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ITA 340/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66336 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL M EMBER ITA NO.321/HYD/2010 : ASSESSMENT YEAR 2005-06 ITA NO.322/HYD/2010 : ASSESSMENT YEAR 2006-07 DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(1) HYDERABAD V/S. M/S. SHREE NIDHI SECURE PRINTS P. LTD., HYDERABAD ( PAN - AAECS 1920 Q) (APPELLANT) (RESPONDENT) ITA NO.385/HYD/2012 : A SSESSMENT YEAR 2008-09 ITA NO.339/HYD/2010 : A SSESSMENT YEAR 2005-06 ITA NO.340/HYD/2010 : A SSESSMENT YEAR 2006-07 M/S. SHREE NIDHI SECURE PRINTS P. LTD., HYDERABAD ( PAN - AAECS 1920 Q) V/S. DY. COMMISSIONER OF INCOME-TAX CIRCLE 3(1) HYDERABAD (APPELLANT) (RESPONDENT) DEPARTMENT BY : SMT. NIVEDITA BISWAS ASSESSEE BY : SHRI S.RAMA RAO DATE OF HEARING 9.8.2012 DATE OF PRONOUNCEMENT 28.9.2012 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THERE ARE THREE APPEALS BY THE ASSESSEE AND TWO A PPEALS BY THE REVENUE IN THIS BUNCH. THERE ARE CROSS-APPEALS ON E BY THE ASSESSEE AND ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 2 THE OTHER BY THE REVENUE- FOR THE ASSESSMENT YEAR 2 005-06 AND 2006-07, WHICH ARE DIRECTED AGAINST SEPARATE ORDERS OF THE C IT(A) IV, HYDERABAD, BOTH DATED 15.12.2009. THERE IS ALSO AN APPEAL BY THE A SSESSEE FOR THE ASSESSMENT YEAR 2008-09 WHICH IS DIRECTED AGAINST T HE ORDER OF THE CIT(A) IV DATED 30.12.2011. SINCE COMMON ISSUES ARE INVOLVED , THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE., 2. AT THE OUTSET, WE MAY NOTE THAT THERE IS A DE LAY IN THE FILING OF THE TWO APPEALS BY THE REVENUE, VIZ. ITA NOS.321 AN D 322/HYD/2010, BY ONE DAY. CONSIDERING THE MARGINAL NATURE OF THE DELAY A ND THE EXPLANATION FURNISHED BY THE APPELLANT, WE CONDONE THE DELAY AN D PROCEED TO DISPOSE OF THESE APPEALS ALSO ON MERITS. REVENUES APPEAL : ITA 321/HYD/2010 : ASSESSMENT YEAR 2005-06 3. THE SOLITARY ISSUE INVOLVED IN THIS APPEAL RELA TES TO THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER S.80IB OF THE ACT. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASS ESSEE COMPANY IS ENGAGED IN THE MANUFACTURING AND PRINTING OF LOTTER Y TICKETS AND SECURITY INSTRUMENTS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.10,47 ,740, AFTER CLAIMING DEDUCTION OF AN AMOUNT OF RS.3,81,035 UNDER S.80IB OF THE ACT. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER ON EXAMINING THE ASSESSEES RETURN FOUND THAT DURING THE YEAR, T HE ASSESSEES INVESTMENT IN PLANT AND MACHINERY HAS EXCEEDED RS.1 CRORE. TH EREFORE, THE ASSESSEE CANNOT BE CONSIDERED AS A SMALL SCALE INDUSTRIAL UN IT, AS PER THE GAZETTE NOTIFICATION ISSUED BY THE CENTRAL GOVERNMENT, VIDE S.O. NO.857(E) DATED 10.12.1999. SINCE S.80IB(II) PROVIDES FOR EXEMPTIO N TO SMALL SCALE INDUSTRIAL ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 3 UNIT, AND AS THE ASSESSEE NO LONGER REMAINED A SMAL L SCALE INDUSTRIAL UNIT, IN VIEW OF INVESTMENT IN FIXED ASSETS LIKE PLANT AND M ACHINERY HAVING EXCEEDED RS. 1 CRORE. THE ASSESSING OFFICER ASKED THE ASSES SEE TO EXPLAIN WHY THE