D.C.I.T. RG. 9(1), MUMBAI V. M/S. BILL POWER LTD., MUMBAI

ITA 5980/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7778 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANALALCHAND; MRS VANDANA SAGAR
• Assessee Lawyers: R C JAIN
• Section: 80IB

Judgement Text

IN T0HE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. MANMOHAN, VP AND SHRI T.R. SOOD, A M I.T.A. NO. 5980/MUM/2008 ASSESSMENT YEAR: 2005-06 DY. COMMISSIONER OF INCOME-TAX, RANGE 9(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI.400 020 VS. M/S. BILPOWER LTD., 201-204, VIKAS CHAMBERS, JUNCTION OF LINK & MARVE ROAD, MALAD EAST, MUMBAI 400 064. PAN: AAACE 1316 J (APPELLANT) (RESPONDENT) APPELLANT BY :: S/SHRI S.S. RANA, LAL CHAND & MRS. VANDANA SAGAR RESPONDENT BY :: SHRI R.C. JAIN O R D E R PER T.R. SOOD (AM): IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GR OUNDS: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS . 83,293/- MADE BY THE ASSESSING OFFICER U/S.36(1)(III) OF THE I.T.ACT, 19 61 WITHOUT APPRECIATING THE FACTS THAT THE ASSESSEE FAILED TO ESTABLISH THA T NO INTEREST ELEMENT HAS GONE TO THE CAPITAL WORK-IN-PROGRESS. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE A SSESSEE IS ENTITLED TO DEDUCTION U/S.80IB OF THE I.T.ACT, 1961 IN RESPECT OF KARAD UNIT OF THE UNDERTAKING WITHOUT APPRECIATING THAT IT HAS NOT CO MPLIED WITH THE PROVISIONS CONTAINED IN SECTION 80IB(2) OF THE I.T. ACT, AS THE OLD AND USED MACHINERY WORTH RS.52,33,000/- (WORKED OUT TO 84% OF THE VALUE OF TOTAL PLANT & MACHINERY IN THE SCHEDULE TO THE FIXE D ASSETS IN RESPECT OF KARAD UNIT) TRANSFERRED FROM AMLI UNIT FORMED THE P ART OF PLANT AND MACHINERY OF KARAD UNIT REFLECTED IN THE SCHEDULE O F FIXED ASSETS OF KARAD UNIT AS OLD AND USED ASSETS. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED ON FACTS IN LAW IN HOLDING THAT THE ASSES SEE IS ENTITLED TO DEDUCTION U/S.80IB IN RESPECT OF KARAD UNIT AS THE ASSESSING OFFICER FAILED TO BRING ON RECORDS MATERIALS TO SHOW THAT THE OLD MACHINES WERE BROUGHT FROM OTHER UNITS AND USED FOR PRODUCTION AT KARAT U NIT. 4. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DIRECTING THE ASSE SSING OFFICER TO ALLOW DEDUCTION U/S.80IB ON SALE OF SCRAPS WITHOUT APPREC IATING THAT THE INCOME ITA NO.5980/M/08 M/S. BILL POWER LTD. 2 ON SALE OF SCRAPS CANNOT BE SAID TO BE DERIVED FROM INDUSTRIAL UNDERTAKING ENGAGED IN MANUFACTURING AND PRODUCTION OF ARTICLE OR THING. 2. AS FAR AS GROUND NO. 1, AFTER HEARING BOTH THE PART IES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAD MADE CLAIM FOR FINANCIAL EXPENSE AND THEREFORE PROPOSED THAT WHY P ROPORTIONATE AMOUNT OF SUCH FINANCIAL EXPENSES SHOULD NOT BE ADDED TOWARDS CAPITAL WORK-I N-PROGRESS. AS NO EXPLANATION WAS GIVEN, HE ADDED 15% OF THE AMOUNT TOWARDS WORK-IN-P ROGRESS. THE LEARNED CIT(A) DECIDED THE ISSUE VIDE PARAS 2.3 AND 2.4 WHICH ARE AS UNDER : 2.3 WITHOUT PREJUDICE, THE APPELLANT SUBMITTED TH AT OUT OF TOTAL CAPITAL WORK IN PROGRESS OF RS.5,55,284/-, ENTIRE AMOUNT OF RS. 5,5 5,284/- WAS AN OPENING BALANCE AS ON 1 ST APRIL, 2004 AND NOTHING WAS SPENT DURING THE YEAR ON CWIP. HENCE, INTEREST PAID ON CURRENT YEARS BORROWING SHOULD NOT BE DISA LLOWED FOR PREVIOUS YEARS UTILIZATION. 2.4 I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS OF THE CASE, APPELLANTS SUBMISSION AS WELL AS AOS CONTENTION. BESIDES, THE FACT THAT TH E ASSESSEES OWN FUND IS MORE THAN THE BORROWED FUND, IT IS ALSO OBSERVED THAT THE ENT IRE AMOUNT OF CWIP WAS AN OPENING BALANCE AS ON 1 ST APRIL, 2004 AND NOTHING WAS SPENT DURING THE YEAR ON CWIP, THEREFORE, AO IS NOT JUSTIFIED IN MAKING ADDI TION U/S.36(1)(III) OF THE ACT R.W. EXPLANATION. THIS GROUND OF APPEAL IS ALLOWED. 3. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E RELIED ON THE GROUND OF APPEAL. 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE TRIBUNAL HAD DECIDED THIS ISSUE IN THE ASSESSMENT YEARS 199 9-2000 & 2004-05 AND PLACED ON RECORD A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NOS.3179 & 3180/MUM/08 AND INVITED OUR ATTENTION TO PARA 7 OF THE SAID ORDER. IN ANY CASE, THERE IS NO ADDITION TO THE WORK-IN- PROGRESS TO THE ASSESSMENT YEAR IN APPEAL AND, THER EFORE, THE DELETION OF THE ADDITION MADE BY THE CIT(A) IS JUSTIFIED. 5. AFTER CONSIDERING THE SUBMISSIONS CAREFULLY, WE FIND THAT IN THE ASSESSMENT YEAR 2004-05, THE TRIBUNAL OBSERVED VIDE PARA 7 AS UNDER : AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A ). THE LD. CIT(A) HAS CONSIDERED THE ASPECT THAT INTEREST FREE BORROWINGS WERE MUCH MORE THAN THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE. IT IS FURTHER SEEN BY CIT(A) THAT SIMILAR DISALLOWANCES WERE MADE FOR AY 1996-97 AND AY 2004-05 WHICH WERE DELET ED BY THE CIT(A), HOWEVER NOTHING HAS BEEN BROUGHT ON RECORD THAT THE DEPARTM ENT HAS FILED APPEAL BEFORE THE TRIBUNAL FOR AY 1996-97. FOR AY 2004-05, THE DEPART MENT FILED APPEAL BEFORE THE TRIBUNAL, HOWEVER, NO SUCH GROUND HAS BEEN TAKEN FO R THAT YEAR. IN VIEW OF THESE ITA NO.5980/M/08 M/S. BILL POWER LTD. 3 FACTS AND CIRCUMSTANCES, WE HOLD THAT THE LD. CIT(A ) WAS JUSTIFIED IN DELETING THE ADDITION; ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO. 6. THUS, IT IS CLEAR THAT THE ADDITION WHICH WAS B ASED ON THE ASSESSMENT YEAR 2004-05 WAS DELETED BY THE FIRST APPELLATE AUTHORITY WAS NO T CHALLENGED BY THE DEPARTMENT. IN ANY CASE, THERE IS NO ADDITION TO THE CAPITAL WORK-IN-P ROGRESS DURING THE YEAR AS IS EVIDENT FROM PARAS 2.3 AND 2.4 OF THE ORDER OF THE FIRST APPELLA TE AUTHORITY, WE ARE INCLINED TO INTERFERE WITH THE ORDER OF THE FIRST APPELLATE AUTHORITY. G ROUND NO.1 IS THEREFORE, DISMISSED. 7. AS FAR AS GROUND NOS.2 & 3, AFTER HEARING BOTH T HE PARTIES, WE FIND THAT THE DISPUTE IS REGARDING DENIAL OF DEDUCTION U/S.80IB. THE DED UCTION WAS DENIED BY THE ASSESSING OFFICER BECAUSE PLANT AND MACHINERY OF AMLI UNIT WE RE TRANSFERRED TO KARAD UNIT FORM PART OF PLANT AND MACHINERY OF KARAD UNIT AND THUS PROPORTI ON OF OLD MACHINERY WOULD INCREASE. 8. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON BY OBSERVING THAT IN THE CASE OF ITO VS. LAXMI PACKERS, THE D BENCH OF THE MUMBAI TRIBUNAL VIDE ITS ORDER DATED 23.02.2007 HELD THAT THE ASSESSEE SHOULD NOT BE USING ANY OLD MACHINERY AT THE TIME OF THE COMMENCEMENT OF PRODUCTION IN THE NEW UNIT. ANY SUB SEQUENT ACQUISITION OF MACHINERIES, WHETHER OLD OR NEW, DOES NOT CALL FOR SATISFACTION OF REQUIREMENT OF CONDITIONS SET OUT IN CLAUSE (II) OF SECTION 80IB(2). THE LEARNED CIT(A) MADE THE FOLLOWING OBSERVATIONS AT PAGES 5 & 6: THE APPELLANTS CONTENTION IS ALSO SUPPORTED BY TH E JUDICIAL ITAT DECISION IN THE CASE OF ITO VS. LAXMI PACKERS (SUPRA) WHEREIN, THE HONBLE ITAT HAS HELD THAT THE ASSESSEE SHOULD NOT BE USING ANY OLD MACHI NERY AT THE TIME OF COMMENCEMENT OF PRODUCTION IN THE NEW UNIT. ANY SUB SEQUENT ACQUISITION OF MACHINERIES WHETHER OLD OR NEW DOES NOT CALL FOR SA TISFACTION OF REQUIREMENT OF CONDITIONS SET OUT IN CLAUSE (II) OF SECTION 80I B(2). IN THE APPELLANTS CASE UNDER CONSIDERATION, IT IS ON RECORD THAT KARAD UNI T HAD STARTED ITS MANUFACTURING ACTIVITY IN A.Y. 2002-03. THE AMLI UN IT HAD ALSO STATED ITS MANUFACTURING ACTIVITY SINCE 1996-97 AND BOTH THE U NITS WERE CONSISTENTLY CLAIMING DEDUCTION U/S.80IB SIMULTANEOUSLY, THEREF ORE, IT CANNOT BE HELD THAT THE KARAD UNIT WAS FORMED AS A RESULT OF SUCH TRANS FER FROM AMLI UNIT. CONSIDERING THE PROPOSITION OF THE JUDGMENT IT IS C LEAR THAT THE BENEFICIAL PROVISIONS SHOULD BE LIBERALLY CONSTRUED AND THAT T HE SAME SHOULD BE DONE IN A MANNER WHICH ADVANCE THE OBJECT AND PURPOSE OF SU CH PROVISION AS AGAINST FRUSTRATE THE SAME. IN THE INSTANT CASE MERELY BEC AUSE THE ISSUE IN THE ORDINARY COURSE OF COMMERCIAL DECISION KEEPING IN M IND THE OBJECT AND PURPOSE OF THE PROVISIONS HE WOULD NOT HAVE DISALL OWED SUCH CLAIM MERELY ON SUCH FLIMSY GROUND. HOWEVER, DEDUCTION MIGHT HAVE BEEN DISALLOWED IF THE AO HAD BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT SUCH MACHINES WERE USED FOR PRODUCTION PROCESS IN KARAD UNIT. THUS IN ABSENCE OF ANY MATERIAL BROUGHT ON RECORD DISALLOWANCE MADE BY THE AO CANNO T BE ACCEPTED SINCE IN ITA NO.5980/M/08 M/S. BILL POWER LTD. 4 MY CONSIDERED VIEW MERELY STORING MACHINES IN NO WA Y VIOLATES THE PROVISIONS OF SECTION 80IB AND HENCE NO ADVERSE VIEW BE TAKEN AS SUCH. THUS CONSIDERING THE OVERALL FACTS OF THE CASE AO IS DIR ECTED TO ALLOW THE DEDUCTION U/S.80IB IN RESPECT OF PROFIT OF KARAD UNIT. THIS G ROUND OF APPEAL IS ALLOWED. 9. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E RELIED ON THE GROUNDS OF APPEAL AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 10. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 3179 AND 3180/M/08 DECIDED ON 9 TH SEPT., 2009 AND REFERRED TO PARA 3 OF THE SAID ORDER AS UNDER: AFTER CONSIDERING THE ORDERS OF THE AUTHORITIES BE LOW AND THE ORDER OF THE TRIBUNAL, WE FIND THAT SIMILAR ADDITIONS WERE MADE FOR AY 2001-02 WHILE REDUCING THE DEDUCTION U/S.80IB/80IA. THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISIONS O F THE HONBLE MADRAS HIGH COURT IN THE CASE OF FENNER (INDIA) LTD. IN 241 ITR 803 AND IN THE CASE OF SUNDARAM INDUSTRIES LTD. IN 253 ITR 376 WHEREBY IT HAS BEEN HELD THAT INCOME FROM SALE OF SCRAP IS ALSO INCOME FROM INDUS TRIAL UNDERTAKING WHICH IS ELIGIBLE FOR DEDUCTION U/S.80IB. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREF ULLY AND FIND THAT THE ASSESSING OFFICER OBSERVED IN PARA 6.1 AS UNDER: THE ASSESSEE HAS NOT FURNISHED ANY COGENT REASON A S TO WHY THIS PLANT AND MACHINERY SHOULD NOT BE TREATED AS HAVING BEEN USED IN ANY BUSINESS EARLIER TO THE SAME FORMING PART OF THE PLANT AND M ACHINERY OF THE ASSESSEES KARAD UNIT. THE MERE FACT THAT THE PLANT AND MACHINERY REMAINED UNINSTALLED IN THE HANDS OF AMLI UNIT AND SO IT REMAINED IN THE HANDS OF THE ASSESSEES KARAD UNIT IS NOT ENOUGH JU STIFICATION TO OVERCOME THE RESTRICTION PLACED IN SECTION 80IB(2) READS WIT H EXPLANATION 1 & 2 THERE BELOW. 12. FROM THE UNDERLINED PORTION, IT IS CLEAR THAT E VEN ACCORDING TO THE ASSESSING OFFICER THE SAID PLANT AND MACHINERY OF AMLI UNIT REMAINED UNINSTALLED. THEREFORE, THERE IS NO REASON TO CONSIDER THE SAME AS PART OF THE PLANT AN D MACHINERY USED FOR INDUSTRIAL UNDERTAKING. IN ANY CASE, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN EARLIER ASSESSMENT YEARS VIDE PARA 3 IN ITA NOS.3179 & 3180 /MUM/08 (SUPRA). THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF THE LEARNED CIT(A) AND CONFIRM THE SAME. ITA NO.5980/M/08 M/S. BILL POWER LTD. 5 13. AS FAR AS THE ISSUE REGARDING DEDUCTION U/S.80I B ON SCRAP SALE IS CONCERNED, AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN PARA 3 OF ITA NOS. 3179 & 3180 (SUPRA). FOLLOWING THE ABOVE ORDER, WE DECIDE THE ISSUE AGAINST THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 2 ND DAY OF FEBRUARY, 2010. SD. SD. (D. MANMOHAN) (T.R. SOOD ) VICE-PRESIDENT ACCOUNTANT MEMBR MUMBAI, DATED THE 2 ND FEBRUARY, 2010. KN COPY TO: 1. THE ASSESSEE. 2. THE DCIT,RAGE 9(1), MUIMBAI 3. THE CIT-IX, MUMBAI 4. THE CIT(A)-IX, MUMBAI 5. THE DR, B BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, I.T.A.T.MUMBAI