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TMI Blog2016 (2) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... Act') amounting to Rs. 1,09,82,471/- @ 100% on the income earned from the business of wind power generation projects. The Assessing Officer further noted that on these power plants the assessee company had incurred losses for assessment years 2004-05 to 2006-07. These losses were set off by the assessee against the income derived from the business of cable joining etc., which does not qualified for deduction under section 80IA of the Act. Further referring to the provisions of section 80IA(5) of the Act he observed that the brought forward losses of the eligible business need to be set off against the income from eligible business even though they were set off against the non-eligible business in the respective years. He further noted that after setting off of the losses for assessment years 2004-05 to 2006-07 Against the income for assessment years 2007-08 to 2009-10, there are still brought forward losses of Rs. 638.99 lacs, which were to be set off against the income from the wind mill projects. This exercise renders the income from the eligible business at Nil. After considering detailed submissions filed by the assessee and relying on the decision of Ahmedabad Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Ld. CIT (Appeal) be setaside and that of the A.O. be restored. 3. The appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed off." 6. The learned D.R. while arguing before us relied on the order of the Assessing Officer and submitted that not considering the year of start of manufacturing the initial year the assessee has got undue benefit in the form of claiming deduction under section 80IA of the Act at his own option. 7. The learned counsel for the assessee reiterated the submissions made before lower authorities and reliance was placed on another judgment of the Karnataka High Court in the case of CIT Vs. Anil H. Lad, 102 DTR 241 (Kar). 8. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the order of the learned CIT (Appeals) we see that he has given very detailed findings on the issue as follows : "4.10 After considering the AO's observations, appellant submission and the provisions of section 80IA(2) and (5) of the Act, it is noted that the initial assessment year for sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of Rs. 1,09,82,471/-u/s 801 A of the Act. The AO is directed to delete the addition made on this account. This ground of appeal is allowed. " 9. On perusal of the above, we do not find any infirmity in the order of the learned CIT (Appeals) as the only controversy to be decided is whether for claiming deduction under section 80IA of the Act, the losses which were incurred by the eligible business in the period earlier to the initial year are to be notionally carried forward to the initial assessment year and be adjusted before claiming deduction under section 80IA of the Act. We have also perused the judgment of the Karnataka High Court in the case of Anil H. Lad. (supra), whereby adjudicating the same issue, the Hon'ble Court has analyzed the judgment of the Madras High Court in case of Sri Velayudhaswamy Spinning Mills (P) Ltd. (supra), which has been relied very heavily by the assessee. The findings of the Hon'ble Court are at paras 9 and 10 of the judgment, which reads as under : "9. The Madras High Court in the aforesaid Velayudhaswamy's case interpreting the very provision held, from a reading of sub-section (1) Section 80-IA, it is clear that it provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub- section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 10. Therefore, keeping in mind the object with which these provisions are introduced, it is clear that an assessee is given the benefit of 100% deduction of the profits and gains from the eligible business. The quantum of deduction is to be calculated when the claim for deduction is made. If before claiming deduction, the loss and depreciation claimed by the assessee even in respect of eligible business is setoff against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of Section 80IA, the revenue cannot take into consideration the loss and depreciation which is already setoff against the income of the assessee from other source and compute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 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." 10. From a plain reading of the above, it can be gathered that it is a non-obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1st April 2000, the initial assessment year was defined for various types of eligible assessees under section 80IA(12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of "initial assessment year" has been specifically taken away. Now, when the assessee exercises the option of choosing the initial asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. Fiction created in sub section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. 14. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under s. 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in the Tax Case No. 918 of 2008 the assessment year was 2004-05. During the relevant period, there were no unabsorbed depreciation or loss of the eligible undertakings and the same were already absorbed in the earlier years. There is a positive profit during the year. The unreported judgment of this Court cited supra considered the scope of sub-s. (6) of s.80-I, which is the corresponding provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready been set off against the income of the previous year should be reopened again for computation of current income under s. 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view." 12. This judgment has been further followed by the same High Court in CIT v/s Emerald Jewel Industry (P) Ltd. [2011] 53 DTR 262 (Mad.). From the above, ratio of the High Court, it is amply clear that sub-section (5) of section 80IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1st April 2000 by virtue of section 80IA(2)." 11. In view of the judgment of the Karnataka High Court, which has also been relied on by the Mumbai Bench of the Tribunal and in the background that no judgment of the Hon'ble Jurisdictional High Court has been cited before us, we hold that choosing of initial assessment year for claiming deduction under section 80IA of the Act in a block of ten years out of fifteen years is with the assessee i.e. it is the option of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the submission of the assessee, Remand Report of the Assessing Officer and rejoinder filed by the assessee, the learned CIT (Appeals) accepted the plea of the assessee that the expenses under the head 'business promotion' was of Rs. 1,54,317/- and not Rs. 2,45,872/- as taken by the Assessing Officer. Referring to the narration given under the head 'business promotion' and after analyzing the individual expenses so incurred by the assessee, the learned CIT (Appeals) gave a partial relief to the assessee. 17. Aggrieved by this act of the learned CIT (Appeals), the assessee has filed Cross Objection before us. The learned counsel for the assessee submitted that the entire expenses have been incurred wholly and exclusively for the purposes of business. 18. The learned D.R. relied on the order of the learned CIT (Appeals). 19. After hearing both the parties and perusal of the order of the learned CIT (Appeals), we see that the learned CIT (Appeals) has given detailed finding with respect to each and every individual item of the expenses incurred under the head 'business promotion' and as regards the disallowance sustained by the learned CIT (Appeals), the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, the learned CIT (Appeals) concluded that there was arrangement of bifurcation of rental expenses among the three companies though the other companies have not paid their part of rental expenses. He was in agreement with the Assessing Officer in disdallowing 60% of rental expenses. 23. Against this, the assessee has come up in Cross Objection before us. The learned counsel for the assessee reiterated the submissions made before the lower authorities. 24. The learned D.R. relied on the order of the Assessing Officer as well as that of the learned CIT (Appeals). 25. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. On perusal of the order of the learned CIT (Appeals), we see that he has given his findings at page 15, para 7.5 as under : "6.5 After considering the facts of the case and the submission, I referred to the provisions of section 37(1) of the Act. The section 37(1) is a residuary section which provides for general deduction. In order to claim deduction under this section one of he conditions stipulated is the expense which should have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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