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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI AMARJIT SINGH
आदेश / O R D E R
PER AMARJIT SINGH, AM:
The captioned appeal and the Cross Objection for A.Y. 2012-13 have been heard together and a consolidated order is being passed for the sake of convenience and brevity. The revenue has raised the impugned grounds before us:
“1. On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in allowing the deduction u/s. 80IC(2) of the I.T. Act without appreciation the facts that the preparation of Ujala Supreme by diluting the raw material i.e. Acid Violet 49 Dye with water does not amount to manufacturer or produce of any article or thing with a different chemical composition or integral structure as envisaged u/s. 2(29)(BA) of the I. T. Act, and thereby not eligible for deduction u/s. 80IC of the Act. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in allowing the deduction u/s.80IB(4) of the I.T. Act without appreciating the facts that the preparation of Ujala Supreme by diluting the raw material i.e. Acid Violet Dye49 with a different chemical composition or integral structure as envisaged u/s.2(29)(BA) of the I.T. Act and thereby not eligible for deduction U/s. 80IB(5)(i) of the I. T. Act. 3. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s.14A, without appreciating the fact that the A.O has properly recorded his satisfaction for invoking the provisions of Rule 8D and therefore since Rule 8D is invoked, the disallowance has to be worked out as per the formula prescribed therein and there is no scope for any deviation there from. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance u/s.14A observing that since there is no exempt income, no disallowance can be made u/s.14A without appreciating that as held in the decision of Special Bench of ITAT, Delhi in the case of Chemiinvest 121 ITD 318 (Delhi) (SB), provisions of section 14A are applicable even through no exempt income has been earned during the year. 5. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O. be restored. 6. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.” 2. The fact in brief is that return of income declaring total income of Rs.18,38,01,310/- was filed on 28.09.2012. The case was subject to
3 ITA No.7280/Mum/2016 & C.O. No. 114/Mum/2018 A.Y. 2012-13 ACIT, 10(2)(1) Vs. M/s Jyothy Laboratories Ltd.
scrutiny assessment and notice u/s 143(2) of the Act was issued on 06.08.2013. The Assessment u/s 143(3) of the Act was completed on 23.03.2015 and total income was assessed at Rs.70,63,14,949/-. The remaining relevant facts of the case are discussed while adjudicating the ground of appeal of the assessee as under:
Ground Nos. 1 & 2: (Claim of deduction u/s 80IC & 80IB of the I.T. Act):
The assessee is a public limited company registered under the Company Act 1956 and is engaged in the business of manufacturing and marketing fabrics whiteners, soaps, detergents mosquito repellents, scrubber etc. During the year under consideration the assessee claimed deduction u/s 80IB and 80IC of the Act in respect of profits derived from its undertaking established in the specified area of Wayanad Himachal Pradesh and Uttaranchal, respectively. Regarding claim of deduction u/s 80IC(2)(a) of the Act the A.O placed reliance on the finding given in the assessment order for A.Y. 2011-12 stating that the making of acid dye by simply diluting acid violet paste with water at Uttaranchal undertaking does not amount to manufacture of any article or things as contemplated in the provisions of Sec. 80IC(2)(a) of the Act. Therefore, the A.O held that assessee is not entitled for claim of deduction u/s 80IC(2)(a) of the Act.
On similar reasoning the A.O has also disallowed the claim of deduction u/s 80IB(4) in respect of Himachal Unit.
The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee.
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During the course appellate proceedings before us at the outset the ld. Counsel submitted that identical issue on similar fact in respect of claim of deduction u/s 80IC and 80IB have been adjudicated in favour of the assessee vide ITA No. 7281/Mum/2016 for A.Y. 2011-12 by the coordinate bench of the ITAT, Mumbai. The assessee has also furnished the copy of the above cited order of the ITAT.
On the other hand, the ld. D.R stated that ITAT has not decided issue on merit.
Heard both the side and perused the material on record. Without reiterating the facts as elaborated above during the course of assessment the A.O has not allowed the claim of deduction u/s 80IC in respect of Uttaranchal Unit of the assessee and deduction u/s 80IB in respect of Himachal Unit of the assessee on the reasoning that the process of making of Ujala Supreme did not result into any new product. During the course of appellate proceedings before us the ld. Counsel submitted that coordinate bench of the ITAT in the case of assessee itself for A.Y. 2011-12 has adjudicated identical issue on similar facts vide ITA No. 7281/Mum/2016 in favour of the assessee. With the assistance of the ld. representative we have gone through the above referred decision of the ITAT. The relevant part of the decision is reproduced as under:
“7. Before us the learned A.R. for the respondent assessee made a preliminary point in defence of the ultimate conclusion of the CIT(A), which is based on the judgement of the Hon'ble Bombay High Court in the case of Simple Food Products (P) Ltd. vs. CIT (2017) 84 taxmann.com 239. 8. The point raised is that when the deductions under section 80IC as well as under section 80IB of the Act have been granted in the initial assessment years, the same could not be rejected for the subsequent assessment years unless the relief allowed for the initial year was withdrawn. It has been pointed out by the learned A.R. that the deductions under Section 80IB and 80IC of the Act are allowable to an assessee over a specified number of consecutive assessment years, and in the instant case, such claims have not been withdrawn in the initial
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assessment years, therefore the action of the Assessing Officer to deny the claim in the instant assessment year is untenable. In support, reliance has also been placed on the principle laid down by the Hon'ble High Court in the case of CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom.), which has been subsequently reiterated and applied by the Hon'ble High Court in the case of Simple Food Products (P) Ltd. (supra). 9. The learned D.R. has not joined issue with the respondent-assessee on factual matrix, but pointed out that the Assessing Officer has denied the claim in the instant year on a justified basis. The learned D.R. has reiterated the stand of the Assessing Officer on the merit of the controversy, which we are not inclined to go into for the present, as we deal with the preliminary point brought out by the learned A.R. for the respondent assessee. 10. In order to appreciate the preliminary point raised by the respondent assessee, the following factual position is relevant. In so far as the assessee’s claim for deduction under section 80IC of the Act with respect to Uttranchal Unit is concerned, the first year of claim was Assessment Year 2009-10 and the instant year is the third year of claim. Similarly, the claim of deduction under section 80IB of the Act in respect of Wayanad Unit was made by the assessee for the first time in Assessment Year 2002- 03 and the instant year is the eighth year of claim. In respect of Himachal Unit, the first year of claim of deduction under section 80IB of the Act was Assessment Year 2003-04, and thus the instant year is the seventh year of claim. Pertinently, the reliefs under sections 80IB and 80IC of the Act are available for ten consecutive years starting from the initial assessment year when the relevant undertaking of the assessee commences manufacture or production. Therefore, factually speaking, the instant assessment year is not the initial year of the claim, either for section 80IB or for section 80IC of the Act. At the time of hearing, the learned A.R. furnished a copy of the assessment year passed under section 143(3) of the Act for A.Y. 2002-03 dated 24.12.2004, which is the first year of claim of deduction under section 80IB of the Act with regard to Wayanad Unit, whose date of commencement of production/manufacture is 23.05.2001. Similarly, the date of commencement of manufacture/production of Himachal Unit is 25.08.2002, and the initial assessment year being 2003- 04 for which also, a copy of the assessment order passed under section 143(3) of the Act dated 30.01.2006 has been furnished, wherein the relevant claim under section 80IB has been allowed. In so far as the claim under section 80IC for Uttranchal Unit is concerned, the date of commencement of manufacture/production is 06.05.2008, and therefore the initial assessment year of claim is Assessment Year 2009-10. For Assessment Year 2009-10 also, a copy of the assessment order passed under section 143(3) of the Act dated 23.03.2011 has been furnished wherein the claim under Section 80IC of the Act has been accepted. In Assessment Year 2010-11 also, vide order under section 143(3) of the Act dated 06.12.2012 aforesaid claims have been accepted. It has also been pointed out that when the two claims were denied in the instant assessment, the claims allowed in the respective initial assessment years were not withdrawn. In this background, the moot question is as to whether in the instant year, can the Assessing Officer deny the claim of deduction under section 80IB as well as under section 80IC of the Act considering that the said claims were not withdrawn for respective initial assessment years.
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So far as the point of controversy before us is concerned, the mechanics of Section 80IB of the Act are similar to that of Section 80IC of the Act. For the present purpose, it is sufficient to note that both the deductions are eligible for a period of ten consecutive assessment years starting from the initial assessment year when the Undertaking of the assessee commences manufacture/production. As the factual matrix of the present case shows, the initial assessment year for the claim of deduction under Section 80IB of the Act for Wayanad Unit and Himachal Unit is 31.03.2002 and 31.03.2003 respectively, meaning thereby Assessment Years 2002-03 and 2003-04. Similarly, in the context of Uttranchal Unit, the initial assessment year for claim of deduction under Section 80IC of the Act is Assessment Year 2009-10 and the year of end of the benefit is 31.03.2018, meaning thereby Assessment Year 2018-19. As has been seen in the earlier part of this order, in the initial assessment years, i.e. Assessment Years 2002-03, 2003-04 and 2009-10, the respective deductions under Section 80IB and/or Section 80IC of the Act were allowed by the Assessing Officer. It has also been brought out before us, without any controversion from the other side, that the deductions have been allowed thereafter till the immediately preceding Assessment Year, i.e. Assessment Year 2010-11. It is only in the instant Assessment Year, i.e. Assessment Year 2011-12 that the claims have been denied. 12. In the context of the preliminary point raised by the respondentassessee, the judgment of the Hon'ble Bombay High Court in the case of Simple Food Products (P) Ltd. (supra) squarely covers the controversy. In the said case, the issue related to claim of deduction under Section 80IB of the Act in relation to Assessment Years 1999-2000 to 2005-06. In Assessment Year 1999-2000, the Assessing Officer disallowed the claim of deduction under Section 80IB of the Act for the first time even when in the initial Assessment Year of 1996-97 the deduction under Section 80IB of the Act stood allowed. The point raised by the assessee was that the claim of deduction in respect of Assessment Year 1999-2000 onwards could not be rejected as the deduction granted in Assessment Year 1996-97, i.e. the first year, had not been withdrawn. In this background, the following discussion in the judgment of the Hon'ble Bombay High Court is relevant:- “(j) According to us, the entire issue is no longer res-integra. The impugned order of the Tribunal has, after recording that the appellant – Assessee relies upon the decision of this Court in Paul Brothers (supra) has not dealt with the same. It gives no finding as to why and in what manner it would not apply to the present facts. Further, we find that distinction which has been made in the impugned order of the Tribunal with regard to Dnishaw Frozen Foods Ltd. (supra) viz. that the assessment in that case has been completed under Section 143(3) of the Act in initial year and it is only in such cases that the Revenue be barred from denying the claim for deduction in the subsequent Assessment Years, unless the claim for deduction has been withdrawn in the initial year when deduction was claimed and allowed unlike an assessment which is completed under Section 143(1) of the Act. We have perused the decision of this Court in Dinshaw Frozen Food Ltd. Nagpur (supra) which in turn has followed the decision Paul Brothers (supra). We note that there is no finding in the two orders to the effect that the in the initial year the claim under Section 80IA/IB of the Act was granted by virtue of an order passed under Section 143(3) of the Act. Nothing has been brought on record to
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indicate that there has been some change in manufacturing process from that existing when the claim was allowed in the initial year i.e. Assessment Year 1996- 1997 and subject Assessments. The intent/object of the deduction under Section 80IA/IB of the Act is to encourage setting up of industries to manufacture goods which are not specified in the Eleventh Schedule to the Act. (k) The distinction sought to be made by Mr. Bhattad, learned counsel for the Revenue that the claim for deduction in Paul Brothers (supra) the deduction was an investment based deduction, while in the present case, we are concerned with the performance base deduction. This is in -fact, no distinction. In absence of the Revenue being able to establish that for the subject Assessment Years, the facts with regard to the performance were different from facts with regard to the performance in which the claim for deduction in initial year was allowed, the grant of deduction in the subsequent subject Assessment Year cannot be withheld. The other issue raised by Mr. Bhattad that merely because a claim was allowed in an earlier year would not prohibit the revenue from disallowing the claim in subsequent assessment years is no longer res-integra as this Court in Paul Brothers (supra) as it is categorically held that in absence of deduction granted in the initial Assessment Years being withdrawn, the relief for subsequent Assessment Years could not be withheld. The basis for the same is found in sub-clause (3) under Section 80IA/IB of the Act which gives deduction for 10 consecutive years to the profit and gains of an Industrial undertaking from initial year of assessment when the deduction was allowed, subject to the condition laid down therein. It is not the Revenue's contention that the condition in clause (3) of Section 80IB of the Act has not been fulfilled. Therefore, once deduction is granted in the initial Assessment Year, the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act.” 13. The aforesaid discussion by the Hon'ble High Court clearly brings out that once deduction is granted in the initial assessment year, the same would continue for the period of ten consecutive years unless the relief for initial assessment year is also withdrawn. We are conscious of the fact that in coming to such decision, the Hon'ble High Court did notice the absence of the Revenue to establish that for the subsequent assessment years in dispute, the facts were different from the facts on which the claim for deduction in the initial year was allowed. 14. A point that has been raised is that when the assessment for the instant year was finalised under Section 143(3) of the Act dated 31.03.2014, a notice under Section 148 of the Act was issued on 21.03.2014 to reopen the assessment for Assessment Year 2009-10 in order to withdraw the claim earlier granted under Section 80IC of the Act, therefore, it could be said that the claim in the initial assessment year was disturbed. On this aspect, the learned representative for the respondent assessee vehemently pointed out that issuance of a notice under Section 148 of the Act to reopen assessment to withdraw a claim would not mean ‘withdrawal of claim ipso facto’. It was emphasised that at the time of rejecting the claim in the instant assessment year, i.e. on the date of passing of the assessment order, the claim under Section 80IC of the Act for Assessment Year 2009-10 (which was the initial assessment year) was not withdrawn and it remained undisturbed as the assessment order dated 23.03.2011 for Assessment Year 2009-10 continued to hold the field. 15. In our view, the aforesaid objection of the Revenue does not come in the way of applying the proposition laid down by the Hon'ble Bombay High Court in the
8 ITA No.7280/Mum/2016 & C.O. No. 114/Mum/2018 A.Y. 2012-13 ACIT, 10(2)(1) Vs. M/s Jyothy Laboratories Ltd.
case of Simple Food Products (P) Ltd. (supra) in the instant case. In fact, to recapitulate, the following observation of the Hon'ble High Court is worthy of notice and provides an answer to the objection raised by the Revenue :-
“Therefore, once deduction is granted in the initial Assessment Year, the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act.” [underlined for emphasis by us] 16. As per the Hon'ble High Court, once the deduction is granted in the initial assessment year, the same would continue for the specified period unless the relief for initial year is also ‘withdrawn at the time of withholding the relief under Section 80IA/80IB of the Act’. Clearly, in the instant year when the claim of deduction is rejected by the Assessing Officer, the relief allowed in the initial assessment year has not been withdrawn. Mere initiation of proceedings under Section 148 of the Act to reopen the assessment of the past year cannot be understood to mean that the ‘claim is withdrawn’. Therefore, in our view, the Assessing Officer could not have rejected the claim for deduction under Sections 80IB as well as 80IC of the Act in the subject assessment order because the relief allowed in the initial assessment year was not withdrawn at the time of such rejection in the instant year. 17. In the above background, we, therefore, find merit in the preliminary point made out by the respondent-assessee and the appeal of Revenue on this point deserves to be dismissed. Thus, in the final analysis, we uphold the ultimate conclusion of the CIT(A) to allow the benefit under Sections 80IB and 80IC of the Act to the assessee, albeit on a different ground.” After taking into consideration the facts and finding in the order of the ITAT in the case of the assessee itself as supra we find that facts and circumstances in this order are also similar to the A.Y. 2011-12 except variation in the amount of quantum of addition. There is nothing before us on hand to differ from the issue raised in the case of the assessee cited (supra) to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in submission of the assessee and allow the claim of deduction u/s 80IB & 80IC of the Act. Therefore, this ground of appeal of the revenue stand dismissed.
Ground Nos. 3 & 4: (Deleting disallowance u/s 14A of the I.T.Act
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Heard both the side on this issue and perused the material on record. Since the assessee has not earned any exempt income during the year under consideration, therefore, we don’t find any infirmity in the decision of ld. CIT(A) in allowing the claim of the assessee following the decision of Hon’ble Delhi High Court in the case of M/s Chem Invest Ltd. Vs. ITO(2009) 121 ITD 318. Therefore, both these ground of appeal of the revenue stand dismissed.
The appeal of the revenue stand dismissed.
C.O. No. 114/Mum/2018
“1. Without prejudice, that on the facts and circumstances of the case and in law, the assessing officer be directed not to add the disallowance under section 14A of Income Tax Act, 1961 (‘the Act’) while computing the total income as per book profits under Sec. 115JB of the Act.” 10. The assessee has filed this cross objection only in consequential to the appeal of the revenue filed against deleting the disallowance made by the ld. CIT(A) u/s 14A of the Act. Since we have dismissed the appeal of the revenue, therefore Cross Objection filed by the assessee become infructuos and the same stand dismissed.
The Cross Objection filed by the assessee stand dismissed.
In the result, the appeal of the revenue as well as the Cross Objection filed by the assesse stand dismissed.
Order pronounced in the open court on 18.05.2022
Sd/- Sd/-
(VIKAS AWASTHY) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 18.05.2022 PS: Rohit
10 ITA No.7280/Mum/2016 & C.O. No. 114/Mum/2018 A.Y. 2012-13 ACIT, 10(2)(1) Vs. M/s Jyothy Laboratories Ltd.
आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6.
आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//
(Asst. Registrar) ITAT, Mumbai