ACIT 8(1), MUMBAI vs. CELETRONIX INDIA P. LTD, MUMBAI

आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “सी” म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI श्री अमभत शुक्रा, न्मायमक सदस्म एवं श्री याजेश कुभाय, रेखा सदस्म के सभक्ष । BEFORE SHRI AMIT SHUKLA, JM AND SHRI RAJESH KUMAR, AM आमकय अऩीर सं./I.T.A. No.5433/Mum/2009 (ननधधारण वषा / Assessment Year : 2003-04) बनधम/ Celetronix India Pvt Ltd, Asstt. Commissioner of Income C/o Jabil Circuit (I) Pvt.Ltd., Tax -8(1), Vs. Arena House, 3rd floor, Plot No.103, Room No.210, 2nd floor, Road No.12, Opp Tunga Paradise, Aayaker Bhavan, Marol, MIDC, Andheri (E), M K Road, Mumbai-400093 Mumbai-400020 स्थधयी ऱेखध सं./ PAN : AAACT7548K (अऩीराथी /Appellant) (प्रत्मथी / Respondent) .. Cross-objection No.81/Mum/2010 Arising out of I.T.A. No.5433/Mum/2009 (ननधधारण वषा / Assessment Year : 2003-04) Celetronix India Pvt Ltd, बनधम/ Asstt.Commissioner of Income Tax 8(1), Vs. Mumbai-400020 (अऩीराथी /Appellant) (प्रत्मथी / Respondent) ..

अऩीराथी की ओय से/Appellant by : Ms.Radha K Narang प्रत्मथी की ओय से/ Respondent by : S/Shri Sanjiv Shah, Shailesh Monani, Chandresh Bhanani सुनवाई की तायीख / Date of Hearing : 4.12016 घोषणा की तायीख /Date of Pronouncement : 4.2016 आदेश / O R D E R . PER RAJESH KUMAR, AM : The appeal by the revenue and cross-objection thereto by the assessee are directed against the order dated 22.7.2009 by the Ld. CIT(A)-XIX, Mumbai

2 CO No.81/M/2010 and relate to the assessment year 2003-04. Since issue involved in these cases is common and therefore, these appeals are heard together and are being disposed of by this consolidated order for the sake of convenience.

3 CO No.81/M/2010 new SDF units during the period of April,2001 to June,2002 thereby increasing the annual installed capacity to 25,50,000 units from 1,20,000 units. The assessee company filed its return of income for the instant year on 28.11.2003 declaring a loss of Rs.18,88,16,100 after claiming deduction u/s 10A of the Act of Rs. 4,10,50,367/- in respect of profit of CCD. The case of the assessee was selected for scrutiny and the notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee had claimed deduction u/s 10A of the Income Tax Act, 1961 of Rs.4,10,50,367/- in respect of Celetron Circuits Division and vide questionnaire dated 29.08.2005 and 24.10.2005, the assessee was asked to furnish the supporting documents in respect of the said claim. The assessee vide letter dated 14.11.2005 submitted that in the assessment year 2002-03, there was a change in the shareholding of the company by more than 51%. The assessee stated therein that it was entitled to the benefit of section 10A in view of retrospective deletion of provisions of section 10A(9) by the Finance Act, 2003. The AO rejected the claim of deduction u/s 10A for two reasons which are independent of each other. Firstly on the ground that there was a change in shareholding pattern of the company during the assessment year 2002-03 of more than 51% of the assessee company to the new investor which is in violation of provisions of section 10A(9) of the Act and secondly that it has not established any new unit but re- structured the exiting business of the assessee by rejecting the contention of the assessee that during the year the assessee undertook substantial expansion of the said unit. The AO framed the assessment u/s 143(3) of the Act at an amount of Rs.13,80,36,567/- by making various disallowances including rejection of claim u/s 10A of the Act. Aggrieved by the order of the AO, the assessee

4 CO No.81/M/2010 preferred an appeal before the ld. CIT(A) who deleted the addition made by the AO u/s 10A by observing as under:

"6.1 I have examined the submissions and the arguments put forth by the appellant 6.1.1 Deletion of sub-section 9 to section 10A of the Act is retrospective in nature. The appellant has argued that deletion of sub-section 9 to section 10A of the Act by Finance Act 2003 with effect from AY 2004-05 is to be treated as retrospective in nature and consequently the aforesaid sub-section was not on the statute for the year under consideration and therefore CCD was never disentitled to claim deduction under section 10A of the Act for AY 2003-04. I agree with the contention of the appellant that once a provision is omitted from the statute/ it should be considered as if such provision never existed This contention is also accepted by the Hon'ble Supreme Court in the decisions rendered in the cases of Kolhapur Canesugar Works Ltd. And Another, Appellants V. Union Of India And Others (2 SCC 536) and General Finance Co and Another V/s ACIT(257 ITR 338) I have also considered the decision of Hon'ble Bangalore Tribunal in the case of GE Thermometrics India P Ltd (ITA 257 and 258jBangj08) cited by the appellant in support of its above argument. I find that the case of the appellant is covered by the aforesaid Bangalore Tribunal decision since the provision of sub- section 9 to section 10B and sub-section 9 to section 10A are identical. In view of the above discussions, it is held that deletion of sub- section 9 to section l10A of the Act by Finance Act 2003 with effect from AY 2004-05 is to be treated as retrospective in nature. Consequently the aforesaid sub-section cannot be said to have existed on the statute for the year under consideration and therefore disentitled to claim deduction under section 10A of the Act for A Y-2003-04" 5. Aggrieved by the decision of the ld.CIT(A), the revenue is in appeal before us. The ld. DR while relying upon the order of AO vehemently

5 CO No.81/M/2010 submitted before us that the provisions of section 10A sub-section 9 of the Act were omitted from the statute book with effect from 1.4.2004 by the Finance Act, 2003 and therefore was not applicable to the assessment year under consideration i.e. AY 2003-04 as the said deletion was not retrospective but it was prospective in nature. Even on merits the ld. DR argued that the assessee was not otherwise eligible to claim deduction u/s 10A of the Act as no new industrial unit came into existence and it was only reconstruction of the old unit. The ld. DR ultimately prayed that the order of the AO be upheld by setting aside the order of the Ld.CIT(A).

7 CO No.81/M/2010 ACIT (257 ITR 338)(SC), K P Varghese Vis ITO (131 ITR 597) (SC), Allied Motors (P) Ltd Vis CIT (224 ITR 677)(SC), CIT V/s Podar Cement Pvt.Ltd and others (226 ITR 625)(SC), CIT V/s Alom Extrusions Ltd (319 ITR 306) (SC), Textile Machiner Corporation Ltd Vis CIT (107 ITR 195 (SC), CIT V/s Indian Aluminum Co.Ltd. (108 ITR 367) (SC) and ITO V/s DCM Soft (P) Ltd (115 TTJ 469) (Chennai Tribunal). 7. We have considered the rival submissions and perused the relevant material placed before us and also various case laws referred to by both the parties. In the case of assessee the undisputed facts are that the assessee issued a 29952000 equity shares to Celetronix Mauritius Ltd resulting into a change in the shareholding pattern of the assessee by more than 51% within the meaning of explanation 1 to Section 10A(9) of the Act. Prior to that the appellant was having paid up capital of Rs.2000/- divided into 200 shares of Rs.10 each which were held by Mr. M L Tondon and his family members. The CCD having three SDF brief description and it was in free trade zone within the section 10A(2) of the Act. Now, the issue before us is whether the assessee is entitled to deduction u/ 10A of the Act despite the fact that a change of more than 50% of the shareholding had taken place in the AY -2002-03. Even on merit the assessee's AR argued that the appellant undertook substantial expansion by adding of SDF by spending Rs.1307/- lakhs on the additional plant and machinery thereby increasing the installed capacity to 25,50,000 units from 1,20,000 and also new products were introduced. So, first we will deal with the legal issue as raised by the ld. AR that the provisions of section 10A(9) as deleted by the Finance Act, 2003 is retrospective in nature effected from 2001-02 when the said provision of section 10A(9) was inserted in the Act. The sub-clause (9) to section 10A provides that in case of ownership or benefit interest in the undertaking is transferred by any means, the deduction u/s (1) shall not 8 CO No.81/M/2010 be allowed to the assessee for the AY 2001-02 relevant to such previous year and the subsequent years. The purposes and intention for which the section was brought on the statute has been clarified by CBDT in its circular No.8/2000 dated 27.8.2002 which is as under:-

