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TMI Blog2016 (4) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company in the memo of appeal filed with the Tribunal read as under:- "(1) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to allow depreciation amounting to Rs. 1.86 crores on the windmill without appreciating that during the survey action u/s. 133A of the I.T. Act, it was clearly established that the windmill was not commissioned and put to use during the relevant Assessment Year for the A.Y. 2003-04 ? (2) Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to allow depreciation amounting to Rs.I.86 crores, without appreciating that the windmill was not made operational and that one of the employees of M/s. Suzlon Energy Ltd., substantiated that the wind mill was installed beyond the relevant accounting period ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored. " 4. The brief facts of the case are that the assessee company derived income from trading in cotton yarn, fabric, raw cotton, paper and windmill power. The assessee company's original assessment was completed by the AO u/s 143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lon Energy Ltd., action u/s. 133A of the Act was carried out by the Investigation Wing on 05-04-2006 and during the course of survey on 05-04-2006, the survey team physically inspected the windmill in the presence of company's representatives as also statement of the responsible persons were recorded and during the course of survey, it was found that the date of installation of assessee company's windmill at Soda-Mada was 01/04/2003 which was certified by the competent person of M/ s. Suzlon Energy Limited. Since the supplier of windmill i.e., M/s. Suzlon Energy Ltd., has certified that the windmill was installed on 01/04/2003, who were responsible of installing the windmill being supplier of the windmill. The A.O. contended that the windmill cannot be commissioned before installation. The AO held that the documents submitted by the assessee company vide above referred letter cannot be taken as an authentic document since the same is not supported by full facts and documentary evidences as also the same are self generated documents. The certificate of Executive Engineer, Jaisalmer do not bear the seal of the authority and hence the authenticity of the claim is doubtful. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any submitted that that the said Xerox paper is not an evidence at all. The said Xerox paper has neither been signed by the Chairman nor by the responsible director of M/s Suzlon Energy Limited. It does not bear name, stamp nor seal of any Income Tax Officer nor an authorized officer of M/s Suzlon Energy Limited and hence cannot be relied upon. The said document was prepared on 5-4-2006 which is after three years of installation and commissioning of windmill at SODA-MADA- Jaisalmer and which record power generation only from 1-1-2006 to 5-4-2006 at 291097 units and the A.O. reopened the concluded assessment u/s 143(3) of the Act based on the said document. The assessee company contended that the assessee company had completed the installation and commissioning of the windmill on 30.03.2003 and the depreciation at 50% was correctly claimed on the basis of the following evidences, which submissions containing reliance on the documents by the assessee company are reproduced hereunder: "1. The office of The Executive Engineer ( O & M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcutta High Court held that the trial production was sufficient to claim justly and properly both depreciation and investment allowance. The assessee company further relied on the decision in the case of Omkar Textile Mills (P) Ltd. v. ITO [2008] 115 TTJ 716 (Ah. Tribunal) and some other case laws to support the claim of the assessee company. The assessee company contended that the original assessment order granting depreciation on windmill was correct and the assessee company challenged the reopening as bad in law and illegal. The assessee company further relied on the following decisions:- i) Asian Paints Ltd v. DCIT 308 ITR 195 (Bom) ii) Kelvinator of India Limited (2002) 256 ITR 1 (Del) (FB) iii) Cartini India Limited v. ACIT 314 ITR 275 Bom) iv) CIT v. Kelvinator of India Limited (2010) 320 ITR 561 (SC) v) Rallies India Limited v. ACIT 232 CTR 143 (Bom) vi) Mitsui Marubheni Corpn v. DCIT 298 ITR (AT) 283 vii) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom). The assessee company contended that there was no failure on the part of the assessee company to disclose full and true facts and the A.O. has incorrectly changed his mind and withdrawn d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010)(Bombay). iii) Indian Oil Corporation Limited v. DCIT (Writ Petition No. 53 of 2010)(Bombay). iv) Sita World Travel (India) Limited v. CIT & Anr. (247 ITR 186)(Delhi). v) Wel Intertrade P. Limited & Anr. V. ITO (308 ITR 22)(Del) The assessee company submitted that the amount of Rs. 1,86,00,000/- which was rightly allowed by the A.O. in the original assessment u/s 143(3) of the Act , has now been wrongly disallowed by the AO by rejecting the claim of the assessee company for allowance of depreciation in respect of windmill installed during the year under consideration by holding that the subject windmill was commissioned and put to use on April 01, 2003 as against actual date of commissioning/put to use on March 30, ,2003 rejecting clinching evidences placed on records and accepted by the then A.O. The assessee company submitted that the A.O. while passing the re-assessment order dated 16.12.2010 based his decision on the data of daily generation of electricity from 1.1.2006 to 5-4-2006 and statement recorded allegedly of an employee of Suzlon Energy Limited which documents were collected by a survey team during the course of survey u/s. 133A of the Act on 05-04-2006 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the data of power generation for various periods starting from 1st January, 2006 onwards is given and it does not have or refer to any data for the period in which the windmill was installed i.e. 30-3-2003. Hence even from the Survey Report dated 05-04- 2006 with respect to survey conducted on 05-04-2006, there is no conclusive evidence that the windmill was not installed on 30th March, 2003 as claimed by the assessee company. The assessee company submitted that it has not been shown the Original copy of the Form No. 13 which is a part of survey report and the AO has apparently relied on a photocopy of the original while neither the A.O. nor the assessee company had seen the original form no 13, hence, the uncertified photocopy cannot be relied upon by the AO for disallowing the claim of depreciation and the same cannot be considered as an authentic document. Also nowhere on the document name of Suzlon Energy Limited appears which again raises a doubt as to the validity of the document. The person who has signed the Survey Report has not been identified and that he is a representative of Suzlon Energy Limited has also not been mentioned on the Survey report and in fact the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company claim of depreciation on windmill was allowed by the Revenue. Subsequently, the A.O. received information that the windmill was not installed on 30-3-2003 , whereas the same was installed on 1-4-2003. The A.O. has reasons to believe that income chargeable to tax amounting to Rs. 1.86 crores had escaped assessment owning to failure on the part of the assessee company to disclose truly and fully all the material facts necessary for completion of the original assessment. The CIT(A) held that there is no illegality in the reopening of the assessment because the A.O. received information subsequent to completion of the original assessment u/s 143(3) of the Act on 30-1-2006 and accordingly the CIT(A) upheld the re-opening of the concluded assessment by the AO. The CIT(A) relied upon the following case laws: a) Indo Aden Salt Manufacturing and Trading Co. P. Ltd. (1986) 159 ITR 624(SC) b) Jawand Sons v. CIT (2010) 326 ITR 39(P&H) c) Raymond Wollen Mills Limited v. ITO (1999) 236 ITR 34(SC) On merits, the CIT(A) observed that it is undisputed that the assessee company had installed windmill at location No. J208 at Soda-Mada, Jaisalmer. Even the survey team led by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and this generator is connected to 33kv Khuri Feeder. The assessee company has also produced copy of certificate of commissioning and handing over of WTG (Windmill) by Commissioning Engineer, which clearly mentions commissioning start date as on 27.3.2003 and finished date as on 30.03.2003 and has been signed and approved by one Mr. Nilay Sen, the responsible engineer. The assessee company has also relied on a copy of Joint Inspection Report of the relevant windfarm in respect of common main metering system and its loading on 30.03.2003. The assessee company has also relied on the copy of invoice for the month of March 2003 raised vide Invoice No. LOL-WPD/2003-04/1 dated 17.04.2003 which mentions energy exports of 107 KWH, energy import of 9 KWH and net export of energy of 98 KWH. The invoice value was raised at Rs. 327 @ Rs. 3.34 per KWH. The assessee company has further relied on copy of cheque issued by Govt. of Rajasthan, i.e. Rajasthan Vidyut Prasaran Nigam Limited vide cheque No. 584233 dated 16.5.2003 from RVPN Account No. 65106 in favour of the assessee company for Rs. 327/- for payment of energy bill for March 2003 . The assesse comapny has also relied on the Govt. of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the Government to the assessee company. On the other hand, the A.O. relied on the Xerox copy of a document dated 5-4- 2006 stating that the windmill was installed on 01-04-2003, signed by someone and neither there is signature nor any designation of proper authority. The CIT(A) observed that similar issue was decided by various courts and depreciation was available on windmill even when the same is commissioned on 1st April and 2nd April but trial run was done on 30th March or so. Accordingly, the CIT(A) vide orders dated 14-3-2012 directed the AO to allow depreciation as originally allowed by the A.O. vide assessment orders dated 30-01-2006 passed by the AO u/s 143(3) of the Act . 8. Aggrieved by the orders dated 14-3-2012 of the CIT(A), the Revenue is in appeal before the Tribunal. 9. The ld. D.R. submitted that the assessee company has claimed depreciation on windmill of Rs. 1.86 crores for the assessment year 2003-04 while the windmill was installed on 1-4-2003 and since the windmill was not put to use before the end of financial year ending on 31-03-2003 , the A.O. has rightly denied the benefit of depreciation in the assessment year 2003-04 and the CIT(A) erred in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power purchase agreement was entered by the assessee company with Rajasthan Rajya Vidyut Prasaran Nigam Limited , Jodhpur Vidyut Vitran Nigam Ltd. and Suzlon Energy Limited on 19-3-2003 for supply of power generated from the windmill, copy of which is also placed in paper book page 99 to 110 , which was also furnished to the AO vide reply dated 12-09-2005 which reply of the assessee company is placed in paper book page 96-98. The ld. Counsel also submitted that all relevant documents such as invoice for energy for month of March 2003, commissioning certificate issued by JVVN on 30-03-2003 and joint inspection report dated 30-03-2003 was duly submitted before the AO during the course of assessment proceedings with regard to commencement of commercial production of the windmill on 30-03-2003 , vide replies dated 16- 08-2005 and 12-09-2005 which are placed in paper book page 94-119. The ld. Counsel for the assessee company drawn our attention to the certificates issued by the Rajasthan Government Authorities certifying that the windmill was successfully commissioned on 30-03-2003 which is placed in paper book at page 116. He also drew our attention to the Joint inspection in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indmill, copy of which is also placed in paper book page 99 to 110. The assessee company has duly generated power in the month of March, 2003 and supplied net-energy to the tune of 98KWH to RVPNL and invoiced them to the tune of Rs. 327 and the cheque of Rs. 327/- against the said invoice for month of March 2003 was also duly received by the assessee company from the RVPNL , the copies of which are placed in paper book at page 36-40. On the other hand, the Revenue has relied upon the survey report which was carried out on 5-4-2006 i.e 3 years after the commencement of the commercial production claimed by the assessee company to be started on 30-03-2003. There was no mention about the authorized person , signature, designation or seal of the person preparing the survey report on 05-04-2006 being allegedly employee of Suzlon Energy Limited nor is there any detail of the officer of Revenue countersigning the said report dated 05-04-2006. The Revenue has also not recorded any statement of the Director or any other authorized person of Suzlon Energy Limited or of the assessee company during the course of survey proceedings. On the other hand, the assessee company has brought on record c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled "the Act"), for the assessment year 2007-08. 14. The grounds raised by the assessee company in the memo of appeal filed with the Tribunal read as under:- "1. The Ld. C.I.T.(A) erred in confirming the action of the Learned Assessing officer of assessing the total income at Rs. 4,24,74,6801- as against Rs. 3,02,22,286/- returned by your appellant in the return of income filed in response to notice u/s. 148. 2. The C.I.T. (A) erred in not appreciating the fact that no fresh facts have come to light which were not present at the time of original assessment which could constitute 'reason to believe' leading to justification of reopening u/s. 147 and thus eared in confirming the action of the Learned Assessing officer of reopening the already completed assessment u/s. 143(3) which is merely on the ground of change of opinion. 3. The C.I.T. (A) erred in confirming the action of the Learned Assessing officer of notionally setting the unabsorbed loss of earlier years of windmill division of Rs. 94.39 lacs which have already been set off against other business income of your appellant. 4. The C.I.T. (A) erred in not taking cognizance of the fact which was brought to his noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that the statute in section 80-IA(5) of the Act has used the word "initial assessment year" and not "year of commencement" and difference between the two is not appreciated. Accordingly, provisions of sec 80-IA(5) would be applicable only in the year subsequent to the initial assessment year and the unabsorbed depreciation of windmill division for all years earlier to initial assessment year, which had already been absorbed against the profit of other business, cannot be notionally brought forward and be considered for computing deduction u/s. 80-IA(5) of the Act. The assessee company submitted that the assessee company has commenced generation of electricity in the assessment year 2003-04 and has opted to claim deduction u/s. 80-IA only from the assessment year 2007-08. Hence the "initial assessment year" for this undertaking would be assessment year 2007-08. The A.O., however, rejected the contentions of the assessee company. The A.O. relied upon the assessment order for the assessment year 2009-10 which was confirmed by the CIT(A)-9,Mumbai vide order dated 2-7- 2012 with the following remarks as under:- "I have carefully and dispassionately considered the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e set off only against the subsequent years income of (he eligible business, even though these were set off against other income of the assessee in the earlier year. This is so evident from CBDT"s Circular No.281 dated 22.09.1980. In view of the specific provisions of section 80-IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai "H" Third Member Bench in the case of Gujarat Ambuja Cement Limited Vs DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s framed by the Revenue u/s 143(3) of the Act. The assessee company relied on the decision of Hon'ble Apex Court in the case of Calcutta Discount Co. Ltd. v. ITO, 41 ITR 191 (SC). The assessee company submitted that discovery of new and tangible material facts which were not present during the course of regular assessment proceedings and which have direct nexus and live link with reasons to believe that income has escaped assessment within the meaning of Section 147 of the Act is must for re-opening of the assessment. The assessee company submitted that no new material and tangible facts has come to the notice of the AO subsequent to the framing of the regular assessment vide orders dated 17.12.2009 u/s 143(3) of the Act. In support, the assessee company relied upon the following decisions of the Hon'ble Supreme Court: (i) Phool Chand Bajrang Lal v. ITO , 203 ITR 456,477 (ii) ALA Firm v. CIT 189 ITR 285, 298 (iii) Indian and Eastern Newspaper Society v. CIT 119 ITR 996, 1004 (iv) ITO v. Lakhmani Mewal Das 103 ITR 437, 445 The assessee company submitted that following documents were given to the AO during the course of regular assessment proceedings with respect to the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company relied upon the decision of Full Bench decision of Hon'ble Delhi HIgh Court in the case of CIT v. Kelvinator of India Limited,256 ITR (Del) which was confirmed by Hon'ble Supreme Court in 320 ITR 561 (SC), whereby the Hon'ble Supreme Court held that the A.O. has no power to review the concluded assessments and change of opinion is not permitted. The assessee company also relied upon the following decisions:- - Chandrashekhar Karondia HUF v. ITO 14 taxmann.com 37 (Mum. ITAT). - B.J. Services Company Middle East Ltd. v. Deputy Director of Income-tax (International Taxation), Dehradun [2011] 12 taxmann.com 493(Uttarakhand) - CIT v. Manak Shoes Co. (P.) Ltd. [2011] 200 Taxmann 133 (Del.): 2011)11 taxmann.com 217 (Delhi) - CIT v. Feather Foam Enterprises (P) Ltd. [2008] 296 ITR 342 (Del.) - CIT vs. Bhanji Lavji [1971] 79 ITR 582 (SC) - ITO v. Nawab Mir Barkat AIi Khan Bahadur [1974] 97 ITR 239 (SC) - Raymond Woolen Mills Ltd. v. ITO and Others (1999) 236 ITR 34 (SC) - CIT v. Former Finance (2003) 264 ITR 566 (SC) - M.J. Pharmaceuticals Ltd. v. DCIT [2008] 297 ITR 119 (Bom.) - Carlton Overseas P. Ltd. v.. ITO [2009] 318 ITR 295 (Del.) - CIT v. Chakiat Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also been mentioned in Form No. 10CCB justifying the claim of deduction u/s 80IA of the Act. The assessee company relied upon the decision of the Tribunal in ITA No. 321/Mum/2012 for the assessment year 2008-09 in the case of M/s Shevie Exports v. JCIT and Hon'ble Madras High Court decision in Velayudhaswamy Spinning Mills Private Limited v. ACIT (2012) 340 ITR 477(Mad.) and CIT v. Emerala Jewel Industry Private Limited (2011) 53 DTR 262(Mad.). The CIT(A) upheld the action of the A.O. with respect to the reopening of the assessment u/s 147/148 of the Act. The CIT(A) upheld that action of the AO with respect to re-opening of concluded assessments u/s 147/148 of the Act, which as per CIT(A) has been opened based on findings in subsequent year based on judicial decisions and hence as per CIT(A) , it is not a case of change of opinion. The CIT(A) held that the addition on account of deduction u/s 80IA was confirmed by his predecessor for the assessment year 2009-10 and the relevant findings of the CIT(A) are as under:- "5.3Ground No. 2 : Deduction under section 80-IA(5) 5.3.1 I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the eligible business, even though these were set off against other income of the assessee in the earlier year. This is so evident from CBDT"s Circular No.281 dated 22.09.1980. In view of the specific provisions of section 80IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai "H" Third Member Bench in the case of Gujarat Ambuja Cement Limited v. DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits derived by the assessee from its eligible industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .39 lacs was not in accordance with the law. It was submitted by the assessee company's counsel that the concluded assessments are reopened u/s 147/148 of the Act based on assessment records and no new tangible material has come before the A.O. after conclusion of regular assessment on 17-12-2009 u/s 143(3) of the Act , which warrants re-opening u/s 147/148 of the Act which is an essential requirement for re-opening of the concluded assessments u/s 147/148 of the Act . The ld. Counsel for the assessee company submitted that in the regular assessment framed u/s 143(3) of the Act vide order dated 17-12-2009 , the claim of deduction u/s 80IA of the Act was examined by the A.O. although no specific query was raised in the regular assessment proceedings u/s 143(3) read with Section 143(2) of the Act, but as per Annexure "A" of the assessment order dated 17.12.2009 u/s 143(3) of the Act, the A.O. has worked out the details of calculation of the claim u/s 80IA allowable to the assessee company. No new tangible material has come to the notice of the A.O. after the conclusion of the regular assessment proceedings on 17-12- 2009 u/s 143(2) read with Section143(3) of the Act to reflect that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relied upon by the revenue relates to the pre-amended section 80IA of the Act which existed prior to amendment by Finance Act,1999 w.e.f. 1-4-2000.In support, the ld. Counsel relied upon the decision Mumbai ITAT in the case of Shevie Exports v. JCIT, [2013] 33 taxmann.com 446 (Mumbai-Trib). 