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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SMT P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
These are cross appeals filed by the assessee as well as revenue directed against the order dated 14/02/2014 of CIT(A) – IV, Hyderabad for AY 2006-07.
Brief facts of the case are, the assessee, engaged in the business of asbestos cement products, filed its return of income on 25/11/2006 declaring total income of Rs. 21,64,02,386/-. AO completed the assessment u/s 143(3) on 26/12/2008. Later,
2 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. reassessment proceedings were initiated u/s 147 issuing notice u/s 148 on 25/06/2010. In the reassessment, AO assessed the income at Rs. 22,68,35,848/- by making disallowance towards depreciation on pollution control equipment of Rs. 14,54,327/- and disallowed the claim of deduction u/s 80IB of Rs. 85,79,135/-.
When the assessee preferred an appeal before the CIT(A) raising the issues of i) action of AO in initiating reassessment proceedings, ii) disallowance of depreciation and iii) disallowance of claim of deduction u/s 80IB, the CIT(A) dismissed the grounds on reassessment proceeding and disallowance of depreciation and allowed assessee’s claim of deduction u/s 80IB. Hence, both the assessee and revenue are in appeal before us against the order of CIT(A).
First we take up revenue’s appeal in ITA No. 860/Hyd/2014 wherein the revenue has raised the following grounds of appeal: 1. The learned CIT(A) erred in law and on facts of the case. 2. The learned CIT(A) ought to have appreciated the disallowance of claim of deduction u/s 80lB. 3. The CIT(A) ought to have appreciated the facts covered in the case of Velayudhaswamy Spinning Mills are not identical the facts of the present case. 4. The CIT(A) ought to have appreciated the fact that the assessee has not submitted any documents evidencing other sources of income and the profits against which the brought forward and other losses were absorbed and hence no loss was outstanding. 5. The learned CIT(A) ought to have appreciated the fact the assessee had filed consolidated Profit and Loss account which is against the provisions as enumerated in Sec. 80IA(5) of the IT Act. 6. Any other ground(s) that may be urged at the time of hearing.”
3 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. 5. During the year under consideration, the assessee company claimed deduction u/s 80IB(5)(ii) of Rs. 2,59,52,254/- being 30% of profits of Rs. 8,65,07,512/- of its Midnapore Unit. AO noted that in the order passed u/s 143(3) for the AY 2005-06, it was determined that the Midnapore unit was having loss of Rs. 2,85,97,114/- as on 31/03/2005. The AO referring to the provisions governing the computation of deduction u/s 80IB(5)(ii) r.w.s. 80IB(13) and 80IA(5), observed that the eligible profits are to be calculated as if the business is separate entity. Therefore, the eligible profits are computed after set off of brought forward losses of the unit on which deduction u/s 80IB under the head ‘business or profession. Accordingly, he computed the eligible profit of Midnapore unit as under:
Profits eligible for deduction (as 8,67,15,605 computed by the assessee company) Less: Brought forward losses as 2,85,97,114 discussed above 5,81,18,491 Less: Deduction u/s 80G 2,08,094 Eligible profits for deduction u/s 80IB 5,79,10,397
Accordingly, he noted that the deduction allowable is 30% of eligible profits which is worked out at Rs. 1,73,73,119/- (30% of 5,79,10,397), hence, the excess claim of deduction u/s 80IB of Rs. 85,79,135/- was disallowed.
The CIT(A), following the decisions i) Velayudhaswamy Spinning Mills Vs. ACIT [2012] 340 ITR 477 (mad.) and Anil H Lad Vs. DCIT 13 ITR (Tr.) 581 (Ban), on which reliance placed by the assessee, allowed the assessee’s claim of deduction u/s 80IB by observing that in the decisions cited above, it has been held that losses in preceding years already absorbed against the profit of other business cannot be notionally brought forward and set off against the
4 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. profits of the eligible business as no such mandate is provided in section 80IA(5).
Aggrieved by the order of CIT(A), the revenue is in appeal before us.
Before us, ld. DR besides relying on the order of AO, placed reliance on the decision of Hon’ble Karnataka High Court in the case of Microlabs Ltd. Vs. ACIT, [2015] 56 Taxmann.com 160 (Kar.)
Ld. AR, on the other hand, submitted that the issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in asssesee’s own case for AY 2005-06 in ITA No. 736/Hyd/2011 order dated 28/02/2018. He, therefore, submitted that the decision of the coordinate bench in AY 2005-06 may be followed.
Considered the rival submissions and perused the material on record. Similar issue came up for consideration before the coordinate bench of this Tribunal in assessee’s own case for AY 2005-06 (supra), wherein the Bench has observed as under: “15. As regards grounds 1 & 2, we find that the Midnapore Unit had started production in the F.Y relevant to A.Y 2003-04 itself, but the claim for deduction u/s 80IB has been made for the first time during the A.Y 2005-06. The Hon'ble Supreme Court, in the cases of (i) CIT vs. Defree Engineering (P) Ltd reported in(2017) 77 Taxmann.com 27 (S.C); (ii) Pr.CIT vs. Cheran Spinning Mills (P) Ltd (2016) 76 Taxmann.com 28 (S.C); and (iii) CIT,Coimbatore vs. P.S. Velusamy reported in (2016) 74 Taxmann.com 262 (S.C) has held that the initial A.Y referred to in section 80IA would only be the year of deduction u/s 80IA claimed for the first time out of the total period, and not the year of commencement of eligible business and that the assessee had the option to choose the initial A.Y for claiming the deduction u/s 80IA. Therefore, there is no infirmity in the assessee making the claim u/s 80IB during the A.Y before us.
As regards the computation of deduction u/s 80IB is concerned, we find that the Hon'ble Supreme Court has taken note of the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT reported in (2012) 340 ITR 477 (Madras) to hold that the unabsorbed loss/unabsorbed depreciation pertaining to the years prior to initial A.Y, already absorbed against other business income of the assessee, cannot be notionally brought forward and set off against the income of the assessee during relevant A.Y in which the claim was first made u/s 80IB of the Act. The Hon'ble Supreme Court also considered the CBDT Circular No.1/2016
5 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. dated 15/12/2016 before dismissing the SLPs filed by the Revenue against the decision in the case of Velayudhaswamy Spinning Mills (P) Ltd as reported in (2016) 76 Taxmann.com 176 (S.C). Respectfully following the above decision of the Hon'ble Apex Court, we hold that the assessee is eligible to claim deduction u/s 80IB of the Act for the first time during the A.Y 2005-06 without setting off the unabsorbed loss & depreciation of earlier A.Ys which has already been set off against profit of other business.
We find that the AO has disallowed the claim u/s 80IB also for the following other reason: i) That the assessee has not filed the copies of the P&L A/c and balance sheet for the Midnapore Unit as certified by the C.A.
As regards this objection of the AO, we find that the assessee has not filed a separate P&L A/c and the balance sheet of the Midnapore Unit certified by the CA for making the claim in Form No.10CCB of the Act. The learned Counsel for the assessee submitted that the profit declared by the assessee and claimed as a deduction in Form 10CCB as had been certified by the CA, is exactly the same as is claimed in the P&L A/c and balance sheet signed by the Authorized Signatory of the Company which has been filed before the AO during the re-assessment proceedings. Therefore, according to him, the insistence of the AO that such P&L A/c and balance sheet of the Midnapore Unit should be signed by the CA only, is not sustainable because according to him, the rule only prescribes that Form No.10CCB is to be obtained from a Chartered Accountant and that a separate report is to be obtained for each undertaking or enterprise of the assessee in respect of which deduction is claimed and the report is required to be accompanied by the P&L A/c and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity.
The learned DR, on the other hand, supported the orders of the authorities below.
Having regard to the rival contentions and the material on record, we find that the deduction u/s 80IB is a special deduction allowable to the undertakings which are set up in a backward area as certified by the Central Govt. Therefore, there is a requirement that while making the claim u/s 80IB(5) of the Act, the claim should be made inform No.10CCB signed by the CA of the assessee and should be accompanied along with the report for each of the undertaking along with the P&L and the balance sheet of the undertaking as if it is a distinct entity. In the case of the assessee, though the assessee has got its books of account audited and Form 10CCB is signed by the C.A. of the assessee company, the report is not signed by the CA but is signed by the authorized signatory. However, as rightly pointed out by the learned Counsel for the assessee, there is no variation in the claim of deduction u/s 80IB(5) in Form No.10CCB and P&L A/c and balance sheet of the assessee filed during the re-assessment proceedings. Therefore, the objection raised by the AO, in our opinion, is a technical objection and unless the AO brings out as to how the P&L A/c and the balance sheet are not reliable and vary with the results declared by the assessee in Form No.10CCB, the AO cannot deny the deduction on this ground alone. In view of the same, we direct the AO to allow the deduction u/s 80IB(5)(ii) of the Act after verifying the assessee’s claim of deduction u/s 80IB(5)(ii) of the Act.”
As the issue under consideration is materially identical to AY 2005- 06, following the decision therein, we uphold the order of the CIT(A)
6 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. in allowing the assessee’s claim of deduction u/s 80IB. We notice that ld. DR relied on the case of Microlabs Ltd. (supra), in which, the Hon’ble Karnataka High Court has accepted the views of Special Bench decision in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra). Hence, we dismiss the grounds raised by the revenue in this regard.
In the result, appeal of the revenue is dismissed.
In its appeal (ITA No. 811/Hyd/2014), the assessee has raised the following grounds of appeal: “1. Your appellant submits that the issue of notice under section 148 is bad in law and without jurisdiction. 2. The Assessing officer without giving cogent reasons for believing income escaped assessment ought not to have issued notice under section 148 of the Income Tax Act, 1961. 3. The CIT(A) erred in not allowing the depreciation as claimed ignoring the fact that the original assessment was completed under section 143(3) and additions have been verified and allowed depreciation. 4. The CIT(A) ought to have allowed the depreciation on pollution control equipment recorded in the books and considering the fact that the books of accounts are subject to audit under the Companies Act, 1956 and under section 44AB of the Income Tax Act, 1961. 5. The CIT(A) ignoring the fact that all the details for additions to fixed assets have been produced and verified at the time of original assessment itself, cannot disallow the depreciation claimed in the return of income.”
Ground Nos. 1 to 3 are pertaining to initiation of reassessment proceedings wherein the assessee’s contention is that the AO without giving cogent reasons for believing income escaped assessment ought not to have issued notice u/s 148 of the Act.
7 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. 13.1 Ld. AR submitted that AO has passed order u/s 143(3) of the Act on 26/12/2008 after considering all the information submitted before him. He also brought to our notice that AO has reopened the assessment for the previous AY i.e. 2005-06, the same was received by the assessee on 25/11/2008. All the issues which are raised during the present reopened assessment were same issues. AO has considered similar issue while passing the previous reopened assessment order. It is needless to say that at the same period, order u/s 143(3) was also passed. The AO has considered all the aspects while passing the order u/s 143(3). Even it can be presumed that AO has considered the issues in this assessment order. Therefore, he submitted that reopening of assessment for current impugned order is not proper.
13.2 Further, he submitted that depreciation claimed on Pollution Control Equipment is genuine and all the relevant informations are submitted before AO at the time of regular assessment and also the books of account are subject to tax audit. Therefore, addition made or disallowance of depreciation should be deleted.
Considered the rival submissions and perused the material on record. With regard to reopening of assessment, we notice that the assessment order u/s 143(3) was passed on 26/12/2008. The reopening proceedings for AY 2005-06 were initiated in November, 2008. The assessee sought reasons for reopening and filed its objections vide letter dated 25/11/2009. AO disposed off the objections and completed the assessment u/s 143(3) r.w.s. 147 on 29/12/2009. No doubt, the reassessment proceedings were initiated in November, 2008 but completed the assessment in December, 2009. But the order passed u/s 143(3) for the current AY on 26/12/2008 is within one month of initiating reassessment proceedings for previous AY relevant to AY 2005-06. Therefore, in our view, AO may not have considered the various issues which were raised in reassessment of
8 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd. AY 2005-06. Further, we also noticed that the assessment order passed u/s 143(3) is not a speaking order. Therefore, we do not see any merit in rejecting the proceedings initiated u/s 147 for the AY 2006-07. Hence, the ground raised by the assessee on this issue is dismissed.
14.1 Coming to Ground Nos. 4 & 5, AO has disallowed the depreciation claimed by the assessee on the ground that assessee failed to substantiate the proof for making addition to the extent of Rs. 14,54,327/-. Even the books of account are subject to tax audit, it means that the proof of purchases was presented before audit. Therefore, AO can demand for proof of making addition in this block of asset. It is the duty of the assessee to substantiate the claim before the AO. Even before us, no evidence was submitted in order to adjudicate on merit. Hence, these grounds raised by the assessee are dismissed as not substantiated the proof of making addition in the block of assets in Pollution Control Equipment.
In the result, appeal of the assessee is dismissed.
To sum up, both the appeals of revenue and assessee are dismissed. Pronounced in the open Court on 27th July, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 27th July, 2018 kv
9 ITA Nos. 860 & 811 /Hyd/14 M/s Visaka Industries Ltd.
Copy to:-
1) DCIT, Circle – 3(3), Hyderabad. 2) M/s Visaka Industries Ltd., C/o M. Anandam & Co., CAs, 7A, Surya Towers, SP Road, Secunderabad. 3) CIT(A) – IV, Hyderabad. 4) CIT - III, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File
S.No De scri pti on Dat e I nt l s
Draf t di ctated on Sr. P. S. / P. S
Draf t pl aced bef ore a uth or Sr. P. S/ PS
3 Draf t propo sed & pl ac ed b ef ore the se con d Mem ber JM/ AM
4 Draf t di scu ssed/a ppr ov ed by sec on d Mem ber JM/ AM
5 Approv ed Draf t com es to the Sr.P.S./PS Sr. P. S. / P. S
Kept f or pron oun cem ent on Sr. P. S. / P. S.
Fi l e sent to the B enc h Cl erk Sr. P. S. / P. S
8 Date o n whi ch f i l e goe s to the H ea d Cl erk
9 Date of Di sp atch of order