"19.6 Sub-section (9) of section 10A and sub-section (9) of section 10B provide that no deduction under those sections shall be available where during any previous year the ownership or the beneficial interest in the undertaking is transferred by any means. 19.7 The above provision was introduced by the Finance Act 2000 to prevent trading in incentives by shell companies formed only for that purpose. However, the above provision was not intended to bring within its purview cases of genuine business reorganization while maintaining the major portion of ownership or beneficial interest with the same persons who were the owners of the business before such reorganization. " Thus, the above circular clearly brings out the purpose of sub-section 9 to section 10A, which was to curb the trading of incentives by shell companies, formed only for that purpose. The object was to discourage unscrupulous shopping of EOUs and STPs and not to discourage genuine business re-organizations, amalgamation, merger etc. In the present case, before us there was a change in the shareholding pattern of the assessee under which more than 51 percent of the shares were acquired by a new investor namely Celetronix Mauritius Ltd (CML) in the financial year 2001- 02 relevant to the assessment year 2002-03 and the said new investor became the majority share holder in the assessee. Such a change was brought about in order to. bring in more funds so that the expansion of the assessee's business could be financed and thus constituted a genuine business reorganization resulting from change in the pattern of shareholder solely undertaking for the purpose of business expansions of the assessee and not as brought out in the circular No.8/2000 dated 27.8.2002 and thus, was contrary to the CBDT

9 CO No.81/M/2010

circular stated above has been omitted from the statute by the Finance Act, 2003 w.e.f. l.4.2004 in order to understand the intention and purpose behind the omission and deletion of the said sub-section 9 it is necessary to refer to the budget speech of the Finance Minister and Memorandum explaining the provisions of the Act. While omitting the sub-section 9 of section 10A, the Finance Minister at the time of her speech proposed that the said provision was illogical and irrelevant The relevant speech of the Finance Minister is reproduced below: ''Information Technology (IT) 102. IT is India's showpiece success story. We have to not just maintain its momentum of growth/ but continuously encourage it. Therefore, it is proposed that the concessions extended to I.T. under section 10A and 10B of the Income- tax Act will continue as originally envisaged As per law, such companies, as are currently covered by these tax exemption lose the benefits upon change in their ownership or shareholding. This is not logical. I am, therefore, removing these restrictions; the benefit of such tax exemptions will remain even in the case of amalgamation or de-merger."

Thus, it is clear from the above that the restriction provided in sub- section 9 of section 10A were removed so that the benefit of tax exempt u/s 10A could be extended even in the case of amalgamation or demerger. Besides, it is established and settled principle now that while interpreting the statutory provisions and the objects and purposes of the legislation for which any provisions have been enacted, speech made by the Finance Minister and Memorandum explaining the said provisions for interpretations of the bill can certainly be referred to and relied upon. This principle has been reaffirmed by the Hon'ble Supreme Court in the case of K P Varghese Vis ITO and Others (1981) 131 ITR 597 (SC) and by Kerala High Court in Kerala State Industrial Development Corporation Ltd v/s CIT (2003) 259 ITR 51 (Ker), In the light of the omission of subsection 9 of section 10A in this year, the omission is held to be 10 CO No.81/M/2010 retrospective in effect to the extent of change in the ownership in the assessment year 2002-03 when such provision was made applicable with effect from AY 2004-05. Sub-section 9 of section 10A has been omitted without having any saving clause and it is not a case of repeal which is different from omission and the effect of repeal has been dealt in the section 6 of general provisions of the Act in the following manner:

''Section 6 in The General Clauses Act; 1897 6 Effect of repeal. -Where this Act or any 1 [Central Act] or Regulation made after the commencement of this Act repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not- a) revive anything not in force or existing at the time at which the repeal takes effect; or b) affect the previous operation of any enactment so repealed or anything duly done or suffered there under; or (f) affect any right privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed,' or (c) affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed,' or d) affect any investigation, legal proceeding or remedy in respect of any such right privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed.

The restrictive condition as given in section 6 (supra) do not apply to the case of omission or deletion of a provision from the statute which has been explained by the Hon'ble Supreme Court in the case of M/s Rayala

11 CO No.81/M/2010 Corporation (P) Ltd.(supra) and in the case of M R Pratap V/s Director of Enforcement, New Delhi (1969) (2) SCC 412, wherein it has been held that section 6 of General Clauses Act, 1897, applied to "Repeals" and not to the "Omission". It further reiterated by the Hon'ble Supreme Court in the case of Kolhapur Cane Sugar Works Ltd VIs Union of India (2002) 2 SCC 536. These judgements of the Constitutional Bench has been followed by the Hon'ble Supreme Court in General Finance Co.Ltd V/s ACIT (2002) 257 ITR 338 (Se). From the above proposition of law, it is clear that if a provision in a statue is unconditionally omitted without any saving clause in favour of the pending proceedings then all the pending action on the date of omission will come to an end. Thus, once the provisions of sub-section 9 of section 10A have been omitted, then it can be safely inferred that such an omission will be applicable whenever omitted section comes into play. The Bangalore Bench of the Tribunal in M/s GE Thermo Matrix India P L (ITA No.s257 & 258/Bang/2008 (AY- 2003-04-2004-05) dt.30.5.2008 after relying on the aforesaid judgment of Constitutional Bench of the Hon'ble Supreme Court, has held that sub- section 9 of the section 10B (which is a similar to section 10A), should be read as though it never had sub-section 9 in all the proceedings under the Act. The relevant para 11 of the said decision is reproduced below:

"11. Therefore, even though the Finance Act, 2003 mentions that the aforesaid sub-section (9) is omitted with effect from 1-4-2004; in view of the fact that the said omission is different from repeal, the saving clause provided in section 6; of the General Clauses, Act is not applicable. Therefore, ld.CIT(A) is not, justified in not appreciating the fact that section 10B should be read as though it never had the said sub-section (9) in it in all proceedings under the Act. As the appellate proceedings are the continuation of the assessment proceedings, as held by the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd (187 ITR 688) even for assessment year 2003-04 the aforesaid section 10B has to be read without the impugned sub-section 10B has to be read without the 12 CO No.81/M/2010 impugned sub-section (9). Therefore, we find much force in the stand taken by the assessee in view of the decision of the Supreme Court. Even on this issue, the assessee is bound to succeed. It is ordered accordingly"

In the case of Allied Motors (P) Ltd (supra), it has been held by the Hon'ble Supreme Court that rule of reasonable construction must be applied while construing the statute. The proviso which is inserted to remedy unintended consequences and to make the provisions workable, a proviso which supplied an obvious omission in the section and is require to be read into the section to give the section a reasonable interpretation, required to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. In the case of Alom Extrusions Ltd (supra), the Supreme Court has held that when the proviso in section has been inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole. In the background of the above provisions of law and in the light of the decisions of the Hon'ble Supreme Court, we are of the considered view that the omission of sub- section 9 of section 10A of the Act shall have retrospective effect despite the fact that in the language used at the time of deleting the said sub- section it is expressly provided that the same is applicable from 1.4.2004 relevant to the assessment year 2004-05 and the assessee is entitled to benefit under section 10A even when the change in share holding pattern of the assessee had taken place in the year 2002-03 of more than 51%. Thus, we decide this issue in favour of the assessee on legal issue.

7.1. So far as the merit of the case is concerned, we find that the assessee has gone into substantial expansion of the CCD unit during the 13 CO No.81/M/2010 year. The assessee had submitted application for new industrial undertaking at SEEPZ to Development Commissioner of SEEPZ and the Development Commissioner vide letter of permission dated 21.6.2000 to Celetron Circuits Division for manufacture of an item specified in Letter of Permission (LOP). The Id AR submitted that Celetron Circuits Division has following distinctive features and characteristics in order to be qualify and eligible as new industrial undertaking: "1. Operated under the separate LOP issued by the Development Commissioner, SEEPZ; 2. Operated from separate and dedicated Standard Design factory Units (SDF) 3. Manufacture of memory modules, a completely different product than the existing HAS; 4. Has separate bank account; 5. Has separate sales tax registration number 6. Had submitted separate letter of undertaking (Legal Agreement) to Development Commissioner for due performance of its obligation under Exim policy; 7. Had given is own B-17 bond to customs authorities for due performance of its obligations under Customs Act; 8. Own work force, provided by contractors engaged by it". 7.2. The fact of the substantial expansion of the unit of the assessee is also apparent from the fact that in June 2000 (CCD) had commenced operation with standard decision Unit (SDF) which were gone up to 10 by adding 7 New SDF unit from 1.4.2001 to June 2002. The product line also changed because the assessee started manufacture of set up box of audio amplifier and the memory modules for which the assessee installed additional plant and machinery worth Rs.1304.63 lakhs during the above

14 CO No.81/M/2010 period thereby increasing the installed capacity to 25,50,000/- from original 120000 units. Besides several major changes in the manufacturing process were effected. In this background we find no infirmity in the order of Id. C!T(A) that the substantial expansion in the business of the assessee account to establishment of new undertaking. The case of the assessee is further fortified by the decision of the Hon'ble Supreme Court in the case of Textile Machinery Corporation Ltd (supra), wherein it has been held that new activity has been launched by the assessee by establishing a new plant and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. Thus, in view of this fact, the assessee having gone into the substantial expansion by adding 7 more SDF units employing different manufacturing process and producing different articles is certainly a new industrial unit which qualify for deduction u/s 10A. We, therefore uphold the order of Id. C!T(A) on this issue also by dismissing the ground raised in the appeal of the revenue.

15 CO No.81/M/2010 depreciation is allowable on the commercial vehicle acquired or purchased on or after 1.4.2001 and but before 1.4.2002. 11. The ld. AR of the assessee placed before us a copy of decision rendered by co-ordinate Bench of the Mumbai Tribunal in assessee's own case in ITA No.1560/Mum/2006 (AY-2002-03) dated 24.12.2012 and submitted that the present issue of the assessee's is covered by the said decision of the Tribunal. Thus he submitted that in view of the above decision, this issue also be decided in favour of the assessee by dismissing the appeal of the revenue on this issue.

“26. At the outset it was fairly admitted that this issue was decided by the Hon'ble jurisdictional High Court in the case of CIT vs. Mr. Shah Rukh Khan in ITXA No.1206 of 2010 dated ITA Nos.1284 and 1560 of 2006 Celetronix India Pvt Ltd Mumbai 29.08.2011. Considering the extracts of Motor Vehicles Act 1988 and its definition and rates of depreciation as per entry No.(III)D of sub item No.2 of item No.(iii) assessee is entitled for 50% of the depreciation on the Motor Cars purchased during the relevant period. Accordingly the order of the CIT (A) is upheld. Revenue ground is rejected.” We, therefore, respectfully following the decision of the co-ordinate Bench of the Tribunal rendered in assessee's own case dismiss the ground of appeal taken by the revenue.

16 CO No.81/M/2010 Cross-Objection No 81/Mum/2010

17 CO No.81/M/2010 on record. We find that the assessee-company has paid a sum of Rs.21,89,340/ to Mr.Sandeep Tondon who is the son of Director of the company claimed to be paid for various services rendered by Mr. Sandeep Tondon who is a qualified engineer from an University in USA. It a also noted that Mr. Sandeep Tondon "explored" development of the new products foreign market and was paid by the assessee for the said services after deduction of TDS u/s 194J of the Act. In our considered view the AO has failed to bring on record any material which goes against the assessee as in the present case the payment is made after deduction of TDS and bills issued by the recipient were also placed on record is sufficient to prove that the expenditures incurred for the purposes of business. The AO has not further investigated the matter in order to come to a conclusion that the payment to the related parties were excessive or unreasonably paid u/s 40A(2)(b) of the Act. In view of the above, we are of the considered opinion that the assessee is entitled to be allowed the said expenses. Accordingly, we allow the cross objection of the assessee..

Order pronounced in the open court on 29th April, 2016 आदेश की घोषणा खुरे न्मामारम भें ददनांकः 29th April, 2016 को की गई । sd (AMIT SHUKLA) ( RAJESH KUMAR ) न्मायमक सदस्म / JUDICIAL MEMBER रेखा सदस्म / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 29th /04/2016 व.यन.स./ SRL , Sr. PS

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आदेश की प्रनिलऱपऩ अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A)- 3. आमकय आमुक्त / CIT 4. ववबागीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, 5. ITAT, Mumbai गार्ड पाईर / Guard file. 6. आदेशधनुसधर/ BY ORDER,उऩ/सहधयक ऩंजीकधर (Dy./Asstt.