TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 724
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....he CIT(A) holding that the assessee is eligible for deduction under section 80IB of the Income Tax Act, 1961 and directing the Assessing Officer to allow deduction of Rs. 7,50,01,370/- for A.Y.2006-2007 and Rs. 22,85,30,567/- in A.Y.2007-2008. 4. Brief facts of the case are that the assessee is engaged in the business of manufacturing aluminum foil for flexible packaging materials. The manufacturing unit of the assessee is located in the Union Territory of Daman which is a backward area of Union Territory as specified in the VIIIth Schedule to the Income Tax Act ("the Act" for short). The unit is located in Daman which began its manufacturing activities prior to 31-3-2004 thereby being eligible for deduction under section 80IB of the Act. 5. The Assessing Officer ("AO" for short) on perusal of the profit & loss account attached with the return of income issued a letter dated 24-9-2007 requiring the assessee to explain how it was eligible for deduction under section 80IB of the Act as manufacturing activities had not commenced before 31.3.2004. The points raised by the AO in the assessment order are the following: 1) This is the first year of operation 2) Schedule No.5 to Fixed ....
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....bilities. Copy of dissolution deed was filed with the AO. It was further submitted that the company made expansion of industrial undertaking by adding more plant & machinery. On the above facts, it was submitted that since industrial undertaking started its manufacturing activity prior to 31.3.2004 and therefore, satisfied the conditions for claiming deduction under section 80IB. It was also submitted that eligibility of deduction under section 80IB was with reference to profit earned by industrial undertaking. It was submitted that the change in constitution or ownership of industrial undertaking was not at all relevant for the purpose of deduction under section 80IB. Since industrial undertaking was same, which was operated by the partnership firm, in which the assessee-company was a partner, and thereafter, the assessee-company continued the same manufacturing activity in the same industrial undertaking, the assessee-company was eligible for deduction under section 80IB. As regards observations of the AO that first year of operation of the assessee-company, it was submitted that the mention of "first year of operation" was in relation to business of the assessee- company and not....
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....o consideration, specially the fact that the industrial undertaking was earlier in operation by the Firm M/s.Ess Dee Aluminum, the observation of the AO against the assessee were not correct. It was submitted that in the facts of the case, documents filed by the assessee clearly showed that industrial undertaking began to manufacture its article from 3.3.2004 i.e. much before 31.3.2004, and hence was eligible for deduction under section 80IB. It was further submitted that during the course of assessment proceedings, the assessee had filed a copy of letter dated 8.7.2004 written to Shri Khemchand Dhingra in which it had been conveyed that taking into account the earlier payments made by the assessee-company, he was requested to agree to the request for not charging monthly lease rentals and electricity charges payable as per the MOU dated 12.2.2004. It was also submitted that Shri Sudip Dutta, as promoter of the assessee-company had negotiated with Shri Khemchand Dhingra and Western Consolidate Pvt. Ltd. for purchase of factory shed situated at Plot No.124-133, Panchal Udyog Nagar, Village Bhimpore, Daman, and according to the negotiation, earnest money of Rs. 1,11,111/- was paid by....
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....s also a fact that the final deed was executed on 8.7.2004 and the full consideration was paid. It was further submitted that it was also a fact that business of the firm upto 16.7.2004 and thereafter by the assessee-company continued on the same plot of land and the same was still continuing. It was also a fact that the manufacturing activity was started by the firm in which the company was partner from 12.2.2004 on part of the land and after dissolution of the firm, the assessee-company took over the entire assets and liabilities and the business was expanded to a great extent and even till the date the manufacturing of aluminum foil etc. was being done on the same plot and in the same factory which originally belonged to Shri Khemchand Dhingra. It was submitted that the sequence of events narrated above did indicate clearly that the manufacturing by undertaking/enterprises started from 12.2.2004 and the same was still continuing at the same place by the assessee-company. It was submitted that it was a fact and proved by records of third party that the firm i.e undertaking/enterprises started doing job work for M/s. Flex Art from 12.2.2004 and for doing job work the undertaking p....
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....pection of the assessment records of the assessee and has noted that the AO made enquiries from Sales Tax Department and DIC and also got reply from such department. It was submitted while deciding the issue of allowability of deduction under section 80IB, the AO completely ignored the replies of Sales-Tax Department, and DIC, Daman and did not mention in the assessment order about enquiries made from these two important government departments. It was, therefore, submitted that the AO has carried out the investigation with other authorities/agencies, such as, Sales-Tax Department, DIC, Daman, Daman Industrial Association, Electricity Department, department of Industries, Department of Industries, Chief Inspector of Factories, Department of Value Added Tax, Ministry of Corporate Affairs and M/s.Western Consolidated Pvt. Ltd. It was submitted the following facts are also not disputed or doubted by the AO. ii) The appellant company was incorporated on 10.02.2004. ii) The appellant company became partner in the partnership Firm M/s. Ess Dee Aluminum with effect from 03.03.2004. iii) The partnership Firm has purchased new Plant and Machinery and the machinery was delivered at 1241- 1....
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.... the claim for deduction under section 80IB of the Act to the assessee by observing as under: Decision: I have carefully gone though the facts and circumstances of the case, the assessment order passed by the Assessing Officer and the submission made by the Id. A.R. I have also perused the case records containing investigation materials collected by the Assessing Officer, the submissions put forth by the appellant's representative, the various case laws relied upon by the Assessing Officer and the appellant company. In my opinion, the finding of the AO have two limbs, which can be categorized as under: i) The appellant had not started manufacturing before 31.03.2004 based on the replies from M/s. Western Consolidated Pvt. Ltd and its Directors and the appellant had reconstructed the new industrial undertaking thereby not eligible for deduction u/s. 80IB which is raised in Ground No. 3. It means, the matrix of the case has both facts and law. In the circumstances and for the objective consideration of the submissions made by the appellant before the A.O. and the findings of the A.O., the sequence of events are put in a tabular form for the sake of convenience and clarity as under:....
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....given on page no.25 the auditor has mentioned in clause 8 & 9 as under: 8. Date of commencement of operation/activity by the undertaking or enterprise 10.02.2004. 9. Initial assessment year from when deduction is being claimed - A.Y.2005-2006. This means that the industrial undertaking has commenced its activities from 10.02.2004 i.e. by partnership firm which is relevant to assessment year 2005-2006 and hence the initial assessment year is shown as assessment year 2005- 06. Showing of commencement of operation/activity by undertaking in 10CCB on page 25 by the auditor from 10.02.2004 shows that the operation/ manufacturing was started prior to 31.3.2004. 7. PF contribution has been shown as NIL for the months of April 04 to July, 2004. Thus there was no business in A.Y.2004-05. The business of the partnership firm was taken over by the firm on 16th July, 2004. Prior to this the industrial undertaking was doing business in partnership firm M/s. Ess Dee Aluminum. There was no P.F. registration in the name of the company till July 2004 as number of workers was less than 20 in the company as well as in erstwhile partnership firm. Appellant submissions are acceptable. 8. In the Di....
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.... on final registered sale deed. After taking part possession of the factory premises, the erstwhile partnership Firm installed plant & machinery and carried out manufacturing activity in the said premises. This is evident from the following facts i) The bills and vouchers for purchase of new Plant and Machinery were produced before the Assessing Officer during the assessment proceeding. ii) Changes of business place /factory was intimated to the Sales Tax Department as well as to the DIC, Daman from time to time and the same is recorded in their records. iii) The partnership Firm filed its Sales Tax return for the period from 1st January 2004 to 31st March 2004 with the Sales Tax Department and the Sales Tax assessment has also been completed. iv) The erstwhile partnership Firm has done job work for M/s. Flex Art Vasai (E), Thane and issued job work bills to M/s. Flex Art Vasai. M/s. Flex Art Vasai who has got the job work done from M/s. Ess Dee Aluminum had supplied the same goods to various pharma companies such as Wockhardt Ltd., Golden Pharmaceuticals, Ajanta Pharma Limited, Cipla Ltd., South India Research Int. P. Ltd. The transaction of moving of goods from M/s. Flex Art Vasa....
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....og Nagar, Village Bhimpore daman with effect from 03.03.2004. In this connection, the assesses submitted copy of MOU made at Daman on 12.02.04 between Mr. Khemchand Dhingra and Ess Dee Aluminum P. Ltd. in which clause No.6, it is specifically mentioned that purchaser i.e. Ess Dee Aluminum P. Ltd. shall pay the vendor i.e. Shri Khemchand Dhingra and others lease rent of Rs.10,000/- on or before the 10th day of succeedingwritten to Shri Khemchand Dhingra in which it has been conveyed that: "Taking into account our early payment, you were kind enough to agree to day on our request for not charging the monthly lease rentals and electricity charges payable to you as per the MOU dated 12.02.04." Both the above documents i.e. MOU dated 12.02.04 and Letter dated 08.07.04 are claimed to have been signed by Mr. Khemchand Dhingra. However, perusal of these documents and sale deed of the land reveals that signature of Mr. Khemanchand Dhingra differs. With a view to ascertain the genuineness of the documents of MOU and Letter, a letters were issued to Shri Khemchand Dhingra, Shri Vincct Dhingra and Western Consolidate P. Ltd. on 22.11.2007. Letter was sent through Fax. In reply M/s. Western Con....
