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Revenue by : Shri Aarju Garodia (DR) Assessee by : Shri Dharmesh Shah (AR) Date of hearing : 13.02.2018 Date of Pronouncement : 23.02.2018 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by revenue under section 253 of Income Tax Act is directed against the order of ld. Commissioner of Income-Tax (Appeals)-5, [CIT(A)] Mumbai dated 15.01.2014 for Assessment Year 2010-11. The Revenue has raised the following grounds of appeal:
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 80IB of the I.T. Act amounting to Rs. 4,68,67,102/- without appreciating the fact that the assessee does not fulfil the conditions laid down u/s 80IB of the Act.” 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 80IB of the I.T. Act amounting to Rs. 4,68,67,102/- without appreciating that the section 80IB would be applicable on an ‘eligible undertaking’ which is transferred in a scheme of amalgamation or demerger. However, the assessee acquired the plant under a slump sale agreement and not by any scheme of amalgamation or demerger.”
Brief facts of the case are that assessee-company is engaged in the business of manufacturing and trading of Aluminium products, Conductors and Rods, filed its return of income for relevant assessment year 20010-11 on 30.09.2010 declaring total income at Rs. 17,08,66,587/-. The assessment was completed on 14.02.2013 under section 143(3). The Assessing Officer (AO) while passing the assessment order besides the other disallowance, disallowed the deduction of under section 80IB for Rs. 4,68,67,102/-. On appeal before the ld. CIT(A), the assessee was allowed full relief for claim of deduction under section 80IB. Thus, aggrieved by the order of ld. CIT(A), the revenue has filed the present appeal before us.
We have heard the ld. Departmental Representative (DR) for the Revenue and ld. Authorized Representative (AR) of the assessee and perused the material available on record. The ld. DR for the Revenue relied upon the order of AO and submits that the AO rightly disallowed the deduction under section 80IB. The assessee acquired the said eligible unit from M/s Hiren Aluminium Ltd. under slump sale. The assessee has acquired the eligible unit under a scheme under slump sale and is not eligible for deductions under section 80IB. The other reason for disallowance of deduction under section 80IB was that the unit which was purchased by assessee under slump sale was denied deduction under ownership of M/s Hiren Aluminium Ltd for assessment year 2004-05 to 2009-10.
On the other hand, the ld. AR of the assessee submits that assessee claimed deduction under section 80IB in respect of Unit-2 situated in village Rakholi, Silvasa Union Territory of Dadar and Nagar Haveli. The said unit was acquired by assessee from M/s Hiren Aluminium Ltd. on slump sale basis vide agreement dated 30.11.2007. The AO disallowed the deduction for two reasons. First reason was that previous owner namely M/s Hiren Aluminium Ltd. was denied deduction under section 80IB from Assessment Year 2004-05 to 2009-10 for the reason for non-fulfilment of certain condition laid down under section 80IB. The other reasons taken by assessing officer that the undertaking was acquired by assessee by way of slump sale and not through amalgamation of merger as provided under section 80IB(12). The ld. AR of the assessee further submits that on disallowance of deduction under section 80IB by assessing officer, the previous owner of eligible undertaking (M/s Hiren Aluminium Ltd.) filed appeal before the ld. CIT(A)-VIII, Ahmadabad. The ld. CIT(A)-VIII Ahmedabad allowed the appeal and allowed deductions of section 80IB to the previous owner being eligible undertaking (M/s Hiren Aluminium Ltd). Against the order of ld CIT(A) VIII Ahmedabad, the Revenue/Department preferred appeal before the Tribunal in & Ors for AY 2004-05 to 2009-10. However, the appeal of the revenue was dismissed vide dated 18.08.2017, copy of which is filed. Thus, the first reason for disallowance has been set-aside by the Tribunal.
The second reason for disallowance was that assessee acquired the eligible unit under slump sale and not on account of merger or amalgamation. The assessee has acquired the entire unit/undertaking under the slump sale. The deduction under section 80IB cannot be denied because the benefits are connected to the undertaking and not to the assessee. The benefits of section 80IB are travelled (Transferred) with the undertaking and the fact of change of ownership does not affect the deduction. Sub-section (1) & (2) of section 80IB categorically refers to the business carried out by industrial undertaking. Thus, mere change of ownership would not affect the claim of deductions.
In support of his submission, the ld. AR of the assessee relied upon the Circular No. 1/2013 dated 17.02.2013 issued with regard to the provisions of section 10A & 10B wherein CBDT clarified that on the ground of change of ownership of undertaking by way of slump sale, the claim of exemption cannot be denied to and otherwise eligible undertaking. The ld. AR of the assessee submits that language of section 10A &10B is identical worded to the language in section 80IB. Thus, the Circular issued by CBDT is squarely applicable on the fact of the present case. The ld AR for the assessee also relied upon the decision of Delhi High Court in CIT vs. Heartland Delhi Transcription Services Pvt. Ltd. [366 ITR 523], Punjab & Haryana High Court in CIT vs. Mega Packages [203 Taxman 236 (P&H)], Delhi Tribunal in ITO vs. Advance Valves Global [8 ITR 684 (Del Trib].
The ld. AR of the assessee also filed also filed an affidavit of Shri Anish Dinesh Shah, Director of the assessee-company to substantiate the contention that there is no violation of condition prescribed under section 80IB(2). The director of the assessee company also deposed that the eligible unit is not formed by Splitting up or re-construction of the business already in existence, not formed by transfer of new business or machinery of plant previously used for that purpose, manufactures goods which are not listed in XI Schedule and employed more than 10 workers. The acquired undertaking is located in Industrial Backward Union Territory as specified in H Schedule of Income-tax Act.
We have considered the rival submission of the parties and have gone through the orders of authorities below. The AO denied the deduction under section 80IB holding that the benefit is not available in case of slump sale and that provisions of section 80IB does not permit the deduction unless transfer of undertaking pursuant to the scheme of amalgamation or demerger. The other reason was that the previous owner of the undertaking i.e. M/s Hiren Aluminium Ltd. in the assessment order for AY 2005-06 onward denied the deduction claimed under section 80IB. We have noted that against the disallowance of deduction under section 80IB, the previous owner of eligible unit filed appeal before the ld. CIT(A)VIII, Ahmedabad, The ld CIT(A) VIII Ahmedabad allowed the relief disallowance under section 80IB. Against the order of ld. CIT(A)-VIII, Ahmedabad, the Revenue filed appeal before the ITAT, Ahmadabad. The Tribunal in its order dated 18.08.2017 in & Ors. for AY 2004-05 to 2009-10 confirmed the action of ld. CIT(A), Ahmadabad, thereby sustained the deduction allowed under section 80IB to M/s Hiren Aluminium Ltd. the relevant part order of Tribunal is extracted below:
“13. Mr. Madhusudan first of all reiterates Assessing Officer's three fold findings i.e. the assessee does not own any plant and machinery pertaining to its unit-II, no work force was employed therein as per Form 3CCB report, the said latter unit lacked approval from the concerned Central I State government departments and no separate books had been maintained qua the same. We refer to the CIT(A)'s above extracted discussion indicating that the assessee had in fact added fixed assets on lease qua its latter unit-II from M/s Pankaj Aluminium. Necessary list of such assets forms part of case records before us. We quote above referred case law (supra) making it clear that ownership/purchase of assets is nowhere mandatory in Section 80IB deduction claim. The assessee has further demonstrated to have employed sufficient work force (more than 10 workers) by placing on record its corresponding provident fund challan. Its submissions dated 10.03.2007 (supra) have already referred to separately maintained books of account in relation to the eligible unit-II to rebut assessment findings. All this is followed by necessary registration/certifications/approvals/inspections under central excise law, sales tax (both central as well as state), factory license, EPFO's letter, DIPP correspondence, service tax and power grid's, reports discussed hereinabove. Neither the Assessing Officer's remand report nor Revenue's argument before us are able to rebut correctness of the said overwhelming evidence forming part of case records running into more than 330 pages. We are not touching upon contents of each and every document in order to avoid lengthy repetition for the sake of brevity. Suffice to say, the assessee has placed on record all necessary details in support of its deducting claim raised u/s.80IB of the Act.
Learned Departmental Representative reiterates that assessee's form 3CD does not reveal any plant and machinery. Page 121 onwards in case record however speak otherwise demonstrating a detailed list of relevant fixed assets as well as various additions made therein pertaining specifically to unit-II in dispute.
15. Mr. Madhusudan's next argument is that the CIT(A) has erred in admitting assessee's additional evidence violating necessary conditions enumerated in Rule 46A of the Income Tax Rules. He seeks to raise an additional substantive ground at Revenue's behest in this regard that the CIT(A)'s action under challenge is not as per law since not covered in clauses (a) to (c) therein. We however find that the assessee's case in its additional evidence pleaded for placing relevant documents on record under Rule 46A(4) by stating that the same were very much relevant and vital to decide the instant issue of Section 80IB deduction. This is not Revenue's case that the corresponding additional evidence is not germane to Section 80IB deduction claim. The CIT(A) has admittedly granted sufficient time and opportunity to the Assessing Officer for submitting remand report. There is therefore no violation of principles of natural justice. We thus quote hon'ble jurisdictional high court's decision in CIT vs. Kamlaben Sureshchandra Bhatti (2014) 367 ITR 692 (Guj.) to conclude that the CTT(A) has rightly admitted the instant additional evidence for deciding the issue in question in appropriate manner.
Learned Departmental Representative thereafter made a very strong effort to highlight the fact that the assessee had filed relevant documents hereinabove as additional evidence after committing perjury by pleading that it had already placed the same before the Assessing Officer on 26.12.2006 in the course of scrutiny. Lot of arguments have taken place between both parties accusing each other of having indulged in unfair practice in the course of scrutiny. Mr. Madhusudan as well as Mr. Soparakar strongly support their respective parties' stand that the assessee's and Assessing Officer's conduct was found wanting. We however are of the view that this personal issue between the parties is mere academic now as the assessee's relevant evidence as admitted in lower appellate proceedings has successfully demonstrated it to be eligible for Section 80IB deduction.
The Revenue's last argument is that the CIT(A) has neither examined himself assessee's additional evidence nor the Assessing Officer could do so since it had not placed on record the said document before the Assessing Officer. It however emerges that the relevant additional evidence is more or less in the form of necessary approvals obtained from various central and state governments' departments (supra) like central excise sales tax etc. We repeat that the CIT(A)'s above extracted findings sufficiently indicate that he had made all efforts to get necessary remand report from Assessing Officer who did not do the needful. The said latter authority rather raised all technical issues instead of deputing someone for necessary verification. We therefore are of the opinion that it was incumbent for the Assessing Officer to get all facts verified than harping on technical ifs and buts. We further make it clear that the instant appeal was filed in the year 2008. There is no evidence forthcoming from Revenue side till date indicating any mistake in assessee's above records detected from the relevant field authorities/statutory bodies. We therefore reject all of its legal as well as factual arguments in support of the instant substantive ground seeking to reverse CIT(A)'s conclusion in holding assessee's latter unit-II eligible for Section 80IB deduction.”
In view of the above factual and legal discussion, the objection of AO/Revenue that the earlier owner was not allowed the deduction under section 80IB has become meritless.
For second /other objection regarding non-applicability of the benefit of deduction on account of slump sale, we find that the assessee has acquired the entire undertaking of M/s Hiren Aluminium Ltd. which was declared ligible for deduction under section 80IB. In our view, when the entire undertaking is transferred, merely because the ownership of undertaking changes the hand, the deduction under section 80IB is connected with the undertaking and is still available to the assessee. The ld. AR of the assessee during his course of submission relied upon the Circular No. 1/2013 issued by CBDT on 17.01.2013. The perusal of Clause-(iv) of paragraph 2 of said Circular provides that the benefit under section 10A/10AA and 10B would continue to remain available in case of slump sale of undertaking. The Clause (iv) of Circular is extracted below:
“(iv) WHETHER TAX BENEFITS UNDER SECTIONS 10A, 10AA AND 10B WOULD CONTINUE TO REMAIN AVAILABLE IN CASE OF A SLUMPP-SALE OF A UNIT/UNDERTAKING, The vital factor in determining the above issue would be facts such as how a slump-sale is made and what is its nature. It will also be important to ensure that the slump sale would not result into any splitting or reconstruction of existing business. These are factual issues requiring verification of facts. It is, however, clarified that on the sole ground of change in ownership of an undertaking, the claim of exemption cannot be denied to an otherwise eligible undertaking and the tax holiday can be availed of for the unexpired period at the rates as applicable for the remaining years, subject to fulfilment of prescribed conditions.”
The Hon’ble Delhi High Court in case of CIT vs. Heartland Delhi Transcription Services Pvt. Ltd. (supra) while examining the scope of exemption under section 10B held that formation of undertaking, when it was formed satisfied and duly fulfilled the requirement of the Clauses of section 10B(2) or Clause (2) & (3) as it was not formed by splitting up of reconstruction of business already in existence and there was no factual finding that at the time of establishment of formation of undertaking business already in existence was split or reconstructed. There was no bar in section 10B on transfer or sale of undertaking by assessee which has formed sister concerned.
The Hon’ble Punjab & Haryana High Court in case of CIT vs. Mega Packages (supra) held that the benefit admissible to an undertaking could not be denied to the assessee for remaining period on the ground that sub- section (12) of section 80IA empresses only in case of amalgamation or demerger of an Indian company and therefore, such benefit would not be available in case of change from proprietorship to partnership. 11. The Hon’ble Bombay High Court in case of CIT vs. Sonata Software Ltd. [343 ITR 397] while discussing the condition precedent for exemption under section 10A held that there are two condition cast in negative term; (i) Industrial undertaking is not firmed by splitting up reconstruction of business already in existence (ii) Industrial undertaking is not firmed by transfer to a new business machinery or plant previously used for any purpose. 12. Further, the Hon’ble Delhi High Court in ACIT vs. IIS Infotech Ltd. [82 TTJ 174] while discussing the scope of exemption under section 10B held that benefit under section 10 is always attached to the industrial undertaking irrespective of the fact who owns it 100% export oriented unit and enjoying tax exemption under section 10B merged with assessee, would be entitled to same benefit with respect to said unit even after merger of unit being of an independent unit.
The careful reading of sub-section (2) of section 80IB make it clear that there are two conditions are provided in negative term i.e. (i) Industrial undertaking is not formed by splitting up reconstruction of business already in existence, (ii) is not formed by transfer of new business of machinery or plant previously used for any purpose. The Assessing Officer has not disputed about the manufacturing or produce product of any article or things not being any article or things specified in XI Schedule or operate one or more Cold-Storage or plant in any part of India. Further, there is no dispute that industrial undertaking manufactures or produce articles or things undertaking employed 10 or more workers in a manufacturing process carried out with the aid of power, or employed 20 or more workers in manufacturing process carried on without the aid of power. The AO has not disputed anyone of two negative terms. Even otherwise, the assessee has placed on record the sufficient evidence to substantiate the requirement of fulfilment of condition laid down under section 80IB consisting of evidence related with the challan of Provident Fund of more than 21 employees with the undertaking during the relevant period. Moreover, there is no dispute that the industrial undertaking is situated in industrial backward state.
14. In our view, there is no bar or prohibition in section 80IB on sale (slump- sale) of eligible undertaking to another assessee and the benefit attached with eligible undertaking cannot be denied to another assessee. There are only two negative terms prescribed under sub-section (2) of section 80IB, which we have referred above. Thus, we have no hesitation in accepting the submissions of ld AR for the assessee that he benefits of section 80IB are travelled (Transferred) with the undertaking and the fact of change of ownership does not affect the deduction. Sub-section (1) & (2) of section 80IB categorically refers to the business carried out by industrial undertaking. Thus, mere change of ownership would not affect the claim of deductions. With the above factual and legal discussion, we confirmed the order of ld. CIT(A) and dismissed the appeal of Revenue.
In the result, appeal filed by Revenue is dismissed. Order pronounced in the open court on this 23rd day of February, 2018.