TMI Blog2017 (7) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue, then, be able to deprive such an entity of exemption under Section 80IB of the 1961 Act. The distinction, separateness and independence of an industrial undertaking cannot be made dependent only on the attribute of ownership. Therefore, for all these reasons, we are of the view that both CIT(A)s as well as the Tribunal were wrong in concluding that the Assessee could not claim deduction under Section 80IB of the 1961 Act vis-a-vis Unit II. Computation made by the Assessing Officer in respect of deduction claimed by the Assessee under Section 80IA - Held that:- Therefore, according to us, in computing the deduction claimed by the Assessee under Section 80 IA of the 1961 Act, the Assessing Officer ought to have treated the two power divisions as a separate undertakings and furthermore, desisted from setting off the losses of earlier years against the profits of the Assessment Years in issue, by bringing them forward notionally, despite the fact that they had already been set off, as claimed by the Assessee in the earlier years. - Tax Case (Appeal) Nos.533 to 538 of 2010, 1217 to 1220 of 2010 and 787 and 788 of 2014 - - - Dated:- 10-7-2017 - Rajiv Shakdher And R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 537/2010 Revenue 2004-05 29.12.2006 31.7.2008 28.08.2009 538/2010 Revenue 2005-06 31.12.2007 31.7.2008 28.08.2009 787/2014 Revenue 2006-07 29.12.2008 29.4.2010 12.11.2010 788/2014 Revenue 2007-08 18.12.2009 29.4.2010 12.11.2010 1217/2010 Assessee 2004-05 29.12.2006 31.7.2008 12.11.2010 1218/2010 Assessee 2005-06 31.12.2007 31.7.2008 12.11.2010 1219/2010 Assessee 2006-07 29.12.2008 29.4.2010 12.11.2010 1220/2010 Assessee 2007-08 18.12.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for squaring off loss incurred by, one, Unit, albeit, for earlier years. This, according to the Assessee, is contrary to the judgment of the Tribunal rendered in : Rangamma Steels and Malleables V. Assistant Commissioner of Income Tax. 6. Before we proceed further, it may be relevant to cull out the questions of law, which have been framed qua the captioned appeals: T.C.(A)Nos. 533 to 538 of 2010: (i). Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the Assessing Officer cannot reconsider the issue of granting the deduction under Section 80IB after the lapse of time, even if there is a survey in the premises of the assessee and findings of the survey shows that the assessee has manipulated his profits so as to get maximum deduction under Section 80IB of the Act ? (ii). Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in ignoring the provisions of Section 80IA(10) read with 80IA(13) and give suitable direction to the Assessing Officer to reconsider the issue on the basis of the materials available on record ? T.C.(A)Nos.1217 and 1218/2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring High Tensile Precision Fasteners (in short Fasteners), which are also referred to as nuts in the market. These nuts are extensively used in the automobile industry. 8.1. It appears that the Assessee, which is a partnership firm, comprised of one Mr.L.M.Shah and his son Mr.A.L.Shah. The Assessee firm was constituted in March, 1998. 8.2. During the period relevant for Assessment year (A.Y.) 1998-99, the Assessee purchased two Nut former machines. This was followed by the Assessee purchasing in May, 2002, one more Nut Former machine, though, via the import route. For the next five (5) years, relevant for A.Ys.1998-99 and 2002-03, the Assessee claimed deduction at the rate of 100% of the profits derived by it for conducting the business of manufacturing fasteners/nuts. 8.3. The Assessee claims that it set up a second Unit and, started commercial production qua the said Unit on 23.10.2003. Since, the second unit was set up, the Assessee claimed deduction vis-a-vis this unit, which is referred to as Unit -II, by the Authorities below, at the rate of 100% of the profits derived in respect of the said unit, with effect from A.Y.2004-05. 8.4. The Assessing Officers, appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this behalf, the record discloses the following: (i) Process of wire rod pickling and phosphating is carried on by BPL (ii) The next stage, which involves, forging is carried out by FX, FOX and the Assessee, by using Nut Former Machines. (iii) The third stage, which involves, Nut Tapping is also carried out by FX, FOX and the Assessee. (iv) The last stage, which involves plating of the goods, is carried out by BPL. 10.1. Besides the above, certain secondary operations, such as, cap cutting , curling and drilling is carried out by FX, FOX and the Assessee. 10.2. The tools and dyes required in the carrying out of operations, such as, nut forging and nut tapping were, apparently, supplied by TPL, apart from other services, which were rendered by it. 10.3. This information, it appears, was culled out by the Revenue from documents including loose sheets seized in a survey carried out under Section 133A of the 1961 Act, in respect of the aforementioned entities, which included the Assessee. 11. The record shows that the survey was carried out on 18.11.2004 and 19.11.2004. The survey, inter alia, revealed that the Assessee had understated scrap sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me (i.e.,) after setting-off of the earlier losses. Accordingly, if the loss of the current Asst. Year (i.e.,) Asst. Year 2006-07 is adjusted (i.e., ₹ 1,31,20,482 - ₹ 33,85,137 = ₹ 97,35,345/-), the balance of ₹ 9,73,53,450/- is adjusted against the earlier years loss of ₹ 2,59,37,516/-, there will be no profit left for deduction u/s 80IA of the Income Tax Act. T.C.(A)No.1220 of 2010 (A.Y.2007-08): On the other hand, on perusal of records revealed that the assessee-firm has computed the amount eligible u/s 80-IA at ₹ 1,44,07,087/- to Wind Power Division-I and ₹ 86,93,342/- in Power Division-II. The provision of 80IA(4)(iv) of the Income Tax Act clearly states that the undertaking which is engaged in generation of Powerand hence, the profits have to be arrived for windmill division together as an undertaking and not as a individual division. Accordingly, the allowable deduction 80IA is restricted to ₹ 68,98,260/- as against ₹ 2,31,00,429/- claimed. ..... 15. Being aggrieved, the Assessee preferred appeals before the CIT(A)s. As indicated, at the outset, the CIT(A)s partly allowed the appeal. The lead order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new business of machinery or plant previously used for any purpose; (iii) It manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule or operates one or more cold storage plant or plants, in any part of India. (iv) Where the industrial undertaking uses power, to aid in the manufacture or production of articles or things, it is required to employ 10 or more workers. In cases, where, manufacturing process is carried out without the aid of power, the number of workers employed should not be less than 20. 20.2. As would be evident, the first two attributes have negative connotations, while 3rd and 4th attributes are positive in nature. 20.3. Interestingly, in so far as the prohibition of forming an industrial undertaking by a transfer of machinery and plant, previously used, for any purpose to a new business is concerned, Explanation 2 contained in Section 80IB(2) provides some latitude. The Explanation indicates that the negative condition will not get kicked-in, if, the value of machinery, or plant, or a part thereof, so transferred, does not exceed 20% of the total value of the machinery, or plant, used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief. 4.11.5. In order to see whether the appellant firm had been formed as a result of transfer of assets in a substantial manner from the other two concerns, M/s.Fastenex Pvt. Ltd. or Formex, it is necessary to analyse the assets position as well as the manner of functioning and the net profit results of these concerns, year-wise. As already indicated, the capital of these concerns remained intact when the appellant firm was formed. It is only that certain second-hand machinery items Tapping machines that were transferred to the firm through M/s.Toolex Pvt. Ltd. a quick glance of the profits of these two concerns for the accounting periods relevant for the assessment years 1999-2000 to 2005-06 will show that these concerns had been functioning in their own right independently. 4.11.5.1.On a study of the details furnished by the appellant's representative, it is seen that Fromex, the proprietory concern of Shri. A.L.Shah, is the only one that had been carrying on the activities of manufacturing nuts and it had been claiming deduction u/s 80-IB in respect of its profits. The year-wise break up details of sales/gross receipts/income and the net profits thereon, of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up or reconstruction of the concern, Formex. And the mere fact that the appellant firm ultimately took over the entire activity of manufacturing nuts from Formex will not disentitle it to the benefit of deduction u/s 80-IB. 4.11.6.As far as the affairs of M/s.Fastenex Pvt. Ltd. are concerned, this is a limited company and it had been showing only service charges as income against which it had claimed huge expenditure by way of job work right through from the financial year 1999-2000 upto 2004-05. On a perusal of the profit and loss account statements of this company, it is seen that it had been showing income from the activity of generating power from wind mills also. And it had been claiming deduction u/s 80-IA/80-IB. The break-up details of service charges, expenditure and net profit for this concern are furnished in the table given below: Financial Year Service charges (Rs.) Sales under sales Tax Act (Rs.) New Profit (Rs.) 2004-05 1,80,12,180.22 ---- 44,84,865.96 2003-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down in sec.8-IB in its formative years. In so far as the profits of Unit-I are concerned, it has to be that they will qualify for the deduction u/w 80-IB. 21.4. Since, the Assessing Officers had also denied the relief to the Assessee, inter alia, on the ground that most of the work involved in the manufacture of fasteners/nuts is carried out by its sister concerns, i.e., FX, FOX and BPL, and therefore, the Assessee could not be allowed deduction under Section 80IB of the 1961 Act, as it was not carrying out manufacturing activity; it was an aspect, which was also examined by the CIT(A) in the very same order. The CIT(A), after a detailed analysis, came to the conclusion that the Assessee was performing the most vital function, which was nut tapping. 21.5. In this regard, the following observations and findings of fact returned by the CIT(A), need to be noticed. 5. Now coming to the question as to whether the appellant firm had carried on any manufacturing activity at all in the light of the fact that certain processes were got done by the firm on job-work basis only, the salient features of the impugned order on this aspect of the issue had been narrated in paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lain the different processes involved in the manufacture of nuts and he has also explained in clear terms as to what are the processes carried on by the appellant firm after getting the raw materials processed by its connected concerns upto a certain stage. It is necessary to understand the different processes involved in the manufacturing of nuts to begin with. The different processes involved are Forging, Pickling, Phosphating, Wire drawing, Plating and Nut Tapping. Certain secondary operations like assembly, welding, Curl cutting etc. are also carried out. The two main stages are producing Blanks and Tapping. Blanks are stated to be only semi-finished components which do not have a markettable value and 'forging' is the process of producing 'blanks' with the help of machinery called 'Nut Formers'. The various stages of processing as explained by the representative are briefly stated as under : Leo Fasteners procures raw materials/ components and processes them for manufacture of nuts. The raw materials (wore rods) procured are pickled, phosphated and then wire drawn using the services of sister concerns. Then such wire drawn rods are converted into b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess is also being carried out by M/s.Brightenex P. Ltd. Wire drawingis the process used to reduce or change the diameter of a wire or rod through a single or series of drawing die(s). This process also can never be termed as core as the diameter of the rods alone undergo a change during this process and rods (input) continue to be rods (output) even after the process. This process is also being carried out by M/s.Brightenex P. Ltd. 5.2. The explanation given as above will give a general idea of the various processes involved in bringing out the final product nut from the raw materials, wire rods. It is seen from a careful study of the submissions made that there are tow important stages in the various processes involved in the manufacture of nut Nut Forging, which produces blanks and Tapping/Threading. It has been explained above that it is only the process called 'Nut Tapping' which bring about the vital change in the raw material to make the final product commercially and qualitatively different from the raw material. 'Nut Tapping' is nothing but the act of threading the nuts. It was submitted that although upto the stage of producing nut blanks, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o mentioned. The details of 60 employees engaged in Unit II, for the year ending 31.03.2004, along with their P.F. account numbers were also given. 22.3. The record shows that Unit No.II has separate electricity connection, licence and is located in separate and identifiable premises. 23. In so far as the production process is concerned, the following information is found on record. (a) The processes of the wire rod pickling and phosphating and also wire drawing were done by M/s.Brightenex Pvt. Ltd. The next stage of processing called forging was done in a shared manner by three concerns, viz., M/s.Fastenex, Formex and M/s.Leo Fasteners by using nut former machines. (b) The next processing of nut tapping work was also done by the above three concerns in a shared manner. (c) The final plating of the nuts was done by M/s.Brightenex Pvt. Ltd. (d) Certain secondary operations like cap-cutting, curling and drilling were also done by the three concerns, M/s.Fastenex, Formex and M/s.Leo Fasteners. (e) The tools and dies required in the operation of nut forging and nut tapping were supplied by M/s.Toolex pvt. Ltd. and certain other services were also rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a different product though, fundamentally, this unit is also engaged in the manufacture of nuts or fasteners used in the automobile industry only. It may be a fact that the firm had invested by acquiring more items of machinery for making improvisation in the existing product. But, there is nothing brought on record to show that the new product is commercially different from the nuts or fasteners produced by Unit-I. No doubt, the appellant's representative had given certain information regarding the quality of the nuts that were turned out by the Unit-II and the additional processing to be done on the materials used to that there could be a better product qualitatively. It has been stated that the processing itself was different. But, still, Unit-II cannot be said to be having an independent status as a new industrial undertaking. And the introduction of certain techniques in the processing cannot amount to bringing about a different processing altogether. There is nothing to indicate that a nut could be manufactured by Unit -II by adopting totally a new process. In fact, as shown in the earlier paragraphs, upto the stage of producing Nut Blanks, the processing were done by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are considered, the percentage of the total value of second-hand machinery items purchased by the firm for Unit-II would work out to less than 20% as at 31.3.2004. (vi).There seems to be no purchase of any second-hand machinery during the financial year 2005-05 for Unit-II. 6.4.1. All the above facts seemingly indicate that there are no irregularities in the formation of Unit-II and therefore, such formation conforms to the principles laid down by the Supreme Court as brought out in the earlier paragraphs of this appellate order and so, Unit-II must be given the status of a new industrial undertaking. But, as will be seen from the discussions to emerge in the following paragraphs, this view is incorrect, because, there are certain other vital facts viz., the transactions between Unit-I and Unit-II that are to be taken into consideration before forming any opinion. 6.5. The way in which the Unit-II had been formed is not similar to the way in which the firm itself was formed way-back in the year 1998. The subtle distinction that has to be made is that at that point of time, a new legal entity was formed as partnership between Shri L.M.Shah and Shri A.L.Shah and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Unit-II during the impugned accounting period as well as in the next accounting period. there had been sale of nut blanks to the tune of ₹ 3,14,26,875/- during the financial year 2003-04 and for ₹ 8,98,39,763/- during the financial year 2004-05 to Unit-II. These transactions make it evident that the whole idea of forming Unit-II is to shift the activities of Unit-I to Unit-II in course of time so that the firm could keep claiming deduction u/s 80-IB continuously, that too, at a higher rate by shifting the profits of Unit- to Unit-II. 6.8. The facts brought out and the further discussions as in the above paragraphs will only lead us to the inference that though the appellant firm had tried to make it appear that the Unit-II is a new industrial undertaking by showing that fresh capital had been introduced, substantial investments had been made in fixed assets including buildings and plant and machinery, sufficiently new labour force had been deployed, etc., still, its activities cannot be viewed independently and it cannot be said to have an independent existence. What the partners of the appellant firm would have done under normal circumstances for expanding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be questioned. (iv).The transactions between the appellant firm and the other connected concerns whereby those concerns had performed certain processes on job-work basis will not come in the way of the appellant firm claiming the deduction u/s 80-IB as it had also performed certain vital processes - nut tapping which brings changes into the materials used or rather the 'nut blanks' to make them commercially different products - the 'nuts'. Without performing tapping, it will not be possible to bring out a nut. (v).As far as Unit-II is concerned, it cannot be considered to be a new undertaking both in its formation as well as in its activities. (vi).The formation of Unit-II by the appellant firm was with a view to divert its profits so that it could claim deduction u/s 80-IB not only at a higher rate but also for a longer period of time. That is, if Unit-II were to be accepted as a new industrial undertaking, then the appellant firm could have continued to claim the benefit of deduction u/s 80-IB for a further period of ten years which deserves to be discouraged. This cannot be considered to be an act of tax planning. .......... (emphasis is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the following steps: (i). Had made investment in Unit II in the form of capital and loan given by the partners of the Assessee as well as amount accessed in the form of loan from Banks, such as, SBI and HDFC. (ii) Had imported from Taiwan four (4) nut former machines. (iii) There is no denial of the fact that it has engaged separate labour force. (iv) It has operations in a separate and identifiable premises. (v) It has a separate licence. (vi) It has separate electricity connection. 23.6. Given these facts, one needs to determine is whether expansion, by itself, would make the Assessee eligible for deduction under Section 80IB of the 1961 Act. 24. The most frequently cited case in the context of Section 80IB is the judgment of the Supreme Court in the matter of Textile Machinery Corporation Limited, Calcutta V. The Commissioner of Income Tax West Bengal, Calcutta (1977) 2 SCC 368. 24.1. This was the decision, which was rendered under Section 15 C of the Income Tax Act, 1922. The provisions of Section 15C was somewhat similar to Section 80IB of the 1961 Act. 24.2. In that case, the Supreme Court was called upon to rule, whether the Assessee would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new industrial undertaking on account of which the assessee claims exemption under section 15C. No hard and fast rule can be laid down. Trade and industry do not run in earmarked channels and particularly so in view of manifold scientific and technological developments. There is great scope for expansion of trade and industry. The fact that an assessee by establishment of a new industrial undertaking expands his existing business, which he certainly does, would not, on that score, deprive him of the benefit under section 15C. Every new creation in business is some kind of expansion and advancement. The true test is not whether the new industrial undertaking connotes expansion of the existing business of the assessee but whether it is all the same a new and identifiable undertaking separate and distinct from the existing business. No particular decision in one case can lay down an inexorable test to determine whether a given case comes under section 15C or not. In order that the new undertaking can be said to be not formed out of the already existing business, there must be a new emergence of a physically separate industrial unit which may exist on its own as a viable unit. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons without the aid of power have been employed. Such a new industrially recognisable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose Of section 15C the industrial units set up must be new in-the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C the new undertaking must be formed by reconstruction of the old business. Now in the instant case there is no formation of any industrial undertaking out of the existing business since that can take place only when the assets of the old business are transferred substantially to the new undertaking. There is no such transfer of assets in the two cases with which we are concerned. We will now deal with the question whether the two undertakings the assessee are formed by reconstruction of the existing business. The word 'reconstruction' is not defined in the Act but has received judicial interpretation. In re South Africa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. It is stated on behalf of the Revenue that the same company in the instant case continues to do the same business of heavy engineering---no matter certain spare parts necessary as components to completion of the end- product are now manufactured in the business itself. The fact that the assessee is carrying on the general business of heavy engineering will not prevent him from setting up new industrial undertakings and from claiming benefit under section-15C if that section is otherwise applicable. However, in order to be entitled to the benefit under' section 15C, the following facts have to be established by the assessee. subject always to the time-schedule in the section :-- (1) investment of substantial fresh capital in the industrial undertaking set up, (2) employment of requisite labour therein, (3) manufacture or production of articles in the said undertaking, (4) earning of profits clearly attributable to the said new undertaking, and (5) above all, a separate and distinct identity of the industrial unit set up. We may add that there is no bar to an assessee carrying on a particular business to set up a new industrial undertaking on account of which exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct investment has been made to expand or set up a new industrial undertaking. The fact that the source of investment, i.e., are common to Units I and II, by itself, would not disentitle the Assessee from claiming deduction qua Unit II on this score. Furthermore, CIT(A)s orders itself show that moneys have also been borrowed from banks, such as, SBI and HDFC, to fund Unit II. 26.4. Therefore, this objection, to our minds, is completely, misconceived. 26.5. Furthermore, the Assessee has engaged separate labour and is engaged in manufacture and production of articles. 26.6. The objection taken by the Authorities below, that the article produced and/or manufactured by the Assessee is commercially no different from what Unit I manufactured, according to us, is not a ground on which deduction claimed under Section 80 IB can be denied to the Assessee. 26.7. The only condition that the Assessee, in this behalf, is required to fulfill is that, they should manufacture and produce an article or thing. Sub-clause (iii) of sub-section (2) of Section 80IB of the 1961 Act does not require that, in order to claim deduction, the article or any manufacture must be commercially diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind no basis for declining the claim for deduction made by the Assessee under Section 80IB on the ground that it had manipulated the transfer of machinery in such a manner that its value was kept below 20% of the total value of the plant and machinery installed in Unit II. 28. This issue came up for consideration before the Supreme Court in the matter of: Bajaj Tempo Ltd. V. Commissoner of Income Tax (1992) 196 ITR 188. 28.1. This case was again decided under the provisions of Section 15C of the 1922 Act. Notably, Section 15C of the 1922 Act did not have appended to it a provision similar to Explanation 2 to Section 80IB(2) of the 1961 Act, despite which, the Supreme Court made the following apposite observations: Words of a statute are undoubtedly the best guide. But if their meaning gets clouded then the courts required to clear the haze. Sub-section (2) advances the objective of sub-section (1) by including in it every undertaking except if it is covered by clause (i) for which it is necessary that it should not be formed by transfer of building or machinery. The restriction or denial of benefit arises not by transfer of building or material to the new company but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to claim the said deduction. 29.2. As indicated above, the substantial expansion of Unit I or even, if, Unit II is concerned as an expanded form of Unit I, which, for the reasons given above, is clearly substantial, it cannot be denied deduction under Section 80IB of the 1961 Act. The fact that it has used raw material, i.e., nut blanks, which have been supplied by Unit I, cannot come in the way of one reaching a conclusion that it is a separate and independent unit. This proposition can be better explained by the following illustration. Say for example, the Assessee had established Unit II, in another company or entity, would the Revenue, then, be able to deprive such an entity of exemption under Section 80IB of the 1961 Act. The distinction, separateness and independence of an industrial undertaking cannot be made dependent only on the attribute of ownership. 29.3. Therefore, for all these reasons, we are of the view that both CIT(A)s as well as the Tribunal were wrong in concluding that the Assessee could not claim deduction under Section 80IB of the 1961 Act vis-a-vis Unit II. 30. At this stage, we must deal with one last argument advanced on behalf of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Division Bench of this Court in the matter of : Velayudhaswamy Spinning Mills Pvt. Ltd. V. Assistant Commissioner of Income Tax (2012) 340 ITR 477 (Madras). 31.7. The Division Bench in this case held that the provision does not allow the Revenue to look backwards and, then, adjust the losses of earlier years against income of the eligible industrial undertaking by notionally bringing them forward and setting them off, even though they have been already been set off against other income of the Assessee. In other words, once, set off losses has taken place against other income of the Assessee, they cannot be brought form and again squared off against his current income. 31.8. In coming to this conclusion, the Division Bench, inter alia, relied upon the judgment of the Supreme Court, in Liberty India V. CIT [2009] 317 ITR 218 (SC). The observations made in that behalf are extracted hereafter, for the sake of convenience. Heading C is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are sections 80-1, 80-IA and 80-IB. In the case of Liberty India v. CIT, [2009] 317 ITR 218 (SC); [2009] 225 CTR (SC) 233; [2009] 28 DTR (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 16.From a readin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (emphasis is ours) 31.9. As a matter of fact, this view has been followed by Madras High Court in a decision rendered on 12.01.2015 in a batch of Tax Case Appeals, the lead Appeal being: T.C.(A)No.408 of 2014, titled: Commissioner of Income Tax V. Eastman Exports Global Clothing Private Limited. 32. Therefore, following the the ratio of the judgments of the Division Bench of this Court, referred to above, it is quite clear, that if, once t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved the approach adopted by the Assessing Officer of squaring off losses of the Delhi Unit against the Kalamb Unit, located in Himachal Pradesh. 33.4. We are in respectful agreement with the approach adopted in the said matter, which is in line with the observations made by the Division Bench of this Court in the matter of : Velayudhaswamy Spinning Mills Pvt. Ltd. V. Assistant Commissioner of Income Tax (2012) 340 ITR 477 (Madras). 34. As a matter of fact, as correctly submitted by the counsel for the Assessee, the Tribunal in : Rangamma Steels Malleables V. Assistant Commissioner of Income Tax [2010] 132 TTJ 365 has adopted the same approach. 34.1. Therefore, according to us, in computing the deduction claimed by the Assessee under Section 80 IA of the 1961 Act, the Assessing Officer ought to have treated the two power divisions as a separate undertakings and furthermore, desisted from setting off the losses of earlier years against the profits of the Assessment Years in issue, by bringing them forward notionally, despite the fact that they had already been set off, as claimed by the Assessee in the earlier years. 35. For the foregoing reasons, T.C.(A) Nos.533 to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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