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TMI Blog2013 (1) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... this reason, reliance can be placed on Saurashtra Cement & Chemical Industries(1979 (2) TMI 21 - GUJARAT HIGH COURT) and thus to hold that in the absence of any disturbance in respect of relief granted in initial year, there was no legal justification to disturb the continuous deduction of section 10B in any of the subsequent assessment year. Although it is possible, as in the present case, that in any of the subsequent years the assessee had acquired new plant & machinery, may be of substantial value, as also may be increase the turnover or efficiency, nonetheless the act subscribes that the undertaking must not be formed by the splitting up or the reconstruction of a business already in existence. Therefore, the initial year is the year to establish the eligibility of the claim - it was not evident from the records that the transaction relating to the machinery constituted outright sale thus hereby hold that the AO has wrongly presumed that the transaction in question was a purchase of machinery by Chennai Unit - rejection of deduction u/s.10B was bad in law - in favour of assessee. Deduction u/s.10B - CIT(A) allowed claim observing the activities carried on by the assessee we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- is deleted - partly in favour of assessee. - ITA No(s). 2981/Ahd/2008, 322/Ahd/2009 and CO 44/Ahd/2009 (in ITA No.322/Ahd/2009 - - - Dated:- 2-11-2012 - Mukul Kr Shrawat and Anil Chaturvedi, JJ. Appellant Rep by: Shri D.P. Gupta, CIT-DR Shri P Oram Sr.DR Respondent Rep by: Shri J.P. Shah, AR ORDER Per: Mukul Kr Shrawat: [A] Revenue s appeal, ITA No.2981/Ahd/2008 for A.Y. 2003-04 Before we deal with the legal issue in question, it is pertinent to mention that for A.Y. 2003-04 earlier an order has been passed by ITAT D Bench Ahmedabad dated 4.2.2011 and this appeal of the Revenue, i.e. ITA 2981/Ahd/2008 was partly allowed for statistical purposes. We have noted that the impugned ground No.2 was reproduced by the Tribunal and it was adjudicated vide para 7 to 10 and thereupon held that the matter requires reconsideration at the stage of the AO. There were alleged to be certain factual error from the side of the assessee, yet to be examined, therefore, the matter was restored back to the file of the Assessing Officer. Questioning the setting aside a miscellaneous petition was moved and that petition was allowed by ITAT D Bench Ahmedabad in MA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was informed that the said assessee had transferred the machinery to the assessee s Chennai Unit, therefore it was not on lease basis but it was an outright purchase. He has therefore proposed to disallow the exemption u/s.10B on the ground that on the date of transfer, i.e. in the year 1998 the machinery was transferred for a sum of Rs.4,03,13,086/- which was in excess of the required percentage of 20% as per Explanation-2 of section 10B of the Act. He has concluded that a secondary machinery was used due to which the exemption claimed in respect of the profits of Chennai Unit and consequent thereupon exemption u/s.10B of Rs.2,79,90,231/- was rejected. The matter was carried before the first appellate authority. 3. Ld.CIT(A) has first of all corrected the figure and noted that the AO had denied the claim of deduction u/s.10B of Rs.2,53,24,882/-. It was noted by ld.CIT(A) that the assessee is a manufacturer of various types castings, gate-walls and flow control devices. The assessee has a Plant at Chennai and that Unit is registered as 100% EOU, thus covered for deduction u/s.10B of IT Act in respect of the profits of the said Unit. At this juncture, ld.CIT(A) has noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en decided by the ld.CIT(A) in Sakhi s case vide order dated 17-6-2008. The ld.CIT(A), in appeal No.CIT(A)-VI/ACIT.10(2)/Trs. 29/07-08 for A.Y. 2003-04, has held that the conclusion reached by the A.O. that the transaction relating to the machinery constituted outright sale is not evident from the records. The receipt of share application money from a group company of the present appellant cannot be equated to receipt of sales consideration. It was held that the receipt by Sakhi Raimondi was lease rental only and not sales consideration in respect of plant and machinery. When the findings of the A.O. in the case of Sakhi Raimondi has been overturned by the ld.CIT(A), the consequential addition made in the case of the present appellant cannot survive. The A.O. in this case has based the addition on the treatment accorded to the impugned transaction by the A.O. of Sakhi Raimondi as a transaction of sale and purchase. Since the very basis of the addition has been overturned, it is held that the A.O. was not justified in treating the lease transaction as outright purchase. Hence, the A.O. is directed to allow the claim amounting to Rs.2,53,24,882/- u/s.10B. 4. Being aggrieved, the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld.AR has then informed that the said decision of ld.CIT(A) was contested by the Revenue and ITAT E Bench Mumbai in ITA No.5479/Mum./2008 for A.Y. 2003-04 order dated 23.03.2010 has contested other issues but not contested the aforesaid finding of Lease Rental of ld.CIT(A). Mr.Shah has then pleaded that an inference can be drawn that the fact of earning of lease rental was thus accepted by the Revenue Department being not challenged before the Tribunal. 6. We have heard both the sides at some length. We have also perused the orders referred before us. Before we appreciate the facts of the case, we may like to place on record the scope of the introduction of section 10B in the Statute. Under the provisions of section 10A of the Income-tax Act, a five year tax holiday is allowed to industrial undertakings manufacturing or producing articles or things in a free trade zone subject to certain conditions. The exemption is available to industrial undertakings which have begun or begin to manufacture or produce articles or things during the previous year relevant to the assessment year commencing on or after April 1, 1981. The tax holiday is at the option of the assessee for five con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; because the relevance of the phrase newly established undertaking is only to identify initial year of period for which assessee is eligible for claim of exemption u/s.10B of IT Act. Therefore, at the outset, it is justifiable to concentrate on the fact that whether the Chennai Unit was established in the year under consideration or not. On examination of the facts recorded by the AO, it was noticed that the Chennai Unit was established/acquired in the year 2000-01. This fact was rather noted by the Hon ble Gujarat High Court in the aforecited decision dated 11.4.2008 and made an observation that the year 2001-02 was found to be the first year of the claim of deduction u/s.10B of IT Act. Due to this reason, reliance can be placed on Saurashtra Cement Chemical Industries 123 ITR 669 (Guj.) and thus we hold that in the absence of any disturbance in respect of relief granted in initial year, there was no legal justification to disturb the continuous deduction of section 10B in any of the subsequent assessment year. The first year is the year in which the inquiry about the formation of the undertaking is required to be made by the AO. Although it is possible, as in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause we have already taken a view in assessee s favour as discussed in above paras. In the result, we hereby confirm the findings of ld.CIT(A), therefore the claim of deduction u/s.10B is directed to be allowed. 7. In the result, ground No.2 which was recalled for readjudication is hereby decided in favour of the assessee and against the Revenue, however the final outcome of the order as already held by the ITAT D Bench Ahmedabad in respect of ITA No.2981/Ahd/2008 vide order dated 4.2.2011 shall stand as it was, hence Revenue s appeal is partly allowed for statistical purposes. [B] Revenue s appeal, ITA No.322/Ahd/2009 for A.Y. 2004-05 8. The following grounds have been raised by the Revenue in its appeal:- 1. The learned CIT(A) erred on facts and in law in allowing deduction u/s.10B observing that the activities carried on by the assessee were manufacturing overlooking the fact that it was polishing the valves which is in contradiction to Apex Court s ratio laid down in CIT Vs N.C. Budhiraja (1993) 204 ITR 412 (SC). 2 The learned CIT(A) erred on facts and in law in allowing deduction u/s.10B observing that the assessee had purchased the machineries, complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses under which the goods of the assessee have gone. Therefore, once it was allowed after seeing all these facts and when there was no concealment of facts for deduction under section 10B of the Act, we see no justification in issuing notices under section 148 for reopening of the assessment. This entire issue has already been dealt with by us in Revenue s appeal for A.Y. 2003-04(supra). Therefore, on identical facts both the grounds of the Revenue for this year as well are hereby dismissed. 9. Apropos to Ground No.3, it was noted that the AO had included certain amount in the total turnover while computing the deduction u/s.80HHC of IT Act. Due to this increase in the total turnover, i.e. denominator, the resultant figure of deduction u/s.80HHC got reduced. One of the item which was included pertained to interest on deposit with banks amounting to Rs.1,30,66,020/-. Identical addition was made in A.Y. 2003-04 and while deciding the Revenue s appeal the Respected Coordinate Bench in the order cited supra dated 4.2.2011 has held as under:- 15. We have heard the parties. In our considered view there is no case for interference in the order of ld. CIT(A). The reasons are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is a long list of those parties giving the description of documents, voucher numbers, date of payment, their PAN numbers, amount of invoices, the rate of commission, etc. The rate of commission had vary from 2.2% to 5% and in few cases it had reached upto 16%. The details of the debitnotes and the commission paid through those debit-notes have also been enclosed. We have been informed that certain basic information about the payment of commission was very much part of the record as also had been enquired by the Auditor, hence very much part of the assessment record. So the argument is that if the AO had any doubt, then he could have investigated. Without any investigation he has wrongly disallowed claim. We find force in the submissions of ld.AR considering the surrounding circumstances and the evidences placed on record. We, therefore, confirm the factual finding of ld.CIT(A) and dismiss this ground of the Revenue. 11. In the result, the Revenue s appeal is dismissed. [C] Assessee s CO No.44/Ahd/2009 (in ITA No.322/Ahd/2009) The following grounds have been raised by the Assessee in its cross objection:- Tyco Valves Controls India Private Limited [hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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