Padmawati Wind Energy P.Ltd., v. ACIT,

ITA 618/PUN/2008 | 2003-2004
Pronouncement Date: 29-10-2010 | Result: Allowed

Appeal Details

RSA Number 61824514 RSA 2008
Assessee PAN AAFCS1437B
Bench Pune
Appeal Number ITA 618/PUN/2008
Duration Of Justice 2 year(s) 5 month(s) 20 day(s)
Appellant Padmawati Wind Energy P.Ltd.,
Respondent ACIT,
Appeal Type Income Tax Appeal
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 29-10-2010
Assessment Year 2003-2004
Appeal Filed On 09-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 618/PN/2008 (ASSESSMENT YEAR: 2003-04) PADMAVATI WIND ENERGY P. LTD. ACIT SHIKKA MANSION PATAN SATARA CIRCLE SATARA VS. SATARA PAN NO. AAFCS1437B APPELLANT RESPONDENT APPELLANT BY: SHRI M.K. KULKARNI RESPONDENT BY: SHRI HARESHWAR SHARMA O R D E R PER B. RAMAKOTAIAH A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT-III PUNE U/S. 263 OF THE INCOME TAX ACT 1961 WHEREIN THE CI T HAS INVOKED POWERS U/S 263 TO EXAMINE THE ISSUES AND GAVE DIRECTIONS TO TH E A.O WHICH WAS SUBJECT MATTER OF THIS APPEAL. THE ASSESSEE HAS RAISED FIVE GROUNDS WITHOUT PREJUDICE TO EACH OTHER WHICH ARE AS UNDER:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT-III PUNE WAS NOT JUSTIFIED IN INVOKING THE PRO VISIONS OF S. 263 OF THE ACT TO WITHDRAW THE DEDUCTION CLAIMED U/S. 80-I A OF THE ACT HOLDING THE ASSESSMENT ORDER OF THE A.O. AS ERRONEO US AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE OR DER PASSED U/S. 263 BEING ILLEGAL BE QUASHED. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW WHEN TWO VIEWS WERE AVAILABLE ON THE BASIS OF SETTLED LA W WERE AVAILABLE AND THE A.O. HAS FOLLOWED ONE OF THEM THEN THE ASSE SSMENT ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE SO AS TO INVOKE THE PROVISIONS OF S. 263 OF THE ACT. IN VIEW OF THE HONBLE SUPREME COURT JUDGEMENT THE ORDER OF TH E CIT-III PUNE IS VITIATED IN LAW AND IT BE CANCELLED. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE INITIAL ASSESSMENT YEAR WAS THE YEAR UNDER APPEAL W HEN FOR THE FIRST TIME DEDUCTION U/S. 80-IA WAS CLAIMED AND THEREFORE THE PROVISIONS OF S. 80-IA(5) R.W.S. 80-IA(1) WERE NOT APPLICABLE F OR THE EARLIER ASSESSMENT YEARS AND THERE WAS NO QUESTION OF NOTIO NALLY CARRYING FORWARD ANY LOSS OR UNABSORBED DEPRECIATION FROM TH ESE YEARS. IN VIEW OF THIS THE A.O. HAS PASSING HIS ASSESSMENT OR DER GRANTING DEDUCTION OF RS. 37 41 304/- U/S. 8-IA WHICH IS NOT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. ITA NO. 618/PN/2008 A.Y 2003-04 2 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT-III PUNE OUGHT TO HAVE PASSED A SPEAKING ORDER BY DEMONSTRATING HOW THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S. 80-IA(4)(IV)(A) OF THE ACT. THE ORDER U/S. 263 BEING U NSUSTAINABLE BE CANCELLED. 5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW LD. CIT-III PUNE WAS NOT JUSTIFIED IN HOLDING THAT THE N A.O ERRED IN NOT COMPUTING THE ASSESSEES INCOME AS PER THE PROVISIO NS OF S. 115-JB OF THE ACT. THE PROVISIONS OF S. 115-JB WERE NOT AP PLICABLE TO THE FACTS OF THE CASE AND THEREFORE IT CANNOT BE SAID THAT THE A.OS ORDER NOT APPLYING THE PROVISIONS OF S. 115-JB OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE DIRECTIONS OF THE CIT-III PUNE BE QUASHED. 2. BRIEFLY STATED THE ASSESSEE IS A DOMESTIC COMPA NY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTERESTED. IT IN THE BUSINESS O F WIND POWER GENERATION DEALING IN LAND PURCHASES AND SALE & LAND DEVELOPME NT. FOR A.Y 2003-04 THE ASSESSEE DECLARED NIL INCOME ON 28/11/2003 WHICH W AS SELECTED FOR SCRUTINY. VIDE THE ORDERS U/S. 143(3) DATED 21/10/2005 THE AS SESSMENT WAS COMPLETED BY MAKING CERTAIN DISALLOWANCES TOTALLING TO RS. 1 67 953/- WHICH WAS TREATED AS TOTAL INCOME BY THE A.O. THE CIT AFTER EXAMINING THE RECORDS AND THE ORDER U/S. 143(3) HAS INVOKED THE PROVISIONS OF SEC. 263 AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE ON THE ISSUE THAT A.O HAS NO T APPRECIATED THE PROVISIONS OF SEC. 80IA(5) IN NOT CONSIDERING THE LOSSES INCUR RED BY THE UNIT ELIGIBLE FOR THE DEDUCTION U/S. 80IA AND ALSO ON ALTERNATE REASON THAT THE PROVISIO NS OF SEC. 115JB HAS NOT BEEN CONSIDERED WHILE COMPLETING THE ASSESSMENT. IN RESPONSE THE ASSESSEES AR APPEARED AND MADE SUBMISSIONS THAT THE ASSESSEE IS IN WIND MILL BUSINESS AND IS ELIGIBLE FOR DEDUCTION U/ S. 80IA AND DEDUCTION WAS CLAIMED ONLY IN A.Y 2003-04 FOR THE FIRST TIME BEIN G THE INITIAL ASSESSMENT YEAR AND ACCORDINGLY THE LOSSES INCURRED IN EARLIER YEAR COULD NOT BE CONSIDERED. FOR THIS HE RELIED ON THE DECISION OF THE ITAT CHENNAI BENCH IN THE CASE OF MOHAN BREWERIES AND DISTILLERIES LTD. VS. ACIT [2008] 3 D TR 477. IT WAS FURTHER SUBMITTED THE SAME PRINCIPLE WAS UPHELD IN THE CASE OF VELAYU DHASWAMY SPINNING MILLS (P) LTD. V. ACIT (2010) 38 DTR 57. WITH REFERENCE TO THE ISSUE OF 115JB IT WAS SUBMITTED THAT THE ASSESSEE HAS NO BUSINESS LOSS AS IT WAS SET OFF AND CONSEQUENTLY THE COMPUTATION MECHANISM PROVIDED IN SEC. 115JB WOULD NOT APPLY. EVEN OTHERWISE SEC. 115JB WOULD NO T APPLY TO COMPANY ENGAGED IN THE BUSINESS OF GENERATION OR DISTRIBUT ION OF ELECTRICITY. ACCORDINGLY ASSESSEE IS NOT COVERED BY SEC. 115JB AS WELL. THE CIT DID NOT AGREE WITH THE CONTENTIONS AND INVOKING THE SUBSECT ION (2) OF 80IA REDUCED THE UNABSORBED DEPRECIATION AND ACCORDINGLY THE CLAIM M ADE BY THE ASSESSEE AT ITA NO. 618/PN/2008 A.Y 2003-04 3 RS. 37 41 304/- HAS BEEN DIRECTED TO BE WITHDRAWN V IDE PARA 5.5 OF THE ORDER. WITH REFERENCE TO THE ARGUMENTS AND APPLICABILITY O F SEC. 115JB THE CIT RELIED ON THE STATUTORY AUDIT REPORT FOR A.Y 2002-03 AND C AME TO THE CONCLUSION THAT THE PROVISIONS OF SEC. 115JB ARE APPLICABLE AND ACC ORDINGLY HE DIRECTED THE A.O TO CONSIDER THE PROVISIONS OF SEC. 115JB IF WARRAN TED AS PER THE REGULAR PROVISIONS OF THE ACT FALLS SHORT OF THE TAX PAYABL E AS PER SEC. 115JB. HE DIRECTED THE A.O ACCORDINGLY TO GIVE EFFECT TO THE ORDER. 3. CONTESTING THE ACTION OF THE CIT THE LD. C OUNSEL MADE DETAILED WRITTEN SUBMISSIONS AND MADE ARGUMENTS AND FILED A PAPER BO OK. ARGUMENTS AND SYNOPSIS OF JUDGEMENTS WHICH WERE RELIED UPON DURING THE COURSE OF ARGUMENTS CAN BE SUMMARISED IN THAT THE ASSESSEE HAS AN OPTIO N TO CLAIM DEDUCTION U/S. 80IA AND A.Y 2003-04 WAS THE FIRST YEAR IN WHICH TH E ASSESSEE CHOOSES TO CLAIM DEDUCTION AND ACCORDINGLY IT HAS OPTION TO WORK OUT THE DEDUCTION ON THE PROFITS DERIVED DURING THIS YEAR AND THE LOSSES AND DEPRECIATION CARRIED FORWARD OF EARLIER YEARS NEED NOT TO BE SET OFF. FOLLOWING THE JUDGEMENT OF HONBLE ITAT CHENNAI BENCH IN THE CASE OF MOHAN BREWERIES AND DI STILLERIES LTD. VS. ACIT [2008] 3 DTR 477 WHICH IS IN FACT APPROVED BY THE JU DGEMENT OF MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. V. ACIT (2010) 38 DTR 57. IT IS ALSO SUBMITTED THAT THE SPECIAL BENCH JUDGEMENT IN THE CASE OF ACIT VS. GOLDMINE SHARES AND FINANCE (P) LTD. (2008 )116 TTJ (AHD) (SB) 705 WAS HELD TO BE ON THE PROVISIONS PRIOR TO AMENDMENT BY FINANCE ACT 1999 AND WAS NOT APPLICABLE W.E.F 01/04/2000. THIS PRINC IPLE WAS SUPPORTED BY THE JUDGEMENT OF THE RAJASTHAN HIGH COURT IN CIT VS. MEWA R OIL & GENERAL MILLS LTD.(2004) 271 ITR 311 (RAJ). WITH REFERENCE TO THE PROVISIONS OF SEC. 115JB IT WAS SUBMITTED THAT ASSESSEE BEING IN THE POWER GENE RATION THE PROVISIONS ALLOW THE INCOME FROM POWER GENERATION ETC AS DEDU CTION 80IA AND ACCORDINGLY THERE IS NO NEED TO INVOKE THE PROVISI ONS OF SEC. 115JB. 4. LD. DR IN REPLY HOWEVER FILED A COPY OF COMPUTA TION OF TOTAL INCOME MADE BY THE ASSESSEE ALONGWITH THE RETURN OF INCOME TO SUBMIT THAT THE ASSESSEE HAS THE DEPRECIATION LOSSES FROM COMPUTATI ON AND MADE A CLAIM UNDER CHAPTER VIA AND INCOME FROM POWER GENERATION AT RS. 37 41 304/- WHICH WAS ALLOWED TO THE ASSESSEE IGNORING THE CARR IED FORWARD DEPRECIATION OF RS. 94 92 448/-. IF THIS AMOUNT WAS SET OFF THE ASS ESSEE WOULD NOT HAVE ANY POSITIVE GROSS TOTAL INCOME AND ACCORDINGLY THE CL AIM OF DEDUCTION UNDER CHAPTER VIA IS NOT CORRECT. HE ALSO SUBMITTED THAT THE ASSESSEE FILED THE ITA NO. 618/PN/2008 A.Y 2003-04 4 COMPUTATION OF AMOUNT OF LOSSES/ DEPRECIATION TAKEN AT RS. 69 82 457/- AS AGAINST LOSS OF RS. 18840/- WHICH COULD NOT HAVE BE EN SET OFF AND THE ASSESSEE WAS ELIGIBLE FOR COMPUTATION U/S. 115JB WHICH THE A .O HAS NOT DONE. ACCORDINGLY THE ORDER OF THE A.O WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CO NTENTIONS OF BOTH THE PARTIES. THE ITAT IN THE CASE OF MRS. KHATIZA S. OO MERBHOY V. ITO (2006) 101 TTJ (MUM.) 1095 ANALYSED IN DETAIL VARIOUS AUTHORI TATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 RELIED ON BY THE COUNSEL AS WELL AS HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CI T V. GABRIEL INDIA LTD. (1993) 203 ITR 108 AND HAS PRONOUNCED THE FOLLOWING BROADER PRINCIPLES TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263: - 'THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE AB OVE CASE MAY BE SUMMARISED BELOW.' I. THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. II. SECTION 263 CANNOT BE INVOKED TO CORRECT EACH AND E VERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. III. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT AP PLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. IV. IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. V. EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE ASSESSING OFFICER HAS ADO PTED ONE OF THE COURSE PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE UND ER LAW. VI. IF WHILE MAKING THE ASSESSMENT THE ASSESSING OFFIC ER EXAMINES THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME THE CIT WHILE EXERCISING HIS POWER UNDER SECTION 263 IS NOT PERMI TTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. VII. THE ASSESSING OFFICER EXERCISES QUASI-JUDICIAL POWE R VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW A ND ARRIVES AT A CONCLUSION SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CO NCLUSION. VIII. THE CIT BEFORE EXERCISING HIS JURISDICTION UNDER S ECTION 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. ITA NO. 618/PN/2008 A.Y 2003-04 5 IX. IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING A ND THE ASSESSING OFFICER ALLOWS THE CLAIM ON BEING SATISFIED WITH TH E EXPLANATION OF THE ASSESSEE THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT M AKE AN ELABORATE DISCUSSION IN THAT REGARD.' 5.1 CONSIDERING THE ABOVE PRINCIPLES THE FACTS IN THE PRESENT CASE HAS BEEN EXAMINED. BEFORE ADVERTING TO THE ISSUE OF JURISDICT ION IT IS NECESSARY TO EXTRACT THE COMPUTATION GIVEN BY THE ASSESSEE WHICH IS AS U NDER:- SR. NO. PARTICULARS AMOUNT AMOUNT RS 6 881 857.15 100 600.00 RS 6 982 457.15 1 2 INCOME FROM BUSINESS NET PROFIT AS PER PROFIT & LOSS A/C ADD:- DISALLOWED EXPS. CLUB MEMBERSHIP FEES INCOME FROM OTHER SOURCES GROSS TOTAL INCOME LESS:- DEDUCTION UNDER CHAPTER VIA U/S 80IA-INOCME FROM POWER GENERATION (AS PER ANNEXURE ATTACHED) 6 982 457.15 3 741 304.15 TOTAL INCOME LESS:- UNABSORBED DEPRECIATION/LOSSES BROUGHT FORWARD AND ADJUSTED BUSINESS LOSS A.Y 2000-01 DEPRECIATION LOSS A.Y 2001- 02 (TO THE EXTENT ADJUSTED) 18 840.00 3 222 313.00 3 241 153.00 3 241 153.00 TAXABLE INCOME TAXABLE INCOME (ROUNDED OFF) TAX ON TOTAL INCOME 3 241 153.00 - - - 161 071.00 ITA NO. 618/PN/2008 A.Y 2003-04 6 LESS:-TAX DEDUCTED AT SOURCE REFUND DUE 161 071.00 5.2 IN ARRIVING AT THE PROFIT OF RS. 3 741 304.15/- THE ASSESSEE HAS WORKED OUT THE PROFIT AS UNDER:- PARTICULARS RS RS RS GROSS POWER GENERATION RECEIPTS 14 101.00 45 577.00 4 998.00 1 870 177.00 2 254 500.00 64 676.00 4 124 677.00 SALE OF ELECTRICITY SALE OF SALES TAX BENEFIT LESS:- EXPENSES DIRECTLY RELATED THE MACHINES MSEB CHARGES INSURANCE PACKAGE SCHEME (WINDMILL) NON-AGRI TAX PAID FOR MACHINES LAND LESS:- RATIO OF ADMN. EXPS. INCURRED FOR MACHINES AUDIT FEES BANK COMMISSION & CHARGES DIRECTORS REMUNERATION INTEREST ON LOAN SALARY EXPS LEGAL FEES MISC. EXPENSES PROF. FEES PRINTING & STATIONARY TRVELLING & CONVEYANCE 14 500.00 19 134.00 120 000.00 49 678.00 262 000.00 4 850.00 849.00 7 000.00 1 700.00 254 651.00 318 696.85 TOTAL 734 362.00 383 372.85 RATIO= TOTAL ADMN. EXPS. TOTAL INCOME X POWER GENERATION RECEIPTS AMOUNT OF EXEMPTION U/S. 80IA 3 741 304.15 ITA NO. 618/PN/2008 A.Y 2003-04 7 5.3 IN ARRIVING AT THE ABOVE FIGURES THE ASSESSEE H AS GIVEN THE FOLLOWING DETAILS FROM THE COMPILATION IN PARA 2 (A) AND (B) :- 2) INITIAL ASSESSMENT YEAR A. THE DETAILS OF INCOME A.Y 2000-01 ADMINISTRATION EXPENSES 18840/- NO BUSINESS RECEIPT NO. 80-IA CLAIM A.Y. 2001-02 UNABSORBED DEPRECIATION 6815026/- 18840/- NO 80-IA CLAIM A.Y. 2002-03 ELECTRICITY SALES 1493415/- OTHER INCOME 5104719/- TOTAL EXPENSES 8 78 771/- CARRIED FORWARD LOSS:- 1) UNABSORBED DEPRECIATION 6815026 2) LOSS: ADMINISTRATION EXPENSES 2000-01 18840 ------------ UNABSORBED DEPRECIATION IN 6833866=90 ONLY OUT OF WIND MILL BUSINESS. NO 80-IA CLAIM. A.Y 2003-04 1) POWER GENERATION 4124677/- 2) OTHER INCOME 5379672/- 3) POWER GENERATION 4124677/- B. THE OTHER DETAILS BANK INTEREST 20 391/- LAND DEVELOPMENT CHARGE 53 59 206/ - LEASE RENT RECD. 75/- ------------------- 53 79 672/- -------------------- EXPENSES 53 59 206/- ITA NO. 618/PN/2008 A.Y 2003-04 8 LAND DEVELOP. 16 33 176/- -------------------- 37 26 030/- --------------------- DEPRECIATION 69677.85 CLAIM OF 80-IA-FIRST YEAR 3741304/- 5.4 AS CAN BE SEEN FROM THE ABOVE THE ASSESSEE HA S CERTAIN ELECTRICITY SALES IN A.Y 2002-03 AND OTHER INCOME FROM THE LAND DEVEL OPMENT AND ACCORDING TO THE CONTENTIONS THERE HAS BEEN NO 80IA CLAIM IN A. Y 2002-03. IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS THE RECEIPT OF RS . 4 124 677/- OUT OF POWER GENERATION AND OTHER INCOME OF RS. 5 379 672/- AND AFTER CLAIMING EXPENSES THE NET PROFIT SHOWN IN P & L ACCOUNT IS RS. 6 881 857/- . IT HAS ARRIVED AT THE PROFIT FROM THE POWER GENERATION AT RS. 3 741 304/- AFTER EXCLUDING THE OTHER INCOME AND CORRESPONDING EXPENSES AND DEPRECIATION ON THE OTHER BUSINESS OF LAND DEVELOPMENT. THUS THE PROFIT FROM POWER GENER ATION WAS ARRIVED AT RS. 3 741 304/- OUT OF THE TOTAL RECEIPTS OF RS. 4 12 4 677/-. THIS WORKING OF PROFITS ON POWER GENERATION AND ALSO THE CLAIM OF S ET OFF HAS NOT BEEN EXAMINED BY THE A.O AT ALL IN THE ORDER PASSED U/S. 143(3). AS SEEN FROM THE DISCUSSION EXTRACTED IN PAGE 2 AND 3 OF THE A.O THE ENTIRE ENQUIRY OF THE A.O WAS ON BRIEF HISTORY OF THE BUSINESS ACTIVITY LIST OF DEBTORS. COMPARATIVE DEPRECIATION CHART FOR THE LAST 3 YEARS ORDERS PHO TO COPIES OF WIND MILL INSURANCE COMPARATIVE STATEMENT OF P & L A/C. DIR ECTORS REMUNERATION DETAILS TRAVELLING AND CONVEYANCE ETC WITHOUT THER E BEING ANY DISCUSSION EITHER ON 80IA CLAIM OR ITS WORKING OR U/S. 115JB. HE ALSO EXAMINED THE INCOME FROM THE LAND DEVELOPMENT AND JUSTIFICATION OF THE EXPENS ES AND DEDUCTIONS BUT THERE SEEMS TO BE NO ENQUIRY ON THE ABOVE TWO ISSUE S. LD. COUNSEL ALSO DID NOT PLACE ON RECORD ANY ENQUIRIES MADE BY THE A.O DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS ABOUT ENQUIRIES CONDUCTED WI TH REFERENCE TO THE CLAIM U/S. 80IA OR U/S 115JB. SINCE THE A.O HAS NOT MADE ANY ENQUIRY ON THESE TWO ISSUES ON THE PRINCIPLES ESTABLISHED IN THE JURISDI CTIONAL DECISIONS AS DISCUSSED ABOVE THE CIT HAS RIGHTLY INVOKED THE PO WERS VESTED IN HIM U/S 263 AS THE ORDER IS NOT ONLY ERRONEOUS BUT ALSO PREJUDIC IAL TO THE INTEREST OF REVENUE. 5.5 NOT ONLY THAT THE WORKING MADE BY THE ASSESSEE IN ITS CLAIM ALSO PRIMA FACIE NOT CORRECT AS THE ASSESSEE HAS TO SET OFF THE CAR RIED FORWARD LOSSES ITA NO. 618/PN/2008 A.Y 2003-04 9 AND/OR DEPRECIATION WHILE ARRIVING AT THE GROSS TOT AL INCOME. HONBLE SUPREME COURT IN THE CASE OF SYNCO INDUSTRIES LTD. VS. AO ( 2008) 299 ITR 444 (SC) HAS ESTABLISHED THE PRINCIPLES OF SET OFF AS UNDER:- THE EFFECT OF CLAUSE (5) OF SECTION 80B OF THE INCO ME-TAX ACT 1961 IS THAT GROSS TOTAL INCOME WILL BE ARRIVED AT AFTER MAKING THE COMPUTATION AS FOLLOWS: (I) MAKING DEDUCTIONS UNDER THE APPROPRIATE COMPUTATION PROVISIONS (II) INCLUDING THE INCOMES IF ANY UNDER SECTIONS 60 TO 64 IN THE TOTAL INCOME OF THE INDIVI DUAL; (III) ADJUSTING INTRA-HEAD AND /OR INTER-HEAD LOSSES; AND (IV) SETTI NG OFF BROUGHT FORWARD UNABSORBED LOSSES AND UNABSORBED DEPRECIATI ON ETC. ONLY IF THE GROSS TOTAL INCOME SO DETERMINED IS POSITIVE THE QUESTION OF ALLOWING THE DEDUCTIONS UNDER CHAPTER VI-A WOULD A RISE NOT OTHERWISE. 5.6 KEEPING THE ABOVE PRINCIPLES IN MIND THE CARRI ED FORWARD DEPRECIATION BEING MORE THAN THE PROFIT OF THE YEAR (THE PROFIT BEING RS. 6982457/- AND THE UNABSORBED DEPRECIATION BEING RS. 9492448/-) QUESTI ON OF DEDUCTION UNDER CHAPTER VIA DOES NOT ARISE AS GROSS TOTAL INCOME WILL BE NIL AFTER SET OFF OF THE CARRIED FORWARD DEPRECIATION. THEREFORE EVEN IF TH E ASSESSEE ARRIVED AT THE PROFIT OF RS. 3741304/- TOWARDS THE PROFIT GENERAT ED IN THE POWER GENERATION UNIT THE DEDUCTION U/S. 80IA CANNOT BE ALLOWED IN VIEW OF THE GROSS TOTAL INCOME BEING NIL. CONSEQUENTLY WORKING MADE BY THE ASSESSEE IN THE COMPUTATION OF THE INCOME IS NOT CORRECT. THE A.O H AS NOT CONSIDERED THIS AND ALLOWED THE CLAIM WRONGLY AND ALSO THE CONSEQUENT C OMPUTATION OF UNABSORBED DEPRECIATION TO BE CARRIED FORWARD. 