THE issue before the Bench is - Whether an assessee would fall within the parameters of section 80IA, if it has exercised his option already by setting off the losses and deductions against his other business income. YES is the answer.
Facts of the case
The assessee company is engaged in the business of manufacture and supply of textile and garments. The assessee had received information from its overseas buyers that large quantities of export orders for supply of knitted garments would be placed with the assessee. In order to carry out the huge production of knitted garments commensurate to the export order, the assessee had to ensure that necessary facilities are available at its command. Therefore, the assessee identified M/s. Cibi International, an associate firm having requisite manpower and other operational facilities to undertake the production of garments in compliance of the export order. In order to avail the facilities offered by Cibi, the assessee entered into an agreement with Cibi International, under which Cibi International was obligated to maintain sufficient infrastructure facilities to ensure quality production of goods prescribed by the overseas clients both in terms of product as well as work facilities. In consideration to shouldering the responsibilities of providing infrastructural and operational facilities to the assessee for manufacturing knitted garments, the assessee paid a sum of Rs. 650 lakhs to Cibi International. The assessee identified Cibi International as an associate for the purpose of production for the reason that Cibi International had trained and skilled labour force of around 40000 with them, who could execute the work without any problem.
The assessee claimed this amount of Rs. 650 lakhs as a deduction u/s 37 while computing its taxable income. The assessee also claimed deduction 80IA on receiptsfrom carbon credit and insurance claim which it had set off against its other business income. But, the AO disallowed the deduction holding that the acquisition of facilities by Cibi International against payment of Rs. 650 lakhs made by assessee would result in enduring benefit to the assessee and, therefore, the payment could not be considered as a revenue expenditure. As it was also not in the nature of trade advance, the AO held that the payment was voluntary and there was no obligation for the assessee to make such payment. The mere fact that the payment was made under an agreement, do not establish that the expenditure had been incurred during the year. The sum given by the assessee was spent for improving the infrastructure of Cibi International. The AO also observed that Cibi International had shown this advance as its business liability in its balance sheet. Accordingly, he added back the sum of Rs. 650 lakhs to the income of assessee. The AO also excluded the receipts from trading of carbon credit and insurance claim while computing the claim of deduction u/s 80IA. On appeal, the CIT(A) held that on payment of Rs. 650 lakhs to Cibi International, an entirely new capital asset for the exclusive use of the assessee was created and therefore, it could not be denied that the assessee was deriving enduring benefit. He confirmed the finding of the AO on both the issue. On further appeal, the Tribunal reversed the findings of the CIT(A) and allowed both the deductions u/s 37 as well as u/s 80IA.
Having heard the parties, the Tribunal held that,
++ it is seen that in the case of Velayudhaswamy Spinning Mills vs. Asst. CIT, this Court, while dealing with the benefit u/s 80IA, placed reliance on the decision reported in Liberty India vs. CIT, wherein the Supreme Court considered the scope of Section 80I, 80IA and 80IB and held that Chapter VI-A provides for incentives in the form of tax deductions essentially belong to the category of "profit-linked incentives". This Court also placed reliance on the decision reported in CIT vs. Mewar Oil and General Mills Ltd., and came to the conclusion that once the losses and other deduction have set off against the income of the previous year, it should not be reopened again for the purpose of computation of current year income u/s 80I or 80IA and the assessee should not be denied the admissible deduction u/s 80IA. It is relevant to note that as against the said decision rendered by this Court, the Revenue has filed appeals before the Supreme Court, which are stated to be pending, in which, only notice was ordered and were not yet admitted by the Supreme Court;
++ in addition, the facts in the present case are also identical to the said decision of this Court that all the business undertakings are wind mills and they have claimed the benefit of deduction u/s 80IA for the A.Ys in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA. In the decision reported in Velayudhaswamy Spinning Mills vs. Asst. CIT, there appears to be no distinction on facts. Again in a batch of cases in T.C.(A)Nos.408 of 2012, this Court, following the decision reported in Velayudhaswamy Spinning Mills vs. Asst. CIT, held in favour of the assessee and against the Revenue. Therefore, taking note of the decision rendered by this Court in the case of Velayudhasamy Spinning Mills and in a batch of cases in T.C.(A) Nos.408 of 2012, this court confirm the order passed by the Tribunal.
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