TaxTMI 
TaxTMI 
2011 (3) TMI 696
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion with deduction under section 80-IB of the Act. The Assessing Officer noticed that the assessee company had claimed deduction under section 80-IB of the Act of Rs. 62,99,329, as per Form No. 10CCB. In Sr. No. 21, the profit and gains derived by the undertaking from the eligible business was shown at Rs. 2,15,57,585 (profit and gains from eligible business should be Rs 2,09,97,763). The deduction under section 80-IB was claimed at the rate of 30 per cent of the aforesaid amount of Rs. 2,09,97,763, being Rs. 62,99,329. It was further noticed by the Assessing Officer that in Sr. No. 18(c) of the said Form No 10CCB, total value of machinery and plant used in the business of the Industrial Undertaking was mentioned as "Gross Rs. 3,57,40,550". The date of commencement of operation by the undertaking was mentioned in Sr. No. 8 of the said Form as 1-8-1996. The Assessing Officer required the assessee to explain the issue relating to acquisition of plant and machinery exceeding Rs. One crore in the eligible business and as to why in view of the above fact, deduction under section 80-IB of the Act should not be denied, since assessee did not remain a Small Scale undertaking. From the deta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he above reasons, amongst others, the Assessing Officer disallowed the deduction of Rs. 62,99,329 under section 80-IB of the Act claimed by the assessee for the year under consideration. Against this decision of the Assessing Officer, assessee went in appeal before the Commissioner of Income-tax (Appeals). 3. Before the Commissioner of Income-tax (Appeals), the assessee submitted that the eligibility for deduction under section 80-IB of the Act has to be verified in respect of investment in plant and machinery only with reference to the initial year; and, that the benefit of section 80-IB is available to both small as well as large scale undertaking, the only difference being in the dates before which the unit has to begin production. In the first year, the investment in plant and machinery was below Rs. One crore and it was allowed deduction, and, that deduction once allowed cannot be denied in subsequent years. It was further submitted that the Assessing Officer, without disturbing relief granted in the initial year, cannot examine the question again and decide to withdraw or withhold relief already granted; that there was no specific provision in section 80-IB that the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nditions being tested again in the subsequent years. Coming to the specific objection in the present case, which is in terms of section 80-IB(2)(iii), it is pointed out that the assessee was a small scale undertaking in the initial assessment year and it had been allowed the deduction earlier. That there is no provision in section 80-IB empowering the Assessing Officer to deny the deduction in a subsequent year if such deduction has been allowed in the initial year after considering the assessee as a small scale industrial undertaking, even if in the latter years the undertaking ceases to be a small scale industrial undertaking. In this context, the learned Counsel referred to the provisions of section 80HHA of the Act, wherein a specific provision by way of proviso to section 80HHA(3) was inserted by the Legislature to provide that the deduction shall not be available in respect of an undertaking which does not remain a small scale industrial undertaking during any of the ten previous years. It has been argued that in the absence of any such specific provision in section 80-IB, the intent of the Legislature becomes clear to the effect that even if assessee does not fulfil such con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the authorities below in support of the case of the revenue. 6. We have carefully considered the rival submissions. We have also carefully perused the orders of the authorities below and also the case laws cited at Bar as also those referred in the orders of the authorities below. The dispute relates to deduction claimed under section 80-IB of the Act in relation to the profits derived by the assessee from its industrial undertaking. Before proceeding to adjudicate the controversy, we find it expedient to reproduce the relevant portion of section 80-IB and note its salient features : "80-IB(1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (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 such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... total income of the assessee deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years in accordance with and as specified in the said section. Sub-section (2) of section 80-IB, which is the source of controversy before us, prescribes that the section applies to any industrial undertaking which fulfills all the conditions stated therein. Clauses (i) to (iv) of section 80-IB(2) prescribe the conditions required to be fulfilled by an industrial undertaking to claim a deduction under section 80-IB. Clause (i) prescribes that the eligible industrial undertaking is not formed by splitting up or the reconstruction of a business already in existence; clause (ii) prescribes that the industrial undertaking is not formed by the transfer to a new business of machinery or plant previously used for any purpose; clause (iii) provides that the industrial undertaking manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule to the Act, a proviso to this clause clarifies that such prohibition of not manufacturing or producing any article or thing specified in Eleventh Schedu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... fulfil the condition prescribed in clause (iii) of sub-section (2) of section 80-IB and, therefore, the claim of deduction under section 80-IB is liable to be denied. On the other hand, as per the appellant the claim cannot be denied even if the said condition is not fulfilled in this year, because the assessee has fulfilled the condition in the initial year. As per the appellant, the conditions of section 80-IB are required to be examined only in the initial assessment year and the same having been examined and accepted, it could not be examined again by the Assessing Officer during the year under consideration. 9. We have carefully examined the rival contentions and find ourselves unable to acquiesce to the plea of the assessee company. No doubt, the conditions prescribed in sub-section (2) of section 80-IB are required to be examined in the initial assessment year, however, there is nothing in the phraseology of sub-section (2) to suggest that the condition in clause (iii) thereof has to be examined only in the initial assessment year. We are in agreement with the position of the appellant that insofar as conditions prescribed in clauses (i) and (ii) are concerned, the same ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nit did not amount to setting up a new industrial undertaking, inasmuch as the activities of the expanded part of the unit as well as those of the original units were much inter-connected. Thus, he disallowed the claim on the ground that no new unit can be said to have been set up separate from the existing unit on account of mere expansion. The Appellate Commissioner, in appeal, held that in the absence of there being any specific provision in the Act that the new unit should be altogether distinct and even physically at a distance from the old unit, and that, if the relief was admissible for assessment year 1968-69, in respect of the expanded unit of the assessee company, that relief would continue to be available to the assessee for the subsequent period of four years. The Tribunal also upheld the order of the Appellate Commissioner granting relief to the assessee since in the opinion of the Tribunal unless the assessment for the assessment year 1968-69 was disturbed by withdrawal of the relief, there could be no substance or justification in the revenue's attempt to withdraw the claim under section 80J of the Act for the subsequent year, i.e., assessment year 1969-70. The Hon'b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pted with reference to the initial year. In fact, in the present case on account of changed condition namely the industrial undertaking of the assessee loosing the status of a small scale industrial undertaking under the IDR Act, the Assessing Officer seeks to hold that the said condition is not satisfied during the year under consideration. The said action cannot be interpreted to mean that there is an attempt by the revenue to review an accepted position of the initial assessment year which was the case before the Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd. (supra). In the case of Saurashtra Cement & Chemical Industries Ltd. (supra) once having accepted in the initial assessment year that the expansion in capacity amounted to setting up of a new unit, the same was sought to be reviewed in the subsequent year by holding differently. In fact, the Hon'ble Gujarat High Court itself envisaged that the relief of tax holiday under section 80J can be withheld, provided the relief granted in the initial year is disturbed or changed on valid ground. In the present case, it is quite clear that on account of events subsequent to the initial assessme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble High Court affirmed the approach of the Tribunal on all the three counts. Before us, the learned Counsel for the appellant pointed out that the parity of reasoning approved by the High Court to the effect that unless deduction allowed in a preceding year on the same ground is withdrawn, similar relief for the subsequent years could not be withheld. Secondly, the learned Counsel also referred to the observations of the Hon'ble High Court that in section 80HH or section 80J there is no provision for withdrawal of special deduction for the subsequent years for breach of conditions. It was pointed out that similar is the situation with regard to the provisions of section 80-IB and therefore in the instant case the relief under section 80-IB could not be denied in this year. 13. In our considered opinion, the ratio of the aforesaid judgment also does not help the assessee in the instant case. The factual matrix in the aforesaid case was that in earlier year the benefit stood allowed to the assessee and without any changed circumstances, the said claim was sought to be denied in a subsequent year, and such an attempt was negated by the Hon'ble High Court. In the instant case, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income-tax (Appeals) held that the expenditure on purchase of new motor should ordinarily be treated as capital expenditure, however, if such motor when is a part of machine stops functioning and is replaced without there being any enhancement in the overall efficiency of the machine, the result of replacement being only to bring the machine to its original efficiency, the expenditure should be treated as revenue expenditure. As assessee, however, did not furnish any details to prove the above reasoning, the Commissioner of Income-tax (Appeals) upheld the disallowance made by the assessee, against which the assessee has preferred ground No. 4 of appeal. 18. Before us, the learned counsel for the assessee submitted that the company has been operating for the last many years and minor replacement of parts in various machines have to be made year after year. The expenditure was in the manner of replacement of a part of a machine and, therefore, it was revenue expenditure. The learned Departmental representative, on the other hand, supported the orders of the authorities below. 19. We have heard both the parties on this issue. We find force in the submissions of the learned cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the decision of our co-ordinate Bench in the case of Jagannath R. Kalantri (HUF), vide [IT Appeal No. 315/PN/2009 order dated 27-8-2010]. On the contrary, the learned Departmental representative defended the orders of the authorities below. 25. We have considered the rival submissions carefully. We have perused the decision of our co-ordinate Bench in the case of Jagannath R. Kalantri (HUF) (supra) and find that the issue raised in this appeal before us stands covered in favour of the assessee by the aforesaid decision. Following the same, we set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the disallowance of Rs. 28,500 made under section 40A(ia) of the Act. Assessee succeeds on this Ground. 26. In the last Ground of appeal, it is stated that the Commissioner of Income-tax (Appeals) grossly erred in adjudicating the alternate claim of the assessee in respect of disallowance of interest of Rs. 1,58,932 and Rs. 1,10,872 under proviso to section 36(1)(iii) of the Act, without adjudicating the main claim that the said disallowance was arbitrary, perverse and legally unsustainable. The Assessing Officer stated in the asse....