2016 (3) TMI 59 - AT - Income Tax

Eligibility of deduction under section 80IA(5) - profits earned from generation and sale of electricity without setting-off the losses of other units engaged in the same business - Held that - Every unit constitutes a separate undertaking engaged in the eligible business, losses of one unit need not be set-off against the profits of the another units although engaged in the same business for the purposes of deduction under section 80IA of the Act. Presence of positive Gross Total Income after setting of brought forward losses etc. and profits from an eligible undertaking is sufficient to entitle the deduction to the assessee. We, accordingly, find that the CIT(A) has rightly reversed the action of the Assessing Officer in accordance with law. As such, we decline to interfere with the order of the CIT(A). - Decided in favour of assessee Depreciation claim - assessee company has claimed escalated depreciation @ 80% on the entire cost of windmill including civil work, expenses of erection and commissioning work, etc. - Held that - The capital expenditure incidental to the windmill has to be tested on the touchstone of the functional test and the assessee will be entitled to higher rate of depreciation on such incidental expenditure, if it has no other use except for power generation done by the windmill. Accordingly, we hold that the Revenue is misdirected itself in law in making the impugned disallowance of depreciation. - Decided in favour of assessee Disallowance of foreign tour and travelling expenses - Held that - As find that the CIT(A) has confirmed the estimation of disallowance on the ground that the reply is general and business purpose has not been substantiated in respect of certain visits noted above. In the absence of specific details, we decline to interfere with the orders of the CIT(A). - Decided against assessee

Summary

Issues Involved:
1. Eligibility of deduction under section 80IA(5) of the Income Tax Act, 1961.
2. Disallowance of depreciation on windmill.
3. Disallowance of foreign tour and traveling expenses.
4. Addition under section 41(1) as cessation of liability.

Detailed Analysis:

1. Eligibility of Deduction under Section 80IA(5):
- The Revenue appealed against the CIT(A)'s order allowing the assessee's claim for deduction under section 80IA(5) on profits from the Satara unit without setting off losses from other units.
- The Assessing Officer (AO) had denied the deduction, arguing that the losses from other windmill units in Tamil Nadu, Rajasthan, and Karnataka should be set off against the profits from the Satara unit.
- The CIT(A) reversed the AO's decision, stating that section 80IA refers to the profits of an "undertaking" or "enterprise," not the entire business.
- The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's judgments in Synco Industries Ltd. vs. ACIT and CIT vs. Canara Workshops P. Ltd., which support the view that each unit is an independent undertaking for the purpose of section 80IA.
- The Tribunal found the Revenue's reliance on the Gujarat High Court's decision in Sintex Industries Ltd. vs. ACIT misplaced, as the facts were distinguishable.

2. Disallowance of Depreciation on Windmill:
- The AO had restricted the depreciation rate on foundation and civil work and erection and commissioning work of the windmill to 10% and 15%, respectively, instead of the claimed 80%.
- The CIT(A) confirmed the AO's disallowance.
- The Tribunal reversed the CIT(A)'s decision, citing its own previous ruling in the assessee's case for the assessment year 2010-11 and other decisions, which held that expenses related to the installation and operational functioning of windmills qualify for the same depreciation rate as the windmill itself.
- The Tribunal allowed the assessee's claim for 80% depreciation on the entire cost of the windmill, including related civil work and erection expenses.

3. Disallowance of Foreign Tour and Traveling Expenses:
- The AO disallowed Rs. 3,00,000 out of the total foreign tour and traveling expenses of Rs. 9,51,850, citing insufficient evidence of business purpose for visits to Algeria, Malaysia, and Germany.
- The CIT(A) confirmed the AO's disallowance.
- The Tribunal upheld the CIT(A)'s decision, noting the lack of specific details to substantiate the business purpose of the trips in question.

4. Addition under Section 41(1) as Cessation of Liability:
- The CIT(A) confirmed an addition of Rs. 24,660 under section 41(1) as cessation of liability.
- The Tribunal noted that the assessee did not press this ground of appeal, and therefore, it was dismissed.

Conclusion:
- The appeals of the Revenue for the assessment years 2008-09, 2009-10, and 2010-11 were dismissed.
- The assessee's appeals for the assessment years 2008-09 and 2009-10 were partly allowed, with the claim for depreciation on windmill being accepted and the disallowance of foreign tour expenses being upheld. The addition under section 41(1) was dismissed as not pressed.