6. ANOTHER ASPECT WHICH HAS NOT BEEN CONSIDERED BY THE AO WAS WHETHER THE ASSESSEE MADE THE CLAIM OF 80IA FOR THE FIRST T IME IN THIS ASSESSMENT YEAR OR IN THE EARLIER ASSESSMENT YEAR. EVEN THOUGH THE ASSESSEES CONTENTIONS ON INITIAL ASSESSMENT YEAR IS CORRECT AS THE JUDGEMENT OF THE SPECIAL BENCH IN THE CASE OF ACIT VS. GOLDMINE SHARES AND FINANCE (P) LT D. 116 TTJ (AHD) (SB) 705 WAS APPLICABLE TO THE PROVISIONS AND EFFECTIVE UP T O 31/03/2000. CONSEQUENT TO THE REPLACEMENT OF THE THEN EXISTING PROVISIONS BY THE FINANCE ACT 1999 EFFECTIVE FROM 01/04/2000 THE ASSESSEE HAS AN OPTI ON TO CLAIM THE DEDUCTION U/S. 80IA FROM ANY OF THE ASSESSMENT YEARS WITHIN T HE BLOCK OF YEARS U/S. 80IA(2). THE PROVISIONS OF SEC. 80IA(2) IS AS UNDER :- (2) THE DEDUCTION SPECIFIED IN SUB-SECTION (1) MAY AT THE OPTION OF THE ASSESSEE BE CLAIMED BY HIM FOR ANY TEN CONSECUTIVE ASSESSMENT YEARS OUT OF FIFTEEN YEARS BEGINNING FROM THE YEAR IN WHICH T HE UNDERTAKING OR THE ENTERPRISE DEVELOPS AND BEGINS TO OPERATE ANY INFRA STRUCTURE FACILITY OR STARTS PROVIDING TELECOMMUNICATION SERVICE OR DEVEL OPS AN INDUSTRIAL PARK ITA NO. 618/PN/2008 A.Y 2003-04 10 [OR DEVELOPS] A SPECIAL ECONOMIC ZONE REFERRED TO IN CLAUSE (III) OF SUB- SECTION (4)] OR GENERATES POWER OR COMMENCES TRANSMI SSION OR DISTRIBUTION OF POWER [OR UNDERTAKES SUBSTANTIAL RENOVATION AND MODERNISATION OF THE EXISTING TRANSMISSION OR DISTRIBUTION LINES [OR LAY S AND BEGINS TO OPERATE A CROSS-COUNTRY NATURAL GAS DISTRIBUTION NETWORK] [ PROVIDED THAT WHERE THE ASSESSEE DEVELOPS OR OPERATES AND M AINTAINS OR DEVELOPS OPERATES AND MAINTAINS ANY INFRASTRUCTURE FACILITY REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THE EXPLAN ATION TO CLAUSE (I) OF SUB- SECTION (4) THE PROVISIONS OF THIS SUB-SECTION SHAL L HAVE EFFECT AS IF FOR THE WORDS FIFTEEN YEARS THE WORDS TWENTY YEARS HAD BEEN SUBSTITUTED.] 6.1 THE 80IA(5) WHICH CONSIDERED BY THE CIT IS AS U NDER:- (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WH ICH THE PROVISIONS OF SUB- SECTION (1) APPLY SHALL FOR THE PURPOSE OF DETERMI NING THE QUANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSE QUENT ASSESSMENT YEAR BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR REL EVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE. 6.2 AS CAN BE SEEN FROM THE ABOVE PROVISIONS THE AS SESSEE HAS AN OPTION TO CLAIM DEDUCTION IN ANY OF THE 10 CONSECUTIVE ASSESS MENT YEARS OUT OF THE 15 YEARS BEGINNING FROM THE YEAR IN WHICH UNDERTAKING GENERATES POWER OR UNDERTAKES TRANSMISSION OF POWER. ACCORDINGLY THE A SSESSEE HAS RIGHT TO OPT FOR THE FIRST OF THE 10 CONSECUTIVE ASSESSMENT YEARS CA LLED INITIAL ASSESSMENT YEAR AS PER SUB SEC. (5). ONCE THE ASSESSEE CHOOSES THE INITIAL ASSESSMENT YEAR THE PROVISIONS RELATING TO QUARANTINING OF THE UNIT WI LL START FROM THAT YEAR ONLY. CONSEQUENTLY THE LOSSES OR DEPRECIATION OF THE YEAR PRIOR TO THE INITIAL ASSESSMENT YEAR CANNOT BE CONSIDERED AS PER THE PRO VISIONS U/S. 80IA(5). THE PRINCIPLE WAS CONSIDERED IN THE COORDINATE BENCH DE CISION IN THE CASE OF MOHAN BREWERIES AND DISTILLERIES LTD. (SUPRA) WHEREIN IT WAS HELD : 'SECTION 80-IA AS AMENDED BY THE FINANCE ACT 1999 GIVES AN OPTION TO THE ASSESSEE WITH EFFECT FROM 1-4-2000 TO CLAIM REL IEF UNDER THIS SECTION FOR ANY 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 Y EARS BEGINNING FROM THE YEAR ENDING IN WHICH THE UNDERTAKING OR ENTERPR ISE DEVELOPS OR BEGINS TO OPERATE ANY INFRASTRUCTURE FACILITY ETC. IT IS LEFT TO THE ASSESSEE AT ITS WILL TO CLAIM THIS RELIEF FROM THE FIRST ASSESSMENT YEAR OR FROM THE SECOND OR FROM THE THIRD OR SO AS IT MIGHT THINK FIT. ONCE THE ASSESSEE HAS OPTED THE FIRST YEAR OF RELIEF THEN IT CONTINUES FOR FURT HER 9 CONSECUTIVE YEARS. TO CLAIM THIS RELIEF THE