M/s Lakshmi Energy & Foods Ltd., Chandigarh V. ACIT, Chandigarh

ITA 251/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73493 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 06-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Assessee Lawyers: AJAY WADHAWA ADITYA GROVER; MEENAKSHI GUPTA
• Keywords: Business income; Depreciation; Rectification of order; Search and seizure; Opportunity of being heard; Principle of natural justice; Additional depreciation; Period of limitation; Additional evidence; Question of law; Reasonable cause; Scheme of amalgamation; Revised return; Bonafide mistake
• Section: 143(3); 11A; 115JB; 80IB; 12A; 10B; 131; 54; 263; 12; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 250 & 251/CHD/2013 ASSESSMENT YEAR : 2008-09 & 2009-10 LAKSHMI ENERGY & FOODS VS. A.C.I.T. LTD. SCO 18-19 CENTRAL CIRCLE I SECTOR 9D CHANDIGARH CHANDIGARH AAACL 3147 J ITA NO. 372/CHD/2013 ASSESSMENT YEAR : 2009-10 D.C.I.T VS. LAKSHMI ENERGY & FOODS CENTRAL CIRCLE I LTD. SCO 18-19 CHANDIGARH SECTOR 9D CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI AJAY WADHAWA, ADITYA GROVER & MS. MEENAKSHI GUPTA RESPONDENT BY: SHRI AMARVEER SINGH DATE OF HEARING 9.1.2014 DATE OF PRONOUNCEMENT 26 .2.2014 O R D E R PER T.R.SOOD, A.M THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST TH E ORDERS DATED 29.1.2013 OF THE LD CIT(A), GURGAON. SOME OF THE ISSUES ARE COMMON IN THESE APPEALS WHICH WERE HEARD TOGETHER A ND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. ITA NO. 250/CHD/2013 ASSESSEES APPEAL 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF THE LD. CIT(A)(CENTRAL), GURGA ON DATED 29.1.2013 IS BAD IN LAW AND ON FACTS. 2 2 THAT THE LD. CIT(A) HAS ERED IN SUMMARILY IGNORIN G THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT AND THE H ON'BLE SUPREME COURT REGARDING JURISDICTION/PLACE OF ASSESSMENT. THE LD . CIT(A) INSPITE OF THE DETAILED DISCUSS ON THE SUBJECT AND A GROUND HA VING BEEN SPECIFICALLY TAKEN BY THE APPELLANT HAS BY PASSED T HE ISSUE BY NOT EVEN MAKING WHISPER ON THE SAME. 3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT ADMITTING THE CRUCIAL ADDIT IONAL EVIDENCE FILED UNDER RULE 46A OF THE INCOME -TAX RULES ON THE GROU ND THAT THE APPELLANT WAS ALLOWED SUFFICIENT OPPORTUNITIES TO A DDUCE EVIDENCE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IT HAS FAI LED TO SUBSTANTIATE ITS CLAIM FOR ADMISSION OF ADDITIONAL EVIDENCE UNDE R THE SAID RULE. 4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN SUMMARILY REJECTING THE ADDITIO NAL GROUND OF APPEAL RAISED U/S 250(5) OF INCOME -TAX ACT, 1961. 4.1 THAT THE LD. CIT(A) HAS WRONGLY STATED THAT HE HAS CONSIDERED GROUND NO. 4 WHILE DECIDING THE REQUEST FOR ADMISSI ON OF ADDITIONAL EVIDENCE AT PARA 5.5. THE SAME IS INCORRECT AS NO SUCH CONSIDERATION HAS TAKEN PLACE AT PARA 5.5. 4.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN REJECTING THE ADDITIONAL GROUND OF APPEAL NO. 2 RAISED U/S 250(5) CONTENDING THAT THE ORDER U/S 127 TRANSFERRING JURISDICTION OF THE CASE FROM DCIT (CENTRAL) CHANDI GARH WAS PASSED BY THE CIT ON 1.12.2010 I.E. JUST BEFORE LESS THAN TWO MONTHS FOR PASSING THE ASSESSMENT ORDER AND HENCE THE ASSESSMENT ORDER DATED 30.12.2010 WAS APPARENTLY PASSED HURRIEDLY WITHOUT ALLOWING AD EQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT TO SUBSTANTIATE ITS CLAIM REGARDING DEDUCTION U/S 80IB(11A)THEREFORE THE ASSESSMENT ORD ER PASSING WITHOUT ADEQUATE OPPORTUNITY IS BAD IN LAW AND DESERVES TO BE QUASHED. 4.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) HAS ERRED IN REJECTING THE ADDITIONAL GROUND OF APPEAL NO. 1 RAISED U/S 250(5) OF INCOME -TAX ACT, 1961 CONTENDI NG THAT THE ASSESSMENT MADE ON 30.12.2010 U/S 153A(1)(B) R.W.S. 143(3) IS BAD IN LAW AS NO INCRIMINATING MATERIAL SUGGESTING OF ANY SUPPRESSION OF INCOME WAS FOUND DURING THE COURSE OF SEARCH AND SE IZURE OPERATION U/S 132(1) ON 12.2.2009 AND THEREFORE THE ENTIRE ASSESS MENT BEING BAD IN LAW, DESERVES TO BE QUASHED. 5 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DENYING THE CLAIM OF DEDUCTION U/S 80IB(11A) OF THE ACT WITHOUT PREJUDICE,, THE LD. CIT(A) HAS ERRED IN REJECTING THE CLAIM ON THE FOLLOWING TECHNICAL GROUNDS: 5.1 THE RETURN OF INCOME FOR ASSESSMENT YEAR 2008- 09 WAS NOT FILED WITHIN DUE DATE SPECIFIED U/S 139(1) AND HENCE IN V IEW OF PROVISIONS OF SECTION 80AC DEDUCTION U/S 80IB CANNOT BE ALLOWED. 5.2 AUDIT REPORT IN FORM NO. 10CCB WAS NOT FILED EV EN DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THUS VIOLATING TH E PROVISIONS OF SECTION 80IA(7) AND 80IB(13) OF THE ACT. 5.3 NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED I N RESPECT OF BUSINESS ACTIVITY FOR WHICH DEDUCTION U/S 80IB(11A) WAS CLAIMED. 6 THE LD. CIT(A) HAS REJECTED THE CLAIM OF DEDUCTIO N U/S 80IB(11A) ON PURELY TECHNICAL CONSIDERATIONS. HOWEVER, INSP ITE OF STATING THAT SHE IS NOT DECIDING ON MERITS SHE HAS HELD THAT THE ASS ESSEE IS NOT ENTITLED TO THE CLAIM AS NO SEPARATE PROFIT AND LOSS ACCOUNT IN RESPECT OF THE ACTIVITIES RELATING TO HANDLING, STORAGE AND TRANSP ORT HAS BEEN DRAWN OUT. 6.1 WITHOUT PREJUDICE, EVEN THIS ALLEGATION IS INCO RRECT INASMUCH AS, SEPARATE COMPUTATION OF PROFIT FROM ELIGIBLE BUSINE SS, DULY CERTIFIED BY CHARTERED ACCOUNTANT ON THE BASIS OF SEPARATE BOOKS OF ACCOUNTS PRODUCED AND FILED. 7` THE LD. CIT(A) WHILE DISALLOWING THE CLAIM U/S 8 0IB(11A) ON THE GROUND THAT FORM 10CCB CANNOT BE RELIED UPON, HAS D ISCUSSED AND 3 APPLIED THE FACTS RELATING TO ASSESSMENT YEAR 2009 -10 WHILE DECIDING THE CASE FOR THE IMPUGNED ASSESSMENT YEAR AND HAS WRONGLY HELD THAT AUDIT REPORT IN FORM NO. 10CCB DATED 20.2.2009 PREP ARED BY CHARTERED ACCOUNTANT. CA AMIT GUPTA WAS AN AFTERTHOUGHT AND N O CREDENCE CAN BE GIVEN TO THE SAID REPORT. 8 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF ETH CASE THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE DEPRECIATION O N PLANT AND MACHINERY AMOUNTING TO RS. 72,21,35,592/- DESPITE THE APPELLA NT FURNISHING ALL THE NECESSARY EVIDENCE REGARDING THEIR PURCHASE AND USE DURING THE YEAR FOR THE PURPOSE OF APPLICANTS BUSINESS. 8.1 THAT THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLD ING THE DISALLOWANCE OF NORMAL DEPRECIATION WHICH WAS DENIE D BY THE ASSESSING OFFICER ON THE BASIS OF STATEMENT OBTAINED U/S 131 FROM MR. R. SANDAL, THE ERSTWHILE TAX AUDITOR, AS WHO WAS NOT EVEN ALLO WED TO BE CROSS- EXAMINED BY THE APPELLANT. 9 THAT THE LD. CIT(A) HAS FURTHER ERRED IN NOT ALLO WING THE ADDITIONAL DEPRECIATION ON PLANT & MACHINERY ALLOWABLE U/S 31( 1)(IIA) OF THE INCOME -TAX ACT, 1961 A CLAIM RAISED BY WAY OF ADDITIONAL GROUND OF APPEAL NO. 4. 3. OUT OF ABOVE, GROUNDS NO. 2, 4, 4.2, 4.3 AND 9 W ERE NOT PRESSED BEFORE US, THEREFORE THE SAME ARE DISMISSED AS NOT PRESSED. 4 GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION. THOUGH VARIOUS OTHER GROUND S HAVE BEEN RAISED BUT PRINCIPALLY THERE ARE THREE DISPUTES NAM ELY: (I) ADMISSION OF ADDITIONAL EVIDENCE (II) DISALLOWANCE OF DEDUCTION U/S 80IB(11A) (III) DISALLOWANCE OF DEPRECIATION ON POWER PLANT 5 BEFORE WE DISCUSS THE FACTS IN RESPECT OF FIRST I SSUE, IT WOULD BE PERTINENT TO CONSIDER THE BACKGROUND OF THE CASE. IN THIS GROUP OF CASES A SEARCH WAS CONDUCTED IN THE OFFICE PREMISES OF THE ASSESSEE ON 12.2.2009 AND SOME RELEVANT BOOKS AND D OCUMENTS WERE FOUND AND SEIZED. THEREAFTER A NOTICE U/S 153 A(1)(A) WAS ISSUED BY THE ASSESSING OFFICER, THE DCIT (CENTRAL) , PATIALA TO THE ASSESSEE ON 6..4.2009 REQUIRING IT TO FILE ITS RET URN OF INCOME IN RESPECT OF ASSESSMENT YEAR 2008-09. A REQUEST WA S MADE BY THE ASSESSEE-COMPANY TO TRANSFER THEIR CASES FROM DCIT (CENTRAL) PATIALA TO CHANDIGARH BECAUSE DDIT (INV) WHO HAD CA RRIED OUT THEIR SEARCH HAPPENED TO BE THE ASSESSING OFFICER. IN FAI RNESS OF THINGS, THE DEPARTMENT ACCEPTED THIS REQUEST WHICH LEAD TO DELAY IN ASSESSMENT PROCEEDINGS AND EVEN THE ASSESSEE WAS NO T HAVING 4 SUFFICIENT TIME TO FILE APPROPRIATE REPLY. IN FACT THE ASSESSING OFFICER HAS HIMSELF NOTED AT PAGE 2 AS UNDER: THE REQUEST OF THE GROUP WAS ACCEPTED BUT IN THE W HOLE PROCESS INVALUABLE TIME WAS LOST AND HENCE ANY SUBMISSION O F THE ASSESSEE THAT THE PROCESS OF ASSESSMENT WAS DELAYED WOULD HAVE TO ACCOUNT FOR THIS ACT. DURING SEARCH THE ASSESSEE HAD STATED THAT ESTIMATE D PROFIT FOR THE PERIOD WOULD BE AROUND RS. 30 CRORES WHICH WAS OFFE RED TO TAX BECAUSE THE ASSESSEE HAD NOT FILED ITS RETURN OF IN COME U/S 139(1) OF THE ACT. THE ASSESSEE FILED RETURN OF INCOME ON 31 .3.2009 DECLARING INCOME OF RS.33,12,18,952/-. FIRST ISSUE 6. FACTS IN RESPECT OF FIRST ISSUE ARE THAT ASSESSE E SOUGHT TO FILE CERTAIN DOCUMENT AS ADDITIONAL EVIDENCE AND THE LD. CIT(A) SENT THE SAME FOR COMMENTS OF ASSESSING OFFICER WHO IN TURN REPORTED THAT ASSESSEE WAS GIVEN SUFFICIENT TIME DURING THE ASSES SMENT PROCEEDING AND THEREFORE THESE DOCUMENTS SHOULD NOT BE ADMITTED. THE LD. CIT(A) REFERRED TO RULE 46 A OF INCOME TAX RULE 1962 AND REJECTED THE REQUEST VIDE PARA 5.5 WHICH IS AS UNDE R: I HAVE CAREFULLY GONE THROUGH THE CONTENTS OF THE REMAND REPORTS, THE REJOINDERS AND THE IMPUGNED ORDER. IT IS VERY EVIDE NT FROM THE ASSESSMENT ORDER THAT THE ASSESSEE WAS AFFORDED SUF FICIENT OPPORTUNITIES TO EXPLAIN ITS CLAIM FOR DEDUCTION. HOWEVER, IT HAS FAILED TO DO SO. IT HAS ALSO NOT PUT UP A CLEAR CASE FOR INVOKING RULE 46A( 2). IN OTHER WORDS, THE ASSESSEE COULD NOT SHOW HOW IT CAN COME WITHIN THE AMBIT OF THE EXCEPTIONAL CLAUSE OF RULE 46A(2). THE IMPUGNED ORD ER AND THE COPY OF THE ORDER SHEETS ASSESSMENT YEAR 2008-09 AND ASSES SMENT YEAR 2009- 10 SUPPLIED IN THE REMAND REPORT DATED 27.9.2012 CL EARLY SUGGESTS THAT REPEATED OPPORTUNITIES WAS GIVEN TO THE ASSESSEE TO EXPLAIN ITS CLAIM FOR MORE THAN TWO MONTHS. HOWEVER, THE ASSESSEE DID NOT AVAIL OF THE OPPORTUNITIES. IN FACT, OF THE DOCUMENTS NOW SOUGHT TO BE ADMITTED, AS LISTED IN THE ABOVE PARA, RELATING TO AMONGST OTHER S, THE DIRECTOR OF BOILERS; COPIES OF MAJOR BILLS OF ADDITION OF TRUCK S, POWER PLANT FOR ASSESSMENT YEAR 2007-08, 2008-09 AND 2009-10 AS WE LL AS THE EXPORTS OUT OF INDIA, CAN BY NO STRETCH OF IMAGINATION, BE SAID THAT THESE DOCUMENTS WERE NOT AVAILABLE FOR PRODUCTION DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE CASE LAWS CITED DO NOT COME TO THE RESCUE OF THE ASSESSEE EITHER KEEPING IN MIND THE FACTS OF THE CASE IN HAND. IT IS NOT A CASE WHERE THE ASSESSEE WAS NOT IN THE KNO W OF THE NATURE OF THE PROCEEDINGS, SO IT WAS INCUMBENT UPON HIM TO LE AD NECESSARY EVIDENCE IN THE FORM OF THE DOCUMENTS WHICH ARE NOW SOUGHT FOR ADMISSION AS ADDITIONAL EVIDENCE. IN FACT, ON NO OC CASION HAS THE ASSESSEE STATED BEFORE THE A.O THE REASON WHY THE C ONCERNED DOCUMENTS/ CERTAIN DOCUMENTS COULD NOT BE FILED DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. NEEDLESS TO SAY, BEFORE ANY ADDITIONAL EVIDENCE CAN BE ADMITTED, THE ASSESSEE HAS TO FIRST PROVE THAT HIS CASE COMES WITHIN THE EXCEPTIONAL CALSUE AS LAID DOWN IN RULE 46A. I AM AFRAID THE ASSESSEE HAS BEEN UNABLE TO SUBSTANTIATE HIS CLAIM. THUS THE 5 REQUEST OF THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER CLAUSES (B), (C) AND (D) OF RULE- 46A OF THE INCOME -TAX RULES, 1962 CANNOT BE ACCEDED TO. 7. BEFORE US IT WAS MAINLY SUBMITTED THAT CASES WER E FINALLY TRANSFERRED TO CENTRAL CIRCLE CHANDIGARH ON 28-10-2 010 AND THEREFORE ASSESSMENT PROCEEDING STARTED FROM NOVEMB ER 2010 AND PRACTICALLY TIME OF ONLY 55 DAYS WAS AVAILABLE WITH THE ASSESSEE AND ASSESSING OFFICER IN WHICH GROUP OF ASSESSMENT OF 1 05 CASES OF THE GROUP HAD TO BE COMPLETED. IN ADDITION ASSESSEE WAS HAVING SERIOUS PROBLEM WITH THE CHARTERED ACCOUNTANT SHRI. RAJINDE R SANDAL AND SOME DOCUMENTS WERE LYING WITH HIM. THE CIT(A) HAD CONDUCTED THE HEARING FOR ALMOST 9 MONTHS AND ADDITIONAL EVIDENCE WERE SENT TO THE ASSESSING OFFICER FOR VERIFICATIONS TILL HE DID NOT EXAMINE THE SAME AND OPTED TO GIVE A LOGIC THAT ASSESSE HAD ALR EADY BEEN GIVEN SUFFICIENT TIME. THE ADDITIONAL EVIDENCE SOUGHT TO BE ADMITTED MAINLY CONSIST OF DOCUMENTS WHICH WERE ALREADY IN EXISTENC E AND THERE IS NO ALLEGATION THAT THIS EVIDENCE WAS PROCURED LATER ON. THEREFORE KEEPING THE PRINCIPLE OF NATURAL JUSTICE THE ADDITI ONAL EVIDENCE SHOULD HAVE BEEN ADMITTED. 8 ON THE OTHER HAND LD. D.R. FOR THE REVENUE STRON GLY SUPPORTED THE ORDER OF CIT(A) 9 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREFU LLY. FOLLOWING DOCUMENTS WERE SOUGHT TO BE ADMITTED AS A DDITIONAL EVIDENCE - I) EXPORT DOCUMENTS TO SHOW THAT PADDY CROPS STORED IN EARLIER YEAR WERE LATER SOLD. THIS ESTABLISHES THE FACTUM OF LONG PER IOD OF STORAGE OF PADDY BY THE COMPANY. II) TETRA PACK ONLY TO SHOW THAT PADDY IS STORED FO R MATURING FOR LONG DURATION. III) CHANGE OF ACCOUNTING YEAR AND EXTENSION OF AGM TO SHOW THAT COMPANY WAS SEEKING TO PREPARE OF SEPARATE BALANCE SHEET FO R ROC AND INCOME TAX FOR ACCOUNTING YEAR AS WELL AS FINANCIAL YEAR. IV) GATE IN / OUT REPORTS TO ESTABLISH TRANSPORTATI ON ACTIVITY BEING UNDERTAKEN BY THE COMPANY. V) CERTIFICATE FROM CHARTERED ENGINEER REGARDING OL D MACHINERY ABANDONMENT SINCE F.Y. 2005. 6 VI) CERTIFICATE AND CLARIFICATION FROM DIRECTOR OF BOILER, GOVERNMENT OF PUNJAB FOR COMMENCEMENT OF BOILER ON 31.10.2007 FOR POWER PLANT. VII) THE COPIES OF MAJOR BILLS OF ADDITION OF TRUCK S, POWER PLANT & EXPANSION OF INTEGRATED RICE UNIT, COPY OF BUILDING ACCOUNT T O ESTABLISH STORAGE / WAREHOUSING. VIII) THE COPIES OF BILLS OF CONSTRUCTING OF WAREHO USE SILO. COPIES OF PHOTOGRAPHS ALSO ENCLOSED. IX) THE COPIES OF INSURANCE POLICIES OF STORAGE, TR ANSIT, WAREHOUSE, POWER PLANT FOR THE PERIOD APRIL 2006 TO MARCH 2007, APRI L 2007 TO MARCH 2008. X) FORM 10 CCB FOR A.Y. 2008-09 XI) THE COPIES OF ASSESSMENT ORDERS PASSED BY DIFFE RENT TAX AUTHORITIES TO PROVE THAT MR. RAJINDER SANDAL, CHARTERED ACCOUNTAN T, WAS EXLUSIVELY HANDLING TAX MATTERS OF M/S LAKSHMI ENERGY & FOODS LTD., ITS PROMOTERS, DIRECTORS AND GROUP COMPANIES. XII) THE COPY OF ACCOUNT STATEMENT OF MR. SANDALS FULL & FINAL PAYMENT IN THE BOOKS OF CO. HE WAS WITH THE COMPANY FOR THE PERIOD 22.03.2006 TO 31.03.2010. XIII) THE PHOTOGRAPH AND CD OF STORAGE CAPACITY / G ODOWNS YEAR WISE AND NEW PLANT INSTALLED AFTER MARCH 2009. XIV) THE COPY OF THE LETTER 27/10/2010 ALONG WITH I TS ANNEXURES I.E. THE JUDGMENTS PASSED BY THE HONBLE SUPREME COURT OF IN DIA & PUNJAB & HARYANA HIGH COURT EVIDENCING THAT THE ABOVE MENTIONED ORDE RS WERE DULY SERVED UPON DCIT-CENTRAL CIRCLE-I. CHANDIGARH ADDITIONAL COMMIS SIONER OF INCOME TAX- CHANDIGARH AND COMMISSIONER OF INCOME TAX. (C). LUD HIANA. 10 FOR ADMISSION OF ADDITIONAL EVIDENCE RULE 46A OF INCOME -TAX RULES, 1962 IS RELEVANT WHICH IS AS UNDER: 46A. (1) THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, THE COMMISSIONE R (APPEALS)], ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN THE EVIDENCE PRODUC ED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE [ASSESSING OFFICER], EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY : ( A ) WHERE THE [ASSESSING OFFICER] HAS REFUSED TO ADM IT EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED ; OR ( B ) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE [ASSESSI NG OFFICER] ; OR ( C ) WHERE THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING BEFORE THE [ASSESSING OFFICER] ANY EVIDENCE WHICH IS RELEVANT TO ANY GROUND OF APPEAL ; OR ( D ) WHERE THE [ASSESSING OFFICER] HAS MADE THE ORDER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO ADDUCE E VIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, THE COMMISSIONE R (APPEALS)] RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. (3) THE [DEPUTY COMMISSIONER (APPEALS)] [OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS)] SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE [ASSESSING OFFICER] HAS BEEN ALLOWED A REASONABLE O PPORTUNITY 7 NORMALLY THE ASSESSEE HAS NO RIGHT TO PRODUCE ANY A DDITIONAL EVIDENCE EXCEPT FOR THE CIRCUMSTANCES MENTIONED IN RULE ITSE LF. CLAUSE (B) ABOVE SHOW THAT WHEREVER THE ASSESSEE IS PREVENTED BY A S UFFICIENT CAUSE FROM PRODUCING THE EVIDENCE THEN SUCH ADDITIONAL EVIDENC E SHOULD BE ADMITTED. THE REASON FOR THE SAME IS VERY SIMPLE IN THE LIGHT OF THE SETTLED POSITION OF LAW THAT APPEAL PROCEEDINGS ARE CONTINUATION OF THE ASSESSMENT PROCEEDINGS. IN THIS REGARD RELIANCE WAS PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF HON'BLE SUPREME COURT I N CASE OF CIT VS. KANPUR COAL SYNDICATE, 53 ITR 125 IS TOTALLY CORREC T. IN THAT CASE THE HON'BLE APEX COURT OBSERVED AS UNDER: THE APPELLANT ASSISTANT LD. COMMISSIONER HAS PLENA RY POWERS IN DISPOSING OF AN APPEAL. THE SCOPE OF HIS POWERS IS CONTERMINOUS WITH THAT OF TH E INCOME -TAX OFFICER. HE CAN DO WHAT THE ITO CAN DO AND CAN ALSO DIRECT HIM TO DO WHAT HE HA S FAILED TO DO. 11 NOW IN THE CASE BEFORE US, THE ASSESSEE HAD SUFF ICIENT REASON WHICH PREVENTED IT FROM PRODUCING VARIOUS DOCUMENTS BEFORE THE ASSESSING OFFICER. A SEARCH WAS CONDUCTED IN THE P REMISES OF THE ASSESSEE AND ULTIMATELY A REQUEST WAS MADE BY THE A SSESSEE- COMPANY THAT SINCE THE DCIT, CENTRAL CIRCLE, PATIAL A HAPPENS TO BE THE OFFICER AS DDIT (INVG) WHO CARRIED THE SEARCH A ND THEREFORE THE CASES SHOULD BE TRANSFERRED TO THE CENTRAL CIRCLE, CHANDIGARH. LOT OF LITIGATION HAPPENED IN THIS REGARD AND ULTIMATEL Y THE REVENUE AGREED TO THE REQUEST AND THE CASES WERE TRANSFERRE D TO THE CENTRAL CIRCLE, CHANDIGARH ON 28.10.2010. IN FACT THE ASSE SSING OFFICER HIMSELF HAS OBSERVED IN THIS REGARD AS UNDER: THE REQUEST OF THE GROUP WAS ACCEPTED BUT IN THE W HOLE PROCESS INVALUABLE TIME WAS LOST AND HENCE ANY SUBMISSION OF THE ASSESSE THAT THE PROCES S OF ASSESSMENT WAS DELAYED WOULD HAVE TO ACCOUNT FOR THIS FACT. THE ABOVE CLEARLY SHOW THAT THE ASSESSEE DID NOT HA VE SUFFICIENT TIME TO REPRESENT IN ABOUT 105 ASSESSMENTS IN THE CENTRAL C IRCLE, CHANDIGARH. WHEN A PERIOD OF LESS THAN TWO MONTHS WAS AVAILABLE AND CERTAIN DOCUMENTS WERE NOT EASILY TRACEABLE THEN THE SAME W OULD CONSTITUTE A REASONABLE CAUSE FOR NOT PRODUCING THE DOCUMENTS SO UGHT TO BE ADMITTED 8 AS ADDITIONAL EVIDENCE. THIS HAS TO BE FURTHER CONS IDERED IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAD SERIOUS DISPUTES WIT H ITS AUDITOR, SHRI RAJINDER SANDAL WHOSE SERVICES WERE ULTIMATELY TERM INATED. KEEPING THESE TWO CONSTRAINTS, WE ARE OF THE OPINION THAT T HE LD. CIT(A) SHOULD HAVE ADMITTED THE ADDITIONAL EVIDENCE. THIS HAS TO BE PARTICULARLY SEEN IN THE LIGHT OF THE NATURE OF DOCUMENTS SOUGHT TO BE A DMITTED WHICH WE HAVE ALREADY PRODUCED ABOVE. IT CANNOT BE SAID THAT THE SE DOCUMENTS COULD HAVE BEEN GENERATED AS AN AFTER-THOUGHT. THEREFORE IN OUR OPINION, THESE DOCUMENTS SHOULD HAVE BEEN ADMITTED. IN ANY CASE W E FURTHER FIND THAT THE LD. COUNSEL FOR THE ASSESSEE WAS ABLE TO SHOW U S THE VARIOUS LETTERS THROUGH WHICH IT WAS ASCERTAINED THAT VARIOUS BILLS ETC. ARE BEING ENCLOSED WITH THOSE LETTERS AND NO COMMENTS HAVE BEEN GIVEN BY THE AUTHORITIES IN THEIR RESPECTIVE ORDERS. THESE BILLS ETC. WHEREVER FOUND NECESSARY, WERE PRODUCED EVEN BEFORE US FOR OUR CLARIFICATION. THE REFORE THIS GROUND IS ALLOWED (IN FACT DURING THE HEARING CERTAIN BILLS A ND OTHER DOCUMENTS WERE PRODUCED BEFORE US WHICH WE EXAMINED TO AVOID FURTH ER CONTROVERSY). SECOND ISSUE 12 NOW LET US DISCUSS THE FACTS IN RESPECT OF SECON D ISSUE I.E. DISALLOWANCE OF DEDUCTION U/S 80IB(11A). THE ASSES SEE HAS CLAIMED DEDUCTION U/S 80IB(11A) AMOUNTING TO RS. 17,83,48,6 67/-. DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ISSUED VARIOUS SHOW CAUSE NOTICES THAT WHY THIS DEDUCTION SHOULD NOT BE ALLOWED ON THE FOLLOWING POINTS: (I) THE ASSESSEE HAS FILED RETURN LATE AND THEREFOR E WHY DEDUCTION SHOULD NOT BE DENIED IN VIEW OF THE PROVI SIONS OF SECTION 80AC OF INCOME -TAX ACT, 1961 (IN SHORT A CT); (II) SINCE THE AUDIT REPORT IN FORM NO. 3CB AND 3CD AND IN FORM NO 10CCB HAS NOT BEEN FILED AND THEREFORE WHY DEDUCTION SHOULD NOT BE DENIED. 9 13 IN ADDITION TO ABOVE POINTS, THE ASSESSING OFFIC ER RAISED ANOTHER QUERY THAT THE ASSESSEE WAS ALREADY IN BUSI NESS OF MANUFACTURING OF RICE THEN HOW THE ASSESSEE HAD STA RTED NEW BUSINESS. FURTHER IF THE ASSESSEE HAS DISMANTLED E ARLIER MACHINERY AND USED THE SAME FOR STARTING NEW BUSINESS THEN WH Y IT SHOULD NOT BE CONSIDERED AS RECONSTRUCTED BUSINESS BECAUSE MOR E THAN 20% OF OLD MACHINERY HAS BEEN USED AND ACCORDINGLY WHY DED UCTION SHOULD NOT BE DENIED. INITIALLY THE ASSESSEE COULD NOT FI LE MUCH INFORMATION. ULTIMATELY ON 16.12.2010 THE ASSESSEE SUBMITTED SOME INFORMATION THROUGH LETTER DATED 12.12.2010. IT WA S MAINLY STATED IN THAT LETTER THAT MEGA PROJECT FOR INSTALLATION OF NEW MACHINERY FOR MANUFACTURING OF RICE, SOLVENT OIL AND GENERATION O F POWER WERE SANCTIONED BY THE GOVT OF PUNJAB AND RELEVANT DOCUM ENTS WERE FILED WITH THAT LETTER. IT WAS STATED THAT OLD MACHINERY WAS DISCARDED AND NEW MACHINERY WAS INSTALLED AND EVEN LAND AND BUILD ING FOR NEW VENTURE WERE PURCHASED AFRESH WHICH HAVE BEEN SHOWN IN THE SCHEDULE OF FIXED ASSETS. IT WAS POINTED OUT THAT IN CASE OF CIT VS. HINDUSTAN GENERAL INDUSTRIES LTD, 137 ITR 851 IT WA S HELD BY THE HON'BLE DELHI HIGH COURT THAT THE WORD SPLITTING U P OF THE BUSINESS ALREADY IN EXISTENCE INDICATE A CASE WHERE THE INTE GRITY OF A BUSINESS EARLIER IN EXISTENCE IS BROKEN UP AND DIFFERENT SEC TIONS OF THE ACTIVITIES PREVIOUSLY CONDUCTED ARE CARRIED ON INDEPENDENTLY. IN THIS CASE THERE IS NO SUCH CASE AS THE ENTIRE MACHINERY WAS REINSTALLE D BY DISCARDING THE ONE ALREADY IN EXISTENCE. SIMILARLY, ON THE FACTS O F THE CASE IT CANNOT BE A CASE OF RECONSTRUCTION AS THE EARLIER BUSINESS WA S KILLED AND IN PLACE A NEW BUSINESS WAS STARTED. FURTHER NO PART OF THE O LD MACHINERY WAS TRANSFERRED TO THE NEW PROJECT. IT WAS ALSO CONTEN DED THAT THE ASSESSEE HAS COMPLIED WITH ALL OTHER CONDITIONS THE REFORE DEDUCTION SHOULD BE ALLOWED. THE ASSESSING OFFICER OBSERVED THAT NO DOCUMENTARY EVIDENCE HAS BEEN FILED IN THIS REGARD AND MERELY 10 STATING THAT OLD MACHINERY WAS DISCARDED AND REPLAC ED WITH THE NEW MACHINERY WAS NOT ACCEPTABLE. IN ANOTHER LETTER DA TED 19.12.2010 IT WAS SUBMITTED THAT CIRCUMSTANCES IN WHICH THE RE TURN WAS LATE HAVE ALREADY BEEN EXPLAINED AND FORM NO. 3CD AND 3C B WERE BEING FILED NOW. IT WAS AGAIN EMPHASIZED THAT THE ASSESS EE HAS STARTED A NEW UNIT. THROUGH LETTER DATED 21.12.2010 IT WAS P OINTED OUT THAT EARLIER REPLY WAS NOT COMPLETE AS PART RELATING TO INTEGRATED PROCESS CARRIED OUT BY THE ASSESSEE, WAS NOT ANSWERED. THE ASSESSEE AFTER REFERRING TO THE PROVISIONS OF SECTION 80IB(11A) PO INTED OUT THAT DEDUCTION WAS AVAILABLE IF A PERSON HANDLES, STORES AND TRANSPORTS THE PADDY WHICH IS A FOOD GRAIN. IT WAS FURTHER PO INTED OUT THAT THE ASSESSEE BUYS PADDY FROM DIFFERENT PLACES WHICH IS TRANSPORTED TO THE FACTORY PREMISES BY TRUCKS, MEETING THE REQUIREMENT OF TRANSPORTATION, AND THEN THE SAME IS STORED AS SUCH BEFORE PUTTING INTO MANUFACTURING PROCESS AND THUS IS ENGAGED IN THE INTEGRATED PROCESS OF HA NDLING, STORAGE AND TRANSPORTATION. PADDY BEING AGRICULTURAL PRODUCE IS A FOOD GRAIN. THE EXPRESSION AGRICULTURAL PRODUCE HAS NOT BEEN DEFIN ED IN THE INCOME-TAX ACT, 1961. THE EXPRESSION OF AGRICULTURAL PRODUCE H AS BEEN DEFINED IN MINISTRY OF FOOD PROCESSING INDUSTRIES. AS PER CLAU SE 2 OF ALLOCATION OF BUSINESS IN MINISTRY OF FOOD PROCESSING INDUSTRIES (GOALS AND OBJECTIVES) COVERS FOOD GRAIN MILLING INDUSTRY. THE MAIN GOALS AND OBJECTIVES STIMULATING DEMAND FOR APPROPRIATE PROCESSED FOOD, ACHIEVING MAXIMUM VALUE ADDITION AND BY PRODUCT UTILIZATION, CREATING INCREASED JOB OPPORTUNITY PARTICULARLY IN RURAL AREA, ENABLING FA RMERS TO REAP THE BENEFIT OF MODERN TECHNOLOGY, CREATING SURPLUSES FOR EXPORT S. ALL THESE INGREDIENTS ARE FULFILLED BY THE COMPANY. FOR THIS REASON, THE BENEFIT U/S 80IB(11A) IS ADMISSIBLE TO THE ASSESSEE. FOLLOWING DOCUMENTS WERE ALSO STATED TO BE ENCLOSED: 1 FORM 10 CCB IS ENCLOSED. 11 2 THE BILLS FOR THE MACHINERY PURCHASED ARE BEING P RODUCED FOR EXAMINATION. 3 PHOTO COPY OF BILLS OF FIXED ASSET ADDITIONS ARE ENCLOSED. HOWEVER, THE ASSESSING OFFICER NOTED THAT THOUGH IT WAS STATED BY THE ASSESSEE THAT FORM 10CCB AND BILLS FOR THE PROJ ECT MACHINERY WERE ENCLOSED BUT SAME WERE NOT FOUND AS ENCLOSURES . ULTIMATELY IT WAS ACCEPTED BY THE ASSESSEE THAT FORM 10CCB WAS NO T READILY AVAILABLE. IN THIS BACKGROUND THE ASSESSING OFFICE R DENIED DEDUCTION U/S 80IB BY GIVING VARIOUS REASONS WHICH CAN BE SUM MARIZED AS UNDER: (I) HE REFERRED TO THE PROVISIONS OF SECTION 80IB( 11A) AND EXPLANATORY NOTES ON THE PROVISIONS AND OBSERVED TH AT DEDUCTION WAS BROUGHT ON THE STATUTE TO ENCOURAGE BUILDING OF INFRASTRUCTURE TO HANDLE FOOD GRAINS TO ENSURE BETT ER STORAGE CONDITIONS AND MINIMIZATION OF WASTAGE. THE INTENT ION BEHIND SEC 80IB (11A) WAS TO ADDRESS THE BASIC CONCERN REL ATING TO ENHANCED FOOD SECURITY AND AGRICULTURAL DEVELOPMENT BY UPGRADATION AND MODERNIZATION OF INFRASTRUCTURE FAC ILITIES AND THEREFORE THIS ASPECT OF STORAGE AND HANDLING AND TRANSPORT OF FOOD GRAINS WERE CENTRAL CONCERNS. ACCORDING TO HI M THE MAIN BUSINESS OF THE ASSESSEE AS PER FORM 3CD ITSELF WAS MANUFACTURER OF RICE, CATTLE FEED, CRUSHING OF O IL, SOLVENT EXTRACTION AND REFINERY AND GENERATION OF POWER. T HUS THE ASSESSEE WAS MAINLY ENGAGED IN THE MANUFACTURE OF R ICE, CATTLE FEED ETC. WHICH CANNOT BE EQUATED WITH INTEGRAL BUS INESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD ITEMS. HE REFERRED TO THE FOLLOWING WRITTEN SUBMISSIONS OF THE ASSESSE E: THAT THE ASSESSEE BUYS PADDY FROM DIFFERENT PLACES WHICH IS TRANSPORTED TO THE FACTORY PREMISES BY TRUCKS, MEETING THE REQUIREMENT OF TRANSPORTATION AND THEN THE SAME IS STORED AS SUCH BEFORE PUTTING INTO MANU FACTURING PROCESS AND THUS IS ENGAGED IN THE INTEGRATED PROCESS OF HANDLING, S TORAGE AND TRANSPORTATION. 12 ACCORDING TO HIM ABOVE CLEARLY SHOWS THAT THE PRIMA RY BUSINESS OF THE ASSESSEE WAS MANUFACTURING /MILLING OF RICE AND NOT HANDLING, STORAGE AND TRANSPORTATION OF THE GOODS. HE THEN REFERRED TO SEC 80AB WHICH PROVIDES THAT WHATEVER D EDUCTION IS REQUIRED TO BE ALLOWED UNDER THIS CHAPTER WHICH INC LUDES SEC 80IB ONLY THE INCOME OF THE NATURE SPECIFIED IN SUC H SUB-SEC WHICH HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME, CAN BE ALLOWED DEDUCTION. SINCE NO INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS WAS CONDU CTED, THEREFORE SAME WAS NOT INCLUDED IN THE GROSS PROFIT AND HENCE THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION. HE REF ERRED TO VARIOUS INCOMES DECLARED BY THE ASSESSEE IN THE YEA R ENDING ON MAR 31, 2008 WHICH ARE AS UNDER: PARTICULARS FOR THE YEAR ENDED ON 31.03.2008 ANNEXURE-13 SALES - OILS 712761186.57 - RICE 8331363420.36 - WHEAT SALE 80741903.00 - OTHER SALES 419980550.00 TOTAL 9544847059.93 ANNEXURE 14 OTHER INCOME INSURANCE CLAIM RECEIVED 2445189.79 ROUND OFF INCOME 0.00 REBATE AND DISCOUNT 5223673.79 MISC. INCOME 142268.00 DIVIDEND RECEIVED 17040.00 INTEREST RECEIVED 3319636.00 TRUCK DALA RECEIVED 2309847 TRUCK INCOME 5763285.00 DIFFERENCE IN EXCHANGE RATES 653618.00 EXPORT INCENTIVES 1911016.03 LONG / SHORT TERM CAPITAL GAIN 2695340.00 TOTAL 24480913.32 FROM ABOVE HE NOTED THAT NO INCOME OR RECEIPT WERE SHOWN IN RESPECT OF INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF GOODS. (II) THE ASSESSEE HAS NOT FILED FORM 10CCB WITHIN T HE PRESCRIBED PERIOD. 