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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
Briefly stated, relevant facts include, that the assessee is a company came into existence w.e.f., 31-03-2010 by a scheme of demerger. It filed return of income declaring total income of Rs.13,99,64,208/-. Subsequently, a revised return was filed declaring total income of Rs.14,71,45,097/-. In the assessment, the AO made certain disallowances viz., (1) Disallowance u/s.14A amounting to Rs.1,41,23,169/-; (2) Disallowance of unexplained expenses amounting to Rs.83,02,973/-; and (3) Disallowance of deduction u/s.80IA amounting to Rs.3,18,33,046/-. Thus, in effect, the AO assessed the total income at Rs.20,14,04,290/-.
ITA No.1722/PUN/2016 Kirloskar Industries Limited
Aggrieved with the said assessment, the assessee filed an appeal
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.
Before us, Ld. Counsel for the assessee did not press Ground Nos. 1
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.”
Briefly stated, relevant facts relating to Ground No.3 include that the
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.
ITA No.1722/PUN/2016 Kirloskar Industries Limited
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.
Before us, on this issue, Ld. AR submitted the manner of quantifying
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.
Per Contra, Ld. DR for the Revenue relied on the orders of the
AO/CIT(A).
We have heard the rival contentions and perused the orders of the
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
ITA No.1722/PUN/2016 Kirloskar Industries Limited
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
ITA No.1722/PUN/2016 Kirloskar Industries Limited
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.
In the result, the appeal of the assessee is partly allowed for
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
ITA No.1722/PUN/2016 Kirloskar Industries Limited
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.
7 ITA No.1722/PUN/2016 Kirloskar Industries Limited
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.