Income Tax Appellate Tribunal - Pune
Mrs. Sulbha Subhash Lodha, vs Department Of Income Tax on 24 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA No. 1845/PN/2013
(Assessment Year : 2010-11)
ACIT, Circle-2, Pune .. Appellant
Vs.
Mrs. Sulbha Subhash Lodha,
417-19, Market Yard,
Pune - 411037
PAN No.AAGPL 0006K .. Respondent
Assessee by : Shri Nikhil Pathak
Revenue by : Shri Rajesh Damor
Date of Hearing : 23-09-2014
Date of Pronouncement : 24-09-2014
ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 30-04-2013 of the CIT(A)-II, Pune relating to Assessment Year 2010-11.
2. Facts of the case, in brief, are that the assessee in an individual engaged in the business of share trading and power generation from windmill. She filed her return of income on 30-09- 2010 declaring income of Rs.28,70,285/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed deduction u/s.80IA(4) of the I.T. Act of an amount of Rs.38,82,992/- on account of profits derived from 2 generation and sale of electricity from windmill. The Assessing Officer asked the assessee to justify the claim of such deduction u/s.80IA(4).
2.1 The assessee submitted that A.Y. 2010-11, i.e. the impugned assessment year is the first year for the purpose of claiming deduction u/s.80IA(4) of the I.T. Act. It was argued that the initial year has not been defined in I.T. Act and according to the assessee "initial year" is the year in which the assessee has chosen to claim the deduction u/s.80IA(4) of the I.T. Act. It was further argued that for the purpose of claiming deduction under the said section, the profits have to be computed as if the eligible business is the only source of income and when the assessee exercises the option only the loss of the years beginning from the initial assessment year are to be brought forward and not losses of the earlier years which have already been set off against other income of the assessee. For the above proposition, the assessee relied on the decision of Hon'ble Madras High Court in the case of Velayudhaswami Spinning Mills Pvt. Ltd. reported in 340 ITR 477.
3. However, the Assessing Officer was not satisfied with the explanation given by the assessee. He observed that the assessee has set-off depreciation on the Wind Mill not only against the income from Wind Mill business, but also against the income from other sources from A.Y. 2006-07, which is not as per the provisions in Sec. 80IA(5) of the I.T. Act. The total taxable income of the assessee may be determined by setting off the depreciation on Wind 3 Mill against income from other sources, but for the purpose of determining the quantum of deduction from the eligible business, the eligible business should be considered as the only business of the assessee. Accordingly, in the initial assessment year when the deduction is claimed, the quantum of deduction has to be determined on the premise that the only source of income of the assessee during the previous year relevant to the initial assessment year is the eligible business. In the case of the assessee the initial year of claim of deduction is A.Y. 2010-11 though the assessee has started the activity in the financial year relevant to A.Y. 2006-07.
Since the initial year of claim is A.Y. 2010-11, the quantum of deduction has to be determined after setting off of the total depreciation allowable on the Wind Mill up to 31.03.2009 against the total income generated from Wind Mill business. With such set-off, the assessee would still have a depreciation loss of Rs.3,99,57,927/-. Hence, when the income is negative, there is no question of allowing deduction u/s. 80IA(4) of the I.T. Act. Based on the above discussion, the AO held that the assessee's claim of deduction u/s.80IA(4) of the I.T. Act is not in accordance with law and accordingly he withdrew the claim.
4. Before the CIT(A) the assessee relying on various decisions submitted that working of allowable deduction u/s.80IA as made by the Assessing Officer is not in accordance with the provisions of I.T. Act and also not in accordance with the various decisions. The assessee also relied on the following decisions :