13 (III) HE FURTHER REFERRED TO PROVISIONS OF SECTION 80AC WHICH PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED U/S 80I B UNLESS THE RETURN OF INCOME HAS BEEN FILED ON OR BEFORE DUE DA TES SPECIFIED IN SUB-SEC (1) OF SEC 139. SINCE THE ASSESSEE HAS NOT FILED THE RETURN BEFORE DUE DATE SPECIFIED U/S 139(1) THE DEDUCTION WAS NOT AVAILABLE. (IV) FINALLY HE REFERRED TO THE PROVISIONS OF SECTI ON 80IB(2)(I) WHICH PROVIDES THAT DEDUCTION IS AVAILABLE TO INDUSTRIAL UNDERTAKING WHICH FULFILS THE CONDITIONS GIVEN IN THAT SECTION. ACCOR DING TO HIM THERE WAS NO ADDITION OF PLANT & MACHINERY DURING THE YEA R. THIS FACT WAS TAKEN FROM A CHART GIVEN BY SHRI RAJINDER SANDAL, C .A. IN RESPONSE TO SEC 131: SL.NO PARTICULARS W.D.V AS ON 01.04.07 ADDITIONS BEFORE 30.09.07 ADDITIONS AFTER 30.09.07 SALE TOTAL COST AS ON 31.03.08 1 LAND 94892046.00 0.00 2038751.00 0.00 96930797.00 2 BUILDING 124506165.66 20250562.65 18088979.00 0.00 162845707.31 3 ROADS 2894471.69 0.00 0.00 0.00 2894471.69 4 OFFICE BUILDING 6325057.41 0.00 0.00 0.00 6325057.41 5 WOODEN STRUCTURE 0.00 0.00 0.00 0.00 0.00 6 WATER TREATMENT PLANT / POLLUTION CONTROL DEVICES 100162954.77 274671780.30 138481534.96 0.00 513316270.03 7 PLANT & MACHINERY 188627543.96 0.00 0.00 0.00 188627543.96 8 FURNITURE FIXTURE 4732918.52 1344474.00 2828937.00 0.00 8906329.52 9 VEHICLE 51334804.41 76130.00 8793219.00 0.00 60204153.41 10 IMPORTED CAR 650000.00 0.00 0.00 0.00 650000.00 11 MOTOR CYCLES / SCOOTER 12623.77 0.00 0.00 0.00 12623.77 12 OFFICE EQUIPMENTS 3197669.10 1302604.00 1837983.87 0.00 6338256.97 13 COMPUTERS 1404702.97 241348.00 1139631.00 0.00 2785681.97 HE MADE FOLLOWING OBSERVATIONS IN THIS REGARD: AS PER ABOVE DEPRECIATION CHART, WHICH IS AS PER TH E PROVISIONS OF INCOME TAX ACT, 1961 IT IS TO BE MARKED THAT THERE IS ABSOLUTE LY NO ADDITION IN PLANT & MACHINERY DURING THE YEAR. THERE IS CLEAR EVIDENCE THAT THERE IS NO KILLING OF AN EARLIER BUSINESS AND A NEW BUSINESS INITIATED. A LSO NO PLANT OR MACHINERY WAS SOLD BY THE ASSESSEE DURING THE YEAR. ALSO FROM THE ABOVE CHART IT IS CLEAR THAT NO MACHINERY WAS SOLD OFF/DISCARDED BY THE ASS ESSEE DURING THE YEAR. IT IS THUS APPARENT THAT NO NEW UNIT WAS SET UP BY THE AS SESSEE DURING THE YEAR. THE MACHINERY OR PLANT AND OTHER ASSETS PREVIOUSLY USED HAD BEEN TRANSFERRED TO 14 THE NEW BUSINESS; HENCE THE INTEGRITY OF BUSINESS E ARLIER IN EXISTENCE IS NOT BROKEN UP. IN THIS BACKGROUND THE ASSESSING OFFICER DID NOT AL LOW THE DEDUCTION U/S 80IB(11A). 14. ON APPEAL BEFORE THE LD. CIT(A), IT WAS POINTED OUT THAT THE CONCERN UNDER THE NAME AND STYLE OF LAKSHMI GRAIN P ROCESSOR LTD. WAS FORMED IN THE YEAR 1995 WITH THE OBJECT OF DEALING IN FOOD GRAINS AND OTHER BY PRODUCTS OBTAINED IN THE COURSE OF MANUFACTURING . THE NAME OF THE COMPANY WAS CHANGED TO LAKSHMI OVERSEAS INDUSTRIES LTD. W.E.F 01.08.1995 AND THEN TO LAKSHMI ENERGY & FOODS LTD. SINCE THE CONCERN STARTED BUSINESS IN THE YEAR 1995 AND THE MACHINERY AND BUILDING WERE VERY OLD, A MEGA PROJECT WAS UNDERTAKEN WITH THE SA NCTION OF GOVERNMENT OF PUNJAB AND FOR THAT PURPOSE A MEMORANDUM OF UNDE RSTANDING WAS ENTERED INTO. THE PROJECT COST OF THE VENTURE WAS A ROUND 800 CRORES. A COPY OF THE MOU WAS FILED BEFORE THE LD. A.O. WHICH IS AN ADMITTED FACT ON RECORD. IT WAS FURTHER POINTED OUT THAT THE MAIN ACTIVITY O F THE ASSESSEE-COMPANY COMPRISES THE PROCUREMENT OF PADDY FROM MARKET THEN TRANSPORT THE SAME TO THE GODOWN WHICH WERE SP ECIFICALLY DESIGNED TO PROVIDE MAXIMUM SECURITY AND SAFETY FOR THE FOOD GRAINS FROM WITHERING, SPILLAGE, LOSS BY PESTS AND OTHER N ATURAL CALAMITIES. THEREAFTER THE HUSK ON THE PADDY IS FIRST REMOVED T O PREVENT THE LOSS BY INBORN PESTS AND THEN THE PRODUCT IS CONSIGNED T O STORES. FOOD GRAINS ARE KEPT IN HIGH CLASS STORES AND IN CASE OF PADDY SAME IS KEPT FOR A PERIOD RANGING FROM ONE YEAR TO TWO YEAR S WHERE REGULAR FUMIGATION ACTIVITIES ARE CARRIED OUT. THE AGE OF THE RICE IS SHOWN IN THE WRAPPERS IN WHICH SUCH RICE IS PACKED AND THE S AME IS CHECKED BY THE FOOD AUTHORITIES. THESE PROCESSES WOULD DEF INITELY FULFILL ALL THE THREE INGREDIENTS FOR EXEMPTION I.E. TRANSPORTA TION AND HANDLING AND STORAGE. IT WAS CONTENDED THAT THE ASSESSING O FFICER HAS TAKEN A NARROW VIEW OF THE MATTER. ACCORDING TO THE ASSE SSING OFFICER THE 15 PERSON WOULD BE ENTITLED TO EXEMPTION IF THESE THRE E ACTIVITIES WERE IN THE NATURE OF INDIVIDUAL BUSINESS. FURTHER IF TH E INTERPRETATION GIVEN BY THE ASSESSING OFFICER IS ACCEPTED THEN THE MOMENT FOOD GRAINS ARE TRANSPORTED, HANDLED AND STORED AND THEN CONVERTED INTO RICE THE ASSESSEE WILL NOT BE ENTITLED TO EXEMPTION . IN OTHER WORDS, ACCORDING TO THE ASSESSING OFFICER THE EXEMPTION WI LL BE AVAILABLE TO ONLY THE WAREHOUSES WHICH ARE ALSO TRANSPORTING SUC H FOOD GRAINS. THAT CANNOT BE THE INTENTION OF THE LEGISLATURE. I T WAS CONTENDED THAT IF THE INTERPRETATION GIVEN BY THE ASSESSING O FFICER WAS TO BE ACCEPTED AND THE EXEMPTION WAS TO BE RESTRICTED ONL Y TO THE ACTIVITIES OF THE TRANSPORTATION, HANDLING AND STOR AGE AND NOTHING ELSE THEN HOW THE ASSESSEE WOULD GET THE INCOME BEC AUSE IF THE ACTIVITIES STOPS AT THE STAGE OF STORAGE, NO INCOME WOULD EVER ACCRUE TO THE ASSESSEE AND FOR GENERATING THE INCOME THE G OODS HAVE TO LEAVE THE HANDS OF THE ASSESSEE AS SUCH OR IN THE S HAPE OF EXTENDED PRODUCT. IN THIS REGARD CERTAIN CASE LAWS WERE ALS O QUOTED. THEREFORE THE ACTIVITIES PERFORMED BY THE ASSESSEE WERE ELIGIBLE FOR DEDUCTION U/S 80IB(11A). 15 WITH REGARD TO THE ISSUE REGARDING NEW PLANT & M ACHINERY IT WAS SUBMITTED THAT DEDUCTION U/S 80IB(11A) RELATES TO SERVICES IN CONNECTION WITH PRESERVATION OF FOOD GRAINS PROMOTE D BY THE GOVT OF INDIA UNDER TFC/99-VOL. III DATED 4.7.2000 FOLLOWIN G THE NATIONAL POLICY IN RESPECT OF HANDLING, STORAGE AND TRANSPO RTATION OF FOOD GRAINS. IT WAS POINTED OUT THAT IN CASE OF THE ASS ESSEE THE GOVT OF PUNJAB HAD SANCTIONED MEGA PROJECT FOR INSTALLATION OF NEW MACHINERY FOR HANDLING, STORAGE OF PADDY AND PROCES SING OF PADDY AND ITS BI-PRODUCTS SUCH AS RICE BRAN ETC. DURING T HE PERIOD RELEVANT TO ASSESSMENT YEAR 2007-08. UPON SANCTION OF THIS PROJECT THE ENTIRE PLANT WAS REPLACED AND NEW INDUSTRIAL UNDERT AKING WAS SET UP WHICH CARRIED OUT OPERATION WITH NEW MACHINERY INST ALLED WHICH 16 BECOMES CLEAR FROM THE REPLY FILED BEFORE THE ASSES SING OFFICER VIDE REPLY DATED 19.12.2010. 16 IN REPLY TO THE ISSUE OF LATE FILING OF RETURN A ND DENIAL OF DEDUCTION IN VIEW OF SEC 80AC IT WAS POINTED OUT TH AT THE ASSESSEE HAS CHANGED THE ACCOUNTING PERIOD FROM 1.4.2007 TO 30.9.2008 FOR THE PURPOSE OF COMPANIES ACT AND THE ACCOUNTS WERE MAINTAINED FOR THIS PERIOD AND BALANCE SHEET ETC. WERE FILED WITH THE REGISTRAR OF COMPANIES ACCORDINGLY. HOWEVER, FOR INCOME-TAX PUR POSE ACCOUNTS HAD TO BE PREPARED UPTO 31.3.2008 WHICH TOOK LONG T IME. IT WAS CONTENDED THAT PROVISIONS OF SECTION 80AC ARE ONLY OF DIRECTORY NATURE AND NOT MANDATORY. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN CASE OF DHIR GLOBAL INDUSTRIAL (P) LTD. 133 TTJ 580. IN RESPECT OF TH E ISSUE REGARDING NON FULFILLMENT OF CONDITIONS OF SUB-SEC (2)(I) OF SEC 80IB, IT WAS CONTENDED THAT THE STATEMENT OF SHRI RAJINDER SANDA L COULD NOT HAVE BEEN RELIED BY THE ASSESSING OFFICER WHICH WAS TAKE N AT THE BACK OF THE ASSESSEE WITHOUT AFFORDING A CROSS-EXAMINATION. THE DETAIL OF PLANT & MACHINERY WERE FILED DURING ASSESSMENT PROC EEDINGS AND THEREFORE IT IS NOT CORRECT ON THE PART OF THE ASSE SSING OFFICER TO SAY THAT NO ADDITION IN PLANT & MACHINERY WAS INSTALLED DURING THE YEAR. ARGUMENT OF THE ASSESSING OFFICER THAT NEW PLANT WA S SET UP AND OLD PLANT & MACHINERY WAS TRANSFERRED TO THE NEW BUSINE SS, IS NOT CORRECT AND IN THIS REGARD RELIANCE WAS PLACED ON T HE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF CIT VS. HINDUST AN GENERAL INDUSTRIES LTD. (SUPRA). SOME ARGUMENTS WERE MADE IN RESPECT OF FILING OF FORM 10CCB ALSO. 17. THE LD. CIT(A) EXAMINED THE SUBMISSIONS AND OBS ERVED THAT DUE DATE FOR FILING OF THE RETURN WAS 30.9.2008 WHE REAS SAME HAS BEEN FILED ON 31.3.2009. HE REFERRED TO THE DECISI ON OF HON'BLE SUPREME COURT IN CASE OF PARKASH NATH KHANNA VS. CI T, 266 ITR 1 17 AND OBSERVED THAT DUE DATE HAS TO BE RECKONED WITH WHAT IS PROVIDED U/S 139(1). SINCE THE ASSESSEE HAS NOT FILED RETUR N WITHIN THE DUE DATE, THEREFORE NO DEDUCTION CAN BE ALLOWED. IN RE SPECT OF FILING OF FORM 10CCB HE OBSERVED THAT INITIALLY THE FORM WAS SIGNED BY SHRI AMIT GUPTA WHICH WAS NOT IN ORDER BECAUSE TAX AUDIT OR OF THE COMPANY WAS SHRI DEEPAK GARG. IT WAS ALSO NOTED BY HIM THAT THOUGH SHRI AMIT GUPTA HAD ADMITTED TO ISSUANCE OF FORM 10CCB BUT THE SAME WAS SIGNED ON 26.9.2009 WHICH MEANS THE SA ME WAS PREPARED AFTER FILING OF RETURN. IT WAS ALSO ILLOG ICAL THAT WHY THE TAX AUDITOR, DEEPAK GARG HAS NOT FILED THE FORM. IT WA S ALSO OBSERVED THAT SINCE THE ASSESSEE WAS NOT MAINTAINING SEPARAT E BOOKS OF ACCOUNTS AND HAD CLAIMED 35% DEDUCTION BEFORE THE A SSESSING OFFICER WHICH WAS LATER ON RAISED TO 100%, THE ONUS WAS ON THE ASSESSEE TO PROVE THE CORRECTNESS OF ITS CLAIM BY L EADING SOME EVIDENCES. IN THIS BACK GROUND THE LD. CIT(A) REJE CTED THE CLAIM FOR DEDUCTION VIDE PARA 8.3.6 WHICH IS AS UNDER: IN THE AFORESAID PARAS, I HAVE HELD THAT THE ASSESS EE HAS VIOLATED THE BASIC REQUIREMENT FOR CLAIMING DEDUCTION U/S 80IB. THESE STATUTORY DEFAULTS CANNOT BE OVERLOOKED. NO DOUBT A LIBERAL INTERPRETATION IS RE QUIRED TO BE MADE IN RESPECT OF INCENTIVE PROVISIONS ALLOWING TAX EXEMPTIONS, IT IS ALSO VITAL THAT WE ABIDE BY THE INTENT OF THE LEGISLATURE. IN THIS CASE, THE AS SESSEE HAS FILED THE RETURN OF INCOME BEYOND THE DUE DATE AS STIPULATED U/S 139(1) . THE FORM 10CCB REQUIRED TO BE FILED ALONGWITH THE TAX AUDIT REPORT TO SUPPORT THE CLAIM OF DEDUCTION U/S 80IB IS ALSO NOT CREDIBLE. THUS AS TH E ASSESSEE HAS VIOLATED THE PROVISIONS OF SEC 80AC AND 80IA(7), THE CLAIM OF TH E ASSESSEE CANNOT BE CONSIDERED FOR SUCH DEDUCTION U/S 80IB. IN THIS BAC KDROP, I DEEM IT MERELY ACADEMIC TO GO INTO THE ALLOWABILITY OF DEDUCTION / MERITS OF THE CASE, AS I HAVE HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTIO N U/S 80 IB FOR THE TECHNICAL DEFAULTS AS ALREADY ELUCIDATED. CONSEQUENTLY THE AS SESSEE FAILS ON THIS GROUND OF APPEAL. 18 THE LD. COUNSEL FOR THE ASSESSEE MADE DETAILED S UBMISSIONS IN RESPECT OF DEDUCTION U/S 80IB (11A). HE MAINLY RE ITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND FURTHER ELABORATED THE CONTENTIONS WHICH CAN BE SUMMARIZED AS UNDER: (A) CONTENTION IN RESPECT OF LATE FILING OF RETURN IN THIS YEAR THE ASSESSEE HAS ADOPTED THE ACCOUNT ING YEAR OF 18 MONTHS FROM 1..4.2007 TO 30.9.2008 AND THEREF ORE THE BOOKS WERE MAINTAINED FOR 18 MONTHS AND BALANCE SHE ET WAS 18 PREPARED ACCORDINGLY AND FILED WITH THE REGISTRAR O F COMPANIES. HOWEVER, FOR THE PURPOSE OF INCOME-TAX THE ACCOUNTS HAVE TO BE MAINTAINED ONLY FOR A PERIOD OF 12 MONTHS ENDING ON 31.3.2008. THIS PROCESS WAS CUMBERSOME A ND DIFFICULT WHICH CONSUMED LOT OF TIME LEADING TO LAT E FILING OF RETURN. IN THIS REGARD HE REFERRED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) (COPY OF WHICH IS PLACED AT PAGE 788 TO 890 OF THE PAPER BOOK) AND INVITED OUR ATTENTION TO PAGE 823 TO 827 WHERE THE REASONS FOR LATE FILING OF THE RETURN WER E ELABORATED. HE ALSO REFERRED TO THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. MS. JAGRITI AGGARWAL , 339 ITR 610. IN THIS CASE IT WAS CLEARLY HELD THAT SEC 139 (1) HAS TO BE READ ALONG WITH SEC 139(4) WHILE INTERPRETING PROVI SIONS OF SECTION 54. SINCE SEC 80AC AND 54 ARE OF SAME NATU RE, THEREFORE THIS JUDGMENT IS SQUARELY APPLICABLE. HE ALSO REFERRED TO THE DECISION OF HON'BLE DELHI HIGH COUR T IN CASE OF PODDER PIGMENTS VS. CIT, 222 CTR 309 (COPY OF THE J UDGMENT FILED AT PAGE 25 TO 28 OF THE SYNOPSIS). IN THIS C ASE IT WAS CLEARLY HELD THAT EVEN IF TIME FOR FILING OF RETURN HAD EXPIRED THE DEDUCTION CAN STILL BE CLAIMED EVEN IN THE PETITION FILED U/S 264 AFTER SEVEN MONTHS. HE ALSO RELIED ON THE FOLLOWIN G DECISIONS: (I) ACIT VS. DHIR GLOBAL INDUSTRIAL (P) LTD. (SUPRA ) (II) ITO VS. S. VENKAKTAIAH, ITA NO. 984/HYD/2011 (COPY FILED) (III) VANSHEER BUILDERS & DEVELOPERS P. LTD VS. IT O, ITA NO. 386/BANG/2012 (COPY FILED) THE LD. COUNSEL FOR THE ASSESSEE ALSO DISTINGUISHED THE DECISION OF SPECIAL BENCH IN CASE OF SAFFIRE GARMEN TS VS. ITO, 151 TTJ 114. ACCORDING TO HIM IN VIEW OF ABOVE DECI SION OF COURTS, THE DEDUCTION U/S 80IB(11A) CANNOT BE DENIE D MERELY BECAUSE THE RETURN HAS BEEN FILED LATE. (B) NON FILING OF A CERTIFICATE OF C.A IN FORM NO. 10 C CB THE ASSESSEE HAD A SERIOUS PROBLEM WITH THE AUDITOR AND TAX CONSULTANT SHRI RAJINDER SANDAL. THE ASSESSEE- COMPANY WAS ENTIRELY DEPENDENT ON SHRI SANDALS ADVICE RELA TING TO TAX MATTERS FOR THE LAST SIX YEARS. HE WAS HAVING VARI OUS DETAILS AND INFORMATION RELATING TO ACCOUNTS AND TAX MATTER S IN HIS CUSTODY WHICH WERE NOT HANDED OVER TO THE ASSESSEE- COMPANY. THESE FACTS BECOME CLEAR FROM THE FACE OF ASSESSMEN T ORDER ITSELF AS SHRI SANDAL HAS DEPOSED AGAINST THE ASSES SEE. SHRI 19 SANDAL HAD GONE TO THE EXTENT OF STATING THAT SOME OBSERVATIONS IN HIS AUDIT WERE MADE DUE TO CLERICAL MISTAKE OF JUNIOR STAFF. IN THIS REGARD REFERENCE WAS MADE TO PAGE 39 OF THE ASSESSMENT ORDER. FORM 10CCB WAS SIGNED BY ANO THER C.A WHICH WAS FILED BEFORE THE ASSESSING OFFICER. COPY OF FORM 10CCB WAS ALSO FILED BEFORE THE LD. CIT(A). IT WAS CONTENDED THAT FILING OF FORM 10CCB IS MERELY A TECHNICAL REQ UIREMENT AND THIS FORM CAN BE FILED AT ANY TIME DURING ASSESSMEN T PROCEEDINGS BEFORE THE ASSESSING OFFICER OR BEFORE THE LD. CIT(A) OR EVEN BEFORE THE TRIBUNAL. IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: (I) CIT VS. TREHAN ENTERPRISES, 248 ITR 333 (J&K) (II) CIT VS. ACE MULTITAXES SYSTEMS PVT LTD, 317 IT R 207 (KARN) (III) CIT VS. JAYANT PATEL, 248 ITR 199(MAD) (IV) CIT VS. MAGNUM EXPORT (P) LTD. 262 ITR 10 (CAL ) (V) CIT VS. SHAHZEDANAND CHARITY TRUST 228 ITR 292 (PH) (VI) NATIONAL HORTICULTURAL BOARD VS. CCIT, CWP NO. 9339 OF 2008 (COPY FILED) IT WAS ALSO CONTENDED THAT APPEAL PROCEEDINGS BEFOR E THE FIRST APPELLATE AUTHORITY IS MERE CONTINUATION OF ASSESSM ENT PROCEEDINGS AND THEREFORE HE CAN ALSO ACCEPT FORM 1 0CCB. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF KANPUR COAL SYNDICATE (SUP RA). (C) NATURE OR BUSINESS AND HOW THE SAME IS ELIGIBLE FOR DEDUCTION U/S 80IB(11A) IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS HIM SELF REFERRED TO EXPLANATORY NOTES TO THE FINANCE ACT, 2 001 IN RESPECT OF SEC 80IB(11A) WHERE THE BOARD ITSELF HA S CLARIFIED THAT THE DEDUCTION IS ALLOWABLE UNDER THIS SECTION TO A PERSON ENGAGED IN THE BUSINESS OF INTEGRATED BULK HANDLING , STORAGE AND TRANSPORTATION. DEDUCTION WILL BE AVAILABLE EVE N IF A PERSON IS CARRYING OUT ANY PART OF THIS ACTIVITY. IN ANY CASE THE ASSESSING OFFICER HAS NO DOUBTS THAT THE ASSESSEE W AS CARRYING OUT THESE ACTIVITIES. IT WAS SUBMITTED THAT THE ASS ESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PROCESSING O F PADDY IN INTEGRATED FASHION. THE LD. COUNSEL REFERRED TO THE FLOW- 20 CHART (FILED DURING THE COURSE OF HEARING SHOWING V ARIOUS PROCESSES CARRIED OUT BY THE ASSESSEE THROUGH PICTO RIAL CHART) AND POINTED OUT THAT THE ASSESSEE-COMPANY WAS PROCU RING PADDY FROM THE MANDI. INITIAL CLEANING WAS DONE IN THE MANDI ITSELF AND THEN SUCH PADDY WAS TRANSPORTED TO THE G ODOWNS OF THE ASSESSEE-COMPANY WHICH WAS SPECIFICALLY DESIGNE D TO PROVIDE MAXIMUM SECURITY AND SAFETY FOR THE FOOD GR AINS FROM WITHERING, SPOILAGE, LOSS BECAUSE OF PESTS AND OTHE R NATURAL CALAMITIES. HE EMPHASIZED THAT THE ASSESSEE HAS PUR CHASED MORE THAN 150 TRUCKS FOR TRANSPORTATION OF PADDY ET C. FROM MANDI TO ITS GODOWNS WHICH WILL FULFILL THE CONDITI ONS REGARDING TRANSPORTATION. ONCE THE PADDY IS BROUGHT TO THE G ODOWN WHICH HAVE BEEN SPECIFICALLY DESIGNED TO SAFEGUARD THE FO OD GRAINS THROUGH INSTALLATION OF VARIOUS MACHINERY FOR CONTR OLLING OF TEMPERATURE AND PROVIDE FUMIGATION FACILITIES TO PR OTECT THE FOOD GRAIN FROM PESTS AND OTHER NATURAL CALAMITIES. BEFORE PUTTING THE PADDY IN THE STORES, HUSK IS REMOVED TO PREVENT THE LOSS FROM INBORN PESTS. THIS PART WOULD FULFILL THE CONDITIONS OF STORAGE. IT WAS CONTENDED THAT MILLING IS PART OF T HE HANDLING BECAUSE THOUGH HANDLING IS NOT DEFINED IN THE ACT B UT HE MADE REFERENCE TO VARIOUS ACTS WHERE THE WORD HANDLING HAS BEEN DEFINED WHICH CLEARLY SHOW THAT HANDLING WOULD INCL UDE PROCESSING, MANUFACTURE, SALE OF A PARTICULAR GOOD. IT WAS EMPHASIZED THAT THE MINISTRY OF FOOD WHICH I S A NODAL MINISTRY FOR DESIGNING THE POLICY FOR PROCESS ING AND STORAGE OF FOOD ETC. IN THEIR CIRCULAR HAS CATEGORI CALLY STATED THAT DEDUCTION U/S 80IB(11A) WILL BE AVAILABLE TO T HE ENTITIES WHICH MANUFACTURE, PROCESS OR ARE ENGAGED IN THE MI LLING OF RICE. IN THIS REGARD REFERENCE WAS MADE TO THE SCO PE OF FOOD PROCESSING IN INDIA GIVEN BY THE MINISTRY OF FOOD P ROCESSING & INDUSTRIES. (COPY OF WHICH IS AVAILABLE AT PAGES 1 98 TO 210 OF THE SYNOPSIS. IT WAS CONTENDED THAT IT SEEMS THE ASSESSING OFFICE R WAS DOUBTFUL THAT IF THE ASSESSEE WAS CONSUMING PADDY F OR ITS OWN PROCESSING UNIT THEN IF THE ACTIVITIES OF HANDLING, STORAGE, TRANSPORTATION WOULD NOT BE ENTITLED TO DEDUCTION B UT THIS IS WRONG APPROACH BECAUSE EVEN IF SUCH SERVICES ARE US ED FOR ASSESSEES OWN CONSUMPTION THE DEDUCTION HAS TO BE ALLOWED AND IN THIS REGARD RELIANCE WAS PLACED ON THE DECIS ION OF 21 MUMBAI BENCH OF THE TRIBUNAL IN CASE OF SANCHITA MA RINE PRODUCTION PVT LTD VS. DCIT, 15 SOT 280. IT WAS ALS O SUBMITTED THAT PACKAGING OF GOODS WOULD BE PART OF THE PROCESS OF MANUFACTURE BECAUSE THIS ACTIVITY FORM PART OF T HE MANUFACTURE AND IN THIS REGARD REFERENCE WAS MADE T O THE RULING OF ADVANCE AUTHORITY WHICH HAS BEEN REFERRED IN THE WRITTEN SUBMISSIONS FILED BEFORE THE LD. CIT(A) (RE LEVANT PORTION IS AT PAGE 476 OF THE PAPER BOOK). IT WAS FURTHER CONTENDED THAT EVEN IF THE PROCESSING IS NOT PART O F THE HANDLING, STORAGE AND TRANSPORTATION EVEN THEN THE PROPORTIONATE DEDUCTION HAS TO BE ALLOWED ON PROPOR TIONATE BASIS AND IN THIS REGARD VARIOUS DECISIONS WERE QUO TED IN RESPECT OF SEC 80IB(10).RELIANCE WAS PLACED ON THE DECISION OF: (I) NAGPUR BENCH OF THE TRIBUNAL IN CASE OF ITO VS . AIR DEVELOPERS (COPY AVAILABLE AT PAGE 543 TO 550). (II) G.V. CORPORATION VS. ITO, 38 SOT 174 (MUM) (III) VISWAS PROMOTERS (P) LTD. VS. ACIT, T.C (APPE ALS) NOS. 1014 OF 2009, 857 OF 2010 AND 190 TO 192 OF 2012, W .A NO. 471 OF 2010, MP NOS. 1,1,1,2 AND 2 OF 2012 ` IT WAS CONTENDED THAT IN THE IDENTICAL FACTS DEDU CTION HAS BEEN GIVEN IN CASE OF LT OVERSEAS PVT LTD @ 100% UN DER THE SAME PROVISIONS AND IN THIS REGARD REFERENCE WAS MA DE TO THE ASSESSMENT ORDERS PLACED AT PAGE 901 TO 919 OF PAPE R BOOK. FURTHER THE DEPARTMENT HAS ALLOWED DEDUCTION TO THE ASSESSEE IN ASSESSMENT YEAR 2010-11 @ 70%. REFERENCE WAS MA DE TO THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COU RT IN CASE OF CIT VS. SARDARI LAL MEHRA, 87 ITR 47. IT WAS A LSO SUBMITTED THAT IF THE DEDUCTION HAS BEEN ALLOWED IN THE LATTER YEAR THEN THE DEDUCTION CANNOT BE DISALLOWED IN TH E EARLIER YEAR AND IN THIS REGARD REFERENCE WAS MADE TO THE D ECISION OF AMRITSAR BENCH OF THE TRIBUNAL IN CASE OF DCIT VS. CHAMAN LAL & SONS. 93 TTJ 132 (COPY PLACED AT PAGE 57 OF THE S YNOPSIS) AND THE DECISION OF HON'BLE DELHI HIGH COURT IN CA SE OF PARVEEN SON (COPY PLACED AT PAGE 62 OF THE SYNOPSIS ). (D) IT WAS CONTENDED THAT THERE IS NO FORCE IN THE OBSERVATIONS OF THE ASSESSING OFFICER THAT DEDUCTIO N WAS NOT 22 CLAIMED IN THE RETURN OF INCOME. IN THIS REGARD HE REFERRED TO PAGE 2 OF THE PAPER BOOK WHICH IS COMPUTATION OF IN COME WHICH CLEARLY SHOW THAT DEDUCTION HAS BEEN CLAIMED. IT W AS POINTED OUT THAT SOME HOW WHILE PROCESSING THE RETURN DEDUC TION WAS SHOWN AT NIL BUT EVEN THAT PROCESSING WAS GOT RECTI FIED THROUGH A RECTIFICATION APPLICATION FILED BY SHRI RAJINDER SANDAL. (E) COMPLIANCE WITH THE REQUIREMENTS OF SEC 80IB(2)(I) FIRST OF ALL IT WAS SUBMITTED THAT THE CONDITION OF SPLITTING OF AND RECONSTRUCTION OF A UNDERTAKING WAS APPLICABLE TO THE INDUSTRIAL UNDERTAKING ONLY. THE SAME IS NOT APPLI CABLE TO ELIGIBLE BUSINESS. IN THIS REGARD OUR ATTENTION WA S INVITED TO THE PROVISIONS OF SECTION 80IB WHICH PROVIDES FOR D EDUCTION IN CASE OF INDUSTRIAL UNDERTAKING, OPERATION OF THEATR E, HOTELS AND VARIOUS OTHER FIELDS LIKE MULTIPLEX THEATRES. WHERE VER THE CONDITION OF USAGE OF OLD MACHINERY OF LESS THAN 20 % WAS REQUIRED, HAS BEEN MENTIONED AND NO SUCH MENTION IS MADE OF THIS CONDITION U/S 80IB(11A). IT WAS FURTHER POINT ED THAT THE VALUE OF OLD MACHINERY WHICH WAS CLAIMED TO BE DISC ARDED WAS RS. 60531624/- AS ON 31.3.2005 WHEREAS NEW MACHINER Y ADDED WAS AT RS. 33.35 CRORE. KEEPING THE AMOUNT OF NEW MACHINERY IT BECOMES CLEAR THAT OLD MACHINERY WAS LESS THAN 2 0%, IN FACT IT WOULD BE ABOUT 18.14%. IN THIS REGARD IT WAS EM PHASIZED THAT OLD MACHINERY HAS TO BE RECKONED ON WDV AND IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING DECISIO NS: (I) HINDUSTAN GENERAL INDUSTRIES LTD. 67 TAXMAN 360 (DELHI) (II) HARIN KHOLA ICE & COLD STORAGE, 6 TAXMAN 362 (KOL) (III) RAJIV BHATNAGAR, 34 CCH 432 HOWEVER, WHEN IT WAS POINTED BY THE BENCH THAT DEPRECIATION HAS BEEN CLAIMED IN RESPECT OF PLANT & MACHINERY STATED TO BE DISCARDED AND MEGA PROJECT W AS SANCTIONED IN SEPT 2005 AFTER WHICH ASSESSEE STARTE D IMPLEMENTING THE SAME THEN IT WAS ADMITTED THAT FIR ST YEAR OF NEW PROJECT AND DEDUCTION SHOULD BE FOR ASSESSMENT YEAR 2006-07. 23 (F) IT WAS ALSO SUBMITTED THAT REVENUE HAS RAISED T HE ISSUE ON THE BASIS OF CLAIMING DEDUCTION INITIALLY AT 35% . THIS WAS DONE MAINLY ON THE ADVICE OF RAJINDER SANDAL AND AS POINTED OUT EARLIER THAT THE ASSESSEE-COMPANY HAD DIFFERENC ES AND DISPUTES WITH HIM AND HE MAY HAVE GIVEN WRONG ADVIC E. THE DIRECTORS ARE NOT WELL VERSED WITH THE INCOME-TAX P ROVISIONS BUT ONCE THE MISTAKE CAME TO THE KNOWLEDGE OF THE A SSESSEE- COMPANY THE CLAIM FOR DEDUCTION WAS REVISED TO 100% . IN FACT IN NEXT YEAR THE DEDUCTION HAS BEEN CLAIMED AT 100% WHICH SHOWS THAT THE ASSESSEE IS ELIGIBLE FOR 100% DEDUCT ION. 19 ON THE OTHER HAND LD. D.R. FOR THE REVENUE POINT ED OUT THAT THE ASSESSEE-COMPANY WAS ORIGINALLY INCORPORATED UN DER THE NAME OF LAKSHMI FOOD GRAIN PROCESSOR PVT LTD IN THE YE AR 1990. LATER ON THIS PVT LTD COMPANY WAS CONVERTED INTO A LIMITE D COMPANY AND THE NAME OF THE COMPANY WAS CHANGED ON FEW OCCASION S. IN THE ASSESSMENT YEAR 1995-96 TO 1999-2000 THE ASSESSEE H AS ALREADY AVAILED DEDUCTION U/S 80IA THROUGH VARIOUS ORDERS I NCLUDING THE ORDER OF THE SETTLEMENT COMMISSION. ORIGINALLY THE ASSESSEE- COMPANY WAS ENGAGED IN THE BUSINESS OF PADDY PROCES SING AND EVEN AFTER SANCTION OF MEGA PROJECT, THE ASSESSEES MAIN BUSINESS WAS MANUFACTURE OF RICE, CATTLE FEED, CRUSHING OF OIL S EEDS, SOLVENT EXTRACTION AND REFINERY. THIS FACT BECOMES ABSOLUT ELY CLEAR FROM THE FOLLOWING CHART WHICH SHOWS THE RECEIPTS OF THE ASS ESSEE-COMPANY DURING VARIOUS YEARS FROM DIFFERENT ACTIVITIES: SALES (RS. IN MILLIONS)* SL. NO. PARTICULARS 2003- 04 2004- 05 2005- 06 2006- 07 2007- 08 2008- 09 1 OIL DIVISION 66.28 136.01 458.42 374.51 712.76 558.90 2 RICE DIVISION 2157.17 2571.67 4875.08 6126.90 8331.36 7619.42 3 WHEAT / DAMAGED WHEAT 0.00 1261.54 203.42 295.67 80.74 3.60 4 OTHER SALES 27.57 107.92 46.97 165.58 419.98 419.83 24 5 POWER 514.91 TOTAL 2251.02 4077.14 5583.89 6962.66 9544.84 9116.66 ABOVE CLEARLY SHOW THAT THERE WAS NO CHANGE IN THE BUSINESS. THIS BECOMES FURTHER CLEARS FROM THE FACT THAT IN ASSESS MENT YEAR 2005- 06, 2006-07 AND 2007-08 THE ASSESSEE RETURNED INCOM E OF RS. 23.33 CRORES, 24.61 CRORES AND RS. 42.79 CRORES BUT NO DE DUCTION HAS BEEN CLAIMED U/S 80IA AND 80IB WHICH MEANS THAT THE ASSE SSEE WAS AWARE THAT IT WAS NOT ELIGIBLE FOR ANY DEDUCTION. HE REFERRED TO THE SANCTION LETTER PLACED IN THE ASSESSEES PAPER BOOK AT PAGE 283 AND POINTED OUT THAT MEGA PROJECT WAS SANCTIONED FOR PA DDY PROCESSING UNITS AT FIVE LOCATIONS WITH A CAPACITY OF 110 MT O N THE DATE ALONG WITH A POWER PLANT OF 15 MW. THIS MAKES IT ABSOLUT ELY CLEAR THAT THE BUSINESS OF THE ASSESSEE REMAINS THE SAME EXCEPT FO R POWER PLANT WHICH IS ELIGIBLE FOR DEDUCTION SEPARATELY U/S 80IA (4)(IV). THEREFORE EXPANSION OF PADDY PROCESSING CANNOT BE EQUATED WIT H INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS AS CONTEMPLATED U/S 80IB(11A) OF THE ACT. 20 THE LD. D.R. FOR THE REVENUE REFERRED TO THE PRO VISIONS OF SECTION 80IB(11A) AND POINTED OUT THAT THE SAME WAS INTRODUCED BY FINANCE ACT, 2001 AND INITIALLY BENEFIT WAS GIVEN T O THE BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS . LATER ON THE BENEFIT WAS EXTENDED TO THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS AND VEGETABLES BY FINANCE A CT, 2004 W.E.F. 1.4.2005 AND THEREAFTER BY FINANCE ACT, 2009 W.E.F. 1.4.2010 THE BENEFIT WAS FURTHER EXTENDED TO THE MEAT PRODUCTS A ND POULTRY OR MERINE OR DIARY PRODUCTS. HE REFERRED TO THE MEMOR ANDUM EXPLAINING THE CLAUSES AS WELL AS THE SPEECH OF FIN ANCE MINISTER WHILE INTRODUCING PROVISIONS OF SECTION 80IB(11A) I N 2001 AND SUBMITTED THAT PRIOR TO INSERTION OF SECTION 80IB ( 11A) A NATIONAL POLICY ON HANDLING, STORAGE AND TRANSPORTATION OF F OODGRAINS WAS 25 NOTIFIED IN THE GAZETTED OF INDIA DATED 15 TH JULY 2000 AND PARA 5.45 OF WHICH ELABORATED THAT POST HARVEST LOSSES OF FO OD GRAINS ARE A SERIOUS PROBLEM. FIVE PER CENT LOSS WOULD IMPLY LO SS OF 10 MILLION TONES OF FOOD GRAINS ANNUALLY. IN ORDER TO REDUCE STORAGE AND TRANSIT LOSSES AT FARM AND COMMERCIAL LEVEL, AND TO MODERNI ZE THE SYSTEM OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS IN INDIA, PRIVATE SECTOR PARTICIPATION WAS SOUGHT TO BE ENCOURAGED FO R DEVELOPMENT OF INFRASTRUCTURE FOR THE INTEGRATED BULK HANDLING, ST ORAGE AND TRANSPORTATION OF FOOD GRAINS. THEREFORE SEC 80IB( 11A) WAS INSERTED IN THE INCOME-TAX ACT WITH THE LEGISLATIVE INTENTIO N FOR THE DEVELOPMENT OF INFRASTRUCTURE FOR INTEGRATED BULK H ANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS KEEPING IN BACKGR OUND THE STORAGE AND TRANSIT LOSS OF FOOD GRAINS. THE LEGISLATIVE I NTENTIONS BEHIND SECTION 80IB(11A) WAS NOT TO EXTEND THE BENEFIT OF DEDUCTION TO EXISTING OR NEW INDUSTRIAL UNDERTAKING ENGAGED IN M ANUFACTURING OR PRODUCTION OF FOOD GRAINS AS THE SAME WAS AVAILABLE UNDER SUB-SEC (3) TO (5) OF SECTION 80IB TO SUCH UNDERTAKING DEPE NDING UPON THE PERIOD OF COMMENCEMENT OF BUSINESS AND THE LOCATION OF INDUSTRIAL UNDERTAKING FOR THE PERIOD AS SPECIFIED THEREIN. TH E MEMORANDUM EXPLAINING THE PROVISIONS OF SECTION 80IB(11A) MAKE S IT EXPLICITLY CLEAR THAT THE SOLE EMPHASIS WAS TO ENCOURAGE BUILD ING OF STORAGE CAPACITIES BY UNDERTAKING UPGRADATION AND MODERNIZA TION OF INFRASTRUCTURE FOR STORAGE, HANDLING AND TRANSPORTA TION OF FOOD GRAINS. 21 THE LD. D.R. FOR THE REVENUE REFERRED TO THE CON TENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE WITH RESPECT TO THE MEANING OF HANDLING GIVEN IN VARIOUS ACTS AND POINTED OUT THAT THE WORD HANDLING IS POLYMARPHOUS WORD AND IS USED IN DIFF ERENT SENSES IN DIFFERENT CONTEXTS. HE CONTENDED THAT DEFINITION I N OTHER ACTS OR TECHNICAL MEANING OF A WORD OR EXPRESSION IN THE ST ATUTE MAY BE 26 RELEVANT BUT NOT SACROSANCT. IN THIS REGARD HE REF ERRED TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CGT VS . NS GETTY CHETTIAR, 82 ITR 599 WHEREIN IT WAS OBSERVED AS UND ER: WORDS IN THE SECTION OF A STATUTE ARE NOT TO BE IN TERPRETED BY HAVING THOSE WORDS IN ONE HAND AND THE DICTIONARY IN THE O THER. IN SPELLING OUT THE MEANING OF THE WORDS IN A SECTION, ONE MUST TAK E INTO CONSIDERATION THE SETTING IN WHICH THOSE TERMS ARE USED AND THE P URPOSES THAT THEY ARE INTENDED TO SERVE. HE CONTENDED THAT IT IS WELL SETTLED THAT THE COURT S SHOULD NOT HESITATE TO DEPART THE MEANING IF THE TEXT AND SETT INGS IN WHICH THE WORD OR EXPRESSION IS USED DEMANDS SO. IN THIS REG ARD HE REFERRED TO THE FOLLOWING DECISIONS: (I) SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS. CIT, 10 1 ITR 234 (II) SMT. TARULATA SHYAM AND OTHERS VS. CIT, 108 IT R 345 THEREFORE WHILE INTERPRETING A PARTICULAR WORD OR E XPRESSION THE INTENTION OF THE LEGISLATURE BEHIND INSERTION OF TH E PARTICULAR PROVISIONS HAS TO BE KEPT IN MIND. ACCORDING TO HI M WHEN SEC 80IB(11A) IS READ ALONG WITH MEMORANDUM OF EXPLAIN ING THE PROVISIONS, IT WOULD EMERGE THAT THE WORD HANDLING IN ITS ORDINARY SENSE AND IN THE CONTEXT OF FOOD GRAINS WOULD COVER WITHIN IT AMBIT THE PROCESS AND ACTIVITIES RELATING TO CREATION OF FACILITIES FOR CLEANING AND REMOVING OF FOREIGN MATERIAL FROM THE FOOD GRAIN SO AS TO PREVENT DAMAGE FROM SUCH MATERIAL, FACILITIES FO R DRYING OF FOOD GRAINS TO PREVENT LOSS DURING STORAGE DUE TO EXCESS IVE MOISTURE, PRE STORAGE BULK GRAIN DUMPING AND DRYING FACILITIES, C REATION OF FACILITIES FOR MECHANIZED SAMPLING, WEIGHING AND DE TECTION OF LIVE INFECTANTS, MECHANIZED RECEIVING AND HANDLING BY ST ORING IN SILOS EQUIPPED WITH FACILITIES OF AERATION AND FUMIGATION , LOADING AND UNLOADING FACILITIES AND TRAFFIC MANAGEMENT AND DUM PING PITS, CHAIN CONVEYORS, ELEVATORS AND FACULTIES FOR MECHANIZED S HIPMENT SO AS TO INTEGRATE STORAGE WITH QUICK TRANSPORTATION. KEEPIN G THE OVERALL 27 INTENT OF THIS PARTICULAR PROVISION IT IS CLEAR THA T THE WORD HANDLING CAN NOT INCLUDE THE MANUFACTURE OR TRANSPORTATION O F FOOD GRAINS BY ANY STRETCH OF IMAGINATION. THE PROVISIONS OF THE ACT HAVE TO BE INTERPRETED IN A WAY THAT ABSURDITY AND MISCHIEF IS AVOIDED. IN THIS REGARD HE REFERRED TO THE DECISION OF HON'BLE SUPRE ME COURT IN CASE OF KP VARGHESE VS. ITO, 131 ITR 597. IN FACT A PAR TICULAR WORD AND EXPRESSION HAS TO BE GIVEN PURPOSIVE CONSTRUCTION A ND IN THIS REGARD HE REFERRED TO THE DECISION OF HON'BLE SUPREME COUR T IN CASE OF R&B FALCON PVT LTD, 301 ITR 309. HE ALSO REFERRED TO V ARIOUS OTHER DECISIONS WHERE PRINCIPLES OF INTERPRETATION OF STA TUTES HAVE BEEN GIVEN. HE REFERRED TO THE CONTENTION OF THE LD. CO UNSEL FOR THE ASSESSEE WITH REGARD TO THE CIRCULAR AND CLARIFICAT ION GIVEN BY THE MINISTRY OF FOOD PROCESSING WHEREIN VARIOUS INCENTI VE PROVISIONS ARE REPRODUCED. DETAIL OF VARIOUS BENEFITS IN FORM OF DUTY AND TAX BENEFITS ARE DISCLOSED AND VARIOUS SECTIONS OF PROC ESSING SECTORS HAVE BEEN DEFINED AND CLASSIFIED ON THE BASIS OF A DATA FOR THE PURPOSE OF CLARITY AND COMPILATION OF DATA. HOWEVE R, THERE IS NOTHING IN THESE DOCUMENTS TO SUGGEST THAT THE MINI STRY OF FOOD PROCESSING HAS CLASSIFIED RICE MILLING AS INTEGRATE D BUSINESS TO HANDLING, STORAGE AND TRANSPORTATION OF THE FOOD GR AINS. THOUGH THIS IS APPLICABLE IN CASE OF PRESERVATION AND PACKING O F FRUITS AND VEGETABLES. 22 THE LD. D.R. FOR THE REVENUE SUBMITTED THAT RELI ANCE PLACED BY THE LD. COUNSEL FOR THE ASSESSEE ON THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2010-11 IS NOT RELEVANT BECAUSE THE ASSESSMENT ORDERS ARE NOT BINDING ON THE TRIBUNAL AND THE ORDE R PASSED BY THE ASSESSING OFFICER IS NOT INCONFORMITY WITH THE LAW. REFERENCE TO THE DECISION OF BAJAJ TEMPO LTD. VS. CIT, 196 ITR 188 (S.C) IS ALSO MIS-CONSTRUED BECAUSE IT HAS BEEN HELD IN VARIOUS D ECISIONS THAT WHEN THERE IS NO AMBIGUITY IN THE PROVISION THEN T HERE IS NO 28 QUESTION OF INTERPRETING SUCH PROVISION IN THIS FAS HION. IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF PETRON ENGINEERING CONSTRUCTION P. LTD AND ANOTHER VS. CEN TRAL BOARD OF DIRECT TAXES AND OTHERS, 175 ITR 523 AND CIT VS. N. C. BUDHARAJA AND CO. AND ANOTHER, 204 ITR 412. (S.C). HE ALSO SU BMITTED THAT THE ASSESSEE HAD ALSO NOT PRODUCED THE BILLS AND DETAIL S OF INVESTMENTS MADE IN THE DEVELOPMENT OF SEARCH FACILITIES AND SI LOS AND THE SAME WERE NOT PRODUCED BEFORE THE TRIBUNAL ON ITS DIRECT IONS (THIS IS NOT CORRECT AS BILLS HAVE BEEN PRODUCED BEFORE US AND E VEN THE COPIES HAVE BEEN FILED ON RECORD IN RESPONSE TO THE QUERY BY THE BENCH). THE LD. D.R. FOR THE REVENUE REFERRED TO VARIOUS AN NUAL REPORTS WHICH CLEARLY INDICATE THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF RICE PROCESSING AND ALSO WAS IN THE BUS INESS OF WHEAT FLOUR PROCESSING ETC. THE DOCUMENTS AVAILABLE EVEN SHOW THAT THE LOANS WERE OBTAINED FROM THE BANKERS BY STATING THA T THE LOANS WERE REQUIRED FOR THE PURPOSE OF EXPANDING RICE MILL AND POWER PROJECT. HE SUBMITTED THAT VARIOUS DOCUMENTS SHOW THAT ADDIT IONAL STORAGE CAPACITY HAS ACCRUED IN FINANCIAL YEAR 2010-11. TH E COMPANY NEVER DECLARED IN ITS ANNUAL REPORT THAT IT WAS ALSO ENGA GED IN THE HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS . THE LD. D.R. FOR THE REVENUE ALSO DISTINGUISHED VARIOUS JUDGMENTS CI TED ON BEHALF OF THE ASSESSEE. 23 THE LD. D.R. FOR THE REVENUE ALSO REFERRED TO TH E PROVISIONS OF SECTION 80AC AND THE CIRCULAR NO. 14/06 21TED 28.1 2.2006 WHEREIN IT IS CLARIFIED THAT DEDUCTION U/S 80IB IS NOT ADMI SSIBLE FROM ASSESSMENT YEAR 2006-07 IF THE RETURN IS NOT FILED WITHIN THE DUE DATE SPECIFIED U/S 139(1). IN THIS REGARD HE RELIE D ON THE FOLLOWING DECISIONS: (I) DECISION OF HONBLE SUPREME COURT IN THE CASE O F KUMAR JAGDISH CHANDRA SINGH (220 ITR 67) 29 (II) DECISION OF HONBLE SUPREME COURT IN THE CASE OF PRAKASH NATH KHANNA (SUPRA) (III) DECISION OF HONBLE HIGH COURT OF KARNATAKA I N THE CASE OF N. SANNAMMA (204 TAXMAN 356) (IV) DECISION OF HONBLE ITAT RAJKOT (SB) IN THE CA SE OF SAFFIRE GARMENTS (151 TTJ 114) (V) DECISION OF HONBLE ITAT AMRITSAR IN THE CASE O F BAL KISHAN DHAWAN (HUF) (50 SOT49) (VI) DECISION OF HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF CHHOGMAL CHIRANJILAL VS. CIT(257 ITR 51) HE CONTENDED THAT RELIANCE ON THE DECISION OF HON'B LE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. MS. JAGRITI A GGARWAL (SUPRA) WAS MISPLACED BECAUSE IN THAT CASE THE COURT WAS CO NCERNED WITH THE INTERPRETATION OF SEC 54. WHEN A SPECIFIC PROV ISION IS THERE THEN SAME CANNOT BE INTERPRETED SO AS TO MAKE THE PROVIS ION REDUNDANT. 24. REFERRING TO THE OBJECTION OF THE ASSESSING OFF ICER IN NON FILING OF FORM 10CCB HE SUBMITTED THAT THERE IS A SPECIFIC REQUIREMENT U/S 80IA(7) R.W.S. 80IB(13). INITIALLY THIS REPORT WAS NOT FILED AND THE REPORT WHICH WAS FILED HAS BEEN SIGNED BY SHRI NARI NDER GULATI, C.A. WHEREIN DEDUCTION HAS BEEN WORKED OUT AT RS. 50.95 CRORES WHEREAS THE ASSESSEE HAS CLAIMED THE DEDUCTION AT RS. 17.3 2 CRORES WHICH IS SELF CONTRADICTORY. 25 THE LD. D.R. FOR THE REVENUE ALSO REFERRED TO NO N FULFILLING OF THE REQUIREMENTS OF SEC 80IB(2)(I) AND POINTED OUT THAT THE ASSESSEE HAD NOT FILED ANY COPY OF THE BILLS OF VARIOUS PLAN T & MACHINERY WHICH WAS PURCHASED BY THE ASSESSEE. (AS NOTED EARLIER TH IS IS NOT CORRECT). HE CONTENDED THAT THERE IS NO FORCE IN TH E SUBMISSIONS THAT THE CONDITIONS IS NOT APPLICABLE IN THE CASE OF ELI GIBLE BUSINESS. READING OF SEC 80IB AS A WHOLE WOULD MAKE IT CLEAR THAT SPECIFIC CONDITIONS HAS BEEN PRESCRIBED IN ALL THE SECTIONS DEPENDING UPON THE NATURE OF UNDERTAKING/ENTERPRISES/BUSINESS EXCE PT IN SUB-SEC (3)(4)(5)(9) AND (11A) OF SEC 80IB. THEREFORE THES E SUB-SECTIONS ARE APPLICABLE TO THE INDUSTRIAL UNDERTAKING FOR WH ICH THE CONDITIONS 30 ARE PRESCRIBED UNDER SUB-SEC (2)(I) OF SEC 80IB. T HEREFORE THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS N OT CORRECT THAT THE CONDITIONS OF SUB-SEC (2)(I) IS NOT APPLICABLE TO S UB-SECTION SEC 11A BECAUSE IT IS NOT A CASE OF THE ASSESSEE THAT IT HA D STARTED NEW UNDERTAKING OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS. HE SUBMITTED THAT THE CONDITIONS SPECIFIED IN SEC 8 0IB(2)(I) HAS TO BE COMPLIED IN THE INITIAL YEAR I.E. THE YEAR OF FO RMATION OF THE UNDERTAKING AND IN THIS REGARD HE RELIED ON THE DEC ISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF JAIN UD HAY HOSIERY (P) LTD VS. ACIT, 1 SOT 193 AND DECISION OF AGRA BENCH OF THE TRIBUNAL IN CASE OF AQUA PLUMBING PVT LTD. VS. ACIT, 46 SOT 366: 140 TTJ 496. HE SUBMITTED THAT THE ASSESSEE HAD MADE INVEST MENTS OF RS. 2.75 CRORES IN PLANT & MACHINERY IN THE FINANCIAL Y EAR 2001-02 AGAINST THE INVESTMENTS OF RS. 38,43 LAKHS IN FINAN CIAL YEAR 1999- 2000 AND RS. 13.12 LAKHS IN FINANCIAL YEAR 2000-01 WITH OPENING BALANCE OF RS. 47.84 CRORES AS ON 1.4.1999. THEREFO RE THE WDV OF OLD PLANT & MACHINERY AS ON 1.4.2001 WOULD BE FAR I N EXCESS LIMIT OF 20% PRESCRIBED IN THE SEC 80IB(2). THE LD. COUNSEL FOR THE ASSESSEE HAS ALREADY ADMITTED BEFORE THE BENCH THAT ASSESSMENT YEAR 2008-09 IS THE THIRD YEAR OF CLAIM OF DEDUCTI ON U/S 80IB(11A) THOUGH BEFORE THE ASSESSING OFFICER, ASSESSMENT YEA R 2008-09 WAS CLAIMED TO BE THE FIRST YEAR. AS PER ASSESSEES OW N RECORD, THE WDV OF THE PLANT & MACHINERY WAS RS. 6,05,31,624/- AND THE INVESTMENT IN PLANT & MACHINERY IN THAT YEAR WAS RS. 9.85 CROR ES LEADING TO THE INFERENCE THAT THE VALUE OF OLD PLANT & MACHINERY W AS 61.42%. THIS IS SO BECAUSE THE INVESTMENT OF RS. 23.50 CRORES WA S MADE IN MACHINERIES RELATING TO WATER TREATMENT AND POLLUTI ON CONTROL DEVICES ON WHICH DEPRECIATION @ 100% HAS BEEN CLAIMED DURIN G THE YEAR. ONCE 100% DEPRECIATION WAS CLAIMED THE SAME WOULD R ESULT IN NIL WDV AND SAME CANNOT BE COUNTED. IN ANY CASE THE MA CHINERIES IN 31 THE FIELD OF WATER TREATMENT AND POLLUTION CONTROL WOULD HAVE NO CONNECTION WITH HANDLING, STORAGE AND TRANSPORTATIO N OF THE FOOD GRAINS AND THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE TO SHOW THAT THESE MACHINERIES WERE ALSO FOR THE PURPOSE OF INTE GRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRA INS. THE DECISIONS RELIED FOR THE PROPOSITION THAT IT IS WDV WHICH HAS TO BE CONSIDERED IN RESPECT OF OLD PLANT & MACHINERY ARE NOT RELEVAN T BECAUSE THE SAME WERE RENDERED IN THE CONTEXT OF BLOCK OF PLANT & MACHINERY WHERE UNIFORM RATE OF DEPRECIATION WAS PROVIDED WHE REAS DIFFERENT RATE OF 15, 60, 80, AND 100%, IS PROVIDED NOW AND T HEREFORE LIKES HAVE TO BE COMPARED WITH LIKES. IF THIS PROPOSITIO N IS ACCEPTED AND IF INVESTMENT OF RS. 23.50 CRORES IS IGNORED THEN N EW INVESTMENT OF RS. 9.85 CRORES IS CONSIDERED THEN OLD INVESTMENT O F RS. 6.05 CRORES WOULD CONSTITUTE MORE THAN 60% OF THE MACHINERY. F URTHER AS FAR AS CONTENTION THAT THE OLD MACHINERY WAS DISCARDED FOR WHICH RELIANCE WAS PLACED ON THE CERTIFICATE OF CHARTERED ENGINEER FILED AT PAGE 394 AND CERTIFICATE OF THE C.A FILED AT PAGE 420 AR E ONLY SELF SERVING DOCUMENTS. THERE ARE CONTRADICTIONS IN THESE CERTI FICATES AS THE CHARTERED ENGINEER HAS CERTIFIED THAT THE PLANT & M ACHINERY UNDER REFERENCE WAS CLOSED SINCE 2002 LEADING TO INFERENC E THAT THIS MACHINERY WAS ACQUIRED PRIOR TO THE YEAR 2002 WHERE AS, THE CERTIFICATE OF C.A STATES THAT ENTIRE PLANT & MACHI NERY HAVING OPENING WDV OF RS. 4.37 CRORES AS ON 1.4.2007 WAS D ISCARDED. THE ASSESSING OFFICER HAS ALSO DENIED THE DEDUCTION BEC AUSE THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION AS PROVIDED U/S 80A(6). 26 IN THE REJOINDER LD. COUNSEL FOR THE ASSESSEE GA VE DETAILED REPLIES TO THE NEW POINTS RAISED BY THE DEPARTMENT AND ALSO TRIED TO DISTINGUISH THE DECISIONS RELIED ON BY HIM. 32 27 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY IN THE LIGHT OF MATERIAL AND RECORDS, PAPER BOOKS, JUDGMENTS CITED BY THE PARTIES. FIRST OF ALL LET US CONSIDER THE RELEVANT PROVISIONS WHIC H ARE IMPORTANT FOR ADJUDICATING THIS ISSUE: 80AB. WHERE ANY DEDUCTION IS REQUIRED TO BE MADE OR ALLO WED UNDER ANY SECTION [* * *] INCLUDED IN THIS CHAPTER UNDER THE HEADING 'C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES' IN RESPECT OF ANY INCOM E OF THE NATURE SPECIFIED IN THAT SECTION WHICH IS INCLUDED IN THE GROSS TOTAL I NCOME OF THE ASSESSEE, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN THAT SECTION, FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER THAT SECTION, THE AMO UNT OF INCOME OF THAT NATURE AS COMPUTED IN ACCORDANCE WITH THE PROVISION S OF THIS ACT (BEFORE MAKING ANY DEDUCTION UNDER THIS CHAPTER) SHALL ALON E BE DEEMED TO BE THE AMOUNT OF INCOME OF THAT NATURE WHICH IS DERIVED OR RECEIVED BY THE ASSESSEE AND WHICH IS INCLUDED IN HIS GROSS TOTAL INCOME.] 80AC- WHERE IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 2006 OR ANY SUBSEQUENT ASSESSMENT YEAR, ANY DEDUCTION IS ADMISSIBLE UNDER SECTION 80-IA OR SECTION 80-IAB OR SECTION 80-IB OR SECTION 80-IC [OR SECTION 80-ID OR SECTION 80-IE ], NO SUCH DEDUCTION SHALL BE ALLOWED TO HIM UNLESS HE FURNISHES A RETUR N OF HIS INCOME FOR SUCH ASSESSMENT YEAR ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB- SECTION (1) OF SECTION 139 .] 80-IB. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE IN CLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB-SECTIONS (3) T O [(11), (11A) AND (11B)] (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOWED, IN COMPUTIN G THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO S UCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAK ING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT IS NOT FORMED BY SPLITTING UP, OR THE RECON STRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF A N INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B , IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (II) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (III) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN TH E LIST IN THE ELEVENTH SCHEDULE, OR OPERATES ONE OR M ORE COLD STORAGE PLANT OR PLANTS, IN ANY PART OF INDIA : PROVIDED THAT THE CONDITION IN THIS CLAUSE SHALL, IN RELATIO N TO A SMALL SCALE INDUSTRIAL UNDERTAKING OR AN INDUSTRIAL UNDERTAKING REFERRED TO IN SUB-SECTIO N (4) SHALL APPLY AS IF THE WORDS 'NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE LIST IN THE ELEVE NTH SCHEDULE' HAD BEEN OMITTED. EXPLANATION 1.FOR THE PURPOSES OF CLAUSE (II), ANY MACHINERY OR PLANT WHICH WAS USED OUTSIDE INDIA BY ANY PERSON OTHER THAN THE ASSESSEE SHALL N OT BE REGARDED AS MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE, IF THE FOLLOWING C ONDITIONS ARE FULFILLED, NAMELY : (A) SUCH MACHINERY OR PLANT WAS NOT, AT ANY TIME P REVIOUS TO THE DATE OF THE INSTALLATION BY THE ASSESSEE, USED IN INDIA; (B) SUCH MACHINERY OR PLANT IS IMPORTED INTO INDIA FROM ANY COUNTRY OUTSIDE INDIA; AND 33 (C) NO DEDUCTION ON ACCOUNT OF DEPRECIATION IN RES PECT OF SUCH MACHINERY OR PLANT HAS BEEN ALLOWED OR IS ALLOWABLE UNDER THE PROVISIONS OF THI S ACT IN COMPUTING THE TOTAL INCOME OF ANY PERSON FOR ANY PERIOD PRIOR TO THE DATE OF THE INST ALLATION OF THE MACHINERY OR PLANT BY THE ASSESSEE. EXPLANATION 2.WHERE IN THE CASE OF AN INDUSTRIAL U NDERTAKING, ANY MACHINERY OR PLANT OR ANY PART THEREOF PREVIOUSLY USED FOR ANY PURPOSE IS TRANSFER RED TO A NEW BUSINESS AND THE TOTAL 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 USED IN THE BUSINESS, THEN, FOR THE PURPOSES OF CLAUSE (II) OF THIS SUB-SECTION, TH E CONDITION SPECIFIED THEREIN SHALL BE DEEMED TO HAVE BEEN COMPLIED WITH; (IV) IN A CASE WHERE THE INDUSTRIAL UNDERTAKING MAN UFACTURES OR PRODUCES ARTICLES OR THINGS, THE UNDERTAKING EMPLOYS TEN OR MORE WORKERS IN A MANUFA CTURING PROCESS CARRIED ON WITH THE AID OF POWER, OR EMPLOYS TWENTY OR MORE WORKERS IN A MANUF ACTURING PROCESS CARRIED ON WITHOUT THE AID OF POWER. (3) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDUS TRIAL UNDERTAKING SHALL BE TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY ), OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR A PERIOD OF TEN CONSECUT IVE ASSESSMENT YEARS (OR TWELVE CONSECUTIVE ASSESSMENT YEARS WHERE THE ASSESSEE IS A CO-OPERATI VE SOCIETY) BEGINNING WITH THE INITIAL ASSESSMENT YEAR SUBJECT TO THE FULFILLMENT OF THE F OLLOWING CONDITIONS, NAMELY : (I) IT BEGINS TO MANUFACTURE OR PRODUCE, ARTICLES OR THINGS OR TO OPERATE SUCH PLANT OR PLANTS AT ANY TIME DURING THE PERIOD BEGINNING FROM THE 1ST DAY O F APRIL, 1991 AND ENDING ON THE 31ST DAY OF MARCH, 1995 OR SUCH FURTHER PERIOD AS THE CENTRAL G OVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY WITH REFERENCE TO ANY PARTICULAR U NDERTAKING; (II) WHERE IT IS AN INDUSTRIAL UNDERTAKING BEING A SMALL SCALE INDUSTRIAL UNDERTAKING, IT BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR TO OPE RATE ITS COLD STORAGE PLANT [NOT SPECIFIED IN SUB- SECTION (4) OR SUB-SECTION (5)] AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 1995 AND ENDING ON THE 31ST DAY OF MARCH, [2002]. (4) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDUS TRIAL UNDERTAKING IN AN INDUSTRIALLY BACKWARD STATE SPECIFIED IN THE EIGHTH SCHEDULE SHALL BE HUN DRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMEN T YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING : PROVIDED THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS (OR TWELVE CONSECUTIVE ASSESSMENT YEARS WHERE THE A SSESSEE IS A CO-OPERATIVE SOCIETY) SUBJECT TO FULFILLMENT OF THE CONDITION THAT IT BEGINS TO M ANUFACTURE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE ITS COLD STORAGE PLANT OR PLANTS DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 1993 AND ENDING ON THE 31ST DAY OF MARCH, [2004] : PROVIDED FURTHER THAT IN THE CASE OF SUCH INDUSTRIES IN THE NORTH-EA STERN REGION, AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT, THE AMOUNT OF D EDUCTION SHALL BE HUNDRED PER CENT OF PROFITS AND GAINS FOR A PERIOD OF TEN ASSESSMENT YEARS, AND THE TOTAL PERIOD OF DEDUCTION SHALL IN SUCH A CASE NOT EXCEED TEN ASSESSMENT YEARS : [ PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SUB-SECTION SHALL BE ALLOWED FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2004 OR ANY SUBSEQUENT YEAR TO ANY UNDERTAKING OR ENTERPRISE REFERRED TO IN SUB-SECTION (2) OF SECTION 80-IC :] [ PROVIDED ALSO THAT IN THE CASE OF AN INDUSTRIAL UNDERTAKING IN TH E STATE OF JAMMU AND KASHMIR, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFE CT AS IF FOR THE FIGURES, LETTERS AND WORDS '31ST D AY OF MARCH, 2004', THE FIGURES, LETTERS AND WORDS '31 ST DAY OF MARCH, [2012]' HAD BEEN SUBSTITUTED : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SUB-SECTION SHALL BE ALLOWED TO AN INDUSTRIAL UNDERTAKING IN THE STATE OF JAMMU AND KASHMIR WHICH IS ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING SPECIFIED IN PAR T C OF THE THIRTEENTH SCHEDULE.] (5) THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDUS TRIAL UNDERTAKING LOCATED IN SUCH INDUSTRIALLY BACKWARD DISTRICTS AS THE CENTRAL GOVERNMENT MAY, H AVING REGARD TO THE PRESCRIBED GUIDELINES, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN TH IS BEHALF AS INDUSTRIALLY BACKWARD DISTRICT OF CATE GORY 'A' OR AN INDUSTRIALLY BACKWARD DISTRICT OF CATEGOR Y 'B' SHALL BE, (I) HUNDRED PER CENT OF THE PROFITS AND GAINS DERI VED FROM AN INDUSTRIAL UNDERTAKING LOCATED IN A BACKWARD DISTRICT OF CATEGORY 'A' FOR FIVE ASSESSME NT YEARS BEGINNING WITH THE INITIAL ASSESSMENT 34 YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRT Y PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING : PROVIDED THAT THE TOTAL PERIOD OF DEDUCTION SHALL NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS OR WHERE THE ASSESSEE IS A CO-OPERATIVE SOCIETY, TWELV E CONSECUTIVE ASSESSMENT YEARS : PROVIDED FURTHER THAT THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTU RE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE ITS COLD STORAGE PLANT OR PLAN TS AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF OCTOBER, 1994 AND ENDING ON THE 31ST DAY OF MARCH, [2004]; (II) HUNDRED PER CENT OF THE PROFITS AND GAINS DERI VED FROM AN INDUSTRIAL UNDERTAKING LOCATED IN A BACKWARD DISTRICT OF CATEGORY 'B' FOR THREE ASSESSM ENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRT Y PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING : PROVIDED THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED EIGHT CONSECUTIVE ASSESSMENT YEARS (OR WHERE THE ASSESSEE IS A CO-OPERATIVE SOCIETY, T WELVE CONSECUTIVE ASSESSMENT YEARS) : PROVIDED FURTHER THAT THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTU RE OR PRODUCE ARTICLES OR THINGS OR TO OPERATE ITS COLD STORAGE PLANT OR PLAN TS AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF OCTOBER, 1994 AND ENDING ON THE 31ST DAY OF MARCH, [2004]. (6) THE AMOUNT OF DEDUCTION IN THE CASE OF THE BUSI NESS OF A SHIP SHALL BE THIRTY PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH SHIP FOR A PERI OD OF TEN CONSECUTIVE ASSESSMENT YEARS INCLUDING THE INITIAL ASSESSMENT YEAR PROVIDED THAT THE SHIP (I) IS OWNED BY AN INDIAN COMPANY AND IS WHOLLY U SED FOR THE PURPOSES OF THE BUSINESS CARRIED ON BY IT; (II) WAS NOT, PREVIOUS TO THE DATE OF ITS ACQUISITI ON BY THE INDIAN COMPANY, OWNED OR USED IN INDIAN TERRITORIAL WATERS BY A PERSON RESIDENT IN INDIA; A ND (III) IS BROUGHT INTO USE BY THE INDIAN COMPANY AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 1991 AND ENDING ON THE 31ST DAY OF MA RCH, 1995. (7) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY HOTE L SHALL BE (A) FIFTY PER CENT OF THE PROFITS AND GAINS DERIVE D FROM THE BUSINESS OF SUCH HOTEL FOR A PERIOD OF T EN CONSECUTIVE YEARS BEGINNING FROM THE INITIAL ASSESS MENT YEAR AS IS LOCATED IN A HILLY AREA OR A RURAL AREA OR A PLACE OF PILGRIMAGE OR SUCH OTHER PLACE A S THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE NEED FOR DEVELOPMENT OF INFRASTRUCTURE FOR TOUR ISM IN ANY PLACE AND OTHER RELEVANT CONSIDERATIONS, SPECIFY BY NOTIFICATION IN THE OFFI CIAL GAZETTE AND SUCH HOTEL STARTS FUNCTIONING AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 1990 AND ENDING ON THE 31ST DAY OF MARCH, 1994 OR BEGINNING ON THE 1ST DAY OF APRIL, 1 997 AND ENDING ON THE 31ST DAY OF MARCH, 2001: PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY T O A HOTEL LOCATED AT A PLACE WITHIN THE MUNICIPAL JURISDICTION (WHETHER KNOWN AS A MUNICIPA LITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE OR A CANTONMENT BOARD OR BY ANY OTHER NAM E) OF CALCUTTA, CHENNAI, DELHI OR MUMBAI, WHICH HAS STARTED OR STARTS FUNCTIONING ON OR AFTER THE 1ST DAY OF APRIL, 1997 AND BEFORE THE 31ST DAY OF MARCH, 2001: PROVIDED FURTHER THAT THE SAID HOTEL IS APPROVED BY THE PRESCRIBED A UTHORITY FOR THE PURPOSE OF THIS CLAUSE IN ACCORDANCE WITH THE RULES MADE UNDER THIS ACT AND WHERE THE SAID HOTEL IS APPROVED BY THE PRESCRIBED AUTHORITY BEFORE THE 31ST DAY OF MAR CH, 1992, SHALL BE DEEMED TO HAVE BEEN APPROVED BY THE PRESCRIBED AUTHORITY FOR THE PURPOS E OF THIS SECTION IN RELATION TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1991; (B) THIRTY PER CENT OF THE PROFITS AND GAINS DERIV ED FROM THE BUSINESS OF SUCH HOTEL AS IS LOCATED IN ANY PLACE OTHER THAN THOSE MENTIONED IN SUB-CLAUSE (A) FOR A PERIOD OF TEN CONSECUTIVE YEARS BEGINNING FROM THE INITIAL ASSESSMENT YEAR IF SUCH HOTEL HAS STARTED OR STARTS FUNCTIONING AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL , 1991 AND ENDING ON THE 31ST DAY OF MARCH, 1995 OR BEGINNING ON THE 1ST DAY OF APRIL, 1997 AND ENDING ON THE 31ST DAY OF MARCH, 2001: PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY T O A HOTEL LOCATED AT A PLACE WITHIN THE MUNICIPAL JURISDICTION (WHETHER KNOWN AS A MUNICIPA LITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE, TOWN AREA COMMITTEE OR A CANTONMENT BOAR D OR BY ANY OTHER NAME) OF CALCUTTA, CHENNAI, DELHI OR MUMBAI, WHICH HAS STARTED OR STAR TS FUNCTIONING ON OR AFTER THE 1ST DAY OF APRIL, 1997 AND BEFORE THE 31ST DAY OF MARCH, 2001; 35 (C) THE DEDUCTION UNDER CLAUSE (A) OR CLAUSE (B) S HALL BE AVAILABLE ONLY IF (I) THE BUSINESS OF THE HOTEL IS NOT FORMED BY TH E SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINES S ALREADY IN EXISTENCE OR BY THE TRANSFER TO A NEW BU SINESS OF A BUILDING PREVIOUSLY USED AS A HOTEL OR OF ANY MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE; (II) THE BUSINESS OF THE HOTEL IS OWNED AND CARRIE D ON BY A COMPANY REGISTERED IN INDIA WITH A PAID-UP CAPITAL OF NOT LESS THAN FIVE HUNDRED THOUS AND RUPEES; (III) THE HOTEL IS FOR THE TIME BEING APPROVED BY THE PRESCRIBED AUTHORITY: PROVIDED THAT ANY HOTEL APPROVED BY THE PRESCRIBED AUTHORITY BEFORE THE 1ST DAY OF APRIL, 1999 SHALL BE DEEMED TO HAVE BEEN APPROVED UNDER TH IS SUB-SECTION. [(7A) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY M ULTIPLEX THEATRE SHALL BE (A) FIFTY PER CENT OF THE PROFITS AND GAINS DERIVE D, FROM THE BUSINESS OF BUILDING, OWNING AND OPERATING A MULTIPLEX THEATRE, FOR A PERIOD OF FIVE CONSECUTIVE YEARS BEGINNING FROM THE INITIAL ASSESSMENT YEAR IN ANY PLACE : PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY T O A MULTIPLEX THEATRE LOCATED AT A PLACE WITHIN THE MUNICIPAL JURISDICTION (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOTIFIED AREA COMMITTEE OR A CANTONMENT BOARD OR BY ANY OTHE R NAME) OF CHENNAI, DELHI, MUMBAI OR KOLKATA; (B) THE DEDUCTION UNDER CLAUSE (A) SHALL BE ALLOWA BLE ONLY IF (I) SUCH MULTIPLEX THEATRE IS CONSTRUCTED AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 2002 AND ENDING ON THE 31ST DAY OF MARCH, 2005; (II) THE BUSINESS OF THE MULTIPLEX THEATRE IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE OR BY THE TRANSF ER TO A NEW BUSINESS OF ANY BUILDING OR OF ANY MACHINERY OR OF PLANT PREVIOUSLY USED FOR ANY P URPOSE; (III) THE ASSESSEE FURNISHES ALONGWITH THE RETURN O F INCOME, THE REPORT OF AN AUDIT IN SUCH FORM AND CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBE D AND DULY SIGNED AND VERIFIED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB -SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED. (7B) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY CON VENTION CENTRE SHALL BE (A) FIFTY PER CENT OF THE PROFITS AND GAINS DERIVE D, BY THE ASSESSEE FROM THE BUSINESS OF BUILDING, OWNING AND OPERATING A CONVENTION CENTRE, FOR A PER IOD OF FIVE CONSECUTIVE YEARS BEGINNING FROM THE INITIAL ASSESSMENT YEAR; (B) THE DEDUCTION UNDER CLAUSE (A) SHALL BE ALLOWA BLE ONLY IF (I) SUCH CONVENTION CENTRE IS CONSTRUCTED AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 2002 AND ENDING ON THE 31ST DAY OF MARCH, 2005; (II) THE BUSINESS OF THE CONVENTION CENTRE IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE OR BY THE TRANSF ER TO A NEW BUSINESS OF ANY BUILDING OR OF ANY MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURP OSE; (III) THE ASSESSEE FURNISHES ALONGWITH THE RETURN O F INCOME, THE REPORT OF AN AUDIT IN SUCH FORM AND CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBE D, AND DULY SIGNED AND VERIFIED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB -SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED.] (8) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY COMP ANY CARRYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT SHALL BE HUNDRED PER CENT OF THE PROFIT S AND GAINS OF SUCH BUSINESS FOR A PERIOD OF FIVE ASSESSMENT YEARS BEGINNING FROM THE INITIAL ASSESSM ENT YEAR IF SUCH COMPANY (A) IS REGISTERED IN INDIA; (B) HAS THE MAIN OBJECT OF SCIENTIFIC AND INDUSTRI AL RESEARCH AND DEVELOPMENT; 36 (C) IS FOR THE TIME BEING APPROVED BY THE PRESCRIB ED AUTHORITY AT ANY TIME BEFORE THE 1ST DAY OF APRI L, 1999. [(8A) THE AMOUNT OF DEDUCTION IN THE CASE OF ANY CO MPANY CARRYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT SHALL BE HUNDRED PER CENT OF THE PROFIT S AND GAINS OF SUCH BUSINESS FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING FROM THE IN ITIAL ASSESSMENT YEAR, IF SUCH COMPANY (I) IS REGISTERED IN INDIA; (II) HAS ITS MAIN OBJECT THE SCIENTIFIC AND INDUST RIAL RESEARCH AND DEVELOPMENT; (III) IS FOR THE TIME BEING APPROVED BY THE PRESCRI BED AUTHORITY AT ANY TIME AFTER THE 31ST DAY OF MARCH, 2000 BUT BEFORE THE 1ST DAY OF APRIL, [2007] ; (IV) FULFILS SUCH OTHER CONDITIONS AS MAY BE PRESCR IBED.] 1 [(9) THE AMOUNT OF DEDUCTION TO AN UNDERTAKING SHAL L BE HUNDRED PER CENT OF THE PROFITS FOR A PERIOD OF SEVEN CONSECUTIVE ASSESSMENT YEARS, INCLUDING TH E INITIAL ASSESSMENT YEAR, IF SUCH UNDERTAKING FULFILS ANY OF THE FOLLOWING, NAMELY: (I) IS LOCATED IN NORTH-EASTERN REGION AND HAS BEG UN OR BEGINS COMMERCIAL PRODUCTION OF MINERAL OIL BEFORE THE 1ST DAY OF APRIL, 1997; (II) IS LOCATED IN ANY PART OF INDIA AND HAS BEGUN OR BEGINS COMMERCIAL PRODUCTION OF MINERAL OIL ON OR AFTER THE 1ST DAY OF APRIL, 1997 : 2 [ PROVIDED THAT THE PROVISIONS OF THIS CLAUSE SHALL NOT APPLY TO BLOCKS LICENSED UNDER A CONTRACT AWARDED AFTER THE 31ST DAY OF MARCH, 2011 UNDER THE NEW EXPLORATION LICENCING POLICY ANNOUNCED BY THE GOVERNMENT OF INDIA VIDE RESOLUTION NO. O-19 018/22/95-ONG.DO.VL, DATED THE 10TH FEBRUARY, 1999 OR IN PURSUANCE OF ANY LAW FOR THE T IME BEING IN FORCE OR BY THE CENTRAL OR A STATE GOVERNMENT IN ANY OTHER MANNER;] (III) IS ENGAGED IN REFINING OF MINERAL OIL AND BEG INS SUCH REFINING ON OR AFTER THE 1ST DAY OF OCTOBE R, 1998 [BUT NOT LATER THAN THE 31ST DAY OF MARCH, 201 2]; [(IV) IS ENGAGED IN COMMERCIAL PRODUCTION OF NATUR AL GAS IN BLOCKS LICENSED UNDER THE VIII ROUND OF BIDDING FOR AWARD OF EXPLORATION CONTRACTS (HEREAFT ER REFERRED TO AS 'NELP-VIII') UNDER THE NEW EXPLORATION LICENCING POLICY ANNOUNCED BY THE GOVER NMENT OF INDIA VIDE RESOLUTION NO. O- 19018/22/95-ONG.DO.VL, DATED 10TH FEBRUARY, 1999 AN D BEGINS COMMERCIAL PRODUCTION OF NATURAL GAS ON OR AFTER THE 1ST DAY OF APRIL, 2009; (V) IS ENGAGED IN COMMERCIAL PRODUCTION OF NATURAL GAS IN BLOCKS LICENSED UNDER THE IV ROUND OF BIDDING FOR AWARD OF EXPLORATION CONTRACTS FOR COAL BED METHANE BLOCKS AND BEGINS COMMERCIAL PRODUCTION OF NATURAL GAS ON OR AFTER THE 1ST DAY O F APRIL, 2009.] EXPLANATION.FOR THE PURPOSES OF CLAIMING DEDUCTION UNDER THIS SUB-SECTION, ALL BLOCKS LICENSED UNDER A SINGLE CONTRACT, WHICH HAS BEEN AWARDED UND ER THE NEW EXPLORATION LICENCING POLICY ANNOUNCED BY THE GOVERNMENT OF INDIA VIDE RESOLUTIO N NO. O-19018/22/95-ONG.DO.VL, DATED 10TH FEBRUARY, 1999 OR HAS BEEN AWARDED IN PURSUANC E OF ANY LAW FOR THE TIME BEING IN FORCE OR HAS BEEN AWARDED BY THE CENTRAL OR A STATE GOVERNME NT IN ANY OTHER MANNER, SHALL BE TREATED AS A SINGLE 'UNDERTAKING'.] [(10) THE AMOUNT OF DEDUCTION IN THE CASE OF AN UND ERTAKING DEVELOPING AND BUILDING HOUSING PROJECTS APPROVED BEFORE THE 31ST DAY OF MARCH, [20 08] BY A LOCAL AUTHORITY SHALL BE HUNDRED PER CENT OF THE PROFITS DERIVED IN THE PREVIOUS YEAR RE LEVANT TO ANY ASSESSMENT YEAR FROM SUCH HOUSING PROJECT IF, (A) SUCH UNDERTAKING HAS COMMENCED OR COMMENCES DEV ELOPMENT AND CONSTRUCTION OF THE HOUSING PROJECT ON OR AFTER THE 1ST DAY OF OCTOBER, 1998 AN D COMPLETES SUCH CONSTRUCTION, (I) IN A CASE WHERE A HOUSING PROJECT HAS BEEN AP PROVED BY THE LOCAL AUTHORITY BEFORE THE 1ST DAY OF APRIL, 2004, ON OR BEFORE THE 31ST DAY OF MA RCH, 2008; (II) IN A CASE WHERE A HOUSING PROJECT HAS BEEN, O R, IS APPROVED BY THE LOCAL AUTHORITY ON OR AFTER THE 1ST DAY OF APRIL, 2004 [BUT NOT LATER THAN THE 31ST DAY OF MARCH, 2005], WITHIN FOUR YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE HOU SING PROJECT IS APPROVED BY THE LOCAL AUTHORITY; 37 [(III) IN A CASE WHERE A HOUSING PROJECT HAS BEEN APPROVED BY THE LOCAL AUTHORITY ON OR AFTER THE 1ST DAY OF APRIL, 2005, WITHIN FIVE YEARS FROM THE END OF THE FINANCIAL YEAR IN WHICH THE HOUSING PROJECT IS APPROVED BY THE LOCAL AUTHORITY. ] EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (I) IN A CASE WHERE THE APPROVAL IN RESPECT OF TH E HOUSING PROJECT IS OBTAINED MORE THAN ONCE, SUCH HOUSING PROJECT SHALL BE DEEMED TO HAVE BEEN A PPROVED ON THE DATE ON WHICH THE BUILDING PLAN OF SUCH HOUSING PROJECT IS FIRST APPR OVED BY THE LOCAL AUTHORITY; (II) THE DATE OF COMPLETION OF CONSTRUCTION OF THE HOUSING PROJECT SHALL BE TAKEN TO BE THE DATE ON WHICH THE COMPLETION CERTIFICATE IN RESPECT OF SUCH HOUSING PROJECT IS ISSUED BY THE LOCAL AUTHORITY; (B) THE PROJECT IS ON THE SIZE OF A PLOT OF LAND W HICH HAS A MINIMUM AREA OF ONE ACRE: PROVIDED THAT NOTHING CONTAINED IN CLAUSE (A) OR CLAUSE (B) SHALL APPLY TO A HOUSING PROJECT CARRIED OUT IN ACCORDANCE WITH A SCHEME FRAMED BY THE CENTR AL GOVERNMENT OR A STATE GOVERNMENT FOR RECONSTRUCTION OR REDEVELOPMENT OF EXISTING BUILDIN GS IN AREAS DECLARED TO BE SLUM AREAS UNDER ANY LAW FOR THE TIME BEING IN FORCE AND SUCH SCHEME IS NOTIFIED BY THE BOARD IN THIS BEHALF; (C) THE RESIDENTIAL UNIT HAS A MAXIMUM BUILT-UP ARE A OF ONE THOUSAND SQUARE FEET WHERE SUCH RESIDENTIAL UNIT IS SITUATED WITHIN THE CITY OF DEL HI OR MUMBAI OR WITHIN TWENTY-FIVE KILOMETERS FROM THE MUNICIPAL LIMITS OF THESE CITIES AND ONE THOUSA ND AND FIVE HUNDRED SQUARE FEET AT ANY OTHER PLACE; [***] (D) THE BUILT-UP AREA OF THE SHOPS AND OTHER COMMER CIAL ESTABLISHMENTS INCLUDED IN THE HOUSING PROJECT DOES NOT EXCEED [THREE] PER CENT OF THE AGG REGATE BUILT-UP AREA OF THE HOUSING PROJECT OR [FIVE THOUSAND SQUARE FEET, WHICHEVER IS HIGHER];] [(E) NOT MORE THAN ONE RESIDENTIAL UNIT IN THE HOU SING PROJECT IS ALLOTTED TO ANY PERSON NOT BEING AN INDIVIDUAL; AND (F) IN A CASE WHERE A RESIDENTIAL UNIT IN THE HOUS ING PROJECT IS ALLOTTED TO A PERSON BEING AN INDIVIDUAL, NO OTHER RESIDENTIAL UNIT IN SUCH HOUSI NG PROJECT IS ALLOTTED TO ANY OF THE FOLLOWING PERSONS, NAMELY: (I) THE INDIVIDUAL OR THE SPOUSE OR THE MINOR CHI LDREN OF SUCH INDIVIDUAL, (II) THE HINDU UNDIVIDED FAMILY IN WHICH SUCH INDI VIDUAL IS THE KARTA, (III) ANY PERSON REPRESENTING SUCH INDIVIDUAL, THE SPOUSE OR THE MINOR CHILDREN OF SUCH INDIVIDUAL OR THE HINDU UNDIVIDED FAMILY IN WHICH SUCH INDIVID UAL IS THE KARTA.] [EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY TO ANY UNDERTAKING WHICH EX ECUTES THE HOUSING PROJECT AS A WORKS CONTRACT AWARDED BY ANY PERSON (INCLUDING THE CENTR AL OR STATE GOVERNMENT).] (11) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE ( III) OF SUB-SECTION (2) AND SUB-SECTIONS (3), (4) AND (5), THE AMOUNT OF DEDUCTION IN A CASE OF INDUS TRIAL UNDERTAKING DERIVING PROFIT FROM THE BUSINESS OF SETTING UP AND OPERATING A COLD CHAIN F ACILITY FOR AGRICULTURAL PRODUCE, SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR AN D THEREAFTER, TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFIT S AND GAINS DERIVED FROM THE OPERATION OF SUCH FACILITY IN A MANNER THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS (OR TWELVE CONSECUTIVE ASSESSMENT YEARS WHERE THE ASSESSEE IS A CO- OPERATIVE SOCIETY) AND SUBJECT TO FULFILLMENT OF TH E CONDITION THAT IT BEGINS TO OPERATE SUCH FACILITY ON OR AFTER THE 1ST DAY OF APRIL, 1999 BUT BEFORE T HE [1ST DAY OF APRIL, 2004]. [(11A) THE AMOUNT OF DEDUCTION IN A CASE OF [AN UND ERTAKING DERIVING PROFIT FROM THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS OR VEGETABLES OR [MEAT AND MEAT PRODUCTS OR POULTRY OR MARINE OR DAIRY PRODUCTS OR] FROM] THE I NTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS, SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVED FROM SUCH UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WIT H THE INITIAL ASSESSMENT YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS DERIVED FROM THE OPERATION OF SUCH BUSINESS IN A MA NNER THAT THE TOTAL PERIOD OF DEDUCTION DOES NOT EXCEED TEN CONSECUTIVE ASSESSMENT YEARS AND SUB JECT TO FULFILLMENT OF THE CONDITION THAT IT BEGINS TO OPERATE SUCH BUSINESS ON OR AFTER THE 1ST DAY OF APRIL, 2001 :] 38 ` [ PROVIDED THAT THE PROVISIONS OF THIS SECTION SHALL NOT APPLY TO AN UNDERTAKING ENGAGED IN THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF MEAT OR MEAT PRODUCTS OR POULTRY OR MARINE OR DAIRY PRODUCTS IF IT BEGINS TO OPERATE SU CH BUSINESS BEFORE THE 1ST DAY OF APRIL, 2009.] [(11B) THE AMOUNT OF DEDUCTION IN THE CASE OF AN UN DERTAKING DERIVING PROFITS FROM THE BUSINESS OF OPERATING AND MAINTAINING A HOSPITAL IN A RURAL ARE A SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS OF SUCH BUSINESS FOR A PERIOD OF FIVE CONSECU TIVE ASSESSMENT YEARS, BEGINNING WITH THE INITIAL ASSESSMENT YEAR, IF (I) SUCH HOSPITAL IS CONSTRUCTED AT ANY TIME DURIN G THE PERIOD BEGINNING ON THE 1ST DAY OF OCTOBER, 2004 AND ENDING ON THE 31ST DAY OF MARCH, 2008; (II) THE HOSPITAL HAS AT LEAST ONE HUNDRED BEDS FO R PATIENTS; (III) THE CONSTRUCTION OF THE HOSPITAL IS IN ACCORD ANCE WITH THE REGULATIONS, FOR THE TIME BEING IN FO RCE, OF THE LOCAL AUTHORITY; AND (IV) THE ASSESSEE FURNISHES ALONG WITH THE RETURN O F INCOME, THE REPORT OF AUDIT IN SUCH FORM AND CONTAINING SUCH PARTICULARS AS MAY BE PRESCRIBED, A ND DULY SIGNED AND VERIFIED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, A HOSPITAL SHALL BE DEEMED TO HAVE BEEN CONSTRUCTED ON THE DATE ON WHICH A COMPLETION CERTI FICATE IN RESPECT OF SUCH CONSTRUCTION IS ISSUED BY THE CONCERNED LOCAL AUTHORITY.] [(11C) THE AMOUNT OF DEDUCTION IN THE CASE OF AN UN DERTAKING DERIVING PROFITS FROM THE BUSINESS OF OPERATING AND MAINTAINING A HOSPITAL LOCATED ANYWHE RE IN INDIA, OTHER THAN THE EXCLUDED AREA, SHALL BE HUNDRED PER CENT OF THE PROFITS AND GAINS DERIVE D FROM SUCH BUSINESS FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE IN ITIAL ASSESSMENT YEAR, IF (I) THE HOSPITAL IS CONSTRUCTED AND HAS STARTED O R STARTS FUNCTIONING AT ANY TIME DURING THE PERIOD BEGINNING ON THE 1ST DAY OF APRIL, 2008 AND ENDING ON THE 31ST DAY OF MARCH, 2013; (II) THE HOSPITAL HAS AT LEAST ONE HUNDRED BEDS FO R PATIENTS; (III) THE CONSTRUCTION OF THE HOSPITAL IS IN ACCORD ANCE WITH THE REGULATIONS OR BYE-LAWS OF THE LOCAL AUTHORITY; AND (IV) THE ASSESSEE FURNISHES ALONG WITH THE RETURN O F INCOME, A REPORT OF AUDIT IN SUCH FORM AND CONTAINING SUCH PARTICULARS, AS MAY BE PRESCRIBED, AND DULY SIGNED AND VERIFIED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION TO SUB-SECTION (2) OF SECTION 288 , CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION (A) A HOSPITAL SHALL BE DEEMED TO HAVE BEEN CONSTRU CTED ON THE DATE ON WHICH A COMPLETION CERTIFICATE IN RESPECT OF SUCH CONSTRUCTION IS ISSU ED BY THE LOCAL AUTHORITY CONCERNED; (B) 'INITIAL ASSESSMENT YEAR' MEANS THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE BUSINESS OF THE HOSPITAL STARTS FUNCTIONING; (C) 'EXCLUDED AREA' SHALL MEAN AN AREA COMPRISING (I) GREATER MUMBAI URBAN AGGLOMERATION; (II) DELHI URBAN AGGLOMERATION; (III) KOLKATA URBAN AGGLOMERATION; (IV) CHENNAI URBAN AGGLOMERATION; (V) HYDERABAD URBAN AGGLOMERATION; (VI) BANGALORE URBAN AGGLOMERATION; (VII) AHMEDABAD URBAN AGGLOMERATION; (VIII) DISTRICT OF FARIDABAD; (IX) DISTRICT OF GURGAON; (X) DISTRICT OF GAUTAM BUDH NAGAR; (XI) DISTRICT OF GHAZIABAD; (XII) DISTRICT OF GANDHINAGAR; AND (XIII) CITY OF SECUNDERABAD; 39 (D) THE AREA COMPRISING AN URBAN AGGLOMERATION SHA LL BE THE AREA INCLUDED IN SUCH URBAN AGGLOMERATION ON THE BASIS OF THE 2001 CENSUS.] (12) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHI CH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF THE PE RIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMERGER (A) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SE CTION TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMA TION OR THE DEMERGER TAKES PLACE; AND (B) THE PROVISIONS OF THIS SECTION SHALL, AS FAR A S MAY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMAT ING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR DEMERGER HAD NOT TAKEN PLACE. (13) THE PROVISIONS CONTAINED IN SUB-SECTION (5) AN D SUB-SECTIONS (7) TO (12) OF SECTION 80-IA SHALL, SO FAR AS MAY BE, APPLY TO THE ELIGIBLE BUSINESS UN DER THIS SECTION. (14) ------NOT RELEVANT 28 IN THE ASSESSMENT ORDER ITSELF THE ASSESSING OFF ICER HAS OBSERVED THAT WITH REFERENCE TO SEC 80AB THAT UNLESS INCOME OF A PARTICULAR NATURE AS MENTIONED IN SEC 80AB IS INCLUDED IN THE GROSS T OTAL INCOME THE DEDUCTION UNDER CHAPTER VI A UNDER THE HEAD C CAN NOT BE ALLOWED. ACCORDING TO HIM SINCE NO INCOME IN THE NATURE OF I NTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS WAS INCLUDED IN THE GROSS TOTAL INCOME THEREFORE NO DEDUCTION WAS ALLOW ED. SINCE THIS ISSUE IS CLOSELY CONNECTED WITH THE ISSUE OF MEANING AND NATURE OF THE ACTIVITIES MENTIONED IN SEC 80IB (11A) WE SHALL DISCUSS THIS I SSUE WHILE DEALING WITH THE NATURE OF THE ACTIVITIES OF THE ASSESSEE. 29 THE ASSESSING OFFICER HAS ALSO DENIED THE DEDUCT ION BECAUSE ACCORDING TO HIM THE ASSESSEE HAS NOT FILED RETURN WITHIN DUE DATE AND THEREFORE AS PER THE PROVISIONS OF SECTION 80A C, NO DEDUCTION U/S 80IB(11 A) CAN BE ALLOWED. THE MAIN CONTENTION OF THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESSEE HAD ADOPTED A PERIOD OF 18 MONTHS ENDING ON 30.9.2008 FOR PREPARING ITS ACCOUN TS AND BALANCE SHEET WAS PREPARED ACCORDINGLY WHICH WAS FILED WITH THE REGISTRAR OF COMPANIES AND FOR CARVING OUT THE ACCOUNTS FOR 12 M ONTHS ENDING ON 31.3.2008 WHICH WAS CUMBERSOME PROCEDURE AND WHICH LED TO LATE FILING OF RETURN. RELIANCE WAS PLACED ON VARIOUS C ASE LAWS. 40 SEC 80AC HAS BEEN INTRODUCED IN THE STATUTE W.E.F. 1.4.2006. SIMILAR PROVISION WAS INTRODUCED BY WAY OF A PROVIS O U/S 10A(1A) AND READS AS UNDER: 10A[(1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB -SECTION (1), THE DEDUCTION, IN COMPUTING THE TOTAL INCOME OF AN UNDERTAKING, WHICH BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO ANY ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003, IN ANY SPECIAL EC ONOMIC ZONE, SHALL BE, (I) HUNDRED PER CENT OF PROFITS AND GAINS DERIVED FROM THE EXPORT OF SUCH ARTICLES OR THINGS OR COMP UTER SOFTWARE FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMEN T YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CAS E MAY BE, AND THEREAFTER, FIFTY PER CENT OF SUCH PROFITS AND GAINS FOR FURTHER TWO CONSECUTIVE ASSES SMENT YEARS, AND THEREAFTER; (II) FOR THE NEXT THREE CONSECUTIVE ASSESSMENT YEA RS, SO MUCH OF THE AMOUNT NOT EXCEEDING FIFTY PER CENT OF THE PROFIT AS IS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE PREVIOUS YEAR IN RESPECT OF WHI CH THE DEDUCTION IS TO BE ALLOWED AND CREDITED TO A RE SERVE ACCOUNT (TO BE CALLED THE 'SPECIAL ECONOMIC ZONE RE-INVESTMENT ALLOWANCE RESERVE ACCOU NT') TO BE CREATED AND UTILISED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE IN THE MAN NER LAID DOWN IN SUB-SECTION (1B) : [ PROVIDED THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLO WED TO AN ASSESSEE WHO DOES NOT FURNISH A RETURN OF HIS INCOME ON OR BEFORE THE DUE DATE SPECIFIED UNDER SUB-SECTION (1) OF SECTION 139 .] THIS PROVISION CAME FOR INTERPRETATION BY THE SPECI AL BENCH IN CASE OF SAFFIRE GARMENTS VS. ITO (SUPRA). AFTER DETAILED DISCUSSION THE SPECIAL BENCH HELD THAT THIS PROVISO IS OF MANDATO RY NATURE AND IF THE RETURN IS NOT FILED WITHIN DUE DATE THEN THE AS SESSEE WOULD NOT BE ENTITLED TO DEDUCTION. THE SPECIAL BENCH IN TH IS REGARD MAINLY RELIED ON THE DECISION OF HON'BLE APEX COURT IN CAS E OF PRAKASH NATH KHANNA VS. CIT (SUPRA) WHICH HAS BEEN RELIED BEFORE US BY THE LD. D.R. FOR THE REVENUE. IN THAT CASE THE ASSESSEE WAS A PARTNERSHIP FIRM AND FOR ASSESSMENT YEAR 1988-89 THE RETURN OF INCOME WAS TO BE FILED ON OR BEFORE 31 ST JULY 1988 BUT WAS FILED ON 20 TH MAR 1991. PROCEEDINGS FOR LATE SUBMISSION OF THE RETURN WERE INITIATED AGAINST THE APPELLANTS U/S 271(1)(A) OF THE INCOME -TAX ACT , 1961 AND PENALTY WAS IMPOSED. PROCEEDINGS IN TURN U/S 276 C C OF THE ACT WERE ALSO INITIATED AND A COMPLAINT WAS FILED BEFOR E THE CONCERNED COURT. COGNIZANCE WAS TAKEN AND PROCESS WAS ISSUED . THREE WRIT PETITIONS WERE FILED BY THREE PARTNERS OUT OF THE T OTAL FIVE PARTNERS CHALLENGING THESE PROCESSES WHICH WERE DISMISSED BY THE HON'BLE 41 HIGH COURT. THEREAFTER THE APPELLANTS FILED APPEAL BEFORE THE HON'BLE SUPREME COURT AND CONTENDED THAT EXPRESSI ON TO FURNISH IN DUE TIME IN SEC 276 CC MEANS TO FURNISH WITHIN THE TIME PERMISSIBLE UNDER THE ACT WHICH IN TURN WOULD BE THAT THE RETURNS FURNISHED U/S 139(4) AT ANY TIME BEFORE THE ASSESS MENT IS MADE HAS TO BE RECKONED AS RETURN FURNISHED U/S 139(1). TH ESE CONTENTIONS WERE CONSIDERED BY THE HON'BLE SUPREME COURT AND I T WAS OBSERVED AS UNDER: ONE OF THE SIGNIFICANT TERMS USED IN SECTION 276CC (OFFENCE OF FAILURE TO FURNISH RETURN OF INCOME) OF THE INCOME-TAX ACT, 19 61, IS IN DUE TIME. THE TIME WITHIN WHICH THE RETURN OF INCOME IS TO BE FUR NISHED IS INDICATED ONLY IN SUB-SECTION (1) OF SECTION 139 AND NOT IN SUB-SECTI ON (4). EVEN IF A RETURN IS FILED UNDER SECTION 139(4) THAT WOULD NOT DILUTE TH E INFRACTION IN NOT FURNISHING THE RETURN WITHIN THE TIME AS PRESCRIBED UNDER SUB- SECTION (1) OF SECTION 139. THUS ABOVE CLEARLY SHOWS THAT EXPRESSION IN DUE TI ME HAS TO BE RECKONED WITH REFERENCE TO SUB-SEC (1) OF SEC 139. SEC 80AC VERY CLEARLY REFERS TO SUB-SEC (1) OF SEC 139. THEREFO RE UNLESS AND UNTIL RETURN IS FILED WITHIN THE DUE DATE AS PROVIDED U/S 139(1), THE DEDUCTION CANNOT BE ALLOWED. THE LD. COUNSEL FOR TH E ASSESSEE PLACED VERY STRONG RELIANCE ON THE DECISION OF HON' BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. MS. JAGRITI AGGARWAL (SUPRA) IT WAS VEHEMENTLY CONTENDED THAT ONCE THE HON'BLE JURISDICTIONAL HIGH COURT HAS CLEARLY HELD THAT DUE DATE HAS TO B E RECKONED FROM SEC 139(4) THEN THIS TRIBUNAL CANNOT TAKE A DIFFERE NT VIEW. WE DO NOT FIND ANY FORCE IN THIS CONTENTION. 30 IN CASE OF CIT VS. MS. JAGRITI AGGARWAL (SUPRA) THE ASSESSEE HAS SOLD HER HOUSE PROPERTY FOR RS. 45 LAKHS AND HA D CLAIMED DEDUCTION U/S 54 OF THE ACT. THIS WAS NOT ALLOWED BECAUSE THE ASSESSEE HAD FAILED TO DEPOSIT THE AMOUNT IN THE CA PITAL GAIN ACCOUNT SCHEME AND ALSO FAILED TO PURCHASE THE HOUS E PROPERTY BEFORE DUE DATE OF FILING OF RETURN. IT WAS CONTEN DED THAT THE ASSESSEE HAD DEPOSITED THE AMOUNT IN CAPITAL GAIN D EPOSIT SCHEME 42 BEFORE DUE DATE OF FILING OF RETURN AS PRESCRIBED U /S 139(4). THE TRIBUNAL ALLOWED THE CLAIM. 31 ON APPEAL BY THE REVENUE IT WAS HELD AS UNDER BY THE HON'BLE HIGH COURT - HELD, DISMISSING THE APPEAL, THAT THE SALE OF THE A SSET HAD TAKEN PLACE ON JANUARY 13, 2006, FALLING IN THE PREVIOUS YEAR 2006 -07, THE RETURN COULD BE FILED BEFORE THE END OF THE RELEVANT ASSESSMENT YEAR 2007 -08, I.E., MARCH 31, 2007. THUS, SUB-SECTION (4) OF SECTION 139 PROVIDES THE E XTENDED PERIOD OF LIMITATION AS AN EXCEPTION TO SUB-SECTION (1) OF SECTION 139 O F THE ACT. SUB-SECTION (4) WAS IN RELATION TO THE TIME ALLOWED TO AN ASSESSEE UNDER SUB-SECTION (1) TO FILE THE RETURN. THEREFORE, SUCH PROVISION WAS NOT AN IN DEPENDENT PROVISION, BUT RELATES TO THE TIME CONTEMPLATED UNDER SUB-SECTION (1) OF SECTION 139. THEREFORE, SUB-SECTION (4) HAD TO BE READ ALONG WIT H SUB-SECTION(1). THEREFORE, THE DUE DATED FOR FURNISHING THE RETURN OF INCOME A CCORDING TO SECTION 139(1) OF THE ACT WAS SUBJECT TO THE EXTENDED PERIOD PROVIDED UNDER SUB-SECTION (4) OF SECTION 139 OF THE ACT. NO DOUBT THE HON'BLE HIGH COURT EXTENDED THE MEANI NG OF DUE DATE AND HELD THAT TIME PROVIDED U/S 139(4) SHALL ALSO B E TAKEN AS DUE DATE. THIS DECISION WAS RENDERED U/S 54. HOWEVER, HON'BLE SUPREME COURT IN CASE OF PREM NATH KHANNA (SUPRA) HELD - T HAT DUE DATE WOULD MEAN DUE DATE AS PROVIDED U/S 139(1). THEREFO RE WE ARE OF THE OPINION THAT THE DECISION OF CIT VS. MS JAGRITI AGGARWAL (SUPRA) IS NOT APPLICABLE PARTICULARLY BECAUSE THERE IS A SPECIFIC PROVISION U/S 80AC WHICH PROHIBITS DEDUCTION UNDER PART C O F CHAPTER VI A UNLESS THE RETURNS ARE FILED WITHIN TIME PRESCRIBE D U/S 139(1). WHEN A SPECIFIC PROVISION IS THERE IN THE STATUTE SAME C ANNOT BE INTERPRETED IN A WAY TO MAKE THE PROVISION REDUNDAN T. THEREFORE IN OUR OPINION, PRINCIPLE LAID DOWN BY THE HON'BLE HIG H COURT IN CASE OF CIT VS. MS. JAGRITI AGGARWAL (SUPRA) CANNOT BE APPL IED WHILE INTERPRETING THE PROVISION OF SEC 80AC. 32 THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF ACIT VS. DHIR GLOBAL INDUSTRIAL PVT LTD (SUPRA) WHEREIN IT WAS OBSERVED THAT THOUGH THE PROVISO TO SEC 10B FOR FILING OF RETURN U/S 139(1) FOR CLAIMING DEDUCTION BUT THE SAME WAS OF DIRECTORY NATURE AND NOT MANDATORY. IN OUR OPINION, THIS JUD GMENT OF DIVISION BENCH IS NO MORE VALID AFTER PRONOUNCEMENT OF THE D ECISION OF 43 SPECIAL BENCH IN CASE OF SAFFIRE GARMENTS VS. ITO ( SUPRA). SIMILARLY IN ITO VS. S. VENKTAYA(SUPRA), HYDERABAD BENCH OF THE TRIBUNAL HELD THAT IF RETURN WAS FILED LATE THEN DE SPITE THE PROVISIONS OF SECTION 80AC THE DEDUCTION WAS HELD TO BE ALLOW ABLE IF SUCH DELAY IS BEYOND THE CONTROL OF THE ASSESSEE. THIS POSITION ALSO STANDS REVERSED AFTER THE DECISION OF SPECIAL BENCH IN CASE OF SAFFIRE GARMENTS VS. ITO (SUPRA) WHEREIN IT IS CLEA RLY HELD THAT THE PROVISIONS OF SECTION 80AC ARE OF MANDATORY NATURE . AS FAR AS DECISION OF HON'BLE DELHI HIGH COURT IS CONCERNED, THE SAME IS DISTINGUISHABLE ON FACTS BECAUSE IN THAT CASE THE A SSESSEE DID NOT HAVE POSITIVE GROSS TOTAL INCOME IN THE INITIAL YEA R, THEREFORE COULD NOT CLAIM THE DEDUCTION FOR SUCH INITIAL YEAR. THE RE AFTER FOR ASSESSMENT YEAR 2001-02 THE ASSESSEE DID NOT CLAIM DEDUCTION DESPITE OF THE POSITIVE PROFITS. THIS OMISSION WAS NOTICED SOMEWHERE IN 2004 BY WHICH TIME FILING OF REVISED RETURN HAS ELAPSED AND THE ASSESSEE MOVED A PETITION U/S 264 WHICH WAS HELD TO BE MAINTAINABLE BECAUSE THE DEDUCTION WAS NOT CLAIMED BECAUSE OF BONAFIDE MISTAKE. THEREFORE CLEARLY ON THESE FACTS THE APPLICABILITY OF PROVISIONS OF SECTION 80AC WAS NOT THERE FOR CO NSIDERATION BECAUSE THIS PROVISION WAS INTRODUCED ONLY FROM ASS ESSMENT YEAR 2006-07 AND THEREFORE THIS CASE IS DISTINGUISHABLE. 33 THE LD. D.R. FOR THE REVENUE HAS RIGHTLY POINTED OUT TO THE DECISION OF AMRITSAR BENCH OF THE TRIBUNAL IN CASE OF BALKISHAN DHAWAN VS. ITO (SUPRA) WHEREIN IT WAS CLEARLY OBSER VED THAT PROVISIONS OF SECTION 80AC ARE MANDATORY. HEAD NOT E READS AS UNDER: SEC 80IB R.W.S. 80AC OF THE INCOME -TAX ACT, 1961 DEDUCTION PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING OTHER THAN IN FRASTRUCTURE DEVELOPMENT UNDERTAKINGS ASSESSMENT YEAR 2006-07 AND 2007-08 WHERE AN ASSESSEE WANTS TO AVAIL DEDUCTION U/S 80IB , HE HAS TO NECESSARILY FURNISH HIS RETURN OF INCOME CONTAINING SUCH CLAIM BEFORE DUE DATE SPECIFIED IN SEC 139(1) HELD YES 44 THEREFORE IN VIEW OF THE ABOVE LEGAL POSITION AND D ISCUSSION IT IS CLEAR THAT ONCE THE RETURN IS FILED LATE BEYOND DUE DATE PROVIDED U/S 139(1) IN SECTION 80AC THEN DEDUCTION U/S 80IB CANN OT BE ALLOWED. 34 NEXT REASON FOR DISALLOWING THE DEDUCTION U/S 80 IB IS THAT ACCORDING TO LOWER AUTHORITIES ACTIVITIES OF THE AS SESSEE ARE NOT COVERED BY THE PROVISIONS OF SECTION 80IB(11A). 35 THE REVENUE IN ITS PAPER BOOK HAS REFERRED TO NA TIONAL POLICY OF STORAGE, HANDING AND TRANSPORTATION OF FOOD GRAI NS WHICH WAS NOTIFIED IN THE GAZETTE OF INDIA IN 2001. IT WAS N OTED THAT THE POST HARVEST LOSSES OF FOOD GRAINS WAS SERIOUS PROBLEM. EVEN 5% LOSSES WOULD IMPLY LOSS OF 10 MILLION TONES OF FOOD GRAINS ANNUALLY. IN ORDER TO REDUCE STORAGE AND TRANSIT LOSSES AT FARM AND COMMERCIAL LEVEL AND TO MODERNIZE THE SYSTEM OF HANDLING, STOR AGE AND TRANSPORTATION OF FOOD GRAINS IN INDIA. NATIONAL P OLICY OF HANDLING AND STORAGE OF FOOD GRAINS HAS BEEN ANNOUNCED. THE MAIN THRUST OF THE POLICY IS (I) DECLARATION OF FOOD GRAINS STORAGE AS INFRASTRU CTURE (II) ENCOURAGEMENT OF MECHANICAL HARVESTING, CLEANI NG AND DRYING AT FARM AND MARKET LEVEL (III) TRANSPORTATION OF GRAINS FROM FARM TO SILOS B Y SPECIALLY DESIGNED TRUCKS. (IV) CONSTRUCTION OF CHAIN SILOS AT RECEIPT AS WELL AS DISTRIBUTION POINTS. (V) ENCOURAGING PRIVATE SECTOR FOR BUILDING STORAGE CAPACITIES IN WHICH GRAINS PROCURED BY GOVT AGENCIES WOULD BE STO RED ON PAYMENT OF STORAGE CHARGES; (VI) ENCOURAGING PRIVATE SECTOR FOR DEVELOPMENT OF INFRASTRUCTURE FOR THE INTEGRATED BULK HANDLING, STORAGE AND TRANSPORT ATION OF FOODGRAINS. THEREFORE FOR ENCOURAGING THE PRIVATE SECTOR, PARTI CIPATION IN THE ACTIVITIES OF INTEGRATED BUSINESS OF HANDLING, STORAGE AND 45 TRANSPORTATION OF FOOD GRAINS, SEC 80IB(11A) WAS IN SERTED IN THE ACT. WHILE INTRODUCING THIS PROVISION THE FINANCE MINIST ER IN HIS SPEECH STATED AS UNDER: THE STORAGE OF FOOD GRAINS AND THEIR TRANSPORTATIO N ARE OUR MAJOR CONCERN. SIR, I PROPOSE TO PROVIDE A TAX HOLIDAY F OR FIVE YEARS AND 30% DEDUCTION OF PROFITS FOR THE NEXT FIVE YEARS TO THE ENTERPRISES ENGAGED IN THE INTEGRATED BUSINESS OF HANDLING, TRANSPORTATION AND STORAGE OF FOOD GRAINS. MEMORANDUM EXPLAINING THIS PROVISION READS AS UNDER : TAX HOLIDAY FOR UNDERTAKING ENGAGED IN THE INTEGRATED HANDLING, STORAGTE AND TRANSPORTTION OF FOODGRAINS UNDER THE EXISTING PROVISIONS OF SECTION 80IB OF T HE INCOME -TAX ACT, 1961 A DEDUCTION IS ALLOWED, IN COMPUTING THE TAXABLE INCO ME, IN RESPECT OF PROFITS DERIVED FROM A NEW INDUSTRIAL UNDERTAKING OR A SHIP OR THE BUSINESS OF A HOTEL. TO ADDRESS THE COUNTRYS BASIC CONCERNS RELATING TO ENHANCED FOOD SECURITY AND AGRICULTURAL DEVELOPMENT, UPGRADATION AND MODERNIZATION OF INFRASTRUCTURE FOR STORAGE, HANDLING AND TRANSPORTA TION OF FOOD GRAINS IS A CENTRAL CONCERN IN WHICH INTRODUCTION OF MODERN TEC HNOLOGY WOULD BRING GREATER EFFICIENCY IN THE GRAIN MANAGEMENT SYSTEM AND MINIM IZE POST HARVEST FOOD GRAIN LOSSES. IN THIS REGARD CIRCULAR NO. 14/2001 WAS ALSO ISSUED ON 9.11.2001 WHICH READS AS UNDER: TAX HOLIDAY FOR UNDERTAKINGS ENGAGED IN THE INTEGR ATED HANDLING, STORAGE AND TRANSPORTATION OF FOODGRAINS. 51.1 UNDER THE EXISTING PROVISIONS OF SECTION 80IB OF INCOME -TAX ACT, 1961 A DEDUCTION IS ALLOWED IN COMPUTING THE TAXABLE INCOM E IN RESPECT OF PROFITS DERIVED FROM A NEW INDUSTRIAL UNDERTAKING OR A SHIP , OR THE BUSINESS OF A HOTEL. 51.2 TO ADDRESS THE COUNTRYS BASIC CONCERNS RELATI NG TO ENHANCED FOOD SECURITY AND AGRICULTURAL DEVELOPMENT, UPGRADATION AND MODERNIZATION OF INFRASTRUCTURE FOR STORAGE, HANDLING AND TRANSPORTA TION OF FOODGRAINS IS A CENTRAL CONCERN. THE INTRODUCTION OF MODERN TECHNO LOGY WOULD BRING GREATER EFFICIENCY IN THE GRAIN MANAGEMENT SYSTEM AND MINIM IZE POST HARVEST FOODGRAIN LOSSES. 51.3 TO ENCOURAGE BUILDING OF STORAGE CAPACITIES, S ECTION 80IB HAS BEEN AMENDED TO PROVIDE THAT ANY UNDERTAKING ENGAGED IN INTEGRATED BULK HANDLING, STORAGE AND TRANSPORTATION SHALL BE ALLOWED HUNDRED PER CENT DEDUCTION FOR THE FIRST FIVE YEARS AND A DEDUCTION OF 25% OF PROFITS (30% IN CASE OF COMPANIES) FOR THE NEXT FIVE YEARS. 51.4 THE AMENDMENT WILL COME INTO EFFECT FROM IST A PRIL 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2002-03 AND SUBSEQUENT YEARS. 36 A PLAIN READING OF NATIONAL POLICY ON STORAGE, H ANDLING AND TRANSPORTATION OF FOODGRAINS, SEC 80IB(11A) AND MEM ORANDUM 46 EXPLAINING THE PROVISIONS WOULD SHOW THAT TO DEAL W ITH THE PROBLEM OF WASTAGE OF FOOD GRAINS IT WAS DECIDED TO ENCOURA GE SETTING UP OF MODERN INFRASTRUCTURE IN STORAGE, HANDLING AND TRAN SPORTATION OF FOODGRAINS. IT WAS FURTHER DECIDED TO GIVE INCENTI VES AND ENCOURAGE THE PARTICIPATION OF THE PRIVATE SECTOR. HOWEVER T HE TERM HANDLING, STORAGE AND TRANSPORTATION HAS NOT BEEN DEFINED AN YWHERE IN THE ACT. THEREFORE TO UNDERSTAND THE MEANING OF THIS TE RM FIRST OF ALL WE NEED TO UNDERSTAND THE DEFINITIONS OF THESE TERMS. THE LD. COUNSEL FOR THE ASSESSEE HAS REFERRED TO DEFINITION OF THE TERM HANDLING IN VARIOUS ACTS WHICH IS AS UNDER: ACCORDING TO SECTION 2(E) OF THE NATIONAL ENVIRONM ENT TRIBUNAL ACT, 1995 (27 OF 1995), HANDLING IN RELATION TO ANY HAZA RDOUS SUBSTANCE, MEANS THE MANUFACTURE, PROCESSING, TREATMENT, PACKA GE, STORAGE TRANSPORTATION BY VEHICLE, USE COLLECTION, DESTRUCT ION, CONVERSION, OFFERING FOR SALE, TRANSFER OR THE LIKE OF SUCH HAZ ARDOUS SUBSTANCE . AS PER SECTION 2(C) OF THE PUBLIC LIABILITY INSURAN CE ACT, 1991, (6 OF 1991), HANDLING MEANS THE MANUFACTURE, PROCESSING, TREATMENT, PACKAGE, STORAGE, TRANSPORTATION BY VEHICLE, USE COLLECTION, DESTRUCTION, CONVERSION, OFFERING FOR SALE, TRANSFER OR THE LIKE OF SUCH HAZARDOUS SUBSTANCE. ACCORDING TO SECTION 2(D) OF THE ENVIRONMENT (PROTE CTION) ACT, 1986, HANDLING MEANS THE MANUFACTURE, PROCESSING, TREATME NT, PACKAGE, STORAGE, TRANSPORTATION, USE, COLLECTION, DESTRUCTI ON, CONVERSION, OFFERING FOR SALE, TRANSFER OR THE LIKE OF SUCH SUBSTANCE. E NVIRONMENT (PROTECTION) ACT, 1986(29OF 1986), 2(D). 37 THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER REF ERRED TO DECISION IN CASE OF CENTRAL HINDUSTAN ORANGE AND CO LD STORAGE CO. LTD. VS.PRAFULLA CHANDRA RAMACHANDRA OZA, AIR 1967 BOM 126, AND BIJOYA KUMAR AGARUALA V. STATE OF ORISSA, AIR 1 996 HON'BLE SUPREME COURT 2531, WHEREIN THE WORD STORAGE WAS INTERPRETED. HOWEVER, THE COPIES OF THESE JUDGMENTS HAVE NOT BEE N ENCLOSED, AND THEREFORE IT IS DIFFICULT TO REFER TO THESE DEC ISIONS. HOWEVER, IT IS NOT DIFFICULT TO UNDERSTAND THE MEANING OF STORAGE. STORAGE WOULD IMPLY WHEN AN ARTICLE OR A THING KEPT IN SOME SAFE CUSTODY FOR A PERIOD OF TIME WHICH MAY VARY FROM ONE DAY TO MANY YEARS DEPENDING UPON THE SHELF LIFE OF THE ARTICLE OR THI NG. FOR EXAMPLE FRESH VEGETABLE CAN BE STORED FOR A FEW DAYS ONLY B UT THE VEGETABLE 47 LIKE POTATO CAN BE STORED IN A COLD STORAGE FOR MAN Y MONTHS. SIMILARLY IT IS NOT DIFFICULT TO UNDERSTAND THE MEA NING OF TRANSPORTATION WHICH WOULD IMPLY MOVEMENT OF GOODS FROM ONE PLACE TO ANOTHER BY ANY MODE OF TRANSPORT. THEREFORE MAI N DIFFICULTY IS IN UNDERSTANDING THE MEANING OF HANDLING. WE HAVE A LREADY EXTRACTED DEFINITION GIVEN IN VARIOUS ACTS AGAINST WHICH THE LD. D.R. FOR THE REVENUE HAS RAISED SERIOUS OBJECTIONS AND S UBMITTED THAT DEFINITION HAS TO BE SEEN IN THE CONTEXT OF THE PAR TICULAR ACT. HE HAS VEHEMENTLY URGED US TO IGNORE THE DEFINITION GIVEN IN VARIOUS ACTS QUOTED BY THE LD. COUNSEL FOR THE ASSESSEE. WE PAR TLY AGREE WITH HIM. FOR EXAMPLE THE DEFINITION IN NATIONAL ENVIRO NMENT TRIBUNAL ACT, 1995 IS GIVEN WITH REFERENCE TO HAZARDOUS SUBS TANCES. HOWEVER, PUBLIC LIABILITY INSURANCE ACT, 1991 AS WE LL AS THE ENVIRONMENT ACT, 1996 DEFINES HANDLING TO INCLUDE T HE PROCESSING TREATMENT. PACKAGING AND STORAGE. THEREFORE FIRST QUESTION IS WHETHER THE PROCESSING WOULD BE INCLUDED IN HANDLIN G. IN OUR OPINION, PROCESSING CANNOT BE PART OF THE HANDLING PARTICULARLY IN THE CONTEXT OF SECTION 80IB (11A). THIS BECOMES CLEAR F ROM READING OF SEC 80IB(11A) ITSELF. IN THE PROVISION ITSELF ACTI VITY OF PROCESSING PRESERVATION AND PACKAGING HAS BEEN INCLUDED WITH R EFERENCE TO FRUITS AND VEGETABLES ONLY AS WELL AS MEAT AND MEAT PRODUCTS. IF THE LEGISLATURE WANTED THE FOOD PROCESSING TO BE INCLUD ED IN THIS PROVISION THEN SECTION COULD HAVE BEEN WORDED AS F ROM THE INTEGRATED BUSINESS OF PROCESSING, PACKAGING, HANDL ING, STORAGE AND TRANSPORTATION OF FOOD GRAINS. WITH REFERENCE TO ACTIVITIES IN RESPECT OF FOOD GRAINS WHAT IS DESCRIBED AS FROM THE INTE GRATED BUSINESS OF STORAGE AND HANDLING AND TRANSPORTATION OF FOOD GRA INS. IN OUR OPINION, THE PROCESSING AND PACKAGING CANNOT BE PAR T OF THE BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS. 48 38 THE LD. COUNSEL FOR THE ASSESSEE HAS VERY STRONG LY REFERRED TO THE VARIOUS OBSERVATIONS OF THE MINISTRY OF FOOD PR OCESSING AND HANDLING PARTICULARLY THE EXTRACTS FILED IN PAPER B OOK AT PAGE 198 TO 210. THE CAREFUL PERUSAL OF THESE OBSERVATIONS SHOW THAT THE MINISTRY OF FOOD PROCESSING HAS FIRSTLY DESCRIBED T HE TAX BENEFITS WHICH ARE ALLOWABLE UNDER INCOME -TAX ACT, 1961, CE NTRAL EXCISE ACT, SERVICE TAX AND IN THIS RESPECT RESPECTIVE PRO VISIONS HAVE BEEN REPRODUCED. FOR EXAMPLE SEC 80IB (11A) HAS BEEN RE PRODUCED IN RESPECT OF BUSINESS OF HANDLING, STORAGE AND TRANS PORTATION OF FOOD GRAINS. AT PAGE 202 TO 204 CERTAIN OBSERVATIONS HA VE BEEN MADE UNDER THE HEAD DATA BANK OF EXAMINING PARAMETERS O F FOODGRAINS AND ULTIMATELY IT HAS BEEN OBSERVED THAT IT IS IMPO RTANT TO DEFINE THE WORD FOOD PROCESSING. THERE AFTER IT HAS BEEN NO TED AS UNDER: THE NEED FOR DEFINING WHAT SHOULD BE CONSTRUED AS F OOD PROCESSING WAS NECESSARY BECAUSE OF DIFFERENT CLASSIFICATIONS BY V ARIOUS DEPARTMENTS / ORGANIZATIONS ( MINISTRY OF STATISTICS AND PROGRAMM E IMPLEMENTATION, DGCI&S, DIPP ETC.) ON WHAT FOOD PROCESSING INCLUDES. SINCE THIS MINISTRY HAS TO COMPILE THE DATA FROM ALL SUCH SOURCES THERE IS A N EED FOR CONCEPTUAL CLARITY ON FOOD PROCESSING. AN INTER MINISTERIAL STAKEHOLDER M EETING WAS HELD RECENTLY IN THIS MINISTRY, WHERE A CONSENSUS WAS REACHED ON THE DEFINITION OF FOOD PROCESSING INDUSTRIES. HENCEFORTH THIS MINISTRY WIL L INCLUDE UNDER FOOD PROCESSING INDUSTRIES, ITEMS PERTAINING TO THESE TW O PROCESSES VIZ. (A) MANUFACTURED PROCESSES; IF ANY RAW PRODUCT OF AGRIC ULTURE, ANIMAL HUSBANDRY OR FISHERIES IS TRANSFORMED THROUGH A PROCESS [INVOLVI NG EMPLOYEES, POWER, MACHINES OR MONEY] IN SUCH A WAY THAT ITS ORIGINAL PHYSICAL PROPERTIES UNDERGO A CHANGE AND IT THE TRANSFORMED PRODUCE IS EDIBLE A ND HAS COMMERCIAL VALUE, THEN IT COMES WITHIN THE DOMAIN OF FOOD PROCESSING INDUSTRIES AND (B) OTHER VALUE-ADDED PROCESSING; HENCE, IF THERE IS SIGNIFIC ANT VALUE ADDITION (INCREASED SHELF LIFE, SHELLED AND READY FOR CONSUMPTION ETC.) SUCH PRODUCE ALSO COMES UNDER FOOD PROCESSING, EVEN IF IT DOES NOT UNDERGO MANUFACTURING PROCESSES. 39 THE ABOVE DEFINITION OF FOOD PROCESSING IS CLEAR LY RELATED TO ACTIVITY OF FOOD PROCESSING BUT AS OBSERVED ABOVE T HIS CANNOT BE RELATED WITH THE INTEGRATED BUSINESS OF HANDLING, S TORAGE AND TRANSPORTATION OF FOOD GRAINS. WE HAVE ALREADY EXP LAINED THE REASONS FOR THIS BY ANALYZING SEC 80IB(11A) WHICH I TSELF HAS MADE REFERENCE IN RESPECT OF FRUITS AND VEGETABLES AS W ELL AS MEAT AND MEAT PRODUCTS, THE ACTIVITIES OF PROCESSING AND PAC KAGING HAS BEEN INCLUDED WHEREAS IN CASE OF FOOD GRAINS ONLY THE AC TIVITY OF HANDLING, STORAGE AND TRANSPORTATION HAS BEEN INCLUDED. BUT AT THE SAME TIME 49 THERE HAS TO BE SOME MEANING OF THE ACTIVITY OF HAN DLING OF FOOD GRAINS. IT CANNOT BE SAID THAT LEGISLATURE HAS USE D THE EXPRESSION HANDLING WITHOUT ANY INTENTION. THEREFORE TO FIND OUT THE INTENTION OF THE LEGISLATURE LET US UNDERSTAND THE PROCESS OF HA NDLING REQUIRED TO BE CARRIED ON IN RESPECT OF THE FOOD GRAINS. IN THI S REGARD IT WILL BE RELEVANT TO REFER TO THE PROCESS CARRIED OUT BY THE ASSESSEE WHICH HAS BEEN DESCRIBED THROUGH PICTORIAL CHART (IN THE PAPER BOOK FILED ON 30.9.2013 AT PAGE 58 TO 82), THE PROCESS HAS BEE N DESCRIBED AS: (1) PADDY HARVESTED IN THE FARM - (2) PADDY IS LOADED IN THE TROLLYS AUTOMATICALLY TH ROUGH A COMBINE - (3) TROLLYS COMES TO THE MANDI - (4) PADDY IS UNLOADED AND MOUNDS ARE CREATED - (5) PADDY IS PURCHASED IN TERMS OF MOUNDS THROUGH A UCTION - (6) PADDY IS CLEANED BY THE LABOUR AND FILLED IN TH E GUNNY BAGS WHICH ARE STITCHED MANUALLY - (7 BAGS ARE LOADED IN COMPANY TRUCKS AND TRANSPORTE D TO THE FACTORY (8) AT FACTORY THE WEIGHT IS RECORDED AT THE FACTOR Y GATES (9) THE BAGS ARE OPENED AND PADDY IS POURED IN THE OPEN GODOWNS WHERE DRIERS AND FANS ARE INSTALLED TO REDUCE THE M OISTURE FOR PROPER STORAGE (10) AFTER DEMOISTURISATION IS COMPLETED PADDY IS R EPACKED AND LOADED INTO THE TRUCKS (11) THESE LOADED TRUCKS OF THE COMPANY TRANSPORT THE PADDY TO COVERED GODOWNS (12) PADDY IS UNLOADED IN THE GODOWN AND PUT IN STA CKS (13) PADDY IS STORED IN SUCH GODOWN FOR A PERIOD OF ONE YEAR TO TWO YEARS DEPENDING ON THE QUALITY AND TIME REQUIRED FO R MATURING THE SAME (14) GODOWNS ARE FITTED WITH CLIMATIC CONTROL AND F UMIGATION FACILITIES SO AS TO PRESERVE THE PADDY FROM WITHERI NG OUT FROM INSETS AND OTHER NATURAL CALAMITIES (15) PADDY IS ALSO KEPT AT A PARTICULAR MOISTURE LE VEL (16) AFTER MATURING OF PADDY FROM ONE YEAR TO TWO Y EARS THE SAME IS DE-HUSKED AND SENT TO MODERNIZED SILOS 50 (17) PADDY IS KEPT IN THE SILOS FROM 15 TO 60 DAYS DEPENDING UPON THE CLIMATIC CONDITIONS AND MOISTURE LEVEL AND SENT FOR PROCESSING I.E. MILLING UNIT. 40 ACCORDING TO THE ASSESSEE THE ABOVE PROCESS IS D IRECTLY RELATED TO INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRA NSPORTATION. IT HAS BEEN POINTED WITH REFERENCE TO SCHEDULE OF FIXE D ASSTS THAT THE ASSESSEE HAS PURCHASED MORE THAN 150 TRUCKS DURING THE IMPLEMENTATION OF MEGA PROJECT. IT WAS ALSO POINTE D OUT THAT NEW LAND WAS PURCHASED DURING FINANCIAL YEAR 2006-07, 2 007-08 AND 2008-09 AND FRESH ADDITION WERE ALSO MADE AND MAJOR ITY OF THE EXPANSION WAS CARRIED OUT IN BUILDING OF STORES. EV EN THE ADDITION TO MACHINERY WAS MAINLY ON ACCOUNT OF MACHINERY INSTAL LED IN THE STORES FOR KEEPING THE CLIMATE UNDER CONTROL, CREAT ING OF DRYING FACILITIES AND FUMIGATION FACILITIES ETC. EVEN TH E LD. D.R. FOR THE REVENUE HAS CLEARLY STATED THAT THE WORD HANDLING IN ITS ORIGINAL SENSE AND IN THE CONTEXT OF FOOD GRAINS WOULD ENCOM PASS WITHIN ITS AMBIT, PROCESSES AND ACTIVITIES RELATING TO CREATIO N OF FACILITIES FOR CLEANING AND REMOVING OF FOREIGN MATERIAL FROM THE FOOD GRAIN SO AS TO PREVENT DAMAGE FROM SUCH MATERIAL, FACILITIES FO R DRYING OF FOOD GRAINS TO PREVENT LOSS DURING STORAGE DUE TO EXCESS IVE MOISTURE, PRE STORAGE BULK GRAIN DUMPING AND DRYING FACILITIES, C REATION OF FACILITIES FOR MECHANIZED SAMPLING, WEIGHING AND DE TECTION OF LIVE INFECTANTS, MECHANIZED RECEIVING AND HANDLING BY ST ORING IN SILOS EQUIPPED WITH FACILITIES OF AERATION AND FUMIGATION , LOADING AND UNLOADING FACILITIES AND TRAFFIC MANAGEMENT AND DUM PING PITS, CHAIN CONVEYORS, ELEVATORS AND FACULTIES FOR MECHANIZED S HIPMENT SO AS TO INTEGRATE STORAGE WITH QUICK TRANSPORTATION. 41 IN OUR OPINION, WHEN THE ACTIVITIES SHOWN BY THE ASSESSEE THROUGH PROCESS FLOW CHART ARE COMPARED WITH THE AC TIVITIES WHICH ADMITTEDLY CONSTITUTE HANDLING AS PER THE REVENUE THEN IT EMERGES 51 THAT THE ASSESSEE HAS DEFINITELY CREATED CERTAIN FA CILITIES WHICH CAN BE SAID TO BE RELATED TO HANDLING, STORAGE AND TRAN SPORTATION OF FOOD GRAINS. THE ASSESSEE IS CARRYING THE PADDY FROM T HE MARKET IN ITS OWN TRUCKS WHICH ARE WEIGHED AT THE GATE WHEREIN DR YING PROCESS AND INITIAL CLEANING TAKES PLACE. AFTER OPENING TH E BAGS AND PUTTING THE PADDY THROUGH THESE PROCESSES PARTICULARLY THE PROCESS OF DEFUSING SO AS TO REMOVE THE INBORN PESTS. AFTER T HIS THE PROCESS IT IS AGAIN PACKED AND CARRIED TO THE STORES WHERE THE SAME IS KEPT FOR MATURING FOR A PERIOD OF ONE YEAR TO TWO YEARS. AL L FACILITIES FOR SECURING MAXIMUM SECURITY TO THE FOODGRAINS I.E; P ADDY HAVE BEEN INSTALLED TO SAFEGUARD THE PADDY FROM WITHERING, SP ILLAGE AND OTHER NATURAL CALAMITIES. REGULAR FUMIGATION IS DONE TO P RESERVE THE FOOD GRAINS FROM NATURAL CALAMITIES AND TO SAVE IT FROM VARIOUS PESTS. AFTER KEEPING THE PADDY FOR A PERIOD OF 12 TO 24 MO NTHS THE SAME IS TRANSFERRED TO THE SILOS WHERE THE SAME IS AGAIN ST ORED FOR A PERIOD OF 15 TO 60 DAYS AND THEN SENT TO MILLING MACHINE. THEREFORE IT IS CLEAR THAT BEFORE PROCESS OF MILLING OF PADDY BEGIN S IT HAS TO BE STORED IN A PROPER STORAGE SO AS TO PREVENT THE LOS SES OF SUCH FOOD GRAINS. THIS HAS BEEN DEFINITELY DONE BY THE ASSESS EE. THEREFORE IT IS CLEAR THAT THE ASSESSEE HAS DEFINITELY DONE HAND LING AND STORAGE OF FOOD GRAINS AS WELL AS THE TRANSPORTATION BECAUS E THE ASSESSEE HAS EMPLOYED ITS OWN TRUCKS. AT THIS STAGE WE POSED A QUESTION TO OURSELVES THAT IF THE FACILITIES CREATED BY THE ASS ESSEE ARE NOT IN THE NATURE OF HANDLING AND STORAGE THEN WHICH ACTIVITIE S WOULD FALL IN THAT CATEGORY ? THE OBVIOUS ANSWER WHICH WE CAN THI NK OF THAT THESE ACTIVITIES HAVE TO BE CLASSIFIED AS HANDLING AND ST ORAGE ETC. BECAUSE IF THE MEANING WAS RESTRICTED ONLY TO CREATING OF S TORES THEN LEGISLATURE WOULD HAVE MADE THE DEDUCTION AVAILABLE IN CASE OF WAREHOUSING FACILITIES THEN INSTEAD OF USING THE EX PRESSION THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSP ORTATION OF FOOD 52 GRAINS THE DEDUCTION WOULD HAVE BEEN PROVIDED FOR THE BUSINESS OF MODERN WAREHOUSES WHICH HAS NOT BEEN DONE. THIS CL EARLY SHOWS THAT PERHAPS THE FACILITIES WHICH HAVE BEEN CREATED BY THE ASSESSEE WERE THE KIND OF FACILITIES WHICH WERE MADE ELIGIBL E FOR THE DEDUCTION UNDER SEC 80IB(11A). 42 THE LD. D.R. FOR THE REVENUE HAS ALSO POINTED OU T THAT THE ASSESSEE WAS BASICALLY ENGAGED IN THE BUSINESS OF M ILLING OF PADDY IN EARLIER YEARS WHICH HAS CONTINUED EVEN AFTER THE INSTALLATION OF MEGA PROJECT. IT WAS FURTHER POINTED OUT THAT IN FO RM 3CD FOR ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS SHOWN MAI N BUSINESS ACTIVITIES AS MANUFACTURING OF RICE, CATTLE FEED, CRUSHING OF OIL SEEDS, SOLVENT EXTRACTIONS ETC. SIMILARLY IN THE A NNUAL REPORT ALSO THE MAIN ACTIVITY SHOWN AS MANUFACTURING OF RICE. EVEN THE BANK LOANS WERE OBTAINED FOR THE PURPOSE OF MANUFACTURIN G OF RICE. NO DOUBT THE COMPANY UNDER THE NAME OF LAKSHMI GRAIN PROCESSOR PVT LTD WAS INCORPORATED IN THE YEAR 1990 AND WAS CONV ERTED INTO A PUBLIC LTD COMPANY IN THE YEAR 1993 AND THE NAME WA S CHANGED TO LAKSHMI GRAIN PROCESSOR INDIA LTD. IN 1994 THE N AME WAS AGAIN CHANGED TO LAKSHMI OVERSEAS INDUSTRIES LTD. AND L ATER ON IN 2006 THE NAME WAS FINALLY CHANGED TO LAKSHMI ENERGY AND FOODS LTD. IT IS ALSO ADMITTED BY THE ASSESSEE THAT THE DEDUCTION U/S 80IA HAS BEEN CLAIMED UPTO ASSESSMENT YEAR 2001-02. BUT IN OUR OPINION, IT CANNOT BE SAID THAT THE ASSESSEE HAS CARRIED ON THE SAME BUSINESS. THIS IS PARTICULARLY SO BECAUSE THE MEGA PROJECT HA S BEEN SANCTIONED BY THE GOVT OF PUNJAB VIDE THEIR LETTER DATED 6.9.2005 (COPY OF WHICH IS AVAILABLE AT PAGE 282 TO 283 OF T HE PAPER BOOK). THE ASSESSEE STARTED IMPLEMENTING THIS PROJECT FROM FINANCIAL YEAR 2005-06 ITSELF AND SUM OF RS. 40 CRORES WAS INVESTE D IN THE NEW PROJECT ITSELF ON WHICH ABOUT RS. 3 CRORES WAS SPEN T ON THE BUILDING FOR STORES AND ANOTHER RS. 33 CRORES FOR INSTALLATI ON OF WATER 53 TREATMENT, STREAM CHANNEL AND DRIER, CLEANERS ETC. WAS SPENT WHICH IS SAID TO BE TOWARDS HANDLING OF SUCH FOOD GRAINS. RS. 2.88 CRORES WAS SPENT FOR ACQUISITION OF TRUCKS AND ABOUT RS. 8 0 LAKHS WAS SPENT TOWARDS ACQUISITION OF COMPUTER AND OFFICE BUILDING ETC. THE ASSESSEE HAS FURTHER SPENT SUBSTANTIAL AMOUNT AMOUN TING TO RS. 123 CRORES IN FINANCIAL YEAR 2006-07 AND RS. 191 CRORES IN FINANCIAL YEAR 2007-08 AND RS. 52 CRORES IN FINANCIAL YEAR 20 08-09. OUT OF THIS SUBSTANTIAL AMOUNT HAVE BEEN SPENT TOWARDS AC QUISITION OF TRUCKS, CREATION OF STORING FACILITY AND VARIOUS HA NDLING EQUIPMENTS. ONLY A SUM OF RS. 12.99 CRORES IS SAID TO HAVE BEEN SPENT FOR PURCHASE OF PADDY MILLING MACHINE. THESE FACTS CLEA RLY SHOWS THAT NEW PROJECT CAME UP OVER A PERIOD OF TIME STARTING WITH THE FINANCIAL YEAR 2005-06. IN OUR OPINION, IT IS NOT NECESSARY T O START NEW HANDLING UNIT SEPARATELY FOR CLAIMING BENEFIT OF SE C 80IB(11A) EVEN THE UPGRADATION OF OLD UNIT WOULD ALSO ENTITLE A B USINESSMAN TO THIS BENEFIT. MEMORANDUM EXPLAINING THE PROVISIONS OF S ECTION 80IB(11A) ITSELF PROVIDES SO. WE HAVE ALREADY REPR ODUCED RELEVANT PARAS ABOVE BUT AT THE COST OF REPETITION WE WOULD LIKE TO REPRODUCE PARTICULAR PARA AGAIN AS UNDER: UNDER THE EXISTING PROVISIONS OF SECTION 80-IB OF T HE INCOME-TAX ACT, A DEDUCTION IS ALLOWED, IN COMPUTING THE TAXABLE INCO ME, IN RESPECT OF PROFITS DERIVED FROM A NEW INDUSTRIAL UNDERTAKING, OR A SHI P OR THE BUSINESS OF A HOTEL. TO ADDRESS THE COUNTRYS BASIC CONCERNS RELATING TO ENHANCED FOOD SECURITY AND AGRICULTURAL DEVELOPMENT, UP GRADATION AND MODERNIZATION OF INFRASTRUCTURE FOR STORAGE, HANDLING AND TRANSPORTATION OF FOODGRA INS IS A CENTRAL CONCERN IN WHICH INTRODUCTION OF MODERN TECHNOLOGY WOULD BR ING GREATER EFFICIENCY IN THE GRAIN MANAGEMENT SYSTEM AND MINIMIZE POST HARVEST F OODGRAIN LOSSES. THE ABOVE CLEARLY SHOWS THAT DEDUCTION WAS PROVIDED FOR UPGRADATION AND MODERNIZATION OF INFRASTRUCTURE FOR STORAGE, HANDLING AND TRANSPORTATION OF FOOD GRAINS. 43 WE DO NOT FIND ANY FORCE IN THE SUBMISSIONS THAT MERELY BECAUSE BUSINESS OF THE ASSESSEE HAS DESCRIBED ITS BUSINESS AS MANUFACTURING OR RICE ETC. IN FORM 3CD AS WELL AS ANNUAL REPORT AND 54 THEREFORE SUCH BUSINESS CANNOT BE REGARDED AS INTEG RATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRA INS. WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSES SEE IN THIS REGARD THAT IN THE BUSINESS WORLD BUSINESS OF HANDLING, S TORAGE AND TRANSPORTATION MAY NOT BE RECOGNIZED AS SUCH BECAU SE SAME DOES NOT CONNOTE REVENUE GENERATION AND THEREFORE SAME W AS SHOWN AS BUSINESS OF MANUFACTURING OF RICE ETC. FURTHER TH E LD. COUNSEL FOR THE ASSESSEE HAS RIGHTLY REFERRED TO THE DECISION O F HON'BLE SUPREME COURT IN CASE OF SATLUJ COTTON MILLS LTD. VS. CIT, 116 ITR 1 (S.C) WHERE IT HAS BEEN OBSERVED THAT THE TREATMENT OF A PARTICULAR ENTRY HAS TO BE DONE ACCORDING TO THE NATURE OF TRANSACTI ON AND NOT ACCORDING TO THE DESCRIPTION GIVEN IN THE BOOKS OF ACCOUNTS. IN THE COMMERCIAL WORLD BUSINESS OF HANDLING AND STORAGE MAY NOT BE RECOGNIZED AND THE ASSESSEE MAY HAVE DELIBERATELY O R INADVERTENTLY REFERRED TO THE BUSINESS AS BUSINESS OF MANUFACTURI NG OF RICE BUT WE NEED TO TAKE INTO CONSIDERATION THE ACTUAL NATURE OF THE BUSINESS. AS DISCUSSED ABOVE, THE BUSINESS OF THE ASSESSEE SE EMS TO BE COMPOSITE ONE WERE THE ACTIVITY OF HANDLING, STORAG E AND TRANSPORTATION HAVE BEEN CARRIED OUT BUT FURTHER AC TIVITY OF PROCESSING OF PADDY HAS ALSO BEEN UNDERTAKEN. 44 FROM THE ABOVE A QUESTION WOULD ARISE WHETHER TH E ASSESSEE IS REQUIRED TO CARRY OUT ONLY ACTIVITY OF HANDLING, ST ORAGE AND TRANSPORTATION OF FOOD GRAINS FOR CLAIMING DEDUCTIO N U/S 80IB(11A). IN OUR OPINION, THE ANSWER HAS TO BE NO BECAUSE IN T HE COMMERCIAL WORD AN ENTREPRENEUR WOULD ENGAGE IN ANY BUSINESS O NLY WHEN THE SAME IS COMMERCIALLY PROFITABLE. THEREFORE IN CASE OF INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS MAY NOT ITSELF BE VERY PROFITABLE AND IF THE SAME IS CO MBINED WITH THE ACTIVITY OF PROCESSING OF PADDY INTO RICE BY SPENDI NG SMALLER AMOUNT OF MONEY FOR MILLING MILLS THEN SUCH ENTREPRENEUR W OULD DEFINITELY 55 EXTEND THE ACTIVITY AND GET INTO THE COMPOSITE BUSI NESS OF HANDLING, STORAGE AND TRANSPORTATION AND PROCESSING OF THE RI CE. LET US IMAGINE THE SITUATION WHERE THE BUSINESSMAN IS ENGA GED IN THE BUSINESS OF PROCURING, HANDLING, STORAGE AND TRANSP ORTATION OF PADDY SEPARATELY AND THEN SELLING THE SAME TO ANOTHER BU SINESSMAN WHO IS ENGAGED IN THE BUSINESS OF ONLY PROCESSING OF PA DDY INTO RICE THEN SAME WOULD INVOLVE UNNECESSARY FURTHER COST IN TER MS OF CARRYING THE PADDY FROM HANDLING AND STORAGE UNIT TO PROCESS ING UNIT BECAUSE THE PADDY BAGS HAVE TO BE LOADED INTO THE TRUCKS CA RRIED TO THE PROCESSING UNIT AND THEN AGAIN UNLOADED AND PUT IN TO THE MILLING MACHINES FOR PROCESSING OF THE PADDY. THIS WILL MAK E BOTH THE BUSINESSES UNVIABLE. EVEN THE LEGISLATURE INTENTION CANNOT BE THAT DEDUCTION IS ALLOWABLE ONLY IF THE ACTIVITY OF HAND LING, STORAGE AND TRANSPORTATION IS UNDERTAKEN SEPARATELY BECAUSE IN THAT CASE LEGISLATURE WOULD HAVE PROVIDED FOR DEDUCTION IN C ASE OF WAREHOUSES WHICH IS NOT THERE. IN THIS REGARD THE LD. D.R. FOR THE REVENUE HAD STRONGLY PLACED RELIANCE ON THE DECISIO N OF MUMBAI BENCH OF THE TRIBUNAL IN CASE OF ITO VS. SHANKAR K. BHANAGE, ITA NO. 3216 & 3217/2010. IN THAT CASE THE ASSESSEE W AS A CONTRACTOR APPOINTED BY F.C.I. FOR HANDLING THE FOOD GRAINS AT TURBHE/ KALYAN/ BHIVANDI SHED AND STORED FOOD GRAINS AT BHIWANDI DE POT AND TRANSPORTED FOODGRAINS FROM ABOVE GOODS SHEDS TO BH IWANDI DEPOT. FOR THESE ACTIVITIES THE ASSESSEE CLAIMED DEDUCTION U/S 80IB (11A) AND THE SAME WAS ALLOWED BY THE CIT(A). ON APPEAL TO THE TRIBUNAL THE DEDUCTION WAS DENIED BY OBSERVING THAT THE ASSE SSEE WAS NOT ELIGIBLE FOR DEDUCTION BECAUSE THE ASSESSEE HAS NOT CREATED ANY INFRASTRUCTURE FOR CARRYING OUT THESE ACTIVITIES. THUS IT IS CLEAR THAT IN THIS CASE THE ASSESSEE WAS MERELY CARRYING ON T HE ACTIVITIES WITHOUT ANY INFRASTRUCTURE WHEREAS IN CASE BEFORE U S THE ASSESSEE HAS PURCHASED TRUCKS, CREATED FACILITIES FOR STORAG E AND INSTALLED 56 VARIOUS MACHINES LIKE DRYERS, CLIMATIC CONTROL EQUI PMENT AND FUMIGATION FACILITIES. THUS THE ASSESSEE BEFORE US HAS NOT ONLY CARRIED OUT HANDLING AND STORAGE ACTIVITIES BUT HAS ALSO CREATED INFRASTRUCTURE FOR HANDLING, STORAGE AND TRANSPORTA TION OF THE FOOD GRAINS. 45 THE ASSESSING OFFICER ALSO DENIED THE DEDUCTION BY OBSERVING THAT THE MAIN BUSINESS OF THE ASSESSEE WAS MANUFACT URING OF THE RICE AND NOT OF HANDLING, STORAGE AND TRANSPORTATIO N AS OBSERVED EARLIER NEITHER IT IS POSSIBLE COMMERCIALLY OR NOR IT IS INTENTION OF THE LEGISLATURE THAT FOR CLAIMING THIS DEDUCTION A BUSI NESSMAN SHOULD HAVE INDEPENDENTLY ENGAGED IN THE BUSINESS OF HANDL ING, STORAGE AND TRANSPORTATION OF THE FOODGRAINS. THE LD. COUN SEL FOR THE ASSESSEE IN THIS REGARD HAS RIGHTLY REFERRED TO THE DECISION OF SANCHITA MARINE PRODUCTS (P) LTD. VS. DCIT (SUPRA). IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MARINE PRODUCTS AND SALE OF ICE. THE ASSESSEE CLAIMED DEDUCTION U/S 80 IB. THE DEDUCTION WAS DENIED BY THE REVENUE BECAUSE THE ASS ESSEE WAS NOT RUNNING A COLD STORAGE INDEPENDENTLY. ON APPEAL TH E TRIBUNAL HELD AS UNDER: SECTION 80-IB PROVIDES THAT WHERE GROSS TOTAL INCOM E OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY OF THE ELIGI BLE BUSINESSES, A DEDUCTION EQUAL TO SPECIFIED PERCENTAGE OF SUCH PROFITS WILL BE GRANTED IN COMPUTATION OF TOTAL INCOME, AND THAT THIS DEDUCTION WILL BE GIVEN ONLY FOR SUCH PERIOD AS MAY BE SPECIFIED. THIS SECTION APPLIES ONLY TO AN INDUS TRIAL UNDERTAKING AND ONE OF THE ELIGIBLE BUSINESSES IS THAT SUCH AN INDUSTRIAL UNDERTAKING OPERATES ONE OR MORE COLD STORAGE PLANT OR PLANTS IN ANY PART OF TH E INDIA. THE WORDS IN SECTION 80-IB(1) ARE PROFITS AND GAINS DERIVED FROM ANY OF THE ELIGIBLE BUSINESS AND IT IS ONLY SPECIFIED PERCENTAGE OF SUCH PROFITS WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB. THEREFORE, THE QUESTION THAT AROSE F OR CONSIDERATION IN THE INSTANT CASE WAS AS TO WHETHER OR NOT THE PROFITS E ARNED BY THE ASSESSEE COULD BE SAID TO BE DERIVED FROM THE BUSINESS OF OPERATIN G COLD STORAGE PLANT, AND IF SO, TO WHAT EXTENT THE PROFITS EARNED BY THE ASSESS EE COULD BE SAID TO BE DERIVED FROM THE BUSINESS OF COLD STORAGE. THE ASSESSEE BOUGHT RAW MATERIAL (I.E. SQUIDS, PRAW NS AND FISH, ETC.), WASHED AND CLEANED THE SAME, WEIGHTED THEM AND STORED THE MATERIAL IN THE CHILL ROOM BEFORE DESKINNING, GRADING, FURTHER WASHING, CLEANI NG AND GLAZING THE SAME. IN THE NEXT STEP, THE MATERIAL SO PRODUCED WAS FROZEN, PACKED, LABELED AND KEPT IN STORAGE TILL IT WAS SHIPPED OUT. THE ENTIRE PROFITS FROM PROCESSING FROZEN SEA FOOD COULD NOT BE SAID TO BE DERIVED FROM THE BUSIN ESS OF OPERATING A COLD STORAGE PLANT. BUT, THE COLD STORAGE OF THE ASSESSE E HAD A VITAL AND IMPORTANT ROLE TO PLAY SO FAR AS PROCESSING OF FROZEN SEA FOO D WAS CONCERNED. AT DIFFERENT 57 STAGES BEFORE, DURING AND AFTER PROCESSING OF MATER IAL, COLD STORAGE FACILITIES WERE TO BE USED IN THE BUSINESS. THEREFORE, A SIGNI FICANT PART OF THE ASSESSEES PROFIT MUST HAVE BEEN HELD TO BE DERIVED FROM THE B USINESS OF OPERATING COLD STORAGE PLANT. THERE WAS NO FORCE IN THE STAND OF T HE REVENUE THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB ONLY WHEN IT RECEIVED THE MONEY FOR USE OF COLD STORAGE BY AN OUTSIDER AND NOT WHEN IT USED THE COLD STORAGE ITSELF. THE SCHEME OF SECTION 80-IB IS THAT THE DED UCTION IS AVAILABLE IN RESPECT OF PROFITS AND GAINS DERIVED FROM THE BUSINESS OF O PERATING A COLD STORAGE PLANT, AND NOT THE BUSINESS OF OFFERING COLD STORAGE SERVI CES TO OUTSIDERS. AS LONG AS PROFIT COULD BE REASONABLY HELD TO BE FROM THE BUSI NESS OF OPERATING COLD STORAGE PLANT, THE ASSESSEE WAS ELIGIBLE FOR DEDUCT ION UNDER SECTION 80-IB IRRESPECTIVE OF WHETHER OR NOT THE SERVICES WERE US ED BY THE ASSESSEE ITSELF OR BY OUTSIDERS ON PAYMENT OF CONSIDERATION. IDEALLY, IT SHOULD BE THE AMOUNT THAT THE ASSESSEE WOULD HAVE PAID TO AN OUTSIDE CONCERN, IF IT WAS TO USE THESE FACILITIES FROM SUCH A CONCERN. HOWEVER, SINCE SUCH AN AMOUNT COULD NOT BE COMPUTED AT THE INSTANT STAGE AND HAVING REGARD TO THE FLOW CHART FILED BY THE ASSESSEE WHICH DEMONSTRATED VARIOUS STAGES OF PROCE SSING AND USE OF COLD STORAGE FACILITIES IN SUCH PROCESSING, IT WAS APPRO PRIATE TO HOLD THAT 30 PER CENT OF THE PROFITS OF THE ASSESSEE COULD BE TREATED AS DERIVED FROM THE BUSINESS OF OPERATING THE COLD STORAGE PLANT. THEREFORE, THE AS SESSING OFFICER WAS DIRECTED TO COMPUTE DEDUCTION IN RESPECT OF 30 PER CENT OF T HE PROFITS EARNED BY THE ASSESSEE FROM THE BUSINESS OF PROCESSING FROZEN SEA FOOD. THUS IT IS CLEAR THAT IT IS NOT NECESSARY TO CARRY OUT A PARTICULAR ACTIVITY INDEPENDENTLY FOR WHICH THE DEDUCTION IS E LIGIBLE. EVEN IF SUCH ACTIVITY IS PART OF OVERALL ACTIVITY EVEN THEN THE DEDUCTION IS ALLOWABLE BUT OF COURSE SUCH DEDUCTION IS TO BE ALL OWED ON A PROPORTIONATE BASIS. SIMILAR VIEW WAS TAKEN BY MUM BAI BENCH OF THE TRIBUNAL IN CASE OF SAMRAJ SEAFOODS PVT LTD VS. ITO , ITA NO. 2875/MUM/2005. IN THE CASE BEFORE US THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT RECEIVED ANY IND EPENDENT INCOME FROM HANDLING, STORAGE AND TRANSPORTATION OF THE FOOD GRAINS. WE HAVE ALREADY DISCUSSED THIS ASPECT EARLIER AND F URTHER IN VIEW OF THE DECISION IN CASE OF SANCHITA MARINE PRODUCTS (P ) LTD. VS. DCIT (SUPRA) AND SAMRAJ SEAFOODS PVT LTD VS. ITO (SUPRA) . IT IS CLEAR THAT IT IS NOT NECESSARY FOR A BUSINESSMAN TO RECEI VE INCOME FROM EACH OF THE ACTIVITY SEPARATELY IN CASE OF A COMPOS ITE BUSINESS. THIS CAN BE FURTHER UNDERSTOOD FROM A SIMPLE EXAMPL E OF A CAR MANUFACTURER. LET US SAY FOR EXAMPLE A DEDUCTION I S AVAILABLE FOR MANUFACTURE AND SALE OF ENGINE OF THE CAR. NOW A C AR MANUFACTURER COULD BE PRODUCING ITS OWN ENGINES AND USING THE SA ME IN FINAL ASSEMBLY OF THE CAR THEN IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT 58 RECEIVED SEPARATE INCOME FROM SALE OF ENGINE, THERE FORE DEDUCTION IS NOT ALLOWABLE. 46 ANOTHER CONTENTION GIVEN BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT SIMILAR DEDUCTION WAS ALLOWED IN CASE OF L. T. OVERSEAS PVT LTD (COPY FILED AT PAGE 901 TO 919 OF PAPER BOOK FO R ASSESSMENT YEAR 2004-05 & 2005-06). PERUSAL OF THESE ASSESSM ENT ORDERS CLEARLY SHOW THAT DEDUCTION U/S 80IBB(11A) AMOUNTIN G TO RS. 2,75,27,680 AND RS. 3,01,78,411 WAS CLAIMED U/S 80I B(11A) WHICH WAS ALLOWED BY THE ASSESSING OFFICER HIMSELF. PERU SAL OF THE ASSESSMENT ORDER FURTHER SHOW THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROCESSING OF RICE. SINCE ACTIVITIES O F THE ASSESSEE BEFORE US ARE SAME TO THE ACTIVITIES OF L.T. OVERSE AS PVT LTD (SUPRA) THE DEDUCTION HAS TO BE ALLOWED. IN THIS REGARD TH E LD. COUNSEL FOR THE ASSESSEE RIGHTLY REFERRED TO THE DECISION OF HO N'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. SARDARI LAL M EHRA (SUPRA). IN THAT CASE THE ASSESSEE BECAME A MEMBER OF TWO LUCKY SCHEMES IN AUGUST AND SEPT IN 1967. ACCORDING TO THE SCHEMES EACH MEMBER WAS REQUIRED TO PAY A SUM OF RS. 100 TOWARDS EACH S CHEME FOR A MONTH FOR A PERIOD OF SIX MONTHS. AT THE END OF EA CH MONTH A DRAW WAS MADE AND THE PERSON WHO WON SUCH DRAW WAS PAID, A SUM OF RS. 6000 AND WAS FURTHER ENTITLED TO STOP THE CONTRIBUT ION IN FUTURE. ALL THE MEMBERS EXCEPT THOSE IN WHOSE FAVOUR DRAW HAD G ONE, WERE TO GET RS. 6000 EACH AT THE END OF SIX MONTHS AND IN A DDITION TO RECEIVE RS. 500 AS INTEREST. THE ASSESSEE HAD CONT RIBUTED RS. 400 IN THE FIRST SCHEME WHEN THE DRAW WAS DECLARED AND HE RECEIVED RS. 6000. IN THE SECOND SCHEME HE CONTRIBUTED RS. 700 W HEN THE DRAW WAS AGAIN DRAWN IN HIS FAVOUR. THE ASSESSING OFFIC ER INCLUDED A SUM OF RS. 10,900 IN ASSESSEES INCOME. THE AAC AG REED WITH THE ACTION OF ASSESSING OFFICER. ON APPEAL, THE TRIBUN AL HELD THAT THE ASSESSEE IS SIMPLY LUCKY AND THE AMOUNT RECEIVED BY HIM COULD NOT 59 BE TERMED AS INCOME. THE TRIBUNAL FURTHER NOTED TH AT IN SIMILAR CIRCUMSTANCES THE ADDITION WAS DELETED BY THE APPEL LATE ASSISTANT COMMISSIONER OF AMRITSAR WHERE DIFFERENT ASSESSES W ERE INVOLVED. IN THIS BACKGROUND IT WAS OBSERVED THAT SAME ASSESS EES PLACED IN SIMILAR CIRCUMSTANCES MUST BE DEALT WITH SIMILAR MA NNER TO LESSEN THE MULTIPLICITY OF THE PROCEEDINGS AND AVOIDABLE L ITIGATION. THIS FINDING WAS CONFIRMED BY THE HON'BLE HIGH COURT. O UR CONSTITUTION UNDER ARTICLE 14 ENSURES EQUAL TREATMENT OF LAW TO EVERY CITIZEN. THEREFORE IF A PARTICULAR ASSESSEE HAS BEEN GRANTED EXEMPTION SIMILAR DEDUCTION CANNOT BE DENIED TO ANOTHER PERSO N IN SIMILAR CIRCUMSTANCES. THE REVENUE HAS NOT SHOWN THAT THE ORDER IN CASE OF L.T. OVERSEAS PVT LTD (SUPRA) WAS REVERSED LATER ON IN ANY PROCEEDINGS. THEREFORE ON THIS PRINCIPLE ALSO WE A RE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80IB (11A). IT IS ALSO WORTHWHILE TO NOTE THAT THE ASSESSEE HAS BEEN ALLOW ED DEDUCTION IN ASSESSMENT YEAR 2010-11 AND COPY OF THE ASSESSMENT ORDER HAS BEEN FILED AT PAGE 151-197 IN THE SYNOPSIS PAPER BO OK. AFTER DETAILED ANALYSIS IN ASSESSMENT YEAR 2010-11 DEDUCT ION U/S 80IB(11A) WAS ALLOWED AT 70% OF THE OVERALL PROFITS . IT HAS NOT BEEN SHOWN BEFORE US THAT THIS ORDER HAS BEEN REVERSED I N ANY LEGAL PROCEEDINGS. FURTHER THE LD. COUNSEL FOR THE ASSES SEE HAD RELIED ON THE DECISION OF AMRITSAR BENCH OF THE TRIBUNAL IN C ASE OF DCIT VS. CHAMAN LAL & SONS (SUPRA). IN THAT CASE THE DEDUCTI ON U/S 80IA WAS DENIED BECAUSE THERE WAS AN ISSUE WHETHER THE ASSES SEE WAS MANUFACTURING RICE OR NOT. ONE OF THE CONTENTION B EFORE THE TRIBUNAL WAS THAT IN SIMILAR FACTS DEDUCTION WAS ALLOWED IN SUBSEQUENT YEARS. THE TRIBUNAL HELD THAT THE DEDUCTION TO BE ALLOWABLE AND ALSO OBSERVED AT PARA 9 AS UNDER: ANOTHER IMPORTANT ASPECT WHICH CANNOT BE LOST SIGHT OF IS THAT THE ASSESSEE HAS CLAIMED BEFORE US THAT IN THE SUBSEQUENT YEARS ALSO DEDUCTION WAS CLAIMED ON IDENTICAL PATTERN AND WAS ALLOWED ACCORDINGLY. T HE LEARNED DEPARTMENTAL 60 REPRESENTATIVE WAS REQUIRED TO VERIFY THE FACTUAL P OSITION IN THIS REGARD. ON NEXT HEARING, IT WAS REPORTED BY HIM THAT THE DEDUC TION WAS ALLOWED, IN THE COURSE OF PROCEEDINGS UNDER SECTION 143(3), AS STAT ED ON BEHALF OF THE ASSESSEE AND FURTHER NO ACTION UNDER SECTION 263 WA S TAKEN. KEEPING INTO CONSIDERATION THIS FACT THAT THE ASSESSEE WAS ALLOW ED DEDUCTION IN THE SAME FASHION EVEN AFTER THE PASSING OF THE INSTANT ASSES SMENT ORDER, WE ARE AT A LOSS TO APPRECIATE ANY LOGIC IN PURSUING THE MATTER IN A PPEAL. ALBEIT THE PRINCIPLE OF RES JUDICATA IS NOT STRICTLY APPLICABLE TO THE PROC EEDINGS UNDER THE ACT, YET, THE DOCTRINE OF CONSISTENCY DOES NOT PERMIT THE DEPARTM ENTAL AUTHORITIES TO CHANGE ITS STAND WHEN THERE IS NO CHANGE IN THE FACTS OF L AWS IN ONE YEAR VIS--VIS THE OTHER, WARRANTING DEPARTURE. OUR VIEWS GETS SUPPORT FROM A RECENT DECISION RENDERED IN THE CASE OF DIT V. LOVELY BAL SHIKSHA P ARISHAD [2004] 266 ITR 349 (DELHI). IN VIEW OF THE AFORENOTED FACTUAL AND LEGA L POSITION, IT BECOMES APPARENT THAT THE LEARNED CIT(A) WAS JUSTIFIED IN D IRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION IN RESPECT OF PROFIT FROM THE TR ADING OPERATIONS IN KARNAL UNIT. WE UPHOLD THE IMPUGNED ORDER ON THIS SCORE. THUS IT IS CLEAR THAT IF A DEDUCTION IS HELD TO BE ALLOWABLE IN SUBSEQUENT YEARS THEN SAME HAS TO BE ALLOWED IN TH E EARLIER YEAR IF THE FACTS ARE IDENTICAL. 47 THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF BAJAJ TEMPO LTD (SUPRA). WE ARE NOT DISCUSSING THE FACTS OF THE CA SE BECAUSE THE DECISION HAS BEEN RELIED ON FOR THE PROPOSITION THA T THE INCENTIVE PROVISION SHOULD BE CONSTRUED LIBERALLY. IT WAS OB SERVED AS UNDER: A PROVISION IN A TAXING STATUTE GRANTING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALLY; AND SINC E A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, TH E RESTRICTION ON IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. 48 THE LD. D.R. FOR THE REVENUE HAD TRIED TO DISTIN GUISH THE DECISION BY REFERRING TO MANY OTHER DECISIONS WHERE IT IS OBSERVED THAT IF THE PROVISIONS OF THE ACT ARE CLEAR AND IF THERE IS NO AMBIGUITY THEN THERE IS NO NEED TO RESORT TO THE PRINCIPLE OF LIBERAL CONSTRUCTION. WE FIND THAT THE WAY SEC 80IB(11A) H AS BEEN WORDED THERE IS DEFINITELY SOME AMBIGUITY IN THE SENSE THA T IT IS NOT CLARIFIED ANYWHERE IN THE PROVISION WHETHER THE ACTIVITY OR I NTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRA INS HAS TO BE CARRIED OUT INDEPENDENTLY. EVEN THE TERM HANDLING A ND STORAGE HAS NOT BEEN DEFINED. WE HAVE ALREADY OBSERVED THAT ECO NOMICALLY IT WAS NOT POSSIBLE TO INDEPENDENTLY CARRY ON THE BUSI NESS OF HANDLING, 61 STORAGE AND TRANSPORTATION OF FOOD GRAINS BECAUSE N ORMALLY A PERSON ENGAGED IN THIS ACTIVITY WOULD ALSO CARRY NEXT LOGI CAL STEPS BY PROCESSING OF THE PADDY INTO RICE. OTHERWISE THE P ERSON WHO IS IN THE BUSINESS OF HANDLING, STORAGE AND TRANSPORTATIO N OF FOOD GRAINS WILL HAVE TO SELL SUCH PADDY TO A BUSINESSMAN WHO I S ENGAGED IN THE BUSINESS OF PROCESSING OF PADDY INTO RICE WHICH WOU LD UN-NECESSARY LEAD TO FURTHER HANDLING, STORAGE AND TRANSPORTATIO N OF THE PADDY AND RATHER NULLIFY THE OBJECT OF AVOIDING WASTAGE OF FO OD. THEREFORE IN OUR OPINION, THE PRINCIPLE GIVEN BY THE HONBLE SC IN CASE OF BAJAJ TEMPO LTD HAVE TO BE APPLIED IN THIS CASE AND THIS PROVISION HAS TO BE INTERPRETED LIBERALLY. IN VIEW OF THIS RATIO AN D DETAILED DISCUSSION ABOVE, WE ARE OF THE OPINION THAT THE ASSESSEE IS E NTITLED TO PROPORTIONATE DEDUCTION ON THE PART OF BUSINESS WHI CH DEALT WITH THE INTEGRATED ACTIVITY OF HANDLING, STORAGE AND TRANSP ORTATION OF THE FOODGRAINS. 49 THE NEXT REASON FOR DENYING OF DEDUCTION WAS NON FURNISHING OF A CERTIFICATE FROM C.A IN FORM 10CCB. ADMITTEDLY A CERTIFICATE HAS BEEN FILED BEFORE THE LD. CIT(A). NOW IT IS ALMOST SETTLED THAT AUDIT REPORT CAN BE FILED BEFORE COMPLETION OF ASSESSMENT PROCEEDINGS AND IN SOME OF THE DECISIONS IT HAS BEEN FURTHER HE LD THAT SUCH REPORT FILED EVEN BEFORE THE FIRST APPELLATE AUTHOR ITY AS WELL AS BEFORE THE TRIBUNAL WOULD BE VALID. THE HON'BLE PU NJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. MAHALAXMI RICE FACTO RY(SUPRA) HAS HELD AS UNDER: 2 HELD, THAT THE PROVISIONS OF SECTION 80J(6A) HAD T O BE HELD DIRECTORY ONLY TO THE EXTENT THAT IN CASE THE AUDIT REPORT WAS NOT FI LED ALONG WITH RETURN, IT COULD BE FILED ANY TIME BEFORE THE ASSESSMENT TAKES PLACE , AS IT IS AT THAT TIME WHEN THE ASSESSING OFFICER APPLIES HIS MIND ON THE CASE. THE ASSESSEE FILED THE AUDIT REPORT AFTER THE ASSESSMENT HAD ALREADY BEEN FRAMED BY THE ASSESSING OFFICER. THEREFORE, THE TRIBUNAL WAS NOT RIGHT IN G RANTING RELIEF TO THE ASSESSEE. 62 50 SIMILARLY IN EARLIER DECISION IN CASE OF CIT VS. SHAHZEDANAND CHARITY TRUST, (SUPRA) IT WAS HELD THAT THE PROVISI ON U/S 12A FOR FURNISHING OF AUDIT REPORT IS NOT OF MANDATORY NATU RE. HON'BLE J & K HIGH COURT IN CASE OF CIT VS. TREHAN ENTERPRISES, ( SUPRA) HELD AS UNDER: HELD, THAT EVEN IF IT BE ACCEPTED THAT THOSE CERTIF ICATES HAD NOT BEEN FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE INCOME-TAX OFFICER, THE COMMISSIONER OF INCOME-TAX (APPEALS) SHOULD HAVE TR EATED THE REQUIREMENTS TO HAVE BEEN MET AND THEN FRAMED THE ASSESSMENT OR REM ITTED THE CASE BACK TO THE INCOME-TAX OFFICER TO PROCEED IN ACCORDANCE WIT H LAW IN THE FACE OF SUCH CERTIFICATES. 51 SIMILAR VIEW WAS TAKEN BY HON'BLE MADRAS HIGH CO URT IN CASE OF CIT VS. JAYANT PATEL (SUPRA). HON'BLE KARNATAKA HIGH COURT IN CASE OF CIT VS. ACE MULTI TAXES SYSTEM PVT LTD (SUP RA) EVEN WENT TO THE EXTENT THAT IF REPORT IS FILED EVEN BEFORE T HE TRIBUNAL THE SAME IS VALID. THE LD. D.R. FOR THE REVENUE HAS ALSO REL IED ON VARIOUS JUDGMENTS BUT IN OUR OPINION, THEY STAND DISTINGUIS HED IN THE LIGHT OF THE ABOVE NOTED JUDGMENTS AND PARTICULARLY THE DEC ISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF CIT VS. S HAHZEDANAND CHARITY TRUST (SUPRA) AND CIT VS. MAHALAXMI RICE F ACTORY (SUPRA). 52 THE LD. COUNSEL FOR THE ASSESSEE HAD ALSO REFERR ED TO DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN CASE O F NATIONAL HORTICULTURE BOARD VS. CCIT, CWP NO. 9339 OF 2008. IN THIS CASE AN APPLICATION FOR EXEMPTION U/S 10(23C)(IV) WAS REJEC TED BECAUSE AUDIT REPORT IN FORM NO. 10BB WERE NOT FILED WITH THE RET URN AND SAME WAS NOT DATED EVEN. HON'BLE HIGH COURT MADE THE FOLLO WING OBSERVATIONS: THE VIEW TAKEN IN THE IMPUGNED ORDER IS HIGHLY TECH NICAL. THE PROVISION HAVING BEEN SUBSTANTIALLY COMPLIED WITH, THE AUDIT REPORT SHOULD HAVE BEEN TAKEN INTO ACCOUNT EVEN IF, STRICTLY SPEAKING, IT W AS NOT FILED WITH THE RETURN AND NOT IN FORM 10BB BUT IN FORM 10B AS STATED IN THE I MPUGNED ORDER. THIS MADE NO DIFFERENCE TO THE SPIRIT OF THE REQUIREMENT LAID DOWN. ACCORDINGLY, WE ALLOW THIS PETITION AND QUASH THE IMPUGNED ORDER ANNEXURE P-1 AND DIRECT RESPONDENT NO. 1 TO TAKE A FRESH DECISION IN ACCORDANCE WITH L AW, WITHIN ONE MONTH FROM THE RECEIPT OF A COPY OF THIS ORDER. 63 ABOVE CLEARLY SHOWS THAT THE REQUIREMENT OF FILING VARIOUS AUDIT REPORTS IS ONLY OF TECHNICAL NATURE. 53 OTHER OBJECTION OF THE LD. D.R. FOR THE REVENUE WAS THAT THE REPORT WHICH IS AVAILABLE AT PAGE 413 TO 419 SHOWS THAT SAME HAS BEEN SIGNED BY ONE SHRI NARINDER GULATI WHO WAS NOT TAX AUDITOR AND THIS REPORT SHOWS THAT DEDUCTION AT RS. 50.95 CRORE S WHEREAS ACTUAL DEDUCTION CLAIMED WAS ONLY RS. 17.32 CRORES. 54 WE HAVE CAREFULLY PERUSED SEC 80IB(13) REFERS TO THE REQUIREMENT U/S 80!A (7) TO BE COMPLIED WHICH IS RE GARDING AUDITING THE ACCOUNTS AND FURNISHING OF AUDIT REPORT. CAREFU L PERUSAL OF THIS PROVISION WOULD SHOW THAT NOWHERE IT IS MANDATED TH AT SUCH REPORT HAS TO BE GIVEN BY THE SAME CHARTERED ACCOUNTANT WH O IS AUDITOR / TAX AUDITOR OF THE COMPANY. AS FAR AS DIFFERENCE IN THE FIGURES IS CONCERNED, WE FIND MERIT IN THE CONTENTION OF THE L D. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE-COMPANY WAS HAVING SERIO US DISPUTES WITH THE EARLIER C.A AND THAT IS WHY PROPER GUIDANC E WAS NOT AVAILABLE AND DEDUCTION WAS CLAIMED AT RS. 17.35 CR ORES. WE HAVE ALREADY REFERRED TO THE DISPUTES WITH THE C.A IN EA RLIER PARAS WHOSE SERVICES WERE ALSO TERMINATED. IN OUR OPINION, THE REPORT IN FORM 10CCB, FILED BEFORE THE LD. CIT(A) SHOULD HAVE BEEN CONSIDERED BY THE LD. CIT(A) PARTICULARLY IN VIEW OF THE FACT TH AT APPEAL PROCEEDINGS ARE EXTENSION OF ASSESSMENT PROCEEDINGS AS HELD BY THE HON'BLE SUPREME COURT IN CASE OF KANPUR COAL SYNDIC ATE (SUPRA). 55 NEXT OBJECTION FOR DISALLOWING THE DEDUCTION WAS THAT THE ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF SECTION 80I B(2)(I). IN THIS REGARD THE ASSESSING OFFICER HAS RELIED ON THE STATEMENT O F SHRI RAJINDER SANDAL, C.A AS WELL AS THE SCHEDULE OF FIXED ASSETS FOR THE YEAR ENDING 31 ST MAR 2008 AND OBSERVED THAT THERE WAS NO ADDITION TO THE PLANT & MACHINERY BECAUSE THE SAME WAS SHOWN AS NIL. FURTHER THERE W AS NO EVIDENCE REGARDING DISCARDING OF OLD MACHINERY. THEREFORE E VEN IF NEW UNIT WAS 64 THERE IT WAS FORMED BY SPLITTING OLD UNIT. IT IS A LSO ALLEGED THAT NO BILLS FOR PURCHASE OF MACHINERY WERE PRODUCED. FIRST CONTENT ION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT SEC 80IB(11A) DOES NOT INCORPORATE THE REQUIREMENT OF SEC 80IB (2)(I) BECAUSE THE DEDUCTIO N IS ALLOWABLE UNDER SUB-SEC 3 TO 11, 11A, 11B AND REQUIREMENT OF SUB-SE C (2(I)) WERE SPECIFICALLY MADE APPLICABLE TO INDUSTRIAL UNDERTAK INGS ONLY. 56 WHAT THE LD. COUNSEL FOR THE ASSESSEE IS TRYING TO EMPHASIZE IS THAT THE RESTRICTION CONTAINED IN SEC 80IB(2)(I) REFERS TO ONLY INDUSTRIAL UNDERTAKING WHEREAS THE DEDUCTION ITSELF IS ALLOWAB LE UNDER VARIOUS SUB- SECTIONS FOR DIFFERENT KINDS OF BUSINESSES AND SOME OF THEM ARE INDUSTRIAL UNDERTAKINGS AND SOME OF THEM ARE NOT INDUSTRIAL UN DERTAKING FOR EXAMPLE DEDUCTION IS ALLOWABLE IN CASE OF HOTELS OR OPERATI ON OF SHIP OR FOR DEVELOPMENT OF HOUSING PROJECT, MULTIPLEX THEATRES ETC. WHICH CANNOT BE CALLED INDUSTRIAL UNDERTAKING. SIMILARLY DEDUCTION U/S 80IB(11A) IS FOR THE ELIGIBLE BUSINESS AND SPECIFICALLY FOR THE INTEGRA TED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS WHICH CAN NOT BE CALLED INDUSTRIAL UNDERTAKING. WITHOUT GOING INTO THIS CONTROVERSY LET US FIRST EXAMINE WHETHER THE ASSESSEE HAS VIOLATED THE RESTRICTIONS PROVIDED U/S 80IB(2)(I). 57 BEFORE WE CONSIDER THE ADDITION OF NEW PLANT & MACHINERY, LET US CONSIDER THE CONTENTION REGARDING DISCARDING OF MAC HINES FOR WHICH A CERTIFICATE HAS BEEN FILED FROM AN ENGINEER AND C.A . AT PAGES 400-401 AND 413-420. HOWEVER, DURING THE COURSE OF HEARING IT WAS NOTICED FROM THE SCHEDULE OF FIXED ASSETS THAT IT DOES NOT SHOW ANY DISCARDING OF MACHINES BECAUSE THE ASSESSEE HAS CLAIMED DEPRECIATION ON AL L THE PLANT & MACHINERY. THEREFORE WE HAVE TO PROCEED FURTHER WIT H THE ASSUMPTION THAT NO MACHINERY WAS DISCARDED. WHEN THIS WAS CONFRONT ED TO THE LD. COUNSEL FOR THE ASSESSEE, HE ADMITTED THAT ACTUAL N EW PURCHASE OF MACHINERY WAS STARTED IN FINANCIAL YEAR 2005-06 IT SELF, THEREFORE ASSESSMENT YEAR 2006-07 MAY BE TAKEN TO BE THE FIR ST YEAR OF THE NEW PROJECT. 65 58 REASONING FOR DEDUCTION IN ASSESSMENT YEAR 2006 -07 AS THE FIRST YEAR IS THAT MEGA PROJECT HAS BEEN SANCTIONED BY TH E GOVT OF PUNJAB ON 6.9.2005 AND ADMITTEDLY THE PROJECT WAS IMPLEMENTED OVER A PERIOD OF TIME. THEREFORE IN OUR OPINION, ASSESSMENT YEAR 2 006-07 SHOULD HAVE BEEN RECKONED AS THE FIRST YEAR FOR THE PURPOSE OF ELIGIBILITY OF DEDUCTION U/S 80IB(11A). HOWEVER, NO SUCH DEDUCTION HAS BEEN CLAIMED BUT THAT ITSELF WILL NOT HINDER THE CLAIM OF DEDUCTION IN TH E LATER YEARS. 59 AS ON 1.4.2005 THE BROUGHT FORWARD WDV OF PLANT & MACHINERY WAS RS. 6,05,31,624 (THIS FIGURE CAN BE VERIFIED FROM T HE SCHEDULE OF FIXED ASSETS FILED IN THE PAPER BOOK AT PAGE 225 TO 229D) . DURING THIS YEAR THE ASSESSEE HAS ADDED TWO TYPES OF MACHINERY AND THE D ETAILS ARE AS UNDER: ADDITION MADE BEFORE ADDITION MADE AFTER 30.09.2005 30.09.2005 CONTROL DEVICES RS. 215010567/- RS. 20022590/- PLANT & MACHINERY RS. 65125655/- RS. 33409022/- THUS TOTAL VALUE OF NEW PLANT & MACHINERY INSTALLED COMES TO RS. 33,35,67,934. 60 THE LD. D.R. FOR THE REVENUE HAD RAISED THE OBJE CTION THAT THE ASSESSEE HAD MADE CONTRADICTORY STATEMENT IN THE SE NSE THAT BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) IT WAS CLAIMED THAT INDUSTRIAL UNDERTAKING WAS STARTED IN ASSESSMENT YEAR 2008-09 WHEREAS BEFORE THE BENCH HE HAS CONCEDED THAT THE INDUSTRIAL UNDERTAKI NG WAS STARTED IN A.Y. 2006-07. WE FIND NO FORCE IN THIS OBJECTION BECAUS E IT WAS CLEAR THAT THE MEGA PROJECT WAS SANCTIONED IN 2005 THEREAFTER THE ASSESSEE STARTED ACQUIRING NEW LAND, BUILDING AND MACHINERY IN THE F INANCIAL YEAR 2005-06 ONWARDS. MOREOVER LD. COUNSEL FOR THE ASSESSEE CO NCEDED THAT THE PROJECT WAS STARTED IN A.Y. 2006-07 THEN THE ASSESS EE IS LIKELY TO LOOSE THE DEDUCTION FOR FIRST TWO YEARS, THEREFORE IT IS RATHER AGAINST THE ASSESSEE THEN IN FAVOUR OF THE ASSESSEE. OTHERWISE ALSO AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT THERE CANN OT BE ANY ESTOPPEL AGAINST THE LAW. THE LD. D.R. FOR THE REVENUE HAS R EFERRED TO THE DECISION 66 OF AGRA BENCH OF THE TRIBUNAL IN CASE OF AQUA PLUMB ING PVT LTD VS. ACIT (SUPRA) AND JAIN UDAI HOTEL (P) LTD VS. ACIT (CHAND IGARH BENCH) (SUPRA) WHEREIN IT WAS OBSERVED THAT THE APPLICABILITY OF T HE CONDITIONS CONTAINED IN SEC 80IB(2)(I) HAS TO BE EXAMINED IN THE FIRST Y EAR. WE HAVE ALREADY CONCLUDED THAT IN THIS CASE FIRST YEAR HAS TO BE RE CKONED AS ASSESSMENT YEAR 2006-07. THE LD. D.R. FOR THE REVENUE HAD REF ERRED TO CERTAIN FIGURES AND OBJECTED THAT THE FIGURE OF RS. 6,05,31 ,624/- CANNOT BE TAKEN FOR OLD MACHINERY BECAUSE FIGURE IS ON HIGHER SIDE. THE DIFFERENCE IS MAINLY BECAUSE THE REVENUE IS TRYING TO TAKE UP THE GROSS FIGURES AND NOT THE WDV. WHEN THE QUESTION WHETHER THE PROJECT IS FORMED BY SPLITTING OLD MACHINERY IS TO BE CONSIDERED THEN OBVIOUSLY TH E WDV OF THE OLD MACHINERY IS TO BE CONSIDERED. THIS IS SO BECAUSE IN SOME CASES OLD MACHINERY MAY BE VERY OLD AND MAY NOT HAVE ANY VALU E AND IF THE GROSS VALUE WAS TO BE TAKEN THE DISTORTED RESULTS MAY BE OBTAINED. IN ANY CASE THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECI SION OF CIT VS. RAJIV BHATNAGAR (SUPRA) (DELHI TRIBUNAL) WHEREIN IT HAS B EEN SPECIFICALLY OBSERVED AT PARA 7.(II) AS UNDER: WHILE WORKING OUT THE TOTAL VALUE OF THE PLANT & M ACHINERY EARLIER USED FOR ANY OTHER PURPOSES, WDV ALONE NEED TO BE TAKEN RATHER T HAN THE ORIGINAL PURCHASE PRICE OF THE SAID OLD MACHINERY. SIMILAR VIEW WAS TAKEN BY THE HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT V. HARINE KHOLA ICE COLD STORAGE (SUPRA), THEREFORE IT IS CLEAR THAT FOR CALCULATING THE FIGURE OF 20% ONLY THE WDV I.E; BOO K VALUE OF THE OLD MACHINERY HAS TO BE TAKEN. 61 THERE WAS ONE MORE OBJECTION THAT CONTROL DEVIC ES SHOULD NOT BE RECKONED INTO NEW PLANT & MACHINERY BECAUSE THE ASS ESSEE HAS CLAIMED 100% DEPRECIATION ON THESE ITEMS AND THEREFORE NEW PLANT & MACHINERY WOULD BE ONLY RS. 9.85 CRORES. EVEN THIS OBJECTION CANNOT BE UPHELD BECAUSE THE IDEA IN SEC 80IB(2)(I) IS TO COMPARE T HE PURCHASE OF NEW MACHINERY WITH THE VALUE OF OLD MACHINERY, THEREFOR E VALUE OF THE CONTROL DEVICES CAN NOT BE IGNORED SIMPLY BECAUSE THE ASSES SEE HAS CLAIMED 67 100% DEPRECIATION ON THE CONTROL DEVICES WHICH HAVE BEEN INSTALLED BEFORE 30.9.2005. IN THIS REGARD WE FURTHER FIND FO RCE IN THE SUBMISSIONS AND THE DECISION RELIED ON BY THE LD. COUNSEL FOR T HE ASSESSEE IN CASE OF CIT V. HINDUSTAN GENERAL INDUSTRIES LTD (SUPRA) THA T FOR CONSIDERING THE MEANING OF RECONSTRUCTION THE VALUE OF OLD MACHINER Y MAY NOT BE CONSIDERED AT ALL. HON'BLE DELHI HIGH COURT OBSER VED IN THIS CONNECTION AS UNDER: WE, HOWEVER, AGREE WITH THE LEARNED COUNSEL THAT IT IS DIFFICULT TO SAY THAT IN THE PRESENT CASE THERE HAS BEEN A RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE EXPRESSION RECONSTRUCTION WAS DISC USSED BY THE BOMBAY HIGH COURT IN A DIFFERENT CONTEXT ALTOGETHER. IN THAT CA SE THERE WAS A TRANSFER OF THE ASSETS OF A PARTNERSHIP TO A LIMITED LIABILITY COMP ANY BY WAY OF SALE INCLUDING THE GOODWILL. HOWEVER, THE AGREEMENT OF TRANSFER DI D NOT COVER THE STOCK-IN- TRADE AND CERTAIN CREDITS AND OUT-GOINGS AS WELL AS DEBTS AND LIABILITIES OF THE PARTNERSHIP WERE ALSO NOT TAKEN UP BY THE NEW COMPA NY. IT WAS HELD THAT THE AGREEMENT IN SUB-STANCE AS WELL AS IN FORM WAS ONE OF OUT AND OUT SALE AND THAT IT COULD NOT BE DESCRIBED AS A RECONSTRUCTION OF AN EXISTING BUSINESS. IN OTHER WORDS, THE EXPRESSION RECONSTRUCTION IN THA T CASE WAS LOOKED AT FROM THE POINT OF VIEW OF THE OWNERSHIP OF THE BUSINESS AND THE DECISION OF THE COURT WAS THAT WHERE THERE WAS A REAL AND EFFECTIVE CHANG E IN THE OWNERSHIP OF THE BUSINESS THAT COULD NOT BE RECONSTRUCTION. IN THE C OURSE OF THE DISCUSSION, HOWEVER, CERTAIN OBSERVATIONS HAVE BEEN MADE BY THE BOMBAY HIGH COURT (WHICH HAVE BEEN UNDERLINED*EARLIER) TO INDICATE TH E CIRCUMSTANCES IN WHICH A REORGANIZATION OF A BUSINESS CAN BE TAKEN TO INVOLV E A RECONSTRUCTION. BUT IT IS NOT EVERY ALTERATION IN THE MODE, METHOD OR SCOPE O F THE ACTIVITIES OF A BUSINESS AND IT IS NOT EVERY TRANSFER OF ASSETS FROM ONE UNI T TO ANOTHER THAT WILL INVOLVE RECONSTRUCTION. THE EXPRESSION IS NO DOUBT VERY WID E BUT IT DOES NOT TAKE IN A CASE OF A COMPANY SETTING UP OR ESTABLISHING A TOTA LLY INDEPENDENT AND VIABLE INDUSTRIAL UNIT FOR CARRYING ON THE SAME OR SIMILAR BUSINESS EVEN THOUGH IT MIGHT BE SO SET UP BY WAY OF EXPANDING THE ALREADY EXISTI NG BUSINESS. THE EMPHASIS IN S. 84 IS NOT ON BUSINESS BUT ON UNDERTAKING. THE EXEMPTION IS GRANTED TO NEW UNDERTAKINGS AND THE ESSENCE OF THE EXEMPTION IS TH AT IT IS A NEW INDUSTRIAL UNIT THAT IS ESTABLISHED AND THAT IT IS NOT MERELY A REH ASH OF AN ALREADY EXISTING UNIT. 62. SIMILAR OBSERVATIONS HAVE BEEN MADE IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD VS. CIT 107 ITR 195 AND T HE RELEVANT PORTION READS AS UNDER: A NEW ACTIVITY LAUNCHED BY THE ASSESSEE BY ESTABLIS HING NEW PLANTS AND MACHINERY BY INVESTING SUBSTANTIAL FUNDS MAY PRODUC E THE SAME COMMODITIES OF THE OLD BUSINESS OR IT MAY PRODUCE SOME OTHER DISTI NCT MARKETABLE PRODUCTS, EVEN COMMODITIES WHICH MAY FEED THE OLD BUSINESS. T HESE PRODUCTS MAY BE CONSUMED BY THE ASSESSEE IN HIS OLD BUSINESS OR MAY BE SOLD IN THE OPEN MARKET. ONE THING IS CERTAIN THAT THE NEW UNDERTAKI NG MUST BE AN INTEGRATED UNIT BY ITSELF WHEREIN ARTICLES ARE PRODUCED AND AT LEAST A MINIMUM OF TEN PERSONS WITH THE AID OF POWER AND A MINIMUM OF TWEN TY PERSONS WITHOUT THE AID OF POWER HAVE BEEN EMPLOYED. SUCH A NEW INDUSTRIALL Y RECOGNIZABLE UNIT OF AN ASSESSEE CANNOT BE SAID TO BE RECONSTRUCTION OF HIS OLD BUSINESS SINCE THERE IS NO TRANSFER OF ANY ASSETS OF THE OLD BUSINESS TO TH E NEW UNDERTAKING WHICH TAKES PLACE WHEN THERE IS RECONSTRUCTION OF THE OLD BUSINESS. FOR THE PURPOSE OF SECTION 15C THE INDUSTRIAL UNITS SET UP MUST BE NEW IN THE SENSE THAT NEW PLANTS AND MACHINERY ARE ERECTED FOR PRODUCING EITH ER THE SAME COMMODITIES OR SOME DISTINCT COMMODITIES. IN ORDER TO DENY THE BEN EFIT OF SECTION 15C THE NEW UNDERTAKING MUST BE FORMED BY RECONSTRUCTION OF THE OLD BUSINESS. 68 63 NOW WHEN THE VALUE OF OLD MACHINERY AT RS. 60531 624/- IS COMPARED TO THE VALUE OF NEW MACHINERY IN ASSESSMENT YEAR 2 006-07 AMOUNTING TO RS. 33,35,67,934/-, IT BECOMES CLEAR THAT THE VALUE OF OLD MACHINERY IS ABOUT 18.14% AND THEREFORE SAME IS WITHIN THE LIMIT GIVEN IN SEC 80IB(2)(I). THEREFORE IN OUR OPINION, THE ASSESSEE HAS NOT VIOLATED THE CONDITIONS LAID DOWN IN SEC 80IB((2)(I). 64 THE ASSESSING OFFICER HAS RAISED ONE MORE OBJECT ION THAT NO DEDUCTION HAS BEEN CLAIMED IN THE RETURN FILED BY T HE ASSESSEE AND THEREFORE NO DEDUCTION CAN BE ALLOWED. PERUSAL OF THE STATEMENT OF INCOME AT PAGE 2 OF THE PAPER BOOK CLEARLY SHOW THA T DEDUCTION WAS CLAIMED IN THE RETURN OF INCOME PERHAPS SOME MISTAK E WAS COMMITTED DURING THE PROCESSING OF RETURN AND THAT IS WHY THE ASSESSEE HAD APPLIED FOR RECTIFICATION OF MISTAKE AND THIS MISTAKE WAS R ECTIFIED IN THE ORDER U/S 154 ON 25.11.2009 (COPY AVAILABLE AT PAGE 27 OF THE PAPER BOOK), THEREFORE THIS ALLEGATION OF THE ASSESSING OFFICER IS TOTALLY INCORRECT. 65 THE NEXT OBJECTION WHICH HAS BEEN RAISED BY THE LD. CIT(A) IS THAT THE DEDUCTION WAS CLAIMED INITIALLY AT 35% AND LATE R ON CLAIM WAS MADE FOR 100% AND SAME HAS NOT BASIS. WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT BECAUSE OF THE DI SPUTE WITH SHRI RAJINDER SANDAL, C.A THE ASSESSEE MAY HAVE WRONGLY BEEN ADVISED TO CLAIM THE DEDUCTION AT 35% BUT WHEN THE COMPANY CAM E TO KNOW ABOUT THE ACTUAL DEDUCTION ALLOWABLE THEN SAME WAS CLAIME D AT 100% AND EVEN IN THE NEXT YEAR THE DEDUCTION HAS BEEN CLAIMED @ 1 00%. OTHERWISE ALSO AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE IT WAS HELD IN CASE OF CONCORD OF INDIA INSURANCE CO. LTD. VS. SMT. NIRMAL A DEVI & OTHERS, 118 ITR 507 (S.C), THAT MISTAKE COMMITTED BY THE COUNSE L FOR THE ASSESSEE CANNOT BE USED FOR DENYING A BENEFIT TO THE APPELLA NT. 66 IN RESPECT OF THE RATE OF DEDUCTION BOTH THE PAR TIES MADE ELABORATE SUBMISSIONS. THE LD. COUNSEL FOR THE ASSESSEE MAIN LY CONTENDED THAT IN VIEW OF THE DEFINITION OF FOOD PROCESSING GIVEN BY THE MINISTRY OF FOOD 69 PROCESSING INDUSTRIES, MILLING ACTIVITY SHOULD BE I NCLUDED IN THE INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS, THEREFORE 100% DEDUCTION SHOULD BE ALLOWED. ALTERNATIVELY HE SUBMITTED THAT PROCESSING INVOLVED ONLY A SMALL EFFORT AND PLANT F OR THIS PURPOSE WAS COSTING ONLY RS. 12 CRORES THEREFORE DEDUCTION SHOU LD BE ALLOWED AT REASONABLY HIGHER RATE OF 90 TO 95 %. FURTHER FOO D CORPORATION OF INDIA WAS GIVING RS. 15 PER QTL AS PROCESSING CHARGES AND CONSIDERING ALL THESE FACTS, DEDUCTION MAY BE RESTRICTED TO A REASONABLE PERCENTAGE. 67 ON THE OTHER HAND, LD. D.R. FOR THE REVENUE HAD MAINLY CONTENDED THAT PROCESSING IS MOST IMPORTANT OF THE ACTIVITY A ND THEREFORE IN CASE THE TRIBUNAL HOLDS THAT DEDUCTION IS ALLOWABLE THE SAME HAS TO BE GIVEN AT THE LOWEST POSSIBLE LEVEL. 68 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE OPINION THAT 100% DEDUCTION CANNOT BE ALLOWED TO THE ASSESSEE BE CAUSE WE HAVE ALREADY HELD WHILE DISCUSSING THE ACTIVITIES OF THE ASSESSEE THAT PROCESSING OF PADDY CANNOT BE SAID TO BE COVERED BY THE ACTIVITIES GIVEN IN SEC 80IB(11A). THEREFORE TO FIND OUT THE QUANTU M OF DEDUCTION WE REFER TO THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2010-11 WHEREIN IT WAS OBSERVED THAT MILLING EXPENSES VARY FROM RS. 15 TO 25 PER QTL DEPENDING UPON THE NATURE OF PADDY TO BE MILLED. I T IS ALSO TO BE NOTED THAT SOME OF THE BI-PRODUCTS ARE ALSO OBTAINED IN T HE MILLING PROCESS WHICH ALSO GENERATE SOME PROFITS. IT HAS TO BE NOT ED THAT MAJOR PROFIT WOULD ACCRUE TO THE ASSESSEE FROM STORAGE ACTIVITY BECAUSE STORING ONE QUINTAL OF BASMATI COSTING BETWEEN RS. 2500 TO 3500 PER QTL WHICH WOULD INVOLVE LOT OF INTEREST ELEMENT AS WELL AS STORAGE CHARGES. THIS MAKES IT CLEAR THAT MAXIMUM PROFIT WOULD ACCRUE TO THE ASSES SEE FROM THE ACTIVITY OF STORAGE ITSELF. THEREFORE CONSIDERING THE OVERA LL FACTS AND CIRCUMSTANCES AS WELL AS THE OBSERVATIONS MADE IN T HE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2010-11 WE ARE OF THE OPINION THAT THE ASSESSEE 70 SHOULD BE GRANTED DEDUCTION @ 70% OF THE TOTAL PROF ITS OF THE COMPOSITE UNIT I.E; PROFITS FROM THE WHOLE BUSINESS EXCEPT TH E PROFITS OF POWER PLANT. 69 IN CONCLUSION IT CAN BE SAID THAT THE ASSESSEE I S DEFINITELY ELIGIBLE FOR DEDUCTION U/S 80IB(11A) BECAUSE THE ASSESSEE ST ARTED INTEGRATED BUSINESS OF HANDLING, STORAGE AND TRANSPORTATION OF FOOD GRAINS IN FINANCIAL YEAR 2005-06 I.E. ASSESSMENT YEAR 2006-0 7 ON PROPORTIONATE BASIS @ 70%. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION IN ASSESSMENT YEAR 2008-09 BECAUSE THE RETURN OF INCO ME WAS FILED LATE AND THEREFORE DEDUCTION CANNOT BE ALLOWED IN VIEW O F THE RESTRICTIONS CONTAINED IN SEC 80AC. THEREFORE WE CONFIRM THE AC TION OF ASSESSING OFFICER AND LD. CIT(A) IN DENYING THE DEDUCTION BEC AUSE RETURN HAS BEEN FILED LATE IN VIOLATION OF SECTION 80AC. 70. THIRD ISSUE THE THIRD ISSUE IN THIS APPEAL IS REGARDING DISALL OWANCE OF DEPRECIATION AMOUNTING TO RS. 72,21,35,592/-. THIS DEPRECIATION WAS CLAIMED AT THE RATE OF 50% (1/2 OF 100%) FOR THE PO WER PLANT INSTALLED DURING THE SECOND HALF OF FINANCIAL YEAR. IT WAS C LAIMED BEFORE THE ASSESSING OFFICER THAT THIS POWER PLANT WAS COMMISS IONED AND A CERTIFICATE FROM THE FABRICATOR M/S SHRIRAM EPC WAS FILED FOR THIS PURPOSE. THE ASSESSING OFFICER NOTICED THAT NO DEPRECIATION ON THIS POWER PLANT HAS BEEN CLAIMED UNDER THE COMPANIES ACT. EVEN THE DIRECTORS REPORT STATED THAT POWER PLANT WAS COMMISSIONED IN AUGUST 2008. SHRI RAJINDER SANDAL, CHARTERED ACCOUNTANT OF THE ASSESSEE COMPAN Y WAS SUMMONED AND HIS STATEMENT WAS RECORDED IN WHICH HE CLEARLY STATED THAT POWER PLANT WAS COMMISSIONED IN SOMEWHERE IN JULY / AUGUS T 2008. THE ASSESSEE WAS CONFRONTED WITH THESE QUESTIONS AND IN RESPONSE THE ASSESSEE MAINLY RELIED ON THE REPOT GIVEN BY THE SH RIRAM EPC CONTRACTOR AND FABRICATOR OF THE POWER PLANT WHICH CLEARLY STA TES THAT SINCE POWER PLANT HAS BEEN COMMISSIONED ON 25 TH MARCH 2008, THEREFORE, DEPRECIATION SHOULD BE ALLOWED. THE ASSESSING OFFICER DID NOT A GREE WITH THE SAME. 71 HE REFERRED TO THE STATEMENT OF SHRI RAJINDER SANDA L RECORDED U/S 131 AND THE RELEVANT PORTION HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER WHICH READS AS UNDER:- Q. PLEASE EXPLAIN THE NATURE OF BUSINESS M/S LUXM I ENERGY AND FOODS LTD.? ANS. IN THE F.Y. 2007-08, THE NATURE OF BUSINESS OF THE ABOVE CONCERN WAS MANUFACTURING OF RICE, CATTLE FEED, CRUSHING OF OIL SEED, SOLVENT, EXTRACTION AND REFINERY AND GENERATION OF POWER. Q. PLEASE EXPLAIN WHEN THE POWER PLANT STARTED ? ANS. THE POWER PLANT WAS STARTED IN JULY OR AUGUST, 2008. Q. IN COLUMN NO. 8 OF FORM 3 CD, YOU HAVE MENTIONE D GENERATION OF POWER AS ONE OF THE BUSINESS. PLEASE STATE WHEN THI S BUSINESS WAS STARTED. ANS. I HAVE COMPLETED MY AUDIT IN FEB, 2009. EARLI ER I HAD TOLD YOU THAT THE BUSINESS OF POWER PLANT STARTED IN THE MONTH OF JULY OR AUGUST, 2008. CLERICALLY MY JUNIOR STAFF HAS MENTIONED POWE R PLANT AS ONE OF THE BUSINESS IN FORM NO. 3 CD. HE NOTED THAT SHRI RAJINDER SANDAL HAD ALSO FURNISH ED A COPY OF DEPRECIATION CHART AS ADMISSIBLE UNDER THE INCOME T AX RULES WHICH CLEARLY DEPICTED THAT ACCORDING TO THE AUDITOR, NO DEPRECIATION WAS ALLOWABLE ON THE POWER PLANT. SINCE THE ASSESSEE HAS NOT CLAIMED DEPRECIATION IN THE ACCOUNTS MAINTAINED UNDER THE C OMPANYS ACT AND MOREOVER IN THE DIRECTORS REPORT, IT IS CLEARLY STA TED THAT POWER PLANT WAS COMMISSIONED IN AUGUST 2008 AND FURTHER NO CERTIFIC ATE WAS FILED FROM ANY STATUTORY AUTHORITY AND THE CERTIFICATE FILED F ROM M/S SHRIRAM EPC WAS OF NO USE BECAUSE, BOILER WAS MANUFACTURED BY M/S T HARMEX LTD, PUNE. FURTHER, ASSESSEE HAD NOT PRODUCED THE BILLS. IN T HIS BACKGROUND THE CLAIM OF DEPRECIATION WAS REJECTED. 71 ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY S UBMITTED THAT ASSESSING OFFICER HAD REJECTED THE CERTIFICATE OF A N EXPERT THAT TOO FROM REPUTED COMPANY LIKE M/S SHRIRAM EPC WITHOUT ANY RE ASON. FURTHER, COMPLETE BILLS AND VOUCHERS WERE PRODUCED BEFORE HI M AND, THEREFORE, IT IS WRONG TO STATE THAT NO BILLS WERE PRODUCED. FURTHE R, A CERTIFICATE FROM THE DIRECTOR OF BOILERS, PUNJAB WAS ALSO SUBMITTED SHOW ING THAT POWER PLANT WAS IN FACT STARTED W.E.F. 25.3.2008 WAS NOT CONSID ERED BY HIM. THE 72 POWER GENERATED IN THE POWER PLANT IN THE PERIOD S TARTING FROM 25.3.2008 TILL MIDDLE OF AUGUST 2008 WAS USED FOR INTERNAL CO NSUMPTION OF THE ASSESSEE. IT WAS STRONGLY CONTENDED THAT STATEMENT OF SHRI RAJINDER SANDAL WAS RECORDED AT THE BACK OF THE ASSESSEE AND , THEREFORE, HAS NO EVIDENTIARY VALUE. MOREOVER, THE STATEMENT OF MR. SANDAL WAS NOT CORRECT BECAUSE EARLIER HE WAS AUDITOR OF THE COMPANY AS WE LL AS TAX CONSULTANT AND ANNEXURE ATTACHED TO THE BALANCE SHEET INCLUDIN G DEPRECIATION WERE ACTUALLY INITIALED BY HIM. THE DEPRECIATION SCHED ULE GIVEN DURING THE STATEMENT WAS FULLY SIGNED WHICH SHOWS THAT IT WAS DIFFERENT. IT WAS POINTED OUT THAT MR. SANDAL HAS GIVEN A FALSE STATEMENT PERHAPS UNDER THE DURESS. MR. SANDAL WAS INVOLVED IN THE PROCESSING O F THE RETURN FILED FOR THE SAID ASSESSMENT YEAR WHEREIN DEPRECIATION ON TH E POWER PLANT, HAD BEEN CLAIMED. IN FACT, IN RESPONSE TO THE RETURN FI LED CLAIMING DEPRECIATION ON THE POWER PLANT THE ASSESSING OFFICE HAD ISSUED INTIMATION UNDER SECTION 143(1)(A) WHEREIN THE CLAIM FOR 80IB WAS NO T GIVEN. MR. SANDAL CARRYING THE POWER OF ATTORNEY OF THE ASSESSEE COMP ANY APPEARED BEFORE THE AO FROM TIME TO TIME AND GOT THE INTIMATION REC TIFIED ON 25.11.2009, WHEREBY THE DEDUCTION AS CLAIMED IN THE RETURN OF I NCOME WAS ALLOWED. IN FACT, SHRI SANDAL MADE ORAL AND WRITTEN REPRESENTAT ION BEFORE THE AO FOR GETTING THE RECTIFICATION ORDER IN FAVOUR OF THE CO MPANY. HIS LETTER DULY SIGNED AND ADDRESSED TO THE ACIT, PATIALA IS AVAILA BLE ON RECORD AND IS ENCLOSED HEREWITH (ALSO OBTAINED THROUGH RTI). HENC E, SHRI SANDAL COULD NOT HAVE CARRIED OUT THE RECTIFICATION WITHOUT BEIN G AWARE OF THE RETURN FILED BY THE ASSESSEE CLAIMING DEPRECIATION ON POWE R PLANT AS PER THE DEPRECIATION SCHEDULE ALREADY FILED AND SIGNED BY H IM. THIS EVIDENCE IS ITSELF CONCLUSIVE AND SUFFICIENT TO DEMOLISH ALL TH E PURPORTED STATEMENTS AGAINST THE ASSESSEE. FURTHER, MR. SANDAL WAS NOT A QUALIFIED ENGINEER TO STATE CATEGORICALLY WHEN THE POWER PLANT WAS COMMIS SIONED AND IN ANY CASE THE ASSESSEE HAD DISPUTES WITH HIM SO HIS STAT EMENT SHOULD NOT HAVE BEEN RELIED. 73 72. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OBSERVED THAT SINCE DIRECTORS REPORT HAS CLEARLY MENTIONED THAT THE POWER PLANT WAS COMMISSIONED IN AUGUST 2008, THE SAME SHOWS THAT PL ANT WAS NOT COMMISSIONED BEFORE MARCH 2008. HE ALSO DEALT WITH THE VARIOUS OBJECTIONS IN THIS REGARD AND THE STATEMENT OF SAND AL AND ULTIMATELY OBSERVED THAT THE SAME IS TO BE ACCEPTED. IN THIS BACKGROUND, HE CONFIRMED THE DISALLOWANCE OF DEPRECIATION. 73. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT POWER PLANT WAS CONSTRUCTED DURING THE FINANCIAL YEAR 2007-08 A ND THE TOTAL COST WAS RS. 1,44,72,71,183/- AND SINCE PLANT WAS COMMISSION ED ON 25.3.2008, 50% DEPRECIATION WAS CLAIMED. HE CONTENDED THAT FU LL DETAILS OF THE ACCOUNT OF CONSTRUCTION OF THE POWER PLANT WERE FIL ED BEFORE THE ASSESSING OFFICER, (COPY OF WHICH IS AVAILABLE AT PAGES 196 T O 271 OF THE PAPER BOOK). THE BILLS WERE ALSO PRODUCED BEFORE HIM AND ASSESSING OFFICER HAS CLEARLY MENTIONED IN THE ORDER THAT PHOTOCOPIES OF SOME OF THE BILLS WERE FURNISHED. SUCH COPIES HAVE BEEN FILED IN THE PAPER BOOK AT PAGES 318 TO 319 OF THE PAPER BOOK. IT WAS ALSO POINTED OUT THAT 19 BOXES CONTAINING BILLS AND VOUCHERS SHOWING PURCHASES OF POWER POINT WERE FILED BEFORE CIT(A) VIDE LETTER DATED 8.5.2012, (COPY OF WHICH IS PLACED AT PAGES 337 & 338 OF THE PAPER BOOK). SINCE THE BILL S WERE VOLUMINOUS, THE CIT(A) DIRECTED THAT THE SAME MAY BE PRODUCED BEFOR E ASSESSING OFFICER FOR HIS VERIFICATION. THEREFORE, BILLS WERE PRODUC ED BEFORE ASSESSING OFFICER AND COPY OF THE LETTER REQUESTING HIM TO SE E THESE BILLS WERE FILED ON 8.5.2012, (COPY OF WHICH IS AVAILABLE AT PAGE 45 0 OF THE PAPER BOOK). HOWEVER, THE ASSESSING OFFICER DECLINED TO GO THROU GH THESE BILLS. IN THESE CIRCUMSTANCES, A REQUEST WAS MADE BEFORE US TO GO THROUGH THE BILLS AS THE SAME WERE BROUGHT TO THE COURT AND WE HAVE TEST CHECKED THESE BILLS. 74 74. THE LD. COUNSEL FURTHER SUBMITTED THAT A CONFIR MATION FROM M/S SHRIRAM EPC HAS BEEN FILED, (COPY OF WHICH IS AVAIL ABLE AT PAGE 323 OF THE PAPER BOOK). IT WAS SUBMITTED THAT M/S SHRIRAM EPC WAS CONTRACTOR AND FABRICATOR OF THE POWER PLANT AND, THEREFORE, THIS CERTIFICATE SHOULD NOT HAVE BEEN REJECTED LIGHTLY. IT IS ALSO POINTED OUT THAT ASSESSING OFFICER MISUNDERSTOOD THIS CERTIFICATE BY STATING THAT BOIL ERS WERE PRODUCED BY M/S THERMAX LTD. NO DOUBT THE BOILER WAS MANUFACTU RED BY M/S THERMAX LTD BUT THE SAME WAS PROCURED BY THE ASSESSEE AND T HE ERECTION WORK WAS DONE BY M/S SHRIRAM EPC AND, THEREFORE, RIGHT P ERSON TO GIVE THE CERTIFICATE WAS M/S SHRIRAM EPC ONLY. HE SUBMITTED THAT THIS CERTIFICATE COULD NOT HAVE BEEN IGNORED AS HELD BY HONBLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF CIT V SHAHBAD COOPERATIVE SUGA R MILLS LTD. 10 TAXMAN.COM PAGE 84 ( COPY OF THE DECISION FILED AT PAGE 86(V) OF THE SYNOPSIS PAPER BOOK.). HE ALSO REFERRED TO THE CERT IFICATE ISSUED BY DIRECTOR OF BOILERS, (COPY OF WHICH IS AVAILABLE AT PAGES 328 OF THE PAPER BOOK) WHICH SHOWS THAT PERMISSION WAS GIVEN FOR USE OF THE BOILER BETWEEN THE PERIOD 31 ST OCT 2007 AND 30 TH APRIL 2008. A LETTER FROM DISTRICT & TOWN PLANNER WAS ALSO FILED WHICH GAVE E NVIRONMENT CLEARANCE ON 12 TH APRIL 2007. ANOTHER LETTER FROM THE OFFICE OF CHI EF ENGINEER, COMMERCIAL TARIFF REGULATION BOARD DATED 23.5.2006 IS ALSO FILED THROUGH WHICH THE DIRECTORATE HAS INVITED THE ASSESSEE FOR A MEETING IN CONNECTION WITH THE SUPPLY OF THE POWER FROM CAPTIV E POWER PLANT. THIS CLEARLY SHOWS THAT POWER PLANT WAS BEING FABRICATED AS EARLY AS IN MAY 2006. HE ALSO REFERRED TO THE VARIOUS DOCUMENTS I N THE PAPER BOOK LIKE AGREEMENT WITH M/S SHRIRAM EPC, EVIDENCE FOR PURCHA SE OF TURBINE ETC. HE REFERRED TO PAGES 992 AND 993 OF THE PAPER BOOK WHI CH IS COPY OF THE LEDGER OF POWER PLANT FROM 1.4.2008 TO 31.8.2008 W HICH CLEARLY SHOWS THAT PURCHASE OF RS. 19,28,949/- WERE MADE AFTER 31 .3.2008 WHICH IS ONLY TOWARDS SMALLER ITEMS OF REPAIRS ETC WHICH CLEARLY SHOWS THAT NO FURTHER EQUIPMENT WAS PURCHASED AND PLANT WAS COMPLETED BEF ORE 25.3.2008. 75 75. AS FAR AS MENTION IN THE DIRECTORS REPORT REGA RDING COMMISSIONING OF THE PLANT IN AUGUST 2008 IS CONCERNED, IT IS POI NTED OUT THAT SUPPLY OF A POWER TO GOVT. OF PUNJAB BEGAN IN AUGUST 2008 AND T HEREFORE, IN THE DIRECTORS REPORT MENTIONING ABOUT THE COMMISSIONIN G OF THE POWER PLANT WAS STATED WITH RELATION TO ACCRUAL OF REVENUE AND THEREFORE, NO ADVERSE INFERENCE CAN BE TAKEN. REGARDING THE STATEMENT OF SHRI SANDAL, HE CONTENDED THAT IT WAS ALREADY POINTED OUT THAT ASS ESSEE WAS HAVING DISPUTE WITH SHRI RAJINDER SANDAL AND ULTIMATELY TH E COMPANY HAS TO PART RELATION WITH HIM IN A BAD TASTE AND THAT IS WHY HE PLAYED MISCHIEVOUS ROLE. HIS STATEMENT IS TOTALLY CONTRADICTORY BECAUS E IN THE TAX AUDIT REPORT, COPY OF WHICH IS AVAILABLE AT PAGES 4 TO 11 OF THE PAPER BOOK, IT IS CLEARLY STATED THAT GENERATION OF POWER IS ONE OF THE BUSIN ESS OF THE ASSESSEE COMPANY AND THIS REPORT HAS BEEN SIGNED BY SHRI RAJ INDER SANDAL. HE POINTED OUT THAT DEPRECIATION CHART PROVIDED BY SHR I RAJINDER SANDAL TO THE ASSESSING OFFICER IS SAME EXCEPT THE LAST LINE IS MISSING. HE HAS INITIALED ON ALL THE ANNEXURES WHEREAS ON THE CHART HE HAS PUT FULL SIGNATURES WHICH CREATES A SUSPICION. IN ANY CASE, SHRI RAJINDER SANDAL HAD HIMSELF PREPARED THE RETURN OF INCOME FOR THE SAID ASSESSMENT YEAR IN WHICH THIS DEPRECIATION WAS CLAIMED. HOWEVER, TH ERE WAS SOME MISTAKE IN THE PROCESSING AND THEREFORE, AN APPLICATION FOR RECTIFICATION U/S 154 WAS FILED WHICH WAS ULTIMATELY ALLOWED BY THE DEPAR TMENT AND RELEVANT PAPERS IN THIS REGARD ARE FILED AT PAGES 25 TO 27 O F THE PAPER BOOK. NO CROSS EXAMINATION OF MR. SANDAL WAS ALLOWED WHICH W AS POINTED OUT TO THE ASSESSING OFFICER IN A LETTER (COPY OF WHICH IS PLA CED AT PAGES 312 TO 314 OF THE PAPER BOOK) AND, THEREFORE, THIS STATEMENT C OULD NOT HAVE BEEN RELIED. HE ALSO CONTENDED THAT A DISALLOWANCE CANNO T BE MADE MERELY ON THE BASIS OF STATEMENT OF AN EXPERT OR A COUNSEL AN D IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS NARESH KHATTAR(HUF) 261 ITR 664 (DELHI) AND SONA EL ECTRIC COMPANY V 76 CIT 152 ITR 507, PARKASH CHAND NATHA V CIT 301 ITR 134 (M.P.) AND PAGE 183 OF PAPER BOOK VARIOUS OTHER JUDGMENTS. 76. HE FURTHER SUBMITTED THAT IN RESPECT OF THIS IS SUE THAT EVEN IF A PLANT IS KEPT IN A STORE OR IS READY FOR USE, EVEN THEN D EPRECIATION HAS TO BE ALLOWED AND IN THIS REGARD HE RELIED ON THE FOLLOWI NG DECISIONS:- CIT VS. PEPSU ROAD TRANSPORT CORPORATION [2002] 12 1 TAXMAN 232 (P&H) CIT VS. SHAHBAD CO-OP SUGAR MILLS LTD., SHAHBAD [20 11] 12 TAXMANN.COM 421 (P&H), CIT VS. OSWAL WOOLEN MILLS LTD (2007) 289 ITR 261 (P&H) AND VARIOUS OTHER JUDGMENTS TO THE SAME EFFECT. HE ALSO CONTENDED THAT DEPRECIATION HAS TO BE ALLOW ED ON THE BASIS OF PROVISIONS OF INCOME TAX ACT AND INCOME TAX RULES A ND IT IS NOT NECESSARY TO PROVIDE THE DEPRECIATION UNDER COMPANY S ACT IF NO SUCH REQUIREMENT IS THERE. THE PLANT WAS USED FOR CAPTI VE CONSUMPTION FROM 25.3.2008 TILL THE MONTH OF AUGUST 2008 AND, THEREF ORE, DEPRECIATION SHOULD HAVE BEEN ALLOWED. HOWEVER, ON A QUERY BY T HE BENCH THAT HOW THE RATE OF 100% IS APPLICABLE; HE ADMITTED THAT DE PRECIATION WOULD BE ADMISSIBLE UNDER THE HEAD PLANT & MACHINERY BY CO LUMN 8(IX). THE RATE MENTIONED IN THIS COLUMN IS 80% AND HE CONCEDED THA T IF DEPRECIATION HAS TO BE CONSIDERED THE SAME SHOULD BE ALLOWED @ 80%. 77. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT A SSESSEE HAD CLAIMED DEPRECIATION AS PER THE BOOKS OF ACCOUNT UNDER THE COMPANIES ACT AMOUNTING TO RS. 20,14,91,803/- WHEREAS DEPRECIATIO N FOR THE PURPOSE OF INCOME TAX WAS CLAIMED AT RS. 1,22,20,71,921/-. IN FACT NO DEPRECIATION HAS BEEN CLAIMED IN RESPECT OF POWER PLANT WHICH MA KES IT ABUNDANTLY CLEAR THAT POWER PLANT WAS NOT USED BY THE ASSESSEE COMPANY. THE ASSESSEE WAS BOUND BY THE PROVISIONS OF COMPANIES A CT TO CLAIM DEPRECIATION, IF THE ASSET WAS ACQUIRED DURING THE YEAR AND WAS USED FOR 77 BUSINESS PURPOSES. SINCE THE ACCOUNTS ARE REQUIRED TO BE PREPARED U/S 115JB IN ACCORDANCE WITH THE PART II & III OF SCHED ULE VI OF THE COMPANYS ACT, THE OBVIOUS REFERENCE WOULD BE THAT POWER PLAN T WAS NOT STARTED DURING THE YEAR. HE CONTENDED THAT STATEMENT OF SHR I RAJINDER SANDAL HAD TO BE RECORDED BECAUSE THE ASSESSEE COMPANY HAS NO T FILED ANY DEPRECIATION CHART AS PER INCOME TAX ACT WITH THE R ETURN AND THE CHART GIVEN BY SHRI RAJINDER SANDAL CLEARLY SHOWS THAT TO TAL CLAIM OF THE DEPRECIATION WAS RS. 49.99 CRORES WHICH DID NOT INC LUDE ANY DEPRECIATION ON THE POWER PLANT. A STATEMENT OF SHRI RAJINDER SANDAL GIVEN BY THE ASSESSEE ALONGWITH QUESTIONNAIRE IN THIS RESPECT WA S CONFRONTED TO THE ASSESSEE. IN RESPONSE, THE ASSESSEE FILED A LETTER STATING THAT OPINION OF A PROFESSIONAL WOULD NOT AFFECT THE CLAIM WHICH IS OTHERWISE STATUTORILY ALLOWABLE. THE ASSESSING OFFICER CORRECTLY OBSERVE D THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY CERTIFICATE FORM ANY STAT UTORY AUTHORITY REGARDING COMMISSIONING OF THE PLANT. IT WAS FURTHER CONTEND ED THAT THE STATEMENT OF SHRI RAJINDER SANDAL AS WELL AS REPORT OF THE DI RECTOR, CLEARLY SHOWS THAT POWER PLANT WAS COMMISSIONED IN AUGUST 2008, T HEREFORE, IT CANNOT BE SAID THAT POWER PLANT WAS COMMISSIONED IN MARCH 2008. IN THIS REGARD HE REFERRED TO THE DECISION OF ALLAHABAD BENCH OF T HE TRIBUNAL IN THE CASE OF INDIA POLYFIBRES LTD V ACIT 60 ITD 433 WHEREIN IT WAS HELD THAT DIRECTORS REPORT SHALL BE GIVEN A STATUTORY RECOGNI TION. IT WAS POINTED OUT THAT CERTIFICATE ISSUED BY THE DIRECTORS OF BOILERS ONLY REFERS TO THE INSPECTION AND PASSING OF THE BOILERS WHICH DOES NO T AMOUNT COMMISSIONING OF THE PLANT. THE CERTIFICATE FORM SH RIRAM EPC IS FROM A PRIVATE COMPANY AND IS OF SELF SERVING NATURE. HE A LSO POINTED OUT THAT IN THE ANNUAL REPORT FOR FINANCIAL YEAR 2008-09, IT BA S BEEN MENTIONED THAT SECOND PHASE OF 15MW BIOMASS POWER PLANT CAME INTO PRODUCTION MAKING THE TOTAL CAPACITY OF 30 MW. THIS REPORT RELATES T O THE PERIOD 1.10.2008 TO 30.09.2009, THEREFORE, IT CLEARLY SHOWS THAT SECOND UNIT OF THE POWER PLANT WAS STARTED AFTER 30.09.2008. AS PER APPENDIX, THE RATE OF DEPRECIATION IS 78 80% AND THE SAME IS IN RESPECT OF ENERGY SAVING DEV ICE LIKE BOILER AND FURNACE ETC. THERE WOULD BE SOME OTHER ASSETS LIKE BUILDING ETC. WHICH WOULD BE PART OF POWER PLANT AND THE SAME MAY NOT B E ELIGIBLE FOR FULL DEPRECIATION. 78 THE LD. DR POINTED OUT THAT VARIOUS DECISIONS RE LIED ON BY THE LD. COUNSEL WHEREIN IT HAS BEEN HELD THAT DEPRECIATION IS ALLOWABLE EVEN IF THE ASSET IS KEPT READY, THEN DEPRECIATION SHOULD BE AL LOWABLE BUT THESE DECISIONS CANNOT BE EQUATED WITH THE PROPOSITION TH AT SUCH DEPRECIATION IS TO BE ALLOWED EVEN WHEN THE PASSIVE USER IS THERE A ND THE DIRECTORS REPORT STATES OTHERWISE. 79. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD AS WELL AS JUDGMENTS CITED BY T HE PARTIES. SINCE THERE WAS SOME DISPUTE WHETHER BILLS WERE PRODUCED BEFORE THE LOWER AUTHORITIES AND IT WAS CONTENDED BY LD. COUNSEL FOR THE ASSESSEE THAT DURING REMAND PROCEEDINGS 19 BOXES OF THE ORIGINAL BILLS AND VOUCHERS WERE PRODUCED BEFORE THE LD. CIT(A). IN THIS REGARD A REFERENCE WAS MADE TO THE LETTER DATED APRIL 24, 2012 (COPY OF THE SAM E IS AVAILABLE AT PAGES 337 TO 449 OF THE PAPER BOOK) AND THE ASSESSEE WAS DIRECTED TO PRODUCE THE BILLS BEFORE THE ASSESSING OFFICER AND IN THIS REGARD A REFERENCE WAS MADE TO THE LETTER WRITTEN TO ASSESSING OFFICER WHI CH WAS SUBMITTED IN HIS OFFICE ON 8.5.2012 (COPY OF THE SAME IS AVAILABLE A T PAGE 450 OF THE PAPER BOOK), STILL THE SAME WERE NOT GONE THROUGH. THERE FORE, TO AVOID FURTHER CONTROVERSY WE HAD VERIFIED THE MAJOR BILLS DURING THE COURSE OF HEARING AND FOUND THAT MAJOR BILLS WERE AVAILABLE. IT WAS A LSO NOTICED THAT MOST OF THE PURCHASES HAVE BEEN MADE BY SEPTEMBER / OCTOBER 2007 WHEREAS THE SAME HAS BEEN ENTERED IN THE BOOKS OF ACCOUNT IN TH E MONTH OF FEBRUARY / MARCH 2008. IN ANY CASE, COPY OF THE DETAILS OF T HE LEDGER ACCOUNT OF POWER PLANT WAS FILED BEFORE THE ASSESSING OFFICER, COPY OF WHICH IS AVAILABLE AT PAGES 196 TO 271 OF THE PAPER BOOK. A CCORDING TO THE 79 ASSESSEE, THE PLANT HAS BEEN COMMISSIONED ON 25 TH MARCH 2008 WHEREAS ON THE BASIS OF THE DIRECTORS REPORT AND S TATEMENT OF SHRI RAJINDER SANDAL IN WHICH IT WAS STATED THAT PLANT W AS COMMISSIONED IN AUGUST 2008, DEPRECIATION WAS DENIED. FIRST OF ALL WE FIND THAT MAIN TURBINES HAVE BEEN IMPORTED FROM JAPAN AND THE INV OICES HAVE BEEN ISSUED (COPY OF THE SAME IS AVAILABLE FROM PAGES 9 94 & 995) IN THE NAME OF M/S SHRIRAM EPC LTD, CHENNAI, ACCOUNT OF M/S LAK SHI OVERSEAS INDUSTRIAL LTD I.E. THE ASSESSEE COMPANY. THE TUR BINES HAVE BEEN SHOWN TO HAVE BEEN GIVEN TO SHIP IN NOVEMBER 2006 AND FEB RUARY 2007, THEREFORE, THE SAME MUST HAVE BEEN RECEIVED BY THE ASSESSEE BY MARCH 2007. ONCE THE TURBINES COME AS EARLY MARCH 2007 T HERE IS EVERY LIKELIHOOD THAT PLANT CAN BE COMMISSIONED BY MARCH 2008. THE PERUSAL OF THE COPY OF AGREEMENT WITH SHRIRAM EPC ( PLACED AT PAGES 971 TO 979) SHOWS THAT ASSESSEE HAD ISSUED A LETTER OF INTENT F OR ERECTION OF THE POWER PLANT ON 4.6.2005 AND ULTIMATELY AN AGREEMENT FOR T HIS ERECTION WAS ENTERED ON 29.6.2005. A LETTER WAS ISSUED ON 23.5. 2006 FROM THE OFFICE OF CHIEF ENGINEER, COMMERCIAL DIRECTORATE OF TARIFF RE GULATION BOARD WHICH WAS FURNISHED BEFORE US DURING THE HEARING WHEREIN THE ASSESSEE COMPANY WAS INVITED FOR NEGOTIATION FOR SUPPLY OF T HE POWER. IT IS ALSO STATED IN THE LETTER THAT OFFICE OF THE CHIEF ENGIN EER HAS AN UNDERSTANDING THAT THE ASSESSEE COMPANY WAS ABOUT TO START A POWE R PLANT. THIS FACT CLEARLY SHOWS THAT THE FIRMS STAND FOR INSTALLATIO N OF POWER PLANT WAS FINALIZED BEFORE JUNE 2006. A CERTIFICATE HAS BEEN ISSUED BY M/S SHRIRAM EPC (COPY OF WHICH IS AVAILABLE AT PAGE 323 OF THE PAPER BOOK) WHICH READS AS UNDER:- REF NO. SEPC/JIII DATED 25,3,2008 TO WHOM IT MAY CONCERN THIS IS TO CERTIFIED THAT WE HAVE INSTALLED 2 X 15 MW BIOMASS BASED COGENERATION POWER PLANT FOR LAKSHI ENERGY & FOODS LTD AT KHAMMANO. THE PLANT WAS COMMISSIONED ALONG WITH AUXILIARIES I N MARCH 2008 AND 80 GIVEN PROCESS STEAM AND POWER TO IN HOUSE UNIT OF R ICE PLANT OF M/S LAKSHI ENERGY & FOODS LTD. FOR SHRIRAM EPC LTD SD/- (SANJAY KUMAR) ASSTT. GENERAL MANAGER-PROJECTS 80 THE ASSESSING OFFICER HAD TWO OBJECTIONS ON THIS CERTIFICATE. FIRSTLY, THE CERTIFICATE IS FROM PRIVATE PARTY AND SECONDLY THE BOILER HAS BEEN MANUFACTURED BY M/S THERMAX AND THEN HOW M/S SHRIRA M EPC COULD GIVE SUCH A CERTIFICATE. WE FIND NO FORCE IN THESE OBJEC TION; FIRSTLY, M/S SHRIRAM EPC IS A VERY LARGE COMPANY IN INDIA ENGAGED IN THE BUSINESS OF EPC CONTRACTS WHEREBY THEY UNDERTAKE THE ERECTION OF VA RIOUS BUILDINGS AND PLANTS. THIS CERTIFICATE SHOULD NOT HAVE BEEN REJEC TED LIGHTLY PARTICULARLY CONSIDERING THE FACT THAT M/S SRIRAM EPC WAS THE FA BRICATOR OF THE POWER PLANT AND NOT RELATED TO ASSESSEE. IN FACT THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V SHAHBAD COOPERATIVE SUGAR MILLS LTD (SUPRA) CONFIRMED THE FINDINGS OF THE TRIBUNAL WHER EIN DEPRECIATION HAD BEEN ALLOWED ON THE BASIS OF CERTIFICATE ISSUED BY THE ENGINEER. THE SANCTITY OF THE CERTIFICATE ISSUED BY M/S SHRIRAM E PC IS MUCH MORE THAN THE CERTIFICATE ISSUED BY AN ORDINARY ENGINEER. SEC ONDLY, IT IS TO BE APPRECIATED THAT M/S SHRIRAM EPC WERE ENGAGED IN TH E ERECTION OF THE PLANT AS VARIOUS EQUIPMENTS WERE BEING PURCHASED OR OUTSOURCED DIRECTLY FROM THE VARIOUS MANUFACTURES AND THEN WERE BEING ERECTED AND INSTALLED BY M/S SHRIRAM EPC. WE HAVE ALREADY NOTED THAT FOR EXAMPLES THE TURBINES WERE IMPORTED FROM JAPAN AND INVOICES FOR THE SAME CLEARLY MENTION THE NAMES OF M/S SHRIRAM EPC ON ACCOUNT OF LAKSHMI ENERGY & FOODS LTD . THIS SHOWS THAT M/S SHRIRAM EPC WAS ENGAGED IN TH E BUSINESS OF ERECTION OF THE PLANT, THEREFORE, IT IS THEIR DU TY THAT AFTER ERECTION IS COMPLETED AND THE PLANT BECOMES FUNCTIONAL. THE IND IVIDUAL SUPPLIERS OF THE PARTICULAR MACHINE CANNOT BE HELD RESPONSIBLE F OR NON FUNCTIONING OF 81 THE PLANT, THEREFORE, WHAT EVER COORDINATION IS REQ UIRED, WAS BEING DONE BY M/S SHRIRAM EPC. AFTER ALL IN SUCH LARGE PROJECT S SOME SPECIALIZED AGENCY LIKE SHRIRAM EPC IS REQUIRED TO MAKE IT SURE THAT AFTER ASSEMBLY OF INDIVIDUAL MACHINES AND PARTS THE WHOLE PLANT BECOM ES FUNCTIONAL. THEREFORE EVEN IF BOILER WAS MANUFACTURED BY M/S TH ERMAX LTD, IT WAS ONLY M/S SHRIRAM EPC. WHO COULD GIVE A CERTIFICATE FOR COMMISSIONING OF THE PLANT. 81 IT WAS VEHEMENTLY ARGUED BY LD. DR THAT THERE IS NO CERTIFICATE AVAILABLE FROM ANY STATUTORY AUTHORITY LIKE POLLUTI ON CONTROL BOARD, CENTRAL EXCISE DEPARTMENT OR CUSTOMS DEPT. OR CENTRAL GROUN D WATER BOARD, DISTRICT TOWN PLANNING OFFICE. WE DO NOT FIND ANY FORCE IN THESE SUBMISSIONS. FIRSTLY, A NO OBJECTION CERTIFICATE DA TED 12.4.2007 HAS BEEN FILED BEFORE US FROM THE DISTRICT TOWN PLANNER, DIS TRICT ADMINISTRATIVE COMPLEX, FATEHGARH SAHIB. WE FAIL TO UNDERSTAND HO W CUSTOMS AND EXCISE DEPARTMENT HAVE ANY ROLE TO PLAY IN GIVING A NY CERTIFICATE TO THE ASSESSEE. EXCISE AUTHORITIES ARE RESPONSIBLE MAINLY FOR COLLECTION OF EXCISE AND WHERE ANY EQUIPMENT HAS BEEN PURCHASED, EXCISE DUTY IS CHARGED. THE CUSTOMS DEPARTMENT WAS CONCERNED WITH CLEARANCE OF GOODS MAINLY AT THE PORT BUT THEY CANNOT GIVE ANY C ERTIFICATE THAT PLANT HAS BEEN COMMISSIONED. IT WAS NOT POINTED OUT TO US WHE THER THE ASSESSEE WAS REQUIRED UNDER ANY LAW TO OBTAIN CERTIFICATE FR OM ANY STATUTORY AUTHORITY, THEREFORE, THE GENERAL ALLEGATION THAT A SSESSEE HAS NOT PRODUCED ANY CERTIFICATE FROM ANY STATUTORY AUTHOR ITY ARE OF NO USE. RATHER ASSESSEE HAS FILED A CERTIFICATE FROM DIRECT OR OF BOILER, GOVT. OF PUNJAB, COPY OF WHICH IS AVAILABLE AT PAGES 328 OF THE PAPER BOOK AND THROUGH THIS PROVISIONAL ORDER THE DIRECTOR OF BOIL ER HAD GIVEN PERMISSION TO USE BOILER DURING A PARTICULAR PERIOD FROM 31.10 .2007 TO 30.4.2008. THOUGH THERE WAS NO COLUMN IN THE CERTIFICATE TO SH OW THE DATE OF ISSUE BUT OBVIOUSLY IF THE PERMISSION HAS BEEN GIVEN W.E. F. 31.10.2007, THE 82 CERTIFICATE MUST HAVE BEEN ISSUED EARLIER. THE ONL Y DIFFICULTY IN RESPECT OF THE CERTIFICATE IS THAT IT WAS NOT EARLIER AVAILABL E AND WAS FILED ON 24.12.2010. THEREFORE, CLEARLY THE RELEVANT AUTHORI TY I.E. DIRECTOR OF BOILERS (PUNJAB) WHICH IN OUR OPINION HAS CLEARLY GIVEN PER MISSION TO START THE BOILER WHICH COULD MEAN THAT BOILER WAS READY FOR F UNCTIONING. IN FACT, IT WAS POINTED OUT THAT SUCH CERTIFICATES ARE ISSUED AFTER EVERY SIX MONTHS AFTER INSPECTION OF THE BOILER AND LATER CERTIFICAT E WERE ALSO PRODUCED BEFORE US FOR OUR VERIFICATION 82. ANOTHER MAJOR OBJECTION OF THE DEPARTMENT IS TH AT DIRECTORS REPORT SHOWS THAT PLANT WAS COMMISSIONED ONLY IN AUGUST 20 08. WE ARE SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSE E THAT THE DIRECTORS REPORT IS ISSUED FROM A COMMERCIAL ANGLE AND PLANT WAS SHOWN TO HAVE BEEN COMMISSIONED FROM THE DATE WHEN ACTUAL REVENUE STARTED GENERATING. A FURTHER DOUBT WAS RAISED BY LD. DR T HAT IN FACT THE POWER PLANT CONSISTING OF TWO TURBINES OF 15 MW EACH AND THE FIRST WAS TO BE SHOWN IN OPERATION IN AUGUST 2008 AND SECOND WAS SH OWN TO BE OPERATIONAL LATER ON IN THE ANNUAL REPORT OF FINANC IAL YEAR 2008-09 WHICH COMPRISE OF A PERIOD FROM 1.10.2008 TO 30.09.2009 A ND, THEREFORE, THE PLANT WAS COMMISSIONED OBVIOUSLY AFTER 30.09.2008. AS OBSERVED EARLIER, WE ARE SATISFIED WITH THE EXPLANATION THAT THE DIRE CTORS REPORT COULD BE FOR THE PURPOSE OF SHARE HOLDERS AND COULD BE ON THE BA SIS OF ACTUAL REVENUE GENERATION FROM THE GOVERNMENT AND WILL NOT HAVE AN Y BEARING ON THE ALLOWANCE OF DEPRECIATION. IN FACT, AS OBSERVED EA RLIER, BOTH THE TURBINES HAVE BEEN PURCHASED FROM JAPAN AND THE SAME WERE D ISPATCHED OR LOADED IN THE SHIP ON NOVEMBER 30, 2006 & FEBRUARY 07, 2007, THEREFORE, THERE CANNOT BE A GAP OF STARTING THE POWER PLANT A ND IT IS NOT POSSIBLE THAT SECOND TURBINE WAS STARTED AS LATE AS AFTER SE PTEMBER 2009. IN THIS REGARD, WE FURTHER FIND FORCE IN THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE THAT NO MAJOR PURCHASES HAVE BEEN MADE AFT ER 31.3.2008 (COPY 83 OF THE ACCOUNT OF THE POWER PLANT HAS BEEN FURNISHE D AT PAGES 992 TO 993 OF THE PAPER BOOK) WHICH IS RUNNING FROM THE PERIOD 1.4.2008 TO 31.3.2008 WHICH CLEARLY SHOWS THAT ONLY PURCHASE TO THE TUNE OF RS. 19,28,949/- HAVE BEEN DEPICTED IN THE POWER PLANT ACCOUNT WHICH WAS STATED TO BE ON ACCOUNT OF REPLACEMENT OF MINOR PARTS AND SOME SMAL L REPAIRS. THIS MAKES IT CLEAR THAT PURCHASES IN RESPECT OF POWER P LANT WERE COMPLETED BEFORE MARCH 2008. FURTHER REVENUE HAS ALREADY ALLO WED THE DEPRECIATION ON THE BASIS OF WDV AS ON 1-4-2008 IN THE ASSESSMEN T YEAR 2009-10, THIS MEANS IF THE SECOND TURBINE WAS STARTED AFTER SEPTE MBER 2009 THEN SUCH DEPRECIATION COULD NOT HAVE BEEN ALLOWED AND THEREF ORE THE CONTENTION OF THE LD. D.R. FOR THE REVENUE IS TOTALLY INCORRECT. 83. ONE MORE IMPORTANT OBJECTION HAVE BEEN RAISED B Y THE REVENUE IS THAT SHRI RAJINDER SANDAL HAS CLEARLY SATED IN HIS STATEMENT THAT POWER PLANT BECAME OPERATIONAL ONLY IN THE MONTH OF JULY 2008. FURTHER, THE DEPRECIATION CHART SUBMITTED BY SHRI RAJINDER SANDA L AS PER INCOME TAX RULES, CLEARLY SHOWS THAT NO DEPRECIATION WAS CLAIM ED AND THEREFORE, CLAIM OF DEPRECIATION WAS ONLY AN AFTER THOUGHT. WE DO NOT FIND ANY FORCE IN THIS OBJECTION ALSO. FIRST OF ALL, IT IS TO BE APPRECIATED THAT ASSESSEE COMPANY WAS HAVING SERIOUS DISPUTE WITH SHRI RAJIND ER SANDAL AND ULTIMATELY HIS SERVICES WERE TERMINATED. SECONDLY, MR. RAJINDER SANDAL HAS PREPARED RETURN IN WHICH CLEARLY CLAIM OF DEPRE CIATION HAS BEEN MADE. IN FACT, THERE WAS SOME ERROR IN PROCESSING OF THE RETURN AND INCOME WAS TAKEN AT RS. 50,.96,67,625/- INSTEAD OF RS. 17,83,4 8,667/- AND, THEREFORE, A RECTIFICATION APPLICATION WAS MADE UNDER HIS SIGN ATURES AND WHICH WAS ULTIMATELY RECTIFIED VIDE ORDER DATED 25.11.2009, ( COPY OF WHICH IS AVAILABLE AT PAGE 27 OF THE PAPER BOOK). THUS, TH E CLAIM OF EXPENDITURE WAS CLEARLY MADE IN THE RETURN OF INCOME ITSELF. S ECONDLY, THE ASSESSEE HAS SOUGHT CROSS EXAMINATION OF SHRI RAJINDER SANDA L WHICH WAS NOT GRANTED AND ONLY COPY OF HIS STATEMENT WAS FURNISHE D TO THE ASSESSEE. THEREFORE, IT CAN BE SAID THAT STATEMENT OF SHRI RA JINDER SANDAL WAS 84 RECORDED AT THE BACK OF THE ASSESSEE AND THE SAME C ANNOT BE RELIED ON. IN THIS REGARD, WE FURTHER FIND FORCE IN THE SUBMIS SIONS OF THE LD. COUNSEL ON THE BASIS OF DECISIONS CITED BY HIM. IN CASE OF CIT V NARESH KHATTAR (HUF) (SUPRA), THE HON'BLE HIGH COURT CONFIRMED THE FINDINGS OF THE TRIBUNAL WHEREIN ADDITION U/S 69B WAS DELETED BY HO LDING THAT MERE STATEMENT MADE BY THE ASSESSEES COUNSEL IN THE CIV IL COURT WOULD NOT BE SUFFICIENT MATERIAL TO CONCLUDE THAT SUCH FIGURES R EPRESENTS ASSESSEES INCOME. SIMILARLY, IN THE CASE OF PARKASH CHAND NA THA V CIT (SUPRA), THE HON'BLE DELHI HIGH COURT OBSERVED THAT IF THE STATE MENT WAS TO BE RELIED AGAINST WHICH AN AFFIDAVIT WAS FILED CONTROVERTING THE SAME, THEN IT WAS OBLIGATORY ON THE PART OF THE ASSESSING AUTHORITY T O ALLOW CROSS EXAMINATION. MANY OTHER DECISIONS WERE CITED BY TH E LD. COUNSEL FOR THE ASSESSEE BUT WE ARE NOT DISCUSSING THE SAME BECAUS E IT IS SETTLED THAT IF STATEMENT IS GIVEN BY THE THIRD PARTY THE SAME CANN OT BE RELIED WITHOUT ALLOWING CROSS EXAMINATION PARTICULARLY WHEN THE CR OSS EXAMINATION WAS SOUGHT BY THE ASSESSEE. IN FACT THE HON'BLE SUPREM E COURT IN THE CASE OF KISHAN CHAND CHELA RAM 125 ITR 713, (SC) HAS VERY CLEARLY HELD THAT STATEMENT OF THIRD PARTY CANNOT BE USED UNLESS OPPO RTUNITY TO CONTROVERT THE SAME HAS BEEN GIVEN TO THE ASSESSEE. 84 THE LD. DR HAS ALSO CONTENDED THAT ASSESSEE HAS NOT PROVIDED ANY DEPRECIATION AS PER SECTION 205 AND 350 OF THE COMP ANIES ACT AND THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT THAT PART I & II OF THE SCHEDULE VI OF THE COMPANIES ACT PROVIDES THAT DEPRECIATION SHOULD BE PROVIDED U/S 350 OVER THE USEFUL LIFE OF ANY SPECIFIC ASSET WHIC H MEANS DEPRECIATION IS TO BE PROVIDED ON THE USEFUL LIFE OF THE ASSET. THI S CLEARLY SHOWS THAT NO SPECIFIC RATE OF DEPRECIATION HAS BEEN PROVIDED UND ER PART I & II OF SCHEDULE VI OF THE COMPANIES ACT. IN OUR OPINION, IN ANY CASE VIOLATION UNDER COMPANIES ACT, IF ANY, WOULD NOT HAVE ANY IM PACT ON ALLOWANCE OF DEPRECIATION UNDER INCOME-TAX RULES. 85 85 THE LD. COUNSEL HAS ALSO RELIED ON VARIOUS DECIS IONS FOR THE PROPOSITION THAT WHERE A PLANT IS READY AND IN SUCH A CASE IF THE SAME IS EVEN KEPT IN A STORE EVEN THEN THE DEPRECIATION IS TO BE ALLOWED. NOW LET US EXAMINE THESE DECISIONS. 86 THE FIRST CASE RELIED UPON WAS OF CIT VS PEPSU R OAD TRANSPORT CORPORATION (SUPRA). IN THIS DECISION THE ISSUE WA S WHETHER ENGINES KEPT AS SPARE IN THE STORE WERE ENTITLED TO DEPRECIATION AND THE HON'BLE HIGH COURT OBSERVED AT PARA 10 AS UNDER:- 10. EVERYTHING AGES WITH THE PASSAGE OF TIME, INC LUDING ENGINES WHICH GATHER DUST IN THE STORE ROOM. THERE IS A NOR MAL DEPRECIATION OF VALUE EVEN WHEN A MACHINE OR EQUIPMENT IS MERELY KEPT IN A STORE. SECONDLY, KEEPING IN VIEW THE NATURE OF THE ASSESSEES BUSINESS, IT HAS TO NECESSARILY KEPT CERTAIN SPARE ENGINES IN STORE TO MEET AN EMERGENT SITUATION. THERE IS NOTHING ON RECORD TO INDICATE THAT AN ENGINE, WHICH WAS PURCHASED A YEAR OR TWO EARLIER, WILL FETCH THE SAME PRICE IN OPEN MARKET EVEN TODAY . IN THIS SITUATION, IT IS CLEAR THAT THE AUTHORITIES HAVE TA KEN A POSSIBLE VIEW. NOTHING HAS BEEN POINTED OUT TO SHOW THAT THE OPINI ON IS PERVERSE OF UNTENABLE. RESULTANTLY, IT CANNOT BE SAID THAT A SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION OF THIS CO URT WITH IN THE MEANING OF SECTION 260A. THUS, IT IS CLEAR THAT HON'BLE HIGH COURT HELD THAT DEPRECIATION IS TO BE ALLOWED ON THE CONSIDERATION OF AGEING OF THE MACHI NES AND IT WAS OBSERVED THAT AGEING TOOK PLACE EVEN WHEN THE PART ICULAR PLANT IS KEPT IN THE STORE. 87 THE NEXT DECISION RELIED UPON IS IN THE CASE OF CIT V SHAHBAD CO-OP SUGAR MILLS LTD (SUPRA). IN THIS CASE THE PLANT AN D MACHINERY WAS KEPT READY FOR USE BUT WAS NOT PUT TO USE AND THE HON'BL E HIGH COURT HELD VIDE PARA 5 AS UNDER:- 5. LD. COUNSEL FOR THE REVENUE SUBMITS THAT IN ABSENCE OF ACTUAL USE, THE CLAIM FOR DEPRECIATION COULD NOT BE ALLOWED. T HIS PLEA CANNOT BE ACCEPTED. THE TRIBUNAL HAS CATEGORICALLY HELD THAT THE PLANT AND MACHINERY WAS KEPT IN THE STATE OF READINESS FOR PR ODUCTION. MOREOVER, IN THE CASE OF THE ASSESSEE ITSELF WE HAVE APPROVE D THE VIEW OF THE TRIBUNAL IN ORDER DATED 17.12.2010 IN IT APPEAL NO. 515 OF 2008 (CIT V SHAHBAD CO-OP SUGAR MILLS LTD.) AS FOLLOWS:- 10. WE ALSO FIND THAT EXPRESSION USED IN SECTION 32 OF THE ACT HAS BEEN JUDICIALLY INTERPRETED TO INCLUDE MACHINER Y KEPT FOR USE, EVEN IF THE SAME WAS NOT ACTIVELY USED. PASSIVE USE R HAS ALSO 86 BEEN HELD TO BE USER WHERE IT MAY BE NECESSARY FOR BUSINESS OF THE ASSESSEE TO KEEP THE MACHINERY READY FOR USE. REFERENCE MAY BE MADE TO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT V REFRIGERATION & ALLIED INDUSTRIES LTD [200 1] 247 ITR 12. THEREIN RELIANCE WAS PLACED ON THE FOLLOWING JUDGME NTS:- (I) MACHINERY MANUFACTURERS CORPORATION LTD V CIT [ 1957] 31 ITR 203 (BOM). (II) CIT V VISHWANATH BHASKAR SATHE [1937] 5 ITR 62 (BOM.) (III) CIT V DALMIA CEMENT LTD [1945] 13 ITR 415 (PA TNA) (IV) LIQUIDATORS OF PURSA LTD V CIT [1954] 25 ITR 2 65 (SC) (V) CIT V BOMBAY STATE TRANSPORT CORPORATION [1979] 118 ITR 399 (BOM.) (VI) G.R. GOVINDARAJULU NAIDY V CIT [1973] 90 ITR 1 3 (MAD.) (VII) CIT V ELECON ENGINEERING CO. LTD [1974] 96 IT R 672 (GUJ.) AND (VIII) CIT V GEO TECH CONSTRUCTION CORPORATION [200 0] 244 ITR 452 (KER.) REFERENCE WAS ALSO MADE TO THE DICTIONARY MEANING O F THE WORD DEPRECIATION AS ALSO THE OBJECT OF ALLOWING DEPRE CIATION. IN THE PRESENT CASE, THE MACHINERY IN QUESTION IS VAPOUR C ELL, JUICE CLARIFIER AND FLY ASH ARRESTER PAID PWEITIER WHICH ACCORDING TO THE ASSESSEE HAD TO BE KEPT READY FOR USE FOR ITS BUSIN ESS EXPEDIENCY. STAND OF THE ASSESSEE IS THAT IT RESULT ED IN INCREASE OF CAPACITY OF PLANT AND THAT ON ACCOUNT OF TECHNIC AL JUSTIFICATION FOR THE SAID MACHINERY, ITEMS OF THE MACHINES WERE INSTALLED. EVEN THOUGH THE AUDITORS MAY NOT HAVE ACCEPTED THE SAID STAND, THE ASSESSEE WAS ENTITLED TO FREE PLAY IN JOINTS IN TAKING A DECISION TO INSTALL THE MACHINERY IF IN ITS VIEW TH E SAME WAS NECESSARY FOR ITS BUSINESS. IF THE ASSESSEE WAS TO INSTALL SUCH A MACHINERY ON ITS BONAFIDE BUSINESS CONSIDERATION, M ERE ABSENCE OF PROOF OF ACTUAL USE THEREOF WAS NOT ENOUGH TO DE NY THE CLAIM OF DEPRECIATION. ACCORDINGLY, WE DO NOT FIND ANY GROU ND TO INTERFERE WITH THE FINDING OF THE TRIBUNAL, HOLDING THAT THE ASSESSEE WAS ENTITLED TO DEPRECIATION ON THE MACHINERY, AS CLAIM ED. SIMILAR OBSERVATIONS HAVE BEEN MADE IN THE CASE OF CIT V OSWAL WOOLEN MILLS LTD (SUPRA). EVEN HON'BLE DELHI HIGH COURT I N THE CASE OF CAPITAL BUS SERVICE (P) LTD V CIT (SUPRA) WHEREIN THE ASSES SEE HAD PURCHASED FOUR BUSES WHICH WERE IN WORKING ORDER BUT WERE NOT USED ON THE ROADS BECAUSE THERE WERE NOT ENOUGH CONTRACTS DURING THE YEAR TO PLY FOR MORE THAN 30 DAYS. THE HON'BLE COURT DISCUSSED THE ISSU E IN DETAIL AND ULTIMATELY HELD THAT AS SUCH BUSES WERE READY FOR U SE THEN DEPRECIATION IS TO BE ALLOWED. VARIOUS OTHER DECISIONS WERE CITED WHICH HAS GIVEN THE SAME FINDINGS. WE HAVE ALREADY OBSERVED THAT POWER PLANT WAS READY AND NO FURTHER MAJOR PURCHASES HAVE BEEN MADE ON ACCOUN T OF POWER PLANT TILL AUGUST 2008, AND THE PLANT WAS COMMISSIONED, THEREF ORE, THE SAME IS ENTITLED FOR DEPRECIATION. HOWEVER, DURING THE COU RSE OF HEARING WHEN REFERENCE WAS MADE TO THE RULES, WE FIND THAT ASSES SEE IS NOT ENTITLED TO 87 DEPRECIATION @ 100%. THE NEW APPENDIX X WHICH PROV IDES FOR DEPRECIATION UNDER THE HEAD PLANT AND MACHINERY UND ER THE MAIN HEAD III ALLOWS DEPRECIATION UNDER CLAUSE 8(IX) WHICH PERTAI N TO POWER PLANT ITEMS IS ALLOWABLE ONLY AT THE RATE 0F 80%. THIS POSITION WAS ADMITTED BY LD. COUNSEL FOR THE ASSESSEE ALSO. THEREFORE, WE SET AS IDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW D EPRECIATION @ 40% (I.E. 50% OF 80%) BECAUSE PLANT HAS BEEN MADE OPERATIONAL ONLY IN THE SECOND HALF ONLY.) 88 IN THE RESULT, APPEAL IN ITA NO. 250/CHD/2013 IS PARTLY ALLOWED. ITA NO. 251/CHD/2013 ASSESSEES APPEAL 89 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT THE ORDER OF THE LD. CIT(A)(CENTRAL), GURGA ON DATED 29.1.2013 IS BAD IN LAW AND ON FACTS. 2 THAT THE LD. CIT(A) HAS ERRED IN SUMMARILY IGNORI NG THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT AND THE H ON'BLE SUPREME COURT REGARDING JURISDICTION/PLACE OF ASSESSMENT. THE LD . CIT(A) INSPITE OF THE DETAILED DISCUSS ON THE SUBJECT AND A GROUND HAVING BEEN SPECIFICALLY TAKEN BY THE APPELLANT HAS BY PASSED THE ISSUE BY N OT EVEN MAKING WHISPER ON THE SAME. 3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT ADMITTING THE CRUCIAL ADDIT IONAL EVIDENCE FILED UNDER RULE 46A OF THE INCOME -TAX RULES ON THE GROU ND THAT THE APPELLANT WAS ALLOWED SUFFICIENT OPPORTUNITIES TO A DDUCE EVIDENCE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND IT HAS FAI LED TO SUBSTANTIATE ITS CLAIM FOR ADMISSION OF ADDITIONAL EVIDENCE UNDE R THE SAID RULE. 4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN REJECTING THE ADDITIONAL GROUND OF APPEAL NO. 1 RAISED U/S 250(5) CONTENDING THAT THE ASSESSMENT MA DE ON 30.12.2010 U/S 153A(1)(B) R.W.S. 143(3) IS BAD IN LAW AS NO IN CRIMINATING MATERIAL SUGGESTING OF ANY SUPPRESSION OF INCOME WAS FOUND D URING THE COURSE OF SEARCH AND SEIZURE OPERATION U/S 132(1) ON 12.2.200 9 AND THEREFORE THE ENTIRE ASSESSMENT BEING BAD IN LAW, DESERVES TO BE QUASHED. 4.1 THE LD. CIT(A) HAS FURTHER ERRED IN SUMMARILY D ISMISSING THE ADDITIONAL GROUNDS OF APPEAL RAISED U/S 250(5) OF T HE ACT. 5 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT HE APPELLANT COMPA NY IS NOT ENTITLED TO THE DEDUCTION U/S 80IB(11A) OF INCOME -TAX ACT, 196 1. 5.1 THE LD. CIT(A) HAS REJECTED THE CLAIM OF DEDUCT ION U/S 80IB(11A) MERELY ON THE GROUND THAT THERE IS NO EVIDENCE TO S HOW THAT THE ASSESSEE HAS INSTALLED NEW PLANT AND MACHINERY AND HAS DISCARDED THE OLD PLANT AND MACHINERY. THE LD. CIT(A) HAS NOT RA ISED ANY OTHER OBJECTION AS TO THE ALLOWABILITY OF THE DEDUCTION U /S 80IB(11A) EXCEPT THE AFORESAID WHICH IS INCORRECT AS MUCH AS SUFFICIENT EVIDENCE WAS FILED TO SHOW THAT THE OLD PLANT AND MACHINERY HAS BEEN DISC ARDED, EVEN 88 OTHERWISE THE NEW PLANT AND MACHINERY ACQUIRED CONS TITUTES ALMOST 98% OF THE TOTAL PLANT AND MACHINERY. 5.2 THE LD. CIT(A)HAS FAILED TO CONSIDER THE FACT T HAT ON IDENTICAL FACTS AND ISSUES, DEDUCTION U/S 80IB(11A) IS BEING ALLOWED BY THE ASSESSMENT WING OF THE DEPARTMENT TO OTHER ASSESSEE . A CASE IN EXAMPLE WAS OF LT OVERSEAS PVT LTD. WHOSE ASSESSMEN T ORDERS ALLOWING CLAIM OF DEDUCTION U/S 80IB(11A) WERE FILED. 5.3 THE LD. CIT(A) WHILE DISALLOWING THE CLAIM U/S 80IB(11A) ON THE GROUND THAT FORM 10CCB CANNOT BE RELIED UPON, HAS D ISCUSSED AND APPLIED THE FACTS RELATING TO ASSESSMENT YEAR AND H AS WRONGLY HELD THAT AUDIT REPORT IN FORM NO. 10CCB DATED 20.2.2009 PREP ARED BY CHARTERED ACCOUNTANT. CA AMIT GUPTA WAS AN AFTERTHOUGHT AND N O CREDENCE CAN BE GIVEN TO THE SAID REPORT. 5.4 THAT THE LD. CIT(A) HAS SUMMARILY REJECTED THE JUDGMENT OF THE HON HON'BLE JURISDICTIONAL HIGH COURT WHICH HELD T HAT IF THE FACTS OF THE CASE OF THE ASSESSEE ARE SIMILAR TO THOSE OF ANOTHE R ASSESSEE, A DIFFERENT TREATMENT SHOULD NOT BE MADE. 6 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE SET OFF LOSS F ROM POWER PLANT AGAINST OTHER BUSINESS INCOME ON THE GROUND THAT INCOME FRO M POWER PLANT IS EXEMPT WHICH CANNOT BE SET OFF AGAINST PROFITS FROM DIFFERENCE SOURCE OR INCOME UNDER DIFFERENT HEADS WITHOUT CONSIDERING TH E PROVISIONS OF SECTION 70 OF THE INCOME -TAX ACT, 1961 UNDER WHIC H LOSS CAN BE SET OFF AGAINST OTHER INCOME. 90 GROUND NO.1 IS OF GENERAL NATURE AND DOES NOT RE QUIRE ANY SEPARATE ADJUDICATION. GROUND NO.2, 4, & 4.1 WERE NOT PRESSE D BEFORE US AND, THEREFORE, THE SAME ARE DISMISSED. 91 THROUGH GROUND NO. 3, THE ISSUE RAISED IS AGAINS T REJECTION OF REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE. THE FACTS AND CIRCUMSTANCES IN THIS CASE ARE IDENTICAL TO THE FAC TS AND CIRCUMSTANCES AS ADJUDICATED BY US IN ABOVE NOTED PARA NOS. 9 TO 11 IN ASSESSMENT YEAR 2008-09 IN ITA NO. 250/CHD/2013, THEREFORE, FOLLOWI NG THAT DECISION WE ARE OF THE OPINION THAT LD. CIT(A) SHOULD HAVE ADMI TTED THE ADDITIONAL EVIDENCE. 92 THROUGH GROUND NOS.5, 5.1, 5.2, 5.3 & 5.4, THE ISSUE REGARDING ALLOWABILITY OF DEDUCTION U/S 80 IB(11A) HAS BEEN R AISED. IN THIS YEAR, THE DEDUCTION HAS BEEN DENIED TO THE ASSESSEE MAINLY BE CAUSE THE ACTIVITIES OF THE ASSESSEE ARE NOT IN THE NATURE OF INTEGRATED BUSINESS OF HANDLING, STORAGE, TRANSPORTATION OF FOOD GAINS . FURTHER THE ASSESSEE HAS NOT SUBMITTED PROPER AUDIT REPORT. THE ASSESSEE HAS VI OLATED THE CONDITIONS 89 LAID DOWN IN SECTION 80IB(2)(I) . HOWEVER, ADMITTEDLY THE RETURN HAS BEEN FILED IN TIME. THE FACTS AND CIRCUMSTANCES IN RESP ECT OF THESE ISSUES ARE IDENTICAL TO THE FACTS AND CONTENTIONS IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008-09 EXCEPT LATE FILING OF RETUR N WHICH WE HAVE ALREADY ADJUDICATED VIDE PARA NOS. 34 TO 69 IN ITA NO. 250/CHD/2013 AND FOLLOWING THAT REASONING WE HOLD THAT ASSESSEE IS E LIGIBLE FOR DEDUCTION U/S 80 IB (11A) OF THE ACT @ 70% TO THE PROFITS OF THE BUSINESS. 93 THROUGH GROUND NO. 6, THE ISSUE REGARDING NON AL LOWANCE OF THE SET OFF OF LOSS FROM POWER PLANT AGAINST THE BUSINESS I NCOME HAS BEEN RAISED. 94 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE ASSESSING OFFICE R THAT ASSESSEE HAS CLAIMED THE LOSS OF RS. 16,08,70,635/- FROM POWER PLANT AS SET OFF AGAINST THE BUSINESS INCOME FROM RICE MILL. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE THAT WHY THIS SET OFF SHOULD NOT BE DI SALLOWED IN VIEW OF THE PROVISIONS OF SECTION 80IA(5). IN RESPONSE IT WAS SUBMITTED VIDE LETTER DATED 24.12.2010 AS UNDER:- THE LOSS INCURRED IN THE POWER PLANT AT RS. 16,08, 70,635/- WAS DEDUCTED AGAINST THE INCOME FROM THE RICE MANUFACTU RING UNIT SHOWN AT RS. 93,63,71,267/- WITH THE RESULT THAT TH E NET INCOME REMAINED AT RS. 77,55,00,632/-. 100% DEDUCTION U/S 80IB WAS CLAIMED. IN CASE THE ADJUSTMENT OF LOSS OF RS. 16,0 8,70,635/- IS NOT ALLOWED THE INCOME FROM THE RICE UNTIL WILL BE RS. 93,63,71,267/- AND THE FIGURE OF DEDUCTION OF RS. 7 7,55,00,632/- WILL BE SUBSTITUTED BY RS. 93,63,71,267/- RESULTING IN NO DIFFERENCE IN THE RETURNED INCOME. 95 HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ABOVE AND IN VIEW OF THE SPECIFIC PROVISION TO SECTION 80IA(5 ) OF THE ACT, THE LOSS FROM POWER PROJECT WAS NOT ALLOWED TO BE SET OFF AG AINST THE PROJECTS FROM OTHER BUSINESS. 96 ON APPEAL, THE ASSESSEE MADE VARIOUS SUBMISSIONS . THE LD. CIT(A) WAS NOT SATISFIED WITH THE SAME AND REJECTED THESE GROUNDS VIDE PARA 9.3 OF HIS ORDER, WHICH READS AS UNDER:- 9.3 I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSE E AND THE IMPUGNED ORDER. THE POWER PLANT NO DOUBT IS ELIGIBL E FOR DEDUCTION U/S 80IA(4) AS STATED BY THE AO. HOWEVER, THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION. HOWEVER IT IS NOT A QUESTION OF 90 THRUSTING THE EXEMPTION ON THE ASSESSEE AS CONTENDE D. THE INCOME FROM THE POWER PLANT OTHERWISE IS FROM A SOU RCE WHICH IS EXEMPT TO TAX, SO LOSS ARISING FROM THEREIN CANNOT BE SET OFF AGAINST PROFITS FROM A DIFFERENT SOURCE OR INCOME U NDER A DIFFERENT HEAD, WHICH IN THIS CASE AT HAND IS INCOME FROM RI CE MILLING. FURTHERMORE, THE ASSESSEE IS CLAIMING ADDITIONAL DE PRECIATION I.R.O ITS ADDITIONS TO P&M, WHICH INCLUDES POWER PLANT. W HILE ADJUDICATING THE APPEAL FOR AY 89-09, THE POWER PLA NT HAS BEEN HELD TO BE COMMISSIONED ON AUGUST 2008, BASED ON TH E DIRECTORS REPORT. IN OTHER WORDS, THE PREVIOUS YEAR RELEVANT TO THIS AY IS TREATED AS THE INITIAL YEAR AND IT IS WITH THIS REA SON THAT THE ADDITIONAL DEPRECIATION CLAIMED ON THE POWER PLANT [ONLY] AS INTERALIA RAISED IN THE ADDITIONAL GROUND OF APPEAL IS ALLOWED TO BE AVAILED OFF. CONSEQUENTLY, I UPHOLD THE DISALLOWANC E MADE BY THE AO IN NOT PERMITTING THE SET OFF OF THE LOSS. THE A SSESSEE FAILS ON THIS GROUND. 97 BEFORE US, LD. COUNSEL FOR THE ASSESSEE REFERRED TO SECTION 70 OF THE ACT AND SUBMITTED THAT LOSS FROM ONE BUSINESS I S ALLOWED TO BE SET OFF AGAINST ANOTHER BUSINESS. FURTHER, ULTIMATELY DEDUC TION UNDER CHAPTER VI CAN BE ALLOWED ONLY AFTER COMPUTING THE GROSS TOTAL INCOME AS PER SECTION 80B(5) AND THEREFORE, LOSS IS MANDATED TO BE SET OF F AGAINST THE OTHER INCOME BEFORE ALLOWING DEDUCTION. IN THIS REGARD, HE RELIED ON THE FOLLOWING DECISIONS. 1. SYNCO INDUSTRIES LTD V ASSESSING OFFICER & ANR ( 2008) 299 ITR 444 (SC) 2. CIT V GALAXY SURFACTANTS LTD 343 ITR 108 (BOM.) 3. BAJAJ MOTORS LTD V CIT 347 ITR 472 (P&H) .98 ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORT ED THE ORDER OF ASSESSING OFFICER AND CIT(A). 99 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THIS ISSUE CAME UP FOR CONSIDERATION OF THE HON'BLE SUPREME CO URT IT THAT CASE OF SYNCO INDUSTRIES LTD V ASSESSING OFFICER (INCOME TA X) & ANOTHER 299 ITR 444. IN THAT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF OIL AND CHEMICALS. IT HAD A UNIT FOR OIL DIVISION IN SIROHI AND A UNIT FOR CHEMICAL DIVISION IN JODHPUR. FOR THE ASSESSMENT YEARS 1990- 91 AND 1991-92 IT HAD EARNED PROFITS IN BOTH THE UNITS. BUT IN THE EARLIE R YEARS THE ASSESSEE HAD SUFFERED LOSSES IN THE OIL DIVISION. IN RELATION TO THE DEDUCTIONS UNDER 91 SECTIONS 80HH AND 80-I OF THE INCOME-TAX ACT, 1961, IT CLAIMED THAT EACH UNIT SHOULD BE TREATED SEPARATELY AND THE LOSSES SU FFERED IN THE EARLIER YEARS BY THE OIL DIVISION WERE NOT ADJUSTABLE AGAIN ST THE PROFITS OF THE CHEMICAL DIVISION. BUT SINCE THE GROSS TOTAL INCOME WAS NIL THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT ENTITLED TO THE BENEFIT OF DEDUCTIONS UNDER CHAPTER VI-A. THE APPELLATE TRIBUN AL AND THE HIGH COURT AFFIRMED THE VIEW OF THE ASSESSING OFFICER. 100 ON APPEAL OF THE ASSESSEE, THE HON'BLE SUPREME COURT HELD AS UNDER:- HELD, AFFIRMING THE DECISION OF THE HIGH COURT, TH AT THE HIGH COURT WAS JUSTIFIED IN HOLDING THAT THE LOSS FROM THE OIL DIVISION WAS REQUIRED TO BE ADJUSTED BEFORE DETERMINING THE GROS S TOTAL INCOME AND AS THE GROSS TOTAL INCOME WAS NIL THE ASSESSE E WAS NOT ENTITLED TO CLAIM DEDUCTIONS UNDER CHAPTER VI-A WHI CH INCLUDED SECTIONS 80HH AND 80-I. THE EFFECT OF CLAUSE (5) OF SECTION 80B OF THE INCO ME-TAX ACT, 1961, IS THAT GROSS TOTAL INCOME WILL BE ARRIVED AT AFTER MAKING THE COMPUTATION AS FOLLOWS : (I) MAKING DEDUCTIONS UNDER THE APPROPRIATE COMPUTATION PROVISIONS ; (II) INCLUDING THE INCOMES, IF ANY, UNDER SECTIONS 60 TO 64 IN THE TOTAL INCOME OF THE INDIVIDUAL ; (III) ADJUSTING INTRA-HEAD AND/OR INTER-HEAD LOSSES ; AND (IV) SETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND UNABSORBE D DEPRECIATION, ETC. ONLY IF THE GROSS TOTAL INCOME S O DETERMINED IS POSITIVE THE QUESTION OF ALLOWING THE DEDUCTIONS UN DER CHAPTER VI- A WOULD ARISE, NOT OTHERWISE. IT IS WELL SETTLED THAT WHERE THE PREDOMINANT MAJOR ITY OF THE HIGH COURTS HAVE TAKEN A CERTAIN VIEW ON THE INTERPRETAT ION OF CERTAIN PROVISIONS, THE SUPREME COURT SHOULD LEAN IN FAVOUR OF THAT VIEW. THE WORDS INCLUDES ANY PROFITS IN SECTION 80-I(1) ARE IMPORTANT AND INDICATE THAT THE GROSS TOTAL INCOME OF AN ASSE SSEE SHALL INCLUDE PROFITS FROM A PRIORITY UNDERTAKING. WHILE COMPUTING THE QUANTUM OF DEDUCTION UNDER SECTION 80-I(6) THE ASSE SSING OFFICER, NO DOUBT, HAS TO TREAT THE PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING AS THE ONLY SOURCE OF INCOME IN ORDER T O ARRIVE AT THE DEDUCTION UNDER CHAPTER VI-A. HOWEVER, THE NON OBST ANTE CLAUSE IN SECTION 80-I(6) IS APPLICABLE ONLY TO THE QUANTU M OF DEDUCTION, WHEREAS, THE GROSS TOTAL INCOME UNDER SECTION 80B(5 ) WHICH IS ALSO REFERRED TO IN SECTION 80-I(1) IS REQUIRED TO BE COMPUTED IN THE MANNER PROVIDED UNDER THE ACT WHICH PRESUPPOSES THAT THE GROSS TOTAL INCOME SHALL BE ARRIVED AT AFTER ADJUST ING THE LOSSES OF THE OTHER DIVISION AGAINST THE PROFITS DERIVED FROM AN INDUSTRIAL UNDERTAKING. TO SAY THAT UNDER SECTION 80-I(6) THE PROFITS DERIVED FROM ONE INDUSTRIAL UNDERTAKING CANNOT BE SET OFF A GAINST LOSS SUFFERED FROM ANOTHER AND THAT THE PROFIT IS REQUIR ED TO BE COMPUTED AS IF THE PROFIT MAKING INDUSTRIAL UNDERTA KING WAS THE ONLY SOURCE OF INCOME WOULD ALMOST RENDER THE PROVI SIONS OF SECTION 80A(2) OF THE ACT NUGATORY. SECTIONS 80A(2) AND 80B(5) ARE DECLARATORY AND APPLY TO ALL THE SECTIONS FALLI NG IN CHAPTER VI- A. THEY IMPOSE A CEILING ON THE TOTAL AMOUNT OF DED UCTION AND THEREFORE THE NON OBSTANTE CLAUSE IN SECTION 80-I(6 ) CANNOT RESTRICT THE OPERATION OF SECTIONS 80A(2) AND 80B(5) WHICH O PERATE IN DIFFERENT SPHERES. THE GROSS TOTAL INCOME OF THE AS SESSEE HAS FIRST GOT TO BE DETERMINED AFTER ADJUSTING LOSSES ETC., A ND IF THE GROSS 92 TOTAL INCOME OF THE ASSESSEE IS NIL THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTIONS UNDER CHAPTER VI-A OF THE AC T. 101 IN THE ABOVE DECISION, THE HON'BLE APEX COURT HAS CLEARLY EXPLAINED THE PROVISIONS OF SECTION 80-I(6) AND 80B (5). SINCE SECTION 80B(5) IS STARTING WITH NON-OBSTANTE CLAUSE, THEREF ORE FULL EFFECT HAS TO BE GIVEN TO THE SAME. IN ANY CASE, BY REDUCING THE LO SS OF POWER PLANT FROM THE OTHER BUSINESS THE ASSESSEE IS RATHER LOSING TH E DEDUCTION ON THE OTHER BUSINESS INSTEAD OF GETTING ANY BENEFIT. THER EFORE, IN VIEW OF THE DECISION OF HON'BLE APEX COURT, WE DECIDE THIS ISSU E IN FAVOUR OF THE ASSESSEE. 102 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 251/CHD/2013 IS PARTLY ALLOWED. ITA NO. 372/CHD/2013 REVENUES APPEAL 103 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: 1 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN PERMITTING THE ADDITIONAL D EPRECIATION ON THE POWER PLANT WHILE THE GROUND OF APPEAL BEFORE THE L D. CIT(A) WAS ELIGIBILITY OF SET OFF CLAIM OF LOSS OF POWER PLANT AGAINST THE INCOME OF RICE MILLING IN VIEW OF SECTION 80AI(5) OF INCOME - TAX ACT, 1961. 2 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE DEPRECIATION IS A LLOWED WHEN IN PARA 8.4 OF THE ORDER LD. CIT(A) HAS HELD THAT THE PURCH ASE OF NEW PLANT AND MACHINERY IS UNVERIFIED AND NOT SUPPORTED BY DOCUME NTS. 3 WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 6,00, 00,000/- ON ACCOUNT OF DIFFERENCE IN S TOCK FOUND DURING THE COURSE OF SEA RCH MERELY ON THE GROUNDS THAT THE BUSINESS OF THE ASSESSEE IS VOLUMI NOUS AND IT IS NOT EXPECTED FROM THE ASSESSEE TO RECONCILE THE ALLEGED STOCK DIFFERENCE. 104 GROUND NO.1 & 2 - AFTER HEARING BOTH THE PARTIE S WE FIND THAT WHILE ADJUDICATING THE ISSUE REGARDING CLAIM OF LOSS FROM POWER PLANT AGAINST THE OTHER INCOME OF THE ASSESSEE, THE LD. CIT(A) OB SERVED AT PARA 9.3 & 9.3.1 AS UNDER:- 9.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSES SEE AND THE IMPUGNED ORDER. THE POWER PLANT NO DOUBT IS ELIGIBL E FOR DEDUCTION U/S 80IA (4) AS STATED BY THE AO. HOWEVER , THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION. HOWEVER IT IS NOT A QUESTION OF THRUSTING THE EXEMPTION ON THE ASSESSEE AS CONTENDED. THE INCOME FROM THE POWER PLANT OTHERWIS E IS FROM A SOURCE WHICH IS EXEMPT TO TAX, SO LOSS ARISING FROM THEREIN CANNOT BE SET OFF AGAINST PROFITS FROM A DIFFERENT SOURCE OR INCOME UNDER 93 A DIFFERENT HEAD, WHICH IN THIS CASE AT HAND IS INC OME FROM RICE MILLING. FURTHERMORE, THE ASSESSEE IS CLAIMING ADDI TIONAL DEPRECIATION I.R.O ITS ADDITIONS TO P&M, WHICH INCL UDES POWER PLANT. WHILE ADJUDICATING THE APPEAL FOR AY 89-09, THE POWER PLANT HAS BEEN HELD TO BE COMMISSIONED IN AUGUST 20 08, BASED ON THE DIRECTORS REPORT. IN OTHER WORDS, THE PREVIOUS YEAR RELEVANT TO THIS AY IS TREATED AS THE INITIAL YEAR AND IT IS WITH THIS REASON THAT THE ADDITIONAL DEPRECIATION CLAIMED ON THE POW ER PLANT (ONLY) AS INTER-ALIA RAISED IN THE ADDITIONAL GROUND OF AP PEAL IS ALLOWED TO BE AVAILED OFF. CONSEQUENTLY, I UPHOLD THE DISALLOW ANCE MADE BY THE AO IN NOT PERMITTING THE SET-OFF OF THE LOSS. T HE ASSESSEE FAILS ON THIS GROUND. 9.3.1 CONSEQUENTLY , THE AO IS DIRECTED TO ALLOW TH E CLAIM OF ADDITIONAL DEPRECIATION AS CLAIMED IN ADDITIONAL GR OUND NO. 4 (REFER PARA 6 ) I.R.O THE POWER PLANT ONLY. ASSESSE E THEREFORE PARTLY SUCCEEDS ON THIS ADDITIONAL GROUND RAISED. THE ABOVE CLEARLY SHOWS THAT LD. CIT(A) HAD NOT ALL OWED THE SET OFF OF LOSSES OF POWER PLANT AGAINST OTHER INCOME BUT HAD ALLOWED THE ADDITIONAL DEPRECIATION TO THE ASSESSEE. 105 BEFORE US, THE LD. DR POINTED OUT THAT PROVISIO N FOR ADDITIONAL DEPRECIATION U/S 32(I)(IIA) IN CASE OF POWER PLANT CAME ONLY FORM ASSESSMENT YEAR 2013-14 AND, THEREFORE, THE CIT(A) WAS NOT JUSTIFIED. 106 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE ADMITTED THIS POSITION 107 AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT SECTION 32(I)(IIA) READS AS UNDER:- (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (O THER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING 41 [OR IN THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER], A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PL ANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) : PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF (A) TO (D) NOT RELEVANT THE PLAIN READING OF THE ABOVE PROVISION SHOWS THA T IN CASE OF THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER, T HE PROVISION FOR ALLOWANCE OF ADDITIONAL DEPRECIATION WAS INSERTED B Y FINANCE AC, 2012 W.E.F. 1.4.2013, THEREFORE, THE ADDITIONAL DEPRECIA TION CAN BE CONSIDERED IN CASE OF ASSESSEE ENGAGED IN THE BUSINESS OF GENE RATION OR DISTRIBUTION OF POWER ONLY FORM ASSESSMENT YEAR 2013-14. THEREF ORE, WE SET ASIDE THE 94 ORDER OF LD. CIT(A) AND HOLD THAT ADDITIONAL DEDUCT ION @ 20% IS NOT ALLOWABLE IN THE CASE OF ASSESSEE AGAINST POWER PLA NT. 108 GROUND NO.3 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE SEARCH IT WAS NOTICED THAT STOCK AS PER BOOKS WAS R S. 780.15 CRORES AND STOCK PERTAIN TO DIFFERENT GOVERNMENT AGENCIES WAS RS. 80 CRORES. THE PHYSICAL STOCK FOUND DURING THE SEARCH IN EIGHT GOD OWNS WAS VALUED AT RS. 786 CRORES EXCLUDING THE STOCK BELONGING TO DI FFERENT GOVERNMENT AGENCIES. IN RESPONSE TO THE QUERY THAT WHY DIFFERE NCE OF RS. 6 CRORES SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE, IT WAS STATED THAT ON STOCK TAKING THE VALUE OF BARDANA WAS TAKEN ON ESTI MATED BASIS AT UNIFORM RATE WHEREAS THE SAME HAS TO BE VALUED AT MARKET RA TE. THE BILLS OF BARDANA WERE ALSO PRODUCED BEFORE THE ASSESSING OFF ICER. HOWEVER, ASSESSING OFFICER OBSERVED THAT SINCE BOOKS OF ACCO UNT WERE NOT PRODUCED, THEREFORE, ADDITION IS REQUIRED TO BE MAD E AND CONSEQUENTLY HE ADDED THE SUM OF RS. 6 CRORES AS UNSECURED INVESTME NT U/S 69 OF THE ACT. 109 ON APPEAL BEFORE THE CIT(A), SUBMISSIONS MADE B EFORE ASSESSING OFFICER WERE REITERATED. IT WAS FURTHER STATED THAT ASSESSEE HAD ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME ALONG WITH BOOKS OF ACCOUNT BUT THE ASSESSING OFFICER HAS NOT TAKEN THE TROUBLE TO EXAMINE THE BOOKS AND, THEREFORE, IT CANNOT BE SAID THAT AS SESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNT. IN ANY CASE, THE DIF FERENT WAS ONLY RS. 5.85 CRORES WHEREAS THE ADDITION HAS BEEN MADE AT R S. 6 CORES. THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS FOUND THAT D URING THE SEARCH, IT WAS OBSERVED WHILE ASKING A QUESTION FROM CHAIRMAN AND MANAGING DIRECTOR, STOCK HAD BEEN VALUED ON APPROXIMATE BASI S, WHICH SHOWS THAT EXACT VALUATION HAS NOT BEEN DONE AND THEREFORE, AD DITION WAS NOT JUSTIFIED AND ACCORDINGLY HE DELETED THE ADDITION. 110 BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A). HE S TRONGLY SUPPORTED THE ORDER OF CIT(A). 95 111 ON THE OTHER HAND, THE LD. DR SUPPORTED THE OR DER OF ASSESSING OFFICER. 112 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT LD. CIT(A) HAS DECIDED THIS ISSUE VIDE PARA 10.2 WHICH READS AS UN DER:- 10.2 I HAVE PERUSED THE SUBMISSIONS OF THE ASSESSE E AND THE IMPUGNED ORDER. IT EMERGES FROM PAGE 34-35 OF THE I MPUGNED ORDER THAT ON THE DATE OF SEARCH THAT IS 12-02-2009 , THE STOCK AS PER THE BOOKS OF THE ASSESSEE WAS RS. 780.15 CRORES AND ON COMPARING WITH PHYSICAL INVENTORY, AN EXCESS OF RS. 6 CRORES WAS FOUND WHICH WERE REQUIRED TO BE EXPLAINED BY THE AS SESSEE. HOWEVER AS NO BOOKS OF ACCOUNTS WERE PRODUCED OTHER THAN A FEW BILLS OF BARDANA, IT WAS HELD THAT THE DIFFERENCE R EMAINED RECONCILED. I REFER TO THE STATEMENT OF THE CMD REC ORDED IN THE COURSE OF SEARCH, REPRODUCED AT PAGE 35 OF THE IMPU GNED ORDER. IT IS VERY APPARENT FROM THE QUESTION ITSELF THAT THE PHYSICAL TAKING OF THE STOCK HAS BEEN WORKED OUT TO APPROX. 786 CRORES AS AGAINST RS. 780.15 CRORES + 70 CRORES GOVT. STOCK. IT EMERG ES THAT THE CMD SHRI BALBIR SINGH UPPAL U/S 132(4) DATED 30.02. 2009 STATED THAT THE DIFFERENCE WOULD BE EXPLAINED LATER, WHILE ALSO STATING THAT 7 CRORE GOVERNMENT STOCK AS PER THE BOOKS HAD NOT BEEN COUNTED IN PHYSICAL STOCKTAKING WHICH WERE LYING AS FEROZEPUR BHAAMRI ETC. HOWEVER DURING ASSESSMENT PROCEEDING I T WAS STATED THAT ON STOCK TAKING THE VALUE OF BARDANA WAS TAKEN ON ESTIMATE BASIS AT UNIFORM RATE WHEREAS THE SAME HAD TO BE VA LUED AT MARKET RATE. BE THAT AS IT MAY, I FIND THAT THE VAL UE OF THE PHYSICAL INVENTORY HAS BEEN TAKEN ON APPROXIMATION AND THERE IS NO SPECIFIC DETAILS OF THE QUANTITY / VALUE OF WHICH S TOCK WAS NOT RECONCILED. THE ASSESSEE BUSINESS IS VOLUMINOUS AND IN THE ABSENCE OF SPECIFIC FINDINGS, I DO NOT THINK IT APP ROXIMATE TO EXPECT HIM TO RECONCILE THE ALLEGED STOCK DIFFERENC E ESPECIALLY WHEN THE BOOKS / STOCK REGISTER HAVE NOT BEEN REJEC TED. CONSEQUENTLY, I AM INCLINED TO DELETE THE ADDITION MADE BY THE AO. THE ASSESSEE SUCCEEDS ON THIS GROUND OF APPEAL. 113 THE CAREFUL PERUSAL OF THE ABOVE PARA SHOWS THA T LD. CIT(A) HAS CORRECTLY DECIDED THE ISSUE WITH GOOD REASONING. DU RING THE SEARCH, THE FOLLOWING QUESTION WAS RAISED IN RESPECT OF STOCK W HICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER AT PAGES 35, WHI CH READS AS UNDER:- Q.5 AS THE BOOKS OF ACCOUNTS STOCK AS ON 12.02.20 09 IS RS. 780.15 CRORES + 70 CRORES GOVT. STOCK WHEREAS ON PH YSICAL TAKING STOCK HAS WORKED OUT TO APPROX. 786 CRORES. PLEASE EXPLAIN THE DIFFERENCE (REFER ANNEXURE A-2) A.5 IT SHALL BE EXPLAINED LATER. HOWEVER I WANT TO CLARIFY THAT 70 CRORES GOVT. STOCK AS PER BOOKS HAS NOT BE COUNTED IN PHYSICAL STOCK TAKING. OUR GOVERNMENT STOCK IS LYING AT FERO ZEPUR BHAAMRI ETC. WHICH HAS NOT BEEN COUNTED IN PHYSICAL STOCK T AKING OF RS. 786 CRORES. 114 THE QUESTION ITSELF DEPICTS THAT STOCK HAS BEEN VALUED ON APPROXIMATE BASIS. FURTHER, THE BOOKS OF ACCOUNT WE RE ALWAYS TAKEN BY THE ASSESSEE AND IT HAS NOT BEEN DENIED BEFORE US T HAT BOOKS WERE NOT 96 TAKEN BEFORE THE ASSESSING OFFICER. IN ANY CASE TH E BILLS OF BARDANA HAVE BEEN PRODUCED AND, THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND CONFIRM HIS ORDER. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED. 115 IN THE RESULT, APPEALS OF THE ASSESSEE AS WELL AS T HE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.2.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26.2.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR