Deduction u/s. 80-IA is to be allowed unit-wise without deducting losses in other unit

IN THE ITAT BANGALORE BENCH ‘B’

Jindal Aluminium Ltd.

Versus

Assistant Commissioner of Income-tax

IT APPEAL NO. 1021 (BANG.) OF 2011

[ASSESSMENT YEAR 2004-05]

AUGUST 31, 2012

ORDER

N.V. Vasudevan, Judicial Member 

This is an appeal by the assessee against the order dated 12-08-2011of CIT(A)-I, Bangalore, relating to AY: 2004-05.

2. M/s Jindal Aluminum Ltd., the Assessee in this appeal, is engaged in the business of manufacture and sale of aluminum extrusion and generation of wind energy. The Aluminum extrusion plant is situated at Tumkur Road, Bangalore. The business of generation of wind energy through windmills are situated at the following places.

 (i)  Wind Mill (4.14 MW) at village Madikaripura, Chitradurga Dt. Karnataka(WM-1)

(ii)  Wind Mill (6.6 MW) at village Nandana Hosur, Chitradurga Dt. Karnataka (WM-II)

(iii) Wind Mill (1.9 MW) at village Kunjahanahalli, Chitradurga Dt. Karnataka(WM-III)

Commercial generation of WM-I started in financial year 1997-98. WM-II started commercial generation in financial year 2002-03. Commercial generation of WM-III started in the financial year 2003-04.

3. The assessee filed its original return under section 139(1) of the IT Act, 1961 on 28-10-2004, returning taxable income of Rs. 4,05,47,015/- and with a tax liability of Rs. 1,59,06,0-89/- under section 115J of the Income Tax Act, 1961. In the computation of taxable income profit & loss of each unit was as follows;

The assessee has been claiming deduction u/s 80IA of IT Act in respect of its WM-I Unit, since assessment year 2000-01. The same was allowed by the Assessing Officer. In the current assessment year also, the assessee claimed deduction u/s 80IA amounting to Rs. 4,72,28,143/- (being the 5th year of claim) in respect of the said unit and the same was allowed by the Assessing Officer in her order u/s 143(3) dated 29-12-2006.

4. On 16-12-2008 CIT passed order u/s 263 of the Act setting aside the assessment order dated 29-12-2006 and directed the Assessing Officer to make a fresh assessment by allowing the deduction claimed u/s 80IA in accordance with law in the light of the observations. In the proceedings before the AO pursuant to order of CIT u/s.263 of the Act, the Assessee pointed out that the Hon’ble Income-tax Appellate Tribunal, Bangalore in assessee’s own case (ITA No.448/Bang/2009) in assessment year 2006-07 held that deduction u/s 80IA is to be allowed unit wise without deducting losses during the other units. This ITAT order was submitted to Assessing Officer on 07-10-2009 and on 15-12-2009, assessee also drew the attention of the Assessing Officer to following judgments;

(a)  Karnataka Power Corpn. Ltd. v. CIT, Bangalore) ITAT Bangalore (ITA No. 294/Bang/2009, dated 10-7-2009)

(b)  Asstt. CIT v. Goldmine Shares & Finance (P.) Ltd. [2008] 113 ITD 209 (Ahd.) (SB).

(c)  Jt. CIT v. Associated Capsules (P.) Ltd. [2008] 114 ITD 189 (Mum.).

(d)  Meera Cotton & Synthetic Mills (P.) Ltd. v. Asstt. CIT [2009] 29 SOT 177 (Mum.).

wherein it has been laid down that deduction u/s 80IA is to be allowed unit wise without deducting losses during the other units.

5. The Assessing Officer passed order dated 23-12-2009 wherein she adjusted the losses (depreciation of WM-II & WM III with the profit of WM I and disallowed the deduction u/s 80IA though gross total income of assessee was positive and more than deduction claimed u/s 80IA. After setting off loss (unabsorbed depreciation) the assessee had gross total income of Rs. 9,87,72,464/-. Deduction u/s 80IA amounting to Rs. 4,16,36,240/- was claimed in respect of WM I unit. The Assessing Officer passed order u/s 143(3) read with Sec. 263 of the Act, setting off unabsorbed depreciation against the profits of the Wind Mill-I wholly disallowing the deduction claimed u/s 80IA.

