Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “G”, BENCH MUMBAI
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2010-2011 in the matter of order passed under Section 143(3) of the I.T. Act.
In this appeal, assessee is aggrieved for reducing the deduction claimed under Section 80-IC(3)(ii) of the I.T. Act.
Rival contentions have been heard and record perused.
The facts in brief are that Assessee Company is in the business of manufacturing, assembling and repairing construction machinery and piling equipments. Prior to the previous year, relevant to the Assessment Year 2008- 09, the Appellant Assessee Company had a unit in Mumbai. The Assessee 2 ITA No. 7449-2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., Company started an additional unit in Uttarakhand in the previous year, relevant to the Assessment Year 2008-09. The said Uttarakhand unit being in declared backward area, and entitled Excise Duty exemption for 10years and also Income Tax exemption 100% of such profits and gains for 5years and thereafter 30% of the profits and gains - under section 80IC(3)(ii) of Income Tax Act. The Assessee Company commenced production in Uttarakhand in Assessment year 2008-09. The assessee had incurred a loss of Rs.51,55,665/- in A.Y. 2008-09 and loss of Rs.2,38,08,961/- in A.Y. 2009-10 in respect of the eligible unit at Uttarakhand which was set off against the income of the non-eligible unit at Mumbai in A.Ys 2008-09 and 2009-10 respectively. Therefore, the said losses were not available to be carried forward and set off in A.Y. 2010-11 under consideration. However, the A.O. while completing the assessment u/s. 143(3) of the Act for A.Y. 2010-11, notionally carried forward the losses of A.Y.s 2008- 2009 and 2009-2010 which were already set off against the profit of the non- eligible unit at Mumbai and again set it off against the profit of Rs.4,48,33,073/- of the eligible unit at Uttarakhand for A.Y.2010-11 and allowed only the balance of Rs.1,58,68,447/- as deduction u/s. 80IC of the Act. Thus, the A.O. reduced the claim of deduction u/s.80IC of the Act to the extent of Rs.2,89,64,626/-. The CIT(A) upheld the order of the A.O. Against the above order of CIT(A) assessee is in further appeal before us.
It was argued by learned AR that during the year under consideration, assessee has no brought forward losses in respect of the eligible unit therefore, -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., AO was not justified in artificially carrying forward the unabsorbed loss of earlier years which have already been set off by the assessee against the income of non-eligible unit.
6. Reliance was placed by learned A.R. on the decision of the Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477) wherein under similar circumstances the Court held as under: "18. From a reading 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 sub-section 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." "19. 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 section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of2008 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 -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., judgment of this court cited supra considered the scope of sub- section (6) of section 80-1, which is the corresponding provision of sub-section (5) of section 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 Cl T v. Mewar Oil an d General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj); [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-1 and held as follows (page 314 of271 ITR): "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 recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the Commissioner of Income- tax (Appeals), which has not been disturbed by the Tribunal and challenged before us, there" as 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 section 80-1 for the purpose of computing admissible deductions thereunder. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under section 80-1 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, recomputation of income for the purpose of computing permissible deduction under section 80-1 for the new industrial undertaking was not required in the present case. -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., Accordingly, this appeal fails and is hereby dismissed with no order as to costs." "20. From a 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 for computation of current income under section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view." "22. We are not agreeing with the counsel for the Revenue. We are, therefore, of the view that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5)."
The learned A.R further relied on the following decisions: (i) In the case of Eagle Press Pvt. Ltd. vs. ACIT (73 taxmann.com 141, Mad.)(dated 6th July, 2016)their Lordships of the Madras High Court following the decision in the case of VelayudhaswamySpinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad.), answered the following question in negative and in favour of the assessee: 2. Whether on the facts and circumstances in the case, the ITAT was fight in its interpretation holding that depreciation on Wind Mills which had been already adjusted for the assessment years 1995-96 and 1996-9 again t th profits of Printing Business could artificially be carried forward for the impugned assessment year for the purpose of denial of relief u/s. 801A r/w sections 80AB and 801AA(7), of the Income Tax Act?... " The Hon. Madras High Court held as under: "In the light of the pronouncement of this court in Velayudhaswamy Spinning Mills P. Ltd.' s case (supra) and inasmuch as the facts and 6 ITA No. 7449-2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., circumstances of the instant appeals, are similar, substantial questions of law 2 and 3 states supra, are answered in favour of the assessee."
(ii) In the case of CIT vs. M/s. Kongoor Textile Process in TCA No. 184 of 2015 dated zn" April, 2015the Madras High followed its decision in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477) and held as under: "6. It is relevant to note that as against the above-said decision rendered by this Court, the Revenue has filed appeals before the Supreme Court, which are stated to be pending, in which, only notice has been ordered and they are not yet admitted by the Supreme Court. "7. The facts in the present case are also identical to the above-said decision of this Court that the business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section SOlA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section SOlA of the Income Tax Act. There appears to be no distinction on facts in relation to the decision reported in Velayudhaswamy Spinning Mills. "8. Again in a batch of cases in T.C.(A) Nos.40S of 2012, etc., by the order dated 12.1.2015, this Court, following the decision reported in Velayudhaswamy Spinning Mills, held in favour of the asses ee and against the Revenue. "9. We, therefore, taking note of the decision rendered by this Court in Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A) Nos.40S of 2012, etc. dated 12.1.2015, are inclined to dismiss this Tax Case (Appeal), and, thereby, confirm the order passed by the Tribunal. Accordingly, the questions of law raised in this appeal are answered against the Revenue and in favour of the assessee. -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., (iii) In the case of CIT vs. Anil H. Lad (45 taxmann.com 98, Karnataka) dated 5th February, 2014 following the decision of the Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477) the Karnataka High Court held as under: "10. Therefore, keeping in mind the object with which these provisions are introduced, it is clear that an assessee is given the benefit of 100% deduction of the profits and gains from the eligible business. 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 set off 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 sub- section (5) of Section 80-IA, 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 80-IA 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 80-IA against the losses and depreciation of the eligible business which is already set off 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."
(iv) In the case of ACIT vs. Hamilton Houseware Pvt. Ltd. in dated 9th June, 2015 the Hon. Tribunal Ahmedabad Bench held as under: "30. We have heard both sides. Orders of the lower authorities have also been perused. There is no dispute about the factual position narrated in the proceeding paragraphs. The authorities below rely on section 80IA(5) and hold that assessee's losses pertaining to preceding assessment year already set off have to be 8 ITA No. 7449-2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., notionally brought forward to be set off once again against the profit of the Haridwar Unit in question. We find that Hon'ble Madras High Court in Velayudhaswamy Spinning Mills case 340 ITR 477 holds that such losses cannot be notionally brought forward for being set off against eligible profits. This overrules tribunal's decision (supra). We follow the said case law and allow the assessee's claim of deduction. The relevant ground succeeds.
(v) In the case of ACIT vs. M/s. Sanjeev Auto Parts Manufacturers Pvt. Ltd. in for A.Y. 2011-12 dated 17th February 2016the Hon. Tribunal Pune Bench held as under: "10. We have heard the rival submissions and perused the orders of the authorities below. We find that the issue stands squarely covered in favour of the assessee by earlier decision of the Co- ordinate Bench of the Tribunal in assessee's own case for assessment years 2009-10 and 2010-11 (supra) wherein the Tribunal followed the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT, 38 DTR 57 (Mad.) as well as the decision of the Pune Bench of the Tribunal in the case of Serum International Ltd. vs. Addl. CIT, Range-6 in ITA Nos.290 to 292/PN/2010, order dated 20.09.2011. The operative paras of the order of the Co-ordinate Bench of the Tribunal in assessee's own case in ITA Nos.1373 & 1374/PN/2013 relating to assessment years 2009-10 & 2010-11, order dated 27.05.2014 are reproduced hereunder for ready reference :- 5. We have heard the parties . We find that the issue stands squarely covered in favour of the assessee by the decision of the Hon’ble High Court of Madras in the case of Velayudhaswamy Spinning Mills Pvt. Ltd., vs. ACIT 38 DTR 57 (Mad.) as well as the decision of the ITAT,Pune in the case of Serum International Ltd. vs. Addl. CIT, Range-6, ITA Nos.290 to 292/PN/2010 dated 20-09- 2011.
In the case of Serum International Ltd., (Supra) the Tribunal has held as under "13. The Hon'ble Madras High Court has been further pleased to hold that revenue cannot notionally bring forward any loss of earlier years which had already been set off against the other income of -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., assessee and set off against the correct income of the eligible business. Fiction created by Sub-section (5) of Section 80lA does not contemplate such notional set off, held the Hon'ble High Court. The Hon'ble Madras High Court in that decision has also referred the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT (Supra) and the decision of Special Bench of the Tribunal in the case of Goldman Shares & Finance (P) Ltd. (Supra). There is no dispute that even a decision of non jurisdictional High Court is a binding precedent for the Tribunal until a contrary decision is given by any other competent High Court. In this regard, we find strength from the recent decision of Hon'ble jurisdictional Bombay High Court in the case of Commissioner of Central Excise Vs. Valson Dyeing, Bleaching and Printing Works (Supra) wherein the Hon'ble Bombay High Court has been pleased to hold in a case of excise matter that Tribunal is bound by the decision of High Court, even of a different State, so long as there is no contrary decision of any other High Court. The Hon'ble Bombay High Court has been pleased to hold further that the Tribunal had no option but to follow the judgment of the Madras High Court. An authority like an Income Tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. We thus respectfully following the ratio laid down by the Hon'ble jurisdictional High Court in the case of Commissioner of Central Excise Vs. Vakson Dyeing, Bleaching and Printing Works (Supra) hold that the Tribunal is bound by the decision of the Hon'ble Madras High Court on an identical issue in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). The revenue cannot notionally bring forward any loss of earlier years which hasalready been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the orders of the authorities below and direct the A.O to allow the claimed deduction u/s. 80lA without bringing the notionally brought forward any lossor depreciation of earlier years which has already been set off against other income of the assessee. " "11. Following the parity of reasoning laid down by the earlier decision of the Co-ordinate Bench of the Tribunal in assessee’s own case (supra) we confirm the order of the CIT(A). Accordingly, the Grounds taken by the Revenue are dismissed.
10 ITA No. 7449-2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., (vi) In the case of ACIT vs. Jayshree Polymers Pvt. Ltd., in for A.Y. 2010-11 dated 10th February, 2016 wherein following the decisions of Velayudhswamy Spinning Mills Pvt. Ltd., vs. ACIT (340 ITR 477, Mad) and Serum International Ltd. vs. ACIT in ITA 290 to 292/PN/2010 dated 20th September, 2011 dismissed the appeal of the revenue. (vii) In the case of DCIT vs. Bajaj Electricals in ITA No. 909/Mum/2011 for A.Y. 2006-07 dated 15th May, 2015, the Hon. Tribunal following the decision of Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477,Mad) and the decision of the Karnataka high Court in the case of CIT v. Anil H. Lad held as under: "7. "Thus, following the above ratio, we hold that firstly, the choosing of initial assessment year for the purpose of claiming deduction for the period of 10 years out of 15 years is with the assessee and secondly, before claiming deduction uls 80IA of the Act, the loss on depreciation claimed by the assessee in respect of eligible business is to be set off against the income of the assessee from other source, that is, other business income and earlier loss/depreciation of the Wind Mill cannot be notionally set off against the profit of eligible business for the computation of deduction. Accordingly, the order of the Id. CIT(A) is confirmed and the grounds raised by the Revenue is dismissed.
8. On the other hand learned DR relied on the order of the lower authorities and contended that CIT(A) has dealt with the issue in great detail and after applying correct proposition of law as laid down under section 80IC(7), 80IA(5) and 80IC(8)(v) had reached to the conclusion that eligible unit is an independent, therefore, its profit and loss has to be computed independently and the losses incurred by it is required to be set-off only against its profit and not against profit -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., of other unit. Accordingly learned CIT(A) after applying various judicial pronouncements correctly reached to the conclusion that assessee was not correct in setting off loss of earlier years in the eligible unit against profit of non- eligible unit, accordingly AO was justified in artificially carrying forward the loss of earlier years so as to reduce assessee’s claim for deduction u/s. 80IC (3) (ii) of the IT Act.
9. We have considered rival contentions and carefully gone through the orders of the authorities below as well as relevant provisions of law as applicable during the year under consideration. We had also deliberated on the judicial pronouncements referred by AO and CIT(A) in their respective orders as well as cited by learned AR and DR during the course of hearing before us. From the record we found that during the year under consideration, the assessee has no unabsorbed carry forward loss in respect of eligible undertaking at Uttarakhand. Losses of earlier assessment years 2008-2009 and 2009-2010 in Uttarakhand unit had already been set off against the profit of unit at Mumbai. Thus, the undisputed facts are that assessee has claimed for the first time during the year under consideration its claim of deduction u/s. 80IC in respect of its Uttarakhand unit. Since Uttarakhand unit has no unabsorbed carry forward losses during the year under consideration, therefore, assessee has claimed deduction in respect of the entire income of the Uttarakhand unit during the year under consideration. The undisputed facts are that losses of assessment years 2008-2009 and 2009- 2010 have already been set off against the income of unit at Mumbai. The said -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., losses were not available to be carried forward and set off during the year under consideration i.e., assessment year 2010-2011 under these facts and circumstances, applying the proposition of laws discussed above as referred by learned AR, we do not find any merit in the action of lower authorities for notionally carry forward and set off of losses which have already been set off in the earlier years against the profit of eligible unit during A.Y.2010-11 under consideration.
10. Now we deal with the decisions cited by learned CIT(A) in its order in the case of ACIT vs. Goldmine Shares & Finance Pvt. Ltd. (113 ITD 209,Ahd., SB) dated 30th April, 2008. This judgment of Goldmine Shares is rendered prior to the decision of Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad) dated 11th March 2010 and the Madras High has considered the said decision of the Special Bench and then held in the favour of the assessee. Therefore, the decision is not applicable.
11. The CIT(A) has also referred to decision in case of Nitco Tiles Ltd. vs. DCIT (30 SOT 474, Mum. Trib.) dated 9th April, 2009. This judgment has followed the decision of ACIT vs. Goldmine Shares & Finance Pvt. Ltd. (113 ITD 209, Ahd. SB) which has been overruled by the Madras High Court in Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad) dated 11th March 2010 and it has also been rendered prior to the decision of Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad). -2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd.,
12. The decision of Mumbai Tribunal in case of Pidilite Industries Ltd. vs. DCIT (12 taxmann.com 96 Mum.) dated l0th June 2011 was also referred by CIT(A). This judgment has followed the decision of Goldmine Shares & Finance Pvt. Ltd. (113 ITD 209, Ahd. SB) which has been approved by the Madras High Court in Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad.) which was the only judgment of the High Court in India and hence the decision of the Hon. Tribunal in Pidilite Industries Ltd. is not to be followed as it is against the judicial precedents.
13. In case of Prasad Production P. Ltd. vs. DCIT (98 ITD 212, Chennai. Trib.) dated 30th September 2005 was relied on by CIT(A), we found that this judgment is rendered prior to the decision of Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad) dated 11 th March 2010 and therefore, the decision is distinguishable.
14. In the case of Addl.CIT vs. Ashok Alco Chem Ltd. (96 ITD 160 . Mum. Trib., dated 30-06-2014 referred by CIT(A) in his order. This judgment is rendered prior to the decision of Velayudhswamy Spinning Mills Pvt. Ltd. vs. ACIT (340 ITR 477, Mad) dated 11th March 2010 and therefore, the decision is distinguishable.
15. In view of the above discussion, we do not find any merit in the action of lower authorities for reducing assessee’s claim for deduction u/s. 80IC.
16. Next grievance for assessee relates to CIT(A )’s action in not allowing deduction of Rs. 25,000 and Rs.3,50,000 in respect of Bombay unit and Uttarakhand unit respectively. We have gone through the orders of the 14 ITA No. 7449-2014(A.Y.2010-11) Gamzen Plast Pvt. Ltd., authorities below and do not find any infirmity in the order of lower authorities in respect of Ground No.II raised by the assessee. Accordingly this ground is dismissed.
17. In the result, appeal of the assessee is allowed in part in terms indicated hereinabove.
Order pronounced in the open court on this 28/10/ 2016.