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TMI Blog2016 (9) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2003-04 as the orders passed by the authorities i.e. the Assessing Officer, CIT (Appeals) and the Income Tax Appellate Tribunal for the subsequent assessment years are based on their respective orders passed in respect of the proceedings pertaining to the assessment year 2003-04. ITA Nos.714 of 2009, 11 of 2012 and 340 of 2013 are in respect of the assessment years 2006-07, 2008-09 and 2009-10, respectively. The tax effect in these three appeals is higher than the amount stipulated in Circular No.21 of 2015. 2. Each of the appeals has been admitted on the same questions of law. We will, however, refer to the facts and the proceedings relating to ITA No.958 of 2008 which is in respect of assessment year 2003-04 as it is on the basis of the orders passed in respect of this assessment year that the orders have been passed by the authorities in respect of the subsequent years. 3. ITA No.958 of 2008 pertaining to the assessment year 2003-04 is an appeal against the order of the Income Tax Appellate Tribunal setting aside the order of the Commissioner of Income Tax (Appeals) [for short, CIT (A)] affirming the order of the Assessing Officer on the issues under consideration. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-section(3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence. ..... ..... ..... ..... (ii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose; ..... ..... ..... ..... (iv) in a case where the industrial undertaking manufactures or produces articles or things, the undertaking employs ten or more workers in a manufacturing process carried on with the aid of power or employs twenty or more workers in a manufacturing process carried on without the aid of power. (3) The amount of ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ro Motion Pvt. Ltd. (sister concern) is an attempt to evade the tax. (d) There is no power connection in unit-II. (e) Bank accounts of Unit-I & Unit-II is same. (f) Telephone connections/numbers are common. It is splitting up or re-construction of business already in existence. As such deduction u/s 80IB is not admissible in respect of Unit-II as claimed and the same is hereby rejected." The Assessing Officer held that the manufacturing activities carried out in Unit-II, which the assessees claim was a new unit for the purpose of Section 80-IB, was nothing but an extension of the business of the assessee's industrial undertaking being Unit-I already in existence. Unit-I was in existence from the year 1989 and Unit-II came into existence in March, 2000. It is necessary to note the Assessing Officer's observations that preceded these conclusions in the assessment order. They are as follows: No separate trading account or profit & loss account had been filed. The assessee, in reply to the Assessing Officer's letter calling upon them to furnish information, stated that they were manufacturing electric motors (2-Pole) and electric fans in Unit-I and electric motors (4-Pole) inlet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the fact that there was no demarcation of the employees of the said Unit-I and Unit-II. 7. The Tribunal, however, set aside the order of the CIT(A) and held that the assessees were entitled to the deduction under Section 80-IB. This was on the ground that the assessee's claim for this deduction was allowed for the previous assessment years being Assessment Years 2001-02 and 2002-03. The same has not been withdrawn. The revenue did not deny the same. The Tribunal, therefore, held that the claim for deduction stood admitted in the initial assessment years and that there was, therefore, no justification to deny the same for the year in question, namely, 2003-04. This was especially in view of the fact that the assessment for the earlier years was made under Section 143(3) where it was found that the assessees had fulfilled all the conditions necessary for the grant of the deduction under Section 80-IB. The Tribunal held that it was thereafter not open for the Assessing Officer to re-examine the issue all over again and to come to a different conclusion in a subsequent year without justifying such departure. The Tribunal further held that the onus was, therefore, on the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting undertaking which is precisely what the legislature intended avoiding. Let us take another illustration. An assessee could have, in the initial assessment year, employed the number of workers stipulated in sub-section (2)(iv) or more and in the subsequent year discharged them and availed the services of the workers engaged earlier in the existing undertaking. This would defeat the entire purpose of Section 80-IB which is to encourage setting up new undertakings which in turn would generate further employment. Further still, an assessee would be entitled then, in the subsequent years, to dispose of the new plant and machinery and use the plant and machinery already in use by an existing undertaking. 11. In our view, therefore, an assessee must fulfill each of the conditions stipulated in Section 80-IB in each of the years in which the deduction thereunder is sought. The Assessing Officer would be entitled to ascertain in each of the assessment years whether or not the conditions of Section 80-IB remained fulfilled. In other words, even where an assessee is found to have fulfilled all the conditions of Section 80-IB in the initial assessment year and has on account thereof be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise the newly established industrial undertaking satisfied the conditions stipulated in Section 84. Alternatively, it was contended that the latest point of time, by reference to which the applicability could be ascertained, was the date of commencement of manufacture or production by such an undertaking. It was submitted then that if the condition prescribed in the section was satisfied either in the year of formation or latest in the year of commencement of the manufacture or production by the new undertaking then the tax holiday would be available in the assessment year relevant to the previous year in which the manufacture started and in the immediately four succeeding years. If, however, the condition was not satisfied in either of these years, the benefit would not be available even if conditions were satisfied in the subsequent years. The Division Bench rejected the contention that the year of formation of the undertaking was relevant. The Division Bench held that in relation to a new industrial undertaking the section is firstly attracted in the assessment year relevant to the previous year in which the undertaking began to manufacture or produce articles. The Division Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquires new building, machinery or plant during any one of the succeeding assessment years and as a result of such acquisition the condition prescribed in clause (ii) of subsection (2) is fulfilled, then, as from the assessment year in which such condition is satisfied, the benefit of tax holiday will be available to it for the remaining period of the five-year term. This appears to us to be the only reasonable construction possible having regard to the plain words of the statutory enactment. The view which we are inclined to take as aforesaid on the plain language of the statute is supported also by the object behind the enactment and avoids the frustration of such object. We have already adverted to the object of the enactment, namely, to encourage the setting up of new industrial undertakings in which there is substantial investment of fresh capital. The legislature could not have intended that the outlay of substantial capital for the purpose of new machinery, plant or building should necessarily be in the very first year of the commencement of manufacture or production. In fact, there are many industrial units which add to their building, machinery or plant as the business gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing at the true meaning, regard must be had to the fact that such construction is not adopted which defeats the very purpose for which the enactment was made. In our opinion, therefore, even the alternative submission made on behalf of the revenue must be rejected." (emphasis supplied) We are in respectful agreement with the observations of the Division Bench. The converse case discussed in the judgment especially supports the view taken by us. 14. Mr. Kapoor, on the other hand, in support of his contentions, relied upon the judgment of another Division Bench of the Gujarat High in the case of Saurashtra Cement & Chemical Industries Ltd. vs. Commissioner of Income Tax, [1980] 123 ITR 669 (GUJ). The appellant was granted relief under section 80J for the assessment year 1968-69. The issue was whether the relief should be continued for the subsequent year. The Division Bench held:- " The ITO disallowed the assessee's claim as in his opinion the expansion of cement manufacturing unit did not amount to setting up a new industrial undertaking, inasmuch as the activities of the expanded part of the unit as well as those of the original units were much interconnected. He, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no provision in the scheme of s. 80J similar to the one which we find in the case of development rebate which could be withdrawn in subsequent years for breach of certain conditions. No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. The learned advocate for the revenue, invited our attention to certain observations made by this court in CIT v. Satellite Engineering Ltd., [1978] 113 ITR 208 (Guj): TC25R.635, where the court was concerned with the question, whether an industrial undertaking which did not satisfy the prescribed conditions so as to entitle itself to the relief under s. 80J in the initial year can successfully claim the relief, if the prescribed conditions are satisfied in the subsequent years. We do not think that this decision of this court in Satellite Engineering Ltd.'s case (supra) can be of any assistance to the cause of the revenue, bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixing the quantum having regard to the respective capital employed in the new undertaking in the year with which he is concerned. In that view of the matter, therefore, the Tribunal was perfectly justified in taking the view as it did and we answer question No. 1, in the affirmative, that is, against the revenue and in favour of the assessee." The Division Bench also proceeded on the basis that there was no provision in the scheme of Section 80J similar to the one found in the case of a development rebate which could be withdrawn in the subsequent year for breach of certain conditions. Whether that observation is correct or not is irrelevant. What is important is that the Division Bench was of the view that Section 80J does not have a provision by which the benefit thereunder once given can be withdrawn in a subsequent year for breach of certain conditions. The case would then be clearly distinguishable from the one before us for, as we observed earlier, an assessee would be entitled to a deduction in the year subsequent to the initial assessment year only if it fulfills/continues to fulfill the conditions stipulated in Section 80-IB. If it fails to do so in any particular asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x effect in respect of these three appeals, namely, ITA Nos.958 of 2008, 700 of 2009 and 701 of 2009 does not exceed Rs. 20 lakhs. Paragraphs 5 and 10 of the circular, relied upon by Mr. Kapoor, read as under:- "5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal, can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the 'tax effect' is less than the prescribed monetary l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. In our view, in such cases if attention of the High Court is drawn the High Court will not apply the Circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks. The special leave petition is, accordingly, disposed of." 21. The judgment would have no application for more than one reason. In the cases before us the matter in one year, namely, the assessment year 2003-04 does not have a cascading effect on the subsequent years. At the cost of repetition, the application for deduction would have to be determined in view of the facts and circumstances obtaining in each of the assessment years in which the deduction is sought. The decision in respect of one assessment year, therefore, does not necessarily effect the decision in the next. 22. Appeal Nos.958 of 2008, 700 of 2009 and 701 of 2009 are, therefore, dismissed in view of the Circular No.21/2015. 23. This brings us back to the other appeals. Although ITA No.958 of 2008 is dismissed in view of Circular No.21/2015, we will refer to the facts in that case for it is based on the decisions in respect of the assessment year 2003- 04 that the authorities passed the orders in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order for the year 2001-02 is clear from the queries raised by him and the assessee's answers thereto. A separate compilation of the same was handed over by Mr. Salil Kapoor. For instance, the assessee's Chartered Accountants, by their letter in reply to the Assessing Officer's queries raised on 11.12.2003, stated as under:- "Your Honour has raised the objection that no separate accounts for the new Industrial undertaking has been maintained. We wish to submit that this is first year of full operation of Unit-II as such inadvertently assessee has not maintained the separate books of accounts. However, from next year onward separate books of account are maintained. However, assessee firm is fulfilling all the conditions of section 80-IB as stated above. Further, we wish to submit that section 80-IB does not envisage any such requirement for maintaining separate books of accounts. We have worked out the profit of new unit from the books of accounts produced before your honour and calculation have already been enclosed in the return filed by us. There is no infirmity in the working of the profit of new unit. Our claim is being supported in the following decided cases:" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltogether. That is a question of evidence and not a legal obligation. 30. Section 80-IB itself does not expressly require an assessee to maintain separate books of account to maintain a claim for a deduction thereunder. Nor do we find anything in the section that implies such a requirement. So long as an assessee fulfills all the conditions stipulated in sub-section (2), the section would be applicable. These conditions do not require an assessee to maintain separate books of account in respect of the new undertaking. Nor does sub-section (3), stipulate such a condition. As we will shortly see, where an assessee is required mandatorily to fulfill a particular condition, the legislature expressly included a condition to that effect. 31. As we mentioned earlier, where an assessee keeps separate books of account that fact would, along with other facts, be relevant while considering whether the assessee fulfills all the conditions of Section 80-IB and, in particular, sub-section (2) thereof. It would be relevant, for instance, while considering whether the industrial undertaking concerned is formed by splitting up or a reconstruction of a business already in existence or not. If sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken by the Andhra Pradesh High Court in Commissioner of Income Tax vs. Sree Krishna Pulverising Mills, (2000) 241 ITR 262 (AP) and by the Gauhati High Court in Commissioner of Income Tax vs. Technotive Eastern (P) Ltd., (2002) 255 ITR 253 (Gau). 35. The Gauhati High Court framed the following question of law and proceeded to answer it as follows:- "(i) Whether on the facts and in the circumstances of the case the Tribunal was correct in law in holding that no separate accounts are required to be maintained for claiming deductions under ss. 80HH and 80-I of the Income-tax Act, 1961? .... ..... ....... ....... ....... 5. Regarding the first question we find that the law does not require that a separate accounts are required to be maintained for claiming deduction under ss. 80HH and 80-I of the IT Act, 1961. Of course, there is a provision of sub-s. (5) which is quoted below: "(5) Where the assessee is a person other than a company or a co-operative society, the deduction under sub-s.(1) shall not be admissible unless the accounts of the industrial undertaking or the business of the hotel for the previous year relevant to the assessment year for which the deduction is claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same and, in any event, very similar. 39. The contention that the two units are in the same premises is also erroneous. The inspection report, called for by the Assessing Officer, did mention that the premises of the two units are in the same industrial area. It is important to note that the report further stated: "However the unit-2 is working in two halls constructed separately on the same plot." The report, therefore, indicates that although the units are in the same industrial area and on the same plot, new Unit-II was constructed separately in two halls. Thus, the premises were different as per the Inspector's report. 40. The finding of the Assessing Officer that job-work charges have been claimed in respect of the two units separately and as per the profit and loss account in respect of each of them, in fact, supports the assessee's case that the two units are separate. The job-work ledger produced by the assessees also indicated the same. 41. The assessment order also cannot be supported in so far as the Assessing Officer denies the deduction on the ground that there was no separate power connection in Unit-II, that the bank account of the two units was the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wage registers of the new and old units. The assessment order also records that the said wage and attendance registers were produced. It is not clear whether they were produced before the Assessing Officer or before the Inspector appointed by him. However, it makes no difference who they were produced before. The assessment order records that there is a common register for both the units which records that there are 93 employees but without any demarcation of the employees of Unit-I and Unit-II. 46. Let us first examine the provisions of Section 80- IB(2)(iv). It requires the industrial undertaking to employ ten or more workers in a manufacturing process carried on with the aid of power. The assessee would have employees if it is already in business. To be entitled to a deduction under Section 80-IB, the assessee must, in addition to such employees, employ for and with respect to the new undertaking the number of workers stipulated in sub-section (2)(iv) which, in the present assessee's case, is not less than ten. The workers indeed would be employed by the assessee but they must be employed for the new undertaking. The contractual relationship would be between the workmen and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained only in the initial years but that, thereafter including for the assessment year 2006-07 onwards separate wage registers were maintained. It would be unfair then in any event to hold against the assessee with respect to the assessment year 2006-07 onwards on the basis of the finding for the assessment year 2003-04. The deduction, therefore, was wrongly denied on this ground for the assessment year 2006-07 onwards. 48. Issue No.1 in the result is answered against the department on facts. Re: ISSUE No.2 49. CIT (Appeals) sustained the Assessing Officer having added Rs. 14,75,940/- on account of trading results after rejecting the assessee's books of account. The Assessing Officer noted that the GP rates for the years 2001-02, 2002-03 and 2003-04 was 33.28%, 34.04% and 28.5%. The Assessing Officer was not satisfied with the assessees' explanation for the fall in the GP rate and therefore adopted the GP rate at 30%. The entire exercise was essentially one of facts. The question is whether the decision of the Tribunal is perverse or absurd. We do not think it is. 50. The Tribunal took into consideration various aspects including the assessee's explanation for the fall in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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