KIRLOSKAR INDUSTRIES LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER आदेश आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Assessee against the order of CIT(A)-2, Pune, dated 02-05-2016 for the Assessment Year 2010-11.

before the CIT(A). However, the assessee remained unsuccessful before the

First Appellate Authority. Now, against the order of First Appellate

Authority, the assessee has come up in appeal before the Tribunal.

and 2. Therefore, the said grounds are dismissed as such. Thus, the only

effective ground that remains to be adjudicated in this appeal reads as

under :

“3. The ld. CIT(A) erred on facts and in law in upholding disallowance of valid claim u/s.80IA of the Income Tax Act, 1961 contending that, there are no actual profits available with the assessee. He erred in setting off notional losses of the undertaking where there is no such provision in law.”

assessee reported windmill business from A.Y. 2007-08. The “initial

assessment year” at the option of the assessee is A.Y. 2009-10. Assessee

reported earning profits of Rs.2.23 crore in that year. AO disallowed the

same holding that the losses of the undertaking for A.Y. 2007-08 & 2008-

09 are more than the profits reported of Rs.2.23 crore. As per AO, after

giving set off, the profits of the undertaking is losses. Hence, the assessee

is not eligible for any claim of deduction for A.Yrs. 2009-10 & 2010-11. AO

worked out the losses of the undertaking at Rs.18.50 crore as on

01-04-2009. For the A.Y. 2010-11, AO held that, when set off the profits of

the year with the said loss of Rs.18.50 crore (rounded off), the claim of

deduction is not available for the year under consideration. Accordingly, in

Para No.7.11, AO denied the claim of deduction of Rs.3,18,33,046/-

u/s.80IA(4) of the Act.

In the First Appellate proceedings, relying on the Karnataka High

Court judgment in the case of Microlabs Ltd. Vs. ACIT 230 Taxman 647,

CIT(A) confirmed the decision of the AO on this issue. Aggrieved, the

assessee is in appeal.

the allowable deduction u/s.80IA(4) is not in tune with the settled ratio of

the binding judgments. Assessee objected to the manner of carry forward

of losses notionally to eat away the profit of the year. In this regard, Ld.

Counsel for the assessee relied on the judgment of Hon’ble Jurisdictional

High Court in the case of CIT Vs. Hercules Hoists Ltd where the Hon’ble

Court held that “Eligible business is only source of income, during previous

year relevant to initial assessment year and once set off is taken place in

earlier year against other income of assessee, Revenue cannot rework set off

amount and bring it notionally. Thus, Ld. Counsel prayed for allowing

Ground No.3 in favour of assessee.

AO/CIT(A).

authorities below on this solitary issue of deduction u/s.80IA. We find

that, during the course of assessment proceedings, the AO noticed the

claim of deduction u/s.80IA amounting to Rs.3.18 crore is not allowable if

the profits are set off against the brought forward losses of the earlier

assessment years. Assessee claimed such deduction for the first time in

the A.Y. 2009-10. Assessee has the option to choose the initial year for 10

consecutive assessment years out of 15 years beginning the year from

which the undertaking starts generating the power. Accordingly, assessee

chose the A.Y. 2009-10 as the initial year. AO denied the claim of deduction for this year too. The claim of such deduction in the current

year is the second year. To maintain consistency, the AO disallowed the

claim of the assessee in the instant year too on the ground that the notional

losses of the windmill undertaken must be first set off against the profits of

the windmill. We find the CIT(A) discussed the issue of deduction u/s.80IA

vide Para No.7.11 and 7.12 of his order and confirmed the order of AO

relying on the judgment of Hon’ble Karnataka High Court in the case of

Microlabs Ltd. Vs. ACIT (supra)

8.1 Assessee contested the same holding that the provisions of section

80IA(4) and 80IA(5) allows the computation on standalone basis. If the

conclusions of the AO is considered favourably, it defeats the purpose of

provisions of section 80IA(4) and 80IA(5) read with umpteen decisions on

this subject including the Tribunal’s decision in the case of Poonawala

Estate Stud & Agro Farm (P) Ltd. Vs. ACIT 136 TTJ 236 (Pune).

8.2 We find that there is no dispute on the fact that the assessment year

2009-10 is the initial assessment year in the hands of Kirloskar Oil Ltd.

The dispute is only with respect to the manner of computation of deduction

qua the set off of carry forward of losses. Further, we find there is no

clarity as to the outcome of appeal by the Revenue for the A.Y. 2009-10 in

the hands of Kirloskar Oil Ltd. who is the owner of the unit before

demerger.

8.3 In this case, assessee acquired windmill undertaking from the

Kirloskar Oil Ltd. A.Y. 2009-10 is the initial assessment year in the hands

of Kirloskar Oil Ltd. Hence, the A.Y. 2010-11 is the 2nd year in the hands

of the assessee. Otherwise, there is no clarity in the orders of the AO on

the amount of loss validly quantified in the hands of undertaking at the

time of demerger to the assessee. Therefore, there is requirement of basic details on the said issue qua the figures of losses and profits over the years

of the undertaking.

Further, we find the law is more or less settled on this issue on the

issue of manner of set off of notional losses of earlier assessment years

which was already set off against the profits of the other undertakings. The

judgmental law does not permit the set off of notional losses by the AO for

eating away the eligible profits for the year under consideration. Apart from

others, the jurisdictional High Court judgment in the case of CIT Vs.

Hercules Hoists Ltd. (supra) is one such judgment which is required to be

regarded and applied to the facts of the present case. In our considered

opinion, this issue required fresh consideration at the level of CIT(A) for

applying the binding judgments on the issue. Ld. Counsel for the assessee

is also directed to supply necessary judgments on the specific issue of the

manner of computation of deduction u/s.80IA(4) of the Act in the second

year of the block of assessment years specified in the law. With these

directions, we allow Ground No.3 for statistical purposes.

statistical purposes.

Order pronounced on this 30th day of January, 2019.

Sd/- Sd/- (िवकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER

पुणे / Pune; िदनांक / Dated : 30th January, 2019 Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-7, Pune 3. आयकर आयु� / The Pr.CIT-6, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / 5. DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune.

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Date 1. Draft dictated on 29-01-2019 Sr.PS 2. Draft placed before author 30-01-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.