PRAGATI AROMA OIL DISTILLERS (P) LTD,MUMBAI vs. DCIT 4(3), MUMBAI

O R D E R

PER RAMIT KOCHAR, Accountant Member These two cross appeals, filed by the Assessee and Revenue, being ITA 319/Mum/2016 for no. respectively assessment year 2011-12 are directed against the appellate order dated 30.11.2015 passed by learned Commissioner of Income-tax (Appeals)-9, Mumbai (hereinafter called “the CIT(A)”) for assessment year 2011-12, appellate proceedings had arisen before learned CIT(A) from the assessment order dated 14.03.2014 passed by learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).

2. The grounds of appeal

1. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in disallowing depreciation @ 70% on the cost of civil construction completely ignoring the fact that the civil construction is integral part of windmill and is eligible for higher rate of depreciation @ 80%.

2. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in applying rule 8D for making disallowance of Rs. 9,30,874/- u/s 14A of the Income Tax Act, 1961.

3. On the facts and circumstances of the case, the learned CIT (A) erred in affirming the decision of the Assessing Officer in disallowing other income of Rs. 9,51,184/- for deduction u/s 10B and taxing it separately.

4. The appellant craves leave to add to, alter, to delete from or substantiate the above ground of appeal.”

3. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) in for AY 2011-12, read as under:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the addition of Rs.39,60,033/- made u/s.80IA of the Income tax Act without

appreciating the fact that the notional depreciation, which the assessee had claimed on the said windmill before claiming deduction u/s.80IA in first year i.e. A.Y. 2010-11, had not been adjusted with the previous year profit of the windmill before claiming deduction u/s.80IA of the Income Tax Act, 1961." 2. "The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."

4. The assessee is manufacture of Essential Oils, Perfumery Compounds, distillers of sandalwood oil, etc. . It has a factory at Kannauj, Silvassa and Nilatottoi. The assessee is also owning six wind mills through which electricity is generated and sold to different State Electricity Boards. The assessee is also dealing in purchase and sale of properties. Disallowance u/s. 14A 5. The assessee has claimed exempt an income amounting to Rs. 68,71,376/- in accordance with provisions of Section 10 of the Act. However, the assessee did no attributed any expenditure towards earning of such exempt income. The AO rejected contentions of the assessee that there is no expenditure incurred for earning such an exempt income and held that there are always an element of indirect expenditure for earning such an exempt income which assessee had neither identified nor offered to tax. The AO invoked provision of Section 14A of the 1961 Act r.w.r. 8D of Income-tax Rules, 1962. The assessee was show caused by the AO and in reply , the assessee submitted that it received dividend income of Rs. 68,71,376/- which is exempt from tax . The assessee also submitted before the AO that it has an investment of Rs. 18,66,69,418/- in „HDFC Cash Management Fund‟ which was made out of its own funds which were available with the assessee to the tune of Rs. 50.51 crores and it was submitted that out of these owned/mixed funds, the assessee had made investments in mutual funds from time to time. It was submitted that since own funds are used for making investments, no separate disallowance can be made u/s 14A . The assessee relied upon decision of the Hon‟ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. 221 CTR 435(Bom), and contended that the presumption will apply that the assessee has invested its own funds for making investments from where earning of an exempt income has arisen and no separate disallowance of expenditure u/s 14A is warranted. The AO however invoked provisions of Section 14A of the 1961 Act r.w.r. 8D of the 1962 Rules and made disallowances as under:

“DISALLOWABLE EXPENDITURE (as per Rule 8)

(Amount in Rs.} (i) Expenditure directly attributable to exempt income: ---- (ii) Interest not directly attributable to exempt income:

Interest X Average value of investment attributable to exempt income Average of Total Assets appearing in Balance Sheet 45,17,817 x 11,54,83,730 / 147,60,95,782 Rs.3,53,455 (iii) 0.5% of average value of investments

(11,54,83,730/-X 0.5%) Rs.5,77,419 Aggregate of expenditure disallowable : Rs.9,30,874 Thus, the disallowance u/s 14A r.w. Rule 8D came to Rs. 9,30,874/- which was added to the income of the assessee by the AO vide assessment order dated 14-03-2014 passed u/s. 143(3) of the 1961 Act.

