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TMI Blog2018 (4) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... 19/- to the income of the assessee u/s 14A r.w.r. 8D(2)(iii) . The assessee gets part relief. Deduction u/s. 10B with respect to its 100% EOU should be allowed even on income from interest and miscellaneous income - Held that:- We are of the considered view that the AO has not examined the direct nexus between the interest income as well miscellaneous income and export income derived by the assessee from eligible industrial undertaking of the assessee on which deduction u/s 10B is available which requires examination of the facts, hence keeping in view ratio of decision in the case of India Comnet International v. ITO reported in (2012 (9) TMI 372 - SUPREME COURT), the matter is set aside to the file of the AO for examination/verification of direct nexus between income from interest as well miscellaneous income and income derived from exports business by 100% export oriented eligible undertaking of the assessee to see whether the said income can fall within the ambit of being derived from export business of the eligible industrial undertaking being 100% EOU. Depreciation of eligible unit which stood adjusted against other business income from non eligible in the earlier years can n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and in law, the Ld. CIT(A) erred in directing the AO to delete the addition of ₹ 39,60,033/- made u/s.80IA of the Income tax Act without appreciating the fact that the notional depreciation, which the assessee had claimed on the said windmill before claiming deduction u/s.80IA in first year i.e. A.Y. 2010-11, had not been adjusted with the previous year profit of the windmill before claiming deduction u/s.80IA of the Income Tax Act, 1961." 2. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. The assessee is manufacture of Essential Oils, Perfumery Compounds, distillers of sandalwood oil, etc. . It has a factory at Kannauj, Silvassa and Nilatottoi. The assessee is also owning six wind mills through which electricity is generated and sold to different State Electricity Boards. The assessee is also dealing in purchase and sale of properties. Disallowance u/s. 14A 5. The assessee has claimed exempt an income amounting to ₹ 68,71,376/- in accordance with provisions of Section 10 of the Act. However, the assessee did no attributed any expenditure towards earning of such exempt income. The AO rejected contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plier Site Name Capacity No. Of Machine Date Of Commissioning Enercon TN-Erode, Dharapuram 800 KW 1 19/9/2005 Vestas KAR - Davangiri, Harihar 600 KW 2 30/9/2006 Vestas KAR-Gadag, Gajendragad 600 KW 1 30/3/2007 Vestas KAR-Gadag, Gajendragad 600 KW 2 19/5//2007 The assessee had claimed depreciation @80% of WDV on the total cost of the four windmills and claimed depreciation @7.69% SLM on total cost of two windmills, the details of which are as under:- Particulars Enercon - TN Dharampuram [Sept 2005] [1 Windmill] Vestas - KAR- Davengere - [Sept-06] [2 Windmill] Vestas - KAR Gadag (Mar-07) [1 Windmill] Vestas - KAR Gadag (May-07) [2 windmill] Depreciation Depreciation Depreciation Depreciation 80% WDV 80% + 20% WDV 80% + 20% WDV 7.69% + 20% SLM Cost Break-up Plant & Machinery 3,60,00,000/- 5,61,00,000/- 2,80,50,000/- 5,61,00,000/- Civil / electrical work 14,00,000/- 29,00,000/- 14,50,000/- 29,00,000/- 3,74,00,000/- 5,90,00,000/- 2,95,00,000/- 5,90,00,000/- Depreciation Claimed by assessee Apr- 2005 to Mar-2006 2,99,20,000 Apr- 2006 to Mar-2007 59,84,000 5,90,00,000 1,47,50,000 Apr-2007 to Mar-2008 11,96,800 - 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT [2008] 118 TTJ 68 [Pune] for taking a view against assessee in earlier years. It was submitted that the decision in the case of Parry Engineering & Electronics P. Ltd.(supra) was rendered after the decision of ITAT Pune in the case of Poonawala Finvest & Agro P. Ltd.(supra) and hence claim of the assessee for depreciation @80% on civil construction work related to windmill be allowed. The AO rejected the contentions of the assessee and made disallowance @ 70% towards excess depreciation claimed by the assessee towards cost of civil construction and revised depreciation was allowed by the AO on windmills, as under:- Particulars Civil work 10% Wind Turbine 80% Total Revised Depreciation. Enercon TN-Dharampuram :Sep 2005[ 1 Windmill] Opening WDV 01.04.2010 Depreciation 8,26,686 82,669 11,520 9,216 91,858 Vestas KAR-Davangari:Sep 2006[ 2 Windmill] Opening WDV 01.04.2010 Depreciation 19,02,690 1,90,269 1,90,269 Vestas KAR-Gadag:Sep 2007[ 1 Windmill] Opening WDV 01.04.2010 Depreciation 9,51,345 95,135 1,12,200 89,760 1,84,865 Total revised depreciation on 4 windmills 4,67,048 The AO allowed depreciation of ₹ 4,67,048/- as against depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, the provisions of Section 80IA(5) treating the undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee had opted to claim deduction under this section for the first time. It was submitted that Depreciation and carry forward of losses of the unit of previous years, cannot notionally be carried forward and set off against the income from the year in which the assessee started claiming deduction u/s. 80IA. It was submitted that in appellate proceedings for AY 2010-11, the ld. CIT-A had allowed the claim of the assessee and thus it was prayed that the claim of the assessee for deduction u/s 80IA be allowed. The AO rejected the contentions of the assessee and held that for claiming deduction u/s. 80IA the undertaking has to be treated as a separate entity and Section 80IA(5) requires that eligible deduction of undertaking should be computed by treating the undertaking as only source of income of the assessee. Thus, as per AO the depreciation of claim of the windmill though set off with the income of other businesses should first notionally be reduced from profit of windmill before computing quantum of profit eligible for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowing the claim of the assessee that Hon‟ble ITAT had already allowed the relief on account of claim of deduction u/s 10B for the first year i.e. AY 2003-04 and in subsequent years and departmental appeal for those years is also dismissed by Hon‟ble Bombay High Court. So the claim for exemption u/s. 10B was allowed to the assessee by the AO while disallowance was made by the AO to the tune of ₹ 9,51,184/- being interest income and miscellaneous income as the said income were stated to be not derived from business and hence not eligible for exemption u/s 10B, vide assessment order dated 14-03-2014 passed by the AO u/s 143(3). 9. Aggrieved by the assessment order dated 14-03-2014 passed by the AO u/s 143(3), the assessee filed an first appeal before learned CIT-A . The assessee made detailed submissions with respect to its claim for allowability of depreciation @80% on civil construction work related to windmill but the learned CIT-A disallowed the claim of the assessee by following the decision of ITAT Pune Bench in the case of Poonawala Finvest & Agro P. Ltd. v. ACIT [2008] 118 TTJ 68 [Pune] and also by following the decision taken by learned CIT(A) in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Hero Cycles Ltd. 323 ITR 518 wherein it was held that disallowance u/s 14A can be made only when a clear nexus between the expenditure incurred and the exempt income exists. The learned CIT-A, however, rejected the contentions of the assessee as in the preceding years from AY 2006-07 to 2010-11, the identical issue was decided by learned CIT-A against the assessee by holding as under:- "I have carefully considered the fact of the case as well as submissions of the appellant. The main argument being put forward by the appellant is that out of the total liability in the balance sheet, interest free liability was sufficient to meet the investments made every year. This argument of the appellant is based on the Bombay High Court's decision in the case of CIT vs. Reliance Utilites & Power Ltd. that if interest free funds are available with the appellant which is sufficient to meet the investment at the time when the loan was raised, then presumption will be that investment would be out of the interest free funds. However this decision was rendered in the context of interest disallowance in respect of loans advanced to sister concerns and is distinguishable. Further, this jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to allow deduction u/s 80-IA without deducting brought forward losses or unabsorbed depreciation prior to AY 2010-11 on notional basis. Accordingly ground no. 4 for the AY 2010-11 is allowed in favour of the assessee." 12. With respect of the disallowance of the exemption u/s. 10B to the tune of ₹ 9,51,184/- w.r.t. interest income and miscellaneous income included in the profits of the business, the claim was rejected by learned CIT-A on the grounds that exemption can be given only for those receipts in the form of profit and gains which are derived by a hundred percent export oriented undertaking from the export and it shall not include interest income or miscellaneous sources which do not form part of export earnings. The learned CIT-A followed the decision of Hon‟ble Madras High Court in the case of International Components India Limited (2015) 59 taxmann.com 32(Mad.) and also decision of ITAT,Mumbai in the case of Tricom India Limited v. ACIT reported in (2010) 36 SOT 302 and consequently the claim of the assessee was rejected by learned CIT(A) . 13. Aggrieved by the appellate decision of learned CIT(A), both the assessee and the revenue have come in an appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; 4. We have considered rival submissions and perused the orders of the AO and the CIT(A). The depreciation is allowable on renewable energy device which also includes windmill. The depreciation at the rate of 80% is allowable on the entire device which is capable of generating electricity using wind energy. There is no provision in the Act to bifurcate the device into several parts and allow depreciation thereon at different rates of depreciation. The foundation, civil and electrical works are necessary for the installation of the windmill and is clearly part and parcel of the windmill project on which depreciation at the rate of 80% is allowable, 5. We are of the opinion that the approach of both the authorities is perfectly justified. Windmill would require scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the audited financial statements filed before the tribunal in paper book at page no. 13, while investments in Mutual Funds are to the tune of ₹ 19.92 crores and in our considered view ratio of decision of Hon‟ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and also decision of Hon‟ble Bombay High Court in the case of HDFC Bank Ltd. v. DCIT reported in (2016) 383 ITR 529(Bom) will apply and presumption will apply that assessee has invested its own funds in making of the investment in Mutual Funds and there is no finding recorded by authorities below that interest bearing funds were specifically used for making investments in Mutual Funds and no direct nexus between interest bearing funds with the investments made in Mutual Funds are brought on record. Thus, the addition to the tune of ₹ 3,53,455/- as was made under rule 8D2(ii) r.w.s. 14A stood deleted but so far as disallowance under rule 8D 2(iii) r.w.s. 14A of the 1961 Act to the tune of ₹ 5,77,419/- being @0.5% of the average investments as was made by the AO which was later upheld by learned CIT(A) stood confirmed as we find no justification for the deletion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee is a 100% Export Oriented Unit, which develops and exports software. It earns foreign exchange. It has earned interest income amounting to ₹ 92,06,602/- on Foreign Currency Deposit Account permitted by FERA under Banking Regulations. The assessee was asked to explain why the said sum should not be assessed under the Head 'Other Sources' in Section 56 of the Income Tax Act, 1961 ['Act', for short]. This query was raised because, in its Return of Income, the assessee claimed exemption in respect of the said amount of ₹ 92,06,602/- under Section 10A of the Act. The assessee has lost throughout in the proceedings. 4. The impugned judgment of the High Court is based on the judgment of the Madras High Court in the case of CIT v. Menon Impex (P.) Ltd.[2003] 259 ITR 403 / 128 Taxman 11 wherein a similar question arose as to "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income derived by the assessee from funds in connection with Letter of Credit is income derived from the profits of business of the industrial undertaking so as to be entitled to get the benefit of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l depreciation which was already set off in earlier years against other business income u/s. 80IA, the assessee relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Hercules Hoists Ltd. in ITA no. 707/2014 vide orders dated 14.06.2017, the Hon‟ble Bombay High Court while passing the decision in the case of Hercules Hoists Ltd. (supra) has followed the decision Hon‟ble Madras High Court in the case of Velayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills P. Ltd. (2012) 340 ITR 477 and it was pleaded deduction u/s. 80IA be allowed without deducting depreciation of earlier years on notional basis. Ld. DR on the other hand relied upon the orders of the AO. We have heard both the parties and perused the material on record. We are of the considered view that the depreciation of eligible unit which stood adjusted against other business income from non eligible in the earlier years can not now be adjusted on notional basis against the income of eligible unit for the impugned assessment year while computing deduction u/s 80IA. Our view is fortified by the decision of Hon‟ble Bombay High Court in the case of Hercules Hoists Limited(sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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