Income Tax Appellate Tribunal - Ahmedabad
Jivraj Tea Ltd., Surat vs Department Of Income Tax on 28 August, 2014
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ''ए'' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
ी एन0एस0 सैनी, लेखा सद य एवं ी कुल भारत, या यक सद य के सम
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI KUL BHARAT, JUDICIAL MEMBER
ITA No.866/Ahd/2012
Assessment Year 2008-09
Jivraj Tea Limited, Vs DCIT,
5/258-259, Jivraj Chambers, Circle-1,
Ruwala Tekra, Surat
Baranpuri Bhagal, Surat
PAN: AAACJ 5895 P
ITA No.982/Ahd/2012
Assessment Year 2008-09
DCIT, Circle-1, Vs Jivraj Tea Limited, Surat
Surat PAN: AAACJ 5895 P
ITA No.1994/Ahd/2012
Assessment Year 2009-10
Jivraj Tea Limited, Vs DCIT,
PAN: AAACJ 5895 P Circle-1, Surat
ITA No.2181/Ahd/2012
Assessment Year 2009-10
ACIT, Circle-1, Vs Jivraj Tea Limited, Surat
Surat PAN: AAACJ 5895 P
ITA No.3014/Ahd/2010
Assessment Year 2007-08
Jivraj Tea Company Vs ACIT,
5/258-259, Jivraj Chambers, Central Circle-2
Ruwala Tekra, Surat
Baranpuri Bhagal, Surat
PAN : AACFJ 2236 R
अपीलाथ / Appellant यथ / Respondent
Revenue by : Shri Subhash Bains, CIT DR
Assessee(s) by : Shri S.N. Soparkar with Shri
Parin Shah
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
-2-
सुनवाई क तार ख/ Date of Hearing : 20/08/2014
घोषणा क तार ख /Date of P ronounc ement : 28/08/2014
आदे श/O R D E R
PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:
ITA No.866/Ahd/2012 : AY 2008-09 : Assessee's appeal
1. Ground No.1 of the appeal of the assessee in AY 2008-09 is directed against the order of the ld. CIT(A) confirming the disallowance of deduction of Rs.69,16,667/- being Sales Tax Entitlement from wind mill at Ahmednagar, Maharashtra.
2. The additional ground of appeal raised by the assessee reads as under:-
"The appellant prays that on the facts and circumstances of the case and in law ld. CIT(A) ought to have treated the amount received on sale of Sales Tax Entitlement as "Capital Receipt" and therefore not liable to tax at all. He has erred in holding the same as taxable by treating it as "revenue receipt" instead of "capital receipt"."
3. The ld. Departmental Representative has no objection to the admission of the aforesaid additional ground of appeal raised by the assessee. Hence, the same was admitted and the parties were allowed to make their submissions thereon.
4. At the time of hearing, ld. AR for the assessee submitted that this issue was covered by the decision of the Tribunal in assessee's own case for the AY 2007-08 in ITA Nos.3011, 3012, 3013, 3093/Ahd/2010, order dated 19/12/2013, wherein the Tribunal has restored this issue back to the file of the Assessing Officer for adjudication afresh. It was his prayer that in the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
-3-present year of appeal also the issue should be restored to the file of the Assessing Officer with the very same direction as given in the AY 2007-08.
5. The learned Departmental Representative also agreed to the above submissions of the ld. AR for the assessee.
6. We find that the Tribunal in assessee's own case, vide a consolidated order dated 19/12/2013, has held as under:-
"29. The other issue in this appeal pertains to whether deduction u/s. 80IA will be allowable to the assessee on the sale proceeds of sales tax entitlement received by the assessee during the year under consideration.
30. The AO as well as the learned CIT(A) following the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT, 317 ITR 128, wherein it has been held that profit on sale of DEPB and Duty Trade Back are not derived from the eligible business and therefore not eligible for deduction u/s. 80IA or 80IB of the Act.
31. Learned AR for the assessee during the course of hearing submitted that the main contention of the assessee before the learned CIT(A) was that the sales tax incentive was a capital receipt of the assessee and hence not liable to tax and for this proposition he relied on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Birla VXL Ltd. (supra). He contended that the learned CIT(A) has not adjudicated upon this contention of the assessee and neither has recorded the same in his order which was submitted to him by way of a written submission. He therefore contended that in view of the decision of the Hon'ble Jurisdictional High Court it has to be held that the sales tax incentives are capital receipt in the hands of the assessee not liable to tax. In the alternate submission he contended that if it is so held that its sales tax incentive was liable to tax that in view of the decision of the Hon'ble Gauhati High Court in the case of CIT V/s. Meghalaya Steel Ltd., (2013) 217 Taxmann.com 184 (Gau), the assessee is entitled for deduction on the sale of sales tax entitlement u/s.80IA of the Act because in that case the Hon'ble High Court has held that transport subsidy, power subsidy, interest subsidy and Insurance subsidy reduces the cost of production of an Industrial undertaking and therefore there is first degree nexus between the said subsidies and profits and gains derived by industrial undertaking and the assessee was entitled for deduction u/s. 80IB in respect of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.-4-
subsidies so granted. We find that neither of the parties have filed before us copy of the sales tax entitlement scheme of the Government of Maharashtra under which the assessee has received the sales tax entitlement. Without going through the scheme it is not possible for us to adjudicate the issue completely. In our considered opinion, it shall be in the interest of justice to remit this matter back to the file of the AO for adjudication afresh.
32. The Hon'ble Gujarat High Court in the case of Birla VXL Ltd. has held as under:
"11. From the above provisions contained in the said Scheme, it can be immediately noticed that the scheme was framed as a part of Government's initiative to encourage modernization of existing industries in under-developed areas. The main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment. The Government responded positively to the representations that on account of rapid changes in technology, there was constant need for upgradation of technology in industries. It was, therefore, necessary to encourage modernization. As part of such a scheme, incentives were given to industries existing in under-developed areas to undertake modernization. The scheme thus was primarily concerned with the modernization of the existing industries. It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries. Thus, the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas. It can be imagined that the industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology. It was for this purpose that the said scheme was framed giving benefit of the Sales Tax Waiver/Deferment, at the option of the industry concerned. Such benefit had to be computed in terms of the percentage of the fixed capital investment. Benefits were to last for specified periods and upto exhausting maximum limit computed in terms of the percentage of the fixed capital investment.
12. It can thus be straightaway seen that the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to- day functioning of the business, or for making the industry more profitable. The principle aim of the scheme was to cover the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.-5-
capital outlay already made by the assessee in undertaking special modernization of its existing industry."
33. We, therefore, set aside this issue back to the file of the AO to re-adjudicate the same after considering the scheme of sales tax entitlement of the Government of Maharastra under which the assessee has received sales tax entitlement and also after taking into consideration the decision of the Hon'ble Gujarat High Court in the case of Birla VXL Ltd. (supra) quoted above. Needless to mention that the AO shall allow reasonable opportunity of hearing to the assessee before re-adjudicating the issue afresh. We order accordingly thus ground of appeal of the assessee is allowed for statistical purpose."
7. Facts being identical, respectfully following the precedent, we set aside the order of lower authorities and remand the matter back to the file of the Assessing Officer for re-adjudicating the issue afresh as per the directions of the Tribunal given in AY 2007-08 as quoted above. Thus, this ground of appeal of the assessee is treated as allowed for statistical purposes.
8. Ground Nos. 2 to 4 of the appeal are directed against the order of the ld CIT(A) confirming the disallowance of deduction u/s 80IA being profits from electricity generation from wind mill at Ahmednagar, Maharashtra of Rs.94,67,482/-, from wind mill at Jodha, Rajasthan of Rs.32,01,291/- and from wind mill at Chitradurga, Karnataka of Rs.55,27,733/-.
9. At the time of hearing, the ld. AR for the assessee submitted that this issue has been decided by the Tribunal in favour of the assessee in assessee's own case for the AY 2007-08 in ITA Nos.3011, 3012, 3013, 3093/Ahd/2010, order dated 19/12/2013. The ld. Departmental Representative has also agreed upon the same.
10. We find that the Tribunal in assessee's own case for the AY 2007-08, vide order dated 19/12/2013, has held as under:-
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.-6-
"7. The learned AR submitted that in all these appeals except for the change in figure, the facts are identical and therefore we are quoting the facts in the case of Jivraj Tea Ltd. in ITA No.3013/Ahd/2010 from the order of the learned CIT(A) which reads as under:
"6.2 The Assessing Officer has found that the profit included Rs.59,16,6667- as received on sale of sales tax entitlement in respect of windmill installed at Ahmednagar, Maharashtra. The Assessing Officer further observed that the sales tax entitlement is an incentive which is calculated on the basis of investment made in the project which in this case is 1/6th of the eligible investment. The source of sales tax entitlement lies in the scheme formed by the Maharashtra State Government. Hence, it is not profit derived by the Industrial Undertaking and thus, not eligible for deduction u/s.80IA of the I.T. Act. For this, the Assessing Officer placed the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India Limited vs CIT 183 Taxman 349(SC).
6.3 Further, the Assessing Officer observed that for calculating the amount of deduction u/s.80IA, the provision of section 80IA(5) has to be applied and thereby unabsorbed business losses and depreciation of earlier year in respect of windmills has to be considered by treating it as the only unit existing from the year of installation, notwithstanding with the fact that unabsorbed business loss and depreciation was set off in the earlier year against the profit of other units. The Assessing Officer observed that the windmill at Ahmednagar Maharashtra was installed and commenced operations in AY.2002-03 and unabsorbed depreciation / business loss of this unit in isolation comes to Rs.3,53,59,339/- up to A.Y.2007-08. Similarly, windmill at Jodha Rajasthan was installed /commenced production in A.Y.2004-05 and the unabsorbed depreciation /business loss carried forward till A.Y.2007-08 comes to Rs.2,88,81,178/-, and windmill at Chitra Durga Karnataka was installed in A.Y.2005-06 up to A.Y.2007-08 the unabsorbed depreciation / business loss comes to Rs.4,20,00,983/- and there remains no business profit as per the working given in the Annexure to the assessment order. By applying the provisions of section 80IA(5) and setting off with the business loss and unabsorbed depreciation of earlier year beginning from the year of installation of the windmill, the Assessing Officer has held that by doing this, there remains no profit from the windmill units. For this, the Assessing Officer has relied on the decision of Hon'ble ITAT Special Bench Ahmedabad in the case of ACIT vs Goldmine Shares & Finance Pvt Ltd. 113 ITD 209/Ahd(SB) ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.-7-
whereon it was held that, in view of specific provisions of section 80IA(5), profits from the eligible business for the purposes of determination of quantum of deduction u/s.80IA, has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against other income in earlier years. Hence, deduction u/s.80IA is nil. Accordingly, the claim of deduction u/s.80IA for Rs.92,41,888/-, Rs.63,69,121/- and Rs.2,48,928/- respectively was disallowed.
6.4 The appellant has submitted that the profit on sale of sales tax exemption and entitlement is derived from the Industrial Undertaking being the windmill and on this u/s.80IA is allowable. The decision of Hon'ble Supreme Court in the case of Liberty India Limited was in respect of profit received from DEPB and Duty Draw Back Scheme and it was held that such profit cannot be treated as having been derived from the eigible industrial undertaking. It was further submitted that liberal interpretation should be made of the benefiting sections so that the assessee can claim and avail various deductions given to him.
6.5 Regarding the application of the provision of section 80IA(5), the appellant has submitted that the initial assessment year shall be the assessment year falling within a period of 15 years beginning from the year in which the industrial undertaking commences operation, for which for the first time, the deduction u/s.80IA of the Act is claimed by the assessee, and not the assessment year relevant to the previous year in which the industrial undertaking commences operation. The appellant first time claimed deduction in A.Y.2004-05 for the unit Ahmednagar Maharashtra, in A.Y.2006-07 for Rajasthan windmill and in A.Y.2007-08 for Karnataka windmill, which becomes the initial year. The losses and depreciation of the years earlier to the initial assessment year (i.e. A.Y.2004-05, 2006-07 & 2007-08 respectively), which have already been absorbed against the profits of the other business, cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction u/s.80IA of the Act. For this, the appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad). It was further submitted that the decision of Hon'ble Ahmedabad ITAT in the case of ACIT vs Goldmine Shares & Finance P. Ltd. 116 TTJ (Ahd)(SB), is not applicable as that decision was delivered before the amendment to the section by Finance Act, 1999. Before the amendment, initial assessment year was defined in the Act but after the amendment, there is no ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.-8-
definition for initial assessment year in the Act and there is option to the assessee in selecting the year for claiming relief u/s.80IA of the Act.
6.6 I have considered the facts and the submissions. I do not agree with the appellant's views. The sales tax exemption entitlement are the incentives given by the Maharashtra Government on the investment made by the assessee for installation of windmill and is calculated on the investment which in this case is 1/6th of the investment. It is not based on the turnover or the profit of the unit. The source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon'ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to the facts of the present case. In this case, the source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. Hence, by following the decision of Hon'ble Supreme Court, it is held that the Assessing Officer was justified in holding that the profit on sale of sales tax exemption entitlement, is not derived from the industrial undertaking and thus, not eligible for deduction u/s.80IA of the Act.
7. Regarding application of section 80IA(5), the section reads as under:
"(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-section (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 up to and including the assessment year for which the determination is to be made."
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
-9-7.1 The Hon'ble ITAT Ahmedabad Special Bench in the case of ACIT vs Goldmine Shares and Finance Pvt. Ltd. has held that "section 80IA(5) deems that, for the purposes of determining the quantum of deduction, the eligible business as the only source of income of the assessee during the initial assessment year as well as subsequent years and has an over riding effect on all other provisions of the Act", (para 23) "Section 80IA(5) bids one to treat the eligible business as the only source of income of an undertaking as real, which is an imaginary state of affairs. One must surely (imagine) as also real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flown from or accompanied it i.e., there was no other source of income of the assessee. The statute says that you must imagine a certain state of affairs (eligible business being the only source); it does sot say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of the state of affairs, that there are other sources and that against those sources the unabsorbed depreciation or losses of eligible business were set off", (para 30) "It is implicit from the tenor and phraseology implied in section 80IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the ineligible business which could not be set off against the loss of the eligible business itself has to be carried forward or set off of the profits of the very source of ineligible business in the subsequent year", (para 31) The words "as if such eligible business were the only source of income of the assessee" compel us to assume that the assessee is not having any other source of income except that which is eligible to deduction u/s.80IA which in this case is the units/undertaking, the units of the windmill generating electricity for the assessee. As per the wording of the sub section (5) of section 80IA, for the purposes of computation of the deduction, ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 10 -
it has to be assumed that the only source of income of the assessee is the eligible business. The income or loss of this business alone is to be considered as if that were the only source. This means neither the income of the undertaking nor the loss thereof can be set off or carried forward and set off or adjusted against any other source of income or loss. As a corollary, the income or the loss of the other business or source cannot be considered or set off for determining the quantum of the deduction of the eligible business". Para 33) 7.2 Thus, it is evident that for calculating the deduction u/s.80IA, we have to treat that the appellant is having only the eligible business i.e. the windmill, as the only source of income and has no other business activity. Hence, the unabsorbed depreciation and business loss from the date of installation and running of windmill has to be taken into consideration and set off against this year's income. There is no justification for treating it as being set off with other business in earlier years, even if this was actually set off with the other income.
7.3 The submission of the appellant that initial assessment year has to be taken as the year in which the appellant first claimed deduction u/s.80IA and not the year of installation, is not acceptable. The appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad), wherein the Hon'ble High Court has held that the initial assessment year means the year when first time the assessee opted for the deduction u/s.80IA and not the year of setting up/commencement of the business of the unit, because the initial year has not been defined in the Act and thus, liberal interpretation has to be made for the term 'initial assessment year' so that the appellant is allowed possible benefits given by the Act. With due respect to the Hon'ble Court, it is submitted that when any term is not defined and interpretation is to be made, the point of equity has also to be taken into consideration and it should not lead to discrimination among various assesees. If we take the initial year as not the year of installation/commencement but the year of first claim opted for, it will be disadvantageous to those assessees who do not have any other source of income, other than the eligible business.
The following example will illustrate this point - The assessee "A" has started windmill in A.Y.2002-03 and had loss of Rs.2,50,22,495/- in 2002-03 & Rs. 1,50,13,463/-- in A.Y.2003-04 which was set off with other income. When the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 11 -
assessee claims deduction u/s.80IA for A.Y.2004-05, for the profit earned from windmill, he will get the deduction as per this interpretation.
However, if another person "B" has installed same windmill in A.Y.2002-03 and incurred the same loss from windmill in A.Ys.2002-03 & 2003-04, and does not have any other business having profit to set off with this loss, he will not have benefit of deduction u/s.80IA for same amount of profit earned in A.Y.2004-05. This will lead to discrimination.
The logical and equitable interpretation warrants that initial assessment year has to be taken as the year of installation/commencement of business and not the year when the claim is made for the first time. If this interpretation is taken, then the same treatment will be met out for both the assesses in the above example.
7.4 Further, the deduction u/s.80IA is allowed to an undertaking or an enterprise or an eligible business and not to an assessee. Hence, for allowing deduction u/s.80IA, only the windmill unit has to be considered separately ignoring the other businesses.
7.5 The amendment in section 80IA by Finance Act, 1999, has not made any material change on this point. The new section 80IA(2) is only in respect of period for claim of deduction u/s.80IA of the Act. Earlier it was from ten years beginning from the year of installation/commencement of business of eligible unit. Now, it has been spread and the assessee can opt and claim the deduction for ten years out of 15 years starting from the year of installation to fifteen years therefrom. This benefit was given so that the assessee can claim the deduction even if the break-even point is reached after five or even after ten years. Thus, intention was only to make the assessee eligible for claiming deduction even if the unit requires much more time to achieve the break-even point. However, there is no indication that the initial year should not be taken as year of installation/commencement but the year when the first time the assessee opts for deduction u/s.80IA of the I.T. Act. Even otherwise, the plain meaning of the word 'initial year' means the year of installation/commencement of business of the eligible unit.
7.6 Therefore, in my humble opinion, even after the amendment in section 80IA by Finance Act 1999, the Special Bench decision in the case of ACIT vs Goldmine Shares & Finance Pvt. Ltd.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 12 -
(supra), will remain applicable without any change in the situation, and the initial year has to be taken as the year of installation / commencement of the business of eligible windmill units.
7.7 In view of this, it is held that the Assessing Officer was justified in disallowing the claim of the deduction u/s.80IA of the Act which is upheld and the appellant's ground is rejected."
8. Learned AR submitted that the issue regarding the initial year for deduction u/s. 80IA was decided in favour of the assessee by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT, (2012), 340 ITR 477, wherein the Hon'ble High Court after considering the amendment made by the Finance Act, 1999, w.e.f. 1.4.2000 and also considering the amended Section 80IA on para 16 of page 489 of the order concluded that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate was provided u/s.80IA(5). He further placed reliance on the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steels and Malleables vs. ACIT, (2010), 6 taxmann.com 47 (Chennai) and submitted that the Tribunal after considering the decision of the Special Bench of the Tribunal in the case of ACIT vs. Goldmine Shares and Finance (P.) Ltd., (2008), 113 ITD 209 (Ahd) (SB), arrived at the conclusion that sub section (5) would come into operation only in the year in which the assessee started claiming deduction u/s.80IA, i.e., from the initial year and depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. It was held that the decision of the Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra) would apply to the 10 consecutive years starting from the initial year in which the assessee exercises its option to avail the deduction u/s. 80IA.
9. On the other hand, learned DR relied on the decision of Ahmedabad Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) and submitted that Section 80IA(5) would apply and the losses of the earlier years were to be brought forward notionally and adjusted against the profit of the initial year of the assessee from eligible business as if this was the only business carried on by the assessee. It was the argument of the learned DR that the decision of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) was not a good law because the Hyderabad Bench of the Tribunal in the case of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 13 -
Hyderabad Chemicals Supplies Ltd. vs ACIT, (2012) 20 taxmann. com 289 (Hyd) held that the judgment of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) though not of the jurisdictional High Court prevail over order of the Special Bench even though the jurisdictional Bench of the Tribunal. However, where the judgment of non Jurisdictional High Court, though the only judgment on the point has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed. In our opinion, judgment of Special Bench in the case of Goldmine Shares and Finance (P.) Ltd (supra) was squarely applicable to the assessee and following the same we are inclined to decide the issue against the assessee relating to the allowability of deduction u/s.80IA that in terms of the provisions u/s.80IA(5) of the IT Act the profit from the eligible business for the purpose of determination of quantum of deduction u/s. 80IA has to be computed after deduction of the notional brought forward losses and depreciation of the eligible business even though they have been allowed set off against other income in earlier years.
10. In the rejoinder, the learned AR for the assessee submitted before the amendment made by the Finance Act, 1999 to Section 80IA, the initial year of deduction was defined in Section 80IA(2)(iv)(b) as the year in which the eligible undertaking begins to generate power any time during the year beginning on the 1st day of April, 1999 and ending on 31st day of March, 2000. He submitted that by the Finance Act, 1999 the original Section 80IA was split into two Sections i.e., Section 80IA and Section 80IB. He submitted that in the amended Section 80IA sub section (2) provides that the deduction specified in sub section (1) may at the option of the assessee be claimed by him for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking generate powers or commence transmission or distribution of power. Thus, his submission was that the initial year of deduction was left to the option of the assessee and the assessee could claim deduction for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking begins to generate power. He further submitted that in the amended Section 80IA there was no provision as originally existed u/s. 80IA(5) of the Act. He submitted that in Section 80IB (13) it has been provided that provision contained in sub section (5) of Section 80IA so far as may be applied to eligible business undertaking of that section.
11. Learned AR also relied upon the decision of Hon'ble Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. Vs. ACIT (2009) 116 ITD 241 (Chennai). He also relied upon the decision of the Chennai Bench of the Tribunal in the case of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 14 -
Rangamma Steel & Malleables Vs. ACIT, 132 TTJ 365 (Chennai). He further relied upon the decision of the Bangalooru Bench of the Tribunal in the case of Anil H. Lad Vs. DCIT, (2012), 25 taxmann.com 454 (Bang). He further relied upon the decision of Mumbai Bench of the Tribunal in the case of Shevie Exports Vs. JCIT, 33 taxmann.com 446 (Mum).
12. Learned DR also relied on the decision of Ahmedabad Bench (3rd Member) in the case of Kanel Oil and Export Industries Ltd. vs. JCIT (2009) 121 ITD 596 (Ahd) (TN) and submitted that it has been held that judgment of the non Jurisdictional High Court though the only the judgment on the point has been rendered was not binding on the Tribunal and therefore, it was the submission of the learned DR that following the decision of the Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) the issue should be decided in favour of the assessee.
13. Learned AR of the assessee countered the argument of the learned DR by pointing out that in the decision of the 3rd Member of the Ahmedabad Bench of the Tribunal in the case of Kanel Oil and Export Industries Ltd. (supra), it was held that where the judgment of the non Jurisdictional High Court though the only judgment on the point had been rendered without having been informed about certain statutory provisions which are directly relevant, the judgment rendered without noticing a previous binding precedent or a relevant statutory rule was "per incuriam", and therefore, was not binding on the Tribunal. He submitted that the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra) had considered the amended provisions of Section 80IA of the Act while rendering the decision and it was the only decision of the High Court. No contrary decision has been cited by the learned DR and therefore respectfully following the same the issue should be decided in favour of the assessee.
14. Learned AR further argued that amount received on sale of sales tax entitlement was capital receipt, therefore, was not liable to tax. For this he placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Birla VXL Ltd. (2013) 32 Taxmann.com 330 Gujarat and submitted that the Hon'ble Gujarat High Court after considering the scheme of sales tax entitlement held that from the provisions of the said scheme it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted such subsidy was available only to a new industrial unit or a unit undertaking expansion or ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 15 -
diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to per centage of various capital investments. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once a commercial production commences. However this by itself would not be either a sole or concluding factor. In the case of Sahany Steel Press working Ltd. and Others vs. CIT reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hand of the recipients whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of trade. He referred to pages 4 to 13 of the paper book no.2 and pointed out there from that it contains eligibility certificate for sales tax incentive wherein it is stated that the total project cost was Rs.5 crores and that sales tax benefit for the year 2006-07 was 1/6 of eligible investment which was Rs.83,33,33/- Thus it was his submission that the sales tax entitlement was given for setting up of the windmill farm project by the assessee for a period of six year, and therefore, the decision of the Hon'ble Gujarat High Court was applicable to the assessee and hence, the receipt was a capital receipt not liable to tax as held by the Hon'ble High Court.
15. On the other hand, the learned Department Representative submitted that the Hon'ble Gujarat High Court was considering the sales tax deferment scheme of the Government of Gujarat whereas in the case of the assessee the eligible unit was in the State of Maharastra, and therefore, the decision of Hon'ble Gujarat High Court rendered in the case of Birla VXL Ltd. (supra) would not apply to the assessee. The other argument of the learned Departmental Representative was that since the assessee had sold the sales tax entitlement, therefore, the assessee would not be eligible to claim the same as capital receipt not liable to tax.
16. In the rejoinder, the learned AR argued that the scheme in the case of the assessee of sales tax deferment was exactly the same as that of Gujarat Government and the Revenue has placed no material on record to show any distinguishing factors in the same. He submitted that merely because the assessee sold the sales tax incentive which is a capital asset as held by the Hon'ble Gujarat High ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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Court in the case of Birla VXL Ltd. cannot be a ground to treat the receipt as revenue.
17. We have heard the rival submissions and perused the order of the lower authorities and material available on record. In the case of Jivraj Tea Ltd., the assessee claimed deduction u/s. 80IA(4) of the Act on 100% profit derived from generation of electricity from windmill situated at Ahmednagar Maharashtra, Jodha Rajasthan and Chitradurga Karnataka. The Assessing Officer observing that since the assessee had carried forward losses of earlier years, therefore, the assessee was not entitled to deduction u/s.80IA(4) as after the adjustment of the brought forward losses there was no positive profit for allowing deduction u/s. 80IA. The same was confirmed in appeal by the learned CIT(A). The case of the Revenue is that in view of the decision of the Special Bench of the Tribunal rendered in the case of Goldmine Shares and Private Limited (supra) brought forward losses and depreciation of earlier years has to be deducted from the profits of the years under consideration before allowing deduction u/s. 80IA of the Act. On the other hand, the contention of the AR of the assessee is that after the amendment made by the Finance Act, 1999 in Section 80IA whereby u/s. 80IA(2) the assessee has the option to choose the initial year for claiming the deduction u/s. 80IA for 10 consecutive years within 15 consecutive years from the date of the commencement of the eligible unit. By placing reliance on the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) it was the submission of the learned DR that once the assessee selects the initial year for claiming deduction under section 80 IA (4) then the earlier years brought forward losses and depreciations need not be adjusted against the profits of initial year from the eligible unit for allowing deduction under section 80IA to the assessee. The provisions of section 80 IA (5) shall apply for the years after the initial year for computing the deduction allowable to the assessee under section 80IA of the Act.
18. We find force in the submission of the learned AR of the assessee. We also find that it is an undisputed fact that in all the appeals under consideration the initial year chosen by the assessee for claiming deduction is after 1-4-2000 when the amended provision of section 80IA was applicable.
19. Section 80IA, which has been substituted w.e.f. 1st April 2000, provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub-section 4, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the deduction of an amount equal to 100% of the profits and gains ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 17 -
derived from such business for 10 consecutive years. Substituted sub- section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive assessment year out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provision of sub-section (5) of section 80IA, reads as under:-
"(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-section (1) apply shall, for the purposes of determining 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 up to and including the assessment year for which the determination is to be made."
20. From a plain reading of the above, it can be gathered that it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under Section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of Section 80IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 18 -
section 80IA can be determined. This is the true import of section 80IA(5).
21. In the decision of Goldmine Shares and Finance Pvt. Ltd. (supra), decided by the Special Bench of the Tribunal, the claim of deduction by the assessee had started from assessment year 1996-97 onwards and the assessee had claimed deduction under section 80IA starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) after considering the Special Bench decision of the Tribunal in Goldmine Shares And Finance Pvt. Ltd. (supra) and relevant provisions of the Act i.e., pre amendment and post amendment have come to the same conclusion:-
"From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
22. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 8o-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-s. (6) of s. 8o-I, which is the corresponding provision of sub-s. (5) of s. 80- ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 19 -
IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of CIT vs. Mewar Oil &.General Mills Ltd. (2004) 186 CTR (Raj) 141: (2004) 271ITR 311 (Raj), the Rajasthan High Court also considered the scope of s. 80-I and held as follows:-
"Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr, 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the CIT(A), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under s.80-I for the purpose of computing admissible deductions thereunder.
23. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s. 8o-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under s. 8o-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs."
24. From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view."
25. This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTK 262 (Mad.).
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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From the above, ratio of the High Court, it is amply clear that sub- section (5) of section 8oIA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2).
26. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995- 96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial assessment year would be applicable i.e., provisions which were prior to 1st April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgment of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligible business was set-off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and has been set-off against the non- eligible unit after the initial assessment year, then the ratio laid down by the Tribunal is in full consonance with the law. However, this is not the case in the instant case because the loss pertained to prior to initial assessment year which have been set-off against the profits of non-eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2008-09 only and, therefore, the loss of assessment year 2007-08 cannot be notionally carried forward within the meaning of section 80IA(5). Thus, the reliance placed by the learned Departmental Representative on the decision of Pidilite Industries (supra), will not be applicable in the present case.
27. The other decision heavily relied upon by the learned Departmental Representative in Hyderabad Chemical Supplies Ltd. (supra) will also not apply to the facts of the present case, as in that case, the wind mill started its operation on 3ist March 1999 and the first year of operation was assessment year 1999-2000. Thus, in the assessment year 1999-2000, the definition of "initial assessment year"
was already there in the Act and there was no provision through which the assessee could have chosen its initial assessment year. This provision was brought in statute w.e.f. ist April 2000, by virtue of section 8oIA. Thus, this decision also will not help the case of the M/s. Shevie Exports Department. In asseessee's case, as specifically stated ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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in the foregoing paragraphs, the assessee's claim for initial assessment year i.e., assessment year 2008-09 and its claim for deduction under section 80A made for the first time from assessment year 2008-09, has not been disputed. Thus, the aforesaid judgment relied upon by the learned Departmental Representative will not be applicable to the facts of the present case.
28. We reiterate in the instant case, it is not in dispute that the initial Assessment Year in the case of Jivraj Tea & Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007-08 and it is also not in dispute that the assessee has not suffered any loss in the said year, therefore, in our considered opinion no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act. We, therefore, set aside the orders of the lower authorities on this issue and allow the ground of appeal of the assessee."
11. Facts being identical, respectfully following the precedent, we set aside the order of lower authorities on this issue and allow the ground Nos.2, 3 & 4 of the appeal.
12. The Ground No.5 of the appeal is directed against the order of ld. CIT(A) confirming the disallowance out of various expenses u/s 14A of the Act, amounting to Rs.1,62,460/-.
13. The brief facts of the case are that the Assessing Officer observed that the assessee has shown exempted dividend income of Rs.900/- during the year under consideration. No expenditure in relation to the investments made to earn exempt income has been shown. The assessee was asked to furnish the details of expenditure incurred in relation to the investments made to earn the exempt income. The assessee stated that no expenditure has been incurred to earn the exempt income. The Assessing Officer held that the explanation of the assessee is not acceptable. It is not possible to earn any income (exempt or non-exempt) without incurring certain expenditures. The Assessing Officer further observed that sub-section (1) of Section 14A of the Income-tax Act envisages that for the purpose of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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computing total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of total income. The assessee has not shown any expenditure in relation to the investments made to earn the exempt income and also not proved nexus of investment made out of own fund, expenditure attributable to exempt income is required to be ascertained on proportionate basis. He thereafter applied Rule 8D of the Income-tax Rules, 1962 and computed the expenditure in relation to the investments made to earn the exempt income on account of interest at Rs.1,49,710/- and administrative expenses for such investments attributable to earn the exempt income at Rs.12,750/-, thereby he made a total disallowance u/s 14A of Rs.1,62,460/-.
14. On appeal, the ld. CIT(A) confirmed the action of the Assessing Officer observing that in the case of Shankar Chemical Works reported in 27 SOT 121 (AHD) 2011, the Ahmedabad Bench of the Tribunal has held that disallowance of interest u/s 14A can be made even if there is no dividend income or only meager of dividend income is received. Therefore, he rejected the assessee's arguments on the meager dividend amount.
15. As regards the submissions of the assessee that the Assessing Officer has worked out average investments, income from which is exempt, at Rs.25,49,834/-; closing balance of such investments is worked out at Rs.50,99,668/-. Thus, the ld. CIT(A) observed that the Assessing Officer rejected the claim of the assessee that no expenditure was incurred for these investments. He observed that it is not possible to segregate borrowed funds in case of common hotch pot of funds as in the case of assessee. Hence, he rejected the claim of the assessee.
16. Before us, the AR of the assessee submitted that the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. CIT (2010) 328 ITR 81 (BOM) has held that unless the claim of the assessee to the effect ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 23 -
that for the purpose of earning particular exempt income, the assessee has not incurred any expenditure is proved to be incorrect on the basis of examination of books of accounts and records, the calculation of amount disallowable u/s 14A of the Act on the application of Rule 8D is invalid, illegal and liable to be quashed and deleted.
17. Further, he pointed out from the copies of accounts placed at page No.186 of the paper-book that the share capital and free reserves of the assessee are Rs.17,86,69,501/- and the investments at the end of the year are at Rs.1,26,00,538/- only. It was his submission that the Hon'ble Gujarat High Court in the case of CIT v. Torrent Power Ltd., reported in 222 Taxman 367 (Gujarat), has held that where the assessee had sufficient funds for making investments and it had not used borrowed funds for such purposes, the Tribunal was justified in deleting the disallowance of interest expenditure. He also relied upon the decision of Hon'ble Gujarat High Court in the case of CIT v. Hitachi Home and Life Solutions (I) Ltd., reported in 221 Taxman 109 (Gujarat)(MAG.), wherein it was held that where assessee's interest free funds far exceeded investments made for earning exempted dividend income, and Assessing Officer had also failed to establish nexus between borrowed funds and investments made, no disallowance could be made under section 14A.
18. Thus, it was the submission of ld. AR of the assessee that no disallowance of interest can be made in view of the above decisions of the Hon'ble jurisdictional High Court. As regards the disallowance of administrative expenses of Rs.12,750/-, he did not make any serious arguments.
19. On the other hand, ld. Departmental Representative supported the orders of the lower authorities.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 24 -
20. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the assessee received exempt dividend income of Rs.900/-. The Assessing Officer was of the opinion that expenditure incurred for earning the exempt dividend income was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A computed expenditure attributable to the earning of exempt dividend income under Rule 8D of the Income-tax Rules and made disallowance for interest expenditure of Rs.1,49,710/- and administrative expenses of Rs.12,750/-. The assessee unsuccessfully appealed before the CIT(A). The contention of the assessee is that the interest free funds available with the assessee in the form of share capital and free reserves as on the date of balance-sheet was Rs.17,86,69,501/- and the investments at the end of the year was at Rs.1,26,00,538/- only. Therefore, in view of the decision of the Hon'ble Gujarat High Court in the case of Hitachi Home and Life Solutions (I) Ltd. (supra) and Torrent Power Ltd. (Supra), no disallowance towards interest expenditure incurred for earning exempt income can be made. Regarding the disallowance of administrative expenses of Rs.12,750/-, we find that the Chandigarh Bench of the Tribunal in the case of A.C.I.T. Vs. Punjab State Coop & Marketing Fed. Ltd. in ITA No. ITA No.548/Chd/2011 for AY 2007- 08 has held that disallowance u/s. 14A read with Rule 8D cannot exceed the exempt dividend income. Therefore, we restrict the disallowance of administrative expenses to Rs.900/- only, being the exempt dividend income earned by the assessee. Thus, this ground of appeal of the assessee is partly allowed.
ITA No.982/Ahd/2012 : AY 2008-09 : Revenue's Appeal21. The only ground of the appeal taken by the Revenue is that the ld. CIT(A) erred in deleting the addition made on account of disallowance u/s 40A(2)(a) of the Act of Rs.7,58,17,023/-.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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22. The brief facts of the case are that the Assessing Officer observed that the assessee-company purchased tea from various outside parties at an average rate of 103.56/kg, whereas from related parties at an average rate of 127.67/kg. Therefore, the Assessing Officer made disallowance u/s 40A(2)(b) of the Income-tax Act of the difference amount of Rs.24.11/kg on account of tea purchased which worked out to Rs.7,56,73,020 (31,38,657kg x Rs.24.11).
23. On appeal before the CIT(A), the assessee submitted that the similar addition made in the AY 2007-08 was deleted by the CIT(A) vide order dated 01.09.2010 by relying on the decision of the Tribunal in the case of assessee itself in ITA No.3007/AHD/2008-09 dated 26.03.2010, for AY 2006-07.
24. The CIT(A), following the decision of the Tribunal in the case of the assessee itself for the AY 2006-07, deleted the addition made by it.
25. The DR relied on the order of the Assessing Officer, whereas the AR supported the order of the CIT(A).
26. We have heard the rival submission and perused the orders of the lower authorities and the material available on record. The Assessing Officer found that the assessee has purchased tea from outside parties at an average rate of 103.56/kg, whereas tea was purchased from related parties at an average rate of 127.67/kg. Therefore, the Assessing Officer added the difference amount of Rs.24.11/kg paid by the assessee to related parties which worked out to Rs.7,56,73,020 (31,38,657kg x Rs.24.11) to the income of the assessee. The CIT(A) deleted the addition by following the order of the Tribunal in the case of assessee's own case for AY 2006-07. The ld. Departmental Representative could not point out any specific error in the order of ld. CIT(A). He also could not bring any material on record to show ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
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that the order of the Tribunal for AY 2006-07 was varied in appeal by any High Forum. Therefore, we confirm the order of the learned CIT(A) and dismiss the ground of the Revenue.
ITA No.1994/Ahd/2012 : AY 2009-10 : Assessee's Appeal27. Ground No.1 of the appeal is directed against the order of ld. CIT(A) confirming the disallowance u/s 40A(2)(b) of Rs.6,52,49,095/- paid to sister concerns.
28. The brief facts of the case are that the Assessing Officer has made a total disallowance of Rs.6,52,49,095/- u/s 40A(2)(a) of the I.T. Act in respect of purchases made from the following associate concern.
Name of the Party Total purchase amount
M/s Surin Corporation Rs.35,46,26,295/-
The Assessing Officer made a comparison of the average purchases price of Rs.117.93 per kg in respect of outside parties and average rate of Rs.144.52 per kg from the above related party. After making the above comparison, the Assessing Officer held that the price of Rs.117.93 per kg is reasonable, having regard to the fair market value of the goods, and disallowed the remaining amount.
29. On appeal before the ld. CIT(A), the assessee contended that the similar addition made in the AY 2007-08 was deleted by CIT(A) vide order dated 01.09.2010 by relying on the decision of the Tribunal in ITA No.3007/AHD/2008-09 dated 26.03.2010 for AY 2006-07 in assessee's own case and the order of CIT(A) for AY 2007-08. The assessee further submitted that the CIT had also allowed the appeal of the assessee on similar ground for AY 2008-09 vide Order No.CAS/I/266/2010-11 dt. 14.02.2012. Other contention of the assessee are same in AY 2008-09 i.e. ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 27 -
the quality of tea is different in cases of purchases from related concern and that purchased from unrelated concerns. He also submitted that M/s. Surin Corporation has a taxable income of Rs.66,48,590/- before partner's interest and remuneration for AY 2009-10 and maximum rate of tax for firm, Companies and individuals is same i.e. 30% leading to no tax advantage by shifting income from one entity to another. The assessee further submitted that gross profit, rate of 12.69% shown by the assessee is reasonable and after considering the disallowance of Rs.6,52,49,095/- the Gross Profit will become 19.93% on sales of Rs.90,13,60,187/- while the net profit will increase to 11.96% from 4.72%. Such Gross Profit and Net Profit rates are unreasonably high considering the fact that presumptive profit rate of 8% has been provide for turnover of less than Rs.60 lakhs. The further argument of the assessee is that for purchases from other parties transportation cost is also incurred by the assessee leading to lower purchase price.
30. The ld. CIT(A), after considering the submissions of the assessee, decided the issue against the assessee by confirming the addition made by the Assessing Officer, as observed by him in paragraphs 6.3 to 7 of the appellate order which read as under:-
"6.3.1 The first contention of the appellant is that this ground of appeal is covered by the decision of Hon'ble ITAT for AY 2006-07 and the Order of the CIT(A)-I for AYs 2007-08 and 2008-09. As regards these, three Asstt. Years, the additions in those orders were made u/s 40A(2)(a) / 40A(2)(b) of the I.T. Act by comparing the average purchase price for the entire year by dividing the total purchase value by the total quantity of Tea purchased from associate concern and from outside parties.
6.3.2 On comparison of average price as above, it was found that average purchase price from associate concerns was much higher than the average purchase price from outside parties. The Assessing Officer in those three years made an addition solely relying on the basis of yearly average purchase price. The Hon'ble ITAT in the AY ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 28 -
2006-07 held that addition cannot be made by simply comparing average purchase price of the entire year.
6.3.3 Following the order of the ITAT for AY 2006-07, the CIT(A)1, Surat deleted the addition in AY 2007-08 and 2008-09 as in these two years also the basis of addition was comparison of yearly average price. However, in the present Astt Year a new fact has emerged. It is not just that appellant's average purchase price from associate concern is higher than the average purchase price from other parties, the AO also noticed that the sale price to associate concern is lower than the sale price to other parties. If appellant's explanation regarding variation in the quality of tea is accepted, it leads to a peculiar situation wherein appellant always purchases high quality tea from its associate concerns, while low quality tea is purchased from outsider parties. On the other hand, the appellant always makes sales of high quality tea to outsider parties and low quality of tea to its associates concern.
6.3.4 In view of this particular fact, which did not exist or was not examined in earlier years, the facts in AY 2009-10 are different from AY 2006-07, 2007-08 and 2008-09. Moreover, the addition u/s 40A(2)(a)/40A(2)(b) are additions made on the basis of facts of a particular year and whether the expenditure is excessive or unreasonable is to be examined, having regard to a fair market value of the goods and legitimate needs of the business or profession of the appellant in that particular year. Therefore, appellant was asked to furnish weekly average purchase price from sister concern and from outside parties in order to have a closer look at the issue. In response, the appellant furnished the following chart vide its letter dated 25.05.2012.
Week Outside Parties (H.O.) Sister Concern
No. Value Qty Avg Value Qty Avg
- Rs. Kgs. Price Rs. Kgs. Price
1 1035979 8581 120.73 4593158 34921 131.53
2 1632772 12718 128.39 13985314 105925 132.03
3 785484 6695 11732 15372331 116667 131.76
4 1713929 14361 11935 18477167 142114 130.02
5 2382721 20439 11658 8553065 62854 136.08
6 2965457 25632 11569 8165047 63287 129.02
7 4632539 42601 10873 4021314 30559 131.59
8 969134 8625 11352 2695475 20315 132.68
9 774481 6679 11596 10485194 75342 139.17
10 3021325 25322 11932 11317938 80215 141.10
11 7738280 67643 114.40 12269774 87457 140.29
12 4025617 34073 118.15 16376499 114.842 142.60
13 9148530 77230 118.46 23351207 163.785 142.57
14 5426480 45063 120.42 31159596 219,774 141.78
15 10964183 91021 120.46 30737031 218.433 140.72
16 17511098 144500 121.18 22924847 164.503 139.36
17 15413768 129060 119.43 2046740 15440 132.56
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 29 -
18 8221374 67130 122.47 20194749 143113 141,11
19 4660622 41183 113.17 0 0 0
20 5798455 51608 112.36 3917622 27374 143.11
21 11941476 100719 118.56 4740780 34980 135.53
22 5894795 47618 123.79 8226699 60177 136.71
23 7825457 64844 120.68 14183307 102820 137.94
24 6557093 53667 122.121 5491292 40819 134.53
25 11822305 96746 1220.20 3474873 26795 129.68
26 9014002 62578 124.20 4348522 34245 126.98
27 14913750 119547 124.75 6911138 53538 129.09
28 12143636 91670 132.34 865511 6300 137.38
29 6847303 54999 124.50 2435939 18280 133.26
30 16560685 129388 127.99 513911 3860 133.14
31 5875116 43372 135.46 0 0 0
32 7991967 60342 132.44 2388800 16360 146.01
33 7511659 56135 133.82 629850 4900 128.54
34 9086499 67989 133.65 164640 1120 147.00
35 9448696 69680 135.60 4096285 29502 138.85
36 14344702 108006 132.81 4120626 29314 140.57
37 16039041 118456 135.40 1025691 7460 136.50
38 9543872 70769 134.86 2564151 18785 136.50
39 8610059 64544 133.40 752181 5720 131.50
40 12704368 95056 133.65 2416013 17699 136.51
41 8489635 62974 134.81 0 0 0
42 0 0 0 0 0 0
43 12292953 99369 123.71 18894438 14976 126.50
44 4875267 36320 134.23 0 0 0
45 5109647 41409 123.40 0 0 0
46 4905149 41660 117.74 0 0 0
47 3897058 29304 132.99 0 0 0
48 8893447 76579 116.14 0 0 0
49 15863348 150493 105.51 0 0 0
50 3544978 32872 107.84 382052 1828 209.00
51 962944 8576 112.29 530660 3380 157.00
52 1399990 10730 130.45 3372355 21469 157.08
38,37,43,154 30,96,663 33,79,88,789 24,55,593
Note :
Sr. No. Particulars Qty Rs.
(1) Details Pertaining to Head Office
- Outside parties 3,096,663 383,743,154
- Sister Concern 2,455,593 337,988,789
(2) Details Pertaining to Mumbai
Branch where no purchases 50,326 4,598,459
made from Sister Concern
(3) Details Pertaining to Export
Division where no purchases 112,599 12,889,074
made from Sister Concern
Total 5,715,181 739,219,476
WEEKLY AVERAGE PURCHASE PRICE
WEEK OUTSIDE SISTER
NO PARTIES CONCERN
1 120.73 131.53
2 128.39 132.03
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 30 -
3 117.32 131.76
4 119.35 130.02
5 116.58 136.08
6 115.69 129.02
7 108.73 131.59
8 113.52 132.68
9 115.96 139.17
10 119.32 141.10
11 114.40 140.29
12 118.15 142.60
13 118.46 142.57
14 120.42 141.78
15 120.46 140.72
16 121.18 139.36
17 119.43 132.56
18 122.47 141.11
19 113.17 0.00
20 112.36 143.11
21 118.56 135.53
22 123.79 136.71
23 120.68 137.94
24 122.21 134.53
25 122.20 129.68
26 124.20 123.98
27 124.75 129.09
28 132.34 137.38
29 124.50 133.26
30 127.99 133.14
31 135.46 0.00
32 132.44 146.01
33 133.81 128.54
34 133.65 147.00
35 135.60 138.85
36 132.81 140.57
37 135.40 137.49
38 134.86 136.50
39 133.40 131.50
40 133.65 136.51
41 134.81 0.00
42 0.00 126.50
43 123.71 126.50
44 134.23 0.00
45 123.40 0.00
46 117.74 0.00
47 132.99 0.00
48 116.14 0.00
49 105.51 0.00
50 107.84 209.00
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 31 -
51 112.29 157.00
52 130.45 157.08
6.3.5 From a perusal of the above chart, it is apparent that the
average purchase price from associate concern is consistently higher than average purchase price of outside parties even on a weekly basis, except in Week No.33 and Week No.39. Since week is a very small sample, as compared to the entire year, the principle laid down by the Hon'ble ITAT in AY 2006-07 that mere comparison of the yearly average purchase price cannot be a basis for addition does not apply to the present appeal i.e. AY 2009-10.
6.3.6 Considering the turnover and the scale of operations of the appellant, the weekly average purchase price pattern is more appropriate. The effect of fluctuations in the tea price, for reasons other than the quality of tea purchased, do not affect the weekly average price, as these factors including market conditions do not vary much during such a short period. The appellant's contention that the payment of tea to its associate concern is not higher than the market value, can be true only if the appellant establishes that it has been purchasing only high quality tea from associate concern and only low quality tea from other parties and while it is selling only high quality tea to outside parties and only low quality tea to associate concern.
6.3.7 Before examining this aspect, it is necessary to understand how the of tea is graded. The main varieties of tea on the basis of the area in which the Tea is grown, are Darjeeling Tea, Assam Tea, and Nilgiris Tea. Almost all the bills filed by appellant during appellate proceedings are of Guwahati and some of Kolkata. This means that geographical area is more or less same for all the tea purchased.
6.3.8 Black tea is usually graded on one of the four scales of quality. Whole leaf tea is of highest quality followed by broken leaves, fannings and dusts. The leaf tea is produced with little or no alteration to the tea leaf. This results in a finished product with a coarser texture than that of bagged tea. Whole leaf teas are widely considered the most valuable, especially if they contain leaf tips. Broken leaves are commonly sold as medium grade loose teas. Small broken varieties may be included in tea bags. Fannings are usually small parties of tea left over from the production of larger tea varieties, but are occasionally manufactured specifically for use in bagged teas. Dusts are the fines particles of tea left over from production of the above varieties, and are often used for tea bags with very fast, very harsh brews. Fannings and dust are useful in bagged teas because the greater surface area of particles allows for a fast, complete diffusion of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 32 -
the tea into the water. Fannings and dusts usually have a darker colour, lack of sweetness and stronger flavor when brewed.
6.3.9 There are five main grades of tea.
(a) Dust - D - This is the lowest grade in the classification of Black tea. Actually it consists of small pieces of tea leaves and tea dust.
(b) Fanning - This consists mainly of pieces of tea leaves. It is of a low grade.
(c) BOP - Broken Orange Pekoe - This consists of small tea leaves or pieces of large leaves. It is considered of a medium grading for the classification of tea leaves.
(d) OP Orange Pekoe - This consists of large, whole tea leaves picked without the flower bud of the tea plant.
(e) FOP - Flowery Orange Pekoe - These are the whole tea leaves together with the flowering tea.
6.3.10 In this background, the purchases of the appellant in 20th week of purchases (on random basis) were examined. From a perusal of the bills of M/s. Surin Corporation, it is noticed that the grade is mentioned as BP, BOP and Dust of outside parties also the grade mentioned is BOP, BP and Dust in most of the cases. In one or two cases, it is PF which is of higher grading than the DUST but lower grading than BOP. The purchases from both i.e. associate concern and outside parties therefore falls broadly in the main grades BOP, BP and DUST for the 20th week.
6.3.11 Apart from above no further classification is mentioned in most of the cases except that name of garden is mentioned in some cases. However, the name of the garden does not lead to larger variation in the price of Tea from the same geographical area. There will be a different names of garden for different owners / proprietors. All the tea grown in a particular area can always be classified into the broad categories (supra) in which tea industry classifies them. While there are minor differences in the classification of tea in different nations and for black, green and Oolong tea, price of the tea is mainly governed by the size of the tea leaves and the method of production of tea. The traditional method of production is by hand while, the modern method is called CTC process (Crush, Tear and Curl). The mechanized process damages the tea leaves and results in lower grading. Over all ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 33 -
the tea classification mainly depends on the size and type of leaf though for green tea and Oolong tea, classification is slightly wider, but the principle remains the same.
6.3.12 From the bills of 20th week furnished by the appellant and also the bills in the submission filed on 23.04.2012, it is noticed that the majority of the tea always falls in classification BP/BOP/DUST. In view of the same, appellant's contention that there are innumerable varieties of tea and any sort of comparison is not feasible is not correct. Moreover, the contention that it always buys high quality tea from sister concern and low quality tea from other is not accepted. This findings also finds supports from the fact that for sales, appellant's arguments are just the opposite which, defies common sense.
6.3.13 Another argument of the appellant that there is no tax advantage of shifting income from one entity to another also does not support the case of the appellant. At the outset, the section 40A(2)(a) /40A(2)(b) do not require a finding on the issue of tax advantage for the group as a whole. Section applies, if the Assessing Officer is of the opinion that the expenditure is excessive or unreasonable having regard to a fair market value of goods or the legitimate needs to its business. Moreover the appellant is a corporate entity while its associate concern from whom purchases have been made is a partnership firm. The inflation of purchase price in such a case may not always be with the motive of reduction in the liability for corporate tax or income tax. It may also be for a variety of other reasons for which manipulated transfer pricing is used by organizations. For example, inflated purchase price may be used for transfer of reserves to associate concern. Such exercise may also be taken up for transfer of resources to few share holder at the cost of other share holders. Apart from these, there may be several other reasons for which manipulated transfer pricing is used.
6.3.14 It is for this reason that the concept of transfer price being an 'arms length price' was introduced in Chapter X of the Income Tax Act in respect of international transactions. Such provisions do not exist for domestic transaction in AY 2009-10. However, section 40A(2)(a) and 40A(2)(b) are comparable provisions as far as expenditure side of P&L is concerned. In the section 40A(2)(a), it is nowhere mentioned that the assessee group should have an overall tax advantage as a result of such arrangement and only then the section can be applied. The only requirement is that the expenditure should be excessive or unreasonable having regard to (a) fair market value of goods (b) legitimate needs of the business (c) benefit derived ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 34 -
by the assessee therefrom. Therefore, this contention of the appellant is also rejected.
6.3.15 Another contention regarding increase or decrease of GP as compared t earlier years is also a very general explanation and submissions made by the appellant do not help the case of the appellant. The GP variation is an indication of only the overall variation of purchase and sale rates. It has no S application for the provisions of section 40A(2)(a) / 40A(2)(b).
6.3.16 The appellant's reliance of presumptive profit rate of 8% is also without legal basis. The presumptive profit rate is a deemed profit rate for entities having very small turnover and appellant's turn over is not comparable to such cases.
6.3.17 The argument of transportation cost in respect of purchase from outside parties is also a general explanation and not subject to verification.
6.3.18 Considering the detailed discussion (supra), it is held that the Assessing Officer was correct in coming to the conclusion that the purchase price from associate concern is excessive and unreasonable having regard to the fair market value of the goods.
6.3.19 The fact also draw supports from the over all modus operandi of the appellant according to which, it always shows inflated purchase price in respect of purchases from the associate concern while at the time of sale, it sells goods to associate concern at lower than the market price.
7. Therefore, this ground of appeal is decided against the appellant and the addition made by the Assessing Officer is confirmed."
31. The AR of the assessee heavily relied on the decision of this Bench of the Tribunal in assessee's own case for AY 2006-07 and submitted that the facts and issues involved in the present appeal are identical and therefore the CIT(A) was not justified in not following the order for AY 2006-07 in the case of the assessee and confirming the addition made by the AO. He further submitted that though the CIT(A) has taken weekly average of the purchase price of tea by the assessee from associate concerns and from other parties; but while making the additions, he has considered the yearly ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 35 -
average of the purchase price of tea from associate concerns and other parties for determining the amount of addition made in the case of the assessee.
32. On the other hand, the ld. Departmental Representative submitted that the facts in the present year of appeal are different from that of the AY 2006-07. He submitted that the CIT(A) has considered the weekly average price of tea purchased by the assessee from associate concerns and from other parties and thereafter arrived at the conclusion that the assessee has paid more to the sister concerns for purchase of tea than the price paid to the other parties. He submitted that the CIT(A) has rightly arrived at the conclusion that the assessee's explanation regarding variation in the quality of tea if accepted will lead to a peculiar situation wherein the assessee always purchased high quality from its associate concerns while low quality tea purchased is purchased from outside parties. On the other hand, the assessee always make sales of high quality tea to outside parties and low quality to its associate concerns. The DR also submitted that as regards to the contention of the assessee that on the similar issue the CIT(A) has deleted the addition, it can be said that the Department has not accepted the decision of the ld. CIT(A) as well as the Hon'ble ITAT of deleting the addition and filed appeal before the Hon'ble Gujarat High Court.
33. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the issue under consideration and the facts involved are similar to the issue and facts involved in the above case of the assessee in the AY 2006-07. The DR attempted to make a distinction in the facts by pointing out that in the AY 2006-07 the yearly average was only considered by the Revenue but in the year under consideration though the AO compared yearly average but CIT(A) has also taken into consideration the weekly average. We do not find any force in this argument of the DR and comparison of weekly average also ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 36 -
does not help the case of the Revenue. We find that by comparing weekly average the CIT(A) found that the average price of the assessee from its associate concerns in week No.33 and 39 were lower than the average price of purchase from others. After reaching this finding also the CIT(A) confirmed the action of AO in its entirety. Be that as it may.
34. The Tribunal has categorically recorded a finding in the case of the assessee itself in AY 2006-07 in ITA Nos. 3013 & 3093/Ahd/2010, order dated 26.03.2010, that no attempt has been made to ascertain the price prevailing in the market on the day when purchases are stated to have been made from the sister concerns, especially when the price prevailing on a particular day fluctuates even in respect of tea from the same garden and of the same grade. We find that similar to the facts of AY 2006-07 in the year under consideration also no material was brought before us by the Revenue to show that the fair market value of the grade and quality of the tea which was purchased by the assessee from its sister concerns was lower on the date then the price at which such purchase was made. The onus which was upon the Revenue has not been discharged. Moreover, there is no allegation that any evasion of tax took place because of the purchase transactions made by the assessee from its sister concerns.
35. Further, we also find that no material was brought on record by the Revenue to rebut the contention of the assessee that the tea which the assessee purchased from its sister concerns were in turn purchased by those sister concerns in auction from un-related parties and the price at which similar concerns sold those tea to the assessee were merely 2% higher than the auctioned price and the difference of 2% also includes actual expenses which sister concerns had to incur in the transactions. In the above facts, in our considered view, the disallowance was made on a wrong footing and the issue is squarely covered by the decision of the Tribunal in the case of assessee itself passed in the AY 2006-07. We, therefore, following the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 37 -
same, delete the disallowance of Rs.6,52,49,095/- u/s 40(A)(2)(b) of the Act in its entirety and allow this ground of the appeal of the assessee.
36. Ground Nos. 2 to 4 of this appeal of the assessee are directed against the order of the ld CIT(A) confirming the disallowance of deduction u/s 80IA being profits from electricity generation from wind mill at Ahmednagar, Maharashtra of Rs.39,04,680/-, from wind mill at Jodha of Rs.52,75,596/- and from wind mill at Chitradurga, Karnataka of Rs.66,40,842/-, for the AY 2009-10.
37. At the time of hearing, the ld. AR for the assessee submitted that this issue has been decided by the Tribunal in favour of the assessee in assessee's own case for the AY 2007-08 in ITA Nos.3011, 3012, 3013, 3093/Ahd/2010, order dated 19/12/2013. The ld. Departmental Representative also agreed upon the same.
38. We find that the Tribunal in assessee's own case for the AY 2007-08, vide order dated 19/12/2013, has held as under:-
"7. The learned AR submitted that in all these appeals except for the change in figure, the facts are identical and therefore we are quoting the facts in the case of Jivraj Tea Ltd. in ITA No.3013/Ahd/2010 from the order of the learned CIT(A) which reads as under:
"6.2 The Assessing Officer has found that the profit included Rs.59,16,6667- as received on sale of sales tax entitlement in respect of windmill installed at Ahmednagar, Maharashtra. The Assessing Officer further observed that the sales tax entitlement is an incentive which is calculated on the basis of investment made in the project which in this case is 1/6th of the eligible investment. The source of sales tax entitlement lies in the scheme formed by the Maharashtra State Government. Hence, it is not profit derived by the Industrial Undertaking and thus, not eligible for deduction u/s.80IA of the I.T. Act. For this, the Assessing Officer placed the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India Limited vs CIT 183 Taxman 349(SC).
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 38 -
6.3 Further, the Assessing Officer observed that for calculating the amount of deduction u/s.80IA, the provision of section 80IA(5) has to be applied and thereby unabsorbed business losses and depreciation of earlier year in respect of windmills has to be considered by treating it as the only unit existing from the year of installation, notwithstanding with the fact that unabsorbed business loss and depreciation was set off in the earlier year against the profit of other units. The Assessing Officer observed that the windmill at Ahmednagar Maharashtra was installed and commenced operations in AY.2002-03 and unabsorbed depreciation / business loss of this unit in isolation comes to Rs.3,53,59,339/- up to A.Y.2007-08. Similarly, windmill at Jodha Rajasthan was installed /commenced production in A.Y.2004-05 and the unabsorbed depreciation /business loss carried forward till A.Y.2007-08 comes to Rs.2,88,81,178/-, and windmill at Chitra Durga Karnataka was installed in A.Y.2005-06 up to A.Y.2007-08 the unabsorbed depreciation / business loss comes to Rs.4,20,00,983/- and there remains no business profit as per the working given in the Annexure to the assessment order. By applying the provisions of section 80IA(5) and setting off with the business loss and unabsorbed depreciation of earlier year beginning from the year of installation of the windmill, the Assessing Officer has held that by doing this, there remains no profit from the windmill units. For this, the Assessing Officer has relied on the decision of Hon'ble ITAT Special Bench Ahmedabad in the case of ACIT vs Goldmine Shares & Finance Pvt Ltd. 113 ITD 209/Ahd(SB) whereon it was held that, in view of specific provisions of section 80IA(5), profits from the eligible business for the purposes of determination of quantum of deduction u/s.80IA, has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against other income in earlier years. Hence, deduction u/s.80IA is nil. Accordingly, the claim of deduction u/s.80IA for Rs.92,41,888/-, Rs.63,69,121/- and Rs.2,48,928/- respectively was disallowed.
6.4 The appellant has submitted that the profit on sale of sales tax exemption and entitlement is derived from the Industrial Undertaking being the windmill and on this u/s.80IA is allowable. The decision of Hon'ble Supreme Court in the case of Liberty India Limited was in respect of profit received from DEPB and Duty Draw Back Scheme and it was held that such profit cannot be treated as having been derived from the eigible industrial undertaking. It was further submitted that liberal interpretation ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 39 -
should be made of the benefiting sections so that the assessee can claim and avail various deductions given to him.
6.5 Regarding the application of the provision of section 80IA(5), the appellant has submitted that the initial assessment year shall be the assessment year falling within a period of 15 years beginning from the year in which the industrial undertaking commences operation, for which for the first time, the deduction u/s.80IA of the Act is claimed by the assessee, and not the assessment year relevant to the previous year in which the industrial undertaking commences operation. The appellant first time claimed deduction in A.Y.2004-05 for the unit Ahmednagar Maharashtra, in A.Y.2006-07 for Rajasthan windmill and in A.Y.2007-08 for Karnataka windmill, which becomes the initial year. The losses and depreciation of the years earlier to the initial assessment year (i.e. A.Y.2004-05, 2006-07 & 2007-08 respectively), which have already been absorbed against the profits of the other business, cannot be notionally brought forward and set off against the profits of the eligible business for computing the deduction u/s.80IA of the Act. For this, the appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad). It was further submitted that the decision of Hon'ble Ahmedabad ITAT in the case of ACIT vs Goldmine Shares & Finance P. Ltd. 116 TTJ (Ahd)(SB), is not applicable as that decision was delivered before the amendment to the section by Finance Act, 1999. Before the amendment, initial assessment year was defined in the Act but after the amendment, there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year for claiming relief u/s.80IA of the Act.
6.6 I have considered the facts and the submissions. I do not agree with the appellant's views. The sales tax exemption entitlement are the incentives given by the Maharashtra Government on the investment made by the assessee for installation of windmill and is calculated on the investment which in this case is 1/6th of the investment. It is not based on the turnover or the profit of the unit. The source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon'ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 40 -
derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to the facts of the present case. In this case, the source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. Hence, by following the decision of Hon'ble Supreme Court, it is held that the Assessing Officer was justified in holding that the profit on sale of sales tax exemption entitlement, is not derived from the industrial undertaking and thus, not eligible for deduction u/s.80IA of the Act.
7. Regarding application of section 80IA(5), the section reads as under:
"(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-section (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 up to and including the assessment year for which the determination is to be made."
7.1 The Hon'ble ITAT Ahmedabad Special Bench in the case of ACIT vs Goldmine Shares and Finance Pvt. Ltd. has held that "section 80IA(5) deems that, for the purposes of determining the quantum of deduction, the eligible business as the only source of income of the assessee during the initial assessment year as well as subsequent years and has an over riding effect on all other provisions of the Act", (para 23) "Section 80IA(5) bids one to treat the eligible business as the only source of income of an undertaking as real, which is an imaginary state of affairs. One must surely (imagine) as also real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flown from or accompanied it i.e., there was no other source of income of the assessee. The statute says that you must imagine a certain state of affairs (eligible business being the only source); it does sot say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 41 -
of the state of affairs, that there are other sources and that against those sources the unabsorbed depreciation or losses of eligible business were set off", (para 30) "It is implicit from the tenor and phraseology implied in section 80IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the ineligible business which could not be set off against the loss of the eligible business itself has to be carried forward or set off of the profits of the very source of ineligible business in the subsequent year", (para 31) The words "as if such eligible business were the only source of income of the assessee" compel us to assume that the assessee is not having any other source of income except that which is eligible to deduction u/s.80IA which in this case is the units/undertaking, the units of the windmill generating electricity for the assessee. As per the wording of the sub section (5) of section 80IA, for the purposes of computation of the deduction, it has to be assumed that the only source of income of the assessee is the eligible business. The income or loss of this business alone is to be considered as if that were the only source. This means neither the income of the undertaking nor the loss thereof can be set off or carried forward and set off or adjusted against any other source of income or loss. As a corollary, the income or the loss of the other business or source cannot be considered or set off for determining the quantum of the deduction of the eligible business". Para 33) 7.2 Thus, it is evident that for calculating the deduction u/s.80IA, we have to treat that the appellant is having only the eligible business i.e. the windmill, as the only source of income and has no other business activity. Hence, the unabsorbed depreciation and business loss from the date of installation and running of windmill has to be taken into consideration and set off against this year's income. There is no justification for treating it as being set off with other business in earlier years, even if this was actually set off with the other income.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 42 -
7.3 The submission of the appellant that initial assessment year has to be taken as the year in which the appellant first claimed deduction u/s.80IA and not the year of installation, is not acceptable. The appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad), wherein the Hon'ble High Court has held that the initial assessment year means the year when first time the assessee opted for the deduction u/s.80IA and not the year of setting up/commencement of the business of the unit, because the initial year has not been defined in the Act and thus, liberal interpretation has to be made for the term 'initial assessment year' so that the appellant is allowed possible benefits given by the Act. With due respect to the Hon'ble Court, it is submitted that when any term is not defined and interpretation is to be made, the point of equity has also to be taken into consideration and it should not lead to discrimination among various assesees. If we take the initial year as not the year of installation/commencement but the year of first claim opted for, it will be disadvantageous to those assessees who do not have any other source of income, other than the eligible business.
The following example will illustrate this point - The assessee "A" has started windmill in A.Y.2002-03 and had loss of Rs.2,50,22,495/- in 2002-03 & Rs. 1,50,13,463/-- in A.Y.2003-04 which was set off with other income. When the assessee claims deduction u/s.80IA for A.Y.2004-05, for the profit earned from windmill, he will get the deduction as per this interpretation.
However, if another person "B" has installed same windmill in A.Y.2002-03 and incurred the same loss from windmill in A.Ys.2002-03 & 2003-04, and does not have any other business having profit to set off with this loss, he will not have benefit of deduction u/s.80IA for same amount of profit earned in A.Y.2004-05. This will lead to discrimination. The logical and equitable interpretation warrants that initial assessment year has to be taken as the year of installation/commencement of business and not the year when the claim is made for the first time. If this interpretation is taken, then the same treatment will be met out for both the assesses in the above example.
7.4 Further, the deduction u/s.80IA is allowed to an undertaking or an enterprise or an eligible business and not to an assessee. Hence, for allowing deduction u/s.80IA, only the windmill unit has to be considered separately ignoring the other businesses.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 43 -
7.5 The amendment in section 80IA by Finance Act, 1999, has not made any material change on this point. The new section 80IA(2) is only in respect of period for claim of deduction u/s.80IA of the Act. Earlier it was from ten years beginning from the year of installation/commencement of business of eligible unit. Now, it has been spread and the assessee can opt and claim the deduction for ten years out of 15 years starting from the year of installation to fifteen years therefrom. This benefit was given so that the assessee can claim the deduction even if the break-even point is reached after five or even after ten years. Thus, intention was only to make the assessee eligible for claiming deduction even if the unit requires much more time to achieve the break-even point. However, there is no indication that the initial year should not be taken as year of installation/commencement but the year when the first time the assessee opts for deduction u/s.80IA of the I.T. Act. Even otherwise, the plain meaning of the word 'initial year' means the year of installation/commencement of business of the eligible unit.
7.6 Therefore, in my humble opinion, even after the amendment in section 80IA by Finance Act 1999, the Special Bench decision in the case of ACIT vs Goldmine Shares & Finance Pvt. Ltd. (supra), will remain applicable without any change in the situation, and the initial year has to be taken as the year of installation / commencement of the business of eligible windmill units.
7.7 In view of this, it is held that the Assessing Officer was justified in disallowing the claim of the deduction u/s.80IA of the Act which is upheld and the appellant's ground is rejected."
8. Learned AR submitted that the issue regarding the initial year for deduction u/s. 80IA was decided in favour of the assessee by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT, (2012), 340 ITR 477, wherein the Hon'ble High Court after considering the amendment made by the Finance Act, 1999, w.e.f. 1.4.2000 and also considering the amended Section 80IA on para 16 of page 489 of the order concluded that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate was provided u/s.80IA(5). He further placed reliance on the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steels and Malleables vs. ACIT, (2010), 6 taxmann.com 47 (Chennai) and submitted that the Tribunal after ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 44 -
considering the decision of the Special Bench of the Tribunal in the case of ACIT vs. Goldmine Shares and Finance (P.) Ltd., (2008), 113 ITD 209 (Ahd) (SB), arrived at the conclusion that sub section (5) would come into operation only in the year in which the assessee started claiming deduction u/s.80IA, i.e., from the initial year and depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. It was held that the decision of the Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra) would apply to the 10 consecutive years starting from the initial year in which the assessee exercises its option to avail the deduction u/s. 80IA.
9. On the other hand, learned DR relied on the decision of Ahmedabad Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) and submitted that Section 80IA(5) would apply and the losses of the earlier years were to be brought forward notionally and adjusted against the profit of the initial year of the assessee from eligible business as if this was the only business carried on by the assessee. It was the argument of the learned DR that the decision of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) was not a good law because the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Ltd. vs ACIT, (2012) 20 taxmann. com 289 (Hyd) held that the judgment of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) though not of the jurisdictional High Court prevail over order of the Special Bench even though the jurisdictional Bench of the Tribunal. However, where the judgment of non Jurisdictional High Court, though the only judgment on the point has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed. In our opinion, judgment of Special Bench in the case of Goldmine Shares and Finance (P.) Ltd (supra) was squarely applicable to the assessee and following the same we are inclined to decide the issue against the assessee relating to the allowability of deduction u/s.80IA that in terms of the provisions u/s.80IA(5) of the IT Act the profit from the eligible business for the purpose of determination of quantum of deduction u/s. 80IA has to be computed after deduction of the notional brought forward losses and depreciation of the eligible business even though they have been allowed set off against other income in earlier years.
10. In the rejoinder, the learned AR for the assessee submitted before the amendment made by the Finance Act, 1999 to Section 80IA, the initial year of deduction was defined in Section 80IA(2)(iv)(b) as the year in which the eligible undertaking begins to ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 45 -
generate power any time during the year beginning on the 1st day of April, 1999 and ending on 31st day of March, 2000. He submitted that by the Finance Act, 1999 the original Section 80IA was split into two Sections i.e., Section 80IA and Section 80IB. He submitted that in the amended Section 80IA sub section (2) provides that the deduction specified in sub section (1) may at the option of the assessee be claimed by him for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking generate powers or commence transmission or distribution of power. Thus, his submission was that the initial year of deduction was left to the option of the assessee and the assessee could claim deduction for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking begins to generate power. He further submitted that in the amended Section 80IA there was no provision as originally existed u/s. 80IA(5) of the Act. He submitted that in Section 80IB (13) it has been provided that provision contained in sub section (5) of Section 80IA so far as may be applied to eligible business undertaking of that section.
11. Learned AR also relied upon the decision of Hon'ble Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. Vs. ACIT (2009) 116 ITD 241 (Chennai). He also relied upon the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steel & Malleables Vs. ACIT, 132 TTJ 365 (Chennai). He further relied upon the decision of the Bangalooru Bench of the Tribunal in the case of Anil H. Lad Vs. DCIT, (2012), 25 taxmann.com 454 (Bang). He further relied upon the decision of Mumbai Bench of the Tribunal in the case of Shevie Exports Vs. JCIT, 33 taxmann.com 446 (Mum).
12. Learned DR also relied on the decision of Ahmedabad Bench (3rd Member) in the case of Kanel Oil and Export Industries Ltd. vs. JCIT (2009) 121 ITD 596 (Ahd) (TN) and submitted that it has been held that judgment of the non Jurisdictional High Court though the only the judgment on the point has been rendered was not binding on the Tribunal and therefore, it was the submission of the learned DR that following the decision of the Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) the issue should be decided in favour of the assessee.
13. Learned AR of the assessee countered the argument of the learned DR by pointing out that in the decision of the 3rd Member of the Ahmedabad Bench of the Tribunal in the case of Kanel Oil and Export Industries Ltd. (supra), it was held that where the judgment of the non Jurisdictional High Court though the only judgment on the point had been rendered without having been informed about certain ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 46 -
statutory provisions which are directly relevant, the judgment rendered without noticing a previous binding precedent or a relevant statutory rule was "per incuriam", and therefore, was not binding on the Tribunal. He submitted that the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra) had considered the amended provisions of Section 80IA of the Act while rendering the decision and it was the only decision of the High Court. No contrary decision has been cited by the learned DR and therefore respectfully following the same the issue should be decided in favour of the assessee.
14. Learned AR further argued that amount received on sale of sales tax entitlement was capital receipt, therefore, was not liable to tax. For this he placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Birla VXL Ltd. (2013) 32 Taxmann.com 330 Gujarat and submitted that the Hon'ble Gujarat High Court after considering the scheme of sales tax entitlement held that from the provisions of the said scheme it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver in essence it was meant for capital outlay expended by the assessee for set up of the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to per centage of various capital investments. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once a commercial production commences. However this by itself would not be either a sole or concluding factor. In the case of Sahany Steel Press working Ltd. and Others vs. CIT reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hand of the recipients whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of trade. He referred to pages 4 to 13 of the paper book no.2 and pointed out there from that it contains eligibility certificate for sales tax incentive wherein it is stated that the total project cost was Rs.5 crores and that sales tax benefit for the year 2006-07 was 1/6 of eligible investment which was Rs.83,33,33/- Thus ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 47 -
it was his submission that the sales tax entitlement was given for setting up of the windmill farm project by the assessee for a period of six year, and therefore, the decision of the Hon'ble Gujarat High Court was applicable to the assessee and hence, the receipt was a capital receipt not liable to tax as held by the Hon'ble High Court.
15. On the other hand, the learned Department Representative submitted that the Hon'ble Gujarat High Court was considering the sales tax deferment scheme of the Government of Gujarat whereas in the case of the assessee the eligible unit was in the State of Maharastra, and therefore, the decision of Hon'ble Gujarat High Court rendered in the case of Birla VXL Ltd. (supra) would not apply to the assessee. The other argument of the learned Departmental Representative was that since the assessee had sold the sales tax entitlement, therefore, the assessee would not be eligible to claim the same as capital receipt not liable to tax.
16. In the rejoinder, the learned AR argued that the scheme in the case of the assessee of sales tax deferment was exactly the same as that of Gujarat Government and the Revenue has placed no material on record to show any distinguishing factors in the same. He submitted that merely because the assessee sold the sales tax incentive which is a capital asset as held by the Hon'ble Gujarat High Court in the case of Birla VXL Ltd. cannot be a ground to treat the receipt as revenue.
17. We have heard the rival submissions and perused the order of the lower authorities and material available on record. In the case of Jivraj Tea Ltd., the assessee claimed deduction u/s. 80IA(4) of the Act on 100% profit derived from generation of electricity from windmill situated at Ahmednagar Maharashtra, Jodha Rajasthan and Chitradurga Karnataka. The Assessing Officer observing that since the assessee had carried forward losses of earlier years, therefore, the assessee was not entitled to deduction u/s.80IA(4) as after the adjustment of the brought forward losses there was no positive profit for allowing deduction u/s. 80IA. The same was confirmed in appeal by the learned CIT(A). The case of the Revenue is that in view of the decision of the Special Bench of the Tribunal rendered in the case of Goldmine Shares and Private Limited (supra) brought forward losses and depreciation of earlier years has to be deducted from the profits of the years under consideration before allowing deduction u/s. 80IA of the Act. On the other hand, the contention of the AR of the assessee is that after the amendment made by the Finance Act, 1999 in Section 80IA whereby u/s. 80IA(2) the assessee has the option to choose the initial year for claiming the deduction u/s. 80IA for 10 consecutive years within 15 consecutive years from the date of the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 48 -
commencement of the eligible unit. By placing reliance on the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) it was the submission of the learned DR that once the assessee selects the initial year for claiming deduction under section 80 IA (4) then the earlier years brought forward losses and depreciations need not be adjusted against the profits of initial year from the eligible unit for allowing deduction under section 80IA to the assessee. The provisions of section 80 IA (5) shall apply for the years after the initial year for computing the deduction allowable to the assessee under section 80IA of the Act.
18. We find force in the submission of the learned AR of the assessee. We also find that it is an undisputed fact that in all the appeals under consideration the initial year chosen by the assessee for claiming deduction is after 1-4-2000 when the amended provision of section 80IA was applicable.
19. Section 80IA, which has been substituted w.e.f. 1st April 2000, provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub-section 4, there shall, in accordance with and subject to the provisions of this section, be allowed in computing the deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive years. Substituted sub- section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive assessment year out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provision of sub-section (5) of section 80IA, reads as under:-
"(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-section (1) apply shall, for the purposes of determining 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 up to and including the assessment year for which the determination is to be made."
20. From a plain reading of the above, it can be gathered that it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 49 -
the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under Section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of Section 80IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80IA can be determined. This is the true import of section 80IA(5).
21. In the decision of Goldmine Shares and Finance Pvt. Ltd. (supra), decided by the Special Bench of the Tribunal, the claim of deduction by the assessee had started from assessment year 1996-97 onwards and the assessee had claimed deduction under section 80IA starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) after considering the Special Bench decision of the Tribunal in Goldmine Shares And Finance Pvt. Ltd. (supra) and relevant provisions of the Act i.e., pre amendment and post amendment have come to the same conclusion:-
"From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 50 -
assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
22. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 8o-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-s. (6) of s. 8o-I, which is the corresponding provision of sub-s. (5) of s. 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of CIT vs. Mewar Oil &.General Mills Ltd. (2004) 186 CTR (Raj) 141: (2004) 271ITR 311 (Raj), the Rajasthan High Court also considered the scope of s. 80-I and held as follows:-
"Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr, 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the CIT(A), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 51 -
income under s.80-I for the purpose of computing admissible deductions thereunder.
23. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s. 8o-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under s. 8o-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs."
24. From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view."
25. This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTK 262 (Mad.). From the above, ratio of the High Court, it is amply clear that sub- section (5) of section 8oIA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2).
26. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995- 96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial assessment year would be applicable i.e., provisions which were prior to 1st April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgment of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligible business was set-off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and has been set-off ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 52 -
against the non- eligible unit after the initial assessment year, then the ratio laid down by the Tribunal is in full consonance with the law. However, this is not the case in the instant case because the loss pertained to prior to initial assessment year which have been set-off against the profits of non-eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2008-09 only and, therefore, the loss of assessment year 2007-08 cannot be notionally carried forward within the meaning of section 80IA(5). Thus, the reliance placed by the learned Departmental Representative on the decision of Pidilite Industries (supra), will not be applicable in the present case.
27. The other decision heavily relied upon by the learned Departmental Representative in Hyderabad Chemical Supplies Ltd. (supra) will also not apply to the facts of the present case, as in that case, the wind mill started its operation on 3ist March 1999 and the first year of operation was assessment year 1999-2000. Thus, in the assessment year 1999-2000, the definition of "initial assessment year"
was already there in the Act and there was no provision through which the assessee could have chosen its initial assessment year. This provision was brought in statute w.e.f. ist April 2000, by virtue of section 8oIA. Thus, this decision also will not help the case of the M/s. Shevie Exports Department. In asseessee's case, as specifically stated in the foregoing paragraphs, the assessee's claim for initial assessment year i.e., assessment year 2008-09 and its claim for deduction under section 80A made for the first time from assessment year 2008-09, has not been disputed. Thus, the aforesaid judgment relied upon by the learned Departmental Representative will not be applicable to the facts of the present case.
28. We reiterate in the instant case, it is not in dispute that the initial Assessment Year in the case of Jivraj Tea & Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007-08 and it is also not in dispute that the assessee has not suffered any loss in the said year, therefore, in our considered opinion no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act. We, therefore, set aside the orders of the lower authorities on this issue and allow the ground of appeal of the assessee."
39. Facts being identical, respectfully following the precedent, we set aside the order of lower authorities on this issue and allow ground Nos.2, 3 & 4 of the appeal.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 53 -
ITA No.2181/Ahd/2012 : AY 2009-10 : Revenue's Appeal40. The only ground of this appeal taken by the Revenue is that the ld. CIT(A) erred in deleting the disallowance u/s 40A(2)(b) of Rs.73,23,884/- on sale to sister concerns.
41. The ld. CIT(A) has decided the issue while observing as under:-
"8.1 The Assessing Officer has discussed facts related to this addition in para 2 of the assessment order. The relevant part is reproduced herein below:-
'..... On verification of the case records and the details furnished, it was noticed that the assessee has sold tea to various parties including parties specified u/s 40A(2)(b) of the IT Act. Further, it was noticed that the assessee company has sold tea to various outside parties at an average rate of Rs.166.32 per kg whereas from the related parties M/s. Jivraj Tea Company at an average rate of Rs.147.94 per kg. Therefore, vide notice u/s 142(1) of the IT Act the assessee was asked to explain as to why the excess payment @ Rs.18.38 per kg on account of tea purchase which comes to Rs.1,79,24,452/- (975215 kg x Rs.18.38) should not be treated as excessive and unreasonable within the meaning of the provisions of section 40A(2)(b) of the IT Act and disallowed and added to the total income.....' 8.2 The appellant during the course of appellate proceedings, submitted that provisions of section 40A(2)(a) / 40A(2)(b) cannot be applied on sales. The appellant further submitted that the issue is covered in favour of appellant by the Order of ITAT for Asst Year 2006-
07. Without prejudice to the same the appellant submitted as under on merits.
'... it would be relevant to submit before your Honour that though the appellant clearly submitted before the ld AO that it has sold to the sister concern the dust and leaf tea which was not blended, processed and branded as well as packed; whereas the tea sold to the outside parties was blended, processed, branded and packed.......' "8.3 As regards decision of Asst. Year 2006-07 of ITAT, the said decision was in respect of purchases made from associate concerns ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 54 -
and therefore, not relevant for this ground. However, the Assessing Officer failed to appreciate the provisions of section 40A(2)(a)/40A(2)(b). These sections deal with deductions for expenditure and not receipts. If appellant has sold goods at less than market price to associate concerns, addition cannot be made u/s 40A(2)(a)/40(2)(b). The appellant's arguments on merits have not been accepted for the reasons discussed while deciding the first ground. However, this addition is being deleted on technical grounds as section 40A(2)(a)/40A(2)(b) is not applicable in this case and transfer pricing provisions do not apply to domestic transactions. Without prejudice to the same, the facts discussed by the Assessing Officer in respect of this addition strengthen the decision in respect of first ground."
42. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that in the garb of making disallowance u/s 40A(2)(b) in fact an addition was made of the notional income which the assessee could have earned, had the assessee not sold the goods to its sister concerns but would have sold to outside parties. The DR fairly considered that nowhere the IT Act requires an assessee to earn the maximum possible income and under the provisions of the Act what is assessable is the real income and not the notional income which though the assessee could have earned but have not actually earned. Thus, the amount of Rs.73,23,884/- was added to the income of the assessee without any authority of law and accordingly the order of the CIT(A) is confirmed. Thus, this ground of appeal of the Revenue is dismissed.
ITA No.3014/Ahd/2010 : AY 2007-08 : Assessee's Appeal43. The assessee has raised following additional grounds of appeal.
"1. The appellant prays that on the facts and circumstances of the case and in law ld. CIT(A) ought to have treated the amount received on sale of Sales Tax Entitlement as "capital receipt" and therefore not liable to tax at all. He has erred in holding the same as taxable by treating it as 'revenue receipt' instead of 'capital receipt'.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 55 -
2. The appellant submits that as the payee Shri Sureshchandra Shah has paid due tax considering compensation payable as per the agreement with appellant, as per the amended provision of section 40(a)(ia) inserted by Finance Act, 2012 applicable retrospectively, no disallowance is required to be made.
44. At the time of the hearing, the learned Departmental Representative had no objection to the admission of the above additional grounds raised by the assessee. Therefore, the additional grounds raised by the assessee were admitted and parties were allowed to make their submissions thereon.
45. The Ground No.1 and the additional ground No.2 read as under:-
1. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of Compensation expenses paid of Rs.18,41,122/- on the ground of non deduction of TDS u/s 40(a)(ia) of the Act.
Additional Ground No.2
2. The appellant submits that as the payee Shri Sureshchandra Shah has paid due tax considering compensation payable as per the agreement with appellant, as per the amended provision of section 40(a)(ia) inserted by Finance Act, 2012 applicable retrospectively, no disallowance is required to be made.
46. The brief facts of the case are that the Assessing Officer has observed that the assessee has paid an amount of Rs.18,41,122/- to Shri Suresh Chandra Shah. Although the expense was claimed as compensation paid to Shri Suresh Chhandra Shah, but in real terms, it was for the use of property of Shri Suresh Chandra Shah for shop No.258-259, Ruwala Tekra, Surat having furniture and weighing skills etc. The amount payable was @Rs.3.50 per kg on total sale of tea on monthly basis subject to minimum amount of Rs.1.25 lacs per month even if the sales are less. The Assessing Officer observed that the nature of payment was 'rent' on which the TDS was required to be made u/s 194-I of the Act. As the assessee has not made the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 56 -
TDS, the total amount of Rs.18,41,122/- was disallowed u/s 40(a)(ia) of the Act after discussing the matter in detail in para 6 of the assessment order.
47. Before the CIT(A), the assessee has submitted that the payment was not in the nature of rent but it was payment of compensation to Shri Suresh Chandra Shah. Earlier, Shri Suresh Chandra Shah was carrying on the business of trading in tea from shop located at 5/258-259, Ruwala Tekra, Surat. In the year 2004, Shri Suresh Chandra Shah entered into an agreement with the appellant whereby the said running of tea trading business was assigned to be run by the appellant with all the furniture, fixture and equipments lying with the shop and for that the compensation was to be paid @350/- per kg of the tea sold. From the terms of agreement, it is clear that the payment was not in the nature of rent and no TDS was required u/s 194-I of the I.T. Act. The appellant further submitted that earlier the similar agreement was made in the case of Jivraj Tea & Industries Ltd. and in the assessment year 2000-01, the addition made by the Assessing Officer in that case was deleted by the CIT(A) and also by the Hon'ble ITAT by ITA No.1463/Ahd/2003 dated 13.07.2007. It was further submitted that the appellant has already paid an amount of Rs.7,75,060/- and only Rs.10,66,062/- was payable as compensation. As per decision of Hon'ble Jaipur Bench of the Tribunal in the case of Jaipur Vidyut Vitran Nigam Limited vs. DCIT 26 DTR 79, the provision of Section 40(a)(ia) is applicable only to the specified amount outstanding to be payable as on the year ending date. Hence, alternatively the addition may be restricted to Rs.10,66,062/-.
48. After considering the facts and submissions, the ld. CIT(A) was held as under:-
"7. I have considered the facts and the submissions. I do not agree with the appellant's views. Although the expenditure is claimed to be made for the compensation to Shri Suresh Chandra Shah, but the real ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 57 -
intent coming out from the agreement entered, is that it is paid for the use of premises alongwith fixtures. As per the CBDT's Circular No.715 dated 08.08.1995, it was clarified that the tax is to be deducted from the rent paid by whatever name called for hire of a property. The incident of tax at source does not depend upon the nomenclature but on the content of the agreement and further it was clarified that even if there is composite agreement for user of premises and provision of man power for which consideration is paid as per specified percentage of turnover, section 194-1 of the Act would be attracted if the agreement is in the essence, for rent. The provision of section 40(a)(ia) is applicable for rent from the assessment year 2007-08 onwards. The appellant's reliance on ITAT's order in the case of Jivraj Tea & Industries Ltd. for AY 2000-01, is not applicable as in that case, the issue was regarding reasonableness of the payment u/s 40A(2)(b) and the issue was not whether payment is in the nature of rent or not. Further, in the case of Jaipur Vidyut Vitran Nigam Limited v. DCIT 26 DTR 79, the main issue was whether TDS is applicable on payment of transmission, wheeling and SLDC charges and the Hon'ble ITAT have held that on this issue whether tax is to be deducted at source, is not free from doubt and since the payment is not in dispute, the provision of 40(a)(ia) is not applicable. The issue of "paid" and "payable" was discussed but that was not the deciding factor for giving the final judgment. In the present case, it is evident that the nature of payment is, in essence, of rent on which, TDS was required to be made which was not done. Hence, the Assessing Officer was justified in making the disallowance of Rs.18,41,122/- u/s 40(a)(ia) of the Act which is upheld."
49. The AR of the assessee submitted that the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal v. ACIT, reported in [2014] 45 taxmann.com 555 (Agra-Trib.), has held that insertion of Second Proviso to section 40(a)(ia) with effect from 01.04.2013 is declaratory and curative in nature and it has retrospective effect from 01.04.2005, being the date from which sub-section (ia) of section 40(a) was inserted by Finance (No.2) Act, 2004. He contended that in view of the insertion of second proviso to section 40(a)(ia) by the Finance Act, 2012, and in view of the fact that the recipients of the interest had already included the income embedded in these payments in their tax returns filed under section 139, disallowance under section 40(a)(ia) could not be made in this case. He submitted that ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 58 -
the assessee has filed application for admission of additional evidence being....
1. Return of income alongwith statement of total income, balance sheet, trading and profit & loss account for AY 2007-08 in case of Sureshchandra Shah.
2. Assessment order in case of Shri Sureshchandra Shah passed u/s 143(3) of the Act for AY 2007-08.
The same evidences that the recipient of the amount paid by the assessee has shown the same as its income in the return of income filed and paid the tax due thereon. Therefore in view of the Second proviso to Section 40(a)(ia), no disallowance of expenditure claimed by the assessee could be made. It was his submission that the additional evidences should be accepted and the matter should be restored back to the file of AO for re- adjudication of the issue afresh, after considering the additional evidences filed by the assessee.
50. The DR on the other hand agreed the submission of the ld. AR of the assessee.
51. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case the Assessing Officer disallowed deduction for Rs.18,41,122/- paid to Shri Sureshchandra Shah as rent as the assessee failed to deduct TDS u/s 194I of the Act and therefore, provisions of section 40(a)(ia) were applicable. On appeal, CIT(A) has upheld the disallowance made by the AO. The AR of the assessee has filed additional evidence evidencing the fact that the recipient of the amount Shri Sureshchandra Shah has shown the amount received Rs.18,41,122/- in his return of income filed and paid tax thereon. Therefore, in view of the second proviso to 40(a)(ia) of the Act inserted by ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 59 -
the Finance (No.2) Act, 2004, w.e.f. 01.04.2004, which has been held to be retrospective in effect by the Agra Bench of the Tribunal in the case of Rajeev Kumar Agarwal (supra), no disallowance can be made in the hands of the assessee of the expenditure claimed by the assessee. Therefore, we accept the additional evidence filed by the assessee since the DR has not objected to the same and restore the matter back to the file of the AO for re-adjudication of the issue afresh after taking into consideration the additional evidences filed by the assessee as per law. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee, before adjudicating the issue afresh. Thus, these grounds of appeal of the assessee are treated as allowed for statistical purposes.
52. The Ground Nos.2 & 5 and the additional ground No.1 read as under:-
2. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the action of the ld. A.O. of excluding the amount received on sale of Sales Tax Entitlements of Rs.20,70,833/- from the profit derived from eligible unit being wind mill at Satara, Maharashtra.
5. It is, therefore, prayed that the amount received on sales of sales tax entitlements be considered as part of income of wind mill at Satara, Maharashtra and the above disallowances confirmed by the ld.
CIT(A) may please be deleted.
Additional Ground No.1
1. The appellant prays that on the facts and circumstances of the case and in law ld. CIT(A) ought to have treated the amount received on sale of Sales Tax Entitlement as "capital receipt" and therefore not liable to tax at all. He has erred in holding the same as taxable by treating it as 'revenue receipt' instead of 'capital receipt'.
53. The brief facts of the case are that the Assessing Officer has found that the profit included Rs.20,70,833/- as amount received on sale of sales tax entitlement in respect of windmill installed at Satara, Maharashtra. The Assessing Officer further observed that the sales tax entitlement is an ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 60 -
incentive which is calculated on the basis of investment made in the project which in this case is 1/6th of the eligible investment. The source of sales tax entitlement lies in the scheme formed by the Maharashtra State Government. Hence, it is not profit derived by the Industrial Undertaking and thus, not eligible for deduction u/s 80IA of the IT Act. For this, the Assessing Officer placed the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India Limited vs. CIT 183 Taxman 349 (SC).
54. On appeal, the ld. CIT(A) held as under:-
"11. I have considered the facts and the submissions. I do not agree with the appellant views. The sales tax exemption entitlement are the incentives given by the Maharashtra Government on the investment made by the assessee for installation of windmill and is calculated on the investment which in this case is 1/6th of the investment. It is not based on the turnover or the profit of the unit. The source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon'ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw Back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to the facts of the present case. In this case, the source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. Hence, by following the decision of Hon'ble Supreme Court, it is held that the Assessing Officer was justified in holding that the profit on sale of sales tax exemption entitlement, is not derived from the industrial undertaking and thus, not eligible for deduction u/s 80IA of the Act."
55. At the time of hearing, ld. AR for the assessee submitted that this issue was covered by the decision of the Tribunal in the case of sister concern of the assessee for the AY 2007-08 in ITA Nos.3011, 3012, 3013, 3093/Ahd/2010, order dated 19/12/2013, wherein the Tribunal has restored ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 61 -
this issue back to the file of the Assessing Officer for adjudication afresh. It was his prayer that in the present year of appeal also the issue should be restored to the file of the Assessing Officer with the very same direction as given in the AY 2007-08.
56. The learned Departmental Representative also agreed to the above submissions of the ld. AR for the assessee.
57. We find that the Tribunal in the case of sister concern of the assessee for AY 2007-08, vide a consolidated order dated 19/12/2013, has held as under:-
"29. The other issue in this appeal pertains to whether deduction u/s. 80IA will be allowable to the assessee on the sale proceeds of sales tax entitlement received by the assessee during the year under consideration.
30. The AO as well as the learned CIT(A) following the decision of Hon'ble Supreme Court in the case of Liberty India Vs. CIT, 317 ITR 128, wherein it has been held that profit on sale of DEPB and Duty Trade Back are not derived from the eligible business and therefore not eligible for deduction u/s. 80IA or 80IB of the Act.
31. Learned AR for the assessee during the course of hearing submitted that the main contention of the assessee before the learned CIT(A) was that the sales tax incentive was a capital receipt of the assessee and hence not liable to tax and for this proposition he relied on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Birla VXL Ltd. (supra). He contended that the learned CIT(A) has not adjudicated upon this contention of the assessee and neither has recorded the same in his order which was submitted to him by way of a written submission. He therefore contended that in view of the decision of the Hon'ble Jurisdictional High Court it has to be held that the sales tax incentives are capital receipt in the hands of the assessee not liable to tax. In the alternate submission he contended that if it is so held that its sales tax incentive was liable to tax that in view of the decision of the Hon'ble Gauhati High Court in the case of CIT V/s. Meghalaya Steel Ltd., (2013) 217 Taxmann.com 184 (Gau), the assessee is entitled for deduction on the sale of sales tax entitlement u/s.80IA of the Act because in that case the Hon'ble High Court has ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 62 -
held that transport subsidy, power subsidy, interest subsidy and Insurance subsidy reduces the cost of production of an Industrial undertaking and therefore there is first degree nexus between the said subsidies and profits and gains derived by industrial undertaking and the assessee was entitled for deduction u/s. 80IB in respect of subsidies so granted. We find that neither of the parties have filed before us copy of the sales tax entitlement scheme of the Government of Maharashtra under which the assessee has received the sales tax entitlement. Without going through the scheme it is not possible for us to adjudicate the issue completely. In our considered opinion, it shall be in the interest of justice to remit this matter back to the file of the AO for adjudication afresh.
32. The Hon'ble Gujarat High Court in the case of Birla VXL Ltd. has held as under:
"11. From the above provisions contained in the said Scheme, it can be immediately noticed that the scheme was framed as a part of Government's initiative to encourage modernization of existing industries in under-developed areas. The main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment. The Government responded positively to the representations that on account of rapid changes in technology, there was constant need for upgradation of technology in industries. It was, therefore, necessary to encourage modernization. As part of such a scheme, incentives were given to industries existing in under-developed areas to undertake modernization. The scheme thus was primarily concerned with the modernization of the existing industries. It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries. Thus, the main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas. It can be imagined that the industries will find it difficult without Government's incentive to undertake large-scale modernization with the use of modern technology. It was for this purpose that the said scheme was framed giving benefit of the Sales Tax Waiver/Deferment, at the option of the industry concerned. Such benefit had to be computed in terms of the percentage of the fixed capital investment. Benefits were to last for specified periods and upto exhausting maximum limit computed in terms of the percentage of the fixed capital investment.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 63 -
12. It can thus be straightaway seen that the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to- day functioning of the business, or for making the industry more profitable. The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry."
33. We, therefore, set aside this issue back to the file of the AO to re-adjudicate the same after considering the scheme of sales tax entitlement of the Government of Maharastra under which the assessee has received sales tax entitlement and also after taking into consideration the decision of the Hon'ble Gujarat High Court in the case of Birla VXL Ltd. (supra) quoted above. Needless to mention that the AO shall allow reasonable opportunity of hearing to the assessee before re-adjudicating the issue afresh. We order accordingly thus ground of appeal of the assessee is allowed for statistical purpose."
58. Facts being identical, respectfully following the precedent, we set aside the order of lower authorities and remand the matter back to the file of the Assessing Officer for re-adjudicating the issue afresh as per the directions of the Tribunal given in the case of sister concern of the assessee for AY 2007- 08 as quoted above. Thus, these grounds of appeal of the assessee are treated as allowed for statistical purposes.
59. Grounds No. 3 and 4 of the appeal read as under:-
3. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of the deduction claimed u/s 80IA for profits derived from electricity generation from Wind Mill at Bhogat, Gujarat of Rs.3,42,255/-.
4. The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of the deduction claimed u/s 80IA for profits derived from electricity generation from Wind Mill at Satara, Maharashtra of Rs.31,56,737/-
60. At the time of hearing, the ld. AR for the assessee submitted that this issue has been decided by the Tribunal in favour of the assessee in the case ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 64 -
of sister concern of the assessee for AY 2007-08 in ITA Nos.3011, 3012, 3013, 3093/Ahd/2010, order dated 19/12/2013. The ld. Departmental Representative also agreed upon the same.
61. We find that the Tribunal in the case of sister concern of the assessee for the AY 2007-08 has held as under:-
"7. The learned AR submitted that in all these appeals except for the change in figure, the facts are identical and therefore we are quoting the facts in the case of Jivrag Tea Ltd. in ITA No.3013/Ahd/2010 from the order of the learned CIT(A) which reads as under:
"6.2 The Assessing Officer has found that the profit included Rs.59,16,6667- as received on sale of sales tax entitlement in respect of windmill installed at Ahmednagar, Maharashtra. The Assessing Officer further observed that the sales tax entitlement is an incentive which is calculated on the basis of investment made in the project which in this case is 1/6th of the eligible investment. The source of sales tax entitlement lies in the scheme formed by the Maharashtra State Government. Hence, it is not profit derived by the Industrial Undertaking and thus, not eligible for deduction u/s.80IA of the I.T. Act. For this, the Assessing Officer placed the reliance on the decision of Hon'ble Supreme Court in the case of Liberty India Limited vs CIT 183 Taxman 349(SC).
6.3 Further, the Assessing Officer observed that for calculating the amount of deduction u/s.80IA, the provision of section 80IA(5) has to be applied and thereby unabsorbed business losses and depreciation of earlier year in respect of windmills has to be considered by treating it as the only unit existing from the year of installation, notwithstanding with the fact that unabsorbed business loss and depreciation was set off in the earlier year against the profit of other units. The Assessing Officer observed that the windmill at Ahmednagar Maharashtra was installed and commenced operations in AY.2002-03 and unabsorbed depreciation / business loss of this unit in isolation comes to Rs.3,53,59,339/- up to A.Y.2007-08. Similarly, windmill at Jodha Rajasthan was installed /commenced production in A.Y.2004-05 and the unabsorbed depreciation /business loss carried forward till A.Y.2007-08 comes to Rs.2,88,81,178/-, and windmill at Chitra Durga Karnataka was installed in A.Y.2005-06 up to A.Y.2007-08 the unabsorbed depreciation / business loss comes to Rs.4,20,00,983/- and ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 65 -
there remains no business profit as per the working given in the Annexure to the assessment order. By applying the provisions of section 80IA(5) and setting off with the business loss and unabsorbed depreciation of earlier year beginning from the year of installation of the windmill, the Assessing Officer has held that by doing this, there remains no profit from the windmill units. For this, the Assessing Officer has relied on the decision of Hon'ble ITAT Special Bench Ahmedabad in the case of ACIT vs Goldmine Shares & Finance Pvt Ltd. 113 ITD 209/Ahd(SB) whereon it was held that, in view of specific provisions of section 80IA(5), profits from the eligible business for the purposes of determination of quantum of deduction u/s.80IA, has to be computed after deduction of notional brought forward losses and depreciation of eligible business, even though they have been allowed to be set off against other income in earlier years. Hence, deduction u/s.80IA is nil. Accordingly, the claim of deduction u/s.80IA for Rs.92,41,888/-, Rs.63,69,121/- and Rs.2,48,928/- respectively was disallowed.
6.4 The appellant has submitted that the profit on sale of sales tax exemption and entitlement is derived from the Industrial Undertaking being the windmill and on this u/s.80IA is allowable. The decision of Hon'ble Supreme Court in the case of Liberty India Limited was in respect of profit received from DEPB and Duty Draw Back Scheme and it was held that such profit cannot be treated as having been derived from the eigible industrial undertaking. It was further submitted that liberal interpretation should be made of the benefiting sections so that the assessee can claim and avail various deductions given to him.
6.5 Regarding the application of the provision of section 80IA(5), the appellant has submitted that the initial assessment year shall be the assessment year falling within a period of 15 years beginning from the year in which the industrial undertaking commences operation, for which for the first time, the deduction u/s.80IA of the Act is claimed by the assessee, and not the assessment year relevant to the previous year in which the industrial undertaking commences operation. The appellant first time claimed deduction in A.Y.2004-05 for the unit Ahmednagar Maharashtra, in A.Y.2006-07 for Rajasthan windmill and in A.Y.2007-08 for Karnataka windmill, which becomes the initial year. The losses and depreciation of the years earlier to the initial assessment year (i.e. A.Y.2004-05, 2006-07 & 2007-08 respectively), which have already been absorbed against the profits of the other business, cannot be notionally brought forward and set off against the profits of the eligible business for ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 66 -
computing the deduction u/s.80IA of the Act. For this, the appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad). It was further submitted that the decision of Hon'ble Ahmedabad ITAT in the case of ACIT vs Goldmine Shares & Finance P. Ltd. 116 TTJ (Ahd)(SB), is not applicable as that decision was delivered before the amendment to the section by Finance Act, 1999. Before the amendment, initial assessment year was defined in the Act but after the amendment, there is no definition for initial assessment year in the Act and there is option to the assessee in selecting the year for claiming relief u/s.80IA of the Act.
6.6 I have considered the facts and the submissions. I do not agree with the appellant's views. The sales tax exemption entitlement are the incentives given by the Maharashtra Government on the investment made by the assessee for installation of windmill and is calculated on the investment which in this case is 1/6th of the investment. It is not based on the turnover or the profit of the unit. The source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. The Hon'ble Supreme Court has held in the case of Liberty India Ltd. that DEPB/Duty Draw back are incentives which flows from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962, hence incentive profits are not profits derived from the eligible business and therefore, duty draw back receipt/DEPB benefits do not form part of the net profit of the industrial undertaking for the purpose of section 80IA or 80IB. The ratio of this decision clearly applies to the facts of the present case. In this case, the source of the sales tax exemption entitlement lies in the scheme formed by the Maharashtra State Government for sales tax. Thus, the entitlement flows from the sales tax exemption scheme. Hence, by following the decision of Hon'ble Supreme Court, it is held that the Assessing Officer was justified in holding that the profit on sale of sales tax exemption entitlement, is not derived from the industrial undertaking and thus, not eligible for deduction u/s.80IA of the Act.
7. Regarding application of section 80IA(5), the section reads as under:
"(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-section (1) apply shall, for the purposes of determining the quantum of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 67 -
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 up to and including the assessment year for which the determination is to be made."
7.1 The Hon'ble ITAT Ahmedabad Special Bench in the case of ACIT vs Goldmine Shares and Finance Pvt. Ltd. has held that "section 80IA(5) deems that, for the purposes of determining the quantum of deduction, the eligible business as the only source of income of the assessee during the initial assessment year as well as subsequent years and has an over riding effect on all other provisions of the Act", (para 23) "Section 80IA(5) bids one to treat the eligible business as the only source of income of an undertaking as real, which is an imaginary state of affairs. One must surely (imagine) as also real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flown from or accompanied it i.e., there was no other source of income of the assessee. The statute says that you must imagine a certain state of affairs (eligible business being the only source); it does sot say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of the state of affairs, that there are other sources and that against those sources the unabsorbed depreciation or losses of eligible business were set off", (para 30) "It is implicit from the tenor and phraseology implied in section 80IA(5) that in substance, a legal fiction is created by which the eligible business has been treated as the only source of income. In construing this legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate, so, necessarily, all the provisions in the Act in respect of source of income will apply. As a consequence, the other sources of income of an assessee/undertaking would have to be assumed as not existing and consequently, any depreciation or loss cannot be set off against any other source which is assumed to have not been in existence and therefore, the depreciation or the loss of the ineligible business which could not be set off against the loss of the eligible business itself has to be carried forward or set off of the profits of the very source of ineligible business in the subsequent year", (para 31) ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 68 -
The words "as if such eligible business were the only source of income of the assessee" compel us to assume that the assessee is not having any other source of income except that which is eligible to deduction u/s.80IA which in this case is the units/undertaking, the units of the windmill generating electricity for the assessee. As per the wording of the sub section (5) of section 80IA, for the purposes of computation of the deduction, it has to be assumed that the only source of income of the assessee is the eligible business. The income or loss of this business alone is to be considered as if that were the only source. This means neither the income of the undertaking nor the loss thereof can be set off or carried forward and set off or adjusted against any other source of income or loss. As a corollary, the income or the loss of the other business or source cannot be considered or set off for determining the quantum of the deduction of the eligible business". Para 33) 7.2 Thus, it is evident that for calculating the deduction u/s.80IA, we have to treat that the appellant is having only the eligible business i.e. the windmill, as the only source of income and has no other business activity. Hence, the unabsorbed depreciation and business loss from the date of installation and running of windmill has to be taken into consideration and set off against this year's income. There is no justification for treating it as being set off with other business in earlier years, even if this was actually set off with the other income.
7.3 The submission of the appellant that initial assessment year has to be taken as the year in which the appellant first claimed deduction u/s.80IA and not the year of installation, is not acceptable. The appellant has relied on the decision of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs ACIT 38 DTR 57 (Mad), wherein the Hon'ble High Court has held that the initial assessment year means the year when first time the assessee opted for the deduction u/s.80IA and not the year of setting up/commencement of the business of the unit, because the initial year has not been defined in the Act and thus, liberal interpretation has to be made for the term 'initial assessment year' so that the appellant is allowed possible benefits given by the Act. With due respect to the Hon'ble Court, it is submitted that when any term is not defined and interpretation is to be made, the point of equity has also to be taken into consideration and it should not lead to discrimination among various assesees. If we take the initial year as not the year of installation/commencement but the year of first claim opted for, it will be disadvantageous to those assessees who do ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 69 -
not have any other source of income, other than the eligible business.
The following example will illustrate this point - The assessee "A" has started windmill in A.Y.2002-03 and had loss of Rs.2,50,22,495/- in 2002-03 & Rs. 1,50,13,463/-- in A.Y.2003-04 which was set off with other income. When the assessee claims deduction u/s.80IA for A.Y.2004-05, for the profit earned from windmill, he will get the deduction as per this interpretation.
However, if another person "B" has installed same windmill in A.Y.2002-03 and incurred the same loss from windmill in A.Ys.2002-03 & 2003-04, and does not have any other business having profit to set off with this loss, he will not have benefit of deduction u/s.80IA for same amount of profit earned in A.Y.2004-05. This will lead to discrimination.
The logical and equitable interpretation warrants that initial assessment year has to be taken as the year of installation/commencement of business and not the year when the claim is made for the first time. If this interpretation is taken, then the same treatment will be met out for both the assesses in the above example.
7.4 Further, the deduction u/s.80IA is allowed to an undertaking or an enterprise or an eligible business and not to an assessee. Hence, for allowing deduction u/s.80IA, only the windmill unit has to be considered separately ignoring the other businesses.
7.5 The amendment in section 80IA by Finance Act, 1999, has not made any material change on this point. The new section 80IA(2) is only in respect of period for claim of deduction u/s.80IA of the Act. Earlier it was from ten years beginning from the year of installation/commencement of business of eligible unit. Now, it has been spread and the assessee can opt and claim the deduction for ten years out of 15 years starting from the year of installation to fifteen years therefrom. This benefit was given so that the assessee can claim the deduction even if the break-even point is reached after five or even after ten years. Thus, intention was only to make the assessee eligible for claiming deduction even if the unit requires much more time to achieve the break-even point. However, there is no indication that the initial year should not be taken as year of installation/commencement but the year when the first time the assessee opts for deduction u/s.80IA of the I.T. Act. Even otherwise, the plain meaning of the word 'initial year' means the ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 70 -
year of installation/commencement of business of the eligible unit.
7.6 Therefore, in my humble opinion, even after the amendment in section 80IA by Finance Act 1999, the Special Bench decision in the case of ACIT vs Goldmine Shares & Finance Pvt. Ltd. (supra), will remain applicable without any change in the situation, and the initial year has to be taken as the year of installation / commencement of the business of eligible windmill units.
7.7 In view of this, it is held that the Assessing Officer was justified in disallowing the claim of the deduction u/s.80IA of the Act which is upheld and the appellant's ground is rejected."
8. Learned AR submitted that the issue regarding the initial year for deduction u/s. 80IA was decided in favour of the assessee by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT, (2012), 340 ITR 477, wherein the Hon'ble High Court after considering the amendment made by the Finance Act, 1999, w.e.f. 1.4.2000 and also considering the amended Section 80IA on para 16 of page 489 of the order concluded that loss in the year earlier to the initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profit of the eligible business as no such mandate was provided u/s.80IA(5). He further placed reliance on the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steels and Malleables vs. ACIT, (2010), 6 taxmann.com 47 (Chennai) and submitted that the Tribunal after considering the decision of the Special Bench of the Tribunal in the case of ACIT vs. Goldmine Shares and Finance (P.) Ltd., (2008), 113 ITD 209 (Ahd) (SB), arrived at the conclusion that sub section (5) would come into operation only in the year in which the assessee started claiming deduction u/s.80IA, i.e., from the initial year and depreciation relating to the years prior to the initial assessment year cannot be brought back notionally to be adjusted against the income of the initial or subsequent assessment years. It was held that the decision of the Special Bench of the Tribunal in the case of Goldmine Shares & Finance (P) Ltd. (supra) would apply to the 10 consecutive years starting from the initial year in which the assessee exercises its option to avail the deduction u/s. 80IA.
9. On the other hand, learned DR relied on the decision of Ahmedabad Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) and submitted that Section 80IA(5) would apply and the losses of the earlier years were to be brought forward notionally and adjusted against the profit of the initial ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 71 -
year of the assessee from eligible business as if this was the only business carried on by the assessee. It was the argument of the learned DR that the decision of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) was not a good law because the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemicals Supplies Ltd. vs ACIT, (2012) 20 taxmann. com 289 (Hyd) held that the judgment of the Hon'ble Madras High Court in the case of Velayudhaswany Spinning Mills (P) Ltd. (supra) though not of the jurisdictional High Court prevail over order of the Special Bench even though the jurisdictional Bench of the Tribunal. However, where the judgment of non Jurisdictional High Court, though the only judgment on the point has been rendered without having been informed about certain statutory provisions that are directly relevant, it is not to be followed. In our opinion, judgment of Special Bench in the case of Goldmine Shares and Finance (P.) Ltd (supra) was squarely applicable to the assessee and following the same we are inclined to decide the issue against the assessee relating to the allowability of deduction u/s.80IA that in terms of the provisions u/s.80IA(5) of the IT Act the profit from the eligible business for the purpose of determination of quantum of deduction u/s. 80IA has to be computed after deduction of the notional brought forward losses and depreciation of the eligible business even though they have been allowed set off against other income in earlier years.
10. In the rejoinder, the learned AR for the assessee submitted before the amendment made by the Finance Act, 1999 to Section 80IA, the initial year of deduction was defined in Section 80IA(2)(iv)(b) as the year in which the eligible undertaking begins to generate power any time during the year beginning on the 1st day of April, 1999 and ending on 31st day of March, 2000. He submitted that by the Finance Act, 1999 the original Section 80IA was split into two Sections i.e., Section 80IA and Section 80IB. He submitted that in the amended Section 80IA sub section (2) provides that the deduction specified in sub section (1) may at the option of the assessee be claimed by him for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking generate powers or commence transmission or distribution of power. Thus, his submission was that the initial year of deduction was left to the option of the assessee and the assessee could claim deduction for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking begins to generate power. He further submitted that in the amended Section 80IA there was no provision as originally existed u/s. 80IA(5) of the Act. He submitted that in Section 80IB (13) it has been provided that provision contained in sub section (5) of Section 80IA so far as may be applied to eligible business undertaking of that section.
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 72 -
11. Learned AR also relied upon the decision of Hon'ble Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. Vs. ACIT (2009) 116 ITD 241 (Chennai). He also relied upon the decision of the Chennai Bench of the Tribunal in the case of Rangamma Steel & Malleables Vs. ACIT, 132 TTJ 365 (Chennai). He further relied upon the decision of the Bangalooru Bench of the Tribunal in the case of Anil H. Lad Vs. DCIT, (2012), 25 taxmann.com 454 (Bang). He further relied upon the decision of Mumbai Bench of the Tribunal in the case of Shevie Exports Vs. JCIT, 33 taxmann.com 446 (Mum).
12. Learned DR also relied on the decision of Ahmedabad Bench (3rd Member) in the case of Kanel Oil and Export Industries Ltd. vs. JCIT (2009) 121 ITD 596 (Ahd) (TN) and submitted that it has been held that judgment of the non Jurisdictional High Court though the only the judgment on the point has been rendered was not binding on the Tribunal and therefore, it was the submission of the learned DR that following the decision of the Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P.) Ltd (supra) the issue should be decided in favour of the assessee.
13. Learned AR of the assessee countered the argument of the learned DR by pointing out that in the decision of the 3rd Member of the Ahmedabad Bench of the Tribunal in the case of Kanel Oil and Export Industries Ltd. (supra), it was held that where the judgment of the non Jurisdictional High Court though the only judgment on the point had been rendered without having been informed about certain statutory provisions which are directly relevant, the judgment rendered without noticing a previous binding precedent or a relevant statutory rule was "per incuriam", and therefore, was not binding on the Tribunal. He submitted that the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. (supra) had considered the amended provisions of Section 80IA of the Act while rendering the decision and it was the only decision of the High Court. No contrary decision has been cited by the learned DR and therefore respectfully following the same the issue should be decided in favour of the assessee.
14. Learned AR further argued that amount received on sale of sales tax entitlement was capital receipt, therefore, was not liable to tax. For this he placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Birla VXL Ltd. (2013) 32 Taxmann.com 330 Gujarat and submitted that the Hon'ble Gujarat High Court after considering the scheme of sales tax entitlement held that from the provisions of the said scheme it clearly emerges that the subsidy though computed in terms of sales tax deferment or waiver in essence it was meant for capital outlay expended by the assessee for set up of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 73 -
the unit in case of a new industrial unit and for expansion and diversification of an existing unit. As noted such subsidy was available only to a new industrial unit or a unit undertaking expansion or diversification. Fixed capital investment has been defined as to include various investments in land under use, new construction, plant and machinery etc. The entitlement was related to per centage of various capital investments. It is undoubtedly true that such subsidy was computed in terms of sales tax deferment and necessarily therefore, would accrue to an industry only once a commercial production commences. However this by itself would not be either a sole or concluding factor. In the case of Sahany Steel Press working Ltd. and Others vs. CIT reported in 228 ITR 253, the Apex Court held and observed that the character of the subsidy in the hand of the recipients whether revenue or capital will have to be determined having regard to the purpose for which the subsidy is given. The source of fund is quite immaterial. If the purpose is to help the assessee to set up its business or complete a project the monies must be treated as having been received for capital purposes. But, if monies are given to the assessee for assisting him in carrying out the business operations and given after the satisfaction of the conditions of commencement of production, such subsidy must be treated as assistance for the purpose of trade. He referred to pages 4 to 13 of the paper book no.2 and pointed out there from that it contains eligibility certificate for sales tax incentive wherein it is stated that the total project cost was Rs.5 crores and that sales tax benefit for the year 2006-07 was 1/6 of eligible investment which was Rs.83,33,33/- Thus it was his submission that the sales tax entitlement was given for setting up of the windmill farm project by the assessee for a period of six year, and therefore, the decision of the Hon'ble Gujarat High Court was applicable to the assessee and hence, the receipt was a capital receipt not liable to tax as held by the Hon'ble High Court.
15. On the other hand, the learned Department Representative submitted that the Hon'ble Gujarat High Court was considering the sales tax deferment scheme of the Government of Gujarat whereas in the case of the assessee the eligible unit was in the State of Maharastra, and therefore, the decision of Hon'ble Gujarat High Court rendered in the case of Birla VXL Ltd. (supra) would not apply to the assessee. The other argument of the learned Departmental Representative was that since the assessee had sold the sales tax entitlement, therefore, the assessee would not be eligible to claim the same as capital receipt not liable to tax.
16. In the rejoinder, the learned AR argued that the scheme in the case of the assessee of sales tax deferment was exactly the same as that of Gujarat Government and the Revenue has placed no material on record to show any distinguishing factors in the same. He ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 74 -
submitted that merely because the assessee sold the sales tax incentive which is a capital asset as held by the Hon'ble Gujarat High Court in the case of Birla VXL Ltd. cannot be a ground to treat the receipt as revenue.
17. We have heard the rival submissions and perused the order of the lower authorities and material available on record. In the case of Jivraj Tea Ltd., the assessee claimed deduction u/s. 80IA(4) of the Act on 100% profit derived from generation of electricity from windmill situated at Ahmednagar Maharashtra, Jodha Rajasthan and Chitradurga Karnataka. The Assessing Officer observing that since the assessee had carried forward losses of earlier years, therefore, the assessee was not entitled to deduction u/s.80IA(4) as after the adjustment of the brought forward losses there was no positive profit for allowing deduction u/s. 80IA. The same was confirmed in appeal by the learned CIT(A). The case of the Revenue is that in view of the decision of the Special Bench of the Tribunal rendered in the case of Goldmine Shares and Private Limited (supra) brought forward losses and depreciation of earlier years has to be deducted from the profits of the years under consideration before allowing deduction u/s. 80IA of the Act. On the other hand, the contention of the AR of the assessee is that after the amendment made by the Finance Act, 1999 in Section 80IA whereby u/s. 80IA(2) the assessee has the option to choose the initial year for claiming the deduction u/s. 80IA for 10 consecutive years within 15 consecutive years from the date of the commencement of the eligible unit. By placing reliance on the decision of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) it was the submission of the learned DR that once the assessee selects the initial year for claiming deduction under section 80 IA (4) then the earlier years brought forward losses and depreciations need not be adjusted against the profits of initial year from the eligible unit for allowing deduction under section 80IA to the assessee. The provisions of section 80 IA (5) shall apply for the years after the initial year for computing the deduction allowable to the assessee under section 80IA of the Act.
18. We find force in the submission of the learned AR of the assessee. We also find that it is an undisputed fact that in all the appeals under consideration the initial year chosen by the assessee for claiming deduction is after 1-4-2000 when the amended provision of section 80IA was applicable.
19. Section 80IA, which has been substituted w.e.f. 1st April 2000, provides that where the gross total income of an assessee includes any profits and gains derived by an undertaking from any eligible business referred to in sub-section 4, there shall, in accordance with ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 75 -
and subject to the provisions of this section, be allowed in computing the deduction of an amount equal to 100% of the profits and gains derived from such business for 10 consecutive years. Substituted sub- section (2) of section 80IA, provides that an option is given to the assessee for claiming any 10 consecutive assessment year out of 15 years beginning from the year in which the undertaking or the enterprise develops and begin to operate. The 15 years is the outer limit within which the assessee can choose the period of claiming the deduction. Sub-section (5) is a non-obstante clause which deals with the quantum of deduction for an eligible business. The relevant provision of sub-section (5) of section 80IA, reads as under:-
"(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-section (1) apply shall, for the purposes of determining 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 up to and including the assessment year for which the determination is to be made."
20. From a plain reading of the above, it can be gathered that it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under Section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of Section 80IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80IA(5). The loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 76 -
business is the only source of income and then only deduction under section 80IA can be determined. This is the true import of section 80IA(5).
21. In the decision of Goldmine Shares and Finance Pvt. Ltd. (supra), decided by the Special Bench of the Tribunal, the claim of deduction by the assessee had started from assessment year 1996-97 onwards and the assessee had claimed deduction under section 80IA starting from the first year itself i.e., assessment year 1996-97. Thus, the Special Bench was dealing with the operation of section 80IA(5) where the assessee had first claimed the deduction in the assessment year 1996-97 and for subsequent assessment years. This aspect of the matter has been very well elaborated by the Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) after considering the Special Bench decision of the Tribunal in Goldmine Shares And Finance Pvt. Ltd. (supra) and relevant provisions of the Act i.e., pre amendment and post amendment have come to the same conclusion:-
"From reading of the above, it is clear that the eligible business were the only source of income, during the previous year relevant to initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created.
22. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 8o-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-s. (6) ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 77 -
of s. 8o-I, which is the corresponding provision of sub-s. (5) of s. 80- IA. Both are similarly worded and therefore we agree entirely with the Division Bench judgment of this Court cited supra. In the case of CIT vs. Mewar Oil &.General Mills Ltd. (2004) 186 CTR (Raj) 141: (2004) 271ITR 311 (Raj), the Rajasthan High Court also considered the scope of s. 80-I and held as follows:-
"Having considered the rival contentions which follow on the line noticed above, we are of the opinion that on finding the fact that there was no carry forward losses of 1983-84, which could be set off against the income of the current asst. yr, 1984-85, the recomputation of income from the new industrial undertaking by setting off the carry forward of unabsorbed depreciation or depreciation allowance from previous year did not simply arise and on the finding of fact noticed by the CIT(A), which has not been disturbed by the Tribunal and challenged before us, there was no error much less any error apparent on the face of the record which could be rectified. That question would have been germane only if there would have been carry forward of unabsorbed depreciation and unabsorbed development rebate or any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under s.80-I for the purpose of computing admissible deductions thereunder.
23. In view thereof, we are of the opinion that the Tribunal has not erred in holding that there was no rectification possible under s. 8o-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under s. 8o-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs."
24. From reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under Section 80-1 for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view."
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 78 -
25. This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTK 262 (Mad.). From the above, ratio of the High Court, it is amply clear that sub- section (5) of section 8oIA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2).
26. Now coming to the decision of the Mumbai Bench Tribunal in Pidilite Industries (supra) as relied upon by the learned Departmental Representative in this case, the Tribunal was dealing with regard to two eligible units one Gujarat Unit which was set-up in the year 1995- 96 and second Maharashtra Unit in the year 2000-01. With regard to Gujarat Unit, the Tribunal held that pre-amendment definition of initial assessment year would be applicable i.e., provisions which were prior to 1st April 1999 will apply because the assessee had started commercial production in the financial year 1996-97. Regarding second unit, the Tribunal held that the judgment of Madras High Court in Velayudhaswamy Spinning Mills Pvt. Ltd. (supra) will not be applicable because the income from non eligible business was set-off from the loss of eligible business in the year of commencement. In this case, it was not an issue as to whether the losses pertained to prior to initial assessment year or after the initial assessment year. If the losses have been incurred in the eligible unit and has been set-off against the non- eligible unit after the initial assessment year, then the ratio laid down by the Tribunal is in full consonance with the law. However, this is not the case in the instant case because the loss pertained to prior to initial assessment year which have been set-off against the profits of non-eligible units. The beginning of the initial assessment year as adopted by the assessee is assessment year 2008-09 only and, therefore, the loss of assessment year 2007-08 cannot be notionally carried forward within the meaning of section 80IA(5). Thus, the reliance placed by the learned Departmental Representative on the decision of Pidilite Industries (supra), will not be applicable in the present case.
27. The other decision heavily relied upon by the learned Departmental Representative in Hyderabad Chemical Supplies Ltd. (supra) will also not apply to the facts of the present case, as in that case, the wind mill started its operation on 3ist March 1999 and the first year of operation was assessment year 1999-2000. Thus, in the assessment year 1999-2000, the definition of "initial assessment year"
was already there in the Act and there was no provision through which the assessee could have chosen its initial assessment year. This provision was brought in statute w.e.f.1st April 2000, by virtue of ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 79 -
section 80IA. Thus, this decision also will not help the case of the M/s. Shevie Exports Department. In asseessee's case, as specifically stated in the foregoing paragraphs, the assessee's claim for initial assessment year i.e., assessment year 2008-09 and its claim for deduction under section 80A made for the first time from assessment year 2008-09, has not been disputed. Thus, the aforesaid judgment relied upon by the learned Departmental Representative will not be applicable to the facts of the present case.
28. We reiterate in the instant case, it is not in dispute that the initial Assessment Year in the case of Jivraj Tea & Industries Ltd. is the Assessment Year 2004-05 and in the case of Jivraj Tea Ltd. is Assessment Year 2007-08 and it is also not in dispute that the assessee has not suffered any loss in the said year, therefore, in our considered opinion no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act. We, therefore, set aside the orders of the lower authorities on this issue and allow the ground of appeal of the assessee."
62. Facts being identical, respectfully following the precedent, we set aside the order of lower authorities on this issue and allow ground Nos.3 & 4 of the appeal of the assessee.
63. In the result, the appeal of the assessee in ITA No.866/Ahd/2012 for AY 2008-09 is partly allowed in the manner indicated above. The appeals of the assessee in ITA No. 1994/Ahd/2012 for AY 2009-10 and 3014/Ahd/2010 for AY 2007-08 are allowed in the manner indicated above, while the appeals of the Revenue in ITA No.982/Ahd/2012 for AY 2008-09 and 2181/Ahd/2012 for AY 2009-10 are dismissed.
Order pronounced in the Court on Thursday, the 28th of August, 2014 at Ahmedabad.
Sd/- Sd/-
(KUL BHARAT) ( N.S. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 28/08/2014
*Bt
ITA Nos 866, 982, 1994, 2181 of 2012
- Jivraj Tea Ltd.
& 3014 of 2010 - Jivraj Tea Co.
- 80 -
TRUE COPY
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आयु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)-III, Ahmedabad
5. वभागीय त न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad