Swarnagiri Wire Insulations Pvt. Ltd.,, Hubli v. ITO, Hubli

ITA 200/BANG/2010 | 2006-2007
Pronouncement Date: 21-05-2010 | Result: Allowed

Appeal Details

RSA Number 20021114 RSA 2010
Bench Bangalore
Appeal Number ITA 200/BANG/2010
Duration Of Justice 2 month(s) 29 day(s)
Appellant Swarnagiri Wire Insulations Pvt. Ltd.,, Hubli
Respondent ITO, Hubli
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 21-05-2010
Assessment Year 2006-2007
Appeal Filed On 22-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY ACCOUNTANT MEMBER ITA NO.200/BANG/2010 ASSESSMENT YEAR : 2006-07 SWARNAGIRI WIRE INSULATIONS PVT. LTD. GOKULA ROAD INDUSTRIAL ESTATE HUBLI. : APPELLANT VS. THE INCOME TAX OFFICER WARD 3(1) HUBLI. : RESPONDENT APPELLANT BY : SHRI H.N. KHINCHA C.A. RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI ADDL. C IT(DR) O R D E R PER A. MOHAN ALANKAMONY ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER OF THE LD. CIT (A) HUBLI IN ITA NO:111/CIT(A) HBL/ 08-09 DATED: 15.1.2010 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE COMPANY (THE ASSESSEE IN SHORT) H AS RAISED THREE GROUNDS IN AN EXHAUSTIVE MANNER. ON A PERUSAL THE ESSENCE AND SUBSTANCE OF THE ASSESSEES GRIEVANCES ARE REFORMUL ATED AS UNDER: ITA NO.200/BANG/10 PAGE 2 OF 14 (I ) THE LD CIT (A) ERRED IN CONFIRMING THE AOS STA ND IN NOT ALLOWING THE SET OFF OF UNABSORBED DEPRECIATION ON WINDMILL AGAINST THE INCOME FROM MANUFACTURING BUSINESS; & (II) CHARGING OF INTEREST U/S 234B 234C AND 234D OF THE ACT. 3. THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURIN G OF SUPER ENAMELED COPPER WINDING WIRES BESIDES INSTALLING W INDMILL IN TAMILNADU. THE ISSUE IN BRIEF IS THAT DURING THE RELEVANT PE RIOD FOR THE ASSESSMENT YEAR 2005-06 THE ASSESSEE HAD PUT UP A WINDMILL FO R POWER GENERATION AT METRATHY OF COIMBATORE DISTRICT AT A COST OF RS.98. 4 LAKHS AND CLAIMED DEPRECIATION OF RS.39.36 LAKHS WHICH WAS NEGATED BY THE AO ON THE GROUND THAT THE WINDMILL WAS NOT INSTALLED DURING THE SAID AY. 3.1. DURING THE AY UNDER DISPUTE THE ASSE SSEE HAD FILED A REVISED STATEMENT OF INCOME CLAIMING INCOME FROM BUSINESS AT RS.60 00 829/- FROM WHICH DEDUCTED RS.73 20 339/- TOWARDS LOSS/DE PRECIATION FROM WINDMILL OPERATION. HOWEVER THE AO TOOK A STAND T HAT AS PER S.80IA(5) OF THE ACT THE PROFITS AND GAINS FROM MANUFACTURE OF SUPER ENAMELED COPPER WINDING WIRES WAS NOT ELIGIBLE BUSINESS ACTIVITY. T AKING CUE FROM THE FINDING OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT V. M.K.RAJU CONSULTANTS (P) LTD REPORTED IN (1999) 239 ITR 232 THE AO TOOK A VIEW THAT THE NON-TAXABLE INCOME U/S 80IA CANNOT BE SET OFF A GAINST NON-ELIGIBLE BUSINESS INCOME AND THUS THE LOSS/DEPRECIATION OF RS.73.2 LAKHS FROM WINDMILL WAS CARRIED FORWARD TO SUBSEQUENT YEAR TO SET OFF AGAINST THE ELIGIBLE INCOME OF THE ASSESSEE. ITA NO.200/BANG/10 PAGE 3 OF 14 4. AGGRIEVED THE ASSESSEE TOOK UP THE ISSUE WITH T HE LD. CIT (A) FOR REMEDY. AFTER GIVING DUE WEIGHT-AGE TO THE SUBMISS ION OF THE ASSESSEE AND ALSO EXTENSIVELY QUOTING THE RELEVANT PROVISION S OF THE ACT THE LD. CIT (A) HAS OBSERVED THUS 4.1.IT IS CLEAR FROM THE ABOVE PROVISIONS OF LA W [S.80IA(1)] THAT ONLY THE PROFITS AND GAINS DERIVED FROM ELIGI BLE BUSINESS REFERRED IN SUB-SECTION (4) OF S.80IA ARE ELIGIBLE FOR DEDUCTION U/S 80IA(1). THE APPELLANT CARRIES ON TWO BUSINESSES; ONE IS THE MFG. OF COPPER WIRES AND THE OTHER IS THE GENERATION OF POW ER THROUGH WINDMILL. THE SECOND CATEGORY OF BUSINESS I.E. TH E GENERATION OF POWER THROUGH WINDMILL FALLS WITHIN THE AMBIT OF S UB-SEC.(4) HENCE IS THE ONLY BUSINESS ACTIVITY WHICH IS ELIGIBLE FOR DEDUCTION AS PER THE PROVISIONS OF THIS SEC. THE OTHER CATEGORY OF BUS INESS I.E. MFG. OF COPPER WIFE IS NOT COVERED BY SUB-SEC.(4) HENCE IS OUTSIDE THE AMBIT OF ELIGIBLE BUSINESS. 4.2. S.80IA(5) DEALS WITH THE DETERMINATION OF QUANTUM O F DEDUCTION IN RESPECT OF SUCH ELIGIBLE BUSINESS REFE RRED IN S.80IA(1) AS DISCUSSED IN PARA 4.1 ABOVE. THE SUB-SEC.(5) TO S. 80IA STIPULATES AS UNDER: .. IT CLEARLY TRANSPIRES FROM THE ABOVE PROVISIONS OF LAW THAT FOR THE PURPOSE OF DETERMINING THE QUANTUM OF DEDUCTION REF ERRED IN SUB-SEC. (1) IN RESPECT OF AN ELIGIBLE BUSINESS THE COMPUTA TION WILL BE DONE AS IF SUCH ELIGIBLE BUSINESS IS THE ONLY SOURCE OF INC OME TO THE ASSESSEE IN ALL THE RELEVANT YEARS OF CLAIM COMMENCING FROM THE INITIAL AY. IT IS FURTHER SEEN FROM THE RELEVANT PROVISIONS OF LAW CITED ABOVE THAT SINCE SUB-SEC. (5) OF S.80IA STARTS WITH A NON OBS TANTE CLAUSE THE ITA NO.200/BANG/10 PAGE 4 OF 14 PROVISIONS CONTAINED THEREIN HAVE OVER-RIDING AFFE CT OVER THE OTHER PROVISIONS OF THE ACT. 4.3. IT THUS BECOMES CLEAR FROM THE RELEVANT PROVIS IONS OF LAW THAT DEDUCTION U/S 80IA IS ALLOWABLE TO AN UNDERTAKING O R AN ENTERPRISE CARRYING OUT AN ELIGIBLE BUSINESS AND NOT TO AN A SSESSEE. THE CARRIED FORWARD LOSSES OF THE ELIGIBLE BUSINESS ARE REQUIRED TO BE SET- OFF FIRST AGAINST THE INCOME OF THE SUBSEQUENT YEA RS OF THE ELIGIBLE BUSINESS WHILE DETERMINING THE PROFITS ELIGIBLE FOR DEDUCTION U/S 80IA. IN THE CASE OF THE PRESENT APPELLANT THE GENERATION OF POWER THROUGH WINDMILL ONLY IS THE ELIGIBLE BUSINESS THE PROFITS AND GAINS OF WHICH ARE ALLOWABLE DEDUCTIONS U/S 80IA (5) AFTER THE DE PRECIATION LOSS OF RS.7320339/- IS FULLY ABSORBED. THEREFORE THE CLA IM OF THE APPELLANT FOR SETTING OFF THE INCOME/LOSS DERIVED FROM POWER GENERATION BUSINESS THROUGH WINDMILL OF RS.7320339/- AS PER TH E REVISED COMPUTATION AGAINST THE PROFITS OF THE OTHER BUSINE SS ACTIVITY OF MFG. OF COPPER WIRES IS IN CONTRAVENTION TO THE SPECIFIC PROVISIONS OF S.80IA(5) OF THE ACT HENCE CLAIM IS NOT JUSTIFIED . IT IS ALSO RELEVANT TO MENTION THAT SINCE THE SPECIFIC PROVISIONS OF S.80I A(5) HAVE OVERRIDING AFFECT THE OTHER PROVISIONS OF LAW INCL UDING S.70 ON SET OFF OF UNABSORBED DEPRECIATION/BUSINESS LOSS RELIED UPO N BY THE APPELLANT IS NOT ATTRACTED IN THE CASE OF THE APPELLANT. THE CONTENTION OF THE APPELLANT THAT THE ONLY ELIGIBLE BUSINESS PROFITS A RE TO THE TUNE OF RS.5 51 755/- AS AGAINST THE DEPRECIATION AVAILABLE ON WINDMILL OF RS.78 72 091/- THEREFORE THERE REMAINS NO INCOME P ERTAINING TO ELIGIBLE BUSINESS FOR CLAIMING DEDUCTION U/S 80IA O F THE ACT AND IT IS BUT FOR THIS THE APPELLANT CLAIMED DEPRECIATION PE RTAINING TO WINDMILL AGAINST THE BUSINESS PROFITS OF MFG. ACTIVITY OF CO PPER WIRES AFTER SETTING OFF ELIGIBLE PROFITS OF RS.551755/-. THIS CONTENTION OF THE APPELLANT DOES NOT HAVE SUBSTANCE IN AS MUCH AS THA T S.80IA IS A SPECIFIC PROVISION RELATING TO CERTAIN DEDUCTIONS IN RESPECT OF ITA NO.200/BANG/10 PAGE 5 OF 14 INDUSTRIAL UNDER-TAKINGS OR ENTERPRISES ENGAGED IN INFRASTRUCTURE DEVELOPMENTS. S.80IA(5) MAKES IT AMPLY CLEAR THAT ONLY THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS QUALIFY FOR DEDU CTION U/S 80IA AND THE MANNER OF SUCH COMPUTATION AS PROVIDED U/S 80IA (5) ALSO STIPULATES THAT SUCH ACTIVITY OF ELIGIBLE BUSINESS WILL BE TREATED AS A SEPARATE BUSINESS ACTIVITY AS IF ASSESSEE WAS NOT C ARRYING ON ANY OTHER BUSINESS. IT IS ALSO CLEARLY PROVIDED IN THE LAW THAT THE DEDUCTION. U/S 80IA CAN BE CLAIMED ONLY AFTER THE D EPRECIATION FROM THE WINDMILL IS FULLY ABSORBED BY THE PROFITS DERIV ED FROM THE GENERATION OF ELECTRICITY THROUGH WINDMILL AS AN IN DEPENDENT BUSINESS PRESUMING THAT THERE DOES NOT EXISTS OTHER BUSINESS . THE CASE OF THE APPELLANT IS IN CONTRAVENTION TO THE PROVISIONS OF LAW IN AS MUCH AS FIRSTLY THAT THE APPELLANT HAS SET-OFF THE DEPRECI ATION LOSS/INCOME FROM POWER GENERATION BUSINESS AGAINST THE PROFITS OF MANUFACTURING OF COPPER WIRES AND SECONDLY THAT THE NON-TAXABLE INCOME U/S 80IA IS SET-OFF AGAINST NON-ELIGIBLE BUSINESS INCOME OF THE APPELLANT. THIRDLY THAT THE DEPRECIATION FROM WINDMILL HAS NOT GOT ABS ORBED FULLY AGAINST THE ELIGIBLE BUSINESS PROFITS. ALL THESE C UMULATIVE FACTORS ENTAIL THE APPELLANT DISQUALIFIED TO SET OFF OF SUC H LOSS AGAINST THE NON-ELIGIBLE BUSINESS PROFITS BEING IN CONTRAVENTIO N TO THE RELEVANT PROVISIONS OF LAW. THEREFORE THE ACTION OF THE AO TO ALLOW THE DEPRECIATION LOSS OF RS.73 20 339/- TO BE CARRIED F ORWARD FOR SET-OFF AGAINST THE ELIGIBLE BUSINESS AND BRINGING THE PROF ITS OF RS.6000829/- ATTRIBUTABLE TO THE REGULAR BUSINESS ACTIVITY OF MA NUFACTURING OF COPPER WIRES TO TAX IS JUSTIFIED 5. DISAPPOINTED WITH THE FINDING OF TH E LD. CIT (A) THE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. THE CONTENTION OF THE LD. A R WAS MORE OR LESS REVOLVED AROUND WHAT WAS SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY. IN FURTHERANCE IT WAS SUBMITTED THAT (I) THE AO HAD G ROSSLY ERRED IN NOT ALLOWING TO ITA NO.200/BANG/10 PAGE 6 OF 14 SET OFF OF UNABSORBED DEPRECATION ON WINDMILL OF RS .73.20 LAKHS AGAINST THE INCOME FROM MANUFACTURING BUSINESS THAT THE CIT(A) ALSO ERRED IN CONFIRMING THE DISALLOWANCE WITHOUT APPRECIATING THE FACTS; (II) T HE CIT (A) HAD ERRED IN NOT ALLOWING TO SET OFF OF THE UNABSORBED DEPRECIATION ON WIND MILL FROM THE NON- ELIGIBLE (U/S 80IA) BUSINESS PROFIT AMOUNTING TO RS .73.20 LAKHS; AND (III) THE AUTHORITIES BELOW HAVE NOT PROPERLY APPRECIATED THE FACTS OF THE CASE THAT (I) THAT UNABSORBED DEPRECIATION ON WINDMILL (ELIGIBLE BUSINESS) FOR DEDUCTION U/S 80IA IS SET OFF AGAINST INELIGIBLE BU SINESS INCOME DURING THE SAME YEAR; & (II) THAT THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 80I A AS THERE WAS NO POSITIVE INCOME PERTAINING TO WIND MILL ACTIVITY. IT WAS THEREFORE PLEADED THAT THE DISALLOWANCE OF RS.73 20 339/- REQUIRES TO BE DELETED. 5.1. ON THE OTHER HAND THE LD. D R CAME UP WITH A SPIRITED ARGUMENT THAT THE LD. CIT (A) HAD IN FACT GIVEN AN ELABORA TE FINDING COUPLED WITH THE BACKING OF THE RELEVANT PROVISIONS OF THE ACT TO JU STIFY THE ACTION OF THE AO AND THUS IT WAS CONTENDED THE FINDINGS OF THE AU THORITIES BELOW BE SUSTAINED. 6. WE HAVE METICULOUSLY CONSIDERED THE RIVAL SUBMIS SIONS PERUSED THE RELEVANT RECORDS DILIGENTLY AND ALSO THE PAPER BOOK [CONTAINING 1 66 PAGES] FURNISHED BY THE LD. A R DURING THE COURSE O F HEARING. 6.1. IT WAS A FACT THAT THE ASSESSEE WAS I N RECEIPT OF RS.5.51 LAKHS FROM THE TAMIL NADU POWER CORPORATION FOR THE SALE OF POWER FROM WINDMILL DURING THE AY UNDER DISPUTE. THE ASSESSEE HAD SET OFF THIS PROFIT AGAINST THE DEPRECIATION ON POWER WINDMILL AND AFTE R ADJUSTING THE SAME ITA NO.200/BANG/10 PAGE 7 OF 14 THE UNABSORBED DEPRECIATION REMAINS AT RS.73.20 LAK HS. IT WAS ALSO A FACT THAT THE ASSESSEE IN ITS ORIGINAL RETURN OF INCOME HAD SHOWN THE PROFITS FROM ITS BUSINESS ACTIVITIES AT RS.60 LAKHS AND AFTER CL AIMING DEPRECIATION OF RS.55.56 LAKHS FURNISHED A NIL INCOME. HOWEVER THE CLAIM OF DEPRECIATION FOR THE AY 05-06 WAS NEGATED BY THE AO ON THE GROUND THAT WINDMILL WAS NOT INSTALLED DURING THAT AY THE ASSE SSEE PERHAPS IN ITS REVISED COMPUTATION CLAIMED THE DEDUCTION OF DEPREC IATION ON WINDMILL OF RS.73.20 LAKHS AGAINST THE BUSINESS PROFITS OF RS. 60 LAKHS AND THE REMAINING BALANCE OF RS.13.19 LAKHS WAS CLAIMED AS CARRIED FORWARD TO THE NEXT AY. EVEN THEN THE TOTAL INCOME AS PER THE RE VISED STATEMENT OF INCOME WAS ARRIVED AT RS. NIL AND ALSO NO CLAIM AS REGARDS THE DEDUCTION U/S 80IA WAS MADE. 6.2. THE CRUX OF THE ISSUE NOW IS - WHETHER THE ACTION OF THE ASSESSEE HAS THE BACKING OF THE RELEVANT PROVISIONS OF THE A CT? LET US HAVE A GLIMPSE