The ACIT, Circle 2, RAJKOT-GUJARAT V. M/s Choice Sanitaryware Industries, RAJKOT-GUJARAT

ITA 1148/RJT/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56706 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 28-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 31-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH SHRI VIMAL DESAI
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT BEFORE SHRI D.K. TYAGI (JM) AND SHRI A.L. GEHLOT (A M) I.T.A. NO.1148/RJT/2010 (ASSESSMENT YEAR 2007-08) ACIT, CIR.2 VS M/S CHOICE SANITARYWARE RAJKOT INDUSTRIES, 116 CREATIVE CHAMBERS OPP. HOTEL RUBY KANAK ROAD, RAJKOT PAN : AACFC0736D (APPELLANT) (RESPONDENT) DATE OF HEARING : 28-09-2011 DATE OF PRONOUNCEMENT : 28-09-2011 APPELLANT BY : SHRI MK SINGH RESPONDENT BY: SHRI VIMAL DESAI O R D E R PER BENCH THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A)-III, RAJKOT DATED 08-06-2010 PERTAINING TO ASSESSMENT YE AR 2007-08. 2. THE FOLLOWING GROUNDS ARE RAISED BY THE TRIBUNAL : (I) THE LD.CIT(A)-III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON A/C OF DISALLOWANCE O F DEDUCTION U/S 80IB. (II) THE LD.CIT(A)-III, RAJKOT HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE ON A/C OF DISALLOWANCE U /S 40(2)(B). 2. WITH REGARD TO FIRST GROUND, BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE CLAIMED DEDUCTION U/S 80IB AMOUNTING TO RS.2,25,225 IN ITS RETURN OF INCOME. ITA NO.148/RJT/2010 2 THE ASSESSING OFFICER, ON THE GROUND THAT THE ASSES SEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR THE ELIGIBLE BUSINESS AS ALSO THAT THE ADSSESSEE HAS USED OLD MACHINERY FOR PRODUCTION, HAS HELD THA T THE ASSESSEE IS NOT ENTITLED FOR THE DEDUCTION CLAIMED. THUS, THE CLAIM WAS DEN IED TO THE ASSESSEE. ON APPEAL, THE CIT(A) FOLLOWING HIS ORDER FOR ASSESSME NT YEAR 2005-06 HAS ALLOWED THE CLAIM OF THE ASSESSEE. 3. BEFORE US, THE LD.AR OF THE ASSESSEE HAS PLACED BEFORE US THE COPIES OF THE ORDER PASSED BY THE TRIBUNAL FOR ASSESSMENT YEA R 2005-06 IN ITA NO 274/RJT/2008 ORDER DATED 23-12-2010 AND STATED THAT THE TRIBUNAL HAS ALREADY CONFIRMED THE ORDER OF THE CIT(A) ON IDENTICAL SET OF FACTS AND CIRCUMSTANCES. THE LD.DR, THOUGH AGREED TO THE PROPOSITION MADE BY THE LD.AR, HAS PLACED HIS RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 4. UPON CONSIDERATION OF THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIAL PLACED BEFORE US, WE FIND THAT THE ISSUE IN QUESTIO N IS COVERED BY THE DECISION OF THE ITAT, RAJKOT BENCH IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2005-06 IN ITA NO.274/RJT/2008 ORDER DATED 23-12-2010. THE TR IBUNAL, UNDER SIMILAR SET OF FACTS AND CIRCUMSTANCES, HAS UPHELD THE ORDER OF T HE CIT(A), WITH THE FOLLOWING FINDINGS: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL PLACED BEFORE US. THERE IS NO DISPUTE THA T THE ASSESSEE FIRM WAS ESTABLISHED IN THE YEAR 2000 AND SINCE THE N THE DEDUCTION U/S 80IB WAS GRANTED TO THE ASSESSEE UPTO THE ASSES SMENT YEAR ITA NO.148/RJT/2010 3 PRECEDING THIS ASSESSMENT YEAR. THERE IS ALSO NO D ISPUTE THAT OWING TO THE INCREASED OVERSEAS DEMAND THE ASSESSEE HAS ENTERED INTO LEASE AGREEMENT WITH SISTER CONCERN, M/S ARISO N CERAMICS PVT LTD, A SISTER CONCERN NON ELIGIBLE FOR DEDUCTION U/ S 80IB, WHO HAD STOPPED PRODUCTION OF TILES DUE TO HEAVY LOSSES, FO R HIRE OF PLANT & MACHINERY FOR A PERIOD OF 3 YEARS. COPY OF THE AGR EEMENT ENTERED INTO WITH M/S ARISON CERAMICS PVT LTD IS PLACED IN THE PAPER BOOK. THE AGREEMENT CLEARLY SPECIFIES THAT THE4 RAW MATER IAL, CONSUMABLES AND STORES WILL HAVE TO BE ACQUIRED BY THE ASSESSEE FIRM ONLY; THE LABOUR COST AND LABOUR RELATED PROCE DURES WILL HAVE TO BE MANAGED BY THE ASSESSEE FIRM; MANUFACTURING COST INCLUDING ELECTRICITY, WATER, ETC. WILL HAVE TO BE BORNE BY T HE ASSESSEE FIRM; AND EVEN THE REPAIRS AND MAINTENANCE OF THE MACHINE RY OBTAINED ON LEASE WILL HAVE TO BE BORNE BY THE ASSESSEE FIRM ONLY. IN A NUTSHELL, THE ASSESSEE HAS ACQUIRED ITS SISTER CONC ERNS LAND, BUILDING, PLANT AND MACHINERY ON LEASE WITHOUT THER E BEING ANY FURTHER RESPONSIBILITY ON THE PART OF ITS SISTER CO NCERN. WITH THESE FACTUAL MATRIX, COULD THE ASSESSEE BE HELD UNDER AN OBLIGATION TO MAINTAIN SEPARATE BOOKS OF ACCOUNT, ONE FOR THE PRO DUCTION CARRIED OUT WITH THE MACHINERY OF THE ASSESSEE AND THE OTHE R FOR THE PRODUCTION CARRIED OUT WITH THE HIRED MACHINERY FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB OF THE ACT. IT TRANSPI RES TO US FROM THE READING OF THE ORDERS OF AUTHORITIES BELOW THAT THE ONLY OBJECTION OF THE ASSESSING OFFICER IN WITHDRAWING HE DEDUCTION A LREADY AVAILABLE TO THE ASSESSEE IS NON MAINTENANCE OF SEPARATE PROD UCTION RECORDS WITH THE PLANT & MACHINERY OF THE ASSESSEE AND THOS E HIRED FROM THE SISTER CONCERN, WHICH WAS NOT ELIGIBLE UNIT FOR CLAIMING DEDUCTION U/S 80-IB OF HE ACT. THUS, IT IS CLEARLY UNDERSTOOD THAT BUT FOR THE PRODUCTION ACHIEVED THROUGH HIRED PLANT & MACHINERY, EVEN AS PER THE ASSESSING OFFICER, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IB OF THE ACT. THE CONDITIONS ASCRI BED FOR CLAIMING DEDUCTION U/S 80IB ARE PRESCRIBED IN SUB SECTION (2 ) OF SECTION 80IB OF THE ACT, WHICH ARE AS FOLLOWS: (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAK ING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECON STRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED XXXXXXXXXXXXXXXXXX (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSI NESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; ITA NO.148/RJT/2010 4 (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR MORE COLD STORAGE PLAN T OR PLANTS, IN ANY PART OF INDIA: PROVIDED XXXXXXXXXXXXXXXXXXXXXX CLAUSE (II) TO SUB SECTION (2) OF SECTION 80IB IS V ERY MUCH RELEVANT TO DECIDE THE ISSUE UNDER CONSIDERATION. IT STATES THAT IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINE RY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IN THE CASE ON H AND, THE ASSESSEE FIRM WAS ALREADY IN EXISTENCE SINCE 1990 A ND WAS AVAILING DEDUCTION U/S 80IB SINCE THEN. THEREFORE, IT CANNOT BE SAID THAT IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IT CAN ALSO NOT BE SAID THAT BY ACQUIRING SOME OF THE ASSETS ON LEASE FOR A FIXED PERIOD, WHICH WERE USED BY THE SISTER CONCERNS, THE ASSESSE E HAS TAKEN OVER THE BUSINESS OF THE ASSESSEES SISTER CONCERN. AS SUCH, THE QUESTION OF MAINTAINING TWO SEPARATE SETS OF BOOKS FOR PRODUCTION DOES NOT ARISE. IN THE CASE OF BAJAJ TEMPO LTD CIT ED SUPRA, THE HONBLE APEX COURT HELD THAT THE RESTRICTION WOULD COME INTO PICTURE TO DENY THE DEDUCTION ONLY IF THE SECOND HAND ASSET RESULTS IN FORMATION OF THE UNDERTAKING. IN THE INSTANT CASE THERE IS NO FORMATION OF AN UNDERTAKING. THE FACTS AND CIRCUMS TANCES IN THE CASE OF LAXMI PACKERS (14 SOT 303) DEALT BY THE MUM BAI TRIBUNAL ARE PARI MATERIAL TO THE CASE ON HAND. THE HONBLE CO-ORDINATE BENCH HAS HELD THAT THE PROHIBITION IN CLAUSE (II) TO SUB SECTION (2) OF SECTION 80IB IS ONLY WITH REGARD TO PURCHASE AND US E OF ANY SECOND HAND MACHINERY AT THE TIME OF FORMATION OF THE INDU STRIAL UNDERTAKING AND NOT PURCHASE AND USE OF MACHINERY A FTER THE FORMATION OF THE INDUSTRIAL UNDERTAKING. IN YET AN OTHER DECISION IN THE CASE OF PEMBRIL INDL & ENGG CO (P) LTD VS DCIT CITED SUPRA, THE D BENCH OF THE MUMBAI TRIBUNAL HELD THAT THOUGH P REVIOUSLY USED PLANT AND MACHINERY HAS BEEN USED IN THE NEW UNIT, THERE BEING NO TRANSFER OF PLANT AND MACHINERY, THE DEDUCTION U/S 80-IA / 80-IB CANNOT BE DENIED. 7. IN THE LIGHT OF ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) WAS JUSTIFIED IN HOLDING TH AT THE WITHDRAWAL OF DEDUCTION U/S 80-IB WAS NOT JUSTIFIED. WE UPHOL D HIS ORDER ON THE ISSUE. GROUND NO (I) OF THE REVENUE FAILS. ITA NO.148/RJT/2010 5 5. IN VIEW OF THE ABOVE, CONSISTENT WITH THE EARLIE R DECISION OF THE TRIBUNAL, WE DO NOT SEE ANY MERIT IN THE GROUND RAISED BY THE REVENUE. THE ORDER OF CIT(A) ON THIS ISSUE IS UPHELD AND GROUND NO.1 OF T HE REVENUE IS REJECTED. 6. WITH REGARD TO THE OTHER GROUND IN THE APPEAL, T HE ASSESSEE HA CLAIMED TO HAVE PAID AN AMOUNT OF RS. 22,20,000 AS CONDUCTING CHARGES FOR USE OF PLANT AND MACHINERY TO M/S EURO ANCHOR SANITARYWARE INDUS TRIES PVT LTD. THE ASSESSING OFFICER INVOKING THE REASONABILITY OF THE EXPENDITURE HAS SLAPPED PROVISIONS OF SECTION 40A(2)(B) HAS DISALLOWED AN A MOUNT OF RS.17,76,000. ON APPEAL, THE CIT(A) FOLLOWING HIS ORDER FOR ASSESSME NT YEAR 2005-06, HAS DELETED THE ADDITION. 7. BEFORE US, THE LD.AR OF THE ASSESSEE HAS, AT THE OUTSET, SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ORDER OF THIS VERY SAME TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 PASSED IN ITA NOS 274/RJT /2008 AND 965(RAJ)/2009 DATED 23-12-2010 AND 19-04-2011 RESPECTIVELY. THE LD.DR AGREED TO THE PROPOSITION AND FURTHER SUBMITTED THAT HE STILL REL IES UPON THE ORDER OF THE ASSESSING OFFICER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED MATERIAL PLACED BEFORE US. THE PAYMENT OF RS.20,20,000 IS B EING MADE BY THE ASSESSEE TO M/S EURO ANCHOR SANITARYWARE INDUSTRIES PVT LTD TOWARDS CONDUCTING CHARGES FOR USE OF PLANT AND MACHINERY FROM ASSESSMENT YEAR 2005-06 ONWARDS. THE ITA NO.148/RJT/2010 6 TRIBUNAL, IN THE EARLIER TWO ASSESSMENT YEARS, VIZ. ASSESSMENT YEARS 2005-06 AND 2006-07 HAS HELD THAT THE INITIAL ONUS CAST ON THE ASSESSEE TO PROVE THAT THE PAYMENT MADE WAS REASONABLE WAS DULY DISCHARGED BY THE ASSESSEE AND THERE WAS NO SCOPE FOR THE REVENUE TO DISALLOW 80% OF THE EXPENDITURE SO CLAIMED U/S 40A(2)(B) OF THE ACT. THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION IS UNDISPUTEDLY IDENTICAL TO THAT OF ASSESSMENT YEARS 2005-06 AND 2006-07. IN THE CIRCUMSTANCES, WE ARE NOT INCLINED TO TAKE A DIFFERENCE VIEW THAN THE EARLIER VIEW TAKEN BY THE TRIBUNAL. THEREFORE, FOR THE REASONS STATED IN THE ABOVE TRIBUNAL ORDERS FOR THE ASSESSMENT YEARS 2005 -06 AND 2006-07 WE HAVE TO NECESSARILY UPHOLD THE ORDER OF THE CIT(A). WE DO SO AND REJECTED GROUND NO.(II) ALSO. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28-09-2011. SD/- SD/- (D.K. TYAGI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT, DT : 28 TH SEPTEMBER, 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-III, RAJKOT 4. THE CIT-II, RAJKOT 5. THE DR, I.T.A.T., RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, RAJKOT