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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 ..... earned Commissioner of Income Tax (Appeal) erred in confirming rejection made by the Assessing Officer of deduction under section 80IB of the Act of Rs. 2507133/-. Provisions of the Act ought to have been properly construed and regard being had to facts of the case deduction claimed under section 80IB of the Act should not have been rejected. 2. On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming order made under section 143(3) of the Act by the learned Assessing Officer which is illegal, bad-in-law, ultra vires and without allowing reasonable opportunity of the hearing, without appreciating facts, submission and evidences in their proper perspective, and liable to be annulled. 3. The learned assessing officer erred in charging interest under section 234A, 234B, 234C and 234D of the Act. 4. The appellant crave leave to add, amend, alter and / or vary any of the grounds of appeal before or at the time of hearing." 3. The assessee is engaged in the business of manufacturing & trading of dyes and dyes intermediates . The solitary issue in this appeal before the tribunal is with respect to allowability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 232(E) 02-04-1991 100 SO 857{E) 10-12-1997 300 SO 1288(E) 24-12-1999 100 SO 1642(E) 29-09-2006 500 2. Note -2 of the Notification No, SO 857(E)/dated 10-12-1997 also defines Nature of Plant & Machinery which exclude the auxiliary and other equipment not directly related to production of an article or thing. The relevant para reads as under: "....In calculating the value of plant and machinery the following shall be excluded namely (i) the cost of equipment such as tools, jigs, dies, moulds and spare parts for maintenance and the cost of consumable stores. (ii) the cost of installation of plant and machinery; (iii) cost of research and development equipment and pollution control equipment; (iv) the cost generation sets, extra transformer, etc installed by the undertaking as per the regulations of the state Electricity Board; (v) the bank charges and service 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 or individual machines), oil circuit breakers / miniature circuit breakers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investments otherwise also exceeds Rs. 5 crores, and therefore the argument of the appellant does not hold ground. Hence this ground of appeal is dismissed. 6. In the result, the appeal is dismissed." 5. Aggrieved by an 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 authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kings other than infrastructure development undertakings. 80IB (1) Where the gross total income of an assessee includes any profits and gains derived from any 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 undertakings.-(1)The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength and 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, specify, having regard to the factors mentioned in sub-section (2), by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale, industrial undertaking and different requirements may be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified order made under sub-section (1).]" 6.5 On perusal of the provisions of aforesaid Section 11B of the IDR Act,1951, it is clear that GOI issues notification while specifying criteria for an undertaking to be eligible to be classified as small scale industrial undertaking, including ceiling on investments in Plant and Machinery. Section 80IB(14)(g) of the 1961 Act stipulates that small scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the IDR Act,1951. At this stage it will be pertinent to mention about the Preamble of the IDR Act, 1951 which is to provide for development and regulation of certain industries. While introducing this Act of 1951 , it was provided that on 6th April 1948 , the Central Government announced its industrial policy which was approved by the Central Legislature. As per the policy the development and regulation of a number of important industries, the activities of which affected the country as a whole and the development of which ought to be governed by economic factors of all-India import , were required to be brought und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided the unit undertakes to export atleast 30 percent of the annual production by the end of 3rd year from the date of its commencing production. IV. Requirements to be complied with by an industrial undertaking for being regarding as ancillary industrial undertaking- In industrial undertaking which is engaged or is proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or the rendering of services, and the undertaking supplies or renders or proposes to supply or render not less than 50 percent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery whether held on ownership terms or on lease or on hire purchase, does not exceed rupees seventy five lakhs. 2. Every industrial undertaking which has been issued a certificate of registration by the Department of Industrial Development or Director General of Technical Development under the said Act and now falls within the above definition of ancillary or small scale industrial undertaking, may be registered, at the discretion of the owner, as such, within six month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged or is proposed to be engaged in the manufacturing or production of parts components, sub-assemblies, tooling or intermediates, or the rendering of services, and undertaking supplies or proposes or supply or renders not more than fifty per cent of its production or services, as the case may be, to one or more other industrial undertakings and whose investment in fixed assets in plant and machinery, whether held on ownership terms or on lease or on hire purchase, does not exceed rupees three cores. Note 1 - No small scale or ancillary industrial undertaking referred to above shall be subsidiary of, or owned or controlled by any other industrial undertaking. Explanation - For the purposes of this note,- A. "owned" shall have the meaning as derived from the definition of the expression "owner" specified in clause (1) of section 3 of the said Act; B. "subsidiary" shall have the same meaning as in clause (47) of section 2. read with section 4, of the Companies Act, 1956 (1 of 1956), C. the expression "controlled by any other industrial undertaking" means as under:- i. where two or more industrial undertakings are set up by the same person as a proprietor, each of such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trolled by, any other industrial undertaking or undertakings in terms of sub-clauses (i); (ii) and if the total investment in fixed assets in 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. Note 2- a. In calculating the value of plant and machinery for the purposes of paragraphs (1) and (2) of this notification, the original price thereof, irrespective of whether the plant and machinery are new or second hand, shall be taken into account. b. In calculating the value of plant and machinery, the following shall be excluded, namely:- i. the cost of equipments such as tools, jigs, dies, moulds 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Department of Industrial Policy and Promotion) ORDER New Delhi, the 24th December, 1999 S.O.1288 (E). - Whereas the Central Government considers it necessary with a view to ascertain which ancillary and small scale industrial undertakings need supportive measures, exemption or other favourable treatment under the Industries (Development and Regulation) Act, 1951 (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 Central Government considers it necessary to amend 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 for the said purpose: And whereas a copy of the said amendment of the notified order in draft was laid before each House of Parliament for a period of thirty days as required under sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the order dated 10th December, 1997 would continue to remain as SSI units in spite of the order dated 24th December, 1999; and iii. The units which have got provisional registration with the State authorities for their SSI status would continue to remain as SSI units, in spite of the order dated 24th December, 1999 provided the provisional registration had taken place within the period of limitation of 180 days specified in the order dated 10th December, 1997. Please take necessary action accordingly. Yours faithfully, Sd/- (C. S. PRASAD) Additional Development Commissioner Copy for information to: 1. P.S. to Minister (Commerce & Industries), Udyog Bhavan, New Delhi. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Rs. 300.00 lakhs. No time limit is prescribed for such units to reach the ceiling of Rs. 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, Post Box No.525, Tilak Road, Pune-411002, w.r.t his letter dated May 29, 2000. addressed to DC(SSI), copy endorsed to the Cabinet Secretary, GOI, New Delhi. 5. Shri J.P. Prakash, Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment 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, 2006 after having obtained the recommendations of the Advisory committee u/s 7(4) of MSME Act, 2006 which stipulated the eligibility criteria for small Enterprises shall be where the investment in plant and machinery is more than Rs. Twenty five lacs but does not exceed Rs. 5 crores 6.8 Explanation 1 to Section 7(1) of MSME Act, 2006 stipulated exclusion while computing threshold limits of investment in plant and machinery which is subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whether new or second hand is to be taken into account while computing threshold investment limits in Plant and Machinery. It is also provided vide Explanation 2 to Section 7(1) of the MSME Act that provisions of Section 29B of IDR Act, 1951 will be applicable to small enterprises. 6.10 These notifications of 2006 are under Micro, Small and Medium Enterprises Development Act, 2006. However, Section 80IB(14)(g) of the 1961 Act provides that small scale industrial undertaking means an industrial undertaking which is, as on the last day of previous year, regarded as a small-scale industrial undertaking under section 11B of the IDR Act,1951 . As we have seen earlier that MSME Act, 2006 was a special statute dealing with micro, small and medium enterprises while IDR Act, 1951 was a general statute deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands overruled." 6.11 Moreover, the assessee has to establish its eligibility to claim deduction u/s 80IB(3) of the 1961 Act every year by demonstrating that the assessee continues to be small scale industrial undertaking in that year . The issue is no more res Integra as three judge Bench of Hon'ble Supreme Court has decided the issue in favour of Revenue in the case of DCIT v. Ace Multi Axes Systems Ltd., (2018) 400 ITR 141(SC), wherein Hon'ble Supreme Court held as under:- "10. Section 80 IB is in Chapter VI A of the Act which provides for deductions to be allowed from total income which is to be computed under the relevant provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business, transfer to a new business of machinery or plant previously used. Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature. 13. On examination of the scheme of the provision, there is no manner of doubt that incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period. Needless to say, each assessment year is a different assessment year, except for block assessment. 14. The observations in the impugned order are that the object of legislature is to encourage industrial e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IDR Act, 1951 and not MSME Act, 2006. Thus, notifications issued under IDR Act, 1951 will hold the field. The assessee has referred and relied upon notification issued in 2006 under MSME Act, 2006 before learned CIT(A) . The first appellate authority i.e. learned CIT(A) proceeded based on notification issued under MSME Act, 2006 and not on the basis of notification issued under IDR Act, 1951 as stipulated under 80IB(14)(g) of the 1961 Act for computing eligibility criteria for the assessee to be classified as small scale industrial undertaking, although the learned CIT(A) had arrived at conclusion that the assessee's investments in Plant and Machinery after computing exclusions are more than Rs. 500 lacs . The assessee is challenging that exclusions are not rightly been computed while determining the investment in Plant and Machinery for the purposes of its eligibility for deduction u/s 80IB(3) of the 1961 Act. We have already held that notifications issued u/s 11B of the IDR Act, 1951 Act will hold the field keeping in view express provisions of Section 80IB(14)(g) of the 1961 Act read with Section 80IB(3) of the 1961 Act. If there is an anomaly left in law , it is for Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X
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