjudication in the appeal is mere academic and hence they are dismissed as infructuous. In the result the appeal of the assessee is allowed.
Issues Involved:
1. Classification of advertisement/sales promotion expenditure as capital or revenue expenditure. 2. Allowance of depreciation on the expenditure incurred for construction of a cafeteria. 3. Treatment of past losses for the purpose of deduction under Section 80-IA. 4. Determination of the "initial assessment year" for claiming deduction under Section 80-IA. Detailed Analysis: 1. Classification of Advertisement/Sales Promotion Expenditure: The primary issue was whether the expenditure of Rs. 23,00,000 incurred by the assessee for advertisement and sales promotion should be classified as capital expenditure or revenue expenditure. The assessee argued that this expenditure was for advertisement and publicity, while the Assessing Officer (AO) and CIT(A) considered it capital expenditure, as it provided the assessee with a benefit of enduring nature, specifically the right to use a lounge/cafeteria for 15 days a year. The Tribunal noted that the same expenditure incurred by Serum Institute of India Ltd., another company from the Poonawala Group, was allowed as revenue expenditure under scrutiny. The Tribunal emphasized the principle of consistency, citing the Supreme Court judgment in Radhasoami Satsang v. CIT, which states that in the absence of any material change justifying a different view, the Department should not take a different stance in subsequent years. Given the identical facts and the Revenue's inconsistent treatment, the Tribunal ruled in favor of the assessee, allowing the expenditure as revenue expenditure. 2. Allowance of Depreciation on the Expenditure: The second issue was whether the assessee should be allowed depreciation on the expenditure of Rs. 23,00,000 incurred for the construction of the cafeteria. Since the Tribunal classified the expenditure as revenue expenditure, the question of allowing depreciation became moot. Consequently, the Tribunal did not delve into this issue separately. 3. Treatment of Past Losses for Deduction Under Section 80-IA: The third issue concerned the treatment of past losses for the purpose of deduction under Section 80-IA. The AO and CIT(A) held that the past losses of the undertaking, which were set off in earlier years, should be set off against the profit of the current year before allowing the deduction under Section 80-IA. The Tribunal examined the relevant provisions and noted that the assessee had the option to choose any ten consecutive assessment years out of fifteen years for claiming the deduction. The Tribunal found that the AO's decision to thrust the initial assessment year on the assessee was not in accordance with the provisions of Section 80-IA(2). The Tribunal ruled that the initial assessment year should be the first year in which the assessee claimed the deduction after exercising the option, thereby allowing the deduction of Rs. 25,44,326 for the current year without adjusting past losses. 4. Determination of the "Initial Assessment Year": The final issue was the determination of the "initial assessment year" for claiming deduction under Section 80-IA. The AO and CIT(A) considered the initial assessment year as the year when the assessee started generating electricity (2002-03), whereas the assessee claimed 2004-05 as the initial assessment year. The Tribunal upheld the assessee's right to choose the initial assessment year as per Section 80-IA(2), which allows the assessee to select any ten consecutive assessment years out of fifteen years. The Tribunal concluded that the initial assessment year is the first year in which the assessee claims the deduction after exercising the option. Therefore, the Tribunal reversed the CIT(A)'s order and allowed the deduction for the profits from the windmill activity for the assessment year 2004-05. Conclusion: The Tribunal allowed the appeal of the assessee, ruling in favor of treating the Rs. 23,00,000 expenditure as revenue expenditure and permitting the deduction of Rs. 25,44,326 under Section 80-IA for the profits from the windmill activity, based on the assessee's chosen initial assessment year of 2004-05. The grounds related to depreciation and past losses were rendered academic and dismissed as infructuous.
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