ORDER
D. Karunakara Rao, Accountant Member - This is the appeal filed by the assessee directed against the order of CIT(A)-I, Pune, dt. 7th Nov., 2007 for the asst. yr. 2004-05. Following grounds were raised in the appeal :
"1.
Holding that the incurrence of advertisement/sales promotion expenditure amounting to Rs. 23,00,000 was for the purpose of acquiring benefit of enduring nature namely "right to use the lounge/cafeteria (constructed on the basis of Poonawalla Group of Companies sponsorship) for 15 days in a year ignoring the prime object of advertisement and publicity and thereby disallowing the same being 'capital expenditure' instead of 'revenue expenditure' as claimed by the appellant.
2.
Without prejudice to the ground No. 1 above, not allowing depreciation on the expenditure incurred for construction of cafeteria amounting to Rs. 23,00,000 as referred in ground No. 1 above which allows the appellant the right to use the lounge/cafeteria as per the terms of agreement with RWITC as per Appendix I, Part B namely, 'intangible assets' eligible for depreciation @ 25 per cent.
3.
Holding that the past losses of the undertaking entitled to claim deduction under s. 80-IA which have been set off in the earlier years should have been set off against the profit of the said undertaking for the current year and only on the balance income, the deduction under s. 80-IA was to be allowed to the assessee.
4.
The learned CIT(A) erred in not appreciating that in view of the provisions of s. 80-IA(5) of the IT Act, 1961 the profit from the eligible business for the purpose of deduction under s. 80-IA of the Act need not be computed after deduction of the notional brought forward losses and depreciation of eligible business which have been set off against other income in earlier years."
2. Briefly stated, relevant facts of the case are that assessee is engaged in breeding of livestocks (horses). Assessee filed the return of income declaring the total income of Rs. 73,93,189. The total income was determined at Rs. 1,26,34,050 under s. 143(1) of the IT Act. The AO disallowed the claim of Rs. 23,00,000 out of the claim of advertisement and sales promotion expenses. Further, AO also denied the benefit of deduction under s. 80-IA(5) to the extent of Rs. 25,44,326-the profit earned from windmill activities. In the process, AO did not accept the assessee's exercises of the option that the asst. yr. 2004-05 is an initial assessment year. The CIT(A) confirmed the above decision of the AO.
3. Aggrieved with the same, assessee filed an appeal before the Tribunal with the abovesaid ground. In connection with the claim of s. 80-IA(5), assessee filed a clarificatory ground which reads as under :
"1.
The learned CIT(A) erred in holding that the initial assessment year for the purposes of s. 80-IA (2) r/w s. 80-IA(5) was the year in which the assessee started generating the electricity without appreciating that the term 'initial assessment year' for the above purposes was the first year in which the assessee claimed the deduction under s. 80-IA(1).
2.
The learned CIT(A) erred in denying the deduction of Rs. 25,44,326 under s. 80-IA claimed by the appellant in respect of the profits from the windmill activity."
With the above given backgrounds of the developments, we proceed to undertake the adjudication of both the issues in the following paras.
4. Ground Nos. 1 and 2 relate to the claim of deduction of Rs. 23,00,000. The counsel narrated stating that there is an agreement dt. 23rd Jan., 2002 between the Royal Western India Turf Club India Ltd., and four of the group companies of Poonawala Group. As per the agreement, Poonawala Group Companies have to pay sum of Rs. 92,00,000 and assessee is one amongst them in addition to Serum Institute of India Ltd. This amount of Rs. 92,00,000 was equally divided among the four of the companies namely :
1.
Serum Institute of India
2.
Poonawala Estate Stud & Agri Farm
3.
The Poona Stud Farm (P) Ltd.
4.
Poonawala Finvest & Agro (P) Ltd.
In lieu of the abovesaid payment, four of the group companies are entitled for various benefits which are narrated in the said agreement, the details of which are narrated in para 2 of the impugned order. On observing the above transactions, the AO and CIT(A) are of the view that the sum of Rs. 23,00,000 which is 1/4th of Rs. 92,00,000 is capital in nature. Accordingly, addition was made by the AO and the said addition was sustained by the CIT(A). Aggrieved with the same, assessee filed the impugned appeal with this issue. During the proceedings before us, learned counsel for the assessee has taken us through para 2.3 of the impugned order and read out the following portion :
"It is again an undisputed fact that in case of Serum Institute of India Ltd., which is assessed to tax in Range-6, Pune, an amount of Rs. 23 lakhs which is borne by Serum Institute of India Ltd., out of Rs. 92 lakhs is allowed as revenue expenditure under s. 143(3); in case of appellant it is held as capital expenditure and no depreciation be allowed of such expenditure and in case of other two entities, there is no scrutiny assessment and, therefore, the claim of the assessee is accepted without scrutiny."
5. Basing on the above, learned counsel argued stating that Rs. 23,00,000 each was paid by the four companies of the Poonawala Group and the said amount was allowed as a revenue expenditure in the case of Serum Institute of India Ltd. during the scrutiny proceedings under s. 143(3) of the Act. Further, the Revenue took a different stand and held identical claim as capital expenditure in the case of the assessee. This is a case of violation of established rule of consistency by the Revenue and rule of res judicata does not apply in this case. Learned counsel relied on judgment of Supreme Court in Radhasoami Satsang v. CIT [1991]) 100 CTR (SC) 267 /[1992] 193 ITR 321 (SC) . On the other hand, learned Departmental Representative for the Revenue relied on the order of the Revenue.
6. We have heard the parties and perused the orders of the Revenue and the cited apex Court judgment on the principle of the judicial principles of res judicata and the rule of consistency vis-a-vis the facts of the issue in the case of this assessee and the case of Serum Institute of India Ltd., we find that the facts are identical and it is a fact that the Revenue held that the impugned expenditure is revenue in nature in the case of Serum Institute of India Ltd. contrary to the finding that it is capital in nature in assessee's case. This is a case of paradox and it is case of absurdity on part of the law. This kind of paradoxicality does not survive in the scrutiny of law and the same is supported by the ratio decidendi in the case of Radhasoami (supra). For the sake of completeness, the held portion of the said judgment is reproduced as under :
"Held, reversing the decision of the High Court, on the facts, (i) that property given to the Satguru was intended for the common purpose of furthering the purpose of the institution. The Central council had authority to manage the properties of the institution and, on revocation of the trust, the property was not to go back to the Satguru, and, at the most, in the place of the trust, the Central council would exercise most, in the place of the trust, the Central council would exercise authority. The Tribunal was justified in holding that the properties were subject to a legal liability of being used for the religious or charitable purposes of the Satsang.
(ii)That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened.
Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year."
7. We also found that the impugned sum of Rs. 23,00,000 is part and parcel of the total payment of Rs. 92,00,000. The facts of the issue involved in Serum Institute of India Ltd. and the present assessee are one and the same. Revenue did not make out any case to demonstrate that the claims in the cases of the assessee and other three assessees including Serum Institute of India Ltd. are different or distinguishable. Considering the homology of the facts, commonality of the agreement and the contents thereof, benefits arrived by the impugned four concerns, we are of the opinion that the rule of consistency is violated within the meaning of the ratio decidendi in the case of Radhasoami (supra). Therefore, on this reasoning, the assessee is also entitled for making claim of deduction without going to the merits of the issue raised in the appeal. Accordingly, grounds 1 and 2 are allowed.
8. The grounds 3 and 4 together with the clarificatory grounds raised deal with the issue relating to the claim of the deduction under s. 80-IA in respect of the profits of the windmill activity and the meaning of 'initial assessment year'.
9. Relevant facts of the issue are that the assessee owns windmill commencing from the asst. yr. 2002-03. However, he earned the loss of Rs. 1,43,92,762 out of windmill activity. Assessee adjusted this said loss against the income from other ineligible business under s. 80-IA(5). Later in the asst. yr. 2003-04, assessee earned profit of Rs. 28,25,523 from the windmill activity and did not claim deduction under s. 80-IA and paid taxes as per the Act. Finally, in the current assessment year i.e., 2004-05, assessee earned income of Rs. 25,44,326 from the windmill activity and claimed deduction under s. 80-IA of the Act. The details of claim of deduction as given by the assessee at p. 68 of the paper book are as under :
| Particulars |
Asst. yr. 2002-03 |
Asst. yr. 2003-04 |
Asst. yr. 2004-05 |
| Income from business (under s. 28) |
|
|
|
| Others |
1,97,97,620 |
1,43,75,158 |
84,09,383 |
| Windmill activity |
-1,43,92,762 |
28,25,523 |
25,44,326 |
|
54,04,858 |
1,72,00,681 |
1,09,53,709 |
| Capital gains |
0 |
0 |
0 |
| Income from other sources |
4,500 |
4,500 |
4,500 |
| Gross total income |
54,09,358 |
1,72,05,181 |
1,09,58,209 |
| Less : Deduction under s. 80G/ Chapter VI- A |
0 |
0 |
4,20,694 |
| Sec. 80-IA windmill |
0 |
0 |
25,44,326 |
| Total income |
54,09,358 |
1,72,05,181 |
79,93,189 |
10. During the assessment proceedings, on considering the facts of the assessee on this issue, the AO was of the opinion that the assessee erroneously held the asst. yr. 2004-05 as an initial assessment year, as mentioned in sub-s. (2) of the s. 80-IA of the Act. In the process, AO withdrew the option of choosing the initial assessment year granted by the statute. As per the AO, the asst. yr. 2002-03 should be initial assessment year and accordingly, computed the deduction as per the provision of sub-s. (5) of s. 80-IA. Aggrieved with the same, assessee filed appeal before the CIT(A), and the CIT(A) approved the views taken by the AO.
11. Aggrieved with the same, assessee filed the present appeal with the grounds/clarificatory grounds before us. During the hearing, the counsel narrated the above-referred facts and made various arguments. They are :
(i)
The provisions of s. 80-IA(2) provide option to the assessee for starting claiming any 10 consequtive assessment years out of 15 years. In this regard, the counsel mentioned that 10 out of 15 years is given for exercising the option by the assessee. He further mentioned that once assessee opted to claim from that assessment year, it has to be continuous and assessee cannot jump the assessment years for one reason or the other.
(ii)
The definition provided in the pre-amended s. 80-IA(12C) also provides for some question of such option.
(iii)
Sub-s. (5) of s. 80-IA will come into operation only after the assessee exercises his option of selecting initial assessment year.
(iv)
The computation of income on standalone basis envisaged in sub-s. (5) will apply after the initial assessment year as per sub-s. (2) of s. 80-IA is exercised.
12. Next assessee's counsel relied on various citations for the proposition for various propositions including that the assessee has option to choose the 'initial assessment year'. On the other hand, the learned Departmental Representative for the assessee relied on the orders of the Revenue and stated that the AO has an authority to alter the initial assessment year.
13. We have heard both the parties and perused the factual matrix of the case and orders of the Revenue and the paper book. We have also examined the legal position on the matter. Before adjudicating the issue in question, it is necessary to examine the scope of the provisions relating to the initial assessment year :
"80-IA. Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. -
(1)
Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or an enterprise referred to in sub-s. (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to hundred per cent of profits and gains derived from such business for the first five assessment years commencing at any time during the periods as specified in sub-s. (2) and thereafter, twenty-five per cent of the profits and gains for further five assessment years :
Provided that where the assessee is a company, the provisions of this sub-section shall have effect as if for the words 'twenty-five per cent'; the words 'thirty per cent' had been substituted.
(2)
The deduction specified in sub-s. (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or generates power or commences transmission or distribution of power :
Provided that where the assessee begins operating and maintaining any infrastructure facility referred to in cl. (b) of Explanation to cl. (i) of sub-s. (4), the provisions of this sub-section shall have effect as if for the words 'fifteen years', the words 'twenty years' had been substituted.................."
14. From the above provisions of sub-s. (2) of s. 80-IA of the Act, it is evident that the assessee is granted the option to select 'initial assessment year' i.e., first assessment year of the 'any ten consecutive assessment years out of fifteen years'. Starting assessment year for counting the duration of fifteen years is also provided in the said sub-section. As per these provisions, the assessee is not allowed to jump the assessment year once an initial assessment year is opted. Therefore, we find no fault with the assessee in selecting the asst. yr. 2004-05 as the 'initial assessment year'. In this regard i.e., on the issue of assessee's option to select the 'initial assessment year', we have perused the citations relied upon by the assessee's counsel. The conclusion by the Tribunal Mumbai Bench decision in ITA No. 4620/Mum/2007 (asst. yr. 2004-05) in the case of Dy. CIT v. Ushdev International Ltd., is straight on this issue of initial assessment year and the option to the assessee and the held portion of the decision reads as under :
"In view of the above learned CIT(A)'s order to the extent of holding that initial assessment year and subsequent succeeding assessment years can only be considered for the purpose of computing deduction under s. 80-IA. Coming to the facts of the case, however, as seen from the schedule of details available in the learned CIT(A)'s order the assessee has incurred losses in the asst. yrs. 1997-98 and 1998-99 only. Subsequently in all the years there were profits till asst. yr. 2004-05. It is not clear whether the assessee has claimed any deduction in earlier years under s. 80-IA. This being the 8th year of starting the project, assessee would be left with only another 7 years of claim out of the 10 years available to the assessee. Considering this we are of the opinion that the initial assessment year is to be determined on the basis of the year the assessee choose to claim the deduction for the first time..............."
15. When the statute have granted the option to choose the initial assessment year and when the assessee has so chosen the current assessment year as the initial assessment year and when the assessee accordingly paid the taxes on the profits of the windmill activity in the earlier years as per the statute, the AO's decision to thrust the initial assessment year on the assessee is not in tune with the provisions of s. 80-IA(2) of the Act. Accordingly, we are of the opinion, the learned CIT(A) erred in holding that the initial assessment year for the purposes of s. 80-IA(2) r/w s. 80-IA(5) was the year in which the assessee started generating the electricity. Therefore, the order of the CIT(A) has to be reversed on this issue. It is clear that the 'initial assessment year' for the above purposes was the first year in which the assessee claimed the deduction under s. 80-IA(1) after exercising his option as per the provisions of s. 80-IA(2) of the Act. Consequently, the assessee is entitled to claim the deduction of Rs. 25,44,326 under s. 80-IA in respect of the profits from the windmill activity. Accordingly, the clarificatory ground raised is allowed. In the result, adjudication of the grounds 3 and 4 raised in the appeal is mere academic and hence they are dismissed as infructuous.
16. In the result, the appeal of the assessee is allowed.