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.... of any MOU or charging of any rent or electricity charges. While the facts of the case clearly prove that manufacturing/ production was done by the undertaking and the same continued on the same premises afterwards. In this connection, we wish to bring to your kind notice that the Assessing Officer has also made certain enquiries and written letters to the Sales Tax Department and to DIC, Daman. On inspection of assessment records, it is seen that the Assessing Officer has written letters to the General Manager, DIC and Assistant Sales Tax Officer on 26.11.2007 and 29.11.2007. On 26.11.2007 the Sales Tax Officer and General Manager, DIC has replied to the Assessing Officer. With their reply, they have also attached copy of application made by the appellant, changes intimated by the appellant company from time to time and the copies of Sales Tax return and assessment order passed in the ease of partnership Firm Ess Dee Aluminum. These replies undoubtedly prove that the unit was working at Plot No, 124-133 Panchal Udyog Nagar, Bhimpore, Daman prior to March, 2004 and production has commenced prior to March 2004. The Assessing Officer is totally silent about these enquiries and the r....
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....ther time passed assessment order on 27.12.2007. Although A.O. had ample time i.e. 15 days at his disposal, he without giving further opportunity passed assessment order on 27.12.2007. No fresh opportunity was given by Assessing Officer. 13. From the above facts, it is apparent that assessee failed to establish that the production was in fact commenced on or before 31.03.2004. It may be out of place to mention here that the documents created by the assessee-company to establish that the production was commenced at Plot No. 124-133, Bhimore, Daman are concocted and not genuine in the eyes of Law. So far documents with regard to Sales Tax Department and DIC Daman are concerned, the Assessing Officer has himself written to both the departments and obtained replies. With regard to the other documents such as Partnership Deed, Retirement Deed, job work bills, sale bills, excise records etc. all were filed before the Assessing Officer and they have not been even mentioned and rejected by the Assessing Officer in the assessment order. The facts of the case narrated above clearly prove that actual manufacturing was done before 31.03.2004. The manufacturing activities continued on the sa....
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....the assessee company is with effect from April. 2004 that too in the month of April, 2004 only one labour has been employed and in May, 2004 it creased to 02 labours. In the earlier unit which was run by the Partnership firm, PF was not applicable and hence no registration was taken. The appellant company applied for PF registration on incorporation on 10.02.2004. This has got no relevance with the business carried by partnership firm. Appellant submissions are acceptable. 17. Application for Factory License was made on 16.09.05 with the office of Chief Inspector of Factories & Boilers, Daman. License to work the factory was granted on 16.11.2005. The Assessing Officer has recorded that application for Factory License was made on are 16.09.2005 and License to work the factory was granted on 16.11.2005. It is submitted that the factory license was granted to the partnership Firm and that was for SSI unit. Expansion of unit was made by the appellant and the unit became MSI and hence the application for new Factory licence was made on 16.09.2005 and the license was granted on 16.11.2005. Appellant submissions are acceptable. Page no.10 of the assessment order. 18. It has investe....
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....ertificates from various government agencies like Central Excise, Sales Tax, DIC Pollution Control board and factory license, permission from Gram Panchayat etc. as required under the respective legislation/authority for setting up a new unit in the year under consideration only. Copies of the same have already been filed on record. As mentioned above all the licenses and certificates from various government agencies like Central Excise, Sales Tax, DIC, Pollution Control Board and factory license have been taken by the appellant as and when the law became applicable to the industrial undertaking. The unit run by Ess Dee Aluminium earlier were also having necessary licenses as applicable to that unit. On expansion SSI registration was converted to MSI. Similarly, Excise Duty was not applicable to Firm and when the same was applicable to the appellant, the registration was made with Excise Authorities. Appellant submissions are acceptable Page no.11 of the Assessment order. 23. There is no transfer of any of the assets from the old unit to new unit The old unit which was run by erstwhile Partnership firm was having Machinery and all the assets and liabilities including Plant and ....
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....r, the party of the Third Party hereto. In view of this, it is submitted that the entire business was taken over by the appellant company. Appellant submissions are acceptable 27. There is no transfer of capital from old unit to new unit. As mentioned in (d) above all the assets and liabilities including capital has been taken over by the appellant company on dissolution of the firm, which is very clear from the term and conditions recorded in Dissolution Deed. Appellant submissions are acceptable 28. The manufacturing activities carried out by the assessee firm are in new business environment with changed government policies. Government policies are not in the hands of appellant and changes from time to time depending upon the industrial environment, but any change in the government policy does not mean that the unit is a new unit and not expansion of old unit. Appellant submissions are acceptable. 29. The technology used and products manufactured by the firm are different from the one which were manufactured in the old unit. In this clause the AO has admitted that there was an old unit in which manufacturing activities were carried on. However, after expansion new techno....
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....anufacturing of flexible packing material for pharma companies on job basis and running unit at Plot No.124- 133, Panchal Udyog Nagar, Bhimpore, Daman. After taking over the business by the appellant, the company continued to manufacture flexible packing material for pharma companies. The company has also started in the same unit manufacturing of aluminium foil used for makingflexible packing material for pharma companies. The business carried on by the partnership Firm and the appellant company are in the sane line of business except that a new manufacturing activity has been started for manufacturing aluminum foil and hence for manufacturing aluminum foil whatever permission is required from government authorities has been applied as and when it was required under the law. Appellant submissions are acceptable. 33. The assessee company has made applications before the different government authorities for new unit before the dissolution of the firm. The company has made applications to the Government authorities from time to time as and when the requirement of approval is required from the government authorities. Further, certain applications are made on the basis of project rep....
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.... loan. It always take time for sanctioning of loan by the banks. Hence, company on the basis of projection and project cost has applied for loan to Corps ration flank before the Firm was dissolved, however, actual disbursement of loan was done only after the dissolution of the Finn. Since it was the projection, application was made to Corporation Bank and Shamrao Vithal Co- operative Bank ltd. for setting up manufacturing facilities for Parma Grade Aluminium Foil. The loan was sanctioned earlier and utilization of the loan was dune after the dissolution of the Firm and after the business of the old Firm has been taken over by the company. Sanction of luau earlier than dissolution of Firm does not mean that it is not expansion of existing unit and that new unit is established. Appellant submissions are acceptable. 37. No business activity has carried out by the unit of the firm till the new industrial commence the manufacturing activities. Since major expansion was carried out in the existing unit, the manufacturing activity in the old unit was suspended for few days. Appellant submissions are acceptable. 38. The Assessing Officer has mainly relied on the following cases to com....
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....he second important query, the A.O. sought to know from Mr. K. C. Dhingra and Mr. Vineet Dhingra was to confirm whether both the MOU and the said letter signed by Shri. K. C. Dhingra himself or someone else has forged the signature of Mr. K. C. Dhingra. To this important query reply was not furnished. The Dhingra's are conspicuous about not giving specific replies to these points. Even the directives issued to them was replied by the Authorised Signatories, denying signing of any Lease Agreement. However, from the perusal of the sale deed dated 8th July 2004, between Western Consolidated Private Limited and M/s. Ess Dec Aluminium Limited, the cheque no. 000054 of Rs. 1,11,111/- referred in MOU is reflected in the said Sale Deed. Therefore, in the absence of confirmation from Mr. K. C. Dhingra and / or Mr. Vineet Dhingra, it is wrong to conclude that, that the signature in the MOU was forged, and the MOU was not signed by M/s. Western Consolidated Private Limited and M/s. Ess Dee Aluminium Limited. The appellant further augments its case that, the cheque issued by it had credited / encashed by Western Consolidated Pvt. Ltd. Further, on the circumstances basis, the directors evaded t....
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....Court, on the facts, that the two letters dated February 18, 1955 and March 9, 1957, did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the suet of Rs.1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. Again in the same case, it has been held that the Department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. " 18.4 Again it was held "but before the income tax authorities could rely upon it, they were bound to produce it before the asseessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him". In the above mentioned case the Hon. Supreme Court has held that the two letters dated 18.02.1955 and 09.03.1957 written by the Manager of the Bank did not constitute any material evidence for treating Rs.1,07,350/- as undisclosed remittanc....
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....no production and no sales/job work claimed to have been made before March 2004 by the appellant. The job work carried out in the months of February 2004 and March, 004 is duly shown in Sales Tax returns filed by the Firm. The Sales Tax authorities have completed the assessment also. In the appellant's case, It was further seen that the goods produced at the factory in the months of February 2004 and March 2004 were sold to various pharma companies by M/s. Flex Art Goa after paying the excise duty and all these sales are recorded in the Excise records and excise returns have been filed by M/s. Flex Art Goa. It is also a fact that Ess Dee Aluminium was having factory license prior to commencement of this business. The partnership Firm has permanent registration as 831 and registration with Sales Tax Authorities. In summary, what is required to be fulfilled for eligible deduction u/s.80-IB is not in dispute. The appellant had demonstrated before the AO and before me that i) the appellant had joined the Firm which was engaged in manufacturing the flexible packaging materials. ii) the AO has not controverted the purchase, sale and manufacturing activities by the Firm by bringing coge....
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....hat the premises which was claimed to have been taken by the assessee on rent for its manufacturing activities was found by the AO as not correct on the basis of the statement of Shri Debashish Chakravorty, who was an employee of Shri Khemchand Dhingra. On appeal, the learned CIT(A) found that the statement of Shri Debashish Chakravorty is not admissible evidence against the assessee, as the assessee requested for examining of Shri Khemchand Dhingra which was not allowed by the AO. For this, the learned CIT(A) placed reliance on the decision of Hon'ble Supreme Court in the case of Kishanchand Chellaram Vs. CIT, 125 ITR 713. Further, the learned CIT(A) found that Shri Khemchand Dhingra who was the owner of the premises and who gave the premises to the assessee, as per the claim of the assessee, was not examined by the AO. The claim of the assessee was supported by the MOU signed by the owner of the premises. The CIT(A) after detailed consideration of all the different aspects of the facts available on record found the claim of the assessee that the production in the industrial unit under consideration was commenced on 3.3.2004, and consequently allowed deduction under section 80IB o....
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....ived interest income on fixed deposit ("FDRs." for short). Such interest income received from Daman Unit and Goa unit are as under: A.Y.2006-2007 A.Y.2007-2008 Daman Unit Rs. 5,93,380/- Rs. 1,06,23,708 Goa Unit Rs. 1,52,319/- Rs. 3,67,539/- The assessee claimed deduction under section 80IB without excluding the above interest income. Before the AO, the assessee contended that he has also incurred interest expenses, and therefore, only net interest, if any, ought to be excluded for computing the business income derived from eligible industrial undertaking, and therefore, not eligible for deduction under section 80IB of the Act. In respect of netting of interest expenditure, the AO observed that no material was brought by the assessee to show that borrowed funds were utilized for making FDRs and consequently, not accepted the said plea of the assessee also. On appeal, the learned CIT(A) confirmed the action of the AO by holding that the interest on FDR cannot be held as derived from eligible industrial undertaking. Before us, the learned AR claimed that the lower authorities were not justified in not allowing set off of interest expenditure with the interest income c....
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....mining the income, which is derived from eligible undertaking. Thus, the said decision is distinguishable and not applicable in the instant case. We, therefore, dismiss this part of the ground of the appeal of the assessee. 17. As regards interest on staff loan of Rs. 4,913/- from Goa unit in asstt.year 2006-2007 and interest on staff of Rs. 4,913/- from Daman unit and Rs. 16,121/- from Goa unit in asstt.year 2007-208, the learned AR of the assessee conceded that the assessee was not eligible for deduction under section 80IB on the same, therefore, this part of the ground of the appeal is also dismissed. 18. With regard to the DEPB incentive of Rs. 9,42,601/- from Daman unit and Rs. 1,98,739 from Goa unit for A.Y.2006-2007 and DEPB incentive of Rs. 4,71,595/- from Daman unit for asstt.year 2007-2008, the learned AR fairly conceded that the assessee will not be eligible for deduction under section 80IB of the Act on the same, in view of the decision of the Hon'ble Supreme Court in the cse of Liberty India Ltd. Vs. CIT, 317 ITR 218 (SC). Therefore, this part of the ground of the appeal is also dismissed. 19. In the Revenue's appeal for A.Y.2006-2007 and 2007- 2008, the ground no.3....
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....le availing the benefit u/s.80IB in the year in which the expenditure was incurred and amounts were due to the creditors. It was held by the AO that the income shown by the assessee under the head balance written back was nothing but the cessation and remission of trading liability under section 41(1) of the Act, and was not the income derived from industrial undertaking, and therefore, not eligible for deduction under section 80IB of the Act. 25. On appeal, the learned CIT(A) held that these amounts were allowed as expenditure and profit was reduced and the deduction under section 80IB was allowed less. Hence, in the year in which it has been written back, it was eligible for deduction under section 80IB. 26. The learned DR supported the order of the AO, whereas, the learned AR of the assessee supported the order of the learned CIT(A). 27. After considering rival submissions and perusal of the orders of the lower authorities and material available on record, we find that in the instant case, the assessee has written off sundry credit balance, and added the same to the income of the current year. The assessee has claimed deduction under section on the same income. The AO disallo....