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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: S/SHRI R. C. SHARMA & AMARJIT SINGH]
These cross appeals are filed by the Revenue as well as by the assessee against the common order of the learned Commissioner of Income Tax (Appeals)-37, Mumbai [hereinafter referred to as the learned ‘CIT(A)’] dated 02-09-2013 passed in appeal No.CIT(A)- 37/IT-233/ACCC-10/12-13 pertaining to assessment year 2010-11.
2. The facts and the issue involved in these present appeals are similar and identical, hence, for the sake of convenience, both the appeals were heard together and the same are being disposed of by this consolidated order.
3. The Revenue in their appeal in has raised the following effective ground:
1.(i) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the disallowance of Rs.2,95,11,823/- to Rs. Nil on the ALV @8% ignoring Fair Market Value of the property on the basis of Stamp Duty Rate (Property Index Rate) as worked out at Rs.57,76,10,000/- and relying on the decision in the case of Emitici Engineering Ltd. wherein the facts were entirely different to that of the facts of the instant case. (ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in ignoring the fact that while determining the annual value u/s. 22 r. w. s. 23 of the I. T. Act, the rent receivable should be taken into consideration and not the amount the assessee actually received/supposed to have been received.
4. The assessee in its appeal in has raised the following grounds:
& 6047/Mum/2013 Assessment Year 2010-11 1. The Commissioner of Income Tax (Appeals) -37, Mumbai [hereinafter referred to as CIT(A)] erred in confirming the Annual Letting Value (ALV) of land and building, made available to resulting company M/s. Kamani Oil Industries Pvt. Ltd. To Rs. 818337/- i.e. 8% of the cost of land and building to the appellant.
The Appellant submits that the land and building at Saki Naka, Mumbai was made available by the Appellant, the demerged company, to the resulting company M/s. Kamani Oil Industries Pvt. Ltd. As part of the Scheme of Demerger approved by the Bombay High Court as a stop gap arrangement, and actual rent received by the Appellant shall be considered as ALV u/s 23 of the Act.
2. The CIT(A) erred in confirming the action of the AO of not granting deduction u/s 80IA(4)(iv) of the I. T. Act, of Rs.39,42,207/- being profit & gains derived from generation and distribution of power through wind mill, to the Appellant.
The Appellant submits that during the year under consideration it has earned profit & gains from the business of generation & distribution of power through wind mill and same is eligible for deduction u/s 80IA(4)(iv) of the Act; hence the AO shall be directed to allow the deduction as claimed by the Appellant in its return of income.
(b) The CIT(A) has erred in confirming the action of the AO of adjusting the brought forward business loss/unabsorbed depreciation against the current years profit of the Appellant and thereby rejecting the deduction of Rs.39,42,207/- u/s 80IA (4) (iv) of the Act.
The Appellant submits that year under consideration is the second year (after initial year) for claim of deduction u/s 80IA (4)(iv) of the Act, and brought forward business loss/unabsorbed depreciation which has already been absorbed or set off against other business income in earlier years cannot be again adjusted/set off against the current year’s profit.
(c) The CIT(A) erred in holding that under the provisions of section 80IA(5) initial assessment year should mean the previous year in which the commercial production/manufacture for industrial undertaking commenced.
The Appellant submits that the initial assessment year as per provisions of section 80IA (5) shall be the year in which the assessee opts to excise claim for deduction under section 80IA for the first time.”
