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Dy. Commissioner of Income Tax Versus M/s Lahoti Overseas Ltd. And Vica-Versa

2016 (4) TMI 591 - ITAT MUMBAI

Depreciation on the windmill - whether the windmill was not commissioned and put to use during the relevant Assessment Year for the A.Y. 2003-04 ? - Held that:- As the assessee company has brought on record cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that the windmill of the assessee company with the capacity 1.25 MW was duly installed , commissioned and put to use on 30-03-2003 .....

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to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same survey report dated 05-04-2006 which is not only technically defective due to reasons as detailed above but was also drawn on th .....

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sessment - claim of deduction u/s 80IA disallowed - Held that:- the completed assessments u/s 143(3) of the Act in the instant case has been reopened u/s 147/148 of the Act without having any new tangible material coming to the possession of the A.O. after conclusion of the assessment u/s 143(3) of the Act on 17-12-2009 which could warrant reopening of assessment u/s 147/148 of the Act rather the AO while recording reasons for re-opening has clearly stated that on verification of assessment reco .....

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tant 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

Addition u/s 68 - Held that:- 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 .....

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id Mr Nimesh G. Chandak before the AO during remand report proceedings but the AO failed to avail the opportunity to examine him and /or record his statement and/or to cross examine him to strengthen his case to bring , the transaction of share subscription of ₹ 5.10 crores by BWGL in the assessee company , within fold of chargeability to tax under Section 68 of the Act. The said Mr. Nimesh G Chandak has also filed duly attested affidavit stating the entire details of investment of ₹ .....

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iness of the creditor and genuineness of the transaction of investing ₹ 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 companies all registered in Hong Kong , till the ultimate investor Mr Nimesh G Chandak who ultimately is the owner of the business gro .....

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ompany is able to establish and substantiate with cogent material and evidences, identity of the creditor, creditworthiness of the creditor and genuineness of the transaction , which in our considered view, the assessee company has duly proved by clinching and conclusive evidences to satisfy the mandate of provisions of Section 68 of the Act, The Revenue has not brought on record any plea or contention backed with evidences that these web of chain of holding and subsidiary companies so created b .....

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2007-08 as per Section 80IA(2) and 80IA(5) - Held that:- Manner of determining the quantum of deduction, a reference has been made to the term ‘initial assessment year’. The clear mandate provided under Sub-Section (2) which allows a choice to the tax-payer for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. An taxpayer who is eligible to claim deduction u/s 80IA of the Act has the option to choose the initial/first year from wh .....

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R> As already adjusted losses/depreciation against income from other businesses in the earlier years (i.e. up-to assessment year 2006-07 as the assessee company has chosen assessment year 2007-08 as the ‘initial assessment year’ for claiming deduction u/s 80IA of the Act )by the assessee company cannot be brought forward notionally to be adjusted against the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreci .....

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king engaged in generation of power and is entitled for deduction u/s 80IA of the Act.

Disallowance u/s 14A - Held that:- The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of exempt income. The assessee company had also submitted that entire bank charges and commission is .....

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s of the assessee company as may be raised by the assessee company before the AO. - I.T.A. No. 3812/Mum/2012, I.T.A. No. 821/Mum/2014, I.T.A. No. 3813/Mum/2012, I.T.A. No. 3821/Mum/2014 - Dated:- 30-3-2016 - Shri Amit Shukla, Judicial Member And Shri Ramit Kochar, Accountant Member For the Petitioner : Shri Ganesh Bare (Sr.DR) For the Respondent : Shri Yogesh Thar ORDER Per Ramit Kochar, Accountant Member These four appeals, filed by the assessee company and Revenue pertains to the assessment ye .....

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e Tax Act,1961 (Hereinafter called the Act ), for the assessment year 2003-04. 3. The grounds raised by 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 ₹ 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 .....

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e 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 the Act vide orders dated 30/01/2006 . In the original return of income filed by the assessee company with Revenue, the assessee company has claimed depreciation on windmill amounting to ₹ 1,86,00,0 .....

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not an allowable deduction since the asset was not put to use during the relevant previous year to the impugned assessment year 2003-04. The original assessment framed u/s 143(3) of the Act vide orders dated 30-1-2006 was reopened by the AO u/s 147 of the Act after recording reasons and making compliance to provisions of section 151(1) of the Act. Accordingly, notice u/s 148 of the Act dated 8-12-2009 was issued to the assessee company, which was duly served on the assessee company on 9-12-2009. .....

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ide its letter dated 22-10-2010 objected to the re-opening proceedings, which were dealt with by the AO by passing a speaking order on 16-12-2010. The assessee company was specifically asked to justify the claim of depreciation on windmill No. J-208 at SODA-MADA-Jaisalmer. In reply, the assessee company submitted that windmill has been successfully commissioned on 30/03/2003 and in support thereof, the assessee company has filed copy of letter dated 17/04/2003 written to the Superintending Engin .....

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re 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 ins .....

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windmill for the impugned assessment year i.e. 2003-04 and therefore the AO disallowed an amount of ₹ 1,86,00,000/- claimed by the assessee company towards depreciation on windmill, vide order dated 16.12.2010 passed u/s 143(3) r.w.s. 147 and 254 of the Act. 5. Aggrieved by the afore-said re-assessment order dated 16.12.2010 of the A.O. passed u/s 143(3) r.w.s. 147 and 254 of the Act , the assessee company preferred an appeal before the first appellate authority i.e. CIT(A). 6. Before the .....

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dences produced before the A.O. . Subsequently, the A.O re-opened the assessment on some kind of one page annexure allegedly signed by an employee of M/s Suzlon Energy Limited. Neither the name of the said employee nor the signature of the said employee is legible. The said page does not contain any statement made by M/s Suzlon Energy Limited, neither by their Director nor by their authorized representative. Neither the seal nor stamp of M/s Suzlon Energy Limited is placed . Even the authorized .....

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iation is allowable to the assessee company. The assessee company contended that the only difference between the department and the assessee company is that the department is relying on an unsubstantiated, unstamped, Xerox copy of the paper which merely mentioned date of installation as 1.04.2003. The assessee company 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 Energ .....

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y 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 .....

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31. 2003 raised on the Superintending Engineer (Commercial), Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. (Exhibit 3). 5. Copy of monthly generation record for the month of March 2003. (Exhibit 4). 6. Copies showing breakup of net export units (kwh) as recorded at main meter of RVPNL for the month of March, 2003. (Exhibit 5 ). 7. Copy of cheque issued by RVPNL showing ₹ 327/- and intimation letter duly signed by Sr. Accounts Officer (CPC), RVPNL. (Exhibit 6). 8. Invoice raised for April 20 .....

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the tax-payer was entitled to claim depreciation. The assessee company also relied upon similar decision of the Mumbai-Tribunal in the case of Godavari Corporation Pvt. Ltd. v. ITO (ITA No. 309/Mum/2008) dated 15.04.2009. The assessee company also placed reliance in the case of Gujarat Ashima Syntex Limited, 251 ITR 133 (Guj.) wherein the Hon ble Gujarat High Court held that even trial production of a machinery would fall within the ambit "used for the purpose of business". It was fur .....

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roperly 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 followin .....

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ompany to disclose full and true facts and the A.O. has incorrectly changed his mind and withdrawn depreciation @ 50% even though the A.O. has accepted that the windmill has actually been commissioned. It was submitted that the original assessment was completed u/s. 143(3) of the Act on January 30, 2006. The A.O. issued notice u/s. 148 of the Act on 9-12- 2009 which is beyond the period of 4 years from the end of the assessment year. The assessee company submitted that the assessment has been re .....

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s i.e. the premises of Suzlon Energy Ltd. which do not have any legal basis for reopening the assessment of the assessee company. The assessee company submitted that inspite of the request by the assessee company, the A.O. denied to give the copies of information relied upon to reopen the assessment and no opportunity was given to the assessee company to rebut the claim of the A.O. or to cross examine the party. The assessee company submitted that it has provided all the material and documentary .....

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ening vide its letter dated 22-10-2010 which was rejected by the A.O. vide his letter dated 16-12-2010. The A.O. has wrongly reopened the assessment u/s 147 of the Act based on third party information collected during the survey conducted at third party premises. The assessee company relied upon the following case laws in support of its claim:- i) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom). ii) Nihilent Technologies Private Ltd. v. DCIT (Writ Petition No. 10104 of 2010 .....

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e 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 1.1.200 .....

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fore 31.03.2003 and the same is 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, Jaisalmer District by your appellant has been successfully commissioned on 30th March, 2003. (Exhibit 1.1) 2. Copy of Certificate of Commissioning and handing over of WTG by Commissioning Engineer (Exhibit 1.2). 3. Further Rajasthan Rajya Vidhyut P .....

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ed at main meter of RVPNL for the month of March, 2003. (Exhibit 5 ). 7. Copy of cheque issued by RVPNL showing ₹ 327/- and intimation letter duly signed by Sr. Accounts Officer (CPC), RVPNL. (Exhibit 6). 8. Invoice raised for April 2003 to March 2004 along with monthly generation record and break up of net export units (KWH) and Xerox of cheques along with intimation letter issued by RVPNL for each month. (Exhibit 7.1 to 7.48). The assessee company submitted that M/s. Suzlon Energy Ltd. i .....

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ears of the commissioning of the windmill and from the copy of survey report it is evident that 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 claime .....

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e 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 who has signed the report is not the authorized signatory of Suzlon Energy Limited. It was submitted that even the name and designation of the Revenue officer countersigning the document is also not mentio .....

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, 2011 does not prove that the windmill was installed and made operational before the end of the relevant financial year i.e. 31.3.2003, the assessee company stated that the windmill equipment were delivered to the site well in advance which could be verified from the copies of delivery challans and transport receipts submitted and not only was the installation completed, but was also tested and put to use on 30-3-2003. Thus, it is submitted that based upon the survey report dated 05-04-2006 pre .....

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as taken and an invoice was raised for the same.Payment for the said invoice has also been received from RRVPNL. 7. The CIT(A) after considering the facts and circumstances, assessment order and the submission of the assessee company, upheld the reopening of the assessment u/s 148 of the Act. The CIT(A) held that the reasons were recorded by the A.O. u/s 147 of the Act prior to issue of notice u/s 148 of the Act . The reasons were communicated to the assessee company and notice u/s 148 of the Ac .....

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6 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 .....

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ucted on 5.04.2006 that assessee company s windmill was installed and power generation as per meter from 1-1-2006 to 5-4-2006 was at 291097 units. The only dispute raised by the AO is that the date of installation of assessee company s windmill was allegedly on 1.04.2003 as against the date of installation claimed by the assessee company being on 30-03-2003 and allowed as such by the AO during the regular assessment proceedings u/s 143(3) of the Act vide orders dated 30-1-2006. From the perusal .....

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te proceedings. The assessee company has objected to the said annexure stating that the said Xerox copy is deficient on the following grounds:- (i) The Xerox paper is neither signed by the Chairman nor by any Director nor by any responsible authorized representative from M/s Suzlon Energy Limited. (ii) Neither the name nor the designation nor the relationship of the person whose illegible signature of the Xerox paper is known. (iii) Neither the name of the authorized officer nor the designation .....

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ide No. JUV/NL/XEN/O&L/JSM/SITECH/F dated 30-03-2003, wherein it was certified that 1 nos. wind electric generator SUZLON make 1250KW each has been successfully commissioned on 30-03-2003 at location no. J-208 installed at Vilalge Soda-Moda, Jaisalmer District by the assessee company 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 menti .....

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y exports of 107 KWH, energy import of 9 KWH and net export of energy of 98 KWH. The invoice value was raised at ₹ 327 @ ₹ 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 ₹ 327/- for payment of energy bill for March 2003 . The assesse comapny has also relied on the Govt. of Raj .....

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terial delivered, date of dispatch, delivery challan number, challan date, L/R number, L/R date, name of transporter, date of receipt of material at site, the relevant delivery challans, L/R receipts issued by the transporter, certificate of goods received etc have been furnished and placed on record evidencing the installation of the windmill in the month of March 2003. The windmill tower parts were received at the site before 24-2-2003. The power panel + capacity panel were received at the sit .....

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cluded that the additional evidences did not justify that the windmill was installed and made operational before 31.03.2003 making assessee company eligible for depreciation on the same in the assessment year 2003-04. A copy of the said remand report was forwarded to the assessee company for its reference and counter submissions and the assessee company reiterated its submission what was made earlier which are not repeated for the sake of brevity. The CIT(A) admitted the additional evidences in .....

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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 all .....

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s rightly denied the benefit of depreciation in the assessment year 2003-04 and the CIT(A) erred in allowing the depreciation without appreciating the survey conducted by the Revenue u/s 133A of the Act on 05-04-2006 , clearly established that the windmill was not installed on 30-3-2003 but on 01-04- 2003 and the same was certified by one of the Executives of Suzlon Energy Limited. M/s Suzlon Energy Limited being the supplier of the windmill and engaged in the installation and commissioning of t .....

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which are not repeated for the sake of brevity. The ld. Counsel for the assessee company challenged the reopening of the assessment which has been done after 4 years from the end of the assessment year and submitted that while filing the return of income with the Revenue and during the course of assessment proceedings, the assessee company has fully and truly disclosed all the material facts and the original assessment was framed u/s 143(3) of the Act on 30-01-2006 after considering the entire .....

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al justice and on this short ground itself the re-assessment is liable to be quashed. He submitted that during the course of original assessment proceedings u/s 143(3) of the Act on 16th August, 2005 the assessee company has duly replied to the A.O. regarding installation, commissioning and start of commercial production of windmill on 30-03-2003 i.e. during the previous year relevant to the assessment year 2003-04,vide reply dated 16-8-2005 which is placed in paper book page 94-95. He submitted .....

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uch 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 Ra .....

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essee company for the month of March, 2003 for energy supplied to the Government of Rajasthan for an amount of ₹ 327/- which is placed at paper book page 36 to 38. He also drew our attention to the payment received of ₹ 327/-from the RVPNL against the invoice for month of March 2003 which is placed at paper book page 39.The ld counsel for the assessee company drew our attention to delivery challans and invoices raised by Suzlon Energy Limited for supply and erection/installation of W .....

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challans of Suzlon Energy Limited. It was further observed that the assessee company has duly installed, commissioned and set up the said windmill in the month of March, 2003 itself i.e. on 30-03-2003. The said installation and commissioning of the windmill was done by Suzlon Energy Limited which is also supported by the Invoice dated 04-3-2003 and 30-3-2003 raised by Suzlon Developers Limited for civil work, erection and installation of the said windmill , with aggregate amount of ₹ 37,5 .....

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m 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. 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 ₹ 327 and the cheque of ₹ 327/- against the said invoice for month of March 2003 was also duly received by the assessee company from th .....

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etail 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 cogent and clinching material and evidences in support of its claim including from the government authorities which conclusively proved beyond shadow of any doubt that t .....

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with capacity of 1.25 MW of the assessee company was completed on 30-03-2003 i.e. during the previous year 2002-03 relevant to the assessment year 2003-04 which is duly established and proved conclusively by the assessee company with cogent material and clinching evidences which has remained un-controverted and/or demolished by the Revenue and reliance of the Revenue on the survey report of 05-04-2006 is misconceived and is not backed by the cogent material and evidences but rather the same surv .....

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efuse to interfere and hence, we confirm the orders of the CIT(A). We order accordingly. 12. In the result, the appeal filed by the Revenue in ITA N0. 3812/Mum/2012 for the assessment year 2003-04 is dismissed. 13. Now, we shall take up assessee company s appeal in ITA No. 821/Mum/2014 for the assessment year 2007-08 which is directed against the order dated 01.11.2013 passed by learned Commissioner of Income Tax (Appeals)-9,Mumbai (hereinafter called the CIT(A) ) , the afore-said appeal order d .....

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at ₹ 4,24,74,6801- as against ₹ 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 a .....

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onsidering deduction u/s. 80- IA for A.Y. 2008-09 and A.Y. 2009-10 thereby amounting to double taxation. 5. The CIT(A) erred in not following the binding precedent that "the judgment of non-jurisdictional High Court is a binding precedent, if no contrary judgment of another High Court is available". 15. The brief facts of the case are that the assessee company derives income from trading in cotton yarn, fabric, raw cotton , paper and wind mill power. The assessee company filed return o .....

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Act , loss of wind mill business of said assessment year 2006- 07 amounting to ₹ 171.91 lacs was first required to be set off with the profit of windmill division for the current assessment year and the remaining profit should have been allowed as deduction. Thus, the AO observed that income has escaped assessment in view of the provisions as contained u/s. 147 of the Act whereby reasons were recorded for reopening of the case u/s 147 of the Act and prior approval was obtained of Commissi .....

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see company submitted that in regular assessment framed u/s 143(3) of the Act vide orders dated 17.12.2009 , the A.O. had correctly allowed the deduction u/s. 80-IA of ₹ 94.39 lakhs for the profits and gains of windmill business as claimed by the assessee company in the return of income after considering the provisions of section 80-IA of the Act. It was submitted that the statute in section 80-IA(5) of the Act has used the word "initial assessment year" and not "year of com .....

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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 fo .....

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f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose of determining of quantum of deduction under section 80IA of the Act, the LAO determined the taxable income of the relevant industrial undertaking (windmill power division) as if such undertaking is an independent unit owned by the appellant and the appellant had no other source of income f .....

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th substantive and procedural provisions for computation of the special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected. In the present case, the appellant by not claiming earlier assessment year's business losses and depreciation seeks to inflate the profit linked incentives provided under section 80IA which is not permissible. 5.3.4 In view of the specific provisions of s. 80IA(5), the profit from the eligible business for the purpo .....

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e 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 .....

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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 undertaking for the purpose of computing deduction under section 80-I(1). 5.3.7 The Hon ble ITAT, Hyderabad - A bench in the case of Hvderabad Chemicals Supplies Limited vs ACIT (2011) 53 DTR 371 (Hyd) has further approved that notional brought forward unabsorbed business loses or depre .....

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ja Cement Limited Vs DCIT (supra), the LAO's action in adjusting the brought forward business losses/depreciation against appellant's current year's business profit from the eligible business undertaking is confirmed. Grounds of appeal No.2 is therefore, dismissed. Thus, the A.O. vide re-assessment orders dated 31-10-2012 passed u/s 143(3) read with Section 147 of the Act held that as per the statutory provisions of 80-IA(5) of the Act, the assessee company ought to have taken cogniz .....

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ection 147 of the Act, the assessee company preferred an appeal before the CIT(A). 17. Before the CIT(A), the assessee company submitted that reopening u/s 147/148 of the Act is bad in law for the following reasons; (i) the reopening was done within 4 years from the end of the assessment year, (ii) the assessee company has disclosed all the material facts for the determination of the tax liability while filing return of income and also during the course of assessment proceedings u/s 143(2) read .....

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ithin 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 .....

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nt order for AY. 2006-07 was submitted-at Annexure 34. (ii) Books of account of the company were produced for verification as mentioned at Sr. No. 8 of our letter dated November 13,2009. (iii) Books of account for Wind Power division were produced for verification as per Sr. No. 6 of letter dated November 25, 2009. (iv) Copy of ledger account of Wind Power project was submitted at Annexure 50 vide letter dated November 25,2009. (v) Brief note on claim u/s 80lA was submitted at Annexure, 32 vide .....

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.O. in the reopening proceeding failed to disclose the fresh facts and /or new tangible material that have come to light which were not present at the time of the original assessment which would constitute in forming reasons to believe that income has escaped assessment leading to justification for reopening u/s 147 /148 of the Act of the concluded assessments framed u/s 143(3) of the Act and, hence, the action of reopening of already completed assessment u/s 143(3) of the Act in this case is no .....

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not to review the earlier decision as the AO cannot have second innings to cover the mistakes committed in the first inning. The assessee 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 a .....

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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 Agencies Pvt. Ltd. [2009] 314 ITR 200 (Mad.) - Caetini India Ltd. v. Addl. CIT [2009] 314 ITR 275 (Bom.) - Pan Drugs Ltd. v. DCIT [2009] 316 ITR (AT) 72 (Ahm.) The assessee company submitted .....

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was filed on 30-4-2012 ,whereas the copy of reasons to reopen was provided by the Revenue to the assessee company only on 5th October, 2012 and the assessee company filed objections to the reasons recorded vide letters dated 10th and 15th October 2012 . The A.O. has failed to dispose of the objections and made only a passing reference to the same while passing an order dated 31-10-2012 u/s 147 r.w.s. 143(3) of the Act and some of the assessee company s objections raised by the assessee company .....

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r disclosure, it can be concluded that the reopening of concluded assessment is arbitrary in nature which is not permitted in law. Notional set off of unabsorbed losses of earlier years (which were already set off against other business income in respective years) against profits of wind mill division for the year under appeal and thereby consequential denial of deduction u/s 80IA is against the wordings and interpretation of section 80IA of the Act as has been held in various case laws and the .....

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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 .....

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ion, as noted by the LAO in the relevant assessment order and extracted as under: A.Y. Depreciation loss 2003-04 58,263 2004-05 17,02,898 2005-06 1,87,90,690 2006-07 21,54,000 5.3.2 The LAO has enforced the provisions of sub-sec. 5 of 80lA of the Act and adjusted b/f loss/depreciation etc set off in earlier years against other sources of income against the profits declared by the appellant from the said windmill power division in Assessment Year 2009-10. For the purpose of determining of quantum .....

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ductions contained in Chapter IV which are linked to investments. Deduction under section 80IA is allowed at a percentage of the business profits computed in the manner specified in that section and other provisions contained in Chapter VIA. Section 80IA contains both substantive and procedural provisions for computation of the special deduction and any device adopted to reduce or inflate the profits of eligible business has to be rejected. In the present case, the appellant by not claiming earl .....

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r income in earlier years. 5.3.5 The Hon'ble ITAT, Special Bench in the case of ACIT v. Goldmine Shares and Finance (P) Limited (2008) 113 ITD 209 (Ahd) (SB) has held that losses of the eligible business have to be set off only against the subsequent years income 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 8 .....

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d 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 undertaking for the pu .....

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provisions of sub-sec.80-IA(5) of the Act and respectfully following the decision of Hon'ble ITAT, Special Bench in the case of ACIT v. Goldmine Shares and Finance (P) Limited (Supra) and Hon'ble ITAT, Mumbai, Third Member Bench in the case of Gujarat Ambuja Cement Limited v. DCIT (supra), the LAO's action in adjusting the brought forward business losses/depreciation against appellant's current year's business profit from the eligible business undertaking is confirmed. Groun .....

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s 143(3) of the Act vide orders dated 17-12-2009. The ld. Counsel for the assessee company submitted that the reasons for reopening (paper book page No. 130) whereby it is stated that on verification of the assessment records of the assessee company, it is seen that the assessee company has claimed deduction u/s 80IA of the Act of ₹ 94.39 lacs for the profit and gains of windmill business while in the earlier assessment year, the assessee company has claimed loss of ₹ 171.91 lacs fro .....

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ments 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 cl .....

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n 17-12- 2009 u/s 143(2) read with Section143(3) of the Act to reflect that the income has escaped assessment which warrants re-opening u/s 147/148 of the Act. The assessee company relied upon the decision of Hon ble Delhi High Court in the case of CIT v. Orient Craft Ltd. [ITA No. 555/2012, date of decision 12th December, 2012) and contended that no reassessments can be framed u/s 147/148 of the Act if no new tangible material has come to the notice of the A.O. as there is no reason to believe .....

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& 2984/Mum/2011)(Mum) iv) Motilal R. Todi v. ACIT (ITA No. 2910/Mum/2013)(Mum) v) M/s M. Sayarchand Mehta (HUF) v. ITO (ITA No. 1997/Mum/2012)(Mum) vi) Delta Air Lines, INC v. ITO (ITA No. 3476/Mum/2008)(Mum). 21. The ld. D.R., on the other hand, submitted that the Revenue has reopened the assessment within 4 years from the end of the assessment year and the proviso to section 147 is not applicable. The Ld. DR strongly relied upon the order of the ld. CIT(A). 22. In the rejoinder, the ld co .....

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ommercial production by way of generation of power w.e.f. assessment year 2003-04 , while the initial assessment year chosen by the assessee company for claiming deduction u/s 80IA of the Act is w.e.f. assessment year 2007-08 and hence deduction u/s 80IA shall be allowed w.e.f. assessment year 2007-08 and subsequent assessment years as per provisions of Section 80IA(2) and 80IA(5) of the Act. It is submitted by the ld counsel for the assessee company that the decision relied upon by the revenue .....

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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 A .....

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new tangible material has come to the notice of the A.O. after conclusion of regular assessment u/s 143(3) of the Act on 17-12-2009, which has direct nexus or live link with the formation of reasons to believe that income has escaped assessment warranting invocation of Section 147/148 of the Act . Although the assessment has been reopened u/s 147/148 of the Act but within a period of 4 years but it is the settled proposition of law that concluded assessments cannot be reopened in the absence of .....

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give to the AO , power to re-assess the income and not power to review its earlier decisions .Our view is fortified by the decision of Hon ble Delhi High Court in the case of CIT v. Orient Craft Limited in ITA no. 555/2012 delivered on 12-12-2012 and CIT v. Kelvinator of India (2010) 320 ITR 561(SC). Thus, we are of the considered view that the completed assessments u/s 143(3) of the Act in the instant case has been reopened u/s 147/148 of the Act without having any new tangible material coming .....

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ssment u/s 143(3) of the Act which is not permissible as per mandate 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 .....

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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 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 tax-payer, he shall be entitled to claim deduction u/s 80IA of the Act for ten c .....

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d 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 to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of .....

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TA-ll, DATED 15-2-2016 Section 80-IA of the Income-tax Act, 1961 (Act'), as substituted by the 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 80-IA further provides that the aforesaid deduction can be claimed by the assessee, at hi .....

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poses 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 prescri .....

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ch 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- .....

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laiming 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. 80-IA 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 shall also not be pursued to the extent it relate .....

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r considering the afore-stated Circular no 1 of 2016 as under: The Revenue has come up with the above appeal raising the following substantial questions of law : "(1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal 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 .....

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ble 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 Department, this Court has consistently followed the d .....

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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) .....

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s of an eligible business to which the provisions of SubSection (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 y .....

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tion, 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 .....

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ion 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 .....

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st 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 to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a circular has been issued. The Department shall take note of this for future guidance. 24. In view of t .....

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icer in deleting the addition of ₹ 5.10 crores made u/s. 68 of the I.T. Act without appreciating that the assessee company has failed to prove the identity and credit worthiness of the loan creditors and genuineness of the transaction ? (2) "Whether on the facts, circumstances and in the law, the Ld. CIT(A) erred in directing the Assessing Officer to delete the addition of ₹ 5.10 crores holding that the capacity of the share holder has been established without appreciating the f .....

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#8377; 491.48 lakhs to ₹ 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 .....

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authorized share capital of HK$ 10,000/- , which was subsequently increased to HK$ 1,10,00,000/- on 19-9- 2007 and further increased to HK$ 1,87,50,000/-. It was observed by the A.O. that BWGL which had issued share capital of HK$ 1,10,00,000/-, the shares was fully subscribed by another Hong Kong based company M/s. Fortune Exim Limited(Hereinafter called FEL ), by remittance on 08/10/2007 and 15/10/2007 and both the companies having common registered office address in Hong Kong and both the com .....

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al of the reports and financial statements of FEL it was observed by the A.O. as under:- FORTUNE EXIM LIMITED (Formerly known as Sun Fortune Holding Limited) Balance sheet as at 31 December 2008. Non Current assets HK$ Investment in subsidiary 10,999,999.00 Current Assets Trade receivables 5,405,258.12 Bills receivable 17,675,265.68 Amount due from ultimate holding company 4,130,000.00 Amount due from a subsidiary 7,757,750.00 Amount due from the sole director 49,488.18 Bank balances 38,349.51 , .....

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served 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 i .....

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o 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 listed on Bombay Stock Exchange) and the average market rate per share of the assessee company as certified by the Chartered Accountant during the previous year relevant to the financial year 2007-08 was ₹ 7.04 per share . It was observed by the AO that if BWGL was the real investor in the shares and was really .....

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mpany failed to prove the creditworthiness and genuineness of transaction in respect of share capital received by it and accordingly the AO treated the amount of ₹ 5,10,00,000/- received by the assessee company as income of the assessee company u/s 68 of the Act and the same was added to the total income in the hands of the assessee company by the AO vide assessment orders dated 30-12-2010 passed u/s 143(3) of the Act. 28. Aggrieved by the assessment order dated 30-12-2010 passed u/s 143(3 .....

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Reserve Bank of India( RBI for short), Bombay Stock Exchange ( BSE for short) and guidelines of Securities and Exchange Board of India ( SEBI for short) on preferential allotment of shares. The assesssee company submitted before the CIT(A) that out of the total share capital of BWGL of Hong Kong Dollar(HKD)1,87,50,000/- , an amount of HKD 1,87,49,999/- was subscribed by another Hong Kong based Company FEL. It was stated by the assessee company before the CIT(A) that the A.O without going into t .....

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ibed 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 .....

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transaction, Nimish Chandak holds an Indian Passport. We are now given to understand that he has got a Hong Kong Passport. -Copy of Form no. 2 of Fortune Exim being Business Registration certificate enclosed at Exhibit 21. -Copy of Business particulars of Fortune Exim issued by Business Registration Office enclosed at Exhibit 22. -Copy of Affidavit from Nimish Chandak enclosed at Exhibit 30. b) Richguard Holdings Ltd . -Bank Statement of RHL evidencing transfer of funds to Fortune Exim Ltd. for .....

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ublic Hong Kong for the period from 12.07.2007 to 11.07.2008 and from 12.07.2008 to 11.07.2009 enclosed at Exhibit 3. -Annual Return in Form AR1 of BWGL filed with Company Registry, H.K enclosed at Exhibit 7. -Bank Statement of BWGL highlighting amount remitted to LOL (appellant) enclosed at Exhibit 8. -Passport of Ms. LI KANG TAl, Director of BWGL duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong enclosed at Exhibit 4. Creditworthiness of the party a) Nimish Cha .....

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t Orders of Nimish Chandak for Year of Assessment 2007-08 enclosed at Exhibit 25. -Copy of BOI letter regarding satisfactory conduct of account of Fortune 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 31s .....

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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 enclosed at Annexure 73. Genuineness of the Transaction -Copy of Affidavit from Nimish Chandak confirming the entire transaction enclosed at Exhibit 30. -Copy of Bank Forei .....

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shares of LOL to be given in connection with issue of equity shares on preferential basis enclosed at Annexure 68.4. -In principle approval from BSE for issue of 42,50,000 Equity shares on preferential basis enclosed at Annexure 68.5. -Set of documents (FCGPR forms & other related documents) filed with authorized dealers for onward submission to RBI enclosed at Annexure 68.6 and Exhibit 39.2 to 39.13. -Letter dated 16.01.08 from RBI in connection with application in form FCGPR enclosed at An .....

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h at price of ₹ 12/- on preferential allotment basis enclosed at Annexure 68.10. -Bank Statement of LOL for SBI, Commercial Branch, Mumbai. highlighting the receipt of subscription amount enclosed at Annexure 68.11. -Application for listing of 42,50,000 Equity Shares to BSE enclosed at Annexure 68.12. -Form No. 2 - Return of Allotment filed by your appellant with MCA for allotment of equity shares to BWGL enclosed at Annexure 68.13. -Share Application Form for issue of equity shares from B .....

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t 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 30-12-20 .....

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n proved the identity, genuineness and creditworthiness of the ultimate investor Mr. Nimish Chandak and the assessee company has also satisfactorily explained even the source of source of source by producing the additional evidences before the CIT(A). The assessee company received the money towards share capital including share premium subscribed by BWGL of ₹ 5,10,00,000/- in its bank account through banking channels and the investor continues to be the shareholder of the assessee company .....

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company also discussed the basis on which the A.O. has made the addition and the assessee company s rebuttal is as follows:- AO's Stand: The AO has observed that BWGL had issued share capital of HKD 1,10,00,000/- which was fully subscribed by another Hong Kong based company FEL. The AO confirms that FEL had made a remittance to BWGL on October 08, 2007 and October 15, 2007. However, in his opinion it was objectionable and "pertinent to note that registered office of both the companies w .....

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hat BWGL and FEL were incorporated on the same date i.e. August, 10, 2007. Rebuttal: A holding company and the subsidiary company can be incorporated on the same date. There is no prohibition in law that the holding company has to be incorporated prior to the incorporation of a subsidiary company. 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 ca .....

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reditworthiness 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 on October 08, 20 .....

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9 submitted to the Inland Revenue Department, Hong Kong. He has further concluded from this that BWGL was not engaged in earning of any income and had no business activities. Rebuttal: It is an admitted fact that BWGL is an investment company where the only activity was acquisition of shares of your appellant and was not formed with any objective of doing business. However, once again whether BWGL has business activities or otherwise does not mean that it did not have the funds for acquiring the .....

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pany is widely drafted to include various objectives which it might carry out in future. This has no relevance with the subject matter. AO's Stand: The A.O. has mentioned that BWGL has purchased shares at ₹ 12/- as against valuation of ₹ 7.04 per share. The A.O. has further mentioned that if BWGL was a real investor in the shares and was really interested in acquiring the shares, it could have been acquired from the market at the rate of ₹ 7.04 per share but BWGL has prefer .....

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o 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 acqui .....

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d to considerable difficulties and the end result would be that they would either not able to acquire number of shares they have acquired or they would have paid a much heavier price then the amount paid to the company by way of share premium. Further if the investor is interested in well being of the company in which he has invested he would be happy to put the money in the hands of the company rather than buy the shares from the market at a premium because if the shares are issued by the compa .....

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he submissions as made earlier which are not repeated for sake of brevity. Thus, the assessee company submitted that assessee company has fully proved the identity of the creditors ,creditworthiness of the creditors, and genuineness of the transaction but the A.O. has passed the order on presumption and assumption. It was also submitted that Mr. Nimish G. Chandak had appeared before the CIT(A) and his presence has been noted in the order sheet. The assessee company also filed affidavit of Mr Nim .....

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T (ITA No. 4911/Mum/09) The CIT(A) admitted the additional evidence which were mainly by way of bank statements, director s reports, auditor s report , balance sheet, identity card , permanent card , copy of passport, copy of tax return, assessment order and profit tax and affidavit of the said Mr Nimesh G. Chandak, produced by the assessee company , as in the opinion of the CIT(A) ,these additional evidences are important and relevant for adjudicating the appeal on merits and in the interest of .....

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eedings and appellate proceedings, the assessee company has explained that it issued preferential shares to M/s BWGL at the rate of ₹ 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 ₹ 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 sa .....

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t of remittance was duly notified to RBI. Extracts of the Resolution passed at the meeting of the Board of Directors of the assessee company for allotment of shares were also provided to the A.O. and CIT(A). Certificates of Chartered Accountant issued in connection with issue of equity shares were also produced before the AO and CIT(A). FCGPR forms and other relevant documents were also submitted to RBI. RBI vide their letter dated 16.01.2008 acknowledged the receipt of application in Form No. F .....

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Bank statement evidencing receipt of subscription amount by the assessee company as also application made to BSE for listing of 42,50,000 equity shares and form no 2 i.e. return of allotment and share application received from BWGL was also submitted before the AO and CIT(A). The assessee company letter dated 3-12-2007 to BSE and BSE s letter dated 25-03-2008 regarding listing of the new securities as well share certificates issued to BWGL was also enclosed before the AO and CIT(A) . These clin .....

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e of incorporation of M/s BWGL having company No.1149123 in Hong Kong. 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 .....

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ax 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 creditworthiness of BWGL has been proved , vide orders dated 12-03- 2012. The assessee company has further explained the identity and creditworthiness of FEL by producing various documents including the bank statement of FEL evidencing .....

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FEL. The copy of form no 2 of FEL being Business Registration Certificate and copy of business particulars of FEL issued by Business Registration office were also produced before the AO and CIT(A) The said Mr Nimesh G Chandak also produced an affidavit dated 27th June 2011 , stating and confirming the investment of ₹ 5.10 crores made by BWGL in the assessee company and the sources of the said investment was explained along with the corporate structure of the group for making this investmen .....

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mish G. Chandak, the assessee company proved source of source of source of the transactions and proved the identity, genuineness and creditworthiness of the ultimate investor, Mr. Nimish G. Chandak, the Hongkong resident holding Government Permanent Card No. R077978(3).The affidavit of Nimesh G Chandak has not been doubted by the AO. The assessee company has received the money in its SBI Commercial Bank account and the said BWGL even today continues to be the shareholder of the present assessee .....

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r share, it was issued at ₹ 12 per share which is in compliance with SEBI guidelines for issue of preferential shares by listed companies. The investor BWGL agreed to pay ₹ 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 .....

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lected in the audited balance sheet of BWGL as well as in the audited balance of the assessee company. Also, the amount invested by FEL in BWGL is also reflected in the audited balance sheet of both the companies. Hence, the CIT(A) vide orders dated 12-3-2012 deleted the additions made by the A.O. with respect to the transaction of share subscription(including share premium) aggregating to ₹ 5.10 crores between the assessee company and its immediate creditor BWGL holding that the assessee .....

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herefore, the A.O. is quite right in treating the share capital and share premium of ₹ 5.10 crores received by the assessee company from BWGL as income of the assessee company in accordance with provisions of Section 68 of the Act. 33. The ld. Counsel for the assessee company, on the other hand, supported the orders of the CIT(A) and submitted that the assessee company successfully explained the name, identity, creditworthiness and genuineness of the transaction before the AO and the CIT(A .....

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bmitted along with paper book filed with the Tribunal. The assessee company has also filed in the paper book , page 51-223 , several documentary evidences which were filed before the authorities below and listed in the preceding para s of this order to substantiate the identity, creditworthiness and genuineness of the transaction of receipt of ₹ 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 mat .....

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g Kong company FEL and the said amount raised by BWGL from FEL was invested in the assessee company to the tune of ₹ 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 .....

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explanations offered to substantiate identity of creditor, creditworthiness of creditor and genuineness of the transaction of receipt of ₹ 5.10 crores as share capital and share premium from BWGL by the assessee company as were filed before the authorities below are detailed in the preceding para s of this order which is not repeated for sake of brevity and such documentary evidences are also filed by the assessee company before the Tribunal in the paper book , page 51-223 and we have per .....

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h which we completely agree and concur , the said findings of the CIT(A) is detailed by us in the preceding para s of this order and is not repeated for the sake of brevity . The assessee company is a listed company which is subject to strict regulatory and / or statutory scrutiny and controls by government authorities such as RBI, BSE,SEBI and MCA apart from the community of investors who have invested in shares of the assessee company being widely held listed company. The assessee company has .....

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ssee 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, creditwor .....

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planation offered there-to during assessment or remand report proceedings, rather the entire case of the Revenue is based on conjectures, surmises and assumptions which is not permissible under the Act while the assessee company has satisfied the ingredients of Section 68 of the Act by uncontroverted cogent documentary evidences and explanations offered during assessment and appellate proceedings. The said Mr Nimesh G. Chandak , the ultimate investor of the investing group was produced by the as .....

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filed duly attested affidavit stating the entire details of investment of ₹ 5.10 crores in the assessee company , the contents thereof has also not been demolished by the Revenue and had remained uncontroverted. In our considered view, the CIT(A) has passed a very detailed and well reasoned order dated 12.03.2012 accepting the contentions of the assessee company with which we concur , agree and uphold the same. The Revenue has also raised ground of appeal no. 2 that the foreign companies h .....

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mercial expediency. The World Economies have advanced and expanded multifold , and have rapidly integrated themselves in the last few decades, so as the scale of operations have grown manifold in last few decades necessitating collaborative actions across globe. Business houses have diversified, collaborated and integrated themselves with conglomerates across globe and are engaged and operating in multi-product/services and multi-location businesses geographically spread across national and inte .....

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elf 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 ₹ 5.10 crores in the shar .....

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ssee company including chain of flow of funds from the investor Mr. Nimesh G Chandak and ultimately it reaches the assessee company through his corporate structure of holding and subsidiary companies. It is totally irrelevant on part of the Revenue to contend that these foreign companies do not have owned funds or there are no business activities of these foreign companies, so long the assessee company is able to establish and substantiate with cogent material and evidences, identity of the cred .....

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Name of Company Turnover Net owned funds 1. Fortune Exim Limited, Hong Kong ( From 10-08-2007 to 31-12-2008) HK$ 3,78,77,247 HK$1,24,28,971 The Balance sheet has been prepared by FEL from the date of incorporation on 10-08-2007 to 31-12-2008 which is stated to be compliant to Hong Kong Laws as the date of incorporation was 10-08-2007 and this is the first balance sheet but to make bald assertion that these companies are not engaged in any businesses and does not have their owned funds without br .....

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transaction per-se is undertaken with an intention to evade taxes to defraud revenue warranting lifting of corporate veil. Thus, this ground no. 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 cas .....

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. 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) [Ld. CIT (A)] erred in confirming the action of the Learned Assessing officer of Denial of deduction u/s 80lA amounting to ₹ 1,57,90,301/-. 2. Without P .....

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,66,079/-. 37. With respect to ground No. 1, the brief facts are that the assessee company earned income from sale of power generated from wind mill and claimed deduction u/s 80IA of the Act amounting to ₹ 1,57,90,301/- . The assessee s company filed Auditor s Report in form 10CCB to substantiate its claim of deduction u/s 80IA of the Act. The AO observed that while computing deduction u/s 80IA of the Act, the assessee company has ignored the mandate of Section 80IA(5) of the Act. Perusal .....

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king has to be notionally carried forward to ascertain the correct figure of allowable deduction u/s 80IA of the Act in the year in which it is claimed. The AO observed that verification of records reveals that in respect of wind mill power division which has been commissioned by the assessee company in the previous year relevant to the assessment year 2003-04 , the loss/depreciation attributable to this activity of wind-mill stands as under: AY Depreciation loss 2003-04 Rs.58,263 2004-05 Rs.17, .....

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e 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 gen .....

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the impugned assessment year before allowing deduction u/s 80IA of the Act and hence the entire claim of deduction of the assessee company amounting to ₹ 1,57,90,301/- u/s 80IA of the Act were disallowed by the AO without appreciating the provisions of Section 80IA(5) of the Act and difference between initial assessment year and year of commencement has not been properly understood by the AO .The assessee company submitted that the fiction created by Section 80IA(5) of the Act is applicabl .....

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T(A) observed that it is not disputed that the assessee company incurred losses/depreciation attributed to windmill power division as under: AY Depreciation loss 2003-04 Rs.58,263 2004-05 Rs.17,02,898 2005-06 Rs.187,90,690 2006-07 Rs.21,54,000 The CIT(A) held that the AO has rightly invoked provisions of Section 80IA(5) of the Act and adjusted brought forward losses/depreciation set off in earlier years against other sources of income , against the profit declared by the assessee company from th .....

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s a code in itself and the assessee company by not claiming earlier assessment year s business losses and depreciation seeks to inflate the profit linked incentives provided u/s 80IA of the Act which is not permissible and in view of the specific provisions of Section 80IA(5) of the Act, the profit from the eligible 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 .....

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im of deduction of the assessee company u/s 80IA of the Act amounting to ₹ 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 .....

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sment year 2006-07 are already adjusted against the income arising from other sources and the same were allowed to be adjusted by the Revenue in the relevant assessment years. The Revenue is now contending to adjust notional brought forward losses/depreciation which are already adjusted and exhausted by the assessee company in the relevant assessment year s by adjusting the same against the income earned from other sources in those relevant assessment year s and the Revenue cannot adjust notiona .....

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t from assessment year 2003-04 . The assessee company claim is supported by Auditor Certificate dated 25-08-2008 in form no 10CCB for the impugned assessment year, whereby the auditors of the company has certified that the assessee company is entitled for deduction u/s 80IA of the Act amounting to ₹ 157.90 lacs. The assessee company s counsel relied upon the following decisions : 1. Velayudhaswamy Spinning Mills Private Limited v. ACIT (340 ITR 477(Mad.)). 2. CIT v. Anil H Lad (45 taxmann. .....

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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) an .....

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nsecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-Section (5) of Section 801A of the Act 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 determinin .....

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ining the quantum of deduction, a reference has been made to the term initial assessment year . The clear mandate provided under Sub-Section (2) which allows a choice to the tax-payer for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. An taxpayer who is eligible to claim deduction u/s 80IA 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 .....

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hich were already adjusted in the relevant assessment years against the claim of deduction u/s 80IA of the Act has been decided by Hon ble Madras High Court in Velayudhaswamy Spinning Mills Private Limited v. ACIT(supra) whereby Hon ble Madras High Court held that already adjusted losses/depreciation against income from other sources in the earlier years cannot be brought forward notionally to be adjusted against the claim of the deduction u/s. 80IA of the Act if there exists no brought forward .....

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gainst 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 sectio .....

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s providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (iii) of sub-section (4) or generates power or commences transmission or distribution or power or undertakes substantial renovation and modernisation of the existing transmission or distribution lines. (4) This section applies to- (i) any enterprise carrying on the business of (i) developing, or (ii) operating and maintaining, or (iii) developing, operating and maintaini .....

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eloping, operating and maintaining a new infrastructure facility ; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st April, 1995. (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial a .....

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aking or an enterprise from any business referred to in sub-section (4), 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 .....

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(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 they are as under : "(1) It starts with a non obstante clause which means it overrides all the provisions of the Act and other provisions are to be ignored ; (2) It is for the purpose of determini .....

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year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even thou .....

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created. 19. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligi .....

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1 (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 carr .....

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any other unabsorbed losses of the previous year arising out of the priority industry and whether it was required to be set off against the income of the current year. It is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. In view thereof, we are of the opinion that the Tribunal has .....

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g was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs." 20. From a reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We s .....

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t 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 slab of fifteen (or twenty) years, as prescribed under that sub-section. It has been clarified that once such initial assessment year has .....

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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 to the .....

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N OF TERM 'INITIAL ASSESSMENT YEAR' IN SECTION 80-IA(5) CIRCULAR NO.1/2016 [F.NO.200/31/2015-ITA-ll, DATED 15-2-2016 Section 80-IA of the Income-tax Act, 1961 (Act'), as substituted by the 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 .....

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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 as .....

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s 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 deductio .....

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opted for by the assessee for claiming deduction u/s. 80-1A. 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. 80-IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pendi .....

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76 of 2016 on an identical issue , the Hon ble Madras High Court has dismissed the Revenue appeal after considering the afore-stated Circular no 1 of 2016 as under: The Revenue has come up with the above appeal raising the following substantial questions of law : "(1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed deprecia .....

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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 ac .....

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ia 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 .....

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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 t .....

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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 th .....

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he term initial assessment year would mean the first year opted for 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 appl .....

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o 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 to the Supreme Court and get the law settled once and for all. But, once a decision is taken at the level of the Board, we do not know why repeated appeals should be filed, only to meet with the same fate as that of a decision, on which, a .....

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t the claim of the deduction u/s 80IA of the Act for the impugned assessment year as there existed no brought forward un-adjusted losses/depreciation in the hands of the assessee company as per facts emanating from records . Ground no 1 of the assessee company is allowed. 44. The ground no 2 is raised by the assessee company which is raised without prejudice to ground no 1 . The brief facts are that it was observed by the A.O. that sale of windmill power of ₹ 179.08 lacs shown by the asses .....

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allowed by the AO , no separate disallowance was made on this account by the AO , vide assessment orders dated 30-12-2010 passed by the AO u/s 143(3) of the Act. 45. Aggrieved by the assessment order dated 30-12-2010 passed by the A.O. u/s 143(3) of the Act, the assessee company preferred an appeal before the CIT(A) and the CIT(A) upheld the decision of A.O. by holding that the assessee company has received ₹ 35,55,880/- which was not on account of sale of power generated but on account of .....

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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 equipment .....

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um rated guaranteed production and hence the said amount is income derived from windmill undertaking of the assessee company engaged in the business of generation of power and there is a first degree nexus of the said receipt and the generation of power by the windmill undertaking of the assessee company and the compensation received for under-performance of the wind mill below guaranteed capacity is towards deemed generation of power and benefit u/s 80IA of the Act cannot be denied to the asses .....

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n-performance of the power equipment and same cannot be allowed as deduction u/s 80IA of the Act. The ld Dr relied upon the decision of Hon ble Supreme Court in the case of Liberty India Limited(2009) 317 ITR 218(SC) 49. We have considered the rival contentions and also perused the material available on record. We have observed that from the facts which are emerging from the records and orders of the authorities below and submissions made by both the counsels, it is observed that the assessee co .....

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the A.O. treated the same as income which is not derived from industrial undertaking. We have also observed that the word used in section 80IA of the Act is where the gross total income of an tax-payer includes any profits and gains derived by an undertaking or an 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 re .....

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al), 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 ₹ 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 aforesaid amount in lieu of assured power gener .....

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ke to submit that the Hon ble Supreme Court had recently on 09th March 2016 (post conclusion of hearing in the instant case) after considering the entire law on the subject has delivered a landmark judgment in the case of CIT v. Meghalaya Steels Limited in Civil Appeal No. 7622 of 2014 whereby power subsidy, interest subsidy and transport subsidy were held to have direct nexus with the business of the undertaking and are held to be income derived from the undertaking as it goes to reduce the cos .....

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onstrue Section 80-E of the Income Tax Act, which referred to profits and gains attributable to the business of generation or distribution of electricity. This Court held: As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Le .....

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e 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 .....

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between the wider expression attributable to as contrasted with derived from . In the course of the judgment, this Court stated that the industrial undertaking itself had to be the source of the profit. The business of the industrial undertaking had directly to yield that profit. Having said this, this Court finally held:- We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the cir .....

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tled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking. (Para 13) 15. Similarly, in Pandian Chemicals Limited v Commissioner of Income Tax, 262 ITR 278, this Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of .....

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On this basis, the appeal was decided in favour of Revenue. 16. The sheet anchor of Shri Radhakrishnan s submissions is the judgment of this Court in Liberty India v. Commissioner of Income Tax, (2009) 9 SCC 328. This was a case referring directly to Section 80-IB in which the question was whether DEPB credit or Duty drawback receipt could be said to be in respect of profits and gains derived from an eligible business. This Court first made the distinction between attributable to and derived fro .....

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ved 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 .....

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t the deemed import content of the export product as per basic customs duty and special additional duty payable on such deemed imports. 36. Therefore, in our view, DEPB/Duty Drawback are incentives which flow from the Schemes framed by Central Government or from S. 75 of the Customs Act, 1962, hence, incentives profits are not profits derived from the eligible business under Section 80-IB. They belong to the category of ancillary profits of such Undertakings. (Paras 34,35 and 36) 17. An analysis .....

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, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression attributable to . Since we are directly concerned with the expression derived from , this judgment is relevant only insofar as it makes a distinction between the expression derived from , as being something directly from, as opposed to attributable to , which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods lays down a very imp .....

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could not be said to be directly from profits and gains by the industrial undertaking but only attributable to 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 reim .....

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ssing. 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 Government would make no difference, as it cannot be disputed that the said subsidies are only in order to reimburse, wholly or partially, costs actually incurred by the assessee in the manufacturin .....

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ed. 19. Similarly, the judgment in Pandian Chemicals Limited v Commissioner of Income Tax is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, .....

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selling its products. DEPB entitlement arises only when the undertaking goes on to export the said product, that is after it manufactures or produces the same. Pithily put, if there is no export, there is no DEPB entitlement, and therefore its relation to manufacture of a product and/or sale within India is not proximate or direct but is one step removed. Also, the object behind DEPB entitlement, as has been held by this Court, is to neutralize the incidence of customs duty payment on the import .....

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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 an .....

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e under Section 80HH of the Act in respect of transport subsidy without noticing the aforesaid earlier judgment of a Division Bench of that very court. A Division Bench of the Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by a judgment dated 15.1.2015, distinguished the judgment in CIT v. Andaman Timber Industries Ltd. and followed the impugned judgment of the Gauhati High Court in the present case. In a pithy discussion of the law on the subject, the Calcutta High Court .....

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ing. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking. We have not been impressed by the submissions advanced by .....

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as these subsidies go to reduce the cost of production. Therefore, the judgment in the case of Liberty India v. Commissioner of Income Tax has no manner of application. The Supreme Court in the case of Sahney Steel and Press Works Ltd. & Others versus Commissioner of Income Tax, reported in [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 .....

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le. 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 revenue, by levy .....

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e transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other northeastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of .....

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dy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee. 26. We do not find it necessary to further encumber this judgment with the judgments which Shri Ganesh cited on the netting principle. We find it unnecessary to further substantiate the reasoning in our judgment based on the said principle. 27. A Delhi High Court judgment was also cited before us being C .....

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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 .....

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s schemes are included as being income under the head profits and gains of business or profession , it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head profits and gains of business or profession , and not under the head income from other sources . 29. For the reasons given by us, we are of the view that the Gauhati, Calcutta and Delhi High Courts have correctly construed Sections 80-IB a .....

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nt in Meghalaya Steels Limited(supra) as in the said case of Liberty India the tax-payer received subsidy in the form of DEPB/drawback incentives which was held by Hon ble Supreme Court to be not derived from business of undertaking for manufacturing or selling of products but these incentives have arisen from exports of these products and these incentives has arisen out of Scheme s of the Government granting DEPB/Drawback incentives and/or provisions of Customs Act and not from the manufacturin .....

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of first degree with the generation of power being shortfall in generation of power than the guaranteed rated capacity by equipment supplier and the subsidy goes on to reduce the cost of generation of power as the fixed costs and other cost which are still incurred despite short generation of power are recouped by the said subsidy from Suzlon Energy Limited and thus has direct and close nexus with the business of generation of power by the windmill undertaking of the assessee company and deducti .....

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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 ₹ 2,50,000/- on investment of ₹ 810.30 lacs. During the course of .....

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claim of assessee company and held that the disallowance computed by the assessee company is not in accordance with Rule 8D of Income Tax Rules, 1962 and the correct disallowance worked out to ₹ 13,66,079/- as under: A) NIL B) Interest Expenses X Average Investment Average Asset 123.13X543.32 6112.74 Rs.1094419/- C) 0.5% of average investment 0.5% X543.32 Rs.2,71,660/- Total disallowance under the head works out to ₹ 13,66,079/- u/s 14A of the Act read with Rule 8D of Income Tax Rul .....

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more than exempted income. The assessee company submitted that entire interest on packing credit which is utilized for export business is considered for disallowance by the AO. The said interest on packing credit has no nexus with earning of exempt income. The assessee company submitted that entire bank charges and commission is considered as interest for disallowance while the said bank charges and commission has no nexus with tax-free income. The AO has also considered the investment in subsid .....

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n 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 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 pa .....

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nt 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 covered by sub section (2) of section 14A of the Act because the AO was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Hence the disallowance of ₹ 13,66,079/- was confirmed by .....

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n view of the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd v. CIT (2015) 61 taxmann.com 118 (Delhi), it should be restricted to 2.5 lacs. He submitted that the share application money ought to be excluded from the disallowance u/s 14A of the Act. The ld. Counsel reiterated his submissions as were made before the authorities below which are not repeated for sake of brevity.The ld. Counsel relied upon large number of case laws which are placed in paper book of case laws pages .....

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s below and no reasoning have been given in the orders of authorities below for rejection of the said assessee company s pleas. The adjudication of said plea s raised by the assessee company requires verification of the accounts and records. The main pleas raised by the assessee company before the authorities below were that the entire interest on packing credit which is utilized for export business was considered for disallowance by the AO. The said interest on packing credit has no nexus with .....

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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 .....

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