9911796707
TMI Blog2012 (10) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee vide cross objection has challenged the reopening of the cases under section 147/148 of the Income Tax Act, 1961 and also against upholding of disallowance of Rs.14,06,505/- on account of maintenance expenses during assessment year 2003-04. 3. The brief facts of the case as stated by assessee and reproduced by the Assessing Officer are that the assessee is a company which was incorporated in the year 1994-95 and was operating from 15, DSIDC, Okhla Industrial Area, New Delhi. Simultaneously, the assessee company was in the process of setting up of a new industrial undertaking at Plot No.27, Electronic City, Sector-18, Gurgaon. The said order further states after purchasing land and after construction of building, the new industrial undertaking got itself registered with Software Technology Park of India in March, 2000 and also got itself registered under P.F. Act vide registration No. HRD/FRD/10620 for the employees employed for the new undertaking. The assessee company also obtained registration under ESI Act vide registration No.13/2754/62 for the employees employed for the new undertaking. The said new industrial undertaking also obtained new registration under Shops a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration w.e.f. assessment year 2001-02. The Assessing Officer also relied upon the fact that the assessee was preparing only single P&L Account and Balance Sheet and entire profits of the business were claimed to be eligible for deduction u/s 80HHE prior to insertion of section 10B of the Act. He further held that even if it was assumed that new undertaking had come into being w.e.f. assessment year 2001-02 for availing deduction u/s 10B it should fulfill the conditions as laid down in provisions of section 10B which require that the new undertaking should not be formed by transferring to new business, machinery and plant already in existence and value of transferred assets should not be more than 20% of total value of plant & machinery of new undertaking. The Assessing Officer further held that in the case of the assessee computers were its plant therefore on the basis of written down value as on 31.3.2000 and on the basis of additions made during assessment year 2001-02 the machinery transferred from old business worked out to be 51.78% which was above the 20% ceiling in the clause. 7. Therefore, in view of the above the Assessing Officer held that the assessee was not eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef that the income had escaped assessment. 3. That from the inspection of record file, it was seen that notice u/s 154 was being issued but the same was abandoned without any conclusion. In this respect, it was submitted that proceedings u/s 154 are continuous of assessment proceedings and where assessment proceedings were pending re-assessment proceedings u/s 148 cannot be initiated. 12. Reliance was placed on the following judgments:- 1. Rajesh Leasing & Finance Ltd. v. ACIT (1996) wherein it was held by Hon'ble Gujarat High Court that where the notice u/s 148 was issued on the basis of audit report and CIT(A)'s approval was obtained without there being satisfaction and application of mind by Assessing Officer such action was not warranted. 2. Indu Bhushan Sah (HUF) v. WTO (1994) 208 ITR 598 wherein Hon'ble Allahabad High Court had held that initiation of proceedings on the basis of audit objection cannot be sustained. 3. ACIT v. Laxmi Sailja Traders 2005 1 SOT (608) wherein it was held that recording is bad in law where the Assessing Officer has not applied her mind to the issue before initiating the proceedings u/s 148. 13. In the cases for ayb2002-03 & 2004-05 the Ld AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted in financial till year 1999-2000. The new unit got itself registered with STPI on 25.3.2000 and letter of exemption from Income tax till 2010 was issued by STPI. 3). That the company was operating with 8 employees from its Delhi unit whereas new undertaking at Gurgaon had 182 employees. 4). That the assessee company made substantial capital out lay for the new undertaking. 5). That assessee obtained custom warehousing license for the new undertaking premises on 20.3.2000 for Gurgaon unit. 6). That new undertaking was allotted separate TAN from Income tax authority, Gurgaon. 7). That assessee company had already obtained registration under Shop & Establishment Act for the new undertaking on 15.2.2000. 8).That assessee company had also obtained separate registration under ESI Act vide registration No.13/27542/62 for the employees-employed at the new undertaking on 14.3.2000. 9). That the new undertaking was registered under PF Act vide registration No.HR/FRD/10620 for the employees-employed for the new undertaking at Gurgaon. 10). That the objection of Assessing Officer was that business activity of the assessee company was same since assessment year 1996-97 onwards. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately. Clause (3) of section 43 defines plant as under:- "Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes. Thus this inclusive definition makes it clear that plant means not a particular item but many items. Thus, in view of the above, findings by Assessing Officer was incorrect and in fact if the whole plant & machinery is considered the percentage of transferred plant & machinery comes out at less than 20%." Besides above, in respect of assessment year 2003-04 regarding disallowance of maintenance expenses of Rs.14,06,505/- and disallowance of depreciation, following submissions were made. 1. That during the year under reference the assessee company leased out a portion of its building situated at 27-Electronic City, Sector-18, Gurgaon to Daksh.com Service Pvt. Ltd. thereby earning rental income amounting to Rs.1,12,82,256/-. 2. That assessee company also provided maintenance service to the tenant for which the assessee company received Rs.1,52,57,437/- in addition to the rental income. 3. That the assessee company incurred expenses on power and fuel, repai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units for availing the claim of deduction u/s 10B. In the cases relied upon by the appellant specifically the case of M/s. Ganga Sagar Corporation Ltd. 92 ITR 173 and M/s. Orissa Cement Ltd. 200 ITR 36 of Jurisdictional Delhi High Court, it was held that having a single P&L Account and balance sheet can not be a ground for rejecting the claim of different units. As regards, the second objection of the AO, it is noted that the AO has not properly appreciated the full facts of the case. After a careful perusal of the documents/accounts of the appellant, it is noted that most of the plant & machinery purchased by the appellant during the AY 2000-01 was installed at the new unit of Gurgaon and only the purchase .bills were issued in the name of the assessee company mentioning the address of the old unit which also happens to be the registered office of the company. It appears that since the address on purchase bills of new machinery is of old unit, solely on this basis, the AO has presumed that the machinery has been utilized in the existing old unit whereas the appellant has sufficient documentary evidence to show that machinery was installed in New Unit. ~also seen that on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has overlooked two important aspects of t First, the deduction was allowed u/s 143(3) in original assessment, the disallowance in re-assessment proceedings will tantamount to change in opinion unless the AO has strong reasons in support of the changed opinion which could indicate that earlier view was either legally incorrect or perverse. Further, the AO has also ignored the second agreement of the appellant regarding maintenance services provided to the tenant, wherein it was agreed that the maintenance and repairs of electrical installations will be carried out by the appellant. Since, the maintenance charges received by the appellant constitute a comprehensive lump sum payment and this income is taxed as income from other sources, therefore, actual expenditure including depreciation should be deducted under the provision of sec. 57 of I.T. Act. Accordingly, the disallowance of depreciation on electrical installation amounting to Rs. 18,76,004/- made by the AO is not justified hence the same is deleted. As regards, the maintenance expenses of Rs. 14,06,505/- it is noted that these expense relates to the maintenance of building. Since the appellant has already been given 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss already in existence. ii) That assessee was preparing single P&L Account and therefore there was only one single entity. iii) That assessee has transferred about 51.78% of asset from existing business and the amount of transferred assets was more than thresh-hold limit of 20% as contemplated in section 10B of the Act. 22. The Ld AR further submitted that deduction disallowed u/s 80HHE of the Act for assessment year 1998-99 was in respect of undertaking at Okhla Industrial Area and not for Gurgaon unit and therefore he argued that finding of Assessing Officer that assessee was having a single undertaking was factually incorrect. 23. The Ld AR submitted that deduction claimed under section 80- HHE of the Act was for assessment year 1998-99 when the assessee was engaged in the business of data operator whereas the new unit at Gurgaon was engaged in the activities of software development, carrying out of back office work and data operator for Quardant USA as also for other clients. Thus, it was submitted that Assessing Officer had erred in assuming that even prior to claim of deduction claimed by the assessee u/s 10B, the assessee was engaged in the activity of development of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, he argued that if these values are taken into account the percentage amount of assets transferred from existing business comes down to 3.97%. In this respect pages 69 to 70 of paper book 4 were referred to wherein the detailed calculation was made. The Ld AR also argued that even if there was an expansion in the existing unit even then the deduction cannot be disallowed. Reliance was placed in a number of cases placed at page 9 & 10 of synopsis dated 12.3.2012 Lastly, the Ld AR argued that no disallowance u/s 10B has been in the assessment year 2006-07 wherein the assessment was framed u/s 143(3) of the Act. 27. As regards the admission of additional evidence under Rule 46A of IT Rules is concerned, the Ld AR submitted that Ld Assessing Officer had commenced the proceedings in September, 2007 which was attended by authorized representative of assessee on 10th October, 2007and reply was filed. Thereafter, the case was attended on 6th November, 2007 and 21st November, 2007 wherein required documents were filed. The Ld AR argued that justification for claiming deduction u/s 10B were demanded at the fag end for which submissions were filed on 12.12.2007 and thereafter au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection and which cannot be a ground to initiate proceedings u/s 147 of the Act as it constitute change of opinion. Reliance was placed in the following judgments:- 1. CIT v. Kelvinator of India Limited. 256 ITR 1 (SC). 2. CIT v. Kerlvinator of India Ltd. or CIT v. Eicher Limited. 320 ITR 561(SC). 3. Transworld International inv. V. JCIT. 273 ITR 242 (Del.). & 4. CIT v. Foramer France 264 ITR 566. 31. The Ld AR further submitted that claim of deduction u/s 80HHE of the Act in earlier years cannot be a ground to assume that deduction claimed under section 10B was not in accordance with law. Moreover, the ld ACIT had granted the said permission for reopening of the cases mechanically and therefore approval so granted was invalid. In view of the above, the Ld AR argued that re-assessment proceedings in these two years were void ab initio and should be quashed. 32. As regards disallowance of maintenance expenses of Rs.14,06,505/-, the Ld AR submitted that Ld CIT(A) had noted in the year under consideration that assessee had received a sum of Rs.1,52,57.437/- towards providing maintenance services in addition to rental income out of which the sums of Rs.18,76,004/- and Rs.14,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roval was required for existing unit from STPI as was held by Hon'ble ITAT, Hyderabad Bench in the case of Infotech Pvt. Ltd. v. CIT 85 ITD 325. In the existing unit, the assessee was never allowed to avail deduction u/s 80HHE through out its operation and if the assessee wanted to avail deduction under different section of the Act, separate statutory approval was required which was absent in the case of the assessee because the approval was not granted for Delhi unit. Therefore, the alternate plea taken by the assessee is defective on the ground that all conditions are not fulfilled for this purpose with reference to Delhi unit. 34. The Ld DR submitted that in respect of claim of Ld AR of 182 employees in the new unit, the lay out plan of Gurgaon unit had three floors and these were only lay out plan and which did not prove whether the assessee could carry out its software development business in the said unit during financial year 2000-01 as the lay out plan was prepared on 85.2001 itself. The Ld Dr further argued that during the year under reference the assessee company leased out the portion of its building situated at 27-Electronic City, Sector-18, to Daksh Pvt. Ltd. thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in the year 2000 even then purchase of computers made after 1.4.1999 having address of Delhi office instead of Gurgaon office. Therefore, he argued that whatever expenses claimed to have been incurred on account of construction of building, electrical installation were in fact for the purpose of making premises workable, useable so that same could be leased out and ultimately the premises was leased out in February, 2000. Further he argued that definition of block of asset u/s 2(11) of the Act where tangible asset has been defined as building, machinery or plant & machinery and for depreciation purpose, furniture, fixture, electrical fittings are grouped together where depreciation is allowable @ 10% and on plant and machinery @ 15% which clearly shows that these are two different block of asset and in no way can be clubbed together so as to enable the assessee to bring percentage of used machinery below 20% of the thresh hold limit. As regards that Assessing Officer had made no disallowance u/s 10B of the Act in assessment year 2006-07, he argued that for Income tax purpose each year is a self contained separate year and doctrine of res judicata does not apply to IT proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of findings of Assessing Officer in assessment year 2005-06 and ratio laid down of Hon'ble High Court was squarely applicable to the facts of the case. 37. In respect of assessee's objection that proceedings initiated on the basis of audit objection cannot be a ground to initiate proceedings u/s 147 of the Act. It was submitted that audit objection was not only made a ground but was one of the grounds. In this connection reliance was placed on the decision of Hon'ble Supreme Court in the case of PVS Bidi Pvt. Ltd. 237 ITR 13 wherein it was held that reopening of assessment on the basis of factual error pointed out by the audit party was valid. Further he argued that Addl. CIT before granting approval for reopening the assessment had fully satisfied himself and he was not required to record reasons for reopening separately. Hon'ble Delhi High Court in the case of Maya 331 ITR 116 has held that section 151 only talks about JCIT /Addl. CIT to be satisfied on the reasons recorded by the Assessing Officer and in the instant case Addl. CIT has recorded his satisfaction by noting "I am satisfied". Regarding admission of additional evidence during appellate proceedings by Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% of the area at building at Gurgaon where it carried on software development work and only 50% of the area of the building had been leased to M/s Daksh.Com Service Pvt. Ltd. He further submitted that Ld DR had over looked that the area in occupation of the assessee and used for its business plan of assessee had incurred expenditure & was allowed by the Assessing Officer. The Ld AR submitted that total area available in Delhi unit was only 550 sq.ft. whereas in Gurgaon unit total area available with the assessee was 12124 sq.ft. and there was sufficient documentary evidence to establish that business was carried on by the assessee at Gurgaon unit even in the financial year 2000-01 and therefore the comment made that lay out plan do not prove that business was carried on by the assessee is highly arbitrary and thus untenable. Regarding non fulfillment of conditions required u/s 10B for Delhi unit it was submitted by Ld AR that no deduction was claimed for Delhi unit and the fact that assessee in the earlier year claimed deduction u/s 80HHE of the Act was not an embargo to claim deduction u/s 10A of the Act, if all other conditions are satisfied. He further submitted that Ld DR over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw that principle of consultancy must be followed particularly when there is neither change in facts of the case and nor any change in the position of law. Reliance was also placed in a number of judgments mentioned at page 8 of the rejoinder. 44. Regarding cross objection with respect to reopening of cases for assessment year 2001-02 and 2003-04, the Ld AR submitted that in assessment year 2001-02 no prior approval was obtained before issue of notice u/s 148 and in fact the approval was obtained for assessment year 2003-04. He further submitted that in the instant case there existed no basis or material to assume that any income had escaped assessment as it was a fact that assessee was eligible for deduction u/s 10B even despite the fact that assessee had claimed deduction u/s 80HHE of the Act. So far as the assessment year 2003-04 is concerned, the Ld AR submitted that it is a well settled law that audit objection on point of law cannot be a ground to assume jurisdiction. Reliance was placed in a number of cases as mentioned at page 10 of the rejoinder. Moreover, the ld AR submitted that assessment for assessment year 2003-04 was completed u/s 143(3) of the Act and in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty by Assessing Officer to justify his claim u/s 10B of the Act (raised by the revenue as ground No.3 in respect of assessment year 2001-02, 2003-04 and 2005-06). c) Whether Ld CIT(A) had erred in upholding the order of Assessing Officer in disallowing maintenance expenses of Rs.14,06,505/- (raised by the assessee as ground No.2 in assessment year 2003-04). d) Whether Ld CIT(A) had erred in deleting the addition made by the Assessing Officer on account of disallowance of depreciation on eleltrical installation amounting to Rs.18,76,004/- in assessment year 2003-04 (raised by the revenue as ground Nio.;4). & e) Whether Ld CIT(A) had erred in deleting the disallowance of deduction u/s 10B of the IT Act in respect of assessment year 2001-02 to assessment year 2005-06 (raised by the revenue as ground No.1 & 2 in respect of all above years). 48. First we take up the issue of reopening of cases relating to assessment year 2001-02 and 2003-04. In the assessment year 2001- 02, the primary objection of the assessee was that there were certain defects in the form of reasons recorded and therefore relying upon certain case laws, the ld AR had argued that re-assessment was null & vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t carry any meaning. Therefore, on the basis of above discussion, we hold that reopening in both the year was justified and was in accordance with law. Therefore, we reject ground No.1 of the cross objection of the assessee. 52. Now we come to the point of acceptance of additional evidence in the assessment year 2001-02, 2003-04 and 2005-06. We have observed from the appellate order relating to at 2001-02 and assessment year 2003-04 that there is no mention of acceptance of any additional evidence. In respect of assessment year 2005-06 where additional evidence was accepted, we find that additional evidence admitted by the Ld CIT(A) was significant and was quite necessary in deciding the claim of assessee. Moreover, the evidence was accepted after obtaining remand report from Assessing Officer and Assessing Officer had not objected to the merits of additional evidence. Therefore, we do not find force in the argument of Ld Dr and therefore dismiss ground No.3 in respect of appeal by revenue for assessment year 2001-02, 2003-04 and 2005-06. 53. Now we come to the issue of upholding of disallowance of maintenance expenses amounting to Rs.14,06,505/- and deletion of disallowance of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only a single undertaking belonging to the assessee. This fact was further strengthened by the fact that assessee had prepared only single P&L Account and entire profits were claimed to be exempted u/s 80HHE of the Act prior to insertion of section 10B. From the plain reading of provisions of section 10B along with explanation (1) & (2) of section 80I it emerges that for claiming deduction under the said section following conditions must be fulfilled. 1. The income should be derived by a 100% export oriented unit from the export of article or things or computer software. 2. This section applies to any undertaking which is formed by splitting or reconstruction of business already in existence (subject to business of any undertaking as is referred to section 33B). 3. That the deduction is applicable from assessment year 2001-02 and is available for a period of 10 subsequent years beginning with the year in which undertaking begins to manufacture or produce article or things or computer software as the case may be. 4. It is not formed by transfer to a new undertaking of machinery or plant previously used for any purpose subject to that total value of machinery or plant or pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow:- Gross value of computers as on 1.4.2000 Rs.46,73,704/- Less: Purchase for Gurgaon unit between 1.4.1999 to 31.,3.2000 calculated as per Installation report as attached with purchase Bills placed at paper book pages 54 to 126 of Paper book No.7. Rs.30,24,630/- ------------------------------- 'A' Gross value of computers alleged to have been transferred to new unit. Rs.16,49,074/- Computers purchased during the year ending 31.3.2001. Rs.31,14,657/- Gross value of electric installation up to 31.3.2001. Rs.1,19,46,662/- ----------------------------- 'B" Total value of plant & machinery including Transferred from old unit. Rs.1,67,10,393/- ----------------------------- Percentage of old machinery in the new unit works out at 9.87% Being A/B x 100 The above calculation shows that even if the allegation of Assessing Officer is accepted that old machinery was used in new undertaking the percentage of old plant & machinery is less than 20%. The objection of Ld Dr that electric installation should not be considered for calculation of total value of plant & machinery is not correct in view of the fact that definition of plant & machinery includes in itself electric ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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