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TMI Blog2018 (2) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... nal High Court in the case of CIT v. Hercules Hoist Ltd. [2017 (6) TMI 1125 - BOMBAY HIGH COURT] wherein the Hon'ble Jurisdictional High Court taking note of the decision in the case of Vellayudhaswamy Spinning Mills P. Ltd [2010 (3) TMI 860 - Madras High Court] held that profit from the eligible business for the purpose of determining the quantum of deduction under section 80IA has to be computed before deduction of the notionally brought forward losses and depreciation of eligible business as they have to be allowed to be setoff other income in earlier years. - Decided against revenue Disallowance made under Rule 8D2(iii) - as per assessee only dividend earning investment is from Rajaram Solvex Ltd and the assessee has computed the suomoto disallowance at 0.5% of the investment made in such company as the expenditure attributable for earning such dividend income - Held that:- Accepting the contentions of the assessee, we hold that the disallowance under Rule 8D2(iii) of the Act could not be more than ₹.9,200/- since the calculation appears to be in consonance with the decision of the Special Bench in the case of ACIT v. Vireet Investments Private Limited [2017 (6) TMI 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of HDFC Bank v. DCIT [67 taxmann.com 42] and CIT v. Reliance Utilities Power Ltd [313 ITR 340] the disallowance made under Rule 8D2(ii) is to be deleted. 4. Ld.DR vehemently supported the orders of the Assessing Officer. 5. On hearing both the sides and perusing the orders of the authorities below and in view of the categorical finding of the Ld.CIT(A) that the assessee has demonstrated that the interest paid was totally for sugar trading business or for loans on Plant Machinery and no interest was paid for investment in assets which earned exempt income and also since the assessee is having its own funds many times more than the investments made, no disallowance is required to be made under Rule 8D2(ii) in view of the decision of the Hon'ble Jurisdictional High Court in the case of HDFC Bank v. DCIT (supra) and CIT v. Reliance Utilities Power Ltd. (supra), we do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance under Rule 8D2(ii) of the Act. 6. Coming to ground No s.2 3 of the Revenue s appeal the grounds read as under: - 2. On the facts and circumstances of the case and in law, the CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee submits that the Ld.CIT(A) also followed the decision of the Mumbai Bench in the case of M/s. Indian Gratings Pvt. Ltd. v. DCIT, RGT-8(2) (supra), as well as the decision of the Hon'ble Madras High Court in the case of Vellayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills (P) Ltd. v. ACIT (supra) and allowed the claim of the assessee. 9. Ld.DR vehemently supported the orders of the Assessing Officer. 10. We have heard the rival submissions, perused the orders of the authorities below. The issue in appeal has been elaborately dealt with by the Ld.CIT(A) with reference to the decision of the Coordinate Bench as well as the Hon'ble Madras High Court in the case of Vellayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills (P) Ltd. v. ACIT (supra) and allowed the claim of the assessee observing as under: - 6.2.2. During appellate proceedings a written submission was filed which find place in para 5 of this order. According to the appellant it had commissioned windmill at Sangli Dist. during the Financial Year ad date of commencement of commercial production of Sangli unit was 14.02.2006. It was claimed that the appellant as mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in that case the Hon'ble Tribunal was dealing with regard to two eligible units of Gujarat Unit which was set up in the year 199596 and second Maharashtra Unit which was set up in the year 2000-01. According to the appellant in respect to Gujarat Unit, the Hon'ble Tribunal held that the pre-amendment definition of initial assessment year would be applicable. As the appellant had started commercial production in the F.Y.1996-97 on the contrary the appellant relied upon CBDT's clarification vide circular No.1/2016 dated 15.02.2016 and requested that the same should be allowed as deduction. Apart from it, in support of its claim reliance was placed on the following judgements: 1. Velayudhaswamy Spinning Mills Pvt. Ltd. v/s ACIT, [2012] 340 ITR 477 (Mad.) 2. Mohan Breweries Distilleries Ltd. Vs. AC1T (2009) 116 lTD 241 (Chennai) 3. Rangamma Steel Malleables Vs. ACT, 132 TTJ 365 (Chennai) 4. CIT v/s Emerala Jewel industry Pvt. Ltd., [2011 53 DIR 262 (Mad.) 5. Shevie Exports Vs. JCIT, 33taxmann.com 446 (Mum). 6. Deputy Commissioner of Income-tax, Bangalore v. Shri Anil H. Lad [TS-140HC-2014(KAR)] - 202 DTR 242. 7. Anil H Lad Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly issue involved is that whether the earlier year losses of the eligible unit can be set off against the profit of the said unit in this year, when the assessee has exercised to choose the initial assessment year from A. Y. 2009-10. Exactly similar issue was involved in the case of M/s. Shevie Export (supra) wherein, after detailed analysis of the relevant provision and various judicial decisions, including that of Mumbai Bench Tribunal in the case of Pidilite Industries (supra) it was observed and held as under:- 8. We have heard the rival contentions and perused the relevant material placed on record and various case laws relied upon by either party. The assessee had set-up a Wind in ill at District Dhule, Maharashtra a commencement of its operation was started on 29th September 2006 i.e., assessment year 2007-08. in assessment year 2007-08, the assessee had shown a loss of ₹ 3,52,47,398 on account of depreciation and interest from wind mill undertaking and this loss was set-off against the export business income (which in the present case, can be considered as non- eligible unit) in the assessment year 2007-08. In the assessment year 2008-09, the assessee has earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under section. 80IA. However, after the amendment brought in statute by the Finance Act. 1999, the definition of initial assessment year as been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of section 80IA from which it chooses its 10 years of deduction out of is years, then only the losses of the years starting from the initial assessment year alone are to be brought forward a stipulated in section 80IA(5). The loss prior to the initial assessment year which has already b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the same cannot be extended beyond the purpose for which it is created. 14. In the present cases there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009. the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive Profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-so (6) of s. 80-I, which is the corresponding provision of sub-so (5) of S 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of C1T vs. Mewar Oil General Mills Ltd (2004). 186 CTR (Raj 141, (2004) 271 1TR 311 (Raj), the Rajasthan High Court also considered the scope of S. 80-1 and held as follows- Having considered the rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustry (P) Ltd. [2011] 53 DTR 262 (Mad.). From the above/ ratio of the High Court, it is amply clear that sub-section (5) of section 80IA will come into operation only from the initial assessment year or any subsequent assessment year The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e.! after 1st April 2000 by virtue of section 80IA(2). 13. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case/ the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995-96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial assessment year would be applicable i.e. provisions which were. prior to let' April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgement of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set off against the profits for eligible units in this year. Accordingly, grounds raised by the assessee is allowed. Since the case of the appellant pertains to the subsequent period to which amendments made in Section 80IA had been substituted w.e.f. 1st April 2000, therefore, respectfully, following the judgment of Hon ble Karnataka High Court in the case of DCIT Bangalore Vs. Shri Anil H. Lad (supra) and jurisdictional Tribunal in the case of Indian Gratings P. Ltd. vs. DCIT (supra), the claim of the appellant in respect to deduction u/s.80IA is allowed and disallowance of ₹ 77,82,495/- made by the A.O. is deleted. 11. Further we find that the issue has been examined by the Hon'ble Jurisdictional High Court in the case of CIT v. Hercules Hoist Ltd in ITA.No. 707 of 2014 dated 14.06.2017 wherein the appeal filed by the Revenue is rejected by answering the questions referred therein as under:- 1. This present appeal relates to Assessment Year 2009-10. The Revenue has filed the appeal against the order of the Tribunal thereby partly allowing the appeal filed by the assessee. 2. The Revenue has framed the following questions for our consideration: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Counsel for the respondent supports the judgment and submits that the issue involved in the present matter is concluded by the decision of this Court in the present assessee's case in Income Tax Appeal No.2485 of 2013 under judgment dated 7th May, 2015. The said judgment of this Court is further confirmed by the Apex Court in Civil Appeal No.14703 of 2015, decided on 23rd September, 2016. The learned Senior Counsel further submits that the Madras High Court in a case of Velayudhaswamy Spinning Mills (P) Ltd. and Sudan Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax, (2012) 340 ITR 477 has concluded the issue and held that only losses of the years beginning from the initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of assessee, can be looked into. The learned Senior Counsel further submits that the said judgment of the Madras High Court has been confirmed by the Apex Court in Special Leave Appeal No.33475 of 2012 under order dated 5th September, 2016. The learned Senior Counsel also relied on the provision of Section 801A(5) of the Act, which reads thus : - (5) Notwithst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in subsection does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 9. The said judgment of the Madras High Court has been confirmed by the Apex Court, as such has attained finality. Even in the assessees own case for the previous year, the losses were set off in the relevant years. The Revenue had challenged the said action before this Court in Income Tax Appeal No.2485 of 2013 and it was held that the said action is legal and proper. The said judgment is also upheld by the Apex Court. 10. Considering the above, we do not find any error committed by the Tribunal in allowing the deduction of the profit u/s 80IB(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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