CLAIM OF DEDUCTION UNDER S.80IB SHALL NOT BE DISALL OWED. THE ASSESSEE REPLIED THAT SINCE IT IS NOT MANUFACTURING ANY GOOD S MENTIONED IN SCHEDULE 11, IT WILL BE ENTITLED TO AVAIL DEDUCTION UNDER S. 80IB, EVEN ASSUMING THAT IT IS NOT A SMALL SCALE INDUSTRIAL UNDERTAKING. THE A SSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLANATION BY OBSERVING THAT DEDUCTION UNDER S.80IB(3)(I) IS AVAILABLE TO ALL INDUSTRIAL UNDERTA KINGS, WHETHER IT IS SMALL SCALE INDUSTRIAL UNDERTAKING OR NOT, IF THE COMPANY HAS STARTED ITS OPERATIONS ON OR AFTER 1.4.1999 BUT ON OR BEFORE 31.3.1995. W HEREAS THE COMPANIES COMMENCING BUSINESS OPERATIONS AFTER 1.4.1995 ARE E NTITLED TO CLAIM DEDUCTION UNDER S.80IB(3)(II) ONLY WHICH IS APPLICA BLE TO SMALL SCALE INDUSTRIAL UNDERTAKING. THE ASSESSING OFFICER DISALLOWED THE C LAIM FOR DEDUCTION BY HOLDING THAT UNIT 2 OF THE ASSESSEE COMPANY HAVING STARTED ITS OPERATION AFTER 1.4.1995 AND NOT BEING A SMALL SCALE INDUSTRIAL UND ERTAKING AS ON 31.3.2005 IN VIEW OF THE GAZETTE NOTIFICATION OF THE CENTRAL GOVERNMENT, BEING SO 857(E) DATED 10.12.1999, THE ASSESSEE IS NOT ENTITL ED TO DEDUCTION UNDER S.80IB. 5. THE ASSESSEE CHALLENGED THE DISALLOWANCE BY FI LING AN APPEAL BEFORE THE CIT(A). IN COURSE OF HEARING BEFORE THE CIT(A), THE AUTHORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED HAT THE A SSESSEE ON 4.12.1999 WAS REGISTERED AS A SMALL SCALE INDUSTRIAL UNIT. THOUGH AS PER THE ORDER OF THE MINISTRY OF INDUSTRY, DATED 10.12.1997, A UNIT WAS TREATED AS AN SSI UNIT, WHOSE FIXED ASSETS AND PLANT AND MACHINERY DID NOT EXCEED RS.3 CRORES, SUBSEQUENTLY, IT WAS MODIFIED BY THE MINISTRY OF CO MMERCE AND INDUSTRY ON 24.12.1999, REDUCING THE LIMIT OF INVESTMENT IN FIX ED ASSETS TO RS.1 CRORE, IN CASE OF A SMALL SCALE INDUSTRIAL UNIT. HOWEVER, IN A PRESS NOTE DATED ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 4 23.3.2000, THE CENTRAL GOVERNMENT CLARIFIED THAT AN Y SSI UNIT REGISTERED IN ACCORDANCE WITH THE ORDER DATED 10.12.1997, SHALL C ONTINUE TO BE REGARDED AS AN SSI UNIT, IN SPITE OF REDUCTION OF INVESTMENT LI MIT TO RS.1 CRORE. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAVING BEEN REG ISTERED AS SSI UNIT ON 25.3.1997, BASED ON THE CENTRAL GOVERNMENT NOTIFICA TION DATED 10.12.1997, IT WILL CONTINUE TO REMAIN AS AN SSI UNIT AND WILL BE ELIGIBLE FOR DEDUCTION UNDER S.80IB OF THE ACT. THE CIT(A) AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE AND TAKING NOTE OF THE NOTIFICATIONS OF TH E CENTRAL GOVERNMENT, WITH REGARD TO INVESTMENT LIMIT OF THE SSI UNIT AND SUBS EQUENT CLARIFICATIONS ISSUED IN PRESS NOTE, DIRECTED THE ASSESSING OFFICER TO VE RIFY THE ORIGINAL DOCUMENTS REGARDING REGISTRATION AND IF IT IS FOUND THAT THE ASSESSEE WAS REGISTERED AS AN SSI UNIT BEFORE 24.12.1999, THEN THE ASSESSEE WI LL BE ENTITLED FOR DEDUCTION UNDER S.80IB OF THE ACT. THE FINDING OF THE CIT(A) IS EXTRACTED HEREUNDER FOR THE SAKE OF CONVENIENCE- 6. I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS CLEAR THAT THE CLAIM OF DEDUCTION U/S. 80IB HAS BEEN DENIED TO THE APPELLANT SOCIETY