DCIT 5(2), MUMBAI vs. LAHOTI OVERSEAS LTD, MUMBAI

आयकर अपील�य अ�धकरण “A” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 3812/Mum/2012 (�नधा�रण वष� / Assessment Year : 2003-04) Dy. Commissioner of Income M/s Lahoti Overseas Ltd., बनाम/ Tax , 5(2),Room No. 571, 307, Arun Chambers, v. 5 th floor, Tardeo Road, Tardeo, Aayakar Bhavan, Mumbai - 400034. M.K. Road, Mumbai – 400 020.

�थायी लेखा सं./PAN : AAACL2578 H .. (अपीलाथ� /Appellant) (��यथ� / Respondent)

आयकर अपील सं./I.T.A. No. 821/Mum/2014 (�नधा�रण वष� / Assessment Year : 2007-08) M/s Lahoti Overseas Ltd., Dy. Commissioner of बनाम/ 307, Arun Chambers, Income Tax 5(2), v. Tardeo Road, Tardeo, Room No. 571, 5 th floor, Mumbai - 400034. Aayakar Bhavan, M.K. Road, Mumbai – 400 020.

�थायी लेखा सं./PAN : AAACL2578 H .. (अपीलाथ� /Appellant) (��यथ� / Respondent)

आयकर अपील सं./I.T.A. No. 3813/Mum/2012 (�नधा�रण वष� / Assessment Year : 2008-09) Dy. Commissioner of Income M/s Lahoti Overseas Ltd., बनाम/ Tax 5(2),Room No. 571, 307, Arun Chambers, v. 5 th floor, Tardeo Road, Tardeo, Aayakar Bhavan, Mumbai - 400034. M.K. Road, Mumbai – 400 020.

�थायी लेखा सं./PAN : AAACL2578 H .. (अपीलाथ� /Appellant) (��यथ� / Respondent)

ITA 3813/M/12, 821/M/14, 2 ITA 3812/M/12 & 3821/M/12

आयकर अपील सं./I.T.A. No. 3821/Mum/2014 (�नधा�रण वष� / Assessment Year : 2008-09) M/s Lahoti Overseas Ltd., Dy. Commissioner of बनाम/ 307, Arun Chambers, Income Tax 5(2), v. Tardeo Road, Tardeo, Room No. 571, 5 th floor, Mumbai - 400034. Aayakar Bhavan, M.K. Road, Mumbai – 400 020. �थायी लेखा सं./PAN : AAACL2578 H .. (अपीलाथ� /Appellant) (��यथ� / Respondent)

Revenue by : Shri Ganesh Bare (Sr.DR) Assessee by : Shri Yogesh Thar

सुनवाई क� तार�ख /Date of Hearing : 20-01-2016 घोषणा क� तार�ख /Date of Pronouncement : 30-03-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

These four appeals, filed by the assessee company and Revenue pertains to the assessment years 2003-04, 2007-08 and 2008-09.

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“(1) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to allow depreciation amounting to Rs.1.86 crores on the windmill without appreciating that during the survey action u/s. 133A of the I.T. Act, it was clearly established that the windmill was not commissioned and put to use during the relevant Assessment Year for the A.Y. 2003-04 ? (2) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to allow depreciation amounting to Rs.I.86 crores, without appreciating that the windmill was not made operational and that one of the employees of M/s. Suzlon Energy Ltd., substantiated that the wind mill was installed beyond the relevant accounting period ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored. “

Subsequently, the AO was in the possession of the information that the windmill on which assessee company has claimed depreciation was not installed on 30-03-2003 as claimed by the assessee company but was installed on 01/04/2003 i.e. during the period relevant to the subsequent assessment year, hence, the assessee company's claim of depreciation was not an allowable deduction since the asset was not put to use during the

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relevant previous year to the impugned assessment year 2003-04. The original assessment framed u/s 143(3) of the Act vide orders dated 30-1-2006 was reopened by the AO u/s 147 of the Act after recording reasons and making compliance to provisions of section 151(1) of the Act. Accordingly, notice u/s 148 of the Act dated 8-12-2009 was issued to the assessee company, which was duly served on the assessee company on 9-12-2009. The assessee company filed return of income in pursuance to notice dated 08- 12-2009 issued by the AO u/s 148 of the Act, on 18-01-2010 declaring total income at Rs. 51,03,650/- which is as per the original return of income filed by the assessee company with Revenue. The assessee company vide its letter dated 16-9-2010 asked the Revenue for furnishing of the reasons for reopening of the assessment which was provided by the Revenue to the assessee company on 8-10-2010. The assessee company vide its letter dated 22-10-2010 objected to the re-opening proceedings, which were dealt with by the AO by passing a speaking order on 16-12-2010.

The assessee company was specifically asked to justify the claim of depreciation on windmill No. J-208 at SODA-MADA-Jaisalmer. In reply, the assessee company submitted that windmill has been successfully commissioned on 30/03/2003 and in support thereof, the assessee company has filed copy of letter dated 17/04/2003 written to the Superintending Engineer (Commercial), Jaipur, regarding power purchase agreement and informing about raising of invoice during the month of March 2003, amounting to Rs.327/-.

The A.O. observed that in the case of M/s. Suzlon Energy Ltd., action u/s. 133A of the Act was carried out by the Investigation Wing on 05-04-2006 and during the course of survey on 05-04-2006, the survey team physically inspected the windmill in the presence of company's representatives as also statement of the responsible persons were recorded and during the course of

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survey, it was found that the date of installation of assessee company's windmill at Soda-Mada was 01/04/2003 which was certified by the competent person of M/ s. Suzlon Energy Limited. Since the supplier of windmill i.e., M/s. Suzlon Energy Ltd., has certified that the windmill was installed on 01/04/2003, who were responsible of installing the windmill being supplier of the windmill. The A.O. contended that the windmill cannot be commissioned before installation. The AO held that the documents submitted by the assessee company vide above referred letter cannot be taken as an authentic document since the same is not supported by full facts and documentary evidences as also the same are self generated documents. The certificate of Executive Engineer, Jaisalmer do not bear the seal of the authority and hence the authenticity of the claim is doubtful. The A.O. accordingly held that the assessee company is not entitled for claim of depreciation of windmill for the impugned assessment year i.e. 2003-04 and therefore the AO disallowed an amount of Rs. 1,86,00,000/- claimed by the assessee company towards depreciation on windmill, vide order dated 16.12.2010 passed u/s 143(3) r.w.s. 147 and 254 of the Act.

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assessment on some kind of one page annexure allegedly signed by an employee of M/s Suzlon Energy Limited. Neither the name of the said employee nor the signature of the said employee is legible. The said page does not contain any statement made by M/s Suzlon Energy Limited, neither by their Director nor by their authorized representative. Neither the seal nor stamp of M/s Suzlon Energy Limited is placed . Even the authorized officer's of the Revenue name nor his stamp nor seal is mentioned. In the said one page annexure; Xerox copy of which was given to the assessee company during the course of appellate proceedings, the said page records power generation as per meter from 1-1-2006 to 5-4-2006 at 291097 units. The airconditioner of Hitach Air Cool was found installed. The assessee company submitted that the said one page annexure definitely confirms that the assessee company had installed windmill and the depreciation is allowable to the assessee company. The assessee company contended that the only difference between the department and the assessee company is that the department is relying on an unsubstantiated, unstamped, Xerox copy of the paper which merely mentioned date of installation as 1.04.2003. The assessee company submitted that that the said Xerox paper is not an evidence at all. The said Xerox paper has neither been signed by the Chairman nor by the responsible director of M/s Suzlon Energy Limited. It does not bear name, stamp nor seal of any Income Tax Officer nor an authorized officer of M/s Suzlon Energy Limited and hence cannot be relied upon. The said document was prepared on 5-4-2006 which is after three years of installation and commissioning of windmill at SODA-MADA- Jaisalmer and which record power generation only from 1-1-2006 to 5-4-2006 at 291097 units and the A.O. reopened the concluded assessment u/s 143(3) of the Act based on the said document. The assessee company contended that the assessee company had completed the installation and commissioning of the windmill on 30.03.2003 and the depreciation at 50% was correctly claimed on the basis of

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the following evidences, which submissions containing reliance on the documents by the assessee company are reproduced hereunder:

“1. The office of The Executive Engineer ( O & M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalmer District by the appellant has been successfully commissioned on 30th March, 2003. (Exhibit 1.1.)

The assessee company relied upon the decision of the Mumbai-Tribunal in the case of Hindustan Platinum Pvt Ltd v. ACIT (ITA No. 3352/Mum/2010) whereby it was held that even the test run and commissioning of windmill would be sufficient to hold that the windmill was used for the purpose of business and the tax-payer was entitled to claim depreciation. The assessee company also relied upon similar decision of the Mumbai-Tribunal in the

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case of Godavari Corporation Pvt. Ltd. v. ITO (ITA No. 309/Mum/2008) dated 15.04.2009. The assessee company also placed reliance in the case of Gujarat Ashima Syntex Limited, 251 ITR 133 (Guj.) wherein the Hon’ble Gujarat High Court held that even trial production of a machinery would fall within the ambit "used for the purpose of business". It was further held that as a statute does not prescribe a minimum time limit for the use of the machinery, the tax-payer cannot be denied the benefit of depreciation on the ground that the machinery was used for a very short duration for trial run. The assessee company further relied on the Hon'ble Calcutta High Court's decision in the case of Union Carbide (I) Ltd. , 254 ITR 488 (Cal.) wherein the Hon'ble Calcutta High Court held that the trial production was sufficient to claim justly and properly both depreciation and investment allowance. The assessee company further relied on the decision in the case of Omkar Textile Mills (P) Ltd. v. ITO [2008] 115 TTJ 716 (Ah. Tribunal) and some other case laws to support the claim of the assessee company. The assessee company contended that the original assessment order granting depreciation on windmill was correct and the assessee company challenged the reopening as bad in law and illegal. The assessee company further relied on the following decisions:-

i) Asian Paints Ltd v. DCIT 308 ITR 195 (Bom) ii) Kelvinator of India Limited (2002) 256 ITR 1 (Del) (FB) iii) Cartini India Limited v. ACIT 314 ITR 275 Bom) iv) CIT v. Kelvinator of India Limited (2010) 320 ITR 561 (SC) v) Rallies India Limited v. ACIT 232 CTR 143 (Bom) vi) Mitsui Marubheni Corpn v. DCIT 298 ITR (AT) 283 vii) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom).

The assessee company contended that there was no failure on the part of the assessee company to disclose full and true facts and the A.O. has incorrectly changed his mind and withdrawn depreciation @ 50% even though the A.O.

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has accepted that the windmill has actually been commissioned. It was submitted that the original assessment was completed u/s. 143(3) of the Act on January 30, 2006. The A.O. issued notice u/s. 148 of the Act on 9-12- 2009 which is beyond the period of 4 years from the end of the assessment year. The assessee company submitted that the assessment has been reopened based on the materials gathered during the course of survey u/s 133A of the Act on 05-04-2006 at the premises of Suzlon Energy Limited based on which opinion was formed that the subject windmill was commissioned and put to use on 1-4-2003 as against actual date of commissioning/put to use on 30-3-2003 and contended that the A.O. has wrongly reopened the assessment u/s 147 of the Act based on third party information collected during the survey conducted on 05-04-2006 at third party premises i.e. the premises of Suzlon Energy Ltd. which do not have any legal basis for reopening the assessment of the assessee company. The assessee company submitted that inspite of the request by the assessee company, the A.O. denied to give the copies of information relied upon to reopen the assessment and no opportunity was given to the assessee company to rebut the claim of the A.O. or to cross examine the party. The assessee company submitted that it has provided all the material and documentary facts necessary to show the commissioning of the windmill on 30-3-2003 which was duly accepted by the A.O. in the original assessment proceedings and there was no failure on the part of assessee company in filing and disclosing all the material facts before the A.O. during the course of original assessment proceedings u/s 143(3) of the Act and reopening of assessment on change of opinion based on some irrelevant documents is not permissible in law. The assessee company has objected to the re-opening vide its letter dated 22-10-2010 which was rejected by the A.O. vide his letter dated 16-12-2010. The A.O. has wrongly reopened the assessment u/s 147 of the Act based on third party information collected during the survey

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conducted at third party premises. The assessee company relied upon the following case laws in support of its claim:-

i) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom). ii) Nihilent Technologies Private Ltd. v. DCIT (Writ Petition No. 10104 of 2010)(Bombay). iii) Indian Oil Corporation Limited v. DCIT (Writ Petition No. 53 of 2010)(Bombay). iv) Sita World Travel (India) Limited v. CIT & Anr. (247 ITR 186)(Delhi). v) Wel Intertrade P. Limited & Anr. V. ITO (308 ITR 22)(Del) The assessee company submitted that the amount of Rs. 1,86,00,000/- which was rightly allowed by the A.O. in the original assessment u/s 143(3) of the Act , has now been wrongly disallowed by the AO by rejecting the claim of the assessee company for allowance of depreciation in respect of windmill installed during the year under consideration by holding that the subject windmill was commissioned and put to use on April 01, 2003 as against actual date of commissioning/put to use on March 30, ,2003 rejecting clinching evidences placed on records and accepted by the then A.O. The assessee company submitted that the A.O. while passing the re-assessment order dated 16.12.2010 based his decision on the data of daily generation of electricity from 1.1.2006 to 5-4-2006 and statement recorded allegedly of an employee of Suzlon Energy Limited which documents were collected by a survey team during the course of survey u/s. 133A of the Act on 05-04-2006 in the case of M/s. Suzlon Energy Ltd. based on which he has held that the subject windmill was commissioned on 01-04-2003. The assesse company had submitted the following documentary evidences during original assessment, reassessment and remand proceedings to prove that the windmill was put to use before 31.03.2003 and the same is reproduced hereunder:-

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“1. The office of The Executive Engineer (O & M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalmer District by your appellant has been successfully commissioned on 30th March, 2003. (Exhibit 1.1)

The assessee company submitted that M/s. Suzlon Energy Ltd. is not a competent authority to certify the commissioning of Wind Mill while the A.O. ignored the certificate of commissioning of wind mill issued by the office of The Executive Engineer (O&M) J.V.V.N.L., Jaisalmer, which is the appropriate Government authority and therefore evidence relied by the A.O. is totally irrelevant, not having any legal recognition. The assesse company submitted that the survey as well as physical inspection of windmill was conducted on

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5th April, 2006 i.e. after 3 years of the commissioning of the windmill and from the copy of survey report it is evident that the data of power generation for various periods starting from 1st January, 2006 onwards is given and it does not have or refer to any data for the period in which the windmill was installed i.e. 30-3-2003. Hence even from the Survey Report dated 05-04- 2006 with respect to survey conducted on 05-04-2006, there is no conclusive evidence that the windmill was not installed on 30th March, 2003 as claimed by the assessee company. The assessee company submitted that it has not been shown the Original copy of the Form No. 13 which is a part of survey report and the AO has apparently relied on a photocopy of the original while neither the A.O. nor the assessee company had seen the original form no 13, hence, the uncertified photocopy cannot be relied upon by the AO for disallowing the claim of depreciation and the same cannot be considered as an authentic document. Also nowhere on the document name of Suzlon Energy Limited appears which again raises a doubt as to the validity of the document. The person who has signed the Survey Report has not been identified and that he is a representative of Suzlon Energy Limited has also not been mentioned on the Survey report and in fact the person who has signed the report is not the authorized signatory of Suzlon Energy Limited. It was submitted that even the name and designation of the Revenue officer countersigning the document is also not mentioned in the said Xerox copy . The assessee company vide additional evidence had submitted delivery challans of Suzlon Energy Limited together with consignment note evidencing date of delivery of windmill parts at site and the last delivery was on 02-03- 2003 which prove that the parts of the windmill were received well before time of installation and commissioning of windmill on 30-3-2003. The A.O.’s stated in his remand report that the additional evidence submitted vide letter dated December, 26, 2011 does not prove that the windmill was installed and made operational before the end of the relevant financial year i.e. 31.3.2003, the assessee company stated that the windmill equipment were delivered to

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the site well in advance which could be verified from the copies of delivery challans and transport receipts submitted and not only was the installation completed, but was also tested and put to use on 30-3-2003. Thus, it is submitted that based upon the survey report dated 05-04-2006 prepared after three years of installation and commissioning of windmill on 30-03- 2003, it cannot be said that the assessee company has not installed windmill on 30-3-2003. No opportunity of cross examination of the Suzlon Energy Limited personnel was provided to the assessee company during the assessment proceedings. It was submitted by the assessee company that the electricity generated was from 30th March 2003 to 31st March 2003 was metered , joint meter reading with representatives of RRVPNL was taken and an invoice was raised for the same.Payment for the said invoice has also been received from RRVPNL.

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information subsequent to completion of the original assessment u/s 143(3) of the Act on 30-1-2006 and accordingly the CIT(A) upheld the re-opening of the concluded assessment by the AO. The CIT(A) relied upon the following case laws:

a) Indo Aden Salt Manufacturing and Trading Co. P. Ltd. (1986) 159 ITR 624(SC) b) Jawand Sons v. CIT (2010) 326 ITR 39(P&H) c) Raymond Wollen Mills Limited v. ITO (1999) 236 ITR 34(SC)

On merits, the CIT(A) observed that it is undisputed that the assessee company had installed windmill at location No. J208 at Soda-Mada, Jaisalmer. Even the survey team led by Addl. DIT, Investigation, Jodhpur has inspected and verified during the course of survey proceedings conducted on 5.04.2006 that assessee company’s windmill was installed and power generation as per meter from 1-1-2006 to 5-4-2006 was at 291097 units. The only dispute raised by the AO is that the date of installation of assessee company’s windmill was allegedly on 1.04.2003 as against the date of installation claimed by the assessee company being on 30-03-2003 and allowed as such by the AO during the regular assessment proceedings u/s 143(3) of the Act vide orders dated 30-1-2006. From the perusal of the relevant re-assessment order dated 16-12-2010 by the CIT(A) , it was revealed that the AO has relied on a survey report dated 05-04-2006 wherein a list of 28 persons names and date of commissioning of the windmills by these 28 persons as found out by the survey team have been noted. The assessee company’s name is noted at S. No. 4. From the relevant annexure which has been the only evidence on which the AO has relied upon has been given to the assessee company during the course of appellate proceedings. The assessee company has objected to the said annexure stating that the said Xerox copy is deficient on the following grounds:-

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“ (i) The Xerox paper is neither signed by the Chairman nor by any Director nor by any responsible authorized representative from M/s Suzlon Energy Limited. (ii) Neither the name nor the designation nor the relationship of the person whose illegible signature of the Xerox paper is known. (iii) Neither the name of the authorized officer nor the designation of the authorized officer is available on the disputed Xerox paper. (iv) Neither the stamp nor the seal of the authorized officer is available on the Xerox paper. (v) Neither the stamp nor the seal of M/s Suzlon Energy Limited is available on the Xerox paper. (vi) The disputed Xerox paper is dated 05-04-2006 whereas the windmill was actually installed on 30-03-2003.”

The assessee company had also relied upon Govt. of Rajasthan, Executive engineer (O&M), JVVNL, Jaisalmer’s certificate issued vide No. JUV/NL/XEN/O&L/JSM/SITECH/F dated 30-03-2003, wherein it was certified that 1 nos. wind electric generator SUZLON make 1250KW each has been successfully commissioned on 30-03-2003 at location no. J-208 installed at Vilalge Soda-Moda, Jaisalmer District by the assessee company and this generator is connected to 33kv Khuri Feeder. The assessee company has also produced copy of certificate of commissioning and handing over of WTG (Windmill) by Commissioning Engineer, which clearly mentions commissioning start date as on 27.3.2003 and finished date as on 30.03.2003 and has been signed and approved by one Mr. Nilay Sen, the responsible engineer. The assessee company has also relied on a copy of Joint Inspection Report of the relevant windfarm in respect of common main metering system and its loading on 30.03.2003. The assessee company has also relied on the copy of invoice for the month of March 2003 raised vide Invoice No. LOL-WPD/2003-04/1 dated 17.04.2003 which mentions energy exports of 107 KWH, energy import of 9 KWH and net export of energy of 98 KWH. The invoice value was raised at Rs. 327 @ Rs. 3.34 per KWH. The assessee company has further relied on copy of cheque issued by Govt. of

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Rajasthan, i.e. Rajasthan Vidyut Prasaran Nigam Limited vide cheque No. 584233 dated 16.5.2003 from RVPN Account No. 65106 in favour of the assessee company for Rs.327/- for payment of energy bill for March 2003 . The assesse comapny has also relied on the Govt. of Rajasthan’s forwarding memo No. RPM/CCA/CPC/F/D/605 dated 16.5.2003, mentioning the afore- stated cheque amounting to Rs. 327/- being forwarded to the assessee company. The assessee company has further relied on copy of monthly generated record for the month of March 2003 which have been duly signed by the Jodhpur Discon, by the responsible authority of RUPNL and by M/s Suzlon Energy Limited. The assessee company has also enclosed a statement at Annexure-l giving details and description of the material delivered, date of dispatch, delivery challan number, challan date, L/R number, L/R date, name of transporter, date of receipt of material at site, the relevant delivery challans, L/R receipts issued by the transporter, certificate of goods received etc have been furnished and placed on record evidencing the installation of the windmill in the month of March 2003. The windmill tower parts were received at the site before 24-2-2003. The power panel + capacity panel were received at the site on 8-3-2003.

These additional evidences submitted by the assessee company were forwarded by the CIT(A) for remand report. The AO objected to the admission of additional evidences under rule 46A of the Income Tax Rules, 1962. The AO also examined the evidences and reported vide remand report that the survey proceedings u/s 133A of the Act on 05-04-2006 indicate that the windmill was installed and made operational/put to use on 1.04.2003. In view of the survey report dated 05-04-2006, the AO concluded that the additional evidences did not justify that the windmill was installed and made operational before 31.03.2003 making assessee company eligible for depreciation on the same in the assessment year 2003-04.

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A copy of the said remand report was forwarded to the assessee company for its reference and counter submissions and the assessee company reiterated its submission what was made earlier which are not repeated for the sake of brevity. The CIT(A) admitted the additional evidences in the interest of justice and proper adjudication of the matter and held that the assessee company submitted clinching evidences by submitting various certificates of Government authorities, which evidences that the assessee company has successfully commissioned the windmill in March, 2003 and power generated on 30th - 31st March 2003 was supplied to the Government of Rajasthan which was also duly paid by the Government to the assessee company. On the other hand, the A.O. relied on the Xerox copy of a document dated 5-4- 2006 stating that the windmill was installed on 01-04-2003, signed by someone and neither there is signature nor any designation of proper authority. The CIT(A) observed that similar issue was decided by various courts and depreciation was available on windmill even when the same is commissioned on 1st April and 2nd April but trial run was done on 30th March or so. Accordingly, the CIT(A) vide orders dated 14-3-2012 directed the AO to allow depreciation as originally allowed by the A.O. vide assessment orders dated 30-01-2006 passed by the AO u/s 143(3) of the Act .

8.Aggrieved by the orders dated 14-3-2012 of the CIT(A), the Revenue is in appeal before the Tribunal.

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established that the windmill was not installed on 30-3-2003 but on 01-04- 2003 and the same was certified by one of the Executives of Suzlon Energy Limited. M/s Suzlon Energy Limited being the supplier of the windmill and engaged in the installation and commissioning of the windmill, the certificate dated 05-04-2006 by the Executive of Suzlon Energy Limited was valid and relevant piece of evidence which was rightly relied upon by the A.O. to withdraw the claim allowed of depreciation of Rs.1.86 crores on windmill in the re-assessment proceedings. The ld. DR relied upon the orders of the AO.

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the assessment year 2003-04,vide reply dated 16-8-2005 which is placed in paper book page 94-95. He submitted that the power purchase agreement was entered by the assessee company with Rajasthan Rajya Vidyut Prasaran Nigam Limited , Jodhpur Vidyut Vitran Nigam Ltd. and Suzlon Energy Limited on 19-3-2003 for supply of power generated from the windmill, copy of which is also placed in paper book page 99 to 110 , which was also furnished to the AO vide reply dated 12-09-2005 which reply of the assessee company is placed in paper book page 96-98. The ld. Counsel also submitted that all relevant documents such as invoice for energy for month of March 2003, commissioning certificate issued by JVVN on 30-03-2003 and joint inspection report dated 30-03-2003 was duly submitted before the AO during the course of assessment proceedings with regard to commencement of commercial production of the windmill on 30-03-2003 , vide replies dated 16- 08-2005 and 12-09-2005 which are placed in paper book page 94-119. The ld. Counsel for the assessee company drawn our attention to the certificates issued by the Rajasthan Government Authorities certifying that the windmill was successfully commissioned on 30-03-2003 which is placed in paper book at page 116. He also drew our attention to the Joint inspection in respect to the windmill power plant of the assessee company carried on by the RRVPN which was also certified that the installation and commissioning of the windmill was completed on 30-3-2003 which is placed at paper book page 117 to 119. He also drew our attention to the invoices raised by the assessee company for the month of March, 2003 for energy supplied to the Government of Rajasthan for an amount of Rs. 327/- which is placed at paper book page 36 to 38. He also drew our attention to the payment received of Rs. 327/-from the RVPNL against the invoice for month of March 2003 which is placed at paper book page 39.The ld counsel for the assessee company drew our attention to delivery challans and invoices raised by Suzlon Energy Limited for supply and erection/installation of Windmill which

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are all placed in the paper book at page 1-30 to corroborate that the windmill was installed and commissioned on 30-03-2003.

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relied upon the survey report which was carried out on 5-4-2006 i.e 3 years after the commencement of the commercial production claimed by the assessee company to be started on 30-03-2003. There was no mention about the authorized person , signature, designation or seal of the person preparing the survey report on 05-04-2006 being allegedly employee of Suzlon Energy Limited nor is there any detail of the officer of Revenue countersigning the said report dated 05-04-2006. The Revenue has also not recorded any statement of the Director or any other authorized person of Suzlon Energy Limited or of the assessee company during the course of survey proceedings. On the other hand, the assessee company has brought on record cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that the windmill of the assessee company with the capacity 1.25 MW was duly installed , commissioned and put to use on 30-03-2003 and was also connected to 33kv Khuri Feeder on 30-3-2003 and the assessee company has also supplied net-energy being 98KWH to RVPNL in March 2003 which was duly paid by RVPNL , which has not been controverted and demolished by the Revenue. We ,there-fore, hold that the installation , commissioning and put to use of the windmill no. J-208 at Soda-Mada- Jaisalmer, Rajasthan with capacity of 1.25 MW of the assessee company was completed on 30-03-2003 i.e. during the previous year 2002-03 relevant to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same survey report dated 05-04-2006 which is not only technically defective due to reasons as detailed above but was also drawn on the basis of conjectures, surmises , assumptions and presumptions without backing of any cogent material/evidences, which is alien to the Act and is not sufficient

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for fastening liability on the assessee company . In view of our above findings and reasoning detailed above, we find no infirmity in the well reasoned and detailed order passed by the CIT(A) which we decline and refuse to interfere and hence, we confirm the orders of the CIT(A). We order accordingly.

12.In the result, the appeal filed by the Revenue in ITA N0. 3812/Mum/2012 for the assessment year 2003-04 is dismissed.

Now, we shall take up assessee company’s appeal in ITA No. 13. 821/Mum/2014 for the assessment year 2007-08 which is directed against the order dated 01.11.2013 passed by learned Commissioner of Income Tax (Appeals)-9,Mumbai (hereinafter called “the CIT(A)”) , the afore-said appeal order dated 01.11.2013 of the CIT(A) arising from the re-assessment order dated 31.10.2012 passed by the learned assessing officer (Hereinafter called “the AO”) u/s 143(3) read with section 147 of the Income Tax Act,1961 (Hereinafter called “the Act”), for the assessment year 2007-08.

“1. The Ld. C.I.T.(A) erred in confirming the action of the Learned Assessing officer of assessing the total income at Rs. 4,24,74,6801- as against Rs. 3,02,22,286/- returned by your appellant in the return of income filed in response to notice u/s. 148. 2. The C.I.T. (A) erred in not appreciating the fact that no fresh facts have come to light which were not present at the time of original assessment which could constitute 'reason to believe’ leading to justification of reopening u/s. 147 and thus eared in confirming the action of the Learned Assessing officer of reopening the already completed assessment u/s. 143(3) which is merely on the ground of change of opinion. 3. The C.I.T. (A) erred in confirming the action of the Learned Assessing officer of notionally setting the unabsorbed loss of earlier

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years of windmill division of Rs. 94.39 lacs which have already been set off against other business income of your appellant. 4. The C.I.T. (A) erred in not taking cognizance of the fact which was brought to his notice that notional loss of wind mill division was already set off while considering deduction u/s. 80- IA for A.Y. 2008-09 and A.Y. 2009-10 thereby amounting to double taxation. 5. The CIT(A) erred in not following the binding precedent that "the judgment of non-jurisdictional High Court is a binding precedent, if no contrary judgment of another High Court is available".

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reply thereof ,the assessee company submitted that in regular assessment framed u/s 143(3) of the Act vide orders dated 17.12.2009 , the A.O. had correctly allowed the deduction u/s. 80-IA of Rs.94.39 lakhs for the profits and gains of windmill business as claimed by the assessee company in the return of income after considering the provisions of section 80-IA of the Act. It was submitted that the statute in section 80-IA(5) of the Act has used the word "initial assessment year" and not "year of commencement" and difference between the two is not appreciated. Accordingly, provisions of sec 80-IA(5) would be applicable only in the year subsequent to the initial assessment year and the unabsorbed depreciation of windmill division for all years earlier to initial assessment year, which had already been absorbed against the profit of other business, cannot be notionally brought forward and be considered for computing deduction u/s. 80-IA(5) of the Act. The assessee company submitted that the assessee company has commenced generation of electricity in the assessment year 2003-04 and has opted to claim deduction u/s. 80-IA only from the assessment year 2007-08. Hence the "initial assessment year" for this undertaking would be assessment year 2007-08. The A.O., however, rejected the contentions of the assessee company. The A.O. relied upon the assessment order for the assessment year 2009-10 which was confirmed by the CIT(A)-9,Mumbai vide order dated 2-7- 2012 with the following remarks as under:-

“I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the windmill power division, as noted by the LAO in the relevant assessment order and extracted as under:

A.Y. Depreciation loss 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690

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2006-07 21,54,000

5.3.2 The LAO has enforced the provisions of sub-sec. 5 of 80IA of the Act and adjusted b/f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose of determining of quantum of deduction under section 80IA of the Act, the LAO determined the taxable income of the relevant industrial undertaking (windmill power division) as if such undertaking is an independent unit owned by the appellant and the appellant had no other source of income for the purposes of overriding provisions of s.sec.5 of sec.80-IA of the Act.

5.3.3 Section 80IA of the Act is a code by itself and the deduction allowable under section 80IA is a special deduction which is linked to profits, unlike deductions contained in Chapter IV which are linked to investments. Deduction under section 80IA is allowed at a percentage of the business profits computed in the manner specified in that section and other provisions contained in Chapter VIA. Section 80IA contains both substantive and procedural provisions for computation of the special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected. In the present case, the appellant by not claiming earlier assessment year's business losses and depreciation seeks to inflate the profit linked incentives provided under section 80IA which is not permissible.

5.3.4 In view of the specific provisions of s. 80IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years. 5.3.5 The Hon'ble ITAT, Special Bench in the case of ACIT Vs Goldmine Shares and Finance (P) Limited (2008) 113 ITD 209 (Ahd) (SB) has held that losses of the eligible business have to be set off only against the subsequent years income of (he eligible business, even though these were set off against other income of the assessee in the earlier year. This is so evident from CBDT"s Circular No.281 dated 22.09.1980. In view of the specific provisions of section 80-IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai "H" Third Member Bench in the case of Gujarat Ambuja Cement Limited Vs DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial

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undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits derived by the assessee from its eligible industrial undertaking for the purpose of computing deduction under section 80-I(1). 5.3.7 The Hon’ble ITAT, Hyderabad –“A” bench in the case of Hvderabad Chemicals Supplies Limited vs ACIT (2011) 53 DTR 371 (Hyd) has further approved that notional brought forward unabsorbed business loses or depreciation of eligible business unit have to be set off against the income earned by the unit for claim of deduction under section 8O-IA of the Act. 5.3.8 Having regard to the facts and circumstances of the case and in accordance with the provisions of sub-sec.80-IA(5) of the Act and respectfully following the decision of Hon'ble ITAT, Special Bench in the case of ACIT Vs Goldmine Shares and Finance (P) Limited (Supra) and Hon'ble ITAT, Mumbai, Third Member Bench in the case of Gujarat Ambuja Cement Limited Vs DCIT (supra), the LAO's action in adjusting the brought forward business losses/depreciation against appellant's current year's business profit from the eligible business undertaking is confirmed. Grounds of appeal No.2 is therefore, dismissed.” Thus, the A.O. vide re-assessment orders dated 31-10-2012 passed u/s 143(3) read with Section 147 of the Act held that as per the statutory provisions of 80-IA(5) of the Act, the assessee company ought to have taken cognizance firstly of brought forward depreciation / losses to be set off against the current year's income and thus the claim of the assessee company u/s 80IA of Rs. 94.39 lacs was disallowed by the AO as the assessee company had claimed loss on windmill business in earlier years at Rs. 171.91 lakhs which has to be set off with the profit of windmill division for the current assessment year.

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was done within 4 years from the end of the assessment year, (ii) the assessee company has disclosed all the material facts for the determination of the tax liability while filing return of income and also during the course of assessment proceedings u/s 143(2) read with Section 143(3) of the Act and (iii) regular assessment was framed by the Revenue u/s 143(3) of the Act. The assessee company relied on the decision of Hon’ble Apex Court in the case of Calcutta Discount Co. Ltd. v. ITO, 41 ITR 191 (SC). The assessee company submitted that discovery of new and tangible material facts which were not present during the course of regular assessment proceedings and which have direct nexus and live link with reasons to believe that income has escaped assessment within the meaning of Section 147 of the Act is must for re-opening of the assessment. The assessee company submitted that no new material and tangible facts has come to the notice of the AO subsequent to the framing of the regular assessment vide orders dated 17.12.2009 u/s 143(3) of the Act. In support, the assessee company relied upon the following decisions of the Hon’ble Supreme Court:

(i) Phool Chand Bajrang Lal v. ITO , 203 ITR 456,477 (ii) ALA Firm v. CIT 189 ITR 285, 298 (iii) Indian and Eastern Newspaper Society v. CIT 119 ITR 996, 1004 (iv) ITO v. Lakhmani Mewal Das 103 ITR 437, 445

The assessee company submitted that following documents were given to the AO during the course of regular assessment proceedings with respect to the claim u/s 80IA of the Act and no new material and tangible facts have come to light warranting invoking of provisions of Section 147/148 of the Act for re- opening of concluded assessment:- “ (i) Vide letter dated November 13, 2009, a copy of the assessment order for AY. 2006-07 was submitted-at Annexure 34.

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(ii) Books of account of the company were produced for verification as mentioned at Sr. No. 8 of our letter dated November 13,2009. (iii) Books of account for Wind Power division were produced for verification as per Sr. No. 6 of letter dated November 25, 2009. (iv) Copy of ledger account of Wind Power project was submitted at Annexure 50 vide letter dated November 25,2009. (v) Brief note on claim u/s 80lA was submitted at Annexure, 32 vide letter dated November 4, 2009. (vi) Audit Report u/s 80lA (7) in Form 10 CCB was submitted at Annexure 32. 1 vide letter dated November 4, 2009. “

The assessee company contended that after examining all the documents which were submitted by the assessee company during the regular assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the A.O. after due application of mind allowed the deduction u/s 80IA of the Act while passing the order dated 17.12.2009 u/s 143(3) of the Act. The A.O. in the reopening proceeding failed to disclose the fresh facts and /or new tangible material that have come to light which were not present at the time of the original assessment which would constitute in forming reasons to believe that income has escaped assessment leading to justification for reopening u/s 147 /148 of the Act of the concluded assessments framed u/s 143(3) of the Act and, hence, the action of reopening of already completed assessment u/s 143(3) of the Act in this case is not in accordance with law and should be quashed as the reopening has been done merely on the basis of change of opinion. Section 147 of the Act does not empower the AO to review on the same set of facts , the assessment order which had already been framed merely by fresh application of mind to its own decision or the decision of predecessor which will lead to review of earlier decision which is not permitted u/s 147/148 of the Act as the power u/s 147/148 of the Act is to re-assess the income and not to review the earlier decision as the AO cannot have second innings to cover the mistakes committed in the first inning. The assessee company relied upon the decision of Full Bench decision of Hon’ble Delhi HIgh Court in the case of CIT v. Kelvinator of India

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Limited,256 ITR (Del) which was confirmed by Hon’ble Supreme Court in 320 ITR 561 (SC), whereby the Hon’ble Supreme Court held that the A.O. has no power to review the concluded assessments and change of opinion is not permitted. The assessee company also relied upon the following decisions:-

- Chandrashekhar Karondia HUF v. ITO 14 taxmann.com 37 (Mum. ITAT). - B.J. Services Company Middle East Ltd. v. Deputy Director of Income-tax (International Taxation), Dehradun [2011] 12 taxmann.com 493(Uttarakhand) - CIT v. Manak Shoes Co. (P.) Ltd. [2011] 200 Taxmann 133 (Del.): 2011)11 taxmann.com 217 (Delhi) - CIT v. Feather Foam Enterprises (P) Ltd. [2008] 296 ITR 342 (Del.) - CIT vs. Bhanji Lavji [1971] 79 ITR 582 (SC) - ITO v. Nawab Mir Barkat AIi Khan Bahadur [1974] 97 ITR 239 (SC) - Raymond Woolen Mills Ltd. v. ITO and Others (1999) 236 ITR 34 (SC) - CIT v. Former Finance (2003) 264 ITR 566 (SC) - M.J. Pharmaceuticals Ltd. v. DCIT [2008] 297 ITR 119 (Bom.) - Carlton Overseas P. Ltd. v.. ITO [2009] 318 ITR 295 (Del.) - CIT v. Chakiat Agencies Pvt. Ltd. [2009] 314 ITR 200 (Mad.) - Caetini India Ltd. v. Addl. CIT [2009] 314 ITR 275 (Bom.) - Pan Drugs Ltd. v. DCIT [2009] 316 ITR (AT) 72 (Ahm.) The assessee company submitted that the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO held that when a notice u/s 148 is issued, the A.O. is bound to furnish reasons within a reasonable time and the assessee company is entitled to file objections to issuance of notice and the A.O. is bound to dispose of the same by passing a speaking order before proceeding with the reassessment u/s 147/148 of the Act. The assessee company submitted that the return of income in pursuance to notice u/s 148 of the Act was filed on 30-4-2012 ,whereas the copy of reasons to reopen was provided by the Revenue to the assessee company only on 5th October, 2012 and the assessee company filed objections to the reasons recorded vide letters dated 10th and 15th October 2012 . The A.O. has failed to dispose of the

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objections and made only a passing reference to the same while passing an order dated 31-10-2012 u/s 147 r.w.s. 143(3) of the Act and some of the assessee company’s objections raised by the assessee company have not even touched upon by the A.O. and the AO passed the order u/s 147 of the Act and thus the A.O. has failed to pass a speaking order to dispose of the objections of the assessee company before passing an order u/s 147 of the Act. The A.O. has not disclosed the fact or material that were not disclosed by the assessee company fully and truly during the course of regular assessment proceedings and which formed the basis on which the assessment was reopened. In the absence of such a finding or disclosure, it can be concluded that the reopening of concluded assessment is arbitrary in nature which is not permitted in law. Notional set off of unabsorbed losses of earlier years (which were already set off against other business income in respective years) against profits of wind mill division for the year under appeal and thereby consequential denial of deduction u/s 80IA is against the wordings and interpretation of section 80IA of the Act as has been held in various case laws and the A.O. erred in disallowing the claim of the assessee company. The assessee company has chosen to claim deduction only from the assessment year 2007-08, which is the initial assessment year and the same has also been mentioned in Form No. 10CCB justifying the claim of deduction u/s 80IA of the Act. The assessee company relied upon the decision of the Tribunal in ITA No. 321/Mum/2012 for the assessment year 2008-09 in the case of M/s Shevie Exports v. JCIT and Hon’ble Madras High Court decision in Velayudhaswamy Spinning Mills Private Limited v. ACIT (2012) 340 ITR 477(Mad.) and CIT v. Emerala Jewel Industry Private Limited (2011) 53 DTR 262(Mad.). The CIT(A) upheld the action of the A.O. with respect to the reopening of the assessment u/s 147/148 of the Act. The CIT(A) upheld that action of the AO with respect to re-opening of concluded assessments u/s 147/148 of the Act, which as per CIT(A) has been opened based on findings in subsequent year based on judicial decisions and hence as per CIT(A) , it is not

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a case of change of opinion. The CIT(A) held that the addition on account of deduction u/s 80IA was confirmed by his predecessor for the assessment year 2009-10 and the relevant findings of the CIT(A) are as under:-

“5.3Ground No. 2 : Deduction under section 80-IA(5) 5.3.1 I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the windmill power division, as noted by the LAO in the relevant assessment order and extracted as under:

A.Y. Depreciation loss 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 2006-07 21,54,000

5.3.2 The LAO has enforced the provisions of sub-sec. 5 of 80lA of the Act and adjusted b/f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose of determining of quantum of deduction under section 80IA of the Act, the LAO determined the taxable income of the relevant industrial undertaking (windmill power division) as if such undertaking is an independent unit owned by the appellant and the appellant had no other source of income for the purposes of overriding provisions of s.sec.5 of sec.80-IA of the Act.

5.3.3 Section 80IA of the Act is a code by itself and the deduction allowable under section 80IA is a special deduction which is linked to profits, unlike deductions contained in Chapter IV which are linked to investments. Deduction under section 80IA is allowed at a percentage of the business profits computed in the manner specified in that section and other provisions contained in Chapter VIA. Section 80IA contains both substantive and procedural provisions for computation of the special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected. In the present case, the appellant by not claiming earlier assessment year's business losses and depreciation seeks to inflate the profit linked incentives provided under section 80IA which is not permissible.

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5.3.4 In view of the specific provisions of s. 80IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years. 5.3.5 The Hon'ble ITAT, Special Bench in the case of ACIT v. Goldmine Shares and Finance (P) Limited (2008) 113 ITD 209 (Ahd) (SB) has held that losses of the eligible business have to be set off only against the subsequent years income of the eligible business, even though these were set off against other income of the assessee in the earlier year. This is so evident from CBDT"s Circular No.281 dated 22.09.1980. In view of the specific provisions of section 80IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai "H" Third Member Bench in the case of Gujarat Ambuja Cement Limited v. DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits derived by the assessee from its eligible industrial undertaking for the purpose of computing deduction under section 80-I(1). 5.3.7 The Hon’ble ITA T, Hyderabad “A” bench in the case of Hvderabad Chemicals Supplies Limited v. ACIT (2011) 53 DTR 371 (Hyd) has further approved that notional brought forward unabsorbed business loses or depreciation of eligible business unit have to be set off against the income earned by the unit for claim of deduction under section 80- IA of the Act. 5.3.8 Having regard to the facts and circumstances of the case and in accordance with the provisions of sub-sec.80-IA(5) of the Act and respectfully following the decision of Hon'ble ITAT, Special Bench in the case of ACIT v. Goldmine Shares and Finance (P) Limited (Supra) and Hon'ble ITAT, Mumbai, Third Member Bench in the case of Gujarat Ambuja Cement Limited v. DCIT (supra), the LAO's action in adjusting the brought forward business losses/depreciation against appellant's current year's business profit from the eligible business undertaking is confirmed. Grounds of appeal No.2 is therefore, dismissed.”

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19.Aggrieved by the order dated 01-11-2013 of the CIT(A), the assessee company is in appeal before the Tribunal.

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claim of deduction u/s 80IA of the Act was examined by the A.O. although no specific query was raised in the regular assessment proceedings u/s 143(3) read with Section 143(2) of the Act, but as per Annexure “A” of the assessment order dated 17.12.2009 u/s 143(3) of the Act, the A.O. has worked out the details of calculation of the claim u/s 80IA allowable to the assessee company. No new tangible material has come to the notice of the A.O. after the conclusion of the regular assessment proceedings on 17-12- 2009 u/s 143(2) read with Section143(3) of the Act to reflect that the income has escaped assessment which warrants re-opening u/s 147/148 of the Act. The assessee company relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Orient Craft Ltd. [ITA No. 555/2012, date of decision 12th December, 2012) and contended that no reassessments can be framed u/s 147/148 of the Act if no new tangible material has come to the notice of the A.O. as there is no reason to believe based upon the new tangible material coming into the possession of the A.O. which could lead to forming an opinion that an income has escaped assessment, thus, it would warrant that no income has escaped assessment. The assessee company also relied upon the following decisions and submitted that the reopening is bad in law:-

i) CIT v. Orient Craft Ltd. (ITA No. 555/2012 [Del HC] Wadia Ghandy & Co. v. ACIT (ITA No. 7191/Mum/2011)(Mum) ii) iii) ACIT v. M/s Saf Yeast Co. Pvt. Ltd. (ITA No. 2905 & 2984/Mum/2011)(Mum) Motilal R. Todi v. ACIT (ITA No. 2910/Mum/2013)(Mum) iv) v) M/s M. Sayarchand Mehta (HUF) v. ITO (ITA No. 1997/Mum/2012)(Mum) vi) Delta Air Lines, INC v. ITO (ITA No. 3476/Mum/2008)(Mum).

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and 80IA(5) of the Act. The Revenue has framed the regular assessment u/s 143(3) of the Act vide assessment orders dated 17-12-2009 , whereby deduction u/s 80IA was duly allowed by the AO. We have observed from the reasons recorded for reopening of the assessment u/s 147 of the Act wherein the A.O. stated that on verification of the assessment records of the assessee company, the claim of the assessee company u/s 80IA of the Act was wrongly allowed to the assessee company as it was not in accordance with law and no new tangible material has come to the notice of the A.O. after conclusion of regular assessment u/s 143(3) of the Act on 17-12-2009, which has direct nexus or live link with the formation of reasons to believe that income has escaped assessment warranting invocation of Section 147/148 of the Act . Although the assessment has been reopened u/s 147/148 of the Act but within a period of 4 years but it is the settled proposition of law that concluded assessments cannot be reopened in the absence of any new tangible material coming to the possession of A.O. which have a direct nexus and live link with the formation of reasons to believe that income has escaped assessment. The assessee company’s claim was duly allowed by the A.O. in regular assessment framed u/s 143(3) of the Act vide orders dated 17- 12-2009 and no new tangible material has come to the possession of the AO to warrant that income has been escaped assessment. It is a settled proposition of law that Section 147/148 of the Act give to the AO , power to re-assess the income and not power to review its earlier decisions .Our view is fortified by the decision of Hon’ble Delhi High Court in the case of CIT v. Orient Craft Limited in ITA no. 555/2012 delivered on 12-12-2012 and CIT v. Kelvinator of India (2010) 320 ITR 561(SC). Thus, we are of the considered view that the completed assessments u/s 143(3) of the Act in the instant case has been reopened u/s 147/148 of the Act without having any new tangible material coming to the possession of the A.O. after conclusion of the assessment u/s 143(3) of the Act on 17-12-2009 which could warrant reopening of assessment u/s 147/148 of the Act rather the AO while

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recording reasons for re-opening has clearly stated that on verification of assessment records , the claim of the assessee company u/s 80IA was wrongly allowed in the scrutiny assessment framed u/s 143(3) of the Act meaning thereby the AO is attempting to review his own decision taken in concluded regular assessment u/s 143(3) of the Act which is not permissible as per mandate of Section 147/148 of the Act. Thus in our considered view, the reopening in the instant case u/s 147/148 of the Act is bad in law liable to be quashed and thus, re-opening of the concluded assessment in the instant case u/s 147/148 is hereby quashed. Since we have quashed the reopening u/s 147/148 of the Act, we refrain from commenting on the merits of the case. We order accordingly.

However, we will be failing in our duty if we do not bring on record two important developments which has taken place with respect to the issue in dispute after the conclusion of the hearing on 20-01-2016, Firstly, 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 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 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

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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 80 lA 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 also 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.1I2016 [F.NO.200/311201S-ITA-I]

SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS· PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - ARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SECTION 80-IA(5)

CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-ll, DATED 15-2-2016

Section 80-IA of the Income-tax Act, 1961 (Act'), as substituted by the 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 80-IA 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 80-IA further provides as under-

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"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.

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.80-IA 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. 80-1A. 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. 80-IA 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 lA 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.

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

Secondly , in a very recent judgment delivered on 01-03-2016 by the Hon’ble Madras High Court in the case of CIT v. GRT Jewellers (India) Private Limited in TCA no 176 of 2016 on an identical issue , the Hon’ble Madras High Court has dismissed the Revenue appeal after considering the afore-stated Circular no 1 of 2016 as under:

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

"(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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"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 SubSection (1) apply shall, for

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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.

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. 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.

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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.

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

ITA No. 3813/Mum/2012 for assessment year 2008-09 (Revenue’s appeal)

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“(1) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer in deleting the addition of Rs.5.10 crores made u/s. 68 of the I.T. Act without appreciating that the assessee company has failed to prove the identity and credit worthiness of the loan creditors and genuineness of the transaction ?

(2) "Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to delete the addition of Rs.5.10 crores holding that the capacity of the share holder has been established without appreciating the fact that the investment made by the foreign companies was not out of own funds and no business activities were carried out by the foreign companies ?

The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored.”

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company was originally incorporated with authorized share capital of HK$ 10,000/- , which was subsequently increased to HK$ 1,10,00,000/- on 19-9- 2007 and further increased to HK$ 1,87,50,000/-. It was observed by the A.O. that BWGL which had issued share capital of HK$ 1,10,00,000/-, the shares was fully subscribed by another Hong Kong based company M/s. Fortune Exim Limited(Hereinafter called “FEL”), by remittance on 08/10/2007 and 15/10/2007 and both the companies having common registered office address in Hong Kong and both the companies were incorporated on 10-08-2007. The A.O. observed that the share investment made by the said BWGL is out of funds received by it from FEL by way of share capital. Therefore it was required to be seen the creditworthiness of FEL since investment in assessee company's share capital by BWGL is generated out of funds from FEL . The assessee company was asked to file copy of Balance Sheet of FEL for the relevant period , which was duly filed by the assessee company before the AO. On perusal of the reports and financial statements of FEL it was observed by the A.O. as under:-

“FORTUNE EXIM LIMITED (Formerly known as Sun Fortune Holding Limited) Balance sheet as at 31 December 2008.

Non Current assets HK$ Investment in subsidiary 10,999,999.00 Current Assets Trade receivables 5,405,258.12 Bills receivable 17,675,265.68 Amount due from ultimate holding company 4,130,000.00 Amount due from a subsidiary 7,757,750.00 Amount due from the sole director 49,488.18 Bank balances 38,349.51 ------------------- 35,056,111.50 Deduct: Current liabilities

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Trade payables 14,288,947.39 Amount due to a related company 13,267,953.66 Accrued expenses 682,721.11 Bank borrowings 5,299,224.47 Provision for profits tax 88,292.00 ………………… 33,627,138.63 Net current assets 1,428,972.87 Net assets 12,428,971.87 Financed by: Share capital Authorised, issued and fully paid 12,000,000.00 12,000,000 ordinary shares of HK$1.00 each Retained profit 428,971.87 Shareholders’fund 12,428,971.87”

From the above Balance Sheet, the A.O. observed that the same is at 31st December 2008, however, the relevant Balance Sheet which would have been required is as at 31st December 2007 which could have shown the correct creditworthiness of the company i.e. FEL , since the transaction of investment in shares has happened on 24/10/2007 and the A.O. , therefore, inferred that the entire investment in its subsidiary company BWGL is out of share capital of this company, FEL date of incorporation of which is also 10th August, 2007, the funds in this company must have been flown only after this date of incorporation i.e. 10-08-2007. The A.O. observed that the assessee company failed to establish the creditworthiness of BWGL and FEL. Further, from the certificate dated 19-11-2010 issued by Certified Public Accountant, it was clearly shown that BWGL was not having any assessable profit or loss as per the Profit Tax return filed for the assessment year 2007-08 and 2008- 09 submitted to the Inland Revenue Department, Hong Kong , which also evidences that the said BWGL was not engaged in the earning of any income, leave aside business activities.

The A.O. further observed that assessee company is a registered company listed on Bombay Stock Exchange) and the average market rate per share of

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the assessee company as certified by the Chartered Accountant during the previous year relevant to the financial year 2007-08 was Rs. 7.04 per share . It was observed by the AO that if BWGL was the real investor in the shares and was really interested in acquiring the shares of the assessee company, then the shares could have been acquired from the market at the rate of 7.04 per share but the BWGL preferred to pay Rs. 12/- per share to the assessee company, hence, the transaction of issue of share capital to the foreign company BWGL is not a genuine transaction and a colorable device adopted by the assessee company , which warrant invoking of provisions of section 68 of the Act. Thus, it was held by the AO that the assessee company failed to prove the creditworthiness and genuineness of transaction in respect of share capital received by it and accordingly the AO treated the amount of Rs. 5,10,00,000/- received by the assessee company as income of the assessee company u/s 68 of the Act and the same was added to the total income in the hands of the assessee company by the AO vide assessment orders dated 30-12-2010 passed u/s 143(3) of the Act.

ITA 3813/M/12, 821/M/14, 48 ITA 3812/M/12 & 3821/M/12

BWGL of Hong Kong Dollar(HKD)1,87,50,000/- , an amount of HKD 1,87,49,999/- was subscribed by another Hong Kong based Company FEL. It was stated by the assessee company before the CIT(A) that the A.O without going into the sources of FEL considered the entire amount i.e. Rs. 5,10,00,000/- as unexplained cash credit u/s 68 of the Act. It was stated before the CIT(A) that the ultimate investor Mr. Nimish G. Chandak who is an NRI has invested in the shares of the assessee company through Special Purpose Vehicle created for this purpose. The Channel of investment was briefly explained by the assessee company to the CIT(A) as detailed below:

- “M/s Fortune Exim Proprietary concern of Mr. Nimish Chandak has subscribed to the entire Share Capital of Richguard Holdings Ltd. (RHL) which in turn held the share capital of FEL.

- FEL is the holding company of BWGL. FEL subscribed the amount of HKD 1,87,49,999/- out of total share capital of BWGL of HKD 1,87,50,000/- .

- BWGL has in turn subscribed for 42,50,000/- equity shares of your appellant company out of the money received from FEL towards its share capital.”

The assessee company submitted the following documents before the CIT(A) to prove the identity of the investor, creditworthiness of the ultimate investor and genuineness of the transaction which are the three basic ingredient of Sec 68 of the Act, which are reproduced hereunder:-

“Identification of the party a) Nimish Chandak, Proprietor of Fortune Exim.

-Copy of Hong Kong identity of Nimish Chandak enclosed at Exhibit 17.

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-Copy of Hong Kong permanent card of Nimish Chandak enclosed at Exhibit 18.

-Copy of Passport of Nimish Chandak enclosed at Exhibit 19. Incidentally as on the date of this transaction, Nimish Chandak holds an Indian Passport. We are now given to understand that he has got a Hong Kong Passport.

-Copy of Form no. 2 of Fortune Exim being Business Registration certificate enclosed at Exhibit 21.

-Copy of Business particulars of Fortune Exim issued by Business Registration Office enclosed at Exhibit 22.

-Copy of Affidavit from Nimish Chandak enclosed at Exhibit 30.

b) Richguard Holdings Ltd .

-Bank Statement of RHL evidencing transfer of funds to Fortune Exim Ltd. for subscription of share capital enclosed at Exhibit 13.

c) Fortune Exim Ltd . -Bank Statement of FEL evidencing transfer of funds to Billion Way Garments Ltd. for subscription of share capital enclosed at Exhibit 12.

d) Billion Way Garments Ltd . -Memorandum and Articles of Association and Certificate of Incorporation of BWGL having Company No. 1149123 enclosed at Exhibit 2.

-Business Registration Certificate of BWGL in Form No. 2 duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong for the period from 12.07.2007 to 11.07.2008 and from 12.07.2008 to 11.07.2009 enclosed at Exhibit 3.

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-Annual Return in Form AR1 of BWGL filed with Company Registry, H.K enclosed at Exhibit 7.

-Bank Statement of BWGL highlighting amount remitted to LOL (appellant) enclosed at Exhibit 8.

-Passport of Ms. LI KANG TAl, Director of BWGL duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong enclosed at Exhibit 4.

Creditworthiness of the party a) Nimish Chandak, Proprietor of Fortune Exim . -Tax Return of Nimish Chandak for Year of Assessment 2006-07 and 2007-08 enclosed at Exhibit 20.

-Copy of Assessment Orders of Profit Tax of Nimish Chandak trading as Fortune Exim for Year of Assessment 2002-03, 2003-04, 2004-05, 2005-06, 2006-07,2007-08 and 2008-09 enclosed at Exhibit 23.

-Copy of Assessment Orders of Profit Tax of Nimish Chandak trading as Pacific International for Year of Assessment 2006-07 enclosed at Exhibit 24.

-Copy of Personal Assessment Orders of Nimish Chandak for Year of Assessment 2007-08 enclosed at Exhibit 25.

-Copy of BOI letter regarding satisfactory conduct of account of Fortune Exim enclosed at Exhibit 28.

-Copy of letter of BOI for granting facilities to Fortune Exim enclosed at Exhibit 27.

-Copy of Affidavit from Nimish Chandak confirming the entire transaction enclosed at Exhibit 30.

b) Richguard Holdings Ltd .

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-Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of RHL enclosed at Exhibit 15.

Fortune Exim Ltd .

-Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of FEL enclosed at Exhibit 11.

-Copies of letter of HSBC bank for granting facilities to FEL enclosed at Exhibit 26.

-Copy of HSBC letter regarding satisfactory conduct of account of FEL enclosed at Exhibit 29.

d) Billion Way Garments Ltd .

-Certificate of Certified Public Accountants certifying FEL as a major shareholder of BWGL enclosed at Exhibit 5.

-Certificate regarding Profit Tax Return of BWGL enclosed at Exhibit 6.

-Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of BWGL enclosed at Annexure 73.

Genuineness of the Transaction -Copy of Affidavit from Nimish Chandak confirming the entire transaction enclosed at Exhibit 30.

-Copy of Bank Foreign Inward Remittance Certificate from State Bank of India certifying the remittance from BWGL to your appellant by way of Share Application Money enclosed at Exhibit 10.

-Intimation to RBI by your appellant in connection with receipt of Remittance enclosed at Annexure 68.2.

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-Extracts of Resolution passed at the meeting of the committee of the directors of your appellant company for allotment of shares enclosed at Annexure 68.3.

-Certificate from Statutory Auditors of LOL giving average price of shares of LOL to be given in connection with issue of equity shares on preferential basis enclosed at Annexure 68.4.

-In principle approval from BSE for issue of 42,50,000 Equity shares on preferential basis enclosed at Annexure 68.5.

-Set of documents (FCGPR forms & other related documents) filed with authorized dealers for onward submission to RBI enclosed at Annexure 68.6 and Exhibit 39.2 to 39.13.

-Letter dated 16.01.08 from RBI in connection with application in form FCGPR enclosed at Annexure 68.7.

-Letter dated 04.02.08 from the company addressed to RBI in response to RBI letter dated 16.01.08 as referred above enclosed at Annexure 68.8.

-Letter dated 25.08.08 from RBI recording the receipt of application in form FCGPR received through SBI (authorized dealer) of 42,50,000 Equity shares of 2/- each at premium of Rs. 10/- per share to BWGL enclosed at Annexure 68.9 and Exhibit 39.1.

-Letter from BWGL giving consent to subscribe for 42,50,000 Equity Shares of Rs. 2/- each at price of Rs.12/- on preferential allotment basis enclosed at Annexure 68.10.

-Bank Statement of LOL for SBI, Commercial Branch, Mumbai. highlighting the receipt of subscription amount enclosed at Annexure 68.11.

-Application for listing of 42,50,000 Equity Shares to BSE enclosed at Annexure 68.12.

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-Form No. 2 - Return of Allotment filed by your appellant with MCA for allotment of equity shares to BWGL enclosed at Annexure 68.13.

-Share Application Form for issue of equity shares from BWGL to LOL enclosed at Annexure 68.14.

-Letter dated 27.09.10 from Central Depository Services India Limited confirming the dematerialization of shares allotted to BWGL enclosed at Annexure 68.15.

-Letter dated 03.12.07 addressed to BSE for listing the shares allotted on preferential basis enclosed at Annexure 68.16 and Exhibit 40.3.

-Letter dated 25.03.08 from BSE regarding listing of new securities enclosed at Annexure 68.17 and Exhibit 40.4.

-Share Certificate issued by LOL to BWGL enclosed at Annexure 68.18.

-Resolution passed by BWGL for Investment in LOL duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong enclosed at Annexure 69.11.

-Bank Statement of BWGL highlighting amount remitted to LOL enclosed at Annexure 69.24 and Exhibit 8.

-Bank Statement of LOL evidencing receipt of subscription amount enclosed at Annexure 68.25 and Exhibit 9.”

The assessee company submitted that the A.O. has passed the assessment order u/s 143(3) of the Act dated 30-12-2010 in haste without conveying dis- satisfaction over the documents submitted by the assessee company . The AO did not asked the assessee company to prove the creditworthiness of FEL nor any opportunity was provided to the assessee company. The assessee company also submitted that during the course of assessment proceedings

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u/s 143(3) read with Section 143(2) of the Act, the assessee company has explained the source of source of the transaction and the assessee company has now before the CIT(A) even proved the identity, genuineness and creditworthiness of the ultimate investor Mr. Nimish Chandak and the assessee company has also satisfactorily explained even the source of source of source by producing the additional evidences before the CIT(A). The assessee company received the money towards share capital including share premium subscribed by BWGL of Rs.5,10,00,000/- in its bank account through banking channels and the investor continues to be the shareholder of the assessee company even today. The assessee company is also declaring the regular dividend from last 15 years and is also paying Dividend Distribution Tax on the same. BWGL is also receiving dividend from the assessee company which is being repatriated as per RBI norms and the amount invested in the assessee company is also reflected in the audited Balance Sheet of the investor company i.e. BWGL . Also the amount invested by FEL in BWGL is reflected in the audited Balance sheet of both the companies. The assessee company also discussed the basis on which the A.O. has made the addition and the assessee company’s rebuttal is as follows:-

“AO's Stand: The AO has observed that BWGL had issued share capital of HKD 1,10,00,000/- which was fully subscribed by another Hong Kong based company FEL. The AO confirms that FEL had made a remittance to BWGL on October 08, 2007 and October 15, 2007. However, in his opinion it was objectionable and "pertinent to note that registered office of both the companies were at the same address."

Rebuttal: Admittedly, BWGL is a 100% subsidiary of FEL and it is a common practice that the holding company and the subsidiary company would be located at the

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same address. Needless to say a 100% subsidiary company would always be owned by the same group of promoters as the holding company.

AO's Stand: As desired by the AO, a copy of the Balance Sheet of FEL from the date of its incorporation till December 31, 2008 was submitted and the AO was shocked to note that BWGL and FEL were incorporated on the same date i.e. August, 10, 2007.

Rebuttal: A holding company and the subsidiary company can be incorporated on the same date. There is no prohibition in law that the holding company has to be incorporated prior to the incorporation of a subsidiary company. In fact a subsidiary company may even be incorporated prior to the incorporation of the holding company where the holding company acquires the share of the subsidiary company at a later date. In any case the Ld. AO. was required to examine the ownership and flow of funds to establish the creditworthiness of the shareholder and genuineness of the transaction and the date of incorporation is immaterial when it comes to examining the creditworthiness and genuineness of the transaction.

AO's Stand:

The Ld. AO. on Page 2 of the assessment order noted the observations of the auditor of FEL which talks about updated financial statement of BWGL.

Rebuttal:

Once again this has no relevance on the creditworthiness and genuineness of transaction wherein BWGL has Invested in the share capital of your assessee company.

ITA 3813/M/12, 821/M/14, 56 ITA 3812/M/12 & 3821/M/12

AO's Stand:

The Ld. AO also objected on the point that the Balance Sheet of FEL has not been prepared as at December 31, 2007. In fact, FEL has prepared the Balance Sheet since the date of its incorporation on August 10, 2007 to December 31, 2008 as per the laws prevailing in Hong Kong. The AO as earlier confirmed that remittance has been received from FEL on October 08, 2007 and October 15, 2007 which is apparent from the copy of the bank statement submitted.

Rebuttal:

The assessee has already submitted a copy of the audited Balance Sheet of FEL as at 31.12.2008 wherefrom it is clear that FEL has invested HK$10,999,999 by acquiring shares of the subsidiary company, i.e. BWGL.

AO's Stand:

The Ld. A.O. is concerned of the fact that BWGL was not having any assessable profit or loss as per the Profit Tax Return filed for the year of assessment 2007- 08 and 2008-09 submitted to the Inland Revenue Department, Hong Kong. He has further concluded from this that BWGL was not engaged in earning of any income and had no business activities.

Rebuttal:

It is an admitted fact that BWGL is an investment company where the only activity was acquisition of shares of your appellant and was not formed with any objective of doing business. However, once again whether BWGL has

ITA 3813/M/12, 821/M/14, 57 ITA 3812/M/12 & 3821/M/12

business activities or otherwise does not mean that it did not have the funds for acquiring the shares of the assessee.

AO's Stand:

The AO has argued that BWGL was incorporated with an objective of trading in garments, textiles and accessories which was never a case as evidenced from the certificate of Certified Public Accountant.

Rebuttal:

It is a common knowledge that when a company is incorporated it is empowered to carry out several activities as per its Memorandum of Association and it is only some of these activities that may actually be carried out. The object clause of any company is widely drafted to include various objectives which it might carry out in future. This has no relevance with the subject matter.

AO's Stand:

The A.O. has mentioned that BWGL has purchased shares at Rs.12/- as against valuation of Rs. 7.04 per share. The A.O. has further mentioned that if BWGL was a real investor in the shares and was really interested in acquiring the shares, it could have been acquired from the market at the rate of Rs.7.04 per share but BWGL has preferred to pay a premium over the market value of Rs.5/- per share. The A.O. fears some secret motive in the acquisition of these shares of your appellate and feels that this was only to pour money in the kitty of your assessee company from undisclosed sources.

Rebuttal:

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It is common knowledge that people all over the world are looking to India as investment destination purely because of the growth that they see in India. The A.O. has not understood the mechanics of any acquisition of shares. To elaborate, the company prior to acquisition of shares by BWGL had 2,51,32,500 shares out of which the promoters were holding 69%. Thus , the floating stock of shares held by outside public was 31% i.e. 77,91,075 shares. BWGL has acquired 42,50,000 shares which would mean that it would have to acquire almost 55% of the floating stock of shares. The shares of the assessee company are not widely traded and the volume of trading each day would not exceed a few thousand shares. If they try to acquire the shares in the open market it would lead to following consequences:

-Prices of the shares would suddenly flare up and they would not been able to acquire the desired number of shares.

-As per the SEBI rules any person acquiring 5% of the paid up capital would require the permission of the Stock Exchange and SEBI.

-If the acquisition exceeds 15% of the capital, the company investor would be bound to appoint merchant bankers and make an open offer to all the shareholders. The above would lead to considerable difficulties and the end result would be that they would either not able to acquire number of shares they have acquired or they would have paid a much heavier price then the amount paid to the company by way of share premium. Further if the investor is interested in well being of the company in which he has invested he would be happy to put the money in the hands of the company rather than buy the shares from the market at a premium because if the shares are issued by the company, the share value and premium would be available in the hands of the company which would be used for the expansion of the business of the company which will fuel growth and better dividends.”

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i) Shankar Industries v. CIT (114 ITR 689)(Calcutta) ii) CIT v. Precision Finance Pvt. Ltd. (208 ITR 465) iii) CIT vs. Corley Trading Company Limited (232 ITR 820) iv) CIT v. Lovely Exports Pvt. Ltd. (216 CTR 195 (SC) v) CIT v. Kinetic Capital Finance Ltd. (ITA No. 87/2007)(Delhi) vi) M/s Kiara Jewellery Pvt. Ltd. v. ACIT (ITA No. 4911/Mum/09) The CIT(A) admitted the additional evidence which were mainly by way of bank statements, director’s reports, auditor’s report , balance sheet, identity card , permanent card , copy of passport, copy of tax return, assessment order and profit tax and affidavit of the said Mr Nimesh G. Chandak, produced by the assessee company , as in the opinion of the CIT(A) ,these additional evidences are important and relevant for adjudicating the appeal

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on merits and in the interest of justice and fair play the additional evidences submitted by the assessee company were admitted by the CIT(A) , relying on the following judgments :-

i) Jute Corporation of India Limited v. CIT 187 ITR 688(SC) ii) CIT v. Kanpur Coal Syndicate 53 ITR 225(SC) iii) Narondas Manordas v. CIT 31 ITR 909 (Bom.) iv) Ahmedabad Electricity Company Limited v. CIT 199 ITR 351(Bom-FB) v) Nirbheram Deluram v. CIT 224 ITR 610(SC)

The CIT(A) observed that during the course of assessment proceedings, remand proceedings and appellate proceedings, the assessee company has explained that it issued preferential shares to M/s BWGL at the rate of Rs.12/- per share after complying with the requisite formalities and with due approval of RBI, BSE and SEBI guidelines on preferential allotment of shares. The assessee company has received Rs.5.10 crores vide certificate of Foreign Inward Remittance Reference No. 0607007TP0000762 dated 7.11.2007 issued by SBI Commercial Branch, Mumbai on 7.11.2007. The said remittance certificate certifies that the said BWGL remitted US$ 1295000.00 rupee equivalent to Rs.5,12,08,250/- vide Bank of America, NA, New York DEDUCTION/TT/MT No. 2007102400038709 dated 24.10.2007 favouring M/s Lahoti Overseas Limited, Mumbai , i.e. the assessee company for the purpose of share application money at the rate of Rs.12/- per share. The said money was deposited in assessee company's SBI Commercial Branch, Mumbai A/c No. 11079527922 on 25.10.2007.The said receipt of remittance was duly notified to RBI. Extracts of the Resolution passed at the meeting of the Board of Directors of the assessee company for allotment of shares were also provided to the A.O. and CIT(A). Certificates of Chartered Accountant issued in connection with issue of equity shares were also produced before

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the AO and CIT(A). FCGPR forms and other relevant documents were also submitted to RBI. RBI vide their letter dated 16.01.2008 acknowledged the receipt of application in Form No. FCGPR. The assessee company replied to RBI vide letter dated 04-02-2008. RBI recorded the receipt of application form from the assessee company in form no FCGPR received from SBI for issue of 42,50,000 equity shares at Rs.12/- per share to said BWGL. These communications with RBI were also furnished before the AO and CIT(A). BWGL letter giving consent to subscribe 42,50,000 equity shares at Rs.12/- per share on preferential allotment basis was also produced before the AO and the CIT(A). Bank statement evidencing receipt of subscription amount by the assessee company as also application made to BSE for listing of 42,50,000 equity shares and form no 2 i.e. return of allotment and share application received from BWGL was also submitted before the AO and CIT(A). The assessee company letter dated 3-12-2007 to BSE and BSE’s letter dated 25-03-2008 regarding listing of the new securities as well share certificates issued to BWGL was also enclosed before the AO and CIT(A) . These clinching evidences, in the opinion of CIT(A) clearly proves the genuineness of the transaction between BWGL and the assessee company because the proposal of allotment of 42,50,000 shares at the rate of Rs 12 per share including share premium of Rs 10 per share was duly approved by RBI, BSE and SEBI.

As far as the identity and creditworthiness of the said M/s BWGL is concerned, the CIT(A) observed that the assessee company has furnished Memorandum and Articles of Association and certificate of incorporation of M/s BWGL having company No.1149123 in Hong Kong. Business Registration Certificate of BWGL in Form No.2 duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong for the period 12.07.2007 to 11.07.2008 and from 12.07.2008 to 11.07.2009 have also been produced before the AO and CIT(A). The copy of passport of Director of BWGL Ms Li Kang Tai duly attested by Consulate General of India, Hongkong was

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also produced before the AO and CIT(A). The assessee company has also submitted annual return in form no ARI of BWGL filed with the Registry, Hongkong and bank statement of BWGL highlighting the amount remitted to the assessee company by BWGL along with bank statement of the assessee company evidencing receipt of share capital and share premium aggregating to Rs. 5.10 crores was submitted before the AO and CIT(A) . The assessee company has further produced certificate of Certified Public Accountant – Fung , Yu & Company regarding profits tax return of BWGL. The copies of Director’s report , auditors report , balance sheet and income statements for the period ended 31.12.2007 along with notes of account of BWGL were also produced before the CIT(A) and AO. Thus, the CIT(A) held that the identity and creditworthiness of BWGL has been proved , vide orders dated 12-03- 2012.

The assessee company has further explained the identity and creditworthiness of FEL by producing various documents including the bank statement of FEL evidencing transfer of funds to the said BWGL. Mr. Nimesh G. Chandak is the proprietor of the said FEL and a copy of his Hongkong identity, Hongkong Permanent Card bearing No. R077978(3) dated 5-08.2009 issued by Government of Hongkong and of even No. dated 11.11.2005 issued by Government of Hongkong were also produced. A copy of Indian Passport No, F7813390 issued by Mr. Deepak Misra Consul, Consulate General of India was also produced to prove the identity of the said Mr. Nimesh G Chandak, Proprietor of FEL. The copy of form no 2 of FEL being Business Registration Certificate and copy of business particulars of FEL issued by Business Registration office were also produced before the AO and CIT(A) The said Mr Nimesh G Chandak also produced an affidavit dated 27th June 2011 , stating and confirming the investment of Rs.5.10 crores made by BWGL in the assessee company and the sources of the said investment was explained along with the corporate structure of the group for making this investment.

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The CIT(A) held that having regard to the facts and circumstances of the case, the assessee company has proved the source of share application money received from the said BWGL. The AO has asked the assessee company to prove one step further about FEL and the assessee company explained during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the source of source of the transaction. When further confronted and asked to prove one more step further about Mr. Nimish G. Chandak, the assessee company proved source of source of source of the transactions and proved the identity, genuineness and creditworthiness of the ultimate investor, Mr. Nimish G. Chandak, the Hongkong resident holding Government Permanent Card No. R077978(3).The affidavit of Nimesh G Chandak has not been doubted by the AO. The assessee company has received the money in its SBI Commercial Bank account and the said BWGL even today continues to be the shareholder of the present assessee company. The assessee company has complied with the SEBI guidelines for preferential allotment of shares, the book value of the share of the assessee company as at 31-3-2007 was Rs 15.84 per share while the average market price of the shares of the assessee company was Rs7.04 as certified by the Chartered Accountant. The assessee company was paying dividend consistently since 1995 . The assessee company as per SEBI guidelines could not have issued shares at price below Rs 7.04 per share, it was issued at Rs 12 per share which is in compliance with SEBI guidelines for issue of preferential shares by listed companies. The investor BWGL agreed to pay Rs 12 per shares which is a negotiated price of the share. By issuing the fresh shares, the funds have come into assessee company’s bank account which could be utilized for company’s business and expansion while if BWGL has gone for market acquisition of shares, then funds would not have come to assessee company for its business but would have gone to shareholders who have sold the shares in open market and also beyond acquisition of 5% of the capital, SEBI takeover code is applicable and open offer is to be made by the investor. The shares of the assessee company

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are thinly listed and acquiring 42,50,000/- shares from open market would have led to substantial surge in the market price of the shares as total floating stock is merely 76,76,075 shares . The amount invested by the said BWGL continues to be reflected in the audited balance sheet of BWGL as well as in the audited balance of the assessee company. Also, the amount invested by FEL in BWGL is also reflected in the audited balance sheet of both the companies. Hence, the CIT(A) vide orders dated 12-3-2012 deleted the additions made by the A.O. with respect to the transaction of share subscription(including share premium) aggregating to Rs. 5.10 crores between the assessee company and its immediate creditor BWGL holding that the assessee company has proved the identity of creditors, creditworthiness of creditors and genuineness of the transaction.

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below which are detailed in the preceding para’s of this order and are not repeated for sake of brevity. The ld. Counsel relied upon the decision in the case of CIT v. Stellar Investment Limited 251 ITR 263 (SC) , CIT v. Lovely Exports Private Limited 216 CTR 195(SC) and other decisions as per large number of cases submitted along with paper book filed with the Tribunal. The assessee company has also filed in the paper book , page 51-223 , several documentary evidences which were filed before the authorities below and listed in the preceding para’s of this order to substantiate the identity, creditworthiness and genuineness of the transaction of receipt of Rs.5.10 crores from BWGL and the same are not repeated for the sake of brevity.

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Hong Kong resident into BWGL which finally was invested in the assessee company. The documentary evidences relied upon by the assessee company and explanations offered to substantiate identity of creditor, creditworthiness of creditor and genuineness of the transaction of receipt of Rs 5.10 crores as share capital and share premium from BWGL by the assessee company as were filed before the authorities below are detailed in the preceding para’s of this order which is not repeated for sake of brevity and such documentary evidences are also filed by the assessee company before the Tribunal in the paper book , page 51-223 and we have perused the said documentary evidences filed with the Tribunal and are of considered view that the assessee company has duly discharged its burden cast u/s 68 of the Act and identity of the creditor, creditworthiness of the creditor and genuineness of the transaction stood proved. Detailed findings based on sound reasoning has been given by the CIT(A) vide orders dated 12.03.2012 while accepting the contentions of the assessee company as the compliance with the mandate of Section 68 of the Act, with which we completely agree and concur , the said findings of the CIT(A) is detailed by us in the preceding para’s of this order and is not repeated for the sake of brevity . The assessee company is a listed company which is subject to strict regulatory and / or statutory scrutiny and controls by government authorities such as RBI, BSE,SEBI and MCA apart from the community of investors who have invested in shares of the assessee company being widely held listed company. The assessee company has duly explained the preferential allotment of shares being 42,50,000 equity shares to BWGL at the rate of Rs.12/- per share , which shares were issued after complying with the statutory and/or regulatory requirements of RBI, BSE and SEBI guidelines on preferential allotment of shares . The assessee company also complied with the statutory formalities with the Ministry of Corporate Affairs, Government of India. The said share subscription amount of Rs.5.10 crores was received by the assessee company through banking channel and all the related documentary evidences have been brought on record to satisfy

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ingredients of section 68 Of the Act, which are placed in paper book filed with the Tribunal at page 51-223. After perusing the entire records , we are of considered view that the assessee company has satisfactorily discharged the primary onus and duty cast on the assessee company to satisfy the ingredients of Section 68 of the Act with respect to identity of creditors, creditworthiness of creditors and genuineness of the transaction and thereafter the onus had shifted to revenue to rebut and demolish the evidences and explanations brought on record by the assessee company which has not been done in the instant case by the Revenue . We find that the A.O. has not brought on record any cogent material/record to prove that the assessee company has failed to comply with the ingredients of section 68 of the Act or to demolish the evidences filed by the assessee company or explanation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and assumptions which is not permissible under the Act while the assessee company has satisfied the ingredients of Section 68 of the Act by uncontroverted cogent documentary evidences and explanations offered during assessment and appellate proceedings. The said Mr Nimesh G. Chandak , the ultimate investor of the investing group was produced by the assessee company before the CIT(A) .The assessee company also offered to produce said Mr Nimesh G. Chandak before the AO during remand report proceedings but the AO failed to avail the opportunity to examine him and /or record his statement and/or to cross examine him to strengthen his case to bring , the transaction of share subscription of Rs.5.10 crores by BWGL in the assessee company , within fold of chargeability to tax under Section 68 of the Act. The said Mr. Nimesh G Chandak has also filed duly attested affidavit stating the entire details of investment of Rs.5.10 crores in the assessee company , the contents thereof has also not been demolished by the Revenue and had remained uncontroverted. In our considered view, the CIT(A) has passed a very detailed and well reasoned order dated 12.03.2012 accepting

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the contentions of the assessee company with which we concur , agree and uphold the same.

The Revenue has also raised ground of appeal no. 2 that the foreign companies have not invested in the assessee company from own funds and no business activities were carried on by the foreign companies. In our considered view, the Revenue has completed misdirected itself and completely ignored the present day realities as to how Corporate Structures are devised and created through which businesses are structured, owned , controlled , operated, run and managed by the Business Groups due to several and varied business reasons based on perceived commercial exigencies and commercial expediency. The World Economies have advanced and expanded multifold , and have rapidly integrated themselves in the last few decades, so as the scale of operations have grown manifold in last few decades necessitating collaborative actions across globe. Business houses have diversified, collaborated and integrated themselves with conglomerates across globe and are engaged and operating in multi-product/services and multi-location businesses geographically spread across national and international territories. The Businesses are now arranged through web of corporate entities in the ladder of Corporate Structure comprising of chain of ultimate holding companies, holding companies, subsidiary companies, ultimate subsidiary company, associate companies, joint venture companies etc. keeping in view the perceived business exigencies and commercial expediency, which are purely in the realm of business decisions of the businessmen based on perceived prudence. The Revenue cannot put itself into an arm-chair of businessmen to decide how businesses are to be structured, controlled, owned , operated, run and managed, so long the purposes and objectives adopted by businessmen are not dubious with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. In the instant case, the investing company has duly explained the

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identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing Rs.5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the assessee company through his corporate structure of holding and subsidiary companies. It is totally irrelevant on part of the Revenue to contend that these foreign companies do not have owned funds or there are no business activities of these foreign companies, so long the assessee company is able to establish and substantiate with cogent material and evidences, identity of the creditor, creditworthiness of the creditor and genuineness of the transaction , which in our considered view, the assessee company has duly proved by clinching and conclusive evidences to satisfy the mandate of provisions of Section 68 of the Act. The contention of the revenue that the said foreign companies are not having any business activities is also perverse , as the documents produced by the assessee company reveals the following business activities of the holding company FEL of BWGL :

S.No. Name of Company Turnover Net owned funds 1. Fortune Exim Limited, Hong Kong HK$ 3,78,77,247 HK$1,24,28,971 ( From 10-08-2007 to 31-12-2008)

The Balance sheet has been prepared by FEL from the date of incorporation on 10-08-2007 to 31-12-2008 which is stated to be compliant to Hong Kong Laws as the date of incorporation was 10-08-2007 and this is the first

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balance sheet but to make bald assertion that these companies are not engaged in any businesses and does not have their owned funds without bringing on record cogent material lacks merit and is rejected. The assessee company has also produced assessment records of the Mr Nimesh G Chandak to contend that he is assessed to tax in Hong Kong for last several years.

The Revenue has not brought on record any plea or contention backed with evidences that these web of chain of holding and subsidiary companies so created by Mr. Nimesh G Chandak were with dubious purposes and objectives with an intention to evade taxes to defraud revenue or the transaction per-se is undertaken with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. Thus, this ground no. 2 of grounds of appeal raised by the revenue is also rejected.

Thus, in our considered view and as per reasoning detailed above, we find no infirmity in the well reasoned and detailed order dated 12.03.2012 passed by the CIT(A) which has been passed by the CIT(A) after referring to all the documentary evidences filed by the assessee company and the case laws related to the issue relied by the assessee company, hence, we refuse and decline to interfere with the orders dated 12.3.2012 of the CIT(A) which we confirm, concur and uphold the same. Our view is supported by and fortified by the judgment of Hon’ble Supreme Court in the case of CIT v. Steller Investment Limited ((2001) 251 ITR 263(SC)) , CIT v. Lovely Exports Private Limited ((2008) 216 CTR 195(SC) ) and CIT v. Tania Investments Private Limited 322 ITR 394(Bom.HC). We order accordingly.

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ITA No. 3821/Mum/2012 for assessment year 2008-09 (Assessee’s appeal).

“1. The Learned Commissioner of Income Tax (Appeals) [Ld. CIT (A)] erred in confirming the action of the Learned Assessing officer of Denial of deduction u/s 80lA amounting to Rs. 1,57,90,301/-. 2. Without Prejudice to above, the Ld CIT(A) erred in confirming the action of A.O of not treating a sum of Rs. 35,55,880/- received as compensation from M/s. Suzlon Energy Limited (towards specific performance against guaranteed generation of Power) as income from the industrial undertaking and erred in not considering the said amount as eligible for deduction u/s 80lA. 3. The Ld. CIT (A) erred in confirming the action of the Learned Assessing Officer of disallowance u/s 14A r. w. Rule 8D of Rs. 13,66,079/-.”

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figure of allowable deduction u/s 80IA of the Act in the year in which it is claimed. The AO observed that verification of records reveals that in respect of wind mill power division which has been commissioned by the assessee company in the previous year relevant to the assessment year 2003-04 , the loss/depreciation attributable to this activity of wind-mill stands as under:

AY Depreciation loss 2003-04 Rs.58,263 2004-05 Rs.17,02,898 2005-06 Rs.187,90,690 2006-07 Rs.21,54,000

Thus, as per AO the above brought forward loss although set off against other income of the assessee company in the relevant assessment year is to be notionally brought forward and set off against claim of deduction u/s 80IA of the Act and the remaining amount after set off can be claimed as deduction. Since the assessee company did not set-off the brought forward notional loss against the deduction of Rs. 1,57,90,301/- claimed u/s 80IA of the Act, the claim was denied to the assessee company by the AO vide assessment orders dated 30-12-2010 passed u/s 143(3) of the Act , after rejecting the contentions of the assessee company .

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u/s 80IA on the grounds that notional brought forward losses/depreciation of eligible business which has already been set off in the relevant assessment year against other income of those years in which those losses arises and were allowed by the Revenue are to be notionally brought forward and adjusted against the claim of deduction u/s 80IA of the Act of the impugned assessment year before allowing deduction u/s 80IA of the Act and hence the entire claim of deduction of the assessee company amounting to Rs.1,57,90,301/- u/s 80IA of the Act were disallowed by the AO without appreciating the provisions of Section 80IA(5) of the Act and difference between ‘initial assessment year’ and ‘year of commencement’ has not been properly understood by the AO .The assessee company submitted that the fiction created by Section 80IA(5) of the Act is applicable only in the years subsequent to initial assessment year and the un-absorbed depreciation of wind mill division for all years earlier to the initial assessment year, which had already been absorbed against the profit of other businesses, cannot be notionally brought forward and be considered for computing deduction u/s 80IA of the Act and the AO erred in the adjusting notional brought forward losses/depreciation and adjusting against the claim of the assessee company u/s 80IA of the Act.

The CIT(A) observed that it is not disputed that the assessee company incurred losses/depreciation attributed to windmill power division as under:

AY Depreciation loss 2003-04 Rs.58,263 2004-05 Rs.17,02,898 2005-06 Rs.187,90,690 2006-07 Rs.21,54,000

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The CIT(A) held that the AO has rightly invoked provisions of Section 80IA(5) of the Act and adjusted brought forward losses/depreciation set off in earlier years against other sources of income , against the profit declared by the assessee company from the said windmill power division in the assessment year 2008-09 for the purposes of determining quantum of deduction u/s.80IA of the Act. The AO has rightly determined the taxable income of the relevant industrial undertaking ( windmill power division ) as if such undertaking is an independent unit owned by the assessee company and the assessee company has no other source of income for the purposes of over-riding provisions of sub-section 5 of Section 80IA of the Act. The Section 80IA of the Act is a code in itself and the assessee company by not claiming earlier assessment year’s business losses and depreciation seeks to inflate the profit linked incentives provided u/s 80IA of the Act which is not permissible and in view of the specific provisions of Section 80IA(5) of the Act, the profit from the eligible business for the purposes of determination of the quantum of deduction u/s 80IA of the Act has to be computed after deduction of the notional brought forwards losses and depreciation of eligible business even though they have been allowed set off against other income in the earlier years. The CIT(A) relied upon following decisions to support his decision :

The CIT(A) confirmed the decision of the AO vide appellate orders dated 12.03.2012, whereby the claim of deduction of the assessee company u/s 80IA of the Act amounting to Rs.1,57,90,301/- was denied and directed to be adjusted against the brought forward notional loss/depreciation from the

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windmill business relating to earlier years despite the fact that the same were already set off by the assessee company against other sources of income and allowed by the Revenue in the preceding assessment year’s.

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assessee company is entitled for deduction u/s 80IA of the Act amounting to Rs.157.90 lacs. The assessee company’s counsel relied upon the following decisions :

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Section 801A of the 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 of the Act further provides that the aforesaid deduction can be claimed by the tax-payer, 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 of the Act 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’. The clear mandate provided under Sub-Section (2) which allows a choice to the tax-payer for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. An tax- payer who is eligible to claim deduction u/s 80IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction

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for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. Thus, the term ‘initial assessment year’ would mean the first year opted for by the tax-payer for claiming deduction u/s 801A 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.

The issue of adjustment of notional brought forward notional losses / depreciation which were already adjusted in the relevant assessment years against the claim of deduction u/s 80IA of the Act has been decided by Hon’ble Madras High Court in Velayudhaswamy Spinning Mills Private Limited v. ACIT(supra) whereby Hon’ble Madras High Court held that already adjusted losses/depreciation against income from other sources in the earlier years cannot be brought forward notionally to be adjusted against the claim of the deduction u/s. 80IA of the Act if there exists no brought forward losses/depreciation. The tax-payer has an option to choose initial assessment year under the substituted Section 80IA of the Act w.e.f 01-04-2000 vide s.section 2 which shall be to choose 10 consecutive assessment years out of 15 years and the fiction created by s.section 5 of Section 80IA of the Act shall operate from the initial assessment year and only losses of the years beginning from initial assessment year alone are to be brought forward and earlier year losses which are already set off against the income of the tax- payer cannot be notionally brought forward to deny the claim of deduction u/s 80IA of the Act as under:

“16. Section 80-IA reads as follows : "80-IA. (1) 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) (such business being hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this

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section, be allowed in computing the total income of the 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 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

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assessment year up to and including the assessment year for which the determination is to be made."

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(4)It is a deeming provision ; (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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relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this court cited supra considered the scope of sub-section (6) of section 80-I, 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 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

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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." 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-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view.”

However, we will be failing in our duty if we do not bring on record two important developments which has taken place with respect to the issue in dispute after the conclusion of the hearing on 20-01-2016 in the instant appeal, Firstly, 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 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 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

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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 80 lA 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 also 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.1I2016 [F.NO.200/311201S-ITA-I]

SECTION 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS· PROFITS AND GAINS FROM INFRASTRUCTURE UNDERTAKINGS - ARIFICATION OF TERM 'INITIAL ASSESSMENT YEAR' IN SECTION 80-IA(5)

CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-ll, DATED 15-2-2016

Section 80-IA of the Income-tax Act, 1961 (Act'), as substituted by the 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 80-IA 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

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services etc. as stipulated therein. Sub-section (5) of section 80-IA 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.

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.80-IA 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. 80-1A. 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. 80-IA 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 lA shall also not be pursued to the

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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.”

Secondly , in a very recent judgment delivered on 01-03-2016 by the Hon’ble Madras High Court in the case of CIT v. GRT Jewellers (India) Private Limited in TCA no 176 of 2016 on an identical issue , the Hon’ble Madras High Court has dismissed the Revenue appeal after considering the afore-stated Circular no 1 of 2016 as under:

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

"(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

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(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 ?"

"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

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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 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 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. 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.

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

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Thus, based on our above discussions and reasoning , we hold that already adjusted losses/depreciation against income from other businesses in the earlier years (i.e. up-to assessment year 2006-07 as the assessee company has chosen assessment year 2007-08 as the ‘initial assessment year’ for claiming deduction u/s 80IA of the Act )by the assessee company cannot be brought forward notionally to be adjusted against the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreciation in the hands of the assessee company as per facts emanating from records . Ground no 1 of the assessee company is allowed.

The brief facts are that it was observed by the A.O. that sale of windmill power of Rs. 179.08 lacs shown by the assessee company which include an amount of Rs. 35,55,880/- which is not on account of sale of power generated but the same is received by the assessee company on account of compensation received from Suzlon Energy Ltd. Since this income is not derived from the industrial undertaking, as per the AO , the same do not qualify for deduction u/s 80IA of the Act and accordingly was disallowed by the A.O. Since the

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entire claim of the assessee company for deduction under Section 80IA of the Act was disallowed by the AO , no separate disallowance was made on this account by the AO , vide assessment orders dated 30-12-2010 passed by the AO u/s 143(3) of the Act.

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performance assurance given by M/s Suzlon Energy Ltd. who supplied windmill equipment, Suzlon Energy Limited has paid/compensated the said amount aggregating to Rs.35,55,880/- to cover the lower production than the minimum rated guaranteed production and hence the said amount is income derived from windmill undertaking of the assessee company engaged in the business of generation of power and there is a first degree nexus of the said receipt and the generation of power by the windmill undertaking of the assessee company and the compensation received for under-performance of the wind mill below guaranteed capacity is towards deemed generation of power and benefit u/s 80IA of the Act cannot be denied to the assessee company. The ld. Counsel of the assessee company relied upon the following case laws :

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an amount of Rs. 35,55,880/- from Suzlon Energy Limited which is included in the sale of windmill power but the said amount was received by the assessee company not on account of sale of power generated but on account of compensation received from Suzlon Energy Limited(power equipment supplier to assessee company ) for performance of the power equipment below the minimum guaranteed assured capacity utilization and generation of power as assured by Suzlon Energy Limited and the A.O. treated the same as income which is not derived from industrial undertaking. We have also observed that the word used in section 80IA of the Act is where the gross total income of an tax-payer includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub section (4) of section 80-IA of the Act. The word ‘derived from’’ means that the receipt should have a close and first degree nexus with the generation of power. The assessee company has received the amount from M/s Suzlon Energy Ltd. which is on account of shortfall in generation of power as compared to guaranteed generation of power by Suzlon Energy Limited .

The issue in this ground of appeal is squarely covered by the decision of the co-ordinate benches of the Tribunal in favour of the assessee company in following cases:

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“9. The assessee’s last ground pertains to generation loss compensation receipt of Rs.10,00,569/- from its supplier for loss of wind power production. The Revenue’s objections are based on the word ‘derived’ (supra). The assessee’s windmill supplier has paid the aforesaid amount in lieu of assured power generation failure at a rate fixed very well in advance. In identical circumstances, we find that in case law [2011] 16 taxmann.com 75(Delhi) Magnum Power Generation Ltd. vs DCIT holds that such a receipt arising from compensation is entitled for section 80IA deduction. The Revenue does not cite any judicial precedence in its favour. Thus, we adopt the same view and allow the assessee’s corresponding ground.

The Assessing Officer is directed to pass a consequential computation order.”

We would also like to submit that the Hon’ble Supreme Court had recently on 09th March 2016 (post conclusion of hearing in the instant case) after considering the entire law on the subject has delivered a landmark judgment in the case of CIT v. Meghalaya Steels Limited in Civil Appeal No. 7622 of 2014 whereby power subsidy, interest subsidy and transport subsidy were held to have direct nexus with the business of the undertaking and are held to be income derived from the undertaking as it goes to reduce the cost of production and deduction u/s 80IB of the Act was held to be allowable. The relevant portion of the judgment of Hon’ble Supreme Court in the case of CIT v. Meghalaya Steels Limited (supra) is reproduced below:

“13. A series of decisions have made a distinction between “profit attributable to” and “profit derived from” a business. In one of the early judgments, namely, Cambay Electric Supply Industrial Company Limited

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v. Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644, this Court had to construe Section 80-E of the Income Tax Act, which referred to profits and gains attributable to the business of generation or distribution of electricity. This Court held:

“As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to” has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.” (Para 8)

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made, was profit and gain derived from the respondent’s industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression “attributable to” as contrasted with “derived from”. In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Having said this, this Court finally held:- “We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. where under the export entitlements become available. There must be for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. There under, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking.” (Para 13)

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purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. On this basis, the appeal was decided in favour of Revenue.

“34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under sub- section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking".

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duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit as percentage of FOB value of exports made in freely convertible currency. Credit is available only against the export product and at rates specified by DGFT for import of raw materials, components etc.. DEPB credit under the Scheme has to be calculated by taking into account the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports.

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something directly from, as opposed to “attributable to”, which can be said to include something which is indirect as well.

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disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturing and selling of its products. The “profits and gains” spoken of by Sections 80-IB and 80-IC have reference to net profit. And net profit can only be calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned.

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direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import content of the export product which is provided for by credit to customs duty against the export product. In such a scenario, it cannot be said that such duty exemption scheme is derived from profits and gains made by the industrial undertaking or business itself.

“We do not find any perversity in the Tribunal’s finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee’s business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error.”

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the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court held:

“Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted.

He also relied on a judgment of the Supreme court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking.

We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy arising out of customs draw back and duty Entitlement Pass-book Scheme

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(DEPB). Both the incentives considered by the Apex Court in the case of Liberty India could be availed after the manufacturing activity was over and exports were made. But, we are concerned in this case with the transport and interest subsidy which has a direct nexus with the manufacturing activity inasmuch as these subsidies go to reduce the cost of production. Therefore, the judgment in the case of Liberty India v. Commissioner of Income Tax has no manner of application. The Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228 ITR at page 257 expressed the following views:-

“…. Similarly, subsidy on power was confined to ‘power consumed for production’. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.”

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“The object of the Transport Subsidy Scheme is not augmentation of revenue, by levy and collection of tax or duty. The object of the Scheme is to improve trade and commerce between the remote parts of the country with other parts, so as to bring about economic development of remote backward regions. This was sought to be achieved by the Scheme, by making it feasible and attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other northeastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable.” (Paras 14 and 15)

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paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee.

ITA 3813/M/12, 821/M/14, 106 ITA 3812/M/12 & 3821/M/12

income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head “profits and gains of business or profession”. If cash assistance received or receivable against exports schemes are included as being income under the head “profits and gains of business or profession”, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head “profits and gains of business or profession”, and not under the head “income from other sources”.

Ld. DR had relied upon the judgment of Hon’ble Supreme Court in the case of Liberty India Limited(supra) which has been distinguished by Hon’ble Supreme Court in the above landmark judgment in Meghalaya Steels Limited(supra) as in the said case of Liberty India the tax-payer received subsidy in the form of DEPB/drawback incentives which was held by Hon’ble Supreme Court to be not derived from business of undertaking for manufacturing or selling of products but these incentives have arisen from exports of these products and these incentives has arisen out of Scheme’s of the Government granting DEPB/Drawback incentives and/or provisions of

ITA 3813/M/12, 821/M/14, 107 ITA 3812/M/12 & 3821/M/12

Customs Act and not from the manufacturing activity but from exports of products and hence deductions u/s 80IB was held to be not allowable as these DEPB/drawback incentives are not an income derived from business of manufacturing and/or sale activities of the undertaking .

In the instant case the amount is paid by Suzlon India Limited towards specific performance due to short generation of power than minimum guaranteed power generation certified by the equipment suppliers i.e. Suzlon Energy Limited and it has a direct and close nexus of first degree with the generation of power being shortfall in generation of power than the guaranteed rated capacity by equipment supplier and the subsidy goes on to reduce the cost of generation of power as the fixed costs and other cost which are still incurred despite short generation of power are recouped by the said subsidy from Suzlon Energy Limited and thus has direct and close nexus with the business of generation of power by the windmill undertaking of the assessee company and deduction u/s.80IA of the Act is allowable.

Keeping in view of the ratio of law laid down by the Hon’ble Supreme Court in the case of Meghalaya Steels Limited (supra) and the cited judgment of co- ordinate benches of the Tribunal in favour of the assessee company , we hold that the amount received by the assessee company from M/s Suzlon Energy Ltd. of Rs.35,55,880/- on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act.

ITA 3813/M/12, 821/M/14, 108 ITA 3812/M/12 & 3821/M/12

received exempt income being dividend of Rs.2,50,000/- on investment of Rs. 810.30 lacs. During the course of assessment proceedings u/s.143(3) of the Act, assessee company was specifically asked to explain as to why disallowance u/s. 14A of the Act read with Rule 8D of Income Tax Rules, 1962 should not be made. In response, the assessee company worked out disallowance u/s. 14A of the Act read with Rule 8D of Income Tax Rules, 1962 at Rs.2,45,514/-without prejudice to the contention raised that no disallowance is called for u/s. 14A of the Act. The A.O. after considering the submission rejected the claim of assessee company and held that the disallowance computed by the assessee company is not in accordance with Rule 8D of Income Tax Rules, 1962 and the correct disallowance worked out to Rs. 13,66,079/- as under:

A) NIL

B) Interest Expenses X Average Investment Average Asset 123.13X543.32 --------------------- 6112.74 Rs.1094419/-

C) 0.5% of average investment 0.5% X543.32 Rs.2,71,660/-

Total disallowance under the head works out to Rs.13,66,079/- u/s 14A of the Act read with Rule 8D of Income Tax Rules,1962 by the AO vide assessment orders dated 30.12.2010 passed u/s. 143(3) of the Act.

ITA 3813/M/12, 821/M/14, 109 ITA 3812/M/12 & 3821/M/12

ITA 3813/M/12, 821/M/14, 110 ITA 3812/M/12 & 3821/M/12

application money especially when the assessee himself was not categorical as to how much of the sum had been invested in business. Secondly, even the assessee company had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the total taxable income. The assessee’s present case is covered by sub section (3) of section 14A of the Act because the assessee company had claimed before the AO that no expenditure was incurred by it in relation to the exempt income which did not form part of total income. The assessee company’s claim is also covered by sub section (2) of section 14A of the Act because the AO was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Hence the disallowance of Rs. 13,66,079/- was confirmed by the CIT(A), vide orders dated 12-3-2012.

54.Aggrieved by the orders of the CIT(A) dated 12-3-2012, the assessee company is in appeal before the Tribunal.

ITA 3813/M/12, 821/M/14, 111 ITA 3812/M/12 & 3821/M/12

The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of exempt income. The assessee company had also submitted that entire bank charges and commission is considered as interest for disallowance while the said bank charges and commission has no nexus with tax-free income. The AO had also considered the investment in subsidiary company as part of average investment for working out disallowance without considering that such investment is made not for purposes of earning tax-free dividend income but for earning capital gains. The capital gains earned on sale of subsidiary company has been offered for tax in the impugned assessment year.It was also submitted by the assessee company before the CIT(A) that even investment in property, NSC and debt funds are considered by the AO as part of investment for disallowance on which no tax-free income is generated. The correct disallowance as per Rule 8D of Income Tax Rules, 1962 after considering the above factors was also submitted by the assessee company before the CIT(A).

ITA 3813/M/12, 821/M/14, 112 ITA 3812/M/12 & 3821/M/12

In our considered view and in the interest of interest, as the afore-stated pleas raised by the assessee company were not adjudicated by the authorities below properly and no reason’s have been given in their orders for their rejection, this matter need to be set aside to the file of the AO for de-novo determination of the disallowance of expenditure u/s 14A of the Act on merits in accordance with law after considering all the pleas of the assessee company as may be raised by the assessee company before the AO. The AO shall also satisfy the conditions as stipulated u/s. 14A(2) and 14A(3) of the Act before making disallowance of expenditure u/s 14A of the Act. Needless to say that the assessee company shall be allowed proper and adequate opportunity of being heard by the AO in accordance with principles of natural justice and in accordance with law and the assessee company shall be allowed to submit evidences in its defense. We are refraining on commenting on merits of the pleas raised by the assessee company , which the AO shall decide on merits in accordance with law and after verification of records. We order accordingly.

ITA 3813/M/12, 821/M/14, 113 ITA 3812/M/12 & 3821/M/12

Order pronounced in the open court on 30th March, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 30-03-2016 को क� गई ।

Sd/- sd/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 30-03-2016 [ व.�न.स./ R.K. R.K. R.K., Ex. Sr. PS 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 “A” 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