Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
स्थधमी रेखध सं./जीआइआय सं./PAN. :AAACD1662N अऩीरधथी ओय से / Appellant by Shri S K Mishra प्रत्मथी की ओय से/Revenue by Shri S C Tiwari सुनवधई की तधयीख / Date of Hearing : 14.9.2015 घोषणध की तधयीख /Date of Pronouncement: 09.10.2015 आदेश / O R D E R Per B R Baskaran, AM: Both the appeals filed by the revenue are directed against the separate orders passed by Ld CIT(A)-19, Mumbai for assessment years 2004-05 and 2005-06. Since the issues urged in both the appeals are identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience.
In both the years, the revenue is aggrieved by the decision of Ld CIT(A) in holding that the reopening of assessment is bad in law.
2 and 7754/M/2011 3. We heard the parties and perused the record. The assessee is engaged in the business of manufacture of oil and oil cakes through Solvent Extraction Process. The assessments of both the years under consideration was completed originally u/s 143(3) of the Act by allowing deduction u/s 80IB of the Act claimed by the assessee. The assessing officer subsequently noticed that the assessee had commenced manufacturing activities on 14.6.1995 only, whereas the provisions of sec. 80IB(3)(i) mandate that the assessee should have commenced manufacturing prior to 31.3.1995. However the above said time limit commencing production was available upto 31.3.2002 for a Small Scale Undertaking u/s 80IB(3)(ii) of the Act. However, the assessing officer also noticed that the investment made by the assessee in the Plant and machinery has exceeded Rs.1.00 crores and hence the AO took the view that the assessee cannot be considered to be a small scale undertaking, thus becoming ineligible to claim deduction u/s 80IB(3)(ii) of the Act also. Accordingly, the AO entertained the belief that the income of the assessee has escaped the assessment by reason of deduction u/s 80IB wrongly allowed to the assessee. Accordingly he reopened the assessment of both the years under consideration in order to disallow the deduction allowed u/s 80IB of the Act. The assessee contended before the AO that it is classified as “Small scale undertaking” as per Industries (Development & Regulation) Act 1951 and also furnished a copy of registration certificate. Accordingly it contended that it is eligible for deduction u/s 80IB(3)(ii) of the Act. The said contention did not find favour with the assessing officer. Accordingly the AO completed the assessment of both the years by disallowing the claim for deduction u/s 80IB of the Act.
Before Ld CIT(A), the assessee challenged the validity of reopening of assessment by contending that the assessee had been allowed deduction 3 and 7754/M/2011 u/s 80IB of the Act in the earlier years and hence the AO has reopened the assessment of the two years under consideration only on change of opinion. It was further contended that the assessee continues to be classified as “Small Scale Undertaking” under the Industries (Development & Regulation) Act 1951, which is the requirement prescribed in sec. 80IB(14)(g) of the Act. The Ld CIT(A) noticed that all the details relating to the deduction claimed u/s 80IB was available before the AO in the original assessment proceedings also in both the years. The AO had not brought any fresh material on record. Accordingly he was convinced with the contentions of the assessee that the reopening was done on mere change of opinion. Accordingly the Ld CIT(A) held that the reopening was bad in law in both the years.
It is pertinent to note that the assessment for AY 2004-05 was reopened on 24.03.2009 and the assessment for AY 2005-06 was reopened on 01-10-2009, i.e., at a later date. In the reasons recorded for reopening of AY 2005-06, the AO has referred to the audit objection given by revenue audit party in respect of the eligibility of the assessee to claim deduction both u/s 80IB(3)(i) and 80IB(3)(ii) of the Act. Hence, it was contended before Ld CIT(A) that the assessing officer has reopened the assessment on the basis of audit objection only and hence on that ground also, the reopenening was bad in law. The Ld CIT(A) has accepted the said contentions of the assessee in AY 2005-06.
In assessment year 2004-05, the Ld CIT(A) also examined the eligibility of the assessee to claim deduction u/s 80IB of the Act, i.e., on merits also, and held that the assessee is eligible to claim deduction u/s 80IB of the Act. It is pertinent to note that the revenue has not
We heard the parties and perused the record. We notice that the Ld CIT(A) has discussed about the validity of reopening of assessment in a detailed manner in his order. Hence, for the sake of convenience, we extract below the relevant observations made by in AY 2004-05:-
“5. I have considered the facts of the case and the submissions made by the appellant. The A.O. has recorded his reasons for reopening and the sad reasons are as under: "On verification Form 10CCB revealed that the date of commencement of operation by the undertaking is mentioned as 14.6.1995. Since unit commenced its operation after 31.3.95, it was not entitled to claim the deduction u/s 801B(3)(i). Further, as per Sr. No. 18(b) of Form 10CCAB, the investment in the plant and machinery is more than Rs. 1 crore and therefore the company is not a Small Scale Industrial Undertaking. Hence, the company does not qualify for deduction u/s 80IB(3)(ii). Therefore, the assessee was neither entitled for deduction u/s 80IB(3)(i) nor u/s 80IB(3)(ii). The deduction allowed u/s 801B(3) was therefore irregular. The incorrect allowance of deduction u/s 80IB(3) of Rs. 72,04,694/- for A.Y. 2004-05 has resulted into escapement of income from assessment within the meaning of provisions of section 147 of the IT Act, 1961." 5.1 From the reasons as recorded it is clear that the very basis forming the foundation for initiating reassessment proceedings is the Audit Report in Form 10CCB already on record. The assessment had originally been completed under s. 143(3) i.e , after scrutiny. The appellant had been allowed deduction under s. 80IB of the Act and which was the subject matter of appeal, albeit on a different matter. However, this denotes application of mind of the A.O. on the eligibility or otherwise of the appellant for the claim of deduction under s.80IB. Thus all the primary facts were disclosed in the return of income as filed. Though it is seen that the notice has been issued before the expiry of four years from the relevant assessment year, the issue raised in this ground is whether the A.O. could be credited 5 and 7754/M/2011 with having "reason to believe" that income had escaped assessment. It has been laid down by the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (320 ITR 561 Cited above) that "reason to believe" cannot be equated with change of opinion. Admittedly, in the instant case, between the date of order of assessment sought to be reopened and the date of forming an opinion that income has escaped assessment, nothing new has happened. There has been a fresh application of mind by the A.O. on the existing same set of facts, Thus, it amounts to only a change of opinion. In the case of the Kelvinator of India Ltd it has been held that the A.O. does not have the power to review the details already on record regarding the claim of deduction under s. 80IB. All relevant information was disclosed in the Return filed, accompanied with the Audit Report. Under the circumstances, reassessment proceedings have been initiated based on a change of opinion on the same set of facts that were already available on record and considered by the A.O. Hence it is held that the ratio of the judgment of the Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd applies and hence it is held that proceedings leading to issue of notice under s. 148 have not been validly initiated”
On merits, i.e., on the issue of eligibility of the assessee to claim deduction u/s 80IB of the Act, the Ld CIT(A) held as under:-
“7. I have considered the facts of the case, the findings of the A.O. I have carefully perused the records. The appellant had claimed deduction under s.80IB as per return of income filed originally. The claim under s. 80IB was supported by Audit Report, in form No. 10CCB filed along with return of income. The claim was made in the status of a Small Scale Industrial Undertaking. Therefore, the claim of the appellant has to be examined in terms of section 80IB(3)(ii) of the Income Tax Act. It is provided that where an industrial undertaking is a Small scale Industrial Undertaking, it must begin to manufacture or produce articles or thing or to operate cold storage plant [ not being the cold storage plant specified in sub-section 4 or sub-section 5 ] at any time during the period beginning on 1.4.1995 and ending on 31.3.2002. Admittedly, the undertaking, commenced operations on 14 June 1995, as is evidenced by the Audit Report in form 10CCB. Thus, the appellant company started commercial production within the eligibility period as prescribed in sub-section (ii) of clause (3) of section 80IB. As mentioned earlier the claim of the appellant has been made considering itself as a Small Scale 6 and 7754/M/2011 Industrial