The ACIT, Circle-2, Ahmedabad V. M/s. Artex Apparels, Ahmedabad

ITA 515/AHD/2012

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4480 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-07-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: J P SHAH
• Keywords: Reassessment proceedings
• Section: 143(3); 80IB; 131

Judgement Text

ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VICE PRESIDENT AND MAHAVIR PRA SAD JM] ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 2, AHMEDABAD. .. APPELLANT VS. ARTEX APPARELS, .......... RESPONDENT 641/54, ARANDA HALL, KAPASIA BAZAR, KALUPUR, AHMEDABAD - 380 002. [PAN: AAEFA 7531 J] APPEARANCES BY LALIT P. JAIN FOR THE APPELLANT J.P. SHAH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 10.09.2018 DATE OF PRONOUNCEMENT : 26.10.2018 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 19 TH DECEMBER 2011, PASSED BY THE LEARNED CIT (A), IN T HE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE I NCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 2003-04. 2. GRIEVANCES RAISED BY THE APPELLANT ARE AS FOLLOW S :- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING UNIT NO.47 AS NEW INDUSTRIAL UNDERTAKING AND ALLOWING THE DEDU CTION U/S. 80IB OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESS ING OFFICER TO THE EXTENT MENTIONED ABOVE, SINCE THE ASSESSEE HAS FAILED TO DISCLOSE HIS TRUE INCOME ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 2 OF 6 3. THE RELEVANT MATERIAL FACTS, GIVING RISE TO THIS DISPUTE BEFORE US, ARE AS FOLLOWS. IT IS A CASE OF REOPENED ASSESSMENT. THE ASSESSEE BEFORE US IS ENGAGED IN THE BUSINESS OF MANUFACTURING READYMADE GARMENTS FOR CHILDREN. THE ASSESSEE WAS CLAIMING, AND WAS DULY GRANTED, DEDUCTION UNDER SECTION 80IB, WITH EFFECT FROM ASSESSMENT YEAR 2002-03 ONWARDS, IN RESPECT OF PROF ITS OF THIS BUSINESS. ON 12 TH OCTOBER 2009, THE ASSESSEE WAS SUBJECTED TO SURVEY PROCEEDINGS UNDER SECTION 133A, AND BASED ON CERTAIN FINDINGS IN THE SAID SUR VEY PROCEEDINGS, THE ASSESSMENTS, INCLUDING FOR THIS ASSESSMENT YEAR, WE RE REOPENED. IN THE COURSE OF THESE REASSESSMENT PROCEEDINGS, VALIDITY OF WHICH H AS BEEN UPHELD BY THE LEARNED CIT(A) AND IS NOT CHALLENGED BEFORE US, THE ASSESSI NG OFFICER NOTED THAT THE DEDUCTION UNDER SECTION 80IB WAS GRANTED ON THE BAS IS THAT THE ASSESSEE HAS STARTED A NEW INDUSTRIAL UNDERTAKING AT PLOT NO.47, NEW GRAINS MARKET, KHOKHARA, AHMEDABAD BUT THEN, AS STATED BY THE ASSESSING OFFI CER, NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR THE SAID UNDERTAKING. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SAID PLOT WAS PARTLY LET OUT TO A SISTER CONCERN AND WAS PARTLY USED BY THE ASSESSEE FOR ITS OWN PURPOSES. THE ASSESSI NG OFFICER FURTHER NOTED THAT AS NO SEPARATE ACCOUNTS WERE MAINTAINED FOR THE DIFFER ENT UNITS RUN BY THE FIRM, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTIO N 80IB IN RESPECT OF THESE UNITS. HE NOTED THAT THE ASSESSEE HAD STARTED THE PRESENT BUSINESS IN 1981 AND STARTED ITS MANUFACTURING UNIT IN 1989 AT KAPASIA BAZAR. BUILD ING OBTAINED SSI REGISTRATION AS A SMALL SCALE UNIT, IN 1990, AND THE BUSINESS WAS E XTENDED TO UNIT IN NEW GRAINS MARKET FROM 05.05.2000. THE SECOND UNIT AT PLOT NO .47, NEW GRAINS MARKET KHOKHARA, AS WAS NOTED BY THE ASSESSING OFFICER, WA S STARTED ON 3 RD JUNE 2002. IT WAS ALSO NOTED THAT THERE WERE SEVERAL OTHER PLACES AT WHICH RELATED ACTIVITIES (I.E. STORAGE, STITCHING, CUTTING ETC.) WERE CARRIED OUT WHICH WERE CLOSELY RELATED TO THE MAIN ACTIVITY. THE ASSESSEES CLAIM THAT THE UNIT AT PLOT NO.47 PRODUCED A SALEABLE PRODUCT WAS REJECTED BY THE ASSESSING OFFICER ON TH E GROUND THAT BUTTONING ETC. WAS DONE IN A DIFFERENT UNIT AND IT WAS INCONCEIVABLE A S TO HOW CLOTHES COULD BE SOLD WITHOUT EVEN BUTTONS. THE MAINTENANCE OF SEPARATE STOCK REGISTERS FOR DIFFERENT UNITS, IN THE OPINION OF THE ASSESSING OFFICER, WAS NOT SUFFICIENT TO CLAIM DEDUCTION UNDER SECTION 80IB. IT WAS ALSO NOTED THAT DEDUCT ION UNDER SECTION 80IB IS NOT ALLOWABLE ON THE ENTIRE PROFITS OF THE FIRM, BUT IS ALLOWABLE ONLY IN RESPECT OF THE NEW UNDERTAKING BUT THEN SINCE THE ASSESSEE HAS NOT MA INTAINED SEPARATE BOOKS OF ACCOUNTS FOR ACTIVITIES AT THE NEW PREMISES, DEDUCT ION COULD NOT BE ALLOWED. IT WAS ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 3 OF 6 STATED THAT UNDER RULE 10BBB(3), PROFITS OF THE UND ERTAKING WERE TO BE COMPUTED AS IF IT IS A DISTINCT ENTITY. THE ASSESSING OFFICER THU S CONCLUDED THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB IN RE SPECT OF PROFITS FROM MANUFACTURING OF CHILDRENS GARMENTS AS THE ACTIVITIES WERE ALSO CARRIED OUT IN OTHER LOCATIONS AND AS NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED FOR E ACH LOCATION. ACCORDINGLY, THE 80IB DEDUCTION OF RS.67,15,507/- WAS DECLINED. AGG RIEVED, ASSESSEE CARRIED THE MATER IN APPEAL BEFORE THE LEARNED CIT(A) WHO REVER SED THE STAND OF THE ASSESSING OFFICER BY OBSERVING FOLLOWS :- 3.5 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER, ASSESSING OFFICERS COMMENTS AND APPELLANTS WRITTEN SUBMISSI ON. ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80I B ON THE GROUND THAT THE NEW INDUSTRIAL UNDERTAKING UNIT NUMBER 47 DID NOT M ANUFACTURE SELLABLE ARTICLE OR THING AND THIS UNIT DID NOT HAVE SEPARATE BOOKS OF ACCOUNTS. WITHOUT PREJUDICE TO THIS, ASSESSING OFFICER DISALLOWED DED UCTION UNDER SECTION 80 IB ON DEPB INCOME SINCE IT WAS NOT DERIVED FROM INDUST RIAL UNDERTAKING. ADEQUATE OPPORTUNITIES WERE GIVEN TO BOTH APPELLANT AND ASSESSING OFFICER WHO REPRESENTED THE CASE. AFTER DETAILED HEARING, A PPELLANT'S WRITTEN SUBMISSIONS WERE SENT TO THE ASSESSING OFFICER FOR HER COMMENTS. ASSESSING OFFICER'S COMMENTS WERE FORWARDED TO THE APPELLANT WHO SUBMITTED REJOINDER. ALL THESE SUBMISSIONS, COMMENTS AND REJOINDER HAVE BEEN QUOTED IN EARLIER PARA. THE CRUX OF ASSESSING OFFICER'S ARGUMENT IS THAT AP PELLANT CLAIMED UNIT NUMBER 47 AS NEW INDUSTRIAL UNDERTAKING HOWEVER ONL Y PART OF THE WORK I.E. STITCHING OF CHILDREN'S GARMENTS WAS DONE THERE. RE MAINING ACTIVITIES WERE CARRIED OUT AT DIFFERENT UNITS IN THE SAME AREA. IN VIEW OF THIS, AO IS OF THE VIEW THAT ITEMS PRODUCED FROM UNIT NO.47 ARE NOT ARTICLE S OR THINGS AND NO SEPARATE BOOKS OF ACCOUNT WERE KEPT FOR THIS UNIT AND ACCORD INGLY IT IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB. IT IS NOT IN DISPUTE THAT APPELLANT STARTED NEW INDUSTRIAL ACTIVITY IN THIS AREA ONLY IN 2001. APPELLANT SUBMITTED THAT UNIT NUMBER 47 WAS MENTIONED AS NEW INDUSTRIAL UNDE RTAKING JUST FOR THE SAKE OF CONVENIENCE AND BECAUSE MAIN ACTIVITY OF STITCHI NG WAS CARRIED OUT AT THIS PLACE. ALL OTHER ANCILLARY ACTIVITIES WERE CARRIED OUT IN OTHER UNITS IN THE SAME AREA. IT IS ALSO NOT IN DISPUTE THAT APPELLANT WAS MANUFACTURING CHILDREN'S GARMENTS IN THE NEW INDUSTRIAL UNDERTAKING WHICH CO NSISTED SEVERAL UNITS AS MENTIONED IN ASSESSMENT ORDER AND APPELLANT'S SUBMI SSION. DIFFERENT ACTIVITIES WERE PERFORMED IN THESE UNITS AND THE FI NAL PRODUCT I.E. CHILDREN'S GARMENT WAS COMING OUT. UNIT 47 HANDLED STITCHING A CTIVITY. REMAINING ACTIVITIES TILL MARKETING ARE COMPLETED IN DIFFEREN T UNITS LOCATED CLOSELY. THEREFORE APPELLANT ARGUED THAT JUST BY MENTIONING UNIT NUMBER 47 AS NEW INDUSTRIAL UNDERTAKING, ALL OTHER UNITS CANNOT BE T REATED AS INDEPENDENT AND SEPARATE UNITS. THESE UNITS WERE ONLY PROVIDING ANC ILLARY AND SUPPORTING SERVICES FOR THIS UNIT AND THEREFORE NEW INDUSTRIAL UNDERTAKING IS COMPOSITE OF ALL THESE UNITS. FINAL PRODUCT MANUFACTURED BY THES E UNITS IS SEPARATELY MARKETABLE PRODUCT AND THEREFORE IT IS MANUFACTURIN G ARTICLES OR THINGS AS HELD ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 4 OF 6 BY SEVERAL JUDICIAL DECISIONS RELIED UPON BY THE AP PELLANT. WHEN ALL THE UNITS ARE CONSIDERED A COMPOSITE INDUSTRIAL UNDERTAKING, THERE CANNOT BE SEPARATE BOOKS OF EACH UNIT WHICH IS ONLY PERFORMING A PART WORK. CONSIDERING THE FACTS OF THE CASE I AM OF THE VIEW THAT STITCHING, CUTTING, BUTTONING, STORAGE OF RAW MATERIAL AND FINISHED GOO DS ETC CANNOT BE CONSIDERED SEPARATE AND INDEPENDENT ACTIVITIES. ALL THESE ACTIVITIES ARE LINKED TO EACH OTHER AND THESE TOGETHER MAKE INDUSTRIAL UN DERTAKING. JUST BECAUSE APPELLANT MENTIONED UNIT NUMBER 47 AS NEW INDUSTRIA L UNDERTAKING, IT CANNOT BE DEPRIVED OF USING OTHER UNITS AS COMPOSITE MANUF ACTURING UNDERTAKING. WHEN MANUFACTURING IS DONE BY USING 5-6 UNITS, IT M AKES SENSE TO MENTION THE NUMBER OF MOST PROMINENT UNIT WHERE MAJ OR ACTIVITY IS CARRIED OUT. FOR SETTING UP A NEW INDUSTRIAL UNDERTAKING, NUMBER OF BUILDINGS IS NOT RELEVANT. AN INDUSTRIAL UNDERTAKING MAY CONS TITUTE SEVERAL BUILDINGS BASED ON REQUIREMENTS OR EVEN ONE BUILDING MAY CONT AIN SEVERAL NEW INDUSTRIAL UNDERTAKINGS IF THE BUILDING IS LARGE EN OUGH. THEREFORE TO DETERMINE A NEW INDUSTRIAL UNDERTAKING, NUMBER OF BUILDINGS I S NOT RELEVANT. WHAT IS RELEVANT IS SEPARATE AND INDEPENDENT INDUSTRIAL UND ERTAKING CONSTITUTING ALL THE ACTIVITIES OF THE UNDERTAKING. APPELLANT STARTED ITS NEW INDUSTRIAL UNDERTAKING FOR MANUFACTURING CHILDREN'S GARMENTS B Y USING SEVERAL BUILDINGS/UNITS AS MENTIONED IN THE ASSESSMENT ORDE R. EACH BUILDING PERFORMED PART OF THE ACTIVITY AND NONE OF THE BUIL DING CONSTITUTED INDEPENDENT INDUSTRIAL UNDERTAKING. THEREFORE I AGREE WITH THE APPELLANT THAT IT HAD COMPOSITE NEW INDUSTRIAL UNDERTAKING WITH 5-6 UNITS BUT THE SAME WAS IDENTIFIED AS UNIT NUMBER 47 FOR THE SAKE OF CONVEN IENCE. THEREFORE THE FINAL PRODUCT BEING CHILDREN'S GARMENT IS MANUFACTU RED FROM THE COMPOSITE INDUSTRIAL UNDERTAKING WHICH IS CLEARLY AN ARTICLE OR THING HAVING MARKET. SINCE ALL THE UNITS TOGETHER CONSTITUTED A NEW INDUSTRIAL UNDERTAKING, THERE IS NO NEED FOR SEPARATE BOOKS OF ACCOUNTS OF EACH UNIT WHICH ARE NOT INDEPENDENT. IN FACT IT IS NOT POSSIBLE TO MAINTAIN SEPARATE BOO KS FOR VARIOUS ACTIVITIES INVOLVED IN GARMENT MANUFACTURING. CONSI DERING THESE FACTS, I AM OF THE CONSIDERED VIEW THAT APPELLANT'S NEW INDUSTRIAL UNDERTAKING CONSTITUTED ALL THE UNITS WHICH MANUFACTURED ARTICL ES OR THINGS AND HENCE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB. ALL OTHER ARGUMENTS OF THE ASSESSING OFFICER AND APPELLANT BECOME IRRELEVA NT ONCE UNIT NUMBER 47 IS NOT TREATED AS ISOLATED INDUSTRIAL UNDERTAKING INDE PENDENT OF ALL OTHER UNITS. I THEREFORE DIRECT THE ASSESSING OFFICER TO ALLOW DED UCTION UNDER SECTION 80 IB TO THE APPELLANT 4. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE LEARNED CIT(A) AND IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 6. WE HAVE NOTED THAT SECTION 80IB(2) REFERS TO A NY INDUSTRIAL UNDERTAKING WHICH FULFILS THE . CONDITIONS, BUT THEN CLEAR LY THERE IS A DISTINCTION BETWEEN THE EXPRESSION INDUSTRIAL UNDERTAKING AND UNITS CARRYING OUT RELATED ACTIVITIES INASMUCH AS AN INDUSTRIAL UNDERTAKING MAY HAVE MORE THAN ONE UNIT AS ITS INTEGRAL ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 5 OF 6 PART. THE MERE FACT THAT AN INDUSTRIAL UNDERTAKING HAS MORE THAN ONE PHYSICAL PLACE FOR ITS ALLIED ACTIVITIES, SUCH AS STORAGE OF RAW MATERIAL, FINAL TOUCHES AND PACKING OF END PRODUCTS OR OTHER ANCILLARY ACTIVITIES WOULD NO T MEAN THAT ALL THESE PHYSICAL PLACES ARE TO BE TREATED AS STANDALONE UNIT AND PRO FITS FOR EACH OF THESE PLACES ARE TO BE COMPUTED SEPARATELY. AS LEARNED CIT(A) RIGHTLY PUTS IT, FOR SETTING UP OF NEW INDUSTRIAL UNDERTAKING, THE NUMBER OF BUILDING IS W HOLLY IRRELEVANT. AS ALL THESE UNITS TOGETHER CONSTITUTED SEPARATE AND DISTINCT INDUSTRI AL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. WE HAVE ALSO NOTED THAT THERE IS NO DISPUTE THAT, VIDE REGISTRATION DATED 3 RD JUNE 2001, DISTRICT INDUSTRIES CENTRE HAS CONFIRME D SETTING UP OF UNIT AT NO.47 NEW GRAIN MARKET, OPP. ANUPAM TAL KIES, KHOKHRA, AHMEDABAD FOR PRODUCTION OF READYMADE GARMENTS FOR CHILDREN . AS FOR THE STATEMENT MADE BY THE PARTNERS OF THE ASSESSEE FIRM, ALL THAT HAS BEE N STATED IN THE SAID STATEMENT IS THAT THE ACTIVITIES ARE CARRIED OUT AT OTHER PLACES AS WELL BUT THEN NONE OF THESE ACTIVITIES WERE INDEPENDENT ACTIVITIES ON STANDALON E BASIS OR RESULTED IN A DISTINCT PRODUCT. IN ANY EVENT, AS IS THE SETTLED LEGAL POS ITION, STATEMENT RECORDED UNDER SECTION 131 HAS NO EVIDENTIARY VALUE, AND THERE IS NOTHING MORE THAN THE STATEMENT WHICH IS PUT AGAINST THE ASSESSEE IN THE PRESENT CA SE. AS REGARDS HONBLE SUPREME COURTS JUDGEMENT IN THE CASE OF DCIT VS. ACE MULTI AXES SYSTEMS LIMITED [(2018) 400 ITR 141 (SC)] CITED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, EVEN IF DEDUCTION UNDER SECTION 80IB CAN BE DECLINED IN SUB SEQUENT YEARS, IT CAN BE SO DECLINED ONLY WHEN AN ASSESSEE CEASES TO BE ELIGIBL E FOR THE DEDUCTION ON ACCOUNT OF, AS IN THIS CASE FOR EXAMPLE, BY CEASING TO BE A SMALL SCALE INDUSTRY. THAT IS NOT THE CASE BEFORE US. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE THE WELL REASONED CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A), AND DECLINE TO INTERFERE IN THE MATTER. 7. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON THE 26 TH DAY OF OCTOBER, 2018. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, DATED THE 26 TH DAY OF OCTOBER, 2018 PBN/* ITA NO.515/AHD/2012 ASSESSMENT YEAR: 2003-04 PAGE 6 OF 6 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD