ACIT 6(3), MUMBAI V. MANOHAR CANISTERS P.LTD, MUMBAI

ITA 3287/MUM/2013

• Counselvise Citation: 328719914 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-10-2014
• Assessment Year: 1994-1995
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTOSH MANKOSKAR SR
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Rectification of order
• Section: 263; 154

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , ,, , !'# , ,, , $ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY,JUDICIAL MEMBER /.ITA NO.3287/MUM/2013, % & /ASSESSMENT YEAR-1994-95 ASTT. CIT-6(3) ROOM NO.522, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS MANOHAR CANISTERS PVT. LTD. B-34, ROYAL INDUSTRIAL ESTATE NAIGAUM CROSS ROAD, WADALA MUMBAI-400 031. PAN: AAACM 2888 F ( / APPELLANT) ( / RESPONDENT) % '# /ASSESSEE BY : SHRI M. SUBRAMANIAN / REVENUE BY : SHRI SANTOSH MANKOSKAR SR.AR / DATE OF HEARING : 30-09 -2015 / DATE OF PRONOUNCEMENT : 09 -10-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) )*# ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.22.02.2013 OF CIT(A)-8, MU MBAI THE ASSESSING OFFICER(AO),HAS FILED FOLLOWING GROUNDS OF APPEAL: CHALLENGING THE ORDER DATED 22.02.2013 OF CIT(A)-8, MUMBAI,THE ASSESSING OFFICER(AO)HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION OF RS. 6, 98, 098/- U/S.80I OF I. T. ACT, 1961 FOR THE A. Y. 199 4- 95. 2. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD. CIT(A) ERRED IN NOT FOLLOWING THE RATIO OF DECISION OF JURISDICTIONAL HIGH COURT IN T HE CASE OF ADDL. CIT VS. SUESSIN TEXTILES BALL BEARINGS UD.[1986] 26 TAXMAN 414, WHICH HAD CLEARLY HELD THAT THE CONDITION NOS.(I) AND (H) OF SECTION 801(2) HAVE TO BE EXAMINED WITH REFERENCE TO FIRST YEAR OF OPERATION WHICH IN THE PRESENT CASE WAS A. Y.1987-88 WHEN THE ASSESSEE COMPANY (T RANSFEREE) ACQUIRED THE BUSINESS OF A FIRM M/S TRIMURTI CORRUPACK, ( TRANSFEROR,) AS A GOING CONCERN. 3. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF ASSESSEE FOR DEDUCTION U/S 801 OF RS. 6, 98, 098/- FOR A. Y. 1994- 95,EVENWHEN THE ASSESSEE COMPANY ( TRANSFEREE) AT THE TIME OF ACQUIRING THE PREVIOUSLY USED MACHINERIES OF A FIRM M/S TRIMURTI CORRUPACK, ( TRANSFEROR,) ON 'TRANSFER' A S A GOING CONCERN IN A. Y.1987-88, HAS NOT COMPLIED WITH STIPULATED CONDITION IN CLAUSE(II) R . W. EXPLANATION 20F SUB-SECTION (2)OF SECTION 8010F THE ACT. 4. ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD. CIT(A) ERRED IN UPHOLDING THE ASSESSEE CLAIM OF 801 DEDUCTION FOR A. Y. 1994-95, WHEN IN THE INITIAL YEAR I.E. A. Y.1987-88 PREVIOUSLY USED MACHINERIES CONSTITUTED 100% OF THE VALUE OF PLANT & MACHINERIES OF BUSINESS OF THE ASSESSEE COMPANY (TRANSFEREE) 5.ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W THE LD. CIT(A) ERRED IN UPHOLDING ASSESSEE'S CLAIM OF DEDUCTION U/S.801 OF I. T. ACT, 1961BY ACC EPTING THE CONTENTION OF THE ASSESSEE THAT THE BUSINESS ACQUIRED BY THE ASSESSEE COMPANY FROM A F IRM AS A GOING CONCERN CANNOT BE SAID TO BE A CASE OF RECONSTRUCTION OR SPLITTING UP OF AN EXIST ING BUSINESS AND ALSO FAILING TO TAKE NOTE OF THE FACT THAT VALUE OF PREVIOUSLY USED PLANT & MACHINE RIES OF THE TRANSFEROR FIRM AT THE TIME OF TRANSFER ITA/3287/M/13/MANOHAR C,AY.94-95 2 VIOLATED THE CONDITION LAID DOWN IN CLAUSE (II) R. W. EXPLANATION 2 OF SUB-SECTION (2) OF SECTION 801 OF THE ACT THAT SUCH (PREVIOUSLY USED) MACHINERIES DID NOT CONSTITUTE MORE THAN 20% OF THE TOTAL VALUE OF PLANT & MACHINERIES OF THE BUSINESS OF TRA NSFEREE COMPANY. 6.THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 7.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. BRIEF FACTS: IN THIS CASE ORIGINAL ASSESSMENT WAS COMPLETED ON 2 7.9.96 U/S.143(3)OF THE ACT DETERMINING THE INCOME OF THE ASSESSEE AT RS.21.09 LACS, WHICH WAS ARRIVED AFTER THE DEDUCTION ALLOWED U/S. 80I OF THE ACT, AMOUNTING TO RS.6.98 LACS.THE ASSESSMENT W AS SUBSEQUENTLY RECTIFIED U/S.154 OF THE ACT ON 17.12.1996 AS THE 80I DEDUCTION WAS NOT ALLOWED ON ENHANCED INCOME. AFTER PASSING THE RECTIFICATION ORDER THE TOTAL INCOME WAS TAKEN AT R S,21.05 LACS WHEREIN DEDUCTION U/S. 80I WAS ALLOWED AT RS.7.01 LACS. LATER ON VIDE ORDER DT.30. 3.1999, PASSED U/S. 263 OF THE ACT THE CIT- V,MUMBAI, ANNULLED THE ORDER PASSED THE ORDER U/S. 154 .THE MATTER TRAVELLED UP TO THE TRIBUNAL AND ON 29.4.2009 IT SET ASIDE THE ISSUE OF DEDUCTIO N U/S. 80I TO THE FILE OF THE AO. IN THE FRESH ASSESSMENT PROCEEDINGS THE AO GAVE AN OPPORTUNITY A S DIRECTED BY THE TRIBUNAL TO SUPPORT ITS CLAIM.THE AO COMPLETED THE ASSESSMENT ON 20.12. 201 0, U/S.143 (3)R.W.S.254 OF THE ACT, DETERMINING INCOME OF THE ASSESSEE AT RS. 28,07,610 /-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DEDUCTION OF RS .6,98,098/- U/S. 80I OF THE ACT. ON PERUSAL OF THE DETAILS AVAILABLE ON RECORD THE AO NOTICED T HAT THE ASSESSEE HAD BEEN CARRYING ON MANUFACTURING ACTIVITIES SINCE 1987 BUT NO DEDUCTIO N U/S. 80I WAS CLAIMED ON THE GROUND THAT THE PLANT AND MACHINERY USED BY IT WERE ALREADY USED BY SOME OTHER ASSESSEE , THAT THE COST OF MACHINERY WAS RS.3.26 LACS, THAT THE ASSESSEE MADE FURTHER ADDITION TO PLANT AND MACHINERY OF RS.12.00 LACS AND RS.6.72 LACS IN A.Y.S. 1990-91 AN D 93-94, THAT THE ASSESSEE CLAIMED THE DEDUCTION U/S. 80I FOR THE FIRST TIME IN THE YEAR U NDER CONSIDERATION ON THE GROUND THAT THAT RATIO OF USED MACHINERY WAS LESS THAT 20% OF THE TOTAL VA LUE OF THE MACHINERY. THE AO FURTHER OBSERVED THAT THE ASSESSEE CO, WAS CREATED BY TAKI NG OVER THE EXISTING UNDERTAKING/BUSINESS IN THE NAME OF M/S.TRIMURTI CORRUPACKS, THAT NO NEW UN DERTAKING WAS CREATED IN 97-98 I.E. THE FIRST YEAR OF BUSINESS, THAT IT DID NOT FULFILL THE CONDI TION (I) OF 80I, THAT THE CO. WAS CREATED BY TRANSF ER OF OLD MACHINERY OF TRIMURTI, THAT THE CONDITION NU MBER (II) OF 80-I OF THE ACT WAS ALSO NOT FULFILLED. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTION CLAIMED BY IT U/S. 80-I SHOULD NOT BE DISALLOWED. VIDE ITS LETTER DT.14.12. 2010 THE ASSESSEE STATED THAT IT HAD TAKEN OVER THE LIABILITIES OF TRIMURTI, THAT IT DID NOT MAKE A NY CLAIM U/S. 80I AS IT HAD TAKEN OVER THE OLD MACHINE, THAT DURING AY 92-93 IT PURCHASED NEW MACH INERY, THAT THE COST OF THE OLD MACHINERY WENT BELOW 20% OF THE TOTAL COST OF PLANT AND MACHI NERY, THAT IT HAD CLAIMED DEDUCTION FOR THE FIRST TIME IN 1994-95 WHICH WAS THE 7 TH YEAR OF PRODUCTION.AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE, THE AO HELD THAT THE INTENTION BEHIND INTRODUCING THE SECTION WAS THAT THE NEW BUSINESS, UNDERTAKING SHOULD BE SET UP, THAT INDUST RIAL UNDERTAKING AS A RESULT OF RECONSTRUCTION WAS NOT ENTITLED TO MAKE THE CLAIM, THAT IT HAD MER ELY TAKEN OVER THE EXISTING BUSINESS, THAT IT DID NOT FULFILL THE CONDITION AS SPECIFIED IN SECTION 8 0I(2)(I)(II) OF THE ACT.FINALLY, HE HELD THAT THE INCOME OF THE ASSESSEE WOULD REMAIN AT RS.28.07 LA CS. ITA/3287/M/13/MANOHAR C,AY.94-95 3 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA). BEFORE HIM IT WAS ARGUED THAT THE C O. WAS INCORPORATED ON 7.7.96, THAT IT TOOK OVER THE ASSETS AND LIABILITIES OF TRIMURTI, THAT I T COMMENCES ITS BUSINESS WITH THE HELP OF SECOND HAND MACHINERY OF TRIMURTI, THAT THE ASSESSEES CAS E WAS NEITHER OF SPLITTING NOR OF RECONSTRUCTION OF OLD BUSINESS, THAT NOWHERE IT WAS STIPULATED THA T CONDITION FOR CLAIMING 80I DEDUCTION SHOULD BE FULFILLED IN THE VERY FIRST YEAR, THAT IT DID NO T ADD ANY NEW MACHINERY FOR ABOUT 3 YEARS, THAT NEW MACHINERY WORTH RS.24.16 LACS WAS ADDED IN A.Y. S 1990-91, 93-94 AND 94-95, THAT THE OLD MACHINERY WAS OF RS.3.26 LACS ONLY, THAT FROM AY 90 -91 THE PERCENTAGE OF OLD MACHINERY WENT BELOW 20%, THAT IT WAS ELIGIBLE TO CLAIM BENEFIT FO R 8 YEARS I.E. UPTO 1995, THAT THE CONDITIONS OF CARRYING ON MANUFACTURING ACTIVITIES AND EMPLOYING 10 OR MORE WORKERS HAD BEEN FULFILLED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER THE FAA DEFINED THE WORK RECONSTRUCTION AND REFERRED TO THE CASES OF EL ECTRONIC CORPORATION OF INDIA LTD. (151 ITR381), DEVSON LTD. (98 ITR 311), ORIENT PAPER MIL LS LTD. (94 ITR 73), GAIKWAD FOAM & RUBBER CO. LTD. (35 ITR 662).HE HELD THAT THE INDUS TRIAL UNIT WAS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF THE BUSINESS, THAT THE BUSINESS A CQUIRED BY NEW CORPORATE ENTITY ON A SUCCESSION BASIS COULD NOT BE TERMED RECONSTRUCTION, THAT THE NEW UNIT WAS SET UP WITH ITS OWN INVESTMENT. HE DIRECTED THE AO TO ALLOW THE DEDUCTION U/S. 80I OF THE ACT. 4. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE AO AND ARGUED THAT THE INDUSTRIAL UNDERTAKING WAS SET UP BY RECONSTRUCTION /SPLITTING-UP, THAT IT DID NOT CLAIM DEDUCTION IN THE FIRST YEAR OF PRODUCTION, THAT IT WAS NOT ENTIT LED TO CLAIM DEDUCTION IN THE YEAR UNDER APPEAL.THE AUTHORISED REPRESENTATIVE(AR) ARGUED THAT MACHINERY WAS LESS THAN 20% OF THE TOTA L MACHINERY OWNED BY THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION, THAT IT HAD FULFILLED ALL THE CONDITIONS STIPULATED BY THE ACT.HE RELIED UPON THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA DELIVERED IN THE CASE OF AVERY CYCLE INDUST RIES LTD. (298 ITR 239) AND MAHAN FOOD LTD. (177 TAXMANN 274). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD TAKEN OVER THE ASSETS AND LIABILITIES OF TRIMURTI, THAT INITIALLY THE MANUFACTURING WAS DONE WITH THE HELP OF OLD MACHINERY TAKEN OVER FROM TRIMURTI, LATER ON IT PURCHASED MACHINERY WORTH RS.24,16,835/-, THAT VALUE OF THE MACHINERY O F TRIMURTI WAS RS.3.26 LACS ONLY, THE OLD MACHINERY WAS LESS THAN 20% OF THE TOTAL MACHINERY FROM AY 90-91, THAT IT WAS ELIGIBLE TO CLAIM BENEFIT UPTO 8 YEARS, THAT FOR THE FIRST TIME IT MA DE CLAIM DURING THE YEAR UNDER CONSIDERATION.IN OUR OPINION THE ACT HAS NOT PROVIDED THAT THE DEDUC TION CANNOT BE CLAIMED IN LATER YEARS.IN OTHER WORDS IT IS NOT MANDATORY THAT DEDUCTION SHOULD BE CLAIMED IN THE FIRST YEAR ONLY.WE WOULD LIKE TO REPRODUCE THE ORDER OF AVERY CYCLE INDUSTRIES LT D.(SUPRA) AND SAME READS AS UNDER: AS FAR THIS QUESTION IS CONCERNED, THE CONTENTION R AISED ON BEHALF OF THE REVENUE IS THAT THE UNIT HAVING BEEN SET UP DURING THE ASSESSMENT YEAR 1984- 85, A PERIOD OF 7 YEAR TO CLAIM BENEFIT UNDER SECTION 80-I OF THE ACT, WOULD EXPIRE IN THE ASSESS MENT YEAR 1991-92 AND DURING THE YEAR IN QUESTION, THE ASSESSEE WILL NOT BE ENTITLED TO CLAI M THIS BENEFIT. THE FINDING RECORDED BY THE TRIBUNAL PERMITTING THE BENEFIT TO THE ASSESSEE UND ER SECTION 80-I OF THE ACT DURING THE YEAR IN QUESTION TREATING THE SAME TO BE SEVENTH YEAR OF PR ODUCTION DESERVES TO BE SET ASIDE. ON THE OTHER HAND, THE CONTENTION OF LEARNED COUNSEL FOR THE ASS ESSEE IS THAT THE REVENUE HAD MOVED AN APPLICATION FOR RECTIFICATION UNDER SECTION 254(2) OF THE ACT, WHICH HAS BEEN DISMISSED BY THE TRIBUNAL VIDE ORDER DATED OCTOBER 13, 2003, BUT THO UGH THE PRESENT APPEAL WAS FILED THEREAFTER, ITA/3287/M/13/MANOHAR C,AY.94-95 4 THIS FACT HAS NOT BEEN DISCLOSED IN THE PRESENT APP EAL. HE FURTHER STATES AS PER THE SPIRIT OF THE ACT , AN ASSESSEE IS ENTITLED TO BENEFIT OF THE DEDUCTION S UNDER SECTION 80-I OF THE ACT FOR 7 YEARS AND THE ASSESSEE IN THE PRESENT CASE IS ALSO CLAIMING T HE SAME FOR THE PERIOD PERMISSIBLE. AS FAR AS THE DISPUTE REGARDING THE ASSESSMENT YEAR 1984-85 IS CO NCERNED, COUNSEL FOR THE ASSESSEE REFERRED TO AND RELIED UPON THE FINDINGS RECORDED BY THE TRIBUN AL WHILE DEALING WITH THE RECTIFICATION APPLICATION TO STATE THAT DURING THE YEAR 1984-85, THE SETTING UP OF THE PLANT ITSELF WAS NOT COMPLETE, ACCORDINGLY, THERE WAS NO QUESTION OF ANY PRODUCTION. OUT OF THE TOTAL INVESTMENT IN MACHINERY AMOUNTING TO RS. 5.70 CRORES, IT WAS ONLY ABOUT RS. 1.09 CRORES WHICH WAS SPENT DURING THE ASSESSMENT YEAR 1984-85 AND THE FACT TO WHICH THE REVENUE IS TERMING TO BE PRODUCTION WAS MERE RECEIPT OF A SUM OF ABOUT RS. 1 LAKH ON ACCOUNT OF JOB CHARGES WHICH WERE RECOVERED DURING THE PROCESS OF TESTING OF SOME MAC HINES INSTALLED. THIS CANNOT IN ANY MANNER BE TERMED TO BE SETTING UP OF THE PLANT AND START OF M ANUFACTURING THEREFROM. IT IS FURTHER SUBMITTED THAT TO ENABLE THE ASSESSEE TO START PRODUCTION, IN DUSTRIAL LICENCE WAS REQUIRED WHICH ITSELF WAS RECEIVED BY THE ASSESSEE ON MARCH 23, 1985, RELEVAN T TO THE ASSESSMENT YEAR 1986-87. TO SUM UP, HE SUBMITTED THAT ONCE SETTING UP OF THE PLANT ITSE LF WAS COMPLETED IN THE ASSESSMENT YEAR 1986-87 AND LICENCE TO MANUFACTURE WAS ALSO GRANTED DURING THAT YEAR, THERE IS NO REASON TO DENY THE BENEFIT OF SECTION 80-I OF THE ACT TO THE ASSESSEE FOR 7 YEARS STARTING THEREFROM. 10. WE FIND THE CONTENTION RAISED BY COUNSEL FOR TH E ASSESSEE, SUPPORTED BY THE FACTS AS NARRATED ABOVE, TO BE PERSUASIVE. SECTION 80-I OF THE ACT AP PLIES TO ANY INDUSTRIAL UNDERTAKING WHICH FULFILS FOUR CONDITIONS AS LAID DOWN IN SUB-SECTION (2) THE REOF AND ONE OF THEM BEING THE ACT TO MANUFACTURE OR PRODUCE ARTICLES. IT IS NOT IN DISPU TE THAT THE INDUSTRIAL UNDERTAKING COULD START MANUFACTURING ONLY AFTER INDUSTRIAL LICENCE IS GRAN TED AND IN FACT STARTED MANUFACTURING THEREAFTER. IT IS ALSO NOT IN DISPUTE THAT THE ASSE SSEE CLAIMED DEDUCTION UNDER SECTION 80-I OF THE ACT ONLY DURING THE YEAR 1985-86 FOR THE FIRST TIME AND NOT BEFORE THAT AND CALCULATING THEREFROM, THE PRESENT ASSESSMENT YEAR WILL BE THE SEVENTH YEA R. THIS BEING THE ADMITTED POSITION, WE DO NOT FIND ANY REASON TO DIFFER WITH THE VIEW TAKEN BY TH E TRIBUNAL. ACCORDINGLY, WE DISMISS THE APPEAL OF THE REVENUE ON THIS ISSUE. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. THE EFFECTIVE GROUND OF APPEAL IS DECIDED AGAIN ST THE AO. AS A RESULT,APPEAL FILED BY AO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH OCTOBER,2015. 9 ,2015 SD/- SD/- ( !'# / SAKTIJIT DEY) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 09. 1 0. 2015 . . . .. . JV.SR.PS.