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M/s. Patankar Wind Farm Pvt. Ltd. Versus The Dy. Commissioner of Income Tax

2015 (5) TMI 147 - ITAT PUNE

Claim of deduction under section 80IA - whether Sales Tax benefit was inextricably linked to the industrial undertaking and was integral part of the profit derived from power generation by the said undertaking, eligible for deduction? - Held that:- The assessee is in receipt of sales tax subsidy, which undoubtedly, is a revenue receipt in the hands of the assessee, but the said subsidy does not in any manner reduce the cost of production of industrial undertaking. It is a benefit given to the in .....

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eceived by the assessee is not eligible to the deduction under section 80IA of the Act. The sales tax subsidy received by the assessee is an Incentive subsidy and is not an operational subsidy and consequently, does not affect profits of the business and is not linked to the profits of industrial undertaking and hence, is not deductible in terms of provisions of section 80IA of the Act. Thus no merit in the claim of assessee and rejecting the same, we modify the order of CIT(A) to the extent tha .....

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tion 80IA(5) of the Act and not the losses of earlier years, which had been adjusted against other income of the assessee in the relevant year itself. - Decided in favour of assessee. - ITA Nos.2225 & 2226/PN/2013 - Dated:- 10-4-2015 - Shri G.S. Pannu And Ms Sushma Chowla JJ. For the Appellant : S/Shri Prayag Jha / Prateek Jha For the Respondent : Shri Hemantkumar C. Leuva ORDER Per Sushma Chowla, JM: Both the appeals filed by the assessee are against separate orders of CIT(A)-II, Pune, dated 03 .....

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- On the facts and in the circumstances of the case and in law- 1.The ld. CIT(A) was not justified in rejecting the Appellant's contention that the Sales Tax benefit was inextricably linked to the industrial undertaking and was integral part of the profit derived from power generation by the said undertaking, eligible for deduction u/s 80IA(i) 2.The Id. CIT(A) was not justified in rejecting the Appellant's contention that the Sales Tax benefit granted to the Appellant was part of a benef .....

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ied in not appreciating that sec.80IA(1) did not provide for the meaning of the term' initial year' and the Appellant had opted for 2003-04 as the initial year for claiming deduction u/s 80IA(1). 5.The Ld. CIT(A) was not justified in not appreciating that there was no notional loss of ₹ 1,60,32,591/- to be carried forward to Assessment Year 2005-06, and such loss was already adjusted against the Appellant's income in the earlier assessment years. 6. The Appellant craves leave t .....

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the legal consultant, the said order was mis-placed and the appeal was not filed within period of limitation. However, after lapse of considerable time, the said consultant informed the assessee that the copy of the original document was found in some other client s file. Thereafter, the assessee engaged another legal advisor and who in turn filed the appeal before the Tribunal after a delay of 2193 days. 5. The assessee in this regard, has furnished an Affidavit which reads as under:- Affidavit .....

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tant/legal advisor for further action. That, the said consultant / legal advisor has been looking after the company s all tax related matters in the past. That, due to inadvertence of the staff of the consultant/legal advisor, the said order was misplaced. That, because of the inadvertence or negligence of the staff of the said consultant / legal advisor appeal against the appellate order could not be filed within the period of limitation. That, after lapse of considerable time, the said consult .....

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hat, there was no deliberate delay or inaction on the part of the appellant Company in filing the said appeal. Solemnly affirmed on this day of 29th November of 2013, at Patan Deponent Before me, Notary Public 6. The learned Authorized Representative for the assessee placed reliance on the ratios laid down on the following cases:- i) Collector Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors, 1987 SCC (2) 107 JT 1987 (1) 537 ii) CIT Vs. West Bengal Infrastructure Development Finan .....

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tative for the Revenue further stated that there was no merit in the submissions made by the assessee and reliance was placed on the following decisions:- i) Jyoti Chemicals Vs. DCIT (2009) 27 SOT 433 (Mum) ii) ACIT Vs. Petroleum India International (2012) 27 taxmann.com 325 (Mum) iii) SRF Limited Vs. ACIT, in ITA No.3555/Del/2009, order dated 13.11.2014 iv) Somerset Place Co-operative Housing Society Ltd. Vs. ITO in ITA No.874 of 2014 8. We have heard the rival contentions and perused the recor .....

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supra) held as under:- "When technical consideration and substantial justice are pitted against each other, the courts are expected to further the cause of substantial justice. This is for the reason that an opposing party in a dispute cannot have a vested right in injustice being done because of a non-deliberate delay. Therefore, it follows that while considering matters relating to the condonation of delays a judicious and liberal approach is to be adopted. If sufficient cause is found to .....

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w rather than to dispose it of on such technicalities and that too at the threshold. Both sides had tried to argue the matter on merits but we refrain ourselves from touching the merits of the matter as that can best be done by the Executing Court which had denied an opportunity to the appellant to lead evidence and to prove the issues so formulated. 3. In our opinion, ends of justice would be met by setting aside the impugned orders and matter is remitted to the Executing Court to consider and .....

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ever, by not filing the appeal within the period of limitation. It is also worth noticing that delay was also not that huge, which could not have been condoned, without putting the respondents to harm or prejudice. It is the duty of the Court to see to it that justice should be done between the parties. 10. We further find that the Hon ble Bombay High Court in M/s. Prima Paper & Engineering Pvt. Ltd. Vs. CIT (supra) on the issue of condonation of delay of 515 days in filing the appeal late o .....

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;'sufficient cause" should be interpreted liberally. It is further submitted that since the appellant's appeal raising the same question for the earlier assessment year has already been admitted, this Court may exercise its discretion for, condoning the delay. 7. On, the other hand, learned counsel for respondent-revenue has opposed the notice of motion. It is submitted that there is gross delay and negligence on the part of the appellant in taking necessary steps within the period .....

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pend upon the circumstances of the case. Any observation of an illustrative circumstance or fact, will only tend to be a curb on the free exercise of the judicial mind by the Court in determining whether the facts and circumstances of a particular case amount to sufficient cause or not. It is needless to emphasize that courts have to use their judicial discretion in the matter soundly in the interest of justice. The words "sufficient cause should receive a liberal construction so as to adva .....

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y in filing the appeal has been caused on account of what appears to be negligence on the part of the staff of the appellant's consultant, we are of the view that interests of justice would be served if delay in filing the appeal is condoned, subject to the condition that the appellant shall pay costs quantified at ₹ 10,000/- to the respondent-, which shall be paid within one month from today. 11. The learned Departmental Representative for the Revenue on the other hand had placed reli .....

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Bombay High Court had not condoned the delay in filing the appeal late as in the reasons, the assessee had claimed that it had first taken a decision not to move further proceedings against the order of Tribunal since there were three authorities against him and later on a decision in the case of other persons, it moved an appeal before the Hon ble High Court and it was held that the case of the assessee did not fall within the parameters of sufficient cause. However, as referred to by us in the .....

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of reason for delay. In the totality of the above said facts and circumstances, the delay in filing the present appeal belatedly deserved to be condoned. Accordingly, we condone the delay in filing the appeal before the Tribunal and proceed to decide the appeal on merits after hearing both the parties. 12. The issue raised in both the appeals is in relation to the claim of deduction under section 80IA of the Act. 13. The brief facts of the case are that the assessee was engaged in the business o .....

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uction be allowed under section 80IA of the Act when the receipts of sale of sales tax benefit were not derived from the business of power generation and there was no nexus of such receipts with that of windmill power generating. In reply, the assessee explained that it was engaged in the business of manufacture and sale of alternate source of energy i.e. energy generated from wind farm. Further, the contention of the assessee was that with a view to encourage installation of wind energy generat .....

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y year with a minimum of 12% plant load factor. In case, the said 12% load factor is not obtained, the sales tax benefit would not be available under the scheme. The sales tax benefit, which was equivalent to the amount of investment in plant & machinery, new building, etc. was to be disbursed in six equal installments over a period of six years under the condition that the plant had successfully operated every year with a minimum of 12% plant load factor. As per the assessee, since the sale .....

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between the undertaking and the related income. Further, words which were earlier used i.e. attributable to , have been replaced with the word derived from and in view of the definition, the sales tax benefit availed by the assessee which was permitted to be sold, does not have any incidental nexus with the running of undertaking perse, but has direct nexus to the State Government s benefits schemes. The Assessing Officer held that the benefit given to the assessee do not qualify for deduction u .....

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s i.e. wind power generation and the other of dealing in land purchase, sale and land development. As per the Assessing Officer, while computing the deduction under section 80IA(4)(iv)(a) of the Act, the assessee had not correctly computed the deduction under section 80IA(5) of the Act. Where, as per the Assessing Officer, the income of both the units should have been computed separately as individual units and deduction was required to be allowed only if there were profits and gains of eligible .....

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e meaning of expression derived from as used in section 80IA of the Act, the same should be understood as profit directly arising from the business and not incidental to. The CIT(A) further held that the sale of sales tax subsidy received by the assessee sold to the outside parties, was not the direct result of any generation or distribution of power and it was further held that just because the assessee got this benefit by virtue of its windmill generation, it could not be said that the sale of .....

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that since the section 80IA(5) starts with non-obstinate clause overriding the effect of provisions of section 80AB of the Act also mandates that the profits of eligible business would have to be computed as if they were the only source of income. Against the gross receipts from the said wind power generation, the expenditure incurred in earning the income from the eligible business would have to be deducted and only on the net income deduction under section 80IA of the Act was to be allowed. In .....

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f the assessee for any 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or enterprise begins to operate the infrastructure facility. A harmonious construction of sections 80IA(1), 80lA(2), 80IA(5) and 80AB of the Income Tax Act, 1961 makes it clear that these sections do not give any right to the assessee to first set off depreciation against the other income in the initial assessment year when the undertaking begins to operate and then start claim .....

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tion on windmill ought to have been deducted from the receipts generated from the business of generation of power, by treating the said business on standalone basis and the contention of the assessee in this regard, was rejected. The Assessing Officer was directed to re-compute the carried forward losses from the windmill from the initial assessment year after giving opportunity to the assessee to rebut so that there was no mistake in setting off the loss computed as if the windmill was only the .....

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e Bench of the Tribunal in Rasiklal M. Dhariwal (HUF) Vs. DCIT in ITA No.575/PN/2007 & 150/PN/2008 relating to assessment years 2003- 04 & 2004-05, vide order dated 31.03.2011, the Tribunal held the receipt to be a revenue receipt. It was further pointed out by the learned Authorized Representative for the assessee that the sales tax subsidy received by the assessee was an integral part of the business income and hence was business receipt, which had been declared as business receipts by .....

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the said subsidy received by the assessee was derived from the business undertaking. Further reliance was placed on the ratio laid down by the Hon ble Gauhati High Court in CIT Vs. Meghalaya Steels Ltd. (2013) 34 taxmann.com 34 (Gauhati) and by the Hon ble Delhi High Court in CIT Vs. Koshika Telecom Ltd. (2006) 287 ITR 479 (Delhi) and Hon ble Bombay High Court in CIT Vs. Valiant Glass Works (P.) Ltd. (2014) 50 taxmann.com 268 (Bombay). The plea raised by the assessee was that since the rate of s .....

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g to assessment year 2009-10, vide order dated 14.08.2014. 18. We have heard the rival contentions and perused the record. The issue in grounds of appeal Nos.1 and 2 is holding the assessee not eligible for deduction under section 80IA of the Act on the sales tax benefit granted to the assessee under the scheme of State Government to promote generation of wind energy. The assessee during the year under consideration was engaged in the business of wind power generation and also dealing in land pu .....

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r to encourage installation of wind energy generator units had published policy dated 12.03.1998, under which sales tax benefit was available to the person, equivalent to qualifying investment on wind energy generation projects. The said benefit under the scheme was given under prescribed conditions. One of the conditions was that the wind energy generated had to be sold to Maharashtra State Electricity Board at a fixed rate, subject to certain escalations and further, the assessee had to obtain .....

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assessee is in inextricably linked to the industrial undertaking carrying on the activity of wind generation energy. Since it is directly linked to the manufacturing of wind energy and was also derived from carrying on of industrial activity of wind energy, it was entitled to the claim of deduction under section 80IA of the Act on such sales tax subsidy. 19. The Pune Bench of the Tribunal in Rasiklal M. Dhariwal (HUF) Vs. DCIT (supra) had considered the said scheme of subsidy granted by the Stat .....

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venue receipt, which has been so declared by the assessee in its return of income. The second aspect of the issue is whether the said sales tax subsidy is eligible for the benefit of deduction under section 80IA of the Act. 20. Second 80IA of the Act provides that deduction in respect of profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) i.e. admittedly, the assessee is one such enterprise carrying on the business of wind energy generati .....

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rom in section 80I/80IA of the Act. The Hon ble Supreme Court in CIT Vs. Sterling Foods (supra) had held that for claiming the benefit under section 80IA, there needed a direct nexus between the undertaking and the related income. The relevant portion of the decision of Hon ble Supreme Court is as under:- 6. The question, therefore, was whether the income derived by the assessee by the sale of the import entitlements was profit and gain derived from its industrial undertaking of processing sea f .....

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ly, attributable to , was used when the Legislature intended to cover receipts from sources other than the actual conduct of the business. The Division Bench of the High Court observed that to obtain the benefit of section 80HH the assessee had to establish that the profits and gains were derived from its industrial undertaking and it was just not sufficient that a commercial connection was established between the profits eared and the industrial undertaking. The industrial undertaking itself ha .....

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proceeds of the import entitlement was, therefore, the Scheme of the Central Government and not the industrial undertaking of the assessee. …. 12. We do not think that the source of the import entitlements can be said to be the industrial undertaking or the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the export entitlements become available. There must be, for the applicatio .....

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s' industrial undertaking. 21. The Hon ble Supreme Court in Liberty India Vs. CIT (2009) 317 ITR 218 (SC) had held that immediate source of income is to be looked into while allowing deduction under section 80IA of the Act and where there is a first degree of source, then the same is to be held to inextricably linked to the profits of the industrial undertaking eligible for benefit under section 80IA of the Act. 22. The learned Authorized Representative for the assessee on the other hand pla .....

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uld be entitled to the deduction under section 80HHC of the Act to the extent of profits derived by the assessee from the export of such goods or merchandise. The said decision is not relevant to the issue raised in the present appeal before us, which is to adjudicate the meaning of derived from the business of an undertaking or an enterprise. 23. Another reliance placed upon by the learned Authorized Representative for the assessee was on the ratio laid down by the Hon ble Delhi High Court in C .....

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Another reliance placed upon by the learned Authorized Representative for the assessee was on the ratio laid down by Hon ble Gauhati High Court in CIT Vs. Meghalaya Steels Ltd. (supra), wherein the Hon ble High Court held that the transport subsidy, power subsidy, interest subsidy and insurance subsidy reduced the cost of production of an industrial undertaking and since there was first degree nexus between the said subsidies and the profits and gains derived by an industrial undertaking, theref .....

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the industrial undertaking and hence, the same were held to be eligible for deduction under section 80IB / 80IC of the Act. However, in the facts of the case before us, the assessee is in receipt of sales tax subsidy, which undoubtedly, is a revenue receipt in the hands of the assessee, but the said subsidy does not in any manner reduce the cost of production of industrial undertaking. It is a benefit given to the industrial undertaking for establishing the wind energy generation units in the St .....

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he Act. The sales tax subsidy received by the assessee is an Incentive subsidy and is not an operational subsidy and consequently, does not affect profits of the business and is not linked to the profits of industrial undertaking and hence, is not deductible in terms of provisions of section 80IA of the Act. 25. We further find support from the ratio laid down by the Panji Bench of the Tribunal in ACIT Vs. M/s. Shaiv Distilleries (P) Ltd. (supra). In view of the same, we find no merit in the cla .....

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ed by the order of Tribunal in assessee s own case in ITA No.2227/PN/2013 relating to assessment year 2008- 09, wherein the Tribunal vide order dated 31.10.2014 had held the assessee to be entitled to the claim of deduction under section 80IA of the Act at the exercise of an option of 10 consecutive years. Further, the Tribunal also had held that where the losses have been adjusted against the assessable income other than the profits of the industrial undertaking, then the said losses could not .....

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d perused the record. We find that the issue arising in the present appeal in relation to the provisions of section 80-IA(5) of the Act. Similar issue arose before the Tribunal in the case of Shri Sangram Patil vs. ITO in ITA No.177 & 178/PN/2011 relating to assessment year 2006-07 & 2007-08 vide dated 12.12.2012. The Tribunal considered the provisions of section 80-IA(5) of the Act and observed as under :- 5. The bone of contention between the assessee and the Revenue is with regard to .....

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of the Tribunal in the case of Serum International Ltd. vs. Addl.CIT (supra) in para 6 and observed as under :- 6. Before us, the learned counsel for the assessee has submitted that the Pune Bench of the Tribunal in the case of Serum International Ltd. Vs. Addl. CIT Range 6, Pune in ITA Nos. 290 to 292/PN/2010 for A.Y. 2004-05 to 2006-07 vide order dated 28-9- 2011 has considered an identical controversy and after following the decision of the Hon ble Madras High Court in the case of Velayudhasw .....

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ss even though they have been allowed set off against other non-eligible business income in earlier years. The submission of the Ld A.R. remained that on the wind mills set up in the previous year relevant to A.Y. 2002-03, the assessee had claimed depreciation at the rate of 100% thereon i.e. ₹ 3.54 Crores, which was fully set off against the another income in the said A.Y. 2002-03 itself. In the A.Y. 2004-05, the assessee had positive income from the said generation activity and there wer .....

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ars for claiming the deduction. He submitted that the term initial year in sub-section (5) of 80IA is not defined and is used in contradiction to the words beginning from the year used in sub-section (2). He submitted that the assessee chose A.Y. 2004-05 as initial A.Y being the first year in which it claimed deduction u/s. 80IA and therefore, losses/depreciation beginning from A.Y. 2004-05 alone could only be brought forward and set off. Depreciation of the preceding A.Y. 2002-03 could not have .....

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the case of Prima Paper Engg (P) Ltd. Vs. ITO (Supra) and there the assessee did not dispute the fact that the authorities below have decided the issue following the decision of Special Bench of the Tribunal in the case of ACIT Vs. Goldmine Shares.. The Ld. A.R. pointed out that decision of Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd Vs. ACIT (Supra) was not cited before the Pune Bench in the case of Prima Paper Engg (P) Ltd. Vs. ITO (Supra). The Ld. A.R. has a .....

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on the other hand remained that deduction u/s. 801 and 801A covered inter alia, industrial undertakings. The power generation units found a specific mention for the first time w.e.f. 1.4.1993. In all the years from 1.4.1981 to 31 to 31st March 2000 in both u/s. 80I and 80IA, the term initial A.Y was defined and meant the first A.Y. relevant to the previous year in which the eligible unit commences production/power generation. Only from 1.4.2000, when Sections 80IA was replaced with Section 80IA .....

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1.4.2000. The Ld. D.R. submitted that the decision of Special Bench of the Tribunal in the case of Goldmine Shares and Finance (P) Ltd. (Supra) is fully applicable in the present case. He pointed out that in its recent decision dt. 21st January 2011, the Hyderabad Bench of the Tribunal in the case of Hyderabad Chemical Supplies Ltd. Vs. ACIT (Supra) has also decided an identical decision in favour of the Revenue following the decision of Special Bench of the Tribunal in the case of ACIT Vs. Gol .....

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been pleased to hold that such profits are to be computed as if such eligible business is the only source of income of the assessee. The devices adopted to reduce or inflate the profit of eligible business has got to be rejected in view of the overriding provisions of Sub-section (5) of Section 80IA of the Act. 13. Having been considered the above submissions, we find that the issue raised in Ground No. 1 as to what would be the initial A.Y for the purposes of Section 80IA(5) of the Act has been .....

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ding that the initial A.Y for the purposes of Section 80IA(2) r.w.s. 80IA (5) was the year in which the assessee started generating electricity from the wind mill activity. We also find that the issue raised in Ground No. 2 regarding the eligibility of the assessee to claim deduction u/s. 80IA undiminished by unabsorbed losses and depreciation also set off in earlier years against the other income, is fully covered by the decision of Hon ble Madras High Court in the case of Velayudhaswamy Spinni .....

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cannot notionally bring forward any loss of earlier years which had already been set off against the other income of assessee and set off against the correct income of the eligible business. Fiction created by Sub-section (5) of Section 80IA does not contemplate such notional set off, held the Hon ble High Court. The Hon ble Madras High Court in that decision has also referred the decision of Hon ble Supreme Court in the case of Liberty India Vs. CIT (Supra) and the decision of Special Bench of .....

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has been pleased to hold in a case of excise matter that Tribunal is bound by the decision of High Court , even of a different State, so long as there is no contrary decision of any other High Court. The Hon ble Bombay High Court has been pleased to hold further that the Tribunal had no option but to follow the judgment of the Madras High Court. An authority like an Income Tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State .....

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en by the Hon ble Madras High Court in that case on an identical issue under almost similar facts, hold that when the assessee exercising the option, only the losses of the year beginning from the initial A.Y. are to be brought forward and not the losses of earlier year which have been already set off against the other income of the assessee. The revenue cannot notionally bring forward any loss of earlier years which has already been set off against any other income of the assessee and set off t .....

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firstly the decision of the Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. Vs. ACIT (Supra) on the issue was not cited before the Bench and secondly the ld. AR fairly agreed that the issue raised was covered against the assessee by the decision of Special Bench in the case of ACIT Vs. Goldmine Shares & Finance (P) Ltd. (Supra) followed by the authorities below. The ld. AR therein thus contended that though the issue may be decided against the assessee in view .....

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ble Madras High court in the case of Velaydhaswamy Spinning Mills (P) Ltd. (supra) was being cited whereas the Revenue had relied upon the decision of Special Bench of the Tribunal in the case of Asstt. CIT Vs. Goldmine Shares and Finance (P) Ltd. (2008) 116 TTJ (Ahd) (SB) 705 to the contrary. The Tribunal noticed that having regard to the decision of the Hon ble Madras High court the issue was to be decided accordingly and not on the basis of decision of Special Bench of the Tribunal in the ca .....

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f against other income of the assessee. 8. At the time of hearing, the learned DR has not brought to our notice any decision of a High Court contrary to that of the Hon ble Madras High Court in the case of Velaydhaswamy Spinning Mills (P) Ltd. (supra) on the issue in question. Therefore, we find that the controversy before us is no longer res integra and is in fact covered in favour of the assessee by the decision of Pune Bench of the Tribunal in the case of Serum International Ld. (supra) which .....

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