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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER PER S. S. GODARA, JM : 1. These two Revenue’s appeals for A.Y. 2010-11 & 2011-12 arise against the CIT(A)-4, Pune’s separate orders, both dated 01.03.2017 passed in case No.PN/CIT(A)-4/DCIT, Circle-6, Pune/16/2013-14/ 160 and PN/ CIT(A)- 4/DCIT,Circle-6, Pune/278/2013-14/157; respectively, involving proceeding u/s. 143(3) of the Income Tax Act, 1961 ; in short "the Act”.
Heard both the parties. Case files perused.
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The Revenue’s former identical substantive ground pleads that the CIT(A) has erred in law and on facts in deleting u/s. 36(1)(iii) interest disallowance(s) of Rs.1,05,32,524/- and Rs.1,22,85,947/-; assessment year wise, respectively. It transpires during the course of hearing that the instant section 36(1)(iii) interest disallowance is no more res integra since the tribunal’s order(s) in A.Y. 2005-06 in ITA 472/PN/10 dated 25.06.2013 in A.Y. 2004-05 and 2005-06 has already rejected its claim in light of interest free funds turning out to be more than the alleged interest bearing funds diverted to sister concern(s) as follows :-
“13. We have carefully considered the rival submissions. In this case, the Assessing Officer noted that assessee advanced loans to the sister concerns amounting to Rs.9,28,96,036/-, on which no interest was charged. As per the Assessing Officer, on one hand assessee was paying interest on funds borrowed and claiming the same as deduction while on the other hand, it was advancing loans to its sister concerns free of interest. As per the Assessing Officer, the advances to the sister concerns were not in the course of business. The Assessing Officer also came to conclude that the assessee has advanced interest-free loans to the sister concerns out of borrowed funds only. Therefore, the Assessing Officer disallowed interest proportionate to such interest-free advances, which is determined at Rs.54,92,463/- (i.e. Rs.29,63,659/- + Rs.25,28,804/-).
The contention is that assessee generated sufficient interest-free funds of its own which are utilized not only for its business but also in making such interest-free advances to its sister concerns. The stand of the assessee is that where there are both borrowed funds as well as interest-free funds, the choice lies with the assessee for utilization of those funds. On this point we may refer to the judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) wherein it has been held that if there are interest- free funds available
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with an assessee, which are sufficient to cover its investments and at the same time assessee has raised interest-bearing loans, it can be presumed that the investments were made from interest-free funds available.
In the present case, the assessee has sought to point out that the total interest-free funds available to the assessee, namely, share capital plus reserves plus interest-free advances received from customers, at any time during the year are sufficient to meet and cover the impugned interest-free advances made to the sister concerns. In this connection, a detailed chart showing interest-free funds available with the assessee and the interest-free advances made to the sister concerns during the entire period of 01.04.2004 to 31.03.2005 has been placed at pages 75 to 79 of the Paper Book. Such chart has been made date wise and it is seen that the peak amount of interest- free funds as also the minimum amount of interest-free funds available with the assessee at any given point of time during the year is sufficient to cover the impugned interest- free advances of Rs.9,28,96,036/- made to the sister concerns. The aforesaid position has not been controverted by the Revenue either in the course of hearing or even in the remand report furnished by the Revenue on the basis of the material on record. Therefore, in the face of the said factual matrix, which is supported by the relevant material on record, and is not controverted by the Revenue, the principle approved by the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra) clearly militates against the disallowance made by the Assessing Officer. Applying the parity of reasoning aid down by the Hon'ble High Court in the case of Reliance Utilities & Power Ltd. (supra) it has to be held in the present case that as there are funds available both interest- free and interest bearing, then the presumption is that the impugned interest-free advances made to the sister concerns are out of interest-free funds available with the assessee company as the interest-free funds are sufficient to cover the impugned interest-free advances made to the sister concerns. Therefore, the disallowance of interest expenditure made by the Assessing Officer becomes untenable.
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The Assessing Officer in para 4.8 of the assessment order has observed that assessee has advanced interest-free fund to the sister concerns out of interest bearing loans taken from various banks. In coming to such conclusion, the Assessing Officer tabulated the total loans from the banks as on 01.04.2004 at Rs.21,89,94,220/- and also noted the balances standing in the current account with the banks as on 01.04.2004 at Rs.7,81,313/-. As per the Assessing Officer, this showed that there was a negative balance in the bank accounts amounting to Rs.21,82,12,907/- as on 01.04.2004. Thereafter, the Assessing Officer has tabulated the movement of the bank accounts and stated that whenever a loan was advanced to any sister concern, assessee was having negative net balance in the bank accounts and therefore accordingly to the Assessing Officer this established a nexus between the borrowed funds and the impugned interest-free advances made to the sister concerns. The aforesaid has been reiterated before us also to support the proposition that the loan funds were utilized for giving interest-free advances to the sister concerns. The case made out by the assessee is that the Assessing Officer has misdirected himself in carrying out the aforesaid exercise. It is explained that when the Assessing Officer tabulated the position of loans raised from bank as on 01.04.2004, he failed to appreciate that the said loan funds were already utilized in the purchase of asset, etc. In this regard, pointing out to the negative balance as on 01.04.2004 noted by the Assessing Officer with regard to the HDFC A/c No. 6000025530 of Rs.8,50,00,000/- as on 01.04.2004 the same is stated to have been utilized for purchase of property for the purposes of business in the past financial year of 2002- 03. Thus, it cannot be said that the same amount was again utilized for making impugned advances to the sister concerns in this year. Even with regard to the loan amounts of Rs.3,90,45,958/- and 3,94,29,590/- in Saraswat Bank A/c No. 3971 and Saraswat Bank A/c No. 44427 respectively as on 01.04.2004, it is submitted that they have also been utilized in the past years for purchase of windmill and the same cannot be said to have been now utilized for payment of interest-free advances to the sister concerns. With regard to the other two bank accounts noted by the Assessing Officer i.e. Bank of Baroda D.L. and Cosmos Bank A/c
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No. 200037 it is submitted that these are overdraft accounts and the advances in question have not been given from such accounts. The aforesaid factual assertions have not been controverted by the Revenue before us either at the time of hearing or even in the remand report furnished. In fact, we find that the assessee has been consistently maintaining that the interest-free advances to the sister concerns have not been advanced out of interest-bearing loan accounts. The assessee had furnished a written submission dated 23.12.2002 to the Assessing Officer which has been reproduced in para 4.6 of the assessment order. In the said written submissions, it has been asserted by the assessee that at no occasion during the year the interest-free advances were made out of interest bearing loan amounts. Further, assessee submitted that the current account maintained with banks were also not funded with interest-bearings funds to facilitate interest-free advances to the sister concerns. The learned counsel at the time of hearing explained the position further and submitted that funds were advanced from the current accounts maintained with the banks, and the same has also been noted by the Assessing Officer in para 4.8 of the assessment order, and in such current accounts interest-free funds were deposited in the form of receipt their customers, interest-free loan advances, etc. and therefore it could not be said that the loan accounts have been utilized for giving advances to the sister concerns.
Considering the factual position in the present case, we are unable to uphold the inference of the Assessing Officer that the interest-free advances to the sister concerns have been paid out of loan funds. Therefore, on this aspect also assessee has to succeed. Another plea raised by the Revenue is that if assessee was owing sufficient surplus interest-free funds to cover the impugned interest-free advances to the sister concerns, there was no need to raise interest bearing loans to that extent, and that such amounts ought to have been utilized for assessee's own business purpose. On this basis, it is sought to be canvassed that instead of advancing the amount to sister concerns, if the same were utilized by the assessee, it would have lowered the interest-bearing borrowings, and to that extent the corresponding interest expenditure is
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not allowable. In our considered opinion, the aforesaid reasoning is not justified having regard to the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd. (supra). Ostensibly, the Assessing Officer cannot sit in the arm chair of the businessman to decide how to manage its affairs. The Hon'ble Bombay High Court noted the judgement of the Hon'ble Calcutta High Court in the case of Woolcombers of India Ltd. vs. CIT 134 ITR 219 (Cal.) which was approved by the Hon'ble Supreme Court in the case of East India Pharmaceutical Works Ltd. vs. CIT 224 ITR 627 (SC) and upheld the proposition that in case both interest-free funds and interest-bearing funds are available discretion lies in the hands of the assessee for utilization of those funds. Thus, the aforesaid plea of the Revenue is untenable.
For all the aforesaid reasons, we are inclined to uphold the stand of the assessee. Accordingly, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of Rs. 54,92,463/- made out of interest expenditure. Grounds of appeal Nos. 1 and 2 in the case of assessee are allowed whereas the appeal of the Revenue in ITA No. 472/PN/2010 is dismissed.”
The Revenue is fair enough in not pin-pointing any distinction on facts or in law in all these assessment years and more particularly, in light of the impugned disallowance made only qua opening balances. We thus affirm CIT(A)’s findings deleting the impugned interest disallowance by adopting judicial consistency.
Next comes the latter identical issue pertaining to assessee’s section 80IA deduction claim disallowance which stands deleted in the CIT(A)’s detailed discussion as follows :-
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GROUND NO.4 :- The contention raised by the assessee in this ground, is regarding denial of claim deduction u/s 80IA of the Act, Rs.1,12,47,574/-.
8.1 AO’s FINDING :- In this computation of income the assessee had claimed set off of carried forward loss against the current business income of Rs.25,95,525/-. The deduction claimed u/s.80IA of the Act is adjusted against income from house property of Rs.33,17,498/- and income from other sources of Rs.4,87,478/-. The assessee relied on the decision of Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. Vs ACIT 38 DTR 57 wherein the deduction is allowable. It had been contended that as far as the initial assessment year for the purposes of said deduction, the same will be the year in which deduction has been claimed by the assessee for the first time and not the year of installation of the wind mill facility. The assessee company has arrived at this amount of deduction claimed by adding back the depreciation of Rs.57,51,123/- to the profit of Rs.54,96,451/- shown in the profit and loss account of the Bhambe Branch. The assessee had claimed that provisions of section 80IA(5) of the Act do not find application to the case of the assessee in view of the decision referred to by the assessee. The AO was of the view that the contention of the assessee that the losses of the eligible unit on standalone basis to the extent adjusted against its income from other units till the initial assessment year cannot be notionally carried forward to be set off against the income of the units is contrary to the provisions of Section 80IA(5) of the Act. In view of this discussion the claim of the assessee of deduction u/s 80-IA(5) of the Act cannot be admitted.
8.2 LD AR’s SUBMISSION:- During the appellate proceedings, the appellant, in this connection submitted as below-
“Assessee installed 8 Wind Turbine Generators of Capacity 0.35 MW each during A.Y.2001-02. Assessee claimed deduction u/s 80-IA for the first time in A.Y. 2004-05, which was withdrawn during the course of assessment as the past losses (depreciation) were not fully absorbed.
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Assessee made a claim of deduction u/s 80-IA amounting to Rs.1,43,62,694/- in A.Y. 2005-06. The said deduction was denied by the Assessing Officer. The CIT(Appeals) confirmed the Order of the Assessing Officer on this issue. Assessee carried the matter in appeal before the Hon’ble ITAT has upheld the proposition canvassed by the Assessee. Relying on earlier decisions of the Pune Bench of the ITAT in identical situation (Shri Sangram Patil and Serum International Ltd) and also judgement of the Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills(P) Ltd vs ACIT 38 DTR 57M (Mad), the Hon’ble ITAT set aside the Order of the CIT (A) (confirming the denial of deduction made by the AO in A.Y.2005-06) and directed the AO to examine the plea of the Assessee for deduction u/s 80IA on the basis of the parity of reasoning laid down in the aforesaid precedents. It may be noted that the department had filed a SLP in the Supreme Court against the aforesaid decision of the Hon’ble Madras High Court, which has been dismissed by the Hon’ble Supreme Court 76 taxmann.com176(SC). The relevant head-note reads thus: Section 80-IA of the Income Tax Act, 1961-Deductions-Profits and gains from infrastructure undertakings – AY’s 2004-05 and 2005-06 - High Court by impugned order held that loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5) – Whether Special Leave Petition filed against impugned order was to be dismissed – Held, Yes. In view of the above, the decision in Velayudhswamy has now attained finality and the assessee is entitled to the deduction u/s 80-IA.
It is clear that initial year is not necessarily the year of setting up of the undertaking. As held by the Hon’ble ITAT is our own case the initial year is A.Y. 2004-05 (year when claim of deduction was made for the first time) though the year of setting up of the undertaking was A.Y.2001-02. Secondly losses of years prior to initial year (A.Y. 2004-05 in our case) which was otherwise absorbed in the respective years cannot be reduced while quantifying the amount of deduction.
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The deduction as claimed by the assessee deserves to be allowed in the manner as directed by the Hon’ble ITAT in assessee’s case for AY 2005- 06.”
