M/s. Priya Printek, Daman V. The Income tax Officer,Vapi Ward-4, Daman

ITA 2742/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1766 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 05-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWARI
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 80IB; 80IA; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 2742/AHD./2009 ASSESSMENT YEAR : 2005-2006 M/S. PRIYA PRINTEK, DAMAN -VS.- INCOME TAX OFFICER, VAPI, WARD-4, DAMAN (P.A. NO. AAHFP 7674 C) (APPELLANT) (R ESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SHRI VINOD TANWARI, S R. D.R. O R D E R PER SHRI T,K. SHARMA, JUDICIAL MEMBER :- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER DATED 05.06.2009 OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS)-I, SURAT FOR THE ASSESSMENT YEAR 2005-2006. 2. DESPITE THE SERVICE OF NOTICE OF HEARING SENT TH ROUGH REGISTERED POST WITH A/D, NEITHER ANYBODY APPEARED FROM THE SIDE OF ASSESSEE NOR ANY APPLICATION OF ADJOURNMENT WAS RECEIVED. WE, THEREFORE, PROCEED TO DECIDE THIS APPEAL ON THE BASIS OF THE SUBMISSION MADE BY THE LD. DEPARTMENTAL REPRESENTATIVE AND THE MATERIAL AVAILA BLE ON RECORD. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FI RM. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOTAL INCOME O F RS. NIL ON 29.10.2005. IN THIS RETURN OF INCOME, AN AMOUNT OF RS.6,18,451/- IS CLAIMED AS DE DUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT, 1961. THE RETURN OF INCOME WAS ACCOMPANIED BY COMPUTATION OF INCOME AND AUDITED ACCOUNTS ALONGWITH AUDIT REPORT IN FORM NO. 3CB AND 10CCB. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF REPROCESS GRANULES. THE MANUFACTURING UNIT IS LOCATED IN THE UNION TERRITOR Y OF DAMAN, WHICH IS A BACKWARD AREA AS SPECIFIED IN THE VIIITH SCHEDULE TO THE INCOME TAX ACT. THE AUDITOR IN FORM NO. 10CCB STATED THAT THE ASSESSEE HAD STARTED ITS MANUFACTURING ACT IVITY ON 31.03.2004 RELEVANT TO THE ASSESSMENT 2 YEAR 2004-05. THEREFORE, THE YEAR UNDER CONSIDERATI ON IS THE SECOND YEAR OF MANUFACTURING ACTIVITY OF THE ASSESSEE. 5. THE A.O. FRAMED THE ASSESSMENT UNDER SECTION 143 (3) ON 03.12.2007 WHEREIN HE DISALLOWED THE DEDUCTION CLAIMED UNDER SECTION 80IB AT RS.6,18,451/- ON THE GROUND THAT FACTORY LICENSE ISSUED BY CHIEF INSPECTOR OF FACTORY WAS IS SUED ON 08.02.2007. THE ASSESSEE CARRIED THE MATTER IN APPEAL AND THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) AFTER CONSIDERING THE VARIOUS DECISIONS TOOK THE VIEW THAT ONLY LICENSED UNDERTAKING IS ENTITLED FOR DEDUCTION UNDER SECTION 80IB OF THE INCOME TAX ACT. THE REASONING G IVEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS CONTAINED IN PARA 2.3.6 OF T HE IMPUGNED ORDER, WHICH READS AS UNDER :- 2.3.6. FROM THE ABOVE, IT IS VERY CLEAR THAT THE HON'BLE SUPREME COURT HAS HELD THAT IT WOULD BE AGAINST PUBLIC POLI CY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE, OF ANY EXPENDITURE INCURRED IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE OR ANY PENALTY IMPOSED UNDER ANOTHER STATUTE. IF THE DEDUCTIONS CLAIMED BY THE ASSESSEE WERE ALLOWED, THE PENAL PROVISIONS OF THE FOREIGN EXCHANGE (REGULATION) ACT WOULD BECOME MEANINGLESS. IT HAS ALSO TO BE BORNE IN MIND THAT E VASION OF LAW CANNOT BE A TRADE PURSUIT. THE HON'BLE BOMBAY HIGH COURT H AS HELD THAT CONTINUING TO WORK IN THE FACTORY WITHOUT WORK IS A CONTINUOUS OFFENCE UNDER THE FACTORIES ACT. THEREFORE, AS OBSERVED BY THE HON'BLE HIGH COURT IN THE CASE OF MADRAS MACHINE TOOLS MANUFACTU RERS LTD. (SUPRA) THE UNDERTAKING MEANS LICENSED UNDERTAKING. AS ST ATED ABOVE, THE APPELLANT CAN ONLY TAKE ONE STAND AND THAT IS EITHE R IT HAD NOT STARTED THE PRODUCTION BEFORE 31.03.2004 OR IT HAS VIOLATED THE PROVISIONS OF FACTORIES ACT. IN EITHER CASE, IN VIEW OF THE ABOVE DISCUSSION DEDUCTION U/S. 80IB CANNOT BE ALLOWED. THE APPELLANT HAS FAIL ED TO SHOW THE APPLICABILITY OF SECTION 6(2) OF THE FACTORIES ACT IN ITS CASE BY PRODUCING COPY OF APPLICATION THAT WHEN IT STARTED THE PRODUC TION THREE MONTHS HAD ALREADY PASSED FROM THE DATE OF APPLICATION AND NO COMMUNICATION WAS RECEIVED FROM THE INSPECTOR OF FACTORIES. THE FACTS OF THE CASE ARE VERY CLEAR THAT THE APPLICANT HAS VIOLATED THE RULE-4 AS WELL AS RULE-3(1) OF THE GOA, DAMAN & DIU FACTORIES RULES, 1985. THE DIS ALLOWANCE MADE BY THE A.O. IS, THEREFORE, CONFIRMED AND THESE GROUNDS OF APPEAL ARE DISMISSED. 6. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), ONE MORE GROUND REGARDING DISALLOWANCE OF DEPRECIATION OF RS.85,137/- WAS RAI SED. WITH REGARD TO THIS GROUND, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT AS PE R THE DECISION OF ITAT, SPECIAL BENCH, 3 AHMEDABAD IN THE CASE OF VAHID PAPER CONVERTERS [28 9 ITR (AT) 10], THE ASSESSEE IS REQUIRED TO CLAIM DEPRECIATION BEFORE COMPUTING PROFIT UNDER SE CTION 80IB OF THE INCOME TAX ACT, 1961. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ACCORDI NGLY DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF LEARNED COMMISS IONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS :- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN SU STAINING THE ORDER OF THE LOWER AUTHORITY, DISALLOWING DEDUCTION CLAIM ED BY THE ASSESSEE U/S. 80IB, MERELY ON THE GROUND THAT FACTORY LICENSE WAS ISSUED AFTER 31.03.2004. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN NO T CONSIDERING THE FACT THAT MANUFACTURING ACTIVITIES WERE COMMENCED B EFORE 31.03.2004. (3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FURTHER ERR ED IN NOT DEDUCTING DEPRECIATION PERTAINING TO EARLIER PERIOD. (4) THE APPELLANT CRAVES LEAVE TO ADD, ALTE OR VARY ANY OF THE GROUNDS OF APPEAL. 7. AT THE TIME OF HEARING ON BEHALF OF REVENUE SHRI VINOD TANWARI APPEARED AND CONTENDED THAT AS PER RULE 3(1) OF GOA, DAMAN & DIU FACTORY R ULES, 1985, NO SITE SHALL BE USED FOR THE LOCATION OF A FACTORY OR NO BUILDING IN A FACTORY S HALL BE CONSTRUCTED, RECONSTRUCTED, EXTENDED, TAKEN INTO USE AS A FACTORY OR PART OF A FACTORY OR ANY OTHER EXTENSION OF PLANT OR MACHINERY SHALL BE CARRIED OUT IN A FACTORY UNLESS PREVIOUS PERMISS ION IN WRITING IS OBTAINED FROM THE CHIEF INSPECTOR OF THE FACTORIES. ADMITTEDLY IN THIS CASE, LICENSE FOR THE FACTORY WA S ISSUED ON 08.02.2007 AND, THEREFORE, IT IS EVIDENT THAT NO MA NUFACTURING ACTIVITY HAS BEEN STARTED BY THE ASSESSEE BEFORE 08.02.2007. WITH REGARD TO GROUND NO. 3, THE LD. D.R. SUBMITTE D THAT RECENTLY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PLASTIBLENDS INDIA LIMITE D VS.- ADDITIONAL CIT & OTHERS [(2009) 318 ITR 352 (BOM.) (FULL BENCH)] HAS HELD THAT PROFIT C ANNOT BE ENHANCED BY DEVICE OF DISCLAIMING CURRENT DEPRECIATION FOR COMPUTING THE BENEFIT AVAI LABLE TO THE ASSESSEE UNDER SECTION 80IA OF THE INCOME TAX ACT. AS THE ISSUE IS SQUARELY COVERED BY THIS DECISION OF THE HON'BLE BOMBAY HIGH COURT, IT MAY BE HELD THAT IF AT ALL DEDUCTION IS T O BE ALLOWED UNDER SECTION 80IB, CURRENT YEAR AS WELL AS EARLIER YEAR UNABSORBED DEPRECIATION IS REQ UIRED TO BE DEDUCTED. 4 8. HAVING HEARD THE LD. D.R., WE HAVE CAREFULLY GON E THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ONLY REASON GIVEN BY THE A.O. IS THAT TH E ASSESSEE-COMPANY HAS STARTED THE PRODUCTION WITHOUT OBTAINING THE LICENSE AS REQUIRE D UNDER RULE 3(1) OF GOA, DAMAN & DIU FACTORIES RULES, 1985. AS AGAINST THIS, BEFORE BOTH THE DEPARTMENTAL AUTHORITIES BELOW, THE ASSESSEE CONTENDED THAT AS PER AUDIT REPORT, THE MA NUFACTURING ACTIVITY COMMENCED ON 31.03.2004. THE ASSESSEE STATED THAT THE FACTORY HA S STARTED ITS PRODUCTION ON 31.03.2004, WHICH IS EVIDENT FROM THE SSI REGISTRATION CERTIFICATE. F URTHER, THE ASSESSEE HAS STATED THAT PURCHASES AND SALES WERE MADE AS ON 31.03.2004. IN THIS BACKG ROUND, WHETHER THE ASSESSEE-COMPANY HAS STARTED ITS PRODUCTION OR NOT COULD HAVE BEEN VERIF IED BY THE A.O. BY MAKING SPOT ENQUIRIES IN THIS REGARD. ADMITTEDLY NO SUCH ENQUIRY HAS BEEN MA DE. THE SAME ISSUE WAS DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN I.T.A. NOS.22 53 & 2254/AHD/2009 FOR THE ASSESSMENT YEARS 2005-06 & 2006-07, ORDER DATED 16.11.2009 IN THE CASE OF ADARSH PACKAGING VS.