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TMI Blog2018 (1) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... No merit in the contention of the Revenue that for the purpose of determining quantum of investments in plant and machinery by the assessee undertaking, investments by all undertakings owned by the assessee are to be considered. Manufacturing of buns undertaken by the Noida unit is part of confectionery item which is a prohibited item for manufacture by SSI units claiming deduction u/s 80IB, as per Schedule XI of Income Tax Act, 1961 - Held that:- We concur with the Ld. counsel for assessee that the assessee is not manufacturing a confectionery item which is prohibited as per 11th Schedule of the Income Tax Act. The meaning of word “confectionery” and “buns” as per Webster’s dictionary coupled with the fact as pointed out by the Ld. counsel for assessee that the breads and buns fall under the items which are reserved exclusively for manufacture by micro and small enterprise and which fact have not been controverted by the Revenue adequately proves the assessee’s case as rightly held by the Ld.CIT(Appeals). We, therefore, hold that the breads and buns do not qualify as confectionery items and are thus not prohibited to be manufactured by SSI units as per the 11th Schedule of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of making interest free advances is demonstrated - no reason to disturb the order of the Ld.CIT(Appeals) on the issue and, therefore, uphold the deletion of disallowance of interest - ITA Nos.39 And 40/Chd/2017 - - - Dated:- 8-12-2017 - SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER For The Appellant : Smt.Chander Kanta, CIT, DR For The Respondent : Shri Subhash Aggarwal ORDER PER ANNAPURNA GUPTA, A.M.: Both the appeals filed by the Revenue relate to the same assessee and have been preferred against separate orders passed by the Ld. Commissioner of Income Tax(Appeals)-1, Ludhiana dated 26.10.2016 relating to assessment years 2006-07 and 2007-08. 2. The present appeals have come up before us in the second round after certain grounds were set aside to the CIT(A) for adjudicating afresh, vide order of the I.T.A.T. dated 14.10.2015 in ITA No.714/Chd/2011 C.O No.61/Chd/2011 relating to A.Y 2006-07 and ITA No.344 459/Chd/2013 relating to A.Y 2007-08. 3. It was common ground between the parties that the issues involved in both the appeals were identical, therefore, both the appeals were heard together and are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed thereunder since its investments in plant and machinery did not exceed the specified limit of ₹ 1 crore under the said Act and neither was clubbing all investments of all undertakings of the company required for the purpose of determining whether the investment in plant and machinery exceeded the specified limit. It was pointed out that the circulars/notifications relied upon by the Assessing Officer for stating that the clubbing of investments made by all undertakings of the company was required to be considered, was irrelevant since the Assessing Officer had referred to the wrong circular; d) That the buns manufactured by the Noida undertaking of the assessee did not qualify as a confectionary item and, therefore, were not prohibited items as per the 11th Schedule of the Income Tax Act, 1961 for undertakings which were eligible for deduction of their profits u/s 80IB of the Act. 7. The Ld.CIT(Appeals) after considering assessee s submissions agreed with the same holding at para 2.2 of his order as under: 2.2 I have carefully considered the facts of the case, the basis of the disallowance made and the arguments of the AR. The deduction has been allowed in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Further, a perusal of S.0.2(E) dated 01.01.1993 states that a corporate entity having different units would not be treated as one, for deciding the eligibility as a small-scale unit. Each separate under the same management of the company is to be evaluated for its eligibility as a small-scale undertaking. In this regard the Hon'ble Madras High Court in the case of Madras Machine Tools Manufacturers Limited vs CIT, 98 ITR 119 has clearly brought out the distinction between the company and its undertaking. The view of various judicial decisions has been that the grant of an incentive deduction is linked to the eligible undertaking. The concept of the taxpayer and that of an undertaking is different and the taxpayer can have more than one undertakings/enterprises, some of which may not quantify for tax deduction. The Hon'ble Supreme Court in the case of Textile Machinery Corp. Ltd. Vs. CIT (1977) 107 ITR 195 and in the case or CIT vs Canara workshop Private Limited (1986) 161 ITR 320 have explained and recognized the identity of each individual undertaking for the purpose of giving effect to incentive provisions. The tax incentives provided under section 80IB and section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial undertaking which is, as on the last day of the previous year, regarded as a smallscale industrial undertaking under section 11B of the Industries (Development Regulation) Act,, 1951 (65 of 1951). Clearly, to qualify as an SSI undertaking it should be regarded as such u/s 11B of the IDR Act, 1951. 12. The contention of the Revenue is that as per the said Act the investment in plant and machinery of an undertaking should not exceed ₹ 1 crore and for this purpose even leased assets are to be included in the investments. The Ld. DR referred to the decision of the Hon'ble Delhi High Court in the case of Praveen Soni Vs. CIT in ITA No.1145 of 2009 dated 29.3.2011 and referred to para 12 of the order wherein he Hon'ble High Court held that the ownership in terms of on lease or on hire purchase is also to taken into consideration for determining the quantum of investments made in fixed assets by an undertaking. The relevant para of the order reads as under: 12. At the end of this notification, it is provided that every industrial undertaking which has been issued a certificate of registration under Section10 of the said Act or a license under Sections, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oulds and spare parts for maintenance and the cost of consumable stores; ii. the cost of installation of plant and machinery; iii. the cost of research and development equipment and pollution control equipment; iv. the cost of generation sets and extra transformer installed by the undertaking as per the regulations of the State Electricity Board; v. the bank charges and service charges paid to the National Small Industries Corporation or the State Small Industries Corporation; vi. the cost involved in procurement or installation of cables, wiring, bus bars, electrical control panels (not those mounted on individual machines), oil circuit breakers or miniature circuit breakers which are necessarily to be used for providing electrical power to the plant and machinery or for safety measures; vii. the cost of gas producer plants; viii. transportation charges (excluding of sales-tax and excise) for indigenous machinery from the place of manufacturing to the site of the factory; ix. charges paid for technical know-how for erection of plant and machinery; x. cost of such storage tanks which store raw materials, finished products only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plant Machinery 5596008 5596008 Rickshaw 3479 3479 Scooters 37201 37201 Transformer 147859 147859 Trolleys 130776 130776 Tubewell 35048 35048 Water Chilling Plant 362554 362554 Weighing scales 4 6117 46117 Plant Machinery (Lettuce Plant) 104611 104611 Water Chilling Plant (Lettuce Plant) 329200 329200 Wei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese industrial shall be considered to be a small scale or ancillary industrial undertaking. 19. The Ld. counsel for assessee thereafter pointed out that in the case of the assessee being a limited company it was covered under sub-clause (iii) for deciding the issue of clubbing of investment. The Ld. counsel for assessee thereafter drew our attention to circular No.S.O.857(E) dated 10.12.1997 and pointed out therefrom that in the said circular in clause (v) sub-clause (iii) was stood omitted. The relevant portion of the circular S.O.857(E) is placed at Paper Book page No.47 and is reproduced hereunder: v. where an industrial undertaking is a subsidiary of, or is owned or controlled by, any other industrial undertaking or undertakings in terms of sub-clauses(i); (ii)_and if the total investment in fixed assets m plant and machinery of the first mentioned industrial undertaking and the other industrial undertaking or undertakings clubbed together exceeds the limit of investment specified in paragraphs (1) or (2) of this notification as the case may be. none of these industrial undertakings shall be considered to be a small scale or ancillary industrial undertaking. 20. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the contention of the Ld. counsel for assessee that not all assets qualified as plant and machinery, nor has disputed the detail of qualifying assets filed before us. Therefore, for all purposes, the investments in plant and machinery of the Noida undertaking is well within the specified limit of ₹ 1 crore to qualify as an SSI undertaking. Further, the Ld. counsel for assessee has also demonstrated that as per the applicable circular of the Ministry of Commerce clubbing of investments of undertakings of the assessee is not required. This fact has also not been controverted by the Revenue. Therefore, we find no merit in the contention of the Revenue that for the purpose of determining quantum of investments in plant and machinery by the assessee undertaking, investments by all undertakings owned by the assessee are to be considered. For the aforesaid reasons, we hold that the Ld.CIT(Appeals) has rightly held the assessee to qualify as an SSI undertaking as per section 11B of the IDR Act, 1951. 23. The next contention of the Revenue for denying deduction u/s 80IB of the Act is that manufacturing of buns undertaken by the Noida unit is part of confectionery item which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in deleting the disallowance ₹ 12,16,332/- made by the A.O. on deduction u/s 80IC claimed by the assessee on Tahliwal Unit without giving any reasons and by simply stating that the A.O. is highly unjustified in denying deduction u/s 80IC to the assessee on the basis of some notional expenses such as knowhow, goodwill, trade name etc. where the A.O. has very clearly held that the provisions of the section 80IA (8) and (10) read with section 80IC are applicable to the assessee's Tahliwal Unit only? 29. The above ground is with respect to the deduction claimed u/s 80IC amounting to ₹ 1,21,63,320/- in respect of Tahliwal unit which has been reduced by the Assessing Officer by 10% of the amount of net profits for the reason that the assessee is manufacturing biscuits on its own account as well as doing job work for ITC Limited at Tahliwal, H.P. and further it is also manufacturing biscuits at Phillaur unit, which is not eligible for any deduction of its profits. The Assessing Officer has held that since same business is being done at Phillaur unit, Tahliwal unit has derived benefits by way of knowhow, goodwill, trade name, etc. of Phillaur Unit and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he eligible profits to the extent of 10% by the AO without any sound basis is unwarranted and is hereby ordered to be deleted. 32. Before us, the Ld. DR relied upon the order of the Assessing Officer while the Ld. counsel for assessee reiterated the contention made before the Ld.CIT(Appeals) and relied upon the order of the Ld.CIT(Appeals). 33. We find no infirmity in the order of the Ld.CIT(Appeals). Undeniably, the reduction of profits to the extent of 10% has been done by the Assessing Officer on estimate basis without demonstrating by way of evidence whether any expenses on account of knowhow, goodwill, trade name, etc. had been incurred by the Phillaur unit with respect to Tahliwal unit. The same has not been demonstrated even before us. Further as rightly held by the Ld.CIT(A), the provisions of section 80IA (8) and 80IA (10) cannot be invoked in the present case in the absence of any transaction between the two units. The Ld. DR has not pointed out any infirmity in the order of the Ld.CIT(Appeals). We, therefore, uphold the order of the Ld.CIT(Appeals) in deleting the reduction of profits of the Tahliwal unit by 10% of the profits amounting to ₹ 16,16,332/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring to our notice any contrary decision of the jurisdictional High Court as opposed to that relied upon by the Ld.CIT(Appeals) while adjudicating the issue. In view of the same, we uphold the order of the Ld.CIT(Appeals) in deleting the reduction in the claim made by the assessee on account of job work charges amounting to ₹ 16,36,199/- The ground of appeal No.5 raised by the Revenue is, therefore, dismissed. 38. Ground No.6 raised by the Revenue reads as under: 6. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of ₹ 15 Lakh made on account of disallowance out of claim of interest u/s 36(l)(iii) of the Income-tax Act, 1961 simply relying on the submissions of the assessee ignoring the facts that the assessee could not provide the copies of accounts of various persons covered u/s 40A(2)(b) of the Income-tax Act, 1961 despite being given ample opportunity to do so? 39. This ground is against the disallowance of ₹ 15 lacs u/s 36(1)(iii) of the Act out of claim of interest on alleged interest free advances which have been made by the assessee by applying judgment of the Hon'ble jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io of sales to Afganistan. Further in the absence of any detail of sales made to Afganistan an amount of ₹ 25 lacs was added on account of wrong distribution of common expenses by the head office. 43. Before the Ld.CIT(Appeals), the assessee contended that all expenses both direct and indirect had been properly apportioned between different units run by it. The Ld. counsel for assessee stated that separate books of account were maintained for each unit and all expenses relating to particular unit were debited to that unit. As far the common expenses incurred, same were apportioned in the ratio of turnover. The Ld. counsel for assessee submitted that complete list of allocation of expenses was filed to the Assessing Officer and without pointing any error in the same the Assessing Officer had disturbed the allocation making an addition of ₹ 25 lacs on estimate basis by allocating expenses to Tahliwal unit. 44. The Ld.CIT(Appeals) after considering assessee s submissions held that the basis of allocation of common expenses by the assessee had been accepted in subsequent years and the Assessing Officer could not have disturbed the same and made allocation on estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with section 80IC are applicable to the assessee's Tahliwal Unit only? 50. It was common ground between the parties that the issue in this ground is similar to the issue in ground No.4 raised by the assessee in its appeal in ITA No. 39/Chd/2017 dealt with by us above. The findings given therein at para 33 of our order above shall apply to this ground also mutatis mutandis. Ground No.2 raised by the Revenue, therefore, stands dismissed. 51. Ground No.3 raised by the Revenue reads as under: 3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹ 34,31,320/-made by the A.O. on deduction u/s 80IC on job work charges by simply relying on the submissions of the assessee and not by giving any independent findings? 52. It was common ground between the parties that the issue in this ground is similar to the issue in ground No.5 raised by the assessee in its appeal in ITA No. 39/Chd/2017 dealt with by us above. The findings given therein at para 37 of our order above shall apply to this ground also mutatis mutandis. Ground No.3 raised by the Revenue, therefore, stands dismissed. 53. The appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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