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Income Tax Appellate Tribunal, DELHI BENCHES: ‘C’: NEW DELHI
Before: SHRI R.S. SYAL & SHRI JOGINDER SINGH
Date of Hearing : 02.08.2018 Date of Pronouncement : 02.08.2018 ORDER PER R.S. SYAL, VP : The present appeal by the assessee is directed against the order dated 28.02.2018 passed by the CIT u/s 263 of the Income-tax Act, 1961 (hereinafter also called `the Act’) in relation to the assessment year 2013-14.
Briefly stated, the factual matrix of the case is that the return was filed by the assessee declaring income of Rs.16,25,380/-. The Assessing Officer (AO) completed the assessment by assessing it at the returned income under the normal provisions and at Rs.88,72,129/- u/s 115JB of the Act. The ld. CIT found the assessment order having been passed without examination of claim of deduction u/s 80-IC of the Act. He noticed that the assessee company was incorporated on 19.08.2004 and it commenced its operations on 29.03.2010. He further noticed that during the course of assessment proceedings for the subsequent assessment year, namely, 2014-15, it transpired that the assessee was engaged in trading activity from Parwanoo area prior to the setting up of the present manufacturing unit. The assessee was also found to have stated in its reply during the course of assessment proceedings for the A.Y.2014-15 that prior to setting up of new manufacturing unit in the notified area in the State of Himachal Pradesh, it was having a manufacturing unit on a very small scale situated in the premises of a family-owned unit run under the name of BCI Optical Disc Ltd. at Kundli, Haryana. The ld. CIT found the claim of the assessee for deduction u/s 80IC for the instant year as contrary to the documents filed by it before the Registrar of Companies, which evidenced that it was not a case of setting up of new industrial unit, but that of re-organisation of business already in existence. Since the assessment order was passed without making any enquiry on the eligibility of deduction u/s 80IC, the ld. CIT set aside the same to be done afresh by the AO. The assessee is aggrieved against such decision.
We have heard both the sides and perused the relevant material on record. It can be seen that the assessment order passed in February, 2016 does not contain any discussion whatsoever on the eligibility of deduction u/s 80IC of the Act. It is further relevant to mention that the assessee commenced its operations from 29.03.2010 and, thus the `initial year’ for the purposes of deduction is A.Y. 2010-11. No claim for deduction was made for such initial assessment year as there was no income from the eligible unit. It was for the first time that the assessee claimed deduction u/s 80IC for the A.Y. 2011-12, which is apparent from the computation of income, whose copy has been placed at page 328 of the paper book. In the next year also, namely, A.Y. 2012-13, the assessee claimed deduction u/s 80IC as is apparent
from the computation of income for such year, whose copy has been placed at page 337 of the paper book. The A.Y. under consideration is 2013-14, being, the third year of claim u/s 80IC. The ld. CIT has held the assessee to be not eligible for deduction u/s 80IC on the ground that the eligible unit was formed by reconstruction of a business already in existence. Thus, it is apparent that the only raison d’etre for the revision of the assessment order is the non-fulfilment of the eligibility condition of not setting up a new business.
Recently, the Hon’ble Supreme Court has delivered a judgment in DCIT vs. Ace Multi Axes Systems Ltd. (2018) 400 ITR 141 (SC) on the eligibility of deduction u/s 80IBof the Act. The assessee in that case was originally allowed deduction u/s 80-IB, which section contained one of the conditions as the assessee being a small scale industry (SSI). In the relevant year under consideration, the assessee ceased to be a SSI. The AO denied the benefit of deduction. The Hon’ble High Court formulated the question : `“When once the eligible business of an assessee is given the benefit of deduction under Section 80 IB on the assessee satisfying the conditions mentioned in sub-sec. (2) of Section 80 IB, can the assessee be denied the benefit of the said deduction on the ground that during the said 10 consecutive years, it ceases to be a small scale industry?” The Hon’ble High Court answered it in favour of the assessee, against which the Revenue preferred an appeal before the Hon’ble Supreme Court. It was contended on behalf of the assessee that once the stipulated conditions were satisfied in the initial year, the assessee would be entitled to deduction u/s 80IB in all the subsequent years notwithstanding it ceasing to be a small scale industry. Rejecting such a contention, the Hon’ble Supreme Court held that if an industrial undertaking does not remain small scale undertaking, it cannot claim the incentive. It went on to hold that : `No doubt, certain qualifications are required only in the initial assessment year, e.g. requirements of initial constitution of the undertaking. Clause 2 limits eligibility only to those undertakings as are not formed by splitting up of existing business, transfer to a new business of machinery or plant previously used’. Then it observed that : `Certain other qualifications have to continue to exist for claiming the incentive such as employment of particular number of workers as per sub-clause 4(i) of Clause 2 in an assessment year. For industrial undertakings other than small scale industrial undertakings, not manufacturing or producing an article or things specified in 8th Schedule is a requirement of continuing nature.’ This is how, the Hon’ble Supreme Court laid down that an incentive meant for small scale industrial undertakings cannot be availed by industrial undertakings which do not continue as small scale industrial undertakings during the relevant period. Thus, it is graphically clear from the judgment that there are two types of conditions, which need to be examined. First are the conditions, which need to be examined only in the initial year, such as, constitution of undertaking- whether a new one or reconstruction.
Second are the conditions, which need to be examined every year before allowing deduction, such as, the unit continuing to remain SSI and employing specified number of employees every year. Once the first set of conditions are established in the initial year, these should not be examined in later years. On the other hand, the second set of conditions have to be established by the assessee every year.
On a parity with section 80IB considered by the Hon’ble Apex Court, when we turn to section 80-IC of the Act under consideration, it is found that sub-section (2) contains a condition that this section applies to an undertaking or enterprise, (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, etc. or (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule. Sub-section (4) provides that this section applies to any undertaking or enterprise which fulfils all the following conditions, namely:— (i) it is not formed by splitting up, or the reconstruction, of a business already in existence…. (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. On an analogy drawn from the judgment in Ace Multi Axes Systems Ltd. (supra), it can be easily seen that the condition of manufacturing article or thing, (a) not being an article specified in the Thirteenth Schedule or (b) any article or thing specified in the Fourteenth Schedule, needs to be fulfilled on year to year basis. However, the condition of not formed by splitting up, or the reconstruction of a business already in existence or by the transfer to a new business of machinery or plant previously used for any purpose, are required to be established in the initial year alone.
Adverting to the facts of the instant case, we find that the initial year of the assessee for the purposes of deduction u/s 80IC is A.Y. 2010-11. Deduction was actually claimed for the first time in A.Y. 2011-12 and then in A.Y. 2012-13. Such a deduction was allowed by the Revenue albeit without making a regular assessment u/s 143(3).
Since the stage for carrying out investigation for ascertaining if the unit was newly set up or reconstructed, was the initial year, in which the assessee’s claim was not disputed, the assessment order for the year under consideration, accepting fulfilment of this eligibility condition, cannot be construed as erroneous. Going by the above interpretation of the provision, the AO was precluded from examining as to whether the assessee set up its new unit or it was a reorganisation of the existing unit in the relevant year. The assessment order not discussing the examination of such a condition cannot be termed as erroneous. Once an assessment order cannot be held as erroneous, the CIT cannot exercise revisional power u/s 263, which requires a cumulative satisfaction of the twin conditions, viz., the erroneous assessment order and the same being prejudicial to the interest of the Revenue.
Even though the ambit of section 263 has been expanded by means of insertion of Explanation 2, which, inter alia, says that an order passed allowing any relief without enquiring into any claim or an order passed without any enquiries or verification which should have been made, shall be covered within the purview of section 263, a claim which per se does not require any enquiry and the AO accepting the same without conducting such enquiry, cannot be brought within the scope of section 263. The CIT would have been justified in invoking the provisions of section 263, if the AO had passed such order for the `initial year’ without making relevant enquiry. Extantly, we are confronted with a situation in which the assessment year under consideration is the third year of the claim of deduction u/s 80IC of the Act. Having allowed such deduction in the immediately preceding two assessment years, the AO was not supposed to re-examine the eligibility condition of the new unit having been set up in the current year as well. In this view of the matter, the impugned order setting aside such an assessment order on AO did not examine such eligibility condition in the third year, which ought to have been examined in the initial year, cannot be sustained. We, therefore, set aside the impugned order.
In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on 02.08.2018.