ITO, Erode V. AA-399, The Chennimalai Industrial WCS Ltd., Erode

ITA 422/CHNY/2011

• Counselvise Citation: 42221714 RSA 2011
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 03-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: G BASKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A.NO. 422/MDS/2011 (ASSESSMENT YEAR : 2007-08) THE INCOME-TAX OFFICER, WARD-II(2), ERODE. VS. AA-399, THE CHENNIMALAI INDUSTRIAL WCS LTD., POST BAG NO.38 CHENNIMALAI, ERODE-638051 PAN AAAAT 6085 F (APPELLANT) (RESPONDENT) APPELLANT BY : DR. I. VIJAYAKUMAR, CIT RESPONDENT BY : SHRI G. BASKAR, ADVOCATE DATE OF HEARING : 24 TH AUGUST, 2011 DATE OF PRONOUNCEMENT : 26 TH AUGUST, 2011 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I , COIMBATORE ITA 422/11 :- 2 -: DATED 31.12.2010 AND ARISES OUT OF THE ASSESSMENT C OMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS A HANDLOOM WEAVERS COOPERATIVE S OCIETY (HWCS). THE SOCIETY IS WORKING UNDER THE UMBRELLA OF THE COMMISSIONER OF HANDLOOM TEXTILES, GOVERNMENT OF TA MILNADU. 3. THE ASSESSEE-SOCIETY HAS BEEN ENJOYING EXEMPTION UNDER SEC.80P(2)(A)(II) OF THE INCOME-TAX ACT, 1961 AS A COTTAGE INDUSTRY SINCE ITS INCEPTION. BUT THE ASSESSING OFFICER WIT HDREW THE EXEMPTION UNDER THAT SECTION FOR THE IMPUGNED ASSES SMENT YEAR. IN FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX (AP PEALS) ALLOWED THE CONTENTION OF THE ASSESSEE AND DIRECTED THE ASS ESSING OFFICER TO ALLOW DEDUCTION UNDER SEC.80P(2)(A)(II). IT IS ON THIS POINT THAT THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL. 4. THE GROUNDS RAISED BY THE REVENUE IN THE PRESENT APPEAL READ AS FOLLOWS : 2. THE LEARNED CIT(A) ERRED IN ALLOWING DEDUCTION UNDER SECTION 80-P(2)(A)(II) OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE OBSERVED THAT THERE IS A ITA 422/11 :- 3 -: HUGE CAPITAL OUTLAY AND HIGH TURNOVER FOR THE INDUS TRY TO BE TERMED AS COTTAGE INDUSTRY. 4. THE LEARNED CIT(A) OUGHT TO HAVE OBSERVED THAT THE ASSESSEE IN THIS CASE IS NOT ENGAGED IN COTTAGE INDUSTRY FOR AVAILING THE BENEFITS. 5. THE LEARNED CIT(A) SHOULD HAVE OBSERVED THAT THE BOARD HAS CLARIFIED VIDE CIRCULAR NO.722 DATED 19.9.95 THAT A COTTAGE INDUSTRY IS WHICH IS CARRIED ON A SMALL SCALE WITH A SMALL AMOUNTS OF CAPITAL AND A SMALL NUMBER OF WORKERS AND HAS A TURNOVER WHICH IS CORRESPONDINGLY LIMITED. 5. WE HEARD BOTH SIDES IN DETAIL. 6. THE TERM COTTAGE INDUSTRY IS NOT DEFINED ANYWH ERE IN THE INCOME-TAX ACT, 1961, BUT THE CLASSIFICATION OF A C OTTAGE INDUSTRY IS AVAILABLE UNDER THE INDUSTRIAL DEVELOPMENT AND R EGULATION ACT. THE ASSESSEE-SOCIETY ENJOYS THE STATUS OF A COTTAGE INDUSTRY UNDER THE SAID ACT. THE ASSESSEE IS ALSO GETTING A LL OTHER FAVOURS AND CONCESSIONS FROM BOTH CENTRAL AND STATE GOVERNM ENTS TO PROMOTE THE HANDLOOM INDUSTRY IN ITS STATUS AS A CO TTAGE INDUSTRY. 7. THE ASSESSEE IS PRODUCING MAINLY HANDLOOM BED SH EETS UNDER THE BRAND NAME CHENNIMALAI AND SOLD THROUGH THE OUTLETS ITA 422/11 :- 4 -: OF CO-OPTEX HANDLOOM, AN APEX MARKETING SOCIETY FOR MED BY THE GOVERNMENT OF TAMILNADU. THE MAIN REASON POINTED O UT BY THE ASSESSING OFFICER TO DENY THE BENEFIT OF COTTAGE IN DUSTRY TO THE ASSESSEE IS THAT THE SIZE OF THE ASSESSEES ESTABLI SHMENT IS TOO BIG THAT IT EMPLOYED MORE THAN 2000 WORKERS; ITS T URNOVER ARE CRORES AND CRORES OF RUPEES AND IT IS A VERY BIG CO -OPERATE SOCIETY ENGAGED IN PRODUCING HANDLOOM GOODS ETC. BUT WE DO NOT FIND THAT THESE OBJECTIONS RAISED BY THE ASSESSING OFFIC ER ON THE SIZE AND EXTENT OF THE OPERATION OF THE ASSESSEE-SOCIETY ARE LEGALLY VALID TO DISQUALIFY THE ASSESSEE FROM THE CATEGORY OF COTTAGE INDUSTRY FOR THE PURPOSE OF THE INCOME-TAX ACT, 196 1. THE INDUSTRIAL DEVELOPMENT AND REGULATION ACT HAS CLASS IFIED THE PARA METERS NECESSARY TO QUALIFY SOMETHING AS A COTTAGE INDUSTRY. THE ASSESSEE IS HAVING THE RECOGNIZED STATUS AS A COTTA GE INDUSTRY UNDER THAT ACT. IN NORMAL SENSE, ONE SHOULD TAKE T HE SAID RECOGNITION AS THE CONCLUSIVE PROOF THAT THE ASSESS EE IS A COTTAGE INDUSTRY. THIS CONCLUSIVE STATUTORY PROOF IS FURTH ER STRENGTHENED BY THE FACT THAT THE ASSESSEE IS WORKING UNDER THE UMBRELLA OF THE COMMISSIONER OF HANDLOOM AND TEXTILES, GOVERNMENT O F TAMILNADU AND OBTAINING VARIOUS CONCESSIONS LIKE SU BSIDIES, REBATES ETC. IN PROMOTING THE SALE OF ITS PRODUCTS. THESE ITA 422/11 :- 5 -: CONCESSIONS AND FACILITIES ARE GIVEN BOTH BY THE ST ATE AND CENTRAL GOVERNMENTS TO PROTECT THE EMPLOYMENT AND INTEREST OF TRADITIONAL WORKERS AND ARTISANS IN DIFFERENT FIELDS OF COTTAGE INDUSTRIES. HANDLOOM IS A TRADITIONAL INDUSTRY IN INDIA DEPLOYI NG A LARGE NUMBER OF WORKERS. THE HANDLOOM PROVIDES SUBSTANTI AL AMOUNT OF EMPLOYMENT TO RURAL POPULATION AND HANDLOOM IS A GREAT CONTRIBUTOR TO THE RURAL ECONOMY. WHEN DIFFERENT A RMS OF THE CENTRAL AND STATE GOVERNMENTS HAVE CONSISTENTLY APP ROVED THE STATUS OF THE ASSESSEE AS A COTTAGE INDUSTRY NOT ON LY FOR ADMINISTRATIVE MATTERS BUT ALSO UNDER STATUTORY PRO VISIONS, THERE IS NO REASON FOR THE INCOME-TAX AUTHORITIES TO HOLD OT HERWISE RAISING TECHNICAL GROUNDS THAT THE SIZE OF THE ASSESSEE-SOC IETY IS TOO BIG IN TERMS OF EMPLOYEES, TURNOVER, PROFIT ETC. THE A SSESSEE IS ACHIEVING A HIGH AMOUNT OF TURNOVER; CORRESPONDINGL Y HIGH PRODUCTION IS ALSO NECESSARY FOR WHICH MORE EMPLOYE ES ARE OBVIOUSLY REQUIRED. AS A MATTER OF FACT, IT IS TO BE STATED THAT THE CENTRAL AND STATE GOVERNMENTS ARE PROMOTING SUCH SO CIETIES TO DEVELOP AND EXPAND THE AREA OF OPERATION OF COTTAGE INDUSTRIES. WHEN THE ASSESSEE HAS GROWN ITSELF INTO A BIG INSTI TUTION, IT SHOWS THAT THE ASSESSEE IS IN FACT, FOLLOWING THE POLICIE S DECLARED BY THE STATE AND CENTRAL GOVERNMENTS. SINCE THE SOCIETY I S PERFORMING ITA 422/11 :- 6 -: WELL, IT IS ABLE TO EXPAND AND PROVIDE MORE AND MOR E EMPLOYMENT TO TRADITIONAL HANDLOOM WORKERS. 8. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO DISTURB THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS POINT. WE AGREE WITH THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE ASSESSEE-SOCIETY IS ENTITLED FOR THE BENEFIT OF EXE MPTION UNDER SEC.80P(2)(A)(II) OF THE INCOME-TAX ACT, 1961. 9. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 26 TH OF AUGUST, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 26 TH AUGUST, 2011 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR