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TMI Blog2016 (7) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... ll continue to get the benefit of deduction of 80IC of the Act subject to the limitation of ten year period. The deduction for an undertaking making substantial expansion of the existing undertaking is not applicable in the case of the assessee. We are of the view that the conclusions drawn by CIT(A) on this issue are fully justified and does not call for any interference. Accordingly this appeal of the revenue is dismissed. - ITA Nos.2306&2307/Kol/2013, C.O.Nos.135&136/Kol/2013 - - - Dated:- 13-7-2016 - Shri N.V.Vasudevan, JM and Shri Waseem Ahmed, AM For The Department : Shri G.Mallikarjuna,,CIT,DR For The Assessee : Shri D.S.Damle, FCA ORDER Per Shri N.V.Vasudevan, JM ITA No.2306/Kol/2013 is an appeal by the Revenue against the order dated 14.05.2013 of CIT(A)-XII, Kolkata relating to the A.Y.2007-08. 2. The Assessee is a company engaged in the business of manufacturing of plywood, veneer laminated sheets, trading of block board, plywood, particle board, adhesive chemicals etc. For A.Y.2007-08 the assessee filed return on 30.10.2007 declaring total income of ₹ 15,91,77,514/-. An order of assessment u/s 143(3) of the Income Tax Act, 1961 (Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Sec.14A comes to be ₹ 100.63Iakh. Whereas an amount of ₹ 11.62 lakh only has been disallowed on this account. As such, the difference of ₹ 89.01 lacs {Rs.100.63 lacs- ₹ 11.62Iacs] was thus required to be added back as income of the assessee The above situation has resulted in underassessment of income by an amount of ₹ 9, 05,79,8121- [Rs.75,32,000 + ₹ 7,41,46,812 + ₹ 89,01,000/.] The undersigned, therefore, has reason to believe that income of the assessee, to that extent, has escaped assessment. 4. The AO passed an order of assessment u/s 143(3) of the Act r.w. s. 147 dated 05.03.2013 wherein the AO determined the total income of the assessee as follows :- Total Assessed Income as per Order u/s 143(3) dated 30.12.2009 ₹ 16,17,06,690/- Add : Disallowances/Additions as discussed above. 1. Balance with Central Excise As discussed above Rs.75,32,196/- 2. Disallowance of claim of Deduction u/s 80IC Rs.7,41,46,812/- 2. Disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the MODVAT Credit Balance as well as Excise Duty on output finished goods paid by the assessee through Personal Ledger Account (PLA). These were thus two different credits (the Excise Duty paid as appearing in the Balance sheet being inclusive of MODVAT Credit balance and the Excise duty paid in advance which is different from MODVAT credit on input, for which the Assessee could take credit in future) and this aspect was completely lost sight of by the AO. The Assessee therefore submitted that this reason recorded was prima facie fallacious, incorrect and emanated from reappraisal of documents which were already before the AO's predecessor to which he had applied his mind. Hence the reopening of assessment on this account was illegal and bad in law. (ii) With regard to the s econd reason recorded by the AO with regard to deduction allowed under Section 80IC of the Act, the Assessee submitted before CIT(A) that the allegation of the AO was that the Assessee failed to submit Form 10CCB (which is a form necessary to be filed for claiming deduction u/s.80IC of the Act) along with the return of income (in the original assessment proceedings) but was filed in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO for initiating proceedings u/s.147 of the Act, in which the AO has alleged that disllowance under Section 14A of the Act in respect of expenses incurred in relation to earning of dividend income ought to have been done by the AO by applying Rule 8D of the Income Tax Rules, 1962 (Rules), it was submitted that the A.O s predecessor had considered this issue and after examining the facts of the case and the submissions made by the Assessee in the original assessment, computed disallowance of ₹ 11.62 lacs under Section 14A of the Income-tax Act, 1961. It was submitted that a specific query was raised in the original assessment in respect of .disallowance under Section 14A in response to which the appellant filed detailed explanation. The AO's predecessor in Point No. 4 of his assessment order passed u/s 143(3) discussed this issue in great detail and computed the disallowance of ₹ 11 .62 lacs. It was therefore submitted that reopening of assessment on this issue was impermissible and in gross violation of the pre-conditions set out in Section 147. Such reopening amounted to reviewing the original assessment order and sitting upon the judgment of his predecessor, Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed u/s 143(3) 47 was bad in law and without jurisdiction and therefore needs to be quashed. 7. The CIT(A) however, upheld the initiation of re-assessment proceedings for the following reasons :- I have considered the finding of the A.O. in his assessment order dt. 05-03-2013 and the written submission .filed by the A.R. during the appellate proceeding. Appeal on Ground Nos.1, 2 and' 3 are against the reopening of the assessment. The A.R. in his written submission filed during the appellate proceeding contended that reopening of assessment u/s 147 of the I.T. Act, 1961 was not legal. I have considered the A.R s written submission and the finding of the A.O in the assessment order. It is clear that the case has been reopened within four years and the A.O has also brought. on record the reasons for reopening of the assessment. I find that the A.O. has made a clear cut case for reopening of the assessment as it meets both the requirements of time limit and of valid reasons for reopening of the assessment. Therefore, assessee s appeal on grounds nos.1, 2 and 3 are dismissed. 8. However, with regard to the other additions made by the AO the CIT(A) deleted the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it balance available in the Tax Audit Report could not give rise to a belief of escapement of income. It was incumbent on the part of the AO to highlight in the reasons recorded as to how the aforesaid discrepancies could give rise to belief that there was income chargeable to tax which has escaped assessment. As far as the second reason given by the AO is concerned the facts are very clear that the auditors report in Form No.10CCB was filed by the assessee in the course of assessment proceedings u/s 143(3) of the Act. The law is well settled that the requirement of filing of such audit report along with the return of income is only directory and not mandatory. Secondly it is seen that in the audit report initially the auditors had by mistake mentioned that no deduction is claimed u/s 80IC of the Act. But however they issued a corrigendum mentioning the correct figure of deduction u/s 80IC of the Act. These facts remain undisputed. In the light of the undisputed facts, it cannot be said that there was any escapement of income. The third and the last reason recorded by the AO with regard to the disallowance u/s 14A r.w. Rule 8D is also without any basis. Firstly the provision of Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue is concerned the issue raised by the revenue is only with regard to the action of CIT(A) in allowing deduction u/s 80IC of the Act. As far as the deduction u/s 80IC claimed by the assessee in A.Y.2008-09 is concerned the facts are that the Assessee in AY 2008-09 claimed deduction of ₹ 13,39,01,852/- u/s.80IB of the Act, in respect of profits derived from undertaking manufacturing ferro alloys which unit/undertaking was situated in the state of Meghalaya. In the original assessment proceedings concluded u/s.143(3) of the Act, the deduction claimed was allowed by the AO. The aforesaid order of the AO was subject matter of revision proceedings by the Commissioner of Income Tax u/s.263 of the Act. According to the ClT, deduction u/s.80-IC of the Act is available to the Assessee only if the Assessee undertakes substantial expansion and since the Assessee did not undertake substantial expansion, the CIT was of the view that the AO ought not to have allowed deduction u/s.80-IC of the Act. The CIT however directed the AO to re-examine the deduction claimed under Section 80lC of the Income-tax Act, 1961. In the impugned order framed u/s 143/263, the AO disallowed the deduction cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non-fiscal concessions for the special category states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern states, in order to give boost to the economy in these states. With a view to give effect to these new packages announced by the Union Cabinet in respect of these states, it is proposed To insert a new section 80-IC to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial Expansion in the states of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern states. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. It is proposed to provide that no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section or under the section 80-IB or under section 10C as the case may be, exceeds ten assessment years. It is also propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 80lC was done by the AO was wholly erroneous and the same is not in conformity with the language expressly employed by the Legislature. The provisions of Section 80lC (2) (b) read as follows: (2) This Section applies to any undertaking or enterprise: (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1 st day of April, 76[2007], in the State of Sikkim; or (ii) On the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or {iii} on the 24th day of December, 1997 and ending before the 1 st day of April, 2007, in any of the North-eastern States (emphasis supplied) 17. According to the Assessee as per the provisions of Section 80IC(2) (b) deduction is available to the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 80IC(2), 80IB(4) 80IC(6) of the Income-tax Act, 1961 allowed the deduction claimed under section 80IC of the Income-tax Act 1961. In light of the amendments brought by the Finance Act, 2003 the AO held that the undertakings which were earlier covered u/s 80IB(4) had migrated to Section 80IC and the deduction in respect of the profit derived by the industrial undertaking was permissible in law. The AO further held that deduction u/s 80IC is available to new industrial undertakings which were set up and began production in the specified period of 24th December 1997 to 1st April 2007 and separately to the already existing industrial undertakings but who had undertaken substantial expansion In the aforesaid specified period. 20. The CIT(A) found force in the aforesaid submissions made on behalf of the Assessee and he held that the Assessee was entitled to claim deduction u/s.80-IC of the Act. The following were the relevant observations of the CIT(A): I have considered the finding of the A.O. in his assessment order dt. 11-03- 2013 and the written submission filed by the A.R. during the appellate proceeding. Appeal on Ground Nos. 1 and 2 are against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Sikkim; or ii) on the 7th day of January, 2003 and ending before the 1st day April, [2007] in the Slate of Himachal Pradesh or the State of Uttaranchal; or iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. The A.R. has further submitted that deduction was allowed u/s. 801B/801C in A.Y. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and originally in A.Y. 2008-09 also ( which has been withdrawn in the order under this appeal). The A.R. has also 'brought on record that the assessment for A.Y. 2009-10 has been completed after the direction of CIT u/s. 263 and in A.Y. 2009-10 also deduction u/s. 80lC has been allowed to the assessee. I have considered the finding of the A.O. and the written submission filed by the A.R. during the appellate proceeding. From the plain reading of Sec. 80IC and the memorandum explaining the provisions of Finance Bill, 2003 in my opinion it is very clear that the existing undertakings which were entitled for deduction u/s. 80IB can claim deduction now under 80lC of the I.T. Act, 1961 subject to ten years limitation. Section 80lC has brought a new category of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing deduction u/s 80IC of the Act was that the total period of deduction including the period of deduction u/s 80IB of the Act should not exceed 10 years. This condition was admittedly satisfied in the case of M/s.Shyam Century Ferreous Ltd. M/s.Shyam Century Ferreous Ltd amalgamated with the assessee and the assessee claimed deduction u/s 80IC of the Act for A.Y.2008-09.The AO took a view that the assessee can claim deduction u/s 80IC of the Act only if it makes a substantial expansion. This was not the correct position in law as has been held by CIT(A). In our opinion the CIT(A) has rightly come to the conclusion that in respect of unit which claimed deduction earlier u/s 80IB of the Act such unit will continue to get the benefit of deduction of 80IC of the Act subject to the limitation of ten year period. The deduction for an undertaking making substantial expansion of the existing undertaking is not applicable in the case of the assessee. We are of the view that the conclusions drawn by CIT(A) on this issue are fully justified and does not call for any interference. Accordingly this appeal of the revenue is dismissed. 24. In the result ITA No.2307/Kol/2013 is dismissed. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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