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TMI Blog2016 (11) TMI 1750X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Assessing Officer (AO) has not made proper investigation and verification in respect of (i) interest income and (ii) quantum of deduction allowable u/s 80IA(5) of the Act. 3.1 The Id. Pr. CIT erred on facts as also in law in arbitrarily assuming accrued interest on advances given to Sanman holding Pvt. Ltd. in total disregards to the facts of the case and replies furnished from time to time. The order passed u/s 263 of the Act is therefore totally unjustified on facts as also in law and may kindly be quashed. 4.0 The Id. Pr. CIT erred on facts as also in law in holding that appellant claimed deduction u/s 80IA of the Act in AY 2011-12 for the first time; hence losses and unabsorbed depreciation were required to be considered while computing deduction u/s 80IA of the Act. The allegation of the Pr. CIT is against the provisions of section 80IA and as interpreted by various Courts. Therefore, the order passed u/s 263 of the Act is totally unjustified on facts as also in law and may kindly be quashed." These grounds of appeals are on two issues which are decided as under. 2. Brief facts of the case are that the assessee had filed return of income on 29-09-2011 decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act was finalized on 29/03/2014 by the ACIT, Circle-1, Rajkot, assessing total income at Rs, 17,54,950/-. 3. A perusal of the records show that a deposits of Rs. 350 crores was made with Sanman Holding Pvt. Ltd. and an interest of Rs.10.76 crores was received in the preceding AY 2010-11, which was offered to tax. The aforesaid deposit was remained outstanding in the FY 2010-11 relevant to AY 2011-12 leaving closing balance of Rs.2,78,67,60,000/- as on 31/03/2011. However no accrued interest on the aforesaid deposit has been offered to tax in AY 2011-12. The A.O. did not examine the matter i.e. as to-why interest bearing deposit became interest free deposit. Thus the assessment order passed is erroneous and prejudice to the interest of the revenue. 4. It is, further, observed that deduction u/s 80IA was claimed and allowed an account of profit from an undertaking engaged in generation of electricity from wind mill. The undertaking had incurred losses and unabsorbed depreciation in the eligible undertaking in the preceding years which was set off against the other sources of income of the relevant assessment years. 5. As per provisions of section 80IA(5) of to Act, , N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial constraints and business expediency, the amalgamated company did not make any provisions for payment of interest on the deposit of Rs. 350 crores. The issue has been considered by the A.O. in the course of assessment proceedings. The Assessing Officer did not make any variation to the retuned income because the non-interest bearing deposits are more than the advances given. There was no provision to charge income hypothetically or notionally. Reliance was placed on the decision of Commissioner of Income Tax vs. Soorji Vallabhdas & CO. 461 ITR 144 (SC) and Commissioner of Income Tax vs. Arihant Avenue and Credit Ltd. (2014) 36 taxmann.com 14 (Gujarat) 6. Before the Ld. Commissioner of Income Tax, on second issue the assessee had submitted that as per provision of sec. 80IA(2) the deduction specified in sub-section (1) can be claimed by the assessee for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking developed and begin to operate any infrastructure facility. In this case the enterprise of the assessee started to operate the eligible business from 13-03-2007 relevant to A.Y. 2007-08. The records in the possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3CD that the assessee follows mercantile system of accounting, therefore, he is liable to pay tax on any income which is accrued and receivable to him. The Ld. Pr. Commissioner of Income Tax observed that the claim of the assessee that he furnished details of unsecured loans and the same are considered by the Assessing Officer in the course of assessment proceedings is not correct. In this connection on perusal of the records he found that the assessee has furnished the details of unsecured loan accepted but no details regarding loans, advances or deposit given by the assessee was neither furnished by the assessee or inquired or verified by the Assessing Officer. He also noticed that ratio decided in quoted cases of Commissioner of Income Tax vs. Shoorji Vallabhdas & Co. 46 ITR 144 (SC), Commissioner of Income Tax vs. Arihant Avenues and Credit Ltd. (2014) 36 taxmann.com 14 (Gujarat) are not appreciable to the facts of the present case. In the first judgment, the assessee had agreed to reduce its commission as a part of agreement entered into by the assessee to secure long term business from third parties. But here in this case the assessee has foregone his accrued interest receiva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second issue he stated that the Assessing Officer vide para. 9 of the notice u/s. 142(1) dated 19-08-2013 had called for detail of deduction claimed u/s. 80IA with audit report in form 10CCB. He has further submitted that the Assessing Officer after making inquiry and considering the assessee submission has taken a view and allowed the deduction. He contended that the Assessing Officer has taken one possible view and section 263 will not be applied only because the Ld. Pr. Commissioner of Income Tax holds another possible view. The submission of the counsel of the assessee is reproduced as under:- "1. As regards Id. Pr. CIT's holding that the assessment is erroneous and prejudicial to the interest of Revenue is concerned, the appellant submits that in the course of assessment proceedings the AO has verified both the issues listed below: Sl. No. Particulars Remarks 1. Not charging of interest on the closing balance of deposits of Rs. 278.67 lacs as on 31.03.2011 with M/s Sanman Holding Pvt. Ltd [in fact the above balance is at 31.03.2012. The balance as on 31.03.2011 is Rs. 350 crores] The AO vide para 13 of the notice u/s 142(1) dated 19.08.2013 called for the details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interests of the Revenue. It was further emphatically stated that when an ITO adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." 3.0 Reliance is also placed on the decisions of Hon'ble; a. Supreme Court in the case of CIT vs. Max India Ltd. - 295 ITR 282(SC), b.- High Court of Delhi in the case of CIT vs. Jagson International Limited - 214 CTR (Del) 227. c. Hon'ble High Court of Gujarat in the case of CIT vs. R.K. Construction Co. 313 ITR 65(Guj)' d. Hon'ble High Court of Gujarat in the case of CIT vs. Budhilal Hiralal Rana 186 CTR (Guj.) 647. 4.0. As regards the merit of the issue, appellant submits as under: 1) Not charging of interest on deposits: i) The issue has been considered by the AO in the course of assessment proceedings. The appellant vide para 3 of letter dated 10.12.2013 furnished the details of non interest bearing loans of more than Rs. 525 crores a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an industrial park [or develops a special economic zone referred to in clause (Hi) of subsection (4)] or generates power or commences transmission or distribution of power [or undertakes substantial renovation and modernization of the existing transmission or distribution lines [or lays and begins to operate a cross country natural gas distribution network]]] : [Emphasis provided] ii) The AO has verified the facts that the enterprises engaged in eligible business started to operate the eligible business from 12.03.2007 relevant to AY 2007-08. The departmental records and the returns filed from AY 2007-08 clearly shows that the appellant has not claimed any deduction u/s 80IA of the Act till AY 201 0-11 as he has sufficient time out of fifteen years to opt for the consequent ten years for claiming deduction u/s 80IA. Thus, the AY 2011-12 is the first year of claim of deduction u/s 80IA. Under the circumstances, the provisions of section 80IA(5) became applicable from AY 2011-12 being the initial assessment year. Therefore, the carry forward of unabsorbed depreciation and loss of the eligible business [if any] was first to be deducted for quantifying the quantum of deduction fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of slab of fifteen (or twenty) years, as prescribed under that sub section. However, once such initial assessment year has been opted for by an 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 relevant section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. 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. 5.0 Thus, from the plain reading of circular, it is amply clear that it is on the assessee to decide the first year from which it wants to claim deduction under section 80IA(5). It is at liberty to decide the first year from which the benefit of deduction it will claim. 6.0 The appellant once again reiterates that whether to claim deduction from the year in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2011-12. Thus, there is no material to support the claim of the assessee that the interest which had accrued in the earlier year on the same advance could not accrue for the year under I consideration. Assessing Officer accepted this omission by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the AO was erroneous is valid. The exercise of the jurisdiction by the Commissioner under section 263(1) is justified. I rely on the judgment of Hon'ble Supreme Court in case of Malabar Industrial Co. Ltd. v. CIT (|2000| 109 Taxman 66 (SC), where in para 10 of this judgment Hon'ble Supreme Court has held as under: "10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the department against the judgment of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs ACIT(Supra), the view taken by the Assessing Officer or the assessee cannot be said to be sustainable in law. Therefore, in all such cases where SLP has been filed by the department against a certain view of any High Court before the Supreme Court, such views cannot be said to have become law and would be unsustainable in law if the Supreme Court reverses the decision of the High Court. Therefore, relying upon the judgment of Hon'ble Gujarat High Court in case of CIT Vs M. M. Khambhatwala(supra) and the judgment of Hon'ble Madras High Court in case of CIT v. Seshasayee Paper Hoards Ltd. (supra) as approved by Hon'ble Supreme Court in case of CIT Vs G. M. Mittal Stainless Steel P. Ltd(supra) , I submit that the Pr. CIT has correctly exercised his jurisdiction u/s 263. Moreover. Assessing Officer has passed the assessment order without applying his mind on the quantum of deduction claimed by the assessee u/s 80IA rws 80IA(5). As per clause (a) of 1 Explanation-2 of section 263(1), an order passed by the Assessing Officer without making inquiries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding Pvt. Ltd and received an interest of Rs. 10.76 crores and the same was offered to tax by the assessee, However no interest was offered to tax by the assessee during this A.Y. 2011-12 in spite of the fact that the same advance made by the assessee still exist as outstanding. With reference to the preceding year it is apparent that this advance made by the assessee is an interest bearing deposit. We have also gone through the submission of the assessee claiming that the Assessing Officer vide para 13 of the notice u/s. 142(1) dated 19-08-2013 called for detail of interest received and paid, and assessee's contention that he had furnished to the assessing officer details called for vide para 13 page 195 to 200. In this connection, we have perused the notice u/s. 142(1) of the Act issued by the Assessing Officer on 19-08-2013 containing 20 general question and noticed that the serial no. 13 relate to general question to furnish the details of interest received and interest paid. We have also gone through the assessee's claim that on 10-12-2013 vide para 13 page 195 to 200 the details were furnished to the Assessing Officer. In this connection, we have noticed that vide letter dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been offered to tax on accrual years. 14. Now, we considered the second issue regarding claim of deduction u/s. 80IA of the Act .We have heard both the sides on this issue and perusal the material on record. We observed that the assessee has started to operate its eligible business from 12-03- 2007 and he opted not to claim deduction u/s. 80IA of the act till Assessment Year 2010-11. He has started claiming deduction w.e.f. 2011-12 as the first year and claimed that under these circumstances the provisions of sec. 80IA(5) would be applicable from Assessment Year 2010-11 being the initial Assessment Year for claim of deduction u/s. 80IA of the Act. We find that there was no brought forward of loss or unabsorbed deprecation as on 01-04-2010 because of Assessment Year 2011-12 being the initial Assessment Year for claim of deduction u/s. 80IA of the act. The CBDT has also issued circular on. 1 of 2016 dated 15-02-2016 which provide liberty to the assessee to decide the first year from which it wants to claim deduction under section 80IA(5) of the act. The CBDT's circular is reproduced as under:- "Clarification of the term 'initial assessment year' in section 80IA (5) of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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