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TMI Blog2014 (10) TMI 987X X X X Extracts X X X X X X X X Extracts X X X X ..... atistical purpose. Amount received on sale of sales tax entitlements excluded from the profit derived from eligible unit being wind mill - Held that:- As decided in assessee [2014 (9) TMI 131 - ITAT AHMEDABAD] as held that the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas - The industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology.the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable - The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry – the matter is remitted back for fresh adjudication – Decided in favour of assessee. Disallowance of deduction claimed u/s. 80IA for profits derived from electricity generation from wind mill at Bhogat, Gujarat - Held that:- As decided in assessee [2014 (9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A. Nos.1193 & 1194/Ahd/2013, I.T.A. Nos.1526 & 1527/Ahd/2013 - - - Dated:- 31-10-2014 - Shri Shailendra Kumar Yadav And And Shri Anil Chaturvedi, JJ. By Revenue :Shri B. L. Yadav, Sr. D.R. By Assessee :Shri S. N. Soparkar with Parin Shah, A.R. 31.10.2014 ORDER Shailendra Kumar Yadav, Two sets of cross appeals belong to same assessee arising out form the order of ld. CIT(A)-I, Surat, dated 05.03.2013 for the assessment year 2008-09 07.03.2013 for A.Y. 2009-10. So, they are being disposed of by way of this common order for the sake of convenience. 2. ITA No. 1193/Ahd/2013 for A.Y. 08-09 has been filed by assessee on following grounds: 1) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Compensation expenses paid of ₹ 6,35,824/- on the ground of non deduction of TDS u/s. 40(a)(ia) of the Act. 2) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the ld. A.O. of excluding the amount received on Sales Tax entitlements of ₹ 24,20,833/- from the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be made u/s. 194I of the Income Tax Act. A.O. noted that on same issue for A.Y. 200-08 CIT(A), Ahmadabad, vide his order dated 01.09.2010 has decided issue against assessee. So following the same alongwith other reasoning has decided the issue against the assessee, which was confirmed by the concern CIT(A). 3.1. Ld. A.R. has raised additional ground in this regard as mentioned above and pointed out the similar issue came before Tribunal in ITA No. 3014/Ahd/2010 for A.Y. 2007-08, wherein Tribunal vide para 45 to 51 had occasion to decide the similar issue and ultimately matter was restored to A.O. by observing as under: 51. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case the Assessing Officer disallowed deduction for ₹ 18,41,122/- paid to Shri Sureshchandra Shah as rent as the assessee failed to deduct TDS u/s 194I of the Act and therefore, provisions of section 40(a)(ia) were applicable. On appeal, CIT(A) has upheld the disallowance made by the AO. The AR of the assessee has filed additional evidence evidencing the fact that the recipient of the amount Shri Sureshcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit derived from eligible unit being wind mill at Satara, Maharashtra. Assessing Officer made addition by way of excluding amount recovered o sale tax entitlement of ₹ 24,20,833/- from the profit derived from eligible unit being wind mill at Satara, Maharashtra. CIT(A) following the order for A.Y. 2009-10 of Jivraj Tea Ltd. decided the issue against the assessee. At the time of hearing ld. A.R. pointed out that ITAT in ITA No. 1994/Ahd/2012 for A.Y. 2009-10 Tribunal following assessee s own case for A.Y. 2007-08 had decided the issue in favour of the assessee by observing as under: 38. We find that Tribunal in assessee s own case for A.Y. 2007-08, vide order dated 19/12/2013, has held as under: 7 to 16 17. We have heard the rival submissions and perused the order of the lower authorities and material available on record. In the case of Jivraj Tea Ltd., the assessee claimed deduction u/s. 80IA(4) of the Act on 100% profit derived from generation of electricity from windmill situated at Ahmednagar Maharashtra, Jodha Rajasthan and Chitradurga Karnataka. The Assessing Officer observing that since the assessee had carried forward losses of earlier years, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption is given to the assessee for claiming any 10 consecutive assessment year out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provision of sub-section (5) of section 80IA, reads as under:- (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. 20. From a plain reading of the above, it can be gathered that it is a non- obstante clause which overrides the other provisions of the Act and it is for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmine Shares And Finance Pvt. Ltd. (supra) and relevant provisions of the Act i.e., pre amendment and post amendment have come to the same conclusion:- From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not 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. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing admissible deductions thereunder. 23. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s. 8o-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under s. 8o-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs. 24. From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 25. This judgment has been further followed by the same High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case, as in that case, the wind mill started its operation on 3ist March 1999 and the first year of operation was assessment year 1999-2000. Thus, in the assessment year 1999-2000, the definition of initial assessment year was already there in the Act and there was no provision through which the assessee could have chosen its initial assessment year. This provision was brought in statute w.e.f. ist April 2000, by virtue of section 8oIA. Thus, this decision also will not help the case of the M/s. Shevie Exports Department. In asseessee s case, as specifically stated in the foregoing paragraphs, the assessee s claim for initial assessment year i.e., assessment year 2008-09 and its claim for deduction under section 80A made for the first time from assessment year 2008-09, has not been disputed. Thus, the aforesaid judgment relied upon by the learned Departmental Representative will not be applicable to the facts of the present case. 28. We reiterate in the instant case, it is not in dispute that the initial Assessment Year in the case of Jivraj Tea Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 1994/Ahd/2012 for A.Y. 2009-10, wherein vide para 36 to 39, issue has been decided in favour of assessee as reproduced above. 6.1. Nothing contrary has been brought to our knowledge on behalf of the Revenue. Facts being similar, so following the same reasoning, we set aside the order of lower authorities on the issue and allow the issue in favour of the assessee as discussed above. 7. Next issue raised by way of additional ground with regards to treatment of the amount received on sales tax entitlement as capital receipt. Ld. A.R. pointed out that similar issue arose in ITA No. 3014/Ahd/2010 for A.Y. 2007-08, wherein para 52 to 58, similar issue raised by way of additional ground was set aside to A.O. by observing as under: 57. We find that the Tribunal in the case of sister concern of the assessee for AY 2007-08, vide a consolidated order dated 19/12/2013, has held as under:- 29. The other issue in this appeal pertains to whether deduction u/s. 80IA will be allowable to the assessee on the sale proceeds of sales tax entitlement received by the assessee during the year under consideration. 30. The AO as well as the learned CIT(A) following the decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced that the scheme was framed as a part of Government's initiative to encourage modernization of existing industries in under-developed areas. The main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment. The Government responded positively to the representations that on account of rapid changes in technology, there was constant need for upgradation of technology in industries. It was, therefore, necessary to encourage modernization. As part of such a scheme, incentives were given to industries existing in under-developed areas to undertake modernization. The scheme thus was primarily concerned with the modernization of the existing industries. It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries. Thus, the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas. It can be imagined that the industries will find it difficult without Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. ITA No. 1526/Ahd/2013 for A.Y. 08-09 has been filed by Revenue on following grounds: 1. On the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of ₹ 2,62,32,096/- made by the A.O. on account of disallowance of excessive expenditure claimed u/s.40A(2)(b) of the I.T. Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A), Surat may be set-aside and that of the Assessing Officer s order may be restored. 9.1 A.O. in assessment order observed that assessee had purchased tea from its sister concern, namely, Jivraj Tea Ltd. at an average rate of ₹ 130.20 per kg. In this background, A.O. held that payment made to its sister concern i.e. Jivraj Tea Ltd. is unreasonable and excessive. Consequently, the A.O. considered the average rate of 106.20 per kg is reasonable and made an addition to the extent of ₹ 2,62,32,096/- @ ₹ 24 per kg for 1093004 kgs tea purchased from M/s Jivraj Tea Ltd. 9.2 In Appeal, CIT(A) has allowed the appeal in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, interest, etc. Where payment for any expenditure is found to have been made to a relative or an associate concern falling within the specified categories, it will be necessary for the ITO to scrutinize the reasonableness of the expenditure with reference to the criteria mentioned in the section. The ITO is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bona fide cases. 10.1 In the instant case, we find that the AO analysed the average tea prices on purchase of tea from outside parties vis-a-vis purchase price from the sister concerns like Jivraj Tea Industries Ltd. Surin Corporation and concluded that the assessee paid excessive purchase price to sister concerns. The yard stick adopted by the AO is average purchase price of tea from the other parties. Now the tea has large varieties and its price depends upon a number of factors depending upon it as against tea grown at lower altitudes and plucked from old bushes. The tea from a gar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equals. The onus is on the Assessing Officer to establish that payments made by assessee were excessive or unreasonable. No other material has been brought to our notice by the Revenue to establish the excessive-ness of the payments. 10.2 Moreover, it is not the quantum alone that governs in such cases. Fair market value of the goods, services, legitimate needs of the business or profession of the assessee, would be the guiding factor in terms of section 40A(2) of the Act. In the case on hand, the assessee is purchasing from outside parties and sister concerns in the preceding assessment years also. As already observed, price of tea depends upon a number of factors even in respect tea from the same source garden and same grade depending upon the bid price during the course of day. There is no material on record as to what were the prices prevailing on a particular day when tea of a particular variety and quality was purchased from sister concern nor any attempt seems to have been made to compare the price paid to sister concerns with those prices. As pointed out in the case of Indo Saudi Travel Services(P) Ltd.(supra), CBDT Circular No. 6-P, dt. 6th July,1968 stipulated that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profits derived from electricity generation from Wind Mill at Satara, Maharashtra of ₹ 16,08,779/-. 3) It is, therefore, prayed that above disallowances confirmed by the learned Commissioner of Income Tax (Appeal) may please be deleted and the returned income be accepted as the assessed total income of the appellant. 4) The Appellant prays for granting such other relief as may be deemed just and proper by your Honours considering the factual and legal aspects of the case of the appellant. Additional ground is as under: 1. The appellant prays that on the facts and circumstances of the case and in law Ld CIT (A) ought to have treated the amount received on sale of Sales Tax Entitlement as capital receipt and therefore not liable to tax at all. He has erred in holding the same as taxable by treating it as revenue receipt instead of capital receipt . 12. First issue is with regards to disallowance of deduction claimed u/s. 80IA for profits derived from electricity generation from Wind Mill at Bhogat, Gujarat of ₹ 2,37,129/-. A.O. made disallowance of deduction u/s. 80IA for profits derived from electricity generation from Wind Mill at Bhogat, Gujarat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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