2015 (5) TMI 147 - AT - Income Tax

Claim of deduction under section 80IA - whether Sales Tax benefit was inextricably linked to the industrial undertaking and was integral part of the profit derived from power generation by the said undertaking, eligible for deduction? - Held that - The assessee is in receipt of sales tax subsidy, which undoubtedly, is a revenue receipt in the hands of the assessee, but the said subsidy does not in any manner reduce the cost of production of industrial undertaking. It is a benefit given to the industrial undertaking for establishing the wind energy generation units in the State of Maharashtra, but the same does not have a direct nexus between the subsidy on the one hand and the manufacturing activity of the industrial undertaking on the other hand. In the absence of a direct and first degree nexus between the subsidy on the one hand and profits of the industrial undertaking on the other hand, where such subsidy does not reduce the cost of production, we hold that the sales tax subsidy received by the assessee is not eligible to the deduction under section 80IA of the Act. The sales tax subsidy received by the assessee is an Incentive subsidy and is not an operational subsidy and consequently, does not affect profits of the business and is not linked to the profits of industrial undertaking and hence, is not deductible in terms of provisions of section 80IA of the Act. Thus no merit in the claim of assessee and rejecting the same, we modify the order of CIT(A) to the extent that the sales tax benefit is to be taxed as business receipts of the assessee, on which the assessee is not entitled to the claim of deduction under section 80IA of the Act. - Decided against assessee. Interpretation of provisions of section 80IA(5) - Held that - Where the assessee has exercised the option of 10 consecutive years as contained in section 80IA of the Act, then the losses beginning from such initial year were brought forward and set off while applying the provisions of section 80IA(5) of the Act and not the losses of earlier years, which had been adjusted against other income of the assessee in the relevant year itself. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Eligibility of sales tax benefit for deduction under section 80IA.
3. Interpretation of provisions of section 80IA(5) regarding carry forward and set-off of losses.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeals were filed after a delay of 2193 days. The assessee attributed the delay to the inadvertence of the staff of their legal consultant, who misplaced the order. The Tribunal noted that the reasons for the delay were beyond the control of the assessee. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in *Collector, Land Acquisition vs. Mst. Katiji & Ors.*, which emphasized a liberal approach towards condonation of delay to further substantial justice. The Tribunal also cited the Bombay High Court's decision in *M/s. Prima Paper & Engineering Pvt. Ltd. vs. CIT*, which condoned a delay of 515 days due to similar reasons. The Tribunal concluded that there was no deliberate delay or inaction on the part of the assessee and condoned the delay, allowing the appeal to be heard on merits.

2. Eligibility of Sales Tax Benefit for Deduction under Section 80IA:
The assessee claimed that the sales tax benefit received from the State Government for promoting wind energy generation was eligible for deduction under section 80IA. The Tribunal noted that the sales tax benefit was a revenue receipt but did not have a direct nexus with the business of power generation. The Tribunal referred to the Supreme Court's decisions in *Pandian Chemicals Ltd. vs. CIT* and *CIT vs. Sterling Foods*, which required a direct nexus between the income and the industrial undertaking for eligibility under section 80IA. The Tribunal concluded that the sales tax benefit was an incentive subsidy, not an operational subsidy, and was not directly linked to the profits of the industrial undertaking. Therefore, the sales tax benefit was not eligible for deduction under section 80IA and was to be taxed as business receipts.

3. Interpretation of Provisions of Section 80IA(5) Regarding Carry Forward and Set-off of Losses:
The issue was whether the assessee could claim deduction under section 80IA without considering the notional brought forward losses and depreciation that had been set off against other income in earlier years. The Tribunal referred to its earlier decision in the assessee's own case and the decision in *Shri Sangram Patil vs. ITO*, which followed the Madras High Court's ruling in *Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT*. It was held that only the losses beginning from the initial assessment year chosen by the assessee for claiming deduction under section 80IA should be considered, and not the losses of earlier years that had been set off against other income. The Tribunal concluded that the assessee was entitled to the claim of deduction under section 80IA without adjusting the notional brought forward losses and depreciation of earlier years.

Conclusion:
The Tribunal condoned the delay in filing the appeals, held that the sales tax benefit was not eligible for deduction under section 80IA, and allowed the assessee's claim for deduction under section 80IA without adjusting the notional brought forward losses and depreciation of earlier years. The appeals were partly allowed.