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

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 15.12.2015 Coram The Honourable Mr.Justice M.JAICHANDRENandThe Honourable Mrs.Justice S.VIMALA Tax Case (Appeal) No.1187 of 2015 Commissioner of Income TaxCorporate Circle-3(2) Chennai.... Appellant/Appeal -vs- M/s.Ucal Fuel Systems LimitedRaheja Towers 7th Floor, Unit 705,No.177, Anna Salai,Chennai 600 002. ... Respondent/Respondent Tax Case (Appeal) filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate TribunalMadras 'D' Bench, Chennai, dated 26.6.2015 in ITANo.532/MDS/2015 against the order of the Deputy Commissioner ofIncome Tax, Corporate Circle-3(2) Chennai, dated 14.01.2015 andmade in GIR No./PAN AAACU 0541K; and against the order of theIncome Tax Officer, Company ward-III (1 Chennai dated 12.03.2014and made in GIR/No.PAN AAACU 0541K. For appellant : Mr.M.SwaminathanJ U D G M E N T (Judgment of the Court was made by M.Jaichandren,J) This Tax Case Appeal has been filed against the order of theIncome Tax Appellate Tribunal “D” Bench, Chennai, dated26.6.2015, made in I.T.A.No.532/MDS/2015.2. The brief facts of the case, necessary for the disposalof the appeal, are as follows: 2.1) The assessee company had been engaged in themanufacturing of carburettor fuel pumps for two wheelers andfour wheelers. It had filed its return of income, for theassessment year 2010-2011, declaring a taxable income ofRs.1,89,77,050/-. https://hcservices.ecourts.gov.in/hcservices/ 2.2) The assessee company had started its wind mill divisionin Palladam and had used the power produced in its MaramalaiNagar Manufacturing Division. The assessee had claimeddeduction, under Section 80IA, on the profit of Palladam Unit,from the assessment year 2005-06. The case was selected forscrutiny. A notice, under Section 143(2) of the Income Tax Act,1961 (hereinafter referred to as `the Act'), had been issued. 2.3) The assessee company, having undertaken internationaltransactions with its Associated Enterprises, for more thanRs.15 Crores, the case had been referred to Transfer PricingOfficer, with the approval of the Commissioner of Income Tax-III, Chennai. A Transfer Pricing Order had been received, on15.11.2011, with an upward adjustment of Rs.4,75,05,574/-. Adraft assessment order had been issued to the assessee, aftertaking into account the order of the Transfer Pricing Officer on12.3.2014, by making the disallowance of claim of exemption ofRs.91,35,188/-, under Section 80IA of the Act. The abovedisallowance was made, as per the provisions of Section 80IA(5)of the Act, as the carried forward unabsorbed depreciation wouldstill be available for setting off and the assessee companywould not have earned profits and thus become ineligible toclaim deduction under Section 80IA. 2.4) Aggrieved by the draft assessment order, the assesseecompany had filed a petition before the Dispute ResolutionPanel, in DRP/CHE/25/2014-15. The Dispute Resolution Panel hadpassed an order, on 24.12.2014, deleting the addition ondisallowance of claim, under Section 80IA of the Act, relying onthe decision of the Income Tax Appellate Tribunal, made inVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368), and the orderof the Hon'ble Chennai Income Tax Appellate Tribunal, in thecase of M/s.GRT Firm and others, in ITA No.528 to 530/Mds/2012,dated 4.6.2012. 2.4) Aggrieved by the draft assessment order, the assesseecompany had filed a petition before the Dispute ResolutionPanel, in DRP/CHE/25/2014-15. The Dispute Resolution Panel hadpassed an order, on 24.12.2014, deleting the addition ondisallowance of claim, under Section 80IA of the Act, relying onthe decision of the Income Tax Appellate Tribunal, made inVelayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368), and the orderof the Hon'ble Chennai Income Tax Appellate Tribunal, in thecase of M/s.GRT Firm and others, in ITA No.528 to 530/Mds/2012,dated 4.6.2012. 2.5) Aggrieved by the order passed by the Dispute ResolutionPanel, the department had preferred an appeal before the IncomeTax Appellate Tribunal, in I.T.A.No.532/Mds/2015. The Tribunal,by its order, dated 26.6.2015, had dismissed the appeal filed bythe department, following the decision of this court, in thecase of Velayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368).Panel, the department had preferred an appeal before the IncomeTax Appellate Tribunal, in I.T.A.No.532/Mds/2015. The Tribunal,by its order, dated 26.6.2015, had dismissed the appeal filed bythe department, following the decision of this court, in thecase of Velayudhaswamy Spinning Mills (P) Ltd. Vs. AssistantCommissioner of Income Tax, (231 CTR (Mad.) 368). 3. 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 circumstances of thecase, the Appellate Tribunal was in right in allowingthe deduction under Section 80IA of the Income Taxhttps://hcservices.ecourts.gov.in/hcservices/ Act, when there is no positive income from theIndustrial undertaking during the initial assessmentyear? 2. Whether on the facts and circumstances of thecase the Income Tax Appellate Tribunal was right inholding that the assessee is entitled to deductionunder Section 80IA following the decision of theJurisdictional High Court in the case ofM/s.Velayudhaswamy Spinning Mills (340 ITR 477) whenthe same is pending appeal before the Hon'ble SupremeCourt in S.L.P.Civil No.1136/11? 3. Whether on the facts and circumstances of thecase, the Income Tax Appellate Tribunal was correct inholding that the initial assessment year to Section80IA(5) would only mean the year of claim of deductionunder section 80IA and not the year of commencement ofeligible business?" 4. The learned counsel appearing on behalf of theDepartment had raised the following grounds, whilechallenging the impugned order of the Tribunal:- "A. The order of the Income Tax Appellate Tribunalis erroneous 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 u/s 80IA of the Income Tax Actwhen there is no positive income from the industrialundertaking during the financial assessment 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.Velauyuthasamy Spinning Mills when thesame is in appeal before the Hon'ble Supreme Court. https://hcservices.ecourts.gov.in/hcservices/ 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. 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.Velauyuthasamy Spinning Mills when thesame is in appeal before the Hon'ble Supreme Court. https://hcservices.ecourts.gov.in/hcservices/ 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.” 5. We have heard the learned the counsels appearing onbehalf of the appellant. We have also perused the recordsavailable 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. Further, in a batch ofcases, in CIT Vs. Eastman Exports Global Clothing (P) Ltd.[2015] 229 Taxman 449/54 Taxmann.com 408 (Madras), this Courthad followed the decision rendered in Velayudhaswamy SpinningMills (P) Ltd. Vs. Assistant Commissioner of Income Tax, (231CTR (Mad.) 368), and had decided the matter in favour of theassessee and against the Revenue. Taking note of the above saiddecisions, we are constrained to dismiss the present appealfiled by the Revenue, confirming the order passed by theTribunal, dated 26.6.2015. Accordingly, the questions of lawraised in the appeal are answered against the Revenue and infavour of the assessee, for the reasons stated above.Accordingly, the Tax Case Appeal stands dismissed. Sd/- Assistant Registrar(CS II) //True Copy// Sub Assistant Registrar csh To 1. The Assistant Registrar,Income Tax Appellate Tribunal IIIrd Floor Rajaji Bhavan, Besant Nagar,“D” Bench, Chennai.90 2. The Deputy Commissioner of Income Tax Corporate Circle-3(2) Chennai 3. The Income Tax Officer, Company Ward III (1) Chennai. + 1 cc to M/s. M. Swaminathan, Advocate r.67170+ 1 cc to Mr.S. Sridhar, Advocate SR.68147 Tax Case Appeal No.1187 of 2015 UG(CO)EU 8.1.16