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

ITA 517/AHD/2012

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4481 (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: 2006-2007
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: J P SHAH
• Section: 143(3); 80IB; 131

Judgement Text

ITA NO.517/AHD/2012 ASSESSMENT YEAR: 2006-07 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.517/AHD/2012 ASSESSMENT YEAR: 2006-07 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 2006-07. 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.517/AHD/2012 ASSESSMENT YEAR: 2006-07 PAGE 2 OF 6 3. LEARNED REPRESENTATIVES FAIRLY AGREED THAT WHATE VER WE DECIDE FOR THE ASSESSMENT YEAR 2003-04 (IN ITA NO.515/AHD/2012), W HICH WAS ALSO HEARD ALONG WITH THIS APPEAL, WILL APPLY MUTATIS MUTANDIS FOR T HIS ASSESSMENT YEAR AS WELL. 4. VIDE OUR ORDER OF EVEN DATE, WE HAVE DISMISSED T HE AFORESAID DEPARTMENTAL APPEAL BY OBSERVING AS FOLLOWS :- 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, DE DUCTION UNDER SECTION 80IB, WITH EFFECT FROM ASSESSMENT YEAR 2002-03 ONWA RDS, IN RESPECT OF PROFITS 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 SURVEY PROCEEDINGS, THE ASSESSMENTS, INCLUDING FOR THIS ASSESSMENT YEAR, WERE REOPENED. IN THE COURSE OF THESE REASSE SSMENT PROCEEDINGS, VALIDITY OF WHICH HAS BEEN UPHELD BY THE LEARNED CI T(A) AND IS NOT CHALLENGED BEFORE US, THE ASSESSING OFFICER NOTED THAT THE DED UCTION UNDER SECTION 80IB WAS GRANTED ON THE BASIS THAT THE ASSESSEE HAS STAR TED A NEW INDUSTRIAL UNDERTAKING AT PLOT NO.47, NEW GRAINS MARKET, KHOKH ARA, AHMEDABAD BUT THEN, AS STATED BY THE ASSESSING OFFICER, NO SEPARA TE 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 C ONCERN AND WAS PARTLY USED BY THE ASSESSEE FOR ITS OWN PURPOSES. THE ASSESSING OFFICER FURTHER NOTED THAT AS NO SEPARATE ACCOUNTS WERE MAINTAINED FOR THE DIF FERENT UNITS RUN BY THE FIRM, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UN DER SECTION 80IB IN RESPECT OF THESE UNITS. HE NOTED THAT THE ASSESSEE HAD STA RTED THE PRESENT BUSINESS IN 1981 AND STARTED ITS MANUFACTURING UNIT IN 1989 AT KAPASIA BAZAR. BUILDING OBTAINED SSI REGISTRATION AS A SMALL SCALE UNIT, IN 1990, AND THE BUSINESS WAS EXTENDED TO UNIT IN NEW GRAINS MARKET FROM 05.0 5.2000. THE SECOND UNIT AT PLOT NO.47, NEW GRAINS MARKET KHOKHARA, AS WAS N OTED BY THE ASSESSING OFFICER, WAS 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 T O THE MAIN ACTIVITY. THE ASSESSEES CLAIM THAT THE UNIT AT PLOT NO.47 PRODUC ED A SALEABLE PRODUCT WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THA T BUTTONING ETC. WAS DONE IN A DIFFERENT UNIT AND IT WAS INCONCEIVABLE AS TO HOW CLOTHES COULD BE SOLD WITHOUT EVEN BUTTONS. THE MAINTENANCE OF SEPARATE STOCK REGISTERS