9911796707
TMI Blog2017 (7) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the Revenue cannot be said to have been be cumulatively satisfied in the present case. That the power under Section 263 cannot be exercised to revisit debatable issues is well settled. The re-opening of assessment under Section 147 of the Act was only on account of the orders passed by the CIT under Section 263 of the Act and for no other reason. This Court having held that there is no justification for the CIT to have invoked Section 263 of the Act, the re-opening of the assessments under Section 147 of the Act in AY 1998- 99, which is the only year for which the question was framed, was not justified.- Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year and that the said requirement need not be satisfied in the subsequent assessment. 3. Whether the ITAT was correct in law in holding that the CIT was not correct in directing the Assessing Officer to make addition on account of differences in valuation of closing stock despite the fact that the selling and administrative expenses of ₹ 6,00,222 were neither taxed in the earlier year nor added in the present year by the Assessee? 4. Whether ITAT was correct in law in deleting the addition of ₹ 70,00,000 proposed by CIT being interest receivable on the outstanding despite the fact that the Assessee was adopting mercantile system of accounting? ITA No. 251/2010 2002-03 5th September, 2008 ITA No. 89/Del/ 2006 1. Whether the ITAT was correct in law in holding that for the purpose of deduction under Section 80-IA of the Act, the Assessee should be a small scale undertaking on the last date of the previous year relating to the initial/first assessment year and that the said requirement need not be satisfied in subsequent years? 2. Whether ITAT was correct in law in deleting the addition made by the Assessing Officer invoking provisions of Section 40(a)(i) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it never obtained a permanent registration as an SSI unit. Further, as on 31st March, 1999, the Assessee's total investment in P&M worked out to more than ₹ 6.42 crores. This increased to ₹ 19.82 crores as on 31st March, 2000 and approximately ₹ 23 crores as on 31st March, 2001. The case of the Revenue, therefore, is that the Assessee was never an SSI. 7. The case of the Assessee, on the other hand, was that it was an SSI in the initial year i.e., AY 1997-98 as was evident from the SSI registration certificate issued in its favour. Its investment in P&M in terms of notification dated 1st January, 1993 under the IDR Act was well below the stipulated limit of ₹ 60 lakhs. It was after going through all the details that the Assessing Officer ('AO') dealt with the issue of deduction under Section 80-IA of the Act. A total deduction of ₹ 1,01,50,131 was claimed by the Assessee but the AO allowed only an amount of ₹ 95,59,064. Facts relevant for AYs 1998-99 to 2000-2001 8. It transpires that for the AY 1999-00, after the AO allowed the deduction under Section 80-IA of the Act, the Commissioner of Income Tax ['CIT'] exercised jurisdiction under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11B of the IDR Act. The AO held that the total investment as per these details worked out to ₹ 9,27,11,983 whereas the ceiling as per the notification dated 24th December, 1999 for an SSI was ₹ 1 crore only. By the assessment order dated 28th February, 2005, the above deduction was disallowed and added to the taxable income of the Assessee. 12. By the re-assessment order dated 14th July, 2003 for AY 1998-99, the AO re-calculated the opening value of P&M for the preceding year as ₹ 75,24,787/- and after adding it to the investments in P&M during the AY, calculated the total value of P&M as ₹ 3,03,07,705/-. It was held that since on the last date of the previous financial year i.e., as on 31st March, 2000, the investment in P&M was more than the limit prescribed for SSIs, the deductions under Section 80-IA of the Act were not allowable. The taxable income from the business was computed at ₹ 3,44,40,345/-, income from other sources at ₹ 42,87,350/- and the total taxable income at ₹ 3,87,27,695/-. It must be recalled that this re-assessment order was under Section 148/143(3) of the Act. 13. Feeling aggrieved, the Assessee went in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the deduction under Section 80-IA of the Act. 18. Against the said order, the appeal filed by the Revenue in this Court is ITA No. 690/2008. The Revenue filed a separate ITA No. 1082/2005 against the same order. By order dated 28th March, 2005, the ITAT allowed the Assessee's appeal being ITA No. 469/Del/2004 challenging the order passed by the CIT on 5th December, 2003 under Section 263 of the Act. The ITAT agreed with the Assessee that the CIT was not justified in invoking Section 263 of the Act. 19. Consequently, ITA Nos. 690/2008 and 1082/2005 were filed by the Revenue in this Court pertaining to the same AY i.e., 2001-02. While the question of law pertaining to ITA No. 690/2008 concerns Section 80-IA of the Act, the question of law in ITA No. 1082/2005 pertains essentially to Section 263 of the Act. They are also concerned with the directions given by the CIT to the AO to make additions on account of the difference in valuation of the closing stocks and interest receivable on outstanding balance. Facts relevant for AY 2002-03 20. Turning now to AY 2002-03, the AO by an order dated 28th March, 2005 declined to allow deductions under Section 80-IA of the Act after notici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as per the Assessee's own auditor. (ii) The certificate issued to the Assessee on 24th February, 1997 by Project Manager of the District Industries Centre, Hoshiarpur under which the Assessee was registered as an SSI for 'Assembling of Tractors' provided that an Undertaking would stop enjoying the status of an SSI as and when the total machinery exceeded the prescribed limit. In each year, the claim was always being made by attaching only an Income Calculation Sheet signed by a representative of the Assessee and being submitted along with the revised returns. (iii) Section 80-IA (12) (f) uses the term 'previous year' and not 'initial investment year'. The Assessee claimed deduction for AY 1999-00 under Section 80-IA despite the fact that the investment in P&M in the previous year was ₹ 6.75 crores which exceeded the prescribed limit. Relying on the decision of this Court in CIT v. Natraj Stationery Products Pvt. Ltd. (2009) 312 ITR 22 (Del) and Praveen Soni v. CIT (2011) 241 CTR 542 (Del), it is submitted that the correct interpretation of Section 80-IA(12)(f) was to examine if, on the last date of the previous year relating to the concerned AY in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, pertained to the initial AY. However, for the other three conditions, they would have to be complied with and fulfilled year after year i.e., in every previous year. All these three conditions had to be fulfilled cumulatively. It was impermissible that out of the three conditions, one or two conditions were fulfilled in a year while the others remained unfulfilled. 24. In addition to the oral submissions, there were three written submissions filed by Mr. Manchanda. The first written submission was dated 10th April, 2017 running into 13 pages. In this written submission, Mr. Manchanda also submitted that in Form No. 10 CCB of the Income Tax Rules, 1962 ('Rules'), the Assessee had failed to disclose the relevant facts fully and truly. In para 18(e) of the said form, information had to be given in terms of 'Yes' or 'No' if the unit was an SSI on the last day of the previous year. Due to the failure on the part of the Assessee to do so for AY 1998-99, the AO was justified in re-opening the assessment under Section 148 of the Act. Likewise, re-opening for AY 2000-01 was also, therefore, justified. Mere furnishing of an SSI certificate was insufficient. It was important that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nesses. Mr. Vohra pointed out that the eligibility limit for being recognized as an SSI in terms of investments made in P&M could vary from year to year. It stood raised from ₹ 60 lacs to ₹ 3 crores for AY 1997-98 and reverted to ₹ 1 crore by notification dated 24th December, 1999. If the interpretation sought to be advanced by the Revenue were to be adopted, then the entire Section would become non-workable. The idea was to ensure that there are incentives for SSIs and to assure them of continuous deductions for at least ten years after the initial assessment year notwithstanding that in the later AYs they may seize to comply with the conditions for recognition as an SSI. 29. As far as the invocation of Section 263 of the Act is concerned, Mr. Vohra submitted that there were two conditions to be fulfilled - one that the order of the AO should have been erroneous, and the second that it should have been prejudicial to the Revenue. Except for these debatable issues, there was no justification for re-opening the assessment. Reliance was placed on Commissioner of Income-Tax v. Max India Ltd. (2007) 295 ITR 282 (SC). Mr Vohra also relied on the decisions in Bajaj Tem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for "Deductions in respect of profits and gains from industrial undertakings, etc. in certain cases." Sub-section (1) stated that where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking on or after the 1st day of April, 1997 (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 the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6)." Sub-section (2) set out the conditions which must be fulfilled by an undertaking to be eligible for the deduction. 34. With effect from 1st April, 2000, Section 80-IA has been split into Section 80-IA pertaining to "deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc." and Section 80-IB pertaining to "deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings." In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on 31st March, 2000. 37. A further condition to be satisfied is that the undertaking manufactures or produces articles or things, employs ten or more workers in a manufacturing process carried on with the aid of power, or employs twenty or more workers if it is carried on without the aid of power. 38. Section 80-IA specifies what the extent of deduction available would be. In the context that an undertaking is an SSI, then 25% of the profits and gains derived from such industrial undertaking would be allowed as a deduction. The extent of which deductions would be allowed is specified in Section 80-IA(6)(ii) where the undertaking is not a cooperative society but an SSI unit. The benefit is allowed for ten AYs. This has to be read together with Section 80-IA(1) where it says that "… 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 the percentage specified in sub-section (5) and for such number of assessment years as is specified in sub-section (6)." Therefore, the numbers of AYs for which the benefit is allowed is specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be as such by the time the second member signed the order dated 1st March, 2004. Whether such an order could be held to be valid is a question that has been considered in that appeal by this Court. Nevertheless, the said order has been followed in the subsequent orders dated 28th March, 2005 of the ITAT for AY 2001-02, and order dated 17th August, 2007 passed by the ITAT in ITA No. 2668/Del./2005 for same AY i.e., AY 2001-02. These were followed by the orders of the ITAT dated 20th June, 2008 for AYs 1998-99 and 2000-01 in ITA Nos. 4571/Del./2005 and 4572/Del./2005, respectively, and 5th September, 2008 for AY 2002-03 in ITAT No. 89/Del./2006. 43. The ITAT in the said order agreed with the Assessee that Section 80-IA did not contemplate the carrying out of a yearly review to ensure that on the last date of other previous year, of the ten AYs for which the deduction was allowed, the eligibility condition stood fulfilled. As rightly pointed out by Mr. Vohra in the initial AY 1997-98, the Assessee was facing a loss and, therefore, did not make a claim. Nevertheless that continued to remain the initial AY. The Assessee claimed deduction only in regard to the remaining years. The ten y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertakings, was to encourage industrial expansion. The idea was to incentivise investment in industries. Further, the legislative intent was to give, even in the beginning, the benefit for a period of ten years irrespective of whether after the initial year there was an expansion of industrial undertaking by increased investment in P&M that may have taken it outside the ambit and scope of that provision. In other words, it is not expected that the investment for P&M in the initial AYs would remain static for the next ten years. It cannot be expected that if an industry is successful it would not expand. If the idea was to have a yearly review, then the provision would have been very differently worded. For instance, Section 80-HHA(3) which specifically states that "deduction shall not be allowed in computing the total income of any of the ten previous years aforesaid in respect of which the industrial undertaking is not a small-scale industrial undertaking". In other words, if the legislative intent was that the eligibility condition had to be fulfilled on the last day of the previous year of each of the ten AYs during which the benefit was available, then that provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery previously used in another business. While interpreting Section 15C of the 1922 Act, the purpose of which was more or less similar to Section 80-IA of the Act i.e., "granting incentives for promoting growth and development", the Supreme Court observed that the provision required to be liberally construed. It was pointed out that adopting a liberal construction in such cases would result in defeating the very purpose of Section 15C. It was observed as under: "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally interpreted liberally, and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate it." 51. Turning to the decisions of the High Courts, in Saurashtra Cement & Chemical Industries v. CIT (supra), the question before the Gujarat High Court was whether the Assessee's claim under Section 80J of the Act (corresponding to Section 15C of the 1922 Act) can be discontinued without disturbing the relief granted in the initial year. The Gujarat High Court upheld the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the initial AY. The Court answered both the questions in favour of the Assessee by holding that there was no dispute that the Assessee fulfilled the eligibility conditions prescribed under Section 80-IB and was to be regarded as an SSI. The AO was directed to given the benefit of deduction for the AY in question i.e., AY 2004-05. 54. Mr. Manchanda was asked by the Court as to how the above decision was helpful to the case of the Revenue since it, in fact, rather helps the case of the Assessee in the present scenario. Mr. Manchanda submitted that in Praveen Soni v. CIT (supra) this Court had endorsed the Revenue's view point that the Assessee needed to fulfil the SSI conditions "in the year of claim". The Court does not find any such specific finding in the decision in Praveen Soni v. CIT (supra). On the contrary, since it was not in dispute that the Assessee there fulfilled the eligibility condition in the initial AY, the Court held that it could not be denied the benefit for the ten consecutive AYs thereafter i.e., till AY 2007-08. The clear findings in this regard read as under: "6. If the assessee fulfils the requirement of small scale industrial undertaking (which aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the AYs for which benefit under Section 80-IA is claimed. Here, again, the ITAT gave a direction to the AO to ascertain whether the Assessee had fulfilled the condition set out in Section 80-IA(2)(iii) of the Act as applicable for the initial year i.e. AY 1994-95. 57. Mr. Manchanda referred to an observation in paragraph 9 of CIT v. Natraj Stationery Products Pvt. Ltd. (supra) where it was noted that the ITAT directed the AO to verify the Assessee's eligibility for deduction "in the year under consideration" and, therefore, this meant that the ITAT had talked of the Assessee's eligibility for deduction not only in the initial AY but also in the subsequent years. The Court is unable to agree with this reading of the said decision. If one reads the whole of paragraph 9, it in fact indicates to the contrary. The immediate previous line states that: "The Tribunal further observed that in these circumstances, if the condition as mentioned in section 80-IA(2)(iii) of the Act, as applicable in the initial year, which is, that it produces or manufactures any article or thing not being an article or thing specified in the list in the Eleventh Schedule, is satisfied, then the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 60.2 Here, the Assessee was engaged in printing and publishing newspapers and periodicals. It was set up in 1973 with the head office in New Delhi. It had established a unit in Sahibabad, namely, Unit No. 2 for carrying on the work of high speed printing during the period ending 30th September, 1985 relevant to AY 1986-87. Since in the first year there was a loss, no deduction under Section 80-IA was allowed to the Assessee in respect of Unit No. 2. 60.3 In the subsequent AY 1988-89, the Assessee claimed a deduction under Section 80-I of the Act. This was restricted by the AO to ₹ 12,80,044/- as against ₹ 13,50,000/- as claimed. For AY 1989-90, the Assessee claimed a deduction of ₹ 18,45,800/- in respect of Unit No. 2 as well as Unit No. 3 which were established in 1987 in the building adjacent to Unit No. 2. This was allowed by the AO. In AY 1990-91, the Assessee claimed deduction of ₹ 38,02,747/- under Section 80-I of the Act for Unit Nos. 2 and 3, and for AY 1991-92, it claimed a deduction of ₹ 44,58,681 being 25% profit from Unit Nos. 2 and 3. The AO observed that the persons engaged in the printing presses therein were not employees in Units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held as under: "5. In the entire provision, there is no indication that these conditions had to be fulfilled by the assessee all the 10 years. When once the benefit of 10 years, commencing from the initial year, is granted, if the undertaking satisfies all these conditions initially, the undertaking is entitled to the benefit of 10 consecutive years. The argument that, in the course of 10 years, if the growth of the industry is fast and it acquires machinery and the total value of the machinery exceeds ₹ 1 crore, it ceases to have the said benefit, do not follow from any of the provisions. It is true that there is no express provision indicating either way, what would be the position if the small scale industry ceases to be a small scale industry during the said period of 10 years. Because of that ambiguity, a need for interpretation arises. If we keep in mind the object of the Legislature providing for these incentives and when a period of 10 years is prescribed, that is the period, probably, which is required for any industry to stabilize itself. During that period the industry not only manufactures products, it generates employment and it adds to the wealth of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), the Supreme Court explained it as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." 67. As far as the phrase 'prejudicial to the interests of the revenue' is concerned, the Court explained as under: "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son. This Court having held that there is no justification for the CIT to have invoked Section 263 of the Act, the re-opening of the assessments under Section 147 of the Act in AY 1998- 99, which is the only year for which the question was framed, was not justified. Answers to the questions 73. The Court answers the questions that arise in each of the appeals as under: Assessment Year ITA No. Question framed Answers 1998-99 1189/2009 Whether the ITAT was justified in invalidating the re-opening of the assessment under Section 147 of the Act? In the affirmative Whether the ITAT was correct in upholding the deductions claimed by the Assessee under Section 80-IA of the Act? In the affirmative 2000-01 225/2009 Whether the ITAT was correct in upholding the deductions claimed by the Assessee under Section 80-IA. In the affirmative 2001-02 690/2008 Whether the ITAT was correct in upholding the deductions claimed by the Assessee under Section 80-IA of the Act. In the affirmative 2001-02 1082/2005 Whether the ITAT was correct in holding that the CIT(A) was not justified in invoking Section 263 of the Act? Whether the ITAT was correct in upholding the deductions claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
