TaxTMI 
TaxTMI 
2016 (5) TMI 951
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.... 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 in Chinglepet District which is about 50 kms away from Chennai. The assessee's undertaking commenc....
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....rties 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 existence. The second condition is, such an undertaking is not formed by transfer of machinery or plant previously used for any purpose. T....
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....rovisions. 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, keeping in mind the industrial growth which is required to be achieved, if two interpretations are possible, the courts have to lean in favou....
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....der 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 80IB claim allowed u/s 143(1). Intimation not traceable 2003-04 2,14,11,103.89 1,00,22,823.43 1,13,88,280.46 80IB claim allowed in processing of return u/s 143(1) and in reassessment u/s 147. 2004-05 3,28,35,650....
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....evelopment 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 previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951." 9. As pointed out above, as per sub-section (3) of section 80-IB of the Income-tax Act where industrial undertaking is small industrial undertaking, it is ....
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....ng 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 intermediates; or (ii )rendering of services, or supplying or rendering, not more than fifty per cent of its production or its total services, as the case may be, to other units for production of other articles. 2.The factors referred to in sub-section (1) are the following, namely :- (a )the investment by the industrial undertaki....
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....r 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. Two things follow from the reading of the aforesaid notification : (a)To be regarded as a small scale industrial undertaking - such an undertaking should be given which has invested in fixed assets in plant and machinery either on ownership terms of on lease or on hire purchase. (b)Worth of said asset does not exceed Rs. 3 crores. The prescription of Rs. 3 crores was reduced to Rs. 1 crore vide amendment Notification, dated ....
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.... 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 Government has to prescribe such conditions by notification in view of provisions of section 11B of the IDR Act, the Legislature in its wisdom deemed it fit to incorporate those conditions for the purpose of Income-tax Act as well. This issue came up for consideration before the Gujarat High Court, albeit, in the context of depreciation which is to be allowed to an assessee under section 32 of the Income-tax Act. We may point out that Explanation (3) of secti....
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....rtaking 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(1)(vi) and not to any other provision of law whereby an industrial undertaking was to be regarded as a small-scale industrial undertaking for other purposes. The Tribunal was, therefore, in error in proceeding on the basis that since the assessee was registered as a small-scale industrial undertaking with the Small-Scale Industries Department, the benefit of section 32(1)(vi) was available to it irrespective of different provision made by that Explanation in that behalf." 17. The....
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.... 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 in that year and deduction was allowed then unless that deduction was withdrawn it was not open for the Revenue to take a different view about the satisfaction of those conditions in the subsequent years. 20. Coming to the facts of the present case, we find that the conditions regarding assessee's industrial undertaking being a small scale industrial undertaking is of fact relevant to each year and the same can change on making of further investment in plant and machinery in subsequent year by the asse....
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....ied 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 year in which its industrial undertaking is not a small scale industrial undertaking. Further, we also do not find any material on record on the basis of which it can be held that even when the assessee's investment in plant and machinery exceeds the value of the amount of Rs. 1 crore at the end of the previous year it can be regarded as small scale industrial undertaking u/s 11B of the Industries (Development and Regulation) Act, 1951. Thus, we find that the above decision relied upon by the A.R of the assessee is not applicable to the f....
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....xamined 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 scale industrial undertaking in the instant year and, thus, the said condition is not fulfilled. 10. Much has been argued by the appellant to the effect that the conditions are to be verified only in the initial year and such examination is not intended by the Legislature to be carried out in the subsequent years by the Assessing Officer. For this proposition, heavy reliance has been placed on the judgment of the Hon'ble Gujarat High Court in the case of Saurashtra Cement & Chemical Industries Ltd (supra). We have perused the said decision. In the case of Saura....
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....held 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 year of 1968-69 the claim was allowed by treating the expansion in capacity as formation of a new industrial undertaking. Whether expansion in capacity amounted to formation of a new industrial undertaking was a condition required to be examined only in the initial year, and which was done in the course of assessment for the assessment year 1968-69, being the initial year. In the assessment year 1969-70, the Assessing Officer sought to deny the deduction on the ground that expansion of manufacturing capacity did not amount to setting up of a new industrial undertaking. In oth....
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....ra), 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 allowed for the assessment year 1980-81 by the Assessing Officer without discussion and such assessment had become final. In the assessment year 1981-82 also the deduction was allowed by the Assessing Officer and while allowing deduction, reliance was placed on the judgment of the Hon'ble Orissa High Court in the case of CIT v N.C. Budharaja & Co 121 ITR 212 (Ori) which was the only decision then operating in the field. For the assessment year 1981-82, the assessee had preferred an appeal before the Commissioner of Income-tax (Appeals) on certain other issues. Again for assessment y....