6. On appeal by the assessee, the CIT confirmed the action of the AO for the following reasons;

“I have gone through the facts of the case as well as the legal issues and citations put forth by the AR above. Firstly, I do not subscribe to the view that the decision of ITAT pertaining to AYT: 2006-07 in appellant’s own case binds either the AO or me to hold differently because of two reasons; Firstly, the issue is a legal one and the issue is contentious. Even the High Courts have different views that the Supreme Court. For e.g. In the case of Meera Cotton, the Hon’ble Mumbai High Court had given a different decision distinguishing the facts of that case from Synco Case decided by Supreme Court. In this case, the ld. ITAT has held the case in favour of the assessee on the basis of its finding in the case of-

M/s Karnataka Power Corporation Ltd v. CIT in ITA No. 294/Bang/2009 dated 10-07-2009

In that case, the assessee was having seven units, all generating power. In this case, the business is from two different sources viz. power sale and aluminium sale. Besides, in the case of M/s Karnataka Power Corpn. Ltd., (AY: 2007-08) In ITA No.140/AC-11(5)/A-1/10-11 dated: 09-08-2011

I have decided such issue of claim u/s 80IA against the appellant elaborating the reasons therein and I still hold on to that and therefore, following the same reasoning, it is also held against the appellant. In fact, I find in that case too the case of Syno has not been discussed which in clear terms explains the binding provisions of Sec. 80IA of IT Act. The facts of the case of Synco Industries Ltd. v. ACIT [2008] 2999 ITR 444 (SC) May be put as under;

“The assessee has a unit for oil division and also another unit of chemical division. The assessee earned profit in both the units in the year in question. However, it had suffered losses in the oil division in the earlier years. The assessee claimed deductions u/ss 80HH and 80I by claiming that each unit should be treated separately and the loss suffered by oil division in earlier years be adjusted against the profit of the chemical division while considering the question of granting deductions u/s 80HH and 80I. The AO observed that the gross total income of the assessee before granting deductions under this section was nil. He, therefore, held that the assessee was not entitled to the benefit of deduction. The first appellate authority confirmed the view of the AO. Similar was the fate of the assessee before the Tribunal and the High Court. It was argued before the S.C that sec.801(6) entitles it to deduction by considering such industrial undertakings as the only source of income of the assessee during the previous year relevant to the assessment year under consideration and hence the loss suffered by the assessee in the earlier years ought not to have been considered for the purposes of granting deduction under these sections in the current year. Jettisoning the assessee’s point of view the Supreme Court held that the deduction under Chapter VIA are allowed from the gross total income in accordance with sec.80A and since the gross total income of the assessee was NIL, hence there was no scope for allowing any deduction”.

Since such decision is binding under Article 141 of the Constitution of India, the Hon’ble High Court of Mumbai distinguished the facts to hold that the appellant Meera Cotton deserves relied vide para-9 of the order reproduced below;

“We find that there is absolutely no similarity in the facts of that case with those under consideration for the reason that the gross total income of the assessee is only at Rs. 152.08 lakhs whereas the amount of deduction u/s 80IB is only at Rs. 100.13 lakhs thereby leaving the total income at a positive figure of Rs. 51.95 lakhs. That was a case in which the gross total income was nil and the Hon’ble SC held that in the absence of positive gross total income, there cannot be granted any deduction under those sections. Moreover, in that case there was a brought forward loss from the eligible industrial undertaking, which is not so in the present case”.

In fact, on a similar analysis of fats of the case in hand and that of Meera Cotton cited by the AR. I find the aggregation of profits from the three undertakings of eligible business of generation of power through Wind Mill is loss or negative. The ratio of Syno case and not Meera Cotton case is applicable to the facts of the case on hand. Therefore, it is held hat the AO’s action of disallowance of claim u/s 80IA is held justified. The grounds of appeal Nos.2 to 9 are dismissed”.

7. Aggrieved by the order of the CIT(A) the assessee has preferred the present appeal before the Tribunal. We have heard the rival submissions. The learned DR relied on the order of the CIT(A). The learned counsel for the Assessee reiterated submissions as were made before the AO.

8. We have considered the rival submissions. In Synco Industries Ltd. v. Assessing Officer (Income-tax) [2008] 299 ITR 444/168 Taxman 224 (SC), the facts were that the assessee was engaged in the business of oil and chemicals. It had a unit for oil division in Sirohi and a unit for chemical division in Jodhpur. For the assessment years 1990-91 and 1991-92 it had earned profits in both the units. But in the earlier years the assessee had suffered losses in the oil division. In relation to the deductions under sections 80HH and 80-I of the Income-tax Act, 1961, it claimed that each unit should be treated separately and the losses suffered in the earlier years by the oil division were not adjustable against the profits of the chemical division. But since the gross total income was nil the Assessing Officer held that the assessee was not entitled to the benefit of deductions under Chapter VI-A. The Appellate Tribunal and the High Court affirmed the view of the Assessing Officer. On appeal to the Supreme Court Held, affirming the decision of the High Court, that the High Court was justified in holding that the loss from the oil division was required to be adjusted before determining the gross total income and as the gross total income was “nil” the assessee was not entitled to claim deductions under Chapter VI-A which included sections 80HH and 80-I. The Hon’ble Court held that the effect of clause (5) of section 80B of the Income-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 individual ; (iii) adjusting intra-head and/or inter-head losses ; and (iv) setting off brought forward unabsorbed losses and unabsorbed depreciation, etc. Only if the gross total income so determined is positive the question of allowing the deductions under Chapter VI-A would arise, not otherwise. The words “includes any profits” in section 80-I(1) are important and indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in order to arrive at the deduction under Chapter VI-A. However, the non obstante clause in section 80-I(6) is applicable only to the quantum of deduction, whereas, the gross total income under section 80B(5) which is also referred to in section 80-I(1) is required to be computed in the manner provided under the Act which presupposes that the gross total income shall be arrived at after adjusting the losses of the other division against the profits derived from an industrial undertaking. To say that under section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and that the profit is required to be computed as if the profit making industrial undertaking was the only source of income would almost render the provisions of section 80A(2) of the Act nugatory. Sections 80A(2) and 80B(5) are declaratory and apply to all the sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and therefore the non obstante clause in section 80-I(6) cannot restrict the operation of sections 80A(2) and 80B(5) which operate in different spheres. The gross total income of the assessee has first got to be determined after adjusting losses etc., and if the gross total income of the assessee is “nil” the assessee would not be entitled to deductions under Chapter VI-A of the Act.

9. The Mumbai Bench of the Tribunal in the case of Meera Cotton & Synthetic Mills (P.) Ltd. (supra) had an occasion to deal with a case similar to the case of the Assessee in this appeal. The facts were, the assessee filed its return for the assessment year 2003-04 declaring total income at Rs. 51,95,406. In computing the total income it had claimed deduction under section 80-IB of the Income-tax Act,1961, in respect of unit No. 3 at Rs. 1 crore. The Assessing Officer noted that the assessee had three units eligible for deduction under section 80-IB and that the loss incurred in unit Nos. 1 and 2 was required to be adjusted against the profit of unit 3 before allowing deduction under section 80-IB at 100 per cent. of such profit. He, therefore, reduced the amount of deduction from Rs. 1 crore to Rs. 87.61 lakhs. The Commissioner (Appeals) affirmed the view taken by the Assessing Officer. On appeal the Tribunal held that sub-section (1) of section 80-IB provides that where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11B), there shall be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. Sub-section (2) states that this section applies to any industrial undertaking which fulfils all the conditions stipulated in this sub-section. The act of the Assessing Officer allowing deduction under this section, albeit at a lower profit, showed that all other requisite conditions making the assessee eligible for deduction, had been satisfied. If there was a profit derived from a particular industrial undertaking, that would qualify for deduction without reduction of loss suffered by any other eligible industrial undertaking(s). The gross total income of the assessee was Rs. 152.08 lakhs after adjusting the losses suffered by it in the eligible as well as non-eligible units. There were no brought forward losses or unabsorbed depreciation. The claim of deduction under section 80-IB in respect of eligible unit No. 3 at Rs. 100.13 lakhs was less than the gross total income. The Commissioner (Appeals) had erred in interpreting the relevant provision when he held that the losses suffered by the assessee in two eligible units be reduced from the income of the other eligible unit for granting the deduction under section 80-IB. The assessee was entitled to deduction under section 80-IB on the profit derived by it from eligible unit No. 3 at Rs. 100.13 lakhs.

10. The Mumbai Bench of ITAT in the case of Meera Cotton & Synthetic Mills (P.) Ltd. (supra) distinguished the decision of the Hon’ble Supreme Court in the case of Synco Industries Ltd. (supra) as follows:

“At this juncture it will be relevant to consider the judgment of the Hon’ble Bombay High Court relied upon by the authorities below in Synco Industries Ltd. v. Assessing Officer [2002] 254 ITR 608 which now stands approved by the Hon’ble apex court in Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444. The facts of this case are that the assessee had a unit for oil division and also another unit for chemical division. The assessee earned profits in both the units in the year in question. However it had suffered losses in the oil division in the earlier years. The assessee claimed deductions under sections 80HH and 80-I by claiming that each unit should be treated separately and the losses suffered by the oil division in earlier years be not adjusted against the profits of the chemical division while considering the question of granting deductions under sections 80HH and 80-I. The Assessing Officer observed that the gross total income of the assessee before granting deductions under this section was nil. He, therefore, held that the assessee was not entitled to the benefit of deduction. The first appellate authority confirmed the view of the Assessing Officer. Similar was the fate of the assessee before the Tribunal and the Hon’ble High Court. It was argued before the Hon’ble Supreme Court that section 80-I(6) entitles it to deduction by considering such industrial undertaking as the only source of income of the assessee during the previous year relevant to the assessment year under consideration and hence the loss suffered by the assessee in the earlier years ought not to have been considered for the purposes of granting deduction under these sections in the current year. Jettisoning the assessee’s point of view the Hon’ble Supreme Court held that the deductions under Chapter VI-A are allowed from the gross total income in accordance with section 80A and since the gross total income of the assessee was nil, hence there was no scope for allowing any deduction.

We find that there is absolutely no similarity in the facts of that case with those under consideration for the reason that the gross total income of the assessee is Rs. 152.08 lakhs whereas the amount of deduction under section 80-IB is only at Rs. 100.13 lakhs, thereby leaving the total income at a positive figure of Rs. 51.95 lakhs. That was a case in which the gross total income was nil and the Hon’ble Supreme Court held that in the absence of positive gross total income, there cannot be granted any deduction under those sections. Moreover in that case there was a brought forward loss from the eligible industrial undertaking, which is not so in the present case.

Section 80A(1) provides that in computing the total income of an assessee, there shall be allowed from his gross total income, the deductions specified in sections 80C to 80U. Sub-section (2) further provides that the aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee. The gross total income has been defined under section 80B(5) to mean “the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter”. It therefore follows that the primary step for considering the grant of deductions under Chapter VI-A is to determine the gross total income, which, in turn, is computed by aggregating the income from all the sources in this year after adjusting the losses of the current year under any head. The brought forward loss or unabsorbed depreciation etc. are also reduced. The resultant figure is determined as gross total income. To put it simply gross total income is the income avail- able at the disposal of the assessee immediately before allowing deductions under Chapter VI-A. If the gross total income is say Rs. 100 and the assessee is entitled to deduction under section 80-IB at Rs. 150, then the amount of deduction under section 80-IB will be restricted to Rs. 100 as per the mandate of section 80A which provides that the deductions shall be allowed from the gross total income and the aggregate amount of all the deductions shall not in any case exceed the gross total income of the assessee. If however the amount of eligible relief under section 80-IB is say Rs. 90, then full amount will be eligible for deduction because the amount of the eligible relief does not exceed the gross total income. Therefore it is mandatory to work out the eligible amount of deduction under various sections of Chapter VI-A individually and then such aggregate amount has to be restricted to the amount of gross total income as computed under section 80B(5), which means the income available after adjusting all the brought forward losses and unabsorbed depreciation etc.

