Income Tax Appellate Tribunal - Chennai
Caress Beauty Care Products Private ... vs Assessee on 9 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER]
I.T.A.No.79/Mds/2011
Assessment year : 2006-07
M/s Caress Beauty Care vs The CIT
Products Pvt. Ltd Chennai -I
4th Floor, Gokul Arcade
No.2 Sardar Patel Road,
Adyar, Chennai 600 020
[PANAABCC 2016 N]
(Appellant) (Respondent)
Appellant by : Shri T. Banusekar, CA
Respondent by : Shri Shaji P. Jacob, Addl. CIT
Date of Hearing : 09-01-2013
Date of Pronouncement : 15-01-2013
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
This is an appeal filed by the assessee against the order of the CIT, Chennai-I, dated 25.11.2010, passed u/s 263 of the Act, for assessment year 2006-07.
2. The brief facts of the case are that assessee u/s 143(3) of the Act was made on 3.12.2008. In the assessment made, the :- 2 -: I.T.A.No. 79/2011 Assessing Officer allowed deduction u/s 80IB of ` 30,95,623/- claimed by the assessee as a Small Scale Industrial Undertaking. Later on, the CIT observed that the gross value of plant and machinery as on 31.3.2006 of the undertaking was revenue 3,43,57,426/- which exceeded the limit of ` 1 crore stipulated for small scale industrial undertaking as per section 80IB(14)(g) of the Act. Accordingly, the CIT issued notice u/s 263 of the Act and after considering the submissions of the assessee, set aside the order of the Assessing Officer and directed him to pass a fresh order in accordance with his discussions and in accordance with law. While doing so, the CIT has held as under:
"I have carefully considered the reply given by the assessee. Although detailed submissions have been furnished, I find that the assessee's objections are mainly two fold.
a. The order of the assessing officer cannot be considered as erroneous and prejudicial to the interests of revenue, as the issue involved is debatable. In this regard, the assessee has placed reliance, interalia on the decision of the Supreme Court in the case of M/s. Malabar Industrial Co. Ltd Vs. CIT (2000) 109 Taxman 66 (SC) .
b. The eligibility for the claim of deduction u/s.80IA by applying the restraints of Sec.80IA (3) cannot be considered for every year of the claim of deduction u/s.80IA, but can be considered only in the year of formation of the undertaking. In this regard, the assessee has placed reliance on the decision of the Delhi Tribunal in the case of r-t/s. Tata Communication Internet Services Ltd Vs. ITO , (2010) 39 DTR (Del.) (Trib.) 17 (BCAJ).:- 3 -: I.T.A.No. 79/2011
The objection that the issue involved is debatable and hence the provisions of Section 263 cannot be invoked is not sustainable. The fact remains that as at the end of the previous year i.e. 31.3.2006, the gross value of the plant and machinery of the undertaking was RS. 3,43,57,426/- and this amount has clearly exceeded the investment limits prescribed of Rs. One crore for small scale industrial undertaking. There is no dispute about this factual position. Hence there is no debatable issue involved here.
Further, Sec.80IB (14)(g) clearly specifies that the conditions for being regarded as small scale industrial undertaking should be satisfied as on the last day of the previous year. Thus it is clear that this condition should be satisfied in each of the respective assessment years and simply because in a earlier year an assessee had satisfied the condition of small scale undertaking, it cannot ipso facto be taken that the assessee would be regarded as small scale industrial undertaking in the subsequent years also. The decision of the Delhi Tribunal relied upon by the assessee was specifically with reference to formation of the industrial undertaking as per Section 80IA (3). On the other hand, the formation may of course relate to the first assessment year only. But when Section 80IB (14)(g) clearly refers to a position as on the last day of the previous year, it cannot be considered that once an assessee has been considered as a small scale industrial undertaking, it should be automatically considered so, for the subsequent years also. This would be clearly violative of the provisions of Sec.80lB (14)(g). Thus the reliance placed on the assessee on the Delhi Tribunal's decision cited supra is clearly misplaced, considering the facts of this case.
In the circumstances, I am of the view that the order passed by the Assessing Officer allowing deduction u/s.80IB as claimed by the assessee, is clearly erroneous and prejudicial to the interests of revenue.
Accordingly the assessment order dated 3.12.2008 passed is hereby set aside .The Assessing Officer is directed to pass a fresh order keeping in mind the above points and in accordance with law. Needless to emphasize that the assessee shall be given sufficient opportunity before completing the fresh assessment."
3. The A.R submitted that so long as the assessee was registered as a small scale industrial unit, it was eligible for deduction :- 4 -: I.T.A.No. 79/2011 u/s 80IB of the Act. He submitted that at page 2 & 3 of the paper book is placed a copy of the provisional certificate dated 30.6.1999 as a small scale industrial unit and at pages 4 & 5 of the paper book is placed a copy of the permanent registration certificate as a small scale industrial unit dated 11.9.2000. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs Paul Brothers, [1995] 216 ITR 548(Nag.) and submitted that in para 6 of the said order, the Hon'ble High Court has held as under:
"6. Either in section 80HH or in section 80J, there is no provision for withdrawal of special deduction for the subsequent years for breach of certain conditions. Hence unless the relief granted for the assessment year 1980-81 was withdrawn, the Income-tax Officer could not have with-held the relief for the subsequent years. [See Gujarat High Court decision in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT [1980] 123 ITR 669]."
4. He then relied on another decision of the Hon'ble Bombay High Court in the case of CIT vs Western Outdoor Interactive Pvt. Ltd. in Income Tax Appeal No.1150 of 2010, 1200 of 2010 and 1269 of 2010, order dated 14.8.2012 and submitted that the Hon'ble High Court at para 6 of its order, has observed as under:
"6. We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit :- 5 -: I.T.A.No. 79/2011 was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section 10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section 10A of the Act. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i. e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit."
5. He then relied on the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd vs ITO, (2010) 4 ITR (Trib) 243 and submitted that the Tribunal at para 5.1 of its order has held as under:
"A perusal of the provisions of section 80-IA(3) clearly shows that the term "clause (ii)" was inserted by the Finance (No. 2) Act of 2004 with effect from April 1, 2005, this insertion is not with retrospective effect, as it is not so specified in the Act. The circular issued by the Central Board of Direct Taxes explaining the provisions relating to the Finance (No. 2) Act of 2004 also shows that the insertion is to take effect from April 1, 2005 and is to apply in relation to the assessment year 2005-06 and subsequent years. The first year of claim of the assessee for deduction under section 80-IA undisputedly is the assessment year 2004-05. The business of fax mail has been started by the assessee in 1997 and the business of providing internet services during the year 2000 being October 17, 2000 relevant to the assessment year 2001-02. Therefore, what is to :- 6 -: I.T.A.No. 79/2011 be seen is whether there has been any violation of the provisions for the claim of deduction under section 80-IA(4)(ii) for the assessment year 2001-02 or at the maximum in the first year of claim of deduction under section 80-IA being the assess-ment year 2004-05. This is because once it is held that the assessee is enti-tled to the deduction under section 80-IA and this finding has become final, the deduction under section 80-IA can at best be varied on account of the additions or disallowances but it cannot under any circumstances be denied as once the deduction under section 80-IA is granted it is accepted that the business of the undertaking is not hit by any of the violation or bar as provided in section 80-IA itself. Here, it is noticed that the assessee has been granted the deduction under section 80-IA in the course of assess-ment for the assessment year 2004-05. Now, it is not possible for the Reve-nue to pick up an assessment year subsequent to the granting of the claim holding that there was violation of the provisions of section 80-IA(3) of the Act in so far as the business was formed by splitting up and reconstruction of business already in existence, that it was formed by the transfer to a new business of plant and machinery previously used for any purpose. This bar as provided in section 80- IA(3) is to be considered only for the first year of claim of deduction under section 80-IA. Once the assessee has been shown to have used new plant and machinery which was not previously used for any purpose and once it is shown that the undertaking is not formed by splitting up or reconstruction of a business already in existence and the assessee becomes entitled to the deduction under section 80-IA, in the subsequent years, it is well available to the assessee to acquire fresh machi-nery and plant whether new or previously used for any purpose. As the deduction is available on the income of the undertaking and the bar pro-vided under section 80-IA(3) is in relation to the formation of undertaking, once the formation is complete the development of undertaking cannot be put under restraint of section 80-IA(3) of the Act. Right from the assess-ment year 2004-05, the assessee has been granted the claim of deduction under section 80-IA consequently for the relevant assessment year being the assessment year 2006-07 being a subsequent assessment year it cannot be denied. The eligibility for the claim of deduction under section 80-IA by applying the restraints of section 80-IA(3) cannot be considered for every year of the claim of deduction under section 80-IA but can be considered only in the year of formation of the business."
6. He further relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs Sohana Woollen Mills [2008] :- 7 -: I.T.A.No. 79/2011 296 ITR 238 (P&H) and submitted that it was held by the Hon'ble P&H High Court that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue.
7. He further submitted that deduction u/s 80IB was allowed to the assessee in assessment year 2004-05 when the gross value of plant and machinery as per books of the assessee was ` 3,28,35,650/-. He submitted that in assessment year 2005-06 also deduction u/s 80IB was allowed to the assessee when the value of plant and machinery as per books of the assessee was ` 4,25,98,618/- in an assessment made u/s 143(3) of the Act. He submitted that the assessments of 2004-05 and 2005-06 have not been disturbed by the Assessing Officer till date. Therefore, it was his submission that the CIT was not justified in disallowing the claim of deduction u/s 80IB to the assessee for the reason that the investment in plant and machinery of the assessee exceeded ` 1 crore. His argument was that it was in the initial year of allowance of deduction u/s 80IB it had to be seen whether the investment in plant and machinery of the assessee was within the prescribed limit to be :- 8 -: I.T.A.No. 79/2011 eligible as a small scale industrial unit. In the subsequent year there was no such requirement. He also submitted that even if we go by the language of section 80IB(14)(g) which provides that "small scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. He argued that as on the last day of the previous year the assessee was holding permanent registration certificate as a small scale industrial unit and therefore, it was eligible for deduction u/s 80IB of the Act. Thus, it was his submission that the CIT was not justified in passing the impugned order.
8. On the other hand, the DR vehemently argued and supported the order of the CIT. He submitted that it is abundantly clear from the language of section 80IB(14)(g) that as on the last day of the previous year the assessee should be a small scale industrial undertaking. Therefore, the Assessing Officer has to examine and see that the investment in the plant and machinery of the assessee was not more than ` 3 crores. As the investment in plant and machinery of the assessee as on the last day of the previous year ended on 31.3.2006 exceed the prescribed limit of ` 3 crores, the CIT was fully :- 9 -: I.T.A.No. 79/2011 justified in invoking his power u/s 263 of the Act and directing the Assessing Officer to examine the allowance of deduction u/s 80IB to the assessee. He further argued and submitted that as will be observed from the assessment order that there is no whisper by the Assessing Officer regarding the examining of the allowance of deduction u/s 80IB of the Act to the assessee and therefore, the CIT was fully justified in passing an order u/s 263 of the Act and directing the Assessing Officer to examine the same. He relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs CIT , [2000] 243 ITR 83(S.C) wherein it was held as under:
"In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant- company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commis sioner under section 263(1) was justified."
9. He further relied on the decision of the Hon'ble Gauhati High Court in the case of CIT v. B and A Plantation and Industries Ltd. [2012] 346 ITR 43(Gauhati) wherein it was held as under:
:- 10 -: I.T.A.No. 79/2011
"....that an error was noticed by the Commissioner in the order of the Assessing Officer that the assessee had made the claim for deduction of payment of bonus twice and it was corrected. Therefore, it could not be held that such an order was beyond the revisional jurisdiction of the Commissioner. Similar objection of the audit party did not in any manner affect the revisional jurisdiction, nor the fact that the error could be rectified by the Assessing Officer or he could have taken resort to reassessment provision could be a bar to exercise of revisional jurisdiction. It was also not a case of substitution of the opinion of the revisional authority for the opinion of the Assessing Officer. The order of revision was valid."
10. He further relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs Eastern Medikit Ltd. [2011] 337 ITR 56 (Delhi wherein it was held as under:
"......that the year of commencement of operation would be the relevant factor to determine the admissibility of deduction as only on that determination, would it be known whether the instant year was the tenth year or the eleventh year. Since the issue had not been gone into and without arriving at any finding on this aspect, the Assessing Officer allowed the deduction, the twin conditions laid down for exercising the revisionary jurisdiction under section 263 stood satisfied. The Commissioner had not conclusively determined that the year of commencement of the business was the financial year 1994-95. On the contrary, he had categorically stated that before coming to any such conclusion, it was necessary to verify the records and for this purpose, he remitted the matter to the Assessing Officer for a fresh assessment. Once it was found that the invocation of the provisions of section 263 was proper and valid, such an order passed by the Commissioner could not be interfered with. Where the issue was not examined by the Assessing Officer and on this ground the Commissioner revised the order without giving his own findings, but directing the Assessing Officer to do the necessary exercise, it was not proper for the Tribunal to decide the issue on the merits and hold in favour of the assessee. The Assessing Officer was to deal with this limited issue of admissibility of deduction under section 80-IB without reopening the entire assessment.":- 11 -: I.T.A.No. 79/2011
11. Finally, the DR submitted that there was no grievance to the assessee against the order of the CIT. The CIT has only remanded the matter back to the Assessing Officer for readjudication afresh. He referred to the language of section 80IB(14)(g) and submitted that each assessment year the Assessing Officer has to determine whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of the investment in plant and machinery. He further submitted that the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) relied on by the assessee was of no help to the assessee in deciding the issue as in that case, what was considered by the Tribunal was section 80IA(3) of the Act and any of the conditions prescribed uns80IA(3) of the Act does not include a condition as in section 80IB(14)(g) of the Act and whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of its investment in plant and machinery.
