TaxTMI 
TaxTMI 
2009 (3) TMI 645
X X X X Extracts X X X X
X X X X Extracts X X X X
....y in existence. The CIT(A) confirmed the order of the Assessing Officer by observing as under :- "Perusal of clauses (i) and (ii) of sub-section (2) of 80-IB makes it abundantly clear that the purpose is to set up a new industrial undertaking which necessarily means purchasing new plant and machinery. For this reason only, the Legislature has laid down that the industrial undertaking is not formed by splitting up or the reconstruction of a business already in existence, that it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. The conditions are such which do not allow use of any previously used machinery or plant even by the same assessee for its newly set up industrial unit. The idea is that a new industrial unit is set up and it should work with the help of newly acquired plant and machinery. Use of previously used machinery is restricted to less than twenty per cent. The emphasis is on prohibiting the use of previously used machinery and that too for any purpose by any industrial unit or any business by the assessee or by anybody else. The deduction is also not available if an industrial undertaking is set up by reconstruc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same assessee. For this purpose she relied upon following decisions :- Electronic Corpn. of India Ltd. (supra), CIT v. Sainthia Rice & Oil Mills [1971] 82 ITR 778 (Cal.), CIT v. Fenner Cockill Ltd. [1969] 74 ITR 394 (Mad.), CIT v. Kopran Chemical Co. Ltd. [1978] 112 ITR 893 (Bom.). 3.4 The learned AR submitted that CIT(A) has wrongly relied upon the definition of small scale undertaking in section 80-IB(14)(g) read with section 11B of the IRDA. A small scale undertaking is one whose investment in fixed assets, plant and machinery does not exceed Rs. 3 crores (reduced to one crore with effect from 24-12-1999) whether held on ownership terms or lease or on hire purchase. In order to determine whether an undertaking is a small scale undertaking or not the investment in machinery would include machinery taken on lease or hire. But the definition cannot be excluded to section 80-IB(2)(ii). The definition is relevant only when the expression 'small scale undertaking' is specifically used in the section e.g. proviso to section 80-IB(2)(iii), 80-IB(3)(ii). 4. The learned DR on the other hand relied upon the order of the revenue authorities. 5. We have heard the learned repre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e purpose of claiming exemption has been progressively raised from the initial 3 years in 1949 to 6 years in 1953, 7 years in 1954, 13 years in 1956 and 18 years in 1960. The incentive introduced in 1949 has been thus stepped up ever since and the only object is that which we have already mentioned." 5.3 In the said judgment, Textile Machinery Corpn. Ltd.'s case (supra ) Goswami J., speaking for the court, observed (p. 203) :- "Again, the new undertaking must not be substantially the same old existing business. The third excluded category mentioned above is significant. Even if a new business is carried on but by piercing the veil of the new business, it is found that there is employment of the assets of the old business, the benefit will not be available. From this it clearly follows that substantial investment of new capital is imperative. The words 'the capital employed' in the principal clause of section 15C are significant, for fresh capital must be employed in the new undertaking claiming exemption. There must be a new undertaking where substantial investment of fresh capital must be made in order to enable earning of profits attributable to that new capital...... Manuf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as 'the act of constructing again'. Therefore, while considering the question whether a particular business is or is not 'reconstruction', it is first necessary to enquire what was the nature of the business which was already in existence was the nature of the business, which was already in existence, the same as the nature of business which acquired a new shape ? If the answer is in the negative, there is no scope for holding that there is any 'reconstruction' of the existing business because 'reconstruction' implies the continuation of the same business in some altered form. This alteration may assume the form of changing the manner or method of carrying on the same business; it may involve change or rationalisation of the administrative set up or business organisation. But when its basic nature changes, it cannot be said that the business is 'reconstructed'. It is not every alternation in the mode, method or scope of the activities of a business and it is not every transfer of assets from one unit to another that will involve reconstruction. The expression is no doubt very wide but it does not take in a case of company setting up or establishing a totally independent and viable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ious year relevant to assessment year 1999-2000. For that purpose they constructed new factory building, acquired new plant and machinery and also installed new electrical installations. These are separately disclosed in the schedule of fixed assets. 5.8 At pages 14, 15, 16 and 17 of assessee's paper book the fixed assets schedule for the year ended 31-3-1999, 31-3-2000, 31-3-2001, and 31-3-2002 has been placed wherein old building, plant and machinery and electrical installation has been separately shown. The relevant abstract from those schedules are reproduced as below :- 1999 Description Gross Block Cost Addition Total Building Old 203800 203800 New 6931264 6931264 Plant and Machinery Old 1116168 1116168 New 481938 481938 Instruments 11700 11700 Pattern and Dies 81321 81321 Elec. Installation Old 13427 13427 New 1806515 1806515 2000 Description Gross Block Cost Addition Tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iously used. The Hon'ble jurisdictional High Court in the case of Bayer Agrochem Ltd. (supra) while dealing with section 15C of 1922 Act, held that where the owner of a property retains the right to use the premises and in fact does not so there is no transfer in from the assessee as understood by section 15C of the Income-tax Act, 1922 and the assessee was entitled to relief under that section. The facts of the case are that the assessee also acquired its own plant and machinery and actually used the same. The Assessing Officer whilst making assessments for the two years 1960-61 and 1961-62 granted rebates as provided under section 15C of IT Act, 1922. Subsequently the CIT by virtue of his powers under section 33B of the said Act withdrew relief. The jurisdictional High Court held as under :- "Bearing in mind all these aspects it is impossible to hold that by this instrument an interest in the property was sought to be conveyed to the assessee-company. At the highest it may be regarded as a licence given to the assessee-company to utilise the factory and use the other vacant premises belonging to " Progressive " but subject to effective control by the owners and also subject to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d of accounting. The Assessing Officer was of the view that the unutilized MODVAT is not considered for the valuation of closing stock of raw material. After considering the submissions of the assessee, the Assessing Officer held that as per the provisions of section 145A the unutilized Modvat credit is to be considered for valuation of closing stock, therefore, the amounts were added to the value of closing stock and to the total income. The CIT(A) confirmed the action of the Assessing Officer. 8. The learned representatives of both the sides agree that this issue is covered by the decision of ITAT "D" Bench in assessee's own case in ITA Nos. 8095/Mum./04 and 4980/Mum./05 for assessment years 2001-02 and 2002-03 vide order dated 29-1-2008 wherein the ITAT by following the decision of the ITAT Mumbai "A" Bench in the case of Hawkins Cookers Ltd. [IT Appeal No. 505/M/2004, dated 11-8-2008] decided the issue. 9. We have heard the learned representatives of the parties, record perused. We find that the issue is covered by the decision of ITAT in assessee's own case in ITA Nos. 8095/M/04 and 4980/M/05 (supra) wherein the ITAT decided the issue by following the decision in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as follows : (a)Any tax, duty, cess or fee actually paid or incurred on inputs should be added to the cost of inputs (raw materials, stores etc.); if not already added in the books of account. (b)Any tax, duty, cess or fee actually paid or incurred on sale of goods should be added to the sales, if not already added in the books of account. (c)Any tax, duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in-progress, raw materials etc.) should be added to the inventories, if not already added while valuing the inventory in the accounts. 5.3 The Institute of Chartered Accountants of India on insertion of section 145A issued guidance Note on Tax Audit under section 44AB of the Act explaining the statutory requirements to give the effect of section 145A, which are as under :- '23.9 The statutory required under section 145A can be explained by the following example :- Particulars Qty. Rate excluding excise duty Rate of excise duty Opening Stock 10 10 2 Raw material purchased 90 10 2 Other manufacturing cost 80 10 - Finished goods manufactured 80 - - Sales of finished goods 60 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duty on finished goods sold 0 (g) To gross profit 300 Total 1900 Total 1900 The profit and loss account on 'inclusive method' which is also in accordance with the provisions of section 145A would be as under :- Item Particulars Unit Rate Amt. Amt. Item Particulars Unit Rate Amt. (j) Opening Stock 10 10 120 (k) Purchase of raw material 90 12 1080 (s) By sales 60 28 1680 Total 100 12 1200 (t) By closing stock of finished goods 20 23 460 (l) Less closing stock 20 12 240 Item Particulars Unit Rate Amt. Amt. Item Particulars Unit Rate Amt. (m) Less MODVAT credit 80 2 160 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in payment 160 Sl. No. Particulars (Rs.) Increase in profit (Rs.) Decrease in profit of excise duty on finished goods accounted on the basis of raw material consumed (m) Total 440 440 The computation of total income would appear as under :- Rs. Rs. Rs. Profit as per profit and loss account on the basis of exclusive method (see paragraph 23.10) 300 Add: Adjustments required under section 145A (1) Excise duty on sales (Rs. 3 per unit for 60 units. 180 (2) Excise duty on closing stock of raw materials (Rs. 2 per unit for 20 units) 40 (3) Excise duty on closing stock of finished goods (Rs. 3 per unit for 20 units) 60 (4) MODVAT credit utilized on consumption of raw materials (Rs. 2 per unit for 80 units) 160 440 740 Less : (1) Excise duty on opening stock of raw material (Rs. 2 per unit for 10 units) 20 (2) Excise duty o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he balance becomes equivalent to the payment only at the point of time the assessee exercises his option to set off the balance against the central excise liability and not before. It is to note that the issue pertaining to simple adjustment of balance in MODVAT account was before the ITAT Special Bench, Chandigarh. While giving effect of section 145A, the adjustment of balance in MODVAT account was not before the ITAT Special Bench, Chandigarh. In cases where there are statutory compilation under section 145A to give adjustment in closing stock, in such cases it has to presume that the assessee has exercised his option to set off against MODVAT Account. On the basis of ratio laid down by the of ITAT Special Bench, Chandigarh in the case of Dy. CIT v. Glaxo Smithkline Consumer Healthcare Ltd. 107 ITD 343 (Chd.) (SB) it is to be presumed that the assessee exercises his option to set off MODVAT a/c against excise liability, which amounts to payment of excise duty and accordingly the assessee is entitled to deduction under section 43B. The above presumption is based on legal fiction created by section 145A of the Act. However, to avoid double deduction the assessee should ensure that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....necessarily include the element for which MODVAT credit is available has been the matter of considerable litigation. In order to ensure that the value of opening and closing stock (bold for emphasis) reflect the correct value, it is proposed to insert a new section to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force. The proposed amendment which is clarificatory in nature shall take effect retrospectively from 1-4-1986 and will accordingly apply in relation to assessment year 1986-87 and subsequent years. [Clause 45]' 7.1 Circular No. 772, dated 23-12-1998 issued by the CBDT refers to the method of accounting and in Para 52.1 thereof, it is mentioned that whether the value of the closing stock of the inputs must necessarily include the element for which MODVAT credit is available, has been a matter of considerable litigation over the years. Para 52.2, which reads as under:- '52.2 Consistent with the other provisions of the Act, with a view to put end to this point of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....losing stock, the same will be reflected in the opening stock also irrespective of any consequences on the computation of income for tax purposes. We further noticed that section 145A starts with the non obstante clause "Notwithstanding anything to the contrary contained in section 145". Therefore, to give effect to section 145A, the opening stock as on 1-4-98 will have to be increased by any tax, duty, cess or fee actually paid or incurred with reference to such stock if the same has not been added for the purpose of valuation in the accounts. The Assessing Officer is directed to give the effect of section 145A as per above discussion." 9.1 Since the issue raised in this appeal is identical to the facts of the case of Hawkins Cookers Ltd. (supra) we respectfully follow the decision of the ITAT in that case and in the light of that we remit the matter back to the file of the Assessing Officer with a direction to decide the issue as per the decision of the ITAT in said case of Hawkins Cookers Ltd. (supra). 10. 3rd common ground is in respect of disallowance under section 14A of the Act. 11. The Assessing Officer held that the dividend income being exempt two per cent of the....