TMI Blog2016 (11) TMI 1750X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax vs. Arihant Avenues Credit Ltd ( 2014 (10) TMI 790 - GUJARAT HIGH COURT ) relate to the facts where borrowed money without interest was given as interest free advance. In view of the above facts and findings, the ratio of the judgments quoted are not applicable to the facts of the assessee s case. We considered that the AO has passed the order without making inquiry and verification as to why no interest has been offered to tax on accrual years. Deduction claimed u/s. 80IA - We find that assessee has started to operate the eligible business from 12-03-2007 relevant to AY 2007-08 and assessee has not claimed any deduction u/s. 80IA of the Act before A.Y. 2010-11 when he has opted consequent ten years out of fifteen years for claim of deduction u/s. 80IA. These informations and facts are available in the assessment record of the assessee. We are not inclined to uphold the order of the Ld. Pr. Commissioner of Income Tax on the second issue regarding deduction u/s 80IA(5) of the act. Assessee s appeal is partly allowed. - Shri S.S. Godara, Judicial Member And Shri Amarjit Singh, Accountant Member For the Revenue : Shri Yogesh Pandey, CIT-D.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 263 of the act on 22/03/2016. The Ld. Pr. Commissioner of Income Tax held that the assessing officer had passed assessment order u/s. 143(3) of the act without making inquiries and verification in respect of the following two issues: (i) The assessee had accrued interest in come on deposit of Rs. 350 crores given to M/s. Sanman Holding Pvt. Ltd. which was not offered for taxation, although he is following mercantile system of accounting which was not verified or inquired into, while finalizing the assessment. (ii) The assessee had claimed deduction u/s. 80IA of the act which was allowed to him in respect of profit of an undertaking engaged in generation of power from wind mills. From the records, it was seen that the eligible undertaking had incurred losses and had unabsorbed depreciation, which was set off against the source of income of the relevant A.Y. sec. 80IA(5) of the Act, provides that profit and gain of an eligible business to be computed as it such business was the only source of income of the assessee for the purpose of determining quantum of deduction u/s. 80IA(1) of the act. Loss of the eligible undertaking of the assessee as incurred in the prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r immediately succeeding the initial assessment year or any subsequent 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. 6. Accordingly, the unabsorbed depreciation and loss of the eligible undertaking as incurred in the preceding assessment years but set off against other sources of income should have been notionally brought forward and set off against the profit of the eligible undertaking for the assessment year under consideration for working of deduction u/s 80IA of the Act. The AO allowed the deduction u/s 80IA of the Act, without making necessary verification in this regard. Thus the assessment order passed by the AO is erroneous and prejudice to the interest of the revenue. 7. The above facts show that the assessment order passed by the Assessing Officer in respect of AY 2011-12 appears to be erroneous and prejudicial to the interest of the revenue. Therefore, I intend to initiate proceedings u/s 263 of the I. T. Act and pass a suitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming deduction u/s. 80IA. The provisions of section 80IA(5) would be applicable from A.Y. 2011-2012 being the initial assessment year for making the claim of deduction u/s. 80IA of the act. There was no carry forward of unabsorbed depreciation or loss from the eligible business as on 01-04-2010, therefore, the assessee has rightly claimed and allowed the deduction u/s. 80IA of the Act. The assessee has placed reliance in the case of Velayudhaswamy Spinning Mills P. Ltd vs. ACIT (2012) 21 taxmann.com 95, Shevie Exports vs. JCIT (2013) 33 taxmann.com 446 (Mumbai-trib), ACIT v. Sterling Developers P. Ltd (2013) 32 taxmann.com 16 (Banglalore-trib), ACIT vs. Patnakar Wind Forms P. Ltd (2015) taxamann.com 178. The assessee has also submitted to the Pr CIT that the show cause notice issued was nothing but change of opinion. He laso placed reliance in the case of Parshuram Pottary Works Co. Ltd. vs. ITO (160 ITR 01) and also the decision of Hon ble S.C. in the case of Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax 243 ITR 83 Hon ble Gujarat High Court in the case of Commissioner of Income Tax vs. Arvind Jewellers (259 ITR 502). 7. The Ld. Pr. Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or benefit. In the second case, the hon ble High Court held that no addition for interest can be made where borrowed money without an interest was given as interest free advances. whereas in the case of the assessee he has given deposit in lieu of interest and had history of interest receipt but no interest was shown as accrued in the year under consideration despite the assessee has been following mercantile system of accounting. Thus, the assessee had accrued interest income on deposit of Rs. 350 crores given to M/s. Sanman Holding Pvt. Ltd. which was not verified or inquired into while finalizing the assessment. Therefore, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue. 8. Regarding the second issue it was stated by the Ld. Pr. Commissioner of Income Tax that unabsorbed depreciation and loss of the eligible undertaking of the assessee incurred in the preceding Assessment Year but set off against other source of income was required to be considered for determination of quantum of deduction u/s. 80IA(1) of the act but the Assessing Officer has passed the order allowing deduction u/s. 80IA of the act as claimed by the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly furnished with AO on 10.12.2013 vide para 13 page 195 to 200 has furnished the details called for. For ready reference copy of the notice, its reply and assessment order are attached at Page 6 to 12. 2 Claim of deduction u/s 80IA(5) of the Act. The AO vide para 9 of the notice u/s 142(1) dated 19.08.2013 had called for details of deduction claimed u/s 80IA with audit report in form 10 CCB. The appellant had furnished the same vide para 9 of reply dated 10.12.2013 stated above. 2 Claim of The AO vide para 9 of the notice deduction u/s 80IA(5) of the Act. u/s 142(1) dated 19.08.2013 had called for details of deduction claimed u/s 80IA with audit report in form 10 CCB. The appellant had furnished the same vide para 9 of reply dated 10.12.2013 stated above. 2. From the facts on record as stated above it is clear that the AO has, after making inquiry and considering the assessee's submission taken a view and allowed the deduction. As held in various decisions which spell out the parameters and limitations of section 263, the Ld. Pr. CIT was not justified cancelling the assessment u/s 263 and dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.2010 and Rs. 543 crores as on 31.03.2011 coupled with own capital of more than 25 crores which is not in dispute. Since the non interest bearing deposits are more than the amount advanced, the AO did not make any variation to the returned income on this aspect. ii) As regards taxing notional income, appellant submits that under the Income Tax Act, 1961 there is no such provision to charge income hypothetical^ or notionally. The theory of only real income is to be taxed is a settled law. iii) As regards the Id. Pr. CIT's apprehension that the appellant had to pay the tax on accrued interest and not on the notional interest. The contention of the Id. Pr. CIT seems incorrect because an income become accrued only when the same is receivable and credited to profit and loss account. Since the deposits with M/s Sanman Holding Pvt. Ltd became a part and parcel of M/s Tanti Holding PVT. Ltd w.e.f. 01.04.2010 where in the appellant is a director, it become business expediency and not interest bearing deposit. As such the same has not been accounted for as done in past. Needless to submit that each assessment year is different unit and hence the question to follow the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fying the quantum of deduction from the assessment year 2011-12. The record clearly shows that there was no carry forward of unabsorbed depreciation or loss from the eligible business as on 01.04.2010 and hence the assessee has rightly claimed and allowed the deduction u/s 80 IA of the Act. iii) The appellant in this regard relied on the decision of the Hon'ble High Court of Madras in the case of Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT [2012] 21 taxmann.com 95 (Mad) wherein it was 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 given in section 80 IA(5). However, Id. Pr. CIT did not accept the same on the ground that the same has not been accepted by the department and appeal to the Supreme Court is pending. Anyhow as on this date the said decision prevail and binding to all the lower authorities. iv) The Id. Pr. CIT's relied on the decision of Hyderabad Chemicals Supplies Ltd. Vs. ACIT [2011] 137 TTJ 732 and Pidilite Industries however did not consider the public circular No. 1 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterates that whether to claim deduction from the year in. which the operation has started or from any other year is the sole discretion of the assessee and the AO has no power whatsoever to interfere in this matter as this specific power, to choose any year as the initial year for claiming deduction u/s 80IA (5), has been conferred on the assessee by the act itself as also the clarificatory circular no. 1 of 2016 dated 15.02.2016 mentioned above. Since the AO has not .authority to disturb the above position as laid down by CBDT, Id. CIT also do not have such powers u/s 263 of the Act as well. 7.0 Hence, it would be against the provisions of law to set off the notional losses of the years in which the assessee has not claimed deduction u/s 80IA (5) firstly against the income of that year and then again against the income of the year in which the assessee has claimed deduction u/s 80IA (5). If such policies will be followed, the provisions of section 80IA(5) would become in fructuous, as the profits would get converted into the losses due to brought forward losses of the years, in which the deduction is not claimed u/s 80IA(5). 8.0 The appellant also submits that entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 261(1) was justified. 2. In respect of the claim of deduction u/s 80IA on account of profit from wind mill, the assessee has relied on the decision of Madras High Court in case of Velayudhaswamy Spinning Mills (P) Ltd Vs ACIT [2012) 21 taxmann.com 95(Mad). Pr.CIT has mentioned in his order u/s 263 that this order of Madras High Court has not been accepted by the department appeal has been filed against this order in Supreme Court. Hon'ble Gujarat High Court has held in case of CIT Vs M. M. Khambhatwala (198 ITR 144(GUJ)), that the Commissioner can exercise the power under section 263 even in a case where the issue is debatable. Revisional power under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 263(1), an order passed by the Assessing Officer without making inquiries or verification which should have been made, is an erroneous order. 11. We have heard both the sides and we have perused the material on record carefully. We have also gone through the assessment order passed by the A.O. u/s. 143(3) which is reproduced as under:- The return of income has been filed through e-filing on 29-09-2011 vide acknowledgement number 296488851290911 declaring income at Rs. 17,34,260/-. Subsequently, the return was selected for scrutiny; notice u/s. 143(2) 142(1) were issued on 18/09/2012 and duly served upon the assessee by RPAD. A further notice u/s. 142(1) along with a questionnaire was issued to the assessee on 19/08/2013 and duly served upon the assessee by RPAD. 2. In response to the said notices, Shri Mehul Ranpura, CA from J.C. Ranpura Co. attended on the behalf of the assessee and furnished the details called for. The case was discussed with him. The books of accounts were called for and verified on test check basis. 3. The assessee is engaged in the business of generation of electricity. 4. On verification of Profit Loss account, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 20 general question and noticed that the serial no. 13 relate to general question to furnish the details of interest received and interest paid. We have also gone through the assessee s claim that on 10-12-2013 vide para 13 page 195 to 200 the details were furnished to the Assessing Officer. In this connection, we have noticed that vide letter dated 10/12/2013 as per serial no. 13 the assessee had furnished the details of only the following interest income:- 1. Interest on I.T. Refund Rs. 1,20,320/- 2. Interest on MIS Rs. 24,000/- 3. Interest on Post Office Saving A/c Rs.1453/- 4. Interest on PPF Rs. 64089/- 5. Interest on FD Rs. 64637/- 6. Interest on Banks Rs. 4,51,478/- 13. We have seen that details regarding loans, advances or deposit was never furnished by the assessee nor inquired or verified by the Assessing Officer. The assessee has furnished the details of unsecured loans accepted and repaid during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial Assessment Year for claim of deduction u/s. 80IA of the Act. We find that there was no brought forward of loss or unabsorbed deprecation as on 01-04-2010 because of Assessment Year 2011-12 being the initial Assessment Year for claim of deduction u/s. 80IA of the act. The CBDT has also issued circular on. 1 of 2016 dated 15-02-2016 which provide liberty to the assessee to decide the first year from which it wants to claim deduction under section 80IA(5) of the act. The CBDT s circular is reproduced as under:- Clarification of the term 'initial assessment year' in section 80IA (5) of the Income-tax Act, 1961 Sub section 5 of section 801 A prescribes the manner of determining the quantum of deduction, wherein a reference has been made to the term 'initial assessment year'. It has been observed 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 choic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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