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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 ..... ted by the Tribunal that the assessee had explained that the manufacturing process required uninterrupted regulated electric power supply and that, therefore, the assessee had not availed of any regular power connection but was entirely dependent on the power supplied by its own generator. The assessee also explained that the prices of the diesel had increased. The attention of the Tribunal was also invited to the paper books wherein an analysis of the factors reflecting upon the GP rates were mentioned. For administrative convenience, it is understandable that the assessees would maintain the same bank account in respect of both the units. The section does not make it mandatory to maintain separate bank accounts. For the same reason, the assessee cannot be denied a deduction merely because the telephone numbers are common. There is no reason for the assessees to have separate telephone connections in respect of each unit, if they can otherwise function with common telephone numbers. The section does not require the same either. The Assessing Officer also disallowed the deduction on the ground that the workers/employees were common in respect of Unit-I and Unit-II and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant factors and the Tribunal cannot be faulted for having relied upon the same. The decision of the Tribunal relying upon the fact that there were no adverse findings by the Excise Authorities cannot be said to be absurd either. The Tribunal’s satisfaction was based on the material on record. The Tribunal’s finding that the GP rate as suggested by the assessee is plausible warrants no interference. This was essentially a question of fact and not a substantial question of law. - INCOME TAX APPEAL No. 958 of 2008 (O&M), INCOME TAX APPEAL No. 700 of 2009 (O&M), INCOME TAX APPEAL No.701 of 2009 (O&M), INCOME TAX APPEAL No.714 of 2009 (O&M), INCOME TAX APPEAL No.11 of 2012 (O&M), INCOME TAX APPEAL No.340 of 2013 (O&M) - - - Dated:- 2-9-2016 - MR. S.J.VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Yogesh Putney, Advocate For The Respondent : Mr. Salil Kapoor, Advocate, Mr. Sumit Lalchandani, Advocate and Mr. Ananya Kapoor, Advocate S.J. VAZIFDAR, CHIEF JUSTICE : Appeal Nos.958 of 2008, 700 of 2009 and 701 of 2009, pertain to the assessment years 2003-04, 2005-06 and 2004-05, respectively. We have held that the tax effect of each of these three appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IB of R.16,22,661/- in respect of Unit No.II. 2. Whether the Ld. ITAT was right in deleting the addition made u/s 145(3) at ₹ 14,75,940/-? The contentions raised in the questions framed by the appellant in the appeal will be considered while dealing with the questions reframed by us. 4. The respondent/assessees filed a return declaring an income of ₹ 86,21,400/- which was processed under Section 143(1) of the Income Tax Act, 1961. The assessees claimed a deduction of ₹ 16,22,661/-. under Section 80-IB in respect of a new unit viz. Unit No.II. The assessee s trading account as per their profit and loss account showed a gross profit of about ₹ 2.80 crores on total sales of about ₹ 9.83 crores yielding a gross profit rate of 28.50%. The Assessing Officer rejected the books of account under Section 145(3) and computed the gross profit by applying a G.P. rate of 30% on the total sales of about ₹ 9.83 crores. The gross profit so computed amounted to about ₹ 2.94 crores resulting in an addition of about ₹ 14.76 crores. The Assessing Officer completed the assessment by making the said addition of ₹ 16,22,661/- after refusing the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a small scale industrial undertaking, it begins to manufacture or produce articles or things or to operate its cold storage plant not specified in sub-section (4) or sub-section (5) at any time during the period beginning on the 1st day of April, 1995 and ending on the 31st day of March, 2002. .. .. .. .. (14) For the purposes of this Section,- .. .. .. .. (c) initial assessment year - (i) in the case of an industrial undertaking or cold storage plant or ship or hotel, means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, or to operate its cold storage plant or plants or the cold chain facility or the ship is first brought into use or the business of the hotel starts functioning; 6.(A) The Assessing Officer came to the conclusion that the assessees were not entitled to the deduction under Section 80-IB for the following reasons:- (a) No separate books of accounts have been maintained. (b) The workers/employees are common in respect of Unit I and Unit II there is no demarcation of employees/workers as per Attendance Register Produced (c) Job work char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive block for both the unit is same. (iii) Partners of both the units are same. (iv) No separate register for wages/salary had been maintained for the accounting year 2002-03 relevant to A.Y. 2003-04, in respect of Unit-I Unit-II. The wages have been debited in the percentage of turnover/sale basis. (v) There is no power connection- two generators have been installed but the storage tank of diesel is one. The consumption of diesel is debited in %age of raw material consumed. There is one godown for raw materials. (vi) Bank account of both the unit is one. From the assessment order, it is not clear as to which part is a reference to the Inspector s report and which part is the finding of the Assessing Officer. Be that as it may, we will deal with what is stated in the assessment order for, in any event, the Inspector s report was relied upon by the Assessing Officer. (B) The CIT (A) upheld the Assessing Officer s rejection of the assessee s claim for deduction under Section 80-IB on the ground that the business complex was one. There was no separate power connection. There was no separate sales-tax number/licence. There were common purchases, a common store, com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first and then deal with each of the grounds on the basis of which the Assessing Officer and the CIT (A) rejected the assessee s claim for a deduction under Section 80-IB. 9. Sub-section (1) of Section 80-IB entitles an assessee to a deduction for a specified number of years. Subsection (2) provides that the section applies to an industrial undertaking that fulfills all the conditions enumerated therein. The deduction is, therefore, for each of the years. It follows, therefore, that the conditions stipulated in the section must be fulfilled or remain fulfilled for each of those years. A view to the contrary would render the section meaningless and confer a benefit upon an assessee which the legislature could never have intended. 10. Take for instance, a case where an assessee forms a new undertaking without splitting up or reconstructing one already in existence. It must for each of the years for which the deduction is claimed and not merely for the year of formation be so formed to be eligible for the deduction. If it were not so, the entire purpose of Section 80-IB would be defeated rendering it nugatory. The assessee would be able to form the new undertaking in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in that year. The Assessing Officer, therefore, cannot deny a deduction in the assessment year in question before him on the ground that the assessee had failed to fulfill a condition precedent to the grant of a deduction in another assessment year. That would amount to an Assessing Officer reopening an assessment in respect of another assessment year without following the provisions of the Act. 13. Mr. Putney relied upon a judgment of the Gujarat High Court in Commissioner of Income Tax, Gujarat-I vs. Satellite Engineering Ltd., [1978] 113 ITR 208 (GUJ) wherein Section 84(2)(ii) read with the explanation to sub-section (3) of the Income Tax Act, 1961, as it then stood, fell for consideration. Section 84, as it stood at the time relevant to the case, provided that income tax shall not be payable on so much of the profits and gains derived inter alia from any industrial undertaking to which the section applies as did not exceed 6 per cent per annum on the capital employed in such undertaking or business. Sub-section (2) in so far as it is relevant for the purpose of our judgment read as under:- 84. Income of newly established industrial undertakings or hotels.- . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the year in which the manufacture or production of the article begins. We find nothing in the language of the relevant statutory provisions which, however, imposes a further limitation, namely, that if the condition laid down in section 84(2)(ii) is not satisfied in the very year of commencement of manufacture or production, the benefit of tax holiday will not be available, even if such condition is satisfied in the course of any of the subsequent four years. It cannot be overlooked in this connection that the profits and gains derived from business are assessable in each assessment year. Therefore, in each assessment year falling within the five-year period, the question will arise whether the new industrial undertaking, which claims the benefit of tax holiday, satisfies the conditions laid down in clause (ii) of subsection (2). In other words, according to the legislative scheme, it is apparent that in each assessment year commencing from the assessment year relevant to the previous year in which such new industrial undertaking begins manufacture or production the taxing authority will have to consider whether the industrial undertaking was formed by the transfer to its new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceeding year adds to its manufacturing unit building, machinery or plant which has been previously used and thereby varies the ratio of the new and old assets. If the only point of time at which the condition as to the applicability of the relevant provisions has to be satisfied is when the new undertaking starts the manufacturing activity, such an industrial undertaking which subsequently adds used assets to its new business will continue to have the tax holiday for the full period of five years even though it has in fact and reality ceased to be a new industrial undertaking. Could it ever have been intended by the legislature that the benefit of tax holiday should still be available to such an industrial undertaking in all the subsequent years even though the essential condition for earning the tax holiday is not satisfied in those assessment years? It is well settled that even if the language of a statute in its ordinary meaning and grammatical construction leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asst. yr. 1968-69, the assessee was entitled to continuance of that relief for the subsequent four years and the ITO would not be justified in refusing to continue the allowance for the assessment year under reference, i.e., 1969-70, without disturbing the relief for the initial year. At this stage, it should be noted that for purposes of entitlement to the relief under s. 80J, which is corresponding to s. 15C of the 1922 Act, an industrial unit claiming such relief must be new, in the sense, that new plants and machineries are erected for producing either the same commodities or some distinct commodities (vide Textile Machinery Corporation Ltd. v. CIT, [1977] 107 ITR 195 (SC): TC25R.490 and CIT v. Indian Aluminium Co. Ltd., [1977] 108 ITR 367 (SC): TC25R.547. It should be emphasised that it was common ground between the parties that the assessee-company has increased the capacity of its cement manufacturing plant from 600 tonnes per day to 1,600 tonnes, per day by setting up new machinery and plant necessary for that purpose. In our opinion, the Tribunal was right when it expressed its view that the question involved was not a question whether there would be no bar to the view w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conditions in each of the years in which it is sought. The Assessing Officer would, therefore, be entitled to be satisfied that the assessee has fulfilled all the conditions in the assessment year which is the subject matter of the assessment proceedings before him. He would be entitled, therefore, to raise queries and seek information to ascertain whether the assessee fulfilled all the conditions prescribed in Section 80-IB in the assessment year in question. In doing so, he cannot disturb an assessment order passed in respect of the previous assessment year. It is in this respect that the Division Bench in Saurashtra Cement Chemical Industries Ltd. vs. Commissioner of Income Tax (supra ) observed that the ITO would not be justified in refusing to continue the allowance for the assessment year under reference without disturbing the relief for the initial year. The Assessing Officer cannot, for instance, refuse a deduction in respect of the assessment year in question before him on the ground that the assessee was wrongly granted a deduction under the section in a previous assessment year. He can, however, refuse a deduction for noncompliance with the provisions of the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the subsequent years for breach of certain conditions. Hence unless the relief granted for the assessment year 1980-81 was withdrawn, the Income-tax Officer could not have withheld the relief for the subsequent years. [See Gujarat High Court decision in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT [1980] 123 ITR 669]. We are with respect unable to agree with this view assuming that it applies to cases under Section 80-IB. We express no opinion in so far as it is in the context of the provisions dealt with therein. Merely because the relief granted for a previous assessment year is not withdrawn, it does not follow that the assessee is entitled to the relief for the subsequent years even if during the subsequent years the assessee fails to comply with the provisions of Section 80-IB or a condition precedent to a claim for deduction under Section 80-IB ceases to exist in the subsequent years for any reason. 18. Before dealing with the grounds on which the deduction was denied by the Assessing Officer and the CIT (Appeals), it would be convenient to deal with Mr. Kapoor s contention that ITA Nos.958 of 2008, 700 of 2009 and 701 of 2009 ought not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, applies to these three appeals. Although the disputed issues arise in more than one assessment year, in view of Paragraph-5 of the circular, the appeals could be filed only in respect of such assessment years in which the tax effect in respect of the disputed issue exceeds ₹ 20 lakhs. As per paragraph-10 pending appeals below the specified tax limit are to be withdrawn. Further, separate orders for each assessment year have been passed in the present case. Moreover, in view of the submissions advanced by Mr. Putney himself, each assessment year is a separate year and, in view of what we have held, the entitlement to the deduction would depend upon the facts and circumstances obtaining in a given year. Thus, whereas an assessee may be entitled to a deduction in respect of one or more years, he may not be entitled to the deduction for another year or other years. Further, the composite order referred to in paragraph-5 is of another High Court or appellate authority. Although the issue of law is common in respect of each of the assessment years, the issues of fact are not. 20. Mr. Putney, on the other hand, relied upon the following observations in the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on pro-rata basis in view of its net sales as compared to the net sales of Unit-I. What follows in the assessment order on this issue is important. Paragraph-3 of the assessment order reads as under:- 3. In response to query on the subject, the assessee submitted that this is the first year of full operation of Unit-II, as such inadvertently separate books of accounts have not been maintained. The assessee further submitted that section 80 IB of the Income-tax Act, 1961 does not envisage any such requirement for maintaining separate books of accounts. In support, the assessee relied upon various case laws in this regard. In view of the fact that Unit-II of the assessee firm has been registered with the Sales Tax Department, Haryana as an independent Unit as Expansion Unit-II, Micro Instruments Co. Ambala Cantt with separate registration No. and as per the rules of the Central Excise and Customs Department to the effect that no separate registration is required if a new Unit is set-up in the existing premises, the claim of deduction of the assessee u/s 80 IB for the Unit-II is considered. 26. Mr. Putney submitted that the Assessing Officer has not applied his mind to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealt with the issue of the assessee not having kept separate books of account for the two units. It was only thereafter that the Assessing Officer passed the assessment order where, in paragraph-3, he made the observations we set out earlier. The Assessing Officer noted and accepted the assessee s explanation that they had not done so only inadvertently as it was the first year that Unit-II was in full operation. The Assessing Officer also noted the assessee s contention that the law, in any event, did not require them to maintain separate books of account and that the assessees had relied upon authorities in this regard. The Assessing Officer also recorded that in respect of Unit-II, the assessees had been registered with the Sales Tax Department, Haryana as an independent unit with a separate registration number as well as as per the rules of the Central Excise Customs Department to the effect that no separate registration is required if a new unit is set up in the existing premises. The claim for deduction was, therefore, considered, to wit, was allowed. There can be no doubt, therefore, that the Assessing Officer was conscious of this issue and had dealt with the same after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inarily, we would have remitted the case to the High Court for de novo consideration. The High Court has relied upon its earlier judgment, which, in our view, is not applicable on all fours to the facts of the present case. However, to put an end to the litigation, we are of the view, that though neither Section 80-HH nor Section 80-I (as it then stood) statutorily obliged BRPL to maintain its accounts unit-wise and that it was open to BRPL to maintain its accounts in a consolidated form in order to put an end to the litigation between the Tax Department and the public sector undertaking we remit the case to the Assessing Officer to ascertain whether the assessee had correctly calculated its net profits for the assessment year 1992 1993 in respect of its petrochemical unit for the purposes of claiming deduction under Sections 80HH and 80-I of the Income-tax Act, 1961. In the present case, BRPL has prepared its financial statements on consolidated basis from which it has worked out unit-wise net profits. If not done, it could be done by the auditors even today from the Consolidated Books of Accounts. Once such working is certified by the auditors the net profit computation (unit-w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to entitle it to claim a deduction thereunder. It indicates that where the legislature required an assessee to maintain separate books of account, it provided for the same. 36. Moreover, in these appeals it would make no difference even if keeping separate books of account was required. As we noted earlier the appeals for the assessment years 2003-04 to 2005-06 are liable to be dismissed in view of the circular No. 21 of 2015. In respect of the subsequent assessment years separate books of account were kept. 37. The contention that the assessees are not entitled to the deduction under Section 80-IB as they did not maintain separate books of account is, therefore, rejected. 38. It was next contended that the products are the same. Although a new undertaking may manufacture the same products, this contention was raised only to substantiate the contention that the Unit No.II was only an extension of the existing unit. The assessee is a partnership firm with two partners. Unit No.1 has been in existence since the year 1989 and Unit No.2 commenced production in March 2000. The Assessing Officer, in the assessment order, referred to the assessee s reply dated 10.11.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacturing process required uninterrupted regulated electric power supply and that, therefore, the assessee had not availed of any regular power connection but was entirely dependent on the power supplied by its own generator. The assessee also explained that the prices of the diesel had increased. The attention of the Tribunal was also invited to the paper books wherein an analysis of the factors reflecting upon the GP rates were mentioned. 42. For administrative convenience, it is understandable that the assessees would maintain the same bank account in respect of both the units. The section does not make it mandatory to maintain separate bank accounts. 43. For the same reason, the assessee cannot be denied a deduction merely because the telephone numbers are common. There is no reason for the assessees to have separate telephone connections in respect of each unit, if they can otherwise function with common telephone numbers. The section does not require the same either. 44. The Assessing Officer also disallowed the deduction on the ground that the workers/employees were common in respect of Unit-I and Unit-II and that there was no demarcation of employees/workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins of an amount equal to such percentage and for such number of assessment years as specified in the section. It cannot be that an eligible business employs ten or more workers in the first year and not for the remaining years. That could never have been the intention of the legislature. The conditions stipulated in sub-section (2) must be fulfilled in the year in which the deduction is sought. If any of the conditions is not fulfilled during a particular assessment year, the assessee would not be entitled to the deduction for that year. The issue as to whether the assessees had fulfilled the provisions of sub-section (2)(iv) for the assessment year in question or not could not be decided merely with reference to the assessment orders passed in any of the previous years. 47. Mr. Putney s argument to this effect which we accept turns against him on facts. The Assessing Officer did ask for the particulars with respect to the Assessment Year 2003-04. ITA No. 958 of 2008, however, stands dismissed in view of the Circular No. 21 of 2015. The Assessing Officer and the CIT(Appeals), however, denied the deduction in respect of the assessment years 2006-07 to 2009-10 only on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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