& 6047/Mum/2013 Assessment Year 2010-11 (Revenue’s appeal for AY-10-11)
The brief facts of the case as emanated from the order of the learned CIT(A) are that the assessee, a Private Limited Company belonging to Chawla Group, engaged in the business of generating power through Wind Mill had e-filed its return of income for the assessment year 2010-11 on 30-09-2010 declaring total income of Rs.1,04,640/- after claiming deduction u/s 80IA for a sum of Rs.36,39,273/. Subsequently, the assessee filed revised return of income on 24-03-2012 declaring total income at Rs.1,04,641/- after claiming deduction u/s 80IA of the Act for a sum of Rs.39,42,207/-. The Assessing Officer [hereinafter referred to as the ‘AO’] completed the assessment proceedings u/s 143(3) of the Act assessing the total income of the assessee at Rs.3,42,03,010/-. During the assessment proceedings, the AO observed that the assessee company had undergone demerger with effect from 01-04-2008 as per the scheme approved by the Hon’ble Bombay High Court. As per the scheme, the resultant company i.e. M/s. Kamani Oil Industries Pvt. Ltd. Was entrusted with the business of manufacturing and selling of edible oil and accordingly, all the assets and liabilities of the demerged company pertaining to oil undertaking were transferred to the resultant company. The AO further observed that in pursuance of the said scheme, the assessee company made available the land and building owned by it to the resultant company for an annual rent of Rs.1,20,000/-. The AO was of the opinion that such a large commercial property located at the heart of the city could not be expected to be let out for a petty rental income of Rs.1,20,000/-per 4 & 6047/Mum/2013 Assessment Year 2010-11 annum. Accordingly, the AO computed the rental income of the assessee based on the fair market value of the property by invoking the provisions of section 23(1)(a) of the Act. The AO further observed that the assessee company, engaged in power generation business had incurred cumulative losses of Rs.5,32,31,.540/- and income of Rs.39,42,207/- earned during the previous year relevant to assessment year 2010-11 out of power generation business had net impact of decreasing the overall accumulated loss of the eligible business. The assessee sold power to MSEDCL in the current year as well as in the earlier years. The AO asked the assessee as to why the depreciation and other expenses relating to Wind Mill, which has been set off against other income in the earlier years, should not be set off against the income from Wind Mill during the year. In response thereto, the assessee submitted that the assessee had option to claim deduction u/s 80IA(4) for any ten consecutive years out of 15 years beginning from the year in which the undertaking begins to operate/generate power and that the assessee had considered the financial year 2008-09 relevant to assessment year 2009-10 as the first year for claiming deduction and the same should be considered as initial year; therefore, the earlier year’s losses and unabsorbed depreciation against other unit cannot be set off in the current year and hence, the assessee is eligible for deduction. The AO however, did not accept the contention of the assessee and disallowed the claim of deduction u/s 80IA (4) (iv) of the Act and adjusted the business loss/depreciation loss of earlier years from the Wind Mill against the current year’s profit of the assessee. 5 & 6047/Mum/2013 Assessment Year 2010-11 5.1 Ultimately, based on the Stamp Duty Ready Reckoner rate, the AO worked out the market value of the land at Rs.36,23,90,000/- and the value of the building at Rs.18,52,20,000/- totaling to Rs.54,76,10,000/- by drawing support from the decision of the EMITICI Engineering Ltd. Vs. ACIT [58 TTJ 27], the ALV for working out deemed rent was taken at 8% of the value as per Stamp Duty rate, after considering statutory deduction @30% and calculated the net rental income of the assessee at Rs.3,03,30,160/- and added the same to the total income of the assessee.
Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A), by following the decision of his predecessor on this issue for assessment year 2009-10 for the sake of consistency, restricted the disallowance of Rs.2,95,11,823/- to Rs. Nil on the ALV @8% ignoring the fair market value of the property as worked out by the AO at Rs.54,76,10,000/- on the basis of Stamp Duty Rate (Property Index Rate) by relying on the decision in the case of EMITICI Engineering Ltd. The Revenue, being aggrieved by the aforesaid action of the learned CIT(A), is now in appeal before us.
At the time of hearing before us, the learned DR supported the order of the AO.
The learned Counsel for the assessee reiterated his submission made before the authorities below and pointed out that the AO has not appreciated the decision in the case of EMITICI Engineering Ltd. 6
ITA Nos. 6736 & 6047/Mum/2013 Assessment Year 2010-11 reported in 58 TTJ 27 in right perspective. He further submitted that the issue in controversy has been decided by the ITAT, Mumbai ‘C” Bench vide order dated 04-06-2014 in in the assessee’s own case for assessment year 2009-10 in its favour and against the Revenue.
We have heard the rival submissions and carefully perused the orders of the authorities below. We find that the Co-ordinate Bench of the Tribunal in assessee’s own case for preceding assessment year 2009-10 in order dated 04-06-2014 has decided this issue in favour of the assessee by dismissing the appeal of the revenue. The relevant portion of the said order is reproduced herein below: We have carefully perused the orders of the lower authorities. It is “9. not in dispute that the AU has based his findings drawing support from the decision of the Tribunal Ahmedabad Bench in the case of EMITICI Engineering Ltd.(supra). We find force in the contention of the Ld. AR that the AO has not appreciated the decision in the right perspective. The Co ordinate Bench of Ahmedabad has upheld the fixing of the ALV at 8% on the cost. That being the clear ratio of the decision and the Ld. CIT(A) has rightfully directed the AO to compute the ALV at 8% of the cost, we do not find any reason to interfere with the findings of the Ld. CIT(A). Ground No. 1 is dismissed.”
In view of our above discussions and the fact that the learned DR did not point out any contradictory decision on the issue, we do not find any reason to interfere with the findings of the learned CIT(A). For the sake of maintaining consistency, by following the decision of the Co-ordinate Ahmedabad Bench of the Tribunal we uphold the order of the learned CIT(A) on this issue and dismiss the appeal of the Revenue. & 6047/Mum/2013 Assessment Year 2010-11 11. In the result, the appeal of the Revenue is dismissed.
(Assessee’s appeal for AY:2010-11)
In ground No.1, the assessee has challenged confirmation of annual letting value of land and building made available to resulting company M/s. Kamani Oil Industries Ltd. to Rs.8,18,337/- @ 8% of the cost of the land and building to the assessee. This issue has been decided against the assessee while adjudicating the Revenue’s appeal in ITA No.6736/Mum/2013. Furthermore, in the preceding assessment year also, the same issue has been decided by ITAT, Mumbai ‘C’ Bench against the assessee while adjudicating assessee’s C. O. No.227/Mum/2013 along with Revenue’s appeal in vide order dated 04-06-2014. The relevant portion of the aforesaid order is reproduced herein below for reference:
“C.O. No. 227/M/2013 31. The cross objection of the assessee reads as under:
The Ld. GIT(A)-37 erred in confirming the Annual Letting Value (ALV) of land and building, made available to resulting company MIs. Kamani Oil Industries Pvt. Ltd. to Rs. 8,18,3371- i.e. @ 8% of the cost of land and building to the appellant. The applicant submits that the land and building at Saki Naka, Mumbai was made available by the appellant the demerged company, to the resulting company MIs. Kamani Oil Industries Pvt. Ltd. as part of the Scheme of Demerger approved by the Bombay High court as a stop gap arrangement, and actual rent received by the appellant shall be considered as ALV u/s. 23 of the Act." 8 & 6047/Mum/2013 Assessment Year 2010-11
This issue has been elaborately discussed by us in qua ground No. 1. In view of our elaborate findings in ITA No. 5490/M/2013, the cross objection filed by the assessee is dismissed.”
In view of the above, respectfully following the decision of the Coordinate Bench in the assessee’s own case for preceding assessment year 2009-10, we hereby dismiss ground No.1 of the assessee’s present appeal for assessment year 2010-11.
Ground No.2 of the assessee’s appeal relates to granting of deduction u/s 80IA (4)(iv) and holding of initial assessment year under the provisions of section 80IA(5) for the purpose of claim for deduction u/s 80IA of the Act.
The facts in brief relating to this issue are that the assessee company acquired Windmill during the financial year 2005-06 relevant to assessment year 2006-07 and entered into an agreement on 25-02-2005 with Maharastra State Electricity Distribution Co. Ltd. with regard to sale of 100% wind energy produced by this unit. Accordingly, the assessee became eligible to claim deduction u/s 80IA for any 10 years out of 15 years beginning from the assessment year 2006-07 relevant to the previous year during which it commenced the operation of power generation activity. During the initial three assessment years the assessee incurred losses from the eligible activity of power generation. The assessee claimed set off of the losses incurred by the undertaking engaged in power generation activity against the profits earned in its manufacture of edible oil & 6047/Mum/2013 Assessment Year 2010-11 business during the respective assessment years three assessment years 2006-07 to 2008-09 amounting to Rs.5,48,64,565/-. The edible oil manufacturing activity got separated from the assessee company w. e. f. 01-04-2008, by way of demerger scheme approved by the Hon’ble Bombay High Court and the demerged company i.e. the assessee was left with only power generation business. For the assessment year 2009-10, the assessee on stand alone basis earned profits for the first time in its power generation business and claimed deduction u/s 80IA on the same. The AO determined the cumulative losses of the power generation business on standalone basis at Rs.5,32,31,540/- till 31-03-2009 as detailed in the assessment order for assessment year 2009-10. Since, this was more than t he profit for assessment year 2009-10 in the power generation business, the AO computed the quantum of eligible deduction at NIL for the assessment year 2009-10. For assessment year 2010-11, in the original return, the assessee claimed deduction u/s 80IA at Rs.36,39,273/- in respect of power generation business through Wind Mill. Subsequently, in the revised return the assessee enhanced the claim of deduction to Rs.39,42,204/-. The assessee also claimed depreciation of Rs.3,02,935/- on the land and building let out to M/s. Kamani Oil Industries Pvt. Ltd. against the profit derived from power generation activity. In the revised return, the assessee excluded the claim of depreciation on the let out property and as a result, the profit of the assessee from power generation business increased by Rs.3,02,935/-. Accordingly, the assessee revised its claim u/s 80IA to Rs.39,42,207/-. The AO rejected the contention of the assessee and also recorded in the assessment order that the department preferred 10 & 6047/Mum/2013 Assessment Year 2010-11 appeal against the order of the learned CIT(A) for assessment year 2009-10 in this regard.
16. The assessee preferred appeal before the learned CIT(A) and the learned CIT(A) vide his order under challenge, dismissed the appeal of the assessee on this ground by following the decision of ITAT, Mumbai Bench in 2255 & 794/Mum/2011 for AY 2005-06 to AY 2008-09 in the case of Hercules Hoists Ltd. order dated 13-02-2013, concluding in Para 5.4.11 of his order as under:
Conclusion: “5.4.11 1. Since right from 1.4.81 till 31.3.2000the term initial assessment year was defined as the assessment year relevant to previous year in which commercial production/manufacture for industrial undertaking commenced, in the absence of any discernible charge, same interpretation should be followed for the period after 1.4.2000. The term industrial undertaking covered power units and even after power units found a specific mention w. e. f. 1.4.93, the statute never provided for any change in meaning of term initial assessment year for these units.
Objective behind section 80I/80IA must be considered. It is a profit based incentive and profits must be after all unabsorbed depreciation and losses have been covered by the eligible unit.
First year of claim is not initial assessment year. First year of commencement of power generation of wind mill i.e. A. Y. 2006-07 should be held as initial assessment year and all unabsorbed depreciation and losses of eligible unit on notional basis must be & 6047/Mum/2013 Assessment Year 2010-11 considered in determining the quantum of deduction for 80IA(5).
I am fortified in my abovementioned view by a most recent decision of the Hon’ble ITAT Mumbai decision in the case of Hercules Hoists Limited.”
17. Being aggrieved, the assessee is now in appeal before the Tribunal.
We have heard the rival submissions and carefully perused materials available on record including the orders of the authorities below. We find that the aforesaid issue has been decided against the Revenue and in favour of the assessee by the ITAT Mumbai “C” Bench vide order dated 04-06-2014 while adjudicating assessee’s own case for the preceding assessment year 2009-10 in Revenue’s appeal in ITA No.5490/Mum/2012. The relevant portion of the said order is reproduced herein below:
“15. We have considered the rival submissions carefully perused the orders of the lower authorities and the decisions relied upon by the assessee. The undisputed fact is that the assessee has fulfilled all the mandatory condition for the claim of deduction u/s. 80IA (4). The only dispute relates to the losses which were already set off against other & 6047/Mum/2013 Assessment Year 2010-11 income in the earlier years. It is the case of the Revenue that though the depreciation and the losses have already been set off in earlier years, the same has to be notionally brought forward and again set off against the current years income. This is contrary to the decision in the case of Velayudhaswamy Spinning Mills Pvt. Ltd.(supra) wherein the Hon'ble Court had the occasion to consider the following questions:
"(a) Whether, on the fricts and in the circumstances of the case, the Tribunal is right in law in holding that the appellant is not entitled to claim deduction under section 80-IA ?
(b) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that initial assessment year in section 80-IA(5) would only mean the year of commencement and not the year of claim ?
(c) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in saying that unabsorbed depreciation of earlier years before the first year of claim, which has already been absorbed, could be notionally carried forward and taken into consideration for computation of deduction under section 80-IA ? Whether, on the facts and in the circumstances of the (d) case, the Tribunal is right in law in following the decision of the Special Bench in the case of Goldmine Shares and Finance (P) Ltd. [20081 302 ITR 208(AT) (Ahd.) when admittedly the said decision was rendered prior to the amendment to section 80-IA by the Finance Act, 1999 ?"
The High Court thus observed that "in the present case there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised option u/s. 80IA (2), During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. Thereafter, the Hon'ble High Court followed the decision of the Rajasthan High Court in the case of Mewar Oil and General Mills Ltd (supra) and finally concluded 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
A similar view was taken by the High Court of Madras in the case of CIT Vs Emerald Jewel Industry (supra) wherein it was held as under: "Assessee is eligible for deduction u/s.80IA in respect of windmill installed by it and the unabsorbed depreciation set off in earlier years could not be reduced from profits for computing deduction u/s. 80-IA".
18. Though the Tribunal Mumbai Benches in the case of Hercules Hoists Ltd (supra) has taken a contrary view but we find that subsequent to the decision of the Tribunal Mumbai Bench, the Hon'ble High Court of Karnataka in the case of CIT Vs Anil H. Lad 102 DTR 241 has followed the decision of the High Court of Madras in the case of Velayudhaswamy Spinning Mills Pvt. Ltd.(supra) and held that: "If before claiming deduction u/s. 80IA, the loss and depreciation claimed by the assessee in respect of eligible business is set off against income of the assessee from other sources, the said loss or depreciation cannot again be notionally set off against the profits of eligible business for computing deduction.”
19. Now we are confronted with a situation, where on the one hand there are decisions of the Hon'ble High Courts which are in favour of the assessee and on the other hand we have a decision of the Tribunal Mumbai Bench which is in favour of the Revenue. Which decision should get precedence? The answer lies in the decision of the Tribunal Ahemdabad Bench in the case of Kanel Oil & Export Indus. Ltd. Vs JCIT 121 lTD 596 wherein the Tribunal has held as under: "A simple answer would be that the judgement of a High Court, though not of the Jurisdictional High Court, prevails over an order of the Special Bench even though it is from the Jurisdictional Bench of the Tribunal on the basis of the view that the High Court is above the Tribunal in the judicial hierarchy. The Tribunal further observed that this simple view is subject to some exceptions. It can work efficiently when there is only one judgement of a High Court on the issue and no contrary view has been expressed by any other High Court.
15 & 6047/Mum/2013 Assessment Year: 2010-11 20. Before us, the decisions cited by the Ld. Counsel are from the High Courts of Madras and Karnataka which are in favour of the assessee. No contrary decision of any other High Courts have been brought on record before us. Therefore, respectfully following the decisions of the Hon'ble High Courts of Madras and Karnataka, findings of the Ld. CIT(A) are confirmed. Ground No. 2 is accordingly dismissed.”
In view of above discussions, we respectfully following the decision of our Coordinate Bench as referred to hereinabove, we find no reason to interfere in the order of the learned CIT(A) and uphold the same. Accordingly, ground No.2 of appeal of the assessee is dismissed.