- ITO, WHEREIN THE TRIBUNAL DECIDED THE ISSUE BY OBSERVING AS UNDER :- THE AHMEDABAD BENCHES OF THE TRIBUNAL HAVE DEALT W ITH THE IDENTICAL QUESTION IN A FEW CASES AND HAVE TAKEN THE VIEW THAT IF THER E IS EVIDENCE TO SHOW THAT THE ASSESSEE ACTUALLY COMMENCED THE MANUFACTURING ACTIV ITY ON OR BEFORE 31-3-2004, THEN IRRESPECTIVE OF THE FACT THAT THE FACTORY LICE NCE WAS OBTAINED LATER THAN 31-3- 2004, THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECT ION 80IB CANNOT BE DENIED. IT HAS BEEN OBSERVED IN THESE ORDERS THAT THE ASSESSEE MAY BE PUNISHABLE UNDER THE FACTORIES ACT AND RULES MADE THEREUNDER FOR VIOLATI ON OF A CONDITION, BUT SO LONG AS FACTUALLY THE PRODUCTION HAS COMMENCED ON OR BEF ORE 31-3-2004, THE DEDUCTION CANNOT BE REFUSED. THE LEAD ORDER IS THE ONE DATED 5-6-2009 IN ITA NOS.1004 AND 1005/AHD/2009 IN THE CASE OF ITO VS. PADMEY IMPEX ( ASSESSMENT YEARS 2005- 2006 AND 2006-2007). IN THIS CASE ALSO THE AO HAD D ENIED THE DEDUCTION UNDER SECTION 80IB ONLY ON THE GROUND THAT THE ASSESSEE W AS NOT HAVING THE FACTORY LICENCE BEFORE IT STARTED THE MANUFACTURING ACTIVIT Y. THE CIT(A) HAD HELD THAT THIS WAS NOT MATERIAL WHILE PROCESSING THE CLAIM UNDER S ECTION 80IB OF THE IT ACT AND WHAT WAS MATERIAL WAS WHETHER MANUFACTURING ACTIVIT IES WERE CARRIED OUT BY THE ASSESSEE DURING THE YEAR OR NOT. AFFIRMING THIS VIE W OF THE CIT(A) AND DISMISSING THE APPEALS FILED BY THE DEPARTMENT, THE TRIBUNAL H ELD THAT THE FACT THAT THE FACTORY LICENCE WAS GRANTED SUBSEQUENT TO THE COMMENCEMENT OF THE PRODUCTION WAS NOT RELEVANT FOR THE PURPOSE OF PROCESSING THE CLAIM UN DER THE SECTION AND THAT IF THERE IS ANY VIOLATION OF ANY PROVISIONS OF OTHER STATUTE S THEN THE ASSESSEE MAY HAVE TO EXPLAIN THE SAME TO THE AUTHORITIES EXECUTING THOSE LAWS AND THE ASSESSEE MAY EVEN FACE PENAL CONSEQUENCES UNDER THOSE LAWS BUT T HAT CANNOT AFFECT THE CLAIM UNDER THE INCOME TAX ACT WHICH ONLY REQUIRES THE AS SESSEE TO MANUFACTURE OR PRODUCE AN ARTICLE OR THING. THUS THE TRIBUNAL UPHE LD THE ORDER OF THE CIT(A) GRANTING THE DEDUCTION. A SIMILAR ORDER WAS PASSED BY THE SAME BENCH ON THE SAME DAY IN THE CASE OF ITO VS. M/S. SAMRAT HEALTHC ARE, IN ITA NO.1006/AHD/2009 FOR THE ASSESSMENT YEAR 2005-2006. THE ORDER OF THE TRIBUNAL 5 IN THE CASE OF PADMEY IMPEX (SUPRA) WAS FOLLOWED BY ANOTHER BENCH IN AHMEDABAD IN ITA NO.1536/AHD/2009 DATED 28-8-2009 F OR THE ASSESSMENT YEAR 2005-2006. IN THIS ORDER, IT WAS ALSO OBSERVED THAT IT IS WELL SETTLED POSITION OF THE LAW THAT A CONDITION (THAT MANUFACTURE OR PRODUCTIO N CAN BE CARRIED OUT ONLY AFTER OBTAINING THE FACTORY LICENCE) WHICH HAS NOT BEEN I MPOSED BY THE LEGISLATURE FOR GRANTING CERTAIN DEDUCTIONS CANNOT BE IMPOSED BY AN Y OTHER AUTHORITIES. IN THIS VIEW OF THE MATTER, THE TRIBUNAL ALLOWED THE ASSESS EES CLAIM FOR DEDUCTION UNDER SECTION 80IB THOUGH THE PRODUCTION HAS STARTED IN T HE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-2005 FOR WHICH THE FACTORY LICENCE WAS OBTAINED ONLY ON 3-6-2004. 9. IN THE LIGHT OF THE AFORESAID ORDERS OF THE AHM EDABAD BENCHES OF THE TRIBUNAL THE FACT THAT IN THE PRESENT CASE THE ASSESSEE OBTAINED THE FACTORY LICENCE ONLY ON 08-2-2007, BEFORE 31-3- 2004 IS IRRELEVANT FOR THE PURPOSE OF SECTION 80IB. THE QUESTION HOWEVER REMAINS AS TO WHETHER THE ASSESSEE ACTUALLY STARTED PRODUCTION BEFORE 31- 3-2004. IN THIS CONNECTION, THE ASSESSMENT ORDER ITSELF MENTIONED THAT ON PERUSAL OF THE SSI R EGISTRATION CERTIFICATE IT IS SEEN THAT THE PRODUCTION STARTED ON 31-3-2004. IT THEREFORE APPEA RS TO US THAT THE SSI REGISTRATION CERTIFICATE WAS PRODUCED BEFORE THE AO. THE CIT(A) HAS HOWEVER TAKEN THE VIEW THAT SINCE THE FACTORY LICENSE WAS ISSUED ONLY ON 08.02.07 AND IT IS AN OF FENCE PUNISHABLE UNDER THE FACTORIES ACT AND THE RULES FRAMED THEREUNDER TO COMMENCE MANUFACTURI NG ACTIVITY BEFORE ISSUE OF THE SAID LICENSE, IT WOULD BE AGAINST PUBLIC POLICY TO ALLOW THE BENEFIT OF DEDUCTION UNDER ONE STATUTE IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN VIOLATION OF THE PROVISIONS OF ANOTHER STATUTE WHICH ALSO INVITES PENALTY UNDER THAT STATU TE. THUS EVEN THE CIT(A) DOES NOT APPEAR TO HAVE DOUBTED THE CLAIM OF THE ASSESSEE THAT THE MAN UFACTURING ACTIVITY ACTUALLY COMMENCED BEFORE THE 31-3-2004. THE REASONING OF THE CIT(A) H AS NOT BEEN ACCEPTED AS CORRECT IN THE AFORESAID ORDERS PASSED BY THE AHMEDABAD BENCHES OF THE TRIBUNAL. THEREFORE RESPECTFULLY FOLLOWING THEM, WE HOLD THAT THE ASSESSEE IS ELIGIB LE FOR THE DEDUCTION UNDER SECTION 80IB AS CLAIMED AND ACCORDINGLY DIRECT THE AO TO ALLOW THE SAME. 10. WITH REGARD TO THE GROUND NO. 2, IT IS MANDATOR Y TO DEDUCT CURRENT AS WELL AS EARLIER YEAR DEPRECIATION TO ARRIVE AT THE FIGURE OF PROFIT DERI VED FROM INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE HON'BLE BOMBAY HI GH COURT IN THE CASE OF PLASTIBLENDS INDIA LIMITED(SUPRA) ALSO HELD THAT PROFIT CANNOT BE ENHA NCED BY THE DEVISE OF DISCLAIMING CURRENT DEPRECIATION. IN VIEW OF THIS, WE DIRECT THE A.O. T O RE-COMPUTE THE DEDUCTION UNDER SECTION 80IB 6 AFTER DEDUCTING UNABSORBED DEPRECIATION AS WELL AS CURRENT YEAR DEPRECIATION. THIS GROUND OF APPEAL IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. THE ORDER PRONOUNCED IN THE COURT ON 11.12.200 9 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11/ 12 / 2009 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT 3) CIT(A) CONCERNED; (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUT Y REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.