Income Tax Appellate Tribunal - Delhi
Hls Asia Ltd., New Delhi vs Dcit, New Delhi on 24 February, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' : NEW DELHI)
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.1712/Del./2010
(Assessment Year : 2004-05)
ITA No.4144/Del./2014
(Assessment Year : 2007-08)
ITA No.2208/Del./2014
(Assessment Year : 2008-09)
M/s. HLS Asia Ltd., vs. DCIT, Circle 12 (1),
109, Aurobindo Place Market, New Delhi.
Hauz Khas,
New Delhi.
(PAN : AAACH0627H)
ITA No.3708/Del./2012
(Assessment Year : 2006-07)
ITA No.5511/Del./2012
(Assessment Year : 2007-08)
M/s. HLS Asia Ltd., vs. Addl.CIT, Range 12,
109, Aurobindo Place Market, New Delhi.
Hauz Khas,
New Delhi.
(PAN : AAACH0627H)
2 ITA No.1712/Del./2010
ITA No.4144/Del./2014
ITA No.2208/Del./2014
ITA No.3708/Del./2012
ITA No.5511/Del./2012
ITA No.323/Del./2012
ITA No.5855/Del./2011
ITA No.2241/Del./2014
ITA No.323/Del./2012
(Assessment Year : 2005-06)
ITA No.5855/Del./2011
(Assessment Year : 2006-07)
ITA No.2241/Del./2014
(Assessment Year : 2008-09)
DCIT, Circle 12 (1), vs. M/s. HLS Asia Ltd.,
New Delhi. 109, Aurobindo Place Market,
Hauz Khas, New Delhi.
(PAN : AAACH0627H)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Sanjay Malik, Advocate
REVENUE BY : Shri Saras Kumar, Senior DR
Date of Hearing : 06.02.2020
Date of Order : 24.02.2020
ORDER
PER BENCH :
Since common questions of facts and law have been raised in the aforesaid cross appeals filed by the assessee and the Revenue, the same are being disposed off by way of consolidated order to avoid repetition of discussion.
2. Appellant, M/s. HLS Asia Ltd. (hereinafter referred to as 'the assessee') by filing the present appeals sought to set aside the 3 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 impugned orders dated 04.01.2010, 30.05.2014, 31.10.2011 & 20.01.2014 passed by the CIT (Appeals)-XII, New Delhi, CIT (Appeals)-V, New Delhi, CIT (Appeals)-IV, New Delhi & CIT (Appeals) - XI, New Delhi qua the assessment years 2004-05, 2007-08, 2007-08 & 2008-09 respectively on the grounds inter alia that :-
"ASSESSEE'S APPEALS ITA No.1712/Del./2010 (AY : 2004-05)
1. That the CIT (Appeals) erred on facts and in law in confirming the action of the assessing officer in denying the deduction under section 80-18 of the in respect of its undertakings engaged in wire line logging perforation activity for mineral oil concern allegedly holding that (i) the appellant was not engaged in manufacture and production of articles or things, (ii) the industrial undertaking of the appellant is created by splitting up, or restructuring of business already in existence.
2. That the CIT(Appeals) erred on facts and in law in holding that wire line logging undertakings of the appellant were not engaged in manufacture and production of articles or things on the ground that
(i) gathering of information or putting down information collected could not be regarded as processing or manufacturing activities and
(ii) merely describing factual position cannot be termed as manufacture and production of articles or things.
3. That the CIT (Appeals) erred on facts and in law in holding that the appellant was only assisting in collection data required for production of oil.
4. That the CIT (Appeals) erred on facts and in law in not appreciating that the appellant is engaged in manufacture and production of articles or things and are eligible for deduction under section 80-18 of the Act.
5. That the CIT (Appeals) erred on facts and in law in not appreciating that merely for the reason that the mobile units / undertakings of the appellant are shifted from one site to other, does 4 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 not amount to splitting up or restructuring of business so as to deny deduction under section 80-18 of the Act.
6. That the CIT (Appeals) erred on facts and in law in not appreciating that in respect of each borewell made at different locations, wire line logging activity is undertaking and hence there could not be any allegation as to splitting up or restructuring of business already in existence.
7. That the CIT (Appeals) erred on facts and in law in not appreciating that each geographical site of the appellant was a separate undertaking allegedly holding that number of employees spreading over geographical area serviced by mobile van is extremely low.
8. Without prejudice, that the CIT (Appeals) erred on facts and in law in confirming the action of assessing officer in denying deduction in respect of activities other than logging and data processing.
9. That the CIT (Appeals) erred on facts and in law in confirming the allowance of depreciation @ 25% as against 80% claimed by the appellant in respect of the plant and machinery owned and used below the ground in field operations in mineral oil concerns holding that-
(a) The appellant did not extract, produce mineral oils and, therefore, it could not claim the status of a mineral oil concern
(b) The appellant was not a mineral oil concern, and is merely providing support services with respect to the activity of wireline logging and perforation, which was a small fraction of series of activities undertaking by mineral oil concerns.
(c) Nature of operations of mineral oil concerns were significantly different from that of the appellant as regards its functions and use of plant and machinery.
10. Without prejudice, that the CIT (Appeals) erred on facts and in law in not allowing depreciation on additions/disallowances made in the earlier years while computing revised written down value of fixed assets.
11. That the CIT (Appeals) erred on facts and in law in confirming the disallowance of expenditure amounting to Rs.7,56,940/- by applying ad hoc percentage of 15% of the gross dividend under section 14A of the Act, holding the same to be expenditure incurred for earning exempt income.
(a) That the CIT (Appeals) erred on facts and in law in holding that Rule 80 of the Income Tax Rules, 1962 ('the Rules') read with section 14A is mandatory and retrospective. 5 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
(b) That the CIT (Appeals) erred on facts and in law in not appreciating that no expenses had, in fact, been incurred by the appellant for earning such dividend income.
(c) That the CIT (Appeals) erred on facts and in law in not appreciating there was no nexus between the expenditure incurred and exempted dividend income."
ITA No.3708/Del./2012 (AY : 2006-07)
1. That on the facts and circumstances of the case and in law the order passed by the learned Commissioner of Income-tax, (CIT) under section 263 or the Income-tax Act, 1961 ('the Act') is beyond jurisdiction, bad in law and void ab initio. 1.1 That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied in the appellant's case.
1.2 That the CIT erred on facts and in law in setting aside the assessment order. without arriving at any conclusive finding on merits as to how the assessment order was erroneous as well as prejudicial to the interest of Revenue. In respect of the issue of depreciation and commission paid to director.
2. That the CIT erred on facts and in law in holding that the order passed by the assessing officer was erroneous and prejudicial to the interest or the Revenue on account of the following:
(i) Allowing additional depreciation of Rs.3,46,41.428 despite findings / that the appellant was not engaged in manufacture and production of articles or things.
(ii) Allowing depreciation in respect or plant and machinery @ 25% as against the applicable rate of 15% .
(iii) Not disallowing commission paid to the a managing director of amounting to Rs.33,51,000 in terms of section 36(1)(ii) of the Act.6 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
3. That the CIT erred on facts and in law in not appreciating that there was no error in the assessment order passed under section 143(3) of the Act and was not erroneous and prejudicial LO the interest of the Revenue on account of the following:
(i) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant to be engaged in manufacture or production of articles and things.
(ii) The appellant was allowed depreciation only @ 15%.
(iii) The commission of Rs.33,51,000 as paid to the managing Director who was not shareholder and, therefore, was not liable to be disallowed in terms of section 36(1)(ii) of the Act."
ITA No.4144/Del./2014 (AY : 2007-08) "1. That the CIT(A) erred on facts of the case and in law in restricting the appellant's claim of deduction under section 80-IB of the Income-tax Act, 1961 ('the Act') , in respect of profits of Agartala unit to 30% as against the deduction of 100% in respect of said unit claimed by the appellant.
1.1 That the CIT(A) erred on facts of the case and in law in not appreciating that Agartala unit of the appellant being set up in north-eastern region, was eligible deduction @ 100% of the profit of the business, in terms of the second proviso to sub- section (4) of section 80-IB of the Act read with notification No. SO 627 (E) dated 04.08.1999."
ITA No.5511/Del./2012 (AY : 2007-08) "1. That on the facts and circumstances of the case and in law the order passed by the learned Commissioner of Income-tax, ('CIT') under section 263 of the Income-tax Act, 1961 ('the Act') is beyond jurisdiction, bad in law and void ab initio. 1.1 That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied in the appellant's case.
7 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 1.2 That the CIT erred on facts and in law in setting aside the assessment order, without arriving at any conclusive finding on merits as to how the assessment order was erroneous as well as prejudicial to the interest of Revenue.
3. That the CIT erred on facts and in law in holding that the order passed by the assessing officer was erroneous and prejudicial to the interest of the Revenue on account of the following:
(i) Allowing additional depreciation of Rs.1,62,45,285 despite findings that the appellant was not engaged in manufacture and production of articles or things.
(ii) Allowing depreciation in respect of plant and machinery @ 25% as against the applicable rate of 15%.
3. That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act in respect of the issue of excess claim of depreciation, overriding the principle of merger applicable to parallel authorities, as the said issue was already under consideration before CIT(A)-XV vide appeal filed on 19.01.2010.
4. That the CIT erred on facts and in law in not appreciating that there was no error in the assessment order passed under section 143(3) of the Act and was not erroneous and prejudicial to the interest of the Revenue on account of the following:
(i) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant to be engaged in manufacture or production of articles and things.
(ii) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant is eligible for depreciation at a higher rate of 60%.8 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 ITA No.2208/Del./2014 (AY : 2008-09) "1. That the Commissioner of Income-tax (Appeals) erred on facts of the case and in law in restricting the appellant's claim of deduction under section 80-IB of the Income-tax Act, 1961 ('the Act'), in respect of profits of Agartala unit to 30% as against the deduction of 100% in respect of said unit claimed by the appellant.
1.1 That the Commissioner of Income-tax (Appeals) erred on facts of the case and in law in not appreciating that Agartala unit of the appellant being set up in north-eastern region, was eligible deduction @ 100% of the profit of the business, in terms of the second proviso to sub-section (4) of section 80-1S of the Act read with notification No. SO 627 (E) dated 04-08-1999. 1.2 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in making extraneous observations that "for deciding the manufacturing activity, it is a vital factor how the Department of Central Excise has treated the process undertaken by the appellant and whether the product ('log') was an excisable goods or the appellant's work was simply like a service provider. It appears that the appellant's case was not examined from this angle and perhaps these facts were not brought to the notice of the Hon'ble Court. It is without prejudice to the decisions of the Hon'ble Courts on the issue. However, the AO may examine the issue from this angle and take necessary permission from the Hon'ble Court to have a relook on its own decision".
1.3. Without prejudice that the aforesaid observations of the Commissioner of Income-tax (Appeals) being extraneous and in contradiction of the binding decision of the Hon'ble Delhi High Court and, therefore, calls for being expunged.
2. That the CIT(A) erred on facts of the case and in law in not admitting the additional ground of appeal raised' by appellant qua claim of deduction under section 8018 of the Act in respect of 100% profits of the Duliajan unit in terms. of the provisions of second proviso to sub-section (4) of section 80-1B of the Act read with notification No. SO 627 (E) dated 04-08- 1999."
9 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
3. Appellant, DCIT, Circle 12 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeals sought to set aside the impugned orders dated 19.10.2011, 10.10.2011 & 29.01.2014 passed by the CIT (Appeals)-XXVII, New Delhi, CIT (Appeals)-XXVIII, New Delhi & CIT (Appeals)-XI, New Delhi qua the assessment years 2005-06, 2006-07 & 2008-09 respectively on the grounds inter alia that :-
"ITA No.323/Del./2012 (AY : 2005-06)
1. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 89,141/- made by the AO u/s 14A.
2. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Rs. 3,03,21,859/- made by the AO on account of deduction u/s 80-IB.
3. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the disallowance of Disallowance of Rs.4,22,67,278/- made by the AO on account of excess depreciation on plant and machinery.
4. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the Addition of Rs.51,43,856/-made by the AO treating the service tax received as trading receipts."
ITA No.5855/Del./2011 (AY : 2006-07) "1. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of Rs.3,58,77,077/- made by the AO on account of 80IB of the IT Act.
10 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
2. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of Rs.6,84,02,958/-made by the AO on account of depreciation out-of total depreciation of Rs.9,12,03,944/- claimed in respect of plant and machinery used below the ground."
ITA No.2241/Del./2014 (AY : 2008-09) "1. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs.1,94,36,126/- on account of disallowance of deduction u/s 80IB claimed @ 30% despite the fact that the assessee company is not manufacturing concern and is only a services provider?
2. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs.1,94,36,126/- on account of disallowance of deduction u/s 80IB claimed @ 30% despite the fact that the assessee company is not registered for excise duty & only service provider and this fact was not brought to notice of Hon'ble Delhi High Court; and that the CIT (A) was not correct in allowing the deduction after noting the fact as the decision of the Hon'ble Court was based on different facts?
3. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in holding that the assessee company is manufacturing unit ignoring the fact that the assessee company is paying service tax; therefore service provider & not registered for excise duty and also not complying the condition of section 80IB(2)(iv) of the Act that where industrial undertaking manufactures or produces articles or things, the undertaking employ ten or more workers in manufacturing process?"
4. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. HLS Asia Ltd., the assessee is engaged in wireline logging perforation and related oil fields activities for various national and international mineral oil companies i.e. Oil India Ltd. and Oil & Natural Gas Corporation Ltd. in the geographical mineral oil operational areas and the said 11 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 concern in Duliajan, Agartala, Nazira, Bangaldesh etc. under contracts entered with them.
5. Assessee company in AYs 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 claimed deduction u/s 80IB of the Income-tax Act, 1961 (for short 'the Act') qua its two units, namely, Unit 2 Duliajan and Unit 3 Agartala. Declining the contentions raised by the assessee company, Assessing Officer (AO) proceeded to hold that the assessee company is only providing services to mineral oil concerns and generation of logs does not amount to manufacture or production of article or thing and as such deduction of Rs.3,36,16,295/-, Rs.3,03,21,859/-, Rs.3,58,77,077/-, Rs.1,30,65,731/- & Rs.1,94,36,126/- for AYs 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 respectively claimed y the assessee company is not allowable as the assessee has failed to verify the necessary conditions required u/s 80IB of the Act.
6. In AYs, 2004-05, 2005-06 & 2006-07, assessee company claimed depreciation on plant and machinery used below the grounds @ 80% amounting to Rs.3,05,10,460/-, Rs.5,28,34,097/- & Rs.9,12,03,944/- for AYs 2004-05, 2005-06 & 2006-07 respectively. Assessee company also claimed 80% on logging 12 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 tools as well as made in earlier years. AO, following the order passed in earlier years proceeded to hold that since the assessee company did not extract or produce mineral oils, it cannot claim status of mineral oil concern. Even the use of plant and machinery by the assessee is different from plant and machinery by mineral oil concerns and the assessee company is merely providing support servicers with regard to activities of wireline logging and perforation which are very small fraction of series of operation undertaken by mineral concern and thereby allowed the depreciation in respect of plant and machinery used below the ground @ 25% as against 80% claimed by the assessee company and disallowed the depreciation to the tune of Rs.3,05,10,460/-, Rs.5,28,34,097/- & Rs.9,12,03,944/- for AYs 2004-05, 2005-06 & 2006-07 respectively.
7. In AY 2004-05, AO made disallowance of expenditure on (ad-hoc) basis to the tune of Rs.7,56,940/- @ 15% of the gross dividend u/s 14A by holding that these were the expenditure incurred by the assessee for earning exempt income.
8. In AY 2005-06, assessee company shown an amount of Rs.51,43,856/- during years on account of service tax but 13 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 remaining unpaid. The assessee has also not passed service tax through profit & loss account. Assessee had raised part bills with service tax with charge to the same. However, AO added the amount of Rs.51,43,856/- to the income of the assessee as trading receipts subject to its entitlement to deduction as and when it is paid to the Government or written off from customer account.
9. Assessee carried the matter before the ld. CIT (A) by way of filing the separate appeals for AYs 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 who have confirmed the disallowance of deductions claimed by the assessee u/s 80IB made by the AO in AYs 2004-05, 2007-08 & 2008-08 however ld. CIT (A) in AYs 2005-06 & 2006-07 allowed the relief to the assessee company. Feeling aggrieved by the orders passed by the ld. CIT (A), both the assessee as well as Revenue have come up before the Tribunal by way of filing the present cross appeals.
10. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
14 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 GROUNDS NO.1 TO 8 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE'S APPEAL) GROUND NO.2 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE'S APPEAL) GROUND NO.1 OF ITA NO.5855/DEL/2011 AY : 2006-07 (REVENUE'S APPEAL) GROUNDS NO.1 & 1.1 OF ITA NO.4144/DEL/2014 AY : 2007-08 (ASSESSEE'S APPEAL) GROUNDS NO.1 & 2 OF ITA NO.2241/DEL/2014 AY : 2008-09 (REVENUE'S APPEAL)
11. AO denied the claim of deduction by the assessee u/s 80IB by reaching the conclusion that the assessee company cannot be said to be engaged into any manufacture or production of an article or thing rather it is only providing services to mineral oil concerns and as such, generation of logs does not amount to manufacture or production of an article or thing.
12. Ld. AR for the assessee challenging the impugned order passed by the ld. CIT (A) in AYs 2004-05, 2007-08 & 2008-09 and supporting the order passed by the ld. CIT (A) in AYs 2005-06 & 2006-07 contended that now the issue as to, "whether assessee company being engaged in wireline logging, perforation and related oil-field activities for mineral oil concerns is actually 15 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 engaged in "manufacture and production of article or thing"," has been decided in favour of the assessee company by the Hon'ble Delhi High Court in assessee's own case in AYs ranging from 1989-90 to 2003-04 vide order dated 11.05.2011 reported in (2011) 335 ITR 292 (Del.). This factual and legal position has not been controverted by the ld. DR for the Revenue.
13. Hon'ble Delhi High Court has framed substantial question of law in assessee's own case pertaining to AYs 1989-90 to 2003-04 (supra) as under :-
"1. Whether, on the facts and in the circumstances of the present case, the assessee can be said to be an ―industrial undertaking engaged in the business of ―manufacturing or production of an article or a thing for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961?"
14. Aforesaid substantial questions of law have been decided by the Hon'ble Delhi High Court in favour of the assessee by returning following findings :-
"26. It is clear from the aforesaid judicial authorities that in order to find out whether any particular business activity amounts to ―manufacturing or ―production for the purpose of various tax incentives under IT Act, each case is required to be examined in the light of facts and circumstances of that very case. The most important aspect of this exercise should be the analysis of the process involved in the impugned activity and an enquiry into the nature of transformation that the product has undergone to find out whether it is distinct in identity from the raw commodity involved in its manufacture.16 ITA No.1712/Del./2010
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27. In the instant case, production of log by way of wireline logging is the concerned activity. We are given to understand by the learned counsel for the assessee that wireline logging assists the mineral oil concerns primarily to ascertain as to whether there is any gas or oil in the well, and if there is such presence, then its availability at what depth and the quantity of such reserves, and whether such gas or oil can be extracted. This is usually done through electrical, acoustic radio-active and electromagnetic analysis of the properties of rocks. The Assessee has stated that it has carried out wireline logging, perforation and related operation by engaging highly experienced engineers and log analysts, using high-tech equipments and computers. The logging tools are sensitive sensors with electromechanical systems which can work in extreme conditions of pressure and temperature as found in down hole below the earth surface. There, inside the hole, these equipments perform quite sophisticated measurements. The prime target is the measurement of various geophysical properties of the subsurface rock formations. Of particular interest are porosity, permeability, and fluid content. Porosity is the proportion of fluid-filled space found within the rock. It is this space that contains the oil and gas. Permeability is the ability of fluids to flow through the rock. The higher the porosity, the higher the possible oil and gas content of a rock reservoir. The higher the permeability, the easier for the oil and gas to flow toward the wellbore. Logging tools provide measurements that allow for the mathematical interpretation of these quantities.
28. We are explained by the learned counsel that beyond just the porosity and permeability, various logging measurements allow the interpretation of what kinds of fluids are in the pores-- oil, gas, brine. In addition, the logging measurements are used to determine mechanical properties of the formations. These mechanical properties determine what kind of enhanced recovery methods may be used (tertiary recovery) and what damage to the formation (such as erosion) is to be expected during oil and gas production. The data collected by these tools is transmitted through an electro mechanical cable to the earth surface where it is processed by a sophisticated ―acquisition software which acquires and processes the data from the logging tools. After processing the data the computer gives an output called logs' which are said to be valuable processed data/ evaluative information/ interpretation imprinted on special film/ papers etc. and recorded on digital tapes.17 ITA No.1712/Del./2010
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29. The learned counsel for assessee further submitted that in respect of each of its contract the assessee sets up a full-fledged base at a centralized location and mobilizes/ installs equipments and deputes personnel at each such base. Each such base under each contract is claimed as a separate industrial undertaking. The facilities provided by the assessee for each such base comprise establishment of laboratory workshop, tools calibration facilities, establishment of computer centre, accounts administration/ operation office, godown, stores, communication and transport facilities, special protective storage for radio-active material and residence for personnel.
30. After referring to various activities undertaken at a specific unit, Mr. Vohra, learned counsel for the assessee pleaded that the logs generated by it are ―an article or a thing and the process of generating the same amounts to manufacturing/ production. To counter the submissions of the assessee, Ms. Bansal, learned senior counsel for the revenue has submitted that geo-physical and petro-chemical properties of the rocks is like information taped into rocks and what assessee is doing is just retrieving the same and printing it on the paper or on other formats. Ms. Bansal, however did not controvert all that was submitted and explained by Mr. Vohra as noted by us in the preceding paragraphs (27, 28 & 29).
31. Having analyzed the submissions of learned counsel of both the parties and the material available for our perusal and the cited case law, we find force in the submissions of Mr. Vohra, learned counsel for the assessee. No doubt, the raw material i.e. the primary input in the impugned activity is the ―information but can we equate this ―information with something which is being copied from there in toto. Whether the characteristics regarding which the information is being sent back to computers on surface from logging tools working inside the down hole can be compared to a characteristic which is available and readable without conducting highly technical scientific tests and calculations down inside the borehole. Even after the geo- physical and petro-chemical properties of the rocks have been measured, further scientific processing is required to be done by dedicated softwares on the computers. It is only after the above said process, the readable and usable data in the form of logs is provided to technical experts to determine the potentiality and other technical and commercial characteristics of the oil well. Can we say, when a latent physical property of the rocks, which was otherwise unreadable and thus unusable, has been changed 18 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 by way of sophisticated scientific tests and calculations into scientific data which subsequently has been further changed into logs printed on the papers or recorded on the magnetic tapes, that the character and identity of end product and final product is not distinct. We are unable to uphold such a proposition. It is a clear case where the legal proposition that ―If an operation/ process renders a commodity or article fit for use for which it is otherwise not fit, the operation/ process falls within the meaning of the word "manufacture"" applies. At this juncture, we reemphasize on the observations made by His Lordship S.H. Kapadia, J. (as His Lordship was then) in CIT Vs. Oracle Software India Ltd. (Supra) that the Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day.
32. Even from another perspective, which forms the second limb of the assessee's argument, the case tilts in the favour of assessee. Mr. Vohra has tried to draw an analogy between the production of logs by using wireline logging equipments on the one hand and the production of X-Ray and ultrasound report sheets using X-Ray and Ultrasound machines on the other hand which have been held to be eligible for investment allowance under section 32A in various judicial pronouncements. Aforesaid second limb of the argument of Mr. Vohra is of vital importance because the AO itself, while framing the assessment order dated 23.03.1995 for the assessment year 1992-93 had relied upon the same analogy to come to sharply opposite conclusions. The same can be reproduced as under:
"Can we say X-Ray machine is manufacturing X- Ray? Obviously no. Because it is only taking the information of the human body and by radiation having a graph on an X-Ray. But, it is not manufacturing X-Ray."
33. Various High courts of India have held that X-Ray machine is qualified for investment allowance under section 32A. In the case of Commissioner of Income-tax Vs. Dr. S. Surender Reddy [243 ITR 110 (AP)] the Andhra Pradesh High Court has categorically observed as under:
"9. Next comes the equipment used for purposes of X-ray. By putting the X-ray film in to the X-ray machine a different article is produced. It is a different article from the film which is produced from the X-ray machine and, 19 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 therefore, it is a thing within the meaning of Section 32A(2)(b)(ii). Therefore, the Tribunal is right in its view that when X-ray films are produced the assessee produces a thing and, therefore, he is entitled for investment allowance. As regards the equipment used for conducting the pathological tests the assessee is not qualified to claim investment allowance under Section 32A of the Act. The assessee is also entitled for investment allowance on stabilizer, electric fans, scanner and air- conditioner used to keep the analytical systems, as they are necessary for purposes of production of an article or a thing."
34. Similar view has been expressed by the Gujarat High Court in CIT Vs. Down Town Hospital (P) Ltd. [267 ITR 439 (guj)]; Karnataka High Court in CIT Vs. Upasana Hospital [225 ITR 845 (kar)]. The issue, which we are concerned with, is a fiscal issue which is concerned with a central statute. It is desirable that in such a matter there should be uniformity of the judicial opinion. Even on merits, the analogy has some substance. We, therefore, in the light of aforestated, decide this issue in the favour of the assessee and against the revenue.
15. So, following the decision rendered by the Hon'ble High Court in assessee's own case (supra), we are of the considered view that assessee company is an industrial undertaking engaged in the business of manufacturing or production of an article or thing for the purpose of section 32A and section 80IB of the Act. So, AO as well as CIT (A) have erred in AYs 2004-05, 2007-08 & 2008-09 in denying the deduction claimed by the assessee company u/s 80IB of the Act on the ground that the assessee company is not a manufacturing concern. Ld. CIT (A) in AYs 2005-06 & 2006-07 has rightly decided the issue in favour of the 20 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee company. Consequently, Grounds No.1 to 8 of ITA NO.1712/Del./2010 (AY : 2004-05) & Grounds No.1 & 2 of ITA No.4144/Del./2014 (AY : 2007-08) of assessee's appeal are determined in favour of the assessee and Ground No.2 of ITA No.323/DEL/2012 (AY : 2005-06), Ground No.1 of ITA No.5855/Del/2011 (AY : 2006-07) & Grounds No.1 & 2 of ITA No.2241/Del/2014 (AY : 2008-09) of Revenue's appeal are determined against the Revenue.
GROUNDS NO.9 & 10 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE'S APPEAL) GROUND NO.3 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE'S APPEAL) GROUND NO.2 OF ITA NO.5855/DEL/2011 AY : 2006-07 (REVENUE'S APPEAL)
16. So far as allowing the depreciation @ 25% as against 80% claimed by the assessee in respect of plant & machinery owned and used below the ground in field operation in mineral oil concern is concerned, this issue has also been decided in favour of the assessee company by the Hon'ble Delhi High Court in assessee's own case (supra) by framing the substantive question of law as under:-
21 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 "2. Whether, on the facts and in the circumstances of the present case, the assessee is entitled to a higher depreciation allowance @ 100% under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962?"
17. Hon'ble Delhi High Court decided the aforesaid question of law in favour of the assessee company by holding that assessee's wireline logging and perforation equipments are eligible for deprecation @ 100% under clause (ii) of section 32(1) of the Act r/w Item III(3)(ix)(b) of the schedule of rates of depreciation in Appendix I to the Income-tax Rules, 1962 by returning following findings :-
"46. After hearing learned counsels for the parties at length on this issue, we are of the opinion that the Revenue's stand on this issue lacks substance. Sec. 32(1) of the Act provides for a deduction in the computation of business income, on account of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. This provision reads as under:
Depreciation.
32. (1)[In respect of depreciation of--
(i) buildings, machinery , plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned , wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed--] [(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the 22 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 actual cost thereof to the assessee as may be prescribed ;]
(ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:]
47. Rule 5 of the IT Rules, 1962 provides that the depreciation allowable under s. 32(1)(ii) of the Act in respect of any block of assets shall be calculated at the percentages specified in the II column of the table of rates of depreciation in Appendix I to the Rules, on the written down value of such block of assets as are used for the purpose of the business or profession of the assessee at any time during the previous year. The concerned entry in the Appendix I is Part 1, III (ix). This entry reads as under:
"(ix) Mineral oil concerns:
a. Plant used in field operations (above ground) distribution returnable packages. b. Plant used in field operations (below ground), but not including kerbside pumps including under-ground tanks and fittings used in field operations (distribution) by mineral oil concerns."
Column 2 corresponding to the above entry provides depreciation @ 100% for the items described in the said entry.
48. The table of rates of depreciation in Appendix I to the Rules prescribes a single rate of depreciation for the assets falling within a particular block of assets. It does not prescribe differential rates of depreciation with reference to the ownership of the asset It would be pertinent to note here that the special rate of depreciation for the main item "III- Machinery and Plant"
have been prescribed with reference to the nature of the particular asset and the character of its user including the types of business and the environmental conditions in which it is used. When the OIL has certified in this regard, that the wireline logging & perforation equipments/tools which are used by the 23 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee are similar to those equipments/ tools owned and used by mineral oil concerns and when there is no shadow is casted over the fact that the similar assets would qualify for a depreciation @ 100% under the said entry if these are owned by a mineral oil concern like OIL, we do not find any substance in the department's approach to deny the same to the assessee on the ground that the owner of the similar assets, we are concerned with, will not be so entitled. Mentioning of the fact, in the letter of OIL dated 13 Nov 1998 that these equipments/tools are meant only for use in underground oil field operations for wireline logging & perforation leaves no iota of doubt that the nature of assessee' equipments and its user is similar to those equipments which are owned by the mineral oil concerns and eligible for depreciation under the aforesaid entry. The artificial distinction regarding the mobile nature of the assessee' equipments, which has been created and relied upon by the department, is of no use because even if such a distinction exists it would neither alter the nature of the assessee' equipments nor the character of its user. We, therefore, are of the considered opinion that the assessee's wireline logging and perforation equipments are eligible for a higher depreciation @ 100% under cl. (ii) of s. 32(1) of the Act, r/w item III(3)(ix)(b) of the schedule of rates of depreciation in Appendix I to the Income Tax Rules, 1962."
18. So, following the decision rendered by the Hon'ble Delhi High Court in assessee's own case (supra), we are of the considered view that AO/CIT(A) have erred in disallowing the claim by the assessee company in respect of plant and machinery used below the ground of field operation in mineral oil concern. So, AO is directed to allow the deductions to the assessee as has been held by the Hon'ble Delhi High Court in assessee's own case (supra).
24 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 GROUND NO.11 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE'S APPEAL) GROUND NO.1 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE'S APPEAL)
19. AO by invoking the provisions contained u/s 14A of the Act made disallowance of Rs.7,56,940/- i.e. @ 15% of the exempted income of Rs.50,46,269/- earned by the assessee company during the year under assessment being the reasonable expenditure incurred to earn dividend income by the assessee company. Ld. CIT (A) confirmed the disallowance made by the AO.
20. Undisputedly, in the year under assessment i.e. 2004-05, Rule 8D was not applicable and the disallowances, if any, to be made being the expenditure incurred to earn the dividend income was to be made on the basis of reasonableness. AO as well as CIT(A) have made disallowance by applying the ad hoc percentage of 15% of the gross dividend u/s 14A of the Act.
21. Ld. AR for the assessee challenging the impugned disallowance contended that as on 31.03.2004 and 31.03.2003 year under assessment, assessee company was having share capital and reserves & surplus of Rs.4,13,322/- & Rs.4,37,229/- and investment was Rs.1,88,224/- and Rs.69,300/- respectively. So, the 25 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee has earned the dividend income on the investment made out of surplus funds in mutual funds. It is further contended by the ld. AR for the assessee that no effort and time was utilized in receiving the dividend income from mutual funds which are governed by SEBI Guidelines nor the assessee is having any separate Department or persons exclusively engaged in looking after investment activities and there is no proximate nexus between the earning of the said exempt income. It is also the case of the assessee company that during the year under assessment, net income of Rs.0.50 crores was credited by the assessee to the profit & loss account after deduction of mutual fund charges. Such expenditure is being directly related to exempt dividend income has already been disallowed by the assessee.
22. Keeping in view the facts and circumstances of the case wherein the assessee has stated to have already disallowed expenditure directly related to earning exempt dividend income. We are of the considered view that when investment is made by the assessee company time and manpower need to be utilized to steer the investment in right places so we reasonably restrict the disallowance made by the AO and CIT (A) from 15% to 5% of the 26 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 gross exempt dividend income earned by the assessee during the year under assessment. So Ground No.11 of ITA No.1712/Del/2010 (AY : 2004-05) of assessee's appeal is partly allowed in favour of the assessee.
23. Likewise in AY 2005-06, AO made disallowance of Rs.1,56,276/- being 15% of the dividend income of Rs.10,41,843/- which the ld. CIT (A) has restricted to Rs.89,141/- @ 6.5% of the total dividend income earned. Since the facts of the AY 2005-06 are identical, we restrict the disallowance made by the ld. CIT (A) to 5% of the total dividend income earned which is reasonable disallowance as has been held by the Bench for AY 2004-05. Consequently, Ground No.1 of ITA No.323/Del/2012 (AY : 2005-
06) of Revenue's appeal is partly allowed in favour of the Revenue.
GROUND NO.4 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE'S APPEAL) GROUND NO.3 OF ITA NO.2241/DEL/2014 AY : 2008-09 (REVENUE'S APPEAL)
24. Assessee company has shown an amount of Rs.51,43,856/- as service tax payable in Annexure VIII of the Tax Audit Report filed before the AO by claiming that this amount has not been 27 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 passed through profit & loss account. However, AO held the service-tax payable as a trading receipt on the ground that the assessee has raised sales bills and charged service-tax on the same and service-tax is in the nature of revenue receipt.
25. Ld. CIT (A), by following the decision rendered by Hon'ble Delhi High Court in the case of CIT vs. Noble and Hewitt (I) P. Ltd. (2008) 305 ITR 324 (Delhi), deleted the disallowance on account of service-tax remaining unpaid.
26. We are of the considered view that when undisputedly aforesaid amount of Rs.51,43,856/- as service-tax payable has not been passed through P&L account duly reported in tax audit report nor the assessee has claimed deduction of service-tax payable to the Government, there is no question of disallowance of the deductions not claimed by the assessee.
27. Hon'ble Delhi High court in case of CIT vs. Noble and Hewitt (I) P. Ltd. (supra) decided the identical issue by determining the following findings :-
"Held, dismissing the appeal, that since the assessee did not debit the amount to the profit and loss account as an expenditure nor claim any deduction in respect of the amount and considering that the assessee was following that mercantile system of accounting, the question of disallowing the deduction not claimed would not arise."28 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
28. So, in view of the matter, we are of the considered view that ld. CIT (A) has rightly deleted the addition of Rs.51,43,856/- made by the AO treating the service-tax receipt as trading receipt, hence, Ground No.4 of ITA No.323/Del/2012 (AY : 2005-06) of Revenue's appeal is hereby deleted.
ADDITIONAL GROUNDS ITA NO.1712/DEL/2010 - AY : 2004-05 (ASSESSEE'S APPEAL) ITA NO.4144/DEL/2014 - AY : 2007-08 (ASSESSEE'S APPEAL)
29. Assessee company by filing separate applications sought to raise identical additional grounds under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 which are as under :-
"1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under section 80-IB of the Act @ 100% of the profit of the undertaking at Duliajan being a mineral based industry, in terms of Notification No.SO 627 (E) dated 04.08.1999, read with the second proviso to sub-section (4) of section 80-IB of the Income-tax Act, 1961 ("the Act") as against deduction @ 30% claimed by the appellant.
2. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals)/ assessing officer ought to have allowed deduction under section 80-IB of the Act @ 100% of profit of the unit at Duliajan amounting to Rs.1,67,46,153 as against Rs.31,89,691 for AY 2004-05 determined by the appellant and 29 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 amount of Rs.6,20,85,869/- as against no deduction claimed by the assessee in return of income in AY 2007-08."
on the grounds inter alia that at the time of filing the return of income assessee company being not aware of the correct legal position and as such inadvertently claimed deduction u/s 80IB of the Act @ 30% of the profit of aforesaid unit at Duliajan instead of 100% of the profit under Second Provision to sub-section (5) of section 80IB for AY 2004-05 and claimed no deduction qua Duliajan unit in AY 2007-08 admissible @ 100% of the profit; that additional grounds so raised by the assessee company are legal ground and non-raising of such grounds were neither willful nor deliberate and relied upon the decision rendered by Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC).
30. Ld. CIT DR for the Revenue by filing the written submissions running into 15 pages which have been made part of the judicial file opposed raising of additional grounds by the assessee; that once a ground has not been raised before the lower authorities, there is no question to raise the same at the second appellate stage which is beyond the scope of provisions contained 30 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 u/s 256(1) of the Act; that the order which is sought to brought under this appeal by raising additional ground is not part of the impugned order; that the new claim now sought to be made by way of additional ground was never part of the return of income nor any such ground was raised before the AO/CIT(A); that new claim of 80IB is not a pure question of law as it requires elaborate enquiry by the AO and that when prima facie it is not a mineral based industry no deduction is admissible and prayed for rejection of the application.
31. Bare perusal of the additional grounds raised by the assessee company in AYs 2004-05 & 2007-08 goes to prove that the issue is sought to be raised by way of additional grounds is qua admissibility of deduction u/s 80IB @ 100% of the profit of undertaking by Duliajan unit being a mineral based industry in terms of Notification No.SO 627 (E) dated 04.08.1999 read with Second Proviso to sub-section (4) of section 80IB of the Act. In AY 2004-05, assessee claimed deduction @ 30% whereas it was required to be claimed @ 100%. Similarly, in AY 2007-08, assessee company failed to claim the deduction. It is the settled principle of law laid down by Hon'ble Supreme Court in case of 31 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 National Thermal Power Co. Ltd. (supra) that in order to correctly assess the tax liability of an assessee, the Tribunal is only required to consider the question of law arising from facts which are on record in assessment proceedings even by entertaining additional ground raised first time before the Tribunal. Operative part of the law laid down by Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. (supra) is as under :-
"Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non- taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal.
Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised 32 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 when it is necessary to consider that question in order to correctly assess the tax liability of an assessee."
32. So, following the law laid down by Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. (supra), we are of the considered view that the assessee by raising additional grounds has raised a pure question of law though based on the facts requires to be verified by the assessing authority as to the deductions claimed by the assessee company u/s 80IB (4) of the Act @ 100% in the light of the Notification No.SO 627 (E) (supra). In AY 2004-05, this question was there before the AO wherein the assessee company has claimed 30% deduction as against admissible deduction of 100%. However, in AY 2007-08, this deduction was not claimed.
33. But since it is a pure question of law going to the roots of the case necessary to be adjudicated for correct tax liability of the assessee, the additional grounds raised by the assessee company in AY 2004-05 & 2007-08 are allowed. Arguments raised by the ld. CIT DR and case laws relied upon is not applicable to the facts and circumstances of the case.
33 ITA No.1712/Del./2010
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34. Now, we would proceed to adjudicate the additional grounds raised by the assessee company in AYs 2004-05 and 2007-08.
35. Undisputedly, in AY 2004-05, assessee company has claimed deduction u/s 80IB (4) in respect of unit at Duliajan @ 30% of the profit of the said eligible unit. It is also not in dispute that in AY 2007-08, assessee company has not claimed any such deduction u/s 80IB (4) of the Act qua its Duliajan unit. Keeping in view the findings returned by the Bench in preceding paras that the assessee company has been held to be mineral based industry being into the business of wireline logging operation for ONGC and Oil India Corporation in the mineral oil operational areas at Ankleshwar, Najira, Duliajan and Agartala.
36. Assessee company by relying upon the notification No.SO 627 (E) dated 04.08.1999 read with second proviso to sub-section (4) of section 80IB contended that it is eligible for deduction @ 100% of profit. Bare perusal of the Notification (supra) goes to prove that industries running in the North Eastern region including mineral based industry are eligible for deduction @ 100% of profits u/s 80IB(4).
34 ITA No.1712/Del./2010
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37. However, on the other hand, ld. DR for the Revenue contended that the assessee has brought on record plethora of evidence including list of new plant and machinery viz. wireline logging units for both the years 2004-05 and 2007-08 which facts are required to be verified by the assessing authorities. The contention of the ld. DR is sustainable.
38. Hence, we are of the considered view that this issue is required to be sent back to the AO to decide afresh after providing an opportunity of being heard to the assessee in the light of the Notification (supra) on the basis of finding of fact if machinery stated to have been applied by the assessee company at its Duliajan unit was new machinery and has actually been put to use so as to make it eligible for deductions claimed. Consequently, additional grounds raised by the assessee in AYs 2004-05 and 2007-08 are allowed for statistical purposes.
GROUNDS NO.1, 1.1, 1.2, 1.3 & 2 OF ITA NO.2208/DEL/2014 AY : 2008-09 (ASSESSEE'S APPEAL)
37. Assessee company by filing appeal bearing ITA No.2208/Del/2014 for AY 2008-09 challenged the impugned order 35 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 passed by the ld. CIT (A) restricting its claim for deduction u/s 80IB qua Agartala unit being situated in the Northern Eastern region to 30% as against deduction of 100% under second proviso to sub-section (4) of section 80IB of the Act read with Notification No.SO 627 (E) dated 04.08.1999.
39. Ld. AR for the assessee drew our attention to paras 12 and 12.5 of the impugned order passed by the ld. CIT (A) showing that this issue of claiming 100% deduction under second proviso to sub-section (4) of section 80IB read with Notification No. 627 (E) (supra) by way of raising additional ground and by seeking to lead additional evidence.
40. However, ld. CIT (A) dismissed the application for raising additional ground as well as for leading additional evidence on the grounds inter alia that AO has not given his report on admissibility of the additional evidence despite several reminders; that the additional evidence given by the assessee in the shape of certificate in the form No.10CCB issued by Chartered Accountant as well as long list of purchases made by it in March 2004, August 2004 and February 2005 for setting up a new unit at Duliajan which cannot be verified at this stage and that no reason for not producing these 36 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 details in the proceeding of respective years has been given by the assessee.
41. However, we are of the considered view that this issue being identical to the issue raised by the assessee company in AYs 2004-05 and 2007-08 by way of additional grounds having been decided by the Bench in favour of the assessee as per findings given in preceding paras, so for the same reasoning additional grounds as well as additional evidence sought to be raised/led by assessee before the ld. CIT (A) is allowed. Since this identical issue in AYs 2004-05 and 2007-08 has been remitted back to the AO to decide afresh after providing opportunity of being heard to the assessee by examining the evidence led by the assessee in the light of the second proviso to sub-section (4) to section 80IB read with Notification No.627 (E) (supra), grounds no.1, 1.1, 1.2, 1.3 & 2 of ITA No.2208/Del/2014 for AY 2008-09 of assessee's appeal are also determined in favour of the assessee for statistical purposes to be decided by the AO as per findings returned by the Bench in preceding Para 36 for A.Y. 2004-05 & 2007-08. ADDITIONAL GROUND 37 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 ITA NO.5855/DEL/2011 - AY 2006-07 (REVENUE'S APPEAL)
42. Additional grounds have been raised by the assessee in the appeal bearing ITA No.5855/Del/2011 for AY 2006-07 filed by the Revenue are as under :-
"1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under second proviso to section 80-IB(4) of the Act to the assessee @ l 00% of the profit of the undertaking set up at Duliajan, being a mineral based industry, in terms of notification No. SO 627 (E) dated 04-08- 1999, read with the second proviso to sub-section (4) of section 80-lB of the income-tax Act. 1961 ('the Act').
2. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under section 80-JB of the Act @ 100% of profit of the unit at Duliajan amounting to Rs.5,59,59,323 as against no deduction claimed by the appellant in the return of income.
3. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed credit for tax withheld by the customer in Bangladesh amounting to Rs.40,96,030, in respect of income earned from such customer in Bangladesh, which has already been offered to tax in India in the return of income for relevant assessment year."
On the grounds inter alia that at the time of filing of return of income, assessee company did not claim deduction u/s 80IB of the Act erroneously as the assessee was not aware of the correct legal position; that by virtue of the second proviso to section 80IB (4), assessee company is entitled for deduction @ 100% of the profit of 38 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 its unit at Duliajan; that omission to raise the aforesaid grounds was neither willful nor deliberate; that assessee company has entered into a contract with Bangladesh Gas Fields Company Ltd. (BGFCL) to carry out wireline logging and perforation related operations in Bangladesh and has accounted for revenue of Rs.4,37,30,170/- in respect of this contract; that as per terms of contract between assessee company and BGFCL, BGFCL was liable to make payment to the assessee company on net of tax basis and TDS liability in respect of payment to assessee was to be grossed up; that at the time of filing the return of income, in absence of TDS certificate from BGFCL, the assessee company did not get the tax deducted and deposited with Bangladesh Government treasury by BGFCL and also not accounted for in the books of account on the basis of principle of prudence as per relevant accounting in India; that now in view of TDS certificate received from BGFCL, assessee company is entitled for the claim and such TDS withheld by BGFCL in respect of the income earned from Bangladesh; that in terms of the Article 25 of Indo- Bangladesh Double Taxation Avoidance Agreement read with section 90 (2) tax paid by Indian Resident in Bangladesh in respect 39 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 of income earned therefrom, which is also taxpayer in India is allowable as agreed against tax liability in India.
43. However, on the other hand, ld. DR for the Revenue opposed the present application filed by the assessee company for raising additional grounds on the grounds inter alia that this application is not maintainable as the assessee being not aggrieved with the order passed by the ld. CIT (A) in any manner as neither it filed any appeal nor any cross objection; that application under Rule 11 of Income-tax (Appellate Tribunal) Rules, 1963 is only maintainable if filed in appeal or cross objections by the assessee; that this is a new issue which was neither raised before AO nor before the ld. CIT (A) and as such cannot be entertained at this stage; that this new claim u/s 80IB is also not a pure question of law as it requires elaborate enquiry to verify the claim made by the assessee; that when the assessee has claimed to be a mineral based company in terms of Notification No.SO 627 (E) (supra), the AO would require to conduct complete enquiry if the assessee company is into mineral based industry. Ld. DR filed written submissions running into 12 pages which have been made part of the judicial record. 40 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
44. Ld. AR for the assessee to support the maintainability of its application contended that since the grounds raised by way of additional evidence are purely legal ground emanated from the facts already on record, the assessee company is within its right to claim the deductions u/s 80IB and it is also entitled to claim the credit of tax withheld by its customer in Bangladesh and relied upon the decision rendered by Hon'ble High Court of Gauhati cited as Assam Co. (India) Ltd. vs. CIT (2002) 256 ITR 423 (Gauhati).
45. Identical issue in the identical set of facts and circumstances of the case had come up before Hon'ble High Court of Gauhati in case of Assam Co. (India) Ltd. (supra), "wherein assessee had raised additional ground in the appeal filed by the Revenue without filing any appeal or cross objection before the Tribunal and the Tribunal had declined to entertain additional grounds raised by the assessee on the ground that since the assessee had not filed any appeal or cross objections the same are not maintainable."
46. However, Hon'ble High Court, after examining the provisions contained under the Act as well as Income-tax (Appellate Tribunal) Rules and after discussing the decision rendered by Hon'ble Apex Court cited as CIT vs. Assam Frontier 41 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Tea Ltd. (2002) 253 ITR 549 (SC), CIT vs. Mahalakshmi Textile Mills Ltd. (1967) 66 ITR 710 (SC) and National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC), on the issue of power of Tribunal to entertain additional grounds held that, "the Tribunal is empowered to entertain a ground beyond those incorporated in memorandum of appeal though the party urging the said ground has neither appealed before it nor has filed a cross objection in the appeal filed by the other party provided relevant facts on which such grounds are to be founded are available on record," by returning following findings:-
"30. As already noticed by us, the facts and the sequence of events narrated in the orders of the Commissioner of Income-tax (Appeals) and the Tribunal and those set out in the statement of the case are not in dispute. The core question is whether the Tribunal ought to have- considered the plea of the applicant- company that it was entitled to the benefit of weighted deduction under Section 35B(1)(b)(iv) of the Act in the absence of any appeal or any cross-objection filed by it against the order of the Commissioner of Income-tax (Appeals). The applicant-company in the reassessment proceedings had claimed the benefit of weighted deduction in respect of warehouse charges on the basis of Section 35B(1)(b)(ix) read with Rule 6AA. The point remains that the head of expenditure on account of which the weighted deduction is claimed by the applicant-company is "warehouse charges". The apex court in CIT v. Assam Frontier Tea Ltd. [2002] 253 ITR 549, as referred to above, had held that in a case where the warehouse in the foreign country is run by an agent of an assessee but the expenditure incurred thereon is reimbursed by the assessee to the said agent, it amounted to maintenance of the warehouse by the assessee for the promotion of sales of its tea outside India and that therefore the assessee was entitled to the benefit of the allowances under Section 35B(1)(b)(iv) of the Act.42 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 We have already observed that in a given fact situation an assessee may be entitled to the benefit of weighted deduction under more than one Sub-clause of Section 35B(1)(b) of the Act. It would, however, depend on the primary evidentiary facts available in a given case. It therefore follows that only because the applicant-company had objected to the withdrawal of the benefit of weighted deduction by relying on Sub-clause (ix) of Section 35B(1)(b) of the Act it could not be decisively held, without reference to the entire gamut of facts on record, that the applicant-company under all circumstances could be precluded from raising a plea that it was entitled to the benefit of such deduction under Section 35B(1)(b)(iv) of the Act as well. Whether or not the applicant-company can be permitted to raise that plea only on the ground that it had not preferred any appeal or cross-objection against the order of the Commissioner of Income-tax (Appeals) is the question which now engages the attention of this court. It need not be over-emphasised that the Appellate Tribunal Rules framed by the Tribunal in exercise of its power under Section 255(5) of the Act are wholly for the purpose of regulating its own procedure and the procedure of the Benches of the Tribunal. The rules therefore embody the principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions. The scheme of the Rules read as a whole does not suggest that the Rules in any way have the effect of curtailing or circumscribing the power, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. We have not been able to read any prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned in the memorandum of appeal filed by a party, whether the assessee or the Department, in the absence of an appeal or cross-objection by the other side projecting the new ground. It is a settled principle of law that procedural law is the hand maid of justice and has to be so interpreted to advance the cause of justice and not to thwart it. Considering the language used in Section 254(1) of the Act conferring powers on the Tribunal which is in the widest possible terms, we feel guided in this regard by the emphatic observations of the apex court contained in its decision of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. We have also taken note of the observations of the apex court to the effect that the purpose of the assessment proceeding before the taxing authority is to assess correctly the tax liability of an assessee in accordance with law. We consider it to be a solemn duty of the taxing authorities to correctly assess the tax liability of an assessee by duly following the relevant provision of law and therefore do not 43 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 countenance an inflexible and mechanical adherence to the law of procedure and in the process deny an assessee a benefit to which it is otherwise entitled in law. In our considered opinion, that could not have been the purpose of framing the Appellate Tribunal Rules. There cannot be any estoppel against law. In this regard, we are reinforced by the observations of the apex court in Sangram Singh v. Election Tribunal, AIR 1955 SC 425, with reference to the Code of Civil Procedure as under (page 429) :
"Now a code of procedure must be regarded as such. It is 'procedure', something designed to facilitate justice and further its ends : not a penal enactment for punishment and penalties ; not a thing designed to trip people up. Too technical a construction of sections that leaves no room for reasonable elasticity of interpretation should therefore be guarded against (provided always that justice is done to 'both' sides) lest the very means designed for the furtherance of justice be used to frustrate it."
31. We are therefore not in favour of granting such a primacy to the rules of procedure so as to wipe off a substantial right otherwise available to the assessee in law. We find this view of ours also reinforced by the language of Rule 11 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby had sufficient opportunity of being heard on that ground. In taking this view, we are conscious about the observations of the Madras High Court and the Calcutta High Court made in the decisions relied upon by learned counsel for the Revenue but we are, in the facts and circumstances of the case, persuaded to accept the observations of the apex court made in this regard in the case of National Thermal Power Co. Ltd. [1998] 229 ITR 383. We are therefore of the view that it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party. We must however hasten to add that in order to enable either the assessee or the Department to urge a ground in the appeal filed by the other side, the relevant facts on which such ground is to be founded should be available on record. In the absence of such primary facts, in our opinion, neither the assessee nor the Department can be permitted to urge any ground other than those which are incorporated in the memorandum of appeal filed by the other party. In other words, 44 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 if the assessee or the Department, without filing any appeal or a cross-objection seeks to urge a ground other than the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary facts in support of new ground must be available on record.
32. For the view that we have taken as above, we hold that the Tribunal erred in not considering the contention of the assessee- applicant company that the warehouse charges was covered by Sub-clause (iv) of Section 35B(1)(b) of the Act only on the ground that the applicant-company had not filed any appeal or cross-objection. We therefore answer the question referred, in the affirmative and remand the proceeding to the Tribunal for consideration of the said contention of the applicant-assessee on merits. We however make it absolutely clear that in case the basic facts relating to the claim of the applicant-company for weighted deduction under Section 35B(1)(b)(iv) are not available on record, the applicant-company would not be permitted to urge that ground and the Tribunal would pass appropriate orders as it would deem fit in accordance with law."
47. Following the decision rendered in the case of Assam Co. (India) Ltd. (supra), we are of the considered view that the application filed by the assessee in the appeal filed by the Revenue is maintainable, however, subject to the condition that the relevant facts on which additional grounds are raised are available on record. When we examine the assessment order as well as order passed by the ld. CIT (A), it is a matter of record that the assessee has claimed deduction u/s 80IB @ 100% to the tune of Rs.5,59,59,323/- and AO as well as ld. CIT (A) after duly discussing the facts and case laws reached the conclusion that when assessee company is not proved to be in manufacture or 45 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 production of article or thing but is in fact providing services to the mineral oil concern, it is not entitled for deduction u/s 80IB. So, we are of the considered view that facts qua additional grounds no.1 & 2 sought to be raised by the assessee are duly pleaded and discussed by the AO as well as ld. CIT (A). However, so far as additional ground no.3 raised by the assessee so as to claim the credit for tax withheld by the customer in Bangladesh amounting to Rs.40,96,030/- is concerned, there is not a whisper of these facts before AO as well as ld. CIT (A) nor any such claim has been made by the assessee in the return of income, so we are of the considered view that in these circumstances, additional ground no.3 is not allowable.
48. Keeping in view the facts inter alia that the assessee company has been held to be mineral based industry as per our findings returned in the preceding paras, it is prima facie entitled for deduction u/s 80IB; that assessee by raising additional grounds sought deduction under second proviso to section 80IB(4) @ 100% profit of the undertaking set up at Duliajan in terms of Notification No. SO 627 (E) dated 04.08.1999; that applying the ratio of judgment of Hon'ble Apex Court in the case of National Thermal 46 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Power Company (supra), the taxmen are required to correctly assess the tax liability of the assessee which includes admissibility of the deductions if any; that rule or procedure are hand-maid of justice and merely on the ground that the assessee has omitted to file the appeal or cross objection, the additional grounds raised in the appeal filed by the Revenue are maintainable because ultimately the net result of the assessment proceedings should be correct assessment of the tax liability of the assessee company, the application filed by the assessee company for additional grounds is partly allowed qua grounds no.1 & 2, whereas present application qua ground no.3 is dismissed.
49. In view of our findings returned on the additional grounds raised by the assessee company in AYs 2004-05 and 2007-08 decided in preceding paras, additional grounds no.1 & 2 raised in AY 2006-07 by the assessee company being identical in nature are also required to be decided by the AO by examining the plant and machinery viz. the wireline logging unit set up at Duliajan in terms of Notification No.SO 627 (E) dated 04.08.1999 read with second proviso to sub-section (4) of section 80IB and examine the eligibility of the assessee for deduction @ 100%. So, this issue is 47 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 remitted back to the AO to decide afresh after providing an opportunity of being heard to the assessee. ITA No.3708/Del./2012 (AY : 2006-07) & ITA No.5511/Del./2012 (AY : 2007-08) CHALLENGING THE ORDERS PASSED BY THE LD. CIT (A) U/S 263 OF THE ACT
50. Applicant, M/s. HLS Asia Limited (hereinafter referred to as the 'assessee'), by moving applications supported with affidavits in both the aforesaid appeals sought to condone the delay of 199 days and 303 days for filing appeals on the grounds inter alia that in both the AYs 2006-07 & 2007-08, assessments were assessed u/s 143 (3) of the Act but the ld. CIT initiated proceedings u/s 263 of the Act on the ground that the assessment orders dated 29.12.2009 & 11.12.2009 for AYs 2006-07 & 2007-08 respectively are erroneous and prejudicial to the interest of the Revenue and consequently issued a notice to the assessee vide letter dated 04.02.2001 & 24.08.2011 in AYs 2006-07 & 2007-08 respectively; that consequent to the proceedings initiated u/s 263, ld. CIT set aside the assessment orders with a direction to the AO to reframe the assessment after following specific directions contained in the order; that assessee has filed the appeals on 48 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 16.07.2012 and 29.12.2012 challenging the orders passed by the ld. CIT with a delay of 199 days and 303 days respectively; that both these cases were being handled by M/s. Samit Grover and Co., a firm of Chartered Accountants, who has received the impugned orders passed by the ld. CIT directly from the ld. CIT office but they failed to intimate the impugned orders passed by the ld. CIT u/s 263 of the Act to the assessee entailing delay in filing the appeals; that subsequently assessee engaged new consultant who obtained the necessary documents from M/s. Samit Grover & Co. after repeated requests on 03.07.2012 & 04.09.2012 and thereafter filed the appeals on 16.07.2012 & 29.102.2012 for AYs 2006-07 & 2007-08 respectively; that delay in filing the aforesaid appeals is unavoidable which was neither willful nor deliberate.
51. Ld. DR for the Revenue opposed the applications filed by the assessee for condonation of delay on the ground that when the proceedings u/s 263 of the Act were being continuously pursued by the consultant engaged by the assessee, it is beyond comprehension as to how they have not intimated the results of the case to the assessee and that no disciplinary proceedings sought to have been 49 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 initiated by the assessee against its consultant for professional misconduct and prayed for dismissal of the applications.
52. Keeping in view the facts inter alia that the proceedings u/s 263 of the Act have been pursued by M/s. Samit Grover and Co. and now entire proceedings before the Tribunal are being pursued by M/s. Vaish Associates, Advocates and the applications are supported with affidavits of the Managing Director of the assessee company stating on solemn affirmation that the delay in filing the appeals is entirely attributed to its consultant, M/s. Samit Grover & Co.; that in order to impart substantial justice to the parties and to stop multiplicity of the proceedings the issue in controversy must be decided once for all; that exercising a liberal approach by the Bench in order to impart the substantial justice to the assessee, we are of the considered view that delay of 199 days and 303 days in AYs 2006-07 & 2007-08 respectively is required to be condoned, hence condoned which would otherwise not cause any prejudice to the Respondent. So, applications moved by the assessee company for AYs 2006-07 & 2007-08 respectively for condonation of delay are allowed, and both the appeals are ordered to be taken up for hearing on merits.
50 ITA No.1712/Del./2010
ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014
53. Briefly stated, the assessee is into the business of wireline, logging, perforation and other related services to oil and gas services engaged in exploration and/or production of oil and gas. For AYs 2006-07 & 2007-08, assessments were framed at the total income of Rs.25,20,22,288/- and Rs.34,96,66,530/- respectively u/s 143(3) of the Act. Ld. CIT treating the orders passed by the AO u/s 143(3) of the Act erroneous and prejudicial to the interest of the Revenue u/s 263 of the Act after considering the contentions made by the assessee company, directed the AO to disallow the additional depreciation of Rs.3,46,41,428/-; verify that rate of depreciation at plant & machinery is to be allowed at 15% and not at 25% and verify as to whether provisions of section 33(1)(ii) are applicable in respect of commission of Rs.33,51,000/- paid to Managing Director and that the assessee company is not engaged in manufacture or production of an article of thing and as such, is not entitled for deduction u/s 80IB of the Act as conditions laid down thereunder are not fulfilled.
54. Ld. AR for the assessee challenging the impugned orders passed by the ld. CIT contended inter alia that the assessment orders passed by the AO are not erroneous; that the assessment 51 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 orders passed by the AO are not prejudicial to the interest of the Revenue; and relied upon the decision rendered by Hon'ble Delhi High Court in assessee's own case for AYs 1989-90 to 2003-04 (supra) which has since attained finality as the SLP field by the Revenue against the said order has also been dismissed by the Hon'ble Apex Court.
55. As against this, ld. DR for the Revenue in order to repel the arguments addressed by the ld. AR for the assessee relied upon the Explanation 2 to section 263 of the Act introduced by the Finance Act, 2015 w.e.f. 01.06.2015 and also relied upon the decision rendered by Hon'ble Supreme Court in cases of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal) No.2396/2017), Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), CIT vs. Amitabh Bachchan 384 ITR 200, Rajamandir Estates (P.) Ltd. vs. PCTI (2017) 77 taxmann.com 285 (SC), Shree Manjunathesware Packing Products & Camphor Works vs. CIT (1998) 231 ITR 53 (SC), Hon'ble Calcutta High Court in case of Rajmandir Estates (P.) Ltd. vs. PCIT Z(2016) 386 ITR 162 (Calcutta) and coordinate Bench of the Tribunal in case of PTC Impex (India) Pvt. Ltd. vs. CIT in ITA No.2860/Del/2010 dated 52 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 03.04.2018 and also relied on other decisions by filing written submissions which have been made part of the judicial record.
56. Undisputedly, in order to invoke the jurisdiction of section 263 of the Act by the ld. CIT, the assessment orders passed by the AO must be erroneous and prejudicial to the interest of Revenue. We will discuss both the necessary ingredients require to invoke the jurisdiction u/s 263 of the Act which are discussed one by one hereunder.
57. So far as question of assessment orders being erroneous having been held by the ld. CIT is concerned, in assessee's own case for AYs 1989-90 to 2003-04, the assessee company has been held to be engaged in manufacture or production of an article or thing. This issue has been dealt with by the Bench in detail while returning findings in preceding paras 11 to 15. So, now this issue has since been attained finality as SLP filed by the Revenue before the Hon'ble Supreme Court has already been dismissed. When we examine the impugned order passed by the ld. CIT in AYs 2006-07 & 2007-08 by following AY 2004-05, ld. CIT held the assessment orders erroneous only on the ground that, "assessee company is not engaged in manufacture or production of an article 53 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 or thing". So, now this issue has been settled once for all so far as functional profile of the assessee company is concerned.
58. When the assessee company has been held to be engaged in the manufacture or production of an article or thing by the order passed by the Hon'ble Delhi High Court affirmed by Hon'ble Supreme Court, the assessee is entitled for additional depreciation u/s 32(1)(iia) of the Act and as such, the AO has rightly allowed the additional depreciation to the assessee, hence assessment orders passed by the AO are not erroneous sufficient to exercise revisionary jurisdiction u/s 263 of the Act.
59. So far as question of assessment order being prejudicial to the interest of the Revenue as has been held by the ld. CIT is concerned, allowing additional depreciation which would otherwise have been available as normal depreciation does not lead to any prejudice to the Revenue as the assessee would only be entitled to 100% of the cost of the asset by way of additional depreciation plus normal depreciation or in the alternative as normal depreciation over the years.
60. Ld. DR for the Revenue supported the order passed by the ld. CIT on the only ground that the assessee is not engaged in the 54 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 manufacture of any article or thing, but this issue is no longer res integra as assessee in its own case held to be engaged in manufacture or production of an article or thing. Moreover, since the ld. CIT only modified the assessment directing the AO to withdraw the deduction for additional depreciation allowed u/s 32(1)(iia) but has not set aside the assessment to be framed afresh, Explanation 2 to section 263 of the Act relied upon by the ld. DR for the Revenue is not attracted. So, we are of the considered view that arguments addressed by the ld. DR and his reliance on umpteen number of judgments is not applicable to the facts and circumstances of the case. Consequently, impugned orders passed by the ld. CIT u/s 263 of the Act both dated 31.10.2011 for AYs 2006-07 & 2007-08 are not sustainable in the eyes of law, hence ordered to be quashed.
61. Resultantly, assessee's appeals being ITA No.1712/Del/2010 for AY 2004-05 is partly allowed and ITA Nos.4144/Del/2014, 2208/Del/2014, 3708/Del/2012 & 5511/Del/2012 for AYs 2007-08, 2008-09, 2006-07 & 2007-08 respectively are allowed whereas Revenue's appeals being ITA No.323/Del/2012 for AY 2005-06 is partly allowed and ITA 55 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Nos.5855/Del/2011 & 2241/Del/2014 for AYs 2006-07 & 2008-09 are dismissed.
Order pronounced in open court on this 24th day of February, 2020.
Sd/- sd/-
(N.K. BILLAIYA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 24th day of February, 2020
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-6, New Delhi
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.