TMI Blog2021 (12) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... hich amount was advanced stands which is much more than the capital advance as discussed above and this fact is undisputed. Thus it can be safely be presumed that the amount has been advanced by the assessee out of its own fund without involving any borrowed fund. Accordingly, the question of making the disallowance of the proportionate amount of interest on such capital advance does not arise. Hence, we do not find any reason to interfere in the order of the learned CIT (A). Thus we uphold the same. Hence the ground of appeal of the revenue is dismissed. Deduction claimed under the provisions of section 80IA - Initial assessment year - whether the unabsorbed depreciation pertaining to the period prior to the initial assessment year should be first set off against the against the profit of the eligible undertaking for the year under consideration? - HELD THAT:- In the case on hand, the commercial activity started from the assessment year 2009-10. However, the assessee has not chosen the assessment year 2009-10 as the initial assessment year. As such the assessee has chosen the initial assessment year 2012-13 which is within the provisions of law. The issue with respect to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation thereon. To our understanding, the impugned expenses were not incurred by the assessee for the acquisition of the land rather cost was incurred for effective functioning of the windmills. Therefore, such cost was directly connected with the functioning of windmill. Thus there was commercial expediency to incur the expenses hence assessee was eligible to claim such expenses. However we find that the assessee instead of claiming such expenditure separately added the same to the cost of windmill and claiming depreciation on the same which was accepted in the earlier years.- Decided against revenue. - ITA No. 2127/AHD/2017 - - - Dated:- 23-12-2021 - Shri Rajpal Yadav, Vice President, And Shri Waseem Ahmed, Accountant Member For the Revenue : Shri D.B Gohil, Sr. D.R For the Assessee : Shri Manish Shah, A.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-2, Ahmedabad, dated 08/06/2016, arising in the matter of assessment order passed 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be necessary. 3. The 1st issue raised by the Revenue is that learned CIT (A) erred in deleting the addition made by the AO for ₹ 99,89,119/- under the provisions of section 14A read with rule 8D of Income Tax Rule. 4. The AO during the assessment proceedings found that the assessee has made investment in the shares which are capable of generating the exempted income. Accordingly the AO invoked the provisions of section 14A read with rule 8D of Income Tax Rule and made the disallowance as under: 1. Interest Expenses ₹ 83,89,119/- 2. Administrative Expenses ₹ 16,57,590/- 3. Total ₹ 99,89,119/- 4.1 The aforesaid amount was added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: Having considered the facts and following the decision taken in appellant s own case in the preceding years i.e A.Ys 2013-15 2012-13, the disallowance u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO for ₹ 2,00,910/- representing the amount of interest attributable on the amount diverted to non-commercial activities. 10. The AO during the assessment proceedings found that the assessee has diverted a sum of ₹ 1,16,35,975/- being capital advance towards the non-commercial activities. Thus the AO was of the view that the assessee on one hand has incurred interest expenses on the borrowed fund and on the other hand, it has advanced for capital assets without charging any interest thereon. Accordingly, the AO was of the view that the amount of interest attributable to such capital advance is not eligible for deduction. Thus the AO worked out the amount of interest at ₹ 2,00,910/- and added to the total income of the assessee. 11. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: It has also been noticed that during the year the appellant had much more interest free funds in the form of share capital and reserves and surplus as compared to the capital advances granted. In view of the above facts of the case and considering the fact that identical issue on similar lines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he initial assessment year which will be set off against the profit of non-eligible undertaking. 16.1 However, the AO disregarded the contention of the assessee by observing that the initial assessment year is 2009-10 as the commercial activity started in this year. The impugned unabsorbed loss pertains to the assessment year 2009-10 onward. Accordingly, the AO was of the view that such loss has to be set off against the profit of the eligible undertaking prior to claiming the deduction under section 80IA of the Act. Accordingly, the AO disallowed the deduction claimed by the assessee under section 80IA of the Act and added to the total income. 17. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing as under: 6.5. On a careful consideration of the entire facts of the case, it is noted that the issue whether the deduction under section 80IA of the Act is to be allowed without adjusting the notional brought forward losses and depreciation of earlier years is to be allowed or not, is almost legally settled now. It is noted from the perusal of various judicial pronouncements that the preponderant judicial op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has subsequently been followed by several other Courts and Tribunals. Even thereafter, the SLP filed by the revenue in the Honourable Supreme Court, has been dismissed by the Honourable Apex Court as reported in [2016] 76 Taxmann.com 176 (SC) dated 05/09/2016. For ready reference the head notes of the judgment of Honourable Supreme Court is reproduced as under:- Section 80IA of the Income - tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Assessment Years 2004-05 and 2005-06 -High Court by impugned order held that loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5) - Whether Special Leave Petition fifed against impugned order was to be dismissed - Held, yes [Para 2] [In favour of assessee]. 6.7. The basic principle that has been laid down by various courts is that there should be no carry forward loss pertaining to the eligible unit, if the losses of eligible unit had earlier been adjusted with the losses of other units prior to the initial assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as the judgment has been considered by honourable ITAT Ahmedabad and honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). In view of the above discussion, the disallowance of claim under section 80IA made by the AO on this ground is directed to be deleted, In other words, the appellant is found eligible for the deduction u/s. 80IA as claimed. 18. Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us. 19. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 20. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that it is the option of the assessee to choose the initial assessment year under the provisions of section 80IA (2) of the Act beginning from the year in which commercial production begins. 20.1 In the case on hand, the commercial activity started from the assessment year 2009-10. However, the assessee has not chosen the assessment year 2009-10 as the initial assessment year. As such the assessee has chosen the initial ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The provisions of subsection 5 of section 80IA of the Act provides that the deduction shall be computed treating the eligible undertaking as the only eligible source of business. Thus, the provision itself provides that the deduction shall be computed without setting off the unabsorbed depreciation of earlier year when undertaking was not eligible. Indeed, the unabsorbed depreciation pertains to the eligible undertaking for the period post commencement of the commercial activities but before the initial assessment year when the units becomes eligible for deduction. This controversy has been answered by the Hon ble Madras High Court in case of Velayudhaswamy Spining Mills (P.) Ltd vs. ACIT reported in 340 ITR 477 by observing as under: Under section 80-IA(1), deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised and if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation claimed by the assessee on the windmill was inclusive of the depreciation on the cost incurred by the assessee for keeping the land open/ vacant near the area where the windmill was located. As per the AO, such cost of ₹ 19.85 Lacs was incurred by the assessee in connection with the land which is not a depreciable assets. Thus, the AO disallowed the same and added to the total income of the assessee. 23. Aggrieved assessee preferred an appeal to the learned CIT (A) who allowed the depreciation claimed by the assessee after relying on the order of his predecessor and by observing as under: 2.4. Having considered the facts and submission, it has been noticed that the appellant company has purchased the wind mill in the month of March and claimed the depreciation @ 40% thereupon and the same included the payment made to Synefra Engineering and Construction Ltd. of ₹ 19,85,400/- for providing easy access and for keeping the land vacant surrounding the Wind Mill so that Wind Mill can work efficiently and generate maximum power of its capacity. Thus, it is apparent that the appellant has made the payment for obtaining the right to keep the land vacant surro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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