AI Drafter 
TaxTMI 
TaxTMI 
2016 (5) TMI 951
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....ming deduction u/s.80IB of the Act as under: Asst. Year Income returned 2006-07 Rs. 11,15,337/- 2007-08 Rs. 62,31,868/ - 2008-09 Rs. 44,22,629/- The case was selected for scrutiny and notices u/s.143(2) and 142(1) were issued to the assessee. Scrutiny assessments u/s.143(3) of the Act was completed as under: Asst. Year Date of order Income assessed Addition I disallowance aocnc ount of 2006-07 24.12.2008 Rs. 1,47,03,293 Disallowance of deduction u/s.80IB. 2007-08 30.09.2009 Rs. 1,72,02,104 Disallowance of donation paid and deduction u/s.80IB.. 2008-09 27.12.2010 Rs. 1,42,51,436 Disallowance u/s.14A and deduction u /s.80IB. 3.1 There is only one main issue involved in all the three appeals and the same is with regard to disallowance of the claim of deduction under section 801B.. The grounds of appeal taken by the assessee are also directed towards the action of the AO in disallowing the assessee's claim u/s.801B of the Act. 3.2 It is seen that out of the assessee's 4 units of manufacturing automobile components, the assessee claimed deduction with respect to unit 2 at Pukkathurai....
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....ceased to be a small industrial undertaking. Against this, the assessee is in appeal before us. 4. We have heard both the parties and perused the material on record. The ld. AR relied on the judgment of the Karnataka High Court in the case of M/s. Ace Multi Axes Systems Ltd. v. DCIT in ITA No.477 of 2013 dated 28.7.2014, wherein the Karnataka High Court considering the observation of the Tribunal that the CIT is justified in invoking the jurisdiction u/s.263 of the Act so as to withdraw the deduction u/s.80IB of the Act on the reason that as in the 9th year, the assessee is ceased to be a small scale industry, reversed the order of the Tribunal by observing as follows : "4. Sec.80IB is an incentive provision. It provides deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. For an industrial undertaking to be eligible for the said deduction, it has to fulfill all the conditions mentioned under Sub-sec.(2) of Sec.80IB. The four conditions which are stipulated therein are, firstly, the industrial undertaking must not have been formed by splitting up or reconstruction of a business already in exis....
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....ires machinery and the total value of the machinery exceeds Rs. 1 crore, it ceases to have the said benefit, do not follow from any of the provisions. It is true that there is no express provision indicating either way, what would be the position if the small scale industry ceases to be a small scale industry during the said period of 10 years. Because of that ambiguity, a need for interpretation arises. If we keep in mind the object of the Legislature providing for these incentives and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself. During that period the industry not only manufactures products, it generates employment and it adds to the wealth of the country. Merely because an industry stabilizes early, makes profits, makes future investment in the said business, and it goes out of the definition of the small scale industry, the benefit under Sec.80IB cannot be denied. If such a literal interpretation is placed on the said provision, it would run counter to the very object of granting incentives. It would kill the industry. Therefore keeping in mind the object with which these provisions are enacted, k....
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....y exceeded the limit specified u/s 11B of the Industries (Development and Regulation) Act, 1951 and therefore, the allowance of deduction to the assessee u/s 80IB vide order of assessment dated 3.12.2008 was erroneous and prejudicial to the interest of the Revenue. 14. The assessee, before us, challenged the above order of the CIT. The assessee has not disputed the fact that its investment in plant and machinery was actually more than the limit of Rs. 1 crore specified u/s 11B of the Industries (Development and Regulation) Act, 1951. The A.R of the assessee, in fact, has filed a chart during the course of hearing showing the investment in plant and machinery of the assessee from assessment year 2000-01 to 2006-07 which is as follows: Assessment year Gross value of plant and machinery as per books Depreciation - books Net value of plant and machinery as per books Assessment particulars 2000-01 93,16,360.38 14,91,427.00 78,24,933,38 80IB claim allowed u/s 143(1) 2001-02 1,09,35,909.26 38,36,331.43 70,99,577.83 80IB claim allowed u/s 143(1). Intimation not traceable 2002-03 1,35,67,232.26 62,73,385.43 72,93,846.83 80....
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....scale industrial undertaking therein must not have investment in plant and machinery exceeding Rs. 1 crore. Thus, in our considered view, the assessee's undertaking cannot be regarded as small scale industrial undertaking for the year under consideration u/s 11B of the Industries (Development and Regulation) Act, 1951. Moreover, we find that there is no requirement as per the above provisions of section 80IB(14)(g) to have a certificate or otherwise for being regarded as small scale industrial undertaking u/s 80IB of the Act. Our above view finds support from the decision of the Hon'ble Delhi High Court in the case of Praveen Soni vs CIT, [2011] 199 Taxman 26 (Del)where it was held as under: "8. The other question as to whether it is incumbent upon the assessee that it is registered under the IDR Act for claiming the benefit under sub-section (3) of section 80-IB of the Income-tax Act. The answer to this depends on the interpretation which is to be given to clause (g) of sub-section (14) of section 80-IB of the Income-tax Act, which reads as under: "(g)"small-scale industrial undertaking" means an industrial undertaking which is, as on the last day of the prev....
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....ning which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in :- (a )promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and (b )securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common goods,specify, having regard to the factors mentioned in sub-section (2), by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale industrial undertaking and different requirements may be so specified for different purposes or with respect to industrial undertakings engaged in the manufacture or production of different articles : Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is, or is proposed to be, engaged in:- (i )the manufacture of parts, components, sub-assemblies, tooling or inte....
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....terms of on lease or on hire purchase, does not exceed rupees three crores; 2. Ancillary industrial undertaking.-An industrial undertaking which is engaged or is proposed to be engaged in the manufacturing or production of parts components, subassemblies, tooling or intermediates, or the rendering of services, and undertaking supplies or proposes or supply or renders not more than fifty per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or on hire purchase, does not exceed rupees three crores." 12. At the end of this notification, it is provided that every industrial undertaking which has been issued a certificate of registration under section 10 of the said Act or a license under sections 11, 11A and 13 of the IDR Act by the Central Government and are covered by the provisions of paragraphs (1) and (2) above relating to the ancillary or small scale industrial undertaking, may be registered at the discretion of the owner as such within a period of 180 days from the date of publication of this notification. T....
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....ndertaking is regarded as small scale industrial undertaking'. 14. When we look into the mandatory Form prescribed for availing this benefit, viz., Form 10CCB, such a form has to be filled and submitted by the assessee to the Assessing Officer for claiming the benefit. The details which are required to be given as per this form include the information which is to be supplied to ascertain, whether such industrial undertaking would be regarded as small scale industrial undertaking for the purpose of section 11B of the IDR Act in as much the assessee is called upon to give the value of machinery or plant, number of workers employed in the manufacturing process, total sales of the undertaking and also profits and gains derived by the undertaking from the eligible business and deduction under section 80-IB of the Income-tax Act. 15. The purpose for industrial undertaking to be regarded as small scale industrial undertaking as per section 11B of the IDR Act is not far to seek. It was to maintain parity in prescribing the conditions which are required to be fulfilled by the industrial undertaking to qualify itself as small scale industrial undertaking. Since the Central ....
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....cale industrial undertakings. By the Explanation, "new ship" and "new machinery or plant" were defined. The Legislature also provided by that Explanation as to which undertaking was to be regarded as a small-scale industrial undertaking. By the said Explanation, it also provided how the value of the machinery or plant was to be determined. Thus, it cannot be gainsaid that the Legislature thought it fit to make a special provision in this behalf. If registration of an industrial undertaking with the respective State department was to be regarded as sufficient for making such undertaking a small-scale industrial undertaking, then the Legislature would not have made this special provision. Moreover, that would have resulted in discrimination inasmuch as the test laid down for treating an industrial undertaking as a small-scale industrial undertaking might have varied from State to State. Thus, the Legislature, in order to see that there was uniformity, made this special provision and for that reason, it will have to be held that for the purpose of determining whether an industrial undertaking is a small-scale undertaking or not, resort had to be taken to the Explanation to section 32(....
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.... for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000- 01 and 2001-02 the relief granted under Section 10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section 10A of the Act. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i. e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit." 19. Thus, it is observed that the Hon'ble Bombay High Court has recognized the fact that a change in fact warrants different view in the subsequent year cannot be ruled out. However, the conditions which are regarded to be satisfied in the first year for being eligible for deduction in that year and subsequent year if satisfied....
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....ial undertaking does not remain small scale industrial undertaking then also the assessee is entitled for deduction u/s 80IB of the Act. In our considered view, for being eligible for deduction u/s 80IB, in the context of the present case, the assessee's industrial undertaking must be a small scale industrial undertaking in the year in which deduction is eligible. Therefore, the above quoted decision of the Delhi Bench of the Tribunal is not applicable in the instant case. (emphasis supplied) 23. Lastly, the assessee relied upon the decision of the Hon'ble P&H High Court in the case of CIT vs Sohana Woollen Mills (supra) wherein it was held that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. Thus, the Hon'ble High Court held that if two views are possible then merely to take a different view, the provisions of section 263 cannot be invoked by the CIT. 24. In the instant case, we do not find any material on the basis of which it can be held that the assessee is entitled for deduction u/s 80IB of the Act in an yea....
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.... that in so far as conditions prescribed in clauses (i) and (ii) are concerned, the same relate to a point of time which can only be examined in the course of the initial assessment year. Clause (i) requires an examination as to whether the industrial undertaking is formed by splitting up or reconstruction of a business already in existence. Clause (ii) relates to examining whether the industrial undertaking is formed by the transfer to a new business of machinery or plant already used in business. Evidently, the conditions in clauses (i) and (ii) can only be examined at the time of formation of a unit, which is the initial year. Clause (iii), which is under consideration, does not imply any such interpretation. In our considered opinion, the import of the condition prescribed in clause (iii) is that the industrial undertaking ought to be a small scale undertaking in the year of claim of deduction, be it be the initial year or any of the subsequent years, so long as it manufactures products listed in the Eleventh Schedule. Quite clearly, in this case admittedly the assessee is manufacturing articles or things stated in the Eleventh Schedule and it does not quality to be a small sca....
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....under section 80J of the Act for the subsequent year, i.e. assessment year 1969-70. The Hon'ble High Court held that if the relief of tax holiday was granted to the assessee for the assessment year 1968-69, the assessee was entitled to continuance of that relief for the subsequent four years and the Assessing Officer would not be justified in refusing to continue the allowance for the assessment year 1969-70, without disturbing the relief for the initial year. In the words of the Hon'ble High Court, --"No doubt, the relief of tax holiday under section 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted." 11. As the aforesaid discussion shows, the matrix of the dispute in Saurashtra Cement & Chemicals Ltd. (supra) stood on an altogether different footing. The assessment year in dispute was 1969-70, which was the second year of claim of deduction under section 80J of the Act. In the initial assessment yea....
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....esent case, it is quite clear that on account of events subsequent to the initial assessment year the assessee fails to fulfil the impugned condition and, therefore, it is ineligible for the claim of deduction in this year. In our considered opinion, the ratio of the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemicals Ltd. (supra) does not help the assessee in the present case. 12. The next decision relied upon by the appellant is in the case of Paul Brothers (supra) wherein the facts were as follows. In the case of Paul Brothers (supra), the issue related to jurisdiction assumed by the Commissioner under section 263 of the Act for assessment years 1981-82 and 1982-83 which was quashed by the Tribunal, which was appealed by the Revenue before the Hon'ble High Court. The facts were that the assessee firm had branches in backward areas carrying on the business of construction of buildings, transportation and manufacture and supply of bricks. For the use in construction activity, assessee also manufactured windows, concrete slabs etc. For assessment years 1980-81 and 1981-82 it claimed deduction under section 80HH of the Act, which was allo....