The Income-tax Officer, UDHAMPUR V. Sh. Ashok Kumar, Prop. Bhagwati Stone, UDHAMPUR

ITA 531/ASR/2014

• Counselvise Citation: 53120914 RSA 2014
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 18-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Competent authority; Non passing of speaking order
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 PAN: ABSPK 3400F THE INCOME TAX OFFICER, WARD-2(4), UDHAMAPUR (J&K) VS. SH. ASHOK KUMAR, PROP. BHAGWATI STONE, CRUSHER, W NO.15 SHAKTI NAGAR, UDHAMPUR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. TARSEM LAL, DR RESPONDENT BY: SH. P.N. ARORA. ADV. DATE OF HEARING: 10.02.2015 DATE OF PRONOUNCEMENT: .02.2015 ORDER PER A.D. JAIN, J.M. 1. THIS IS DEPARTMENTS APPEAL FOR THE ASSESSMENT YE AR 2010-11 AGAINST THE ORDER DATED 24.06.2014, PASSED BY THE L EARNED CIT(A), JAMMU. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN. I. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT( A) WAS RIGHT IN HOLDING THAT THE UNIT IS A NEW UNDERTA KING AND QUALIFIES FOR DEDUCTION U/S 80IB WHEN THE NEW MACHINERY HAS NOT BEEN INSTALLED IN PLACE OF AND TH E APPELLANT HAS MADE SUBSTANTIAL INVESTMENT IN THE PL ANT AND MACHINERY. 2 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 II. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT( A) WAS RIGHT IN REDUCING THE QUANTUM OF ADDITION ON ACCOUNT OF CARRIAGE EXPENSES BY 50% WITHOUT GIVING ANY CONCRETE BASIS. III. ON THE FACTS AND CIRCUMSTANCES WHETHER THE LD. CIT( A) WAS RIGHT IN REDUCING THE ADDITION MADE ON ACCOUNT OF VARIOUS EXPENSES DEBITED TO TRADING AND P&L AS THE DISALLOWANCE MADE BY AO IS WORKED @ 12% ONLY. UNDER SUCH CIRCUMSTANCES WHEN ASSESSEE FAILED TO MAINTAIN THE VOUCHERS & BILLS IN RESPECT OF EXPENSE S DEBITED, THE DISALLOWANCE MADE BY AO WAS REASONABLE. 3. THE FACTS ARE THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION U/S 80IB OF THE I.T. ACT, 1961, IN RESPEC T OF THE PROFITS EARNED FROM A STONE CRUSHER. ACCORDINGLY, I N THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSEE W AS REQUIRED TO JUSTIFY THE CLAIM AND FURNISH NECESSARY DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE CLAIM. IN RESPONSE, THE ASSESSEE PRODUCED COPIES OF THE PURCHASE BILLS OF THE P&M, SALES TAX REGISTRATION, VAT RETURNS, ELECTRICI TY BILLS AND DETAILS OF THE EMPLOYEES/WORKERS. THE ASSESSEE WAS REQUIRED TO FURNISH EVIDENCE REGARDING THE DATE OF COMMENCEMENT OF THE PRODUCTION/MANUFACTURING FROM T HE COMPETENT AUTHORITY/CONCERNED DEPARTMENT. 4. THE ASSESSEE FILED A COPY OF A DIC REGISTRATION CER TIFICATE BEFORE THE AO. FROM THIS CERTIFICATE, THE AO OBSERV ED: 3 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 (A) THAT THE INDUSTRIAL UNIT, A STONE CRUSHER, HAD BEEN GRANTED REGISTRATION BY INDUSTRIES DEPARTMENT(DIC UDHAMPUR) VIDE NO.07/10/0004/PMT/SSI DATED 22.9.1971. (B) THAT THE STONE CRUSHER HAD BEEN A PROPRIETORSHIP CO NCERN OF ONE SH. JATINDER KUMAR S/O LATE SH. AMAR NATH R /O NEAR BHIRWAH BRIDGE, UDHAMPUR TILL 27.02.2006. THEREAFTER, THE ASSESSEE BECAME A PARTNER IN THE BU SINESS ON 8.03.2006 AND FINALLY THE ASSESSEE BECAME SOLE PROPRIETOR OF THE UNIT/STONE CRUSHER A FEW DAYS LAT ER ON 31.3.2006. 5. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS REQUIRED TO JUSTIFY THE CLAIM U/S 80IB OF THE ACT IN VIEW OF TH E FACT THAT THE INDUSTRIAL UNIT/STONE CRUSHER DID NOT APPEAR TO BE A NEW ONE A ND THUS NOT FULFILLING THE CONDITIONS LAID DOWN FOR QUALIFYING FOR THE DED UCTION U/S 80IB. THE ASSESSEE, IN RESPONSE, STATED AS FOLLOWS: THE UNIT OF THE ASSESSEE WAS REGISTERED WITH DIC I N THE YEAR 1971.....EVEN THE POWER CONNECTION GOT SANCTION IN THAT YEAR, HOWEVER, THE FIRST POWER CONNECTION IS NOT AVAILABLE WITH TH E ASSESSEE AT PRESENT AS THE MATTER BELONGS TO MAY YEARS PAST. THE INDUST RIAL UNIT, HOWEVER, WENT SICK AND NON FUNCTIONAL VERY SOON AND REMAINED OUT OF 4 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 PRODUCTION UPTO 2006-07. DURING THE PERIOD WHEN THE UNIT WAS NOT PRODUCTIONAL ALL THE MACHINERY OF THE UNIT GOT EROD ED AND NOTHING WAS LEFT USABLE AS MACHINERY. ON 07.04.2006, A TEAM OF ENGINEERS FROM THE OFFICE OF THE EXECUTIVE ENGINEER MECHANICAL DIVISIO N UDHAMPUR CONDUCTING THE SURVEY OF PLANT AND MACHINERY OF THE UNIT AND DECLARED THAT THE MACHINERY WAS WORTH ITS SCRAP VALUE ONLY.. ....... IT WAS AFTER THE EXECUTIVE ENGINEER MECHANICAL DIV ISION DECLARING THE MACHINERY AS SCRAP A TECHNICAL CUM PR OJECT REPORT OF THE UNIT WAS PREPARED BY THE PROJECT MANAGER DIC WH EREIN ALL THE MACHINERY THAT WAS REQUIRED TO BE REPURCHASED AND I NSTALLED. THEREAFTER JOINT DIRECTOR OF INDUSTRIES DEV JAMMU D ATED 06.05.2006 ITS LETTER TO THE DIC UDHAMPUR AUTHORIZED THE INDUS TRIAL UNIT TO PURCHASE ALL THE MACHINERY AFRESH. THEREAFTER, THE ASSESSEE WENT HEAD TO PROCURE THE MACHINERY WHICH WAS PURCHASED BETWEE N 19.5.2006 TO 19.12.2006. THE PURCHASE BILLS AND DETAILS OF THE P ARTIES FROM WHOM THE PURCHASES OF PLANT AND MACHINERY WERE CONDUCTED STANDS ALREADY SUBMITTED AND VERIFIED, IT WAS DURING THE YEAR 07-0 8 THE ASSESSEE WENT INTO PRODUCTION. THE RETURNED FILED BY THE ASSESSEE BEFORE THE COMMERCIAL TAX DEPARTMENT SHOWING NIL SALES DURING 2006-07 AND THE SALES DURING 07-08 IS THE EVIDENCED THAT THE ASSESSEE STARTED SALES DURING THE YEAR 2007-08..... 6. AGAIN, THE A.O., VIDE QUERY LETTER DATED 15.3.20 13, SPECIFICALLY REQUIRED THE ASSESSEE TO FURNISH EXPLANATION ON TH E FOLLOWING POINTS: 5 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 I) PLEASE STATE/EXPLAIN HOW THE UNIT/STONE CRUSHER CAN BE TREATED AS NEW ONE AS THE REGISTRATION GRANTED BY DIC, UDHAMPUR, HAS BEEN GRANTED IN 1971. II) PLEASE EXPLAIN AS TO HOW THE UNIT/STONE CRUSHER CAN BE TREATED AS A NEW INDUSTRIAL UNIT ELIGIBLE FOR 80IB DEDUCTION IN VIEW OF THE REGISTRATION GRANTED WAY BACK IN 1971 AND THUS THE DATE OF COMMENCEMENT OF THE BUSINESS/PRODUCTION BEING VERY OLD AND NOT WHAT PRESCRIBED U/S 80IB. III) PLEASE STATE/EXPLAIN HOW THE STONE CRUSHER IS ELIGIBLE FOR DEDUCTION U/S 80IB AS THE SAME INVOLVES MERE SPLITTING OF STONES, WHICH OTHERWISE HAS BEEN DONE CONSIDERABLY BY ENGAGING LABOUR BY YOU AS HUGE AMOUNT HAS BEEN CLAIMED IN THE ACCOUNTS AS STONE SPLITTING. IV) AS PER THE DIC REGISTRATION COPY, IT IS NOTICED THAT THE STONE CRUSHER WAS OWNED BY SH. JATINDER KUMAR SHARMA UPTO MAR, 2006. IN MARCH,2006, YOU JOINED THE PROPRIETORSHIP FIRM OF SH. JATINDER KUMAR SHARMA AS A PARTNER AND AFTER A FEW DAYS 6 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 BECAME THE PROPRIETORSHIP FIRM OWNED BY YOU SHUNTING OUT SH. JATINDER KUMAR. IN THIS REGARD PLEASE EXPLAIN AS TO WHY THIS MAY NOT BE TREATED AS SHAM TRANSACTION IN WHICH A RUNNING INDUSTRY HAS BEEN PURCHASED BY YOU UNDER THE GUISE OF PARTNERSHIP FIRM, IN VEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF ALA FIRMS. 7. IN RESPONSE, THE ASSESSEE, VIDE HIS REPLY, CITED MANY CASE LAWS REGARDING THE NATURE OF PRODUCTION/MANUFACTURING ACTIVITY OF THE STONE CRUSHER AND THE THING OR ARTICLE PRODUCED BY IT QUALIFYING FOR DEDUCTION U/S 80IB. IT WAS FURTHER STATED THAT THE ASSESSEE HAD PURCHASED AN OLD CRUSHER AND TO REGULARIZE THE SAME, ENTERED INTO PARTNERSHIP WITH THE SELLER AND SUBSEQUENTLY THE SELLER RETIRED AND THE ASSESSEE BE CAME THE OWNER OF THE OLD PLANT. THESE TRANSFERS AND CHANGES HAD BEEN APP ROVED BY THE DEPARTMENT OF INDUSTRIES. THE PREVIOUS OWNED HAD RE GISTERED HIMSELF WITH THE DEPTT. OF INDUSTRIES IN THE EARLIER YEARS. ON PURCHASE OF THE UNIT, THE ASSESSEE BEING THE NEW OWNER, GOT THE UNIT TRAN SFERRED IN HIS NAME AND ALL THE RELEVANT ENDORSEMENTS WHICH HAD BEEN M ADE BY THE INDUSTRIES DEPTT. HAD BEEN FILED. IT IS A CLEAR TRANSACTION AN D THE SAME COULD NOT BE SAID TO BE A SHAM TRANSACTION. 7 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 8. THE AO CONSIDERED THE ASSESSEES REPLY BUT DID NOT FIND IT CONVINCING FOR THE FOLLOWING REASONS (PAGES 5 & 6, PARA 8.1 OF THE ASSESSMENT ORDER): (A) THE STONE CRUSHER/INDUSTRIAL UNIT UNDER CON SIDERATION HAS BEEN SET UP WAY BACK IN 1971 AS IS EVIDENT FROM THE REGISTRATION GRANTED BY INDUSTRIES DEPARTMENT IN THE NAME OF ONE SH. JATINDER KUMAR SHARMA S/O SH. AMAR NATH R/O BIRWAH BRIDGE DHANARI UDHAMPUR. THE ASSESSEE HAS IN FACT PURCHASE D THIS OLD STONE CURSHER IN 2006 FROM SH. JATINDER KUMAR. THE UNIT IS NOT A NEW ONE AND THUS ELIGIBLE FOR 80IB DEDUCTION. THE ASSESSEE HAS NOT PRODUCED ANY SATISFACTORY MATERIAL ON RECOR DS TO PROVE THE NEWNESS OF THE UNIT IN TERMS OF THE PROVISIONS OF SECTION 80IB. (B) THE UNDERTAKING IS A RECONSTRUCTED BUSINESS UNI T ALREADY IN EXISTENCE AND NOT A NEW ONE. THE ORIGINAL BUSINESS IN THIS CASE HAS NOT CEASED FUNCTIONING AND ITS IDENTIFY IS NOT LOST. (C) THERE HAS BEEN SOME P&M INSTALLED IN THE OLD STONE CRUSHER AND THE ASSESSEE HAS NOT BEEN ABLE TO GIVE DETAILS OF SUCH P&M AND CONTINUED TO ARGUE THAT THE OLD P&M WAS WORTH NOTHING BUT ONLY A SCRAP. SH. JATINDER KU MAR HAS ADMITTED TO HAVE MADE HEAVY REPAIRS AND RENOVAT ION TO 8 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 THE P&M FEW YEARS BACK OF THE TRANSFER WHICH NEGATE S THE CLAIM OF THE ASSESSEE. (D) THE RUNNING OF STONE CRUSHER IS A BUSINESS INVOLVIN G CONVERTING OF BOULDERS INTO SMALLER STONES LIKE BAJ RI, ETC WHICH IS NOT CONSIDERED MANUFACTURING FOR THE PURPO SE OF 80IB. THE CASE IS SQUARELY COVERED BY THE DECISION GIVEN BY HONBLE ITAT, CHANDIGARH IN THE CASE OF ITO VS JITENDRA STONE CRUSHING CO 105 ITD 52 WHEREIN IT HA S BEEN HELD THAT BREAKING OF BOULDERS INTO SMALL STON ES OR BAJRI IS NOT A MANUFACTURING ACTIVITY. THE ASSESSEE IS NOT ELIGIBLE FOR THE DEDUCTION AS CLAIMED IN VIEW OF TH E FOLLOWING CASE LAWS; I) ACIT VS. G.T.C ENTERPRISES (ITAT, CHENNAI) 87 ITD 188 II) HINDI NIPPON RURAL INDUSTRIES P. LTD. VS. CIT(KER) 201 ITR 588 III) NUMPUDHIRIS PICKLE INDUSTRIES (KER) 1993 KLJ (TAX CASES) 198 (E) THAT NOTHING HAS BEEN BROUGHT ON RECORDS WHICH COUL D CONFIRM THE DATE OF COMMENCEMENT OF THE PRODUCTION/MANUFACTURE, ANOTHER IMPORTANT 9 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 INGREDIENT/CONDITION FOR ALLOWING DEDUCTION U/S 80I B. SECTION 80IB PRESCRIBES TIME LIMITS FOR PRODUCTION AND ELIGIBILITY OR OTHERWISE FOR DEDUCTION U/S 80IB FOR A PARTICULAR ASSESSMENT YEAR HAS TO BE ALLOWED ONLY I F THERE IS AUTHENTIC DATE OF COMMENCEMENT OF THE PRODUCTION/MANUFACTURING WHICH IS NO ASCERTAINABLE IN THIS CASE. SUCH DATE IS NORMALLY CONFIRMED BY THE DIC AUTHORITIES WHICH IS THE CONCERNED DEPARTMENT TO RE GULATE CLOSELY AND MEANINGFULLY THE INDUSTRIAL ACTIVITIES IN A PARTICULAR AREA RIGHT FROM THE DAY FIRST. IN RESPEC T OF NEW INDUSTRIAL UNIT, ONCE COMPLETED AND READY FOR PRODU CTION, A CERTIFICATE OF REGISTRATION IS GRATED BY THE DISTRI CT DIC AUTHORITIES CERTIFYING THE DATE OF PRODUCTION ETC. THE REGISTRATION GRANTED BY THE DIC AUTHORITIES IN THIS CASE DATES BACK TO 1971 AND THE DATE OF COMMENCEMENT OF THE PRODUCTION IS TO BE TREATED SOME AROUND 1971 IN THI S CASE. SAME THING HAS ALSO BEEN CONFIRMED BY THE GENERAL MANAGER. DIC UDHAMPUR, VIDE HIS LETTER NO.1971 DATE D 10.01.2013. (F) THE STONE CRUSHER HAS BEEN IN THE NAME OF SH. JATIN DER KUMAR SHARMA R/O BIRWAH BRIDGEM DHANORI UDHAMPUR 10 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 UPTO MAR,2006. IN MARCH,2006, THE ASSESSEE BECAME A PARTNER IN THE BUSINESS CONCERN AND AFTER A FEW DAY S BECAME THE SOLE PROPRIETOR BY SHUNTING OUT SH. JATI NER KUMAR. NO SATISFACTORY DOCUMENTARY EVIDENCE HAS BEE N FURNISHED BY THE ASSESSEE REGARDING THE SALE/TRANSF ER OF THIS WORKING UNIT. NO SALE DEED HAS BEEN PRODUCED NOR AN Y DISCLOSURE OF THE PURCHASE OF THE UNIT/STONE CRUSHE R HAS BEEN MADE, THEREBY CASTING A DOUBT ON THE GENUINENE SS OF THE TRANSACTION/PURCHASE ITSELF. THUS IT IS FAIRLY A SHAM TRANSACTION IN WHICH AN EXISTING UNIT HAS BEEN ACQUIRED/PURCHASED IN THE GUISE OF PARTNERSHIP. A S HAM TRANSACTION IN NO WAY CAN BE ELIGIBLE FOR DEDUCTION U/S 80IB. 9. THE ASSESSEES CLAIM U/S 80IB OF THE IT ACT WAS, TH US, REJECTED BY THE AO, HOLDING THAT THE ASSESSEE DID NOT FULFILL ALL T HE CONDITIONS OF SECTION 80IB OF THE ACT AND THAT SO, THE ASSESSEE WAS NOT E LIGIBLE FOR DEDUCTION THEREUNDER. 10. BY VIRTUE OF IMPUGNED ORDER, THE LD. CIT(A) ALLOW ED THE ASSESSEES CLAIM U/S 80IB OF THE ACT, HOLDING THUS: 4.2. GROUND OF APPEAL NO 2 RELATES TO DISALLOWANCE OF DEDUCTION U/S 80IB OF THE ACT AMOUNTING TO RS.17,31,437/-. IT IS NOTICED THAT THE 11 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 APPELLANT HAS PURCHASED AN OLD STONE CRUSHER UNIT W HICH WAS REGISTERED WITH DIC UDHAMPUR IN 1971. THE PLANT AND MACHINERY OF THE OLD UNIT WAS NOT IN A WORKABLE CONDITION AND AC CORDINGLY THE SAME WAS SCRAPPED AND PERMISSION WAS SOUGHT FROM THE DIC FOR INSTALLATION OF NEW MACHINERY IN PLACE OF OLD MACHINERY. THE APP ELLANT MADE SUBSTANTIAL INVESTMENT IN THE PLANT AND MACHINERY W HICH RESULTED IN THE INCREASE IN INSTALLED CAPACITY OF THE UNIT TO 6 0000MT PER ANNUM FROM THE CAPACITY OF 12000MT PER ANNUM OF OLD UNIT. THE INSTALLATION AND EXPANSION IS SUBSTANTIAL AND BROUGHT THE UNIT W HICH WAS IS A NON OPERATIONAL STATE IN A GOOD WORKING CONDITION WITH MODERN AND ENHANCED TECHNOLOGY. HONBLE HIGH COURT OF BOMBAY I N THE CASE OF GAEKWAR FOAM & RUBBER CO (1959) 35 ITR 632 OBSERVED THAT IF THE ALTERNATION AND CHANGES ARE SUBSTANTIAL, THERE WOUL D BE LITTLE SCOPE FOR DESCRIBING WHAT EMERGES AS A RECONSTRUCTION OF THE BUSINESS. THUS FOR INSTANCE IF OWNERSHIP OF A BUSINESS OR AN UNDERTAKI NG CHANGES HANDS NOT OSTENSIBLY BUT IN REALITY AND EFFECTIVELY, THAT WOULD NOT BE RECONSTRUCTION OR IF THE VERY NATURE OF THE BUSINES S IS CHANGED THAT AGAIN WOULD NOT BE RECONSTRUCTION OR, IF THE VERY N ATURE OF THE BUSINESS IS CHANGED THAT AGAIN WOULD NOT BE RECONSTRUCTION. IN THE PRESENT CASE, THE APPELLANT HAS PURCHASED A VIRTUALLY CLOSED UNIT IN DILAPIDATED CONDITION AND PURCHASED NEW PLANT AND MACHINERY TO MAKE THE UNIT 12 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 WORKABLE. EXCEPT FOR LAND AND BUILDING, MOST OF THE FIXED ASSETS INCLUDING PLANT AND MACHINERY WERE NEWLY INSTALLED BY THE APPELLANT. HOWEVER, THE DIC CERTIFICATE, ELECTRIC CONNECTION A ND OTHER PERMISSIONS SOUGHT BY THE OLDER UNIT WERE USED BY T HE APPELLANT. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE OPINION THAT THE SUBSTANTIAL EXPANSION MADE BY THE APPELLANT CANNOT BE REGARDED AS RECONSTRUCTION. THE APPELLANT SATISFIES ALL OTHER CONDITIONS PRESCRIBED U/S 80IB OF THE ACT. THEREFORE, THIS GRO UND OF APPEAL OF THE APPELLANT IS ALLOWED. A RELIEF OF RS.17,31,437/- IS ALLOWED. 11. AGGRIEVED, THE DEPARTMENT HAS TAKEN GROUND NO.1 BEFORE US. 12. THE LEARNED DR HAS CONTENDED THAT THE LD. CIT(A) S ACTION OF DELETING THE DISALLOWANCE IS UNSUSTAINABLE IN LAW, AS THE L D. CIT(A) HAS NEITHER CONSIDERED, NOR REPELLED THE AOS DETAILED REASONS FOR MAKING THE DISALLOWANCE. 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAN D, HAS STRONGLY SUPPORTED THE IMPUGNED ORDER. 14. IT HAS BEEN CONTENDED THAT THE LD. CIT(A) HAS DULY TAKEN INTO CONSIDERATION THE FACT THAT THE ASSESSEE HAD PURCHA SED AN OLD STONE CRUSHER UNIT, WHICH WAS REGISTERED WITH THE DIC UDH AMPUR IN 1979; THAT THE PLANT AND MACHINERY OF THE OLD UNIT WAS NOT IN A WORKABLE CONDITION AND SO, THE SAME WAS SCRAPED AND PERMISSION WAS SOU GHT FROM THE DIC 13 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 FOR INSTALLATION OF NEW MACHINERY IN PLACE OF THE O LD MACHINERY; THAT THE ASSESSEE MADE SUBSTANTIAL INVESTMENT IN THE PLANT A ND MACHINERY, WHICH RESULTED IN INCREASE IN THE INSTALLED CAPACITY OF T HE UNIT FROM 12,000 MT PER ANNUM OF THE OLD UNIT TO 60,000/- MT PER ANNUM ; THAT THE INSTALLATION AND EXPANSION WAS SUBSTANTIAL AND BROUGHT THE NON-O PERATIONAL UNIT TO A GOOD WORKING CONDITION WITH MODERN AND ENHANCED TEC HNOLOGY. 15. WE HAVE HEARD THE RIVAL CONDITIONS OF THE PARTIES ON THIS ISSUE. WE FIND THAT DEDUCTION U/S 80IB IS AVAILABLE TO THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING IF IT FULFILLS THE FOLLOWING CONDITIONS LAID DOWN THEREUNDER: (A) IT SHOULD BE A NEW UNDERTAKING (B) IT SHOULD NOT BE FORMED BY TRANSFER OF OLD PLANT & MACHINERY (C) IT SHOULD MANUFACTURE OR PRODUCE ARTICLE OTHER THAN NON PRIORITY SECTOR ITEMS GIVEN IN THE ELEVENTH SCHEDUL E. (D) MANUFACTURES OR PRODUCTION SHOULD BE STARTED WITHIN A STIPULATED TIME LIMIT. (E) IT SHOULD EMPLOY 10/20 WORKERS. (F) RETURN OF INCOME SHOULD BE SUBMITTED ON OR BEFORE D UE DATE. 16. IN THE ASSESSMENT ORDER, THE AO OBSERVED THAT NON E OF THE ABOVE CONDITIONS OF SECTION 80IB OF THE ACT STOOD FULFILL ED BY THE ASSESSEE. IT WAS OBSERVED THAT: 14 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 (A) THE STONE CRUSHER/INDUSTRIAL UNIT UNDER CON SIDERATION HAS BEEN SET UP WAY BACK IN 1971 AS IS EVIDENT FROM THE REGISTRATION GRANTED BY INDUSTRIES DEPARTMENT IN THE NAME OF ONE SH. JATINDER KUMAR SHARMA S/O SH. AMAR NATH R/O BIRWAH BRIDGE DHANARI UDHAMPUR. THE ASSESSEE HAS IN FACT PURCHASE D THIS OLD STONE CURSHER IN 2006 FROM SH. JATINDER KUMAR. THE UNIT IS NOT A NEW ONE AND THUS ELIGIBLE FOR 80IB DEDUCTION. THE ASSESSEE HAS NOT PRODUCED ANY SATISFACTORY MATERIAL ON RECOR DS TO PROVE THE NEWNESS OF THE UNIT IN TERMS OF THE PROVISIONS OF SECTION 80IB. (B) THE UNDERTAKING IS A RECONSTRUCTED BUSINESS UNI T ALREADY IN EXISTENCE AND NOT A NEW ONE. THE ORIGINAL BUSINESS IN THIS CASE HAS NOT CEASED FUNCTIONING AND ITS IDENTIFY IS NOT LOST. (C) THERE HAS BEEN SOME P&M INSTALLED IN THE OLD S TONE CRUSHER AND THE ASSESSEE HAS NOT BEEN ABLE TO GIVE DETAILS OF SUCH P&M AND CONTINUED TO ARGUE THAT THE OLD P&M WA S WORTH NOTHING BUT ONLY A SCRAP. SH. JATINDER KUMAR HAS AD MITTED TO HAVE MADE HEAVY REPAIRS AND RENOVATION TO THE P&M F EW YEARS BACK OF THE TRANSFER WHICH NEGATES THE CLAIM OF THE ASSESSEE. (D) THE RUNNING OF STONE CRUSHER IS A BUSINESS INVOLVIN G CONVERTING OF BOULDERS INTO SMALLER STONES LIKE BAJ RI, ETC 15 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 WHICH IS NOT CONSIDERED MANUFACTURING FOR THE PURPO SE OF 80IB. THE CASE IS SQUARELY COVERED BY THE DECISION GIVEN BY HONBLE ITAT, CHANDIGARH IN THE CASE OF ITO VS JITE NDRA STONE CRUSHING CO 105 ITD 52 WHEREIN IT HAS BEEN HE LD THAT BREAKING OF BOULDERS INTO SMALL STONES OR BAJRI IS NOT A MANUFACTURING ACTIVITY. THE ASSESSEE IS NOT ELIGIBL E FOR THE DEDUCTION AS CLAIMED IN VIEW OF THE FOLLOWING CASE LAWS; I) ACIT VS. G.T.C ENTERPRISES (ITAT, CHENNAI) 87 ITD 188 II) HINDI NIPPON RURAL INDUSTRIES P. LTD. VS. CIT(KER) 201 ITR 588 III) NUMPUDHIRIS PICKLE INDUSTRIES (KER) 1993 KLJ (TAX CASES) 198 E) THAT NOTHING HAS BEEN BROUGHT ON RECORD WHICH CO ULD CONFIRM THE DATE OF COMMENCEMENT OF THE PRODUCTION/MANUFACTURE, ANOTHER IMPORTANT INGREDIEN T/CONDITION FOR ALLOWING DEDUCTION U/S 80IB. SECTION 80IB PRESC RIBES TIME LIMITS FOR PRODUCTION AND ELIGIBILITY OR OTHERWISE FOR DEDUCTION U/S 80IB FOR A PARTICULAR ASSESSMENT YEAR HAS TO BE ALLOWED ONLY IF THERE IS AUTHENTIC DATE OF COMMENCEMENT OF THE PRODUCTION/MANUFACTURING WHICH IS NO ASCERTAINABLE IN THIS CASE. SUCH DATE IS NORMALLY CONFIRMED BY THE DIC AU THORITIES WHICH IS THE CONCERNED DEPARTMENT TO REGULATE CLOSE LY AND 16 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 MEANINGFULLY THE INDUSTRIAL ACTIVITIES IN A PARTICU LAR AREA RIGHT FROM THE DAY FIRST. IN RESPECT OF NEW INDUSTRIAL UN IT, ONCE COMPLETED AND READY FOR PRODUCTION, A CERTIFICATE O F REGISTRATION IS GRATED BY THE DISTRICT DIC AUTHORIT IES CERTIFYING THE DATE OF PRODUCTION ETC. THE REGISTRATION GRANTE D BY THE DIC AUTHORITIES IN THIS CASE DATES BACK TO 1971 AND THE DATE OF COMMENCEMENT OF THE PRODUCTION IS TO BE TREATED SOM E AROUND 1971 IN THIS CASE. SAME THING HAS ALSO BEEN CONFIRM ED BY THE GENERAL MANAGER. DIC UDHAMPUR, VIDE HIS LETTER NO.1 971 DATED 10.01.2013. F) THE STONE CRUSHER HAS BEEN IN THE NAME OF SH. JATINDER KUMAR SHARMA R/O BIRWAH BRIDGEM DHANORI UDHAMPUR UP TO MAR,2006. IN MARCH, 2006, THE ASSESSEE BECAME A PAR TNER IN THE BUSINESS CONCERN AND AFTER A FEW DAYS BECAME THE SO LE PROPRIETOR BY SHUNTING OUT SH. JATINER KUMAR. NO SA TISFACTORY DOCUMENTARY EVIDENCE HAS BEEN FURNISHED BY THE ASSE SSEE REGARDING THE SALE/TRANSFER OF THIS WORKING UNIT. N O SALE DEED HAS BEEN PRODUCED NOR ANY DISCLOSURE OF THE PURCHAS E OF THE UNIT/STONE CRUSHER HAS BEEN MADE, THEREBY CASTING A DOUBT ON THE GENUINENESS OF THE TRANSACTION/PURCHASE ITSELF. THUS IT IS FAIRLY A SHAM TRANSACTION IN WHICH AN EXISTING UNIT HAS BEEN 17 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 ACQUIRED/PURCHASED IN THE GUISE OF PARTNERSHIP. A S HAM TRANSACTION IN NO WAY CAN BE ELIGIBLE FOR DEDUCTION U/S 80IB. 17. IT WAS ON THE BASIS OF THE ABOVE OBSERVATIONS/REA SONS THAT THE AO HELD THE ASSESSEE INELIGIBLE FOR DEDUCTION U/S.80IB OF T HE ACT. 18. THE LD. CIT(A), AS CORRECTLY SUBMITTED BY THE LD. DR, HAS NOT CONSIDERED ANY OF THE ABOVE SAID OBSERVATIONS OF THE AO, MUCH LESS DEALT WITH THEN. THEREFORE, THE ORDER UNDER APPEAL IS A NON SPEAKING ORDER QUA GROUND NO.1. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE LD. CIT(A), TO BE DECIDED AFRESH BY CONSIDERING AND DEALING WITH ALL THE AFORESAID OBSERVATIONS OF THE AO, ON AFFORDING ADEQUATE OPPOR TUNITY OF HEARING TO THE ASSESSEE. 19. APROPOS GROUND NO.2 , THE AO OBSERVED THAT IN THE MANUFACTURING, TRADING CUM-P&L ACCOUNT OF THE ASSESSEE AS ON 31.3. 2010, THE ASSESSEE HAD SHOWN RECEIPTS OF RS.19,05,705/- UNDER THE HEAD BY CARRIAGE AND THAT AN EQUIVALENT AMOUNT STOOD DEBITED UNDER THE C APTION TO CARRIAGE. THE AO FURTHER OBSERVED THAT THIS RECEIPT/ EXPENDIT URE HAD ALSO REGISTERED A FALL AS COMPARED TO THE IMMEDIATELY PRECEDING ASS ESSMENT YEAR. THE AO MADE A DISALLOWANCE OF RS.3,00,000/- OUT OF THE CLAIM MADE, SINCE NO BILLS/VOUCHERS/ EVIDENCE WERE PRODUCED BY THE ASSES SEE TO SUBSTANTIATE 18 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 HIS CLAIM. THE AO FURTHER OBSERVED THAT THE ASSESSE E OWNED A TIPPER AND THAT ITS USE FOR THE CARRIAGE IN QUESTION COULD NOT BE RULED OUT. 20. THE LD. CIT(A) REDUCED THE DISALLOWANCE TO RS. 15 LAC. 21. THE LD. DR HAS CONTENDED THAT LD. CIT(A), DESPITE HOLDING THAT THE AO HAD CORRECTLY MADE THE DISALLOWANCE, REDUCED IT BY 50%, WITHOUT ASSIGNING ANY REASON FOR SUCH REDUCTION. 22. THE LD. COUNSEL FOR THE ASSESSEE, PER CONTRA, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 23. THE LD. CIT(A) HAS REDUCED THE DISALLOWANCE FROM RS .3,00,000/- TO RS.1,50,000/- BY OBSERVING AS FOLLOWS: 4.4 GROUND OF APPEAL NO 4 RELATES TO ADDITION OF R S.3,00,000/- ON ACCOUNT OF DISALLOWANCE OF CARRIAGE EXPENSES DEBITE D TO PROFIT AND LOSS ACCOUNT. THE APPELLANT HAS ARGUED THAT IT IS P ROVIDING CARRIAGE SERVICES TO ITS CUSTOMER AND ALL EXPENSES INCURRED ARE RECOVERED FROM CUSTOMER WITHOUT CHARGING ANY PROFIT. HOWEVER, THE APPELLANT HAS FAILED TO PRODUCE THE RELEVANT DOCUMENTARY EVIDENCE S IN SUPPORT OF HIS CLAIM. BILLS, VOUCHERS RELATING TO CARRIAGE EXPENSE S HAVE NOT BEEN PRODUCED. ACCORDINGLY, THE AO MADE AN ADHOC DISALLO WANCE OF EXPENSES OF RS.3,00,000/- OUT OF CARRIAGE EXPENSES. KEEPING IN VIEW THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE AO HAS RIGHTLY MADE AN ADHOC DISALLOWANCE AS THE APPELLANT FAILED TO PR ODUCE BILLS/VOUCHERS IN RESPECT OF CARRIAGE EXPENSES, HOW EVER, THE AMOUNT OF DISALLOWANCE SEEMS TO BE ON A HIGHER SIDE. IN MY OP INION, IT WOULD BE FAIR TO MAKE DISALLOWANCE OF RS.1,50,000/- WHICH IS AROUND 8% OF THE 19 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 RECEIPTS AND EXPENSES DEBITED ON ACCOUNT OF CARRIAG E BUSINESS AND IT WOULD RESULT IN A PROFIT OF 8% ON SUCH RECEIPTS WHI CH IS REASONABLE IN CARRIAGE BUSINESS. THEREFORE, THIS GROUND OF APPEAL IS PARTLY ALLOWED AND A RELIEF OF RS.1,50,000/- IS ALLOWED. 24. EVIDENTLY, NO REASON FOR REDUCING, THE DISALLOWANC E HAS BEEN GIVEN BY THE LD. CIT(A), RENDERING THE ORDER UNDER APPEAL AN NON-SPEAKING ORDER IN THIS REGARD. 25. SUCH AN ORDER IS UNSUSTAINABLE IN LAW, AS IT IS WE LL SETTLED THAT ALL ORDERS OF QUASI-JUDICIAL AUTHORITIES MUST BE SPEAKING AND REASONED ORDERS. ACCORDINGLY, THIS ISSUE IS ALSO REMANDED TO THE FIL E BY THE LD. CIT(A), TO BE DECIDED AFRESH BY PASSING AN SPEAKING ORDER, ON PROVIDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 26. SO FAR AS REGARDS GROUND NO.3, THE AO HAS MADE DIS ALLOWANCE OF RS.3,00,000/- BY OBSERVING AS UNDER: THE ASSESSEE HAS ALSO DEBITED MAJOR EXPENSES UNDER THE HEAD WAGES, MACHINE RUNNING & MAINTENANCE., TIPPER EXPEN SES, STAFF WELFARE, ESTABLISHMENT, ETC IN THE ACCOUNTS. DESPIT E GIVING REASONABLE TIME ASSESSEE COULD NOT PRODUCE COMPLETE SUPPORTING VOUCHERS FOR THESE EXPENSES. KEEPING IN VIEW THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE, AN ADHOC DISALLOWANCE RS.3,00,000/- IS MADE OUT OF THESE EXPENSES TO PLUG LEAKAGE OF TAXABLE PROFITS ON ACCO UNT OF POSSIBLE INADMISSIBLE, UNVERIFIABLE PERSONAL AND OTHER NON B USINESS EXPENSES INCLUDED, THEREFORE, AN ADDITION OF RS.3,00,000/- I S MADE TO THE TOTAL INCOME ON THIS ACCOUNT. 20 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 27. THE LD. CIT(A) REDUCED THIS DISALLOWANCE TO RS.1,0 0,000/-, HOLDING AS FOLLOWS: 4.7 GROUND OF APPEAL NO.7 RELATES TO DISALLOWANCE OF RS.3,00,000/- OUT OF VARIOUS EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT AS BILLS/VOUCHERS WERE NOT PRODUCED BEFORE THE AO FOR VERIFICATION. IN THE ABSENCE OF RELEVANT SUPPORTING DOCUMENTS, THE A O HAS RIGHTLY MADE ADHOC DISALLOWANCE OUT OF VARIOUS EXPENSES LIK E WAGES, RUNNING & MAINTENANCE EXPENSES, TIPPER EXPENSES, STAFF WELF ARE EXPENSES ETC. THE AMOUNTS OF ADHOC DISALLOWANCE MADE HOWEVER IS O N HIGHER SIDE AND IT IS RESTRICTED TO RS.1,00,000/- 28. THE LD. DR, HERE AGAIN, HAS SUBMITTED THAT NO REAS ON HAS BEEN GIVEN BY THE LD. CIT(A) TO REDUCE THE DISALLOWANCE MADE BY T HE AO. 29. THE LD. COUNSEL FOR THE ASSESSEE HAS, AGAIN, RELIE D ON THE CIT(A)S ORDER. 30. HERE AGAIN, THE LD. CIT(A) HAS NOT ASSIGNED ANY RE ASON FOR REDUCING THE DISALLOWANCE MADE BY THE AO. THEREFORE, THIS MATTER IS ALSO REMITTED TO THE LD. CIT(A), TO BE DECIDED AFRESH BY PASSING A S PEAKING ORDER ON AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE AS SESSEE. 31. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED, F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY, 2015. (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: .02. 2015 /PK/ 21 I.T.A. NO. 531 (ASR)/2014 ASSESSMENT YEAR: 2010-11 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: SH. ASHOK KUMAR 2. THE I.T.O, WARD -2, UDHAMPUR (J&K) 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.