DCIT, Tiruppur V. M/s. Indoflex Wind Power Pvt. Ltd., Tiruppur

ITA 2160/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7814 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 29-12-2016
• Assessment Year: 2013-2014
• Appeal Filed On: 18-07-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS JCIT DR ITA NOS
• Assessee Lawyers: R KUMAR
• Keywords: Tax effect
• Section: 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.2052/MDS./2016 / ASSESSMENT YEAR : 2013-14 M/S.INDOFLEX WIND POWER PVT. LTD., 8,PUTHU THOTTAM,SHERIFF COLONY, TIRUPUR 641 604. VS. THE ITO, WARD 1(3), TIRUPUR. [PAN AACCI 9568 C ] ( () / APPELLANT) ( *+() /RESPONDENT) ./ I.T.A.NO.2160/MDS./2016 / ASSESSMENT YEAR : 2013-14 THE ITO, WARD 1(3), TIRUPUR VS. M/S.INDOFLEX WIND POWER PVT. LTD., 8,PUTHU THOTTAM,SHERIFF COLONY, TIRUPUR 641 604. [PAN AACCI 9568 C ] ( () / APPELLANT) ( *+() /RESPONDENT) ASSESSEE BY : MR.R.KUMAR,ADVOCATE REVENUE BY : MR.SHIVA SRINIVAS, JCIT, DR ITA NOS.2052/2160/16 :- 2 -: / DATE OF HEARING : 29 - 12 - 2016 / DATE OF PRONOUNCEMENT : 27 - 02 - 2017 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS CROSS APPEAL FILED BY THE ASSESSEE AND THE REV ENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMIS SIONER OF INCOME TAX(A)-3, COIMBATORE DATED 27.05.2016 PERTAI NING TO THE ASSESSMENT YEAR 2013-14. FIRST WE TAKE UP ASSESSEES APPEAL 2. THE MAIN GRIEVANCE OF THE ASSESSEE IN ITS APPEA L IS WITH REGARD TO NON-GRANTING OF DEDUCTION U/S.80-IA OF TH E ACT ON THE REASON THAT THE ASSESSEE COMPANY HAS BEEN FORMED BY RECONSTRUCTION OF EARLIER FIRM INDOFLEX POWER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE WAS UPTO THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2012-13 WAS CARRYING ON THE BUSINESS IN THE STATUS OF FIRM IN THE NAME OF INDOFLEX SCREEN PRINT SUPPLIES WITH THE FOLLOWIN G PARTNERS:- I) MR.V.THIRUVENKATASAMY, S/O.M.VELUSAMY CHETTI AR II) MR.T.VELUSAMY, S/O. MR.V.THIRUVENKATASAMY III MR.T.KLANNAN, S/O.V.THIRUVENKATASAMY IV) MISS.T.SAKUNTHALA, D/O.B.SIVASUBRAMANIAM. ITA NOS.2052/2160/16 :- 3 -: DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEA R 2013-14, THE FIRM UNDERWENT A CHANGE IN ITS CONSTITUTION BY ADMITTING THREE MORE MEMBERS VIDE A PARTNERSHIP DEED DATED 23.05.20 12. A FIRM IN THE NAME AND STYLE M/S.INDOFLEX WIND POWER WAS CONSTITUTED WITH SEVEN MEMBERS VIZ. I) MR.V.THIRUVENKATASAMY, S/O.M.VELUSAMY CHETTIA R II) MR.T.VELUSAMY, S/O. MR.V.THIRUVENKATASAMY III MR.T.KLANNAN, S/O.V.THIRUVENKATASAMY IV) MISS.T.SAKUNTHALA, D/O.B.SIVASUBRAMANIAM V) MISS.V.ANGUMUTHULAKSHMI,D/O.G.KUMARASAMY VI) MISS. K.SNEHALATHA, D/O.P.ANBALAGAN VII) MR.V.LALITH NARAIN, S/O.T.VELUSAMY THE FIRM WITH THE NEW PARTNERS WAS EFFECTIVE FROM 2 3.05.2012 AS MENTIONED IN THE PARTNERSHIP DEED. AS THE PRINT IN K DIVISION WAS STOPPED THE OBJECT OF THE NEW FIRM WAS TO MANUFACTU RE, TRANSMIT, BUY, SELL AND DEAL IN WIND ENERGY GENERATED FROM WI ND ELECTRICY GENERATORS. ALL THE SIX WIND MILL MACHINES AS MENTI ONED IN SCHEDULE A TO THE PARTNERSHIP DEED WERE CONTRIBUTED AS GOING CONCERN TO THE NEW PARTNERSHIP FIRM INDOFLEX WIND POWER WITH EFFECT FROM 23.05.2012. ITA NOS.2052/2160/16 :- 4 -: 3.1 THE DEED OF PARTNERSHIP DATED 23.05.2012 IN P ARA 6.1 MENTIONS THAT THE PARTNERSHIP IS A JOINT STOCK COMP ANY WITHIN THE MEANING OF SEC.566 OF THE COMPANIES ACT, 1956 AND T HE FIRM SHALL HAVE A PAID UP SHARE CAPITAL OF RS.10,00,000/- DIVI DED INTO 1,00,000/- EQUITY SHARES OF RS.10./- EACH AND CONTR IBUTED BY THE PARTNERS WHICH ARE TRANSFERABLE. SHARING RATIO I) MR.V.THIRUVENKATASAMY, 20% II) MR.T.VELUSAMY, 20% III MR.T.KLANNAN, 12% IV) MISS.T.SAKUNTHALA, 12% V) MISS.V.ANGUMUTHULAKSHMI, 12% VI) MISS. K.SNEHALATHA, 12% VII) MR.V.LALITH NARAIN, 12% 3.2 THE PARTNERSHIP FIRM INDOFLEX WIND POWER WAS REGISTERED AS A COMPANY WITH LIMITED LIABILITY UNDE R THE NAME AND STYLE INDOFLEX WIND POWER PVT. LTD., AS PER THE C ERTIFICATE OF INCORPORATION DATED 12 TH DAY OF JUNE 2012. AS PER CALUSE V OF THE MEMORANDUM OF ASSOCIATION OF THE COMPANY INDOFLEX WIND POWER PRIVATE LTD., THE AUTHORISED SHARE CAPITAL OF THE COMPANY IS RS.10,00,000/- DIVIDED INTO 1,00,000 EQU ITY SHARES OF ITA NOS.2052/2160/16 :- 5 -: RS.10/-. THE EQUITY SHARES 20,000 NUMBERS ALLOTTED TO SL. NO.I) & II) & 12,000 NUMBERS ALLOTTED TO SL. NOS. III) TO VII) AS MENTIONED ABOVE IN PARA 3.1. THE COMPANY IN ITS RETURN OF INC OME FILED HAD CLAIMED DEDUCTION U/S.80-IA TO THE TUNE OF ` 57,77,131/-(RESTRICTED TO INCOME AVAILABLE) THEREBY RETURNING A NIL INCOME FOR ASSESSMENT YEAR 2013-14. THE DEDUCTION CLAIMED BY T HE ASSESSEE U/S.80-IA OF THE ACT WAS DISALLOWED BY THE AO ON THE REASON THAT INDOFLEX WIND POWER PRIVATE LTD., HAS B EEN FORMED BY RECONSTRUCTION OF M/S. INDOFLEX WIND POWER. AGA INST THIS, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 3.3 THE APPELLANTS AR ARGUED BEFORE THE LD.CIT(A) THAT THERE IS NO RECONSTRUCTION OF THE UNDERTAKING BUT ONLY A CONVERSION OF THE BUSINESS FROM PARTNERSHIP WITH PRIVATE LIMITED COMPANY AND SAME PARTNERS AS DIRECTORS OF THE COMPANY. THE ASSE SSEES AR ALSO REFERRED TO CBDT CIRCULAR NO. F NO.15/5/63 L.T (A-1) DATED 13/12/1963 TAKING THAT THE BALANCE DEDUCTION FOR TH E BALANCE YEARS WILL HAVE TO BE ALLOWED. THE ONLY QUESTION IN VOLVES WHETHER THERE IS RECONSTRUCTION OR CONVERSION. SECTION 80-L A (3) READS AS UNDER: ITA NOS.2052/2160/16 :- 6 -: (3) THIS SECTION APPLIES TO AN UNDERTAKING REFERRE D TO IN CLAUSE (II) OR CLAUSE (IV) OF SUB SECTION (4) WHICH FULFILLS ALL THE FOLLOWING CONDITIONS, NAMELY: (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECONS TRUCTION OF A BUSINESS ALREADY IN EXISTENCE. 3.4 THE WORD RECONSTRUCTION IS NOT DEFINED IN THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER HAS CITED IN THE DECISI ON OF THE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. VS. COMMISSIONER OF INCOME TAX 1977), 107 ITR 195) WHIC H IS REPRODUCED BELOW: WHAT DOES RECONSTRUCTION MEAN ? TO MY MIND IT ME ANS THIS. AN UNDERTAKING OF SOME DEFINITE KIND IS BEING CARR IED ON, AND THE CONCLUSION IS ARRIVED AT THAT IT IS NOT DESIRABLE T O KILL THAT UNDERTAKING, BUT THAT IT IS DESIRABLE TO PRESERVE I T IN SOME FORM, AND TO DO SO, NOT BY SELLING IT TO AN OUTSIDER WHO SHALL CARRY IF ONTHAT WOULD BE A MERE SALEBUT IN SOME ALTERED FO RM TO CONTINUE THE UNDERTAKING IN SUCH A MANNER AS THAT T HE PERSONS NOW CARRYING IT ON WILL SUBSTANTIALLY CONTINUE TO C ARRY IT ON. IT INVOLVES, I THINK, THAT SUBSTANTIALLY THE SAME BUSI NESS SHALL BE CARRIED ON AND SUBSTANTIALLY THE SAME PERSONS SHALL CARRY IT ON. BUT IT DOES NOT INVOLVE THAT ALL THE ASSETS SHALL P ASS TO THE NEW COMPANY OR RESUSCITATED COMPANY, OR THAT ALL THE SH AREHOLDERS OF THE OLD COMPANY SHALL BE SHAREHOLDERS IN THE NEW CO MPANY OR RESUSCITATED COMPANY. SUBSTANTIALLY THE BUSINESS AN D THE PERSONS INTERESTED MUST BE THE SAME. 3.5 THE LD.CIT(A) OBSERVED THAT IN THE INSTANT CA SE, THE PERSONS CARRYING ON THE BUSINESS ARE SUBSTANTIALLY THE SAME. THE SAME BUSINESS IS CARRIED ON BY THE NEW COMPANY WHIC H HAS ITA NOS.2052/2160/16 :- 7 -: TAKEN OVER THE BUSINESS FROM ERSTWHILE PARTNERSHIP FIRM. THE CHARACTERISTICS OF RECONSTRUCTION WHICH HAS BEEN AC CEPTED BY THE APEX COURT WILL HAVE TO BE FOLLOWED. THE FACT THAT THE WINDMILL DIVISION OF THE ERSTWHILE FIRM HAS BEEN TAKEN OVER BY THEIR PARTNERS IN THE NEW COMPANY WHOSE DIRECTORS WERE PARTNERS OF THE ERSTWHILE FIRM AND THAT THE ASSET HAS BEEN USED IN THE SAME BUSINESS MAKES IT FALL WITHIN THE CONCEPTUAL DEFINI TION O RECONSTRUCTION LAID DOWN BY THE APEX COURT. SINCE T HE UNDERTAKING IS FORMED OUT OF RECONSTRUCTION, I.E. PARTNERSHIP FIRM TO THE COMPANY, DEDUCTION U/S 8OIA IS NOT ALLOWABLE UNDER SECTION 8OIA(I). ACCORDING TO THE LD.CIT(A), THE AS SESSEE IS NOT COVERED BY THE EXPLANATION (2) TO SUB SECTION WHIC H IS REPRODUCED AS UNDER: EXPLANATION 2 WHERE IN THE CASE OF AN UNDERTAKIN G ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY U SED FOR ANY PURPOSE OF TRANSFERRED TO A NEW BUSINESS AND THE TO TAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED DOES NOT EXCEED TWENTY PER CENT OF THE TOTAL VALUE OF THE MACHINERY OR PLANT U SED IN THE BUSINESS, THEN FOR THE PURPOSE OF CLAUSE (II) OF T HIS SUB-SECTION, THE CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH. 3.6 THE DEDUCTION U/S 801A DISALLOWED BY THE AS SESSING OFFICER TO THE TUNE OF ` 50,33,700/- FOLLOWING THE DECISION OF THE ITA NOS.2052/2160/16 :- 8 -: APEX COURT IS SUSTAINED AND IS CONFIRMED BY LD.CIT( A). AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT THE ASSESSEE C OMPANY HAS BEEN FORMED BY RECONSTRUCTION OF THE FIRM IND OFLEX POWER AND THE SAME CANNOT BE TERMED AS CONVERSION. HE SUBMITTED THAT THE WIND MILL DIVISION OF THE ERSTWHILE FIRM INDOFLEX POWER WAS REGISTERED AS A COMPANY WITH LIMITED LIABILITY UNDER THE NAME INDOFLEX WIND POWER PVT LTD AND THE PARTNERS OF T HE ERSTWHILE FIRM BECAME SHAREHOLDERS OF THE COMPANY, THEIR PROF IT SHARING RATIO IN THE FIRM AND THE PATTERN OF SHAREHOLDING B EING IDENTICAL AND ON SUCH FACTS THE PRINCIPLE OF RECONSTRUCTION I S NOT APPLICABLE. THE LD.A.R FURTHER SUBMITTED THAT THE JUDGEMENT OF SUPREME COURT IN THE CASE OF TEXTILE MAHCINERY CORPORATION LTD. VS. CIT (1977) 107 ITR 195(SC) IS NOT APPLICABLE TO THE FAC TS OF THE CASE IN HAND. 4.1 FURTHER, LD.A.R RELIED ON THE FOLLOWING CASE L AWS. I) IN THE CASE OF KUMARAN SYSTEMS (P) LTD.,VS. AC IT IN [2007] 14 SOT 1(CHENNAI) (URO) II) IN THE CASE OF ACIT VS. SPRAY ENGINEERING DEVIC ES LTD., IN [2012] 23 TAXMANN.COM 267(CHD.) ITA NOS.2052/2160/16 :- 9 -: III) IN THE CASE OF CIT VS. HEARTLAND KG INFORMATIO N LTD.,IN (2013) 359 ITR 1(MAD.) IV) IN THE CASE OF CIT VS. CHETAK ENTERPRISES P. LT D. IN (2010) 325 ITR 405 (RAJ.) V) IN THE CASE OF CIT VGS. FORESEE INFORMATION SYS TEMS P. LTD. IN (2014) 365 ITR 335(KAR.) 4.1 ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER OF LOWER AUTHORITIES AND REITERATED THE GROUNDS RAISED IN TH E APPEAL OF REVENUE. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF LD.A.R I S THAT THERE IS ERSTWHILE PARTNERSHIP FIRM, NAMELY, M/S.INDOFLEX WI ND POWER CARRYING ON THE BUSINESS OF IMPORT & SALE OF PRINTI NG INKS AND PRODUCTION & SALE OF WIND POWER ENERGY WAS CONVERTE D INTO A PRIVATE LIMITED COMPANY AS INDOFLEX WIND POWER PVT. LTD., . IN VIEW OF THIS, PROVISIONS OF THE SECTION 80-IA OF TH E ACT, THE EARLIER PARTNERSHIP FIRM IS ENTITLED TO DEDUCTION U/S.80-IA OF THE ACT AND THE SAME TO BE ALLOWED TO THE PRESENT ASSESSEE FOR THE REMAINING PERIOD. FURTHER, IT IS SUBMITTED THAT THE DEDUCTIO N U/S.80-IA FOR THE REMAINING PERIOD COULD NOT BE DENIED TO THE ASSESSE E ON THE ITA NOS.2052/2160/16 :- 10 - : GROUND THAT THERE WAS RECONSTRUCTION OF THE ASSESS EE FIRM BY WAY OF CONVERSION OF PARTNERSHIP FIRM INTO LIMITED COM PANY. IN OUR OPINION, THERE IS A FORCE IN THE ARGUMENT OF THE LD .A.R THAT IF THERE IS NO CHANGE IN THE COMPOSITION OF MEMBERS IN PRIV ATE LIMITED COMPANY, I.E., IF ALL THE PARTNERS OF THE ERSTWHILE FIRM HAVE BECOME MEMBERS/ DIRECTORS OF THE NEW COMPANY, WHICH CARRIE S THE BUSINESS OF WIND MILL DIVISION, THEN, DEDUCTION U/ S.80-IA OF THE ACT TO BE ALLOWED FOR THE REMAINING PERIOD FOR WHICH TH E ERSTWHILE FIRM WAS ENTITLED FOR DEDUCTION U/S.80-IA OF THE ACT. IN VIEW OF THIS, WE ARE REMITTING THE ISSUE IN DISPUTE BACK TO THE FILE OF AO TO EXAMINE COMPOSITION OF THIS PRIVATE LIMITED COMPANY WHETHER ALL THE PARTNERS OF ERSTWHILE PARTNERSHIP FIRM HAVE BECOME THE MEMBERS/DIRECTORS OF THIS ASSESSEE COMPANY, IF SO, DEDUCTION U/S.80-IA TO BE GRANTED TO THE ASSESSEE FOR THE REM AINING PERIOD FOR WHICH THE ERSTWHILE PARTNERSHIP FIRM IS ENTITLE D FOR DEDUCTION. WITH THIS OBSERVATION, WE REMIT THIS ISSUE TO THE F ILE OF LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. HENCE, T HIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL 6. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS FO R OUR CONSIDERATION. ITA NOS.2052/2160/16 :- 11 - : 1) THE ORDER OF THE LEARNED CIT(A)-3, COIMBATORE IS AGAINST FACTS AND CIRCUMSTANCES OF THE CASE. 2) THE LEARNED CIT(A)-3 HAS ERRED IN CONFIRMING BY DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 801A AMOUNTING TO RS.57,77,131/-. 3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN LAW IN HOLDING THAT UNABSORBED DEPRECI ATION OF EARLIER YEARS BEFORE THE FIRST YEAR OF CLAIM, WHICH HAS ALREADY B EEN ABSORBED, SHOULD NOT BE NOTIONALLY CARRIED FORWARD AND TAKEN INTO CONSID ERATION FOR COMPUTATION OF DEDUCTION UNDER SECTION 80-IA OF THE ACT ? 4) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN LAW IN HOLDING THAT THE ASSESSEE IS EN TITLED TO CLAIM DEDUCTION U/S 80-IA ? 5) THE DEDUCTION OF 80-IA CLAIMED FOR TRANSFER OF M ACHINERY USED BY OTHER ENTITY (PURCHASED FROM THEIR SISTER CONCERN) TO THE TUNE OF R.16,62,998/- DURING THE YEAR RELEVANT TO THE A.Y 2013-14 IS NOT ALLOWABLE FOR DEDUCTION AS PER SECTION 801A(3)(II) OF THE I.T.ACT. 6) FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE CIT(A) MAY BE CANCELLED AND THAT O F THE ASSESSING OFFICER RESTORED. 7. ON HEARING THE LD. DEPARTMENTAL REPRESENTATIVE, SHRI SHIV SRINIVAS, WE FIND THAT THE TAX EFFECT IN THIS APPEAL IS LESS THAN ` 10 LAKHS. THE CBDT IN CIRCULAR NO.21/2015 DATED 1 0.12.2015 INCREASED THE MONETARY LIMIT FOR FILING APPEAL BEFO RE THIS TRIBUNAL FROM ` 4 LAKHS TO ` 10 LAKHS. THE CBDT FURTHER CLARIFIED THAT THE INSTRUCTION DATED 10.12.2015 WILL APPLY RETROSPECTI VELY TO ALL THE PENDING APPEALS BEFORE THIS TRIBUNAL. THE CBDT HAS ALSO INSTRUCTED ITS OFFICERS TO WITHDRAW THE APPEALS PEN DING BEFORE THIS ITA NOS.2052/2160/16 :- 12 - : TRIBUNAL. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIRCULAR ISSUED BY THE CBDT ON 10. 12.2015 IS BINDING ON THE DEPARTMENT. THEREFORE, THE APPEAL F ILED BY THE REVENUE IS NOT MAINTAINABLE. ACCORDINGLY, THE APPE AL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 27 TH FEBRUARY, 2017, AT CHENNAI. SD/ - SD/ - ( . ! ) ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: FEBRUARY, 2017. K S SUNDARAM &' ) *+ ,+ / COPY TO: 1 . -. / APPELLANT 3. / () / CIT(A) 5. +01 ) 2 / DR 2. )3-. / RESPONDENT 4. / / CIT 6. 1! 4 / GF