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TMI Blog2013 (11) TMI 1273X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has undertaken substantial expansion within the meaning of section 80- IC(8) (ix) stands settled in the first year of such claim of deduction u/s 80-IC of the I.T. Act - the criteria of substantial expansion has been accepted to be fulfilled in the first year of such claim of deduction u/s 80IC in A.Y. 2004-05 – Decided against Revenue. - ITA No.29/Del/2012 - - - Dated:- 7-2-2013 - Shri S. V. Mehrotra And Shri Chandramohan Garg,JJ. For the Appellant : Shri Sukhveer Chaudhary, Sr.DR For the Respondent : Shri K. Sampath ORDER Per Chandra Mohan Garg, Judicial Member This appeal has been preferred by the Revenue against the order of Commissioner of Income Tax(A)-I, Dehradun dated 22.09.2011 for AY 2008-09. The only ground raised in this appeal reads as under:- "Whether the ld. Commissioner of Income Tax(A) has erred in law and on facts in not deciding the claim of the assessee to the effect that its product is "handicraft" as against revenue's contention i.e. product is 100% machine made/machine-craft and, therefore, not eligible for deduction u/s 80-IC(2)(b)(ii)." 2. Brief facts giving rise to this appeal are that the Assessing Officer obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of manufacturing of 'handicraft' is majorly by 'hands' i.e. non-machine based." 3. Aggrieved, the assessee filed an appeal before the C.I.T.(A)-1, Dehradun which was allowed with the following observations:- "1.5. According to the provisions of the I.T.Act, an assessee cannot get double deduction in respect of the same income under the same section. Hence, even if the assessee were eligible for the deduction under both the clauses (a) and (b) discussed above, it would get the deduction only under one of the clauses. It could stake the claim under the second c1ause, without prejudice to its eligibility under the first clause. In that situation, its eligibility under the second clause would be considered only if it was found to be ineligible under the first one. In this case, as discussed above, since it is found eligible under the first clause itself, there should have been no occasion to go to the alternative plea. But, the AO committed the error of going to the alternative plea without considering its main plea. And then, she found it to be ineligible under the second clause. Thus, the assessee is aggrieved on both counts, i.e. (a) its main plea was not considered and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. In the present these two assessment years, we find that Learned First Appellate Authority has discussed all these issues elaborately. The finding of the Learned CIT(Appeals) in assessment year 2005-06 covering both these issues and incorporating the observations of the ITAT reads as under: "5.5. I have considered the above submission of the counsel of the appellant and the facts indicated by the AO in the assessment order and the remand report, it is observed that for claiming deduction u/s 80-IC of the I.T. Act an existing unit has to satisfy the following conditions as per provisions of section 80-IC(2)(a)(ii) of the I.T. Act, 1961 : i)The business of manufacturing or producing any article or thing should be in the notified area like any Export Processing Zone or integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park as notified by the Board in accordance with the scheme framed by the Central Government in this regard in the state of Himachal Pradesh or in the state of Uttaranchal ; ii) The Industrial Undertaking or Enterprise is not producing any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the appellate order are mentioned as under :- "It is true that plant and machinery to the extent of Rs. 99,55,929/- out of total plant and machinery installed of Rs. 1,35,89,347/- between April, 2003 to March, 2004 has been installed in the month of February, 2004. However, this in my opinion is not a valid reason for denying deduction to the appellant. It is a well known fact that assessees in past used to buy trucks as the last week on March and they were allowed depreciation for the full year. Similarly, in the cases of newly set up business, if plant and machinery is ready for production and is put to use, say in the month of March full depreciation is allowable for the entire 12 months period (before the 2nd proviso to section 32 restricting the depreciation to 50% if the asset was purchased/installed after 30th of September of the previous year). Thus plant and machinery must be used for the purpose of business during the previous year and it is not necessary that the user should be for the entire previous year (CIT vs. Motors Gen. Stores 14 ITR 130, CIT vs. Banarasi Das Sons 61 ITR 414), Circular No. 378 dated 3.3.84 also clarifies the intention of the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area, appellant is not producing goods or article mentioned in XIII schedule and being an existing unit has invested enough money in plant and machinery fulfilling the criteria of "substantial expansion". The AO was, therefore, not right in denying the exemption. He is directed to allow deduction u/s 80-IC of the I.T. Act." 5.6 The department filed appeal before Hon'ble ITAT and vide order in ITA No. 2768/Del/2007 dated 24.12.2008, the Hon'ble ITAT, Delhi has upheld the order of the CIT(A), granting the claim of deduction u/s 80-IC of the I.T. Act, 1961. In this respect the finding of the Hon'ble ITAT is reproduced as under :- "5. We have considered the facts of the case and rival submissions. It is true that the issue of substantial expansion has to be determined on the basis of the value of gross block of the plant and machinery on the first day of the previous year in which such substantial expansion is undertaken. However, that does not mean that the issue of substantial expansion cannot be resolved in the absence of non-availability of the value of gross block on the first day of the previous year. The ld. CIT(A) has taken into account the probable value of gross block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not a mere pretence. The appellant is found to produce or manufacture a large number of items about 51 in nos. which involve different stages in the manufacturing process both in respect of hand and skill and use of machine. It cannot be conclusively said that the articles produced have been predominantly made by hand because the machines have also been utilized as and when required in the manufacturing operations. 5.10. In my considered opinion, the percentage of utilization of human skills through manual intervention cannot be measured because there is no objective standard to measure such involvement of human skill towards production or manufacturing of the finished goods. However, as regards the second test, the AO has rightly observed that the facts of the case of the appellant are in harmony with such test without deviating from law laid down by the apex court. The AO has also brought on record that the appellant has substantial skills work force and looking to their skills and ability to do craft work these skilled workers are artisans viz carpenter, knife-maker, blacksmith metal smith leather workers etc. The AO has scrutinized the final products which were avai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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