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2010 (10) TMI 1132

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..... ailable and the A.O. has followed one of them then the assessment order cannot be treated as erroneous and prejudicial to the interests of the revenue so as to invoke the provisions of S. 263 of the Act. In view of the Hon ble Supreme Court judgement the order of the CIT-III, Pune is vitiated in law and it be cancelled. 3) On the facts and in the circumstances of the case and in law the initial assessment year was the year under appeal when for the first time deduction u/s. 80-IA was claimed and therefore, the provisions of S. 80-IA(5) r.w.s. 80-IA(1) were not applicable for the earlier assessment years and there was no question of notionally carrying forward any loss or unabsorbed depreciation from these years. In view of this the A.O. has passing his assessment order granting deduction of ₹ 37,41,304/- u/s. 8-IA which is not erroneous and prejudicial to the interests of the revenue. 4) On the facts and in the circumstances of the case and in law the Ld. CIT-III, Pune ought to have passed a speaking order by demonstrating how the assessee was not entitled to deduction u/s. 80-IA(4)(iv)(a) of the Act. The order u/s. 263 being unsustainable be cancelled. 5) O .....

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..... CIT did not agree with the contentions and invoking the subsection (2) of 80IA reduced the unabsorbed depreciation and accordingly the claim made by the assessee at ₹ 37,41,304/- has been directed to be withdrawn vide para 5.5 of the order. With reference to the arguments and applicability of sec. 115JB the CIT relied on the Statutory Audit report for A.Y 2002-03 and came to the conclusion that the provisions of sec. 115JB are applicable and accordingly he directed the A.O to consider the provisions of sec. 115JB, if warranted as per the regular provisions of the Act falls short of the tax payable as per sec. 115JB. He directed the A.O accordingly to give effect to the order. 3. Contesting the action of the CIT the Ld. Counsel made detailed written submissions and made arguments and filed a paper book. Arguments and synopsis of judgements which were relied upon during the course of arguments can be summarised in that the assessee has an option to claim deduction u/s. 80IA and A.Y 2003-04 was the first year in which the assessee chooses to claim deduction and accordingly it has option to work out the deduction on the profits derived during this year and the losses and depr .....

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..... 08 and has pronounced the following broader principles to judge the action of CIT taken under section 263: - The fundamental principle which emerge from the above case may be summarised below. i. The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Both the conditions must be fulfilled. ii. Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted. iii. An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. iv. If the order is passed without application of mind, such order will fall under the category of erroneous order. v. Every loss of revenue cannot be treated as prejudicial to the interests of the revenue and if the Assessing Officer has adopted one of the course permissible under law or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by .....

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..... (As per Annexure Attached) 3,741,304.15 TOTAL INCOME 3,241,153.00 Less:- Unabsorbed Depreciation/Losses brought Forward and adjusted 18,840.00 3,222,313.00 Business Loss A.Y 2000-01 Depreciation Loss A.Y 2001-02 (To the Extent Adjusted) 3,241,153.00 3,241,153.00 TAXABLE INCOME - TAXABLE INCOME (Rounded off) TAX ON TOTAL INCOME - 161,071.00 LESS:-TAX DEDUCTED AT SOURCE REFUND DUE 161, .....

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..... 3,741,304.15 5.3 In arriving at the above figures the assessee has given the following details from the compilation in para 2 (a) and (b) :- 2) INITIAL ASSESSMENT YEAR a. The details of income A.Y 2000-01 Administration expenses 18840/- No business receipt No. 80-IA Claim A.Y. 2001-02 Unabsorbed depreciation No 80-IA claim 6815026/- 18840/- A.Y. 2002-03 Electricity sales 1493415/- Other income 5104719/- Total Expenses 8,78,771/- Carried forward Loss:- 1) Unabsorbed depreciation 6815026 2) Loss: Administration Expenses 2000-01 18840 ------------ Unabsorbed depreciation in 6833866=90 Only out of Wind Mill business. No 80-IA Claim. A.Y 2003-04 1) Power Generation 4124677/- 2) Other Income 5379672/- 3) Power Generation 4124677/- b. The other details Bank Interest 20,391/- Land Development Charge 53,59,206/- Lease rent recd. 75/ - ------------------- 53,79,672/- -------------------- Expenses 53,59,206/- Land Develop. 16,33,176/- .....

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..... me. Hon ble Supreme Court in the case of Synco Industries Ltd. Vs. AO (2008) 299 ITR 444 (SC) has established the principles of set off as under:- The effect of clause (5) of section 80B of the Income-tax Act, 1961, is that gross total income will be arrived at after making the computation as follows: (i) making deductions under the appropriate computation provisions, (ii) including the incomes, if any, under sections 60 to 64 in the total income of the individual; (iii) adjusting intra-head and /or inter-head losses; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. Only if the gross total income so determined is positive the question of allowing the deductions under Chapter VI-A would arise, not otherwise. 5.6 Keeping the above principles in mind, the carried forward depreciation being more than the profit of the year (the profit being ₹ 6982457/- and the unabsorbed depreciation being ₹ 9492448/-) question of deduction under chapter VIA does not arise as gross total income will be nil after set off of the carried forward depreciation. Therefore, even if the assessee arrived at the profit of ₹ 3741304/- towards .....

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..... business to which the provisions of subsection (1) apply shall, for the purpose 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. 6.2 As can be seen from the above provisions the assessee has an option to claim deduction in any of the 10 consecutive assessment years out of the 15 years beginning from the year in which undertaking generates power or undertakes transmission of power. Accordingly the assessee has right to opt for the first of the 10 consecutive assessment years called initial assessment year as per sub sec. (5). Once the assessee chooses the initial assessment year the provisions relating to quarantining of the unit will start from that year only. Consequently the losses or depreciation of the year prior to the initial assessment year cannot be considered as per the pr .....

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..... irst assessment year. The provision of section 80-IA(5) is applicable only when the assessee chooses to claim deduction under section 80-IA and if it has not chosen to claim the deduction under section 80-IA, section 80-IA(5) cannot be made applicable. In the instant case, there was a categorical finding by the Assessing Officer and the Commissioner (Appeals) that the first year claimed by the assessee was from the assessment year 2004-05. Since the assessee had opted to claim this deduction only in this assessment year, the initial assessment year could not be the year in which the undertaking commenced its operations and in the instant case, the initial assessment year was the assessment year in which the assessee had chosen to claim deduction under section 80-IA. Hence, the provisions of section 80-IA(5), treating undertaking as a separate sole source of income, could not be applied to a year prior to the year in which the assessee opted to claim relief under section 80-IA for the first time. Further, depreciation and carry forward loss relief to the unit which claims deduction under section 80-IA cannot be notionally carried forward and set-off against the income from the .....

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..... g erroneous and prejudicial to the interest of the Revenue. In view of this the direction of the CIT to consider the alternative provisions u/s. 115JB is correct. However, the CIT has not directed specifically with reference to the working of the sec. 115JB which also excludes amounts allowed u/s. 80IA. These aspects have not been considered by the A.O or by the CIT in order u/s 263. 8. In view of the above discussion, while holding that the CIT has exercised the jurisdiction correctly u/s 263, We however modify the directions given by the CIT to the A.O as the said directions are not correct on the facts stated above. Consequently, We modify the directions of the CIT to set aside the order of the A.O and direct him to reconsider the issue of the initial assessment year, computation of the profits u/s. 80IA, computation of total income and carry forward of losses and depreciation and also the computation u/s. 115JB as per the provisions of the Act after giving due opportunity to the assessee. The order of the CIT to that extent, more so the directions given in para 5.5 and 7 of his order have been modified and assessment made u/s. 143(3) dated 21/10/2005 is hereby, set aside. A. .....

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