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TMI Blog2013 (1) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out - every unit constitute a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against the profits of another unit engaged in the same business for the purpose of computing the deduction u/s 80IA - ITA No.815/PN/2011, ITA No.1494/PN/2011 & ITA No.891 & 1600/PN/2011 - - - Dated:- 30-1-2013 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER For the Petitioner : Shri C.H. Naniwadekar For the Respondent : Shri Y.K. Bhaskar ORDER PER R.S. PADVEKAR:- This batch of four appeals, two appeals by the assessee and two appeals by the revenue are directed against the respective orders of the Ld. CIT(A) Kolhapur for the assessment years 2007-08 2008-09. Since the facts and issues are common, these appeals are disposed of by this consolidated order. We first take assessee s appeal for the A.Y. 2007-08 being ITA No.815/PN/2011. The assessee has taken the following grounds in appeal: 1. In the view of facts circumstances, the Hon'ble Commissioner of Income Tax (Appeals) has erred both on facts as well as in law in not deleting the addition on account of disallowance of depr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07 and WDV as on 1.4.2006 brought forward was at ₹ 91,47,663/- and depreciation @80% was claimed on the said WDV of the wind mills brought forward from the previous years and 50% of 80% i.e. 40% for the second part of the year for the wind mills installed during the financial year 2006-07 (A.Y. 2007-08). It was noticed by the A.O. that for the wind mills purchased from M/s. Suzlon Energy Ltd. and M/s. Suzlon Infrastructure Ltd. during the year under consideration, said companies had raised bills by saggregating various expenses in connection with installation, erection and commissioning of the wind mills. As noted by the A.O., the breakup of the cost is as under: a) Cost of Wind mill b) Cost of civil work consisting of foundation/ground work for transformer and plinth etc. c) Cost of erection and commissioning of the Windmill. 3. The A.O. was of the opinion that the cost incurred on work constituting the ground/plinth foundation was in the nature of the building and hence, only the 10% depreciation was allowable on the said cost and so far as cost incurred on the erection and commissioning is concerned, the same is in the nature of plant machinery and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtent The assessee challenged the addition before the Ld. CIT(A) but without success. The assessee is in appeal before us. At the same time, he did not agree with the ratio adopted by the A.O. by allocating total cost as well as WDV of block for working out depreciation on the civil work which were higher than the actual expenditure incurred by the assessee. On the said decision of the Ld. CIT(A), the revenue is in appeal before us. 4. We have heard the parties and perused the record. The Ld. Counsel for the assessee submitted that so far as the issue of the rate of depreciation on the foundation of the wind mill is concerned, it is squarely covered by the decision of this Tribunal in the case of JCIT Range-1, Sangli Vs. M/s. Western Precicast Pvt. Ltd., Sangli, ITA No.890/PN/2011 dated 31.12.2012. He therefore, pleaded for allowing the depreciation at 80% on the foundation as well as cost incurred on erection and commissioning. We have also heard the Ld. D.R. 5. In this case, the A.O. as well as the Ld. CIT(A) have reservations in treating the cost incurred by the assessee on the foundation civil work for installation and erection of the wind mill. In their opinion, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) however, considered the items of costs at No 1 to 5 qualifying for higher rate of depreciation being integral part of windmill. In so far as item no. 1 is concerned, the cost of ₹ 30,93,500/- is towards supply of electrical items of the windmill itself. The CIT(A) has observed that such cost in the installation of windmill has been found by the Tribunal in the case of Poonawala Finvest and Agro Pvt. Ltd. (supra) as an integral part of the windmill cost and therefore, found to be eligible for depreciation equivalent to that of the windmill. No decision to the contrary has been brought to our notice and therefore, following the precedent in the case of Poonawala Finvest and Agro Pvt. Ltd. (supra), we do not find any infirmity in the action of the CIT(A) which we hereby affirm. 9. To the similar effect is the nature of cost enumerated in items no. 2 and 3 relating to labour charges for erection and installation of windmill. Such expenditure forms integral part of cost of the windmill and therefore, there is no mistake on the part of the CIT(A) to have considered such expenditure as eligible for depreciation at 80%. 6. Ld. Counsel has filed a chart giving details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J 68) as the decision is distinguishable on facts and does not considered the rate schedule of depreciation u/s 32C which provides for depreciation @ 80% only on wind mills and devices specially designed to run on wind mills. 