DCIT RG 9(1), MUMBAI V. BILPOWER LTD, MUMBAI

ITA 4718/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6393 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 28-10-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 12-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K JAIN
• Section: 80IB

Judgement Text

1 ITA 4718/M/09, M/S BILPOWER LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H BEFORE SHRI P.M. JAGTAP, A.M. AND SMT. ASHA VIJAYAR AGHAVAN, JM ITA NO. 4718/MUM/09 ASSESSMENT YEAR 2006-07 D.C.I.T. RG. 9(1), R. NO. 223, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI 20. VS. M/S BILPOWER LTD., 201-204, VIKAS CHAMBERS, MITH CHOWKY, MARVRE LINK ROAD, MALAD (W), MUMBAI. 64 PAN AABCB1857G APPELLANT RESPONDENT APPELLANT BY SHRI MANOJ MISHRA RESPONDENT BY SHRI R.K. JAIN ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LD. CIT(A)- 27, MUMBAI DATED 27.10.09 AND THE GROUNDS RAISED BY THE REVENUE THEREIN READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 4,76,509/- BEING DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 ON THE GROUN D THAT THE ASSESSEE COMPANY CHARGED INTEREST TO SOME OTHER PARTIES AT THE RATE LOWER THAN THE AVERAGE RATE OF 12% PAID BY THE ASSESSEE ON THE LOANS TAKEN WITHOUT APP RECIATING THAT THE ASSESSEE COULD NOT DISCHARGE ITS ONUS TO ESTABLISH THAT THE ASSESS EES OWN FUND WAS UTILIZED FOR MAKING ADVANCES TO THE PARTIES AT LOWER RATE OF INT EREST. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE VALUE OF OPENING STOCK IS REQUIRED TO BE ADJUSTED IN TERMS OF THE PROVISIONS OF SECTION 145A OF THE INCOME TAX AC T, 1961 IN REGARD TO EXCISE DUTY ATTRIBUTABLE TO ITS WITHOUT APPRECIATING THAT THE INTENT OF SECTION 145A CAN BE ACHIEVED BY MAKING ADDITION TO THE VALUE OF CLOSING STOCK BY ELEMENT OF TAX, DUTY ETC. AND NOT BY ALTERING OPENING STOCK. 2 ITA 4718/M/09, M/S BILPOWER LTD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO D EDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961 IN RESPECT OF KARAD UNIT OF THE UNDER TAKING WITHOUT APPRECIATING THAT IT HAS NOT COMPLIED WITH THE PROVISIONS CONTAINED I N SECTION 80IB(2) OF THE INCOME TAX ACT, 1961 AS THE MACHINERY WORTH ` 52,33,000/- (WORKED OUT TO 71% OF THE VALUE OF TOTAL PLANT AND MACHINERY IN THE SCHEDULE TO THE FIXED ASSETS IN RESPECT OF KARAD UNIT) TRANSFERRED FROM AMLI UNIT FORMED THE P ART OF PLANT & MACHINERY OF KARAD UNIT, REFLECTED IN THE SCHEDULE OF FIXED ASSE TS AS OLD & USED ASSETS. 2. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS GROUND NO. 1, IT IS OBSERVED THAT A SIMILAR ISSUE AS RAISED THEREIN WAS ALSO INVOLVED IN ASSESSEES OWN CASE FO R A.Y. 2005-06 AND AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE SAME HAS BEEN ALREADY DECIDED BY THE TRIBUNAL BY ITS ORDER DATED 2.2.10 PASSED IN ITA NO. 5980/M/08 FOR A.Y. 2005-06. A COPY OF THE SAID ORDER IS PLACED ON RECORD BEFORE US AND A PERUSAL O F THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL VIDE PARA NO. 5 & 6 OF THE SAID ORDER WHICH ARE EXTRACTED BELOW: 5. AFTER CONSIDERING THE SUBMISSIONS CAREFULLY, WE FIND THAT IN THE ASSESSMENT YEAR 2004-05, THE TRIBUNAL OBSERVED VIDE PARA 7 AS UNDER: AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A ). THE LD. CIT(A) HAS CONSIDERED THE ASPECT THAT INTEREST FREE BORROWINGS WERE MUCH MORE THAN THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE. IT IS FURTHER SEEN B Y CIT(A) THAT SIMILAR DISALLOWANCES WERE MADE FOR AY 1996-97 AND AY 2004- 05 WHICH WERE DELETED BY THE CIT(A), HOWEVER NOTHING HAS BEEN BROUGHT ON REC ORD THAT THE DEPARTMENT HAS FILED APPEAL BEFORE THE TRIBUNAL FOR AY 1996-97. FO R AY 2004-05, THE DEPARTMENT FILED APPEAL BEFORE THE TRIBUNAL, HOWEVER, NO SUCH GROUND HAS BEEN TAKEN FOR THAT YEAR. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION; ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO. THUS, IT IS CLEAR THAT THE ADDITION WHICH WAS BA SED ON THE ASSESSMENT YEAR 2004-05 WAS DELETED BY THE FIRST APPELLATE AUT HORITY WAS NOT CHALLENGED BY THE DEPARTMENT. IN ANY CASE, THERE IS NO ADDITI ON TO THE CAPITAL WORK-IN- PROGRESS DURING THE YEAR AS IS EVIDENT FROM PARAS 2 .3 AND 2.4 OF THE ORDER OF THE FIRST APPELLATE AUTHORITY, WE ARE INCLINED TO I NTERFERE WITH THE ORDER OF THE FIRST APPELLATE AUTHORITY. GROUND NO.1 IS THEREFOR E, DISMISSED. 3 ITA 4718/M/09, M/S BILPOWER LTD. 3. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONS IDERATION AND ALL THE MATERIAL FACTS RELEVANT THEREOF ARE UNDISPUTEDLY SIMILAR TO A.Y. 2 005-06, WE RESPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR A.Y. 2005-06 AND UPHOLD T HE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUN D NO. 1 OF REVENUES APPEAL IS ACCORDINGLY DISMISSED. 4. AS REGARDS GROUND NO. 2, IT IS OBSERVED THAT THE DIRECTION GIVEN BY THE LD. CIT(A) TO THE A.O. TO MAKE ADJUSTMENT ON ACCOUNT OF EXCISE DU TY ALSO TO THE VALUE OF OPENING STOCK WHILE DOING SIMILAR ADJUSTMENT TO THE VALUE OF CLOS ING STOCK IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A AND EVEN THE LD. D.R. AT THE TIME OF HEARING BEFORE US HAS NOT DISPUTED THIS POSITION CLEARLY EVIDENT FROM THE SAI D PROVISION. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(A) G IVING THE SAID DIRECTION TO THE A.O. AND UPHOLDING THE SAME, WE DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 5. AS REGARDS GROUND NO. 3, IT IS OBSERVED THAT THE ISSUE RAISED THEREIN RELATING TO THE ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF KARAD UNIT IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL DATED 2.2.10 (SUPRA) FOR A.Y. 2005-06 WHEREIN THE SAME WAS DECIDED IN PARA 7 TO 12 AS UNDER: AS FAR AS GROUND NOS.2 & 3, AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE DISPUTE IS REGARDING DENIAL OF DEDUCTION U /S.80IB. THE DEDUCTION WAS DENIED BY THE ASSESSING OFFICER BECAUSE PLANT A ND MACHINERY OF AMLI UNIT WERE TRANSFERRED TO KARAD UNIT FORM PART OF PL ANT AND MACHINERY OF KARAD UNIT AND THUS PROPORTION OF OLD MACHINERY WOU LD INCREASE. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITION BY OBSERVING THAT IN THE CASE OF ITO VS. LAXMI PACKERS, THE D BENCH OF THE MUMBAI TRIBUNAL VIDE ITS ORDER DATED 23.02.2007 HELD THAT THE ASSES SEE SHOULD NOT BE USING ANY OLD MACHINERY AT THE TIME OF THE COMMENCEMENT O F PRODUCTION IN THE NEW UNIT. ANY SUBSEQUENT ACQUISITION OF MACHINERIES , WHETHER OLD OR NEW, DOES NOT CALL FOR SATISFACTION OF REQUIREMENT OF CO NDITIONS SET OUT IN CLAUSE (II) OF SECTION 80IB(2). THE LEARNED CIT(A) MADE T HE FOLLOWING OBSERVATIONS AT PAGES 5 & 6: 4 ITA 4718/M/09, M/S BILPOWER LTD. THE APPELLANTS CONTENTION IS ALSO SUPPORTED BY TH E JUDICIAL ITAT DECISION IN THE CASE OF ITO VS. LAXMI PACKERS (SUPRA) WHEREI N, THE HONBLE ITAT HAS HELD THAT THE ASSESSEE SHOULD NOT BE USING ANY OLD MACHINERY AT THE TIME OF COMMENCEMENT OF PRODUCTION IN THE NEW UNIT. ANY SUBSEQUENT ACQUISITION OF MACHINERIES WHETHER OLD OR NEW DOES NOT CALL FOR SATISFACTION OF REQUIREMENT OF CONDITIONS SET OUT IN CLAUSE (II) OF SECTION 80IB(2). IN THE APPELLANTS CASE UNDER CONSIDERATION, IT IS ON RECORD THAT KARAD UNIT HAD STARTED ITS MANUFACTURING ACTIVITY IN A.Y. 2002-03. THE AMLI UNIT HAD ALSO STATED ITS MANUFACTURING ACTIVITY SINCE 1996-97 AND BOTH THE UNITS WERE CONSISTENTLY CLAIMING DEDUCTION U/S.80IB SIMULTANE OUSLY, THEREFORE, IT CANNOT BE HELD THAT THE KARAD UNIT WAS FORMED AS A RESULT OF SUCH TRANSFER FROM AMLI UNIT. CONSIDERING THE PROPOSITION OF THE JUDGMENT IT IS C LEAR THAT THE BENEFICIAL PROVISIONS SHOULD BE LIBERALLY CONSTRUED AND THAT T HE SAME SHOULD BE DONE IN A MANNER WHICH ADVANCE THE OBJECT AND PURPOSE OF SUCH PROVISION AS AGAINST FRUSTRATE THE SAME. IN THE INSTANT CASE ME RELY BECAUSE THE ISSUE IN THE ORDINARY COURSE OF COMMERCIAL DECISION KEEPING IN MIND THE OBJECT AND PURPOSE OF THE PROVISIONS HE WOULD NOT HAVE DISALL OWED SUCH CLAIM MERELY ON SUCH FLIMSY GROUND. HOWEVER, DEDUCTION MIGHT HA VE BEEN DISALLOWED IF THE AO HAD BROUGHT ON RECORD ANY MATERIAL TO SHOW T HAT SUCH MACHINES WERE USED FOR PRODUCTION PROCESS IN KARAD UNIT. TH US IN ABSENCE OF ANY MATERIAL BROUGHT ON RECORD DISALLOWANCE MADE BY THE AO CANNOT BE ACCEPTED SINCE IN MY CONSIDERED VIEW MERELY STORING MACHINES IN NO WAY VIOLATES THE PROVISIONS OF SECTION 80IB AND HENCE N O ADVERSE VIEW BE TAKEN AS SUCH. THUS CONSIDERING THE OVERALL FACTS OF THE CASE AO IS DIRECTED TO ALLOW THE DEDUCTION U/S.80IB IN RESPECT OF PROFIT O F KARAD UNIT. THIS GROUND OF APPEAL IS ALLOWED. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED ON THE GROUNDS OF APPEAL AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 3179 AN D 3180/M/08 DECIDED ON 9 TH SEPT., 2009 AND REFERRED TO PARA 3 OF THE SAID ORD ER AS UNDER: AFTER CONSIDERING THE ORDERS OF THE AUTHORITIES BE LOW AND THE ORDER OF THE TRIBUNAL, WE FIND THAT SIMILAR ADDITIONS WERE MADE FOR AY 2001-02 WHILE REDUCING THE DEDUCTION U/S.80IB/80IA. THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISIONS O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF FENNER (INDIA) LTD. IN 24 1 ITR 803 AND IN THE CASE OF SUNDARAM INDUSTRIES LTD. IN 253 ITR 376 WHE REBY IT HAS BEEN HELD THAT INCOME FROM SALE OF SCRAP IS ALSO INCOME FROM INDUSTRIAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S.80IB. 5 ITA 4718/M/09, M/S BILPOWER LTD. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT THE ASSESSING OFFICER OBSERVED IN PARA 6.1 AS UNDER: THE ASSESSEE HAS NOT FURNISHED ANY COGENT REASON A S TO WHY THIS PLANT AND MACHINERY SHOULD NOT BE TREATED AS HAVING BEEN USED IN ANY BUSINESS EARLIER TO THE SAME FORMING PART OF THE P LANT AND MACHINERY OF THE ASSESSEES KARAD UNIT. THE MERE FACT THAT THE P LANT AND MACHINERY REMAINED UNINSTALLED IN THE HANDS OF AMLI UNIT AND SO IT REMAINED IN THE HANDS OF THE ASSESSEES KARAD UNIT IS NOT ENOUGH JU STIFICATION TO OVERCOME THE RESTRICTION PLACED IN SECTION 80IB(2) READS WIT H EXPLANATION 1 & 2 THERE BELOW. FROM THE UNDERLINED PORTION, IT IS CLEAR THAT EVEN ACCORDING TO THE ASSESSING OFFICER THE SAID PLANT AND MACHINERY OF A MLI UNIT REMAINED UNINSTALLED. THEREFORE, THERE IS NO REASON TO CONS IDER THE SAME AS PART OF THE PLANT AND MACHINERY USED FOR INDUSTRIAL UNDERTA KING. IN ANY CASE, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN EARL IER ASSESSMENT YEARS VIDE PARA 3 IN ITA NOS.3179 & 3180/MUM/08 (SUPRA). THERE FORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE LEARNED CIT(A) AND CONF IRM THE SAME. 6. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONS IDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2005-06, WE RE SPECTFULLY FOLLOW THE ORDER OF THE TRIBUNAL FOR A.Y. 2005-06 AND UPHOLD THE IMPUGNED O RDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE. GROUND NO. 3 OF REVENUES APPEAL IS DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON 26 TH NOVEMBER, 2010. SD/- SD/- (ASHA VIJAYARAGHAVAN) ( P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 26 TH NOVEMBER , 2010. RK 6 ITA 4718/M/09, M/S BILPOWER LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -IX - MUMBAI 4. THE CIT- IX MUMBAI 5. THE DR BENCH, H 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 7 ITA 4718/M/09, M/S BILPOWER LTD. DATE INITIALS 1. DRAFT DICTATED 26.10.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 2.11.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.