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Income Tax Appellate Tribunal, BENCH “C”, KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Per Shri N.V.Vasudevan, JM
ITA No.2306/Kol/2013 is an appeal by the Revenue against the order dated 14.05.2013 of CIT(A)-XII, Kolkata relating to the A.Y.2007-08.
The Assessee is a company engaged in the business of manufacturing of plywood, veneer & laminated sheets, trading of block board, plywood, particle board, adhesive chemicals etc. For A.Y.2007-08 the assessee filed return on 30.10.2007 declaring total income of Rs.15,91,77,514/-. An order of assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed by the AO on 30.12.2009 computing the total income of the assessee at Rs.16,17,06,690/-.
2 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 3. The AO issued a notice u/s 148 of the Act dated 27.03.2012 for passing an order of re-assessment u/s 147 of the Act to the assessee. The reasons recorded by the AO for initiating proceedings u/s 147 of the Act were as follows :- “In this case the assessee company had filed its return on 30.10.2007 showing total Income of Rs.159177514/-. Assessment u/s. 143(3) was completed on 30.12.2010 and the total income was assessed at Rs. 161706690/-. Subsequently, from perusal of assessment record it is noticed that - i) The assessee had a balance with Central Excise Deptt. of RS.361.73 lacs under loans and advances (Schedule 'J') under the broad head: Current Assets, Loans and Advances in the Balance Sheet as at 31.03.2007. Scrutiny of the assessment record, however revealed that the assessee should have a balance of Rs.286.41Iacs. As such, the difference of Rs. 75.32 lacs (Rs.361. 73 lacs - RS.2B6.41 lacs] was thus required to be added back as income of the assessee. ii) The assessee claimed deduction u/s. 80IC of Rs. 7,41,46,812/- and the same was allowed on the basis of computation furnished by the assessee. The deduction u/s. 80IC is admissible only if- a) the accounts of the undertaking have been audited by the Chartered Accountant, and the audit report duly signed and verified by such accountant is furnished along with the return of income in Form 10CCB and, b) a separate report has to be furnished by each undertaking or enterprise of the assessee claiming deduction u/s. 80IC and shall be accompanied by the P&L account and balance sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. Scrutiny of assessment record revealed that neither the audit report had been furnished in Form 10CCB nor the accounts was accompanied by separate P & L account and Balance Sheet of the undertaking or enterprise Further, deduction u/s. 80IC was not mentioned in the Tax Audit Report. Hence, disallowance of deduction u/s. 80IC of Rs.7,41,46,812/- was required to be done and the income was required to be enhanced to that extent. iii) It was observed that total expenditure pertaining to income, which does not form part of the total income, as per Rule 8D read with Sec.14A comes to be RS.100.63Iakh. Whereas an amount of RS.11.62 lakh only has been disallowed on this account. As such, the difference of Rs.89.01 lacs {Rs.100.63 lacs- Rs.11.62Iacs] was thus required to be added back as income of the assessee The above situation has resulted in underassessment of income by an amount of Rs. 9, 05,79,8121- [Rs.75,32,000 + Rs.7,41,46,812 + Rs.89,01,000/.] The undersigned, there- fore, has reason to believe that income of the assessee, to that extent, has escaped assessment. "
The AO passed an order of assessment u/s 143(3) of the Act r.w. s. 147 dated 05.03.2013 wherein the AO determined the total income of the assessee as follows :-
“Total Assessed Income as per Order u/s 143(3) dated 30.12.2009 Rs.16,17,06,690/-
3 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 Add : Disallowances/Additions as discussed above. 1. Balance with Central Excise Rs.75,32,196/- As discussed above 2.Disallowance of claim of Deduction u/s 80IC Rs.7,41,46,812/- 2. Disallowance u/s 14A Rs. 88,41,000/- Rs.9,05,20,008/- Total Income as Assessed Rs.25,22,26,698/- Rounded off u/s288A Rs.25,22,26,700/-
The assessee preferred an appeal before CIT(A)challenging the addition made in the order passed u/s 147 of the Act. The assessee also challenged the validity of initiation of re-assessment proceedings u/s 147 of the Act. The following were the objections of the assessee in this regard :- (i) With regard to the first reason recorded by the AO for initiating reassessment proceedings u/s.147 of the Act, viz., alleged difference of Rs.75.32 lacs on account of Central Excise Duty Receivable, the Assessee submitted that in the Balance Sheet under the head "Current, Assets', loans & Advances" the balance with Central Excise Authorities was reflected at Rs.361.73 lacs. In the Tax Audit Report the MODVAT balance was shown at Rs.286.41 lacs. The Assesee explained that the difference of Rs.75.32 lacs between the two figures was a fact already available on record when the original assessment proceedings u/s.143(3) of the Act were concluded and the AO merely re-examined the same documents without any material from external source coming into possession of the AO after the conclusion of the original assessment proceedings u/s.143(3) of the Act. The Assessee drew attention of the CIT(A) to the categorical observations recorded by the AO while framing the original assessment u/s.143(3) of the Act: his predecessor in the original assessment order: "After examining the balance sheet, profit & loss accounts along with schedules, tax audit report and other details and documents submitted during the. course. of hearing,. following points of discussions were· revealed. " The Assessee submitted that the reason to believe that there was escapement of income was entertained by the AO purely based on a change of without brining any tangible material on record. The Assessee further submitted that the "MODVAT Balance" as reflected in the Tax Audit Report represented the input credit available in respect of excise duty paid on input raw materials & capital goods whereas the "Balance with Central Excise" as appearing in the Balance Sheet represented both the MODVAT Credit Balance as well as Excise Duty on output & finished goods paid by the assessee through Personal Ledger Account (PLA). These were thus two different credits (the Excise Duty paid as appearing in the Balance sheet being inclusive of MODVAT Credit balance and the Excise duty paid in advance which is different from MODVAT credit on input, for which the Assessee could take credit in future) and this aspect was completely lost sight of by the AO. The Assessee therefore submitted that this reason recorded was prima
ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 facie fallacious, incorrect and emanated from reappraisal of documents which were already before the AO's predecessor to which he had applied his mind. Hence the reopening of assessment on this account was illegal and bad in law. (ii) With regard to the second reason recorded by the AO with regard to deduction allowed under Section 80IC of the Act, the Assessee submitted before CIT(A) that the allegation of the AO was that the Assessee failed to submit Form 10CCB (which is a form necessary to be filed for claiming deduction u/s.80IC of the Act) along with the return of income (in the original assessment proceedings) but was filed in the course of assessment proceedings u/s.143(3) of the Act. Even in the report so filed, the deduction claimed under Section 80lC was not mentioned by the tax auditor in his tax audit report. According to the AO therefore he had reason to believe that income chargeable to tax had escaped assessment as deduction u/s.80IC of the Act was wrongly allowed by the AO. The Assessee submitted that the AO while concluding the original assessment proceedings these facts were known to the AO and he cannot by looking into the very same records review his decision on the pretext of reopening assessment. The Assessee further pointed out that the tax Auditor, M/s Ashok Kedia & Co., had in Form 10CCB wrongly mentioned that no deduction is claimed under Sec.80IC of the Act. In an errata subsequently given by the same Auditor filed before the AO in the course of original assessment proceedings, the said auditor had categorically stated that he had inadvertently missed out mentioning the deduction permissible to the assessee under Section 80IC amounting to Rs.7,41 ,46,812/-. They issued a corrigendum and requested the AO to read the Point No. 26 of the Tax Audit Report to be read as rectified. The tax auditor also referred and enclosed the report in Form 10CCB in respect of the deduction claimed under Section 80-IC of the Income-tax Act, 1961. It is pertinent 'to mention that such errata were furnished and Form 10CCB was submitted in the course of' original assessment at the instance of the Assessing Officer. The AO after taking into account the audit report filed and in light of decisions of various Courts wherein it had been held that the deduction u/s 80-IC was permissible even when Form 10CCB along with the accounts was furnished in, the course of assessment proceedings; allowed the deduction of Rs.7,41,46,S12/- claimed under Section 80-IC of the Income-tax Act, 1961. The Assessee submitted that the facts would clearly show that the deduction claimed u/s 80- IC was considered and examined by AO's predecessor and therefore reopening of assessment on this account amounted to "change of opinion:' and review of the stand already taken by his predecessor. It was argued that the AO failed to bring any new corroborative material on record to show that the deduction was wrongly claimed by the assessee. (iii) With regard to the third and last reason recorded by the AO for initiating proceedings u/s.147 of the Act, in which the AO has alleged that disllowance under Section 14A of the Act in respect of expenses incurred in relation to earning of dividend income ought to have been done by the AO by applying Rule 8D of the Income Tax Rules, 1962 (Rules), it was submitted that the A.O’s predecessor had considered this issue and after examining the facts of the case and the submissions made by the Assessee in the original assessment, computed disallowance of Rs.11.62 lacs under Section 14A of the Income-tax Act, 1961. It was submitted that a specific query was raised in the original assessment in respect of .disallowance under Section 14A in response to which the appellant filed detailed explanation. The AO's predecessor in Point No. 4 of his assessment order passed u/s 143(3) discussed this issue in great detail and computed the disallowance of Rs.11 .62 lacs. It was therefore submitted that
5 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 reopening of assessment on this issue was impermissible and in gross violation of the pre-conditions set out in Section 147. Such reopening amounted to reviewing the original assessment order and sitting upon the judgment of his predecessor, This is clearly not the mandate of Section 147 which requires recording of "reasons to believe" that income had escaped assessment. What the AO did in the reasons recorded for reopening the assessment u/s 147 was reviewing the order passed by his predecessor and forming an entirely new opinion disregarding his categorical findings and observations in the original assessment. Such, action was illegal and without jurisdiction. It was further submitted that the AO opined that, the disallowance under Section 14A of the Act ought to have been made in accordance with Rule 8D of the rules. It was argued that in light of the decision of the Bombay High Court in the case of Godrej & Boyce Mfg Co.Ltd Vs DCIT (328 ITR 81) it is now well settled that Rule 80 is applicable only from AY 2008-09 and onwards. It was thus submitted that Rule 8D could not be applied to the year under consideration i.e. AY 2007-08. ,Therefore, the predecessor AO had rightly computed and disallowed Rs.11.62 lacs in the original order passed u/s '143(3) and no further disallowance was warranted in accordance with Rule 80. The re- assessment proceedings initiated under Section 147 being a clear case of change of opinion which was not permissible in law and therefore the order passed u/s 147 deserves to be quashed end declared ab initio void.
The Assessee placed reliance on the decision of the Supreme Court in the case of CIT Vs Kelvinator of India limited 320 ITR 561 (SC) wherein it was held that it was not permissible for the AO to initiate reassessment proceedings merely on a change of opinion without there being any tangible material which has come to his possession after completion of the original assessment proceedings based on which he comes to a conclusion that income chargeable to tax has escaped assessment. The Assessee submitted that the aforesaid decision was applicable to the facts of the Assessee’s case. The AO had reopened the assessment for the year under consideration on "change of opinion" and without bringing any tangible material on record to show that income had escaped assessment. In fact the reasons recorded were based on incorrect legal inference and the factual data mentioned therein were contrary to the facts which were already available on record. The Assessee thus submitted that the re-assessment proceedings initiated by the AO was not justifiable and the order passed u/s 143(3) 47 was bad in law and without jurisdiction and therefore needs to be quashed.
The CIT(A) however, upheld the initiation of re-assessment proceedings for the following reasons :-
6 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 “I have considered the finding of the A.O. in his assessment order dt. 05-03-2013 and the written submission .filed by the A.R. during the appellate proceeding. Appeal on Ground Nos.1, 2 and' 3 are against the reopening of the assessment. The A.R. in his written submission filed during the appellate proceeding contended that reopening of assessment u/s 147 of the I.T. Act, 1961 was not legal. I have considered the A.R’s written submission and the finding of the A.O in the assessment order. It is clear that the case has been reopened within four years and the A.O has also brought. on record the reasons for reopening of the assessment. I find that the A.O. has made a clear cut case for reopening of the assessment as it meets both the requirements of time limit and of valid reasons for reopening of the assessment. Therefore, assessee’s appeal on grounds nos.1, 2 and 3 are dismissed.”
