Income Tax Appellate Tribunal - Mumbai
The Dy. Commissioner Of Income Tax vs Mds Switchgear Limited [Now Legrend ... on 31 December, 2007
ORDER
1. These are seven appeals by the department and seven Cross objections by the assessee. The appeals of the department and the assessee are disposed off year wise. We will take first the appeal of the department.
2. The appeal in ITA No. 4778 is for assessment year 1990-91.
2.1. In this appeal the department is objecting in holding by CIT(A) that the assessment being reopened Under Section 147 is on the basis of mere change of opinion and therefore is bad in law thereby quashing the assessment proceedings.
2.2. Briefly stated facts of the case are that the original assessment was completed on 29/03/93. Thereafter, assessment was reopened by issuing notice Under Section 148 on 29/03/01. Thereafter, assessment was completed Under Section 143(3) read with Section 147/148. The assessee raised legal ground before CIT(A) by which it was contended that since original assessment was completed on 29/03/93, issuance of notice Under Section 148 is bad in law as the assessment had been reopened beyond period of limitation prescribed by the law. A ground was also raised that the re-opening was based only on mere change of opinion.
2.3 CIT(A) after considering the submissions and perusing the material on record, found that the assessee company had filed its return of income for the concerned year on 31/12/90. Unit-wise Profit & Loss account and Balance sheet alongwith return of income was enclosed. Separate working of admissible deduction Under Section 80HH and 80I were also filed alongwith the return. Thereafter, the AO has issued questionnaire dated 28/01/92 wherein at pt. 11 he has asked the following questions:
Explain as to how the amount of Rs. 4,84 lacs on account of other income qualifies for deduction Under Section 80HH and 80I?
Explain the basis on which the direct expenses and other overhead expenses have been allocated to the unit qualifying for deduction Under Section 80HH and 80-I?
Explain as to why proportionate deduction Under Section 32AB be not reduced from the eligible profit for the purpose of deduction Under Section 80HH and 80I?
2.4. The assessee responded to the aforesaid questions raised by the AO vide letter dated (sic) February 1992. The AO thereafter, allowed the deduction Under Section 80HH after reducing the deduction claimed Under Section 32AB for computing deduction Under Section 80HH. Similar, deduction Under Section 80I was allowed after reducing the deduction allowed Under Section 32AB and Under Section 80HH. Thus, there was not only no failure on the pSection 8of the assessee to disclose fully and truly all material facts necessary for the assessment for assessment year 1990-91 but the matter was fully examined in detail. Thereafter, the assessee had filed an appeal before the CIT(A) against the order of the AO passed Under Section 143(3) by which the CIT(A) has held that deduction Under Section 80I should be allowed without reducing deduction Under Section 80HH from the profits for computing the deduction Under Section 80I. In view of these facts, CIT(A) observed "not only can it not be said that the assessee has failed to disclose fully and truly all material facts necessary for his assessment but it also cannot be said that the issue of deduction Under Section 80HH and 80I had not been examined in depth. Here, it will be not be out of place to mention that what is required to be disclosed are only primary facts" CIT(A) further noted that AO reopened the assessment merely for change of opinion because the AO had disallowed deduction Under Section 80HH and 80I for MCB expansion unit In view of similar disallowance in the assessment order for the assessment years 1997-98 and 1998-99 passed by another officer.
2.5. Considering all these facts and circumstances of the case, the CIT(A) held that the AO has reopened the assessment merely on change of opinion which is not permissible under law as amended with effect from 1.4.89. Accordingly, CIT(A) quashed the assessment Now the department is in appeal here before the Tribunal.
2.6. Ld. DR placed reliance on the order of the AO. Further it was submitted that assessee as not discharged the onus laid upon it by disclosing fully and truly the particulars of the income. Reliance was placed on the decision of Dr. Amin Pathology 252 ITR 673.
2.7. On the other hand, ld counsel or the assessee placed reliance on the order of CIT(A). It was further submitted that complete facts regarding deduction Under Section 80HH and 80I were disclosed while filing the return of income. The AO has examined the issue in detail including allowability of deduction Under Section 80HH and 80I. The AO originally allowed the deduction Under Section 80I after reducing deduction Under Section 80HH from the profits. Thereafter, the assessee filed appeal before the CIT(A) who directed the AO to allow both the deduction i.e. 80HH and 80I simultaneously without reducing deduction Under Section 80HH from the profits. Therefore, there is no question of not disclosing any particular in full. Reliance was placed on various case laws, copies of which are placed on record.
2.8 We have heard rival submission and considered them carefully. After considering all the relevant material and case laws op which reliance have been placed by the respondent, we find no infirmity in the findings of ld. CIT(A). CIT(A) has ascertained all the factual aspect which are discussed some where above and then only has quashed the assessment order by holding that order of the AO is merely on change of opinion which is not permissible either under the provision of law or otherwise. Reliance placed by the ld. DR in case of Amin Pathology is distinguishable on facts as in that case assessment was completed Under Section 143(1), therefore, the ratio of the decision of Hon'ble High Court (supra) is not applicable on the facts of the present case. On the other hand, reliance placed by the ld. (sic) on the decision in case of Suresh Chand Garg, 42 ITD 166, in case of Chuggamal Rajpal 79 TTR 603 (SC) and various other decision reported in 290 TTR 252 (Bom) (sic) ITR 203 (Bom), 285 ITR 26 (Bom) and 264 ITR 566 (SC) are in support of the case of the assessee. Ratios of these decisions are that merely on change of opinion, assessment cannot be reopened. It has been further held that if assessee has furnished all the particulars of income and deduction so claimed then assessments cannot be reopened by issuing notice Under Section 148. It is a settled position in law that unless otherwise, it is proved that assessee fails to disclose fully and truly particulars of income or deduction then only assessment can be reopened by issuing notice Under Section 148 etc within the time limit prescribed under the law. In the present case, even limit of four years for Issuance of notice Under Section 148 have already been expired. Therefore, for this reason also order of the AO was bad in law.
2.9 In view of the above facts and circumstances and in view of the uncontroverted findings of ld. CIT(A), we confirm his order. This appeal of the department fails.
CO No. 308/Mum/2003:
3. We have already upheld the findings of ld CIT(A) who quashed the assessment framed by AO Under Section 143(3) read with Section 147. Therefore, the grounds taken in Cross objection does not require any adjudication upon as they have become academic in nature. Accordingly the same is dismissed.
Appeal No. 1004/Mum/03 (Assessment Year 1997-98)
4. The Department is objecting in directing the AO to allow the deduction Under Section 80HH and 80I in respect of ELCB plant No. 3 and on the expansion of MCB unit without appreciating that the assessee did not fulfil the eligibility conditions required Under Section 80HH and 80I of the Act in respect of ELCB plant No. 3 and MCB unit for the assessment year 1997-98.
4.1. AO disallowed the claim of deduction Under Section 80HH and 80I in respect of Miniature Circuit Breaker (MCB) expansion unit and Earth Leakage Circuit Breaker (ELCB) unit by observing that the deduction Under Section 80HH is allowed to industrial undertaking which fulfil all the conditions:
i) The Industrial undertaking has begun to manufacture or produce articles after 31st day of December, 1970 but before the f day of April, 1990 in any backward area.
ii) It is not formed by the splitting up or the reconstruction of a business already in existence in the backward area.
iii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose in any backward area.
iv) It employs ten or more workers in a manufacturing process carried on with the aid of power or employs twenty or more workers in manufacturing process carried on without the aid of power.
Thereafter, the AO observed that the conditions for undertaking being eligible for deduction Under Section 80I are also similar except for the fact that it does not require setting up of an industrial undertaking in backward area and the industrial undertaking should have commenced operation before 1st day of April, 1991. AO further observed that the most important condition here is that industrial undertaking should be new industrial undertaking commences production before 1st April, 1990 and 1st April 1991 and employs more than ten or twenty workers in the manufacturing process. If these conditions not satisfied to a new industrial undertaking, then deduction Under Section 80I & (sic) cannot be allowed. After discussing various ratio of various decisions, AO held that assessee failed to satisfy the conditions for getting deduction Under Section 80HH and 80I. Accordingly, both the deduction were denied by the AO.
4.2 Before CIT(A) detail submissions were filed. The statements recorded of two employees were also explained. The detail of employees alongwith code no. etc were filed. It was further submitted that company set up separate unit for manufacturing ELCB for which a resolution was passed by the Board of Directors for approving financial statements of the company for financial year 1989-90. It was pointed out that assessee has incurred expenses of Rs. 20.75 lacs for these plant to be used for manufacturing ELCB. The assessee had purchased new machines costing Rs. 85 lacs. These machines have been purchased from various parties within the country. It was also explained that the assessee had appointed technically qualified person in this unit for manufacturing of ELCB. After recruitment, these persons were imparted on the job training. The production was started in the month of December, 89. Accordingly, it was submitted that condition required of 10 employees is fulfilled. It was also submitted that the detail of machine alongwith various components and the raw material for manufacturing ELCB were also filed. It was further explained that the assessee company had obtained industrial licence from Ministry of Industry, for setting up this ELCB plant vide their letter dated 08/09/86 which required setting up of new undertaking. It was further submitted that technical persons working for ELCB were also sent for learning to Italy as per the terms and conditions. Therefore, it was submitted that MCB technology and ELCB technology are totally independent and separate to each other. MCB technology does not affect production of ELCB. It was explained that sales of these unit are affected separately and (sic) are not mixed up with MCB. Independent and separate bills for sales of ELCB are issued. RT-12 register maintained for production for ELCB was also produced and it was submitted that maintaining this register is a requirement of Excise department.
4.3. Further various discrepancies noted by the AO and objection by AO in the assessment year were explained in detail and it was submitted that the assessee is eligible for deduction Under Section 80HH and 80I for these separate units, Reliance was placed on various case laws i.e in case of Paul Brothers 216 ITR 548, in case of N.C. Budharaja & Co. 121 ITR 212, in case Saurashtra Cement and Chemical Industries Ltd. v. CIT 23 ITR 669 and in case of Radhasoami Satsang v. CIT 193 ITR 321 where it has been held that if on similar facts deduction are allowed, then in view of the rule of consistency the claim of the assessee has to be allowed in subsequent year also. It was also explained that deduction Under Section 80HH and 80I for MCB expansion unit as well as ELCB unit for assessment year 1990-91 were allowed by holding that they are not newly established undertaking. Therefore, it was submitted that firstly the AO should have withdrawn deduction allowed for 1990-91 then only deduction can be denied for the year under consideration. Again in support of this contention, reliance was placed on various case laws in case of 83 ITR 683, 79 ITR 540 and many other mentioned in the order of the CIT(A).
4.4. After considering the submissions and perusing the material on record, the CIT(A) found that the AO was not justified in negativating the claim of the assessee for deduction Under Section 80HH and 80I for both units i.e ELCB plant and MCB unit. Accordingly, the ground of the assessee was allowed.
5. Ld. DR placed reliance on the order of the AO. On the other hand the counsel of the assessee placed reliance on the order of CIT(A).
6. After considering the order of AO and CIT(A), we see no reason to interfere in the findings of ld. CIT(A). The findings of ld. CIT(A) are given in para 5 to 5.3 at pg. 39 & 40 of his order which is as follows:
5. I have considered the facts of the case as stated by the AO and also the decisions as relied upon by the AO along with the facts and arguments submitted by the appellant through its representative along with various decisions as cited supra. Having considered the same, I am of the clear cut view that so far as ELCB plant is concerned, it is an industrial undertaking according to the provisions of the Income-tax Act. This unit was envisaged much earlier to the assessment year 1990-91 and the agreement for procuring know-how was even executed much earlier in the year 1984. The payments for the fees of technical know-how were even made before the assessment year 1990-92. New machineries were purchased and installed. Separate factory shed has been constructed. Most of the raw materials are purchased from the open market along with imported raw materials as stated above in the facts of this case. Employees for handling the manufacturing activities were recruited fresh and they were trained accordingly to manufacture activities were recruited fresh and they were trained accordingly to manufacture the ELCB product. The production and sales are maintained in separate records. A distinct trading name has been giving to this product i.e. loadstop and, therefore, all the sale bills issued are indicating the trading name of this product. Separate catalogue numbers (reference numbers) are used for the sale bills for the safe of ELCB products.
5.1 I, therefore, hold that the appellant company is entitled for deduction under sections 80HH and 80I so far as ELCB Plant No. 3 is concerned. The A.O is, therefore, directed to recompute the deduction Under Section. 80HH and 80I for ELCB plant.
5.2. So far as the legal position, in respect of the issue whether already allowed exemptions can be withdrawn in subsequent years without disturbing the given allowance in the initial assessment years is concerned, it is held that the decision of the Bombay High Court given in case of CIT v. Paul Brothers 216 TTR 548 is clearly applicable in this case and therefore, the AO. has wrongly denied the benefit to the appellant for the deductions under sections 80HH and 80I for this assessment year without taking action for withdrawing the same in the initial assessment year 1990-91. The A.O. must have reopened the assessment for A.Y. 1990-91 to withdraw the deductions already allowed to the appellant under Section 80HH and 80I and thereafter this assessment order must have been passed for denying the claim under these sections. Thereafter the claim of the appellant could have been denied in this assessment year 1997-98. But the A.O has not followed this procedure and without disturbing the benefit-allowed to the appellant in A.Y. 1990-91 the A.O. has denied the claim in this assessment year 1997-98. This is not as per the legal requirements of the Act as decided by the Hon. Bombay High Court as well as Other High Courts in the decisions as cited supra in the arguments taken up by the A.Rs of the appellant. The A.O issued notice under Section 148 for withdrawing the benefit allowed to the appellant for assessment year 1990-91 to 29.03.2001 after passing the assessment order for A.Y. 1997-98 as on 31.3.2000. Therefore, the assessment order passed by the A.O. is in contradiction of the decision of the jurisdictional High Court as stated above.
5.3 So far as the deduction under sections 80HH and 80I for the expansion of MCB unit is concerned, it is also held that the same decision is applicable against the action of the A.O. for denying the benefit under Section 80HH and 80I relating to the expansion of MCB unit in this assessment year 1997-98 for which the benefit had already been allowed in the A.Y. 1990-91 being the initial assessment year. Therefore, the' disallowance made by the A.O. for the dedudion under sections 80HH and 80I is directed to be deleted. Therefore, this ground No. 1 is allowed to the appellant.
6.1 The above findings of ld. CITA(A) neither could be controverted by ld. DR nor any other material was brought on record from which it could be established otherwise. Therefore, in view of the reasoning given by CIT(A), we confirm the order of CIT(A) in this respect CO 66/Mum/04 ( Assessment Year 1997-981:
7. Frist ground raised through CO is against confirming disallowance on expenditure on presentation on articles under Rule 6B amounting to Rs. 28,277/-
7.1 Similar disallowance were made for assessment year 1993-94. Tribunal while deciding the appeal for assessment year 1993-94 allowed the ground by observing that this issue is covered in favour of assessee by the decision of the Hon'ble Bombay High Court in case of Allan Sons Pvt. Ltd. 216 ITR 690. Following the same, the ground raised by the Revenue was dismissed. The findings of the Tribunal are given in ITA No. 5149/M/99 dated 14/11/06 in para 12.
7.2. Following the order of the Tribunal (supra) we allow this ground of the assessee and delete the disallowance.
8. Ground No. 2 is against confirming the addition of Rs. 44,43,000/- representing circuit breaker written off/scrapped.
8.1 AO disallowed the amount of Rs. 44,43,000/- in respect of circuit breaker written off/scrapped while disallowing the claim of the assessee. The AO has observed that during the year the assessee company was taken over by Legrand SA france On verification quantitative detail of finished goods for the year ended on 31/3/97, it was seen by the AO that closing stock was shown as nil. The assessee has written off or scrapped 54,392 units of circuit breakers. The cost of these units comes to Rs. 44,43 lacs based on FIFO method. The AO further observed that the circuit manufactured by the assessee or traded by the assessee are not the items which gets spoiled over a period of time. These are sophisticated items and cannot be written off or scrapped just like that. It was further observed that in the absence of writing off, the same would have been pSection 8of closing stock and the profit of the company would have been more by Rs. 44,43 lacs. Accordingly the same was added to the total income of the assessee.
8.2 It was submitted before the CIT(A) that no details were called by the AO neither any opportunity of being heard was given to the assessee for furnishing reasons/justifications for writing off the said items. However, CIT(A) was not satisfied with the explanations. Accordingly, he confirmed the order of AO in this respect. The counsel of the assessee who appeared here before the Tribunal stated through the said chart filed before the Tribunal that the submissions raised before the CIT(A) is not taken into Consideration in right perspective. Without prejudice, it was submitted that circuit breaker should have been valued at Rs. 14,39 lacs i.e. sales proceeds in the next year and not at Rs. 44,43 lacs. Without prejudice to the above, it was further stated that value of the circuit breakers added to the closing stock either at Rs. 14,39 or at Rs. 44,43 lacs be treated as part of the opening stock of assessment year 1998-99 for which a separate ground has been taken in appeal for assessment year 1998-99. On the other hand ld. DR placed reliance on the order of CTT(A).
8.3 After considering the submissions and perusing the material on record, we restore this mater to the file of the AO to examine the issue afresh after affording proper opportunity to the assessee. The AO will also take in to consideration the contention of ld. AR mentioned Above while adjudicating this ground afresh. We order accordingly.
9. Next issue relates to in not allowing the claim for proportionate deduction (sic) to Rs. 15,421/- in respect of premium on lease hold land.
9.1. It has been stated by AR that this issue is covered against the assessee by the order of the Special Bench of the Tribunal in case of JCIT v. Mukund Ltd. 291 ITR 249, therefore it was submitted that this issue may be decided against the assessee. In view of the above facts and circumstances we reject this ground of the assesses.
10. Remaining issue is against upholding adjustment of Rs. 2,75,618/- made in respect of computation of book profit under Section 115JA of the Act.
10.1 The AO made adjustment of Rs.2,75,618/- while computing the book profit as per provision of Section 115JA. Ld. CIT(A) confirmed the action of AO. It was submitted by ld.AR that adjustment had been made without providing details and opportunity to the assessee. Therefore, such adjustment and additional tax thereon should not be sustained.
11. Ld. DR placed reliance on the order of AO & CIT(A). After considering the order of lower authorities and submissions of ld. AR, we restore this issue to the file of the AO to decide the same afresh after affording proper opportunity of the assessee. We order accordingly.
ITA Nos. 5331-5335 (Assessment years 1992-93 to 1996-97):
12. The appeals of the Department in TTA Nos. 5331-5335 are against the order of CIT(A) relating to assessment years 1992-93 to 1996-97 by which the department is objecting in holding that the assessments have been reopened Under Section 147 on the basis of mere change opinion and is therefore, bad in law.
The assessments for the years for ay 1992-93 to 1996-97 were completed earlier and the deductions Under Section 80HH and 80I were allowed. Thereafter, these assessments were reopned. Thereafter, re-assessments were completed and the deduction Under Section 80HH and 80I were negativated by the AO. The CTT(A) allowed the legal ground of the assessee by placing reliance on the detailed reasons discussed by him in the appellate order No. CIT(A)-XXVI/ACIT-6(3)396/02-03 dtd 31.01.03 for assessment year 1990-91 and held that reassessment proceedings for these years are bad in law, accordingly assessments were quashed. We have already disposed of the appeal of the department for assessment year 93-94 by which the order of the ld. CIT(A) has been confirmed by holding that reopening was merely on change of opinion which not permissible under provision of law. Facts are similar, therefore, we see no reason to interfere in the findings of ld. CIT(A) for these years also. There is no dispute that complete facts were disclosed fully and truly for claiming deduction Under Section 80HH and 80I while filing returns of income for these years. No new materials or information was found or gathered by the AO for Initiating the reopening proceedings. The provisions of law are also very clear by which it has been provided that if the assessee has not disclosed all the material facts fully and truly then the AO can reopen the assessment. On same set of facts the deduction Under Section 80HH and 80I has been allowed in earlier years. Therefore, there is no reason to reopen the assessments for negativating the claim of the assessee for deduction Under Section 80HH and 80I.
12.1 In view of these facts and circumstances, we confirm the order of ld. CIT(A) for all these years here before us. Thus, appeals of the Department fail.
CO (sic) for assessment years 1992-93 to 1996-97:
13. The Cross objections of the assessee are against in not giving any findings in respect of additional ground of appeal contending that the notice Under Section 148 for reopening of the assessment was time barred and beyond the period of limitation.
13.1 The assessments were quashed by ld. CIT(A), therefore, no findings was given in respect to the additional ground raised by the assessee. We have also confirmed the order of ld. CIT(A) in quashing assessments, therefore, we are also not inclined to dispose off this ground of the assessee as the same becomes academic in nature. Accordingly, we dismiss the COs of the assessee. In the result, the appeals of the department are dismissed and the COs of the assessee for assessment years 1992-93 to 1996-97 are dismissed and CO for assessment year 1997-98 is allowed in part.
Order pronounced on 31st Day of December, 2007