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2016 (9) TMI 1497 - AT - Income TaxDisallowance of deduction u/s.80-IA - initial assessment year in section 80-IA(5) would only mean the year of commencement and not the year of claim ? - Unabsorbed depreciation - HELD THAT - This issue is squarely covered by the order of the jurisdictional High court in the case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT 2010 (3) TMI 860 - MADRAS HIGH COURT There is no dispute that during the year there is a profit. Therefore the assessee claimed deduction under section 80-IA and the Revenue has no authority to notionally bring forward the unabsorbed depreciation and loss of the earlier year which has been already set off as against the current year profit from the unit. Initial assessment year cannot be the year in which the undertaking commenced its operations and in this case the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA. Hence the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80-IA - Decided in favour of the assessee Writing off trade advance as revenue expenditure in terms of Section 37 - HELD THAT - Amount paid by the assessee to M/s. Cibi International for the purpose of establishing and maintaining infrastructure facilities for manufacture of knitted garments and if M/s. Cibi International maintains the said facility exclusively for the benefit of assessee the assessee cannot claim the same as refund. On the other hand if the M/s.Cibi International failed to maintain the said facility for the exclusive benefit of assessee for a period of 10 years than the assessee has a right to claim the same as refund. The same was examined by the Tribunal on earlier occasion for assessment year 2010-11 and it was allowed as deduction in the hands of assessee u/s.37 - we are not in a position to take contrary view as a judicial discipline requires consistency in its proceedings.- Decided in favour of the assessee Deduction towards cost of building construction on leasehold land as a revenue expenditure - D.R contended that the assessee constructed the building in the leased land and it is not the case of renovation of the leased building or improvement of the leased building - HELD THAT - AO has to see that the expenditure incurred on construction of any super structure on the leasehold land resulted in savings of any revenue expenditure in the form of monthly rent at the subsequent stage in future or not. Since there is no finding by the lower authorities regarding savings of the future revenue expenditure by the assessee so as to say it is a Revenue expenditure. As such we are not in a position to appreciate the facts of the case. Accordingly we remit the issue to the file of AO to decide the issue afresh Penalty imposed u/s.271(1)(c) - assessee structured the whole transaction with respect to intangible assets and wrong claim of depreciation with the motive to reduce the tax liability. Against this the Revenue is in appeal before us - CIT-A deleted penalty - HELD THAT - It is preposterous to decide the issue of penalty levied u/s.271(1)(c) at this stage since certain issue relating to addition of deletion by the CIT(A) are remitted by us to the file of AO for fresh consideration for the assessment year under consideration. Hence at this stage the assessment order on the basis of which penalty has been levied still the subject matter of litigation which is not . Hence in our opinion the AO is at liberty to initiate the penalty proceedings only after giving effect to the Tribunal order by him in the issue of quantum addition. Accordingly we vacate the penalty order at this stage. As such we dismiss this appeal of Revenue as infructuous.
Issues Involved:
1. Deletion of addition made by AO on account of disallowance of deduction u/s.80-IA. 2. Allowing of writing off trade advance as revenue expenditure under Section 37. 3. Allowing the deduction towards cost of building construction on leasehold land as a revenue expenditure. 4. Deletion of penalty imposed u/s.271(1)(c). Issue-wise Detailed Analysis: 1. Deletion of Addition Made by AO on Account of Disallowance of Deduction u/s.80-IA: The first issue pertains to the deletion of an addition made by the AO due to the disallowance of a deduction under Section 80-IA amounting to ?2,89,77,784/-. The Tribunal found that this issue is covered by the jurisdictional High Court's decision in Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT, which clarified that losses incurred before the initial assessment year that were already set off against other income cannot be brought forward and set off against the profits of the eligible business. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision in favor of the assessee, dismissing the Revenue's ground. 2. Allowing of Writing Off Trade Advance as Revenue Expenditure under Section 37: The second issue involves the writing off of trade advance as revenue expenditure. The assessee had advanced ?2 crores to M/s. Cibi International for establishing infrastructure facilities for manufacturing knitted garments. The AO disallowed this claim, treating it as a trade advance rather than an expenditure incurred for business purposes. However, the CIT(A) allowed the claim, following the Tribunal's earlier decision in the assessee's own case for the assessment year 2010-11. The Tribunal noted that the payment was made for business purposes and upheld the CIT(A)'s decision, dismissing the Revenue's ground. 3. Allowing the Deduction Towards Cost of Building Construction on Leasehold Land as a Revenue Expenditure: The third issue concerns the deduction of costs for building construction on leasehold land. The AO treated this expenditure as capital in nature, invoking Explanation 1 to Section 32(1). However, the CIT(A) relied on the jurisdictional High Court's decision in TVS Lean Logistics Ltd., which held that construction costs on leased land for business advantage are admissible as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not acquire a capital asset but incurred the expenditure for business purposes. The Tribunal directed the AO to reconsider the issue in light of the relevant judgments, remitting the issue for fresh consideration. 4. Deletion of Penalty Imposed u/s.271(1)(c): The final issue pertains to the deletion of a penalty imposed under Section 271(1)(c). The CIT(A) had deleted the penalty, noting that the assessee's transaction structuring and depreciation claims were not intended to reduce tax liability. The Tribunal found it inappropriate to decide on the penalty while certain issues related to the quantum addition were still under litigation. The Tribunal vacated the penalty order, allowing the AO to initiate penalty proceedings only after giving effect to the Tribunal's order on the quantum addition. Consequently, the appeal regarding the penalty was dismissed as infructuous. Conclusion: The Tribunal's decisions resulted in the dismissal of the Revenue's appeals on the first two issues, remittance of the third issue for fresh consideration, and dismissal of the appeal regarding the penalty as infructuous. The Tribunal emphasized consistency in judicial proceedings and adherence to jurisdictional High Court rulings.
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