2016 (4) TMI 591 - AT - Income Tax

Depreciation on the windmill - whether the windmill was not commissioned and put to use during the relevant Assessment Year for the A.Y. 2003-04 ? - Held that - As the assessee company has brought on record cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that the windmill of the assessee company with the capacity 1.25 MW was duly installed , commissioned and put to use on 30-03-2003 and was also connected to 33kv Khuri Feeder on 30-3-2003 and the assessee company has also supplied net-energy being 98KWH to RVPNL in March 2003 which was duly paid by RVPNL , which has not been controverted and demolished by the Revenue. We ,there-fore, hold that the installation , commissioning and put to use of the windmill no. J-208 at Soda-Mada- Jaisalmer, Rajasthan with capacity of 1.25 MW of the assessee company was completed on 30-03-2003 i.e. during the previous year 2002-03 relevant to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same survey report dated 05-04-2006 which is not only technically defective due to reasons as detailed above but was also drawn on the basis of conjectures, surmises , assumptions and presumptions without backing of any cogent material/evidences, which is alien to the Act and is not sufficient for fastening liability on the assessee company . In view of our above findings and reasoning detailed above, we find no infirmity in the well reasoned and detailed order passed by the CIT(A) which we decline and refuse to interfere and hence, we confirm the orders of the CIT(A) - Decided in favour of assessee Reopening of assessment - claim of deduction u/s 80IA disallowed - Held that - the completed assessments u/s 143(3) of the Act in the instant case has been reopened u/s 147/148 of the Act without having any new tangible material coming to the possession of the A.O. after conclusion of the assessment u/s 143(3) of the Act on 17-12-2009 which could warrant reopening of assessment u/s 147/148 of the Act rather the AO while recording reasons for re-opening has clearly stated that on verification of assessment records , the claim of the assessee company u/s 80IA was wrongly allowed in the scrutiny assessment framed u/s 143(3) of the Act meaning thereby the AO is attempting to review his own decision taken in concluded regular assessment u/s 143(3) of the Act which is not permissible as per mandate of Section 147/148 of the Act. Thus in our considered view, the reopening in the instant case u/s 147/148 of the Act is bad in law liable to be quashed and thus, re-opening of the concluded assessment in the instant case u/s 147/148 is hereby quashed. Since we have quashed the reopening u/s 147/148 of the Act, we refrain from commenting on the merits of the case Addition u/s 68 - Held that - A.O. has not brought on record any cogent material/record to prove that the assessee company has failed to comply with the ingredients of section 68 of the Act or to demolish the evidences filed by the assessee company or explanation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and assumptions which is not permissible under the Act while the assessee company has satisfied the ingredients of Section 68 of the Act by uncontroverted cogent documentary evidences and explanations offered during assessment and appellate proceedings. The said Mr Nimesh G. Chandak , the ultimate investor of the investing group was produced by the assessee company before the CIT(A) .The assessee company also offered to produce said Mr Nimesh G. Chandak before the AO during remand report proceedings but the AO failed to avail the opportunity to examine him and /or record his statement and/or to cross examine him to strengthen his case to bring , the transaction of share subscription of ₹ 5.10 crores by BWGL in the assessee company , within fold of chargeability to tax under Section 68 of the Act. The said Mr. Nimesh G Chandak has also filed duly attested affidavit stating the entire details of investment of ₹ 5.10 crores in the assessee company , the contents thereof has also not been demolished by the Revenue and had remained uncontroverted. In our considered view, the CIT(A) has passed a very detailed and well reasoned order dated 12.03.2012 accepting the contentions of the assessee company with which we concur , agree and uphold the same. Foreign investments undisclosed - Held that - In the instant case, the investing company has duly explained the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing ₹ 5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the assessee company through his corporate structure of holding and subsidiary companies. It is totally irrelevant on part of the Revenue to contend that these foreign companies do not have owned funds or there are no business activities of these foreign companies, so long the assessee company is able to establish and substantiate with cogent material and evidences, identity of the creditor, creditworthiness of the creditor and genuineness of the transaction , which in our considered view, the assessee company has duly proved by clinching and conclusive evidences to satisfy the mandate of provisions of Section 68 of the Act, The Revenue has not brought on record any plea or contention backed with evidences that these web of chain of holding and subsidiary companies so created by Mr. Nimesh G Chandak were with dubious purposes and objectives with an intention to evade taxes to defraud revenue or the transaction per-se is undertaken with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. - Decided against revenue Deduction u/s 80IA - adjusted losses/depreciation against income from other businesses - assessee company has chosen the initial assessment year for claiming the deduction u/s 80IA with effect from assessment year 2007-08 as per Section 80IA(2) and 80IA(5) - Held that - Manner of determining the quantum of deduction, a reference has been made to the term initial assessment year . The clear mandate provided under Sub-Section (2) which allows a choice to the tax-payer for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. An taxpayer who is eligible to claim deduction u/s 80IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. Thus, the term initial assessment year would mean the first year opted for by the tax-payer for claiming deduction u/s 801A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. As already adjusted losses/depreciation against income from other businesses in the earlier years (i.e. up-to assessment year 2006-07 as the assessee company has chosen assessment year 2007-08 as the initial assessment year for claiming deduction u/s 80IA of the Act )by the assessee company cannot be brought forward notionally to be adjusted against the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreciation in the hands of the assessee company as per facts emanating from records . Entitled for deduction u/s 80IA - Held that - As the amount received by the assessee company from M/s Suzlon Energy Ltd. on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. Disallowance u/s 14A - Held that - The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of exempt income. The assessee company had also submitted that entire bank charges and commission is considered as interest for disallowance while the said bank charges and commission has no nexus with tax-free income and as the afore-stated pleas raised by the assessee company were not adjudicated by the authorities below properly and no reason s have been given in their orders for their rejection, this matter need to be set aside to the file of the AO for de-novo determination of the disallowance of expenditure u/s 14A of the Act on merits in accordance with law after considering all the pleas of the assessee company as may be raised by the assessee company before the AO.