Disallowance of depreciation on civil components of windmills:

6. The assessee owns six wind mills at various locations in Tamil Nadu and Karnataka , the details of which are as under:

Supplier Site Name Capacity No. Of Date Of Machine Commissioning Enercon TN-Erode, Dharapuram 800 KW 1 19/9/2005 Vestas KAR - Davangiri, Harihar 600 KW 2 30/9/2006 Vestas KAR-Gadag, Gajendragad 600 KW 1 30/3/2007 Vestas KAR-Gadag, Gajendragad 600 KW 2 19/5//2007 The assessee had claimed depreciation @80% of WDV on the total cost of the four windmills and claimed depreciation @7.69% SLM on total cost of two windmills, the details of which are as under:-

Particulars Vestas - KAR- Enercon - TN Vestas - KAR Vestas - KAR Dharampuram Davengere - Gadag (Mar-07) Gadag (May-07) [1 Windmill] [2 windmill] [Sept 2005] [Sept-06] [1 Windmill] [2 Windmill] Depreciation Depreciation Depreciation Depreciation 80% WDV 80% + 20% 80% + 20% 7.69% + 20% WDV WDV SLM Cost Break-up 3,60,00,000/- 5,61,00,000/- 2,80,50,000/- 5,61,00,000/- Plant & Machinery 14,00,000/- 29,00,000/- 14,50,000/- 29,00,000/- Civil / electrical work 3,74,00,000/- 5,90,00,000/- 2,95,00,000/- 5,90,00,000/- Depreciation Claimed by assessee

2,99,20,000 Apr- 2005 to Mar-2006 Apr- 2006 to Mar-2007 59,84,000 5,90,00,000 1,47,50,000 Apr-2007 to Mar-2008 11,96,800 - 1,18,00,000 45,77,641 Apr-2008 to Mar- 2009 2,39,360 - 23,60,000 45,77,641 Apr-2009 to Mar-2010 47,872 - 4,72,000 45,77,641 Apr-2010 to Mar-2011 9,574 94,400 45,77,641 The assessee claimed depreciation @80% on four windmills on entire cost of windmills including cost of civil construction and electrical works .As per AO, cost of civil construction does not from part of Plant & Machinery and depreciation @80% claimed by the assessee was held to be not allowable and 5 normal depreciation was held to be allowable by the AO on civil construction work related to windmill as under the Block of Assets of Building. The AO observed that in preceding years i.e. AY 2006-07 to AY 2010-11, the claim of the assessee was already disallowed by the AO w.r.t. depreciation claim @70% of civil construction related to windmill . The assessee however submitted that windmill is a custom made machine which is erected at a site which has a very good wind velocity, the final structure of machine is very heavy and need to be supported by solid foundation of concrete and iron, so as to withstand strong winds and weight of Plant & Machinery itself. The assessee submitted that an internal road is essential for connecting electrical apparatus of the windmill to the grid of the electricity board and the entire civil and electrical work is an integral part of Plant and Machinery. It was submitted that wind mills cannot be run without erection and installation which involves civil and electrical construction. The assessee also relied upon decision of the ITAT Ahmadabad in the case of ACIT v. Parry Engineering & Electronics P. Ltd. in wherein the tribunal has held as under:-

"The depredation is allowable on renewable energy device which also includes windmill. The depreciation at the rate of 80% is allowable on the entire device which is capable of generating electricity using wind energy. There is no provision in the Act to bifurcate the device into several parts and allow depreciation thereon at different rates of depreciation. The foundation, civil and electrical works are necessary for the installation of the windmill and is clearly part and parcel of the windmill project on which depreciation at the rate of 80% is allowable."

It was submitted by the assessee that AO relied upon decision of ITAT Pune in the case of Poonawala Finvest & Agro P. Ltd. v. ACIT [2008] 118 TTJ 68 [Pune] for taking a view against assessee in earlier years. It was submitted that the decision in the case of Parry Engineering & Electronics P. Ltd.(supra) was rendered after the decision of ITAT Pune in the case of Poonawala Finvest & Agro P. Ltd.(supra) and hence claim of the assessee for depreciation @80% on civil construction work related to windmill be allowed.

