The ACIT,Vapi Circle, Vapi V. Ess Dee Aluminium Ltd., Daman

ITA 2087/AHD/2010

• Counselvise Citation: 208720514 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S C TIWARI
• Assessee Lawyers: M K PATEL
• Keywords: Business income; Assessment record
• Section: 80HHC; 80IB

Judgement Text

, , , , C, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.1751 AND 1752/AHD/2010 [ASSTT.YEAR : 2006-2007 AND 2007-2008] M/S. ESS DEE ALUMINUM LTD. PLOT NO.124-133, PANCHAL UDYOG NAGAR BHIMPORE, DAMAN 396 210. PAN : AABCE 3113 G /VS. ACIT, VAPI RANGE VAPI. ITA NO.2014/AHD/2010 [ASSTT.YEAR : 2005-2006] AND ITA NO.2087 AND 2088/AHD/2010 [ASSTT.YEAR : 2006-2007 AND 2007-2008] ACIT, VAPI RANGE VAPI. /VS. M/S. ESS DEE ALUMINUM LTD. PLOT NO.124-133, PANCHAL UDYOG NAGAR BHIMPORE, DAMAN 396 210. ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) + , - / REVENUE BY : SHRI S.C. TIWARI, SR.DR /$ , - / ASSESSEE BY : SHRI M.K. PATEL '0 , $1/ DATE OF HEARING : 23 RD OCTOBER, 2013 234 , $1/ DATE OF PRONOUNCEMENT : 08-11-2013 5 / O R D E R ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -2- PER N.S. SAINI, ACCOUNTANT MEMBER : THESE APPEALS ARE BY THE REVENUE AND THE ASSESSEE. ALL THESE APPE ALS ARE DISPOSED OF WITH THIS CONSOLIDATED ORDER FOR THE SA KE OF CONVENIENCE. 2. ITA NO.2014/AHD/2010 IS AGAINST THE ORDER OF THE CIT(A) DATED 29.3.2010 FOR A.Y.2005-2006. ITA NO.1751/AHD /2010 AND ITA NO.2087/AHD/2010 ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE C IT(A), VALSAD DATED 30.3.2010 FOR A.Y.2006-2007. ITA NO.1752/AHD /2010 AND ITA NO.2088/AHD/2010 ARE THE CROSS APPEALS FILE D BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE C IT(A) DATED 30.3.2010 FOR A.Y.2007-2008. 3. SOLE ISSUE IN THE APPEAL OF THE REVENUE FOR A.Y. 2005-2006 AND GROUND NOS.1 AND 2 IN A.Y.2006-2007 AND GROUND NOS.1 AND 2 IN A.Y.2007-2008 ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A) HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961 AND DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION OF ` 7,50,01,370/- FOR A.Y.2006-2007 AND ` 22,85,30,567/- IN A.Y.2007-2008. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING ALUMINUM FOIL FOR FLEXIBL E PACKAGING MATERIALS. THE MANUFACTURING UNIT OF THE ASSESSEE I S LOCATED IN THE UNION TERRITORY OF DAMAN WHICH IS A BACKWARD AREA O F UNION ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -3- TERRITORY AS SPECIFIED IN THE VIIITH SCHEDULE TO TH E INCOME TAX ACT (THE ACT FOR SHORT). THE UNIT IS LOCATED IN DAMAN WHICH BEGAN ITS MANUFACTURING ACTIVITIES PRIOR TO 31-3-20 04 THEREBY BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 5. THE ASSESSING OFFICER (AO FOR SHORT) ON PERUSA L OF THE PROFIT & LOSS ACCOUNT ATTACHED WITH THE RETURN OF I NCOME ISSUED A LETTER DATED 24-9-2007 REQUIRING THE ASSESSEE TO EX PLAIN HOW IT WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF TH E ACT AS MANUFACTURING ACTIVITIES HAD NOT COMMENCED BEFORE 3 1.3.2004. THE POINTS RAISED BY THE AO IN THE ASSESSMENT ORDER ARE THE FOLLOWING: 1) THIS IS THE FIRST YEAR OF OPERATION 2) SCHEDULE NO.5 TO FIXED ASSETS SHOWS THE ADDITION OF RS.8,10,24,252/- DURING THE CURRENT YEAR. NO OPENING BALANCE OF ASSTS HAS BEEN SHOWN. 3) IN THE DIRECTORS REPORT, THE CHAIRMAN HAS MADE THE FOLLOWING REMARKS: PERFORMANCE THE COMPANY HAS REPORTED THAT REVENUE OF RS.953.00 LACS FOR THE PERIOD ENDED 31 ST MACH, 2005 BEING THE FIRST YEAR OF OPERATIONS. THE NET PROFIT AFTER TAX FOR THE SAID PERIOD WAS RS.7.7 2 LACS. 4) ANNEXURE TO FORM NO.3CD FIXED ASSETS REGISTER (F) SHOWS THE ADDITION TO FIXED ASSET FROM 22.07.04 AND ONWARDS. 5) ANNEXURE TO FORM NO.3CD SHOWS THE FIGURE OF CURRENT YEAR ONLY NO FIGURES OF PREVIOUS YEAR ARE THERE. 6) INITIAL ASSESSMENT YEAR HAS BEEN SHOWN AS 2005-06 I N THE FORM NO.10CCB. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -4- 7) PF CONTRIBUTION HAS BEEN SHOWN AS NIL FOR THE MONTHS OF APRIL 04 TO JULY, 2004. THUS THERE WAS N O BUSINESS IN A.Y.2004-05. 8) IN THE DIRECTORS REPORT 1 ST ANNUAL REPORT FOR F.Y.2004-05 HAS BEEN SHOWN. 9) IN THE QUANTITATIVE DETAILS OF STOCK ATTACHED WITH THE ROI, OPENING BALANCE HAS BEEN SHOWN NIL. CONSIDERING THE ABOVE, THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB O F THE ACT IN ANY OF THE YEAR SINCE THE PRODUCTION DID COMMENCE O N OR BEFORE 31.3.2004. HE ALSO OBSERVED THAT THE INDUSTRIAL UN DERTAKING IS A NEW UNDERTAKING AND IT IS NOT FORMED BY EXPANSION O R RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE . 6. ON APPEAL BEFORE THE LEARNED CIT(A), THE ASSESSE E ARGUED THAT THE ASSESSEE-COMPANY WAS INCORPORATED ON 10.2. 2004 AND THAT THE CERTIFICATE OF INCORPORATION AND MEMORANDU M OF ASSOCIATION WAS FILED BEFORE THE AO. IT WAS FURTHE R SUBMITTED THAT M/S.ESS DEE ALUMINUM WAS FORMED ON 01.01.2004 VIDE PARTNERSHIP DEED DATED 01.01.2004. THE ASSESSEE-CO MPANY BECAME PARTNER IN THE FIRM OF M/S.ESS DEE ALUMINUM FROM 03.03.2004 HAVING 60% SHARE OF PROFIT. COPY OF PAR TNERSHIP DEED WAS FILED. IT WAS SUBMITTED THAT THE FIRM STARTED MANUFACTURING ACTIVITY IN THE NEW INDUSTRIAL UNDERTAKING SITUATED AT PLOT NO.124- 133, PANCHAL UDYOG NAGAR, VILLAGE BHIMPORE, DAMAN W .E.F. 03.03.2004. IT WAS SUBMITTED THAT THE PLANT AND MA CHINERY IN THIS INDUSTRIAL UNDERTAKING WERE NEW AND THE FIRM HAS EM PLOYED MORE THAN 10 WORKERS IN ITS MANUFACTURING PROCESS. IT WAS ALSO ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -5- SUBMITTED THAT THE FIRM, M/S.ESS DEE ALUMINUM WAS D ISSOLVED W.E.F. 16.07.2004 AND THE ENTIRE RUNNING BUSINESS O F THE FIRM WAS TAKEN OVER BY THE ASSESSEE-COMPANY WITH ALL ITS ASS ETS AND LIABILITIES. COPY OF DISSOLUTION DEED WAS FILED W ITH THE AO. IT WAS FURTHER SUBMITTED THAT THE COMPANY MADE EXPANSI ON OF INDUSTRIAL UNDERTAKING BY ADDING MORE PLANT & MACHI NERY. ON THE ABOVE FACTS, IT WAS SUBMITTED THAT SINCE INDUST RIAL UNDERTAKING STARTED ITS MANUFACTURING ACTIVITY PRIOR TO 31.3.20 04 AND THEREFORE, SATISFIED THE CONDITIONS FOR CLAIMING DE DUCTION UNDER SECTION 80IB. IT WAS ALSO SUBMITTED THAT ELIGIBILI TY OF DEDUCTION UNDER SECTION 80IB WAS WITH REFERENCE TO PROFIT EAR NED BY INDUSTRIAL UNDERTAKING. IT WAS SUBMITTED THAT THE CHANGE IN CONSTITUTION OR OWNERSHIP OF INDUSTRIAL UNDERTAKING WAS NOT AT ALL RELEVANT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IB. SINCE INDUSTRIAL UNDERTAKING WAS SAME, WHICH WAS OPERATED BY THE PARTNERSHIP FIRM, IN WHICH THE ASSESSEE-COMPANY WAS A PARTNER, AND THEREAFTER, THE ASSESSEE-COMPANY CONTINUED THE SAME MANUFACTURING ACTIVITY IN THE SAME INDUSTRIAL UNDER TAKING, THE ASSESSEE-COMPANY WAS ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IB. AS REGARDS OBSERVATIONS OF THE AO THAT FIRST YEAR O F OPERATION OF THE ASSESSEE-COMPANY, IT WAS SUBMITTED THAT THE MEN TION OF FIRST YEAR OF OPERATION WAS IN RELATION TO BUSINESS OF T HE ASSESSEE- COMPANY AND NOT IN RELATION TO INDUSTRIAL UNDERTAKI NG. IT WAS SUBMITTED THAT MANUFACTURING BEGAN ON 12.2.2004 IN THE INDUSTRIAL UNDERTAKING BY THE ERSTWHILE PARTNERSHIP FIRM, M/S.ESS DEE ALUMINUM. IT WAS SUBMITTED THAT THE ASSETS WE RE TAKEN OVER ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -6- BY THE COMPANY ON DISSOLUTION OF THE PARTNERSHIP FI RM HAS BEEN REFLECTED IN THE PREOPERATIVE EXPENSES. IT WAS SU BMITTED THAT THE DETAILS OF PREOPERATIVE EXPENSES WAS SUBMITTED TO T HE AO VIDE LETTER DATED 22.10.2007. REGARDING DIRECTORS REPO RT AND REMARKS OF THE CHAIRMAN, IT WAS STATED BY THE ASSES SEE TO THE AO THAT THE DIRECTORS REPORT WAS CONCERNING COMPANYS OPERATION ONLY AND IT HAD NOTHING TO DO WITH THE OPERATION OF ERSTWHILE PARTNERSHIP FIRM. IT WAS BECAUSE OF THIS REASON TH AT IN THE DIRECTORS REPORT FIRST YEAR OF OPERATION OF THE CO MPANY WAS STATED. IT WAS SUBMITTED THAT IN THE ANNEXURE TO FO RM 3CD, THE ADDITION TO FIXED ASSETS FROM 22.7.2004 AND ONWARDS ARE SHOWN. IT WAS FURTHER EXPLAINED THAT ASSETS OF THE PARTNER SHIP FIRM INCLUDING PLANT & MACHINERY WERE TAKEN OVER BY THE ASSESSEE- COMPANY WAS INCLUDED IN THE PREOPERATIVE EXPENSES. WITH REGARD TO THE ANNEXURE TO FORM NO.3CD, SHOWING FIGU RES OF CURRENT YEAR ONLY, AND NOT SHOWING FIGURE OF PREVIO US YEAR, IT WAS SUBMITTED TO THE AO THAT PREVIOUS YEAR OPERATION WA S DONE BY THE PARTNERSHIP FIRM AND SEPARATE BOOKS OF ACCOUNT WAS MAINTAINED BY THE PARTNERSHIP FIRM. IT WAS BECAUSE OF THIS R EASON THAT PREVIOUS YEARS FIGURES WERE NOT SHOWN IN FORM 3CD, AS THE ASSESSEE-COMPANY WAS NOT IN EXISTENCE AT THAT TIME. IT WAS ALSO SUBMITTED THAT PF CONTRIBUTION WAS SHOWN AS NIL FOR THE MONTHS, APRIL, 2004 TO JULY, 2004, BECAUSE THERE WAS NO PF REGISTRATION IN THE NAME OF THE COMPANY TILL JULY, 2004 AS THE NUMB ER OF WORKERS WAS LESS THAN 20 IN COMPANY AS WELL AS IN ERSTWHILE PARTNERSHIP FIRM. IT WAS FURTHER EXPLAINED THAT THE DIRECTOR S REPORT SHOWED ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -7- THE FIRST ANNUAL REPORT FOR F.Y.2004-2005, BECAUSE THIS WAS THE FIRST YEAR OF THE COMPANY AND EARLIER THE BUSINESS WAS CARRIED ON BY THE PARTNERSHIP FIRM. IT WAS EXPLAINED THAT S INCE BUSINESS WAS CARRIED ON BY THE PARTNERSHIP FIRM EARLIER AND SINCE THERE WAS NO CLOSING STOCK AT THAT TIME OF DISSOLUTION OF THE PARTNERSHIP FIRM, NO OPENING STOCK WAS SHOWN BY THE ASSESSEE-CO MPANY. FINALLY, IT WAS SUBMITTED THAT IT WAS SUBMITTED TO THE AO THAT SINCE ALL THE OBSERVATIONS MADE BY THE AO IN THE LE TTER DATED 24.9.207 WAS WITHOUT TAKING THE FACTS INTO CONSIDER ATION, SPECIALLY THE FACT THAT THE INDUSTRIAL UNDERTAKING WAS EARLIER IN OPERATION BY THE FIRM M/S.ESS DEE ALUMINUM, THE OBS ERVATION OF THE AO AGAINST THE ASSESSEE WERE NOT CORRECT. IT W AS SUBMITTED THAT IN THE FACTS OF THE CASE, DOCUMENTS FILED BY T HE ASSESSEE CLEARLY SHOWED THAT INDUSTRIAL UNDERTAKING BEGAN TO MANUFACTURE ITS ARTICLE FROM 3.3.2004 I.E. MUCH BEFORE 31.3.200 4, AND HENCE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. IT WAS FURTHER SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSEE HAD FILED A COPY OF LETTER DATED 8.7.2004 WRITTEN TO SHRI KHEMCHAND DHINGRA IN WHICH IT HAD BEEN CONVEYED THA T TAKING INTO ACCOUNT THE EARLIER PAYMENTS MADE BY THE ASSES SEE-COMPANY, HE WAS REQUESTED TO AGREE TO THE REQUEST FOR NOT CH ARGING MONTHLY LEASE RENTALS AND ELECTRICITY CHARGES PAYABLE AS PE R THE MOU DATED 12.2.2004. IT WAS ALSO SUBMITTED THAT SHRI S UDIP DUTTA, AS PROMOTER OF THE ASSESSEE-COMPANY HAD NEGOTIATED WIT H SHRI KHEMCHAND DHINGRA AND WESTERN CONSOLIDATE PVT. LTD. FOR PURCHASE OF FACTORY SHED SITUATED AT PLOT NO.124-13 3, PANCHAL ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -8- UDYOG NAGAR, VILLAGE BHIMPORE, DAMAN, AND ACCORDING TO THE NEGOTIATION, EARNEST MONEY OF ` 1,11,111/- WAS PAID BY CHEQUE NO.00054 DATED 5.2.2004 DRAWN ON KOTAK MAHINDRA BAN K LTD., BY WAY OF PART PURCHASE CONSIDERATION OF THE FACTOR Y SHED. THEREAFTER, M/S.ESS DEE ALUMINUM PARTNERSHIP FIRM A LSO PURCHASED 20 CAP ROTOGRAVURE PRINTING MACHINE FROM RAJ ELECTRICALS FOR ` 2,00,000/- VIDE CHALLAN NO.098/A DATED 5.2.2004. THIS MACHINERY WAS DELIVERED AT PLOT NO.124-133, PA NCHAL UDYOG NAGAR, VILLAGE BHIMPORE, DAMAN. THE ASSESSE E FURTHER STATED THAT MOU DATED 12.2.2004 WAS ENTERED INTO BE TWEEN SHRI KHEMCHAND DHINGRA AND ASSESSEE-COMPANY FOR GIVING P ART POSSESSION OF THE FACTORY PREMISES. IT WAS SUBMITT ED THAT THE AO WAS WRONG IN JUMPING TO THE CONCLUSION THAT THE SIG NATURE OF SHRI KHEMCHAND DHINGRA ON THE MOU DATED 12.2.2004 AND SA LE DEED OF THE LAND DIFFER. IT WAS SUBMITTED THAT THE SIGN ATURE OF SHRI KHEMCHAND DHINGRA ON MOU DATED 12.2.2004 AND SALE D EED, HAD BEEN MADE BY ONE PERSON I.E. SHRI KHEMCHAND DHI NGRA AND THE AO WITHOUT ANY BASIS HAS MADE A WRONG OBSERVATI ON IN THE ASSESSMENT ORDER THAT THE TWO SIGNATURES DIFFER. IT WAS FURTHER SUBMITTED THAT ENQUIRY LETTER WRITTEN BY THE AO TO SHRI KHEMCHAND DHINGRA TO ASCERTAIN THE GENUINENESS OF T HE MOU WAS REPLIED BY SOME EMPLOYEE OF SHRI KHEMCHAND DHIN GRA AND NOT BY SHRI KHEMCHAND DHINGRA HIMSELF. IT WAS SUBM ITTED THAT WHEN THE LETTER ADDRESSED BY THE AO TO SHRI KHEMCHA ND DHINGRA TO MAKE CERTAIN ENQUIRIES ABOUT THE PLOT OF LAND, T HE REPLY TO THE QUERY RAISED BY THE AO SHOULD HAVE COME FROM SHRI K HEMCHAND ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -9- DHINGRA ONLY AND IT WAS NOT FOR ANY EMPLOYEE OR ANY BODY ELSE WHOSE REPLY COULD HAVE TAKEN INTO ACCOUNT TO MAKE A CASE AGAINST THE ASSESSEE-COMPANY. IF THE AO HAD ANY DOUBT ABO UT THE MOU DATED 12.2.2004 AND THE SIGNATURE OF SHRI KHEMCHAND DHINGRA MADE ON THE MOU, HE COULD SUMMON SHRI KHEMCHAND DHI NGRA AND MAKE ENQUIRIES DIRECTLY FROM HIM. IT WAS FURT HER SUBMITTED THAT THE AO ON SUCH SENSITIVE MATTER CONCERNING THE ALLOWABILILTY OF DEDUCTION UNDER SECTION 80IB RELIED ON THE REPLY OF AN EMPLOYEE OF SHRI KHEMCHAND DHINGRA WITHOUT LOOKING TO THE FACTS OF THE CASE AND SURROUNDING CIRCUMSTANCES, AN D ARRIVED AT THE CONCLUSION THAT THE LAND MENTIONED IN THE MOU T O BE PARTLY USED FOR MANUFACTURING ACTIVITIES FROM 12.2.2004, W AS NOT GIVEN TO THE ASSESSEE BEFORE 31.3.2004. IT WAS SUBMITTED THAT THIS FACT BORNE BY THE RECORD THAT AMOUNT OF ` 1,11,111/- WAS PAID BY CHEQUE TO SHRI KHEMCHAND DHINGRA, AS EARNEST MONEY FOR PURCHASE OF PLOT. IT IS ALSO A FACT THAT THE FINAL DEED WAS EXECUTED ON 8.7.2004 AND THE FULL CONSIDERATION WAS PAID. IT WAS FURTHER SUBMITTED THAT IT WAS ALSO A FACT THAT BUSINESS OF THE FIRM UPTO 16.7.2004 AND THEREAFTER BY THE ASSESSEE-COMPANY CO NTINUED ON THE SAME PLOT OF LAND AND THE SAME WAS STILL CONTIN UING. IT WAS ALSO A FACT THAT THE MANUFACTURING ACTIVITY WAS STA RTED BY THE FIRM IN WHICH THE COMPANY WAS PARTNER FROM 12.2.2004 ON PART OF THE LAND AND AFTER DISSOLUTION OF THE FIRM, THE ASSESSE E-COMPANY TOOK OVER THE ENTIRE ASSETS AND LIABILITIES AND THE BUSI NESS WAS EXPANDED TO A GREAT EXTENT AND EVEN TILL THE DATE T HE MANUFACTURING OF ALUMINUM FOIL ETC. WAS BEING DONE ON THE SAME ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -10- PLOT AND IN THE SAME FACTORY WHICH ORIGINALLY BELON GED TO SHRI KHEMCHAND DHINGRA. IT WAS SUBMITTED THAT THE SEQU ENCE OF EVENTS NARRATED ABOVE DID INDICATE CLEARLY THAT THE MANUFACTURING BY UNDERTAKING/ENTERPRISES STARTED FROM 12.2.2004 A ND THE SAME WAS STILL CONTINUING AT THE SAME PLACE BY THE ASSES SEE-COMPANY. IT WAS SUBMITTED THAT IT WAS A FACT AND PROVED BY R ECORDS OF THIRD PARTY THAT THE FIRM I.E UNDERTAKING/ENTERPRISES STA RTED DOING JOB WORK FOR M/S. FLEX ART FROM 12.2.2004 AND FOR DOING JOB WORK THE UNDERTAKING PURCHASED MACHINERY ETC. AND JOB WO RK WAS DONE FOR M/S.FLEX ART WHICH IN TURN SOLD THE GOODS TO RE PUTED PHARMA COMPANIES LIKE, WOCKHARDT LTD., GOLDEN PHARMACEUTIC ALS, AJANTA PHARMA LTD., CIPLA LTD. (MUMBAI CENTRAL), CIPLA LTD ., PATALGANGA AND SOUTH INDIA RESEARCH INTERNATIONAL P . LTD. IT WAS SUBMITTED THAT ALTHOUGH THESE FACTS WERE GIVEN TO T HE AO AT THE TIME OF ASSESSMENT PROCEEDINGS, THE AO HAS NOT MENT IONED ANYTHING IN THE ASSESSMENT ORDER ABOUT THESE FACTS. IT WAS FURTHER ARGUED THAT IF IT WAS PROVED THAT THE MANUFACTURING WAS DONE BY WAY OF JOB WORK, THEN, IT WAS NATURAL TO ASSUME THA T FOR SUCH MANUFACTURING, THERE MUST HAVE BEEN SOME FACTORY AN D LAND. THIS IMPORTANT ASPECT WAS TOTALLY IGNORED BY THE AO WHILE DECIDING THE ISSUE OF ALLOWABILITY OF DEDUCTION UND ER SECTION 80IB. IT WAS FURTHER SUBMITTED THAT M/S.FLEXI ART HAS NOT ONLY SOLD GOODS TO REPUTED PUBLIC LIMITED COMPANIES, BUT ALSO PAID EXCISE DUTY PAYABLE ON SUCH PRODUCT AND FINALLY THE EXCISE DUTY HAS BEEN PAID TO THE ACCOUNT OF THE GOVERNMENT OF I NDIA. NECESSARY DETAILS AND PROOF IN THIS REGARD WERE FIL ED BEFORE THE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -11- AO DURING THE ASSESSMENT PROCEEDINGS, BUT THE AO IG NORED SUCH IMPORTANT FACTS AND MATERIALS. IT WAS FURTHER SUBM ITTED THAT UNDERTAKING, FROM TIME TO TIME, INTIMATED TO THE SA LES TAX DEPARTMENT AS WELL AS TO DIC, DAMAN, ABOUT CHANGE O F PLACE OF BUSINESS. THE SALES TAX DEPARTMENT AND DIC DAMAN NOTED SUCH CHANGE AND INFORMED IN RETURN TO THE ASSESSEE ABOUT SUCH CHANGE. IT WAS SUBMITTED THAT THE PARTNERSHIP FIR M FILED ITS SALES TAX RETURN FROM 1.1.2004 TO 31.3.2004 WITH THE SALE S TAX DEPARTMENT AND THE SALES-TAX ASSESSMENT WAS ALSO CO MPLETED. THIS FACT WAS ALSO INTIMATED TO THE AO WITH PHOTO C OPIES OF ALL THE DOCUMENTS RECEIVED FROM GOVERNMENT DEPARTMENT D URING THE ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT M/S. FLEX ART, VASAI FILED ITS MONTHLY RETURN TO THE EXCISE DEPART MENT WHICH REFLECTED THE SALE OF GOODS MANUFACTURED BY THE UNI T M/S.ESS DEE ALUMINUM SITUATED AT PLOT NO.124-133, PANCHAL UDYOG NAGAR, VILLAGE BHIMPORE, DAMAN. IT WAS FURTHER SUBMITT ED THAT CERTAIN DIRECT ENQUIRIES WERE MADE BY THE AO FROM SALES-TAX DEPARTMENT AND DIC, DAMAN. SALES TAX DEPARTMENT AN D DIC, DAMAN REPLIED TO THE AO AND THESE REPLIES CLEARLY S HOWED THAT THE UNIT WAS WORKING AT PLOT NO.124-133, PANCHAL UD YOG NAGAR, VILLAGE BHIMPORE, DAMAN PRIOR TO MARCH, 2004. IT WAS SUBMITTED THAT THE CIT(A) HAD MADE INSPECTION OF TH E ASSESSMENT RECORDS OF THE ASSESSEE AND HAS NOTED THAT THE AO M ADE ENQUIRIES FROM SALES TAX DEPARTMENT AND DIC AND ALSO GOT REPL Y FROM SUCH DEPARTMENT. IT WAS SUBMITTED WHILE DECIDING THE ISSUE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 80IB, THE A O COMPLETELY ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -12- IGNORED THE REPLIES OF SALES-TAX DEPARTMENT, AND DI C, DAMAN AND DID NOT MENTION IN THE ASSESSMENT ORDER ABOUT E NQUIRIES MADE FROM THESE TWO IMPORTANT GOVERNMENT DEPARTMENTS. I T WAS, THEREFORE, SUBMITTED THAT THE AO HAS CARRIED OUT TH E INVESTIGATION WITH OTHER AUTHORITIES/AGENCIES, SUCH AS, SALES-TAX DEPARTMENT, DIC, DAMAN, DAMAN INDUSTRIAL ASSOCIATION, ELECTRICI TY DEPARTMENT, DEPARTMENT OF INDUSTRIES, DEPARTMENT OF INDUSTRIES, CHIEF INSPECTOR OF FACTORIES, DEPARTMENT OF VALUE A DDED TAX, MINISTRY OF CORPORATE AFFAIRS AND M/S.WESTERN CONSO LIDATED PVT. LTD. IT WAS SUBMITTED THE FOLLOWING FACTS ARE ALS O NOT DISPUTED OR DOUBTED BY THE AO. II) THE APPELLANT COMPANY WAS INCORPORATED ON 10.02.2004. II) THE APPELLANT COMPANY BECAME PARTNER IN THE PARTNERSHIP FIRM M/S. ESS DEE ALUMINUM WITH EFFECT FROM 03.03.2004. III) THE PARTNERSHIP FIRM HAS PURCHASED NEW PLANT AND MACHINERY AND THE MACHINERY WAS DELIVERED AT 1241- 133, PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN IN THE MONTH OF FEBRUARY, 2004.IV) IV) THE PARTNERSHIP FIRM WAS REGISTERED WITH DIC AS WELL AS WITH SALES TAX AUTHORITIES. V) CHANGE IN CONSTITUTION IN THE PARTNERSHIP FIRM AND CHANGE OF ADDRESS OF THE FIRM WERE INTIMATED TO THE DIC AND TO THE SALES TAX DEPARTMENT FROM TIME TO TIME AND SAME WAS RECORDED IN THE RECORDS. VI) SALES TAX RETURNS FOR THE YEAR ENDED 31.03.2004 WAS FILED ON 24.07.2004 AND SALES TAX RETURNS FROM 01.04.2004 TO 30.06.2004 AND FROM 01.07.2004 TO 16.7.2004 WERE ALSO FILED ON 27.08.2004. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -13- VII) SALES TAX ASSESSMENTS FOR BOTH THE PERIODS WAS COMPLETED ON 19.06.2006. VIII) THE PARTNERSHIP FIRM M/S. ESS DEE ALUMINUM HAS DONE JOB WORK FOR M/S. FLEX ART. VASAI, THANE AND ISSUED JOB BILLS TO M/S. FLEX ART VASAI. THE MOVEME NT OF GOODS IS DULY RECORDED IN THE EXCISE RECORDS OF MSS. FLEX ART, VASAI. IX) THE FIRM M/S. FLEX ART, VASAI (EAST) WHO HAS GOT TH E JOBWORK DONE FROM M/S. ESS DEE ALUMINIUM HAD SUPPLIED THIS GOODS TO VARIOUS PHARMA COMPANIES SUCH AS WOCKHARDT LTD., GOLDEN PHARMACEUTICALS, AJANTA PHARMA LTD., CIPLA LTD. (MUMBAI CENTRAL), CIPLA LTD. PATALGANGA AND SOUTH INDIA RESEARCH INT. LTD. AFTER PAVING THE NECESSARY EXCISE DUTY. M /S. FLEX ART VASAI HAS ISSUED SALE BILL TO VARIOUS ABOV E PHARMA COMPANIES INCLUSIVE OF EXCISE DUTY ON VARIOUS DATES. X) THE TRANSACTION OF SALE OF GOODS FOR FEBRUARY 2004 & MARCH 2004 ARE DULY RECORDED IN THE EXCISE RECORDS OF THE SAID FIRM NAMELY M/S. FLEX ART, VASAI. THE EXCISE RETURNS FOR THE MONTHS OF FEBRUARY 2004 AND MARCH 2004 WERE FILED BY M/S. FLEX ART, VASAI WITH THE EXCISE AUTHORITIES WHICH INCLUDE SALE OF GOODS MANUFACTURED BY M/S. ESS DEE ALUMINIUM, PARTNERSHIP FIRM AT DAMAN UNIT AND THE MANUFACTURING WAS DONE IN THE MONTHS OF FEBRUARY AND MARCH 2004. XI) PART PAYMENT FOR PURCHASE OF INDUSTRIAL GALA AT 124 - 133, PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN FROM M/S. WESTERN CONSOLIDATED PVT. LTD. WAS MADE ON 05.02.2004 BY PAYEES ACCOUNT CHEQUE NO. 000054 DRAWN ON KOTAK MAHINDRA BONK LTD. XII) SALE DEED FOR PURCHASE OF SAME UNIT FOR WHICH PART CONSIDERATION WAS PAID IN FEBRUARY, 2001 WAS EXECUTED IN JULY, 2004 BETWEEN THE APPELLANT ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -14- COMPANY AND M/S. WESTERN CONSOLIDATED PVT. LTD. XIII) THE PARTNERSHIP FIRM WAS DISSOLVED ON 16.07.2004 AND THE BUSINESS WAS TAKEN USER BY THE APPELLANT COMPANY. 7. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, ALLOWED THE CLAIM FOR DEDUCTION UNDER SEC TION 80IB OF THE ACT TO THE ASSESSEE BY OBSERVING AS UNDER: DECISION: I HAVE CAREFULLY GONE THOUGH THE FACTS A ND CIRCUMSTANCES OF THE CASE, THE ASSESSMENT ORDER PAS SED BY THE ASSESSING OFFICER AND THE SUBMISSION MADE BY TH E ID. A.R. I HAVE ALSO PERUSED THE CASE RECORDS CONTAININ G INVESTIGATION MATERIALS COLLECTED BY THE ASSESSING OFFICER, THE SUBMISSIONS PUT FORTH BY THE APPELLANT'S REPRES ENTATIVE, THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSING OFFICER AND THE APPELLANT COMPANY. IN MY OPINION, THE FINDI NG OF THE AO HAVE TWO LIMBS, WHICH CAN BE CATEGORIZED AS UNDE R: I) THE APPELLANT HAD NOT STARTED MANUFACTURING BEFO RE 31.03.2004 BASED ON THE REPLIES FROM M/S. WESTERN CONSOLIDATED PVT. LTD AND ITS DIRECTORS AND THE APPELLANT HAD RECONSTRUCTED THE NEW INDUSTRIAL UNDERTAKING THEREBY NOT ELIGIBLE FOR DEDUCTION U/S. 80IB WHICH IS RAISED IN GROUND NO. 3. IT MEANS, THE MATRIX OF THE CASE HAS BOTH FACTS AND LAW. IN THE CIRCUMSTANCES AND FOR THE OBJECTIVE CONSIDERATI ON OF THE SUBMISSIONS MADE BY THE APPELLANT BEFORE THE A.O. A ND THE FINDINGS OF THE A.O., THE SEQUENCE OF EVENTS ARE PU T IN A TABULAR FORM FOR THE SAKE OF CONVENIENCE AND CLARIT Y AS UNDER: FINDING OF ASSESSING OFFICER APPELLANT SUBMISSIONS FINDING OF CIT(A) PAGE NO.2 OF THE AO 1. THIS IS THE FIRST YEAR OF OPERATION. MENTION OF FIRST YEAR OF OPERATION IN THE ANNUAL REPORT IS IN RELATION TO BUSINESS OF THE ASSESSEE COMPANY AND NOT IN RELATION TO INDUSTRIAL UNDERTAKING BY WHICH THE APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -15- THE MANUFACTURING OPERATION ARE CARRIED OUT. AS STATED ABOVE, MANUFACTURING ACTIVITIES BEGAN ON 3RD MARCH, 2004 BY THE INDUSTRIAL UNDERTAKING I.E. ERSTWHILE PARTNERSHIP FIRM, M/S.ESS DEE ALUMINUM. 2. SCHEDULE NO.5 TO FIXED ASSETS SHOWS THE ADDITION OF RS.8,10,24,252/- DURING THE CURRENT YEAR. NO OPENING BALANCE OF ASSETS HAS BEEN SHOWN. THE ASSETS TAKEN OVER BY THE COMPANY ON DISSOLUTION OF PA RT NERSHIP FIRM HAS BEEN REFLECTED IN PRE-OPERATIVE EXPENSES. DETAILS OF PREOPERATIVE EXPENSES HAVE BEEN ALREADY SUBMITTED VIDE OUR LETTER DATED 22ND OCTOBER. 2007. DETAILS OF PRE-OPERATIVE EXPENSES HAVE BEEN FILED BEFORE AO. HENCE, APPELLANT SUBMISSIONS ARE ACCEPTABLE. 3. IN THE DIRECTORS REPORT, THE CHAIRMAN HAS MADE THE FOLLOWING REMARKS: PERFORMANCE THE COMPANY HAS REPORTED THAT REVENUE OF RS.953.00 LACS FOR THE PERIOD ENDED 31ST MACH, 2005 BEING THE FIRST YEAR OF OPERATIONS. THE NET PROFIT AFTER TAX FOR THE SAID PERIOD WAS RS.7.72 LACS. HERE AGAIN THE DIRECTORS REPORT SPEAKS REGARDING COMPANY'S OPERATION ONLY AND NOT THE ERSTWHILE PARTNERSHIP OPERATION AND HENCE IT IS MENTIONED AS BEING 'FIRST YEAR OF OPERATION' OF THE COMPANY. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 4. ANNEXURE TO FORM NO.3CD FIXED ASSETS REGISTER (F) SHOWS THE ADDITION TO FIXED ASSET FROM 22.07.04 AND ONWARDS. AS STATED IN 2 ABOVE THE ASSETS OF ERSTWHILE PARTNERSHIP FIRM INCLUDING PLANT AND MACHINERY TAKEN OVER BY THE COMPANY HAS BEEN INCLUDED IN PRE-OPERATIVE EXPENSES DETAILS. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 5. ANNEXURE TO FORM NO.3CD SHOWS THE FIGURE OF CURRENT YEAR ONLY NO FIGURES OF PREVIOUS YEAR ARE THERE PREVIOUS YEARS FIGURES ARE NOT GIVEN AS THE COMPANY WAS NOT IN EXISTENCE DURING THE PREVIOUS YEAR. PREVIOUS YEAR OPERATION WAS DONE BY THE PARTNERSHIP FIRM AND THERE ORE SEPARATE BOOKS OF ACCOUNT MAINTAINED BY THE PARTNERSHIP FIRM. SINCE THE ASSESSEE COMPANY HAS NO PREVIOUS YEAR, THE QUESTION OF GIVING PREVIOUS YEAR FIGURES DOES NOT ARISE. 6. INITIAL ASSESSMENT YEAR HAS BEEN SHOWN AS 2005-06 IN THE FORM NO.10CCB. IN FORM 10CCB GIVEN ON PAGE NO.25 THE AUDITOR HAS MENTIONED IN CLAUSE 8 & 9 AS UNDER: SHOWING OF COMMENCEMENT OF OPERATION/ACTIVITY BY UNDERTAKING IN 10CCB ON ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -16- 8. DATE OF COMMENCEMENT OF OPERATION/ACTIVITY BY THE UNDERTAKING OR ENTERPRISE 10.02.2004. 9. INITIAL ASSESSMENT YEAR FROM WHEN DEDUCTION IS BEING CLAIMED A.Y.2005-2006. THIS MEANS THAT THE INDUSTRIAL UNDERTAKING HAS COMMENCED ITS ACTIVITIES FROM 10.02.2004 I.E. BY PARTNERSHIP FIRM WHICH IS RELEVANT TO ASSESSMENT YEAR 2005-2006 AND HENCE THE INITIAL ASSESSMENT YEAR IS SHOWN AS ASSESSMENT YEAR 2005- 06. PAGE 25 BY THE AUDITOR FROM 10.02.2004 SHOWS THAT THE OPERATION/ MANUFACTURING WAS STARTED PRIOR TO 31.3.2004. 7. PF CONTRIBUTION HAS BEEN SHOWN AS NIL FOR THE MONTHS OF APRIL 04 TO JULY, 2004. THUS THERE WAS NO BUSINESS IN A.Y.2004-05. THE BUSINESS OF THE PARTNERSHIP FIRM WAS TAKEN OVER BY THE FIRM ON 16TH JULY, 2004. PRIOR TO THIS THE INDUSTRIAL UNDERTAKING WAS DOING BUSINESS IN PARTNERSHIP FIRM M/S. ESS DEE ALUMINUM. THERE WAS NO P.F. REGISTRATION IN THE NAME OF THE COMPANY TILL JULY 2004 AS NUMBER OF WORKERS WAS LESS THAN 20 IN THE COMPANY AS WELL AS IN ERSTWHILE PARTNERSHIP FIRM. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 8. IN THE DIRECTORS REPORT 1ST ANNUAL REPORT FOR F.Y.2004-05 HAS BEEN SHOWN. F.Y.2004-2005 WAS THE FIRST YEAR FOR ANNUAL RETURN OF THE COMPANY. EARLIER THE BUSINESS WAS CARRIED ON BY PARTNERSHIP FIRM. SINCE EARLIER THE BUSINESS WAS CARRIED OUT IN THE PARTNERSHIP FIRM AND THERE WAS NO CLOSING STOCK IN THE PARTNERSHIP FIRM AT THE TIME OF DISSOLUTION AND HENCE NO STOCK HAS BEEN TAKEN OVER BY THE FIRM. HENCE, NO OPENING STOCK HAS BEEN SHOWN BY THE COMPANY. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 9. IN THE QUANTITATIVE DETAILS OF STOCK ATTACHED WITH THE ROI, OPENING BALANCE HAS BEEN SHOWN NIL. THE MANUFACTURING/ PRODUCTION ACTIVITIES WERE CARRIED BY PARTNERSHIP FIRM AND NOT BY THE APPELLANT COMPANY UPTO MARCH, 2004. SINCE THE CLOSING STOCK OF ERSTWHILE FIRM WAS NIL, THERE WAS APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -17- NO QUESTION OF SHOWING OPENING STOCK BY THE COMPANY. PAGE NO.8 OF THE ASSESSMENT ORDER ASSESSEE CLAIMED THAT THE BUSINESS WAS COMMENCED BEFORE 31.03.2004 AND IT WAS BEING RUN BY ERSTWHILE M/S. ESS DEE ALUMINUM AT FACTORY SHED ON PLOT NO.31, SURVEY NO. 176(1), GROUND FLOOR, PANCHAL UDYOG NAGAR, VILLAGE, DAMNAN IS NOT CORRECT. THIS IS SO BECAUSE THE PHYSICAL POSSESSION OF FACTORY PLOT/LAND IN QUESTION WAS GIVEN BY THE WESTERN CONSOLIDATE P. LTD. ONLY ON 08.07.04, THE DATE ON WHICH REGISTRATION WAS EFFECTED AND FINAL PAYMENT WAS MADE BY THE ASSESSEE-COMPANY. THE UNIT RUN BY ERSTWHILE PARTNERSHIP FIRM AT PLOT NO. 124- 133. PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN IS FACTUALLY CORRECT WHICH IS DULY PROVED BEYOND DOUBT FROM THE CHAIN OF EVENTS TAKEN PLACE SINCE DECEMBER 2003. THE PROMOTERS OF THE APPELLANT COMPANY HAS PAID THE EARNEST MONEY OF RS.1,11,111/- BY CHEQUE NO.000054 DATED 05.02.2004 DRAWN ON KOTAK MAHINDRA BANK LTD. TO M/S. WESTERN CONSOLIDATED PVT.LTD, AS PART OF PURCHASE PRICE FOR TAKING PART POSSESSION OF THE FACTORY PREMISES. AN MOU DATED 12.02.04 WAS ENTERED BETWEEN MR. KHEMCHAND DHINGRA AND APPELLANT BY WHICH PART POSSESSION OF THE FACTORY PREMISES WAS GIVEN TO THE APPELLANT FOR INSTALLATION OF MACHINERY AND FOR COMMENCING MANUFACTURING ACTIVITY IMMEDIATELY BY DRAWING POWER SUPPLY FROM THE VENDORS ELECTRIC POWER CONNECTION. THIS MOU WAS SIGNED BY KHEMCHAND DHINGRA AND THE SAME IS DULY NOTARIZED. THE A.O. HAS DOUBTED THE SIGNATURE OF MR. KHEMCHAND DHINGRA. THE APPELLANT SUBMITS THAT THE SIGNATURE OF KHEMCHAND DHINGRA DULY TALLIES WITH THE SIGNATURE MADE ON FINAL REGISTERED SALE DEED. AFTER TAKING PART POSSESSION OF THE FACTORY PREMISES, THE ERSTWHILE PARTNERSHIP FIRM INSTALLED PLANT & MACHINERY AND CARRIED OUT MANUFACTURING ACTIVITY IN THE SAID PREMISES. THIS IS EVIDENT FROM THE FOLLOWING FACTS I) THE BILLS AND VOUCHERS FOR PURCHASE OF NEW PLANT AND MACHINERY WERE PRODUCED BEFORE THE ASSESSING OFFICER DURING THE ASSESSMENT 1) CHEQUE PAYMENT OF RS.1,11,111/- WAS MADE ON 05.02.2004. 2) MOU WAS DRAWN ON DATED 12.02.2004 3) SIGNATURE ON MOU & ON SALE DEED APPEARS TO BE SIMILAR. 4) NEW PLANT & MACHINERY DELIVERED AT 124-134, PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN. 5) CHANGES ARE DULY INTIMATED TO SALES TAX & DIC, DAMAN. 6) SALES TAX RETURNS WERE FILED & ASSESSMENT COMPLETED. 7) JOB WORK BILLS RAISED & FILED BEFORE AO. 8) EXCISE RECORDS OF M/S. FLEX ART GOA FILED BEFORE AO. 9) MONTHLY RETURN OF EXCISE DUTY FILED BY M/S. FLEX ART GOA FILED BEFORE AO. 10) FINAL SALE DEED MADE ON 8 TH JULY, 2004. 11) FROM THE CONSUMPTION OF ELECTRICITY SUBMITTED BY THE WESTERN CONSOLIDATED PRIVATE LTD., SHOWS THE PROBABILITY OF THE MANUFACTURING BEING ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -18- PROCEEDING. II) CHANGES OF BUSINESS PLACE /FACTORY WAS INTIMATED TO THE SALES TAX DEPARTMENT AS WELL AS TO THE DIC, DAMAN FROM TIME TO TIME AND THE SAME IS RECORDED IN THEIR RECORDS. III) THE PARTNERSHIP FIRM FILED ITS SALES TAX RETURN FOR THE PERIOD FROM 1ST JANUARY 2004 TO 31ST MARCH 2004 WITH THE SALES TAX DEPARTMENT AND THE SALES TAX ASSESSMENT HAS ALSO BEEN COMPLETED. IV) THE ERSTWHILE PARTNERSHIP FIRM HAS DONE JOB WORK FOR M/S. FLEX ART VASAI (E), THANE AND ISSUED JOB WORK BILLS TO M/S. FLEX ART VASAI. M/S. FLEX ART VASAI WHO HAS GOT THE JOB WORK DONE FROM M/S. ESS DEE ALUMINUM HAD SUPPLIED THE SAME GOODS TO VARIOUS PHARMA COMPANIES SUCH AS WOCKHARDT LTD., GOLDEN PHARMACEUTICALS, AJANTA PHARMA LIMITED, CIPLA LTD., SOUTH INDIA RESEARCH INT. P. LTD. THE TRANSACTION OF MOVING OF GOODS FROM M/S. FLEX ART VASAI TO ESS DEE ALUMINUM AT THEIR FACTORY AT 124-133, PAUCHAL UDYOG NAGAR, BHIMPORE, DAMAN AND ALSO SALE OF THESE GOODS BY M/S. FLEX ART VASAI WERE DULY RECORDED IN THE EXCISE RECORDS OF M/S. FLEX ART VASAI. V) M/S. FLEX ART, VASAI FILED MONTHLY RETURN OF EXCISE TO EXCISE DEPARTMENT WHICH REFLECTS THE SALE OF GOODS MANUFACTURED BY UNIT OF M/S. ESS DEE ALUMINIUM SITUATED AT 124-133, PASCHAL UDYOG NAGAR, BHIMPORE. DAMAN. VI) ALL THESE DOCUMENTS, PAPERS, SALES TAX RETURNS. SALES TAX ASSESSMENT ORDERS, JOB WORK CONDUCTED BY THE APPELLANT BECAUSE THE ELECTRICITY CONSUMPTION WAS SUBSTANTIALLY HIGHER IN THE MONTH OF MARCH TO JUNE, 2004. IT MAY NOT BE A MERE COINCIDENCE IN THIS CASE. 12. PRIMA FACIE THE SIGNATURE IN THE MOU AND THE SALE DEED RESEMBLES AND WITHOUT ANY SCIENTIFIC BASIS THEY CANNOT BE REJECTED AS FORGED ONE. HENCE, THE APPELLANT SUBMISSION IN THIS CONTEXT WAS ACCEPTED ON REASONABLE BELIEF. 13. THE APPELLANT HAD ALSO FILED DETAILS OF P&L A/C., BALANCE SHEET ETC. OF THE FIRM ESS DEE ALUMINIUM BEFORE THE AO AND THE AO HAD NOT REJECTED THE CONTENT THEREIN, WHICH AGAIN SUPPORT THE CAUSE OF THE APPELLANT. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -19- BILLS, SALES BILLS, EXCISE RECORDS, EXCISE RETURNS ETC. WERE PRODUCED AND FILED BEFORE THE ASSESSING OFFICER. ALL THESE DOCUMENTS CLEARLY PROVE THE APPELLANT'S CASE THAT PRODUCTION WAS COMMENCED BEFORE 31ST MARCH, 2004. IT IS STRANGE THAT THE ASSESSING OFFICER DID NOT MENTION ANYTHING IN THE ASSESSMENT ORDER ABOUT THE ABOVE FACTS. 11. THE ASSESSEE-COMPANY HAS CLAIMED THAT IT BECAME PARTNERS IN THE FIRM M/S. ESS DEE ALUMINUM W.E.F. 3RD' MARCH, 2004 AND THE MANUFACTURING ACTIVITY BEGAN IN THE NEW INDUSTRIAL UNDERTAKING SITUATED AT PLOT NO.124-132 PANCHAL UDYOG NAGAR, VILLAGE BHIMPORE DAMAN WITH EFFECT FROM 03.03.2004. IN THIS CONNECTION, THE ASSESSES SUBMITTED COPY OF MOU MADE AT DAMAN ON 12.02.04 BETWEEN MR. KHEMCHAND DHINGRA AND ESS DEE ALUMINUM P. LTD. IN WHICH CLAUSE NO.6, IT IS SPECIFICALLY MENTIONED THAT PURCHASER I.E. ESS DEE ALUMINUM P. LTD. SHALL PAY THE VENDOR I.E. SHRI KHEMCHAND DHINGRA AND OTHERS LEASE RENT OF RS.10,000/- ON OR BEFORE THE 10TH DAY OF SUCCEEDING MONTH FOR PLOT NO. 124-133. IT HAS BEEN FURTHER MENTIONED IN THE SAID CLAUSE THAT THE PURCHASER SHALL ALSO REIMBURSE ELECTRICITY CHARGES TO THE VENDORS ON ACTUALS. ASSESSEE FURTHER FILED A COPY OF LETTER DATED 08.07.04 AS MENTIONED IN (A) ABOVE, PART POSSESSION WAS TAKEN ON MAKING PAYMENT OF RS.1,11,111/- VIDE CHEQUE NO.000054 ON 05.02.2004. SINCE FULL PAYMENT WAS NOT MADE, THERE WAS AN UNDERSTANDING TO PAY MONTHLY LEASE OF RS.10,000 TO COVER THE ELECTRICITY CHARGES ETC. TILL THE FINAL PAYMENT IS MADE. THE RENT WAS SUBSEQUENTLY NOT CHARGED AS PER THE UNDERSTANDING ARRIVED WITH THE SELLER BECAUSE OF EARLY FULL PAYMENT AND REGISTRY OF THE PLOT. THE APPELLANT WAS IN DIRE NEED OF TAKING PART POSSESSION OF PROPERTY BEFORE MARCH 2004 SO AS TO STA RT OPERATION/ MANUFACTURING BEFORE 31.03.2004 TO AVAIL OF DEDUCTION U/S. 80IB. M/S. WESTERN CONSOLIDATED PVT. LTD., AGREED TO GIVE PART POSSESSION OF THE FACTORY ON THE CONDITION OF MAKING PART PAYMENT AND CHARGING OF RENT AT THE RATE OF RS.10,000/- PER MONTH. FINALLY DUE TO WAIVER OF RENT AT THE TIME OF FINAL PAYMENT THE ENTRIES REGARDING CHARGING OF RENT WAS NOT MADE EITHER IN THE BOOKS OF ACCOUNT OF PARTNERSHIP FINN OR BY WESTERN CONSOLIDATED PRIVATE LIMITED. WHEN ENQUIRIES WERE MADE, THE EMPLOYEE OF M/S. WESTERN CONSOLIDATED PVT. LTD. WRONGLY DENIED OF GIVING PART POSSESSION OF THE FACTORY PREMISES, SIGNING OF ANY MOU OR CHARGING IN VIEW OF THE ABOVE APPELLANT SUBMISSIONS ARE ACCEPTABLE. 1. THE A.O. HAD NOT DISCUSSED IN THE ASSESSMENT ORDER THE EVIDENCE COLLECTED FROM VARIOUS GOVT. AGENCIES, SUCH AS DIC, SALES TAX, EXCISE DEPARTMENT, INDUSTRIAL ASSOCIATION, ELECTRICITY DEPARTMENT ETC. THE APPELLANT HAD DEMONSTRATED THAT, DUE PROCESS FOR ESTABLISHING MANUFACTURING UNIT WAS FOLLOWED, WHICH WERE BY AND LARGE CONFIRMED BY THE VARIOUS AGENCIES. THE A.O. ALSO DID NOT DISCUSSED IN THE ASSESSMENT ORDER THE OUT COME OF THE INVESTIGATION WITH M/S. FLEX ART, VASAI. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -20- WRITTEN TO SHRI KHEMCHAND DHINGRA IN WHICH IT HAS BEEN CONVEYED THAT: TAKING INTO ACCOUNT OUR EARLY PAYMENT, YOU WERE KIND ENOUGH TO AGREE TO DAY ON OUR REQUEST FOR NOT CHARGING THE MONTHLY LEASE RENTALS AND ELECTRICITY CHARGES PAYABLE TO YOU AS PER THE MOU DATED 12.02.04.' BOTH THE ABOVE DOCUMENTS I.E. MOU DATED 12.02.04 AND LETTER DATED 08.07.04 ARE CLAIMED TO HAVE BEEN SIGNED BY MR. KHEMCHAND DHINGRA. HOWEVER, PERUSAL OF THESE DOCUMENTS AND SALE DEED OF THE LAND REVEALS THAT SIGNATURE OF MR. KHEMANCHAND DHINGRA DIFFERS. WITH A VIEW TO ASCERTAIN THE GENUINENESS OF THE DOCUMENTS OF MOU AND LETTER, A LETTERS WERE ISSUED TO SHRI KHEMCHAND DHINGRA, SHRI VINCCT DHINGRA AND WESTERN CONSOLIDATE P. LTD. ON 22.11.2007. LETTER WAS SENT THROUGH FAX. IN REPLY M/S. WESTERN CONSOLIDATED PRIVATE LIMITED VIDE ITS LETTER RECEIVED ON FAX HAS SUBMITTED AS UNDER: '1. THE PLOTS OWNED BY WESTERN CONSOLIDATED P. LTD, KHEMCHAND DHINGRA AND VINEET OHINGRA HAVE NOT BEEN GIVEN ON RENT DURING THE PERIOD FROM JANUARY, 2004 TO JULY, 2004 EITHER ON OUR PERSONAL CAPACITY OR AS DIRECTORS ON BEHALF OF COMPANY. OF ANY RENT OR ELECTRICITY CHARGES. WHILE THE FACTS OF THE CASE CLEARLY PROVE THAT MANUFACTURING/ PRODUCTION WAS DONE BY THE UNDERTAKING AND THE SAME CONTINUED ON THE SAME PREMISES AFTERWARDS. IN THIS CONNECTION, WE WISH TO BRING TO YOUR KIND NOTICE THAT THE ASSESSING OFFICER HAS ALSO MADE CERTAIN ENQUIRIES AND WRITTEN LETTERS TO THE SALES TAX DEPARTMENT AND TO DIC, DAMAN. ON INSPECTION OF ASSESSMENT RECORDS, IT IS SEEN THAT THE ASSESSING OFFICER HAS WRITTEN LETTERS TO THE GENERAL MANAGER, DIC AND ASSISTANT SALES TAX OFFICER ON 26.11.2007 AND 29.11.2007. ON 26.11.2007 THE SALES TAX OFFICER AND GENERAL MANAGER, DIC HAS REPLIED TO THE ASSESSING OFFICER. WITH THEIR REPLY, THEY HAVE ALSO ATTACHED COPY OF APPLICATION MADE BY THE APPELLANT, CHANGES INTIMATED BY THE APPELLANT COMPANY FROM TIME TO TIME AND THE COPIES OF SALES TAX RETURN AND ASSESSMENT ORDER PASSED IN THE EASE OF PARTNERSHIP FIRM ESS DEE ALUMINUM. THESE REPLIES UNDOUBTEDLY PROVE THAT THE UNIT WAS WORKING AT PLOT NO, 124-133 PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN PRIOR TO MARCH, 2004 AND PRODUCTION HAS COMMENCED PRIOR TO MARCH 2004. THE ASSESSING OFFICER IS TOTALLY SILENT ABOUT THESE ENQUIRIES AND THE REPLIES RECEIVED BY HIM IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS TOTALLY IGNORED THE VITAL EVIDENCES WHICH ARE IN FAVOUR OF THE ASSESSEE RECEIVED FROM TWO PROMINENT GOVERNMENT DEPARTMENTS WHICH CLEARLY PROVES THAT PRODUCTION HAS COMMENCED BEFORE 31ST MARCH, 2004. THE ASSESSING OFFICER HAS ONLY RELIED ON IS REPLY RECEIVED ON ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -21- 2. SINCE THE PROPERTY WAS NOT LEASED OUT DURING THE PERIOD MENTIONED IN YOUR LETTER THE EXISTENCE OF ANY MOU DID NOT ARISE. 3. THE ELECTRICITY CHARGES FROM JANUARY. 2004 TO JUNE. 2004 WERE BORNE BY WESTERN CONSOLIDATED P. LTD. SINCE THE PLOTS HAVE NOT BEEN GIVEN ON LEASE, LEASE-RENT AND ELECTRICITY CHARGES AND ACCOUNTING THEM IN OUR BOOKS DID NOT ARISE OF ALL. 4. THE ELECTRICITY CHARGES ORE AS PER THE DETAILS MENTIONED IN PREVIOUS LETTER DATED 14.11.2007 WERE INCURRED BY WESTERN CONSOLIDATED P. LTD. FOR ITS MANUFACTURING ACTIVITIES ON THE ABOVE PLOTS. THE ELECTRICITY CONSUMER NO. IS. 316122. THE ELECTRICITY CHARGES WERE NOT INCURRED FOR ANY OTHER PARTIES. SO THE QUESTION OF REIMBURSEMENT DID NOT ARISE. FAX FROM A PRIVATE PARTY AND THAT TOO EMPLOYEE OF PRIVATE PARTY REJECTED THE CLAIM OF DEDUCTION U/S.80-LB OF THE APPELLANT AND TOTALLY IGNORED OTHER VITAL EVIDENCES I.E. THE REPLY RECEIVED FROM TWO GOVERNMENT DEPARTMENTS AND MANUFACTURING DONE BY THE UNDERTAKING ETC THE APPELLANT SUBMITS THAT THE REPLY RECEIVED FROM TWO GOVERNMENT DEPARTMENT AND THE FACT THAT THE MANUFACTURING WAS DONE BY UNDERTAKING ETC. HAS MORE EVIDENTIARY VALUE THAN A REPLY RECEIVED FROM THE EMPLOYEE OF A COMPANY (PRIVATE PARTY) 12. M/S. WESTERN CONSOLIDATED P. LTD. VIDE ITS LETTER DATED 04.12.2007 FURTHER CONFIRMED THAT NO MOU OR ANY LETTER HAVE BEEN SIGNED BY THEM IN CONNECTION WITH THE LEASE-RENT OF THE PLOT EITHER IN THE INDIVIDUAL CAPACITY BY THE DIRECTORS OR BY THE COMPANY. THE ASSESSEE COMPANY CHAIRMAN WAS GIVEN OPPORTUNITY TO EXPLAIN THE POSITION BY GIVING OUT THE XEROX COPIES OF THE LETTERS RECEIVED ON BEHALF OF THE ASSESSING OFFICER ISSUED SUMMONS TO THE MANAGING DIRECTOR OF THE APPELLANT COMPANY ON 07.12.2007 TO ATTEND AND TO EXPLAIN THE REPLY RECEIVED FROM THE EMPLOYEE OF M/S. WESTERN CONSOLIDATED PVT. LTD. FIXING THE HEARING ON 12.12.2007 I.E. WITHIN 5 DAYS. AS THE M.D. WAS NOT AVAILABLE ON 12.12.2007 HE APPLIED FOR A SHORT ADJOURNMENT. THE ASSESSING OFFICER WITHOUT GIVING ANY FURTHER TIME PASSED ASSESSMENT ORDER ON 27.12.2007. ALTHOUGH A.O. HAD AMPLE TIME I.E. NO FRESH OPPORTUNITY WAS GIVEN BY ASSESSING OFFICER. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -22- WESTERN CONSOLIDATED PVT. LTD. KHEMCHAND DHINGRA AND VINEET DHINGRA VIDE LETTER DATED 07.12.2007. HOWEVER, THE COMPANY CHAIRMAN HAS ASKED FOR ADJOURNMENT CITING PERSONAL REASON FOR ATTENDANCE AND ALSO NOT FILED ANY EXPLANATION ON THE ISSUE. 15 DAYS AT HIS DISPOSAL, HE WITHOUT GIVING FURTHER OPPORTUNITY PASSED ASSESSMENT ORDER ON 27.12.2007. 13. FROM THE ABOVE FACTS, IT IS APPARENT THAT ASSESSEE FAILED TO ESTABLISH THAT THE PRODUCTION WAS IN FACT COMMENCED ON OR BEFORE 31.03.2004. IT MAY BE OUT OF PLACE TO MENTION HERE THAT THE DOCUMENTS CREATED BY THE ASSESSEE-COMPANY TO ESTABLISH THAT THE PRODUCTION WAS COMMENCED AT PLOT NO. 124-133, BHIMORE, DAMAN ARE CONCOCTED AND NOT GENUINE IN THE EYES OF LAW. SO FAR DOCUMENTS WITH REGARD TO SALES TAX DEPARTMENT AND DIC DAMAN ARE CONCERNED, THE ASSESSING OFFICER HAS HIMSELF WRITTEN TO BOTH THE DEPARTMENTS AND OBTAINED REPLIES. WITH REGARD TO THE OTHER DOCUMENTS SUCH AS PARTNERSHIP DEED, RETIREMENT DEED, JOB WORK BILLS, SALE BILLS, EXCISE RECORDS ETC. ALL WERE FILED BEFORE THE ASSESSING OFFICER AND THEY HAVE NOT BEEN EVEN MENTIONED AND REJECTED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE FACTS OF THE CASE NARRATED ABOVE CLEARLY PROVE THAT ACTUAL MANUFACTURING WAS DONE BEFORE 31.03.2004. THE MANUFACTURING ACTIVITIES CONTINUED ON THE SAME LOT EVEN AFTER 31.03.2004 AND IS STILL CONTINUING. UNDER THESE CIRCUMSTANCES IT IS NOT UNDERSTANDABLE HOW A.O. IS SAYING THAT THE DOCUMENTS WERE CREATED BY THE ASSESSES AND ARE CONCOCTED WHEN THE FACT IS THAT ON MOST OF THE EVIDENCES AND DOCUMENTS PRODUCED BY A AND OBTAINED BY AO FROM GOVERNMENT DEPARTMENT, HE HAS NOT MENTIONED ANYTHING IN THE ASSESSMENT ORDER. THE ASSUMPTION OF THE AO THATTHE DOCUMENTS CREATED BY THE APPELLANT COMPANY TO ESTABLISH THAT THE PRODUCTION COMMENCED BEFORE 31ST MARCH 2004 WAS NOT BASED ON THE FACTS OF THE CASE. THE DOCUMENTS COLLECTED FROM GOVT. AGENCIES DO NOT CLEARLY SUGGEST THAT, THE APPELLANT HAD IN APPROPRIATELY MADE CLAIM VALIDITY OF SUCH DOCUMENTS. IT WAS THE ONUS OF THE A.O. TO HAVE BROUGHT OUT THE COGENT AND IRREFUTABLE EVIDENCES THAT, THE APPELLANT HAD FORGED THE DOCUMENTS. SUCH EVIDENCES ARE NOT BORN ON RECORD. 14. THE EXCISE REGISTRATION AND SERVICE TAX IS GRANTED TO ASSESSEE COMPANY WITH EFFECT FROM 19.07.04 AT AACE3113GM001 AND THE ASSESSING OFFICER HAS MENTIONED THAT EXCISE AND SERVICE TAX REGISTRATION HAS BEEN GRANTED WITH EFFECT FROM 19.07.2004 AT AACE31113GM001 AND APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -23- AABCE3113GST001 RESPECTIVELY. AABCE3113GST001 RESPECTIVELY. THE APPELLANT SUBMITTED THAT THE EARLIER UNIT WAS NOT LIABLE FOR EXCISE AND HENCE NO EXCISE REGISTRATION WAS TAKEN AND IT IS ONLY WHEN THE EXPANSION WAS DONE AND THE UNIT WAS CHANGED FROM SSI TO MSI THE EXCISE DUTY WAS APPLICABLE. THEREFORE, EXCISE REGISTRATION WAS TAKEN WITH EFFECT FROM 19.07.2004. SIMILARLY, SERVICE TAX REGISTRATION WAS ALSO TAKEN ON 17.07.2004. 15. THE SALES-TAX AND CST REGISTRATION WAS GRANTED TO ASSESSEE COMPANY WITH EFFECT FROM 19.07.04 AT ST/DA/7597 AND DA/CST/7037. THE ASSESSING OFFICER HAS MENTIONED THAT SALES TAX AND CST REGISTRATION WAS GRANTED TO ASSESSEE WITH EFFECT FROM 19.07.2004 AT ST/DA/7597 AND DS/CST/7037. IT WAS EXPLAINED BY THE APPELLANT THAT EARLIER SALES TAX AND CST REGISTRATION WAS GRANTED TO THE PARTNERSHIP FIRM IN WHICH THE APPELLANT WAS A PARTNER AND THE UNIT WAS SSI UNIT. AFTER THE FIRM BECAME THE PROPRIETARY CONCERN OF THE APPELLANT COMPANY, FRESH REGISTRATION FOR SALES TAX AND CST WAS APPLIED, WHICH WAS GRANTED ON 19.07.2004 IN THE NAME OF APPELLANT. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 16. PF REGISTRATION APPLICATION FILED WITH THE PF DEPARTMENT ON 10.02.04 SHOWS THAT THE EMPLOYMENT OF LABOURS BY THE ASSESSEE COMPANY IS WITH EFFECT FROM APRIL. 2004 THAT TOO IN THE MONTH OF APRIL, 2004 ONLY ONE LABOUR HAS BEEN EMPLOYED AND IN MAY, 2004 IT CREASED TO 02 LABOURS. IN THE EARLIER UNIT WHICH WAS RUN BY THE PARTNERSHIP FIRM, PF WAS NOT APPLICABLE AND HENCE NO REGISTRATION WAS TAKEN. THE APPELLANT COMPANY APPLIED FOR PF REGISTRATION ON INCORPORATION ON 10.02.2004. THIS HAS GOT NO RELEVANCE WITH THE BUSINESS CARRIED BY PARTNERSHIP FIRM. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 17. APPLICATION FOR FACTORY LICENSE WAS MADE ON 16.09.05 WITH THE OFFICE OF CHIEF INSPECTOR OF FACTORIES & BOILERS, DAMAN. LICENSE TO WORK THE FACTORY WAS THE ASSESSING OFFICER HAS RECORDED THAT APPLICATION FOR FACTORY LICENSE WAS MADE ON ARE 16.09.2005 AND LICENSE TO WORK THE FACTORY WAS GRANTED ON 16.11.2005. IT IS SUBMITTED THAT THE APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -24- GRANTED ON 16.11.2005. FACTORY LICENSE WAS GRANTED TO THE PARTNERSHIP FIRM AND THAT WAS FOR SSI UNIT. EXPANSION OF UNIT WAS MADE BY THE APPELLANT AND THE UNIT BECAME MSI AND HENCE THE APPLICATION FOR NEW FACTORY LICENCE WAS MADE ON 16.09.2005 AND THE LICENSE WAS GRANTED ON 16.11.2005. PAGE NO.10 OF THE ASSESSMENT ORDER. 18. IT HAS INVESTED FRESH FUNDS IN AN ENTIRELY NEW BUILDING I.E. FACTORY PREMISES AMOUNTING TO RS.8,09,64,690/-. THE DETAILS OF THE SAME HAVE BEEN ATTACHED WITH THE FORM NO. 3CD IN FORM OF FIXED ASSET REGISTER. AT THE OUTSET, IT IS SUBMITTED THAT INDUSTRIAL UNDERTAKING WHICH WAS FORMED IN FEBRUARY 2004 BY THE PARTNERSHIP FIRM WAS A NEW UNIT OF THE FIRM FORMED BY PURCHASING NEW PLANT AND MACHINERY. THE UNIT WAS TAKEN OVER BY THE APPELLANT COMPANY WITH ALL ITS ASSETS AND LIABILITIES AND THEREAFTER THE APPELLANT COMPANY HAS MADE SUBSTANTIAL EXPANSION OF THE UNIT BY INSTALLING NEW PLANT AND MACHINERY AND BY ADOPTING NEW TECHNOLOGIES AND SYSTEMS IN THE SAME UNIT. THE APPELLANT HAS MADE SUBSTANTIAL EXPANSION OF BUSINESS ALREADY IN EXISTENCE. THE APPELLANT COMPANY HAS MADE EXPANSION OF EXISTING UNIT WHICH IT HAS TAKEN OVER FROM THE PARTNERSHIP FIRM ON RETIREMENT OF TWO OTHER PARTNERS. IN EXPANSION OF A BUSINESS THERE IS ALWAYS REQUIREMENT OF FRESH FUND AND EXPANSION CAN BE DONE ONLY WITH FRESH FUNDS ONLY. IN EXPANSION OF BUSINESS, NEW MACHINERIES WERE INSTALLED, NEW TECHNOLOGY WAS ADOPTED AND NEW SYSTEMS WERE USED. ALL THESE REQUIRE FRESH FUNDS. APPELLANT SUBMISSIONS ARE ACCEPTABLE 19. IT HAS INSTALLED ENTIRELY NEW SET OF PLANT AND MACHINERIES. A STATEMENT SHOWING DETAILS OF VARIOUS PLANT AND MACHINERIES INSTALLED HAS BEEN FILED WITH EXPANSION CAN BE MADE ONLY BY INSTALLATION OF FURTHER PLANT &MACHINERY. WITHOUT INSTALLING NEW PLANT & MACHINERY, THERE CANNOT BE EXPANSION OF ANY UNIT. APPELLANT SUBMISSIONS ARE ACCEPTABLE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -25- THE FORM NO. 3CD IN FORM OF FIXED ASSET REGISTER. 20. COPY OF BILLS OF ALL THE PLANT AND MACHINERIES PURCHASED FOR SETTING UP OF THE NEW INDUSTRIAL UNDERTAKING HAD ALREADY BEEN FILED WITH SUBMISSIONS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION VIDE ITS SUBMISSION IN RESPONSE TO QUESTIONNAIRE DATED 03.01.2007. AS PER THE REQUIREMENT OF AO, ALL THE BILLS FOR PURCHASE OF PLANT & MACHINERY FOR EXPANSION OF INDUSTRIAL UNIT WERE FILED BY THE APPELLANT. THE BILLS ARE FOR PLANT & MACHINERY INSTALLED AT FACTORY PREMISES FOR EXPANSION OF THE BUSINESS. APPELLANT SUBMISSIONS ARE ACCEPTABLE 20. IT HAS EMPLOYED THE EFFECTIVE WORKERS AFTER JULY, 2004 AS PER THE APPLICATION FILED WITH THE PF DEPARTMENT. PF APPLICATION WAS FILED ONLY WHEN PF WAS APPLICABLE TO THE INDUSTRIAL UNIT. APPELLANT SUBMISSIONS ARE ACCEPTABLE 21. ASSESSEE HAS OBTAINED ALL THE REQUIRED LICENSES AND CERTIFICATES FROM VARIOUS GOVERNMENT AGENCIES LIKE CENTRAL EXCISE, SALES TAX, DIC POLLUTION CONTROL BOARD AND FACTORY LICENSE, PERMISSION FROM GRAM PANCHAYAT ETC. AS REQUIRED UNDER THE RESPECTIVE LEGISLATION/AUTHORITY FOR SETTING UP A NEW UNIT IN THE YEAR UNDER CONSIDERATION ONLY. COPIES OF THE SAME HAVE ALREADY BEEN FILED ON RECORD. AS MENTIONED ABOVE ALL THE LICENSES AND CERTIFICATES FROM VARIOUS GOVERNMENT AGENCIES LIKE CENTRAL EXCISE, SALES TAX, DIC, POLLUTION CONTROL BOARD AND FACTORY LICENSE HAVE BEEN TAKEN BY THE APPELLANT AS AND WHEN THE LAW BECAME APPLICABLE TO THE INDUSTRIAL UNDERTAKING. THE UNIT RUN BY ESS DEE ALUMINIUM EARLIER WERE ALSO HAVING NECESSARY LICENSES AS APPLICABLE TO THAT UNIT. ON EXPANSION SSI REGISTRATION WAS CONVERTED TO MSI. SIMILARLY, EXCISE DUTY WAS NOT APPLICABLE TO FIRM AND WHEN THE SAME WAS APPLICABLE TO THE APPELLANT, THE REGISTRATION WAS MADE WITH EXCISE AUTHORITIES. APPELLANT SUBMISSIONS ARE ACCEPTABLE PAGE NO.11 OF THE ASSESSMENT ORDER. 23. THERE IS NO TRANSFER OF ANY OF THE ASSETS FROM THE OLD UNIT TO NEW UNIT. THE OLD UNIT WHICH WAS RUN BY ERSTWHILE PARTNERSHIP FIRM WAS HAVING MACHINERY AND ALL THE ASSETS AND LIABILITIES INCLUDING PLANT AND MACHINERY WAS TAKEN OVER BY THE APPELLANT COMPANY AS A GOING CONCERN ON DISSOLUTION OF THE PARTNERSHIP FIRM. HENCE, THERE WAS EXPANSION OF UNIT BY THE APPELLANT. APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -26- 24. THERE IS NO TRANSFER OF PLANT, MACHINERY OR ANY OTHER MANUFACTURING FACILITIES FROM THE OLD UNIT TO NEW UNIT, EXCEPT ALLEGED MACHINERY OF RS.2 LACS AS CLAIMED ASSESSEE. AS STATED IN (A) ABOVE, THE UNIT HAS BEEN TAKEN OVER BY THE APPELLANT COMPANY AS RUNNING CONCERN WITH ALL ASSETS AND LIABILITIES, GOODWILL, TRADE MARK ETC. FROM THE ERSTWHILE PARTNERSHIP FIRM ON DISSOLUTION. THE PLANT AND MACHINERY OF (APPROX.) RS. 2 LAKHS HAS ALSO BEEN TAKEN OVER BY THE APPELLANT COMPANY. WHATEVER ASSETS THE UNIT WAS HAVING WERE TAKEN OVER BY THE APPELLANT COMPANY. APPELLANT SUBMISSIONS ARE ACCEPTABLE 25. ALL PLANTS AND MACHINERIES INSTALLED IN THE INDUSTRIAL UNDERTAKING ARE NEW. AFTER TAKING OVER THE UNIT, THE COMPANY HAS MADE EXPANSION OF THE UNIT AND PURCHASED NEW PLANT AND MACHINERY IN THE EXISTING INDUSTRIAL UNIT. IN EXPANSION PROCESS, MACHINERIES ARE PURCHASED AND NO ADVERSE VIEW SHOULD BE TAKEN ON PURCHASING PLANT AND MACHINERY IN EXISTING UNIT FOR EXPANSION. THE NEW MACHINERIES WERE PURCHASED FOR EXPANSION OF BUSINESS WITH NEW TECHNOLOGY. APPELLANT SUBMISSIONS ARE ACCEPTABLE 26. THERE IS NO TRANSFER OF BUSINESS FROM THE OLD UNIT TO NEW UNIT. THE DEED OF DISSOLUTION CLEARLY MENTIONED THAT THE ENTIRE BUSINESS INCLUDING ALL ASSETS AND LIABILITIES HAVE BEEN TAKEN OVER BY THE APPELLANT COMPANY. CLAUSE NOS. 3, 4 AND 5 OF THE DEED OF DISSOLUTION READS AS UNDER. '(3) THE RETIRING PARTNERS, THE PARTY OF THE FIRST PART AND THE PARTY OF THE SECOND PART HERETO SHALL BE PAID THE CREDIT BALANCE STANDING TO THEIR CAPITAL ACCOUNT. (4)THE RETIRING PARTNERS, THE PARTY OF THE FIRST PART AND THE PARTY OF THE SECOND PART HERETO DO HEREBY IRREVOCABLY ASSIGN ALL THEIR RIGHT, TITLE, INTEREST AND DEMAND IN THE FIRM OF APPELLANT SUBMISSIONS ARE ACCEPTABLE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -27- M/S.ESS DEE AND ALL ITS ASSETS INCLUDING STOCK-IN- TRADE, BOOK DEBTS, GOODWILL, TRADE MARK, TRADE NAME ETC. THEREOF TO THE CONTINUING PARTNER, THE PARTY OF THE THIRD PARTY HERETO. (5) THE AFORESAID BUSINESS OF M/S.ESS DEE ALUMINIUM HAS BEEN TAKEN OVER AS A RUNNING BUSINESS WITH ALL ITS ASSETS AND LIABILITIES INCLUDING STOCK IN TRADE, BOOK DEBTS, TRADE MARK, TRADE NAME, GOODWILL AND EVERY OTHER BENEFIT, OBLIGATIONS ETC. ATTACHED TO THE PARTNERSHIP BY THE CONTINUING PARTNER, THE PARTY OF THE THIRD PARTY HERETO. IN VIEW OF THIS, IT IS SUBMITTED THAT THE ENTIRE BUSINESS WAS TAKEN OVER BY THE APPELLANT COMPANY. 27. THERE IS NO TRANSFER OF CAPITAL FROM OLD UNIT TO NEW UNIT. AS MENTIONED IN (D) ABOVE ALL THE ASSETS AND LIABILITIES INCLUDING CAPITAL HAS BEEN TAKEN OVER BY THE APPELLANT COMPANY ON DISSOLUTION OF THE FIRM, WHICH IS VERY CLEAR FROM THE TERM AND CONDITIONS RECORDED IN DISSOLUTION DEED. APPELLANT SUBMISSIONS ARE ACCEPTABLE 28. THE MANUFACTURING ACTIVITIES CARRIED OUT BY THE ASSESSEE FIRM ARE IN NEW BUSINESS ENVIRONMENT WITH CHANGED GOVERNMENT POLICIES. GOVERNMENT POLICIES ARE NOT IN THE HANDS OF APPELLANT AND CHANGES FROM TIME TO TIME DEPENDING UPON THE INDUSTRIAL ENVIRONMENT, BUT ANY CHANGE IN THE GOVERNMENT POLICY DOES NOT MEAN THAT THE UNIT IS A NEW UNIT AND NOT EXPANSION OF OLD UNIT. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 29. THE TECHNOLOGY USED AND PRODUCTS MANUFACTURED BY THE FIRM ARE DIFFERENT FROM THE ONE WHICH WERE MANUFACTURED IN THE OLD UNIT. IN THIS CLAUSE THE AO HAS ADMITTED THAT THERE WAS AN OLD UNIT IN WHICH MANUFACTURING ACTIVITIES WERE CARRIED ON. HOWEVER, AFTER EXPANSION NEW TECHNOLOGY USED. IT IS SUBMITTED THAT THE TECHNOLOGY CHARGES EVERY DAY AND TO REMAIN APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -28- THE BUSINESS AND TO COMPETE WITH OTHERS, NEW TECHNOLOGY IS USED. THIS DOES NOT MEAN THAT THERE IS NO EXPANSION. ON THE CONTRARY, THE EXPANSION ALWAYS TAKES PLACE TO BRING NEW TECHNOLOGY. 30. THE NEW UNIT OF THE ASSESSEE HAS BEEN RECOGNIZED AS SEPARATE AND INDEPENDENT BY ALL THE GOVERNMENT AUTHORITIES BY ISSUING SEPARATELY ALL THE REQUIRED REGISTRATIONS, LICENSES AND APPROVALS AS REQUIRED BY RELEVANT REGULATIONS. AFTER EXPANSION, THE COMPANY HAS APPLIED TO GOVERNMENT AUTHORITIES FOR NECESSARY REGISTRATION UNDER P.F., SALES TAX. EXCISE FOR TWO REASONS (I) THAT CONSTITUTION OF THE UNIT HAS CHANGED FROM PARTNERSHIP TO PRIVATE LIMITED COMPANY AND (II) THAT THE COMPANY HAS BECOME MSI FROM SSI ON THE EXPANDED CAPACITY ON THE EXPANSION OF THE UNIT. THEREFORE, IT CANNOT BE SAID THAT IT IS NOT THE EXPANSION OF OLD UNIT. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 31. THE NEW UNIT HAS A SEPARATE PHYSICAL AND LEGAL IDENTITY. IT IS SUBMITTED THAT OLD UNIT HAS ALSO SEPARATE PHYSICAL AND LEGAL IDENTITY AS IT WAS NM BY A PARTNERSHIP FIRM. AFTER DISSOLUTION OF THE FIRM, THE APPELLANT COMPANY BECAME THE PROPRIETOR OF THE UNIT AND MADE EXPANSION OF THE UNIT. THIS IS ONLY CHANGE IN CONSTITUTION FROM PARTNERSHIP TO PRIVATE LIMITED COMPANY. THE ENTITY REMAINS SAME, BUT ONLY CONSTITUTION IS CHANGED. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 32. THE ASSESSEE COMPANY HAS MADE AN APPLICATION DATED 13.07.2004 TO THE MINISTRY OF COMMERCE AND INDUSTRY FOR INDUSTRIAL ASSISTANCE, WHEREIN PROPOSED CAPACITY OF ALUMINUM FOIL WAS MENTIONED AT 3600 TONS. SUBSEQUENTLY ANOTHER APPLICATION DATED 02.04.2006 WAS MADE FOR EXPANSION OF CAPACITY FROM 3600 TONS TO 18000 TONS, WHICH ITSELF SHOWS THAT THE UNDERTAKING IT IS SUBMITTED THAT THE PARTNERSHIP FIRM WAS DOING MANUFACTURING OF FLEXIBLE PACKING MATERIAL FOR PHARMA COMPANIES ON JOB BASIS AND RUNNING UNIT AT PLOT NO.124- 133, PANCHAL UDYOG NAGAR, BHIMPORE, DAMAN. AFTER TAKING OVER THE BUSINESS BY THE APPELLANT, THE COMPANY CONTINUED TO MANUFACTURE FLEXIBLE PACKING MATERIAL FOR PHARMA COMPANIES. THE COMPANY HAS ALSO STARTED IN THE SAME UNIT MANUFACTURING OF ALUMINIUM FOIL USED FOR MAKING APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -29- ESTABLISHED TINDER M/S. ESS DEE ALUMINUM PVT. LTD. IS NEW ONE AND NOT AN EXPANSION OF M/S. ESS DEE ALUMINUM. AS PER THE ASSESSEE'S SUBMISSION THE PARTNERSHIP FIRM WAS DISSOLVED ONLY ON 16.07.2004, WHEREAS THE COMPANY CAME INTO EXISTENCE MUCH EARLIER. THE ASSESSEE COMPANY HAS PROMOTED NEW UNDERTAKING FOR MANUFACTURE OF ALUMINUM FOIL OF THE CAPACITY OF 3600 TONS. AS PER THE APPLICATIONS MADE BEFORE THE MINISTRY OF COMMERCE, ONLY INFERENCE CAN BE DRAWN IS THAT PARTNERSHIP FIRM HAD NO CAPACITY OF MANUFACTURING THE ALUMINUM FOILS. FLEXIBLE PACKING MATERIAL FOR PHARMA COMPANIES. THE BUSINESS CARRIED ON BY THE PARTNERSHIP FIRM AND THE APPELLANT COMPANY ARE IN THE SANE LINE OF BUSINESS EXCEPT THAT A NEW MANUFACTURING ACTIVITY HAS BEEN STARTED FOR MANUFACTURING ALUMINUM FOIL AND HENCE FOR MANUFACTURING ALUMINUM FOIL WHATEVER PERMISSION IS REQUIRED FROM GOVERNMENT AUTHORITIES HAS BEEN APPLIED AS AND WHEN IT WAS REQUIRED UNDER THE LAW. 33. THE ASSESSEE COMPANY HAS MADE APPLICATIONS BEFORE THE DIFFERENT GOVERNMENT AUTHORITIES FOR NEW UNIT BEFORE THE DISSOLUTION OF THE FIRM. THE COMPANY HAS MADE APPLICATIONS TO THE GOVERNMENT AUTHORITIES FROM TIME TO TIME AS AND WHEN THE REQUIREMENT OF APPROVAL IS REQUIRED FROM THE GOVERNMENT AUTHORITIES. FURTHER, CERTAIN APPLICATIONS ARE MADE ON THE BASIS OF PROJECT REPORT AND PROJECTION BECAUSE IT ALWAYS TAKE TIME BY THE GOVERNMENT AUTHORITIES TO GIVE NECESSARY PERMISSION AND HENCE SOME APPLICATIONS ARE MADE DURING THE PROCESS OF DISSOLUTION OF THE FIRM AND BEFORE THE DATE OF ACTUAL DEED OF DISSOLUTION. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 34. THERE NOT A SINGLE EVIDENCE WHICH SUGGEST THAT THE M/S. ESS DEE ALUMINIUM PVT. LTD. HAS MADE EXPANSION OF EXISTING BUSINESS. ALL THE FACTS AND EVIDENCES SHOWS THAT THE ASSESSEE COMPANY HAS SET UP A NEW INDUSTRIAL UNDERTAKING FOR THE MANUFACTURE OF ALUMINUM FOILS WITH THE CAPACITY OF THE ASSESSING OFFICER IS TOTALLY WRONG IN SAYING THAT THERE IS NOT A SINGLE EVIDENCE WHICH SUGGEST THAT THE APPELLANT HAS TRADE EXPANSION OF EXISTING BUSINESS. THE COMPANY MADE EXPANSION OF EXISTING BUSINESS ONLY AFTER TAKING OVER OLD UNIT AND OLD BUSINESS OF ERSTWHILE PARTNERSHIP FIRM. NEW PLANT AND MACHINERY IN THE EXISTING UNIT WAS INSTALLED ON AT THE SANE FACTORY APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -30- 3600 TONS AND ESTABLISHING OF NEW UNIT ACTIVITIES WERE STARTED MUCH BEFORE THE DISSOLUTION OF THE FIRM. PLOT, PRODUCTION IN THE NEW EXPANDED UNIT WAS AGAIN STARTED IN THIS FACTORY DURING THE YEAR. THIS CLEARLY PROVES THAT THE ACTIVITIES WERE STARTED ONLY IN THE OLD UNIT AFTER THE BUSINESS HAS BEEN TAKEN OVER BY THE COMPANY WITH RENEWED FACTORY PREMISES AND WITH NEW TECHNOLOGY. 35. THE ONLY MACHINERY WHICH THE ASSESSEE COMPANY CLAIMED TO BE OWNED IN VIEW OF DISSOLUTION OF THE FIRM WAS CLUBBED UNDER THE HEAD PRE- OPERATIVE EXPENDITURE AND CAPITALIZED ONLY ON 31.10.2004. THE OLD MACHINERY WHICH WAS TAKEN OVER BY THE COMPANY ON DISSOLUTION OF THE FIRM ALONG WITH ALL OTHER ASSETS AND LIABILITIES WAS CLUBBED UNDER THE HEAD 'PRE- OPERATIVE EXPENDITURE' AND WHEN THE EXPANDED UNIT HAS STARTED PRODUCTION, THE SAME WAS CAPITALIZED UNDER THE HEAD PLANT AND MACHINERY. THE DETAILS OF PRE- OPERATIVE EXPENDITURE AND DETAILS OF ADDITION TO ASSETS WAS FILED BEFORE THE ASSESSING OFFICER IN WHICH THE PLANT AND MACHINERY OF THE OLD UNIT HAS BEEN CAPITALIZED. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 36. THE TERM LOAN WAS SANCTIONED BY THE CORPORATION BANK AND SHAMRAO VITHAL COOPERATIVE BANK LTD. TO THE COMPANY TO PART FINANCE THE GREEN FIELD PROJECT COST OF SETTING MANUFACTURING FACILITIES FOR PARMA GRADE ALUMINIUM FOIL BEFORE THE FIRM WAS DISSOLVED. FOR EXPANSION PLAN, COMPANY WAS IN NEED OF FINANCIAL ASSISTANCE BY WAY OF LOAN. IT ALWAYS TAKE TIME FOR SANCTIONING OF LOAN BY THE BANKS. HENCE, COMPANY ON THE BASIS OF PROJECTION AND PROJECT COST HAS APPLIED FOR LOAN TO CORPS RATION FLANK BEFORE THE FIRM WAS DISSOLVED, HOWEVER, ACTUAL DISBURSEMENT OF LOAN WAS DONE ONLY AFTER THE DISSOLUTION OF THE FINN. SINCE IT WAS THE PROJECTION, APPLICATION WAS MADE TO CORPORATION BANK AND SHAMRAO VITHAL CO- OPERATIVE BANK LTD. FOR SETTING UP MANUFACTURING FACILITIES FOR PARMA GRADE ALUMINIUM FOIL. THE LOAN WAS SANCTIONED EARLIER AND UTILIZATION OF THE LOAN WAS DUNE AFTER THE DISSOLUTION OF THE FIRM AND AFTER THE BUSINESS OF THE OLD FIRM HAS BEEN TAKEN OVER BY THE COMPANY. SANCTION OF LUAU APPELLANT SUBMISSIONS ARE ACCEPTABLE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -31- EARLIER THAN DISSOLUTION OF FIRM DOES NOT MEAN THAT IT IS NOT EXPANSION OF EXISTING UNIT AND THAT NEW UNIT IS ESTABLISHED. 37. NO BUSINESS ACTIVITY HAS CARRIED OUT BY THE UNIT OF THE FIRM TILL THE NEW INDUSTRIAL COMMENCE THE MANUFACTURING ACTIVITIES. SINCE MAJOR EXPANSION WAS CARRIED OUT IN THE EXISTING UNIT, THE MANUFACTURING ACTIVITY IN THE OLD UNIT WAS SUSPENDED FOR FEW DAYS. APPELLANT SUBMISSIONS ARE ACCEPTABLE. 38. THE ASSESSING OFFICER HAS MAINLY RELIED ON THE FOLLOWING CASES TO COME TO THE CONCLUSION THAT THE APPELLANT HAS SET UP A NEW AND COMPLETELY INDUSTRIAL UNDERTAKING AND ITS NEW UNIT IS FORMED NEITHER BY EXPANSION OF UNIT NOR RECONSTRUCTION OF EXISTING BUSINESS. A) TEXTILE MACHINERY CORPORATION LTD., 107 ITR 195 (SC) B) GANGA SUGAR CORPORATION, 93 ITR 173 (DELHI) C) HINDUSTAN GENERAL INDUSTRIES LTD., 137 ITR 851 (DELHI) D) GEDORE TOOLS INDIA P. LTD., 126 ITR 673 (DELHI) E) AMBUS COOPERATIVE SUGAR MILLS LTD., 127 ITR 495 (MAD.) F) INDIAN ALUMINUM CO. LTD., 108 ITR 3697 (SC) ALL THE CASES CITED BY AO AGAINST THE APPELLANT IN FACT FAVOURS THE APPELLANTS CASE. THE RATIO ENUMERATED IN THE CASES REFERRED BY THE AO AND THE SUBMISSION BY THE AR IN THIS REGARD HAS, AS A MATTER OF FACT, APPLICABLE TO BOTH REVENUE AND THE APPELLANT. THE ACTUAL CONTEXT ARE REFERRED RESPECTIVELY WHILE DISCUSSING THE CASE. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -32- G) CANARA WIRE AND WIRE PRODUCTS, 196 ITR 426 (KARNATAKA). 15. CONCLUSION: AT THE OUT SET THE AO HAS HEAVILY RELIED ON THE SUBMISSIONS MADE BY MR. K.C.DHINGRA AND HIS AUT HORIZED SIGNATORY. IT IS THEREFORE IMPERATIVE TO DEAL FIRST WITH THE SUBMISSIONS FILED BY M/S. WESTERN CONSOLIDATED PRIVATE LIMITED AND MR . DHINGRA. WHILE FORWARDING THE DETAILS, MR. K.C.DHINGRA HAD ALSO SU BMITTED THE COMPUTATION OF CAPITAL GAINS FOR THE F.Y. 2004-05 R ELATING TO A.Y. 2005- 06. THE R/I WAS FILED ON 30.10.2005 SHOWING BUSINES S LOSS OF RS.66,33,237/- AND CAPITAL GAIN OF RS. 83,11,023/- SHOWN WAS TAXABLE IN THAT YEAR. THE INFORMATION FURNISHED TO THE DEPARTM ENT WAS ON 14.11.2007 MUCH AFTER FILLING THE R/I FOR A.Y. 2005-06. IF M/S . WESTERN CONSOLIDATED PRIVATE LTD. ACCEPTED THAT THE PART POSSESSION WAS GIVEN BEFORE MARCH' 2004, THE LONG TERM CAPITAL GAIN WOULD HAVE ARISED IN THE A.Y. 2004-05 AND THE WCPL SHOULD HAVE SUBJECTED TO RE-ASSESSMENT PROCEEDING AND HIGHER TAX LIABILITY WITH INTEREST COMPONENTS THERE ON. THE FIRST DIRECTIVE U/S.133(6) DATED 12.10.2007 WAS REPLIED BY SHRI. K. C.DHINGRA, DIRECTOR WHEREAS THE VITAL INFORMATION SOUGHT BY THE AO IN T HE SUBSEQUENT DIRECTIVES WERE REPLIED BY MR. DEBASHISH CHAKRAVORT Y, THE AUTHORIZED SIGNATORY. APPARENTLY, THE CONTENT OF THE LETTER DATED 4.12.20 07 FROM MR. DEBASHISH CHAKRAVARTY WAS EVASIVE AND NOT TO THE TRUE POINT O F CLARIFICATION SOUGHT BY THE A.O. THE A.O. CATEGORICALLY ASKED THAT, WHET HER ANY MOU OR LETTER DATED 08.07.2004 WAS SIGNED AND RECEIVED BY YOU FOR WHICH THE REPLY WAS GENERAL IN NATURE. SIMILARLY THE SECOND IMPORTANT Q UERY, THE A.O. SOUGHT TO KNOW FROM MR. K. C. DHINGRA AND MR. VINEET DHING RA WAS TO CONFIRM WHETHER BOTH THE MOU AND THE SAID LETTER SIGNED BY SHRI. K. C. DHINGRA HIMSELF OR SOMEONE ELSE HAS FORGED THE SIGNATURE OF MR. K. C. DHINGRA. TO THIS IMPORTANT QUERY REPLY WAS NOT FURNISHED. THE D HINGRA'S ARE CONSPICUOUS ABOUT NOT GIVING SPECIFIC REPLIES TO TH ESE POINTS. EVEN THE DIRECTIVES ISSUED TO THEM WAS REPLIED BY THE AUTHOR ISED SIGNATORIES, DENYING SIGNING OF ANY LEASE AGREEMENT. HOWEVER, FR OM THE PERUSAL OF THE SALE DEED DATED 8TH JULY 2004, BETWEEN WESTERN CONS OLIDATED PRIVATE LIMITED AND M/S. ESS DEC ALUMINIUM LIMITED, THE CHE QUE NO. 000054 OF RS. 1,11,111/- REFERRED IN MOU IS REFLECTED IN THE SAID SALE DEED. THEREFORE, IN THE ABSENCE OF CONFIRMATION FROM MR. K. C. DHINGRA AND / OR MR. VINEET DHINGRA, IT IS WRONG TO CONCLUDE THAT, T HAT THE SIGNATURE IN THE MOU WAS FORGED, AND THE MOU WAS NOT SIGNED BY M/S. WESTERN CONSOLIDATED PRIVATE LIMITED AND M/S. ESS DEE ALUMI NIUM LIMITED. THE APPELLANT FURTHER AUGMENTS ITS CASE THAT, THE CHEQU E ISSUED BY IT HAD CREDITED / ENCASHED BY WESTERN CONSOLIDATED PVT. LT D. FURTHER, ON THE CIRCUMSTANCES BASIS, THE DIRECTORS EVADED TO REPLY ASSESSING OFFICERS DIRECTIVES ON SPECIFIC GROUND, ENHANCES THE CREDIBI LITY OF THE DOCUMENTS SUBMITTED BY THE APPELLANT. IN THE ABSENCE OF ANY SCIENTIFIC FINDING IT IS ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -33- INCORRECT TO ASSUME IN THE PART OF THE AO THAT, THE APPELLANT HAS FABRICATED DOCUMENTS. 17. ON GOING THROUGH THE DETAILS SUBMITTED BY M/S. WESTERN CONSOLIDATED PRIVATE LIMITED WITH REGARD TO THE CONSUMPTION OF E LECTRICITY IN REPLY TO THE DIRECTIVES DATED 12.10.2007, IT IS CLEAR THAT, I) THERE WAS NO MANUFACTURING ACTIVITIES BEFORE FEBRUA RY 2004 BY THE M/S. WESTERN CONSOLIDATED PRIVATE LIMITED AS TH E ELECTRICITY CHARGES WAS NEGLIGIBLE WHEREAS, II) THERE APPEARS TO BE MANUFACTURING ACTIVITIES BETWEE N MARCH' 04 TO JUNE '04, IN VIEW OF THE SUBSTANTIAL CONSUMPTION OF ELECTRICITY. THIS SUPPORT THE CASE OF THE APPELLANT, THAT THE AP PELLANT HAD STARTED MANUFACTURING/JOB WORK FROM MARCH'04 AFTER TAKING P ART POSSESSION OF THE PREMISES. 18. I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. I HAVE ALSO GONE T HROUGH THE CASE RECORDS, SEEN THE INVESTIGATION MATERIAL COLLECTED BY THE ASSESSING OFFICE, THE SUBMISSIONS PUT FORTH BY THE APPELLANT'S REPRES ENTATIVE, THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSING OFFICER AND THE APPELLANT COMPANY. 18.1 THE ASSESSING OFFICER HAS NOT BROUGHT ON RECOR D ANY INDEPENDENT, CLEAR AND COGENT EVIDENCE AND MATERIAL TO DISBELIEVE THAT THE PRODUCTION WAS NOT COMMENCED BEFORE 31ST MARCH, 2004. THE REPLY RE CEIVED FROM AUTHORIZED SIGNATORY OF M/S. WESTERN CONSOLIDATED P VT. LTD. CANNOT BE THE SUFFICIENT EVIDENCE TO HOLD THAT THE UNIT HAD NOT C OMMENCED PRODUCTION BEFORE 31ST MARCH, 2004. 18.2 SINCE THE A.O. DID NOT ALLOW OPPORTUNITY TO TH E APPELLANT TO EXPLAIN THE M.O.U. AND THE REPLIES RECEIVED FROM M/S. WESTERN C ONSOLIDATED PVT. LTD., IT CANNOT BE SAID THAT THE M.O.U. AND REPLIES WERE CONCOCTED AND NOT GENUINE. EVEN THE SIGNATURE OF KHEMCHAND DHINGR A ON M.O.U. AND SALE DEED LOOKS TO BE MADE BY SAME PERSON. MOREOVER , THERE ARE PLETHORA OF EVIDENCES IN FAVOUR OF APPELLANT TO SHO W THAT MANUFACTURING STARTED BEFORE 31.03.2004. 18.3 RELIANCE IS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF KISHINCHAND CHELLARAM V. COMMISSIONER OF INCOME TAX , BOMBAY CITY-II, 125 ITR 713. IN THIS CASE THE HON. SUPREME COURT RE VERSED THE DECISION OF HIGH COURT AND HELD AS UNDER: 'HELD REVERSING THE DECISION OF THE HIGH COURT, ON THE FACTS, THAT THE TWO LETTERS DATED FEBRUARY 18, 1955 AND MARCH 9, 1957, DID NOT CONSTITUTE ANY MATERIAL EVIDENCE WHICH THE TRIBUNAL COULD TAKE INT O ACCOUNT FOR THE PURPOSE OF ARRIVING AT THE FINDING THAT THE SUET OF RS.1,07,350 WAS REMITTED BY THE ASSESSEE FROM MADRAS, AND IF THESE TWO LETTE RS WERE ELIMINATED, ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -34- THERE WAS NO MATERIAL EVIDENCE AT ALL WHICH COULD S UPPORT ITS FINDING. AGAIN IN THE SAME CASE, IT HAS BEEN HELD THAT THE D EPARTMENT OUGHT TO HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMEN TS AND PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENTS AND CONFR ONTED THE ASSESSEE WITH THOSE DOCUMENTS AND PAPERS. ' 18.4 AGAIN IT WAS HELD 'BUT BEFORE THE INCOME TAX A UTHORITIES COULD RELY UPON IT, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSEES SEE SO THAT THE ASSESSEE COULD CONTROVERT THE STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPPORTUNITY TO CROSS-EXAMINE THE MANAGER OF THE BAN K WITH REFERENCE TO THE STATEMENTS MADE BY HIM'. IN THE ABOVE MENTIONED CASE THE HON. SUPREME COURT HAS HELD THAT THE TWO LETTERS DATED 18.02.1955 AND 09.03.1957 WRITTEN BY THE MANAGER OF THE BANK DID NOT CONSTITUTE ANY MATERIAL EVIDENCE FOR T REATING RS.1,07,350/- AS UNDISCLOSED REMITTANCE AND UNDISCLOSED INCOME OF TH E ASSESSEE. THE HON. SUPREME COURT HAS HELD THAT THE INCOME TAX DEPARTME NT OUGHT TO HAVE CALLED UPON THE MANAGER TO PRODUCE THE DOCUMENTS AN D PAPERS ON THE BASIS OF WHICH HE MADE THE STATEMENTS AND THE SAME SHOULD HAVE BEEN CONFRONTED TO THE ASSESSEE. IN THE APPELLANT'S CASE , THE ASSESSING OFFICER MERELY RELIED ON ONE FAX NOTE OF EMPLOYEE OF SHRI. KHEMCHAND DHINGRA AND DID NOT BOTHER TO SUMMON SHRI KHEMCHAND DHINGRA AND RECORD HIS STATEMENT. THE HON. SUPREME COURT IN THE CASE CITED ABOVE FURTHER HELD THAT ONCE THE INCOME TAX AUTHORITIES RELIED UPON CE RTAIN DOCUMENTS, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSESSEE AND AL SO GIVE THE ASSESSEE OPPORTUNITY TO CROSS EXAMINE THE MANAGER OF THE BAN K. IN THE PRESENT CASE, THE ASSESSING OFFICER COULD CALL SHRI. KHEMCHAND DH INGRA AND COULD HAVE ALLOWED THE APPELLANT TO CROSS EXAMINE HIM SINCE TH ERE WERE PLETHORA OF FACTS AND EVIDENCES IN FAVOUR OF THE APPELLANT TO S HOW THAT MANUFACTURING ACTIVITIES BY THE UNDERTAKING STARTED BEFORE 31ST M ARCH, 2004. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, MERELY ON THE BASIS OF FAX NOTE BY THE EMPLOYEE OF SHRI. KHEMCHAND DHINGRA, THE ELIGIBILIT Y OF DEDUCTION U/S. 8O-IB COULD NOT BE DENIED TO THE APPELLANT. 18.5 SO FAR OTHER ISSUES RAISED BY THE A.O., I HAVE LOOKED INTO THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE APPELLANT. EXC ISE REGISTRATION AND SERVICE TAX REGISTRATION IS TO BE TAKEN ONLY WHEN T HE EXCISE AND SERVICE TAX IS APPLICABLE. EARLIER EXCISE AND SERVICE TAX WAS N OT APPLICABLE AND THE SAME WAS APPLICABLE IN THE CASE OF APPELLANT COMPAN Y WITH EFFECT FROM 19.07.2004. SIMILARLY, CST AND SALES TAX REGISTRATION WAS TAKEN BY THE PARTNERSHIP FIRM AND THE UNIT WAS SSI UNIT AND SINC E THE CONSTITUTION HAS BEEN CHANGED FROM PARTNERSHIP TO A PRIVATE LIMITED COMPANY, FRESH CST AND SALES TAX REGISTRATION WAS GRANTED. PF REGISTRA TION APPLICATION IS GENERALLY FILED WHEN PF IS APPLICABLE. APPLICATION FOR FACTORY LICENSE WAS MADE ON 16.09.2005 BY THE COMPANY AS THERE WAS CHAN GE IN CONSTITUTION AND THE UNIT WAS CHANGED FROM SSI UNIT TO MSI UNIT. 18.6 CONSIDERING THE ABOVE FACTUAL POSITION. I HOLD THAT MERELY BECAUSE THE AUTHORIZED SIGNATORY HAS MENTIONED IN THE LETTER TH AT PART POSSESSION WAS ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -35- NOT GIVEN IN FEBRUARY, 2004 IT CANNOT BE A GROUND F OR DENYING DEDUCTION U/S. 80-1B OF ACT. THE ASSESSING OFFICER HAS NOT BE EN ABLE TO ESTABLISH THAT THERE WAS NO PRODUCTION AND NO SALES/JOB WORK CLAIMED TO HAVE BEEN MADE BEFORE MARCH 2004 BY THE APPELLANT. THE JOB WO RK CARRIED OUT IN THE MONTHS OF FEBRUARY 2004 AND MARCH, 004 IS DULY SHOW N IN SALES TAX RETURNS FILED BY THE FIRM. THE SALES TAX AUTHORITIE S HAVE COMPLETED THE ASSESSMENT ALSO. IN THE APPELLANT'S CASE, IT WAS FU RTHER SEEN THAT THE GOODS PRODUCED AT THE FACTORY IN THE MONTHS OF FEBRUARY 2 004 AND MARCH 2004 WERE SOLD TO VARIOUS PHARMA COMPANIES BY M/S. FLEX ART GOA AFTER PAYING THE EXCISE DUTY AND ALL THESE SALES ARE RECORDED IN THE EXCISE RECORDS AND EXCISE RETURNS HAVE BEEN FILED BY M/S. FLEX ART GOA . IT IS ALSO A FACT THAT ESS DEE ALUMINIUM WAS HAVING FACTORY LICENSE PRIOR TO COMMENCEMENT OF THIS BUSINESS. THE PARTNERSHIP FIRM HAS PERMANENT R EGISTRATION AS 831 AND REGISTRATION WITH SALES TAX AUTHORITIES. IN SUM MARY, WHAT IS REQUIRED TO BE FULFILLED FOR ELIGIBLE DEDUCTION U/S.80-IB IS NOT IN DISPUTE. THE APPELLANT HAD DEMONSTRATED BEFORE THE AO AND BEFORE ME THAT I) THE APPELLANT HAD JOINED THE FIRM WHICH WAS ENGAGED IN MANUFACTURING THE FLEXIBLE PACKAGING MATERIALS. II) THE AO HAS NOT CONTROVERTED THE PURCHASE, SALE AND MANUFACTURING ACTIVITIES BY THE FIRM BY BRINGING CO GENT EVIDENCES. III) THE SEQUENCE OF EVENTS AND THE EVIDENCES TABULATED IN PARA 7(III) HAS SUFFICIENT FORCE TO DEMONSTRATE THAT THE RE WAS MANUFACTURING ACTIVITIES PRIOR TO 31.3.2004. IV) ALTHOUGH, MR. K.C.DHINGRA AND MR. DEBASHISH CHAKRAV ORTY DENIED HAVING GIVEN THE PART POSSESSION OF THE INDU STRIAL SHED IN FEBRUARY/MARCH'2004, TWO MOST IMPORTANT FACTORS - ONE THE PAYMENT OF 'ON MONEY' BY THE APPELLANT AND TWO THE CONSUMPTION OF ELECTRICITY DURING MARCH '04 TO JUN E '04 ARE LOADED INFAVOUR OF THE APPELLANT. V) IN THE ABSENCE OF CONFIRMATION FROM MR. K.C.DHINGRA THAT THE SIGNATURE IN THE MOU WAS FORGED AND WITHOUT CREDIBL E EVIDENCES BROUGHT, IT IS INCORRECT TO ASSUME THAT M OU WAS COOKED UP BY THE APPELLANT. VI) THE 'ON MONEY OF RS.1,11,111/- WAS PAID AT TH E TIME OF SIGNING THE MOU WHICH WAS AGAIN FORMED PART OF TOTA L SALES CONSIDERATION IN THE FINAL SALE DEED EXECUTED ON 8. 7.2004 BETWEEN THE APPELLANT AND WESTERN CONSOLIDATED PRIV ATE LIMITED. VII) THE INVESTIGATION CARRIED OUT BY THE AO WITH VARIOU S GOVERNMENT AGENCIES DID NOT BRING ANY NEGATIVE INFE RENCE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -36- ABOUT THE ESTABLISHMENT OF THE MANUFACTURING ACTIVI TIES BY THE APPELLANT. VIII) LASTLY, IT WAS SEEN THAT MOST OF THE INDUSTRIAL UNI TS DERIVING BENEFITS U/S. 80-IB AND OPERATING IN THIS PART HAVE STARTED THEIR MANUFACTURING ACTIVITIES DURING FEBRUARY-MARCH'O4 B ECAUSE THE TIME AVAILABLE FOR SETTING UP OF MANUFACTURING UNIT WAS TOO SHORT AS THE SAID NOTIFICATION WAS ISSUED IN THE MONTH OF FEBRUARY'O4. THE APPELLANT WAS ALSO VICTIM OF PAUCITY OF TIME. THEREFORE, CONSIDERING THE FACTS AND THE CIRCUMSTAN CES AND THE EVIDENCES BEFORE ME, I AM OF THE CONSIDERED VIEW THAT THE ASS ESSING OFFICER'S ACTION IN HOLDING THAT PRODUCTION DID NOT COMMENCE BEFORE 31ST MARCH, 2004 SUFFERS FROM INADEQUATE EVIDENCES AND IS WITH INCOR RECT PRESUMPTION. THUS, THESE GROUNDS OF APPEAL ARE ALLOWED. 8. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER, WHEREAS THE LEARNED COUNSEL FOR THE ASSESS EE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE DEDUCTION CLAIMED UNDER SECTION 8 0IB WAS DENIED BY THE AO ON THE GROUND THAT THE ASSESSEE CO MMENCED PRODUCTION AFTER 31.3.2004. THE CLAIM OF THE ASSES SEE IS THAT IT COMMENCED PRODUCTION ON 3.3.2004 WAS MAINLY NOT ACC EPTED BY THE AO ON THE GROUND THAT THE PREMISES WHICH WAS CL AIMED TO HAVE BEEN TAKEN BY THE ASSESSEE ON RENT FOR ITS MAN UFACTURING ACTIVITIES WAS FOUND BY THE AO AS NOT CORRECT ON TH E BASIS OF THE STATEMENT OF SHRI DEBASHISH CHAKRAVORTY, WHO WAS AN EMPLOYEE OF SHRI KHEMCHAND DHINGRA. ON APPEAL, THE LEARNED CIT(A) FOUND THAT THE STATEMENT OF SHRI DEBASHISH CHAKRAVO RTY IS NOT ADMISSIBLE EVIDENCE AGAINST THE ASSESSEE, AS THE AS SESSEE REQUESTED FOR EXAMINING OF SHRI KHEMCHAND DHINGRA W HICH WAS ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -37- NOT ALLOWED BY THE AO. FOR THIS, THE LEARNED CIT(A ) PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF KISHANCHAND CHELLARAM VS. CIT, 125 ITR 713. FURTHE R, THE LEARNED CIT(A) FOUND THAT SHRI KHEMCHAND DHINGRA WH O WAS THE OWNER OF THE PREMISES AND WHO GAVE THE PREMISES TO THE ASSESSEE, AS PER THE CLAIM OF THE ASSESSEE, WAS NOT EXAMINED BY THE AO. THE CLAIM OF THE ASSESSEE WAS SUPPORTED BY THE MOU SIGNED BY THE OWNER OF THE PREMISES. THE CIT(A) AFTER DETAIL ED CONSIDERATION OF ALL THE DIFFERENT ASPECTS OF THE F ACTS AVAILABLE ON RECORD FOUND THE CLAIM OF THE ASSESSEE THAT THE PRO DUCTION IN THE INDUSTRIAL UNIT UNDER CONSIDERATION WAS COMMENCED O N 3.3.2004, AND CONSEQUENTLY ALLOWED DEDUCTION UNDER SECTION 80 IB OF THE ACT TO THE ASSESSEE. 10. WE FIND THAT NO SPECIFIC ERROR IN ANY OF THE FI NDINGS OF THE LEARNED CIT(A) COULD BE POINTED OUT BY THE REVENUE BEFORE US. IN THE ABSENCE OF ANY SPECIFIC ERROR BEING POINTED OUT , WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT( A), WHICH WAS ARRIVED AT AFTER CONSIDERATION OF THE ENTIRE FACTS IN DETAILS, AND THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERF ERE WITH THE ORDER OF THE LEARNED CIT(A), WHICH IS CONFIRMED, AN D THUS COMMON GROUNDS RAISED IN THE APPEALS OF THE REVENUE FOR ALL THE YEARS UNDER CONSIDERATION ARE DISMISSED. 11. IN ASSESSMENT YEAR 2006-2007 AND 2007-2008, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(A) ON T HE GROUND THAT THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE FO LLOWING ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -38- INCOME ARE NOT INCOME DERIVED FROM MANUFACTURING AC TIVITY, AND HENCE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. OTHER INCOME DAMAN UNIT ( ` ) GOA UNIT ( ` ) ASSTT.YEAR : 2006-07 2007-08 2006-07 2007-08 1. DIVIDEND RECEIVED 6,756 - 8,900 - 2. FDR INTEREST 5,93,380 1,06,23,708 1,52,319 3,67,539 3. INTEREST ON STAFF LOAN 0 4,913 4,389 16,121 4. DEPB INCENTIVES 9,42,601 4,71,595 1,98,739 0 TOTAL 15,42,737 1,11,00,216 3,67,347 3,83,660 12. AT THE TIME OF HEARING, THE LEARNED AR OF THE A SSESSEE SUBMITTED THAT AS REGARDS DIVIDEND INCOME OF ` 6,756/- FROM DAMAN UNIT AND ` 8,900/- FROM GOA UNIT, HE CONCEDED THAT SAME ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB O F THE ACT. THUS, THIS PART OF THE GROUND OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 13. AS REGARDS THE INTEREST ON FDR OF ` 5,93,380/- FROM DAMAN UNIT AND ` 1,52,319/- FROM GOA UNIT IN ASSTT.YEAR 2006-2007 A ND FDR INTEREST OF ` 1,06,23,708/- FROM DAMAN UNIT AND ` 3,67,539/- FROM GOA UNIT IN ASSTT.YEAR 2007-2008, H E PRAYED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF T HE AO FOR EXAMINING THE SAME AND ALLOWING NETTING OF THE INTE REST INCOME WITH INTEREST EXPENDITURE AND REDUCING ONLY THE NET AMOUNT OF INTEREST INCOME, IF ANY. FOR THIS, HE PLACED RELIA NCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ACG ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -39- ASSOCIATED CAPSULES PVT. LTD. VS COMMISSIONER OF IN COME-TAX, (2012) 343 ITR 089 (SC). 14. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS THAT THE ASSESSE E DERIVED INTEREST INCOME ON FIXED DEPOSIT (FDRS. FOR SHORT). SUCH INTEREST INCOME RECEIVED FROM DAMAN UNIT AND GOA UNIT ARE AS UNDER: A.Y.2006-2007 A.Y.2007-2008 DAMAN UNIT ` 5,93,380/- ` 1,06,23,708 GOA UNIT ` 1,52,319/- ` 3,67,539/- THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IB W ITHOUT EXCLUDING THE ABOVE INTEREST INCOME. BEFORE THE AO , THE ASSESSEE CONTENDED THAT HE HAS ALSO INCURRED INTEREST EXPENS ES, AND THEREFORE, ONLY NET INTEREST, IF ANY, OUGHT TO BE E XCLUDED FOR COMPUTING THE BUSINESS INCOME DERIVED FROM ELIGIBLE INDUSTRIAL UNDERTAKING, AND THEREFORE, NOT ELIGIBLE FOR DEDUCT ION UNDER SECTION 80IB OF THE ACT. IN RESPECT OF NETTING OF INTEREST EXPENDITURE, THE AO OBSERVED THAT NO MATERIAL WAS B ROUGHT BY THE ASSESSEE TO SHOW THAT BORROWED FUNDS WERE UTILI ZED FOR MAKING FDRS AND CONSEQUENTLY, NOT ACCEPTED THE SAID PLEA OF THE ASSESSEE ALSO. ON APPEAL, THE LEARNED CIT(A) CONFI RMED THE ACTION OF THE AO BY HOLDING THAT THE INTEREST ON FD R CANNOT BE HELD AS DERIVED FROM ELIGIBLE INDUSTRIAL UNDERTAKIN G. BEFORE US, THE LEARNED AR CLAIMED THAT THE LOWER AUTHORITIES W ERE NOT JUSTIFIED IN NOT ALLOWING SET OFF OF INTEREST EXPEN DITURE WITH THE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -40- INTEREST INCOME CONTENDING THAT THE ONLY NET INTERE ST INCOME, IF ANY, SHOULD BE EXCLUDED FROM THE BUSINESS INCOME FO R COMPUTING THE BUSINESS INCOME DERIVED FROM THE ELIGIBLE UNDER TAKING HE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. VS. C IT, (SUPRA) IN SUPPORT OF THE ABOVE CONTENTIONS. HE REQUESTED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO WITH THE DIRECTION TO INCLUDE NET INTEREST INCOME, IF ANY, FOR CALCULATIN G THE INCOME WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. ON THE OTHER HAND LEARNED DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. 15. WE FIND THAT IT IS NOT IN DISPUTE BEFORE US THA T INTEREST ON FDRS CANNOT BE HELD AS INCOME DERIVED FROM INDUSTRI AL UNDERTAKING IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS COMM ISSIONER OF INCOME-TAX, 262 ITR 278 (SC). THE ONLY CONTENTION BY THE ASSESSEE BEFORE US IS NETTING OF INTEREST INCOME WI TH THE INTEREST EXPENDITURE OF THE ASSESSEE. IN OUR CONSIDERED VIE W, WHEN DEPOSIT IN FDRS IS MADE WITH THE BORROWED FUNDS, TH EN, ONLY NET INCOME CAN BE SAID TO BE THE INTEREST INCOME DERIVE D FROM FDRS. HOWEVER, WE FIND THAT IN THE INSTANT CASE, THE AO H AS CATEGORICALLY RECORDED THAT THE ASSESSEE HAS BROUGH T NO MATERIAL BEFORE HIM TO SHOW THAT BORROWED FUNDS WERE UTILIZE D FOR MAKING THE FDRS. WE FIND THAT BEFORE US ALSO THE ASSESSEE COULD NOT BRING ANY MATERIAL TO SHOW THAT THERE WAS ANY NEXUS BETWEEN THE INTEREST EXPENDITURE AND THE INTEREST INCOME EARNED ON FDRS. BY ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -41- THE ASSESSEE. IN THE ABSENCE OF THE SAME, WE DO NO T FIND ANY GOOD REASONS TO INTERFERE WITH THE ORDERS OF THE LOWER A UTHORITIES ON THIS ISSUE, WHICH IS CONFIRMED. 16. IN RESPECT OF DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA), WE FIND THAT THE SAME WAS RENDERED IN THE CONTEXT OF SECTION 80H HC OF THE ACT. AS PER THE EXPLANATION (BAA) TO SECTION 80HHC FOR COMPUTING THE PROFIT OF THE BUSINESS, 90% OF THE IN TEREST INCOME WHICH HAS BEEN INCLUDED IN THE BUSINESS INCOME, IS REQUIRED TO BE EXCLUDED. IN THIS CONTEXT, THE HONBLE SUPREME COU RT HAS HELD THAT ONLY 90% OF NET AMOUNT I.E. AFTER SET OFF OF I NTEREST EXPENDITURE, FROM SUCH INTEREST INCOME NEEDS TO BE EXCLUDED. THUS, THE SAID DECISION WAS NOT IN THE CONTEXT OF T HE ISSUE, WHICH IS INVOLVED IN THE PRESENT APPEAL, RELEVANT FOR DET ERMINING THE INCOME, WHICH IS DERIVED FROM ELIGIBLE UNDERTAKING. THUS, THE SAID DECISION IS DISTINGUISHABLE AND NOT APPLICABLE IN THE INSTANT CASE. WE, THEREFORE, DISMISS THIS PART OF THE GROU ND OF THE APPEAL OF THE ASSESSEE. 17. AS REGARDS INTEREST ON STAFF LOAN OF ` 4,913/- FROM GOA UNIT IN ASSTT.YEAR 2006-2007 AND INTEREST ON STAFF OF ` 4,913/- FROM DAMAN UNIT AND ` 16,121/- FROM GOA UNIT IN ASSTT.YEAR 2007-208, THE LEARNED AR OF THE ASSESSEE CONCEDED THAT THE AS SESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB ON THE SA ME, THEREFORE, THIS PART OF THE GROUND OF THE APPEAL IS ALSO DISMI SSED. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -42- 18. WITH REGARD TO THE DEPB INCENTIVE OF ` 9,42,601/- FROM DAMAN UNIT AND ` 1,98,739 FROM GOA UNIT FOR A.Y.2006-2007 AND DEPB INCENTIVE OF ` 4,71,595/- FROM DAMAN UNIT FOR ASSTT.YEAR 2007-2008, THE LEARNED AR FAIRLY CONCEDE D THAT THE ASSESSEE WILL NOT BE ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IB OF THE ACT ON THE SAME, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CSE OF LIBERTY INDIA LTD. VS. CIT, 317 ITR 218 (SC). THEREFORE, THIS PART OF THE GROUND OF TH E APPEAL IS ALSO DISMISSED. 19. IN THE REVENUES APPEAL FOR A.Y.2006-2007 AND 2 007- 2008, THE GROUND NO.3 OF THE SAID APPEAL RELATES TO THE ORDER OF THE CIT(A) HOLDING THAT EXCHANGE RATE DIFFERENCE OF ` 51,025/- IN A.Y.2006-2007 AND ` 47,27,282/- IN A.Y.2007-2008, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE AC T. 20. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE EXCHANGE GAIN DIFFERENCE IS SPECULATION PROFIT BECA USE THE SAME WAS ON ACCOUNT OF FORWARD CONTRACT PURCHASED BY THE ASSESSEE. THEREFORE, FOLLOWING THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. STERLING FOODS, (1999) 237 I TR 579 HELD THAT EXCHANGE GAIN DIFFERENCE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. 21. ON APPEAL, THE LEARNED CIT(A) FOLLOWING THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RA CHNA UDYOG (BOM) ITA NO.2394 OF 2009 DATED 13.1.2010 HEL D THAT ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -43- DIFFERENCE ON ACCOUNT OF EXCHANGE RATE FLUCTUATION WAS ELIGIBLE TO ALLOWED UNDER SECTION 80IB OF THE ACT. THE EXCHANG E RATE FLUCTUATION ARISES OUT OF AND IS DIRECTLY RELATED T O THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE IN DUSTRIAL UNDERTAKING. 22. THE LEARNED DR BEFORE US RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED AR FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A), AND SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AMBA IMPE X, 282 ITR 144 (GUJ) HAS HELD THAT EXCHANGE RATE FLUCTUATION W AS PART OF THE SALE PRICE, AND THEREFORE ELIGIBLE FOR DEDUCTION UN DER SECTION 80IB OF THE ACT. AS AGAINST THIS, THE LEARNED DR COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE LEARNED CIT( A), AND ALSO COULD NOT CITE ANY CONTRARY DECISION TO THE ONE, RE LIED ON BY THE LEARNED CIT(A) AND THE COUNSEL FOR THE ASSESSEE. W E FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEAR NED CIT(A), WHICH IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 23. THE GROUND NO.4 OF THE ASSESSEE IN ASSTT.YEAR 2 006-2007 AND 2007-2008 ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) IN HOLDING THAT THE SUNDRY BALANCE WRITTEN B ACK OF ` 6,72,286/- FOR A.Y.2006-2007 AND ` 63,530/- FOR A.Y.2007-2008 ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF TH E ACT. ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -44- 24. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT DURING THE YEAR THE AMOUNT OF SUNDRY BALANCES WERE WRITTEN BACK, SINCE THEY WERE NO LONGER PAYABLE TO THE CREDITORS. FROM THIS, IT CAN BE INFERRED THAT THE AMOUNT IN QUESTION WAS TAKEN CARE WHILE AVAILING THE BENEFIT U/S.80IB IN THE YEAR IN WHICH THE EXPEN DITURE WAS INCURRED AND AMOUNTS WERE DUE TO THE CREDITORS. I T WAS HELD BY THE AO THAT THE INCOME SHOWN BY THE ASSESSEE UNDER THE HEAD BALANCE WRITTEN BACK WAS NOTHING BUT THE CESSATION AND REMISSION OF TRADING LIABILITY UNDER SECTION 41(1) OF THE ACT , AND WAS NOT THE INCOME DERIVED FROM INDUSTRIAL UNDERTAKING, AND THE REFORE, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE AC T. 25. ON APPEAL, THE LEARNED CIT(A) HELD THAT THESE A MOUNTS WERE ALLOWED AS EXPENDITURE AND PROFIT WAS REDUCED AND THE DEDUCTION UNDER SECTION 80IB WAS ALLOWED LESS. HE NCE, IN THE YEAR IN WHICH IT HAS BEEN WRITTEN BACK, IT WAS ELIG IBLE FOR DEDUCTION UNDER SECTION 80IB. 26. THE LEARNED DR SUPPORTED THE ORDER OF THE AO, W HEREAS, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A). 27. AFTER CONSIDERING RIVAL SUBMISSIONS AND PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILA BLE ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE HAS WRITTEN OFF SUNDRY CREDIT BALANCE, AND ADDED THE SAME TO THE IN COME OF THE CURRENT YEAR. THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -45- ON THE SAME INCOME. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AND HELD THAT IT WAS NOT THE INCOME DERIVE D FROM INDUSTRIAL UNDERTAKING. ON APPEAL, THE LEARNED CIT (A) HAS ALLOWED CLAIM OF THE ASSESSEE BY HOLDING THAT IN TH E YEAR IN WHICH THESE AMOUNTS OF THE CREDIT FOR PURCHASES MADE, THE PROFIT OF THE ASSESSEE WAS REDUCED IN THAT YEAR, AND THE ASSESSEE WAS ALLOWED LESS DEDUCTION UNDER SECTION 80IB OF THE ACT. THER EFORE, IN THE PRESENT YEAR, WHEN THESE AMOUNTS ARE WRITTEN BACK, AS LIABILITIES ARE NOT PAYABLE, THE ASSESSEE WAS ELIGIBLE FOR DEDU CTION UNDER SECTION 80IB ON THE SAID AMOUNT. WE ARE OF THE CON SIDERED OPINION THAT IT IS NOT IN DISPUTE THAT SUNDRY CREDI T BALANCE WRITTEN BACK ARE THE AMOUNTS PAYABLE TO THE CREDITORS FOR P URCHASES MADE BY THE ASSESSEE FOR RAW-MATERIAL USED IN THE PRODUC TION OF THE GOODS FOR THE ELIGIBLE UNDERTAKING OF THE ASSESSEE. THUS, IN THE YEAR OF PURCHASES, THE INCOME FROM THE ELIGIBLE UND ERTAKING OF THE ASSESSEE IS REDUCED, ON ACCOUNT OF THE PURCHASE S DEBITED IN THE PROFIT & LOSS ACCOUNT, AND THE CORRESPONDING CR EDIT, AS PAYABLE TO THE SUNDRY CREDITORS. THEREFORE, IN THE YEAR OF WRITING BACK OF THESE LIABILITIES, AS NOT PAYABLE, AND CRED ITED THE SAME AMOUNT IN THE PROFIT & LOSS ACCOUNT, THE CHARACTER OF THE RECEIPT REMAINS TO BE PROFIT TO THE ELIGIBLE UNDERTAKING, A ND HENCE, ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE AC T. OUR VIEW IS SUPPORTED BY THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. PRATHAN DEVELOPERS, 35 5 ITR 507 (GUJ). WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ACIT VS. M/S. ESS DEE ALUMINUM LTD. (FIVE APPEALS) -46- LEARNED CIT(A) AND THIS GROUND IN THE APPEAL OF THE REVENUE FOR BOTH THE YEARS ARE DISMISSED. 28. IN THE RESULT ALL THE APPEALS OF THE REVENUE AN D ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD