Income Tax Appellate Tribunal - Gauhati
Bongaigaon Refinery & Petro-Chemical ... vs Deputy Commissioner Of Income Tax on 18 June, 1998
Equivalent citations: [1999]68ITD531(GAU)
ORDER
T. K. Sharma, J.M.
1. This is an appeal filed by the assessee-company against the order of CIT, N.E. Region, Shillong, dt. 19th March, 1997, passed under s. 263 of the IT Act, 1961.
2. Briefly stated the facts of the case are that appellant company is a public sector undertaking engaged in refinery, petro-chemicals and polyster staple fibre. These different and separate units were set up and commissioned in the financial years 1979-80, 1985-86 and 1988-89, respectively. All these units produce different types of articles which are distinctly and separately identifiable. All these three separate units are situated in Dhaligaon, Bongaigaon District, Assam. The deduction under ss. 80-I and 80HH for petro-chemical unit prior to asst. yr. 1992-93, was not claimed as its net taxable income was nil and in view of provisions contained in s. 80A(2) of IT Act. For the asst. yr. 1992-93, the assessee-company filed its original return on 29th December, 1992, claiming deduction under s. 80HH amounting to Rs. 12,71,07,137 and similar amount under s. 80-I. The assessment under s. 143(1)(a) was made on 30th July, 1992 on the total income of Rs. 49,48,76,950. Subsequently on 30th July, 1994 appellant company filed a revised return declared total income of Rs. 47,02,12,710 after claiming deduction under s. 80HH Rs. 14,11,38,751 and under s. 80-I, Rs. 14,11,38,751 aggregating to Rs. 28,27,77,514. The revised return was also processed under s. 143(1)(a) and fresh intimation under s. 143(1)(a) was issued on 13th August, 1994. The assessment under s. 143(3) was completed on 20th January, 1995 at total income of Rs. 56,83,98,690 wherein the AO allowed the deduction of Rs. 12,01,137 under s. 80HH and Rs. 12,01,137 under ss. 80-I of the IT Act, 1961, as claimed in the original return of income. Against the assessment made under s. 143(3) on 20th January, 1995, the assessee-company filed an appeal before CIT(A), Gauhati. The issue before CIT(A) was that in the assessment order under s. 143(3) dt. 20th January, 1995, deduction under ss. 80HH and 80-I was allowed as per original return. The CIT(A), Gauhati vide his order dt. 10th November, 1995, in appeal No. Gau/543/1994-95 directed the AO to allow deduction under ss. 80HH and 80-I on the basis of revised return filed by the assessee-company. Subsequently, CIT, NER, Shillong issued a show-cause notice for proposed action under s. 263 on the ground that AO in his assessment order has allowed excess deduction under ss. 80HH and 80-I of the IT Act, 1961. According to him there was bifurcation of the net profits amongst the three units viz., refinery, petro-chemical and PSF unit. The net profits as revealed in the audited P&L a/c for the assessment year under reference was not supported by bifurcation in the profits in three different units. He also pointed out that allocation of profits amongst three units as shown in the computation of the income was not on record and when separate P&L a/c were not prepared for different units, the method to work out the profit of different units is on the proportion of turnover of the units.
3. In response to show-cause notice of CIT, NER, Shillong Shri P. K. Mookherjee, authorised representative and Shri S. K. Barua, finance manager of the assessee-company appeared and submitted a written reply stating therein that all relevant details relating to the bifurcation of profit amongst the three units of the appellant company had already been submitted before the AO and there was no ground to initiate proceedings under s. 263 of the IT Act. After affording an opportunity of being heard and verifying the entire record, the learned CIT, NER, Shillong, held that no basis for arriving at the profit or loss bifurcated into three units was given. The learned CIT also observed that petro-chemical units was started since the previous year relevant to the asst. yr. 1986-87 but no segregate P&L A/c in respect of three units was made out. No clarification was offered to learned CIT, NER, Shillong, to work out profit of different units. He, therefore, set aside the assessment order with the directions to AO to work out correct deduction under ss. 80HH and 80-I by working out profit of different unit on proportion of turnover of the units.
4. Before us, on behalf of assessee, Shri P. K. Mookherjee, authorised representative appeared and filed a paper-book containing eight annexures with written submissions. According to him, the assessee being a company was not required to file audit report in the prescribed Form No. 10C and 10-CCB respectively. His main contention is that its accounts are required to be audited as per Companies Act, which nowhere provided that separate statement of accounts to be maintained for an industrial undertaking for claiming deduction under ss. 80-I and 80HH of the IT Act. According to him, the company had fulfilled all the requirement of Companies Act regarding P&L a/c and balance sheet, as such provisions contained in ss. 80HH(5) and 80-I(7) of the IT Act were also complied with. After narrating the various events and drawing our attention to directions of learned CIT, NER, Shillong, contained in order under s. 263 of IT Act, 1961, he prayed that impugned order is bad in law and contrary to the facts and circumstances of the case and liable to be quashed and set aside.
5. On behalf of the Revenue, Shri D. K. Biswas, Departmental Representative appeared and submitted that assessee-company has not complied with conditions for special deduction under ss. 80HH and 80-I and, therefore, on these issues, the CIT, NER, Shillong is justified in setting aside the assessment under s. 263 of IT Act. According to him, these two sections specifically talk about profit and gains derived from an industrial undertaking which means that separate books of account should be maintained. According to him, "accounts" means separate P&L a/c, and balance sheet be drawn of an industrial undertaking in respect of which the assessee claimed special deduction under ss. 80HH and 80-I. According to him, the word "accounts" which an industrial undertaking for claiming deduction under these two sections means P&L a/c and balance sheet and not a consolidated P&L a/c and balance sheet. These are required to be audited and in case of company concession is given only for filing of audit report. Further these are required to be attached with the return of income. According to him, the burden of proving the necessary facts in order to claim a deduction or allowance is always on the assessee. He concluded his arguments by stating that in this case the assessee had not filed separate P&L a/c and balance sheet, which it should have drawn on the basis of separate books of account, duly audited by statutory auditor under Companies Act, and therefore, the order of learned CIT, NER, Shillong, be upheld as this was the only alternative left to bifurcate the profit in the absence of separate P&L A/c and balance sheet of petro-chemical Unit which were not filed with the return of income and even during the course of assessment proceedings.
6. Having considered the rival submissions and after carefully going through the orders of the authorities below as well as paper-book filed by the assessee, we are of the opinion that root cause of entire controversy in this case is because of non-filing of audited P&L a/c and balance sheet in respect of petro-chemical unit, production of which was started in the financial year 1985-86 relevant to the asst. yr. 1986-87. We have also carefully gone through the provisions contained in ss. 80HH(5) and 80-I(7) of IT Act which are identical to the provisions contained in s. 80J(6A) of IT Act. The provisions contained in ss. 80HH(5), 80-I(7) and 80J(6A) of IT Act, 1961, is reproduced hereunder :
"Where the assessee is a person other than a company or a co-operative society, the deduction under sub-s. (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-s. (2) of s. 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such amendment."
The Hon'ble Gujarat High Court in the case of Zenith Processing Mills vs. CIT (1996) 219 ITR 721 (Guj), observed as under :
"From a perusal of sub-s. (6A) of s. 80J of the IT Act, 1961, for claiming deduction under s. 80J, it is apparent that compliance in respect of two things is necessary. The first requirement is that the statement of account for the previous year relevant to the assessment year for which deduction is claimed must have been audited by an accountant and the second is that the assessee must furnish along with his return of income the report of such audit in the prescribed form duly signed and verified by such accountant. The former is the requirement which furnishes the substantial foundation for claiming the allowance and the latter is the requirement of furnishing proof that the foundation for claiming such deduction has been laid. While compliance with the former before the deduction is claimed is mandatory, so far as the manner of submitting proof of such compliance along with the return is concerned, it is directory because such requirement falls in the realm of procedure for furnishing evidence in support of the claim and can be furnished at the time while allowance or disallowance under s. 80J of the Act is being considered by the concerned authority."
7. As per provisions contained in ss. 80HH(5), 80-I(7) and 80J(6A), it is clear that persons other than company and co-operative societies are required to get their accounts audited by an accountant as defined in Explanation below in sub-s. (2) of s. 288. Companies and co-operative societies are excluded from filing the audit report in the prescribed form since their accounts are required to be audited under the Companies Act or Co-operative Societies Act. Therefore, so far requirement of auditing of accounts is concerned this has to be fulfilled by all the persons claiming special deduction under ss. 80HH and 80-I of IT Act. The only concession given to the company and co-operative society is that they are not required to furnish along with the return of income, the report of audit in the prescribed form i.e., Form Nos. 10C and 10CCB. We have also gone through the prescribed Form Nos. 10C and 10CCB, which are almost identical and report in these forms are to be given in respect of each industrial undertaking in respect of which deduction is claimed meaning thereby that each industrial undertaking is to be treated as in independent industrial undertaking and is required to maintain separate books of account i.e., separate balance sheet and P&L a/c. This is also clear from Hon'ble Punjab & Haryana High Court judgment in the case of CIT vs. Mount Shivalik Breweries Ltd. (1997) 228 ITR 414 (P&H). In that case also, the CIT exercised his jurisdiction under s. 263 of IT Act and held that before the assessee could be granted relief under ss. 32A and 80-I of the IT Act, it was necessary for it to maintain separate books of account and also show that it has set up a new industrial unit. According to the CIT, in that case basic conditions for the grant of relief were not satisfied. Accordingly, assessment order was modified and investment allowance under s. 32A and deduction under s. 80-I was disallowed.
8. The assessee-company was required to maintain separate books of account in respect of petro-chemical unit right from the asst. yrs. 1986-87 to 1992-93 is also evident from the provisions contained in s. 80-I(6) of the IT Act, 1961.
The provisions contained in the s. 80-I(6) of IT Act are reproduced hereunder :
"(6) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which the provisions of sub-s. (1) apply shall, for the purpose of determining the quantum of deduction under sub-s. (1) for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such industrial undertaking or ship or the business of the hotel or the business of repairs to ocean-going vessels or other powered craft were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made."
Sec. 80-I(6) enacts provisions of overriding nature and lays down a special mode of computation of the profits and gains eligible for quantum of "tax holiday" profit under s. 80-I, the taxable income of the eligible industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee and the assessee had no other sources of income. Consequently, the unabsorbed losses, unabsorbed depreciation, etc., relating to eligible industrial undertaking, etc. are to be taken into account in determining the quantum of deduction under s. 80-I even though this may actually have been set off against profit of the assessee from other sources.
9. In the light of above discussions, as per provisions contained under ss. 80HH(5), 80-I(7) and (6) of the IT Act, assessee-company was required to file audited P&L a/c and balance sheet in respect of an industrial undertaking. For this let us presume that in the instant case the assessee-company owned only one industrial undertaking unit i.e. petro-chemical unit. Now it is required to file balance sheet and P&L a/c of the petro-chemical unit as per provisions contained in ss. 80HH(5) and 80-I(7) of IT Act. This balance sheet of petro-chemical unit is also required to be audited by Statutory Auditor as per companies Act. The only concession given to the assessee-company is from filing the audit report in the prescribed Form Nos. 10C and 10CCB. Now let us remove this assumption and examine the case before us. The assessee-company has more than one industrial unit. According to learned authorised representative, only one consolidated balance sheet was required to be filed and assessee-company is given concession from filing the balance sheet and P&L a/c of petro-chemical unit, for which deduction under ss. 80HH and 80-I of the IT Act is claimed. In our opinion, the mere fact that the assessee-company is having more than one industrial unit does not mean that it is not required to file audited P&L a/c and balance sheet of petro-chemical unit. As a matter of fact, the company should have prepared balance sheet and P&L a/c for petro-chemical unit atleast for the purpose of income-tax i.e. for claiming deduction under ss. 80HH and 80-I of IT Act. We are, therefore, clearly of the opinion that in so far the present case is concerned, the assessee-company was required to maintain separate books of account in respect of petro-chemical unit for claiming deduction under ss. 80HH and 80-I of the IT Act, 1961. These were required to be audited by statutory auditors under the companies Act and only concession given by provisions contained in ss. 80HH(5) and 80-I(7) of IT Act is that reports of audit in the prescribed Form Nos. 10C and 10CCB was not required to be obtained as the assessee being a company. We, therefore, reject the contention of learned authorised representative that being a company it was not required to maintain separate books of account, as well as separate P&L a/c and balance sheet in respect of petro-chemical unit.
10. The learned counsel of the assessee also drawn our attention to pp. 27 and 28 of the paper-book which contains "unitwise performance for the year 1991-92". In our opinion, in the absence of separate Books of Account, duly audited by statutory auditor under the Companies Act and balance sheet of petro-chemical unit, these are not verifiable. It is only from trial-balance of petro-chemical unit one can know whether P&L a/c of the unit is correct or not. As a matter of fact, trial balance is nothing but balance sheet. The assessee-company was also required to submit P&L a/c and balance sheet in view of provisions contained in s. 80-I(6) of IT Act, 1961 from asst. yrs. 1986-87 to 1992-93. As per this section, petro-chemical unit is to be treated as an independent unit, meaning thereby that it should maintain separate book of account and also separate P&L a/c and balance sheet. For the purpose of computing taxable income figures of balance sheet are also required like sale tax and other Government dues payable for which disallowance was to be made under s. 43B of IT Act, 1961. Similarly, the AO would like to know the amount of capital borrowed for setting up the unit for which interest expense is claimed in the P&L a/c. How much amount was borrowed when the petro-chemical unit was set up ? The figures of depreciation claimed are also to be verified from the fixed assets schedule to the balance sheet. In this case, the AO has allowed the deduction under ss. 80HH and 80-I in the absence of separate P&L a/c and balance sheet of the petro-chemical unit. Therefore, his order can be categorised as stereotyped and passed without application of mind, and hence, CIT was within his jurisdiction to invoke his powers under s. 263 of IT Act. We, therefore, hereby held that so far the assumption of jurisdiction under s. 263 by learned CIT, NER, Shillong is concerned, the same was in order.
11. The learned counsel of the assessee strongly objected to the direction of learned CIT, NER, Shillong to work out profit of different units in proportion of turnover of the units. The learned Departmental Representative justified the same on the ground that assessee-company has not filed separate P&L a/c and balance sheet of the petro-chemical unit in respect of which deduction under ss. 80HH and 80-I of IT Act was claimed.
Moreover, one of the grounds of the assessee-company is that learned CIT in order to pass the order under s. 263 before it becomes barred had not applied his mind properly. After going through the directions issued by learned CIT, NER, Shillong under s. 263 of IT Act, 1961, we are of the opinion that these need modification as there is no provision under ss. 80HH and 80-I which authorised him to issue such type of direction unless the case is covered by ss. 80HH(6)/(7) and 80-I(8)/(9) of the IT Act, 1961. Nowhere the learned CIT in his order under s. 263 has stated under which provisions of law direction to bifurcate the profit in proportion to turnover were issued. We, therefore, hereby set aside the order of learned CIT, NER, Shillong to the limited extent, with a direction to modify the directions issued, which should be in accordance with provisions contained in ss. 80HH and 80-I of the IT Act, 1961 after giving an opportunity of being heard to the assessee-company.
12. Before parting with, we may mention that the assessee-company if so advised, it can file audited accounts of petro-chemical unit before learned CIT, NER, Shillong, in respect of which deduction under ss. 80HH and 80-I was claimed in the return of income and learned CIT, NER, Shillong, is free to consider the same in accordance with law before issuing the modified direction under s. 263 of IT Act, 1961.
13. In the result, for statistical purposes, the appeal of the assessee-company is partly allowed as indicated above.