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TMI Blog2007 (6) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... penses incurred thereon should be treated to be expenses relating to sale of WEG and it cannot be related to the electricity generation activity. According to the assessee no expenditure whatsoever was incurred for the purpose of generation of electricity as the activity of generation of electricity was only incidental to the demonstrative activity. It was contended that demonstration of WEG was necessary and it was done for the promotion of sales to make the customers aware regarding the product. The assessee is not maintaining separate accounts with regard to these two activities i.e., sale of WEG and sale of electricity generated through WEG. Assessing Officer did not accept such submission of the assessee that no expenditure whatsoever was incurred with regard to the activity of generation of electricity. Therefore for the purpose of calculating eligible profit for deduction under section 80-IA he reduced depreciation of WEG from where the assessee has generated electricity and also repair and maintenance expenses on estimate basis and granted deduction under section 80-IA on such reduced profit. The ld. CIT(A) has sustained the stand of Assessing Officer and has dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits is not permissible through the intermingling of expenses relating to the non-priority sector (reference was made to the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320 (SC), CIT v. Sharda Gum & Chemicals [2007] 288 ITR 116 (Raj.). 8.That where in the case of an integrated business, expenses are incurred which relate to different businesses, then, the expenses need not be identified against the exempt income for allocation. It will suffice if the entirety of expenditure is set off against the taxable income. On the same principle, the expenditure on repair & maintenance and depreciation would have to be allocated to the relevant business, i.e., demonstration of WEGs in the scheme of their sales. 9.That the onus was on the Assessing Officer to establish that the entirety of the depreciation on the 11 WEGs (13 in the later year) pertained wholly and exclusively to the business of power generation. This, the Assessing Officer has completely failed to discharge. 10.That the depreciation which has been deducted from the power generation income does not pertain to it at all. Such is directly and incontrovertibly referable to the WEGs erected and retained for demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee concerned, and the assessee had no other source of income. That was for relating to the priority income, the unabsorbed losses, unabsorbed depreciation etc., pertaining to that industry. Where in a case there were no such adjustments pending set-off, the section would have no application. (Please refer Pages 112-114 of the Paper Book). 16.The Assessing Officer wrongly interpreted the term 'profit'. Though such has to be interpreted in commercial terms as the excess of receipts over expenditure, yet, where there are no receipts and only expenditure that is a case of absolute loss. And for the converse situation, where there is only receipt and no expenditure, it is a case of absolute profits. Such situations are not ruled out by any of the provisions of the Income-tax Act. The Assessing Officer's interpretation of profit is, therefore, misconceived and anomalous. 17.That the Assessing Officer wrongly read the explanatory note to Finance Act (No. 2) of 1980 with regard to the insertion of section 80-AB. The explanatory note only goes to support the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental to the main activity. Such is not a relevant criteria for the purpose of determination of priority income and allowance of priority relief. The Assessing Officer has needlessly confused the issue on this point. 20.That the Assessing Officer failed in his duty to identify the expenses relatable to the priority industry, and committed a double-fault by attributing expenses incurred on the non-priority undertaking on to that of the priority undertaking. Sub-section (4) of section 80-IA does not envisage a condition of an income arising from a main activity or an incidental activity for providing the priority deduction. So long as power is generated, irrespective of the stature or status of the activity, the incentive is required to be granted to the assessee. 21.That despite the statute being clear on the subject, the Assessing Officer has tried to befuddle the issue by reading into the facts, case laws which have no application to the facts of the case. The Assessing Officer has simply tried to interpret the provisions in a manner so as to take away a benefit which the statute otherwise entitles the assessee to the ratio of the decision in the case of CIT v. Vasavi Pratap Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.That the authorities below failed to reckon that the charges for electricity generation were received net of expenses and whatever expenses there be were on account of the purchaser of electricity, viz., Tamil Nadu State Electricity Board. 3. On the basis of the above submissions it was pleaded by the ld. AR that relief sought for should be granted to the assessee. 4. On the other hand, it was submitted by the ld. DR that the claim of assessee is contradictory. He contended that according to the provisions of section 80-IA deduction is eligible to an undertaking or an enterprise from any business referred to in sub-section (4). He contended that if assessee claims that generation of electricity was not its business then assessee is not entitled at all to claim deduction under section 80-IA as according to the submissions of the assessee the generation of electricity was only incidental and WEG were installed for demonstration to promote the sale of WEG. He contended that it has been submitted by the ld. AR that production of electricity was ancillary and thus keeping in view that submission the assessee should not be held to be eligible for deduction under section 80-IA as cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contend that under section 4 of Income-tax Act Assessing Officer has got no option except to assess only the right person irrespective of consequences. He contended that as it is the contention of the assessee that the WEG used for the purpose of generation of electricity were relating to business activity of sales of WEG the assessee should not be held to be eligible for any deduction under section 80-IA as according to the provision of section 80-IA no such deduction can be allowed if the assessee is not engaged in the business of such activity. He contended that it is within the power of Tribunal to hold that assessee is not eligible for deduction under section 80-IA as per decision of Delhi High Court decision in the case of Indian Management Advisors & Leasing (P.) Ltd. v. CIT [2007] 289 ITR 179 . 8. Thus he pleaded that assessee should not be held to be entitled for deduction under section 80-IA at the first place and if it is held that assessee is entitled for deduction under section 80-IA then order of Assessing Officer and CIT(A) should be confirmed. 9. In the rejoinder the ld. AR reiterated the submissions made. He contended that assessee cannot be made worse off by ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. ****** (4)This section applies to-- ****** (5)Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d selling electricity, the installation of WEGs were no more for the purpose of business activity of selling WEGs as assessee intended to earn profit from sale of electricity as its business activity which makes entitle the assessee to claim deduction under section 80-IA. It is also for that reason the contention of assessee that at least there should be proportionate allocation of depreciation and expenses has to be rejected. WEGs from which the assessee has earned income from generation of electricity cannot be said to be for the purpose of demonstration for promotion of sale of WEGs as demonstration became ancillary object at the point of time when assessee started selling electricity. Assessee has earned substantial receipts from generation of electricity. All the receipts cannot be considered to be net gain of the assessee as depreciation relating thereto has necessarily to be held pertaining to the activity of generation of electricity. The repair and maintenance also has to be held to be exclusively for the purpose of generation of electricity. Thus keeping in view the mandate of sections 80-IA(1), (4) & (5), we are of the opinion that the action of the Assessing Officer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the purpose of demonstration. This contention has already been dealt with in the above part of this order and it is held that the installed WEGs were only for the purpose of generation and distribution of electricity. Therefore, the contention of the assessee that depreciation is allowable on the business activity of selling WEGs is not acceptable and thus it is not a case where double deduction is allowed or allowable. 15. CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC), Punjab State Co-operative Supply & Marketing Federation Ltd. v. CIT [1981] 128 ITR 189 (Punj. & Har.) and Indian Bank Ltd.'s case (supra). These cases are relied upon by the assessee to contend that where the business is one and diverse activities are pursued and expenditure incurred wholly and exclusively for the purpose of business then irrespective of the fact that income from one or more part of the activities is not liable to income-tax, the entire expenditure incurred by the assessee in connection with the business has to be allowed under section 37 of the Act. This case is also not applicable to the facts of the present case as it is a case where profits have to be computed under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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