Jitsan Enterprises, Nani Daman V. The Income tax Officer,Vapi Ward-4, Daman

ITA 1652/AHD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6657 (ITAT-AHMEDABAD)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N L AGARWALA
• Keywords: Business income; Business expenditure; TDS; Set aside
• Section: 80HHC; 40(a)(ia); 80IB; 143(1); 80HH; 143(2); 6; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH,JM AND SHIR A N PAHUJA, AM] ITA NO.1652/AHD/2009 (ASSESSMENT YEAR:-2005-06) M/S JITSAN ENTERPRISES, PLOT NO.361/13, GANESH INDUSTRIAL ESTATE, KACHIGAM, NANI DAMAN [PAN: AAEFJ 7513 R] V/S THE INCOME-TAX OFFICER, VAPI WARD-4,DAMAN [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI S N L AGARWALA REVENUE BY:- SHRI C K MISHRA, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 16- 03-2009 OF THE LD.CIT(APPEALS)-I, SURAT,RAISESTHE F OLLOWING GROUNDS:- 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED IN DISALLOWING DEDUCTION U/S 80IB OF RS.9,72, 537/- CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME. 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LE ARNED CIT(A) HAS ERRED IN DISALLOWING DEDUCTION U/S 80IB IN RESPECT OF RS.6,07,835/- ADDED TO THE RETURNED TOTAL INCOME U/S 40(A)(IA). THE APPELLANT CRAVES LEAVE TO ADD,AMEND,MODIFY OR D ELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING NIL INCOME FILED ON 31-10-2005 BY THE ASS ESSEE, CARRYING ON THE BUSINESS OF MANUFACTURING OF PLASTIC MOULDED PRODUCTS, AFTER BEING PROCESSED ON 18.11.2005 U/S 143(1) OF THE INC OME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] WAS TAK EN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 2 6.12.2005.DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.9,72,537/- U/S 80I B OF THE ACT. AS PER D.I.C. REGISTRATION CERTIFICATE, MANUFACTURING ACTIVITY IS STATED TO HAVE COMMENCED ON 30-03-2004 WHILE THE FACTORY LICE NSE WAS ITA NO.1652/AHD/2009 2 ISSUED ONLY ON 23-04-2004. THE AO FURTHER NOTICED T HAT IN TERMS OF PROVISIONS OF SECTION 6 OF THE FACTORIES ACT, FACTO RY CANNOT BE STARTED WITHOUT FACTORY LICENSE. TO A QUERY BY THE AO, SEEKING TO DISALLOW CLAIM FOR DEDUCTION U/S 80IB OF THE ACT, T HE ASSESSEE REPLIED THAT THEY COMMENCED ACTIVITY OF THE INDUS TRIAL UNDERTAKING IN THE LATTER PART OF MARCH, 2004 WITH THE AID OF P OWER AND EMPLOYING MORE THAN 10 PERSONS. SINCE THE ASSESSEE FULFILLED THE CONDITIONS STIPULATED U/S 80IB OF THE ACT, THE ASSESSEE WAS EN TITLED TO THE SAID DEDUCTION. HOWEVER, THE AO DID NOT ACCEPT THESE SUB MISSIONS OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DID NOT FU RNISH ANY THIRD PARTY EVIDENCE IN RESPECT OF COMMENCEMENT OF MANUFA CTURING ACTIVITY ON 30-03-2004. THE FACTORY LICENSE BEING T HE THIRD PARTY EVIDENCE, PROVEDTHAT PRODUCTION WAS STARTED ON 23-0 4-2004. SINCE AS PER SECTION 6 OF THE FACTORIES ACT, THE ASSESSEE COULD NOT START WORK OF MANUFACTURING WITHOUT OBTAINING LICENSE, TH E ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB OF THE ACT, THE AO CONCLUDED. 3 ON APPEAL, THE ASSESSEE REITERATED THEIR SUBMISS IONS BEFORE THE AO. IN THE LIGHT OF THESE SUBMISSIONS, T HE LEARNED CIT(A) CONCLUDED AS UNDER:- 2.3.1 I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND THE OBSERVATION OF THE AO. THE VARIOUS CONDITIONS O F ELIGIBILITY OF DEDUCTION U/S 80IB ARE NOT DISCUSSED SEPARATELY BECAUSE THEY ARE NOT IN DISPUTE. THE SALARY REGISTER FOR FEBRUARY 2004 SHOWS THAT THE AS SESSEE HAD MORE THAN 10 WORKERS AND HENCE THE FACTORY ACT WAS APPLICABLE . ADMITTEDLY, THE LICENSE FOR THE FACTORY HAS BEEN ISSUED MUCH LATER THAN 31 ST MARCH AND THERE IS NO DISPUTE REGARDING THIS ISSUE. AS PER RU LE 3(1) OF GOA, DAMAN & DIU FACTORIES RULES, 1985, NO SITE SHALL BE USED F OR THE LOCATION OF A FACTORY OR NO BUILDING IN A FACTORY SHALL BE CONSTR UCTED RECONSTRUCTED, EXTENDED, TAKEN INTO USE AS A FACTORY OR PART OF A FACTORY OR ANY OTHER EXTENSION OF PLANT OR MACHINERY SHALL BE CARRIED OU T IN A FACTORY UNLESS PREVIOUS PERMISSION IN WRITING IS OBTAINED FROM THE CHIEF INSPECTOR OF THE FACTORIES. 2.3.2 FURTHER, THE RULE-4 OF GOA, DAMAN & DIU FACT ORIES RULES, 1985 IS AS UNDER: ITA NO.1652/AHD/2009 3 '4. PROHIBITION OF USE OF A PREMISES AS A FACTORY W ITHOUT A VALID LICENCE - NO OCCUPIER OF A FACTORY SHALL USE ANY PREMISES AS A F ACTORY OR CARRY ON ANY MANUFACTURING PROCESS IN A FACTORY EXCEPT UNDER A L ICENCE OBTAINED OR RENEWED IN RESPECT OF SUCH PREMISES IN ACCORDANCE W ITH THE PROVISIONS OF THESE RULES.' 2.3.3 FURTHER AS PER SECTION 6(2) OF THE FACTORIES ACT, 1948, IF NO COMMUNICATION REGARDING ANY OBJECTION IS COMMUNICAT ED TO THE APPLICANT WITHIN THREE MONTHS FROM THE DATE OF SENDING THE AP PLICATION THEN THE PERMISSION WILL BE DEEMED TO HAVE BEEN GRANTED. 2.3.4 ONE THING IS VERY CLEAR AND THAT IS EITHER T HE PRODUCTION/MANUFACTURING HAD NOT STARTED BEFORE 31. 03.2O04 AND, THEREFORE, NO DEDUCTION U/S.80IB CAN BE ALLOWED OR THE APPELLANT HAS VIOLATED THE PROVISIONS OF THE FACTORY ACT AND HAD STARTED THE PRODUCTION/MANUFACTURING IN VIOLATION OF THE FACTO RY ACT. IN THIS SECOND SITUATION ALSO DEDUCTION U/S 80IB CAN NOT BE ALLOWE D IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT, BOMBAY HIGH C OURT MADRAS HIGH COURT DISCUSSED BELOW;- (A) THE HON'BLE SUPREME COURT IN THE CASE OF BIHARI LAL JAISWAL (217 ITR 746) HAS STATED AS UNDER:- REGISTRATION CONFERS A SUBSTANTIAL BENEFIT UPON TH E PARTNERSHIP FIRM AND ITS MEMBERS. THERE IS NO REASON WHY SUCH A BENEFIT SHOU LD BE EXTENDED TO PERSONS WHO HAVE ENTERED INTO A PARTNERSHIP AGREEME NT PROHIBITED BY LAW. ONE ARM OF LAW CANNOT BE UTILIZED TO DEFEAT THE OTH ER ARM OF LAW. DOING SO WOULD BE OPPOSED TO PUBLIC POLICY AND BRING THE LAW INTO RIDICULE. IT WOULD BE WRONG TO THINK THAT WHITE ACTING UNDER THE INCOM E-TAX ACT, THE INCOME- TAX OFFICER NEED NOT LOOK TO THE LAW COVERING THE P ARTNERSHIP WHICH IS SEEKING REGISTRATION. (B) THE HON'BIE BOMBAY HIGH COURT IN THE CASE OF A.H. BHIWANDIWALA (AIR 195S BOM 1611. WHEREIN THE HON'BIE BOMBAY HIOH COURT STATED AS UNDER:- 'IT IS HELD THAT FAILURE TO APPLY FOR THE REGISTRAT ION OF FACTORY AS WELL AS FAILURE TO APPLY FOR THE GRANT OF A LICENCE IS PUNI SHABLE WITHIN THE REGARD TO THE FIRST DEFAULT, HOWEVER, IT MAY NOT BE POSSIBLE TO HOLD THAT THE CONTEMPT OF THE DEFAULTER CONSTITUTES A CONTINUING OFFENCE. IN REGARD TO THE LATTER DEFAULT, WE FEEL NO HESITATION IN HOLDING THAT HIS CONDUCT USING THE PREMISES FROM DAY-TO-DAY WITHOUT OBTAINING A LICENC E IS CONTINUING OFFENCE. EVERY TIME THE PREMISES ARE THUS USED AS A FACTORY, A FRESH OFFENCE IS COMMITTED, A NO BAR OF LIMITATION CAN, THEREFORE, B E PLEADED AGAINST THIS CHARGE'. ITA NO.1652/AHD/2009 4 (C) THE HON'BLE SUPREME COURT IN THE CASE OF MADDI VENKATARAMAN AND CO. (P) LTD. V. CIT (1998) 229 ITR 534 (SC), HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD INDULG ED IN TRANSACTIONS IN VIOLATION OF THE PROVISIONS OF THE FOREIGN EXCHANGE (REGULATION) ACT. THE ASSESSEE'S CASE WAS THAT IT WOULD HAVE, INCURRED A LOSS. THIS CANNOT BE A JUSTIFICATION FOR CONTRAVENTION OF LAW. THE ASSESSE E WAS ENGAGED IN TOBACCO BUSINESS. THE ASSESSEE WAS EXPECTED TO CARR Y ON THE BUSINESS IN ACCORDANCE WITH LAW. IF THE ASSESSEE CONTRAVENED TH E PROVISIONS OF THE FOREIGN EXCHANGE (REGULATION) ACT TO CUT DOWN ITS L OSSES OR TO MAKE LARGER PROFITS WHILE CARRYING ON THE BUSINESS, IT W AS ONLY TO BE EXPECTED THAT PROCEEDINGS WOULD BE TAKEN AGAINST THE ASSESSE E FOR VIOLATION OF THAT ACT. THE EXPENDITURE INCURRED FOR EVADING THE PROVI SIONS OF THE ACT AND ALSO THE PENALTY LEVIED FOR SUCH EVASION COULD NOT BE ALLOWED AS DEDUCTION. MOREOVER IT WOULD BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE, OF ANY EXPENDITURE INCURRED IN V IOLATION OF THE PROVISIONS OF ANOTHER STATUTE OR ANY PENALTY IMPOSED UNDER ANO THER STATUTE. IF THE DEDUCTIONS CLAIMED BY THE ASSESSEE WERE ALLOWED, TH E PENAL PROVISIONS OF THE FOREIGN EXCHANGE (REGULATION) ACT WOULD BECOME MEANINGLESS. IT HAS ALSO TO BE BORNE IN MIND THAT EVASION OF LAW CANNOT BE A TRADE PURSUIT. (D) THE HONBLE MADRAS HIGH COURT IN THE CASE OF CI T VS. INDIA CEMENTS LTD. (241-ITR-62) STATED THAT THE ASSESSEE IS EXPECTED TO CARRY ON ITS TRADE OR BUSINESS IN ACCORDANCE WITH LAW, AN D NOT IN VIOLATION OF LAW. IN MAKING THE ASSESSMENT UNDER THE INCOME-TAX ACT, THE AUTHORITIES UNDER THE ACT ARE NOT REQUIRED TO CLOSE THEIR EYES TO THE INFRACTION OF OTHER APPLICABLE LAWS BY THE ASSESSEE, AND RENDER SUCH OT HER LAWS AND THE PENAL PROVISIONS THEREIN MEANINGLESS BY ALLOWING A TRADER OR AN OWNER OF A BUSINESS TO REAP THE BENEFIT OF THE VIOLATION OF TH E LAW. THE INCOME-TAX ACT DOES NOT REQUIRE THE AUTHORITIES UNDER THAT ENACTME NT TO IGNORE THE PROVISIONS OF THE OTHER STATUTES, AND BLATANT VIOLA TION THEREOF BY ASSESSEES WHO COME FORWARD WITH CLAIMS FOR DEDUCTIONS, DESPIT E THE PATENT VIOLATION OF THE OTHER APPLICABLE LAWS WITH REGARD TO THE CLA IM SO MADE. THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS OR PROFESSION IS NOT REQUIRED TO BE MADE ON THE BASIS THAT THE BUSINESS CAN BE CARRIED ON ONLY BY IGNORING, OR BY VIOLATING THE PROVISIONS OF OTHE R APPLICABLE STATUTES AND ANY AND EVERY OUTGOING ALLOWED AS A DEDUCTION, EVEN WHEN SUCH OUTGOING WAS IN WHOLE OR IN PART, A RESULT OF THE VIOLATION OF OTHER APPLICABLE LAWS. THE ASCERTAINMENT OF COMMERCIAL PROFITS PERMISSIBLE IN CERTAIN CONTEXTS ALSO DOES NOT REQUIRE THAT THE INFRACTION OF THE LA W IS TO BE WHOLLY IGNORED AND THE PROFIT AS DETERMINED BY THE ASSESSEE IN ITS BALANCE-SHEET OR PROFIT AND LOSS ACCOUNT ADOPTED WITHOUT FURTHER QUESTION A S THE PROPER BASIS ON WHICH THE INCOME-TAX ASSESSMENT SHOULD BE MADE. IT WOULD BE 'AGAINST PUBLIC POLICY' TO ALLOW THE BENEFIT OF DEDUCTION UN DER ONE STATUTE OR THE BENEFIT PF DEDUCTION OF EXPENDITURE INCURRED IN VIO LATION OF THE PROVISIONS OF ANOTHER STATUTE. ITA NO.1652/AHD/2009 5 2.3.5 THE HON'BLE MADRAS HIGH COURT IN THE CASE O F MADRAS MACHINE TOOLS MANUFACTURERS LTD. VS. CIT (98-ITR-11 9) OBSERVED SECTION 'SECTION 84(7) CONTEMPLATED ALL ARTICLES BY THE UND ERTAKING AND THE WORD UNDERTAKING' IN THE CONTEXT CAN ONLY MEAN A LICENS ED UNDERTAKING. SECTION 84(7) OF THE THEN I.T. ACT WAS THE PROVISI ON OF THIS SECTION SHALL, IN RELATION TO AN INDUSTRIAL UNDERTAKING, APPLY TO THE ASSESSMENT FOR THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES. THEREF ORE, AS OBSERVED BY THE HONBLE HIGH COURT THE UNDERTAKING MEANS LICENSED UNDERTAKING. THE ABOVE REFERRED DECISION IS SQUARELY APPLICABLE TO T HIS CASE. THE ASSESSEE DOES NOT HAVE ANY LICENSE AND HENCE IT IS NOT ELIGI BLE FOR DEDUCTION U/S 80IB. 2.3.6 FROM THE ABOVE, IT IS VERY CLEAR SUPREME COU RT HAS HELD THAT IT WOULD BE AGAINST PUBLIC TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE INCURRED IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE OR ANY PENALTY IMPOSED UNDER ANOTHER STATUTE. IF THE DEDUC TIONS CLAIMED BY THE ASSESSEE WERE ALLOWED, THE PENAL PROVISIONS OF THE FOREIGN EXCHANGE (REGULATION) ACT WOULD BECOME MEANINGLESS. IT HAS A LSO TO BE BORNE IN MIND THAT EVASION OF LAW CANNOT BE A TRADE PURSUIT. THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT CONTINUING TO WORK IN THE FACTORY WITHOUT LICENSE IS A CONTINUOUS OFFENCE UNDER THE FACTORIES ACT. THERE FORE, AS OBSERVED BY THE HONBLE HIGH COURT IN THE CASE OF MADRAS MACHIN E TOOLS MANUFACTURERS LTD. (SUPRA) THE UNDERTAKING MEANS 'L ICENSED UNDERTAKING'. AS STATED ABOVE, THE APPELLANT CAN ONLY TAKE ONE ST AND AND THAT IS EITHER IT HAD NOT STARTED THE PRODUCTION BEFORE 31.03.2004 OR IT HAS VIOLATED THE PROVISIONS OF FACTORIES ACT. IN EITHER CASE IN VIEW OF THE ABOVE DISCUSSION DEDUCTION U/S 80IB CANNOT BE ALLOWED. THE APPELLANT HAS FAILED TO SHOW THE APPLICABILITY OF SECTION 6(2) OF THE FACTORIES ACT IN ITS CASE BY PRODUCING COPY OF APPLICATION THAT WHEN IT STARTED THE PRODUCTION THREE MONTHS HAD ALREADY PASSED FROM THE DATE OF APPLICAT ION AND NO COMMUNICATION WAS RECEIVED FROM THE INSPECTOR OF FA CTORIES. THE FACTS OF THE CASE ARE VERY CLEAR THAT THE APPLICANT HAS VIOL ATED THE RULE-4 AS WELL AS RULE-3(1) OF THE GOA, DAMAN & DIU FACTORIES RULE S, 1985. THE DISALLOWANCE MADE BY THE AO IS, THEREFORE, CONFIRME D AND THIS GROUND OF APPEAL IS DISMISSED. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). AT THE OUTSET, THE LEARNED AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH TH E IMPUGNED ORDER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION DATED 5.6.2009 OF THE ITAT IN THE CASE OF M/S SAMRATH HEA LTH CARE IN ITA NO.1006/AHD/2009 AS ALSO DECISION DATED 11.12.2009 IN THE CASE OF ITA NO.1652/AHD/2009 6 M/S PRIYA PRINTEK IN ITA NO.2742/AHD/2009. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE FINDINGS OF THE LEARNED CI T(A). 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE NOTICE THAT DEDUCTION U/S 80I B HAS BEEN DENIED IN THE YEAR UNDER CONSIDERATION FOR WANT OF FACTOR Y LICENSE IN THE PRECEDING ASSESSMENT YEAR. UNDISPUTEDLY, FACTORY LI CENSE WAS ISSUED ON 23.4.2004 I.E. IN THE YEAR CONSIDERATION. IN THESE CIRCUMSTANCES, ESPECIALLY WHEN LICENSE HAD BEEN ISS UED ON 23.4.2004 AND UNDISPUTEDLY, THE ASSESSEE FULFILLED ALL THE CONDITIONS STIPULATED U/S 80IB OF THE ACT, THERE IS NO REASON TO DISALLOW THE CLAIM FOR DEDUCTION U/S 80IB OF THE AC T. EVEN OTHERWISE, THE ASSESSEE WAS ALLOWED PROVISIONAL REGISTRATION A S A SMALL SCALE INDUSTRY ON 13.2.2004 .BESIDES, THE ASSESSEE OBTAIN ED NECESSARY NOC AND POWER CONNECTION . WE FIND THAT A CO-ORDIN ATE BENCH VIDE THEIR ORDER DATED 05-06-2009 IN THE CASE OF M/S SAM RATH HEALTH CARE IN ITA NO.1006/AHD/2009 FOR THE AY 2005-06, WHILE A DJUDICATING A SIMILAR ISSUE, CONCLUDED AS UNDER:- 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND CAREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITI ES. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF THE LEARNED CIT(A). THE LEARNED CIT(A) HAS RIGHTLY MENTIONED THAT TO OB TAIN FACTORY LICENSE IS NOT A CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/ S 80 IB OF THE ACT. IF WE PRESUME THAT THIS CONDITION IS ALSO REQUIRED TO BE FULFILLED BY THE ASSESSEE, THEN IT WOULD AMOUNT TO LEGISLATION BY INSERTING AN OTHER CONDITION IN SECTION 80 IB FOR ALLOWING DEDUCTION UNDER THAT SECTION THO UGH PROVIDED IN THE STATUTE. THE AO DID NOT DOUBT ABOUT RAW MATERIAL CO NSUMPTION, POWER CONSUMPTION, SALES AND EMPLOYMENT OF WORKERS. FURTH ER, NO DOUBT WAS ALSO EXPRESSED BY THE AO THAT ASSESSEE DID NOT CARR Y ANY MANUFACTURING ACTIVITY. NONETHELESS, THE ASSESSEE HAS APPLIED FOR FACTORY LICENSE PRIOR TO COMMENCEMENT OF PRODUCTION THOUGH IT WAS GRANTED SU BSEQUENTLY. THE ASSESSEE HAS BEEN GIVEN A PERMANENT REGISTRATION AS A SMALL SCALE INDUSTRIAL UNDERTAKING AND HAS REGISTERED WITH THE; SALES TAX AND EXCISE AUTHORITIES. FOR CLAIMING DEDUCTION U/S 80 IB OF TH E ACT ONLY THE CONDITIONS LAID DOWN UNDER THAT SECTION ARE REQUIRED TO BE FUL FILLED AND NO MORE. THE REQUIREMENT UNDER OTHER STATUTES CANNOT BE BORROWED FOR ALLOWING/REFUSING DEDUCTION UNLESS IT IS SO PROVIDED IN THE IT ACT IT SELF. FOR EXAMPLE, THE ITA NO.1652/AHD/2009 7 LEGISLATURE THOUGHT IT FIT TO BRING THE CONDITION O F EMPLOYMENT OF 10 OR MORE WORKERS IF MANUFACTURING ACTIVITIES ARE CARRIED OUT WITH THE HELP OF POWER OR MORE THAN 20 WORKERS WITHOUT THE HELP OF POWER. SIM ILARLY, IF THE LEGISLATURE THOUGHT IT FIT TO OBTAIN FACTORY LICENSE BEFORE ALL OWING DEDUCTION U/S 80 IB OF THE ACT THEN THEY WOULD HAVE SO PROVIDED. IN FACT, THERE ARE SEVERAL OTHER REQUIREMENTS IN DIFFERENT ACT APPLICABLE TO AN INDU STRY BUT ALL THESE REQUIREMENTS ARE NOT TO BE COMPLIED WITH FOR CLAIMI NG DEDUCTION U/ S 80 IB OF THE ACT. WHAT IS ESSENTIAL IS THAT THE ASSESSEE SHOULD MANUFACTURE OR PRODUCE AN ARTICLE OR THING. IF THERE IS ANY VIOLAT ION OF ANY PROVISIONS OF OTHER STATUTES THEN THE ASSESSEE HAS TO EXPLAIN THE SAME TO THE AUTHORITIES EXECUTING THOSE ACTS/ STATUTES. FURTHER FOR VIOLATI ON OF THE PROVISIONS UNDER OTHER ACTS THE ASSESSEE MAY FACE PENAL PROVISIONS A S PROVIDED UNDER THOSE ACTS. BUT FOR THAT COMMISSIONS/OMISSION UNDER OTHER ACTS THE DECISION UNDER THE IT ACT CANNOT BE AFFECTED UNLESS SO PROVIDED UNDER THE IT ACT. WE HOWEVER, NOTICE THAT THIS APPEAL IS FOR AY 2005-06..AND AS PER FACTS STATED IN THE ORDER BY THE LEARNED CIT(A) THE ASSESSEE HAS OBTAINED FACTORY LICENSE ON 6-5-2004 WHICH IS FINANCIAL YEAR 2004-05. THEREFORE, THERE SHOULD BE NO CASE FOR DISALLOWING THE CLAIM O F THE ASSESSEE U/S 80IB ON THE QUESTION OF NOT OBTAINING FACTORY LICENSE. A S A RESULT, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 5.1 SIMILARLY, IN THE CASE OF M/S PRIYA PRINTEK I N ITA NO.2742/AHD/2009, FOLLOWING THE DECISION DATED 16. 11.2009 OF THE ITAT IN THE CASE OF ADARSH PACKAGING VS. ITO IN ITA NOS.2253 AND 2254/AHD/2009 FOR AYS 2005-06 AND 2006-07, THE TRIB UNAL CONCLUDED VIDE THEIR ORDER DATED 11.12.2009 AS UNDE R:- 9. IN THE LIGHT OF THE AFORESAID ORDERS OF THE AHM EDABAD BENCHES OF THE TRIBUNAL THE FACT THAT IN THE PRESENT CASE THE ASSESSEE OBTAINED THE FACTORY LICENSE ONLY ON 08-2-2007, BEFORE 31-3-2004 IS IRRELEVANT FOR THE PURPOSE OF SECTION 80IB. THE QUESTION HOWEVER REMAI NS AS TO WHETHER THE ASSESSEE ACTUALLY STARTED PRODUCTION BEFORE 31-3-20 04. IN THIS CONNECTION, THE ASSESSMENT ORDER ITSELF MENTIONED THAT ON PERUS AL OF THE SSI REGISTRATION CERTIFICATE IT IS SEEN THAT THE PRODUC TION STARTED ON 31-3-2004. IT THEREFORE APPEARS TO US THAT THE SSI REGISTRATION C ERTIFICATE WAS PRODUCED BEFORE THE AO. THE CIT(A) HAS HOWEVER TAKEN THE VIE W THAT SINCE THE FACTORY LICENSE WAS ISSUED ONLY ON 08.02.07 AND IT IS AN OFFENCE PUNISHABLE UNDER THE FACTORIES ACT AND | THE RULES FRAMED THEREUNDER TO COMMENCE MANUFACTURING ACTIVITY BEFORE ISSUE OF THE SAID LICENSE, IT WOULD BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DE DUCTION UNDER ONE STATUTE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSES SEE IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE WHICH ALSO INVITES PE NALTY UNDER THAT STATUTE. THUS EVEN THE CIT(A) DOES NOT APPEAR TO HAVE DOUBTE D THE CLAIM OF THE ASSESSEE THAT THE MANUFACTURING ACTIVITY ACTUALLY C OMMENCED BEFORE THE ITA NO.1652/AHD/2009 8 31-3-2004. THE REASONING OF THE CIT(A) HAS NOT BEEN ACCEPTED AS CORRECT IN THE AFORESAID ORDERS PASSED BY THE AHMEDABAD BEN CHES OF THE TRIBUNAL. THEREFORE RESPECTFULLY FOLLOWING THEM, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80IB AS CLAIMED AND ACCORDINGLY DIRECT THE AO TO ALLOW THE SAME. 5.2 UNDISPUTEDLY, THE AO DID NOT DOUBT EITHER CON SUMPTION OF RAW MATERIAL OR POWER WHILE SALES OF RS.1,16,39,418/ - HAVE BEEN MADE IN THE YEAR UNDER CONSIDERATION. AS ALREADY ME NTIONED, THIS IS THE SECOND YEAR OF PRODUCTION AND UNDISPUTEDLY, FAC TORY LICENSE HAVING BEEN ISSUED ON 23-04-2004, THERE IS NO BASIS FOR DISALLOWING THE CLAIM FOR DEDUCTION U/S 80IB OF THE ACT IN THE YEAR UNDER CONSIDERATION ON THE GROUND OF NOT OBTAINING THE FA CTORY LICENSE IN THE PRECEDING ASSESSMENT YEAR. IN THE LIGHT OF THE VIEW TAKEN IN THE AFORESAID DECISIONS OF THE TRIBUNAL, THE AO WAS NOT JUSTIFIED IN DISALLOWING THE DEDUCTION U/S 80IB OF THE ACT FOR T HE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE FACTORY LICENS E WAS NOT OBTAINED IN THE PRECEDING ASSESSMENT YEAR. THEREFOR E, GROUND NO.1 IN THE APPEAL IS ALLOWED. 6 GROUND NO.2 RELATES TO DISALLOWANCE U/S 80IB OF T HE ACT ON AN AMOUNT OF RS.6,07,835/- ADDED IN TERMS OF PROVISION S OF SECTION 40(A)(IA) OF THE ACT. THE AO NOTICED THAT THE ASSES SEE CLAIMED DEDUCTION OF LABOUR CHARGES RS.2,65,615/-, FREIGHT & TRANSPORT CHARGES RS.1,01,006/- AND ADVERTISEMENT EXPENSES RS.31,016/- BESIDES STERILIZATION CHARGES - RS.2,74,280/-. SIN CE THE TAX DEDUCTED AT SOURCE FROM THE PAYMENTS OF RS.1,02,040 /- TO YASH INNOVATIVE WAS NOT DEPOSITED TO THE CREDIT OF GOVER NMENT ACCOUNT WHILE TDS DEDUCTED FROM THE PAYMENTS OF RS.1,54,613 /- TO SWASTIK INDUSTRIES WAS DEPOSITED TO THE CREDIT OF GOVERNMEN T ACCOUNT ON 31- 08-2005, AND NO TAX WAS DEDUCTED AT SOURCE ON TRAN SPORT CHARGES OF RS.37,419/- +RS.39,483/- TO SHRI D J PATEL AND S TERILIZATION CHARGES OF RS.2,74,280/-, THE AO DISALLOWED THESE P AYMENTS, HAVING RECOURSE TO THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. INTER ALIA ITA NO.1652/AHD/2009 9 THE AO OBSERVED THAT IF THE ASSESSEE SUCCEEDS AT TH E APPELLATE STAGE ON THE ISSUE OF DEDUCTION U/S 80IB OF THE ACT , THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION ON THE AFORESAID DISALLOWANCES SINCE THIS INCOME DID NOT FORM PART OF BUSINESS PRO FITS. 7 ON APPEAL, THE ASSESSEE SIMPLY STATED THAT DEDUC TION SHOULD BE ALLOWED BECAUSE THE AFORESAID DISALLOWANC E RESULTED IN INCREASE IN ELIGIBLE PROFITS. HOWEVER, THE LD. CIT( A) DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSESSEE AND UPHELD THE F INDINGS OF THE AO IN THE FOLLOWING TERMS:- 4.3 I HAVE CONSIDERED THE SUBMISSION MADE BY TH E APPELLANT AND THE OBSERVATION OF THE A.O. I DO NOT AGREE WITH THE A PPELLANT. THE DEDUCTION U/S. 80IB IS IN RESPECT OF ELIGIBLE PROFITS OF AN U NDERTAKING. THE DEDUCTION IS GIVEN UNIT-WISE IN CASES WHERE THERE IS MORE THAN O NE UNIT. THIS DEDUCTION IS COMPUTED AS PER THE PROFIT OF THE INDUSTRIAL' UN DERTAKING AND NOT AS PER THE TOTAL INCOME. THE DISALLOWANCE U/S. 40(A)(IA) L IKE U/S.43B EARLIER IS IN THE COMPUTATION OF INCOME DUE TO DEEMING PROVISIONS . IN BOTH THESE PROVISIONS ALTHOUGH THE PAYMENT IS DISALLOWED IN TH E CURRENT YEAR ALLOWED IN THE NEXT YEAR/YEAR OF PAYMENT. SINCE THE DEDUCTI ON U/S 80IB IS ENVISAGED ON ELIGIBLE PROFITS, THIS DISALLOWANCE BE ING MADE AFTER THE ELIGIBLE PROFITS ARE COMPUTED SHOULD NOT AFFECT THE CLAIM OF 80IB. THIS DISALLOWANCE IS ONLY TECHNICAL DISALLOWANCE IN THE CURRENT YEAR. IF DEDUCTION U/S 80IB IS ALLOWED IN THE CURRENT YEAR ON THE INCR EASED PROFIT THEN THE ASSESSEE WILL GET DOUBLE BENEFIT. ON THE SAME CLAIM OF EXPENDITURE THE ASSESSEE WILL GET HIGHER DEDUCTION U/S 80IB DUE TO DISALLOWANCE AND HENCE IT PAYS LESS TAX AND IN THE NEXT YEAR DUE TO PROVISO TO SECTION 40(A)(IA) IT GETS DEDUCTION OF THIS PAYMENT FROM TH E TOTAL INCOME AND PAYS LESS TAX IN THE NEXT YEAR ALSO. CLEARLY THIS DOUBLE DEDUCTION CANNOT BE ALLOWED AND HENCE THESE GROUNDS OF APPEAL ARE DISMI SSED. 8 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE CIT(A). AT THE OUTSET, THE LEARNED AR ON BEHALF OF THE ASSESSEE RELIED UPON THE ORDERS DATED 18-09-2009 IN ITA NO.2196/AHD/2009 AND DATED 23-10-2009 IN ITA NO.241 5/AHD/2009 IN THE CASE OF CHIRAG PLAST FOR THE ASSESSMENT YEARS 2 005-06 AND 2006-07 RESPECTIVELY AND CONTENDED THAT SINCE THE D ISALLOWANCE RESULTED IN INCREASE IN ELIGIBLE PROFITS OF THE IND USTRIAL UNDERTAKING, THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80IB ON THE SAID AMOUNT. ITA NO.1652/AHD/2009 10 ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE FIN DINGS OF THE LEARNED CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THE TRIBUNAL VIDE T HEIR ORDER DATED 18- 09-2009 IN THE CASE OF CHIRAG PLAST IN ITA NO.2196/ AHD/2009 FOR THE AY 2005-06, WHILE ADJUDICATING A SIMILAR ISSUE, CO NCLUDED AS UNDER:- 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF 100% OF THE PROFITS AND GAINS DERIVED FROM ITS INDUSTRIAL UNDER TAKING. THE LEARNED AO FOUND THAT A SUM OF RS.1,25,073/- IS NOT ALLOWABLE AS BUSINESS EXPENDITURE OF THE YEAR UNDER CONSIDERATION BECAUSE OF THE PROV ISIONS OF SECTION 40(A)(IA) ARE THAT DEDUCTION IN RESPECT OF THIS BUS INESS EXPENDITURE WILL BE ALLOWED TO THE ASSESSEE IN THE SUBSEQUENT YEAR WHEN TDS IN RESPECT OF THIS EXPENDITURE IS DEPOSITED BY THE ASSESSEE. HOWE VER, THE LEARNED ASSESSING OFFICER HAS TREATED THIS AMOUNT OF DISALL OWABLE EXPENDITURE AS INCOME FROM OTHER SOURCES AND THEREBY NOT ALLOWED D EDUCTION UNDER SECTION 80IB IN RESPECT OF THAT AMOUNT. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ABOVE ACTIO N OF THE LEARNED ASSESSING OFFICER ON THE GROUND THAT ALLOWANCE OF D EDUCTION UNDER SECTION 80IB IN THE YEAR WILL TANTAMOUNT TO DOUBLE DEDUCTIO N TO THE ASSESSEE. WE FIND THAT THE UNDISPUTED FACTS OF THE CASE ARE THAT BUSINESS EXPENDITURE OF ELIGIBLE UNIT STANDS DISALLOW IN THE YEAR UNDER CON SIDERATION DUE TO APPLICATION OF PROVISIONS OF SECTION 40(A)(IA). THU S, IN OTHER WORDS, THE SAID AMOUNT IS DEEMED AS EXPENDITURE NOT INCURRED BY THE ASSESSEE FOR COMPUTING ITS BUSINESS INCOME. THUS, AS THE EXPENDI TURE OF ELIGIBLE UNIT STANDS DISALLOWED CONSEQUENTLY THE SAME RESULTS IN INCREASE OF THE PROFIT OF THE ELIGIBLE UNIT. THE DEDUCTION UNDER SECTION 8 0IB IS ALLOWABLE IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE INDUS TRIAL UNDERTAKING. SUCH PROFITS AND GAINS ARE TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 28 TO 44AC WHICH INCLUDES SECTION 40(A)(IA) ALSO. THEREFORE, ANY DISALLOWANCE OF BUSINESS EXPENDITURE OF THE ELIGIBL E UNIT WILL LOGICALLY RESULT IN ENHANCEMENT OF DEDUCTION ALLOWABLE UNDER SECTION 80IB OF THE ACT. THE FEAR EXPRESSED BY THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) IN OUR CONSIDERED OPINION IS UNFOUNDED AND BASELESS. D URING THE YEAR AS THE EXPENDITURE OF THE ELIGIBLE BUSINESS IS DISALLOWED THE ASSESSEE'S BUSINESS INCOME DERIVED FROM THE ELIGIBLE BUSINESS OF THE IN DUSTRIAL UNDERTAKING STANDS AT INCREASED FIGURE AND THEREFORE, THE ASSES SEE WILL BE ELIGIBLE FOR DEDUCTION OF ENHANCED AMOUNT UNDER SECTION 801B O F THE ACT. HOWEVER, IN THE SUBSEQUENT YEAR IN WHICH TDS IS PAID BY THE ASSESSEE, THE EXPENDITURE WILL BE ALLOWED AS DEDUCTION FROM THE E LIGIBLE PROFITS OF THE ITA NO.1652/AHD/2009 11 SUBSEQUENT YEAR AND THEREBY THE ELIGIBLE PROFIT OF THE INDUSTRIAL UNDERTAKING WILL BE REDUCED IN THE SUBSEQUENT YEAR AND CONSEQUE NTLY THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB AT THE REDUCED AMOUNT ONLY. THUS, THERE CANNOT BE A DOUBLE DEDUCTION TO THE ASS ESSEE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORI TIES AND DIRECT THE LEARNED ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 80IB IN RESPECT OF ENTIRE PROFIT DERIVED FROM INDUSTRIAL UN DERTAKING AFTER TAKING INTO CONSIDERATION THE PROVISIONS UNDER SECTION 40(A)(IA ). THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 9.1 SIMILAR FINDINGS HAVE BEEN RECORDED IN AY 2006 -07 IN THE CASE OF THE AFORESAID ASSESSEE. HONBLE KARNATAKA HIGH C OURT IN THE CASE OF CIT VS.HMT LTD., 203 ITR 811(KAR) HELD THAT FOR THE P URPOSES OF SECTIONS 80J AND 80HH OF THE ACT, PROFITS AND GAINS OF NEW UNDERTAKI NGS ARE NOT COMMERCIAL PROFITS BUT ONLY SUCH PROFITS AS ARE COMPUTED IN TH E MANNER LAID DOWN UNDER THE ACT IN PURSUANCE OF SECTION 80AB, AS IF EACH UNDERT AKING WAS A SEPARATE ASSESSEE . WE FIND THAT THE DELHI BENCH OF THE TRIBUNAL IN THE CASE KOMAL EXPORTS VS ACIT, 19 SOT 602 (DEL.) ) IN THE CONTEXT OF PROVISIONS OF SEC 80HHC OF THE ACT HELD AS UNDER:- 11. IN THE INSTANT CASE, WE FOUND FROM THE RECORD THAT THE TAX PAYER IS AN EXPORTER AND HAD FILED A RETURN AT LOSS OF RS.47,27 ,650/-. THE TAX PAYER BEING EXPORTER IS ELIGIBLE TO CLAIM DEDUCTION U/S 8 0HHC SUBJECT TO THE CONDITIONS STIPULATED IN THE SAID SECTION. SINCE TH E DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ONLY WHEN THERE IS POSITIVE GROS S TOTAL INCOME, THE TAX PAYER OBVIOUSLY COULD NOT HAVE CLAIMED DEDUCTION UN DER SECTION 80HHC WHILE FILING THE RETURN OR BEFORE THE A.O. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS. IT IS SEEN THAT AS AGAINST THE LOSS RE TURNED AT RS.47,27,650/- ASSESSMENT HAS BEEN MADE AS POSITIVE INCOME OF RS.3 3,37,050/-. THEREFORE, THE CLAIM OF THE TAX PAYER REGARDING THE DEDUCTION UNDER SECTION 80HHC NEEDS TO BE RE-COMPUTED WITH REFERENCE TO THE FINALLY ASSESSED INCOME. WE DIRECT ACCORDINGLY. 9.2 SIMILAR VIEW WAS TAKEN BY THE ITAT, MUMBAI B ENCH IN THE CASE OF M/S. ZENITH RUBBER & PLASTIC WORK, 35 TTJ 259. 9.3 ON A SIMILAR ISSUE IN THE CONTEXT OF CLA IM FOR DEDUCTION U/S 80HHC OF THE ACT ON THE ADDITIONS TO THE INCOME MADE BY THE AO, HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. BAWA SKIN COMPANY, 294 ITR 537(PUNJAB & HARYANA) HELD THAT IF THE PROFITS SO A RRIVED AT BY THE ASSESSING ITA NO.1652/AHD/2009 12 OFFICER ARE RELATED TO THE BUSINESS OF THE ASSESSEE WHICH IS ENGAGED IN THE BUSINESS OF EXPORT OUT OF INDIA OF ANY GOODS OR MER CHANDISE TO WHICH SECTION 80HHC IS APPLICABLE, THEN THE APPELLANT IS COMPLETE LY JUSTIFIED TO MAKE THE CLAIM OF DEDUCTION OF SUCH PROFITS AS DETERMINED BY THE A SSESSING OFFICER. 10. IN VIEW OF THE FOREGOING AND IN THE LIGHT OF AFORESAID DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, WE HAVE NO HESITATIO N IN REVERSING THE FINDINGS OF THE LOWER AUTHORITIES AND ACCORDINGLY, HOLD THAT TH E ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB ON THE AMOUNT DISALLOWED WHILE W ORKING OUT THE ELIGIBLE PROFITS OF THE INDUSTRIAL UNDERTAKING. THE REFORE, GROUND NO.2 IN THE APPEAL IS ALLOWED. 11 NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERM S OF THE RESIDUARY GROUND, ACCORDINGLY, THE SAID GROUND IS D ISMISSED. 12 IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 13-04-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 13-04-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S JITSAN ENTERPRISES, PLOT NO.361/13, GANESH I NDUSTRIAL ESTATE, KACHIGAM, NANI DAMAN 2. THE ITO, VAPI WARD-4, DAMAN 3. CIT CONCERNED 4. CIT(A)-I, SURAT 5. THE DR, ITAT,D BENCH, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITA NO.1652/AHD/2009 13 ITAT, AHMEDABAD