UNDERTAKING IS TO BE SET-UP DURING THE PERIOD 1-4- 1993 TO 31-3-2006. THIS IS AS PER SECTION 80-IA(4)(I V). SECTION 80-IA(2) CLEARLY STATES THAT THE ASSESSEE CAN OPT FOR YEAR O F DEDUCTION FOR ANY 10 CONSECUTIVE YEARS OUT OF 15 YEARS TAKEN FROM THE FI RST YEAR IN WHICH THE UNDERTAKING OR ENTERPRISE DEVELOPS AND BEGIN TO OPE RATE ANY INFRASTRUCTURE ACTIVITY. SECTION 80-IA(2) DOES NOT M ANDATE THAT FIRST YEAR OF ITA NO. 618/PN/2008 A.Y 2003-04 11 10 CONSECUTIVE ASSESSMENT YEARS SHOULD BE ALWAYS TH E FIRST YEAR OF SET- UP OF ENTERPRISE. IF THE INTENTION OF THE LEGISLATU RE IS THAT THE FIRST YEAR OF SET-UP IS THE INITIAL ASSESSMENT YEAR TO CLAIM DEDU CTION UNDER SECTION 80- IA THEN THERE IS NO MEANING IN GIVING OPTION TO TH E ASSESSEE TO CLAIM DEDUCTION FOR 10 CONSECUTIVE ASSESSMENT YEARS OUT O F 15 YEARS. THE MEANING OF SECTION 80-IA(2) IS THAT THE ASSESSEE CAN EXERCISE THE OPTION IN ANY 10 CONSECUTIVE YEARS STARTING FROM THE FIRST YE AR IN WHICH THE UNDERTAKING BEGINS TO OPERATE ANY INFRASTRUCTURE FA CILITY. IF THE ASSESSEE OPTS TO EXERCISE THE CLAIM FOR FIRST YEAR IT SHOUL D CONTINUE TO CLAIM THE DEDUCTION FOR ANOTHER 9 YEARS. IF IT OPTS THE SECON D YEAR TO CLAIM DEDUCTION IT SHOULD CONTINUE FOR ANOTHER 9 YEARS T ILL THE 11TH YEAR; SIMILARLY IF IT OPTS TO CLAIM RELIEF FROM THE 3RD Y EAR IT WILL END IN THE 12TH YEAR; IF IT OPTS TO CLAIM FROM THE 4TH YEAR THEN IT WILL END IN THE 13TH YEAR; IF IT OPTS TO CLAIM FROM THE 5TH YEAR IT WILL END I N THE 14TH YEAR AND IF IT OPTS TO CLAIM FROM THE 6TH YEAR IT WILL END IN THE 15TH YEAR. SECTION 80- IA(2) HAS NO PROVISION FOR THE ASSESSEE TO CLAIM DED UCTION IN ANY ASSESSMENT YEAR STARTING FROM THE FIRST ASSESSMENT YEAR. THE PROVISION OF SECTION 80-IA(5) IS APPLICABLE ONLY WHEN THE ASSESSE E CHOOSES TO CLAIM DEDUCTION UNDER SECTION 80-IA AND IF IT HAS NOT CHO SEN TO CLAIM THE DEDUCTION UNDER SECTION 80-IA SECTION 80-IA(5) CAN NOT BE MADE APPLICABLE. IN THE INSTANT CASE THERE WAS A CATEGO RICAL FINDING BY THE ASSESSING OFFICER AND THE COMMISSIONER (APPEALS) TH AT THE FIRST YEAR CLAIMED BY THE ASSESSEE WAS FROM THE ASSESSMENT YEA R 2004-05. SINCE THE ASSESSEE HAD OPTED TO CLAIM THIS DEDUCTIO N ONLY IN THIS ASSESSMENT YEAR THE INITIAL ASSESSMENT YEAR COULD NOT BE THE YEAR IN WHICH THE UNDERTAKING COMMENCED ITS OPERATIONS AND IN THE INSTANT CASE THE INITIAL ASSESSMENT YEAR WAS THE ASSESSMENT YEAR IN WHICH THE ASSESSEE HAD CHOSEN TO CLAIM DEDUCTION UNDER SECTIO N 80-IA. HENCE THE PROVISIONS OF SECTION 80-IA(5) TREATING UNDERTAKING AS A SEPARATE SOLE SOURCE OF INCOME COULD NOT BE APPLIED TO A YEAR PR IOR TO THE YEAR IN WHICH THE ASSESSEE OPTED TO CLAIM RELIEF UNDER SECTION 80 -IA FOR THE FIRST TIME. FURTHER DEPRECIATION AND CARRY FORWARD LOSS RELIEF TO THE UNIT WHICH CLAIMS DEDUCTION UNDER SECTION 80-IA CANNOT BE NOTI ONALLY CARRIED FORWARD AND SET-OFF AGAINST THE INCOME FROM THE YEAR IN WHI CH THE ASSESSEE STARTED CLAIMING DEDUCTION UNDER SECTION 80-IA. THE REFORE THERE WAS NO QUESTION OF SETTING-OFF NOTIONALLY CARRIED FORWARD UNABSORBED DEPRECIATION OR LOSS OF EARLIER YEARS AGAINST THE PROFITS OF THE UNITS AND THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80-IA ON THE CURRENT ASSESSMENT YEAR'S PROFIT. ASSESSEE HAVING CLAIMED DEDUCTION UNDER S. 80-IA FO R THE FIRST TIME IN ASST. YR. 2004-05 THIS WILL BE THE YEAR IN WHICH T HE UNDERTAKING HAS TO BE TREATED AS A SEPARATE SOLE SOURCE OF INCOME WITHIN THE MEANING OF S. 80- IA(5) AND THEREFORE DEPRECIATION AND LOSS OF EARLI ER YEARS CANNOT BE NOTIONALLY CARRIED FORWARD TO BE SET OFF AGAINST IN COME OF THAT YEAR FOR COMPUTING DEDUCTION UNDER S. 80-IA. 6.3 THE SAME PRINCIPLE WAS UPHELD BY THE HONBLE MAD RAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. (SUP RA) WHERE IN IT WAS HELD AS UNDER:- LOSSES AND DEPRECIATION OF THE YEARS EARLIER TO TH E INITIAL ASSESSMENT YEAR WHICH HAVE ALREADY BEEN ABSORBED AGAINST THE PROFIT S OF OTHER BUSINESS CANNOT BE NATIONALLY BROUGHT FORWARD AND SET OFF AG AINST THE PROFITS OF THE ELIGIBLE BUSINESS FOR COMPUTING THE DEDUCTION UNDER S. 80-IA. ITA NO. 618/PN/2008 A.Y 2003-04 12 6.4 IN VIEW OF THE PRINCIPLES ESTABLISHED IT IS NE CESSARY TO DECIDE THE ISSUE OF INITIAL ASSESSMENT YEAR BEFORE CONSIDERING THE PROV ISIONS OF 80IA(5). SINCE THESE ASPECTS HAVE NOT BEEN EXAMINED PROPERLY OR CO NSIDERED AS PER THE PROVISIONS OF THE ACT THE ORDER OF THE AO U/S 143(3 ) IS TO BE CONSIDERED AS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE THE EXERCISE OF POWERS UNDER SECTION 263 HAS TO BE UPHE LD. 7. IN THE PROCEEDINGS U/S 263 THE CIT ALSO RAISED THE ALTERNATIVE ISSUE WITH REFERENCE TO SEC. 115JB. AS DISCUSSED ABOVE TH E ASSESSEES PROFITS INCLUDED BOTH INCOME FROM THE POWER GENERATION AS W ELL AS INCOME FROM LAND DEVELOPMENT. AS PROVISIONS U/S. 115JB LOSSES OR DEP RECIATION WHICH EVER IS LESS HAS TO BE CONSIDERED AND IN CASE LOSS IS NIL T HEN IT WAS THE ASSESSEE CONTENTION THAT UN ABSORBED DEPRECIATION COULD BE SET OFF. IN VIEW OF THIS THE ASSESSEE CLAIMED SET OFF OF UNABSORBED DEPRECIATIO N IN ITS WORKING AND ARRIVED AT NIL PROFIT U/S 115JB. THIS WORKING IS NOT ACCORD ING TO THE PROVISIONS OF THE ACT THEREFORE TO THAT EXTENT NOT CONSIDERING THE P ROVISIONS OF SEC. 115JB BY THE A.O ALSO COMES UNDER THE PRINCIPLE OF ORDER BEING E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF THIS THE DI RECTION OF THE CIT TO CONSIDER THE ALTERNATIVE PROVISIONS U/S. 115JB IS CORRECT. H OWEVER THE CIT HAS NOT DIRECTED SPECIFICALLY WITH REFERENCE TO THE WORKING OF THE SEC. 115JB WHICH ALSO EXCLUDES AMOUNTS ALLOWED U/S. 80IA. THESE ASPECTS HAVE NOT BEEN CONSIDERED BY THE A.O OR BY THE CIT IN ORDER U/S 263. 8. IN VIEW OF THE ABOVE DISCUSSION WHILE HOLDING T HAT THE CIT HAS EXERCISED THE JURISDICTION CORRECTLY U/S 263 WE HOWEVER MODIF Y THE DIRECTIONS GIVEN BY THE CIT TO THE A.O AS THE SAID DIRECTIONS ARE NOT C ORRECT ON THE FACTS STATED ABOVE. CONSEQUENTLY WE MODIFY THE DIRECTIONS OF TH E CIT TO SET ASIDE THE ORDER OF THE A.O AND DIRECT HIM TO RECONSIDER THE ISSUE O F THE INITIAL ASSESSMENT YEAR COMPUTATION OF THE PROFITS U/S. 80IA COMPUTATION OF TOTAL INCOME AND CARRY FORWARD OF LOSSES AND DEPRECIATION AND ALSO THE COM PUTATION U/S. 115JB AS PER THE PROVISIONS OF THE ACT AFTER GIVING DUE OPPORTUN ITY TO THE ASSESSEE. THE ORDER OF THE CIT TO THAT EXTENT MORE SO THE DIRECTIONS G IVEN IN PARA 5.5 AND 7 OF HIS ORDER HAVE BEEN MODIFIED AND ASSESSMENT MADE U/S. 1 43(3) DATED 21/10/2005 IS HEREBY SET ASIDE. A.O IS DIRECTED TO REDO THE A SSESSMENT DENOVO ACCORDINGLY. ITA NO. 618/PN/2008 A.Y 2003-04 13 9. IN THE RESULT APPEAL IS CONSIDERED ALLOWED TO T HAT EXTENT. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER 2010. SD/- SD/- (SHAILENDRA KUMAR YADAV) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 29 TH OCTOBER 2010 R COPY TO: 1. THE ASSESSEE 2. ACIT SATARA CIRCLE SATARA 3. THE CITIII PUNE 4. THE DR A BENCH ITAT PUNE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT PUNE BENCHES PUNE