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TMI Blog2014 (1) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing CIT v/s Emerald Jewel Industry (P) Ltd. [2010 (8) TMI 648 - Madras High Court] - Sub-section (5) of section 8oIA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2) - The initial Assessment Year in the case of Jivraj Tea & Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007-08 - The assessee has not suffered any loss in the said year, no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act - Decided in favour of assessee. Whether deduction u/s. 80IA will be allowable on the sale proceeds of sales tax entitlement received - Held that:- Following CIT Vs. Birla VXL Ltd [2013 (7) TMI 655 - GUJARAT HIGH COURT] - The scheme was framed as a part of Government's initiative to encourage modernization of existing industries in underdeveloped areas - The main purpose of the scheme was to accelerate the industrial development and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Revenue has filed Cross Appeals against the order of learned CIT(A)-II, dated 01.09.2010. In the case of M/s. Jivraj Tea Industries Ltd. in Assessment Year 2004-05, the assessee has filed appeal against the order of learned CIT(A)-II, dated 01.09.2010 and in the Assessment Year 2007-08, the assessee had filed appeal against the order of learned CIT(A), dated 01.09.2010. 2. In all the assessee s appeals, the first common issue involved is against the order of learned CIT(A) confirming the disallowance of deduction u/s. 80IA being profits from electricity generation through windmill. 3. The assessee has raised an additional ground of appeal that the learned CIT(A) ought to have treated the amount received on sale of sales tax entitlement as capital receipt instead of Revenue receipt and thereby treated it as non taxable. 4. At the time of hearing, learned AR of the assessee submitted that as the facts and issue involved in all these appeals are the same, therefore, he is arguing all the appeals together. 5. Learned AR submitted the assessee has raised an additional ground of appeal in all the years that the learned CIT(A) ought to have treated the amount of receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction in A.Y.2004-05 and the unabsorbed depreciation /business loss carried forward till A.Y.2007-08 comes to Rs.2,88,81,178/-, and windmill at Chitra Durga Karnataka was installed in A.Y.2005-06 up to A.Y.2007-08 the unabsorbed depreciation / business loss comes to Rs.4,20,00,983/- and there remains no business profit as per the working given in the Annexure to the assessment order. By applying the provisions of section 80IA(5) and setting off with the business loss and unabsorbed depreciation of earlier year beginning from the year of installation of the windmill, the Assessing Officer has held that by doing this, there remains no profit from the windmill units. For this, the Assessing Officer has relied on the decision of Hon'ble ITAT Special Bench Ahmedabad in the case of ACIT vs Goldmine Shares Finance Pvt Ltd. 113 ITD 209/Ahd(SB) whereon it was held that, in view of specific provisions of section 80IA(5), profits from the eligible business for the purposes of determination of quantum of deduction u/s.80IA, has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in the Act and there is option to the assessee in selecting the year for claiming relief u/s.80IA of the Act. 6.6 I have considered the facts and the submissions. I do not agree with the appellant's views. The sales tax exemption entitlement are the incentives given by the Maharashtra Government on the investment made by the assessee for installation of windmill and is calculated on the investment which in this case is 1/6th of the investment. It is not based on the turnover or the profit of the unit. The source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation or losses of eligible business were set off", (para 30) "It is implicit from the tenor and phraseology implied in section 80IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the ineligible business which could not be set off against the loss of the eligible business itself has to be carried forward or set off of the profits of the very source of ineligible business in the subsequent year", (para 31) The words "as if such eligible business were the only source of income of the assessee" compel us to assume that the assessee is not having any other source of income except that which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the initial year as not the year of installation/commencement but the year of first claim opted for, it will be disadvantageous to those assessees who do not have any other source of income, other than the eligible business. The following example will illustrate this point - The assessee "A" has started windmill in A.Y.2002-03 and had loss of Rs.2,50,22,495/- in 2002-03 Rs. 1,50,13,463/-- in A.Y.2003-04 which was set off with other income. When the assessee claims deduction u/s.80IA for A.Y.2004-05, for the profit earned from windmill, he will get the deduction as per this interpretation. However, if another person "B" has installed same windmill in A.Y.2002-03 and incurred the same loss from windmill in A.Ys.2002-03 2003-04, and does not have any other business having profit to set off with this loss, he will not have benefit of deduction u/s.80IA for same amount of profit earned in A.Y.2004-05. This will lead to discrimination. The logical and equitable interpretation warrants that initial assessment year has to be taken as the year of installation/commencement of business and not the year when the claim is made for the first time. If this interpretation is taken, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.2000 and also considering the amended Section 80IA on para 16 of page 489 of the order concluded 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 profit of the eligible business as no such mandate was provided u/s.80IA(5). He further placed reliance on the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steels and Malleables vs. ACIT, (2010), 6 taxmann.com 47 (Chennai) and submitted that the Tribunal after considering the decision of the Special Bench of the Tribunal in the case of ACIT vs. Goldmine Shares and Finance (P.) Ltd., (2008), 113 ITD 209 (Ahd) (SB), arrived at the conclusion that sub section (5) would come into operation only in the year in which the assessee started claiming deduction u/s.80IA, i.e., from the initial year and depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. It was held that the decision of the Special Bench of the Tribunal in the case of Goldmine Shares Finance (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. He submitted that by the Finance Act, 1999 the original Section 80IA was split into two Sections i.e., Section 80IA and Section 80IB. He submitted that in the amended Section 80IA sub section (2) provides that the deduction specified in sub section (1) may at the option of the assessee be claimed by him for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking generate powers or commence transmission or distribution of power. Thus, his submission was that the initial year of deduction was left to the option of the assessee and the assessee could claim deduction for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking begins to generate power. He further submitted that in the amended Section 80IA there was no provision as originally existed u/s. 80IA(5) of the Act. He submitted that in Section 80IB (13) it has been provided that provision contained in sub section (5) of Section 80IA so far as may be applied to eligible business undertaking of that section. 