The AO rejected the contentions of the assessee and made disallowance @ 70% towards excess depreciation claimed by the assessee towards cost of civil construction and revised depreciation was allowed by the AO on windmills, as under:-

Particulars Civil work Wind Total Revised 10% Turbine 80% Depreciation. Enercon TN-Dharampuram :Sep 2005[ 1 Windmill] Opening WDV 8,26,686 01.04.2010 11,520 91,858 Depreciation 82,669 9,216 Vestas KAR-Davangari:Sep 2006[ 2 Windmill] Opening WDV 19,02,690 01.04.2010 1,90,269 Depreciation 1,90,269 Vestas KAR-Gadag:Sep 2007[ 1 Windmill] Opening WDV 1,12,200 01.04.2010 9,51,345 1,84,865 Depreciation 95,135 89,760 Total revised depreciation on 4 windmills 4,67,048 The AO allowed depreciation of Rs. 4,67,048/- as against depreciation of Rs. 1,03,974/- claimed by the assessee, by re-working the entire w.d.v. of the assets , vide assessment order dated 14-3-2014 passed by the AO u/s 143(3) of the 1961 Act.

Disallowance of deduction u/s. 80IA 7. The AO observed during assessment proceedings u/s 143(3) r.w.s. 143(2) that the assessee had claimed an amount of Rs. 39,60,033/- as deduction u/s. 80IA(4)(iv) of the 1961 Act on the profits of Wind Mill (Enercon) Erode, Dhampuram-TN (Sept 2005). This is the 2nd year of the claim of deduction under section 80IA . The assessee duly submitted audited accounts of the wind will along with audit report u/s. 10CCB . The AO observed that notional depreciation, which the assessee had claimed on the said wind mill before claiming deduction u/s. 80IA in first year i.e. AY 2010- 11 had not been adjusted with the previous year profit of the wind mill before claiming deduction u/s. 80IA . The AO also observed that the AO had already disallowed claim of deduction u/s. 80IA for AY 2010-11. The assessee submitted that in the preceding year i.e. AY 2010-11 the said claim was disallowed by the AO by stating that the unabsorbed depreciation of the windmill which has been set-off with other business incomes in previous years should first notionally be reduced from profit of windmill before computing quantum of profit eligible for deduction u/s. 80IA. The assessee submitted that deduction u/s. 80IA is available for any ten consecutive assessment years out of 15 years beginning from the year ending in which the undertaking or enterprise develops or begins to operate any infrastructure facility etc. . Once the assessee has opted for the first year of relief then it continues for further 9 consecutive years. The first year in which the relief is claimed for the first time is called „initial assessment year‟ and in this initial year , the undertaking has to be treated as a separate sole source of income within provisions of Section 80IA(5) and therefore, depreciation and loss of earlier years cannot be notionally carry forward to be set off against income of that initial assessment year or later assessment year for computing deduction u/s. 80IA. It was submitted by the assessee that it fulfilled all the requirements to enable to claim deduction u/s 80IA. Thus it was submitted that it is in AY 2010-11 relief u/s 80IA was claimed for the first time. Thus, the provisions of Section 80IA(5) treating the undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee had opted to claim deduction under this section for the first time. It was submitted that Depreciation and carry forward of losses of the unit of previous years, cannot notionally be carried forward and set off against the income from the year in which the assessee started claiming deduction u/s. 80IA. It was submitted that in appellate proceedings for AY 2010-11, the ld. CIT-A had allowed the claim of the assessee and thus it was prayed that the claim of the assessee for deduction u/s 80IA be allowed. The AO rejected the contentions of the assessee and held that for claiming deduction u/s. 80IA the undertaking has to be treated as a separate entity and Section 80IA(5) requires that eligible deduction of undertaking should be computed by treating the undertaking as only source of income of the assessee. Thus , as per AO the depreciation of claim of the windmill though set off with the income of other businesses should first notionally be reduced from profit of windmill before computing quantum of profit eligible for deduction u/s. 80IA. It was observed by the AO that the assessee has not set off profits of Rs. 39,60,033/- of windmill at Erode-TN. The depreciation on the said wind mill was claimed and set off from other businesses of the assessee The AO observed that however for claiming deduction u/s. 80IA , the said depreciation should have been notionally reduced from the profits of the windmill before computing quantum eligible for deduction u/s. 80IA which has not been done by the assessee and hence claim of deduction u/s. 80IA was disallowed by the AO vide assessment order dated 14-03-2014 passed by the AO u/s 143(3) of the 1961 Act. The AO observed that assessee vide its written submission has stated that similar issue in AY 2010-11 is decided by learned CIT-A in favour of the assessee but the said appellate order of the learned CIT-A was not accepted by the department and Revenue has preferred an appeal before the ITAT. Exemption u/s. 10B: 8. The AO observed that assessee has claimed an amount of Rs. 4,83,46,432/- as exemption u/s. 10B on the profit of the Nilakottai Unit. The assessee had filed separate audited Balance Sheet & Profit and Loss account of the unit along with auditors certificate in form no. 56G. This is the 9th consecutive year of the claim of exemption u/s. 10B. The assessee submitted that the said unit located at Nilakottai is an export oriented unit duly registered with appropriate authority and the claim for exemption u/s 10B was allowed by learned CIT-A for AY 2010-11. It was submitted that Revenue has not preferred any appeal against the said order of learned CIT(A) and the matter has reached finality. The AO allowed the claim of the assessee but however AO observed that the assessee had filed the claim of exemption u/s 10B with respect to the interest income of Rs. 9,16,076/- and miscellaneous income of Rs. 35,108/- as business income aggregating of Rs. 9,51,184/- which stood disallowed by the AO to the tune of Rs. 9.51,184/- because as per AO only profit derived from the business are eligible for exemption u/s 10B. Thus, the AO added the said sum of Rs. 9,51,184/- to the income of the assessee by disallowing the exemption u/s 10B to that effect by holding that the said income from interest and miscellaneous income are not derived from business. It was also observed by the AO that learned CIT-A has noted while allowing the claim of the assessee that Hon‟ble ITAT had already allowed the relief on account of claim of deduction u/s 10B for the first year i.e. AY 2003-04 and in subsequent years and departmental appeal for those years is also dismissed by Hon‟ble Bombay High Court. So the claim for exemption u/s. 10B was allowed to the assessee by the AO while disallowance was made by the AO to the tune of Rs. 9,51,184/- being interest income and miscellaneous income as the said income were stated to be not derived from business and hence not eligible for exemption u/s 10B, vide assessment order dated 14-03-2014 passed by the AO u/s 143(3).

