Commissioner Of Income Tax Company Circle-3(2) Chennai v. M/S.ucal Fuel Systems Limited Raheja Towers 7Th Floor, Unit 705

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 23-11-2015 CORAM THE HONOURABLE MR.JUSTICE M.JAICHANDRENANDTHE HONOURABLE MRS.JUSTICE S.VIMALATax Case Appeal No.1167 of 2015 Commissioner of Income TaxCompany Circle-3(2)Chennai... Appellant/AppellantVersus M/s.Ucal Fuel Systems LimitedRaheja Towers 7th Floor, Unit 705,No.177, Anna Salai,Chennai 600 002. .. Respondent/Respondent Prayer: Appeal filed Under Section 260 A of the Income Tax Act1961 presented to the High Court against the order of the IncomeTax Appellate Tribunal Madras `A' Bench, dated 26.6.2015, in ITANo.1108/MDS/2015 for the Assessment Year 2006-07 and against theOrder of the Commissioner of Income-Tax(Appeals)-II, Chennai-34in old ITA.No.1442/13-14 and New ITA.No.528/CIT(A)-11/2013,dated 29.12.2014 for the Assessment year 2006-07 and against theorder of the Assistant Commissioner of Income Tax, CompanyCircle-III(3), Chennai-34 in PAN.NO. for theAssessment Year 2006-07 For Respondent : Mr.A.S.SriramanO R D E R This Tax Case Appeal has been filed against the order of theIncome Tax Appellate Tribunal “A” Bench, Chennai, dated26.6.2015, made in I.T.A.No.1108/Mds./2015.2. The brief facts of the case, necessary for the disposalof the appeal are as follows: https://hcservices.ecourts.gov.in/hcservices/ 2.1) The assessee had filed its return, for the assessmentyear 2006-2007, declaring a taxable income of Rs.36,61,15,170/-.The case was taken up for scrutiny and an order was passed,under Section 143(3) of the Income Tax Act, 1961 (hereinafterreferred to as `the Act'), on 21.12.2009, making a totaladdition of Rs.6,90,458/-. The case was re-opened, under Section147 of the Act, for the reason that the assessee had claimedexcessive expenses on Product Development Expenses, underSection 35 of the Act, and the deemed dividend, under Section 2(22)(e), was left to be taxed. An order under Section 143(3),read with Section 147 of the Act, had been passed with thefollowing additions (a) Revenue expenditure under Section 3592),disallowed Rs.7,12,37,915/-, (b) Disallowance of additionalexpenditure on R & D expenditure, under Section 35(2AB)Rs.1,10,65,664/-, (c) Disallowance of deduction, under Section80IA Rs.52,30,118/- (d) Disallowance excess deduction allowed,under Section 80IB Rs.1,0461,625. The above additions resultedin an additional demand of Rs.5,34,98,281/-. 2.2) Aggrieved by the assessment order, the assessee companyhad preferred an appeal before the Commissioner of Income Tax(Appeals)-II, in Old I.T.A.No.1442/13-14 and new ITA No.528/CIT(A)-11/2013-14. The Commissioner of Income Tax (Appeals)-II, byhis order, dated 29.12.2014, had allowed the appeal of theassessee, regarding the disallowance, under Section 80IA of theAct, relying on the decision of the Income Tax AppellateTribunal, made in Velayudhaswamy Spinning Mills (P) Ltd. Vs.Assistant Commissioner of Income Tax, (231 CTR (Mad.) 368)., andM/s.Mohan Breweries and Distilleries Limited, 2008 (116 ITD 241). 2.3) Aggrieved by the order passed by the Commissioner ofIncome Tax (Appeals)-II, the department had preferred an appealbeforetheIncomeTaxAppellateTribunal,inI.T.A.No.1108/Mds./2015. The Tribunal, by its order, dated26.6.2015, had dismissed the appeal filed by the department,following the decision of this court, in the case ofVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368). 2.4) Challenging the order of the Tribunal, dated 26.6.2015,the department has filed the present Appeal, before this Court,under Section 260A of the Act, raising the following substantialquestions of law. "1. Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was in right inallowing the deduction under Section 80IA of theIncome Tax Act, when there is no positive income fromthe industrial undertaking during the initialassessment year? 2.4) Challenging the order of the Tribunal, dated 26.6.2015,the department has filed the present Appeal, before this Court,under Section 260A of the Act, raising the following substantialquestions of law. "1. Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was in right inallowing the deduction under Section 80IA of theIncome Tax Act, when there is no positive income fromthe industrial undertaking during the initialassessment year? 2. Whether on the facts and in the circumstancesof the case, the ITAT is right in holding that theassessee is entitled to deduction under Section 80IAfollowing the decision of the jurisdictional HighCourt in the case of Velayudhaswamy Spinning Mills(340 ITR 477) when the same is pending before theHon'ble Supreme Court in SLP Civil 1136/11? 3. Whether on the facts and in the circumstancesof the case the Income Tax Appellate Tribunal wascorrect in holding that the initial assessment year toSection 80IA(5) would only mean the year of claim ofdeduction under Section 80IA and not the year ofcommencement of eligible business?" 3. The learned counsel appearing on behalf of the departmenthad raised the following grounds: "A. The order of the Appellate Tribunal iserroneous in law and opposed to the facts andcircumstances of the case. B. The Income Tax Appellate Tribunal erred inholding that the assessee is entitled to deductionunder Section 80IA. C. The Income Tax Appellate Tribunal erred inallowing the deduction under Section 80IA of theIncome Tax Act when there is no positive income fromthe industrial undertaking during the financialassessment year. D. The Income Tax Appellate Tribunal ought to haveappreciated that as per section 80IA (5) theundertaking eligible for deduction u/s 80IA should betreated as only source of income for computing thequantum of deduction. E. The Income Tax Appellate Tribunal erred infollowing the decision of Jurisdictional High Court inthe case of M/s.Velayuthasamy Spinning Mills when thesame is in appeal before the Hon'ble Supreme Court. F. The Income Tax Appellate Tribunal ought to haveobserved that since sub-section 5 of Section 80IAstarts with a non-obstante clause, the restriction putin sub-section 5 will prevail and deduction under 80IAhas to be restricted accordingly. G. The Income Tax Appellate Tribunal ought to haveappreciated that as per provisions of section 80IA(5)the undertaking eligible for deduction should betreated as only source of income for computing thequantum of deduction." 4. Per contra, the learned counsel appearing on behalf ofthe respondent had submitted that the decision rendered inVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368)., squarelyapplies to the facts of the present case. He had furthersubmitted that a Division Bench of this court had rendered asimilar decision, in Commissioner of Income-Tax, Circle-I,Tirupur Vs. R.Yuvaraj, [2015] 57 Taxmann.com 252 (Madras). Inview of the above decisions, the appeal filed by the Revenue isliable to be dismissed, as it is devoid of merits. 5. We have heard the learned the counsels appearing onbehalf of the appellant, as well as the respondent. We have alsoperused the records available before this Court. 4. Per contra, the learned counsel appearing on behalf ofthe respondent had submitted that the decision rendered inVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368)., squarelyapplies to the facts of the present case. He had furthersubmitted that a Division Bench of this court had rendered asimilar decision, in Commissioner of Income-Tax, Circle-I,Tirupur Vs. R.Yuvaraj, [2015] 57 Taxmann.com 252 (Madras). Inview of the above decisions, the appeal filed by the Revenue isliable to be dismissed, as it is devoid of merits. 5. We have heard the learned the counsels appearing onbehalf of the appellant, as well as the respondent. We have alsoperused the records available before this Court. 6. It is noted that the facts and circumstances based onwhich the present Appeal had arisen are similar to those whichhad already been decided by this court in the cases cited supra.Further, in a batch of cases in CIT Vs. Eastman Exports GlobalClothing (P) Ltd. [2015] 229 Taxman 449/54 Taxmann.com 408(Madras), this Court had followed the decision rendered inVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368), and haddecided the matter in favour of the assessee and against theRevenue. Taking note of the above said decisions, we areconstrained to dismiss the present Appeal filed by the Revenue,confirming the order passed by the Tribunal, dated 26.6.2015.Accordingly, the questions of law raised in the appeal areanswered against the Revenue and in favour of the assessee, forthe reasons stated above. Accordingly, the Tax Case Appealstands dismissed. Sd/- Asst.Registrar /true copy/ Sub Asst. Registrar cshTo 1.Commissioner of Income TaxCompany Circle-3(2)Chennai.2.The RegistrarThe Income TaxAppellate Tribunal,Chennai Ä"benchChennai 3.The Commissioner of Income-Tax(Appeals)-II121, Mahatma Gandhi Road, Chennai-344.The Assistant Commissioner of Income TaxCompany Circle-III(3) No.121,Mahatma Gandhi Road, Chennai-34+1 cc to Mr.M.Swaminathan Advocate sr.63256Tax Case Appeal No.1167 of 2015aa21/12/2015