Income Tax Appellate Tribunal - Pune
Chordia Food Products Ltd.,, Pune vs Assessee on 25 May, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIALMEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No. 478/PN/11
(Asstt. Year: 2007-08)
Chordia Food Products Ltd, .. Appellant
48A Parvati Industrial Estate,
Opp. Adinath Society, Pune-Satara Road,
Pune 411 009
PAN AAACC7421J
Vs.
Asstt. Commissioner of Income-tax, .. Respondent
Cir.1(1) Pune
Appellant by: Shri Mahendra Mehta
Respondent by: Shri S C Shivgunde
Date of hearing : 25.05.2012
Date of Pronouncement : 26.06.2012
ORDER
PER G.S. PANNU, A.M.:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-I, Pune dated 29.10.2010 which, in turn, has arisen from the order dated 30.03.2009 passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, (in short "the Act), pertaining to the assessment year 2007-08.
2. In this appeal, the only issue raised by the assessee relates to the denial of deduction under section 80-IA of the Act amounting to Rs 10,66,354/- 2 which was claimed by the assessee with respect to the profits from the Windmill.
3. In brief, the facts giving rise to the dispute are that the assessee claimed a deduction of Rs 10,66,354/- with respect to profits and gains of a Windmill set up for generation and distribution of power in terms of section 80- IA(4)(vi)(a) of the Act. The undertaking, i.e. the Windmill was set-up on 1.12.2001, i.e. in the period corresponding to the assessment year 2002-03 whereas the assessee claimed the deduction under section 80IA of the Act for the first time in the instant assessment year, i.e. 2007-08. The assessee claimed such deduction for the first time in the year under consideration as in the past years the unit was in losses and it was only in the year under consideration that it had made profits. The Assessing Officer, however, observed that after considering the losses suffered by the unit upto the last assessment year, there was no profit of the undertaking and, therefore, the claim of deduction under section 80IA(4) of the Act was not allowable during the year under consideration. The assessee claimed that having regard to the option available to it under section 80IA(2), the deduction was claimed for the first time in the assessment year 2007-08 and in the earlier years the assessee had not chosen the option of claiming deduction under section 80-IA of the Act and, therefore, question of deducting the earlier years' brought forward losses considering the same to be an independent unit does not arise. The reliance sought to be placed by the Assessing Officer on the provisions of section 80IA(5) of the Act in this context was sought to be assailed by pointing out that such provision shall be applied only after the option is exercised by the assessee and accordingly the losses of the period prior to exercising of option shall not be considered and set off while computing deduction under section 80-IA of the Act. It was further pointed out that in any case earlier years losses of the units have otherwise been set off against other income of 3 the assessee. The stand of the assessee was not upheld by the Assessing Officer and accordingly, deduction under section 80-IA amounting to Rs 10,66,354/- was denied.
4. The Commissioner of Income-tax (Appeals) has also since upheld the stand of the Revenue against which the assessee is in further appeal before us.
5. Before us, the learned Counsel for the assessee pointed out that it was wrong on the part of the Income-tax authorities to treat the year of start of the Windmill unit, i.e. assessment year 2002-03 as the initial assessment year for the purposes of section 80IA(5) of the Act whereas the assessee has exercised the option to avail deduction under section 80-IA in the instant assessment year, and such assessment year alone is to be understood as the initial assessment year for the purposes of section 80-IA(5) of the Act. Accordingly, losses incurred by the unit prior to the said assessment year cannot be deducted while computing the eligible deduction as per section 80- IA(5) of the Act in the instant assessment year. The learned Representative further submitted that an identical issue has been considered by the Pune Bench of the Tribunal in the case of Serum International Ltd. Pune v. Addl. CIT in ITA Nos 290 to 292/PN/10 for assessment years 2004-05 to 2006-07 vide order dated 28.9.2011 in favour of the assessee's stand.
6. Though the learned Departmental Representative, appearing for the Revenue, has not controverted the factual matrix that a similar controversy was subject-matter of consideration by the Tribunal in the case of Serum International Ltd. Pune (supra), yet according to the learned Departmental Representative having regard to the decision of the Special Bench of the Tribunal in the case of ACIT v. Goldmine Shares & Finance (P) Ltd. 302 ITR 208 (AT)(SB), the impugned issue has been rightly decided by the Commissioner of Income-tax (Appeals) against the assessee. 4
7. We have carefully considered the rival submissions. The facts relevant to the controversy are that the assessee set-up an undertaking for generation and distribution of power, i.e. a Windmill during the assessment year 2002-03, which was eligible for claim of deduction under section 80-IA of the Act. The said unit incurred losses in the first few years and for the assessment year under consideration, ie. Assessment year 2007-08, it claimed deduction under section 80-IA of Rs 10,66,354/- ignoring losses suffered by the said unit in the earlier years. As per the assessee, the earlier years' losses were set off against the income of other ineligible businesses. It has been explained that it is only during the assessment year under consideration, i.e. 2007-08 that the assessee company exercised the option of claiming deduction under section 80-IA of the Act and, therefore, losses suffered in the earlier years cannot be considered by wrongly interpreting section 80-IA(5) of the Act. Application of section 80-IA(5) is canvassed to be applicable only after the option is exercised by the assessee in terms whereof losses of the period prior to the exercise of option are not liable to be set off while computing deduction under section 80-IA of the Act. Notably, the provisions of section 80-IA(5) of the Act provides that for the purposes of determining the quantum of deduction under section 80-IA(1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, the profits and gains of the eligible business shall be computed 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 upto and including the assessment year for which the determination is to be made.