8.3 DECISION :- I have decided this issue in favour of appellant for A.Y. 2006-07 in Appeal no. PN/CIT(A)-4/DCIT,Circle-6, Pune /328/ 2009-10 Date of Order : 17/02/2017, holding in para 7.3 of the said order as below –
“7.3 DECISION :- I have perused the assessment order and the submission made by the appellant as above carefully. I find from the submission of the appellant has quoted above that the issue has been decided for A.Y.2005-06 by the Hon’ble ITAT in favour of the appellant though the lower authority had decided the issue of disallowance of deduction 80-IA of the Act against the appellant. The Appellant, in this regard, as submitted as below –
“Assessee installed 8 Wind Turbine Generators of Capacity 0.35 MW each during A.Y. 2001-02. Assessee claimed deduction u/s 80-IA for the first time in A.Y. 2004-05, which was withdrawn during the course of assessment as the past losses (depreciation) were not fully absorbed. Assessee made a claim of deduction u/s 80-IA amounting to Rs.1,43,62,694/- in A.Y. 2005-06. The said deduction was denied by the Assessing Officer. The CIT(Appeals) confirmed the Order of the Assessing Officer on this issue. Assessee carried the matter in appeal before the Hon’ble ITAT. Hon’ble ITAT has upheld the proposition canvassed by the Assessee. Relying on earlier decisions of the Pune Bench of the ITAT in identical situation (Shri Sangram Patil and Serum International Ltd.) and also the judgement of the Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd vs ACIT 38 DTR 57 (Mad.), the Hon’ble ITAT set aside the Order of the CIT(A) (confirming the
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denial of deduction made by the A.O. in A.Y. 2005-06) and directed the Assessing Officer to examine the plea of the Assessee for deduction under Section 80-IA on the basis of the parity of reasoning laid down in the aforesaid precedents. It may be noted that the department had filed a SLP in the Supreme Court against the aforesaid decision of the Hon’ble Madras High Court, which has been dismissed by the Hon’ble Supreme Court 76 taxmann.com 176(SC). The relevant head-note reads thus: Section 80-IA of the Income Tax Act, 1961- Deductions Profits and gains from infrastructure undertakings- Assessment years 2004-05 and 2005–06 - High Court by impugned order held that loss in year earlier to initial assessment year already absorbed against profit of eligible business as no such mandate is provided in Section 80- IA(5) – Whether Special Leave Petition filed against impugned order was to be dismissed – Held, Yes. In view of the above, the decision in velayudhswamy has now attained finality and the assessee is entitled to the deduction u/s 80-IA.
It is clear that initial year is not necessarily the year of setting up of the undertaking. As held by the Hon’ble ITAT is our own case the initial year is A.Y.2004-05 (year when claim of deduction was made for the first time) though the year of setting up of the undertaking was A.Y.2001-02. Secondly losses of years prior to initial year (A.Y. 2004-05 in our case) which was otherwise absorbed in the respective years cannot be reduced while quantifying the amount of deduction.
The deduction as claimed by the assessee deserves to be allowed in the manner as directed by the Hon’ble ITAT in assessee’s case for A.Y.2005-06.”
7.3.1 Since the issue has been decided in earlier years in favour of the appellant by the Hon’ble ITAT, respectively following the decision of the Hon’ble ITAT, the AO is directed to allow the appellant the deduction u/s.80-IA of the Act. The AO shall compute the amount of deduction as
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directed by the Hon’ble ITAT in the assessee’s own case for A.Y.2005-06. Ground no.4 raised by the appellant is accordingly allowed.
Suffice to say, it has come on record that the tribunal’s order (supra) has already decided the instant latter issue as well in assessee’s favour and against the department without any distinguishing features all along. We thus conclude that the CIT(A) has rightly adopted judicial consistency in deleting the instant section 80IA deduction disallowance. No other ground has been pressed before us.
These Revenue’s twin appeals are dismissed in above terms. A copy of this common order be placed in the respective both files. Order pronounced in the Open Court on this 8th day of June, 2022.
Sd/- Sd/- S (DR.DIPAK P.RIPOTE) (S.S. GODARA) लेखध सदस्य/ ACCOUNTANT MEMBER न्यधनयक सदस्य/JUDICIAL MEMBER पपणे / Pune; ददनधांक / Dated : 8th June, 2022. Ashwini आदेश की प्रनतनलनप अग्रेनषत / Copy of the Order forwarded to : अपऩलधथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. 3. The CIT(A)-4, Pune. 4. The Pr.CCIT, Pune. 5. नवभधगऩय प्रनतनननध, आयकर अपऩलऩय अनधकरण, “ए” बेंच, पपणे / DR, ITAT, “A” Bench, Pune. गधर्ा फ़धइल / Guard File. 6. आदेशधनपसधर / BY ORDER,
// True Copy // Senior Private Secretary
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आयकर अपऩलऩय अनधकरण, पपणे / ITAT, Pune.
S.No. Details Date Initials 1 Draft dictated on 06.05.2022 2 Draft placed before author 24.05.2022 Draft proposed & placed before the Second 3 Member 4 Draft discussed/approved by Second Member 5 Approved Draft comes to the Sr. PS/PS 6 Kept for pronouncement on 7 Date of uploading of Order 8 File sent to Bench Clerk 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order