Income Tax Appellate Tribunal - Pune
J-Sons Foundry Pvt.Ltd.,, Sangli vs Department Of Income Tax on 28 January, 2013
ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND
SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA No.815/PN/2011
Assessment Year : 2007-08
M/s. J-Sons Foundry Pvt. Ltd., DCIT, Circle-1
Sangli Vs. Sangli
(Appellant) (Respondent)
PAN No.AAACJ 6740K
ITA No.1494/PN/2011
Assessment Year : 2008-09
M/s. J-Sons Foundry Pvt. Ltd., JCIT, Range-1
Sangli Vs. Sangli
(Appellant) (Respondent)
ITA No.891 & 1600/PN/2011
Assessment Year : 2007-08 & 2008-09 respectively
DCIT, Circle-1 J-Sons Foundry Pvt. Ltd.,
Sangli Vs. Sangli
(Appellant) (Respondent)
Appellant By: Shri C.H. Naniwadekar
Respondent By: Shri Y.K. Bhaskar
Date of hearing : 28.01.2013
Date of pronouncement : 30.01.2013
ORDER
PER R.S. PADVEKAR:-
This batch of four appeals, two appeals by the assessee and two appeals by the revenue are directed against the respective orders of the Ld. CIT(A) Kolhapur for the assessment years 2007-08 & 2008-09. Since the facts and issues are common, these appeals are disposed of by this consolidated order. We first take assessee's appeal for the A.Y. 2007-08 being ITA No.815/PN/2011. The assessee has taken the following grounds in appeal:
1. In the view of facts & circumstances, the Hon'ble Commissioner of Income Tax (Appeals) has erred both on facts as well as in law in not deleting the addition on account of disallowance of depreciation of Rs.18,12,337 (55,07,891 - 36,95,554) on wind mills, and hence the addition may be cancelled.
2. Although the depreciation on the wind mills was allowed for the year 2001-02 relevant to A.Y. 2002-03 & F.Y. 2005-06 relevant to A.Y. 2006-07 and second half year in A.Y. 2006-07 @ 80% and no facts and circumstances had changed, the claim of depreciation @ 80% is wrongly rejected by the Hon'ble Commissioner of Income Tax (Appeals) and depreciation lesser than 80% is allowed on that machinery for A.Y. 2007-08, hence the addition may be cancelled.2
ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli
3. Hon'ble Commissioner of Income Tax (Appeals) erred in treating civil construction expenses for bringing Windmills into existence as "building" and in not allowing depreciation on it at the rate of 80% like Windmill. Hence, the related expenses are treated as cost of Wind mill.
4. In the view of facts & circumstances, the Hon'ble Commissioner of Income Tax (Appeals) erred in bifurcating the cost of Wind mill and treating cost of Rs.2134884 (Wind mill III), Rs.576903 (Wind mill I&II) and Rs.1870890 (Wind mill IV) as building and hence the same should be treated as cost of Wind mill.
5. In the view of facts & circumstances, the Hon'ble Commissioner of Income Tax (Appeals) erred in bifurcating cost of MEDA and other charges into Wind mill cost with eligible depreciation rate of 80% and building cost with eligible depreciation rate at 10%, and hence the same should be treated as cost of Wind mill.
2. The facts which revealed from the record are as under:-
The assessee's company is in the manufacturing of the Steel and stainless steel castings. It is also engaged in the generation of energy/power from wind mills. As observed by the A.O., the assessee has installed 3 wind mills of 225 KWS each during the year under consideration which were supplied and installed by M/s. Southern Wind Farms Ltd. and wind mill of 0.6 MW supplied and installed by M/s. Suzlon Energy Ltd. and M/s. Suzlon Infrastructure Ltd. The issue in controversy before us is whether the cost of foundation & civil construction for the installation of the wind mill is a consolidated part of the Wind Mill itself and hence, eligible for the depreciation at the rate 80% treating said expenditure as integral part of wind mill. The assessee installed the wind mills in the A.Y. 2002-03 and 2006-07 and WDV as on 1.4.2006 brought forward was at Rs.91,47,663/- and depreciation @80% was claimed on the said WDV of the wind mills brought forward from the previous years and 50% of 80% i.e. 40% for the second part of the year for the wind mills installed during the financial year 2006-07 (A.Y. 2007-08). It was noticed by the A.O. that for the wind mills purchased from M/s. Suzlon Energy Ltd. and M/s. Suzlon Infrastructure Ltd. during the year under consideration, said companies had raised bills by saggregating various expenses in connection with installation, erection and commissioning of the wind mills. As noted by the A.O., the breakup of the cost is as under:
a) Cost of Wind mill
b) Cost of civil work consisting of foundation/ground work for transformer and plinth etc.
c) Cost of erection and commissioning of the Windmill.
