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TMI Blog2022 (6) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... of house property Allowed in order giving effect to CIT(A) order. Hence, does not survive. (v) Ground no. 8- Disallowances Allowed in order giving effect to CIT(A) order. Hence, does not survive. (vi) Ground No. 9- Long term capital loss In order u/s 154, AO has allowed. Hence, does not survive." 3. In the light of the aforesaid written letter of the Ld. Counsel Shri Hiro Rai and since there is no objection from the Department, the aforesaid grounds stand dismissed for the reasons given therein (supra). And the additional ground raised regarding allowability of deduction for payment of education cess having not been argued during the hearing stands dismissed. Therefore, now there are effectively three grounds of appeal remaining for our adjudication and the first ground of the appeal of the assessee reads as under: - "1 (a) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the Appellant's claim for deduction u/s 80-IA of Rs. 10,47,04,329/- (b) He failed to appreciate that in the assessment for A.Y. 1998-99 \ deduction under section 80-IA was not allowed to the Appellant on the ground that the eligible undertaking (Silvassa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to claim deduction u/s 80-IA for that year". And the AO noted that against such a decision of AO in Block assessment, the assessee company preferred an appeal before Ld. CIT(A) [ i.e, against the rejection of its claim u/s 80-IA for that year, i.e. A.Y 1999-2000] and the assessee company before Ld CIT(A) not only claimed that there was production during assessment year 1999-2000, but there was production even during the assessment year 1998-99 and produced before the Ld. CIT(A) the relevant excise records, etc to support such a claim. And the Ld. CIT(A) recorded all these submissions of assessee company in his Appellate order and concluded by giving remarking "It is clear that production took place. The Assessing Officer is therefore, directed to allow deduction as claimed" (bear in mind that the deduction claimed by assessee before Ld CIT(A) was for AY. 1999-2000). And the present AO notes that consequently, the CIT(A)'s order was given effect to and the claim u/s 80IA of the assessee for the assessment year 19992000 was allowed/restored. [In this context, it may be borne in mind that for the Assessment year 1998-99 wherein assessee didn't claim deduction u/s 80IA of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are necessary to understand the issue before us. He drew our attention to assessment order were the AO has discussed this issue from page 2, para 1 to page 13. The Ld. Counsel reminded us that the deduction u/s 80IA was available for a period of 10 years for the eligible unit commencing from the year in which manufacture or production commenced. The Ld. Counsel pointed out that AO has erroneously taken the view that the appellant had commenced production in this Unit at Silvassa in the AY 1998-99. Accordingly, he held that the year under appeal, ie AY 2008-09 being the 11th year, the deduction u/s 80IA is not available to the appellant. And the Ld. CIT(Appeals) has confirmed the erroneous view of the AO. 8. According to Ld. Counsel, in order to rightly appreciate the issue in hand it is very important to consider what happened in the AY 1998-99 (which according to present AO is the first year). It was brought to our notice that for the AY 1998-99, the appellant had claimed depreciation in respect of this Unit (Silvassa); and brought to our notice that deduction u/s 80IA of the Act had not been claimed by the assessee in respect of this Silvassa Unit. It was pointed out to us by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance 5 years. The Ld. Counsel also brought to our notice that in the case of the appellant, the commercial production had commenced in the AY 1999-2000 and the 5th year from this year would be AY 2003-04. And therefore, it can be seen that in respect of the assessment for the AY 2003-04, the deduction u/s 80IA in respect of this Silvassa Unit was allowed at 100%. The Ld. Counsel also drew our attention to page 102 of the Paper Book which is the relevant portion of the order for the AY 2003-04 and contended before us that if the first year were the AY 1998-99 as is being stated by the present AO, then the deduction u/s 80IA for the AY 2003-04 would have been at the rate of 30% and not 100%. According to Ld. Counsel, this order of AO for the AY 200304 is also final on this issue even as of today i.e. 5th year (100% deduction). Further, it was brought to our notice that thereafter it can be seen from assessment order for the AY 2004-05, (it being the 6th year) the deduction u/s 80IA was allowed by AO @ 30%. (Refer page 91 of the Paper Book). This order also according to Ld. Counsel is final. Further, even in the immediately preceding year, ie AY 2007-08, the assessment order s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 449. At page 451, wherein the Hon'ble Supreme Court has held as under: "While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, there is need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out." 12. Thereafter, the Ld. Counsel drew our attention to the reason attributed by the AO to hold that first year of manufacture of Silvassa Unit was AY. 1998-99 and not as claimed by the assessee as AY. 1999-2000. According to him, the AO had mis-directed himself by the event of