8. We find that an identical situation was considered by our co-ordinate Bench in the case of Serum International Ltd. Pune (supra) and the following discussion is worthy of notice:
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"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 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 assesse"
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9. Ostensibly, the co-ordinate Bench relied upon the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT 38 DTR (Mad) 57 on this aspect and held that only when the assessee exercises the option, losses of the years beginning from such year alone are to be brought forward and not the losses of prior years which have otherwise been set off against other incomes of the assessee. The Hon'ble Madras High Court further held that the department cannot notionally bring forward any loss of earlier years which has already been set off against other incomes of the assessee so as to reduce it again from the current income of the assessee from the eligible business. Be that as it may, having regard to the aforesaid precedent, the stand of the assessee is liable to be upheld.
10. However, the learned Departmental Representative has argued that the Tribunal in the present case is not bound by the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra), it being a non-jurisdictional High Court and, on the contrary, the Tribunal ought to follow the decision of the Special Bench of the Tribunal in the case of ACIT v. Goldmine Shares & Finance (P) Ltd 302 ITR 208 (AT)(SB), which was in favour of the Revenue. It is vehemently pointed out that the judgment of a non-jurisdictional High Court is not binding on the Tribunal and, in this regard, reliance was also placed on the observations of the Special Bench of the Tribunal in the case of Mahindra & Mahindra Ltd v DCIT 30 SOT 374 (Mum)(SB).
11. We have carefully considered the said aspect and find that similar argument has already been dealt with by our co-ordinate Bench in the case of Serum International Ltd. (supra). The Tribunal was seized of the divergent views, namely, one in favour of the assessee, i.e. the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. and other of Special Bench of the Tribunal in the case of Goldmine Shares & 7 Finance (P) Ltd (supra) which was in favour of the Revenue. The Tribunal in its decision has explained the reasons which prevailed upon it to follow the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra) in preference to the contra view expressed by the Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra). In so far as the plea of the learned Departmental Representative that the judgment of the non-jurisdictional High Court is not binding on the Tribunal is concerned, the same, in our view, is not a proposition to be examined in absolute terms. No doubt the decision of a non- jurisdictional High Court would not have a binding precedent on the Tribunal acting in a place other than the jurisdiction of such High Court, so however, it is an equally respected practice that an authority like an Income-tax Appellate Tribunal acting anywhere in the country has to respect the law laid down by any High Court on an issue settled, so long there is no contrary decision of any other High Court on that issue. For such proposition, we may also make a gainful reference to the decision of the Hon'ble Bombay High Court in the case of CIT v Smt Godavari Devi Saraf 113 ITR 589 (Bom) as well as the recent decision of the Hon'ble Bombay High Court in the case of Commissioner of Central Excise v. M/s Valson Dyeing, Bleaching and Printing Works, 2010 - TIOL - 710 HC - Mum - CX. Therefore, in our view the decision of the Hon'ble Madras High Court is liable to be preferred in lieu of Special Bench of the Tribunal, considering the judicial discipline. Even otherwise, we may observe that the decision of the Special Bench of the Tribunal was very much considered by the Hon'ble Madras High Court in its judgment. Notably in the case before the Hon'ble Madras High Court, the Tribunal had decided the issue in favour of the Revenue by following the decision of the Special Bench in the case of Goldmine Shares & Finance (P) Ltd (supra) as is evident from the discussion in para 4.1 of the judgment of the Hon'ble Madras High Court in 8 the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra). Therefore, considering the aforesaid aspects, we find that the issue in question is liable to be decided in favour of the assessee following the judgment of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra), especially considering that no decision of any other High Court to the contrary has been brought to our notice. In this view of the matter, we set- aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to grant deduction under section 80-IA of the Act as claimed by the assessee. As a result, the assessee succeeds in its Ground of appeal.
12. In the result, the appeal of the assessee is allowed.
Pronounced in the open Court on this 26 th Day of June, 2012.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 26 th June, 2012
B
Copy to:-
1) Assessee
2) ACIT Cir. 1(1) Pune
3) The CIT (A) I Pune
4) The CIT-I Pune
5) The D R, "B" Bench, I.T.A.T., Pune.
6) Guard file
By Order
true copy
Sr.PS I.T.A.T., Pune