9. Aggrieved by the assessment order dated 14-03-2014 passed by the AO u/s 143(3), the assessee filed an first appeal before learned CIT-A . The assessee made detailed submissions with respect to its claim for allowability of depreciation @80% on civil construction work related to windmill but the learned CIT-A disallowed the claim of the assessee by following the decision of ITAT Pune Bench in the case of Poonawala Finvest & Agro P. Ltd. v. ACIT [2008] 118 TTJ 68 [Pune] and also by following the decision taken by learned CIT(A) in assessee‟s own case for the AY 2006-07 to 2011-11 , to keep the issue alive till the issue reaches finality in assessee‟s own case and AO was directed to re-compute depreciation as per the decision of Hon‟ble ITAT Pune Bench with respect to the disallowance of depreciation on civil construction work related to windmill , vide appellate order dated 30.11.2015 passed by learned CIT(A).

10. With respect to the disallowance u/s 14A of 1961 Act r.w.r. 8D of the 1962 Rules amounting to Rs.9,30,874/- as detailed here under:- (i) Expenditure directly attributable to exempt income (ii) Interest not directly attributable to exempt income Interest X average value of investment attributable to exempt income Average of total assets appearing in Balance sheet Rs. 45,17,817/- X Rs. 11,54,83730/- / 1,47,60,95,782/- Rs. 3,53,455/- (iii) 0.5% of average value of Investments Rs. 5,77,419/- (Rs. 11,54,83,730/- X 0.5%) Rs. 9,30,874/- The assessee submitted before learned CIT-A that the assessee received dividend income of Rs. 68,71,376/- and an amount of Rs. 18.66 crores has been shown as investment in „HDFC Cash Management Fund‟ . The assessee has its own funds to the tune of Rs. 50.51 crores (share capital and reserves) and it was submitted that out of its own/mixed funds, the assessee had made investment in mutual funds from time to time and owned funds were used for making investments and hence no separate disallowance u/s. 14A is warranted. The assessee relied upon the decision of Hon‟ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) and submitted that since owned funds are more than investments presumption shall apply that the assessee has invested in Mutual funds out of owned funds. It was submitted by the assessee before learned CIT(A) that assessee invested in liquid funds of mutual funds in the earlier years and it is merely continuing with the said investment in existing portfolios and no disallowance is warranted u/s. 14A r.w.r. 8D of the 1962 Rules. It was also submitted that these are liquid fund of HDFC Cash Management fund and used by the assessee to park its surplus funds and no such market research , day to day analysis of market trends are required. The assessee also relied upon the decision of the Hon‟ble Punjab & Haryana High Court in the case of CIT v. Hero Cycles Ltd. 323 ITR 518 wherein it was held that disallowance u/s 14A can be made only when a clear nexus between the expenditure incurred and the exempt income exists.

The learned CIT-A, however, rejected the contentions of the assessee as in the preceding years from AY 2006-07 to 2010-11 , the identical issue was decided by learned CIT-A against the assessee by holding as under:- "I have carefully considered the fact of the case as well as submissions of the appellant. The main argument being put forward by the appellant is that out of the total liability in the balance sheet, interest free liability was sufficient to meet the investments made every year. This argument of the appellant is based on the Bombay High Court's decision in the case of CIT vs. Reliance Utilites & Power Ltd. that if interest free funds are available with the appellant which is sufficient to meet the investment at the time when the loan was raised, then presumption will be that investment would be out of the interest free funds. However this decision was rendered in the context of interest disallowance in respect of loans advanced to sister concerns and is distinguishable. Further, this judgment was not rendered in the context of section 14A r.w. Rule 8D and therefore no ratio could be said to have been laid down. Therefore the appellant cannot draw any support from the above quoted judgment. Reliance has also been placed in Delhi High Court's decision in Maxopp Investments Ltd. 203 Taxmann 364. However, it is seen that this decision pertained to AY 1998-99 to AY 2005-06 whereas section 14A(2) and (3) were introduced with prospective effect from AY 2007- 08. This decision cannot therefore provide support to the appellant's case. The jurisdictional Bombay High Court has held in Godrej & Boyce Mfg. Co. Ltd. vs. CIT 234 CTR 1 that rule 8D is applicable for and from A.Y.2008-09. The relevant statute that was applicable from the AY 2008-09, 2009-10 & 2010-11 show that section 14A(2) & 14A(3) read with Rule 8D have to be invoked by the assessing officer. The action of the assessing Officer is thus upheld on this account.” Thus, the learned CIT(A) by following the decision of his predecessor for AY 2006-07 to 2010-11 , dismissed the appeal of the assessee by upholding the disallowance made by the AO u/s 14A , vide appellate orders dated 30.11.2015.

11. With respect to disallowance u/s 80IA of set off depreciation of earlier years on notional basis which was already set off against income from other businesses of the assessee , the assessee submitted before learned CIT-A that this claim was allowed in the appellate proceedings for the assessment year 2010-11 by learned CIT-A in assessee‟s favour. The learned CIT-A by following the decision of his predecessor in the case of the assessee for AY 2010-11, allowed the relief to the assessee by holding as under:-

“ I have carefully considered the facts of the case and the submission made by the appellant. The controversy in the present case is only in respect of earlier year's depreciation and not the initial year which was the subject matter in Goldmine Shares case. The preposition that losses on windmill before the initial assessment year which have already been set off against other incomes shall not be considered for purpose of section 80-IA are laid down by jurisdictional Pune Bench of ITAT in the case of Malpani Sales Corporation and affirmed by the Hon'ble Madras High Court in Velayudhaswamy spinning Mills (p) Ltd. In view of the above position, the assessing Officer is directed to allow deduction u/s 80-IA without deducting brought forward losses or unabsorbed depreciation prior to AY 2010-11 on notional basis. Accordingly ground no. 4 for the AY 2010-11 is allowed in favour of the assessee."

With respect to the claim of assessee for grant of depreciation @80% on the civil construction work w.r.t. windmill , it was brought to the notice of the Bench that the tribunal for AY 2006-07 to 2010-11 has allowed the claim of the assessee in vide its orders dated 21-02- 2017, by holding as under:-

“5. We have heard the rival contentions and perused the relevant material on record including cited case laws. Although, we are conscious of the fact that the cross appeals should be heard together, yet it is also a fact that as of today, no appeal by revenue is pending before the Tribunal. Further, the revenue is not in appeal for AY 2006-2007 and hence there is no bar in any manner to adjudicate the issue for AY 2006-2007. It is also noted that the appeals of the assessee were initially filed at Pune Benches but subsequently transferred to Mumbai Benches as per the assessee's request letter dated 11/06/2013. The Hon'ble President's order dated 26/03/2014 permitted / directed the registry to transfer the appeals of the assessee to Mumbai Benches. Therefore, we are of the view that the same could be disposed off independently particularly in view of the fact that the same are pending since a long time and ample time has already been granted to the revenue to recall the orders of the Pune Tribunal dismissing the appeal of the revenue.

other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric, fittings are so closely interconnected and linked as to form the common plan. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessees claim for higher depreciation on such investment was, therefore, rightly allowed." Similar conclusions have been drawn in the other judicial pronouncements including that of cited judgment of Hon'ble Delhi High Court relied upon by the assessee. Therefore, respectfully following the same and on the facts and circumstances of the case, we find that the assessee was entitled for higher rate of depreciation on civil construction. Hence by deleting the impugned additions, we allow the assessee's appeal for all the years. The revenue is at liberty to take recourse to law on the basis of its outcome of miscellaneous application filed before the Pune Benches.”

The Ld. DR fairly agreed that the above issue is covered in favour of the assessee by decision of the tribunal in assessee‟s own case . After hearing both the parties and Respectfully following the decision of the tribunal in assessee‟s own case, we allow the claim of the assessee in line with the decision of the tribunal in dated 21.02.2017 for AY 2006-07 to 2010-11. The assessee succeeds on this ground. We order accordingly.

6. Accordingly, the civil appeals filed by the assessee stand allowed with no order as to costs.”

Thus, this ground of appeal filed by the assessee is allowed for statistical purposes following the ratio of decision of Hon‟ble Supreme Court in the case of India Comnet International(supra) and matter is restored to the file of the AO for necessary examination/ verifications. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings and the assessee will be allowed to file all necessary documents/evidences in support of its contentions. We order accordingly.

16. With respect to the ground of appeal raised by the Revenue concerning disallowance of notional depreciation which was already set off in earlier years against other business income u/s. 80IA , the assessee relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Hercules Hoists Ltd. in vide orders dated 14.06.2017, the Hon‟ble Bombay High Court while passing the decision in the case of Hercules Hoists Ltd. (supra) has followed the decision Hon‟ble Madras High Court in the case of Velayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills P. Ltd. (2012) 340 ITR 477 and it was pleaded deduction u/s. 80IA be allowed without deducting depreciation of earlier years on notional basis. Ld. DR on the other hand relied upon the orders of the AO. We have heard both the parties and perused the material on record. We are of the considered view that the depreciation of eligible unit which stood adjusted against other business income from non eligible in the earlier years can not now be adjusted on notional basis against the income of eligible unit for the impugned assessment year while computing deduction u/s 80IA. Our view is fortified by the decision of Hon‟ble Bombay High Court in the case of Hercules Hoists Limited(supra) which is reproduced hereunder: “7. It is not disputed that the respondent assessee is entitled for deduction of the profit and gains as contemplated u/s 80IA. It is also not disputed that the assessee is entitled for deduction of the profits and gains for the period of 10 consecutive years beginning with initial assessment year. It is further not disputed that the initial assessment year of the assessee’s unit is 2009-10 , though it started functioning from the year 2005-06. The losses of the years 2005-06 to 2008-09 were absorbed during the relevant years and no losses were carried forward. The only question of debate before the Tribunal was whether the profit earned during the Assessment Year 2009-10 would be entitled for deduction under Section 80IA(5) of the Act without deducting the losses, which were absorbed in the earlier years.