Commissioner Of Income Tax,Madurai v. The Metal Powder Company Limited,Maravankulamthirumangalam 625 706

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.11.2015 CORAM: THE HONOURABLE MR.JUSTICE M.JAICHANDRENANDTHE HONOURABLE MRS.JUSTICE S.VIMALA T.C.A.Nos.794 and 795 of 2015and M.P.Nos.1 and 1 of 2015 Commissioner of Income Tax,Madurai.... Appellant in both Appeals vs. The Metal Powder Company Limited,MaravankulamThirumangalam 625 706... Respondent in both Appeals Prayer in T.C.A.No.794 of 2015:Tax Case Appeal filed underSection 260A of the Income Tax Act, 1961, as against the orderdated 21.02.2013, made in I.T.A.No.873/Mds./2012, on the fileof the Income Tax Appellate Tribunal, Madras 'B' Bench, forthe assessment year, 2007-08 against the order of theCommissioner of Income Tax (Appeals)-I, Madurai, dated31.1.2012 made in ITA NO.002/11-12, against the order of theAdditional Commissioner of Income Tax Range-I, Madurai dated30.12.2010 made in P.A.No.AAACT4262E Assessment year 2008-09. Prayer in T.C.A.No.795 of 2015:Tax Case Appeal filed underSection 260A of the Income Tax Act, 1961, as against the orderdated 21.02.2013, made in I.T.A.No.874/Mds./2012, on the fileof the Income Tax Appellate Tribunal, Madras 'B' Bench, forthe assessment year, 2008-09 against the order of theCommissioner of Income Tax (Appeals)-I, Madurai, dated31.1.2012 made in ITA NO.0117/09-10, against the order of theAdditional Commissioner of Income Tax Range-I, Madurai dated29.12.2009 made in P.A.No.AAACT4262E Assessment year 2007-08. Tax Case Appeal No.794 of 2015 has been filed against theorder of the Income Tax Appellate Tribunal, 'B' Bench,https://hcservices.ecourts.gov.in/hcservices/Chennai, dated 21.02.2013, passed in ITA No.873/Mds/2012 and Tax Case Appeal No.795 of 2015 has been filed against theorder of the Income Tax Appellate Tribunal, 'B' Bench,Chennai, dated 21.02.2013, passed in ITA No.874/Mds/2012. 2. The brief facts, which are necessary for the disposalof the above cases, are as follows:- The Assessee Company is enagaged in manufacturingMetallic powder and generation of power through wind mill.The Company filed return of income for the Assessment Years2002-2003, 2003-2004, 2005-2006 and 2008-2009. The return ofincome was processed, under Section 143(1) of the Income TaxAct, 1961, (hereinafter referred to as the “Act”) and noticewas issued, under Section 143(2) of the Act. 2.1. The Assessing Officer denied the deduction claimedunder Section 80IA of the Act, on the ground that, once inter-se adjustment is made with losses in units, there was nopossibility of deduction under Section 80IA of the Act. 2.2. The Assessee company incurred loss in aluminiumalloy ingot plant and such loss had to be adjusted against theprofit of pyro-technic aluminium powder unit and once theadjustment was carried out, the result was still a loss andhence, deduction under Section 80IA of the Act could not beallowed for the Assessment Years 2002-2003, 2003-2004 and2005-2006. 2.3. In respect of the Assessment Years 2007-2008 and2008-2009, the Assessing Officer had denied the claim ofdeduction, under Section 80IA, on the ground that, as per sub-section 5 of Section 80IA of the Act, the deduction shall becomputed, as if such eligible business was the only source ofincome of the Assessee during the previous year, relevant tothe initial assessment year, and to every subsequentassessment year. In the present case, the windmill divisionhas huge unabsorbed depreciation, which are negative figure,for which Section 80IA of the Act cannot be allowed. 2.3. In respect of the Assessment Years 2007-2008 and2008-2009, the Assessing Officer had denied the claim ofdeduction, under Section 80IA, on the ground that, as per sub-section 5 of Section 80IA of the Act, the deduction shall becomputed, as if such eligible business was the only source ofincome of the Assessee during the previous year, relevant tothe initial assessment year, and to every subsequentassessment year. In the present case, the windmill divisionhas huge unabsorbed depreciation, which are negative figure,for which Section 80IA of the Act cannot be allowed. 