11. Learned AR also relied upon the decision of Hon ble Chennai Bench of the Tribunal in the case of Mohan Breweries Distilleri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gujarat High Court after considering the scheme of sales tax entitlement held that from the provisions of the said scheme it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to per centage of various capital investments. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once a commercial production commences. However this by itself would not be either a sole or concluding factor. In the case of Sahany Steel Press working Ltd. and Others vs. CIT reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hand of the recipients whether revenue or cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities and material available on record. In the case of Jivraj Tea Ltd., the assessee claimed deduction u/s. 80IA(4) of the Act on 100% profit derived from generation of electricity from windmill situated at Ahmednagar Maharashtra, Jodha Rajasthan and Chitradurga Karnataka. The Assessing Officer observing that since the assessee had carried forward losses of earlier years, therefore, the assessee was not entitled to deduction u/s.80IA(4) as after the adjustment of the brought forward losses there was no positive profit for allowing deduction u/s. 80IA. The same was confirmed in appeal by the learned CIT(A). The case of the Revenue is that in view of the decision of the Special Bench of the Tribunal rendered in the case of Goldmine Shares and Private Limited (supra) brought forward losses and depreciation of earlier years has to be deducted from the profits of the years under consideration before allowing deduction u/s. 80IA of the Act. On the other hand, the contention of the AR of the assessee is that after the amendment made by the Finance Act, 1999 in Section 80IA whereby u/s. 80IA(2) the assessee has the option to choose the initial year for claiming the deduction u/s. 80IA fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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. 20. From a plain reading of the above, it can be gathered that it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under Section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of initial assessment year has been specifically taken away. Now, when the assessee exercises the option of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 22. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 8o-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of subs. (6) of s. 8o-I, which is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view." 25. This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTK 262 (Mad.). From the above, ratio of the High Court, it is amply clear that sub-section (5) of section 8oIA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2). 26. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995-96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid judgment relied upon by the learned Departmental Representative will not be applicable to the facts of the present case. 28. We reiterate in the instant case, it is not in dispute that the initial Assessment Year in the case of Jivraj Tea Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007-08 and it is also not in dispute that the assessee has not suffered any loss in the said year, therefore, in our considered opinion no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act. We, therefore, set aside the orders of the lower authorities on this issue and allow the ground of appeal of the assessee. 29. The other issue in this appeal pertains to whether deduction u/s. 80IA will be allowable to the assessee on the sale proceeds of sales tax entitlement received by the assessee during the year under consideration. 30. The AO as well as the learned CIT(A) following the decision of Hon ble Supreme Court in the case of Liberty India Vs. CIT, 317 ITR 128, wherein it has been held that profit on sale of DEPB and Duty Trade Back are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment. The Government responded positively to the representations that on account of rapid changes in technology, there was constant need for upgradation of technology in industries. It was, therefore, necessary to encourage modernization. As part of such a scheme, incentives were given to industries existing in underdeveloped areas to undertake modernization. The scheme thus was primarily concerned with the modernization of the existing industries. It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries. Thus, the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas. It can be imagined that the industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology. It was for this purpose that the said scheme was framed givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.96/-, Rs.116/- and Rs.127/- from M/s. Harkchand Nonchand Pvt. Ltd., and M/s. Surin Corporation respectively which are related concerns u/s. 40A(2)(b) of IT Act. The Assessing Officer also observed that the assessee had not maintained full details of quality of purchases, there was no commercial expedience in making payment to related parties in excess of the market rate and hence made addition of Rs.9,34,64,731/- u/s. 40A(2)(a). 38. On appeal, the learned CIT(A) observed that the facts of the present year of appeal were similar to the facts in the earlier assessment year 2006-07 wherein additions made on this ground was confirmed by the learned CIT(A) however the Ahmedabad Bench of the Tribunal deleted the addition vide order dated 26.3.2010 in ITA No.3007/Ahd/2009 observing that yard stick adopted by the Assessing Officer was average purchase price of Tea without ascertaining the price prevailing in the market on the date when purchase was made from sister concerns with that from outside party and without comparing the exact quality and the transactions of purchases from the sister concerns were not the sham transactions. Therefore, facts being identical following the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer disallowed proportionate advertisement expenses amounting to Rs.1,90,31,082/- for the reason that sales have not increased in proportion to the increase in the advertisement expenses and there was no nexus between the advertisement expenses and sales achieved. On appeal, the learned CIT(A) by following the order of the Tribunal in the assessee s own case in the immediate preceding year 2006-07 deleted the addition. The Tribunal in the earlier year has held that the payments were made through account payee cheques and bank draft and none of the parties were related to the assessee company or its director and details and vouchers were maintained verifiably and genuineness of the expenditure was not in doubt. Learned Departmental Representative could not point out any specific error in the order of the learned CIT(A). The learned Departmental Representative also could not bring any material on record to show that the order of the Tribunal for A.Y. 2006-07 was varied in appeal in High Forum. Therefore, we confirm the order of the learned CIT(A) and dismiss the appeal of the Revenue. 46. In the result, the appeal of the assessee in ITA No.3011/Ahd/2010 is partly allowed in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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