23. We have considered the rival contentions and also perused the material available on record including the case laws relied upon by both the parties. We have observed that the assessee company has set up the windmill power plant from which electricity is generated. The assessee company has commenced its commercial production with effect from assessment year 2003-04 (which we have also upheld vide ITA No. 3812/Mum/2012 for assessment year 2003-04 vide this common order) while the assessee company has claimed deductions u/s 80IA w.e.f. assessment year 2007-08 considering the same to be the 'initial assessment year' for the purposes of claiming deduction u/s 80IA of the Act in accordance with Section 80IA(2) and 80IA(5) of the Act. The Revenue has framed the regular assessment u/s 143(3) of the Act vide assessment orders dated 17-12-2009 , whereby deduction u/s 80IA was duly allowed by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Section 147/148 of the Act. Thus in our considered view, the reopening in the instant case u/s 147/148 of the Act is bad in law liable to be quashed and thus, re-opening of the concluded assessment in the instant case u/s 147/148 is hereby quashed. Since we have quashed the reopening u/s 147/148 of the Act, we refrain from commenting on the merits of the case. We order accordingly. However, we will be failing in our duty if we do not bring on record two important developments which has taken place with respect to the issue in dispute after the conclusion of the hearing on 20-01-2016, Firstly, the CBDT has now come with Circular No. 1/2016[F. No. 200/31/2015-ITA-I] dated 15- 2-2016 which is binding on Revenue , whereby the Board has clarified the term "initial assessment year" in section 80-IA(5) of the Act wherein it has been categorically mentioned that the matter has been examined by the Board and it is abundantly clear from sub-section (2) of Section 80IA of the Act that an tax-payer who is eligible to claim deduction u/s 80-IA of the Act has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a sla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80-IA further provides as under- "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". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No.33475 of 2012 ? (2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the initial assessment year in Section 80IA(5) would only mean the year of claim of deduction under Section 80IA and not the year of commencement of eligible business ? and (3) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year of claim for deduction under Section 80IA ?" 2. Heard Mr.T.R.Senthilkumar, learned Standing Counsel for the Department. Mr.M.P.Senthilkumar, learned counsel takes notice for the respondent. 3. Even according to the learned Standing Counsel for the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from Sub-Section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 801A. However, the total nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the share holder has been established without appreciating the fact that the investment made by the foreign companies was not out of own funds and no business activities were carried out by the foreign companies ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored." 27. The brief facts of the case are that on perusal of the Balance Sheet, it was observed by the A.O. that issued capital of the assessee company has gone up from Rs. 502.65 lakhs to Rs. 587.65 lakhs , while share premium has gone up by Rs. 491.48 lakhs to Rs. 916.48 lakhs. The assessee company was specifically asked to provide the details of shareholders subscribing to the share capital and share premium. The assessee company was also required to establish identity, creditworthiness and genuineness of the transaction. From the details furnished by the assessee company, it was observed by the A.O. that the entire share capital is subscribed by a single foreign company, namely M/s. Billion Way Garment Limited(hereinafter called "BWGL"), having its registered office in Hong Kong and share capital has been received by the assessee company by way of remittance on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, the A.O. observed that the same is at 31st December 2008, however, the relevant Balance Sheet which would have been required is as at 31st December 2007 which could have shown the correct creditworthiness of the company i.e. FEL , since the transaction of investment in shares has happened on 24/10/2007 and the A.O. , therefore, inferred that the entire investment in its subsidiary company BWGL is out of share capital of this company, FEL date of incorporation of which is also 10th August, 2007, the funds in this company must have been flown only after this date of incorporation i.e. 10-08-2007. The A.O. observed that the assessee company failed to establish the creditworthiness of BWGL and FEL. Further, from the certificate dated 19-11-2010 issued by Certified Public Accountant, it was clearly shown that BWGL was not having any assessable profit or loss as per the Profit Tax return filed for the assessment year 2007-08 and 2008- 09 submitted to the Inland Revenue Department, Hong Kong , which also evidences that the said BWGL was not engaged in the earning of any income, leave aside business activities. The A.O. further observed that assessee company is a registered company li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It was stated before the CIT(A) that the ultimate investor Mr. Nimish G. Chandak who is an NRI has invested in the shares of the assessee company through Special Purpose Vehicle created for this purpose. The Channel of investment was briefly explained by the assessee company to the CIT(A) as detailed below: - "M/s Fortune Exim Proprietary concern of Mr. Nimish Chandak has subscribed to the entire Share Capital of Richguard Holdings Ltd. (RHL) which in turn held the share capital of FEL. - FEL is the holding company of BWGL. FEL subscribed the amount of HKD 1,87,49,999/- out of total share capital of BWGL of HKD 1,87,50,000/- . - BWGL has in turn subscribed for 42,50,000/- equity shares of your appellant company out of the money received from FEL towards its share capital." The assessee company submitted the following documents before the CIT(A) to prove the identity of the investor, creditworthiness of the ultimate investor and genuineness of the transaction which are the three basic ingredient of Sec 68 of the Act, which are reproduced hereunder:- "Identification of the party a) Nimish Chandak, Proprietor of Fortune Exim. -Copy of Hong Kong identity of Nimish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne Exim enclosed at Exhibit 28. -Copy of letter of BOI for granting facilities to Fortune Exim enclosed at Exhibit 27. -Copy of Affidavit from Nimish Chandak confirming the entire transaction enclosed at Exhibit 30. b) Richguard Holdings Ltd . -Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of RHL enclosed at Exhibit 15. Fortune Exim Ltd . -Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of FEL enclosed at Exhibit 11. -Copies of letter of HSBC bank for granting facilities to FEL enclosed at Exhibit 26. -Copy of HSBC letter regarding satisfactory conduct of account of FEL enclosed at Exhibit 29. d) Billion Way Garments Ltd . -Certificate of Certified Public Accountants certifying FEL as a major shareholder of BWGL enclosed at Exhibit 5. -Certificate regarding Profit Tax Return of BWGL enclosed at Exhibit 6. -Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, 2007 along with notes to account of BWGL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.12.07 addressed to BSE for listing the shares allotted on preferential basis enclosed at Annexure 68.16 and Exhibit 40.3. -Letter dated 25.03.08 from BSE regarding listing of new securities enclosed at Annexure 68.17 and Exhibit 40.4. -Share Certificate issued by LOL to BWGL enclosed at Annexure 68.18. -Resolution passed by BWGL for Investment in LOL duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong enclosed at Annexure 69.11. -Bank Statement of BWGL highlighting amount remitted to LOL enclosed at Annexure 69.24 and Exhibit 8. -Bank Statement of LOL evidencing receipt of subscription amount enclosed at Annexure 68.25 and Exhibit 9." The assessee company submitted that the A.O. has passed the assessment order u/s 143(3) of the Act dated 30-12-2010 in haste without conveying dissatisfaction over the documents submitted by the assessee company . The AO did not asked the assessee company to prove the creditworthiness of FEL nor any opportunity was provided to the assessee company. The assessee company also submitted that during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. In fact a subsidiary company may even be incorporated prior to the incorporation of the holding company where the holding company acquires the share of the subsidiary company at a later date. In any case the Ld. AO. was required to examine the ownership and flow of funds to establish the creditworthiness of the shareholder and genuineness of the transaction and the date of incorporation is immaterial when it comes to examining the creditworthiness and genuineness of the transaction. AO's Stand: The Ld. AO. on Page 2 of the assessment order noted the observations of the auditor of FEL which talks about updated financial statement of BWGL. Rebuttal: Once again this has no relevance on the creditworthiness and genuineness of transaction wherein BWGL has Invested in the share capital of your assessee company. AO's Stand: The Ld. AO also objected on the point that the Balance Sheet of FEL has not been prepared as at December 31, 2007. In fact, FEL has prepared the Balance Sheet since the date of its incorporation on August 10, 2007 to December 31, 2008 as per the laws prevailing in Hong Kong. The AO as earlier confirmed that remittance has been received from FEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on purely because of the growth that they see in India. The A.O. has not understood the mechanics of any acquisition of shares. To elaborate, the company prior to acquisition of shares by BWGL had 2,51,32,500 shares out of which the promoters were holding 69%. Thus , the floating stock of shares held by outside public was 31% i.e. 77,91,075 shares. BWGL has acquired 42,50,000 shares which would mean that it would have to acquire almost 55% of the floating stock of shares. The shares of the assessee company are not widely traded and the volume of trading each day would not exceed a few thousand shares. If they try to acquire the shares in the open market it would lead to following consequences: -Prices of the shares would suddenly flare up and they would not been able to acquire the desired number of shares. -As per the SEBI rules any person acquiring 5% of the paid up capital would require the permission of the Stock Exchange and SEBI. -If the acquisition exceeds 15% of the capital, the company investor would be bound to appoint merchant bankers and make an open offer to all the shareholders. The above would lead to considerable difficulties and the end result would be that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating the appeal on merits and in the interest of justice and fair play the additional evidences submitted by the assessee company were admitted by the CIT(A) , relying on the following judgments :- i) Jute Corporation of India Limited v. CIT 187 ITR 688(SC) ii) CIT v. Kanpur Coal Syndicate 53 ITR 225(SC) iii) Narondas Manordas v. CIT 31 ITR 909 (Bom.) iv) Ahmedabad Electricity Company Limited v. CIT 199 ITR 351(Bom-FB) v) Nirbheram Deluram v. CIT 224 ITR 610(SC) The CIT(A) observed that during the course of assessment proceedings, remand proceedings and appellate proceedings, the assessee company has explained that it issued preferential shares to M/s BWGL at the rate of Rs. 12/- per share after complying with the requisite formalities and with due approval of RBI, BSE and SEBI guidelines on preferential allotment of shares. The assessee company has received Rs. 5.10 crores vide certificate of Foreign Inward Remittance Reference No. 0607007TP0000762 dated 7.11.2007 issued by SBI Commercial Branch, Mumbai on 7.11.2007. The said remittance certificate certifies that the said BWGL remitted US$ 1295000.00 rupee equivalent to Rs. 5,12,08,250/- vide Bank of America, NA, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business Registration Certificate of BWGL in Form No.2 duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong for the period 12.07.2007 to 11.07.2008 and from 12.07.2008 to 11.07.2009 have also been produced before the AO and CIT(A). The copy of passport of Director of BWGL Ms Li Kang Tai duly attested by Consulate General of India, Hongkong was also produced before the AO and CIT(A). The assessee company has also submitted annual return in form no ARI of BWGL filed with the Registry, Hongkong and bank statement of BWGL highlighting the amount remitted to the assessee company by BWGL along with bank statement of the assessee company evidencing receipt of share capital and share premium aggregating to Rs. 5.10 crores was submitted before the AO and CIT(A) . The assessee company has further produced certificate of Certified Public Accountant - Fung , Yu & Company regarding profits tax return of BWGL. The copies of Director's report , auditors report , balance sheet and income statements for the period ended 31.12.2007 along with notes of account of BWGL were also produced before the CIT(A) and AO. Thus, the CIT(A) held that the identity and creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.84 per share while the average market price of the shares of the assessee company was Rs. 7.04 as certified by the Chartered Accountant. The assessee company was paying dividend consistently since 1995 . The assessee company as per SEBI guidelines could not have issued shares at price below Rs. 7.04 per share, it was issued at Rs. 12 per share which is in compliance with SEBI guidelines for issue of preferential shares by listed companies. The investor BWGL agreed to pay Rs. 12 per shares which is a negotiated price of the share. By issuing the fresh shares, the funds have come into assessee company's bank account which could be utilized for company's business and expansion while if BWGL has gone for market acquisition of shares, then funds would not have come to assessee company for its business but would have gone to shareholders who have sold the shares in open market and also beyond acquisition of 5% of the capital, SEBI takeover code is applicable and open offer is to be made by the investor. The shares of the assessee company are thinly listed and acquiring 42,50,000/- shares from open market would have led to substantial surge in the market price of the shares as total f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the transaction of receipt of Rs. 5.10 crores from BWGL and the same are not repeated for the sake of brevity. 34. We have considered the rival contentions and also perused the material available on record including the case laws relied upon by both the parties. We have observed that the assessee company has raised Rs. 5.10 crores from M/s Billion Way Garment Limited, Hong Kong (BWGL) by way of issue of 42,50,000/- equity shares at Rs. 12/- per share (equity shares of face value of Rs. 2 each issued at Rs. 12/- per share including share premium of Rs. 10 each) . The said BWGL issued share capital of HK$ 1,10,00,000/- which was subscribed by another Hong Kong company FEL and the said amount raised by BWGL from FEL was invested in the assessee company to the tune of Rs. 5.10 crores ( equivalent HK$ 1,01,01,000/-) . These companies are ultimately owned and controlled by an NRI Mr. Nimesh G Chandak . We find from the facts and evidences as emanating and emerging from the records that the assessee company has brought on record all the necessary and relevant documentary evidences and satisfactory explanations with respect to the transaction of receipt of Rs. 5.1 crores towards sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 5.10 crores was received by the assessee company through banking channel and all the related documentary evidences have been brought on record to satisfy ingredients of section 68 Of the Act, which are placed in paper book filed with the Tribunal at page 51-223. After perusing the entire records , we are of considered view that the assessee company has satisfactorily discharged the primary onus and duty cast on the assessee company to satisfy the ingredients of Section 68 of the Act with respect to identity of creditors, creditworthiness of creditors and genuineness of the transaction and thereafter the onus had shifted to revenue to rebut and demolish the evidences and explanations brought on record by the assessee company which has not been done in the instant case by the Revenue . We find that the A.O. has not brought on record any cogent material/record to prove that the assessee company has failed to comply with the ingredients of section 68 of the Act or to demolish the evidences filed by the assessee company or explanation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh web of corporate entities in the ladder of Corporate Structure comprising of chain of ultimate holding companies, holding companies, subsidiary companies, ultimate subsidiary company, associate companies, joint venture companies etc. keeping in view the perceived business exigencies and commercial expediency, which are purely in the realm of business decisions of the businessmen based on perceived prudence. The Revenue cannot put itself into an arm-chair of businessmen to decide how businesses are to be structured, controlled, owned , operated, run and managed, so long the purposes and objectives adopted by businessmen are not dubious with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. In the instant case, the investing company has duly explained the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction of investing Rs. 5.10 crores in the share capital ( including share premium) of the assessee company by bringing on record the cogent evidences and material and satisfactory explanation not only relating to the investing company , but of its web of completed chain of ultimate holding company and holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of grounds of appeal raised by the revenue is also rejected. Thus, in our considered view and as per reasoning detailed above, we find no infirmity in the well reasoned and detailed order dated 12.03.2012 passed by the CIT(A) which has been passed by the CIT(A) after referring to all the documentary evidences filed by the assessee company and the case laws related to the issue relied by the assessee company, hence, we refuse and decline to interfere with the orders dated 12.3.2012 of the CIT(A) which we confirm, concur and uphold the same. Our view is supported by and fortified by the judgment of Hon'ble Supreme Court in the case of CIT v. Steller Investment Limited ((2001) 251 ITR 263(SC)) , CIT v. Lovely Exports Private Limited ((2008) 216 CTR 195(SC) ) and CIT v. Tania Investments Private Limited 322 ITR 394(Bom.HC). We order accordingly. 35. In the result, Revenue appeal in ITA No. 3813/Mum/2012 for the assessment year 2008-09 is dismissed. ITA No. 3821/Mum/2012 for assessment year 2008-09 (Assessee's appeal). 36. The assessee company has raised the following grounds of appeal in memo of appeal filed with the Tribunal:- "1. The Learned Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against claim of deduction u/s 80IA of the Act and the remaining amount after set off can be claimed as deduction. Since the assessee company did not set-off the brought forward notional loss against the deduction of Rs. 1,57,90,301/- claimed u/s 80IA of the Act, the claim was denied to the assessee company by the AO vide assessment orders dated 30-12-2010 passed u/s 143(3) of the Act , after rejecting the contentions of the assessee company . 38. Aggrieved by the assessment orders dated 30-12-2010 passed by the AO u/s. 143(3) of the Act, the assessee company filed first appeal before the CIT(A). 39. The assessee company contended before the CIT(A) that during the year under consideration , the assessee company earned income from sale of power generated from wind mill and claimed the deduction u/s.80IA of the Act amounting to Rs. 1,57,90,301/-. The AO denied the claim of deduction u/s 80IA on the grounds that notional brought forward losses/depreciation of eligible business which has already been set off in the relevant assessment year against other income of those years in which those losses arises and were allowed by the Revenue are to be notionally brought forward and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business for the purposes of determination of the quantum of deduction u/s 80IA of the Act has to be computed after deduction of the notional brought forwards losses and depreciation of eligible business even though they have been allowed set off against other income in the earlier years. The CIT(A) relied upon following decisions to support his decision : 1. ACIT v. Goldmine Shares and Finance Private Limited (2008) 113 ITD 209(Ahd.) (SB). 2. Gujarat Ambuja Cement Limited v.DCIT(2009) 117 ITD 87(Mum)(TM) 3. Hyderabad Chemicals Supplies Limited v. ACIT (2011) 53 DTR 371(Hyd.) The CIT(A) confirmed the decision of the AO vide appellate orders dated 12.03.2012, whereby the claim of deduction of the assessee company u/s 80IA of the Act amounting to Rs. 1,57,90,301/- was denied and directed to be adjusted against the brought forward notional loss/depreciation from the windmill business relating to earlier years despite the fact that the same were already set off by the assessee company against other sources of income and allowed by the Revenue in the preceding assessment year's. 40. Aggrieved by the orders dated 12.03.2012 passed by the CIT(A), the assessee company filed appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um/2013(Mum.)) 9. ACIT v. Patankar Winds Farms Private Limited ( 56 taxmann.com 178(Pune)) 42. The ld. DR relied upon the orders of the authorities below. 43. We have heard the rival parties and perused the material on record including case laws relied upon by the parties. We have observed that the assessee company has started generation of electricity from wind mill in the previous year relevant to the assessment year 2003-04. The assessee company has chosen the 'initial assessment year' for claiming the deduction u/s 80IA of the Act with effect from assessment year 2007-08 as per Section 80IA(2) and 80IA(5) of the Act. Section 801A of the Act, as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A of the Act further provides that the aforesaid deduction can be claimed by the tax-payer, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no brought forward losses/depreciation. The tax-payer has an option to choose initial assessment year under the substituted Section 80IA of the Act w.e.f 01-04-2000 vide s.section 2 which shall be to choose 10 consecutive assessment years out of 15 years and the fiction created by s.section 5 of Section 80IA of the Act shall operate from the initial assessment year and only losses of the years beginning from initial assessment year alone are to be brought forward and earlier year losses which are already set off against the income of the taxpayer cannot be notionally brought forward to deny the claim of deduction u/s 80IA of the Act as under: "16. Section 80-IA reads as follows : "80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business) there shall, in accordance with and subject to the provisions of this section, be allowed in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business for ten consecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , i.e., referred to as the eligible business, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to 100 per cent. of the profits and gains derived from such business for ten consecutive assessment years. Deduction is given to eligible business and the same is defined in subsection (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised, if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity, etc. Sub-section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that "initial assessment year" employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). The important factors are to be noted in sub-section (5) and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (6) of section 80-I, which is the corresponding provision of sub-section (5) of section 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 v. Mewar Oil and General Mills Ltd. (No. 1) [2004] 271 ITR 311 (Raj) ; [2004] 186 CTR (Raj) 141, the Rajasthan High Court also considered the scope of section 80-I and held as follows (page 314 of 271 ITR) : "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 assessment year 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 Commissioner of Income-tax (Appeals), 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It has been clarified that once such initial assessment year has been opted for by the taxpayer, he shall be entitled to claim deduction u/s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. Thus, the CBDT directed all the Assessing Officers concerned to allow deduction U/S 80-IA of the Act in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction U/S 80 lA of the Act shall also not be pursued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from subsection (2) that an assessee who is eligible to claim deduction u/s.80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s. 80-1A. However, the total number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent. 3. Even according to the learned Standing Counsel for the Department, this Court has consistently followed the decision in M/s.Velayudhaswamy Spinning Mills (340 ITR 477), despite the Honourable Supreme Court ordering notice. 4. Interestingly, on the basis of the decision in Velayudhaswamy Spinning Mills, the Central Board of Direct Taxes has issued Circular No.1/ 2016 dated 15.2.2016. It will be useful to extract the circular in entirety, which is as follows : "Circular No. 1 /2016 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi, the 15th February, 2016 Subject: Clarification of the term 'initial assessment year' in Section 80IA(5) of the Income Tax Act, 1961 Section 801A of the Income-tax Act, 1961 ('Act'), as substituted by Finance Act, 1999 with effect from 1.4.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in Sub-Section (4) of that Section) in accordance with the prescribed provisions. Sub-Section (2) of Section 801A further provides that the aforesaid deduction can be claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for claiming deduction u/s 801A. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in SubSection (5) of that section for which the Standing Counsel/DRs be suitably instructed. The above be brought to the notice of all Assessing Officers concerned." 5. Therefore, admittedly, questions of law 2 and 3 are also covered by the above circular. Hence, the appeal deserves to be dismissed 6. Accordingly, the above tax case appeal is dismissed. No costs. 7. But, we cannot resist our temptation to record one more fact. If an issue is covered by the judgment of the High Court, it is always open to the Department to take it on appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the industrial undertaking , vide orders dated 12-03-2012. 46. Aggrieved by the orders dated 12-03-2012 of the CIT(A), the assessee company is in appeal before the Tribunal. 47. The ld. Counsel for the assessee company submitted that the benefit of deduction u/s 80IA of the Act to the extent of Rs. 35,55,880/- was denied to the assessee company and the said compensation was received from M/s Suzlon Energy Ltd on account of shortfall in generation of power as against the certified minimum guaranteed generation of power by Suzlon Energy Limited who were the equipment suppliers for windmill power project of the assessee company. There was a commitment of minimum guaranteed generation of power given by M/s Suzlon Energy Ltd who while supplying windmill power equipments assured minimum generation of power by their equipments and in case of failure of generation of minimum guaranteed rated capacity of power generation, the Suzlon Energy Limited undertook to compensate the assessee company for such shortfall. Due to the performance of the assessee company being lower than the minimum guaranteed performance assurance given by M/s Suzlon Energy Ltd. who supplied windmill equipment, Suzl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise from any business referred to in sub section (4) of section 80-IA of the Act. The word 'derived from'' means that the receipt should have a close and first degree nexus with the generation of power. The assessee company has received the amount from M/s Suzlon Energy Ltd. which is on account of shortfall in generation of power as compared to guaranteed generation of power by Suzlon Energy Limited . The issue in this ground of appeal is squarely covered by the decision of the co-ordinate benches of the Tribunal in favour of the assessee company in following cases: 1. Magnum Power Generation Limited v. DCIT (2011) 16 taxmann.com 75(Delhi) 2. C.N.V. Textiles Private Limited v. DCIT in ITA no. 746/Mds/2014 (Chennai Tribunal), dated 21.11.2014 3. Best Corporation Pvt. Ltd. v. JCIT in ITA no 1958/Mds/2014 dated 20-5-2015 The Tribunal , Chennai Benches in C.N.V.Textiles Private Limited (supra) held as under: "9. The assessee's last ground pertains to generation loss compensation receipt of Rs. 10,00,569/- from its supplier for loss of wind power production. The Revenue's objections are based on the word 'derived' (supra). The assessee's windmill supplier has paid the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to" has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity." (Para 8) 14. In Commissioner Of Income Tax, Karnataka v. Sterling Foods, Mangalore, (1999) 4 SCC 98, this Court had to decide whether income derived by the assessee by sale of import entitlements on export being made, was profit and gain derived from the respondent's industrial undertaking under Section 80HH of the Indian Income Tax Act. This Court referred to the judgment in Cambay Electric Supply (supra) and emphasized the difference between the wider expression "attributable to" as contrasted with "derived from". In the course of the judgment, this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter expression is narrower in connotation as compared to the former. This court further went on to state that by using the expression "derived from" Parliament intended to cover sources not beyond the first degree. This Court went on to hold:- "34. On an analysis of Sections 80-IA and 80-IB it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section(2), would be entitled to deduction under subsection (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". 