GUJARAT MINERAL DEVELOPMENT CORPORATION LTD.,,AHMEDABAD vs. THE CIT(A), A'BAD-2,, AHMEDABAD

PER Ms. MADHUMITA ROY - JM: These first two appeals filed by the assessee are directed against separate orders dated 27.02.2015 and 21.08.2015, both passed by the

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 2 - Commissioner of Income Tax (Appeals)-2, Ahmedabad under section 143(3) and section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) respectively for Assessment Year 2011-12. The third appeal filed by the Revenue is directed against the order dated 27.02.2015 passed by the Learned CIT(A)-2, Ahmedabad under section 143(3) of the Act for A.Y. 2011- 12.

ITA No.873/Ahd/2015 for A.Y. 2011-12:

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 3 - office were not allocated to the eligible units. According to him the head office expenses which are not unit specific should be allocated to the units owned by the appellant in proportion to the turnover. Show-cause, therefore, was issued to the assessee as to why deduction claimed by it be not reduced to the extent of head office expenses pertaining to the eligible units for which the deduction u/s 80IA has been claimed. In reply to the same the assessee on 25.02.2015 submitted that the expenses pertaining to the power project where accounted for in the books of power project only and there was no head office expenses allocated to work out the claim for deduction u/s 80IA of the Act. However, such contention of the appellant was rejected and enhancement of income by reducing the allocation of head office expenses of Rs.6,63,71,309/- was ordered by the Learned CIT(A).

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 4 - “While deciding the issue related to deduction under section 80 I-A, it was noticed, that the appellant has not computed the deduction under section 80 I-A correctly. It was noted that the common expenditure which are incurred at the head office were not allocated to the eligible units. The head office looks after the activity and control the work of all different units of the assessee appellant company. Therefore, it is logical that all the head office expenses which are not unit specific should be allocated to all the units owned by the appellant in proportion of the turnover. The criteria for locating the expenses should be based on the turnover of each different unit as that is the most scientific basis on which the expenses can be allocated. Accordingly, the appellant was show caused as to why the deduction claimed by it be reduced to the extent of proportionate had office expenses pertaining to the eligible units for which the deduction under section 80 I-A has been claimed.

The appellant vide letter dated 25/02/2015 has submitted that the expenses pertaining to the power project were accounted for in the books of power project only and, therefore, no had office expenses were allocated to work out the claim for deduction under section 80 I-A. It has further been submitted by the appellant that in the books of the head office, income is more than expenses on account of interest earned by the head office and, therefore, no allocation of expenses has been done. The head office was treated as a separate profit centre aped segment and, therefore, there was no allocation of expenses to any of the projects.

On a careful consideration of the entire facts related to the issue it is noted that even though the head office has been treated by the appellant has a separate unit and the income has been computed on that basis which has resulted into a positive income on account of interest earned by various deposits in the head office, the claim of the appellant cannot be accepted. There are always certain expenses such as salaries of the accounting department, various directors of the company, various audit expenditure and other expenses which are common to all the units and are borne by the head office. It would, therefore, be appropriate if the expenditure is also allocated to each unit in order to work out the correct profit of that unit. Since the appellant is claiming deduction under section 80 I-A on account of power project income it would be appropriate to allocate the expenses pertaining to that unit in the headquarter to work out the correct claim of deduction. In absence of any allocation the appellant would end up getting more deduction and

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 5 - claiming more benefit. Therefore, the allocation of head office expenses is accordingly done in the following manner:-

DETAILS OF EXPENSES OF HEAD OFFICE WHICH ARE NOT ATTRIBUTED TO PROJECTS

CODE PARTICULARS TOTAL ALLOWABLE EXPENSES EXPENSES OF H.O. OF HO UNDER INCOME TAX ACT 20110 Leave Encashment 3221469 3221469 20113 Overtime 320988 320988 20117 Salaries 69121129 69121129 20141 C.P.F. Contribution 4462593 4462593 20143 Pension Contribution 924604 924604 20145 Pf Inspection Expenses 1262188 1262188 20152 Books & Periodicals 66714 66714 20155 G.S.L.I. Contribution 40529 40529 20158 L.T.C. / H.T.C Expenses 411643 411643 20160 Medical Expenses 2430373 2430373 20162 Staff Training Expenses 1027704 1027704 20164 Staff Welfare Expenses 1952584,6 1952584.6 20181 Edli Insurance Premium 876000 876000 20182 Group Gratuity Contribution 34606434 34606434 20185 Vrs Expenses 14631123 14631123 20401 Building Repairs & 1233485 1233485 20428 Dg Set Spares 167735 167735 20431 Electrical Goods 150926 150926 20439 Machinery Repairs And 100352 100352 20481 Computer Repairs And 46001 46001 20482 Electrical Repairs And 9012 9012 20485 Maintenance service charges 3584999 3584999 20487 Sundry Repairs And 567949 567949 20489 Vehicle Repairs And maint 780071 780071 20490 Vehicle Spares 24800 24800 20506 Survey & Data Collection 26401745 26401745

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 6 - 21004 Transportation Expenses 17150 17150 21201 Rates, Taxes & Land Revenue 2496460.69 2496460.69 21301 Insurance Premium Expenses 2904779 2904779 21501 Conveyance Expenses 269134 269134 21503 Petrol, Diesel & Oil (for 2173541 2173541 21504 T.A.D.A to Chairman 8947 8947 21505 T.A.D.A. to Managing 541001.5 541001.5 21506 T.A.D.A. to others 411752 411752 21507 T.A.D.A. to Staff 2154977 2154977 21508 Vehicles Hire Charges 983436 983436 21601 Advertisement and Publicity 11650750 11650750 21602 Computer Stationary and 505958 505958 21603 Internet Communication 940712 940712 21604 Postage and Telegrams 2042897 2042897 21605 Satellite Communication 134723 134723 21606 Stationery & Printing 1902803 1902803 21607 Telephone Expense 1227142.29 1227142.29 21703 Paid to Statutory Auditors 10000 10000 21701 Statutory Audit Fees 474290 474290 21702 Statutory Auditors Fees for 110300 110300 21801 Interest on fixed Term 986301 986301 21806 Bank Commission 229354.15 229354.15 21805 Interest on O/D & Other 160000 160000 21804 Interest On Sales- 2644879 2644879 22101 Books & Periodicals for 123714 123714 22118 Business Promotion Exp. 8233308 8233308 22104 Computer Data Job Work 32917 32917 22105 Computer Software Expenses 812059 812059 22109 Electricity Expenses for 6744762 6744762 22113 Filing Fees (Under Income) 5000 5000 22115 Forest / 240992 240992 22116 Gift Articles 264095 264095 22120 Inauguration Or 1431842 1431842 22123 License Fees 204500 204500

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 7 - 22125 Membership & Subscription 230748 230748 22127 Miscellaneous Expenses 338927 338927 22103 Penalty Paid 464687 0 22111 Refreshment / Entertainment 1613623 1613623 22144 Revenue Stamps Expenses 969 969 22133 Seminar Expenses 18000 18000 22135 Security Expenses 12658306 12658306 22147 Service Charges Exp. 5641 5641 22146 Share Custodian Fees 723541 723541 22136 Share listing Fees 82725 82725 22137 Share Transfer Fees 15443 15443 22141 Tender Fees (Paid by 234374 234374 22182 Consultancy Charges 8951663 8951663 22183 Internal Audit Fees 248175 248175 22181 Legal and Professional Fees 6133431 6133431 22189 Professional Other charges 6910 6910 22501 Fixed Assets Written Off 188978 0 22502 Petty Assets Written Off 102044 0 23101 Remuneration to Managing 1293533 1293533 23301 Sitting Fees and Allowances 172500 172500 23601 Donation 127349292 127349292 22701 Depreciation 22098660 22098660 23802 Rounding off A/C 4384 4384 23801 Sundry Balances Written Off 283393.27 0 24201 Prior Period Adjustments 5491725 0 24401 Income Tax Provision for 1960000000 0 24501 Wealth Tax for the Current 233000 0 24601 Deferred Provision for the 138239265 0 Total 2508681565 403678472

The claim of deduction under section 80IA will accordingly be reduced by this amount and the amount admissible for deduction would be as under: (I) 80IA deduction as claimed in the ROI - Rs.31,15,94,168/- (II) Reduction for allocation of HO Expenses - Rs.6,63,71,309/-

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 8 - Net allowable deduction u/s 80IA of the Act - Rs.24,52,22,859/-

Accordingly, the deduction claimed by the appellant is reduced to that extent and the income is enhanced.”

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 9 - the Learned CIT(A) should give categorical finding in respect of the expenditure which cannot be allocated to Akrimota Power Project Unit after due verification of the supporting documents provided by the assessee. We make it clear that the assessee will also render co-operation by providing the details of expenses of that particular unit to the Learned CIT(A) at the time of hearing of the issue. The Learned CIT(A) is further directed to give a personal hearing to the assessee and to take into consideration the evidences which the assessee may choose to file at the time of such hearing. Hence, assessee’s appeal is allowed for statistical purposes.

ITA No. 2951/Ahd/2015 for A.Y. 2011-12: 7. The assessee in this particular appeal challenged the order dated 21.08.2015 passed by the Learned CIT(A) u/s 271(1)(c) of the Act, 1961 arising out of the quantum appeal whereby and whereunder the deduction claimed by the appellant has been reduced to the tune of Rs.6,63,71,309/- thereby enhancing the income of the appellant which has been set aside to the file of the Learned CIT(A) by us in ITA No.873/Ahd/2015 for A.Y. 2011-12. In that view of the matter, the instant appeal filed by the assessee becomes infructuous. Hence, the appeal is dismissed as infructuous.

ITA No.1369/Ahd/2015 for A.Y. 2011-12: 8. The revenue has filed following grounds of appeal: “1. The Ld.CIT(A) has erred in law and on facts in directing the AO to make proportionate disallowance out of total disallowance of Rs.47,83,671/- by the AO u/s 36(1)(iii) of the I.T. Act, 1961, though the assessee could not prove nexus of interest of interest free loans given to others with interest free fund.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 10 - 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.42,90,471/- made by the AO u/s 14A r.w.r. 8D of the I.T Rules.

Further, the Ld.CIT(A) has also erred in law and on facts by directing that the disallowance should not be done on Administrative expenses as no exempt income has been earned in this year. This is against CBDT Circular No.5/2014 dtd.11.02.2014 which warrants disallowance u/s 14A is to be done even in cases where no exempt income has been earned in a particular

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 11 - interest on the same is not disallowed by the assessee in its computation of income or profit and loss account. Neither any interest has been charged from those subsidiary and/or sister concerns. A show-cause, therefore, dated 17.12.2013 was issued to the assessee as to why disallowance on account of interest free advances given by the assessee would not be made u/s 36(1)(iii) of the Act. In reply whereof the assessee mentioned the name of two sister concerns of GMDC namely Bhavnagar Energy Co. Ltd. and Gujarat Allumina & Bauxite Ltd. It was further contended that the amount was given to those sister concerns in the previous years and that too for business purpose only. Neither any amount was given in the current year either for business purpose to those concerns. Thus there is no diversion of funds to these concerns and notional interest income need not to be applied. It was further contended that no amount has been paid to the above companies out of the borrowed funds. The assessee-appellant company is paying interest on various term loans which has been granted for specific project and thus interest on cost having direct nexus with the said project. The submission made by the appellant company was not found suitable in the absence of any supporting documents / evidences furnished by the assessee as opined by the Learned AO. It was also observed that the assessee failed to prove that it has ample interest free funds to prove his claim genuine. He, therefore, came to a conclusion that the appellant company had used borrowed fund for non interest bearing advances and proportionate interest of Rs.47,83,671/- being 12% of the entire loan, advances to tune of Rs.3,98,63,925/- given to those sister concerns was disallowed and added to the total income of the assessee which was in turn deleted by the Learned CIT(A). Hence, the instant appeal preferred by the revenue before us.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 12 - 11. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the assessing officer failed to appreciate the underlying principle of own funds and borrowed funds as discussed in the matter of CIT vs. Reliance Utilities & Power Ltd reported in 178 Taxman 135 (Bombay). It was further contended that even if such companies are related company to the appellant then also during the year the appellant company paid up capital of Rs.63,60,000/- and free Reserve & Surplus of Rs.16,06,16,98,572/- for the purpose of making of such payments. In the similar set of facts, the Learned CIT(A) since in A.Y. 2010-11 directed the Learned AO for computing the disallowance after excluding the interest having direct nexus with the purpose for which the money has been borrowed; in the year under consideration identical order has been passed. Hence, the Learned authorized representative of the assessee relied upon the order passed by the first appellate authority. Though the Learned DR relied upon the order passed by the Learned AO failed to controvert the submission made by the Learned AR in support of his case.

“1.1. "The appellant company had given advance of Rs.7,50,000/- to Bhavnagar Energy Co. Ltd and Rs.3,91,13,925/- to Gujarat Alluminium & Bauxite Ltd during the previous years. The Ld Assessing had disallowed the amount of Rs.47,83,671/- u/s 36(1)(iii) of the Income Tax Act,1961 considering that such amount has been advanced to the group companies. 1.2. The Ld Assessing Officer has failed to appreciate fact that Bhavnagar Energy Co. and Gujarat Alluminium & Bauxite Ltd are not the Group Companies of Gujarat Mineral Development Corporation Ltd. The Ld. Assessing Officer had further erred in

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 13 - not appreciating the fact that such advances had been made in previous year for the purpose of business only, hence no disallowance should be called for u/s 36(i)(iii) of the Income Tax Act,1961. 1.3. No disallowance was required to be made out of interest expense, as the company was making payment of interest on various term loans (Copy of details of Interest Expense Attached on page No.287 of the Paper Book) and such term loans had been granted for specific project, hence such interest cost had direct nexus with such respective project. The lending banks had granted loans for the power project of the appellant company and such lenders also monitor the end use of such loans. Hence no amount of borrowed funds had been utilized for the purpose of granting so called non business advances. 1.4. However the Ld. Assessing officer had without considering the above fact disallowed the amount of Rs.47,83,671/- u/s 36(1)(iii) of the Income Tax Act,1961. The Ld. Assessing officer had also failed to appreciate underlying principle of Own Funds & Borrowed Funds as set out in the case of Commissioner of Income Tax V. Reliance Utilities & Power ltd 178 Taxman 135(Bom.) Without prejudice to what is stated above, we would further like to state that even if such companies are related company to the appellant than also during the year the appellant company has paid up capital of Rs.63,60,000/- and free Reserve & surplus of Rs.1606,16,98,572/- for the purpose of making of such payments. 1.5. Without prejudice to what is stated above, We would like to state that on one hand the Ld. A.O. states that the appellant has failed to furnish and prove nexus that the advances were made from interest free funds, on the other hand, while calculating the deduction U/s 80IA of the Act in respect of Income from Power Plant, the appellant has considered Interest of Rs. 11,34,24,434/- as relatable to Income earned from such power plant. This fact is very much accepted. The balance amount of Interest of Rs.3,25,59.873/- & Rs.68,48,106/- represented Interest in respect of other Term Loans & Interest on income Tax, Sales tax, Service Tax and other Miscellaneous Interest for late payments respectively, which has no connection with the Advances in question. In respect of the use of the fund borrowed for the term loan we would like to state that end use of fund are closely monitored by the Sanction authority, hence such fund cannot be

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 14 - used for advancing the related parties. Now if the interest of Rs. 11,34,24,434/- was directly relatable to power plant, Rs.3,25,89,873/- for other term loan for the purchase of machineries and the remaining amount is for late payment of taxes etc., the disallowance u/s 36(1)(iii) is not justified."

We have carefully considered the order passed by the Learned CIT(A) and the AO as well. It appears from the record that the Learned AO was of the view that the appellant has failed to explain the purpose of business for which the loan was given but the appellant submitted that the loan given to those companies were for the purpose of business and there was a direct nexus with those companies. It was further submitted by the appellant that most of the interest expenses incurred by the appellant were in the nature of direct expenses which have clear nexus with the purpose for which it has incurred. Rs.11.34 crores directly relatable to power plant and Rs.3.25 crores for the term loan for purchase of machinery and the other amount was for late payment of taxes as submitted by the assessee was duly considered by the Learned CIT(A) in his concluding part of the order. It is pertinent to mention that similar issue was decided by the same Learned CIT(A) in assessee’s own case for A.Y. 2010-2011 by directing the AO for computing the disallowance after excluding the interest, those are having direct nexus with the purpose for which the money has been borrowed. Only upon considering the similar details including details relating to the interest on fixed term loan pertaining to head office borrowing amounting to Rs.9,86,301/-, interest on Over Draft and other miscellaneous interest pertaining to head office amounting to Rs.1,60,000/- and Rs.7,399/- for Mata’s Madh which are general purpose interest expenditure the Learned CIT(A) came to a conclusion that the same cannot be attributed for specific purpose. The Learned CIT(A) worked out the interest expenditure to the tune of Rs.11,53,706/- following the

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 15 - earlier decision taken by him in assessee’s own case as for A.Y. 2010-11. The Learned CIT(A) further directed the Learned AO to re-compute the proportionate disallowance by taking the total interest expenditure at Rs.11,53,706/- which in our considered view is without any ambiguity. Hence, we find no infirmity in the order passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Hence, revenue’s appeal found to be devoid of any merit and dismissed.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 16 - judgment passed by the ITAT, Mumbai Bench in the matter of Shoppers Stop Ltd.-vs-ACIT wherein it was held that when the assessee has made investments out of his own funds Section 14A will not be applied. In fact, the tax auditor of the company has already worked out disallowance u/s 14A to the tune of Rs.51,66,612/- being 0.5% of the average value of investment to cover all incidental and administrative expenses, which has been added back to the income of the appellant. Further addition is not required as submitted by the assessee before the Learned AO. However, the contention made by the assessee in support of his case has not been accepted by the Learned AO. He, thus, upon application of section 14A r.w.r. 8D worked out the total disallowance at Rs.94,57,083/-. The assessee itself since disallowed the amount of Rs.51,66,612/-. The balance amount of Rs.42,90,471/- has been disallowed by the Learned AO and added to the total income of the assessee. In appeal, the same was partly allowed by the Learned CIT(A). Hence, the instant appeal filed by the revenue before us.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 17 - crores. No interest bearing fund has been utilized for the purpose of making such investments and therefore disallowance as made by the Learned AO to the tune of Rs.42,90,471/- upon application of section 14A r.w.r. 8D has been rightly deleted by the Learned CIT(A). On the contrary, the Learned DR relied upon the order passed by the Learned AO.

On a careful consideration of entire facts of the case, it is noted that the appellant has not been able to explain that no expenditure has been incurred for earning the dividend and the exempt income. In fact it's own auditor has worked out a disallowance in the Return of

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 18 - Therefore, the claim of the appellant that no expenditure has been incurred is not acceptable. Regarding, the disallowance out of interest, it is noted that the interest expenditure of Rs. 11.34 crores was relatable to income earned from power plant and, therefore, the same should not be considered for making the disallowance under section 14A. The balance amount of Rs. 3.25 crores is interest in respect of other term loans and Rs. 68,48,106/- is shown as the expenditure has been incurred on account of bank commission charges, interest on sales tax, service tax, interest paid on Income Tax. However, a perusal of the details submitted by the appellant show that the appellant has incurred an amount of Rs. 11,53,706/- on interest on overdraft and other miscellaneous interest and interest paid to others and the same is directly not allocable to any other specific use. The appellant has not been able to give any explanation regarding this interest expenditure and any justification that this interest has not been incurred on the funds which have been utilised for making the investment giving exempt income. Accordingly, only this amount of interest should be taken for the purpose of making disallowance by applying the provisions of Rule 8D. The AO is accordingly directed to work out the disallowance by taking the interest of Rs.11,53,706/-. It is, however, noted that certain disallowance out of this amount has already been made under section 36(i)(iii) of the Act which has been decided by me in the preceding ground of appeal. The total disallowance so made under both the sections should not exceed the total interest expenditure of Rs. 11,53,706/-.

Regarding, the disallowance on account of administrative expenditure, it is noted that the claim of appellant that it has not earned any tax free income in respect of the investment of Rs. 29.20 crores and no disallowance under section 14A should be made on account of this investment is acceptable keeping in view the judgment of jurisdictional High Court in the case of Corrtech Energy Private Limited in Tax Appeal No. 239 of 2014 reported in 45 taxmann.com 116 (Gujarat). It has been held by the honourable court that, if no exemption on account of the income generated from the investment has been claimed, no disallowance under section 14A should be made. Respectfully following the judgment, the investment of Rs. 29.20 crore should be excluded for working out the disallowance out of interest, as well as, out of the administrative expenditure. However, it is noted that the appellant has itself made a disallowance of Rs. 51,66,612/- on account of administrative expenses by taking 0.5% of the average value of

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 19 - investment. After excluding the investment of Rs. 29.20 crores, the disallowance comes to the same amount which has been disallowed by the appellant itself. Accordingly no further disallowance on account of administrative expenditure is called for.”

It appears from the records that the appellant has incurred an amount of Rs.11,53,706/- interest on Over Draft and other miscellaneous interest and interest paid to others and the same is directly not allocable to any other specific use. In the absence of any explanation rendered by the assessee that this interest has not been incurred on the funds which has been utilized for making the investment giving exempt income, the Learned CIT(A) directed the AO to work out the disallowance taking into consideration the said interest of Rs.11,53,706/-. Since certain disallowance had already been made by the Learned CIT(A) u/s 36(1)(iii) of the Act it was also observed by the Learned CIT(A) that total disallowance should not exceed to the total interest expenditure of the said amount of Rs.11,53,706/- which according to us without any infirmity and/or any error. So far as the administrative expenditure is concerned the fact that the assessee has not earned interest income in respect of investment of Rs.29.20 crores has been rightly taken into consideration and therefore disallowance u/s 14A has been disregarded by the Learned CIT(A). Keeping in view all the ratio laid down in the judgment passed by the Jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. where it has held that if no exemption on account of income generated from investment has been claimed, no disallowance u/s 14A should be made. It was further observed by the Learned CIT(A) that since the appellant itself made disallowance to the tune of Rs.51,66,612/- on account of administrative expenses by taking 0.5% of the average value of investment, no further disallowance on account of administrative expenditure is called for. The justification given by the Learned CIT(A), in our considered view is proper

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 20 - and does not warrant interference. Hence, the same is upheld. In the result, revenue’s appeal is dismissed.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 21 - “4.1 Ground No.1 is regarding deletion of disallowance of Rs.5 lacs being depreciation on multimodal project at Ambaji. 4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision hi assessee's own ease for the assessment year 1998-99 and 1999-2000 in I.T.A. No.1392 and 1422/Ahd/2003. He farther submitted that the relevant portion of this Tribunal order is at para 19-23 which are available on page 81-82 of the' decision paper book. He further submitted that this tribunal order was followed by the tribunal in assessment year 1997-98 hi I.T.A. No. 2728/Ahd/2000 and the relevant discussion is in para 84 of the Tribunal order on page 76 of the decision paper book.

4.2.1 Ld. D.R. of the revenue although supported the order of the A.O. but he could not point out any difference in facts in the present year as compared to earlier three years for which the tribunal decision had been cited by the Ld. A.R. Hence, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the revenue is rejected.”

We, therefore respectfully relying upon the said judgment decide the issue in favour of the assessee. Hence, revenue’s appeal is dismissed.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 22 - therefore, issued upon the assessee with a request to furnish a separate balance sheet and profit and loss account for ascertaining the profit of the said power project unit. The assessee was further directed to show-cause as to why the losses and depreciation which has been set off against other business income of the corporation should not be set off against the power project income of Rs.31.16 crores. The assessee submitted as follows: "...Notional brought forward of loss of the earlier years u/s.80-IA(5):

Your goodself has asked us to explain as to why as per the provisions of sub section (5) of section SOLA, loss of earlier years in respect of power project, though set off against the income of other units in earlier years, be not set off notionally in determining the deduction u/s.80IA.

In this regard, we would like to submit as under;

Analysis of S.80-IA(5):

S.80-IA(5) reads as under:

"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 quantum of deduction under that sub-section for the assessment year immediately succeeding 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."

There is no dispute that subsection (5) creates a fiction. The fiction mandates a notional carry forward of loss from eligible business presuming that the eligible business is the only source of income. The moot issue is the year of applicability of the fiction. For easy analysis, Ss. (5) is divided into phrases as below:

(a) for the purposes of determining the quantum of deduction;

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 23 - (b) for the assessment year immediately succeeding the initial assessment year; (c) eligible business was the only source of income; (d) during the previous year relevant to the initial assessment year; (e) and to every subsequent assessment year up to and including the assessment year for which the determination is to be made; Phrase (c) introduces the fiction 'eligible business was the only source of income' and phrase (d) provides for its applicability 'during the previous year relevant to the initial assessment year'. Phrases (c) and (d) collectively mean that the loss of the years commencing from the initial assessment year (i.e., the first year of claim) alone is to be notionally carried forward and not losses of the years prior to the initial assessment year. Phrases (a) and (b) provide that when the determination of quantum of deduction is to be made for any year from the second year of the claim (year after the initial assessment year), it is only the loss of that year and subsequent years that is required to be set off against the profit of the eligible business and not the loss for any earlier year including the initial assessment year. Therefore, loss from the eligible business in the years prior to the initial assessment year absorbed against the profits of other businesses need to be notionally brought forward and has no effect on the deduction claimed. Accordingly, the fiction u/s.80-IA(5) is applicable only from the second year of claim and not prior to it. The true intention of Ss.(5) can be easily understood by imagining the absence of it. For example, where the assessee has claimed deduction u/s.80-IA for three years and there is a loss in the 4th year of claim in a block of ten years, in absence of Ss.(5), the assessee can continue to deduction on the profit from 5th year ignoring loss incurred in the 4th year if it has been set off against any other income. By virtue of the fiction in Ss.(5), the loss of the 4th year is to be set off against the income before claiming deduction for the 5th year. Therefore, Ss(5) will operate only during the period of ten years of claim and only form the second year of the claim. Ss.(5) is thus not rendered redundant…..”

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 24 - In support of the contention made by the assessee reliance was also placed on the judgment passed by different Court of Law. However, such plea of the assessee was not found tenable by the Learned AO. He, ultimately came to a conclusion that the initial assessment year for the purpose of Section 80IA(5) shall be the year of commencement of eligible business and the loss or unabsorbed depreciation shall be notionally brought forward from the said year even if the loss or unabsorbed depreciation has already been set off with the income of non-eligible business in earlier years by virtue of the provision of the Act. In this particular case, the initial year should be 2005-06 i.e. the year of commencement of eligible business. Relying upon the judgment passed by the Hon’ble ITAT, Ahmedabad in the case of ACIT-vs-Goldmine Shares and Finance Pvt. Ltd. The assessee claimed for deduction of Rs.31,15,94,168/- u/s 80IA has been disallowed and the same was added to the total income of the assessee. In appeal, the same was deleted by the Learned CIT(A). Hence, the instant appeal before us.

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 25 - business. He notionally calculated the carry forward losses of those units and set off the same before calculating the profit of eligible unit. But the Learned CIT(A) while granting relief to the assessee dealt with this particular aspect of the matter in the manner as follows: “I have carefully considered the facts of the case, the assessment order and the written submission of the appellant The AO has disallowed the claim of deduction under section 80 I-A by considering the carry forward losses of the eligible unit from the date of commencement of business. He nationally calculated the carry forward losses of those units and set-off the same before calculating the profits of eligible unit. It has been held by him that, since there is no profit after setting off the notional loss and depreciation, the claim cannot be allowed. It is noted that the issue is covered by my order in the case of the appellant in Appeal No.CIT(A)-2/DCIT, Cir. 4/174/2013-14 dated 29/01/2015 for A Y 2010 - 11. For the sake of clarity the findings given by me in that order is reproduced hereunder:-

"I have carefully perused the order and submission made by the AR of the appellant. The AO has recomputed the deduction under section 80IA of the Act claimed by the appellant. He has considered the unabsorbed depreciation of the eligible unit in earlier years as unadjusted depreciation and accordingly considered the same as brought forward depreciation of the eligible unit and after adjusting unabsorbed depreciation, the claim of deduction under section 80IA of the Act has been allowed. The appellant has commenced the production from A. Y. 2005 - 06, but made that claim for the first time in A Y 2010 - II. The appellant on the other hand has submitted that the losses from eligible business in the years prior to initial Assessment Year absorbed against the profit of other business need not be nationally brought forward and, therefore, the deduction should not be reduced.”

On a careful consideration of the entire facts of the case, if is noted that the issue whether the deduction under section 80IA of the Act is to be allowed without adjusting the notional brought forward losses and depreciation of earlier years is to be allowed or not, is almost legally settled now. It is noted from the perusal of various judicial pronouncements that the preponderant judicial opinion is in favour of

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 26 - the appellant. The leading judgment on the issue is that of honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). The judgment has subsequently been followed by several other Courts and Tribunals. The basic principle that has been laid down by various courts is that there should be no carry forward loss pertaining to the eligible unit, if the losses of eligible unit had earlier been adjusted with the losses of other units prior to the initial assessment year. The initial assessment year is the year in which the appellant make the claim for the first time and not the year in which the eligible unit commences production. As per the provisions of Act a clear option has been given to the appellant for choosing the initial years of assessment. In the case of the appellant the appellant has chosen the subsequent year later to the year in which the production commenced. There is no need to nationally set-off the losses of that unit for allowing the deduction. Losses and depreciation of the years earlier to the initial assessment year which have been already absorbed against the profits of other business cannot be nationally brought forward and set off against the profits of the eligible business for computing the deduction under section 80 IA of the Act. In the case of appellant, as it is clear from the details, the losses have been adjusted in earlier years prior to the initial assessment year. In the present year, there is no unadjusted business loss and depreciation loss and accordingly, the claim has rightly been made by the appellant. Reliance is also placed on recent judgments of ITAT Ahmedabad in the case of Sadbhav Engineering Ltd, 45 taxmann.com 333 and in the case of Jivraj Tea & Industries Ltd. 42 taxmann.com 462. The head note of the decision in the later case is reproduced hereunder:-

"Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings (Computation of deduction) - Whether when an exporter exercises option of choosing initial assessment year as culled out in sub-section (2) of Section 80-IA from which it chooses its 10 years of deduction out of 15 years, then only losses of years starting from initial- assessment year alone are to be brought forward; loss prior to initial assessment year which has already been set-off cannot be brought forward and adjusted into period of ten years from initial assessment year-Held, yes- Whether where assessee had not suffered any loss in relevant years and brought forward loss or depreciation did not relate to initial years, same could not be

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 27 - reduced for determining amount for which deduction is to be allowed under section 80-IA - Held, yes [Para 28]"

The judicial pronouncements relied by the AO such as Goldmine Shares & 6.3 Finance (P) Ltd (supra) is respectfully distinguished as the judgement has been considered by honourable ITAT Ahmedabad and honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). In view of the above discussion, the reduction- of claim under section 80 l-A made by the AO is directed to be deleted."

Following the findings given by me in the above order, the disallowance made by the AO is directed to be deleted. He is directed to allow the claim of the appellant as per the calculation given by him and as per the law.

The ground of appeal is accordingly allowed.” The initial assessment year, as held by the Learned CIT(A) is the year in which the appellant made the claim for the first time exercising option and not the year in which the eligible unit commences production as per clear provision of law. Since the appellant has chosen the subsequent year later to the year in which the production commenced no necessity was found to notionally set off the losses of that unit for allowing the deduction. In the instant case, losses have been adjusted in the earlier years prior to the initial assessment year, no unadjusted business loss or depreciation loss since not there the claim has rightly been made by the appellant as hold by the Learned CIT(A). The judgment passed in the matter of Sadbhav Engineering Ltd. passed by the Co-ordinate Bench reported in 45 taxmann.com 333 and the judgment passed by the Hon’ble ITAT, Ahmedabad in the matter of Jivraj Tea & Industries Ltd. reported in 42 taxmann.com 462 was also relied upon by the Learned CIT(A).

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 28 - We have also carefully considered the order passed by the Co-ordinate Bench in ITA No.997/Ahd/2015 for A.Y. 2010-11. The relevant portion whereof is as follows: “7. We have heard the rival contention and perused the material on record carefully. We consider that the initial assessment year is the year in which the assessee makes the claim for the first time and not the year in which the eligible unit commences production, in the case of the assessee the initial assessment year will be A.Y. 2010-11 as the assessee has made first time claim of deduction under section 80IA of the act and the assessment year 2005-05 the year in which the production was commenced. Further In this connection, we have gone through the above referred circular of the CBDT which is reproduced as under:-

CIRCULAR NO.1/2019 [F.NO.200/31/2015-ITA-1], DATED 15-2- 2016 “Section 80-IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100 % of the profits end 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 80-IA 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 stipulated therein. Sub-section (5) of section 80- IA further provides as under— "Notwithstanding anything contained in any other prow's- o-, 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 quantum of deduction under that subsection for the assessment year immediately succeeding ino initial assessment year or any subsequent assessment yea/, 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

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 29 - 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 3ic 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 sub-section (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 80-IA 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-IA. 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 with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duty 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 sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed. The above be brought to the notice of all Assessing Officers concerned."

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 30 -

In is clear from the above cited circular of the CBDT that 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. In the light of the above facts and circular of the Board we do not find any error in the findings of the Ld.. CIT(A), therefore, the appeal of the revenue on this issue is dismissed.” Taking into consideration the entire aspect of the matter, respectfully relying upon the order passed by the Co-ordinate Bench in assessee’s own case, we decline to interfere with the order passed by the Learned CIT(A) which according to us is just and proper since the said order allowing deduction u/s 80IA has been passed forming the ratio laid down by the Co- ordinate Bench. The appeal preferred by the revenue is, thus, found to be devoid of any merit and hence dismissed.

Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 06/06/2019 Priti Yadav, Sr.PS

ITA Nos. 873, 2951 &1369/Ahd/2015 Gujarat Mineral Development Corporation Ltd. Asst.Year –2011-12 - 31 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad