M/s Cutting Edge Technologies, Solan V. DCIT, Parwanoo

ITA 580/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8985 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 13-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.580/CHD/2016 (ASSESSMENT YEAR : 2012-13) CUTTING EDGE TECHNOLOGIES, VS. THE D.C.I.T, PLOT NO.1, VILLAGE JUDDI KALAN, CIRCLE PARWANOO. BADDI, SOLAN. PAN: AADFC9018P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HARRY RIKHY RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 06.10.2016 DATE OF PRONOUNCEMENT : 09.11.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA DATED 15.3.2016 FOR ASSESSMENT YE AR 2012113. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS),SHIMLA IS DEFECTIVE BOTH IN LAW AND FACT S OF THE CASE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS), 2 SHIMLA IS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER REGARDING RESTRICTING THE CLAIM OF DEDUCTION U/S 801C OF THE INCOME TAX 1961 TO 25% ONLY AS AGAINST 100% DEDUCTION AMOUNTING TO RS.5,87,26,947/-. THIS ADDITION IS UNCALLED FOR AND DESERVES TO BE DELETED. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA IS UNJUSTIFIED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER REGARDING RESTRICTING THE CLAIM OF DEDUCTION U/S 80IC TO 25% A S AGAINST 100% CLAIMED BY THE APPELLANT BEING THE THIR D ASSESSMENT YEAR ON THE BASIS OF SUBSTANTIAL EXPANSION DONE DURING THE AY 2010-11 AFTER FULFILLING THE REQUIS ITE CONDITIONS U/S 80IC OF L.T. ACT, 1961. THIS DISALLOWANCE IS UNCALLED FOR AND DESERVES TO BE DELETED. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS), SHIMLA IS UNJUSTIFIED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER CONCLUDING THAT THE BENEFIT OF SUBSTANTIAL EXPANSION IS AVAILABLE ONLY TO THE PRE- EXISTING UNITS I.E. THE UNITS THAT EXISTED AND WERE OPERATIONAL AS ON 07-01-2003 AND NOT TO THE APPELLANT WHICH CAME IN EXISTENCE AFTER 07-01-2003 WHICH IS DISCRIMINATORY AND UNJUSTIFIED AS THE SECTION DOES NOT SPECIFY SO THAT THE BENEFIT OF SUBSTANTIAL EXPANSION IS AVAILABLE ONLY TO PRE- EXISTING UNITS OPERATIONAL AS ON 07-01-03. THIS OBSERVATION IS UNJUSTIFIED AND AGAINST THE SPIRIT OF THE LAW. 5. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA IS UNJUSTIFIED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER CONCLUDING THAT ONCE AN IN ITIAL ASSESSMENT YEAR IS DETERMINED IN CASE OF AN INDUSTRIAL UNDERTAKING CLAIMING BENEFIT U/S 80IC IT CANNOT BE CHANGED EVEN IF THE SAME UNDERTAKING COMPLETES SUBSTANTIAL EXPANSION WHICH IS UNJUSTIFIED A S IT IS CLEARLY MENTIONED U/S 80IC(8)(V) OF THE I.T. ACT, 3 1961 THAT INITIAL ASSESSMENT YEAR MEANS THE ASSESSMENT YEAR IN WHICH THE UNDERTAKING COMPLETES THE SUBSTANTIAL EXPANSION AS DONE BY THE APPELLANT IN AY 2010-11 AND THERE CAN BE MORE THAN ONE INITIAL ASSESSMENT YEARS AS HELD BY THE HON'BLE DELHI TRIBUNAL IN THE CASE OF M/S TIRUPATI LPG INDUSTRIES LTD. VS. D CIT (151 ITD 1) & HON'BLE AHMEDABAD TRIBUNAL IN CASE OF SINTEX INDUSTRIES LTD V/S CIT AHMEDABAD. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), SHIMLA IS UNJUSTIFIED IN UPHOLDING THE INTERPRETATION OF SECTION 80IC BY THE LD. ASSESSING OFFICER AS IT DOES NOT ADVANCE THE BASIC OBJECT OF T HE ACT AND IS AGAINST THE BASIC LEGISLATIVE INTENT TO PROMO TE INDUSTRY IN BACKWARD AREAS. SUCH INCENTIVE BASED SECTIONS SHOULD BE CONSTRUED LIBERALLY AND WHERE THER E ARE TWO POSSIBLE VIEWS THE ONE IN FAVOUR OF THE ASSE SSEE SHOULD BE TAKEN AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF M/S GWALIOR RAYON SILK MANF. CO. PVT. LTD . (196 ITR 149) AND M/S BAJAJ TEMPO (196 ITR 188). 7. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SHIMLA IS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE LD. ASSESSING OFFICER REGARDING DISALLOWI NG THE AMOUNT OF RS. 15,00,000/- ON ACCOUNT OF TECHNICA L KNOW-HOW RENDERED BY ITS PARTNER AND REDUCING THE CLAIM U/S 801C TO THAT EXTENT. THIS ADDITION IS UNCALLED FOR AND DESERVES TO BE DELETED. 8. THAT ANY OTHER GROUND MAY KINDLY BE ALLOWED TO B E TAKEN AT THE TIME OF APPEAL WITH DUE PERMISSION. 3. GROUND NOS. 2 TO 6 RAISED BY THE ASSESSEE ARE AGAINST THE ACTION OF THE LD. CIT(A) IN UPHOLDING T HE RESTRICTION OF THE CLAIM OF DEDUCTION UNDER SECTION 80 IC OF THE INCOME TAX ACT 1961, TO 25% OF THE ELIGIBLE PROFITS AS AGAINST 100% CLAIMED. 4 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT, THE ASSESSEE FIRM STARTED ITS MANUFACTURING ACTIVITY/OP ERATION ON 18.08.2004 AND THE INITIAL ASSESSMENT YEAR FOR C LAIM OF DEDUCTION UNDER SECTION 80 IC OF THE ACT WAS ASSESS MENT YEAR 2005-06. THE ASSESSEE CLAIMED DEDUCTION OF 100 % OF ITS ELIGIBLE PROFITS FOR 5 YEARS PERIOD STARTING FR OM A. Y. 2005-06 TO ASSESSMENT YEAR 2009-2010 UNDER SECTION 80 IC OF THE ACT. DURING ASSESSMENT PROCEEDINGS FOR T HE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER NOT ICED THAT THE ASSESSEE FIRM HAD AGAIN CLAIMED DEDUCTION OF 100% OF ITS ELIGIBLE PROFITS. HE FURTHER NOTED THAT THE IMPUGNED YEAR WAS THE 8 TH YEAR SINCE COMMENCEMENT OF PRODUCTION BY THE ASSESSEE FIRM AND THE DEDUCTION HAD BEEN CLAIMED TO THE EXTENT OF 100% OF THE PROFITS S INCE THE ASSESSEE CLAIMED TO HAVE UNDERTAKEN SUBSTANTIAL EXPANSION IN ASSESSMENT YEAR 2010-11. THE ASSESSING OFFICER, FOR DETAILED REASONS MENTIONED IN THE ASSE SSMENT ORDER, HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDU CTION UNDER SECTION 80 IC ONLY TO THE EXTENT OF 25% OF IT S PROFITS AND ACCORDINGLY ALLOWED DEDUCTION TO THE EXTENT OF RS.1,45,92,833/- ONLY AS AGAINST RS.5,87,26,947/-LA IMED BY THE ASSESSEE. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHO, VIDE HIS ORDER DATED 15.03.2016, UPHELD THE ORDER OF THE AO, FOLLOWING THE DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE OF M/S HYCRON ELECTRON ICS 5 LTD. VS ITO IN ITA NO. 798/CHD/2012 AND OTHER RELAT ED CASES DATED 27.5.2015. 6. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 7. DURING THE COURSE OF ARGUMENTS MADE BEFORE US, LD. COUNSEL FOR THE ASSESSEE RELIED UPON SUBMISSION S MADE BEFORE THE LOWER AUTHORITIES AND STATED THAT A S PER THE CLEAR READING OF THE SECTION ITSELF THE DEDUCTI ON AVAILABLE TO UNITS WHICH UNDERTAKE SUBSTANTIAL EXPA NSION IS APPLICABLE NOT ONLY TO THOSE UNITS WHICH ARE PRE - EXISTING UNITS ON THE DATE OF INTRODUCTION OF THIS SECTION BUT EVEN TO NEW UNITS. LD. COUNSEL FOR THE ASSESSEE PLEADED THAT AN UNDERTAKING CAN HAVE TWO INITIAL ASSESSMENT YEARS FOR THE PURPOSE OF CLAIMING DEDUCT ION OF 100% OF ITS PROFIT UNDER THE SECTION. 8. LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT(A) AND STATED THAT THE ISSUE IS SETTLED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE ITAT, CHANDIGARH BENCH, IN THE CASE OF HYCRON ELECTRONICS LTD. (SUPRA). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND NO INF IRMITY IN THE ORDER OF THE CIT(A) IN RESTRICTING THE DEDUCTIO N CLAIMED BY THE ASSESSEE UNDER SECTION 80 IC OF THE INCOME TAX ACT, 1961, TO THE EXTENT OF 25% OF THE ELIGIBLE PROFITS RELYING UPON THE DECISION OF THE ITAT CHANDIGARH BE NCH IN 6 THE CASE OF HYCRON ELECTRONICS LTD. ( SUPRA) IN THI S REGARD. THE ITAT IN ITS ORDER HAS CATEGORICALLY HELD THAT T HERE CAN BE ONLY ONE INITIAL ASSESSMENT YEAR FOR UNITS ELIGI BLE FOR CLAIM OF DEDUCTION UNDER SECTION 80 IC AND THAT FOR UNITS CLAIMING INITIAL ASSESSMENT YEAR ON ACCOUNT OF SUBS TANTIAL EXPANSION UNDERTAKEN, THE SAME WAS AVAILABLE ONLY T O UNITS WHICH WERE IN EXISTENCE AS ON THE DATE OF INTRODUCTION OF THE SECTION ON THE STATUTE. THE ITA T HAS HELD THAT NEW UNDERTAKINGS, WHICH CAME INTO EXISTEN CE AFTER THE SECTION WAS BROUGHT ON THE STATUTE, WERE NOT ENTITLED TO CLAIM INITIAL ASSESSMENT YEAR ON ACCO UNT OF SUBSTANTIAL EXPANSION UNDERTAKEN BY THEM LATER ON. THE ITAT HAS ALSO HELD THAT ALL ELIGIBLE UNITS SETUP IN THE STATE OF HIMACHAL PRADESH WERE ENTITLED TO DEDUCTIO N OF PROFITS AT THE RATE OF 100% ONLY FOR THE 1 ST FIVE ASSESSMENT YEARS AND THEREAFTER FOR THE REMAINING FIVE ASSESSM ENT YEARS AT THE RATE OF 25% ONLY. 10. SINCE IN THE PRESENT CASE WE FIND THAT