12. He submitted that the Hon'ble Madras High Court in the case of M/s SRM Systems & Software Pvt. Ltd vs ACIT, 2010-TIOL-646-SC- MAD-IT, has held that there was no lapse or wrong exercise of power :- 12 -: I.T.A.No. 79/2011 by the CIT u/s 263 of the Act when the Assessing Officer completely omitted to deal with the receipt of a sum of ` 68777922/- which was revealed from the CD seized in the course of search held on 12.8.2004. Similarly, in the instant case, the Assessing Officer has not considered the issue of deduction u/s 80IB at all in the assessment order and therefore, the CIT was fully justified in passing an order u/s 263 of the Act.
13. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, the CIT observed that the assessee's investment in plant and machinery exceeded the limit specified u/s 11B of the Industries (Development and Regulation) Act, 1951 and therefore, the allowance of deduction to the assessee u/s 80IB vide order of assessment dated 3.12.2008 was erroneous and prejudicial to the interest of the Revenue.
14. The assessee, before us, challenged the above order of the CIT. The assessee has not disputed the fact that its investment in plant and machinery was actually more than the limit of ` 1 crore specified u/s 11B of the Industries (Development and Regulation) Act, 1951. The A.R of the assessee, in fact, has filed a chart during the :- 13 -: I.T.A.No. 79/2011 course of hearing showing the investment in plant and machinery of the assessee from assessment year 2000-01 to 2006-07 which is as follows:
Assess- Gross value of Depreciation - Net value of Assessment ment plant and books plant and particulars year machinery as machinery as per books per books 2000-01 93,16,360.38 14,91,427.00 78,24,933,38 80IB claim allowed u/s 143(1) 2001-02 1,09,35,909.26 38,36,331.43 70,99,577.83 80IB claim allowed u/s 143(1). Intimation not traceable 2002-03 1,35,67,232.26 62,73,385.43 72,93,846.83 80IB claim allowed u/s 143(1). Intimation not traceable 2003-04 2,14,11,103.89 1,00,22,823.43 1,13,88,280.46 80IB claim allowed in processing of return u/s 143(1) and in re-
assessment u/s 147.
2004-05 3,28,35,650.05 1,40,71,742.43 1,87,63,907.62 80IB claim allowed u/s 143(1) 2005-06 4,25,98,617.91 2,08,31,032.19 2,17,67,585.72 80IB claim allowed u/s 143(3) 2006-07 6,44,57,445.74 3,09,41,157.19 3,35,16,288.55 Originally allowed u/s 143(3). Order 143(3) r.w.s 263 has been passed denying the 80IB claim. The appellant has appealed against 263 order.
15. It is also not in dispute before us that if assessee's industrial undertaking is held as a non-small scale industrial undertaking under Industries (Development and Regulation) Act, 1951, then the assessee is not eligible for deduction u/s 80IB of the Act. The contention of the assessee is that as it is holding a certificate of :- 14 -: I.T.A.No. 79/2011 registration issued by a Government Department, wherein the assessee's industrial undertaking was accepted as a small scale industrial undertaking and therefore, the assessee should be treated as small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. We do not find any merit in this contention of the assessee. We find that clause (g) of sub-section(14) of section 80IB reads as under:
"small scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951)."
16. A plain reading of the above provisions shows that for being a small scale industrial undertaking u/s 80IB of the Act, the condition of the section is that the undertaking must be regarded as a small scale industrial undertaking u/s 11B of the Industries (Development and Regulation) Act, 1951 as on the last day of the previous year. We find that the certificate relied upon by the assessee is a certificate dated 11.9.2000 and not a certificate which has been issued on the last day of the relevant previous year or on any date subsequent thereto.
17. Further, we find that as per provisions of section 11B of the Industries (Development and Regulation) Act, 1951, an undertaking to :- 15 -: I.T.A.No. 79/2011 be regarded as small scale industrial undertaking therein must not have investment in plant and machinery exceeding ` 1 crore. Thus, in our considered view, the assessee's undertaking cannot be regarded as small scale industrial undertaking for the year under consideration u/s 11B of the Industries (Development and Regulation) Act, 1951. Moreover, we find that there is no requirement as per the above provisions of section 80IB(14)(g) to have a certificate or otherwise for being regarded as small scale industrial undertaking u/s 80IB of the Act. Our above view finds support from the decision of the Hon'ble Delhi High Court in the case of Praveen Soni vs CIT, [2011] 199 Taxman 26 (Del)where it was held as under:
"8. The other question as to whether it is incumbent upon the assessee that it is registered under the IDR Act for claiming the benefit under sub-section (3) of section 80-IB of the Income-tax Act. The answer to this depends on the interpretation which is to be given to clause (g) of sub-section (14) of section 80-IB of the Income-tax Act, which reads as under:
"(g)"small-scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951."
9. As pointed out above, as per sub-section (3) of section 80-IB of the Income-tax Act where industrial undertaking is small industrial undertaking, it is entitled to deduction of 25 per cent of the profits and gains derived from such industrial undertaking for a period of 10 consecutive years. Small scale industrial undertaking for this purpose is defined in clause (g) sub-section (14) of section 80-IB of the Income-tax Act reproduced above. As per this provision, small scale industrial undertaking is regarded as "small-scale industrial undertaking under section 11B of the IDR Act". The IDR Act is enacted to provide for development and :- 16 -: I.T.A.No. 79/2011 regulation of certain industries. For the purpose of regulating those industries in the meaning prescribed under the Act, industrial undertaking is defined in section 3(d) to mean any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. The first Schedule attached to the said Act specifies those industries. In order to regulate these Scheduled industries, section 10 mandates that all existing industrial undertaking have to get registered under this Act. Section 11 of the IDR Act deals with new industrial undertaking which would come into existence after the passing of the Act and establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government. However, in case of small scale industrial undertaking, exemption and favourable benefits are provided which means those small scale industrial undertakings which fulfil the conditions of being small scale industrial are not to be regulated as per the provisions of IDR Act. It is in this context, section 11B is inserted in the statute which gives power to the Central Government to specify the requirements which shall be complied with by small scale industrial undertakings. Omitting those portions of section 11B, which are not relevant for our purposes, rest of the section is extracted below :
"11B. Power of Central Government to specify the requirements which shall be complied with by the small scale industrial undertakings.
1.The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in :--
(a )promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and (b )securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common goods, specify, having regard to the factors mentioned in sub-section (2), by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale industrial undertaking and different requirements may be so specified for different purposes or with respect to industrial undertakings engaged in the manufacture or production of different articles ::- 17 -: I.T.A.No. 79/2011
Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is, or is proposed to be, engaged in:--
(i )the manufacture of parts, components, sub-assemblies, tooling or intermediates; or (ii )rendering of services, or supplying or rendering, not more than fifty per cent of its production or its total services, as the case may be, to other units for production of other articles.
2.The factors referred to in sub-section (1) are the following, namely :--
(a )the investment by the industrial undertaking in :--
( i)plant and machinery, or ( ii)land, buildings, plant and machinery; (b )the nature of ownership of the industrial undertaking; (c )the smallness of the number of workers employed in the industrial undertaking;
(d )the nature, cost and quality of the product of the industrial undertaking;
(e )foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and (f )such other relevant factors as may be prescribed."
10. Section 29B of the IDR Act gives power to the Central Government to exempt, inter alia, such small scale industrial undertakings from the provisions of IDR Act.
11. As is clear from the reading of section 11B of the IDR Act, it is for the Central Government to specify the requirements which shall be complied with by the industrial undertaking to enable it to be regarded for the purpose of the said Act as small scale industrial undertaking. Appropriate exercise in this behalf has been carried out by the Central Government by issuing notification dated 10-12-1997. Operative portion of the said notification lays down the following conditions to be fulfilled by the industrial undertakings before it could be regarded as a small scale or ancillary industrial undertakings:
"Now, therefore, in exercise of the powers conferred by sub-section (1) of section 11B and sub-section (1) of section 29B of the said Act, and in supersession of the notification of the Government of India in the Ministry of Industry (Department of Industrial Development) number S.O.232(E), dated the 2nd April, 1991, the Central Government hereby specifies the following factors on the basis of which an industrial undertaking shall be regarded as a small scale or as an ancillary industrial undertaking for the purposes of the said Act :--:- 18 -: I.T.A.No. 79/2011
1. Small scale industrial undertaking.--An industrial undertaking in which the investment in fixed assets in plant and machinery, whether held on ownership terms of on lease or on hire purchase, does not exceed rupees three crores;
2. Ancillary industrial undertaking.--An industrial undertaking which is engaged or is proposed to be engaged in the manufacturing or production of parts components, sub-
assemblies, tooling or intermediates, or the rendering of services, and undertaking supplies or proposes or supply or renders not more than fifty per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or on hire purchase, does not exceed rupees three crores."
12. At the end of this notification, it is provided that every industrial undertaking which has been issued a certificate of registration under section 10 of the said Act or a license under sections 11, 11A and 13 of the IDR Act by the Central Government and are covered by the provisions of paragraphs (1) and (2) above relating to the ancillary or small scale industrial undertaking, may be registered at the discretion of the owner as such within a period of 180 days from the date of publication of this notification. Two things follow from the reading of the aforesaid notification :
(a)To be regarded as a small scale industrial undertaking -
such an undertaking should be given which has invested in fixed assets in plant and machinery either on ownership terms of on lease or on hire purchase.
(b)Worth of said asset does not exceed Rs. 3 crores. The prescription of Rs. 3 crores was reduced to Rs. 1 crore vide amendment Notification, dated 4-12-1995.
13. It is not in dispute that the appellant-assessee fulfils these requirements. However, as mentioned above, benefit is denied only on the ground that it is not registered under the provisions of IDR Act. We are of the considered opinion that the registration under the IDR Act will be of no consequence for availing the benefit under section 80-IB of the Income-tax Act. Clause (g) of sub-section (14) of section 80-IB of the Income-tax Act only mandates that such an industrial undertaking should be regarded as small scale industrial undertaking under section 11B of the IDR Act. As per section 11B of the IDR Act, it is for the Central Government to lay down the conditions which are required to be fulfilled as regards small scale industries. In the aforesaid notification, the conditions which are mentioned for being regarded as small scale industries are the ownership of plant and machinery and value thereof. Registration of such an undertaking under the IDR Act is not a condition for treating :- 19 -: I.T.A.No. 79/2011 the same as small scale industrial undertaking. That registration is prescribed for altogether different purpose, viz., to avail the benefit under the IDR Act either of section 11B or section 29B. Thus, insofar as extending the provision of section 80-IB of the Income-tax Act is concerned, the only aspect which is relevant and is to be considered is as to whether the conditions stipulated in the notification issued under section 11B of the IDR Act for regarding the same as small scale industrial Act are fulfilled or not. It would be of interest to note that section 80-IB(14)(g) used the expression 'regarded as small scale industrial undertaking' under section 11B of the IDR Act. Likewise, even the notification dated 10-12-1997 while laying down the conditions for claiming the benefit of small scale industrial undertaking used the same expression when it states 'following factors on the basis of which an industrial undertaking is regarded as small scale industrial undertaking'.
14. When we look into the mandatory Form prescribed for availing this benefit, viz., Form 10CCB, such a form has to be filled and submitted by the assessee to the Assessing Officer for claiming the benefit. The details which are required to be given as per this form include the information which is to be supplied to ascertain, whether such industrial undertaking would be regarded as small scale industrial undertaking for the purpose of section 11B of the IDR Act in as much the assessee is called upon to give the value of machinery or plant, number of workers employed in the manufacturing process, total sales of the undertaking and also profits and gains derived by the undertaking from the eligible business and deduction under section 80-IB of the Income-tax Act.
15. The purpose for industrial undertaking to be regarded as small scale industrial undertaking as per section 11B of the IDR Act is not far to seek. It was to maintain parity in prescribing the conditions which are required to be fulfilled by the industrial undertaking to qualify itself as small scale industrial undertaking. Since the Central Government has to prescribe such conditions by notification in view of provisions of section 11B of the IDR Act, the Legislature in its wisdom deemed it fit to incorporate those conditions for the purpose of Income-tax Act as well. This issue came up for consideration before the Gujarat High Court, albeit, in the context of depreciation which is to be allowed to an assessee under section 32 of the Income-tax Act. We may point out that Explanation (3) of section 32(1) of the Income-tax Act also gives special benefit to the small scale industrial undertaking and reads as under :
:- 20 -: I.T.A.No. 79/2011
"(3)an industrial undertaking shall be deemed to be a small-scale industrial undertaking, if the aggregate value of the machinery and plant installed, as on the last day of the previous year, for the purpose of the business of the undertaking does not exceed seven hundred and fifty thousand rupees; and for this purpose the value of any machinery or plant shall be, --
(a)in the case of any machinery or plant owned by the assessee, the actual post thereof to the assessee; and
(b)in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant."
16. The question which was posed for consideration before the Gujarat High Court in the case of CIT v. J.H. Kharawala [1994] 208 ITR 6911 was as to whether it was incumbent upon a small scale industrial undertaking to have registration under the IDR Act to claim the benefit of depreciation under section 32 of the Income-tax Act. Replying in the negative and holding that there was no such requirement of such registration to avail the said benefit, the Gujarat High Court held as under :
"Section 32 provides for depreciation. Sub-section (1) provides for depreciation in respect of building, machinery, plant or furniture owned by the assessee and used for the purposes of his business or profession. Clause (vi) of sub- section (1) provided for one time depreciation of 20 per cent on the actual cost of ship, aircraft, machinery or plant. It gave an option to assessee to claim depreciation either in the year in which the machinery or plant was installed or the year in which the assessee had put it to use. But this special depreciation was confined to small scale industrial undertakings. Thus, it was a special provision made for the benefit of small-scale industrial undertakings. By the Explanation,"new ship" and "new machinery or plant" were defined. The Legislature also provided by that Explanation as to which undertaking was to be regarded as a small-scale industrial undertaking. By the said Explanation, it also provided how the value of the machinery or plant was to be determined. Thus, it cannot be gainsaid that the Legislature thought it fit to make a special provision in this behalf. If registration of an industrial undertaking with the respective State department was to be regarded as sufficient for making such undertaking a small-scale industrial undertaking, then the Legislature would not have made this special provision. Moreover, that would have resulted in discrimination inasmuch as the test laid down for treating an industrial undertaking as a small-scale industrial undertaking might have varied from :- 21 -: I.T.A.No. 79/2011 State to State. Thus, the Legislature, in order to see that there was uniformity, made this special provision and for that reason, it will have to be held that for the purpose of determining whether an industrial undertaking is a small-scale undertaking or not, resort had to be taken to the Explanation to section 32(1)(vi) and not to any other provision of law whereby an industrial undertaking was to be regarded as a small-scale industrial undertaking for other purposes. The Tribunal was, therefore, in error in proceeding on the basis that since the assessee was registered as a small-scale industrial undertaking with the Small-Scale Industries Department, the benefit of section 32(1)(vi) was available to it irrespective of different provision made by that Explanation in that behalf."
17. The upshot of the aforesaid discussion is to answer this question of law in favour of the assessee, as otherwise, there is no dispute that the assessee fulfils eligibility conditions prescribed under section 80-IB of the Income-tax Act and is to be regarded as small scale industrial undertaking. We direct the Assessing Officer to give the benefit of deduction claimed by the assessee under section 80-IB of the Income-tax Act for the assessment year in question, i.e., 2004-
05."
18. The other argument of the A.R of the assessee was that the assessee has been allowed deduction u/s 80IB in earlier years and as this deduction has not been withdrawn, the deduction allowed u/s 80IB for the year under consideration cannot be withdrawn. For the above submission, the assessee placed reliance on certain decision. The first being the decision of Hon'ble Bombay High Court in the case of CIT vs Paul Brothers(supra) which was followed again by the Hon'ble Bombay High Court in the case of CIT vs Western Outdoor Interactive Pvt. Ltd(supra). The Hon'ble Bombay High Court at page 6 in para 6 of its order has held as under:
:- 22 -: I.T.A.No. 79/2011
"6. We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section 10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section 10A of the Act. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i. e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit."
19. Thus, it is observed that the Hon'ble Bombay High Court has recognized the fact that a change in fact warrants different view in the subsequent year cannot be ruled out. However, the conditions which are regarded to be satisfied in the first year for being eligible for deduction in that year and subsequent year if satisfied in that year and deduction was allowed then unless that deduction was withdrawn it was not open for the Revenue to take a different view about the satisfaction of those conditions in the subsequent years. :- 23 -: I.T.A.No. 79/2011
20. Coming to the facts of the present case, we find that the conditions regarding assessee's industrial undertaking being a small scale industrial undertaking is of fact relevant to each year and the same can change on making of further investment in plant and machinery in subsequent year by the assessee or by sale of plant and machinery used in the undertaking by the assessee in the subsequent year. Therefore, merely because of allowance of deduction in an earlier year in which the assessee satisfied the conditions of being a small scale industrial undertaking, it cannot be held that the assessee must be allowed deduction in subsequent eligible years irrespective of the fact whether the assessee remains a small scale industrial undertaking in the subsequent years or not when the condition for allowability of deduction is that the assessee should be a small scale industrial undertaking. Therefore, in our considered view, the above decisions of the Hon'ble Bombay High Court are not applicable for deciding the issue under consideration.
21. Thereafter, the assessee relied upon the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) wherein the issue related to the formation of the industrial undertaking. In respect of this issue, the :- 24 -: I.T.A.No. 79/2011 Tribunal held that bar provided u/s 80IA(3) is in relation to the formation of undertaking and once the formation is complete the development of undertaking cannot be put under restrain of section 80IA(3); if for assessment year 2004-05, the assessee has been granted the claim of deduction u/s 80IA(4)(ii) the same cannot be denied for the subsequent assessment year by applying the restraints of section 80IA(3).
22. In contrast to the above, in the instant case, the formation of the industrial undertaking of the assessee is not an issue. Further, it is not the provisions of the law that for being eligible for deduction u/s 80IB of the Act, the assessee's industrial undertaking should be small scale industrial undertaking only in the year of formation and after having been formed in one year and in the subsequent year even the industrial undertaking does not remain small scale industrial undertaking then also the assessee is entitled for deduction u/s 80IB of the Act. In our considered view, for being eligible for deduction u/s 80IB, in the context of the present case, the assessee's industrial undertaking must be a small scale industrial undertaking in the year in which deduction is eligible. Therefore, the above quoted decision of the Delhi Bench of the Tribunal is not applicable in the instant case. :- 25 -: I.T.A.No. 79/2011
23. Lastly, the assessee relied upon the decision of the Hon'ble P&H High Court in the case of CIT vs Sohana Woollen Mills (supra) wherein it was held that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. Thus, the Hon'ble High Court held that if two views are possible then merely to take a different view, the provisions of section 263 cannot be invoked by the CIT.
24. In the instant case, we do not find any material on the basis of which it can be held that the assessee is entitled for deduction u/s 80IB of the Act in an year in which its industrial undertaking is not a small scale industrial undertaking. Further, we also do not find any material on record on the basis of which it can be held that even when the assessee's investment in plant and machinery exceeds the value of the amount of ` 1 crore at the end of the previous year it can be regarded as small scale industrial undertaking u/s 11B of the Industries (Development and Regulation) Act, 1951. Thus, we find that the above decision relied upon by the A.R of the assessee is not applicable to the facts of the present case.
:- 26 -: I.T.A.No. 79/2011
25. Lastly, the A.R of the assessee argued that the assessee's investment in plant and machinery at the last day of the previous year relevant to the assessment years 2004-05 and 2005-06 also exceeded ` 1 crore and even then the assessee was allowed deduction u/s 80IB of the Act and therefore, even in the year under consideration, the same view must be adopted. In our considered view, the above argument cannot be accepted. In our considered view, the assessee can be allowed deduction on the satisfaction of conditions envisaged in the law and not merely because it was erroneously allowed any deduction in the earlier years. It is a settled position that res judicata is not applicable in administration of tax laws. No vested right can be held to be created in favour of the assessee merely because of allowance of deduction in earlier years which was not legally entitled to.
26. In view of the above, we do not find any good reason to interfere with the order of the CIT passed u/s 263 of the Act. Therefore, we dismiss the grounds of appeal raised by the assessee. :- 27 -: I.T.A.No. 79/2011
27. In the result, the appeal filed by the assessee is dismissed.
Order pronounced on Tuesday, the 15th of January, 2013 at Chennai.
Sd/- Sd/-
(VIKAS AWASTHY) (N.S.SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 15th January, 2013
RD
Copy to: Appellant/Respondent/CIT(A)/CIT/DR