BSL LTD.,RAJASTHAN vs. DCIT, CENTRAL CIRCLE- 31, NEW DELHI

That the appellant craves leave to add, alter, amend, substitute, withdraw and/or vary any grounds of appeal at or before the time of hearing.”

During the course of assessment proceedings on perusing the return of income filed by the assessee, AO noticed that assessee has claimed deduction of Rs.75,56,367/- u/s 80IA of the Act on account of electricity generated from windmills. The assessee was asked to file justification and the working of the deduction. The assessee filed the details. On perusing the details filed by the assessee, AO noticed that in assessment years 2004- 05 and 2005-06 assessee had incurred losses on account of unabsorbed depreciation and business loss in windmill division. He noted that while computing the claim of deduction for the year under consideration, assessee had not set off the unabsorbed depreciation and business loss of windmill division of earlier

Aggrieved by the order of AO assessee carried the matter before CIT(A). Before CIT(A) assessee apart from various submissions to support its stand also placed reliance on the decision of Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. [231 CTR 368] (Mad.). The submissions of the assessee was not found acceptable to CIT(A). CIT(A) noted that a Special Bench of Ahmedabad Tribunal had decided the issue in favour of the Revenue which is reported in 113 ITD 209 (Ahmedabad) and Hon’ble Karnataka High Court in the case of Micropals Limited vs. ACIT [56 taxmann.com 160] (Karnataka) had also decided

We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the claim of deduction u/s 80IA of the Act. It is the case of the assessee that the wind power undertaking for which assessee has claimed the deduction though had started the operations in FY 2003-04 but assessee had opted AY 2011-12 as the initial assessment year and had claimed the deduction u/s 80IA for the first time. It is further the claim of the assessee that from AY 2004-05 to 2010-11 assessee had not claimed deduction as it had incurred losses in the wind power undertaking. It is further the contention of the assessee that the loss and unabsorbed depreciation of the wind power undertaking that was incurred in earlier years has already been set off against other income in earlier years and since there remains no brought forward losses or depreciation, notional brought forward losses cannot be adjusted against the profit of the eligible undertaking. The aforesaid factual submissions of the assessee with respect to the initial assessment year, the setting off of losses and unabsorbed depreciation against the income of earlier years has not been controverted by Revenue. The only issue, therefore, is whether the notional loss or unabsorbed depreciation of the wind power unit of earlier years can be adjusted against the profit of the eligible undertaking? We find that the identical issues arose before the Hon’ble Bombay High Court in the case of CIT vs. Hercules Hoists Ltd. (supra). The question for adjudication before the Hon’ble High Court and its findings are as under: - “2. The Revenue has framed the following questions for our consideration :- (i) Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in holding that the respondent company was eligible for deduction u/s 80IA of the I.T.Act, 1961. (ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation of Section 80IA(5) of the I.T. Act, 1961 that unabsorbed depreciation of the eligible units need not be necessarily set off from the profits of the same units, but could be set off from other non-eligible units as well. (iii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in its interpretation considering the fact that Section 80IA(5) of the I.T. Act, 1961 points out that the eligible unit be considered as a stand-alone unit, thereby mandating that unabsorbed depreciation or losses be set off before allowing profits as deduction.”

The Hon’ble High Court has dealt with the question before it by observing as under:

The said issue is now no longer res-integra in view of the judgment of the Madras High Court in a case of Velayudhaswamy Spinning Mills P Ltd. & Sudan Spinning Mills (P). Ltd. (supra), the Court observed as under: “From a readying of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub¬section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. ”

Before us Revenue has not placed on record any contrary binding decision in its support. In such a situation, we following the decision of Hon’ble Bombay High Court in the case of Hercules Hoists Ltd. (supra) are of the view that AO was not justified in denying the claim of deduction u/s 80IA of the Act. We, therefore, direct the AO to allow the claim of deduction u/s 80IA of the Act. Thus, the ground of the assessee is allowed.

Ground no. 2 and sub grounds are with respect to the computation of book profit u/s 115JB of the Act.

Before CIT(A) assessee had claimed the exclusion of interest subsidy of Rs.3,03,80,678/- from the profits while computing the book profits u/s 115JB of the Act as on additional ground. Before CIT(A) assessee submitted that assessee had received interest subsidy of Rs.3,03,80,678/- under Technology Upgradation Fund Scheme (TUFS) during the year under consideration. It was submitted that the subsidy received was reduced from the interest expenses and thus indirectly the interest subsidy was offered to tax. Before CIT(A) assessee had claimed exclusion of interest subsidy received by it under normal provisions of tax as well as MAT provisions of the Act by claiming it to be a capital receipt. CIT(A) while deciding the issue held the BSL Ltd. Vs. DCIT 10 interest subsidy received by the assessee to be capital receipt but however, for the purpose of working out the profits under Section 115JB of the Act, CIT(A) by relying on the decision of Hon’ble Karnataka High Court in the case of B&B Infratech Ltd. (supra) (2016) [76 taxmann.com 188] (Karnataka) held that provisions of Section 115JB of the Act overrides other provisions of the Act and accordingly only those adjustments which are given in the explanation shall be made and no other addition or deduction can be allowed. He accordingly held that though the interest subsidy received by the assessee was capital in nature but since it was not prescribed in any explanation u/s 115JB, the same cannot be allowed for exclusion under the provision of MAT and therefore the deduction cannot be allowed. He, accordingly, denied the claim of the assessee for excluding the interest subsidy for working out the provisions of MAT.

Aggrieved by the order of CIT(A), assessee is now before the Tribunal.

Before us, Ld. AR reiterated the submissions made before lower authorities and further relying on the decision of Delhi Tribunal in the case of Indogulf Cropsciences Ltd. (supra) in order dated 13/10/2022 submitted that the Tribunal while deciding the issue in favour of the assessee in that case had also considered the decision of Hon’ble Karnataka High Court in the case of B&B Infratech Ltd. (supra). He, therefore, submitted that following the decision of the coordinate bench of Tribunal, the claim of the assessee be allowed.

Ld. DR, on the other hand, supported the order of lower authorities and also placed reliance on the decision of Karnataka High Court in the case of B&B Infratech Ltd. (supra).

We have heard the rival submissions, perused the material on record.

The issue in the present ground is about the computation of book profits for the purpose of Section 115JB of the Act. It is the case of the assessee that the interest subsidy received by it being capital in nature, the same should be excluded for working of the profits u/s 115JB of the Act whereas it is the case of the Revenue that since there is no specific exclusion provided u/s 115JB, the same cannot be excluded for working out the book profits u/s 115JB of the Act. We find that the identical issue arose before the coordinate bench in the case of Indogulf Cropsciences Ltd. (supra) and the coordinate bench of Tribunal has decided the issue in favour of the assessee by observing as under: - “7. On behalf of the assessee it was submitted that capital receipts are not to be included in computation of book profits and reliance in this regard was placed on the judgment of Co- ordinate Bench in M/s. Insecticides (India) Ltd. vs. DCIT and the judgment of Calcutta High Court in Ankit Metal and Power Ltd. 2019 (7) TMI 878. It was submitted that this judgment of Hon’ble Calcutta High Court have been followed in the pronouncements as well:

Giving thoughtful consideration to the matter on record and the submissions made before the Bench it can be observed that on the basis of judgment of Hon’ble Karnataka High Court in B & B Infratech Ltd. (supra) that Hon’ble Karnataka High Court was dealing with the matter where an amount of Rs. 43,00,000/- pertaining to remission of liability under one time settlement of outstanding loan with ING Vysya Bank was the disputed income which was included by the assessee in its P & L account as income and which the assessee wanted to exclude for the purpose of computing book profits u/s 115JB of the Act. 9.1 However, in the case in hand the issue revolves around the capital receipts of the nature excise duty refund and interests subsidy which without any doubt are receipts of capital nature. Hon’ble Calcutta High Court in the case of Ankit Metal and Power Ltd. (supra) was directly dealing with the question whether the incentives received from the Government for setting up power plant in the backward regions of West Bengal are to be included for the purpose of computation of book profits u/s 115JB and after taking into consideration the judgment of Hon’ble Supreme Court in Appollo Tyres Ltd. (supra) observed that the income in question, in that case was taxable but was exempt under specific provision of the Act, as such it was to be included as a part of book profit. But since a receipt is not in the nature of income at all, it cannot be included in book profit for the purpose of computation u/s 115JB and accordingly held that interest in power subsidy under the scheme have to be excluded while computing book profits u/s 115 JB. 9.2 The Co-ordinate Bench in M/s. Insecticides (India) Ltd. (supra) while dealing with question and treatment of capital receipts in computation of profit u/s 115JB had relied judgment of Hon’ble Calcutta High Court in Ankit Metal and BSL Ltd. Vs. DCIT 14 Power Ltd. (supra) and Co-ordinate Bench decision in SRF Ltd. vs. ACIT, Circle -1 2022(2) TMI 758 ITAT Delhi judgment dated 07.02.2022, and had held that since the receipt is not in nature of income, then it cannot be considered in the book profits for the purpose of computation u/s 115JB of the Act.

In the light of aforesaid it can be held that Appellant company has rightly reduced Capital Receipts of the nature excise refund and interest subsidy for working out Book Profits. The grounds are allowed. The appeal is allowed and accordingly the Ld. AO is directed to re-compute the income.”

We thus, find the coordinate bench of the Tribunal after considering the decision of Hon’ble Karnataka High Court in the case of B&B Infratech Ltd. (supra) and after placing reliance on the decision of Kolkata High Court in the case of Ankit Metal and Power Ltd. (supra) had decided the issue in favour of the assessee.

Before us Revenue has not placed any material on record to demonstrate that the decision rendered by Delhi Tribunal in the case of Indogulf Cropsciences Ltd. (supra) has been set aside/stayed/overruled by higher judicial forum. Further Revenue also not placed on record any contrary binding decision in its support. In view of the aforesaid facts and following the decision of the coordinate bench in the case of Indogulf Cropsciences Ltd. (supra), we hold that since the interest receipt under TUFS Scheme is capital in nature, it needs to be excluded while working out the book profits u/s 115JB of the Act. We direct accordingly. Thus, the ground of the assessee is allowed.

In the result, appeal of the assessee is allowed.