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2012 (7) TMI 188 - AT - Income TaxDeduction u/s 80IB - dis-allowance on ground that Unit-2 & Unit-3 were not separate and independent industrial undertakings and it was the case of extension of business of Unit-1 for which deduction u/s 80IB is not available being eleventh year of operation u/s 80IB - assessee engaged in the business of manufacturing of Pesticides and Agro Products at its three units which are based at Jammu - Held that - Expansion of an industrial undertaking is not a bar for claim of deduction u/s 80IB. The same product or same location, common procurement, manufacturing and common employees cannot be the basis to hold that the assessee was not an industrial undertaking viable and separate undertaking. What is important is that there must be a set up of independent and separate viable undertaking. In this regard, the assessee has placed on record that it has made separate investment in the plant & machinery account and the building. Provisions of Section 80IB do not provide in any way separate registration or maintenance of separate records for claiming deduction. The requirement u/s 80IB(1), 80IB(2) and 80IB(4) is that profit must derive from an industrial undertaking. Therefore, it cannot be held that undertakings are not eligible to claim deduction u/s 80IB. Refund of excise duty - Revenue contended ineligibility for deduction u/s 80IB on ground that same being income not derived from the industrial undertaking but the income attributable to the receipt of excise duty refund from the industrial undertaking - Held that - Issue stands covered by the decision in the case of Shree Balaji Allows v. CIT 2011 (1) TMI 394 (HC) wherein it has been held that the Excise Duty Refund is to be treated as capital receipt and not liable to be taxed. Depreciation - dis-allowance on ground that construction material used comes within preview of building and no P&M - Held that - Once the said expenditure is part of the plant and machinery, which is not under dispute, such expenditure necessarily has to be part of plant and machinery and depreciation as claimed has to be allowed. Dis-allowance u/s 43B - employees contribution to Provident Fund - payment before due date of filing return - omission deletion of the second proviso to Section 43-B - Held that - In view of decision in case of CIT v. Alom Extrusions Ltd. 2009 (11) TMI 27 (SC) , the entire employees contributions to provident fund paid during the year, which is under dispute, has to be allowed. Interest u/s 234B - assessee contended non-levy of interest as per Notification No.275/12/2007 dated 26.04.07 providing waiver of interest u/s 234B upto the AY 2007-08 in respect of the assessee residing in Kashmir and having their principal place of business in the Kashmir Valley - Held that - Such interest u/s 234B in the present case cannot be levied. Set off of a loss of 100% EOU, against the income arising from other units under the same head of profits and gains of business - Held that - In view of decision in case of CIT v. Galaxy Surfactants Ltd. reported in 2012 (3) TMI 101 (HC) it is evident that the assessee is entitled to set off of loss 100% EOU with the profits of other undertaking - Decided in favor of assessee.
Issues Involved:
1. Disallowance of deduction under section 80IB for Unit-2 and Unit-3. 2. Disallowance of excise duty refund as capital receipt. 3. Disallowance of deduction under section 80IB(11A) for Controlled Atmospheric Cold Storage Plant. 4. Disallowance of Directors' foreign travel expenses. 5. Disallowance of depreciation on construction material. 6. Disallowance of employees' contribution to Provident Fund. 7. Levy of interest under section 234B. 8. Additional ground for set-off of loss from 100% Export Oriented Undertaking. Detailed Analysis: 1. Disallowance of Deduction Under Section 80IB for Unit-2 and Unit-3: The assessee claimed deductions under section 80IB for Unit-2 and Unit-3, which were disallowed by the AO on the grounds that these units were not separate and independent undertakings but extensions of Unit-1. The AO based this on common registration, records, and facilities shared among the units. The CIT(A) upheld this disallowance. Tribunal's Findings: - The Tribunal found that the assessee had made substantial fresh investments in plant and machinery for both units. - The Tribunal noted that the assessee maintained separate production records and financial accounts for each unit. - The Tribunal held that there is no statutory requirement under section 80IB for separate registration or maintenance of separate records. - The Tribunal relied on various judicial precedents, including the Supreme Court's decision in Textile Machinery Corporation Ltd. v. CIT, to conclude that the units were independent and viable undertakings. - The Tribunal allowed the deduction under section 80IB for both Unit-2 and Unit-3. 2. Disallowance of Excise Duty Refund as Capital Receipt: The AO disallowed the excise duty refund as a capital receipt, treating it as income attributable to the industrial undertaking. Tribunal's Findings: - The Tribunal relied on the jurisdictional High Court's decision in Shree Balaji Alloys v. CIT, which held that excise duty refund is a capital receipt and not liable to be taxed. - The Tribunal allowed the assessee's claim for the excise duty refund as a capital receipt. 3. Disallowance of Deduction Under Section 80IB(11A) for Controlled Atmospheric Cold Storage Plant: The AO disallowed the deduction under section 80IB(11A) for the Controlled Atmospheric Cold Storage Plant, citing that the assessee was not involved in the processing of fruits, which is a requirement under the section. Tribunal's Findings: - The Tribunal observed that the AO and CIT(A) did not consider the technical aspects of the CA stores. - The Tribunal set aside the issue to the AO for re-adjudication, considering the technical material and provisions of law. 4. Disallowance of Directors' Foreign Travel Expenses: The AO disallowed Rs. 8,88,046/- on account of Directors' foreign travel expenses, citing lack of evidence to substantiate the business purpose. Tribunal's Findings: - The Tribunal noted that the assessee failed to explain specific expenditure incurred by Mrs. Ruhi Tariq and Mr. M.S.T. - The Tribunal allowed 35% of the remaining expenses, considering the volume and genuineness of the expenditure. 5. Disallowance of Depreciation on Construction Material: The AO reclassified expenses on construction material as part of the building and allowed depreciation at a lower rate. Tribunal's Findings: - The Tribunal found that the construction material was utilized for mezzanine floors, which are part of the plant and machinery. - The Tribunal directed the AO to allow depreciation as claimed by the assessee. 6. Disallowance of Employees' Contribution to Provident Fund: The AO disallowed Rs. 42,123/- representing employees' contribution to Provident Fund. Tribunal's Findings: - The Tribunal relied on the Supreme Court's decision in CIT v. Alom Extrusions Ltd., which allows such contributions if paid during the year. - The Tribunal directed the AO to allow the claim. 7. Levy of Interest Under Section 234B: The AO levied interest under section 234B. Tribunal's Findings: - The Tribunal referred to CBDT Notification No. 275/12/2007, which waives interest under section 234B for assessees in Kashmir. - The Tribunal directed the AO to delete the interest. 8. Additional Ground for Set-off of Loss from 100% Export Oriented Undertaking: The assessee raised an additional ground for setting off the loss of Rs. 5,33,53,582/- from a 100% Export Oriented Undertaking. Tribunal's Findings: - The Tribunal admitted the additional ground and relied on the Bombay High Court's decision in CIT v. Galaxy Surfactants Ltd., which allows set-off of losses. - The Tribunal remanded the issue to the AO for verification and decision based on the books of account. Conclusion: The Tribunal allowed the appeal of the assessee on most grounds, directing the AO to allow deductions and set-offs as claimed, while remanding some issues for further verification. The Tribunal emphasized the importance of maintaining separate records and fulfilling statutory requirements for claiming deductions under section 80IB.
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