Assessee not entitled to claim any fresh deduction for completed assessments in return filed u/s 153A

Brief of the Case

ITAT Pune held In the case of M/s. D.J. Malpani vs. ACIT that in respect of the assessments which are completed prior to the date of search, no fresh claim of deduction can be made by the assessee. Therefore in the given case, assessee is not entitled to make a fresh claim in the return filed u/s.153A when no such claim was made in the original return of income has to be upheld. However in case the assessment is pending on the date of search, the assessee can claim the deduction in return filed in response to notice u/s 153A. In this case it will be irrelevant that no claim was filed in the original return.

Facts of the Case

  ITA No.1148 & 1149/PN/2013 (By Assessee)

 The assessee is a partnership firm engaged in the business of manufacturing, packing and selling of Tobacco Jarda, allied by-products, Lime and Generation of power through windmill. It filed the return of income on 31-10-2004 declaring total income of Rs.26,22,35,980/-. A search action u/s.132 was conducted in the Malpani group of cases on 06-10-2009. In response to notice u/s.153A, the assessee filed the return of income on 24-06-2010 disclosing total income of Rs.23,95,15,482/- after claiming deduction of Rs.2,27,20,498 u/s.80IA(4). During the course of assessment proceedings, the AO noted that the assessee has claimed deduction of Rs.2,27,20,498/- u/s.80IA(4)(iv)(a) towards profit earned from wind power generation from its windmill. However, no such claim was made by the assessee in its original return.

He, therefore, asked the assessee to explain as to why such allowance should be given to the assessee especially when there was no claim in the original return of income filed on 31-10-2004. Rejecting the various explanations given by the assessee and relying on various decisions the AO disallowed the claim of deduction u/s 80IA (4).

ITA No.1183/PN/2013 (By Revenue)

 The AO during the course of assessment proceedings noted that the assessee during the year has derived sales tax incentive/benefit to the tune of Rs.2,62,49,999/-in sales tax incentive deferral scheme on account of its investment in windmills. The entire sales tax incentive has been transferred by the assessee to Kopargaon Sahakari Sakhar Karkhana Ltd. and M/s. Vanaz Engineering Ltd. On account of these transfer of benefit the assessee has received an amount of Rs.2,04,16,666/- from Kopargaon Sahakari Sakhar Karkhana Ltd. and Rs.58,33,332/- from M/s. Vanaz Engineering Ltd. with liability to return these amounts to the said parties after 10 years in 5 equal annual instalments. As per the terms agreed between the parties the assessee was to treat the amount received from the purchaser as loan which was to be repaid as per the terms mentioned above without any interest.

Since the assessee has paid interest @12.5% to Kopargaon SSK Ltd. and @9% to M/s. Vanaz Engg. Ltd. As discount amounting to Rs.32,50,743/- and claimed the same as finance charge in the profit and loss account, the AO asked the assessee to explain as to why disallowance u/s.40(a)(ia) shall not be applied for failure to deduct TDS on interest as per the requirement of section 194A. Rejecting the various explanations given by the assessee and applying the provisions of section 40(a)(ia) the AO made addition of Rs.32,50,743/-.

ITA No.1150/PN/2013 (By Assessee)

 AO during the course of assessment proceedings noted from the depreciation chart that addition of Rs.46,06,93,328/- was made in the block of windmills. From the breakup of the cost the AO noted that the assessee has included cost of civil works in this cost. He therefore asked the assessee to justify its claim of depreciation at higher rate of 80% on the expenditure on civil works as well as electrical items, transformers, erection and commissioning, if any. It was explained that the entire expenditure being cost of windmill is entitled to depreciation @80%.

From the details furnished by the assessee he noted that cost of electrical yard fencing and cost of preparation of temporary approach road totaling to Rs.29,06,008/- has been included in the cost of windmills. According to him electrical yard fencing and preparation of approach road cannot be considered as part of windmills because they are nothing but building. Their use is not depending on windmill. Relying on the decision of the Pune Bench of the Tribunal in the case of Poonawala Finvest Agro Pvt. Ltd. Vs. ACIT reported in 118 TTJ 68 the AO disallowed excess claim of depreciation of Rs.10,17,103/.

 ITA No.1184/PN/2013 (By Revenue)

The AO in the assessment order held that the concept of manufacture and production of article or thing and generation of power and generation and manufacture of power are different concepts under the income-tax Act. The former was allowed in respect of industrial undertaking specified u/s.80IB(2)(iii) while latter was allowed in respect of undertaking specified u/s.80IA(4)(iv). He further noted that no excise duty is leviable on production of electricity produced by the windmill. Therefore, logical inference is that there is no manufacture involved in the process. Further, the set up of the windmill had absolutely no connection with the assesse’s business of manufacture of Tobacco, Jarda, allied products and Lime. He accordingly held that the assessee is not entitled to claim additional depreciation.

Contention of the Assessee

  ITA No.1148 & 1149/PN/2013 (By Assessee)

 The ld. counsel for the assessee submitted that the issue stands decided against the assessee by the decision of the Pune Bench of the Tribunal in the case of B.G. Shirke Construction Technology Pvt. Vs. ACIT vide ITA Nos.727 to 730/PN/2012 order dated 31-10-2013. It has been held in the said decision that in respect of the assessments which are completed prior to the date of search, no fresh claim of deduction can be made by the assessee.

.ITA No.1150/PN/2013 (By Assessee)

The ld counsel of the assessee submitted that since the addition is not based on any incriminating material found during the course of search or post search enquiries and the original assessment was completed on 29-12-2008 which is prior to the date of search on 06-10-2009, therefore, no disallowance is called for. For this proposition, he relied on the decision of the Hon’ble jurisdictional High Court in the case of CIT Vs. Continental Warehousing Corporation vide ITA No.523/2013 order dated 21-04-2015.

However, on merits he submitted that the issue stands decided against the assessee by the decision of the Tribunal in the case of Poonawala Finvest & Agro Pvt. Ltd. 118 TTJ 68 wherein it has been held that higher rate of depreciation is not allowable on electrical fencing and temporary approach road.

Contention of the Revenue

 ITA No.1150/PN/2013 (By Assessee)

 The ld counsel of the revenue supported the order of the CIT (A) submitted that the AO has jurisdiction u/s.153A to reassess the income.

 Held by CIT (A)

 ITA No.1148 & 1149/PN/2013 (By Assessee)

CIT (A) upheld the action of the AO.

ITA No.1183/PN/2013 (By Revenue)

CIT (A) relying on the decision of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports Ltd. reported in 16 ITR (Trib.) 5 deleted the addition made u/s. 40a(ia). Further, he noted that this addition was neither made in the original assessment nor does it arise out of any new facts unearthed during the search. Relying on the decision of the Hon’ble Bombay High Court in the case of Murali Agro Products Ltd. ITA No.36/2009 order dated 29-10-2010 and following his decision in the case of Rajesh Malpani for A.Y. 2004-05 vide Appeal No.PN/CIT(A) I/ACIT/Cen.Cir.1(1)/PN/430/11-12 the.CIT(A) held that the assessment which has already been completed u/s.143(3) prior to search becomes final unless any incriminating evidence was found relating to the addition during the course of search.

ITA No.1150/PN/2013 (By Assessee)

 CIT (A) upheld the action of the AO. It was held that the claim by the appellant of depreciation at higher rate on civil construction of windmills is inadmissible in view of the jurisdictional ITAT decision in Poonawalla Finvest and Agro (P) Ltd. Vs ACIT reported in 118 TTJ 68 and Vanaz Engineering Ltd. vs. Addl. CIT in ITA No. 987/PN/2006 dated 31.10.2008. Further the Delhi High Court in Anil Kumar Bhatia and Special Bench ITAT Mumbai in All Cargo Logistics have clearly held that reassessment of income is possible in the fresh proceedings u/s 153A, consequent to search, on the basis of books of accounts not produced earlier, since the two proceedings get merged.

ITA No.1184/PN/2013 (By Revenue)

CIT (A) held that in the assessment completed u/s 143(3) prior to the search the AO had allowed the additional depreciation claimed by the assessee. No incriminating material was found during the course of search. The disallowance is not based on any incriminating material. Therefore, in view of the decision of the Hon’ble Bombay High Court in the case of Murali Agro Products no disallowance is called for.

Held by ITAT

 ITA No.1148 & 1149/PN/2013 (By Assessee)

In view of the submission by the Ld. Counsel for the assessee and in absence of any objection from the Ld. Departmental Representative, the order of the CIT (A) holding that assessee is not entitled to make a fresh claim in the return filed u/s.153A when no such claim was made in the original return of income has to be upheld. The grounds raised by the assessee are accordingly dismissed.

ITA No.1183/PN/2013 (By Revenue)

Admittedly, the assessment in the instant case was earlier completed u/s143(3) on 29-12-2008 which is prior to the date of search that took place on 06-10-2009. No material has been gathered during the course of proceedings u/s. 153A that relief granted under the finalized assessment/re-assessment were contrary to the facts unearthed during the course of 153A proceedings. The Ld. Departmental Representative could not controvert the findings given by the CIT(A) that no incriminating material was found during the course of search.

The Hon’ble Bombay High Court in the case of CIT Vs. Murali Agro Products Ltd. vide ITA No.36/2009 order dated 29-10- 2010 and in the case of CIT Vs. Continental Warehousing Corporation vide ITA No.523/2013 order dated 21-04-2015 has held that the AO while passing the assessment order u/s.153A r.w.s. 143(3) cannot disturb the assessment order which has been finalized earlier in absence of any incriminating material unearthed during the search or during 153A proceedings.

Respectfully following the decisions of Hon’ble jurisdictional High Court and in absence of any contrary material brought to our notice, we do not find any infirmity in the order of the CIT(A). The ground raised by the Revenue is accordingly dismissed.

ITA No.1150/PN/2013 (By Assessee)

Admittedly, in the instant case the assessment was completed u/s.143(3) on 29-12-2008. No incriminating material was found during the course of search for the impugned assessment year. However, during proceedings u/s.153A it was found that assessee has claimed higher depreciation on electrical fencing and temporary approach road. Therefore, in view of the decision of the Pune Bench of the Tribunal in the case of Poonawala Finvest & Agro Pvt. Ltd. reported in 118 TTJ 68, we are of the considered opinion that the Ld.CIT(A) is justified in sustaining the addition made by the AO. Accordingly, the disallowance of depreciation amounting to Rs.10,17,103/- is upheld. Grounds raised by the assessee are accordingly dismissed.

ITA No.1184/PN/2013 (By Revenue)

The disallowance of additional depreciation by the AO is not based on any incriminating material found during the course of search or post search enquiry. Therefore, in view of the decision of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Supra) the Ld.CIT(A) was justified in deleting the disallowance made by the AO.

Even on merit also we find the issue stands decided in favour of the assessee by the decision of the Hon’ble Madras High Court in the case of CIT Vs. VTM Ltd. reported in 319 ITR 336 has held that assessee which was manufacturing textile goods and had set up a windmill after 31-03-2002 was entitled to additional depreciation.

Also The Chennai Bench of the Tribunal in the case of ACIT Vs.M. Satish Kumar ITA No.718/Mds/2012 order dated 28-09-2012 has held that generation of electricity is akin to manufacturing of new product. Relying on the decision of Hon’ble Supreme Court in the case of CIT Vs. Madhya Pradesh Electricity Board reported in 1970 AIR 732 (SC) and the decision of the Delhi Bench of Tribunal in the case of NTPC Ltd. reported in 2002 (4) (TM) 694 (SC) it was held that generation of electricity is a manufacturing activity and the assessee is eligible for additional depreciation u/s.32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the grounds raised by the revenue are dismissed.

Accordingly appeal of the assessee dismissed.