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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI
BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN, HON'BLE ACCOUNTANT MEMBER ITA NO.4784/MUM/2016 (A.Y: 2012-13) DCIT-9(3)(2) v. M/s. Garden Court Distilleries Pvt. Ltd., Room No. 418, 4th Floor, Unit No. 303/304, 3rd Floor, Aayakar Bhavan, M.K. Road, Raheja Plaza, Off. Veera Desai Road, Mumbai-400 020 Andheri (West), Mumbai – 400 053
PAN NO: AAACG 1457 C
(Appellant) (Respondent) C.O NO.324/MUM/2017 [Arising Out of ITA NO.4784/MUM/2016 (A.Y: 2012-13)] M/s. Garden Court Distilleries Pvt. Ltd., v. DCIT-9(3)(2) Unit No. 303/304, 3rd Floor, Room No. 418, 4th Floor, Raheja Plaza, Off. Veera Desai Road, Aayakar Bhavan, M.K. Road, Mumbai-400 020 Andheri (West), Mumbai – 400 053
PAN NO: AAACG 1457 C
(Appellant) (Respondent) Assessee by : Shri Ashok Patil Department by : Shri Ram Tiwari
Date of Hearing : 06.02.2018 Date of Pronouncement : 07.02.2018
2 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd O R D E R PER C.N. PRASAD 1. This appeal and Cross Objection are filed by the Revenue and assessee respectively, against the order of the Ld.CIT(A)–16, Mumbai dated 29.04.2016 for the Assessment Year 2012-13.
The first ground of appeal in Revenue appeal is in respect of deletion of disallowance made under Rule 8D2(ii) r.w.s. 14A of the Act. The Assessing Officer while completing the assessment noticed that assessee earned dividend income of ₹.2,94,750/- and claimed as exempt. He also noticed that assessee himself disallowed ₹.9,200/- under Rule 8D2(iii) being the expenses attributable for earning exempt income. Assessing Officer also noticed that the assessee is holding investments in various equities, mutual funds and others at ₹.7.23 crores at the beginning of the year and ₹.17.84 crores at the end of the year and has shown substantial increase in the investment portfolio. Assessing Officer invoked the provisions of Rule 8D and computed the disallowance at ₹.22,40,269/- which comprises of interest under Rule 8D2(ii) at ₹.20,16,757/- and administrative expenses being half percent of average value of investments under Rule 8D2(iii) at ₹.2,23,512/-.
3 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 3. On appeal the Ld.CIT(A) deleted the disallowance made under Rule 8D2(ii) in respect of investments and sustained the disallowance made under Rule 8D2(iii). The reason for deleting the interest was stated that assessee demonstrated that interest paid was totally for sugar trading business or for loans on Plant & Machinery and no interest was paid for investment in assets from which exempt income was earned. He also observed that assessee has own funds many times more than the investments made in assets and therefore in view of the decision of Hon'ble Jurisdictional High Court in the case of HDFC Bank v. DCIT [67 taxmann.com 42] and CIT v. Reliance Utilities & Power Ltd [313 ITR 340] the disallowance made under Rule 8D2(ii) is to be deleted.
Ld.DR vehemently supported the orders of the Assessing Officer.
On hearing both the sides and perusing the orders of the authorities below and in view of the categorical finding of the Ld.CIT(A) that the assessee has demonstrated that the interest paid was totally for sugar trading business or for loans on Plant & Machinery and no interest was paid for investment in assets which earned exempt income and also since the assessee is having its own funds many times more than the investments made, no disallowance is required to be made under Rule 8D2(ii) in view of the decision of the Hon'ble Jurisdictional High Court in
4 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd the case of HDFC Bank v. DCIT (supra) and CIT v. Reliance Utilities & Power Ltd. (supra), we do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance under Rule 8D2(ii) of the Act.
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.
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.”
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
5 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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.
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. 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.
6 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 9. Ld.DR vehemently supported the orders of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below. The issue in appeal has been elaborately dealt with by the Ld.CIT(A) with reference to the decision of the Coordinate Bench as well as 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 observing as under: - “6.2.2. During appellate proceedings a written submission was filed which find place in para 5 of this order. According to the appellant it had commissioned windmill at Sangli Dist. during the Financial Year ad date of commencement of commercial production of Sangli unit was 14.02.2006. It was claimed that the appellant as mandated under subsection 2 of sec. 80IA had opted A.Y. 2010-11 as initial Assessment Year. It was further submitted that there were no carried forward losses for initial A.Y. 2010-11 to be set off against heh income of Windmill for the current A.Y. and hence the appellant’s claim of deduction of ₹.77,82,495/- be allowed as deduction u/s.80IA.
6.2.3 The appellant had tried to distinguish the fact of various case laws relied upon by the Ld.A.O. According to the appellant in the case of Goldmine Shares and Finance p. Ltd. the claim of deduction by the appellant had started from A.Y.1996-97 onwards and in that case the appellant had claimed deduction u/s.80IA starting from the first year itself i.e. 1996-97. According to the appellant in that case provisions of tax applicable were prior to the amendment brought in the statute by the Finance Act 1999. it was claimed that in the case of the appellant provisions of section 80IA will be applicable which had been substituted w.e.f. 1st April 2000. The relevant provisions of sub section (5) of section 80IA applicable in appellant's case read as under:
"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 (1)
7 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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 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:
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.
8 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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
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'.
9 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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. ITA No.4311/Mum/2013 has held as under:
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:-
"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.
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
10 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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 assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made."
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
11 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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).
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: -
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
12 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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.
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 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
13 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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."
This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTR 262 (Mad.). From the above/ ratio of the High Court, it is amply clear that sub- section (5) of section 80IA will come into operation only from the initial assessment year or any subsequent assessment year The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e.! after 1st April 2000 by virtue of section 80IA(2).
Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case/ the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995- 96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial
14 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd assessment year would be applicable i.e. provisions which were. prior to let' April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgement of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligible business was set- off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and has been set off against the non-eligible unit after the initial assessment year, then the ratio laid down by the Tribunal is in full consonance with the law. However, this is not the case because the loss pertained to prior to initial assessment which have been set off against the profits of non eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2008-09 only and, therefore, the loss of assessment year 2007-08 cannot be notionally carried forward within the meaning of section 80IA(5). Thus, the reliance placed by the learned Departmental Representative on the decision of Pidilite Industries (Supra), will not be applicable in the present case.
The other decision heavily relied upon the learned departmental representative in Hyderabad Chemical Supplies Ltd. (supra) will also not apply to the facts of the present case, as in that case, the wind mill started its operation on 31st march 1999 and the first year of operation was Assessment Year 1999-2000. Thus, in the Assessment Year 1999-2000 the definition of initial Assessment Year was already there in the Act and there was no provision through which the assessee could have chosen its initial Assessment Year. This provision was brought in stature w.e.f. 1st April, 2000, by virtue of section 80IA. Thus this decision also will not help in the case of the Department. In assessee’s case, as specifically stated in the foregoing paragraphs, the assessee's claim for initial assessment year i.e. assessment year 2008-09 and its claim for deduction under section 80IA made for the first time from assessment year 2008-09, has not been disputed. Thus, the aforesaid judgement relied upon by the learned Departmental Representative will not be applicable to the facts of the present case."
Thus, following the aforesaid decisions, we hold that the assessee's Claim for deduction u/s 80IA is allowable from the profits derived from the Windmill unit, starting from A.Y. 2009-10, which is the "initial
15 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd assessment year" chosen by the assessee. The earlier year losses cannot be set off against the profits for eligible units in this year. Accordingly, grounds raised by the assessee is allowed."
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.”
Further we find that the issue has been examined 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 appeal filed by the Revenue is rejected by answering the questions referred therein as under:- “1. This present appeal relates to Assessment Year 2009-10. The Revenue has filed the appeal against the order of the Tribunal thereby partly allowing the appeal filed by the assessee.
The Revenue has framed the following questions for our consideration: -
(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in holding that the respondent company was eligible for deduction u/s 801A of the I.T. Act, 1961.
ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation of Section 80IA(5) of the I.T Act, 1961 that unabsorbed depreciation of the eligible units need not be necessarily set off from the profits of the same units, but could be set off from other non-eligible units as well.
16 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd (iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation considering the fact that Section 80IA(5) of the LT. Act, 1961 points out that the eligible unit be considered as a stand-alone unit, thereby mandating that unabsorbed depreciation or losses be set off before allowing profits as deduction.
Mr. Pinto, the learned Counsel for the appellant strenuously contends that the Tribunal has misconstrued the provision of Section 80IA(5) of the Income Tax Act. The said provision starts with a non- obstinate clause. The only way to read the provision would be in a manner that the deduction under Section 80IA(5) of the Act will be computed with reference to the eligible units and not from the other non-eligible units. So also, in case of loss suffered by the eligible units, such loss should not be set off against the profits of the other units, other business, other income earned in the initial years of assessment in the subsequent years. It is the mandate of law that the losses of earlier years though already absorbed against the other sources, they are once again notionally brought forward and set off against the profits of the other units to compute eligible deduction.
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.
The learned Senior Counsel for the respondent supports the judgment and submits that the issue involved in the present matter is concluded by the decision of this Court in the present assessee's case in Income Tax Appeal No.2485 of 2013 under judgment dated 7th May, 2015. The said judgment of this Court is further confirmed by the Apex Court in Civil Appeal No.14703 of 2015, decided on 23rd September, 2016. The learned Senior Counsel further submits that the Madras High Court in a case of Velayudhaswamy Spinning Mills (P) Ltd. and Sudan Spinning Mills (P) Ltd. Vs. Assistant Commissioner of Income Tax, (2012) 340 ITR 477 has concluded the issue and held that only losses of the years beginning from the
17 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of assessee, can be looked into. The learned Senior Counsel further submits that the said judgment of the Madras High Court has been confirmed by the Apex Court in Special Leave Appeal No.33475 of 2012 under order dated 5th September, 2016. The learned Senior Counsel also relied on the provision of Section 801A(5) of the Act, which reads thus : -
"(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 (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the 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."
With the assistance of the learned Counsel for the respective parties, we have considered the submissions and also have gone through the order of the Tribunal so also the judgments relied by the respective Counsel.
It is not disputed that the respondent assessee is entitled for deduction of the profits 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.
The said issue is now no longer res-integra in view of the judgment of the Madras High Court in a case of Velayudhaswamy
18 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd Spinning Mills P Ltd. & Sudan Spinning Mills (P). Ltd. (supra), the Court observed as under :-
"From a readying of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the 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 no 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. A fiction created in subsection does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created."
The said judgment of the Madras High Court has been confirmed by the Apex Court, as such has attained finality. Even in the assessees own case for the previous year, the losses were set off in the relevant years. The Revenue had challenged the said action before this Court in Income Tax Appeal No.2485 of 2013 and it was held that the said action is legal and proper. The said judgment is also upheld by the Apex Court.
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.
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.”
19 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd 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.
Coming to the Cross objection filed by the assessee, the only ground in the Cross objection is in respect of sustaining the disallowance made under Rule 8D2(iii) by the Ld.CIT(A).
Learned Counsel for the assessee submits that assessee not made any investments in any listed equities, mutual funds etc., and all investments are of strategic investments made in group/associate concern Companies. Ld. Counsel for the assessee submits that assessee not incurred any expenses in the current year for making investments in group/associate companies. Learned Counsel for the assessee submits that assessee has voluntarily in the return of income had disallowed a sum of ₹.9,200/- under Rule 8D2(iii) and the said disallowance was calculated considering the half percent of average value of dividend earning investment i.e. investment in Rajaram Solvex Ltd. Ld. Counsel for the assessee submitted that this is the only investment from which the assessee is earning dividend income. Learned Counsel for the assessee submits that in assessee’s own case, similar issue had come up in ITA.No.5562/Mum/2016 for the Assessment Year 2013-14 and the Tribunal considering the fact that this is the only dividend earning
20 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd investment accepted the assessee’s suomoto disallowance of 0.5% of the dividend income from such investment as attributable for earning exempt income.
Ld.DR strongly placed reliance on the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. We find from the Coordinate Bench decision that a similar issue came up in the Assessment Year 2013-14 and the Coordinate Bench regarding the finding of the Ld.CIT(A) noticed that the investments were strategic investment and further, the disallowance was to be computed with reference to those investments which yielded exempt income during the year. The disallowance thus worked out to ₹.9,200/- was accepted. It is the submission of the Ld. Counsel for the assessee that in this Assessment Year also the only dividend earning investment is from Rajaram Solvex Ltd and the assessee has computed the suomoto disallowance at 0.5% of the investment made in such company as the expenditure attributable for earning such dividend income. Therefore accepting the contentions of the assessee, we hold that the disallowance under Rule 8D2(iii) of the Act could not be more than ₹.9,200/- since the calculation appears to be in consonance with the decision of the Special
21 ITA NO.4784/MUM/2016 (A.Y: 2012-13) & C.O NO.324/MUM/2017 M/s. Garden Court Distilleries Pvt. Ltd Bench in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27], wherein it has been held that only those investments which yielded dividend income should be considered for disallowance under Rule 8D2(iii) of the Act. Thus we direct the Assessing Officer to delete the disallowance made under Rule 8D2(iii) of the Act.
In the result, Revenue’s appeal is dismissed and the Cross objection of the assessee is allowed.
Order pronounced in the open court on the 07th February, 2018.
Sd/- Sd/- (N.K. PRADHAN) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 07/02/2018 Giridhar, SPS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy// BY ORDER, (Asstt. Registrar) ITAT, Mum