Century Plyboards(I) Ltd., Kolkata V. DCIT, Circle - 11, Kolkata, Kolkata

CO 135/KOL/2013

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4148 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 24 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 05-07-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 19-09-2013
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: D S DAMLE
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings; Rule 8D
• Section: 143(3); 14A; 80IB; 80IC; 147; 148; 263; 63; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM] ITA NOS.2306&2307/KOL/2013 ASSESSMENT YEARS : 2007-08 & 2008-09 D.C.I.T., CIRCLE-11, .-VERSUS- M/S.CENTURY PLYBOARDS (INDIA)LTD. KOLKATA KOLKATA (PAN:AABCC 1682 J) (APPELLANT ) (RESPONDENT) C.O.NOS.135&136/KOL/2013 A/O ITA NO.2306/2013 ASSESSMENT YEAR : 2007-08 M/S. CENTURY PLYBOARDS (INDIA)LTD. -VERSUS- D.C.I.T ., CIRCLE-11, KOLKATA KOLKATA (PAN AABCC 1682 J) (CROSS OBJECTOR) (RESPONDENT) FOR THE DEPARTMENT : SHRI G.MALLIKARJUNA,,CIT,DR FOR THE ASSESSEE : SHRI D.S.DAMLE, FCA DATE OF HEARING : 05.07.2016. DATE OF PRONOUNCEMENT : 13.07.2016. ORDER PER SHRI N.V.VASUDEVAN, JM ITA NO.2306/KOL/2013 IS AN APPEAL BY THE REVENUE A GAINST THE ORDER DATED 14.05.2013 OF CIT(A)-XII, KOLKATA RELATING TO THE A.Y.2007-08. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS 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 AS SESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (ACT) WAS PASSED BY THE AO ON 30.12.2 009 COMPUTING THE TOTAL INCOME OF THE ASSESSEE AT RS.16,17,06,690/-. I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 2 3. THE AO ISSUED A NOTICE U/S 148 OF THE ACT DAT ED 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 RE TURN ON 30.10.2007 SHOWING TOTAL INCOME OF RS.159177514/-. ASSESSMENT U/S. 143(3) WA S 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 D EPTT. OF RS.361.73 LACS UNDER LOANS AND ADVANCES (SCHEDULE 'J') UNDER THE BROAD HEAD: C URRENT 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 TH E ASSESSEE. THE DEDUCTION U/S. 80IC IS ADMISSIBLE ONLY IF- A) THE ACCOUNTS OF THE UNDERTAKING HAVE BEEN AUDITE D BY THE CHARTERED ACCOUNTANT, AND THE AUDIT REPORT DULY SIGNED AND VERIFIED BY SUCH A CCOUNTANT IS FURNISHED ALONG WITH THE RETURN OF INCOME IN FORM 10CCB AND, B) A SEPARATE REPORT HAS TO BE FURNISHED BY EACH UN DERTAKING OR ENTERPRISE OF THE ASSESSEE CLAIMING DEDUCTION U/S. 80IC AND SHALL BE ACCOMPANI ED BY THE P&L ACCOUNT AND BALANCE SHEET OF THE UNDERTAKING OR ENTERPRISE AS IF THE UN DERTAKING 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 S EPARATE P & L ACCOUNT AND BALANCE SHEET OF THE UNDERTAKING OR ENTERPRISE FURT HER, 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 PERTAIN ING 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 DI SALLOWED ON THIS ACCOUNT. AS SUCH, THE DIFFERENCE OF RS.89.01 LACS {RS.100.63 LA CS- 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 ASSE SSEE, TO THAT EXTENT, HAS ESCAPED ASSESSMENT. ' 4. 