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TMI Blog2015 (5) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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. - ITA Nos.2225 & 2226/PN/2013 - - - Dated:- 10-4-2015 - Shri G.S. Pannu And Ms Sushma Chowla JJ. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d appeals were filed after a delay of 2193 days. The assessee has moved an application for condonation of delay in filing the appeals late before the Tribunal. The plea of the assessee before us was that the order of CIT(A) was forwarded to the consultant / legal advisor of the assessee company for further action. However, due to inadvertence of the staff in the office of the legal consultant, the said order was mis-placed and the appeal was not filed within period of limitation. However, after lapse of considerable time, the said consultant informed the assessee that the copy of the original document was found in some other client s file. Thereafter, the assessee engaged another legal advisor and who in turn filed the appeal before the Tribunal after a delay of 2193 days. 5. The assessee in this regard, has furnished an Affidavit which reads as under:- Affidavit I, Vikramsinh Patankar, Director of M/s Patankar Wind Farms Pvt. Ltd., having office at Shikka Mansion, At P O Patan, Dist - Satara Pin Code-415206, Maharashtra State, hereby solemnly and stale as under- That copy of the appellate order dated 03/09/2007 in the case of the Company for Assessment Year 2005-06 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DCIT (2009) 27 SOT 433 (Mum) ii) ACIT Vs. Petroleum India International (2012) 27 taxmann.com 325 (Mum) iii) SRF Limited Vs. ACIT, in ITA No.3555/Del/2009, order dated 13.11.2014 iv) Somerset Place Co-operative Housing Society Ltd. Vs. ITO in ITA No.874 of 2014 8. We have heard the rival contentions and perused the record. The first aspect of the appeal before us is in relation to the condonation of delay in filing the appeal late by 2193 days. The assessee has filed an Affidavit along with an application for condonation of delay in filing the appeal late before the Tribunal. The perusal of reasons in the said Affidavit reflects the delay in furnishing the appeal were for reasons which were beyond the control of the assessee. The Hon ble Supreme Court in Collector, Land Acquisition Vrs. Mst. Katiji And Others (supra) held as under:- When technical consideration and substantial justice are pitted against each other, the courts are expected to further the cause of substantial justice. This is for the reason that an opposing party in a dispute cannot have a vested right in injustice being done because of a non-deliberate delay. Therefore, it follows that while cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 167 ITR 471 (SC) = 1987 SCR (2) 387, N.Balakrishnan vs. Krishnamurthy, (1998) 7 SCC 123 and also State of West Bengal v/s. Administrator Howrah Municipality ors. AIR 1972 SC 749, in support of the contention that the expression ''sufficient cause should be interpreted liberally. It is further submitted that since the appellant's appeal raising the same question for the earlier assessment year has already been admitted, this Court may exercise its discretion for, condoning the delay. 7. On, the other hand, learned counsel for respondent-revenue has opposed the notice of motion. It is submitted that there is gross delay and negligence on the part of the appellant in taking necessary steps within the period of limitation or within reasonable time. 8. In State of West Bengal (supra), the Supreme Court has held that it is not possible to lay down precisely as to what facts constitute sufficient cause under section 5 of the Limitation Act. But it may be safely stated that delay in filing an appeal should not have been for reasons which indicate the party's negligence in not taking necessary steps, which he could have or should have taken. Here again, what wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court and it was held that the case of the assessee did not fall within the parameters of sufficient cause. However, as referred to by us in the paras hereinabove, the assessee in the present case could not file the appeal before the Tribunal in time because of the negligence on the part of staff of the legal consultant of the assessee. The Hon ble Bombay High Court in similar circumstances in M/s. Prima Paper Engineering Pvt. Ltd. Vs. CIT (supra) had condoned the delay of 515 days. Similarly, in the case before us, there is no material on record to doubt the bonafides of the assessee and there is no reason to doubt the bonafides of reason for delay. In the totality of the above said facts and circumstances, the delay in filing the present appeal belatedly deserved to be condoned. Accordingly, we condone the delay in filing the appeal before the Tribunal and proceed to decide the appeal on merits after hearing both the parties. 12. The issue raised in both the appeals is in relation to the claim of deduction under section 80IA of the Act. 13. The brief facts of the case are that the assessee was engaged in the business of wind power generation and was also dealing in lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80-I / 80-IA, there should be direct nexus between the undertaking and the related income. Further, words which were earlier used i.e. attributable to , have been replaced with the word derived from and in view of the definition, the sales tax benefit availed by the assessee which was permitted to be sold, does not have any incidental nexus with the running of undertaking perse, but has direct nexus to the State Government s benefits schemes. The Assessing Officer held that the benefit given to the assessee do not qualify for deduction under section 80IA of the Act. Another aspect noted by the Assessing Officer was the calculation of deduction under section 80IA of the Act. Considering the notional carry forward unabsorbed depreciation, the Assessing Officer noted that the assessee had not considered the brought forward depreciation loss on notional basis in respect of windmill i.e. machine No.1 and 2 before claiming the deduction under section 80IA of the Act. The Assessing Officer noted that the assessee had two business units i.e. wind power generation and the other of dealing in land purchase, sale and land development. As per the Assessing Officer, while computing the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, wherein it has been laid down that for the purposes of determining the quantum of deduction under subsection (1), the profits and gains of the eligible business, i.e. the windmill has to be computed as if the windmill was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year. The deduction under section 80IA(1) of the Act is allowable at the option of the assessee for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or enterprise begins to operate the infrastructure facility. A harmonious construction of sections 80IA(1), 80lA(2), 80IA(5) and 80AB of the Income Tax Act, 1961 makes it clear that these sections do not give any right to the assessee to first set off depreciation against the other income in the initial assessment year when the undertaking begins to operate and then start claiming deduction under section 80IA(1) of the Income Tax Act 1961 on the plea that since unabsorbed depreciation has already been set off against income from other sources, there was no such unabsorbed depreciation which could be set off against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Gauhati High Court in CIT Vs. Meghalaya Steels Ltd. (2013) 34 taxmann.com 34 (Gauhati) and by the Hon ble Delhi High Court in CIT Vs. Koshika Telecom Ltd. (2006) 287 ITR 479 (Delhi) and Hon ble Bombay High Court in CIT Vs. Valiant Glass Works (P.) Ltd. (2014) 50 taxmann.com 268 (Bombay). The plea raised by the assessee was that since the rate of sale of power was very low, which resulted in losses and hence, the sales tax subsidy was granted to the assessee which is in inextricably linked to the business income. 17. The learned Departmental Representative for the Revenue placing reliance on the order of CIT(A) pointed out that the sales tax incentive was other income, on which benefit of section 80IA of the Act was not allowed by the Panji Bench of the Tribunal in ACIT Vs. M/s. Shaiv Distilleries (P) Ltd., in ITA No.179/PNJ/2014, relating to assessment year 2009-10, vide order dated 14.08.2014. 18. We have heard the rival contentions and perused the record. The issue in grounds of appeal Nos.1 and 2 is holding the assessee not eligible for deduction under section 80IA of the Act on the sales tax benefit granted to the assessee under the scheme of State Government to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which the assessee had received the sales tax subsidy was the same as considered by the Tribunal in the case of Rasiklal M. Dhariwal (HUF) Vs. DCIT (supra). In view thereof, we hold that the said receipts of sales tax subsidy in the hands of the assessee is a revenue receipt, which has been so declared by the assessee in its return of income. The second aspect of the issue is whether the said sales tax subsidy is eligible for the benefit of deduction under section 80IA of the Act. 20. Second 80IA of the Act provides that deduction in respect of profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) i.e. admittedly, the assessee is one such enterprise carrying on the business of wind energy generation to which, it has been held to be entitled to the deduction under section 80IA of the Act. The terms used in section 80IA of the Act are in respect of profits and gains derived from the specified business of an undertaking. Various courts have interpreted the word derived from and it has been propounded that there needs to be a direct nexus between undertaking and the related income. Earlier, the word was attributable to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the export entitlements become available. There must be, for the application of the words 'derived from', a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. There under, the assessee is entitled to import entitlements, which it can sell. The sale consideration there from cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking. 21. The Hon ble Supreme Court in Liberty India Vs. CIT (2009) 317 ITR 218 (SC) had held that immediate source of income is to be looked into while allowing deduction under section 80IA of the Act and where there is a first degree of source, then the same is to be held to inextricably linked to the profits of the industrial undertaking eligible for benefit under section 80IA of the Act. 22. The learned Authorized Representative for the assessee on the other hand placed reliance on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, there was nexus between the said subsidies and profits and gains derived by the industrial undertaking and hence, the same were held to be eligible for deduction under section 80IB / 80IC of the Act. However, in the facts of the case before us, 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 80-IA(5) of the Act. Section 80-IA(5) of the Act creates a fiction that for the purpose of computing deduction u/s 80-IA of the Act, it was to be presumed that the eligible unit was only the source of income of the assessee during the previous year relevant to initial assessment year and also to every subsequent year upto and including the assessment year for which the determination is to be made. 8. The Tribunal further referred to the ratio laid down by another Bench of the Tribunal in the case of Serum International Ltd. vs. Addl.CIT (supra) in para 6 and observed as under :- 6. Before us, the learned counsel for the assessee has submitted that the Pune Bench of the Tribunal in the case of Serum International Ltd. Vs. Addl. CIT Range 6, Pune in ITA Nos. 290 to 292/PN/2010 for A.Y. 2004-05 to 2006-07 vide order dated 28-9- 2011 has considered an identical controversy and after following the decision of the Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (2010) 38 DTR (Mad) 57 decided the issue in favour of the assessee. Following discussion in the order of the Tribunal is relevant in this regard:- 11. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the fact that the authorities below have decided the issue following the decision of Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares.. The Ld. A.R. pointed out that decision of Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra) was not cited before the Pune Bench in the case of Prima Paper Engg (P) Ltd. Vs. ITO (Supra). The Ld. A.R. has also cited the decision of Pune Bench of the Tribunal in the case of ACIT Vs. Aurangabad Holiday Resorts (P) Ltd., (Supra) holding that even a decision of nonjurisdictional High Court is a binding precedent for the Tribunal until a contrary decision is given by any other competent High Court. Similar view has been expressed by the Hon ble Bombay High Court in the case of Commissioner of Central Excise Vs. M/s. Valson Dyeing, Bleaching and Printing Works (Supra). 12. The contention of the Ld. D.R. on the other hand remained that deduction u/s. 801 and 801A covered inter alia, industrial undertakings. The power generation units found a specific mention for the first time w.e.f. 1.4.1993. In all the years from 1.4.1981 to 31 to 31st March 2000 in both u/s. 80I and 80IA, the term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etail, the Tribunal has come to the conclusion that the initial A.Y for the purpose of claiming deduction u/s. 80IA was the first year in which the assessee claimed the deduction u/s. 80IA (1) after exercising his option as per the provisions of 80IA (2) of the Act. It was held that the Ld CIT(A) has erred in holding that the initial A.Y for the purposes of Section 80IA(2) r.w.s. 80IA (5) was the year in which the assessee started generating electricity from the wind mill activity. We also find that the issue raised in Ground No. 2 regarding the eligibility of the assessee to claim deduction u/s. 80IA undiminished by unabsorbed losses and depreciation also set off in earlier years against the other income, is fully covered by the decision of Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra) holding that as per Sub-section (5) of Section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the orders of the authorities below and direct the A.O to allow the claimed deduction u/s. 80IA without bringing the notionally brought forward any loss or depreciation of earlier years which has already been set off against other income of the assessee. The decision of Pune Bench of the Tribunal in the case of Prima Paper Engineering P.Ltd. Vs. ITO (Supra) cited by the Ld. DR is also not helpful to the revenue since firstly the decision of the Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (Supra) on the issue was not cited before the Bench and secondly the ld. AR fairly agreed that the issue raised was covered against the assessee by the decision of Special Bench in the case of ACIT Vs. Goldmine Shares Finance (P) Ltd. (Supra) followed by the authorities below. The ld. AR therein thus contended that though the issue may be decided against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. The Assessing Officer had tabulated the notional losses from year to year at page 9 of the assessment order. However, the said losses were being adjusted against the other income arising to the assessee from time to time. Where the losses have already been adjusted against assessable income in the preceding year, the said losses cannot be said to be available to be adjusted against the income of the assessee arising in the year under consideration. 11. The second aspect of the issue is the year from which the said losses are to be considered. As held by the Tribunal in the case of Shri Sangram Patil vs. ITO (supra) that, where the assessee exercised the option of the ten consecutive years as contained in section 80-IA of the Act, only the losses beginning from such initial assessment year are to be brought forward and set-off while applying the provisions of section 80- IA(5) of the Act and not the losses of the earlier years, which have already been set-off against the other income of the assessee. Accordingly, we hold that the assessee is entitled to claim of deduction under section 80- IA(5) of the Act. The grounds of appeal raised by the Revenues are dismissed. ..... 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