RATNAM METALS & TUBES LIMITED,,AHMEDABAD vs. THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(3),, AHMEDABAD

PER PRADIP KUMAR KEDIA - AM:

The captioned appeal has been filed at the instance of the assessee against the order of the CIT(A)-12, Ahmedabad (‘CIT(A)’ in short), dated 05.04.2016 arising in the assessment order dated 23.02.2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning assessment year 2012- 13.

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“1. That the learned Commissioner of Income Tax (Appeals) has erred in law and facts by rejecting the claim of deduction of Rs.7,35,01,934/- u/s 80IA(4)(iv) and therefore the learned AO should be directed to allow the said claim while computing the total income. 2. That the learned Commissioner of Income Tax (Appeals) has erred in law and facts by confirming the addition to the extent of Rs.1,70,439/- made on account of non-reconciliation of difference in the closing balance and therefore the learned AO should be directed to delete the said addition while computing the total income.”

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addition of Rs.3,05,59,000/- was made to the total income by denying the claim of deduction.

“2. The facts in brief are that the assessee company had claimed deduction u/s 80IA(4)(iv) to the tune of Rs.3,05,59,000/-. The Ld. AO called upon the appellant to explain why the claim should not be rejected/reduced in view of the fact that for period prior to A.Y.2009- 10, the business of the windmill had incurred losses and in view of section 80IA(5), the carried forward loss has to be reduced from the income from the windmill before computation of income eligible for

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deduction u/s 80IA(4)(iv). The appellant's reply has been reproduced by the Ld. AO and, insisting that his own interpretation of section 80IA(5) is to be given effect to, and because the decision of CIT(A) holding in favour of the appellant on the issue has been further contested in appeal before the ITAT, he holds vide page 6 of his order that the deduction claimed by the appellant is not to be allowed in view of carried forward losses of the eligible unit on stand-alone basis. Thus he makes an addition of Rs.3,05,59,000/- disallowing claim of the appellant.

"...7. After going through the rival contentions and material available on record, we find that in the case of deduction u/s 80IA, provisions of section 80IA(5) which starts with non-obstinate clause that profits for the purpose of section 80IA is to be worked out as if eligible industrial undertaking is the only source of income of the assessee during the previous year. This provision of the Act makes it clear that eligible profits for deduction u/s 80IA is to be computed for the eligible industrial undertaking individually. It simply means that if such industrial undertaking had suffered losses in the earlier years, these losses has to be set off against income of the current year. After this set off, if there are some profits, the same is eligible for deduction u/s 80IA(iv). In this regard, we find that in the case of ACTT vs. Goldmine Shares and Finance Pvt. Ltd. (2008) 302 ITR 209 (And), it was held as under: "to conclude we answer the question referred in the affirmative, in the favour of the revenue and against the assessee, in the terms that in view of the specific provisions of section 80IA(5) of the Income-tax Act, 1961 the profit from the eligible business for the purpose of determination of the quantum of deduction u/s 80IA of the Act has to be computed after deduction of notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years.” The above facts make it clear that notional brought forward loss & depreciation of the earlier years, if any, pertaining to the eligible business needs to be set off against profits of current year to reach to correct figure of eligible profits for deduction u/s 80IA(iv). In this case, the Assessing Officer had annexed details of profit and loss account since A. Y.2004-05 along with assessment order. Perusal of these details revealed that the

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assessee had suffered loss of Rs.3,56,17,980/- (2,13,15,196 + 1,43,02,784) for the AYs 2004-05 & 2005-06. Perusal of this chart further revealed that for Ays 2006-07, 2007-08 & 2008-09, the assessee had earned profit ofRs.3,09,96,800/- (68,90,448 + 1,21,53,374 + 1,19,52,978). This way, at the end of Assessment Year 2008-09, the assessee was having a brought forward business loss of eligible unit at Rs.46,21,180 (3,56,17,980-3,09,96,800). During the year under consideration, assessee has declared profit from wind mills at Rs.1,30,26,967/-. As per the above discussions, eligible profits for deduction u/s80IA(iv) can be computed after set off of notional brought forward loss of Rs.46,21,180 against this profit. Likewise, the eligible profit u/s 80IA(iv) was worked out at Rs.84,05,787/-, (1,30,26,967-46,21,180). Assessee has claimed deduction u/s 80IA(iv) on a profit of Rs.84,05,787/- only. Thus, the assessee's computation for eligible .profits for the purpose of deduction u/s 80IA(iv) was well within the purview of Income-tax Act. Thus, in our opinion, the CIT(A) has rightly deleted the addition of Rs.84,05,787/- made by the Assessing Officer u/s 80IA(iv) of the Act. Accordingly, we uphold the order of the CIT(A) in this regard."

"That the relying on facts, law and order of the Hon'ble ITAT, Ahmedabad, in the case of ACIT Vs. Harsha Engineers Ltd., deduction u/s 80IA(4)(iv) of the Act is to be allowed without reducing notional brought forward losses and depreciation of businesses even though it has been set off against other income in

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earlier assessment years and accordingly the Ld. AO be directed to allow Rs. 9,82,17,328/- while computing the total income."

The letter of the appellant dated 12/02/2016 raising the additional ground was forwarded to the AO whose response thereto has been received through the Range Head on 24/2/2016. It is commented by the Ld. AO that the decision of ITAT in M/s. Harsh Engineering has been contested before Hon. High Court.

"5. As such in Goetze (supra) the Supreme Court while dismissing the appeal clarified that its decision was restricted to the power of Assessing Officer to entertain a claim for deduction otherwise than by a revised return, and did not impinge on the powers of the assessing authority under section 254 of the Act. 6. When the claim of the assessee was genuine and acceptable on merits, the Appellate Commissioner acted within its powers and rightly allowed the same. That was confirmed by the Tribunal. In that view, the impugned order of the Tribunal warrants no interference. No substantial question of law arises for consideration. 7. Accordingly, the appeal is dismissed."

6.1 The Ld. AR has also heavily relied on Circular 1 of 2016 dated 15/2/2016 to further plead that as per the Board's Circular, the "initial assessment year" within the meaning of section 801A(5) has to be necessarily the initial year as chosen by the appellant himself. Once such choice is made by the appellant, it was submitted, all the past baggage of unabsorbed losses or unabsorbed depreciation carried forward from preceding year become irrelevant for quantification of eligible deduction in terms of section 80IA(5) in view of Harsha Engineering and Board circular. The interpretation thus adopted by Hon. ITAT in Harsh Engineering (supra) is thus further sanctified by the Circular No.1 of 2016 wherein the Board has directed that pursuit

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of pending litigation on allowability of deduction u/s 80IA shall also be decided keeping this particular interpretation of "initial year" in mind. It was further submitted that for and from "initial assessment year" (as chosen by the appellant) for the claim of deduction u/s 80IA, the profit of eligible unit has to be computed keeping in mind the “initial year” as chosen by the appellant, and all preceding assessment years and the profit/loss/depreciation" as computed or adjusted in the years preceding the "initial year", whether or not adjusted against the profits of other units or whether or not carried forward by the appellant, are issues wholly irrelevant for the purpose of computing the eligible profits u/s 80IA(4)(iv). This is, it was argued, the ratio of Harsha Engineering and mandate of Circular 1/2016.

Sr. Windmill Project Amount of profit Progressive profit/loss (on No. from windmill for which 80IA claimed in the the year return after set off of notional carry forward loss) 1 Shikarpur Rs.43,60,740 Rs.43,60,740 2 Ukharala Rs. 1,44,22, 475 Rs. 1,44,22,475 3 Patelka Rs.95,18,397 Rs.95,18,397 4 Lamba (2) Rs. 81,01,264 Rs.22,57,388 5 Lamba (3) Rs.94,48,211 (-)Rs.26,21,360 6 Vanku Ra.78, 47,801 (-)Rs.1,65,03,084 7 Moti Sindholi Rs.5, 03,62,3 16 (-)Rs.37,42,52,717 Total Rs.10,40,61,204 Rs.3,05,59,270 Relief by way of additional ground claimed Rs.7,35,01,934

8.1 After having carefully considered the facts, the decision in M/s. Harsh Engineering (supra) and the contents of Circular No.1 of 2016, I have no doubt in mind that the profits of the eligible units on 'stand- alone basis has only to be considered for and from the "initial assessment year" as opted by the appellant. However, from the chart given by the Ld. AR, and from the copy of ITAT's order in appellant's own case (supra) dated 11/12/2015, it becomes crystal clear that as per the prayer of the appellant contained in the additional ground, the

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appellant would want a direction to the AO that the appellant's returned income be allowed to be reduced by an amount of Rs.7,35,01,934/- in pursuance to ITAT decision in Harsha Engineering (supra). After having given a careful consideration to the issue raised by way of additional ground and after perusal of the Authorities cited and relied upon by the AR, including Jurisdictional High Court in Arvind Mills Ltd. (supra), I am not persuaded to grant the relief as claimed by way of additional ground. While fully agreeing with the- Ld. AR that the ratio as laid down, by the Hon. ITAT in Harsha Engineering is to the effect that deduction u/s 80IA(4)(iv) is to be computed for and from assessment year declared by the appellant to be the "initial assessment year", unencumbered or unimpacted by the claims or carry forward of depreciation or losses of the past years, I am unable to find myself in agreement with the further and consequent prayer of the appellant that in view, of Jurisdictional High Court in Arvind Mills, the income already returned by the appellant can be allowed to be reduced as a reason of subsequent decisions on a point of law, particularly in appellate proceedings. In my considered opinion, the only procedure prescribed statutorily enabling the appellant to reduce the tax-paid income as returned by way of a return of income is to file a revised return. as provided u/s 139(5) within the limitation of two years as prescribed therein. The exclusion for CIT(A) or Appellate Authorities from the operation of Goetz India Ltd., 327 FCR 305 (SC) with regard to claim by way of prayer during proceedings without revising the return of income as approved by the Jurisdictional High Court in Arvind Mills Ltd., in my considered opinion, cannot be stretched or applied so as to grant a "relief or allow an additional ground which has effect of reducing the returned income. As such, the prayer made before the AO not resulting into redaction of returned income and rejected by the AO can only, in my considered opinion, qualify, on facts, for application of Jurisdictional High Court decision in Arvind Mills Ltd. (supra). In view of this, I find no merit in the additional ground raised by the appellant and therefore, the same is dismissed.”

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CIT(A) which was denied on the grounds of absence of revised return of income in this regard. The learned AR submitted that the assessee earned profit from the windmill project amounting to Rs.10,40,61,204/- in aggregate during the year. However, while making the claim of deduction at the time of filing return of income, the assessee wrongly applied the provisions of law and judicial interpretation rendered in this regard and thus wrongly adjusted the losses incurred in the windmill project in the past prior to the exercise of option towards ‘initial assessment year’ envisaged under s.80IA(4) of the act. Delving further, the learned AR submitted that the assessee incurred losses in the windmill projects in the earlier years, which was claimed as set off against its regular business in earlier years in accordance with law. Thus, no unadjusted business loss/depreciation remained to be carried forward for set off. However, for the purpose of determination of eligible profit under s.80IA(4) of the Act, the assessee misunderstood the restrictions placed under s.80IA(5) of the Act for the purpose of determination of quantum of deduction. The assessee thus incorrectly recreated the business loss/depreciation arose in the preceding years (prior to initial assessment year) and notionally adjusted the same from the eligible profit arose during the year to its detriment, owing to such mis-interpretation of law. The assessee improperly reduced its eligible profit for deduction to Rs.3.05 Crore as against rightful claim towards eligible profit of Rs.10.40 Crore as a result of wrongful adjustment of such notional losses ‘deemed’ to be carried forward. The learned AR thereafter contended that having accepted the eligibility of claim of deduction on full amount of profit, there was no warrant for the CIT(A) to deny the deduction only on a technical ground that such claim is permissible only where the assessee filed the revised return and not otherwise. The decision of the CIT(A) against the assessee rests on the observation that grant of relief on account of such additional ground which has the effect of

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reducing the assessed income below the returned income is not permissible. The learned AR submitted that such premise for denial of lawful relief by the CIT(A) is squarely at odds with the long line of judicial precedents including the decision of the Hon’ble Gujarat High Court in the case of Gujarat Gas Co. Ltd. vs. JCIT 245 ITR 84 (Guj); CIT vs. Milton Laminates Ltd. Tax Appeal No. 1022 of 2010 judgment dated 24.01.2012; CIT vs. Arvind Mills Ltd. Tax Appeal No. 1407 of 2011 judgment dated 05.07.2012; CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. [2012] 349 ITR 336 (Bom.) etc. The learned AR thus submitted that the additional claim towards enhanced deduction eligible under s.80IA(4) of the Act be directed to be allowed to the assessee in accordance with law.

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entertained as it would have the effect of bringing the assessed income below the returned income. We do not find any merit whatsoever in such reasoning propounded by the CIT(A). The rationale adopted by the CIT(A) for refusal of the additional claim is in direct contravention with the judicial precedents cited on behalf of the assessee (supra). Therefore, we have no hesitation to hold on first principles that the additional claim requires to be entertained when found eligible as per the relevant provisions of the Act in the light of the judicial precedents and CBDT Circular issued in favour of the assessee. It is well settled that the appellate authority is not precluded from adjudicating the additional claims of an assessee regardless of whether the return was revised or not. The Revenue is under duty to assess the true profits of an assessee and cannot take advantage of the ignorance of the assessee on the provisions of the Act. Thus, the action of the CIT(A) to this extent requires to be set aside and additional claim of the assessee amounting to Rs.7,35,01,934/- requires to be entertained. However, in the same vain, we notice that the quantification aspects of additional claim flowing from notional set off / carry forward of losses of earlier years from eligible profits has not been examined by the authorities below. Accordingly, we set aside the issue to the file of the AO for the limited purposes of determination of correct quantum of deduction to be computed without setting off any notional losses of the windmill power project pertaining to the earlier assessment years as discussed hereinabove. The AO shall allow enhanced deduction under s.80IA(4) of the Act as eligible to assessee in accordance with law regardless of claim made by the assessee in this regard in its return of income.

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This Order pronounced in Open Court on 14/08/2018

Sd/- Sd/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 14/08/2018 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।