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 INCO ME OF THE ASSESSEE AS FOLLOWS :- TOTAL ASSESSED INCOME AS PER ORDER U/S 143(3) DATE D 30.12.2009 RS.16,17,06,690/- I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 3 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.25,22,26,6 98/- ROUNDED OFF U/S288A RS.25,22,26,700 /- 5. THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A )CHALLENGING THE ADDITION MADE IN THE ORDER PASSED U/S 147 OF THE ACT. THE ASSESSEE A LSO 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 DIFFE RENCE OF RS.75.32 LACS ON ACCOUNT OF CENTRAL EXCISE DUTY RECEIVABLE, THE ASSESSEE SUBMIT TED THAT IN THE BALANCE SHEET UNDER THE HEAD 'CURRENT, ASSETS', LOANS & ADVANCES' THE B ALANCE WITH CENTRAL EXCISE AUTHORITIES WAS REFLECTED AT RS.361.73 LACS. IN TH E TAX AUDIT REPORT THE MODVAT BALANCE WAS SHOWN AT RS.286.41 LACS. THE ASSESEE E XPLAINED THAT THE DIFFERENCE OF RS.75.32 LACS BETWEEN THE TWO FIGURES WAS A FACT AL READY AVAILABLE ON RECORD WHEN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S.143(3) OF THE A CT WERE CONCLUDED AND THE AO MERELY RE-EXAMINED THE SAME DOCUMENTS WITHOUT ANY M ATERIAL FROM EXTERNAL SOURCE COMING INTO POSSESSION OF THE AO AFTER THE CONCLUSI ON OF THE ORIGINAL ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT. THE ASSESSEE DR EW ATTENTION OF THE CIT(A) TO THE CATEGORICAL OBSERVATIONS RECORDED BY THE AO WHILE F RAMING THE ORIGINAL ASSESSMENT U/S.143(3) OF THE ACT: HIS PREDECESSOR IN THE ORIG INAL ASSESSMENT ORDER: 'AFTER EXAMINING THE BALANCE SHEET, PROFIT & LOSS A CCOUNTS ALONG WITH SCHEDULES, TAX AUDIT REPORT AND OTHER DETAILS AND DOCUMENTS SUBMIT TED DURING THE. COURSE. OF HEARING,. FOLLOWING POINTS OF DISCUSSIONS WERE REVEALED. ' THE ASSESSEE SUBMITTED THAT THE REASON TO BELIEVE T HAT 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 BAL ANCE' 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 'BA LANCE 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 T HE 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 M ODVAT 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 THA T THIS REASON RECORDED WAS PRIMA I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 4 FACIE FALLACIOUS, INCORRECT AND EMANATED FROM REAPP RAISAL 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 S ECOND 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 T O 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 PROCEE DINGS) 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 BELI EVE 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 CONCL UDING 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 UNDE R 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 CATEGO RICALLY STATED THAT HE HAD INADVERTENTLY MISSED OUT MENTIONING THE DEDUCTION P ERMISSIBLE TO THE ASSESSEE UNDER SECTION 80IC AMOUNTING TO RS.7,41 ,46,812/-. THEY I SSUED A CORRIGENDUM AND REQUESTED THE AO TO READ THE POINT NO. 26 OF THE TAX AUDIT RE PORT TO BE READ AS RECTIFIED. THE TAX AUDITOR ALSO REFERRED AND ENCLOSED THE REPORT IN FO RM 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 SUBMI TTED 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 W HEN 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 SHO W THAT THE DEDUCTION CLAIMED U/S 80- IC WAS CONSIDERED AND EXAMINED BY AO'S PREDECESSO R AND THEREFORE REOPENING OF ASSESSMENT ON THIS ACCOUNT AMOUNTED TO 'CHANGE OF O PINION:' AND REVIEW OF THE STAND ALREADY TAKEN BY HIS PREDECESSOR. IT WAS ARGUED TH AT THE AO FAILED TO BRING ANY NEW CORROBORATIVE MATERIAL ON RECORD TO SHOW THAT THE D EDUCTION 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 INCUR RED IN RELATION TO EARNING OF DIVIDEND INCOME OUGHT TO HAVE BEEN DONE BY THE AO BY APPLYIN G 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 DISAL LOWANCE OF RS.11.62 LACS UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961. IT WAS SUB MITTED THAT A SPECIFIC QUERY WAS RAISED IN THE ORIGINAL ASSESSMENT IN RESPECT OF .DI SALLOWANCE UNDER SECTION 14A IN RESPONSE TO WHICH THE APPELLANT FILED DETAILED EXPL ANATION. 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 I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 5 REOPENING OF ASSESSMENT ON THIS ISSUE WAS IMPERMIS SIBLE AND IN GROSS VIOLATION OF THE PRE-CONDITIONS SET OUT IN SECTION 147. SUCH REOPENI NG AMOUNTED TO REVIEWING THE ORIGINAL ASSESSMENT ORDER AND SITTING UPON THE JUDG MENT OF HIS PREDECESSOR, THIS IS CLEARLY NOT THE MANDATE OF SECTION 147 WHICH REQUIR ES 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 CA TEGORICAL FINDINGS AND OBSERVATIONS IN THE ORIGINAL ASSESSMENT. SUCH, ACTION WAS ILLEGA L AND WITHOUT JURISDICTION. IT WAS FURTHER SUBMITTED THAT THE AO OPINED THAT, T HE 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 CO URT IN THE CASE OF GODREJ & BOYCE MFG CO.LTD VS DCIT (328 ITR 81) IT IS NOW WELL SETT LED 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 200 7-08. ,THEREFORE, THE PREDECESSOR AO HAD RIGHTLY COMPUTED AND DISALLOWED RS.11.62 LACS I N 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 THEREF ORE THE ORDER PASSED U/S 147 DESERVES TO BE QUASHED END DECLARED AB INITIO VOID. 6. 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 W HICH HAS COME TO HIS POSSESSION AFTER COMPLETION OF THE ORIGINAL ASSESSMENT PROCEED INGS BASED ON WHICH HE COMES TO A CONCLUSION THAT INCOME CHARGEABLE TO TAX HAS ESCAPE D ASSESSMENT. THE ASSESSEE SUBMITTED THAT THE AFORESAID DECISION WAS APPLICABL E TO THE FACTS OF THE ASSESSEES CASE. THE AO HAD REOPENED THE ASSESSMENT FOR THE Y EAR UNDER CONSIDERATION ON 'CHANGE OF OPINION' AND WITHOUT BRINGING ANY TANGIB LE 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 THER EIN 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 THEREFO RE NEEDS TO BE QUASHED. 7. THE CIT(A) HOWEVER, UPHELD THE INITIATION OF RE-ASSESSMENT PROCEEDINGS FOR THE FOLLOWING REASONS :- I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 6 I HAVE CONSIDERED THE FINDING OF THE A.O. IN HIS A SSESSMENT ORDER DT. 05-03-2013 AND THE WRITTEN SUBMISSION .FILED BY THE A.R. DURING TH E 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 PROCE EDING CONTENDED THAT REOPENING OF ASSESSMENT U/S 147 OF THE I.T. ACT, 1961 WAS NOT LE GAL. I HAVE CONSIDERED THE A.RS WRITTEN SUBMISSION AND THE FINDING OF THE A.O IN TH E 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 THA T THE A.O. HAS MADE A CLEAR CUT CASE FOR REOPENING OF THE ASSESSMENT AS IT MEETS BOTH TH E REQUIREMENTS OF TIME LIMIT AND OF VALID REASONS FOR REOPENING OF THE ASSESSMENT. THER EFORE, ASSESSEES APPEAL ON GROUNDS NOS.1, 2 AND 3 ARE DISMISSED. 8. HOWEVER, WITH REGARD TO THE OTHER ADDITIONS M ADE BY THE AO THE CIT(A) DELETED THE ADDITION OF RS.75,32,196/- ON ACCOUNT OF DIFFER ENCE 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 T HE 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 PREFERRE D THE APPEAL BEFORE THE TRIBUNAL. AGGRIEVED BY THE ORDER OF CIT(A) IN UPHOLDING THE V ALIDITY OF INITIATION OF RE- ASSESSMENT PROCEEDINGS U/S 147 OF THE ACT THE ASSES SEE HAS FILED THE CROSS OBJECTION. THE ASSESSEE HAS FILED CROSS OBJECTION VIDE COVER L ETTER DATED 17.09.2013 THAT WAS REGISTERED AS C.O.NO.135/KOL/2013. THIS WAS PRESENT ED 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 IDENTICA L 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.N O.136/KOL/2013 HAS TO BE DISMISSED AS INFRUCTUOUS AND SUPERFLUOUS. WE NOW PR OCEED 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. 9. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUN SEL 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). I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 7 10. 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 AS SESSMENT. THE TAX AUDIT REPORT IN WHICH MODVAT OF RS.286.41 LAKHS AND SCHEDULE-J OF T HE BALANCE SHEET REGARDING CURRENT ASSETS AND LOANS AND ADVANCES WHICH SHOWED BALANCE WITH CENTRAL EXCISE AUTHORITIES IS RS,361.73 LAKHS, WERE AVAILABLE BEF ORE 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 REFLE CTED IN THE BALANCE AND THE MODAVAT CREDIT BALANCE AVAILABLE IN THE TAX AUDIT REPORT CO ULD 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 DISCREPANC IES COULD GIVE RISE TO BELIEF THAT THERE WAS INCOME CHARGEABLE TO TAX WHICH HAS ESCAPE D ASSESSMENT. AS FAR AS THE SECOND REASON GIVEN BY THE AO IS CONCERNED THE FACT S ARE VERY CLEAR THAT THE AUDITORS REPORT IN FORM NO.10CCB WAS FILED BY THE ASSESSEE I N 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 O F INCOME IS ONLY DIRECTORY AND NOT MANDATORY. SECONDLY IT IS SEEN THAT IN THE AUDIT RE PORT 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 AP PLICABLE 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. 11. THUS IT IS SEEN THAT NONE OF THE REASONS REC ORDED BY THE AO COULD GIVE RISE TO A BELIEF REGARDING ESCAPEMENT OF INCOME. AS WE HAVE A LREADY SEEN THAT THE AO ON THE I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 8 SAME SET OF FACTS AVAILABLE WITH HIM WHILE COMPLETI NG THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT HAS SOUGHT TO REOPEN THE ASSESSME NT PURELY ON CHANGE OF OPINION. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF AMRIT FEEDS LIMI TED VS ASSTT CIT (239 CTR 82) HAS OBSERVED THAT IF IN THE ORIGINAL ASSESS MENT THE AO HAS RAISED SPECIFIC QUERIES IN THE REQUISITION ISSUED U/S 142( 1) IN RESPECT OF TH E DEDUCTION CLAIMED U/S 80IB OF THE I.T. ACT AND IF IN RESPONSE TO THE SAME THE ASSESSEE HAD FUR NISHES DETAILS AND EXPLANATIONS WHICH WERE CONSIDERED BY THE AO AND THE DEDUCTION CLAIMED IN T HE 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 ASS ESSMENT ON A CHANGE OF OPINION. AS SUBMITTED BY THE ASSESSEE BEFORE CIT(A) SUCH A COUR SE IS NOT AVAILABLE TO THE AO IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CA SE OF CIT VS KELVINATOR OF INDIA LTD. (SUPRA). BESIDES THE ABOVE, THE DECISION OF TH E 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 VIE W THAT THE BELIEF ENTERTAINED BY THE AO CANNOT BE SAID TO BE A HONEST BELIEF. FOR THE RE ASONS GIVEN ABOVE WE ARE OF THE VIEW THAT THE INITIATION OF REASSESSMENT PROCEEDING S 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 OBJE CTION WE ARE OF THE VIEW THAT NO ADJUDICATION OF THE GROUNDS RAISED BY THE REVENUE I N ITS APPEAL IS CALLED FOR. 12. IN THE RESULT ITA NO.2306/KOL/2013 IS DISMIS SED WHILE C.O.NO.135/KOL/2013 IS ALLOWED AND C.O.NO.136/KOL/2013 IS DISMISSED AS SUP ERFLUOUS. ITA NO.2307/KOL/2013 A.Y.2008-09 (REVENUES APPEAL) : 13. AS FAR AS THIS APPEAL OF THE REVENUE IS CONCERN ED THE ISSUE RAISED BY THE REVENUE IS ONLY WITH REGARD TO THE ACTION OF CIT(A) IN ALLO WING DEDUCTION U/S 80IC OF THE ACT. AS FAR AS THE DEDUCTION U/S 80IC CLAIMED BY THE ASS ESSEE IN A.Y.2008-09 IS CONCERNED THE FACTS ARE THAT THE ASSESSEE IN AY 2008-09 CLAIM ED DEDUCTION OF RS.13,39,01,852/- U/S.80IB OF THE ACT, IN RESPECT OF PROFITS DERIVED FROM UNDERTAKING MANUFACTURING FERRO I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 9 ALLOYS WHICH UNIT/UNDERTAKING WAS SITUATED IN THE S TATE 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 W AS SUBJECT MATTER OF REVISION PROCEEDINGS BY THE COMMISSIONER OF INCOME TAX U/S.2 63 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 ASSE SSEE DID NOT UNDERTAKE SUBSTANTIAL EXPANSION, THE CIT WAS OF THE VIEW THAT THE AO OUGH T NOT TO HAVE ALLOWED DEDUCTION U/S.80-IC OF THE ACT. THE CIT HOWEVER DIRECTED T HE AO TO RE-EXAMINE THE DEDUCTION CLAIMED UNDER SECTION 80LC OF THE INCOME-TAX ACT, 1 961. 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 S UBSTANTIAL 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 AC T, I961 WAS DISALLOWED. 14. IN ORDER TO UNDERSTAND THE ISSUE INVOLVED IT W OULD 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 NE W UNDERTAKING IN THE STATE OF MEGHALAYA IN THE AY 2002-03 FOR MANUFACTURE OF FERR O ALLOYS. IN TERMS OF SECTION 80IB(4) OF THE INCOME-TAX ACT, 1961, THE PROFITS DE RIVED FROM SUCH NEW UNDERTAKING QUALIFIED FOR 100% DEDUCTION FOR A PERIOD OF 10 YE ARS. FOR AY 2003-04, M/S SHYAM CENTURY FERREOUS LTD. WAS ALLOWED THE DEDUCTION CLA IMED 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 DED UCTION 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 SECT ION 80LB DISCONTINUING THE DEDUCTION PERMISSIBLE U/S 80IB(4) TO INDUSTRIAL UN DERTAKINGS COVERED WITHIN THE PURVIEW 80LC STARTING FROM AY 2004-05 & ONWARDS. TH E ALTERNATE DEDUCTION U/S 80IC WAS HOWEVER GRANTED IN RESPECT OF THE PROFITS DERIV ED FROM THESE INDUSTRIAL UNDERTAKINGS SITUATED IN NORTH EASTERN STATES FOR T HE UNEXPIRED PERIOD OF DEDUCTION, WHICH WAS HITHERTO PERMISSIBLE U/S.80IB(4). SUB-SEC TION (6) CLARIFIED THIS POSITION BY I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 10 PROVIDING THAT THE TOTAL PERIOD OF DEDUCTION INCLUS IVE OF THE PERIOD OF DEDUCTION UNDER THIS SECTION, OR UNDER THE SECOND PROVISO TO SUB-SE CTION (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 CL AIMING 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 EXP LAINING 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 FISCA L AND NON-FISCAL CONCESSIONS FOR THE SPECIAL CATEGORY STATES OF HIMA CHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EASTERN STATES, IN ORDER TO GIVE B OOST TO THE ECONOMY IN THESE STATES. WITH A VIEW TO GIVE EFFECT TO THESE NEW PAC KAGES ANNOUNCED BY THE UNION CABINET IN RESPECT OF THESE STATES, IT IS PRO POSED TO INSERT A NEW SECTION 80-IC TO ALLOW A DEDUCTION FOR TEN YEARS FROM THE P ROFITS OF NEW UNDERTAKINGS OR ENTERPRISES OR EXISTING UNDERTAKINGS OR ENTERPRI SES ON THEIR SUBSTANTIAL EXPANSION IN THE STATES OF HIMACHAL PRADESH, UTTARA NCHAL, SIKKIM AND NORTH- EASTERN STATES. FOR THIS PURPOSE, SUBSTANTIAL EXPAN SION IS DEFINED AS INCREASE IN THE INVESTMENT IN THE PLANT AND MACHINERY BY AT LEA ST 50% OF THE BOOK VALUE OF THE PLANT AND MACHINERY (BEFORE TAKING DEPRECIATIO N IN ANY YEAR), AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL E XPANSION IS UNDERTAKEN. IT IS PROPOSED TO PROVIDE THAT NO DEDUCTION SHALL B E ALLOWED TO ANY UNDERTAKING OR ENTERPRISE UNDER THIS SECTION, WHERE THE TOTAL P ERIOD 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 ASSESSM ENT YEARS. IT IS ALSO PROPOSED TO PROVIDE THAT IN COMPUTING THE TOTAL INC OME 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 PROFIT S AND GAINS OF THE UNDERTAKING OR ENTERPRISE. IT IS ALSO PROPOSED TO INSERT THE THIRTEENTH SCHEDU LE 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 DEDUCTI ON 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. I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 11 THESE AMENDMENTS WILL TAKE EFFECT FROM 1 ST 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 WER E CLAIMING DEDUCTION U/S 80IB(4) TILL AY 2003-04 STATUTORILY MIGRATED TO SECTION 80L C W.E.F AY 2004-05. 15. 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 & 2005-0 6. EFFECTIVE FROM AY 2006-07 THE SAID SHYAM CENTURY FERREOUS LTD STOOD AMALGAMAT ED 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 ASSES SMENT U/S 143(3) FOR AY 2008-09, THE ASSESSEE WAS ALLOWED THE DEDUCTION UNDER SECTIO N 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 MANU FACTURE AFTER 01.04.2002 IT WAS ALSO REQUIRED TO MAKE FURTHER INVESTMENT AND UNDERT AKE SUBSTANTIAL EXPANSION IN THE YEAR UNDER CONSIDERATION. 16. ACCORDING TO THE ASSESSEE, THE INTERPRETATION OF THE PROVISIONS OF SECTION 80LC WAS DONE BY THE AO WAS WHOLLY ERRONEOUS AND THE SA ME IS NOT IN CONFORMITY WITH THE LANGUAGE EXPRESSLY EMPLOYED BY THE LEGISLATURE. TH E 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 PRO DUCE ANY ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES AN Y ARTICLE OR THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 12 THAT SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING- (I) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BE FORE THE 1 ST DAY OF APRIL, 76[2007], IN THE STATE OF SIKKIM; OR (II) ON THE 7 TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2012, IN THE STATE OF HIMACHAL PRADESH OR THE STAT E 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 (E MPHASIS SUPPLIED) 17. ACCORDING TO THE ASSESSEE AS PER THE PROVISIONS OF SECTION 80IC(2) (B) DEDUCTION IS AVAILABLE TO THE FOLLOWING INDUSTRIAL UNDERTAKIN GS: A) NEW INDUSTRIAL UNDERTAKING - WHICH HAS BEGUN MANUF ACTURING OR PRODUCE ANY ARTICLE AS SPECIFIED IN THE FOURTEENTH SCHEDULE, . OR B) EXISTING INDUSTRIAL UNDERTAKING' - WHICH MANUFAC TURES OR PRODUCES THE ARTICLE AS SPECIFIED IN THE FOURTEENTH SCHEDULE AND HAS UNDERT AKEN 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 ARTIC LE SPECIFIED IN FOURTEENTH SCHEDULE UNDERTAKES SUBSTANTIAL EXPANSION DURING TH E PERIOD OF 24TH'DECEMBER, 1997 TO APRIL 2007 IN ANY OF THE SPECIFIED NORTH E ASTERN STATES. 18. ACCORDING TO THE ASSESSEE, ITS CASE SQUARELY F ALLS 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 MISINTERPR ETED THE PROVISIONS OF SECTION 80IC(2) AND ALLEGED THAT AN ASSESSEE IS BOTH REQUIR ED TO SET-UP NEW INDUSTRIAL UNDERTAKING AND UNDERTAKE SUBSTANTIAL EXPANSION DUR ING THE PERIOD 24 TH DECEMBER 1997 TO 1 ST 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 I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 13 NEW INDUSTRIAL UNDERTAKING OR (II) UNDERTAKING SUBS TANTIAL EXPANSION OF EXISTING UNDERTAKING. THE AO WRONGLY READ FURTHER CONDITIONS INTO SECTION 80IC(2) WHICH WAS NOT THERE NOR SPECIFIED BY THE LEGISLATURE. 19. THE ASSESSEE THUS CLAIMED THAT THE NEW INDUST RIAL UNDERTAKING WAS SET-UP IN THE STATE OF MEGHALAYA IN AY 2002-03. THE INITIAL ASSES SMENT 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 UP TO 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 D ATED 26.12.2011 I.E. IMMEDIATELY SUCCEEDING YEAR, THE ASSESSING OFFICER AFTER CONSID ERING THE PROVISIONS OF SECTION 80IC(2), 80IB(4) & 80IC(6) OF THE INCOME-TAX ACT, 1 961 ALLOWED THE DEDUCTION CLAIMED UNDER SECTION 80IC OF THE INCOME-TAX ACT 19 61. 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 SECTIO N 80IC AND THE DEDUCTION IN RESPECT OF THE PROFIT DERIVED BY THE INDUSTRIAL UNDERTAKIN G 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 P ERIOD OF 24 TH DECEMBER 1997 TO 1 ST APRIL 2007 AND SEPARATELY TO THE ALREADY EXISTING INDUSTRIAL UNDERTAKINGS BUT WHO HAD UNDERTAKEN SUBSTANTIAL EXPANSION IN THE AFORESAID S PECIFIED PERIOD. 20. THE CIT(A) FOUND FORCE IN THE AFORESAID SUBMIS SIONS 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 OBSERVATI ONS OF THE CIT(A): I HAVE CONSIDERED THE FINDING OF THE A.O. IN HIS A SSESSMENT 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 AGA INST 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 PRO VISION OF SEC. 80LB WITH THAT OF SEC. 80IC, THE REQUIREMENTS OF THE NEW SECTION H AS TO BE COMPLIED WITH. THIS REQUIREMENT IS THAT IN ORDER TO GET DEDUCTION U/S. 80IC OF THE I.T. ACT, 1961, THE I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 14 ASSESSEE IS REQUIRED TO MAKE FURTHER INVESTMENT BY UNDERTAKING SUBSTANTIAL EXPANSION DURING THE PERIOD FROM 24-12-1997 AND END ING 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 ASSESSME NT YEAR UNDER CONSIDERATION, THEREFORE, THE DEDUCTION U/S. 80IC O F THE I.T. ACT, 1961 IS NOT TO BE ALLOWED IN THIS CASE. DURING THE APPELLATE PROC EEDING THE A.R. HAS SUBMITTED A WRITTEN SUBMISSION ALONG WITH A COPY OF MEMORANDUM EXPLAINING PROVISIONS OF FINANCE BILL 2003 IN WHICH A NEW SECT ION 80LE WAS INSERTED. AS PER THE MEMORANDUM EXPLAINING PROVISIONS OF FINANC E 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, SIK KIM, UTTARANCHAL AND NORTH-EASTERN STATES. THE UNION CABINET HAS ANNOUNCED A PACKAGE OF FIS CAL AND NON-FISCAL CONCESSIONS FOR THE SPECIAL CATEGORY STATES OF HI MACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EASTERN STATES, IN O RDER TO GIVE BOOST TO THE ECONOMY IN THESE STATES WITH A VIEW TO GIVE EF FECT 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 DE DUCTION FOR TEN YEARS FROM THE PROFITS OF NEW UNDERTAKINGS OR ENTERPRISES OR EXISTING UNDERTAKINGS OR ENTERPRISES ON THEIR SUBSTANTIAL E XPANSION, IN STATES OF HIMACHAL PRADESH, UTTARANCHAL, SIKKIM AND NORTH-EAS TERN STATES.' SECTION 80IC(2B) ALSO READS AS UNDER: THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPR ISE WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE O R THING, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ART ICLE OR THIN, SPECIFIED IN THE FOURTEENTH SCHEDULE OR COMMENCES ANY OPERATION SPECIFIED IN THAT SCHEDULE AND UNDERTAKES SUBSTANTI AL EXPANSION DURING THE PERIOD BEGINNING - I) ON THE 23RD DAY OF DECEMBER, 2002 AND ENDING BEF ORE THE 1 ST DAY OF APRIL, [2007] IN THE STATE OF SIKKIM; OR II) ON THE 7 TH DAY OF JANUARY, 2003 AND ENDING BEFORE THE 1 ST DAY APRIL, [2007] IN THE SLATE OF HIMACHAL PRADESH OR T HE STATE OF UTTARANCHAL; OR III) ON THE 24TH DAY OF DECEMBER, 1997 AND ENDING B EFORE THE 1 ST DAY OF APRIL, 2007, IN ANY OF THE NORTH-EASTERN ST ATES.' THE A.R. HAS FURTHER SUBMITTED THAT DEDUCTION WAS A LLOWED U/S. 801B/801C IN A.Y. 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 A ND ORIGINALLY IN A.Y. 2008-09 ALSO ( WHICH HAS BEEN WITHDRAWN IN THE ORDE R UNDER THIS APPEAL). THE A.R. HAS ALSO 'BROUGHT ON RECORD THAT THE ASSESSME NT FOR A.Y. 2009-10 HAS BEEN COMPLETED AFTER THE DIRECTION OF CIT U/S. 263 AND IN A.Y. 2009-10 ALSO I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 15 DEDUCTION U/S. 80LC HAS BEEN ALLOWED TO THE ASSESS EE. I HAVE CONSIDERED THE FINDING OF THE A.O. AND THE WRITTEN SUBMISSION FILE D BY THE A.R. DURING THE APPELLATE PROCEEDING. FROM THE PLAIN READING OF SEC . 80IC AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BIL L, 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 NE W CATEGORY OF UNDERTAKINGS WHICH ARE ALREADY EXISTING FROM 1997 PERIOD BUT NO W THEY CAN ALSO CLAIM DEDUCTION U/S 80IC OF THE I.T.ACT, 1961, IF THEY B RING 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 CONSIS TENCY 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 SPECI FIC 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. 21. AGGRIEVED BY THE ORDER OF CIT(A) THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 22. 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). 23. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. IT IS AN ADMITTED FACT THAT M/S.SHYAM CENTURY FERREOUS LTD E STABLISHED A NEW UNDERTAKING IN THE STATE OF MEGHALAYA IN A.Y.2002-03 FOR MANUFACTU RING 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 TH E ACT WHEREBY DEDUCTION U/S 80IC I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 16 OF THE ACT WAS AVAILABLE FOR AN UNDERTAKING SITUATE D IN THE NORTH EASTERN STATES. SINCE THE UNDERTAKING OF M/S.SHYAM CENTURY FERREOUS LTD W AS 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 DE DUCTION 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 CENTU RY 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 A O 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 HEL D BY CIT(A). IN OUR OPINION THE CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT IN R ESPECT OF UNIT WHICH CLAIMED DEDUCTION EARLIER U/S 80IB OF THE ACT SUCH UNIT WIL L CONTINUE TO GET THE BENEFIT OF DEDUCTION OF 80IC OF THE ACT SUBJECT TO THE LIMITAT ION OF TEN YEAR PERIOD. THE DEDUCTION FOR AN UNDERTAKING MAKING SUBSTANTIAL EXP ANSION OF THE EXISTING UNDERTAKING IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. WE A RE OF THE VIEW THAT THE CONCLUSIONS DRAWN BY CIT(A) ON THIS ISSUE ARE FULLY JUSTIFIED A ND DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY THIS APPEAL OF THE REVENUE IS DISMISSED . 24. IN THE RESULT ITA NO.2307/KOL/2013 IS DISMI SSED. 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/2 013 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.) I TA NOS.2306&2307/KOL/2013 & CO.NOS.135/KOL/2013 M/S.CENTURY PLYBOARD S (INDIA)LTD. A.YRS.2007-08 & 2008-09 17 COPY OF THE ORDER FORWARDED TO: 1. M/S.CENTURY PLYBOARDS (INDIA) LTD., 6, LYONS RAN GE, 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