search which took place in the case of the appellant on 16-12001 and consequent framing of the Block assessment order dated 28-2-2003, wherein the AO had held that the appellant had not commenced production even in the year subsequent to AY 1998-99, ie AY 1999-2000. He accordingly held that the said deduction u/s 80IA was not available even for the said AY 1999-2000 and took our attention to the query at page 42 of the Paper Book and his conclusion at page 46 of the Paper Book. However, it was pointed out to us that the appellant filed an appeal before the Ld CIT(Appeals) challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order and that the deduction u/s 80IA had neither been claimed nor allowed for the said AY 1998-99. According to Ld. Counsel, the position in law is very clear that for the purposes of Chapter VIA deductions, it is the commercial production and not trial-run/production which will determine the first year of the allowance of the claim. In this regard, he drew our attention to the decision of the Hon'ble Bombay High Court in, CIT v Hindustan Antibiotics Ltd., 93 ITR 548. Therefore, it was submitted by the Ld. Counsel that the present AO and learned CIT(Appeals) were unjustified in taking the view that the AY 2008-09 was the 11th year and accordingly, the claim for deduction u/s 80IA was not available. Therefore, according to Ld. Counsel, from the aforesaid facts discussed, this (AY. 2008-09) is the 10th year of commercial production and the deduction u/s 80IA is clearly allowable and we may allow it. 13. Per contra, the Ld. DR relying on the order of the Ld. CIT(A) contended that since the A.Y.2008-09 is the 11th year, the AO had rightly did not allow the claim of deduction u/s 80IA of the Act which has been confirmed by the Ld. CIT(A) which action of the Ld. CIT(A) does not requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in AY 1998-99 the assessee had started only trial run of production. So at this juncture one has to keep in mind that the Hon'ble Jurisdictional High Court in the case of Hindustan Antibiotic Ltd. (supra) held that it is the commercial production and not trial production which will determine the first year of allowance of claim of deduction under Chapter VIA of the Act. So on the aforesaid factual finding of AO and the assessee having not claimed for its Silvassa Unit deduction u/s 80IA of the Act the question of allowing the same doesn't arise. Further, it was also brought to our notice that the assessee for A.Y.1998-99 had claimed deduction u/s 80IA of the Act in respect of profits of its new unit (Thane) which was allowed @ to the tune of Rs.2,93,63,428/- which we note from perusal of the assessment order dated 30.10.1999 for A.Y.1998-99. Thus, we find that the assessee had neither claimed deduction u/s 80IA of the Act nor was allowed such a deduction in respect of its Silvassa Unit for A.Y. 1998-99 and the AO/Ld. CIT(A) erred in presuming so on the basis of mere observations of Ld. CIT(A)'s appellate order in respect of the block assessment order wherein the AO [in block asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in denying the claim of deduction u/s 80IA of the Act for A.Y.2008-09 and likewise the Ld. CIT(A) also erred in denying the claim of the assessee. Therefore, we are inclined to allow the claim of the assessee u/s 80IA of the Act and direct the AO to allow the claim. Ground no. 1 is allowed. 19. Coming to the ground no. 2 which reads as under: - "2. (a) The learned Commissioner of Income Tax (Appeals) erred in confirming the reallocation of various expenses on turnover basis (as against on actual basis and partly on turnover basis) and thereby confirming the recomputation of the profits of the eligible unit at Silvassa at the reduced amount of Rs.11,63,85,209/-. (b)The learned Commissioner of Income Tax (Appeals) failed to appreciate that profit and loss account alongwith detailed working showing the basis of allocation of various expenses were on record and that it was on the same basis as accepted in the earlier years. The learned Assessing Officer be directed to accept the computation of profits of the eligible unit at Silvassa as made by the Appellant and allow the deduction of Rs. 10,47,04,329/- u/s 80-IA." 20. The brief facts of the case as noted by the Ld. CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esser expenses to the Silvassa Unit, so as to increase the profits of the said Unit, so as to claim a higher deduction u/s 80IA of the Act. The Ld. Counsel drew our attention to the AO's discussion on this issue at page 24, para 4 to page 27 of the assessment order to show that the AO has allocated further expenses of over Rs. 20 crores to this Unit and accordingly, reduced the profits therefrom. In this regard, it was submitted by the Ld. Counsel that on this issue the relevant pages are page 115 to 142 of the Paper Book. He also drew our attention to page 27 of the assessment order, wherein computation of the total expenses were seen to be recorded at Rs.9,645.84 crores. Out of which, as per the assessee Rs.5,237.93 crores pertained to the non80IA Thane Unit and Rs.4,264.70 crores pertained to the 80IA Unit at Silvassa. According to Ld. Counsel, it is worth noting that these figures expenses works to 54.3% for the Thane Unit and 44% to the Silvassa Unit. According to him, these are in line with the turnovers of the respective Units at 55% and 45% respectively. According to him, it was unfortunate that, despite such detailed submissions and evidences furnished before him, the CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the salaries of the personnel who were engaged for the aforesaid said common jobs were allocated expenses proportionately as per the respective units turnover; and drew our attention to the fact that the Thane factory has 160 employee whereas Silvassa plant had only 55 numbers of employees and this was one of the reason why salary disbursement/expenses in respect of Thane factory was more. It was also brought to our notice that the Thane Plant (refer page no. 120 of the P.B.) mainly caters for lubes production and speciality production for export market. Whereas the Silvassa Plant mainly caters to speciality products for local market. It was brought to our notice that lube production process is more complex when compared to speciality production. Lubes also requires large packing material and hence more direct labour is involved in lube production in Thane than at Silvassa. It was also brought to our notice that the Silvassa is a new plant compared to Thane plant and was more automised. Hence staff and worker's strength is lesser at Silvassa unit and therefore salary expenses to the staff and workers are low at Silvassa compared to the factory at Thane because Thane is a bigger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of deduction u/s 80-IA of Rs.2,86,23,835/in respect of windmills installed at different locations. (b) He failed to appreciate that the provisions of section 80-IA(5) would apply to the losses pertaining to the first year of the claim (initial assessment year)and thereafter and not to the losses of earlier years when the appellant had not made claim for deduction in pursuance to the option available u/s 80-IA(2). The learned Assessing Officer be directed to allow deduction u/s 80-IA of Rs. 2,86,23,835/- in respect of the windmills installed at different locations." 26. The facts on this issue as noted by Ld. CIT(A) is as under: - "The second ground of appeal pertains to the disallowance of deduction u/s.801A(4)(iv) of the Act amounting to Rs.2,86,23,835/-. It is stated in the assessment order that the assessee claimed the deduction u/s.801A(4)(iv) of the Act in respect of the windmills installed at different locations namely Satara, Gojegaon-1 & 2 and Karnataka-1 @ 100% amounting to Rs.2,86,23,835/-. The A.O noted that the assessee claimed deduction u/s.801A(4)(iv) of the Act in respect of the four units separately in the year under consideration irrespective of the losse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Previous Year as per assessee's working in return 38,18,192 1,58,17,126 47,45,725 42,42,793 Eligible profits for the year 91,64,334 5,21,18,452 1,31,11,379 95,98,875 8.3 In view of the above, the AO held that there were no eligible profits to claim deduction u/s 80IA of the Act in respect of the four windmill units. Accordingly, the AO disallowed the claim of deduction u/s 80IA(4)(iv) of the Act amounting to Rs.2,86,23,835/-." 27. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved by the action of Ld. CIT(A), the assessee is before us. 28. Assailing the action of the AO in disallowing deduction u/s 80IA of the Act in respect of four (4) Windmill Units, the Ld. Counsel pointed out that the AO has erred in disallowing the same by taking note of irrelevant facts of the earlier years. According to him, the AO took note of the losses in earlier years which, though have been set off against other incomes have to be carried forward and set off before arriving at the profits from the said windmill units in the current year. The AO for doing so has relied upon the Section 80IA(5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86,23,835/- which was erroneously made by the AO which has been confirmed by the CIT(A). 30. Per contra, the Ld. DR relied on the order of the Ld. CIT(A) and the AO and submitted that when the losses are set off as per Section 80IA(5) of the Act, the four(4) windmills would no longer have profits, so no deduction u/s 80IA of the Act was available. So the AO and CIT(A) has rightly disallowed the claim of deduction. And therefore, he does not want us to interfere with the order of the Ld. CIT(A). 31. We have heard both the parties and perused the records. We note that the issue raised by assessee is against the order of the Ld. CIT(A) confirming the action of the AO denying the deduction u/s 80IA of the Act in respect of four (4) windmills by invoking the provisions of Section 80IA(5) of the Act. The assessee claimed deduction u/s 80IA of the Act on the profits earned by it for the business of generation of power by setting up of windmills. It was brought to the notice of the AO that the windmill depreciation u/s 80IA was claimed from A.Y.2007-08 and therefore it was pointed out that the provisions of Section 80IA(5) of the Act will apply from A.Y.2008-09 which is immediate subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the previous year' relevant to the initial assessment year and every subsequent assessment years. When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier 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 has 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 subsection 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." 9. The said judgment of the Madras High Court has been confirmed by the Apex Court, as such has attained finality. Even in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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