Coming back to the facts of our case we observe that the gross total income of the assessee is at Rs. 152.08 lakhs after adjusting the losses suffered by it in the eligible as well as non-eligible units. There are no brought forward losses or unabsorbed depreciation. The claim of deduction under section 80-IB in respect of eligible unit No. 3 at Rs. 100.13 lakhs is obviously less than the gross total income. In our considered opinion the learned Commissioner of Income-tax (Appeals) has erred in interpreting the relevant provision when he held that the losses suffered by the assessee in two eligible units be reduced from the income of the other eligible unit for granting the deduction under section 80-IB. Since the facts of the case in the case of Synco Industries Limited [2008] 299 ITR 444 (SC) lie in an altogether different compartment, we hold that the ratio of that case cannot be considered for application to the assessee’s case. Accordingly the impugned order is overturned and the assessee is allowed deduction under section 80-IB on the profit derived by it from eligible unit No. 3 at Rs.100.13 lakhs.”

11. The facts of the present appeal are identical to the facts as it prevailed in the case of Meera Cotton Synthetic Mills (P.) Ltd. (supra). The computation of total income of the Assessee is as follows:

The Statement of total income for Income-tax, for the assessment year 2004-05.

12. As can be seen from the computation of total income at the stage of aggregation of income under same head of income as well as under different heads of income, the losses intra head as well as inter head have to be adjusted. It therefore follows that the primary step for considering the grant of deductions under Chapter VI-A is to determine the gross total income, which, in turn, is computed by aggregating the income from all the sources in the year after adjusting the losses of the current year under any head. The brought forward loss or unabsorbed depreciation etc. are also reduced. The resultant figure is determined as gross total income. At the stage of aggregation of income there is no question of adjusting loss of any other business against the business income the undertaking eligible for deduction under chapter VIA of the Act.

13. Coming back to the facts of our case we observe that the gross total income of the assessee is at Rs. 8,03,26,598 lakhs after adjusting the losses suffered by it in the eligible as well as profits of the non-eligible units. There are no brought forward losses or unabsorbed depreciation. The claim of deduction under section 80-IA was in respect of eligible unit 4.14 MW wind energy division at Rs. 4,72,28,143 and the deduction u/s.80HHC of the Act was claimed in respect of other units at Rs.15,51,440. Even if both the deductions are added the sum total is obviously less than the gross total income. In our considered opinion the learned Commissioner of Income-tax (Appeals) has erred in interpreting the relevant provision when he held that the losses suffered by the assessee in two eligible units be reduced from the income of the other eligible unit before granting the deduction under section 80-IA. Since the facts of the case in the case of Synco Industries Ltd. (supra) lie in an altogether different compartment, we hold that the ratio of that case cannot be considered for application to the assessee’ s case. Accordingly the impugned order is overturned and the assessee is allowed deduction under section 80-IA on the profit derived by it from eligible unit 4.14 MW wind energy unit at Rs.4,72,28,143.

14. We find that the CIT(A) in the present case has disregarded the binding decision of the ITAT. The basis on which the CIT(A) refused to follow the order of the ITAT in assessee’s own case for the assessment year 2006-07 cannot be sustained. In the case of Meera Cotton & Synthetic Mills (P) Ltd. (supra) the Bombay Bench of the ITAT after considering the decision of the Hon’ble Supreme Court in the case of Synco Industries Ltd. (supra) had clearly held that the stage at which set off has to be done is only after aggregation of income under all heads. The CIT(A) did not agree with this reasoning of the ITAT. The facts of the present case are clearly identical to the facts, as it prevailed in the case of Meera Cotton & Synthetic Mills (P) Ltd. (supra) The CIT(A) being an authority lower in the tier of authorities under the Act to that of the ITAT, is bound to follow the decision of the ITAT. In our view, the CIT(A) in the present case has for no valid reason refused to follow the decision of the Hon’ble ITAT.

15. In the result, the appeal filed by the assessee is allowed.