Quadrant Infotech (India) Pvt. Ltd, New Delhi V. M/s. DCIT, New Delhi

CO 246/DEL/2009

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7970 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 09-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 17-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KK MISHRA
• Keywords: Reopening of assessment; Depreciation; Audit objection; Additional evidence; Difference of opinion; Change of opinion
• Section: 143(3); 10B; 147; 27; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F NEW DELHI) BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2837. 2838 & 2839/DEL/2009 & I.T.. NO. 4685 AND 4686/DEL/2010 ASSESSMENT YEAR : 2001-02,2002-2003, 2003-04 & 2004-05 & 2005-06 DCIT, M/S QUADRANT INFOTECH INDIA (P) CIRCLE-14 (1), LTD., 15-D, SIDS, INDL. AREA, NEW DELHI. V. PHASE-II, NEW DELHI. CROSS OBJECTION NO.246 & 247/DEL/2009 (IN I.T.A. NO. 2837 & 2838/DEL/ 2009 ) ASSESSMENT YEAR : 2001-02 & 2003-04 M/S QUADRANT INFOTECH DCIT, INDIA (P) LTD.,. 15-D, SIDS, CIRCLE-14 (1), INDL. AREA, PHASE-II,N. DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S.AGARWAL, SR. ADVOCATE SHRI RAJESH ARORA, C.A SHRI GAUTAM JAIN, C.A. RESPONDENT BY : SHRI KK MISHRA, SR.DR. ORDER PER TS KAPOOR, AM: THESE ARE FIVE APPEALS FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF LD CIT(A)-XXVIII, NEW DELHI FOR ASSESSMENT YEA RS 2001-02, 02- 03,03-04,04-05 & 2005-06 DATED 5.3.2009, 2.8.2010,5 .3.2009,2.8.2010 AND 5.3.2009 RESPECTIVELY. THESE APPEALS WERE HEARD T OGETHER AND ITA NO2837TO 2839,46854686/DEL/09 &2010 & 2 2 THERE IS COMMON ISSUE INVOLVED, THEREFORE THESE APPEALS AND CROSS OBJECTIONS ARE BEING DISPOSED OFF THROUGH A COMMON CON SOLIDATED ORDER. 2. THE SOLE ISSUE RAISED BY THE REVENUE IS THE ALLOWING OF DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961. THE R EVENUE HAS ALSO CHALLENGED THE DELETION OF DISALLOWANCE OF ` .1876004 ON ACCOUNT OF DEPRECIATION ON ELECTRICAL INSTALLATION IN ASSESSMENT YE AR 2003-04. THE ASSESSEE VIDE CROSS OBJECTION HAS CHALLENGED THE REOPENIN G OF THE CASES UNDER SECTION 147/148 OF THE INCOME TAX ACT, 196 1 AND ALSO AGAINST UPHOLDING OF DISALLOWANCE OF ` .14,06,505/- ON ACCOUNT OF MAINTENANCE EXPENSES DURING ASSESSMENT YEAR 2003-04. 3. THE BRIEF FACTS OF THE CASE AS STATED BY ASSESSEE AND RE PRODUCED BY THE ASSESSING OFFICER ARE THAT THE ASSESSEE IS A COMPANY WHICH WAS INCORPORATED IN THE YEAR 1994-95 AND WAS OPERATING F ROM 15, DSIDC, OKHLA INDUSTRIAL AREA, NEW DELHI. SIMULTANEOUSLY, THE ASSESSEE COMPANY WAS IN THE PROCESS OF SETTING UP OF A NEW INDUST RIAL UNDERTAKING AT PLOT NO.27, ELECTRONIC CITY, SECTOR- 18, GURGAON. THE SAID ORDER FURTHER STATES AFTER PURCHASING LAND AND AFT ER CONSTRUCTION OF BUILDING, THE NEW INDUSTRIAL UNDERTAKING GOT ITSELF R EGISTERED WITH SOFTWARE TECHNOLOGY PARK OF INDIA IN MARCH, 2000 AN D ALSO GOT ITSELF REGISTERED UNDER P.F. ACT VIDE REGISTRATION NO. HRD/F RD/10620 FOR THE EMPLOYEES EMPLOYED FOR THE NEW UNDERTAKING. THE ASSESSEE COMPANY ALSO OBTAINED REGISTRATION UNDER ESI ACT VIDE REGISTRA TION NO.13/2754/62 FOR THE EMPLOYEES EMPLOYED FOR THE NEW UNDERTAKING. THE SAID NEW INDUSTRIAL UNDERTAKING ALSO OBTAINED NEW REGISTRATION UNDER SHOPS AND ESTABLISHMENTS ACT AND OBTAINED A NEW TDS NUMBER UNDER THE IT ACT. IN VIEW OF SETTING UP OF NEW UNDE RTAKING THE ASSESSEE STARTED CLAIMING DEDUCTION U/S 10B OF THE ACT W.E.F. ASSESSMENT YEAR ITA NO2837TO 2839,46854686/DEL/09 &2010 & 3 3 2001-02 AND DEPARTMENT CONTINUED TO GRANT DEDUCTION TILL 2005-06. THE CLAIM OF DEDUCTION WAS NOT DENIED EVEN IN THE A SSESSMENT YEAR 2003-04 & 2004-05, WHERE ASSESSMENTS WERE COMPLETED U/S 1 43(3) OF THE ACT. 4. WHILE MAKING ASSESSMENT FOR ASSESSMENT YEAR 2005-06, THE ASSESSEE WAS ASKED TO FURNISH JUSTIFICATION FOR DEDUCTION U /S 10B OF THE INCOME TAX ACT, 1961 SINCE THE ASSESSING OFFICER HAD OB SERVED THAT NEW INDUSTRIAL UNDERTAKING WAS ENGAGED IN THE SAME LIN E OF BUSINESS EVEN, BEFORE ASSESSMENT YEAR 2001-02 I.E. THE YEAR FRO M WHEN THE ASSESSEE WAS CLAIMING DEDUCTION U/S 10B OF THE ACT AND MO REOVER NEW UNIT WAS FORMED AFTER SPLITTING THE EXISTING BUSINESS BY TRANSFERRING ABOUT 51.78% ASSETS OF EXISTING BUSINESS. IN REPLY TO THE QUERY OF THE ASSESSING OFFICER THE ASSESSEE COMPANY GAVE DETAILED BACKGR OUND OF ITS ACTIVITIES AND FURNISHED DOCUMENTS/CERTIFICATES IN SU PPORT OF ITS HAVING STARTED A NEW UNDERTAKING AT GURGAON. THE ASSESS EE SUBMITTED THAT CLAIM OF THE ASSESSEE WAS AS PER PROVISIONS OF SECTION 10B OF THE INCOME TAX ACT, 1961 AND WAS IN ACCORDANCE WITH LAW. ON THE BASIS OF CERTAIN JUDICIAL JUDGMENTS, THE ASSESSEE COMPANY TRIED T O EXPLAIN THE WORDS SPLITTING OF BUSINESS AND ALSO THE WORD NEW ACTI VITY. HE, THEREFORE, TRIED TO EXPLAIN THAT EVEN IF THE ASSESSEE C ONTINUED TO DO THE SAME BUSINESS, IT WILL BE CONSIDERED AS A NEW ACTIVITY, I F IT WAS ESTABLISHED THAT NEW PLANT & MACHINERY HAS BEEN PURCHA SED BY INVESTING SUBSTANTIAL AMOUNT. AS REGARDS SPLITTING OF BU SINESS, THE LD AR EXPLAINED THAT WHERE THERE IS NO TANGIBLE EVIDENC E OF TRANSFER OF ANY ASSET FROM AN EARLIER BUSINESS TO NEW BUSINESS, A CONCL USION CANNOT BE REACHED THAT THE NEW BUSINESS IS FORMED BY SPL ITTING UP OF THE BUSINESS ALREADY IN EXISTENCE. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 4 4 5. IN VIEW OF THE ABOVE, THE LD AR EXPLAINED THAT B USINESS WAS NOT FORMED BY SPLITTING EXISTING BUSINESS AND NEW ACTIVITY W AS STARTED AT NEW UNIT AT GURGAON. 6. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENT IONS OF THE ASSESSEE AND HELD THAT BUSINESS ACTIVITY OF THE ASSESSEE COMPA NY WAS SAME SINCE 1996-97 AND IT WAS HELD THAT THERE WAS ONLY A SINGLE UNDERTAKING BELONGING TO THE ASSESSEE WHICH WAS INTO OPE RATION BEFORE THE DEDUCTION U/S 10B CAME IN TO OPERATION W.E.F. ASSE SSMENT YEAR 2001-02. THE ASSESSING OFFICER ALSO RELIED UPON THE FACT THAT THE ASSESSEE WAS PREPARING ONLY SINGLE P&L ACCOUNT AND BALANC E SHEET AND ENTIRE PROFITS OF THE BUSINESS WERE CLAIMED TO BE E LIGIBLE FOR DEDUCTION U/S 80HHE PRIOR TO INSERTION OF SECTION 10B OF THE ACT. HE FURTHER HELD THAT EVEN IF IT WAS ASSUMED THAT NEW UND ERTAKING HAD COME INTO BEING W.E.F. ASSESSMENT YEAR 2001-02 FOR AVAI LING DEDUCTION U/S 10B IT SHOULD FULFILL THE CONDITIONS AS LAID DOWN IN PROVISIONS OF SECTION 10B WHICH REQUIRE THAT THE NEW UNDERTAKING S HOULD NOT BE FORMED BY TRANSFERRING TO NEW BUSINESS, MACHINERY AND PLANT ALREADY IN EXISTENCE AND VALUE OF TRANSFERRED ASSETS SHOULD NOT B E MORE THAN 20% OF TOTAL VALUE OF PLANT & MACHINERY OF NEW UNDE RTAKING. THE ASSESSING OFFICER FURTHER HELD THAT IN THE CASE OF THE A SSESSEE COMPUTERS WERE ITS PLANT THEREFORE ON THE BASIS OF WRIT TEN DOWN VALUE AS ON 31.3.2000 AND ON THE BASIS OF ADDITIONS MADE DURI NG ASSESSMENT YEAR 2001-02 THE MACHINERY TRANSFERRED FROM OLD BUSIN ESS WORKED OUT TO BE 51.78% WHICH WAS ABOVE THE 20% CEILING IN THE CLAUSE. 7. THEREFORE, IN VIEW OF THE ABOVE THE ASSESSING OFFICE R HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 10B AND T HEREFORE DISALLOWED THE CLAIM OF DEDUCTION U/S 10B. THE SAME DE LETIONS U/S 10B WERE MADE IN RESPECT OF ASSESSMENT YEAR 2001-02, 2002-03 , 2003-04 ITA NO2837TO 2839,46854686/DEL/09 &2010 & 5 5 AND 2004-05 BY REOPENING THE ALREADY COMPLETED ASSESSM ENTS BY INVOKING THE PROVISIONS OF SECTION 147/148 OF THE INCO ME TAX ACT, 1961 8. THE OTHER ADDITIONS MADE BY THE ASSESSING OFFICER DU RING RE- ASSESSMENT PROCEEDINGS U/S 147/148 IN THE ASSESSMENT YEAR 20 03-04 RELATED TO DISALLOWANCE OF DEPRECIATION OF ` .18,76004/- ON ELECTRICAL INSTALLATIONS AND ` .14,06,505/- TOWARDS MAINTENANCE EXPENSES WHICH IN THE ORIGINAL ASSESSMENT PROCEEDINGS WERE ALLOWED. IN THE RE- ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS DISALLOWED TH ESE CLAIMS ON THE GROUND THAT AGAINST INCOME FROM HOUSE P ROPERTY THE ASSESSEE HAD ALREADY AVAILED DEDUCTIONS OF 30% U/S 24(1) OF THE ACT. 9. DISSATISFIED WITH THE ORDERS IN RESPECT OF ABOVE ASSE SSMENT YEARS THE ASSESSEE CARRIED THE MATTER TO THE CIT(A) AND SUBMIT TED AS UNDER:- RELATING TO RELATING TO RELATING TO RELATING TO REOPENING OF THE CASE (ASSESSMENT YEAR 2 001 REOPENING OF THE CASE (ASSESSMENT YEAR 2001 REOPENING OF THE CASE (ASSESSMENT YEAR 2001 REOPENING OF THE CASE (ASSESSMENT YEAR 2001- -- -02) 02) 02) 02) 1. THAT COLUMN NO.5 OF THE FORM, STATES THAT YEAR OF PURPOSES REOPENING WAS 2003-04, WHEREAS NOTICE WAS ISSUED FOR AS SESSMENT YEAR 2001-02. 2. THAT COLUMN NO.7, 8 & 11 WERE NOT FILLED UP PROP ERLY WHICH SIGNIFIES THAT ASSESSING OFFICER HAD NOT APPLIED HIS MIND BEFORE INITIATION OF PROCEEDINGS U/S 147/148. 3. THAT COLUMN NO.12 OF THE FORM STATES YES I AM SAT ISFIED BUT THERE IS NO DATE UNDER THE SIGNATURES WHICH DOES NOT PR OVE THAT THE SO-CALLED APPROVAL WAS TAKEN BEFORE ISSUE OF NOTICE U/S 148. RELIANCE WAS PLACED IN THE JUDGMENTS IN THE FOLLOWING CASES:- ITA NO2837TO 2839,46854686/DEL/09 &2010 & 6 6 1. KARAN SINGH V. ITO 38 TTJ (DEL.) 214. 2. CIT V. ATUL JAIN 212 CTR (DEL.) 042. 3. SUGANCHAND CHANDANMAL V. ITO 105 ITR 743 (CAL.). 4. GOVINDA CHOUDHARY & SONS. V. ITO 109 ITR 370 (ORISSA). 10. THE LD AR ARGUED THAT IN THE ABOVE CASES, IT WAS HELD THAT WHERE FORM FOR OBTAINING APPROVAL FOR ISSUANCE OF NOTICE CO NTAINS INCORRECT INFORMATION, ENTIRE ASSESSMENT PROCEEDINGS WERE HELD TO BE VOID AB INITIO AND MERELY WRITING OF YES DOES NOT AMOUNT TO RECORDING OF REASONS. 11. IN THE CASE OF ASSESSMENT YEAR 2003-04, BESIDES DEFEC TS RELATING TO ASSESSMENT YEAR 2001-02 THE LD AR SUBMITTED AS UNDER:- 1. THAT THE CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF A REPORT BY AUDIT PARTY. 2. THE LD ASSESSING OFFICER HAD NO WHERE RECORDED HIS SATISFA CTION OR BELIEF THAT THE INCOME HAD ESCAPED ASSESSMENT. 3. THAT FROM THE INSPECTION OF RECORD FILE, IT WAS SEEN T HAT NOTICE U/S 154 WAS BEING ISSUED BUT THE SAME WAS ABANDONED WITHOUT ANY CONCLUSION. IN THIS RESPECT, IT WAS SUBMITTED THAT PROCE EDINGS U/S 154 ARE CONTINUOUS OF ASSESSMENT PROCEEDINGS AND WHERE ASSESSMENT PROCEEDINGS WERE PENDING RE-ASSESSMENT PROCEEDINGS U/S 148 CANNOT BE INITIATED. 12. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS:- 1. RAJESH LEASING & FINANCE LTD. V. ACIT (1996) 85 TAXMA N 175 WHEREIN IT WAS HELD BY HON'BLE GUJARAT HIGH COURT TH AT WHERE THE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 7 7 NOTICE U/S 148 WAS ISSUED ON THE BASIS OF AUDIT REPORT AN D CIT(A)S APPROVAL WAS OBTAINED WITHOUT THERE BEING SA TISFACTION AND APPLICATION OF MIND BY ASSESSING OFFICER SUCH ACTION WAS NOT WARRANTED. 2. INDU BHUSHAN SAH (HUF) V. WTO (1994) 208 ITR 598 W HEREIN HON'BLE ALLAHABAD HIGH COURT HAD HELD THAT INITIATI ON OF PROCEEDINGS ON THE BASIS OF AUDIT OBJECTION CANNOT BE SUSTAINED. 3. ACIT V. LAXMI SAILJA TRADERS 2005 1 SOT (608) WHEREI N IT WAS HELD THAT RECORDING IS BAD IN LAW WHERE THE ASSESSING OF FICER HAS NOT APPLIED HER MIND TO THE ISSUE BEFORE INITIATING T HE PROCEEDINGS U/S 148. 13. IN THE CASES FOR AYB2002-03 & 2004-05 THE LD AR O N THE ISSUE OF REOPENING SUBMITTED AS UNDER:- 1. THAT IN THE REASONS RECORDED BY ASSESSING OFFICER IT HAS BEEN SIMPLY ALLEGED THAT THE ASSESSEE COMPANY WAS ALREADY CLAI MING DEDUCTION U/S 80-HHE FOR ASSESSMENT YEAR 1999 TILL 2002 AND THEREAFTER IT GOT REGISTERED UNDER STP SCHEME DOES NO T ENTITLE THE ASSESSEE TO CLAIM DEDUCTION. IN THIS RESPECT, IT IS SU BMITTED THAT REASON RECORDED IS SIMPLY ON THE BASIS OF GUESS WORK AND NO REASONABLE BELIEF AS REQUIRED UNDER SECTION 147 WAS REC ORDED. 2. THAT IT IS PERMISSIBLE UNDER THE LAW TO CLAIM DEDUCTIO N OF DIFFERENT UNDERTAKINGS AND IT WAS OPTIONAL FOR ASSESSEE COMPANY TO CLAIM EXEMPTION U/S 10B OR DEDUCTION U/S 80HHE OF THE ACT IN RELATION TO EXPORTS. 3. THAT THE REVIEW OF REASONS CLEARLY REVEAL THAT THERE WAS NO SPECIFIC REASON STATED BY ASSESSING OFFICER FOR REOPENING OF THE CASE AND REOPENING WAS DONE WITHOUT APPLICATION OF MI ND. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 8 8 14. THE LD AR ALSO POINTED OUT DEFECTS IN COLUMN NO.7 & 12 OF THE FORM WHERE REASONS WERE RECORDED AS WERE POINTED OUT I N THE YEARS 2001-02 AND 2003-04 AND SAME SET OF CASE LAWS WERE RELI ED UPON AS WERE RELIED IN THE SUBMISSIONS RELATING TO ASSESSMENT YEAR 2001-02. 15. THE LD CIT(A) HOWEVER DID NOT AGREE WITH THE CO NTENTIONS MADE BY LD AR WITH RESPECT TO REOPENING OF THE CASES AND HE LD THAT ASSESSING OFFICER WAS WELL WITHIN HIS JURISDICTION OF TAKI NG ACTION U/S 148 AND AS REGARDS DEFECTS IN RECORDING OF REASONS, THE LD CIT(A) HELD THAT THESE WERE MINOR AND TECHNICAL KIND OF DEFECTS A ND HAS TO BE IGNORED IN VIEW OF PROVISIONS OF SECTION 292B OF THE I NCOME TAX ACT, 1961 . IN THE ASSESSMENT YEAR 2003-04, THE LD CIT(A) B ESIDES ABOVE HELD THAT PROCEEDINGS U/S 148 & 154 WERE TWO DIFFERE NT PROCEEDINGS AND IN CASE PROCEEDINGS U/S 147 ARE INITIATED THE PRO CEEDINGS U/S 154 AUTOMATICALLY GETS FILED. 16. ON THE MERITS OF THE CASES, THE LD AR SUBMITTED AL ONG WITH RETURN U/S 147/148 THAT IN THE ALTERNATIVE TO CLAIM U/S 10B CLAIM OF THE ASSESSEE COMPANY U/S 10A MAY BE CONSIDERED AND FOLLOWING SUBMISSIONS WERE MADE WHICH WERE ALMOST IDENTICAL FOR AL L ASSESSMENT YEARS. 1). THAT THE ASSESSEE COMPANY WAS INCORPORATED IN THE YE AR 1994-95. THE UNDERTAKING WAS FUNCTIONING FROM NEW D ELHI SINCE FINANCIAL YEAR 1997-98. 2). THAT COMPANY STARTED PROCESS OF SETTING UP OF NEW UNDERTAKING AT PLOT NO.27, SECTOR-18, ELECTRONIC CI TY, GURGAON. THE LAND WAS ALLOTTED IN FINANCIAL YEAR 1995-96 AND CONSTRUCTION WAS COMPLETED IN FINANCIAL TILL YEAR 1999-2000. THE NEW UNIT GOT ITA NO2837TO 2839,46854686/DEL/09 &2010 & 9 9 ITSELF REGISTERED WITH STPI ON 25.3.2000 AND LETTER O F EXEMPTION FROM INCOME TAX TILL 2010 WAS ISSUED BY STPI. 3). THAT THE COMPANY WAS OPERATING WITH 8 EMPLOYEES F ROM ITS DELHI UNIT WHEREAS NEW UNDERTAKING AT GURGAON HAD 18 2 EMPLOYEES. 4). THAT THE ASSESSEE COMPANY MADE SUBSTANTIAL CAPITAL O UT LAY FOR THE NEW UNDERTAKING. 5). THAT ASSESSEE OBTAINED CUSTOM WAREHOUSING LICENSE FOR THE NEW UNDERTAKING PREMISES ON 20.3.2000 FOR GURGAON UNI T. 6). THAT NEW UNDERTAKING WAS ALLOTTED SEPARATE TAN F ROM INCOME TAX AUTHORITY, GURGAON. 7). THAT ASSESSEE COMPANY HAD ALREADY OBTAINED REGISTRAT ION UNDER SHOP & ESTABLISHMENT ACT FOR THE NEW UNDERTAKIN G ON 15.2.2000. 8).THAT ASSESSEE COMPANY HAD ALSO OBTAINED SEPARATE REGISTRATION UNDER ESI ACT VIDE REGISTRATION NO.13/27 542/62 FOR THE EMPLOYEES-EMPLOYED AT THE NEW UNDERTAKING ON 14 .3.2000. 9). THAT THE NEW UNDERTAKING WAS REGISTERED UNDER PF ACT VIDE REGISTRATION NO.HR/FRD/10620 FOR THE EMPLOYEES-EMPLO YED FOR THE NEW UNDERTAKING AT GURGAON. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 10 10 10). THAT THE OBJECTION OF ASSESSING OFFICER WAS THAT BU SINESS ACTIVITY OF THE ASSESSEE COMPANY WAS SAME SINCE ASSESSMENT YEAR 1996-97 ONWARDS. IT IS SUBMITTED THAT IN THE CASE OF CIT V. INDIAN ALUMINUM CO. LTD. 108 ITR 367 IT WAS HELD THA T EVEN IF THE NEW UNDERTAKING WAS INVOLVED IN MANUFACTURING THE SAM E COMMODITY AS MANUFACTURED BY THE OLD UNIT, IT WILL ST ILL BE TREATED AS ELIGIBLE UNDERTAKING FOR SECTION 80J. SIMILAR VIEW S WERE HELD IN THE CASE OF CIT V. PREMIER COTTON MILLS LTD. (1999) 2 40 ITR 434 (MAD.) WHEREIN IT WAS HELD THAT IT IS NOT NECESSARY TH AT NEW UNDERTAKING SHOULD PRODUCE DIFFERENT ARTICLES IN ORDE R TO HOLD THE UNDERTAKING AS NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING . BESAIDES THE ABOVE CASE LAW DECIDED BY DELHI BENCH F RELATING TO DCIT V. EASTERN MEDIKIT LTD. 100 TTJ 382 AND ITAT PUNE BENCH B IN THE CASE OF ZF STEERING & GEARS INDIA LTD. V. DCIT WERE RELIED UPON. FURTHER RELIANCE WAS PLACED IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. V. CIT 107 ITR 195 WHERE IN HON'BLE SUPREME COURT HAD HELD THAT TRUE TEST WAS WHETHER THE NEW UNDERTAKING RESULTED IN EXPANSION OF THE EXISTING BUSIN ESS OR WHETHER IT WAS A NEW AND IDENTIFIABLE UNDERTAKING SEP ARATE AND DISTINCT FROM THE EXISTING BUSINESS. 11). THAT THE LD ASSESSING OFFICER HAD STATED IN THE OR DER THAT THE ASSESSEE COMPANY WAS CLAIMING DEDUCTION U/S 80HHE ON ITS EXISTING BUSINESS PRIOR TO INSERTION OF SECTION 10A/B W.E .F. 1.4.2001. IN THIS CONNECTION, IT IS SUBMITTED THAT TH E ASSESSEE COMPANY HAD CLAIMED DEDUCTION ONLY ON DELHI UNIT IN 1999-00 WHEN GURGAON UNIT WAS NOT UNDER OPERATION AND THE SAM E WERE NEVER CLAIMED FOR UNDERTAKING AT GURGAON. 12). THAT THIS IS A MATTER OF OPTION AVAILABLE TO THE ASSESSEE AS HELD IN THE CIT V. EXCEL SOFTWARE LTD. 219 CTR 405 THAT IT WAS OPTION FOR THE ASSESSEE TO EITHER CLAIM EXEMPTION U/S 1 0B OR ITA NO2837TO 2839,46854686/DEL/09 &2010 & 11 11 DEDUCTION U/S 80HHE OF THE ACT IN RELATION TO THE EX PORT PROFITS. SINCE IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT CLAIMED DEDUCTION U/S 80HHE. THEREFORE, IT WAS ENTITL ED TO CLAIM EXEMPTION U/S 10B OF THE ACT AS IT FULFILLED ALL THE CONDITIONS. 13). THAT THE OBJECTION OF ASSESSING OFFICER THAT ASSESSEE HAD TRANSFERRED NEARLY 51.78% OF MACHINERY FROM OLD UNIT AT NEW DELHI TO NEW UNIT AT GURGAON IS NOT BASED UPON THE FA CTS OF THE CASE AS THE ASSESSING OFFICER HAD COMPUTED THE ALLEGED 51 .78% AFTER TAKING INTO CONSIDERATION COMPUTERS ONLY WHERE AS THE EXPLANATION (2) TO SECTION 80I IN REGARD TO 20% CRIT ERIA MENTIONED ABOUT THE PLANT & MACHINERY AS A WHOLE AND NOT EACH AND INDIVIDUAL ITEM SEPARATELY. CLAUSE (3) OF SECTION 43 DEFINES PLANT AS UNDER:- PLANT INCLUDES SHIPS, VEHICLES, BOOKS, SCIENTIFIC APPARA TUS AND SURGICAL EQUIPMENT USED FOR THE PURPOSES OF THE BUSINESS O R PROFESSION BUT DOES NOT INCLUDE TEA BUSHES. THUS THIS INC LUSIVE DEFINITION MAKES IT CLEAR THAT PLANT MEANS NOT A PART ICULAR ITEM BUT MANY ITEMS. THUS, IN VIEW OF THE ABOVE, FINDINGS BY ASSESSING OFFICER WAS INCORRECT AND IN FACT IF THE WHOLE PLANT & MACHINER Y IS CONSIDERED THE PERCENTAGE OF TRANSFERRED PLANT & MACHINERY COME S OUT AT LESS THAN 20%. BESIDES ABOVE, IN RESPECT OF ASSESSMENT YEAR 2003-04 REGA RDING DISALLOWANCE OF MAINTENANCE EXPENSES OF ` .14,06,505/- AND DISALLOWANCE OF DEPRECIATION, FOLLOWING SUBMISSIONS WERE MADE. 1. THAT DURING THE YEAR UNDER REFERENCE THE ASSESSEE COMPA NY LEASED OUT A PORTION OF ITS BUILDING SITUATED AT 27-EL ECTRONIC CITY, ITA NO2837TO 2839,46854686/DEL/09 &2010 & 12 12 SECTOR-18, GURGAON TO DAKSH.COM SERVICE PVT. LTD. TH EREBY EARNING RENTAL INCOME AMOUNTING TO ` .1,12,82,256/-. 2. THAT ASSESSEE COMPANY ALSO PROVIDED MAINTENANCE SERVICE T O THE TENANT FOR WHICH THE ASSESSEE COMPANY RECEIVED ` .1,52,57,437/- IN ADDITION TO THE RENTAL INCOME. 3. THAT THE ASSESSEE COMPANY INCURRED EXPENSES ON POWER AND FUEL, REPAIRS , SECURITY, HOUSE KEEPING, CONSUMABLE, IN SURANCE AND CONSULTANCY WHICH WERE CHARGED AGAINST THIS MAINT ENANCE INCOME. THESE EXPENSES INCLUDED DEPRECIATION ON ELEC TRIC INSTALLATION AMOUNTS TO ` .18,76,004/- & OF ` .14,06,505/- ON ACCOUNT OF CERTAIN EXPENSES RELATING TO BUILDING WHIC H WERE IN THE NATURE OF TEMPORARY STRUCTURE/PARTITION AND WHIC H WERE NOT IN THE NATURE OF REGULAR REPAIR AS CONTEMPLATED IN SECTI ON 24(1) OF THE ACT AND MOREOVER THE EXPENSES WERE INCURRED AGAIN ST INCOME. IN VIEW OF THE ABOVE, THE DISALLOWANCES WERE NOT WARRANTED. ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005- -- -06 0606 06 17. IN RESPECT OF ASSESSMENT YEAR 2005-06, THE LD AR AL SO MADE APPLICATION UNDER 46A FOR ADMISSION OF ADDITIONAL EVI DENCE WITH RESPECT TO QUERY WHEREBY ASSESSEE WAS ASKED TO SHOW CAUSE A S TO WHY DEDUCTION U/S 10B BE NOT DISALLOWED. THE LD CIT(A) AF TER OBTAINING REMAND REPORT ACCEPTED THE ADDITIONAL EVIDENCE. THE LD CIT(A) AFTER GOING THROUGH THE SUBMISSIONS MADE BY ASSESSEE HELD AS UNDER :- 1. THE GROUNDS RELATING TO REOPENING OF CASES FOR THE ASSESS MENT YEAR 2001-02, 2002-03, 2003-04 AND 2004-05 WERE REJ ECTED. 2. THE CLAIM OF THE ASSESSEE WITH RESPECT TO DEDUCTION U/S 1 0B WAS ACCEPTED IN ALL THE ASSESSMENT YEARS. 3. IN THE ASSESSMENT YEAR 2003-04, THE DISALLOWANCE OF MAINTENANCE EXPENSES AMOUNTING TO ` .14,06,505/- WAS UPHELD ITA NO2837TO 2839,46854686/DEL/09 &2010 & 13 13 WHEREAS DISALLOWANCE OF DEPRECIATION ON ELECTRICAL IN STALLATIONS AMOUNTING TO ` .18,76,004/- WAS DELETED. 18. FOR THE SAKE OF CONVENIENCE, RELEVANT PORTION OF LD CIT(A)S ORDER IN RESPECT OF ASSESSMENT YEAR 2003-04 AND ASSESSMENT YEAR 2 005-06 COVERING BOTH DISALLOWANCE OF DEPRECIATION AND MAINT ENANCE EXPENSES AND ADMISSION OF DEDUCTION U/S 10B ARE REPRODUCED BELO W:- ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005 ASSESSMENT YEAR: 2005- -- -06 0606 06 THE DISALLOWANCE HAS BEEN MADE BY THE AO PRIMARILY O N TWO GROUNDS, ONE, THAT THE ASSESSEE HAS MADE ONLY ONE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FOR BOTH THE UNDERTAKIN GS (UNITS), WHICH ARE ENGAGED IN THE SAME BUSINESS. THE SECOND OBJEC TION OF !HE AO IS THAT AS PER THE ACCOUNTS OF THE ASSESSEE IT W AS CALCULATED THAT MAJORITY OF THE ASSETS, PRECISELY 51.7 8% WERE USED IN THE OLD UNDERTAKING, THEREFORE, IT EXCEEDS TH E MAXIMUM LIMIT OF 20% PRESCRIBED UNDER THE PROVISIONS OF SECTION 10B. AS REGARDS, THE FIRST OBJECTION OF THE AO, I AM NOT CONV INCED AT ALL WITH THE VIEW OF THE AO AS IT IS NOT NECESSARY FOR THE ASSESSEE TO MAKE SEPARATE P&L ACCOUNT AND BALANCE SHEET FOR DIFF ERENT UNITS FOR AVAILING THE CLAIM OF DEDUCTION U/S 10B. IN THE CASES RELIED UPON BY THE APPELLANT SPECIFICALLY THE CASE OF M/S. GA NGA SAGAR CORPORATION LTD. 92 ITR 173 AND M/S. ORISSA CEMENT LTD . 200 ITR 36 OF JURISDICTIONAL DELHI HIGH COURT, IT WAS HELD TH AT HAVING A SINGLE P&L ACCOUNT AND BALANCE SHEET CAN NOT BE A GR OUND FOR REJECTING THE CLAIM OF DIFFERENT UNITS. AS REGARDS, TH E SECOND OBJECTION OF THE AO, IT IS NOTED THAT THE AO HAS NOT PROPERLY APPRECIATED THE FULL FACTS OF THE CASE. AFTER A CAREF UL PERUSAL OF THE DOCUMENTS/ACCOUNTS OF THE APPELLANT, IT IS NOTED T HAT MOST OF THE PLANT & MACHINERY PURCHASED BY THE APPELLANT DUR ING THE AY 2000-01 WAS INSTALLED AT THE NEW UNIT OF GURGAON AND ONLY THE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 14 14 PURCHASE .BILLS WERE ISSUED IN THE NAME OF THE ASSESSEE COM PANY MENTIONING THE ADDRESS OF THE OLD UNIT WHICH ALSO HAPP ENS TO BE THE REGISTERED OFFICE OF THE COMPANY. IT APPEARS THA T SINCE THE ADDRESS ON PURCHASE BILLS OF NEW MACHINERY IS OF OLD UN IT, SOLELY ON THIS BASIS, THE AO HAS PRESUMED THAT THE MACHINERY H AS BEEN UTILIZED IN THE EXISTING OLD UNIT WHEREAS THE APPELLA NT HAS SUFFICIENT DOCUMENTARY EVIDENCE TO SHOW THAT MACHINER Y WAS INSTALLED IN NEW UNIT. ~ALSO SEEN THAT ON THE BASIS OF INSTALLMENT REPORTS THE PERCENTAGE OF OLD MACHINERY ONLY 3.92% O R WDV BASIS AND 6.82% ON GROSS VALUE BASIS AS AGAINST ASSESSING OFFICERS CALCULATION OF 51.78%. IT IS ALSO A FACT TH AT THE SPECIFIC QUERY REGARDING THIS ISSUE WAS MADE BY ASSESSING OFFICER AT THE FAG END OF THE ASSESSMENT I.E. ON 12.12.07 FIXING THE D ATE OF HEARING IN LAST WEEK OF DEC., 2007 AND THE ASSESSMENT OR DER WAS FINALIZED ON 28.12.07. FROM THESE DETAILS, IT IS NOTED THAT SUFFICIENT OPPORTUNITY WAS NOT AVAILABLE TO THE ASSESSEE, THEREFORE, THE FRESH EVIDENCE TO PROVE ITS CASE, DESERV ES ADMISSION IN THE INTEREST OF JUSTICE. THE EVIDENCE SUBMI TTED BY THE APPELLANT ARE THE INSTALLATION REPORT ETC. WHICH ARE PART OF THE BOOKS OF ACCOUNTS AND SUPPORTING DOCUMENTS, WHICH CLEA RLY INDICATES THAT THE NEW PLANT AND MACHINERY WAS INSTALL ED AT THE NEW UNIT. IN THE REMAND REPORT DATED 11.9.08 ALSO, T HE AO HAS THOUGH OBJECTED TO THE FRESH EVIDENCE ON THE GROUND THAT PROPER OPPORTUNITY WAS GIVEN TO THE ASSESSEE AT THE TIME OF ASSESSMENT, HOWEVER HE HAS NOT DISPUTED THE EVIDENCE ON MERIT, I AM ALSO CONVINCED WITH THE SUBMISSION OF THE APPELLA NT THAT THE OLD UNIT DOES NOT EVEN HAVE SUFFICIENT SPACE WHERE SUCH A LARGE SCALE EXPANSION IS POSSIBLE AS IT IS A COMPARATIVELY VERY SMALL PREMISES OF OLD UNIT (1070 SQ. FT.) AS COMPARED TO THE NEW UNIT OF GURGAON (27000) SQ.FT. THEREFORE, ON THE BASIS OF THE EVIDENCE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 15 15 MADE AVAILABLE DURING THE APPEAL PROCEEDINGS, AS WELL AS CONSIDERING OVERALL FACTS AND CIRCUMSTANCES OF THE CASE , IT IS HELD THAT THE DEDUCTION U/S 10B IS ALLOWABLE TO THE APPELL ANT AS IT FULFILLS ALL THE CONDITIONS OF SECTION 10B. THE REASONI NG GIVEN BY THE AO ARE NOT BASED ON PROPER APPRECIATION OF FULL FACTS/EVIDENCE PRODUCED BY THE ASSESSEE. ASSESSMENT YEAR: 2003 ASSESSMENT YEAR: 2003 ASSESSMENT YEAR: 2003 ASSESSMENT YEAR: 2003- -- -04: 04: 04: 04: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, O RDER OF THE A.O SUBMISSIONS MADE BY THE ID. AR APPEARING FOR THE AP PELLANT. IN THE RE-ASSESSMENT PROCEEDINGS THE AO HAS ALSO DISALLOW ED A SUM OF RS. 18,76,004/- TOWARDS DEPRECIATION ON ELECTRI CAL INSTALLATION AND RS. 14,06,505/- TOWARDS MAINTENANCE E XPENSES WHICH WERE ALLOWED DURING ORIGINAL ASSESSMENT U/S 143(3 ). THE DISALLOWED DEPRECIATION AND MAINTENANCE EXPENSES ON TH E GROUND THAT SINCE THE INCOME OF LETTING OUT OF THE F ACTORY PREMISES IS INCOME FROM HOUSE PROPERTY DEPRECIATION CAN NOT BE ALLOWED AS THE ASSESSEE HAS ALREADY CLAIMED 30% DEDUCTION U/S 24(1). IT APPEARS THAT THE AO HAS OVERLOOKED TWO IMPO RTANT ASPECTS OF T FIRST, THE DEDUCTION WAS ALLOWED U/S 143(3 ) IN ORIGINAL ASSESSMENT, THE DISALLOWANCE IN RE-ASSESSMENT PROCEEDINGS WILL TANTAMOUNT TO CHANGE IN OPINION UNL ESS THE AO HAS STRONG REASONS IN SUPPORT OF THE CHANGED OPINION WH ICH COULD INDICATE THAT EARLIER VIEW WAS EITHER LEGALLY INCORRECT OR PERVERSE. FURTHER, THE AO HAS ALSO IGNORED THE SECOND AGREEMENT OF THE APPELLANT REGARDING MAINTENANCE SER VICES PROVIDED TO THE TENANT, WHEREIN IT WAS AGREED THAT T HE MAINTENANCE AND REPAIRS OF ELECTRICAL INSTALLATIONS WI LL BE CARRIED OUT BY THE APPELLANT. SINCE, THE MAINTENANCE CHARGE S RECEIVED BY THE APPELLANT CONSTITUTE A COMPREHENSIVE LUMP SUM P AYMENT AND THIS INCOME IS TAXED AS INCOME FROM OTHER SOURCES, ITA NO2837TO 2839,46854686/DEL/09 &2010 & 16 16 THEREFORE, ACTUAL EXPENDITURE INCLUDING DEPRECIATIO N SHOULD BE DEDUCTED UNDER THE PROVISION OF SEC. 57 OF I.T. ACT. ACCORDINGLY, THE DISALLOWANCE OF DEPRECIATION ON ELECTRICAL INSTAL LATION AMOUNTING TO RS. 18,76,004/- MADE BY THE AO IS NOT JU STIFIED HENCE THE SAME IS DELETED. AS REGARDS, THE MAINTENANCE EXPENSES OF RS. 14,06,505/- IT IS NOTED THAT THESE EXPENSE RELATES TO THE MAINTENANCE O F BUILDING. SINCE THE APPELLANT HAS ALREADY BEEN GIVEN 30% STRAI GHT DEDUCTION UNDER THE HEAD INCOME FROM HOUSE PROPERTY, IT IS HELD THAT THE SAME HAS TAKEN CARE OF ALL THE EXPENSES ON RE PAIR AND MAINTENANCE OF THE BUILDING. ACCORDINGLY, THE DISALL OWANCE OF THESE EXPENDITURE IS UPHELD. THEREFORE THE DISALLOWANC E MADE BY THE AO IS RESTRICTED TO RS. 14,06,505/- ONLY. 19. AGGRIEVED WITH THE ORDER OF LD CIT(A) THE REVEN UE HAS FILED APPEALS BEFORE THIS TRIBUNAL ON ALL THE DELETIONS MAD E BY LD CIT(A). THE REVENUE HAS ALSO CHALLENGED THE ACCEPTANCE OF ADD ITIONAL EVIDENCE IN THE ASSESSMENT YEARS 2001-02, 2003-04 & 2005-06. THE ASSESSEE HAS FILED CROSS OBJECTIONS WITH RESPECT TO REOPENING OF THE CASES FOR ASSESSMENT YEAR 2001-02 AND 2003-04. IN ASSESSMENT YEAR 20 03-04, THE ASSESSEE HAS ALSO OBJECTED TO UPHOLDING THE ORDER OF ASSESSING OFFICER WITH RESPECT TO DISALLOWANCE OF MAINTENANCE E XPENSES AMOUNTING TO ` .14,06,505/-. 20. BEFORE US, THE LD AR OF THE ASSESSEE FILED SYNOPSIS ON DATED 12.3.2012 AND DATED 9.4.2012 WHEREIN HE EXPLAINED T HE CHRONOLOGY EVENT STARTING FROM ASSESSMENT YEAR 1998-99 AND WHEREIN IT WAS EXPLAINED THAT HOW THE ASSESSEE COMPANY INITIALLY STARTE D FROM OKHLA DELHI AND CLAIMED DEDUCTION U/S 80HHE WHICH WAS NEVER ALLOWED AND THEM SIMULTANEOUSLY DURING ASSESSMENT YEAR 1996-97 STARTED SETTING UP ANOTHER UNIT AT GURGAON BY MAKING INVESTMENT INTO LAND & BUILDING. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 17 17 THE BUILDING WAS PARTLY COMPLETED DURING ASSESSMENT YEAR 1999-2000 & EXPENDITURE WAS INCURRED AS UNDER:- I) LAND ` .19.56 LAKHS. II) BUILDING ` .107.00 LAKHS III) ELECTRICAL INSTALLATION. ` . 28.08 LAKHS 21. THE LD AR FURTHER ARGUED AND READ FROM SYNOPSIS TH AT DURING ASSESSMENT YEAR 2000-01 AND 2001-02 FURTHER EXPENDITURE TO THE TUNE OF ` .160.41 LAKHS WAS INCURRED ON BUILDING, COMPUTER, ELE CTRICAL INSTALLATION AND FURNITURE. THE LD AR FURTHER ARGUED THAT AFTER COMPLETION OF FORMALITIES AND AFTER GETTING REGISTRA TION OF THE NEW UNIT UNDER STPI, THE NEW UNIT OF THE ASSESSEE STARTED WORKING AS BACK OFFICE AND DATA OPERATOR FOR QUADRANT USA AND FIRST CLAIMED DEDUCTION U/S 10B FOR ASSESSMENT YEAR 2001-02 IN RESPECT OF PROFITS FRO M THE SAID UNIT AND CONTINUED TO AVAIL SUCH DEDUCTION UNTIL ASSESSM ENT YEAR 2005- 06 WHEN THE ASSESSING OFFICER IN THE ASSESSMENT ORDER DIS ALLOWED THE CLAIM OF DEDUCTION U/.S 10B OF THE ACT ON THE FOLLOW ING GROUNDS:- I) THAT THE ACTIVITY OF THE ASSESSEE COMPANY WAS SAME AND ACTIVITIES OF GURGAON MERE EXPANSION OF BUSINESS ALREADY IN EXISTENCE. II) THAT ASSESSEE WAS PREPARING SINGLE P&L ACCOUNT AND TH EREFORE THERE WAS ONLY ONE SINGLE ENTITY. III) THAT ASSESSEE HAS TRANSFERRED ABOUT 51.78% OF ASSET F ROM EXISTING BUSINESS AND THE AMOUNT OF TRANSFERRED ASSETS WAS MORE THAN THRESH-HOLD LIMIT OF 20% AS CONTEMPLATED IN SECTI ON 10B OF THE ACT. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 18 18 22. THE LD AR FURTHER SUBMITTED THAT DEDUCTION DISALL OWED U/S 80HHE OF THE ACT FOR ASSESSMENT YEAR 1998-99 WAS IN RESP ECT OF UNDERTAKING AT OKHLA INDUSTRIAL AREA AND NOT FOR GU RGAON UNIT AND THEREFORE HE ARGUED THAT FINDING OF ASSESSING OFFICER T HAT ASSESSEE WAS HAVING A SINGLE UNDERTAKING WAS FACTUALLY INCORRECT. 23. THE LD AR SUBMITTED THAT DEDUCTION CLAIMED UNDER SECTION 80- HHE OF THE ACT WAS FOR ASSESSMENT YEAR 1998-99 WHEN TH E ASSESSEE WAS ENGAGED IN THE BUSINESS OF DATA OPERATOR WHEREAS TH E NEW UNIT AT GURGAON WAS ENGAGED IN THE ACTIVITIES OF SOFTWARE DEVE LOPMENT, CARRYING OUT OF BACK OFFICE WORK AND DATA OPERATOR FOR QUARDANT USA AS ALSO FOR OTHER CLIENTS. THUS, IT WAS SUBMITTED THAT ASSE SSING OFFICER HAD ERRED IN ASSUMING THAT EVEN PRIOR TO CLAIM OF DE DUCTION CLAIMED BY THE ASSESSEE U/S 10B, THE ASSESSEE WAS ENGAGED IN THE ACTIVIT Y OF DEVELOPMENT OF SOFTWARE WHEREAS THE FACT WAS THAT DELH I UNIT WAS WORKING ONLY AS A DATA OPERATOR. 24. OUR ATTENTION WAS INVITED BY LD AR ON PAPER BOOK 2 AT PAGES 04 TO 12 WHEREIN VARIOUS CERTIFICATES/DOCUMENTS EVIDENCIN G THE ESTABLISHMENT OF NEW UNDERTAKING AT GURGAON WAS PLACED . THE LD AR ALSO STRESSED THAT PRIOR TO ASSESSMENT YEAR 2000-01 THE ASSESSE E HAD ONLY SEVEN EMPLOYEES AND THEREAFTER WHEN IT SET UP NEW UNDERTAKING AT GURGAON IT HAD 182 EMPLOYEES. HE FURTHER SUBMITTED THAT NEW UNIT LAY OUT PLANS HAD THE CAPACITY FOR 182 EMPLOYEES AND MORE AND WAS BIG ENOUGH TO HAVE LARGE NUMBER OF COMPUTERS WHICH W AS NOT POSSIBLE IN THE SMALL AREA IN THE LAY OUT PLAN OF DELHI UNIT. IN THIS RESPECT PAGES 278 TO 282 OF PAPER BOOK 2 WERE REFERRED. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 19 19 25. REGARDING PREPARATION OF SINGLE P&L ACCOUNT, THE LD AR SUBMITTED THAT AS PER SETTLED LAW, THE ASSESSEE WAS NOT EVE N REQUIRED TO MAINTAIN SEPARATE BOOKS OF ACCOUNTS MUCH LESS TO PREP ARE P&L ACCOUNT. RELIANCE WAS PLACED ON THE FOLLOWING JUDGME NTS:- 1. CIT V. GANGA SAGAR CORPORATION LTD. 92 ITR 173 (DEL .). 2. ORISSA CEMENT LTD. V. CIT 200 ITR 636 (DEL.). 3. TEXTILE MACHINERY CORPORATION LTD. V. CIT 107 ITR 1 95 (SC). 4. CIT V. INDIAN ALUMINUM CO. LTD. 108 ITR 367 (SC). 5. MAHINDRA SINTERED PRODUCTS LTD. V. CIT 177 ITR 111 ( BOM.). 6. METROPOLITAN SPRINGS (P) LTD. 191 ITR 288 (BOM.). 7. CIT V. PREMIER COTTON MILLS LTD. 240 ITR 434 (MAD.). BESIDES ABOVE, OTHER CASE LAWS WERE RELIED WHICH ARE NU MBERED FROM 8 TO 17 AT PAGE 8 OF SYNOPSIS DATED 12.3.2012. 26. THE LD AR ALSO ARGUED THAT THE FACT THAT ASSESSEE HA D CLAIMED DEDUCTION U/S 80HHE OF THE ACT IN EARLIER YEAR WAS AN IRRELEVANT CONSIDERATION AS WAS HELD IN THE CIT V. EXCEL SOFTECH LTD. REPORTED IN 219 CTR 405 (P&H) AND JUDGMENT OF HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT V. LEGATO SYSTEMS INDIA PRIVATE LTD . REPORTED IN 203 CTR 101 (DEL.) WHEREIN IT WAS HELD THAT PRIOR CLAIM OF DEDUCTION U/S 80HHE OF THE ACT WAS NOT AN EMBARGO TO CLAIM DEDUCTI ON U/.S 10 OF THE ACT IF ALL OTHER CONDITIONS WERE SATISFIED. THE LD AR ALSO ARGUED THAT CLAIM OF ASSESSING OFFICER THAT OLD MACHINERY BEING 51 .78% FROM THE EXISTING BUSINESS WAS TRANSFERRED TO NEW UNDERTAKING WAS F ACTUALLY INCORRECT. IN VIEW OF THE FACT THAT WHILE CALCULATI NG THE ASSESSING OFFICER HAD OVER LOOKED THE INVESTMENT IN ELECTRICAL INSTALLATION AMOUNTING TO ` .1.19 CRORES AND OFFICE EQUIPMENT TO THE EXTENT OF ` .6.29 CRORES. THEREFORE, HE ARGUED THAT IF THESE VAL UES ARE TAKEN INTO ITA NO2837TO 2839,46854686/DEL/09 &2010 & 20 20 ACCOUNT THE PERCENTAGE AMOUNT OF ASSETS TRANSFERRED FR OM EXISTING BUSINESS COMES DOWN TO 3.97%. IN THIS RESPECT PAGES 69 TO 70 OF PAPER BOOK 4 WERE REFERRED TO WHEREIN THE DETAILED CALCULATION WAS MADE. THE LD AR ALSO ARGUED THAT EVEN IF THERE WAS AN EXPANSION IN THE EXISTING UNIT EVEN THEN THE DEDUCTION CANNOT BE DISALLOWED. RELIANCE WAS PLACED IN A NUMBER OF CASES PLACED AT PAG E 9 & 10 OF SYNOPSIS DATED 12.3.2012 LASTLY, THE LD AR ARGUED THAT NO DISALLOWANCE U/S 10B HAS BEEN IN THE ASSESSMENT YEAR 2006- 07 WHEREIN THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT. 27. AS REGARDS THE ADMISSION OF ADDITIONAL EVIDENCE UND ER RULE 46A OF IT RULES IS CONCERNED, THE LD AR SUBMITTED THAT LD ASSESSING OFFICER HAD COMMENCED THE PROCEEDINGS IN SEPTEMBER, 2007 WHI CH WAS ATTENDED BY AUTHORIZED REPRESENTATIVE OF ASSESSEE ON 10 TH OCTOBER, 2007AND REPLY WAS FILED. THEREAFTER, THE CASE WAS ATTE NDED ON 6 TH NOVEMBER, 2007 AND 21 ST NOVEMBER, 2007 WHEREIN REQUIRED DOCUMENTS WERE FILED. THE LD AR ARGUED THAT JUSTIFICA TION FOR CLAIMING DEDUCTION U/S 10B WERE DEMANDED AT THE FAG END FOR W HICH SUBMISSIONS WERE FILED ON 12.12.2007 AND THEREAFTER AUT HORIZED REPRESENTATIVE VISITED THE OFFICER ALONG WITH THE ASSESSE E IN THE LAST WEEK OF DECEMBER, 2007 WHEN ASSESSING OFFICER TOLD THEM THAT HE WAS NOT IN A POSITION TO ACCEPT THE DETAIL. THE ASSESSEE TH EN SENT THE DETAILS THROUGH POST. THEREFORE, IN VIEW OF THE ABOV E, THE LD AR ARGUED THAT ASSESSEE WAS DENIED VALID AND PROPER OPPORT UNITY BY ASSESSING OFFICER AS SUCH ADDITIONAL EVIDENCE WAS PROPERL Y ADMITTED. 28. HE FURTHER ARGUED THAT MERE FACT THAT DETAILS WE RE SOUGHT BY ORDER SHEET ENTRY DATED 28.9.2007 DOES NOT BY ITSELF SH OW THAT PROPER OPPORTUNITY WAS GRANTED. THEREFORE, IN SUCH CIRCUMSTA NCES, THE LD ITA NO2837TO 2839,46854686/DEL/09 &2010 & 21 21 CIT(A) AFTER CALLING FOR REMAND REPORT ADMITTED THE ADDITIONAL EVIDENCE BY RECORDING FINDING AT PAGE 8 & 9 OF THE ASSESSMENT OR DER. 29. WITH RESPECT TO DEPARTMENTAL APPEALS FOR ASSESSMENT YEAR 2001-02, 2002-03, 2003-04 & 2004-05 THE LD AR ARGUE D THAT LD ASSESSING OFFICER HAD RELIED UPON THE FINDING FOR ASSESSM ENT YEAR 2005-06 AND AS SUCH FOLLOWING HIS OWN ORDER FOR ASSESSMENT YEAR 2005-06 THE LD CIT(A) HAD DELETED THE DISALLOWANCE. SO FAR AS THE CROSS OBJECTION FOR ASSESSMENT YEAR 2001-02 IS CONCERNED, THE LD AR SUBMITTED THAT PROCEEDINGS U/S 147 HAD BEEN INITIATED ON THE GROUND THAT DEDUCTION U/S 80HHE WAS CLAIMED IN THE YEAR. THE MERE FACT THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80HHE OF THE ACT IN EARLIER YEAR CANNOT BE A GROUND TO ASSUME THAT DEDUCTION CLAI MED U/S 10B WAS NOT IN ACCORDANCE WITH LAW. MOREOVER, HE ARGUED THAT FOR ASSESSMENT YEAR 2001-02 NO APPROVAL WAS OBTAINED PRIOR T O ISSUE OF NOTICE U/S 148 OF THE ACT AND IN FACT THE APPROVAL W AS OBTAINED FOR ASSESSMENT YEAR 2003-04 AND IN VIEW OF THE CASE OF KURBA N HUSSAIN IBRAHIMJI MITHIBORWALA REPORTED IN 82 ITR 821, THE ENTIRE RE-ASSESSMENT PROCEEDINGS WERE INVALID AND WITHOUT JURISDICTION. B ESIDES THE ABOVE, THE LD AR ARGUED THAT ACIT HAD GRANTED SAID PERMISSION MECHANICALLY AND THEREFORE APPROVAL SO GRANTED WAS INVALID RENDERI NG THE PROCEEDINGS INITIATED ILLEGAL AND UNTENABLE IN LAW. RELIANCE WAS PLACED IN THE FOLLOWING JUDGMENTS:- 1. CHHUGANMAL RAJPAL V. SP CHALIHA 79 ITR 603 (SC). 2. UNITED ELECTRICALS V. CIT 258 ITR 317 (DEL.). 3. MOHINDER SINGH MALIK V. CCIT 267 ITR 716 (P&H). 4. SIGNSATURE HOTELS (P) LTD. V. ITO 338 ITR 51 (DEL.). 30. AS REGARDS THE CROSS OBJECTION FOR ASSESSMENT YEAR 200 3-04, THE LD AR SUBMITTED THAT RE-ASSESSMENT PROCEEDINGS WERE INI TIATED ON THE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 22 22 BASIS OF AUDIT OBJECTION AND WHICH CANNOT BE A GROUND TO INITIATE PROCEEDINGS U/S 147 OF THE ACT AS IT CONSTITUTE CHANG E OF OPINION. RELIANCE WAS PLACED IN THE FOLLOWING JUDGMENTS:- 1. CIT V. KELVINATOR OF INDIA LIMITED. 256 ITR 1 (SC). 2. CIT V. KERLVINATOR OF INDIA LTD. OR CIT V. EICHER L IMITED. 320 ITR 561(SC). 3. TRANSWORLD INTERNATIONAL INV. V. JCIT. 273 ITR 242 ( DEL.). & 4. CIT V. FORAMER FRANCE 264 ITR 566. 31. THE LD AR FURTHER SUBMITTED THAT CLAIM OF DEDUC TION U/S 80HHE OF THE ACT IN EARLIER YEARS CANNOT BE A GROUND TO ASSUME THAT DEDUCTION CLAIMED UNDER SECTION 10B WAS NOT IN ACCORDANCE WITH LAW. MOREOVER, THE LD ACIT HAD GRANTED THE SAID PERMISSION FOR REOPEN ING OF THE CASES MECHANICALLY AND THEREFORE APPROVAL SO GRANTED WAS IN VALID. IN VIEW OF THE ABOVE, THE LD AR ARGUED THAT RE-ASSESSMENT PROCEE DINGS IN THESE TWO YEARS WERE VOID AB INITIO AND SHOULD BE QUASHED. 32. AS REGARDS DISALLOWANCE OF MAINTENANCE EXPENSES OF ` .14,06,505/-, THE LD AR SUBMITTED THAT LD CIT(A) HA D NOTED IN THE YEAR UNDER CONSIDERATION THAT ASSESSEE HAD RECEIVED A SUM OF ` .1,52,57.437/- TOWARDS PROVIDING MAINTENANCE SERVICES IN ADDITION TO RENTAL INCOME OUT OF WHICH THE SUMS OF ` .18,76,004/- AND ` .14,06,505/- WERE DEDUCTED TOWARDS DEPRECIATION ON ELECTRICAL INST ALLATION AND MAINTENANCE EXPENSES. THE ASSESSING OFFICER HAD DISALLOWE D BOTH THE CLAIM OF DEPRECIATION AND MAINTENANCE EXPENSES. HOWEV ER, LD CIT(A) DELETED THE DISALLOWANCE OF DEPRECIATION WHICH HAS BE EN DISPUTED BY THE REVENUE IN APPEAL BY WAY OF GROUND NO.4 OF GROU NDS OF APPEALS FOR ASSESSMENT YEAR 2003-04., THE LD AR FURTHER ARGUED THA T BOTH ASSESSING OFFICER & LD CIT(A) HAS FAILED TO APPRECIATE N ATURE OF ITA NO2837TO 2839,46854686/DEL/09 &2010 & 23 23 EXPENSES INCURRED AND SUBMITTED THAT ENTIRE EXPENDITUR E WAS OF THE NATURE CONTEMPLATED IN SECTION 24(1) OF THE ACT AND FURTHER WHEN THERE IS MAINTENANCE INCOME APART FROM RENTAL INCOME THEN NO DISALLOWANCE SHOULD HAVE BEEN MADE. AS REGARDS THE DISALLOWANCE OF DEPRECIATION, THE LD AR RELIED UPON THE FINDINGS OF LD CIT(A) WHER EIN SUCH SUM WAS ALLOWED AS A STATUTORY DEDUCTION U/S 57 OF THE ACT. 33. ON THE OTHER HAND, THE LD DR ARGUED THAT THE ASSE SSEE STARTED CLAIMING EXEMPTION U/S 10B OF THE ACT FROM ASSESSMENT YE AR 2001-02 ON THE BASIS OF REGISTRATION OF UNIT AT STPI UNIT. DUR ING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005-06, THE ASSESSING OFFI CER NOTED CERTAIN DISCREPANCIES ON ACCOUNT OF WHICH THE ASSESSEE WA S FOUND TO BE NOT FULFILLING ALL THE CONDITIONS LAID DOWN IN T HE SAID SECTION SO AS TO CLAIM EXEMPTION U/S 10B OF THE ACT. HE FURTHER SUBMI TTED THAT FOR CLAIMING DEDUCTION U/S 10B, UNDERTAKING MUST SATISFY CE RTAIN CONDITIONS AND ONE OF THE CONDITIONS TO BE FULFILLE D BY UNDERTAKING IS THAT NEW UNDERTAKING SHOULD NOT BE FORMED BY SPLITTI NG/RECONSTRUCTION OF BUSINESS AND IN ANY CONDITION THE PREVIOUSLY USED MAC HINERY SHOULD NOT EXCEED MORE THAN 20% OF VALUE OF ENTIRE MACHINE RY BEING USED IN THE SAID UNDERTAKING. HE FURTHER ARGUED THAT THOUGH THE ASSESSEE HAD SOUGHT ALL STATUTORY APPROVAL FOR SETTING UP OF UNIT I N GURGAON BUT IT WAS NOT PROVED THAT WHETHER ACTUAL SOFTWARE DEVELOPME NT WAS EVER CARRIED OUT IN THE SAID UNIT IN FINANCIAL YEAR 2000- 001 RELEVANT TO ASSESSMENT YEAR 2001-02. HE FURTHER ARGUED THAT ASSESSEE CA NNOT TAKE THE ALTERNATIVE PLEA THAT EVEN IN THE CASE OF E XPANSION IN EXISTING UNIT DEDUCTION U/S 10B SHOULD BE ALLOWED MERELY BECAU SE FOR CLAIMING DEDUCTION, IT IS MANDATORY THAT UNDERTAKING HAS BEEN PROVED AS 100% EXPORT ORIENTED UNDERTAKING. HE FURTHER ARGUED THAT IF ASSESSEE WANTED TO AVAIL DEDUCTION IN EXISTING UNIT ON ACCOUNT OF EX PANSION OF ITS BUSINESS SEPARATE APPROVAL WAS REQUIRED FOR EXISTING UNIT FROM STPI AS ITA NO2837TO 2839,46854686/DEL/09 &2010 & 24 24 WAS HELD BY HON'BLE ITAT, HYDERABAD BENCH IN THE CASE OF INFOTECH PVT. LTD. V. CIT 85 ITD 325. IN THE EXISTING UNIT, THE A SSESSEE WAS NEVER ALLOWED TO AVAIL DEDUCTION U/S 80HHE THROUGH OUT ITS OPERATION AND IF THE ASSESSEE WANTED TO AVAIL DEDUCTION UNDER DIFFERENT SECTION OF THE ACT, SEPARATE STATUTORY APPROVAL WAS REQUIRED WHICH WA S ABSENT IN THE CASE OF THE ASSESSEE BECAUSE THE APPROVAL WAS NOT GRANTED FOR DELHI UNIT. THEREFORE, THE ALTERNATE PLEA TAKEN BY THE ASSE SSEE IS DEFECTIVE ON THE GROUND THAT ALL CONDITIONS ARE NOT FULFILLED FOR THIS PURPOSE WITH REFERENCE TO DELHI UNIT. 34. THE LD DR SUBMITTED THAT IN RESPECT OF CLAIM OF L D AR OF 182 EMPLOYEES IN THE NEW UNIT, THE LAY OUT PLAN OF GURGA ON UNIT HAD THREE FLOORS AND THESE WERE ONLY LAY OUT PLAN AND WHICH DID NOT PROVE WHETHER THE ASSESSEE COULD CARRY OUT ITS SOFTWARE DEVELO PMENT BUSINESS IN THE SAID UNIT DURING FINANCIAL YEAR 2000-01 AS THE LAY OUT PLAN WAS PREPARED ON 85.2001 ITSELF. THE LD DR FURTH ER ARGUED THAT DURING THE YEAR UNDER REFERENCE THE ASSESSEE COMPANY L EASED OUT THE PORTION OF ITS BUILDING SITUATED AT 27-ELECTRONIC CIT Y, SECTOR-18, TO DAKSH PVT. LTD. THEREBY EARNING RENTAL INCOME. HE FU RTHER ARGUED THAT LEASE AGREEMENT WAS FOR A PERIOD OF THREE YEARS COMMEN CING FROM IST FEBRUARY, 2000. THEREFORE, HE ARGUED THAT BECAUSE O F THESE FACTS OF LEASING OUT THIS PROPERTY, IT CAN BE SAID THAT PROPERT Y WAS NOT IN THE POSSESSION OF THE ASSESSEE BETWEEN IST FEBRUARY 2000 TO MAR CH, 2003 BUT IT WAS IN THE CONTROL OF TENANT WHO WOULD HAVE U TILIZED THE PREMISES FOR ITS OWN BUSINESS ACTIVITIES AND ON ACCOUNT O F UTILIZATION OF PREMISES THE LESSEE PARTY HAD PAID SUBSTANTIAL RENT AS WEL L AS MAINTENANCE CHARGES,. IN VIEW OF THE ABOVE, HE ARGUE D THAT AS TO HOW THE ASSESSEE COMPANY COULD DEPLOY 182 EMPLOYEES FOR ITS G URGAON UNIT DESPITE BEING THE FACT THAT ABOVE PREMISES WAS LEA SED OUT DURING THE PERIOD UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT ALL THE THREE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 25 25 FLOORS APPEARS TO HAVE BEEN GIVEN TO DAKSH.CO.COM BECA USE COPY OF LAY OUT PLAN OF THE ABOVE THREE FLOORS CONTAIN ONLY TENANTS NAME AND DOES NOT MENTION THE NAME OF THE ASSESSEE. THEREFORE, H E ARGUED THAT IN FACT THE ASSESSEE CARRIED OUT ITS SO-CALLED SOFTWARE WO RK IN ITS DELHI UNIT FOR WHICH NO SEPARATE APPROVAL WAS SOUGHT FROM CO MPETENT AUTHORITY AS REQUIRED U/S 10B OF THE ACT AND THEREFOR E WAS NOT ENTITLED FOR THE DEDUCTION. AS REGARDS LD ARS RELIANCE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF LEGATO SYSTEM S INDIA PVT. LTD. AND M/S INTRA SOFTWARE PVT. LTD. HE ARGUED THAT FACT S WERE DIFFERENT IN THOSE CASES AS IN THOSE CASES THE HON'BLE COURT HAD DECIDE D THAT CLAIM OF DEDUCTION U/S 80HHE OR IN OTHER SECTION IN EARLIER YEARS PUTS NO BAR IN CLAIMING DEDUCTION U/S 10B OF THE ACT. HOWEVER, I N THE ASSESSEES CASE THE FACT WAS THAT EITHER CLAIM OF DEDUCTION U/S 8 0HHE WAS DENIED OR NO SUCH CLAIM WAS MADE BY THE ASSESSEE. HENCE, HE ARG UED THAT RATIO LAID DOWN BY HON'BLE COURTS SUPRA WERE NOT APP LICABLE TO THE FACTS OF THE PRESENT CASE. 35. REGARDING PERCENTAGE OF UTILIZATION OF USED MACH INERY FROM THE EXISTING UNDERTAKING THE LD DR SUBMITTED THAT LD AR H AS INCLUDED THE VALUE OF ELECTRICAL EQUIPMENT AND PLANT & MACHINERY SO AS TO DETERMINE THE PERCENTAGE OF OLD MACHINERY BEING UTI LIZED IN GURGAON UNIT. IN THIS RESPECT HE SUBMITTED THAT ALL BILLS RELA TING TO PURCHASE OF COMPUTERS WERE RAISED AT DELHI UNIT OF THE ASSESSEE. HE F URTHER ARGUED THAT AS PER ASSESSEES OWN ADMISSION THAT BUILDING WAS COMP LETED BEFORE 31.3.1999 AND APPROVAL FOR SETTING UP OF STPI UNIT WAS TAKEN IN THE YEAR 2000 EVEN THEN PURCHASE OF COMPUTERS MADE AF TER 1.4.1999 HAVING ADDRESS OF DELHI OFFICE INSTEAD OF GURGAON OFFI CE. THEREFORE, HE ARGUED THAT WHATEVER EXPENSES CLAIMED TO HAVE BEEN IN CURRED ON ACCOUNT OF CONSTRUCTION OF BUILDING, ELECTRICAL INSTA LLATION WERE IN FACT FOR THE PURPOSE OF MAKING PREMISES WORKABLE, USEABLE SO THAT SAME ITA NO2837TO 2839,46854686/DEL/09 &2010 & 26 26 COULD BE LEASED OUT AND ULTIMATELY THE PREMISES WAS LEA SED OUT IN FEBRUARY, 2000. FURTHER HE ARGUED THAT DEFINITION OF BLOCK OF ASSET U/S 2(11) OF THE ACT WHERE TANGIBLE ASSET HAS BEEN DEFINED AS BUILDING, MACHINERY OR PLANT & MACHINERY AND FOR DEPRECIATION PURPOSE, FURNITURE, FIXTURE, ELECTRICAL FITTINGS ARE GROUPED TOGETHER WHERE DEPRECIATION IS ALLOWABLE @ 10% AND ON PLANT AND MA CHINERY @ 15% WHICH CLEARLY SHOWS THAT THESE ARE TWO DIFFERENT BLOCK OF ASSET AND IN NO WAY CAN BE CLUBBED TOGETHER SO AS TO ENABLE THE A SSESSEE TO BRING PERCENTAGE OF USED MACHINERY BELOW 20% OF THE THRESH HOLD LIMIT. AS REGARDS THAT ASSESSING OFFICER HAD MADE NO DISALLOWANCE U/S 10B OF THE ACT IN ASSESSMENT YEAR 2006-07, HE ARGUED THAT FOR INCOME TAX PURPOSE EACH YEAR IS A SELF CONTAINED SEPARATE YEAR AN D DOCTRINE OF RES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS AS DECIDED B Y HON'BLE SUPREME COURT IN THE FOLLOWING CASES:- 1. 24 ITR 506 SIR KIKABHAI PREMCHAND. 2. 52 ITR 335 ITO SITAPUR V. MURLIDHAR BHAGWAN DAS. 36. AS REGARDS CROSS OBJECTION OF LD AR, THE LD DR SUBMI TTED THAT NOTICES U/S 148 WERE ISSUED FOR ALL ASSESSMENT YEARS UNDER REFERENCE AFTER RECORDING PROPER REASONS SHOWING ESCAPEMENT OF IN COME AND ASSESSING OFFICER WAS WELL WITHIN HIS RIGHTS OF TAKING ACT ION U/S 148 OF THE ACT. HE FURTHER SUBMITTED THAT CERTAIN TECHNICAL KIND OF ERRORS WERE WELL TAKEN CARE OF BY THE PROVISIONS OF SECTION 292B O F THE INCOME TAX ACT, 1961. FURTHER HE ARGUED THAT ASSESSING OFFICER HAD TAKEN STATUTORY APPROVAL WHEREVER REQUIRED AND APPROVING A UTHORITY HAD APPLIED HIS MIND PROPERLY WHILE ACCORDING APPROVAL. HE FURTHER SUBMITTED THAT IT IS WELL SETTLED LAW THAT WHAT IS NEC ESSARY TO REOPEN THE ASSESSMENT IS NOT FINAL VERDICT BUT A PRIMA FACIE RE ASON AND ONCE SUCH REASON IS RECORDED BY ASSESSING OFFICER, HE ASSUMES JURI SDICTION ITA NO2837TO 2839,46854686/DEL/09 &2010 & 27 27 U/S 148 OF THE ACT. RELIANCE WAS PLACED IN THE CASE OF RAJAT EXPORTS & IMPORTS INDIA PVT. LTD. V. ITO 341 ITR 135 AND DESHRA J UDYOG V. ITO 318 ITR 6. FURTHER HE ARGUED THAT WHERE THERE WAS NO DISCUSSION ON THE ISSUE IN THE ASSESSMENT ORDER AND NO DETAILS WERE CAL LED FOR BY THE ASSESSING OFFICER OR WERE FILED BY THE ASSESSEE ON THE ISSUE. NO FINDING EITHER POSITIVE OR NEGATIVE WERE ARRIVED AT DURING T HE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE CASE CAN BE REOPENED BY THE A SSESSING OFFICER AND ASSESSEE CANNOT CHALLENGE THE INITIATION O F PROCEEDINGS MERELY ON THE BASIS THAT THERE IS A CHANGE OF OPINION. RELIANCE WAS PLACED IN THE CASE OF SK ENGINEERING CO.PVT. LTD. V . CIT (SC) 247 ITR 818 AND IN THE CASE REVATHY CP EQUIPMENT LTD. V. DC IT REPORTED IN 241 ITR 856 (MAD.). HE FURTHER ARGUED THAT IN THE C ASE OF JAI PRAKASH REPORTED IN 285 ITR 369, THE HON'BLE KERALA HIGH CO URT HAD RULED THAT EVEN IF THE ASSESSING OFFICER HAD DROPPED THE PROCEEDIN GS ON THE BASIS OF CERTAIN OBJECTIONS FILED BY THE ASSESSEE AND ISSUE A F RESH NOTICE U/S 148, THE ISSUE OF NOTICE WAS STILL VALID. HON'BLE HIGH COURT IN THE CASE OF AMAR INVESTMENT LTD. REPORTED IN 287 ITR 482 HELD TH AT A NOTICE ISSUED U/S 148 OF THE ACT BASED ON ASSESSMENT OR SUBSEQUENT YEAR I S VALID. IN THE LIGHT OF ABOVE HE ARGUED THAT IN THE PRESENT CASE BEFORE INITIATING AN ACTION U/S 147/148 OF THE ACT, THE ASSESSING OFFICER HAD MADE AN OPINION FOR OTHER YEARS ON THE BASIS OF FINDINGS OF ASSESSI NG OFFICER IN ASSESSMENT YEAR 2005-06 AND RATIO LAID DOWN OF HON'BLE HIGH COURT WAS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. 37. IN RESPECT OF ASSESSEES OBJECTION THAT PROCEEDINGS I NITIATED ON THE BASIS OF AUDIT OBJECTION CANNOT BE A GROUND TO IN ITIATE PROCEEDINGS U/S 147 OF THE ACT. IT WAS SUBMITTED THAT AUDIT OBJECT ION WAS NOT ONLY MADE A GROUND BUT WAS ONE OF THE GROUNDS. IN THIS CON NECTION RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF PVS BIDI PVT. LTD. 237 ITR 13 WHEREIN IT WAS HELD TH AT REOPENING OF ITA NO2837TO 2839,46854686/DEL/09 &2010 & 28 28 ASSESSMENT ON THE BASIS OF FACTUAL ERROR POINTED OUT BY T HE AUDIT PARTY WAS VALID. FURTHER HE ARGUED THAT ADDL. CIT BEFORE G RANTING APPROVAL FOR REOPENING THE ASSESSMENT HAD FULLY SATISFIED HIMSELF A ND HE WAS NOT REQUIRED TO RECORD REASONS FOR REOPENING SEPARATEL Y. HON'BLE DELHI HIGH COURT IN THE CASE OF MAYA 331 ITR 116 HAS HELD T HAT SECTION 151 ONLY TALKS ABOUT JCIT /ADDL. CIT TO BE SATISFIED ON T HE REASONS RECORDED BY THE ASSESSING OFFICER AND IN THE INSTANT CASE ADDL. CI T HAS RECORDED HIS SATISFACTION BY NOTING I AM SATISFIED. REGARDING ADMISSION OF ADDITIONAL EVIDENCE DURING APPELLATE PROCEEDINGS BY LD CIT(A) IT WAS ARGUED THAT ASSESSING OFFICER HAD GIVEN AMPLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE AND THE ASSESSEE WAS DULY ASKED TO FUR NISH THE DETAIL ON 28.9.2007 REGARDING ALL EVIDENCES TO SUBSTAN TIATE THE CLAIM OF EXEMPTION U/S 10B OF THE ACT. HOWEVER, THE ASSESSEE FAI LED TO COMPLY AND THEREAFTER ANOTHER OPPORTUNITY WAS GIVEN ON 12.1 2.2007 WHICH WAS ALSO NOT FULLY COMPLIED BY THE ASSESSEE AND AS THE CA SE WAS GETTING TIME BARRED BY 31.12.2007, THE ASSESSING OFFICE R PROCEEDED TO FINALIZE THE ASSESSMENT. THE PLEA TAKEN BY THE ASSESSEE BEF ORE LD CIT(A) WAS NOT CORRECT AND ADMISSION OF ADDITIONAL EVI DENCE BY LD CIT(A) DURING APPELLATE PROCEEDING WAS ERRONEOUS AND IN CONTRAVENTION OF RULE 46A. AS REGARDS CLAIM OF EXPENSES AGAINST RE NTAL INCOME, IT WAS ARGUED THAT ASSESSEE HAD ALREADY CLAIMED EXPENSES @ 3 0% WHICH COVERED ALL EXPENSES EXCEPT MUNICIPAL TAX AND ASSESSING OFFICER HAD CORRECTLY DISALLOWED THE EXPENSES AND DEPRECIATION ON ASSETS LEASED OUT ON RENT. 38. IN HIS REJOINDER THE LD AR FILED SYNOPSIS ON DATED 21.8.2012 AND ARGUED ON THE OBJECTION RAISED BY LD DR ONE BY ONE. REGARDING OBJECTION OF LD DR THAT IT WAS NOT PROVED WHETHER AC TUAL SOFTWARE DEVELOPMENT ACTIVITIES WERE EVER CARRIED ON BY THE A SSESSEE, IT WAS SUBMITTED THAT OBJECTION AT THIS POINT OF TIME BY DISR EGARDING THE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 29 29 FINDING OF ASSESSING OFFICER ARE NOT JUSTIFIED AND LD DR WAS ATTEMPTED TO SET UP A NEW CASE. HE FURTHER ARGUED THAT ASSESSING O FFICER IN HIS ASSESSMENT ORDER HAD ALREADY ADMITTED THAT ASSESSEE COMPANY HAD USED OLD MACHINERY OF 51.78%. MOREOVER, THE LD DR HA S NOT DISPUTED SOFTWARE DEVELOPMENT WORK FROM ASSESSMENT YEAR 2002-03 A ND IN ASSESSMENT YEAR 2005-06. THE ONLY OBJECTION RAISED BY TH E ASSESSING OFFICER WAS REGARDING USE OF OLD MACHINERY EXCEEDING SPECIFIED STATUTORY LIMIT AND THERE WAS NO ADVERSE FINDING THAT GURGAON UNIT DID NOT CARRY ANY ACTIVITY OF DEVELOPMENT OF SOFTWARE. 39. REGARDING OBJECTION OF LD DR WITH RESPECT TO CLA IM OF LD AR FOR CLAIM U/S 10A, THE LD AR SUBMITTED THAT ASSESSEE HAD NEV ER CLAIMED IN FACT DEDUCTION U/S 10B FOR DELHI UNIT AND THEREFORE THERE WAS NEITHER ANY REQUIREMENT AND NOR ANY APPROVAL WAS OBTAINED FO R DELHI UNIT. 40. REGARDING OBJECTION OF LD DR THAT PREMISES DURING THE PERIOD FEBRUARY, 2000 TO MARCH, 2003 WAS OCCUPIED BY THE TE NANT, THE LD AR SUBMITTED THAT IT WAS NOT DISPUTED BY THE ASSESSING OFFICE R THAT ASSESSEE HAD ITS OCCUPATION 50% OF THE AREA AT BUILDING AT GURGAON WHERE IT CARRIED ON SOFTWARE DEVELOPMENT WORK AND ON LY 50% OF THE AREA OF THE BUILDING HAD BEEN LEASED TO M/S DAKSH.COM SERVICE PVT. LTD. HE FURTHER SUBMITTED THAT LD DR HAD OVER LOOKED THAT THE AREA IN OCCUPATION OF THE ASSESSEE AND USED FOR ITS BUSINESS PLAN OF ASSESSEE HAD INCURRED EXPENDITURE & WAS ALLOWED BY THE ASSESSING OFFICER. THE LD AR SUBMITTED THAT TOTAL AREA AVAILABLE IN DELHI U NIT WAS ONLY 550 SQ.FT. WHEREAS IN GURGAON UNIT TOTAL AREA AVAILABLE W ITH THE ASSESSEE WAS 12124 SQ.FT. AND THERE WAS SUFFICIENT DOCUMENTARY E VIDENCE TO ESTABLISH THAT BUSINESS WAS CARRIED ON BY THE ASSESSEE AT GUR GAON UNIT EVEN IN THE FINANCIAL YEAR 2000-01 AND THEREFORE TH E COMMENT MADE THAT LAY OUT PLAN DO NOT PROVE THAT BUSINESS WAS CARRIE D ON BY THE ITA NO2837TO 2839,46854686/DEL/09 &2010 & 30 30 ASSESSEE IS HIGHLY ARBITRARY AND THUS UNTENABLE. REGARD ING NON FULFILLMENT OF CONDITIONS REQUIRED U/S 10B FOR DELHI UNIT IT WAS SUBMITTED BY LD AR THAT NO DEDUCTION WAS CLAIMED FOR DELHI UNI T AND THE FACT THAT ASSESSEE IN THE EARLIER YEAR CLAIMED DEDUCTION U/S 80HHE OF THE ACT WAS NOT AN EMBARGO TO CLAIM DEDUCTION U/S 10A OF THE ACT, IF ALL OTHER CONDITIONS ARE SATISFIED. HE FURTHER SUBMITTED THA T LD DR OVER LOOKED THE FACT THAT THE ASSESSING OFFICER HIMSELF HAS ALLOWED D EDUCTION FOR THE ASSESSMENT YEAR 2006-07 IN RESPECT OF GURGAON UNIT A ND THAT ORDER HAS ALREADY ATTAINED FINALITY. 41. REGARDING OBJECTION OF LD DR THAT ASSESSEE HAD NOT CORRECTLY PRESENTED THE FACTS TO DETERMINE THE PERCENTAGE OF OL D MACHINERY BEING UTILIZED IN GURGAON UNIT. THE LD AR SUBMITTED THAT ASSESSING OFFICER HAD MADE A MISTAKE WHILE CALCULATING THE PER CENTAGE OF OLD MACHINERY USED IN THE TOTAL MACHINERY OF THE NEW UNI T. HAD HE CORRECTLY CALCULATED THE PERCENTAGE, THE PERCENTAGE OF OLD MACHINERY WITH RESPECT TO TOTAL MACHINERY IN NEW UNIT WOULD HA VE BEEN 6.82%. HE FURTHER SUBMITTED THAT ASSESSEE HAD SUSPENDED ITS OPERATION IN ITS UNDERTAKING AT DELHI W.E.F. FINANCIAL YEAR 2000-01 AND IT HAD NEVER CLAIMED DEDUCTION U/S 80HHE EXCEPT IN THE ASSESSMENT YE AR 1998-99 FOR WHICH THE DEDUCTION WAS NOT ALLOWED. HE FURTHER ARGUED THAT LD DR HAS OVER LOOKED THE INSTALLATION REPORT WHICH CLEARLY ESTABLISH THAT NEW COMPUTERS WERE INSTALLED AT GURGAON UNIT AND NOT AT DELHI UNIT. THE MERE FACT THAT BILL OF PURCHASES WERE AT THE DELHI AD DRESS CANNOT BE HELD TO BE A GROUND TO HOLD THAT COMPUTERS WERE USED AT DELHI. 42. REGARDING OBJECTION OF LD DR THAT ASSESSEE HAD SPEN T ON BUILDING TO MAKE IT AVAILABLE FOR USE BY TENANT IS HI GHLY PRESUMPTIVE. REGARDING OBJECTION OF LD DR THAT ASSESSEE HAD INCLUDED WDV OF FURNITURE AND FIXTURE AND ELECTRICAL FITTINGS AS PART OF PLANT & ITA NO2837TO 2839,46854686/DEL/09 &2010 & 31 31 MACHINERY, THE LD AR SUBMITTED THAT ELECTRICAL FITTI NGS ARE INTEGRAL PART OF PLANT AND MACHINERY AND HAVE TO BE INCLUDED AS PA RT OF PLANT & MACHINERY. IT IS INCORRECT ON THE PART OF LD DR TO STATE THAT ASSESSEE HAS BOOKED FURNITURE AND FIXTURE AS PART OF PLANT AND MACHINERY THOUGH IT IS NOT DENIED BY THE ASSESSEE THAT ELECTRICAL FITTING S WHICH ARE INTEGRAL PART OF PLANT AND MACHINERY WERE INCLUDED AS PART OF PLANT & MACHINERY FOR CALCULATION OF PERCENTAGE OF OLD MACH INERY USED IN THE NEW UNDERTAKING. THE LD AR FURTHER SUBMITTED THAT EV EN IF THE VALUE OF FURNITURE AND ELECTRICAL FITTINGS ARE EXCLUDED FROM THE VALUE OF PLANT & MACHINERY, THE VALUE OF NEW MACHINERY IN THE NEW UN IT IS WELL ABOUT 80%. 43. REGARDING OBJECTION OF LD DR THAT ORDER FOR ASSESSM ENT YEAR 2006-07 CANNOT BE A BASIS TO SUPPORT THE CLAIM OF DE DUCTION SINCE THE DOCTRINE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, THE LD AR SUBMITTED THAT IT IS A SETTLED LAW THAT PRINCIP LE OF CONSULTANCY MUST BE FOLLOWED PARTICULARLY WHEN THERE IS NEITHER C HANGE IN FACTS OF THE CASE AND NOR ANY CHANGE IN THE POSITION OF LAW. R ELIANCE WAS ALSO PLACED IN A NUMBER OF JUDGMENTS MENTIONED AT PAGE 8 OF THE REJOINDER. 44. REGARDING CROSS OBJECTION WITH RESPECT TO REOPENIN G OF CASES FOR ASSESSMENT YEAR 2001-02 AND 2003-04, THE LD AR SUBMITTED THAT IN ASSESSMENT YEAR 2001-02 NO PRIOR APPROVAL WAS OBTAINED B EFORE ISSUE OF NOTICE U/S 148 AND IN FACT THE APPROVAL WAS OBTAIN ED FOR ASSESSMENT YEAR 2003-04. HE FURTHER SUBMITTED THAT IN THE INSTA NT CASE THERE EXISTED NO BASIS OR MATERIAL TO ASSUME THAT ANY INCOME H AD ESCAPED ASSESSMENT AS IT WAS A FACT THAT ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10B EVEN DESPITE THE FACT THAT ASSESSEE HAD CLAIMED D EDUCTION U/S 80HHE OF THE ACT. SO FAR AS THE ASSESSMENT YEAR 2003-04 IS CONCERNED, THE LD AR SUBMITTED THAT IT IS A WELL SETTLED LAW THAT AUDIT OBJECTION ON ITA NO2837TO 2839,46854686/DEL/09 &2010 & 32 32 POINT OF LAW CANNOT BE A GROUND TO ASSUME JURISDICTIO N. RELIANCE WAS PLACED IN A NUMBER OF CASES AS MENTIONED AT PAGE 10 OF THE REJOINDER. MOREOVER, THE LD AR SUBMITTED THAT ASSESSMENT FOR ASSESSMENT YEAR 2003-04 WAS COMPLETED U/S 143(3) OF THE ACT AND IN VI EW OF THE JUDGMENT OF KELVINATOR OF INDIA LTD. V. CIT (SUPRA) THE REOPENING WAS A CHANGE OF OPINION AND WAS NOT PERMITTED UNDER THE LA W. 45. REGARDING OBJECTION OF LD DR REGARDING ACCEPTAN CE OF ADDITIONAL EVIDENCE UNDER RULE 46A, THE LD AR SUBMITTED THAT E NTIRE ADDITIONAL EVIDENCE FURNISHED IN ASSESSMENT YEAR 2001-02, 2003-04 A ND 2005-06 WAS PLACED ON RECORD BEFORE LD ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 AND 2004-05. T HE ASSESSING OFFICER DESPITE THE ABOVE FACTS HAVING BEEN PLACED ON RECORD HAS MADE THE DISALLOWANCE IN ASSESSMENT YEAR 2002-03 AND IN ASSESSMEN T YEAR 2004-05 BY FOLLOWING THE FINDINGS FOR ASSESSMENT YEAR 20 05-06. MOREOVER, THE ADDITIONAL EVIDENCE WAS ACCEPTED BY OB TAINING REMAND REPORT. IN VIEW OF THE ABOVE, HE SUBMITTED THAT OBJE CTION OF LD DR REGARDING ADMISSION OF ADDITIONAL EVIDENCE BY LD CIT( A) WAS HIGHLY UNJUSTIFIED. RELIANCE WAS PLACED ON NUMBER OF CASES MEN TIONED AT PAGE 14 OF THE REJOINDER. 46. AS REGARDS DISALLOWANCE OF DEPRECIATION ON ASSET LEA SED OUT ON RENT AND FURTHER DISALLOWANCE OF MAINTENANCE EXPENSE S IN ASSESSMENT YEAR 2003-04, THE LD AR SUBMITTED THAT LD CIT(A) HAD NOTED THAT ASSESSEE HAD RECEIVED INCOME FROM MAINTENANCE SERVICE UN DER A SEPARATE AGREEMENT AND HE HAD THUS HELD THAT CHARGES R ECEIVED BY THE ASSESSEE WERE COMPREHENSIVE LUMP SUM PAYMENT AND THIS IN COME WAS TAXED AS INCOME FROM OTHER SOURCES AND THEREFORE ACTU AL EXPENDITURE INCLUDING DEPRECIATION WAS DEDUCTIBLE. AS REGARDS ASSESSE ES APPEAL WITH RESPECT TO UPHOLDING OF DISALLOWANCE OF MAINTENA NCE EXPENSES ITA NO2837TO 2839,46854686/DEL/09 &2010 & 33 33 AMOUNTING TO ` .14,06,505/-, THE LD AR SUBMITTED THAT THESE EXPENSES WERE IN THE NATURE OF TEMPORARY STRUCTURE AND PARTIT ION AND HENCE WERE IN THE NATURE OF REGULAR REPAIRS ELIGIBLE FOR D EDUCTION AND IT CANNOT SAID TO BE PART OF 30% STRAIGHT DEDUCTION UNDE R THE HEAD INCOME FROM HOUSE PROPERTY. 47. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. BASIC ALLY THERE ARE FIVE ISSUES IN THE APPEAL AND IN THE CROSS OBJECTION WHICH AR E AS UNDER:- A) WHETHER REOPENING OF CASES IN RESPECT OF ASSESSMENT YEAR 2001-02 AND ASSESSMENT YEAR 2003-04 IN ACCORDANCE WITH LAW (RAISED BY THE ASSESSEE AS GROUND NO.1 IN BOTH THE YEARS). B) WHETHER ADDITIONAL EVIDENCE ACCEPTED BY THE LD CIT( A) WAS IN VIOLATION OF LAW ESPECIALLY KEEPING IN VIEW THE F ACT THAT ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY BY ASSESSING OFFICER TO JUSTIFY HIS CLAIM U/S 10B OF THE ACT (RAISE D BY THE REVENUE AS GROUND NO.3 IN RESPECT OF ASSESSMENT YEAR 2001-02, 2003-04 AND 2005-06). C) WHETHER LD CIT(A) HAD ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER IN DISALLOWING MAINTENANCE EXPENSES OF ` .14,06,505/- (RAISED BY THE ASSESSEE AS GROUND NO.2 IN ASSESSMENT YEAR 2003-04). D) WHETHER LD CIT(A) HAD ERRED IN DELETING THE ADDITIO N MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON ELELTRICAL INSTALLATION AMOUNTING TO ` .18,76,004/- IN ASSESSMENT YEAR 2003-04 (RAISED BY THE REVENUE AS GROUND NIO.;4). & ITA NO2837TO 2839,46854686/DEL/09 &2010 & 34 34 E) WHETHER LD CIT(A) HAD ERRED IN DELETING THE DISALLOW ANCE OF DEDUCTION U/S 10B OF THE IT ACT IN RESPECT OF ASSESSME NT YEAR 2001-02 TO ASSESSMENT YEAR 2005-06 (RAISED BY THE REVENUE AS GROUND NO.1 & 2 IN RESPECT OF ALL ABOVE YE ARS). 48. FIRST WE TAKE UP THE ISSUE OF REOPENING OF CASES RE LATING TO ASSESSMENT YEAR 2001-02 AND 2003-04. IN THE ASSESSMENT YEAR 2001- 02, THE PRIMARY OBJECTION OF THE ASSESSEE WAS THAT THER E WERE CERTAIN DEFECTS IN THE FORM OF REASONS RECORDED AND THEREFORE RELYING UPON CERTAIN CASE LAWS, THE LD AR HAD ARGUED THAT RE-ASSESSMEN T WAS NULL & VOID AB INITO . MOREOVER, IT WAS CONTENDED THAT ON T HE FORM OF REASONS RECORDED, THE ASSESSMENT YEAR MENTIONED WAS AS 2003-04. 49. SIMILARLY, IN THE ASSESSMENT YEAR 2003-04 BESIDES AB OVE THE OBJECTION IN THE FORM OF REASONS RECORDED, THE LD AR HAD ARGUED THAT CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF REPORT BY AN AUDIT PARTY. 50. ON THE OTHER HAND, LD DR RELIED UPON SECTION 292 B FOR TAKING CARE OF MINOR DEFECTS IN THE INITIATION OF PROCEEDIN GS AND HAD ALSO ARGUED THAT PRIMA FACIE EVIDENCE THAT INCOME HAD ESC APED ASSESSMENT WAS SUFFICIENT FOR INITIATION OF PROCEEDINGS U/S 147/12 48 OF THE ACT. WE HAVE OBSERVED THAT THERE IS NO MUCH FORCE IN THE ARGU MENT OF LD AR ESPECIALLY KEEPING IN VIEW THE FACT THAT ASSESSMENT IN T HE ASSESSMENT YEAR 2001-02 WAS NOT COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSING OFFICER HAD NO CHANCE TO LOOK INTO THE DETAIL S OF CLAIM MADE BY THE ASSESSEE. THE HON'BLE SUPREME COURT IN THE CASE OF RAJESDH ZAVERI STOCK BROKER LTD. 291 ITR 500 (SC) HELD AS UN DER:- ITA NO2837TO 2839,46854686/DEL/09 &2010 & 35 35 TAXING INCOME ESCAPING ASSESSMENT IN THE CASE OF INITIAT ION U/S 143(1) IS COVERED BY THE MAIN PROVISION OF SECTION 147 AS SUBSTITUTED W.E.F. 1.4.1989. FAILURE TO TAKE STEPS U/S 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERLESS TO INITIATE RE - ASSESSMENT PROCEEDINGS WHEN INITIATION U/S 143(1) HAS BEEN ISSUED. THEREFORE, REOPENING OF THE CASE IN ASSESSMENT YEAR 2001 -02 WAS JUSTIFIED AND WAS IN ACCORDANCE WITH LAW. IN THE ASSESSME NT YEAR 2003- 04, WE HAVE OBSERVED THAT ASSESSING OFFICER HAD REOPENED THE CASE ON THE BASIS OF A REPORT OF AN AUDIT PARTY. THE CASE LAWS RELIED UPON BY LD AR RELATES TO HON'BLE HIGH COURTS OF GUJARAT, ALLAHA BAD AND ITAT HYDERABAD BENCH WHEREAS THE CASE LAW OF PVS BIDI PVT. LTD. (SUPRA) AS RELIED UPON BY THE LD DR IS THAT OF HON'BLE SUPREME COURT WHICH HAD CLEARLY HELD THAT THERE CAN BE NO DISPUTE THAT AUDIT PARTY IS ENTITLED TO POINT OUT FACTUAL ERROR OR OMISSION IN THE ASSESSMENT AN D HON'BLE COURT FURTHER HELD THAT REOPENING OF ASSESSMENT ON THE BASIS OF FACTUAL ERROR POINTED OUT BY THE AUDIT PART IS PERMI SSIBLE UNDER THE LAW. 51. THE OTHER CONTENTIONS RAISED BY THE LD AR REGARDI NG TECHNICAL DEFECTS ARE WELL COVERED BY THE PROVISIONS OF SECTION 2 292B AND AS REGARDS THE CONTENTION OF LD AR THAT PROCEEDINGS U/S 154 WERE ABANDONS, WE DO NOT FIND FORCE IN THE ABOVE ARGUMEN T AS IN OUR OPINION UNLESS THE NOTICE IS ISSUED TO THE ASSESSEE, IT DOES NOT CARRY ANY MEANING. THEREFORE, ON THE BASIS OF ABOVE DISCUSSION , WE HOLD THAT REOPENING IN BOTH THE YEAR WAS JUSTIFIED AND WAS IN AC CORDANCE WITH LAW. THEREFORE, WE REJECT GROUND NO.1 OF THE CROSS OB JECTION OF THE ASSESSEE. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 36 36 52. NOW WE COME TO THE POINT OF ACCEPTANCE OF ADDIT IONAL EVIDENCE IN THE ASSESSMENT YEAR 2001-02, 2003-04 AND 2005-06. WE HAVE OBSERVED FROM THE APPELLATE ORDER RELATING TO AT 200 1-02 AND ASSESSMENT YEAR 2003-04 THAT THERE IS NO MENTION OF ACCE PTANCE OF ANY ADDITIONAL EVIDENCE. IN RESPECT OF ASSESSMENT YEAR 2 005-06 WHERE ADDITIONAL EVIDENCE WAS ACCEPTED, WE FIND THAT ADDIT IONAL EVIDENCE ADMITTED BY THE LD CIT(A) WAS SIGNIFICANT AND WAS QUI TE NECESSARY IN DECIDING THE CLAIM OF ASSESSEE. MOREOVER, THE EVIDENCE WAS ACCEPTED AFTER OBTAINING REMAND REPORT FROM ASSESSING OFFICER A ND ASSESSING OFFICER HAD NOT OBJECTED TO THE MERITS OF ADDITIONAL EVIDENCE. THEREFORE, WE DO NOT FIND FORCE IN THE ARGUMENT OF LD DR AND THEREFORE DISMISS GROUND NO.3 IN RESPECT OF APPEAL BY REVENUE FOR ASSESSMENT YEAR 2001-02, 2003-04 AND 2005-06. 53. NOW WE COME TO THE ISSUE OF UPHOLDING OF DISALLOW ANCE OF MAINTENANCE EXPENSES AMOUNTING TO ` .14,06,505/- AND DELETION OF DISALLOWANCE OF DEPRECIATION ON ELECTRICAL INSTALLATI ON AMOUNTING TO ` .18,76,004/- RAISED BY THE ASSESSEE AND REVENUE RESPECTIV ELY. WE HAVE NOTED THAT ASSESSEE HAD RENTED A PART OF ITS BUILD ING AND HAD ALSO ENTERED INTO A SEPARATE AGREEMENT FOR PROVIDING MAIN TENANCE SERVICES. THE ASSESSEE HAD DEBITED ` .14,06,505/- AS EXPENSES INCURRED ON BUILDING REPAIRS AND MAINTENANCE INCLUDING EXPENSES ON TEMPORARY PARTITION AGAINST THE MAINTENANCE INCOME. SIMILARLY, DEPRECIATION AMOUNTING TO ` .18,76,004/- ON ELECTRICAL INSTALLATION WAS DEBITED AGAINST THE MAINTENANCE INCOME ON THE GROUND THAT SA ME WERE INCURRED FOR EARNING THE MAINTENANCE INCOME. THE ASSE SSING OFFICER DISALLOWED BOTH THE EXPENSES IN VIEW OF THE FACT THAT ASSESSEE HAD ALREADY ENJOYED DEDUCTION U/S 24(1) OF THE ACT BEIN G 30% ON RENTAL INCOME BEING INCOME FROM HOUSE PROPERTY WHEREAS THE F ACT OF THE MATTER IS THAT ASSESSEE HAD DECLARED NET MAINTENANCE INC OME UNDER ITA NO2837TO 2839,46854686/DEL/09 &2010 & 37 37 THE HEAD INCOME FROM OTHER SOURCES (COMPUTATION SHEET RELATING TO ASSESSMENT YEAR 2003-04 SHOWING MAINTENANCE INCOME AS INC OME FROM OTHER SOURCES IS PLACED AT PAPER BOOK PAGE 2). TH EREFORE, THE OBJECTION OF THE ASSESSING OFFICER THAT ASSESSEE HAD ALREA DY ENJOYED DEDUCTION U/S 24(1) IN RESPECT OF DEPRECIATION ON ELE CTRICAL EQUIPMENTS IS NOT CORRECT. HOWEVER, IN OUR VIEW, THE DISALLOWANC E OF ` .14,06,505/- BEING EXPENSES INCURRED ON BUILDING REPAIRS/PARTITION ETC. WAS JUSTIFIED IN VIEW OF THE FACT THAT THE ASSESSEE HAD ALREADY ENJOY ED DEDUCTION U/S 24(1) AGAINST INCOME FROM HOUSE PROPERTY. THEREFORE, WE HOLD THAT LD CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF ASSESSEE IN RESPE CT OF DEPRECIATION AND HAD RIGHTLY UPHELD THE DISALLOWANCE ON ACCOUNT OF BUILDING REPAIRS ETC. IN VIEW OF THE ABOVE, GROUND N O.2 OF THE ASSESSEE CROSS OBJECTION AND GROUND NO.4 OF REVENUES APPEAL FO R ASSESSMENT YEAR 2003-04 ARE DISMISSED. 54. NOW THE LAST AND MOST IMPORTANT QUESTION TO BE DEC IDED BY US IS AS TO WHETHER THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10B OR NOT. IN THIS RESPECT WE HAVE OBSERVED THAT PRIMARILY THE OB JECTIONS OF ASSESSING OFFICER WERE TWOFOLD WHICH ARE DEALT BELOW:- 1. THAT THE ASSESSEES NEW UNDERTAKING HAD ASSETS FROM OLD UNDERTAKING TO THE EXTENT OF 51.78% WHICH WAS ABOVE THE THRESH-HOLD LIMIT OF 20% AND THEREFORE THE ASSESSEE DID NOT COMPLY WITH CONDITIONS SET OUT IN SECTION 10B OF THE A CT. 2. THAT THE BUSINESS ACTIVITY WAS SAME SINCE 1996-97 ONWARDS AND THERE WAS ONLY A SINGLE UNDERTAKING BELONGING TO THE ASSESSEE. THIS FACT WAS FURTHER STRENGTHENED BY THE FACT THAT A SSESSEE HAD PREPARED ONLY SINGLE P&L ACCOUNT AND ENTIRE PROFITS WERE CLAIMED TO BE EXEMPTED U/S 80HHE OF THE ACT PRIOR T O INSERTION OF SECTION 10B. ITA NO2837TO 2839,46854686/DEL/09 &2010 & 38 38 FROM THE PLAIN READING OF PROVISIONS OF SECTION 10B AL ONG WITH EXPLANATION (1) & (2) OF SECTION 80I IT EMERGES THAT FOR CLAIMING DEDUCTION UNDER THE SAID SECTION FOLLOWING CONDITIONS MUST BE FULFILLED. 1. THE INCOME SHOULD BE DERIVED BY A 100% EXPORT ORIEN TED UNIT FROM THE EXPORT OF ARTICLE OR THINGS OR COMPUTER SOFT WARE. 2. THIS SECTION APPLIES TO ANY UNDERTAKING WHICH IS FORME D BY SPLITTING OR RECONSTRUCTION OF BUSINESS ALREADY IN EXIST ENCE (SUBJECT TO BUSINESS OF ANY UNDERTAKING AS IS REFERRED T O SECTION 33B). 3. THAT THE DEDUCTION IS APPLICABLE FROM ASSESSMENT YEAR 20 01-02 AND IS AVAILABLE FOR A PERIOD OF 10 SUBSEQUENT YEARS B EGINNING WITH THE YEAR IN WHICH UNDERTAKING BEGINS TO MANUFAC TURE OR PRODUCE ARTICLE OR THINGS OR COMPUTER SOFTWARE AS THE CASE MAY BE. 4. IT IS NOT FORMED BY TRANSFER TO A NEW UNDERTAKING OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE SUBJECT TO THAT TOTAL VALUE OF MACHINERY OR PLANT OR PART THEREOF SO TRANSFERRED DOES NOT EXCEED 20% OF TOTAL VALUE OF MACHINERY OR PLANT AS U SED IN THE NEW UNDERTAKING. 55. IN THE PRESENT CASE, THE ASSESSEE THOUGH ORIGINALLY W AS OPERATING FROM DELHI BUT HAD PURCHASED SEPARATE LAND AND HAD CO NSTRUCTED BUILDING THEREON AT PLOT NO.27, SECTOR-18, ELECTRON IC CITY, GURGAON AND HAD OBTAINED REGISTRATION UNDER STPI AS A 100% EXPORT ORIENTED UNIT. THE BUILDING WAS EQUIPPED WITH COMPUTERS AND OTHER NE CESSARY EQUIPMENTS BEFORE THE FINANCIAL YEAR 2000-01 AS IS EV IDENT FROM BILLS OF PURCHASE OF COMPUTERS PLACED AT PAGES 54 TO 126 OF PA PER BOOK NO.7. THOUGH INVOICES OF COMPUTERS ARE ADDRESSED TO ASSESSEES AD DRESS AT ITA NO2837TO 2839,46854686/DEL/09 &2010 & 39 39 DELHI BUT INSTALLATION REPORTS WHICH ARE ATTACHED WIT H PURCHASE BILLS MENTIONS THAT THESE WERE INSTALLED AT PLOT NO.27, SECT OR-128, ELECTRONIC CITY, GURGAON I.E. THE ADDRESS WHERE THE ASSESSEE HAD CLA IMED TO HAVE SET UP NEW UNIT. 56. THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS ALSO SUBMITTED THE FOLLOWING DOCUMENTS IN SUPPORT OF ITS CLA IM THAT NEW UNIT WAS SET UP AT PLOT NO.27, ELECTRONIC CITY, GURGAON:- 1. COPY OF REGISTRATION CERTIFICATE UNDER ESI ACT, 1948 . 2. COPY OF REGISTRATION CERTIFICATE UNDER PF ACT. 3. ALLOTMENT LETTER FOR TAN FROM INCOME TAX DEPARTMENT . 4. COPY OF FORM D OF SHOP & COMMERCIAL ESTABLISHMENT ACT , 1958. 5. COPY OF LICENSE FOR PROVIDING BOUNDED WAREHOUSE UNDER CUSTOMS ACT. 6. COPY OF AGREEMENT WITH SOFTWARE TECHNOLOGY PARK OF INDIA. ALL THESE DOCUMENTS CONTAIN THE ADDRESS OF GURGAON UNIT . THE PHOT COPIES OF ALL THESE DOCUMENTS ARE PLACED AT PAGES 1 TO 12 OF PAPER BOOK NO.7. 57. THUS, THERE IS NO DOUBT THAT ASSESSEE HAD SET UP A NEW UNIT AT GURGAON WHICH WAS DULY REGISTERED AS 100% EXPORT ORIE NTED UNIT. THE ASSESSING OFFICER HAD ALLEGED THAT ASSESSEES TOTAL PLANT AN D MACHINERY CONTAINED 51.78% OF PLANT & MACHINERY TRA NSFERRED FROM OLD UNIT. IN CALCULATION OF THE ABOVE FIGURE, THE A SSESSING OFFICER HAD REALLY OVER-LOOKED THE FACT THAT ELECTRIC INSTALLATI ONS INSTALLED AT NEW UNIT AMOUNTING TO ` .1.19 CRORES WERE ALSO PART OF PLANT & MACHINERY. MOREOVER, THE ASSESSING OFFICER HAS TAKEN WDV OF COMPUTE RS AS ON 31.3.2000 AT ` .46,73,704/- BEING COMPUTERS OF OLD UNIT BUT IN FACT THIS ITA NO2837TO 2839,46854686/DEL/09 &2010 & 40 40 FIGURE INCLUDES PURCHASE OF COMPUTERS WORTH ` .30,24,630/- FOR GURGAON UNIT. THUS, THE CORRECT PERCENTAGE OF USED PLANT & M ACHINERY IN THE NEW UNIT WORKS OUT TO BE AT 9.87% AS CALCULATED BELOW :- GROSS VALUE OF COMPUTERS AS ON 1.4.2000 ` .46,73,704/- LESS: PURCHASE FOR GURGAON UNIT BETWEEN 1.4.1999 TO 31.,3.2000 CALCULATED AS PER INSTALLATION REPORT AS ATTACHED WITH PURCHASE BILLS PLACED AT PAPER BOOK PAGES 54 TO 126 OF PAPER BOOK NO.7. ` .30,24,630/- ------------------------------- A GROSS VALUE OF COMPUTERS ALLEGED TO HAVE BEEN TRANSFERRED TO NEW UNIT. ` .16,49,074/- COMPUTERS PURCHASED DURING THE YEAR ENDING 31.3.2001. ` .31,14,657/- GROSS VALUE OF ELECTRIC INSTALLATION UP TO 31.3.2001. ` .1,19,46,662/- ----------------------------- B TOTAL VALUE OF PLANT & MACHINERY INCLUDING TRANSFERRED FROM OLD UNIT. ` .1,67,10,393/- ----------------------------- PERCENTAGE OF OLD MACHINERY IN THE NEW UNIT WORKS OU T AT 9.87% BEING A/B X 100 THE ABOVE CALCULATION SHOWS THAT EVEN IF THE ALLEGATI ON OF ASSESSING OFFICER IS ACCEPTED THAT OLD MACHINERY WAS USED IN NEW UNDERTAKING THE PERCENTAGE OF OLD PLANT & MACHINERY IS LESS THAN 2 0%. THE OBJECTION OF LD DR THAT ELECTRIC INSTALLATION SHOULD NOT BE CONSIDERED FOR CALCULATION OF TOTAL VALUE OF PLANT & MACHINERY IS N OT CORRECT IN VIEW OF THE FACT THAT DEFINITION OF PLANT & MACHINERY INCLU DES IN ITSELF ELECTRIC INSTALLATION, OFFICE EQUIPMENT AND OR VEHICLES. HOWE VER, IN THE CALCULATION ABOVE, WE HAVE TAKEN THE VALUE OF ELECT RIC INSTALLATION ONLY TO SIMPLIFY THE CALCULATION. THE CONTENTION OF LD DR THAT ELECTRIC INSTALLATIONS CARRIED DIFFERENT RATES OF DEPRECIATION AS COMPARED TO ITA NO2837TO 2839,46854686/DEL/09 &2010 & 41 41 PLANT & MACHINERY DOES NOT CARRY ANY WEIGHT AS MERE C LASSIFICATION FOR DEPRECIATION PURPOSES CANNOT ALTER THE NATURE OF ELE CTRIC INSTALLATIONS WHICH INDEED IS PART OF PLANT & MACHINERY 58. THE OBJECTION OF ASSESSING OFFICER THAT ONLY ONE P &L ACCOUNT WAS PREPARED ALSO HAS NO FORCE IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE LD AR. 59. THE OBJECTION RAISED BY THE LD DR THAT ASSESSEE HAD RENTED THE BUILDING AND THEREFORE WAS NOT IN A POSSESSION OF THE SAM E ALSO DO NOT CARRY ANY FORCE IN VIEW OF THE FACT THAT LEASE AGREE MENT (PLACED AT PAPER BOOK NO.5 PAGES 278 TO 291) WAS ENTERED IN FOR 50% OF TOTAL COVERED AREA AND BALANCE 50% WAS AVAILABLE WITH THE ASSESSEE TO CARRY ON ITS BUSINESS. THEREFORE, IN VIEW OF THE ABOVE FINDINGS AND OBSERVATIONS AND DISCUSSION, WE DO NOT SEE ANY REASON TO I NTERFERE IN THE ORDER OF LD CIT(A). 60. IN THE RESULT, THE APPEALS FILED BY THE REVENUE A ND OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. 61. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH DAY OF OCTOBER, 2012. SD/- SD/- (A.D. JAIN) (T.S. KAPO OR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 12.10.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT ITA NO2837TO 2839,46854686/DEL/09 &2010 & 42 42 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING DATE OF DICTATION 4/5/10.2012 DATE OF TYPING 5/7/10/2012 DATE OF ORDER SIGNED BY 12.10.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 15.10.2012 & SENT TO THE BENCH CONCERNED.