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TMI Blog2013 (8) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... of the machinery which are already put in to use by Balaji Agro Oil Industries. The Assessing Officer not made an allegation that the assessee has not furnished the details of old and new plant and machinery - existing DTA (domestic tariff area) unit can be converted into 100% EOU as per Government of India policy and this is enumerated in Circular No. 1/2005 dated 6.1.2005 issued by the CBDT. Being so, an assessee cannot be denied deduction u/s. 10B of the Act. Further, the assessee in this case applied for approval of Unit-II as 100% EOU to Development Commissioner on 18.12.2002 and the assessee was granted approval as 100% EOU by the Asst. Development Commissioner, Office of Development Commissioner, Visakhapatnam SEZ and issued green card under 100% EOU scheme on 25.4.2003. Deduction u/s. 10B has to be allowed to the assessee from the date it got the approval as 100% EOU i.e., 25.4.2003 and the Assessing Officer is directed to allow deduction u/s. 10B from the date of approval as 100% EOU by the competent authority for the unexpired period of 10 consecutive assessment years commencing from the assessment year 2004-05 being regarded as second year of production in first y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities claimed to have been packing works, warehouse logistical purpose of the assessee company. 2) As per the lease agreement between M/s. Balaji Agro Industries and M/s. Alkali Metals Ltd., rentals are being paid as calculated on buildings, P M land as per lease agreement dt. 1.7.2000. However, the assessee claims that the land and building only is used by M/s. Alkali Metals, P M is not useful for M/s. Alkali Metals even though lease rentals are being paid. 3) Unit I was the original Unit of M/s. Alkali existing for a long time and manufacturing chemical products like Sodium Hydride, Sodium Amide, Sodium Azide, Sodium Methoxide, Amino Pyridines, PPAN etc. This unit had both domestic and export sales. 4) As on date of Survey both units claimed to be on almost similar footing vis-a-vis Raw Material required and variety, quality and type of chemical products that can be produced by except that EOU status was available to Unit-II. 5) There were sales from Unit-II prior to F.Y 2003-04 as sales of Unit-II of M/s Alkali Metals as evidenced by the production registers R.G-1 Register for the F.Y 200304 as per the Annexure B/AML/06 to impounding dated 22.03.2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Please give the details of activities between the date of your joining and the date on which production started in this unit? (Ans) During that period the erection of the machinery was going on. I supervised the installation of the machinery. (10) Please give the details M/s. Balaji Agro Ind. and share holdings? (Ans) M/s Balaji Agro Industries has common promoters/ share holders as in AML and AHL List of share holders provided herewith. 6. In the statement dated 22-03-2006 recorded during the survey, the MD, Sri Y.S.R Venkata Rao has stated in response to Q. No. 7 that details regarding P M installed before February 2003 would be submitted after collecting all the details. Since these details were not furnished, information was called for again vide letters dated 27-11-2006. Subsequently another statement of the MD was recorded on 1212-2006 and the relevant portion is reproduced. Q-8 In your statement dated 22-03-2006 you have in response to Q. No. 5 6 Stated that details of Plant Machinery installed prior to February 2003, would be submitted. However, that has not been done so far. Also now you say that no machinery is erected, installed and commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces, raw material register, sale register, Central Excise and Sales Tax Dept. statutory registers, etc.). Q. 16 Please give the details of the books maintained at Unit situated at Dommarpochampally. Ans. Prior to EOU being operational, since there being no mfg. activity only the following books are maintained; inward and outward clearance registers, gate passbooks, Central Excise and Sales Tax Dept. Statutory records for storage and clearance goods. Q. 17 Please specify the contents as per the inward and outward clearance registers maintained as stated above. Ans. The inward and outward registers consists raw materials, finished goods, capital goods, etc., related to Alkali Metals Ltd. The said unit is used as Bonded ware house. Q. 18 Please go through the book marked as Annexure B/AML 02/03 and explain the contents of the same. Ans. This is a raw material register of Unit-II containing the details of purchases made by Alkali Metals received and stored at Unit-II and issues to Unit-I for production. These purchases are made in the FY 2002-03 and are accounted in the relevant year A/c of Alkali Metals Ltd. Q. 19 Please go through the book marked as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isor while giving the statement which is not useful for our stated products of Unit-E. That machinery was taken by M/s. Balaji during the FY 2006-07 as it belongs to them to their plant at Bontapally. We have paid lease rental for the plant machinery lying at Unit-II premises up to March, 2003 only. Q. 6 Please go through the Q. No. 4 of your statement dated 22.3.2006 recorded during survey wherein you have stated that the lease agreement was entered with M/s. Balaji Agro for producing products of Alkali metals. What have ou to say on this? Ans. I confirm and agree with that and we were planning production there in future as Unit-E which took place during the month of September, 2003. Q. 7 you have anything else to say. Ans. I have nothing else to say. 8. In view of the above, the Assessing Officer observed that there were sales during the F.Y. 2002-03 is a fact accepted by the assessee. The Managing Director of the company however, now states that no production was carried out In Unit-II in F.Y. 2002-03. This is contradictory to his own statement recorded at the time of the survey as well as the statement of the production manager recorded on 22.03.2006 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted the list of such out passes of Unit-I indicating the quantity consigned to Unit-II and shown in export invoice as export of Unit-II. The AR submitted that the original records of the same were impounded by the A.O. during the course of survey operations. It was also agreed that one to one transfer of goods from Unit-I to Unit-II and matching entries would be reconciled before the AO (order sheet noting dated 2.8.2007 in the presence of the A.O.). The AO vide report dated 22.2.2008 submitted that the assessee had submitted Xerox copies of gate passes (neither numbered nor indexed) of Unit-I, claiming the transfers from Unit-I to Unit-II totalling around 56 in number for all products like PPAN, S. Azite, S. Amide, S. Hydride and 2 A.P., 2 A5P, 2A 4P. These gate passes were not numbered and the same were not evidenced with any gate pass register. The assessee's claim of gate passes was verified with the RGI register of Unit-I as claimed by the assessee for the alleged transfers. On verification the gate passes are not reflected in RGI of Unit-I except 2 each of sodium Azide, Sodium Amide/ Sodium Hydride out of as many as 57 gate passes submitted of Unit-I. It was stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck statement and other relevant details for the issue to prove that whether there was production before EOU statement was claimed. Consequent to this, the Assessing Officer submitted report on 19.9.2011 as follows: "As directed, the undersigned conducted remand proceedings by way of issue of notice dated 6.9.2011 fixing the hearing to 13.09.2011. On 13.09.2011 Shri V. Srinath, FCA AR appeared along with Shri P. Shankar Rao, GM (F) and Shri M. Ramakrishna, FCA. They have been requested to furnish their comments on the impounded material in the form of Production Registers and gate passes etc. They have stated that they are unable to explain how the registers were kept at the premises as there was no production activity. In support of their claim, they filed order dated 22.03.2002 from Joint Chief Environmental Engineer, AO Pollution Control Board (Order NO. 3767 dated 22.03.2003) wherein It IS stated that site inspection as conducted on 10.01.2003 and consent order was Issued for establishment of Unit-2 of the assessee. They also filed consent order NO. APPCB/HYD/JDM/585/RO/W/2003/283 dated 09.12.2003 where in effluent analysis was done by the AP Pollution Control Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly done when the production is already in progress. As already referred above, unless the concerned officers of the Pollution Control Board are examined along with the relevant documents, the submissions of the assessee cannot be accepted. It is submitted that in the light of the above, additional evidence filed by the assessee may not be accepted and the plea of the assessee that production started only in A.Y. 2003-04 may be rejected. In case the plea of the assessee is accepted, kind permission may be granted to cross-examine the witnesses along with records or examine them in case, assessee falls to produce them. During the proceedings, the assessee took an alternate plea that as per Circular NO. 1/2005 even a DTA which gets converted into EOU IS eligible for deduction for the unexpired period out of 10 years from the year of commencement of manufacture. As the claim is legal in nature, the undersigned has no report to submit on this claim and appropriate decision may kindly be taken by the learned CIT(A)". 13. In reply to this report from the Assessing Officer, the assessee submitted before the CIT(A) as under: "During the course of hearing which took place on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elieved the existence of these documents, it had to be on the basis of rational exercise of mind. The mere allegation that the documents ought not to be accepted cannot be countenanced. At any rate there is no reason for the learned Additional Commissioner of Income Tax, Range-1 to doubt the validity of those documents as these documents have emanated from public office and must receive its due respect and must be accepted by the Department. It may be worthwhile to mention here that these documents were available in the premises even on the date of survey proceedings and hence cannot by any stretch of imagination be held as production of new evidence by our company, Further our company never relied on the Government Officials who gave various approval as its witness. In para 5, the learned Additional Commissioner of Income-tax, Range-1 states that the concerned Production Manager has not been produced during the course of remand proceedings. Our Company had a valid reason for not producing the Production" Manager on the appointed date. The conclusions of the learned Additional Commissioner of Income Tax, Range-1 in para 7 that the chemical plant has been established in the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orts were not available at the time of survey on 22.3.2006. It is noticed that the assessment proceedings have taken place since 28.12.2005 onwards, and the appeal proceedings also started' from 05.02.2007 and till 19.10.2011, the assessee did not utter any word about these evidences nor filed either before me or before the AO he has not commented on the authenticity of additional evidences in view of the passage of time ie more than six years and he also strongly took objection to the filing such evidences after such a long lapse thereby wasting the precious time of the authorities here. Therefore, the so called evidences are not admitted by the CIT(A). 15. He also observed that the production Manager Sri R.K. Babu, whose statements has caused so much of confusion was not produced before the AO despite given many opportunities, on some pretext or the other and therefore the contention of the assessee that the production was started only after getting the EOU status by the assessee i.e., in the relevant year is not acceptable. In view of the various observations given by the survey party and also with all the circumstantial evidences noted by the AO in the assessment order and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10". 16. The AO's contention that the old machinery transferred to the new unit exceeded 20% limit has no basis because the old plant machinery of castor oil manufacturing unit could not have been used for the manufacture of the items by the assessee company. Moreover, the AO has not given any specific observation as to the total machinery installed and how the old machinery has exceeded 20% limit and he just made a general and sweeping statement without basing his observation on any facts. Even though there was survey conducted at the premises on 22.03.2006, the AO has not made an inventory of P M and the dates of acquisition of the same. He was only relying on the lease deed which showed the lease rentals towards P M in the factory shed. The AO has not brought out any quantitative analysis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries and M/s. Alkali Metals Ltd., these rentals are being paid as calculated on buildings, plant and machinery and land as per lease agreement dated 1.7.2000. However, the assessee claims that the land and building only is used by M/s. Alkali Metals, plant and machinery is not useful for M/s. Alkali Metals even though lease rentals are been paid. (c) Unit I was the original Unit of M/s. Alkali existing for a long time and manufacturing chemical products like Sodium Hydride, Sodium Amide, Sodium Azide, Sodium Methoxide, Pvridines, PPAN etc. This unit had both domestic and export sales. (d) As on date of Survey both units claimed to be on a similar footing vis-a-vis raw material required and variety, quality and type of chemical products that can be produced by except that EOU status was available to Unit-II. (e) There were sales from Unit-II prior to F.Y 2003-04 as sales of Unit-II of M/s Alkali Metals as evidenced by the production registers R.G-1 Register for the F.Y 2003-04 as per the Annexure B/AML/06 to impounding dated 22.03.2006. 20. Accordingly, the Assessing Officer was of the opinion that the assessee has transferred old machinery to the new unit wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial year 2002-03 relevant to A.Y. 2003-04. The AR has taken a plea before us that the assessee commenced production in Unit-II only in September, 2003 relevant A.Y. 2004-05. The assessee also produced list of machineries which are installed in Unit-II. Since Unit-II is a new unit and old machineries were not at all used in Unit-II, the AR pleaded before us that benefit of section 10B has to be allowed. The AR also taken a plea before us that the assessee is approved as 100% EOU on 18.2.2003 and commenced production in Dommarapochampally, Qutbullapur Mandal in the leased premises and manufactured sodium derivatives, pyridine derivatives, Tetrazole find chemicals for which assessee obtained ISO9001 and 14001 certificates. Further the assessee filed a letter dated 22.3.2003 from the Joint Chief Environmental Engineer, AP Pollution Control Board as per which inspection was conducted at assessee's second unit on 10.1.2003 which indicates that no activity of production was carried on in the said premises on the date of inspection. Further, the assessee produced letter dated 4.9.2003 issued by Asst. Commissioner (Customs) for maintenance of customs bonded private warehouse. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (Rs. crores) Sales Power Bills (Rs. lakhs) Qty (MT) Exports (Rs. Crores) Domestic (Rs. Crores) 2003-04 1.22 369 11.22 0.00 18.71 2004-05 1.14 663 19.34 0.55 28.73 2005-06 2.59 818 34.35 0.19 45.24 3. EOU purchases from DTA Particulars Purchases from DTA Sales at EOU Qty (Kg) Value (Rs.) Qty recovered Qty sold Value (Rs.) Sodium Amide Crude 8000 800000 7600 7500 1879875 Sodium Azide Crude 28000 7560000 26600 26600 8663657 Sodium Hydride Crude 2600 260000 2340 2160 4,95,720 PPAN Crude 10970 13164000 10860 10700 21400000 2A 5P Crude 400 720000 400 400 1620000 Total 49970 22504000 47800 47360 34059252 24. Further, the Assessing Officer's contention that the old machinery transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and issued green card under 100% EOU scheme on 25.4.2003 which is kept on record at page Nos. 155 to 170 of assessee's Paper Book. 26. In view of the above discussion, the deduction u/s. 10B has to be allowed to the assessee from the date it got the approval as 100% EOU i.e., 25.4.2003 and the Assessing Officer is directed to allow deduction u/s. 10B from the date of approval as 100% EOU by the competent authority for the unexpired period of 10 consecutive assessment years commencing from the assessment year 2004-05 being regarded as second year of production in first year of commercial production being A.Y. 2003-04. This is so because, even if the new unit was commenced in the FY 2002-03 relevant to A.Y. 2003-04, the claim of deduction u/s. 10B cannot be denied in the FY 2003-04 relevant to A.Y. 2004-05 as this year would be the second year of claim of deduction u/s. 10B of the IT Act as held by the P H High Court in the case of CIT vs. Excel Software Ltd. (219 CTR 405) that exemption cannot be denied u/s. 10B in its entirety but initial year should be moved by a period of one year. Accordingly, we dismiss this ground in all the Revenue appeals. 27. The next ground in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) should not have sent the issue back to the file of the Assessing Officer and he should have decided the issue by himself. Accordingly, we direct the CIT(A) to decide the issue in accordance with law. In the result, Revenue appeal ITA No. 372/Hyd/2012 is partly allowed for statistical purposes and ITA Nos. 373, 374, 375, 463 and 1245/ Hyd/2012 are dismissed. CO Nos. 103 137/Hyd/2012 (By assessee): 31. The assessee raised the following common grounds: 1. The CIT(A) erred in upholding the allocation of expenditure made by the AO in respect of Unit-I and Unit-II (EOU) of the respondent. The CIT(A) ought to have appreciated that the respondent has maintained detailed books of account and has already allotted the reasonable expenditure to respective units which did not call for any interference. 2. The findings of the CIT(A) with respect to Research Development expenditure, interest etc, are incorrect and have no justification. Without prejudice and at any rate the ratio of 60:40 (Unit-I Unit II) adopted by the AO and sustained by the CIT(A) is unreasonable. 32. In the assessment order the Assessing Officer observed that the quantum of income shown by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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