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2013 (2) TMI 15 - AT - Income TaxDeduction u/s 80-IA on the profits derived from the business of windmill - AO computed the deduction u/s 80-IA after reducing the notional brought forward losses and depreciation of windmill unit - what would be the initial A.Y for the purposes of Section 80IA(5)? - Held that - As decided in Serum International Ltd. Vs. Addl. CIT Range 6, Pune 2013 (1) TMI 688 - ITAT PUNE after following the decision of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT 2010 (3) TMI 860 - MADRAS HIGH COURT that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee. As DR has not brought to the notice of the Bench any decision contrary on the issue in question it is to be held that the assessee is eligible for claim of deduction u/s 80-IA for the year under consideration in a manner whereby the initial assessment year referred to in section 80-IA(5) is to be taken as the A.Y. 2006-07 and not the A.Y. 2001-02 as canvassed by the Revenue as the assessee has opted to claim this deduction only in this assessment year. Resultantly,set aside the order of the CIT(A) and direct the AO to recompute and allow the deduction to the assessee u/s 80-IA - in favour of assessee. Disallowance invoking section 40(a)(ia) - interest payment liable for deduction of tax at source u/s 194A - plea of assessee that the amount has been actually paid before 31-3-2006 and nothing was outstanding - Held that - Sec. 40(a)(ia) mandates that the expenditure specified therein shall not be allowed as deduction in cases where the tax deductible at source as per Chapter XVII-B of the Act on such payment, has not been deducted by the assessee or after deduction has not been paid within the period prescribed. The case made out by the assessee is that sec. 40(a)(ia) refers to amounts payable and not to amount actually paid during the year. As the amount in question is not outstanding as on 31-3-2006 and therefore, even if the requisite tax has not been deducted at source on such payments such expenditure could not be disallowed u/s 40(a)(ia) as the amounts have been actually paid. Also see Merilyn Shipping & Transports 2012 (4) TMI 290 - ITAT VISAKHAPATNAM - in favour of assessee. Addition of process loss - invoking section 145(3) and rejecting the book results declared - Held that - It is not in dispute that the loses occured due to storage, transit, handing and processing. Merely because the records are not maintained to show the quantity loss at each of the above stages, the same cannot by itself be fatal to say that the accounts of the assessee are unreliable. Pertinently, there is no evidence to suggest that there has been any unaccounted production or that there has been any transaction either of purchase or sale outside the account books. Also the assessee s product is subject to the levy of excise and before the CIT(A), the assessee had asserted that its account books have been subject to audit wherein no discrepancy has been found. The ratio of Bastiram Narayandas Maheshwari (1993 (12) TMI 31 - BOMBAY HIGH COURT) as relied by Revenue to make additions will not be applicale as in the present case, there is no dispute to the position that the accounts of the assessee clearly bring out the difference in the input quantity of raw material and output quantity of finished product therefore - against Revenue. Disallowance of job work charges, rent and hire charges, repairs and maintenance, labour welfare and office expenses - claimed expenses were not fully vouched and some of repairs and maintenance expenditure was of capital in nature - Held that - As it is evident that the AO made a generalized observation and has not referred to any particular expense or vouchers to indicate the discrepancy stated by him. It is also evident that no particular expenditure out of repairs and maintenance is sought to be pointed out as capital in nature. Thus AO was not justified in making disallowance - CIT(A) has restricted the disallowance to Rs.50,000/- as against Rs.7,00,000/. which is affirmed as the assessee has not agitated the same - against revenue.
Issues Involved:
1. Deduction claimed under section 80-IA of the Income-tax Act. 2. Disallowance under section 40(a)(ia) of the Income-tax Act. 3. Disallowance of Rs. 50,000/- on an ad-hoc basis. 4. Deletion of an addition of Rs. 12,51,660/- by the Assessing Officer. 5. Disallowance restricted to Rs. 50,000/- by the CIT(A). Detailed Analysis: 1. Deduction claimed under section 80-IA of the Income-tax Act: The assessee firm, engaged in blending and packing of tea, power generation, and transport business, claimed a deduction of Rs. 12,56,352/- under section 80-IA(4) for profits from windmill power generation for A.Y. 2006-07. The Assessing Officer disallowed this claim by reducing the notional brought forward losses and depreciation of the windmill unit, which were set off against other business income in earlier years, applying section 80-IA(5). The CIT(A) upheld this decision, following the Special Bench decision in ACIT Vs. Goldmine Shares and Finance Pvt. Ltd. The Tribunal, however, referred to the Pune Bench decision in Serum International Ltd. Vs. Addl. CIT, which followed the Madras High Court ruling in Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT, favoring the assessee. The Tribunal concluded that only losses from the initial assessment year chosen by the assessee for claiming deduction should be considered, not earlier years' losses already set off. Thus, the Tribunal directed the Assessing Officer to recompute and allow the deduction under section 80-IA without considering notional brought forward losses. 2. Disallowance under section 40(a)(ia) of the Income-tax Act: The assessee transferred sales-tax benefits to M/s. Kopargaon SSK Ltd. and paid Rs. 3,64,583/- as consideration without deducting tax at source. The Assessing Officer disallowed this amount under section 40(a)(ia), treating it as interest liable for TDS under section 194A. The CIT(A) upheld this disallowance. The Tribunal, however, referred to its decision in Shruti Medical Institute Vs. ITO, where it was held that section 40(a)(ia) applies to "amounts payable" and not to amounts actually paid during the year. Since the amount was paid before the year-end, the Tribunal directed the Assessing Officer to delete the disallowance. 3. Disallowance of Rs. 50,000/- on an ad-hoc basis: The assessee did not press this ground of appeal, and it was dismissed as not pressed. 4. Deletion of an addition of Rs. 12,51,660/- by the Assessing Officer: The Assessing Officer added Rs. 12,51,660/- due to unsubstantiated process loss in tobacco manufacturing. The CIT(A) deleted the addition, noting that the assessee's yield was better than in past years accepted by the Assessing Officer and no defects were found in the books of account. The Tribunal upheld the CIT(A)'s decision, stating that the process loss was justified and the book results were reliable. The Tribunal found no reason to invoke section 145(3) to reject the book results. 5. Disallowance restricted to Rs. 50,000/- by the CIT(A): The Assessing Officer made an ad-hoc disallowance of Rs. 7,00,000/- for unvouched expenses and capital nature repairs. The CIT(A) restricted this to Rs. 50,000/-. The Tribunal affirmed the CIT(A)'s restriction, noting that the Assessing Officer made generalized observations without specific discrepancies. Conclusion: The appeals of the assessee were partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the Assessing Officer to recompute the deduction under section 80-IA without considering notional brought forward losses and to delete the disallowance under section 40(a)(ia) for the amount paid before the year-end. The deletion of the addition of Rs. 12,51,660/- and the restriction of disallowance to Rs. 50,000/- were upheld.
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