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TMI Blog2019 (6) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... ifications issued u/s 11B of the IDR Act, 1951 which is applicable to the previous year relevant to impugned assessment year to support its case in its defence . The learned CIT(A) is also directed to make necessary verifications of facts to determine whether assessee is a small scale industrial undertaking as per applicable notifications for the relevant period based on notifications issued u/s 11B of IDR Act, 1951 including computing exclusions as are provided under relevant notifications issued under IDR Act, 1951. Appeal of the assessee is allowed for statistical purposes. - I.T.A. No.5388/Mum/2016 - - - Dated:- 30-5-2019 - Shri Pawan Singh, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : None For the Revenue : Shri. V. K. Chaturvedi (DR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 5388/Mum/2016, is directed against appellate order dated 28.06.2016 in appeal no. CIT(A)-14/IT-108/2012-13, passed by learned Commissioner of Income Tax (Appeals)-14, Mumbai (hereinafter called the CIT(A) ), for assessment year 2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing deduction u/s 80IB(5) of the 1961 Act as the unit is not located in any notified backward area. The AO , thus, disallowed the said claim of deduction raised by the assessee to the tune of ₹ 25,07,133/- u/s 80IB of the 1961 Act and the same was added back to the income of the assessee by AO , vide assessment order dated 09.01.2013 passed by the AO u/s 143(3) of the 1961 Act. 4. Aggrieved by an assessment framed by the AO vide assessment order dated 09.01.2013 passed u/s 143(3) of the 1961 Act, the assessee filed first appeal with Ld. CIT(A) which stood dismissed by Ld. CIT(A), vide appellate order dated 28.06.2016, by holding as under:- 5.2 I have considered the submissions made. The appellant submitted that the amount of investment has now been increased to ₹ 5 crores for the unit to be categorized as SSI Unit. In the statement of facts, it is also submitted that the auxiliary and other investments not directly related to production are to be excluded for ascertaining the investment in Plant Machinery. The details of investments and relevant submissions appearing in the statement of facts is as under:- 1. Section 80IB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t breakers, etc., which are necessarily to be used for providing electrical power to the plant and machinery /safety measures; (vii) the cost of gas producer plant; (viii ) transportation charges (excluding of taxes, i.e., sale tax, excise, etc.) for indigenous machinery from the place of manufacturing to the site of the factory; charge paid for technical know-how for erection of plant and machinery; (ix) cost of such storage tanks which store raw materials finished products only and are linked with the manufacturing process; and (x) cost of fire fighting equipment's.... 3. As of 31-3-2010, the Gross block of Plant Machinery of the industrial undertaking as per the books of accounts and within the meaning of the above notification is as under; Particulars Amount (Rs. In Lacs) Pant Machineries 444.65 Electric Installations 40.91 Transformer Power Saving Devises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appellate order dated 28.06.2016 passed by learned CIT(A), the assessee has filed second appeal with the tribunal . None appeared on behalf of the assessee when the appeal was called for hearing. The Ld. DR on the other hand submitted that the issue is no more res-integra as Hon ble Supreme Court has already adjudicated this issue in favour of Revenue in the case of DCIT v. Ace Multi Axes Systems Ltd., reported in (2018) 400 ITR 141(SC). Thus ,it was prayed by learned DR that since investment in Plant Machinery is more than threshold limits as prescribed for small scale industrial undertaking, deductions u/s. 80IB(3) of the 1961 Act cannot be allowed. The learned DR also drew our attention to provisions of Section 80IB(14)(g) of the 1961 Act. It was also submitted by learned DR that the assessee s industrial undertaking was not set up in an industrially backward area and hence deduction u/s 80IB(5) of the 1961 Act was rightly not allowed by lower authorities. 6. We have considered rival contentions and perused the material on record including orders of the authorities below .We have observed that the assessee is engaged in the business of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business referred to in sub-sections (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. *** *** (3) The amount of deduction in the case of an industrial undertaking shall be twenty-five per cent (or thirty per cent where the assessee is a company), of the profits and gains derived from such industrial undertaking for a period of ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) beginning with the initial assessment year subject to the fulfilment of the following conditions, namely :- (i) it begins to manufacture or produce, articles or things or to operate such plant or plants at any time during the period beginning from the 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the value of Plant and Machinery accounted for in its books of account also included the value of other auxiliary equipments/assets, and hence the assessee never lost its SSI character as defined under law and therefore the assessee is eligible for deduction u/s 80IB(3) of the 1961 Act by relying on notification of 2006 issued u/s 7(1) of the MSME Act, 2006. It is claimed by assessee that applicable threshold prescribed limit for SSI industrial undertaking is investment of ₹ 500 lacs in Plant and Machinery , as applicable during the impugned assessment year. 6.4 Section 80IB(14)(g) has stipulated that for the purposes of claiming deduction under Section 80IB of the 1961 Act, small scale industrial undertaking shall mean an undertaking which is , as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act,1951 . It is important to refer to provisions of Section 11B of the IDR Act, 1951, which provides as under: [11B.Power of Central Government to specify the requirements which shall be complied with by small scale industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in disapproving the issue of the proposed notified order or both Houses agree in making any modification in the proposed notified order, the notified order shall not be made,or, as the case may be, shall be made only in such modified form as may be agreed upon by both the Houses (4)Notwithstanding anything contained in sub-section (1), an industrial undertaking which, according to the law for the time being in force, fell, immediately before the commencement of the Industries (Development and Regulation) Amendment Act, 1984 (4 of 1984), under the definition of an ancillary,or small scale,industrial undertaking, shall, after such commencement, continue to be regarded as an ancillary, or small scale, industrial undertaking for the purposes of this Act until the definition aforesaid is altered or superseded by any notified order made under sub-section (1).] 6.5 On perusal of the provisions of aforesaid Section 11B of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act. And whereas no modification in the proposed notification has been suggested by both Housese of Parliament. Now, therefore, in exercise of the posers conferred by sub-section (I) of section 11B and sub-section (I) of Section 29B of the said Act, and notwithstanding anything contained in any earlier notification issued by the department, the Central Government hereby specifies having regard to the factors mentioned in sub-section (2) of the said section 11B, the requirements mentioned in the Table below, which shall be complied with by the industrial undertakings to enable them to be regarded, as an ancillary, or a small scale industrial undertaking for the purpose of the said Act. Tabular matter available on request III. Requirements to be complied with by an industrial undertaking for being regarded as small scale industrial undertaking - a. An industrial undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms or on lease or by hire purchase does not exceed rupees sixty lakhs. b. In case of an industrial undertaking referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51 (65 of 1951) herein after referred to as the said Act) to enable them to maintain their viability and strength so as to be effective in a. promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and b. securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good. And whereas the draft notification was laid before each House of Parliament for a period of thirty days as required under sub-section (3) of section 11B of the said Act: And whereas no modification in the proposed notification has been suggested by both the Houses of Parliament; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 11B and sub-section (1) of section 29B of the said Act, and in supersession of the notification of the Government of India in the Ministry of Industry (Department of Industrial Development) number S.O.232(E), dated the 2nd April, 1991, the Central Government hereby specifies the following factors on the basis of which an industrial undertaking shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. the equity holding by other industrial undertaking in it exceeds twenty four per cent of its total equity; or b. the management control of an undertaking is passed on to the other industrial undertaking by way of the Managing Director of the first mentioned undertaking being also the Managing Director or Director in the other industrial undertaking or the majority of Directors on the Board of the first mentioned undertaking being the equity holders in the other industrial undertaking in terms of the provisions of the following items(a) and (b) of sub-clause (iv); iv. the extent of equity participation by other industrial undertaking or undertakings in the undertaking as per sub-clause (iii) above shall be worked out as follows:- a. the equity participation by other industrial undertaking shall include both foreign and domestic equity; b. equity participation by other industrial undertaking shall mean total equity held in an industrial undertaking by other industrial undertaking or undertakings, whether small scale or otherwise, put together as well as the equity held by persons who are Directors in any other i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and are not linked with the manufacturing process; and xi. cost of fire fighting equipments. c. In the case of imported machinery, the following shall be included in calculating the value, namely:- i. import duty (excluding miscellaneous expenses as transportation from the port to the site of the factory, demurrage paid at the port); ii. the shipping charges; iii. customs clearance charges; and iv. sales tax. Every industrial undertaking which has been issued a certificate of registration under section 10 of the said Act or a license und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of thirty days as required under sub-section (3) of section 11B of the said Act; And whereas no modification in the draft of the proposed notified order has been suggested by both the Houses of Parliament; Now, therefore, in exercise of the powers conferred by sub-section(1) of section 11B and sub-section (1) of section 29B of the Industries (Development and Regulation) Act; 1951 (65 of 1951), the Central Government hereby makes the following amendments in the Order of the Government of India in the erstwhile Ministry of Industry, Department of Industrial Policy and Promotion number S.O. 857 (E), dated the 10th December, 1997, namely:- In the said Order,- a. in the paragraph relating to Small Scale Industrial Undertaking, for the words rupees three crores , the words rupees one crore shall be substituted; and b. in the paragraph relating to Ancillary industrial undertaking, for the words rupees three crores , the words rupees one crore shall be substituted. [No.10(6)/97-[P] ASHOK KUMAR Jt. Secy. Note:- The Principal notified order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. P.S. to MOS (SSI ARI), Udyog Bhavan, New Delhi. 3. P.S. to Shri Jagdish Capoor, Dy. Governor, RBI, Mumbai. 4. General Manager (RPCD), RBI, Mumbai. 5. Chairman, Small Industries Development Bank of India, Mumbai. 6. Managing Director, Small Industries Development Bank of India, Lucknow. 7. Chairman, National Small Industries Corporation, New Delhi. 8. P.S. to Secretary (IPP), Udyog Bhavan, New Delhi. 9. P.S. to Secretary (SSI ARI), Udyog Bhavan, New Delhi. 10. All Members of the Small Scale Industries Board. 11. AS FA (I.P. P.), Udyog Bhavan, New Delhi. 12. All Officers of Ministry of SSI ARI. 13. All Officers at DCSSI Headquarters. 14. All Directors, SISIs. 15. PIB-for wide publicity. Sd/- (Dr. C. S. Prasad) Addl. Development Commissioner No. 4(I)2000-SSI Bd. Pol. 27th March, 2000 The Secretaries/Director of Industries All States/Uts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already been issued vide this office letters of even number dated 14th and 27th March, 2000, respectively. The further clarification to the above query is as under: Any unit which has received provisional/permanent registration prior to 24th December, 1999 and has taken concrete steps for implementing the project would continue to enjoy the SSI status so long as investment in plant machinery does not exceed ₹ 300.00 lakhs. No time limit is prescribed for such units to reach the ceiling of ₹ 300.00 lakhs The clarification may please be brought to the notice of all concerned for taking further necessary action accordingly. Sd/- (Dr. C.S. Prasad) Additional Development commissioner (SSI) Copy for information to: 1. PS Ministrer (Commerce Industry)/PS MOS.(SSI ARI), Udyog Bhavan, New Delhi 2. PS to Secy (SSI ARI)AS DC(SSI) 3. All as per mailing list including RBI/SIDBI/Nationalized Banks/NSIC 4. The President, Mahratta Chamber of Commerce, Industries and Agriculture, Pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) in the case of the enterprises engaged in providing or rendering of services, as- (i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees; (ii) a small enterprise, where the investment in equipment is. more than ten lakh rupees but does not exceed two crore rupees;or (iv) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees. Explanation 1.-For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded. Explanation 2.-It is clarified that the provisions of section 29B of the Industries (Development and Regulation) Act, 1951, shall be applicable to the enterprises specified in sub-clauses (i) and (ii) of clause (a) of sub-section (1) of this section. *** *** 6.7 Later , there was a notification issued by GOI vide S.O. No. 1642(E) dated 29.09.2006 u/s 7(1) of MSME Act, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndigenous machinery from the place of the manufacture to the site of the enterprise; (ix)charges paid for technical know-how for erection of plant and machinery; (x)such storage tanks which store raw material and finished produces and are not linked with the manufacturing process; and (xi)fire fighting equipment. 2. While calculating the investment in plant and machinery refer to paragraph 1, the original price thereof, irrespective of whether the plant and machinery are new or second handed, shall be taken into account provided that in the case of imported machinery, the following shall be included in calculating the value, namely; (i)Import duty (excluding miscellaneous expenses such as transportation from the port to the site of the factory, demurrage paid at the port); (ii)Shipping charges; (iii)Customs clearance charges; and (iv)Sales tax or value added tax. (F.No.4(1)/2006-MSME- Policy) JAWHAR SIRCAR, Addl. Secy. 6.9 As could be seen from above , the original price of Plant and Machinery wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee establishes its eligibility by fulfilling conditions stipulated at the first stage for falling within four corners of exemption provisions , then the said exemption provisions are to be liberally construed at second stage to give full effect to the exemption/deduction provisions to fulfil the objective/mandate of the said exemption provision. Reference is drawn to the judgment of five judge Constitution Bench of Hon ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai v. M/s. Dilip Kumar and Company Ors. in Civil Appeal no. 3327 of 2007 vide judgment dated 30.07.2018 , wherein Hon ble Supreme Court held that exemption provisions are to be strictly construed by concluding as under:- 52.To sum up, we answer the reference holding as under (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second proviso to Clause 2, disqualification applicable to industrial undertaking, other than small scale industrial undertakings, i.e., not being in 8th Schedule is not applicable. The small scale industrial undertakings eligible are only those which begin manufacture or produce, articles or things during the beginning of 1st day of April, 1995 and ending on 31st day of March, 2002 [Clause 3(ii)]. For other categories of industrial undertakings, different periods are prescribed, e.g. under sub-clause (i) of Clause (3). 12. The scheme of the statute does not in any manner indicate that the incentive provided has to continue for 10 consecutive years irrespective of continuation of eligibility conditions. Applicability of incentive is directly related to the eligibility and not de hors the same. If an industrial undertaking does not remain small scale undertaking or if it does not earn profits, it cannot claim the incentive. No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interpretation remains the same. 22. Thus, while there is no conflict with the principle that interpretation has to be given to advance the object of law, in the present case, the assessee having not retained the character of 'small scale industrial undertaking', is not eligible to the incentive meant for that category. Permitting incentive in such case will be against the object of law. 23. For the above reasons, we hold that the assessee is not entitled to benefit of exemption if it loses its eligibility as a small scale industrial undertaking in a particular assessment year even if in initial year eligibility was satisfied. The appeal is accordingly disposed of in the above terms. **** **** 6.12 Thus, in view of our aforesaid discussions, the assessee has to fulfil criteria as laid down u/s 80IB(14)(g) of the 1961 Act every year as every assessment year is a separate unit before claiming deduction u/s 80IB(3) of the 1961 Act. The Section 80IB(14)(g) of the 1961 Act in turn refers to IDR Act, 1951 and not MSME Act, 2006. Thus, notifications issued under IDR Act, 1951 will hold the field. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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