TMI Blog2018 (2) TMI 1703X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of section 80IA(5). Hence, we direct the AO to allow deduction claimed u/s 80IA. - Decided in favour of assessee Allowability of depreciation on wind mill against income from construction business - Held that:- Income from each source of business shall be computed separately after allowing all expenses including depreciation, for the purpose of determination of total income from business or profession, unabsorbed depreciation of other source of business can be set off against income of another source of business within the same financial year. Even otherwise, depreciation loss of one source can be set off against profit of other source within the same head of income. Therefore, we are of the considered view that the AO was erred in disallowing the depreciation of wind mills against income from construction business. - Decided in favour of assessee Addition towards provision for outstanding expenses - Held that:- 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 cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility 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 ₹ 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 ₹ 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 ₹ 14,45,97,505/- in making final computation. 3. The assessee, from these grounds of appeal has challenged the action of the ld. CIT(A), confirming denial of deduction claimed under section 80IA of the Income Tact Act and disallowance of provision for ULC charges. The Revenue has challenged the action of the ld. CIT(A) in allowing depreciation in respect of windmills against income generated from construction business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 eligible business. The CIT(A) after considering relevant provisions and also by relied upon certain judicial precedents, including the decision of Hon ble Supreme Court in case of Liberty India vs. CIT (2009) 183 taxman 349, observed that to claim deduction under section 80IA there has to be a profit in the eligible business and such eligible business can be any of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set up at different places. The first two windmills set up in earlier years have generated profit of ₹ 9,90,461/- and ₹ 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 ₹ 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 Act. The AO further observed that as per the provision of section 80IA(5), for the purpose of determination of deduction, the eligible business shall be considered as the only source of the income of the assessee. According to the AO, the assessee sought to claim each windmill as a separate undertaking/unit for the purpose of section 80IA and profit of each u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arashtra 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 profit in the eligible business and such eligible business can be any of the business referred to in sub-section 3(ii) to 11(a). It is highly incorrect to say that deduction under section 80IA is available to each unit within the same segment of business, unaffected by losses suffered by other units. The CIT(A) after considering the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 windmills. There is no dispute with regard to deduction to be given under chapter VIA against gross total income computed from all source of income. Even various decisions of the Hon ble Supreme Court, including in the case of CIT vs. Liberty India (supra) have clearly held that special deduction under chapter VIA has to be computed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 which unit two starts claiming deduction, then the assessee may get the benefit for more than 10 years for unit one, if you consider both units as one eligible business and profit or loss of both units is consolidated. This may not be the true intention of the legislature and for that reason the legislature consciously used the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 material on record, we find merits in the arguments of the assessee for the reason that though income from each source of business shall be computed separately after allowing all expenses including depreciation, for the purpose of determination of total income from business or profession, unabsorbed depreciation of other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 (2016) 137 DTR 217 (Delhi) (HC) 2. National Agricultural Co-operative Marketing Federation of India Ltd. vs. CIT (2017) 393 ITR 666 (Delhi)(HC) 3. CIT vs. Kumaran Co. (1992) 194 ITR 85 (Ker.)(HC) 4. CIT vs. Investigation Security Service (India) (P) (Ltd) (1990) 182 ITR 358 (AP) (HC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 competent authority passed order for payment of ULC charges. The writ petition filed before the Hon ble High Court of Bombay is not relevant to decide whether the said liability is ascertained liability or contingent in nature and what is relevant is the order of the competent authority which is dem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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