TMI Blog2019 (5) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... eration and surplus has arisen on said premature buy back of Euro Notes. As observed that the assessee has filed a decision of Hon‟ble Bombay High Court, 2 [ 2014 (7) TMI 12 - BOMBAY HIGH COURT] for AY 2001-02 concerning profit on foreign exchange fluctuation on repatriation of proceeds of certificate of deposit to India, while presently we are concerned with gains arising on discount on buy back of Euro Notes due to premature redemption of aforesaid Euro Notes. Thus, issue in both the years were different. Surplus on buy back of Euro Notes - As observed in the case of Mahindra Mahindra Ltd. . [ 2018 (5) TMI 358 - SUPREME COURT] has held in favour of the tax payer that waiver of loan for acquiring capital asset cannot be brought to tax either by invoking provisions of Section 28(iv) or Section 41(1) of the 1961 Act as noted that the tax-payer did not claimed deduction by way of interest expenditure u/s 36(1)(iii). However, in the instant case it is admitted by the assessee that the projects for which Euro Notes were raised were completed and the assessee had claimed deduction towards interest expenses u/s 36(1)(iii) as business/revenue expenses. Thus in our view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sludge arising from Belgaun unit and ledger account of sale of sludge account in books of account of Belgaun unit is produced for the first time before the tribunal. The said document albeit was part of books of accounts was not been verified by authorities below as contention of said other income‟ being derived from sale of sludge was not furnished/claimed before authorities below. CIT(A) has granted relief with respect to income from sale of scrap arising from the Jojobera Unit for granting deduction u/s. 80IA of the Act. Thus in our considered view this issue need to be set aside and restored to the file of AO for verification of the claim of the assessee that said income was earned from sale of sludge which was derived from Belgaun unit eligible for deduction u/s 80IA Allowability of deduction u/s 80IA on the taxable income after setting off brought forward unabsorbed depreciation of the units eligible for deduction u/s 80IA albeit assessee is claiming that said depreciation is already been set off against the income of the company as a whole in earlier assessment years - HELD THAT:- As decided in own case [ 2016 (5) TMI 1476 - ITAT MUMBAI] held that the notionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal schools as well details of children of the employees who were studying in the said local school during the year under consideration to prove that these expenses were inextricably linked with the business of assessee and is wholly and exclusively incurred for the purposes of the business of the assessee and comply with the mandate of provision of Sec. 40A(9) and/or Section 37(1) - I.T.A. No.3036/Mum/2009, I.T.A. No.3080/Mum/2009 - - - Dated:- 21-5-2019 - Shri Saktijit Dey, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri. Nitesh Joshi Jayesh Desai For the Revenue : Shri R Manjunath Swamy, Smt. Chaitanya Anjaria Shri Manish Kumar Singh ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: These are cross appeals, filed by Revenue as well as by assessee, being ITA No. 3036 3080/Mum/2009 respectively for assessment year 2003-04, are directed against appellate order dated 27.02.2009 passed by learned Commissioner of Income Tax (Appeals)-XXX, Mumbai (hereinafter called the CIT(A) ) in Appeal No. CIT(A)-XXX/IT-38/Rg.2(3)/08-09, the appellate proceedings had aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under Section 80IA. b. The CIT(A) erred in allowing deduction u/s 80IA on the taxable income after setting off brought forward unabsorbed depreciation of the units eligible for deduction u/s 80IA, without appreciating the fact that such depreciation has already been set off against the income of the Company as a whole in earlier assessment years. c. The learned CIT(A) erred in not appreciating the fact that despite Section 80IA(5), the requirement to treat the undertaking as the only business of the assessee is from the initial assessment year and not from the year of commencement of generation/distribution of power. 2. The CIT(A) erred in treating income of ₹ 9,81,38,257 on Broadband project during trial runs and income of ₹ 1,27,67,139 on scrap sale before capital projects are installed as revenue income instead of setting off such income against capital work-in-progress. 3. The CIT(A) erred in disallowing u/s 40A(9), payments aggregating ₹ 29,36,361, made to local schools (set up pursuant to discharging the appellant's responsibilities at the hydro generating stations), whose stude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of commercial expediency, as revenue expenditure. The appellant has submitted that when it was found that the projects were not likely to be profitable, they were given up in order that the Companies could concentrate on other more profitable projects to facilitate the carrying on of the business of the Companies. 6.1.2 The appellant has furnished the following list of projects which were shelved during the year ended 31st March, 2003 Shelved projects Amount(Rs.) Shirwata-Walwhan mini hydel units 24,19,427 Flue gas desulphurisation plant for Unit 5 39,76,867 Essar Power Project 5,14,383 Privatisation and utility sector reform project 2,36,000 Orissa Power Generating Corpn. Ltd. 51,52,635 Bangladesh PDB 3,81,440 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95,292 Total 9,16,589 6.2.2 The appellant has submitted that the above projects are connected with the existing business of the appellant i.e. generation, transmission and distribution of electricity. 6.3 The decisions relied upon by the appellant, including the decisions of the CIT(A) for A.Y. 2001-02 and the Hon'ble Tribunal in the appellant's own case squarely cover the facts of the appellant's case for the year under reference and hence, this ground is decided in favour of the appellant. 6.4 In the result, this ground is allowed. Thus, Ld. CIT(A) followed the earlier year decision of leaned CIT(A) for AY 2001-02 and decision of Hon‟ble ITAT in assessee‟s own case while allowing the claim of the assessee, vide appellate order dated 27.02.2009 passed by learned CIT(A). 7. Now, the Revenue is aggrieved by the decision of learned CIT(A) and an appeal is filed by Revenue before tribunal. 8. At the outset Ld. Counsel for the assessee submitted that this issue has been deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were closely connected with the business activities of the assessee company and these projects had either not taken off or were shelved, these expense are to be held as business expenses as rightly held by learned CIT(A). We have observed that tribunal in assessee‟s own case in ITA no. 3035/Mum/2009 for AY 2002-03 has decided this issue in favour of the assessee, vide orders dated 20.04.2012, by holding as under:- 16. Ground No.2 raised by the revenue reads as follows: The ld. CIT(A) has erred in allowing the expenses on shelved project amounting to ₹ 17,26,02,558/- and expenses on feasibility studies amounted to ₹ 5,27,462/- without appreciating that these expenses are capital expenses. 17. As far as expenses on shelved projects of ₹ 17,26,02,558/- and expenditure of ₹ 5,27,462/- on account of feasibility studies are concerned the issue has already been considered by the Tribunal in A.Y 2001-02 in ITA No.4497/M/2008 ITA No.4572/M/2008 and this Tribunal has held as follows: 30. The assessee has claimed expenditure incurred in respect of certain projects which were subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Anderson and Little Co. The project was finally awarded to China Light Power (CLP) and hence, the expenditure incurred in connection with the bidding process was written off as expenditure on shelved project. The other amounts pertain to power projects at the locations indicated there against, which have finally not materialized. The assessee submitted that all the above projects are connected with the existing business of the assessee i.e. generation, transmission and distribution of electricity. The expenses are mainly in the nature of pre-bid engineering services. These expenses have been claimed as revenue expenditure based on the decision of the Madras High Court in the case of B.Nagi Reddy vs. CIT (199 ITR 451) which according to the Assessee was directly on the issue. 31. The assessee has claimed expenditure incurred on feasibility reports as revenue expenditure. The assessee furnished the following details of expenditure on feasibility reports and preliminary studies incurred during the year ended 31st March, 2001. Projects Amount (Rs.) Augmentation of air co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) however allowed the claim of the Assessee as he found that on identical issue the Tribunal has already held in Assessee s case that the expenditure was in connection with the existing line of business of the Assessee and had to be allowed as a deduction. Aggrieved by the order of the CIT(A), the Revenue has raised ground No.3 before the Tribunal. 33. We have heard the rival submissions. It is not in dispute before us that Mumbai ITAT in Assessee s own case for A.Y s 1997-98,1999- 2000 and 2000-01 had held that identical expenses on shelved project report was not for starting any new business but it was closely connected with existing electricity generating business of the assessee. Similarly the feasibility report expenses were also held to be not for starting a new business but closely connected with the existing electricity generating business of the Assessee by the Mumbai ITAT in its own case for A.Y s 1997-98, 1999-2000 and 2000-01. Copies of these orders have been placed in the paper book. In view of the above Gr.No.3 of the Revenue is dismissed. Facts and circumstances being identical respectfully following the order of the Tribunal we u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see‟s own case for AY 2000-01 and also noting that the appeal of the Revenue was dismissed by tribunal for AY 2000-01, by holding as under:- Ground No. 3: Surplus on buy back of Euro Notes The AO has taxed an amount of ₹ 2,31,67,715 being surplus on buy back of Euro Notes. The assesses had claimed the same as tax exempt. 