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Income Tax Appellate Tribunal, “E” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :-
These are appeals by the revenue and assessee and the Cross objection by the assessee arising out of the respective orders of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)].
2. Since the issue is common and connected and the appeals were heard together, these are being disposed of by this common order.
2 M/s. Eurobond Industries Pvt. Ltd. ITA 6611/Mum/2014 for A.Y. 2009-10 :-
This is a Revenues appeal filed against order of CIT(A) dated 25.8.2014 and pertains to assessment year 2009-10.
The grounds of appeal read as under :-
1. "Whether on the facts and in the circumstances of the case, the Learned CIT(A) was justified in allowing deduction u/s.80IB(4) without appreciating the fact that no new unit/ undertaking was established by the assessee company and that there; was merely an expansion of the existing unit?" 2. " Whether on the facts and in the circumstances of the case, the Learned CIT(A) was justified in allowing deduction u/s.80IB(4) without appreciating the fact that there was no separate identity of the so called new unit since there was no separate workforce distinct labours ? No registration of excrise or VAT, No material procurement, storage or other factors necessary for independent existence of the separate- unit?"
3. "Whether on the facts and in the facts and circumstances of the case, the learned CIT(A) was justified in allowing deduction u/s. 80IB(4) without appreciating the fact that the ADIT (Inv.), Jammu, confirmed that there existed only one unit, which has been confirmed in the statement on oath recorded of Shri Sanjeev Uppal, Works Manager of the assessee-company?"
4. “Whether on the facts and in the circumstances of the case, the Learned CIT(A) was justified in allowing deduction u/s.80IB(4) without appreciating the fact that the provisions of section 80IB restricts the deduction for new unit or industrial undertaking in contrast to the provisions of section 80IC, which allowed deduction on expansion of the existing industrial undertaking/unit?"
5. "Whether on the facts and in the circumstances of the case, the Learned CIT(A) was justified in ignoring the ratio laid down by the Hon'ble Supreme Court on independent unit or separate undertaking in the case of Textile Machinery Corporation Ltd. v/s Commissioner of Income Tax, West Bengal [1977] 107 ITR 195 (SC)?"
6. The appellant prays that the order of the CIT(A) on the grounds above, may be set aside and that of the Assessing Officer be restored. 3. Brief facts of the case the assessee is engaged in the business of manufacture of Aluminium Composite Panels (hereinafter referred as 'ACP'). It has claimed to have two manufacturing units in Jammu. It had claimed
3 M/s. Eurobond Industries Pvt. Ltd. deduction under section 80IB(4) of Income Tax Act, 1961 (hereinafter referred to as the 'Act') in respect of both [he units. While deduction claimed for Unit-l was 13,80,69,708/-; that for Unit-II was Rs. 13,22,52;287/-. As per the two 10CCB forms submitted, the date of commencement of commercial production of Unit-I was 2nd September 2005, while that of Unit-II was 12ln June 2009. Both the units are stated to operate out of the same premises: However, all documentation is seen to be in the name of the assessee with no specific mention of either Unit-l or Unit-II. In this context, the Assessing Officer examined bills issued, by the industrial Development Corporation Ltd., provident fund challans, labour contractor's receipts, forms no. 16 issued to the employees and diesel bills. Finding no mention of separate units, the AO issued a show cause notice to the assessee. Simultaneously, he also issued a commission under section 131(d) of the Act to the Asst. Director of Income Tax (Investigation), Jammu to verify the factual position of the assessee's manufacturing units.
Referring to the report of the ADIT the assessing officer observed as under :-
“The report of the ADIT(inv.), Jammu is perused. The ADIT personally visited the assessee's unit at Jammu to verify the veracity of the claim of the assessee in respect of claim of deduction u/s 80IB on Unit-11, The report of ADIT clearly throws following facts :- 1) One additional line of production is installed during the year. 2) Only one unit in the name and style of M/s. Eurobond Industries P. Ltd. is being run from EPIP-, Kartholi, Ban Brabrnna, Jammu. 3) There is only one unit that is functioning. 4) Only one set of accounts are maintained. 5) No independent and separate accounts for Unit-1 and Unit-II are maintained as contended by the assessee vide its submission dated 26.12.2011. 6) VAT and Central Excise returns filed only in the name of M/s. Eurobond Industries P. Ltd. 7) Both the units, are produces same products and similar raw material are used. 8) There is only one attendance register is maintained. 9) All the purchases and sales are affected in the name of M/s. Eurobond Industries P. Ltd.
4 M/s. Eurobond Industries Pvt. Ltd. On the basis of above facts and findings by ADIT(Inv.),Jammu the Industrial Undertaking unit-II is not self sufficient and independent and does not have its own existence. It is mere installation of additional machinery, which in itself does not suffice to call as "undertaking" which is lacking any of its independent identification number viz, PAN number, excise registration number, P.P. registration number etc.
Further to substantiate his findings, ADIT (Inv.),Jammu has recorded the statement of Shri Sandeep Uppal, Works Manager who in his statement given on oath u/s 131 of the IT Act in wherein he has confessed that only one unit is running from assessee's factory premises at Jammu. In the statement record on oath, the Works Manager of the assessee at Jammu factory categorically agreed that assessee-is not running two units from the said premises.”
Upon show notice in this regard the assessee basically emphasised upon the increase in production and submitted that the second unit was not established in violation of the rules prescribed. However the assessing officer was not satisfied. He held that only addition of machinery cannot be called establishment of an additional industrial undertaking. In this regard he referred to the meaning of industrial undertaking from the decision of the Honourable Kerela High Court in the case P. Alikunju Miscellaneous Application Nazeer Cashew Industries Vs. CIT, 166 ITR 804.
Thereafter the AO held as under :- “From the submissions made by the assessee regarding Unit-I and Unit-II during the course of assessment proceedings, as discussed above, the facts that has been brought out by ADIT, Jammu and confessed by Works Manager in his statement under Oath and the discussion on the definition of industrial Undertaking, it can be observed that the so called 'Unit-II' does not have any of the qualifications to be called as 'Industrial Undertaking' this is because :
1) it does , not have its own identity in the form of PAN and various registrations, 2) does not have its own employees and management as evident from form No. 16(1) issued to its employees. 3) No separate books of accounts etc, as confirmed by its Works Manager in his statement recorded under oath. 4) Does not have own supply of raw material 5) Does not have Stock Register
Hence, Eurobond Industries P. Ltd. unit-II cannot be said to be Industrial Undertaking Sine-, it is not and industrial Undertaking, the question of 5 M/s. Eurobond Industries Pvt. Ltd. claiming deduction u/s. 80IB of the Act does not arises. Accordingly, deduction claimed u/s. 80IB(4) Unit-II is disallowed as it is an ineligible unit. Penalty proceedings u/s. 27l(1)(c) are initiated separately for furnishing inaccurate particulars of income.
The assessing officer referred the alternative plea of the assessee has under:- "Alternatively and without prejudice to the aforesaid submissions even if Unit-II is treated as an expansion of existing unit eligible to 80IB since 2006- 07, then the Unit-1 shall be entitled for deduction u/s 80IB for the entire profit earned by both unit. And under this alternative situation also there will be no change in the taxable income of the company under the normal provisions of the I.T.Act. The company shall be liable for income tax on book profits u/s 115J8 of the I.T.Act, 1961."
However he rejected the same by holding as under :-
7.1 The plea of the assessee is not acceptable as assessee itself certified the independent, existence of Unit-II as 'Industrial Undertaking'. Further, he has maintained the same stand through out the assessment proceedings. Even in its reply to show cause and comments on report of ADIT, Jammu, it does not give any justification or reasoning for a new line being an 'Industrial Undertaking'. Assessee has resorted to this alternate plea as his actual plan to unduly claim of deduction u/s. 80IB(4) for Unit-II has been questioned. .Assessee-during the course of assessment proceedings have submitted summary of deduction u/s. 80IB Claimed by Unit-I and Unit-II over the years which are reproduced as under:-
Eurobond Industries P. Ltd. Summary of 80IB claimed from 1.4.2005 to 31.3.2011 Year Unit-I Unit-II Total 2005-06 95,920,082 2006-07 95,920,081 2007-08 171,870,276 171,870,277 138,069,708 32,242,287 170,311,996 2008-09 81,272,929 41,964,159 123,237,089 2009-10 9,268,117 2010-11 68,418,723 77,686,840
7.2 The analysis of the above year-wise claim of deduction u/s.80IB for Unit-I and Unit-lI brings out the actual intent behind unjustifidely claiming 80IB of the Act for Unit-ll. The fact that Unit-I has started its production on 02.11.2005 with initial assessment year being 2006-07. Hence, as per Act, 'Unit-l is becoming ineligible for 100% deduction from the A.Y.2010-11. The assessee fabricated the facts regarding Unit-II being an Industrial undertaking eligible for 80IB(4) deduction and filed separate Form No. 10CCB duly certified by the Auditor, so that assessee can transfer the production from the original eligible Industrial undertaking i.e. Unit-I to the Unit-11 on which it has claimed 80IB(4) deduction. This is because the 100% deduction for Unit-II will be available till. A.Y.2014-15. This very fact is clearly brought out from the above year-wise data submitted by the assessee. Ac Unit-I is 6 M/s. Eurobond Industries Pvt. Ltd. progressing towards the end of 100% deduction, the production in the Unit-II is increasing and unit-I is dealing.”
He further referred the case law from honourable Supreme Court in the case of M/s. Medowell & Company Ltd. Vs. Commercial Tax Officer for holding that assessee was using a colourable device.
Upon assessee's appeal learned CIT(A) accepted the assessee submission that the said unit was not established in violation of the rules and law. He found that all the assessing officer's objections were not germane. He only emphasised on the fact that assessee has obtained additional credit from bank and that assessee has obtained additional power connection. This he found to be sufficient to justify assessee's claim.
The order of learned CIT(A) this regard is as under :-
I find substantial merit in the claim of the appellant since there is clearly no violation of the statutory requirements for grant of deduction or even an allegation by the AO to that effect, Substantial documentation was already before the AO which would indicate that a massive increase in production had been planned and executed. For instance, the Mumbai based Mid Corporate. Branch of UCO Bank had sanctioned a term loan of Rs. 9.00 crores for the expansion of the existing ACP project at Jammu on 31st January 2008. According to the Schedule of Fixed Assets of Unit-II (which was part of the audited balance sheet as on 31sl March 2009), there was an addition to the gross block of plant & machinery of Rs. 4,70,76,184/- accompanied by an addition to the gross block of electrical installation of Rs. 18,93,735/- both totalling over Rs. 4.89 crores. On 20th October 2008, the Power Development Department of Government of Jammu and Kashmir had accorded sanction for an additional 620 KW over and above 600.4 KW already sanctioned (for Unit-l), thus leading to a total load factor or 1220.4 KW. Coming to the statistics of production, while Unit-I had produced 6,09,671 square metres of ACP during FY 2008-09, after commencing production mid-year Unit-II had produced 4,41,128 square metres of ACP during the same financial year. The installed capacity on the other hand was 7,95,000 square metres and 10,95,000 square-metres of ACP for Unit-I and Unit-II respectively. While disregarding this wealth of data and documentation the AO appears to have concentrated on the apparent outward'structure of both the units being that of a single unit.
Learned CIT(A) thereafter referred to the decision of ITAT Mumbai in the case JCIT Vs. Associated Capsules (P) Ltd. (114 ITD 189). He referred that Hon'ble Tribunal had held that organizational features such as the legal status
7 M/s. Eurobond Industries Pvt. Ltd. of the unit, the /common/control and management, the location in the same premises, the common procurement of raw materials, the common post-manufacturing activities, the obtaining of certain facilities from a common source, etc. are hardly decisive or relevant in concluding whether the said unit would be an undertaking qualified for claiming deduction. That while dealing with the issue of grant of deduction under section 80IB of the Act, the Hon'ble Bombay High Court had observed as follows :-
The Tribunal has duly applied its mind to the evidence on record, The material on record before the Tribunal and which has been considered in some detail is sufficient to sustain the finding of fact that :-(i) There was a substantial investment, of funds in the Unit which was set up in the previous year relevant to the assessment, year 1994-95 (ii) New plant and machinery were installed; (iii). The unit was housed in a new building constructed at site and was an independent viable Unit capable of producing goods manufactured by itself; and (iv) There was a substantial increase in the capacity of production. On these findings of fact which have not shown to be perverse, the final conclusion of the Tribunal would not fall for reappreciation or reconsideration. Accordingly, we dispose of the appeal by answering both questions of law in the affirmative.
Referring to the above learned CIT appeals held that assessee deserves to be granted deduction under section 80IB for the unit II. Learned CIT(A) further held that since the assessee succeeded on its substantive ground the alternative is not adjudicated.
Against this order revenue is in appeal before us and assessee has also filed cross objection contesting that learned CIT(A) has not adjudicated upon the alternative plea of the assessee.
We have heard both the parties carefully considered the submissions. We find that assessee has claimed 80IB deduction claiming to have two units. The assessing officer found that there was only one unit. The same was already enjoying deduction under section 80IB(4) . This was the last year of the claim of deduction under section 80IB for that unit. In the current year assessee claimed that it has established another unit named unit-II, and claimed deduction under section 80IB(4) for both the units.
8 M/s. Eurobond Industries Pvt. Ltd. 16. The assessing officer found that assessee had only done substantial increase in the capacity of its existing unit and was trying to pass it off as establishment of a second unit. In this regard assessing officer also obtained report from the additional director investigation. The said report duly provided that there was only one unit which was also corroborated by the examination of ADI from the assessee’s work’s manager.
From the assessee’s submissions the assessing officer noted that :- 1) it does , not have its own identity in the form of PAN and various registrations, 2) does not have its own employees and management as evident from form No. 16(1) issued to its employees. 3) No separate books of accounts etc, as confirmed by its Works Manager in his statement recorded under oath. 4) Does not have own supply of raw material 5) Does not have Stock Register In these circumstances the assessing officer found the assessee's claim to be a colourable device and rejected the same.
17. On the other hand learned CIT(A) did not rebut any of the actual findings of the assessing officer and the ADIT investigation. He only referred to the increase in capacity and the increase in electric power and allowed the assessee's claim.
In this regard we note that the order of learned CIT(A) is very laconic. It does not address the various objections raised by the assessing officer and also found in the report of the ADIT investigation. The learned CIT(A) has brushed them off by observing that are not relevant. How they are irrelevant is not at all spelt out. Simply increase in capacity and production figure cannot fructify the assessee’s claim of deduction under section 80IB for the assessment for establishment of a new unit when all other factors show that there is no establishment of a separate undertaking. The decisions referred by learned CIT(A) are not at all applicable on the facts of the present case. Here it is a clear finding that this is the last year of eligibility of claim u/s. 80IB(4)
9 M/s. Eurobond Industries Pvt. Ltd. deduction of the eligible unit and the assessee has tried to pass off an increase in production capacity as establishment of new unit. The Assessing Officer has duly found that there is no establishment of a new unit. Only an increase in production is being passed off as establishment of new unit. Not a single ingredient for establishment of new unit has been noted by the Assessing Officer or ADIT on his physical visit to the unit.
In this regard we note that a Constitution bench of the honourable Supreme Court in the case of Commissioner of Customs (Import) Vs M/s. Dilip Kumar & Company (in Civil Appeal No. 3327 of 2007 vide order dated 30.7.2018) has expounded that in case of exemption provisions if two views are possible the one in favour of the Revenue has to be adopted. Moreover we find that learned CIT(A) has not adjudicated the alternative plea of the assessee. Assessee is aggrieved by this. Assessee has also filed cross objection in this regard.
In this backdrop, in our considered opinion interest of justice will be served if the issue is remitted to the file of learned CIT(A). Learned CIT(A) is directed to consider the issue afresh and decide on all the aspects of the grounds raised by the assessee including alternative plea. The learned CIT(A) shall also take into account the decision of honourable Supreme Court referred above.
In the result is appeal by the revenue stands allowed for statistical purposes Assessee Cross Objection
The ground raised in the cross objection read as under :- “The learned Commissioner of Income Tax (Appeals)-19, Mumbai ("the CIT(A)") erred in fact and in law in rejecting the alternative claim of the Appellant that in case deduction u/s. 80IB is not allowed on the new unit in that case also deduction u/s. 801B is available as the existing unit of the Appellant is eligible for deduction u/s. 80IB.”
10 M/s. Eurobond Industries Pvt. Ltd.
Since we have already remanded the matter to the file of learned CIT(A) in Revenue’s appeal above and directed him to consider all the grounds raised by the assessee afresh, this cross objection has becomes statistical. Hence the cross objection is allowed for statistical purposes.
Assessee's appeal for assessment year 2010-11 :-
For A.Y. 2010-11, the learned CIT(A) has rejected the assessee's claim for deduction under section 80IB for the same unit as above. Assessee is aggrieved by that.
Revenue’s appeal in for A.Y. 2012-13:-
For assessment year 2012-13 the learned CIT(A) has allowed the assessee's claim of deduction for the same unit by following the order of learned CIT(A) for assessment year 2009-10. Against this Revenue has filed appeal.
Since on identical facts we have remanded the matter to the file of learned CIT(A) in revenue’s appeal for assessment year 2009-10 above, these orders of learned CIT(A) also stand remanded the file of learned CIT(A). Our adjudication in A.Y. 2009-10 applies mutatis mutandis to these years also.
In the result all these appeals are allowed statistical purposes
Order pronounced in the Open Court on 2.3.2021.