4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing depreciation @ 80% on proportionate cost in MEDA charges of ₹ 3,01,800/- as the same does not form part of cost of wind mill or any specifically device to run on wind mill. 8. As per the grounds taken by the revenue, they have objected for treating the cost of the labour work for installation of the wind mill turbine. In our opinion, the said issue is covered in favour of the assessee as the cost incurred on the installation of the wind mill is an integral part of the total cost of the wind mill and installation needs the labour work also. While deciding the asessee s appeal, we have directed the A.O. to allow depreciation at 80% on cost of Foundation as well as expenditure incurred on erection commissioning. We find that though the Ld. CIT(A) has referred to the decision of the ITAT Pune Bench, Pune in the case of Poonawala Finvest and Agro Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration sale of electricity from the satara Unit, in the process ignoring the fact that assessee company had incurred losses from generation sale of electricity from Tamil Nadu Unit and Gudhe Panchgani Unit which were required to be first set off against the profits earned at Satara Unit in terms of provision of Sec 70 of the IT Act and resultant profit was to be allowed as deduction in terms of the provision of Sec. 80IA(1) of IT Act. 2. On the facts and in the circumstances of the case, the CIT(A) erred in holding at Para (29) of his order that, `every unit constitutes a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against profits of another unit engaged in the same business for the purpose of claiming deduction under section 80IA as the provision of Section 80IA of the IT Act refers to profis and gains derived by and undertaking or an enterprise from any business referred to in subsection (4) of Section 80IA which in the context of the assessee company would imply that profit and gains earned by the assessee company from the eligible business of generation of electricity would be considered for allowing the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year. 13. As per the facts on the record, even if the three locations of the wind mills are treated as independent undertakings, the A.O. has a reservation in allowing the deduction to the assessee u/s 80IA in respect of Satara Wind Mill as there were losses in other undertakings namely Tamil Nadu wind mill and Gudhe-Panchgani wind mill. The assessee relied on some of the decisions to support the claim. The assessee contended before the A.O. that the losses in the other wind mills were set up against the profits of the other businesses u/s 70 of the Act. In the opinion of the A.O., if there are losses in the other wind mill undertakings i.e. Tamil Nadu Wind Mill and Gudhe- Panchgani wind mill, then in view of section 70 71 of the I.T. Act, the same are to be set off and adjusted against the other heads and if any residue is there to that extent, deduction u/s 80IA is to be allowed. The A.O. therefore denied the deduction to the assessee u/s 80IA(2) in respect of the Satara wind mill. The assessee carried the issue of the deduction before Ld. CIT(A). 14. The Ld. CIT(A) allowed the claim of the assessee. The reason and findings of the CIT(A) are as under: 19. I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as. is referred to in s. 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose : Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in cl. (7) of s. 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act. Explanation .............. Explanation 2.- (4) This section applies to- (i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely : (a) it is owned by a company registered in India or by a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st day of April, 2004 and ending on the 31st day of March, 2011. Explanation ............. (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-s. (1) apply shall, for the purposes of determining the quantum of deduction under that subsection 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 upto and including the assessment year for which the determination is to be made. The relevant parts of Sec. 80-1 reads as follows: 80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel 16[or the business of repairs to ocean-going vessels or other powered craft], to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains of an eligible industrial undertaking in the case of S.80I and to an undertaking carrying out an eligible business in the case of S.80IA which is included in the gross total income of the assessee. Thus the deduction under both these sections is a profit linked incentives. In fact, Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of profit linked incentives . Therefore, when section 80-IA refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under section 80-IA is the generation of profits or operational profits as held in the case of Liberty India v. Commissioner of Income-tax [2009] 183 TAXMAN 349 (SC). Each of the units of eligible business in sub-section (4) constitutes a stand-alone item in the matter of computation of profits. Section 80-IA is a Code by itself as it contains both substantive as well as procedural provisions. Therefore, we need to examine what the provisions prescribe for computation of profits of the eligible business . 21. Section 80IA(1) clearly states that the a deduction of an amount equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st appellate authority will stand modified as above. (Emphasis supplied.) 23. The procedure, as explained in Accel case (supra) entails the following: 1. Compute the profits of the unit separately. 2. Compute the eligible deduction of the business. 3. Make a claim of the deduction as arrived above from gross total income as per the provisions of S.80A(2) and S.80B(5). 24. It is possible to urge that for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (5) contemplates that only the profits shall be taken into account as if it was the only source of income. In the case of Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai [2008] 168 TAXMAN 224 (SC), the assessee had two industrial undertakings viz., Oil Division, wherein the assessee suffered loss and the Chemical Division where there was a profit. The assessing Officer appropriated the loss from the Oil Division against the profits from the Chemical Division for the purposes of allowing the deduction under section 80I. It was held that because of the non obstante clause in Section 80I(6), profits of oil divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer in computing the deduction by aggregating the incomes / profits and gains of all the windmills is correct. However, this is not a correct formula for working out the claim of deduction under section 80IA. 26. This is for the reason that if profits of the individual units are not considered on standalone basis, then the choice given under section 80IA(2) to opt for the claim of deduction for any ten consecutive assessment years out of fifteen years too will be nullified. Further, the initial assessment year referred to in section 80IA(2) can never be interpreted with reference to business. It can be understood with reference to each unit separately. To clarify this fact, I am reproducing the charts showing the revenues earned by the appellant in respect of WTGS on Windmill Undertakings located at Satara, Tamil Nadu and Gudhe-Panchgani sites hereunder: [I] Satara Wind Mill | Financial year Ending 31/03/2002 31/03/2003 31/03/2004 31/03/2005 31/03/2006 31/03/2007 31/03/2008 Revenue 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,10,31,807 Net Profit (68,63,472) (67,72,279) ., Depreciation (Adjusted) (1,37,32,881) (1,63,89,452) Income WTGS (IT Act) (1,37,32,881) (3,01,22,333) 27. Now let us assume a situation where the Tamil Nadu and Gudhe-Panchgani windmills were not commissioned in the year ending on 31/03/2006 and 31/03/2007 but were commissioned in the year on 31/03/2009. In such a scenario, the Satara windmill would be the only revenue and profit generating centre of the enterprise engaged in the business of generation of electricity. The appellant 'would be entitled to compute and claim the deduction allowable under sub-section (1) for the previous year relevant to assessment year 2008-09. Now if the Tamil Nadu and Gudhe- Panchgani windmills were commissioned in the previous year relevant to assessment year 2009-10. then there would be no profits available for making the claim of deduction in respect of profits generated by the Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in the A.Y. 2002-03, there were consistent losses up to the A.Y. 2007-08 and assessee did not opt for claiming the deduction u/s 80IA(2) of the Act. So far as A.Y. 2008-09 is concerned, assessee opted for claiming the deduction u/s 80IA(2) treating the said assessment year (A.Y.) as an initial assessment year as there was the profit in Satara wind mill but losses in the Tamil Nadu wind mill and Panchgani wind mill. If we look at the scheme of the section 80IA(2), it speaks about the undertaking or enterprise and not the business of the assessee. Admittedly, three wind mills at the 3 locations are independently operated and the financial results are separately worked out. As per sub-sec.(5) of section 80IA, for computing the deduction u/s 80IA(2), the eligible business is to be treated as the only source of income. Sub-sec.(5) of section 80IA has been explained by the Hon'ble High Court and Kerala in the case of CIT Vs. Accel Transmatic Systems Ltd. 230 CTR 206 (Ker) which has been followed by the Ld. CIT(A). The term business used in sub-sec.(5) section 80IA in our humble opinion is confined to the independent undertaking and cannot get merged with the other business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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