FOR DIFFERENT UNITS, IN THE OPINION OF THE ASSESSING OF FICER, WAS NOT SUFFICIENT TO CLAIM DEDUCTION UNDER SECTION 80IB. IT WAS ALSO NO TED THAT DEDUCTION 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 SI NCE THE ASSESSEE HAS NOT MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR ACTIVITIE S AT THE NEW PREMISES, DEDUCTION COULD NOT BE ALLOWED. IT WAS STATED THAT UNDER RULE 10BBB(3), PROFITS OF THE UNDERTAKING WERE TO BE COMPUTED AS I F IT IS A DISTINCT ENTITY. THE ASSESSING OFFICER THUS CONCLUDED THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB IN RESPECT OF PROFITS FROM MANUFACTURING OF CHILDRENS GARMENTS AS THE ACTIVITIES WERE ALSO CAR RIED OUT IN OTHER LOCATIONS ITA NO.517/AHD/2012 ASSESSMENT YEAR: 2006-07 PAGE 3 OF 6 AND AS NO SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINE D FOR EACH LOCATION. ACCORDINGLY, THE 80IB DEDUCTION OF RS.67,15,507/- W AS DECLINED. AGGRIEVED, ASSESSEE CARRIED THE MATER IN APPEAL BEFORE THE LEA RNED CIT(A) WHO REVERSED THE STAND OF THE ASSESSING OFFICER BY OBSERVING FO LLOWS :- 3.5 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER, ASSESSING OFFICERS COMMENTS AND APPELLANTS WRITTE N SUBMISSION. ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80IB ON THE GROUND THAT THE NEW INDUSTRIAL UNDERTAKING U NIT NUMBER 47 DID NOT MANUFACTURE SELLABLE ARTICLE OR THING AND THIS UNIT DID NOT HAVE SEPARATE BOOKS OF ACCOUNTS. WITHOUT PREJUDICE TO TH IS, ASSESSING OFFICER DISALLOWED DEDUCTION UNDER SECTION 80 IB ON DEPB IN COME SINCE IT WAS NOT DERIVED FROM INDUSTRIAL UNDERTAKING. ADEQUATE O PPORTUNITIES WERE GIVEN TO BOTH APPELLANT AND ASSESSING OFFICER WHO R EPRESENTED THE CASE. AFTER DETAILED HEARING, APPELLANT'S WRITTEN S UBMISSIONS WERE SENT TO THE ASSESSING OFFICER FOR HER COMMENTS. ASSESSIN G OFFICER'S COMMENTS WERE FORWARDED TO THE APPELLANT WHO SUBMIT TED 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 UNDERTAKIN G HOWEVER ONLY PART OF THE WORK I.E. STITCHING OF CHILDREN'S GARME NTS WAS DONE THERE. REMAINING 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 ARTICLES OR THINGS AND NO SEPARATE BO OKS OF ACCOUNT WERE KEPT FOR THIS UNIT AND ACCORDINGLY IT IS NOT ELIGIB LE 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 O F STITCHING WAS CARRIED OUT AT THIS PLACE. ALL OTHER ANCILLARY ACTI VITIES WERE CARRIED OUT IN OTHER UNITS IN THE SAME AREA. IT IS ALSO NOT IN DIS PUTE THAT APPELLANT WAS MANUFACTURING CHILDREN'S GARMENTS IN THE NEW INDUST RIAL UNDERTAKING WHICH CONSISTED SEVERAL UNITS AS MENTIONED IN ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. DIFFERENT ACTIVITIES WERE P ERFORMED IN THESE UNITS AND THE FINAL PRODUCT I.E. CHILDREN'S GARMENT WAS COMING OUT. UNIT 47 HANDLED STITCHING ACTIVITY. REMAINING ACTIVITIES TILL MARKETING ARE COMPLETED IN DIFFERENT UNITS LOCATED CLOSELY. THERE FORE APPELLANT ARGUED THAT JUST BY MENTIONING UNIT NUMBER 47 AS NEW INDUS TRIAL UNDERTAKING, ALL OTHER UNITS CANNOT BE TREATED AS INDEPENDENT AN D SEPARATE UNITS. THESE UNITS WERE ONLY PROVIDING ANCILLARY AND SUPPO RTING SERVICES FOR THIS UNIT AND THEREFORE NEW INDUSTRIAL UNDERTAKING IS COMPOSITE OF ALL THESE UNITS. FINAL PRODUCT MANUFACTURED BY THESE UN ITS IS SEPARATELY MARKETABLE PRODUCT AND THEREFORE IT IS MANUFACTURIN G ARTICLES OR THINGS AS HELD BY SEVERAL JUDICIAL DECISIONS RELIED UPON B Y THE APPELLANT. 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. ITA NO.517/AHD/2012 ASSESSMENT YEAR: 2006-07 PAGE 4 OF 6 CONSIDERING THE FACTS OF THE CASE I AM OF THE VIEW THAT STITCHING, CUTTING, BUTTONING, STORAGE OF RAW MATERIAL AND FIN ISHED GOODS ETC CANNOT BE CONSIDERED SEPARATE AND INDEPENDENT ACTIV ITIES. ALL THESE ACTIVITIES ARE LINKED TO EACH OTHER AND THESE TOGET HER MAKE INDUSTRIAL UNDERTAKING. JUST BECAUSE APPELLANT MENTIONED UNIT NUMBER 47 AS NEW INDUSTRIAL UNDERTAKING, IT CANNOT BE DEPRIVED OF US ING OTHER UNITS AS COMPOSITE MANUFACTURING UNDERTAKING. WHEN MANUFACTURING IS DONE BY USING 5-6 UNITS, IT MAKES SENSE TO MENTION THE N UMBER OF MOST PROMINENT UNIT WHERE MAJOR ACTIVITY IS CARRIED OUT. FOR SETTING UP A NEW INDUSTRIAL UNDERTAKING, NUMBER OF BUILDINGS IS NOT RELEVANT. AN INDUSTRIAL UNDERTAKING MAY CONSTITUTE SEVERAL BUILD INGS BASED ON REQUIREMENTS OR EVEN ONE BUILDING MAY CONTAIN SEVER AL NEW INDUSTRIAL UNDERTAKINGS IF THE BUILDING IS LARGE ENOUGH. THERE FORE TO DETERMINE A NEW INDUSTRIAL UNDERTAKING, NUMBER OF BUILDINGS IS 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 CH ILDREN'S GARMENTS BY USING SEVERAL BUILDINGS/UNITS AS MENTIONED IN THE A SSESSMENT ORDER. EACH BUILDING PERFORMED PART OF THE ACTIVITY AND NO NE OF THE BUILDING CONSTITUTED INDEPENDENT INDUSTRIAL UNDERTAKING. THE REFORE 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 CONVENIENCE. THEREFORE THE FINAL PRODUCT BEING CHILDREN'S GARMENT IS MANUFACTURED FROM THE COMPOSITE INDUSTRI AL 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 WH ICH ARE NOT INDEPENDENT. IN FACT IT IS NOT POSSIBLE TO MAINTAIN SEPARATE BOO KS FOR VARIOUS ACTIVITIES INVOLVED IN GARMENT MANUFACTURIN G. CONSIDERING THESE FACTS, I AM OF THE CONSIDERED VIEW THAT APPELLANT'S NEW INDUSTRIAL UNDERTAKING CONSTITUTED ALL THE UNITS WHICH MANUFAC TURED ARTICLES OR THINGS AND HENCE ELIGIBLE FOR DEDUCTION UNDER SE CTION 80 IB. ALL OTHER ARGUMENTS OF THE ASSESSING OFFICER AND APPELL ANT BECOME IRRELEVANT ONCE UNIT NUMBER 47 IS NOT TREATED AS IS OLATED INDUSTRIAL UNDERTAKING INDEPENDENT OF ALL OTHER UNITS. I THERE FORE DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION 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 APPLICABLE LEGAL POSITION. 6. WE HAVE NOTED THAT SECTION 80IB(2) REFERS TO AN Y INDUSTRIAL UNDERTAKING WHICH FULFILS THE . CONDITIONS, BUT THEN CLEARLY THERE IS A DISTINCTION BETWEEN THE EXPRESSION INDUSTRIAL UNDE RTAKING AND UNITS CARRYING OUT RELATED ACTIVITIES INASMUCH AS AN INDUSTRIAL UN DERTAKING MAY HAVE MORE THAN ONE UNIT AS ITS INTEGRAL PART. THE MERE FACT THAT AN INDUSTRIAL UNDERTAKING HAS MORE THAN ONE PHYSICAL PLACE FOR ITS ALLIED AC TIVITIES, SUCH AS STORAGE OF ITA NO.517/AHD/2012 ASSESSMENT YEAR: 2006-07 PAGE 5 OF 6 RAW MATERIAL, FINAL TOUCHES AND PACKING OF END PROD UCTS OR OTHER ANCILLARY ACTIVITIES WOULD NOT MEAN THAT ALL THESE PHYSICAL P LACES ARE TO BE TREATED AS STANDALONE UNIT AND PROFITS FOR EACH OF THESE PLACE S ARE TO BE COMPUTED SEPARATELY. AS LEARNED CIT(A) RIGHTLY PUTS IT, FOR SETTING UP OF NEW INDUSTRIAL UNDERTAKING, THE NUMBER OF BUILDING IS WHOLLY IRREL EVANT. AS ALL THESE UNITS TOGETHER CONSTITUTED SEPARATE AND DISTINCT INDUSTRI AL UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. WE HAVE ALSO NOTED T HAT THERE IS NO DISPUTE THAT, VIDE REGISTRATION DATED 3 RD JUNE 2001, DISTRICT INDUSTRIES CENTRE HAS CONFIRMED SETTING UP OF UNIT AT NO.47 NEW GRAIN MA RKET, OPP. ANUPAM TALKIES, KHOKHRA, AHMEDABAD FOR PRODUCTION OF REA DYMADE GARMENTS FOR CHILDREN. AS FOR THE STATEMENT MADE BY THE PARTNE RS OF THE ASSESSEE FIRM, ALL THAT HAS BEEN STATED IN THE SAID STATEMENT IS THAT THE ACTIVITIES ARE CARRIED OUT AT OTHER PLACES AS WELL BUT THEN NONE OF THESE ACTI VITIES WERE INDEPENDENT ACTIVITIES ON STANDALONE BASIS OR RESULTED IN A DIS TINCT PRODUCT. IN ANY EVENT, AS IS THE SETTLED LEGAL POSITION, STATEMENT RECORDE D UNDER SECTION 131 HAS NO EVIDENTIARY VALUE, AND THERE IS NOTHING MORE THAN T HE STATEMENT WHICH IS PUT AGAINST THE ASSESSEE IN THE PRESENT CASE. AS REGAR DS HONBLE SUPREME COURTS JUDGEMENT IN THE CASE OF DCIT VS. ACE MULTI AXES SYSTEMS LIMITED [(2018) 400 ITR 141 (SC)] CITED BY THE LEARNED DEPA RTMENTAL REPRESENTATIVE, EVEN IF DEDUCTION UNDER SECTION 80IB CAN BE DECLINE D IN SUBSEQUENT YEARS, IT CAN BE SO DECLINED ONLY WHEN AN ASSESSEE CEASES TO BE ELIGIBLE FOR THE DEDUCTION ON ACCOUNT OF, AS IN THIS CASE FOR EXAM PLE, 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 TH E CASE, WE APPROVE THE WELL REASONED CONCLUSIONS ARRIVED AT BY THE LEARNED CIT( A), AND DECLINE TO INTERFERE IN THE MATTER. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN ASSESSEES OWN CASE. RESPECTFULLY F OLLOWING THE SAME, WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AN D DECLINE TO INTERFERE IN THE MATTER. 6. 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.517/AHD/2012 ASSESSMENT YEAR: 2006-07 PAGE 6 OF 6 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD