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TMI Blog2018 (2) TMI 1703X X X X Extracts X X X X X X X X Extracts X X X X ..... that each Unit is independent Unit therefore combining the profit 1 loss of all the 5 units for the purposes of deduction under section 80 IA(5) is completely unjustified. 3. The Learned Commissioner of Income Tax (Appeals) has erred both in law as well as in facts in not allowing the provision of Rs. 14,21,72,3911- in respect of demand raised by ULC department of Government of Maharashtra, which is an ascertained liability and claimed on the basis of completion of Project for the Assessment Year 2011-12. 4. The Learned Commissioner of Income Tax (Appeals) has further erred in not appreciating the facts that the Provision of Rs. 14,21,72,391/- was claimed on completion of the Project which was completed during the year under reference therefore dis-allowance is completely unjustified and uncalled for. 2. The Revenue has raised the following grounds of appeal:- (i) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation of Rs. 14,45,97,505/- in respect of all five windmills." (ii) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing depreciation of Rs. 14,45,97,505/- in makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out appreciating the fact that the deduction provided under section 80IA should be worked out on unit-wise without considering the loss or profit of other unit. In so far as rejection of depreciation on windmills, the assessee submitted that even though no claim of depreciation has been made against income from wind Mills, the same can be claimed against gross total income consisting of both segments i.e. construction and the power generation business. As regards additions made towards disallowance for provision for ULC charges, the assessee had made provision as the liability have been ascertained and crystallized on the basis of order passed by the Additional Collector and competent authority, ULC Department, Greater Bombay and also for the reason that the project on which liability relates has been completed during the year under consideration. 6. The CIT(A) after considering relevant submissions of the assessee and also on analysis of provisions of section 80IA of the Act, held that the assessee is not eligible for deduction under section 80IA, as the profit computed under power generation segment is nil, if the profit or loss of all five windmills has been considered as one e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came up our consideration from assessee appeal is deduction under section 80IA of the Act. The facts with regard to impugned dispute are that the assessee has set up five windmills, out of which two windmills has been set up in the financial relevant AY 2005- 06 & 2006-07. During the year under reference, the assessee has set up three windmills. All five windmills are set up at different places. The first two windmills set up in earlier years have generated profit of Rs. 9,90,461/- and Rs. 23,34,903/- respectively. The remaining three windmills set up during the year under consideration have incurred losses. The assessee claimed deduction under section 80IA for Rs. 1,47,30,311/- in respect of profit of two windmills without setting off of loss incurred in three windmills by considering each windmills as a separate unit eligible for deduction under section 80IA of the Act. The AO denied deduction under section 80IA on the ground that, deduction under chapter VIA can be given only if the gross total income is positive and if total profit derived from all five windmills, there is no positive gross total income therefore, the assessee cannot claim deduction under section 80IA of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.238 of 2012 dated 09.10.2007 (SC). 2. Hercules Hoists Ltd. vs. ACIT (2013) ITR (T) 527 (Mum.)(Trib.) 3. Jindal Aluminium Ltd. vs. ACIT (2012) 19 ITR (T) 255 (Bang. (Trib.) 4. Syngenta India Ltd. vs. ACIT (2016) 71 taxmann.com 259 (Mum.) (Trib.) 5. Dalmia Cement (Bharat) Ltd. vs. CIT (2016) 137 DTR 217 (Delhi) (HC). 6. Maharashtra Hybrid Seeds Co. Ltd vs. JCIT in ITA No. 979/M/2000 dated 19.06.2001. 9. The ld. DR, on the other hand, strongly supported the order of CIT(A). The ld. DR further submitted that the AO as well as the CIT(A) has brought out clear fact to the effect that the claim of the assessee under section 80IA is not in accordance with subsection (5) of section 80IA of the Act, as the assessee sought to stretch the eligible business to the extent of each windmill without appreciating the fact that the provision has specifically provides for deduction for eligible business which means the total business carried out in all units coming under one eligible business. The ld. CIT(A) has further rightly relied upon the decision of Hon'ble Supreme Court in CIT vs. Liberty India (supra), wherein the Hon'ble Supreme Court has clearly said that there has to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the gross total income of the assessee is positive, whether the assessee has an eligible business and whether different units in such eligible business are to be taken as one eligible business. To ascertain gross total income, the first step would be to compute income under each head of income separately. In this case admittedly, the assessee does not have any other head of income except income from Business or Profession. The assessee have only two segment of business income i.e. construction business and power generation business. Admittedly, construction business is not eligible business for claiming deduction under section 80IA, therefore, there is controversy about consolidation of profit from construction business activity. The assessee is having power generation segment through windmills. The assessee has set up five windmills. All the five units are part of power generation segment. Now the question is whether deduction provided under section 80IA shall be given on profits and gains derived from power segment business as the only eligible business or profits and gains derived from each windmills as an eligible business without considering profit or loss of other windmil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provides for deduction of profits and gains of eligible business for a certain period starting from the period of initial claim. To understand the issue in a better manner, let us take an example. The assessee is in to the business of manufacturing products from different units located at different places. Meantime, the Govt. has announced incentives for setting up units in some places and within such period. The assessee has set up one eligible unit and starts claiming deduction under that provision. Next year, the assessee has set up one more eligible unit at different place and starts claiming deduction from that year and so on. Now both units are eligible units. The period of deduction specified under the act is 10 years for eligible units. Unit one is claiming deduction from initial assessment year and it may end up in some period. Unit two is claiming deduction from next year and it may end up in different year. If one takes initial assessment year from which unit one claims deduction for ten years, the assessee may loose benefit of deduction for one year for unit two, because it has commenced deduction from next year. If you take initial year of claim from the date on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA of the Income Tax Act, 1961. 14. The next issue that came up for our consideration from Revenue appeal is allowability of depreciation on wind mill against income from construction business. The AO denied depreciation claim of wind mills against gross total income on the ground that profit and gains of each business shall be computed separately and deductions provided u/s 30 to 43D shall be allowed before consolidating profit or loss of intra source of income. According to the AO, the assessee cannot claim depreciation of wind mill against income of construction business. It is the contention of the assessee that chapter VIA deduction has to be allowed after allowing depreciation u/s 32 even if not claimed. The assessee further contended that even otherwise the assessee can set off of unabsorbed depreciation of eligible business u/s 80IA against income from other non eligible business carried out by it. The CIT(A) allowed depreciation claimed by the assessee of Rs. 14,47,69,215/- by holding that the claim of depreciation of the assessee is justified, but for the purpose of calculation of quantum deduction u/s 80IA of the Act. 15. Having heard both the sides and considered mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory liability arised out of order passed by the competent authority and hence cannot be held to be a contingent liability. The assessee further contended that the liability is related to a particular project of development of apartments and for that project it is following percentage completion method for recognition of revenue. The said project has been completed and it has recoginsed revenue from the project during the period relevant to A.Y. 2011-12 and hence all expenses and liabilities relates to the projects needs to be provided in the books of accounts so as to ascertain correct profit from the project. Since it is following mercantile system of accounting and percentage completion method for the project and also fact that the project is completed during the year it has made provision for ULC charges payable to Government of Maharashtra, therefore, the liability cannot be considered as contingent liability. Merely because the order of the competent authority has been challenged before the court of law, it cannot be said that the liability to pay has been wiped out from existence. In this regard, he relied upon the following judgments: 1. Dalmia Cement (Bharat) Ltd. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court of Bombay. But the facts remains that the project has been completed and the revenue from the project has been recognized during the financial year relevant to A.Y. 2011-12 and hence the assessee needs to provide for related expenses of the project whether or not paid during the same financial year. Merely because the order of the competent authority has been challenged before the court of law, it cannot be said that the liability to pay has been wiped out from existence. Therefore, we are of the considered view that when the assessee is following mercantile system of accounting and percentage completion method for recognition of revenue and hence, related expenses of the project shall be provided in the year in which such project has been completed and the Revenue from the project has been recognized. In this case, admittedly, the project on which the liability relates is completed and revenue from the project has been recognized, accordingly the assessee needs to provide all related expenses in respect of the project. Further, the said liability cannot be considered as contingent liability as the liability has been ascertained and crystallized, the moment the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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