ITO, CHENNAI V. Jaydeep Petrochem Co. P Ltd., CHENNAI

ITA 1929/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9768 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 24-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 01-09-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: G BASKAR
• Section: 80IB; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.1929 & 1930/MDS/2015 / ASSESSMENT YEARS : 2006-07 & 2007-08 THE INCOME TAX OFFICER CORPORATE WARD 2(3) CHENNAI VS. M/S JAYDEEP PETROCHEM CO. P. LT D 24/13, THIRD FLOOR DR.NAIR ROAD, T. NAGAR CHENNAI 600 017 [PAN AAACJ 9244J ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI P. RADHAKRISHNAN, JCIT /RESPONDENT BY : SHRI G. BASKAR, ADVOCATE / DATE OF HEARING : 24 - 02 - 2016 ! / DATE OF PRONOUNCEMENT : 01 - 04 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS)-6, CHENNAI, DATED 3.3.2015 FOR ASSESSMENT YEARS 2006-0 7 AND 2007-08. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THE APPEALS, WE HEARD THEM TOGETHER AND DISPOSING OF THE SAME BY T HIS COMMON ORDER. ITA NO.1929 & 1930/15 :- 2 -: 2. SHRI P. RADHAKRISHNAN, LD. DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE ASSESSEE CLAIMED DEDUCTION U/ S 80IB. THE ASSESSING OFFICER FOUND THAT THE FIXED ASSETS SCHED ULE SHOWS THE OPENING WRITTEN DOWN VALUE OF THE PLANT AND MACHINE RY AT ` 8,85,699/- AND ADDITION TO THE PLANT AND MACHINERY WAS SHOWN A T ` 13,89,140/-. ACCORDING TO THE LD. DR, THE ADDITION SAID TO BE MA DE FOR THE ASSESSMENT YEAR 2006-07 IS NOTHING BUT STORAGE TANK BROUGHT FOR STORING CHEMICALS AND ALSO FINISHED PRODUCTS BEFORE PACKING. ACCORDING TO THE LD. DR, THE STORAGE TANK CANNOT BE CONSIDERED AS PLANT AND MACHINERY FOR THE PURPOSE OF ASSESSEES B USINESS. EVEN ASSUMING THAT STORAGE TANK HAS TO BE CONSIDERED AS PLANT AND MACHINERY, THE RATIO OF OLD MACHINERY AND NEW MACHI NERY IS IN THE RATIO OF 40:60, HENCE, THE CONDITION FOR ALLOWING DEDUCTION U/S 80IB WAS NOT COMPLIED WITH. ACCORDING TO THE LD. DR, FOR ALLOWING THE CLAIM OF DEDUCTION U/S 80IB, THERE MUST BE A NEW BUSINESS AND SUCH BUSINESS WAS NOT FORMED BY TRANSFER OF ANY MACHINER Y OR PLANT FROM OTHER INDUSTRIAL UNDERTAKING AND THE ASSESSEE SHAL L BE ENGAGED IN THE MANUFACTURING ACTIVITY. ACCORDING TO THE LD. DR, S INCE THE OLD MACHINERY EXCEEDS MORE THAN 20%, THE ASSESSEE IS N OT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE SHALL ALSO EMPLOY NOT LESS THAN TEN WORKER S IN THE MANUFACTURING PROCESS CARRIED ON WITH THE AID OF PO WER. IF POWER IS ITA NO.1929 & 1930/15 :- 3 -: NOT USED, THE ASSESSEE HAS TO NECESSARILY EMPLOY N OT LESS THAN 20 WORKERS. ACCORDING TO THE LD. DR, THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF THINNER FROM SOME CHEMICALS. ACCO RDING TO THE LD. DR, THINNER IS NOTHING BUT MIXING OF VARIOUS CHEMIC ALS AT VARIOUS PROPORTIONS. THE PLANT AND MACHINERY SHOWN IN THE BALANCE SHEET IS NOTHING BUT A TESTING MACHINE. FOR MIXING THE CHEM ICALS AT VARIOUS PROPORTIONS, THE TESTING MACHINE HAS NO ROLE TO PLA Y. ACCORDING TO THE LD. DR, TESTING PROCESS IS DIFFERENT FROM MANUFACTU RING PROCESS. THE PLANT AND MACHINERY IN THE ASSESSEES CASE DOES ON LY TESTING PROCESS, THEREFORE, IT HAS TO BE CONSTRUED THAT THE ASSESSE E IS DOING THE ACTIVITY WITHOUT THE AID OF POWER HENCE, THE ASSESSEE HAS T O NECESSARILY EMPLOY NOT LESS THAN 20 WORKERS FOR CLAIMING DEDUCT ION U/S 80IB OF THE ACT. 3. REFERRING TO THE ASSESSMENT ORDER, THE LD. DR SUB MITTED THAT THE ASSESSING OFFICER EXAMINED THE NUMBER OF P ERSONS EMPLOYED BY THE ASSESSEE FOR VARIOUS MONTHS AND CAME TO A F INDING THAT HE ASSESSEE HAS EMPLOYED LESS THAN 20 EMPLOYEES, THERE FORE, THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE ACT. REFERRING TO THE ORDER OF THE CIT(A), THE LD. DR SUBMITTED THAT THE CIT(A) FOUND THAT THE ASSESSEE HAS EMPLOYED TWO SETS OF WORKERS . ONE SET OF EMPLOYEES ARE OWN AND PERMANENT WORKERS AND THE OTH ER SET OF EMPLOYEES ARE THROUGH LABOOUR CONTRACTORS. THE CIT (A) FOUND THAT ITA NO.1929 & 1930/15 :- 4 -: THE PERMANENT EMPLOYEES ARE SIX IN NUMBER AND THE W ORKERS EMPLOYED THROUGH LABOUR CONTRACTORS IS 15 IN NUMBER , THEREFORE, THE CIT(A) FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DED UCTION U/S 80IB OF THE ACT. 4. REFERRING TO THE MACHINERY USED AND UTILIZATION OF POWER, THE LD. DR SUBMITTED THAT THE CIT(A) IS SILENT AND HE H AS NOT DISCUSSED ABOUT THE FACT THAT THE ASSESSEES MANUFACTURING A CTIVITY WAS WITHOUT THE AID OF POWER. THE CIT(A) ALSO HAS NOT CONSIDER ED THE FACT THAT THE ASSESSEE HAS ADDED ONLY STORAGE TANK AND NOT THE MA CHINERY. IT IS NOT KNOWN HOW THE CIT(A) TREATED THE STORAGE TANK AS MA CHINERY. THE ONLY MACHINERY IS TESTING MACHINE AND NOT ANYTHING ELSE, THEREFORE, ACCORDING TO THE LD. DR, THE CIT(A) IS NOT JUSTIFIE D IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. ON THE CONTRARY, SHRI G. BASKAR, LD. COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE ASSESSEE HAS STARED A NEW MANUF ACTURING UNIT AT PONDICHERY IN ASSESSMENT YEAR 2004-05. THE ASSESSM ENT YEAR UNDER CONSIDERATION IS THIRD YEAR OF CLAIMING DEDUCTION U/S 80IB OF THE ACT. THE PLANT AND MACHINERY FOUND AT THE BEGINNING OF T HE ASSESSMENT YEAR AS ON 1.4.2005 WAS AT ` 8,85,699/-. THE ADDITION MADE DURING THE YEAR UNDER CONSIDERATION WAS TO THE EXTENT OF ` 13,89,140/-. THE OPENING BALANCE OF THE PLANT AND MACHINERY TO THE E XTENT OF ` 8,85,699/- WAS NOT THE PRE-USED PLANT AND MACHINERY . IT WAS THE PLANT ITA NO.1929 & 1930/15 :- 5 -: AND MACHINERY PURCHASED IN THE EARLIER ASSESSMENT Y EAR BY THE NEW INDUSTRIAL UNDERTAKING. THE LD. COUNSEL FURTHER SU BMITTED THAT THE ASSESSEE HAS EMPLOYED 6 PERMANENT EMPLOYEES AND 15 EMPLOYEES ON CONTRACT BASIS. THEREFORE, THE ASSESSING OFFICER I S NOT JUSTIFIED IN SAYING THAT THE ASSESSEE HAS EMPLOYED ONLY LESS TH AN 10 EMPLOYEES. THE CIT(A), AFTER CONSIDERING THE NUMBER OF PERSONS EMPLOYED BY THE ASSESSEE AND THE PLANT AND MACHINERY PURCHASED DURI NG THE YEAR UNDER CONSIDERATION, FOUND THAT THE ASSESSEE HAS C OMPLIED WITH ALL THE PRE-CONDITIONS REQUIRED FOR CLAIMING DEDUCTION U/S 80IB OF THE ACT AND ALLOWED THE CLAIM OF THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE PRE-CONDITION FOR CLAIMING DEDUCTION U/S 80IB IS (I) MANUFACTURING A CTIVITY, (II) EMPLOYED MORE THAN 10 WORKERS, AND (III) USAGE OF BRAND NEW MACHINERY FOR THE NEW INDUSTRIAL UNDERTAKING. ADMITTEDLY, THE ASSES SEE HAS ESTABLISHED A NEW INDUSTRIAL UNIT AT PONDICHERY. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEES ACTIVITIES DO NOT AMOUNT TO MANUFACTURING. THE ASSESSING OFFI CER HAS ALSO FOUND THAT THE ASSESSEE EMPLOYED LESS THAN 10 WORK ERS. THE ASSESSING OFFICER FURTHER FOUND THAT THE OLD MACHIN ERY EXCEEDED 40% AND THE PRESCRIBED LIMIT IS ONLY 20%. THE CIT(A) F OUND THAT THE ASSESSEE HAS EMPLOYED TWO SETS OF WORKERS. THE FI RST SET OF WORKERS ITA NO.1929 & 1930/15 :- 6 -: ARE PERMANENT EMPLOYEES AND ANOTHER SET OF WORKERS AND CONTRACT EMPLOYEES. THE CIT(A) FOUND THAT THE PERMANENT EMP LOYEES ARE 6 IN NUMBER AND CONTRACT EMPLOYEES ARE 15 IN NUMBER TOTA LLING TO 21 EMPLOYEES. THIS FACT IS NOT AVAILABLE BEFORE TH E ASSESSING OFFICER. THE CIT(A), BY PLACING RELIANCE ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS JYOTI PLASTIC WORKS P. LTD, 339 ITR 491 AND THAT OF KARNATAKA HIGH COURT IN THE CASE OF MANJUNA THA STEELS, 152 ITR 152 CAME TO THE CONCLUSION THAT CONTRACT WORK ERS SOURCED THROUGH LABOUR CONTRACTORS ARE ALSO TO BE CONSIDERE D AS WORKERS FOR THE PURPOSE OF DEDUCTION U/S 80IB OF THE ACT. REF ERRING TO THE OLD PLANT AND MACHINERY AND THE NEW ONE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE OLD PLANT AND MACHINERY WAS 40% WHICH IS MORE THAN THE PERMITTED LIMIT OF 20%. THE CIT(A) F OUND THAT THE OBSERVATION OF THE ASSESSING OFFICER WAS FACTUALLY INCORRECT BY SAYING THAT THE ASSESSING OFFICER ADOPTED THE OPENING WRIT TEN DOWN VALUE AS ON 1.4.2005 AND COMPARED WITH THE ADDITION OF PLANT AND MACHINERY MADE DURING THE FINANCIAL YEAR 2005-06. THE ASSESS ING OFFICER CAME TO THE CONCLUSION THAT THE NEW MACHINERY CLAIMED TO BE PURCHASED BY THE ASSESSEE IS ONLY A STORAGE TANK. THE CIT(A), WITHOUT REFERRING TO THE NATURE OF THE PLANT AND MACHINERY SAID TO BE PU RCHASED, FOUND THAT THE MACHINERY PURCHASED UPTO 31.3.2005 ARE NEW MACHINERIES. THE FACT THAT THE STORAGE TANK IS A MACHINERY OR NO T WAS NOT ITA NO.1929 & 1930/15 :- 7 -: CONSIDERED BY THE CIT(A). FROM THE MATERIALS AVAILA BLE ON RECORD, IT APPEARS THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCING VARNISH, THINNER AND WOOD POLISH. IT ALS O NEEDS TO BE CONSIDERED WHETHER PRODUCING, VARNISH, THINNER AND WOOD POLISH WOULD AMOUNT TO MANUFACTURING ACTIVITY OR NOT. THE ASSE SSEE APPEARS TO HAVE PRODUCED NEW MATERIAL FOR EVIDENCING THE PAYME NT OF PF BEFORE THE CIT(A). THE CIT(A), WITHOUT CALLING FOR ANY RE MAND REPORT FROM THE ASSESSING OFFICER, ACCEPTED THE DETAILS FILED B Y THE ASSESSEE. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE MATTER NEEDS TO BE REEXAMINED BY THE ASSESSING OFFICER AFTER CONSIDERING ALL THE MATERIAL FACTS WHICH ARE RELEVA NT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 ARE SET ASIDE AND THE ENTIRE CLAIM OF DEDU CTION U/S 10B OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSI NG OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE ISSUE AFRESH AND BRING ON RECORD THE OLD MACHINERIES AVAILABLE WITH THE ASSESSEE AN D THE NEW MACHINERY PURCHASED BY THE ASSESSEE. THE ASSESSIN G OFFICER SHALL ALSO DISCUSS THE WORKERS EMPLOYED BY THE ASSESSEE ON PERMANENT BASIS AND ON CONTRACTUAL BASIS AND THEREAFTER DECID E THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPOR TUNITY TO THE ASSESSEE. ITA NO.1929 & 1930/15 :- 8 -: 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AR E ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 1 ST APRIL, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF