ACIT, Circle-1(1), Hyderabad V. M/s. Alkali Metals Ltd., Hyderabad

ITA 1245/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2913 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKARA RAO
• Assessee Lawyers: S RAVI; A V RAGHURAM
• Keywords: Depreciation; Additional evidence; Competent authority
• Section: 133A; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER SL. NO. ITA NO. & A.Y. ASSESSEE RESPONDENT 1. ITA NO. 372/HYD/2012 A.Y. 2004-05 THE DEPUTY CIT, CIRCLE-1(1) HYDERABAD M/S. ALKALI METALS LTD., HYDERABAD PAN: AABCA7302B 2. ITA NO. 373/HYD/2012 A.Y. 2005-06 -DO- -DO- 3. ITA NO. 374/HYD/2012 A.Y. 2006-07 -DO- -DO- 4. ITA NO. 375/HYD/2012 A.Y. 2007-08 -DO- -DO- 5. ITA NO. 463/HYD/2012 A.Y. 2008-09 -DO- -DO- 6. C.O. NO. 103/HYD/2012 IN ITA NO. 463/HYD/2012 A.Y. 2008-09 M/S. ALKALI METALS LTD. HYDERABAD PAN: AABCA7302B THE DEPUTY CIT, CIRCLE-1(1) HYDERABAD 7. ITA NO. 1245/HYD/2012 A.Y. 2009-10 THE ASST CIT, CIRCLE-1(1) HYDERABAD M/S. ALKALI METALS LTD. HYDERABAD PAN: AABCA7302B 8. C.O. NO. 137/HYD/2012 ITA NO. 1245/HYD/2012 A.Y. 2009-10 M/S. ALKALI METALS LTD. HYDERABAD PAN: AABCA7302B THE ASST CIT, CIRCLE-1(1) HYDERABAD REVENUE BY: SRI D. SUDHAKARA RAO ASSESSEE BY: SRI S. RAVI & SRI A.V. RAGHURAM DATE OF HEARING: 26 .03.2013 DATE OF PRONOUNCEMENT: 31.05.2013 O R D E R PER CHANDRA POOJARI, AM: THESE APPEALS BY THE REVENUE AND THE CROSS OBJECTI ONS (COS) BY THE ASSESSEE ARE DIRECTED AGAINST DIFFEREN T ORDERS OF THE CIT(A) FOR THE ABOVE ASSESSMENT YEARS. 2. THE FIRST COMMON GROUND IN ALL THE REVENUE APPEALS IS WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S. 10B O F THE ACT. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 2 3. BRIEF FACTS OF THE ISSUE ARE THAT A SURVEY WAS COND UCTED ON 22.3.2006 AT THREE PREMISES OF THE ASSESSEE I.E. THE REGISTERED OFFICE AT PLOT NO. B-S. BLOCK-ILL, IDA, UPPAL, FACTORY PREMISES AT UNIT-I OF UPPAL AND UNIT-II OF DOMMARAP OCHAMPALLY VILLAGE, QUTHBULLAPUR MANDAL. CERTAIN INCRIMINATING MATERIAL FOUND IN THE PREMISES WERE IMPOUNDED AND THE STATEM ENTS OF SRI Y.S.R. VENKAT RAO, MANAGING DIRECTOR OF THE COM PANY, SRI K.N. PRASAD, DGM OF THE COMPANY AND SRI R.K. BABU, PRODUCTION MANAGER, UNIT-IL WERE RECORDED. THE AO M ADE THE FOLLOWING OBSERVATIONS FROM THE STATEMENTS AND INFO RMATION ON RECORD: 1) THE PREMISES ON WHICH UNIT-II OF THE COMPANY IS LOCATED ALONG WITH PLANT AND MACHINERY AND BUILDING ORIGINALLY BELONGS TO M/S. BALAJI AGRO INDUSTRIES L TD. THE SAME WERE TAKEN ON LEASE FROM M/S. BALAJI AGRO INDUSTRIES FOR PROPOSED EXPANSION ACTIVITIES OF THE ASSESSEE. EXPANSION OF ACTIVITIES CLAIMED TO HAVE BEEN PACKING WORKS, WAREHOUSE & LOGISTICAL PURPOSE OF TH E ASSESSEE COMPANY. 2) AS PER THE LEASE AGREEMENT BETWEEN M/S. BALAJI AGRO INDUSTRIES AND M/S. ALKALI METALS LTD., RENTALS ARE BEING PAID AS CALCULATED ON BUILDINGS, P&M & LAND A S PER LEASE AGREEMENT DT. 1.7.2000. HOWEVER, THE ASSESSEE CLAIMS THAT THE LAND AND BUILDING ONLY IS USED BY M/S. ALKALI METALS, P&M IS NOT USEFUL FOR M/S. A LKALI METALS EVEN THOUGH LEASE RENTALS ARE BEING PAID. 3) UNIT I WAS THE ORIGINAL UNIT OF M/S. ALKALI EXISTIN G FOR A LONG TIME AND MANUFACTURING CHEMICAL PRODUCTS LIKE SODIUM HYDRIDE, SODIUM AMIDE, SODIUM AZIDE, SODIUM METHOXIDE, AMINO PYRIDINES, PPAN ETC. THIS UNIT HAD BOTH DOMESTIC AND EXPORT SALES. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 3 4) AS ON DATE OF SURVEY BOTH UNITS CLAIMED TO BE ON AL MOST SIMILAR FOOTING VIS A VIS RAW MATERIAL REQUIRED AND VARIETY, QUALITY AND TYPE OF CHEMICAL PRODUCTS THAT CAN BE PRODUCED BY EXCEPT THAT EOU STATUS WAS AVAILABLE TO UNIT-II. 5) THERE WERE SALES FROM UNIT-II PRIOR TO F.Y 2003-04 AS SALES OF UNIT-II OF M/S ALKALI METALS AS EVIDENCED BY THE PRODUCTION REGISTERS & R.G-1 REGISTER FOR THE F.Y 2 003- 04 AS PER THE ANNEXURE B/AML/06 TO IMPOUNDING DATED 22.03.2006. 4. DURING THE COURSE OF SURVEY PRODUCTION REGISTERS & RGI REGISTERS OF UNIT-II FOR THE PERIOD 01.04.2002-31.0 3.2003 (F.Y. 2002-03) WERE FOUND AND IMPOUNDED. THESE REGISTERS SHOWED SALES FROM UNIT-II FOR THE FY 2002-03 ALSO. THE RG- 1 REGISTER SHOWED CLEARANCE OF FINISHED GOODS FROM UNIT-II. TH E. INWARD REGISTER ALSO SHOWED RECEIPT OF RAW MATERIALS BY UN IT-II DURING THE F.Y. 2002-03. IN THE STATEMENT RECORDED DURIN G THE SURVEY, THE MANAGING DIRECTOR, SHRI YSR VENKAT RAO WAS QUES TIONED WITH REGARD TO THE PLANT & MACHINERY IN UNIT-II. TH E RELEVANT QUESTIONS AND ANSWERS ARE REPRODUCED BELOW: (5) PLEASE GIVE DETAILS OF THE P & M AT 100% EOU (U NIT-II) WITH SPECIFIC REFERENCE TO ITS ACQUISITION? (ANS) THE ENTIRE P & M ERECTED AT 100% EOU (UNIT-II ) IS FABRICATED AND ERECTED BY M/S ALKALI METALS LTD., F ROM ITS OWN RESOURCES, FROM FEBRUARY 2003 ONWARDS, ADDITION S TO P & M ARE CONTINUED THERE FROM. (6) IN RESPONSE TO Q, NO. 3 YOU HAVE STATED THAT PR IOR TO FY 2003-04 THE SALES FROM EOU UNIT WERE PARTLY DOME STIC AND PARTLY EXPORT. IN RESPONSE TO Q. NO. 5 YOU HAV E I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 4 STATED THAT THE P & M WAS INSTALLED AFTER FEBRUARY 2003. PLEASE EXPLAIN HOW WAS THE PRODUCTION CARRIED OUT WITHOUT P & M BEFORE FEBRUARY 2003? (ANS) P & M ERECTION WAS STARTED EARLIER TO FEB 200 3 AND WAS USED FOR PRODUCING THE EARLIER PRODUCTION. THE DATE OF FEB 2003 MENTIONED IN Q. NO. 5, THE P & M PERTAINS TO 100% EOU. (7) CAN YOU GIVE THE DETAILS OF P & M ERECTED BEFOR E AND AFTER FEB 2003? (ANS) THE DETAILS WILL BE PROVIDED BY TOMORROW AFTE R COLLECTING THE NECESSARY DETAILS FROM RECORDS. (8) PLEASE SPECIFY IF THE SALES OF EOU UNIT MENTION ED ABOVE HAVE BEEN ACCOUNTED PRIOR TO IT BECOMING 100% EOU? (ANS) M/S. BALAJI AGRO INDUSTRIES HAS COMMON PROMOT ERS/ SHAREHOLDERS AS IN AML AND AHL LIST OF SHAREHOLDERS IS PROVIDED HEREWITH. 5. FURTHER DURING THE PROCEEDINGS A STATEMENT OF SRI R .K. BABU, PRODUCTION MANAGER OF UNIT-II RECORDED ON 22- 03-2006 WAS STATED AS FOLLOWS CATEGORICALLY AT Q. NO, 7, 8 & 10: (7) SINCE WHEN THIS UNIT STARTED MANUFACTURING THE ABOVE PRODUCT? (ANS) THE PRODUCTION OF AMINO PYRIDINES STARTED IN APRIL 2002. THE OTHER PRODUCTS SODIUM AZIDE AND ALKOXIDES STARTED FROM DECEMBER 2004 ONWARDS. (8) YOU HAVE STATED THAT YOU HAVE JOINED THIS UNIT AS PRODUCTION MANAGER IN APRIL 2001, WHERE AS THE ACTU AL I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 5 PRODUCTION OF THIS UNIT STARTED FROM APRIL 2002. PL EASE GIVE THE DETAILS OF ACTIVITIES BETWEEN THE DATE OF YOUR JOINING AND THE DATE ON WHICH PRODUCTION STARTED IN THIS UNIT? (ANS) DURING THAT PERIOD THE ERECTION OF THE MACHIN ERY WAS GOING ON. I SUPERVISED THE INSTALLATION OF THE MACHINERY. (10) PLEASE GIVE THE DETAILS M/S. BALA}I AGRO LND. AND SHARE HOLDINGS? (ANS) M/S BALA}I AGRO INDUSTRIES HAS COMMON PROMOTE RS/ SHARE HOLDERS AS IN AML AND AHL LIST OF SHARE HOLDE RS PROVIDED HEREWITH. 6. IN THE STATEMENT DATED 22-03-2006 RECORDED DURING T HE SURVEY, THE MD, SRI Y.S.R VENKATA RAO HAS STATED IN RESPONSE TO Q. NO. 7 THAT DETAILS REGARDING P & M INSTALLED BEFORE FEBRUARY 2003 WOULD BE SUBMITTED AFTER COLLECTING A LL THE DETAILS. SINCE THESE DETAILS WERE NOT FURNISHED, INFORMATION WAS CALLED FOR AGAIN VIDE LETTERS DATED 27-11-2006. SUBSEQUENTLY ANOTHER STATEMENT OF THE MD WAS RECORD ED ON 12- 12-2006 AND THE RELEVANT PORTION IS REPRODUCED. Q-8 IN YOUR STATEMENT DATED 22-03-2006 YOU HAVE IN RESPONSE TO Q. NO. 5 & 6 STATED THAT DETAILS OF PLANT & MACHINERY INSTALLED PRIOR TO FEBRUARY 2003, WOULD BE SUBMITTED. HOWEVER, THAT HAS NOT BEEN DONE SO FAR. ALSO NOW YOU SAY THAT NO MACHINERY IS ERECTED, INSTALLED AND COMMISSIONED. PLEASE EXPLAIN THE SAME. ANS. I DO NOT EXACTLY RECOLLECT THE CONTENT OF THE QUESTION AND I AM NOT AWARE OF THE MATERIAL TO BE I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 6 SUBMITTED AS STATED. HOWEVER I OWN UP THE STATEMENT AND I COULD HAVE SAID SO CORRELATING IT T O UNIT-I P & M AS THE ENTIRE AS THE ENTIRE PRODUCTION WAS DONE AT UNITI. NOW I CONFIRM THAT THERE WAS NEITHER PRODUCTION NOR COMMISSIONING OF P & M PRIOR TO 01.04.2003. Q. 9 PLEASE GIVE DETAILS OF PRODUCTION CARRIED OUT BY UNIT-II TILL SEPTEMBER, 2003. ANS. AS STATED ABOVE THERE WAS NO PRODUCTION AT UNI T-II. HOWEVER, GOODS WERE CLEARED FROM UNIT-II. Q. 10 PLEASE GO THROUGH THE REGISTER MARKED AS ANNEXURE-B/AML 02/06 IMPOUNDED U/S. 133A FROM UNIT-II AND EXPLAIN THE CONTENTS OF THE SAME. ANS. THE GOODS CLEARED UNDER CENTRAL EXCISE ACT ARE RECORDED IN RG-1 RECORD. Q. 11 PLEASE GO THROUGH THE PAGE NO. 52 OF ANNEXURE - B/AML 02/06 AT COL. NO. 3(I) & 3(II) 'IT IS MENTIONED AS QUANTITY MFG., AND ALSO CL. NO. 9 WHEREIN IT IS MENTIONED FOR EXPORT UNDER BOND. PLEASE OFFER YOUR COMMENTS. ANS. THIS IS RG-1 REGISTER OF UNIT-II CONTAINING TH E DETAILS OF FINISHED GOODS CLEARED FROM UNIT-II WHIC H ARE MFG. AT UNIT-1 AND ARE ENTERED AS PER FORMAT OF RG-1 UNDER MFG. COLUMN FOR WHICH WE HAVE EXCISE CLEARANCE FOR CLEARING THE FINISHED GOODS AT UNIT-I I. HOWEVER, INTERNAL ENTRIES MADE THROUGH 'GATE- PASSES'. Q. 12 PLEASE STATE THE SALE PROCEEDS EFFECTED AT UN IT-II AS STATED ABOVE ARE BROUGHT TO TAX OR NOT? I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 7 ANS. ENTIRE SALES ARE OFFERED AS INCOME OF THE COMP ANY FOR THE FY 2002-03. Q. 13 PLEASE GO THROUGH THE BOOK MARKED AS ANNEXURE - B/AML 02/18 AND EXPLAIN THE CONTENTS OF THE SAME. ANS. THIS IS BOOK MAINTAINED AS PER MFG. LICENSE OF CENTRAL EXCISE ACT. Q. 14 PLEASE GO THROUGH THE REPLY IN RESPONSE TO Q. NO. 6 WHEREIN YOU HAVE STATED THERE IS NO PRODUCTION BEFORE SEP' 2003. HOWEVER, CLEARANCE OF GOODS WERE EFFECTED TILL MARCH, 2003 AS SALES OF UNIT-II. HOWEVER, THE SAME ARE MFG. AT UNIT-1 AND CLEARED FROM UNIT-III. IN THIS CONNECTION ONCE AGAIN PLEAS E RECOLLECT AND CONFIRM FACTS. ANS. TO THE BEST OF KNOWLEDGE THERE IS NO PRODUCTIO N AT UNIT-II AND I RE-CONFIRM THE ANS. TO Q. NO. 6. Q. 15 PLEASE GIVE THE DETAILS OF THE BOOKS MAINTAIN ED AT MFG. UNIT SITUATED AT UPPAL UNIT. ANS. THE FOLLOWING BOOKS I.E., INTERNAL PRODUCTION RECORDS (LOG SHEETS, LOG BOOKS, INWARD AND OUTWARD GATE PASSES, SALES INVOICES, RAW MATERIAL REGISTER, SALE REGISTER, CENTRAL EXCISE AND SALES TAX DEPT. STATUTORY REGISTERS, ETC.). Q. 16 PLEASE GIVE THE DETAILS OF THE BOOKS MAINTAIN ED AT UNIT SITUATED AT DOMMARPOCHAMPALLY. ANS. PRIOR TO EOU BEING OPERATIONAL, SINCE THERE BE ING NO MFG. ACTIVITY ONLY THE FOLLOWING BOOKS ARE I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 8 MAINTAINED; INWARD AND OUTWARD CLEARANCE REGISTERS, GATE PASSBOOKS, CENTRAL EXCISE AND SALES TAX DEPT. STATUTORY RECORDS FOR STORAGE AND CLEARANCE GOODS. Q. 17 PLEASE SPECIFY THE CONTENTS AS PER THE INWARD AND OUTWARD CLEARANCE REGISTERS MAINTAINED AS STATED ABOVE. ANS. THE INWARD AND OUTWARD REGISTERS CONSISTS RAW MATERIALS, FINISHED GOODS, CAPITAL GOODS, ETC., RELATED TO ALKALI METALS LTD. THE SAID UNIT IS USE D AS BONDED WARE HOUSE. Q. 18 PLEASE GO THROUGH THE BOOK MARKED AS ANNEXURE B/AML 02/03 AND EXPLAIN THE CONTENTS OF THE SAME. ANS. THIS IS A RAW MATERIAL REGISTER OF UNIT-II CO NTAINING THE DETAILS OF PURCHASES MADE BY ALKALI METALS RECEIVED AND STORED AT UNIT-II AND ISSUES TO UNIT-I FOR PRODUCTION. THESE PURCHASES ARE MADE IN THE FY 2002-03 AND ARE ACCOUNTED IN THE RELEVANT YEAR A/C OF ALKALI METALS LTD. Q. 19 PLEASE GO THROUGH THE BOOK MARKED AS ANNEXERE - B/AML 02/19 AND EXPLAIN THE CONTENTS OF THE SAME. ANS. THIS IS A OUTWARD SALE GATE PASS FOR MATERIEL GOING OUT OF THE UNIT-II. Q. 20 PLEASE GO THROUGH PAGE NO. 2 OF THE BOOK MAR KED AS ANNEXURE-B/AML 02/03 AND PLEASE OFFER YOUR COMMENTS IN RESPECT OF THE REMARKS MENTIONED THEREIN. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 9 ANS: SODIUM METAL STORED IN UNIT-II BEING SHIFTED TO UNIT-I FOR PRODUCTION OF FINISHED PRODUCTS OF UNIT- I. Q.21 PLEASE GO THROUGH PAGE NO. 1 OF ANNEXURE MARK ED AS NO. 61 IMPOUNDED AT FACTORY PREMISES AT UPPAL ON 22-03-2006 AND OFFER YOUR COMMENTS. ANS. THE REVENUE EXPENSES RELATED TO UNIT-II BEFOR E THE COMMENCEMENT OF PRODUCTION ACTIVITY MIGHT HAVE BEEN TRANSFERRED TO UNIT-I. HOWEVER THE VERIFICATIO N AND QUANTIFICATION OF SUCH EXPENDITURE WILL BE SUBMITTED ON 15 TH DECEMBER, 2006. 7. IN VIEW OF THE INCONSISTENCIES IN THE STATEMENTS OF THE MD OF THE COMPANY AND IN VIEW OF THE STATEMENT OF SRI. R.K. BABU PRODUCTION MANAGER UNIT-II REPRODUCED EARLIER, THE STATEMENT OF THE MD WAS ONCE AGAIN RECORDED ON 21-12-2006 BRINGI NG HIS ATTENTION TO THE PRODUCTION MANAGER STATEMENT. THE SAME IS REPRODUCED AS FOLLOWS: Q. 2 WHAT HAVE YOU TO SUPPOSE TO SUBMIT FOR THE STATEMENT RECORDED DATED 12.12.2006 ANS. FOR Q. NO. 3, THE STATEMENT OF SHRI S. VIJAY KUMAR MAY BE CONSIDERED AS REPLY. FOR REPLY TO Q. NO. 21, I COULD ONLY SAY IT IS AN INTERACTIVE THOUGHT PROCE SS OF TECHNICAL AND FINANCIAL STAFF WHICH HAS NO RELEVANCE. I COULD NOT SAY ANYTHING BEYOND THIS. Q. 3 WHO IS THE PRODUCTION MANAGER OF UNIT-II. ANS. SHRI R.C. BABU, S/O R. DATTATREYULU, WAS PRODUCTION MANAGER FOR UNIT-II. HE IS WORKING APPROXIMATELY SINCE 1990-91 AND STILL WORKING I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 10 WITH US. HE IS TECHNICAL SUPERVISOR LOOKING AFTER PRODUCTION ACTIVITIES AT UNIT-I ORIGINALLY AND NOW SHIFTED TO UNIT-II. Q. 4 PLEASE GO THROUGH Q. NO. 7 AND RELATED Q. NO . 8 OF SHRI R.C. BABU'S STATEMENT DATED 22.03.2006 RECORDED DURING THE SURVEY PROCEEDINGS. WHAT HAVE YOU TO SAY ON THIS? ANS. THE BASIC CONTENT OF THE STATEMENT IS CORREC T, BUT, I DO NOT AGREE WITH THE YEARS MENTIONED IN THE STATEMENT AS CORRECT YEARS OF MANUFACTURE LAND PRODUCTION ACTIVITY. I HAVE NOTHING ELSE TO SAY. Q. 5 PLEASE GO THROUGH THE Q. NO. 10 OF THE SAME STATEMENT REGARDING PLANT & MACHINERY EXISTING, WHAT HAVE YOU TO SAY ON THIS? ANS. THE OLD MACHINERY OF M/S. BALAJI MIGHT HAVE B EEN TAKEN INTO ACCOUNT BY THE SUPERVISOR WHILE GIVING THE STATEMENT WHICH IS NOT USEFUL FOR OUR STATED PRODUCTS OF UNIT-E. THAT MACHINERY WAS TAKEN BY M/S. BALAJI DURING THE FY 2006-07 AS IT BELONGS TO THEM TO THEIR PLANT AT BONTAPALLY. WE HAVE PAID LEASE RENTAL FOR THE PLANT & MACHINERY LYING AT UNIT-II PREMISES UP TO MARCH, 2003 ONLY. Q. 6 PLEASE GO THROUGH THE Q. NO. 4 OF YOUR STATEM ENT DATED 22.3.2006 RECORDED DURING SURVEY WHEREIN YOU HAVE STATED THAT THE LEASE AGREEMENT WAS ENTERED WITH M/S. BALAJI AGRO FOR PRODUCING PRODUCTS OF ALKALI METALS. WHAT HAVE OU TO SAY ON THIS? I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 11 ANS. I CONFIRM AND AGREE WITH THAT AND WE WERE PLANNING PRODUCTION THERE IN FUTURE AS UNIT-E WHICH TOOK PLACE DURING THE MONTH OF SEPTEMBER, 2003. Q. 7 YOU HAVE ANYTHING ELSE TO SAY. ANS. I HAVE NOTHING ELSE TO SAY. 8. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER OBSERVE D THAT THERE WERE SALES DURING THE F.Y. 2002-03 IS A FACT ACCEPTED BY THE ASSESSEE. THE MANAGING DIRECTOR OF THE COMPANY HOWEVER, NOW STATES THAT NO PRODUCTION WAS CARRIED OUT IN UN IT-II IN F.Y. 2002-03. THIS IS CONTRADICTORY TO HIS OWN STATEMENT RECORDED AT THE TIME OF THE SURVEY AS WELL AS THE STATEMENT OF THE PRODUCTION MANAGER RECORDED ON 22.03.2006 AND REPRODUCED EARLI ER. APART FROM THESE STATEMENTS, PRODUCTION REGISTER AND RGI REGISTER OF UNIT-II FOUND DURING THE SURVEY ALSO POINT TO THE F ACT THAT PRODUCTION WAS CARRIED OUT BY UNIT-II DURING THE F. Y. RELEVANT TO THE ASSESSMENT YEAR 2003-04. 9. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT FROM THE REGISTERS IMPOUNDED AT UNIT-II, WHICH ARE RECEIPT A ND ISSUE OF RAW MATERIALS, PRODUCTION ON VARIOUS DATES AND DISP ATCH AND SALE OF FINISHED GOODS, THE ASSESSING OFFICER CONCL UDED THAT THE CONTENTION OF THE ASSESSEE THAT THE RAW MATERIALS W ERE STORED ON BEHALF OF UNIT-I AND FINISHED GOODS WERE RECEIVED F ROM UNIT-I HAS NO MERIT. HE OBSERVED THAT THE INWARD REG ISTER OF UNIT- II SHOWED RECEIPT OF RAW MATERIAL FROM UNIT-I, NOWH ERE NEITHER THE OUTWARD REGISTER NOR GATE PASS SHOW DISPATCH OF THESE MATERIALS TO UNIT-I AND HELD THAT THE RECORDS, THEREFORE, CLEARLY SHOW THAT UNIT-II HAD EFFECTED PRODUCTION I N FY 2002-03 I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 12 ALSO WHICH CONFIRMS THE EARLIER STATEMENT OF MD HIM SELF AND ALSO THE STATEMENT OF PRODUCTION MANAGER. THE ASSES SING OFFICER ALSO NOTED THAT PRODUCTION WOULD BE POSSIBLE ONLY I F P & M WAS AVAILABLE PRIOR TO THE CONVERSION OF UNIT-IL TO A E OU UNIT INVENTORY OF MACHINERY AT THE TIME OF SURVEY CLEARL Y SHOWS THAT A NUMBER OF ITEMS ARE OLD AND EXISTED IN 2001 & 20 02. THE AO ALSO NOTICED THAT THE ASSESSEE ENTERED INTO THE LEA SE AGREEMENT WITH ITS SISTER CONCERN AND HAD TAKEN LAND, BUILDIN G AND MACHINERY ON LEASE FROM M/S. BALAJI AGRO INDUSTRIES AND EVEN THOUGH THE MACHINERY WAS NOT USEFUL TO IT, IT PAID RENTALS FOR P & M ALSO. THEREFORE, THE AO HELD THAT UNIT-II WAS I N COMMERCIAL OPERATION PRIOR TO F.Y. 2003-04. IN VIEW OF THE ABO VE, THE AO HAS CONCLUDED THAT SINCE THERE WAS COMMERCIAL PRODUCTIO N BEFORE FY 03-04, AND THERE WAS OLD MACHINERY TRANSFERRED T O THE NEW UNIT EXCEEDING THE 20% LIMIT AVAILABLE AS PER EXPLA NATION 2 TO SEC. 80-I(2) AND, THEREFORE, THE CLAIM U/S. 10B WAS NOT ALLOWED IN RESPECT OF UNIT-II. 10. ON APPEAL, THE CIT(A) CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER SUBMITTED THE REMAND REPORT AS FOLLOWS: 'DURING THE APPELLATE PROCEEDINGS THE AR OF THE ASSESSEE TOOK THE STAND BEFORE MY PREDECESSOR THAT THE GOODS WHICH WERE STATED TO HAVE BEEN SOLD FROM UNIT-II PRIOR TO SEPTEMBER, 2003 WAS IN FACT MANUFACTURED BY UNIT-I AND DULY EVIDENCED BY THE GATE PASSES OF UNIT-I SHOWING AS CONSIGNED TO UNIT- II AND SUBMITTED THE LIST OF SUCH OUT PASSES OF UNIT-I INDICATING THE QUANTITY CONSIGNED TO UNIT-II AND SHOWN IN EXPORT INVOICE AS EXPORT OF UNIT-II. THE A R SUBMITTED THAT THE ORIGINAL RECORDS OF THE SAME WER E IMPOUNDED BY THE A.O. DURING THE COURSE OF SURVEY OPERATIONS. IT WAS ALSO AGREED THAT ONE TO ONE TRANSFER OF GOODS FROM UNIT-I TO UNIT-II AND MATCHI NG ENTRIES WOULD BE RECONCILED BEFORE THE AO (ORDER SHEET NOTING DATED 2.8.2007 IN THE PRESENCE OF THE A.O.). THE AO VIDE REPORT DATED 22.2.2008 SUBMITTED I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 13 THAT THE ASSESSEE HAD SUBMITTED XEROX COPIES OF GAT E PASSES (NEITHER NUMBERED NOR INDEXED) OF UNIT-I, CLAIMING THE TRANSFERS FROM UNIT-I TO UNIT-II TOTAL LING AROUND 56 IN NUMBER FOR ALL PRODUCTS LIKE PPAN, S. AZITE , S. AMIDE, S. HYDRIDE AND 2 A.P. , 2 A5P, 2A 4P. THESE GATE PASSES WERE NOT NUMBERED AND THE SAME WERE NOT EVIDENCED WITH ANY GATE PASS REGISTER. THE ASSESSEE'S CLAIM OF GATE PASSES WAS VERIFIED WITH THE RGL REGISTER OF UNIT-I AS CLAIMED BY THE ASSESSEE FOR THE ALLEGED TRANSFERS. ON VERIFICATION THE GATE PASSES ARE NOT REFLECTED IN R GL OF UNIT-I EXCEPT 2 EACH OF SODIUM AZIDE, SODIUM AMIDE/ SODIUM HYDRIDE OUT OF AS MANY AS 57 GATE PASSES SUBMITTED OF UNIT-I. IT WAS STATED THAT THE ASSESS EES CLAIM OF GATE PASSES WHICH WERE NOT REFLECTED IN RG 1 OF UNIT-I COULD NOT BE CONSIDERED AS VERIFIABLE SUPPORTS FOR ASSESSEES CLAIM WHEN THE SAME WAS NEITHER PART OF IMPOUNDED MATERIAL NOR IS REFLECTED AS PER THE IMPOUNDED MATERIAL AND THIS IS CONSISTENT WITH THE STATEMENT OF SRI R.K. BABU, PRODUCTION MANAGER AS RECORDED DURING SURVEY WHEREIN HE HAS CONFIRMED COMMENCEMENT OF PRODUCTION OF PLANT WAY BACK IN APRIL 2002 WITH AMINO PYRIDINES ETC. AND CONCLUDED THAT THE ASSESSEES CONTENTION OF TRANSFER S IS COMPLETELY BASELESS AND DO NOT HAVE LOGICAL AND LEGAL SANCTITY AS THE EVIDENCES IMPOUNDED AND GATHERED DURING SURVEY CLEARLY SHOW THE PRODUCTION OF UNIT-II WELL BEFORE SEPTEMBER 2003. PRODUCTION WOULD BE POSSIBLE ONLY IF PLANT AND MACHINERY WAS ALSO AVAILABLE PRIOR TO THE CONVERSION OF UNIT-IL T O A EOU UNIT AND THE INVENTORY OF MACHINERY AT THE TIME OF SURVEY SHOWED THAT A NUMBER OF ITEMS WERE OLD AND EXISTED IN 2001 & 2002.' 11. THE ASSESSEE FILED A REPLY TO THE REMAND REPORT OF THE ASSESSING OFFICER THAT THE COMPANY TOOK ONLY THE PR EMISES ON LEASE AND THE CASTOR OIL MACHINERY WAS SURRENDERED TO THE LESSOR, THE LEASED PREMISES WERE USED ONLY FOR STOR AGE PURPOSES TO TEST THE LOGISTICS BEFORE STARTING THE EOU AS TH E PRODUCTS ARE HAZARDOUS, THE COMPANY HAS NOT INSTALLED ANY MACHIN ERY IN THE LEASED PREMISES BEFORE 31.3.2003 AND THE ERECTION O F NEW MACHINERY STARTED FROM APRIL 2003, THE REGISTERS MA INTAINED IN THE PREMISES REFLECT ONLY THE TRANSFERS OF FINISHED GOODS FROM UNIT-I TO UNIT-II AND THEY HAVE SUBMITTED THE CENTR AL EXCISE I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 14 INVOICES AND GATE PASSES FOR THE FINISHED GOODS TRA NSFERRED FROM UNIT-I TO UNIT-IL AND, THEREFORE, THERE WAS NO MANU FACTURING ACTIVITY IN THE LEASED PREMISES BEFORE STARTING THE 100% EOU. SUBSEQUENTLY, THE ASSESSEE FILED ANOTHER LETTER DAT ED 7.1. 2009 AND SUBMITTED THAT IN VIEW OF THE JUDGEMENT OF THE P&H HIGH COURT IN THE CASE OF CIT VS. EXCEL SOFTECH LIMITED (175 TAXMAN 257) WHERE IT WAS HELD THAT RELEVANCE TO 'NEWLY EST ABLISHED UNDERTAKING' IS ONLY TO IDENTIFY INITIAL YEAR OF PE RIOD OF 10 YEARS FOR WHICH THE ASSESSEE IS ELIGIBLE FOR CLAIM OF EXE MPTION U/S. 10B , SINCE THE UNDERTAKING WAS ESTABLISHED IN THE F.Y. 2003- 04, THE ASSESSEE COMPANY IS ELIGIBLE FOR EXEMPTION U/S. 10B OF THE ACT IN RESPECT OF INCOME EARNED BY THE 100% EOU FROM A.Y. 2004-05 ONWARDS. 12. FURTHER, THE CIT(A) SOUGHT VERIFICATION OF PRODUCTI ON REPORT, STOCK STATEMENT AND OTHER RELEVANT DETAILS FOR THE ISSUE TO PROVE THAT WHETHER THERE WAS PRODUCTION BEFORE E OU STATEMENT WAS CLAIMED. CONSEQUENT TO THIS, THE ASS ESSING OFFICER SUBMITTED REPORT ON 19.9.2011 AS FOLLOWS: 'AS DIRECTED, THE UNDERSIGNED CONDUCTED REMAND PROCEEDINGS BY WAY OF ISSUE OF NOTICE DATED 6.9.201 1 FIXING THE HEARING TO 13.09.2011. ON 13.09.2011 SHRI V. SRINATH, FCA & AR APPEARED ALONG WITH SHRI P. SHANKAR RAO, GM (F) AND SHRI M. RAMAKRISHNA, FCA. THEY HAVE BEEN REQUESTED TO FURNISH THEIR COMMENTS ON THE IMPOUNDED MATERIAL IN THE FORM OF PRODUCTION REGISTERS AND GATE PASSES ETC. THEY HAVE STATED THAT THEY ARE UNABLE TO EXPLAIN HOW THE REGISTERS WERE KEPT AT THE PREMISES AS THERE WAS NO PRODUCTION ACTIVITY. IN SUPPORT OF THEIR CLAIM, THEY FILED ORDER DATED 22.03.2002 FROM JOINT CHIEF ENVIRONMENTAL ENGINEER, AO POLLUTION CONTROL BOARD (ORDER NO. 3767 DATED 22.03.2003) WHEREIN IT IS STATED THAT SITE INSPECTI ON AS CONDUCTED ON 10.01.2003 AND CONSENT ORDER WAS ISSUED FOR ESTABLISHMENT OF UNIT-2 OF THE ASSESSEE. THEY ALSO FILED CONSENT ORDER NO. APPCB/HYD/ I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 15 JDM/585/RO/W/2003/283 DATED 09.12.2003 WHERE IN EFFLUENT ANALYSIS WAS DONE BY THE AP POLLUTION CONTROL BOARD. THEY ALSO FILED LETTER IN C. NO. VIIL/40/21/2003, DATED 04.09.2003 ISSUED BY ASST. COMMISSIONER (CUSTOMS) FOR MAINTENANCE OF CUSTOMS BONDED PRIVATE WAREHOUSE. AFTER PERUSAL OF THE EVIDENCE FILED BY THE ASSESSEE , IT IS SUBMITTED THAT THE ASSESSEE COULD NOT EXPLAIN WH Y PRODUCTION RECORDS AND GATE PASSES WERE MAINTAINED AT UNIT-2 DESPITE THE CLAIM THAT NO PRODUCTION IS D ONE. NO REASON IS ALSO GIVEN FOR PRODUCING COPIES OF 2 ORDERS OF AP POLLUTION CONTROL BOARD AND ONE ORDER FROM CUSTOMS AT THIS LATE STAGE THOUGH NOTHING PREVENTED THE ASSESSEE FROM FILING THE NAME BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. IN THE LIGHT OF THIS, THE UNDERSIGNED HUMBLY SUBMITS THAT THE ADDITIONAL EVIDENCE AT THIS STAGE MAY NOT BE ACCEPTED. IF THE ADDITIONAL EVIDENCE IS ACCEPTED TH EN PERMISSION MAY BE GRANTED TO CROSS-EXAMINE THE CONCERNED OFFICER OF AP POLLUTION CONTROL BOARD IF THE ASSESSEE RELIED ON HIM AS WITNESS. IF THE ASSESSEE IS UNABLE TO PRODUCE HIS WITNESS AGAIN, PERMISSION MAY BE GRANTED TO EXAMINE THE OFFICE OF PCB WHO ISSUED THE ORDERS. IT IS ALSO PERTINENT TO SUBMIT HERE THAT THE ASSESS EE DID NOT PRODUCE THE CONCERNED PRODUCTION MANAGER WHO GAVE THE STATEMENT DURING THE COURSE OF SURVEY PROCEEDINGS BECAUSE HE IS INJURED IN AN ACCIDENT ON GANESH CHATURDI IMMERSION DAY. THE ASSESSEE ALSO CONTENDED THAT THE PRODUCTION MANAGER WAS CONFUSED DURING THE SURVEY BECAUSE HE STATED THAT DATE OF PRODUCTION OF SODIUM AZIDE IS DECEMBER, ?004 WHERE. AS SUCH PRODUCTION ALREADY STARTED IN SEPTEMBER, 2003. THE UNDERSIGNED IS NOT IN A POSITION TO OFFER ANY COMMENTS ON THIS BECAUSE ONLY RE-EXAMINATION OF THE CONCERNED PRODUCTION MANAGER WOULD BRING OUT CORRECT FACTS. IT IS ALSO SUBMITTED THAT AS PER THE CONSENT ORDER OF A.P. POLLUTION CONTROL BOARD DATED 09.12.2003 CITED ABOVE THE PRODUCTION CAPACITY OF SODIUM AMIDE, SODIUM HYDRIDE, AMINO PYRIDINE ETC., WERE CLEARLY MENTIONED AND QUANTITIES AS SEEN FROM THE PRODUCTION REGISTERS MAINTAINED BY THE ASSESSEE AR E OF THE SAME ORDER. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 16 IT IS SUBMITTED THAT FROM THE ABOVE, IT IS VERY CLE AR THAT THE ASSESSEE HAS ESTABLISHED A CHEMICAL PLANT IN THE F. Y. 2002-03 ITSELF AND STARTED PRODUCTION AS SEEN FROM THE IMPOUNDED RECORD. THERE IS A POSSIBILITY OF COLLUSION BETWEEN OFFICIALS OF AP POLLUTION CONTROL BOARD AND THE ASSESSEE TO OBTAIN CERTAIN CONSENT ORDERS EITHER WITH BACK DATE OR THE INSPECTION COULD HAVE BEEN CONVENIENTLY DONE WHEN THE PRODUCTION IS ALREADY IN PROGRESS. AS ALREADY REFERRED ABOVE, UNLESS THE CONCERNED OFFICERS OF TH E POLLUTION CONTROL BOARD ARE EXAMINED ALONG WITH THE RELEVANT DOCUMENTS, THE SUBMISSIONS OF THE ASSESSEE CANNOT BE ACCEPTED. IT IS SUBMITTED THAT IN THE LIGHT OF THE ABOVE, ADDITIONAL EVIDENCE FILED BY THE ASSESSEE MAY NOT B E ACCEPTED AND THE PLEA OF THE ASSESSEE THAT PRODUCTION STARTED ONLY IN A.Y. 2003-04 MAY BE REJECTED. IN CASE THE PLEA OF THE ASSESSEE IS ACCEP TED, KIND PERMISSION MAY BE GRANTED TO CROSS-EXAMINE THE WITNESSES ALONG WITH RECORDS OR EXAMINE THEM IN CASE, ASSESSEE FALLS TO PRODUCE THEM. DURING THE PROCEEDINGS, THE ASSESSEE TOOK AN ALTERNATE PLEA THAT AS PER CIRCULAR NO. 1/2005 EVEN A DTA WHICH GETS CONVERTED INTO EOU IS ELIGIBLE FOR DEDUCTION FOR THE UNEXPIRED PERIOD OUT OF 10 YEARS FROM THE YEAR OF COMMENCEMENT OF MANUFACTURE. AS THE CLAIM IS LEGAL IN NATURE, THE UNDERSIGNED HAS N O REPORT TO SUBMIT ON THIS CLAIM AND APPROPRIATE DECISION MAY KINDLY BE TAKEN BY THE LEARNED CIT(A)' . 13. IN REPLY TO THIS REPORT FROM THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED BEFORE THE CIT(A) AS UNDER: 'DURING THE COURSE OF HEARING WHICH TOOK PLACE ON 13.9.2011 OUR COMPANY REITERATED ITS EARLIER STAND THAT NO PRODUCTION ACTIVITY WAS EVER DONE IN THE PREMISES LOCATED AT DOMMARAPOCHAMPALLY PRIOR TO ITS GETTING THE APPROVAL AS EOU. IN FACT OUR COMPANY NEVER TREATED THE SAID PREMISES AS ANOTHER UNIT DURING THE FY 2002-03 AND MATERIALS BOTH INPUT AND OUTPUT WAS STORED THERE TO VERIFY THE LOGISTICS AND IN CONNECTION THEREWITH CERTAIN REGISTERS WERE MAINTAINED THERETO TO HAVE CONTROL OVER THESE MATERIALS. THE INPUT MATERIAL STORED THERE WAS USED FOR PRODUCTION AT UPPAL UNIT AND OUTPUT MATERIAL I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 17 PRODUCED IN ,UPPAL UNIT WAS MOVED TO DOMMARA- POCHAMAPLLY PREMISES FOR ONWARD DISPATCH BOTH IN DOMESTIC/EXPORT MARKET. IN SUPPORT OF OUR CLAIM THAT NO MANUFACTURING ACTIV ITY WAS UNDERTAKEN IN EOU UNIT PRIOR TO IT GETTING SUCH STATUS, OUR COMPANY FILED A LETTER DATED 22.03.2003 FROM THE JOINT CHIEF ENVIRONMENTAL ENGINEER, A.P. POLLUTION CONTROL BOARD, WHICH SHOWS THAT THE INSPECTION WAS CONDUCTED AT THE SITE OF THE ASSESSEE'S SECOND UNIT ON THE 10.01.2003. A PERUSAL OF THE SAME WOULD UNAMBIGUOUSLY INDICATE NO ACTIVITY MUCH LESS MANUFACTURING ACTIVITY WAS CARRIED ON IN THE SAID PREMISES AS ON THE DATE OF INSPECTION. OUR COMPANY ALSO FILED A FURTHER CONSEN T ORDER NO. APPCB/HYD/JDM/585/RO/W/ 20203/ 283 DATED 09.12.2003, WHEREIN THE EFFLUENT ANALYSIS HAD BEEN DONE BY THE A. P. POLLUTION CONTROL BOARD. FINALLY THE THIRD PUBLIC DOCUMENT THAT OUR COMPANY HAD SUBMITTED FOR CONSIDERATION WAS THE LETTER DATE D 04.09.2003 ISSUED BY THE ASSISTANT COMMISSIONER (CUSTOMS) FOR MAINTENANCE OF CUSTOMS BONDED PRIVATE WAREHOUSE. THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE. 1 PUTS THE FOLLOWING GROUNDS AGAINST THE ADMISSIBILITY OF THE ABOVE DOCUMENTS. THAT NO REASON HAS BEEN GIVEN AS TO WHY THESE DOCUMENTS WERE NOT PRODUCED AT AN EARLIER POINT OF TIME. HE SEEKS PERMISSION TO CROSS EXAMINE THE CONCERNED OFFICER FROM A.P. POLLUTION CONTROL BOARD PUTTING THE ONUS ON THE ASSESSEE TO PRODUCE THE CONCERNED OFFICER AS A WITNESS. ALTERNATIVELY HE SEEKS PERMISSION TO EXAMINE THE OFFICER FROM THE POLLUTION CONTROL BOARD IN THIS RESPECT. OUR RESPONSE TO THE ABOVE IS AS FOLLOWS: ALL THE THREE DOCUMENTS WHICH HAVE BEEN PRODUCED ARE THIRD PARTY DOCUMENTS, EMANATING FROM PUBLIC OFFICERS. THERE IS A PRESUMPTION IN LAW THAT ALL OF FICIAL ACTS ARE PROPERLY DONE. IF THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-L DISBELIEVED THE EXISTENCE OF THESE DOCUMENTS, IT HAD TO BE ON THE BASIS OF RATIONAL EXERCISE OF MIND. THE MERE ALLEGATION THAT THE DOCUMENTS OUGHT NOT TO BE ACCEPTED CANNOT BE COUNTENANCED. AT ANY RATE THERE I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 18 IS NO REASON FOR THE LEARNED ADDITIONAL COMMISSIONE R OF INCOME TAX, RANGE-L TO DOUBT THE VALIDITY OF THO SE DOCUMENTS AS THESE DOCUMENTS HAVE EMANATED FROM PUBLIC OFFICE AND MUST RECEIVE ITS DUE RESPECT AND MUST BE ACCEPTED BY THE DEPARTMENT. IT MAY BE WORTHWHILE TO MENTION HERE THAT THESE DOCUMENTS WERE AVAILABLE IN THE PREMISES EVEN ON THE DATE OF SURVEY PROCEEDINGS AND HENCE CANNOT BY ANY STRETCH OF IMAGINATION BE HELD AS PRODUCTION OF NEW EVIDENC E BY OUR COMPANY, FURTHER OUR COMPANY NEVER RELIED ON THE GOVERNMENT OFFICIALS WHO GAVE VARIOUS APPROVAL AS ITS WITNESS. IN PARA 5, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-.L STATES THAT THE CONCERNED PRODUCTION MANAGER HAS NOT BEEN PRODUCED DURING THE COURSE OF REMAND PROCEEDINGS. OUR COMPANY HAD A VALID REASON FOR NOT PRODUCING THE PRODUCTION' MANAGER ON THE APPOINTED DATE. THE CONCLUSIONS OF THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-L IN PARA 7 THAT THE CHEMICAL PLANT HAS BEEN ESTABLISHED IN THE YEAR 2002-03 ITSELF AND THAT THE PRODUCTION HAS BEEN STARTED, AS CAN BE SEEN FROM TH E IMPUGNED RECORD, IS PRE-JUDGMENT OF THE ISSUE. THAT IS REITERATION OF THE STATEMENT ALREADY CONTAINED I N THE ASSESSMENT ORDER WITHOUT ANY FURTHER BASIS. IN THE CIRCUMSTANCES THE APPELLATE AUTHORITY MAY KINDLY ESCHEW FROM CONSIDERATION THE REITERATION OF THE STATEMENT BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT. IT CANNOT BE TAKEN AS CONCLUSIVE PROOF IN VIEW OF THE STRONG INDEPENDENT EVIDENCE THAT OUR COMPANY HAS NOW PLACED. BESIDES THE WHOLE ISSUE IS AT LARGE IN THE APPEAL. HOWEVER, THE LEARNED COMMISSIONER MAY CONSIDER AS TO WHETHER THE DOCUMENT COMING FROM ANOTHER PUBLIC AGENCY SHOULD BE VIEWED WITH SUSPICION OR SHOULD BE CONSIDERED ON ITS MERITS. IN THESE CIRCUMSTANCES IT IS RESPECTFUL LY SUBMITTED THAT THE COMMISSIONER OF INCOME TAX MAY KINDLY PERMIT THE ADDITIONAL EVIDENCE AS ALLEGED BY THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-L, TO BE TAKEN ON RECORD AND THE APPEAL BE CONSIDERED ON THE SAID EVIDENCE. LASTLY, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE-L HAS COMMENTED THAT THE IN ANY EVENT WHETHER OUR COMPANY WOULD BE ELIGIBLE FOR THE BENEFIT OF SECTION 10B FOR THE UNEXPIRED PERIOD COMMENCING FROM THE ASSESSMENT YEAR 2004-05 I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 19 BEING REGARDED AS SECOND YEAR IN PRODUCTION IS A LEGAL QUESTION. THE ASSESSEE IN ORDER TO PUT AT RES T THE NEEDLESS CONTROVERSY IS WILLING TO SACRIFICE TH E BENEFIT OF SECTION 10B FOR ONE YEAR AND IS READY AN D WILLING TO ACCEPTED 2004-05 AS THE SECOND YEAR AND FOR CONFINING OF THE BENEFIT FOR A PERIOD OF NINE Y EARS INCLUDING ASSESSMENT YEAR 2004-05. THIS IS HOWEVER NOT AN ADMISSION OF ANY GUILT ON THE PART OF THE ASSESSEE AND THIS GROUND IS BEING MADE ONLY TO SAVE VALUABLE PUBLIC TIME AND TO AVOID NEEDLESS CONTROVERSY IN THE MATTER'. 14. AFTER CONSIDERING THE INFORMATION SUBMITTED BY THE AO AND THE ASSESSEE, IT IS NOTICED BY THE CIT(A) THAT THE ALLEGED ADDITIONAL EVIDENCES ON WHICH THE ASSESSEE HAS BEEN RELYING WERE DATED 09.12.2003 FROM A.P. POLLUTION CONTROL B OARD, 04.09.2003 BY ASST. COMMISSIONER (CUSTOMS) AND 22.0 3.2003 FROM JT. CHIEF ENVIRONMENTAL ENGINEER, AFTER THE AS SESSEE IS IN CUSTODY/ POSSESSION OF THESE EVIDENCES ALL THESE DA YS, IT IS NOT UNDERSTOOD WHY IT TOOK 8 YEARS FOR THE ASSESSEE TO PRODUCE THE SAME BEFORE THE ASSESSING OFFICER. IT MAY ALSO BE N OTED THAT THESE CONSENT ORDERS AND INSPECTION REPORTS WERE NO T AVAILABLE AT THE TIME OF SURVEY ON 22.3.2006. IT IS NOTICED T HAT THE ASSESSMENT PROCEEDINGS HAVE TAKEN PLACE SINCE 28.12 .2005 ONWARDS, AND THE APPEAL PROCEEDINGS ALSO STARTED' F ROM 05.02.2007 AND TILL 19.10.2011, THE ASSESSEE DID NO T UTTER ANY WORD ABOUT THESE EVIDENCES NOR FILED EITHER BEFORE ME OR BEFORE THE AO HE HAS NOT COMMENTED ON THE AUTHENTICITY OF ADDITIONAL EVIDENCES IN VIEW OF THE PASSAGE OF TIME IE MORE TH AN SIX YEARS AND HE ALSO STRONGLY TOOK OBJECTION TO THE FILING S UCH EVIDENCES AFTER SUCH A LONG LAPSE THEREBY WASTING THE PRECIOU S TIME OF THE AUTHORITIES HERE. THEREFORE, THE SO CALLED EVIDENCE S ARE NOT ADMITTED BY THE CIT(A). 15. HE ALSO OBSERVED THAT THE PRODUCTION MANAGER SRI R. K. BABU, WHOSE STATEMENTS HAS CAUSED SO MUCH OF CONFUS ION WAS NOT PRODUCED BEFORE THE AO DESPITE GIVEN MANY OPPOR TUNITIES, I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 20 ON SOME PRETEXT OR THE OTHER AND THEREFORE THE CONT ENTION OF THE ASSESSEE THAT THE PRODUCTION WAS STARTED ONLY AFTER GETTING THE EOU STATUS BY THE ASSESSEE I.E., IN THE RELEVANT YE AR IS NOT ACCEPTABLE. IN VIEW OF THE VARIOUS OBSERVATIONS GIV EN BY THE SURVEY PARTY AND ALSO WITH ALL THE CIRCUMSTANTIAL E VIDENCES NOTED BY THE AO IN THE ASSESSMENT ORDER AND IT IS H ELD THAT THE PRODUCTION IN UNIT-II STARTED WAY BACK IN APRIL 200 2. HOWEVER, SINCE THE ASSESSEE HAS GOT EOU STATUS, THE ASSESSEE CANNOT BE DENIED THE TAX HOLIDAY GRANTED U/S. 10B OF THE IT A CT TO 100% EXPORT ORIENTED UNDERTAKING. RELIANCE IS PLACED ON CIRCULAR NO. 1/2005 DATED 06.01.2005 WHICH IS AS UNDER: 'SECTION 10B OF THE INCOME-TAX ACT PROVIDES FOR 100 % DEDUCTION OF PROFITS DERIVED BY A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING, FROM EXPORT OF ARTICLE S OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT. THE DEDUCTION IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE. HOWEVER, NO DEDUCTION UNDER SECTION 10B IS AVAILABLE AFTER ASSESSMENT YEAR 2009 - 10. THE DEDUCTION UNDER SECTION 10B IS AVAILABLE TO AN UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS:- I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THING OR COMPUTER SOFTWARE; II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE EXCEPT IN THE CIRCUMSTANCES SPECIFIED UNDER SECTION 33B OF THE IT ACT. III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. REPRESENTATIONS, HAVE BEEN RECEIVED FROM VARIOUS QUARTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA, WHICH IS SUBSEQUENTLY I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 21 APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT O F ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURE D OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE IT ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. IN SUCH A CASE, THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EAU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED TO THE PROFITS DERIVE D FROM EXPORTS, FROM AND AFTER THE DATE OF APPROVAL O F THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NOT BE AVAILABLE AFT ER ASSESSMENT YEAR 2009-10'. 16. THE AO'S CONTENTION THAT THE OLD MACHINERY TRANSFER RED TO THE NEW UNIT EXCEEDED 20% LIMIT HAS NO BASIS BECAUS E THE OLD PLANT MACHINERY OF CASTOR OIL MANUFACTURING UNIT CO ULD NOT HA VE BEEN USED FOR THE MANUFACTURE OF THE ITEMS BY THE A SSESSEE COMPANY. MOREOVER, THE AO HAS NOT GIVEN ANY SPECIFI C OBSERVATION AS TO THE TOTAL MACHINERY INSTALLED AND HOW THE OLD MACHINERY HAS EXCEEDED 20% LIMIT AND HE JUST MADE A GENERAL AND SWEEPING STATEMENT WITHOUT BASING HIS OBSERVATI ON ON ANY FACTS. EVEN THOUGH THERE WAS SURVEY CONDUCTED AT TH E PREMISES ON 22.03.2006, THE AO HAS NOT MADE AN INVENTORY OF P&M AND THE DATES OF ACQUISITION OF THE SAME. HE WAS ONLY R ELYING ON THE LEASE DEED WHICH SHOWED THE LEASE RENTALS TOWARDS P &M IN THE FACTORY SHED. THE AO HAS NOT BROUGHT OUT ANY QUANTI TATIVE I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 22 ANALYSIS OF THE NEW P & M AND THE OLD ONES. IT IS A FACT THAT THE BALAJI AGRO INDUSTRIES (P) LIMITED WAS IN THE BUSIN ESS OF CASTOR OIL AND IT IS NOT KNOWN WHAT MACHINERY WAS USED IN THAT BUSINESS AND WHETHER THE SAME WAS USED IN THE MANUF ACTURE OF SODIUM METAL AND DERIVATIVES IN THE BUSINESS OF THE ASSESSEE. THE AO HAD THE OPPORTUNITY TO EXAMINE THE ISSUE OF P&M AND DATES ON WHICH THE SAME WERE PUT TO USE WHEN HE WEN T FOR THE SURVEY. BUT INSTEAD OF DOING THAT, SIMPLY BECAUSE T HE LEASE DEED MENTIONED P&M AND FACTORY SHED AND THEY PAID LEASE RENT FOR BOTH, HAS PRESUMED THAT OLD P&M USED BY THE ASSESSE E IN THE EOU. THE STAND OF THE AO COULD HAVE BEEN HELD VALID HAD HE GIVEN QUANTITATIVE COMPARISON OF THE OLD AND NEW P& M AND ARR IVED AT THE CONCLUSION THAT OLD P&M USED EXCEEDED 2 0% LIMIT. 17. IN VIEW OF THE ABOVE DISCUSSION, IT WAS HELD BY THE CIT(A) THAT THE DEDUCTION U/S. 10B TO BE ALLOWED TO THE AS SESSEE FROM THE DATE IT GOT THE APPROVAL AS 100% EOU I.E., 25.4 .2003 AND THE AO IS DIRECTED TO ALLOW. DEDUCTION U/S. 10B FRO M THE DATE OF ITS APPROVAL AS 100% EOU BY THE COMPETENT AUTHORITY FOR THE UNEXPIRED PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS COMMENCING FROM THE ASSESSMENT YEAR 2004-05 BEING R EGARDED AS SECOND YEAR OF PRODUCTION IN FIRST YEAR OF COMME RCIAL PRODUCTION BEING A.Y. 2003-04. 18. AGAINST THESE FINDINGS OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US IN ALL A.YS. I.E., 2004-05 TO 2009 -2010. 19. THE LEARNED DR SUBMITTED THAT THERE WAS A SURVEY ON 22.3.2006 AT THREE PREMISES OF THE ASSESSEE I.E., T HE REGISTERED OFFICE AT PLOT NO. B-5, BLOCK-III, IDA, UPPAL, FACT ORY PREMISES AT UNIT-I OF UPPAL AND UNIT-II OF DOMMARAPOCHAMPALLY V ILLAGE, QUTBULLAPUR MANDAL. DURING THE COURSE OF SURVEY ST ATEMENTS I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 23 WERE RECODED FROM SRI Y.S.R. VENKAT RAO, MANAGING D IRECTOR (MD) OF THE COMPANY, SRI K.N. PRASAD, DGM OF THE CO MPANY AND SRI R.K. BABU, PRODUCTION MANAGER, UNIT-II. AS PER THEIR STATEMENTS FOLLOWING INFORMATION WAS ON RECORD. (A) THE PREMISES ON WHICH UNIT-II OF THE COMPANY IS LOCATED ALONG WITH PLANT AND MACHINERY AND BUILDING ORIGINALLY BELONGS TO M/S. BALAJI AGRO INDUSTRIES L TD. THE SAME WERE TAKEN ON LEASE FROM M/S. BALAJI AGRO INDUSTRIES FOR PROPOSED EXPANSION ACTIVITIES OF THE ASSESSEE. EXPANSION OF ACTIVITIES CLAIMED TO HAVE B EEN PACKING WORKS, WAREHOUSE & LOGISTICAL PURPOSE OF TH E ASSESSEE COMPANY. (B) AS PER THE LEASE AGREEMENT BETWEEN M/S. BALAJI AGRO INDUSTRIES AND M/S. ALKALI METALS LTD., THESE RENTA LS ARE BEING PAID AS CALCULATED ON BUILDINGS, PLANT AN D MACHINERY AND LAND AS PER LEASE AGREEMENT DATED 1.7.2000. HOWEVER, THE ASSESSEE CLAIMS THAT THE LAN D AND BUILDING ONLY IS USED BY M/S. ALKALI METALS, PL ANT AND MACHINERY IS NOT USEFUL FOR M/S. ALKALI METALS EVEN THOUGH LEASE RENTALS ARE BEEN PAID. (C) UNIT I WAS THE ORIGINAL UNIT OF M/S. ALKALI EXISTIN G FOR A LONG TIME AND MANUFACTURING CHEMICAL PRODUCTS LIK E SODIUM HYDRIDE, SODIUM AMIDE, SODIUM AZIDE, SODIUM METHOXIDE, PVRIDINES, PPAN ETC. THIS UNIT HA D BOTH DOMESTIC AND EXPORT SALES. (D) AS ON DATE OF SURVEY BOTH UNITS CLAIMED TO BE ON A SIMILAR FOOTING VIS-A-VIS RAW MATERIAL REQUIRED AND VARIETY, QUALITY AND TYPE OF CHEMICAL PRODUCTS THAT CAN BE PRODUCED BY EXCEPT THAT EOU STATUS WAS AVAILABLE TO UNIT-I!. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 24 (E) THERE WERE SALES FROM UNIT-II PRIOR TO F.Y 2003-04 AS SALES OF UNIT-II OF M/S ALKALI METALS AS EVIDENCED BY THE PRODUCTION REGISTERS & R.G-1 REGISTER FOR THE F .Y 2003-04 AS PER THE ANNEXURE B/AML/06 TO IMPOUNDING DATED 22.03.2006. 20. ACCORDINGLY, THE ASSESSING OFFICER WAS OF THE OPIN ION THAT THE ASSESSEE HAS TRANSFERRED OLD MACHINERY TO THE N EW UNIT WHICH EXCEEDED 20% LIMIT AND AS PER EXPLANATION 2 T O SECTION 80I(2) THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U /S. 10B OF THE ACT. 21. THE AR SUBMITTED THAT THE ASSESSING OFFICER'S CONTE NTION THAT THE OLD MACHINERY TRANSFERRED TO THE NEW UNIT EXCEEDED 20% LIMIT HAS NO BASIS BECAUSE THE OLD PLANT MACHIN ERY OF CASTOR OIL MANUFACTURING UNIT COULD NOT HAVE BEEN U SED FOR THE MANUFACTURE OF THE ITEMS BY THE ASSESSEE-COMPANY. M OREOVER, THE ASSESSING OFFICER HAS NOT GIVEN ANY SPECIFIC OB SERVATION AS TO THE TOTAL MACHINERY INSTALLED AND HOW THE OLD MA CHINERY HAS EXCEEDED 20% LIMIT AND HE JUST MADE A GENERAL AND S WEEPING STATEMENT WITHOUT BASING HIS OBSERVATION ON ANY FAC TS. EVEN THOUGH THERE WAS SURVEY CONDUCTED AT THE PREMISES O N 22.03.2006, THE ASSESSING OFFICER HAS NOT MADE AN I NVENTORY OF PLANT AND MACHINERY AND THE DATES OF ACQUISITION OF THE SAME. HE WAS ONLY RELYING ON THE LEASE DEED WHICH SHOWED THE LEASE RENTALS TOWARDS PLANT AND MACHINERY IN THE FACTORY SHED. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY QUANTITAT IVE ANALYSIS OF THE NEW PLANT AND MACHINERY AND THE OLD ONES. IT IS A FACT THAT THE BALAJI AGRO INDUSTRIES (P) LIMITED WAS IN THE BUSINESS OF CASTOR OIL AND IT IS NOT KNOWN WHAT MACHINERY WAS U SED IN THAT BUSINESS AND WHETHER THE SAME WAS USED IN THE MANUF ACTURE OF SODIUM METAL AND DERIVATIVES IN THE BUSINESS OF THE ASSESSEE. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 25 THE ASSESSING OFFICER HAD THE OPPORTUNITY TO EXAMIN E THE ISSUE OF PLANT AND MACHINERY AND DATES ON WHICH THE SAME WERE PUT TO USE WHEN HE WENT FOR THE SURVEY. BUT INSTEAD OF DOING THAT, SIMPLY BECAUSE THE LEASE DEED MENTIONED PLANT AND M ACHINERY AND FACTORY SHED AND THEY PAID LEASE RENT FOR BOTH, HAS PRESUMED THAT OLD PLANT AND MACHINERY USED BY THE A SSESSEE IN THE EOU. THE STAND OF THE ASSESSING OFFICER COULD H AVE BEEN HELD VALID HAD HE GIVEN QUANTITATIVE COMPARISON OF THE OLD AND NEW PLANT AND MACHINERY AND ARRIVED AT THE CONCLUSI ON THAT OLD PLANT AND MACHINERY USED EXCEEDED 20% LIMIT. 22. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE MAIN ISSUE IN THIS APPEAL IS WHETHE R THE ASSESSEE IS ENTITLED TO CLAIM BENEFIT AVAILABLE TO 100% EOU U/S. 10B OF THE ACT READ WITH CIRCULAR NO. 01/2005 DATED 6.1.2005 ISSUED BY THE CBDT. THE CLAIM OF THE ASSESSEE IS T HAT IT HAS SET UP A NEW UNIT, UNIT-II, IN THE FINANCIAL YEAR 2003- 04 RELEVANT TO A.Y. 2004-05. ACCORDING TO THE DEPARTMENT, THIS U NIT-II WAS SET UP IN FINANCIAL YEAR 2002-03 RELEVANT TO A.Y. 2 003-04. THE AR HAS TAKEN A PLEA BEFORE US THAT THE ASSESSEE COM MENCED PRODUCTION IN UNIT-II ONLY IN SEPTEMBER, 2003 RELEV ANT A.Y. 2004-05. THE ASSESSEE ALSO PRODUCED LIST OF MACHIN ERIES WHICH ARE INSTALLED IN UNIT-II. SINCE UNIT-II IS A NEW U NIT AND OLD MACHINERIES WERE NOT AT ALL USED IN UNIT-II, THE AR PLEADED BEFORE US THAT BENEFIT OF SECTION 10B HAS TO BE ALL OWED. THE AR ALSO TAKEN A PLEA BEFORE US THAT THE ASSESSEE IS AP PROVED AS 100% EOU ON 18.2.2003 AND COMMENCED PRODUCTION IN DOMMARAPOCHAMPALLY, QUTBULLAPUR MANDAL IN THE LEASE D PREMISES AND MANUFACTURED SODIUM DERIVATIVES, PYRID INE DERIVATIVES, TETRAZOLE FIND CHEMICALS FOR WHICH ASS ESSEE OBTAINED ISO9001 AND 14001 CERTIFICATES. FURTHER T HE ASSESSEE FILED A LETTER DATED 22.3.2003 FROM THE JOINT CHIEF ENVIRONMENTAL ENGINEER, AP POLLUTION CONTROL BOARD AS PER I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 26 WHICH INSPECTION WAS CONDUCTED AT ASSESSEE'S SECOND UNIT ON 10.1.2003 WHICH INDICATES THAT NO ACTIVITY OF PRODU CTION WAS CARRIED ON IN THE SAID PREMISES ON THE DATE OF INSP ECTION. FURTHER, THE ASSESSEE PRODUCED LETTER DATED 4.9.200 3 ISSUED BY ASST. COMMISSIONER (CUSTOMS) FOR MAINTENANCE OF CUS TOMS BONDED PRIVATE WAREHOUSE. FURTHER, THE ASSESSEE FI LED BEFORE THE CIT(A) ORDER NO. APPCB/HYD/ JDM/585/RO/W/2003/ 283 DATED 09.12.2003 WHEREIN THE EFFLUENT ANALYSIS WAS DONE BY THE AP POLLUTION CONTROL BOARD. THESE ARE THIRD PARTY DOCUMENTS PRODUCED BY THE ASSESSEE. 23. IN OUR OPINION, THE REVENUE CANNOT HAVE DOUBT REGAR DING GENUINENESS OF THESE DOCUMENTS AS THESE DOCUMENTS W ERE ISSUED BY GOVERNMENT AUTHORITIES. IT WAS ALSO MADE CLEAR BEFORE THE LOWER AUTHORITIES THAT THESE ARE AVAILAB LE AT THE TIME OF SURVEY. THE DR TAKEN A PLEA BEFORE US THAT OLD MACHINERY IN UNIT-II EXCEEDED 20% LIMIT. HOWEVER, THIS HAS NO B ASIS. THE ASSESSEE HAS TAKEN THE PLANT AND MACHINERY FROM M/S . BALAJI AGRO OIL INDUSTRIES PVT. LTD. WHICH WAS ENGAGED IN THE BUSINESS OF CASTOR OIL EXTRACTION AND THE PRESENT ASSESSEE I S ENGAGED IN CHEMICAL BUSINESS. THERE IS NOTHING ON RECORD TO S HOW THAT THE ASSESSEE USED THE MACHINERY USED FOR OIL EXTRACTION BY BALAJI AGRO OIL INDUSTRIES LTD., FOR THE PURPOSE OF MANUFA CTURING FINE CHEMICALS. FURTHER THOUGH THERE WAS A SURVEY ACTIO N, THE LOWER AUTHORITIES NOT BROUGHT ON RECORD THE BIFURCATION O F THE MACHINERY WHICH ARE ALREADY PUT IN TO USE BY BALAJI AGRO OIL INDUSTRIES. THE ASSESSING OFFICER NOT MADE AN ALLE GATION THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF OLD A ND NEW PLANT AND MACHINERY BUT WE FIND THAT THE ASSESSEE VIDE IT S LETTER DATED 7.12.2006 THE ASSESSEE GIVEN THE DETAILS OF INVESTM ENT MADE BY THE ASSESSEE WHICH IS ON PAGE 134 AND 135 OF THE PA PER BOOK WHICH IS REPRODUCED HEREUNDER: I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 27 ' 1. DETAILS OF LEASED PREMISES : LESSOR BALAJI AGRO IND. LTD. LESSEE ALKALI METALS LTD. ASSETS TAKEN ON LEASE LAND & BUILDING EFFECTIVE DATE 1.4.2000 USAGE OF MACHINERY (OLD) THE PLANT AND MACHINERY IS BASICALLY A EXPELLER UNIT FOR EXTRACTION OF CASTOR OIL FROM CASTOR SEEDS. THUS PLANT AND MACHINERY OF THE LESSOR IS NOT USEFUL FOR LESSEE FOR THE MANUFACTURE OF CHEMICALS. INVESTMENTS IN MACHINERY (NEW BY THE LESSEE) 2001 - 02 NIL 2002-03 NIL POWER BILLS 2001 - 02 RS. 2,78,844 2002-03 RS. 5,55,325 2. 100% EOU DATE OF LETTER OF PERMISSION : 18.02.2003 DATE OF COMMERCIAL PRODUCTION : 09.11.2003 DETAILS OF INVESTMENT IN NEW MACHINERY AND QUANTITY MANUFACTURED AND SOLD AT EOU: 3. EOU PURCHASES FROM DTA 24. FURTHER, THE ASSESSING OFFICER'S CONTENTION THAT TH E OLD MACHINERY TRANSFERRED TO THE NEW UNIT EXCEEDED 20% LIMIT HAS NO BASIS BECAUSE THE OLD PLANT MACHINERY OF CASTOR OIL MANUFACTURING UNIT COULD NOT HAVE BEEN USED FOR THE MANUFACTURE OF THE ITEMS BY THE ASSESSEE-COMPANY. T HE ASSESSING OFFICER HAS NOT GIVEN ANY SPECIFIC OBSERV ATION AS TO F.Y. INVESTMENT IN MACHINERY (RS. CRORES) SALES POWER BILLS (RS. LAKHS) QTY (MT) EXPORTS (RS. CRORES) DOMESTIC (RS. CRORES) 2003-04 1.22 369 11.22 0.00 18.71 2004-05 1.14 663 19.34 0.55 28.73 2005-06 2.59 818 34.35 0.19 45.24 PARTICULARS PURCHASES FROM DTA SALES AT EOU QTY (KG) VALUE (RS.) QTY RECOVERED QTY SOLD VALUE (RS.) SODIUM AMIDE - CRUDE 8000 800000 7600 7500 1879875 SODIUM AZIDE CRUDE 28000 7560000 26600 26600 8663657 SODIUM HYDRIDE CRUDE 2600 260000 2340 2160 4,95,720 PPAN CRUDE 10970 13164000 10860 10700 21400000 2A 5P CRUDE 400 720000 400 400 1620000 TOTAL 49970 22504000 47800 47360 34059252 I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 28 THE TOTAL MACHINERY INSTALLED AND HOW THE OLD MACHI NERY HAS EXCEEDED 20% LIMIT AND HE JUST MADE A GENERAL AND S WEEPING STATEMENT WITHOUT BASING HIS OBSERVATION ON ANY FAC TS. EVEN THOUGH THERE WAS SURVEY CONDUCTED AT THE PREMISES O N 22.03.2006, THE ASSESSING OFFICER HAS NOT MADE AN I NVENTORY OF PLANT AND MACHINERY AND THE DATES OF ACQUISITION OF THE SAME. HE WAS ONLY RELYING ON THE LEASE DEED WHICH SHOWED THE LEASE RENTALS TOWARDS PLANT AND MACHINERY IN THE FACTORY SHED. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY QUANTITAT IVE ANALYSIS OF THE NEW PLANT AND MACHINERY AND THE OLD ONES. IT IS A FACT THAT THE BALAJI AGRO INDUSTRIES (P) LIMITED WAS IN THE BUSINESS OF CASTOR OIL AND IT IS NOT KNOWN WHAT MACHINERY WAS U SED IN THAT BUSINESS AND WHETHER THE SAME WAS USED IN THE MANUF ACTURE OF SODIUM METAL AND DERIVATIVES IN THE BUSINESS OF THE ASSESSEE. THE ASSESSING OFFICER HAD THE OPPORTUNITY TO EXAMIN E THE ISSUE OF PLANT AND MACHINERY AND DATES ON WHICH THE SAME WERE PUT TO USE WHEN HE WENT FOR THE SURVEY. BUT INSTEAD OF DOING THAT, SIMPLY BECAUSE THE LEASE DEED MENTIONED PLANT AND M ACHINERY AND FACTORY SHED AND THEY PAID LEASE RENT FOR BOTH, HAS PRESUMED THAT OLD PLANT AND MACHINERY USED BY THE A SSESSEE IN THE EOU. THE STAND OF THE ASSESSING OFFICER COULD H AVE BEEN HELD VALID HAD HE GIVEN QUANTITATIVE COMPARISON OF THE OLD AND NEW PLANT AND MACHINERY AND ARRIVED AT THE CONCLUSI ON THAT OLD PLANT AND MACHINERY USED EXCEEDED 20% LIMIT. THERE IS NO CONCLUSIVE ESTABLISHMENT BY THE ASSESSING OFFICER T HAT THERE WAS TRANSFER OF OLD MACHINERY IN EXCESS OF 20% OF L IMIT. 25. FURTHER, EVEN OTHERWISE, THE EXISTING DTA (DOMESTIC TARIFF AREA) UNIT CAN BE CONVERTED INTO 100% EOU AS PER GO VERNMENT OF INDIA POLICY AND THIS IS ENUMERATED IN CIRCULAR NO. 1/2005 DATED 6.1.2005 ISSUED BY THE CBDT. BEING SO, AN AS SESSEE CANNOT BE DENIED DEDUCTION U/S. 10B OF THE ACT. FU RTHER, THE ASSESSEE IN THIS CASE APPLIED FOR APPROVAL OF UNIT- II AS 100% I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 29 EOU TO DEVELOPMENT COMMISSIONER ON 18.12.2002 AND T HE ASSESSEE WAS GRANTED APPROVAL AS 100% EOU BY THE AS ST. DEVELOPMENT COMMISSIONER, OFFICE OF DEVELOPMENT COM MI- SSIONER, VISAKHAPATNAM SEZ AND ISSUED GREEN CARD UN DER 100% EOU SCHEME ON 25.4.2003 WHICH IS KEPT ON RECOR D AT PAGE NOS. 155 TO 170 OF ASSESSEE'S PAPER BOOK. 26. IN VIEW OF THE ABOVE DISCUSSION, THE DEDUCTION U/S. 10B HAS TO BE ALLOWED TO THE ASSESSEE FROM THE DATE IT GOT THE APPROVAL AS 100% EOU I.E., 25.4.2003 AND THE ASSESS ING OFFICER IS DIRECTED TO ALLOW DEDUCTION U/S. 10B FROM THE DA TE OF APPROVAL AS 100% EOU BY THE COMPETENT AUTHORITY FOR THE UNEXPIRED PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS COMMENCING FROM THE ASSESSMENT YEAR 2004-05 BEING R EGARDED AS SECOND YEAR OF PRODUCTION IN FIRST YEAR OF COMME RCIAL PRODUCTION BEING A.Y. 2003-04. THIS IS SO BECAUSE, EVEN IF THE NEW UNIT WAS COMMENCED IN THE FY 2002-03 RELEVANT T O A.Y. 2003-04, THE CLAIM OF DEDUCTION U/S. 10B CANNOT BE DENIED IN THE FY 2003-04 RELEVANT TO A.Y. 2004-05 AS THIS YEA R WOULD BE THE SECOND YEAR OF CLAIM OF DEDUCTION U/S. 10B OF T HE IT ACT AS HELD BY THE P & H HIGH COURT IN THE CASE OF CIT VS. EXCEL SOFTWARE LTD. (219 CTR 405) THAT EXEMPTION CANNOT B E DENIED U/S. 10B IN ITS ENTIRETY BUT INITIAL YEAR SHOULD BE MOVED BY A PERIOD OF ONE YEAR. ACCORDINGLY, WE DISMISS THIS G ROUND IN ALL THE REVENUE APPEALS. 27. THE NEXT GROUND IN ITA NO. 372/HYD/2012 (REVENUE APPEAL) IS WITH REGARD TO SETTING ASIDE THE ISSUE O F CLAIM OF 100% DEPRECIATION OF CAPITAL EQUIPMENT THOUGH THE CIT(A) HAS NO POWER TO SET ASIDE. 28. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE F.Y. 2 003-04, THE ASSESSEE INCURRED CAPITAL EXPENSES AND R & D EQ UIPMENTS I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 30 AMOUNTING TO RS. 68,91,014. THE BIFURCATION OF WHIC H IS (I) SAFETY EQUIPMENTS RS. 3,39,166 (II) R&D LAB RS. 47, 81,303 AND (III) OTHER R&D EQUIPMENTS RS. 17,70,545. OUT OF TH ESE, THE CLAIM FOR AN AMOUNT OF RS. 47,81,303 HAS BEEN ALLOW ED BY THE ASSESSING OFFICER ON THE GROUND THAT AS PER FORM NO . 3CL CERTIFIED BY DSIT, NEW DELHI ONLY THIS AMOUNT IS EL IGIBLE. HOWEVER, REGARDING THE OTHER TWO ITEMS, THE ASSESSE E HAS CLAIMED DEDUCTION U/S. 35(1)(IV) BEING R&D EXPENSES WHICH ARE CAPITAL IN NATURE AT 100% RATE OF DEPRECIATION WHER EAS THE AO IN THE ASSESSMENT ORDER HAS ALLOWED DEPRECIATION AT 25 % ON THE GROUND THAT IT IS NOT CERTIFIED IN THE 3CL. SECTIO N 35(1)(IV) READS AS UNDER: : (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARC H, THE FOLLOWING DEDUCTION SHALL BE ALLOWED. (IV) IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NAT URE OF SCIENTIFIC RESEARCH RELATED TO BUSINESS CARRIED ON BY THE ASSESSEE, SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUBSECTION (2). 29. THE ASSESSEE CLAIMED IN THE FIXED ASSETS CHART DEPRECIATION @ 100% ON THESE ITEMS BUT THE DETAILS OF ASSETS ARE NOT THERE AND EVEN BEFORE ME THE ASSESSEE HAS SIMPL Y STATED THAT THE R&D MACHINERY CONSISTED OF SAFETY EQUIPMEN T AND OTHER R&D EQUIPMENTS. THE CIT(A) OBSERVED THAT SINC E THE ASSESSING OFFICER HAD NO OCCASION TO VERIFY THE CLA IM AND THE NATURE OF THE EQUIPMENT AND WHETHER THE SAME WAS IN RESPECT OF THE SCIENTIFIC RESEARCH CARRIED OUT BY THE ASSESSEE IN RELATION TO ITS BUSINESS, THE AO IS DIRECTED TO VERIFY THE SAME AND ALLOW THE DEPRECIATION @ 100% IF THE SAID EQUIPMENT WAS USED IN THE SCIENTIFIC RESEARCH RELATED TO THE ASSESSEE'S BUSIN ESS AS PER THE PROVISIONS OF SECTION 35(1)(IV) OF THE I.T. ACT. A GAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 31 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. ADMITTEDLY, THE CIT(A) HAS NO POWER TO REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WIT H EFFECT FROM 1.6.2001 AS THE WORDS 'OR HE MAY SET ASIDE' HAVE BE EN REMOVED FROM SECTION 251(1)(A) OF THE ACT. CONSIDERING THI S AMENDMENT, WE ARE INCLINED TO HOLD THAT THE CIT(A) SHOULD NOT HAVE SENT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER AND HE SHOULD HAVE DECIDED THE ISSUE BY HIMSELF. ACCORDINGLY, WE DIRECT THE CIT(A) TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW. IN THE RESULT, REVENUE APPEAL ITA NO. 372/HYD/2012 IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES AND ITA NOS. 373, 374, 375, 46 3 AND 1245/ HYD/2012 ARE DISMISSED. CO NOS. 103 & 137/HYD/2012 (BY ASSESSEE): 31. THE ASSESSEE RAISED THE FOLLOWING COMMON GROUNDS: 1. THE CIT(A) ERRED IN UPHOLDING THE ALLOCATION OF EXPENDITURE MADE BY THE AO IN RESPECT OF UNIT-I AN D UNIT-II (EOU) OF THE RESPONDENT. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RESPONDENT HAS MAINTAINED DETAILED BOOKS OF ACCOUNT AND HAS ALREADY ALLOTTED THE REASONABLE EXPENDITURE TO RESPECTIVE UNITS WHICH DI D NOT CALL FOR ANY INTERFERENCE. 2. THE FINDINGS OF THE CIT(A) WITH RESPECT TO RESEARCH & DEVELOPMENT EXPENDITURE, INTEREST ETC, ARE INCORREC T AND HAVE NO JUSTIFICATION. WITHOUT PREJUDICE AND A T ANY RATE THE RATIO OF 60:40 (UNIT-I UNIT II) ADOPT ED BY THE AO AND SUSTAINED BY THE CIT(A) IS UNREASONABLE. 32. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSER VED THAT THE QUANTUM OF INCOME SHOWN BY THE ASSESSEE FO R THE EOU IS EXCESSIVE AS COMPARED TO THE INCOME FROM DOMESTI C UNIT WHICH WAS DISCUSSED IN PARAS 4.1 TO 4.6 IN THE ASSE SSMENT ORDER FOR 2008-09. ACCORDING TO THE ASSESSING OFFI CER THE COMMON EXPENDITURE HAS TO BE ALLOCATED BETWEEN THE EOU UNIT AND DOMESTIC UNIT IN PROPORTION TO THE TURNOVER. T HE CIT(A) GIVEN FINDING ON THIS ISSUE IN PARA 8.2 AS FOLLOWS: I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 32 '8.2 IN VIEW OF THE ABOVE, THE AO'S REALLOCATION OF THE COMMON EXPENSES BETWEEN THE EOU AND DOMESTIC UNIT EXPENSES IS JUSTIFIED. HOWEVER, THE AO HAS MENTION ED IN THE ASSESSMENT ORDER THAT THE REALLOCATION WAS NOT DONE FOR THE PURPOSE OF DEDUCTION U/S. 10B IN VIEW OF TH E FACT THAT THE ENTIRE AMOUNT OF THE CLAIM OF DEDUCTION U/ S. 10B WAS DISALLOWED. SINCE THE CLAIM OF DEDUCTION U/S. 10B HAS BEEN ALLOWED BY ME, THE DEDUCTION U/S. 10B NEED S TO BE RECOMPUTED. THEREFORE, THE AO IS DIRECTED TO RE ALLOCATE ALL THE ABOVE EXPENSES BETWEEN THE DOMESTIC UNIT AN D EOU AS SUGGESTED IN THE ASSESSMENT ORDER, AND CALCU LATE DEDUCTION U/S. 10B TAKING INTO ACCOUNT, THE EXPENDI TURE SO REALLOCATED IN RESPECT OF THE EOU AND ALLOW THE DEDUCTION ACCORDINGLY.' AGAINST THIS, THE ASSESSEE FILED THE CROSS OBJECTI ONS. 33. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). WHE N THE EXPENDITURE IS NOT PROPERLY IDENTIFIABLE IT IS APPR OPRIATE TO APPORTION THE SAME ON THE BASIS OF TURNOVER. ACCOR DINGLY, WE CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. THE GROUNDS TAKEN IN THE CO ARE DISMISSED. BOTH THE COS BY THE ASSESSEE ARE DISMISSED. 34. IN THE RESULT, ITA NO. 372/HYD/2012 IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES; ITA NOS. 373, 374, 375, 463 A ND 1245/HYD/2012, CO NOS. 103 AND 137/HYD/2012 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2013. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST MAY, 2013 TPRAO I.T.A. NO. 372/HYD/2012 & ORS. M/S. ALKALI METALS LTD.. ======================== 33 COPY FORWARDED TO: 1. THE DEPUTY CIT, CIRCLE - 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. THE ASST. CIT, CIRCLE - 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3 . M/S. ALKALI METALS LTD., PLOT NO. B - 5, BLOCK - III, IDA, UPPAL, HYDERABAD. 4 . THE CIT(A) - II, HYDERABAD. 5 . THE CIT - I, HYDERABAD 6 . THE DR 'B' BENCH, ITAT, HYDERABAD