2.4. The Assessee has stated that separate accounts weremaintained for the various units and that each unit had to beconsidered as a separate undertaking. According to theAssessee, deduction under Section 80IA or under Section 80IBof the Act would be available for the undertaking as a wholeand there was no requirement for the setting off of the losseswith the profits of various units. In view of the claims madeby the Assessee, the Commissioner of Income Tax (Appeals) haddirected the Assessing Officer to grant the deduction underSections 80IA/80IB of the Act, for the Assessment Years 2002-2003, 2003-04, 2005-2006 and 2006-2007. Further, theCommissioner of Income Tax (Appeals) had allowed the appealfiled by the Assessee, with regard to the Assessment Years2007-2008 and 2008-2009, following the decision of this Courtmade in Velayudham Spinning Mills (P) Ltd. vs. AssistantCommissioner of Income Tax, reported in (2012) 21 Taxmann.comhttps://hcservices.ecourts.gov.in/hcservices/95 (Mad). 2.5. Aggrieved over the order of the Assessing Officer,the Assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals), following the decision of this Court inthe case of Velayudham Spinning Mills (P) Ltd vs. AssistantCommissioner of Income Tax, (2012) 21 taxmann.com 95 (Mad)wherein the appeal filed by the Assessee has been allowed.According to the assessee, deduction under Section 80IA of theAct or Section 80IB of the Act was available for theundertaking as a whole and there was no requirement or settingoff losses with profit of various units. 2.6. Accepting the contention of the assessee, theCommissioner of Income Tax directed the Assessing Officer togrant deduction under Section 80IA/80IB of the Act, for theassessment years 2002-2003, 2003-2004, 2005-2006, 2006-2007,2007-2008 and 2008-2009. 2.7. Aggrieved by the orders of the Commissioner ofIncome Tax (Appeals), the Income Tax Department preferredappeals before the Income Tax Appellate Tribunal (ITAT), inITA Nos.873 and 874/2012/Mds. The ITAT, by its order, dated21.02.2013, had dismissed the appeals filed by the Department.Challenging the same, the Revenue has filed the presentAppeals under Section 260A of the Act. The Revenue has filedtwo appeals, one in respect of the periods 2002-2003, 2003-2004, 2005-2006 and 2006-2007 and another in respect of theperiods 2007-2008 and 2008-2009. The Appeal in Tax CaseAppeal No.794 of 2015, has been filed for the Assessment Year2002-2003 to 2006-2007, raising the following substantialquestions of law:- “1. Whether on the facts and in thecircumstances of the case, the Tribunal was right inholding that each undertaking had to be consideredseparately for working out deduction under Section80IA of the Income Tax Act, 1961? 2. Whether on the facts and in the circumstances ofthe case, the Tribunal was right in confirming theorder of the Commissioner of Income Tax, by holdingthat profits and gains earned by one priorityindustry cannot be reduced by the loss suffered byany other industry or industries owned by theassessee?”the case, the Tribunal was right in confirming theorder of the Commissioner of Income Tax, by holdingthat profits and gains earned by one priorityindustry cannot be reduced by the loss suffered byany other industry or industries owned by theassessee?” “1. Whether on the facts and in thecircumstances of the case, the Tribunal was right inholding that each undertaking had to be consideredseparately for working out deduction under Section80IA of the Income Tax Act, 1961? 2. Whether on the facts and in the circumstances ofthe case, the Tribunal was right in confirming theorder of the Commissioner of Income Tax, by holdingthat profits and gains earned by one priorityindustry cannot be reduced by the loss suffered byany other industry or industries owned by theassessee?”the case, the Tribunal was right in confirming theorder of the Commissioner of Income Tax, by holdingthat profits and gains earned by one priorityindustry cannot be reduced by the loss suffered byany other industry or industries owned by theassessee?” The Appeal in Tax Case Appeal No.795 of 2015, has beenfiled for the Assessment Year 2007-2008 & 2008-2009, raisingthe following substantital questions of law:- “1. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that the assessee isentitled to deduction under Section 80IA of theIncome Tax Act, 1961, without setting off thelosses / unabsorbed depreciation pertaining to thewindmill, which were set off in the earlier years,against the other business income of the assessee? 2. Whether on the facts and in the circumstancesof the case, the Tribunal was right in following thedecision of the Jurisdictional High Court in the caseof Velayudham Spinning Mills (P) Ltd vs. AssistantCommissioner of Income Tax, reported in (340 ITR 477)when the same is pending appeal before the Hon’bleSupreme Court in SLP (Civil) No.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 yearin Section 80IA (5) of the Income Tax Act, 1961,would only mean the year of claim of deduction underSection 80IA of the Income Tax Act, 1961, and not theyear of commencement of eligible business?” 3. The appellant has stated that the Tribunal has failedto appreciate the provision of law prescribed under Section80IA of the Act, which stipulates that, to claim deductionunder Section 80IA of the Act, loss of other undertakings,owned by the assessee, is to be set off in the profit of theunit for which deduction is claimed, and if there was anybalance profits available, the assessee is entitled to claimdeduction, under Section 80IA of the Act. 3.1. It has been further stated that the Tribunal haderred in holding that the losses and unabsorbed depreciation,which already stood set off against other income, during theearlier years, could not be carried forward and set offagainst profits or income of initial / subsequent years, inrespect of windmills, in computing the deduction under Section80IA of the Income Tax Act, 1961. 3.2. It has been further stated that, as per theprovisions of Section 80IA (5) of the Act, the undertakingeligible for deduction under the said section should betreated as the only source of income, for computing thequantum of deduction and therefore, the Tribunal ought tohave observed the fact that a restriction has beenincorporated in sub-section 5 of Section 80IA of the Act, asit starts with a non-obstante clause and the same wouldprevail and the deduction, under section 80IA of the Act, hashttps://hcservices.ecourts.gov.in/hcservices/to be restricted, accordingly. 3.2. It has been further stated that, as per theprovisions of Section 80IA (5) of the Act, the undertakingeligible for deduction under the said section should betreated as the only source of income, for computing thequantum of deduction and therefore, the Tribunal ought tohave observed the fact that a restriction has beenincorporated in sub-section 5 of Section 80IA of the Act, asit starts with a non-obstante clause and the same wouldprevail and the deduction, under section 80IA of the Act, hashttps://hcservices.ecourts.gov.in/hcservices/to be restricted, accordingly. 3.3. It is further pointed out by the appellant that thedecision made by this court, in the case of VelayudhamSpinning Mills (P) Ltd vs. Assistant Commissioner of IncomeTax, reported in (2012) 21 taxmann.com 95 (Mad), has beenchallenged before the Supreme Court of India and the matter ispending disposal. While so, the Tribunal ought not havefollowed the decision of this court, made in VelayudhamSpinning Mills (P) Ltd vs. Assistant Commissioner of IncomeTax, (2012) 21 taxmann.com 95 (Mad). 4. Per contra, the learned counsel appearing on behalf ofthe respondent had submitted that the decision, rendered inVelayudham Spinning Mills (P) Ltd vs. Assistant Commissionerof Income Tax, (2012) 21 taxmann.com 95 (Mad), squarelyapplies to the facts of the present case; following theVelayudham Spinning Mills's case, cited supra, a DivisionBench of this court had rendered a similar decision, in thecase of Commissioner of Income Tax, Circle I, Tirupur vs.R.Yuvaraj, reported in (2015) 57 Taxmann.com 252 (Madras). Inview of the above decisions, the Appeal filed by the Revenueis liable to be dismissed as it is devoid of merits. 5. We have heard the learned counsels appearing on behalfof 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 appeals had arisen are similar to thosewhich had already been decided, by this Court, in the casescited supra. Further, in a batch of cases in CIT Vs. EastmanExports Global Clothing (P) Ltd. (2015) 229 Taxman 449/54Taxmann.Com 408 (Madras), this court had followed the decisionrendered in Velayudham Spinning Mills (P) Ltd vs. AssistantCommissioner of Income Tax, (2012) 21 taxmann.com 95 (Mad) andhad decided the matter in favour of the assessee and againstthe Revenue. Taking note of the above said decisions, we areconstrained to reject the present appeals filed by theRevenue. Thus, the substantial questions of law raised in theappeals are answered against the Revenue and in favour of theassessee, for the reasons stated above. Accordingly, the TaxCase Appeals stand dismissed. No costs. Consequently,connected miscellaneous petitions are closed. Sd/- Assistant Registrar(CS IV) //True Copy// https://hcservices.ecourts.gov.in/hcservices/ Sub Assistant Registrar To 1. The Income Tax Appellate TribunalMadras 'B' Bench, Chennai. 2. The Commissioner of Income Tax, Madurai. 3. The Commissioner of Income Tax, (Appeals)-I, Madurai. 4. The Additional Commissioner of Income Tax, Range-I,Madurai. + 2 ccs to Mr.M.Swaminathan, Advocate Sr.60475 T.C.A.Nos.794 and 795 of 2015 CA(CO) EU 29.09.16