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2010 (10) TMI 1132 - ITAT PUNE

2010 (10) TMI 1132 - ITAT PUNE - TMI - ITA No. 618/PN/2008 - Dated:- 29-10-2010 - Shri Shailendra Kumar Yadav, Judicial Member And Shri B. Ramakotaiah, Accountant Member. Appellant by: Shri M.K. Kulkarni Respondent by: Shri Hareshwar Sharma ORDER Per B. Ramakotaiah, A.M. This is an appeal by the assessee against the order of the CIT-III, Pune u/s. 263 of the Income Tax Act, 1961 wherein the CIT has invoked powers u/s 263 to examine the issues and gave directions to the A.O which was subject matt .....

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circumstances of the case and in law when two views were available on the basis of settled law were available 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 .....

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venue. 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) On the facts and in the circumstances of the case and in law Ld. CIT-III, Pune was not justified in holding that then A.O erred in not computing the assessee s income as per the provisions of S. 115-JB of the Act. Th .....

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.Y 2003-04 the assessee declared NIL income on 28/11/2003, which was selected for scrutiny. Vide the orders u/s. 143(3) dated 21/10/2005 the assessment was completed by making certain disallowances totalling to ₹ 1,67,953/- which was treated as total income by the A.O. The CIT after examining the records and the order u/s. 143(3) has invoked the provisions of sec. 263 and issued a show cause notice to the assessee on the issue that A.O has not appreciated the provisions of sec. 80IA(5) in .....

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ould not be considered. For this he relied on the decision of the ITAT Chennai Bench in the case of Mohan Breweries and Distilleries Ltd. Vs. ACIT [2008] 3 DTR 477. It was further submitted the same principle was upheld in the case of Velayudhaswamy Spinning Mills (P) Ltd. V. ACIT (2010) 38 DTR 57. With reference to the issue of 115JB, it was submitted that the assessee has no business loss as it was set off and consequently the computation mechanism provided in sec. 115JB would not apply. Even .....

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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 .....

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the case of Mohan Breweries and Distilleries Ltd. Vs. ACIT [2008] 3 DTR 477 which is in fact approved by the judgement of Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. V. ACIT (2010) 38 DTR 57. It is also submitted that the Special Bench judgement in the case of ACIT vs. Goldmine Shares and Finance (P) Ltd. (2008)116 TTJ (Ahd) (SB) 705 was held to be on the provisions prior to amendment by Finance Act, 1999 and was not applicable w.e.f 01/04/2000. This principle was su .....

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ncome to submit that the assessee has the depreciation losses from computation and made a claim under chapter VIA and income from Power Generation at ₹ 37,41,304/- which was allowed to the assessee ignoring the carried forward depreciation of ₹ 94,92,448/-. If this amount was set off the assessee would not have any positive gross total income and accordingly the claim of deduction under chapter VIA is not correct. He also submitted that the assessee filed the computation of amount of .....

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ritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. V. CIT (2000) 243 ITR 83 relied on by the counsel as well as Hon'ble Bombay High Court rendered in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 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 rec .....

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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 the Assessing Officer is unsustainable under law .....

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lusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. viii. The CIT, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction. ix. If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied w .....

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rofit & Loss A/c 6,881,857.15 Add:- Disallowed Exps. Club Membership Fees 100,600.00 6,982,457.15 6,982,457.15 2. INCOME FROM OTHER SOURCES GROSS TOTAL INCOME LESS:- Deduction Under Chapter VIA U/S 80IA-Inocme from Power Generation (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 T .....

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For machines Land 14,101.00 45,577.00| 4,998.00 Less:- Ratio of Admn. Exps. Incurred for machines 318,696.85 AUDIT FEES 14,500.00 BANK COMMISSION & CHARGES 19,134.00 DIRECTORS REMUNERATION 120,000.00 INTEREST ON LOAN 49,678.00 SALARY EXPS 262,000.00 LEGAL FEES 4,850.00 MISC. EXPENSES 849.00 PROF. FEES 7,000.00 PRINTING & STATIONARY 1,700.00 TRVELLING & CONVEYANCE 254,651.00 TOTAL 734,362.00 383,372.85 Ratio= Total Admn. Exps/ Total Income X Power Generation Receipts AMOUNT OF EXEMPTI .....

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026 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/- 37,26,030/- Depreciation 69677.85 Claim of 80-IA-First Year 3741304/- 5.4 As can be seen from the abo .....

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04/- after excluding the other income and corresponding expenses and depreciation on the other business of land development. Thus, the profit from Power Generation was arrived at ₹ 3,741,304/- out of the total receipts of ₹ 4,124,677/-. This working of profits on Power Generation and also the claim of set off has not been examined by the A.O at all in the order passed u/s. 143(3). As seen from the discussion extracted in page 2 and 3 of the A.O the entire enquiry of the A.O was on br .....

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. Ld. Counsel also did not place on record any enquiries made by the A.O during the course of assessment proceedings about enquiries conducted with reference to the claim u/s. 80IA or u/s 115JB. Since the A.O has not made any enquiry on these two issues, on the principles established in the jurisdictional decisions as discussed above, the CIT has rightly invoked the powers vested in him u/s 263 as the order is not only erroneous but also prejudicial to the interest of revenue. 5.5 Not only that, .....

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aking 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 carri .....

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ncome being NIL. Consequently working made by the assessee in the computation of the income is not correct. The A.O has not considered this and allowed the claim wrongly and also the consequent computation of unabsorbed depreciation to be carried forward. 6. Another aspect which has not been considered by the AO was whether the assessee made the claim of 80IA for the first time in this assessment year or in the earlier assessment year. Even though the assessee s contentions on initial assessment .....

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The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park [or develops] a special economic zone referred to in clause (iii) of subsection (4)] or generates power or commences transmission or distr .....

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if for the words fifteen years , the words twenty years had been substituted.] 6.1 The 80IA(5) which considered by the CIT is as under:- (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible 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 .....

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ndertakes 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 provisions u/s. 80IA(5). The principle was considered in the .....

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relief from the first assessment year, or from the second or from the third or so as it might think fit. Once the assessee has opted the first year of relief then it continues for further 9 consecutive years. To claim this relief, the undertaking is to be set-up during the period 1-41993 to 31-3-2006. This is as per section 80-IA(4)(iv). Section 80-IA(2) clearly states that the assessee can opt for year of deduction for any 10 consecutive years out of 15 years taken from the first year in which .....

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he meaning of section 80-IA(2) is that the assessee can exercise the option in any 10 consecutive years starting from the first year in which the undertaking begins to operate any infrastructure facility. If the assessee opts to exercise the claim for first year, it should continue to claim the deduction for another 9 years. If it opts the second year to claim deduction, it should continue for another 9 years till the 11th year; similarly if it opts to claim relief from the 3rd year, it will end .....

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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 in .....

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set-off against the income from the year in which the assessee started claiming deduction under section 80-IA. Therefore, there was no question of setting-off notionally carried forward unabsorbed depreciation or loss of earlier years against the profits of the units and the assessee was entitled to claim deduction under section 80-IA on the current assessment year's profit. Assessee having claimed deduction under s. 80-IA for the first time in asst. yr. 2004-05, this will be the year in wh .....

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l assessment year which have already been absorbed against the profits of other business cannot be nationally brought forward and set off against the profits of the eligible business for computing the deduction under s. 80-IA. 6.4 In view of the principles established, it is necessary to decide the issue of Initial Assessment year before considering the provisions of 80IA(5). Since these aspects have not been examined properly or considered as per the provisions of the Act the order of the AO u/ .....

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