ACIT, NEW DELHI vs. M/S. LVP FOODS PVT. LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI

BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER [Through Video Conferencing]

ITA No.937/Del/2017 Assessment Year: 2013-14

ACIT, Vs. M/s. LVP Foods Pvt. Ltd, Circle-15(1), 3, Link House, 4th Floor, New Delhi Bahadur Shah Zafar Marg, Press Area, New Delhi PAN :AABCL2517K (Appellant) (Respondent)

Appellant by Sh. Gautam Pundir, Sr.DR Respondent by Sh. Gautam Jain, Adv.

Date of hearing 18.08.2021 Date of pronouncement 08.09.2021

ORDER PER O.P. KANT, AM:

This appeal by the Revenue is directed against order dated 21/12/2016 passed by the Learned Commissioner of Income-tax (Appeals)-5, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 raising following grounds: 1. That the order of leaned CIT (Appeals) is erroneous & contrary to facts & law.

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under section 80IB of the Act. He also held that ‘Umang’ was a BIFR company and in view of large amount of carry-forward losses, there would not be any benefit of deduction and the assessee has created colourable device to eavde taxes and claimed deduction. He, accordingly, disallowed the claim of the assessee. The Ld. CIT(A), however, after considering the submission of the assessee and analyzing the provisions of the Act in respect of deduction under section 80 IB(11A) of the Act, he deleted the disallowance. The detailed finding of the Ld. CIT(A) is reproduced as under: “3.3.1 Following these submissions made before the undersigned dated 14.09.2016, it was considered appropriate to undertake the exercise of examining whether all the conditions required for fulfilling claim of deduction u/s 80IB(11A) had been fulfilled by the appellant as the assessment order did not demonstrate that the AO had examined the eligibility criteria qua section 80IB(11A). The eligibility criteria and the facts of the appellant's case have beep submitted by the appellant during the course of hearing along with substantiating documents, the gist of which reads as under:-

SEC.80IBI11A) CONDITIONS - APPELLANT’S SUBMISSIONS

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Financials of Umang Dairies Ltd for the period from April 2009 to March 2013 is also enclosed as (Annex.J-1).

3.4 I have given my careful consideration to the issue as to whether the appellant fulfilled all the conditions eligible for deduction u/s 80IB (11A). The provisions of section 80IB (11A) was introduced by Finance Act, 2001 and initially benefit was given to the business of handling, storage and transportation of food grains. Later on the benefit was extended to the business of processing, preservation and packaging of fruits and vegetables by Finance Act, 2004 w.e.f. 01.04.2005 and thereafter by Finance Act, 2009 w.e.f. 01.04.2010 the benefit was further extended to the meat products and poultry or marine or dairy products. The appellant falls under the proviso to as it began operation of business after 01.04.2009. This is evident from the annual accounts of the company for the A.Y. 2010-11 wherein,

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for part of the year since the start of commercial production w.e.f 11.09.2009, the appellant had a turnover of Rs. 87.71 crores. The appellant had made his claim for the first time in the impugned assessment year as there were losses incurred in the preceding years. I have also perused the financials of the company for A.Y. 2010- 11 when commercial production started. I find that the appellant invested Rs. 19.79 crores in fixed assets and another 15 crores in capital work in progress. The other conditions that were applicable for the deduction u/s 80IB (2) are also found fulfilled in the appellant's case and discussed serially as under:

(i) The undertaken should not be formed by splitting up or reconstruction of a business already in existence - the financials for and from A.Y. 2007-08 do not show that the company was formed by splitting up of an existing business.

(ii) The undertaking is not formed by the transfer to a new business of machinery and plant previously used for any purpose - It is seen that the company was incorporated in A.Y. 2007-08 and no activities were carried out in the years preceding A.Y. 2010-11. In A.Y. 2009- 10 except for securing term loan of Rs. 5.87 crores from Axis Bank and unsecured loan of Rs. 4 crores from its holding company Bengal and Assam Company Ltd. which has been advanced to Umang Dairy Ltd. for construction of factory building, no commercial activities were carried out. Further the balance sheet of M/s Umang Dairy Ltd. for A.Ys 2010-11 onwards were also requisitioned in order to examine whether any existing plant and machinery had been transferred to the appellant. The balance sheet of M/s Umang Dairy Ltd. for A.Y. 2010-11 reveals that there is no transfer of any fixed asset to anybody including the appellant.

(iii) The undertaking manufactures or produces any article or claim not being any article or claim specified in the list in 11th Schedule - I have perused the 11th Schedule and find that dairy products are not specified in the 11th Schedule.

(iv) The undertaking employs 10 or more workers in a manufacturing process carried on with the aid of power or employs 20 or more workers in a manufacturing process carried on without the aid of power - In this regard, the AR has furnished a certificate from the Chief Executive - Works of Umang Dairies Ltd. stating that for purposes of discharging the obligations under the agreement dated 4.7.2008 with Umang Dairies, Umang had employed more than 10 workers which were not less than 26 at any time during the F.Y. 2012-13 for the activity of processing, preservation and packaging of dairy products. The monthwise list of employees on the payroll of Umang Dairies along with their EPF and EPS contribution, have also been subsequently filed. In this regard, the AR was requested to

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inform how the deduction could be allowed as section 80 IB(2)(iv) specifically mentions that the undertaking should "employ" 10 or more workers in a manufacturing process carried on with the aid of power when the appellant was itself not the employer and there was no employer-employee relationship between the workers and the appellant company. It was pointed out to him that the Allahabad High Court held that the workforce employed by a contractor would not qualify for the phrase "employ" that was used in section 80I(2)(iv) and there should be employer - employee relationship between the assessee and the worker. The AR has brought to my notice the subsequent decision of the Bombay High Court in the case of Jyoti Plastic Works Pvt. Ltd. (ITA No.5045/2010 dated 15.11.2011) wherein, in the context of section 80IB(2)(iv) for A.Y. 1999-2000, the High Court disagreed with the views expressed by the Allahabad High Court. It has also been brought to my notice that against the order of the Bombay High Court, the department's SLP has been dismissed by the Hon'ble Supreme Court in Civil Appeal No. 1004/2014 dated 28.4.2015. These facts are also discussed in the ITAT order in the case of Jyoti Plastic Works Pvt. Ltd. for A.Y. 2011-12,(ITA No.7013/Mum/2014 dated 22.06.2016). From the decision of the Bombay High Court, it is seen that the Hon'ble High Court, in the absence of the definition of the expression 'worker' in the Income Tax Act, chose to go by the definition as per Black's Law Dictionary and u/s 2(L) of the Factories Act, 1948, that is, the expression 'worker' means a person employed directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in any other kind of work incidental to or connected with the manufacturing process. The High Court held that it would not be proper to give a restricted meaning to the expression worker and it was immaterial as to whether the workers were directly employed or employed through contractor and hence the condition imposed u/s 80IB(2)(iv) could be said to have been met. The issue is thus settled, with the dismissal of the SLP by the Hon'ble Supreme Court in favour of the assessee and it is found that the deduction cannot be denied on the ground that requisite number of workers were not employed by the appellant.

3.5 It can be seen from the discussion in the preceding paragraph that the conditionalities specified under sub section (2) of section 80IB are fulfilled. The only issue that remains to be examined is whether, as the AO has held, the assessee claiming the benefit of deduction u/s 80IB(11A) should itself be engaged in the business of processing, preservation and packaging of dairy products, or, as the appellant has argued. Any profit, derived from such a business referred to above, even though the same is outsourced to another entity, is eligible for deduction. A perusal of section 80IB(2) which is the machinery provision, reveals that the condition relating to

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manufacture and production of an article or thing needs to be specifically restricted to industrial undertaking falling under subsections (3) to (5) of section 80IB. The subsequent sub sections are applicable to entities carrying out specific businesses, such as ship, hotel, convention centre, multiplex theatre, commercial production of mineral oil, development of housing project etc. When the provisions of 80IB(11A) are examined closely, it is found that the only condition is that the undertaking should be deriving profit from the business of processing, preservation and packaging of dairy products. When there is no particular restriction under I.T Act, such interpretation cannot be derived artificially. There is no condition specified u/s 80IB(11A) stating that the business of processing, preservation and packaging of dairy products has to be carried out by the assessee who claims the deduction. When we turn to the facts of the case, there is an agreement between the appellant and UDL dated 04.07.2008 for manufacturing, processing and packaging activities of liquid milk, as per the specification provided by it and under its supervision. The Mother Dairy guidelines for packing made by vendors and the guidelines for storing milk, testing etc. are also set out. The agreement signed between initially between Mother Dairy and Panchmahal Properties Ltd. dated 15.10.2007 (amended vide agreement dated 23.12.2008) stands assigned to the appellant with the consent of Mother Dairy dated 24.12.2008 and the assignment agreement dated 29.12.2008 between Panchmahal Properties Ltd. and the appellant meant that the appellant stepped into the shoes of Panchmahal Properties Ltd. As can be seen from the agreement between the appellant and UDL dated 04.07.2008, the factory building was to be built on land owned by UDL and with the funds of the appellant. The building was to be transferred back to the appellant at cost after the completion of construction and with the prior approval of the BIFR, but the ownership of the land would always remained with UDL. The funds and thereby the ownership over the requisite plant and equipment installed in the factory building continued to remain with the appellant. It is also clear that the beneficial ownership of the building is available with the appellant. Even otherwise, as held by the Pune ITAT in the case of Anurag Radhesham Attal (ITA nos. 8 to 9 and 863/PN/2012) the ownership of the facilities and manpower on pay roll is not a sine qua non for claiming deduction u/s 80IB(11A).

3.6 The other objection of the AO is that the claim of benefit u/s 80IB (11A) is a colourable device to evade tax as the entity, which is actually engaged in the business of processing of dairy products, i.e. Umang Dairy Ltd., is an erstwhile sick company which has been rehabilitated vide BIFR order dated 03.08.2009, and would be having heavy brought forward losses and thereby would be unable to claim the deduction. In this regard, the appellant has filed as

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requested, the ITR as well as annual accounts of Umang Dairy w.e.f A.Y. 2009-10 to 2013-14, which reveals the following picture: A.Y. 2009-10 : Rs. (-) 4,54,00,952 A.Y. 2010-11 : Rs. (-) 4,23,41,887 A.Y. 2011-12 : Rs.nil (after set off of unabsorbed business loss Rs. 3,77,01,783) A.Y. 2012-13 : Rs.nil (after set off of unabsorbed business loss Rs. 14,67,37,286) A.Y.2013-14 : Rs. 5,58,14,476 (after set off of unabsorbed business loss Rs. 10,16,01,267) 3.6.1. Thus for the year under consideration it is seen that Umang Dairies Ltd. is a profitable entity and the suspicions of the AO are proven incorrect. Keeping in view the discussion in the aforesaid preceding paragraphs, the objections raised by the AO to deny the claim u/s 80IB1(11A) are seen to be invalid. Ground no. 1 is allowed.

5.2 Before us, the Learned DR relied on the order of the Assessing Officer and submitted that it is not the case where a part of the job has been outsourced, but in the case entire manufacturing activity has been outsourced and, therefore, no manufacturing activity has been carried out by the assessee and thus not entitled for deduction under section 80IB(11A) of the Act. 5.3 On the contrary, the learned counsel for the assessee relied on the order of the Ld. CIT(A) and submitted that Revenue has not challenged the disallowance of the depreciation on plant and machinery in the present appeal filed, which shows that claim of depreciation on machinery for put to use of manufacturing has been accepted by the Revenue. According to the learned counsel, when the Revenue itself has accepted the claim of the

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depreciation, which is allowed for putting the machinery to use of manufacturing, the argument in support of the ground of deletion of 80IB deduction that no manufacturing has been carried out are self-contradictory. The learned counsel submitted that Revenue cannot argue contrary once they have accepted the claim of the depreciation of the assessee. 5.4 In support of his contention, the learned counsel relied on following decisions: (i) Decision of Hon’ble Bombay High Court in the case of CIT Vs Jyoti Plastic Works P. Ltd. reported in 399 ITR 491 (ii) Decision of Hon’ble Delhi High Court in the case of CIT Vs Delhi Press Patra Prakashan Ltd reported in 355 ITR 14 (iii) decision of Hon’ble Madras High Court in the case of CIT Vs Elgi Ultra industries Ltd reported in 210 Taxman (204) .

5.5 The learned counsel also submitted that Assessing Officer himself in assessment year 2018-19 has allowed the claim of deduction of the assessee and, therefore, contesting the same claim for earlier year before the Tribunal by the Assessing Officer is not justified. 5.6 In the rejoinder, the Learned DR submitted that in the case of Jyoti Plastic Works Private Limited (supra) only part of job work was outsourced and, therefore, facts of said case are distinguishable.

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5.7 We have heard rival submission of the parties on the issue in dispute and perused the relevant metal on record. The issue in dispute regarding the disallowance of deduction under section 80IB(11A) is mainly related to manufacturing. According to the Assessing Officer the assessee has outsourced its entire manufacturing and, therefore, the assessee is not entitled for benefit of deduction. However, on perusal of the facts on record, we find that the assessee is owner of plant and machinery which have been engaged for the purpose of manufacturing. The Assessing Officer disallowed the claim of depreciation on such plant and machinery, however, Ld. CIT(A) deleted such disallowance and the Revenue has not challenged said finding of the Learned CIT(A). This means, the Revenue has accepted the plant and machinery on which depreciation has been claimed, was put to use for manufacturing process by the assessee. Once the claim of the depreciation on machinery engaged for manufacturing has been accepted by the revenue, contesting that no manufacturing has been carried out by the assessee is self- contradictory and not justified. Further, the contention of the assessee that assessee was engaged in colourable device of evasion of taxes has not been found to be correct. The allegation of the Assessing Officer that there were large amount of carry- forward losses in the case of ‘Umang’ and therefore deduction has been claimed in the case of assessee. This claim of the Assessing Officer has been not found to be correct as Ld. CIT(A) has pointed out that there was profit in the case of the ‘Umang’ during the year under consideration.

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5.8 Further, on perusal of the assessment order for assessment year 2018-19, available on page 118 to 119 of the paper-book of assessee, we find that case was selected under scrutiny mainly for verification of claim of the deduction of the assessee. The Assessing Officer in the scrutiny assessment completed on 21/02/2021 has accepted the claim of the assessee for deduction under section 80IB of the Act. In our opinion, when the same claim has been accepted by the Assessing Officer in assessment year 2008-19, the Assessing Officer is not justified in contesting the same issue for earlier year. 5.9 In our considered opinion, the finding of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the same. The grounds No. 2 & 3 of the appeal of the Revenue are accordingly dismissed. 6. In the result, the appeal of the revenue is dismissed. Order pronounced in the open court on 8th September, 2021

Sd/- Sd/- (K.N. CHARY) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 8th September, 2021. RK/-(DTDC) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi