Income Tax Appellate Tribunal - Delhi
Quadrant Infotech (India) Pvt. Ltd, New ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'F' NEW DELHI)
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.2837. 2838 & 2839/Del/2009 &
I.T.. No. 4685 and 4686/Del/2010
Assessment year : 2001-02,2002-2003,
2003-04 & 2004-05 & 2005-06
DCIT, M/s Quadrant Infotech India (P)
Circle-14 (1), Ltd., 15-D, SIDS, Indl. Area,
New Delhi. V. Phase-II, New Delhi.
Cross Objection No.246 & 247/Del/2009
(In I.T.A. No. 2837 & 2838/Del/ 2009)
Assessment year : 2001-02 & 2003-04
M/s Quadrant Infotech DCIT,
India (P) Ltd.,. 15-D, SIDS, Circle-14 (1),
Indl. Area, Phase-II,N. Delhi. v. New Delhi.
(Appellant) (Respondent)
Assessee by : Shri C.S.Agarwal, Sr. Advocate
Shri Rajesh Arora, C.A
Shri Gautam Jain, C.A.
Respondent by : Shri KK Mishra, Sr.DR.
ORDER
PER TS KAPOOR, AM:
These are five appeals filed by the Revenue directed against the order of ld CIT(A)-XXVIII, New Delhi for assessment years 2001-02, 02- 03,03-04,04-05 & 2005-06 dated 5.3.2009, 2.8.2010,5.3.2009,2.8.2010 and 5.3.2009 respectively. These appeals were heard together and ITA No2837to 2 2839,46854686/Del/09 &2010 & there is common issue involved, therefore these appeals and cross objections are being disposed off through a common consolidated order.
2. The sole issue raised by the revenue is the allowing of deduction under section 10B of the Income Tax Act, 1961. The revenue has also challenged the deletion of disallowance of `.1876004 on account of depreciation on electrical installation in assessment year 2003-04. The assessee vide cross objection has challenged the reopening of the cases under section 147/148 of the Income Tax Act, 1961 and also against upholding of disallowance of `.14,06,505/- on account of maintenance expenses during assessment year 2003-04.
3. The brief facts of the case as stated by assessee and reproduced by the Assessing Officer are that the assessee is a company which was incorporated in the year 1994-95 and was operating from 15, DSIDC, Okhla Industrial Area, New Delhi. Simultaneously, the assessee company was in the process of setting up of a new industrial undertaking at Plot No.27, Electronic City, Sector-18, Gurgaon. The said order further states after purchasing land and after construction of building, the new industrial undertaking got itself registered with Software Technology Park of India in March, 2000 and also got itself registered under P.F. Act vide registration No. HRD/FRD/10620 for the employees employed for the new undertaking. The assessee company also obtained registration under ESI Act vide registration No.13/2754/62 for the employees employed for the new undertaking. The said new industrial undertaking also obtained new registration under Shops and Establishments Act and obtained a new TDS number under the It Act. In view of setting up of new undertaking the assessee started claiming deduction u/s 10B of the Act w.e.f. assessment year 2 ITA No2837to 3 2839,46854686/Del/09 &2010 & 2001-02 and Department continued to grant deduction till 2005-06. The claim of deduction was not denied even in the assessment year 2003-04 & 2004-05, where assessments were completed u/s 143(3) of the Act.
4. While making assessment for assessment year 2005-06, the assessee was asked to furnish justification for deduction u/s 10B of the Income Tax Act, 1961 since the Assessing Officer had observed that new industrial undertaking was engaged in the same line of business even, before assessment year 2001-02 i.e. the year from when the assessee was claiming deduction u/s 10B of the Act and moreover new unit was formed after splitting the existing business by transferring about 51.78% assets of existing business. In reply to the query of the Assessing Officer the assessee company gave detailed background of its activities and furnished documents/certificates in support of its having started a new undertaking at Gurgaon. The assessee submitted that claim of the assessee was as per provisions of section 10B of the Income Tax Act, 1961 and was in accordance with law. On the basis of certain judicial judgments, the assessee company tried to explain the words 'splitting of business' and also the word new activity. He, therefore, tried to explain that even if the assessee continued to do the same business, it will be considered as a new activity, if it was established that new plant & machinery has been purchased by investing substantial amount. As regards splitting of business, the Ld AR explained that where there is no tangible evidence of transfer of any asset from an earlier business to new business, a conclusion cannot be reached that the new business is formed by splitting up of the business already in existence.
3ITA No2837to 4 2839,46854686/Del/09 &2010 &
5. In view of the above, the Ld AR explained that business was not formed by splitting existing business and new activity was started at new unit at Gurgaon.
6. The Assessing Officer did not agree with the contentions of the assessee and held that business activity of the assessee company was same since 1996-97 and it was held that there was only a single undertaking belonging to the assessee which was into operation before the deduction u/s 10B came in to operation w.e.f. assessment year 2001-02. The Assessing Officer also relied upon the fact that the assessee was preparing only single P&L Account and Balance Sheet and entire profits of the business were claimed to be eligible for deduction u/s 80HHE prior to insertion of section 10B of the Act. He further held that even if it was assumed that new undertaking had come into being w.e.f. assessment year 2001-02 for availing deduction u/s 10B it should fulfill the conditions as laid down in provisions of section 10B which require that the new undertaking should not be formed by transferring to new business, machinery and plant already in existence and value of transferred assets should not be more than 20% of total value of plant & machinery of new undertaking. The Assessing Officer further held that in the case of the assessee computers were its plant therefore on the basis of written down value as on 31.3.2000 and on the basis of additions made during assessment year 2001-02 the machinery transferred from old business worked out to be 51.78% which was above the 20% ceiling in the clause.
7. Therefore, in view of the above the Assessing Officer held that the assessee was not eligible for deduction u/s 10B and therefore disallowed the claim of deduction u/s 10B. The same deletions u/s 10B were made in respect of assessment year 2001-02, 2002-03, 2003-04 4 ITA No2837to 5 2839,46854686/Del/09 &2010 & and 2004-05 by reopening the already completed assessments by invoking the provisions of section 147/148 of the Income Tax Act, 1961
8. The other additions made by the Assessing Officer during re- assessment proceedings u/s 147/148 in the assessment year 2003-04 related to disallowance of depreciation of `.18,76004/- on electrical installations and `.14,06,505/- towards maintenance expenses which in the original assessment proceedings were allowed. In the re- assessment proceedings the Assessing Officer has disallowed these claims on the ground that against income from house property the assessee had already availed deductions of 30% u/s 24(1) of the Act.
9. Dissatisfied with the orders in respect of above assessment years the assessee carried the matter to the CIT(A) and submitted as under:-
Relating to reopening of the case (assessment year 2001- 2001-02)
1. That column No.5 of the form, states that year of purposes reopening was 2003-04, whereas notice was issued for assessment year 2001-02.
2. That column No.7, 8 & 11 were not filled up properly which signifies that Assessing Officer had not applied his mind before initiation of proceedings u/s 147/148.
3. That column No.12 of the form states 'Yes' I am satisfied but there is no date under the signatures which does not prove that the so-called approval was taken before issue of notice u/s 148.
Reliance was placed in the judgments in the following cases:-
5ITA No2837to 6 2839,46854686/Del/09 &2010 &
1. Karan Singh v. ITO 38 TTJ (Del.) 214.
2. CIT v. Atul Jain 212 CTR (Del.) 042.
3. Suganchand Chandanmal v. ITO 105 ITR 743 (Cal.).
4. Govinda Choudhary & sons. v. ITO 109 ITR 370 (Orissa).
10. The ld AR argued that in the above cases, it was held that where form for obtaining approval for issuance of notice contains incorrect information, entire assessment proceedings were held to be void ab initio and merely writing of 'Yes' does not amount to recording of reasons.
11. In the case of assessment year 2003-04, besides defects relating to assessment year 2001-02 the Ld AR submitted as under:-
1. That the case of the assessee was reopened on the basis of a report by audit party.
2. The Ld Assessing Officer had no where recorded his satisfaction or belief that the income had escaped assessment.
3. That from the inspection of record file, it was seen that notice u/s 154 was being issued but the same was abandoned without any conclusion. In this respect, it was submitted that proceedings u/s 154 are continuous of assessment proceedings and where assessment proceedings were pending re-assessment proceedings u/s 148 cannot be initiated.
12. Reliance was placed on the following judgments:-
1. Rajesh Leasing & Finance Ltd. v. ACIT (1996) 85 Taxman 175 wherein it was held by Hon'ble Gujarat High Court that where the 6 ITA No2837to 7 2839,46854686/Del/09 &2010 & notice u/s 148 was issued on the basis of audit report and CIT(A)'s approval was obtained without there being satisfaction and application of mind by Assessing Officer such action was not warranted.
2. Indu Bhushan Sah (HUF) v. WTO (1994) 208 ITR 598 wherein Hon'ble Allahabad High Court had held that initiation of proceedings on the basis of audit objection cannot be sustained.
3. ACIT v. Laxmi Sailja Traders 2005 1 SOT (608) wherein it was held that recording is bad in law where the Assessing Officer has not applied her mind to the issue before initiating the proceedings u/s 148.
13. In the cases for ayb2002-03 & 2004-05 the Ld AR on the issue of reopening submitted as under:-
1. That in the reasons recorded by Assessing Officer it has been simply alleged that the assessee company was already claiming deduction u/s 80-HHE for assessment year 1999 till 2002 and thereafter it got registered under STP Scheme does not entitle the assessee to claim deduction. In this respect, it is submitted that reason recorded is simply on the basis of guess work and no reasonable belief as required under section 147 was recorded.
2. That it is permissible under the law to claim deduction of different undertakings and it was optional for assessee company to claim exemption u/s 10B or deduction u/s 80HHE of the Act in relation to exports.
3. That the review of reasons clearly reveal that there was no specific reason stated by Assessing Officer for reopening of the case and reopening was done without application of mind.7
ITA No2837to 8 2839,46854686/Del/09 &2010 &
14. The Ld AR also pointed out defects in column No.7 & 12 of the form where reasons were recorded as were pointed out in the years 2001-02 and 2003-04 and same set of case laws were relied upon as were relied in the submissions relating to assessment year 2001-02.
15. The Ld CIT(A) however did not agree with the contentions made by Ld AR with respect to reopening of the cases and held that Assessing Officer was well within his jurisdiction of taking action u/s 148 and as regards defects in recording of reasons, the Ld CIT(A) held that these were minor and technical kind of defects and has to be ignored in view of provisions of section 292B of the Income Tax Act, 1961 . In the assessment year 2003-04, the Ld CIT(A) besides above held that proceedings u/s 148 & 154 were two different proceedings and in case proceedings u/s 147 are initiated the proceedings u/s 154 automatically gets filed.
16. On the merits of the cases, the ld AR submitted along with return u/s 147/148 that in the alternative to claim u/s 10B claim of the assessee company u/s 10A may be considered and following submissions were made which were almost identical for all assessment years.
1). That the assessee company was incorporated in the year 1994-95. The undertaking was functioning from New Delhi since financial year 1997-98.
2). That company started process of setting up of new undertaking at Plot No.27, Sector-18, Electronic City, Gurgaon.
The land was allotted in financial year 1995-96 and construction was completed in financial till year 1999-2000. The new unit got 8 ITA No2837to 9 2839,46854686/Del/09 &2010 & itself registered with STPI on 25.3.2000 and letter of exemption from Income tax till 2010 was issued by STPI.
3). That the company was operating with 8 employees from its Delhi unit whereas new undertaking at Gurgaon had 182 employees.
4). That the assessee company made substantial capital out lay for the new undertaking.
5). That assessee obtained custom warehousing license for the new undertaking premises on 20.3.2000 for Gurgaon unit.
6). That new undertaking was allotted separate TAN from Income tax authority, Gurgaon.
7). That assessee company had already obtained registration under Shop & Establishment Act for the new undertaking on 15.2.2000.
8).That assessee company had also obtained separate registration under ESI Act vide registration No.13/27542/62 for the employees-employed at the new undertaking on 14.3.2000.
9). That the new undertaking was registered under PF Act vide registration No.HR/FRD/10620 for the employees-employed for the new undertaking at Gurgaon.
9ITA No2837to 10 2839,46854686/Del/09 &2010 &
10). That the objection of Assessing Officer was that business activity of the assessee company was same since assessment year 1996-97 onwards. It is submitted that in the case of CIT v. Indian Aluminum Co. Ltd. 108 ITR 367 it was held that even if the new undertaking was involved in manufacturing the same commodity as manufactured by the old unit, it will still be treated as eligible undertaking for section 80J. Similar views were held in the case of CIT v. Premier Cotton Mills Ltd. (1999) 240 ITR 434 (Mad.) wherein it was held that it is not necessary that new undertaking should produce different articles in order to hold the undertaking as newly established industrial undertaking. Besaides the above case law decided by Delhi Bench 'F' relating to DCIT v. Eastern Medikit Ltd. 100 TTJ 382 and ITAT Pune Bench 'B' in the case of ZF Steering & Gears India Ltd. v. DCIT were relied upon. Further reliance was placed in the case of Textile Machinery Corporation Ltd. v. CIT 107 ITR 195 wherein Hon'ble Supreme Court had held that true test was whether the new undertaking resulted in expansion of the existing business or whether it was a new and identifiable undertaking separate and distinct from the existing business.
11). That the Ld Assessing Officer had stated in the order that the assessee company was claiming deduction u/s 80HHE on its existing business prior to insertion of section 10A/B w.e.f. 1.4.2001. In this connection, it is submitted that the assessee company had claimed deduction only on Delhi Unit in 1999-00 when Gurgaon unit was not under operation and the same were never claimed for undertaking at Gurgaon.
12). That this is a matter of option available to the assessee as held in the CIT v. Excel Software Ltd. 219 CTR 405 that it was option for the assessee to either claim exemption u/s 10B or 10 ITA No2837to 11 2839,46854686/Del/09 &2010 & deduction u/s 80HHE of the Act in relation to the export profits. Since in the year under consideration, the assessee has not claimed deduction u/s 80HHE. Therefore, it was entitled to claim exemption u/s 10B of the Act as it fulfilled all the conditions.
13). That the objection of Assessing Officer that assessee had transferred nearly 51.78% of machinery from old unit at New Delhi to new unit at Gurgaon is not based upon the facts of the case as the Assessing Officer had computed the alleged 51.78% after taking into consideration computers only whereas the explanation (2) to section 80I in regard to 20% criteria mentioned about the plant & machinery as a whole and not each and individual item separately. Clause (3) of section 43 defines plant as under:-
"Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes. Thus this inclusive definition makes it clear that plant means not a particular item but many items.
Thus, in view of the above, findings by Assessing Officer was incorrect and in fact if the whole plant & machinery is considered the percentage of transferred plant & machinery comes out at less than 20%."
Besides above, in respect of assessment year 2003-04 regarding disallowance of maintenance expenses of `.14,06,505/- and disallowance of depreciation, following submissions were made.
1. That during the year under reference the assessee company leased out a portion of its building situated at 27-Electronic City, 11 ITA No2837to 12 2839,46854686/Del/09 &2010 & Sector-18, Gurgaon to Daksh.com Service Pvt. Ltd. thereby earning rental income amounting to `.1,12,82,256/-.