ON THE BASIS OF NOTIFICATION SO 8 57(E) DT.10.12.1999, THOUGH THE CORRECT DATE OF SAID NOTI FICATION WAS 10.12.1997. THE ASSESSING OFFICER DID NOT CONSIDER THE SUBSEQUENT NOTIFICATION DT.24.12.999 AND FURTHER CL ARIFICATIONS ISSUED IN THIS REGARD, WHICH HAVE BEEN DISCUSSED AB OVE. HOWEVER, IT IS CONTENDED BY TH APPELLANT THAT IT HA D RECEIVED THE REQUISITE REGISTRATION ON 04.,02.1999 ITSELF, WHICH IS WELL BEFORE THE DATE OF 24.12.1999 MENTIONED IN THE CLARIFICATI ON DT.19.10.2000. UNDER THE CIRCUMSTANCES, THE ASSESS ING OFFICER IS DIRECTED TO VERIFY THE ORIGINAL DOCUMENTS REGARD ING REGISTRATION. IN CASE THE REGISTRATION IS FOUND AS OBTAINED BEFORE 24.12.1999, THE APPELLANT WOULD BE ENTITLED TO DEDUCTION U/S.80IB. AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), REVENUE HAS PREFERRED THIS APPEAL BEFORE THIS TRIBUNAL. ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 5 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMI TTED BEFORE US THAT THE CENTRAL GOVERNMENT HAVING REDUCED THE LIMI T FOR FIXED ASSETS, PLANT AND MACHINERY TO RS. 1CRORE, THE ASSESSEE CANNOT BE REGARDED AS A SMALL SCALE INDUSTRIAL UNIT, SINCE ITS INVESTMENTS IN FIX ED ASSETS, PLANT AND MACHINERY EXCEEDED RS.1 CRORE. THE LEARNED DEPARTM ENTAL REPRESENTATIVE THEREFORE, JUSTIFIED THE ACTION OF THE ASSESSING OF FICER IN REJECTING THE ASSESSEES CLAIM OF DEDUCTION UNDER S.80IB OF THE A CT. THE LEARNED DEPARTMENTAL REPRESENTATIVE IN SUPPORT OF HER CONTE NTIONS, PRODUCED A CLARIFICATION DATED 19.10.2000 ISSUED BY THE ADDITI ONAL DEVELOPMENT COMMISSIONER(SSI) 7. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITT ED THAT AS PER THE DEFINITION OF SMALL SCALE INDUSTRIAL UNDERTAKING UN DER S.80IB (14)(G), AN INDUSTRIAL UNDERTAKING WHICH IS REGARDED AS A SMALL SCALE INDUSTRIAL UNDERTAKING ON THE LAST DAY OF THE PREVIOUS YEAR UN DER S.11B OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS PRO VISIONALLY REGISTERED AS AN SSI UNIT ON 4.2.1999. REFERRING TO THE PERMANEN T REGISTRATION CERTIFICATE DATED 25.3.1999 ISSUED BY THE DISTRICT INDUSTRIES C ENTRE, RANGA REDDY DISTRICT, WHICH IS AT PAGE 43 OF THE PAPER-BOOK, TH E LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS BEE N REGISTERED AS A SMALL SCALE INDUSTRIAL UNIT TILL ITS EXISTENCE. THE LEA RNED AUTHORISED REPRESENTATIVE REFERRING TO THE PRESS NOTE DATED 14.3.2000 ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, AND CIR CULAR DATED 14.3.2000 ISSUED BY THE ADDITIONAL DEVELOPMENT COMMISSIONER, WHICH ARE AT PAGES 51 AND 52, SUBMITTED THAT THE ASSESSEE HAVING OBTAINED PERMANENT REGISTRATION AS AN SSI UNIT, BY VIRTUE OF THE ORDER DATED 10.12. 1997, IT WILL CONTINUE TO REMAIN AS AN SSI UNIT, DESPITE REDUCTION OF INVESTM ENT LIMIT FROM RS.3 CRORE TO RS.1 CRORE. ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 6 8. WE HEARD RIVAL SUBMISSION AND PERUSED THE MATER IALS ON RECORD. S.80IB(3)(II) PROVIDES FOR DEDUCTION TO SMALL SCALE INDUSTRIAL UNITS ENGAGED IN MANUFACTURE OR PRODUCING ARTICLES OR THINGS. S.80 IB(14)(B) DEFINES A SMALL SCALE INDUSTRIAL UNDERTAKING, WHICH IS REGARDED AS SUCH UNDER S.11B OF THE INDUSTRIES(DEVELOPMENT AND REGULATION) ACT, 1951. AS IS EVIDENT FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS DISALL OWED THE CLAIM OF DEDUCTION UNDER S.80IB BY RELYING ON THE GAZETTE NO TIFICATION DATED 10.12.1999 ISSUED BY THE CENTRAL GOVERNMENT REDUCIN G THE INVESTMENT LIMIT FROM RS.3 CRORE TO RS.1 CRORE IN CASE OF SMALL SCAL E INDUSTRIAL UNDERTAKING. IN THE AFORESAID CONTEXT, IT HAS TO BE DETERMINED W HETHER THE ASSESSEE CAN BE REGARDED AS A SMALL SCALE INDUSTRIAL UNDERTAKING AS PER S.80IB(14)(G). THE MINISTRY OF INDUSTRY, GOVERNMENT OF INDIA, IN EXERC ISE OF POWER CONFERRED UNDER S.11B OF THE INDUSTRIES (DEVELOPMENT AND REGU LATION) ACT, 1951 ISSUED A NOTIFICATION ON 10.12.1997 NOTIFYING THAT AN INDUSTRIAL UNDERTAKING, WHERE INVESTMENT IN FIXED ASSETS AND PLANT AND MACH INERY DOES NOT EXCEED RS.3 CRORES SHALL BE REGARDED AS SMALL SCALE INDUST RIAL UNDERTAKING. THE MINISTRY OF COMMERCE, GOVERNMENT OF INDIA ON 24.12. 1999 ISSUED A GAZETTE NOTIFICATION AMENDING THE NOTIFICATION DATED 10.12. 1997 BY REDUCING THE INVESTMENT LIMIT IN THE CASE OF SMALL SCALE INDUSTR IAL UNDERTAKING FROM RS.3 CRORE TO RS.1 CRORE. 9. HOWEVER, THE MINISTRY OF COMMERCE AND INDUSTRY , GOVT. OF INDIA ISSUED PRESS NOTE DATED 23.3.2000 CLARIFYING THAT U NITS WHICH HAVE OBTAINED PROVISIONAL REGISTRATION AS PER THE NOTIFICATION DA TED 10.12.1997 AND HAVE TAKEN CONCRETE STEPS FOR IMPLEMENTING THE PROJECT S UCH AS PREPARATION OF PROJECT REPORT, SANCTION OF LOAN, PURCHASE OF LAND, CIVIL CONSTRUCTION, PLACEMENT OF ORDERS FOR PLANT AND MACHINERY, ETC., PRIOR TO 24.12.1999, WILL CONTINUE TO ENJOY THE SSI STATUS, SO LONG AS THE IN VESTMENT IN PLANT AND ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 7 MACHINERY DOES NOT EXCEED RS.300 LAKHS NOTWITHSTAND ING THE REVISED INVESTMENT LIMIT OF RS.100 LAKH NOTIFIED ON 24.12.1 999. EVEN EARLIER TO IT, I.E. ON 14.3.2000, MINISTRY OF COMMERCE AND INDUSTRY, GO VERNMENT OF INDIA, IN PRESS NOTE NO.3 HAS CLARIFIED THAT UNITS WHICH HAVE OBTAINED PERMANENT REGISTRATION BASED ON THE ORDER DATED 10.12.1997 WO ULD CONTINUE TO REMAIN AS SSI UNIT IN SPITE OF ORDER DATED 24.12.1999 REDU CING THE INVESTMENT LIMIT TO RS.1 CRORE. FURTHER CLARIFICATION WAS AGAIN ISS UED IN THIS REGARD BY THE ADDITIONAL DEVELOPMENT COMMISSIONER(SSI) ON 27.3.20 00. THEREFORE, IT HAS TO BE SEEN WHETHER THE ASSESSEE HAS SATISFIED THE C ONDITION IN TERMS WITH THE CLARIFICATION ISSUED BY THE MINISTRY OF COMMERCE AN D INDUSTRY, TO CONTINUE TO BE TREATED AS A SMALL SCALE INDUSTRIAL UNDERTAKING. AS PER THE PERMANENT REGISTRATION CERTIFICATE ISSUED BY THE GENERAL MANG ER, DISTRICT INDUSTRIES CENTRE, WHICH IS AT PAGE 49 OF THE PAPER-BOOK, THE ASSESSEE HAS BEEN PROVISIONALLY REGISTERED ON 4.2.1999 AND PERMANENTL Y REGISTERED ON 25.3.1999, AS A SMALL SCALE INDUSTRIAL UNIT TILL EX ISTENCE OF THE UNIT. THE ASSESSEE HAS ALSO IMPLEMENTED THE PROJECT AND COMME NCED PRODUCTION ON 6.3.1999, WHICH IS MUCH PRIOR TO 24.12.1999. THERE IS ALSO NO ALLEGATION BY THE ASSESSING OFFICER THAT THE ASSESSEES INVESTMEN T IN PLANT AND MACHINERY HAS EXCEEDED RS.3 CRORE. 10. CONSIDERING THE AFORESAID FACTS, IT APPEARS T HAT THE ASSESSEE SATISFIES ALL THE CONDITIONS TO BE REGARDED AS A SM ALL SCALE UNDERTAKING UNDER S.11B OF THE INDUSTRIES (DEVELOPMENT AND REGULATION ) ACT,1951. THE LETTER DATED 19.10.2000 OF THE ADDITIONAL DEVELOPMENT COMM ISSIONER, SSI RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ONL Y SUPPORTS THE CLAIM OF THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS AND CI RCUMSTANCES, THE DIRECTION OF THE CIT(A) TO THE ASSESSING OFFICER TO VERIFY TH E ORIGINAL DOCUMENTS AND ALLOW DEDUCTION UNDER S.80IB, IF REGISTRATION HAS B EEN OBTAINED PRIOR TO 24.12.1999 IS MOST APPROPRIATE AND DOES NOT CALL FO R ANY INTERFERENCE. WE ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 8 THEREFORE, UPHOLD THE SAME, AND DISMISS THE GROUND RAISED BY THE DEPARTMENT. 11. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DISMISSED. REVENUES APPEAL : ITA 322/HYD/2010 : ASSESSMENT YEAR 2006-07 12. GROUNDS RAISED BY THE REVENUE IN THIS APPEAL A RE IDENTICAL TO THE ONES RAISED IN THE APPEAL ITA NO.321/HYD/2010. FOR THE REASONS DISCUSSED IN PARAS NO.8 TO 10 HEREINABOVE, WHILE DEALING W ITH THE REVENUES APPEAL ITA NO.321/HYD/2010 FOR THE ASSESSMENT YEAR, WE U PHOLD THE DIRECTIONS GIVEN BY THE CIT(A), AND REJECT THE GROUNDS OF THE REVENUE IN THIS APPEAL. 13. IN THE RESULT, THIS APPEAL OF THE REVENUE IS D ISMISSED. ASSESSEES APPEAL : ITA NO.385/HYD/2012 : ASSESSMENT YEAR 2008-09 14. IN THIS APPEAL OF THE ASSESSEE DIRECTED AGAINS T THE ORDER OF THE CIT(A) IV, HYDERABAD DATED 30.12.2011 FOR THE ASSE SSMENT YEAR 2008-09, THE SOLITARY ISSUE INVOLVED IS WITH REGARD TO DISAL LOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION UNDER S.80IB OF THE ACT, WHICH HAS BEEN CONFIRMED BY THE CIT(A). 15. FOR THE ASSESSMENT YEAR 2008-09, THE CIT(A) BY THE IMPUGNED ORDER HAS CONFIRMED THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION UNDER S.80IB OF THE ACT, WHICH ACTION OF THE CIT(A) HAS PROMPTED THE ASSESSEE TO FILE THE PRESEN T APPEAL BEFORE THIS TRIBUNAL. ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 9 16. WE HEARD BOTH THE SIDES AND PERUSED THE IMPUG NED ORDERS OF THE LOWER AUTHORITIES. WE HAVE CONSIDERED THIS VERY IS SUE IN THE LIGHT OF THE REVENUES APPEALS FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, HEREINABOVE. FOR THE DETAILED REASONS DISCUSSED IN PARAS 8 TO 10 HEREINABOVE, WHILE DEALING WITH REVENUES APPEAL FO R ASSESSMENT YEAR 2005- 06, WE SET ASIDE THE IMPUGNED ORDER OF THE CIT(A)AN D DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE, AFTER D UE VERIFICATION, AS DIRECTED BY THE CIT(A) FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 DISCUSSED ABOVE. ACCORDINGLY, GROUNDS OF THE ASSESSEE IN THI S APPEAL ARE ALLOWED. 17. IN THE RESULT, ASSESSEES APPEAL, ITA NO.385/H YD/2012 FOR ASSESSMENT YEAR 2008-09, IS ALLOWED. ASSESSEES APPEAL : ITA NO.339/HYD/2010 : ASSESSMENT YEAR 2008-09 18. ASSESSEE RAISED THE FOLLOWING EFFECTIVE GROUND - 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS.1,82,742/- B EING THE AMOUNT OF TAX RETAINED BY THE AUTHORITIES OF S IKKIM UNDER THE INCOM E-TAX ACT APPLICABLE TO THE SAID PROVINCE. THE LEARNED COMMISSIONER OF INCOME- TAX(APPEALS) OUGHT TO HAVE CONSIDERED THE FACT THAT THE PROVISIONS OF SEC.40(A)(II) HAVE NO APPLICATION TO THE FACTS OF THE CASE. 19. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT TH E ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,82,042 IN THE PROFIT & LOSS ACCOUNT AS AN AMOUNT NO MORE RECOVERABLE, ASKED THE ASSESSEE TO EXPLAIN THE SAME . IN RESPONSE, THE ASSESSEE EXPLAINED THAT THE AMOUNT DEBITED IS INCOM E TAX DEDUCTED BY STATE GOVERNMENT OF SIKKIM WHILE MAKING PAYMENT TO THE AS SESSEE FOR MATERIAL SUPPLIED DURING THE RELEVANT PREVIOUS YEAR. THE AS SESSING OFFICER DISALLOWED ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 10 THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THE TDS IS NOT AN ALLOWABLE EXPENDITURE. 20. THE ABOVE ADDITION OF RS.1,82,042 MADE IN ASS ESSMENT WAS CHALLENGED IN APPEAL BEFORE THE CIT(A). IN THE COU RSE OF HEARING OF THE APPEAL, THE ASSESSEE CONTENDED THAT ONE OF THE COND ITIONS OF THE SIKKIM GOVERNMENT ON WHICH SUPPLY ORDERS/CONTRACTS WERE GI VEN TO PARTIES FROM OUTSIDE THE STATE IS THAT THE PARTIES WILL NOT CLAI M REFUND OF THE INCOME TAX DEDUCTED AT SOURCE FROM THE BILLS, UNDER THE SIKKIM INCOME TAX MANUAL 1948. THE CIT(A) HOLDING THAT TDS DEDUCTED FROM THE BILLS OF THE ASSESSEE UNDER THE SIKKIM INCOME TAX ACT BEING IN THE NATURE OF A RATE OR TAX ON THE PROFITS AND GAINS OF THE BUSINESS OF THE ASSESSEE AS ENVISA GED UNDER S.40(A)(II) OF THE ACT, SUSTAINED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER, 21. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITT ED BEFORE US THAT THE FINANCE, REVENUE AND EXPENDITURE DEPARTMENT OF THE GOVERNMENT OF SIKKIM ISSUED A CIRCULAR ON 19.8.2004 TO ALL GOVERN MENT AGENCIES WITHIN THE STATE INSTRUCTING THEM THAT BEFORE ANY SUPPLY ORDER IS PLACED OR CONTRACT AGREEMENT IS SIGNED WITH A PARTY FROM OUTSIDE THE S TATE, A CONDITION HAS TO BE INCORPORATED THAT NO CLAIM REGARDING REFUND OF I NCOME DEDUCTED UNDER THE SIKKIM INCOME TAX MANUAL SHALL BE ENTERTAINED. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT EVEN THOUGH THE ASSESSEE REQUESTED FOR NOT DEDUCTING TAX AT SOURCE, THE DIRECTOR(LOTT ERIES), GOVERNMENT OF SIKKIM HAD EXPRESSED THAT DEDUCTION OF TAX AT SOURC E AT THE RATE OF 3% IS UNAVOIDABLE. IN THIS REGARD, THE LEARNED AUTHORISE D REPRESENTATIVE INVITED OUR ATTENTION TO THE CIRCULAR OF THE SIKKIM GOVERNM ENT AND THE COMMUNICATIONS MADE WITH THE DIRECTOR OF SIKKIM STA TE LOTTERIES. HE SUBMITTED THAT THE TAX DEDUCTED BY THE SIKKIM GOVER NMENT IS NOT WITH REGARD TO THE PROFITS AND GAINS OF BUSINESS OF THE ASSESSE E. THEREFORE, NO ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 11 DISALLOWANCE COULD BE MADE UNDER S.40(A)(II) OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT T HE GOVERNMENT OF SIKKIM HAS A RIGHT TO COLLECT A CERTAIN PERCENTAGE OF PAYM ENT MADE TO THE ASSESSEE. HENCE, IT IS NOT IN THE NATURE OF EXPENDITURE BUT A SSESSEES RECEIPT HAS BEEN REDUCED TO THAT EXTENT. 22. THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONG LY SUPPORTED THE FINDING OF THE CIT(A). 23. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIALS ON RECORD. THE ASSESSEE HAS ENTERED INTO A CONTRACT W ITH FINANCE DEPARTMENT, GOVERNMENT OF SIKKIM FOR PRINTING AND SUPPLY OF LOT TERY TICKETS. WHILE MAKING PAYMENT AN AMOUNT COMPUTED AT 3% HAS BEEN DE DUCTED FROM THE BILLS OF THE ASSESSEE TOWARDS INCOME TAX UNDER THE SIKKIM INCOME TAX MANUAL, 1948. AS PER THE TERMS OF THE CONTRACT, BA SED ON THE CIRCULAR DATED 19.8.2004 ISSUED BY THE GOVERNMENT OF SIKKIM, THE T AX DEDUCTED AT SOURCE UNDER THE SIKKIM INCOME TAX MANUAL, CANNOT BE CLAIM ED AS REFUNDS. THE ASSESSEE HAS CLAIMED THIS TDS AMOUNT AS AN EXP IN T HE PROFIT & LOSS ACCOUNT, WHICH HAS BEEN DISALLOWED UNDER S.40A(II) OF THE AC T. AT THIS STAGE, IT WOULD BE PROFITABLE TO LOOK TO THE PROVISIONS CONTAINED I N S.40A(II), WHICH IS EXTRACTED HEREUNDER- (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LE VIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAIN S. A BARE READING OF THE AFORESAID PROVISION, MAKES IT CLEAR THAT ANY RATE OR TAX LEVIED ON THE PROFIT OR GAIN OF ANY BUSINESS OR PRO FESSION SHALL NOT BE ALLOWED AS DEDUCTION. THE TAX LEVIED ON THE PROFITS OR GAI N OF ANY BUSINESS WOULD MEAN THAT PROFIT HAS BEEN ASCERTAINED IN A MANNER C OMPARABLE WITH THE ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 12 OUTLINE IN THE PROVISIONS OF THE INCOME-TAX ACT. IN THE AFORESAID CONTEXT, IT HAS TO BE SEEN WHETHER THE INCOME-TAX DEDUCTED AT 3 % ON THE BILLS OF THE ASSESSEE, PARTAKES THE CHARACTER OF A TAX LEVIED ON THE PROFITS OF THE ASSESSEE. IT HAS ALSO TO BE SEEN WHETHER THE TAX LEVIED AT THE RATE OF 3% UNDER THE SIKKIM INCOME TAX MANUAL, IS AFTER DETERM INATION OF PROFIT IN ACCORDANCE WITH A MACHINERY PROVISION COMPARABLE WI TH THE PROVISIONS OF THE INDIAN INCOME TAX ACT, OR WHETHER IT IS ON THE BASI S OF A ROUGH ESTIMATE. IN THIS REGARD, THE PROVISIONS OF SIKKIM INCOME TAX MA NUAL IS ALSO REQUIRED TO BE LOOKED INTO. WE FIND FROM THE RECORD THAT THESE ASPECTS HAVE NOT AT ALL BEEN EXAMINED BY THE LOWER AUTHORITIES. WE THEREFO RE, CONSIDER IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER, TO CONSIDER THIS ISSUE AFRESH KEEPING IN VIEW OUR OBSE RVATIONS HEREINABOVE, AND OF COURSE, AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 24. IN THE RESULT, ASSESSEES APPEAL, ITA NO.339/H YD/2010 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED FOR STATISTICAL PURPOSES. ASSESSEES APPEAL : ITA NO.340/HYD/2010 : ASSESSMENT YEAR 2006-07 25. IN THIS APPEAL BY THE ASSESSEE DIRECTED AGAINS T THE ORDER OF THE CIT(A) DATED 15.12.2009 FOR THE ASSESSMENT YEAR 200 6-07, THERE ARE TWO EFFECTIVE GROUNDS TAKEN BY THE ASSESSEE, WHICH ARE AGAINST SL.NO.2 AND SL.NO.3. 26. IN THE FIRST EFFECTIVE GROUND, WHICH IS AGAIN ST SL.NO.2. THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE ADDITION O F RS.4,75,776, BEING THE AMOUNT OF TAX RETAINED BY THE AUTHORITIES OF SIKKIM UNDER THE INCOME-TAX ACT APPLICABLE TO THE SAID PROVINCE. THIS GROUND OF THE ASSESSEE IS IDENTICAL TO THE ONLY EFFECTIVE GROUND TAKEN BY THE ASSESSEE IN ITS APPEAL ITA ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 13 NO.339/HYD/2010 FOR ASSESSMENT YEAR 2005-06. FOR THE DETAILED REASONS DISCUSSED IN PARA 23 HEREINABOVE, WHILE DEALING WIT H THE CORRESPONDING GROUND OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 -06, WE CONSIDER IT APPROPRIATE TO RESTORE THIS ISSUE TO THE FILE OF TH E ASSESSING OFFICER, TO CONSIDER THIS ISSUE AFRESH KEEPING IN VIEW OUR OBSE RVATIONS HEREINABOVE, AND OF COURSE, AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 27. GROUND NO.3 RELATES TO DISALLOWANCE OF EXPENDI TURE CLAIMED FOR AN AMOUNT OF RS.27,075. IN THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE EXP CLAIMED FOR AN EXP OF RS. BEING IN THE NATURE OF PENALTY, DISALLOWED THE SAME. SINCE APART FROM SUBMITTING THAT THE DEDUCTION HAS BEEN MADE BY THE BANK FROM THE BI LLS, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW THAT WHAT IS LEVIE D IS NOT A PENALTY FOR INFRACTION OF LAW, THE CIT(A) ALSO SUSTAINED THE AD DITION MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE PREFERRED SECO ND APPEAL BEFORE US ON THIS ISSUE. 28. WE HEARD BOTH SIDES ON THIS ISSUE. IN THE AB SENCE OF ANY EVIDENCE PRODUCED BY THE ASSESSEE TO CLAIM THAT WHA T IS LEVIED IS NOT A PENALTY FOR INFRACTION OF LAW, THE IMPUGNED DISALLO WANCE IS MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A). IN THE COURSE OF HEARING BEFORE US ALSO, THE LEARNED AUTHORISED REPRESENTAT IVE COULD NOT PRODUCE BEFORE US ANY CONVINCING ARGUMENT WITH REGARD TO TH E NON-PENAL NATURE OF THE LEVY. WE THEREFORE, UPHOLD THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A), AND ACCORDINGL Y REJECT THE GROUND OF THE ASSESSEE ON THIS ISSUE. ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 14 29. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2006-07 BEING ITA NO.340/HYD/2010 IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. 30. TO SUM UP- (A) BOTH THE APPEALS OF THE REVENUE, BEING ITA NOS.321- 322/HYD/2010 FOR ASSESSMENT YEARS 2005-06 AND 2006 -07 ARE DISMISSED; (B) ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09, BEIN G ITA NO.385/HYD/2012, IS ALLOWED; (C) ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005-06, BEIN G ITA NO.339/HYD/2010, IS ALLOWED FOR STATISTICAL PURPOSE S. (D) ASSESSEES APPEAL FOR ASSESSMENT YEAR 2006-07, BEIN G ITA NO.340/HYD/2010 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES. ORDER PRONOUNCED IN THE COURT ON 28.9.2012 SD/- SD/- (CHANDRA POOJARI) (SAKTIJIT DEY) ACCOUN TANT MEMBER JUDICIAL MEMBER DATED/- 28 TH SEPTEMBER, 2012 COPY FORWARDED TO: 1. M/S. SHREE NIDHI SECURE PRINTS P. LTD., D-23/D-31, PHASE-PI, IDA JEEDIMETLA, HYDERABAD 500 055 2. 3. DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(1), HYDERABAD COMMISSIONER OF INCOME-TAX(APPEALS)-IV, HYDERABAD ITA NO.321/HYD/2010 AND 4 OTHERS M/S. SHREE NIDHI SECURE PRINTS P.LTD., HYDERABAD 15 4 COMMISSIONER OF INCOME - TAX III, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.