2011 (8) TMI 1358 - AT - Income Tax

Appeals allowed on Section 80IB & depreciation, reassessment ordered. Set off of losses disallowed for amalgamated companies.

M/s. Tirumala Dairy Pvt. Ltd.,  M/s. Tirumala Milk Products Pvt. Ltd Versus  Ad. CIT Range-2 (1),  DCIT, Circle-2 (1)

The Tribunal allowed the appeals regarding the deduction under Section 80IB and the additional depreciation, directing the A.O. to re-examine these ... - Issues Involved:1. Claim of deduction under Section 80IB of the Income Tax Act.2. Claim of additional depreciation under Section 32(1)(iia).3. Status of the assessee as a Small Scale Industry (SSI).4. Set off of losses of amalgamated companies under Section 72A.Issue-wise Detailed Analysis:1. Claim of Deduction under Section 80IB:The main controversy revolves around the denial of the deduction under Section 80IB. The assessing officer disallowed the deduction on two grounds: (a) the assessee was not a small scale industrial unit as its plant and machinery value exceeded Rs. 1 crore, and (b) the assessee was engaged in processing and trading of milk and milk products, not in manufacturing or producing any article or thing. The CIT(A) upheld this view, stating that the doctrine of res judicata does not apply in income tax proceedings, and each year is distinct and independent. The CIT(A) relied on the special bench order in B.G. Chitale Vs. DCIT, which held that pasteurization of milk does not amount to manufacturing or production. However, the Tribunal found that the assessee was allowed the deduction in initial years after detailed examination, and there is no provision to withdraw this deduction in subsequent years if initially allowed. The Tribunal cited various judgments, including India Cine Agencies Vs. CIT and CIT Vs. Emptee Poly-Yarn Pvt. Ltd., to support the view that processing activities like pasteurization can be considered manufacturing or production. Consequently, the Tribunal directed the A.O. to allow the deduction under Section 80IB.2. Claim of Additional Depreciation under Section 32(1)(iia):The assessee's claim for additional depreciation was disallowed by the A.O. due to the non-filing of the audit report in Form 3AA along with the return of income. The CIT(A) confirmed this disallowance. However, the Tribunal noted that the audit report was filed subsequently and held that the non-filing of the report along with the return was merely a procedural lapse. The Tribunal set aside the CIT(A)'s order and directed the A.O. to re-examine the claim of additional depreciation as per the law.3. Status of the Assessee as a Small Scale Industry (SSI):The A.O. and CIT(A) held that the assessee was not a small scale industry because its investment in plant and machinery exceeded Rs. 1 crore. The Tribunal found that the assessee was registered as a SSI with the concerned authorities, and this registration was never withdrawn. The Tribunal emphasized that as long as the registration as a SSI is not withdrawn, the assessee should be treated as a small scale industrial undertaking. Therefore, the Tribunal found no merit in the CIT(A)'s findings and held that the assessee should be considered a small scale industrial undertaking.4. Set Off of Losses of Amalgamated Companies under Section 72A:The assessee claimed the set off of losses of amalgamated companies, which the A.O. disallowed on the grounds that the amalgamated companies were not industrial undertakings as defined in Section 72A. The CIT(A) confirmed this disallowance, noting that the amalgamated companies were not engaged in manufacturing or processing activities. The Tribunal, after examining the facts and circumstances, upheld the CIT(A)'s decision, finding no infirmity in the order.Conclusion:The Tribunal allowed the appeals regarding the deduction under Section 80IB and the additional depreciation for statistical purposes, directing the A.O. to re-examine these claims. The Tribunal also held that the assessee should be treated as a small scale industrial undertaking. However, the Tribunal confirmed the CIT(A)'s decision on the disallowance of set off of losses of amalgamated companies. The appeals were thus partly allowed for statistical purposes.