2020 (10) TMI 1165 - HC - Income Tax

Entitled for deduction u/s 10B - whether the assessee in the instant case has complied with the requirements as laid down in Section 10B(2) ? - Whether assessee is formed by splitting or reconstructing of business - tribunal dismissing the appeal preferred by the revenue by holding that the assessee is entitled for deduction under Section 10-B - HELD THAT - Question whether or not assessee has complied with the conditions mentioned in Section 10B(2) of the Act in order to enable him to claim deduction under Section 10B of the Act is essentially a question of fact. From close scrutiny of the orders passed by the Commissioner of Income Tax (Appeals) as well as the tribunal it is evident that the aforesaid findings are based on meticulous appreciation of evidence on record. The tribunal has affirmed the findings of fact recorded by the tribunal on the basis of meticulous appreciation of evidence on record which by no stretch of imagination can be said to be perverse. Even before the tribunal the revenue was not able to rebut any of the findings recorded by CIT (Appeals) by adducing any evidence to the contrary. The concurrent findings of fact do not suffer from any perversity warranting interference of this court in exercise of powers under Section 260A. So far as the submission made on behalf of the revenue that the assessee has failed to comply with the condition viz. that it was not formed by transfer of a new business or machinery or plant previously used for any purpose suffice it to say that Supreme Court in Bajaj Tempo Limited 1992 (4) TMI 4 - SUPREME COURT while interpreting Section 15C of Income Tax Act 1922 which corresponds to Section 80J of the Act dealt with the expression not formed and has held that the aforesaid expression means that the undertaking should not be in continuation of old unit but emergence of a new unit. There are concurrent findings of fact that the assessee is a new export oriented unit therefore the aforesaid submission does not deserve acceptance. Similarly the contention that the submission made by the revenue that its contention that assessee had adopted colorable devise for tax evasion has not been dealt with also needs to be stated to be rejected of the order passed by the Commissioner of Income Tax (Appeals) the Commissioner of Income Tax (Appeals) on the basis of material available on record has negated the aforesaid contention raised on behalf of the revenue and the order passed by the Commissioner of Income Tax (Appeals) has been upheld by the tribunal. Thus the first two substantial questions of law are answered against the revenue and in favour of the assessee. Deemed dividend - Additional substantial question of law - Reserve and surplus show as accumulated profit - HELD THAT - tribunal held that the Commissioner of Income Tax (Appeals) rightly directed the Assessing Officer to verify the claim of the assessee in this regard. The tribunal has taken into account the decision of the Supreme Court in Goetz India Ltd. supra and has held that the aforesaid decision does not restrict the powers of the higher authorities to consider the revised claim and the tribunal and has rightly placed reliance on decision of the Supreme Court in NATIONAL THERMAL POWER CORPORATION VS. CIT 1996 (12) TMI 7 - SUPREME COURT . Thus on the facts of the case and in view of the finding recorded by the tribunal in para 12 of the order the additional substantial question of law framed does not arise for consideration. The same is answered accordingly. Commissioner of Income Tax (Appeals) has recorded a finding that there are no accumulated profits available in the books of accounts of FFIPL. The aforesaid finding has been affirmed by the tribunal and it has been held that admittedly the reserve and surplus amount does not show any accumulated profit but the amount shown is loss as well as premium on securities. Thus the aforesaid issue is also recorded by concurrent findings of fact which cannot be termed as perverse. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for deduction under Section 10B of the Income Tax Act.
2. The tribunal's affirmation of the first appellate authority's findings without its own findings.
3. Consideration of enhanced deduction claim without revised return.
4. Inclusion of security premium account in accumulated profit under Section 2(22)(e) of the IT Act.

Detailed Analysis:

1. Eligibility for Deduction under Section 10B:
The central issue was whether the assessee was entitled to a deduction under Section 10B of the Income Tax Act. The revenue argued that the assessee did not fulfill the conditions for this deduction, asserting that it was formed by reconstructing an existing business (FFIPL) and using old machinery. The Assessing Officer disallowed the deduction, citing that the assessee took over FFIPL's premises and machinery and was dependent on FFIPL’s infrastructure and customers.

However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) found otherwise. The CIT(A) meticulously analyzed the evidence, concluding that the assessee was a separate entity, operational since FY 2005-06, and had not transferred old machinery from FFIPL during the relevant assessment years. The tribunal upheld these findings, noting that the assessee had invested significantly in new plant and machinery and had its own customers and employees. The court affirmed these concurrent findings, stating they were based on substantial evidence and not perverse.

2. Tribunal's Affirmation Without Own Findings:
The revenue contended that the tribunal's order was perverse as it merely affirmed the CIT(A)’s findings without independent analysis. The tribunal, however, provided detailed reasons for its agreement with the CIT(A), emphasizing that the revenue failed to rebut the CIT(A)’s findings with contrary evidence. The court found no merit in the revenue's argument, noting that the tribunal's order was based on a thorough review of the evidence and was not perverse.

3. Consideration of Enhanced Deduction Claim:
In I.T.A.No.571/2016, the issue was whether the tribunal was correct in directing the Assessing Officer to consider the assessee's enhanced deduction claim without a revised return. The tribunal referenced the Supreme Court's decision in Goetze (India) Ltd., which allows higher authorities to consider new claims made during assessment proceedings. The court upheld the tribunal's decision, noting that the tribunal correctly applied the law and directed the Assessing Officer to verify the revised claim.

4. Inclusion of Security Premium Account in Accumulated Profit:
In I.T.A.No.580/2016, the question was whether the security premium account should be considered part of accumulated profit under Section 2(22)(e) of the IT Act. The CIT(A) and the tribunal found that the assessee's reserves and surplus did not include accumulated profits but rather reflected losses and security premiums. The court upheld these findings, noting they were based on substantial evidence and were not perverse.

Conclusion:
The court dismissed the appeals, affirming that the assessee was entitled to deductions under Section 10B, the tribunal's findings were not perverse, the enhanced deduction claim was rightly considered, and the security premium account was correctly excluded from accumulated profits. The concurrent findings of the lower authorities were based on meticulous evidence and upheld by the court.