THE TATA POWER CO. LTD,MUMBAI vs. ITO RG 2(1)(1), MUMBAI

आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee company, being ITA No. 3078/Mum/2009, is directed against the appellate order dated 27-2-2009 passed by learned Commissioner of Income Tax (Appeals)- XXX, Mumbai (hereinafter called “the CIT(A)” ), for the assessment year 2002-03, the appellate proceedings before the CIT(A) arising from the assessment order dated 25th October, 2006 passed by the learned Assessing Officer (hereinafter

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called “the AO”) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961(Hereinafter called “the Act”).

“The appellant objects to the order dated 27th February, 2009 passed by the Commissioner of Income-tax (Appeals) XXX, Mumbai (hereinafter referred to as the CIT(A)) for the aforesaid assessment year on the following grounds :- 1. The learned CIT(A) erred in reopening the assessment under section 147 of the Act.

The appellant submits that the reassessment has been done merely on the basis of change of opinion.

2.The learned CIT(A) erred in not appreciating the fact that deduction under Section 80IA has been correctly allowed in the assessment order with reference to the profits of 67.5 MW Unit without considering the unabsorbed depreciation of that Unit for earlier assessment years, since such unabsorbed depreciation has been set off against other income in earlier years.

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“At the outset, we submit that deduction u/s. 80IA has been correctly allowed in the assessment order with reference to the profits of 67.5 MW Unit without considering the unabsorbed depreciation of that Unit for earlier assessment years, since such unabsorbed depreciation has been set off against other income in earlier years.

Our detailed submissions are as under:

As per the provisions of sub-sections(l) and (2) of Section 80lA, an assessee is entitled to claim deduction of 100% of the profits and gains from the specified business for ten consecutive assessment years. The deduction may, at the option of the assessee, be claimed by him for any 10 consecutive years out of 15 years beginning from the year in which the undertaking generates power.

The guidelines for computing the profits of the eligible undertaking are laid down in sec. 80IA(5) which specifies that the quantum of deduction 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 upto and including the assessment year for which the determination is to be made immediately.

The requirement of sec.80IA(5) makes it imperative to determine the initial assessment year and the profits of the undertaking in that assessment year on a standalone basis.

It is pertinent to note that the undertaking is to be treated as the only source of income from the "initial assessment year".

The term "initial assessment year" has not been defined in Sec.80IA. However, a similar provision for deduction in any ten consecutive assessment years out of twelve/twenty years was available in respect of operation and maintenance of infrastructure facility under the earlier section 80IA. The "initial assessment year" in such a case was defined to mean the assessment year specified at the option of the assessee to be the initial year, not falling beyond the twelfth assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility.

On the same analogy, the "initial assessment year" under the new sec.80IA for an undertaking engaged in generation/distribution of power would be the assessment year specified at the option of the

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assessee to be the initial year, not falling beyond the fifteenth assessment year starting from the previous year in which the enterprise begins to generate / distribute power.

This view is further supported by paras 8 and 9 of Form 10CCB which is the form of audit report for claiming deduction u/s.80IA which specifies the date of commencement of operation by the undertaking and initial assessment year from when deduction is being claimed.”

It was submitted by the assessee company that from perusal of the above submissions of the assessee company indicates that the ‘initial assessment year’ is distinct from the previous year relating to the assessment year in which the undertaking commences its operations and the ‘initial assessment year’ can be specified at the option of the assessee company. Accordingly, it was submitted that only from the ‘initial assessment year’ specified by the assessee company , the undertaking would be treated as if it were the only source of income in accordance with the provisions of the sub section (5) of the section 80IA of the Act as submitted here-under by the assessee company:-

“Tata Power has selected A. Y.2002-03 as the initial assessment year in respect of Jojobera 67.5 MW unit. For A. Y.2002-03, the Company as a whole has no brought forward absorbed depreciation. Hence, whilst calculating the profits attributable to Jojobera 67.5 MW unit, which forms part of the total profits of the Company, the question of setting off unabsorbed depreciation of earlier years does not arise, since such depreciation has already been set off against the profit of the other undertakings of the Company in earlier years.

In this connection, we rely on the following decisions:

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The assessee company submitted that the treatment of the undertaking as the only business of the assessee company is from the initial assessment year , would be the assessment year specified by the assessee company at its option.

Thereafter, again the assessee company was show caused by the AO as to why the deduction u/s 80IA of the Act should not be computed after considering unabsorbed depreciation of earlier years.

The assessee company vide its letter dated 29th September, 2006 submitted that the assessment year 2002-03 has been selected for claiming deduction u/s 80IA of the Act regarding Jojobera 67.5 MW unit as the ‘initial assessment year’. The assessee company submitted that there is no brought forward loss/unabsorbed depreciation set off against the total income to arrive at the total income as the same has already been set off in the earlier years against the other business income of the assessee comapny. The assessee company submitted that the total taxable income of the assessee company includes Jojobera 67.5 MW taxable income of Rs.20,70,84,187/- which amount has been claimed by the assessee company as deduction u/s. 80IA of the Act and since there is no brought forward loss/unabsorbed depreciation set off against the total income , to arrive at final taxable total income, no adjustment has been made to the claim u/s 80IA of the Act for the Jojobera 67.5MW power undertaking’s taxable income.

The contention of the assessee company was rejected by the A.O. as in the opinion of the A.O. , Section 80IA(5) of the Act clearly stipulates the quantum of deduction u/s 80IA for the assessment year immediately succeeding the

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‘initial assessment year’ or any subsequent assessment year , the profit and gains from the eligible business shall be computed as if such eligible business were the only source of income of the assessee company during the financial year relevant to the ‘initial assessment year’ and to every subsequent assessment year up-to and including the assessment year up-to which the determination is made. It was observed by the A.O. that the assessee company has started its Jojobera 67.5 MW unit power generating undertaking in the assessment year 1997-98 but the assessee company has not claimed deduction u/s 80IA of the Act in any of these years and the assessee company has treated the assessment year 2002-03 as the ‘initial assessment year’ and claimed deduction u/s 80IA of the Act from this year only. The A.O. observed from the verification of the record that for the earlier years , the assessee company was having only 50% share in Tata Electric (AOP) upto the assessment year 2000-01 of which the balance shares was held by Tata Hydro 20% and Andhra Valley 30%, therefore, upto the assessment year 2000-01 the three companies were collectively called Tata Electric (AOP) with their shares determined as above. However, from the assessment year 2001-02 all the companies were merged under the assessee company with 100% share. In view of the above, while computing deduction u/s 80IA of the Act for considering the losses or income in respect of Jojobera 67.5 MW power generating unit for earlier years income/losses of Tata Electric (AOP) is taken from assessment years 1997-98 to 2000-01 instead of the income/losses of the assessee company for the above assessment years. In the relevant assessment years i.e. 1997-98 to 2000-01, the assessee company was holding only 50% share in the AOP. Therefore, income/loss in respect of Jojobera 67.5 MW unit also would be attributable to the assessee company to the extent of 50% only for the above years. Thus, the AO held that it would be fair and right to consider the losses of Tata Electric (AOP) which is 100% while computing the deduction u/s 80IA of the Act for the ‘initial assessment year’ considered by the assessee company i.e. the

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assessment year 2002-03. Thus, the brought forward losses which represents unabsorbed depreciation in all the years from the assessment year 1997-98 of Tata Electric (AOP) for Jojobera 67.5 MW power generating unit was as under:-

B/f loss of A.Y. 1997-98 (-)59,24,89,134 B/f loss of A.Y. 1998-99 (-)39,90,49,303 Total (-)99,15,38,437 A.Y. 1999-2000 13,04,09,597 Set off of b/f losses (-)99,15,38,437 (-)86,11,28,840 A.Y. 2000-01 27,36,07,641 B/f losses (-)86,11,28,840 (-)58,75,21,199 A.Y. 2001-02 (Tata 15,37,29,761 Power) B/f losses (-)58,75,21,199 (-)43,37,91,438 Income from Jojobera 20,70,84,187 67.5 MW unit for A.Y. 2002-03 Balance loss (-)22,67,07,251

Thus it was observed by the AO, it can be seen from the above that from the assessment year 1997-98 onwards the assessee company had unabsorbed depreciation in respect of Jojobera 67.5 MW power generating unit for the assessment year 1997-98 and 1998-99. However, after set off of unabsorbed depreciation of earlier years against the income of the assessment years 1999-00 to 2001-02, there is still unabsorbed depreciation of Rs.

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43,37,91,438/- which has to be set off against the income for the assessment year 2002-03 for working out the deduction u/s 80IA of the Act. Since there is no eligible profit, the assessee company is not eligible for any deduction u/s 80IA of the Act although the impugned assessment year 2002-03 has been considered as the ‘initial assessment year’ for deduction u/s 80IA of the Act, unabsorbed depreciation of the earlier years have to be set off against the income of this ‘initial assessment year’ in respect of this Jejobera 67.5MW power generating unit. It was held by the AO that in view of the provisions of Section 80IA(5) of the Act which lays down that the profits and gains of eligible business shall be computed as if such business were the only source of income of the assessee company during the previous year relevant to the assessment year. In view of the above, it was held by the A.O. that the assessee company is not eligible to deduction u/s 80IA of the Act in the assessment year 2002-03 as the assessee company itself has vide above figures in the chart has indicated and confirmed that there were losses in some of the years which after setting off against the income in the assessment year 1999-2000 to 2001-02 leave behind a net loss of Rs.43,37,91,438/- , vide assessment orders dated 25.10.2006 passed by the AO u/s 143(3) read with Section 147 of the Act.

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report for the assessment year 2002-03, the tax auditors have made the following disclosure:

“The claim is in respect of Jojobera 67.5 MW unit for which the company has exercised the option that the claim under section 80IA will be for ten consecutive assessment years beginning with A.Y. 2002-03 and accordingly, no adjustment has been made for the unabsorbed depreciation relating to earlier assessment years, which has been set off against the other business income of the assessee in earlier years”

It was submitted that despite the above disclosure, assessment was completed u/s 143(3) of the Act and deduction of Rs. 68,25,97,659/- was granted u/s 80IA of the Act , which included a deduction of Rs. 20,39,98,805/- u/s 80IA of the Act in respect of Jojobera 67.5 MW power generating unit. The difference between the amount of deduction claimed in respect of Jojobera 67.5 MW power generating undertaking i.e. Rs. 20,70,84,187/- and the amount allowed at the time of assessment u/s 143(3) of the Act i.e. Rs. 20,39,98,905/- was on account of other income of Rs. 30,85,382/-, which in the opinion of the A.O. was not allowable u/s 80IA of the Act. No other adjustment was made despite the disclosure in the tax audit report. The A.O. reopened the assessment and passed reassessment order dated 25th October, 2006 u/s 143(3) r.ws. 147 of the Act and the deduction granted earlier u/s 80IA of the Act in respect of Jojobera 67.5 MW power generating unit had been nullified by re-computing the taxable income of the said unit as a separate entity right from the date of commencement of power generation by the Jejobera 67.5MW unit . Accordingly the brought forward depreciation of the unit on a standalone basis from the date of its commencement has been set off to arrive at the taxable income of that unit qualifying for deduction u/s 80IA of the Act by the AO in re-assessment proceedings. It was submitted that no adjustment has been made by the assessee for the unabsorbed depreciation relating to earlier assessment years

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which has been set off against the other business income of the assessee company in earlier years, has been indicated in the tax audit report. Despite this disclosure, no adjustment was made for brought forward unabsorbed depreciation for determining deduction u/s 80IA of the Act at the time of assessment u/s 143(3) of the Act. Hence, it was submitted that reassessment u/s 147 of the Act and the adjustment made thereof for brought forward unabsorbed depreciation for determining the deduction u/s 80IA of the Act is merely based on change of opinion. It was submitted that despite amendment to section 147 of the Act, a mere change of opinion will not warrant a reopening u/s 147 of the Act for initiating reassessment proceedings. The assessee company relied upon following case laws to support its contentions:

i) CIT v. Foramer France , 264 ITR 566(SC) ii) IPCA Laboratories Limited v. DCIT, 251 ITR 416(Bom.) iii) Parshuram Pottery Works Co. Ltd. v. ITO ,106 ITR 1(SC) iv) Addl. CIT v. Shankerdas B. Pahljani in ITA no. 5085/Mum/ 2001(Mum Trib.) v) CIT v. Kelvinator of India Limited 256 ITR 1(Del.)(FB) vi) Wyeth India Private Limited v. IAC 137 ITR 20(Bom.) vii) Garden Silk Mills Private Limited v. DCIT 237 ITR 668(Guj.) viii) Jindal Photo Mills Limited v. DCIT 234 ITR 170(Del) ix) India Steamship Co. Limited v. JCIT 194 CTR 386(Cal.) x) Transworld International Inc. 192 CTR 97(Del)

It was also submitted that reassessment has been made mainly based on the audit observation which is not permitted in law. The assesse company also relied upon following case laws to support its contentions :

i) Siemens Information Systems Limited v. ACIT 295 ITR 333(Bom.) ii) IL&FS Investment Managers Limited v. ITO 209 CTR 1

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iii) Eastern Newspaper Society v. CIT 119 ITR 996(Bom.) iv) CGT v. Nabe Shah 279 ITR 383(All.) v) CIT v. Ambika Gwar Gum Mills 266 ITR 446(Raj.)

The ld. CIT(A) after perusing the submission of the assessee company held that if the A.O. has reason to believe that income chargeable to tax has escaped assessment for any assessment year, subject to provisions of sections 148 to 153 of the Act , the AO can assess or reassess such income. The A.O. clearly had reasons to believe that income has escaped assessment and the same can be reopened under the provisions of Section 147 of the Act. The ld. CIT(A) held that in the instant case since the assessment has been reopened within four years from the end of the assessment year, the proviso to section 147 of the Act has no application, thus, the contention of the assessee company that it has disclosed fully and truly all the material fact necessary for the assessment is of no help to the assessee company and the reliance placed by the assessee company on various case laws has been misplaced. It was also observed by the ld. CIT(A) that the issue of application of 80IA(5) of the Act has never been examined by the A.O. though there is disclosure on the part of the assessee company, therefore, the fact of the present case are different than the case relied upon by the assessee company, therefore reliance placed by the assessee company is misplaced and not applicable in the present case. It was held by the ld. CIT(A) that in the reasons recorded, satisfaction of the A.O. has been arrived. In the reasons recorded for reopening of the assessment, a copy of the same has also been supplied to the assessee company , therefore, reopening of assessment was held to be valid by the ld. CIT(A).

On merit, the assessee company submitted before the ld. CIT(A) that the A.O. has reopened the assessment u/s 147 of the Act and allowed deduction u/s 80IA of the Act on the taxable income after setting off the brought forward

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depreciation of the units eligible for deduction u/s 80IA of the Act. It was submitted that the A.O. erred in not appreciating the fact that such depreciation has already been set off against the income of the assessee company as a whole in the earlier assessment years. The assessee company submitted that as per section 80IA(1) and (2) of the Act, the assessee company is entitled to claim deduction of 100% of the profits and gains from the specified business for ten consecutive assessment years and the deduction may, at the option of the assessee company, be claimed by him for any ten consecutive years out of 15 years beginning from the year in which the undertaking start generating power. The assessee company submitted that the quantum of deduction 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 company 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. Thus, as per section 80IA(5) of the Act it is imperative to determine the ‘initial assessment year’ and the profits of the undertaking in that assessment year on a standalone basis. It was submitted that the undertaking is to be treated as the only source of income from the ‘initial assessment year’. A similar provision for deduction in any ten consecutive assessment years out of 12/20 years was available in respect of operation and maintenance of infrastructure facility under the earlier section 80IA of the Act. Thus the ‘initial assessment year’ in such a case was defined to mean the assessment year specified at the option of the assessee company to be the initial year , not falling beyond the 12th assessment year starting from the previous year in which the enterprise begins operation and maintaining the infrastructure facility. Thus, on the same analogy for the ‘initial assessment year’ under the new Section 80IA for an undertaking engaged in generation/distribution of power is to be applied for. The assessee company also submitted that the above view is supported

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by para 8 & 9 of Form No. 10CCB which is the form of audit report for claiming deduction u/s 80IA of the Act, to contend that the ‘initial assessment year’ is distinct from the previous year relating to the assessment year in which the undertaking commences its operations and the initial assessment year can be specified at the option of the assessee company. The assessee company relied upon the decision of Hon’ble Rajasthan High Court in the case of CIT v. Mewar Oil and General Mills Ltd., (2004)186 CTR 141(Raj.) to content that the Hon’ble 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 u/s 80-I for the purpose of computing admissible deductions there under. The assessee company relied upon the decision of Chennai Tribunal in the case of Mohan Breweries & Distilleries Limited v. ACIT in ITA no. 1077 of 2007, whereby the Chennai Tribunal held that the provisions of Section 80IA(5) of the Act treating the undertaking as a sole source of income could not be applied to a year prior to the year in which the tax-payer opted to claim relief u/s 80IA of the Act for the first time. Further , the depreciation and carry forward losses of the unit cannot notionally be carried forward and set off against the income from the year in which the tax-payer started claiming deduction u/s 80IA of the Act.

The ld. CIT(A) held that the unit had incurred losses amounting to Rs. 43,37,91,438/- in the earlier years while the unit has earned profit of Rs. 20,70,84,187/- during the instant assessment year 2002-03 and claimed deduction u/s 80IA of the Act, hence, there will not be any amount remaining eligible for deduction u/s 80IA of the Act, rather there is a carried forward losses of Rs. 22,67,07,251/-. The ld. CIT(A) referred to section 80IA(5) of the Act and held that the section starts with notwithstanding clause, therefore, it supersedes all other provisions of the Act. It was also held that the deduction shall be computed as if eligible industrial undertaking was only source of

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income of the assessee company during the previous year relevant to the ‘initial assessment year’ and to every subsequent assessment year. Thus, the case of the assessee company is covered by the above provisions. Thus, the ld. CIT(A) held that the reliance on various case laws by the assessee company is not correct. The decision of Hon’ble Rajasthan High court in CIT v. Mewar Oil & General Mills(Supra) was with respect to invocation of provisions of Section 154 of the Act with respect to applicability of Section 80IA(5) for which court held that as the matter is debatable , provisions of Section 154 cannot be invoked. The CIT(A) held that it becomes crystal clear that the profit for the unit is to be computed u/s 80IA(5) of the Act and after reducing the losses incurred by the same unit in the earlier years even though the same has been set off against income of the earlier years , only then deduction u/s 80IA of the Act needs to be allowed. In this case, the assessee company is not eligible for deduction u/s 80IA of the Act in respect of profit earned on the Jojobera 67.5 MW unit. Therefore, the assessee company is not eligible for deduction u/s 80IA of the Act in respect of Jojobera Unit 67.5 MW of Rs. 20,70,84,187/- and the A.O. has rightly disallowed the same, vide orders dated 27-02-2009. The CIT(A) also relied upon decision in the case of ITO v. Kanchan Oil Industries Limited (2005) 92 TTJ 739(Kol. Trib.) and Khinvasara Investment Private Limited v. JCIT (2007) 109 TTJ 341(Pune. Trib)

7.Aggrieved by the orders dated 27-02-2009 of the ld. CIT(A), the assessee company is in second appeal before the Tribunal.

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“Circular No. 1 /2016

Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

North Block, New Delhi, the 15th February, 2016

Subject: Clarification of the term 'initial assessment year' in section 80lA (5) of the Income-tax Act, 1961.

Section 80IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides 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) 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".

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In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.

The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.

The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed.

The above be brought to the notice of all Assessing Officers concerned.

Sd/- (Deepshikha Sharma) Director to the Government of India

(F.No.200/31/2015-ITA-I)

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Copy to: 1. Chairman and all Members of CBDT 2. PS/OSD to Secretary (Revenue) 3. O/o Pr. Director General of Income Tax(Systems) with request for uploading on official website in public domain

(Deepshikha Sharma) Director to the Government of India”

The ld. Senior Counsel for the assessee company submitted that the Revenue has reopened the assessment u/s 147/148 of the Act within four years from the end of the assessment year. He drew our attention to the orders of the ld. CIT(A) and submitted that there was a complete disclosure in the clause 26 of the tax audit report about the claim of the assessee company u/s 80IA with respect to the Jojobera 67.5 MW power generating unit for which the assessee company has exercised the option to claim deduction u/s 80IA of the Act beginning from assessment year 2002-03 and no adjustment is made for notional unabsorbed depreciation relating to the earlier assessment years which had already been set off against the other business income in the earlier years. The Ld. Senior Counsel submitted that the assessee company has opted the assessment year 2002-03 as the ‘initial assessment year’ although the unit commenced generation of power w.e.f. assessment year 1997-98. It is submitted that the unit is an independent source and the

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earlier years losses are not to be set off as they were already set off against the other business income in the earlier years and allowed by the Revenue which is an undisputed position between the rival parties. The ld Senior Counsel submitted that the Revenue has framed the original assessment order dated 24th February 2005 u/s 143(3) of the Act after considering the tax audit report whereby complete disclosure was made with respect to the claim of deduction u/s 80IA of the Act with respect to the Jojobera 67.5 MW power generating unit . It was submitted that the tax audit report is a statutory document which is issued under the provisions of 44AB of the Act and it cannot be contended by the Revenue that they have not gone through the tax audit report while framing the original assessment u/s 143(3) of the Act, as the tax audit report which is certified by a Chartered Accountant is meant for the benefit of the Revenue containing all the specified details which may have bearing on the assessment. The ld. Senior Counsel submitted that in the original assessment order passed u/s 143(3) of the Act, the AO has taken correct view whereby the claim of the assessee company u/s 80IA of the Act with respect to Jojobera 67.5 MW power generation unit was allowed to the tune of Rs.20,39,98,805/- as against the claim of the assessee company to the tune of Rs.20,70,84,187/- filed in the return of income filed with the revenue. The ld Senior Counsel submitted that there was change of opinion of the A.O. as no new tangible material has come into the possession of the AO which could have live link and nexus with the formation of an belief of the AO that the income has escaped assessment , and the reopening has been done merely on the basis of audit objection while in the original assessment the A.O. has applied his mind while passing the order u/s 143(3) of the Act and it is clearly a case of change of opinion. It was also contended that now the CBDT has come with a Circular No. 1 of 2016 whereby the CBDT has clarified that the assessee company has option to choose the ‘initial assessment year’. The assessee company has commenced generation of power in the assessment year 1997-98, while the assessee company has

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chosen the impugned assessment year 2002-03 as the ‘initial assessment year’ for claiming the deduction u/s 80IA of the Act. The ld. Senior Counsel submitted that the unit Jojobera 67.5 MW power generating unit is the independent source of income of the assessee company. There is no unabsorbed depreciation/business loss with respect to this unit as the said unabsorbed losses/depreciation were already set off against the other business income of the assessee company in the earlier years. The assessee company has chosen the current assessment year 2002-03 as the initial assessment year and the profit of Rs. 20,39,98,805/- is eligible to be allowed as deduction u/s 80IA of the Act . The assessee company has chosen the initial assessment year as 2002-03 from which relief u/s 80IA of the Act will be available for a period of ten consecutive assessment years of the fifteen assessment years from the year of commencement of generation of power, although the generation of power has commenced in the assessment year 1997-98. The Ld. Senior Counsel for the assessee company submitted that the assessee company is fully covered by the Circular No. 1/2016. The ld. Senior Counsel submitted that the reasons which were recorded by the Revenue while reopening the assessment has not been furnished to the assessee company till the completion of the assessment u/s 143(3) read with Section 147 of the Act which culminated into an assessment order dated 25- 10-2006. It is only on the direction of the Tribunal in second appeal filed by the assessee company , the Revenue gave reasons for re-opening to the assessee company on the directions of the Tribunal. The assessee company asked for the reasons for reopening when the notice u/s 147 of the Act was received during the course of assessment proceedings u/s 143(3) read with Section 147 of the Act, but the same were not furnished to the assessee company . The ld counsel for the assessee company stated before us that the A.O. erroneously stated in the assessment order dated 25.10.2006 passed u/s 143(3) read with Section 147 of the Act that the reasons for reopening were given, while no reasons for reopening were provided to the assessee

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company till as per the directions of the Tribunal. The Tribunal directed the assessee company to file the affidavit to that effect that the reasons for re- opening were not given to the assessee company during the course of assessment proceedings u/s 143(3) read with Section 147 even till the framing of the assessment order dated 25.10.2006 u/ 147 read with Section 143(3) of the Act and the finding in the assessment order dated 25.10.2006 that the reasons were duly given was erroneous , the affidavits’ to that effect were duly filed by the assessee company vide affidavit dated 19-11-2014 of Mr P D Suvarna, employee of the assessee company who appeared before the AO for representing the assessee company during the re-assessment proceedings and the affidavit dated 10-02-2015 of Sh. Anil Sardana , Managing Director of the assessee company and both the affidavits are filed before the Tribunal which are placed in the file . The ld. Senior Counsel submitted that no new tangible material has been brought on record by the Revenue to substantiate that any income has escaped assessment. The assessee company challenged the change of opinion before the ld. CIT(A) but the specific issue of non supplying of the reasons for the re-opening of the assessment was not raised before the ld CIT(A). The assessee company relied upon the decision of the Tribunal in the case of Tata Communications Ltd. v. Addl. CIT in ITA No. 3417/M/2009 for the assessment year 2001-02 order dated 29.1.2016. The assessee company also relied on the decision of Hon’ble Bombay High Court in the case of CIT v. Videsh Sanchar Nigam Ltd. [2012] 340 ITR 66 (Bom) to contend that it is not sufficient on the part of the Revenue to give reasons along with assessment order or after the assessment order. The ld. Senior Counsel also relied upon the decision of CIT v. Trend Electronics , (2015) 94 CCH 0049(Bom) . The. ld. Senior Counsel submitted that the reasons for re- opening in the instant appeal has been given to the assessee company during the current proceedings before the Tribunal, and only when the Tribunal directed the Revenue to give reasons for re-opening. Thus it was submitted that no new tangible material has come into the possession of A.O. which has

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a live nexus with the formation of belief by the AO that income has escaped assessment. There is clearly a change of opinion on the part of the A.O. based on the audit objection received by the AO, thus there is no question of reopening of the assessment and the entire proceedings u/s 147/148 of the Act are bad in law liable to be quashed. The assessee company also relied upon several case laws which are given in compilation in the form of paper book filed with the Tribunal to support the propositions of the ld. Senior Counsel for the assessee company as set out above, which are placed in the file.

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losses/depreciation of the said undertaking were adjusted and set off against the other business income in the earlier years , which set off was allowed by the Revenue. Thus, in nutshell, there was no carry forward of unabsorbed losses/depreciation of the 67.5 MW Jojobera power project undertaking. With effect from the assessment year 2001-02, the said 67.5 MW Jojobera power project undertaking is directly owned and managed by the assessee company as earlier it was owned by Tata Electric(AOP) whereby the assessee company had 50% shares, while rest of the shares were held by Andhra Valley(30%) and Tata Hydro(20%). Section 80IA of the Act provides that for ten consecutive assessment years out of fifteen years beginning from the year in which generation of power commenced, deduction u/s 80IA is available on the 100% profit of the undertaking derived from generation of power. The assessee company has chosen the assessment year 2002-03 as the ‘initial assessment year’ for the purposes of claiming deduction u/s 80IA of the Act although the 67.5 MW Jojobera power generation undertaking commenced generating power in the assessment year 1997-98. Undisputedly the assessee company 67.5 MW Jojobera power generating undertaking has no unabsorbed business losses/depreciation of the earlier assessment years as they had already been set off and adjusted against the income from other businesses in the earlier years and set-off was allowed by the Revenue. The assessee company has the option to choose the ‘initial assessment year’ and thereafter deduction of 100% of the profit from generation of power is eligible for deduction u/s.80IA of the Act for ten consequent assessment years out of the fifteen years beginning from the commencement of generation of power . The CBDT has now come with Circular No. 1/2016[F. No. 200/31/2015-ITA- I] dated 15- 2-2016 which is binding on the Revenue , whereby the Board has clarified the term “initial assessment year” in section 80-IA(5) of the Act wherein it has been categorically mentioned that the matter has been examined by the Board and it is abundantly clear from sub-section (2) of Section 80IA of the Act that an tax-payer who is eligible to claim deduction

ITA 3078/Mum/2009 24

u/s 80-IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It has been clarified that once such ‘initial assessment year’ has been opted for by the tax-payer, he shall be entitled to claim deduction u/s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. Thus, the CBDT directed all the Assessing Officers concerned to allow deduction u/s. 80-IA of the Act in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s. 80IA of the Act shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section. In view of the said Circular, the claim of the Revenue is now not sustainable as the circular is binding on Revenue. The relevant CBDT circular no 1/2016 (F.No.200/31/2015-ITA-1)dated 15-2-2006 is reproduced below Circular No. 1/2016 issued by the CBDT is binding on the Revenue and the same is reproduced below :

“Circular No. 1 /2016

Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes

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North Block, New Delhi, the 15th February, 2016

Section 80IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides 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) 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".

In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.

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The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.

The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed.

The above be brought to the notice of all Assessing Officers concerned.

Sd/- (Deepshikha Sharma) Director to the Government of India

(F.No.200/31/2015-ITA-I) Copy to: 1. Chairman and all Members of CBDT 2. PS/OSD to Secretary (Revenue) 3. O/o Pr. Director General of Income Tax(Systems) with request for uploading on official website in public domain

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(Deepshikha Sharma) Director to the Government of India”

The word ‘initial assessment year’ has been referred in section 80IA(5) of the Act being the year at the option of the tax-payer chosen to be the year from which the deduction u/s 80IA of the Act is to be available for ten consecutive assessment year out of fifteen assessment years commencing form the year when the power undertaking start generating power, and thereafter for the succeeding assessment years onward it will be considered that this undertaking is the only source of income of the assessee company as per section 80IA of the Act. Thus, in our considered view , the assessee company is entitled for deduction u/s 80IA of the Act from the assessment year 2002- 03 which has been chosen by the assessee company as the ‘initial assessment year’ without adjusting the notionally brought forward unabsorbed business losses/depreciation of the earlier years which are stated to be already adjusted against the business income of the earlier years and the said set off was also allowed by the Revenue in the preceding years . Our view is consistent with the view recently taken by Hon’ble Madras High Court in the case of CIT v. G.R.T.Jewellers (India) in TCA no. 176 of 2016 vide judgment dated 01-03-2016 as under:

“The Revenue has come up with the above appeal raising the following substantial questions of law :

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"(1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No.33475 of 2012 ?

(2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the initial assessment year in Section 80IA(5) would only mean the year of claim of deduction under Section 80IA and not the year of commencement of eligible business ? and

(3) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year of claim for deduction under Section 80IA ?"

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15.2.2016. It will be useful to extract the circular in entirety, which is as follows:

"Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi,

the 15th February, 2016

Subject: Clarification of the term ‘initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961

Section 801A of the Income-tax Act, 1961 (‘Act’), as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-Section (5) of Section 801A further provides 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) apply shall, for the purposes of determining the quantum

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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”.

In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term ‘initial assessment year’. It has been represented that some Assessing Officers are interpreting the term ‘initial assessment year’ as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years.

The matter has been examined by the Board. It is abundantly clear from Sub-Section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 801A.

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However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity.

The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting ‘initial assessment year’ as mentioned in SubSection (5) of that section for which the Standing Counsel/DRs be suitably instructed.

above be brought to the notice of all Assessing Officers concerned."

The Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT(2012) 340 ITR477(Mad.) has earlier held that there will be no adjustment of brought forward notional business losses/depreciation which has

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already been set off against other income of earlier years against the profit of the undertaking of the initial year chosen by the tax-payer for computing deduction u/s 80IA of the Act, while granting deduction u/s 80IA of the Act as under:

“8. Heard the counsel appearing for the parties and perused the materials available on record. 9. On a perusal of the order of the Assessing Officer, it is seen that the eligible income for deduction under section 80-IA is worked out in all the cases as follows :

Rs.

Tax Case (Appeal) No. 909 of 2009 :

Net income from Windmill Division 1 1,70,76,945 (2002-03)

)Unabsorbed depreciation allowance 8,26,84,110 assessment year 2003-04

)Income from Windmill Division 1 (2002-03) 71,16,270 assessment year 2004-05

Balance of unabsorbed depreciation 7,55,67,840 allowance

Unabsorbed depreciation allowance (-) balance 5,84,90,895

Tax Case (Appeal) No. 940 of 2009 :

Net income from Windmill Division 2,82,67,370

: Unabsorbed depreciation allowance 12,11,01,360 (initial assessment year) assessment

ITA 3078/Mum/2009 33

year 2003-04

-do- assessment year 2004-05 1,59,85,972

13,70,87,332

Balance (-) 10,88,19,962

Tax Case (Appeal) No. 918 of 2008 :

Total loss + depreciation of the units (-) claiming depreciation for all earlier years 24,63,50,426

Less : Current year’s income from the 10,63,74,164 unit

Balance income available for deduction (-) under section 80-IA 13,99,76,362

ITA 3078/Mum/2009 34

"The cumulative consideration of the principles set out in the above referred to decisions and the other factors involved in this case, wherein admittedly the entire depreciation allowance and development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years and no further depreciation allowance or development rebate remain unabsorbed and nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act."

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rebate remained unabsorbed and, therefore, nothing could be deducted in respect of the set off while determining the deduction under section 80-I of the Act. Section 80-I was introduced by the Finance (No. 2) Act, 1980, with effect from April 1, 1981. The said sub-section deals with deduction in respect of profits and gains from industrial undertakings after a certain date. Section 80-I reads as follows :

"80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof : . . .

(5) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning or the company commences work by way of repairs to ocean-going vessels or other powered craft (such assessment year being hereafter in this section referred to as the initial assessment year) and each of the seven assessment years immediately succeeding the initial assessment year : . . .

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(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub- section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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."

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the provision of section 80-IA. The said provision was introduced by the Finance Act, 1999, with effect from April 1, 2000. The provisions of sections 80- I and 80-IA are also more or less identically worded. Sections 80-I and 80-IA come in Chapter VI-A of the Income-tax Act. Chapter VI-A deals with deductions to be made in computing total income. There are two tax incentives contemplated in Chapter VI-A. One is investment incentive and the other one is profit-linked investment. Chapter VI-A was introduced by the Finance Act, 1965, with effect from April 1, 1965, and it consists of four headings. They are A, B, C and D. Heading "A" is general and it also contains definition. It consists of sections 80A, 80AA, 80AB, 80AC and 80B. Section 80AB deals with "Deductions to be made with reference to the income included in the gross total income", which reads as follows : "Where any deduction is required to be made or allowed under any section included in this Chapter under the heading ‘C-Deductions in respect of certain incomes’ in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income."

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which is derived or received by the assessee and which is included in the gross total income. Section 80AB defines "gross total income" which means the total income has to be computed in accordance with the Act before making deduction under this Chapter. Heading "B" deals with "deductions in respect of certain payments" which consists of sections 80C to 80GGC. Heading "C" deals with "deductions in respect of certain incomes", which consists of sections 80H to 80TT. The last heading "D" deals with "other deductions" which consists of sections 80U to 80V. Heading "C" is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are sections 80-I, 80- IA and 80-IB. In the case of Liberty India v. CIT [2009] 317 ITR 218 (SC) ; [2009] 225 CTR (SC) 233 ; [2009] 28 DTR (SC) 73, the apex court considered the scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein, it has been held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. Further, it has been held that sections 80-IB/80-IA are the code by themselves as they contain both substantive as well as procedural provisions. The Supreme Court further observed in the said judgment that sub-section (5) of section 80-IA provides for manner of computation of profits of an eligible business. Accordingly such profits are to be computed as if such eligible business is the only source of income of the assessee.

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assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecutive assessment years. (2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines. (4) This section applies to- (i) any enterprise carrying on the business of (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a)it is owned by a company registered in India or by a consortium of such companies (or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act) ; (b)it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, or (ii) operating and maintaining, or (iii)developing, operating and maintaining a new infrastructure facility ; (c)it has started or starts operating and maintaining the infrastructure facility on or after the 1st April, 1995. (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 immediately

ITA 3078/Mum/2009 40

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." 17. From a reading of sub-section (1), 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 be getting the benefit. Fifteen years is outer limit and 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 under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and they are as under : "(1)It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; (2)It is for the purpose of determining the quantum of deduction ; (3)For the assessment year immediately succeeding the initial assessment year; (4)It is a deeming provision ;

ITA 3078/Mum/2009 41

(5)Fiction created that the eligible business is the only source of income ; and (6)During the previous year relevant to the initial assessment year and every subsequent assessment year."

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case of CIT v. Mewar Oil and 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-I and held as follows (page 314 of 271 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 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 section 80-I 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-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, recomputation of income for the purpose of computing permissible deduction under section 80-I 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."

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ITA 3078/Mum/2009 44

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of Income-tax (Appeals) regarding the quantum of deduction, the assessee filed an appeal before the Tribunal. In the assessee’s appeal, the Revenue filed a letter first time before the Tribunal and disputed the fact relating to the assessee’s claim that assessment year 2004-05 is the initial assessment year. The Tribunal found that both the Assessing Officer and the Commissioner of Income-tax (Appeals) had given categorical finding that the assessee claimed deduction for the first time during the year 2004-05 and paragraph 5 reads as follows :

"In the present case, there is a categorical finding by the Assessing Officer and the Commissioner of Income-tax (Appeals) that the first year claimed is from the assessment year 2004-05. At the time of hearing, the learned Departmental representative filed a letter which reads as follows :

‘The assessee’s claim is that assessment year 2004-05 is the "initial assessment year". However, from a perusal of records the following facts are observed :

Assessment year 1999-2000 : The assessee claimed deduction of Rs. 2,15,59,112 under section 80-IA of the Income-tax Act. The Assessing Officer rejected the claim under section 143(3) read with section 263. Aggrieved by the order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) agitating, inter alia, the claim for a deduction under section 80-IA. The Commissioner of Income-tax (Appeals), vide his order in I. T. A. No. 39/2005-06, dated August 4, 2005, in paragraph 12 directed the Assessing Officer to allow the claim under section 80-IA which was accordingly, allowed.

Assessment year 2000-01 :

ITA 3078/Mum/2009 46

In this assessment year also the assessee in the computation memo claimed deduction under section 80-IA of an amount of Rs.1,20,19,495 which was allowed in full by the Assessing Officer in the regular assessment order under section 143(3), dated March 28, 2003.

This being the position, the statement of the assessee that the claim under section 80-IA claimed for the first time in the assessment year 2004-05 is totally contrary to the facts as mentioned. This proves that assessment year 2004-05 is not the initial assessment year as claimed by the assessee.

The fact of the matter is that the assessee exercised its option of claiming deduction under section 80-IA in the assessment year 1999-2000 itself. Therefore, the assessment year 1999-2000 is the initial assessment year.’

But this letter is contrary to the findings of the lower authorities. The lower authorities categorically observed that the first year in which deduction was claimed was 2004-05. We have already narrated in the facts of the case that if the facts stated by the Assessing Officer or the Commissioner of Income-tax (Appeals) are wrong the Departmental representative is required to adduce the evidence as per rules 10 and 29 of the Income-tax (Appellate Tribunal) Rules, 1963, which read as follows :

‘10. Filing of affidavits.-Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit.

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before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.’

These facts are contrary to the facts recorded by the Commissioner of Income-tax (Appeals) and the Assessing Officer. It cannot be considered. The above statement made by the Assessing Officer is not in accordance with rules 10 and 29. Hence, we decline to consider the same.

Adverting to the facts of the case, the initial assessment year in this case starts from 2004-05 since the assessee has opted to claim this deduction only in this assessment year, the initial assessment year cannot be the year in which the undertaking commenced its operations and in this case, the initial assessment year is the assessment year in which assessee has chosen to claim deduction under section 80-IA. Hence, the provisions of section 80-IA(5) treating undertaking as a separate sole source of income cannot be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA, cannot be notionally carried forward and set off against the income from the year in which the assessee started claiming deduction under section 80- IA. At the cost of repetition, we make it clear that the case law relied on by the Departmental representative are delivered before the amendment to section 80-IA by the Finance Act, 1999. Before the amendment, the initial assessment year was defined in the Act but after the amendment there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year

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of claiming relief under section 80-IA. In view of this, we are of the opinion that there is no question of setting off notionally carried forward unabsorbed depreciation or loss against the profits of the units and the assessee is entitled to claim deduction under section 80-IA on the current assessment year on the current year profit. Accordingly, we allow the claim of the assessee."

Thus keeping in view judgment of the Hon’ble Madras Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT(2012) 340 ITR477(Mad.) , judgment of Hon’ble Madras High Court in the case of CIT v. GRT Jewellers(India) (supra) , CBDT Circular No. 01/2016 dated 15-02-2016 , provisions of Section 80IA

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of the Act and as per discussions and reasoning as set out above, we have no hesitation in holding that the assessment year 2002-03 chosen by the assessee company shall be the ‘initial Assessment year’ for the purposes of claiming deduction u/s 80IA of the Act , although the Jojobera 67.5MW unit started generating power w.e.f. assessment year 1997-98. Thus, Jojobera 67.5 MW power undertaking shall be deemed to be the only source of the income as provided u/s 80IA(5) of the Act only from the assessment year succeeding the assessment year 2002-03 being the initial assessment year and subsequent assessment year up-to and including the assessment year for which the determination is to be made which in any case shall not transgress beyond fifteen years from the year when Jojobera 67.5 MW power generating unit started generating power. We also hold that the notionally brought forward losses/ depreciation of the Jojobera 67.5 MW power generating unit for the period from the assessment year 1997-98 to 2001-02 which are already set off against the other business income in earlier years and set-off being allowed by the Revenue shall not be adjusted from the profit so computed by the assessee company with respect to Jojobera 67.5MW power generating unit for the assessment year 2002-03 for the purposes of computing deduction u/s.80IA of the Act.

Since, we have adjudicated this issue on merit in favour of the assessee company based on detailed discussions and reasoning as set out above, the grounds raised by the assessee company challenging the reopening of the assessment u/s 147/148 of the Act has become academic and infructuous and hence we refrain from deciding the same and the questions raised by the assessee company in the grounds of appeal are kept open. We order accordingly.

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Order pronounced in the open court on 19th May , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 19-05-2016 को क� गई ।

Sd/- sd/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 19-05-2016 [ व.�न.स./ R.K. R.K., Ex. Sr. PS R.K. R.K. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु�त / CIT- Concerned, Mumbai �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai “E” Bench 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai