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TMI Blog2021 (7) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... e a miscellaneous application filed in MA. No.101 / Chd/2019, pointing out that the ITAT ought have given a finding on the issue found arguable and that on the other issues also the fact of the assessee unable to convince the AO in set aside proceedings had been incorrectly recorded. Convinced with the mistake pointed out by the assessee, the ITAT recalled the entire order, vide order dated 27.05.2020. Hence, this appeal before us. 2. The facts relating to the case are that for the impugned assessment year the income of the assessee had been assessed u/s 143 (3) of the Act at Rs. 72, 89,920 /-. Subsequently, on perusal of assessment record, the Ld. Pr.CIT noted that the assessment had been completed without proper enquiry and application of mind and the issues had not been properly thrashed before concluding the assessment. Accordingly, he issued a show cause notice dated 08.11. 2017, exercising his revisionary jurisdiction as per provisions of section 263 of the Act, on the assessment order so passed, outlining therein the various issues on which he found the order passed by the AO to be erroneous. In response, the assessee filed written submissions, after considering which, he d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad shown net profit of Rs. 45,97,055/- on which deduction @ 25% was claimed at Rs. 11,49,264/-. Nevertheless, the said claim was rejected by the A.O., by holding that it is splitting up/reconstruction of existing business i.e. Unit -I(IU-I) instead of new industrial undertaking but still deduction was allowed to you; whereas, the department is already in appeal in ITAT against allowance of the same by CIT{A) for A.Y. 2012-13. e. On perusal of profit & Loss account in respect of Unit I(IU-II) in which you had cairned deduction @ 25% u/s 80IC, expenses on account of electricity and Water has been claimed at Rs. 82,70,4S4/-, whereas only Rs. 1,66,020/- (there is no schedule or details of these expenses also) has been claimed for Unit -II as electricity and Water expenses, in which 100% deduction under section 80IC was claimed. It is also noticed that there is no electricity security deposited with the HPSEB for installation of electric connection in respect of this unit. Thus there appears to be no electric connection for unit -II and therefore, whole electricity/water expenses have been claimed in Unit-1 only. In the absence of any details, the expenses should have been apportioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y) 2013 - 14. Our attention was drawn to the copy of assessment order for the said year placed before us at P. B 68 - 79. The Ld. Counsel for the assessee contended that for the impugned year also it had been allowed 100% deduction of profits earned in the impugned unit, in the order passed by the AO u/s 143 (3) of the Act, but the Ld. Pr. CIT found that the AO had information in his possession that the product being manufactured by the assessee did not qualify for exemption as it fell in the negative list specified by the government, by way of letter issued to this effect by the Directorate of Industries, Himachal Pradesh and the Department of Industrial Policy & Promotion, Government of India dated 03 - 06 - 2016 and 11 - 03- 2016.And that despite possessing this information the AO had allowed deduction u/s 80 IC of the Act to the assessee, which made his order erroneous on this count. 8. The Ld. Counsel for the assessee, thereafter proceeded to make detailed arguments before us in support of his contention that there was no error at all in the order of the AO allowing assesses claim of deduction u/s 80 IC of the Act in Unit II. Briefly summarized, his arguments were to the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial Gas' in trade parlance and fall under sub class No. 24111 of NIC Classification, 1998, which reads as under:- 24111- Manufacture of industrial gases (includes manufacture of elemental gases, liquid or compressed air, acetylene refrigerant gases and mixed industrial gases etc. Industries engaged in the manufacture of items classifiable under sub class is No, 24111 and 24119 of the NIC Classification, 1998, do not find mention under any of the entries contained in Negative Lists. One cardinal rule of interpretation while interpreting the entries in taxation statutes/notifications is that the words used in the entries must be construed strictly and there is no scope of intendment. Therefore, it cannot be a case of Revenue to cover the Dissolved Acetylene against entries in Negative Lists and also to deny the benefit of exemption as it does not satisfy all the conditions mentioned therein. It may appreciate that it is a settled principle of taw that to avail benefit of exemption notification all the conditions must be fulfilled. On the same footing, it is also imperative that to cover an item under negative list, all the conditions of the negative list must be satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Acetylene Gas (that it falls under the said list) was available with the A.O. from the letters issued by Directorate of Industries, H.P. and Department of Industrial Policy and Promotion, Govt. of India vide letter dated 20,05.2016 and 11.03.2016 respectively, despite thereof, the deduction u/s 801C has been allowed by the A.O. to the assessee. For the sake of convenience, the basic clarifications given vide these letters is as under.- a) As per the clarification given by the GO1, Ministry of Commerce & Industry, Deptt. of Industrial Policy and Promotion, New Delhi's letter No. 8(4)/2016-SPS dated 11th March, 2016, the "Dissolved Acetylene Gas" is covered under S.No. 5 of the Negative List at Annexure -III of OM NO. 1(1)/2001-NER dated 7th January, 2003. (copy of letter and Annexure -111 enclosed - as P/l-1 to P/l-6). b) As per the letter No. Ind. Dev. CClS/Enquiry/ 2015-16 of the Director of Industries, Govt. of HP, Directorate of Industries, dated 24.06.2016, the State Govt. vide letter No. Ind. A(B)-ll-3/20l6 dated 20.05.2016, after conducting preliminary inquiries has found that the incentives have been wrongly allowed to the assessee and thus, directed that the wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee contended that the letters of the Department of Industrial Policy & Promotion, Government of India mentioned the item manufactured by the assessee falling at Sl.No 5 of the negative list, but the explanation of the assessee to the AO sufficiently demonstrated that it could not be categorically so said by any chance. Explaining the same, he pointed out that there was an anomaly in S. No. 5 of Schedule- XIII of the Income Tax Act, which lists the items manufactured in Himachal Pradesh not eligible for exemption u/s 80IC of the Act, in short the negative list. He pointed out that while it mentions organic chemicals included in Chapter- 29 of the Excise Classification, which also deals with organic chemicals, it goes on further to mention the NIC Code 24117, which relates to inorganic chemicals. In this regard he drew our attention to Schedule XIII of the Income Tax Act placed at paper book page no 74, Chapter- 29 of the Excise Classification placed before us at Paper Book page No 77 and the description of items included NIC Code 24117 placed before us at Paper Book page No.79. Ld.Counsel for the assessee stated that clearly there was an anomaly in serial No.5 of the negative list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Directorate of Industries, Himachal Pradesh "No.lnd.Dev.CCIS/Enquiry/2015-16 Government of Himachal Pradesh Directorate of Industries Dated : Shimla, The From Director of industries Himachal Pradesh. To 1. The Income Tax Officer, Income Tax Office, Mandi Distt. Mandi (HP). 2. Deputy Excise & Taxation Commissioner Mandi Distt. Mandi (HP). 3. The Assistant Commissioner, Central Excise & Service Tax Division Loha Bazar Mandi Distt. Mandi (HP) 4. The General Manager Distt. Industries Centred Mandi Distt. Mandi (HP). Subject:- Fraud and illegal claim & payment of Central Capital Investment Subsidy, Central Transport Subsidy, interest Subsidy, Electricity duty and illegal exemption on account of GST/GST, Income Tax and Central Excise Duly and VAT deferment conducting of enquiry thereof. On the subject cited above, it is informed that this office had earlier received a complaint from Sh. Harsh Kumar, Village & Post Office Gutkar, Tehsil Sadar, District Mandi dated 07/09/2015 (copy enclosed) regarding "Fraud & Illegal claim & payment of Central' Capital Subsidy, exemption on account of Income Tax CCIS, CTS, GST/CST and interest Subsidy "f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above reveals that it mentions the item manufactured by the assessee, Dissolved Acetylene Gas, as falling in S.no.5 of the negative list . This S.No.5 of the negative list , which it was stated is listed as Schedule XI I I of the Income Tax Act , is as under (P.B 74-76) "THE THIRTEENTH SCHEDULE ([See Section 80-IC(2)]) LIST OF ARTICLES OR THINGS ............................... ................ . . . . . . . . ............................... FOR THE STATE OF HIMACHAL PRADESH AND THE STATE OF UTTARANCHAL S.No. Activity or article or thing Excise Classification Sub-class under National Industrial Classification (NIC), 1998 1. ................................. 2. ................................. 3. .................................. 4. .................................. 5. Organic chemicals excluding Provitamins/Vitamins, Hormones (29.36) Glycosides (29.39), sugar* (29.40) Chapter 29 24117 As is evident from the above it describes the item covered therein giving a brief description thereof, mentions the excise classification in which they fall, being chapter 29, and also their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no doubt that to qualify as an item covered therein, all the manners of describing the items has to be satisfied. It has to fit into the description, belong to the specified chapter of Excise classification and also qualify as item of the specified NIC CODE. In the present case the uncontroverted fact is that the NIC CODE of the item manufactured by the assessee is not that mentioned in S.No.5 of Schedule XIII, though it may meet the other descriptions. It cannot therefore be categorically said that the item manufactured by the assessee qualified in S. No.5 of the negative list. Moreover on account of the clear cut ambiguity in the item mentioned/described against S.No.5, relating both to organic and inorganic chemicals, the assessee is entitled to the benefit of doubt regarding the items sought to be covered under it. 16. In view of the above, we do not find any error in the view taken by the AO, in the light of the above facts which were before him also, that the item manufactured by the assessee does not qualify in S. No. 5 of the negative list and the assessee therefore is entitled to claim exemption u/s 80 IC of the Act,. 17. The letters of the Directorate of Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointing therefrom the findings of the AO rejecting the claim of deduction u/s 80IC of the Act with respect to the profits of Unit- I (IU-II) as under: "5.3 From the above facts it is established that assessee's business i.e. of Unit-I (IU-II) is not a new business. The assessee added Plant & Machinery in the existing business costing meager amount. Existing employees transferred to new unit i.e. Unit-l (IU- II). C.S.T. and G.S.T. Number are of existing unit i.e. Unit-I(IU-I). By no consideration Unit-I (IU-II) can be held as a new industrial undertaking. It is a clear cut case of splitting up/ reconstruction of the existing business. Hence, not eligible for allowing of deduction u/s SOIC. Accordingly, deduction claimed u/s 80IC at Rs. 11,49,264/- is disallowed and added in the taxable income of the assessee. (Reliance is placed in the case of Chenab Information Technologies (P) Ltd. Vs ITO (ITAT, Mum) 25 SOT 432; 24 DTR 595). Penalty proceedings u/s 271(1)(c) of the IT Act, 1961 are being initiated separately for the default of the assessee in furnishing inaccurate particulars of Income and also for concealment of income." 21. The Ld. DR was unable to controvert the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT in this regard, placed before us at Paper Book page 8 as under: e) In Unit-II the assessee has installed the transformer as well as electric meter himself as per practice of HPSEB as such no security was paid to the HPSEB. More over the bills raised by HPSEB does not show any meter charges. It is not correct that no electric connection was installed in this unit. The electric charges claimed are as per actual bills raised by the HPSEB and paid. Copies of the Bills raised and copy of ledger pertaining to electric charges of Unit-IS are enclosed. It is also to submit that the electric charges claimed in respect of Mandav Air Industries (IU-I and IU-II) are actual expenses for the energy consumed by the assessee. Similarly expanses on account of employees as salary and other benefits are actual expenses pertaining to Unit-II copy of ledger account showing salary and other benefits and also salary paid to employee's for the month of March,2014 are enclosed. No part of salary pertaining to staff deployed in Unit-II has been claimed in Mandav Air Industries (Unit-IU-I and IU-II). 25. The Ld. Counsel for the assessee contended that the Ld. Pr. CIT had, without dealing the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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