DCIT, TIRUPPUR vs. M/S. DOLLAR APPARELS, TIRUPPUR

This appeal of the revenue is directed against the order of CIT(A) -3, Coimbatore dated 28.03.2016 and pertains to Assessment Year 2013-14.

Shri Shiva Srinivas, the learned department representative submitted that during the year under consideration, the assessee has received interest from the bank on the fixed deposits to the extent of Rs.6,51,70,090/-. However, the assessee offered this income under the head “business”. The assessee explained before the assessing officer that the deposits on the fixed deposits was made out of the business income and the deposits were disclosed as capital asset in the balance sheet. Therefore, the interest income was shown as business income in the profit and loss account. The assessing officer after considering the claim of the assessee found that the interest from the fixed deposit has to be classified as income from other sources. Hence, the assessee is not eligible for deduction under Section 80IA of the Act in respect of the interest income. However, on appeal by the assessee, the CIT(A) found that the income from wind mill has to be included in the gross total income of the assessee and eligible for deduction under Section 80IA.

On the contrary, Shri T.Banusekar, the learned representative for the assessee submitted that the assessee has positive income from wind mill. The wind mill unit of the assessee which generates electricity is eligible for deduction under Section 80IA of the Act. Referring to Section 80IA (5) of the Act, the learned representative for the assessee submitted that the wind mill unit has to be taken as the only source of the income of the assessee for the purpose of computing the eligible profit. Referring to the judgment of the Apex Court in CIT Vs. Canara Workshops (P) Ltd. [1986] 161 ITR 320 (SC), the learned representative for the assessee submitted that while considering the provisions of Section 80E of the Act, the Apex Court found that it was never intended that the income earned by an industry should be lost or diminished because of a loss suffered by some other industry. The Supreme Court further observed that it makes no difference that the other industry is also a priority industry. The co-existence of two industries in common ownership was not intended by parliament to result in the misfortune of one being visited on the other. Referring to paragraph 7 of the Apex Court judgment, the learned representative for the assessee submitted that the Supreme Court further observed that it was sufficient to indicate that a distinction must be drawn between a case where the loss or unabsorbed depreciation pertains to the same industry whose profits and gains are the subject of relief under section 80E and a case where the loss or unabsorbed depreciation relates to industries other than the one whose profits and gains constitute the subject of relief. In view of this observation of the Apex Court, according to the learned representative, it cannot be the intention of the parliament to set off the loss suffered by one unit of the assessee against the profit of the wind mill unit.

Referring to the judgment of the Delhi High Court in CIT Vs. Dewan KRAFT System (P) Ltd. [2008] 297 ITR 305 (Del.), the learned representative for the assessee submitted that the assessing officer made adjustment in the case before the Delhi High Court, the profit of the eligible unit against the losses of the other unit. The Delhi High Court found that in view of the overriding provisions of Section 80IA (7) deduction under Section 80IA cannot be restricted by adjusting the profit of the eligible unit against the loss of the other unit of the assessee. Referring to another judgment of the High Court in the case of CIT Vs. Sona Koyo Steering Systems Ltd. [2010] 321 ITR 463 (Del.), the learned representative for the assessee submitted that the Delhi High Court after considering the judgment of its earlier judgment in Dewan Kraft System (P) Ltd. (supra) found that while computing the eligible profit under Section 80IA(6), the loss of one unit of the industrial undertaking cannot be set off against the profit of another industrial undertaking. The Delhi High Court further found that in view of the judgment of the Apex Court, the gross total income of the assessee has to be determined without adjusting the losses and that if the gross total income of the assessee so determined turns out to be NIL, then the assessee would not be entitled to deduction under Chapter 6A of the Income Tax Act. A similar view was also taken by Allahabad High Court in the case of CIT Vs. Modi Xerox Ltd. [2012] 344 ITR 411 (All). Referring to unreported judgment of the Apex Court in Dewan Kraft System (P) Ltd., the learned representative for the assessee submitted that the special leave petition filed by the revenue against the judgment of the Delhi High Court in the case of Dewan Kraft System (P) Ltd. (supra) was dismissed. Once the loss suffered by the assessee in another unit was not set off against the profit of the windmill unit, then the assessee is having profit on the wind mill division. Hence, the assessee is eligible for deduction under Section 80IA of the Act.

We have considered the rival submissions on either side and also perused the material available on record. The assessing officer found that the loss suffered in another unit has to be set off against the profit of the wind mill unit. The total income turned to be positive after inclusion of the interest income on the fixed deposits to the extent of Rs.6,51,70,090/-. The CIT(A) found that the loss suffered by the assessee in another unit cannot be set off against the profit of the wind mill unit since the wind mill unit has profit. The CIT(A) further found that the assessee is eligible for deduction under Section 80IA of the Act.

We find that the Madras High Court in Mepco Industries Ltd. in & 658/2007 dated 20.11.2012 examined this issue and after placing reliance on the judgment of the Apex Court in Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444 (SC) found that the loss suffered by the assessee in one unit has to be set off against the profit of the assessee for the purpose of eligible deduction under Section 80IA.

In view of the judgment of the jurisdictional High Court in Mepco Industries Ltd. (supra), the judgment of Delhi High Court in Dewan Kraft System (P) Ltd. (supra) and Sona Koyo Steering Systems Ltd.(supra) may not be applicable to the facts of this case. By following the judgment of the Madras High Court in Mepco Industries Ltd. (supra) and the judgment of the Apex Court in Synco Industries Ltd. (supra), this Tribunal is unable to uphold the order of the CIT(A). Accordingly, the order of the CIT(A) is set aside and that of the assessing officer is restored.

In the result, the appeal of the revenue is allowed.