Summary

Issues Involved:
1. Depreciation on Windmill for AY 2003-04.
2. Deduction under Section 80-IA for AY 2007-08.
3. Addition under Section 68 for AY 2008-09.
4. Deduction under Section 80-IA for AY 2008-09.
5. Disallowance under Section 14A for AY 2008-09.

Detailed Analysis:

1. Depreciation on Windmill for AY 2003-04:
The core issue was whether the windmill was commissioned and put to use during the relevant assessment year, 2003-04. The AO disallowed the depreciation claim of ?1.86 crores on the grounds that the windmill was installed on 01/04/2003, not 30/03/2003. The assessee provided various documents, including certificates from government authorities, invoices, and joint inspection reports, proving the commissioning date as 30/03/2003. The CIT(A) and the Tribunal upheld the assessee's claim, allowing the depreciation for AY 2003-04, as the evidence provided was deemed sufficient and credible.

2. Deduction under Section 80-IA for AY 2007-08:
The dispute centered on whether the assessee could claim deduction under Section 80-IA without setting off the unabsorbed loss of earlier years of the windmill division. The AO and CIT(A) denied the deduction, arguing that the losses must be carried forward and set off. The Tribunal, however, ruled in favor of the assessee, citing that the initial assessment year for claiming deduction under Section 80-IA was AY 2007-08, and earlier losses set off against other income should not be brought forward notionally. The Tribunal relied on judicial precedents and a CBDT circular clarifying the term "initial assessment year."

3. Addition under Section 68 for AY 2008-09:
The AO added ?5.10 crores to the assessee's income under Section 68, questioning the identity, creditworthiness, and genuineness of the transaction involving share capital received from a foreign company, BWGL. The assessee provided extensive documentation proving the identity of BWGL, the flow of funds, and the ultimate investor, Mr. Nimesh G. Chandak. The CIT(A) and the Tribunal accepted these explanations and documents, ruling that the assessee had satisfactorily discharged its burden under Section 68, and deleted the addition.

4. Deduction under Section 80-IA for AY 2008-09:
The AO denied the deduction under Section 80-IA, including an amount of ?35,55,880 received as compensation from Suzlon Energy Ltd. for shortfall in power generation. The CIT(A) upheld the AO's decision, stating that this compensation was not derived from the industrial undertaking. The Tribunal reversed this decision, holding that the compensation had a direct nexus with the business of generating power and was eligible for deduction under Section 80-IA, supported by judicial precedents and a recent Supreme Court judgment.

5. Disallowance under Section 14A for AY 2008-09:
The AO disallowed ?13,66,079 under Section 14A read with Rule 8D, against the assessee's claim of ?2,45,514. The assessee argued that the disallowance should be restricted to the exempt income of ?2.5 lakhs and raised several specific pleas regarding the computation. The CIT(A) upheld the AO's disallowance. The Tribunal set aside the matter to the AO for a fresh determination, directing the AO to consider the assessee's pleas and ensure compliance with Section 14A(2) and (3).

Conclusion:
The Tribunal ruled in favor of the assessee on most issues, allowing the depreciation claim for AY 2003-04, the deduction under Section 80-IA for AY 2007-08 and 2008-09, and deleting the addition under Section 68 for AY 2008-09. The disallowance under Section 14A was remanded for fresh consideration.