THE ASSESSEE HAS ALREADY EXHAUSTED ITS CLAIM OF HUNDRED PERCENT DEDUCTION OF PROFITS FOR THE 1 ST FIVE YEARS, ALSO THAT IT IS CLAIMING DEDUCTION AT THE RATE OF HUNDR ED PERCENT OF ITS PROFITS ON ACCOUNT OF SUBSTANTIAL EX PANSION UNDERTAKEN OF THE UNIT WHICH CAME INTO EXISTENCE AF TER THE SECTION WAS BROUGHT ON THE STATUTE AND WAS CLAIMING TWO INITIAL ASSESSMENT YEARS FOR THE PURPOSE OF DEDUCTI ON UNDER SECTION 80 IC,LD. CIT(A) HAS RIGHTLY HELD THA T IN VIEW OF THE DECISION OF THE ITAT, CHANDIGARH BENCH, IN THE 7 CASE OF HYCRON ELECTRONICS LTD.(SUPRA), IT WAS NOT ENTITLED TO CLAIM HUNDRED PERCENT DEDUCTION IN THE IMPUGNED YEAR. 11. IN VIEW OF THE SAME WE UPHOLD THE ACTION OF TH E LD. CIT(A) IN RESTRICTING THE DEDUCTION UNDER SECTI ON 80 IC TO THE EXTENT OF 25% OF THE ELIGIBLE PROFITS OF THE ASSESEE. 12. GROUND NO. 2 TO 6 RAISED BY THE ASSESSEE ARE THEREFORE DISMISSED. 13. IN GROUND NO. 7 THE ASSESSEE HAS CHALLENGED TH E ACTION OF THE LD. CIT( A) IN UPHOLDING THE ORDER O F THE LD. ASSESSING OFFICER IN REDUCING THE ELIGIBLE PROFITS FOR DEDUCTION UNDER SECTION 80 IC BY A SUM OF RS. 15 LA KHS ON ACCOUNT OF TECHNICAL KNOW-HOW SERVICES RENDERED BY ITS PARTNER. 14. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DUR ING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOT ICED THAT THE ASSESSEE WAS USING TECHNICAL KNOW-HOW OF M /S OPTIMA DIAMOND TOOLS PVT. LTD., WHICH WAS AN ASSOCI ATE CONCERN OF THE ASSESSEE, BUT NO PAYMENT/COMPENSATIO N WAS BEING PAID FOR THE SAME. THE SAME WAS CONFRONTE D TO THE ASSESSEE ,WHO SUBMITTED THAT TECHNOLOGY HAD BEE N DEVELOPED BY MR. RAJESH G SAMPAT, WHO WAS A DIRECTO R IN M/S OPTIMA DIAMOND TOOLS PVT. LTD AND A PARTNER IN THE ASSESSEE FIRM. THE ASSESSEE SUBMITTED THAT THE TECH NOLOGY WAS PROVIDED IN THE INITIAL YEARS AND 5 YEARS HAD P ASSED SINCE THE SETTING UP OF THE UNIT. THE PRODUCTION HA D ALREADY STABILISED AND NO NEW TECHNOLOGY HAD BEEN 8 PROVIDED BY MR RAJESH SAMPAT IN THE IMPUGNED ASSESSMENT YEAR. THE ASSESSEE SUBMITTED THAT SH. RA JESH SAMPAT HAD BEEN PROVIDING TECHNOLOGY TO M/S OPTIMA DIAMOND TOOLS PVT. LTD ALSO AND THAT THE TECHNICAL KNOW- HOW DID NOT BELONG TO M/S OPTIMA DIAMOND TOOLS PVT . LTD BUT TO MR. RAJESH SAMPAT THE MANAGING PARTNER OF TH E ASSESSEE FIRM. THE AO AFTER CONSIDERING THE ASSESSE ES REPLY HELD THAT IDENTICAL ISSUE HAD BEEN TAKEN IN E ARLIER YEAR ALSO WHEREIN THE PROFITS WERE REDUCED TO THE EXTENT OF RS.15 LAKH ON ACCOUNT OF TECHNICAL KNOW-HOW SERV ICE RENDERED BY ITS PARTNER FOR THE ASSESSEE FIRM AND MAINTAINING CONSISTENCY HE REDUCED THE PROFITS OF THE CURRENT YEAR ALSO TO THE SAME EXTENT AND TREATED TH E SAME AS INCOME FROM OTHER SOURCES. 15. AGGRIEVED BY THE SAME THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) WHO UPHELD THE ORDER O F THE AO HOLDING THAT SINCE PRODUCTION WAS CONTINUING DUR ING THE YEAR AND KNOW-HOW WAS BEING CONTINUOUSLY USED A ND SAID EXPENSES WERE ADMITTEDLY REQUIRED TO BE PAID I N THE PRECEDING YEAR ALSO, THE SAME SITUATION EXISTED IN THE YEAR UNDER CONSIDERATION. LD. CIT(A) HELD THAT THE ADDI TION MADE IN THE PRECEDING YEARS WAS ACCEPTED BY THE ASS ESSEE AND THE APPEAL OF THE ASSESSEE CHALLENGING THE SAME HAD BEEN DISMISSED BOTH BY THE CIT(A) AND THE IT AT. CONSIDERING THE SAME LD. CIT(A) DISMISSED THE ASSE SSEES APPEAL ON THIS ISSUE. 9 16. BEFORE US LD. COUNSEL FOR THE ASSESSEE RELIED UPON SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND STATED THAT NO PAYMENT ON ACCOUNT OF TECHNICAL KNOW -HOW HAD BEEN MADE BY THE ASSESSEE DURING THE YEAR AT AL L AND MOREOVER FIVE YEARS HAD ELAPSED SINCE THE COMMENCEM ENT OF PRODUCTION AND THE PRODUCTION HAD STABILISED AND IN ANY CASE THERE WAS NO NEED TO MAKE ANY PAYMENT ON ACCOUNT OF USE OF TECHNICAL KNOW-HOW AT ALL. LD. CO UNSEL FOR THE ASSESSEE CONTENDED THAT THERE WAS NO ADMITT ANCE AT ALL OF PAYMENT OF THE SAME IN THE IMPUGNED YEAR AND THEREFORE THE DECISION RENDERED IN THE PRECEDING YE AR IN THE CASE OF THE ASSESSEE COULD NOT BE FOLLOWED. 17. LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 18. HAVING HEARD THE RIVAL CONTENTIONS, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). IT IS NOT IN DISPUTE THAT IN THE PRECEDING YEAR IDENTICAL ISSUE HAD ARIS EN AND THE REDUCTION OF PROFITS TO THE EXTENT OF 15 LAKHS ON ACCOUNT OF TECHNICAL KNOW-HOW FEES PAID TO THE PART NER WAS ACCEPTED BY THE ASSESSEE AND UPHELD IN APPEAL B OTH BY THE CIT(A) APPEAL AND THE IT AT. HAVING ACCEPTED THE PAYMENT OF TECHNICAL KNOW-HOW IN THE PRECEDING YEAR AND HAVING NOT BROUGHT ON RECORD ANY EVIDENCE TO THE FA CT THAT THE FEES WERE REQUIRED TO BE PAID ONLY IN THE PRECE DING ASSESSMENT YEARS AND NOT IN THE IMPUGNED ASSESSMENT YEAR, WE FIND NO REASON TO DISTURB THE ORDER OF THE CIT(A) ON THIS ASPECT. EVEN OTHERWISE THE ASSESSEE HAS FAILED 10 TO ADDUCE ANY EVIDENCE OR ARGUMENT BEFORE US TO CONTROVERT THE FINDINGS OF THE LD IT CIT(A) TO THIS EFFECT. 19. IN VIEW OF THE SAME WE UPHOLD THE ORDER OF THE LD. CIT(A) RESTRICTING THE DEDUCTION OF THE ELIGIBL E PROFITS, FOR CLAIMING DEDUCTION UNDER SECTION 80 IC, TO THE EXTENT OF RS.15 LAKHS ON ACCOUNT OF TECHNICAL KNOW-HOW FEE S PAID 20. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE I S THEREFORE DISMISSED. 21. IN EFFECT THE APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9 TH NOVEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH