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TMI Blog2016 (4) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company was completed on 30-03-2003 i.e. during the previous year 2002-03 relevant to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same survey report dated 05-04-2006 which is not only technically defective due to reasons as detailed above but was also drawn on the basis of conjectures, surmises , assumptions and presumptions without backing of any cogent material/evidences, which is alien to the Act and is not sufficient for fastening liability on the assessee company . In view of our above findings and reasoning detailed above, we find no infirmity in the well reasoned and detailed order passed by the CIT(A) which we decline and refuse to interfere and hence, we confirm the orders of the CIT(A) - Decided in favour of assessee Reopening of assessment - claim of deduction u/s 80IA disallowed - Held that:- the completed assessments u/s 143(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contents thereof has also not been demolished by the Revenue and had remained uncontroverted. In our considered view, the CIT(A) has passed a very detailed and well reasoned order dated 12.03.2012 accepting the contentions of the assessee company with which we concur , agree and uphold the same. Foreign investments undisclosed - Held that:- In the instant case, the investing company has duly explained the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing 5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the assessee company through his corporate str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 2007-08 as the ‘initial assessment year’ for claiming deduction u/s 80IA of the Act )by the assessee company cannot be brought forward notionally to be adjusted against the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreciation in the hands of the assessee company as per facts emanating from records . Entitled for deduction u/s 80IA - Held that:- As the amount received by the assessee company from M/s Suzlon Energy Ltd. on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. Disallowance u/s 14A - Held that:- The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led beyond the relevant accounting period ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored. " 4. The brief facts of the case are that the assessee company derived income from trading in cotton yarn, fabric, raw cotton, paper and windmill power. The assessee company's original assessment was completed by the AO u/s 143(3) of the Act vide orders dated 30/01/2006 . In the original return of income filed by the assessee company with Revenue, the assessee company has claimed depreciation on windmill amounting to ₹ 1,86,00,000/- and the said claim of the assessee company was allowed by the AO in the original assessment order u/s 143(3) of the Act dated 30.01.2006. Subsequently, the AO was in the possession of the information that the windmill on which assessee company has claimed depreciation was not installed on 30-03-2003 as claimed by the assessee company but was installed on 01/04/2003 i.e. during the period relevant to the subsequent assessment year, hence, the assessee company's claim of depreciation was not an allowable deduction since the asset was not put to use during the relevant previous year to the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The AO held that the documents submitted by the assessee company vide above referred letter cannot be taken as an authentic document since the same is not supported by full facts and documentary evidences as also the same are self generated documents. The certificate of Executive Engineer, Jaisalmer do not bear the seal of the authority and hence the authenticity of the claim is doubtful. The A.O. accordingly held that the assessee company is not entitled for claim of depreciation of windmill for the impugned assessment year i.e. 2003-04 and therefore the AO disallowed an amount of ₹ 1,86,00,000/- claimed by the assessee company towards depreciation on windmill, vide order dated 16.12.2010 passed u/s 143(3) r.w.s. 147 and 254 of the Act. 5. Aggrieved by the afore-said re-assessment order dated 16.12.2010 of the A.O. passed u/s 143(3) r.w.s. 147 and 254 of the Act , the assessee company preferred an appeal before the first appellate authority i.e. CIT(A). 6. Before the CIT(A), the assessee company submitted that it had furnished correct return of income of the Act disclosing total income of ₹ 51,03,650/- on 3.11.2003. The assessee company submitted that the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.03.2003 and the depreciation at 50% was correctly claimed on the basis of the following evidences, which submissions containing reliance on the documents by the assessee company are reproduced hereunder: "1. The office of The Executive Engineer ( O & M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalmer District by the appellant has been successfully commissioned on 30th March, 2003. (Exhibit 1.1.) 2. Copy of Certificate of Commissioning and handing over of WTG by Commissioning Engineer (Exhibit 1.2). 3. Further Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. has also given joint inspection report of 10.0 MW wind farm in respect of common main metering system on 30th March, 2003. (Exhibit 2). 4. Copy of invoice dated March 31. 2003 for generation of power from March 30 to March 31. 2003 raised on the Superintending Engineer (Commercial), Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. (Exhibit 3). 5. Copy of monthly generation record for the month of March 2003. (Exhibit 4). 6. Copies showing breakup of net export units (kwh) as recorded at main meter of RVPNL for the mont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kelvinator of India Limited (2010) 320 ITR 561 (SC) v) Rallies India Limited v. ACIT 232 CTR 143 (Bom) vi) Mitsui Marubheni Corpn v. DCIT 298 ITR (AT) 283 vii) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom). The assessee company contended that there was no failure on the part of the assessee company to disclose full and true facts and the A.O. has incorrectly changed his mind and withdrawn depreciation @ 50% even though the A.O. has accepted that the windmill has actually been commissioned. It was submitted that the original assessment was completed u/s. 143(3) of the Act on January 30, 2006. The A.O. issued notice u/s. 148 of the Act on 9-12- 2009 which is beyond the period of 4 years from the end of the assessment year. The assessee company submitted that the assessment has been reopened based on the materials gathered during the course of survey u/s 133A of the Act on 05-04-2006 at the premises of Suzlon Energy Limited based on which opinion was formed that the subject windmill was commissioned and put to use on 1-4-2003 as against actual date of commissioning/put to use on 30-3-2003 and contended that the A.O. has wrongly reopened the assessment u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s placed on records and accepted by the then A.O. The assessee company submitted that the A.O. while passing the re-assessment order dated 16.12.2010 based his decision on the data of daily generation of electricity from 1.1.2006 to 5-4-2006 and statement recorded allegedly of an employee of Suzlon Energy Limited which documents were collected by a survey team during the course of survey u/s. 133A of the Act on 05-04-2006 in the case of M/s. Suzlon Energy Ltd. based on which he has held that the subject windmill was commissioned on 01-04-2003. The assesse company had submitted the following documentary evidences during original assessment, reassessment and remand proceedings to prove that the windmill was put to use before 31.03.2003 and the same is reproduced hereunder:- "1. The office of The Executive Engineer (O & M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalmer District by your appellant has been successfully commissioned on 30th March, 2003. (Exhibit 1.1) 2. Copy of Certificate of Commissioning and handing over of WTG by Commissioning Engineer (Exhibit 1.2). 3. Fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO for disallowing the claim of depreciation and the same cannot be considered as an authentic document. Also nowhere on the document name of Suzlon Energy Limited appears which again raises a doubt as to the validity of the document. The person who has signed the Survey Report has not been identified and that he is a representative of Suzlon Energy Limited has also not been mentioned on the Survey report and in fact the person who has signed the report is not the authorized signatory of Suzlon Energy Limited. It was submitted that even the name and designation of the Revenue officer countersigning the document is also not mentioned in the said Xerox copy . The assessee company vide additional evidence had submitted delivery challans of Suzlon Energy Limited together with consignment note evidencing date of delivery of windmill parts at site and the last delivery was on 02-03- 2003 which prove that the parts of the windmill were received well before time of installation and commissioning of windmill on 30-3-2003. The A.O.'s stated in his remand report that the additional evidence submitted vide letter dated December, 26, 2011 does not prove that the windmill was installed and mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment by the AO. The CIT(A) relied upon the following case laws: a) Indo Aden Salt Manufacturing and Trading Co. P. Ltd. (1986) 159 ITR 624(SC) b) Jawand Sons v. CIT (2010) 326 ITR 39(P&H) c) Raymond Wollen Mills Limited v. ITO (1999) 236 ITR 34(SC) On merits, the CIT(A) observed that it is undisputed that the assessee company had installed windmill at location No. J208 at Soda-Mada, Jaisalmer. Even the survey team led by Addl. DIT, Investigation, Jodhpur has inspected and verified during the course of survey proceedings conducted on 5.04.2006 that assessee company's windmill was installed and power generation as per meter from 1-1-2006 to 5-4-2006 was at 291097 units. The only dispute raised by the AO is that the date of installation of assessee company's windmill was allegedly on 1.04.2003 as against the date of installation claimed by the assessee company being on 30-03-2003 and allowed as such by the AO during the regular assessment proceedings u/s 143(3) of the Act vide orders dated 30-1-2006. From the perusal of the relevant re-assessment order dated 16-12-2010 by the CIT(A) , it was revealed that the AO has relied on a survey report dated 05-04-2006 wherein a lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net export of energy of 98 KWH. The invoice value was raised at ₹ 327 @ ₹ 3.34 per KWH. The assessee company has further relied on copy of cheque issued by Govt. of Rajasthan, i.e. Rajasthan Vidyut Prasaran Nigam Limited vide cheque No. 584233 dated 16.5.2003 from RVPN Account No. 65106 in favour of the assessee company for ₹ 327/- for payment of energy bill for March 2003 . The assesse comapny has also relied on the Govt. of Rajasthan's forwarding memo No. RPM/CCA/CPC/F/D/605 dated 16.5.2003, mentioning the aforestated cheque amounting to ₹ 327/- being forwarded to the assessee company. The assessee company has further relied on copy of monthly generated record for the month of March 2003 which have been duly signed by the Jodhpur Discon, by the responsible authority of RUPNL and by M/s Suzlon Energy Limited. The assessee company has also enclosed a statement at Annexure-l giving details and description of the material delivered, date of dispatch, delivery challan number, challan date, L/R number, L/R date, name of transporter, date of receipt of material at site, the relevant delivery challans, L/R receipts issued by the transporter, certificate of goods r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A), the Revenue is in appeal before the Tribunal. 9. The ld. D.R. submitted that the assessee company has claimed depreciation on windmill of ₹ 1.86 crores for the assessment year 2003-04 while the windmill was installed on 1-4-2003 and since the windmill was not put to use before the end of financial year ending on 31-03-2003 , the A.O. has rightly denied the benefit of depreciation in the assessment year 2003-04 and the CIT(A) erred in allowing the depreciation without appreciating the survey conducted by the Revenue u/s 133A of the Act on 05-04-2006 , clearly established that the windmill was not installed on 30-3-2003 but on 01-04- 2003 and the same was certified by one of the Executives of Suzlon Energy Limited. M/s Suzlon Energy Limited being the supplier of the windmill and engaged in the installation and commissioning of the windmill, the certificate dated 05-04-2006 by the Executive of Suzlon Energy Limited was valid and relevant piece of evidence which was rightly relied upon by the A.O. to withdraw the claim allowed of depreciation of ₹ 1.86 crores on windmill in the re-assessment proceedings. The ld. DR relied upon the orders of the AO. 10. On the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommencement of commercial production of the windmill on 30-03-2003 , vide replies dated 16- 08-2005 and 12-09-2005 which are placed in paper book page 94-119. The ld. Counsel for the assessee company drawn our attention to the certificates issued by the Rajasthan Government Authorities certifying that the windmill was successfully commissioned on 30-03-2003 which is placed in paper book at page 116. He also drew our attention to the Joint inspection in respect to the windmill power plant of the assessee company carried on by the RRVPN which was also certified that the installation and commissioning of the windmill was completed on 30-3-2003 which is placed at paper book page 117 to 119. He also drew our attention to the invoices raised by the assessee company for the month of March, 2003 for energy supplied to the Government of Rajasthan for an amount of ₹ 327/- which is placed at paper book page 36 to 38. He also drew our attention to the payment received of ₹ 327/-from the RVPNL against the invoice for month of March 2003 which is placed at paper book page 39.The ld counsel for the assessee company drew our attention to delivery challans and invoices raised by Suzlon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, designation or seal of the person preparing the survey report on 05-04-2006 being allegedly employee of Suzlon Energy Limited nor is there any detail of the officer of Revenue countersigning the said report dated 05-04-2006. The Revenue has also not recorded any statement of the Director or any other authorized person of Suzlon Energy Limited or of the assessee company during the course of survey proceedings. On the other hand, the assessee company has brought on record cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that the windmill of the assessee company with the capacity 1.25 MW was duly installed , commissioned and put to use on 30-03-2003 and was also connected to 33kv Khuri Feeder on 30-3-2003 and the assessee company has also supplied net-energy being 98KWH to RVPNL in March 2003 which was duly paid by RVPNL , which has not been controverted and demolished by the Revenue. We ,there-fore, hold that the installation , commissioning and put to use of the windmill no. J-208 at Soda-Mada- Jaisalmer, Rajasthan with capacity of 1.25 MW of the assessee company wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Assessing officer of reopening the already completed assessment u/s. 143(3) which is merely on the ground of change of opinion. 3. The C.I.T. (A) erred in confirming the action of the Learned Assessing officer of notionally setting the unabsorbed loss of earlier years of windmill division of ₹ 94.39 lacs which have already been set off against other business income of your appellant. 4. The C.I.T. (A) erred in not taking cognizance of the fact which was brought to his notice that notional loss of wind mill division was already set off while considering deduction u/s. 80- IA for A.Y. 2008-09 and A.Y. 2009-10 thereby amounting to double taxation. 5. The CIT(A) erred in not following the binding precedent that "the judgment of non-jurisdictional High Court is a binding precedent, if no contrary judgment of another High Court is available". 15. The brief facts of the case are that the assessee company derives income from trading in cotton yarn, fabric, raw cotton , paper and wind mill power. The assessee company filed return of income on 31/10/2007 , which was assessed by the AO u/s 143(3) of the Act vide orders dated 17/12/2009. Subsequently, the AO on ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed generation of electricity in the assessment year 2003-04 and has opted to claim deduction u/s. 80-IA only from the assessment year 2007-08. Hence the "initial assessment year" for this undertaking would be assessment year 2007-08. The A.O., however, rejected the contentions of the assessee company. The A.O. relied upon the assessment order for the assessment year 2009-10 which was confirmed by the CIT(A)-9,Mumbai vide order dated 2-7- 2012 with the following remarks as under:- "I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the windmill power division, as noted by the LAO in the relevant assessment order and extracted as under: A.Y. Depreciation loss 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 2006-07 21,54,000 5.3.2 The LAO has enforced the provisions of sub-sec. 5 of 80IA of the Act and adjusted b/f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai "H" Third Member Bench in the case of Gujarat Ambuja Cement Limited Vs DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits derived by the assessee from its eligible industrial undertaking for the purpose of computing deduction under section 80-I(1). 5.3.7 The Hon'ble ITAT, Hyderabad -"A" bench in the case of Hvderabad Chemicals Supplies Limited vs ACIT (2011) 53 DTR 371 (Hyd) has further approved that notional brought forward unabsorbed business loses or depreciation of eligible business unit have to be set off against the income earned by the unit for claim of deduction under section 8O-IA of the Act. 5.3.8 Having regard to the facts and circumstances of the case and in accordance with the provisions of sub-sec.80-IA(5) of the Act and respectfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent to the framing of the regular assessment vide orders dated 17.12.2009 u/s 143(3) of the Act. In support, the assessee company relied upon the following decisions of the Hon'ble Supreme Court: (i) Phool Chand Bajrang Lal v. ITO , 203 ITR 456,477 (ii) ALA Firm v. CIT 189 ITR 285, 298 (iii) Indian and Eastern Newspaper Society v. CIT 119 ITR 996, 1004 (iv) ITO v. Lakhmani Mewal Das 103 ITR 437, 445 The assessee company submitted that following documents were given to the AO during the course of regular assessment proceedings with respect to the claim u/s 80IA of the Act and no new material and tangible facts have come to light warranting invoking of provisions of Section 147/148 of the Act for reopening of concluded assessment:- " (i) Vide letter dated November 13, 2009, a copy of the assessment order for AY. 2006-07 was submitted-at Annexure 34. (ii) Books of account of the company were produced for verification as mentioned at Sr. No. 8 of our letter dated November 13,2009. (iii) Books of account for Wind Power division were produced for verification as per Sr. No. 6 of letter dated November 25, 2009. (iv) Copy of ledger account of Wind Power project was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93(Uttarakhand) - CIT v. Manak Shoes Co. (P.) Ltd. [2011] 200 Taxmann 133 (Del.): 2011)11 taxmann.com 217 (Delhi) - CIT v. Feather Foam Enterprises (P) Ltd. [2008] 296 ITR 342 (Del.) - CIT vs. Bhanji Lavji [1971] 79 ITR 582 (SC) - ITO v. Nawab Mir Barkat AIi Khan Bahadur [1974] 97 ITR 239 (SC) - Raymond Woolen Mills Ltd. v. ITO and Others (1999) 236 ITR 34 (SC) - CIT v. Former Finance (2003) 264 ITR 566 (SC) - M.J. Pharmaceuticals Ltd. v. DCIT [2008] 297 ITR 119 (Bom.) - Carlton Overseas P. Ltd. v.. ITO [2009] 318 ITR 295 (Del.) - CIT v. Chakiat Agencies Pvt. Ltd. [2009] 314 ITR 200 (Mad.) - Caetini India Ltd. v. Addl. CIT [2009] 314 ITR 275 (Bom.) - Pan Drugs Ltd. v. DCIT [2009] 316 ITR (AT) 72 (Ahm.) The assessee company submitted that the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO held that when a notice u/s 148 is issued, the A.O. is bound to furnish reasons within a reasonable time and the assessee company is entitled to file objections to issuance of notice and the A.O. is bound to dispose of the same by passing a speaking order before proceeding with the reassessment u/s 147/148 of the Act. The assessee company submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of concluded assessments u/s 147/148 of the Act, which as per CIT(A) has been opened based on findings in subsequent year based on judicial decisions and hence as per CIT(A) , it is not a case of change of opinion. The CIT(A) held that the addition on account of deduction u/s 80IA was confirmed by his predecessor for the assessment year 2009-10 and the relevant findings of the CIT(A) are as under:- "5.3Ground No. 2 : Deduction under section 80-IA(5) 5.3.1 I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the windmill power division, as noted by the LAO in the relevant assessment order and extracted as under: A.Y. Depreciation loss 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 2006-07 21,54,000 5.3.2 The LAO has enforced the provisions of sub-sec. 5 of 80lA of the Act and adjusted b/f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose of determining of quantum of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in the case of Gujarat Ambuja Cement Limited v. DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits derived by the assessee from its eligible industrial undertaking for the purpose of computing deduction under section 80-I(1). 5.3.7 The Hon'ble ITA T, Hyderabad "A" bench in the case of Hvderabad Chemicals Supplies Limited v. ACIT (2011) 53 DTR 371 (Hyd) has further approved that notional brought forward unabsorbed business loses or depreciation of eligible business unit have to be set off against the income earned by the unit for claim of deduction under section 80- IA of the Act. 5.3.8 Having regard to the facts and circumstances of the case and in accordance with the provisions of sub-sec.80-IA(5) of the Act and respectfully following the decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 , the claim of deduction u/s 80IA of the Act was examined by the A.O. although no specific query was raised in the regular assessment proceedings u/s 143(3) read with Section 143(2) of the Act, but as per Annexure "A" of the assessment order dated 17.12.2009 u/s 143(3) of the Act, the A.O. has worked out the details of calculation of the claim u/s 80IA allowable to the assessee company. No new tangible material has come to the notice of the A.O. after the conclusion of the regular assessment proceedings on 17-12- 2009 u/s 143(2) read with Section143(3) of the Act to reflect that the income has escaped assessment which warrants re-opening u/s 147/148 of the Act. The assessee company relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. Orient Craft Ltd. [ITA No. 555/2012, date of decision 12th December, 2012) and contended that no reassessments can be framed u/s 147/148 of the Act if no new tangible material has come to the notice of the A.O. as there is no reason to believe based upon the new tangible material coming into the possession of the A.O. which could lead to forming an opinion that an income has escaped assessment, thus, it would warrant that no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial production with effect from assessment year 2003-04 (which we have also upheld vide ITA No. 3812/Mum/2012 for assessment year 2003-04 vide this common order) while the assessee company has claimed deductions u/s 80IA w.e.f. assessment year 2007-08 considering the same to be the 'initial assessment year' for the purposes of claiming deduction u/s 80IA of the Act in accordance with Section 80IA(2) and 80IA(5) of the Act. The Revenue has framed the regular assessment u/s 143(3) of the Act vide assessment orders dated 17-12-2009 , whereby deduction u/s 80IA was duly allowed by the AO. We have observed from the reasons recorded for reopening of the assessment u/s 147 of the Act wherein the A.O. stated that on verification of the assessment records of the assessee company, the claim of the assessee company u/s 80IA of the Act was wrongly allowed to the assessee company as it was not in accordance with law and no new tangible material has come to the notice of the A.O. after conclusion of regular assessment u/s 143(3) of the Act on 17-12-2009, which has direct nexus or live link with the formation of reasons to believe that income has escaped assessment warranting invocation of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CBDT has now come with Circular No. 1/2016[F. No. 200/31/2015-ITA-I] dated 15- 2-2016 which is binding on Revenue , whereby the Board has clarified the term "initial assessment year" in section 80-IA(5) of the Act wherein it has been categorically mentioned that the matter has been examined by the Board and it is abundantly clear from sub-section (2) of Section 80IA of the Act that an tax-payer who is eligible to claim deduction u/s 80-IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It has been clarified that once such initial assessment year has been opted for by the tax-payer, he shall be entitled to claim deduction u/s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from subsection (2) that an assessee who is eligible to claim deduction u/s.80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e initial assessment year in Section 80IA(5) would only mean the year of claim of deduction under Section 80IA and not the year of commencement of eligible business ? and (3) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year of claim for deduction under Section 80IA ?" 2. Heard Mr.T.R.Senthilkumar, learned Standing Counsel for the Department. Mr.M.P.Senthilkumar, learned counsel takes notice for the respondent. 3. Even according to the learned Standing Counsel for the Department, this Court has consistently followed the decision in M/s.Velayudhaswamy Spinning Mills (340 ITR 477), despite the Honourable Supreme Court ordering notice. 4. Interestingly, on the basis of the decision in Velayudhaswamy Spinning Mills, the Central Board of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016. It will be useful to extract the circular in entirety, which is as follows : "Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in SubSe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up by ₹ 491.48 lakhs to ₹ 916.48 lakhs. The assessee company was specifically asked to provide the details of shareholders subscribing to the share capital and share premium. The assessee company was also required to establish identity, creditworthiness and genuineness of the transaction. From the details furnished by the assessee company, it was observed by the A.O. that the entire share capital is subscribed by a single foreign company, namely M/s. Billion Way Garment Limited(hereinafter called "BWGL"), having its registered office in Hong Kong and share capital has been received by the assessee company by way of remittance on 24/10/2007 from BWGL. The A.O. observed that the said BWGL was incorporated in Hong Kong on 10/07/2007 with the main object of trading in garments, fabrics and accessories as evident from the Certificate of Business Registration Ordinance issued by the competent authority. It was also noted by the A.O. that the said company was originally incorporated with authorized share capital of HK$ 10,000/- , which was subsequently increased to HK$ 1,10,00,000/- on 19-9- 2007 and further increased to HK$ 1,87,50,000/-. It was observed by the A.O. that BWG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after this date of incorporation i.e. 10-08-2007. The A.O. observed that the assessee company failed to establish the creditworthiness of BWGL and FEL. Further, from the certificate dated 19-11-2010 issued by Certified Public Accountant, it was clearly shown that BWGL was not having any assessable profit or loss as per the Profit Tax return filed for the assessment year 2007-08 and 2008- 09 submitted to the Inland Revenue Department, Hong Kong , which also evidences that the said BWGL was not engaged in the earning of any income, leave aside business activities. The A.O. further observed that assessee company is a registered company listed on Bombay Stock Exchange) and the average market rate per share of the assessee company as certified by the Chartered Accountant during the previous year relevant to the financial year 2007-08 was ₹ 7.04 per share . It was observed by the AO that if BWGL was the real investor in the shares and was really interested in acquiring the shares of the assessee company, then the shares could have been acquired from the market at the rate of 7.04 per share but the BWGL preferred to pay ₹ 12/- per share to the assessee company, hence, the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company of BWGL. FEL subscribed the amount of HKD 1,87,49,999/- out of total share capital of BWGL of HKD 1,87,50,000/- . - BWGL has in turn subscribed for 42,50,000/- equity shares of your appellant company out of the money received from FEL towards its share capital." The assessee company submitted the following documents before the CIT(A) to prove the identity of the investor, creditworthiness of the ultimate investor and genuineness of the transaction which are the three basic ingredient of Sec 68 of the Act, which are reproduced hereunder:- "Identification of the party a) Nimish Chandak, Proprietor of Fortune Exim. -Copy of Hong Kong identity of Nimish Chandak enclosed at Exhibit 17. -Copy of Hong Kong permanent card of Nimish Chandak enclosed at Exhibit 18. -Copy of Passport of Nimish Chandak enclosed at Exhibit 19. Incidentally as on the date of this transaction, Nimish Chandak holds an Indian Passport. We are now given to understand that he has got a Hong Kong Passport. -Copy of Form no. 2 of Fortune Exim being Business Registration certificate enclosed at Exhibit 21. -Copy of Business particulars of Fortune Exim issued by Business Registration Office encl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statements for the period ended 31st December, 2007 along with notes to account of FEL enclosed at Exhibit 11. -Copies of letter of HSBC bank for granting facilities to FEL enclosed at Exhibit 26. -Copy of HSBC letter regarding satisfactory conduct of account of FEL enclosed at Exhibit 29. d) Billion Way Garments Ltd . -Certificate of Certified Public Accountants certifying FEL as a major shareholder of BWGL enclosed at Exhibit 5. -Certificate regarding Profit Tax Return of BWGL enclosed at Exhibit 6. -Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of BWGL enclosed at Annexure 73. Genuineness of the Transaction -Copy of Affidavit from Nimish Chandak confirming the entire transaction enclosed at Exhibit 30. -Copy of Bank Foreign Inward Remittance Certificate from State Bank of India certifying the remittance from BWGL to your appellant by way of Share Application Money enclosed at Exhibit 10. -Intimation to RBI by your appellant in connection with receipt of Remittance enclosed at Annexure 68.2. -Extracts of Resolution passed at the meeting of the committee of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount remitted to LOL enclosed at Annexure 69.24 and Exhibit 8. -Bank Statement of LOL evidencing receipt of subscription amount enclosed at Annexure 68.25 and Exhibit 9." The assessee company submitted that the A.O. has passed the assessment order u/s 143(3) of the Act dated 30-12-2010 in haste without conveying dissatisfaction over the documents submitted by the assessee company . The AO did not asked the assessee company to prove the creditworthiness of FEL nor any opportunity was provided to the assessee company. The assessee company also submitted that during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company has explained the source of source of the transaction and the assessee company has now before the CIT(A) even proved the identity, genuineness and creditworthiness of the ultimate investor Mr. Nimish Chandak and the assessee company has also satisfactorily explained even the source of source of source by producing the additional evidences before the CIT(A). The assessee company received the money towards share capital including share premium subscribed by BWGL of ₹ 5,10,00,000/- in its bank account through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s Stand: The Ld. AO. on Page 2 of the assessment order noted the observations of the auditor of FEL which talks about updated financial statement of BWGL. Rebuttal: Once again this has no relevance on the creditworthiness and genuineness of transaction wherein BWGL has Invested in the share capital of your assessee company. AO's Stand: The Ld. AO also objected on the point that the Balance Sheet of FEL has not been prepared as at December 31, 2007. In fact, FEL has prepared the Balance Sheet since the date of its incorporation on August 10, 2007 to December 31, 2008 as per the laws prevailing in Hong Kong. The AO as earlier confirmed that remittance has been received from FEL on October 08, 2007 and October 15, 2007 which is apparent from the copy of the bank statement submitted. Rebuttal: The assessee has already submitted a copy of the audited Balance Sheet of FEL as at 31.12.2008 wherefrom it is clear that FEL has invested HK$10,999,999 by acquiring shares of the subsidiary company, i.e. BWGL. AO's Stand: The Ld. A.O. is concerned of the fact that BWGL was not having any assessable profit or loss as per the Profit Tax Return filed for the year of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of the assessee company are not widely traded and the volume of trading each day would not exceed a few thousand shares. If they try to acquire the shares in the open market it would lead to following consequences: -Prices of the shares would suddenly flare up and they would not been able to acquire the desired number of shares. -As per the SEBI rules any person acquiring 5% of the paid up capital would require the permission of the Stock Exchange and SEBI. -If the acquisition exceeds 15% of the capital, the company investor would be bound to appoint merchant bankers and make an open offer to all the shareholders. The above would lead to considerable difficulties and the end result would be that they would either not able to acquire number of shares they have acquired or they would have paid a much heavier price then the amount paid to the company by way of share premium. Further if the investor is interested in well being of the company in which he has invested he would be happy to put the money in the hands of the company rather than buy the shares from the market at a premium because if the shares are issued by the company, the share value and premium would be availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) observed that during the course of assessment proceedings, remand proceedings and appellate proceedings, the assessee company has explained that it issued preferential shares to M/s BWGL at the rate of ₹ 12/- per share after complying with the requisite formalities and with due approval of RBI, BSE and SEBI guidelines on preferential allotment of shares. The assessee company has received ₹ 5.10 crores vide certificate of Foreign Inward Remittance Reference No. 0607007TP0000762 dated 7.11.2007 issued by SBI Commercial Branch, Mumbai on 7.11.2007. The said remittance certificate certifies that the said BWGL remitted US$ 1295000.00 rupee equivalent to ₹ 5,12,08,250/- vide Bank of America, NA, New York DEDUCTION/TT/MT No. 2007102400038709 dated 24.10.2007 favouring M/s Lahoti Overseas Limited, Mumbai , i.e. the assessee company for the purpose of share application money at the rate of ₹ 12/- per share. The said money was deposited in assessee company's SBI Commercial Branch, Mumbai A/c No. 11079527922 on 25.10.2007.The said receipt of remittance was duly notified to RBI. Extracts of the Resolution passed at the meeting of the Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted annual return in form no ARI of BWGL filed with the Registry, Hongkong and bank statement of BWGL highlighting the amount remitted to the assessee company by BWGL along with bank statement of the assessee company evidencing receipt of share capital and share premium aggregating to ₹ 5.10 crores was submitted before the AO and CIT(A) . The assessee company has further produced certificate of Certified Public Accountant - Fung , Yu & Company regarding profits tax return of BWGL. The copies of Director's report , auditors report , balance sheet and income statements for the period ended 31.12.2007 along with notes of account of BWGL were also produced before the CIT(A) and AO. Thus, the CIT(A) held that the identity and creditworthiness of BWGL has been proved , vide orders dated 12-03- 2012. The assessee company has further explained the identity and creditworthiness of FEL by producing various documents including the bank statement of FEL evidencing transfer of funds to the said BWGL. Mr. Nimesh G. Chandak is the proprietor of the said FEL and a copy of his Hongkong identity, Hongkong Permanent Card bearing No. R077978(3) dated 5-08.2009 issued by Government of Hongkon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by listed companies. The investor BWGL agreed to pay ₹ 12 per shares which is a negotiated price of the share. By issuing the fresh shares, the funds have come into assessee company's bank account which could be utilized for company's business and expansion while if BWGL has gone for market acquisition of shares, then funds would not have come to assessee company for its business but would have gone to shareholders who have sold the shares in open market and also beyond acquisition of 5% of the capital, SEBI takeover code is applicable and open offer is to be made by the investor. The shares of the assessee company are thinly listed and acquiring 42,50,000/- shares from open market would have led to substantial surge in the market price of the shares as total floating stock is merely 76,76,075 shares . The amount invested by the said BWGL continues to be reflected in the audited balance sheet of BWGL as well as in the audited balance of the assessee company. Also, the amount invested by FEL in BWGL is also reflected in the audited balance sheet of both the companies. Hence, the CIT(A) vide orders dated 12-3-2012 deleted the additions made by the A.O. with respect to the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of issue of 42,50,000/- equity shares at ₹ 12/- per share (equity shares of face value of ₹ 2 each issued at ₹ 12/- per share including share premium of ₹ 10 each) . The said BWGL issued share capital of HK$ 1,10,00,000/- which was subscribed by another Hong Kong company FEL and the said amount raised by BWGL from FEL was invested in the assessee company to the tune of ₹ 5.10 crores ( equivalent HK$ 1,01,01,000/-) . These companies are ultimately owned and controlled by an NRI Mr. Nimesh G Chandak . We find from the facts and evidences as emanating and emerging from the records that the assessee company has brought on record all the necessary and relevant documentary evidences and satisfactory explanations with respect to the transaction of receipt of ₹ 5.1 crores towards share capital and share premium and has proved by cogent material and evidences the identity, genuineness and creditworthiness of the investing company BWGL and also filed documentary evidences substantiating the flow of funds through chain of holding companies from the ultimate investor, Mr. Nimish G Chandak, the Hong Kong resident into BWGL which finally was invested in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfactorily discharged the primary onus and duty cast on the assessee company to satisfy the ingredients of Section 68 of the Act with respect to identity of creditors, creditworthiness of creditors and genuineness of the transaction and thereafter the onus had shifted to revenue to rebut and demolish the evidences and explanations brought on record by the assessee company which has not been done in the instant case by the Revenue . We find that the A.O. has not brought on record any cogent material/record to prove that the assessee company has failed to comply with the ingredients of section 68 of the Act or to demolish the evidences filed by the assessee company or explanation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and assumptions which is not permissible under the Act while the assessee company has satisfied the ingredients of Section 68 of the Act by uncontroverted cogent documentary evidences and explanations offered during assessment and appellate proceedings. The said Mr Nimesh G. Chandak , the ultimate investor of the investing group was produced by the assessee company befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions of the businessmen based on perceived prudence. The Revenue cannot put itself into an arm-chair of businessmen to decide how businesses are to be structured, controlled, owned , operated, run and managed, so long the purposes and objectives adopted by businessmen are not dubious with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. In the instant case, the investing company has duly explained the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing ₹ 5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to the issue relied by the assessee company, hence, we refuse and decline to interfere with the orders dated 12.3.2012 of the CIT(A) which we confirm, concur and uphold the same. Our view is supported by and fortified by the judgment of Hon'ble Supreme Court in the case of CIT v. Steller Investment Limited ((2001) 251 ITR 263(SC)) , CIT v. Lovely Exports Private Limited ((2008) 216 CTR 195(SC) ) and CIT v. Tania Investments Private Limited 322 ITR 394(Bom.HC). We order accordingly. 35. In the result, Revenue appeal in ITA No. 3813/Mum/2012 for the assessment year 2008-09 is dismissed. ITA No. 3821/Mum/2012 for assessment year 2008-09 (Assessee's appeal). 36. The assessee company has raised the following grounds of appeal in memo of appeal filed with the Tribunal:- "1. The Learned Commissioner of Income Tax (Appeals) [Ld. CIT (A)] erred in confirming the action of the Learned Assessing officer of Denial of deduction u/s 80lA amounting to ₹ 1,57,90,301/-. 2. Without Prejudice to above, the Ld CIT(A) erred in confirming the action of A.O of not treating a sum of ₹ 35,55,880/- received as compensation from M/s. Suzlon Energy Limited (towards specific performan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 30-12-2010 passed u/s 143(3) of the Act , after rejecting the contentions of the assessee company . 38. Aggrieved by the assessment orders dated 30-12-2010 passed by the AO u/s. 143(3) of the Act, the assessee company filed first appeal before the CIT(A). 39. The assessee company contended before the CIT(A) that during the year under consideration , the assessee company earned income from sale of power generated from wind mill and claimed the deduction u/s.80IA of the Act amounting to ₹ 1,57,90,301/-. The AO denied the claim of deduction u/s 80IA on the grounds that notional brought forward losses/depreciation of eligible business which has already been set off in the relevant assessment year against other income of those years in which those losses arises and were allowed by the Revenue are to be notionally brought forward and adjusted against the claim of deduction u/s 80IA of the Act of the impugned assessment year before allowing deduction u/s 80IA of the Act and hence the entire claim of deduction of the assessee company amounting to ₹ 1,57,90,301/- u/s 80IA of the Act were disallowed by the AO without appreciating the provisions of Section 80IA(5) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision : 1. ACIT v. Goldmine Shares and Finance Private Limited (2008) 113 ITD 209(Ahd.) (SB). 2. Gujarat Ambuja Cement Limited v.DCIT(2009) 117 ITD 87(Mum)(TM) 3. Hyderabad Chemicals Supplies Limited v. ACIT (2011) 53 DTR 371(Hyd.) The CIT(A) confirmed the decision of the AO vide appellate orders dated 12.03.2012, whereby the claim of deduction of the assessee company u/s 80IA of the Act amounting to ₹ 1,57,90,301/- was denied and directed to be adjusted against the brought forward notional loss/depreciation from the windmill business relating to earlier years despite the fact that the same were already set off by the assessee company against other sources of income and allowed by the Revenue in the preceding assessment year's. 40. Aggrieved by the orders dated 12.03.2012 passed by the CIT(A), the assessee company filed appeal with the Tribunal. 41. The ld. Counsel for the assessee company submitted that the wind mill division of the assessee company commenced commercial production of generation of power in the previous year relevant to the assessment year 2003-04 , but started claiming deduction u/s.80IA of the Act w.e.f. assessment year 2007-08 choosing the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of electricity from wind mill in the previous year relevant to the assessment year 2003-04. The assessee company has chosen the 'initial assessment year' for claiming the deduction u/s 80IA of the Act with effect from assessment year 2007-08 as per Section 80IA(2) and 80IA(5) of the Act. Section 801A of the Act, as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A of the Act further provides that the aforesaid deduction can be claimed by the tax-payer, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-Section (5) of Section 801A of the Act further provides as under : "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the initial assessment year and only losses of the years beginning from initial assessment year alone are to be brought forward and earlier year losses which are already set off against the income of the taxpayer cannot be notionally brought forward to deny the claim of deduction u/s 80IA of the Act as under: "16. Section 80-IA reads as follows : "80-IA. (1) Where 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. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given to eligible business and the same is defined in subsection (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under : "(1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; (2) It is for the purpose of determining the quantum of deduction ; (3) For the assessment year immediately succeeding the initial asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 ITR) : "Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current assessment year 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income-tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. Thus, the CBDT directed all the Assessing Officers concerned to allow deduction U/S 80-IA of the Act in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction U/S 80 lA of the Act shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in subsection (5) of that section. In view of the said Circular also the claim of the Revenue is now not sustainable as the circular is binding on Revenue. The relevant CBDT circular no 1/2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from subsection (2) that an assessee who is eligible to claim deduction u/s.80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s. 80-1A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s. 80-IA in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the decision in Velayudhaswamy Spinning Mills, the Central Board of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016. It will be useful to extract the circular in entirety, which is as follows : "Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clarification of the term 'initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961 Section 801A of the Income-tax Act, 1961 ('Act'), as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in SubSection (5) of that section for which the Standing Counsel/DRs be suitably instructed. The above be brought to the notice of all Assessing Officers concerned." 5. Therefore, admittedly, questions of law 2 and 3 are also covered by the above circular. Hence, the appeal deserves to be dismissed 6. Accordingly, the above tax case appeal is dismissed. No costs. 7. But, we cannot resist our temptation to record one more fact. If an issue is covered by the judgment of the High Court, it is always open to the Department to take it on appeal to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a circular ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of deduction u/s 80IA of the Act to the extent of ₹ 35,55,880/- was denied to the assessee company and the said compensation was received from M/s Suzlon Energy Ltd on account of shortfall in generation of power as against the certified minimum guaranteed generation of power by Suzlon Energy Limited who were the equipment suppliers for windmill power project of the assessee company. There was a commitment of minimum guaranteed generation of power given by M/s Suzlon Energy Ltd who while supplying windmill power equipments assured minimum generation of power by their equipments and in case of failure of generation of minimum guaranteed rated capacity of power generation, the Suzlon Energy Limited undertook to compensate the assessee company for such shortfall. Due to the performance of the assessee company being lower than the minimum guaranteed performance assurance given by M/s Suzlon Energy Ltd. who supplied windmill equipment, Suzlon Energy Limited has paid/compensated the said amount aggregating to ₹ 35,55,880/- to cover the lower production than the minimum rated guaranteed production and hence the said amount is income derived from windmill undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has received the amount from M/s Suzlon Energy Ltd. which is on account of shortfall in generation of power as compared to guaranteed generation of power by Suzlon Energy Limited . The issue in this ground of appeal is squarely covered by the decision of the co-ordinate benches of the Tribunal in favour of the assessee company in following cases: 1. Magnum Power Generation Limited v. DCIT (2011) 16 taxmann.com 75(Delhi) 2. C.N.V. Textiles Private Limited v. DCIT in ITA no. 746/Mds/2014 (Chennai Tribunal), dated 21.11.2014 3. Best Corporation Pvt. Ltd. v. JCIT in ITA no 1958/Mds/2014 dated 20-5-2015 The Tribunal , Chennai Benches in C.N.V.Textiles Private Limited (supra) held as under: "9. The assessee's last ground pertains to generation loss compensation receipt of ₹ 10,00,569/- from its supplier for loss of wind power production. The Revenue's objections are based on the word 'derived' (supra). The assessee's windmill supplier has paid the aforesaid amount in lieu of assured power generation failure at a rate fixed very well in advance. In identical circumstances, we find that in case law [2011] 16 taxmann.com 75(Delhi) Magnum Power Generation Ltd. vs DCIT holds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." (Para 8) 14. In Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98, this Court had to decide whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression "attributable to" as contrasted with "derived from". In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression "derived from" Parliament intended to cover sources not beyond the first degree. This Court went on to hold:- "34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under subsection (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 35. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the products of the undertaking, but related only to an event which was post manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], the same High Court arrived at an opposite conclusion in considering whether a deduction was allowable under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable." 23. We are of the view that the judgment in Merino Ply & Chemicals Ltd. and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. 24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under: "The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w laid down by the Hon'ble Supreme Court in the case of Meghalaya Steels Limited (supra) and the cited judgment of coordinate benches of the Tribunal in favour of the assessee company , we hold that the amount received by the assessee company from M/s Suzlon Energy Ltd. of ₹ 35,55,880/- on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. 50. Now coming to the ground no 3, it was observed by the A.O. from the P&L account of the assessee company that the assessee company has received exempt income being dividend of ₹ 2,50,000/- on investment of ₹ 810.30 lacs. During the course of assessment proceedings u/s.143(3) of the Act, assessee company was specifically asked to explain as to why disallowance u/s. 14A of the Act read with Rule 8D of Income Tax Rules, 1962 should not be made. In response, the assessee company worked out disallowance u/s. 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee company before the CIT(A). 53. The CIT(A) observed that the assessee company could not establish the nexus between the entire capital being invested in securities and that it was impossible to believe that out of the common hotch-potch of the funds, the entire capital could have gone into the investment in shares without a part of the shares going to the business, also it was not possible that the entire income would have been invested in shares and debentures and share application money especially when the assessee himself was not categorical as to how much of the sum had been invested in business. Secondly, even the assessee company had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the total taxable income. The assessee's present case is covered by sub section (3) of section 14A of the Act because the assessee company had claimed before the AO that no expenditure was incurred by it in relation to the exempt income which did not form part of total income. The assessee company's claim is also covered by sub section (2) of section 14A of the Act because the AO was not satisfied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment in subsidiary company as part of average investment for working out disallowance without considering that such investment is made not for purposes of earning tax-free dividend income but for earning capital gains. The capital gains earned on sale of subsidiary company has been offered for tax in the impugned assessment year. It was also submitted by the assessee company before the CIT(A) that even investment in property, NSC and debt funds are considered by the AO as part of investment for disallowance on which no tax-free income is generated. The correct disallowance as per Rule 8D of Income Tax Rules, 1962 after considering the above factors was also submitted by the assessee company before the CIT(A). In our considered view and in the interest of interest, as the afore-stated pleas raised by the assessee company were not adjudicated by the authorities below properly and no reason's have been given in their orders for their rejection, this matter need to be set aside to the file of the AO for de-novo determination of the disallowance of expenditure u/s 14A of the Act on merits in accordance with law after considering all the pleas of the assessee company as may be ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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