Income Tax Appellate Tribunal - Mumbai
M. Pallonji And Co. (P) Ltd. vs Joint Commissioner Of Income Tax on 12 September, 2005
Equivalent citations: (2006)105TTJ(MUM)136
ORDER
O.K. Narayanan, A.M.
1. This is an appeal filed by the assessee. The relevant assessment year is 1997-98. The appeal is directed against the order of the CIT(A)-VI at Mumbai on 17th April, 2000 and arises out of the assessment completed under Sections 143(3) of the IT Act, 1961.
2. The only ground raised in this appeal is regarding the disallowance of deduction claimed by the assessee under Sections 80-IA of the IT Act, 1961. The assessee had constructed wind mill electric generators at Pazhavoor village, Tirunnelveli District in Tamil Nadu at a cost of 430.20 lakhs in the previous year 1995-96 relevant to the asst. yr. 1996-97. The generators were erected for generation of electricity through wind mill which was sold to Tamil Nadu State Electricity Board. The wind mill generators erected by the assessee-company were entitled for 100 per cent depreciation and the same was allowed for the asst. yr. 1996-97.
3. In computing the taxable income of the impugned asst. yr. 1997-98, the assessee has claimed a deduction of Rs. 35,68,790 under Sections 80-IA of the IT Act on the income of the electricity generation as the plant was otherwise entitled for the said exemption. The AO did not allow the claim of the assessee on the ground that the 100 per cent depreciation allowed for the wind mills for the immediately preceding assessment year has left back unabsorbed depreciation which has to be considered for the impugned asst. yr. 1997-98 for set off and if so, there would be no profit for claiming such deduction under Sections 80-IA. The case of the assessee was that the depreciation on wind mills claimed for the earlier asst. yr. 1996-97 was fully absorbed not only by income of this impugned unit but also from the business income from other activities carried on by the assessee-company and no unabsorbed depreciation was left to be carried forward to the impugned asst. yr. 1997-98 and, therefore, the deduction under Sections 80-IA need to be allowed without the disturbance of any such unabsorbed depreciation to be brought forward from the earlier assessment year.
4. When the matter was taken in first appeal, the CIT(A) has also agreed with the contention of the assessing authority and held that any computation of deduction under Sections 80-IA could be made out only after considering the unabsorbed depreciation brought forward from the earlier assessment year with reference to the wind mill project of the assessee-company. It is against the above that the assessee-company has come in appeal.
5. We heard Shri J.D. Mistry, the learned Counsel appearing for the assessee and Shri R.N. Dash, the learned CIT appearing for the Revenue in details.
6. A similar issue was considered by the Kerala High Court in the case of Indian Transformers Ltd. v. CIT . In that case, the assessee-company claimed deduction under Sections 80E (now 80-I) from profits and gains attributable to specific activities like business of generation and distribution of electricity or any other form of power of construction, manufacture or production of any one or more of the articles or things specified in the list in Fifth Schedule. While considering the said claim of the assessee, the Court held that the deduction called for by the assessee was a special benefit given to an assessee which satisfied the conditions laid down and the deduction is only from the profits and gains attributable to the specific activities which are referred to in the section. The Court held that the benefit of the special deduction should not be diminished by the other benefits conferred by the Act such as the right to have previous losses set off. The Court held that the two sections served different purposes and the benefit of both must be available to an assessee without the one impinging on the other. Accordingly, the Court held that the deduction under Sections 80E must be given before losses pertaining to previous year are set off under Sections 72.
7. The Madras High Court in a similar case in CIT v. L.M. Van Moppes Diamond Tools (India) Ltd. considered an analogous issue and held that the rebate available to the assessee should not be reduced by the losses carried forward from the earlier assessment years.
8. Bearing the principle laid down by the Courts in the above decisions and when we examine the present issue in our hand, we are of the considered opinion that the lower authorities have erred in setting off of the unabsorbed depreciation of the earlier assessment year against the profit of the wind mill unit pertaining to the current assessment year and, thereby restricting the benefit of Sections 80-IA to the assessee-company. As a matter of fact, it is to be seen that the assessee-company had income from various business sources including that of wind mill project. As the assessee was entitled for 100 per cent depreciation on wind mills, the same was claimed but the profit of the wind mill project by itself was not sufficient to absorb the entire depreciation claimed by the assessee. But the depreciation not so absorbed exclusively by the profit of the wind mill project was concurrently absorbed by the profits of the assessee from other business also. So while computing the income for the immediately preceding asst. yr. 1996-97, the 100 per cent depreciation claimed by the assessee-company on wind mills has been de facto absorbed and exhausted. Therefore, there remains nothing to be further carried forward to the impugned asst. yr. 1997-98. In such circumstances, the AO is not justified in again making a notional concept of unabsorbed depreciation pertaining to the wind mill project relating to the earlier assessment year and notionally bring the same to the account of the impugned assessment year and setting off against the profit of the wind mill project for the impugned assessment year. Such a notional adjustment is not called for and not contemplated in the claim of deduction provided in Sections 80-IA. As the entire 100 per cent depreciation claimed by the assessee for the earlier asst. yr. 1996-97 has already been set off against the income from business for the said assessment year, there remains nothing to be brought forward to the account of the impugned asst. yr. 1997-98. Therefore, the claim of the assessee has to be allowed by the assessing authority on the basis of the profit of the wind mill project for the impugned assessment year not fettered by any notional amount of unabsorbed depreciation pertaining to the preceding assessment year. The assessee succeeds in its appeal.
9. The whole confusion has been arising in this case only for the reason that the assessee was entitled for 100 per cent depreciation. If the view taken by the Revenue has to be accepted, assessee's setting up wind mill projects would never have an occasion to claim the benefit of deduction under Sections 80-IA as the entire profits of such units would be eaten away by the unabsorbed depreciation arising to the assessee against depreciation allowance of 100 per cent.
10. In result, the appeal by the assessee filed is allowed.