7.2 The factual position which is as under, is identical to the position as for AY 2002-03; a. The appellant had issued Euro Notes on 19 August 1997 to finance the appellant's capital expenditure programme. Some of the euro notes were maturing in 2007 and the balance in 2017. b. The appellant had bought back euro notes of US$ 42,444,000 which were maturing in 2017. c. The euro notes were bought back at a discount to the face value. This resulted in a surplus of ₹ 2,31,67,715. d. As per the appellant, the surplus of ₹ 2,31,67,715 on buy back of euro notes is not in the nature of income as envisaged by section 2(24) of the Income-tax Act, 1961 ( the Act ) and accordingly the same was not offered for tax in the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to income-tax. It was submitted that the issue was decided in favour of the assessee by tribunal in AY 2000-01 in ITA no. 6451/Mum/2003 vide orders dated 18.10.2007, wherein the tribunal was pleased to delete the additions by holding as under: 21. Ground nos. 3 to 5 reads as under: 3. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of ₹ 37,97,26,000/- made by the AO u/s. 41(1) of the Act representing the surplus on buy back of euro notes and holding that the surplus on repurchase of euro notes is not hit by the mischief of section 41(1) 4. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in holding that as the surplus on buy back euro notes is an advantage in capital field the same cannot be brought to tax either u/s. 28 or u/s. 56 5. On the facts and circumstances of the case and in law, the ld. CIT(A) ought to have held that the surplus on buy back of euro notes as the value of any benefit or perquisite, arising from business under section 28(iv) of the Act.'' 22. Briefly stated, the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 155 (SC) ix) CIT v. A.V.M. Ltd., 146 ITR 355 (Mad.) x) CIT v. Lal Textile Finishing Mills P. Ltd., 180 ITR 45 (Pun.) xi) Bhagwat Prasad Co. v. CIT, 99 ITR 111 (All.) 26. We have heard the parties and also perused the orders passed by the Assessing Officer and the Departmental authorities. In our view, the facts of case closely resemble with those in Mahindra and Mahindra Ltd. v. CIT, ITR 501 (Bom.) and CIT v. Industrial Cr. Development Syndicate Ltd., 285 ITR 310 (Karn.). Both the Hon'ble High Courts have decided the issue in favour of the assessee on identical set of facts. Respectfully following the aforesaid two orders, we hold that the order passed by the ld. CIT(A) is correct on the facts and circumstances of the case. We, therefore confirm the same. Ground nos. 3 to 5 are dismissed. The assessee also relied upon decision of Hon‟ble Supreme Court in the case of CIT v. Mahindra Mahindra Ltd. (2018) 302 CTR 213(SC) to contend that these foreign exchange fluctuation gain on buy back of Euro Notes cannot be treated as income chargeable to tax because the Euro Notes were raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and of their existing customers as well as to add new direct customers in the License area. The entire proceeds raised abroad were held in interest for a period of 3 years pending deployment and utilization. During the year ended 31st March, 2001, the funds were repatriated to India as per the requirement of Reserve Bank of India. As a result of the intervening fall in the value of the Indian Rupee, a gain in terms of Indian rupees has arisen to the company on the repatriation of funds. The above gain was credited to Profit and Loss Account. The Assessing Officer has treated the profit on repatriation of certificates of deposit as taxable income. 4] The Commissioner of income tax (Appeals) held that the purposes for which the notes were raised was capital. The gain arose, not in the course of trading activities but merely due to conversion of the currency of one country into the currency of another country. The gain is, therefore, on capital account and not in the nature of income. Further, the gain has arisen at that point of time when the funds were repatriated to India. If the Notes were issued for meeting capital expenditure, and remained outside India, the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 or u/s. 56 5. On the facts and circumstances of the case and in law, the ld. CIT(A) ought to have held that the surplus on buy back of euro notes as the value of any benefit or perquisite, arising from business under section 28(iv) of the Act.'' 22. Briefly stated, the facts of the case are that the assessee had issued euro notes on 19.08.1997 to advance its capital expenditure programme. Some of the euro notes were due to mature in 2007 and the remaining in 2017. The assessee bought back euro notes of US$ 60,000,000/- out of which euro notes of US$ 30,000,000/- were due to mature in 2007 and the remaining euro notes of US$ 30,000,000/- in 2017. The euro notes were bought back at a discount to the face value resulting in a surplus of ₹ 37,96,26,000/-. The case of the assessee before the Assessing Officer was that the said surplus arising on buy back of euro notes was not in the nature of income of the assessee as envisaged by section 2(24) of the I-T Act. The Assessing Officer, however, did not accept the claim of the assessee. Proceeding on the basis that income/gain/ surplus of any kind has to suffer the inciden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground nos. 3 to 5 are dismissed. We have observed that the assessee has filed a decision of Hon‟ble Bombay High Court, dated 11.06.2014 for AY 2001-02 concerning profit on foreign exchange fluctuation on repatriation of proceeds of certificate of deposit to India, while presently we are concerned with gains arising on discount on buy back of Euro Notes due to premature redemption of aforesaid Euro Notes. Thus, issue in both the years were different. We have observed that Hon‟ble Supreme Court in the case of Mahindra Mahindra Ltd.(supra) has held in favour of the tax payer that waiver of loan for acquiring capital asset cannot be brought to tax either by invoking provisions of Section 28(iv) or Section 41(1) of the 1961 Act. While arriving at such conclusion, it was noted by Hon‟ble Supreme Court in para 15 of the said judgment in the case of Mahindra and Mahindra(supra) that the tax-payer did not claimed deduction by way of interest expenditure u/s 36(1)(iii). However, in the instant case it is admitted by the assessee that the projects for which Euro Notes were raised were completed and the assessee had claimed deduction towards interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has not accrued/ crystallised during the year. The AO added back the said sum to the income of the assessee vide assessment order dated 23.02.2006 passed by the AO u/s 143(3) of the 1961 Act. 15. Aggrieved by the assessment order dated 23.02.2006 passed by the AO u/s 143(3), the assessee filed first appeal before Ld. CIT(A). The assessee submitted before learned CIT(A) that it has entered into wage agreement with the employees which is reviewed every four years. The last wage agreement signed by the assessee with employees expired during FY 2001-02 and the fresh agreement was under negotiation as on 31st March 2003. The assessee submitted that it is following mercantile system of accounting and in view of the generally accepted accounting practice of matching revenue with costs and by following mercantile system of accounting, a provision of ₹ 19,81,60,000/- were made in the books of the account on the basis of past experience and demand made by the employees during negotiations. It was submitted by the assessee that the provision for wages was made was for the services rendered by employees for the period ending up to 31st March 2003 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards revised wages keeping in view previous experience and demands raised by workers during negotiations. It is claimed that the assessee is following mercantile system of accounting and based on matching principles, wherein the costs are required to be matched with income, the assessee made aforesaid provision for wages. It is claimed that these wage provisions for wages are nothing but enhanced wages which the assessee will be required to pay to its employees for the year ended 31.03.2003 once revised wage settlement agreement with employees is signed to be effective from 01.01.2002. The assessee submitted that identical situation arose in AY 1999-00 when provisions for wages were made pending execution of revised wage settlement with the employees and the tribunal in assessee‟s own case for AY 1999-2000 was pleased to hold that these Provision for wages is an allowable business/revenue expenses. The said decision of ITAT for AY 1999-00 in assessee‟s own case in ITA no. 7485/Mum/2002 and 285/Mum/2003 vide common order dated 11.07.2006 is placed in paper book at page numbers 325-337 filed by the assessee with tribunal. The assessee relied upon the decision of Hon̶ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich aforesaid provision for wages for likely liability till 31.03.2003 was made for the year under consideration. This increased wages/salaries is infact a liability in praesenti and cannot be called as a contingent liability rather it is a crystallized liability payable by the assessee once revised wage settlement agreement is entered into with its employees/union rather only quantification is postponed. The assessee had made provision for wages/salary based on past experience as well demands raised by its employees while negotiations were going on. Similar situation arose in AY 1999-00 wherein the tribunal was pleased to allow claim of the assessee in ITA no. 7485/Mum/2002 and 285/Mum/2003 vide orders dated 11.07.2006, by holding as under : 12. The next ground of appeal (No.6) by the assessee is directed against the order of the C1T(A) in treating provision of ₹ 27,36,99,200/- for pending wage agreement as contingent liability and thereby disallowing it. 13. The case of the assessee is that CIT(A) failed to appreciate that the provision is not a contingent or future liability, The liability is in praesenti and certain liability, accrued du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 17. The learned counsel for the assessee also brought our attention to the paper book page 30, in the case of M/s.Tata Sons Vs. DCIT in ITA No.3624/Mum/1991, dated 21.01.2000, wherein similar claim was allowed by the Tribunal. Respectfully following the decision of the Hon'ble Supreme Court, we allow the claim of the assessee. There is no doubt the liability of the assessee is certain. Only the year of payment is subsequent. Hence, appeal by the assessee on this ground is allowed. It is not the case of the Revenue that the assessee has fraudulently inflated its claim by way of higher wages to defraud Revenue than what will be reasonably expected to emerge under the new revised wage settlement agreement which has to become effective from 01.01.2002. The assessee on its part has given a detailed computation of expected highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue, vide assessment order dated 23.02.2006 passed by the AO u/s 143(3) of the 1961 Act. 23. The matter reached Ld.CIT(A) at the behest of the assessee who allowed the claim of deduction u/s 80IA by considering other income‟ to the tune of ₹ 82,37,667/- with respect to sale of scrap and store from Jojobera 67.5 MW unit (division 12) while the rest of other income‟ to the tune of ₹ 1,40,331/- earned with respect of Jojobera unit was not allowed as deduction u/s 80IA by learned CIT(A). So far as other income‟ relating to Belgaum unit to the tune of ₹ 23,55,416/-, the entire amount was not considered by learned CIT(A) for allowing deduction u/s 80IA of the 1961 Act, which stood disallowed keeping in view that the same was in the nature of interest on staff loan and miscellaneous income details of which were not furnished by the assessee before learned CIT(A). It was held by Ld. CIT(A) that the said other income‟ cannot be considered to be derived from industrial undertaking as contemplated u/s. 80IA of the Act, vide appellate order dated 27.02.2009 passed by learned CIT(A). 24. Aggrieved by decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not challenged the same before ITAT. It was prayed that similarly income from sale of sludge be considered as derived from Belgaum unit and deduction u/s 80IA be allowed for which the AO can make verification. With respect to balance disallowance, it was claimed that interest was earned from advances to employees and staff. The assessee relied on the decision of Delhi ITAT in the case of Joyco India P Ltd. v ITO (2009) 122 TTJ 940(Del-trib.). 26. The Ld. DR on the other hand relied on the decision of lower authorities. 27. We have considered rival contention and perused the material on record including cited case laws. We have observed that the assessee has earned other income‟ to the tune of ₹ 1,40,331/- and Rs, 23,55,416/- in the case of Jojobera 67.5 MW unit and Belgaum 81.5MW unit respectively which was disallowed by learned CIT(A) on the grounds that the details have not been furnished by the assessee and also on ground that certain income arose from the advances given to the employees and staff which could not be considered as income derived from undertaking for allowing deduction u/s 80IA of the 1961 Act. Now the assessee has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee is aggrieved as in view of the assessee requirement to treat the undertaking as the only business of the assessee is from initial assessment year‟ and not from the year of commencement of generation/distribution of power despite provisions of Section 80IA(5) of the 1961 Act. It is observed that this issue had been adjudicated by tribunal in assessee‟s own case in ITA no. 3078/Mum/2009 for AY 2002-03 vide orders dated 19.05.2016 wherein tribunal vide detailed order to which both of us were part of the Division Bench who pronounced the aforesaid order dated 19.05.2016, wherein both these issues were decided by tribunal in favour of the assessee, by holding as under:- 10. We have heard the rival contentions, perused the material on record and also carefully gone through the case laws relied upon by both the parties. The power project generating undertaking Jojobera 67.5 MW unit commenced generation of power in the assessment year 1997-98. The said undertaking went into losses till the assessment year 2001-02 and the losses/depreciation of the said undertaking were adjusted and set off against the other business income in the earlier years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax-payer, he shall be entitled to claim deduction u/s 80IA of the Act for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, it was clarified by the CBDT that the term 'initial assessment year' would mean the first year opted for by the tax-payer for claiming deduction u/s 80-1A of the Act. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. Thus, the CBDT directed all the Assessing Officers concerned to allow deduction u/s. 80-IA of the Act in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s. 80IA of the Act shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section. In view of the said Circular, the claim of the Revenue is now not sustainable as the circular is bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years which are stated to be already adjusted against the business income of the earlier years and the said set off was also allowed by the Revenue in the preceding years. Our view is consistent with the view recently taken by Hon ble Madras High Court in the case of CIT v. G.R.T.Jewellers (India) in TCA no. 176 of 2016 vide judgment dated 01-03-2016 as under: The Revenue has come up with the above appeal raising the following substantial questions of law : (1) Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee is entitled to deduction under Section 80IA without setting off the losses/unabsorbed depreciation pertaining to the windmill, which were set off in the earlier year against other business income of the assessee following the decision of the jurisdictional High Court in the case of M/s.Velayudhaswamy Spinning Mills (340 ITR 477), when the same is pending appeal before the Supreme Court in SLP.Civil No.33475 of 2012 ? (2) Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . In the above Sub-Section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term initial assessment year . It has been represented that some Assessing Officers are interpreting the term initial assessment year as the year in which the eligible business/manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under Sub-Section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon ble Madras High Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT(2012) 340 ITR477(Mad.) has earlier held that there will be no adjustment of brought forward notional business losses/depreciation which has already been set off against other income of earlier years against the profit of the undertaking of the initial year chosen by the tax-payer for computing deduction u/s 80IA of the Act, while granting deduction u/s 80IA of the Act as under: 8. Heard the counsel appearing for the parties and perused the materials available on record. 9. On a perusal of the order of the Assessing Officer, it is seen that the eligible income for deduction under section 80-IA is worked out in all the cases as follows : Rs. Tax Case (Appeal) No. 909 of 2009 : Net income from Windmill Division 1 (2002-03) 1,70,76,945 Unabsorbed depreciation allowance assessment year 2003-04 8,26,84,110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. It is pertinent to note that the learned senior counsel appearing for the assessee invited the attention of this court to an unreported judgment of this court dated December 23, 2009, in Tax Case (Appeal) No. 298 of 2004 wherein, this court considered the similar substantial question of law, which reads as follows : Whether the Tribunal was right in holding that for the purpose of allowing deduction under section 80-I, the brought forward losses and unabsorbed depreciation, etc., of the new industrial undertaking need not be taken into consideration, once they have been set off against other sources of income, especially in view of the clear provisions of sub-section (6) of section 80-I, the application of which is mandatory ? 12. By following the various decisions of the apex court, this court, in paragraph 15 of the said judgment, has held as follows : The cumulative consideration of the principles set out in the above referred to decisions and the other factors involved in this case, wherein admittedly the entire depreciation allowance and development rebate for the past assessment years were fully set off against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -going vessels or other powered craft to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under subsection (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years 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. 14. From a reading of the above, it is clear that the benefit is given to the profits and gains derived from the business of the hotel or the business of repairs to ocean-going vessels or other powered craft. The deduction is allowed to the extent of 20 per cent from the profits and gains of the assessee. Sub-section (5) gives deduction for the period of seven assessment years immediately succeeding the initial assessment year. Sub-section (6) deals with computing the deduction under sub-section (1) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the gross total income of the assessee for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provision of this Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in the gross total income. Section 80AB defines gross total income which means the total income has to be computed in accordance with the Act before making deduction under this Chapter. Heading B deals with deductions in respect of certain payments which consists of sections 80C to 80GGC. Heading C deals with deductions in respect of certain incomes , which consists of sections 80H to 80TT. The last heading D deals with other deductions which consists of sections 80U to 80V. Heading C is relevant for considering the issue in these appeals. The relevant provisions that are to be considered are sections 80-I, 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) 73, the apex court considered the scope of sections 80-I, 80-IA and also section 80-IB of the Act, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection (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. 17. From a reading of sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years which were already set off against the income of the 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. 19. In the present cases, there is no dispute that losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee exercised the option under section 80-IA(2). In Tax Case Nos. 909 of 2009 as well as 940 of 2009, the assessment year was 2005-06 and in Tax Case No. 918 of 2008 the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or development rebate which needed to be absorbed against the income of the current year and, therefore, recomputation of income for the purpose of computing permissible deduction under section 80-I for the new industrial undertaking was not required in the present case. Accordingly, this appeal fails and is hereby dismissed with no order as to costs. 20. From a reading of the above, the Rajasthan High Court held that it is not at all required that losses or other deductions which have already been set off against the income of the previous year should be reopened again for computation of current income under section 80-I for the purpose of computing admissible deductions thereunder. We also agree with the same. We see no reason to take a different view. 21. The standing counsel appearing for the Revenue is unable to bring to our notice any relevant material or any compelling reason or any contra judgment of other courts to take a different view. He only relied heavily on the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1980, [1980] 123 ITR (St.) 154 to support this case and the same reads as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by that order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals). Before the appellate authorities also there is no dispute regarding the claim during the year. Line 3 in paragraph 2 of the order reads as follows : The appellant has claimed deduction under section 80-IA for the first time in the current year, namely, the assessment year 2004-05. 26. The Revenue has not filed an appeal against the order of the Commissioner of Income-tax (Appeals). It reached finality. Aggrieved by the order of the Commissioner of Income-tax (Appeals) regarding the quantum of deduction, the assessee filed an appeal before the Tribunal. In the assessee s appeal, the Revenue filed a letter first time before the Tribunal and disputed the fact relating to the assessee s claim that assessment year 2004-05 is the initial assessment year. The Tribunal found that both the Assessing Officer and the Commissioner of Income-tax (Appeals) had given categorical finding that the assessee claimed deduction for the first time during the year 2004-05 and paragraph 5 reads as follows : In the present case, there is a categorical finding by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal) Rules, 1963, which read as follows : 10. Filing of affidavits.-Where a fact which cannot be borne out by, or is contrary to, the record is alleged, it shall be stated clearly and concisely and supported by a duly sworn affidavit. 29. Production of additional evidence before the Tribunal.-The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced. These facts are contrary to the facts recorded by the Commissioner of Income-tax (Appeals) and the Assessing Officer. It cannot be considered. The above statement made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, we also answer questions Nos. 1 and 3 in favour of the assessee and against the Revenue. The tax case filed by the Revenue is dismissed. 28. In fine, Tax Case (Appeal) Nos. 909 and 940 of 2009, all the questions answered in favour of the assessee and against the Revenue and, hence, these appeals are allowed. 29. Under these circumstances, we confirm the order of the Tribunal and answer all the questions in favour of the assessee and against the Revenue in Tax Case (Appeal) No. 918 of 2008 and dismiss the appeal. Thus keeping in view judgment of the Hon ble Madras Court in the case of Velayudhaswamy Spinning Mills Private Limited v. ACIT(2012) 340 ITR477(Mad.), judgment of Hon ble Madras High Court in the case of CIT v. GRT Jewellers(India) (supra), CBDT Circular No. 01/2016 dated 15-02-2016, provisions of Section 80IA of the Act and as per discussions and reasoning as set out above, we have no hesitation in holding that the assessment year 2002-03 chosen by the assessee company shall be the initial Assessment year for the purposes of claiming deduction u/s 80IA of the Act, although the Jojobera 67.5MW unit started generati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 1,27,67,139/- on scrap sale before capital projects were installed, as revenue income instead of setting off such income against capital work-in-progress. The assessee had earned income during the previous year on its broadband project to the tune of ₹ 9,81,38,257/- as well income on the sale of scrap of the capital projects amounting to ₹ 1,27,67,139/-. The assessee did not offer the said income to tax. The assessee submitted before the AO that the said income on broadband project of ₹ 9,81,38,257/- represents income from providing broadband connectivity during trial runs wherein the said income was credited to capital work in progress. The assessee relied upon decision of Hon‟ble Supreme Court in the case of CIT v. Bokaro Steel Limited (236 ITR 315). The assessee had during the year ended 31st March 2003 had capitalized work in progress and claimed depreciation. Thus, the assessee reduced aforesaid incomes from the capital work in progress. The AO treated the said income from broadband project and also from sale of scrap of this project as revenue in nature and the same were added to the income of the assessee by the AO vide assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A no. 3228 and 3358/Ahd./2003 for AY 1999- 00, order dated 28.08.2009. The assessee also relied upon decision of Hon‟ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Limited reported in (2009) 315 ITR 255(Delhi). The assessee also relied upon decision of Ahmedabad tribunal in the case of Adani Power Limited v. ACIT reported in (2015) 155 ITD 239(Ahmedabad-tribunal). 32.We have considered rival contentions and perused the material on record including cited case laws. We have observed from the material on record that the assessee broadband unit was under trial run and the same was not installed, when income from said project under installation to the tune of ₹ 9,81,38,257/- arose to the assessee.Similarly, there were scrap generated prior to installation of the broadband project which generated income to the tune of ₹ 1,27,67,139/-. The assessee was setting up broadband project and the cost incurred towards the said project was capitalised. The assessee reduced both the aforesaid income from capital work in progress of the broadband project as these income arose prior to installation of the said broadband project. During the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion to this effect has taken place in the assessment order passed by the AO, vide appellate order dated 27.02.2009 by holding as under: 15 I have considered the above submissions very carefully and also gone through the case laws cited by the appellant. I find that the case laws cited by the appellant are distinguishable to the facts of the case of the appellant as the appellant has not claimed this amount in the return of income and no discussion to this effect has taken place in the assessment order. In view of the decision in Goetze India, I hold that such payment cannot be allowed as the same is not claimed in the return. Accordingly this ground of appeal is dismissed. 34. Now aggrieved by the appellate decision of learned CIT(A), the assessee has filed an appeal with tribunal. It was submitted by learned counse for the assessee that the payment were made to local schools schools at Khopoli, Tata Vidalaya at Bhivpuri Camp and Tata Vidyalaya at Bhira where the power units of the assessee are located in close vicinity. It is also claimed that children of the employees were also studying in these schools. It was submitted by learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us with the powers of the AO. The decision of Hon‟ble Bombay High court in the case of Pruthvi Brokers and Shareholders(supra) is relevant, wherein it is held by Hon‟ble Bombay High Court as under: 23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254. Thus, We are inclined to hereby admit this additional claim of the assessee towards deductions for making payment to local schools and then to restore this issue to the file of the AO for fresh adjudication on merits in accordance with law. The AO shall admit all additional evidences/explanations submitted by the assessee during denovo proceedings in connection therewit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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