ACIT, JAIPUR vs. RAJASTHAN STATE ROAD DEVELOPMENT & CONSTRUCTION CORP. LTD., JAIPUR

PER SHRI KUL BHARAT, JM.

Since there was a difference of opinion between the learned Members,

constituting a Division Bench of I.T.A.T., Jaipur, the Hon’ble President, I.T.A.T.

nominated Shri Bhavnesh Saini, Judicial Member as Third Member. The Hon’ble

2 ITA No. 132/JP/2013 & CO 14/JP/2013 M/s. Rajasthan State Road Development & Construction Corpn. Ltd.

Third Member vide order dated 22.02.2017 concurred with the findings of the

Hon’ble Accountant Member and held as under :-

“ 7. I have considered rival submissions of both the parties and perused the material available on record. Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mill Pvt. Ltd. vs. ACIT 340 ITR 477 held as under :-

“ 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 nationally 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. On appeal : 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 the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(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 nationally brought forward and set off against the profits of the eligible business as no such mandate was provided in section 80-IA(50. The order of the Tribunal was to be set aside”.

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referred to Annexure-2 attached with the impugned order which I detailed chart of deduction claimed under section 80IA of the Act for assessment year 2006-07 to 2009-10. In respect of Chall Neem Ka Thana Project, the assessee has shown loss in assessment year 2006-07 and 2007-08 and did not claim any eligible profit. Remark is also given that lesser amount is claimed as deduction under section 80IA being amount restricted to gross total income. The ld. Counsel for the assessee also referred to Annexure-1 attached with the impugned order which are computation of income for assessment year 2006-07 and 2007-08 filed with the return of income which is supported by Annexure ‘H’ in which the assessee claimed deduction under section 80IA of the Act in respect of other projects, however, for the project of Chall Neem Ka Thana, assesee has shown losses and no deduction under section 80IA I stated to have been claimed. It I, therefore, clear that assessee did not make claim of deduction under section 80IA in respect of Chall Neem Ka Thana Project under section 80IA being there was a loss in both the assessment years 2006-07 and 2007-08. In the audit report for assessment year under appeal, the auditor has mentioned 01.05.2005 as date of commencement of operation by the undertaking or enterprises. These material on record clearly show that assessee chose the A.Y. 2008-09 as initial year for Chall Neem Ka Thana Project when it came in profit. In assessment year 2006-07 and 2007-08, there was loss, which has already been admittedly adjusted against the other business income of the assessee under section 80AB of the Act being gross total income. When the loss for both the years has been adjusted against the respective years, business profit of other units or other business income, there is no loss to be carried forward by the assessee. However, Assessing Officer notionally adjusted the business loss for assessment year 2006-07 and 2007-08 of Chall Neem Ka Thana Project in computing deduction under section 80IA(5) by observing that profit of eligible business shall be computed as if such eligible business were the only source of income of the assessee. As per sub-section (2) of Section 80IA of the Act, the option is given by law to the assessee to choose initial

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assessment year for claim of deduction under section 80IA of the Act for any ten consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility etc. Since there was a loss in Chall Neem Ka Thana Project in assessment year 2006-07 and 2007-08 and no claim of deduction under section 80IA of the Act could be made, therefore, there is no question for assessee choosing A.Y. 2006-07 and 2007-08 initial years where there is a loss on this project. The incentive is given by the law to encourage the investment in infrastructure and has allowed deduction under section 80IA(4) of the Act on profits, therefore, assessee correctly chosen A.Y. 2008-09 as initial assessment year in which assessee earned the profit for the first time on this project which have also been allowed by the Assessing Officer, therefore, any mistake in the audit report mentioning initial assessment year 2006-07 would not be relevant. Further, I find that even the CBDT vide its Circular No. 1/2016 dated 15.02.2016 has clarified this issue and held that the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction under section 80IA. The circular of the board is therefore clear that the term ‘ initial assessment year ‘ would be with reference to the first year opted for by the assessee when assessee earned profit for claiming deduction under section 80IA of the Act. The deduction under section 80IA is thus, related to the profits only. 9. Considering the above discussion, it is clear that there was no dispute that losses incurred by assessee in earlier years have already been adjusted against the business profits of other units in earlier years therefore, no loss is to be carried forward by the assessee. In assessment year 2008-09, assessee exercised the option under section 80IA(2). During the relev ant period, there was no unabsorbed loss of eligible undertaking because loss was already adjusted in earlier years. There was a positive profit during assessment year 2008-09 and in assessment year under appeal. The loss in assessment year the years 2006-07 and 2007-08 earlier to the initial assessment years already adjusted against the business profits of other units or other business income

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could not be notionally brought forward and set off against profits of eligible business as no such mandate was provided in Section 80IA(5) of the Act. Thus, there is no change in initial assessment year opted by the assessee i.e. 2008-09 and there is no change in the pleading of the assessee. The issue is, therefore, squarely covered in favour of the assessee by judgement of Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) which is also confirmed by Hon’ble Supreme Court. The ld. DR, however, relied upon another decision of Hon’ble Madras High Court in the case of CIT vs. Kongoor Textile Process 377 ITR 559 in which the core issue was, “whether on the facts and circumstances of the case, the Tribunal is right in law in holding that respondent assessee is entitled to claim deduction under section 80IA of the Act ?” It was brought to the notice of the Hon’ble High Court that issue involved has already been decided by Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd (supra) however, it was submitted on behalf of the revenue that appeal has been preferred before Hon’ble Supreme Court and same is pending. Hon’ble High Court found the facts of this case to be identical with the case of Velayudhaswaamy Spinning Mills Pvt. Ltd. (supra) and no distinction on facts was found in following the decision in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra). Appeal of the revenue was dismissed. This judgement will not render any help to the revenue. 10. In view of the above, I hold that the assessee rightly choose assessment year 2008-09 as initial assessment year when it came into profit and claimed deduction under section 80IA of the Act and claim have been allowed by the Assessing Officer. I further hold that losses pertaining to the earlier years of eligible business, are not to be notionally set off/adjusted from the income of eligible business for the year under consideration. I, therefore, agree with the view of ld. Accountant Member that Revenue’s appeal should be dismissed and Cross Objection of the assessee to be allowed.”

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dismissed and Cross Objection of the assessee is allowed.

Order pronounced in the open court on 03.03.2017.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 03/03/2017. d/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत