THE DCIT, 5(1), BHOPAL vs. M/S. SANWARIA AGRO OILS LTD., BHOPAL

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

आयकर अपील�य अ�धकरण, इंदौर �यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

ITA No.288/Ind/2015 Assessment Year: 2010-11

Income Tax Officer – 3(1), M/s. Sanwaria Agro Oils Ltd, E- Bhopal Vs. 1/1, Arera Colony, Bhopal (Revenue) (Respondent ) PAN No.AACCS1449N

Revenue by Shri K.G. Goyal, Sr.DR Respondent by Shri Anil Khabya,CA (AR) Date of Hearing: 10.01.2018 Date of Pronouncement: 16.01.2018 ORDER PER MANISH BORAD, AM.

This appeal filed by the Revenue is directed against the order of ld. Commissioner of Income-tax (Appeals)-I, Bhopal [in short referred to as the CIT (A)] dated 10.03.2015 arising out of the order u/s 143(3) of the Income Tax Act dated 28.03.2013 framed by the Ld. Dy. Commissioner of Income-tax-1(1), Bhopal pertaining to Assessment Year 2010-11.

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

“8.6 I have carefully considered the submission of the appellant, the submission of the A.O during appellate proceedings and facts of the case. The appellant is engaged in the business of Solvent Extraction Plant and Wind Power Generation. The appellant had commenced wind power generation during F.Y 2006-07, for which the appellant was entitle3d for deduction u/s 80IA of the Act. Sub-section(2) of section 80IA provides that the deduction at the option of the assessee may be claimed for any ten consecutive assessment years of fifteen years beginning from the year in which the undertaking or enterprise develops and begins to operate any infrastructure facility or generates power. Accordingly, the appellant had opted the current A.Y. 2010-11 as the first initial assessment year for claiming deduction u/s 80IA(4) of the Act. It would be relevant to reproduce the statement of income in different years from generation of wind power starting from the year, in which the generation started furnished by the appellant, as under:-

F.Y 2006-07 2007-08 2008-09 2009-10 2010-11 Sales 0 15103935 41458533 40632695 60952181 Less;Expenses 145000 141082 236876 150000 1323600 3

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

Depreciation as per 528880 7653360 22028160 16784517 19817000 Co.Act 673880 7794442 22265036 16934517 21140600 Profit/Loss (-)673880 7309493 19193497 23698178 39811581 Add Back Dep Co. (-)145000 14962853 41221657 40482695 59628581 Act Less Dep as per 60100000 196580000 128416000 25683200 5136640 rules (-)60245000 (-)181617147 (-)87194343 14799495 54491941

It may be noted that the unabsorbed depreciation of earlier years was set off against the income from Solvent Extraction business and there was no unabsorbed deprecation/loss available during the year under consideration. The appellant had claimed deduction u/s 80IA(4) of the Act on 100% of profit derived from generation of electricity from wind generators for Rs.1,47,99,495/- during this year. The A.O, in appellate proceedings, contended that the appellant was not entitled for deduction u/s 80IA of the Act as after adjustment of brought forward unabsorbed depreciation, there was no positive profit in the current year for allowing deduction u/s 80IA of the Act, because as per Section 80IA(5) of the Act, the wind power generation unit were to be considered as the only source of income of the appellant. On the other hand, the contention of the A.R of the appellant was that as per Section 80IA(2) of the Act, the appellant had the option to choose the initial assessment year for claiming deduction u/s 80IA of the Act for ten consecutive assessment years within fifteen consecutive years from the date of commencement of the eligible unit. It was submitted that once the appellant had selected the initial assessment year for claiming deduction u/s 80IA of the Act, then the earlier years brought forward unabsorbed depreciation/losses need not be adjusted against the profit of the initial assessment year from the eligible unit for allowing deduction u/s 80IA of the Act to the appellant when those had already been set off against other business income in earlier years. Section 80IA of the Act has been substituted w.e.f. 01.04.2000. It provides that where the gross total income of an assessee includes any profits & gains derived by an undertaking from any eligible business referred to in Sub-section (4), there shall, in accordance with an subject to the provisions of this section, be allowed in computing the income deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops or begins to operate. It may noted that fifteen years is the outer limit in which the assessee can choose for claiming the deduction. In order to decide the issue under consideration, it would be relevant to reproduce the provisions of Sub-section(5) of section 80IA of the Act as under:- “(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub- 4

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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.” From the plain reading of the provision, it can be gathered that it is a non-obstante clause which overrides the provisions of the Act and it is for determination of the quantum of deduction u/s 80IA of the Act for the initial assessment year and subsequent assessment years as if such eligible business were the only source of income of the assessee. It is clear from the above sub-section(5) that the fiction or deeming provision that such eligible business were the only source of the assessee has to be considered during the previous year relevant to initial assessment year and to every subsequent assessment year. It may be noted that Section 80IA nowhere defines the term “initial assessment year”. Prior to 1st April, 2000, the initial assessment year was defined for various types of eligible business in erstwhile section 80IA(12), which inter-alia read as under:- “(12) For the purposes of this section, - (a) ……… (aa) ………. (b) ……….. (c) “initial assessment year”- (1) ……… (2) In the case of an enterprise, carrying on the business of developing, operating and maintaining any infrastructure facility, means the assessment year specified by the assessee at his option to be the initial year, not falling beyond the twelfth assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility; (3) ………” Thus, in the definition given in erstwhile Section 80IA(12) of the Act, in the case of developing and operating infrastructure facility, “initial assessment year’ was the assessment year specified by the assessee at his option to be the initial year. Though these provisions are no more on the statue at present, strength can be drawn from these provisions to understand expression “initial assessment year” used in section 80IA(5) of the Act. Now, in the instant case, the appellant had opted for the initial year as A.Y 2010-11 under consideration and, therefore, this has to be considered as “initial assessment year”. Thus, as per provisions of Section 80IA(5) of the Act, the fiction created that the eligible business were the only source of income of the assessee during the previous year 5

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relevant to the initial assessment year to every subsequent assessment year would be applicable from initial year of A.Y. 2010-11 and not from earlier years. The Hon’ble Kerala High Court in CI”T Vs. Valves Ltd. (1987) 168 ITR 416 (Ker) held that legal fiction is to the purpose for which they are created and could not extended beyond that legitimate time. The Hon’ble Supreme Court in the case of CIT Vs. Mother India & Refrigeration Industries Pvt.Ltd (1985) 115 ITR 711 (SC) also held that legal fiction are created only for some specific purpose and they must be limited to that purpose and should not be extended beyond that legitimate field. The fiction created by the deeming provision u/s 80IA(5) of the Act that the eligible business were the only source of income of the assessee has, thus, to be considered for initial assessment year and subsequent assessment year. It is a fact that earlier years depreciation of wind power generators was set off/absorbed against other business income of the appellant and there was no carry forward unabsorbed depreciation or business loss which could be set off against the income of the current A.Y. 2010-11. Where the deprecation and loss of earlier years had already been set6 off against other business income of those assessment years, there is no need for notionally carrying forward and setting off the same depreciation or loss in computing the quantum of deduction available u/s 80IA for ‘initial assessment year’. If the assessee has positive income derived from eligible business as specified u/s 80IA(5) of the Act. The loss in the year earlier to the initial assessment year already set off/absorbed against the profits of the other business could not be notionally brought forward and set off against the profits derived from the eligible business in the initial assessment year. 8.7 The Hon’ble Madras High Court had an occasion to consider this issue in the case of Velayuthaswamy Spinning Mills P. Ltd Vs. ACIT (2012) 340 ITR 477 (Mad.). In this case, the assessee was engaged in the business of manufacture of yarn and electricity generation through wind electric generators and filed its return of income for the assessment year 2005-06 admitting a total income of Rs.1,36,36,470 under normal computation and Rs.2,95,73,840 under section 115JB of the Income-tax Act, 1961. The Assessing Officer disallowed the claim of deduction made by the assessee under section 80-IA amounting to Rs.1,70,76,945 on the ground that the eligible income was a negative figure. The Commissioner (Appeals) allowed the appeal of the assessee on the ground that since the assessment year 2005-06 was the initial assessment year, unabsorbed depreciation of earlier years, which had already been absorbed, could not be notionally carried forward and taken into consideration for computing deduction under section 80-IA. The Tribunal set aside the order of the Commissioner (Appeals) and restored the order of the Assessing Officer. It was held by the Hon’ble High Court as under:- Held, allowing the appeal, that there was no dispute that losses incurred by the assessee were already set off and adjusted against the profits of 6

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

the earlier years. During the relevant assessment year, the assessee exercised the option under section 80IA(2). During the relevant period, there was no unabsorbed depreciation or loss of the eligible undertaking and these were already absorbed in the earlier years. There was a positive profit during the year. The loss in the year earlier to the initial assessment year already absorbed against the profit of other business could not be notionally brought forward and set off against the profits of the eligible business as no such mandate was provided in section 80-IA(5). The order of the Tribunal was to be set aside. 8.8 This issue also came up for consideration in a recent decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Shri Anil H. Lad in ITA No. 176/2011 order dated 5th February, 2014. In this case, the Hon’ble High Court observed as under:- “9. The Madras High Court in the aforesaid Velayudhaswamy’s case interpreting the very provision held, from a reading of sub-section (1) 80- IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains der4ived by an undertaking or an enterprise from any business referred to in sub-section (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing he total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub-section(5) deals with quantum of deduction for an eligible business. The words “initial assessment year” are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that ‘initial assessment year’ employed in sub-section (5) is different from the words “beginning from the year” referred to in sub-section (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provisions and therefore, 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 exercises the option, the only losses of the years beginning from initial assessment year 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 7

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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. 10. Therefore, keeping in mind the object with which these provisions are introduced, it is clear that an assessee is given the benefit of 100% deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business if set off against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of Section 80IA, the revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under Section 80IA. Therefore, the approach of the Tribunal is in accordance with law. The Assessing authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under Section 80IA against the losses and depreciation of the eligible business which is already set off from other source before such a claim is putforth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the Assessing Authority as well as the lower Appellate Authority. The substantial question of law is answered in favour of the assessee and against the Revenue.” 8.9 Similar view as expressed by various Benches of the ITAT, such as in – (i) Poonawalla Estate Stud Farm Ltd. (2011) 136 TTJ 236 (Pune ITAT) (ii) Chordia Food Products Ltd, Pune Tribunal Order dated 26.06.2012 (iii) ACIT Vs.Surbha Subhash Lodha ITA No. 1845/PN/2013 order dated 24.09.2014 (Pune ITAT). Therefore, considering the facts and circumstances of the case and legal position on the issue, I am of the view that the appellant was eligible for deduction u/s 80IA of the Act of Rs.1,47,99,495/- for the profits derived from eligible business of wind power generation for A.Y. 2010-11 under consideration opted by the appellant as the initial assessment year. Accordingly, the disallowance of appellant’s claim of deduction u/s 80IA of the Act of Rs.1,47,99,495/- made by the A.O. is deleted.

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

tax and entry tax assessments were completed for the earlier years and demands were created and the impugned amount was paid during the year against these liabilities and were not charged to the profit and loss account but were shown as a deposit and balance with the Government authorities. The assessee claimed these deduction in the computation of income under the provisions of section 43B of the Act. We further find that the Ld. CIT(A) deleted these additions made by the Ld.A.O u/s 43B of the Act at Rs.1,01,80,852/- observing as follows; “6.5 I have carefully considered the submissions of the appellant, contention of the Assessing Officer and facts of the case. In this case, the Commercial-tax sand Entry Tax assessments were completed for the earlier financial years and demands were created in the case of the appellant. Thus, the liability to pay commercial tax/entry tax had occurred in this case. However, the appellant had treated all the demands created as contingent liability as the appellant had contested these tax demands in appeal and had also not claimed the deduction of the same in its Profit & Loss Account. But, the appellant had made payments of Commercial Tax and Entry Tax aggregating to Rs.1,01,80,852/- during the year under consideration against the liability of tax demands created by the Commercial Tax Department. The appellant had shown this payment as ‘Deposit & Balances with the Government Authorities’ in the balance sheet. The issue for consideration is whether deduction for Commercial Tax and Entry Tax paid during the year, which had not been charged to the Profit & Loss Account, can be claimed as deduction in view of Section 43B of the Act. It may be noted that Section 43B supersedes the provisions of Section 145 of the Act and provides that deduction can only be allowed on the condition of actual

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd

payment irrespective of the method of accounting adopted by the assessee. Now, in this case, since there was a liability created against appellant for Commercial Tax and Entry Tax and the appellant had actually paid tax to that department of Rs.1,01,80,852/- during the year, in view of provisions of Section 43B of the Act it was to be allowed as deduction in the year under consideration on the basis of payment, even if it was not debited to Profit & Loss Account. 6.6 In Associated Pigments Ltd Vs CIT (1998) 234 ITR 589 (Cal.), the Hon’ble Calcutta High Court observed in this regard as under:- “There is no part of Section 43B or the Income-tax Act itself which requires that when deduction is claimed on the basis of Section 43B, the assessee must satisfy the twin test of both providing actual payment of the due tax or cess in the previous year in question as well as satisfying the Department that due provision had been made in the books in regard to such duty or tax for which payment was made later on. To introduce this double test would be writing words into the Section which neither the Tribunal nor the court is entitled to do.” Thus, it was held in this case that it is not necessary that a provision should be made in the account so as to entitle to the deduction of an amount which is paid during the year under section 43B of the Act. 6.7 Similar view was expressed by the Hon’ble Madras High Court in the case of Chemicals & Plastic India Ltd. Vs. CIT (2003) 260 ITR 193 (Mad.) in which it was observed as under:- “Section 43B of the Income-tax Act, 1961, does not stipulate that before an assessee could claim deduction in that year, the assessee should have shown the amounts paid towards duty under a separate head and that the inclusion of the duty element in the valuation of the current assets would disentitle the assessee from claiming the deduction under section 43B. Held, that the assessee was entitled to the deduction of the amount of duty paid in the year in which the payment was made. The fact that part of the customs duty was paid in respect of raw materials which remained with the assessee at the end of the year would not deprive the assessee of the benefit of claiming the deduction in the year in which duty had been actually paid. So also the right of the assessee to claim deduction for the amount of excise duty paid in the year in which it was paid is unaffected by the fact that part of the duty paid was in relation to finished goods which remained with the assessee at the end of the year. The fact that the duty paid was not charged to the profit and loss account by itself would not 11

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disentitle the assessee from claiming deduction under section 43B. It is open to the assessee to file an adjustment statement before the assessing officer.” Thus, the Hon’ble Madras High Court held that where the assessee had actually paid custom & excise duty but has not charged the same to the Profit & Loss Account, it would not disentitle the assessee from claiming deduction u/s 43B of the Act. Now, in the instant case, the appellant had actually paid Commercial Tax and Entry Tax of Rs.1,01,80,852/- during the year under consideration. Though the appellant had not charged the same to its Profit & Loss Account and shown the same in its balance sheet as “Deposits & Balances with Government Authorities”. The appellant was entitled to deduction u/s 43B of the Act. Therefore, the A.O is directed to allow the deduction of Commercial Tax and Entry Tax of earlier years paid by the appellant during the year of Rs.1,01,80,852/- as deduction u/s 43B of the Act as claimed in the computation of income. Hence, Ground Nos 2 & 3 are allowed. 11. We therefore in the given facts and circumstances of the case and detailed findings of Ld. CIT(A) as well as understanding the provisions of section 43B of the Act find no infirmity in the findings of Ld. CIT(A) as the impugned amount has been paid towards tax liability and is very much eligible for deduction u/s 43B of the Act as the amount has been paid during the year in appeal. In the result Ground No.2 of the revenue is dismissed.

The order pronounced in the open Court on 16.01.2018.

Sd/- Sd/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 16th January, 2018 Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. 12

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By order Private Secretary/DDO, Indore

ITA No.288/Ind/2015 Asst. Year 2010-11 Sanwaria Agro Oils Ltd