ASST CIT CEN CIR 8(4), MUMBAI vs. SAVITA OIL TECHNOLOGIES LTD, MUMBAI

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. brought forward and set off against profits of the eligible business for computing the deduction u/s. 80IA of the Act.

5. Ld.DR vehemently supported the orders of the Assessing Officer and also filed written submissions in this regard.

6. On hearing both sides and pursuing orders of the Authorities below and the submissions made before us, we find that the Ld.CIT(A) on analyzing the facts on record and by following the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) and also various decisions of the Coordinate Benches of Mumbai and also M/s. Excel Crop Care Ltd. v. DCIT allowed the claim of the assessee for deduction u/s. 80IA of the Act. We further find that the issue in appeal is recently decided by the Hon'ble Jurisdictional High Court in the case of CIT v. Hercules Hoist Ltd.in ITA.No. 707 of 2014 dated 14.06.2017 wherein the Hon'ble Jurisdictional High Court taking note of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd (supra) held that the profit from the eligible business for the purpose of determining the quantum of deduction under section 80IA of the Act has to be computed before deduction of the notionally brought forward losses and depreciation of eligible business as they have to be allowed to be setoff other income in earlier years. We also find that the (A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. Coordinate Bench in the case of DCIT v. M/s. Garden Court Distilleries Pvt. Ltd., in ITA.No. 4784/Mum/2016 dated 07.02.2018 followed the decision of the Hon'ble Jurisdictional High Court and affirmed the order of the Ld.CIT(A) observing as under: - “6. Coming to ground No’s.2 & 3 of the Revenue’s appeal the grounds read as under: - “2. On the facts and circumstances of the case and in law, the CIT(A) has erred in allowing relief to assessee in respect of its claim u/s. 80IA relying on decision of Karnataka High Court in the case of DCIT, Bangalore v. Shri. Anil H. Lad [TS-140-High Court-2014 (KAR- 102 DTR 241)] and Mumbai Tribunal decision in the case of M/s. Indian Gratings Pvt. Ltd. v. DCIT, RGT-8(2), ITA.No. 4311/Mum/2013.

3. On the facts and circumstances of the case and in law, the CIT(A) failed to appreciate that the term initial Assessment Year for the purpose of section 80IA(5), if interpreted to mean 1st year in which claim of deduction u/s. 80IA has been made, would render the aforesaid provision i.e. 80IA(5) infructuous and redundant and such interpretation mitigates against the principle of harmonious interpretation of the provisions of statute so as not to inefectuate the provision.”

7. Ld. Counsel for the assessee, at the outset submitted that the issue in appeal is now squarely covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Hercules Hoist Ltd. in ITA.No. 707 of 2014 dated 14.06.2017 wherein the Hon'ble Jurisdictional High Court taking note of the decision of the Hon'ble Madras High Court in the case of Vellayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills (P) Ltd. v. ACIT [340 ITR 477] held that profit from the eligible business for the purpose of determining the quantum of deduction under section 80IA of the Act has to be computed before deduction of the notionally brought forward losses and depreciation of eligible business as they have to be allowed to be setoff other income in earlier years.

8. Ld. Counsel for the assessee also invited our attention to the decision of the Mumbai bench in the case of M/s. Indian Gratings Pvt. Ltd. v. DCIT, RGT-8(2) in ITA.No. 4311/Mum/2013 dated 11.02.2015 and submitted that the issue in appeal has been thoroughly considered by this Bench and held that assessee is entitled for deduction u/s. 80IA on the profits derived from the Windmill Unit, starting from A.Y. 2009-10 which is the initial Assessment Year chosen by the assessee and the earlier year losses cannot be set off against the profits for eligible units in this year.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. Ld. Counsel for the assessee submits that while coming to such conclusion the Coordinate Bench followed the decision of the Vellayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills (P) Ltd. v. ACIT (supra). Learned Counsel for the assessee submits that the Ld.CIT(A) also followed the decision of the Mumbai Bench in the case of M/s. Indian Gratings Pvt. Ltd. v. DCIT, RGT-8(2) (supra), as well as the decision of the Hon'ble Madras High Court in the case of Vellayudhaswamy Spinning Mills P. Ltd and Sudan Spinning Mills (P) Ltd. v. ACIT (supra) and allowed the claim of the assessee.

9. Ld.DR vehemently supported the orders of the Assessing Officer.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 6.2.4 It was further claimed that in the case of the appellant, the losses incurred by the appellant prior to initial assessment year were already set off and adjusted against the profits of non-eligible business in earlier years. According to the appellant, the appellant had exercised the option u/s. 80IA(2) from A.Y. 2010-11. During the relevant period starting from initial assessment year there was no unabsorbed depreciation or loss to be carried forward and absorbed. The appellant had also tried to distinguish the facts of the case in the ease of Pidilite Industries relied upon by the A.O. with the observation that in that case the Hon'ble Tribunal was dealing with regard to two eligible units of Gujarat Unit which was set up in the year 199596 and second Maharashtra Unit which was set up in the year 2000-01. According to the appellant in respect to Gujarat Unit, the Hon'ble Tribunal held that the pre-amendment definition of initial assessment year would be applicable. As the appellant had started commercial production in the F.Y.1996-97 on the contrary the appellant relied upon CBDT's clarification vide circular No.1/2016 dated 15.02.2016 and requested that the same should be allowed as deduction. Apart from it, in support of its claim reliance was placed on the following judgements:

1. 1. Velayudhaswamy Spinning Mills Pvt. Ltd. v/s ACIT, [2012] 340 ITR 477 (Mad.) 2. Mohan Breweries & Distilleries Ltd. Vs. AC1T (2009) 116 lTD 241 (Chennai) 3. Rangamma Steel & Malleables Vs. ACT, 132 TTJ 365 (Chennai) 4. CIT v/s Emerala Jewel industry Pvt. Ltd., [2011 53 DIR 262 (Mad.) 5. Shevie Exports Vs. JCIT, 33taxmann.com 446 (Mum).

6. Deputy Commissioner of Income-tax, Bangalore v. Shri Anil H. Lad [TS-140HC-2014(KAR)] — 202 DTR 242.

7. Anil H Lad Vs. 0 CIT. (2012), 25 taxmann.com 454 (Bang).

8. M/s. Jivraj Tea & Industries Ltd. Vs The ACIT, central circle-2, Surat. - 2014 (1) TMI 234- ITAT AHD [2014] 161 TTJ 5 9. commissioner of income Tax Vs. M/s G.R.T. Jeweller (India.). Pvt. Ltd. TCA No. 176 of 2016 10. Indian Gratings Pvt. Ltd. V DCIT RG- 8(2) ITA.No. 4311/Mum/2013

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. 6.2.5 The appellant had placed reliance on the judgement of Hon'ble Karnataka High Court in the case of DCIT Bangalore Vs. Shri Anil H. Lad (TS-140-HC-2014(Kar) — 102 DTR 241 (supra). The Hon'ble Court held as under: The Hon'ble Karnataka High Court following the judgment of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. v/s ACIT [2012] 340 ITR 477 has held as under , the relevant paragraph 10 of the Judgment reads thus: “The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is setoff against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under subsection (5) of section 80IA, the Revenue cannot take into consideration the loss and depreciation which is already set off against the income of the assessee from other source and compute the profit under section 80IA. Therefore, the approach of the Tribunal is in accordance with law. The assessing authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under Section 80IA against the losses and depreciation of the eligible business which is already setoff from other source before such a claim is put forth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the Assessing Authority as well as the lower Appellate Authority. The substantial question of law is answered in favour of the assessee and against the Revenue'. 6.2.6 Further reliance was also placed on the decision of Indian Gratings P. Ltd. vs. DOT ITA No.4311/Mum/2013. The Hon'ble Jurisdictional Tribunal in the case of Indian Gratings Pvt. Ltd. has held as under: 6. After careful considering the rival submissions, facts of the case and the issues involved, we find that only issue involved is that whether the earlier year losses of the eligible unit can be set off against the profit of the said unit in this year, when the assessee has exercised to choose the initial assessment year from A. Y. 2009-10. Exactly similar issue was involved in the case of M/s. Shevie Export (supra) wherein, after detailed analysis of the relevant provision and various judicial decisions, including that of Mumbai Bench Tribunal in the case of Pidilite Industries (supra) it was observed and held as under: - (A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. "8. We have heard the rival contentions and perused the relevant material placed on record and various case laws relied upon by either party. The assessee had set-up a Wind in ill at District Dhule, Maharashtra a commencement of its operation was started on 29th September 2006 i.e., assessment year 2007-08. in assessment year 2007-08, the assessee had shown a loss of Rs.3,52,47,398 on account of depreciation and interest from wind mill undertaking and this loss was set-off against the export business income (which in the present case, can be considered as non- eligible unit) in the assessment year 2007-08. In the assessment year 2008-09, the assessee has earned profit of Rs.7,16,904 and has claimed deduction under section 80IA by treating the assessment year 2008-09 as initial assessment year. The sole ground for cancelling the assessment order under section 263 by the learned Commissioner in this regard is that in the subsequent year i.e., the assessment Year 2009-10, the claim of the assessee under section 8014 has been rejected by the Assessing Officer on the ground that the Special Bench decision of the Tribunal, Ahmedabad Bench in Goldmine Shares And Finance Pvt. Ltd (supra) does not support such a claim.

9. Section 80IA, which has been substituted w.e.f 1st April 2000, provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub- section 4, there shall in accordance with and subject to the provisions of this section, be allowed in computing the total income, the deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive years. Substituted sub-section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive Assessment Year out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provisions of sub-section(5) of section 80IA reads as under:- "('5) Notwithstanding anything contained in any other provision of this Act the profits and gains of an eligible business to which the provisions of sub-section (I) apply shall for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as If such eligible business were the only source of income 'of the assessee during the previous year relevant to the initial (A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made."

10. From a plain reading of the above. It can be gathered that It is a non-obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under section. 80IA. However, after the amendment brought in statute by the Finance Act. 1999, the definition of "initial assessment year" as been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of section 80IA from which it chooses its 10 years of deduction out of is years, then only the losses of the years starting from the initial assessment year alone are to be brought forward a stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section SUM can be determined. This is the true import of section 801A(5). 11. in the decision of Goldmine Shares and Finance Pvt. Ltd (supra), decided by the Special Bench of the Tribunal, the claim of deduction by the assessee had started from assessment year 1996-97. onwards and the assessee had claimed deduction under section 8014 starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Madras High court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) after considering the Special Bench decision of the Tribunal in Goldmine Shares and Finance Pvt. Ltd. (supra) and post amendment have come to the same conclusion: - (A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. From reading of the above, is clear that the eligible business was the only source of income, during the previous year relevant of the Act initial Assessment Year and every subsequent Assessment Years. When the assessee exercises the option, the only losses of the years beginning from initial Assessment Year alone are to be brought forward and losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.

14. In the present cases there is 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 s. 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009. the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive Profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-so (6) of s. 80-I, which is the corresponding provision of sub-so (5) of S 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of C1T vs. Mewar Oil & General Mills Ltd (2004). 186 CTR (Raj 141, (2004) 271 1TR 311 (Raj), the Rajasthan High Court also considered the scope of S. 80-1 and held as follows- "Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current Assessment Year 1984-85, the recompilation of income from the new industrial undertaking by setting off the cony forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the C1T(A), which has not (A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under s. 80-1 for the purpose of computing admissible deductions there under. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s.80-I in the present case albeit for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, re-computation of income for the purpose of computing permissible deduction under S.80I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs. From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again far computation of current income under s. 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view."

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. Since the case of the appellant pertains to the subsequent period to which amendments made in Section 80IA had been substituted w.e.f. 1st April 2000, therefore, respectfully, following the judgment of Hon’ble Karnataka High Court in the case of DCIT Bangalore Vs. Shri Anil H. Lad (supra) and jurisdictional Tribunal in the case of Indian Gratings P. Ltd. vs. DCIT (supra), the claim of the appellant in respect to deduction u/s.80IA is allowed and disallowance of Rs.77,82,495/- made by the A.O. is deleted.”

4. In view of the same, the profit from the eligible business for the purpose of determination of the quantum of deduction under Section 80IA of the Act, has to be computed after deduction of the notionally brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against other income in the earlier years. The learned Counsel submits that in the wake of such position, the Tribunal erred in passing the impugned order and allowing the deduction of the entire profits under Section 80IA(5) of the Act.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd.

10. Considering the above, we do not find any error committed by the Tribunal in allowing the deduction of the profit u/s 80IB(5) of the Act without deducting the losses of the earlier years.

11. In the light of the above, the present appeal is bereft of any substantial question of law. As such, the appeal is dismissed. No costs.”

12. Thus, respectfully following the said decision we upheld the order of the Ld.CIT(A) on this issue and reject the grounds raised

by the Revenue.”

7. Thus respectfully following the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Hercules Hoist Ltd (supra) we uphold the order of the Ld.CIT(A) in allowing the claim for deduction u/s. 80IA to the assessee.

8. The next ground of appeal in Revenue’s appeal is as to whether sale of Carbon credits amounts to Capital receipt or Revenue receipt. It is the contention of the Revenue in the grounds of appeal that the Ld.CIT(A) erred in deleting the addition relying on the decision of the Hon'ble Andhra Pradesh High Court in the case of M/s. My Home Power ltd., [362 ITR 82] without appreciating that the Revenue did not accepted the said decision and filed SLP and is pending before the Hon'ble Supreme Court.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd.

9. The Assessing Officer while completing assessment noticed that assessee received income from sale of carbon credits and claimed as capital receipt. However, the ld. Assessing Officer treated the same as Revenue receipt and brought to tax. Ld.CIT(A) following the decision of the Hon'ble Andhra Pradesh High Court in the case of M/s. My Home Power ltd., (supra) held that the receipts from sale of carbon credit by the assessee are capital in nature and not exigible to tax.

10. Learned Counsel for the assessee submits that an amendment was made in the Act wherein section 115BBG was introduced by the Finance Act, 2017 w.e.f 01.04.2018 to bring the income from transfer of carbon credits to tax at the rate of 10%. Therefore, the Learned Counsel for the assessee submits that since the provision for taxing the carbon credits was introduced w.e.f 01.04.2018 the same is taxable only from the Assessment Year 2018-19 relevant to the Financial Year 2017-18 and prior to the Financial Year 2017-18 the same is not taxable and therefore the Ld.CIT(A) is justified in holding that the sale of carbon credits is capital receipt not exigible to tax following the decision of the Hon'ble Andhra Pradesh High Court in the case of M/s. My Home Power ltd (supra).

11. Ld.DR vehemently supported the orders of the Assessing Officer.

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd.

12. On hearing both the sides and perusing the orders of the Authorities below, we find that the issue in appeal is squarely covered by the decision by the Hon'ble Andhra Pradesh High Court in the case of M/s. My Home Power ltd., (supra), wherein it has been held that the income from sale of carbon credits is capital in nature and not exigible to tax. We further see that the income from transfer of carbon credit was brought to tax by introducing the provision of section 115BBG w.e.f. 01.04.2018 by the Finance Act, 2017. No contrary decision of the Hon'ble Jurisdictional High Court was brought to our notice. In view of the above we find no infirmity in the order passed by the Ld.CIT(A) in holding that the income from sale of carbon credits is capital in nature and not exigible to tax.

13. Coming to ground No.3 it related to disallowance of interest under Rule 8D2(ii) r.w.s. 14A of the Act.

14. The Assessing Officer while completing the assessment computed the disallowance under Rule 8D2(ii) i.e. interest and disallowed the same. It was contended before the Assessing Officer that since the reserves and capital of the assessee stood at ₹.395.15 Crores and the investment in shares/mutual funds amount to ₹.49.07 Crores, these investments are out of own funds and hence no disallowance of interest is called for. The submissions were not accepted by the Assessing Officer. The matter

(A.Y: 2011-12) M/s. Savita Oil Technologies Ltd. when reached before the Ld.CIT(A), the Ld.CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Reliance Utilities and Power Ltd. [313 ITR 340] and CIT v. HDFC Bank [366 ITR 505] held that since reserves and surplus available to assessee far exceeded the total investments made in shares/mutual funds in the beginning of the year as well as at the end of the year, no disallowance of interest under Clause (ii) of Rule 8D2 is called for.