OF S. 80IA (1) WHICH CATEGORI CALLY STIPULATES THAT (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS REFERRED TO IN SUB-SECTION (4) (SUCH BUSINESS BEING HEREAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION OF AN AMOUNT EQUAL TO HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH BUSINESS FOR TEN CONSEC UTIVE ASSESSMENT YEARS. WHAT S.80IA (4) SAYS? (I) ANY ENTERPRISE CARRYING ON THE BUSINESS OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING OPERATING AND MAINTAINING ANY INFRASTRUCTURE FACILITY WHICH FULFILLS ALL THE FOLL OWING CONDITIONS NAMELY: - ITA NO.200/BANG/10 PAGE 8 OF 14 .. (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTR AL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUT ORY BODY FOR (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (II I) DEVELOPING OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY; .. (IV) AN UNDERTAKING WHICH - (A) IS SET UP IN ANY PART OF INDIA FOR THE GENERATI ON OR GENERATION AND DISTRIBUTION OF POWER IF IT BEGINS TO GENERATE POW ER AT ANY TIME DURING PERIOD BEGINNING ON THE 1 ST DAY OF APRIL 1993 AND ENDING ON THE 31 ST DAY OF MARCH 2010; 6.3. THUS IT IS ABUNDANTLY CLEAR THAT THE PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINESS REFERRED TO IN SUB-SECTION (4) OF S.80IA ARE ELIGIB LE FOR DEDUCTION U/S 80IA (1). IT WAS A FACT THAT THE ASS ESSEE WAS CARRYING ON TWO DIFFERENT DISTINCTIVE BUSINESSES NAMELY (I) MANUF ACTURE OF COPPER WIRES; & (II) GENERATION OF POWER THROUGH WINDMILL. THE SEC OND CATEGORY OF BUSINESS GENERATION OF POWER FALLS WITHIN REALM OF SUB-S EC. (4) AND THIS BUSINESS ACTIVITY WAS ELIGIBLE FOR DEDUCTION AS PER THE PROV ISIONS OF THIS SECTION. THE OTHER BUSINESS ACTIVITY OF THE ASSESSEE DOESNT FAL L WITHIN THE AMBIT OF SUB- SECTION (4) FOR BEING NOT ELIGIBLE BUSINESSES . 6.4. LET US NOW ANALYZE THE PROVISIONS O F S.80IA(5) WHICH DEAL WITH THE DETERMINATION OF QUANTUM OF DEDUCTION IN RESPEC T OF ELIGIBLE BUSINESS AS REFERRED IN S.80IA(1). ITA NO.200/BANG/10 PAGE 9 OF 14 S.80IA(5): NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE B USINESS 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 S UCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSE SSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YE AR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP-TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. 6.5. THUS FOR THE PURPOSE OF DETERMINI NG THE QUANTUM OF DEDUCTION AS REFERRED IN SUB-SEC.(1) TO S.80IA IN RESPECT OF AN ELIGIBLE BUSINESS THE COMPUTATION WILL HAVE TO BE DONE AS IF SUCH ELIGIBL E BUSINESS WAS THE ONLY SOURCE OF INCOME TO THE ASSESSEE IN ALL THE RELEVAN T YEARS OF CLAIM COMMENCING FROM THE INITIAL ASSESSMENT YEAR. ON A BROAD READING OF THE ACT IT MAY APPEAR THAT THE CARRIED FORWARD LOSS OF THE ELIGIBLE BUSINESS WERE REQUIRED TO BE SET OFF FIRST AGAINST THE INCOM E OF THE SUBSEQUENT YEARS OF ELIGIBLE BUSINESS WHILE DETERMINING THE PROFITS ELIGIBLE FOR DEDUCTION U/S. 80IA OF THE ACT AND SET OFF OF LOSSES FROM OTHER SO URCES UNDER THE SAME HEAD IS NOT PERMISSIBLE. HOWEVER IT SHOULD NOT BE FORGOTTEN THAT SECTION 80IA OF THE ACT IS A BENEFICIAL SECTION PERMITTING CERTAIN DEDUCTIONS IN RESPECT OF CERTAIN INCOME UNDER CHAPTER VIA OF THE ACT. A PROVISION GRANTING INCENTIVE FOR PROMOTION OF ECONOMIC GROWTH AND DEVELOPMENT IN TAXING STATUTES SHOULD BE LIBERALLY CONSTRUED AND R ESTRICTION PLACED ON IT BY WAY OF EXCEPTION SHOULD BE CONSTRUED IN A REASONAB LE AND PURPOSIVE MANNER SO AS TO ADVANCE THE OBJECTS OF THE PROVISIO N. IT IS A GENERALLY ITA NO.200/BANG/10 PAGE 10 OF 14 ACCEPTED PRINCIPLE THAT THE DEEMING PROVISION OF A PARTICULAR SECTION CANNOT BE BREATHED INTO ANOTHER SECTION. THEREFORE THE D EEMING PROVISION CONTAINED IN SECTION 80IA(5) CANNOT OVERRIDE THE SE CTION 70(1) OF THE ACT. CIT(A)S OBSERVATION ON THIS REGARD THAT THE SPECIF IC PROVISIONS OF SECTION 80IA(5) HAVE OVERRIDING EFFECT IS NOT ACCEPTABLE. IN THE GIVEN CASE THE ASSESSEE INCURS LOSS AFTER CLAIMING ELIGIBLE DEPREC IATION. HENCE SECTION 80IA BECOMES INSIGNIFICANT SINCE THERE IS NO PROFI T FROM WHICH THIS DEDUCTION CAN BE CLAIMED. AT THIS STAGE SECTION 7 0(I) COMES TO THE RESCUE OF THE ASSESSEE WHEREBY HE IS ENTITLED TO SET OFF THE LOSSES FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME. HOWEVER ONCE A SET OFF IS ALLOWED U/S. 70 (1) FROM THE INCOME ON ANOTHER SOURCE UNDER THE SAME HEAD ANOTHER DEDUCTI ON ON THE SAME COUNT IS NOT PERMISSIBLE I.E. DURING THE SUBSEQUEN T YEARS IF THE ASSESSEE MAKES SURPLUS PROFITS AFTER CLAIMING ELIGIBLE ALLOW ANCES AND IS ENTITLED TO CLAIM DEDUCTION U/S. 80IA THE EARLIER BENEFIT GIVE N UNDER OTHER SECTIONS OF THE ACT SHOULD BE TAKEN INTO ACCOUNT BEFORE GRANTIN G DEDUCTION U/S. 80IA. WE HERE BELOW BRING OUT THE FOLLOWING ILLUSTRATION TO EXPLAIN THE APPLICABILITY OF SECTION 80IA. 6.6 LET US PRESUME THAT THE ASSESSEE HAS TWO BUSIN ESS OF WHICH ONE IS ELIGIBLE U/S. 80IA OF THE ACT AND THE FINANCIAL RES ULTS ARE AS FOLLOWS FOR THE VARIOUS PREVIOUS YEARS. --------------------------------------------------- ----------------------- PREVIOUS ELIGIBLE INELIGIBLE YEAR BUSINESS BUSINESS U/S. 80IA U/S. 80IA --------------------------------------------------- ----------------------- 2004-05 (-) 1 00 000 2 40 000 2005-06 60 000 2 80 000 2006-07 1 20 000 2 00 000 --------------------------------------------------- ----------------------- ITA NO.200/BANG/10 PAGE 11 OF 14 6.7 IN THE PREVIOUS YEAR 2004-05 THERE IS A LOSS OF RS.1 00 000 AFTER CLAIMING DEPRECIATION ALLOWANCE FOR THE ELIGIBLE BU SINESS U/S. 80IA. THEREFORE SECTION 80IA BECOMES INSIGNIFICANT FOR CL AIMING DEDUCTION. HOWEVER SINCE THE ASSESSEE HAS DERIVED A PROFIT OF RS.2 40 000 FROM A DIFFERENT SOURCE UNDER THE SAME HEAD OF INCOME THE ASSESSEE BECOMES ELIGIBLE TO SET OFF THE LOSS OF RS.1 00 000 AS PER SECTION 70(1) OF THE ACT. THUS THE INCOME CHARGEABLE TO TAX FOR THE PREVIOUS YEAR 2004-05 WILL BE RS.1 40 000 (2 40 000 1 00 000). 6.8 IN THE PREVIOUS YEAR 2005-06 THERE IS A PROFI T OF RS.60 000 FROM THE ELIGIBLE BUSINESS OF THE ASSESSEE U/S. 80IA. HOWEV ER ON THIS YEAR ALSO NO DEDUCTION U/S. 80IA IS ALLOWABLE BECAUSE FOR THE PU RPOSE OF DEDUCTION IT IS ASSUMED THAT SUCH BUSINESS IS THE ONLY SOURCE OF IN COME OF THE ASSESSEE AND NOTIONAL BROUGHT FORWARD LOSS (SINCE THE ASSESS EE HAD ALREADY SET OFF RS.1 00 000 U/S. 70(1) OF THE ACT DURING THE EARLIE R PREVIOUS YEAR) IS TO BE SET OFF UNDER THE SAME SOURCE BEFORE ALLOWING DEDUC TION U/S. 80IA OF THE ACT. THUS THE BALANCE NOTIONAL LOSS OF RS.40 000 (1 00 000 60 000) WILL BE CARRIED FORWARD TO THE NEXT PREVIOUS YEAR. 6.9 IN THE PREVIOUS YEAR 2006-07 THE PROFIT OF ELI GIBLE BUSINESS IS RS.1 20 000 AND THE CARRY FORWARD OF NOTIONAL LOSS OF RS.40 000 THEREFORE THE DEDUCTION U/S. 80IA WILL BE ALLOWED AT 100% I.E . ON RS.80 000 (1 20 000 40 000). THE TOTAL INCOME OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 2007-08 WILL BE COMPUTED AS UNDER: ITA NO.200/BANG/10 PAGE 12 OF 14 INCOME FROM ELIGIBLE BUSINESS U/S. 80IA 1 20 000 INCOME FROM INELIGIBLE BUSINESS U/S. 80IA 2 00 00 0 ------------- GROSS TOTAL INCOME 3 20 000 LESS: DEDUCTION U/S. 80IA 80 000 ------------- TOTAL INCOME 2 40 000 ------------- 6.10 IN THE CASE ON HAND THE ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION ON WINDMILL BUSINESS AS PER I.T. ACT AT RS.78 72 09 4. THE ASSESSEE HAS GENERATED INCOME FROM WINDMILL BUSINESS FOR RS.5 51 755. THUS THE LOSS ON ACCOUNT OF WINDMILL BUSINESS AMOUNTS TO RS.73 20 339. SINCE THERE IS A LOSS FOR THE PREVIOUS YEAR DEDUCTION U/S. 80IA DOE S NOT ARISE. HOWEVER AS PER SECTION 70(1) THE ASSESSEE IS ELIGIBLE TO SET OFF THIS LOSS OF RS.73 20 339 (5 51 755 78 72 094) FROM ANOTHER SO URCE UNDER THE SAME HEAD OF INCOME. HOWEVER DURING THE SUBSEQUENT ASS ESSMENT YEAR THIS LOSS HAS TO BE NOTIONALLY CARRIED FORWARD UNDER THE SAME SOURCE AND SET OFF BEFORE CLAIMING DEDUCTION U/S. 80IA OF THE ACT. ACCORDINGLY WE HEREBY DIRECT THE AO TO SET OFF THE LOSS OF THE ASSESSEE O N WINDMILL OPERATIONS FROM THE OTHER SOURCE UNDER THE SAME HEA D OF INCOME . 7. BEFORE PARTING WITH THE ISSUE WE WOULD LI KE POINT OUT THAT WE HAVE CAREFULLY PERUSED THE RULING OF THE HONBLE HIGH CO URT OF MADRAS REFERRED SUPRA ON WHICH THE AO HAS PLACED STRONG RELIANCE TO DRIVE HOME HIS POINT. THE HONBLE COURT HAD AFTER DULY DELIBERATING TH E ISSUE BRIEFLY OBSERVED THUS IN THE CASE OF THE ASSESSEE THE FEE THAT IT HAD R ECEIVED FROM ABROAD CONSTITUTED ITS GROSS RECEIPTS FROM FEES AND THE 'I NCOME' FROM FEES ITA NO.200/BANG/10 PAGE 13 OF 14 WAS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT FOR DEDUCTING FROM THE GROSS RECEIPTS SUCH AM OUNTS AS WERE REQUIRED TO BE DEDUCTED UNDER THE PROVISIONS OF THE ACT AND IT WOULD ONLY BE THE AMOUNT SO DETERMINED THAT WOULD CONSTIT UTE INCOME FROM FEES FOR THE PURPOSE OF SECTION 80-O OF THE ACT. UNLIKE SECTIONS 80M AND 80T SECTION 80-O OF THE AC T USES THE EXPRESSION 'WHOLE OF THE INCOME'. THOUGH THE WORD ' WHOLE' APPARENTLY CONVEYS AN INTENTION THAT THE ENTIRE AMO UNT IS TO BE DEDUCTED HAVING REGARD TO THE LEGISLATIVE HISTORY OF THE SECTION IT IS CLEAR THAT THE TERM 'WHOLE' WAS MEANT TO DENOTE 100 PER CENT. AS PRIOR TO ITS AMENDMENT IN 1972 IT PROVIDED ONLY FOR 60 PER CENT. (SIC) OF THE INCOME BEING DEDUCTED AND AFTER THE FURTHER AMENDMENTS EFFECTED IN THE YEAR 1984 THE DEDUCTION WAS LIMITE D TO 50 PER CENT. THE 'INCOME' REFERRED TO IN THIS SECTION IS THE INC OME COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. THE TRIBUNAL WAS THEREFORE CLEARLY IN ERROR IN HO LDING THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION OF THE GROSS AMOUNT OF THE FEES RECEIVED BY IT FOR THE WORK DONE BY IT ABROAD UNDER SECTION 80-O OF THE ACT AND IN FURTHER DIRECTING THAT THE AMOUNTS CLAIMED AS UNABSORBED DEPRECIATION RELATING TO THE ASSESSMENT YEARS 1977-78 AND 1978-79 WERE REQUIRED TO BE CARRIED FORWARD. TH E INCOME-TAX OFFICER HAD PROPERLY COMPUTED THE INCOME BY WAY OF FEES AND IN FINDING THAT AFTER MAKING THE DEDUCTIONS REQUIRED T O BE MADE UNDER THE PROVISIONS OF THE ACT THE AMOUNT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-O OF THE ACT WAS 'NIL'. HE HAD ALSO RIGH TLY DEDUCTED THE AMOUNT OF THE BUSINESS LOSS OF EARLIER YEARS AND UN ABSORBED DEPRECIATION FROM THE GROSS TOTAL INCOME OF THE ASS ESSEE AND HAD FOUND THAT THE ASSESSEE HAD AFTER MAKING ALL SUCH DEDUCTIONS A TAXABLE INCOME OF RS. 67 625. ITA NO.200/BANG/10 PAGE 14 OF 14 WITH DUE REGARDS WE ARE OF THE VIEW THAT THE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT APPLICABLE TO THE CASE ON HAND. 8. THE NEXT GRIEVANCE OF THE ASSESSEE IS T HE CHARGING OF INTEREST U/S 234B AND U/S 234C OF THE ACT. THIS GROUND OF THE A SSESSEE IS NOT MAINTAINABLE AS CHARGING OF INTEREST U/S 234B AND 2 34C OF THE ACT IS MANDATORY AND CONSEQUENTIAL IN NATURE. WITH REGARD TO THE CHARGING OF INTEREST U/S 234D OF THE ACT WE WOULD LIKE TO POIN T OUT THAT THE LEVY OF INTEREST U/S 234D IS PURELY A LEGAL GROUND AND IS C HARGEABLE FOLLOWING THE ORDER OF THE HONBLE ITAT DELHI E SPECIAL BENCH IN ITO V. EKTA PROMOTERS P. LTD. (2008) 113 ITD 719. 9. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MAY 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 21 ST MAY 2010. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.