3. The A.O. was of the opinion that the cost incurred on work constituting the ground/plinth foundation was in the nature of the "building" and hence, only the 10% depreciation was allowable on the said cost and so far as cost incurred on the erection and commissioning is concerned, the same is in the nature of 3 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli "plant & machinery" and only 15% depreciation was allowable. On the basis of the details given by the assessee in the respect of expenditure incurred on the cost of wind turbine i.e. Rs.2,76,94,000/-, expenditure on foundation and civil work Rs.54,13,245/- and erection and commissioning work of Rs.12,39,800/- which were worked out in ratio at 80.63%, 15.76% and 3.61% of total cost. The A.O. worked out and apportioned the total cost of the wind mills even in the respective WDV brought forward from the previous years in the same ratio. The A.O. therefore proceeded to work out the depreciation which was allegedly claimed excess by the assessee on the WDV of the civil work and WDV on erection and commissioning work. The A.O. finally restricted the depreciation on the civil work to 10% of the WDV in respect of the wind mills installed in the preceding years and WDV brought forward in the block in the A.Y. 2007-08 as well as cost incurred in the A.Y. 2007-08 which were part of the block of this year. In sum and substance, in the opinion of the A.O., the cost incurred on the foundation, erection and commissioning of the wind mill cannot be equated with the wind mill turbine and depreciation is to be worked out treating this work as a separate block of assets i.e. 80% on the turbine, 10% on foundation & civil work and 15% on cost of erection and commissioning. The A.O. also took the corrective step to work out the correct WDV of the wind mill which was installed in the A.Y. 2002-03 and A.Y. 2006-07 and after making the necessary adjustments and apportioning, the expenditure pertaining to the civil work more particularly the foundation, erection and commissioning at the ratio of 15.76% and 3.61% i.e. civil construction 15.76% and erection and commissioning work 3.61% of the total cost, the A.O. restricted the depreciation accordingly. In sum and substance in the opinion of the A.O., the entire cost incurred by the asessee on the machinery, foundation and civil work as well as erection and commissioning cannot be treated as an integral part of the entire wind mill but expenditure is to be apportioned separately as per above ratio and rates applicable to the civil work i.e. at 10% and erection and commissioning i.e. at 15% are to be applied. That resulted into disallowance of the depreciation to the extent of Rs.55,07,091/- on the wind mills and resulted into addition to that extent The assessee challenged the addition before the Ld. CIT(A) but without success. The assessee is in appeal before us. At the same time, he did not agree with the ratio adopted by the A.O. by allocating total cost as well as WDV of block for working out depreciation on the civil work which were higher than the actual expenditure incurred by the assessee. On the said decision of the Ld. CIT(A), the revenue is in appeal before us.
4. We have heard the parties and perused the record. The Ld. Counsel for the assessee submitted that so far as the issue of the rate of depreciation on the 4 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli foundation of the wind mill is concerned, it is squarely covered by the decision of this Tribunal in the case of JCIT Range-1, Sangli Vs. M/s. Western Precicast Pvt. Ltd., Sangli, ITA No.890/PN/2011 dated 31.12.2012. He therefore, pleaded for allowing the depreciation at 80% on the foundation as well as cost incurred on erection and commissioning. We have also heard the Ld. D.R.
5. In this case, the A.O. as well as the Ld. CIT(A) have reservations in treating the cost incurred by the assessee on the foundation & civil work for installation and erection of the wind mill. In their opinion, the expenditure is to be apportioned considering the nature of the said expenditure i.e. the foundation & civil work and erection and commissioning. We find that issue is squarely covered in the favour of the assessee by the decision of the Tribunal in the case of M/s. Western Precicast Pvt. Ltd., Sangli (supra), the operative part of the finding of the Tribunal in the said case are as under:
"7. We have carefully considered the rival submissions. In order to appreciate the dispute, the following break-up of expenses on account of erection and commission of windmill I i.e. windmill installed in the preceding assessment year 2006-07 would be necessary as contained in para 2.5 of order of the CIT(A):-
S.No. Date Nature of work Expenditure -
Rs.
1. 30-03-2006 Towards supply and installation of 30,93,500/-
HT electrical Yard with VCB,
outdoor type CT & PT and HT
Transmission Line from Windmill to
Grid interconnection point including
HT metering for 1.25 MW
WINDMILL AT LOCATION No. K437
at above site address.
2. 30-03-2006 Labour charges towards final 1,10,200/-
testing and commissioning for 1.25
MW windmill at Loc No. K437.
3. 30-03-2006 Towards labour charges for work 14,32,600/-
executed, for erection and
installation of windmill consisting of
: Unloading and safe keeping of
material, Assembly, erection and
installation of windmill tower and
wind turbine generator for 1.25 MW
windmill at Location No K-437 at
above site address.
4. 04-03-2006 Processing fees 2,58,970/-
5. 31-12-2005 MEDA processing and application 6,28,750/-
fees
6. 31-03-2006 Contribution towards common 37,50,000/-
power evacuation infrastructure
facility
8. In respect of above six components of cost of windmill claimed by the assessee, the Assessing Officer allowed depreciation at 15% and not at 80% as claimed by the assessee. The CIT(A) however, considered the items of costs at No 1 to 5 qualifying for higher rate of depreciation being 5 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli integral part of windmill. In so far as item no. 1 is concerned, the cost of Rs. 30,93,500/- is towards supply of electrical items of the windmill itself. The CIT(A) has observed that such cost in the installation of windmill has been found by the Tribunal in the case of Poonawala Finvest and Agro Pvt. Ltd. (supra) as an integral part of the windmill cost and therefore, found to be eligible for depreciation equivalent to that of the windmill. No decision to the contrary has been brought to our notice and therefore, following the precedent in the case of Poonawala Finvest and Agro Pvt. Ltd. (supra), we do not find any infirmity in the action of the CIT(A) which we hereby affirm.
9. To the similar effect is the nature of cost enumerated in items no. 2 and 3 relating to labour charges for erection and installation of windmill. Such expenditure forms integral part of cost of the windmill and therefore, there is no mistake on the part of the CIT(A) to have considered such expenditure as eligible for depreciation at 80%."
6. Ld. Counsel has filed a chart giving details of civil work which has no relation with foundation or erection & commissioning which are as under:
Civil work (cost)
1. Wind Mill I & II 5,76,303 (Installed in AY 2002-03&2006-07) (part of WDV)
2. Wind Mill IV (Installed in A.Y. 2007-08) 18,70,890 24,47,193 Hence, to extent of civil work cost, we uphold action of the A.O. to restrict depreciation @ 10%. We therefore, allow the grounds taken by the assessee protanto and direct the A.O. to allow the depreciation at 80%on the cost of foundation as well as cost incurred on erection and commissioning of the wind mill. Accordingly, grounds taken by the assessee are partly allowed.
7. Now we take up the revenue's appeal for the A.Y. 2007-08 being Income- tax Act, 1961 No.891/PN/2011. The revenue has taken the following effective grounds 1 to 4:-
1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in classifying Components & Accessories of Renewable Devices (1/3rd of the total cost), Electrical items, components of renewable energy project device/wind mill, in respect of wind farm project device/wind mill, in respect of wind farm project consisting of one WTG 0.60 MW wind mill at location No.GP-31, Installation (with material) of electrical line for power transmission and metering in respect of wind farm project consisting of one WTG for your 0.60 MW wind mill at location wind mill when these items are not wind mill or specifically designed devices which run on wind mills and as such said items would not classify for depreciation @ 80% as per the depreciation schedule.
2. On the facts and in the circumstances of the case and in law, the CIT(A) erred observing that labour work related to installation of one wind turbine generator for Rs.10,55,056/- was required to be included in the cost of wind turbine generator for allowance of depreciation @ 80% when the said expenses was required to be 6 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli spread over in the proportion of cost of civil work, cost of wind mill and cost of plant & machinery and the depreciation was to be allowed as applicable rates.
3. On the facts and in the circumstances of the case, and in law the CIT(A) erred in applying the decision of the ITAT, Pune Bench in the case of Poonawala Finvest and Agro Pvt. Ltd. (118 TTJ 68) as the decision is distinguishable on facts and does not considered the rate schedule of depreciation u/s 32C which provides for depreciation @ 80% only on wind mills and devices specially designed to run on wind mills.
4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing depreciation @ 80% on proportionate cost in MEDA charges of Rs.3,01,800/- as the same does not form part of cost of wind mill or any specifically device to run on wind mill.
8. As per the grounds taken by the revenue, they have objected for treating the cost of the labour work for installation of the wind mill turbine. In our opinion, the said issue is covered in favour of the assessee as the cost incurred on the installation of the wind mill is an integral part of the total cost of the wind mill and installation needs the labour work also. While deciding the asessee's appeal, we have directed the A.O. to allow depreciation at 80% on cost of Foundation as well as expenditure incurred on erection & commissioning. We find that though the Ld. CIT(A) has referred to the decision of the ITAT Pune Bench, Pune in the case of Poonawala Finvest and Agro Pvt. Ltd V/s. ACIT (2008) 118 TTJ (Pune) 68. The said decision has not been applied but in fact distinguished for denying the claim of the assessee. Hence, ground no.3 taken by the revenue is infructuous. Accordingly, all the grounds of the revenue are dismissed.
9. Now we take up the assessee's appeal for the A.Y. 2008-09 being Income-tax Act, 1961 No.1494 of 2011. The assessee has taken the following effective grounds 1 & 2:-
1. In the view of facts & circumstances, the Commissioner of Income Tax (Appeals) has erred both on facts as well as in law in confirming the addition on account of disallowance of depreciation of Rs.4786556/- on the wind mills. The addition is illegal, bad in law and without jurisdiction and hence the addition may be cancelled.
2. Although the depreciation on the wind mills was allowed for the year 2001-02 relevant to A.Y. 2002-03 & F.Y. 2005-06 relevant to A.Y. 2006-07 and second half year in A.Y. 2006-07 @ 80% and no facts and circumstances had changed, the rejection claim of depreciation @ 80% is wrongly confirmed and depreciation lesser than 80% is allowed on that machinery for A.Y. 2007-08, hence the addition of Rs.4786556/- may be cancelled.
10. While completing the assessment for the A.Y. 2008-09, A.O. disallowed the depreciation on the wind mills to the extent of Rs.4786556/- for the same 7 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli reason which are given in the A.Y. 2007-08 i.e. treating the cost on the foundation of the wind mill and cost of erection and commissioning are not integral part of the wind mill as such and accordingly, restricted the depreciation at 10% on the cost of the foundation/civil work and at 15% on the cost of the erection and commissioning. We have already decided this issue in assessee's own case in the A.Y. 2007-08. We therefore, following our reasons in the said order allow the grounds taken by the assessee to extent of cost/WDV of foundation & cost/WDV of erection & commissioning of wind mill. But uphold action of A.O. to restrict depreciation at 10% on cost/WDV of civil work. Accordingly, assessee's grounds are partly allowed.
11. Now we take up the revenue's appeal in ITA No.1600/PN/2011 for the A.Y. 2008-09. Revenue has taken the following effective grounds:-
1. On the facts and in the circumstances of the case, the CIT(A) erred in allowing the deduction u/s 80IA(5) of IT Act on the profits earned from generation & sale of electricity from the satara Unit, in the process ignoring the fact that assessee company had incurred losses from generation & sale of electricity from Tamil Nadu Unit and Gudhe Panchgani Unit which were required to be first set off against the profits earned at Satara Unit in terms of provision of Sec 70 of the IT Act and resultant profit was to be allowed as deduction in terms of the provision of Sec. 80IA(1) of IT Act.
2. On the facts and in the circumstances of the case, the CIT(A) erred in holding at Para (29) of his order that, `every unit constitutes a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against profits of another unit engaged in the same business for the purpose of claiming deduction under section 80IA' as the provision of Section 80IA of the IT Act refers to profis and gains derived by and undertaking or an enterprise from any business referred to in subsection (4) of Section 80IA which in the context of the assessee company would imply that profit and gains earned by the assessee company from the eligible business of generation of electricity would be considered for allowing the deduction and not the profits earned by individual units engaged in the business of generating electricity.
3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in interpreting the provisions of Sec 80IA(2) of the IT Act in respect of the assessee company's prerogative to choose any consecutive period of 10 years from the first 15 years of its operation in context of substantiating his inference that the provision is intended to consider each unit of the eligible business as a separate profit centre for computing the allowable deduction as against the clear mandate of sub section (1) of Sec 80IA of IT Act to compute allowable deduction on the basis of profit of the eligible business and not individual units of eligible business.
12. The relevant facts pertaining to the issue before us, revealed from the orders of the authorities below are as under. The assessee company had installed three wind mills at a three different locations and each wind mill is 8 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli treated as a separate "Wind Mill undertaking". The assessee had claimed the deduction u/s 80IA(2) of the Act of Rs.52,45,355/- in the respect of Satara wind mill undertaking, although there was loss in the Tamil Nadu wind mill and Gudhe-Panchgani wind mill. The assessee stated before the A.O. that each wind mill is an independent and separate undertaking and books of accounts are also maintained and audited separately. The assessee had been setting off the loss of depreciation from different wind mill undertakings against the income of the foundry division i.e. other business. The assessee also pleaded that although there appear to be profit from a wind mill undertaking in earlier year (if only the income of any previous year completed), since the depreciation loss of the earlier year of that wind mill undertaking is deemed to be carried forward, assuming no set off against foundry income as if it is the only source of income, there was no positive income from that wind mill undertaking from that initial assessment years. The assessee opted for claiming the deduction u/s 80IA(2) for 10 consecutive assessment years, beginning from the A.Y. 2008-09 out of the block of 15 years from the A.Y. 2002-03 to 2016-17. The assessee therefore claimed that the assessee is eligible and also entitled to claim the deduction u/s 80IA(2) of the Act treating the A.Y. 2008-09 as an initial assessment year.
13. As per the facts on the record, even if the three locations of the wind mills are treated as independent undertakings, the A.O. has a reservation in allowing the deduction to the assessee u/s 80IA in respect of "Satara Wind Mill"
as there were losses in other undertakings namely Tamil Nadu wind mill and Gudhe-Panchgani wind mill. The assessee relied on some of the decisions to support the claim. The assessee contended before the A.O. that the losses in the other wind mills were set up against the profits of the other businesses u/s 70 of the Act. In the opinion of the A.O., if there are losses in the other wind mill undertakings i.e. Tamil Nadu Wind Mill and Gudhe- Panchgani wind mill, then in view of section 70 & 71 of the I.T. Act, the same are to be set off and adjusted against the other heads and if any residue is there to that extent, deduction u/s 80IA is to be allowed. The A.O. therefore denied the deduction to the assessee u/s 80IA(2) in respect of the Satara wind mill. The assessee carried the issue of the deduction before Ld. CIT(A).
14. The Ld. CIT(A) allowed the claim of the assessee. The reason and findings of the CIT(A) are as under:
"19. I have gone through the submissions of the appellant with reference to the facts on records. I have also perused the various decisions relied upon by the appellant. Before going into the discussion on the grounds raised as above, I am reproducing hereunder the relevant contents of sections 801 and 80IA of the Act:9
ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli Sec. 80-IA reads as follows:
"80-IA Deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.-- (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-s. (such business being hereinafter referred to as the eligible business), there shall, accordance with and subject to the provisions of this 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-s. (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 cl. (iii) of sub-s. (4)] or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines or lays and begins to operate a cross-- country natural gas distribution network :
Provided that where the assessee develops or operates and maintains or develops, operates and maintains any infrastructure facility referred to in cl. (a) or cl. (b ) or cl. (c) of the Explanation to cl. (i) of sub-s. (4), the provisions of this sub-section shall have effect as if for the words 'fifteen years', the words 'twenty years' had been substituted.
(2A)....
(3) This section applies to an undertaking referred to in cl. (ii) or cl. (iv) or cl. (vi) of sub-s. (4) which fulfils all the following conditions, namely:
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as. is referred to in s. 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose :
Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in cl. (7) of s. 2 of the Electricity Act, 2003 (36 of 2003), whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganisation of the Board under Part XIII of that Act. Explanation ..............
Explanation 2.--
(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 day of April, 1995 :10
ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Explanation..................
Provided...............
Provided ......
(iv) an undertaking which,--
(a) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2011;
(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2011:
Provided that the deduction under this section to an undertaking under sub-cl. (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution;
(c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2011.
Explanation .............
(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-s. (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 upto and including the assessment year for which the determination is to be made."
The relevant parts of Sec. 80-1 reads as follows:
80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel 16[or the business of repairs to ocean-going vessels or other powered craft], to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof:
Provided....
Provided ....
