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TMI Blog2013 (1) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... ai-I, dated 25.11.2010, passed u/s 263 of the Act, for assessment year 2006-07. 2. The brief facts of the case are that assessee u/s 143(3) of the Act was made on 3.12.2008. In the assessment made, the Assessing Officer allowed deduction u/s 80IB of ₹ 30,95,623/- claimed by the assessee as a Small Scale Industrial Undertaking. Later on, the CIT observed that the gross value of plant and machinery as on 31.3.2006 of the undertaking was revenue 3,43,57,426/- which exceeded the limit of ₹ 1 crore stipulated for small scale industrial undertaking as per section 80IB(14)(g) of the Act. Accordingly, the CIT issued notice u/s 263 of the Act and after considering the submissions of the assessee, set aside the order of the Assessing Officer and directed him to pass a fresh order in accordance with his discussions and in accordance with law. While doing so, the CIT has held as under: "I have carefully considered the reply given by the assessee. Although detailed submissions have been furnished, I find that the assessee's objections are mainly two fold. a. The order of the assessing officer cannot be considered as erroneous and prejudicial to the interests of revenue, as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... splaced, considering the facts of this case. In the circumstances, I am of the view that the order passed by the Assessing Officer allowing deduction u/s.80IB as claimed by the assessee, is clearly erroneous and prejudicial to the interests of revenue. Accordingly the assessment order dated 3.12.2008 passed is hereby set aside .The Assessing Officer is directed to pass a fresh order keeping in mind the above points and in accordance with law. Needless to emphasize that the assessee shall be given sufficient opportunity before completing the fresh assessment." 3. The A.R submitted that so long as the assessee was registered as a small scale industrial unit, it was eligible for deduction u/s 80IB of the Act. He submitted that at page 2 & 3 of the paper book is placed a copy of the provisional certificate dated 30.6.1999 as a small scale industrial unit and at pages 4 & 5 of the paper book is placed a copy of the permanent registration certificate as a small scale industrial unit dated 11.9.2000. He relied on the decision of the Hon'ble Bombay High Court in the case of CIT vs Paul Brothers, [1995] 216 ITR 548(Nag.) and submitted that in para 6 of the said order, the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the first unit." 5. He then relied on the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd vs ITO, (2010) 4 ITR (Trib) 243 and submitted that the Tribunal at para 5.1 of its order has held as under: "A perusal of the provisions of section 80-IA(3) clearly shows that the term "clause (ii)" was inserted by the Finance (No. 2) Act of 2004 with effect from April 1, 2005, this insertion is not with retrospective effect, as it is not so specified in the Act. The circular issued by the Central Board of Direct Taxes explaining the provisions relating to the Finance (No. 2) Act of 2004 also shows that the insertion is to take effect from April 1, 2005 and is to apply in relation to the assessment year 2005-06 and subsequent years. The first year of claim of the assessee for deduction under section 80-IA undisputedly is the assessment year 2004-05. The business of fax mail has been started by the assessee in 1997 and the business of providing internet services during the year 2000 being October 17, 2000 relevant to the assessment year 2001-02. Therefore, what is to be seen is whether there has been any violation of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-IA by applying the restraints of section 80-IA(3) cannot be considered for every year of the claim of deduction under section 80-IA but can be considered only in the year of formation of the business." 6. He further relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs Sohana Woollen Mills [2008] 296 ITR 238 (P&H) and submitted that it was held by the Hon'ble P&H High Court that mere audit objection, and merely because a different view can be taken are not enough to hold that the order of the Assessing Officer is erroneous or prejudicial to the interest of the Revenue. 7. He further submitted that deduction u/s 80IB was allowed to the assessee in assessment year 2004-05 when the gross value of plant and machinery as per books of the assessee was ₹ 3,28,35,650/-. He submitted that in assessment year 2005-06 also deduction u/s 80IB was allowed to the assessee when the value of plant and machinery as per books of the assessee was ₹ 4,25,98,618/- in an assessment made u/s 143(3) of the Act. He submitted that the assessments of 2004-05 and 2005-06 have not been disturbed by the Assessing Officer till date. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 ITR 83(S.C) wherein it was held as under: "In the instant case, the Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellantcompany was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commis sioner under section 263(1) was justified." 9. He further relied on the decision of the Hon'ble Gauhati High Court in the case of CIT v. B and A Plantation and Industries Ltd. [2012] 346 ITR 43(Gauhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire assessment." 11. Finally, the DR submitted that there was no grievance to the assessee against the order of the CIT. The CIT has only remanded the matter back to the Assessing Officer for readjudication afresh. He referred to the language of section 80IB(14)(g) and submitted that each assessment year the Assessing Officer has to determine whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of the investment in plant and machinery. He further submitted that the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) relied on by the assessee was of no help to the assessee in deciding the issue as in that case, what was considered by the Tribunal was section 80IA(3) of the Act and any of the conditions prescribed uns80IA(3) of the Act does not include a condition as in section 80IB(14)(g) of the Act and whether on the last day of the previous year the assessee was eligible as a small scale industrial undertaking on the basis of its investment in plant and machinery. 12. He submitted that the Hon'ble Madras High Court in the case of M/s SR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .s 263 has been passed denying the 80IB claim. The appellant has appealed against 263 order 15. It is also not in dispute before us that if assessee's industrial undertaking is held as a non-small scale industrial undertaking under Industries (Development and Regulation) Act, 1951, then the assessee is not eligible for deduction u/s 80IB of the Act. The contention of the assessee is that as it is holding a certificate of registration issued by a Government Department, wherein the assessee's industrial undertaking was accepted as a small scale industrial undertaking and therefore, the assessee should be treated as small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951. We do not find any merit in this contention of the assessee. We find that clause (g) of sub-section(14) of section 80IB reads as under: "small scale industrial undertaking" means an industrial undertaking which is, as on the last day of the previous year, regarded as a small scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951)." 16. A plain reading of the above provisions shows that for being a sma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act reproduced above. As per this provision, small scale industrial undertaking is regarded as "small-scale industrial undertaking under section 11B of the IDR Act". The IDR Act is enacted to provide for development and regulation of certain industries. For the purpose of regulating those industries in the meaning prescribed under the Act, industrial undertaking is defined in section 3(d) to mean any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government. The first Schedule attached to the said Act specifies those industries. In order to regulate these Scheduled industries, section 10 mandates that all existing industrial undertaking have to get registered under this Act. Section 11 of the IDR Act deals with new industrial undertaking which would come into existence after the passing of the Act and establish any new industrial undertaking, except under and in accordance with a licence issued in that behalf by the Central Government. However, in case of small scale industrial undertaking, exemption and favourable benefits are provided which means those small scale industrial underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost and quality of the product of the industrial undertaking; (e )foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and (f )such other relevant factors as may be prescribed." 10. Section 29B of the IDR Act gives power to the Central Government to exempt, inter alia, such small scale industrial undertakings from the provisions of IDR Act. 11. As is clear from the reading of section 11B of the IDR Act, it is for the Central Government to specify the requirements which shall be complied with by the industrial undertaking to enable it to be regarded for the purpose of the said Act as small scale industrial undertaking. Appropriate exercise in this behalf has been carried out by the Central Government by issuing notification dated 10-12-1997. Operative portion of the said notification lays down the following conditions to be fulfilled by the industrial undertakings before it could be regarded as a small scale or ancillary industrial undertakings: "Now, therefore, in exercise of the powers conferred by sub-section (1) of section 11B and sub-section (1) of section 29B of the said Act, and in supersession of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion that the registration under the IDR Act will be of no consequence for availing the benefit under section 80-IB of the Income-tax Act. Clause (g) of sub-section (14) of section 80-IB of the Income-tax Act only mandates that such an industrial undertaking should be regarded as small scale industrial undertaking under section 11B of the IDR Act. As per section 11B of the IDR Act, it is for the Central Government to lay down the conditions which are required to be fulfilled as regards small scale industries. In the aforesaid notification, the conditions which are mentioned for being regarded as small scale industries are the ownership of plant and machinery and value thereof. Registration of such an undertaking under the IDR Act is not a condition for treating the same as small scale industrial undertaking. That registration is prescribed for altogether different purpose, viz., to avail the benefit under the IDR Act either of section 11B or section 29B. Thus, insofar as extending the provision of section 80-IB of the Income-tax Act is concerned, the only aspect which is relevant and is to be considered is as to whether the conditions stipulated in the notification i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the machinery and plant installed, as on the last day of the previous year, for the purpose of the business of the undertaking does not exceed seven hundred and fifty thousand rupees; and for this purpose the value of any machinery or plant shall be, - (a)in the case of any machinery or plant owned by the assessee, the actual post thereof to the assessee; and (b)in the case of any machinery or plant hired by the assessee, the actual cost thereof as in the case of the owner of such machinery or plant." 16. The question which was posed for consideration before the Gujarat High Court in the case of CIT v. J.H. Kharawala [1994] 208 ITR 6911 was as to whether it was incumbent upon a small scale industrial undertaking to have registration under the IDR Act to claim the benefit of depreciation under section 32 of the Income-tax Act. Replying in the negative and holding that there was no such requirement of such registration to avail the said benefit, the Gujarat High Court held as under : "Section 32 provides for depreciation. Sub-section (1) provides for depreciation in respect of building, machinery, plant or furniture owned by the assessee and used for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80-IB of the Income-tax Act and is to be regarded as small scale industrial undertaking. We direct the Assessing Officer to give the benefit of deduction claimed by the assessee under section 80-IB of the Income-tax Act for the assessment year in question, i.e., 2004- 05." 18. The other argument of the A.R of the assessee was that the assessee has been allowed deduction u/s 80IB in earlier years and as this deduction has not been withdrawn, the deduction allowed u/s 80IB for the year under consideration cannot be withdrawn. For the above submission, the assessee placed reliance on certain decision. The first being the decision of Hon'ble Bombay High Court in the case of CIT vs Paul Brothers(supra) which was followed again by the Hon'ble Bombay High Court in the case of CIT vs Western Outdoor Interactive Pvt. Ltd(supra). The Hon'ble Bombay High Court at page 6 in para 6 of its order has held as under: "6. We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the conditions of being a small scale industrial undertaking, it cannot be held that the assessee must be allowed deduction in subsequent eligible years irrespective of the fact whether the assessee remains a small scale industrial undertaking in the subsequent years or not when the condition for allowability of deduction is that the assessee should be a small scale industrial undertaking. Therefore, in our considered view, the above decisions of the Hon'ble Bombay High Court are not applicable for deciding the issue under consideration. 21. Thereafter, the assessee relied upon the decision of the Delhi Bench of the Tribunal in the case of Tata Communications Internet Services Ltd. vs ITO (supra) wherein the issue related to the formation of the industrial undertaking. In respect of this issue, the Tribunal held that bar provided u/s 80IA(3) is in relation to the formation of undertaking and once the formation is complete the development of undertaking cannot be put under restrain of section 80IA(3); if for assessment year 2004-05, the assessee has been granted the claim of deduction u/s 80IA(4)(ii) the same cannot be denied for the subsequent assessment year by applying th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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