35. DEPB is an incentive. It is given under Duty Exemption Remission Scheme. Essentially, it is an export incentive. No doubt, the object behind DEPB is to neutralize the incidence of customs duty payment on the import content of export product. This neutralization is provided for by credit to customs duty against export product. Under DEPB, an exporter may apply for credit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such industrial undertaking in as much as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related only to an event which was post manufacture namely, export. On an application of the aforesaid test to the facts of the present case, it can be said that as all the four subsidies in the present case are revenue receipts which are reimbursed to the assessee for elements of cost relating to manufacture or sale of their products, there can certainly be said to be a direct nexus between profits and gains of the industrial undertaking or business, and reimbursement of such subsidies. However, Shri Radhakrishnan stressed the fact that the immediate source of the subsidies was the fact that the Government gave them and that, therefore, the immediate source not being from the business of the assessee, the element of directness is missing. We are afraid we cannot agree. What is to be seen for the applicability of Sections 80-IB and 80-IC is whether the profits and gains are derived from the business. So long as profits and gains emanate directly from the business itself, the fact that the immediate source of the subsidies is the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains made by the industrial undertaking or business itself. 21. The Calcutta High Court in Merino Ply & Chemicals Ltd. v. CIT, 209 ITR 508 [1994], held that transport subsidies were inseparably connected with the business carried on by the assessee. In that case, the Division Bench held:- "We do not find any perversity in the Tribunal's finding that the scheme of transport subsidies is inseparably connected with the business carried on by the assessee. It is a fact that the assessee was a manufacturer of plywood, it is also a fact that the assessee has its unit in a backward area and is entitled to the benefit of the scheme. Further is the fact that transport expenditure is an incidental expenditure of the assessee's business and it is that expenditure which the subsidy recoups and that the purpose of the recoupment is to make up possible profit deficit for operating in a backward area. Therefore, it is beyond all manner of doubt that the subsidies were inseparably connected with the profitable conduct of the business and in arriving at such a decision on the facts the Tribunal committed no error." 22. However, in CIT v. Andaman Timber Industries Ltd., 242 ITR 204 [2000], t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n [1997] 228 ITR at page 257 expressed the following views:- ".... Similarly, subsidy on power was confined to 'power consumed for production'. In other words, if power is consumed for any other purpose like setting up the plant and machinery, the incentives will not be given. Refund of sales tax will also be in respect of taxes levied after commencement of production and up to a period of five years from the date of commencement of production. It is difficult to hold these subsidies as anything but operation subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable." 23. We are of the view that the judgment in Merino Ply & Chemicals Ltd. and the recent judgment of the Calcutta High Court have correctly appreciated the legal position. 24. We do not find it necessary to refer in detail to any of the other judgments that have been placed before us. The judgment in Jai Bhagwan case (supra) is helpful on the nature of a transport subsidy scheme, which is described as under: "The object of the Transport Subsidy Scheme is not augmentation of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins to consider one further argument by Shri Radhakrishnan. He has argued that as the subsidies that are received by the respondent, would be income from other sources referable to Section 56 of the Income Tax Act, any deduction that is to be made, can only be made from income from other sources and not from profits and gains of business, which is a separate and distinct head as recognised by Section 14 of the Income Tax Act. Shri Radhakrishnan is not correct in his submission that assistance by way of subsidies which are reimbursed on the incurring of costs relatable to a business, are under the head "income from other sources", which is a residuary head of income that can be availed only if income does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company and deduction u/s.80IA of the Act is allowable. Keeping in view of the ratio of law laid down by the Hon'ble Supreme Court in the case of Meghalaya Steels Limited (supra) and the cited judgment of coordinate benches of the Tribunal in favour of the assessee company , we hold that the amount received by the assessee company from M/s Suzlon Energy Ltd. of Rs. 35,55,880/- on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. 50. Now coming to the ground no 3, it was observed by the A.O. from the P&L account of the assessee company that the assessee company has received exempt income being dividend of Rs. 2,50,000/- on investment of Rs. 810.30 lacs. During the course of assessment proceedings u/s.143(3) of the Act, assessee company was specifically asked to explain as to why disallowance u/s. 14A of the Act read with Rule 8D of Income Tax Rules, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D of Income Tax Rules, 1962 after considering the above factors was submitted by the assessee company before the CIT(A). 53. The CIT(A) observed that the assessee company could not establish the nexus between the entire capital being invested in securities and that it was impossible to believe that out of the common hotch-potch of the funds, the entire capital could have gone into the investment in shares without a part of the shares going to the business, also it was not possible that the entire income would have been invested in shares and debentures and share application money especially when the assessee himself was not categorical as to how much of the sum had been invested in business. Secondly, even the assessee company had not given any details to work out the direct nexus of the interest expenditure related to the exempt income which was not included in the total taxable income. The assessee's present case is covered by sub section (3) of section 14A of the Act because the assessee company had claimed before the AO that no expenditure was incurred by it in relation to the exempt income which did not form part of total income. The assessee company's claim is also cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no nexus with tax-free income. The AO had also considered the investment in subsidiary company as part of average investment for working out disallowance without considering that such investment is made not for purposes of earning tax-free dividend income but for earning capital gains. The capital gains earned on sale of subsidiary company has been offered for tax in the impugned assessment year. It was also submitted by the assessee company before the CIT(A) that even investment in property, NSC and debt funds are considered by the AO as part of investment for disallowance on which no tax-free income is generated. The correct disallowance as per Rule 8D of Income Tax Rules, 1962 after considering the above factors was also submitted by the assessee company before the CIT(A). In our considered view and in the interest of interest, as the afore-stated pleas raised by the assessee company were not adjudicated by the authorities below properly and no reason's have been given in their orders for their rejection, this matter need to be set aside to the file of the AO for de-novo determination of the disallowance of expenditure u/s 14A of the Act on merits in accordance with law afte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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