ACIT, CHENNAI V. K H Leather Industries Private Limited, CHENNAI

ITA 1928/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8668 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-09-2015
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation
• Section: 143(3); 142(1); 14A; 10B; 56

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO. 1 928 /MDS/2015 / ASSESSMENT YEAR :20 07 - 08 THE DEPUTY COMMISSIONER OF INCOME TAX, C O RPORATE CIRCLE 4(2 ), CHENNAI 600 034. VS. M/S. K.H. LEATHER INDUSTRIES (P) LTD., 266 (OLD NO. 829/1), PERI YAR EVR HIGH ROAD, KILPAUK, CHENNAI 600 010. [PAN : A A A C K 2329K ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SHIVA SRINIVAS , J CIT / RESPONDENT BY : SHRI S. SRI DHAR , ADVOCATE / DATE OF HEARING : 11 . 0 7 .201 6 / DATE OF P RONOUNCEMENT : 29 . 0 7 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) 8 , C HENNAI DATED 2 7 .0 7 .201 5 RELEVANT TO THE ASSESSMENT YEAR 200 7 - 08 . THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE ASSESSED IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT OR NOT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 ON 31.10.2007 ADMITTING THE TOTAL INCOME I.T.A. NO. 1 9 2 8 /M/ 1 5 2 OF .52,25,576/ - AFTER CLAIMING DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NECESSARY DETAILS WERE CALLED FOR AND OBTAINED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 09.12.2009 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT .5,22,77,010/ - BY MAKING DISALLOWANCES UNDER SECTION 10B AND 14A R.W. RULE 8D. ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR MAINLY CONTENDED THAT THE DEPARTMENT HAS FILED AN APPEAL BEFORE THE HON BLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CAS E FOR THE ASSESSMENT YEAR 2004 - 05 AND SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 4 . AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY DECI SION OF THE COORDINA TE BENCH OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO. 2828/MDS/2014 VIDE ORDER DATED 18.02.2015. 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION OF .4,70,30,183/ - UNDER I.T.A. NO. 1 9 2 8 /M/ 1 5 3 SECTION 10B OF THE ACT. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE STATING THAT THE ASSESSEE DID NOT PRODUCE ANY NEW EVIDENCE DURING THE YEAR FOR ITS CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT. WE FIND THAT THE ISSU E INVOLVED IN THIS APPEAL HAS ALREADY BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL BY FOLLOWING THE DECISION IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.532/MDS/2009 VIDE ORDER DATED 05.01.2011. FURTHER, BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO. 2828/MDS/2014 DATED 18.02.2015, THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEA R 2006 - 07 DATED 18 .0 2 .201 5 IS EXTRACTED AS UNDER: 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT LD. CIT (A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOL LOWING THE ORDER OF THE TRIBUNAL. THE RELEVANT PORTION OF THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO.532/MDS./2009 FOR ASSESSMENT YEAR 2004 - 05 VIDE ORDER DATED 05.01.2011 IS EXTRACTED HEREIN BELOW FOR REFERENCE: - 5. WE HAVE CAREFULL Y CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AO AS WELL AS THE CIT. THE ISSUE IS WHETHER DEDUCTION UNDER SEC.10B OF THE ACT WAS PROPERLY ALLOWED BY THE AO AFTER DUE CONSIDERATION OF THE CLAIM OF THE ASSESSEE. THE FIRST CONDITION THAT IS TO BE SATISFIED FOR INVOKING SEC.263 OF THE ACT IS THAT THERE SHOULD BE AN ERROR IN THE ORDER OF THE AO. THEREAFTER THE CIT HAS TO SEE WHETHER SUCH ORDER CAUSED ANY PREJUDICE TO THE INTERESTS OF THE REVENUE. NO DOUBT, AS POINTED OUT BY THE LD. DR, ASSESSM ENT ORDER DID NOT MENTION ANYTHING REGARDING THE CLAIM OF THE ASSESSEE UNDER SEC.10B. IN OUR OPINION, THIS BY ITSELF WOULD NOT DILUTE THE CLAIM OF THE ASSESSEE THAT DEDUCTION CLAIMED BY IT UNDER SEC. 10B OF THE ACT WAS PROPERLY INVESTIGATED BY THE AO. THER E ARE TWO REASONS WHY I.T.A. NO. 1 9 2 8 /M/ 1 5 4 WE HAVE TO CONSIDER SO. THE FIRST ONE IS THAT AUDIT REPORT IN FORM NO.56G FILED BY THE ASSESSEE ALONGWITH THE RETURN OF INCOME CLEARLY MENTIONED AS UNDER: THE COMPANY HAS MADE AN APPLICATION FOR ESTABLISHMENT OF NEW UNIT BY TRANSFER AND MERGER OF EXISTING UNIT AS 100% E.O.U. AS [PER INFORMATION FURNISHED TO US, THE COMPANY IS IN EXISTENCE FOR THE PAST 25 YEARS, MANUFACTURING FULL SHOES AND SHOE UPPERS, MAJORITY OF PRODUCTS HAVING EXPORTED. THE COMPANY HAS ESTABLISHED A FULL SHOE FACT ORY IN THE SAME AREA NO.18 KRISHNAGIRI BYE PASS ROAD, RANIPET, WHEREIN THE OLD FACTORY IS SITUATED. THEY HAVE CONSTRUCTED SEPARATE BUILDING FOR NEW FACTORY AND MACHINERIES IMPORTED AND ACQUIRED SINCE 1 - 4 - 2000 WERE USED FOR THE UNIT. THE OLD MACHINERIES FROM EXISTING UNIT AS ON 1 - 4 - 2000 USED IN E.O.U. IS LESS THAN 20% AS PER DETAILS GIVEN BELOW: AMOUNT(RS.) PERCENTAGE AS ON 1 - 4 - 2000 1,08,76,532 16.64% MACHINERIES ACQUIRED 1.4.2000 TO 31.3.2001 . 5830527 1.4.2001 TO 31.3.2002 . 6741007 1.4.2002 TO 31.3.2003 . 10641085 1.4.2003 TO 31.3.2004 . 31261468 5,44,74,087 83.36% 6,53,50,619 100% THE COMPANY HAS BEEN APPROVED AS EOU ON 17 - 10 - 2003. THIS IS THE FIRST YEAR OF EOU AND EXEMPTION U/S 10B IS CLAIMED FOR THIS ASSESSMENT. WE FURNISH HEREWITH OUR COMMENTS ON ESSENTIAL CONDITIONS TO CLAIM 10B DEDUCTION. TO THE BEST OF OUR KNOWLEDGE, WE ARE OF THE OPINION THAT THE COMPANY IS ELIGIBLE FOR SECTION 1 0B. HOWEVER, THE ALLOWANCE MAY BE ALLOWED AS PER THE PROVISIONS OF SEC.10B. OUR CERTIFICATE U/S 10B IS SUBJECT TO OUR REMARKS AND PARTICULARS FURNISHED HEREWITH AND IT MAY BE DEALT AS PER LAW. 6. SO WHEN THE ASSESSMENT PROCEEDINGS WERE ON, AO HAD THE IN FORMATION IN HIS POSSESSION. FURTHER TO THIS, A NOTICE U/S 142(1) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 7 - 9 - 2006 AND ONE OF THE I.T.A. NO. 1 9 2 8 /M/ 1 5 5 ITEMS ON WHICH DETAILS WERE CALLED FOR WAS DEDUCTION CLAIMED UNDER CHAPTER VIA AND 10A/10B OF THE ACT. ASSESSEE HAD DURING TH E COURSE OF ASSESSMENT GIVEN SUCH INFORMATION AND ALSO A REVISED COMPILATION OF ITS CLAIM UNDER SEC.10B OF THE ACT, BASED ON THE EOU CERTIFICATE OBTAINED FROM MINISTRY OF COMMERCE ON 17 - 01 - 2003. TAKING THE DATE OF ESTABLISHMENT OF THE EOU WAS 1.10.2003, A SSESSEE HAD REWORKED ITS CLAIM UNDER SEC.10B OF THE ACT BY PREPARING TWO PROFIT AND LOSS ACCOUNTS AND SUCH REWORKED CALCULATION WAS AVAILABLE WITH THE AO WHEN HE WAS COMPLETING THE ASSESSMENT. THUS AO HAD CALLED FOR NECESSARY INFORMATION AND ASSESSEE HAD F URNISHED THE SAME. AO WAS ALSO HAVING IN HIS POSSESSION THE AUDIT REPORT WHICH CLEARLY MENTIONED THAT THE CLAIM OF THE ASSESSEE WAS TO THE BEST OF THEIR KNOWLEDGE AN ELIGIBLE CLAIM. FURTHER IF WE LOOK AT SCHEDULES TO THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET APPENDED ALONG WITH THE RETURN, IT CLEARLY SHOWS THAT ASSESSEE WAS CONSTRUCTING NEW BUILDING DURING THE RELEVANT PERIOD AND THE ADDITION FOR THE NEW FACTORY BUILDING FOR THE RELEVANT PREVIOUS YEAR CAME TO RS.1,52,18,317/ - IT MIGHT BE TRUE THAT ASSES SEE HAD CLAIMED DEPRECIATION FOR NEW MACHINERY ACQUIRED BY IT DURING THE PERIOD 1 - 4 - 2000 TO 31 - 3 - 04 DEEMING IT AS PASSIVELY USED, BUT THE STAND OF THE ASSESSEE THAT SUCH NEW MACHINERY WAS HOUSED IN THE SEPARATE BUILDING BEING CONSTRUCTED FOR NEW FACTORY, A ND ALSO MEANT FOR USE ONLY IN THE NEW EOU, WAS NEVER FOUND TO BE NOT TRUE. PASSIVE USE AND CLAIM OF DEPRECIATION BASED ON SUCH PASSIVE USE WILL NOT MAKE MACHINERY OLD . NO DOUBT, THE ORDER OF THE AO IF IT HAD BEEN WITHOUT APPLICATION OF MIND WOULD HAVE BE EN ERRONEOUS AND PREJUDICIAL AND MERE ACCEPTANCE OF AN ENTRY IN A STATEMENT OF ACCOUNT IN THE ABSENCE OF SUPPORTING MATERIAL, WOULD HAVE IMPLIED NON APPLICATION OF MIND, AS HELD BY THE HON BLE APEX COURT IN MALABAR INDUSTRIAL CO. V. CIT (243 ITR 83). NEVER THELESS, JUST BECAUSE THE ORDER OF THE AO WAS CRYPTIC, WE CANNOT COME TO A CONCLUSION THAT SUCH ORDER WAS PASSED WITHOUT APPLICATION OF MIND. IT IS NOT NECESSARY FOR AN AO TO MENTION AND ELABORATE EACH AND EVERY ITEM OF THE CLAIM OF AN ASSESSEE, EVEN WHERE HE FIND THAT SUCH CLAIM IS IN ACCORDANCE WITH LAW AND PROPERLY EVIDENCED. WHAT HAS TO BE SEEN IS WHETHER THE RECORDS SHOW A PROPER APPLICATION OF MIND. IN OUR VIEW HERE ASSESSEE WAS CALLED UPON TO FILE NECESSARY DETAILS, ASSESSEE HAD FILED SUCH DETAILS AN D THE AO WAS IN POSSESSION OF ALL THE RELEVANT PARTICULARS RELATING TO THE CLAIM OF THE ASSESSEE U/S 10B OF THE ACT. IN SUCH A SITUATION IT CANNOT BE SAID THAT ORDER OF THE AO WAS ONE WITHOUT APPLICATION OF MIND. VIDE EXPLANATION 2 TO I.T.A. NO. 1 9 2 8 /M/ 1 5 6 SUB SEC. (2) OF SEC.8 0B , WHICH IS APPLICABLE FOR THE PURPOSE OF INTERPRETING CL. (III) OF SUB - SEC.(2) OF SEC.10B, IT IS CLEAR THAT WHERE THE TOTAL VALUE OF THE MACHINERY OR PLANT TRANSFERRED TO A NEW BUSINESS DID NOT EXCEED 20%, THEN SUCH TRANSFER WOULD NOT DISENTITLE AN ASSESSE E FROM CLAIMING DEDUCTION U/S 10B OF THE ACT BY CONSIDERING ASSESSEE S BUSINESS TO HAVE BEEN FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. AO THUS, HAVING COME TO LAWFUL VIEW, AFTER CONSIDERING THE DETAILS SUBMITTED BY THE ASSES SEE, WE ARE OF THE OPINION THAT THE CIT WAS TRYING TO SUBSTITUTE HIS VIEW TO THE LAWFUL VIEW TAKEN BY THE AO. WHEN TWO VIEWS ARE POSSIBLE AND AO HAS TAKEN ONE VIEW, WE CANNOT SAY THAT SUCH AN ORDER OF THE AO WAS ERRONEOUS, AS HELD BY THE HON BLE APEX COURT IN THE CASE OF CIT VS.MAX INDIA LTD. (295 ITR 282). AS FOR THE RELIANCE PLACED BY THE LD. DR ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF SOUTH INDIA TRAVELS P. LTD. (SUPRA), WE ARE OF THE OPINION THAT THE SAID CASE WOULD NOT APPLY TO THE FACTS HERE FOR THE SIMPLE REASON THAT THE AO HAD NOT REMAINED PASSIVE IN THE FACE OF THE RETURN FILED BY THE ASSESSEE, BUT HAD MADE FURTHER ENQUIRY AND PASSED ASSESSMENT ORDER AFTER OBTAINING THE REPLY OF THE ASSESSEE. WE ARE OF THE OPINION THAT IN THE CIRCUMSTA NCES, CIT FELL IN ERROR IN INVOKING SEC.263 OF THE ACT FOR SETTING ASIDE THE ORDER OF THE AO, THE TWIN CONDITIONS FOR INVOKING SUCH POWERS HAVING NOT BEEN SATISFIED. ORDER OF THE CIT IS QUASHED. APPEAL OF THE ASSESSEE STANDS ALLOWED. 6. IN THESE CIR CUMSTANCES, WE DO NOT HAVE ANY HESITATION TO CONFIRM THE ORDER OF THE LD. CIT (A) WHO HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE CHENNAI BENCHES OF THE TRIBUNAL CITED SUPRA. IT IS ORDERED ACCORDINGLY. 6. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL OR FILED ANY HIGHER COURT DECISION HAVING MODIFIED OR REVERSED THE ABOVE DECISION OF THE TRIBUNAL . JUST BECAUSE THE DEPARTMENT FILED AN APPEAL BEFORE THE HON BLE HIGH COURT, WE CANNOT TAKE A DIFFERENT VIEW. THE LD. CIT(APPEALS) HAS RIGHTLY FOLLOWED THE ABOVE JUDGEMENT AND WE FIND NO I.T.A. NO. 1 9 2 8 /M/ 1 5 7 INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS). ACCORDINGLY, T HE APPEAL FILED BY THE REVENUE IS DISMISSED. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. ORDER PRONOUNCED ON THE 29 TH JULY, 2016 AT CHENNAI. SD/ - SD/ - ( A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 29 . 0 7 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.