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2016 (4) TMI 591

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..... 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 the basis of conjectures, surmises , assumptions and presumptions without backing of any cogent material/evidences, which is alien to the Act and is not sufficient for fastening liability on the assessee company . In view of our above findings and reasoning detailed above, we find no infirmity in the well reasoned and detailed order passed by the CIT(A) which we decline and refuse to interfere and hence, we confirm the orders of the CIT(A) - Decided in favour of assessee Reopening of assessment - 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/ .....

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..... led and well reasoned order dated 12.03.2012 accepting the contentions of the assessee company with which we concur , agree and uphold the same. Foreign investments undisclosed - Held that:- 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 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 group investing in the assessee company, meaning thereby source of the transaction is proved by the assessee 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 o .....

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..... ward 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/depreciation in the hands of the assessee company as per facts emanating from records . Entitled for deduction u/s 80IA - Held that:- As the amount received by the assessee company from M/s Suzlon Energy Ltd. on account of specific performance being compensation on account of shortfall in the power generated by the assessee company vis-a-vis the minimum guarantee rated capacity of production of power assured by Suzlon Energy Limited is to be held to be derived from the windmill power undertaking engaged in generation of power and is entitled for deduction u/s 80IA of the Act. 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 considered as interest for disallo .....

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..... that the wind mill was installed beyond the relevant accounting period ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored. 4. The brief facts of the case are that the assessee company derived income from trading in cotton yarn, fabric, raw cotton, paper and windmill power. The assessee company s original assessment was completed by the AO u/s 143(3) of 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 ₹ 1,86,00,000/- and the said claim of the assessee company was allowed by the AO in the original assessment order u/s 143(3) of the Act dated 30.01.2006. Subsequently, the AO was in the possession of the information that the windmill on which assessee company has claimed depreciation was not installed on 30-03-2003 as claimed by the assessee company but was installed on 01/04/2003 i.e. during the period relevant to the subsequent assessment year, hence, the assessee company's claim of depreciation was not an allowable deduction since the asset was not put to use during th .....

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..... l cannot be commissioned before installation. The AO held that the documents submitted by the assessee company vide above referred letter cannot be taken as an authentic document since the same is not supported by full facts and documentary evidences as also the same are self generated documents. The certificate of Executive Engineer, Jaisalmer do not bear the seal of the authority and hence the authenticity of the claim is doubtful. The A.O. accordingly held that the assessee company is not entitled for claim of depreciation of 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 CIT(A), the assessee company submitted that it had furnished correct return of income of the Act disclosing total income of ₹ 51,03,650/- on 3.11.2003. T .....

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..... tallation and commissioning of the windmill on 30.03.2003 and the depreciation at 50% was correctly claimed on the basis of the following evidences, which submissions containing reliance on the documents by the assessee company are reproduced hereunder: 1. The office of The Executive Engineer ( O M), J.V.V.N.L., Jaisalmer, which is the appropriate Government authority has certified that the aforesaid Wind Mill installed at Village Soda-Mada, Jaisalmer District by the 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 Prasaran Nigam Ltd. has also given joint inspection report of 10.0 MW wind farm in respect of common main metering system on 30th March, 2003. (Exhibit 2). 4. Copy of invoice dated March 31. 2003 for generation of power from March 30 to March 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 n .....

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..... Del) (FB) iii) Cartini India Limited v. ACIT 314 ITR 275 Bom) iv) CIT v. Kelvinator of India Limited (2010) 320 ITR 561 (SC) v) Rallies India Limited v. ACIT 232 CTR 143 (Bom) vi) Mitsui Marubheni Corpn v. DCIT 298 ITR (AT) 283 vii) IPCA Laqboratories Limited v. Jagdanand Meena DCIT, 251 ITR 416 (Bom). The assessee company contended that there was no failure on the part of the assessee company to disclose full and true facts and the A.O. has incorrectly changed his mind and withdrawn 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 reopened based on the materials gathered during the course of survey u/s 133A of the Act on 05-04-2006 at the premises of Suzlon Energy Limited based on which opinion was formed that the subject windmill was commissioned and put to use on 1-4-2003 as against actual date of com .....

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..... o use on April 01, 2003 as against actual date of commissioning/put to use on March 30, ,2003 rejecting clinching evidences placed on records and accepted by the then A.O. The assessee company submitted that the A.O. while passing the re-assessment order dated 16.12.2010 based his decision on the data of daily generation of electricity from 1.1.2006 to 5-4-2006 and statement recorded allegedly of an employee of Suzlon Energy Limited which documents were collected by a survey team during the course of survey u/s. 133A of the Act on 05-04-2006 in the case of M/s. Suzlon Energy Ltd. based on which he has held that the subject windmill was commissioned on 01-04-2003. The assesse company had submitted the following documentary evidences during original assessment, reassessment and remand proceedings to prove that the windmill was put to use before 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. (Exh .....

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..... the original while neither the A.O. nor the assessee company had seen the original form no 13, hence, the uncertified photocopy cannot be relied upon by the AO for disallowing the claim of depreciation and the same cannot be considered as an authentic document. Also nowhere on the document name of Suzlon Energy Limited appears which again raises a doubt as to the validity of the document. The person who has signed the Survey Report has not been identified and that he is a representative of Suzlon Energy Limited has also not been mentioned on the Survey report and in fact the person 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 mentioned in the said Xerox copy . The assessee company vide additional evidence had submitted delivery challans of Suzlon Energy Limited together with consignment note evidencing date of delivery of windmill parts at site and the last delivery was on 02-03- 2003 which prove that the parts of the windmill were received well before time of installation and commissioning of windmill on 30-3-2003. The A.O. s st .....

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..... tion subsequent to completion of the original assessment u/s 143(3) of the Act on 30-1-2006 and accordingly the CIT(A) upheld the re-opening of the concluded assessment by the AO. The CIT(A) relied upon the following case laws: a) Indo Aden Salt Manufacturing and Trading Co. P. Ltd. (1986) 159 ITR 624(SC) b) Jawand Sons v. CIT (2010) 326 ITR 39(P H) c) Raymond Wollen Mills Limited v. ITO (1999) 236 ITR 34(SC) On merits, the CIT(A) observed that it is undisputed that the assessee company had installed windmill at location No. J208 at Soda-Mada, Jaisalmer. Even the survey team led by Addl. DIT, Investigation, Jodhpur has inspected and verified during the course of survey proceedings conducted 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. Fr .....

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..... ny has also relied on the copy of invoice for the month of March 2003 raised vide Invoice No. LOL-WPD/2003-04/1 dated 17.04.2003 which mentions energy exports of 107 KWH, energy import of 9 KWH and net export of energy of 98 KWH. The invoice value was raised at ₹ 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 Rajasthan s forwarding memo No. RPM/CCA/CPC/F/D/605 dated 16.5.2003, mentioning the aforestated cheque amounting to ₹ 327/- being forwarded to the assessee company. The assessee company has further relied on copy of monthly generated record for the month of March 2003 which have been duly signed by the Jodhpur Discon, by the responsible authority of RUPNL and by M/s Suzlon Energy Limited. The assessee company has also enclosed a statement at Annexure-l giving details and description of the material delivered, date of dispatch, delivery challa .....

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..... directed the AO to allow depreciation as originally allowed by the A.O. vide assessment orders dated 30-01-2006 passed by the AO u/s 143(3) of the Act . 8. Aggrieved by the orders dated 14-3-2012 of the CIT(A), the Revenue is in appeal before the Tribunal. 9. The ld. D.R. submitted that the assessee company has claimed depreciation on windmill of ₹ 1.86 crores for the assessment year 2003-04 while the windmill was installed on 1-4-2003 and since the windmill was not put to use before the end of financial year ending on 31-03-2003 , the A.O. has rightly denied the benefit of depreciation in the assessment year 2003-04 and the CIT(A) erred in 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 the windmill, the certificate dated 05-04-2006 by the Executive of Suzlon Energy Limited was valid and relevant piece of evidence which was .....

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..... of March 2003, commissioning certificate issued by JVVN on 30-03-2003 and joint inspection report dated 30-03-2003 was duly submitted before the AO during the course of assessment proceedings with regard to commencement of commercial production of the windmill on 30-03-2003 , vide replies dated 16- 08-2005 and 12-09-2005 which are placed in paper book page 94-119. The ld. Counsel for the assessee company drawn our attention to the certificates issued by the Rajasthan Government Authorities certifying that the windmill was successfully commissioned on 30-03-2003 which is placed in paper book at page 116. He also drew our attention to the Joint inspection in respect to the windmill power plant of the assessee company carried on by the RRVPN which was also certified that the installation and commissioning of the windmill was completed on 30-3-2003 which is placed at paper book page 117 to 119. He also drew our attention to the invoices raised by the assessee 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/ .....

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..... was carried out on 5-4-2006 i.e 3 years after the commencement of the commercial production claimed by the assessee company to be started on 30-03-2003. There was no mention about the authorized person , signature, designation or seal of the person preparing the survey report on 05-04-2006 being allegedly employee of Suzlon Energy Limited nor is there any detail of the officer of Revenue countersigning the said report dated 05-04-2006. The Revenue has also not recorded any statement of the Director or any other authorized person of Suzlon Energy Limited or of the assessee company during the course of survey proceedings. On the other hand, the assessee company has brought on record 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 and was also connected to 33kv Khuri Feeder on 30-3-2003 and the assessee company has also supplied net-energy being 98KWH to RVPNL in March 2003 which was duly paid by RVPNL , which has not been controverted and dem .....

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..... ts have come to light which were not present at the time of original assessment which could constitute 'reason to believe leading to justification of reopening u/s. 147 and thus eared in confirming the action of the Learned Assessing officer of reopening the already completed assessment u/s. 143(3) which is merely on the ground of change of opinion. 3. The C.I.T. (A) erred in confirming the action of the Learned Assessing officer of notionally setting the unabsorbed loss of earlier years of windmill division of ₹ 94.39 lacs which have already been set off against other business income of your appellant. 4. The C.I.T. (A) erred in not taking cognizance of the fact which was brought to his notice that notional loss of wind mill division was already set off while considering 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 .....

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..... inst the profit of other business, cannot be notionally brought forward and be considered for computing deduction u/s. 80-IA(5) of the Act. The assessee company submitted that the assessee company has commenced generation of electricity in the assessment year 2003-04 and has opted to claim deduction u/s. 80-IA only from the assessment year 2007-08. Hence the initial assessment year for this undertaking would be assessment year 2007-08. The A.O., however, rejected the contentions of the assessee company. The A.O. relied upon the assessment order for the assessment year 2009-10 which was confirmed by the CIT(A)-9,Mumbai vide order dated 2-7- 2012 with the following remarks as under:- I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the windmill power division, 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 20 .....

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..... 22.09.1980. In view of the specific provisions of section 80-IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai H Third Member Bench in the case of Gujarat Ambuja Cement Limited Vs DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industrial undertaking are required to be reduced as per sec. 80-I(1) from current year's profits 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 Suppl .....

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..... e company submitted that discovery of new and tangible material facts which were not present during the course of regular assessment proceedings and which have direct nexus and live link with reasons to believe that income has escaped assessment within the meaning of Section 147 of the Act is must for re-opening of the assessment. The assessee company submitted that no new material and tangible facts has come to the notice of the AO subsequent to the framing of the regular assessment vide orders dated 17.12.2009 u/s 143(3) of the Act. In support, the assessee company relied upon the following decisions of the Hon ble Supreme Court: (i) Phool Chand Bajrang Lal v. ITO , 203 ITR 456,477 (ii) ALA Firm v. CIT 189 ITR 285, 298 (iii) Indian and Eastern Newspaper Society v. CIT 119 ITR 996, 1004 (iv) ITO v. Lakhmani Mewal Das 103 ITR 437, 445 The assessee company submitted that following documents were given to the AO during the course of regular assessment proceedings with respect to the claim u/s 80IA of the Act and no new material and tangible facts have come to light warranting invoking of provisions of Section 147/148 of the Act for reopening of concluded as .....

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..... ITR (Del) which was confirmed by Hon ble Supreme Court in 320 ITR 561 (SC), whereby the Hon ble Supreme Court held that the A.O. has no power to review the concluded assessments and change of opinion is not permitted. The assessee company also relied upon the following decisions:- - Chandrashekhar Karondia HUF v. ITO 14 taxmann.com 37 (Mum. ITAT). - B.J. Services Company Middle East Ltd. v. Deputy Director of Income-tax (International Taxation), Dehradun [2011] 12 taxmann.com 493(Uttarakhand) - CIT v. Manak Shoes Co. (P.) Ltd. [2011] 200 Taxmann 133 (Del.): 2011)11 taxmann.com 217 (Delhi) - CIT v. Feather Foam Enterprises (P) Ltd. [2008] 296 ITR 342 (Del.) - CIT vs. Bhanji Lavji [1971] 79 ITR 582 (SC) - ITO v. Nawab Mir Barkat AIi Khan Bahadur [1974] 97 ITR 239 (SC) - Raymond Woolen Mills Ltd. v. ITO and Others (1999) 236 ITR 34 (SC) - CIT v. Former Finance (2003) 264 ITR 566 (SC) - M.J. Pharmaceuticals Ltd. v. DCIT [2008] 297 ITR 119 (Bom.) - Carlton Overseas P. Ltd. v.. ITO [2009] 318 ITR 295 (Del.) - CIT v. Chakiat Agencies Pvt. Ltd. [2009] 314 ITR 200 (Mad.) - Caetini India Ltd. v. Addl. CIT [2009] 314 ITR 27 .....

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..... ct. The assessee company relied upon the decision of the Tribunal in ITA No. 321/Mum/2012 for the assessment year 2008-09 in the case of M/s Shevie Exports v. JCIT and Hon ble Madras High Court decision in Velayudhaswamy Spinning Mills Private Limited v. ACIT (2012) 340 ITR 477(Mad.) and CIT v. Emerala Jewel Industry Private Limited (2011) 53 DTR 262(Mad.). The CIT(A) upheld the action of the A.O. with respect to the reopening of the assessment u/s 147/148 of the Act. The CIT(A) upheld that action of the AO with respect to re-opening of concluded assessments u/s 147/148 of the Act, which as per CIT(A) has been opened based on findings in subsequent year based on judicial decisions and hence as per CIT(A) , it is not a case of change of opinion. The CIT(A) held that the addition on account of deduction u/s 80IA was confirmed by his predecessor for the assessment year 2009-10 and the relevant findings of the CIT(A) are as under:- 5.3Ground No. 2 : Deduction under section 80-IA(5) 5.3.1 I have carefully and dispassionately considered the facts and circumstances of the case. It is not disputed that the appellant has incurred various losses/depreciation, attributed to the win .....

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..... 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 80IA(5), the profit from the eligible business for the purpose of determination of the quantum of deduction under section 80IA of the Act has to be computed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against the other income in earlier years. 5.3.6 The Hon'ble ITAT, Mumbai H Third Member Bench in the case of Gujarat Ambuja Cement Limited v. DCIT (2009) 117 ITD 87 (Mum) (TM) has further held that aggregate of brought forward unabsorbed losses, depreciation and investment allowance relating to the eligible industrial undertaking set off in assessment years 1988-89 to 1991-92 against income of assessee from interest, capital gains and dividend which is neither income derived from nor attributable to eligible industria .....

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..... the current assessment year and the remaining profit , if any should have been allowed as deduction , thus the deduction allowed u/s 80IA of the Act amounting to ₹ 94.39 lacs was not in accordance with the law. It was submitted by the assessee company s counsel that the concluded assessments are reopened u/s 147/148 of the Act based on assessment records and no new tangible material has come before the A.O. after conclusion of regular assessment on 17-12-2009 u/s 143(3) of the Act , which warrants re-opening u/s 147/148 of the Act which is an essential requirement for re-opening of the concluded assessments u/s 147/148 of the Act . The ld. Counsel for the assessee company submitted that in the regular assessment framed u/s 143(3) of the Act vide order dated 17-12-2009 , the claim of deduction u/s 80IA of the Act was examined by the A.O. although no specific query was raised in the regular assessment proceedings u/s 143(3) read with Section 143(2) of the Act, but as per Annexure A of the assessment order dated 17.12.2009 u/s 143(3) of the Act, the A.O. has worked out the details of calculation of the claim u/s 80IA allowable to the assessee company. No new tangible material .....

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..... wed 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 relates to the pre-amended section 80IA of the Act which existed prior to amendment by Finance Act,1999 w.e.f. 1-4-2000.In support, the ld. Counsel relied upon the decision Mumbai ITAT in the case of Shevie Exports v. JCIT, [2013] 33 taxmann.com 446 (Mumbai-Trib). 23. We have considered the rival contentions and also perused the material available on record including the case laws relied upon by both the parties. We have observed that the assessee company has set up the windmill power plant from which electricity is generated. The assessee company has commenced its commercial production with effect from assessment year 2003-04 (which we have also upheld vide ITA No. 3812/Mum/2012 for assessment year 2003-04 vide this common order) while the assessee company has claimed deductions u/s 80IA w.e.f. assessment year 2007-08 considering the same to be the initial assessment year for the purposes of claiming deduction u/s 80IA of the Act in accordance with .....

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..... y assessment framed u/s 143(3) of the Act meaning thereby the AO is attempting to review his own decision taken in concluded regular assessment 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 we do not bring on record two important developments which has taken place with respect to the issue in dispute after the conclusion of the hearing on 20-01-2016, Firstly, the CBDT has now come with Circular No. 1/2016[F. No. 200/31/2015-ITA-I] dated 15- 2-2016 which is binding on Revenue , whereby the Board has clarified the term initial assessment year in section 80-IA(5) of the Act wherein it has been categorically mentioned that the matter has been examined by the Board and it is abundantly clear from sub-section (2) of Section 80IA of the Act that .....

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..... the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive 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 80-IA further provides as under- Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made . In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has .....

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..... g 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 of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No.33475 of 2012 ? (2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the initial assessment year in Section 80IA(5) would only mean the year of claim of deduction under Section 80IA and not the year of commencement of eligible business ? and (3) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee has the option to choose the first/initial assessment year o .....

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..... In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term initial assessment year . It has been represented that some Assessing Officers are interpreting the term initial assessment year as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from Sub-Section (2) that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecuti .....

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..... 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 fact that the investment made by the foreign companies was not out of own funds and no business activities were carried out by the foreign companies ? The appellant prays that the order of the Ld. CIT(A) be set aside and the order of the A.O be restored. 27. The brief facts of the case are that on perusal of the Balance Sheet, it was observed by the A.O. that issued capital of the assessee company has gone up from ₹ 502.65 lakhs to ₹ 587.65 lakhs , while share premium has gone up by ₹ 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 .....

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..... ated company 13,267,953.66 Accrued expenses 682,721.11 Bank borrowings 5,299,224.47 Provision for profits tax 88,292.00 33,627,138.63 Net current assets 1,428,972.87 Net assets 12,428,971.87 Financed by: Share capital Authorised, issued and fully paid 12,000,000.00 12,000,000 ordinary shares of HK$1.00 each Retained profit 428,971.87 Shareholders fund 12,428,971.87 From the above Balance Sheet, the A.O. observed that the same is at 31st December 2008, however, the relevant Balance Sheet which would have been required is as at 31st December 2007 which could have shown the correct creditworthiness of the company i.e. FEL , since the transaction of investment in shares has happened on 24/10/2007 and the A.O. , therefore, inferred that the entire investment in its subsidiary company BWGL is out of share capital of this company, FEL date of incorporation of which is also 10th August, 2007, the funds in this company must have been flown only after this date of incorporation i.e. 10-08-2007. The A.O. observed that the assessee company failed to establish the creditworthiness of BWGL and FEL. Further, from the certificate dated 19 .....

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..... 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 the sources of FEL considered the entire amount i.e. ₹ 5,10,00,000/- as unexplained cash credit u/s 68 of the Act. It was stated before the CIT(A) that the ultimate investor Mr. Nimish G. Chandak who is an NRI has invested in the shares of the assessee company through Special Purpose Vehicle created for this purpose. The Channel of investment was briefly explained by the assessee company to the CIT(A) as detailed below: - M/s Fortune Exim Proprietary concern of Mr. Nimish Chandak has subscribed to the entire Share Capital of Richguard Holdings Ltd. (RHL) which in turn held the share capital of FEL. - FEL is the holding company of BWGL. FEL subscribed the amount of HKD 1,87,49,999/- out of total share capital of BWGL of HKD 1,87,50,000/- . - BWGL has in turn subscribed for 42,50,000/- eq .....

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..... ar of Assessment 2006-07 and 2007-08 enclosed at Exhibit 20. -Copy of Assessment Orders of Profit Tax of Nimish Chandak trading as Fortune Exim for Year of Assessment 2002-03, 2003-04, 2004-05, 2005-06, 2006-07,2007-08 and 2008-09 enclosed at Exhibit 23. -Copy of Assessment Orders of Profit Tax of Nimish Chandak trading as Pacific International for Year of Assessment 2006-07 enclosed at Exhibit 24. -Copy of Personal Assessment 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 31st December, 2007 along with notes to account of RHL enclosed at Exhibit 15. Fortune Exim Ltd . -Copy of Directors Report, Auditors Report, Balance Sheet and Income Statements for the period ended 31st December, .....

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..... ₹ 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 BWGL to LOL enclosed at Annexure 68.14. -Letter dated 27.09.10 from Central Depository Services India Limited confirming the dematerialization of shares allotted to BWGL enclosed at Annexure 68.15. -Letter dated 03.12.07 addressed to BSE for listing the shares allotted on preferential basis enclosed at Annexure 68.16 and Exhibit 40.3. -Letter dated 25.03.08 from BSE regarding listing of new securities enclosed at Annexure 68.17 and Exhibit 40.4. -Share Certificate issued by LOL to BWGL enclosed at Annexure 68.18. -Resolution passed by BWGL for Investment in LOL duly attested by Consulate General of India, Hong Kong and Notary Public Hong Kong enclosed .....

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..... uttal: Admittedly, BWGL is a 100% subsidiary of FEL and it is a common practice that the holding company and the subsidiary company would be located at the same address. Needless to say a 100% subsidiary company would always be owned by the same group of promoters as the holding company. AO's Stand: As desired by the AO, a copy of the Balance Sheet of FEL from the date of its incorporation till December 31, 2008 was submitted and the AO was shocked to note that 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 case the Ld. AO. was required to examine the ownership and flow of funds to establish the creditworthiness of the shareholder and genuineness of the transaction and the date of incorporation is immaterial w .....

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..... 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 preferred to pay a premium over the market value of ₹ 5/- per share. The A.O. fears some secret motive in the acquisition of these shares of your appellate and feels that this was only to pour money in the kitty of your assessee company from undisclosed sources. Rebuttal: It is common knowledge that people all over the world are looking to India as investment destination purely because of the growth that they see in India. The A.O. has not understood the mechanics of any acquisition of shares. To elaborate, the company prior to acquisition of shares by BWGL had 2,51,32,500 shares out of which the promoters were holding 69%. Thus , the floating stock of shares held by outside .....

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..... proceedings to produce Mr Nimish G Chandak before the AO. The assessee company relied upon the following decisions:- i) Shankar Industries v. CIT (114 ITR 689)(Calcutta) ii) CIT v. Precision Finance Pvt. Ltd. (208 ITR 465) iii) CIT vs. Corley Trading Company Limited (232 ITR 820) iv) CIT v. Lovely Exports Pvt. Ltd. (216 CTR 195 (SC) v) CIT v. Kinetic Capital Finance Ltd. (ITA No. 87/2007)(Delhi) vi) M/s Kiara Jewellery Pvt. Ltd. v. ACIT (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 justice and fair play the additional evidences submitted by the assessee company were admitted by the CIT(A) , relying on the following judgments :- i) Jute Corporation of India Limited v. CIT 187 ITR 688(SC) i .....

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..... o 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 clinching evidences, in the opinion of CIT(A) clearly proves the genuineness of the transaction between BWGL and the assessee company because the proposal of allotment of 42,50,000 shares at the rate of ₹ 12 per share including share premium of ₹ 10 per share was duly approved by RBI, BSE and SEBI. As far as the identity and creditworthiness of the said M/s BWGL is concerned, the CIT(A) observed that the assessee company has furnished Memorandum and Articles of Association and certificate 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 .....

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..... as asked the assessee company to prove one step further about FEL and the assessee company explained during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the source of source of the transaction. When further confronted and asked to prove one more step further about Mr. Nimish 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 company. The assessee company has complied with the SEBI guidelines for preferential allotment of shares, the book value of the share of the assessee company as at 31-3-2007 was ₹ 15.84 per share while the average market price of the shares of the assessee company was ₹ 7.04 as certified by the Chartered Accountant. The assessee company was paying dividend consistently since .....

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..... ny, 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) and also explained the source of source of the sources of the transaction. The ld. Counsel for the assessee company reiterated the submissions as were made before the authorities below which are detailed in the preceding para s of this order and are not repeated for sake of brevity. The ld. Counsel relied upon the decision in the case of CIT v. Stellar Investment Limited 251 ITR 263 (SC) , CIT v. Lovely Exports Private Limited 216 CTR 195(SC) and other decisions as per large number of cases submitted 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 a .....

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..... 12 while accepting the contentions of the assessee company as the compliance with the mandate of Section 68 of the Act, with 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 duly explained the preferential allotment of shares being 42,50,000 equity shares to BWGL at the rate of ₹ 12/- per share , which shares were issued after complying with the statutory and/or regulatory requirements of RBI, BSE and SEBI guidelines on preferential allotment of shares . The assessee company also complied with the statutory formalities with the Ministry of Corporate Affairs, Government of India. The said share subscription amount of ₹ 5.10 crores was received by the assessee company through banking channel and all the related documentary evidence .....

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..... at the foreign companies have not invested in the assessee company from own funds and no business activities were carried on by the foreign companies. In our considered view, the Revenue has completed misdirected itself and completely ignored the present day realities as to how Corporate Structures are devised and created through which businesses are structured, owned , controlled , operated, run and managed by the Business Groups due to several and varied business reasons based on perceived commercial exigencies and commercial 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 international territories. The Businesses are now arranged through web of corporate entities in the ladder of Corporate Structure comprising of chain of ultimate holding companie .....

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..... 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 bringing on record cogent material lacks merit and is rejected. The assessee company has also produced assessment records of the Mr Nimesh G Chandak to contend that he is assessed to tax in Hong Kong for last several years. 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 by Mr. Nimesh G Chandak were with dubious purposes and objectives with an intention to evade taxes to defraud revenue or the transaction per-se is undertaken with an intention to evade taxes to defraud revenue warranting lifting of corporat .....

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..... f the Act. Perusal of provisions of Section 80IA(5) of the Act will reveal that undertaking in respect of which deduction is claimed should be treated as single and independent unit from the day of commencement and even if deduction u/s 80IA has not been claimed in the initial years and by virtue of depreciation the undertaking suffers a loss , this loss is nothing but the depreciation allowable u/s 32 of the Act and even if such depreciation is set off against any other income , even then the loss of such undertaking 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.17,02,898 2005-06 Rs.187,90,690 .....

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..... adjusting notional brought forward losses/depreciation and adjusting against the claim of the assessee company u/s 80IA of the Act. The CIT(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 the said windmill power division in the assessment year 2008-09 for the purposes of determining quantum of deduction u/s.80IA of the Act. The AO has rightly determined the taxable income of the relevant industrial undertaking ( windmill power division ) as if such undertaking is an independent unit owned by the assessee company and the assessee compa .....

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..... al 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 notional losses against deduction u/s 80IA claimed by the assessee company. The ld. Counsel submitted that as per Section 80IA(2) and 80IA(5) of the Act, the assessee company has choice of selecting initial assessment year and the assessee company chose assessment year 2007-08 as initial assessment year despite starting commercial production of generation of power in the assessment year 2003-04 and the fiction created by Section 80IA(5) of the Act shall be applicable from assessment year 2007-08 and not 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 Spinnin .....

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..... during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made . In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term initial assessment year . 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 a slab of fifteen (or twenty) years, as prescribed under that Sub-Section. Thus, the term initial assessment year would mean the first year opted for by the tax-payer for claiming deduction u/s 801A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The issue of adjustme .....

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..... es. (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 maintaining any infrastructure facility which fulfils all the following conditions, namely :- (a) it is owned by a company registered in India or by a consortium of such companies (or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act) ; (b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing, or (ii) operating and maintaining, or (iii)developing, 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 init .....

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..... igible business were the only source of income, during the previous year relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. A fiction created in sub-section does not contemplates to bring set off amount notionally. The fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 19. In the present cases, there is no dispute that losses incurred by the as .....

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..... hat the Tribunal has not erred in holding that there was no rectification possible under section 80-I in the present case, albeit, for reasons somewhat different from those which prevailed with the Tribunal. There being no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs. 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 see no reason to take a different view. However, we will be failing in our duty if we do not bring on record two important developments which has taken place with resp .....

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..... 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) of section 80-IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive 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 80-IA further provides as under- Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment ye .....

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..... al assessment year' as mentioned in subsection (5) of that section for which the Standing Counsels/D.R.s be suitably instructed. The above be brought to the notice of all Assessing Officers concerned. Secondly , in a very recent judgment delivered on 01-03-2016 by the Hon ble Madras High Court in the case of CIT v. GRT Jewellers (India) Private Limited in TCA no 176 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 depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No.3 .....

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..... ion (1) apply shall, for the purposes of determining the quantum of deduction under that Sub-Section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made . In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term initial assessment year . It has been represented that some Assessing Officers are interpreting the term initial assessment year as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of 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 exa .....

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..... er 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/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 assessee company which include an amount of ₹ 35,55,880/- which is not on account of sale of power generated but the same is received by the assessee company on account of compensation received from Suzlon Energy Ltd. Since this income is not derived from the industrial undertaking, as per the AO , the same do not qualify for deduction u/s 80IA of the Act and accordingly was disallowed by the A.O. Sin .....

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..... e 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 assessee company. The ld. Counsel of the assessee company relied upon the following case laws : 1. Magnum Power Generation Limited v. DCIT (2011) 16 taxmann.com 75(Delhi) 2. C.N.V. Textiles Private Limited v. DCIT in ITA no. 746/Mds/2014 (Chennai Tribunal), dated 21.11.2014 3. Best Corporation Pvt. Ltd. v. JCIT in ITA no 1958/Mds/2014 dated 20-5-2015 48. The ld. D.R., on the other hand, submitted that the assessee company has received compensation which is not for generation of electricity but for non-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 o .....

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..... e adopt the same view and allow the assessee s corresponding ground. The Assessing Officer is directed to pass a consequential computation order. We would also like 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 cost of production and deduction u/s 80IB of the Act was held to be allowable. The relevant portion of the judgment of Hon ble Supreme Court in the case of CIT v. Meghalaya Steels Limited (supra) is reproduced below: 13. A series of decisions have made a distinction between profit attributable to and profit derived from a business. In one of the early judgments, namely, Cambay Electric Supply Industrial Company Limited v. Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644, this Court had to construe Section 8 .....

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..... lements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Govt. where under the export entitlements become available. There must be for the application of the words derived from , a direct nexus between the profits and gains and the industrial undertaking. In the instant case the nexus is not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. There under, the assessee is entitled 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 electricity to the appellant s industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH. This Court held that although electri .....

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..... 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 of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Company Limited v Commissioner of Income Tax, Gujarat II, this Court held that since an expression of wider import had been used, namely attributable to instead of derived from , the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, 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 ma .....

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..... calculated by deducting from the sale price of an article all elements of cost which go into manufacturing or selling it. Thus understood, it is clear that profits and gains are derived from the business of the assessee, namely profits arrived at after deducting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 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, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which i .....

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..... ufacturing 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 held: Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in (2000) 242 ITR, 204 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. 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 deri .....

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..... nd attractive to industrial entrepreneurs to start and run industries in remote parts, by giving them a level playing field so that they could compete with their counterparts in central (non-remote) areas. The huge 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 transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable. (Paras 14 and 15) 25. The decision in Sahney Steel and Press Works Ltd. v. Commissioner of Income Tax, A.P. - I, Hyderabad (1997) 7 SCC 764, dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and f .....

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..... 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 and 80-IC. The Himachal Pradesh High Court, having wrongly interpreted the judgments in Sterling Foods and Liberty India to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. 30. All the aforesaid appeals are, therefore, dismissed with no order as to costs . Ld. DR had relied upon the judgment of Hon ble Supreme Court in the case of Liberty India Limited(supra) which has been distinguished by Hon ble Supreme Court in the above landmark judgment 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 manufacturing activity but from exports of products .....

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..... f the Act. The A.O. after considering the submission rejected the 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 Rules,1962 by the AO vide assessment orders dated 30.12.2010 passed u/s. 143(3) of the Act. 51. 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 with the CIT(A). 52. The assessee company submitted before the CIT(A) that the assessee company received dividend income of ₹ 2,50,000/- and the AO has disallowed expenses u/s 14A of the Act .....

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..... 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 the CIT(A), vide orders dated 12-3-2012. 54. Aggrieved by the orders of the CIT(A) dated 12-3-2012, the assessee company is in appeal before the Tribunal. 55. The ld. Counsel for the assessee company submitted that dividend income of ₹ 2.5 lacs was received while disallowance was made of ₹ 13,,66,079/- u/s 14A of the Act read with rule Rule 8D of Income Tax Rules, 1962. The ld. Counsel submitted that deduction should be restricted to ₹ 2.5 lacs. The ld. Counsel submitted that in 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 110-397. .....

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..... ering all the pleas of the assessee company as may be raised by the assessee company before the AO. The AO shall also satisfy the conditions as stipulated u/s. 14A(2) and 14A(3) of the Act before making disallowance of expenditure u/s 14A of the Act. Needless to say that the assessee company shall be allowed proper and adequate opportunity of being heard by the AO in accordance with principles of natural justice and in accordance with law and the assessee company shall be allowed to submit evidences in its defense. We are refraining on commenting on merits of the pleas raised by the assessee company , which the AO shall decide on merits in accordance with law and after verification of records. We order accordingly. 58. In the result, appeal of the assessee company in ITA No.3821/Mum/2012 is partly allowed. 59. In the result , appeal of the Revenue in ITA No. 3812/Mum/2012 for assessment year 2003-04 is dismissed, appeal of the assessee company in ITA no.821/Mum/2014 for assessment year 2007-08 is allowed, appeal of the Revenue in ITA No. 3813/Mum/2012 for assessment year 2008-09 is dismissed and appeal of the assessee company in ITA no. 3821/Mum/2012 for assessment year 2008- .....

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