M/s. Controlled Acoustic Inds.Pvt.Ltd., Mumbai V. The Dy.CIT.,S.K.Circle, Himatnagar

ITA 2264/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94438 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-08-2015
• Assessment Year: 1996-1997
• Appeal Filed On: 07-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Initiation of penalty proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM . ITA NO.2264/AHD/2011 ASST. YEAR : M/S CONTROLLED ACOUSTIC INDS. P. LTD., 32, MANOJ INDL. ESTATE, 40-A, G.D. AMBEDKAR ROAD, WADALA, MUMBAI -400-31 VS DY. C.I.T., SK CIRCLE, HIMATNAGAR, DIST. S.K. (APPELLANT) (RESPONDENT) PA NO.AABCC2902P APPELLANT BY MS. URVASHI SHODHAN, AR RESPONDENT BY MR. D. C. MISHRA, SR.DR DATE OF HEARING: 19/8/2015 DATE OF PRONOUNCEMENT: 11/09/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER O F CIT(A) VIII, AHMEDABAD DATED 8 TH JULY, 2011 PASSED FOR AY 2006-07. IT EMERGES OUT OF AN ASSESSMENT ORDER DATED 30/11/2007 PASSED UNDER SECTION 143(3) R.W.S. 250 OF THE INCOME-TAX ACT, 1961(HEREI N AFTER REFERRED TO AS THE ACT), BY DCIT, SABARKANTHA CIRCLE, HIMATNAGA R. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 2 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING ACTION OF AO IN DISALLOWING THE CLAIM OF THE APPELLANT U/S 80I AND 80HH OF THE ACT IN THE PROCEEDINGS UNDE RTAKEN IN THE SET ASIDE ASSESSMENT BY THE ORDER OF THE HONBL E INCOME- TAX APPELLATE TRIBUNAL. BOTH THE LOWER AUTHORITIES HAVE NOT APPRECIATED THE FACT THAT THE MATTER WAS SET ASIDE FOR DE-NOVO PROCEEDINGS TO GRANT OPPORTUNITY TO THE APPELLANT T O MAKE A SCHEMATIC REPRESENTATION IN RESPECT OF PRODUCTION O F BOTH THE UNITS SO AS TO MEET OUT CAUSE OF NATURAL JUSTICE. U NDER THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) OUGHT TO HAVE ACCEPTED THE VARIOUS SUBMISSIONS AND DOCUMENTARY EV IDENCE PRODUCED TO HOLD THAT THE APPELLANT HAD SET UP A NE W INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80I OF THE A CT AND OUGHT TO HAVE QUASHED THE ORDER PASSED BY AO. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN HOLDING THAT THE APPELLANTS CASE WAS OF EXPANSION/MODIFICATION OF OLD UNIT AND NOT OF SETTING UP OF NEW INDUSTRIAL UNDERTAKING AND THUS MAKING IT INELIGIBLE FOR CLAIM OF DEDUCTION U/S 80I OF THE ACT. BOTH THE LOWER AUTHORITIES GRAVELY ERRED IN HOLDING THAT DUE TO VIOLATION OF THE PROVISIONS OF EXPLANATION 2 TO SEC TION 80I(1), EVEN WHILE SETTING UP A NEW UNIT, THE APPELLANT WAS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80I OF THE ACT. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO HOLDING THAT THE CLAIM OF DEDUCTION U/ S 80I AND 80HH OF THE ACT WAS AVAILABLE TO THE APPELLANT ONLY FOR 8 AND 10 YEARS COMMENCING FROM AY 1983-84. THE LD. CIT(A) OU GHT TO HAVE APPRECIATED THE SUBMISSIONS, EVIDENCES AND FAC TUAL DATA SUBMITTED DURING THE NEW PROCEEDINGS TO HOLD THE AP PELLANT ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80I AND 80HH OF THE ACT. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, EDIT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEA L AT THE TIME OF OR BEFORE THE BEARING OF THE APPEAL. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 3 2. BRIEF FACTS OF THE CASE ARE THAT THIS IS THE SEC OND ROUND OF LITIGATION. IN EARLIER ROUND THE ISSUE REGARDING TH E ELIGIBILITY OF ASSESSEES CLAIM UNDER SECTION 80I & 80HH OF THE A CT, WAS RESTORED BACK TO THE FILE OF AO VIDE THE ORDER OF ITAT, AHME DABAD IN ITA NO.1378/AHD/2000 DATED 30.11.2006. THE ITAT HAS RE STORED THE ISSUE BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ITA NO.1378/AHD/2000 DATED 30.11.2006, WHEREIN THE MATT ER WAS SET ASIDE TO THE FILE OF AO. THE AO WAS DIRECTED TO PRO VIDE PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEN PASS FRESH ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 250 OF THE ACT. THE LD. AO AGAIN DISALLOWED THE DEDUCTION U/S 80HH & 80I OF THE ACT GIVING FOLLOWING FINDING:- REPLY OF THE ASSESSEE IS NOT CONSIDERED SATISFACTO RY. ON VERIFICATION OF CLAIM U/S 80HH AND 80I IN THE AY 1993-94. CLAIM WAS REJECTED VIDE ORDER DATED 19.03.99 CIT(A) IX HAD CONFIRMED DISALLOWANCE OF CL AIM U/S 80HH & 80I FOR CLAIM OF U/S 80I(2)(II) THERE ARE CERTAIN CONDITION WHICH ARE TO FULFILL FOR NEW INDUSTRIAL UNDERTAKING. ASSESSEE COMPANY HAD NOT FULFILL THE C ONDITION LAID DOWN U/S 80I(2) AS MORE THAN 20% OF ITS PLANT & MACHINERY HAD BEEN PREVIOUSLY USED, THEREFORE CLAIM U/S 80I AS REJECTED. SIMILAR IT THE COMPANY A LSO FAILED TO FULFILL THE CONDITION LAID DOWN U/S 80HH(2)(II) FOR CLAIM PERIOD IN RESPE CT OF OLD UNDERTAKING WAS ALREADY EXPIRE IN AY 1992-93. THEREFORE CLAIM U/S 8 0HH WAS REJECTED IN AY 1993-94 AS ASSESSEE COMPANY HAD NOT FULFILL ANY CON DITION. ASSESSEE COMPANY HAD SIMPLY MODERNIZATION OF AN OLD UNIT AND CLAIM THAT NEW UNIT COME IN EXISTENCE. ASSESSEE COMPANY HAD CL AIMED DEPRECIATION ON THE ADDITIONAL PLANT AND MACHINERY IN THE YEAR OF INSTA LLATION I.E. IN THE AY 1988-89 TO 1990-91. THESE NEW MACHINERY WAS INSTALLED BECAME A N INTEGRAL PART OF AN OLD INDUSTRIAL UNDERTAKING. ASSESSEES CONTENTION THAT THE NEW UNIT HAS COME INTO EXISTENCE IN THE YEAR 1990-91 IS TOTALLY WRONG. ASS ESSEE COMPANY HAD NEW MACHINERY AS WELL AS OLD MACHINERY USED IN CLAIMED NEW INDUSTRIAL WAS REJECTED ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 4 IN AY 1993-94 AS OLD MACHINERY WAS MORE THAN 20%. A S PER ASSESSMENT YEAR 1993-94 CLAIM FOR DEDUCTION FOR DEDUCTION U/S 80HH (2)(II) WERE REJECTED. WHICH WAS CONFIRMED BY THE CIT(A)IX, AHMEDABAD VIDE ORDER NO.CIT(A)IX, GNR. AS PER DIRECTION OF ITATS ORDER. I HAD VERIFIED THE C LAIM AND . OF ASSESSMENT YEAR 1993-94. I REJECT THE CLAIM U/S 80HH & 80I(2)9II). I HAD VERIFIED THE SUBMISSION FILED VIDE LETTER DATED 23.11.2007. IT IS NOT DISPUTED AND DENIED THAT THE ASSESSEE COM PANY HAS STARTED INSTALLING NEW PLANT AND MACHINERY FROM AY 1988-89 IN PIECE-MEAL AND PHASE- WISE. IT IS ALSO SEEN THAT THE ASSESSEE COMPANY ALS O CLAIMED DEPRECIATION IN RESPECT OF PLANT AND MACHINERY AND BUILDING AS THEY WERE INSTALLED/CONSTRUCTED AND PUT INTO USE IN THE RESPECTIVE ASSESSMENT YEARS . FROM THE ABOVE THERE IS NO ESCAPEMENT FROM THE CONCLUSION THAT THE INTENTION O F THE ASSESSEE COMPANY WAS MERE EXPANSION OF ITS BUSINESS RATHER THAN SETTING UP NEW INDUSTRIAL UNDERTAKING AS A WHOLE. HAD THE ASSESSEE COMPANY INTENDED TO SE T UP NEW INDUSTRIAL UNDERTAKING IT WOULD NOT HAVE CLAIMED DEPRECIATION IN RESPECT OF ASSETS IN THE FORM OF PLANT & MACHINERY AND BUILDING INSTALLED AN D PUT INTO USE DURING THE AY 1998-89, 1989-90 & 1990-91. INSTALLATION AND PUTTIN G INTO USE OF PLANT & MACHINERY DURING AY 1988-89, 1989-90 AND 1990-91 CL EARLY INDICATED THAT THE ASSESSEE COMPANY THOUGH PURCHASED MACHINERIES BASED ON NEW TECHNOLOGY, BUT SIMULTANEOUSLY USED THE SAME ALONG WITH OLD MAC HINERIES AS AN EXPANSION OF THE BUSINESS AND THEREFORE, DEPRECIATION WAS CLAIME D. IT WAS CLAIMED BY THE ASSESSEE THAT COMPLETION OF I NSTALLATION OF MACHINERY WAS ON 8.2.90. FURTHER, THE ASSESSEES CL AIM THAT IT HAS SET UP NEW INDUSTRIAL UNDERTAKING DURING FY 1990-91, ALSO FAIL S AS THE ASSESSEE COMPANY FAILED TO COMPANY WITH THE CONDITIONS AS MENTIONED IN SECTION 80U(2)(II) WHICH REQUIRES THAT NEW INDUSTRIAL UNDERTAKING SHOULD NOT BE FORMED BY TRANSFER TO A NEW BUSINESS, MACHINERY OR PLANT PREVIOUSLY USED FO R ANY PURPOSE. HERE IT IS EVIDENT FROM THE FACTS GIVEN ABOVE THAT THE ASSESSE E COMPANY HAS USED PLANT & MACHINERY OF SO-CALLED NEW INDUSTRIAL UNDERTAKING D URING THE FY 1987-88, 1988- 89, 1989-90 AND CONST OF SUCH PLANT & MACHINERY EAR LIER USE BY THE ASSESSEE ITSELF EXCEEDS BY MORE THAN THE 20% OF THE TOTAL CO ST OF PLANT & MACHINERY OF THE SO-CALLED NEW INDUSTRIAL UNDERTAKING. IN VIEW OF TH E ABOVE, THE ASSESSEES CLAIM U/S 80I FAILS. ALL HIGH COURTS ARE UNANIMOUS IN HOL DING THAT IF THE ASSESSEE ITSELF USED THE MACHINERY AND LATER ON TRANSFER INTO THE N EW INDUSTRIAL UNDERTAKING THAT WOULD BE TREATED AS USED PLANT & MACHINERY. THE DEC ISION IN THE CASES OF KANAIYALAL RAMESHWAR DAS VS. CIT (1985) 156 ITR 463 (RAJ) AND ELECTRONIC CORPORATION OF INDIA LTD. VS. CIT (1985) 151 ITR 38 1 (AP) ARE REFERRED IN THIS REGARD. THUS THE EVIDENCE ON RECORD CLEARLY INDICAT E THAT NEW INDUSTRIAL UNDERTAKING OF THE ASSESSEE COMPANY WAS SET UP IN T HE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1983-84 AND THEREAFTER THE COMPANY HAD MERELY CARRIED OUT EXPANSION OF THE EXISTING PLANT & MACHINERY WITH EF FECT FROM ASSESSMENT YEAR 1988-89. THE EXPANSION OF THE EXISTING PLANT & MACH INERY WHICH HAS INTRODUCED NEW TECHNIQUE OF PRODUCTION CANNOT BE CONSIDERED AS NEW UNIT AS SUCH. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 5 AS ALREADY MENTIONED IN THE EARLIER PARAS, THE INIT IAL ASSESSMENT YEAR FOR THE PURPOSE OF DEDUCTION U/S 80HH AND 80I IN THE CA SE OF ASSESSEE COMPANY WAS AY 1983-84 AND THUS THE PERIOD OF 10 YEAR AND 8 YEAR HAD ALREADY EXPIRED IN AY 1992-93 AND 1990-91 RESPECTIVELY FOR THE PURP OSE OF DEDUCTIONS UNDER SECTIONS 80HH AND 80I. THE ASSESSEE COMPANY WAS THE REFORE NOT ELIGIBLE OR ENTITLED FOR DEDUCTIONS U/S 80HH AND 80I FOR AY 199 6-97. 3. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE CI T(A) WHO ALSO CONFIRMED THE ADDITION MADE BY THE AO AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE OF BEING HEARD, BY OBSE RVING AS UNDER :- 5.2. I HAVE CONSIDERED THE ENTIRE FACTS ON RECORD REGARDING THIS ISSUE. THE BASIC ISSUE IS, WHETHER THE APPELLANT IS ENTITLED T O DEDUCTION U/S 80HH AND 801, IN THE GIVEN CIRCUMSTANCES AS REFERRED SUPRA. THE A.O HAS ELABORATELY DISCUSSED THE ISSUE IN THE ASSESSMENT O RDER . IT IS ALSO NOTICED THAT LD. C.I.T (A) IN THE ORDER NO. CIT(A)-6/DCIT S .K/287/09-10 DATED 18/06/2010 FOR A.Y. 1991-92 -CONFIRMED THE ADDITION IN SIMILAR SET OF FACTS. THE OBSERVATION OF CIT(A) ARE AS UNDER:- 'KEEPING IN VIEW THE AFORESAID FACTS, CIRCUMSTANCES AND VARIOUS JUDICIAL PRONOUNCEMENTS, THE FACT EMERGES THAT THE APPELLANT HAS CLAIMED DEPRECIATION ON THE ADDITIONAL PLANT AND MACHINERY ONLY IN THE YEAR OF INSTALLATION (I.E. IN THE A.YS. 1988-89, 89-90 AND 90-91) WHICH CLEARLY ESTABLISHES THE FACT THAT THE PLANT AND MACHINERY I NSTALLED IN THESE YEARS HAD BEEN USED IN THE OLD UNIT. THUS, IT IS CRYSTAL CLEAR THAT NEW MACHINERY INSTALLED BECAME AN INTEGRAL PART OF AN OLD INDUSTR IAL UNDERTAKING. CONSEQUENTLY, THE TOTAL SET OF NEW PLANT AND MACHIN ERY INSTALLED IN THE ASST..YEARS. 1988-89, 89-90 AND 90-91 CANNOT BE LAB ELED AS AN INDEPENDENT, SEPARATE AND AN INTEGRATED UNIT WHICH IS CAPABLE OF MANUFACTURING OR PRODUCING ARTICLE OR THINGS ON ITS OWN WITHOUT THE HELP OF OLD PLANT ARID MACHINERY. IT IS A FACT THAT IT HAS TO BE ESTABLISHED THAT A NEW UNIT IS SEPARATE, DISTINCT AND ALSO AN INTEGRATED U NIT CAPABLE OF MANUFACTURING AN ARTICLE OR THING I.E. THE NEW UNIT IS CAPABLE OF FUNCTIONING ON ITS OWN AND THE CLOSER OF THE OLD UNIT WOULD NOT COME IN THE WAY OF FUNCTIONING OF NEW UNIT. [(TEXTILE MACHINERY CO-OP. LTD. VS. CIT 107 ITR 197 (S.C) AND CIT VS. ASSOCIATED CEMENT CO. LTD. (1979) 118 ITR 406 (BOM) ]. ACCORDING TO SECTION 80! (2), AN INDUSTRIAL UNDERTA KING MUST FULFILL THE FOLLOWING CONDITIONS. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 6 [I] IT IS NOT FORMED BY SPLITTING UP OR RE-C ONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. [II] IT IS NOT FORMED BY THE TRANSFER TO A NE W BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. AS PER EXPLA NATION-2 TO SECTION 80! (2), IF ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFERRED TO A NEW BUSINESS AND THE TO TAL VALUE OF THE MACHINERY OR PLANT OR PART SO TRANSFERRED EXCEEDS 2 0% OF THE TOTAL VALUE OF THE MACHINERY OR PLANT PREVIOUSLY USED IN THE BUSIN ESS THEN SUCH UNIT DISQUALIFY FROM BEING AN ELIGIBLE UNIT FOR THE PURP OSE OF SECTION 80!. 3.4 WHEN THE AFORESAID IS CONSIDERED VIS-A-VIS THE FACTS AND CIRCUMSTANCES OF THE APPEAL UNDER CONSIDERATION; IT IS ABUNDANTLY CLEAR THAT THE SET OF THE PLANT AND MACHINERY INSTALLED I N THE A. YS. 1988-89, 89- 90 AND 90-91 ARE NOT CAPABLE TO FUNCTION ON ITS OWN . THUS, SO CALLED NEW UNIT HAD THE MACHINERY OF OLD UNIT AND THE PLANT AN D MACHINERY INSTALLED SUBSEQUENTLY IN THE A. YS. 1988-89 TO 90-91. IT IS A FACT THAT THE TOTAL GROSS VALUE OF THE PLAN T AND MACHINERY AS ON 31,03.1990 WAS OF RS. 23.73.169/- WHICH INCLUDES OL D PLANT AND MACHINERY INSTALLED UP TO A. Y. 1987-88 OF RS. 9,97,0757- WHI CH IS MORE THAN 20% OF THE TOTAL PLANT AND MACHINERY OF SO CALLED NEW UNIT . CONSEQUENTLY, THE SO CALLED NEW UNIT VIOLATES THE CONDITION OF EXPLANATI ON - 2 TO SECTION 80! (2). FURTHER IT IS ALSO A FACT THAT THE APPELLANT HAS CL AIMED BENEFIT U/S. 80HH AND 80! IN RESPECT OF THE ENTIRE PROFIT OF THE BUSI NESS. THE CONCEPT OF THE OLD UNIT AND THE NEW UNIT WAS THOUGHT OF AFTERWARDS WHEN THE APPELLANT CAME TO KNOW THAT FROM THE A. Y. 1991-92 IT WOULD N OT BE ENTITLED TO THE BENEFIT OF SECTION 80! AS EIGHT YEARS GOT OVER IN T HE A. Y. 90-91. IT IS ALSO A FACT THAT NEW ADDITION OF PLANT AND MA CHINERY WAS AN ESSENTIAL REQUIREMENT TO MANUFACTURE CHANGED ITEM AS PER NEW TECHNOLOGY. THE APPELLANT'S CLAIM OF DEPRECIATION ON THE PLANT AND MACHINERY INSTALLED IN THE YEAR OF PURCHASE, ON THE BASIS OF ACTUAL USE RE VEALS THAT IN ORDER TO MANUFACTURE MODIFIED ITEMS IT REQUIRED ADDITIONAL P LANT AND MACHINERY. FURTHER IT IS ALSO A FACT THAT HAD THERE BEEN NEW U NIT THE APPELLANT COULD HAVE BIFURCATED THE PROFIT BETWEEN THE OLD AND NEW UNIT RIGHT FROM THE ASSESSMENT YEAR UNDER CONSIDERATION AND IT COULD HA VE CLAIMED BENEFIT U/S. 80HH IN RESPECT OF PROFIT OF OLD UNIT AND 801 IN RESPECT OF NEW UNIT. IT IS A FACT THAT THE PRODUCTION HAS GONE UP DUE TO EXPANSION/MODIFICATION OF THE OLD UNIT AND DUE TO ADOPTION OF NEW PLANT TE CHNOLOGY. ONLY INCREASE IN PRODUCTION AND POWER DO NOT ESTABLISH THAT THE N EW UNIT HAS BEEN SET UP. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 7 KEEPING IN VIEW THE AFORESAID FACTS AND CIRCUMSTANC ES, IT IS ABUNDANTLY CLEAR THAT APPELLANT'S CASE IS THAT OF AN EXPANSION/MODIF ICATION OF OLD UNIT AND NOT THAT OF SETTING UP OF NEW INDUSTRIAL UNDERTAKING AND THE SAME ALSO VIOLATES THE EXPLANATION-2 TO SECTION 801 (2). 5.2.1 RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESS OR IN A.Y. 1991-92 ON THE SIMILAR FACTS, THE ACTION OF THE A.O REFLECTING THE CLAIM OF APPELLANT U/.S 80HH AND 80! IS CONFIRMED. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRI BUNAL. 4. THE LD. AR OF THE ASSESSEE IMPRESSED UPON HIS SU BMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THA T APPELLANT COMPANY IS MANUFACTURING ALUMINIUM FALSE CEILING PA NELS AND ITS COMPONENTS SINCE 1982 AT MODASA TO GIVE CHALLENGES OF NEW TECHNOLOGY I.E. LONG LENGTH PANELS, POWDER COATING, PAINTING ETC. THE APPELLANT COMPANY HAS INSTALLED NEW INDUSTRIAL UNDE RTAKING ON PHASE MANNER FROM AY 1988-89 TO 1991-92 AND INCURRED THE EXPENDITURE OF RS.24,38,345/- IN LAND, BUILDING AND MACHINERIES AN D HAS CLAIMED DEDUCTION UNDER SECTION 80HH & 80I FOR AYS, 1991-92 , 1992-93, 1994-1995 AND 1995-96. THE LD. AR FURTHER SUBMITTED THAT DEPRECIATION WAS REGULARLY CLAIMED ON THIS EXPENDIT URE OF RS.24,36,345/- IN VIEW OF TRIAL RUN BEING CARRIED OUT IN THESE YEARS BUT ACTUALLY PRODUCTION FROM THIS NEW UNIT ST ARTED FROM AY 1991-92. HE FURTHER CONTENDED THAT IDENTICAL ISSUE AROSE BEFORE THE ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 8 TRIBUNAL IN AYS. 1991-92, 1993-94 TO 1995-96. THE T RIBUNAL HAS SET ASIDE THIS ISSUE AGAIN TO THE FILE OF LD. AO HE PLA CED ON COPY OF THE TRIBUNAL ORDER DATED 19/9/2014 PASSED IN ITA NOS.26 29/AHD/2010 TO 2632/AHD/2010. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDE RS OF AUTHORITIES BELOW AND ALSO SUBMITTED THAT THE ASSES SEE IN ORDER TO TAKE BENEFIT OF THE PROVISIONS OF LAW TERMED THE US AGE OF NEW PLANT AND MACHINERY AS TRIAL PRODUCTION WHICH ACTUALLY WAS REGULAR PRODUCTION ONLY. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. SIMILAR GROUNDS OF APPEAL IN A SSESSEES OWN CASE FOR AY 1991-92, 1993-94, 1994-95 AND 1995-96 W ERE HEARD BY THE ITAT C BENCH, AHMEDABAD. THE RELEVANT PORTION OF THE TRIBUNALS OBSERVATIONS VIDE ITS ORDER IN ITA NOS. SL.NO. ITA NOS. ASSESSMENT YEAR APPEAL(S) BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1 2629/AHD/2010 1991-92 M/S CONTROLLED ACOUSTIC IND.(P) LTD. 32 MANOJ IND.ESTATE 40A, G.D.AMBEDKAR ROAD WADALA, MUMBAI-400031 PAN AABCC 2902P DCIT SK CIRCLE HIMATNAGAR DIST.S.K. 2 2630/AHD/2010 1993-94 ASSESSEE REVENUE 3 2631/AHD/2010 1994-95 ASSESSEE REVENUE 4 2632/AHD/2010 1995-96 ASSESSEE REVENUE ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 9 DATED 19/09/2014, ARE AS UNDER :- 5.1. THE ID.CIT(A) CONFIRMED THE FINDINGS OF THE AO . THE ID. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE BOMB AY HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME-TAX-V, PUNE VS. FINOLEX CABL ES LTD. REPORTED AT (2012) 24 TAXMANN.COM 279 (BOM.) :: 114 TTJ 785 (PUNE), WHERE AS THE HON'BLE HIGH COURT HAS HELD AS UNDER :- '13. THE FOLLOWING PRINCIPLES OF LAW CLEARLY EME RGE FROM THE DECISION OF THE SUPREME COURT - (I) THERE MUST BE A NEW UNDERTAKING WHERE SUBS TANTIAL INVESTMENT OF FRESH CAPITAL IS MADE IN ORDER TO ENABLE EARNING OF PROFIT ATTRIBUTABLE T O WHAT NEW CAPITAL: (II) THE MANUFACTURING OR PRODUCTION OF ARTICLE S YIELDING ADDITIONAL PROFIT ATTRIBUTABLE TO A NEW OUTLAY OF CAPITAL IN A SEPARATE AND DISTINCT UN IT IS THE HEART OF THE MATTER; (III) THE TRUE TEST IS NOT WHETHER A NEW INDUSTR IAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS, BUT WHETHER IT IS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS; (IV) IF AN UNDERTAKING CAN EXIST EVEN AFTER CES SATION OF THE PRINCIPAL BUSINESS OF THE ASSESSEE, IT CANNOT BUT BE A NEW AND SEPARATE BUSIN ESS OR UNDERTAKING; (V) THERE MUST BE A NEW UNDERTAKING WHICH CONSTITUTES AN INTEGRATED UNIT BY ITSELF; (VI) A NEW UNIT MUST BE SET UP WITH NEW PLANT AND MACHIN ERY; AND (VII) THE FACT THAT A UNIT PRODUCES THE SAME COM MODITY DOES NOT DISENTITLE THE ASSESSEE TO THE BENEFIT OF THE DEDUCTION.' 5.2 THE FACTS IN THE CASE IN HAND ARE DISTINGUISHA BLE AS IN THE PRESENT CASE THE UNDISPUTED FACTS AS CULLED OUT FROM THE RECORD ARE THAT THE AV ERMENT OF THE ASSESSEE FOR NEW UNDERTAKING WAS ESTABLISHED BEGINNING FROM THE YEAR S 1988-89 TO 1990-91 BY MAKING THE FOLLOWING INVESTMENTS:- A.Y. LAND PLANT & M/C. BUILDING 1988-89 - 559710 714943 1989-90 35820 521677 _ 1990-91 - 294707 20975 5.3. IT IS ALSO NOT DISPUTED THAT THE DEPRECIATION WAS CLAIMED BY THE ASSESSEE ON THESE MACHINERY AND BUILDING DURING THE ABOVE PERIOD ON T HE BASIS THAT THE MACHINERY WAS PUT TO USE. THIS TRIBUNAL IN ITS ORDER DATED 31/10/2007 (SUPRA) OBSERVED THAT THE NON- ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 10 UTILIZATION OF THE PLANT AND MACHINERY PURPORTEDLY PURCHASED FOR THE NEW UNIT DURING THE PREVIOUS YEARS RELEVANT TO AYS 1988-89 TO 1990-91, OTHERWISE THAN FOR ITS PURPOSES, IN THE RELEVANT YEARS; THE SAME BEING SET UP ONLY IN A Y 1991-92. THIS BECOMES MATERIAL AS DEPRECIATION STOOD CLAIMED (AND ALSO ALLOWED) FOR T HE SAID YEARS, SO THAT, UNDENIABLY, THERE HAS BEEN A USER OF THE SAID MACHINERY FOR THE PURPOSES OF THE ASSESSEE'S BUSINESS FOR EACH OF THE RELEVANT YEARS. AND USER FOR ANY PURPOS E PRIOR TO ITS USER FOR THE ELIGIBLE UNDERTAKING (NEW UNIT) WOULD INVALIDATE THE ASSESSE ES CLAIM U/S 80HH(2)(II)/S.80I(2)(II); THE SAID MACHINERY EXCEEDING TWENTY PER CENT IN VAL UE OF THE TOTAL MACHINERY ACQUIRED FOR THE SETTING UP OF THE NEW UNIT. IN THIS FACTUAL BAC KGROUND, WE HAVE TO EXAMINE WHETHER THE AO WAS JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE IS THAT DURING THE PERIOD AYS 1988-89 TO 1990-91 TH E MACHINERIES WERE PUT TO USE AND NO COMMERCIAL PRODUCTION WAS MADE EXCEPT THE TRIAL RUN. THE CASE OF THE REVENUE IS THAT THERE WAS NO REQUIREMENT FOR MAKING TRIAL RUN AND IN FACT, THE SO CALLED EXPLANATION OF TRIAL RUN IS AN AFTERTHOUGHT AND JUST TO TAKE ADVANTAGE OF THE DEDUCTION AVAILABLE U/S 80I AND 80HH OF THE ACT. AS PER THE OBSERVATION OF THE AO AS TAKEN FROM THE SUBMISSIONS OF THE ASSESSEE ITSELF CLEAR THAT THERE WAS A SUBSTANTIAL INCREASE IN THE PRODUCTION TURNOVER, WHICH IS REPRODUCED AS UNDER:- AY 1988-89 RS.1,27,63,220/- (20 MONTHS) AY 1989-90 RS.1,53,09,991/- AY 1990-91 RS.2,00,46,759/- 5.4 UNDER THESE FACTS, THE ONUS WAS ON THE ASSESSEE TO DEMONSTRATE THE QUANTUM OF INPUT USED IN ALL THREE YEARS WHEN THE DEPRECIATION IS CLAIMED AND ALSO THE QUANTITY OF PRODUCTION PRODUCED IN THE TRIAL RUN. SINCE THE T RIAL RUN HAS BEEN MADE IN ALL THE THREE YEARS, IT WAS INCUMBENT UPON THE ASSESSEE TO EXPLAI N THAT HOW MANY DAYS TRIAL RUN WAS CARRIED OUT AND HOW MUCH ELECTRICITY WAS CONSUMED, WHETHER RAW MATERIAL WAS USED OR NOT, WHETHER ANY FINISHED PRODUCTS WERE PRODUCED AN D WHAT WAS THE ACCOUNTING TREATMENT OF THESE GOODS, ETC. AND NOTHING HAS BEEN PLACED ON RECORD BY THE ASSESSEE. THE REVENUE HAS DEMONSTRATED THAT THERE IS SUBSTANTIAL INCREASE IN THE PRODUCTION TURNOVER OF THE OLD UNIT AND AS PER THE REVENUE, SUCH INCREASE IN THE PRODUCTION WAS NOT POSSIBLE WHEN THE PRODUCTION MADE IN THE NEW UNIT IS UTILIZED BY THE OLD UNIT. I T IS NOT DISPUTED THAT THE MACHINERY USED BY THE TWO UNITS ARE DIFFERENT, BUT THE PRODUCT REMAIN ED SAME EXCEPT THE LENGTH OF THE PRODUCT. IT IS NOT COMING OUT FROM THE RECORD THAT WHAT WAS THE NATURE OF THE PRODUCT SOLD BY THE ASSESSEE DURING AYS 1988-89 TO 1990-91. IN THE ABSENCE OF SU CH DETAILS AND ALSO COUPLED WITH THE FACTS THAT THE ASSESSEE HAS NOT EXPLAINED UNDER WHA T CIRCUMSTANCES 'TRIAL RUN' WAS NECESSARY FOR ALL THE THREE YEARS. THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT THE ISSUE TO BE RESTORED TO THE FILE OF AO FOR VERIFICATION, WHETHER THERE W AS ONLY 'TRIAL RUN' OF THE MACHINERY AS CLAIMED BY THE ASSESSEE OR THE ASSESSEE CARRIED OUT ANY 'COMMERCIAL PRODUCTION' FROM NEW UNIT DURING AYS 1988-89 TO 1990-91. IN CASE, THE AS SESSEE IS ABLE TO PROVE ITS CLAIM OF 'TRIAL RUN' IN THAT EVENT THE AO WOULD ALLOW THE CLAIM OF DEDUCTION AS MADE BY THE ASSESSEE. THUS, GROUND NOS. L TO 3 OF THE ASSESSEE'S APPEAL IS ALLO WED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 11 ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTANCES , WE ARE OF THE VIEW THAT THE DISTINCTION BETWEEN THE COMMERCIAL PR ODUCTION AND TRIAL RUN NEEDS TO BE ESTABLISHED. THIS DISTINCTION HAS T O BE PROVED BY THE ASSESSEE TO THE SATISFACTION OF AO. WE DO NOT FIND ANY DISPARITY ON FACTS. THEREFORE, FOLLOWING THE ORDER OF THE ITAT A HMEDABAD IN EARLIER A.Y. ON IDENTICAL ISSUES, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE BE RESTORED TO THE FILE OF AO FOR VERIFICATION SO A S TO WHETHER THERE WAS ONLY TRIAL RUN OF THE MACHINERY AS CLAIMED BY THE ASSESSEE OR THE ASSESSEE CARRIED OUT ANY COMMERCIAL PRODUCTION FROM THE NEW UNIT DURING AY 1988-89, 1990-91. LD. AO SHALL DECID E THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. HE SHALL KEEP IN MIND THE FINDING OF ITAT IN A.YS. 1991-92, 1993-94 TO 1995-96. THUS THE GROUND NOS.1 TO 3 OF A SSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE IN THE TE RMS INDICATED ABOVE. 7. GROUND NO.4 IS AGAINST INITIATION OF PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C). THIS GROUND IS PREMATURE AND NEE DS NO ADJUDICATION. THE SAME IS REJECTED AS PREMATURE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.2264/AHD/2011 ASST. YEAR 1996-97 12 ORDER PRONOUNCED IN THE OPEN COURT ON 11/09/2015 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 11/09/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION:4/9/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ________OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 11/9/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: