2015 (1) TMI 1404 - AT - Income Tax

Deduction u/s.80IA(4)(iv)(a) from windmill power generation - Since the assessee is having losses in earlier years AO was of the opinion that the assessee is not eligible for the deduction as per provisions of section 80IA(5) - Held that - The assessee is eligible for claim of deduction u/s 80-IA of the Act for the year under consideration in a manner whereby the initial assessment year referred to in section 80-IA(5) of the Act is to be taken as the A.Y. 2004-05 and not the A.Y. 2002-03 as canvassed by the Revenue. Resultantly, we therefore, set aside the order of the CIT(A) and direct the Assessing Officer to recompute and allow the deduction to the assessee u/s 80-IA. Disallowance u/s.14A r.w. Rule 8D - whether disallowance u/s.14A can be made when the assessee has not received any exempt income nor claimed any such exempt income in the return? - Held that - Since in the instant case the assessee has not received any dividend income out of the shares held as investment and since no disallowance u/s.14A has been made in the preceding as well as succeeding assessment years, therefore, we agree with the contention of the Ld. Counsel for the assessee that no disallowance u/s.14A can be made under the facts and circumstances of the case. Accordingly, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the disallowance

Summary

Issues Involved:
1. Interpretation of Section 80IA(5) and the definition of "initial assessment year" for deduction purposes.
2. Applicability of Section 14A r.w. Rule 8D when no exempt income is earned.

Detailed Analysis:

Issue 1: Interpretation of Section 80IA(5) and the Definition of "Initial Assessment Year"

The primary issue revolves around whether the losses from earlier years should be considered while calculating the deduction under Section 80IA(5) of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction claimed by the assessee, arguing that the losses from previous years should be notionally carried forward and set off against the profits of the current year. The AO relied on several judicial precedents, including ACIT Vs. Goldmines Shares & Finance (P) Ltd., to support this interpretation.

The assessee contended that as per Section 80IA(2), the deduction can be claimed for any ten consecutive assessment years out of fifteen years, starting from the year the undertaking began generating power. The assessee argued that the "initial assessment year" should be the year in which the assessee opts to claim the deduction, not necessarily the first year of operation.

The CIT(A) sided with the assessee, referencing decisions from various tribunals, including the Chennai Bench in Mohan Breweries and Distilleries Ltd. Vs. CIT and the Pune Bench in M/s. Laxmi Rishaw Body Pvt. Ltd. Vs. CIT. The CIT(A) concluded that the initial assessment year is the year the assessee chooses to claim the deduction, not the first year of operation.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, referencing its own ruling in ACIT Vs. Mrs. Sulbha Subhash Lodha. The Tribunal reiterated that the initial assessment year is the year in which the assessee opts to claim the deduction, not the first year of operation. The Tribunal dismissed the Revenue's appeal, affirming that the assessee's interpretation aligns with the legislative intent and judicial precedents.

Issue 2: Applicability of Section 14A r.w. Rule 8D When No Exempt Income is Earned

The second issue concerns whether disallowance under Section 14A read with Rule 8D is applicable when the assessee has not earned any exempt income. The AO made an addition under Section 14A, arguing that the assessee had incurred expenses related to investments that could potentially earn exempt income.

The assessee argued that since no exempt income was earned or claimed, the provisions of Section 14A should not apply. The CIT(A) agreed with the assessee, citing the decision of the Hon'ble Punjab & Haryana High Court in CIT Vs. Winsome Textile Industries, which held that Section 14A does not apply if no exempt income is earned.

The Tribunal upheld the CIT(A)'s decision, referencing its own ruling in Shri Goyal Ishwarchand Kishorilal Vs. JCIT. The Tribunal noted that various courts, including the Hon'ble Allahabad High Court in Shivam Motors Pvt. Ltd. and the Hon'ble Punjab & Haryana High Court in Lakhani Marketing, have held that disallowance under Section 14A is not warranted if no exempt income is earned. The Tribunal dismissed the Revenue's appeal, affirming that disallowance under Section 14A is not applicable in the absence of exempt income.

Conclusion:

The Tribunal dismissed the Revenue's appeals on both issues. For Section 80IA(5), it upheld the interpretation that the initial assessment year is the year the assessee opts to claim the deduction. For Section 14A, it confirmed that disallowance is not applicable when no exempt income is earned. Both decisions align with judicial precedents and legislative intent.