2. That assessee company also provided maintenance service to the tenant for which the assessee company received `.1,52,57,437/- in addition to the rental income.
3. That the assessee company incurred expenses on power and fuel, repairs , security, house keeping, consumable, insurance and consultancy which were charged against this maintenance income. These expenses included depreciation on electric installation amounts to `.18,76,004/- & of `.14,06,505/- on account of certain expenses relating to building which were in the nature of temporary structure/partition and which were not in the nature of regular repair as contemplated in section 24(1) of the Act and moreover the expenses were incurred against income. In view of the above, the disallowances were not warranted.
Assessment year: 2005- 2005-06
17. In respect of assessment year 2005-06, the ld AR also made application under 46A for admission of additional evidence with respect to query whereby assessee was asked to show cause as to why deduction u/s 10B be not disallowed. The Ld CIT(A) after obtaining remand report accepted the additional evidence. The Ld CIT(A) after going through the submissions made by assessee held as under:-
1. The grounds relating to reopening of cases for the assessment year 2001-02, 2002-03, 2003-04 and 2004-05 were rejected.
2. The claim of the assessee with respect to deduction u/s 10B was accepted in all the assessment years.
3. In the assessment year 2003-04, the disallowance of maintenance expenses amounting to `.14,06,505/- was upheld 12 ITA No2837to 13 2839,46854686/Del/09 &2010 & whereas disallowance of depreciation on electrical installations amounting to `.18,76,004/- was deleted.
18. For the sake of convenience, relevant portion of Ld CIT(A)'s order in respect of assessment year 2003-04 and assessment year 2005-06 covering both disallowance of depreciation and maintenance expenses and admission of deduction u/s 10B are reproduced below:-
Assessment year: 2005- 2005-06 "The disallowance has been made by the AO primarily on two grounds, one, that the assessee has made only one profit and loss account and balance sheet for both the undertakings (units), which are engaged in the same business. The second objection of !he AO is that as per the accounts of the assessee it was calculated that majority of the assets, precisely 51.78% were used in the old undertaking, therefore, it exceeds the maximum limit of 20% prescribed under the provisions of section 10B. As regards, the first objection of the AO, I am not convinced at all with the view of the AO as it is not necessary for the assessee to make separate P&L Account and Balance Sheet for different units for availing the claim of deduction u/s 10B. In the cases relied upon by the appellant specifically the case of M/s. Ganga Sagar Corporation Ltd. 92 ITR 173 and M/s. Orissa Cement Ltd. 200 ITR 36 of Jurisdictional Delhi High Court, it was held that having a single P&L Account and balance sheet can not be a ground for rejecting the claim of different units. As regards, the second objection of the AO, it is noted that the AO has not properly appreciated the full facts of the case. After a careful perusal of the documents/accounts of the appellant, it is noted that most of the plant & machinery purchased by the appellant during the AY 2000-01 was installed at the new unit of Gurgaon and only the 13 ITA No2837to 14 2839,46854686/Del/09 &2010 & purchase .bills were issued in the name of the assessee company mentioning the address of the old unit which also happens to be the registered office of the company. It appears that since the address on purchase bills of new machinery is of old unit, solely on this basis, the AO has presumed that the machinery has been utilized in the existing old unit whereas the appellant has sufficient documentary evidence to show that machinery was installed in New Unit. ~also seen that on the basis of installment reports the percentage of old machinery only 3.92% or WDV basis and 6.82% on gross value basis as against Assessing Officer's calculation of 51.78%. It is also a fact that the specific query regarding this issue was made by Assessing Officer at the fag end of the assessment i.e. on 12.12.07 fixing the date of hearing in last week of Dec., 2007 and the assessment order was finalized on 28.12.07. From these details, it is noted that sufficient opportunity was not available to the assessee, therefore, the fresh evidence to prove its case, deserves admission in the interest of justice. The evidence submitted by the appellant are the installation report etc. which are part of the books of accounts and supporting documents, which clearly indicates that the new plant and machinery was installed at the new unit. In the remand report dated 11.9.08 also, the AO has though objected to the fresh evidence on the ground that proper opportunity was given to the assessee at the time of assessment, however he has not disputed the evidence on merit, I am also convinced with the submission of the appellant that the old unit does not even have sufficient space where such a large scale expansion is possible as it is a comparatively very small premises of old unit (1070 sq. ft.) as compared to the new unit of Gurgaon (27000) sq.ft. Therefore, on the basis of the evidence 14 ITA No2837to 15 2839,46854686/Del/09 &2010 & made available during the appeal proceedings, as well as considering overall facts and circumstances of the case, it is held that the deduction u/s 10B is allowable to the appellant as it fulfills all the conditions of section 10B. The reasoning given by the AO are not based on proper appreciation of full facts/evidence produced by the assessee.
Assessment year: 2003- 2003-04:
"I have carefully considered the facts of the case, order of the A.O submissions made by the Id. AR appearing for the appellant. In the re-assessment proceedings the AO has also disallowed a sum of Rs. 18,76,004/- towards depreciation on Electrical installation and Rs. 14,06,505/- towards maintenance expenses which were allowed during original assessment u/s 143(3). The disallowed depreciation and maintenance expenses on the ground that since the income of letting out of the factory premises is income from house property depreciation can not be allowed as the assessee has already claimed 30% deduction u/s 24(1). It appears that the AO has overlooked two important aspects of t First, the deduction was allowed u/s 143(3) in original assessment, the disallowance in re-assessment proceedings will tantamount to change in opinion unless the AO has strong reasons in support of the changed opinion which could indicate that earlier view was either legally incorrect or perverse. Further, the AO has also ignored the second agreement of the appellant regarding maintenance services provided to the tenant, wherein it was agreed that the maintenance and repairs of electrical installations will be carried out by the appellant. Since, the maintenance charges received by the appellant constitute a comprehensive lump sum payment and this income is taxed as income from other sources, 15 ITA No2837to 16 2839,46854686/Del/09 &2010 & therefore, actual expenditure including depreciation should be deducted under the provision of sec. 57 of I.T. Act. Accordingly, the disallowance of depreciation on electrical installation amounting to Rs. 18,76,004/- made by the AO is not justified hence the same is deleted.
As regards, the maintenance expenses of Rs. 14,06,505/- it is noted that these expense relates to the maintenance of building. Since the appellant has already been given 30% straight deduction under the head income from house property, it is held that the same has taken care of all the expenses on repair and maintenance of the building. Accordingly, the disallowance of these expenditure is upheld. Therefore the disallowance made by the AO is restricted to Rs. 14,06,505/- only.
19. Aggrieved with the order of Ld CIT(A) the revenue has filed appeals before this Tribunal on all the deletions made by Ld CIT(A). The revenue has also challenged the acceptance of additional evidence in the assessment years 2001-02, 2003-04 & 2005-06. The assessee has filed cross objections with respect to reopening of the cases for assessment year 2001-02 and 2003-04. In assessment year 2003-04, the assessee has also objected to upholding the order of Assessing Officer with respect to disallowance of maintenance expenses amounting to `.14,06,505/-.
20. Before us, the Ld AR of the assessee filed synopsis on dated 12.3.2012 and dated 9.4.2012 wherein he explained the chronology event starting from assessment year 1998-99 and wherein it was explained that how the assessee company initially started from Okhla Delhi and claimed deduction u/s 80HHE which was never allowed and them simultaneously during assessment year 1996-97 started setting up another unit at Gurgaon by making investment into land & building.
16ITA No2837to 17 2839,46854686/Del/09 &2010 & The building was partly completed during assessment year 1999-2000 & expenditure was incurred as under:-
i) Land `.19.56 lakhs.
ii) Building `.107.00 lakhs
iii) Electrical installation. `. 28.08 lakhs
21. The Ld AR further argued and read from synopsis that during assessment year 2000-01 and 2001-02 further expenditure to the tune of `.160.41 lakhs was incurred on building, computer, electrical installation and furniture. The Ld AR further argued that after completion of formalities and after getting registration of the new unit under STPI, the new unit of the assessee started working as back office and data operator for Quadrant USA and first claimed deduction u/s 10B for assessment year 2001-02 in respect of profits from the said unit and continued to avail such deduction until assessment year 2005- 06 when the Assessing Officer in the assessment order disallowed the claim of deduction u/.s 10B of the Act on the following grounds:-
i) That the activity of the assessee company was same and activities of Gurgaon mere expansion of business already in existence.
ii) That assessee was preparing single P&L Account and therefore there was only one single entity.
iii) That assessee has transferred about 51.78% of asset from existing business and the amount of transferred assets was more than thresh-hold limit of 20% as contemplated in section 10B of the Act.17
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22. The Ld AR further submitted that deduction disallowed u/s 80HHE of the Act for assessment year 1998-99 was in respect of undertaking at Okhla Industrial Area and not for Gurgaon unit and therefore he argued that finding of Assessing Officer that assessee was having a single undertaking was factually incorrect.
23. The Ld AR submitted that deduction claimed under section 80- HHE of the Act was for assessment year 1998-99 when the assessee was engaged in the business of data operator whereas the new unit at Gurgaon was engaged in the activities of software development, carrying out of back office work and data operator for Quardant USA as also for other clients. Thus, it was submitted that Assessing Officer had erred in assuming that even prior to claim of deduction claimed by the assessee u/s 10B, the assessee was engaged in the activity of development of software whereas the fact was that Delhi Unit was working only as a data operator.
24. Our attention was invited by Ld AR on paper book 2 at pages 04 to 12 wherein various certificates/documents evidencing the establishment of new undertaking at Gurgaon was placed. The Ld AR also stressed that prior to assessment year 2000-01 the assessee had only seven employees and thereafter when it set up new undertaking at Gurgaon it had 182 employees. He further submitted that new unit lay out plans had the capacity for 182 employees and more and was big enough to have large number of computers which was not possible in the small area in the lay out plan of Delhi unit. In this respect pages 278 to 282 of paper book 2 were referred.
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25. Regarding preparation of single P&L Account, the Ld AR submitted that as per settled law, the assessee was not even required to maintain separate books of accounts much less to prepare P&L Account. Reliance was placed on the following judgments:-
1. CIT v. Ganga Sagar Corporation Ltd. 92 ITR 173 (Del.).
2. Orissa Cement Ltd. v. CIT 200 ITR 636 (Del.).
3. Textile Machinery Corporation Ltd. v. CIT 107 ITR 195 (SC).
4. CIT v. Indian Aluminum Co. Ltd. 108 ITR 367 (SC).
5. Mahindra Sintered Products Ltd. v. CIT 177 ITR 111 (Bom.).
6. Metropolitan Springs (P) Ltd. 191 ITR 288 (Bom.).
7. CIT v. Premier Cotton Mills Ltd. 240 ITR 434 (Mad.).
Besides above, other case laws were relied which are numbered from 8 to 17 at page 8 of synopsis dated 12.3.2012.
26. The Ld AR also argued that the fact that assessee had claimed deduction u/s 80HHE of the Act in earlier year was an irrelevant consideration as was held in the CIT v. Excel Softech Ltd. reported in 219 CTR 405 (P&H) and judgment of Hon'ble jurisdictional High Court in the case of CIT v. Legato Systems India Private Ltd. reported in 203 CTR 101 (Del.) wherein it was held that prior claim of deduction u/s 80HHE of the Act was not an embargo to claim deduction u/.s 10 of the Act if all other conditions were satisfied. The Ld AR also argued that claim of Assessing Officer that old machinery being 51.78% from the existing business was transferred to new undertaking was factually incorrect. In view of the fact that while calculating the Assessing Officer had over looked the investment in electrical installation amounting to `.1.19 crores and office equipment to the extent of `.6.29 crores. Therefore, he argued that if these values are taken into 19 ITA No2837to 20 2839,46854686/Del/09 &2010 & account the percentage amount of assets transferred from existing business comes down to 3.97%. In this respect pages 69 to 70 of paper book 4 were referred to wherein the detailed calculation was made. The Ld AR also argued that even if there was an expansion in the existing unit even then the deduction cannot be disallowed. Reliance was placed in a number of cases placed at page 9 & 10 of synopsis dated 12.3.2012 Lastly, the Ld AR argued that no disallowance u/s 10B has been in the assessment year 2006-07 wherein the assessment was framed u/s 143(3) of the Act.
27. As regards the admission of additional evidence under Rule 46A of IT Rules is concerned, the Ld AR submitted that Ld Assessing Officer had commenced the proceedings in September, 2007 which was attended by authorized representative of assessee on 10th October, 2007and reply was filed. Thereafter, the case was attended on 6th November, 2007 and 21st November, 2007 wherein required documents were filed. The Ld AR argued that justification for claiming deduction u/s 10B were demanded at the fag end for which submissions were filed on 12.12.2007 and thereafter authorized representative visited the officer along with the assessee in the last week of December, 2007 when Assessing Officer told them that he was not in a position to accept the detail. The assessee then sent the details through post. Therefore, in view of the above, the Ld AR argued that assessee was denied valid and proper opportunity by Assessing Officer as such additional evidence was properly admitted.
28. He further argued that mere fact that details were sought by order sheet entry dated 28.9.2007 does not by itself show that proper opportunity was granted. Therefore, in such circumstances, the Ld 20 ITA No2837to 21 2839,46854686/Del/09 &2010 & CIT(A) after calling for remand report admitted the additional evidence by recording finding at page 8 & 9 of the assessment order.
29. With respect to departmental appeals for assessment year 2001-02, 2002-03, 2003-04 & 2004-05 the Ld AR argued that Ld Assessing Officer had relied upon the finding for assessment year 2005-06 and as such following his own order for assessment year 2005-06 the Ld CIT(A) had deleted the disallowance. So far as the cross objection for assessment year 2001-02 is concerned, the Ld AR submitted that proceedings u/s 147 had been initiated on the ground that deduction u/s 80HHE was claimed in the year. The mere fact that the assessee had claimed deduction u/s 80HHE of the Act in earlier year cannot be a ground to assume that deduction claimed u/s 10B was not in accordance with law. Moreover, he argued that for assessment year 2001-02 no approval was obtained prior to issue of notice u/s 148 of the Act and in fact the approval was obtained for assessment year 2003-04 and in view of the case of Kurban Hussain Ibrahimji Mithiborwala reported in 82 ITR 821, the entire re-assessment proceedings were invalid and without jurisdiction. Besides the above, the Ld AR argued that ACIT had granted said permission mechanically and therefore approval so granted was invalid rendering the proceedings initiated illegal and untenable in law. Reliance was placed in the following judgments:-
1. Chhuganmal Rajpal v. SP Chaliha 79 ITR 603 (SC).
2. United Electricals v. CIT 258 ITR 317 (Del.).
3. Mohinder Singh malik v. CCIT 267 ITR 716 (P&H).
4. Signsature Hotels (P) Ltd. v. ITO 338 ITR 51 (Del.).
30. As regards the cross objection for assessment year 2003-04, the Ld AR submitted that re-assessment proceedings were initiated on the 21 ITA No2837to 22 2839,46854686/Del/09 &2010 & basis of audit objection and which cannot be a ground to initiate proceedings u/s 147 of the Act as it constitute change of opinion. Reliance was placed in the following judgments:-
1. CIT v. Kelvinator of India Limited. 256 ITR 1 (SC).
2. CIT v. Kerlvinator of India Ltd. or CIT v. Eicher Limited. 320 ITR 561(SC).
3. Transworld International inv. V. JCIT. 273 ITR 242 (Del.). &
4. CIT v. Foramer France 264 ITR 566.
31. The Ld AR further submitted that claim of deduction u/s 80HHE of the Act in earlier years cannot be a ground to assume that deduction claimed under section 10B was not in accordance with law. Moreover, the ld ACIT had granted the said permission for reopening of the cases mechanically and therefore approval so granted was invalid. In view of the above, the Ld AR argued that re-assessment proceedings in these two years were void ab initio and should be quashed.
32. As regards disallowance of maintenance expenses of `.14,06,505/-, the Ld AR submitted that Ld CIT(A) had noted in the year under consideration that assessee had received a sum of `.1,52,57.437/- towards providing maintenance services in addition to rental income out of which the sums of `.18,76,004/- and `.14,06,505/-
were deducted towards depreciation on electrical installation and maintenance expenses. The Assessing Officer had disallowed both the claim of depreciation and maintenance expenses. However, Ld CIT(A) deleted the disallowance of depreciation which has been disputed by the revenue in appeal by way of ground No.4 of grounds of appeals for assessment year 2003-04., The Ld AR further argued that both Assessing Officer & Ld CIT(A) has failed to appreciate nature of 22 ITA No2837to 23 2839,46854686/Del/09 &2010 & expenses incurred and submitted that entire expenditure was of the nature contemplated in section 24(1) of the Act and further when there is maintenance income apart from rental income then no disallowance should have been made. As regards the disallowance of depreciation, the Ld AR relied upon the findings of Ld CIT(A) wherein such sum was allowed as a statutory deduction u/s 57 of the Act.
33. On the other hand, the Ld DR argued that the assessee started claiming exemption u/s 10B of the Act from assessment year 2001-02 on the basis of registration of unit at STPI unit. During the assessment proceedings for assessment year 2005-06, the Assessing Officer noted certain discrepancies on account of which the assessee was found to be not fulfilling all the conditions laid down in the said section so as to claim exemption u/s 10B of the Act. He further submitted that for claiming deduction u/s 10B, undertaking must satisfy certain conditions and one of the conditions to be fulfilled by undertaking is that new undertaking should not be formed by splitting/reconstruction of business and in any condition the previously used machinery should not exceed more than 20% of value of entire machinery being used in the said undertaking. He further argued that though the assessee had sought all statutory approval for setting up of unit in Gurgaon but it was not proved that whether actual software development was ever carried out in the said unit in financial year 2000-001 relevant to assessment year 2001-02. He further argued that assessee cannot take the alternative plea that even in the case of expansion in existing unit deduction u/s 10B should be allowed merely because for claiming deduction, it is mandatory that undertaking has been proved as 100% export oriented undertaking. He further argued that if assessee wanted to avail deduction in existing unit on account of expansion of its business separate approval was required for existing unit from STPI as 23 ITA No2837to 24 2839,46854686/Del/09 &2010 & was held by Hon'ble ITAT, Hyderabad Bench in the case of Infotech Pvt. Ltd. v. CIT 85 ITD 325. In the existing unit, the assessee was never allowed to avail deduction u/s 80HHE through out its operation and if the assessee wanted to avail deduction under different section of the Act, separate statutory approval was required which was absent in the case of the assessee because the approval was not granted for Delhi unit. Therefore, the alternate plea taken by the assessee is defective on the ground that all conditions are not fulfilled for this purpose with reference to Delhi unit.
34. The Ld DR submitted that in respect of claim of Ld AR of 182 employees in the new unit, the lay out plan of Gurgaon unit had three floors and these were only lay out plan and which did not prove whether the assessee could carry out its software development business in the said unit during financial year 2000-01 as the lay out plan was prepared on 85.2001 itself. The Ld Dr further argued that during the year under reference the assessee company leased out the portion of its building situated at 27-Electronic City, Sector-18, to Daksh Pvt. Ltd. thereby earning rental income. He further argued that lease agreement was for a period of three years commencing from Ist February, 2000. Therefore, he argued that because of these facts of leasing out this property, it can be said that property was not in the possession of the assessee between Ist February 2000 to March, 2003 but it was in the control of tenant who would have utilized the premises for its own business activities and on account of utilization of premises the lessee party had paid substantial rent as well as maintenance charges,. In view of the above, he argued that as to how the assessee company could deploy 182 employees for its Gurgaon unit despite being the fact that above premises was leased out during the period under consideration. He further submitted that all the three 24 ITA No2837to 25 2839,46854686/Del/09 &2010 & floors appears to have been given to Daksh.co.com because copy of lay out plan of the above three floors contain only tenants name and does not mention the name of the assessee. Therefore, he argued that in fact the assessee carried out its so-called software work in its Delhi unit for which no separate approval was sought from competent authority as required u/s 10B of the Act and therefore was not entitled for the deduction. As regards Ld AR's reliance on the decision of Hon'ble Delhi High Court in the case of Legato Systems India Pvt. Ltd. and M/s Intra Software Pvt. Ltd. he argued that facts were different in those cases as in those cases the Hon'ble court had decided that claim of deduction u/s 80HHE or in other section in earlier years puts no bar in claiming deduction u/s 10B of the Act. However, in the assessee's case the fact was that either claim of deduction u/s 80HHE was denied or no such claim was made by the assessee. Hence, he argued that ratio laid down by Hon'ble Courts supra were not applicable to the facts of the present case.
35. Regarding percentage of utilization of used machinery from the existing undertaking the Ld Dr submitted that Ld AR has included the value of electrical equipment and plant & machinery so as to determine the percentage of old machinery being utilized in Gurgaon unit. In this respect he submitted that all bills relating to purchase of computers were raised at Delhi unit of the assessee. He further argued that as per assessee's own admission that building was completed before 31.3.1999 and approval for setting up of STPI unit was taken in the year 2000 even then purchase of computers made after 1.4.1999 having address of Delhi office instead of Gurgaon office. Therefore, he argued that whatever expenses claimed to have been incurred on account of construction of building, electrical installation were in fact for the purpose of making premises workable, useable so that same 25 ITA No2837to 26 2839,46854686/Del/09 &2010 & could be leased out and ultimately the premises was leased out in February, 2000. Further he argued that definition of block of asset u/s 2(11) of the Act where tangible asset has been defined as building, machinery or plant & machinery and for depreciation purpose, furniture, fixture, electrical fittings are grouped together where depreciation is allowable @ 10% and on plant and machinery @ 15% which clearly shows that these are two different block of asset and in no way can be clubbed together so as to enable the assessee to bring percentage of used machinery below 20% of the thresh hold limit. As regards that Assessing Officer had made no disallowance u/s 10B of the Act in assessment year 2006-07, he argued that for Income tax purpose each year is a self contained separate year and doctrine of res judicata does not apply to IT proceedings as decided by Hon'ble Supreme Court in the following cases:-
1. 24 ITR 506 Sir Kikabhai Premchand.
2. 52 ITR 335 ITO Sitapur v. Murlidhar Bhagwan Das.
36. As regards cross objection of Ld AR, the Ld DR submitted that notices u/s 148 were issued for all assessment years under reference after recording proper reasons showing escapement of income and Assessing Officer was well within his rights of taking action u/s 148 of the Act. He further submitted that certain technical kind of errors were well taken care of by the provisions of section 292B of the Income Tax Act, 1961. Further he argued that Assessing Officer had taken statutory approval wherever required and approving authority had applied his mind properly while according approval. He further submitted that it is well settled law that what is necessary to reopen the assessment is not final verdict but a prima facie reason and once such reason is recorded by Assessing Officer, he assumes jurisdiction 26 ITA No2837to
27 2839,46854686/Del/09 &2010 & u/s 148 of the Act. Reliance was placed in the case of Rajat Exports & Imports India Pvt. Ltd. v. ITO 341 ITR 135 and Deshraj Udyog v. ITO 318 ITR 6. Further he argued that where there was no discussion on the issue in the assessment order and no details were called for by the Assessing Officer or were filed by the assessee on the issue. No finding either positive or negative were arrived at during the course of original assessment proceedings, the case can be reopened by the Assessing Officer and assessee cannot challenge the initiation of proceedings merely on the basis that there is a change of opinion. Reliance was placed in the case of SK Engineering Co.Pvt. Ltd. v. CIT (SC) 247 ITR 818 and in the case Revathy CP Equipment Ltd. v. DCIT reported in 241 ITR 856 (Mad.). He further argued that in the case of Jai Prakash reported in 285 ITR 369, the Hon'ble Kerala High Court had ruled that even if the Assessing Officer had dropped the proceedings on the basis of certain objections filed by the assessee and issue a fresh notice u/s 148, the issue of notice was still valid. Hon'ble high Court in the case of Amar Investment Ltd. reported in 287 ITR 482 held that a notice issued u/s 148 of the Act based on assessment or subsequent year is valid. In the light of above he argued that in the present case before initiating an action u/s 147/148 of the Act, the Assessing Officer had made an opinion for other years on the basis of findings of Assessing Officer in assessment year 2005-06 and ratio laid down of Hon'ble High Court was squarely applicable to the facts of the case.
37. In respect of assessee's objection that proceedings initiated on the basis of audit objection cannot be a ground to initiate proceedings u/s 147 of the Act. It was submitted that audit objection was not only made a ground but was one of the grounds. In this connection reliance was placed on the decision of Hon'ble Supreme Court in the case of PVS Bidi Pvt. Ltd. 237 ITR 13 wherein it was held that reopening of 27 ITA No2837to 28 2839,46854686/Del/09 &2010 & assessment on the basis of factual error pointed out by the audit party was valid. Further he argued that Addl. CIT before granting approval for reopening the assessment had fully satisfied himself and he was not required to record reasons for reopening separately. Hon'ble Delhi High Court in the case of Maya 331 ITR 116 has held that section 151 only talks about JCIT /Addl. CIT to be satisfied on the reasons recorded by the Assessing Officer and in the instant case Addl. CIT has recorded his satisfaction by noting "I am satisfied". Regarding admission of additional evidence during appellate proceedings by Ld CIT(A) it was argued that Assessing Officer had given ample opportunity of being heard to the assessee and the assessee was duly asked to furnish the detail on 28.9.2007 regarding all evidences to substantiate the claim of exemption u/s 10B of the Act. However, the assessee failed to comply and thereafter another opportunity was given on 12.12.2007 which was also not fully complied by the assessee and as the case was getting time barred by 31.12.2007, the Assessing Officer proceeded to finalize the assessment. The plea taken by the assessee before Ld CIT(A) was not correct and admission of additional evidence by Ld CIT(A) during appellate proceeding was erroneous and in contravention of Rule 46A. As regards claim of expenses against rental income, it was argued that assessee had already claimed expenses @ 30% which covered all expenses except municipal tax and Assessing Officer had correctly disallowed the expenses and depreciation on assets leased out on rent.
38. In his rejoinder the Ld AR filed synopsis on dated 21.8.2012 and argued on the objection raised by Ld DR one by one. Regarding objection of Ld Dr that it was not proved whether actual software development activities were ever carried on by the assessee, it was submitted that objection at this point of time by disregarding the 28 ITA No2837to 29 2839,46854686/Del/09 &2010 & finding of Assessing Officer are not justified and Ld DR was attempted to set up a new case. He further argued that Assessing Officer in his assessment order had already admitted that assessee company had used old machinery of 51.78%. Moreover, the Ld DR has not disputed software development work from assessment year 2002-03 and in assessment year 2005-06. The only objection raised by the Assessing Officer was regarding use of old machinery exceeding specified statutory limit and there was no adverse finding that Gurgaon unit did not carry any activity of development of software.
39. Regarding objection of Ld DR with respect to claim of Ld AR for claim u/s 10A, the Ld AR submitted that assessee had never claimed in fact deduction u/s 10B for Delhi unit and therefore there was neither any requirement and nor any approval was obtained for Delhi unit.
40. Regarding objection of Ld DR that premises during the period February, 2000 to March, 2003 was occupied by the tenant, the Ld AR submitted that it was not disputed by the Assessing Officer that assessee had its occupation 50% of the area at building at Gurgaon where it carried on software development work and only 50% of the area of the building had been leased to M/s Daksh.Com Service Pvt. Ltd. He further submitted that Ld DR had over looked that the area in occupation of the assessee and used for its business plan of assessee had incurred expenditure & was allowed by the Assessing Officer. The Ld AR submitted that total area available in Delhi unit was only 550 sq.ft. whereas in Gurgaon unit total area available with the assessee was 12124 sq.ft. and there was sufficient documentary evidence to establish that business was carried on by the assessee at Gurgaon unit even in the financial year 2000-01 and therefore the comment made that lay out plan do not prove that business was carried on by the 29 ITA No2837to 30 2839,46854686/Del/09 &2010 & assessee is highly arbitrary and thus untenable. Regarding non fulfillment of conditions required u/s 10B for Delhi unit it was submitted by Ld AR that no deduction was claimed for Delhi unit and the fact that assessee in the earlier year claimed deduction u/s 80HHE of the Act was not an embargo to claim deduction u/s 10A of the Act, if all other conditions are satisfied. He further submitted that Ld DR over looked the fact that the Assessing Officer himself has allowed deduction for the assessment year 2006-07 in respect of Gurgaon unit and that order has already attained finality.
41. Regarding objection of Ld DR that assessee had not correctly presented the facts to determine the percentage of old machinery being utilized in Gurgaon unit. The Ld AR submitted that Assessing Officer had made a mistake while calculating the percentage of old machinery used in the total machinery of the new unit. Had he correctly calculated the percentage, the percentage of old machinery with respect to total machinery in new unit would have been 6.82%. He further submitted that assessee had suspended its operation in its undertaking at Delhi w.e.f. financial year 2000-01 and it had never claimed deduction u/s 80HHE except in the assessment year 1998-99 for which the deduction was not allowed. He further argued that Ld Dr has over looked the installation report which clearly establish that new computers were installed at Gurgaon unit and not at Delhi unit. The mere fact that bill of purchases were at the Delhi address cannot be held to be a ground to hold that computers were used at Delhi.
42. Regarding objection of Ld DR that assessee had spent on building to make it available for use by tenant is highly presumptive. Regarding objection of Ld DR that assessee had included WDV of furniture and fixture and electrical fittings as part of plant & 30 ITA No2837to 31 2839,46854686/Del/09 &2010 & machinery, the Ld AR submitted that electrical fittings are integral part of plant and machinery and have to be included as part of plant & machinery. It is incorrect on the part of Ld DR to state that assessee has booked furniture and fixture as part of plant and machinery though it is not denied by the assessee that electrical fittings which are integral part of plant and machinery were included as part of plant & machinery for calculation of percentage of old machinery used in the new undertaking. The Ld AR further submitted that even if the value of furniture and electrical fittings are excluded from the value of plant & machinery, the value of new machinery in the new unit is well about 80%.
43. Regarding objection of Ld DR that order for assessment year 2006-07 cannot be a basis to support the claim of deduction since the doctrine of res judicata does not apply to Income Tax proceedings, the Ld AR submitted that it is a settled law that principle of consultancy must be followed particularly when there is neither change in facts of the case and nor any change in the position of law. Reliance was also placed in a number of judgments mentioned at page 8 of the rejoinder.
44. Regarding cross objection with respect to reopening of cases for assessment year 2001-02 and 2003-04, the Ld AR submitted that in assessment year 2001-02 no prior approval was obtained before issue of notice u/s 148 and in fact the approval was obtained for assessment year 2003-04. He further submitted that in the instant case there existed no basis or material to assume that any income had escaped assessment as it was a fact that assessee was eligible for deduction u/s 10B even despite the fact that assessee had claimed deduction u/s 80HHE of the Act. So far as the assessment year 2003-04 is concerned, the Ld AR submitted that it is a well settled law that audit objection on 31 ITA No2837to 32 2839,46854686/Del/09 &2010 & point of law cannot be a ground to assume jurisdiction. Reliance was placed in a number of cases as mentioned at page 10 of the rejoinder. Moreover, the ld AR submitted that assessment for assessment year 2003-04 was completed u/s 143(3) of the Act and in view of the judgment of Kelvinator of India Ltd. v. CIT (supra) the reopening was a change of opinion and was not permitted under the law.
45. Regarding objection of Ld Dr regarding acceptance of additional evidence under Rule 46A, the Ld AR submitted that entire additional evidence furnished in assessment year 2001-02, 2003-04 and 2005-06 was placed on record before Ld Assessing Officer during assessment proceedings for assessment year 2002-03 and 2004-05. The Assessing Officer despite the above facts having been placed on record has made the disallowance in assessment year 2002-03 and in assessment year 2004-05 by following the findings for assessment year 2005-06. Moreover, the additional evidence was accepted by obtaining remand report. In view of the above, he submitted that objection of Ld DR regarding admission of additional evidence by Ld CIT(A) was highly unjustified. Reliance was placed on number of cases mentioned at page 14 of the rejoinder.
46. As regards disallowance of depreciation on asset leased out on rent and further disallowance of maintenance expenses in assessment year 2003-04, the Ld AR submitted that Ld CIT(A) had noted that assessee had received income from maintenance service under a separate agreement and he had thus held that charges received by the assessee were comprehensive lump sum payment and this income was taxed as income from other sources and therefore actual expenditure including depreciation was deductible. As regards assessee's appeal with respect to upholding of disallowance of maintenance expenses 32 ITA No2837to 33 2839,46854686/Del/09 &2010 & amounting to `.14,06,505/-, the Ld AR submitted that these expenses were in the nature of temporary structure and partition and hence were in the nature of regular repairs eligible for deduction and it cannot said to be part of 30% straight deduction under the head income from house property.
47. We have heard the rival submissions of the parties and have gone through the material available on record. Basically there are five issues in the appeal and in the cross objection which are as under:-
a) Whether reopening of cases in respect of assessment year 2001-02 and assessment year 2003-04 in accordance with law (raised by the assessee as ground No.1 in both the years).
b) Whether additional evidence accepted by the ld CIT(A) was in violation of law especially keeping in view the fact that assessee was given sufficient opportunity by Assessing Officer to justify his claim u/s 10B of the Act (raised by the revenue as ground No.3 in respect of assessment year 2001-02, 2003-04 and 2005-06).
c) Whether Ld CIT(A) had erred in upholding the order of Assessing Officer in disallowing maintenance expenses of `.14,06,505/- (raised by the assessee as ground No.2 in assessment year 2003-04).
d) Whether Ld CIT(A) had erred in deleting the addition made by the Assessing Officer on account of disallowance of depreciation on eleltrical installation amounting to `.18,76,004/- in assessment year 2003-04 (raised by the revenue as ground Nio.;4). & 33 ITA No2837to 34 2839,46854686/Del/09 &2010 &
e) Whether Ld CIT(A) had erred in deleting the disallowance of deduction u/s 10B of the IT Act in respect of assessment year 2001-02 to assessment year 2005-06 (raised by the revenue as ground No.1 & 2 in respect of all above years).
48. First we take up the issue of reopening of cases relating to assessment year 2001-02 and 2003-04. In the assessment year 2001- 02, the primary objection of the assessee was that there were certain defects in the form of reasons recorded and therefore relying upon certain case laws, the ld AR had argued that re-assessment was null & void ab inito . Moreover, it was contended that on the form of reasons recorded, the assessment year mentioned was as 2003-04.
49. Similarly, in the assessment year 2003-04 besides above the objection in the form of reasons recorded, the Ld AR had argued that case of the assessee was reopened on the basis of report by an audit party.
50. On the other hand, Ld DR relied upon section 292B for taking care of minor defects in the initiation of proceedings and had also argued that prima facie evidence that income had escaped assessment was sufficient for initiation of proceedings u/s 147/1248 of the Act. We have observed that there is no much force in the argument of Ld AR especially keeping in view the fact that assessment in the assessment year 2001-02 was not completed u/s 143(3) of the Act and the Assessing Officer had no chance to look into the details of claim made by the assessee. The Hon'ble Supreme Court in the case of Rajesdh Zaveri Stock Broker Ltd. 291 ITR 500 (SC) held as under:-
34ITA No2837to 35 2839,46854686/Del/09 &2010 & "Taxing income escaping assessment in the case of initiation u/s 143(1) is covered by the main provision of section 147 as substituted w.e.f. 1.4.1989. Failure to take steps u/s 143(3) will not render the Assessing Officer powerless to initiate re-
assessment proceedings when initiation u/s 143(1) has been issued."
Therefore, reopening of the case in assessment year 2001-02 was justified and was in accordance with law. In the assessment year 2003- 04, we have observed that Assessing Officer had reopened the case on the basis of a report of an audit party. The case laws relied upon by ld AR relates to Hon'ble High Courts of Gujarat, Allahabad and ITAT Hyderabad Bench whereas the case law of PVS Bidi Pvt. Ltd. (supra) as relied upon by the Ld DR is that of Hon'ble Supreme Court which had clearly held that there can be no dispute that audit party is entitled to point out factual error or omission in the assessment and Hon'ble Court further held that reopening of assessment on the basis of factual error pointed out by the audit part is permissible under the law.
51. The other contentions raised by the Ld AR regarding technical defects are well covered by the provisions of section 2292B and as regards the contention of Ld AR that proceedings u/s 154 were abandons, we do not find force in the above argument as in our opinion unless the notice is issued to the assessee, it does not carry any meaning. Therefore, on the basis of above discussion, we hold that reopening in both the year was justified and was in accordance with law. Therefore, we reject ground No.1 of the cross objection of the assessee.
35ITA No2837to 36 2839,46854686/Del/09 &2010 &
52. Now we come to the point of acceptance of additional evidence in the assessment year 2001-02, 2003-04 and 2005-06. We have observed from the appellate order relating to at 2001-02 and assessment year 2003-04 that there is no mention of acceptance of any additional evidence. In respect of assessment year 2005-06 where additional evidence was accepted, we find that additional evidence admitted by the Ld CIT(A) was significant and was quite necessary in deciding the claim of assessee. Moreover, the evidence was accepted after obtaining remand report from Assessing Officer and Assessing Officer had not objected to the merits of additional evidence. Therefore, we do not find force in the argument of Ld Dr and therefore dismiss ground No.3 in respect of appeal by revenue for assessment year 2001-02, 2003-04 and 2005-06.
53. Now we come to the issue of upholding of disallowance of maintenance expenses amounting to `.14,06,505/- and deletion of disallowance of depreciation on electrical installation amounting to `.18,76,004/- raised by the assessee and revenue respectively. We have noted that assessee had rented a part of its building and had also entered into a separate agreement for providing maintenance services. The assessee had debited `.14,06,505/- as expenses incurred on building repairs and maintenance including expenses on temporary partition against the maintenance income. Similarly, depreciation amounting to `.18,76,004/- on electrical installation was debited against the maintenance income on the ground that same were incurred for earning the maintenance income. The Assessing Officer disallowed both the expenses in view of the fact that assessee had already enjoyed deduction u/s 24(1) of the Act being 30% on rental income being income from house property whereas the fact of the matter is that assessee had declared net maintenance income under 36 ITA No2837to 37 2839,46854686/Del/09 &2010 & the head income from other sources (computation sheet relating to assessment year 2003-04 showing maintenance income as income from other sources is placed at paper book page 2). Therefore, the objection of the Assessing Officer that assessee had already enjoyed deduction u/s 24(1) in respect of depreciation on electrical equipments is not correct. However, in our view, the disallowance of `.14,06,505/- being expenses incurred on building repairs/partition etc. was justified in view of the fact that the assessee had already enjoyed deduction u/s 24(1) against income from house property. Therefore, we hold that Ld CIT(A) has rightly allowed the claim of assessee in respect of depreciation and had rightly upheld the disallowance on account of building repairs etc. In view of the above, ground No.2 of the assessee cross objection and ground No.4 of revenue's appeal for assessment year 2003-04 are dismissed.
54. Now the last and most important question to be decided by us is as to whether the assessee was eligible for deduction u/s 10B or not. In this respect we have observed that primarily the objections of Assessing Officer were twofold which are dealt below:-
1. That the assessee's new undertaking had assets from old undertaking to the extent of 51.78% which was above the thresh-hold limit of 20% and therefore the assessee did not comply with conditions set out in section 10B of the Act.
2. That the business activity was same since 1996-97 onwards and there was only a single undertaking belonging to the assessee.
This fact was further strengthened by the fact that assessee had prepared only single P&L Account and entire profits were claimed to be exempted u/s 80HHE of the Act prior to insertion of section 10B.
37ITA No2837to 38 2839,46854686/Del/09 &2010 & From the plain reading of provisions of section 10B along with explanation (1) & (2) of section 80I it emerges that for claiming deduction under the said section following conditions must be fulfilled.
1. The income should be derived by a 100% export oriented unit from the export of article or things or computer software.
2. This section applies to any undertaking which is formed by splitting or reconstruction of business already in existence (subject to business of any undertaking as is referred to section 33B).
3. That the deduction is applicable from assessment year 2001-02 and is available for a period of 10 subsequent years beginning with the year in which undertaking begins to manufacture or produce article or things or computer software as the case may be.
4. It is not formed by transfer to a new undertaking of machinery or plant previously used for any purpose subject to that total value of machinery or plant or part thereof so transferred does not exceed 20% of total value of machinery or plant as used in the new undertaking.
55. In the present case, the assessee though originally was operating from Delhi but had purchased separate land and had constructed building thereon at Plot No.27, Sector-18, Electronic City, Gurgaon and had obtained registration under STPI as a 100% export oriented unit. The building was equipped with computers and other necessary equipments before the financial year 2000-01 as is evident from bills of purchase of computers placed at pages 54 to 126 of paper book No.7. Though invoices of computers are addressed to assessee's address at 38 ITA No2837to 39 2839,46854686/Del/09 &2010 & Delhi but installation reports which are attached with purchase bills mentions that these were installed at Plot No.27, Sector-128, Electronic City, Gurgaon i.e. the address where the assessee had claimed to have set up new unit.
56. The assessee, during the course of assessment proceedings also submitted the following documents in support of its claim that new unit was set up at Plot No.27, Electronic City, Gurgaon:-
1. Copy of registration certificate under ESI Act, 1948.
2. Copy of registration certificate under PF Act.
3. Allotment letter for TAN from Income Tax Department.
4. Copy of Form D of Shop & Commercial Establishment Act, 1958.
5. Copy of license for providing bounded warehouse under Customs Act.
6. Copy of agreement with Software Technology Park of India.
All these documents contain the address of Gurgaon unit. The phot copies of all these documents are placed at pages 1 to 12 of paper book No.7.
57. Thus, there is no doubt that assessee had set up a new unit at Gurgaon which was duly registered as 100% export oriented unit. The Assessing Officer had alleged that assessee's total plant and machinery contained 51.78% of plant & machinery transferred from old unit. In calculation of the above figure, the Assessing Officer had really over-looked the fact that electric installations installed at new unit amounting to `.1.19 crores were also part of plant & machinery. Moreover, the Assessing Officer has taken WDV of computers as on 31.3.2000 at `.46,73,704/- being computers of old unit but in fact this 39 ITA No2837to 40 2839,46854686/Del/09 &2010 & figure includes purchase of computers worth `.30,24,630/- for Gurgaon unit. Thus, the correct percentage of used plant & machinery in the new unit works out to be at 9.87% as calculated below:-
Gross value of computers as on 1.4.2000 `.46,73,704/- Less: Purchase for Gurgaon unit between 1.4.1999 to 31.,3.2000 calculated as per Installation report as attached with purchase Bills placed at paper book pages 54 to 126 of Paper book No.7. `.30,24,630/-
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'A' Gross value of computers alleged to have been transferred to new unit. `.16,49,074/-
Computers purchased during the year ending 31.3.2001. `.31,14,657/-
Gross value of electric installation up to 31.3.2001. `.1,19,46,662/-
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'B" Total value of plant & machinery including Transferred from old unit. `.1,67,10,393/-
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Percentage of old machinery in the new unit works out at 9.87% Being A/B x 100 The above calculation shows that even if the allegation of Assessing Officer is accepted that old machinery was used in new undertaking the percentage of old plant & machinery is less than 20%. The objection of Ld Dr that electric installation should not be considered for calculation of total value of plant & machinery is not correct in view of the fact that definition of plant & machinery includes in itself electric installation, office equipment and or vehicles. However, in the calculation above, we have taken the value of electric installation only to simplify the calculation. The contention of Ld DR that electric installations carried different rates of depreciation as compared to 40 ITA No2837to 41 2839,46854686/Del/09 &2010 & plant & machinery does not carry any weight as mere classification for depreciation purposes cannot alter the nature of electric installations which indeed is part of plant & machinery
58. The objection of Assessing Officer that only one P&L Account was prepared also has no force in view of various judicial pronouncements relied upon by the Ld AR.
59. The objection raised by the Ld Dr that assessee had rented the building and therefore was not in a possession of the same also do not carry any force in view of the fact that lease agreement (placed at paper book No.5 pages 278 to 291) was entered in for 50% of total covered area and balance 50% was available with the assessee to carry on its business. Therefore, in view of the above findings and observations and discussion, we do not see any reason to interfere in the order of Ld CIT(A).
60. In the result, the appeals filed by the revenue and objections filed by the assessee are dismissed.
61. Order pronounced in the open court on 12th day of October, 2012.
Sd/- Sd/-
(A.D. JAIN) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. 12.10.2012.
HMS
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
41
ITA No2837to
42 2839,46854686/Del/09 &2010 &
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.
By Order (ITAT, New Delhi).
Date of hearing
Date of Dictation 4/5/10.2012
Date of Typing 5/7/10/2012
Date of order signed by 12.10.2012
both the Members &
pronouncement.
Date of order uploaded on net 15.10.2012
& sent to the Bench concerned.
42