2011 (5) TMI 587 - AT - Income Tax

Deduction u/s 80-IA/80-IB - to be complied with in the initial year or in all the assessment years in which the assessee is eligible for deduction - Held that - The facts on record clearly prove that the assessee has not taken over the complete units but has purchased most of the assets of those units and the units got merged with the unit of the assessee - The expansion or extension of a existing unit will not disentitle the assessee to claim deduction under section 80-IA/80-IB so that the profit increased to the expansion or extension of the industrial undertaking will not be eligible for deduction under section 80-IA/80-IB - it is a case of substantial expansion and extension of the industrial unit not of running three separate units which has complied with the conditions as stipulated under section 80-IA /80-IB eligible for deduction under those provisions when the assessee company was form - Decided in favor of the assessee Personal expenditure - disallowance - mobile phone expenses telephone and car expenses assessee - Held that - The directors and the employees of the company as per the terms and condition of their appointment are entitled to use the case for personal purpose as well as to avail facilities of mobile/phone calls in view of decision in the case of Sayaji Iron And Engg. Co. Versus CIT 2001 (7) TMI 70 - GUJARAT HIGH COURT - thus as in the interest of justice and fair play to both the parties set aside this issue and restore this issue to the file of Assessing Officer with the direction that the Assessing Officer shall re-decide this issue after looking into the terms and conditions of the employees as well as the directors - in favour of assessee by way of remand.

Issues Involved:
1. Disallowance of deduction under section 80-IA/80-IB.
2. Disallowance of mobile, telephone, and car expenses.
3. Addition on account of closing balance of MODVAT.
4. Charging of interest under sections 234A, 234B, 234C, and 234D.
5. Validity of the impugned order passed by the Assessing Officer.

Detailed Analysis:

1. Disallowance of Deduction under Section 80-IA/80-IB:
The primary issue was whether the assessee was entitled to deduction under section 80-IA/80-IB after taking over the business of two firms, M/s. Aarkay Plumbing and Fixtures and M/s. Faucet Industries. The Assessing Officer disallowed the deduction, arguing that the firms had exhausted their ten-year period for claiming the deduction. The CIT(A) upheld this view, noting that the firms and the assessee were part of the same family and operated from the same premises, and the takeover was merely on paper. The Tribunal, however, held that the assessee was entitled to the deduction as the conditions for claiming it were satisfied in the initial year, and the takeover was a case of substantial expansion rather than forming a new unit. The Tribunal directed the Assessing Officer to allow the deduction as claimed by the assessee.

2. Disallowance of Mobile, Telephone, and Car Expenses:
The Assessing Officer disallowed 10% of these expenses, citing personal use by directors and employees and the assessee's failure to produce log books. The CIT(A) upheld this disallowance. The Tribunal, however, noted that if the terms and conditions of employment allowed personal use, the expenses should not be disallowed. The Tribunal remanded the issue back to the Assessing Officer to verify the terms of employment and decide accordingly. If the assessee failed to provide the required details, the Assessing Officer was directed to disallow 10% of the expenses.

3. Addition on Account of Closing Balance of MODVAT:
This issue was not pressed by the assessee and was dismissed by the Tribunal.

4. Charging of Interest under Sections 234A, 234B, 234C, and 234D:
These grounds were consequential in nature. The Tribunal directed the Assessing Officer to recompute the interest after giving effect to the order.

5. Validity of the Impugned Order Passed by the Assessing Officer:
The assessee argued that the order passed by the Assessing Officer was illegal and void ab initio. However, this ground was not specifically addressed in the Tribunal's detailed analysis and was dismissed as not argued.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the deduction under section 80-IA/80-IB and remanded the issue of disallowance of mobile, telephone, and car expenses back to the Assessing Officer for reconsideration. The addition on account of the closing balance of MODVAT was dismissed as not pressed, and the grounds related to the charging of interest were directed to be recomputed. The appeals were partly allowed for statistical purposes.

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