TMI Blog2018 (4) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s. 10B with respect to its 100% EOU should be allowed even on income from interest and miscellaneous income - Held that:- We are of the considered view that the AO has not examined the direct nexus between the interest income as well miscellaneous income and export income derived by the assessee from eligible industrial undertaking of the assessee on which deduction u/s 10B is available which requires examination of the facts, hence keeping in view ratio of decision in the case of India Comnet International v. ITO reported in (2012 (9) TMI 372 - SUPREME COURT), the matter is set aside to the file of the AO for examination/verification of direct nexus between income from interest as well miscellaneous income and income derived from exports business by 100% export oriented eligible undertaking of the assessee to see whether the said income can fall within the ambit of being derived from export business of the eligible industrial undertaking being 100% EOU. Depreciation of eligible unit which stood adjusted against other business income from non eligible in the earlier years can not now be adjusted on notional basis against the income of eligible unit for the impugned assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the addition of ₹ 39,60,033/- made u/s.80IA of the Income tax Act without appreciating the fact that the notional depreciation, which the assessee had claimed on the said windmill before claiming deduction u/s.80IA in first year i.e. A.Y. 2010-11, had not been adjusted with the previous year profit of the windmill before claiming deduction u/s.80IA of the Income Tax Act, 1961. 2. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 4. The assessee is manufacture of Essential Oils, Perfumery Compounds, distillers of sandalwood oil, etc. . It has a factory at Kannauj, Silvassa and Nilatottoi. The assessee is also owning six wind mills through which electricity is generated and sold to different State Electricity Boards. The assessee is also dealing in purchase and sale of properties. Disallowance u/s. 14A 5. The assessee has claimed exempt an income amounting to ₹ 68,71,376/- in accordance with provisions of Section 10 of the Act. However, the assessee did no attributed any expenditure towards earning of such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.9,30,874 Thus, the disallowance u/s 14A r.w. Rule 8D came to ₹ 9,30,874/- which was added to the income of the assessee by the AO vide assessment order dated 14-03-2014 passed u/s. 143(3) of the 1961 Act. Disallowance of depreciation on civil components of windmills: 6. The assessee owns six wind mills at various locations in Tamil Nadu and Karnataka, the details of which are as under: Supplier Site Name Capacity No. Of Machine Date Of Commissioning Enercon TN-Erode, Dharapuram 800 KW 1 19/9/2005 Vestas KAR - Davangiri, Harihar 600 KW 2 30/9/2006 Vestas KAR-Gadag, Gajendragad 600 KW 1 30/3/2007 Vestas KAR-Gadag, Gajendragad 600 KW 2 19/5//2007 The assessee had claimed depreciation @80% of WDV on the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on @80% on four windmills on entire cost of windmills including cost of civil construction and electrical works .As per AO, cost of civil construction does not from part of Plant Machinery and depreciation @80% claimed by the assessee was held to be not allowable and normal depreciation was held to be allowable by the AO on civil construction work related to windmill as under the Block of Assets of Building. The AO observed that in preceding years i.e. AY 2006-07 to AY 2010-11, the claim of the assessee was already disallowed by the AO w.r.t. depreciation claim @70% of civil construction related to windmill . The assessee however submitted that windmill is a custom made machine which is erected at a site which has a very good wind velocity, the final structure of machine is very heavy and need to be supported by solid foundation of concrete and iron, so as to withstand strong winds and weight of Plant Machinery itself. The assessee submitted that an internal road is essential for connecting electrical apparatus of the windmill to the grid of the electricity board and the entire civil and electrical work is an integral part of Plant and Machinery. It was submitted that wind mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total revised depreciation on 4 windmills 4,67,048 The AO allowed depreciation of ₹ 4,67,048/- as against depreciation of ₹ 1,03,974/- claimed by the assessee, by re-working the entire w.d.v. of the assets, vide assessment order dated 14-3-2014 passed by the AO u/s 143(3) of the 1961 Act. Disallowance of deduction u/s. 80IA 7. The AO observed during assessment proceedings u/s 143(3) r.w.s. 143(2) that the assessee had claimed an amount of ₹ 39,60,033/- as deduction u/s. 80IA(4)(iv) of the 1961 Act on the profits of Wind Mill (Enercon) Erode, Dhampuram-TN (Sept 2005). This is the 2nd year of the claim of deduction under section 80IA . The assessee duly submitted audited accounts of the wind will along with audit report u/s. 10CCB . The AO observed that notional depreciation, which the assessee had claimed on the said wind mill before claiming deduction u/s. 80IA in first year i.e. AY 2010-11 had not been adjusted with the previous year profit of the wind mill before claiming deduction u/s. 80IA . The AO also observed that the AO had already disallowed claim of deduction u/s. 80IA for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation of claim of the windmill though set off with the income of other businesses should first notionally be reduced from profit of windmill before computing quantum of profit eligible for deduction u/s. 80IA. It was observed by the AO that the assessee has not set off profits of ₹ 39,60,033/- of windmill at Erode-TN. The depreciation on the said wind mill was claimed and set off from other businesses of the assessee The AO observed that however for claiming deduction u/s. 80IA, the said depreciation should have been notionally reduced from the profits of the windmill before computing quantum eligible for deduction u/s. 80IA which has not been done by the assessee and hence claim of deduction u/s. 80IA was disallowed by the AO vide assessment order dated 14-03-2014 passed by the AO u/s 143(3) of the 1961 Act. The AO observed that assessee vide its written submission has stated that similar issue in AY 2010-11 is decided by learned CIT-A in favour of the assessee but the said appellate order of the learned CIT-A was not accepted by the department and Revenue has preferred an appeal before the ITAT. Exemption u/s. 10B: 8. The AO observed that assessee has clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by following the decision of ITAT Pune Bench in the case of Poonawala Finvest Agro P. Ltd. v. ACIT [2008] 118 TTJ 68 [Pune] and also by following the decision taken by learned CIT(A) in assessee‟s own case for the AY 2006-07 to 2011-11, to keep the issue alive till the issue reaches finality in assessee‟s own case and AO was directed to re-compute depreciation as per the decision of Hon‟ble ITAT Pune Bench with respect to the disallowance of depreciation on civil construction work related to windmill, vide appellate order dated 30.11.2015 passed by learned CIT(A). 10. With respect to the disallowance u/s 14A of 1961 Act r.w.r. 8D of the 1962 Rules amounting to ₹ 9,30,874/- as detailed here under:- (i) Expenditure directly attributable to exempt income (ii) Interest not directly attributable to exempt income Interest X average value of investment attributable to exempt income Average of total assets appearing in Balance sheet ₹ 45,17,817/- X ₹ 11,54,83730/- / 1,47,60,95,782/- ₹ 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry year. This argument of the appellant is based on the Bombay High Court's decision in the case of CIT vs. Reliance Utilites Power Ltd. that if interest free funds are available with the appellant which is sufficient to meet the investment at the time when the loan was raised, then presumption will be that investment would be out of the interest free funds. However this decision was rendered in the context of interest disallowance in respect of loans advanced to sister concerns and is distinguishable. Further, this judgment was not rendered in the context of section 14A r.w. Rule 8D and therefore no ratio could be said to have been laid down. Therefore the appellant cannot draw any support from the above quoted judgment. Reliance has also been placed in Delhi High Court's decision in Maxopp Investments Ltd. 203 Taxmann 364. However, it is seen that this decision pertained to AY 1998-99 to AY 2005-06 whereas section 14A(2) and (3) were introduced with prospective effect from AY 2007-08. This decision cannot therefore provide support to the appellant's case. The jurisdictional Bombay High Court has held in Godrej Boyce Mfg. Co. Ltd. vs. CIT 234 CTR 1 that rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de interest income or miscellaneous sources which do not form part of export earnings. The learned CIT-A followed the decision of Hon‟ble Madras High Court in the case of International Components India Limited (2015) 59 taxmann.com 32(Mad.) and also decision of ITAT,Mumbai in the case of Tricom India Limited v. ACIT reported in (2010) 36 SOT 302 and consequently the claim of the assessee was rejected by learned CIT(A) . 13. Aggrieved by the appellate decision of learned CIT(A), both the assessee and the revenue have come in an appeal before the tribunal . With respect to the claim of assessee for grant of depreciation @80% on the civil construction work w.r.t. windmill, it was brought to the notice of the Bench that the tribunal for AY 2006-07 to 2010-11 has allowed the claim of the assessee in ITA no. 2490-2494/Pune/2012 vide its orders dated 21-02-2017, by holding as under:- 5. We have heard the rival contentions and perused the relevant material on record including cited case laws. Although, we are conscious of the fact that the cross appeals should be heard together, yet it is also a fact that as of today, no appeal by revenue is pending before the Tribunal. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80% is allowable, 5. We are of the opinion that the approach of both the authorities is perfectly justified. Windmill would require scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric, fittings are so closely interconnected and linked as to form the common plan. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds were specifically used for making investments in Mutual Funds and no direct nexus between interest bearing funds with the investments made in Mutual Funds are brought on record. Thus, the addition to the tune of ₹ 3,53,455/- as was made under rule 8D2(ii) r.w.s. 14A stood deleted but so far as disallowance under rule 8D 2(iii) r.w.s. 14A of the 1961 Act to the tune of ₹ 5,77,419/- being @0.5% of the average investments as was made by the AO which was later upheld by learned CIT(A) stood confirmed as we find no justification for the deletion of the same and we have no hesitation in confirming the addition to the tune of ₹ 5,77,419/- to the income of the assessee u/s 14A r.w.r. 8D(2)(iii) . The assessee gets part relief. We order accordingly. 15. The assessee has also claimed that deduction u/s. 10B with respect to its 100% EOU should be allowed even on income from interest and miscellaneous income to tune of ₹ 9.51 lacs . The assessee relied upon the decision of Hon‟ble Karnataka High Court in the case of CIT v. Hewlett Packard Global Soft Limited in ITA no. 812/2007 vide orders dated 30-10-2007 reported in 2017(11) TMI 205. It was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has lost throughout in the proceedings. 4. The impugned judgment of the High Court is based on the judgment of the Madras High Court in the case of CIT v. Menon Impex (P.) Ltd.[2003] 259 ITR 403 / 128 Taxman 11 wherein a similar question arose as to Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income derived by the assessee from funds in connection with Letter of Credit is income derived from the profits of business of the industrial undertaking so as to be entitled to get the benefit of Section 10A of the Income Tax Act, 1961? In that case, the Madras High Court examined in detail the transaction in question and found that the assessee had set up a new industrial undertaking in Kandla Free Trade zone for manufacturing light engineering goods. The goods therein were exported during the Assessment Year 1985-1986. In the course of business, the assessee was required to open a Letter of Credit. On such Deposit, the assessee earned interest. Under the said circumstances, the High Court held, following the judgment of this Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579/ 104 Taxman 204, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation of earlier years on notional basis. Ld. DR on the other hand relied upon the orders of the AO. We have heard both the parties and perused the material on record. We are of the considered view that the depreciation of eligible unit which stood adjusted against other business income from non eligible in the earlier years can not now be adjusted on notional basis against the income of eligible unit for the impugned assessment year while computing deduction u/s 80IA. Our view is fortified by the decision of Hon‟ble Bombay High Court in the case of Hercules Hoists Limited(supra) which is reproduced hereunder: 7. It is not disputed that the respondent assessee is entitled for deduction of the profit and gains as contemplated u/s 80IA. It is also not disputed that the assessee is entitled for deduction of the profits and gains for the period of 10 consecutive years beginning with initial assessment year. It is further not disputed that the initial assessment year of the assessee s unit is 2009-10, though it started functioning from the year 2005-06. The losses of the years 2005-06 to 2008-09 were absorbed during the relevant years and no losses were carried f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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