(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:--
(i) it is notformed19 by the splitting up19, or the reconstruction19, of a business already in existence;
(ii) it is not formed by the transfer20 to a new business of machinery or plant previously used for any purpose;11
ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli
(iii) it manufactures or produces20 any article20 or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India, and begins to manufacture or produce articles or things or to operate such plant or plants, at any time within the period of 21[ten] years next following the 31st day of March, 1981, or such further period as the Central Government may, by notification in the Official Gazette, specify with reference to any particular industrial undertaking;
(iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers in a manufacturing process carried on without the aid of power:
(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel 28[or the business of repairs to ocean-going vessels or other powered craft] to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel 29[or the business of repairs to ocean-going vessels or other powered craft] were the only source of income of the assessee during the previous years 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.
20. It is obvious from a plain reading of the provisions of sub-section (1) of section 801 and Section 80IA that the deduction is allowed to profits and gains of an eligible industrial undertaking in the case of S.80I and to an undertaking carrying out an eligible business in the case of S.80IA which is included in the gross total income of the assessee. Thus the deduction under both these sections is a profit linked incentives. In fact, Chapter VI-A which provides for incentives in the form of tax deductions essentially belong to the category of "profit linked incentives". Therefore, when section 80-IA refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives. What attracts the incentives under section 80-IA is the generation of profits or operational profits as held in the case of Liberty India v. Commissioner of Income-tax [2009] 183 TAXMAN 349 (SC). Each of the units of eligible business in sub-section (4) constitutes a stand-alone item in the matter of computation of profits. Section 80-IA is a Code by itself as it contains both substantive as well as procedural provisions.
Therefore, we need to examine what the provisions prescribe for "computation of profits of the eligible business".
21. Section 80IA(1) clearly states that the a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years shall be allowed. Section 80IA(4)(iv) enumerates the eligible businesses which can be broadly categorized as businesses of generation and distribution of electricity, and transmission and distribution through network or lines of electricity. Thus the businesses to which the deduction is allowed and deduction is calculable with reference to are clearly stated. Clause (iv) of Subsection (4) refers to two businesses, the profits of which become eligible for deduction. The Act has not clearly stated that the deduction is allowable with reference to profits of individual unit of the undertaking engaged in either of the two businesses. This implies that whether the deduction has to be computed of the business as a whole or has to be computed 12 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli separately for every unit of the undertaking involved in eligible Business?
22. Thus it is clear that profit of the eligible business has to be computed in the manner provided in sub-section (5) of Section 80IA. 'The manner of computation is explained in the case of Commissioner of Income-tax v. Accel Transmatic Systems Ltd [2010] 230 CTR 206 (KER.) as under:
We disapprove the pattern of computation made by the assessee by deducting from the profits of the eligible industrial unit the claim amount and then returning the balance to constitute gross total in the computation of total income. In fact, the procedure to be followed for the purpose of granting deduction under section 80-IA is to first compute the profits and gains of the eligible unit and then to determine the eligible deduction therefrom in terms of section 80-IA(5) of the Act. Thereafter, in the computation of total income under the provisions of the Act, the eligible deduction has to be reduced and if the total income computed is less than the eligible amount, deduction has to be limited to such amount. Since there has been variations in the total income computed by virtue of disallowances and later orders of the higher authorities allowing it, we direct the officer to rework total income and therefrom allow eligible deduction under section 80- IA(5) of the Act with reference to the profits of the eligible unit, but limiting it to the total income, if the claim amount is higher than such amount. The orders of the Tribunal and the first appellate authority will stand modified as above. (Emphasis supplied.)
23. The procedure, as explained in Accel case (supra) entails the following:
1. Compute the profits of the unit separately.
2. Compute the eligible deduction of the business.
3. Make a claim of the deduction as arrived above from gross total income as per the provisions of S.80A(2) and S.80B(5).
24. It is possible to urge that for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section (5) contemplates that only the profits shall be taken into account as if it was the only source of income. In the case of Synco Industries Ltd. v. Assessing Officer, Income Tax, Mumbai [2008] 168 TAXMAN 224 (SC), the assessee had two industrial undertakings viz., Oil Division, wherein the assessee suffered loss and the Chemical Division where there was a profit. The assessing Officer appropriated the loss from the Oil Division against the profits from the Chemical Division for the purposes of allowing the deduction under section 80I. It was held that because of the non obstante clause in Section 80I(6), profits of oil division and chemical division have to be treated separately and loss of oil division could not be taken into account for the purposes of computing the deduction available under Section 80I(6). This view was possible because that both oil division and chemical division constituted eligible businesses to which the provisions of Section 80-I(1) applied and hence it was possible to treat the profits of both divisions separately. Section 80-
I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per 13 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli cent has to be made. It was therefore imperative to compute the deduction on standalone basis because deduction was available a specified percentage of the profits and gains derived from an industrial undertaking which was included in the gross total income.
25. Section 80I(5) unambiguously lays down that the profits and gains of an eligible business to which the provisions of sub-s. (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section, be computed as if such eligible business is the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made. Thus, there is a deviation between the provisions of sections 80I and 80IA. While section 80I speaks about grant of deduction @ 20% of profits and gains of an industrial undertaking engaged in eligible business if such profits and gains of the industrial undertaking was included in the gross total income, section 80IA(1) speaks about grant of deduction of 100% of profits and gains of eligible business, provided the undertaking or the enterprise carries on the specified business or businesses subject to the conditionalities laid down in that behalf. It would appear therefore, that read with the decision given in Synco case (supra) sections 80IA(1), 80IA(4) and 80IA(5) would render only the profits of the business and not the profits of the individual revenue centres, which in this case are the units located at Satara, Tamil Nadu and Gudhe-Panchgani, as eligible for deduction. Hence, it appears at the first blush that the action of the assessing officer in computing the deduction by aggregating the incomes / profits and gains of all the windmills is correct. However, this is not a correct formula for working out the claim of deduction under section 80IA.
26. This is for the reason that if profits of the individual units are not considered on standalone basis, then the choice given under section 80IA(2) to opt for the claim of deduction for any ten consecutive assessment years out of fifteen years too will be nullified. Further, the initial assessment year referred to in section 80IA(2) can never be interpreted with reference to business. It can be understood with reference to each unit separately. To clarify this fact, I am reproducing the charts showing the revenues earned by the appellant in respect of WTGS on Windmill Undertakings located at Satara, Tamil Nadu and Gudhe-Panchgani sites hereunder:
[I] Satara Wind Mill | Financial year 31763/2002 31/03/2003 31/03/2004 31/03/2005 31/03/2006 31/03/2007 31/03/2008 ending Revenue 1,96,593 1,27,34,451 1,28,19,826 1,42,37,298 1,36,65,043 1,88,67,729 1,54,27,554 Expenses 1,29,50,744 1,78,04,451 1,78,20,068 1,61,67,800 1,48,13,674 11,99,238 19,49,059 (including Depreciation) Net Profit (1,27,64,151) (50,70,000) (50,00,242) (19,30,502) (11,48,631) 1,76,68,491 1,34,78,495 Depreciation (3,05,17,451) (1,69,12,200) 21,05,078 89,64,322 1,05,04,094 1,76,30,596 1,34,70,916 (Adjusted) Income WTGS (IT (3,05,17,451) (4,74,29,651) (4,53,24,573) (3,63,60,251) (2,58,56,157) (82,25,561) 52,45,355 Act) 14 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli [II] Tamil Nadu Wind Mill Financial year ending 31/03/2006 31/03/2007 31/03/2008 Revenue 5,08,985 12,34,862 72,62,755 Expenses (including 1,07,69,788 184,05,700 2,19,40,537 Depreciation) Net Profit (1,02,60,803) (1,71,70,838) (1,46,77,782) Depreciation (Adjusted) (3,75,61,688) (2,12,90,113) (1,53,48,601) Income WTGS (IT Act) (3,75,61,688) (5,88,51,802) (7,42,00,403) [III] Gudhe-Panchagani Wind Mill Financial year ending 31/03/2007 31/03/2008 ...........................................................
Revenue 23,034 42,59,528 Expenses (including Depreciation) 68,86,506 1,10,31,807 Net Profit (68,63,472) (67,72,279) ., Depreciation (Adjusted) (1,37,32,881) (1,63,89,452) Income WTGS (IT Act) (1,37,32,881) (3,01,22,333)
27. Now let us assume a situation where the Tamil Nadu and Gudhe-Panchgani windmills were not commissioned in the year ending on 31/03/2006 and 31/03/2007 but were commissioned in the year on 31/03/2009. In such a scenario, the Satara windmill would be the only revenue and profit generating centre of the enterprise engaged in the business of generation of electricity.
The appellant 'would be entitled to compute and claim the deduction allowable under sub-section (1) for the previous year relevant to assessment year 2008-09. Now if the Tamil Nadu and Gudhe- Panchgani windmills were commissioned in the previous year relevant to assessment year 2009-10. then there would be no profits available for making the claim of deduction in respect of profits generated by the Satara windmill for which deduction has already been given because in the initial years the losses generated by the Tamil Nadu and Gudhe-Panchgani windmills would set off the income or profits of Satara windmill. Hence the option of making claim for ten consecutive years would be withdrawn. There is no provision in this section for withdrawal of deduction in this manner.
28. Now the initial assessment year is located with reference to the ar in which the undertaking starts generating power. Then what would be the initial assessment year in this case? It is evident from the chart given above that Satara windmill started generating power in the year ending on 31/03/2002, the Tamil Nadu windmill started generating power in the year ending on 31/03/2006 and Gudhe- Panchgani windmill started generating power in the year ending on 31/03/2007. It is obvious that if an interpretation to the effect that the initial assessment is in reference to the business of generation of power, then it is not possible for the appellant to expand the business after the first unit has started generating electricity. It is therefore clear that if the profits of all the units are clubbed 15 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli together where the year of generation of power by each unit is different and hence the initial assessment year is also different, sub- section (2) of section 80IA would be rendered irrelevant. This is not the intention of the Legislature.
29. Hence, I hold that every unit constitutes a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against profits of another unit engaged in the same business for the purpose of claiming deduction under section 80IA. I allow this ground of appeal and direct the assessing officer to compute the deduction available under section 80IA separately for each unit.
15. Against the decision of the Ld. CIT(A), the Revenue is in appeal before us. We have heard the rival submissions of the parties and perused the record. Admittedly, the assessee is power general through the wind mills at 3 different locations i.e. in Tamilnadu, Panchgani and Satara. The wind mills are commissioned and erected in different assessment years as noted by the authorities below. Assessee is maintaining separate books of accounts in respect of 3 wind mills and working out the profit or losses. Though the first wind mill was erected and commissioned in the A.Y. 2002-03, there were consistent losses up to the A.Y. 2007-08 and assessee did not opt for claiming the deduction u/s 80IA(2) of the Act. So far as A.Y. 2008-09 is concerned, assessee opted for claiming the deduction u/s 80IA(2) treating the said assessment year (A.Y.) as an initial assessment year as there was the profit in Satara wind mill but losses in the Tamil Nadu wind mill and Panchgani wind mill. If we look at the scheme of the section 80IA(2), it speaks about the "undertaking" or "enterprise" and not the business of the assessee. Admittedly, three wind mills at the 3 locations are independently operated and the financial results are separately worked out. As per sub-sec.(5) of section 80IA, for computing the deduction u/s 80IA(2), the eligible business is to be treated as the only source of income. Sub-sec.(5) of section 80IA has been explained by the Hon'ble High Court and Kerala in the case of CIT Vs. Accel Transmatic Systems Ltd. 230 CTR 206 (Ker) which has been followed by the Ld. CIT(A). The term "business" used in sub-sec.(5) section 80IA in our humble opinion is confined to the independent undertaking and cannot get merged with the other businesses. In Sec. 80IA(2), for claiming deduction "undertaking" or "Enterprise" as such is to be considered. Sec.80IA(2) is charging sections for determining basic eligibility and there is no mention of word "business". Sub-sec.(5) of Sec.80IA speaks of business but same is to be construed as business of "undertaking" or "Enterprise" as referred to in Sub- sec.(2) of Sec.80IA. It is well settled principle of interpretation of statutory provision that they are to be interpreted harmoniously to make workable to give intended results. Hence, as rightly held by Ld. CIT(A) term "business" used in sec.80IA(5) is to be construed and understood to mean "business" or 16 ITA Nos.815,891,1494&1600/PN/2011 M/s. JSons Foundry Pvt. Ltd., Sangli "undertaking or enterprise". In our opinion, the Ld. CIT(A) in his well reasoned order has rightly held that every unit constitute a separate undertaking engaged in the eligible business and losses from one unit cannot be set off against the profits. Another unit engaged in the same business for the purpose of computing the deduction u/s 80IA. We find no reason to interfere with the findings of the Ld. CIT(A) on this issue. Accordingly, the same are confirmed and grounds taken by the revenue are dismissed.
16. In the result, both the appeals of the assessee are partly allowed and the appeals of the revenue are dismissed.
Pronounced in the open Court on 30.01.2013
Sd/- Sd/-
(G.S. PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
VG/SPS
Pune,
Dated 30th January, 2013
Copy to
1 Assessee
2 Department
3 The CIT, Kolhapur
4 The CIT(A), Kolhapur
5 The DR, ITAT, Pune.
6 Guard file.
By Order