However, with regard to the other additions made by the AO the CIT(A) deleted the addition of Rs.75,32,196/- on account of difference in the balance with Customs Excise and the figure of MODVAT credit available as reflected in the Tax Audit Report, the disallowance of addition u/s 80-IC of the Act of Rs.7,41,46,812/-. The CIT(A) also deleted the disallowance made by AO u/s 14A of the Act. Aggrieved by the reliefs made by CIT(A) the revenue has preferred the appeal before the Tribunal. Aggrieved by the order of CIT(A) in upholding the validity of initiation of re- assessment proceedings u/s 147 of the Act the assessee has filed the Cross Objection. The assessee has filed Cross Objection vide cover letter dated 17.09.2013 that was registered as C.O.No.135/Kol/2013. This was presented by the assessee on 19.09.2013. Again on 24.09.2013 vide cover letter dated 19.09.2013 the assessee has presented another Cross Objection which is identical to the Cross Objection filed earlier. This Cross Objection has been numbered as 136/Kol/2013. Since both the Cross Objections raise identical grounds of appeal and are directed against the very same order of CIT(A), we are of the view that C.O.No.136/Kol/2013 has to be dismissed as infructuous and superfluous. We now proceed to adjudicate the grounds raised in C.O.No.135/Kol/2013 which relates to the validity of initiation of re- assessment proceedings u/s 147 of the Act.
We have heard the submissions of the ld. Counsel for the assessee and the ld. DR on the grounds raised by the assessee in the cross objection. The ld. Counsel for the assessee reiterated the submissions as were made by the assessee before CIT(A). The ld. DR relied on the order of CIT(A).
7 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09
We have given a very careful consideration to the rival contentions. As far as the first reason assigned by the AO for initiation of proceedings u/s 148 of the Act is concerned it is clear that the AO has examined very same material which was available with him while completing the original assessment. The Tax Audit Report in which Modvat of Rs.286.41 Lakhs and schedule-J of the balance sheet regarding current assets and loans and advances which showed balance with Central Excise authorities is Rs,361.73 lakhs, were available before the AO while completing the original assessment proceedings. We are also of the view that a different in the figure of balance with Central Excise authorities as reflected in the balance and the Modavat credit balance available in the Tax Audit Report could not give rise to a belief of escapement of income. It was incumbent on the part of the AO to highlight in the reasons recorded as to how the aforesaid discrepancies could give rise to belief that there was income chargeable to tax which has escaped assessment. As far as the second reason given by the AO is concerned the facts are very clear that the auditors report in Form No.10CCB was filed by the assessee in the course of assessment proceedings u/s 143(3) of the Act. The law is well settled that the requirement of filing of such audit report along with the return of income is only directory and not mandatory. Secondly it is seen that in the audit report initially the auditors had by mistake mentioned that no deduction is claimed u/s 80IC of the Act. But however they issued a corrigendum mentioning the correct figure of deduction u/s 80IC of the Act. These facts remain undisputed. In the light of the undisputed facts, it cannot be said that there was any escapement of income. The third and the last reason recorded by the AO with regard to the disallowance u/s 14A r.w. Rule 8D is also without any basis. Firstly the provision of Rule 8D were not applicable for A.Y.2007-08. Secondly the AO in the order of assessmdnt u/s 143(3) of the Act had categorically made the disallowance u/s 14A r.w. Rule 8D of the rules. The relevant observations of the AO are found in para-4 of the order passed u/s 143(3) of the Act.
Thus it is seen that none of the reasons recorded by the AO could give rise to a belief regarding escapement of income. As we have already seen that the AO on the
8 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 same set of facts available with him while completing the original assessment u/s 143(3) of the Act has sought to reopen the assessment purely on change of opinion. The Hon’ble Calcutta High Court in the case of Amrit Feeds Limited Vs Asstt CIT (239 CTR 82) has observed that if in the original assessment the AO has raised specific queries in the requisition issued u/s 142( 1) in respect of the deduction claimed u/s 80IB of the I.T. Act and if in response to the same the assessee had furnishes details and explanations which were considered by the AO and the deduction claimed in the return of income was duly accepted, the AO cannot reopen assessment for the reason that deduction u/s 80IB was wrongly allowed and doing so would amount to reopening assessment on a change of opinion. As submitted by the assessee before CIT(A) such a course is not available to the AO in view of the decision of the Supreme Court in the case of CIT vs Kelvinator of India Ltd. (supra). Besides the above, the decision of the Gujarat High Court Devesh Metcash Ltd. vs. JCIT 338 ITR 130(Guj) has taken a view that the belief entertained should be a honest belief that there was escapement of income. In the facts and circumstances of the present case we are of the view that the belief entertained by the AO cannot be said to be a honest belief. For the reasons given above we are of the view that the initiation of reassessment proceedings in the present case was not legal and therefore the order of re-assessment is liable to be annulled and is hereby annulled. In view of the decision of the Cross Objection we are of the view that no adjudication of the grounds raised by the revenue in its appeal is called for.
In the result ITA No.2306/Kol/2013 is dismissed while C.O.No.135/Kol/2013 is allowed and C.O.No.136/Kol/2013 is dismissed as superfluous.
ITA NO.2307/Kol/2013 A.Y.2008-09 (Revenue’s Appeal):
As far as this appeal of the revenue is concerned the issue raised by the revenue is only with regard to the action of CIT(A) in allowing deduction u/s 80IC of the Act. As far as the deduction u/s 80IC claimed by the assessee in A.Y.2008-09 is concerned the facts are that the Assessee in AY 2008-09 claimed deduction of Rs.13,39,01,852/- u/s.80IB of the Act, in respect of profits derived from undertaking manufacturing ferro
9 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 alloys which unit/undertaking was situated in the state of Meghalaya. In the original assessment proceedings concluded u/s.143(3) of the Act, the deduction claimed was allowed by the AO. The aforesaid order of the AO was subject matter of revision proceedings by the Commissioner of Income Tax u/s.263 of the Act. According to the ClT, deduction u/s.80-IC of the Act is available to the Assessee only if the Assessee undertakes substantial expansion and since the Assessee did not undertake substantial expansion, the CIT was of the view that the AO ought not to have allowed deduction u/s.80-IC of the Act. The CIT however directed the AO to re-examine the deduction claimed under Section 80lC of the Income-tax Act, 1961. In the impugned order framed u/s 143/263, the AO disallowed the deduction claimed u/s 80lC on the alleged ground that since the Assessee did not undertake substantial expansion in the relevant AY 2008-09; the pre-requisites of Section 80IC (2) was not fulfilled and accordingly the deduction claimed u/s 80lC of the Income tax Act, I961 was disallowed.
In order to understand the issue involved it would be pertinent to lay down some factual background on the claim of the Assessee for deduction u/s.80-IC of the Act. M/s Shyam Century Ferreous Ltd had established a new undertaking in the state of Meghalaya in the AY 2002-03 for manufacture of ferro alloys. In terms of Section 80IB(4) of the Income-tax Act, 1961, the profits derived from such new undertaking Qualified for 100% deduction for a period of 10 years. For AY 2003-04, M/s Shyam Century Ferreous Ltd. was allowed the deduction claimed u/s 80lB in its return of income. However in AY 2004-05 there was a schematic change in Act, when Section 80lC was introduced by the Legislature granting deduction to industrial undertakings situated in the North Eastern States. The deduction which was hitherto permissible u/s 80IB(4) could be claimed under Section 80IC of the Act. The Finance Act, 2003 introduced a new proviso in sub-section (4) of Section 80lB discontinuing the deduction permissible u/s 80IB(4) to industrial undertakings covered within the purview 80lC starting from AY 2004-05 & onwards. The alternate deduction u/s 80IC was however granted in respect of the profits derived from these industrial undertakings situated in North Eastern States for the unexpired period of deduction, which was hitherto permissible u/s.80IB(4). Sub-Section (6) clarified this position by
10 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 providing that the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80-IB or under section 10C, as the case may be, should not exceed ten assessment years. Meaning thereby that the undertakings which were earlier claiming deduction u/s 80IB(4) but were now covered under Section 80IC(2) could claim deduction in respect of profits derived from their industrial undertaking only in respect of the remaining unexpired period. The relevant extracts of the Memorandum explaining provisions of the Finance Bill 2003, by which Sec.80IC of the Act was introduced are reproduced below:
“The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern states, in order to give boost to the economy in these states. With a view to give effect to these new packages announced by the Union Cabinet in respect of these states, it is proposed To insert a new section 80-IC to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial Expansion in the states of Himachal Pradesh, Uttaranchal, Sikkim and North- Eastern states. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken.
It is proposed to provide that no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section or under the section 80-IB or under section 10C as the case may be, exceeds ten assessment years. It is also proposed to provide that in computing the total income of the assessee, no deduction shall be allowed under any other section contained in Chapter VIA or in section 10A or 10B, in relation to the profits and gains of the undertaking or enterprise.
It is also proposed to insert the Thirteenth Schedule and Fourteenth Schedule in the Income tax Act. The said Schedules specify the list of articles and things and the States for the purposes of availing deduction under this section. Consequent to these amendments, it is proposed to made the provisions of section I0C and sub-section (4) of section 80-IB in operative in respect of the undertakings or enterprises eligible for deduction under section 80IC with effect from the 1st day of April, 2004.
11 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in Relation to the assessment year 2004-2005 and subsequent years." (emphasis supplied)
On perusal of the aforesaid, it will be noted that the industrial undertakings which were situated in North Eastern States and which were claiming deduction u/s 80IB(4) till AY 2003-04 statutorily migrated to Section 80lC w.e.f AY 2004-05.
M/s Shyam Century Ferreous Ltd., was allowed the deduction u/s 80IC in the assessment u/s 143(3) for the A Ys 2004-05 & 2005-06. Effective from AY 2006-07 the said Shyam Century Ferreous Ltd stood amalgamated with the Assessee. In the assessment completed u/s 143(3) for A Ys 2006-07 & 2007-08, the deduction u/s 80IC was allowed to the Assessee. In the original assessment u/s 143(3) for AY 2008-09, the Assessee was allowed the deduction under Section 80IC of the Income-tax Act, 1961. The CIT however in its order u/s 263 restored back the issue of deduction permissible u/s 80IC to the file of the AO because in his opinion the deduction was not permissible since the industrial undertaking in question though commenced operations in the previous year relevant to AY 2003-04, did not undertake substantial expansion in the previous year relevant to AY 2008-09. In the impugned passed u/sI43(3)/263 the AO withdrew the deduction on the ground that apart from the fact that assessee's undertaking was new and began manufacture after 01.04.2002 it was also required to make further investment and undertake substantial expansion in the year under consideration.
According to the Assessee, the interpretation of the provisions of Section 80lC was done by the AO was wholly erroneous and the same is not in conformity with the language expressly employed by the Legislature. The provisions of Section 80lC (2) (b) read as follows: “(2) This Section applies to any undertaking or enterprise: (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in
12 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1 st day of April, 76[2007], in the State of Sikkim; or (ii) On the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or {iii} on the 24th day of December, 1997 and ending before the 1 st day of April, 2007, in any of the North-eastern States (emphasis supplied)”
According to the Assessee as per the provisions of Section 80IC(2) (b) deduction is available to the following industrial undertakings: a) New Industrial Undertaking - which has begun manufacturing or produce any article as specified in the Fourteenth Schedule, . OR b) Existing Industrial Undertaking' - which manufactures or produces the article as specified in the Fourteenth Schedule and has undertaken substantial expansion, on or after 24.12.1997 out before 01.04.2007. The new undertaking should begin the manufacture of the article specified in Fourteenth Schedule or the existing undertaking already engaged in manufacture of article specified in Fourteenth Schedule undertakes substantial expansion during the period of 24th'December, 1997 to April 2007 in any of the specified North Eastern States.
According to the Assessee, its case squarely falls within the first part of the provisions of Section 80IC(2) of the Income-tax Act. 1961, because: The undertaking was newly set up in AY 2002-03, i.e. after 24.12.1997, was engaged in the business of manufacture of ferro alloy, i.e. article specified in Fourteenth Schedule. and Industrial undertaking is located in Meghalaya i.e. in the North Eastern State. According to the Assessee, the AO misinterpreted the provisions of section 80IC(2) and alleged that an assessee is both required to set-up new industrial undertaking and undertake substantial expansion during the period 24th December 1997 to 1st Apri1 2007. The expression however used in Section 80IC(b) is "or" not "and" as alleged by the AO. Clause (b) is divided into two parts being (i) setting-up
13 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 new industrial undertaking or (ii) undertaking substantial expansion of existing undertaking. The AO wrongly read further conditions into Section 80IC(2) which was not there nor specified by the Legislature.
The Assessee thus claimed that the new industrial undertaking was set-up in the State of Meghalaya in AY 2002-03. The initial assessment year was thus AY 2003-04 and the Assessee was eligible to claim deduction in respect of profits derived from the undertaking for a period of 10 assessment years upto AY 2012-13. Accordingly the Assessee was legally entitled to claim deduction in respect ofi profits derived by its Ferro Alloy Unit in the relevant .A.Y. 2008-09. It was also pointed out that in the assessment order passed u/s 143(3) for AY 2009-10 dated 26.12.2011 i.e. immediately succeeding year, the Assessing officer after considering the provisions of Section 80IC(2), 80IB(4) & 80IC(6) of the Income-tax Act, 1961 allowed the deduction claimed under section 80IC of the Income-tax Act 1961. In light of the amendments brought by the Finance Act, 2003 the AO held that the undertakings which were earlier covered u/s 80IB(4) had migrated to Section 80IC and the deduction in respect of the profit derived by the industrial undertaking was permissible in law. The AO further held that deduction u/s 80IC is available to new industrial undertakings which were set up and began production in the specified period of 24th December 1997 to 1st April 2007 and separately to the already existing industrial undertakings but who had undertaken substantial expansion In the aforesaid specified period.
The CIT(A) found force in the aforesaid submissions made on behalf of the Assessee and he held that the Assessee was entitled to claim deduction u/s.80-IC of the Act. The following were the relevant observations of the CIT(A):
“I have considered the finding of the A.O. in his assessment order dt. 11-03- 2013 and the written submission filed by the A.R. during the appellate proceeding. Appeal on Ground Nos. 1 and 2 are against the withdrawal of deduction u/s. 80ICoOf the I.T. Act, 1961. The A.O. in the assessment order has given his finding that after the merger of provision of Sec. 80lB with that of Sec. 80IC, the requirements of the new section has to be complied with. This requirement is that in order to get deduction u/s. 80IC of the I.T. Act, 1961, the
14 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 assessee is required to make further investment by undertaking substantial expansion during the period from 24-12-1997 and ending before 01-04-2007. The A.O. has further given his finding that in this case since the assessee has not made substantial expansion. During the assessment year under consideration, therefore, the deduction u/s. 80IC of the I.T. Act, 1961 is not to be allowed in this case. During the appellate proceeding the A.R. has submitted a written submission along with a copy of memorandum explaining provisions of Finance Bill 2003 in which a new section 80le was inserted. As per the memorandum explaining provisions of Finance Bill 2003 Clause-9, 34, 35 and 92 explain this provisions. New provisions allowing a ten years tax holiday in respect of certain undertakings in the State of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States. “The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category states of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these states with a view to give effect to these new packages announced by the Union Cabinet in respect of these states, it is proposed to insert a new section 80IC to allow a deduction for ten years from the profits of new undertakings OR enterprises OR existing undertakings OR enterprises on their substantial expansion, in States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States." Section 80IC(2b) also reads as under: This section applies to any undertaking or enterprise” which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thin, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning - i) on the 23rd day of December, 2002 and ending before the 1st day of April, [2007] in the State of Sikkim; or ii) on the 7th day of January, 2003 and ending before the 1st day April, [2007] in the Slate of Himachal Pradesh or the State of Uttaranchal; or iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States." The A.R. has further submitted that deduction was allowed u/s. 801B/801C in A.Y. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and originally in A.Y. 2008-09 also ( which has been withdrawn in the order under this appeal). The A.R. has also 'brought on record that the assessment for A.Y. 2009-10 has been completed after the direction of CIT u/s. 263 and in A.Y. 2009-10 also
15 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 deduction u/s. 80lC has been allowed to the assessee. I have considered the finding of the A.O. and the written submission filed by the A.R. during the appellate proceeding. From the plain reading of Sec. 80IC and the memorandum explaining the provisions of Finance Bill, 2003 in my opinion it is very clear that the existing undertakings which were entitled for deduction u/s. 80IB can claim deduction now under 80lC of the I.T. Act, 1961 subject to ten years limitation. Section 80lC has brought a new category of undertakings which are already existing from 1997 period but now they can also claim deduction u/s 80IC of the I.T.Act, 1961, if they bring in substantial expansion. In the case under appeal from the facts put before me it is very clear that the assessee is entitled for deduction u/s 80lC for ten assessment years including deduction allowed u/s 80lB of the I.T. Act, 1961. Therefore, in my opinion A.O's .interpretations that assessee which started its operation before the introduction of Sec.80IC, is not entitled to claim deduction u/s. 80lC of the I.T. Act, 1961 without making substantial expansion is not justified. The A.O. should also have considered the principle of consistency in fact the department has been allowing assessee's claim of deduction u/s. 80IB/80IC of the I.T. Act, 1961 right from A.Y,. 2003-04. Nothing new or specific is there on record to reject the claim of the assessee on the same facts in one particular assessment year. Accordingly, assessee's appeal on grounds no. 1 and 2 are allowed.”
Aggrieved by the order of CIT(A) the revenue has preferred the present appeal before the Tribunal.
We have heard the rival submissions. The ld. DR relied on the order of AO. The ld. Counsel for the assessee relied on the order of CIT(A) and the submissions made before the CIT(A).
We have given a very careful consideration to the rival submissions. It is an admitted fact that M/s.Shyam Century Ferreous Ltd established a new undertaking in the state of Meghalaya in A.Y.2002-03 for manufacturing of ferro alloys. In respect of profits derived from the said undertaking that the assessee was entitled to claim deduction u/s 80IB(4) of the Act. The deduction u/s 80IB of the Act was available for a period of ten years. M/s. Shyam Century Ferreous Ltd established a new undertaking in A.Y.2002-03 and was entitled to claim deduction for a period of 10 years. For A.Y.2003-04 the said assessee claimed deduction and was allowed deduction u/s 80IB of the Act. In A.Y.2004-05 there was a change in the Act whereby deduction u/s 80IC
16 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09 of the Act was available for an undertaking situated in the North Eastern states. Since the undertaking of M/s.Shyam Century Ferreous Ltd was in Meghalaya, the undertaking can claim deduction u/s 80IC of the Act which was hitherto claimed by the said assessee u/s 80IB (4) of the Act. The only requirement for claiming deduction u/s 80IC of the Act was that the total period of deduction including the period of deduction u/s 80IB of the Act should not exceed 10 years. This condition was admittedly satisfied in the case of M/s.Shyam Century Ferreous Ltd. M/s.Shyam Century Ferreous Ltd amalgamated with the assessee and the assessee claimed deduction u/s 80IC of the Act for A.Y.2008-09.The AO took a view that the assessee can claim deduction u/s 80IC of the Act only if it makes a substantial expansion. This was not the correct position in law as has been held by CIT(A). In our opinion the CIT(A) has rightly come to the conclusion that in respect of unit which claimed deduction earlier u/s 80IB of the Act such unit will continue to get the benefit of deduction of 80IC of the Act subject to the limitation of ten year period. The deduction for an undertaking making substantial expansion of the existing undertaking is not applicable in the case of the assessee. We are of the view that the conclusions drawn by CIT(A) on this issue are fully justified and does not call for any interference. Accordingly this appeal of the revenue is dismissed.
In the result ITA No.2307/Kol/2013 is dismissed. 25. In the result ITA Nos. 2306 & 2307/Kol/2013 are dismissed and C.O.No.135/Kol/2013 is allowed and C.O.No.136/Kol/2013 is dismissed as superfluous.
Order pronounced in the court on 13/07/2016.
Sd/- Sd/- [Waseem Ahmed] [N.V.Vasudevan] Accountant Member Judicial Member
Date: 13/07/2016.
R.G.(.P.S.)
17 ITA Nos.2306&2307/Kol/2013 & CO.Nos.135/Kol/2013 M/s.Century Plyboards (India)Ltd. A.Yrs.2007-08 & 2008-09
Copy of the order forwarded to:
M/s.Century Plyboards (India) Ltd., 6, Lyons Range, Kolkata-700001.
2 The D.C.I.T., Circle-11, Kolkata. 3. The CIT-IV, Kolkata. 4. The CIT(A)-XII, Kolkata. 5. DR, Kolkata Benches, Kolkata True Copy, By order,
Deputy /Asst. Registrar, ITAT, Kolkata Benches