M/s Spray Engineering Device Ltd., Chandigarh V. CIT-I, Chandigarh

ITA 514/CHANDI/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51462 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: VINEET AGGARWAL
• Section: 263; 63; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH B BENCH BEFORE MS. SUSHMA CHOWLA, JM AND SHRI MEHAR SING H, AM ITA NO. 514/CHANDI/2010 ASSESSMENT YEAR: 2005-06 SPRAY ENGINEERING DEVICES LTD. V. C.I.T. -I, CHANDIGARH 25, INDUSTRIAL AREA PHASE II, CHANDIGARH PAN: AAICS 5252 M (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VINEET AGGARWAL RESPONDENT BY: SHRI S.K. MITTAL DATE OF HEARING: 19.9.2011 DATE OF PRONOUNCEMENT: 22.9.2011 ORDER PER MEHAR SINGH, A.M THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER PASSED BY THE LD. CIT-I, CHANDIGARH DATED 4.3.2010 U/S 263 OF INC OME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1 THAT THE LD. CIT-I, CHANDIGARH HAS ERRED IN LAW AND AS WELL AS ON FACTS WHILE PASSING ORDERS U/S 263 ON FOLLOWING GROUNDS. 2 THAT THE LD. CIT HAS ERRED IN INVOKING THE JURIS DICTION U/S 263 WITH RESPECT TO ASSESSMENT ORDER OF ASSESSMENT YEAR 2005-06, AS THE ASSESSMENT ORDER OF ASSESSMENT YEAR 2005-06 WERE NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE SAID ASSESSMENT ORDERS WERE PAS SED WITH THE DUE APPLICATION OF MIND BY THE THEN AO AND IT WAS FURTHER CONFIRMED BY THE OBSERVATION OF LD. CIT(A) VIDE PARA NO. 80 OF HIS ORDERS PASSED ON IDENTICAL ISSUE WRT ASSESSMENT YEAR 2006- 07. FURTHER ONLY ONE VIEW IS POSSIBLE ON THE ELIGI BILITY DEDUCTION U/S 80IB & 80IC IN CASE OF CONVERSION OF PARTNERSHIP FIRM FIRM IN TO A COMPANY AS THE DEDC U/S 80IB & 80IC IS TO BE ALLOWED ONLY TO THE UNDERTAKI NG AND NOT TO ITS OWNER. FINDINGS OF THE AO OF ASSESSMENT YEAR 2005-06 FULLY CONCURRED WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE FOR ASSESSMENT YEAR 2006-07, THAT DEDUCTION U/S 514/CHANDI/2010 SPRAY ENGINEERING DEVICES LTD V. CIT 2 80IB / 80IC ARE ADMISSIBLE TO AN UNDERTAKING AND NOT TO ITS OWNER AND IS NO WAY RELATABLE IF THERE IS ANY CHANGE IN CONSTITUTION. 3 THAT THE LD. CIT HAS ERRED IN ADJUDICATING ON ME RITS THAT THE BENEFIT OF DEDUCTION OF RS. 2,41,53,759/- U/S 80IB AND RS. 9,0 3,25,657/- U/S 80IC OF THE INCOME-TAX ACT ARE NOT ALLOWABLE BY BASELESS, WRONG , AND FRIVOLOUS INTERPRETATION OF SEC 80IB(2)(I), 80IC(4)(I) AND 80IA(12) AND THAT THE BENEFIT OF DEDUCTION IS DULY ALLOWABLE TO THE ASSESSEE IN TERMS OF THE CBDT CIRC ULAR NO. F 15/5/63 DATED 13.12.1963. THE LD. CIT HAS WRONGLY IGNORED THE SU BMISSIONS OF THE ASSESSEE, CASE LAWS, CBDT CIRCULAR AND FAVOURABLE ORDER OF LD. CIT (A) ON SAME ISSUE FOR ASSESSMENT YEAR 2006-07 AND THE ORDER U/S 263 HAS B EEN FRAMED ON CONJECTURES AND SURMISES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE-COMPANY IS A PUBLIC LIMITED COMPANY HAVING ITS REGISTERED OFFICE AND IS ENGAGED IN THE MANUFACTURING OF COOLING AND CONDENSING SYSTEMS FOR THE SUGAR INDUSTRY IN THEIR MANUFACTURING FACILITY AT BADDI, HP. THE ASSESSEE COMPANY GOT INCORPORATED INTO A PUBLIC LIMITED COMPANY UNDER COMPANIES ACT, 1956. THE INCORPORATION TOOK PLACE IN THE FOR M OF CONVERSION OF TWO ERSTWHILE PARTNERSHIP FIRMS M/S SPRAY ENGINEERING DEVICES AND M/S C&C SYSTEMS INTO A PUBLIC LIMITED COMPANY WHERE THE BUSINESS OF THE TWO FIRMS WAS TAKEN OVER BY THE ASSESSEE COMPANY. THERE WAS A COMMON MEMORANDUM OF ASSOCIAT ION. ON INCORPORATION, THE TWO PARTNERS OF THE ERSTWHILE PARTNERSHIP FIRMS, MR. VI VEK VERMA AND MR. PRATEEK VERMA BECAME THE WHOLE TIME DIRECTORS OF THE COMPANY AND WERE ALLOTTED EQUITY SHARES IN THE COMPANY IN THE RATIO OF BALANCE IN THEIR CAPITAL AC COUNTS. THE PARTNERSHIP FIRM M/S SPRAY ENGINEERING DEVICES WAS ELIGIBLE FOR DEDUCTION U/S 80IC AND C&C SYSTEMS WAS ELIGIBLE FOR DEDUCTION U/S 80IB. FOR ASSESSMENT YEAR 2005- 06, THE ASSESSEE COMPANY M/S SPRAY ENGINEERING DEVI CES LIMITED CLAIMED THE DEDUCTION U/S 80IB AND 80IC FOR THE FOUR MONTHS PERIOD OF THE FINANCIAL YEAR 2004-05. HE ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY U/S 143(2) FOR A SSESSMENT YEAR 2005-06. DURING SCRUTINY THE AO ISSUED THE SHOW CAUSE NOTICE VIDE ENTRY SHEET DATED 11.5.2007 THAT WHY DEDUCTIONS U/S 80IB AND 80IC MAY NOT BE DISALLOWED AS THE COMPANY HAS BEEN FORMED BY 514/CHANDI/2010 SPRAY ENGINEERING DEVICES LTD V. CIT 3 RESTRUCTURING THE OLD FIRMS. THE ASSESSEE COMPANY FILED A DETAILED REPLY TO THE SHOW CAUSE NOTICE. THE AO CONSIDERED THE ISSUE IN THE MA TTER. 4. THE LD. CIT-I, CHANDIGARH INVOKED THE JURISDICTI ON U/S 263 AND NOTICE WAS ISSUED ON 7.9.2009 TO THE ASSESSEE COMPANY FOR ASSESSMENT YEAR UNDER REFERENCE. THE LD. CIT-I, CHANDIGARH DID NOT ACCEPT THE SUBMISSIONS OF THE AS SESSEE-APPELLANT AND THE IMPUGNED ASSESSMENT ORDER WAS SET ASIDE AS INDICATED, IN THE SAID ORDER U/S 263 OF THE ACT AND THE AO WAS DIRECTED TO PASS A FRESH ASSESSMENT ORDER AN D RECOMPUTE THE ASSESSEES INCOME AS PER DIRECTIONS GIVEN IN THE SAID ORDERS. 5 THE LD. AR FOR THE ASSESSEE CONTENDED THAT THE CASE DOES NOT FALL UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. HE REFERRED TO THE ASSESSMENT ORDER WHERE THE ISSUE OF ELIGIBILITY U/S 80IB / 80 IC HAS BEEN DULY CONSI DERED AND ADJUDICATED BY THE AO. THE LD. AR FOR THE ASSESSEE SPECIFICALLY POINTED OUT TO THE QUERY RAISED BY THE AO IN THE MATTER OF ELIGIBILITY U/S 80IB / 80IC OF THE ACT A S IS EVIDENT FROM PAGE 98 OF PAPER BOOK. THE QUERY WAS RAISED IN PARA 3 OF THE QUESTIONNAIRE ISSUED BY THE AO AS APPEARING, AT PAGE 98 OF PAPER BOOK. THE ASSESSEE SUBMITTED DETAILED REPLY JUSTIFYING ITS ELIGIBILITY U/S 80IB OF THE ACT. THE LD AR FOR THE ASSESSEE REFERRED TO CBDT CIRCULAR AND CONTENDED THAT THE DEDUCTION U/S 80IB / 80IC OF THE ACT IS AVAILABLE T O THE UNDERTAKING AND NOT THE ASSESSEE. THE AO HAS TAKEN LEGALLY PERMISSIBLE VIEW AND THE L D. CIT IS NOT COMPETENT TO SUBSTITUTE THE SAME BY WAY OF INVOKING PROVISIONS OF SECTION 2 63 OF THE ACT. HE REFERRED TO SEC 80IA (12) OF THE ACT AND VEHEMENTLY CONTENDED THAT THE PROVISIONS OF THIS SECTION ARE NOT APPLICABLE TO THE ASSESSEE AS THE UNDERTAKING WHICH WAS TRANSFERRED TO THE ASSESSEE COMPANY, BELONGED TO THE TWO PARTNERSHIP FIRMS AND NOT TO AN INDIA COMPANY. 6 THE LD DR, ON THE OTHER HAND, JUSTIFIED THE ACT ION OF THE LD. CIT TAKEN U/S 263 OF THE ACT. HE CITED VARIOUS PARAS OF THE ORDER PASSE D BY THE LD. CIT IN SEC 263 OF THE ACT. HE ALSO QUOTED THE DECISION OF HON'BLE SUPREME COUR T, IN THE CASE OF HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. V. CIT, 243 ITR 83 (S.C). THE DR REFERRED TO THE PROVISIONS OF SECTION 80IA(12) OF THE ACT AN D PLACED RELIANCE THEREON TO SUPPORT HIS CONTENTIONS. HE FURTHER RELIED ON THE REASONING CON TAINED IN THE ORDER OF LD. CIT(A) IN APPEAL NO. 667/10-11 IN THE ASSESSEES CASE (PHOTOC OPY OF RELEVANT PART OF THE ORDER OF LD. CIT(A) FILED). 514/CHANDI/2010 SPRAY ENGINEERING DEVICES LTD V. CIT 4 7 WE HAVE CAREFULLY CONSIDERED THE FACTS, RIVAL SUB MISSIONS, PAPER BOOK AND THE CASE LAWS CITED BY THE PARTIES. IT IS WILL SETTLED PROP OSITION THAT THE PROVISIONS OF SECTION 263 OF THE ACT CAN ONLY BE INVOKED IF STATUTORY CONDITIONS PRECEDENT, AS CONTAINED THEREIN ARE SATISFIED. THE HON'BLE SUPREME COURT, IN THE CASE OF MALABAR INDUSTRIAL CO. V. CIT, 243 ITR 83 (S.C) HAS CATEGORICALLY HELD THAT CUMULATIVE SATISFACTION OF THE CONDITIONS AS ENVISAGED U/S 263 OF THE ACT, ARE REQUIRED TO BE S ATISFIED. IN THE PRESENT CASE, A BARE PERUSAL OF THE ASSESSMENT ORDER AND THE RELEVANT PA GES OF THE PAPER BOOK FILED BY THE ASSESSEE CLEARLY REVEALS THAT THE ISSUE HAD DULY BE EN RAISED, CONSIDERED AND ADJUDICATED BY THE AO. THE AO HAS TAKEN A LEGALLY PERMISSIBLE V IEW WHICH CAN BE THE SUBJECT MATTER OF APPELLATE JURISDICTION BUT CAN NOT BE THE SUBJECT M ATTER OF THE REVISIONARY POWER AS CONTAINED IN SEC 263 OF THE ACT. THIS PROPOSITION IS WELL ESTABLISHED BY WAY OF VARIOUS JUDICIAL PRONOUNCEMENTS. WE HAVE CAREFULLY CONSIDE RED THE DECISION RELIED ON BY THE ASSESSEE AND FIND THAT THE CORE ISSUE OF APPLICABIL ITY U/S 80IB / 80IC OF THE ACT, FOR THE UNEXPIRED PERIOD HAD BEEN DULY CONSIDERED AND ADJUD ICATED BY THE AO. THUS, THE LD. CIT IS NOT STATUTORILY COMPETENT TO INVOKE THE PROVISIO NS OF SUCH REVISIONARY POWERS, WITH A VIEW TO SUBSTITUTING HIS OPINION, IN PLACE OF LEGAL LY PERMISSIBLE VIEW TAKEN BY THE AO. NEEDLESS TO SAY THAT THE DEDUCTION U/S 80IB / 80IC IS AVAILABLE TO THE UNDERTAKING AND NOT THE ASSESSEE, AS ENVISAGED IN THE CBDT CIRCULAR NO. F15/5/63-IT(A-1) DATED 13.12.1963. FURTHER, IT IS EVIDENT THAT THE PROVISIONS OF SECTI ON 80IA(12) OF THE ACT ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE PRESENT C ASE, THE BUSINESS OF TWO FIRMS HAS BEEN TRANSFERRED BY THESE TAXABLE ENTITY, UNDER THE SCHE ME OF INCOME-TAX ACT. CONSEQUENTLY, THE SAID BUSINESS BELONGED TO THE FIRMS AND NOT TO THE INDIAN COMPANY. THEREFORE, THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE FALL BE YOND THE PALE OF PROVISIONS OF SECTION 801A(12) OF THE ACT. THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO (SUPRA) SUPPORTS THE CASE OF THE ASSE SSEE. 8 HAVING REGARD TO THE ABOVE LEGAL FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE PROVIS IONS OF SECTION 263 OF THE ACT. CONSEQUENTLY, THE IMPUGNED ORDER PASSED BY THE LD. CIT U/S 263 IS QUASHED. 514/CHANDI/2010 SPRAY ENGINEERING DEVICES LTD V. CIT 5 9 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON 22 ND SEPT, 2011 SD/- SD/- ( SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER CHANDIGARH: THE 22 ND SEPT, 2011 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE LD. CIT /THE D.R