2017 (5) TMI 1400 - AT - Income Tax

Disallowance of deduction claimed u/s 80-IA - whether the compensation received by the assessee is business income and therefore eligible for the deduction under section 80IA ? - Held that - It is undisputed fact that the compensation was received by the assessee from SEL as the machines failed to generate the guaranteed electricity units. It is also admitted fact that the assessee is into the business of wind power generation business. Thus it can be inferred that the impugned compensation has direct nexus with the business operations of the assessee and accordingly eligible for deduction under section 80IA of the Act. We also find that in the identical facts & circumstances the Hon ble ITAT decided the issue in favor of assessee by allowing the compensation on account of power generation loss is entitled for deduction u/s. 80-IA of the Act in the case of Lahoti Overseas Ltd. Vs Dy. Commissioner of Income Tax 2016 (4) TMI 591 - ITAT MUMBAI DR before us has alleged that the impugned compensation is in the nature of incentive which in our considered view is not true. It is because of the fact that it was given due to non-generation of units as guaranteed by the SEL. Thus by no stretch of imagination the compensation can be equated with the incentive. Thus we deleted the addition - Decided in favour of assessee.

Summary

Issues:
1. Condonation of delay in filing the appeal before the Tribunal.
2. Disallowance of deduction claimed under section 80-IA of the Income Tax Act for a specific amount.

Issue 1: Condonation of Delay
The appeal by the assessee was filed with a delay of 32 days before the Tribunal. The assessee sought condonation of the delay, providing reasons supported by an affidavit. The Tribunal found sufficient cause for the delay and decided to proceed with the appeal on merit after condoning the delay.

Issue 2: Disallowance of Deduction under Section 80-IA
The primary issue raised in the appeal was the disallowance of a deduction claimed under section 80-IA of the Income Tax Act amounting to ?87 lakhs. The assessee, engaged in various business activities, claimed this deduction for the relevant assessment year. The deduction was related to compensation received from Suzlon Energy Ltd. due to non-generation of guaranteed electricity units. The Assessing Officer disallowed the deduction, citing the compensation as ineligible under section 80-IA. The CIT(A) upheld this disallowance, stating that the compensation was not directly related to the profits from the sale of power. However, the assessee contended that the compensation had a direct nexus with its business operations, specifically in wind power generation.

The Tribunal analyzed the nature of the compensation and its connection to the business activities of the assessee. It noted that the compensation was received due to the failure of machines to generate guaranteed electricity units, directly impacting the wind power generation business. Referring to a similar case decided by the ITAT in favor of the assessee, the Tribunal held that the compensation was business income and eligible for deduction under section 80-IA. The Tribunal distinguished the compensation as not merely an incentive but a reimbursement for the shortfall in power generation. Relying on precedents and the specific circumstances of the case, the Tribunal allowed the appeal, overturning the decisions of the lower authorities and granting the deduction claimed under section 80-IA.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing the direct nexus between the compensation received and the business activities, thereby qualifying the amount for deduction under section 80-IA of the Income Tax Act.