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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. A. K. GARODIA & SHRI. LALIT KUMAR
ITA.894/Bang/2016 Page - 1
IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIT KUMAR, JUDICIAL MEMBER I.T.A Nos.894/Bang/2016 (Assessment Year : 2012-13) Asst. Commissioner of Income-tax, Circle -1(2)(1), Bengaluru .. Appellant v. M/s. Khivraj Motors, No.10/2, 4th floor, Kasturba Road, Bengaluru 560 001 .. Respondent PAN : AAAFK6627K Assessee by : Shri. H. N. Khincha, CA Revenue by : Shri. M. K. Biju, JCIT Heard on : 01.06.2017 Pronounced on : 02.06.2017 O R D E R PER LALIT KUMAR, JUDICIAL MEMBER :
The present appeal is filed by the Revenue against the order of the CIT (A) -1, Bengaluru, dt.11.01.2016, for the assessment year 2012-13.
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Brief facts are that the assessee is a firm and has filed the return of income for the impugned assessment year, declaring total income of Rs.3,33,03,214/-, on 30.09.2012. The case was selected for scrutiny and a notice u/s.143(2) of the Act was issued to the assessee.
It was noticed by the AO that the assessee had claimed deduction u/s.80IA of the Act, to the extent of Rs.1,30,82,753/-. This deduction was claimed on the wind-mill power generation receipt of Rs.1,45,38,490/-, claiming depreciation of Rs.2,61,647/- and maintenance of Rs.11,94,089/-. It was noticed by the AO that the assessee has purchased the wind-mill during the AYs 2005-06 and 2006-07 and the depreciation on the cost of wind-mills was claimed in earlier years at the rate of 80%. As per the AO, these losses need to be notionally carried forward in view of the provisions of Section 80IA(5) of the Act, and therefore, the AO called upon the assessee to explain the deductions made. In response thereto the assessee has submitted a reply. However, the AO was not convinced with the reply and therefore, the AO has made the addition. He held that the notional loss carried forward to the amount of Rs.5,57,52,581/- was required to be adjusted and thereafter the assessee would be eligible to claim the
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deduction from the positive income earned in future years. The assessee
being aggrieved by the assessment order approached the CIT (A).
The CIT (A), in his order has allowed the appeal of the assessee. In
para.4 of the order it was held as under :
4.The appellant submitted in support of its contention the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Anil H. Lad 45 taxmann. com 98 (Karnataka), wherein it was observed that "for purpose of determining quantum of section 80--IA deduction in year in which assessee put forth claim, revenue cannot take into consideration loss and depreciation from eligible business of earlier year which was already set-off against income of assessee from other source". The appellant also referred the decision of the CIT(A)-V in their own case, wherein following the above mentioned decision of the Hon' ble Karnataka, he held that the appellant's claim for deduction u/s 801A is in accordance with the provisions of law, and hence allowable to the assessee appellant. It is further held that AY 2010-11 is the "initial assessment year," of the claim of deduction u/s 80IA for the windmill division or' undertaking of the appellant, consisting of four windmills, as per the option exercised by the appellant. The profits of the undertaking shall be accordingly eligible for the said deduction for nine more succeeding assessment years. It is only in the case of loss in business of the eligible undertaking during the tax holiday period of ten years beginning AY 2010-11, that the same can be carried forward and set off against the profits of the undertaking, notionally or otherwise. In view of the above decision, the submission of the appellant regarding deduction u/s 8011\ is upheld. However, as mentioned by the AO in the assessment order, it would be worked out as Rs.1,30,82,753 - Rs.5,00,00- = Rs.1,25,82,753/-.
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Feeling aggrieved by the order of the CIT (A), Revenue is in appeal before us with the following grounds of appeal :
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The Ld. DR has submitted that the order passed by the CIT (A)
allowing the claim of the assessee, based on the finding given by the
Hon’ble jurisdictional High Court in the matter of Anil H. Lad (supra), is
not sustainable and therefore is required to be annulled and therefore the
appeal is required to be allowed.
On the other hand, the Ld. AR has drawn our attention to the order of
the Hon’ble jurisdictional High Court and also the Board circular No.1 of
2016, dt.15.02.2016.
We have heard the rival contentions and perused the materials on
record, as also the judgment in Anil H. Lad (supra) and Circular of the
CBDT (Supra). In our view, the issue is squarely covered by the
jurisdictional High Court decision as mentioned in the impugned order.
Para 8 and 9 of the said judgment is reproduced hereunder : 8. From the aforesaid provisions, it is clear that incentive is given to the assessee which has invested in infrastructure. The said benefit has to be claimed frorn the eligible business for a period of ten consecutive years. This ten consecutive years is to be decided by the assessee out of 15 years. That 15 years is to be computed from the day the business was set up. Claiming of deduction would arise only when there is a profit earned by the eligible business. Before any profit is earned, the question of determining the quantum of deduction would not arise. Before the assessee starts earning profit, from this eligible business, as he has already made investment and the depreciation of that investment and losses sustained in the said eligible business could be setoff against the profits earned by the assessee, if the assessee has other business. Therefore, the "Previous year' as defined under Section 3 of the Act makes it clear for the
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purpose of this Act, 'previous year the financial year immediately preceding the assessment year. Proviso to that provisions, states that in the case of a business or profession newly set up, or a source of income newly coming into existence, in the said financial year, the previous year shall be the period beginning 'with the date of setting UI) of the business or profession or, as the ease may be, the (late on which the source of income newly comes into existence and ending 'with the said financial year. Therefore, the previous year shall be the period beginning with the date of setting up of the business or profession. But, subsection 80IA comes into picture only when a claim, is putforth for deduction. It is only then the profits earned in the eligible business is to be setoff against the depreciation and losses of the eligible business. If no claim is putforth, there is no question of' setting off the profits against the losses. If the assessee is carrying on other business, that loss and depreciation incurred by mm under the provisions of the Act can be set off against other sources.. There is no prohibition. Therefore, once the assessee sets off his profits earned from other source against the depreciation and loss suffered in the eligible business, again the same cannot be set off against the profits derived from the eligible business if and when a claim for deduction is made.
The Madras High Court in the aforesaid Velayudhaswamy's case interpreting the very provision held, from. a reading of sub-section (1) Section 8o-IA, it is clear that it provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) i.e. referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in sub- section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised. If it is not exercised, the assessee will not he getting the benefit. Fifteen years is outer limit arid the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub- section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year' are used in sub-section (5) and the same is not defined
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under the provisions. It is to be noted that 'initial assessment year' employed in sub-- section (5) is different from tile words 'beginning from the year" referred to in sub-section (2). Sub-section (5) starts with non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored; for the purpose of determining the quantum of deduction; for the assessment year immediately succeeding the initial assessment year, thereby a fiction is created by introducing a deeming provision and therefore, it is clear that the eligible business were the only source of income, during the previous year relevant to 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 a l r e a d y o f f a g a i n s t t h e i n c o m e o f t h e a s s e s s e e . L o o k i n g f o r w a r d t o a p e r i o d o f t e n y e a r s f r o m t h e i n i t i a l a s s e s s m e n t i s 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.
In our view it is the option given by the Act to the assessee to opt for
the initial year for availing the benefit of section 80IA. It is not for the AO
to decide which year would be the initial year for claiming the benefit
u/s.80IA. Therefore, once the assessee exercises his right and opted the
initial year, then the benefit flowing u/s.80IA is available to the assessee.
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In view thereof and also in view of the judgment of the Hon’ble jurisdictional High Court, we uphold the order the order of the CIT (A).
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on the 2nd day of June, 2017.
Sd/- Sd/- (A. K. GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER MCN* Copy to: 1. The assessee 2. The Assessing Officer 3. The Commissioner of Income-tax 4. Commissioner of Income-tax(A) 5. DR 6. GF, ITAT, Bangalore By Order
Assistant Registrar