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2014 (1) TMI 233 - AT - Income TaxDeduction u/s 80IA - Held that - The assessee had set up Udaipur Undertaking and Viramgam Undertaking in AY 2003-04 - The assessee incurred losses from these two eligible Units for deduction u/s.80-IA - No deduction was claimed in the said AY u/s.80-IA of the Act - In the AY 2005-06, the assessee earned profit from these projects and accordingly claimed deduction u/s.80-IA by treating the AY 2005-06 as initial assessment year - The AO while computing the deduction for AY 2005-06 u/s.80-IA reduced the deduction claimed by the assessee by adjusting the losses of previous assessment years 2003-04 & 2004-05 from the eligible profit from the undertakings. As per section 80IA - The eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent year - It nowhere defines as to what is the initial assessment year - Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under section 80IA(12) - After the amendment brought in statute by the Finance Act, 1999, the definition of initial assessment year has been specifically taken away If the assessee exercises the option of choosing the initial assessment year as culled out in sub-section(2) of section 80IA from which it chooses 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 brought forward as stipulated in section 80IA(5) - The loss prior to the initial assessment year which has already been set off cannot be brought forward and adjusted into the period of 10 years from the initial 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 assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80IA can be determined - No brought forward loss or depreciation could be reduced for determining the amount for which deduction is to be allowed u/s.80-IA of the Act Decided in favour of assessee. Whether loss of various loss making units be allocated to various units earning profits for deduction u/s 80IA - Held that - The AO computed the claim for deduction allowable u/s.80-IA to the assessee by allocating the losses of other units against the profits of the eligible units in proportion to the turnover of the assessee - Following M/s. Shriram Properties Pvt.Ltd. vs. ACIT 2013 (9) TMI 446 - ITAT CHENNAI - The profit derived from a particular eligible Industrial undertaking is qualified for deduction u/s.80IA without reduction of loss suffered by any other eligible industrial undertaking, subject to gross total income of assessee Decided in favour of assessee. Whether the gross interest expenditure be allocated in place of net interest expenditure Held that - When deposit in FDRs is made with the borrowed funds, then, only net income can be said to be the interest income derived from FDRs - The assessee has brought no material before him to show that borrowed funds were utilized for making the FDRs - The assessee could not bring any material to show that there was any nexus between the interest expenditure and the interest income earned on FDRs by the assessee Decided against assessee. Employees Contribution to PF Held that - Following CIT vs. Alom Extrusion Ltd 2009 (11) TMI 27 - SUPREME COURT - If the employees PF contribution was deposited by the assessee before the due date of filing of return of income u/s.139(1) of the Act, then the same should be allowed while computing the income of the assessee - Decided in favour of assessee. Disallowance u/s.40(a)(ia) Held that - Following Virgin Creation 2011 (11) TMI 348 - CALCUTTA HIGH COURT - If the TDS was deposited to the credit of the Central Government before due date of filing of return of income u/s.139(1) of the Act, then no disallowance shall be made u/s.40(a)(ia) of the Act The issue was set aside for fresh adjudication. Non-allowance of credit for tax deducted at source on mobilization advance received Held that - As per amended provisions of section 199, in sub-section 1, it has been stated that any deductions made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Therefore, as per the amended provisions, once the TDS was deducted, a credit of the same to be given to the assessees, irrespective of the year to which it relatesDecided in favour of assessee. Penalty u/s 271(1)(c) Held that - The penalty for concealment cannot be levied in the case of the appellant merely on the basis of addition made which had been confirmed by the CIT(Appeals) - Full particulars of the claim have been disclosed being fully supported by audit report and claim of netting of income u/s.80IA and applicability of section 80IA(4) r.w.s.(5) being debatable issue, there being two views, no malafide intention can be attributed to the appellant Decided in favour of assessee.
Issues Involved:
1. Deduction u/s.80-IA(4) of the Act. 2. Allocation of losses from loss-making units to profit-making units. 3. Allocation of gross interest expenditure versus net interest expenditure. 4. Disallowance of Employees Contribution to PF. 5. Disallowance of expenditure u/s.40(a)(ia) of the Act. 6. Credit for tax deducted at source on mobilization advance received. 7. Deletion of penalty u/s.271(1)(c) of the Act. Issue 1: Deduction u/s.80-IA(4) of the Act The assessee claimed deductions under section 80-IA(4) for various assessment years, which were disallowed by the AO based on the provisions of section 80-IA(5). The AO adjusted brought forward losses from earlier years against the profits of the eligible business, reducing the deduction. The CIT(A) upheld the AO's decision. The Tribunal, however, found that the initial assessment year is the year in which the deduction is first claimed, not the year of commencement. Following the decision of the Madras High Court in Velayudhaswamy Spinning Mills, the Tribunal held that losses prior to the initial assessment year should not be brought forward and adjusted against the profits. The Tribunal allowed the assessee's appeal on this issue. Issue 2: Allocation of Losses from Loss-Making Units to Profit-Making Units The AO allocated losses from loss-making units to profit-making units and computed the deduction under section 80-IA accordingly. The CIT(A) upheld this allocation. The Tribunal, however, found that section 80AB does not permit such redistribution and that only section 80IA(5) enables such adjustment. The Tribunal ruled in favor of the assessee, stating that profits from eligible undertakings should not be reduced by losses from other units. Issue 3: Allocation of Gross Interest Expenditure versus Net Interest Expenditure The AO allocated gross interest expenditure to different units, which was upheld by the CIT(A). The Tribunal, however, found that only net interest expenditure should be considered, following the Supreme Court decision in ACG Associated Capsules Pvt. Ltd. The Tribunal allowed the assessee's appeal on this issue. Issue 4: Disallowance of Employees Contribution to PF The AO disallowed the deduction for employees' contribution to PF paid after the due date under the PF Act. The CIT(A) directed the AO to allow the deduction if paid within the grace period. The Tribunal, following the Supreme Court decision in CIT vs. Alom Extrusion Ltd., directed the AO to allow the deduction if the payment was made before the due date of filing the return of income. Issue 5: Disallowance of Expenditure u/s.40(a)(ia) of the Act The AO disallowed the expenditure under section 40(a)(ia) as the TDS was paid after the end of the previous year. The CIT(A) upheld this disallowance. The Tribunal, following the Calcutta High Court decision in Virgin Creation, held that if the TDS was deposited before the due date of filing the return, no disallowance should be made. The Tribunal directed the AO to verify the TDS payment dates and allow the deduction accordingly. Issue 6: Credit for Tax Deducted at Source on Mobilization Advance Received The AO did not allow credit for TDS on mobilization advance as the income was not shown by the assessee. The CIT(A) upheld this decision. The Tribunal, following the decision of the Visakhapatnam Bench in Peddu Srinivasa Rao, directed the AO to allow credit for the TDS irrespective of the year to which it relates. Issue 7: Deletion of Penalty u/s.271(1)(c) of the Act The AO levied a penalty for concealment of income based on the disallowance of deduction under section 80-IA(4). The CIT(A) deleted the penalty, noting that the issue was debatable and the assessee had disclosed full particulars. The Tribunal upheld the CIT(A)'s decision, noting that the basis for the penalty did not survive as the deduction was allowed. Conclusion: - The Tribunal allowed the assessee's appeals on issues related to deductions under section 80-IA(4), allocation of losses, and employees' contribution to PF. - The Tribunal directed the AO to verify and allow deductions for TDS and employees' PF contributions if conditions were met. - The Tribunal upheld the deletion of the penalty and dismissed the Revenue's appeals on related issues.
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