41. Velayudhaswamy Spinning Mills (P) Ltd. 340 ITR 477 (Mad.)
2. Poonawala Estate & Stud Farms (P) Ltd. (Pune-B) (2010) 48 DTR 210
3. Serum International Ltd. Vs. Addl.CIT in ITA Nos.290 to 292/PN/10 vide order dt.28/09/2011.
4. Chordia Food Products Ltd. - Pune Tribunal order dt. 26-06-2012
5. Shavie Exports, Mumbai - ITA No.321/Mum/2012
6. Malpani Sales Corporation - ITA No.471/PN/2010
7. Prashant Caterers, Mumbai - ITA No.4226/Mum/2011 order dt. 06-02-2013
5. Based on the arguments advanced by the assessee the Ld.CIT(A) directed the Assessing Officer to delete the disallowance made by observing as under :
"3.2 I have considered the submission of the appellant and perused the material available on record. The appellant has raised three grounds of appeal and in ground no. 1 and its sub-grounds the disallowance of deduction claimed u/s 80IA(4) amounting to Rs. 38,82,992/- has been contested. During the assessment proceedings the A.O. held that in view of section 80IA(5), the quantum of deduction is to be computed after reducing the notional brought forward losses and depreciation of the eligible business even though the same might have been set off against other income in the earlier years. Accordingly, the A.O. has set off the notional depreciation against the income from windmill activity and has held that the unabsorbed depreciation is much more that the income received from the activity of windmill and hence, the assessee is not entitled to claim deduction u/s 80IA of the Act. As the assessee have been claiming deduction u/s 80IA in respect of profits from the eligible business without adjusting the prior year's losses from such eligible business against the current year's income, the A.O. went on to disallow the claim amounting to Rs.38,82,992/-.
3.3 The appellant during the appellate proceedings has contested the made by the A.O. and has submitted that the A.O. has wrongly applied the provisions of section 80IA(4) of the Act, as the sub-section provides that for the purpose of computing the quantum of deduction u/s 80IA for the assessment year immediately succeeding the initial assessment year or in subsequent assessment year, the profit of the eligible business should be computed as if the said business was the only source of income to the assessee relevant to the initial assessment year and to every subsequent assessment year, thereafter. It has also been contended that the basic issue with respect to the meaning of the term 'initial assessment year' used in sub-section (5) as to whether the term 'initial assessment year' means the first year in which the windmill was setup or the first year of claiming deduction out of the 15 years period provided by the section. The appellant has submitted that for A.Y. 2010-11, deduction u/s 80IA of Rs.5
38,82,9927- has been claimed which is supported by the report in the form no. 10CCB filed along with the return of income. It has been stated that the present year i.e. A.Y. 2010-11 is the initial year for the purpose of claiming deduction u/s 80IA. The appellant has further contended that initial year is not defined in the IT. Act, 1961 and, therefore, as understood 'initial year' is the assessment year in which the assessee chose to claim the deduction u/s 80IA. It has further been stated that the deduction has been rightly claimed in accordance with the provisions of section 80IA(5) treating the undertaking as separate and sole source of income, and while calculating the deduction u/s 80IA the brought forward depreciation on windmill and the current year's depreciation have been reduced from the net revenue income of the said windmill. The appellant has reproduced the computation of the claim of deduction u/s 80IA whereby the eligible amount of deduction has been worked out at Rs. 38,82,992/-. The appellant has emphasized that as per the provisions of sub-section (5) of section 80IA profits are to be computed as if such eligible business is the only source of income of the assessee and when the assessee exercises the option only the losses of the year beginning from the initial assessment year are to be brought forward and not the losses of the earlier years which have already been set off against other income of the assessee. The appellant has pointed out that the aforesaid legal interpretation has been approved by the Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs ACIT (2012) 340 ITR 477 (Mad) and appellant has placed reliance on this decision for the preposition of its claim. The appellant has also relied upon the decision of the Pune ITAT in the case of Poonawalla Estate & Stud Farm Ltd. (2011) 136 TTJ 236 (Pune) / (2010) 48 DTR 40. The appellant has relied on the following judicial decisions:
1) Serum International Ltd., ITA Nos. 290 to 292/PN/2010
2) Chordia Food Products Ltd. Pune Tribunal order dt. 26.06.2012
3) Shevie Exports, Mumbai - ITA No. 321/Mum/2012
4) Malpani Sales Corporation, ITA No. 471/PN/2010 dated 26.08.2011
5) Prashant Caterers, Mumbai, ITA No, 4226/M/2011 dt. 6.02.2013 3.4 The Assessing Officer during the assessment proceedings held that for the purpose of deduction u/s 80IA the depreciation set off in the earlier years against other income of the appellant had to be carried forward notionally to be set off only against the income of the said eligible windmill. The A.O., thus calculated the deduction u/s 80IA after deducting the said notional loss /depreciation which was set off in the earlier assessment years which resulted in loss hence the claim of deduction u/s 80IA was found to be not allowable.
3.5 In the present case the appellant had installed the windmill in A.Y.2006-07 and the deduction u/s 80IA has been claimed for the first time in A.Y.2010-11. The A.O. in the assessment order has mentioned that the quantum of deduction has to be determined after setting off the total depreciation allowable on the windmill upto 31.03.2009 against the total income generated from windmill business and with such set off the appellant would still have a 6 depreciation loss of Rs. 3,99,57,927/- and hence when the income is negative there was no question of allowing deduction u/s 80IA(4). The Assessing Officer has discussed the entire issue in para 4 of the assessment order.
3.6 The aforesaid issue was the subject matter before the Pune ITAT in the case of Poonawalla stud Farm & Agro Ltd. cited above and relied by the appellant, the bench held that initial assessment year means the year in which the assessee claims deduction for the first time u/s 80IA and not the year in which the assessee starts generating electricity. In another decision of the Pune ITAT in the case of Malpani Sales Corporation cited supra, the bench on similar set of facts allowed the appeal of the assessee after considering the decision of the Special Bench in the case of Goldmine Shares & Finance Pvt. Ltd., 116 TTJ 705 and Poonawala Stud & Agro Farm Pvt. Ltd. holding that 'initial assessment year' is in which the deduction is claimed for the first time by the assessee.
3.6.1 In another decision by the Bangalore ITAT in the case of Anil H. Lad Vs CIT, ITA No. 1262/Bang/2010, A.Y. 2008-09, dated 07.01.2011, the Bangalore Bench followed the decision of the Hon'ble Madras High Court in the case of Valayudhaswami Spinning Mills Pvt. Ltd. cited (supra) and held that:
".............where the depreciation and loss of earlier years have already been set off against other business income of those assessment years, there is no need for notionally carrying forward and setting off of the same depreciation and loss in computing the quantum of deduction available u/s 801. The Hon'ble Court has held further that the year of commencement alone need not be the 'initial year', but depending upon the facts of the case and the option exercised by the assessee, the year of claim also can be considered as 'initial assessment year'.
It also held that the issue is squarely covered by the Hon'ble Madras High Court cited supra and that where such an overriding judgment of the constitutional court is governing the issue, we are not permitted to rely on the decision of the Special Bench of the Ahmedabad Tribunal."
3.6.2 In the case of Serum International Ltd. Vs Addl.CIT, ITA No. 290 to 292/PN/2010 dated 28.09.2011, the Pune ITAT has considered the Special Bench decision of the Ahmedabad ITAT cited (supra) as also the decision of the Madras High Court in the case of Velayudhaswami Spinning Mills Pvt. Ltd. 231 CTR 368, as under:
"13. Having been considered the above submissions, we find that the issue raised in Ground no. 1 as to what would be the initial A. Y. for the purposes of section 80IA(5) of the Act has been decided in favour of the assessee by the Pune Bench of the Tribunal in the case of Poonawalla Stud and Agro Farm Pvt. Ltd. Vs ACIT (Supra). In that case after discussing the issue in detail, the Tribunal has come to the conclusion that the initial 'A. Y.' for the purpose of claiming deduction u/s 80IA was the first year in which the assessee claimed the deduction 80IA(1) after exercising his option as per the provisions of 80IA(2) of the Act. It was held that the Ld. CIT(A) has 7 erred in holding that the initial A.Y. for the purposes of section 80IA(2) r.w.s. 80IA(5) was the year in which the assessee started generating electricity from the windmill activity. We also find that the issue raised in Ground no. 2 regarding the eligibility of the assessee to claim deduction u/s 80IA undiminished by unabsorbed losses and depreciation also set off in earlier years against the other income, is fully covered by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs ACIT (Supra) holding that as per subsection (5) of section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A. Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee. The Hon'ble Madras High Court has been further pleased to hold that revenue cannot notionally bring forward any loss of earlier years which had already been set off against the other income of assessee and set off against the correct income of the eligible business. Fiction created by sub-section (5) of section 80IA does not contemplate such notional set off, held the Hon'ble High Court. The Hon'ble Madras High Court in that decision has also referred the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT (supra) and the decision of Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra). There is no dispute that even a decision of non-jurisdictional High Court is a binding precedent for the Tribunal until a contrary decision is given by any other competent High Court. In this regard, we find strength from the recent decision of Hon'ble jurisdictional Bombay High Court in the case of Commissioner of Central Excise Vs. Valson Dyeing, Bleaching and Printing Works (supra) wherein the Hon'ble Bombay High Court has been pleased to hold in a case of excise matter that Tribunal is bound by the decision of High Court even of a different State, so long as there is no contrary decision of any other High Court. The Hon'ble Bombay High Court has been pleased to hold further that the Tribunal had no option but to follow the judgement of the Madras High Court. An authority like Income Tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so land as there is no contrary decision of any other High Court on that question. We thus respectfully following the ratio laid down by the Hon'ble jurisdictional High Court in the case of Commissioner of Central Excise Vs. Vakson Dyeing, Bleaching and Printing Works (supra) hold that the Tribunal is bound by the decision of the Hon'ble Madras High Court on an identical issue in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (supra). We thus respectfully following the decision taken by the Hon'ble Madras High Court in that case on an identical issue under almost similar facts, hold that when the assessee exercising the option, only the losses of the year beginning from the initial A. Y. are to be brought forward and not the losses of earlier year which have been already set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the orders of the authorities below and direct the A.O. to allow the claimed deduction u/s 80IA without bringing the notionally brought forward any loss or depreciation of earlier years 8 which has already been set off against other income of the assessee."
3.7 In view of the above facts and the judicial decision cited (supra), the disallowance made by the A.O. is liable to the deleted and the grounds raised by the appellant vide no. 1 & its sub- grounds are allowed".
6. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us with the following grounds :
"(1) The Learned Commissioner of Income-tax (Appeals) erred in holding that the initial assessment year for the purpose of claiming deduction u/s.80IA(4) of the Act was the first year in which the assessee made such claim after excercising the option, ignoring the provisions of section 80IA(2) according to which the first year was the year in which the assessee started generating electricity (2) The Learned Commissioner of Income-tax (Appeals) erred in failing to appreciate the provisions of section 80IA(5) of the Act which stipulates that for the purpose of determining the quantum of deduction u/s.80IA(1), profits and gains of eligible business of the assessee would 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 has to be made.
(3) The Learned Commissioner of Income-tax (Appeals) erred in failing to appreciate that the assessee's claim of deduction u/s.80IA of the Act was required to be determined only after set off of previous years' losses on standalone basis.
(4) The appellant craves leave to add, alter or amend any or all the grounds of appeal."
7. The Ld. Counsel for the assessee at the outset filed a copy of the decision of the Coordinate Bench of the Tribunal in the case of Sangram Patil Vs. ITO vide ITA Nos. 177 and 178/PN/2011 order dated 12-12-2012 for A.Yrs. 2006-07 and 2007-08 and submitted that the issue stands squarely covered in favour of the Assessee and against the Revenue. It has been held in the said decision that when the assessee exercises the option identifying 10 consecutive years as 9 contained in sub-section (2) of section 80IA of the Act, only the losses of the year beginning from such initial assessment year are to be brought forward and set off while applying the provisions of section 80IA(5) of the Act and not losses of earlier years which otherwise were set off against other income of the assessee. He accordingly submitted that the order of the CIT(A) being in accordance with the consistent decision of the Tribunal as well as the decision of the Hon'ble Madras High Court in the case of Velayudhaswami Spinning Mills Pvt. Ltd. (Supra) therefore, the grounds raised by the Revenue should be dismissed.
8. The Ld. Departmental Representative on the other hand relied on the decision of the Mumbai Bench of the Tribunal in the case of Pidilite Industries Ltd. Vs. DCIT reported in (2011) 12 taxmann.com 96 (Mum) and submitted that the Tribunal following the decision of the Special Bench in the case of ACIT Vs. Goldman Shares and Finance Pvt. Ltd. reported in 113 ITD 209 held that in view of specific provisions of section 80IA(5), profits from eligible business for the purpose of determination of quantum of deduction u/s.80IA have to be computed after deduction of notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years.
9. The Ld. Counsel for the assessee in his rejoinder submitted that the decision of the Special Bench has been overruled by the Hon'ble Madras High Court. Since the Pune Bench of the Tribunal is consistently taking the view which is in favour of the assessee 10 and since the Ld.CIT(A) has followed the decision of the Pune Bench of the Tribunal, therefore, the decision relied on by the Ld. Departmental Representative is distinguishable and not applicable to the facts of the present case. Since the order of the Ld.CIT(A) is in consonance with the consistent view of the Tribunal, therefore, the same should be upheld and the grounds raised by the Revenue should be dismissed.
10. We have considered the rival arguments made by both the sides. The only dispute to be decided in the impugned grounds raised by the Revenue is as to whether in view of section 80IA(5) of the I.T. Act, 1961 the quantum of deduction is to be computed after reducing the notional brought forward losses and depreciation of the eligible business even though the same might have been set off against other income in the earlier years or the year in which the assessee exercises the option contained in sub-section 80IA(2) of the Act of identifying 10 consecutive assessment years out of 15 years for which the deduction is to be availed. We find an identical issue had come up before the Pune Bench of the Tribunal in the case of Sangram Patil (Supra) wherein the Tribunal, following the decision of the Pune Bench of the Tribunal in the case of Serum International Ltd. (Supra) has decided the issue in favour of the assessee by observing as under :
"4. The assessee is an individual engaged in the business of power generation, construction and earthmoving. For the A.Y. 2006-07, assessee filed a return of income declaring total income of Rs. 7,44,078/- which, inter alia, included a claim for deduction u/s 80-IA of the Act amounting to Rs. 25,62,413/- in relation to the profits earned from the activity of power generation in the 11 windmill. The undertaking of the assessee generating power (viz. windmill) was set up in the previous year relevant to the assessment year 2002-03 at Vankusawade, Tal. Pathan, Dist. Satara. In terms of section 80-IA of the Act, the profits derived by such undertaking of the assessee was eligible for the benefit of deduction to the extent of 100% of such profits. This deduction was available for a period of ten consecutive years at the option of the assessee out of the fifteen years beginning from the year in which the undertaking i.e. windmill started generating power. The assessee asserted before the Assessing Officer that such an option was exercised by the assessee w.e.f. 2004-05 and it was explained that the relevant disclosure was made in the income-tax return filed for such assessment year.
5. The bone of contention between the assessee and the Revenue is with regard to the provisions of section 80-IA(5) of the Act. Section 80-IA(5) of the Act creates a fiction that for the purpose of computing deduction u/s 80-IA of the Act, it was to be presumed that the eligible unit was only the source of income of the assessee during the previous year relevant to initial assessment year and also to every subsequent year upto and including the assessment year for which the determination is to be made. Having set up the windmill unit in the A.Y. 2002-03, assessee incurred losses in A.Y. 2002-03 as well as 2003-04 for Rs. 86,74,010/- and Rs. 59,58,553/- respectively. Such losses were set-off against income from other business and incomes from heads other than the business income. For A.Y. 2003-04 loss of Rs. 24,08,079/- however, remained to be absorbed. In A.Y. 2004-05, assessee had profits from windmill activity of Rs. 18,93,846/- and after setting off the brought forward loss from the windmill activity of Rs. 24,08,079/-, there remained a loss of Rs. 3,47,134/-. In A.Y. 2005-06, there was a profit from windmill activity of Rs. 21,96,821/- and after setting off the brought forward loss of windmill activity of Rs. 3,47,134/-, assessee claimed deduction u/s 80-IA of the Act on the balance of the profits. In the year under consideration i.e. 2006-07, the assessee had profits from windmill activity at Rs. 25,62,314/- which has claimed to be exempt in terms of section 80-IA of the Act. However, as per the Revenue, the losses incurred by the assessee for A.Y. 2002-03 and 2003-04 from the activity of windmill have to be reduced from the current year's profits of the windmill activity in order to compute the amount eligible for deduction u/s 80-IA of the Act, having regard to the provisions of section 80-IA(5) of the Act. Pertinently, it is not disputed that the losses of A.Y. 2002-03 and 2003-04 from windmill activity are otherwise lying absorbed against assessable incomes in the past years. As per the Revenue, section 80-IA(5) of the Act requires that the profits of the eligible units i.e. windmill are to be computed for the purposes of determining the quantum of deduction u/s 80-IA(1) of the Act, in a manner as if such eligible business was the only source of income of the assessee during the previous year relevant to the 'initial assessment year' and to every subsequent assessment year thereof. As per the Revenue, 'initial assessment year' in this case was 2002- 03 being the year of set-up of the windmill. Therefore, the past losses starting from the A.Y. 2002-03 have to be set-off against the profits of this year in order to arrive at the deduction computable u/s 80-IA(1) of the Act for the year under consideration. On the other hand, the plea of the assessee is that the 'initial assessment year' in this case is to be treated as 2004-05 i.e. the year in which 12 assessee exercised the option contained in section 80-IA(2) of the Act of identifying ten consecutive assessment years out of fifteen years for which the deduction is to be availed. It is contended that the expression 'initial assessment year' referred to in section 80- IA(5) is to be understood with respect to A.Y. 2004-05 in this case and therefore, the losses for assessment year prior to 2004-05 cannot be considered, which otherwise also were lying absorbed in the respective years. It is only the losses which have been incurred in the years starting from A.Y. 2004-05 onwards which are to be set off against the profits of the eligible business in order to quantify the deduction u/s 80-IA of the Act.
6. Before us, the learned counsel for the assessee has submitted that the Pune Bench of the Tribunal in the case of Serum International Ltd. Vs. Addl. CIT Range 6, Pune in ITA Nos. 290 to 292/PN/2010 for A.Y. 2004-05 to 2006-07 vide order dated 28-9- 2011 has considered an identical controversy and after following the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (2010) 38 DTR (Mad) 57 decided the issue in favour of the assessee. Following discussion in the order of the Tribunal is relevant in this regard:-
"11. The issue raised before the bench is as to whether in view of the provisions of Sec. 80IA(5) of the I.T. Act 1961, the profit from the eligible business for the purpose of deduction u/s. 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 other non-eligible business income in earlier years. The submission of the Ld A.R. remained that on the wind mills set up in the previous year relevant to A.Y. 2002-03, the assessee had claimed depreciation at the rate of 100% thereon i.e. Rs. 3.54 Crores, which was fully set off against the another income in the said A.Y. 2002-03 itself. In the A.Y. 2004-05, the assessee had positive income from the said generation activity and there were no brought forward losses/ unabsorbed depreciation of the preceding year, which had remained to be set off in the A.Y. 2004-05. The A.O., notionally brought forward unabsorbed depreciation for the A.Y. 2003-04 to the impugned A.Y. 2004-05 and denied the claim for deduction made by the assessee u/s. 80IA in respect of the profit earned by it in A.Y. 2004-05. The Ld. A.R. submitted that sub-section (2) of Section 80IA provides an option to the assessee to choose 10 consecutive A.Ys. out of 15 years for claiming the deduction. He submitted that the term initial year in sub-section (5) of 80IA is not defined and is used in contradiction to the words "beginning from the year" used in sub-section (2). He submitted that the assessee chose A.Y. 2004-05 as initial A.Y being the first year in which it claimed deduction u/s. 80IA and therefore, losses/depreciation beginning from A.Y. 2004-05 alone could only be brought forward and set off. Depreciation of the preceding A.Y. 2002-03 could not have been notionally brought forward and set off against profit for the A.Y. 2004-05. The Ld. A.R. placed heavy reliance on the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). He submitted that the decision of Hon'ble Madras High 13 Court will prevail upon the decision of the Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares and Finance (P) Ltd. (Supra) followed by the Pune Bench of the Tribunal in its recent decision in the case of Prima Paper Engg (P) Ltd. Vs. ITO (Supra) and there the assessee did not dispute the fact that the authorities below have decided the issue following the decision of Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares.. The Ld. A.R. pointed out that decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra) was not cited before the Pune Bench in the case of Prima Paper Engg (P) Ltd. Vs. ITO (Supra). The Ld. A.R. has also cited the decision of Pune Bench of the Tribunal in the case of ACIT Vs. Aurangabad Holiday Resorts (P) Ltd., (Supra) holding that even a decision of non-jurisdictional High Court is a binding precedent for the Tribunal until a contrary decision is given by any other competent High Court. Similar view has been expressed by the Hon'ble Bombay High Court in the case of Commissioner of Central Excise Vs. M/s. Valson Dyeing, Bleaching and Printing Works (Supra).
12. The contention of the Ld. D.R. on the other hand remained that deduction u/s. 801 and 801A covered inter alia, industrial undertakings. The power generation units found a specific mention for the first time w.e.f. 1.4.1993. In all the years from 1.4.1981 to 31 to 31st March 2000 in both u/s. 80I and 80IA, the term initial A.Y was defined and meant the first A.Y. relevant to the previous year in which the eligible unit commences production/power generation. Only from 1.4.2000, when Sections 80IA was replaced with Section 80IA and 80IB, the definition of "initial A.Y." did not find a mention. But nowhere, in the Parliament Speech of memorandum explaining the Finance Bill has any mention that there was any intention to ignore losses and depreciation from first year of power generation/production and that such losses till first year of claim of deduction is to be ignored. The view canvassed by the assessee does not find any support. He submitted that there is no discernible change in law or intention of parliament w.e.f. 1.4.2000. The Ld. D.R. submitted that the decision of Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P) Ltd. (Supra) is fully applicable in the present case. He pointed out that in its recent decision dt. 21st January 2011, the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemical Supplies Ltd. Vs. ACIT (Supra) has also decided an identical decision in favour of the Revenue following the decision of Special Bench of the Tribunal in the case of ACIT Vs. Goldman Shares & Finance (P) Ltd. (Supra). He submitted that the Hyderabad Bench of the Tribunal while deciding the issue has also discussed the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). The Ld. D.R. submitted that even in the case of Liberty India Vs. CIT (Supra), the Hon'ble Supreme Court has been pleased to explain the intention of Parliament and scope of deduction u/s. 80IA and 80IB of the Act. The Hon'ble Supreme Court has been pleased to hold 14 that such profits are to be computed as if such eligible business is the only source of income of the assessee. The devices adopted to reduce or inflate the profit of eligible business has got to be rejected in view of the overriding provisions of Sub-section (5) of Section 80IA of the Act.
13. Having been considered the above submissions, we find that the issue raised in Ground No. 1 as to what would be the initial A.Y for the purposes of Section 80IA(5) of the Act has been decided in favour of the assessee by the Pune Bench of the Tribunal in the case of Poonawalla Stud and Agro Farm Pvt. Ltd. Vs. ACIT (Supra). In that case after discussing the issue in detail, the Tribunal has come to the conclusion that the initial 'A.Y' for the purpose of claiming deduction u/s. 80IA was the first year in which the assessee claimed the deduction u/s. 80IA (1) after exercising his option as per the provisions of 80IA (2) of the Act. It was held that the Ld CIT(A) has erred in holding that the initial A.Y for the purposes of Section 80IA(2) r.w.s. 80IA (5) was the year in which the assessee started generating electricity from the wind mill activity. We also find that the issue raised in Ground No. 2 regarding the eligibility of the assessee to claim deduction u/s. 80IA undiminished by unabsorbed losses and depreciation also set off in earlier years against the other income, is fully covered by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra) holding that as per Sub-section (5) of Section 80IA, profits are to be computed as if such eligible business is the only source of income of the assessee. When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee. The Hon'ble Madras High Court has been further pleased to hold that revenue cannot notionally bring forward any loss of earlier years which had already been set off against the other income of assessee and set off against the correct income of the eligible business. Fiction created by Sub-section (5) of Section 80IA does not contemplate such notional set off, held the Hon'ble High Court. The Hon'ble Madras High Court in that decision has also referred the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT (Supra) and the decision of Special Bench of the Tribunal in the case of Goldman Shares & Finance (P) Ltd. (Supra). There is no dispute that even a decision of non-jurisdictional High Court is a binding precedent for the Tribunal until a contrary decision is given by any other competent High Court. In this regard, we find strength from the recent decision of Hon'ble jurisdictional Bombay High Court in the case of Commissioner of Central Excise Vs. Valson Dyeing, Bleaching and Printing Works (Supra) wherein the Hon'ble Bombay High Court has been pleased to hold in a case of excise matter that Tribunal is bound by the decision of High Court , even of a different State, so long as there is no contrary decision of any other High Court. The Hon'ble Bombay High Court has been pleased to hold further that the Tribunal had no option but to follow the judgment of the Madras High 15 Court. An authority like an Income Tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question. We thus respectfully following the ratio laid down by the Hon'ble jurisdictional High Court in the case of Commissioner of Central Excise Vs. Vakson Dyeing, Bleaching and Printing Works (Supra) hold that the Tribunal is bound by the decision of the Hon'ble Madras High Court on an identical issue in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra). We thus respectfully following the decision taken by the Hon'ble Madras High Court in that case on an identical issue under almost similar facts, hold that when the assessee exercising the option, only the losses of the year beginning from the initial A.Y. are to be brought forward and not the losses of earlier year which have been already set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off the same against the current income of the eligible business. We thus set aside the orders of the authorities below and direct the A.O to allow the claimed deduction u/s. 80IA without bringing the notionally brought forward any loss or depreciation of earlier years which has already been set off against other income of the assessee. The decision of Pune Bench of the Tribunal in the case of Prima Paper Engineering P.Ltd. Vs. ITO (Supra) cited by the Ld. DR is also not helpful to the revenue since firstly the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (Supra) on the issue was not cited before the Bench and secondly the ld. AR fairly agreed that the issue raised was covered against the assessee by the decision of Special Bench in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd. (Supra) followed by the authorities below. The ld. AR therein thus contended that though the issue may be decided against the assessee in view of the Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares & Financial (P) Ltd., but it should not be construed as acquiescence from the side of the assessee as the legal position on the subject is yet not settled. The Ground No. 2 is thus decided in favour of the assessee."
7. Ostensibly, in the case of Serum International Ltd. (supra), the Tribunal has considered an identical controversy. On behalf of the assessee, the judgment of Hon'ble Madras High court in the case of Velaydhaswamy Spinning Mills (P) Ltd. (supra) was being cited whereas the Revenue had relied upon the decision of Special Bench of the Tribunal in the case of Asstt. CIT Vs. Goldmine Shares and Finance (P) Ltd. (2008) 116 TTJ (Ahd) (SB) 705 to the contrary. The Tribunal noticed that having regard to the decision of the Hon'ble Madras High court the issue was to be decided accordingly and not on the basis of decision of Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P) Ltd. (supra) which was to the contrary. In this context, the Tribunal came to the conclusion that when the assessee exercised option identifying ten consecutive years as contained in sub-section (2) of section 80-IA of the Act, 16 only the losses of the year beginning from such initial assessment year are to be brought forward and set-off while applying the provisions of section 80-IA(5) of the Act and not the losses of earlier years which otherwise were set-off against other income of the assessee.
8. At the time of hearing, the learned DR has not brought to our notice any decision of a High Court contrary to that of the Hon'ble Madras High Court in the case of Velaydhaswamy Spinning Mills (P) Ltd. (supra) on the issue in question. Therefore, we find that the controversy before us is no longer res integra and is in fact covered in favour of the assessee by the decision of Pune Bench of the Tribunal in the case of Serum International Ld. (supra) which has been decided following the decision of the Hon'ble Madras High Court in the case of Velaydhaswamy Spinning Mills (P) Ltd. (supra).
9. Before parting we may also refer to the decision of the Pune Bench of the Tribunal in the case of Prima Paper Engg. (P) Ltd. Vs. ITO in ITA No. 1755 and 1205/PN/2007 for A.Y. 2002-03 and 2003-04 vide order dated 31-1-2011 which is contrary to the aforesaid position. The said decision of the Tribunal has been explained in the case of Serum International Ltd (supra) wherein it has been clearly brought out as to how the said decision does not help the case of the Revenue. Following discussion in the order of the Tribunal is relevant.
"The decision of Pune Bench of the Tribunal in the case of Prima Paper Engineering P.Ltd. Vs. ITO (Supra) cited by the Ld. DR is also not helpful to the revenue since firstly the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (Supra) on the issue was not cited before the Bench and secondly the ld. AR fairly agreed that the issue raised was covered against the assessee by the decision of Special Bench in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd. (Supra) followed by the authorities below. The ld. AR therein thus contended that though the issue may be decided against the assessee in view of the Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares & Financial (P) Ltd., but it should not be construed as acquiescence from the side of the assessee as the legal position on the subject is yet not settled. The Ground No. 2 is thus decided in favour of the assessee."
10. In view of the aforesaid discussion, we therefore, hold that the assessee is eligible for claim of deduction u/s 80-IA of the Act for the year under consideration in a manner whereby the initial assessment year referred to in section 80-IA(5) of the Act is to be taken as the A.Y. 2004-05 and not the A.Y. 2002-03 as canvassed by the Revenue. Resultantly, we therefore, set aside the order of the CIT(A) and direct the Assessing Officer to recompute and allow the deduction to the assessee u/s 80-IA of the Act as above."
10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal, we uphold the order of the CIT(A). Grounds raised 17 by the Revenue are accordingly dismissed.
11. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on 24-09-2014.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: 24th September, 2014
Satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. The CIT(A)-II, Pune
4. The CIT-II, Pune
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Assistant Registrar
ITAT, Pune Benches, Pune