INDIANA GRATINGS P.LTD,MUMBAI vs. DCIT RG 8(2), MUMBAI

This appeal is filed by the assessee against the order of CIT(A)-17 Mumbai dated 19.08.2013 in respect of Assessment Year (AY) 2010-11 on the following grounds of appeal: 1a) The Ld.CIT(A) erred in confirming disallowance of deduction u/s.801A made by the AO and not considering the fact that deduction u/s.80IA is to be claimed and allowed on a stand­ alone basis as if the eligible business was the only source of income. b) The Ld.CIT(A) erred in holding that losses of earlier year had to be reduced before allowing claim u/s.801A and disregarding the fact that there were no losses of earlier years as they had been set off against other incomes of those years.

The appellant craves leave to add, amend, alter or cancel any Ground or Grounds before or at the time of hearing of the appeal.

Brief facts of the case are that the assessee, who is engaged in the business of Manufacture of electro forged gratings, cable trays, handrails and FRP gratings/cable trays. Generation of electricity from windmill, filed its return of income on 29.09.2010 declaring total income at Rs. 19,77,29,980/-. The return of income was selected for scrutiny and while passing the assessment order u/s 143(3) of the Income-tax Act, 1961 (‘the Act’). The Assessing Officer (AO) made the addition of Rs. 76,723/- u/s 40(a)(ia) of the Act and addition on account of capital expenditure of software expenses of Rs. 8,29,294/- and further disallowed the deduction claimed u/s 80IA of Rs. 53,93,758/- and initiated penalty proceeding u/s 271(1)(c) of the Act vide order dated 22.10.2012.

We have heard the rival contentions of the parties and perused the material available on record. The assessee relied upon the following judgments:

Mohan Breweries And Distilleries .... vs. Department of Income Tax dated 13th January, 2012.

Anil H. Lad Vs. DCIT (ITA 1262/Bang/2010 dt. 07.01.11. 9. Piyush C. Mehta vs. ACIT (ITA 1321/M/09. 10. Shevie Exports V. JCIT (ITA 32/M/12 dt. 10.04.13. 11. Eastman Exports Global Clothing P. Ltd. 371 ITR 1 (Mad) (2015). 12. Herculas Hoist Ltd. Vs. Addl CIT RG10(3) dt. 13.02.13. 13. Herculas Hoist Ltd. Vs. Addl CIT RG10(3) dt. 13.09.13. 5. The ld. Authorised Representative (AR) of the assessee argued that the deduction u/s 80IA of the Act has to be worked out after deducting the loss of earlier year in incurred in wind power generation business. It is further argued that the assessee has right to chose the initial assessment year for availing the benefit of section 80IA. The ld. AR further argued that in case of Valayudhaswamy Spinning Mill P Ltd. vs/ ACIT reported in 2012(1) 340 ITR 477 ,has dealt with the similar issue and held that assessee can chose initial assessment year for the purpose of deduction and the earlier loss cannot be notionally forwarded and set off of against the profit of eligible business and also further argued that the co-ordinate bench of ITAT in number of cases has held that the assessee has right to chose the initial year for seeking the exemption u/s 80IB and relied upon the judgment mentioned above. 6. Co-ordinate bench of Tribunal in has held as under: ‘’If the first year of claim of deduction u/s.80­IA(1) is itself taken as a initial assessment year, the whole purpose of the provision gets defeated; rather, botched, where there is an unabsorbed deprecation / loss incurred prior to that year, so that there is no scope for the same being carried forward and set off. There is no rationale for such an embargo or restriction, which is thus incomprehensible in­as­much as it is neither borne out by the clear language of the provision nor by its rationale; rather, goes against its grain, besides being inconsistent with the Memorandum, Explanatory Notes and the Board Circular explaining the provision, which operate as a contemporanea exposito inasmuch as they clarify the legislative intent that the aggregation would be applicable for the initial, loss years. True, the said circular is not binding on the higher courts of law, or the tribunal for that matter, but only on the Revenue authorities. So, however, the question that remains unanswered is the legal or the logical basis for ignoring the same. What, one may ask, could be the purpose in excluding the losses for the initial years for aggregation; for which though we see no reason, given the legislative intention as expressed and noted hereinabove, and the fact that no deduction would even otherwise be available in case of a loss. After all, there is no question or reason for the assessee to opt for the year of loss as the 'initial assessment year', and of which the Legislature could not but be considered to be aware of. This is assuming that the provision confers that option to the assessee. In other words, some infirmity therein (the Circular and the Memorandum explaining the provisions as well as Notes on clauses) has to be shown soas to disregard the same as not valid or acceptable. It is in fact not merely a case of a circular, even as pointed out by the special bench at para 59 (also read paras 16 to 18) of its Order. In fact, the assessee ill the instant case itself relies on the said Circular to press for its claim for the impugned set off. Further, let us consider the losses incurred after such a year, i.e., the first year of determination of deduction u/s. 80IA(1) (treating it as the initial assessment year), the scope of which, though remote, cannot be excluded. The same, going by the assessee’s contention before us (refer para 3.1 of this order), would not stand to be considered u/s. 80IA(5) as there is no question of computing deduction u/s. 80­IA(1) for such year. Further, even ignoring the said argument, so that s.80­IA(5) applies, the question that arises is: What is a rationale in including some losses while disregarding others? In fact, empirically speaking, the unabsorbed depreciation and losses would only be during the initial years over which the charge of depreciation is more and the business is yet to stabilise, so that the possibility of un absorbed depreciation or losses after the Unit's coming into profits, where the business is successful, returning profits (only where­upon the question of deduction u/s.80­IA(1) would arise), is even otherwise remote. So, however, such losses/allowance, where so, would stand to be carried forward, as much as the loss/allowance incurred prior to the first year of deduction, to the subsequent years for set off. The more basic question that though arises is the absence of any legal or logical (the raison de'trei basis for artificially segregating the losses/unabsorbed depreciation for the years prior and subsequent to the first year aforesaid. The two, therefore, cannot be segregated or treated separately, but have to be so only uniformly, and in a manner consistent and in harmony with the object and the language of the provision. 4.3 Continuing further, though the period of deduction u/s.80­IA(1) over which the deeming of section 80­IA(5) is to be applied commences with the previous year relevant to the initial assessment year, and up to the year of determination of deduction, its stated purpose is for the determination of quantum of deduction u/s. 801A(1) for the year immediately" succeeding the initial assessment year (and not the initial assessment itself) and for every subsequent year. Why? The reason is simple. There could be no brought forward allowance or loss prior to the initial (assessment) year. The first year for which there could be, if so, a loss or unabsorbed depreciation, is the first year of operations, so that the question of aggregation of income for the purpose of determination of quantum of deduction could, at the earliest, be the immediately succeeding assessment year. It is for this reason that while the aggregation is applicable from the initial assessment year itself (of­course, up to the year of determination of deduction), the determination of quantum of deduction, which is the stated purpose of the provision, is to be for or begins from the year immediately succeeding the initial assessment year. Also, once the deeming commences with the initial assessment year, the aggregation of income is to continue over every subsequent year, i.e., irrespective of whether the deduction under the provision is exigible for the said year or no~. The deeming would thus continue to be operative, and is not dependent on whether deduction for a particular year is being claimed or not.’’