ACIT, NEW DELHI vs. M/S. HLS ASIA LTD., NEW DELHI

PER BENCH :

Since common questions of facts and law have been raised

in the aforesaid cross appeals filed by the assessee and the

Revenue, the same are being disposed off by way of consolidated

order to avoid repetition of discussion.

‘the assessee’) by filing the present appeals sought to set aside the

3 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 impugned orders dated 04.01.2010, 30.05.2014, 31.10.2011 &

20.01.2014 passed by the CIT (Appeals)-XII, New Delhi, CIT

(Appeals)-V, New Delhi, CIT (Appeals)-IV, New Delhi & CIT

(Appeals) - XI, New Delhi qua the assessment years 2004-05,

2007-08, 2007-08 & 2008-09 respectively on the grounds inter alia

that :-

“ASSESSEE’S APPEALS

ITA No.1712/Del./2010 (AY : 2004-05)

4 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 not amount to splitting up or restructuring of business so as to deny deduction under section 80-18 of the Act.

(a) The appellant did not extract, produce mineral oils and, therefore, it could not claim the status of a mineral oil concern

(b) The appellant was not a mineral oil concern, and is merely providing support services with respect to the activity of wireline logging and perforation, which was a small fraction of series of activities undertaking by mineral oil concerns.

(c) Nature of operations of mineral oil concerns were significantly different from that of the appellant as regards its functions and use of plant and machinery.

(a) That the CIT (Appeals) erred on facts and in law in holding that Rule 80 of the Income Tax Rules, 1962 ('the Rules') read with section 14A is mandatory and retrospective.

5 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014

(b) That the CIT (Appeals) erred on facts and in law in not appreciating that no expenses had, in fact, been incurred by the appellant for earning such dividend income. (c) That the CIT (Appeals) erred on facts and in law in not appreciating there was no nexus between the expenditure incurred and exempted dividend income.”

ITA No.3708/Del./2012 (AY : 2006-07)

1.1 That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied in the appellant's case.

1.2 That the CIT erred on facts and in law in setting aside the assessment order. without arriving at any conclusive finding on merits as to how the assessment order was erroneous as well as prejudicial to the interest of Revenue. In respect of the issue of depreciation and commission paid to director.

(i) Allowing additional depreciation of Rs.3,46,41.428 despite findings / that the appellant was not engaged in manufacture and production of articles or things.

(ii) Allowing depreciation in respect or plant and machinery @ 25% as against the applicable rate of 15% .

(iii) Not disallowing commission paid to the a managing director of amounting to Rs.33,51,000 in terms of section 36(1)(ii) of the Act.

6 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 3. That the CIT erred on facts and in law in not appreciating that there was no error in the assessment order passed under section 143(3) of the Act and was not erroneous and prejudicial LO the interest of the Revenue on account of the following:

(i) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant to be engaged in manufacture or production of articles and things.

(ii) The appellant was allowed depreciation only @ 15%.

(iii) The commission of Rs.33,51,000 as paid to the managing Director who was not shareholder and, therefore, was not liable to be disallowed in terms of section 36(1)(ii) of the Act.”

ITA No.4144/Del./2014 (AY : 2007-08)

“1. That the CIT(A) erred on facts of the case and in law in restricting the appellant's claim of deduction under section 80-IB of the Income-tax Act, 1961 ('the Act') , in respect of profits of Agartala unit to 30% as against the deduction of 100% in respect of said unit claimed by the appellant.

1.1 That the CIT(A) erred on facts of the case and in law in not appreciating that Agartala unit of the appellant being set up in north-eastern region, was eligible deduction @ 100% of the profit of the business, in terms of the second proviso to sub- section (4) of section 80-IB of the Act read with notification No. SO 627 (E) dated 04.08.1999.”

ITA No.5511/Del./2012 (AY : 2007-08)

“1. That on the facts and circumstances of the case and in law the order passed by the learned Commissioner of Income-tax, ('CIT') under section 263 of the Income-tax Act, 1961 ('the Act') is beyond jurisdiction, bad in law and void ab initio.

1.1 That the CIT erred on facts and in law in exercising reversionary powers under section 263 of the Act without appreciating that the twin conditions of that section viz., assessment order being erroneous as well as prejudicial to the interests of the Revenue, were not satisfied in the appellant's case.

7 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014

1.2 That the CIT erred on facts and in law in setting aside the assessment order, without arriving at any conclusive finding on merits as to how the assessment order was erroneous as well as prejudicial to the interest of Revenue.

(i) Allowing additional depreciation of Rs.1,62,45,285 despite findings that the appellant was not engaged in manufacture and production of articles or things.

(ii) Allowing depreciation in respect of plant and machinery @ 25% as against the applicable rate of 15%.

(i) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant to be engaged in manufacture or production of articles and things.

(ii) The Hon'ble Delhi High Court in the appellant's own case for assessment years 1989-90 to 2003-04 has held the appellant is eligible for depreciation at a higher rate of 60%.

8 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 ITA No.2208/Del./2014 (AY : 2008-09)

“1. That the Commissioner of Income-tax (Appeals) erred on facts of the case and in law in restricting the appellant's claim of deduction under section 80-IB of the Income-tax Act, 1961 ('the Act'), in respect of profits of Agartala unit to 30% as against the deduction of 100% in respect of said unit claimed by the appellant.

1.1 That the Commissioner of Income-tax (Appeals) erred on facts of the case and in law in not appreciating that Agartala unit of the appellant being set up in north-eastern region, was eligible deduction @ 100% of the profit of the business, in terms of the second proviso to sub-section (4) of section 80-1S of the Act read with notification No. SO 627 (E) dated 04-08-1999.

1.2 Without prejudice that the Commissioner of Income-tax (Appeals) erred on facts and in law in making extraneous observations that "for deciding the manufacturing activity, it is a vital factor how the Department of Central Excise has treated the process undertaken by the appellant and whether the product ('log') was an excisable goods or the appellant's work was simply like a service provider. It appears that the appellant's case was not examined from this angle and perhaps these facts were not brought to the notice of the Hon'ble Court. It is without prejudice to the decisions of the Hon'ble Courts on the issue. However, the AO may examine the issue from this angle and take necessary permission from the Hon'ble Court to have a relook on its own decision".

1.3. Without prejudice that the aforesaid observations of the Commissioner of Income-tax (Appeals) being extraneous and in contradiction of the binding decision of the Hon'ble Delhi High Court and, therefore, calls for being expunged.

9 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 3. Appellant, DCIT, Circle 12 (1), New Delhi (hereinafter

referred to as ‘the Revenue’) by filing the present appeals sought to

set aside the impugned orders dated 19.10.2011, 10.10.2011 &

29.01.2014 passed by the CIT (Appeals)-XXVII, New Delhi, CIT

(Appeals)-XXVIII, New Delhi & CIT (Appeals)-XI, New Delhi

qua the assessment years 2005-06, 2006-07 & 2008-09 respectively

on the grounds inter alia that :-

“ITA No.323/Del./2012 (AY : 2005-06)

ITA No.5855/Del./2011 (AY : 2006-07)

“1. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of Rs.3,58,77,077/- made by the AO on account of 80IB of the IT Act.

10 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 2. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of Rs.6,84,02,958/-made by the AO on account of depreciation out-of total depreciation of Rs.9,12,03,944/- claimed in respect of plant and machinery used below the ground.”

ITA No.2241/Del./2014 (AY : 2008-09)

“1. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs.1,94,36,126/- on account of disallowance of deduction u/s 80IB claimed @ 30% despite the fact that the assessee company is not manufacturing concern and is only a services provider? 2. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs.1,94,36,126/- on account of disallowance of deduction u/s 80IB claimed @ 30% despite the fact that the assessee company is not registered for excise duty & only service provider and this fact was not brought to notice of Hon'ble Delhi High Court; and that the CIT (A) was not correct in allowing the deduction after noting the fact as the decision of the Hon'ble Court was based on different facts? 3. Whether Ld. CIT (A) was correct on facts and circumstances of the case and in law in holding that the assessee company is manufacturing unit ignoring the fact that the assessee company is paying service tax; therefore service provider & not registered for excise duty and also not complying the condition of section 80IB(2)(iv) of the Act that where industrial undertaking manufactures or produces articles or things, the undertaking employ ten or more workers in manufacturing process?”

controversy at hand are : M/s. HLS Asia Ltd., the assessee is

engaged in wireline logging perforation and related oil fields

activities for various national and international mineral oil

companies i.e. Oil India Ltd. and Oil & Natural Gas Corporation

Ltd. in the geographical mineral oil operational areas and the said

11 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 concern in Duliajan, Agartala, Nazira, Bangaldesh etc. under

contracts entered with them.

2007-08 & 2008-09 claimed deduction u/s 80IB of the Income-tax

Act, 1961 (for short ‘the Act’) qua its two units, namely, Unit 2

Duliajan and Unit 3 Agartala. Declining the contentions raised by

the assessee company, Assessing Officer (AO) proceeded to hold

that the assessee company is only providing services to mineral oil

concerns and generation of logs does not amount to manufacture or

production of article or thing and as such deduction of

Rs.3,36,16,295/-, Rs.3,03,21,859/-, Rs.3,58,77,077/-,

Rs.1,30,65,731/- & Rs.1,94,36,126/- for AYs 2004-05, 2005-06,

2006-07, 2007-08 & 2008-09 respectively claimed y the assessee

company is not allowable as the assessee has failed to verify the

necessary conditions required u/s 80IB of the Act.

claimed depreciation on plant and machinery used below the

grounds @ 80% amounting to Rs.3,05,10,460/-, Rs.5,28,34,097/-

& Rs.9,12,03,944/- for AYs 2004-05, 2005-06 & 2006-07

respectively. Assessee company also claimed 80% on logging

12 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 tools as well as made in earlier years. AO, following the order

passed in earlier years proceeded to hold that since the assessee

company did not extract or produce mineral oils, it cannot claim

status of mineral oil concern. Even the use of plant and machinery

by the assessee is different from plant and machinery by mineral

oil concerns and the assessee company is merely providing support

servicers with regard to activities of wireline logging and

perforation which are very small fraction of series of operation

undertaken by mineral concern and thereby allowed the

depreciation in respect of plant and machinery used below the

ground @ 25% as against 80% claimed by the assessee company

and disallowed the depreciation to the tune of Rs.3,05,10,460/-,

Rs.5,28,34,097/- & Rs.9,12,03,944/- for AYs 2004-05, 2005-06 &

2006-07 respectively.

(ad-hoc) basis to the tune of Rs.7,56,940/- @ 15% of the gross

dividend u/s 14A by holding that these were the expenditure

incurred by the assessee for earning exempt income.

Rs.51,43,856/- during years on account of service tax but

13 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 remaining unpaid. The assessee has also not passed service tax

through profit & loss account. Assessee had raised part bills with

service tax with charge to the same. However, AO added the

amount of Rs.51,43,856/- to the income of the assessee as trading

receipts subject to its entitlement to deduction as and when it is

paid to the Government or written off from customer account.

filing the separate appeals for AYs 2004-05, 2005-06, 2006-07,

2007-08 & 2008-09 who have confirmed the disallowance of

deductions claimed by the assessee u/s 80IB made by the AO in

AYs 2004-05, 2007-08 & 2008-08 however ld. CIT (A) in AYs

2005-06 & 2006-07 allowed the relief to the assessee company.

Feeling aggrieved by the orders passed by the ld. CIT (A), both the

assessee as well as Revenue have come up before the Tribunal by

way of filing the present cross appeals.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

14 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 GROUNDS NO.1 TO 8 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE’S APPEAL)

GROUND NO.2 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE’S APPEAL)

GROUND NO.1 OF ITA NO.5855/DEL/2011 AY : 2006-07 (REVENUE’S APPEAL)

GROUNDS NO.1 & 1.1 OF ITA NO.4144/DEL/2014 AY : 2007-08 (ASSESSEE’S APPEAL)

GROUNDS NO.1 & 2 OF ITA NO.2241/DEL/2014 AY : 2008-09 (REVENUE’S APPEAL)

by reaching the conclusion that the assessee company cannot be

said to be engaged into any manufacture or production of an article

or thing rather it is only providing services to mineral oil concerns

and as such, generation of logs does not amount to manufacture or

production of an article or thing.

passed by the ld. CIT (A) in AYs 2004-05, 2007-08 & 2008-09 and

supporting the order passed by the ld. CIT (A) in AYs 2005-06 &

2006-07 contended that now the issue as to, “whether assessee

company being engaged in wireline logging, perforation and

related oil-field activities for mineral oil concerns is actually

15 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 engaged in “manufacture and production of article or thing”,” has

been decided in favour of the assessee company by the Hon’ble

Delhi High Court in assessee’s own case in AYs ranging from

1989-90 to 2003-04 vide order dated 11.05.2011 reported in

(2011) 335 ITR 292 (Del.). This factual and legal position has not

been controverted by the ld. DR for the Revenue.

law in assessee’s own case pertaining to AYs 1989-90 to 2003-04

(supra) as under :-

“1. Whether, on the facts and in the circumstances of the present case, the assessee can be said to be an ―industrial undertaking engaged in the business of ―manufacturing or production of an article or a thing for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961?”

the Hon’ble Delhi High Court in favour of the assessee by

returning following findings :-

“26. It is clear from the aforesaid judicial authorities that in order to find out whether any particular business activity amounts to ―manufacturing or ―production for the purpose of various tax incentives under IT Act, each case is required to be examined in the light of facts and circumstances of that very case. The most important aspect of this exercise should be the analysis of the process involved in the impugned activity and an enquiry into the nature of transformation that the product has undergone to find out whether it is distinct in identity from the raw commodity involved in its manufacture.

16 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 27. In the instant case, production of log by way of wireline logging is the concerned activity. We are given to understand by the learned counsel for the assessee that wireline logging assists the mineral oil concerns primarily to ascertain as to whether there is any gas or oil in the well, and if there is such presence, then its availability at what depth and the quantity of such reserves, and whether such gas or oil can be extracted. This is usually done through electrical, acoustic radio-active and electromagnetic analysis of the properties of rocks. The Assessee has stated that it has carried out wireline logging, perforation and related operation by engaging highly experienced engineers and log analysts, using high-tech equipments and computers. The logging tools are sensitive sensors with electromechanical systems which can work in extreme conditions of pressure and temperature as found in down hole below the earth surface. There, inside the hole, these equipments perform quite sophisticated measurements. The prime target is the measurement of various geophysical properties of the subsurface rock formations. Of particular interest are porosity, permeability, and fluid content. Porosity is the proportion of fluid-filled space found within the rock. It is this space that contains the oil and gas. Permeability is the ability of fluids to flow through the rock. The higher the porosity, the higher the possible oil and gas content of a rock reservoir. The higher the permeability, the easier for the oil and gas to flow toward the wellbore. Logging tools provide measurements that allow for the mathematical interpretation of these quantities.

17 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 29. The learned counsel for assessee further submitted that in respect of each of its contract the assessee sets up a full-fledged base at a centralized location and mobilizes/ installs equipments and deputes personnel at each such base. Each such base under each contract is claimed as a separate industrial undertaking. The facilities provided by the assessee for each such base comprise establishment of laboratory workshop, tools calibration facilities, establishment of computer centre, accounts administration/ operation office, godown, stores, communication and transport facilities, special protective storage for radio-active material and residence for personnel.

18 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 by way of sophisticated scientific tests and calculations into scientific data which subsequently has been further changed into logs printed on the papers or recorded on the magnetic tapes, that the character and identity of end product and final product is not distinct. We are unable to uphold such a proposition. It is a clear case where the legal proposition that ―If an operation/ process renders a commodity or article fit for use for which it is otherwise not fit, the operation/ process falls within the meaning of the word "manufacture"" applies. At this juncture, we reemphasize on the observations made by His Lordship S.H. Kapadia, J. (as His Lordship was then) in CIT Vs. Oracle Software India Ltd. (Supra) that the Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day.

“Can we say X-Ray machine is manufacturing X- Ray? Obviously no. Because it is only taking the information of the human body and by radiation having a graph on an X-Ray. But, it is not manufacturing X-Ray.”

“9. Next comes the equipment used for purposes of X-ray. By putting the X-ray film in to the X-ray machine a different article is produced. It is a different article from the film which is produced from the X-ray machine and,

19 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 therefore, it is a thing within the meaning of Section 32A(2)(b)(ii). Therefore, the Tribunal is right in its view that when X-ray films are produced the assessee produces a thing and, therefore, he is entitled for investment allowance. As regards the equipment used for conducting the pathological tests the assessee is not qualified to claim investment allowance under Section 32A of the Act. The assessee is also entitled for investment allowance on stabilizer, electric fans, scanner and air- conditioner used to keep the analytical systems, as they are necessary for purposes of production of an article or a thing.” 34. Similar view has been expressed by the Gujarat High Court in CIT Vs. Down Town Hospital (P) Ltd. [267 ITR 439 (guj)]; Karnataka High Court in CIT Vs. Upasana Hospital [225 ITR 845 (kar)]. The issue, which we are concerned with, is a fiscal issue which is concerned with a central statute. It is desirable that in such a matter there should be uniformity of the judicial opinion. Even on merits, the analogy has some substance. We, therefore, in the light of aforestated, decide this issue in the favour of the assessee and against the revenue.

Court in assessee’s own case (supra), we are of the considered

view that assessee company is an industrial undertaking engaged in

the business of manufacturing or production of an article or thing

for the purpose of section 32A and section 80IB of the Act. So,

AO as well as CIT (A) have erred in AYs 2004-05, 2007-08 &

2008-09 in denying the deduction claimed by the assessee

company u/s 80IB of the Act on the ground that the assessee

company is not a manufacturing concern. Ld. CIT (A) in AYs

2005-06 & 2006-07 has rightly decided the issue in favour of the

20 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee company. Consequently, Grounds No.1 to 8 of ITA

NO.1712/Del./2010 (AY : 2004-05) & Grounds No.1 & 2 of ITA

No.4144/Del./2014 (AY : 2007-08) of assessee’s appeal are

determined in favour of the assessee and Ground No.2 of ITA

No.323/DEL/2012 (AY : 2005-06), Ground No.1 of ITA

No.5855/Del/2011 (AY : 2006-07) & Grounds No.1 & 2 of ITA

No.2241/Del/2014 (AY : 2008-09) of Revenue’s appeal are

determined against the Revenue.

GROUNDS NO.9 & 10 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE’S APPEAL)

GROUND NO.3 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE’S APPEAL)

GROUND NO.2 OF ITA NO.5855/DEL/2011 AY : 2006-07 (REVENUE’S APPEAL)

claimed by the assessee in respect of plant & machinery owned and

used below the ground in field operation in mineral oil concern is

concerned, this issue has also been decided in favour of the

assessee company by the Hon’ble Delhi High Court in assessee’s

own case (supra) by framing the substantive question of law as

under:-

21 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 “2. Whether, on the facts and in the circumstances of the present case, the assessee is entitled to a higher depreciation allowance @ 100% under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962?”

law in favour of the assessee company by holding that assessee’s

wireline logging and perforation equipments are eligible for

deprecation @ 100% under clause (ii) of section 32(1) of the Act

r/w Item III(3)(ix)(b) of the schedule of rates of depreciation in

Appendix I to the Income-tax Rules, 1962 by returning following

findings :-

“46. After hearing learned counsels for the parties at length on this issue, we are of the opinion that the Revenue's stand on this issue lacks substance. Sec. 32(1) of the Act provides for a deduction in the computation of business income, on account of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. This provision reads as under: Depreciation. 32. (1)[In respect of depreciation of--

(i) buildings, machinery , plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned , wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed--] [(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the

22 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 actual cost thereof to the assessee as may be prescribed ;]

(ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:]

"(ix) Mineral oil concerns:

a. Plant used in field operations (above ground) distribution returnable packages. b. Plant used in field operations (below ground), but not including kerbside pumps including under-ground tanks and fittings used in field operations (distribution) by mineral oil concerns."

Column 2 corresponding to the above entry provides depreciation @ 100% for the items described in the said entry.

23 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee are similar to those equipments/ tools owned and used by mineral oil concerns and when there is no shadow is casted over the fact that the similar assets would qualify for a depreciation @ 100% under the said entry if these are owned by a mineral oil concern like OIL, we do not find any substance in the department's approach to deny the same to the assessee on the ground that the owner of the similar assets, we are concerned with, will not be so entitled. Mentioning of the fact, in the letter of OIL dated 13 Nov 1998 that these equipments/tools are meant only for use in underground oil field operations for wireline logging & perforation leaves no iota of doubt that the nature of assessee’ equipments and its user is similar to those equipments which are owned by the mineral oil concerns and eligible for depreciation under the aforesaid entry. The artificial distinction regarding the mobile nature of the assessee’ equipments, which has been created and relied upon by the department, is of no use because even if such a distinction exists it would neither alter the nature of the assessee’ equipments nor the character of its user. We, therefore, are of the considered opinion that the assessee’s wireline logging and perforation equipments are eligible for a higher depreciation @ 100% under cl. (ii) of s. 32(1) of the Act, r/w item III(3)(ix)(b) of the schedule of rates of depreciation in Appendix I to the Income Tax Rules, 1962.”

High Court in assessee’s own case (supra), we are of the

considered view that AO/CIT(A) have erred in disallowing the

claim by the assessee company in respect of plant and machinery

used below the ground of field operation in mineral oil concern.

So, AO is directed to allow the deductions to the assessee as has

been held by the Hon’ble Delhi High Court in assessee’s own case

(supra).

24 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 GROUND NO.11 OF ITA NO.1712/DEL/2010 AY : 2004-05 (ASSESSEE’S APPEAL)

GROUND NO.1 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE’S APPEAL)

made disallowance of Rs.7,56,940/- i.e. @ 15% of the exempted

income of Rs.50,46,269/- earned by the assessee company during

the year under assessment being the reasonable expenditure

incurred to earn dividend income by the assessee company. Ld.

CIT (A) confirmed the disallowance made by the AO.

Rule 8D was not applicable and the disallowances, if any, to be

made being the expenditure incurred to earn the dividend income

was to be made on the basis of reasonableness. AO as well as

CIT(A) have made disallowance by applying the ad hoc percentage

of 15% of the gross dividend u/s 14A of the Act.

disallowance contended that as on 31.03.2004 and 31.03.2003 year

under assessment, assessee company was having share capital and

reserves & surplus of Rs.4,13,322/- & Rs.4,37,229/- and

investment was Rs.1,88,224/- and Rs.69,300/- respectively. So, the

25 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 assessee has earned the dividend income on the investment made

out of surplus funds in mutual funds. It is further contended by the

ld. AR for the assessee that no effort and time was utilized in

receiving the dividend income from mutual funds which are

governed by SEBI Guidelines nor the assessee is having any

separate Department or persons exclusively engaged in looking

after investment activities and there is no proximate nexus between

the earning of the said exempt income. It is also the case of the

assessee company that during the year under assessment, net

income of Rs.0.50 crores was credited by the assessee to the profit

& loss account after deduction of mutual fund charges. Such

expenditure is being directly related to exempt dividend income

has already been disallowed by the assessee.

wherein the assessee has stated to have already disallowed

expenditure directly related to earning exempt dividend income.

We are of the considered view that when investment is made by the

assessee company time and manpower need to be utilized to steer

the investment in right places so we reasonably restrict the

disallowance made by the AO and CIT (A) from 15% to 5% of the

26 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 gross exempt dividend income earned by the assessee during the

year under assessment. So Ground No.11 of ITA

No.1712/Del/2010 (AY : 2004-05) of assessee’s appeal is partly

allowed in favour of the assessee.

Rs.1,56,276/- being 15% of the dividend income of Rs.10,41,843/-

which the ld. CIT (A) has restricted to Rs.89,141/- @ 6.5% of the

total dividend income earned. Since the facts of the AY 2005-06

are identical, we restrict the disallowance made by the ld. CIT (A)

to 5% of the total dividend income earned which is reasonable

disallowance as has been held by the Bench for AY 2004-05.

Consequently, Ground No.1 of ITA No.323/Del/2012 (AY : 2005-

06) of Revenue’s appeal is partly allowed in favour of the

Revenue.

GROUND NO.4 OF ITA NO.323/DEL/2012 AY : 2005-06 (REVENUE’S APPEAL)

GROUND NO.3 OF ITA NO.2241/DEL/2014 AY : 2008-09 (REVENUE’S APPEAL)

as service tax payable in Annexure VIII of the Tax Audit Report

filed before the AO by claiming that this amount has not been

27 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 passed through profit & loss account. However, AO held the

service-tax payable as a trading receipt on the ground that the

assessee has raised sales bills and charged service-tax on the same

and service-tax is in the nature of revenue receipt.

Delhi High Court in the case of CIT vs. Noble and Hewitt (I) P.

Ltd. (2008) 305 ITR 324 (Delhi), deleted the disallowance on

account of service-tax remaining unpaid.

aforesaid amount of Rs.51,43,856/- as service-tax payable has not

been passed through P&L account duly reported in tax audit report

nor the assessee has claimed deduction of service-tax payable to

the Government, there is no question of disallowance of the

deductions not claimed by the assessee.

Hewitt (I) P. Ltd. (supra) decided the identical issue by

determining the following findings :-

“Held, dismissing the appeal, that since the assessee did not debit the amount to the profit and loss account as an expenditure nor claim any deduction in respect of the amount and considering that the assessee was following that mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.”

28 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014

ld. CIT (A) has rightly deleted the addition of Rs.51,43,856/- made

by the AO treating the service-tax receipt as trading receipt, hence,

Ground No.4 of ITA No.323/Del/2012 (AY : 2005-06) of

Revenue’s appeal is hereby deleted.

ADDITIONAL GROUNDS

ITA NO.1712/DEL/2010 - AY : 2004-05 (ASSESSEE’S APPEAL)

ITA NO.4144/DEL/2014 - AY : 2007-08 (ASSESSEE’S APPEAL)

raise identical additional grounds under Rule 11 of the Income-tax

(Appellate Tribunal) Rules, 1963 which are as under :-

“1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under section 80-IB of the Act @ 100% of the profit of the undertaking at Duliajan being a mineral based industry, in terms of Notification No.SO 627 (E) dated 04.08.1999, read with the second proviso to sub-section (4) of section 80-IB of the Income-tax Act, 1961 (“the Act”) as against deduction @ 30% claimed by the appellant. 2. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals)/ assessing officer ought to have allowed deduction under section 80-IB of the Act @ 100% of profit of the unit at Duliajan amounting to Rs.1,67,46,153 as against Rs.31,89,691 for AY 2004-05 determined by the appellant and

29 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 amount of Rs.6,20,85,869/- as against no deduction claimed by the assessee in return of income in AY 2007-08.”

on the grounds inter alia that at the time of filing the return of

income assessee company being not aware of the correct legal

position and as such inadvertently claimed deduction u/s 80IB of

the Act @ 30% of the profit of aforesaid unit at Duliajan instead of

100% of the profit under Second Provision to sub-section (5) of

section 80IB for AY 2004-05 and claimed no deduction qua

Duliajan unit in AY 2007-08 admissible @ 100% of the profit; that

additional grounds so raised by the assessee company are legal

ground and non-raising of such grounds were neither willful nor

deliberate and relied upon the decision rendered by Hon’ble

Supreme Court in case of National Thermal Power Co. Ltd. vs.

CIT (1998) 229 ITR 383 (SC).

submissions running into 15 pages which have been made part of

the judicial file opposed raising of additional grounds by the

assessee; that once a ground has not been raised before the lower

authorities, there is no question to raise the same at the second

appellate stage which is beyond the scope of provisions contained

30 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 u/s 256(1) of the Act; that the order which is sought to brought

under this appeal by raising additional ground is not part of the

impugned order; that the new claim now sought to be made by way

of additional ground was never part of the return of income nor any

such ground was raised before the AO/CIT(A); that new claim of

80IB is not a pure question of law as it requires elaborate enquiry

by the AO and that when prima facie it is not a mineral based

industry no deduction is admissible and prayed for rejection of the

application.

company in AYs 2004-05 & 2007-08 goes to prove that the issue is

sought to be raised by way of additional grounds is qua

admissibility of deduction u/s 80IB @ 100% of the profit of

undertaking by Duliajan unit being a mineral based industry in

terms of Notification No.SO 627 (E) dated 04.08.1999 read with

Second Proviso to sub-section (4) of section 80IB of the Act. In

AY 2004-05, assessee claimed deduction @ 30% whereas it was

required to be claimed @ 100%. Similarly, in AY 2007-08,

assessee company failed to claim the deduction. It is the settled

principle of law laid down by Hon’ble Supreme Court in case of

31 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 National Thermal Power Co. Ltd. (supra) that in order to correctly

assess the tax liability of an assessee, the Tribunal is only required

to consider the question of law arising from facts which are on

record in assessment proceedings even by entertaining additional

ground raised first time before the Tribunal. Operative part of the

law laid down by Hon’ble Supreme Court in case of National

Thermal Power Co. Ltd. (supra) is as under :-

“Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non- taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. There is no reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal.

Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised

32 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”

in case of National Thermal Power Co. Ltd. (supra), we are of the

considered view that the assessee by raising additional grounds has

raised a pure question of law though based on the facts requires to

be verified by the assessing authority as to the deductions claimed

by the assessee company u/s 80IB (4) of the Act @ 100% in the

light of the Notification No.SO 627 (E) (supra). In AY 2004-05,

this question was there before the AO wherein the assessee

company has claimed 30% deduction as against admissible

deduction of 100%. However, in AY 2007-08, this deduction was

not claimed.

case necessary to be adjudicated for correct tax liability of the

assessee, the additional grounds raised by the assessee company in

AY 2004-05 & 2007-08 are allowed. Arguments raised by the ld.

CIT DR and case laws relied upon is not applicable to the facts and

circumstances of the case.

33 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 34. Now, we would proceed to adjudicate the additional grounds

raised by the assessee company in AYs 2004-05 and 2007-08.

claimed deduction u/s 80IB (4) in respect of unit at Duliajan @

30% of the profit of the said eligible unit. It is also not in dispute

that in AY 2007-08, assessee company has not claimed any such

deduction u/s 80IB (4) of the Act qua its Duliajan unit. Keeping in

view the findings returned by the Bench in preceding paras that the

assessee company has been held to be mineral based industry being

into the business of wireline logging operation for ONGC and Oil

India Corporation in the mineral oil operational areas at

Ankleshwar, Najira, Duliajan and Agartala.

627 (E) dated 04.08.1999 read with second proviso to sub-section

(4) of section 80IB contended that it is eligible for deduction @

100% of profit. Bare perusal of the Notification (supra) goes to

prove that industries running in the North Eastern region including

mineral based industry are eligible for deduction @ 100% of

profits u/s 80IB(4).

34 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 37. However, on the other hand, ld. DR for the Revenue

contended that the assessee has brought on record plethora of

evidence including list of new plant and machinery viz. wireline

logging units for both the years 2004-05 and 2007-08 which facts

are required to be verified by the assessing authorities. The

contention of the ld. DR is sustainable.

required to be sent back to the AO to decide afresh after providing

an opportunity of being heard to the assessee in the light of the

Notification (supra) on the basis of finding of fact if machinery

stated to have been applied by the assessee company at its Duliajan

unit was new machinery and has actually been put to use so as to

make it eligible for deductions claimed. Consequently, additional

grounds raised by the assessee in AYs 2004-05 and 2007-08 are

allowed for statistical purposes.

GROUNDS NO.1, 1.1, 1.2, 1.3 & 2 OF ITA NO.2208/DEL/2014 AY : 2008-09 (ASSESSEE’S APPEAL)

No.2208/Del/2014 for AY 2008-09 challenged the impugned order

35 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 passed by the ld. CIT (A) restricting its claim for deduction u/s

80IB qua Agartala unit being situated in the Northern Eastern

region to 30% as against deduction of 100% under second proviso

to sub-section (4) of section 80IB of the Act read with Notification

No.SO 627 (E) dated 04.08.1999.

12.5 of the impugned order passed by the ld. CIT (A) showing that

this issue of claiming 100% deduction under second proviso to

sub-section (4) of section 80IB read with Notification No. 627 (E)

(supra) by way of raising additional ground and by seeking to lead

additional evidence.

additional ground as well as for leading additional evidence on the

grounds inter alia that AO has not given his report on admissibility

of the additional evidence despite several reminders; that the

additional evidence given by the assessee in the shape of certificate

in the form No.10CCB issued by Chartered Accountant as well as

long list of purchases made by it in March 2004, August 2004 and

February 2005 for setting up a new unit at Duliajan which cannot

be verified at this stage and that no reason for not producing these

36 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 details in the proceeding of respective years has been given by the

assessee.

identical to the issue raised by the assessee company in AYs

2004-05 and 2007-08 by way of additional grounds having been

decided by the Bench in favour of the assessee as per findings

given in preceding paras, so for the same reasoning additional

grounds as well as additional evidence sought to be raised/led by

assessee before the ld. CIT (A) is allowed. Since this identical

issue in AYs 2004-05 and 2007-08 has been remitted back to the

AO to decide afresh after providing opportunity of being heard to

the assessee by examining the evidence led by the assessee in the

light of the second proviso to sub-section (4) to section 80IB read

with Notification No.627 (E) (supra), grounds no.1, 1.1, 1.2, 1.3 &

2 of ITA No.2208/Del/2014 for AY 2008-09 of assessee’s appeal

are also determined in favour of the assessee for statistical

purposes to be decided by the AO as per findings returned by the

Bench in preceding Para 36 for A.Y. 2004-05 & 2007-08.

ADDITIONAL GROUND

37 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 ITA NO.5855/DEL/2011 - AY 2006-07 (REVENUE’S APPEAL)

appeal bearing ITA No.5855/Del/2011 for AY 2006-07 filed by the

Revenue are as under :-

“1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under second proviso to section 80-IB(4) of the Act to the assessee @ l 00% of the profit of the undertaking set up at Duliajan, being a mineral based industry, in terms of notification No. SO 627 (E) dated 04-08- 1999, read with the second proviso to sub-section (4) of section 80-lB of the income-tax Act. 1961 ('the Act’). 2. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed deduction under section 80-JB of the Act @ 100% of profit of the unit at Duliajan amounting to Rs.5,59,59,323 as against no deduction claimed by the appellant in the return of income. 3. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) / assessing officer ought to have allowed credit for tax withheld by the customer in Bangladesh amounting to Rs.40,96,030, in respect of income earned from such customer in Bangladesh, which has already been offered to tax in India in the return of income for relevant assessment year.”

On the grounds inter alia that at the time of filing of return of

income, assessee company did not claim deduction u/s 80IB of the

Act erroneously as the assessee was not aware of the correct legal

position; that by virtue of the second proviso to section 80IB (4),

assessee company is entitled for deduction @ 100% of the profit of

38 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 its unit at Duliajan; that omission to raise the aforesaid grounds

was neither willful nor deliberate; that assessee company has

entered into a contract with Bangladesh Gas Fields Company Ltd.

(BGFCL) to carry out wireline logging and perforation related

operations in Bangladesh and has accounted for revenue of

Rs.4,37,30,170/- in respect of this contract; that as per terms of

contract between assessee company and BGFCL, BGFCL was

liable to make payment to the assessee company on net of tax basis

and TDS liability in respect of payment to assessee was to be

grossed up; that at the time of filing the return of income, in

absence of TDS certificate from BGFCL, the assessee company did

not get the tax deducted and deposited with Bangladesh

Government treasury by BGFCL and also not accounted for in the

books of account on the basis of principle of prudence as per

relevant accounting in India; that now in view of TDS certificate

received from BGFCL, assessee company is entitled for the claim

and such TDS withheld by BGFCL in respect of the income earned

from Bangladesh; that in terms of the Article 25 of Indo-

Bangladesh Double Taxation Avoidance Agreement read with

section 90 (2) tax paid by Indian Resident in Bangladesh in respect

39 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 of income earned therefrom, which is also taxpayer in India is

allowable as agreed against tax liability in India.

the present application filed by the assessee company for raising

additional grounds on the grounds inter alia that this application is

not maintainable as the assessee being not aggrieved with the order

passed by the ld. CIT (A) in any manner as neither it filed any

appeal nor any cross objection; that application under Rule 11 of

Income-tax (Appellate Tribunal) Rules, 1963 is only maintainable

if filed in appeal or cross objections by the assessee; that this is a

new issue which was neither raised before AO nor before the ld.

CIT (A) and as such cannot be entertained at this stage; that this

new claim u/s 80IB is also not a pure question of law as it requires

elaborate enquiry to verify the claim made by the assessee; that

when the assessee has claimed to be a mineral based company in

terms of Notification No.SO 627 (E) (supra), the AO would require

to conduct complete enquiry if the assessee company is into

mineral based industry. Ld. DR filed written submissions running

into 12 pages which have been made part of the judicial record.

40 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 44. Ld. AR for the assessee to support the maintainability of its

application contended that since the grounds raised by way of

additional evidence are purely legal ground emanated from the

facts already on record, the assessee company is within its right to

claim the deductions u/s 80IB and it is also entitled to claim the

credit of tax withheld by its customer in Bangladesh and relied

upon the decision rendered by Hon’ble High Court of Gauhati cited

as Assam Co. (India) Ltd. vs. CIT (2002) 256 ITR 423 (Gauhati).

of the case had come up before Hon’ble High Court of Gauhati in

case of Assam Co. (India) Ltd. (supra), “wherein assessee had

raised additional ground in the appeal filed by the Revenue without

filing any appeal or cross objection before the Tribunal and the

Tribunal had declined to entertain additional grounds raised by the

assessee on the ground that since the assessee had not filed any

appeal or cross objections the same are not maintainable.”

provisions contained under the Act as well as Income-tax

(Appellate Tribunal) Rules and after discussing the decision

rendered by Hon’ble Apex Court cited as CIT vs. Assam Frontier

41 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Tea Ltd. (2002) 253 ITR 549 (SC), CIT vs. Mahalakshmi Textile

Mills Ltd. (1967) 66 ITR 710 (SC) and National Thermal Power

Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC), on the issue of power

of Tribunal to entertain additional grounds held that, “the Tribunal

is empowered to entertain a ground beyond those incorporated in

memorandum of appeal though the party urging the said ground

has neither appealed before it nor has filed a cross objection in the

appeal filed by the other party provided relevant facts on which

such grounds are to be founded are available on record,” by

returning following findings:-

“30. As already noticed by us, the facts and the sequence of events narrated in the orders of the Commissioner of Income-tax (Appeals) and the Tribunal and those set out in the statement of the case are not in dispute. The core question is whether the Tribunal ought to have- considered the plea of the applicant- company that it was entitled to the benefit of weighted deduction under Section 35B(1)(b)(iv) of the Act in the absence of any appeal or any cross-objection filed by it against the order of the Commissioner of Income-tax (Appeals). The applicant-company in the reassessment proceedings had claimed the benefit of weighted deduction in respect of warehouse charges on the basis of Section 35B(1)(b)(ix) read with Rule 6AA. The point remains that the head of expenditure on account of which the weighted deduction is claimed by the applicant-company is "warehouse charges". The apex court in CIT v. Assam Frontier Tea Ltd. [2002] 253 ITR 549, as referred to above, had held that in a case where the warehouse in the foreign country is run by an agent of an assessee but the expenditure incurred thereon is reimbursed by the assessee to the said agent, it amounted to maintenance of the warehouse by the assessee for the promotion of sales of its tea outside India and that therefore the assessee was entitled to the benefit of the allowances under Section 35B(1)(b)(iv) of the Act.

42 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 We have already observed that in a given fact situation an assessee may be entitled to the benefit of weighted deduction under more than one Sub-clause of Section 35B(1)(b) of the Act. It would, however, depend on the primary evidentiary facts available in a given case. It therefore follows that only because the applicant-company had objected to the withdrawal of the benefit of weighted deduction by relying on Sub-clause (ix) of Section 35B(1)(b) of the Act it could not be decisively held, without reference to the entire gamut of facts on record, that the applicant-company under all circumstances could be precluded from raising a plea that it was entitled to the benefit of such deduction under Section 35B(1)(b)(iv) of the Act as well. Whether or not the applicant-company can be permitted to raise that plea only on the ground that it had not preferred any appeal or cross-objection against the order of the Commissioner of Income-tax (Appeals) is the question which now engages the attention of this court. It need not be over-emphasised that the Appellate Tribunal Rules framed by the Tribunal in exercise of its power under Section 255(5) of the Act are wholly for the purpose of regulating its own procedure and the procedure of the Benches of the Tribunal. The rules therefore embody the principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions. The scheme of the Rules read as a whole does not suggest that the Rules in any way have the effect of curtailing or circumscribing the power, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. We have not been able to read any prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned in the memorandum of appeal filed by a party, whether the assessee or the Department, in the absence of an appeal or cross-objection by the other side projecting the new ground. It is a settled principle of law that procedural law is the hand maid of justice and has to be so interpreted to advance the cause of justice and not to thwart it. Considering the language used in Section 254(1) of the Act conferring powers on the Tribunal which is in the widest possible terms, we feel guided in this regard by the emphatic observations of the apex court contained in its decision of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. We have also taken note of the observations of the apex court to the effect that the purpose of the assessment proceeding before the taxing authority is to assess correctly the tax liability of an assessee in accordance with law. We consider it to be a solemn duty of the taxing authorities to correctly assess the tax liability of an assessee by duly following the relevant provision of law and therefore do not

43 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 countenance an inflexible and mechanical adherence to the law of procedure and in the process deny an assessee a benefit to which it is otherwise entitled in law. In our considered opinion, that could not have been the purpose of framing the Appellate Tribunal Rules. There cannot be any estoppel against law. In this regard, we are reinforced by the observations of the apex court in Sangram Singh v. Election Tribunal, AIR 1955 SC 425, with reference to the Code of Civil Procedure as under (page 429) :

"Now a code of procedure must be regarded as such. It is 'procedure', something designed to facilitate justice and further its ends : not a penal enactment for punishment and penalties ; not a thing designed to trip people up. Too technical a construction of sections that leaves no room for reasonable elasticity of interpretation should therefore be guarded against (provided always that justice is done to 'both' sides) lest the very means designed for the furtherance of justice be used to frustrate it."

44 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 if the assessee or the Department, without filing any appeal or a cross-objection seeks to urge a ground other than the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary facts in support of new ground must be available on record. 32. For the view that we have taken as above, we hold that the Tribunal erred in not considering the contention of the assessee- applicant company that the warehouse charges was covered by Sub-clause (iv) of Section 35B(1)(b) of the Act only on the ground that the applicant-company had not filed any appeal or cross-objection. We therefore answer the question referred, in the affirmative and remand the proceeding to the Tribunal for consideration of the said contention of the applicant-assessee on merits. We however make it absolutely clear that in case the basic facts relating to the claim of the applicant-company for weighted deduction under Section 35B(1)(b)(iv) are not available on record, the applicant-company would not be permitted to urge that ground and the Tribunal would pass appropriate orders as it would deem fit in accordance with law.”

(India) Ltd. (supra), we are of the considered view that the

application filed by the assessee in the appeal filed by the Revenue

is maintainable, however, subject to the condition that the relevant

facts on which additional grounds are raised are available on

record. When we examine the assessment order as well as order

passed by the ld. CIT (A), it is a matter of record that the assessee

has claimed deduction u/s 80IB @ 100% to the tune of

Rs.5,59,59,323/- and AO as well as ld. CIT (A) after duly

discussing the facts and case laws reached the conclusion that

when assessee company is not proved to be in manufacture or

45 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 production of article or thing but is in fact providing services to the

mineral oil concern, it is not entitled for deduction u/s 80IB. So,

we are of the considered view that facts qua additional grounds

no.1 & 2 sought to be raised by the assessee are duly pleaded and

discussed by the AO as well as ld. CIT (A). However, so far as

additional ground no.3 raised by the assessee so as to claim the

credit for tax withheld by the customer in Bangladesh amounting to

Rs.40,96,030/- is concerned, there is not a whisper of these facts

before AO as well as ld. CIT (A) nor any such claim has been

made by the assessee in the return of income, so we are of the

considered view that in these circumstances, additional ground

no.3 is not allowable.

company has been held to be mineral based industry as per our

findings returned in the preceding paras, it is prima facie entitled

for deduction u/s 80IB; that assessee by raising additional grounds

sought deduction under second proviso to section 80IB(4) @ 100%

profit of the undertaking set up at Duliajan in terms of Notification

No. SO 627 (E) dated 04.08.1999; that applying the ratio of

judgment of Hon’ble Apex Court in the case of National Thermal

46 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Power Company (supra), the taxmen are required to correctly

assess the tax liability of the assessee which includes admissibility

of the deductions if any; that rule or procedure are hand-maid of

justice and merely on the ground that the assessee has omitted to

file the appeal or cross objection, the additional grounds raised in

the appeal filed by the Revenue are maintainable because

ultimately the net result of the assessment proceedings should be

correct assessment of the tax liability of the assessee company, the

application filed by the assessee company for additional grounds is

partly allowed qua grounds no.1 & 2, whereas present application

qua ground no.3 is dismissed.

raised by the assessee company in AYs 2004-05 and 2007-08

decided in preceding paras, additional grounds no.1 & 2 raised in

AY 2006-07 by the assessee company being identical in nature are

also required to be decided by the AO by examining the plant and

machinery viz. the wireline logging unit set up at Duliajan in terms

of Notification No.SO 627 (E) dated 04.08.1999 read with second

proviso to sub-section (4) of section 80IB and examine the

eligibility of the assessee for deduction @ 100%. So, this issue is

47 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 remitted back to the AO to decide afresh after providing an

opportunity of being heard to the assessee.

ITA No.3708/Del./2012 (AY : 2006-07) & ITA No.5511/Del./2012 (AY : 2007-08) CHALLENGING THE ORDERS PASSED BY THE LD. CIT (A) U/S 263 OF THE ACT

the ‘assessee’), by moving applications supported with affidavits in

both the aforesaid appeals sought to condone the delay of 199 days

and 303 days for filing appeals on the grounds inter alia that in

both the AYs 2006-07 & 2007-08, assessments were assessed u/s

143 (3) of the Act but the ld. CIT initiated proceedings u/s 263

of the Act on the ground that the assessment orders dated

29.12.2009 & 11.12.2009 for AYs 2006-07 & 2007-08

respectively are erroneous and prejudicial to the interest of the

Revenue and consequently issued a notice to the assessee vide

letter dated 04.02.2001 & 24.08.2011 in AYs 2006-07 & 2007-08

respectively; that consequent to the proceedings initiated u/s 263,

ld. CIT set aside the assessment orders with a direction to the AO

to reframe the assessment after following specific directions

contained in the order; that assessee has filed the appeals on

48 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 16.07.2012 and 29.12.2012 challenging the orders passed by the ld.

CIT with a delay of 199 days and 303 days respectively; that both

these cases were being handled by M/s. Samit Grover and Co., a

firm of Chartered Accountants, who has received the impugned

orders passed by the ld. CIT directly from the ld. CIT office but

they failed to intimate the impugned orders passed by the ld. CIT

u/s 263 of the Act to the assessee entailing delay in filing the

appeals; that subsequently assessee engaged new consultant who

obtained the necessary documents from M/s. Samit Grover & Co.

after repeated requests on 03.07.2012 & 04.09.2012 and thereafter

filed the appeals on 16.07.2012 & 29.102.2012 for AYs 2006-07 &

2007-08 respectively; that delay in filing the aforesaid appeals is

unavoidable which was neither willful nor deliberate.

the assessee for condonation of delay on the ground that when the

proceedings u/s 263 of the Act were being continuously pursued by

the consultant engaged by the assessee, it is beyond comprehension

as to how they have not intimated the results of the case to the

assessee and that no disciplinary proceedings sought to have been

49 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 initiated by the assessee against its consultant for professional

misconduct and prayed for dismissal of the applications.

263 of the Act have been pursued by M/s. Samit Grover and Co.

and now entire proceedings before the Tribunal are being pursued

by M/s. Vaish Associates, Advocates and the applications are

supported with affidavits of the Managing Director of the assessee

company stating on solemn affirmation that the delay in filing the

appeals is entirely attributed to its consultant, M/s. Samit Grover &

Co.; that in order to impart substantial justice to the parties and to

stop multiplicity of the proceedings the issue in controversy must

be decided once for all; that exercising a liberal approach by the

Bench in order to impart the substantial justice to the assessee, we

are of the considered view that delay of 199 days and 303 days in

AYs 2006-07 & 2007-08 respectively is required to be condoned,

hence condoned which would otherwise not cause any prejudice to

the Respondent. So, applications moved by the assessee company

for AYs 2006-07 & 2007-08 respectively for condonation of delay

are allowed, and both the appeals are ordered to be taken up for

hearing on merits.

50 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 53. Briefly stated, the assessee is into the business of wireline,

logging, perforation and other related services to oil and gas

services engaged in exploration and/or production of oil and gas.

For AYs 2006-07 & 2007-08, assessments were framed at the total

income of Rs.25,20,22,288/- and Rs.34,96,66,530/- respectively

u/s 143(3) of the Act. Ld. CIT treating the orders passed by the

AO u/s 143(3) of the Act erroneous and prejudicial to the interest

of the Revenue u/s 263 of the Act after considering the contentions

made by the assessee company, directed the AO to disallow the

additional depreciation of Rs.3,46,41,428/-; verify that rate of

depreciation at plant & machinery is to be allowed at 15% and not

at 25% and verify as to whether provisions of section 33(1)(ii) are

applicable in respect of commission of Rs.33,51,000/- paid to

Managing Director and that the assessee company is not engaged

in manufacture or production of an article of thing and as such, is

not entitled for deduction u/s 80IB of the Act as conditions laid

down thereunder are not fulfilled.

passed by the ld. CIT contended inter alia that the assessment

orders passed by the AO are not erroneous; that the assessment

51 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 orders passed by the AO are not prejudicial to the interest of the

Revenue; and relied upon the decision rendered by Hon’ble Delhi

High Court in assessee’s own case for AYs 1989-90 to 2003-04

(supra) which has since attained finality as the SLP field by the

Revenue against the said order has also been dismissed by the

Hon’ble Apex Court.

arguments addressed by the ld. AR for the assessee relied upon the

Explanation 2 to section 263 of the Act introduced by the Finance

Act, 2015 w.e.f. 01.06.2015 and also relied upon the decision

rendered by Hon’ble Supreme Court in cases of Deniel

Merchants Pvt. Ltd. vs. ITO (Appeal) No.2396/2017), Malabar

Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC), CIT vs.

Amitabh Bachchan 384 ITR 200, Rajamandir Estates (P.) Ltd.

vs. PCTI (2017) 77 taxmann.com 285 (SC), Shree

Manjunathesware Packing Products & Camphor Works vs. CIT

(1998) 231 ITR 53 (SC), Hon’ble Calcutta High Court in case of

Rajmandir Estates (P.) Ltd. vs. PCIT Z(2016) 386 ITR 162

(Calcutta) and coordinate Bench of the Tribunal in case of PTC

Impex (India) Pvt. Ltd. vs. CIT in ITA No.2860/Del/2010 dated

52 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 03.04.2018 and also relied on other decisions by filing written

submissions which have been made part of the judicial record.

263 of the Act by the ld. CIT, the assessment orders passed by the

AO must be erroneous and prejudicial to the interest of Revenue.

We will discuss both the necessary ingredients require to invoke

the jurisdiction u/s 263 of the Act which are discussed one by one

hereunder.

having been held by the ld. CIT is concerned, in assessee’s own

case for AYs 1989-90 to 2003-04, the assessee company has been

held to be engaged in manufacture or production of an article or

thing. This issue has been dealt with by the Bench in detail while

returning findings in preceding paras 11 to 15. So, now this issue

has since been attained finality as SLP filed by the Revenue before

the Hon’ble Supreme Court has already been dismissed. When we

examine the impugned order passed by the ld. CIT in AYs

2006-07 & 2007-08 by following AY 2004-05, ld. CIT held the

assessment orders erroneous only on the ground that, “assessee

company is not engaged in manufacture or production of an article

53 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 or thing”. So, now this issue has been settled once for all so far as

functional profile of the assessee company is concerned.

the manufacture or production of an article or thing by the order

passed by the Hon’ble Delhi High Court affirmed by Hon’ble

Supreme Court, the assessee is entitled for additional depreciation

u/s 32(1)(iia) of the Act and as such, the AO has rightly allowed

the additional depreciation to the assessee, hence assessment

orders passed by the AO are not erroneous sufficient to exercise

revisionary jurisdiction u/s 263 of the Act.

the interest of the Revenue as has been held by the ld. CIT is

concerned, allowing additional depreciation which would

otherwise have been available as normal depreciation does not lead

to any prejudice to the Revenue as the assessee would only be

entitled to 100% of the cost of the asset by way of additional

depreciation plus normal depreciation or in the alternative as

normal depreciation over the years.

ld. CIT on the only ground that the assessee is not engaged in the

54 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 manufacture of any article or thing, but this issue is no longer res

integra as assessee in its own case held to be engaged in

manufacture or production of an article or thing. Moreover, since

the ld. CIT only modified the assessment directing the AO to

withdraw the deduction for additional depreciation allowed u/s

32(1)(iia) but has not set aside the assessment to be framed afresh,

Explanation 2 to section 263 of the Act relied upon by the ld. DR

for the Revenue is not attracted. So, we are of the considered view

that arguments addressed by the ld. DR and his reliance on

umpteen number of judgments is not applicable to the facts and

circumstances of the case. Consequently, impugned orders passed

by the ld. CIT u/s 263 of the Act both dated 31.10.2011 for AYs

2006-07 & 2007-08 are not sustainable in the eyes of law, hence

ordered to be quashed.

No.1712/Del/2010 for AY 2004-05 is partly allowed and ITA

Nos.4144/Del/2014, 2208/Del/2014, 3708/Del/2012 &

5511/Del/2012 for AYs 2007-08, 2008-09, 2006-07 & 2007-08

respectively are allowed whereas Revenue’s appeals being ITA

No.323/Del/2012 for AY 2005-06 is partly allowed and ITA

55 ITA No.1712/Del./2010 ITA No.4144/Del./2014 ITA No.2208/Del./2014 ITA No.3708/Del./2012 ITA No.5511/Del./2012 ITA No.323/Del./2012 ITA No.5855/Del./2011 ITA No.2241/Del./2014 Nos.5855/Del/2011 & 2241/Del/2014 for AYs 2006-07 & 2008-09

are dismissed. Order pronounced in open court on this 24th day of February, 2020.

Sd/- sd/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 24th day of February, 2020 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-6, New Delhi 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.