DEPUTY COMMISSIONER OF INCOME-TAX,, PUNE vs. M/S. ADVIK HI-TECH PVT. LTD.,, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A) – 6, Pune dated 30.01.2017 for the assessment year 2012-13.

Assessee is a company stated to be engaged in the business of manufacturing of auto components, generation of wind power and trading in shares and securities. Assessee filed its original return of

income for A.Y. 2012-13 on 29.09.2012 declaring total income of

Rs.19,60,61,445/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dated

26.02.2015 and the total income was determined at Rs.26,23,73,346/-.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A), who vide order dated 30.01.2017 (in appeal No.PN/CIT(A)-

6/DCIT Cir-8/11/2015-6) allowed the appeal of the assessee. Aggrieved

by the order of Ld.CIT(A), Revenue is now before us and has raised the

following grounds :

“1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)has ignored the provisions of 80IA(5) which clearly provides the condition where eligible unit is treated as separate unit which mean it is to be treated as independent unit for profit and loss purpose. 2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has failed to consider the decision of jurisdictional Hon'ble ITAT, Pune in the case of Khinvasara Investment (P) Ltd reported in 110 ITD. 3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has failed to consider the decision of Special Bench of the ITAT in the case of ACIT Vs Goldmine Shares & Finance (P) Ltd whose recent decision is reported in 116 IT J (Ahmadabad) 705 where it has been held that profits the eligible unit has to be deemed and treated as the only unit from inception to arrive at the eligible profits in any given year quantum of deduction allowable. 4. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has failed to consider the decision of ITAT, Mumbai in the case of Pidilite Industries Ltd. reported in 46 SOT 263, wherein the ITAT, on identical issue. 5. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has failed to consider the decision of the Hon'ble Bombay High Court rendered in the case of Cipla Ltd. reported in 2 SOT 617. 6. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in holding that discount of Rs. 1,74,59,885/- received on pre-payment of liability under the 'Sales Tax Deferral Scheme', as not a remission or cessation of liability u/s 41(1)? 7. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of Rs. 15,241/- u/s.14(A) ignoring that AO has clearly recorded in his order that correct value of investment is not considered by assessee calculating deduction u/s 14A.”

of the Act.

3.1. During the course of assessment proceedings AO noticed that

assessee had claimed deduction of Rs.4,88,36,675/- u/s 80IA of the

Act with respect to the profits from windmill. AO noticed that assessee

had shown profit in respect of all the windmills due to the fact that

100% depreciation has already claimed in earlier years and therefore

no depreciation as per I.T Act was claimed in the current year. The

depreciation loss that was claimed in respective years was set off

against the regular income of the business of the assessee. AO was of

the view that assessee has ignored the provisions of Section 80IA(5) of

the Act. He thereafter worked out the income generated against setoff

of the losses and concluded that assessee did not derive any positive

income during the year from windmill operations due to the losses of

the windmill units being brought forward and set off from the profit

derived from windmill units. He accordingly held that the claim of

deduction to the extent of Rs.4,88,36,675/- u/s 80IA of the Act is not

allowable and accordingly disallowed the same. Aggrieved by the order

of AO, assessee carried the matter before Ld.CIT(A), who decided the

issue in favour of the assessee by observing as under :

“5.2. During the appeal proceedings, the appellant submitted that that the CBDT vide circular NO.1/2016 dtd.15/2/2016 had accepted the' decision of the Madras High Court of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT reported in 38 DTR 57. The Board has clarified through the circular that the initial assessment year as mentioned in sec.80IA(5) would mean the first year opted for by the assessee for claiming deduction u/s 80IA. The deduction is allowable for 10 years from the initial assessment year show chosen by the assessee out of the 15 years beginning from the year in which undertaking commences the operations.

5.3. The submissions have been considered and the litigation regarding the initial assessment year mentioned in sec.801A has been settled by the Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs.ACIT reported in 38 DTR 57 and the same has been accepted by the CBDT through the circular 1/2016. With this clarification, the assessee is entitled to choose the initial assessment year and the deduction is allowable for 10 consecutive assessment years starting with the initial assessment year in a slab of 15 years starting from the year of operation of the undertaking. It is only consequent to such choosing of initial assessment year, the provisions of sec.80IA(5) would apply to the undertaking. The AO should consider the interest component on the loan availed for setting of the unit in the expenses related to the unit while working of the profit from the unit. The AO is therefore directed to recalculate the deduction available for each of the seven units as per sec.80IA(5) from the initial assessment year so chosen by the appellant for each of the units. The ground is treated as allowed with the above observations.”

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal

before us.

other hand, reiterated the submissions made before AO and Ld.CIT(A)

and further submitted that identical issue arose in assessee’s own case

in A.Y. 2010-11 and the Co-ordinate Bench of the Tribunal by following

the order of the Tribunal in assessee’s own case in A.Ys. 2008-09 and

2009-10 has upheld the order of Ld.CIT(A) vide order dt.22.09.2017 in

ITA Nos.83 & 96/PUN/2015. He placed on record the copy of the

aforesaid order and submitted that no interference to the order o

Ld.CIT(A) is called for.

record. The issue in the present ground is with respect to deduction

u/s 80IA(4) of the Act. We find that identical issue arose in assessee’s

own case in A.Y. 2010-11 before the ITAT. The Co-ordinate Bench of the

Tribunal vide order dt.22.09.2017 (supra) has decided the issue in

favour of the assessee by observing as under :

“24. We heard both the sides. We find the issue under consideration was the subject matter before the Tribunal in the assessee’s own case for the A.Yrs. 2008-09 and 2009-10 (supra). The relevant operational paragraphs are extracted as under for the sake of completeness :

“9. The Assessing Officer had disallowed the claim of deduction u/s.80IA(4)(iv)(a) of the I.T. Act amounting to Rs.43,93,235/-. The Assessing Officer also treated Sangli and Dhule units as single one having same eligible business. The claim was made in respect of wind mill located at Sangli. The issue pertains to losses of the undertaking before the initial year already adjusted against other income. During the course of the assessment proceedings, the assessee relied upon various decisions including Pune Tribunal's decision in the case of Poonawala Finvest & Agro (P) Ltd. Vs. Asst. Commissioner of Income-tax reported in (2008) 118 TTJ (Pune) 68. The Assessing Officer however relying upon Special Bench decision of Ahmedabad Tribunal reported in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd. reported in 116 TTJ (Ahmedabad) 705, disallowed the claim of the assessee. While doing so, the Assessing Officer also held that initial assessment year has to be considered as the year in which power generation commences and not the year in which it chooses to make claim for deduction for the first time. The Assessing Officer held that in the current section 80IA(5), there is no option given to the assessee to choose initial assessment year.

9.1 The matter was carried before first appellate authority, wherein the various factual and legal contentions were raised on behalf of assessee and having considered the same, the CIT(A) had allowed the claim of the assessee on both accounts. The same has been opposed before us on behalf of Revenue, inter alia, submitted that the CIT(A) was not justified in holding that for the purpose of Section 80IA the year in which the assessee chooses to claim deduction has to be treated as initial assessment year. The CIT(A) was not justified in holding that profit of the eligible business has to be computed without deducting therefrom brought forward losses or unabsorbed depreciation prior to the initial year of claim de hors the provision u/s. 80IA(5) of the Act. The CIT(A) erred in ignoring that the assessee was in power generation business and holding that each windmill has to be taken as independent eligible business. On the facts and circumstances of the case, the CIT(A) erred in holding that each Windmill unit has to be treated on standalone basis de hors the specific stipulation in Section 80IA(5) of the Act that 'profit and gains of eligible business' being power generation business have to be taken. Accordingly, the order of CIT(A) be set aside and that of Assessing Officer be restored. On the other hand, the learned Authorized Representative has supported the order of CIT(A) on the issue.

9.2 After going through the rival submissions and material on record, we find that as per sec. 80IA(2) of the IT. Act, the assessee has option to exercise the choosing of initial assessment year out of fifteen years beginning with the year in which the undertaking starts production. The Assessing Officer was not correct in asserting that there was no option to the Assessing Officer to exercise option in choosing the initial assessment year. As regards the issue of losses and unabsorbed deprecation of the undertaking already adjusted against the other income it was found that the same is covered by the decision of

Pune Tribunal in case of Poonawala Finvest (supra) in favour of the assessee. The Assessing Officer has relied upon Special Bench decision of Ahmedabad Tribunal in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd. reported in 116 TTJ (Ahmedabad) 705. However, the same could not be followed in view of the Hon'ble Madras High Court judgment in case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT reported in 38 DTR 57. ITAT, Bangalore Bench in the case of Anil H Lad Vs. DCIT did not follow the Special Bench decision of the Ahmedabad Bench Tribunal in view of above judgment of Madras High Court. Relevant portion of the order is reproduced for the sake of clarity:

"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 exercise option, the only losses of the years beginning from initial A.Y. 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 is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created."

the issue, we are not permitted to rely on the decision of the Special Bench of the Ahmedabad Tribunal. 29. Therefore, following the above judgement of the Hon'ble High Court of Madras, we accept the contention of the assessee and reverse the order of the Commissioner of Income-tax(A) on this point an direct the Assessing authority to grant deduction to the assessee u/s.80IA for the quantum claimed by the assessee without diluting the same by the notional deduction of earlier loss and depreciation". 9.3 In view of above, the CIT(A) was justified in directing the Assessing Officer to allow the deduction u/s.80IA(4)(iv)(a) of the Act without deducting brought forward loss or unabsorbed depreciation prior to initial year on notional basis. This reasoned factual and legal finding of CIT(A) needs no interference from our side. We uphold the same.

in the facts of the present case and to the assessee’s own case in A.Y.

2010-11 that was decided by the Tribunal in ITA No.83 and

96/PUN/2015 (supra). Revenue has also not placed any material on

record to demonstrate that the decision of Pune Tribunal in assessee’s

own case for A.Y. 2010-11 has been set aside / overturned or stayed by

the Higher Judicial Forum. In view of the aforesaid facts, we find no

reason to interfere with the order of Ld.CIT(A) and thus the grounds 1

to 5 of Revenue are dismissed.

7.1. During the course of assessment proceedings AO noticed that as

on 31.03.2011 assessee had shown Rs.3,90,29,906/- as deferred

payment liability under the head “Secured Loan”. It was also noticed

that assessee had actually paid Rs.2,15,70,021/- and the assessee has

shown addition of Rs.1,74,59,885/- as Capital Reserve on account of

surplus on pre-payment of Sales-tax Deferral and it was not offered to

tax. The assessee was asked to show cause as to why the amount not

be brought to tax in view of the provisions of Sec.41(1) of the Act. The

assessee made submissions which were not found acceptable to the AO.

AO was of the view that the taxability of sales tax deferral was to be

decided under the provisions of the Income Tax Act. He was of the view

that the amount set aside as sales tax deferral was a provision to meet

the future liability and once the assessee made the pre-payment of tax-

liability and got the benefit, the amount was required to treat the

income by crediting it to the Profit and Loss account. He therefore

treated the difference between unpaid Sales-Tax scheme as trading

liability and made addition of Rs1,74,59,885/- u/s 41(1) of the Act.

Aggrieved by the order of AO, assessee carried the matter before

Ld.CIT(A), who decided the issue in favour of the assessee by observing

as under :

“6.3. The issue has been examined. It is seen that the books of accounts are maintained on historical cost basis and the Income Tax Act also provides for taxing on such historical cost basis. In the present claim/ the payment of a net present value of a future liability has lead to extinction of the future liability. However in the accounts/ the difference continuous to be shown as liability and this liability is taken as a capital receipt. Once this liability continuous to be shown either as capital reserve or under any other head, would represent excess of assets over liabilities. Such excess has to be taxed and this excess is arising out of the extinction of a revenue liability. This revenue liability was allowed as an expense under the Income Tax Act in the earlier years. This issue is debatable and it has not reached finality. Though the jurisdictional High Court decision has settled the matter in favour of the appellant and it is binding on the authorities within its jurisdiction. Respectfully following the decision of Mumbai High Court, the ground is allowed.”

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal

before us.

other hand, reiterated the submissions made before AO and Ld.CIT(A)

and further submitted that the issue is covered in assessee’s favour by

the decision of Hon’ble Bombay High Court in the case of CIT Vs. Sulzer

India Limited reported in 369 ITR 717 and the decision of Hon’ble Apex

Court in the case of CIT Vs. Travancore Titanium Products Ltd.,

reported in (2001) 247 ITR 186 (SC). He also placed on record the copy

of the aforesaid decision. He thus supported the order of Ld.CIT(A).

record. The issue in the present ground is with respect to addition

made u/s 41(1) of the Act. Ld.CIT(A) while deciding the issue in favour

of assessee had followed the decision of Hon’ble Bombay High Court.

Before us, Revenue could not point out any fallacy in the findings of

Ld.CIT(A). We further find that Hon’ble Mumbai High Court in the case

of CIT Vs. Sulzer India Ltd., (supra) has held that pre-payment of sales

tax would not amount to payment or cessation of liability. Before us,

Revenue has not pointed out any contrary binding decision in its

support. We therefore find no reason to interfere with the order of

Ld.CIT(A). Thus, ground No.6 of Revenue is dismissed.

10.1. During the course of assessment proceedings AO on perusing the

details noticed that investments that were carried out under inventory

were not considered by the assessee for the disallowance u/s 14A of the

Act. AO was of the view that those investments also need to be

considered for working out the disallowance u/s 14A of the Act. He

accordingly worked out the disallowance u/s 14A of the Act at

Rs.3,83,558/- and disallowed the same. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who by following the

decision of Hon’ble High Court in the case of CIT Vs. India Advantages

Securities Ltd., (ITA No.1131 of 2013 dated 30.04.2014) deleted the

addition made by the AO.

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal

before us.

other hand reiterated the submissions made before AO and Ld.CIT(A).

He also relied on the decision of Hon’ble Bombay High Court in the case

of HDFC Vs. DCIT reported in 383 ITR 529. He thus supported the

order of Ld.CIT(A).

record. The issue in the present ground is with respect to disallowance

u/s 14A of the Act. AO was of the view that disallowance u/s 14A of

the Act has to be worked out even on the investments shown under

stock-in-trade. We find that Hon’ble Mumbai High Court in the case of

CIT Vs. India Advantages Securities Ltd., has held that no disallowance

of expenditure u/s 14A of the Act could be made in respect of stock-in-

trade. Before us, Revenue has not pointed out any contrary binding

decision in its support. We therefore find no reason to interfere with the

order of Ld.CIT(A). Thus, ground No.7 of Revenue is dismissed.

Order pronounced on 16th day of October, 2019.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 16th October, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-6, Pune. 4. Pr. CIT-5, Pune. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.