Undertaking. Therefore. the claim of the appellant is to be examined in the light of the conditions precedent for deduction under sub-section (ii) of clause 3 of section 80IB stands fulfilled. The term "Small Scale Industrial Undertaking' is defined in clause (g of sub- section 14 of s. 80IB) as under: “(g) "small-scale industrial undertaking means an industrial undertaking which is, as on the last day of the previous year, regarded as a small-scale industrial undertaking under section 11B of the Industries (Development and Regulation) Act, 1951 (65 of 1951)" Section 11B Of the Industries (Development and Regulation) Act, 1951 read as under : “11B(1) The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertaking need supportive measures, exemptions or other favourable treatment under this Act to enable them to maintain their viability and strength so as to be effective in— (a) promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and (b) securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good, specify, having regard to the factors mentioned in sub-section (2), by notified order, the requirements which shall be complied with by an industrial undertaking to enable it to be regarded, for the purposes of this Act, as an ancillary, or a small scale, industrial undertaking and different requirements may be so specified for different or with respect to industrial undertakings engaged in the manufacture or production of different articles: Provided that no industrial undertaking shall be regarded as an ancillary industrial undertaking unless it is, or is proposed to be, engaged in— 7 ITA No.1363/Mum/2011 and 7754/M/2011 (i) the manufacture of parts, components, sub-assemblies, toolings or intermediates; or (ii) rendering of services, or supplying or rendering, not more than fifty per cent of its production or its total services, as the case may be, to other units for production of other articles.
(2) The factors referred to in sub-section (1) are the following, namely:— (a) The investment by the industrial undertaking in— (i) Plant and machinery, or (ii) Land, buildings, plant and machinery; (b) The nature of ownership of the industrial undertaking; (c) The smallness of the number of workers employed in the industrial undertaking; (d) The nature, cost and quality of the product of the industrial undertaking; (e) Foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and (f) Such other relevant factors as may be prescribed.”
7.2 From a reading of s.11B of the Industries (Development and Regulation) Act it is evident that an undertaking has to comply with the requirements under the said enactment so as to be regarded as an ancillary or as a small scale Industrial Undertaking. Sub-section 2 of section 11B refer to the factors with which there has to be compliance and one of the factors mentioned is the investment by the undertaking in plant and machinery. It is further seen that the compliance to the said factor or factors shall be as per notified order. Thus, the status of an undertaking that is whether Small Scale or ancillary, shall be decided by the Competent Authority under the said enactment i.e. the Industries (Development & Regulation) Act with reference to the notifications issued by the 8 and 7754/M/2011 Central Government from time to time. It is a fact that the company has been registered as Small Scale Industrial Undertaking with the District Industry Center, Dhule which is a prescribed authority under s. 11 B of the Industries (Development & Regulation) Act. 7.3 During the course of hearing of appeal the appellant has furnished copy of application furnished before the District Industry Centre dated 9.2.2007 wherein it is indicated that it is an Small Scale Industrial Undertaking (Pages 46 to 55 of the Paper Book filed). The last page of the said application is Acknowledgement signed by the General Manager. District Industry Centre, Dhule, wherein the undertaking is acknowledged as Small Scale. In the said form, it is stated that the date of commencement of production is 14.06.1995. Further, as per records it is evident that the claim for deduction u/s 801A/80IB is being made from the A.Y. 1997-98 and has been given accordingly. The records indicate the first year of the claim is 1997- 98, where a claim was made under s. 80IA and was allowed. Thus, from the facts as are available on the records of the A.O. and also based on the materials produced during the course of hearing of the appeal it is seen that the appellant company has been registered as a Small Scale Industrial Undertaking and continue to be so. The records indicate that the registration granted to an appellant company, as a Small Scale Industrial Undertaking has not been cancelled or withdrawn. Hence, it has to be held that once a registration has been granted to an undertaking as an Small Scale Industrial Undertaking, which is at the time of formation of the business of the company, it would continued to be so, notwithstanding the subsequent notifications issued. As stated earlier the claim for deduction as Small Scale Industrial Undertaking stood admitted in the year 1997-98, subsequently, in the subsequent years the claims have been allowed. The position in law is that once the claim of an unit for being considered as an Small Scale Industrial Undertaking stand admitted and the deduction allowed, in subsequent years the claim cannot be varied to the detriment of the undertaking. In this regard, reference is made to the decision of the Hon’ble ITAT Chandigarh 'A' Bench in Micro Instrument Co.Vs. ITA 2008 12 DTR 501. It has been held by the Hon'ble Tribunal that once the relief under s. 80IB has been allowed to the assessee in the initial year then it is not open to examine the veracity of the relief in the subsequent years especially when the relief allowed in the initial year has not been disturbed. As per the decision of the Hon’ble Tribunal, when in initial year the deduction has been allowed the implication is that the undertaking fulfils the 9 and 7754/M/2011 conditions as prescribed for being eligible for the said relief. In this regard, reliance is also placed on the decision of the Hon'ble 'H' Bench of the Delhi ITAT in Tata Communication Internet Services Ltd. Vs. ITA 2010 39 SOT 106 Delhi. In the said decision the said legal position has again been reiterated that subsequent to the granting of the claim, it is not possible to pick up a subsequent assessment year and to hold that there has been violation of the provisions. In the said case, the Hon’’ble Tribunal was dealing with similar claim under s. 80IA and has observed that the bar as provided in s. 80IA(3) has to be considered only for the first year of the claim of deduction. The Hon'ble Tribunal has observed that the bar as provided in sub-section 3 is in relation to the formation of the undertaking and once the formation is complete, the development of the undertaking cannot put cannot be put under the restraints as stipulated in sub- section 3. It has been held by the Hon’ble Tribunal in the said case that “the eligibility for the claim of deduction u/s 80IA by applying the restrains of section 80IA (3) cannot be considered for every year of the claim of deduction u/s 80IA but can be considered only in the year of formation of the business." Thus, the ratio of the said decisions is that the restraints as found in the Statute can only be applied with reference to the first year of the claim and not in the subsequent year. In the case of the appellant the claim had been allowed in the earlier year and therefore based on the ratio of the decision as cited above it is held that the relief allowed under s. 80IB could not be withdrawn in a subsequent year with reference to the restraints as mentioned in s. 80IB(3)which have to be applied in the initial year.”
Thus, we notice that the Ld CIT(A) has given clear finding that the assessee is eligible to claim deduction u/s 80IB as per the provisions of sec. 80IB(3)(ii) of the Act. The Ld CIT(A) has further held that the question as to whether the assessee is a “Small Scale Undertaking” or not has to be examined as per the provisions of Industries (Development and Regulation) Act, 1951. Another important point noted by the Ld CIT(A) is that the assessee had been allowed deduction u/s 80IB of the Act in the years earlier to the two years under consideration, meaning thereby the eligibility of the assessee to claim deduction u/s 80IB of the Act had already been examined in the earlier years. Hence, by placing reliance on 10 and 7754/M/2011 some of the judicial decisions, the Ld CIT(A) held that the assessing officer, after having accepted the eligibility of the assessee to claim deduction u/s 80IB of the Act in the earlier years and after having allowed the deduction in the initial year as well as in some of the subsequent years, is not correct in examining the eligibility of the assessee again in other subsequent years. Accordingly he held that the action of the AO has to be considered as taken on mere change of opinion only.
On a combined reading of the discussions made by the Ld CIT(A) on legal issue and also on merits, we are of the view that the Ld CIT(A) was justified in holding that the assessing officer has proceeded to examine the eligibility of the assessee to claim deduction u/s 80IB of the Act for the two years under consideration merely on change of opinion. Further, the various judicial decision relied upon by Ld CIT(A) would show that, after having accepted that the assessee is a small scale industry for a good number of earlier years, it is not open for the AO to change his view, that too only for two years under consideration. Accordingly, we uphold the orders passed by Ld CIT(A) for both the years under consideration.
Both the parties argued on the issue relating to reopening of the assessments was made on the basis of audit objections. We do not find it necessary to discuss about the same in view of our decision stated above.
In the result, both the appeals filed by the revenue are dismissed.